Note V. Financial Information by Segment & Geographic Area

Segment Information

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 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 into a reportable segment 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 the first quarter of fiscal 2015, 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 segment includes cesium formate oil and gas drilling fluids and high-purity fine cesium chemicals product lines.

Reportable segment operating profit (loss) before interest and taxes (“Segment EBIT”) is presented for each reportable segment in the financial information by the 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. 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) and property, plant and equipment.

Reinforcement Materials

Carbon black is a form of elemental carbon that is manufactured in a highly controlled process to produce particles and aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of applications. Rubber grade carbon blacks are used to enhance the physical properties of the systems and applications in which they are incorporated.

Our rubber blacks products are used in tires and industrial products. Rubber blacks have traditionally been used in the tire industry as a rubber reinforcing agent to increase tread durability and are also used as a performance additive to reduce rolling resistance and improve traction. In industrial products such as hoses, belts, extruded profiles and molded goods, rubber blacks are used to improve the physical performance of the product, including the product’s physical strength, fluid resistance, conductivity and resistivity.

Performance Chemicals

Performance Chemicals is comprised of two businesses: (i) our Specialty Carbons and Formulations business, which manufactures and sells specialty grades of carbon black, specialty compounds and inkjet colorants, and (ii) our Metal Oxides business, which manufactures and sells fumed silica, fumed alumina and dispersions thereof and aerogel. In Performance Chemicals, we design, manufacture and sell materials that deliver performance in a broad range of customer applications across the automotive, construction and infrastructure, inkjet printing, electronics, and consumer products sectors. The net sales from each of these businesses for fiscal 2015, 2014 and 2013 are as follows:

	Years Ended September 30
	2015		2014		2013
	(Dollars in millions)
Specialty Carbons and Formulations	$	630	$	709	$	686
Metal Oxides		297		313		303
Total Performance Chemicals	$	927	$	1,022	$	989

Specialty Carbons and Formulations Business

Our 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 formulation flexibility through surface treatment. These specialty carbon products are used in a wide variety of applications, such as inks, coatings, cables, pipes, toners and electronics. Our thermoplastic concentrates and compounds, which we refer to as “specialty compounds”, are derived from our specialty grades of carbon black mixed with polymers and other additives. These products are generally used by plastics formulators in thermoplastic polymer applications, such as cable jacketings, films, fibers, moldings, pipes and sheets, as they are generally easier to handle, mix and disperse for these applications than carbon black alone. In addition, our electrically conductive compound products generally are used to reduce the risk of damage from electrostatic discharge in plastics applications.

Our inkjet colorants are high-quality pigment-based black and color dispersions based on our patented, carbon black, surface modification technology. The dispersions are used in aqueous inkjet inks to impart color, sharp print characteristics and durability, while maintaining high printhead reliability. These products are used in various inkjet printing applications, including commercial printing, small office/home office and corporate office, and niche applications that require a high level of dispersibility and colloidal stability. Our inkjet inks, which utilize our pigment-based colorant dispersions, are used in the emerging commercial printing segment for digital print.

Metal Oxides Business

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 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.

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 building and construction industry, the product is used in insulative sprayable plasters and composite building products, as well as translucent skylight, window, wall and roof systems for insulating eco-daylighting applications. In the specialty chemicals industry, the product is used to provide matte finishing, insulating and thickening properties for use in a variety of applications.

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, as either a colorant or a decoloring agent in the production of products for food and beverage applications and as a chemical carrier in slow release applications. In gas and air applications, one of the uses of activated carbon is for the removal of mercury in flue gas streams. In certain applications, used activated carbon can be reactivated for further use by removing the contaminants from the pores of the activated carbon product. 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.

Specialty Fluids

The Specialty Fluids segment 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. 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. The business also manufactures and sells fine cesium chemicals that are used in a wide range of applications, including catalysts and brazing fluxes.

Financial information by reportable segment is as follows:

	Reinforcement Materials			Performance Chemicals		Purification Solutions			Specialty Fluids		Segment Total		Unallocated and Other^(1), ⁽³⁾			Consolidated Total
	(Dollars in millions)
Years Ended September 30
2015
Revenues from external customers⁽²⁾	$	1,507		$	927	$	296		$	42	$	2,772	$	99		$	2,871
Depreciation and amortization	83			54		45			2		184			(1	)	183
Equity in earnings of affiliated companies	2			1		6				—	9			(5	)	4
Income (loss) from continuing operations before taxes⁽³⁾	143			178		5			6		332			(709	)		(377	)
Assets⁽⁴⁾		1,220			625		789			119		2,753		322			3,075
Total expenditures for additions to long-lived assets⁽⁵⁾	44			29		48			16		137		4				141
2014
Revenues from external customers⁽²⁾		2,108			1,022		315			98		3,543		104			3,647
Depreciation and amortization		88			56		54			3		201		—			201
Equity in earnings of affiliated companies		(3	)		1		6			—		4		(4	)		—
Income (loss) from continuing operations before taxes⁽³⁾		259			168		(19	)		39		447		(139	)		308
Assets⁽⁴⁾		1,632			731		1,389			115		3,867		217			4,084
Total expenditures for additions to long-lived assets⁽⁵⁾		65			29		64			7		165		6			171
2013
Revenues from external customers⁽²⁾		1,931			989		328			101		3,349		107			3,456
Depreciation and amortization		82			56		54			2		194		(4	)		190
Equity in earnings of affiliated companies		9			2		4			—		15		(4	)		11
Income (loss) from continuing operations before taxes⁽³⁾		195			149		(4	)		46		386		(176	)		210
Assets⁽⁴⁾		1,523			752		1,388			110		3,773		460			4,233
Total expenditures for additions to long-lived assets⁽⁵⁾		172			46		38			5		261		3			264

⁽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 CODM.

⁽²⁾

Revenue from external customers that are categorized as Unallocated and Other reflects royalties, other operating revenues, external shipping and handling fees, 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.

	Years Ended September 30
	2015		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	$	9	$	(7	)	$	5
Shipping and handling fees		90		111			102
Total	$	99	$	104		$	107

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

	Years Ended September 30
	2015			2014			2013
	(Dollars in millions)
Interest expense	$	(53	)	$	(55	)	$	(62	)
Total certain items, pre-tax^(a)		(617	)		(28	)		(54	)
Equity in earnings of affiliated companies, net of tax^(b)		(4	)		—			(11	)
Unallocated corporate costs^(c)		(46	)		(54	)		(48	)
General unallocated expense^(d)		11			(2	)		(1	)
Total	$	(709	)	$	(139	)	$	(176	)

^(a)

Certain items are items that management does not consider representative of operating segment results and they are, therefore, excluded from Segment EBIT. Certain items, pre-tax for fiscal 2015 include $562 million related to goodwill and long-lived asset impairment charges for the Purification Solutions business (refer to Note G), $21 million related to global restructuring activities (Refer to Note P), $5 million for acquisition and integration-related charges, $21 million related to employee benefit plan settlement and other charges (refer to note N), and $2 million related to foreign currency loss on revaluations, and $6 million related to an inventory reserve adjustment (refer to Note E). Certain items, pre-tax, for fiscal 2014 primarily include $29 million related to global restructuring activities, $7 million for acquisition and integration-related charges, $18 million for legal and environmental matters and reserves and $3 million of certain foreign currency gains recorded by foreign subsidiaries offset by a $29 million non-cash gain recognized on the Company’s pre-existing investment in NHUMO as a result of the NHUMO transaction. Certain items, pre-tax, for fiscal 2013 primarily include $35 million related to global restructuring activities, $21 million for acquisition and integration-related charges (consisting of $10 million for certain other one-time integration costs and $11 million of additional charges related to acquisition accounting adjustments for the acquired inventory) and $1 million for legal and environmental matters and reserves offset by $3 million of certain foreign currency gains recorded by foreign subsidiaries.

^(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 expense 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.

⁽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) and property, plant and equipment.

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, China and The Netherlands, were not material for disclosure.

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

	United States		China		The Netherlands		Other Foreign Countries		Consolidated Total
	(Dollars in millions)
Years Ended September 30,
2015
Revenues from external customers	$	705	$	548	$	176	$	1,442	$	2,871
Net property, plant and equipment	$	480	$	311	$	157	$	435	$	1,383
2014
Revenues from external customers	$	847	$	628	$	220	$	1,952	$	3,647
Net property, plant and equipment	$	496	$	355	$	197	$	533	$	1,581
2013
Revenues from external customers	$	818	$	558	$	224	$	1,856	$	3,456
Net property, plant and equipment	$	488	$	385	$	211	$	516	$	1,600