F. Contingencies
Respirator Liabilities
Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from any liability allocable to AO respiratory products used prior to May 1982. As more fully described in the 2025 10-K, the respirator liabilities generally involve claims for personal injury, including asbestosis, silicosis and coal worker’s pneumoconiosis, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. At no time did this respiratory product line represent a significant portion of the respirator market. In addition to Cabot’s subsidiary, other parties are responsible for significant portions of the costs of these respirator liabilities (as defined in the 2025 10-K, the “Payor Group”), leaving Cabot’s subsidiary with a portion of the liability in only some of the pending cases.
As of March 31, 2026 and September 30, 2025, the Company had $32 million and $33 million, respectively, reserved for its estimated share of liability for pending and future respirator claims and for defense costs, the majority of which the Company expects to incur over the next ten years. The reserve is included in Other liabilities and Accounts payable and accrued liabilities on the Consolidated Balance Sheets.
The Company’s current estimate of the cost of its share of pending and future respirator liability claims is based on facts and circumstances existing at this time, including the number and nature of the remaining claims. Developments that could affect the Company’s estimate include, but are not limited to, (i) significant changes in the number of future claims, (ii) changes in the rate of dismissals without payment of pending claims, (iii) significant changes in the average cost of resolving claims, including potential settlements of groups of claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received or changes in the Company’s assessment of the viability of these claims, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (viii) the financial viability of the parties that contribute to the payment of respirator claims, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained by certain members of the Payor Group, or a change in the availability of the indemnity provided by a former owner of AO, (x) changes in the allocation of costs among the various parties paying legal and settlement costs, and (xi) a determination that the assumptions that were used to estimate Cabot’s share of liability are no longer reasonable. The Company cannot determine the impact of these potential developments on its current estimate of its share of liability for existing and future claims. Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the impact of potential developments on Cabot’s share of liability for these existing and future claims, it is reasonably possible that the liabilities for existing and future claims could change in the near term and that change could be material.
Other Matters
The Company has various other lawsuits, claims, and contingent liabilities arising in the ordinary course of its business and with respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements, or revise its expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.
G. Income Tax
Effective Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(Dollars in millions) |
|
(Provision) benefit for income taxes |
|
$ |
(44 |
) |
|
$ |
(49 |
) |
|
$ |
(81 |
) |
|
$ |
(90 |
) |
Effective tax rate |
|
|
37 |
% |
|
|
32 |
% |
|
|
34 |
% |
|
|
30 |
% |
For the three and six months ended March 31, 2026, the provision for income taxes included a net discrete tax expense of $7 million and $11 million, respectively, primarily related to withholding taxes on dividend distribution. For the three and six months ended March 31, 2025, the provision for income taxes included a net discrete tax expense of $7 million and $9 million, respectively.
Income tax in Interim Periods
At March 31, 2026 and September 30, 2025, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and short-term borrowings and short-term variable rate debt approximated their carrying values due to the short-term nature of these instruments. Cash and cash equivalents are classified as Level 1 within the fair value hierarchy.
At March 31, 2026 and September 30, 2025, Cabot had derivatives relating to foreign currency risks, including a net investment hedge and forward foreign currency contracts, carried at fair value. At March 31, 2026, the fair value of the net investment hedge was a net liability of $7 million and was included in Prepaid expenses and other current assets and Accounts payable and accrued liabilities on the Consolidated Balance Sheet. At September 30, 2025, the fair value of the net investment hedge was a net liability of $12 million and was included in Prepaid expenses and other current assets and Other liabilities on the Consolidated Balance Sheet. As of March 31, 2026 and September 30, 2025, the fair value of the forward currency contracts was a net liability of less than $1 million and a net asset of less than $1 million, respectively, and was included in Prepaid expenses and other current assets and Accounts payable and accrued liabilities on the Consolidated Balance Sheets. These derivatives are classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on observable inputs.
At both March 31, 2026 and September 30, 2025, the fair value of guaranteed investment contracts included in Other assets on the Consolidated Balance Sheets was $9 million. Guaranteed investment contracts were classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on observable inputs.
The carrying value of the long-term fixed rate debt was $1.09 billion as of both March 31, 2026 and September 30, 2025. The fair value of the long-term fixed rate debt was $1.08 billion and $1.09 billion, respectively, as of March 31, 2026 and September 30, 2025. The fair values of Cabot’s fixed rate long-term debt are estimated based on comparable quoted market prices at the respective period ends. The carrying amounts of Cabot’s floating rate long-term debt and finance and operating lease obligations approximate their fair values. All such measurements are based on observable inputs and are classified as Level 2 within the fair value hierarchy.
K. Supplier Financing Programs
The Company maintains supply chain finance agreements with third-party financial institutions. These agreements allow the Company’s participating suppliers to sell their receivables to such third-party financial institutions to receive payment earlier than the negotiated commercial terms between the supplier and the Company. Such sales are at the sole discretion of the supplier, and on terms and conditions that are negotiated between the supplier and the respective financial institution. The terms and conditions of the supplier invoice, including payment terms and amounts due, are not impacted by a supplier’s participation in the program. Pursuant to the supply chain finance agreements, the Company has agreed to pay financial institutions on the original due date of the applicable invoice. There are no guarantees associated with these programs. The Company's outstanding payment obligations to financial institutions related to supplier financing programs were $12 million and $13 million as of March 31, 2026 and September 30, 2025, respectively, and are included within Accounts payable and accrued liabilities on the Consolidated Balance Sheets.
L. Financial Information by Segment
Segment Information
The Company identifies a product line 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.
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 two reportable segments: Reinforcement Materials and Performance Chemicals. The Performance Chemicals reporting segment aggregates the specialty carbons, specialty compounds, fumed metal oxides, battery materials, inkjet colorants and aerogel product lines.
The CODM reviews Segment earnings before interest and taxes (“Segment EBIT”) at the operating segment level to allocate resources and to assess operating results and financial performance. The CODM reviews the change in the actual results compared to the same period forecast, the same period year-ago, and the preceding period on a quarterly basis. Segment EBIT includes all items that are controlled by the business segment and those management considers are representative of the fundamental on-going segment results.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Recently Issued Accounting Pronouncements
Refer to the discussion under the heading “Recent Accounting Pronouncements” in Note B of our Notes to the unaudited Consolidated Financial Statements.
Results of Operations
The Company has two reportable segments: Reinforcement Materials and Performance Chemicals. The Performance Chemicals reporting segment aggregates the specialty carbons, specialty compounds, fumed metal oxides, battery materials, inkjet colorants and aerogel product lines.
Our measure of business segment earnings is Segment earnings before interest and taxes (“Segment EBIT”) and is the measure utilized by the Chief Operating Decision Maker (“CODM”) to allocate resources and to assess operating results and financial performance. The CODM reviews the change in the actual results compared to the same period forecast, the same period year-ago, and the preceding period on a quarterly basis. Segment EBIT includes all items that are controlled by the business segment and those management considers are representative of the fundamental on-going segment results.
The Company is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific. The discussion of our results of operations for the periods presented reflects these structures.
Definition of Terms
When discussing our results of operations, we use the term “product mix”, which refers to the mix of types and grades of products sold or the mix of geographic regions where products are sold, and the positive or negative impact this has on the revenue or profitability of the business and/or segment.
Overview
During the second quarter of fiscal 2026, Income (loss) before income taxes and equity in earnings of affiliated companies decreased as compared to the second quarter of fiscal 2025. The decrease was primarily due to lower segment EBIT in our Reinforcement Materials segment, partially offset by higher segment EBIT in our Performance Chemicals segment.
Second quarter of Fiscal 2026 versus Second quarter of Fiscal 2025—Consolidated
Net Sales and Other Operating Revenues and Gross Profit
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Net sales and other operating revenues |
|
$ |
904 |
|
|
$ |
936 |
|
|
$ |
1,753 |
|
|
$ |
1,891 |
|
Gross profit |
|
$ |
210 |
|
|
$ |
241 |
|
|
$ |
421 |
|
|
$ |
476 |
|
For the three and six months ended March 31, 2026, Net sales and other operating revenue decreased by $32 million and $138 million, respectively, compared to the same periods of fiscal 2025.
The decrease in Net sales and other operating revenue in the second quarter of fiscal 2026 compared to the same period of fiscal 2025 was driven by less favorable pricing and product mix in our Reinforcement Materials segment ($95 million), partially offset by the favorable impact from foreign currency translation in both our Reinforcement Materials and Performance Chemicals segments ($43 million combined) and higher volumes in our Reinforcement Materials segment ($21 million). The less favorable pricing and product mix in our Reinforcement Materials segment was driven by lower raw material costs which are generally passed through to our customers, less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The higher volumes in our Reinforcement Materials segment were primarily due to higher demand in Asia Pacific and EMEA and increased sales volume from our acquisition of MXCB that closed in the second quarter of fiscal 2026.
The decrease in Net sales and other operating revenue in the first six months of fiscal 2026 compared to the same period of fiscal 2025 was primarily driven by less favorable pricing and product mix ($162 million combined), primarily in our Reinforcement Materials segment, and lower volumes ($30 million combined), primarily in our Reinforcement Material segment, partially offset by the favorable impact from foreign currency translation in both our Reinforcement Materials and Performance Chemicals segments ($58 million combined). The less favorable pricing and product mix in our Reinforcement Materials segment was driven by lower raw material costs which are generally passed through to our customers, less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The lower volumes in our Reinforcement Materials segment were primarily due to lower volumes in the Americas and Asia Pacific. Volumes were impacted by lower production levels at our tire customers and year-end inventory management in our first fiscal quarter by our customers in the Americas and increased competitive intensity in Asia Pacific.
For the three and six months ended March 31, 2026, gross profit decreased by $31 million and $55 million, respectively, compared to the same periods of fiscal 2025.
The decrease in Gross profit in the second quarter of fiscal 2026 as compared to the same period of fiscal 2025 was driven primarily by lower gross profit per ton in our Reinforcement Materials segment ($53 million), partially offset by higher volumes in both our Reinforcement Materials and Performance Chemicals segments ($13 million combined) and higher gross profit per ton in our Performance Chemicals segment ($5 million). The lower gross profit per ton in our Reinforcement Materials segment was primarily driven by less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The higher volumes in our Reinforcement Materials segment were primarily driven by higher demand in Asia Pacific and EMEA and increased sales volume from our acquisition of MXCB that closed in the second quarter of fiscal 2026. The higher volumes in our Performance Chemicals segment were primarily driven by higher volumes in our battery materials and specialty carbons product lines from higher demand. The higher gross profit per ton in our Performance Chemicals segment was primarily due to a more favorable product mix and optimization efforts.
The decrease in Gross profit in the first six months of fiscal 2026 as compared to the same period of fiscal 2025 was driven primarily by lower gross profit per ton in our Reinforcement Materials segment ($65 million) and lower volumes in both our Reinforcement Materials and Performance Chemicals segments ($13 million combined), partially offset by higher gross profit per ton in our Performance Chemicals segment ($16 million). The lower gross profit per ton in our Reinforcement Materials segment was primarily driven by less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The lower volumes in our Reinforcement Materials segment were primarily due to lower volumes in the Americas and Asia Pacific. Volumes in our Reinforcement Materials segment were impacted by lower production levels at our tire customers and year-end inventory management in our first fiscal quarter by our customers in the Americas and increased competitive intensity in Asia Pacific. The lower volumes in our Performance Chemicals segment were primarily due to weaker demand in Europe. The higher gross profit per ton in our Performance Chemicals segment was primarily driven by a favorable product mix and from lower spending from overall cost management efforts and optimization measures across the segment.
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Selling and administrative expenses |
|
$ |
67 |
|
|
$ |
64 |
|
|
$ |
136 |
|
|
$ |
130 |
|
Selling and administrative expenses increased by $3 million and $6 million, respectively, for the three and six months ended March 31, 2026, compared to the same periods of fiscal 2025. The higher selling and administrative expenses for the three months ended March 31, 2026 compared to the same period of fiscal 2025 was primarily due to an increase in the valuation of deferred compensation expense and the higher selling and administrative expenses in the six months ended March 31, 2026 compared to the same period of fiscal 2025 was primarily due to higher legal expenses.
Research and Technical Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Research and technical expenses |
|
$ |
14 |
|
|
$ |
15 |
|
|
$ |
27 |
|
|
$ |
29 |
|
Research and technical expenses decreased by $1 million and $2 million, respectively, for the three and six months ended March 31, 2026 compared to the same periods of fiscal 2025 primarily due to cost management efforts.
Interest and Dividend Income, Interest Expense and Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Interest and dividend income |
|
$ |
7 |
|
|
$ |
7 |
|
|
$ |
14 |
|
|
$ |
13 |
|
Interest expense |
|
$ |
(18 |
) |
|
$ |
(19 |
) |
|
$ |
(36 |
) |
|
$ |
(37 |
) |
Other income (expense) |
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
Interest and dividend income was unchanged and increased by $1 million, respectively, for the three and six months ended March 31, 2026 compared to the same periods of fiscal 2025. The $1 million increase was primarily due to higher average cash balances, partially offset by lower average interest rates.
Interest expense decreased by $1 million for both the three and six months ended March 31, 2026 compared to the same periods of fiscal 2025 primarily due to lower average interest rates on short-term borrowings.
Other income (expense) improved by $1 million in the second quarter of fiscal 2026 compared to the same period of fiscal 2025, primarily due to foreign exchange gains in Argentina and Colombia. Other income (expense) was unchanged for the six months ended March 31, 2026, as compared to the same period of fiscal 2025.
(Provision) Benefit for Income Taxes and Effective Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
|
(Provision) / Benefit for Income Taxes |
|
|
Rate |
|
|
(Provision) / Benefit for Income Taxes |
|
|
Rate |
|
Dollars in millions |
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
$ |
(44 |
) |
|
|
37 |
% |
|
$ |
(49 |
) |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
|
(Provision) / Benefit for Income Taxes |
|
|
Rate |
|
|
(Provision) / Benefit for Income Taxes |
|
|
Rate |
|
Dollars in millions |
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
$ |
(81 |
) |
|
|
34 |
% |
|
$ |
(90 |
) |
|
|
30 |
% |
For the second quarter of fiscal 2026, the (Provision) benefit for income taxes was a provision of $44 million compared to a provision of $49 million for the same period in fiscal 2025, with the change primarily due to lower earnings and change in the mix of earnings. Our income taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and by the presence of valuation allowances in certain tax jurisdictions.
For the six months ended March 31, 2026, the (Provision) benefit for income taxes was a provision of $81 million compared to a provision of $90 million for the same period in fiscal 2025, with the change primarily due to lower earnings and change in the mix of earnings. Our income taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and by the presence of valuation allowances in certain tax jurisdictions.
Equity in Earnings of Affiliated Companies and Net Income (Loss) Attributable to Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Equity in earnings of affiliated companies,
net of tax |
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
4 |
|
Net income (loss) attributable to
noncontrolling interests, net of tax |
|
$ |
10 |
|
|
$ |
11 |
|
|
$ |
19 |
|
|
$ |
22 |
|
Equity in earnings of affiliated companies, net of tax, decreased by $1 million for both the three and six months ended March 31, 2026 compared to the same periods of fiscal 2025, primarily due to lower profitability of our equity affiliate in Venezuela.
Net income (loss) attributable to noncontrolling interests, net of tax, decreased by $1 million and $3 million, respectively for the three and six months ended March 31, 2026 compared to the same periods of fiscal 2025 primarily due to lower profitability of our joint venture in the Czech Republic.
Net Income Attributable to Cabot Corporation
In the second quarter of fiscal 2026 and 2025, we reported Net income (loss) attributable to Cabot Corporation of $68 million ($1.27 per diluted common share) and $94 million ($1.69 per diluted common share), respectively. The lower Net income in the second quarter of fiscal 2026 compared with the same period in fiscal 2025 was primarily due to lower EBIT in our Reinforcement Materials segment ($38 million), partially offset by higher EBIT in our Performance Chemicals segment ($9 million).
In the first six months of fiscal 2026 and 2025, we reported Net income (loss) attributable to Cabot Corporation of $141 million ($2.64 per diluted common share) and $187 million ($3.36 per diluted common share), respectively. The lower Net income in the first six months of fiscal 2026 compared with the same period in fiscal 2025 was primarily due to lower EBIT in our Reinforcement Materials segment ($66 million), partially offset by higher EBIT in our Performance Chemicals segment ($12 million).
Second quarter of Fiscal 2026 versus Second quarter of Fiscal 2025—By Business Segment
Reinforcement Materials
Sales and EBIT for Reinforcement Materials for the second quarter of fiscal 2026 and 2025 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Reinforcement Materials Sales |
|
$ |
544 |
|
|
$ |
594 |
|
|
$ |
1,064 |
|
|
$ |
1,205 |
|
Reinforcement Materials EBIT |
|
$ |
93 |
|
|
$ |
131 |
|
|
$ |
195 |
|
|
$ |
261 |
|
Sales in Reinforcement Materials decreased by $50 million in the second quarter of fiscal 2026 compared to the same period of fiscal 2025 primarily due to less favorable pricing and product mix ($95 million), partially offset by higher volumes ($21 million) and the favorable impact from foreign currency translation ($28 million). The less favorable pricing and product mix was driven by lower raw material costs which are generally passed through to our customers, less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The higher volumes were primarily due to higher demand in Asia Pacific and EMEA and increased sales volume from our acquisition of MXCB that closed in the second quarter of fiscal 2026.
Sales in Reinforcement Materials decreased by $141 million in the first six months of fiscal 2026 compared to the same period of fiscal 2025 primarily due to less favorable pricing and product mix ($157 million) and lower volumes ($22 million), partially offset by the favorable impact from foreign currency translation ($38 million). The less favorable pricing and product mix was driven by lower raw material costs which are generally passed through to our customers, less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The lower volumes were primarily due to lower volumes in the Americas and Asia Pacific. Volumes were impacted by lower production levels at our tire customers and year-end inventory management in the first fiscal quarter by our customers in the Americas and increased competitive intensity in Asia Pacific.
EBIT in Reinforcement Materials in the second quarter of fiscal 2026 decreased by $38 million compared to the same period of fiscal 2025. The decrease in EBIT was primarily driven by lower gross profit per ton ($53 million), partially offset by higher volumes ($9 million). The lower gross profit per ton was primarily due to less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The higher volumes were primarily due to higher demand in Asia Pacific and EMEA and increased sales volume from our acquisition of MXCB that closed in the second quarter of fiscal 2026.
EBIT in Reinforcement Materials decreased by $66 million in the first six months of fiscal 2026 compared to the same period of fiscal 2025. The decrease in EBIT was primarily driven by lower gross profit per ton ($65 million) and lower volumes ($8 million), partially offset by the favorable impact of foreign currency translation ($6 million). The lower gross profit per ton was primarily due to less favorable pricing and product mix in our 2026 calendar year customer agreements and lower pricing from increased competitive intensity in Asia Pacific. The lower volumes were primarily due to lower volumes in the Americas and Asia. Volumes were impacted by lower production levels at our tire customers and year-end inventory management in the first fiscal quarter by our customers in the Americas and increased competitive intensity in Asia Pacific.
As we look to the third quarter of the fiscal year, we expect Reinforcement Materials segment EBIT to improve sequentially from the second quarter of fiscal 2026 primarily due to higher gross profit per ton from a more favorable product mix and yield improvements and a full fiscal quarter of operations from our acquisition of MXCB that closed in the second quarter of fiscal 2026.
Performance Chemicals
Sales and EBIT for Performance Chemicals for the second quarter of fiscal 2026 and 2025 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31 |
|
|
Six Months Ended March 31 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(In millions) |
|
Performance Chemicals Sales |
|
$ |
328 |
|
|
$ |
311 |
|
|
$ |
628 |
|
|
$ |
622 |
|
Performance Chemicals EBIT |
|
$ |
59 |
|
|
$ |
50 |
|
|
$ |
107 |
|
|
$ |
95 |
|
Sales in Performance Chemicals increased by $17 million in the second quarter of fiscal 2026 compared to the same period of fiscal 2025 primarily due to the favorable impact from foreign currency translation ($15 million) and higher volumes.
Sales in Performance Chemicals increased by $6 million in the first six months of fiscal 2026 compared to the same period of fiscal 2025 primarily due to the favorable impact from foreign currency translation ($20 million), partially offset by lower volumes ($8 million) and less favorable pricing and product mix ($5 million). The lower volumes were primarily due to lower volumes in our fumed metal oxides product line from lower demand and the less favorable pricing and product mix was primarily due to lower raw material costs which, in certain instances, are passed through to our customers through formulas and other market-based adjustments.
EBIT in Performance Chemicals increased by $9 million in the second quarter of fiscal 2026 compared to the same period of fiscal 2025 primarily due to higher gross profit per ton ($5 million) and from higher volumes ($4 million). The higher gross profit per ton was primarily driven by a more favorable product mix and optimization efforts. The higher volumes were primarily due to higher volumes in our battery materials and specialty carbons product lines from higher demand.
EBIT in Performance Chemicals increased by $12 million in the first six months of fiscal 2026 compared to the same period of fiscal 2025 primarily due to a higher gross profit per ton ($16 million), partially offset by lower volumes ($5 million). The higher gross profit per ton was primarily driven by a more favorable product mix and from lower spending from overall cost management efforts and optimization measures across the segment. The lower volumes in our Performance Chemicals segment were primarily due to weaker demand in Europe.
As we look to the third quarter of the fiscal year, we expect the Performance Chemicals segment EBIT to be relatively flat sequentially from the second quarter of fiscal 2026 on stable sequential volumes and flat sequential gross profit per ton.
Liquidity and Capital Resources
Overview
Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, decreased by $153 million during the first six months of fiscal 2026, largely reflecting a higher commercial paper balance at March 31, 2026 due in part from our funding of our acquisition of MXCB. As of March 31, 2026, we had cash and cash equivalents of $252 million and borrowing availability under our revolving credit agreements of $1.1 billion.
We have access to borrowings under the following two credit agreements:
•$1 billion unsecured revolving credit agreement (the “U.S. Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, and the other lenders party thereto, which matures in August 2027. The U.S. Credit Agreement supports our issuance of commercial paper, and borrowings under it may be used for working capital, letters of credit and other general corporate purposes.
•€300 million unsecured revolving credit agreement (the “Euro Credit Agreement”, and together with the U.S. Credit Agreement, the “Credit Agreements”), with PNC Bank, National Association, as Administrative Agent, and the other lenders party thereto, which matures in August 2027. Borrowings under the Euro Credit Agreement may be used for the repatriation of earnings of our foreign subsidiaries to the United States, the repayment of indebtedness of our foreign subsidiaries owing to us or any of our subsidiaries and for working capital and general corporate purposes.
As of March 31, 2026, we were in compliance with the debt covenants under the Credit Agreements, which, with limited exceptions, require us to comply on a quarterly basis with a leverage test requiring the ratio of consolidated net debt to consolidated EBITDA not to exceed 3.50 to 1.00. Consolidated net debt is defined as consolidated debt offset by the lesser of (i) unrestricted cash and cash equivalents and (ii) $150 million.
A significant portion of our business occurs outside the U.S. and our cash generation does not always align geographically with our cash needs. The vast majority of our cash and cash equivalent holdings tend to be held outside the U.S. We generally use a combination of U.S. earnings, repatriation of certain foreign earnings, commercial paper issuances and borrowings under our U.S. Credit Agreement to meet our U.S. cash needs. With the exception of Argentina, which has some currency controls that prevent the distribution of cash, we are generally able to move cash throughout the Company through our cash pooling structures, intercompany accounts and/or distributions, as needed. Although we repatriate certain foreign earnings, cash held by foreign subsidiaries is generally considered permanently reinvested and is used to finance the subsidiaries’ operational activities and future investments. We usually reduce our commercial paper balance and, if applicable, borrowings under our Credit Agreements, at quarter-end using cash derived from customer collections, including the utilization of customer supply chain financing programs, settlement of intercompany balances and short-term intercompany loans. If additional funds are needed in the U.S., we expect to be able to repatriate cash, including cash from China, while paying any withholding or other taxes. Changes in regulations and tax laws in the U.S. or foreign countries could restrict our ability to transfer funds or impose material costs on such transfers.
As of March 31, 2026 and September 30, 2025, we had $126 million and $130 million, respectively, of borrowings under the Euro Credit Agreement and no outstanding borrowings under the U.S. Credit Agreement at either date. There was $148 million and $6 of commercial paper outstanding as of March 31, 2026 and September 30, 2025, respectively.
We anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from the Credit Agreements and our commercial paper program to meet our operational and capital investment needs and financial obligations for both the next twelve months and the foreseeable future. The liquidity we derive from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.
The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows.
Cash Flows from Operating Activities
Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in income, changes in working capital and changes in certain other balance sheet accounts, totaled $203 million in the first six months of fiscal 2026 compared to $197 million of cash provided by operating activities during the same period of fiscal 2025.
Cash provided by operating activities in the first six months of fiscal 2026 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $90 million and an increase in net working capital of $14 million. The increase in net working capital was largely driven by a decrease in Accounts payable and accrued liabilities, which was partially offset by a decrease in Accounts and notes receivable.
Cash provided by operating activities in the first six months of fiscal 2025 was driven by business earnings excluding the non-cash impacts of depreciation and amortization of $75 million and cash dividends received from one of our equity investments of $12 million, which was offset by an increase in net working capital of $114 million. The increase in net working capital was largely driven by a decrease in Accounts Payable and accrued liabilities, and an increase in Accounts and notes receivable.
Cash Flows from Investing Activities
Investing activities consumed $178 million of cash in the first six months of fiscal 2026 compared to $174 million of cash consumed during the same period of fiscal 2025.
In the first six months of fiscal 2026 and 2025, investing activities included $114 million and $149 million, respectively, of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as growth-related capital. In addition, in the second quarter of fiscal 2026, investing activities included $66 million of cash paid, net of cash acquired, for the acquisition of MXCB and in the first quarter of fiscal 2025, investing activities included $27 million for cash paid for an asset acquisition, both of which are described in Note C of our Notes to the Consolidated Financial Statements.
Capital expenditures for fiscal 2026 are expected to be between $200 million and $230 million. Our planned capital spending program for fiscal 2026 is for sustaining, compliance and improvement capital projects at our operating facilities.
Cash Flows from Financing Activities
Financing activities consumed $39 million of cash in the first six months of fiscal 2026 compared to $7 million of cash consumed during the same period of fiscal 2025.
In the first six months of fiscal 2026, financing activities primarily consisted of repurchases of common stock of $101 million and dividend payments of $48 million and $47 million to common stockholders and noncontrolling interest, respectively. These payments were partially offset by net proceeds from the issuance of commercial paper of $142 million and net proceeds from short-term borrowing of $19 million.
In the first six months of fiscal 2025, financing activities primarily consisted of repurchases of common stock of $89 million, dividend payments of $47 million and $20 million to common stockholders and noncontrolling interest, respectively. These payments were partially offset by net proceeds from the issuance of commercial paper of $145 million.
Forward-Looking Information
This report on Form 10-Q contains “forward-looking statements” under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including our expectations regarding our future business performance and overall prospects, including for EBIT in our business segments in the third quarter of fiscal 2026, and the principal assumptions underlying these expectations, including demand for our products, the sufficiency of our cash on hand, cash provided from operations and cash available under our credit and commercial paper facilities to fund our cash requirements in both the next twelve months and the foreseeable future; anticipated capital spending; cash requirements and uses of available cash, including future cash outlays associated with respirator liabilities and reorganization activity and the timing of such outlays; amortization expenses; the amounts and timing of the charges we expect to record and the estimates of the total costs of restructuring plans and expected cash outlays in connection with reorganization activities; our operating tax rate; the cessation of production of fumed silica at our manufacturing plant in Barry, Wales beginning in the third quarter of fiscal 2026; and the possible outcome of legal and environmental proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers.
Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from those expressed in the forward-looking statements.
In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in our forward-looking statements: industry capacity utilization, shifts in the geographic area of tire production, and competition from other specialty chemical companies; safety, health and environmental requirements and related constraints imposed on our business; regulatory and financial risks related to climate change developments; volatility in the price and availability of energy and raw materials, including with respect to the Russian invasion of Ukraine or the conflict in the Middle East; a significant adverse change in a customer or joint venture relationship or the failure of a customer or joint venture partner to perform its obligations under agreements with us; failure to achieve growth expectations from new products, applications and technology developments; failure to realize benefits from acquisitions, alliances, or joint ventures or achieve our portfolio management objectives; in connection with our restructuring activities in Campana and The Netherlands, finalization of employee severance arrangements, finalization of the accounting impact of the closures, higher than expected demolition, site clearing, environmental remediation or asset retirement costs, and our ability to successfully consolidate production in fewer plants, and to maintain customer volumes as we consolidate production; unanticipated delays in or increased costs of site development projects; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations, global health matters or geo-political conflicts; litigation or legal proceedings; interest rates, tax rates, tariffs, currency exchange controls, and fluctuations in foreign currency; and the accuracy of the assumptions we used in establishing reserves for our share of liability for respirator claims. These other factors and risks are discussed more fully in our 2025 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the period ended March 31, 2026 does not differ materially from that discussed under Item 7A of our 2025 10-K.
Item 4. Controls and Procedures
As of March 31, 2026, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of that date.
There were no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.