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Income Taxes
 12 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

Note R. Income Taxes

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

 

 

 

Years Ended September 30

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Domestic

 

$

18

 

 

$

65

 

 

$

(20

)

Foreign

 

 

511

 

 

 

386

 

 

 

355

 

Income from operations before income taxes and
   equity in earnings of affiliated companies

 

$

529

 

 

$

451

 

 

$

335

 

 

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

 

 

 

Years Ended September 30

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

(In millions)

 

U.S. federal and state:

 

 

 

 

 

 

 

 

 

Current

 

$

14

 

 

$

5

 

 

$

7

 

Deferred

 

 

(31

)

 

 

(156

)

 

 

2

 

Total

 

 

(17

)

 

 

(151

)

 

 

9

 

Foreign:

 

 

 

 

 

 

 

 

 

Current

 

 

134

 

 

 

123

 

 

 

135

 

Deferred

 

 

(6

)

 

 

—

 

 

 

(42

)

Total

 

 

128

 

 

 

123

 

 

 

93

 

Provision (benefit) for income taxes

 

$

111

 

 

$

(28

)

 

$

102

 

 

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

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Computed tax expense at the federal statutory rate

 

$

111

 

 

$

95

 

 

$

70

 

Foreign impact of taxation at different rates, repatriation,
   valuation allowance, and other

 

 

16

 

 

 

30

 

 

 

38

 

Global Intangible Low Taxed Income (GILTI)

 

 

(3

)

 

 

15

 

 

 

23

 

Purification Solutions business divestiture

 

 

—

 

 

 

—

 

 

 

(179

)

Impact of increase (decrease) in valuation allowance on
   U.S. deferred taxes

 

 

(13

)

 

 

(156

)

 

 

160

 

U.S. and state benefits from research and experimentation
   activities

 

 

(3

)

 

 

(2

)

 

 

(2

)

Provision (settlement) of unrecognized tax benefits

 

 

7

 

 

 

2

 

 

 

1

 

Permanent differences, net

 

 

(2

)

 

 

(4

)

 

 

10

 

State taxes, net of federal effect

 

 

(2

)

 

 

(8

)

 

 

(19

)

Provision (benefit) for income taxes

 

$

111

 

 

$

(28

)

 

$

102

 

 

Significant components of deferred income taxes were as follows:

 

 

 

September 30

 

 

 

2024

 

 

2023

 

 

 

(In millions)

 

Deferred tax assets:

 

 

 

 

 

 

Deferred expenses

 

$

40

 

 

$

50

 

Intangible assets

 

 

47

 

 

 

42

 

Inventory

 

 

14

 

 

 

14

 

Operating lease liability

 

 

29

 

 

 

22

 

Other

 

 

25

 

 

 

6

 

U.S. federal interest expense carryforward

 

 

48

 

 

 

42

 

Pension and other benefits

 

 

25

 

 

 

24

 

Net operating loss carryforwards ("NOLs")

 

 

261

 

 

 

244

 

Capital loss carryforwards

 

 

132

 

 

 

132

 

Foreign tax credit carryforwards

 

 

68

 

 

 

68

 

R&D credit carryforwards

 

 

55

 

 

 

49

 

Other business credit carryforwards

 

 

21

 

 

 

19

 

Subtotal

 

 

765

 

 

 

712

 

Valuation allowance

 

 

(494

)

 

 

(498

)

Total deferred tax assets

 

$

271

 

 

$

214

 

 

 

 

September 30

 

 

 

2024

 

 

2023

 

 

 

(In millions)

 

Deferred tax liabilities:

 

 

 

 

 

 

Property, plant and equipment

 

$

(58

)

 

$

(47

)

Right of use asset

 

 

(23

)

 

 

(22

)

Unremitted earnings of non-U.S. subsidiaries

 

 

(16

)

 

 

(15

)

Total deferred tax liabilities

 

$

(97

)

 

$

(84

)

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 allowances 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 Provision (benefit) for income taxes in the Consolidated Statement of Operations.

Since 2020, the Company has maintained a valuation allowance against its net U.S. deferred tax assets. On a quarterly basis, the Company evaluates all positive and negative evidence to determine if a valuation allowance is required. In analyzing all available evidence as of September 30, 2024 and 2023, the Company determined that there is sufficient positive evidence outweighing the negative evidence to conclude that it is more likely than not that a portion of the U.S. deferred tax assets are realizable. As a result, the Company reversed a portion of the valuation allowance that was recorded against U.S. net deferred tax assets. This reversal resulted in a non-cash income tax benefit of $24 million and $152 million in fiscal 2024 and 2023, respectively. The Company continues to maintain a valuation allowance in the U.S. against capital losses, interest expense limitation carryforwards, certain foreign tax credits, certain R&D tax credits, and all state deferred tax assets that the Company does not expect to realize.

The valuation allowance decreased by $4 million from $498 million in fiscal 2023 compared to $494 million in fiscal 2024, primarily due to the reversal of a portion of the valuation allowance on U.S. foreign tax credits and R&D tax credits, which was partially offset by an increase in valuation allowance on current year activity of U.S. deferred tax assets.

After the valuation allowance, approximately $35 million of foreign NOLs and less than $1 million of other tax credit carryforwards remained at September 30, 2024. 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)

 

2025 - 2031

 

$

1,070

 

 

$

86

 

2032 and thereafter

 

 

287

 

 

 

56

 

Indefinite carryforwards

 

 

847

 

 

 

2

 

Total

 

$

2,204

 

 

$

144

 

As of September 30, 2024, provisions have not been made for non-U.S. withholding taxes or other applicable taxes on $1.7 billion 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.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2024, 2023 and 2022 is as follows:

 

 

 

Years Ended September 30

 

 

 

2024

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Balance at beginning of the year

 

$

20

 

 

$

159

 

 

$

21

 

Additions based on tax positions related to the current
   year

 

 

1

 

 

 

1

 

 

 

138

 

Additions for tax positions of prior years

 

 

3

 

 

 

—

 

 

 

2

 

Reductions of tax positions of prior years

 

 

(1

)

 

 

(137

)

 

 

(1

)

Reductions related to settlements

 

 

(1

)

 

 

(2

)

 

 

—

 

Reductions from lapse of statute of limitations

 

 

—

 

 

 

(1

)

 

 

(1

)

Balance at end of the year

 

$

22

 

 

$

20

 

 

$

159

 

 

 

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, 2024, the total amount of unrecognized tax benefits was $22 million, of which $9 million was recorded in Other liabilities in the Consolidated Balance Sheet and $13 million was offset against deferred tax assets.

As of September 30, 2023, the total amount of unrecognized tax benefits was $20 million, of which $6 million was recorded in Other liabilities in the Consolidated Balance Sheet and $14 million was offset against deferred tax assets. In 2022, the Company reported an uncertain tax position of $137 million related to the initial anticipated filing position on the character of a portion of the tax loss from the Purification Solutions business divestiture. Upon completion of the U.S. Consolidated tax return in 2023, the Company reversed the $137 million unrecognized tax benefit which reflects the final position taken on the filed tax return. In addition, accruals of $10 million and $5 million were recorded for penalties and interest, as of September 30, 2024 and 2023, respectively. Total penalties and interest recorded in the Provision (benefit) for income taxes in the Consolidated Statements of Operations was $5 million in fiscal 2024 and $2 million in both fiscal 2023 and 2022. If the unrecognized tax benefits were recognized as of September 30, 2024, 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.

 

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.

Cabot is subject to taxation in the United States and various states and foreign jurisdictions. The 2021 through 2023 tax years generally remain subject to examination by the IRS and various tax years from 2018 through 2023 remain subject to examination by the respective state tax authorities. In foreign jurisdictions, various tax years from 2006 through 2023 remain subject to examination by their respective tax authorities.