# Cabot Corp: Form 10-Q for the period ended Dec 31, 2022

- Company: [Cabot Corp](/companies/cbt.md) (CIK 16040)
- Form: 10-Q
- Filed: 2023-02-09
- Accepted by EDGAR: Feb 9, 2023, 16:13 ET
- Period: 2022-12-31
- Accession: 0000950170-23-002340
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/16040/000095017023002340/cbt-20221231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/16040/000095017023002340/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $965.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-10-01 to 2022-12-31 | $784.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-10-01 to 2022-12-31 | $181.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-10-01 to 2022-12-31 | $13.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-10-01 to 2022-12-31 | $60.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | $105.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-10-01 to 2022-12-31 | $22.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | $20.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | $54.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.93 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-31 | $0.94 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 56,700,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-10-01 to 2022-12-31 | $52.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-10-01 to 2022-12-31 | $35.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2022-10-01 to 2022-12-31 | $21.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2022-10-01 to 2022-12-31 | $17.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-12-31 | $190.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-31 | $1.80bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $3.54bn | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $984.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2022-12-31 | $1.09bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-12-31 | $7.0m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2022-12-31 | $312.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-12-31 | $1.01bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,952 characters.

### Critical Accounting Policies

Our critical accounting policies have not substantially changed from those described in the 2022 10-K.

### Recently Issued Accounting Pronouncements

Refer to the discussion under the heading “Recent Accounting Pronouncements” in Note B of our Notes to the Consolidated Financial Statements.

### Results of Operations

The Company has two reportable segments: Reinforcement Materials and Performance Chemicals. The Company’s former Purification Solutions business was a separate reporting segment prior to divestiture in the second quarter of fiscal 2022. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific. The discussion of our results of operations for the periods presented reflects these structures.

Our analysis of our financial condition and operating results should be read with our consolidated financial statements and accompanying notes.

### Definition of Terms and Non-GAAP Financial Measures

When discussing our results of operations, we use several terms as described below.

The term “product mix” refers to the mix of types and grades of products sold or the mix of geographic regions where products are sold, and the positive or negative impact this has on the revenue or profitability of the business and/or segment.

Our discussion under the heading “(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate” includes a discussion and reconciliation of our “effective tax rate” and our “operating tax rate” for the periods presented, as well as management’s projection of our operating tax rate range for the full fiscal year. Our operating tax rate is a non-GAAP financial measure and should not be considered as an alternative to our effective tax rate, the most comparable GAAP financial measure. The operating tax rate is calculated based upon management's forecast of the annual operating tax rate for the fiscal year applied to adjusted pre-tax earnings. The operating tax rate excludes income tax (expense) benefit on certain items, discrete tax items and, on a quarterly basis the timing of losses in certain jurisdictions. The income tax (expense) benefit on certain items is determined using the applicable rates in the taxing jurisdictions in which the certain items occurred and includes both current and deferred income tax (expense) benefit based on the nature of the certain items. Discrete tax items include, but are not limited to, changes in valuation allowance, uncertain tax positions, and other tax items, such as the tax impact of legislative changes and tax accruals on historic earnings due to changes in indefinite reinvestment assertions. Our definition of the operating tax rate may not be comparable to the definition used by other companies. Management believes that this non-GAAP financial measure is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and to understand what our tax rate on current operations would be without the impact of these items.

Our discussion under the heading “First Quarter of Fiscal 2023 versus First Quarter of Fiscal 2022—By Business Segment” includes a discussion of Total segment EBIT, which is a non-GAAP financial measure defined as Income (loss) before income taxes and equity in earnings from affiliated companies less certain items and other unallocated items. Our Chief Operating Decision Maker, who is our President and Chief Executive Officer, uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe Total segment EBIT, which reflects the sum of EBIT from our reportable segments, provides useful supplemental information for our investors as it is an important indicator of our operational strength and performance, allows investors to see our results through the eyes of management, and provides context for our discussion of individual business segment performance. Our definition of Total segment EBIT may not be comparable to the definition used by other companies and it should not be considered an alternative for Income (loss) before income taxes and equity in earnings of affiliated companies, which is the most directly comparable GAAP financial measure. A reconciliation of Total segment EBIT to Income (loss) before income taxes and equity in earnings of affiliated companies is provided under the heading “First quarter of Fiscal 2023 versus First quarter of Fiscal 2022—By Business Segment”. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another.

In calculating Total segment EBIT, we exclude from our Income (loss) before income taxes and equity in earnings of affiliated companies (i) items of expense and income that management does not consider representative of our fundamental on-going segment results, which we refer to as “certain items”, and (ii) items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to special projects and initiatives, which we refer to as “other unallocated items”. Management believes excluding the items identified as certain items facilitates operating performance comparisons from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis and also facilitates an evaluation of our operating performance without the impact of these costs or benefits. The items of income and expense that we exclude from Total segment EBIT but that are included in our GAAP Income (loss) before income taxes and equity in earnings of affiliated companies, as applicable in a particular reporting period, include, but are not limited to, the following:

- Asset impairment charges, which primarily include charges associated with an impairment of goodwill, other long-lived assets or assets held for sale.
- Charges related to the divestiture of our Purification Solutions business, which include accelerated costs associated with the change in control and employee incentive compensation.
- Legal and environmental reserves and matters, which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business.
- Global restructuring activities, which include costs or benefits associated with cost reduction initiatives or plant closures and are primarily related to (i) employee termination costs, (ii) asset impairment charges associated with restructuring actions, (iii) costs to close facilities, including environmental costs and contract termination penalties, and (iv) gains realized on the sale of land or equipment associated with restructured plants or locations.
- Acquisition and integration-related charges, which include transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes.
- Indirect tax settlement credits, which includes favorable settlements resulting in the recoveries of indirect taxes.
- Gains (losses) on sale of a business.
- Employee benefit plan settlements, which consist of either charges or benefits associated with the termination of a pension plan or the transfer of a pension plan to a multi-employer plan.
- Gain associated with the bargain purchase of a business.
- Gain realized on the sale of land.

### Overview

During the first quarter of fiscal 2023, Income (loss) before income taxes and equity in earnings of affiliated companies increased compared to the first quarter of fiscal 2022. The increase was driven by an impairment charge related to the divestiture of Purification Solutions of $197 million in fiscal 2022 that did not repeat in fiscal 2023, partially offset by decreased earnings in the fiscal 2023 period in our Performance Chemicals segment.

### First quarter of Fiscal 2023 versus First quarter of Fiscal 2022—Consolidated

#### Net Sales and Other Operating Revenues and Gross Profit

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Net sales and other operating revenues | $965 | $968 |
| Gross profit | $181 | $198 |

The $3 million decrease in net sales and other operating revenues in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was driven by the unfavorable impact from foreign currency translation ($73 million), the divestiture of our Purification Solutions business ($61 million), and lower volumes ($42 million). These decreases were largely offset by favorable price and product mix (combined $177 million), across our Reinforcement Materials and Performance Chemicals segments.

Gross profit decreased by $17 million in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. The decrease was primarily due to lower volumes and higher fixed costs partially offset by higher unit margins.

#### Selling and Administrative Expenses

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Selling and administrative expenses | $60 | $71 |

Selling and administrative expenses decreased by $11 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022, primarily due to costs associated with the Purification Solutions business in fiscal 2022 that did not reoccur in fiscal 2023.

#### Research and Technical Expenses

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Research and technical expenses | $13 | $13 |

Research and technical expenses remained flat in the first quarter of fiscal 2023 compared to the same period of fiscal 2022.

#### Interest and Dividend Income, Interest Expense and Other Income (Expense)

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Interest and dividend income | $6 | $3 |
| Interest expense | $(22) | $(12) |
| Other income (expense) | $(5) | $(1) |

Interest and dividend income increased by $3 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022, primarily due to higher interest rates.

Interest expense increased by $10 million in the first quarter of fiscal 2023, as compared to the same period of fiscal 2022, primarily due to higher interest rates on borrowings under our commercial paper program and on the unsecured notes we issued in June 2022.

Other expense increased by $4 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022, primarily due to foreign currency losses on the revaluation of our balance sheet exposures, primarily in Argentina.

#### (Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate

*Dollars in millions*

|  | Three Months Ended December 31 2022 (Provision) / Benefit for Income Taxes | Rate | 2021 (Provision) / Benefit for Income Taxes | Rate |
| --- | ---: | ---: | ---: | ---: |
| Effective tax rate | $(20) | 24% | $12 | 13% |
| Less: Non-GAAP tax adjustments(1) | 1 |  | 42 |  |
| Operating tax rate | $(21) | 25% | $(30) | 27% |

(1) Non-GAAP tax adjustments made to arrive at the operating tax provision include the income tax (expense) benefit on certain items, discrete tax items, and, on a quarterly basis, the timing of losses in certain jurisdictions, as further described above under the heading “Definition of Terms and Non-GAAP Financial Measures”.

For the three months ended December 31, 2022, the (Provision) benefit for income taxes was a provision of $20 million compared to a $12 million benefit for the same period in 2021, primarily due to higher earnings in the current period and the non-recurring nature of an impairment charge related to the divestiture of the Purification Solutions business. Our income taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and by the presence of valuation allowances in certain tax jurisdictions.

For fiscal 2023, the Operating tax rate is expected to be in the range of 24% to 26%. We are not providing a forward-looking reconciliation of the operating tax rate range with an effective tax rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on the effective tax rate in future periods.

We regularly evaluate the realizability of our net deferred tax assets. As of December 31, 2022, substantially all our U.S. deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances. There is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to reach a conclusion that all or a significant portion of the valuation allowances will no longer be required. Such a release would result in a material non-cash income tax benefit in our Consolidated Statement of Operations in the period of release and the recording of additional deferred tax assets on our Consolidated Balance Sheet.

#### Net Income (Loss) Attributable to Noncontrolling Interests

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Equity in earnings of affiliated companies, net of tax | $2 | $1 |
| Net income (loss) attributable to noncontrolling interests, net of tax | $12 | $9 |

Equity in earnings of affiliated companies, net of tax, increased by $1 million in the first quarter of fiscal 2023, compared to the same period of fiscal 2022 primarily due to higher profitability at our equity affiliates in India and Venezuela.

Net income (loss) attributable to noncontrolling interests, net of tax, increased by $3 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022 primarily due to higher profitability of our joint venture in the Czech Republic.

### Net Income Attributable to Cabot Corporation

In the first quarter fiscal 2023, we reported Net income (loss) attributable to Cabot Corporation of $54 million, or $0.93 per diluted common share. This compares to Net income (loss) attributable to Cabot Corporation of ($89) million, or ($1.57) per diluted common share, in the first quarter of fiscal 2022. The higher net income in the first quarter of fiscal 2023 compared with the same period in fiscal 2022 is primarily due to an impairment charge associated with the divestiture of Purification Solutions in fiscal 2022 that did not reoccur in fiscal 2023.

### First quarter of Fiscal 2023 versus First quarter of Fiscal 2022—By Business Segment

Income (loss) before income taxes and equity in earnings of affiliated companies, certain items, other unallocated items, and Total segment EBIT for the three months ended December 31, 2022 and 2021 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note L of our Notes to the Consolidated Financial Statements.

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Income (loss) before income taxes and equity in earnings of affiliated companies | $84 | $(93) |
| Less: Certain items | (4) | (204) |
| Less: Other unallocated items | (35) | (26) |
| Total segment EBIT | $123 | $137 |

In the first quarter of fiscal 2023, Income (loss) before income taxes and equity in earnings of affiliated companies increased by $177 million and Total segment EBIT decreased by $14 million. The increase in Income (loss) before income taxes and equity in earnings of affiliated companies was largely driven an impairment charge of $197 million related to the sale of the Purification Solutions business in fiscal 2022 that did not reoccur in fiscal 2023. The decrease in Total segment EBIT was driven by lower volumes in both the Reinforcement Materials and Performance Chemicals segments (combined $21 million). The lower volumes in the first quarter of fiscal 2023 were driven by year-end customer destocking and the impact of COVID-19 outbreaks in China.

#### Certain Items

Details of the certain items for the three months ended December 31, 2022 and 2021 are as follows:

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Gain on sale of land | 1 | — |
| Loss on sale of business and asset impairment charge (Note D) | (3) | (197) |
| Legal and environmental matters and reserves | (1) | (1) |
| Acquisition and integration-related charges | (1) | (1) |
| Divestiture related charges | — | (4) |
| Global restructuring activities | — | (2) |
| Other | — | 1 |
| Total certain items, pre-tax | (4) | (204) |
| Non-GAAP tax adjustments | 1 | 42 |
| Total certain items, after tax | $(3) | $(162) |

#### Other Unallocated Items

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Interest expense | $(22) | $(12) |
| Unallocated corporate costs | (15) | (14) |
| General unallocated income (expense) | 4 | 1 |
| Less: Equity in earnings of affiliated companies, net of tax | 2 | 1 |
| Total other unallocated items | $(35) | $(26) |

A discussion of items that we refer to as “other unallocated items” can be found under the heading “Definition of Terms and Non-GAAP Financial Measures”. The balances of unallocated corporate costs are primarily comprised of expenditures related to managing a public company that are not allocated to the segments and corporate business development costs related to ongoing corporate projects. The balances of General unallocated income (expense) consist of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, the profit or loss related to the corporate adjustment for unearned revenue and unrealized holding gains (losses) for investments.

### Reinforcement Materials

Sales and EBIT for Reinforcement Materials for the first quarter of fiscal 2023 and 2022 were as follows:

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Reinforcement Materials Sales | $643 | $563 |
| Reinforcement Materials EBIT | $94 | $85 |

Sales in Reinforcement Materials increased by $80 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022, primarily due to a favorable price and product mix (combined $161 million), partially offset by the unfavorable impact from foreign currency translation ($51 million) and lower volumes ($28 million). The favorable price and product mix was primarily due to favorable 2022 calendar year customer agreements. The lower volumes in the first quarter of fiscal 2023 were driven by year-end customer destocking and the impact of COVID-19 outbreaks in China.

EBIT in Reinforcement Materials in the first quarter of fiscal 2023 increased by $9 million compared to the same period of fiscal 2022. During the first quarter of fiscal 2023, the segment had higher unit margins ($36 million) partially offset by 5% lower volumes ($10 million), higher fixed costs ($11 million) and the unfavorable impact from foreign currency exchange ($5 million). The higher unit margins were primarily driven by favorable pricing and product mix in the 2022 calendar year customer agreements. The lower volumes in the first quarter of fiscal 2023 were driven by year-end customer destocking and the impact of COVID-19 outbreaks in China. The higher fixed costs were primarily due to increased costs associated with utilities and maintenance.

As we look to the second quarter of the fiscal year, we expect margins to improve based on favorable pricing and product mix in the 2023 calendar year customer agreements. We also expect an increase in fixed manufacturing costs from higher inflationary impacts on our costs, including higher maintenance costs as a result of scheduled annual turnaround activities.

### Performance Chemicals

Sales and EBIT for Performance Chemicals for the first quarter of fiscal 2023 and 2022 were as follows:

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Performance Chemicals Sales | $286 | $306 |
| Performance Chemicals EBIT | $29 | $52 |

Sales in Performance Chemicals decreased by $20 million in the first quarter of fiscal 2023 compared to the same period of fiscal 2022, primarily due to the unfavorable impact from foreign currency translation ($22 million) and lower volumes ($13 million), partially offset by favorable price and product mix (combined $16 million). The favorable price and product mix was due to increased pricing to recover rising input costs across the segment. The lower volumes in the first quarter of fiscal 2023 were driven by year-end customer destocking, demand softness in key end market such as construction, and the impact of COVID-19 outbreaks in China.

EBIT in Performance Chemicals decreased by $23 million in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 primarily due to lower volumes ($11 million), higher fixed costs ($8 million) and the unfavorable impact from foreign currency exchange ($4 million). The lower volumes in the first quarter of fiscal 2023 were driven by year-end customer destocking, demand softness in key end markets such as construction, and the impact of COVID-19 outbreaks in China. Higher fixed costs were primarily driven by costs associated with new capacity additions and the restarting of our Pepinster, Belgium specialty compounds plant, as well as higher utility costs.

As we look ahead to the second quarter of the fiscal year, we expect that volumes will begin to recover due to an expected increase in demand across all product lines. We also expect higher fixed costs associated with our new capacity additions, as well as higher utility costs.

### Purification Solutions

Sales and EBIT for Purification Solutions for the first quarter of fiscal 2023 and 2022 were as follows:

*(In millions)*

|  | Three Months Ended December 31 2022 | 2021 |
| --- | ---: | ---: |
| Purification Solutions Sales | $— | $61 |
| Purification Solutions EBIT | $— | $— |

25

We divested the Purification Solutions business in March 2022. Refer to Note D of our Notes to the Consolidated Financial Statements.

### Liquidity and Capital Resources

### Overview

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, increased by $57 million during the first three months of fiscal 2023, which was due to a lower outstanding commercial paper balance at the end of the period. As of December 31, 2022, we had cash and cash equivalents of $190 million and borrowing availability under our revolving credit agreements of $930 million.

We have access to borrowings under the following two credit agreements:

- $1 billion unsecured revolving credit agreement (the “U.S. Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, and the other lenders party thereto, which matures in August 2026, subject to a one-year option to extend the maturity, exercisable on or prior to August 6, 2023. The U.S. Credit Agreement supports our issuance of commercial paper, and borrowings under it may be used for working capital, letters of credit and other general corporate purposes.
- €300 million unsecured revolving credit agreement (the “Euro Credit Agreement”, and together with the U.S. Credit Agreement, the “Credit Agreements”), with Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders party thereto, which matures in May 2024 or earlier if the U.S. Credit Agreement should terminate early. Borrowings under the Euro Credit Agreement may be used for the repatriation of earnings of our foreign subsidiaries to the United States, the repayment of indebtedness of our foreign subsidiaries owing to us or any of our subsidiaries and for working capital and general corporate purposes.

As of December 31, 2022, we were in compliance with the debt covenants under the Credit Agreements, which, with limited exceptions, require us to comply on a quarterly basis with a leverage test requiring the ratio of consolidated net debt to consolidated EBITDA not to exceed 3.50 to 1.00. Consolidated net debt is defined as consolidated debt offset by the lesser of (i) unrestricted cash and cash equivalents and (ii) $150 million.

A significant portion of our business occurs outside the U.S. and our cash generation does not always align geographically with our cash needs. The vast majority of our cash and cash equivalent holdings tend to be held outside the U.S. We generally use a combination of U.S. earnings, repatriation of certain foreign earnings, commercial paper issuances and borrowings under our U.S. Credit Agreement to meet our U.S. cash needs. With the exception of Argentina, which has currency controls that prevent the distribution of cash, we are generally able to move cash throughout the Company through our cash pooling structures, intercompany accounts and/or distributions, as needed. Although we repatriate certain foreign earnings, cash held by foreign subsidiaries is generally considered permanently reinvested and is used to finance the subsidiaries’ operational activities and future investments. We usually reduce our commercial paper balance and, if applicable, borrowings under our Credit Agreements, at quarter-end using cash derived from customer collections, settlement of intercompany balances and short-term intercompany loans. If additional funds are needed in the U.S., we expect to be able to repatriate cash, including cash from China, while paying any withholding or other taxes. Changes in tax laws in the U.S. or foreign countries could restrict our ability to transfer funds or impose material costs on such transfers.

As of December 31, 2022, we had $930 million of availability under our Credit Agreements. As of December 31, 2022, we had $116 million of borrowings under the Euro Credit Agreement and no outstanding borrowings under the U.S. Credit Agreement. There was $274 million of commercial paper outstanding as of December 31, 2022.

We anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from the Credit Agreements and our commercial paper program to meet our operational and capital investment needs and financial obligations for the foreseeable future. The liquidity we derive from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.

The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows.

### Cash Flows from Operating Activities

Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in income, changes in working capital and changes in certain other balance sheet accounts, totaled $52 million in the first three months of fiscal 2023 compared to $49 million of cash used by operating activities during the same period of fiscal 2022.

Cash provided by operating activities in the first three months of fiscal 2023 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $35 million, which was partially offset by an increase in net working capital of $34 million. The increase in net working capital was largely driven by a decrease in accounts payable and accrued expenses, partially offset by a decrease in accounts receivables.

Cash used by operating activities in the first three months of fiscal 2022 was driven by an increase in net working capital of $143 million. The increase in net working capital was driven by an increase in accounts receivable due to higher sales and an increase in inventory driven by a higher cost of raw materials, partially offset by an increase in accounts payable.

### Cash Flows from Investing Activities

Investing activities consumed $17 million of cash in the first three months of fiscal 2023 compared to $29 million in the first three months of fiscal 2022.

In the first three months of fiscal 2023, investing activities included $35 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as growth-related capital, including capacity expansion projects in Performance Chemicals, partially offset by proceeds from the sale of land of $7 million, proceeds from the sale of our Purification Solutions business of $6 million, and proceeds from insurance settlements of $6 million.

In the first three months of fiscal 2022, investing activities primarily included capital expenditures for sustaining and compliance capital projects at our operating facilities as well as capacity expansion capital expenditures primarily in the Performance Chemicals segment.

Capital expenditures for fiscal 2023 are expected to be approximately $300 million. Our planned capital spending program for fiscal 2023 is primarily for sustaining, compliance and improvement capital projects at our operating facilities as well as capacity expansion capital expenditures in the Performance Chemicals segment.

### Cash Flows from Financing Activities

Financing activities consumed $92 million of cash in the first three months of fiscal 2023 compared to $103 million of cash provided during the same period of fiscal 2022.

In the first three months of fiscal 2023, financing activities primarily consisted of the repayment of commercial paper of $48 million, dividend payments to stockholders of $21 million, share repurchases of $17 million, cash dividends paid to noncontrolling interests of $14 million and repayments of long-term debt of $6 million. These payments were partially offset by proceeds from short-term borrowings of $11 million and proceeds from sales of common stock of $3 million.

In the first three months of fiscal 2022, financing activities primarily consisted of issuance of commercial paper of $156 million partially offset by dividend payments to stockholders of $21 million, share repurchases of $19 million, dividend payments to noncontrolling interests of $8 million, and repayments of long-term debt of $5 million.

### Forward-Looking Information

This report on Form 10-Q contains “forward-looking statements” under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including our expectations regarding our future business performance and overall prospects, including for margins in our Reinforcement Materials segment, for volumes in our Performance Chemicals segment, and for costs in both segments; demand for our products; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit and commercial paper facilities to fund our cash requirements; anticipated capital spending; regulatory developments; cash requirements and uses of available cash, including future cash outlays associated with respirator liabilities and the timing of such outlays; amortization expenses; our operating tax rate; and the possible outcome of legal and environmental proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers.

Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from those expressed in the forward-looking statements. Importantly, as we cannot predict the duration or scope of the COVID‐19 pandemic, the negative impact to our results cannot be estimated. Factors that will influence the impact on our business and operations include the duration and extent of the pandemic, the virulence and spread of different strains of the virus and the level and timing of vaccine distribution around the world and its impact on the stability of economic recovery and growth, the degree of disruption in supply chains from global logistics matters resulting from the COVID‐19 pandemic, impacts to manufacturing operations resulting from government-imposed lockdowns, and other general economic consequences of the pandemic. Further, the COVID-19 pandemic has also contributed to increased costs and decreased availability of labor and materials for construction projects, and these factors have increased the costs of our capital improvement projects and may delay our completion of such projects.

In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in our forward-looking statements: industry capacity utilization and competition from other specialty chemical companies; safety, health and environmental requirements and related constraints imposed on our business; regulatory and financial risks related to climate change developments; volatility in the price and availability of energy and raw materials, including with respect to the Russian invasion of Ukraine; a significant adverse change in a customer relationship or the failure of a customer to perform its obligations under agreements with us; failure to achieve growth expectations from new products, applications and technology developments; failure to realize benefits from acquisitions, alliances, or joint ventures or achieve our portfolio management objectives; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations, global health matters or geo-political conflicts; litigation or legal proceedings; tax rates and fluctuations in foreign currency exchange and interest rates; our inability to complete capacity expansions or other development projects; and the accuracy of the assumptions we used in establishing reserves for our share of liability for respirator claims. These other factors and risks are discussed more fully in our 2022 10-K and in our subsequent SEC filings.

## Market risk

As filed, 148 characters.

Information about market risks for the period ended December 31, 2022 does not differ materially from that discussed under Item 7A of our 2022 10-K.

## Controls and procedures

As filed, 1,063 characters.

As of December 31, 2022, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of that date.

There were no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As permitted by the rules and regulations of the Securities and Exchange Commission, we excluded from our assessment the internal controls over financial reporting at Tokai Carbon (Tianjin) Co., which was acquired on February 28, 2022, for the period ended December 31, 2022.

Filed Feb 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-002340. Last ingested by Listed: Nov 2, 2026, 19:45 ET. No prices; not investment advice.