Air Products & Chemicals, Inc.

RESULTS OF OPERATIONS

DISCUSSION OF CONSOLIDATED RESULTS

Sales

The table below summarizes the major factors that impacted consolidated sales for the periods presented:

Sales of $12.0 billion decreased 1%, or $63.3, as lower volumes of 4% were partially offset by higher energy cost pass-through to customers of 2% and favorable pricing of 1%. Lower volumes primarily reflect the September 2024 LNG sale, lower global helium demand, and the previously announced project exits, partially offset by higher on-sites and favorable non-helium merchant. The overall pricing improvement reflects a 2% increase in our merchant business, which was driven by non-helium product lines in our Europe and Americas segments. Currency was flat versus the prior year.

Cost of Sales and Gross Margin

Cost of sales of $8.3 billion increased 1%, or $87.3, due to higher energy cost pass-through to customers of $278, higher costs of $73, higher power and fuel costs in our merchant business of $49, and an unfavorable currency impact of $12. The higher costs of $73 were driven by fixed-cost inflation and depreciation, partially offset by productivity improvements. These impacts were partially offset by lower costs of $325 attributable to lower sales volumes. Gross margin of 31.4% decreased 110 bp from 32.5% in the prior year primarily due to higher costs and increased energy cost pass-through to customers.

Selling and Administrative Expense

Selling and administrative expense of $906.1 decreased 4%, or $36.3, as our productivity actions were partially offset by labor inflation. Selling and administrative expense as a percentage of sales decreased to 7.5% from 7.8% in the prior year.

Research and Development Expense

Research and development expense of $96.3 decreased 4%, or $3.9. Research and development expense as a percentage of sales of 0.8% was flat versus the prior year.

Business and Asset Actions

The charges we record for business and asset actions are not recorded in segment results. Additional information regarding these actions can be found in Note 5, Business and Asset Actions, to the consolidated financial statements.

In fiscal year 2025, total pre-tax charges related to business and asset actions were approximately $3.7 billion ($3.0 billion attributable to Air Products after tax, or $13.68 per share) compared to $57.0 ($43.8 after tax, or $0.20 per share) in fiscal year 2024.

During the second quarter of fiscal year 2025, our Board of Directors and Chief Executive Officer initiated a project review to focus resources on projects we believe will deliver the greatest value to our shareholders. As a result of this review, we made the decision to exit various projects, primarily related to clean energy generation and distribution. The review remains ongoing and may result in additional costs in future periods. In connection with this review, we recognized project exit costs totaling approximately $3.6 billion, primarily consisting of noncash asset write-downs and estimated costs to terminate contractual commitments. Costs attributable to our noncontrolling partners totaled $10.7.

The remaining charge of $123.7 in fiscal year 2025 related to severance and other employee benefits under a global cost reduction program initiated in June 2023. Fiscal year 2024 costs under the plan totaled $57.0. Once all actions under the plan are fully executed, we expect to realize annual pre-tax savings of approximately $240 to $260, primarily through selling and administrative expense.

Our estimates related to the actions discussed above reflect our best judgment based on information available as of 30 September 2025. Final settlement of these items may differ materially from our current estimates, which could impact our consolidated financial statements in future periods.

Shareholder activism-related costs totaling $86.3 ($71.7 after tax, or $0.32 per share) were reflected in our consolidated income statements during the first three quarters of fiscal year 2025. These costs were recorded in connection with a proxy contest that concluded in January 2025 following certification of the election of directors at the 2025 Annual Meeting of Shareholders. These costs were not allocated to our reportable segments. No shareholder activism-related charges were recorded during the fourth quarter.

Of the total $86.3 reflected on our fiscal year 2025 income statement, $31.9 related to legal and professional service fees and proxy solicitation expenses incurred directly by Air Products, primarily during the first quarter. In the second quarter, $29.7 was recorded for executive separation costs following the Board of Directors’ appointment of a new Chief Executive Officer in February 2025, which included a noncash expense of $22.4 to accelerate vesting of share-based awards and $7.3 in severance and other cash benefits. The remaining $24.7 was authorized and paid during the third quarter as a reimbursement to Mantle Ridge LP and its affiliated entities (collectively, “Mantle Ridge”) for expenses incurred in connection with the proxy contest. The reimbursement was unanimously approved by our Board of Directors, with one director abstaining from the vote due to his role as founder and Chief Executive Officer of Mantle Ridge.

Refer to Note 25, Supplemental Information, for additional information.

Gain on Sale of Business

In April 2025, we completed the sale of our 100% ownership interest in a consolidated subsidiary in Singapore for cash proceeds of $104.3. We recognized a gain of $67.3 ($51.9 after tax, or $0.23 per share) in connection with the transaction during the third quarter of fiscal year 2025. Prior to the divestiture, the subsidiary contributed annual sales of approximately $50 to our Asia segment.

On 30 September 2024, we completed the sale of our LNG business to Honeywell International Inc. As a result of the transaction, we recorded a gain of $1.6 billion ($1.2 billion after tax, or $5.38 per share) during the fourth quarter of fiscal year 2024. Prior to the divestiture, the results of the LNG business were reflected within the Corporate and other segment.

The gains from the sale of the businesses discussed above were not recorded in segment results. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information.

Other Income (Expense), Net

Other income of $110.1 increased 89%, or $51.9. The increase was primarily driven by a $31.3 gain ($23.8 after tax, or $0.11 per share) on the sale of a regional office in Hersham, England, during the third quarter of fiscal year 2025. This gain is not reflected in the results of the Europe segment.

Operating Income (Loss) and Operating Margin

Operating loss was $877.0 in fiscal year 2025 compared to income of $4.5 billion in the prior year. The loss in fiscal year 2025 was primarily attributable to higher pre-tax charges for business and asset actions, which totaled $3.7 billion in fiscal year 2025 compared to $57 in fiscal year 2024. Additionally, the prior year included a $1.6 billion pre-tax gain on the sale of the LNG business. Unfavorable volumes lowered operating income by $122, primarily due to the divestiture of the LNG business in September 2024. Operating income contributed by the LNG business in the prior year was approximately $135. Fiscal year 2025 also included shareholder activism-related costs of $86. In addition, other costs were unfavorable by $31, primarily reflecting fixed-cost inflation and higher depreciation, partially offset by productivity improvements. We also recorded pre-tax gains totaling approximately $99 in connection with the sale of a consolidated subsidiary and the sale of a regional office during the third quarter of fiscal year 2025. Furthermore, higher pricing primarily from non-helium merchant products favorably impacted operating results by $55, net of power and fuel costs.

Due to these factors, operating margin was negative 7.3% compared to 36.9% in the prior year.

Adjusted Operating Income and Adjusted Operating Margin

Adjusted operating income of $2.9 billion decreased 3%, or $89.8, due to lower volumes and higher costs, partially offset by higher non-helium pricing. The higher costs were driven by fixed-cost inflation and depreciation, partially offset by productivity improvements. Adjusted operating margin of 23.7% decreased 70bp from 24.4% in the prior year. Approximately 50bp of the decline was attributable to increased energy cost pass-through to customers.

Equity Affiliates’ Income

Equity affiliates' income of $647.7 was flat compared to the prior year. Increased contributions from affiliates in the Europe and Asia segments were offset by lower income from affiliates in the Corporate and other, Middle East and India, and Americas segments.

Interest Expense

Interest expense decreased 2%, or $4.8, driven by a higher carrying value of ongoing projects under construction despite our decision to exit various projects in fiscal year 2025. This decrease was partially offset by higher interest incurred on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in February and June 2025.

Other Non-Operating Income (Expense), Net

Other non-operating income of $2.6 increased $76.4 from an expense of $73.8 in the prior year. The increase was primarily driven by lower non-service pension costs, which totaled $45.0 ($33.7 after tax, or $0.15 per share) in fiscal year 2025, compared to $102.0 ($76.8 after tax, or $0.34 per share) in the prior year. Additionally, de-designated interest rate swaps related to financing for the NEOM Green Hydrogen Project resulted in an unrealized gain of $27.0 ($7.2 attributable to Air Products after tax, or $0.03 per share), compared to an unrealized loss of $16.3 ($4.3 after tax, or $0.02 per share) in the prior year. Refer to Note 3, Variable Interest Entities, and Note 15, Financial Instruments, to the consolidated financial statements for additional information. These benefits were partially offset by lower interest income on short-term investments.

Discontinued Operations

We recorded net losses from discontinued operations of $8.0 and $13.9 in fiscal years 2025 and 2024, respectively.

In fiscal year 2025, a pre-tax loss from discontinued operations of $10.6 ($8.0 after tax, or $0.04 per share) was recorded in the third quarter primarily to increase our existing liability for retained environmental remediation obligations related to production facilities in the atmospheric emulsions and global pressure-sensitive adhesives businesses, which were sold in 2008. Refer to the "Piedmont" discussion under Note 19, Commitments and Contingencies, for additional information.

In fiscal year 2024, a pre-tax loss from discontinued operations of $19.4 ($13.9 after tax, or $0.06 per share) was recorded in the fourth quarter to increase our existing liability for retained environmental remediation obligations related to the 2006 sale of the Amines business. Refer to the "Pace" discussion under Note 19, Commitments and Contingencies, for additional information.

Net Income (Loss)

Net loss was $354.4 for fiscal year 2025 compared to net income of $3.9 billion in the prior year. The loss in fiscal year 2025 was primarily attributable to after-tax charges for business and asset actions, which totaled $3.0 billion in fiscal year 2025 compared to $44 in the prior year. Additionally, fiscal year 2024 included a $1.2 billion after-tax gain recognized from the sale of the LNG business in September 2024.

Adjusted EBITDA

Adjusted EBITDA of $5.1 billion increased 1%, or $30.1, as higher pricing and productivity improvements were partially offset by lower volumes and fixed-cost inflation.

Effective Tax Rate

The effective tax rate equals the income tax expense (benefit) divided by income or loss before taxes. Equity affiliates' income is primarily included net of income taxes within income before taxes on our consolidated income statements.

For the fiscal year ended 30 September 2025, our consolidated income statements include an income tax benefit of $94.3 compared to an income tax expense of $944.9 for the comparative prior-year period. The tax benefit in fiscal year 2025 represents an effective tax rate of 21.4% on the pre-tax loss reported for the fiscal year ended 30 September 2025 compared to an effective rate of 19.6% for tax expense on the pre-tax income reported for the fiscal year ended 30 September 2024.

The current year rate was primarily impacted by charges for business and asset actions and other items as further discussed below. Our estimates related to these items reflect our best judgment based on information available as of 30 September 2025. The amount and timing of final settlement of these items may differ from our current estimates, which could impact our tax provision in future periods.

Our prior year effective tax rate included impacts from the $1.6 billion gain on the sale of the LNG business during the fourth quarter of fiscal year 2024. This gain increased our income from continuing operations before taxes, which diluted the impact of recurring effective tax rate reconciling items for fiscal year 2024.

For additional information, refer to Note 24, Income Taxes, to the consolidated financial statements.

Business and Asset Actions

In fiscal year 2025, we recorded charges for project exits and other cost reduction measures as described in Note 5, Business and Asset Actions, to the consolidated financial statements. These actions resulted in a pre-tax charge of approximately $3.7 billion. The related net tax benefit of these actions totaled $695.2, which includes an $11.3 cost for reserves established for uncertain tax positions related to the deductibility of the amount of the charges incurred in foreign subsidiaries. We also recorded a net tax cost of $197.4 resulting from a $364.9 increase in our valuation allowance net of $167.5 of deferred tax assets related to the future disposal of certain foreign subsidiaries.

Tax Reform Adjustment Related to Deemed Foreign Dividends

During the second quarter of fiscal year 2025, we recorded a net income tax benefit of $34.9 related to our intent to file a refund claim after a review of several U.S. Tax Court cases regarding the U.S. taxation of deemed foreign dividends in the transition year of the U.S. Tax Cuts and Jobs Act (our fiscal year 2018).

Tax on Repatriation of Foreign Earnings

During the second quarter of fiscal year 2025, we recorded an income tax expense of $31.4 related to estimated withholding taxes on foreign earnings that we no longer intend to indefinitely reinvest. There were no other significant changes to our assumptions regarding the reinvestment of foreign earnings during fiscal year 2025.

During fiscal year 2025, we recorded costs of $86.3 related to a proxy contest as further discussed in Note 25, Supplemental Information, to the consolidated financial statements. We recognized an income tax benefit of $14.6 primarily related to costs for legal and other professional service fees as well as incremental proxy solicitation costs related to the 2025 Annual Meeting of Shareholders.

Other

In addition to the items discussed above, our effective tax rate was higher in fiscal year 2025 due to lower tax benefits on U.S. export income in fiscal year 2025, higher net costs on foreign-related income taxed in the U.S, and an income tax benefit for a tax election related to a non-U.S. subsidiary that occurred in our prior fiscal year but did not recur in fiscal year 2025. These increases were partially offset by larger benefits in fiscal year 2025 for the release of unrecognized tax benefits upon expiration of the applicable statute of limitations.

Adjusted Effective Tax Rate

Our adjusted effective tax rate, which excludes the impact of the business and asset actions described above as well as other adjustments in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 42, was 18.2% and 17.8% for the fiscal years ended 30 September 2025 and 2024, respectively.

H.R.1

On 4 July 2025, H.R.1, commonly referred to as the One Big Beautiful Bill Act ("OBBBA"), was enacted in the United States. OBBBA includes a broad range of tax reform provisions, including extending and modifying certain key U.S. Tax Cuts and Jobs Act provisions (both domestic and international), expanding certain Inflation Reduction Act incentives, and accelerating the phase-out of others. OBBBA did not have a material impact on our fiscal year 2025 results and is expected to primarily affect future fiscal years.

While OBBBA revised certain Inflation Reduction Act incentives, we continue to anticipate future benefits from tax credits related to certain clean hydrogen production projects, where construction has begun or is expected to begin prior to the applicable phase-out dates.

DISCUSSION OF RESULTS BY BUSINESS SEGMENT

The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:

Sales of $5.1 billion increased 2%, or $85.8, as higher energy cost pass-through to customers of 4% and higher pricing of 2% were partially offset by lower volumes of 3% and an unfavorable currency impact of 1%. Higher energy cost pass-through to customers was primarily attributable to higher natural gas prices. The overall pricing improvement reflects a 3% increase in our merchant business, which was driven by non-helium product lines. Volumes were unfavorable primarily due to lower on-sites, driven by previously announced project exits and the impact of a one-time asset sale in the prior year related to a customer-initiated early contract termination. Lower helium demand also contributed to the volume decline, despite a significant, non-recurring helium sale to an existing merchant customer in the first quarter. These headwinds were partially offset by a favorable one-time customer contract amendment in the second quarter of fiscal year 2025.

Operating income of $1.5 billion decreased 3%, or $45.5, due to higher costs of $92 and unfavorable currency of $10, partially offset by positive pricing, net of power and fuel costs, of $41 and favorable business mix of $15. The increase in costs was mainly driven by higher depreciation, maintenance, and fixed-cost inflation, partially offset by productivity improvements. Additionally, income recognized from the sale of an equity method investment in the first quarter of fiscal year 2025 was largely offset by a favorable legal settlement recorded in the prior year. Operating margin of 29.6% decreased 150 bp from 31.1% in the prior year as the margin impacts of higher costs and higher energy cost pass-through to customers were partially offset by favorable business mix. Approximately 100 bp of the decline was attributable to higher energy cost pass-through.

Equity affiliates’ income of $157.0 decreased 1%, or $1.8, driven by our share of income from an asset sale in the prior year, partially offset by higher income from an affiliate in Mexico.

Asia

The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:

Sales of $3.3 billion increased 1%, or $46.7, as higher energy cost pass-through to customers of 2% was partially offset by lower pricing of 1%. The overall pricing decrease reflects a 2% decline in our merchant business, primarily driven by lower helium pricing. Volumes were flat, with growth in on-sites offset by lower demand for helium.

Operating income of $851.1 decreased 1%, or $8.1, primarily due to lower pricing, net of power and fuel costs, of $30 and unfavorable business mix of $23, partially offset by lower costs of $48. The cost improvement was primarily attributable to productivity and lower maintenance costs, which was partially offset by higher costs related to incentive compensation and fixed-cost inflation. Due to these factors, operating margin of 26.0% decreased 60 bp from 26.6% in the prior year.

Equity affiliates’ income of $42.3 increased 29%, or $9.4, driven by prior year maintenance expense at an affiliate in China as well as higher income from affiliates in Thailand in fiscal year 2025.

Europe

The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:

Sales of $3.0 billion increased 6%, or $161.1, due to higher pricing of 2%, a favorable currency impact of 2%, higher volumes of 1%, and higher energy cost pass-through to customers of 1%. The overall pricing improvement reflects a 3% increase in our merchant business, which was driven by non-helium product lines. The 1% volume growth was supported by higher on-site activity, partially offset by lower helium demand.

Operating income of $844.7 increased 4%, or $34.7, due to favorable pricing, net of power and fuel costs, of $42 and favorable currency of $14, partially offset by an unfavorable business mix of $13 and higher costs of $8. Higher costs for depreciation and fixed-cost inflation were partially offset by productivity improvements. Due to these factors, operating margin of 28.3% decreased 40 bp from 28.7% in the prior year.

Equity affiliates’ income of $101.9 increased 16%, or $13.8, driven by higher income from affiliates in Italy and South Africa.

Sales of $135.9 increased 1%, or $1.5, primarily due to higher volumes. Operating income of $9.6 increased 63%, or $3.7, primarily due to lower costs following the deconsolidation of Blue Hydrogen Industrial Gases Company ("BHIG") in the second quarter of fiscal year 2025, as well as productivity improvements.

Equity affiliates' income of $340.9 decreased 2%, or $6.6, driven by JIGPC.

Sales of $520.0 decreased 41%, or $358.4, and operating loss of $367.3 increased 25%, or $74.6, primarily due to the divestiture of the LNG business in September 2024. Operating income generated by the LNG business in the prior year was approximately $135. This headwind was partially offset by lower changes to sale of equipment project estimates and productivity improvements, net of fixed-cost inflation.

Equity affiliates' income of $12.4 decreased 39%, or $8.0, driven by lower contributions from an affiliate in Algeria.