Note S. 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”), who is Cabot’s President and Chief Executive Officer, 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.

The Company has four reportable segments: Reinforcement Materials, Performance Chemicals, Purification Solutions, and Specialty Fluids.

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.

Income (loss) from continuing operations before income 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 on-going operating 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 (loss) 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.

The Company’s 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.

In addition to its rubber blacks products, the Company manufactures compounds of carbon black and rubber using its patented elastomer composites manufacturing process. These compounds improve abrasion/wear resistance, reduce fatigue of rubber parts and reduce rolling resistance compared to carbon black/rubber compounds made by conventional dry mix methods.

Performance Chemicals

Performance Chemicals is composed of two businesses: (i) the Company’s Specialty Carbons and Formulations business, which manufactures and sells specialty grades of carbon black, specialty compounds and inkjet colorants, and (ii) its Metal Oxides business, which manufactures and sells fumed silica, fumed alumina and dispersions thereof and aerogel. In Performance Chemicals, the Company designs, manufactures and sells materials that deliver performance in a broad range of customer applications across the automotive, construction, infrastructure, energy, inkjet printing, electronics, and consumer products sectors. The net sales from each of these businesses for fiscal 2017, 2016 and 2015 are as follows:

	Years Ended September 30
	2017		2016		2015
	(In millions)
Specialty Carbons and Formulations	$	623	$	578	$	630
Metal Oxides		285		287		297
Total Performance Chemicals	$	908	$	865	$	927

Specialty Carbons and Formulations Business

The Company’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 formulation flexibility through surface treatment. These specialty carbon products are used in a wide variety of applications, such as inks, coatings, cables, plastics, adhesives, toners, batteries and displays.

Cabot’s masterbatch and conductive compound products, which Cabot refers to as “specialty compounds”, are formulations derived from specialty grades of carbon black mixed with polymers and other additives. These products are generally used by plastic resin producers and converters in applications for the automotive, industrial, packaging, consumer products, and electronics industries. As an alternative to directly mixing specialty carbon blacks, these formulations offer greater ease of handling and help customers achieve their desired levels of dispersion and color and manage the addition of small doses of additives. In addition, Cabot’s electrically conductive compound products generally are used to reduce risks associated with electrostatic discharge in plastics applications.

The Company’s inkjet colorants are high-quality pigment-based black and color dispersions based on its 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. Cabot’s inkjet inks, which utilize its pigment-based colorant dispersions, are used in the 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, batteries, and consumer products industries. These products include adhesives, sealants, cosmetics, batteries, inks, toners, silicone elastomers, 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 decolorizing 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. The most common applications for the Company’s reactivated carbon are water treatment and food and beverage purification. 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 produces and markets a range of cesium products that include cesium formate brines and other fine cesium chemicals.

Cesium formate brines are used 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 the 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.

Fine cesium chemicals are used across a wide range of industries and applications that include catalysts, doping agents and brazing fluxes. Fine cesium chemicals enable process performance benefits and yield improvements, and help prevent or mitigate pollution in the applications they serve.

Financial information by reportable segment is as follows:

Years Ended September 30	Reinforcement Materials		Performance Chemicals		Purification Solutions			Specialty Fluids		Segment Total		Unallocated and Other^(1), ⁽³⁾			Consolidated Total
	(In millions)
2017
Revenues from external customers⁽²⁾	$	1,381	$	908	$	281		$	41	$	2,611	$	106		$	2,717
Depreciation and amortization	$	69	$	46	$	39		$	2	$	156	$	(1	)	$	155
Equity in earnings of affiliated companies	$	6	$	—	$	6		$	—	$	12	$	(5	)	$	7
Income (loss) from continuing operations before income taxes⁽³⁾	$	193	$	201	$	6		$	9	$	409	$	(121	)	$	288
Assets⁽⁴⁾	$	1,189	$	708	$	741		$	140	$	2,778	$	536		$	3,314
Total expenditures for additions to long-lived assets⁽⁵⁾	$	68	$	47	$	19		$	5	$	139	$	8		$	147
2016
Revenues from external customers⁽²⁾	$	1,108	$	865	$	290		$	47	$	2,310	$	101		$	2,411
Depreciation and amortization	$	74	$	48	$	39		$	3	$	164	$	(3	)	$	161
Equity in earnings of affiliated companies	$	—	$	1	$	7		$	—	$	8	$	(5	)	$	3
Income (loss) from continuing operations before income taxes⁽³⁾	$	137	$	225	$	(5	)	$	13	$	370	$	(176	)	$	194
Assets⁽⁴⁾	$	1,093	$	629	$	736		$	139	$	2,597	$	438		$	3,035
Total expenditures for additions to long-lived assets⁽⁵⁾	$	46	$	33	$	30		$	1	$	110	$	2		$	112
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 income taxes⁽³⁾	$	143	$	178	$	5		$	6	$	332	$	(709	)	$	(377	)
Assets⁽⁴⁾	$	1,220	$	625	$	789		$	119	$	2,753	$	310		$	3,063
Total expenditures for additions to long-lived assets⁽⁵⁾	$	44	$	29	$	48		$	16	$	137	$	4		$	141

⁽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⁾

Consolidated Total Revenues from external customers reconciles to Net sales and other operating revenues on the Consolidated Statements of Operations. Revenues from external customers that are categorized as Unallocated and Other reflects royalties, 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
	2017		2016		2015
	(In millions)
Royalties, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable	$	11	$	13	$	9
Shipping and handling fees		95		88		90
Total	$	106	$	101	$	99

⁽³⁾

Consolidated Total Income (loss) from continuing operations before income taxes reconciles to Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies on the Consolidated Statements of Operations. Total Income (loss) from continuing operations before income taxes that are categorized as Unallocated and Other includes:

	Years Ended September 30
	2017			2016			2015
	(In millions)
Interest expense	$	(53	)	$	(54	)	$	(53	)
Certain Items:^(a)
Global restructuring activities (Note N)		(3	)		(47	)		(21	)
Legal and environmental matters and reserves		1			(17	)		—
Acquisition and integration-related charges		—			—			(5	)
Employee benefit plan settlement and other charges (Note L)		—			—			(21	)
Impairment of goodwill and long-lived assets of Purification Solutions (Note E)		—			—			(562	)
Non-recurring gain (loss) on foreign exchange		—			(11	)		(2	)
Inventory adjustment (Note C)		—			—			(6	)
Executive transition costs		—			(6	)		—
Other certain items		(1	)		—			—
Total certain items, pre-tax		(3	)		(81	)		(617	)
Unallocated corporate costs^(b)		(50	)		(45	)		(46	)
General unallocated income (expense)^(c)		(8	)		7			11
Less: Equity in earnings of affiliated companies, net of tax^(d)		7			3			4
Total	$	(121	)	$	(176	)	$	(709	)

^(a)Certain items are items that management does not consider representative of operating segment results and they are, therefore, excluded from Segment EBIT.

^(b)Unallocated corporate costs are not controlled by the segments and primarily benefit corporate interests.

^(c)General unallocated income (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.

^(d)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.

⁽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. In fiscal 2017, the Company adopted two new accounting standards that impact the presentation of debt issuance costs and the classification of deferred taxes on the Consolidated Balance Sheets. These new standards were applied retrospectively and fiscal 2016 and fiscal 2015 balances have been updated as discussed in Note A.

⁽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 U.S. 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 U.S., 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:

Years Ended September 30	U.S.		China		The Netherlands		Other Foreign Countries		Consolidated Total
	(In millions)
2017
Revenues from external customers	$	645	$	573	$	162	$	1,337	$	2,717
Net property, plant and equipment	$	493	$	261	$	161	$	390	$	1,305
2016
Revenues from external customers	$	605	$	482	$	162	$	1,162	$	2,411
Net property, plant and equipment	$	490	$	266	$	152	$	382	$	1,290
2015
Revenues from external customers	$	705	$	548	$	176	$	1,442	$	2,871
Net property, plant and equipment	$	480	$	311	$	157	$	435	$	1,383