Air Products and Chemicals(APD) - 2025 Q3 - Quarterly Report

Forward-Looking Statements Forward-looking statements are not guarantees, with actual results potentially differing due to economic, operational, and regulatory risks - This report contains forward-looking statements based on management's current expectations and assumptions, which are not guarantees of future performance. These statements are identified by words like "anticipate," "believe," "expect," etc[9] - Actual results may differ materially due to numerous factors, including economic conditions, project execution risks, international operational risks, supply chain disruptions, and changes in legislation or tax rates[10][13] PART I—FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for Q3 and nine months ended June 30, 2025, show a significant net loss for the nine-month period, driven by substantial charges, increased assets and liabilities from NGHC VIE consolidation, and decreased operating cash flow Consolidated Income Statements Q3 2025 sales and net income increased, but the nine-month period resulted in a $399.4 million net loss, primarily due to a $2.95 billion charge for business and asset actions Consolidated Income Statement Highlights (in millions) | Metric | Q3 2025 | Q3 2024 | 9 Months 2025 | 9 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Sales | $3,022.7 | $2,985.5 | $8,870.4 | $8,913.1 | | Operating Income (Loss) | $790.6 | $737.6 | ($893.8) | $2,041.7 | | Net Income (Loss) Attributable to Air Products | $713.8 | $696.6 | ($399.4) | $1,878.3 | | Diluted EPS (Loss) | $3.20 | $3.13 | ($1.79) | $8.43 | - A significant charge of $2.95 billion for "Business and asset actions" was recorded in the first nine months of 2025, compared to only $57.0 million in the prior-year period, driving the company to a net loss[15] Consolidated Balance Sheets Total assets increased to $41.66 billion, driven by plant and equipment, while total liabilities grew to $23.89 billion due to long-term debt, decreasing shareholders' equity Balance Sheet Summary (in millions) | Metric | 30 June 2025 | 30 September 2024 | | :--- | :--- | :--- | | Total Current Assets | $6,147.6 | $6,363.0 | | Plant and equipment, net | $25,640.0 | $23,370.9 | | Total Assets | $41,659.1 | $39,574.6 | | Total Current Liabilities | $4,759.6 | $4,179.6 | | Long-term debt | $16,411.7 | $13,428.6 | | Total Liabilities | $23,891.1 | $20,900.9 | | Total Air Products Shareholders' Equity | $15,537.5 | $17,036.5 | - Assets and liabilities of the consolidated VIE, NEOM Green Hydrogen Company (NGHC), are included. As of June 30, 2025, these VIE assets totaled $6.76 billion and liabilities were $4.69 billion, for which creditors have no recourse to Air Products' general credit[19] Consolidated Statements of Cash Flows Operating cash flow decreased to $2.0 billion for the nine months ended June 30, 2025, while investing activities increased and financing activities provided $3.0 billion, leading to an overall cash decrease of $655.4 million Cash Flow Summary - Nine Months Ended June 30 (in millions) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $1,995.6 | $2,689.7 | | Cash Used for Investing Activities | ($5,681.0) | ($4,773.8) | | Cash Provided by Financing Activities | $3,034.3 | $2,847.7 | | (Decrease) Increase in cash and cash items | ($655.4) | $758.7 | Notes to Consolidated Financial Statements Notes detail accounting policies and significant events, including NGHC VIE consolidation, a nearly $3 billion charge for exiting clean energy projects, shareholder activism costs, acquisitions, divestitures, and changes in debt and goodwill - Variable Interest Entities (VIEs): The company is the primary beneficiary of the NEOM Green Hydrogen Company (NGHC) joint venture and consolidates it. It also decided to exit the World Energy sustainable aviation fuel (SAF) project, resulting in project exit charges of approximately $1.8 billion, including a $1.4 billion asset write-down and a $300 million allowance for credit loss[38][53][54] - Business and Asset Actions: In the first nine months of 2025, the company recorded charges of $2.96 billion, primarily for project exit costs related to a review of its project backlog, with the majority related to projects in the Americas segment. This included a $2.89 billion charge to operating results[55][56] - Acquisitions and Divestitures: In April 2025, the company acquired Ijsfabriek Strombeek for $74.2 million and sold a subsidiary in Singapore for $104.3 million, recognizing a gain of $67.3 million[62][64] - Shareholder Activism-Related Costs: The company incurred $86.3 million in costs related to a proxy contest with Mantle Ridge LP, which concluded in January 2025. This included a $24.7 million reimbursement to Mantle Ridge and $29.7 million in executive separation costs for the former CEO[158][159][160] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2025 sales and net income growth, contrasting it with a nine-month net loss driven by $3 billion in project exit charges, alongside segment performance, strong liquidity, and increased capital expenditures Third Quarter 2025 Results of Operations Q3 2025 sales rose 1% to $3.0 billion, operating income increased 7% to $790.6 million due to asset sale gains, while Adjusted EPS decreased 3%, reflecting mixed segment performance Q3 2025 vs. Q3 2024 Performance | Metric | Q3 2025 | Q3 2024 | % Change | | :--- | :--- | :--- | :--- | | Sales | $3,022.7M | $2,985.5M | 1% | | Operating Income | $790.6M | $737.6M | 7% | | Net Income | $723.2M | $708.9M | 2% | | Adjusted EBITDA | $1,309.7M | $1,266.8M | 3% | | Adjusted EPS | $3.09 | $3.20 | (3%) | - Q3 results were significantly impacted by several one-time items: a $67.3 million gain on sale of a business, a $31.3 million gain on sale of other assets, a $24.1 million charge for business and asset actions, and $25.0 million in shareholder activism-related costs[185][187][188][189] First Nine Months 2025 Results of Operations For the first nine months of 2025, sales were flat, resulting in an operating loss of $893.8 million and a net loss of $364.5 million, primarily due to a $3.0 billion charge for business and asset actions, despite a 1% increase in Adjusted EBITDA Nine Months 2025 vs. Nine Months 2024 Performance | Metric | 9 Months 2025 | 9 Months 2024 | % Change | | :--- | :--- | :--- | :--- | | Sales | $8,870.4M | $8,913.1M | 0% | | Operating Income (Loss) | ($893.8M) | $2,041.7M | N/M | | Net Income (Loss) | ($364.5M) | $1,911.4M | N/M | | Adjusted EBITDA | $3,667.8M | $3,639.6M | 1% | | Adjusted EPS | $8.63 | $8.87 | (3%) | - The primary driver of the net loss was a $3.0 billion charge for business and asset actions, mainly from exiting clean energy projects. The company also incurred $86.3 million in shareholder activism costs[227][231] Liquidity and Capital Resources The company maintains strong liquidity with $2.3 billion in cash, reporting $2.0 billion in operating cash flow and $4.0 billion in capital expenditures for the first nine months of 2025, primarily for clean energy projects Capital Expenditures (Non-GAAP, in millions) | Component | 9 Months 2025 | 9 Months 2024 | | :--- | :--- | :--- | | Additions to plant and equipment | $5,504.9 | $4,721.5 | | Acquisitions, less cash acquired | $59.9 | — | | Investment in unconsolidated affiliates | $365.4 | — | | Investment in financing receivables | $53.8 | $396.2 | | NGHC expenditures not funded by Air Products | ($1,981.2) | ($1,242.0) | | Total Capital Expenditures | $4,002.8 | $3,875.7 | - Total debt increased to $17.7 billion from $14.2 billion at fiscal year-end 2024, partly due to new senior note issuances and incremental borrowings for the NEOM Green Hydrogen Project[300] - The quarterly dividend was increased by $0.02 per share in fiscal 2025, marking the 43rd consecutive year of dividend increases[307] Quantitative and Qualitative Disclosures About Market Risk The company's net financial instrument liability position increased to $16.6 billion due to new debt, with 92% fixed-rate, showing sensitivity to interest rate and foreign currency fluctuations - The debt portfolio shifted more towards fixed-rate debt, moving from 87% fixed-rate at FYE 2024 to 92% at the end of Q3 2025, primarily due to new fixed-rate note issuances[321] - Sensitivity to foreign currency exchange rate risk has increased, with a 10% change in rates now impacting the net liability position by $571 million, up from $408 million at FYE 2024, due to new Euro-denominated debt[324] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[325] PART II—OTHER INFORMATION Item 5. Other Information No directors or Section 16 reporting officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 fiscal year 2025 - No new director or officer trading plans under Rule 10b5-1 were adopted or terminated during the quarter[327] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including material contracts, officer certifications required by Sarbanes-Oxley, and Interactive Data Files (Inline XBRL) - The exhibits include certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[329]