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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 1-5667

Cabot Corporation

(617) 345-0100

Securities registered pursuant to Section 12(b) of the Act:

Preferred Stock Purchase Rights

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     Yes o

      The aggregate market value of the Registrant’s common stock held beneficially or of record by shareholders who are not directors or executive officers of the Registrant at November 29, 2002, was approximately $1,461,000,000, based on the closing price on that date of $25.33, on the New York Stock Exchange, Inc.

      Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     Yes þ No o

      The aggregate market value of the Registrant’s common stock held beneficially or of record by shareholders who were not directors or executive officers of the Registrant at March 31, 2002 was approximately $2,157,000,000, based on the closing price on that date of $36.85, on the New York Stock Exchange, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Shareholders are incorporated by reference in Part III of this annual report on Form 10-K.

Table of Contents

PART I

Item 1.     Business

General

      Cabot’s business was founded in 1882 and incorporated in the State of Delaware in 1960. The Company has businesses in specialty chemicals, performance materials, and specialty fluids. The Company and its affiliates have manufacturing facilities in the United States and more than 20 other countries.

      The terms “Cabot” and “Company” as used in this Report refer to Cabot Corporation and its consolidated subsidiaries.

      The description of the Company’s businesses is as of September 30, 2002, unless otherwise noted. Financial information about the Company’s business segments and geographic areas appears in the Overview and Continuing Operations sections of Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7 below, and in Note S of the Notes to the Company’s Consolidated Financial Statements in Item 8 below.

      In February 2002, the Company purchased the remaining 50% of the shares in Showa Cabot Supermetals KK (“SCSM”) in Japan from its joint venture partner, Showa Denko KK. The acquisition of SCSM expanded the capacity of Cabot’s tantalum business.

      During the fiscal year ended September 30, 2002, Cabot repurchased approximately 2.6 million shares of its common stock, $1.00 par value per share (the “Common Stock”), for the purpose of reducing the total number of shares outstanding as well as offsetting shares issued under the Company’s employee incentive compensation programs.

      Additional information regarding significant events affecting the Company during its fiscal year ended September 30, 2002 is set forth in Item 7 below under Management’s Discussion and Analysis of Financial Condition and Results of Operation.

      The Company’s internet address is www.cabot-corp.com. The Company makes available free of charge on or through its internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the Securities and Exchange Commission (the “Commission”).

Chemical Businesses

     Carbon Black

      The Company manufactures and sells carbon black. Carbon black is a form of elemental carbon, which is manufactured in a highly controlled process to produce particles and aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of applications. Carbon black is used to enhance the physical, electrical and optical properties of the systems and applications in which it is incorporated. The Company’s carbon black products are used in tires, industrial products and high performance applications. Carbon blacks are used in the tire industry as a rubber reinforcing agent and a performance additive. These products are marketed globally and are used in all types of tires. Carbon blacks are used in industrial products in applications such as hoses, belts, extruded profiles and molded goods. In fiscal year 2000, the Company combined its plastics business with its special blacks business to form its performance products business group (“PPB Group”). The PPB Group manufactures specialized grades of carbon black which are used as pigments, to enhance conductivity and static charge control, to provide UV protection, to enhance mechanical properties, and to provide chemical flexibility through surface treatment. These products are used in many industries such as inks, coatings, cables, pipes, toners and electronics. The PPB Group also markets carbon black, and produces and markets black and white thermoplastic concentrates and specialty compounds to the plastics industry.

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      Cabot sells products under various trademarks, a large number of which are registered or for which the Company is seeking registration in one or more countries. (See “Other” below.) Sales are made in Europe (concentrates, compounds and carbon black), North America (carbon black), South America (concentrates, compounds and carbon black), and Asia (concentrates, compounds and carbon black) through Company employees, and through distributors and sales representatives.

      The Company believes that it is the leading manufacturer of carbon black in the world, with an estimated one-quarter of the worldwide production capacity and market share of carbon black. The Company competes in the manufacture of carbon black primarily with two companies having a global presence and with at least 20 other companies in various regional markets in which it operates. (See “Other” below.)

      The Company owns and operates carbon black production plants in Argentina, Australia, Brazil, Canada, China, Colombia, England, France, India, Indonesia, Italy, The Netherlands, Spain and the United States. Affiliates of the Company own carbon black plants in the Czech Republic, Japan, Malaysia, Mexico and Venezuela. Headquarters for the Company’s carbon black business are located in Boston, Massachusetts, with regional headquarters in Billerica, Massachusetts (North America), São Paulo, Brazil (South America), Leuven, Belgium (Europe) and Kuala Lumpur, Malaysia (Asia Pacific). Some of the plants listed above are built on leased land. (See “Properties” below.)

      The principal raw material used in the manufacture of carbon black is a portion of the residual heavy oils derived from petroleum refining operations and from the distillation of coal tars and the production of ethylene throughout the world. Natural gas also goes into the production of carbon black. While the availability of raw materials has not been a significant factor for the Company’s carbon black business, the Company may experience some difficulty obtaining low sulfur feedstock at an acceptable cost for its European operations in the event the proposed Best Available Techniques (“BAT”) Reference Documents, so-called BREF Notes, for the European carbon black industry, which are described more fully under “Safety, Health and Environment” below, calling for a reduction in annual average sulfur content in carbon black feedstock to 0.5%, is adopted. Raw material costs are influenced by the cost and availability of oil worldwide and the availability of various types of carbon black oils.

      The thermoplastic concentrates and specialty compounds sold by the Company are produced in facilities in Belgium, Italy, the United Kingdom and Hong Kong. In Europe, the Company is one of the five leading producers of thermoplastic concentrates. Other than carbon black feedstock, the primary raw materials used in this business are titanium dioxide, thermoplastic resins and mineral fillers. Raw materials for these concentrates and components are, in general, readily available.

      Management continues to support carbon black new product development initiatives that have significant customer involvement or sponsorship. Management also supports process research and development initiatives that can lead to production optimization.

     Fumed Metal Oxides

      The Company manufactures and sells fumed metal oxides, including fumed silica and fumed alumina and dispersions thereof under various trademarks. Fumed silica is an ultra-fine, high-purity particle used as a reinforcing, thickening, abrasive, thixotropic, suspending or anti-caking agent in a wide variety of products produced for the automotive, construction, microelectronics, and consumer products industries, including adhesives, sealants, cosmetics, inks, silicone rubber, coatings, polishing and pharmaceuticals. The headquarters for the Company’s fumed metal oxides business are located in Billerica, Massachusetts. This business has two North American fumed metal oxides manufacturing plants, which are located in Tuscola, Illinois and Midland, Michigan. The Midland plant was completed in September 1999, began operations in November 1999 and achieved full output and qualification in fiscal year 2001. The Company also owns manufacturing plants in Wales and Germany. In addition, a joint venture owned 50% by the Company and 50% by an Indian entity owns a plant in India, which began operations in the spring of 1998. Raw materials for the production of fumed silica are various chlorosilane feedstocks. The feedstocks are either purchased or converted to product on a fee-basis (so-called “toll conversion”) for owners of the feedstock. The Company also purchases aluminum chloride as feedstock for the production of fumed alumina. The Company has long-term

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     Inkjet Colorants

      Inkjet colorants are pigment-based black and other colorants, which are designed to replace traditional pigment dispersions and dyes used in inkjet printing applications. Products produced by the Company’s inkjet colorants business target various printing markets, including home and office printers, wide format printers, and commercial and industrial printing applications. The Company’s black colorants have become integral components in several inkjet printing systems introduced to the market since 1998. The Company commercialized color pigments during fiscal year 2002. Sales are made by Company employees and through distributors and sales representatives. The headquarters of the Company’s inkjet colorants business are located in Billerica, Massachusetts. Raw materials for the inkjet colorants business include carbon black, as well as other products, from various sources. The Company believes that all raw materials for this business are in adequate supply.

     Aerogels

      Cabot’s aerogels, which are marketed under the Nanogel^TM trademark, are hydrophobic silica particles with potential uses in a variety of thermal and sound insulation applications. During the fiscal year, the aerogels business completed construction of a new semi-works facility located in Frankfurt, Germany, which is in the start-up phase. The headquarters for the business are located in Boston, Massachusetts. The principal raw materials for the production of aerogels are silicic acid and sodium silicate, which the Company believes are in adequate supply.

      The first commercial shipment of the Company’s Nanogel^TM product occurred in December 2002. The product shipped was used in the manufacture of translucent panels for the construction industry. Because this business and its products represent a new business for the Company utilizing a new chemical process, its operations are subject to several risks, including the risk that expected capacity output at the business’s newly constructed semi-works facility is delayed or not achieved, and that the business’s products do not achieve market acceptance.

Performance Materials

      The Company produces tantalum, niobium (columbium) and their alloys. Tantalum, which accounts for substantially all of this business’ sales, is produced in various forms including powder and wire for electronic capacitors. Tantalum and niobium and their alloys are also produced in wrought form for non-electronic applications such as chemical process equipment and the production of superalloys, and for various other industrial and aerospace applications. The headquarters for this business are currently being relocated to Boston, Massachusetts. In February 2002, the Company purchased the remaining 50% of the shares of Showa Cabot Supermetals in Japan from its joint venture partner, Showa Denko KK. The Company operates manufacturing facilities for this business in Boyertown, Pennsylvania, and in Higashi-Nagahara, Japan. Raw materials are obtained by the Company from ores mined principally in Australia, Brazil and Canada and from by-product tin slags from tin smelting mainly in Malaysia and Thailand. Raw materials are currently in adequate supply. Sales in the United States are made by Company employees, with export sales to Europe handled by Company employees, independent European sales representatives and an affiliated company. Sales in Japan and other parts of Asia are handled primarily through Company employees. There are currently two principal competitors producing tantalum and niobium. The Company believes that it is the leading producer of electronic grade tantalum powder products, with competitors having greater production in some other product lines. (See “Other” below.)

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Specialty Fluids

      The Company’s specialty fluids business produces and markets cesium formate as a drilling and completion fluid for use primarily in high pressure and high temperature oil and gas well operations. Cesium formate products are solids-free, high-density fluids that have a low viscosity, permitting them to flow readily in oil and gas wells. The fluid is resistant to high temperatures, does not damage producing reservoirs and is readily biodegradable. The Company has been shipping the fluid to facilities in Aberdeen, Scotland, and Bergen, Norway, for application in its target market, the North Sea, and to facilities in The Woodlands, Texas for application in the Gulf of Mexico. During fiscal year 2002, cesium formate was used successfully in 13 oil and gas well completions and 4 drill-in applications. The specialty fluids business has its headquarters in The Woodlands, Texas, and has a mine and a cesium formate manufacturing facility in Manitoba, Canada. The Company makes cesium formate sales directly to oil and gas operating companies and through existing oil field service companies. Customers principally rent cesium formate from the Company but are required to purchase any of the product that is not returned to the Company after the job is completed. The principal raw material used in this business is pollucite ore, which the Company obtains from its mine. The Company has an adequate supply of this cesium-rich ore, with approximately 82% of the world’s known cesium reserves. Because each job for which cesium formate is used requires a large volume of the product, the specialty fluids business must carry a large inventory. The Company reclaims between 60% and 90% of the cesium formate used in each job, which is returned to inventory for use in subsequent well operations. The Company’s specialty fluids business also markets fine cesium chemicals to various industrial chemical companies, and mined spodumene to the pyroceramics industry. Sales of those products are made by Company employees and through sales representatives. The specialty fluids business also mines and processes tantalum ore for shipment to Cabot Performance Materials.

Discontinued Businesses

      As reported in the Company’s Form 8-K filed with the Commission on October 3, 2000, in September 2000 the Company sold all of its liquefied natural gas (LNG) business, which is being reported as a discontinued operation in the Financial Information being filed as a part of this annual report on Form 10-K. The Company also completed the initial public offering of approximately 20% of its microelectronics materials business, conducted by Cabot Microelectronics Corporation, in the third quarter of fiscal year 2000. The offering was followed by a distribution of the Company’s remaining shares of Cabot Microelectronics Corporation common stock to Cabot shareholders which was completed on September 29, 2000, which was also reported in the Company’s Form 8-K filed with the Commission on October 3, 2000. This business is also being reported as a discontinued operation in the Financial Information being filed as a part of this annual report on Form 10-K. See Note D of the Notes to the Company’s Consolidated Financial Statements which appear in Item 8 of this annual report on Form 10-K for the fiscal year ended September 30, 2002.

Other

      The Company owns and is a licensee of various patents, which expire at various times, covering many of its products, as well as processes and product uses. Although the products made and sold under these patents and licenses are important to the Company, the loss of any particular patent or license would not materially affect the Company’s business, taken as a whole. The Company sells its products under a variety of trademarks, the loss of any one of which would not materially affect the Company’s businesses, taken as a whole.

      With the exception of the Company’s former LNG business referred to above, the Company’s businesses are generally not seasonal in nature, although they experience some decline in European sales in the fourth fiscal quarter due to summer plant shutdowns. The Company believes that as of September 30, 2002, approximately $201 million of backlog orders for its businesses were firm, compared to firm backlog orders as of September 30, 2001 of approximately $209 million. Backlog consists of firm purchase orders for which a delivery date has been scheduled. Because customers may generally cancel purchase orders with little or no notice without any significant penalty, and because most orders are typically shipped within 30 days of receipt,

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      Many of the Company’s chemicals and materials are used in products associated with the automotive industry such as tires, extruded profiles, hoses, molded goods, capacitors and paints. The Company’s financial results are affected by the cyclical nature of the automotive industry, although a large portion of the market is for replacement tires and other parts which are less subject to automobile industry cycles. The Company has long-term carbon black supply contracts with two of its North American tire customers, one of which expires at the end of calendar year 2003, and expects in the future to pursue a similar strategy under appropriate circumstances. Those contracts are designed to provide such customers with a secure supply of carbon black and reduce the volatility in the Company’s carbon black volumes and margins caused, in part, by automobile industry cycles.

      Five major tire and rubber customers, one silicones customer, three capacitor materials customers and one microelectronics customer represent a material portion of the total net sales and operating revenues of the Company’s businesses; the loss of one or more of these customers could materially adversely affect the Company’s businesses taken as a whole. In fiscal year 2002, sales to Goodyear Tire and Rubber Company by the Company’s Chemical Businesses amounted to 11% of the Company’s consolidated revenues.

      Competition in the Company’s businesses is based on price, service, quality, product performance and technical innovation. Competitive conditions also necessitate carrying an inventory of raw materials and finished goods in order to meet customers’ needs for prompt delivery of products. On behalf of certain carbon black producers, including the Company, an industry group has filed an antidumping petition with authorities in the European Union in response to rubber black imports from Egypt and Russia. The Company has also sought antidumping relief in other jurisdictions, including Indonesia and Malaysia.

Employees

      As of September 30, 2002, the Company had approximately 4,500 employees. Approximately 440 employees in the United States are covered by collective bargaining agreements. The Company believes that its relations with its employees are satisfactory.

Research and Development

      The Company develops new and improved products and processes and greater operating efficiencies through Company-sponsored research and technical service activities, including those initiated in response to customer requests. Expenditures by the Company for such activities are shown in the Consolidated Statements of Income which appears in Item 8 of this annual report on Form 10-K for the fiscal year ended September 30, 2002.

Safety, Health and Environment

      The Company has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (the “Superfund law”) and comparable state statutes with respect to several sites. (See “Legal Proceedings” below.) During the next several years, as remediation of various environmental sites is carried out, the Company expects to spend a significant portion of its $29 million environmental reserve for costs associated with such remediation. The Company anticipates that the expenditures at these sites will be made over a number of years, and will not be concentrated in any one year. Adjustments are made to the reserve based on the Company’s continuing analysis of its share of costs likely to be incurred at each site. Inherent uncertainties exist in these estimates due to unknown conditions at the various sites, changing governmental regulations and legal standards regarding liability, and changing technologies for handling site investigation and remediation. No assurance can be given that the actual costs to investigate and remediate these sites will not exceed the accrued amounts in the environmental reserve. The sites are primarily associated with divested businesses. It is possible that the Company may also incur future costs relating to sites that are not currently known to the Company or as to which it is currently not possible to make an estimate. While it is always possible that an unusual event may occur with respect to a given site

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      The Company’s ongoing operations are subject to extensive federal, state, local, and foreign laws, regulations, rules, and ordinances relating to safety, health, and environmental matters (“SH&E Requirements”). The Company has expended considerable sums to construct, maintain, operate, and improve facilities for safety, health and environmental protection and to comply with SH&E Requirements. In recognition of the importance of these matters to the Company, in February 1990, the Company’s Board of Directors established a Safety, Health, and Environmental Affairs Committee. The Committee, which is comprised of six non-employee directors and generally meets three times a year, is charged with reviewing the Company’s safety and environmental management programs and major hazard analyses, reviewing the Company’s environmental capital spending and consulting with the Company’s outside and internal advisors regarding management of the Company’s safety, health and environmental programs.

      The operation of any chemical manufacturing business as well as the sale and distribution of chemical products involve risks under SH&E Requirements, many of which provide for substantial monetary fines and criminal sanctions for violations. The production and/or processing of carbon black, fumed metal oxides, tantalum, niobium and other chemicals involves the handling, manufacture or use of certain substances or components that may be considered toxic or hazardous within the meaning of applicable SH&E Requirements, and certain operations have the potential to cause environmental or other damage as well as injury or death to employees or third parties. The Company could incur significant expenditures in connection with such operational risks. The Company believes that its ongoing operations comply with current SH&E Requirements in a manner that should not materially affect the earnings or cash flow of the Company in an adverse manner. There can be no assurance, however, that significant costs or liabilities will not be incurred with respect to SH&E Requirements and the Company’s operations. Moreover, the Company is not able to predict whether future changes or developments in SH&E Requirements will affect its earnings or cash flow in a materially adverse manner.

      In 1996, the International Agency for Research on Cancer (“IARC”) revised its evaluation of carbon black from Group 3 (insufficient evidence to make a determination regarding carcinogenicity) to Group 2B (known animal carcinogen, possible human carcinogen), based solely on results of studies of female rat responses to the inhalation of carbon black. The Company has communicated this change in IARC’s evaluation of carbon black to its customers and employees and has made changes to its material safety data sheets and elsewhere, as appropriate. The Company continues to believe that available evidence, taken as a whole, indicates that carbon black is not carcinogenic to humans, and does not present a health hazard when handled in accordance with good housekeeping and safe workplace practices as described in the Company’s material safety data sheets.

      In October 1999, the California Office of Environmental Health Hazard Assessment (“OEHHA”) published a Notice of Intent to add “carbon black (airborne particles of respirable size)” to its list of chemicals known to the state to cause cancer promulgated pursuant to the California Safe Drinking Water and Toxic Enforcement Act, commonly referred to as Proposition 65. OEHHA stated it was taking this action in light of IARC’s 1996 reclassification of carbon black. Proposition 65 requires businesses to give warnings to individuals before they knowingly or intentionally expose them to chemicals subject to its requirements, and it prohibits businesses from knowingly discharging or releasing the chemicals into water or onto land where they could contaminate drinking water. The Company is working with the International Carbon Black Association (“ICBA”) and various customers and carbon black user groups to respond to the proposal by OEHHA to add carbon black to the list of chemicals subject to Proposition 65.

      In April 2002, The Netherlands published the “Dutch Notes on BAT for the Carbon Black Industry” to support the identification of Best Available Techniques (“BAT”) for the European carbon black industry pursuant to European Union (“EU”) Directive 96/61/EEC. BAT Reference Documents, so-called BREF Notes, are being prepared by various EU member countries under supervision of the Integrated Pollution Prevention and Control Bureau (the “IPPC Bureau”). The Netherlands has taken initial responsibility for

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      On May 15, 2002, the United States Environmental Protection Agency (“EPA”) signed the final rule amending the Generic Maximum Achievable Control Technology (“MACT”) standards to add National Emissions Standards for Hazardous Air Pollutants (“NESHAP”) for the carbon black production source category (“Carbon Black MACT”) as required under Title III of the Clean Air Act Amendments of 1990. This new rule was published in the Federal Register on July 12, 2002 and will become effective for carbon black plants located in the United States on July 12, 2005. EPA has identified hazardous air pollutants (“HAPs”) associated with the production of carbon black. The Carbon Black MACT requires 98% elimination of HAPs emissions from process vents on facility main unit filters. This is generally accomplished by combusting the tail gas vented from these filters. The Company estimates that it will be required to expend approximately $15 million in capital improvements by July 12, 2005 to comply with the Carbon Black MACT in connection with three of the Company’s carbon black facilities located in the United States.

Financial Information About Segments, Foreign and Domestic Operations and Export Sales

      Segment financial data are set forth in the Continuing Operations section of Management’s Discussion and Analysis of Financial Condition and Results of Operation in Item 7, and in Note S of the Notes to the Company’s Consolidated Financial Statements, which appear in Item 8 of this annual report on Form 10-K for the fiscal year ended September 30, 2002. The Company’s former LNG business and microelectronics materials business are being reported as discontinued operations in the Financial Information being filed as a part of this annual report on Form 10-K. A significant portion of the Company’s revenues and operating profits is derived from overseas operations. The profitability of the Company’s segments is affected by fluctuations in the value of the U.S. dollar relative to foreign currencies. (See the Geographic Information portion of Note S of the Notes to the Company’s Consolidated Financial Statements for further information relating to sales and long-lived assets by geographic area and Management’s Discussion and Analysis of Financial Condition and Results of Operation.) Currency fluctuations and nationalization and expropriation of assets are risks inherent in international operations. The Company has taken steps it deems prudent in its international operations to diversify and otherwise to protect against these risks, including the use of foreign currency financial instruments to reduce the risk associated with changes in the value of certain foreign currencies compared to the U.S. dollar. (See the Risk Management discussion contained in Quantitative and Qualitative Disclosures About Market Risk in Item 7A below, and Note R of the Notes to the Company’s Consolidated Financial Statements, which appears in Item 8 of this annual report on Form 10-K for the fiscal year ended September 30, 2002.)

Item 2.     Properties

      The Company owns or leases and operates office, production, storage, distribution, marketing and research and development facilities in the United States and in foreign countries.

      The Company’s corporate headquarters are in leased office space in Boston, Massachusetts. The Company also leases or owns other principal facilities that are used by its business segments, as set forth in the table below. In addition, the Company holds mining rights in Canada.

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Chemical Businesses

     Carbon Black:

     Owned — Administrative Offices and/or Manufacturing Plants:

     Leased — Administrative Offices and/or Manufacturing Plants:

     Owned — Research and Development Facilities:

     Leased — Research and Development Facilities:

     Fumed Metal Oxides:

     Owned — Administrative Offices and/or Manufacturing Plants:

     Leased — Administrative Offices and/or Manufacturing Plants:

     Inkjet Colorants:

     Owned — Administrative Offices and/or Manufacturing Plants:

     Leased — Administrative Offices and/or Manufacturing Plants:

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     Aerogels:

     Owned — Manufacturing Plants and/or Research and Development Facilities:

     Leased — Administrative Offices and/or Manufacturing Plants:

Performance Materials

     Owned — Administrative Offices and/or Manufacturing Plants:

     Leased — Administrative Offices and/or Manufacturing Plants:

Specialty Fluids

     Owned — Administrative Offices and/or Manufacturing Plants:

     Leased — Administrative Offices and/or Manufacturing Plants:

	* On leased land.

      The Company’s administrative offices are generally suitable and adequate for their intended purposes. Existing and currently planned manufacturing and other facilities of the Company are sufficient to meet the Company’s anticipated requirements for the foreseeable future.

Item 3.     Legal Proceedings

      The Company is a defendant in various lawsuits and environmental proceedings wherein substantial amounts are claimed. The following is a description of the significant proceedings pending as of September 30, 2002, unless otherwise specified.

Environmental Proceedings

      In November 1997, Cabot was sued in the District Court of Potter County, Texas by K N Energy, Inc. (“KNE”) and various related entities for environmental remediation costs at approximately 45 gas plants and compressor stations located in New Mexico, Oklahoma and Texas. In July 1998, an arbitration panel ordered Cabot to pay $3.38 million for past response costs incurred by KNE as well as up to 80% of future groundwater remediation costs at six of the sites as such costs are incurred by KNE. In April 2002, Cabot and Kinder Morgan, Inc. (KNE’s successor), settled all remaining issues with Cabot paying an additional $942,000 and taking remedial responsibility directly at three of the remaining disputed sites.

      Beginning in May 1986, the New Jersey Department of Environmental Protection (“NJDEP”) issued directives under New Jersey’s cleanup law to Cabot and a number of other potentially responsible parties (“PRPs”) to fund an investigation for the cleanup of a six-acre site known as the Evor Phillips Site in Old Bridge Township near Perth Amboy, New Jersey (“Site”). Cabot and other PRPs subsequently entered into various Administrative Consent Orders (“ACOs”) with NJDEP to fund and perform various investigations of the Site. Cabot and certain other PRPs also initiated litigation against the current site owner and other parties in the United States District Court for the District of New Jersey to obtain monetary contribution and deed

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      In 1986, Cabot sold a manufacturing facility in Reading, Pennsylvania to NGK Metals, Inc. (“NGK”). In doing so, Cabot agreed to share with NGK the costs of certain environmental remediation of the Reading plant site. After the sale, the EPA issued an order to NGK requiring it to address soil and groundwater contamination at the site. Remediation activities at the Reading property are ongoing and the Company is contributing to the costs associated with certain of those activities pursuant to the cost-sharing agreement with NGK.

      Cabot is one of approximately 25 parties identified by EPA as PRPs under the Superfund law with respect to the cleanup of Fields Brook (the “Brook”), a tributary of the Ashtabula River in northeast Ohio. From 1963 to 1972, Cabot owned two manufacturing facilities located beside the Brook. Pursuant to an EPA administrative order, 13 companies, including Cabot, are performing the design and other preliminary work relating to remediation of sediment in the Brook and soil in the floodplain and wetlands areas adjacent to the Brook. In 1997, EPA and the companies reached agreement on the remedy for these areas. EPA made certain changes to that remedy in response to its finding low levels of previously undetected radioactive material in the Brook. In addition, EPA’s cost recovery claims have been settled, and the companies have negotiated consent decrees with EPA, the State of Ohio and the Natural Resource Trustees that settle the governments’ claims for past costs and natural resource damages and obligates the companies to implement the agreed remedy. Those consent decrees were entered by the United States District Court for the Northern District of Ohio on July 7, 1999. As of September 30, 2002 remediation efforts at the site are nearly complete.

      During the summer of 1998, Cabot joined a group of companies in forming the Ashtabula River Cooperative Group (“ARCG”), which collectively agreed on an allocation for funding private party shares of a public/private partnership (the Ashtabula River Partnership (the “ARP”)), established to conduct navigational dredging and environmental restoration of the Ashtabula River (the “River”) in Ashtabula, Ohio. The ARP expects to obtain additional funding from both the federal and state governments for the project under the Federal Water Resources Development Act (“WRDA”). In September 1999, the ARP issued a Comprehensive Management Plan which placed an initial estimate of $42 million on the project. An updated cost estimate for the project of approximately $48 million was recently released by the U.S. Army Corps of Engineers as part of the WRDA process. Under the statutory formula available for funding this project under WRDA, approximately 68% of the project’s cost is to be borne by the federal government, leaving 32% of the cost for non-federal participants. The State of Ohio has pledged a contribution of $7 million to the project. The ARCG expects to be asked to bear a substantial percentage of the remaining costs. In addition, the ARCG has received a notice of claim for natural resource damages related to the River and the amount of that claim remains to be negotiated with the Natural Resource Trustees.

      In September 2002, EPA Region III filed three administrative complaints against Cabot under various federal environmental statutes in connection with the Company’s Boyertown, Pennsylvania facility. The complaints relate to alleged violations of reporting obligations in connection with two accidental releases of hazardous substances at the Boyertown facility in February and March 2000, and alleged violations of hazardous waste training and storage requirements. EPA is seeking a total of approximately $170,000 in proposed penalties under those three administrative complaints. Cabot has filed answers to the complaints and has entered into settlement discussions with EPA in an effort to resolve the allegations raised in the complaints.

      In 1994, Detrex Chemical Industries, Inc. filed third-party complaints against eight companies, including Cabot, in connection with material allegedly sent to the Koski/ Reserve Environmental Services (“RES”) landfill in Ashtabula, Ohio. Cabot and other third-party defendants filed complaints against five additional companies that sent waste to the site. In May 1998, Cabot and certain other defendants agreed to settle their liability for this matter by agreeing to fund and conduct a portion of the remedy at the landfill site and to loan RES $1.2 million to fund cleanup activities of RES on other portions of the site. Cabot is one of five of the

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      Cabot is the holder of a Nuclear Regulatory Commission (“NRC”) license for certain slag waste material deposited on industrial property on Tulpehocken Street in Reading, Pennsylvania in the late 1960s by a predecessor of Cabot that had leased a portion of the site to process tin slags. The slag material contains low levels of uranium and thorium, thus subjecting it to NRC jurisdiction. A consultant for Cabot has prepared a site decommissioning plan for the slag material which concludes that the levels of radioactivity in the slag are low enough that the material can be safely left in place and still meet NRC requirements for license termination without restrictions. Cabot’s decommissioning plan proposing this in-place remedy was filed with the NRC in August 1998. The City of Reading and the Reading Redevelopment Authority (the “RRA”) filed requests for a hearing with the NRC concerning Cabot’s decommissioning plan, alleging various deficiencies with the plan. In October 2000, Cabot reached an agreement with the City of Reading and the RRA to settle their claims. In July 2002, the Pennsylvania Department of Environmental Protection (“DEP”) submitted comments to the NRC opposing Cabot’s proposed decommissioning plan. Cabot continues to work with the NRC to obtain approval of the decommissioning plan.

      In July 1991, EPA instituted litigation against a number of parties, not including Cabot, seeking to recover its costs incurred in connection with an investigation of the Berks Associates Superfund Site in Douglassville, Pennsylvania. Cabot was joined in this litigation as a third-party defendant. In April 1996, EPA proposed that ten companies, including Cabot, undertake the remaining remediation required at the site and indicated it would be willing to reconsider, to some extent, the remediation technology to be used. After further study, EPA agreed that the alternative remedy is feasible. The companies’ consultant estimates the cost to implement the alternative remedy at the site is approximately $13 million to $18 million. The companies, including Cabot, have entered into a Consent Decree concerning implementation of the alternative remedy and payment of certain EPA past costs. As of September 30, 2002, the companies are in the process of implementing the alternative remedy.

      In 1994, EPA issued a Unilateral Administrative Order to Cabot and 11 other respondents pursuant to the Superfund law with respect to the Revere Chemical Site (a/k/a Echo Site) in Nockamixon Township, Bucks County, Pennsylvania (the “Revere Chemical Site”). The order required the respondents to design and implement several remedial measures at the Revere Chemical Site. Cabot responded to EPA’s order by indicating that it should not have been named as a respondent and by raising several objections to the order. Certain other recipients of the order proceeded to conduct the work required by EPA, and Cabot understands that the remedial work has been completed. Cabot entered into a settlement agreement with the performing parties in October 2001 covering response costs at the site. In addition, Cabot has a final agreement with the U.S. Department of Justice (“DOJ”), and EPA relating to EPA’s claim that Cabot failed to comply with the EPA order. Pursuant to that agreement, Cabot will pay a $75,000 civil penalty to the United States once the agreement is approved in federal court.

      The EPA has completed an investigation of certain areas surrounding the Company’s Boyertown, Pennsylvania facility. The investigation was prompted by media reports of complaints by area farmers of health impacts and damage to livestock and crops allegedly associated with emissions from the Boyertown facility. In a report dated November 2000, EPA stated that increased concentrations of some elements in environmental media at locations near the Boyertown site did not pose a health threat to the broad community necessitating a cleanup action by the EPA. The EPA report concluded that EPA could find no relationship between industrial emissions and reported poor farm production and animal health concerns. In November 1999, Cabot received a letter from an attorney representing certain farmers in the area threatening litigation concerning contamination alleged to be caused by the Boyertown plant. In September of 2001, two of the farmers filed suit in Pennsylvania state court alleging damage to their herds. Cabot removed the case to federal court. Cabot has filed a motion for summary judgment, which is pending. The Company believes that it has strong defenses against plaintiffs’ claims.

      In May 2000, the Direction Regionale de L’Industrie, de la Réchérche et de L’Environment (“DRIRE”) and the Préfecture de la Seine-Maritime (the “Préfecture”) issued an order to United Chemical France S.A.

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      In January 1999, DRIRE notified Cabot France S.A., a French subsidiary of Cabot, that the DRIRE was investigating groundwater pollution in the Montée des Pins area where Cabot France S.A.’s carbon black plant in Berre l’Etang, France is located. The DRIRE convened meetings of various industries in the area and asked them to work together on a study of area groundwater conditions. Ten companies, including Cabot France S.A., worked together to fund and undertake the initial study requested by the DRIRE. Based on the results of that study, a neighboring company, Shell Oil, appears to be responsible for the existing groundwater contamination, including groundwater contamination under Cabot’s Berre facility. Cabot and the other companies are expecting Shell Oil to assume responsibility for remediating the groundwater conditions in the area. To date, Shell Oil has only assumed partial responsibility for the groundwater contamination.

      Cabot, along with a number of other companies, is a PRP under the Superfund law with respect to the King of Prussia Technical Corp. site in Winslow Township, New Jersey. Work on site remediation was completed several years ago except for ongoing operation and maintenance of groundwater treatment facilities. Cabot and four other companies involved have agreed on the portions of the costs to be borne by each company. In a December 1998 letter to Cabot and the other four companies, EPA demanded approximately $4.1 million in past costs at the site. This dispute has been resolved through settlement negotiations between the group of companies and EPA for $1.7 million. In addition, in May 2001, the NJDEP informed Cabot, along with the other named parties, that NJDEP has incurred certain unreimbursed response costs at the site. The PRPs are continuing negotiations with the NJDEP concerning past costs. The NJDEP has indicated that they may seek natural resource damage costs in the future.

      On June 5, 1999, there was a break in the pipeline used to transport carbon black feedstock from a nearby port to a Ravenna, Italy carbon black facility owned by Cabot Italiana S.p.A., a wholly-owned subsidiary of Cabot. The break was in a portion of the pipeline adjacent to a neighboring industrial facility. As a result, a substantial amount of carbon black feedstock was released at the neighboring facility. An expert for the public prosecutor in Ravenna has completed an initial investigation of the facts of the spill. He has concluded that the pipeline was damaged from drilling activity conducted by a third party, and that Cabot is not responsible for causing the spill. In the interim, the Company undertook emergency remediation efforts immediately following the spill. Claims have been asserted against the Company by the owner of the facility where the spill occurred and by the owners of a sewer system into which some of the oil flowed. In addition, the Company has asserted a claim against the third parties that caused the spill. The municipal environmental authorities issued an order to the Company and the parties who damaged the pipeline ordering them to undertake further activities to address conditions caused by the spill. The Company and the other parties have challenged issuance of the order, and the administrative courts in Italy are hearing the matter. The parties, including the Company, have entered into an agreement to fund most of the activities required by the administrative order, and work under that agreement is proceeding. As of September 2002, the Company has spent approximately $6 million in connection with this spill. The Company has notified its insurers about the spill and has received reimbursement from them for a substantial portion of those costs. At this point, the Company does not know the likely course that legal proceedings will take, and does not have an estimate of additional costs, if any, that the Company will ultimately bear.

      The Louisiana Department of Environmental Quality (“LADEQ”) notified Cabot in a January 1995 letter of its potential liability with respect to the Great National Oil/ Ida Gas site in Ida, Louisiana (the “Ida Site”) and requested information regarding Cabot’s activities related to the Ida Site or involvement with the Hartsell Oil Company of Rodessa, Louisiana. Cabot responded in February 1995 by indicating that during the

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      In May 2002, Cabot was identified by the EPA as a PRP at the Sutton Brook Disposal Area Superfund Site in Tewksbury, Massachusetts (“Sutton Brook Site”). Approximately 42 PRPs have been identified to date. Cabot also responded to an EPA information request concerning its potential connection with the Sutton Brook Site. Cabot responded to the information request stating that if any of its materials were disposed of at the Sutton Brook Site, they would have been non-hazardous substances and that it should therefore be removed from the list of PRPs. Cabot is continuing to discuss these issues with EPA. Certain of the previously identified PRPs have funded a removal action and limited investigation of the Sutton Brook Site. As of September 30, 2002, it is not possible to determine what, if any, liability Cabot may have at the Sutton Brook Site.

      Cabot has received various requests for information and notifications that it may be a PRP at several other Superfund sites.

      As of September 30, 2002, approximately $29 million was reserved for environmental matters by the Company. This amount represents the Company’s current best estimate of costs likely to be incurred based on its analysis of the extent of cleanup required, alternative cleanup methods available, abilities of other responsible parties to contribute and its interpretation of laws and regulations applicable to each site.

Other Proceedings

      The Company has exposure to a safety respiratory products business that it acquired, through a subsidiary, in April 1990. It disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, after an initial period during which responsibility was shared, to indemnify the seller, American Optical Corporation (“American Optical”), for costs, including legal costs, settlements and judgments, in connection with a number of lawsuits and claims relating to the respirators (in exchange for which the subsidiary received the benefit of the seller’s insurance and other indemnities). These lawsuits and claims typically involve allegations that the plaintiffs suffer from asbestosis or silicosis as a result, in part, from respirators that were negligently designed or labeled. The defendants in these lawsuits are often numerous and include, in addition to respirator manufacturers, makers of asbestos and sand used in sand blasting.

      Neither the Company, nor its past or present subsidiaries, at any time manufactured asbestos or asbestos-containing products. Moreover, not every person with exposure to asbestos giving rise to an asbestos claim used a form of respiratory protection. At no time did the business for which the Company is financially responsible for legal costs represent a significant portion of the respirator market. In addition, as a result of the arrangements involving these lawsuits and claims, the Company has only a portion of the liability in any given case.

      When the Company’s subsidiary disposed of the business in 1995 to Aearo Corporation (“Aearo”), it agreed with Aearo that for an annual fee of $400,000, the subsidiary would retain responsibility for, and indemnify Aearo against, claims asserted after July 11, 1995 to the extent they are attributable to the use of respirators sold before that date. Aearo can discontinue payment of the fee at any time, in which case it will assume the responsibility for and indemnify the Company with respect to these claims. Between the date of divestiture and fiscal 2001, the Company had never spent more than the $400,000 that it collects from Aearo each year.

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      As of the beginning of calendar year 2002, there were approximately 28,000 claimants in pending cases asserting claims against American Optical in connection with respirators. As of September 30, 2002 there were approximately 43,000 claimants. Under the present allocation arrangements, as claims are settled, Cabot would expect to contribute toward settlement of a significant percentage, but not all, of these claims.

      During the third quarter of fiscal year 2002, the Company agreed to pay up to $2 million as its contribution toward a settlement involving up to 13,000 claimants in Mississippi. The Company, at the time, expected to pay this amount over a period of approximately eighteen months. Due to complications in the funding mechanism of the overall settlement of these Mississippi claims, a shortfall of $5.5 million in the initial amount to be paid to the plaintiff group resulted. In December 2002, the Company agreed to fund this shortfall in exchange for an undertaking from the representatives of the payor group (consisting of the various insurers and other parties) to exercise their best efforts to seek a global settlement with the payor group. While the Company’s ability to negotiate an acceptable global settlement and its specific terms are uncertain at this time, the global settlement discussed with the representatives of the payor group would provide that as long as the payor group continues to pay all costs and liabilities in connection with the respirator litigation, the Company’s liability under a global settlement would be limited to a specified amount.

      As a result of the Mississippi settlement and the rate of new claims which have been filed during the calendar year, the Company recorded a charge of $5 million during the third quarter bringing its total reserve for respirator matters to $6 million as of September 30, 2002. In estimating its liability, the Company made the following assumptions: (i) that future settlements would continue at the historical rate of $320 per claimant; (ii) while the actual number of claims for which Cabot contributes depends upon a number of factors, that Cabot will continue to be responsible for well over half of the total claims; and (iii) that a significant number of the outstanding claims are included in the Mississippi settlement. This amount represents Cabot’s best estimate of the liability it will incur in connection with the settlement of pending respirator claims. Cabot is unable to reasonably estimate a range of possible loss for pending respirator claims given the current status of litigation and uncertainty involving the outcome of the numerous cases.

      In addition, because this is a very unpredictable area, Cabot is also unable to estimate the number of future claims or the range of liability that may be incurred as a result of such claims on any reasonable basis. As a result, the Company has not recorded a reserve for future claims at this time. While the Company’s liability associated with these future claims could have a material effect on the results of operations in a particular quarter or fiscal year as these matters develop or as a result of the Company’s initiative to seek a global settlement, Cabot continues to believe that this issue will not have a material adverse effect on the Company’s consolidated financial position or liquidity.

      In April 2002, the Company commenced an action in Suffolk Superior Court in the Commonwealth of Massachusetts against Kemet Electronics Corporation (“Kemet”) with respect to a tantalum supply contract entered into by the parties in 2000. In December 2002, the parties resolved the dispute and all claims relating to the dispute that were the subject of litigation were resolved. In connection therewith, Kemet extended through 2006 the term of its contract. The extended contract calls for reduced prices and higher volumes and relates to both tantalum powder and tantalum wire products. In addition, the Company has the option to sell additional product to Kemet on certain conditions throughout the contract term.

      On July 29, 2002, AVX Corporation commenced an action against the Company in the United States District Court for the District of Massachusetts. The complaint involves a tantalum supply agreement between the Company and AVX, one of the Company’s tantalum customers, and alleges unfair and deceptive trade practices, breach of contract and other related matters. The plaintiff seeks declaratory relief and unspecified damages. A hearing on the Company’s motion to dismiss the action is scheduled for February 2003. Cabot believes that AVX’s complaint is not meritorious and that Cabot has valid defenses, which it intends to assert vigorously. AVX has continued to purchase product in accordance with the terms of its contract during the dispute.

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      In November 2002, United States and European antitrust authorities initiated a joint investigation into possible price-fixing within the carbon black industry. As part of this investigation, European antitrust authorities have reviewed documents at the Company’s offices in Suresnes, France, and United States authorities have contacted Cabot’s Boston, Massachusetts headquarters. Neither the Company nor any of its employees has been charged with any wrongdoing. Because these types of proceedings are typically lengthy, there may be no resolution of this matter for more than a year.

      Several additional lawsuits were filed in 2002 in connection with Cabot’s discontinued beryllium operations. Cabot entered the beryllium industry through an acquisition in 1978. It ceased manufacturing beryllium products at one of the acquired facilities in 1979, and the balance of Cabot’s former beryllium business was sold to NGK Metals, Inc. in 1986. Several individuals who have resided for many years in the immediate vicinity of Cabot’s former beryllium facility located in Reading, Pennsylvania have brought suits against Cabot and NGK for personal injury allegedly caused by beryllium particle emissions produced at that facility over the course of many decades. Two of these cases were settled in 2002. Currently there are eight personal injury cases pending, four of which are on appeal in the Third Circuit Court of Appeals and four of which are in discovery (two in the United States District Court for the Eastern District of Pennsylvania (with trials scheduled in early 2003) and two in the Court of Common Pleas of Philadelphia County.) There are also beryllium product liability cases pending against Cabot. During the course of fiscal year 2002, the Company was granted summary judgment in one such case, nine cases were voluntarily dismissed by the plaintiffs, and the Company settled seven cases. There are currently six beryllium product liability cases pending in state courts in California and federal court in New York. Settlement was reached in two of these six cases in December 2002. In addition, in 2000, four purported class action suits were filed against Cabot, one of which was voluntarily dismissed by the plaintiffs in 2001 and two of which were voluntarily dismissed by the plaintiffs in 2002. In the one remaining action, individuals who reside within a 6-mile zone surrounding the Reading facility have filed a purported class action in Pennsylvania state court seeking the creation of a trust fund to pay for the medical monitoring of the surrounding resident population. Hearings in this case for class certification are underway. The Company believes it has valid defenses to each of these actions and will assert them vigorously in the various venues in which claims have been asserted. In addition, there is a contractual indemnification obligation running from NGK to Cabot in connection with many of these matters. Moreover, recent federal legislation creating a federally funded compensation scheme for beryllium workers injured or otherwise requiring medical screening or testing may well affect certain of these pending beryllium cases.

      The Company was a defendant in two patent infringement cases, both called Rodel v. Cabot, and both in the federal court in Delaware. In connection with the Company’s spin-off of Cabot Microelectronics Corporation (“CMC”) in 2000, CMC assumed all of the Company’s liabilities in connection with both of these cases. In February 2002, CMC and Cabot settled both of these actions and they were dismissed.

      The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business, including a number of claims asserting premises liability for asbestos exposure. In the opinion of the Company, although final disposition of all of its suits and claims may impact the Company’s financial statements in a particular period, they should not, in the aggregate, have a material adverse effect on the Company’s financial position. (See Note Q of the Notes to the Company’s Consolidated Financial Statements, which appears in Item 8 of this annual report on Form 10-K for the fiscal year ended September 30, 2002.)

      None.

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Executive Officers of the Registrant

      Set forth below for each person who was an executive officer of Cabot at the end of the 2002 fiscal year, is information, as of November 30, 2002, regarding his age, position(s) with Cabot, the periods during which he served as an officer and his business experience during at least the past five years: