APD 10-K & 10-Q changes, risk factors and insider trading

Our operations are affected by various risks, many of which are beyond our control. In evaluating investment in the Company and the forward-looking information contained in this Annual Report on Form 10-K or presented elsewhere from time to time, youreaders should carefully consider the risk factors discussed below. Any of these risks could have a material adverse effect on our business, operating results, financial condition, and the actual outcome of matters as to which forward-looking statements are made and could adversely affect the value of an investment in our securities. The risks described below are not all inclusive but are designed to highlight what we believe are important factors to consider when evaluating our expectations. In addition to such risks, there may be additional risks and uncertainties that adversely affect our business, performance, or financial condition in the future that are not presently known, are not currently believed to be significant, or are not identified below because they are common to all businesses.

Demand for our products and services depends in part on the general economic conditions affecting the regions and markets in which we do business. Weak economic conditions and changing supply and demand balances in the markets we serve have negatively impacted demand for our products and services in the past and may do so in the future. In addition, certain of our growthgreen strategyand isblue hydrogen projects are largely based on expected demand for technologies and projects to limit the impact of global climate change. Demand for our solutions could be negatively impacted if the public and private sectors reduce their focus on reducing carbon emissions. Reduced demand for our products and services would have a negative impact on our revenues and earnings and could decrease our margins, constrain our operating flexibility, reduce efficient utilization of our manufacturing capacity, or result in unexpected charges. Excess capacity in our manufacturing facilities or those of our competitors could decrease our ability to maintain pricing and generate profits.

Weak overall demand or specific customer conditions may also cause customer shutdowns or defaults or otherwise make us unable to operate facilities profitably and may force sale or abandonment of facilities and equipment or prevent projects from coming on-stream when expected. These or other events associated with weak economic conditions or specific market, industry, product, or customer events may require us to record an impairment on tangible assets, such as facilities and equipment, or intangible assets, such as customer relationships, intellectual propertyproperty, or goodwill. Any charges relating to such impairments could be significant and could have a material adverse impact on our financial condition and results of operations.

In fiscal year 2024,2025, approximately 60% of our sales were derived from customers outside the United States and many of our operations, suppliers, customers, and employees are located outside the United States. Our operations in foreign jurisdictions may be subject to risks including exchange control regulations, import and trade restrictions, tariffs, trade policy and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. Changing economic and political conditions within foreign jurisdictions, strained relations between countries, or the imposition, extension, or expansion of tariffs or international sanctions can cause fluctuations in demand, price volatility, supply disruptions, or loss of property. We have experienced these events in the past and the occurrence of any of these risks in the future could have a material adverse impact on our financial condition, results of operations, and cash flows.

OurCertain growth strategies depend in part onof our abilitylarger toand furthermore penetratecomplex projects are located in markets outside the United States, such as China, India, the Middle East, and Uzbekistan, and involve significantly larger and more complex projects, including gasification and large-scale hydrogen projects, some in regionslocations where there is the potential for significant economic and political disruptions. We are actively investing large amounts of capital and other resources, in some cases through joint ventures, in developing markets, which we believe to have high growth potential. Our operations in these markets may be subject to greater risks than those faced by our operations in mature economies, including political and economic instability, project delay or abandonment due to unanticipated government actions, inadequate investment in infrastructure, undeveloped property rights and legal systems, unfamiliar regulatory environments, relationships with local partners, language and cultural differences and increased difficulty recruiting, training and retaining qualified employees. In addition, our properties and contracts in these locations may be subject to seizure and cancellation, respectively, without full compensation for loss. Successful operation of particular facilities or execution of projects may be disrupted by civil unrest, acts of war, sabotage or terrorism, and other local security concerns. Such concerns may require us to incur greater costs for security or require us to shut down operations for a period of time.

A significant and growing portion of our business involves clean hydrogen, carbon capture, gasification, and other large-scale projects that involve challenging engineering, permitting, procurement, and construction phases that may last several years and involve the investment of billions of dollars. These projects are technically complex, often reliant on significant interaction with government authorities, and face significant financing, development, operational, and reputational risks. These projects may also be subject to complex government approvals, as well as legal or regulatory challenges by government authorities or third parties. Delays in receiving required approvals or related toapprovals, litigation and execution difficulties have required us and could in the future require us to delay or abandon certain projects, which may result in higher costs, lower returns, the loss of invested proceeds, and reputational damage.

We have in the past and may in the future encounter difficulties related to the development of projects that may result in delays, scope changes and additional costs.costs, or project cancellations. Such difficulties may relate to engineering, delays in designs or materials provided by the customer or a third party, equipment and materials delivery delays, schedule changes, customer scope changes, delays related to obtaining regulatory permits and rights-of-way, inability to find adequate sources of labor in the locations where we are building new plants, weather-related delays, delays by customers' contractors in completing their portion of a project, technical or transportation difficulties, cost overruns, supply difficulties, geopolitical risks, and other factors, many of which are beyond our control, that may impact our ability to complete a project within the original delivery schedule. In some cases, delays and additional costs have been and may in the future be substantial and could have a material adverse effect on our financial condition and results of operations. We also may be required to cancel a project and/or compensate the customer for the delay, which may also cause us to incur material costs that we may be unable to recover. In addition, in some cases we seek financing for large projects and face market risk associated with the availability and terms of such financing. These financing arrangements may require that we comply with certain performance requirements which, if not met, could result in default and restructuring costs or other losses.losses, as well as potential acceleration of cash outflows. All of these factors could also negatively impact our reputation or relationships with our customers, suppliers and other third parties, any of which could adversely affect our ability to secure new projects in the future.

We are subject to government regulation in the United States and in the foreign jurisdictions where we conduct business. The application of laws and regulations to our business is sometimes unclear. Compliance with laws and regulations may involve significant costs or require changes in business practices that could result in reduced profitability. If there is a determination that we have failed to comply with applicable laws or regulations, we may be subject to penalties or sanctions that could adversely impact our reputation and financial results. Compliance with changes in laws or regulations can result in increased operating costs and require additional, unplanned capital expenditures. Export controls or other regulatory restrictions could prevent us from shipping our products to and from some markets or increase the cost of doing so. Changes in tax laws and regulations and international tax treaties could affect the financial results of our businesses. Increasingly aggressive enforcement of anti-bribery and anti-corruption requirements, including the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and the China Anti-Unfair Competition Law, could subject us to criminal or civil sanctions if a violation is deemed to have occurred. In addition, we are subject to laws and sanctions imposed by the U.S. and other jurisdictions where we do business that may prohibit us, or certain of our affiliates, from doing business in certain countries,countries or with certain customers or restricting the kind of business that we may conduct. Such restrictions may provide a competitive advantage to competitors who are not subject to comparable restrictions or prevent us from taking advantage of growth opportunities.

As with most large systems, our information technology systems have in the past been, and in the future likely will be subject to computer viruses, malicious codes, unauthorized access and other cyber-attacks, and we expect the sophistication and frequency of such attacks to continue to increase. In addition, advancements in, and the deployment of, intelligent automation, including artificial intelligence tooling and “bots”, may increase our and our vendors’ vulnerability to such attacks. To date, we are not aware of any significant impact on our operations or financial results from such attempts; however, unauthorized access could disrupt our business operations, result in the loss of assets, and have a material adverse effect on our business, financial condition, or results of operations. Any of the attacks, breaches or other disruptions or damage described above could: interrupt our operations at one or more sites; delay production and shipments; result in the theft of our and our customers’ intellectual property and trade secrets; damage customer and business partner relationships and our reputation; result in defective products or services, physical damage to facilities, pipelines or delivery systems, including those we own or operate for third parties,parties; result in legal claims and proceedings, including liability and penalties under applicable privacy laws,laws; orlead to increased costs for security and remediation; or raise concerns regarding our internal control environment and internal control over financial reporting. Each of these consequences could adversely affect our business, reputation and our financial statements.

Hydrocarbons, including natural gas, are the primary feedstock for the production of hydrogen, carbon monoxide, and syngas. Energy, including electricity, natural gas, and diesel fuel for delivery trucks, is the largest cost component of our business. Because our industrial gas facilities use substantial amounts of electricity, inflation and energy price fluctuations have impacted our revenues and earnings and may continue to do so in the future. A disruption in raw material sources or the supply of energy, components,energy or raw materials,components, whether due to market conditions, legislative or regulatory actions, natural disasters, public health crises and pandemics, or other disruption, could prevent us from meeting our contractual commitments and harm our business and financial results.

Our supply of crude helium for purification and resale is largely dependent upon natural gas production by crude helium suppliers. Lower or higher natural gas production resulting from natural gas pricing dynamics, supplier operating or transportation issues, or other interruptionschanges into salesthe fromglobal crude helium suppliers, can reduce our suppliessupply of crude helium availablecan affect pricing for processinghelium andfor resaleour tocustomers, customers.which can adversely affect our results of operations.

New technologies create performance risks that could impact our financial results or reputation.reputation, and failure to develop new technologies may harm our competitive position.

We are continually developing and implementing new technologies and product offerings. Existing technologiestechnologies, including those procured exclusively from third-party suppliers, are being implemented in products and designs or at scales beyond our experience base. These technological expansions can create nontraditional performance risks to our operations. Failure of the technologies to work as predicted, or unintended consequences of new designs or uses, could lead to cost overruns, project delays, financial penalties, or damage to our reputation. We may face difficulties marketing products produced using new technologies including, but not limited to, green hydrogen, which may adversely impact our sales and financial results. In addition, certain large-scale projects may contain processes or technologies that we have not operated at the same scale or in the same combination, and although such projects generally include technologies and processes that have been demonstrated previously by others, such technologies or processes may be new to us and may introduce new risks to our operations. Further, if we are unsuccessful in developing new technologies, including development and application of artificial intelligence, our development activities do not keep pace with those of our competitors, or if we do not create new technologies that benefit customers, our competitive position and operating results may be negatively affected. Additionally, there is also a risk that our new technologies may become obsolete and be replaced by other market alternatives.alternatives, or that new technologies may not become commercially accepted. Performance difficulties on these larger projects may have a material adverse effect on our operations and financial results. In addition, performance challenges may adversely affect our reputation and our ability to obtain future contracts.

We are the world’s leading supplier of hydrogen, the primary use of which is the production of ultra-low sulfur transportation fuels that have significantly reduced transportation emissions and helped improve human health. To make the high volumes of hydrogen needed by our customers, we have historically used steam methane reforming to produce hydrogen without carbon capture (i.e., "gray hydrogen"), which results in the emission of CO2. In addition, gasification enables the conversion of lower value feedstocks into cleaner energy and value-added products; however, our gasification projects also produce CO2. Some of our operations are within jurisdictions that have or are developing regulatory regimes governing disclosure of GHG emissions, including CO2, such as the European Union's CSRD, California’s Climate Corporate Data Accountability Act and Climate Related Financial Risk Act, and similar regulations under consideration by the SEC, which may lead to direct and indirect costs on our operations. We could also face scrutiny from stakeholders regarding our reporting under various frameworks for disclosing GHG emissions-related data, including those we use currently in our sustainability reporting. If our GHG emissions-related data, processes, and reporting are incomplete or inaccurate, or if we fail to comply with relevant reporting frameworks from newly emerging regulations, we may incur monetary penalties and reputational harm, and we could become subject to litigation or government investigations, which may also adversely affect our reputation and business.

Increased public concern and governmental action may result in more international, U.S. federal and/or regional requirements to reduce or mitigate the effects of GHG emissions or increased demand for technologies and projects to limit the impact of global climate change. Although uncertain, these developments could increase our costs related to consumption of electric power, hydrogen (including clean hydrogen) production, and application of our gasification technology, although these developments may be mitigated by our growth strategy focused on world-scale clean hydrogen projects.technology. We believe we will be able to mitigate some of the increased costs through contractual terms, but the lack of definitive legislation or regulatory requirements prevents an accurate estimate of the long-term impact these measures will have on our operations. Any legislation or governmental action that limits or taxes GHG emissions could negatively impact our growth, increase our operating costs, or reduce demand for certain of our products, particularly for our core industrial gases business.

In addition, certain of our growthprojects strategy isare partially dependent on a regulatory environment that favors technologies focused on limiting the impact of climate change, in particular toward the production and distribution of clean hydrogen. For example, we anticipate benefits from tax incentives created by the U.S. Inflation Reduction Act of 2022 for carbon sequestration and clean hydrogen production in future years once our projects in these areas come on-stream in the U.S. If there is a reversal in the regulatory environment or a discontinuation or reduction of incentives or benefits for the development of technologies limiting the impact of climate change, particularly those focused on low- and zero-carbon hydrogen production, or significant uncertainty regarding such efforts, certain of our projects may be threatened and for completed projects demand for our products may be less than we anticipate and certain projects and our long-term growth strategy could be adversely affected. AnyFor suchexample, occurrencein fiscal year 2025, we cancelled a project to build a green liquid hydrogen project in the U.S., based in part on a regulatory development that rendered existing hydroelectric power supply ineligible for the Clean Hydrogen Production Tax Credit (45V) and incurred a significant impairment charge for the amount that we had invested in the project. Further negative regulatory developments could adversely affect our projected returns, which could lead us to re-evaluate certain projects and may harm our business and financial performance.

Our success depends on our ability to attract, develop, engage, and retain employees with the skills necessary to our business. Competitive labor market conditions have resulted in increased demand for qualified personnel, which makes it difficult to attract, hire, and retain employees with specialized technical experience. In addition, the increasing number of experienced employees becoming retirement-eligible and our company headcount growth further amplifyamplifies this challenge. The number of our employees has grown both internationally and in the United States, with our total headcount increasing from approximately 16,300 at the end of fiscal 2018 to as high as approximately 23,000 in fiscal 2024. However, we have been taking actions since that time to reduce the size of our workforce and currently expect headcount to stabilize at approximately 20,000 at the end of fiscal 2024.2026 as we complete certain projects and complete actions to right-size the organization. Our results of operations have been and in the future could be adversely affected by increased costs due to increased competition for skilled talent in the market.market as well as by actions we have taken to manage the size of our workforce. In addition, increased turnover and decreased tenure of employees may impact productivity, costs, and organizational culture. We undertake significant efforts to hire, engage, and retain our employees and to effectively manage workforce costs, even with rapid political, social, and economic shifts in our markets. If these efforts are unsuccessful, our growth may be limited and we may suffer financial or reputational harm that could have a material adverse effect on our business, financial condition, or results of operations.

This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Financial information is presented on a continuing operations basis. Unless otherwise stated, financialamounts informationdiscussed is presentedare in millions of U.S. Dollars, except for per share data. Except for net income,data, which includesis thecalculated results of discontinued operations, financial information isand presented on a continuingdiluted operationsbasis 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 present certain financial measures on an "adjusted,adjusted", or "non-GAAP,non-GAAP", basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted dilutedoperating income, adjusted operating margin, adjusted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, 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 explanations regarding the use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 37.42.

Founded in 1940, Air Products and Chemicals, Inc.Inc., a Delaware corporation founded in 1940, is a world-leading industrial gases company that has built a reputation for its innovative culture,innovation, operational excellence, and commitment to safety and theenvironmental environment.stewardship. ApproximatelyFocused 23,000on passionate,serving talented,energy, environmental, and committedemerging employeesmarkets fromand diversegenerating backgroundsa togethercleaner arefuture, drivenwe byoffer Airproducts Products’and higher purpose to create innovative solutionsservices that benefitimprove theour environment,customers’ enhance sustainability,operations and reimagine what is possible to address the challenges facing customers, communities, and the world.sustainability.

FocusedWe on serving energy, environmental, and emerging markets, we are committed to generatingserve a cleanerbroad future by offering products and services that enable our customers to improve their environmental performance, product quality, and productivity. Our core industrial gases business provides essential gases, related equipment, and applications expertise to customers in dozensrange of industries, including refining, chemicals, metals, electronics, manufacturing, medical, and food.food, providing essential industrial gases, related equipment, and applications expertise. We also develop, engineer, build, own, and operate some of the world'sworld’s largest clean hydrogen projects that will supportsupporting the transition to low- and zero-carbon energyenergy, particularly in the industrial applications and the heavy-duty transportation sectors.sector. ThroughAdditionally, our sale of equipment businesses, we alsobusinesses provide specialized products such as turbomachinery, membrane systems, and cryogenic containers globally.to customers worldwide. For additional information on our product and service offerings, including production, distribution, and end use, refer to Item 1, Business, of this Annual Report on Form 10-K.

We conduct business in approximately 50 countries and regions throughout the world. Our industrial gases business is organized and operated regionally in the Americas, Asia, Europe, and Middle East and India segments and generates the majority of our sales via our on-site and merchant supply modes. Approximately half our total revenue is generated through the on-site supply mode, which is governed by contracts that are generally long-term in nature with provisions that allow us to pass through changes in energy costs to our customers. Our Corporate and other segment includes the results of our sale of equipment businesses, costs for corporate support functions and global management activities, and other income and expenses not directly associated with the regional segments, such as foreign exchange gains and losses. For additional information regarding our supply modes and business segments, refer to Note 7, Revenue Recognition, and Note 26, Business Segment and Geographic Information, to the consolidated financial statements.

•SalesAdjusted operating income of $12.1$2.9 billion decreased 4%,3%, or $499.4, primarily$89.8, due to 5% lower energyvolumes costand pass-through,higher which wascosts, partially offset by 1%higher non-helium pricing. The higher pricing.costs Volumewere driven by fixed-cost inflation and currencydepreciation, werepartially bothoffset flatby versusproductivity theimprovements prioracross year.all segments.

•Equity affiliates' income of $647.7 increasedwas 7%,flat. orIncreased $43.4,contributions asfrom higheraffiliates in the Europe and Asia segments were offset by lower income from affiliates in the Corporate and other, Middle East and India, and Americas segment was partially offset by a lower contribution from an affiliate in Europe.segments.

•Adjusted EBITDA of $5.0$5.1 billion increased 7%,1%, or $344.5, and adjusted EBITDA margin of 41.7% increased 440 bp from 37.3% in the prior year.$30.1.

The table below summarizes the diluted per share impact of our non-GAAP adjustments in fiscal years 20242025 and 2023:2024. These impacts were calculated independently and may not sum to totals due to rounding.

In fiscal year 2025,2026, we expect merchantto achieve earnings growth from new plant onstreams, continued pricing improvementdiscipline, asand wellproductivity asimprovements. positiveWe volumeremain contributions from several smaller industrial gas on-site plants that are scheduledcommitted to comecost onstream.control, a reduction in capital expenditures, and other measures aimed at unlocking value and generating cash. Cost discipline remains a top priority as we seek to mitigate the impact of ongoing inflationary pressures through productivity actions. Economic activity in China remains uncertain. Additionally, we estimate an earnings per share headwind of approximately 4%, or $0.49, as a result of the LNG business divestiture. We expect sustained performance and ourcontinued abilityhelium headwinds, while continuing to raise capital to meet the cash needs of our growth strategy while rewardingreward shareholders through increased dividends, as we have done for the past 4243 consecutive years.

Selling and administrative expense of $942.4$906.1 decreased 2%,4%, or $14.6,$36.3, primarilyas due to lower incentive compensation and strategicour productivity actions,actions were partially offset by labor inflation. Selling and administrative expense as a percentage of sales increaseddecreased to 7.8%7.5% from 7.6%7.8% in the prior year.

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 $1,575.6$1.6 billion ($1.2 billion after tax, or $5.38 per share) during the fourth quarter of fiscal year 2024 that is reflected within "Gain on sale of business" on our consolidated income statements ($1,198.4 after tax, or $5.38 per share). This gain was not recorded in segment results.2024. Prior to the divestiture, the results of the LNG business were reflected within the Corporate and other segment. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information.

Comparisons included in the discussion that follows are for the secondthird quarter and first sixnine months of fiscal year 2026 versus ("vs.") the secondthird quarter and first sixnine 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.

SECONDTHIRD QUARTER 2026 VS. SECONDTHIRD QUARTER 2025

SECONDTHIRD QUARTER 2026 IN SUMMARY

•Sales of $3.2 billion increased 9%,5%, or $255.6,$138.3, due to higher volumes of 4%,3%, ahigher pricing of 1%, and favorable impact from currency of 4%, and higher energy cost pass-through to customers of 2%, partially offset by lower pricing of 1% driven by lower helium pricing.1%.

•Adjusted operating income of $752.7$810.3 increased 19%,9%, or $121.4,$69.2, reflectingand adjusted operating margin of 25.6% improved 110 basis points ("bp"), primarily due to higher on-site volumes, favorable currency, and lowerhigher costs,pricing, partially offset by lower helium pricing. Adjusted operating margin improved to 23.7% from 21.6% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers and pricing.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 prior-yearother shareholder activism-related costs,items, as discusseddescribed in the "Reconciliations of Non-GAAP Financial Measures" section below.

•Equity affiliates' income of $179.4$205.2 increased 23%,22%, or $33.9,$37.6, driven primarily by an affiliateaffiliates in Mexico within the Americas segment.and Middle East and India segments.

Summary of Changes in EPSEarnings (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 EPSearnings (loss) per share due to rounding.

The table below summarizes the per share impact of our non-GAAP adjustments for the secondthird quarter of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding.

SECONDTHIRD QUARTER 2026 RESULTS OF OPERATIONS

Discussion of SecondThird Quarter Consolidated Results

Sales of $3.2 billion increased 9%,5%, or $255.6,$138.3, due to higher volumes of 4%,3%, ahigher pricing of 1%, and favorable currency impact of 4%, and higher energy cost pass-through to customers of 2%, partially offset by lower pricing of 1%. Volume growth was driven by on-sites,new primarilyon-site assets and HyCO infacilities. the Americas segment. The favorableFavorable currency impact reflected a weaker U.S. Dollar, most notably against the Euro, Chinese Renminbi, and British Pound Sterling. Lower pricing was primarily attributable to helium, partially offset by pricing improvementsDollar across non-heliummultiple product lines.currencies.

Selling and administrative expense of $227.2$219.1 increaseddecreased 2%, or $5.2,$3.5, asdriven unfavorableby currencyproductivity andimprovements laborrelated inflationto wereour global cost reduction plan, partially offset by productivityhigher improvements.incentive compensation, fixed-cost inflation, and unfavorable currency. Selling and administrative expense as a percentage of sales improved to 7.2%6.9% from 7.6%7.4%, indown 50 bp from the prior year.

Research and development expense of $21.6$21.5 decreased 6%,11%, or $1.3.$2.6. Research and development expense as a percentage of sales decreasedimproved to 0.7% from 0.8% in the prior year.

OurDuring consolidatedthe priorthird quarter of fiscal year income2026, statementwe forrecognized theproject three months ended 31 March 2025 includedexit charges of $2.9 billion ($2.3$2.2 billion attributableafter-tax, or $9.92 per share) as a result of our decision to Aircancel Productsa afterclean tax,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 $10.28$0.07 per share), consistingprimarily ofreflecting initial charges relatedrevisions to cost estimates associated with project exit decisionsactions as well as costs incurredapproved in connectionthe withsecond ourquarter globalof costfiscal reductionyear plan.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.

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 $31.4fiscal year 2025 were $25.0 pre-tax ($31.0$18.8 after tax,after-tax, or $0.14$0.08 per share), primarily related to the reimbursement of proxy-related expenses incurred duringby theMantle secondRidge quarterLP wereand primarilyits foraffiliated executive separation costs for our former chief executive officer.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.

On a non-GAAP basis, which excludes the charges for business and asset actionsactions, sales of businesses and prior-yearother shareholderassets, and prior year-shareholder activism-related costs discussed above, adjusted operating income of $752.7$810.3 increased 19%,9%, or $121.4,$69.2, dueprimarily todriven by higher on-site volumes, favorable currency, and lowerhigher costs,pricing, partially offset by lowerhigher pricing.costs. Adjusted operating margin improved 110 bp to 23.7%25.6% from 21.6%24.5% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers and pricing.year.

Equity affiliates' income of $179.4$205.2 increased 23%,22%, or $33.9,$37.6, primarily driven by an affiliateaffiliates in Mexico within the Americas segment.and Additionally,Middle theEast priorand yearIndia included a project exit-related impairment charge of $6.8 related to a joint venture in China.segments.

Other non-operating income of $3.6 increased $9.6 compared to an expense of $6.0 in the prior year. The increase alsowas reflectsprimarily attributable to lower non-service pension costs as well as income from excluded components from the assessment of effectiveness of our derivatives and lower non-service pension costs,derivatives, partially offset by lower interest income on cash equivalents and short-term investments.

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:

Our adjusted effective tax rate, which excludes the impact of project exit costs and other adjustments presenteddescribed in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 62,section, was 18.0%18.6% and 19.1%18.1% for the three months ended 3130 MarchJune 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.

Discussion of SecondThird Quarter Results by Business Segment

Operating income of $373.9$395.4 increased 2%,6%, or $8.2,$21.3, asprimarily driven by higher volumes of $15$30 and favorablehigher currencypricing, net of $3lower power costs, of $6. These benefits were partially offset by higher costs of $6 and lower pricing, net of power costs, of $4. The lower pricing reflected lower helium pricing and higher power costs in our merchant business,$16, which were partially mitigated by favorable pricing actions across non-helium product lines. The increase in costs was primarily due to maintenance turnarounds andincluded fixed-cost inflation, increased product distribution and dislocation costs, and project development costs, partially offset by lower depreciation.depreciation expense. Operating margin of 27.0%29.9% decreasedincreased 14020 bp from 28.4%29.7% in the prior yearyear, drivenincluding byan aapproximate headwind of approximately 10050 bp favorable impact from higherlower energy cost pass-through to our on-site customers.

Operating income of $240.0$256.4 increased 25%,18%, or $48.6,$39.6, duedriven toby higher volumes of $34, lower costs of $16 driven by productivity,$45 and favorable currency impacts of $8,$4. These benefits were partially offset by lowerhigher pricing, netcosts of power$9, costs,including ofincreased $10.incentive compensation. Depreciation expense was lower in fiscal year 20262026, primarily due to the classification of certain gasification assets being classified as held for sale. Operating margin of 28.8%28.9% increased 410210 bp from 24.7%26.8% in the prior year, primarily due toas the impactbenefits of higher volumes andmore favorable costs, partiallythan offset byhigher lower pricing.costs.