Discussion and analysis by the management of CABOT CORP of the financial situation and operating results (Form 10-K)

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Critical accounting policies

Our consolidated financial statements have been prepared in conformity with U.S.
GAAP. This preparation of our financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses and related disclosure of contingent assets and
liabilities. We consider an accounting estimate to be critical to the financial
statements if (i) the estimate is complex in nature or requires a high degree of
judgment and (ii) different estimates and assumptions were used, the results
could have a material impact on the consolidated financial statements. On an
ongoing basis, we evaluate our estimates and the application of our policies. We
base our estimates on historical experience, current conditions and on various
other assumptions that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The policies that we believe are
critical to the preparation of the consolidated financial statements are
presented below.

Revenue recognition

We recognize revenue when our customers obtain control of promised goods or
services. The revenue recognized is the amount of consideration which we expect
to receive in exchange for those goods or services. Our contracts with customers
are generally for products only and do not include other performance
obligations. Generally, we consider purchase orders, which in some cases are
governed by master supply agreements, to be contracts with customers. The
transaction price as specified on the purchase order or sales contract is
considered the standalone selling price for each distinct product. To determine
the transaction price at the time when revenue is recognized, we evaluate
whether the price is subject to adjustments, such as for returns, discounts or
volume rebates, which are stated in the customer contract, to determine the net
consideration to which we expect to be entitled. Revenue from product sales is
recognized based on a point in time model when control of the product is
transferred to the customer, which typically occurs upon shipment or delivery of
the product to the customer and title, risk and rewards of ownership have passed
to the customer. We have an immaterial amount of revenue that is recognized over
time. Payment terms typically range from zero to ninety days.

Shipping and handling activities that occur after the transfer of control to the
customer are billed to customers and are recorded as sales revenue, as we
consider these to be fulfillment costs. Shipping and handling costs are expensed
in the period incurred and included in Cost of sales within the Consolidated
Statements of Operations. Taxes collected on sales to customers are excluded
from the transaction price.

We generally provide a warranty that our products will substantially conform to
the identified specifications. Our liability typically is limited to either a
credit equal to the purchase price or replacement of the non-conforming product.
Returns under warranty have historically been immaterial.

We do not have any material contractual assets or liabilities.

When the period of time between the transfer of control of the goods and the
time the customer pays for the goods is one year or less, we do not consider
there to be a significant financing component associated with the contract.

Inventory valuation

Inventories are valued at the lower of cost or net realizable value. The cost of stocks is determined using the FIFO method.

We periodically review inventory for both potential obsolescence and potential
declines in anticipated selling prices. In this review, we make assumptions
about the future demand for and market value of the inventory, and based on
these assumptions estimate the amount of any obsolete, unmarketable, slow moving
or overvalued inventory. We write down the value of our inventories by an amount
equal to the difference between the cost of the inventory and its estimated net
realizable value. Historically, such write-downs have not been material. If
actual market conditions are less favorable than those projected by management
at the time of the assessment, however, additional inventory write-downs may be
required, which could reduce our gross profit and our earnings.

Depreciation of goodwill

Goodwill is comprised of the purchase price of business acquisitions in excess
of the fair value assigned to the net tangible and identifiable intangible
assets acquired. Goodwill is not amortized and is subject to impairment testing
annually, or when events or changes in the business environment indicate that
the carrying value of the reporting unit may exceed its fair value.

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A reporting unit, for the purpose of the impairment test, is at or below the
operating segment level, and constitutes a business for which discrete financial
information is available and regularly reviewed by segment management.
Reinforcement Materials, and the fumed metal oxides, specialty compounds, and
specialty carbons product lines within Performance Chemicals, which are
considered separate reporting units, carried our goodwill balances as of
September 30, 2021.

For the purpose of the goodwill impairment test, we first assess qualitative
factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If an initial qualitative
assessment identifies that it is more likely than not that the carrying value of
a reporting unit exceeds its estimated fair value, an additional quantitative
evaluation is performed. Alternatively, we may elect to proceed directly to the
quantitative goodwill impairment test. If based on the quantitative evaluation
the fair value of the reporting unit is less than its carrying amount, a
goodwill impairment loss would result. The goodwill impairment loss would be the
amount by which the carrying value of the reporting unit, including goodwill,
exceeds its fair value, limited to the total amount of goodwill allocated to
that reporting unit. The fair value of a reporting unit is based on discounted
estimated future cash flows. The assumptions used to estimate fair value include
management's best estimates of future growth rates, operating cash flows,
capital expenditures and discount rates over an estimate of the remaining
operating period at the reporting unit level. The fair value is also benchmarked
against the value calculated from a market approach using the guideline public
companies method. Based on our most recent annual goodwill impairment test
performed as of August 31, 2021, the fair values of the Reinforcement Materials,
fumed metal oxides, specialty compounds, and specialty carbons reporting units
were substantially in excess of their carrying values.

Impairment of long-lived assets

Our long-term assets mainly include property, plant and equipment, intangible assets and long-term investments. The carrying amounts of long-lived assets are tested for impairment whenever events or changes in business conditions indicate that the carrying amount of an asset may not be recoverable.

To test assets for impairment, we generally use a probability-weighted estimate of undiscounted future net cash flows from assets over their remaining useful lives to determine whether the asset’s value is recoverable. Long-lived assets are grouped with other assets and liabilities at the lowest level for which independent identifiable cash flows can be determined.

An asset impairment is recognized when the carrying value of the asset is not
recoverable based on the analysis described above, in which case the asset is
written down to its fair value. If the asset does not have a readily
determinable fair value, a discounted cash flow model may be used to determine
the fair value of the asset. In circumstances when an asset does not have
separately identifiable cash flows, an impairment charge is recorded when we no
longer intend to use the asset.

Contingencies

We accrue costs related to contingencies when it is probable that a liability
has been incurred and the amount can be reasonably estimated. Contingencies
could arise from litigation, environmental remediation or contractual
arrangements. When a single liability amount cannot be reasonably estimated, but
a range can be reasonably estimated, we accrue the amount that reflects the best
estimate within that range or the low end of the range if no estimate within the
range would be considered more likely than any other estimate. The amount
accrued is determined through the evaluation of various information, which could
include claims, settlement offers, demands by government agencies, estimates
performed by independent third parties, identification of other responsible
parties and an assessment of their ability to contribute, and our prior
experience. We do not reduce the estimated liability for possible recoveries
from insurance carriers. Proceeds from insurance carriers are recorded when
realized by either the receipt of cash or a contractual agreement. Litigation is
highly uncertain and there is always the possibility of an unusual result in any
particular case that may reduce our earnings and cash flows.

We have recorded a significant reserve for respirator liability claims. Our
current estimate of the cost of our share of existing and future respirator
liability claims is based on facts and circumstances existing at this time,
including the number and nature of the remaining claims. Developments that could
affect our estimate include, but are not limited to, (i) significant changes in
the number of future claims, (ii) changes in the rate of dismissals without
payment of pending claims, (iii) significant changes in the average cost of
resolving claims, including potential settlements of groups of claims, (iv)
significant changes in the legal costs of defending these claims, (v) changes in
the nature of claims received or changes in our assessment of the viability of
these claims, (vi) trial and appellate outcomes, (vii) changes in the law and
procedure applicable to these claims, (viii) the financial viability of the
parties that contribute to the payment of respirator claims, (ix) exhaustion or
changes in the recoverability of the insurance coverage maintained by certain of
the parties that contribute to the settlement of respirator claims, or a change
in the availability of the indemnity provided by a former owner of the business,
(x) changes in the allocation of costs among the various parties paying legal
and settlement costs, and (xi) a determination that the assumptions that were
used to estimate our share of liability are no longer reasonable. We cannot
determine the impact of these potential developments on our current estimate of
our share of liability for these existing and future claims. Because reserves
are limited to amounts that are probable and estimable as of a relevant
measurement date, and there is inherent difficulty in projecting the impact of
potential developments on our share of liability for these existing and future
claims, it is reasonably possible that the liabilities for existing and future
claims could change in the near

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term and this change could be significant. Refer to Note T of our Notes to Consolidated Financial Statements (“Note T”) for further details on respirator liabilities and regulations.

Income taxes

Our business operations are global in nature and we are subject to taxes in many jurisdictions. Tax laws and tax rates vary widely in these jurisdictions and are subject to change depending on the political and economic climate in those countries. We file our tax returns in accordance with our interpretations of the tax laws in each jurisdiction.

Significant judgment is required in determining our worldwide provision for
income taxes and recording the related tax assets and liabilities. In the
ordinary course of our business, there are operational decisions, transactions,
facts and circumstances, and calculations which make the ultimate tax
determination uncertain. Furthermore, our tax positions are periodically subject
to challenge by taxing authorities throughout the world. We have recorded
reserves for taxes and associated interest and penalties when it becomes more
likely than not that an amount would be payable to tax authorities in future
years. Any significant impact as a result of changes in underlying facts, law,
tax rates, tax audit, or review could lead to adjustments to our income tax
expense, our effective tax rate, and/or our cash flow.

We record benefits for uncertain tax positions based on an assessment of whether
the position is more likely than not to be sustained by the taxing authorities.
If this threshold is not met, no tax benefit of the uncertain tax position is
recognized. If the threshold is met, the tax benefit that is recognized is the
largest amount that is greater than 50% likely of being realized upon ultimate
settlement. This analysis presumes the taxing authorities' full knowledge of the
positions taken and all relevant facts, but does not consider the time value of
money. We also accrue for interest and penalties on these uncertain tax
positions and include such charges in the income tax provision in the
Consolidated Statements of Operations.

Additionally, we have established valuation allowances against a variety of
deferred tax assets, including net operating loss carryforwards, foreign tax
credits, and other income tax credits. Valuation allowances take into
consideration our ability to use these deferred tax assets and reduce the value
of such items to the amount that is deemed more likely than not to be
recoverable. Our ability to utilize these deferred tax assets is determined in
accordance with U.S. GAAP. In jurisdictions where we have a three-year
cumulative loss, we utilize recent historical results in order to assess the
recoverability of deferred tax assets. Where we have a three-year cumulative
profit, we review our forecast of future taxable income in relation to actual
results and expected future trends. We perform this review on a quarterly basis.
Failure to achieve our operating income targets, may change our assessment
regarding the recoverability of our net deferred tax assets and such change
could result in an increase in the valuation allowance being recorded against
some or all of our net deferred tax assets. An increase in a valuation allowance
would result in additional income tax expense, while a release of valuation
allowances in periods when these tax attributes become realizable would reduce
our income tax expense.

Main accounting policies

We have other significant accounting policies that are discussed in Note A in
Item 8 below. Certain of these policies include the use of estimates, but do not
meet the definition of critical because they generally do not require estimates
or judgments that are as difficult or subjective to measure. However, these
policies are important to an understanding of the consolidated financial
statements.

Recently published accounting position papers

Refer to the discussion in Note B of our Notes to the Consolidated Financial Statements.

Results of Operations

Cabot is organized into three reportable business segments: Reinforcement
Materials, Performance Chemicals, and Purification Solutions. Cabot is also
organized for operational purposes into three geographic regions: the Americas;
Europe, Middle East and Africa; and Asia Pacific. The discussions of our results
of operations for the periods presented reflect these structures.

Our analysis of financial condition and operating results should be read with
our consolidated financial statements and accompanying notes. Unless a calendar
year is specified, all references to years in this discussion are to our fiscal
years ended September 30.

This section discusses our fiscal 2021 and fiscal 2020 results of operations and
year-to-year comparisons between fiscal 2021 and fiscal 2020. For the
discussions of our fiscal 2019 results and year-to-year comparisons between
fiscal 2020 and fiscal 2019, refer to our discussions under the headings
"Results of Operations" and "Cash Flows and Liquidity" in Item 7 of the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2020, which was filed with the United States Securities and Exchange Commission
on November 25, 2020.





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Definition of non-GAAP financial terms and measures

When discussing our results of operations, we use several terms 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 next 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 excludes income tax (expense) benefit on certain items and discrete tax
items. 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. 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 "Fiscal 2021 compared to Fiscal 2020-By
Business Segment" includes a discussion of Total segment EBIT, which is a
non-GAAP financial measure defined as Income (loss) from continuing 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
continuing 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 continuing operations
before income taxes and equity in earnings of affiliated companies is provided
under the heading "Fiscal 2021 compared to Fiscal 2020-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
continuing 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 caused
by the existence and timing of certain expense and income items that would not
otherwise be apparent on a U.S. 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 U.S. GAAP Income (loss) from continuing
operations before income taxes and equity in earnings of affiliated companies,
as applicable, are described below.

• Global restructuring activities, which include costs or benefits

associated with cost reduction initiatives or plant closures and are

mainly related to (i) termination costs, (ii) impairment of assets

        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.

• Non-recurring exchange gains (losses), which mainly concern

the impact of controlled currency devaluations on our

assets denominated in this currency.

• Legal and environmental issues and reservations, which consist of costs or

benefits for matters generally related to old companies or which are

otherwise incurred outside the ordinary course of business.

• Management transition costs, which include additional costs, including

stock-based compensation costs associated with retirement or termination of employment

employment of senior executives of the Company.

• Asset impairment charges, which mainly include charges related to

        an impairment of goodwill or other long-lived assets.


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• Costs related to acquisition and integration, which include transaction costs

        costs, redundant costs incurred during the period of integration, and
        costs associated with transitioning certain management and business
        processes to our processes.

• Gains (losses) on the sale of investments, which relate mainly to the sale of

investments recognized using the cost method.

• Adjustment of the inventory reserve, which results from an assessment carried out as

part of an impairment analysis.

• Indirect tax settlement credits, which include favorable settlements

        resulting in the recoveries of indirect taxes.


  • Gains (losses) on sale of businesses.

• Regulations of employee benefit plans, which consist of either expenses or

benefits associated with the termination of a pension plan or the transfer

from a pension plan to a multi-employer plan.

Demand drivers and key factors affecting profitability

Drivers of demand and key factors affecting our profitability differ by segment.
In Reinforcement Materials, longer term demand is driven primarily by: i) the
number of vehicle miles driven globally; ii) the number of original equipment
and replacement tires produced; and iii) the number of automotive builds. Over
the past several years, operating results have been driven by a number of
factors, including: i) increases or decreases in our sales volumes driven by
changes in production levels for tires or industrial rubber products and the
level at which we service that demand; ii) changes in raw material costs and our
ability to adjust the sales price for our products commensurate with changes in
raw material costs; iii) changes in pricing and product mix, which includes
customer pricing as well as the mix of products sold or the region in which they
are sold; iv) global and regional capacity utilization for carbon black; v)
fixed cost savings achieved through restructuring and other cost saving
activities; vi) the growth of our volumes and market position in emerging
economies; vii) capacity management and technology investments, including the
impact of energy utilization and yield improvement technologies at our
manufacturing facilities; and viii) royalties and technology payments related to
our patented elastomer composites technology that is used in tire applications.

In Performance Chemicals, longer term demand is driven primarily by the
construction and infrastructure, automotive, electronics and consumer products
industries. In recent years, operating results in Performance Chemicals have
been driven by: i) increases or decreases in sales volumes to the industries
previously noted; ii) changes in pricing and product mix, which includes
customer pricing as well as the mix of products sold or the region in which they
are sold; iii) our ability to deliver differentiated products that drive
enhanced performance in customers' applications; iv) our ability to obtain value
pricing for this differentiation; v) the cost of new capacity; vi) changes in
selling prices relative to variations in the cost of raw materials; and vii) the
adoption of new products for use in our customers' applications.

In Purification Solutions, longer term demand is driven primarily by the demand
for activated carbon based solutions for water, gas and air, pharmaceuticals,
food and beverages, catalysts and other chemical applications. Operating results
in Purification Solutions have been influenced by: i) changes in our sales
volumes in the various applications previously noted; ii) management of our
operations, including inventory levels, and the commensurate costs; iii) changes
in price and product mix; iv) industry capacity utilization; and v)
implementation of cost savings initiatives as part of a transformation plan.

Overview of results for fiscal year 2021

Our business saw a strong rebound in results of operations in fiscal 2021
compared to fiscal 2020 which was adversely affected by the COVID-19 pandemic
and its impact on our customers and our operations. In fiscal 2021, we saw a
recovery in demand from the COVID-19 pandemic driven declines we experienced in
fiscal 2020, as volumes in our Performance Chemicals segment returned to
pre-COVID-19 levels, and volumes in our Reinforcement Materials segment returned
to just slightly below pre-COVID-19 levels.

Despite this improvement in demand for our products, the duration and scope of
the COVID-19 pandemic continues to be uncertain as infection rates remain high
in many parts of the world. In addition, the COVID-19 pandemic and other factors
are having a negative impact on the cost and availability of global
transportation and the availability of semi-conductor chips for the automotive
industry. While we expect these global supply chain disruptions and the
semi-conductor chip shortage to impact our Performance Chemicals segment in the
short-term, if they persist or intensify, they could further negatively impact
our results. 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.

If there is a resurgence in the COVID-19 pandemic impacting our business, it
could cause us to recognize write-downs or impairments for certain assets or
result in a reduction in our borrowing availability under our credit
agreements. These factors could also result in an adverse impact on our revenue
as well as our overall profitability.

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Fiscal year 2021 compared to fiscal year 2020-Consolidated

Net sales and other operating income and gross profit


                                            Years Ended September 30
                                             2021               2020
                                                  (In millions)

Net sales and other operating income $ 3,409 $ 2,614
Gross profit

                             $        799       $        500




Net sales increased by $795 million in fiscal 2021 when compared to fiscal 2020.
The increase in net sales was primarily driven by favorable price and product
mix (combined $333 million), higher volumes ($324 million), and the favorable
impact from foreign currency translation ($86 million). The favorable price and
product mix in the Reinforcement Materials segment was due to improved product
mix in all regions and higher prices from higher feedstock costs that are
generally passed through to our customers. The favorable price and product mix
in the Performance Chemicals segment was driven by higher sales into automotive
applications and targeted growth applications and price increases to recover
rising raw material and other costs. The higher volumes in fiscal 2021 were
driven by stronger demand across all regions due to the recovery from demand
declines in fiscal 2020 related to the COVID-19 pandemic.

Gross profit increased by $299 million in fiscal 2021 when compared to fiscal
2020. The gross profit increase was primarily due to higher volumes across all
regions, higher unit margins in the Reinforcement Materials segment due to
stronger pricing in Asia and higher unit margins in the Performance Chemicals
segment due to higher demand in automotive applications and in targeted growth
applications.

Selling and administration costs


                                          Years Ended September 30
                                          2021                 2020
                                                (In millions)

Selling and administration costs $ 289 $ 292

Selling and administrative expenses decreased by $ 3 million during fiscal 2021 compared to fiscal 2020. The decrease is mainly due to the reduction in legal fees, partially offset by an increase in incentive compensation.

Research and technical costs


                                    Years Ended September 30
                                     2021               2020
                                          (In millions)

Research and technical costs $ 56 $ 57

Research and technical costs have decreased by $ 1 million during fiscal year 2021 compared to fiscal year 2020.

Depreciation charges and loss on sale


                                                                  Years Ended September 30
                                                                 2021                   2020
                                                                        (In millions)
Specialty Fluids loss on sale and asset impairment charge   $            -         $            1
Marshall Mine loss on sale and asset impairment charge      $            -         $          129




The loss on sale and asset impairment charges recorded during fiscal 2020 are
described in Note D of our Notes to the Consolidated Financial Statements ("Note
D").

Interest and Dividend Income



                                 Years Ended September 30
                                 2021                2020
                                       (In millions)
Interest and dividend income   $       8           $       8



Interest and dividend income for fiscal 2021 remained stable compared to fiscal 2020.

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Interest Expense



                     Years Ended September 30
                      2021               2020
                           (In millions)
Interest expense   $       49         $       53




Interest expense decreased by $4 million in fiscal 2021 as compared to fiscal
2020. The decrease was primarily due to lower average interest rates, partially
offset by higher average balances.

Other income (expenses)


                           Years Ended September 30
                            2021               2020
                                 (In millions)
Other income (expense)   $       (7 )       $       (9 )




Other expense decreased during fiscal 2021 by $2 million as compared to fiscal
2020. The change was primarily due to termination of the U.S. pension plan in
fiscal 2020.

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



                                                           Years Ended September 30
                                                   2021                              2020
                                        (Provision) /                     (Provision) /
                                         Benefit for                    Benefit for Income
                                        Income Taxes       Rate               Taxes             Rate
(Dollars in millions)
Effective tax rate(1)                   $        (123 )          30 %   $             (191 )       -587 %
Less: Non-GAAP tax adjustments(2)                  (4 )                               (139 )
Operating tax rate                      $        (119 )          27 %   $              (52 )         28 %





(1) Refer to the reconciliation of the tax expense calculated to federal law

provision (benefit) rate for income taxes in note R.

(2) Non-GAAP tax adjustments made to arrive at the provision for operating taxes

include income tax benefit (charge) on certain items and discreet tax

articles, as described in more detail above under the heading “Definition of Terms and

Non-GAAP Financial Measures “.


For the year ended September 30, 2021, the (Provision) benefit for income taxes
was a $123 million expense compared to a $191 million expense for the fiscal
year 2020. Included in the non-GAAP tax adjustment for fiscal 2020 is the tax
impact for a valuation allowance charge recorded against U.S. deferred tax
assets, as described in Note R to our financial statements. Our income taxes are
affected by the mix of earnings in the tax jurisdictions in which we operate,
and the presence of valuation allowances in certain tax jurisdictions.

For fiscal year 2022, the Operating tax rate is expected to be in the range of
27% to 29%. 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.


Equity in earnings of affiliates and net income (loss) attributable to non-controlling interests, net of tax


                                                              Years Ended September 30
                                                             2021                   2020
                                                                    (In millions)

Equity in the results of affiliated companies, net of tax

                                                     $            3         $            3
Net income (loss) attributable to noncontrolling
interests,
  net of tax                                            $           36         $           17



Equity in the results of affiliates, net of tax, remained stable in fiscal 2021 compared to fiscal 2020.

Net income attributable to non-controlling interests, net of tax, increased by $ 19 million in fiscal year 2021 compared to fiscal year 2020 mainly due to the higher profitability of our joint ventures in China and the Czech Republic.

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Net income (loss) attributable to Cabot Company

In fiscal 2021, we reported net income attributable to Cabot Corporation of $250
million ($4.34 earnings per diluted common share). In fiscal 2020, we reported a
net loss attributable to Cabot Corporation of $238 million ($4.21 loss per
diluted common share). The increase in fiscal 2021 is primarily due to higher
Segment EBIT, a $228 million expense related to the tax valuation allowance in
fiscal 2020 that did not recur in fiscal 2021 as discussed in Note R, and a $129
million loss on sale and asset impairment charge in fiscal 2020 related to our
manufacturing facility and our former lignite mine in Marshall, TX that did not
recur in fiscal 2021 as discussed in Note D.

Fiscal year 2021 compared to fiscal year 2020 – By business sector

Income (loss) from continuing operations before income taxes and equity in
earnings of affiliated companies, certain items, pre-tax, other unallocated
items and Total segment EBIT for fiscal 2021 and 2020 are set forth in the table
below. The details of certain items and other unallocated items are shown below
and in Note U of our Notes to the Consolidated Financial Statements.



                                                             Years Ended September 30
                                                             2021                2020
                                                                   (In millions)

Profit (loss) from continuing operations before profit

taxes and equity in affiliate profits $ 406

  $         (33 )
Less: Certain items, pre-tax                                       (34 )              (218 )
Less: Other unallocated items                                     (110 )               (98 )
Total segment EBIT                                       $         550       $         283




In fiscal 2021, Income (loss) from continuing operations before income taxes and
equity in earnings of affiliated companies increased by $439 million and Total
Segment EBIT increased by $267 million. The increase in Income (loss) before
income taxes and equity earnings of affiliated companies was driven by increased
Total Segment EBIT and a $129 million charge for the loss on sale and asset
impairment charge during fiscal 2020 related to our manufacturing facility and
our former lignite mine in Marshall, TX that did not recur. The increase in
Total segment EBIT was driven by higher volumes and unit margins, partially
offset by higher fixed costs in our Reinforcement Materials and Performance
Chemicals segments. Higher volumes in the Reinforcement Materials ($106 million)
and Performance Chemicals ($59 million) segments were driven by stronger demand
across all regions and key end markets due to continued market recovery from the
declines in demand during fiscal 2020 driven by the COVID-19 pandemic. Higher
unit margins in the Reinforcement Materials segment ($96 million) were primarily
driven by improved pricing in Asia. Higher unit margins in the Performance
Chemicals segment ($54 million) were largely due to favorable product mix in our
specialty carbons, specialty compounds and fumed metal oxides product lines as a
result of higher demand in automotive applications and targeted growth
applications.

Some items:

The details of some items for fiscal years 2021 and 2020 are as follows:


                                                              Years Ended September 30
                                                             2021                   2020
                                                                    (In millions)
Indirect tax settlement credits                         $           12         $            3
Legal and environmental matters and reserves (Note T)              (25 )                  (54 )
Global restructuring activities (Note O)                           (11 )                  (19 )
Acquisition and integration-related charges (Note C)                (5 )                   (5 )

Regulations for employee benefit plans and other charges (note M)

                                                            (4 )                  (10 )
Marshall Mine loss on sale and asset impairment
charge (Note D)                                                      -                   (129 )
Inventory reserve adjustment                                         -                     (2 )

Loss on sale and asset impairment charge for specialty fluids (note D)

                                                      -                     (1 )
Other certain items                                                 (1 )                   (1 )
Total certain items, pre-tax                                       (34 )                 (218 )
Non-GAAP tax adjustments                                            (4 )                 (139 )
Total certain items, net of tax                         $          (38 )    

$ (357)

An explanation of these expense and income items is included in our discussion under the heading “Definition of Non-GAAP Financial Terms and Measures”.

                                       33

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Other Unallocated Items:



                                                              Years Ended September 30
                                                             2021                   2020
                                                                    (In millions)
Interest expense                                        $          (49 )       $          (53 )
Unallocated corporate costs                                        (58 )                  (41 )
General unallocated income (expense)                                 -                     (1 )

Less: Equity in affiliate profits, net of tax

                                                               3                      3
Total other unallocated items                           $         (110 )       $          (98 )




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 income, dividend income, the profit or loss
related to the corporate adjustment for unearned revenue, and the impact of
including the full operating results of a contractual joint venture in
Purification Solutions Segment EBIT.

In fiscal 2021, Total other unallocated items increased by $12 million when
compared to fiscal 2020 due to the increase in Unallocated corporate costs for
corporate projects and higher incentive compensation partially offset by the
reduction in Interest income (expense).

Reinforcement materials

Sales and EBIT for Reinforcement Materials for fiscal 2021 and 2020 are as
follows:



                                   Years Ended September 30
                                    2021               2020
                                         (In millions)
Reinforcement Materials Sales   $      1,781       $      1,256
Reinforcement Materials EBIT    $        329       $        162




In fiscal 2021, sales in Reinforcement Materials increased by $525 million when
compared to fiscal 2020. The increase was primarily due to higher volumes ($242
million), a favorable price and product mix (combined $248 million), and a
favorable impact from foreign currency translation ($35 million). The higher
volumes in fiscal 2021 were driven by stronger demand across all regions as
compared to fiscal 2020 due to demand declines resulting from the COVID-19
pandemic. The favorable price and product mix was primarily due to higher prices
from higher feedstock costs that are generally passed through to our customers.

In fiscal 2021, Reinforcement Materials EBIT increased by $167 million when
compared to fiscal 2020. The increase was driven by higher volumes ($106
million), higher unit margins ($96 million), and a favorable impact from foreign
currency translation ($4 million). These factors were partially offset by higher
fixed costs ($39 million). The higher volumes in fiscal 2021 were driven by
stronger demand across all regions as compared to fiscal 2020 due to demand
declines resulting from the COVID-19 pandemic. The higher unit margins were
driven by stronger pricing in Asia. The higher fixed costs were primarily due to
higher maintenance costs after deferrals in the prior year.

In fiscal 2022, we expect to benefit from higher pricing in our 2022 calendar
year customer agreements as we believe customers are placing a premium on supply
security, and higher volumes driven by robust levels of tire production.

Performance chemicals

Sales and EBIT for Performance Chemicals for fiscal 2021 and 2020 are as
follows:



                                Years Ended September 30
                                  2021              2020
                                      (In millions)
Performance Additives Sales   $         796       $     645
Formulated Solutions Sales              352             288
Performance Chemicals Sales   $       1,148       $     933
Performance Chemicals EBIT    $         211       $     118




In fiscal 2021, sales in Performance Chemicals increased by $215 million when
compared to fiscal 2020. The increase was primarily due to higher volumes ($98
million), favorable price and product mix (combined $75 million), and the
favorable impact

                                       34

————————————————– ——————————

the conversion of foreign currencies ($ 42 million). The higher volumes are mainly due to higher demand in our main product lines and the replenishment of inventory for our customers. The favorable product mix is ​​mainly due to higher demand in automotive applications.

In fiscal 2021, EBIT in Performance Chemicals increased by $93 million compared
to fiscal 2020 primarily due to increased volumes ($59 million), higher unit
margins ($54 million), and a favorable impact from foreign currency translation
($7 million), partially offset by higher fixed costs ($29 million). Higher
volumes across all product lines resulted from continuing strength in demand and
inventory replenishment by our customers. Favorable unit margins were driven by
higher demand in automotive applications and in targeted growth applications.
Increased fixed costs were driven by increased production activity, higher
depreciation from the startup of our new fumed metal oxides plant, and higher
maintenance costs after deferrals in the prior year.

In fiscal 2022, we anticipate continued demand growth across the segment driven
by lessening pandemic impacts and supply chain stabilization as we move through
the fiscal year, as well as strong fundamentals in key end use industries,
augmented by the high-growth areas of battery materials and inkjet in commercial
and packaging printing applications. While external challenges, such as rising
input costs, global supply chain disruptions and the semi-conductor chip
shortage, are likely to remain in the short-term, we expect the impact to
moderate as we move through the fiscal year and expect to recover rising input
costs through price increases.

Purification solutions

Sales and EBIT for Purification Solutions for fiscal 2021 and 2020 are as
follows:



                                   Years Ended September 30
                                   2021                 2020
                                         (In millions)
Purification Solutions Sales   $        257         $        253
Purification Solutions EBIT    $         10         $          3




Sales in Purification Solutions increased by $4 million in fiscal 2021 when
compared to fiscal 2020 due to improved pricing and a more favorable product mix
(combined $11 million) and the favorable impact from foreign currency
translation ($9 million), partially offset by lower volumes ($16 million). The
favorable price and product mix was driven by a shift towards our specialty
applications. The lower volumes were primarily due to lower sales in mercury
removal products.

EBIT in Purification Solutions increased by $7 million in fiscal 2021 when
compared to fiscal 2020 due to a reduction in fixed costs ($14 million),
partially offset by lower volumes ($8 million). The reduction in fixed costs was
driven by the sale of our mine in Marshall, TX and the related long-term
activated carbon supply agreement. The lower volumes were primarily due to a
decrease in sales of mercury removal products.

On November 25, 2021, we entered into a Share Purchase Agreement with an
affiliate of funds advised by One Equity Partners ("OEP") for the sale of our
Purification Solutions business, subject to the satisfaction or waiver of the
conditions set forth in the agreement. We expect to close the transaction in the
second quarter of fiscal 2022.



Liquidity and capital resources

Overview

Our liquidity position, as measured by cash and cash equivalents plus borrowing
availability, decreased by $128 million during fiscal 2021, which was largely
attributable to the termination of our $100 million unsecured revolving credit
agreement with TD Bank, NA, as Lender which had a maturity date of September
2021 (the "Canadian Credit Agreement") in the second quarter of fiscal 2021,
higher net working capital, and capital expenditures, partially offset by
improved earnings from operations. The Canadian Credit Agreement provided
liquidity for working capital and general corporate purposes for certain of our
Canadian subsidiaries. We had no borrowings under this agreement during either
fiscal 2021 or 2020.

From September 30, 2021, we had cash and cash equivalents of $ 168 million and the availability of borrowing under our revolving credit agreements of $ 1.1 billion.

We have access to loans 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 two one-year options
          to extend the maturity, exercisable on or prior to August 6, 2022 and
          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.


                                       35

————————————————– ——————————

       •  €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 at the end of we Credit agreement.

          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 September 30, 2021, we were in compliance with the debt covenants under
the Credit Agreements, which, with limited exceptions, generally require us to
comply on a quarterly basis with a leverage test. The U.S. Credit Agreement
requires a leverage ratio of net debt, with the ability to offset such debt by
the lesser of (i) unrestricted cash and cash equivalents and (ii) $150 million,
to consolidated EBITDA not to exceed 3.50 to 1.00. The Euro Credit Agreement
required a leverage ratio of total debt to consolidated EBITDA not to exceed
3.50 to 1.00. Effective October 19, 2021, we amended the Euro Credit Agreement
to include a leverage test using net debt, consistent with the U.S. Credit
Agreement.

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. Cash held by foreign subsidiaries is generally used to finance the
subsidiaries' operational activities and future investments. We are currently
using a combination of commercial paper and borrowings from the U.S. Credit
Agreement to meet our U.S. cash needs. We generally 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 funds or to access
additional debt under the Credit Agreements. As of September 30, 2021, we had
$71 million of commercial paper outstanding and our borrowings under the Euro
Credit Agreement totaled $134 million.

We generally manage our cash and debt on a global basis to provide for working
capital requirements as needed by region or site. Cash and debt are generally
denominated in the local currency of the subsidiary holding the assets or
liabilities, except where there are operational cash flow reasons to hold
non-functional currency or debt.

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 changes in our cash balance makes reference to the various sections of our consolidated statements of cash flows.

Cash flow 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 $257 million in fiscal
2021. Operating activities provided $377 million of cash in fiscal 2020.

Cash provided by operating activities in fiscal 2021 was driven by business
earnings excluding the non-cash impacts of depreciation and amortization of $160
million, which was partially offset by an increase in net working capital of
$222 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. Additionally, we made a cash payment of $33 million in the first
quarter of fiscal 2021 related to the settlement of a large group of respirator
claims in fiscal 2020 as discussed in Note T.

Cash provided by operating activities in fiscal 2020 was driven by business
earnings excluding the non-cash impacts of depreciation and amortization of $158
million, the loss on sale and asset impairment of $129 million related to our
manufacturing facility and our former lignite mine in Marshall, TX, and a
deferred tax provision of $130 million which was primarily driven by a change in
our tax valuation allowance. In addition, cash provided by operating activities
benefited from lower net working capital balances, including a decrease in
Accounts and notes receivable of $126 million, and a decrease in our Inventories
of $114 million, partially offset by a decrease in Accounts payable and accrued
liabilities of $55 million.

In addition to the factors mentioned above, the following other operating items affect operating cash flow:

Restructuring – From September 30, 2021, we have had $ 9 million of total restructuring costs in accrued liabilities on the Consolidated Balance Sheets related to our global restructuring activities. We made cash payments of $ 9 million in fiscal year 2021. We expect to make additional cash payments of approximately $ 11 million during fiscal year 2022 and $ 4 million after.

                                       36

--------------------------------------------------------------------------------
Litigation Matters - As of September 30, 2021, we had a $44 million reserve for
existing and future respirator claims that we expect to pay over multiple years.
During fiscal 2020, we settled a large group of respirator claims for $65
million. We paid half of this settlement during fiscal 2020, and the remainder
in the first quarter of fiscal 2021. We also have other lawsuits, claims and
contingent liabilities arising in the ordinary course of business.

Cash flow from investing activities

Investing activities consumed $186 million of cash in fiscal 2021 compared to
$288 million in fiscal 2020. In fiscal 2021, the use of cash by investing
activities primarily consisted of $195 million of capital expenditures for
sustaining and compliance capital projects at our operating facilities as well
as growth-related capital, including a capacity expansion project in Performance
Chemicals.

In fiscal 2020, the use of cash by investing activities primarily consisted of
$200 million of capital expenditures for sustaining and compliance capital
projects at our operating facilities as well as capacity expansion capital
expenditures in Reinforcement Materials and Performance Chemicals, an $84
million payment, net of cash acquired, for the SUSN acquisition in April 2020
and an $8 million payment for the plant that we acquired from NSCC in September
2018.

Capital expenditures for fiscal 2022 are expected to be between $225 million and
$250 million. Our planned capital spending program for fiscal 2022 is primarily
for sustaining, compliance and improvement capital projects at our operating
facilities as well as capacity expansion capital expenditures in Performance
Chemicals.

Cash flow from financing activities

Financing activities consumed $60 million of cash in fiscal 2021 compared to
$132 million in fiscal 2020. The use of cash by financing activities in fiscal
2021 primarily consisted of dividend payments to stockholders of $80 million,
dividend payments to noncontrolling interests of $19 million, and net repayments
of long-term debt of $22 million, which consisted of proceeds of $200 million
less repayments of $222 million, partially offset by net proceeds from the
issuance of commercial paper of $58 million.

The use of cash by financing activities in fiscal 2020 primarily consisted of
dividend payments to stockholders of $80 million, share repurchases of $44
million, dividend payments to noncontrolling interests of $26 million, the
repayment of $16 million of long-term debt and the net repayment of $19 million
of commercial paper, partially offset by the net proceeds from borrowings under
our revolvers of $50 million, which includes proceeds of $444 million less
repayments of $394 million.

At September 30, 2021, we had $1.1 billion of availability under our Credit
Agreements. Although we typically have an outstanding commercial paper balance
during the quarter, we generally reduce the balance at quarter-end through cash
receipts from collections, settlement of intercompany balances and short-term
intercompany loans. There was $71 million and $14 million of commercial paper
outstanding at September 30, 2021 and 2020, respectively.

Our long-term total debt, of which $373 million is current, matures at various
times as presented in Note I of our Notes to the Consolidated Financial
Statements. Our current plan is to refinance the $350 million in registered
notes with a coupon of 3.7% that mature in July of 2022 during the first half of
calendar 2022. The weighted-average interest rate on our fixed rate long-term
debt was 3.84% as of September 30, 2021.

Share buybacks

In fiscal 2018, our Board of Directors authorized us to repurchase up to 10
million shares of common stock. We did not repurchase any shares during fiscal
2021. We repurchased 0.9 million shares of our common stock on the open market
for $39 million during fiscal 2020. Additionally, during both fiscal 2021 and
fiscal 2020 we repurchased 0.1 million shares of our common stock associated
with employee tax obligations on stock-based compensation awards for $3 million
and $5 million, respectively. As of September 30, 2021, we had approximately 5
million shares available for repurchase under the Board of Directors' share
repurchase authorization.

Dividend payments

During fiscal years 2021 and 2020, we paid cash dividends on our common shares of $ 1.40 per share, respectively. These cash dividend payments totaled $ 80 million during fiscal year 2021 and fiscal year 2020.

Employee benefit plans

As of September 30, 2021, we had a consolidated pension obligation, net of the
fair value of plan assets, of $51 million, comprised of $7 million for pension
benefit plan liabilities and $44 million for postretirement benefit plan
liabilities.

                                       37

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The $7 million of unfunded pension benefit plan liabilities is derived as
follows:



                            U.S.       Foreign      Total
                                    (In millions)
Fair value of plan assets   $   -     $     217     $  217
Benefit obligation              3           221        224
Funded (unfunded) status    $  (3 )   $      (4 )   $   (7 )



In fiscal 2021, we made cash contributions totaling $ 5 million to our pension plans. In fiscal year 2022, we expect to make cash contributions of $ 3 million to our pension plans.

The $44 million of unfunded postretirement benefit plan liabilities is comprised
of $25 million for our U.S. and $19 million for our foreign postretirement
benefit plans. These postretirement benefit plans provide certain health care
and life insurance benefits for retired employees. Typical of such plans, our
postretirement plans are unfunded and, therefore, have no plan assets. We fund
these plans as claims or insurance premiums come due. In fiscal 2021, we paid
postretirement benefits of $3 million. For fiscal 2022, our benefit payments for
our postretirement plans are expected to be $3 million.

In fiscal 2019, our Board of Directors approved a resolution to terminate the
U.S. pension plan. We commenced the U.S. plan termination process during the
third quarter of fiscal 2019 and completed the transfer of the U.S. plan's
assets to participants during fiscal 2021. The pension liability was settled
through a combination of lump-sum payments and purchased annuities, neither of
which required an additional cash contribution. In fiscal 2020, we recognized a
settlement loss of $3 million related to lump-sum payments made to participants
who elected this option, which was recorded in Other income (expense) in the
Consolidated Statements of Operations. In fiscal 2021, we recognized an
additional $4 million settlement loss in Other income (expense) related to the
final asset transfers through purchased annuities.

Contractual obligations

The following table shows our long-term contractual obligations.


                                                       Payments Due by Fiscal Year
                           2022        2023        2024        2025        2026        Thereafter       Total
                                                              (In millions)
Purchase commitments      $   260     $   186     $   186     $   185     $   187     $      1,786     $  2,790
Long-term debt                369           -         134           -         250              308        1,061
Fixed interest on
long-term debt                 36          21          21          21          21               37          157
Variable interest on
long-term debt                  2           2           1           -           -                -            5
Finance leases(1)               5           5           5           4           4               18           41
Operating leases(1)            16          14          11          10           9               57          117
Total                     $   688     $   228     $   358     $   220     $   471     $      2,206     $  4,171



(1) Rental debts include interest.

Purchase commitments

We have entered into long-term, volume-based purchase agreements primarily for
the purchase of raw materials and natural gas with various key suppliers for all
of our business segments. Under certain of these agreements the quantity of
material being purchased is fixed, but the price we pay changes as market prices
change. For purposes of the table above, current purchase prices have been used
to quantify total commitments. We have also entered into long-term purchase
agreements primarily for services related to information technology, which are
not included in the table above, that total $7 million as of September 30, 2021,
the majority of which is expected to be paid within the next 5 years.

Leases

We have entered into various leases as the lessee, primarily related to certain
transportation vehicles, warehouse facilities, office space, and machinery and
equipment. These leases have remaining lease terms between one and eighteen
years, some of which may include options to extend the leases for up to fifteen
years or options to terminate the leases. Our land leases have remaining lease
terms up to sixty-nine years.

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