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Hyperinflationary Economies
12 Months Ended
Sep. 30, 2018
Equity Method Investments And Joint Ventures [Abstract]  
Hyperinflationary Economies

Note L. Hyperinflationary Economies

Argentina

Cabot owns 100% of a carbon black operating entity in Argentina. Due to recent negative economic trends in Argentina, including multiple periods of increasing inflation rates, devaluation of the Argentine peso, and increasing borrowing rates locally, the cumulative three-year inflation rate for the country exceeds 100%, and is expected to exceed 100% for the foreseeable future. Therefore, effective July 1, 2018, the operating entity was considered to be functioning in a highly inflationary economy and began using Cabot’s reporting currency, the U.S. dollar, as its functional currency. There was no financial statement impact at the date of conversion due to the change in functional currency. Going forward, all impacts of foreign exchange changes between the reporting currency and Argentine peso will be reflected in earnings in the accompanying Consolidated Statements of Operations.          

The Company’s income from operations is not expected to be significantly impacted from this change since the operating entity’s sales and a portion of its raw material purchases were already denominated in U.S. dollars. The operating entity’s net revenue represented approximately 2% of Cabot’s total net revenue for the year ended September 30, 2018.  

The operating entity’s monetary and non-monetary assets and liabilities held in local currency consist primarily of cash and cash equivalents, inventories, property, plant and equipment and accounts payable and accrued liabilities, which make up less than 2% of Cabot’s total assets and total liabilities as of September 30, 2018. Changes in the Argentine peso exchange rate will result in foreign currency exchange gains or losses on the operating entity’s peso-denominated monetary assets and liabilities. Subsequent to the conversion, the Company recorded a $3 million net gain within Other (income) expense in the Consolidated Statements of Operations for the year ended September 30, 2018, which reflects the remeasurement of the operating entity’s net monetary liabilities denominated in Argentine peso using an exchange rate of 39.70 Argentine peso to the U.S. dollar at September 30, 2018.

The Company will continue to monitor the developments in Argentina and their potential impact the operating entity’s operations or carrying value.

Venezuela

Cabot owns 49% of a carbon black operating affiliate in Venezuela, which is accounted for as an equity affiliate, through wholly-owned subsidiaries that carry the investment and receive its dividends. As of September 30, 2018, these subsidiaries carried the operating affiliate investment of $13 million.

During fiscal 2018, 2017 and 2016, the Company received dividends in the amounts of $3 million, $4 million and $2 million, respectively, which were paid in U.S. dollars.

A significant portion of the Company’s operating affiliate’s sales are exports denominated in U.S. dollars. The Venezuelan government mandates that a certain percentage of the dollars collected from these sales be converted into bolivars. The exchange rate made available to the Company as of September 30, 2017 was 3,345 bolivars to the U.S. dollar. During fiscal 2018, the bolivar experienced significant devaluation and reached 172,800 bolivars to the U.S. dollar at the end of July 2018. In August 2018, Venezuela issued the bolivar soberano to replace the existing bolivar in response to hyperinflation. The value of one bolivar soberano is equal to the value of 100,000 bolivars. The exchange rate made available to the Company as of September 30, 2018 was 62 bolivars soberano to the U.S. dollar. Due to a reduced level of export sales in recent periods, the exchange rate devaluation during fiscal 2018 had an immaterial impact on the Company’s results.

The operating entity has historically been profitable. The Company continues to closely monitor developments in Venezuela and their potential impact on the recoverability of its equity affiliate investment. Any future change in the exchange rate made available to the Company could cause the Company to change the exchange rate it uses and result in gains or losses on the bolivar denominated assets held by its operating affiliate and wholly-owned subsidiaries.