Cabot provides both defined benefit and defined contribution plans for its employees. The defined benefit plans consist of the Cabot Cash Balance Plan ("CBP"), a Supplemental Cash Balance Plan ("SCBP") and several foreign pension plans. The defined contribution plans consist of the Cabot Retirement Savings Plan ("RSP"), a Supplemental Retirement Savings Plan ("SRSP") and several foreign plans. Cabot also provides postretirement benefit plans, which include medical coverage and life insurance.

All information included in this footnote and the related tables include amounts pertaining to the Company's Supermetals Business, unless indicated otherwise.

Cabot recognized expenses related to U.S. and foreign defined contribution plans of $7 million in fiscal year 2011 and $9 million in each of fiscal year 2010 and 2009.

The RSP is a U.S. defined contribution plan, which encourages long-term systematic savings and provides funds for retirement or possible earlier needs. The RSP has two components, a 401(k) plan and an Employee Stock Ownership Plan ("ESOP").

The 401(k) component of the plan allows an eligible participant to contribute a percentage of his or her eligible compensation on a before-tax or after-tax basis. For employees not subject to a collective bargaining agreement, Cabot makes a matching contribution of 75% of a participant's contribution of up to 7.5% of the participant's eligible compensation, making the maximum matching contribution an amount equal to 5.625% of a participant's eligible compensation. This matching contribution is in the form of Cabot common stock and is made on a quarterly basis.

Other than certain employees subject to collective bargaining agreements, all eligible employees of Cabot and its participating subsidiaries in the U.S. participate in the ESOP component of the plan. Under the ESOP, which is 100% Company funded, 108,696.645 shares of Cabot common stock are allocated to participants' accounts at the end of each quarter. These ESOP allocations will continue to be made quarterly until December 31, 2013, at which point all shares available for distribution under the ESOP will have been allocated to participant accounts. These shares are allocated based on a pre-determined formula. Cabot has established a minimum and maximum contribution percentage of total eligible pay of 4% and 8%, respectively. The actual contribution percentage in any given quarter varies depending on Cabot's stock price on the last day of the relevant quarter, the total eligible compensation and the amount of the dividends allocated to participants. If the calculated contribution allocation falls below 4%, the Company makes an additional contribution in the form of Cabot common stock to bring the total contribution to 4% for the participant. If the calculated contribution allocation exceeds 8% of eligible compensation, the excess shares are used to fund the Company match on the 401(k) contributions. If there are still shares remaining after the Company match has been allocated, the remaining shares are allocated to all participants in the ESOP as additional contribution shares. Compensation expense related to the ESOP was $4 million in each of fiscal year 2011, 2010 and 2009.

Cabot's SRSP provides benefits to highly compensated employees in circumstances in which the maximum limits established under the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code prevent them from receiving Company matching and ESOP contributions provided under the qualified RSP. The SRSP is non-qualified and unfunded. See Note O for further information on the SRSP.

Defined benefit plans provide pre-determined benefits to employees that are distributed upon retirement. Measurement of defined benefit pension expense is based on assumptions used to value the defined benefit pension liability (including assets) at the beginning of the year. The CBP and certain foreign pension plans generally use the straight-line method of amortization over five years for the unrecognized net gains and losses. Cabot used a September 30 measurement date for all U.S. and foreign plan obligations and assets in both fiscal 2011 and 2010. Cabot is making all required contributions to the plans.

The accumulated benefit obligation was $140 million for the U.S. defined benefit plans and $218 million for the foreign plans as of September 30, 2011 and $138 million for the U.S. defined benefit plans and $224 million for the foreign plans as of September 30, 2010.

The CBP is a hybrid defined benefit pension plan in which participants in the CBP accrue benefits in the form of account balances, with a guaranteed rate of return and defined notional contributions. The notional contributions take the form of pay-based credits, which are computed as a percentage of eligible pay and credited quarterly to participant accounts. Interest is credited quarterly based on the average one-year Treasury bill rate for the month of November in the preceding calendar year. As of September 30, 2011, 54 employees have "grandfathered" benefits under a traditional defined benefit formula, which, under certain circumstances, may entitle them to benefits in addition to those accrued under the CBP formula described above. Cabot contributes to the plan based on the fair value of plan assets and associated returns and Cabot's obligations and their timing.

Cabot's SCBP provides benefits to highly compensated employees in circumstances in which the maximum limits established under ERISA and the Internal Revenue Code prevent them from receiving some of the benefits provided under the qualified CBP. This plan is non-qualified and unfunded. The obligations in connection with the SCBP plan were $6 million and $4 million as of September 30, 2011 and 2010, respectively, and have been recorded in other liabilities. Both the CBP and the SCBP qualify as defined benefit plans.

Cabot's postretirement benefit plans provide certain health care and life insurance benefits for retired employees. Typical of such plans, the Cabot postretirement benefit plans are unfunded. Cabot funds the plans as claims or insurance premiums come due. In order to limit its financial exposure, Cabot established a per retiree cap in the U.S. in 1992 on the amount it would contribute to retiree medical costs. Cabot made additional changes effective January 1, 2010 to its postretirement medical and life insurance plans that significantly reduce the number of current employees eligible to receive Company provided retiree life insurance and Company contributions towards retiree medical premiums in the future.

The following provides information about benefit obligations, plan assets, the funded status and weighted-average assumptions of the defined benefit pension and postretirement benefit plans:


	Years Ended September 30
	2011						2010						2011						2010
	Pension Benefits												Postretirement Benefits
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
	(Dollars in millions)
Change in Benefit Obligations:
Benefit obligation at beginning of year	$	143		$	241		$	137		$	228		$	69		$	15		$	69		$	15
Service cost		5			6			5			5			1			—			1			—
Interest cost		6			11			7			10			2			1			3			1
Plan participants' contribution		—			1			—			1			—			—			—			—
Foreign currency exchange rate changes		—			1			—			(2	)		—			—			—			—
Loss (gain) from changes in actuarial assumptions		2			(9	)		6			19			(1	)		(1	)		3			—
Benefits paid ⁽¹⁾		(9	)		(16	)		(12	)		(20	)		(5	)		—			(6	)		—
Plan amendments		—			—			—			—			(2	)		—			(1	)		—
Settlements or curtailment gain		—			(1	)		—			—			—			—			—			(1	)
Other		—			2			—			—			—			—			—			—

Benefit obligation at end of year	$	147		$	236		$	143		$	241		$	64		$	15		$	69		$	15


	Years Ended September 30
	2011						2010						2011						2010
	Pension Benefits												Postretirement Benefits
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
	(Dollars in millions)
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	104		$	197		$	104		$	193		$	—		$	—		$	—		$	—
Actual return on plan assets		8			2			10			16			—			—			—			—
Employer contribution		—			13			2			9			5			—			6			—
Plan participants' contribution		—			1			—			1			—			—			—			—
Foreign currency exchange rate changes		—			—			—			(2	)		—			—			—			—
Benefits paid⁽¹⁾		(9	)		(16	)		(12	)		(20	)		(5	)		—			(6	)		—

Fair value of plan assets at end of year	$	103		$	197		$	104		$	197		$	—		$	—		$	—		$	—

Funded status	$	(44	)	$	(39	)	$	(39	)	$	(44	)	$	(64	)	$	(15	)	$	(69	)	$	(15	)

Recognized liability⁽²⁾	$	(44	)	$	(39	)	$	(39	)	$	(44	)	$	(64	)	$	(15	)	$	(69	)	$	(15	)

⁽¹⁾	Included in this amount is $2 million and $1 million that the Company paid directly to the participants in its defined benefit plans in fiscal 2011 and 2010, respectively.

⁽²⁾	Included in this amount is $4 million of net pension liability as of September 30, 2011 and 2010 related to the Supermetals Business presented as Noncurrent Liabilities Held For Sale in the Consolidated Balance Sheets.

Pension Assumptions and Strategy

The following assumptions were used to determine the pension benefit obligations at September 30:


	Assumptions as of September 30
	2011						2010						2009
	Pension Benefits
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
Actuarial assumptions as of the year-end measurement date:
Discount rate		4.5	%		4.8	%		4.5	%		4.4	%		5.3	%		5.0	%
Rate of increase in compensation		3.8	%		3.1	%		3.8	%		3.3	%		3.8	%		3.4	%
Actuarial assumptions used to determine net periodic benefit cost during the year:
Discount rate		4.5	%		4.3	%		5.3	%		5.0	%		7.5	%		6.4	%
Expected long-term rate of return on plan assets		7.8	%		6.1	%		7.8	%		6.1	%		7.8	%		6.5	%
Rate of increase in compensation		3.8	%		3.3	%		3.8	%		3.4	%		4.5	%		3.8	%

Post Retirement Assumptions and Strategy

The following assumptions were used to determine the post retirement benefit obligations at September 30:


	Assumptions as of September 30
	2011						2010						2009
	Postretirement Benefits
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
Actuarial assumptions as of the year-end measurement date:
Discount rate		4.5	%		4.9	%		4.5	%		4.8	%		5.3	%		5.2	%
Initial health care cost trend rate		8.5	%		8.0	%		7.5	%		8.0	%		8.0	%		9.0	%
Actuarial assumptions used to determine net cost during the year:
Discount rate		4.5	%		4.8	%		5.3	%		5.2	%		7.5	%		7.1	%
Initial health care cost trend rate		7.5	%		8.0	%		8.0	%		9.0	%		8.0	%		9.0	%

Cabot uses discount rates as of September 30, the plans' measurement date, to determine future benefit obligations under its U.S. and foreign defined benefit plans. The discount rates for the defined benefit plans in the U.S., Canada, UAE, Euro-zone, Japan, Switzerland and the U.K. are derived from yield curves that reflect high quality corporate bond yield or swap rate information in each region and reflect the characteristics of Cabot's employee benefit plans. The discount rates for the defined benefit plans in Czech Republic and Indonesia are based on government bond indices that best reflect the durations of the plans, adjusted for credit spreads presented in selected AA corporate bond indices.

The rates utilized are selected because they represent long-term, high quality, fixed income benchmarks that approximate the long-term nature of Cabot's pension obligations and related payouts.

Amounts recognized in Accumulated other comprehensive income (loss) at September 30, 2011 and 2010 were as follows:

In fiscal 2012, an estimated net loss of $4 million will be amortized from accumulated other comprehensive income to net periodic benefit cost. In addition, amortization of estimated prior service credits of $3 million for other postretirement benefits will be amortized from accumulated other comprehensive income to net periodic benefit costs in fiscal 2012.

The Company expects that the following benefit payments will be made to plan participants in the years from 2012 to 2021:

The Company expects to contribute $8 million and $12 million related to its U.S. and foreign pension plans, respectively, in fiscal 2012.

Net periodic defined benefit pension and other postretirement benefit costs include the following components:

Other changes in plan assets and benefit obligations recognized in other comprehensive income are as follows:

In recent years, the Company incurred curtailments and settlements of certain of its employee benefit plans. Associated with these curtailments and settlements, the Company recognized a net gain of less than $1 million, a net loss of $1 million and a net gain of $2 million in fiscal 2011, 2010 and 2009, respectively.

Measurement of postretirement benefit expense is based on actuarial assumptions used to value the postretirement benefit liability at the beginning of the year. Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. The fiscal 2011 weighted-average assumed health care cost trend rate is 8.5% for U.S. plans and 8.0% for foreign plans. The ultimate weighted-average health care cost trend rate has been designated as 5% for U.S. plans and 6% for foreign plans and is anticipated to be achieved during 2018 and 2016, respectively. A 1-percentage point change in the 2011 assumed health care cost trend rate would have the following effects:

The Company's defined benefit pension plans weighted-average asset allocations at September 30, 2011 and 2010, by asset category are as follows:

To develop the expected long-term rate of return on plan assets assumption, the Company used a capital asset pricing model. The model considers the current level of expected returns on risk-free investments comprised of government bonds, the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns for each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return for each plan.

Cabot's investment strategy for each of its defined benefit plans in the U.S. and abroad is generally based on a set of investment objectives and policies that cover time horizons and risk tolerance levels consistent with plan liabilities. Periodic studies are performed to determine the asset mix that will meet pension obligations at a reasonable cost to the Company. The assets of the defined benefit plans are comprised principally of investments in equity and high quality fixed income securities, which are broadly diversified across the capitalization and style spectrum and are managed using both active and passive strategies. The weighted average target asset allocation for the U.S. plan is 65% in equity and 35% in fixed income and for the foreign plans is 44% in equity, 51% in fixed income and 5% in cash and other securities.

For pension or other postretirement benefit plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For pension or other postretirement benefit plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.

Some pension or other postretirement benefit plan assets are held in funds where a net asset value is calculated based on the fair value of the underlying assets and the number of shares owned. The classification of the fund (Level 1, 2 or 3 measurements) is determined based on the classification of the significant holdings within the fund. For all other pension or other postretirement benefit plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

The fair value of the Company's pension plan assets at September 30, 2011 by asset category is as follows:


			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
	Total		US				Non-US
	(Dollars in millions)
Asset Category:
Cash and cash equivalents	$	5	$	—	$	1	$	4	$	—
Direct investments:
U.S. equity securities		13		13		—		—		—
Non-U.S. equity securities		1		1		—		—		—
Non-U.S. government bonds		47		—		—		47		—
Non-U.S. corporate bonds		1		—		—		1		—

Total direct investments		62		14		—		48		—
Investment funds:
Equity funds⁽¹⁾		106		20		—		—		86
Fixed income funds⁽²⁾		93		43		—		—		50
Real estate funds⁽³⁾		1		—		—		—		1
Common and collective investment trust fund⁽⁴⁾		24		—		24		—		—
Money market fund		1		1		—		—		—

Total investment funds		225		64		24		—		137
Alternative investments:
Insurance contracts		8		—		—		—		8

Total alternative investments		8		—		—		—		8

Total pension plan assets	$	300	$	78	$	25	$	52	$	145

⁽¹⁾	The equity funds asset class includes funds that invest in U.S. equities as well as equity securities issued by companies incorporated, listed or domiciled in countries in developed and/or emerging markets. These companies may be in the small-, mid- or large-cap categories.

⁽²⁾

The fixed income funds asset class includes investments in high quality funds. High quality fixed income funds primarily invest in low risk U.S. and non-U.S. government securities, investment-grade corporate bonds, mortgages and asset-backed securities. A significant portion of the fixed income funds asset includes investment in long-term bond funds.

⁽³⁾

The real estate funds asset class includes funds that primarily invest in entities which are principally engaged in the ownership, acquisition, development, financing, sale and/or management of income-producing real estate properties, both commercial and residential. These funds typically seek long-term growth of capital and current income that is above average relative to public equity funds.

⁽⁴⁾

The investment objective of the portfolio of this common and collective investment trust is to achieve long-term, total return in excess of the MSCI World Index Benchmark by investing in equity securities of companies worldwide, emphasizing those with above-average potential for capital appreciation.