O. 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”), 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 represents 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 net sales from each of these businesses for the three months ended December 31, 2017 and 2016 were as follows:

	Three Months Ended December 31
	2017		2016
	(In millions)
Specialty Carbons and Formulations	$	160	$	138
Metal Oxides		69		67
Total Performance Chemicals	$	229	$	205

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 table below. 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 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, 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
	(In millions)
Three Months Ended December 31, 2017
Revenues from external customers⁽²⁾	$	387	$	229	$	70	$	6		$	692	$	28		$	720
Income (loss) from continuing operations before income taxes⁽³⁾	$	62	$	47	$	6	$	(2	)	$	113	$	(21	)	$	92

Three Months Ended December 31, 2016
Revenues from external customers⁽²⁾	$	295	$	205	$	69	$	11		$	580	$	31		$	611
Income (loss) from continuing operations before income taxes⁽³⁾	$	40	$	49	$	4	$	2		$	95	$	(20	)	$	75

⁽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 Statement 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:

	Three Months Ended December 31
	2017		2016
	(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	$	1	$	5
Shipping and handling fees		27		26
Total	$	28	$	31

⁽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 Statement of Operations. Income (loss) from continuing operations before income taxes that are categorized as Unallocated and Other includes:

	Three Months Ended December 31
	2017			2016
	(In millions)
Interest expense	$	(13	)	$	(13	)
Certain items ^(a)
Global restructuring activities		(1	)		—
Legal and environmental matters and reserves		(1	)		—
Gains (losses) on sale of investments		10			—
Other		(1	)		—
Total certain items, pre-tax		7			—
Unallocated corporate costs^(b)		(14	)		(12	)
General unallocated income (expense)^(c)		—			7
Less: Equity in earnings of affiliated companies, net of tax^(d)		1			2
Total	$	(21	)	$	(20	)

^(a)

Certain items are items of expense and income that management does not consider representative of the Company’s fundamental on-going segment results and they are, therefore, excluded from Segment EBIT.

^(b)

Unallocated corporate costs are costs that 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 profit or loss related to the corporate adjustment for unearned revenue, and the impact of including the full operating results of a contractual joint venture in Purification Solutions Segment EBIT. Fiscal 2017 amounts have been recast to reflect the retrospective application of the Company’s election to change its inventory valuation method of accounting for its U.S. carbon black inventories from the LIFO method to the FIFO method, which resulted in a decrease in General unallocated income (expense) of $2 million.

^(d)

Equity in earnings of affiliated companies, net of tax, is included in Segment EBIT and is removed in Unallocated and other to reconcile to Income (loss) from operations before income taxes and equity in earnings from affiliated companies.