Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note Q. Income Taxes

Income from continuing operations before income taxes and equity in net earnings of affiliated companies was as follows:

	Years Ended September 30
	2022			2021			2020
	(In millions)
Domestic	$	(20	)	$	(73	)	$	(274	)
Foreign		355			479			241
Income from continuing operations before income taxes and    equity in earnings of affiliated companies	$	335		$	406		$	(33	)

Tax provision (benefit) for income taxes consisted of the following:

	Years Ended September 30
	2022			2021			2020
	(In millions)
U.S. federal and state:
Current	$	7		$	11		$	(1	)
Deferred		2			(1	)		139
Total		9			10			138
Foreign:
Current		135			103			62
Deferred		(42	)		10			(9	)
Total		93			113			53
Provision (benefit) for income taxes	$	102		$	123		$	191

The provision (benefit) for income taxes differed from the provision for income taxes as calculated using the U.S. statutory rate as follows:

	Years Ended September 30
	2022			2021			2020
	(In millions)
Computed tax expense at the federal statutory rate	$	70		$	85		$	(7	)
Foreign impact of taxation at different rates, repatriation,    valuation allowance, and other		38			8			4
Global Intangible Low Taxed Income (GILTI)		23			18			(4	)
Purification Solutions business divestiture		(179	)		—			—
Impact of the Coronavirus Aid, Relief, and Economic    Security ("CARES") Act of 2020		—			10			(10	)
Impact of increase (decrease) in valuation allowance on    U.S. deferred taxes		160			(1	)		228
U.S. and state benefits from research and experimentation    activities		(2	)		(2	)		(2	)
Provision (settlement) of unrecognized tax benefits		1			1			(7	)
Permanent differences, net		10			7			—
State taxes, net of federal effect		(19	)		(3	)		(11	)
Provision (benefit) for income taxes	$	102		$	123		$	191

Significant components of deferred income taxes were as follows:

	September 30
	2022			2021
	(In millions)
Deferred tax assets:
Deferred expenses	$	10		$	14
Intangible assets		39			38
Inventory		15			13
Operating lease liability		21			21
Other		32			18
U.S. federal interest expense carryforward		33			24
Pension and other benefits		29			32
Net operating loss carryforwards		224			257
Capital loss carryforwards		137			—
Foreign tax credit carryforwards		55			48
R&D credit carryforwards		47			46
Other business credit carryforwards		20			24
Subtotal		662			535
Valuation allowance		(580	)		(470	)
Total deferred tax assets	$	82		$	65

	September 30
	2022			2021
	(In millions)
Deferred tax liabilities:
Property, plant and equipment	$	(59	)	$	(47	)
Right of use asset		(21	)		(20	)
Unremitted earnings of non-U.S. subsidiaries		(22	)		(18	)
Total deferred tax liabilities	$	(102	)	$	(85	)

The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit utilization of the existing deferred tax assets. When performing this assessment, the Company looks to the potential future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax planning strategies and estimated future taxable income. Failure to achieve operating income targets resulting in a cumulative loss

may change the Company’s assessment regarding the realization of Cabot’s deferred tax assets, resulting in valuation allowance being recorded against some or all of the Company’s deferred tax assets. The need for a valuation allowance can also be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. A valuation allowance represents management’s best estimate of the non-realizable portion of the deferred tax assets. Any adjustments in a valuation allowance would result in an adjustment to income tax expense.

In determining the recoverability of its U.S. deferred tax assets, the Company considered its cumulative loss incurred over the three-year period ended September 30, 2022. Such objective negative evidence limits the Company’s ability to consider other subjective evidence, such as its projections for future growth. Given the weight of objectively verifiable historical losses from the Company's U.S. operations, the Company recorded a valuation allowance on all of its U.S. deferred tax assets resulting in a charge of $228 million during the fourth quarter of fiscal 2020. The Company has maintained a valuation allowance on all of its U.S. deferred tax assets at September 30, 2022. The Company expects to continue to record a valuation allowance against these assets until sufficient positive evidence exists to support its reversal.

The valuation allowance increased by $110 million in fiscal 2022 compared to fiscal 2021, primarily due to the tax loss related to the divestiture of the Purification Solutions business. The valuation allowance decreased by $11 million in fiscal 2021 compared to fiscal 2020 primarily due to the expiration of NOLs.  

After the valuation allowance, approximately $20 million of foreign NOLs and less than $1 million of other tax credit carryforwards remained at September 30, 2022. The benefits of these carryforwards are dependent upon taxable income during the carryforward period in the jurisdictions in which they arose.

The following table provides detail surrounding the expiration dates of NOLs, capital loss and other tax credit carryforwards before valuation allowances:

Years Ending September 30	NOLs/Capital Losses		Credits
	(In millions)
2023 - 2029	$	1,142	$	26
2030 and thereafter		227		94
Indefinite carryforwards		723		2
Total	$	2,092	$	122

As of September 30, 2022, provisions have not been made for non-U.S. withholding taxes or other applicable taxes on $1,405 million of undistributed earnings of non-U.S. subsidiaries, as these earnings are considered indefinitely reinvested. It is not practicable to calculate the unrecognized deferred tax liability on undistributed earnings. Cabot continually reviews the financial position and forecasted cash flows of its U.S. consolidated group and foreign subsidiaries in order to reaffirm the Company’s intent and ability to continue to indefinitely reinvest earnings of its foreign subsidiaries or whether such earnings will need to be repatriated in the foreseeable future. Such review encompasses operational needs and future capital investments. From time to time, however, the Company’s intentions relative to specific indefinitely reinvested amounts change because of certain unique circumstances. These earnings could become subject to non-U.S. withholding taxes and other applicable taxes if they were remitted to the U.S.

Cabot has filed its tax returns in accordance with the tax laws in each jurisdiction and recognizes tax benefits for uncertain tax positions when the position would more likely than not be sustained based on its technical merits and recognizes measurement adjustments when needed. As of September 30, 2022, the total amount of unrecognized tax benefits was $159 million, of which $6 million was recorded in Other liabilities in the Consolidated Balance Sheet, $16 million was offset against deferred tax assets and $137 million related to the character of a portion of the tax loss from the Purification Solutions business divestiture. In addition, accruals of $4 million have been recorded for penalties and interest, as of September 30, 2022. Total penalties and interest recorded in the tax provision in the Consolidated Statements of Operations was $2 million in fiscal 2022 and $1 million in both fiscal 2021 and 2020. If the unrecognized tax benefits were recognized as of September 30, 2022, there would be $22 million favorable impact on the Company’s tax provision before consideration of the impact of the potential need for valuation allowances.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2022, 2021 and 2020 is as follows:

	Years Ended September 30
	2022			2021			2020
	(In millions)
Balance at beginning of the year	$	21		$	23		$	27
Additions based on tax positions related to the current    year		138			1			2
Additions for tax positions of prior years		2			—			2
Reductions of tax positions of prior years		(1	)		(2	)		(1	)
Reductions related to settlements		—			—			(5	)
Reductions from lapse of statute of limitations		(1	)		(1	)		(2	)
Balance at end of the year	$	159		$	21		$	23

Cabot and certain subsidiaries are under audit in a number of jurisdictions. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations; however, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

We are subject to taxation in the United States and various states and foreign jurisdictions. The 2019 through 2021 tax years generally remain subject to examination by the IRS and various tax years from 2009 through 2021 remain subject to examination by the respective state tax authorities. In foreign jurisdictions, various tax years from 2005 through 2021 remain subject to examination by their respective tax authorities.