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Item 2 — Management's Discussion and Analysis
Air Products and Chemicals, Inc. · 10-Q · Q3 FY2026 · Period ended Jun 30, 2026
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Third Quarter 2026 in Summary 48
Third Quarter 2026 Results of Operations 50
First Nine Months 2026 in Summary 57
First Nine Months 2026 Results of Operations 59
Reconciliations of Non-GAAP Financial Measures 67
Liquidity and Capital Resources 73
Pension Benefits 77
Critical Accounting Policies and Estimates 78
This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management. These factors include, without limitation, those described in "Forward-Looking Statements" and Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2025 (the "2025 Form 10-K"), which was filed with the SEC on 20 November 2025, as well as in "Forward-Looking Statements" of this Quarterly Report on Form 10-Q.
This discussion should be read together with the accompanying interim consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts are stated in millions of U.S. Dollars, except for per share data, which is calculated and presented on a diluted basis in U.S. Dollars per weighted-average common share.
The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We discuss certain financial measures on an "adjusted", or "non-GAAP", basis, which exclude gains or losses that management does not consider to be representative of our underlying business operations. These adjustments, which are described below for the periods presented, are not reflected in the results of our reportable segments. When viewed together with our GAAP results, we believe these non-GAAP financial measures offer a more complete understanding of the factors and trends affecting our financial performance and support analysis of our results on a more consistent basis. For each non-GAAP financial measure, including adjusted operating income, adjusted operating margin, adjusted earnings per share, the adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and further explanations of our use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 67.
Comparisons included in the discussion that follows are for the third quarter and first nine months of fiscal year 2026 versus ("vs.") the third quarter and first nine months of fiscal year 2025. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2025 Form 10-K.
We manage our operations, assess performance, and report earnings under five reportable segments: Americas, Asia, Europe, Middle East and India, and Corporate and other. Refer to Note 18, Business Segment Information, to the consolidated financial statements for additional information.
For information concerning activity with our related parties, refer to Note 17, Supplemental Information, to the consolidated financial statements.
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THIRD QUARTER 2026 VS. THIRD QUARTER 2025
THIRD QUARTER 2026 IN SUMMARY
•Sales of $3.2 billion increased 5%, or $138.3, due to higher volumes of 3%, higher pricing of 1%, and favorable currency of 1%.
•Operating loss was $2.1 billion and operating margin was negative 66.3%. Third quarter 2026 GAAP results include pre-tax charges of approximately $2.9 billion associated with project exit decisions announced on 30 June 2026. In the prior-year quarter, operating income was $790.6 and operating margin was 26.2%.
•Adjusted operating income of $810.3 increased 9%, or $69.2, and adjusted operating margin of 25.6% improved 110 basis points ("bp"), primarily due to higher on-site volumes, favorable currency, and higher pricing, partially offset by higher costs. These non-GAAP results exclude losses resulting from charges for business and asset actions discussed in Note 4 to the consolidated financial statements, as well as other items, as described in the "Reconciliations of Non-GAAP Financial Measures" section below.
•Equity affiliates' income of $205.2 increased 22%, or $37.6, driven primarily by affiliates in the Americas and Middle East and India segments.
•Loss per share of $6.47 decreased 300%, or $9.71, from earnings per share ("EPS") of $3.24, driven by after-tax charges attributable to Air Products of $2.2 billion ($9.92 per share) associated with project exit decisions announced on 30 June 2026. Excluding these charges and other items, adjusted EPS of $3.47 increased 12%, or $0.38. A summary table of changes in earnings (loss) per share is presented below.
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Summary of Changes in Earnings (Loss) Per Share
The per share impacts for the items presented in the table below were calculated independently and do not sum to the total change in earnings (loss) per share due to rounding.
Three Months Ended Change vs. Prior Year
30 June
2026 2025
Earnings (Loss) per Share ($6.47) $3.20 ($9.67)
Less: Loss per share from discontinued operations — (0.04) 0.04
Earnings (Loss) per share from continuing operations ($6.47) $3.24 ($9.71)
% Change from prior year (300 %)
Operating Items
Underlying business:
Volume $0.22
Price, net of variable costs 0.06
Other costs (0.10)
Currency 0.08
Business and asset actions (9.85)
Shareholder activism-related costs 0.08
Gain on sale of business (0.23)
Gain on sale of other assets(A) (0.11)
Total Operating Items ($9.85)
Other Items
Equity affiliates' income 0.14
Interest expense 0.04
Other non-operating income/expense, net:
Non-service pension cost, net 0.03
Other non-operating 0.01
Change in effective tax rate (0.02)
Noncontrolling interests (0.04)
Total Other Items $0.16
Total Change ($9.71)
% Change from prior year (300 %)
(A)Reflected on the consolidated income statements within "Other income (expense), net."
The table below summarizes the per share impact of non-GAAP adjustments for the third quarter of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding.
Three Months Ended Change vs. Prior Year
30 June
2026 2025
Earnings (Loss) per Share ($6.47) $3.24 ($9.71)
Business and asset actions 9.92 0.07 9.85
Shareholder activism-related costs — 0.08 (0.08)
Gain on sale of business — (0.23) 0.23
Gain on sale of other assets — (0.11) 0.11
Non-service pension cost, net 0.01 0.04 (0.03)
Adjusted Earnings per Share $3.47 $3.09 $0.38
% Change from prior year 12%
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THIRD QUARTER 2026 RESULTS OF OPERATIONS
Discussion of Third Quarter Consolidated Results
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
GAAP Financial Measures
Sales $3,161.0 $3,022.7 $138.3 5 %
Operating income (loss) (2,097.1) 790.6 (2,887.7) (365 %)
Operating margin (66.3 %) 26.2 % (9,250 bp)
Equity affiliates’ income $205.2 $167.6 $37.6 22 %
Non-GAAP Financial Measures
Adjusted operating income $810.3 $741.1 $69.2 9 %
Adjusted operating margin 25.6 % 24.5 % 110 bp
Sales
The table below summarizes the major factors that impacted consolidated sales for the periods presented:
Volume 3 %
Price 1 %
Energy cost pass-through to customers — %
Currency 1 %
Total Consolidated Sales Change 5 %
Sales of $3.2 billion increased 5%, or $138.3, due to higher volumes of 3%, higher pricing of 1%, and favorable currency of 1%. Volume growth was driven by new on-site assets and HyCO facilities. Favorable currency reflected a weaker U.S. Dollar across multiple currencies.
Cost of Sales and Gross Margin
Cost of sales of $2.1 billion increased 4%, or $84.9. Unfavorable costs of $36 were driven by fixed-cost inflation and higher incentive compensation, partially offset by lower depreciation expense. Unfavorable currency increased costs by $28, while higher sales volumes and energy cost pass-through to customers increased costs by an additional $12 and $6, respectively. Gross margin of 32.8% increased 30 bp from 32.5%.
Selling and Administrative Expense
Selling and administrative expense of $219.1 decreased 2%, or $3.5, driven by productivity improvements related to our global cost reduction plan, partially offset by higher incentive compensation, fixed-cost inflation, and unfavorable currency. Selling and administrative expense as a percentage of sales improved to 6.9% from 7.4%, down 50 bp from the prior year.
Research and Development Expense
Research and development expense of $21.5 decreased 11%, or $2.6. Research and development expense as a percentage of sales improved to 0.7% from 0.8% in the prior year.
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Business and Asset Actions (Project Exit Costs)
During the third quarter of fiscal year 2026, we recognized project exit charges of $2.9 billion ($2.2 billion after-tax, or $9.92 per share) as a result of our decision to cancel a clean energy complex under construction in Louisiana, a green hydrogen production facility under construction in Casa Grande, Arizona, and certain other smaller-scale projects supporting clean energy distribution. In the prior-year quarter, we recognized project exit charges of $24.1 pre-tax ($15.4 after-tax, or $0.07 per share), primarily reflecting revisions to cost estimates associated with project exit actions approved in the second quarter of fiscal year 2025. These charges were not reflected in the results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.
Shareholder Activism-Related Costs
We recorded shareholder activism-related costs in fiscal year 2025 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. Costs recorded during the third quarter of fiscal year 2025 were $25.0 pre-tax ($18.8 after-tax, or $0.08 per share), primarily related to the reimbursement of proxy-related expenses incurred by Mantle Ridge LP and its affiliated entities. These costs were not reflected in the results of our reportable segments. For additional information, refer to Note 17, Supplemental Information, to the consolidated financial statements.
Gain on Sale of Business
During the third quarter of fiscal year 2025, we recognized a gain of $67.3 pre-tax ($51.9 after-tax, or $0.23 per share) on the sale of our 100% ownership interest in a consolidated subsidiary in Singapore. This gain was not reflected in the results of the Asia segment. Refer to Note 17, Supplemental Information, to the consolidated financial statements for additional information.
Other Income (Expense), Net
Other income of $14.9 decreased 59%, or $21.6. The decrease was primarily driven by a prior-year gain of $31.3 pre-tax ($23.8 after-tax, or $0.11 per share) on the sale of a regional office in Hersham, England, which was not reflected in the results of the Europe segment, as well as favorable foreign exchange impacts.
Operating Income (Loss) and Operating Margin
Operating loss was $2.1 billion during the third quarter of fiscal year 2026 compared to operating income of $790.6 in the prior-year quarter. The current-year loss was driven by pre-tax charges of $2.9 billion associated with project exit decisions announced on 30 June 2026, compared to pre-tax project exit-related charges of $24.1 in the prior-year quarter. Additionally, the prior year included pre-tax gains totaling approximately $99 million in connection with the sale of a consolidated subsidiary and a regional office as discussed above, partially offset by shareholder activism-related costs of $25.
Volume improved $60, driven primarily by on-site, including new assets and HyCO facilities. Favorable currency impacts contributed $21. Higher pricing, net of power costs, added $16. These factors were partially offset by higher costs of $28, primarily reflecting fixed-cost inflation and higher incentive compensation.
Operating margin was negative 66.3% compared to 26.2% in the prior-year quarter, which was primarily attributable to the charges for business and asset actions in fiscal year 2026.
On a non-GAAP basis, which excludes the charges for business and asset actions, sales of businesses and other assets, and prior year-shareholder activism-related costs discussed above, adjusted operating income of $810.3 increased 9%, or $69.2, primarily driven by higher on-site volumes, favorable currency, and higher pricing, partially offset by higher costs. Adjusted operating margin improved 110 bp to 25.6% from 24.5% in the prior year.
Equity Affiliates' Income
Equity affiliates' income of $205.2 increased 22%, or $37.6, primarily driven by affiliates in the Americas and Middle East and India segments.
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Interest Expense
Three Months Ended
30 June
2026 2025
Interest incurred $169.8 $161.1
Less: Capitalized interest 120.4 99.7
Interest expense $49.4 $61.4
Interest expense decreased 20%, or $12.0, primarily driven by an increase in capitalized interest due to a higher carrying value of projects under construction.
Other Non-Operating Income (Expense), Net
Other non-operating income of $3.6 increased $9.6 compared to an expense of $6.0 in the prior year. The increase was primarily attributable to lower non-service pension costs as well as income from excluded components from the assessment of effectiveness of our derivatives, partially offset by lower interest income on cash equivalents and short-term investments.
Loss from Discontinued Operations
During the third quarter of fiscal year 2025, we recorded a pre-tax loss from discontinued operations of $10.6 ($8.0 after tax, or $0.04 per share) primarily to increase existing liabilities for retained environmental remediation obligations associated with businesses sold in 2008. Refer to the "Piedmont" discussion under Note 12, Commitments and Contingencies, for additional information. The loss did not result in cash flows from discontinued operations.
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 or loss before taxes on our consolidated income statements. The table below outlines the calculation of the effective tax rate for the third quarter of fiscal years 2026 and 2025:
Three Months Ended 30 June
2026 2025
Income tax expense (benefit) ($515.4) $159.6
Income (Loss) from continuing operations before taxes (1,937.7) 890.8
Effective tax rate 26.6 % 17.9 %
The current-year rate was significantly impacted by net tax benefits of $695.4 associated with project exit decisions, as discussed in Note 4, Business and Asset Actions, to the consolidated financial statements. These benefits primarily reflect tax benefits recognized at local statutory income tax rates in the U.S. based on information available when the project exit charges were recorded. Changes in the amount or timing of the final settlement of these matters could affect our income tax provision in future periods.
Also impacting the effective tax rate were higher net costs on foreign-related income taxed in the U.S. in the current fiscal year and higher releases of certain unrecognized tax benefits upon expiration of the statute of limitations in the prior year. These costs were partially offset by higher foreign and domestic tax credit and incentives and higher equity affiliates' income.
Our adjusted effective tax rate, which excludes the impact of project exit costs and other adjustments described in the "Reconciliations of Non-GAAP Financial Measures" section, was 18.6% and 18.1% for the three months ended 30 June 2026 and 2025, respectively. A reconciliation of the adjusted measures to the effective tax rate calculated in accordance with GAAP is provided on page 71.
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Discussion of Third Quarter Results by Business Segment
Americas
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $1,321.4 $1,261.0 $60.4 5 %
Operating income 395.4 374.1 21.3 6 %
Operating margin 29.9 % 29.7 % 20 bp
Equity affiliates’ income $56.2 $37.8 $18.4 49 %
The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:
Volume 7 %
Price — %
Energy cost pass-through to customers (2 %)
Currency — %
Total Americas Sales Change 5 %
Sales of $1.3 billion increased 5%, or $60.4, due to higher volumes of 7%, partially offset by lower energy cost pass-through to customers of 2%. Volume growth was driven by on-site, including HyCO facilities and a new asset contribution. Lower energy cost pass-through to customers primarily reflected decreased natural gas rates.
Operating income of $395.4 increased 6%, or $21.3, primarily driven by higher volumes of $30 and higher pricing, net of lower power costs, of $6. These benefits were partially offset by higher costs of $16, which included fixed-cost inflation, increased product distribution and dislocation costs, and project development costs, partially offset by lower depreciation expense. Operating margin of 29.9% increased 20 bp from 29.7% in the prior year, including an approximate 50 bp favorable impact from lower energy cost pass-through to customers.
Equity affiliates’ income of $56.2 increased 49%, or $18.4, driven primarily by an affiliate in Mexico.
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Asia
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $886.0 $810.0 $76.0 9 %
Operating income 256.4 216.8 39.6 18 %
Operating margin 28.9 % 26.8 % 210 bp
Equity affiliates’ income $12.9 $9.5 $3.4 36 %
The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:
Volume 6 %
Price — %
Energy cost pass-through to customers 1 %
Currency 2 %
Total Asia Sales Change 9 %
Sales of $886.0 increased 9%, or $76.0, due to higher volumes of 6%, favorable currency of 2%, and higher energy cost pass-through to customers of 1%. Volume growth was driven by higher on-site, including new assets, as well as improved helium volumes. Favorable currency was primarily attributable to the weakening of the U.S. Dollar against the Chinese Renminbi.
Operating income of $256.4 increased 18%, or $39.6, driven by higher volumes of $45 and favorable currency impacts of $4. These benefits were partially offset by higher costs of $9, including increased incentive compensation. Depreciation expense was lower in fiscal year 2026, primarily due to the classification of certain gasification assets as held for sale. Operating margin of 28.9% increased 210 bp from 26.8% in the prior year, as the benefits of higher volumes more than offset higher costs.
Equity affiliates’ income of $12.9 increased 36%, or $3.4, driven primarily by an affiliate in Thailand.
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Europe
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $815.7 $770.5 $45.2 6 %
Operating income 230.7 225.2 5.5 2 %
Operating margin 28.3 % 29.2 % (90 bp)
Equity affiliates’ income $32.6 $29.7 $2.9 10 %
The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:
Volume (2 %)
Price 2 %
Energy cost pass-through to customers 3 %
Currency 3 %
Total Europe Sales Change 6 %
Sales of $815.7 increased 6%, or $45.2, as higher energy cost pass-through to customers of 3%, favorable currency of 3%, and higher pricing of 2% were partially offset by lower volumes of 2%. The increase in energy cost pass-through reflected higher natural gas rates across the region, while favorable currency impacts were primarily attributable to the weakening of the U.S. Dollar against the Euro. Volumes declined primarily due to lower on-site volumes.
Operating income of $230.7 increased 2%, or $5.5, driven by higher pricing, net of higher power costs, of $8 and favorable currency of $5. Favorable business mix contributed an additional $2, driven by higher-margin on-site volumes. These benefits were partially offset by higher costs of $10, including fixed-cost inflation. Operating margin of 28.3% decreased 90 bp from 29.2% in the prior year, including an approximate 50 bp headwind from higher energy cost pass-through to customers.
Equity affiliates’ income of $32.6 increased 10%, or $2.9, driven primarily by an affiliate in Italy.
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Middle East and India
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %
Sales $34.8 $38.3 ($3.5) (9 %)
Operating income 8.0 8.1 (0.1) (1 %)
Equity affiliates' income 101.1 86.0 15.1 18 %
Sales of $34.8 decreased 9%, or $3.5, as lower volumes were partially offset by higher pricing. Operating income of $8.0 was flat.
Equity affiliates' income of $101.1 increased 18%, or $15.1, driven primarily by affiliates in Saudi Arabia.
Corporate and other
Three Months Ended
30 June Change vs. Prior Year
2026 2025 $ %
Sales $103.1 $142.9 ($39.8) (28 %)
Operating loss (80.2) (83.1) 2.9 3 %
Equity affiliates' income 2.4 4.6 (2.2) (48 %)
Sales of $103.1 decreased 28%, or $39.8, primarily driven by lower equipment sales volumes. Operating loss of $80.2 improved 3%, or $2.9, primarily reflecting productivity and favorable foreign exchange impacts.
Equity affiliates' income of $2.4 decreased 48%, or $2.2, driven primarily by an affiliate in Algeria.
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FIRST NINE MONTHS 2026 VS. FIRST NINE MONTHS 2025
FIRST NINE MONTHS 2026 IN SUMMARY
•Sales of $9.4 billion increased 6%, or $564.9, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 1%.
•Operating loss of $609.9 improved $283.9, or 32%, from an operating loss of $893.8 in the prior year, while operating margin improved to negative 6.5% from negative 10.1%. The operating loss improvement was primarily due to higher on-site volumes, favorable currency, higher pricing, as well as lower charges for business and asset actions.
•Adjusted operating income of $2.3 billion increased 13%, or $273.6, and adjusted operating margin improved to 24.6% from 23.1% in the prior year. The adjusted operating income improvement was driven primarily by higher on-site volumes, favorable currency, and higher pricing. These non-GAAP results exclude losses resulting from charges for business and asset actions, as well as other items, as described in the "Reconciliations of Non-GAAP Financial Measures" section below.
•Equity affiliates' income of $556.8 increased 20%, or $93.1, driven primarily by affiliates in the Americas and Middle East and India segments.
•Loss per share of $0.23 improved 87%, or $1.53, from a loss per share of $1.76 in the prior year. On a non-GAAP basis, adjusted EPS of $9.84 increased 14%, or $1.21, compared to $8.63 in the prior year. A summary table of changes in earnings (loss) per share is presented below.
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Summary of Changes in Earnings (Loss) Per Share
The per share impacts for the items presented in the table below were calculated independently and do not sum to the total change in earnings (loss) per share due to rounding.
Nine Months Ended Change vs. Prior Year
30 June
2026 2025
Loss per Share ($0.23) ($1.79) $1.56
Less: Loss per share from discontinued operations — (0.04) 0.04
Loss per share from continuing operations ($0.23) ($1.76) $1.53
% Change from prior year 87 %
Operating Items
Underlying business:
Volume $0.66
Price, net of variable costs 0.10
Other costs 0.03
Currency 0.21
Business and asset actions(A) 0.32
Shareholder activism-related costs 0.32
Gain on sale of business (0.23)
Gain on sale of other assets(B) (0.11)
Total Operating Items $1.30
Other Items
Equity affiliates:
Equity affiliates' income $0.32
Equity method investment impairment associated with business and asset actions(A) 0.02
Interest expense (0.03)
Other non-operating income/expense, net:
Gain on de-designation of cash flow hedges(C) (0.03)
Non-operating expense associated with business and asset actions(A) (0.02)
Non-service pension cost, net 0.07
Change in effective tax rate, excluding discrete items below 0.03
Tax reform adjustment related to deemed foreign dividends (0.16)
Tax on repatriation of foreign earnings 0.14
Noncontrolling interests(A)(C) (0.12)
Total Other Items $0.22
Total Change $1.53
% Change from prior year 87 %
(A)Per share impacts were calculated based on total after-tax charges for business and asset actions attributable to Air Products of $2.2 billion and $2.3 billion for the first nine months of fiscal years 2026 and 2025, respectively, with $0.6 and $3.5 attributable to noncontrolling partners.
(B)Reflected on the consolidated income statements with "Other income (expense), net."
(C)Per share impact reflected within "Gain on de-designation of cash flow hedges" was calculated based on an after-tax gain attributable to Air Products of $7.2 in fiscal year 2025. The gain attributable to our noncontrolling partners was $17.6.
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The table below summarizes the per share impact of our non-GAAP adjustments for the first nine months of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding.
Nine Months Ended Change vs. Prior Year
30 June
2026 2025
Loss per Share ($0.23) ($1.76) $1.53
Business and asset actions(A) 10.03 10.35 (0.32)
Shareholder activism-related costs — 0.32 (0.32)
Gain on sale of business — (0.23) 0.23
Gain on sale of other assets — (0.11) 0.11
Gain on de-designation of cash flow hedges — (0.03) 0.03
Non-service pension cost, net 0.04 0.11 (0.07)
Tax reform adjustment related to deemed foreign dividends — (0.16) 0.16
Tax on repatriation of foreign earnings — 0.14 (0.14)
Adjusted Earnings per Share $9.84 $8.63 $1.21
% Change from prior year 14 %
(A) The charges for business and asset actions were primarily recorded within operating results. For additional information regarding these charges, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.
FIRST NINE MONTHS 2026 RESULTS OF OPERATIONS
Discussion of First Nine Months Consolidated Results
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
GAAP Financial Measures
Sales $9,435.3 $8,870.4 $564.9 6 %
Operating loss (609.9) (893.8) 283.9 32 %
Operating margin (6.5 %) (10.1 %) 360 bp
Equity affiliates’ income $556.8 $463.7 $93.1 20 %
Non-GAAP Financial Measures
Adjusted operating income $2,319.5 $2,045.9 $273.6 13 %
Adjusted operating margin 24.6 % 23.1 % 150 bp
.
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Sales
The table below summarizes the major factors that impacted consolidated sales for the periods presented:
Volume 2 %
Price — %
Energy cost pass-through to customers 1 %
Currency 3 %
Total Consolidated Sales Change 6 %
Sales of $9.4 billion increased 6%, or $564.9, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 1%. Currency was favorable as the U.S. Dollar weakened, most notably against the Chinese Renminbi and Euro. Volume growth was driven by on-site, primarily from new assets and HyCO facilities, partially offset by favorable non-recurring items in the prior year, including a significant helium sale to an existing merchant customer and a one-time customer contract amendment in the Americas segment. Pricing was flat as improvement across non-helium product lines was offset by lower helium pricing.
Cost of Sales and Gross Margin
Cost of sales of $6.4 billion increased 5%, or $306.4, driven by an unfavorable currency impact of $156 and higher energy cost pass-through to customers of $130. Costs were unfavorable by $20 as fixed-cost inflation was partially offset by productivity improvements and lower depreciation expense. Additionally, higher sales volumes increased costs by an additional $7. These factors were partially offset by lower product sourcing costs of $7. Gross margin of 32.0% increased 90 bp from 31.1% in the prior year, driven by higher volumes.
Selling and Administrative Expense
Selling and administrative expense of $675.0 decreased 2%, or $12.0, as productivity improvements were partially offset by fixed-cost inflation and unfavorable currency. Selling and administrative expense as a percentage of sales improved to 7.2% from 7.7%, down 50 bp from the prior year.
Research and Development Expense
Research and development expense of $63.5 decreased 8%, or $5.5. Research and development expense as a percentage of sales decreased to 0.7% from 0.8% in the prior year.
Business and Asset Actions
During fiscal year 2026, the Company recognized project exit charges of $2.9 billion pre-tax ($2.2 billion after-tax, or $10.03 per share), which was primarily due to actions announced on 30 June 2026. In the prior-year nine months ended 30 June 2025, the Company recognized charges of $3.0 billion pre-tax ($2.3 billion after-tax, or $10.35 per share), primarily driven by project exit actions approved in the second quarter of fiscal year 2025. These charges were not reflected in the results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.
Shareholder Activism-Related Costs
During the first nine months of fiscal year 2025, costs of $86.3 pre-tax ($71.7 after tax, or $0.32 per share) were recorded in connection with a proxy contest that concluded in January 2025 following certification of the directors elected at the 2025 Annual Meeting of Shareholders. These costs were not reflected in the results of our reportable segments. For additional information, refer to Note 17, Supplemental Information, to the consolidated financial statements.
Gain on Sale of Business
During the third quarter of fiscal year 2025, we recognized a gain of $67.3 pre-tax ($51.9 after tax, or $0.23 per share) on the sale of our 100% ownership interest in a consolidated subsidiary in Singapore. This gain was not reflected in the results of the Asia segment. Refer to Note 17, Supplemental Information, to the consolidated financial statements for additional information.
Other Income (Expense), Net
Other income of $39.6 decreased 46%, or $33.7, primarily due to a prior-year gain of $31.3 pre-tax ($23.8 after tax, or $0.11 per share) on the sale of a regional office in Hersham, England, which was not reflected in the results of the Europe segment.
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Operating Income (Loss) and Operating Margin
Operating loss of $609.9 improved 32%, or $283.9, from an operating loss of $893.8 in the prior year. The losses in both periods were primarily driven by business and asset action charges associated with project exit decisions, which totaled $2.9 billion in fiscal year 2026 compared with $3.0 billion in fiscal year 2025. Additionally, the prior year included pre-tax gains totaling approximately $99 in connection with the sale of a consolidated subsidiary and a regional office, partially offset by shareholder activism-related costs of $86.
Volume impacts were favorable by $181 driven primarily by on-site, including new assets and HyCO facilities, partially offset by a one-time customer contract amendment. Currency was favorable by $59, and pricing, net of power costs, improved $26 driven by non-helium merchant products. Costs were favorable by $8, as productivity improvements and lower depreciation expense were partially offset by fixed-cost inflation. Operating margin was negative 6.5% compared to negative 10.1% in the prior year. The improvement primarily reflects lower charges for business and asset actions as well as higher volumes.
On a non-GAAP basis, which excludes the charges for business and asset actions, sales of businesses and other assets, and prior year-shareholder activism-related costs discussed above, adjusted operating income of $2.3 billion increased 13%, or $273.6, due to higher volumes, favorable currency impacts, and higher pricing. Adjusted operating margin improved to 24.6% from 23.1% in the prior year, primarily due to higher volumes.
Equity Affiliates' Income
Equity affiliates' income of $556.8 increased 20%, or $93.1, primarily driven by affiliates in the Americas and Middle East and India segments.
Interest Expense
Nine Months Ended
30 June
2026 2025
Interest incurred $505.3 $446.8
Less: Capitalized interest 351.9 300.6
Interest expense $153.4 $146.2
Interest expense increased 5%, or $7.2, driven by higher interest on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in fiscal year 2025, partially offset by an increase in capitalized interest due to a higher carrying value of projects under construction.
Other Non-Operating Income (Expense), net
Other non-operating income of $3.1 decreased $11.2 from the prior year. The prior year included a gain on certain interest rate swaps held by the NEOM Green Hydrogen Company joint venture as discussed in Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements. As of 1 January 2026, all swaps were re‑designated as cash flow hedges. We also recognized lower interest income on cash equivalents and short-term investments in fiscal year 2026. These impacts were partially offset by income from excluded components from the assessment of effectiveness of our derivatives and lower non-service pension costs.
Loss from Discontinued Operations
During the third quarter of fiscal year 2025, we recorded a pre-tax loss from discontinued operations of $10.6 ($8.0 after tax, or $0.04 per share) primarily to increase existing liabilities for retained environmental remediation obligations associated with businesses sold in 2008. Refer to the "Piedmont" discussion under Note 12, Commitments and Contingencies, for additional information. The loss did not result in cash flows from discontinued operations.
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Effective Tax Rate
The effective tax rate equals the income tax benefit divided by loss before taxes. Equity affiliates' income is primarily included net of income taxes within loss before taxes on our consolidated income statements. The table below outlines the calculation of the effective tax rate for the first nine months of fiscal years 2026 and 2025:
Nine Months Ended 30 June
2026 2025
Income tax benefit ($197.3) ($205.5)
Loss from continuing operations before taxes (203.4) (562.0)
Effective tax rate 97.0 % 36.6 %
As discussed in Note 4, Business and Asset Actions, to the consolidated financial statements, we recorded charges for business and asset actions, primarily related to project exit decisions, that contributed to significant variability in our effective tax rate for the periods presented. During the first nine months of fiscal year 2026, we recognized net tax benefits of $698.5 associated with these charges, primarily reflecting tax benefits recognized at local statutory income tax rates in the U.S. In the prior year, a net tax benefit of $649.3 was recognized primarily during the second quarter. For additional information, refer to Note 16, Income Taxes, to the consolidated financial statements.
The current-year rate was also affected by higher foreign and domestic tax credits and incentives and increased income from equity affiliates, partially offset by a higher cost of U.S. tax on foreign earnings. The prior-year rate benefited from larger excess tax benefits on share-based compensation and a U.S. state tax law change. The prior year also included several discrete tax items that affected the effective tax rate, including costs related to withholding taxes on certain foreign earnings that were no longer considered indefinitely reinvested and shareholder activism-related costs. These items were partially offset by a tax benefit for a Tax Cuts and Jobs Act refund claim.
Our adjusted effective tax rate, which excludes the impact of project exit costs and other adjustments described in the "Reconciliations of Non-GAAP Financial Measures" section, was 18.4% and 18.6% for the nine months ended 30 June 2026 and 2025, respectively. A reconciliation of the adjusted measures to the effective tax rate calculated in accordance with GAAP is provided on page 71.
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Discussion of First Nine Months Results by Business Segment
Americas
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $4,047.0 $3,835.8 $211.2 6 %
Operating income 1,173.1 1,128.0 45.1 4 %
Operating margin 29.0 % 29.4 % (40 bp)
Equity affiliates’ income $163.7 $104.1 $59.6 57 %
The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:
Volume 2 %
Price 1 %
Energy cost pass-through to customers 2 %
Currency 1 %
Total Americas Sales Change 6 %
Sales of $4.0 billion increased 6%, or $211.2, due to higher volumes of 2%, higher energy cost pass-through to customers of 2%, higher pricing of 1%, and favorable currency of 1%. Volume growth was driven by on-site, including HyCO facilities and a new asset contribution. This benefit was partially offset by favorable non-recurring items in the prior year, including a significant helium sale to an existing merchant customer and a one-time customer contract amendment. Higher energy cost pass-through to customers reflects higher natural gas rates compared to fiscal year 2025.
Operating income of $1.2 billion increased 4%, or $45.1, as higher volumes of $47, higher pricing, net of power costs, of $18, and favorable currency of $6 were partially offset by higher costs of $26. The increase in costs included fixed-cost inflation, prior‑year income from the sale of an equity method investment, and increased product distribution and dislocation costs, partially offset by lower depreciation expense. Operating margin of 29.0% decreased 40 bp from 29.4% in the prior year, which included a 50 bp headwind from higher energy cost pass-through to customers.
Equity affiliates’ income of $163.7 increased 57%, or $59.6, driven by an affiliate in Mexico.
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Asia
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $2,550.1 $2,401.2 $148.9 6 %
Operating income 728.7 624.6 104.1 17 %
Operating margin 28.6 % 26.0 % 260 bp
Equity affiliates’ income $38.4 $30.3 $8.1 27 %
The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:
Volume 3 %
Price (1 %)
Energy cost pass-through to customers 2 %
Currency 2 %
Total Asia Sales Change 6 %
Sales of $2.6 billion increased 6%, or $148.9, as higher volumes of 3%, favorable currency of 2%, and higher energy cost pass-through to customers of 2% were partially offset by lower pricing of 1%. Volume growth was driven by higher on-site, including contributions from new assets, as well as helium. Favorable currency was primarily attributable to the weakening of the U.S. Dollar against the Chinese Renminbi. The decline in pricing was driven by lower helium pricing.
Operating income of $728.7 increased 17%, or $104.1, driven by higher volumes of $87, lower costs of $22, and a favorable currency impact of $16, partially offset by lower pricing, net of power costs, of $21. Depreciation expense was lower in fiscal year 2026, primarily due to the classification of certain gasification assets as held for sale. Operating margin of 28.6% increased 260 bp from 26.0% in the prior year, as the benefits of higher volumes and favorable costs more than offset lower pricing and higher energy cost pass-through to customers.
Equity affiliates’ income of $38.4 increased 27%, or $8.1, driven primarily by affiliates in China and Thailand.
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Europe
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %/bp
Sales $2,386.7 $2,195.1 $191.6 9 %
Operating income 665.8 607.2 58.6 10 %
Operating margin 27.9 % 27.7 % 20 bp
Equity affiliates’ income $87.9 $75.6 $12.3 16 %
The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:
Volume 1 %
Price 1 %
Energy cost pass-through to customers — %
Currency 7 %
Total Europe Sales Change 9 %
Sales of $2.4 billion increased 9%, or $191.6, due to a favorable impact from currency of 7%, higher volumes of 1%, and higher pricing of 1%. Favorable currency primarily reflected the weakening of the U.S. Dollar against the Euro. The higher volumes were driven by non-helium merchant and on-site, including the impact of a prior-year turnaround, partially offset by lower helium. Pricing improvements across non-helium product lines were partially offset by lower helium pricing.
Operating income of $665.8 increased 10%, or $58.6, due to higher volumes of $39, favorable currency of $32, and higher pricing, net of lower power costs, of $27. These benefits were partially offset by higher costs of $40 driven by fixed-cost inflation and higher depreciation expense. Operating margin of 27.9% increased 20 bp from 27.7% in the prior year as the benefits from higher volumes and pricing were partially offset by higher costs.
Equity affiliates’ income of $87.9 increased 16%, or $12.3, driven primarily by an affiliate in Italy.
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Middle East and India
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %
Sales $94.3 $103.9 ($9.6) (9 %)
Operating income 18.4 4.6 13.8 300 %
Equity affiliates' income 264.8 249.2 15.6 6 %
Sales of $94.3 decreased 9%, or $9.6, primarily due to lower volumes. Operating income of $18.4 improved from $4.6 in the prior year, driven by lower costs, including productivity improvements and the impact of the deconsolidation of the Blue Hydrogen Industrial Gases Company joint venture in Saudi Arabia in the second quarter of fiscal year 2025.
Equity affiliates' income of $264.8 increased 6%, or $15.6, driven primarily by affiliates in Saudi Arabia.
Corporate and other
Nine Months Ended
30 June Change vs. Prior Year
2026 2025 $ %
Sales $357.2 $334.4 $22.8 7 %
Operating loss (266.5) (318.5) 52.0 16 %
Equity affiliates' income 2.0 11.3 (9.3) (82 %)
Sales of $357.2 increased 7%, or $22.8. Operating loss of $266.5 improved 16%, or $52.0, primarily reflecting productivity improvements and lower changes to sale of equipment project estimates.
Equity affiliates' income of $2.0 decreased $9.3 driven primarily by an affiliate in Algeria.
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RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
We present certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP") because they exclude items that management does not consider to be representative of our underlying business operations. We provide these adjusted non-GAAP financial measures to allow investors, potential investors, securities analysts, and others to evaluate our business in the same manner as management. When viewed together with our GAAP results, we believe these non-GAAP financial measures offer a more complete understanding of the factors and trends affecting our financial performance and support analysis of our results on a more consistent basis.
Readers are cautioned that non‑GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for the corresponding GAAP measures. Our definitions and calculations of non‑GAAP financial measures may differ from those used by other companies, which may limit comparability.
Non-GAAP Performance Measures
Management uses non-GAAP performance measures, including adjusted operating income, adjusted operating margin, and adjusted earnings per share ("EPS"), to assess our performance because these measures exclude items that management does not consider to be representative of our underlying business operations. In addition, adjusted operating income and adjusted EPS are important components of our incentive compensation plans. We also use adjusted operating margin to assess operational efficiency, cost discipline, and overall profitability.
Our non‑GAAP performance measures are adjusted to exclude gains or losses that management believes are not associated with the ongoing operations of our business. These adjustments, which are described below for the periods presented, are not reflected in the results of our reportable segments. Although these items are often difficult to predict, readers should be aware that similar gains or losses may occur in future periods. The related tax effects reflect the expected current and deferred income tax impacts of our non-GAAP adjustments, which are primarily driven by the statutory tax rates of the applicable jurisdictions and the taxability of the underlying adjustments in those jurisdictions.
We reconcile each non‑GAAP performance measure to its most directly comparable GAAP measure in the table below, followed by descriptions of each non-GAAP adjustment. Margins are calculated by dividing the applicable line item by consolidated sales for the relevant period. In addition to our non-GAAP performance measures, we also present components used in calculating adjusted EPS to illustrate the per share effect of our non‑GAAP adjustments. All per share amounts are calculated on a diluted basis from continuing operations attributable to Air Products. Because margins and per share amounts are calculated independently, the individual components may not sum to the related totals due to rounding.
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Three Months Ended 30 June
Q3 2026 vs. Q3 2025 Operating Income/Loss Operating Margin Equity Affiliates' Income Other Non- Operating Inc/Exp, Net Income Tax Expense/Benefit Net Income/Loss Attributable to Air Products Earnings/Loss per Share(A)
Q3 2026 GAAP Measures ($2,097.1) (66.3%) $205.2 $3.6 ($515.4) ($1,440.8) ($6.47)
Q3 2025 GAAP Measures 790.6 26.2% 167.6 (6.0) 159.6 721.8 3.24
$ GAAP Change ($2,887.7) ($9.71)
%/bp GAAP Change (365%) (9,250 bp) (300%)
Q3 2026 GAAP Measures ($2,097.1) (66.3%) $205.2 $3.6 ($515.4) ($1,440.8) ($6.47)
Business and asset actions 2,907.4 92.0% — — 695.4 2,212.0 9.92
Non-service pension cost, net — —% — 3.2 0.8 2.4 0.01
Q3 2026 Adjusted Measures $810.3 25.6% $205.2 $6.8 $180.8 $773.6 $3.47
Q3 2025 GAAP Measures $790.6 26.2% $167.6 ($6.0) $159.6 $721.8 $3.24
Business and asset actions 24.1 0.8% — — 8.7 15.4 0.07
Shareholder activism-related costs 25.0 0.8% — — 6.2 18.8 0.08
Gain on sale of business (67.3) (2.2%) — — (15.4) (51.9) (0.23)
Gain on sale of other assets(B) (31.3) (1.0%) — — (7.5) (23.8) (0.11)
Loss on de-designation of cash flow hedges(C) — —% — 0.3 0.1 0.1 —
Non-service pension cost, net — —% — 10.9 2.8 8.1 0.04
Q3 2025 Adjusted Measures $741.1 24.5% $167.6 $5.2 $154.5 $688.5 $3.09
$ Adjusted Change $69.2 $0.38
%/bp Adjusted Change 9% 110 bp 12%
(A)Calculated and presented on a diluted basis from continuing operations attributable to Air Products. Because we reported a loss from operations in fiscal year 2026, GAAP loss per share is calculated using the basic weighted average share value of 222.8 million, which does not consider outstanding share-based awards due to their anti-dilutive effect. Adjusted earnings per share is calculated using a diluted weighted average share value of 222.9 million.
(B)Reflected on the consolidated income statements within "Other income (expense), net."
(C)Loss attributable to noncontrolling interests was $0.1.
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Nine Months Ended 30 June
2026 vs. 2025 Operating Income/Loss Operating Margin Equity Affiliates' Income Other Non- Operating Inc/Exp, Net Income Tax Expense/Benefit Net Income/Loss Attributable to Air Products Earnings/Loss per Share(A)
2026 GAAP Measures ($609.9) (6.5)% $556.8 $3.1 ($197.3) ($52.2) ($0.23)
2025 GAAP Measures (893.8) (10.1)% 463.7 14.3 (205.5) (391.4) (1.76)
$ GAAP Change $283.9 $1.53
%/bp GAAP Change 32% 360 bp 87%
2026 GAAP Measures ($609.9) (6.5)% $556.8 $3.1 ($197.3) ($52.2) ($0.23)
Business and asset actions(B) 2,929.4 31.0% — 6.3 698.5 2,236.6 10.03
Non-service pension cost, net — —% — 11.2 2.8 8.4 0.04
2026 Adjusted Measures $2,319.5 24.6% $556.8 $20.6 $504.0 $2,192.8 $9.84
2025 GAAP Measures ($893.8) (10.1)% $463.7 $14.3 ($205.5) ($391.4) ($1.76)
Business and asset actions(B) 2,952.0 33.3% 6.8 — 649.3 2,306.0 10.35
Shareholder activism-related costs 86.3 1.0% — — 14.6 71.7 0.32
Gain on sale of business (67.3) (0.8)% — — (15.4) (51.9) (0.23)
Gain on sale of other assets(C) (31.3) (0.4)% — — (7.5) (23.8) (0.11)
Gain on de-designation of cash flow hedges(D) — —% — (27.0) (2.2) (7.2) (0.03)
Non-service pension cost, net — —% — 32.1 8.1 24.0 0.11
Tax reform adjustment related to deemed foreign dividends — —% — — 34.9 (34.9) (0.16)
Tax on repatriation of foreign earnings — —% — — (31.4) 31.4 0.14
2025 Adjusted Measures $2,045.9 23.1% $470.5 $19.4 $444.9 $1,923.9 $8.63
$ Adjusted Change $273.6 $1.21
%/bp Adjusted Change 13% 150 bp 14%
(A)Calculated and presented on a diluted basis from continuing operations attributable to Air Products. Because we reported a loss from operations in fiscal years 2026 and 2025, GAAP loss per share was calculated using the basic weighted average share value of 222.8 million and 222.7 million, respectively, and adjusted earnings per share was calculated using a diluted weighted average share value of 222.9 million.
(B)Charge attributable to noncontrolling interests was $0.6 and $3.5 for the nine months ended 30 June 2026 and 2025, respectively.
(C)Reflected on the consolidated income statements in "Other income (expense), net."
(D)Gain attributable to noncontrolling interests was $17.6 for the nine months ended 30 June 2025.
Non-GAAP Adjustments
Business and Asset Actions
During the third quarter of fiscal year 2026, we recorded charges of $2.9 billion pre-tax ($2.2 billion after tax, or $9.92 per share) related to project exit decisions announced on 30 June 2026. Year-to-date charges totaled $2.9 billion pre-tax ($2.2 billion after tax, or $10.03 per share), including $28.3 recorded during the first quarter primarily to update estimates related to project exit decisions announced in fiscal year 2025.
In the prior-year quarter, we recorded charges of $24.1 pre-tax ($15.4 after tax, or $0.07 per share), primarily reflecting revisions to cost estimates associated with project exit actions approved in the second quarter of fiscal year 2025. Year-to-date charges in the prior year totaled $3.0 billion pre-tax ($2.3 billion after tax, or $10.35 per share), which included the initial charges associated with those decisions, as well as costs related to employee actions under our global cost reduction plan.
For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.
Estimates related to business and asset actions reflect management's best judgment based on information available at the time the charges were recorded. Final settlement of these items may differ materially from current estimates, which could impact our consolidated financial statements in future periods.
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Shareholder Activism-Related Costs
In the prior-year quarter, we recorded shareholder activism-related costs of $25.0 pre-tax ($18.8 after tax, or $0.08 per share) in connection with a proxy contest that concluded in January 2025 following certification of the directors elected at the 2025 Annual Meeting of Shareholders. For the nine months ended 30 June 2025, shareholder activism-related costs totaled $86.3 pre-tax ($71.7 after-tax, or $0.32 per share). For additional information, refer to Note 17, Supplemental Information, to the consolidated financial statements.
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 pre-tax ($51.9 after tax, or $0.23 per share) in connection with the transaction during the third quarter of fiscal year 2025.
Gain on Sale of Other Assets
In June 2025, we sold a regional office in Hersham, England, for cash proceeds of $37.7. We recognized a gain on sale of $31.3 pre-tax ($23.8 after tax, or $0.11 per share) during the third quarter of fiscal year 2025 that was presented within “Other income (expense), net” on our consolidated income statements.
Gain (Loss) on De-designation of Cash Flow Hedges
In fiscal year 2024, we discontinued cash flow hedge accounting for certain interest rate swaps due to changes in the anticipated drawdown timeline for hedged borrowings related to the NEOM Green Hydrogen Project. These swaps are held by NEOM Green Hydrogen Company, a consolidated joint venture accounted for under the variable interest model, in which Air Products holds a one-third ownership interest. As a result of the de-designation, unrealized gains and losses related to the affected swaps were recorded in "Other non-operating income (expense), net" on our consolidated income statements. During the third quarter of fiscal year 2025, we recorded an unrealized loss of $0.3 pre-tax ($0.1 attributable to Air Products after tax), with $0.1 attributable to our noncontrolling partners. For the nine months ended 30 June 2025, the total amount recorded was a net unrealized gain of $27.0 pre-tax ($7.2 attributable to Air Products after tax, or $0.03 per share), with $17.6 attributable to our noncontrolling partners, respectively.
We re-designated the affected swaps as cash flow hedges when the outstanding borrowings under the available project financing became commensurate with the swaps’ notional values. As of 1 January 2026, all swaps were re-designated as cash flow hedges. The unrealized gain on swaps that remained de-designated during the first quarter of fiscal year 2026 was not material.
Non-Service Related Pension Items
Non-service related pension items resulted in net non-operating costs of $3.2 pre-tax ($2.4 after tax, or $0.01 per share) and $11.2 pre-tax ($8.4 after tax, or $0.04 per share) for the three and nine months ended 30 June 2026, respectively, compared to $10.9 pre-tax ($8.1 after tax, or $0.04 per share) and $32.1 pre-tax ($24.0 after tax, or $0.11 per share) for the three and nine months ended 30 June 2025, respectively. Non-service related components are recurring, non-operating items that include interest cost, expected returns on plan assets, prior service cost amortization, actuarial loss amortization, as well as special termination benefits, curtailments, and settlements. The net impact of non-service related components is reflected within “Other non-operating income (expense), net” on our consolidated income statements. Adjusting for the impact of non-service pension components provides management and users of our financial statements with a more accurate representation of our underlying business performance because these components are driven by factors that are unrelated to our operations, such as volatility in equity and debt markets. Further, non-service related components are not indicative of our defined benefit plans’ future contribution needs due to the funded status of the plans.
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 ($0.16 per share) 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). While we were not a party to these cases, the opinions resulted in a change to our intent to pursue a refund claim.
Tax on Repatriation of Foreign Earnings
During the second quarter of fiscal year 2025, we recorded an income tax expense of $31.4 ($0.14 per share) related to estimated withholding taxes on certain foreign earnings no longer considered indefinitely reinvested.
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Loss from Discontinued Operations
Our non-GAAP financial measures are presented on a continuing operations basis, which excludes a prior-year pre-tax loss from discontinued operations of $10.6 ($8.0 after tax, or $0.04 per share). The loss was recorded during the third quarter of fiscal year 2025 primarily to increase retained environmental remediation obligations associated with businesses sold in 2008.
ADJUSTED EFFECTIVE TAX RATE
The effective tax rate represents income tax expense (benefit) divided by income or loss before taxes as reported under GAAP. We calculate our adjusted effective tax rate by adjusting both the numerator and the denominator to exclude the tax and pre‑tax effects of our non‑GAAP adjustments, respectively.
The table below presents a reconciliation of the GAAP effective tax rate to our adjusted effective tax rate:
Three Months Ended 30 June Nine Months Ended 30 June
2026 2025 2026 2025
Income tax expense (benefit) ($515.4) $159.6 ($197.3) ($205.5)
Income (Loss) from continuing operations before taxes (1,937.7) 890.8 (203.4) (562.0)
Effective tax rate 26.6 % 17.9 % 97.0 % 36.6 %
Reconciliations of GAAP to Non-GAAP:
Income tax expense (benefit) ($515.4) $159.6 ($197.3) ($205.5)
Business and asset actions tax impact 695.4 8.7 698.5 649.3
Shareholder activism-related costs tax impact — 6.2 — 14.6
Gain on sale of business tax impact — (15.4) — (15.4)
Gain on sale of other assets tax impact — (7.5) — (7.5)
Loss (Gain) on de-designation of cash flow hedges tax impact — 0.1 — (2.2)
Non-service pension cost, net tax impact 0.8 2.8 2.8 8.1
Tax reform adjustment related to deemed foreign dividends — — — 34.9
Tax on repatriation of foreign earnings — — — (31.4)
Adjusted income tax expense $180.8 $154.5 $504.0 $444.9
Income (Loss) from continuing operations before taxes ($1,937.7) $890.8 ($203.4) ($562.0)
Business and asset actions 2,907.4 24.1 2,935.7 2,952.0
Shareholder activism-related costs — 25.0 — 86.3
Gain on sale of business — (67.3) — (67.3)
Gain on sale of other assets — (31.3) — (31.3)
Loss (Gain) on de-designation of cash flow hedges — 0.3 — (27.0)
Non-service pension cost, net 3.2 10.9 11.2 32.1
Business and asset actions—equity method investment — — — 6.8
Adjusted income from continuing operations before taxes $972.9 $852.5 $2,743.5 $2,389.6
Adjusted effective tax rate 18.6 % 18.1 % 18.4 % 18.6 %
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CAPITAL EXPENDITURES (NON-GAAP)
Capital expenditures is a non-GAAP financial measure that management uses to evaluate our deployment of capital and assess alignment with our strategic priorities. Our calculation of this measure begins as the sum of cash paid for additions to plant and equipment, including long-term deposits, acquisitions (less cash acquired), investment in and advances to unconsolidated affiliates, and investment in financing receivables, each of which are reported on our consolidated statements of cash flows.
We then adjust this amount to exclude spending for additions to plant and equipment by our consolidated joint venture, NEOM Green Hydrogen Company (“NGHC”), to the extent such spending is funded by sources other than Air Products’ cash. These other funding sources include NGHC’s project financing, which is non‑recourse to Air Products, as well as equity contributions from the other joint venture partners. Management believes this adjustment provides a more useful view of the capital we deploy to support the ongoing growth of our business.
The most directly comparable GAAP measure to our non‑GAAP capital expenditures is “Cash used for investing activities,” as reported on our consolidated statements of cash flows. The reconciliation of cash used for investing activities to our reported capital expenditures is provided below:
Nine Months Ended
30 June
2026 2025
Cash used for investing activities $3,311.5 $5,681.0
Proceeds from sale of assets and investments 132.8 185.4
Purchases of short-term investments — (117.6)
Proceeds from short-term investments — 122.5
Proceeds from other investing activities 19.0 112.7
NGHC expenditures not funded by Air Products' equity(A) (817.1) (1,981.2)
Capital expenditures $2,646.2 $4,002.8
(A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture. Substantially all the funding we provide to NGHC is limited for use by the joint venture for its capital expenditures.
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LIQUIDITY AND CAPITAL RESOURCES
We believe we have sufficient cash, cash flows from operations, and access to funding sources to meet our liquidity needs. As further discussed in the "Cash Flows From Financing Activities" section below, we are able to raise capital through a variety of financing activities, including accessing capital or commercial paper markets or drawing upon our credit facilities.
As of 30 June 2026, we held cash and cash items of $980.5, of which $803.0 was held outside the U.S. We do not expect a significant portion of the earnings from our foreign subsidiaries and affiliates to be subject to U.S. income tax upon repatriation. Depending on the country in which these entities operate, repatriation of earnings may be subject to foreign withholding and other taxes. However, we intend to indefinitely reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.
Cash Flows From Operations
Nine Months Ended
30 June
2026 2025
Net loss from continuing operations attributable to Air Products ($52.2) ($391.4)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization 1,131.1 1,151.4
Deferred income taxes (511.7) (497.2)
Tax reform repatriation — (34.9)
Gain on sale of business — (67.3)
Business and asset actions 2,929.4 2,952.0
Undistributed earnings of equity method investments (83.8) (137.8)
Gain on sale of assets and investments (4.7) (46.9)
Share-based compensation 38.7 65.7
Noncurrent lease receivables 36.4 40.1
Other adjustments 37.2 31.4
Changes in working capital accounts (210.8) (1,069.5)
Cash Provided by Operating Activities $3,309.6 $1,995.6
For the first nine months of fiscal year 2026, cash provided by operating activities was $3.3 billion. Charges for business and asset actions totaled $2.9 billion, primarily driven by project exit costs as described in Note 4, Business and Asset Actions, to the consolidated financial statements. The adjustment for deferred income taxes of $511.7 was largely attributable to tax deductions associated with these project exit costs. The working capital accounts were a net use of cash of $210.8, primarily driven by a $202.6 use related to payables and accrued liabilities. This use primarily included payments for contract terminations tied to our business and asset actions, previously accrued severance actions under our global cost reduction plan, and incentive compensation under the fiscal year 2025 plan.
For the first nine months of fiscal year 2025, cash provided by operating activities was $2.0 billion. The adjustment for deferred income taxes of $497.2 was driven by the tax impacts of project exit costs as described in Note 4, Business and Asset Actions, to the consolidated financial statements. The working capital accounts were a use of cash of $1.1 billion. The use of cash of $624.6 in other working capital was driven by payments for income taxes that exceeded income tax expense by $538.6, including tax impacts of the project exit costs described in Note 4, Business and Asset Actions, to the consolidated financial statements. We made approximately $395 of tax payments related to the gain on the September 2024 sale of the LNG business in fiscal year 2025. Payables and accrued liabilities were a use of cash of $215.1, primarily due to payments for contract terminations and severance related to our business and asset actions. A use of cash of $102.8 for other receivables was primarily due to the timing of value added tax payments during the construction of the NEOM Green Hydrogen Project. Trade receivables resulted in a use of cash of $91.4, driven by the timing of cash collections.
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Cash Flows From Investing Activities
Nine Months Ended
30 June
2026 2025
Additions to plant and equipment, including long-term deposits ($3,354.5) ($5,504.9)
Acquisitions, less cash acquired — (59.9)
Investments in and advances to unconsolidated affiliates (108.8) (365.4)
Investments in financing receivables — (53.8)
Proceeds from sale of assets and investments 132.8 185.4
Purchases of short-term investments — (117.6)
Proceeds from short-term investments — 122.5
Proceeds from other investing activities 19.0 112.7
Cash Used for Investing Activities ($3,311.5) ($5,681.0)
For the first nine months of fiscal year 2026, cash used for investing activities of $3.3 billion was primarily driven by additions to plant and equipment, including long-term deposits, as discussed in the "Capital Expenditures" section below.
For the first nine months of fiscal year 2025, cash used for investing activities was $5.7 billion. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $5.5 billion, as well as a use of cash of $365.4 for investments in and advances to unconsolidated affiliates. Refer to the "Capital Expenditures" section below for further detail. Cash paid for acquisitions, net of cash acquired, totaled $59.9 and was paid at the closing of the acquisition of an independent industrial gases company in Belgium. Refer to Note 17, Supplemental Information, to the consolidated financial statements for additional information. These uses of cash were partially offset by proceeds of $185.4 from asset and investment sales, including $104.3 from the sale of a subsidiary in Singapore and $37.7 for the sale of a regional office in Hersham, England. Refer to Note 17, Supplemental Information, to the consolidated financial statements for additional information.
Capital Expenditures (Non-GAAP Financial Measure)
The components of our capital expenditures are detailed in the table below. Refer to page 72 for a definition of this non-GAAP financial measure as well as a reconciliation to cash used for investing activities.
Nine Months Ended
30 June
2026 2025
Additions to plant and equipment, including long-term deposits $3,354.5 $5,504.9
Acquisitions, less cash acquired — 59.9
Investments in and advances to unconsolidated affiliates 108.8 365.4
Investments in financing receivables — 53.8
NGHC expenditures not funded by Air Products' equity(A) (817.1) (1,981.2)
Capital expenditures $2,646.2 $4,002.8
(A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture. Substantially all the funding we provide to NGHC is limited for use by the joint venture for its capital expenditures. For additional information regarding this adjustment, refer to page 72.
Capital expenditures for the first nine months of fiscal year 2026 totaled $2.6 billion compared to $4.0 billion in the prior year. Cash outflows for both periods primarily reflect investments in clean energy initiatives, including the NEOM Green Hydrogen Project and Alberta, Canada, as well as ongoing capital spending to maintain and replace assets in our core industrial gases business. Spending on the NEOM Green Hydrogen Project declined in fiscal year 2026 as the project nears completion.
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Outlook for Investing Activities
It is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because management is unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at the time we enter into transactions. These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities. Accordingly, management is unable to fully reconcile, without unreasonable efforts, our forecasted capital expenditures to future cash used for investing activities.
We expect capital expenditures for fiscal year 2026 to be approximately $3.5 billion, with continued investment in our energy transition projects, traditional industrial gas projects, and maintenance within our core business. Approximately $1 billion of this amount is expected to be dedicated to traditional industrial gas projects. We anticipate funding these expenditures through our existing cash balance and cash generated from continuing operations. We also have access to capital and money market financing as well as other sources of funding as discussed in the "Financing and Capital Structure" section below.
Cash Flows From Financing Activities
Nine Months Ended
30 June
2026 2025
Long-term debt proceeds $644.0 $3,978.2
Payments on long-term debt (662.8) (380.1)
Net increase in commercial paper and short-term borrowings 77.0 214.7
Dividends paid to shareholders (1,200.0) (1,185.7)
Investments by noncontrolling interests 301.5 485.9
Other financing activities (36.1) (78.7)
Cash (Used for) Provided by Financing Activities ($876.4) $3,034.3
For the first nine months of fiscal year 2026, cash used for financing activities was $876.4. The use of cash was driven by cash dividends paid to shareholders of $1.2 billion and long-term debt repayments of $662.8. Long-term debt repayments included the repayment of $550.0 aggregate principal amount of 1.50% senior notes due October 2025. These uses of cash were partially offset by $644.0 of long-term debt proceeds, primarily from incremental borrowings under the project financing arrangement available to NGHC for the NEOM Green Hydrogen Project. Additionally, we received net proceeds of $301.5 from investments by noncontrolling interests in NGHC, and $77.0 from commercial paper, net of repayments, and short-term instruments.
For the first nine months of fiscal year 2025, cash provided by financing activities was $3.0 billion. The source of cash was driven by long-term debt proceeds of $4.0 billion, including $2.7 billion from Euro- and U.S. Dollar-denominated senior fixed-rate notes in February and June 2025. We used the net proceeds from the February 2025 Offering to repay commercial paper obligations, including those incurred prior to the closing of the February 2025 Offering that were used to repay €300 million aggregate principal amount outstanding of our 1.000% Euro-denominated senior fixed-rate notes at maturity, plus accrued interest. We used the net proceeds from the June 2025 Offerings to repay commercial paper obligations and for general corporate purposes. The remaining $1.3 billion was provided from project financing available to the NGHC joint venture as further discussed below. Additionally, we received $485.9 from noncontrolling interests in NGHC and the Blue Hydrogen Industrial Gases Company joint venture in Saudi Arabia. Proceeds, net of repayments, from commercial paper and short-term instruments were $214.7. These sources of cash were partially offset by dividend payments to shareholders of $1.2 billion.
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Financing and Capital Structure
Debt
Total debt was $17.7 billion as of both 30 June 2026 and 30 September 2025. Total debt included related party debt of $215.7 and $236.5 as of 30 June 2026 and 30 September 2025, respectively.
Borrowings during the first nine months of fiscal year 2026 primarily included $543 drawn from non-recourse project financing available to the NGHC joint venture, as further discussed below. Additionally, the net increase in commercial paper and short-term borrowings was $77.0. These debt proceeds were offset by the repayment of $550.0 aggregate principal amount of 1.50% senior notes due October 2025.
Various debt agreements to which we are a party include financial covenants and other restrictions, including restrictions pertaining to the ability to create property liens and enter into certain sale and leaseback transactions. As of 30 June 2026, we were in compliance with all the financial and other covenants under our debt agreements.
Committed Credit Facilities
On 26 March 2026, we amended our existing 364-day $500 revolving credit agreement to extend its maturity date from 26 March 2026 to 25 March 2027. The amendment also provides that if we elect to convert the facility into a term loan, the maturity date of the term loan would be 25 March 2028. Fees incurred in connection with the amendment were not material.
We also maintain a five-year $3.0 billion revolving credit agreement that matures on 31 March 2029. Both the 364-day agreement and the five-year agreement are syndicated committed facilities that provide a source of liquidity and support our commercial paper program through the availability of senior unsecured debt to us and certain of our subsidiaries. No borrowings were outstanding under either of the agreements as of 30 June 2026 or 30 September 2025.
Separately, certain of our foreign subsidiaries maintain access to committed credit facilities with a combined maximum borrowing capacity of $409.8, of which $384.6 was borrowed and outstanding as of 30 June 2026. The amount available and borrowed as of 30 September 2025 was $394.0.
NEOM Green Hydrogen Project Financing
To support the NEOM Green Hydrogen Project, NGHC has access to project financing of approximately $6.1 billion, which is expected to fund about 69% of the project and is being drawn over the construction period, as well as additional credit facilities totaling approximately $500 primarily for NGHC's working capital needs. Creditors of NGHC do not have recourse to the general credit of Air Products. As of 30 June 2026, the joint venture had borrowed short- and long-term principal amounts totaling $5.5 billion compared to $4.9 billion as of 30 September 2025. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.
Dividends
We believe that providing a consistent dividend plays a critical role in creating shareholder value. The Board of Directors determines whether to declare cash dividends on our common stock, and the timing and amount of those dividends, based on our financial condition and other factors it deems relevant. In January 2026, the Board of Directors approved a $0.02 per share increase to our quarterly dividend, raising it to $1.81 per share and marking our 44th consecutive year of dividend increases.
Dividends are paid quarterly, typically during the sixth week following the close of the fiscal quarter. During the first nine months of fiscal year 2026, we paid $1.2 billion in dividends to shareholders. Dividends declared but unpaid as of the date of this report were as follows:
Declaration Date Dividend Per Share Record Date Date Payable
23 April 2026 $1.81 1 July 2026 10 August 2026
22 July 2026 $1.81 1 October 2026 9 November 2026
In total, we expect to return approximately $1.6 billion to shareholders in 2026.
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PENSION BENEFITS
We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. For additional information, refer to Note 11, Retirement Benefits, to the consolidated financial statements.
Net Periodic Cost
The table below summarizes the components of net periodic cost for our U.S. and international defined benefit pension plans:
Three Months Ended Nine Months Ended
30 June 30 June
2026 2025 2026 2025
Service cost $4.7 $5.3 $14.1 $15.5
Non-service cost 3.2 10.9 11.2 32.1
Other 0.3 0.1 0.9 0.2
Net Periodic Cost $8.2 $16.3 $26.2 $47.8
Net periodic cost was $8.2 and $26.2 for the three and nine months ended 30 June 2026, respectively. Net periodic cost was $16.3 and $47.8 for the three and nine months ended 30 June 2025, respectively. The lower non-service related costs are the result of higher expected return on plan assets from increases in the return assumption and a decrease in actuarial loss amortization. Non-service related components of net periodic cost are reflected within "Other non-operating income (expense), net" on our consolidated income statements.
Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first nine months of fiscal years 2026 and 2025 was not material.
Company Contributions
Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the nine months ended 30 June 2026 and 2025, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $18.4 and $20.8, respectively.
Total contributions for fiscal year 2026 are expected to be approximately $25 to $35. During fiscal year 2025, total contributions were $29.9.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A description of our major accounting policies, including those that we consider to be the most critical to understanding our financial statements, is included in our 2025 Form 10-K. There were no significant changes to our accounting policies during the first nine months of fiscal year 2026.
Management’s Discussion and Analysis of our financial condition and results of operations is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates reflect our best judgment about current and/or future economic and market conditions and their effect based on information available as of the date of our consolidated financial statements. If conditions change, actual results may differ materially from these estimates.
Judgments and estimates of uncertainties are required to apply our accounting policies in many areas. However, application of policies that management has identified as critical places significant importance on management’s judgment, often as the result of the need to make estimates about the effects of matters that are inherently uncertain.
During the first nine months of fiscal year 2026, we recorded project exit charges of $2.9 billion pre-tax ($2.2 billion after-tax, or $10.03 per share) as described in Note 4, Business and Asset Actions, to the consolidated financial statements. The pre-tax charges included an impairment loss of $2.2 billion for plant and equipment associated with project exit decisions. These assets had a carrying value of $201.2 as of 30 June 2026.
The fiscal year 2026 pre-tax charges also included $22.0 recorded to operating income during the first quarter to update estimates for project-related commitments and asset disposal costs associated with project exits previously announced in fiscal year 2025.
In addition to the plant and equipment discussed above, our balance sheet as of 30 June 2026 includes long-lived assets classified as held for sale with a carrying value of $461.6. These assets are associated with prior-year project exit decisions and met the held-for-sale criteria beginning in the fourth quarter of fiscal year 2025. The related impairment charges were recognized upon classification of the assets as held for sale. We continue to actively market these assets and remain engaged in sales and negotiation efforts. Fair value, including costs to sell, was estimated using an internally developed discounted cash flow analysis as of 30 September 2025. There were no material changes in valuation assumptions or the estimated fair value, including costs to sell, for these assets as of 30 June 2026.
Estimates related to project exit decisions are considered critical because they involve significant assumptions regarding future cash flows, asset disposition strategies, and market conditions, all of which are subject to change and could materially affect the measurement and timing of impairment charges. The fair value measurements associated with these project exit decisions were classified within Level 3 of the fair value hierarchy due to the absence of observable market prices and significant use of management judgment and estimation techniques. Additionally, because the project review is ongoing, we may make further project-related decisions that could impact the intended use or recoverability of certain assets, potentially resulting in the recognition of additional charges in future periods.
During the first nine months of fiscal year 2026, we also recorded changes to project revenue and cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded cumulative effect adjustments that unfavorably impacted operating income (loss) by $78 for the nine months ended 30 June 2026.
There were no other changes to our estimates during the first nine months of fiscal year 2026 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.
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