CABOT CORP
10-K, 1997-12-24
MISCELLANEOUS CHEMICAL PRODUCTS
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
           [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
 
                                       OR
 
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
     FOR THE TRANSITION PERIOD FROM                   TO
 
                         COMMISSION FILE NUMBER 1-5667

                               CABOT CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
      <S>                                                  <C>
                   DELAWARE                                     04-2271897
         (State or other jurisdiction                         (IRS Employer
      of incorporation or organization)                    Identification No.)

               75 STATE STREET
            BOSTON, MASSACHUSETTS                                 02109
   (Address of Principal Executive Offices)                     (Zip Code)
</TABLE>
 
                                 (617) 345-0100
              (Registrant's telephone number, including area code)
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
          COMMON STOCK, $1.00 PAR VALUE PER SHARE:

 
<TABLE>
        <S>                                       <C>
        68,213,732 SHARES OUTSTANDING             BOSTON STOCK EXCHANGE
        AT NOVEMBER 28, 1997                      NEW YORK STOCK EXCHANGE
                                                  PACIFIC EXCHANGE
        PREFERRED STOCK PURCHASE RIGHTS
</TABLE>
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X] No [ ]
 
     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 the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]
 
     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 28, 1997, was approximately
$1,621,706,000.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's Annual Report to Stockholders for fiscal year
1997 are incorporated by reference in Parts I, II, and IV, and portions of the
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.

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<PAGE>   2
 
                                     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 and
materials and in energy. The Company and its affiliates have manufacturing
facilities in the United States and more than 20 other countries.
 
     The term "Cabot" as used in this Report refers to Cabot Corporation. The
terms "Company" and "Registrant" mean Cabot and its consolidated subsidiaries.
 
     The description of the Company's businesses is as of September 30, 1997,
unless otherwise noted. Information regarding the Company's revenues and
operating profits by business segment and geographic area appears on pages 23
and 43 of the Company's Annual Report to Stockholders for fiscal year 1997
("Annual Report") which are incorporated herein by reference.
 
     During the fiscal year ended September 30, 1997, the Company repurchased
approximately 3.5 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
in its fiscal year ended September 30, 1997, appears in Management's Discussion
and Analysis of Financial Condition and Results of Operations on pages 21
through 28 of the Annual Report.
 
                       SPECIALTY CHEMICALS AND MATERIALS
 
CARBON BLACK
 
     The Company manufactures and sells carbon black, a fine powder. The
Company's carbon black business includes tire blacks, industrial rubber blacks
and special blacks. Carbon black is used as a reinforcing agent in tires and in
industrial rubber products such as extruded profiles, hoses and molded goods.
Non-rubber grades of carbon black, known as special blacks, are used to provide
pigmentation, conductivity and ultraviolet protection and for other purposes in
many specialty applications such as inks, plastics, cables and coatings. 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 with three companies having an international presence and with at least 20
other companies in various regional markets in which it operates (see "General,"
below).
 
     Carbon black plants owned by Cabot or a subsidiary are located in
Argentina, Australia, Brazil, Canada, the Czech Republic, England, France (two
plants), India, Indonesia (two plants), Italy, Japan, The Netherlands, Spain and
the United States (four plants). Affiliates of the Company own carbon black
plants in Colombia, Japan (two plants), Malaysia, Mexico, The People's Republic
of China and Venezuela. Headquarters for the Company's carbon black business are
located in Billerica, Massachusetts, with regional headquarters in Atlanta,
Georgia (North America), Sao Paulo, Brazil (South America), Suresnes, France
(Europe) and Kuala Lumpur, Malaysia (Pacific Asia). In April 1997, the Company
increased its ownership of its Indian carbon black subsidiary from 51% to 60%.
Some of the plants listed above are built on leased land (see "Properties,"
below).
 
     The principal raw materials used in the manufacture of carbon black are
carbon black oils derived from petroleum refining operations and from the
distillation of coal tars and the production of ethylene throughout the world.
The availability of raw materials has not been and is not expected to be a
significant factor for the business. Raw material costs are influenced by the
cost and availability of oil worldwide and the availability of various types of
carbon black oils.
 
                                        1
<PAGE>   3
 
     Sales are generally made by employees of the Company or its affiliates in
the countries where carbon black plants are located. Export sales are generally
made through distributors or sales representatives in conjunction with Company
employees. Sales are made under various trademarks owned by Cabot, including
Cabot(R), Black Pearls(R), Elftex(R), Mogul(R), Monarch(R), Regal(R),
Spheron(TM), Sterling(R) and Vulcan(R) (see "General," below).
 
     The Company has developed three new carbon-based products with substantial
demand potential. The first new product, sold under the Ecoblack trademark,
utilizes a new technology to produce particles consisting of carbon and silica.
It can be used to reduce a tire's rolling resistance and thereby improve an
automobile's gas mileage. The Company's best estimate, at this time, of the
annual revenues to be derived from the Ecoblack product by the year 2000 is $20
million to $80 million.* The Company has recently completed a semi-works plant
in Malaysia in connection with its plans to commercially develop and produce
elastomer composites, the second new product. The Company began test production
of an initial line of elastomer composites in 1997. The Company believes that
its new elastomer composites will provide a significant improvement in tire
performance. The Company's best estimate, at this time, of the annual revenues
to be derived from elastomer composites by the year 2000 is $50 million to $100
million.* The third new product is a tire innerliner carbon black which can
reduce the amount of expensive halobutyl polymers in a tire. The innerliner
carbon black can both lower the cost of producing tires and improve the tires'
performance. The Company's best estimate, at this time, of the annual revenues
innerliner carbon black may produce by the year 2000 is $25 million to $40
million.*
 
FUMED SILICA
 
     The Company manufactures and sells fumed silica and dispersions thereof
under various trademarks including Cabot(R), Cab-O-Sil(R) and Cab-O-Sperse(R).
Fumed silica is an ultra-fine, high-purity silica produced by a flame process
for use as a reinforcing, thickening, thixotropic, suspending or anti-caking
agent in a wide variety of products for the automotive industry, construction
industry and consumer products industries, including adhesives, cosmetics, inks,
silicone rubber, coatings and pharmaceuticals. The headquarters for the
Company's fumed silica business are located in Naperville, Illinois and its
North American fumed silica manufacturing plant is located in Tuscola, Illinois.
Subsidiaries of Cabot lease a manufacturing plant in Wales and own a
manufacturing plant in Germany. A plant to manufacture fumed silica is under
construction in India by a joint venture which is owned 50% by the Company and
50% by an Indian entity. The Company began construction in the summer of 1997 of
a second fumed silica plant in the United States, to be located in Midland,
Michigan. Raw materials for the production of fumed silica are various
chlorosilane feedstocks. The feedstocks are either purchased or toll converted
for owners of the materials. The Company has long-term procurement contracts in
place which it believes will enable it to meet the raw material requirements for
the production of fumed silica. Sales of fumed silica products are made by
Company employees and through distributors and sales representatives. There are
five principal producers of fumed silica in the world (see "General," below).
The Company believes it is the leading producer and seller of this chemical in
the United States and second worldwide.
 
MICROELECTRONICS MATERIALS
 
     The Company manufactures and sells high-purity polishing materials, made
from fumed metal oxides and a variety of chemistries. The polishing materials
are used in the manufacture of integrated circuit chips and other electronic
devices by the semiconductor industry. These products are sold under various
Cabot trademarks including Cab-O-Sperse(R) and Semi-Sperse(R). Sales of
polishing materials are made by Company employees and through distributors and
sales representatives. Raw materials, a significant portion of which are
manufactured by the Company's fumed silica business, are readily available. The
Company has a newly constructed dispersion manufacturing facility and laboratory
in Aurora, Illinois, as well as a dispersion manufacturing facility in Barry,
Wales. The headquarters and technology center for the Company's
 
- ---------------
 
* Estimates of future contributions and performances are contingent on various
  internal and external factors as described on page 7 of this Report.
 
                                        2
<PAGE>   4
 
microelectronics materials business are located in Aurora, Illinois. The Aurora,
Illinois facility provides quality control management, operations management,
marketing support and customer sales and service for the Company's
microelectronics materials business.
 
PLASTICS
 
     The Company produces black and white thermoplastic concentrates and
specialty compounds for sale to plastic resin producers and the plastics
processing industry. Sales are made under various Cabot trademarks including
Cabelec, Plasadd, Plasblak, Plastech, Plaswite and Rainbow, each of which is
either registered or pending in one or more countries. Major applications for
these materials include pipe and tubing, packaging and agricultural film,
automotive components, cable sheathing and special packaging for use in the
electronics industry. Sales are made by Company employees and through sales
representatives and distributors primarily in Europe and Asia. This business has
manufacturing facilities in Belgium (two plants), England, Hong Kong and Italy,
and its headquarters are located in Leuven, Belgium. In Europe, the Company is
one of the three leading producers of thermoplastic concentrates. The main raw
materials used in this business are carbon black, titanium dioxide,
thermoplastic resins and mineral fillers. Raw materials are in general readily
available. The Company also operated a small plastics recycling facility in
Belgium until it was sold in September 1997.
 
PERFORMANCE MATERIALS
 
     The Company produces tantalum, niobium (columbium) and their alloys for the
electronic materials and refractory metals industries, and cesium, germanium,
rubidium and tellurium for a wide variety of industries including the fiber
optics and superconductor industries. Tantalum 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. Tantalum produced by the
Company is also used in ballistic munitions by the defense industry. The
headquarters and principal manufacturing facility for this business are in
Boyertown, Pennsylvania. An affiliate of the Company has a manufacturing plant
in Japan. Raw materials are obtained by the Company from ores mined principally
in Africa, 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. The Company is presently seeking new sources of tantalum supply
to support future demand. Sales in the United States are made by personnel of
the Company 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 employees of the
Company's Japanese affiliate. There are currently two principal groups producing
tantalum and niobium in the western world, with an emerging competitor in China.
The Company believes that it, together with its Japanese affiliate, is the
leading producer of electronic grade tantalum powder and wire products with
competitors having greater production in some other product lines (see
"General," below).
 
INKJET COLORANTS
 
     The Company's inkjet colorants business, which was formed in 1996,
manufactures colorant products for use in inkjet printing applications. The
Company's pigment-based colorants are designed to replace traditional pigment
dispersions and dyes. These colorants deliver enhanced color, stability,
durability, ink formulation flexibility and high print quality. These new
products will target various printing markets, including home and office
printers, wideformat printers, and commercial and industrial printing
applications. The headquarters of this business are located in Billerica,
Massachusetts. Raw materials for this business include carbon black, which is
obtained from the Company, as well as other products from various sources. All
of those materials are in adequate supply. The Company's best estimate, at this
time, of the revenues which may be derived from these products in the year 2000
is $15 million to $25 million.*
 
- ---------------
 
* Estimates of future contributions and performances are contingent on various
  internal and external factors as described on page 7 of this Report.
 
                                        3
<PAGE>   5
 
SPECIALTY FLUIDS
 
     The Company is developing cesium brine to be marketed as a drilling fluid
for use in high temperature drilling of oil and gas wells. Cesium brine has a
high density but, because it has no solid additives, it has a low viscosity
permitting it to flow readily; it is resistant to high temperatures and yet it
is biodegradable. The headquarters of this business are located in The
Woodlands, Texas and, in the fourth quarter of fiscal 1997, the Company
completed construction of a manufacturing facility to produce cesium brine near
its mine in Manitoba, Canada. The principal raw material used in this business
is cesium, which the Company obtains from that mine. The Company has an adequate
cesium supply. The Company's best estimate, at this time, of the revenues that
may be derived from this product in the year 2000 is $15 million to $35
million.*
 
GENERAL
 
     The Company owns and is a licensee of various patents, which expire at
various times, covering many products, processes and product uses of the
Company's specialty chemicals and materials businesses. 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 specialty chemicals and materials businesses, taken as a whole. The
Company sells its specialty chemicals and materials products under a variety of
trademarks, the loss of any one of which would not materially affect the
Company's specialty chemicals and materials businesses, taken as a whole.
 
     Many of the Company's specialty chemicals and materials businesses are
generally not seasonal in nature, although they experience some decline in sales
in the fourth fiscal quarter due to European seasonal plant shutdowns. The
Company believes that as of September 30, 1997, approximately $108.1 million of
backlog orders for its specialty chemicals and materials businesses were firm,
compared to firm backlog orders as of September 30, 1996, of approximately
$102.3 million. All of the 1997 backlog orders are expected to be filled during
fiscal year 1998.
 
     The Company's specialty chemicals and materials are used in products which
are 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 certain of its North American tire customers. 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.
 
     Six major tire and rubber companies operating worldwide, several special
blacks customers operating in Europe and the United States, one fumed silica
customer operating in Europe and the United States and one capacitor materials
customer represent a material portion of the total net sales and operating
revenues of the Company's specialty chemicals and materials businesses; the loss
of one or more of these customers might materially adversely affect the
Company's specialty chemicals and materials businesses, taken as a whole. The
largest customer of the Company's fumed silica business, Dow Corning Corp.,
filed for protection against its creditors under the bankruptcy laws in 1995.
That filing is not expected to have a material adverse effect on the Company's
fumed silica business.
 
     Competition in the specialty chemicals and materials 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. Competition in quality, service, product performance and technical
innovation is particularly significant for the fumed silica, industrial rubber
blacks, special blacks, inkjet colorants, microelectronics materials and
tantalum businesses. The Company's competitors in the specialty chemicals and
materials businesses, other than the carbon black business, vary by product
group.
 
- ---------------
 
* Estimates of future contributions and performances are contingent on various
  internal and external factors as described on page 7 of this Report.
 
                                        4
<PAGE>   6
 
                                     ENERGY
 
     The Company, through its wholly owned subsidiary, Cabot LNG Corporation,
purchases liquefied natural gas ("LNG") from foreign suppliers, and stores and
resells it in both vapor and liquid form in the northeast United States through
a terminal facility in Everett, Massachusetts. The headquarters for this
business are located in Boston, Massachusetts.
 
LNG SUPPLIES
 
     The Company's LNG supplies currently come primarily from Sonatrading, an
affiliate of Sonatrach, the Algerian national oil and gas company, under a
long-term and a medium-term supply contract. Cabot and Sonatrach have each
agreed to assure performance of the obligations of their respective affiliates
under these agreements. The Company is not able to predict, at this time, what,
if any, impact the political instability in Algeria may have on the future
supply of LNG from Sonatrading, but, to date, the Company has experienced no
direct adverse effect. In the short term, the loss of supply from the Algerian
supplier could have a material adverse effect on the Company's energy business
until the Trinidad LNG project, described below, commences commercial
operations.
 
     During the past two years, the Company also purchased LNG from ADGAS, an
LNG exporter in the United Arab Emirates, and from the North West Shelf project
in Australia. Beginning in 1999, the Company expects to purchase substantial
quantities of LNG from the Trinidad LNG project, described below.
 
THE TRINIDAD LNG PROJECT
 
     A consortium of companies consisting of Amoco Trinidad (LNG) B.V., British
Gas Trinidad LNG Limited, Cabot Trinidad LNG Limited ("Cabot Trinidad," a wholly
owned subsidiary of Cabot LNG Corporation), NGC Trinidad and Tobago LNG Limited
and Repsol International Finance B.V. are shareholders of Atlantic LNG Company
of Trinidad and Tobago ("Atlantic LNG"), a corporation formed to construct, own
and operate a new LNG liquefaction plant in the Republic of Trinidad and Tobago.
The plant is designed to export 385 million cubic feet of natural gas per day in
the form of LNG. Cabot Trinidad owns 10% of Atlantic LNG. Cabot LNG Corporation
and Enagas, S.A., the largest importer and wholesaler of natural gas in Spain,
have entered into contracts with Atlantic LNG under which Cabot LNG Corporation
will purchase 60% and Enagas, S.A. will purchase the remaining 40% of the LNG to
be produced by Atlantic LNG's new plant.
 
     The plant is currently under construction and is expected to be completed
and deliveries of LNG to commence in fiscal year 1999. In June 1997, Atlantic
LNG concluded a $600 million limited recourse financing with a consortium of
international banks to provide funds for the construction of the new
liquefaction plant, for which the Company, as well as the other Atlantic LNG
shareholders or their respective affiliates, have issued limited completion
guarantees. The plant construction is proceeding on schedule and on budget and
the Atlantic LNG shareholders are presently evaluating an expansion of the
facility.
 
OTHER EXPANSION ACTIVITIES
 
     The Company expects to complete the refurbishment of its LNG tanker, now
renamed the Matthew, and to bring it into service in early fiscal 1999. The
Company expects to use the Matthew to transport LNG supplies from the Trinidad
LNG project. Also, in 1997, the Company received approval from the Federal
Energy Regulatory Commission to expand its terminal in Everett to vaporize an
additional 150 million cubic feet of natural gas per day, an approximate 50%
increase in capacity. That expansion is presently under way and is scheduled to
be completed in the first quarter of fiscal 1999.
 
MARKETS
 
     The Company markets LNG to local gas distribution companies, natural gas
marketers and electric generators. These markets are characterized by
substantial price competition and numerous competitors, including natural gas
suppliers and suppliers of alternative fuels. Sales are stronger in the winter
months because of heating demands in New England.
 
                                        5
<PAGE>   7
 
     Both the natural gas and the electric businesses in the northeast United
States are in the process of being deregulated and restructured, thereby making
them subject to greater competition. This restructuring may cause significant
changes in the Company's LNG customer base, including a shift in the
responsibility for gas supplies from the local gas distribution companies to
natural gas marketers.
 
                                     OTHER
 
     As of September 30, 1997, the Company owned 2,990,186 shares of common
stock, $5.00 par value per share (approximately 9.5% of the then outstanding
shares), of K N Energy, Inc. ("KNE"). The Company has reflected its investment
in the common stock of KNE at its fair market value on September 30, 1997.
 
     The Company has maintained an approximate 42.5% ownership interest in Aearo
Corporation (formerly Cabot Safety Holdings Corporation) after the restructuring
of the Company's safety products and specialty composites business in July 1995.
The Company has two representatives serving on the Board of Directors of Aearo
Corporation and a principal subsidiary ("Aearo"). Aearo manufactures and sells
personal safety products, as well as energy absorbing, vibration damping and
impact absorbing products for industrial noise control and environmental
enhancement.
 
                               OTHER INFORMATION
 
EMPLOYEES
 
     As of September 30, 1997, the Company had approximately 4,800 employees.
Approximately 487 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 on page 29 of the
Annual Report which is incorporated herein by reference.
 
SAFETY, HEALTH AND ENVIRONMENT
 
     The Company's operations are subject to various environmental laws and
regulations. Over the past several years, the Company has expended considerable
sums to add, improve, maintain and operate facilities for environmental
protection. Expenditures for equipment or facilities intended solely for
environmental protection are estimated to have been approximately $18.5 million
in fiscal year 1997 and are expected to be approximately $5.4 million in fiscal
year 1998, and approximately $26.8 million in fiscal year 1999. Most of these
expenditures for fiscal years 1997 through 1999 are to enable Cabot's United
States plants to comply with the new requirements of the Clean Air Act.
 
     The Company has been named as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(the "Superfund law") 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
$39.7 million environmental reserve for costs associated with such remediation.
Additions are made to the reserve based on the Company's continuing analysis of
its share of costs likely to be incurred at each site. The sites are primarily
associated with divested businesses.
 
     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
 
                                        6
<PAGE>   8
 
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.
 
FORWARD LOOKING INFORMATION
 
     Actual results may differ materially from the results anticipated in the
statements included herein due to a variety of factors including market supply
and demand conditions, fluctuations in currency exchange rates, cost of raw
materials, demand for customers' products and competitors' reactions to market
conditions. Timely commercialization of products under development by the
Company may be disrupted or delayed by technical difficulties, market
acceptance, competitors' new products, as well as difficulties in moving from
the experimental stage to the production stage. All estimates of future
performance of the Company and its affiliates and subsidiaries are best
estimates based on current information.
 
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
 
     Industry segment financial data are set forth in tables on pages 23 and 43
of the Annual Report and are incorporated herein by reference. A significant
portion of the Company's revenues and operating profits is derived from overseas
operations. The profitability of the specialty chemicals and materials
businesses is affected by fluctuations in the value of the U.S. dollar relative
to foreign currencies. The Company's overseas operations do not currently
include any energy-related businesses. (See Note N of the Notes to Consolidated
Financial Statements for further information relating to sales and profits by
geographic area and Management's Discussion and Analysis of Financial Condition
and Results of Operations, appearing on page 43 and pages 21 through 28,
respectively, in the Annual Report and incorporated herein by reference.)
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 purchase of forward foreign currency
contracts, options, swaps and writing of options to reduce the risk associated
with changes in the value of certain foreign currencies compared to the U.S.
dollar. (See Note M of the Notes to the Consolidated Financial Statements on
page 42 of the Annual Report and incorporated herein by reference.)
 
ITEM 2.  PROPERTIES
 
     The Company owns, leases and operates office, manufacturing, production,
storage, marketing and research and development facilities in the United States
and in foreign countries.
 
     The principal facilities of the Company's business units are described
generally in Item 1 above.
 
     The principal facilities owned by the Company in the United States are: (i)
the administrative offices and manufacturing plants of its carbon black
operations in Louisiana, Massachusetts, Texas and West Virginia (comprising
approximately 9,321,800 square feet); (ii) its research and development
facilities in Illinois, Massachusetts and Pennsylvania and its applications
development facility in Georgia (collectively comprising approximately 146,900
square feet); (iii) administrative offices and manufacturing plants of its fumed
silica, microelectronics materials and performance materials business units in
Illinois and Pennsylvania (comprising approximately 601,300 square feet); and
(iv) its LNG terminalling and storage facility in Massachusetts (comprising
approximately 37,700 square feet). Portions of plants in Louisiana referred to
above are constructed on long-term ground leases.
 
     The Company's principal foreign owned facilities are held through
subsidiaries and together they comprise approximately 6,511,500 square feet of
manufacturing facilities, 39,400 square feet of research and development
facilities, and 907,600 square feet of administrative offices. Portions of the
owned facilities in Canada, the Czech Republic, France and Spain, and all of the
owned facilities in Hong Kong, India, Indonesia, Japan and The Netherlands are
located on leased land. On December 18, 1997, a subsidiary of the Company
purchased the remaining interest in its fumed silica joint venture in
Rheinfelden, Germany. The square
 
                                        7
<PAGE>   9
 
footage of the Rheinfelden facility was not available at the time of the filing
of this Report and, thus, is not included in the numbers provided in this
paragraph.
 
     The principal facilities leased by the Company in the United States are its
corporate headquarters in Boston, Massachusetts, and its carbon black
administrative offices in Georgia (collectively comprising approximately 104,000
square feet). In addition, the Company leases a warehouse for its performance
materials business in Pennsylvania (comprising approximately 21,400 square
feet).
 
     The principal facilities leased by subsidiaries in locations outside the
United States are administrative offices and manufacturing facilities of the
fumed silica and microelectronics materials businesses in Wales, and
administrative offices and research and development facilities of the carbon
black operations in France and Malaysia (collectively comprising approximately
214,700 square feet). In addition, the Company holds mining rights in Canada.
 
     The Company's administrative offices are generally suitable and adequate
for their intended purposes. Existing manufacturing facilities of the Company
are not sufficient to meet the Company's anticipated requirements for the future
and are being supplemented by additional production facilities in several
locations inside and outside the United States. The Company is currently
constructing new plants to produce fumed silica in Midland, Michigan, and, as
part of a joint venture, in India; the Company is undertaking projects to expand
carbon black production capacity in China, India, Malaysia and The Netherlands.
 
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, 1997,
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. Cabot sold its subsidiaries that owned those
properties in two separate transactions in 1989, and, in doing so, undertook
certain contractual obligations with respect to environmental conditions at the
properties. KNE alleges to be the assignee of those contract rights and,
pursuant thereto, has attempted to require Cabot to pay for costs KNE has
incurred and will incur in the future to remediate environmental contamination
alleged to be on those properties.
 
     In 1994, Cabot and the State of Florida agreed to a settlement of a 1983
state court lawsuit requiring Cabot to pay the State $650,000 in past costs
associated with a site in Gainesville, Florida. Cabot also resolved claims of
the United States Environmental Protection Agency ("EPA") for the site by paying
a fine of $416,000. The site included a parcel of land on which Cabot previously
owned and operated a pine tar distillation plant. Cabot has completed the
implementation of a soil and groundwater remedy at the site in accordance with
requirements of EPA and is currently operating and maintaining the groundwater
collection system at the site, monitoring site conditions and negotiating a work
plan with EPA concerning the search for and closure of historic water wells on
the property. Recent monitoring of the groundwater collection system revealed
slightly elevated levels of certain contaminants, and Cabot is evaluating
whether further activity is necessary to address this condition. In 1995, Cabot
filed a cost recovery suit against other responsible parties at the site seeking
reimbursement of their share of Cabot's response costs. Settlements have been
reached with several defendants and the action is proceeding against the others.
 
     Beginning in May 1986, the Department of Environmental Protection of the
State of New Jersey ("NJDEP") issued directives under the New Jersey Spill
Compensation and Control Act to Cabot and other potentially responsible parties
("PRPs") to fund a remedial investigation for the cleanup of a six acre site in
Old Bridge Township near Perth Amboy, New Jersey. Cabot and other PRPs
contributed funds for a remedial investigation and feasibility study which was
conducted by a consultant to the NJDEP. In January 1996, ten companies,
including Cabot, entered into an Administrative Consent Order with NJDEP which
requires them to perform an additional study of the site and to handle minor
remedial work. Most of the minor remedial
 
                                        8
<PAGE>   10
 
work required by the 1996 Order is complete, and the companies are preparing to
conduct further soil sampling at the site. The companies are also negotiating
with NJDEP to contribute costs to an interim groundwater remedy involving the
collection of contaminated groundwater at the site and its conveyance to a local
sewer authority over a two year period pending a final decision concerning
long-term groundwater cleanup. Until additional studies are complete, it will
not be possible to identify what remediation, if any, will be required at the
site, what the total cost of the remediation will be, or what Cabot's portion of
any such costs will be.
 
     In 1986, Cabot sold a manufacturing facility in Reading, Pennsylvania to
NGK Metals, Inc. ("NGK"). In doing so, Cabot agreed to share on an equal basis
with NGK the costs of certain environmental remediation of the Reading plant
site. After the sale, EPA issued an order to NGK requiring it to address soil
and groundwater contamination at the site. In 1996 and 1997, NGK's contractor
completed the soil remediation component of the work. In August 1997, after
completion of the soil cleanup project, the contractor notified NGK that it had
incurred substantial additional costs over the base contract for the work and
that NGK was responsible for these extra costs. NGK, with support from Cabot,
has disputed this claim. The groundwater remediation component of the work is
currently being designed.
 
     In 1995, Cabot was named as a third party defendant in a case concerning
the Louisiana Oil and Recycling ("LOR") Site in Baton Rouge, Louisiana. The
complaint alleges that Cabot's former facility in Arcadia, Louisiana shipped
wastes to the site based on a waste manifest dated April 28, 1987. Cabot's
Arcadia facility was sold to Haynes International, Inc. in 1986, and Cabot has
notified Haynes that it is responsible for Cabot's liability, if any, at the LOR
Site.
 
     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, and the
companies' consultants are preparing detailed design documents necessary to
implement this remedy. Remedial activities are not expected to occur until at
least 1999. EPA's cost recovery claims through the end of 1989 have been
settled, and the companies are negotiating an administrative order with EPA and
the Natural Resources Trustees to settle remaining EPA past cost claims and
natural resource damage claims. The companies, including Cabot, that have paid
for work at the site are seeking to recover a share of those costs from other
responsible parties.
 
     In 1997, Cabot and the other parties responding to EPA requirements at the
Brook reached a conditional agreement to contribute funds to the Ashtabula River
Partnership to assist the Partnership in its efforts to dredge and remediate
sediments in the Ashtabula River downstream from the Brook. If the Partnership
is successful, this work will be conducted outside the traditional federal
Superfund law process through a public-private consortium that will involve
substantial public sources of funding for the work. If such sources, along with
additional private funds become available, it is expected to be less expensive
and easier to complete the project than it would to address the issues involving
the Ashtabula River pursuant to the traditional Superfund law process.
 
     In 1994, Detrex Chemical Industries, Inc. filed third-party complaints
against eight companies, including Cabot, in connection with material allegedly
sent to the Koski/RES landfill in Ashtabula, Ohio. Cabot and other third-party
defendants filed complaints against five additional companies that sent waste to
the site. Discovery in the case is nearing completion, and a trial date has been
set for July 1998.
 
     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.
The litigation has been stayed pending settlement negotiations. 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. An
administrative consent order to conduct
 
                                        9
<PAGE>   11
 
a Focused Feasibility Study of the practicability of the alternative remedy
(materials stabilization and containment in lieu of incineration) was entered
into by the companies and EPA in September 1997. Cabot currently is unable to
project its total liability at the site, although it believes the total volume
of waste that could be attributed to it is a small fraction of the total volume
of waste at the site.
 
     In 1994, five plaintiffs filed suit in the U.S. District Court for the
Eastern District of Pennsylvania against 24 defendants, including Cabot, under
the Superfund law and state law seeking recovery of remediation costs at the
Berks Landfill site, which is located in the vicinity of Reading, Pennsylvania.
The plaintiffs claim that a beryllium alloy plant formerly owned by Cabot and
located in Reading, Pennsylvania sent waste to the Berks Landfill. The
plaintiffs claim to have incurred approximately $3 million on investigations and
interim remedial measures at the site. In 1997, EPA issued a Record of Decision
("ROD") for the site. The ROD selected as a remedy the repair and maintenance of
an existing cap at the landfill, the operation and maintenance of a leachate
management system, long-term monitoring of groundwater and implementation of
deed restrictions at the site. EPA estimates the 30-year present net worth of
these measures at approximately $6 million. In September 1997, EPA issued
special notice letters to Cabot and approximately 30 other parties requesting
them to enter into negotiations to implement the ROD, and Cabot is participating
in those negotiations. A consultant to the PRP group which Cabot joined has
reviewed allocation information in the record and attributes to Cabot a small
percentage of waste at the site relative to the total volume of waste believed
to have been shipped there. It is not possible at this time to determine the
amount Cabot will be required to contribute to settle EPA's and the plaintiffs'
costs at the site.
 
     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 Site"). The Order requires the respondents to design and implement
several remedial measures at the Revere Site, estimated to cost approximately
$15 million. Cabot's portion of that cost, if any, has not yet been determined.
Cabot has 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. Cabot
continues to monitor the efforts of the other parties to implement the remedial
measures called for by the EPA Order.
 
     Cabot has received various requests for information and notifications that
it may be a PRP at several other Superfund sites.
 
     As of September 30, 1997, approximately $39.7 million was accrued for
environmental matters by the Company. The 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 various other lawsuits, claims and contingent liabilities
arising in the ordinary course of its business. 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, it should not, in the
aggregate, have a material adverse effect on the Company's financial position.
(See Note L of the Notes to the Company's Consolidated Financial Statements on
pages 41 and 42 of the Annual Report.)
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
                                       10
<PAGE>   12
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Set forth below for each person who was an executive officer of Cabot at
the end of the 1997 fiscal year, is information, as of November 28, 1997,
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:
 
<TABLE>
<CAPTION>
                                     OFFICES HELD/BUSINESS
         NAME             AGE              EXPERIENCE                       DATES HELD
- -----------------------   ----   ------------------------------   ------------------------------
<S>                       <C>    <C>                              <C>
William T. Anderson....   42..   Cabot Corporation
                                 Controller                       September 1997 to present
                                 Acting Corporate Controller
                                 and Assistant Controller         February 1997 to September
                                                                  1997
                                 Assistant Controller             July 1995 to February 1997
                                 Private Eyes Sunglass
                                   Corporation
                                 Chief Operating Officer          1991 to 1995
                                 Chief Financial Officer          1990 to 1991
Samuel W. Bodman.......   59..   Cabot Corporation
                                 Chairman of the Board            October 1988 to present
                                 President                        February 1991 to February 1995
                                                                  January 1987 to October 1988
                                 Chief Executive Officer          February 1988 to present
Kennett F. Burnes......    54    Cabot Corporation
                                 President and Chief Operating
                                 Officer                          February 1995 to present
                                 Executive Vice President         October 1988 to February 1995
Winfred R. Cates.......    57    Cabot Corporation
                                 Senior Vice President            May 1996 to present
                                 Vice President                   May 1990 to May 1996
Robert L. Culver.......    49    Cabot Corporation
                                 Executive Vice President and
                                 Chief Financial Officer          April 1997 to present
                                 Northeastern University
                                 Senior Vice President and
                                 Treasurer                        October 1990 to April 1997
Robert Rothberg........    48    Cabot Corporation
                                 Vice President and
                                 General Counsel                  October 1993 to present
                                 Choate, Hall & Stewart
                                 (law firm), Partner              January 1982 to October 1993
Donald R. Young........    40    Cabot Corporation
                                 Vice President                   September 1993 to present
                                 General Manager,
                                 Carbon Black                     October 1996 to present
                                 Director of Carbon Black
                                   Marketing and
                                 General Manager of Global
                                 Tire Sector                      January 1996 to October 1996
                                 General Manager, Pacific Asia
                                 Carbon Black                     August 1993 to December 1995
                                 Director of Cogeneration
                                 Projects, Carbon Black           September 1992 to August 1993
</TABLE>
 
                                       11
<PAGE>   13
 
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
     Cabot's Common Stock is listed for trading (symbol CBT) on the New York,
Boston, and Pacific stock exchanges. As of September 30, 1997, there were
approximately 2,130 holders of record of Cabot's Common Stock. The price range
in which the stock has traded, as reported on the composite tape, and the
quarterly cash dividends for the past two years are shown below, restated to
reflect the two-for-one stock split in March 1996.
 
STOCK PRICE AND DIVIDEND DATA
 
<TABLE>
<CAPTION>
                                             DECEMBER     MARCH       JUNE      SEPTEMBER      YEAR
                                             --------     ------     ------     ---------     ------
<S>                                          <C>          <C>        <C>        <C>           <C>
FISCAL 1997
Cash dividends per share...................   $ 0.10      $ 0.10     $ 0.10      $  0.10      $ 0.40
Price range of Common Stock:
  High.....................................   $29.38      $25.38     $28.56      $ 29.25      $29.38
  Low......................................   $23.00      $22.63     $21.50      $ 25.75      $21.50
  Close....................................   $25.13      $24.00     $28.38      $ 26.94      $26.94
</TABLE>
 
<TABLE>
<CAPTION>
                                             DECEMBER     MARCH       JUNE      SEPTEMBER      YEAR
                                             --------     ------     ------     ---------     ------
<S>                                          <C>          <C>        <C>        <C>           <C>
FISCAL 1996
Cash dividends per share...................   $ 0.09      $ 0.09     $ 0.09      $  0.09      $ 0.36
Price range of Common Stock:
  High.....................................   $27.00      $31.38     $31.38      $ 28.75      $31.38
  Low......................................   $23.25      $26.69     $24.50      $ 22.88      $22.88
  Close....................................   $26.94      $30.50     $24.50      $ 27.88      $27.88
</TABLE>
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     Cabot Corporation Selected Financial Data:
 
<TABLE>
<CAPTION>
                                                    YEARS ENDED SEPTEMBER 30
                             ----------------------------------------------------------------------
                                1997           1996           1995           1994           1993
                             ----------     ----------     ----------     ----------     ----------
                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                          <C>            <C>            <C>            <C>            <C>
Financial Highlights
  Net sales and other
     operating revenues....  $1,629,989     $1,856,269     $1,830,393     $1,679,819     $1,614,315
                             ----------     ----------     ----------     ----------     ----------
  Income before cumulative
     effect of accounting
     changes...............  $   92,745     $  194,057     $  171,932     $   78,691     $   37,410
                             ----------     ----------     ----------     ----------     ----------
  Long-term debt...........  $  285,544     $  321,497     $  306,443     $  307,828     $  459,275
  Minority interest........  $   22,780     $   27,138     $    7,411     $       --     $       --
  Stockholders' equity.....  $  727,793     $  744,931     $  685,000     $  562,489     $  442,273
                             ----------     ----------     ----------     ----------     ----------
          Total
           capitalization..  $1,036,117     $1,093,566     $  998,854     $  870,317     $  901,548
                             ----------     ----------     ----------     ----------     ----------
          Total assets.....  $1,823,589     $1,857,581     $1,654,333     $1,616,757     $1,489,473
                             ----------     ----------     ----------     ----------     ----------
Per Share:
  Income before cumulative
     effect of accounting
     changes...............  $     1.27(a)  $     2.60     $     2.17     $     0.98     $     0.45(b)
  Net income...............  $     1.27(a)  $     2.60     $     2.17     $     0.98     $     0.10(c)
  Cash dividends...........  $     0.40     $     0.36     $     0.30     $     0.27     $     0.26
                             ----------     ----------     ----------     ----------     ----------
Average shares
  outstanding--
  thousands................      70,730         73,237         77,452         76,498         74,876
                             ----------     ----------     ----------     ----------     ----------
</TABLE>
 
- ---------------
 
(a) Includes charges of $0.15 per share for the restructuring of the Company's
    specialty chemicals and materials businesses. These charges were for asset
    impairments and severance.
 
(b) Includes charges of $0.42 per share for the restructuring of the Company's
    specialty chemicals and materials businesses and favorable energy accrual
    adjustment of $0.12 per share.
 
(c) Includes a charge of $0.35 per share for the cumulative effect of required
    accounting changes.
 
                                       12
<PAGE>   14
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The information required appears in the Annual Report on pages 21 through
28 and is incorporated herein by reference.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required appears in the Annual Report on pages 29 through
43 and is incorporated herein by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required regarding the executive officers of Cabot is
included in Part I in the unnumbered item captioned "Executive Officers of the
Registrant." Certain other information required regarding the directors of Cabot
is contained in the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders ("Proxy Statement") on pages 2 through 6 under the heading "Certain
Information Regarding Directors." All of such information is incorporated herein
by reference.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information required is contained in the Proxy Statement on pages 10
through 15 under the heading "Executive Compensation." All of such information
is incorporated herein by reference.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required is contained in the Proxy Statement on pages 8 and
9 under the heading "Beneficial Stock Ownership of Directors, Nominees,
Executive Officers and Persons Owning More than Five Percent of Common Stock."
All of such information is incorporated herein by reference.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required is contained in the Proxy Statement on pages 16
and 17 under the heading "Certain Relationships and Related Transactions". All
of such information is incorporated herein by reference.
 
                                       13
<PAGE>   15
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) Financial Statements.  The following are incorporated herein by
reference in this Report from the indicated pages of the Company's Annual
Report:
 
<TABLE>
<CAPTION>
                                   DESCRIPTION                                     PAGE
    -------------------------------------------------------------------------    ---------
    <S>                                                                          <C>
    (1)  Consolidated Statements of Income for each of the three fiscal years
         in the period ended September 30, 1997..............................       29
    (2)  Consolidated Balance Sheets at September 30, 1997 and 1996..........    30 to 31
    (3)  Consolidated Statements of Cash Flows for each of the three fiscal
         years in the period ended September 30, 1997........................       32
    (4)  Notes to Consolidated Financial Statements..........................    33 to 43
    (5)  Statement of Management Responsibility for Financial Reporting and
         Report of Independent Accountants relating to the Consolidated
         Financial Statements listed above...................................       44
</TABLE>
 
     (b) Reports on Form 8-K. None.
 
     (c) Exhibits.  (Not included in copies of the Form 10-K sent to
stockholders.)
 
     The exhibit numbers in the following list correspond to the numbers
assigned to such exhibits in the Exhibit Table of Item 601 of Regulation S-K.
The Company will furnish to any stockholder, upon written request, any exhibit
listed below upon payment by such stockholder to the Company of the Company's
reasonable expenses in furnishing such exhibit.
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                           DESCRIPTION
- ----------         ----------------------------------------------------------------------------
<S>          <C>   <C>
3(a)         --    Certificate of Incorporation of Cabot Corporation restated effective October
                   24, 1983, as amended February 14, 1985, December 3, 1986, February 19, 1987,
                   November 18, 1988, November 24, 1995 and March 12, 1996 (incorporated herein
                   by reference to Exhibit 3(a) of Cabot's Annual Report on Form 10-K for the
                   year ended September 30, 1996, file reference 1-5667, filed with the
                   Commission on December 24, 1996).

3(b)         --    The By-laws of Cabot Corporation as of January 11, 1991 (incorporated herein
                   by reference to Exhibit 3(b) of Cabot's Annual Report on Form 10-K for the
                   year ended September 30, 1991, file reference 1-5667, filed with the
                   Commission on December 27, 1991).

4(a)         --    Rights Agreement, dated as of November 10, 1995, between Cabot Corporation
                   and The First National Bank of Boston as Rights Agent (incorporated herein
                   by reference to Exhibit 1 of Cabot's Registration Statement on Form 8-A,
                   file reference 1-5667, filed with the Commission on November 13, 1995).

4(b)(i)      --    Indenture, dated as of December 1, 1987, between Cabot Corporation and The
                   First National Bank of Boston, Trustee (incorporated herein by reference to
                   Exhibit 4 of Amendment No. 1 to Cabot's Registration Statement on Form S-3,
                   Registration No. 33-18883, filed with the Commission on December 10, 1987).

4(b)(ii)     --    First Supplemental Indenture dated as of June 17, 1992, to Indenture, dated
                   as of December 1, 1987, between Cabot Corporation and The First National
                   Bank of Boston, Trustee (incorporated by reference to Exhibit 4.3 of Cabot's
                   Registration Statement on Form S-3, Registration Statement No. 33-48686,
                   filed with the Commission on June 18, 1992).

4(b)(iii)    --    Second Supplemental Indenture, dated as of January 31, 1997, between Cabot
                   Corporation and State Street Bank and Trust Company, Trustee (incorporated
                   herein by reference to Exhibit 4 of Cabot's Quarterly Report on Form 10-Q
                   for the quarterly period ended December 31, 1996, file reference 1-5667,
                   filed with the Commission on February 14, 1997).
</TABLE>
 
                                       14
<PAGE>   16
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                           DESCRIPTION
- ----------         ----------------------------------------------------------------------------
<S>          <C>   <C>
4(c)(i)+     --    Facility Agreement and Acknowledgment of Indebtedness (The Hongkong and
                   Shanghai Banking Corporation Limited), dated January 10, 1992.
4(c)(ii)+    --    Project Completion Agreement between Cabot, PT. Cabot Chemical and The
                   Hongkong and Shanghai Banking Corporation Limited, dated April 28, 1992.
10(a)        --    Credit Agreement, dated as of January 3, 1997, among Cabot Corporation, the
                   banks listed therein and Morgan Guaranty Trust Company of New York, as Agent
                   (incorporated herein by reference to Exhibit 10 of Cabot's Quarterly Report
                   on Form 10-Q for the quarterly period ended March 31, 1997, file reference
                   1-5667, filed with the Commission on May 14, 1997).
10(b)(i)*    --    Equity Incentive Plan, as amended (incorporated herein by reference to
                   Exhibit 99 of Cabot's Registration Statement on Form S-8, Registration No.
                   33-28699, filed with the Commission on May 12, 1989).
10(b)(ii)*   --    1996 Equity Incentive Plan (incorporated herein by reference to Exhibit 28
                   of Cabot's Registration Statement on Form S-8, Registration No. 333-03683,
                   filed with the Commission on May 14, 1996).
10(c)        --    Note Purchase Agreement between John Hancock Mutual Life Insurance Company,
                   State Street Bank and Trust Company, as trustee for the Cabot Corporation
                   Employee Stock Ownership Plan, and Cabot Corporation, dated as of November
                   15, 1988 (incorporated by reference to Exhibit 10(c) of Cabot's Annual
                   Report on Form 10-K for the year ended September 30, 1988, file reference
                   1-5667, filed with the Commission on December 29, 1988).
10(d)(i)*    --    Supplemental Cash Balance Plan (incorporated herein by reference to Exhibit
                   10(e)(i) of Cabot's Annual Report on Form 10-K for the year ended September
                   30, 1994, file reference 1-5667, filed with the Commission on December 22,
                   1994).
10(d)(ii)*   --    Supplemental Employee Stock Ownership Plan (incorporated herein by reference
                   to Exhibit 10(e)(ii) of Cabot's Annual Report on Form 10-K for the year
                   ended September 30, 1994, file reference 1-5667, filed with the Commission
                   on December 22, 1994).
10(d)(iii)*  --    Supplemental Retirement Incentive Savings Plan (incorporated herein by
                   reference to Exhibit 10(e)(iii) of Cabot's Annual Report on Form 10-K for
                   the year ended September 30, 1994, file reference 1-5667, filed with the
                   Commission on December 22, 1994).
10(d)(iv)*   --    Supplemental Employee Benefit Agreement with John G.L. Cabot (incorporated
                   herein by reference to Exhibit 10(f) of Cabot's Annual Report on Form 10-K
                   for the year ended September 30, 1987, file reference 1-5667, filed with the
                   Commission on December 28, 1987).
10(d)(v)*    --    Cabot Corporation Deferred Compensation Plan dated January 1, 1995
                   (incorporated herein by reference to Exhibit 10(e)(v) of Cabot's Annual
                   Report on Form 10-K for the year ended September 30, 1995, file reference
                   1-5667, filed with the Commission on December 29, 1995).
10(d)(vi)*   --    Amendment 1997-I to Cabot Corporation Deferred Compensation Plan dated June
                   30, 1997, filed herewith.
10(e)*       --    Form of severance agreement entered into between Cabot Corporation and
                   various managers (incorporated herein by reference to Exhibit 10(g) of
                   Cabot's Annual Report on Form 10-K for the year ended September 30, 1991,
                   file reference 1-5667, filed with the Commission on December 27, 1991).
10(f)        --    Group Annuity Contract No. GA-6121 between The Prudential Insurance Company
                   of America and State Street Bank and Trust Company, dated June 28, 1991
                   (incorporated herein by reference to Exhibit 10(h) of Cabot's Annual Report
                   on Form 10-K for the year ended September 30, 1991, file reference 1-5667,
                   filed with the Commission on December 27, 1991).
</TABLE>
 
                                       15
<PAGE>   17
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                           DESCRIPTION
- ----------         ----------------------------------------------------------------------------
<S>          <C>   <C>
10(g)*       --    Non-employee Directors' Stock Compensation Plan (incorporated herein by
                   reference to Exhibit A of Cabot's Proxy Statement for its 1992 Annual
                   Meeting of Stockholders, file reference 1-5667, filed with the Commission on
                   December 27, 1991).

10(h)        --    Agreement for the Sale and Purchase of Liquefied Natural Gas and
                   Transportation Agreement, dated April 13, 1976, between L'Entreprise
                   Nationale pour la Recherche, la Production, le Transport, la Transformation
                   et la Commercialisation des Hydrocarbures ("Sonatrach") and Distrigas
                   Corporation, and Amendment No. 3 to said Agreement, dated February 21, 1988
                   (incorporated herein by reference to Exhibit 10(j) of Cabot's Annual Report
                   on Form 10-K for the year ended September 30, 1994, file reference
                   1-5667, filed with the Commission on December 22, 1994).

10(i)        --    Agreement for the Sale and Purchase of Liquefied Natural Gas, dated December
                   11, 1988, between Sonatrading Amsterdam B.V. ("Sonatrading") and Distrigas
                   Corporation and Transportation Agreement, dated December 11, 1988, between
                   Sonatrach and Distrigas Corporation (incorporated herein by reference to
                   Exhibit 10(p) of Cabot's Annual Report on Form 10-K for the year ended
                   September 30, 1989, file reference
                   1-5667, filed with the Commission on December 28, 1989).

10(j)        --    Mutual Assurances Agreements among Cabot Corporation, Sonatrach, Distrigas
                   Corporation and Sonatrading dated February 21, 1988 and December 11, 1988,
                   respectively (incorporated herein by reference to Exhibit 10.1 of Cabot's
                   Current Report on Form 8-K dated July 17, 1992, file reference 1-5667, filed
                   with the Commission).

10(k)        --    K N Energy, Inc. By-law provision (incorporated herein by reference to
                   Exhibit 10(o)(iv) of Cabot's Annual Report on Form 10-K for the year ended
                   September 30, 1994, file reference 1-5667, filed with the Commission on
                   December 22, 1994).

10(l)(i)     --    Asset Transfer Agreement, dated as of June 13, 1995, among Cabot Safety
                   Corporation, Cabot Canada Ltd., Cabot Safety Limited, Cabot Corporation,
                   Cabot Safety Holdings Corporation and Cabot Safety Acquisition Corporation
                   (incorporated herein by reference to Exhibit 2(a) of Cabot Corporation's
                   Current Report on Form 8-K, dated July 11, 1995, file reference 1-5667,
                   filed with the Commission).

10(l)(ii)    --    Stockholders' Agreement, dated as of July 11, 1995, among Vestar Equity
                   Partners, L.P., Cabot CSC Corporation, Cabot Safety Holdings Corporation,
                   Cabot Corporation and various other parties thereto (incorporated herein by
                   reference to Exhibit 2(b) of Cabot Corporation's Current Report on Form 8-K,
                   dated July 11, 1995, file reference
                   1-5667, filed with the Commission).

11           --    Statement Re: Computation of Per Share Earnings, filed herewith.

12           --    Statement Re: Computation of Ratios of Earnings to Fixed Charges, filed
                   herewith.

13           --    Pages 21 through 44 of the 1997 Annual Report to Stockholders of Cabot
                   Corporation, a copy of which is furnished for the information of the
                   Securities and Exchange Commission. Portions of the Annual Report not
                   incorporated herein by reference are not deemed "filed" with the Commission.

21           --    List of Significant Subsidiaries, filed herewith.

23           --    Consent of Coopers & Lybrand L.L.P.

24           --    Power of attorney for signing of this Annual Report on Form 10-K, filed
                   herewith.

27           --    Financial Data Schedule, filed herewith.
</TABLE>
 
- ---------------
 
+ The Registrant agrees to furnish to the Commission upon request a copy of
  these instruments with respect to long-term debt (not filed as exhibits), none
  of which relates to securities exceeding 10% of the total assets of the
  Registrant and its consolidated subsidiaries.
 
* Management contract or compensatory plan or arrangement.
 
                                       16
<PAGE>   18
 
     (d) Schedules.  The Schedules have been omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
 
     For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statement on Form S-8
No. 33-28699 (filed May 12, 1989), the Registrant's Registration Statement on
Form S-8 No. 33-52940 (filed October 5, 1992), the Registrant's Registration
Statement on Form S-8 No. 33-53659 (filed May 16, 1994), the Registrant's
Registration Statement on Form S-8 No. 333-03683 (filed May 14, 1996), the
Registrant's Registration Statement on Form S-8 No. 333-06629 (filed June 21,
1996), the Registrant's Registration Statement on Form S-8 No. 333-19103 (filed
December 31, 1996) and the Registrant's Registration Statement on Form
S-8 No. 333-19099 (filed December 31, 1996).
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
 
                                       17
<PAGE>   19
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                            CABOT CORPORATION(Registrant)
 
                                            By     /s/ Samuel W. Bodman
                                             -----------------------------------
                                                      Samuel W. Bodman,
                                                 Chairman of the Board and
                                                  Chief Executive Officer
 
Date:  December 23, 1997
 
     Pursuant to the requirement of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                 SIGNATURES                               TITLE                     DATE
- ---------------------------------------------  ----------------------------  ------------------
<S>                                            <C>                           <C>
 
            /s/ Samuel W. Bodman               Director, Chairman of the     December 23, 1997
- ---------------------------------------------    Board and Chief Executive
              Samuel W. Bodman                   Office (principal
                                                 executive officer)

                       *                       Director and President        December 23, 1997
- ---------------------------------------------
               Kennett F. Burnes
 

            /s/ Robert L. Culver               Executive Vice President and  December 23, 1997
- ---------------------------------------------    Chief Financial Officer
              Robert L. Culver                   (principal financial
                                                 officer)
 

           /s/ William T. Anderson             Controller                    December 23, 1997
- ---------------------------------------------    (principal accounting
             William T. Anderson                 officer)
 

                       *                       Director                      December 23, 1997
- ---------------------------------------------
              Jane C. Bradley

 
                       *                       Director                      December 23, 1997
- ---------------------------------------------
                  John G.L. Cabot

 
                       *                       Director                      December 23, 1997
- ---------------------------------------------
               Arthur L. Goldstein

 
                       *                       Director                      December 23, 1997
- ---------------------------------------------
               Robert P. Henderson
 

                       *                       Director                      December 23, 1997
- ---------------------------------------------
                 Arnold S. Hiatt
</TABLE>
 
                                       18
<PAGE>   20
 
<TABLE>
<CAPTION>
                 SIGNATURES                               TITLE                     DATE
- ---------------------------------------------  ----------------------------  ------------------
<S>                                            <C>                           <C>
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
              John H. McArthur
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
              John F. O'Brien
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
              David V. Ragone
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
             Charles P. Siess, Jr.
 
                     *                          DIrector                      December 23, 1997
- ---------------------------------------------
              Morris Tanenbaum
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
               Lydia W. Thomas
 
                     *                          Director                      December 23, 1997
- ---------------------------------------------
              Mark S. Wrighton
</TABLE>
 
*By
  /s/ Sarah W. Saunders
- ---------------------------------------------
      Sarah W. Saunders
      as Attorney-in-Fact
 
                                       19

<PAGE>   1
                                                                EX-10.(d)(vi)

                                AMENDMENT 1997-I
                                       TO
                                CABOT CORPORATION
                           DEFERRED COMPENSATION PLAN


        Cabot Corporation, a Delaware corporation (the "Company"), pursuant to
Section 9 of the Cabot Corporation Deferred Compensation Plan (the "Plan"),
hereby amends the Plan, as follows, effective as of June 1, 1997:

1.      Section 1 is amended by inserting the phrase "and non-employee
directors" after the word "employees".

2.      The following defined terms are added to Section 2 immediately following
the definition of "CRISP":

            "Director": Any member of the Board other than an employee of any 
            Employer.

            "Director Fees": The cash annual retainer fees and meeting fees paid
            by the Company as compensation for service on the Board or any
            committee thereof.

3.      The definitions of "Eligible Pay", "Moody's Rate" and "Participant" in
Section 2 are amended in their entireties to read as follows:

            "Eligible Pay": Except as otherwise determined by the Administrator,
            Eligible Pay shall include (i) in the case of an Eligible Employee:
            base salary, amounts payable under the Company's short-term
            incentive program, and sales incentive bonuses; (ii) in the case of
            a Consultant: the consulting fees payable by the Employer; and (iii)
            in the case of a Director: Director Fees. The Administrator in its
            discretion may include other categories of remuneration in, or
            exclude categories of remuneration from, the definition of "Eligible
            Pay," either in general or in particular cases; provided, that any
            such change affecting Director Fees shall also require the approval
            of the Board.

            "Moody's Rate": For any calendar year, the interest rate specified
            in Moody's Bond Record under the heading of "Moody's Corporate Bond
            Yield Averages -- Av. Corp.," as published for the month of November
            preceding the calendar year.

            "Participant": A Consultant, Eligible Employee or Director who 
            participates in the Plan.



<PAGE>   2

4.      Section 2 is further amended by (i) adding the phrase ", and to
Directors" at the end of the definition of "Employer" and (ii) adding the
following to the definition of "Earnings Measure":

            In the case of Eligible Pay deferred by a Director, the Earnings
            Measure applied under Section 4(b) below shall be limited to one of
            the following: (i) a notional interest rate equal (for each year) to
            the Moody's Rate for such year, or (ii) deemed investment in (i.e.
            phantom units of) common stock of the Company. If the Earnings
            measure is based on the Moody's Rate, all Eligible Pay deferred by a
            Director during a calendar year shall be credited to the Director's
            Account as of the first day of such calendar year. If the Earnings
            Measure is based on common stock of the Company, all Eligible Pay
            deferred by a Director during a calendar quarter shall be credited
            to the Director's Account in phantom stock units as of, and based on
            the closing price for the Company common stock on the New York Stock
            Exchange on, the last trading day of such quarter, and phantom
            dividends on such Account (based on the balance of phantom stock
            units in such Account on the record date for each dividend declared
            on shares of Company common stock) shall be added to such Account in
            phantom stock units as of, and based on the closing price for the
            common stock on the New York Stock Exchange on, the date dividends
            are actually paid on the common stock.

5.      Section 3 is amended by adding thereto a new Section 3(e) to read in its
entirety as follows:

               (e)     SPECIAL RULES FOR DIRECTORS. The provisions of this
               Section 3(e) shall apply, in the case of a Director, in lieu of
               the provisions of Sections 3(a) through (d) above. A Director may
               defer up to 100% of any Eligible Pay for any calendar year
               commencing on or after January 1, 1998 by completing and
               delivering a deferral election in accordance with Section 3(d)
               above not later than September 15 of the preceding year. A
               Director who is serving as such on June 1, 1997 may defer up to
               100% of any Eligible Pay earned in the third and fourth quarters
               of calendar year 1997 by completing and delivering a deferral
               election in accordance with Section 3(d) above not later than
               June 30, 1997. Any individual who becomes a Director after June
               1, 1997 may elect within 30 days after becoming a Director to
               defer up to 100% of any Eligible Pay earned in the remainder of
               the calendar year in which such individual becomes a Director
               (and the following calendar year, if such individual becomes a
               Director between August 16 and December 31 of any calendar year)
               by completing and delivering a deferral election in accordance
               with Section 3(d) above within such 30-day period. A Director's
               Eligible Pay shall be treated as earned on the date it would be
               paid if not deferred hereunder. The minimum amount that a
               Director may defer for any calendar year shall be $2,000.



                                       2
<PAGE>   3

6.      Section 4(b) is amended in its entirety to read as follows:

               (b)     NOTIONAL EARNINGS. Not less frequently than annually, the
               Administrator shall adjust each Participant's Account to reflect
               notional earnings. Notional earnings shall be based on one
               Earnings Measure selected by the Participant from such Earnings
               Measures as the Administrator may specify. Subject to Sections
               5(e)(iii) and (iv) below, the next sentence and such other rules
               and regulations as the Administrator may require, the
               Administrator may, but need not, permit Participants to (i)
               select an Earnings Measure that will apply to their Accounts from
               among those specified by the Administrator, and (ii) change such
               Earnings Measure to another specified Earnings Measure.
               Notwithstanding any provision of this Plan to the contrary, (i) a
               Participant may only select one Earnings Measure to apply to his
               or her entire Account at any one time, and (ii) the effective
               date of any change in Earnings Measure must be a prospective
               January 1. The Administrator shall have the absolute discretion
               at any time to alter or amend the Earnings Measures used in
               valuing and adjusting Accounts; provided, that the Administrator
               may not, without the written consent of the affected Participant,
               alter any Earnings Measure retroactively to the extent that the
               effect of such alteration would be to reduce the balance of the
               Participant's Account below what it was immediately prior to such
               alteration. Nothing herein shall be construed as obligating the
               Administrator or any Employer to set aside assets or establish a
               trust or other fund for purposes of the Plan.

7.      Section 5(a) is amended by (i) inserting the phrase ", service as a 
Director" after the word "employment" the first, second and fourth times it
appears, (ii) replacing the phrase "termination of employment or termination of
the consulting relationship," with the phrase "termination of the Participant's
employment, service as a Director or consulting relationship with the Employer"
and (iii) deleting the word "equal".

8.      Section 5(e) is amended in its entirety to read as follows:

               (e)     COMPUTATION OF INSTALLMENT PAYMENTS, ETC. If any Account 
               is to be distributed in installments, the amount of each such
               installment shall be determined applying the following special
               rules:

                       (i)   If the Earnings Measure in effect for the Account
                   when installments begin is the Moody's Rate, the amount of
                   each installment shall be determined so as to result in equal
                   installments over the installment period, applying the
                   following special rules: (x) the Earnings Measure used to
                   measure notional earnings with respect to the declining
                   Account balance over the course of the installment period
                   shall be a fixed rate equal to the average of the Moody's
                   Rate for the year in which the installment distributions
                   commence and the preceding four calendar years, and (y)
                   notional earnings shall be determined by assuming that the
                   Account is reduced at the beginning 



                                       3

<PAGE>   4

                   of each year in the installment period by the aggregate
                   amount of the installment payments to be made for that year.

                        (ii)  If the Earnings Measure in effect for the Account
                   is not the Moody's Rate, the Account balance of the
                   Participant shall be calculated as of the close of business
                   on the first business day of each month during the
                   installment period, and the monthly installment for that
                   month shall be calculated by dividing this balance by the
                   remaining number of monthly payments due the Participant. By
                   way of example, if the Participant elects 120 monthly
                   installments, the first payment shall be 1/120 of the account
                   balance, calculated as of the first business day of the first
                   month. The following month, the payment shall be 1/119 of the
                   account balance, calculated as of the first business day of
                   the second month.

                       (iii) If the Earnings Measure in effect for the Account
                   when installments begin is not the Moody's Rate, the
                   Participant, subject to Section 4(b) above, may at any time
                   during the installment period change the Earnings Measure in
                   effect for the Account to the Moody's Rate effective as of
                   the next January 1. The Account balance as of such January 1
                   shall be paid out in equal installments over the remainder of
                   the installment period, with the amount of the installments
                   determined applying the following special rules: (x) the
                   Earnings Measure used to measure notional earnings with
                   respect to the declining Account balance over the remainder
                   of the installment period shall be a fixed rate equal to the
                   average of the Moody's Rate for the calendar year in which
                   the equal installment distributions commence and the
                   preceding four calendar years, and (y) notional earnings
                   shall be determined by assuming that the Account is reduced
                   at the beginning of each year in the remainder of the
                   installment period by the aggregate amount of the installment
                   payments to be made for that year.

                       (iv)  Notwithstanding any provision of this Plan to the
                   contrary, if the Earnings Measure in effect for an Account
                   when installments begin is the Moody's Rate, or if the
                   Participant changes the Earnings Measure to the Moody's Rate
                   during the course of the installment period in accordance
                   with Section 5(e)(iii) above, the Participant may not
                   subsequently change the Earnings Measure.


                                       4

<PAGE>   5


        In Witness Whereof, the Company has caused this Amendment to be signed
by its duly authorized officer this 30th day of June 1997.





                                             CABOT CORPORATION


                                             By: /s/ Karen M. Morrissey
                                                 -------------------------------

                                             Its:  Vice President
                                                  ------------------------------







                                       5



<PAGE>   1

                                                                      EXHIBIT 11



                                CABOT CORPORATION

         Earnings per Common Share for the Year Ended September 30, 1997

                 Statement Re: Computation of Per Share Earnings
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                              Primary     Fully Diluted
                                                              -------     -------------

<S>                                                           <C>            <C>    
Shares of common stock outstanding at October 1, 1996,
       less treasury stock                                     71,589         71,589

Plus net weighted shares of treasury stock purchased           (1,714)        (1,714)

Plus common stock equivalents:

       Effect of convertible preferred stock conversion             -          5,981
       Effect of equity incentive awards                          855            880
                                                              -------        -------

Weighted average shares outstanding                            70,730         76,736
                                                              =======        =======

Income applicable to common shares                            $89,487        $89,487

Dividends on preferred stock                                        -          3,258

Preferred stock conversion compensation shortfall                   -         (1,798)
                                                              -------        -------

Earnings applicable to common shares                          $89,487        $90,947
                                                              =======        =======

Earnings per common share                                     $  1.27        $  1.19
                                                              =======        =======
</TABLE>







<PAGE>   1





                                                                      EXHIBIT 12


                 CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES

        Statement Re: Computation of Ratios of Earnings to Fixed Charges
                          (Dollar amounts in thousands)


<TABLE>
<CAPTION>
                                                                               Years ended September 30
                                                           1997           1996           1995           1994           1993
                                                           ----           ----           ----           ----           ----
Earnings:
<S>                                                    <C>            <C>            <C>            <C>            <C>     
     Pre-tax income from continuing operations         $117,031       $279,834       $256,029       $118,325       $ 67,900
     Distributed income of affiliated companies          10,392         11,173         11,699          5,638          5,988
     Add fixed charges:
        Interest on indebtedness                         43,222         41,718         35,639         41,668         44,043
        Portion of rents representative of
           the interest factor                            4,917          4,837          5,515          5,879          4,838
                                                       --------       --------       --------       --------       --------
     Income as adjusted                                $175,562       $337,562       $308,882       $171,510       $122,769

Fixed charges:
     Interest on indebtedness                          $ 43,222       $ 41,718       $ 35,639       $ 41,668       $ 44,043
     Capitalized interest                                     _              _              _              _          3,963
     Portion of rents representative of
        the interest factor                               4,917          4,837          5,515          5,879          4,838
                                                       --------       --------       --------       --------       --------

     Total fixed charges                               $ 48,139       $ 46,555       $ 41,154       $ 47,547       $ 48,881

     Ratio of earnings to fixed charges                    3.65           7.25           7.51           3.61           2.51
                                                       ========       ========       ========       ========       ========
</TABLE>







<PAGE>   1
                                                                      Exhibit 13


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS

     Cabot Corporation is comprised of a Specialty Chemicals and Materials Group
and an Energy Group. The Specialty Chemicals and Materials Group consists of the
following businesses: carbon black (the largest), fumed silica, plastics,
capacitor materials, microelectronics materials, inkjet colorants, and specialty
fluids. In 1995, the Company restructured the ownership of its safety and
specialty composites business, Cabot Safety Corporation. Cabot now owns
approximately 42.5% of the new corporation (now named Aearo Corporation) which
is accounted for under the equity method. The Energy Group consists of Cabot LNG
Corporation, a wholly owned subsidiary, and its subsidiaries. In 1996, the
Company sold TUCO INC. ("TUCO"), a coal fuel services business.

     The financial results of the Company in 1997 fell short of management's
expectations. Key fundamentals in the Company's specialty chemicals businesses
that began to deteriorate in the latter part of 1996 continued to have a
negative impact in 1997. As the year progressed, however, the Company's
operating environment gradually improved. For example, early in the fiscal year,
the Company's carbon black business experienced higher feedstock costs; those
costs retreated and remained stable during the second half of the year. In
addition, European carbon black demand improved during the year and European
carbon black prices, which declined during the first part of the year,
stabilized in the third and fourth quarters. There is some prospect of price
increases in Europe in 1998* (see page 28). Also, the U.S. electronics industry
recovered during the second half of the year. Cabot serves this industry through
its capacitor materials and microelectronics materials businesses. Finally,
positive year-to-year volume comparisons that developed in the Company's
chemical businesses during the third quarter continued during the fourth quarter
of 1997.

     The following analysis of financial condition and operating results should
be read in conjunction with the Company's Consolidated Financial Statements and
accompanying Notes. Unless a calendar year is specified, all references in this
discussion to years are to the Company's fiscal year ended September 30.

RESULTS OF OPERATIONS

REVENUES

     Net sales and other operating revenues for 1997, 1996 and 1995 were $1.6
billion, $1.9 billion and $1.8 billion, respectively. Revenues for 1996 included
$278.2 million from the operations of TUCO. Excluding TUCO results from 1996,
the Company experienced an increase in revenue during 1997 of $51.9 million, or
3%. The increase is attributable to greater revenues in the Company's LNG
business. In 1997, the LNG business reported an increase of $55.9 million, or
39%, in revenue due to higher liquefied natural gas volumes and better pricing.


           [ Revenues Specialty Chemicals & Materials vs. Energy graph]


     The Company's gross margins as a percentage of net sales for 1997, 1996 and
1995 were 30%, 29% and 31%, respectively. Gross margins for 1996 include the
operating results of TUCO, which were 5% of TUCO's net sales. Exclusive of TUCO,
the gross margin percentage for 1996 was 34%. The decrease in gross margin
during 1997 was primarily the result of lower year-to-year selling prices
combined with higher feedstock costs in the Company's carbon black
business. Overall carbon black selling prices were down 3% during 1997. In
addition, feedstock costs during 1997 were on average 4% higher.

     The Company's selling, research, technical and administrative expenses for
1997, 1996 and 1995 were $299.2 million, $286.5 million and $293.9 million,
respectively. The increase during 1997 of $12.7 million, or 4%, was largely due
to the Company's continued focus on developing new products. As part of its
long-term strategy for earnings growth, the Company has invested an increasing
amount of resources over the past few years in research and marketing for the
development of high-value, differentiated new products and entirely new
businesses. These investments were largely in the Company's Specialty Chemicals
and Materials Group. During 1997, the Company continued to



                                                                              21
<PAGE>   2


see evidence that several new product and new business initiatives likely will
develop over the next several years into commercial enterprises which, as a
group, should contribute significantly to the Company's earnings over time (see
page 28).

     In 1996, selling, research, technical and administrative expenses decreased
$7.4 million, or 3%. The 1995 total included expenses associated with Cabot
Safety Corporation, which totaled $46.7 million. Excluding that amount from the
1995 figure, selling, research, technical and administrative spending increased
$39.3 million, or 16%, during 1996. That increase also resulted from continued
investments dedicated to developing new, higher value products and processes. In
addition, 1996 figures include selling, research, technical and administrative
expenses of the Company's Czech Republic and Indian carbon black operations,
which were consolidated at the beginning of 1996.

OPERATING PROFIT

     Operating profit for 1997, 1996 and 1995 was $186.9 million, $283.5 million
and $299.5 million, respectively. Operating profit before special items for
1997, 1996 and 1995 was $205.1 million, $277.7 million, and $299.5 million,
respectively. The Company's operating margins as a percentage of sales, before
special items during 1997, 1996 and 1995 were 13%, 15% and 16%, respectively.
Special items during 1997 included $18.2 million of severance and asset
impairment charges in the Company's Specialty Chemicals and Materials Group.
Special items during 1996 included $5.8 million of gains relating to the
Company's Energy Group.


            [Operating Margins Specialty Chemicals & Materials graph]


     Operating profit (excluding special items) decreased $72.6 million during
1997. Operating profit for 1996 included $13.8 million of operating results
from TUCO. Excluding the results of TUCO, operating profit in 1997 decreased
$58.8 million, or 22%. The effects of lower specialty chemicals selling prices,
higher raw material and manufacturing costs, the strengthening of the U.S.
dollar, and increased spending on research and development were partially offset
by the effect of greater volumes.

OTHER EXPENSES

     Interest expense for 1997, 1996 and 1995 was $43.2 million, $41.7 million
and $35.6 million, respectively. The increase in interest expense during 1997
was primarily due to higher levels of debt relating to repurchases of Cabot
common stock under the Company's stock repurchase program and capital
expenditures. The increase in interest expense during 1996 was due to higher
levels of short-term debt resulting from the Company's stock repurchase program,
increased capital spending and the consolidation of the Company's Czech Republic
and Indian carbon black businesses.

     Unallocated corporate expenses for 1997, 1996 and 1995 were $26.6 million,
$29.2 million and $28.0 million, respectively. The decrease during 1997 was
primarily due to lower environmental expenses. The increase during 1996 was
largely due to lower interest and dividend income as compared with 1995.




22
<PAGE>   3
Selected Financial Data by Industry Segment

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30                                           1997         1996         1995         1994          1993
- ------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN MILLIONS
<S>                                                              <C>          <C>          <C>          <C>           <C>
Net Sales and Other Operating Revenues
Specialty Chemicals and Materials                                $1,430.3     $1,434.3     $1,487.8     $1,241.1      $1,191.8
Energy                                                              199.7        422.0        342.6        438.7         422.5
    Net sales and other operating revenues                       $1,630.0     $1,856.3     $1,830.4     $1,679.8      $1,614.3
- ------------------------------------------------------------------------------------------------------------------------------

Operating Profit
Specialty Chemicals and Materials(a)                             $  180.3     $  260.5     $  286.8     $  165.9      $  101.7
Energy(b)                                                             6.6         23.0         12.7         18.4          16.7
    Total operating profit                                          186.9        283.5        299.5        184.3         118.4
Interest expense                                                     43.2         41.7         35.6         41.7          44.0
Unallocated corporate expenses, net(c)                               26.6         29.2         28.0         23.4          20.7
Gain on sales of businesses                                            --        (38.9)       (32.6)          --            --
Gain on sale of equity securities                                      --        (28.3)          --           --            --
Adjustment of reserves related to divested businesses                  --           --         12.5          0.8         (14.2)
    Income from continuing operations before income taxes        $  117.1     $  279.8     $  256.0     $  118.4      $   67.9
- ------------------------------------------------------------------------------------------------------------------------------

Depreciation and Amortization
Specialty Chemicals and Materials                                $  107.6     $   93.8     $   91.2     $   83.3      $   81.5
Energy                                                                2.0          2.9          2.8          2.8           2.8
General corporate                                                     0.3          0.3          0.2          0.2           0.2
    Total                                                        $  109.9     $   97.0     $   94.2     $   86.3      $   84.5
- ------------------------------------------------------------------------------------------------------------------------------

Fixed Asset Additions
Specialty Chemicals and Materials                                $  157.4     $  207.7     $  130.4     $   70.7      $   63.9
Energy                                                                5.4          0.5          0.8          2.9           0.7
General corporate                                                      --          0.9           --           --           0.4
    Total                                                        $  162.8     $  209.1     $  131.2     $   73.6      $   65.0
- ------------------------------------------------------------------------------------------------------------------------------

Identifiable Assets
Specialty Chemicals and Materials                                $1,442.3     $1,427.7     $1,167.9     $1,172.2      $1,117.4
Energy                                                               88.4         79.7        133.8        127.4         116.1
General corporate(d)                                                206.8        270.8        253.7        231.0          89.3
Equity in affiliates-Specialty Chemicals and Materials               86.1         79.4         98.9         86.2         103.1
Equity in affiliates-Energy                                            --           --           --           --          63.6
    Total                                                        $1,823.6     $1,857.6     $1,654.3     $1,616.8      $1,489.5
- ------------------------------------------------------------------------------------------------------------------------------
(a) Included in fiscal year 1997 are charges relating to a cost reduction program undertaken in the Specialty Chemicals and
    Materials Group. These charges are for asset impairments of $10.3 million and severance of $7.9 million. Fiscal year 1993
    includes a $47.4 million restructuring charge.

(b) Included in fiscal year 1996 is a gain on settlement of a contractual matter of $2.5 million, and a gain from a reduction in
    the Company's ownership position in the Trinidad natural gas liquefaction project of $3.3 million.

(c) Unallocated corporate expenses, net, include corporate management costs reduced by investment income.

(d) General corporate assets include cash, short-term investments, investments other than equity basis, income taxes receivable,
    deferred taxes and headquarters' assets.
</TABLE>

                                                                              23
<PAGE>   4


PROVISION FOR INCOME TAXES

     The effective tax rate on income from operations for 1997, 1996 and 1995,
was 36%, 35% and 39%, respectively. The tax rate in 1996 reflects the impact of
research and experimentation tax credits taken in 1996 relating to prior years.
The effective tax rate in 1996 would have been 37% without the impact of those
credits. The decrease in the tax rate in 1996 versus 1995 reflects the
absorption of the gain on the sale of Cabot Safety Corporation in 1995. A more
detailed analysis of income taxes is presented in Note K to the Consolidated
Financial Statements.

NET INCOME

     Reported net income was $92.7 million ($1.19 per fully diluted common
share) in 1997 compared with $194.1 million ($2.42 per fully diluted common
share) in 1996 and $171.9 million ($2.02 per fully diluted common share) in
1995. Net income in 1997 includes special charges for asset impairments and
severance costs totaling $18.2 million ($0.15 per fully diluted common share).
Net income for 1996 included several special items. These items were $5.3
million ($0.06 per fully diluted common share) from research and experimentation
tax credits, a $28.3 million ($0.22 per fully diluted common share) gain from
the sale of 1.85 million shares of the Company's investment in K N Energy, Inc.,
a $38.9 million ($0.31 per fully diluted common share) gain from the sale of the
Company's coal fuel services business, TUCO, and one-time adjustments totaling
$5.8 million ($0.05 per fully diluted common share) in the LNG business. Net
income in 1995 included a gain of $32.6 million ($0.17 per fully diluted common
share) associated with the ownership restructuring of Cabot Safety Corporation,
and a $12.5 million ($0.09 per fully diluted common share) expense due to an
adjustment in environmental reserves. Excluding special items, net income would
have been $104.4 million ($1.34 per fully diluted common share) in 1997, $142.9
million ($1.78 per fully diluted common share) in 1996, and $165.3 million
($1.94 per fully diluted common share) in 1995.

SPECIALTY CHEMICALS AND MATERIALS

     The Specialty Chemicals and Materials Group includes the Company's global
specialty chemicals operations. These operations manufacture carbon black, a
very fine black powder used as a reinforcing agent in tires and most industrial
rubber products, and also widely used as an agent in many specialty
applications, such as inks, plastics, cables and coatings; fumed silica, a
specialty chemical used as a reinforcing, thickening, thixotropic, suspending or
anti-caking agent in many products, such as silicone rubber and polyester
resins; thermoplastic concentrates and specialty compounds; tantalum capacitor
materials, and other metals and alloys for the semiconductor, aerospace and
defense markets; polishing slurries used in chemical mechanical planarization
of integrated circuit devices; colorants for the inkjet printing industry; and
cesium-based drilling and completion fluids for the oil industry.

     In 1997, sales from the Specialty Chemicals and Materials Group were flat
with the prior year despite significantly lower year-to-year carbon black
selling prices. The effects of a 6% global increase in specialty chemical
volumes were more than offset by lower selling prices, primarily in the
Company's European and Pacific Asian carbon black markets. Sales growth in the
fumed silica and microelectronics materials businesses was partially offset by a
decline in sales of plastics and tantalum capacitor materials.


   [Specialty Chemicals & Materials Revenues by Geographic Region pie chart]


     Excluding sales of the divested safety and specialty composite products
business from the 1995 results to form a comparative basis, 1996 sales for the
Specialty Chemicals and Materials Group increased 7% from 1995. Improved pricing
and the effects of consolidating the operating results of the Czech Republic and
Indian carbon black businesses in 1996 were partially offset by 2% lower overall
volumes.

          [Carbon Black Sales Volumes by Geographic Region pie chart]


     The Company has been developing and commercializing new, differentiated
products in its chemical businesses. Five-year new products (defined as products
that were first sold in commercial quantities within the last five years)
accounted for approximately 9% of chemical revenues in 1997, compared with 8% in
1996, and 6% in 1995. The Company continues to vigorously pursue a number of new
product and new business opportunities.



24
<PAGE>   5


     Operating profit before special items for the Specialty Chemicals and
Materials Group in 1997, 1996 and 1995, totaled $198.5 million, $260.5 million
and $286.8 million, respectively. The Company's carbon black operations
accounted for most of the year-to-year earnings declines.

     In 1997, lower European and Pacific Asian selling prices, higher raw
material costs, increased plant start-up costs, and a stronger U.S. dollar more
than offset the benefits of greater volumes. The Company's fumed silica and
microelectronics materials businesses each produced improved operating profits
for 1997 versus 1996. The slowdown in the U.S. electronics industry, which began
in 1996, continued to have an impact on the Company's tantalum capacitor
materials business. The Company's tantalum business reported lower operating
profits in 1997 because improved volumes in the second half of the year did not
fully offset depressed first half volumes. The Company spent greater amounts on
research and development and marketing costs related to new product, new
business and market development initiatives in 1997, which further penalized
earnings.

     Lower operating profit in the Specialty Chemicals and Materials Group in
1996 was due to increased spending for new business development, the absence of
Cabot Safety earnings during 1996 and lower volumes, partially offset by the
effect of higher year-to-year prices.

     The carbon black business's operating profit before restructuring charges
decreased 23% in 1997 from 1996. Lower selling prices, along with higher raw
material costs and increased plant start-up costs, more than offset volume
gains, and reductions in spending on research and development and market
development initiatives.

     Certain market conditions affecting the carbon black business that began to
have a negative effect on earnings in the latter part of 1996 continued to have
a detrimental impact on earnings in 1997. For example, European carbon black
selling prices decreased and feedstock costs rose during the first half of the
year. Competitive price pressures caused the Company to meet price decreases in
the European market. The combination of higher feedstock costs (in local
currency terms) and lower prices caused a substantial decrease in the
profitability of the Company's European carbon black business. On average,
carbon black prices were down 3% and feedstock costs were up 4% in 1997 from
1996 levels. We have begun to see a positive change in these fundamentals:
feedstock costs have remained stable during the second half of the year and
European carbon black prices stabilized in the third and fourth quarters of
1997.

     The carbon black business's operating profit increased 4% in 1996 from
1995. The operating profit increase came from the consolidation of the operating
results of the Czech Republic and Indian carbon black businesses during 1996.
The positive earnings effect of higher prices was essentially offset by
increased spending on research and development and marketing costs related to
new product, new business and market development initiatives, the effect of 1%
lower overall volumes, and higher feedstock costs.

     During 1995, the Company entered into long-term carbon black supply
contracts of more than six years with several of its tire customers in North
America. The contracts were designed to provide 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. These contracts,
coupled with the Company's long-term strategy of product differentiation, are
aimed at building a less cyclical carbon black business and reducing the
Company's susceptibility to economic cycles. The Company's experience in the
North American carbon black market during 1997 indicates that the contracts are
achieving their purpose.

     The Company's fumed silica business reported increased revenue in 1997 and
1996 of 15% and 3%, respectively. The increase in 1997 was primarily due to
higher volumes along with higher prices and increased sales of new products.
Operating profits increased 8% and 9% in 1997 and 1996, respectively, due to
higher gross margins, partially offset by increased spending to support a new
market segmentation strategy. Operating profit increased in 1995, reflecting
modest volume growth, improved product mix and favorable gross margins from
better pricing and higher capacity utilization.

     The Company's microelectronics materials business reported revenues of $34
million in 1997, compared with approximately $20 million in 1996. In 1997, this
business reported positive operating profits for the first time. In 1996, gross
margin derived from these revenues was more than offset by spending on research
and development and market development initiatives in this business. The Company
expects continued significant revenue growth in this business during 1998* (see
page 28).




                                                                              25
<PAGE>   6


     In the plastics business, revenues and operating profits in 1997 were down
6% and 15%, respectively, from 1996. Higher volumes were more than offset by
lower selling prices. Severe pricing pressure that began in 1996 continued
throughout 1997. Revenues and operating profit in 1996 were down from 1995 by
10% and 42%, respectively. Lower volumes and lower prices caused the decrease in
operating profit in 1996 compared with 1995. The Company remains optimistic that
business conditions will improve in 1998 and that benefits will be realized from
margin improvement and cost savings efforts initiated during the latter part of
1997* (see page 28).

     Revenues from the tantalum business increased 4% in 1997 and operating
profit decreased 23% from the prior year. Sales volumes, which began to decline
during the second half of 1996, continued to decrease significantly during the
first part of 1997 due to continued effects of the slowdown in the U.S.
electronics market. Volumes increased during the latter part of 1997. Overall
volumes for the year, however, decreased 3%, offset by higher overall selling
prices. Gross margin was also affected by higher raw material costs. Revenues in
1996 increased 6% from the prior year, and operating profit decreased 19% from
1995. Over the first half of 1996, volumes and prices were significantly higher
than in the first six months of 1995. During the second half of 1996, sales
volumes decreased significantly due to the slowdown in the U.S. electronics
industry and high customer inventory levels.

     During 1996, the Company launched a new specialty fluids business unit. The
unit develops and markets cesium-based drilling and completion fluids to the oil
well drilling and services industry. Construction of a cesium processing plant
at a mine owned by a Cabot subsidiary in Manitoba, Canada, was completed during
the year and brine fluids are now being produced for the first commercial-scale
tests to be conducted in early 1998. Commercial sales of the product are
expected to begin in the latter part of 1998* (see page 28).

ENERGY

     The Energy Group conducts liquefied natural gas importing, storing,
transporting and marketing operations. In prior years, the Energy Group included
TUCO INC., a coal fuel services business. The Company sold TUCO, effective
September 30, 1996. During 1996, TUCO earned $13.8 million of operating profit,
compared with $10.5 million in 1995.

     The LNG business reported revenues of $199.7 million in 1997 compared with
$143.8 million in 1996. The increase in revenue was due to significantly greater
volumes and higher gas prices compared with 1996. The business received 18 LNG
cargoes in 1997 compared with 10 cargoes in 1996. Gas volumes sold increased 36%
year-to-year. Operating profit increased to $6.6 million during 1997, from $3.3
million during 1996, excluding $5.8 million of special items from 1996. The
positive earnings effect of higher volumes and prices was partially offset by
higher gas costs.

                        [Sources and Uses of Cash graph]


     In 1996, operating profit, exclusive of special items, increased to $3.3
million from $2.1 million in 1995 due to increased supply of LNG and higher gas
prices. The business received 3 cargoes in 1995.

     The profitability of the LNG business during the next two years, until its
Trinidad LNG supply comes on stream in 1999, depends in large part on its LNG
supply from Algeria. To date, the political instability in Algeria has not
interrupted the operations of the Company's Algerian LNG supplier.




26
<PAGE>   7

FINANCIAL CONDITION

CASH FLOW AND LIQUIDITY

     Cash generated in 1997 from the Company's operating activities decreased 5%
to $144.2 million from $151.9 million in 1996.

     Research and technical service spending for 1997, 1996 and 1995 was $82.7
million, $79.6 million, and $59.2 million, respectively. Spending as a
percentage of the Specialty Chemicals and Materials Group revenues exceeded 5%
in 1997 and 1996, and was 4% in 1995. The Company has been increasing the amount
of spending to develop new, differentiated products for its specialty chemicals
businesses. The Company anticipates research and development spending to remain
near $85 million in 1998* (see page 28).

     Capital spending on investments, acquisitions, equity securities and
property, plant and equipment for 1997, 1996 and 1995 was $181 million, $269
million, and $145 million, respectively. The major components of the 1997
capital program included expenditures on new carbon black capacity to support
the contracts with U.S. tire manufacturers, Clean Air Act compliance,
differentiated product manufacturing capabilities, new business expansion and
normal plant maintenance. In light of softened demand in certain markets, the
Company deferred several capital projects during the year.

     The Company expects to increase the rate of capital spending in 1998 from
1997 as it continues to invest in new business opportunities. These expenditures
are expected to include portions of the projects mentioned in the preceding
paragraph, the Company's share of the Trinidad LNG project, refurbishment of the
Company's LNG tanker, capacity expansion in the Company's fumed silica business,
additional environmental compliance costs in North America, and further
development in the special blacks business and several new business initiatives.
Over the next several years the Company also expects to spend a significant 
portion of its $39.7 million reserve in connection with remediation of various
environmental sites* (see page 28). These sites are primarily associated with
divested businesses.


                          [Total Debt to Capital graph]


     Effective September 30, 1996, the Company sold its TUCO subsidiary for $77
million. Accordingly, during the first quarter of fiscal year 1997, the Company
received $35 million in cash, which included $8 million of working capital
adjustments, and $50 million in the form of a debt repayment on the Company's
behalf from the buyer.

     During 1997, the Company exercised its rights to purchase 642,232 shares of
common stock of K N Energy, Inc. for a total cost of $11.3 million. As of
September 30, 1997, the Company owned approximately 3 million shares of K N
Energy representing approximately 9.5% of K N Energy's outstanding common
shares.

     On February 6, 1997, the Company issued $90 million of medium-term notes
maturing from 2004 to 2011 with a weighted average interest rate of
approximately 7.17%. The proceeds from the issuance were used to repay
short-term debt. During 1997, the Company increased its borrowings by $85.2
million, including the principal amount of medium-term notes referred to above,
and decreased its cash balance by $18.9 million.

     During 1997, approximately 3.5 million shares of Cabot common stock were
repurchased at a total cost of approximately $84.7 million and are held as
treasury stock. During 1996, approximately 3.0 million shares were repurchased
for a total cost of approximately $122 million and are held as treasury stock.
The Company's common stock repurchase activity, described below under "Common
Stock," is expected to continue in 1998* (see page 28).

     Primarily due to increased capital spending, share repurchases, higher
spending on research and development, and marketing costs for new products, new
business and market development initiatives and asset value adjustments due to
currency changes during 1997, the ratio of total debt (including short-term debt
net of cash) to capital increased to 43% at the end of 1997 from 40% at the end
of 1996.

     In January 1997, the Company renegotiated its line of credit agreement. The
facility was increased to $300 million from $250 million and was extended to
January 3, 2002. Management expects cash from operations and present financing
arrangements, including the Company's unused line of credit, to be sufficient to
meet the Company's cash requirements for the foreseeable future.





                                                                              27
<PAGE>   8



COMMON STOCK

     On May 9, 1997, the Company's Board of Directors authorized the repurchase
of 4 million shares of its common stock. As of September 30, 1997, approximately
3.4 million shares remained available for repurchase under the Board
authorization.

     During 1997, the Company paid cash dividends of $0.40 per share reflecting
a quarterly dividend of $0.10 per share. In November 1997, the Board of
Directors approved a $0.10 per share dividend payable in the first quarter of
fiscal year 1998.

     As of September 30, 1997, the book value per share of Cabot stock increased
to $10.47 from $10.41 at September 30, 1996.

NEW ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which is required to be adopted in fiscal 1998. SFAS 128 simplifies the
computation of earnings per share by replacing the presentation of primary
earnings per share with a presentation of basic earnings per share. Management
does not expect the impact of the new standard to be material.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). The Statement, which must
be adopted for periods beginning after December 15, 1997, establishes standards
for reporting and display of comprehensive income and its components in
consolidated financial statements. The effect of adopting SFAS 130 is not
expected to be material to the Company's financial position or results of
operations.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which must be adopted for periods beginning after December 15, 1997.
Under the new standard, companies will be required to report certain information
about operating segments in consolidated financial statements. Operating
segments will be determined based on the method by which management organizes
its business for making operating decisions and assessing performance. The
standard also requires that companies report certain information about their
products and services, the geographic areas in which they operate, and their
major customers. The Company is currently evaluating the effect, if any, of
implementing SFAS 131.

*FORWARD LOOKING INFORMATION

     Included herein are statements relating to management's projections of
future profits, the possible achievement of the Company's financial goals and
objectives, and management's expectations for the Company's product development
program. Actual results may differ materially from the results anticipated in
the statements included herein due to a variety of factors, including market
supply and demand conditions, fluctuations in currency exchange rates, cost of
raw materials, demand for customers' products and competitors' reactions to
market conditions. Timely commercialization of products under development by the
Company may be disrupted or delayed by technical difficulties, market
acceptance, competitors' new products, as well as difficulties in moving from
the experimental stage to the production stage.




28
<PAGE>   9


CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                         1997             1996             1995
==========================================================================================================
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

<S>                                                           <C>              <C>              <C>       
Revenues:
   Net sales and other operating revenues                     $1,629,989       $1,856,269       $1,830,393
   Interest and dividend income                                    6,722            8,933           10,492
- ----------------------------------------------------------------------------------------------------------
      Total revenues                                           1,636,711        1,865,202        1,840,885
==========================================================================================================

Costs and expenses:
   Cost of sales                                               1,144,383        1,309,992        1,258,964
   Selling and administrative expenses                           216,514          206,861          234,693
   Research and technical service                                 82,720           79,640           59,184
   Interest expense (Note G)                                      43,222           41,718           35,639
   Specialty Chemicals and Materials Group Restructuring
      (Note B)                                                    18,200               --               --
   Gain on sale of equity securities (Note D)                         --          (28,323)              --
   Gain on sales of businesses (Note B)                               --          (38,941)         (32,625)
   Other charges, net                                             14,641           14,421           29,001
- ----------------------------------------------------------------------------------------------------------
      Total costs and expenses                                 1,519,680        1,585,368        1,584,856
==========================================================================================================

Income before income taxes                                       117,031          279,834          256,029
Provision for income taxes (Note K)                              (42,131)         (98,216)        (101,080)
Equity in net income of affiliated companies (Note D)             19,524           18,519           16,670
Minority interest                                                 (1,679)          (6,080)             313
- ----------------------------------------------------------------------------------------------------------
      Net income                                                  92,745          194,057          171,932
==========================================================================================================

Dividends on preferred stock, net of tax
   benefit of $2,083, $2,111 and $1,911                           (3,258)          (3,301)          (3,551)
- ----------------------------------------------------------------------------------------------------------
      Income applicable to common shares                      $   89,487       $  190,756       $  168,381
==========================================================================================================

Weighted average common shares outstanding, in thousands
   (Notes A and I):
   Primary                                                        70,730           73,237           77,452
   Fully diluted                                                  76,736           79,345           83,880

Income per common share (Notes A and I):
   Primary                                                    $     1.27       $     2.60       $     2.17
==========================================================================================================

   Fully diluted                                              $     1.19       $     2.42       $     2.02
==========================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.



                                                                              29

<PAGE>   10
CONSOLIDATED BALANCE SHEETS




<TABLE>
<CAPTION>


SEPTEMBER 30                                                              1997            1996
==================================================================================================
DOLLARS IN THOUSANDS 
<S>                                                                    <C>              <C>          

ASSETS 
Current assets:
   Cash and cash equivalents                                           $   39,236       $   58,148   
   Accounts and notes receivable (net of reserve for                                                 
      doubtful accounts of $5,613 and $5,267)                             288,604          363,763   
   Inventories (Note C)                                                   246,886          260,430   
   Prepaid expenses                                                        21,268           17,408   
   Deferred income taxes (Note K)                                          15,183           10,034   
- --------------------------------------------------------------------------------------------------
      Total current assets                                                611,177          709,783   
- --------------------------------------------------------------------------------------------------
                                                                                                     
Investments:                                                                                         
   Equity (Notes B and D)                                                  86,111           79,372   
   Other (Notes D and L)                                                  146,562           95,680   
- --------------------------------------------------------------------------------------------------
      Total investments                                                   232,673          175,052   
- --------------------------------------------------------------------------------------------------
                                                                                                     
                                                                                                     
Property, plant and equipment (Note E)                                  1,759,835        1,712,045   
Accumulated depreciation and amortization                                (837,526)        (809,053)  
- --------------------------------------------------------------------------------------------------
   Net property, plant and equipment                                      922,309          902,992   
- --------------------------------------------------------------------------------------------------
                                                                                                     
                                                                                                     
Other assets:                                                                                        
   Intangible assets (net of accumulated amortization                                                
      of $12,354 and $6,157) (Note B)                                      39,063           42,735   
   Deferred income taxes (Note K)                                           4,257            2,402   
   Other assets                                                            14,110           24,617   
- --------------------------------------------------------------------------------------------------
      Total other assets                                                   57,430           69,754   
- --------------------------------------------------------------------------------------------------
Total assets                                                           $1,823,589       $1,857,581   
==================================================================================================
</TABLE>


                                                                      


The accompanying notes are an integral part of these financial statements.




30


<PAGE>   11

CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

SEPTEMBER 30                                                         1997            1996
=============================================================================================
DOLLARS IN THOUSANDS
<S>                                                               <C>              <C>       

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable to banks                                        $  200,834       $  233,779
    Current portion of long-term debt (Note G)                       114,978           16,175
    Accounts payable and accrued liabilities (Note F)                223,954          250,749
    U.S. and foreign income taxes                                        664           26,083
    Deferred income taxes (Note K)                                       953              918
- ---------------------------------------------------------------------------------------------
        Total current liabilities                                    541,383          527,704
- ---------------------------------------------------------------------------------------------

Long-term debt (Note G)                                              285,544          321,497
Deferred income taxes (Note K)                                        99,210           88,320
Other liabilities (Notes H, J and L)                                 146,879          147,991


Commitments and contingencies (Note L)


Minority interest                                                     22,780           27,138

Stockholders' equity (Notes D, G, I and J):
Preferred stock:
    Authorized: 2,000,000 shares of $1 par value
      Series A Junior Participating Preferred Stock
         Issued and outstanding: none

      Series B ESOP Convertible Preferred Stock
         7.75% Cumulative Issued: 75,336 shares
         (aggregate redemption value of $69,440 and $71,193)          75,336           75,336


Less cost of shares of preferred treasury stock                       (9,388)          (6,565)
Common stock:
    Authorized: 200,000,000 shares of $1 par value
    Issued: 135,549,936 shares                                       135,550          135,550
Additional paid-in capital                                            39,259           23,618
Retained earnings                                                  1,238,202        1,176,708
Less cost of common treasury stock
    (including unearned compensation amounts
     of $18,346 and $16,611)                                        (723,757)        (650,981)
Deferred employee benefits                                           (62,520)         (64,283)
Unrealized gain on marketable securities                              53,936           29,874
Foreign currency translation adjustments                             (18,825)          25,674
- ---------------------------------------------------------------------------------------------
    Total stockholders' equity                                       727,793          744,931
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                        $1,823,589       $1,857,581
=============================================================================================

</TABLE>



The accompanying notes are an integral part of these financial statements.



                                                                              31
<PAGE>   12


CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                       1997            1996            1995
======================================================================================================
DOLLARS IN THOUSANDS
<S>                                                          <C>             <C>             <C>      

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                   $  92,745       $ 194,057       $ 171,932
Adjustments to reconcile net income to cash
   provided by operating activities:
     Depreciation and amortization                             109,931          97,044          94,184
     Deferred tax expense (benefit)                            (13,202)          3,785         (24,163)
     Specialty Chemicals and
     Materials Group restructuring                              18,200              --              --
     Gain on sales of equity securities                             --         (28,323)             --
     Gains on sales of businesses                                   --         (38,941)        (32,625)
     Equity in income of affiliated companies,
        net of dividends received                               (9,131)         (5,619)         (6,292)
     Other, net                                                  8,218           8,950           6,694
   Changes in assets and liabilities, excluding assets
        and liabilities of businesses sold:
     Decrease (Increase) in accounts receivable                (28,852)             88         (37,354)
     Decrease (Increase) in inventories                          2,653         (38,995)        (57,987)
     Decrease in accounts payable and accruals                 (22,597)         (3,415)         (6,905)
     Other, net                                                (13,777)        (36,693)         74,477
- ------------------------------------------------------------------------------------------------------
Cash provided by operating activities                          144,188         151,938         181,961
======================================================================================================


CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment                    (162,813)       (209,061)       (131,214)
Proceeds on sales of businesses                                 35,000              --         169,178
Sales of property, plant and equipment, and investments          1,071          60,449             373
Investments and acquisitions, excluding cash acquired           (7,275)        (59,542)        (13,874)
Purchases of available-for-sale securities                     (11,271)             --              --
Cash from consolidation of equity affiliates and other              --          11,229              --
- ------------------------------------------------------------------------------------------------------
Cash provided (used) by investing activities                  (145,288)       (196,925)         24,463
======================================================================================================


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt                                    90,000           9,786          17,385
Repayments of long-term debt                                   (21,539)        (40,153)       (157,609)
Net increase in short-term debt                                 16,739         168,587          25,980
Purchases of treasury stock                                    (85,845)       (123,544)        (76,251)
Sales and issuances of treasury stock                           16,649          28,580          19,658
Cash dividends paid to stockholders                            (31,251)        (30,478)        (26,392)
- ------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities                   (15,247)         12,778        (197,229)
======================================================================================================


Effect of exchange rate changes on cash                         (2,565)           (435)            680
- ------------------------------------------------------------------------------------------------------
(Decrease) Increase in cash and cash equivalents               (18,912)        (32,644)          9,875
Cash and cash equivalents at beginning of year                  58,148          90,792          80,917
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                     $  39,236       $  58,148       $  90,792
======================================================================================================
</TABLE>



The accompanying notes are an integral part of these financial statements.




32
<PAGE>   13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE A SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. The significant accounting policies of
the Company are described below.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Cabot Corporation
and majority-owned and controlled U.S. and non-U.S. subsidiaries. Investments in
majority-owned affiliates where control does not exist and investments in 20
percent to 50 percent-owned affiliates are accounted for on the equity method.
Intercompany transactions have been eliminated.

CASH AND CASH EQUIVALENTS

Cash equivalents include time deposits and short-term investments with original
maturities of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined using the last-in, first-out (LIFO) method. The cost
of other U.S. and all non-U.S. inventories is determined using the average cost
method or the first-in, first- out (FIFO) method.

INVESTMENTS IN EQUITY SECURITIES

Certain of the Company's other investments are classified as available-for-sale.
Accordingly, any unrealized holding gains and losses, net of taxes, are excluded
from income and recognized as a separate component of stockholders' equity until
realized. Fair value of the securities is determined based on market prices at
the balance sheet dates (Notes D and I).

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is generally
calculated on the straight-line method for financial reporting purposes and
generally on accelerated methods for tax reporting purposes.

INTANGIBLE ASSETS

Intangible assets are comprised of the cost of business acquisitions in excess
of the fair value assigned to the net tangible assets acquired and the costs of
technology, licenses and patents purchased in business acquisitions. The excess
of cost over the fair value of net assets acquired is amortized on the
straight-line basis over either 40 years or an estimated useful life, whichever
is shorter. Other intangibles are amortized over their estimated useful lives.
Included in other charges is amortization expense for 1997, 1996 and 1995, of
$5.0 million, $4.8 million and $6.6 million, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company considers the impairment of long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Consideration of impairment is
based on assessment of an asset's ability to contribute to the profitability of
the Company (see Note B).

FOREIGN CURRENCY TRANSLATION

All assets and liabilities of foreign operations are translated into U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates during the year. Foreign currency gains and losses
arising from transactions are reflected in net income. Included in other charges
for 1997, 1996 and 1995 are foreign exchange gains (losses) of $(6.1) million,
$(2.6) million and $1.4 million, respectively. Balance sheet translation gains
and losses are reflected as a separate component of stockholders' equity.

REVENUE RECOGNITION
 
Revenues are recognized when finished products are shipped to unaffiliated
customers or services have been rendered, with appropriate provision for
uncollectable accounts.



                                                                              33


<PAGE>   14




FINANCIAL INSTRUMENTS

Forward foreign currency exchange contracts and currency options are used 
to manage foreign currency exposures. Realized and unrealized gains and losses
on these contracts are recorded in net income currently, except gains or losses
on contracts designated to hedge a net investment, and currency options, which
are designated to hedge future cash flows. These exceptions are recorded as
translation adjustments. 

     Financial instruments, primarily interest rate swaps, are used to manage
interest rate risks. The interest differentials from these swaps are recorded as
interest expense.

INCOME TAXES

Deferred income taxes are determined based on the estimated future tax effects
of differences between financial statement carrying amounts and the tax bases of
existing assets and liabilities. Provisions are made for the U.S. income tax
liability and additional non-U.S. taxes on the undistributed earnings of
non-U.S. subsidiaries, except for amounts the Company has designated to be
permanently reinvested (Note K).

EARNINGS PER SHARE

Primary net income per share is calculated based on the weighted average number
of shares of common stock and common stock equivalents outstanding during the
year. Common stock equivalents consist of stock options. Fully diluted net
income per share further assumes the conversion of the Company's Series B ESOP
Convertible Preferred Stock held by the Company's Employee Stock Ownership Plan
(Note I).

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

RECLASSIFICATION

Certain amounts in 1996 and 1995 have been reclassified to conform to the 1997
presentation.

NOTE B ACQUISITIONS, DIVESTITURES & RESTRUCTURING

SPECIALTY CHEMICALS AND MATERIALS

During 1997, earnings were reduced by the recognition of special charges
totaling $18.2 million primarily related to a cost reduction program in the
Specialty Chemicals and Materials Group. These charges are for asset impairments
of $10.3 million and severance of $7.9 million. The Company expects the plan to
be completed during fiscal 1998.

     On February 16, 1996, the Company acquired an 80% controlling interest in
an Indonesian carbon black company for approximately $50 million plus the
assumption of $9 million of debt. Since the date of acquisition, the results of
operations have been included in the Company's Consolidated Statement of Income.

     The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair values. The balance of the purchase
price, $29 million, was recorded as excess of purchase price over fair value of
net assets acquired (goodwill), and is being amortized over 30 years on a
straight-line basis.

     During 1997, 1996 and 1995, the Company paid $8.8 million, $4.3 million and
$6.1 million, respectively, of costs accrued in 1993 for employee separation and
a facility closing. The Company expects to pay its remaining reserve of $0.4
million during fiscal year 1998.

     On July 11, 1995, the Company sold substantially all of the assets of its
safety products and specialty composites business to Cabot Safety Holdings
Corporation (now known as Aearo Corporation) and its subsidiaries. The
transaction was accounted for as a sale, with an aggregate selling price
consisting of $169.2 million in cash, 42,500 common shares of Aearo Corporation,
representing 42.5% of Aearo's outstanding common stock, and $22.5 million of
Aearo's non-voting 12.5% preferred stock. In addition, Aearo Corporation and its
subsidiaries assumed approximately $22.2 million of the third party current
liabilities relating to the safety business and approximately $4.8 million in
debt. The Company recorded a gain on the sale of $32.6 million. The Company's
book value in Aearo's common and preferred stock after the transaction was zero
dollars. The Company accounts for its investment in Aearo using the equity
method.
 
On December 18, 1997, the Company signed an agreement to acquire the
remaining interest in its fumed silica joint venture in Rheinfelden, Germany.
The purchase price is approximately $20 million, and the acquisition is
effective October 1, 1997.


34


<PAGE>   15



ENERGY

The Company sold TUCO for $85 million, including working capital adjustments.
The Company recorded a gain related to the sale of $38.9 million. Cash proceeds
from the sale were received October 4, 1996.

NOTE C INVENTORIES

Inventories were as follows:

<TABLE>
<CAPTION>

SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                             <C>                   <C>     

Raw materials                                   $ 81,142              $ 71,061
Work in process                                   59,747                72,914
Finished goods                                    64,114                72,163
Other                                             41,883                44,292
- --------------------------------------------------------------------------------
  Total                                         $246,886              $260,430
================================================================================
</TABLE>

     Inventories valued under the LIFO method comprised approximately 35% and
33% of 1997 and 1996 total inventory, respectively. At September 30, 1997 and
1996, the estimated current cost of these inventories exceeded their stated
valuation determined on the LIFO basis by approximately $32 million and $30
million, respectively.

NOTE D INVESTMENTS

At September 30, 1997 and 1996, investments in net assets of affiliated
companies accounted for under the equity method amounted to $86.1 million and
$79.4 million, respectively.

     The combined results of operations and financial position of the Company's
equity-basis affiliates are summarized below:

<TABLE>
<CAPTION>

SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                             <C>                   <C>     

CONDENSED INCOME STATEMENT INFORMATION
Net sales                                       $632,061              $586,951
Gross margin                                     234,717               221,060
Net income                                        35,144                39,685

CONDENSED BALANCE SHEET INFORMATION
Current assets                                  $296,610              $282,945
Non-current assets                               419,468               432,738
Current liabilities                              260,051               255,344
Non-current liabilities                          307,814               315,564
Net worth                                        148,213               144,775
================================================================================
</TABLE>


     On July 31, 1996, the Company sold 1.85 million shares of its investment in
K N Energy, Inc. The Company received cash proceeds of $57.6 million and
recorded a gain of $28.3 million related to the sale.

     Equity securities classified as available-for-sale have been reflected on
the balance sheet at their fair values. During 1997, the Comp any exercised its
rights to purchase 642,232 shares of common stock of K N Energy, Inc. for a
total cost of $11.3 million. At September 30, 1997 and 1996, unrealized gains of
$53.9 million and $29.9 million, which are net of deferred tax liabilities of
$33.4 million and $19.1 million, respectively, have been reflected as a separate
component of stockholders' equity (Note I).

NOTE E PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment is summarized as follows:

<TABLE>
<CAPTION>

SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                           <C>                   <C>      

Land and improvements                         $   50,246            $  52,442
Buildings                                        294,201              267,579
Machinery and equipment                        1,218,006            1,105,326
Other                                             55,207               47,089
Construction in progress                         142,175              239,609
- --------------------------------------------------------------------------------
Total property, plant and
  equipment                                   $1,759,835            $1,712,045
Less: accumulated depreciation                   837,526               809,053
- --------------------------------------------------------------------------------
Net property, plant and equipment             $  922,309            $  902,992
================================================================================

</TABLE>

NOTE F ACCOUNTS PAYABLE & ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                             <C>                   <C>     

Accounts payable                                $116,620              $121,274
Accrued employee compensation                     21,168                23,263
Other accrued liabilities                         86,166               106,212
- --------------------------------------------------------------------------------
  Total                                         $223,954              $250,749
================================================================================
</TABLE>


                                                                              35
<PAGE>   16
NOTE G DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>

SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                             <C>                   <C>     

Notes due 1997, 10.25%                          $100,000              $100,000
Notes due 2002-2022, 8.07%                       105,000               105,000
Notes due 2004-2011, 7.17%                        90,000                    -- 
Guarantee of ESOP notes, due 2013, 8.29%          62,520                64,283
Term loan, due 2000, 8.7%                         10,101                13,127
Term loan, due 2001, 8.4%                             --                12,540
Foreign term loan, due 2001, 5.4%                 10,785                15,768
Overseas Private Investment Corporation
  term loan, due 2002, floating rate 7.5%
  and 7.5% at September 30, 1997
  and 1996, respectively                           9,400                11,200
Industrial Revenue Bonds due
  1997-2014, 7.75%-14%                             1,000                 4,000
Other, including foreign term loans               11,716                11,754
- --------------------------------------------------------------------------------
                                                $400,522              $337,672
- --------------------------------------------------------------------------------
Less: current portion of long-term debt         (114,978)              (16,175)
- --------------------------------------------------------------------------------
      Total                                     $285,544              $321,497
================================================================================
</TABLE>

     In June 1992, the Company filed a $300 million shelf registration statement
with the Securities and Exchange Commission. Subsequently, $105 million of notes
payable were refinanced with notes of a weighted average maturity of 19 years
and a weighted average interest rate of 8.07%. The notes were issued at par and
provide for principal to be repaid at maturity.

     In February 1997, the Company issued $90 million of medium term notes. The
notes have a weighted average maturity of 11 years and a weighted average
interest rate of 7.17%.

     During fiscal 1989, the Company's Employee Stock Ownership Plan (ESOP)
borrowed $75 million from an institutional lender in order to finance its
purchase of 75,000 shares of the Company's Series B ESOP Convertible Preferred
Stock. This debt bears interest at 8.29% per annum, and is to be repaid in equal
quarterly installments through December 31, 2013. The Company, as guarantor, has
reflected the outstanding balance of $62.5 million as a liability on the
Company's consolidated balance sheet at September 30, 1997. An equal amount,
representing deferred employee benefits, has been recorded as a reduction of
stockholders' equity (Note I).

     During 1997, the Company replaced its revolving credit and term loan
facility. Under the new credit agreement, the Company may borrow up to $300
million at floating rates. The agreement contains provisions regarding certain
indebtedness limitations that would limit the amount available for future
borrowings. Commitment fees are paid based on the used and unused portions of
the facility. The facility is available through January 3, 2002. No amounts were
outstanding under this credit agreement at September 30, 1997.

     The aggregate principal amounts of long-term debt due in each of the five
fiscal years 1998 through 2002 are $115 million, $13.4 million, $11.9 million,
$7.6 million and $27.9 million, respectively.

     Based primarily on dealer quotes at September 30, 1997 and 1996, the fair
value of long-term borrowings was approximately $428 million and $355 million,
respectively.

     The weighted average interest rate on short-term borrowing was 
approximately 7% and 8% as of September 30, 1997 and 1996, respectively.

     Cash paid for interest during 1997, 1996 and 1995 totaled $38.8 million,
$39.1 million and $38 million, respectively.

     On October 20, 1997, the Company issued $50 million of long-term notes. The
notes have a weighted average maturity of 30 years and a weighted average
interest rate of 7.1%.


NOTE H PENSION PLANS & POSTRETIREMENT BENEFITS

PENSION PLANS

Net periodic pension cost was comprised of the following elements:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                           1997      1996       1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                              <C>       <C>         <C>    

Current year service cost                        $ 7,683   $ 7,841     $ 7,629
Interest accrued on pension
  obligations                                     13,986    13,431      12,493
Actual return on plan assets                     (28,256)  (18,821)    (25,320)
Net amortization                                  10,299     2,903      10,606
- --------------------------------------------------------------------------------
  Net periodic pension cost                      $ 3,712   $ 5,354     $ 5,408
================================================================================


The following table sets forth the funded status of pension plans:

<CAPTION>

SEPTEMBER 30                                      1997                  1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                             <C>                   <C>     

Actuarial present value of projected
  benefit obligations                           $195,031              $188,092
Plan assets at fair value (primarily
  fixed-income and equity securities)            222,381               202,526
- --------------------------------------------------------------------------------
Excess of plan assets over projected
  benefit obligations                             27,350                14,434
Unrecognized net gain                            (48,851)              (33,207)
Unrecognized prior service cost                    6,053                 7,656
Unrecognized net asset being amortized
  over 16 years                                   (4,896)               (5,612)
- --------------------------------------------------------------------------------
  Net deferred pension credit (included
     in other liabilities)                      $(20,344)             $(16,729)
================================================================================

</TABLE>


36


<PAGE>   17



     The Company has trusteed, non-contributory pension plans covering most
employees in the United States and certain non-U.S. subsidiaries. Benefits
provided under the Company's defined benefit pension plans are primarily based
on years of service and the employee's compensation. The Company's funding
policy is to contribute annually amounts based upon actuarial and economic
assumptions designed to achieve adequate funding of projected benefit
obligations.

     Pension benefits accrue under several benefit plans, including the
following two plans: the Cash Balance Plan (CBP), a defined benefit pension
plan, and the Employee Stock Ownership Plan (ESOP). In November 1988, the ESOP
was funded with the Company's newly issued Series B ESOP Convertible Preferred
Stock, which was acquired with $75 million borrowed by the ESOP (Notes G and I).

     At September 30, 1997 and 1996, the projected benefit obligations included
accumulated benefit obligations of $175.6 million and $164.1 million,
respectively, of which $167.7 million and $154.6 million were vested in 1997 and
1996, respectively.

     The following weighted average rates were used in the calculations:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                1997               1996
================================================================================
<S>                                                      <C>               <C> 

Discount rate                                            7.4%              7.4%
Expected rate of return on plan assets                   8.9%              8.9%
Assumed rate of increase in compensation                 5.0%              5.0%
================================================================================
</TABLE>

POSTRETIREMENT BENEFITS

The Company has defined benefit postretirement plans that provide certain health
care and life insurance benefits for retired employees. Substantially all U.S.
employees become eligible for these benefits if the y have met certain age and
service requirements at retirement. The Company funds the plans as claims or
insurance premiums are incurred.

     Net periodic postretirement benefit cost was comprised of the following
elements:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                            1997       1996       1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                                 <C>       <C>        <C>   

Current year service cost                           $  880    $  848     $  672
Interest accrued on postretirement
  benefit obligations                                5,584     5,261      5,301
Net amortization                                       221       185         --
Net periodic postretirement
  benefit cost                                      $6,685    $6,294     $5,973
================================================================================
</TABLE>

The following table sets forth the funded status of the postretirement benefit
plans:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                      1997        1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                                        <C>         <C>     

Accumulated postretirement benefit obligations:
  Retirees                                                 $ 61,861    $ 58,303
  Fully eligible active plan participants                     6,324       6,660
  Other active plan participants                             12,060      14,302
- --------------------------------------------------------------------------------
                                                             80,245      79,265
Plan assets at fair value                                        --          --
Excess of accumulated postretirement
    benefit obligations over plan assets                    (80,245)    (79,265)
Unrecognized net loss (gain)                                 10,834      10,875
Unrecognized prior service cost                              (1,146)         82
- --------------------------------------------------------------------------------
  Accrued postretirement benefit cost                      $(70,557)   $(68,308)
================================================================================
</TABLE>


     Health care cost trend rate assumptions have a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of September 30, 1997 and 1996 by
approximately $8.4 million and $6.9 million, respectively, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for the years then ended by approximately $775 thousand and $700 thousand,
respectively.

     The following rates were used in the calculations:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                         1997      1996
================================================================================
<S>                                                               <C>       <C> 

Discount rate                                                     7.3%      7.3%
Assumed rate of increase in compensation                          5.3%      5.3%
Assumed annual rate of increase in health
  care benefits                                                   5.5%      9.5%
Annual decrease in assumed rate of increase
  in health care benefits                                          --       1.0%
Assumed ultimate trend rate                                       5.5%      5.3%
Assumed ultimate trend rate to be
  reached in year                                                1997      2001
================================================================================
</TABLE>



                                                                              37


<PAGE>   18
NOTE I STOCKHOLDERS' EQUITY

The following table summarizes the changes in stockholders' equity for each of
the three years in the period.

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                                                1997             1996             1995
=================================================================================================================
DOLLARS IN THOUSANDS (except per share amounts)
<S>                                                                  <C>              <C>              <C>       

PREFERRED STOCK
   Beginning of year                                                 $   75,336       $   75,336       $   75,336
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $   75,336       $   75,336       $   75,336
=================================================================================================================

PREFERRED TREASURY STOCK
   Beginning of year                                                 $   (6,565)      $   (4,836)      $   (4,003)
   Purchase of treasury stock                                            (2,823)          (1,729)            (833)
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $   (9,388)      $   (6,565)      $   (4,836)
=================================================================================================================

COMMON STOCK
   Beginning of year                                                 $  135,550       $   67,775       $   67,775
   Two-for-one stock split                                                 --             67,775             --
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $  135,550       $  135,550       $   67,775
=================================================================================================================

ADDITIONAL PAID-IN CAPITAL
   Beginning of year                                                 $   23,618       $   17,799       $    3,783
   Sale of treasury stock to the Company's savings plans                  2,161            2,456            3,576
   Issuance of treasury stock under employee compensation
     plans, including tax benefits of $3,616 and $9,416 in
     1997 and 1996, respectively                                         13,480           21,795           10,440
   Two-for-one stock split                                                 --            (18,432)            --
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $   39,259       $   23,618       $   17,799
=================================================================================================================

RETAINED EARNINGS
   Beginning of year                                                 $1,176,708       $1,062,482       $  916,942
   Net income                                                            92,745          194,057          171,932
   Common dividends paid ($0.40, $0.36, $0.30 per share),
     net of tax benefits of $213 and $549 in 1997 and 1996              (27,993)         (25,347)         (22,841)
   Preferred dividends paid to ESOP, net of tax benefits                 (3,258)          (3,301)          (3,551)
   Redemption of preferred stock purchase rights                           --             (1,840)            --
   Two-for-one stock split                                                 --            (49,343)            --
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $1,238,202       $1,176,708       $1,062,482
=================================================================================================================

COMMON TREASURY STOCK
   Beginning of year                                                 $ (634,370)      $ (528,751)      $ (467,171)
   Purchase of treasury stock                                           (84,704)        (122,390)         (75,857)
   Sale of treasury stock to the Company's savings plans                  1,490            1,372            4,348
   Issuance of treasury stock under employee compensation plans          12,173           15,399            9,929
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $ (705,411)      $ (634,370)      $ (528,751)
=================================================================================================================

UNEARNED COMPENSATION
   Beginning of year                                                 $  (16,611)      $  (10,834)      $   (7,884)
   Issuance of treasury stock under employee compensation plans         (10,973)         (11,857)          (8,196)
   Amortization                                                           9,238            6,080            5,246
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $  (18,346)      $  (16,611)      $  (10,834)
=================================================================================================================

DEFERRED EMPLOYEE BENEFITS
   Beginning of year                                                 $  (64,283)      $  (65,907)      $  (67,403)
   Principal payment by ESOP under guaranteed loan                        1,763            1,624            1,496
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $  (62,520)      $  (64,283)      $  (65,907)
=================================================================================================================

UNREALIZED GAIN ON MARKETABLE SECURITIES (NOTE D)
   Beginning of year                                                 $   29,874       $   32,023       $   28,787
   Net change in unrealized gain                                         24,062           (2,149)           3,236
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $   53,936       $   29,874       $   32,023
=================================================================================================================

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
   Beginning of year                                                 $   25,674       $   39,913       $   16,327
   Foreign currency translation adjustments, including tax
     charge of $123 in 1997 and a tax benefit of $4,325 in 1996         (44,499)         (14,239)          23,586
- -----------------------------------------------------------------------------------------------------------------
     End of year                                                     $  (18,825)      $   25,674       $   39,913
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY, END OF YEAR                              $  727,793       $  744,931       $  685,000
=================================================================================================================
</TABLE>




38
<PAGE>   19


SHARES OF STOCK

<TABLE>
<CAPTION>

SEPTEMBER 30                                      1997        1996        1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                              <C>         <C>         <C>   

PREFERRED STOCK
Beginning of year                                75,336      75,336      75,336
- --------------------------------------------------------------------------------
  End of year                                    75,336      75,336      75,336
================================================================================

PREFERRED TREASURY STOCK
Beginning of year                                 5,744       5,036       4,504
Purchased                                         1,212         708         532
- --------------------------------------------------------------------------------
  End of year                                     6,956       5,744       5,036
================================================================================

COMMON STOCK
Beginning of year                               135,550      67,775      67,775
Two-for-one stock split                              --      67,775          --
- --------------------------------------------------------------------------------
  End of year                                   135,550     135,550      67,775
================================================================================

COMMON TREASURY STOCK
Beginning of year                                63,961      30,393      29,784
Purchased                                         3,506       2,998       1,549
Issued                                           (1,399)     (1,489)       (940)
Two-for-one stock split                              --      32,059          --
- --------------------------------------------------------------------------------
  End of year                                    66,068      63,961      30,393
================================================================================
</TABLE>

     In November 1995, the Company declared a dividend of one Preferred Stock
Purchase Right (Right) for each outstanding share of Cabot common stock. The
Rights are not presently exercisable. Each Right entitles the holder, upon the
occurrence of certain specified events, to purchase from Cabot one one-hundredth
of a share of Series A Junior Participating Preferred Stock at a purchase price
of $200 per share. The Rights further provide that each Right will entitle the
holder, upon the occurrence of certain other specified events, to purchase from
Cabot, Cabot common stock having a value of twice the exercise price of the
Right and, upon the occurrence of certain other specified events, to purchase
from another person into which Cabot was merged or which acquired 50% or more of
Cabot's assets or earnings power, common stock of such other person having a
value of twice the exercise price of the Right. The Rights may be generally
redeemed by Cabot at a price of $0.01 per Right. The Rights expire on November
10, 2005.

     The Company redeemed the rights issued under the 1986 shareholder rights
plan for a redemption payment equal to $.05 per share, to shareholders of record
on November 24, 1995.

     During fiscal 1989, the Company placed 75,336 shares of its Seri es B ESOP
Convertible Preferred Stock with the Company's Employee Stock Ownership Plan
(ESOP) for cash at a price of $1,000 per share. Each share of the Series B ESOP
Convertible Preferred Stock is convertible into 87.5 shares of the Company's
common stock subject to certain events and anti-dilution adjustment provisions,
and carries voting rights on an "as converted" basis. The trustee for the ESOP
has the right to cause the Company to redeem shares sufficient to provide for
periodic distributions to plan participants. Such shares shall be redeemed at
their fair market value, and may be redeemed by the Company for cash, shares of
the Company' s common stock, or a combination thereof at the Company's option.
Each share is redeemable at the option of the Company at a price of $1,016. The
redemption price declines annually until it becomes $1,000 per share on and
after November 19, 1998, plus accrued but unpaid dividends to the 
redemption date.

     The issued shares of Series B ESOP Convertible Preferred Stock are entitled
to receive preferential and cumulative quarterly dividends, and rank as to
dividends and liquidation prior to the Company's Series A Junior Participating
Preferred Stock and common stock. At September 30, 1997, 5.98 million shares of
the Company's common stock were reserved for conversion of the Series B ESOP
Convertible Preferred Stock.

     In May 1997, the Board of Directors authorized the Company to purchase up
to 4 million shares of the Company's common stock, superseding the previous
authorization issued in May 1996. As of September 30, 1997, the Company had
purchased approximately 600,000 shares under the new authorization.

     On November 10, 1995, a two-for-one stock split in the form of a stock
dividend was authorized, payable to stockholders of record on March 15, 1996. A
total of 67.8 million shares were issued in connection with the split. Also,
$18.4 million was reclassified from additional paid-in-capital and $49.3 million
from retained earnings to common stock. All common share and per share amounts
in these financial statements have been restated to reflect the split where
appropriate.

NOTE J SAVINGS PLAN & INCENTIVE 
       COMPENSATION PLANS

The Company sponsors a profit sharing and savings plan called the Cabo t
Retirement Incentive Savings Plan (CRISP). Under the plan, the Company will make
matching contributions of at least 75% of a participant's contribution of up to
7.5% of the participant's eligible compensation, subject to limitations required
by governmental laws or regulations. Company contributions to the CRISP for
1997, 1996 and 1995 were $4.0 million, $3.5 million and $3.9 million,
respectively.

     The Company has an Equity Incentive Plan for key employees. Under the plan
adopted in 1988, participants may be granted various types of stock and
stock-based awards. During 1988 through 1991, the awards granted consisted of
stock options, performance appreciation rights (PARs) and tandem units that may
be exercised as stock options or PARs. These awards were granted at fair market
value of Cabot's stock at date of grant, vested ratably on each of the next four
anniversaries of the award and generally expire ten years from the date of
grant. In 1992 through 1995, awards consisted of common stock of the Company,
which employees could elect to receive in the form of restricted stock purchased
at a price equal to 50% of the fair market value on the date of the award,
nonqualified stock options at fair market value of Cabot's stock on the date of
the award, or a combination of one-half of each.



                                                                              39


<PAGE>   20



     In December 1995, the Board of Directors adopted the 1996 Equity Incentive
Plan. The 1996 plan was approved by the stockholders of the Company in March
1996. No new awards will be made under the plan adopted in 1988. Awards under
the 1996 plan consist of Restricted Stock, which could be purchased at a price
equal to 40% of the fair market value on the date of the award or nonqualified
stock options at fair market value of Cabot's stock on the date of the award.
Variations of these awards were made to international employees in order to try
to provide results comparable to U.S. employees. The awards generally vest on
the third anniversary date of the award for employees then employed by the
Company and the options expire five years from the date of grant.

     As of September 30, 1997, the Company has reserved 2.8 million shares of
common stock for issuance under the 1996 plan. There were approximately 1.1
million shares available for future grants at September 30, 1997. Compensation
expense recognized during 1997, 1996 and 1995 for restricted stock grants was
$9.2 million, $6.1 million and $5.2 million, respectively.

     The following table summarizes the plan's restricted stock activity for the
last three fiscal years:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                                        Average
                                                            Restricted Exercise
                                                            Stock       Price
================================================================================
<S>                                                        <C>            <C>  

Outstanding at September 30, 1994                          2,337,708     $11.70
  Granted                                                    854,100      10.00
  Vested                                                    (623,212)     11.10
  Canceled                                                  (490,792)     11.80

Outstanding at September 30, 1995                          2,077,804      11.15
  Granted                                                    829,450      10.68
  Vested                                                    (571,204)     11.39
  Canceled                                                   (49,033)     10.92

Outstanding at September 30, 1996                          2,287,017      10.93
  Granted                                                    864,879      14.33
  Vested                                                    (695,862)     10.84
  Canceled                                                  (203,034)     10.57

Outstanding at September 30, 1997                          2,253,000     $11.87
================================================================================
</TABLE>

STOCK-BASED COMPENSATION

During fiscal 1997, the Company was required to adopt SFAS 123 "Accounting for
Stock Based Compensation" ("SFAS 123"). SFAS 123 allows companies to measure
compensation cost in connection with stock option plans using a fair value-based
method, or to continue to use an intrinsic value-based method, which generally
does not result in a compensation cost. The Company has decided to continue to
use the intrinsic value-based method and accordingly no compensation cost has
been recorded for options granted to employees. Had the fair value-based method
been adopted consistent with the provisions of SFAS 123, the Company's pro forma
net income and pro forma net income per share for the years ended September 30,
1997 and 1996 would not have been materially different.

     The following table summarizes the plans' stock option activity from
September 30, 1994 through September 30, 1997:

<TABLE>
<CAPTION>
                                                                       Weighted
                                                                        Average
                                                               Stock   Exercise
                                                             Options      Price
================================================================================
<S>                                                        <C>             <C> 

Outstanding at September 30, 1994                          2,651,766     $ 8.69
  Granted                                                     90,300      10.00
  Exercised                                                 (355,148)      8.95
  Canceled                                                   (37,166)      8.69

Outstanding at September 30, 1995                          2,349,752       9.12
  Granted                                                     59,700      26.70
  Exercised                                                 (680,462)      8.78
  Canceled                                                   (28,896)     10.53

Outstanding at September 30, 1996                          1,700,094       9.77
  Granted                                                     90,600      23.88
  Exercised                                                 (299,848)      8.99
  Canceled                                                   (33,992)     15.79

Outstanding at September 30, 1997                          1,456,854     $10.67
================================================================================
</TABLE>

     Of the 1,456,854 stock options outstanding as of September 30, 1997,
1,232,337 were exercisable at a weighted average exercise price of $8.39.

================================================================================
Options Outstanding at September 30, 1997

<TABLE>
<CAPTION>
                                                       Weighted Average
                                                                     Remaining
Range of                         Number        Exercise            Contractual
Exercise Price              Outstanding           Price             Life Years
================================================================================
<S>                             <C>              <C>                      <C> 

$7.59-$7.94                     828,195          $ 7.77                   3.67
$8.00-$9.97                     224,356          $ 8.73                   1.27
$10.47-$12.28                   179,823          $10.85                   3.22
$20.00-$26.70                   224,480          $23.15                   4.04
================================================================================
</TABLE>

     The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995
and additional awards in the future are anticipated.

NOTE K INCOME TAXES

Income before income taxes was as follows:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                   1997           1996            1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                    <C>            <C>             <C>     

Domestic                               $ 30,192       $134,289        $102,980
Foreign                                  86,839        145,545         153,049
- --------------------------------------------------------------------------------
  Total                                $117,031       $279,834        $256,029
================================================================================
</TABLE>






40
<PAGE>   21

     A summary of taxes on income is as follows:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                 1997           1996            1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                     <C>            <C>            <C>     

U.S. federal and state:
Current                                 $ 8,610        $33,247        $ 64,204
Deferred                                 (9,379)         1,031         (25,794)
- --------------------------------------------------------------------------------
  Total                                 $  (769)       $34,278        $ 38,410
================================================================================

Foreign:
Current                                 $46,723        $61,184        $ 61,039
Deferred                                 (3,823)         2,754           1,631
- --------------------------------------------------------------------------------
  Total                                 $42,900        $63,938        $ 62,670
================================================================================
  Total U.S. and Foreign                $42,131        $98,216        $101,080
================================================================================
</TABLE>

     The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                 1997           1996            1995
================================================================================
DOLLARS IN THOUSANDS
<S>                                     <C>            <C>            <C>     

Computed tax expense at the
  expected statutory rate               $40,961        $97,942        $ 89,720
Foreign income:
  Impact of taxation at different
     rates, repatriation and other          967          5,817           5,407
  Impact of foreign losses for
     which a current tax benefit
     is not available                     4,196          2,432             529
State taxes, net of federal effect          991          2,718           5,560
Foreign sales corporation                (1,211)        (2,968)         (1,500)
U.S. and State benefits from
  research and experimentation
  activities                             (1,290)        (5,981)           (350)
Other, net                               (2,483)        (1,744)          1,714
- --------------------------------------------------------------------------------
  Provision for income taxes            $42,131        $98,216        $101,080
================================================================================

     Significant components of deferred income taxes were as follows:

<CAPTION>

YEARS ENDED SEPTEMBER 30                                  1997            1996
================================================================================
DOLLARS IN THOUSANDS
<S>                                                   <C>            <C>     

Deferred tax assets:
Depreciation and amortization                         $ 26,015        $ 24,929
Pension and other benefits                              54,057          48,945
Environmental matters                                   12,604          14,928
Restructuring charges                                    7,061           4,396
Investments                                             10,850          10,850
State and local taxes                                    4,672           5,620
Net operating loss and other tax carryforwards          17,309          13,512
Other                                                   26,425          26,573
- --------------------------------------------------------------------------------
  Subtotal                                             158,993         149,753
- --------------------------------------------------------------------------------
Valuation allowances                                   (16,128)        (15,724)
- --------------------------------------------------------------------------------
     Total deferred tax assets                        $142,865        $134,029
================================================================================

Deferred tax liabilities:
Depreciation and amortization                         $ 65,746        $ 64,272
Pension and other benefits                              12,977          10,888
Investments                                             42,776          28,208
Other                                                  102,089         107,463
- --------------------------------------------------------------------------------
  Total deferred tax liabilities                      $223,588        $210,831
================================================================================
</TABLE>

     The Company increased the valuation allowance in 1997 by $404,000 with
respect to certain foreign future tax benefits and net operating losses
reflected as deferred tax assets due to the uncertainty of their ultimate
realization.

     Approximately $56.3 million of net operating losses and other tax
carryforwards remain at September 30, 1997, $42.7 million of which expire in the
years 1998 through 2004, and $13.6 million of which can be carried forward
indefinitely. The benefits of these carryforwards are dependent on taxable
income during the carryforward period in those foreign jurisdictions wherein
they arose, and, 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.

     United States income tax returns for fiscal years 1992 and 1993 are
currently under examination by the Internal Revenue Service. Assessments, if
any, are not expected to have a material adverse effect on the financial
statements.

     Provision has not been made for U.S. income taxes or foreign withholding
taxes on approximately $130 million of undistributed earnings of foreign
subsidiaries as these earnings are considered indefinitely reinvested. These
earnings could become subject to U.S. income taxes and foreign withholding taxes
(subject to a reduction for foreign tax credits) if they were remitted as
dividends, were loaned to the Company or a U.S. subsidiary, or if the Company
should sell its stock in the subsidiaries. However, the Company believes that
U.S. foreign tax credits would largely eliminate any U.S. income tax and offset
any foreign withholding tax that might otherwise be due.

     Cash paid for income taxes during 1997, 1996 and 1995 totaled $65.5
million, $109.1 million and $60.3 million, respectively.

NOTE L COMMITMENTS & CONTINGENCIES

LEASE COMMITMENTS

The Company leases certain transportation vehicles, warehouse facilities, office
space, machinery and equipment under cancelable and non-cancelable leases, most
of which expire within 10 years and may be renewed by the Company. Rent expense
under such arrangements for 1997, 1996 and 1995, totaled $14.8 million, $14.5
million and $16.5 million, respectively. Future minimum rental commitments under
non-cancelable leases are as follows:

<TABLE>
<CAPTION>

DOLLARS IN THOUSANDS
================================================================================
<C>                                                                     <C>    

1998                                                                    $12,012
1999                                                                     11,633 
2000                                                                     10,238 
2001                                                                      9,296  
2002                                                                      5,722  
2003 and thereafter                                                      17,550  
- --------------------------------------------------------------------------------
                                                                        $66,451
================================================================================
</TABLE>



                                                                              41
<PAGE>   22
OTHER LONG-TERM COMMITMENTS

During 1997, the Company entered into a contractual arrangement in an effort to
recover valuable tantalum ore. The Company is committed to pay approximately $20
million with respect to this project, and expects to pay the majority of this in
the first half of 1998.

     During 1995, the Company entered into long-term supply agreements of more
than six years with certain North American tire customers. The contracts are
designed to provide such customers with agreed-upon amounts of carbon black at
prices based on an agreed-upon formula.

     Also during 1995, the Company agreed to participate as a 10% owner in a
proposed liquefaction plant in Trinidad, and to purchase approximately 60
percent of the natural gas produced by the plant. Once the plant is operational,
it is estimated that it will produce 3.3 trillion cubic feet of natural gas
over a period of 20 years. At September 30, 1997, the Company's investment in
this project was approximately $7.8 million and is included in other investments
on the balance sheet. Natural gas from the project is not expected to be
available until fiscal year 1999.

CONTINGENCIES

The Company is a defendant or potentially responsible party in various lawsuits
and environmental proceedings wherein substantial amounts are claimed or at
issue.

     As of September 30, 1997, approximately $39.7 million was accrued for
environmental matters, primarily related to divested businesses. The amount
represents the Company's current best estimate of its share 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 applicable laws and regulations applicable to each
site. The Company reviews the adequacy of this reserve as circumstances change
at individual sites. Included in other charges for 1996 and 1995 are
environmental expenses of $3 million and $17 million, respectively. There were
no charges for 1997.

     In the opinion of the Company, although final settlement of these suits and
claims may impact the Company's financial statements in a particular period,
they will not, in the aggregate, have a material adverse effect on the Company's
financial position.

NOTE M FINANCIAL INSTRUMENTS & CONCENTRATIONS OF CREDIT RISK

FINANCIAL INSTRUMENTS

The Company uses financial instruments, primarily forward contracts, options and
swaps in its management of foreign currency and interest rate exposures. These
financial instruments hedge transactions and balances consistent with the
Company's currency and interest rate exposures. The Company does not purchase or
issue financial instruments for trading purposes.

FOREIGN EXCHANGE

The Company's foreign exchange forward contracts and options do not subject the
Company to risk due to exchange rate movements because gains and losses on these
contracts offset losses and gains on the assets, liabilities, transactions and
cash flows being hedged. The Company had $63.4 million of foreign exchange
forward contracts outstanding at September 30, 1997. The fair value of such
contracts, which was the replacement value, represented a net unrealized loss of
approximately $0.9 million as of September 30, 1997. Forward exchange and option
contracts generally have maturities that do not exceed twelve months. See Note A
for information on the Company's policy on forward exchange contract and
currency option gains and losses.

INTEREST RATE

During 1997, the Company entered into an interest rate swap agreement. Pursuant
to the agreement, beginning on August 29, 1997, the Company will pay a floating
rate based on a basket of London Interbank Offered Rates ("LIBOR") of various
countries on a notional $50 million and receive a floating rate based on the
U.S. LIBOR rate as determined at three month intervals through August 29, 2004.

     During 1995, the Company entered into an interest rate swap agreement to
fix the interest rate on certain borrowings expected to be refinanced in 1997.
Pursuant to the agreement, beginning on June 17, 1997, the Company will pay a
fixed rate of 7.4% on a notional $100 million and receive a floating rate based
on London Interbank Offered Rates ("LIBOR") as determined at six month intervals
through December 17, 2007.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that subject the Company to concentrations of credit risk
consist principally of trade receivables. International tire manufacturers
comprise a significant portion of the Company's carbon black customer base. At
September 30, 1997 and 1996, the Company had trade receivables of approximately
$62.6 million and $66.2 million, respectively, from international tire
manufacturers. Although the Company's exposure to credit risk associated with
nonpayment by tire manufacturers is affected by conditions or occurrences within
the tire industry, trade receivables from the international tire manufacturers
were current at September 30, 1997, and no manufacturer exceeded 5% of the
Company's receivables at that date.

42
<PAGE>   23

NOTE N FINANCIAL INFORMATION BY INDUSTRY SEGMENT & GEOGRAPHIC AREA

Financial information by industry segment for 1993 through 1997, as set forth on
page 23, is an integral part of these financial statements. Energy segment sales
for 1996 and 1995 include sales to a major customer in the amount of $278
million and $250 million, respectively. Transfers between geographic areas are
recorded at cost plus mark-up or at market.

     Financial information by geographic area is as follows:

<TABLE>
<CAPTION>

YEARS ENDED SEPTEMBER 30                        1997         1996         1995
================================================================================
DOLLARS IN MILLIONS 
<S>                                         <C>          <C>          <C>     

SALES 
United States:
  Sales, excluding export sales
     Specialty Chemicals and
        Materials                           $  566.9     $  526.6     $  605.7
     Energy                                    199.7        422.0        342.6
  Export sales                                  93.9        109.7         93.7
- --------------------------------------------------------------------------------
        Total                                  860.5      1,058.3      1,042.0
Europe                                         603.8        638.6        642.9
Other areas                                    302.1        281.5        249.5
- --------------------------------------------------------------------------------
        Total                                1,766.4      1,978.4      1,934.4
Less: Eliminations                             136.4        122.1        104.0
- --------------------------------------------------------------------------------
        Net sales                           $1,630.0     $1,856.3     $1,830.4
================================================================================

OPERATING PROFIT
United States:
     Specialty Chemicals and
        Materials                           $  107.3     $  142.3     $  155.9
     Energy                                      6.6         23.0         12.7
Europe                                          67.0         99.2        103.0
Other areas                                      6.0         19.0         27.9
- --------------------------------------------------------------------------------
        Total operating profit                 186.9        283.5        299.5
Interest expense                                43.2         41.7         35.6
Unallocated corporate expenses, net(a)          26.6         29.2         28.0
Gains on sales of businesses                      --        (38.9)       (32.6)
Gain on sale of equity securities                 --        (28.3)          --
Adjustment of reserves related to
  divested businesses                             --           --         12.5
- --------------------------------------------------------------------------------
        Income before income taxes          $  117.1     $  279.8     $  256.0
================================================================================

IDENTIFIABLE ASSETS
United States:
     Specialty Chemicals and
        Materials                           $  602.6     $  529.2     $  426.9
     Energy                                     88.4         79.7        133.8
Europe                                         434.1        494.8        465.3
Other areas                                    405.6        403.7        275.7
General corporate(b)                           206.8        270.8        253.7
Equity in affiliates--Europe                     6.8          9.3         26.9
Equity in affiliates--Other areas               79.3         70.1         72.0
- --------------------------------------------------------------------------------
        Total                               $1,823.6     $1,857.6     $1,654.3
================================================================================
</TABLE>

(a)  Unallocated corporate expenses, net, include corporate management costs
     reduced by investment income.

(b)  General corporate assets include cash, short-term investments, investments
     other than equity basis, income taxes receivable, deferred taxes and
     headquarters' assets.

NOTE O UNAUDITED QUARTERLY FINANCIAL INFORMATION

Unaudited financial results by quarter for the fiscal years ended September 30,
1997 and 1996 are summarized below and should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition.

<TABLE>
<CAPTION>

DOLLARS IN MILLIONS,
EXCEPT PER
SHARE AMOUNTS                DEC     MARCH      JUNE      SEPT           YEAR
================================================================================
<S>                       <C>       <C>       <C>       <C>          <C>     

FISCAL 1997
Net sales                 $398.8    $432.0    $398.6    $400.6       $1,630.0
Cost of sales             $279.7    $305.6    $274.2    $284.9       $1,144.4
Net income                $ 25.1    $ 29.4    $ 28.7    $  9.5(a)    $   92.7
Income applicable to
  common shares           $ 24.3    $ 28.6    $ 27.9    $  8.7       $   89.5
- --------------------------------------------------------------------------------
Income per common
  share (primary)(c)      $ 0.34    $ 0.40    $ 0.40    $ 0.12       $   1.27
================================================================================

FISCAL 1996
Net sales                 $443.0    $491.3    $457.3    $464.6       $1,856.3
Cost of sales             $305.1    $345.3    $318.5    $341.0       $1,310.0
Net income                $ 43.4    $ 42.9    $ 35.7    $ 72.0(b)    $  194.1
Income applicable to
  common shares           $ 42.5    $ 42.0    $ 35.0    $ 71.2       $  190.8
- --------------------------------------------------------------------------------
Income per common
  share (primary)(c)      $ 0.57    $ 0.58    $ 0.48    $ 0.98       $   2.60
================================================================================
</TABLE>

(a)  Includes asset impairments and severance charges of $18.2 million.

(b)  Includes a $38.9 million gain on the sale of coal transportation business,
     TUCO, and a $28.3 million gain on the sale of equity securities of K N
     Energy, Inc.

(c)  The November 10, 1995 two-for-one stock split has been reflected in all per
     share amounts.





                                                                              43
<PAGE>   24
MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING


The accompanying financial statements were prepared by Cabot Corporation in
conformity with generally accepted accounting principles. The Company's
management is responsible for the integrity of these statements and of the data,
estimates and judgments that underlie them.

     Cabot Corporation maintains a system of internal accounting controls
designed to provide reasonable assurance that the Company's assets are
safeguarded from loss or unauthorized use, that transactions are properly
authorized and recorded, and that financial records are reliable and adequate
for public reporting. The standard of reasonable assurance is based on
management's judgment that the cost of such controls should not exceed their
associated benefits. The system is monitored and evaluated on an ongoing basis
by management in conjunction with the Company's internal audit staff,
independent accountants, and the Audit Committee of the Board of Directors.

     Coopers & Lybrand L.L.P., independent accountants, were engaged by the
Company to audit these financial statements. Their audit was conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of the Company's system of internal accounting controls, selected
tests of that system, and related audit procedures as they consider necessary to
render their opinion.

     The Audit Committee of the Board of Directors provides general oversight
responsibility for the financial statements. Composed entirely of Directors who
are not employees of the Company, the Committee meets periodically with Company
management, internal auditors and the independent accountants to review the
quality of the financial reporting and internal controls as well as the results
of the auditing efforts. The internal auditors and independent accountants have
full and direct access to the Audit Committee, with and without management
present.


/s/ Samuel W. Bodman
- -----------------------------------    
Samuel W. Bodman
Chief Executive Officer


/s/ Robert L. Culver
- -----------------------------------
Robert L. Culver
Chief Financial Officer


/s/ William T. Anderson
- -----------------------------------
William T. Anderson
Chief Accounting Officer



REPORT OF INDEPENDENT ACCOUNTANTS

TO THE DIRECTORS AND STOCKHOLDERS OF CABOT CORPORATION

We have audited the accompanying consolidated balance sheets of Cabot
Corporation as of September 30, 1997 and 1996 and the related consolidated
statements of income and cash flows for each of the three fiscal years in the
period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cabot
Corporation as of September 30, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three fiscal years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles.



/s/ Coopers & Lybrand L.L.P.
- ------------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 23, 1997, except for 
the information in Note B,
for which the date is
December 18, 1997.




44

<PAGE>   1


                                                                      EXHIBIT 21


                                CABOT CORPORATION

                            Significant Subsidiaries

                            As of September 30, 1997


                                                       Jurisdiction of
Name                                                   Incorporation
- ----                                                   -------------
Cabot B.V.                                             The Netherlands
Cabot Carbon Limited                                   England
Cabot G.B. Limited                                     England
Cabot International Capital Corporation                Delaware




<PAGE>   1
 
                                                                      EXHIBIT 23
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
We consent to the incorporation by reference in the registration statements of
Cabot Corporation on Form S-3 (File Nos. 33-18883, 33-48686) and on Form S-8
(File Nos. 33-28699, 33-52940, 33-53659, 333-03683, 333-06629, 333-19103 and
333-19099) of our report dated October 23, 1997, except for the information in
Note B, for which the date is December 18, 1997, on our audits of the
consolidated financial statements of Cabot Corporation as of September 30, 1997
and 1996, and for each of the three fiscal years in the period ended September
30, 1997, which report is included in this Annual Report on Form 10-K.
 
                                          Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 19, 1997

<PAGE>   1

                                POWER OF ATTORNEY


        We, the undersigned directors and officers of Cabot Corporation, hereby
severally constitute and appoint Robert Rothberg, Charles D. Gerlinger and Sarah
W. Saunders, and each of them, our true and lawful attorneys with full power to
(i) sign for us and in our names in the capacities indicated below Annual
Reports on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 of Cabot Corporation for the fiscal year ended September 30, 1997,
and any and all amendments thereto, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Reports and to any and all amendments to said Reports; and (ii) to file such
Reports and amendments with the Securities and Exchange Commission and with
applicable stock exchanges on behalf of Cabot Corporation.

        WITNESS our hands and common seal on the date set forth below.


<TABLE>
<CAPTION>
SIGNATURE                             TITLE                                DATE
- ---------                             -----                                ----



<S>                                   <C>                                  <C> 
/s/ Samuel W. Bodman                  Director, Chairman and               November 14, 1997
- --------------------------------      Chief Executive Officer
Samuel W. Bodman                      


/s/ Kennett F. Burnes                 Director and President               November 14, 1997
- --------------------------------
Kennett F. Burnes


/s/ Robert L. Culver                  Executive Vice President and         November 14, 1997
- --------------------------------      Chief Financial Officer
Robert L. Culver                      


/s/ William T. Anderson               Controller                           November 14, 1997
- --------------------------------
William T. Anderson


/s/ Jane C. Bradley                   Director                             November 14, 1997
- --------------------------------
Jane C. Bradley


/s/ John G.L. Cabot                   Director                             November 14, 1997
- --------------------------------
John G.L. Cabot
</TABLE>


<PAGE>   2


<TABLE>
<CAPTION>
SIGNATURE                               TITLE                         DATE
- ---------                               -----                         ----



<S>                                     <C>                           <C> 
/s/ Arthur L. Goldstein                 Director                      November 14, 1997
- --------------------------------
Arthur L. Goldstein


/s/ Robert P. Henderson                 Director                      November 14, 1997
- --------------------------------
Robert P. Henderson


/s/ Arnold S. Hiatt                     Director                      November 14, 1997
- --------------------------------
Arnold S. Hiatt


/s/ John H. McArthur                    Director                      November 14, 1997
- --------------------------------
John H. McArthur


/s/ John F. O'Brien                     Director                      November 14, 1997
- --------------------------------
John F. O'Brien


/s/ David V. Ragone                     Director                      November 14, 1997
- --------------------------------
David V. Ragone


/s/ Charles P. Siess, Jr.               Director                      November 14, 1997
- --------------------------------
Charles P. Siess, Jr.


/s/ Morris Tanenbaum                    Director                      November 14, 1997
- --------------------------------
Morris Tanenbaum


/s/ Lydia W. Thomas                     Director                      November 14, 1997
- --------------------------------
Lydia W. Thomas


/s/ Mark W. Wrighton                    Director                      November 14, 1997
- --------------------------------
Mark W. Wrighton
</TABLE>






<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<FISCAL-YEAR-END>                          SEP-30-1997
<PERIOD-TYPE>                   YEAR 
<PERIOD-END>                               SEP-30-1997
<CASH>                                          39,236
<SECURITIES>                                         0
<RECEIVABLES>                                  294,217
<ALLOWANCES>                                     5,613
<INVENTORY>                                    246,886
<CURRENT-ASSETS>                               611,177
<PP&E>                                       1,759,835
<DEPRECIATION>                                 837,526
<TOTAL-ASSETS>                               1,823,589
<CURRENT-LIABILITIES>                          541,383
<BONDS>                                        285,544
                                0
                                     75,336
<COMMON>                                       135,550
<OTHER-SE>                                     516,907
<TOTAL-LIABILITY-AND-EQUITY>                 1,823,589
<SALES>                                      1,629,989
<TOTAL-REVENUES>                             1,636,711
<CGS>                                        1,144,383
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                               115,561
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              43,222
<INCOME-PRETAX>                                117,031
<INCOME-TAX>                                    42,131
<INCOME-CONTINUING>                             92,745
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    92,745
<EPS-PRIMARY>                                     1.27
<EPS-DILUTED>                                     1.19
        

</TABLE>


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