Note V. Financial Information by Segment & Geographic Area

Segment Information

After the sale of the Company’s Supermetals Business and acquisition of Norit, management made changes in the composition of its segments and renamed them with names that are more descriptive of the underlying businesses. With these changes, Cabot’s four business segments are: Reinforcement Materials (formerly the Core Segment); Performance Materials (formerly the Performance Segment); Advanced Technologies (the combination of the former New Business and Specialty Fluids Segments); and Purification Solutions (the newly acquired Norit business).

While the Chief Operating Decision Maker uses a number of performance measures to manage the performance of the segments and allocate resources to them, segment operating profit (loss) before interest and taxes (“Segment EBIT”) is the measure that is most consistently used and is, therefore, the measure presented for each segment in the financial information by segment table below on the line entitled Income (loss) before taxes. Segment EBIT excludes certain items, meaning items considered by management to be unusual and not representative of segment results. In addition, Segment EBIT includes Equity in net income of affiliated companies, net of tax, the full operating results of a contractual joint venture in Purification Solutions, royalties paid by equity affiliates and Net income attributable to noncontrolling interests, net of tax, but exclude Interest expense, foreign currency transaction gains and losses, interest income, dividend income, unearned revenue, the effects of LIFO accounting for inventory, and unallocated general and corporate costs. Segment assets exclude cash, short-term investments, cost investments, income taxes receivable, deferred taxes and headquarters’ assets, which are included in unallocated and other. Expenditures for additions to long-lived assets include total equity and other investments (including available-for-sale securities), property, plant and equipment, intangible assets and assets held for rent.

Reinforcement Materials

Rubber blacks are used in tires and industrial products. These products have traditionally been used in the tire industry as a rubber reinforcing agent and are also used as a performance additive. In industrial products such as hoses, belts, extruded profiles and molded goods, rubber blacks are used to improve the physical performance of the product.

Performance Materials

Performance Materials is comprised of two businesses that sell the following products: specialty grades of carbon black and thermoplastic concentrates and compounds (the Specialty Carbons and Compounds Business); and fumed silica, fumed alumina and dispersions thereof (the Fumed Metal Oxides Business). The net sales from each of these businesses for fiscal 2012, 2011 and 2010 are as follows:


	Years Ended September 30
	2012		2011		2010
	(Dollars in millions)
Specialty Carbons and Compounds	$	664	$	626	$	531
Fumed Metal Oxides		250		254		252

Total Performance Materials	$	914	$	880	$	783

In each business, Cabot designs, manufactures and sells materials that deliver performance in a broad range of customer applications across the automotive, construction and infrastructure, and electronics and consumer products sectors.

Cabot’s specialty grades of carbon black are used to impart color, provide rheology control, enhance conductivity and static charge control, provide UV protection, enhance mechanical properties, and provide chemical flexibility through surface treatment. These products are used in a wide variety of applications, such as inks, coatings, cables, pipes, toners and electronics. In addition, Cabot manufactures and sources thermoplastic concentrates and compounds that are marketed to the plastics industry.

Fumed silica is an ultra-fine, high-purity particle used as a reinforcing, thickening, abrasive, thixotropic, suspending or anti-caking agent in a wide variety of products produced for the automotive, construction, microelectronics, and consumer products industries. These products include adhesives, sealants, cosmetics, inks, toners, silicone rubber, coatings, polishing slurries and pharmaceuticals. Fumed alumina, also an ultra-fine, high-purity particle, is used as an abrasive, absorbent or barrier agent in a variety of products, such as inkjet media, lighting, coatings, cosmetics and polishing slurries.

Advanced Technologies

Advanced Technologies is comprised of the Inkjet Colorants, Aerogel, Security Materials, Elastomer Composites and Specialty Fluids Businesses. The net sales from each of these businesses are as follows:


	Years Ended September 30
	2012		2011		2010
	(Dollars in millions)
Inkjet Colorants	$	66	$	65	$	57
Aerogel		18		24		24
Security Materials		9		11		7
Elastomer Composites		23		17		17
Specialty Fluids		94		69		81

Total Advanced Technologies	$	210	$	186	$	186

The Inkjet Colorants Business produces and sells aqueous inkjet colorants primarily to the inkjet printing market. The Company’s inkjet colorants are high-quality pigment-based black and other colorant dispersions manufactured by surface treating specialty grades of carbon black and other pigments. The dispersions are used in aqueous inkjet inks to impart color (optical density or chroma) with improved durability (waterfastness, lightfastness and rub resistance) while maintaining high printhead reliability. Cabot’s inkjet colorants are produced for various inkjet printing applications including small office and home office, corporate office, and commercial printing, as well as for other niche applications that require a high level of dispersibility and colloidal stability.

Aerogel is a hydrophobic, silica-based particle with a high surface area that is used in a variety of thermal insulation and specialty chemical applications. In the construction industry, the product is used in insulative composite building products and translucent skylight, window, wall and roof systems for insulating eco-daylighting applications. In the oil and gas industry, aerogel is used to insulate subsea pipelines. In the specialty chemicals industry, the product is used to provide matte finishing, insulating and thickening properties for use in a variety of applications. The Company continues to focus on application and market development activities for use of aerogel in these and other new applications.

The principal area of commercial focus for the Security Materials Business is in developing covert taggants for a broad range of anti-counterfeiting security applications, including brand security, currency, tax stamps, identification and fuel markers. Covert taggants are invisible, unique markers that are added to products to determine their authenticity through the use of custom detectors or readers. The Company’s taggants are manufactured using a proprietary process, which produces highly uniform materials with unique signatures.

The Elastomer Composites Business has developed elastomer composite products that are compounds of natural latex rubber and carbon black made by a patented liquid phase process. The Company believes that these compounds improve abrasion/wear resistance, reduce fatigue and reduce rolling resistance compared to natural rubber/carbon black compounds made by conventional methods. These products are targeted for tire, defense, mining, automotive, and aerospace applications.

The Specialty Fluids Business principally produces and markets cesium formate as a drilling and completion fluid for use primarily in high pressure and high temperature oil and gas well construction. Cesium formate products are solids-free, high-density fluids that have a low viscosity, enabling safe and efficient well construction and workover operations. The fluid is resistant to high temperatures, minimizes damage to producing reservoirs and is readily biodegradable in accordance with testing guidelines set by the Organization for Economic Cooperation and Development. In a majority of applications, cesium formate is blended with other formates or products. Income from continuing operations before taxes for the Specialty Fluids Business was $44 million, $22 million, and $35 million in fiscal 2012, 2011, and 2010, respectively.

Purification Solutions

The Company’s activated carbon products are used for the purification of water, air, food and beverages, pharmaceuticals and other liquids and gases. In gas and air applications, one of the uses of activated carbon is for the removal of mercury in flue gas streams. In addition, Purification Solutions’ products are used as a catalyst or catalyst carrier; as a chemical carrier in slow release applications (such as delayed release pharmaceuticals); as either a colorant or a decolorizing agent in the production of products for food and beverage applications; and in the gold mining industry. In addition to activated carbon production and reactivation, the Company also provides activated carbon solutions through on-site equipment and services, including delivery systems for activated carbon injection in coal-fired utilities, mobile water filter units and carbon reactivation services.

Financial information by segment is as follows:


	Reinforcement Materials		Performance Materials		Advanced Technologies		Purification Solutions		Segment Total		Unallocated and Other^(1), (3)			Consolidated Total
	(Dollars in millions)
Years Ended September 30
2012
Revenues from external customers⁽²⁾	$	2,019	$	914	$	210	$	61	$	3,204	$	96		$	3,300
Depreciation and amortization		82		47		13		8		150		6			156
Equity in earnings of affiliated companies		9		1		—		1		11		—			11
Income (loss) from continuing operations before taxes⁽³⁾		227		128		49		5		409		(164	)		245
Assets⁽⁴⁾		1,527		717		209		1,433		3,886		513			4,399
Total expenditures for additions to long-lived assets⁽⁵⁾		163		87		16		350		616		6			622
2011
Revenues from external
customers⁽²⁾	$	1,952	$	880	$	186	$	—	$	3,018	$	84		$	3,102
Depreciation and amortization		80		37		14		—		131		8			139
Equity in earnings of affiliated companies		7		1		—		—		8		—			8
Income (loss) from continuing operations before taxes⁽³⁾		183		140		31		—		354		(151	)		203
Assets⁽⁴⁾		1,509		661		191		—		2,361		780			3,141
Total expenditures for additions to long-lived assets⁽⁵⁾		126		99		10		—		235		6			241
2010
Revenues from external customers⁽²⁾	$	1,660	$	783	$	186	$	—	$	2,629	$	87		$	2,716
Depreciation and amortization		74		35		12		—		121		16			137
Equity in earnings of affiliated companies		6		1		—		—		7		—			7
Income (loss) from continuing operations before taxes⁽³⁾		139		125		50		—		314		(148	)		166
Assets⁽⁴⁾		1,277		544		188		—		2,009		877			2,886
Total expenditures for additions to long-lived assets⁽⁵⁾		62		38		4		—		104		3			107

⁽¹⁾	Unallocated and other includes certain items and eliminations necessary to reflect management’s reporting of operating segment results. These items are reflective of the segment reporting presented to the Chief Operating Decision Maker.

⁽²⁾	Unallocated and other reflects royalties paid by equity affiliates, external shipping and handling fees, and the impact of the corporate adjustment for unearned revenue.


	Years Ended September 30
	2012		2011			2010
	(Dollars in millions)
Royalties paid by equity affiliates, other operating revenues, and the impact of the corporate adjustment for unearned revenue…………………………	$	11	$	(2	)	$	7
Shipping and handling fees		85		86			80

Total	$	96	$	84		$	87

⁽³⁾	Income (loss) from continuing operations before taxes for Unallocated and Other includes:


	Years Ended September 30
	2012			2011			2010
	(Dollars in millions)
Interest expense	$	(46	)	$	(39	)	$	(40	)
Certain items^(a)		(51	)		(19	)		(53	)
Equity in net earnings of affiliated companies^(b)		(11	)		(8	)		(7	)
Unallocated corporate costs^(c)		(56	)		(53	)		(48	)
General unallocated (expense) income^(d)		—			(32	)		—

Total	$	(164	)	$	(151	)	$	(148	)

^(a)

Certain items are items that management does not consider to be representative of segment results and they are, therefore, excluded from Segment EBIT. Certain items, pre-tax, for fiscal 2012 primarily include $17 million related to global restructuring activities, $26 million for acquisition related charges (consisting of $14 million of legal and professional fees disclosed in Note C, $3 million for certain other one-time integration costs and $9 million of additional charges related to acquisition accounting adjustments for the acquired inventory), $4 million for environmental and legal reserves, and a $4 million addition in the reserve for respirator claims. Certain items, pre-tax, for fiscal 2011 primarily include charges for global restructuring activities discussed in Note P. Certain items, pre-tax, for fiscal 2010 include $46 million related to global restructuring activities, $3 million for environmental reserves and legal settlements, $2 million long-lived asset impairment of land related to a former carbon black site, and a $2 million addition in the reserve for respirator claims.

^(b)

Equity in net income of affiliated companies is included in segment EBIT and is removed from Unallocated and other to reconcile to income (loss) from operations before taxes.

^(c)

Unallocated corporate costs are not controlled by the segments and primarily benefit corporate interests.

^(d)

General unallocated (expense) income consists of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, the impact of accounting for certain inventory on a LIFO basis, and the profit or loss related to the corporate adjustment for unearned revenue. Additionally, for fiscal 2011, this amount included a $3 million charge related to a change in the net worth tax regulations in Colombia, and $3 million related to a portion of the benefit from a legal judgment.

⁽⁴⁾	Unallocated and Other assets includes cash, marketable securities, cost investments, income taxes receivable, deferred taxes, headquarters’ assets, and current and non-current assets held for sale.

⁽⁵⁾	Expenditures for additions to long-lived assets include total equity and other investments (including available-for-sale securities), property, plant and equipment, intangible assets and assets held for rent.

Geographic Information

Sales are attributed to the United States and to all foreign countries based on the location from which the sale originated. Revenues from external customers and long-lived assets attributable to an individual country, other than the United States, Japan and China, were not material for disclosure.

Revenues from external customers and long-lived asset information by geographic area are summarized as follows:


	United States		Japan		China		Other Foreign Countries		Consolidated Total
	(Dollars in millions)
Years Ended September 30,
2012
Revenues from external customers	$	695	$	330	$	543	$	1,732	$	3,300
Net property, plant and equipment	$	486	$	54	$	305	$	707	$	1,552
2011
Revenues from external customers	$	589	$	307	$	554	$	1,652	$	3,102
Net property, plant and equipment	$	233	$	30	$	274	$	499	$	1,036
2010
Revenues from external customers	$	546	$	248	$	458	$	1,464	$	2,716
Net property, plant and equipment	$	227	$	41	$	203	$	504	$	975