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

	Years Ended September 30
	2018			2017			2016
	(In millions)
Domestic	$	(229	)	$	(8	)	$	(29	)
Foreign		346			307			220
Income from continuing operations before income taxes and equity in earnings of affiliated companies	$	117		$	299		$	191

	Years Ended September 30
	2018			2017			2016
	(In millions)
U.S. federal and state:
Current	$	14		$	5		$	7
Deferred		114			(26	)		(34	)
Total		128			(21	)		(27	)
Foreign:
Current		88			59			62
Deferred		(23	)		(5	)		(2	)
Total		65			54			60
Provision (benefit) for income taxes	$	193		$	33		$	33

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

	Years Ended September 30
	2018			2017			2016
	(In millions)
Computed tax expense at the federal statutory rate	$	29		$	105		$	67
Foreign income:
Impact of taxation at different rates, repatriation, losses and other		6			(75	)		(37	)
Impact of increase (decrease) in valuation allowance on deferred taxes		(16	)		(7	)		7
Impact of foreign losses for which a current tax benefit is not available		—			1			—
Impact of non-deductible net currency losses		2			—			2
Impact of the Tax Cuts and Jobs Act of 2017		159			—			—
U.S. and state benefits from research and experimentation activities		(2	)		(2	)		(2	)
Provision (settlement) of unrecognized tax benefits		1			7			1
Benefit from prior currency loss		—			—			(3	)
Impact of goodwill impairment charge		18			—			—
Permanent differences, net		(1	)		5			—
State taxes, net of federal effect		(3	)		(1	)		(2	)
Provision (benefit) for income taxes	$	193		$	33		$	33

In the fiscal 2018 tax provision, Cabot recorded $120 million of net discrete tax expense, composed of $159 million net tax impact of the Act and $3 million tax expense upon the sale of assets, offset by net tax benefits of $29 million related to impairment and $15 million from a change in valuation allowance on a beginning of year tax balance, and net tax charge of $2 million related to other miscellaneous tax items.

In the fiscal 2017 tax provision, Cabot recorded $25 million of net discrete tax benefits, composed of net tax benefits of $16 million associated with the generation of excess foreign tax credits upon repatriation of previously taxed foreign earnings and the accrual of U.S. tax on certain foreign earnings, a net tax benefit of $6 million from a change in valuation allowance on a beginning of year tax balance, net tax benefits of $4 million for various return to provision adjustments related to tax return filings and net tax charges of $1 million related to other miscellaneous tax items.

In the fiscal 2016 tax provision, Cabot recorded less than $1 million of net discrete tax expense composed of charges of $5 million for valuation allowances on beginning of the year tax balances, partially offset by benefits of $3 million for a currency loss and $1 million each for the renewal of the U.S. research and experimentation credit and net tax settlements.

On December 22, 2017, the U.S. enacted significant changes to federal income tax law affecting the Company, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, as well as a 100% dividend received deduction for foreign dividends. Although the passage of the Act reduced the U.S. tax rate and effectively created a participation exemption regime, the Company’s future earnings could be negatively impacted by certain other aspects of the new legislation, including in particular, immediate U.S. taxation of global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries. In transitioning to this new full participation exemption regime for foreign earnings, Cabot is also subject to a one-time tax on the deemed repatriation of certain foreign earnings. A discussion of key relevant provisions of the Act and the Company’s assessment of the impact of such provisions on its consolidated financial statements is set forth below.

The accounting standard for income taxes (“ASC 740”) required the Company to recognize the effect of the tax law changes under the Act in the first quarter of fiscal 2018. However, due to the potential uncertainty or diversity of views in accounting for the impact of the Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.

In particular, SAB 118 clarified that the impact of the Act must be accounted for and reported in one of three ways: (1) by reflecting the tax effects of the Act for which the accounting is complete; (2) by reporting provisional amounts for those specific income tax effects of the Act for which the accounting is incomplete but a reasonable estimate can be determined, with such provisional amounts (or adjustments to provisional amounts) identified in the measurement period, as defined therein, being included as an adjustment to tax expense or benefit from continuing operations in the period the amounts are determined; or (3) where the income tax effects cannot be reasonably estimated, no provisional amounts should be reported and the registrant should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the enactment of the Act. The measurement period begins in the reporting period that includes the Act’s enactment date and ends when the accounting has been completed, but not beyond one year from the enactment date.

Due to various uncertainties as described below, and with the exception of the U.S. deferred tax impact of the rate change under the Act, the Company has not completed its accounting for certain other tax impacts of the Act. However, as provided in SAB 118, reasonable estimates, including any adjustments to the estimates made during the first three quarters of fiscal 2018, have been made and recorded as provisional amounts in its financial results for the fourth quarter of fiscal 2018. A discussion of the material impacts of tax law changes under the Act and the accounting for these changes follows:

•Revaluation of Deferred Tax Assets: Due to the Company’s September 30 fiscal year-end, the reduction in the corporate tax rate to 21% effective January 1, 2018 applies on a pro-rata basis for fiscal 2018, resulting in a U.S. federal statutory tax rate of 24.53% for the fiscal year. The reduction requires the Company to revalue its deferred tax assets and liabilities to account for the future financial impact of these amounts.

As of September 30, 2018, the accounting for this item was complete. For the three and twelve months ended September 30, 2018, the Company has recorded a tax benefit of $4 million and expense of $13 million, respectively, related to the impact of the rate change on deferred tax balances. The adjustment to the amount recorded during the three months ended September 30, 2018 was primarily associated with the true-up of deferred tax assets and liabilities upon the filing of the U.S. income tax return for fiscal 2017.

•Deemed Repatriation: In general, the Act provides that U.S. shareholders of a “specified foreign corporation”, as defined in the Act, must include in U.S. taxable income its pro-rata share of certain undistributed and previously untaxed post-1986 foreign earnings and profits (“E&P”). The amount of E&P taken into account is the amount determined either as of November 2, 2017 or December 31, 2017, whichever is greater. This inclusion is offset by a deduction that results in an effective U.S. federal income tax rate of either 15.5% or 8%. The 15.5% rate applies to the “aggregate cash position”, as defined in the Act, of the specified foreign corporations and the 8% rate applies to the extent that the income inclusion exceeds the aggregate cash position. The aggregate cash position is determined as the cash position either as of September 30, 2018, or the average of September 30, 2016 and September 30, 2017, whichever is greater. Finally, the U.S. cash tax impact of the deemed repatriation inclusion may be offset by the utilization of foreign tax credits, which are pro-rated to reflect the deduction described above.

As of September 30, 2018, the accounting for this item is incomplete. Significant additional information will need to be obtained and analyzed in order to complete the accounting for this item. This includes: (1) the determination of the full fiscal 2018 E&P and foreign tax credits of the specified foreign corporations; (2) clarification of the state income tax impact of the repatriation, including guidance from states in which Cabot has a taxable presence on the extent to which the state will conform with the provisions of the Act, as well as determination of the apportionment of the Company’s income for the full fiscal year 2018; and (3) further guidance from the U.S. Treasury Department on the interpretation and application of the rules.

In the absence of such additional information, Cabot has made a reasonable estimate of the financial impact of this item. For the three and twelve months ended September 30, 2018, the Company recorded a provisional benefit of $6 million and a provisional expense of $138 million, respectively, for deemed repatriation. This amount is expected to be a fully non-cash charge due to the Company’s existing tax attributes.

•Deferred Tax Liability on Unremitted Earnings: In addition to the deemed repatriation of foreign earnings, going forward, the Act effectively establishes a participation exemption system of taxation that, in general, provides a 100% deduction for dividends from specified foreign corporations. However, the Company is still required to provide non-U.S. withholding taxes, as well as other potential tax impacts, on undistributed earnings of non-U.S. subsidiaries that it does not consider to be indefinitely reinvested.

As of September 30, 2018, the accounting for this item is incomplete. Additional information necessary to complete the accounting includes: (1) the finalization of U.S. previously taxed income resulting from the deemed repatriation of foreign earnings; (2) clarification of the state income tax impact of unremitted earnings that are not indefinitely reinvested, and (3) further guidance from the U.S. Treasury Department on the interpretation and application of the rules related to deemed repatriation.

For the three and twelve months ended September 30, 2018, the Company recorded a provisional benefit of $16 million and provisional expense of $8 million, respectively, for this item.

The Company will continue to evaluate the impact of the Act on its business and consolidated financial statements and will make any further adjustments to its provisional amounts in subsequent reporting periods upon obtaining, preparing or analyzing additional information affecting the income tax effects initially reported as a provisional amount.

Under the Act, Cabot may be subject to a tax on GILTI in future years. In general, GILTI is a 10.5% tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. This tax is effective for taxable years beginning after December 31, 2017. The Company has adopted an accounting policy to recognize these temporary differences as period costs if and when incurred.

The Act also contains a number of other provisions that may have a material financial impact on the Company in the future. These include base erosion anti-abuse tax, foreign derived intangible income and the interest expense limitation under Internal Revenue Code section 163(j). These tax law changes apply only to tax years beginning after December 31, 2017. Therefore, the Company did not record any amounts related to these items in its fiscal 2018 financial results; however, the impact of these provisions will be accounted for in the Company’s fiscal 2019 financial results.

	September 30
	2018			2017
	(In millions)
Deferred tax assets:
Deferred expenses	$	17		$	22
Intangible assets		23			43
Inventory		4			1
Other		4			14
Pension and other benefits		45			59
Net operating loss carry-forwards		146			149
Foreign tax credit carry-forwards		12			132
R&D credit carry-forwards		41			38
Other business credit carry-forwards		39			37
Subtotal		331			495
Valuation allowance		(169	)		(168	)
Total deferred tax assets	$	162		$	327

	September 30
	2018			2017
	(In millions)
Deferred tax liabilities:
Property, plant and equipment	$	(56	)	$	(116	)
Unremitted earnings of non-U.S. subsidiaries		(14	)		(12	)
Total deferred tax liabilities	$	(70	)	$	(128	)

Approximately $768 million of net operating loss carryforwards (“NOLs”) and $98 million of other tax credit carryforwards remain at September 30, 2018. The benefits of these carryforwards are dependent upon taxable income during the carryforward period in the jurisdictions in which they arose. Accordingly, a valuation allowance has been provided where management has determined that it is more likely than not that the carryforwards will not be utilized. The following table provides detail surrounding the expiration dates of these carryforwards:

Years Ending September 30	NOLs		Credits
	(In millions)
2019 - 2025	$	282	$	15
2026 and thereafter		162		67
Indefinite carry-forwards		324		16
Total	$	768	$	98

As of September 30, 2018, provisions have not been made for non-U.S. withholding taxes or other applicable taxes on approximately $917 million of undistributed earnings of non-U.S. subsidiaries, as these earnings are considered indefinitely reinvested. Cabot continually reviews the financial position and forecasted cash flows of its U.S. consolidated group and foreign subsidiaries in order to reaffirm the Company’s intent and ability to continue to indefinitely reinvest earnings of its foreign subsidiaries or whether such earnings will need to be repatriated in the foreseeable future. Such review encompasses operational needs and future capital investments. From time to time, however, the Company’s intentions relative to specific indefinitely reinvested amounts change because of certain unique circumstances. These earnings could become subject to non-U.S. withholding taxes and other applicable taxes if they were remitted to the U.S.

As of September 30, 2018, net deferred tax assets of $99 million are in the U.S. Management believes that the Company’s history of generating domestic profits, defined as U.S. income from continuing operations adjusted for U.S. permanent differences, provides adequate evidence that it is more likely than not that all of the U.S. net deferred tax assets will be realized in the normal course of business. Realization of deferred tax assets is dependent upon future taxable income generated over an extended period of time.

As of September 30, 2018, the Company needs to generate approximately $472 million in cumulative future U.S. taxable income at various times over approximately 20 years to realize all of its net U.S. deferred tax assets. The Company reviews its forecast in relation to actual results and expected trends on a quarterly basis. Failure to achieve operating income targets may change the Company’s assessment regarding the realization of Cabot’s deferred tax assets and such change could result in a valuation allowance being recorded against some or all of the Company’s deferred tax assets. Any increase in a valuation allowance would result in additional income tax expense, lower stockholders’ equity and could have a significant impact on Cabot’s earnings in future periods.

The valuation allowances at September 30, 2018 and 2017 represent management’s best estimate of the non-realizable portion of the deferred tax assets. The valuation allowance increased by $1 million in 2018 due to net reductions in value of certain pre-existing and acquired future tax benefits and net operating losses generated that are included in deferred tax assets. The valuation allowance decreased by $9 million in 2017 due to net increases in the value of certain future tax benefits and net operating losses generated that are included in deferred tax assets.

Cabot has filed its tax returns in accordance with the tax laws in each jurisdiction and recognizes tax benefits for uncertain tax positions when the position would more likely than not be sustained based on its technical merits and recognizes measurement adjustments when needed. As of September 30, 2018, the total amount of unrecognized tax benefits was $37 million, of which $26 million was recorded in the Company’s Consolidated Balance Sheets and $11 million of deferred tax assets, principally related to state net operating loss carry-forwards, have not been recorded. In addition, accruals of $1 million and $9 million have been recorded for penalties and interest, respectively, as of September 30, 2018, and $1 million and $8 million, respectively, as of September 30, 2017. Total penalties and interest recorded in the tax provision in the Consolidated Statements of Operations was $2 million in each of the years ended September 30, 2018, 2017 and 2016. If the unrecognized tax benefits were recognized at a given point in time, there would be approximately $35 million favorable impact on the Company’s tax provision before consideration of the impact of the potential need for valuation allowances.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal years 2018, 2017 and 2016 is as follows:

	Years Ended September 30
	2018			2017			2016
	(In millions)
Balance at beginning of the year	$	36		$	30		$	30
Additions based on tax provisions related to the current year		2			2			2
Additions for tax positions of prior years		1			8			5
Reductions of tax provisions of prior years		—			(1	)		(3	)
Reductions related to settlements		—			(2	)		—
Reductions from lapse of statute of limitations		(2	)		(1	)		(4	)
Balance at end of the year	$	37		$	36		$	30

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

Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 2014 through 2016 tax years generally remain subject to examination by the IRS and various tax years from 2005 through 2016 remain subject to examination by the respective state tax authorities. In significant non-U.S. jurisdictions, various tax years from 2002 through 2016 remain subject to examination by their respective tax authorities. As of September 30, 2018, Cabot’s significant non-U.S. jurisdictions include Canada, China, France, Germany, Italy, Japan, and the Netherlands.