Financial Information by Segment

75 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Financial Information by Segment

P. Financial Information by Segment

The Company identifies a business as an operating segment if: i) it engages in business activities from which it may earn revenues and incur expenses; ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance; and iii) it has available discrete financial information. The Company has determined that all of its reported businesses are operating segments. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Operating segments are aggregated if the operating segments are determined to have similar economic characteristics and if the operating segments are similar in the following areas: i) nature of products and services; ii) nature of production processes; iii) type or class of customer for their products and services; iv) methods used to distribute the products or provide services; and v) if applicable, the nature of the regulatory environment.

In December 2014, the Company realigned its business reporting structure into four segments that consist of Reinforcement Materials, Performance Chemicals, Purification Solutions and Specialty Fluids. Segment results have been recast for all periods presented to reflect the realignment of the Company’s global business segments. The new segment structure is designed to improve efficiency and resource prioritization and reflects how the Company’s CODM reviews segment results to assess performance and allocate resources.

The Reinforcement Materials segment combines the rubber blacks and elastomer composites product lines.

The Performance Chemicals segment combines the specialty carbons and compounds, and inkjet colorants product lines into the Specialty Carbons and Formulations business, and combines the fumed metal oxides and aerogel product lines into the Metal Oxides business. These businesses are similar in terms of economic characteristics, nature of products, processes, customer class and product distribution methods, and therefore have been aggregated into one reportable segment.

The Purification Solutions segment represents the Company’s activated carbon business and the Specialty Fluids business includes cesium formate oil and gas drilling fluids and high-purity fine cesium chemicals.

Reportable segment operating profit (loss) before interest and taxes (“Segment EBIT”) is presented for each reportable segment in the financial information by reportable segment table below on the line entitled Income (loss) from continuing operations before taxes. Segment EBIT excludes certain items, meaning items management does not consider representative of segment results. In addition, Segment EBIT includes Equity in earnings of affiliated companies, net of tax, the full operating results of a contractual joint venture in Purification Solutions, royalties, Net income attributable to noncontrolling interests, net of tax, and discounting charges for certain Notes receivable, but excludes Interest expense, foreign currency transaction gains and losses, interest income, dividend income, unearned revenue, the effects of LIFO accounting for inventory, general unallocated expense and unallocated corporate costs.

Financial information by reportable segment is as follows:

	Reinforcement Materials		Performance Chemicals		Purification Solutions			Specialty Fluids		Segment Total		Unallocated and Other(1)			Consolidated Total
	(Dollars in millions)
Three Months Ended December 31, 2014
Revenues from external customers(2)	$	460	$	229	$	76		$	16	$	781	$	31		$	812
Income (loss) from continuing operations before taxes(3)	$	53	$	39	$	(1	)	$	6	$	97	$	(46	)	$	51
Three Months Ended December 31, 2013
Revenues from external customers(2)	$	533	$	237	$	72		$	28	$	870	$	28		$	898
Income (loss) from continuing operations before taxes(3)	$	73	$	37	$	(9	)	$	13	$	114	$	(5	)	$	109

⁽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⁾  Revenue from external customers that are categorized as Unallocated and Other reflects royalties, other operating revenues, external shipping and handling costs, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable. Details are provided in the table below:

	Three Months Ended December 31
	2014		2013
	(Dollars in millions)
Royalties, other operating revenues, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable.	$	4	$	—
Shipping and handling fees		27		28
Total	$	31	$	28

⁽³⁾  Income (loss) from continuing operations before taxes that are categorized as Unallocated and Other includes:

	Three Months Ended December 31
	2014			2013
	(Dollars in millions)
Interest expense	$	(13	)	$	(14	)
Total certain items, pre-tax(a)		(26	)		24
Less: Equity in earnings of affiliated companies, net of tax(b)		(1	)		(2	)
Unallocated corporate costs(c)		(12	)		(13	)
General unallocated income(d)		6			—
Total	$	(46	)	$	(5	)

(a) Certain items are items that management does not consider to be representative of operating segment results and they are, therefore, excluded from Segment EBIT. Certain items, pre-tax, for the three months ended December 31, 2014 include $7 million related to global restructuring activities, $1 million for acquisition and integration-related charges and $18 million related to an employee benefit plan settlement charge. Certain items, pre-tax, for the three months ended December 31, 2013 include $5 million related to global restructuring activities, $5 million for acquisition and integration-related charges (consisting of $3 million for certain other one-time integration costs and $2 million of additional charges related to acquisition accounting adjustments for the acquired inventory of NHUMO), and $1 million for legal and environmental matters and reserves offset by $6 million of foreign currency gain on revaluation of the notes Cabot received in connection with the sale of its Supermetals business in 2012 and a $29 million non-cash gain recognized on the Company’s pre-existing investment in NHUMO as a result of the NHUMO transaction.

(b) Equity in earnings of affiliated companies, net of tax 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 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, the profit or loss related to the corporate adjustment for unearned revenue, and the impact of including the full operating results of an equity affiliate in Purification Solutions Segment EBIT.

Performance Chemicals is comprised of two businesses that sell the following products: specialty grades of carbon black, thermoplastic concentrates and compounds and inkjet colorants (the Specialty Carbons and Formulation business); and fumed silica, fumed alumina and dispersions thereof, and aerogel (the Metal Oxides business). The net sales from each of these businesses for the three months ended December 31, 2014 and 2013 are as follows:

	Three Months Ended December 31
	2014		2013
	(Dollars in millions)
Specialty Carbons and Formulations	$	157	$	163
Metal Oxides		72		74
Total Performance Chemicals	$	229	$	237