Cabot Corp: Form 10-Q for the period ended Jun 30, 2024

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. 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 “Third Quarter of Fiscal 2024 versus Third Quarter of Fiscal 2023—By Business Segment” includes a discussion of Total segment EBIT, which is a non-GAAP financial measure defined as Income (loss) from operations 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. Total segment EBIT should not be considered an alternative for Income (loss) from operations before income taxes and equity in earnings of affiliated companies, which is the most directly comparable U.S. GAAP financial measure. A reconciliation of Total segment EBIT to Income (loss) from operations before income taxes and equity in earnings of affiliated companies is provided under the heading “Third quarter of Fiscal 2024 versus Third quarter of Fiscal 2023—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) from operations 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 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 have excluded from

Total segment EBIT, as applicable, but that are included in our GAAP Income (loss) from operations before income taxes and equity in earnings of affiliated companies, as applicable, are described below.

• Argentina controlled currency devaluation loss related to the foreign exchange loss from government-controlled currency devaluations on our net monetary assets denominated in the Argentine peso and investment losses related to the utilization of government bond programs established for the settlement of certain foreign payables.
• 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.
• 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.
• 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.
• 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.
• Benefit from the settlement of a royalty arrangement entered into in connection with the divestiture of our former Specialty Fluids business.
• 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.

Overview

During the third quarter of fiscal 2024, Income (loss) before income taxes and equity in earnings of affiliated companies increased compared to the third quarter of fiscal 2023. The increase was driven by higher earnings in our Reinforcement Materials and Performance Chemicals segments.

Third quarter of Fiscal 2024 versus Third quarter of Fiscal 2023—Consolidated

Net Sales and Other Operating Revenues and Gross Profit

(In millions)

The $48 million increase in Net sales and other operating revenues in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 was driven by higher volumes in both our Reinforcement Materials and Performance Chemicals segments (combined $56 million) and favorable price and product mix in our Reinforcement Materials segment ($14 million), partially offset by the unfavorable impact from foreign currency translation in both our Reinforcement Materials and Performance Chemicals segments ($17 million).

The $27 million increase in Net sales and other operating revenues in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 was driven by higher volumes in both our Reinforcement Materials and Performance Chemicals segments (combined $142 million), partially offset by unfavorable price and product mix in both our Reinforcement Materials and Performance Chemicals segments in the fiscal 2024 period (combined $96 million), partially offset by the unfavorable impact from foreign currency translation in both our Reinforcement material and Performance Chemicals segments (combined $9 million). The unfavorable price and product mix was driven by lower pricing primarily due to lower raw material costs that are generally passed through to our customers.

For the three and nine months ended June 30, 2024, gross profit increased by $33 million and $106 million, respectively, compared to the same periods of fiscal 2023. The increase in Gross profit in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023 was driven primarily by higher volumes in both the Reinforcement Materials and Performance Chemicals segments (combined $27 million). The increase in Gross profit in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 was driven primarily by higher volumes in both the Reinforcement Materials and Performance Chemicals segments (combined $58 million) and higher unit margins, net of costs within both the Reinforcement Materials and Performance Chemicals segments (combined $44 million).

Selling and Administrative Expenses

(In millions)

Selling and administrative expenses increased by $10 million and $26 million in the third quarter of fiscal 2024 and for the nine months ended June 30, 2024, respectively, compared to the same periods of fiscal 2023, primarily due to an increase in incentive compensation expense.

Research and Technical Expenses

(In millions)

Research and technical expenses increased by $1 million in the third quarter of fiscal 2024 and increased by $3 million for the nine months ended June 30, 2024, compared to the same period of fiscal 2023, primarily due to an increase in incentive compensation expense.

Loss on Sale of Business

(In millions)

There was no Loss on sale of business in the third quarter of fiscal 2024 or fiscal 2023. Previously reported Loss on sale of business in fiscal 2023 is associated with the fiscal 2022 divesture of the Purification Solutions business.

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

(In millions)

Interest and dividend income increased by $1 million in the third quarter of fiscal 2024 compared to the same period of fiscal 2023, primarily due to higher rates partially offset by lower average balances. Interest and dividend income increased by $3 million for the nine months ended June 30, 2024 compared to the same period of fiscal 2023, primarily due to higher interest rates.

Interest expense decreased by $5 million in the third quarter of fiscal 2024 and $7 million in the nine months ended June 30, 2024 compared to the same periods of fiscal 2023, due to lower average short-term borrowings, partially offset by higher rates.

Other expense remained flat in the third quarter of fiscal 2024 compared to the same period of fiscal 2023. Other expense increased by $20 million for the nine months ended June 30, 2024, as compared to the same period of fiscal 2023, primarily due to higher foreign currency losses in Argentina including from the impact of the government devaluation of the currency that occurred during the first quarter of fiscal 2024.

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

Dollars in millions

(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 June 30, 2024, the (Provision) benefit for income taxes was a provision of $40 million compared to a $41 million provision for the same period in fiscal 2023. For the nine months ended June 30, 2024, the (Provision) benefit for income taxes was a provision of $121 million compared to a $90 million provision for the same period in fiscal 2023, primarily due to higher earnings in the current period and additional accruals and corresponding interest of uncertain tax positions. 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 2024, the Company expects the Operating tax rate to be in the range of 27% to 28%. 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.

Net Income (Loss) Attributable to Noncontrolling Interests

(In millions)

Equity in earnings of affiliated companies, net of tax, increased by $1 million in both the third quarter and the first nine months of fiscal 2024, compared to the same periods of fiscal 2023, primarily due to higher profitability at our equity affiliate in Venezuela.

Net income (loss) attributable to noncontrolling interests, net of tax, increased by $3 million and $8 million in the third quarter and the first nine months of fiscal 2024, respectively, compared to the same periods of fiscal 2023. Net income (loss) attributable to noncontrolling interests, net of tax increased in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2024 primarily due to higher profitability of our joint venture in the Czech Republic. Net income (loss) attributable to noncontrolling interests, net of tax increased in the first nine months of fiscal 2024 compared to the first nine months of fiscal 2023 primarily due to higher profitability of our joint ventures in China.

Net Income Attributable to Cabot Corporation

In the third quarter and the first nine months of fiscal 2024, we reported Net income (loss) attributable to Cabot Corporation of $109 million and $243 million, or $1.94 and $4.30 per diluted common share, respectively. This compares to Net income (loss) attributable to Cabot Corporation of $82 million and $211 million, or $1.43 and $3.65 per diluted common share, respectively, in the third quarter and the first nine months of fiscal 2023. The higher net income in the third quarter of fiscal 2024 compared with the same period in fiscal 2023 is primarily due to higher Total segment EBIT ($27 million). The higher net income in the first nine months of fiscal 2024 compared with the same period in fiscal 2023 is primarily due to higher Total segment EBIT ($97 million), partially offset by higher foreign currency losses and a loss on the sale of BOPREAL bonds (combined $29 million) in Argentina and a higher provision for income taxes ($31 million).

Third quarter of Fiscal 2024 versus Third quarter of Fiscal 2023—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 and nine months ended June 30, 2024 and 2023 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note K of our Notes to the Consolidated Financial Statements.

(In millions)

In the third quarter of fiscal 2024, Income (loss) before income taxes and equity in earnings of affiliated companies increased by $28 million and Total segment EBIT increased by $27 million. The increase in Income (loss) before income taxes and equity in earnings of affiliated companies was driven by higher Total segment EBIT. Total segment EBIT was driven by higher volumes in both the Reinforcement Materials and Performance Chemicals segments (combined $27 million).

In the first nine months of fiscal 2024, Income (loss) before income taxes and equity in earnings of affiliated companies increased by $70 million and Total segment EBIT increased by $97 million. The increase in Income (loss) before income taxes and equity in earnings of affiliated companies was driven by higher Total segment EBIT partially offset by higher foreign currency losses primarily in Argentina. Total segment EBIT was driven by higher volumes in both the Reinforcement Materials and Performance Chemicals segment (combined $58 million) and higher unit margins, net of costs, in both in Reinforcement Materials and Performance Chemicals segments (combined $44 million).

Certain Items

Details of the certain items for the three and nine months ended June 30, 2024 and 2023 are as follows:

(In millions)

25

Other Unallocated Items

(In millions)

Total other unallocated items decreased by $2 million and $22 million for the three and nine months ended June 30, 2024, respectively, when compared to the same periods in fiscal 2023, due to lower Interest expense and higher General unallocated income (expense) partially offset by higher Unallocated corporate costs. General unallocated income increased due to higher interest income, higher investment income on our cash and cash equivalent balances in Argentina, and lower foreign exchange losses, primarily in Argentina.

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, interest and dividend income, the profit or loss related to the corporate adjustment for unearned revenue and unrealized holding gains (losses) for investments. General unallocated income (expense) does not include items of income or expense that are separately treated as Certain items.

Reinforcement Materials

Sales and EBIT for Reinforcement Materials for the third quarter and first nine months of fiscal 2024 and 2023 were as follows:

(In millions)

Sales in Reinforcement Materials increased by $25 million in the third quarter of fiscal 2024 compared to the same period of fiscal 2023, primarily due to higher volumes ($25 million) and favorable price and product mix ($14 million), partially offset by the unfavorable impact from foreign currency translation ($12 million). The higher volumes in the third quarter of fiscal 2024 were driven by higher volumes in Asia Pacific and Europe. The favorable pricing was driven primarily from higher raw material costs that are generally passed through to our customers and higher pricing and product mix from our calendar year 2024 customer agreements.

In the first nine months of fiscal 2024, sales in Reinforcement Materials increased by $27 million compared to the same period of fiscal 2023 primarily due to higher volumes ($83 million), partially offset by less favorable price and product mix ($50 million) and the unfavorable impact from foreign currency translation ($5 million). The higher volumes in the first nine months of fiscal 2024 were driven by higher volumes in Asia Pacific and Europe. The less favorable pricing was primarily due to lower raw material costs in the first two fiscal quarters of fiscal 2024 as compared to the same quarters of fiscal 2023 that are generally passed through to our customers.

EBIT in Reinforcement Materials in the third quarter of fiscal 2024 increased by $4 million compared to the same period of fiscal 2023. The increase was driven by higher volumes ($10 million), higher unit margins ($2 million) partially offset by higher costs ($9 million). The higher volumes were driven by stronger demand in Asia Pacific and Europe, partially offset by lower volumes in the Americas due to weather-related events. The higher unit margins were driven by improved pricing and product mix in our calendar year 2024 customer agreements partially offset by a less favorable geographic mix and lower energy center revenue. The higher costs were primarily driven by higher selling and administrative costs.

In the first nine months of fiscal 2024, EBIT in Reinforcement Materials increased by $66 million compared to the same period of fiscal 2023. The increase was driven by higher unit margins, net of costs ($35 million), and higher volumes ($30 million). The higher unit margins, net of costs, in the first nine months of fiscal 2024 were primarily driven by favorable price and product mix in the 2023 and 2024 calendar year customer agreements. The higher volumes were driven by higher volumes in Asia Pacific and Europe.

As we look to the fourth quarter of the fiscal year, we expect the Reinforcement Materials EBIT to modestly improve from the third quarter of fiscal 2024 due to anticipated sequential volume improvement in the Americas and Asia Pacific regions, partially offset by seasonally weaker volumes in Europe.

Performance Chemicals

Sales and EBIT for Performance Chemicals for the third quarter and first nine months of fiscal 2024 and 2023 were as follows:

(In millions)

Sales in Performance Chemicals increased by $25 million in the third quarter of fiscal 2024 compared to the same period of fiscal 2023, primarily due to higher volumes ($31 million), partially offset by the unfavorable impact from foreign currency translation ($5 million). The higher volumes in the third quarter of fiscal 2024 were primarily in our specialty carbons and fumed metal oxides product lines.

In the first nine months of fiscal 2024, sales in Performance Chemicals increased by $9 million compared to the same period of fiscal 2023, primarily due to higher volumes ($60 million), partially offset by less favorable price and product mix ($46 million) and the unfavorable impact from foreign currency translation ($3 million). The higher volumes in fiscal 2024 were primarily in our specialty carbons and fumed metal oxides product lines. The less favorable price and product mix was primarily due to lower raw material costs that are generally passed through to our customers.

EBIT in Performance Chemicals increased by $23 million in the third quarter of fiscal 2024 compared to the same period of fiscal 2023 primarily due to higher volumes ($17 million) and higher unit margins, net of costs ($7 million). The higher volumes in the third quarter of fiscal 2024 were primarily in our specialty carbons and fumed metal oxides product lines. The higher unit margins, net of costs, improved from a more favorable product mix as demand improved in the automotive, infrastructure and semiconductor applications.

In the first nine months of fiscal 2024, EBIT in Performance Chemicals increased by $31 million compared to the same period of fiscal 2023. The increase was driven by higher volumes ($28 million) and higher unit margins, net of costs ($10 million), partially offset by the unfavorable impact of foreign currency translation ($6 million). The higher volumes in the first nine months of fiscal 2024 were primarily in our specialty carbons and fumed metal oxides product lines. The higher unit margins, net of costs, improved from a more favorable product mix as demand improved in the automotive, infrastructure and semiconductor applications.

As we look ahead to the fourth quarter of the fiscal year, we expect the Performance Chemicals EBIT to improve year-over- year due to anticipated higher volumes and a more favorable product mix, but decline sequentially due to lower volumes from normal seasonality impacts.

Liquidity and Capital Resources

Overview

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, increased by $97 million during the first nine months of fiscal 2024, which was largely due to a lower outstanding commercial paper balance at the end of the period. As of June 30, 2024, we had cash and cash equivalents of $197 million and borrowing availability under our revolving credit agreements of $1.2 billion. 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 2027. 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 PNC Bank, National Association, as Administrative Agent, and the other lenders party thereto, which matures in August 2027. 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 June 30, 2024, 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, including the utilization of customer supply chain financing programs, 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 regulations and tax laws in the U.S. or foreign countries could restrict our ability to transfer funds or impose material costs on such transfers.

In addition to the currency controls that prevent the distribution of cash in Argentina, there are also government regulations that require all cash in Argentina to be held in Argentine pesos and regulations that restrict how and when suppliers of imported goods and services into Argentina can be paid. In accordance with government regulations, we purchased and sold at a discount BOPREAL bonds during the second quarter of fiscal 2024 to partially repay imported goods received on or prior to December 12, 2023. The balance of these outstanding payables was paid in April 2024. Current and future imported goods and services will be paid in accordance with new regulations enacted in the latter part of calendar year 2023. Future regulations could impact our ability to pay suppliers for our imported goods and services.

As of June 30, 2024, we had $1.2 billion of availability under our Credit Agreements. As of June 30, 2024, we had $109 million of borrowings under the Euro Credit Agreement and no outstanding borrowings under the U.S. Credit Agreement. There was $49 million of commercial paper outstanding as of June 30, 2024.

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 both the next twelve months and 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 $488 million in the first nine months of fiscal 2024 compared to $457 million of cash provided by operating activities during the same period of fiscal 2023.

Cash provided by operating activities in the first nine months of fiscal 2024 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $114 million and foreign exchange losses of $38 million, primarily related to devaluation of the Argentine peso, which was partially offset by a decrease in net working capital of $18 million. The decrease in net working capital was largely driven by an increase in Accounts Payable and accrued liabilities, and a decrease in inventories, partially offset by an increase in Accounts and notes receivable.

Cash provided by operating activities in the first nine months of fiscal 2023 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $107 million and a decrease in net working capital of $96 million. The decrease in

net working capital was largely driven by a decrease in accounts receivable due to lower customer prices from lower cost of raw

materials and decreased sales volumes and a decrease in inventories and accounts payable and accrued expenses driven by lower

cost of raw materials.

Cash Flows from Investing Activities

Investing activities consumed $146 million of cash in the first nine months of fiscal 2024 compared to $139 million of cash consumed in the first nine months of fiscal 2023.

In the first nine months of fiscal 2024, investing activities included $149 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as growth-related capital, including capacity expansion capital projects.

In the first nine months of fiscal 2023, investing activities included $166 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 $12 million.

Capital expenditures for fiscal 2024 are expected to be between $220 million and $240 million. Our planned capital spending program for fiscal 2024 is for sustaining, compliance and improvement capital projects at our operating facilities as well as capacity expansion capital expenditures.

U.S. EPA Consent Decree

As described in Part 1, Item 1 of the 2023 Form 10-K (the “2023 10-K") under the heading “Safety, Health, Environment, and Sustainability”, pursuant to the Consent Decree we entered into in November 2013 with the U.S. Environmental Protection Agency (“EPA”) and the Louisiana Department of Environmental Quality (“LDEQ”) regarding our three carbon black manufacturing facilities in the U.S., Cabot has installed technology controls for sulfur dioxide and/or nitrogen oxide at its carbon black plants in Pampa, Texas and Franklin, Louisiana, and is in the process of installing sulfur dioxide and nitrogen oxide technology controls at its plant in Ville Platte, Louisiana. We are currently in discussions with the EPA and LDEQ to extend our compliance date at the Ville Platte facility to mid-calendar year 2025 based upon force majeure events primarily related to the COVID-19 pandemic. As of June 30, 2024, we had incurred approximately $195 million to install these technology controls in the U.S. Operating these controls increases our plant operating costs. We expect that the total capital costs to install these controls will be approximately $250 million and will be incurred through 2025. The Consent Decree includes discretionary stipulated damages provisions for failure to comply outside of a force majeure event. All carbon black manufacturers in the U.S. have settled with the EPA and have installed similar controls.

Cash Flows from Financing Activities

Financing activities consumed $326 million of cash in the first nine months of fiscal 2024 compared to $371 million of cash consumed during the same period of fiscal 2023.

In the first nine months of fiscal 2024, financing activities primarily consisted of net repayment of commercial paper of $123 million, share repurchases of $106 million, dividend payments to stockholders of $69 million, cash dividends paid to noncontrolling interests of $27 million, and net repayment of $12 million under our Euro Credit Agreement, which includes repayments of $26 million partially offset by proceeds of $14 million. These payments were partially offset by proceeds from sales of common stock of $15 million from stock option exercises.

In the first nine months of fiscal 2023, financing activities primarily consisted of the repayment of commercial paper of $188 million, dividend payments to stockholders of $65 million, share repurchases of $48 million, cash dividends paid to noncontrolling interests of $41 million, net repayments of short-term borrowings of $24 million and repayments of long-term debt of $88 million. These payments were partially offset by proceeds from long-term borrowings of $79 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 earnings and volumes in our Reinforcement Materials segment, and for earnings, volumes and product mix in our Performance Chemicals segment; the impact and cost of restructuring activities; demand for our products; anticipated transaction closing timelines; 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 in both the next twelve months and the foreseeable future; anticipated capital spending; regulatory developments, including regulatory compliance costs and potential impact on our operations, including the expected total cost to install air pollution controls at our carbon black plants in the United States and when we expect to incur these capital costs and complete this project at our plant in Ville Platte, Louisiana; 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.

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 and the U.S.-China trade relationship; a significant adverse change in a customer or joint venture relationship or the failure of a customer or joint venture partner 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; interest rates, tax rates, currency exchange controls, and fluctuations in foreign currency, such as the recent currency movements in Argentina; 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 2023 10-K and in our subsequent SEC filings.

Information about market risks for the period ended June 30, 2024 does not differ materially from that discussed under Item 7A of our 2023 10-K.

As of June 30, 2024, 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 June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.