Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

First Quarter 2024 in Summary			33
First Quarter 2024 Results of Operations			35
Reconciliations of Non-GAAP Financial Measures			40
Liquidity and Capital Resources			46
Pension Benefits			49
Critical Accounting Policies and Estimates			50

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 about 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, including, 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 2023 (the "2023 Form 10-K"), which was filed with the SEC on 16 November 2023.

This discussion should be read in conjunction with the interim consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless otherwise stated, financial information is presented in millions of U.S. Dollars, except for per share data. Financial information is presented on a continuing operations basis.

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", or "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 diluted 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 measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 40.

Comparisons included in the discussion that follows are for the first quarter of fiscal year 2024 versus ("vs.") the first quarter of fiscal year 2023. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2023 Form 10-K.

For information concerning activity with our related parties, refer to Note 14, Supplemental Information, to the consolidated financial statements.

About Air Products

Founded in 1940, Air Products and Chemicals, Inc. is a world-leading industrial gases company that has built a reputation for its innovative culture, operational excellence, and commitment to safety and the environment. Approximately 23,000 passionate, talented, and committed employees from diverse backgrounds together are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and reimagine what is possible to address the challenges facing customers, communities, and the world. For information on our product and service offerings, refer to our 2023 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. The discussion that follows is based on these operations. Refer to Note 15, Business Segment Information, to the consolidated financial statements for additional information.

FIRST QUARTER 2024 VS. FIRST QUARTER 2023

FIRST QUARTER 2024 IN SUMMARY

• Sales of $2,997.4 decreased 6%, or $177.3, as lower energy cost pass-through to customers of 11% was partially offset by higher volumes of 3%, higher pricing of 1%, and a favorable impact from currency of 1%.

• Operating income of $666.9 increased 2%, or $14.9, as positive pricing and higher volumes were partially offset by higher costs. Operating margin of 22.2% increased 170 basis points ("bp") due to these factors as well as a positive impact from lower energy cost pass-through to customers.

• Equity affiliates' income of $158.4 increased 44%, or $48.4, primarily due to higher income from the JIGPC joint venture as well as our affiliate in Mexico.

• Net income of $621.6 increased 6%, or $37.8, primarily due to higher equity affiliates' income, favorable pricing, and higher volumes, partially offset by higher costs. Net income margin of 20.7% increased 230 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.

• Adjusted EBITDA of $1,174.5 increased 8%, or $91.0, and adjusted EBITDA margin of 39.2% increased 510 bp.

• Diluted EPS of $2.73 increased 6%, or $0.16 per share, and included an unfavorable impact from non-service related pension costs. Adjusted diluted EPS of $2.82 increased 7%, or $0.18 per share. A summary table of changes in diluted EPS is presented below.

Changes in Diluted EPS Attributable to Air Products

The per share impacts presented in the table below were calculated independently and do not sum to the total change in diluted EPS due to rounding.

			Three Months Ended
			31 December						Increase
			2023			2022			(Decrease)
Diluted EPS			$2.73			$2.57			$0.16
Operating Impacts
Underlying business
Volume									0.11
Price, net of variable costs									0.15
Other costs									(0.21)
Total Operating Impacts									$0.05
Other Impacts
Equity affiliates' income									$0.18
Interest expense									(0.05)
Other non-operating income/expense, net, excluding discrete item below									(0.03)
Non-service pension cost, net									(0.01)
Change in effective tax rate									0.03
Total Other Impacts									$0.12
Total Change in Diluted EPS									$0.16
% Change from prior year									6		%

The table below summarizes the diluted per share impact of our non-GAAP adjustments for the first quarter of fiscal years 2024 and 2023:

			Three Months Ended
			31 December						Increase
			2023			2022			(Decrease)
Diluted EPS			$2.73			$2.57			$0.16
Non-service pension cost, net			0.08			0.07			0.01
Adjusted Diluted EPS			$2.82			$2.64			$0.18
% Change from prior year									7		%

FIRST QUARTER 2024 RESULTS OF OPERATIONS

Discussion of Consolidated Results

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%/bp
GAAP Measures
Sales						$2,997.4						$3,174.7						($177.3)						(6		%)
Operating income						666.9						652.0						14.9						2		%
Operating margin						22.2		%				20.5		%										170		bp
Equity affiliates’ income						$158.4						$110.0						$48.4						44		%
Net income						621.6						583.8						37.8						6		%
Net income margin						20.7		%				18.4		%										230		bp
Non-GAAP Measures
Adjusted EBITDA						$1,174.5						$1,083.5						$91.0						8		%
Adjusted EBITDA margin						39.2		%				34.1		%										510		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			(11		%)
Currency			1		%
Total Consolidated Sales Change			(6		%)

Sales of $2,997.4 decreased 6%, or $177.3, as lower energy cost pass-through to customers of 11% was partially offset by higher volumes of 3%, higher pricing of 1%, and a favorable currency impact of 1%. Lower natural gas prices in the Americas and Europe segments drove the lower energy cost pass-through to our on-site customers. The volume improvement was primarily attributable to strong demand for hydrogen in our on-site business, which was partially offset by weaker demand for helium in our merchant business.

Cost of Sales and Gross Margin

Cost of sales of $2,067.2 decreased 9%, or $205.1, due to lower energy cost pass-through to customers of $340, partially offset by higher costs associated with sales volumes of $78, an unfavorable impact from currency of $30, and higher other costs of $27. The higher costs were driven by planned maintenance, higher depreciation expense, and inflation, partially offset by lower power costs in our merchant business across most regions. Gross margin of 31.0% increased 260 bp from 28.4% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by about 300 bp.

Selling and Administrative Expense

Selling and administrative expense of $238.4 increased 2%, or $4.0, primarily due to additional costs to support growth and labor inflation. Selling and administrative expense as a percentage of sales increased to 8.0% from 7.4% in the prior year.

Research and Development Expense

Research and development expense of $25.7 increased 5%, or $1.3. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.

Other Income (Expense), Net

Other income of $0.8 decreased 90%, or $7.6, primarily due to an unfavorable foreign exchange impact from the devaluation of the Argentine peso.

Operating Income and Operating Margin

Operating income of $666.9 increased 2%, or $14.9, as positive pricing, net of power and fuel costs, of $41 and higher volumes of $30 were partially offset by higher costs of $56. The higher costs were driven by planned maintenance, labor inflation, and higher depreciation expense. Operating margin of 22.2% increased 170 bp from 20.5% in the prior year primarily due to lower energy cost pass-through to customers, which positively impacted margin by about 200 basis points, as well as our pricing actions, partially offset by higher costs.

Equity Affiliates' Income

Equity affiliates' income of $158.4 increased 44%, or $48.4, primarily due to a higher contribution from the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023, as well as higher income from our affiliate in Mexico.

Interest Expense

												Three Months Ended
												31 December
												2023			2022
Interest incurred												$108.6			$56.3
Less: Capitalized interest												55.1			15.1
Interest expense												$53.5			$41.2

Interest incurred increased 93%, or $52.3, driven by a higher debt balance, including borrowings on project financing for the NEOM Green Hydrogen Project as well as the multi-currency green bonds that were issued during the second quarter of fiscal year 2023 to finance projects that are expected to have environmental benefits as defined under our Green Finance Framework. Capitalized interest increased $40.0 due to a higher carrying value of projects under construction, including the NEOM Green Hydrogen Project.

Other Non-Operating Income (Expense), Net

Other non-operating expense of $14.8 increased $14.2, primarily due to higher non-service pension costs as well as lower interest income on cash and cash items. The lower interest income was attributable to a lower balance of time deposits and short-term treasury securities.

Net Income and Net Income Margin

Net income of $621.6 increased 6%, or $37.8, primarily due to higher equity affiliates' income, favorable pricing, and higher volumes, partially offset by higher costs. Net income margin of 20.7% increased 230 bp from 18.4% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 200 bp.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $1,174.5 increased 8%, or $91.0, primarily due to higher equity affiliates' income, higher volumes, and favorable pricing, partially offset by higher costs. Adjusted EBITDA margin of 39.2% increased 510 bp from 34.1% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 400 bp.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income before taxes. Equity affiliates' income is primarily included net of income taxes within income before taxes on our consolidated income statements.

Our effective tax rate was 17.9% and 18.9% for the three months ended 31 December 2023 and 2022, respectively. The current year rate was lower primarily due to earning a greater share of income in jurisdictions with lower tax rates and higher equity affiliates' income. Additionally, we released certain foreign unrecognized tax benefits during the first quarter of fiscal year 2024 upon expiration of the statute of limitations for uncertain tax positions taken in prior years. These impacts were partially offset by lower excess tax benefits on share-based compensation in the first quarter of fiscal year 2024.

Our adjusted effective tax rate, which excludes the impact of the non-service components of net periodic cost for our defined benefit pension plans, was 18.1% and 19.1% for the three months ended 31 December 2023 and 2022, respectively.

Discussion of Results by Business Segment

Americas

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%/bp
Sales						$1,252.1						$1,384.2						($132.1)						(10		%)
Operating income						354.4						343.0						11.4						3		%
Operating margin						28.3		%				24.8		%										350		bp
Equity affiliates’ income						$37.1						$16.4						$20.7						126		%
Adjusted EBITDA						561.2						515.4						45.8						9		%
Adjusted EBITDA margin						44.8		%				37.2		%										760		bp

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

Volume			3		%
Price			2		%
Energy cost pass-through to customers			(15		%)
Currency			—		%
Total Americas Sales Change			(10		%)

Sales of $1,252.1 decreased 10%, or $132.1, due to lower energy cost pass-through to customers of 15%, which was driven by lower natural gas prices, partially offset by higher volumes of 3% and higher pricing of 2%. The volume improvement was attributable to better demand for hydrogen in our on-site business.

Operating income of $354.4 increased 3%, or $11.4, primarily due to positive pricing, net of power and fuel costs, of $33 and favorable volumes of $12, partially offset by higher costs of $34, including higher costs for planned maintenance, higher depreciation expense, and labor inflation. Operating margin of 28.3% increased 350 bp from 24.8% in the prior year primarily due to lower energy cost pass-through to customers, which positively impacted margin by about 400 basis points, as well as our pricing actions, partially offset by higher costs.

Equity affiliates’ income of $37.1 increased $20.7 driven by an affiliate in Mexico.

Asia

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%/bp
Sales						$793.8						$777.8						$16.0						2		%
Operating income						211.2						235.9						(24.7)						(10		%)
Operating margin						26.6		%				30.3		%										(370		bp)
Equity affiliates’ income						$4.2						$7.4						($3.2)						(43		%)
Adjusted EBITDA						327.2						345.2						(18.0)						(5		%)
Adjusted EBITDA margin						41.2		%				44.4		%										(320		bp)

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

Volume			—		%
Price			1		%
Energy cost pass-through to customers			2		%
Currency			(1		%)
Total Asia Sales Change			2		%

Sales of $793.8 increased 2%, or $16.0, due to higher energy cost pass-through to customers of 2% and higher pricing of 1%, partially offset by an unfavorable impact from currency of 1%. Overall volumes were flat as higher volumes in our on-site business, including contributions from several new industrial gas plants, were offset by weak economic growth in China and lower demand for helium.

Operating income of $211.2 decreased 10%, or $24.7, primarily due to negative volume mix of $13 and higher costs of $7, including higher maintenance costs and labor inflation. Operating margin of 26.6% decreased 370 bp from 30.3% in the prior year.

Equity affiliates’ income of $4.2 decreased 43%, or $3.2, driven by higher maintenance expense for one of our affiliates in China.

Europe

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%/bp
Sales						$731.2						$791.9						($60.7)						(8		%)
Operating income						197.6						145.8						51.8						36		%
Operating margin						27.0		%				18.4		%										860		bp
Equity affiliates’ income						$20.7						$17.7						$3.0						17		%
Adjusted EBITDA						266.5						207.8						58.7						28		%
Adjusted EBITDA margin						36.4		%				26.2		%										1,020		bp

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

Volume			9		%
Price			(2		%)
Energy cost pass-through to customers			(20		%)
Currency			5		%
Total Europe Sales Change			(8		%)

Sales of $731.2 decreased 8%, or $60.7, due to lower energy cost pass-through to customers of 20%, which was driven by lower natural gas prices, and lower pricing of 2%. These impacts were partially offset by higher volumes of 9% and a favorable impact from currency of 5%. The volume improvement was driven by a facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023. Currency positively impacted sales due to the weakening of the U.S. Dollar against the Euro.

Operating income of $197.6 increased 36%, or $51.8, primarily due to higher volumes of $51, a net pricing impact of $13 due to lower power costs, and favorable currency of $8, partially offset by higher costs of $20. The higher costs were driven by labor inflation and higher costs for planned maintenance. Operating margin of 27.0% increased 860 bp from 18.4% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 350 bp.

Equity affiliates’ income of $20.7 increased 17%, or $3.0, driven by affiliates in Italy and South Africa.

Middle East and India

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%
Sales						$35.4						$41.4						($6.0)						(14		%)
Operating income						3.9						6.7						(2.8)						(42		%)
Equity affiliates' income						92.9						64.1						28.8						45		%
Adjusted EBITDA						103.4						77.4						26.0						34		%

Sales of $35.4 decreased 14%, or $6.0, and operating income of $3.9 decreased 42%, or $2.8, primarily due to lower volumes.

Equity affiliates' income of $92.9 increased 45%, or $28.8, primarily due to a higher contribution from the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023.

Corporate and other

						Three Months Ended
						31 December												Change vs. Prior Year
						2023						2022						$						%
Sales						$184.9						$179.4						$5.5						3		%
Operating loss						(100.2)						(79.4)						(20.8)						(26		%)
Adjusted EBITDA						(83.8)						(62.3)						(21.5)						(35		%)

Sales of $184.9 increased 3%, or $5.5, and reflected higher LNG sale of equipment activity. Despite higher sales, operating loss of $100.2 increased 26%, or $20.8, primarily due to higher costs for certain non-LNG sale of equipment projects.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Millions of U.S. Dollars unless otherwise indicated, except for per share data)

We present certain financial measures, other than in accordance with U.S. generally accepted accounting principles ("GAAP"), on an "adjusted" or "non-GAAP" basis. On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, the adjusted effective tax rate, and capital expenditures. On a segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin. In addition to these measures, we also present certain supplemental non-GAAP financial measures to help the reader understand the impact that certain disclosed items, or "non-GAAP adjustments," have on the calculation of our adjusted diluted EPS. For each non-GAAP financial measure, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude non-GAAP adjustments that we believe are not representative of our underlying business performance. For example, we exclude the impact of the non-service components of net periodic benefit/cost for our defined benefit pension plans. 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. We may also exclude certain expenses associated with cost reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware that we may recognize similar losses or gains in the future.

When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

We provide these non-GAAP financial measures to allow investors, potential investors, securities analysts, and others to evaluate the performance of our business in the same manner as our management. We believe these 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 and projected future results. However, we caution readers not to consider these measures in isolation or as a substitute for the most directly comparable measures calculated in accordance with GAAP. Readers should also consider the limitations associated with these non-GAAP financial measures, including the potential lack of comparability of these measures from one company to another.

ADJUSTED DILUTED EPS

The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted diluted EPS from continuing operations, which we view as a key performance metric. In periods that we have non-GAAP adjustments, we believe it is important for the reader to understand the per share impact of each such adjustment because management does not consider these impacts when evaluating underlying business performance. Per share impacts are calculated independently and may not sum to total diluted EPS and total adjusted diluted EPS due to rounding.

			Three Months Ended 31 December
Q1 2024 vs. Q1 2023			Operating Income			Equity Affiliates' Income			Other Non-Operating Income/Expense, Net			Income Tax Provision			Net Income Attributable to Air Products			Diluted EPS
Q1 2024 GAAP			$666.9			$158.4			($14.8)			$135.4			$609.3			$2.73
Q1 2023 GAAP			652.0			110.0			(0.6)			136.4			572.2			2.57
$ Change GAAP																		$0.16
% Change GAAP																		6		%
Q1 2024 GAAP			$666.9			$158.4			($14.8)			$135.4			$609.3			$2.73
Non-service pension cost, net			—			—			24.9			6.2			18.7			0.08
Q1 2024 Non-GAAP ("Adjusted")			$666.9			$158.4			$10.1			$141.6			$628.0			$2.82
Q1 2023 GAAP			$652.0			$110.0			($0.6)			$136.4			$572.2			$2.57
Non-service pension cost, net			—			—			19.5			4.9			14.6			0.07
Q1 2023 Non-GAAP ("Adjusted")			$652.0			$110.0			$18.9			$141.3			$586.8			$2.64
$ Change Non-GAAP ("Adjusted")																		$0.18
% Change Non-GAAP ("Adjusted")																		7		%

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

We define adjusted EBITDA as net income less income from discontinued operations, net of tax, and excluding non-GAAP adjustments, which we do not believe to be indicative of underlying business trends, before interest expense, other non-operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA and adjusted EBITDA margin provide useful metrics for management to assess operating performance. Margins are calculated independently for each period by dividing each line item by consolidated sales for the respective period and may not sum to total margin due to rounding.

The table below presents consolidated sales and a reconciliation of net income on a GAAP basis to adjusted EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:

			Three Months Ended 31 December
			2023									2022
			$			Margin						$			Margin
Sales			$2,997.4									$3,174.7
Net income and net income margin			$621.6			20.7		%				$583.8			18.4		%
Add: Interest expense			53.5			1.8		%				41.2			1.3		%
Less: Other non-operating income (expense), net			(14.8)			(0.5		%)				(0.6)			—		%
Add: Income tax provision			135.4			4.5		%				136.4			4.3		%
Add: Depreciation and amortization			349.2			11.7		%				321.5			10.1		%
Adjusted EBITDA and adjusted EBITDA margin			$1,174.5			39.2		%				$1,083.5			34.1		%
Change GAAP
Net income $ change						$37.8
Net income % change						6		%
Net income margin change						230		bp
Change Non-GAAP
Adjusted EBITDA $ change						$91.0
Adjusted EBITDA % change						8		%
Adjusted EBITDA margin change						510		bp

The tables below present sales and a reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted EBITDA margin by segment for the three months ended 31 December 2023 and 2022:

Americas

			Three Months Ended
			31 December									Change vs. Prior Year
			2023			2022						$			%/bp
Sales			$1,252.1			$1,384.2						($132.1)			(10		%)
Operating income			$354.4			$343.0						$11.4			3		%
Operating margin			28.3		%	24.8		%							350		bp
Reconciliation of GAAP to Non-GAAP:
Operating income			$354.4			$343.0
Add: Depreciation and amortization			169.7			156.0
Add: Equity affiliates' income			37.1			16.4
Adjusted EBITDA			$561.2			$515.4						$45.8			9		%
Adjusted EBITDA margin			44.8		%	37.2		%							760		bp

Asia

			Three Months Ended
			31 December									Change vs. Prior Year
			2023			2022						$			%/bp
Sales			$793.8			$777.8						$16.0			2		%
Operating income			$211.2			$235.9						($24.7)			(10		%)
Operating margin			26.6		%	30.3		%							(370		bp)
Reconciliation of GAAP to Non-GAAP:
Operating income			$211.2			$235.9
Add: Depreciation and amortization			111.8			101.9
Add: Equity affiliates' income			4.2			7.4
Adjusted EBITDA			$327.2			$345.2						($18.0)			(5		%)
Adjusted EBITDA margin			41.2		%	44.4		%							(320		bp)

Europe

			Three Months Ended
			31 December									Change vs. Prior Year
			2023			2022						$			%/bp
Sales			$731.2			$791.9						($60.7)			(8		%)
Operating income			$197.6			$145.8						$51.8			36		%
Operating margin			27.0		%	18.4		%							860		bp
Reconciliation of GAAP to Non-GAAP:
Operating income			$197.6			$145.8
Add: Depreciation and amortization			48.2			44.3
Add: Equity affiliates' income			20.7			17.7
Adjusted EBITDA			$266.5			$207.8						$58.7			28		%
Adjusted EBITDA margin			36.4		%	26.2		%							1,020		bp

Middle East and India

			Three Months Ended
			31 December									Change vs. Prior Year
			2023			2022						$			%/bp
Sales			$35.4			$41.4						($6.0)			(14		%)
Operating income			$3.9			$6.7						($2.8)			(42		%)
Reconciliation of GAAP to Non-GAAP:
Operating income			$3.9			$6.7
Add: Depreciation and amortization			6.6			6.6
Add: Equity affiliates' income			92.9			64.1
Adjusted EBITDA			$103.4			$77.4						$26.0			34		%

Corporate and other

			Three Months Ended
			31 December									Change vs. Prior Year
			2023			2022						$			%/bp
Sales			$184.9			$179.4						$5.5			3		%
Operating loss			($100.2)			($79.4)						($20.8)			(26		%)
Reconciliation of GAAP to Non-GAAP:
Operating loss			($100.2)			($79.4)
Add: Depreciation and amortization			12.9			12.7
Add: Equity affiliates' income			3.5			4.4
Adjusted EBITDA			($83.8)			($62.3)						($21.5)			(35		%)

ADJUSTED EFFECTIVE TAX RATE

The effective tax rate equals the income tax provision divided by income before taxes. We calculate our adjusted effective tax rate by adjusting the numerator and denominator to exclude the tax and before tax impacts 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 31 December
			2023			2022
Income tax provision			$135.4			$136.4
Income before taxes			757.0			720.2
Effective tax rate			17.9		%	18.9		%
Income tax provision			$135.4			$136.4
Non-service pension tax impact			6.2			4.9
Adjusted income tax provision			$141.6			$141.3
Income before taxes			$757.0			$720.2
Non-service pension cost, net			24.9			19.5
Adjusted income before taxes			$781.9			$739.7
Adjusted effective tax rate			18.1		%	19.1		%

CAPITAL EXPENDITURES

Capital expenditures is a non-GAAP financial measure that we define as the sum of cash flows 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 on our consolidated statements of cash flows. Additionally, we adjust additions to plant and equipment to exclude NEOM Green Hydrogen Company (“NGHC”) expenditures funded by the joint venture's non-recourse project financing as well as our partners’ equity contributions to arrive at a measure that we believe is more representative of our investment activities. Substantially all the funding we provide to NGHC is limited for use by the venture for capital expenditures.

A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:

						Three Months Ended
						31 December
						2023			2022
Cash used for investing activities						$1,665.6			$256.2
Proceeds from sale of assets and investments						4.2			4.0
Purchases of investments						(55.5)			(19.2)
Proceeds from investments						120.1			591.5
Other investing activities						12.9			1.7
NGHC expenditures not funded by Air Products' equity(A)						(361.6)			(109.7)
Capital expenditures						$1,385.7			$724.5

(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.

LIQUIDITY AND CAPITAL RESOURCES

We believe we have sufficient cash, cash flows from operations, and funding sources to meet our liquidity needs. As further discussed in the "Cash Flows From Financing Activities" section below, we have the ability to raise capital through a variety of financing activities, including accessing capital or commercial paper markets or drawing upon our credit facilities.

As of 31 December 2023, we had $1,852.1 of foreign cash and cash items compared to total cash and cash items of $1,962.6. We do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S. income tax upon repatriation to the U.S. Depending on the country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our intent to permanently 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

			Three Months Ended
			31 December
			2023			2022
Net income attributable to Air Products			$609.3			$572.2
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization			349.2			321.5
Deferred income taxes			13.5			13.8
(Undistributed) distributed earnings of equity method investments			(41.5)			17.2
Gain on sale of assets and investments			(1.4)			(2.3)
Share-based compensation			13.8			16.1
Noncurrent lease receivables			20.0			19.4
Other adjustments			33.3			99.0
Changes in working capital accounts			(369.6)			(337.6)
Cash Provided by Operating Activities			$626.6			$719.3

For the first three months of fiscal year 2024, cash provided by operating activities was $626.6. The working capital accounts were a use of cash of $369.6, primarily driven by $268.5 from payables and accrued liabilities, $64.5 from other receivables, and $48.6 from inventories. The use of cash within payables and accrued liabilities primarily resulted from payments for incentive compensation under the fiscal year 2023 plan, a reduction of customer advances for sale of equipment projects as we recognized revenue, and a reduction of liabilities associated with accrued utilities. The use of cash within other receivables primarily relates to the payment of value added taxes incurred in the construction of our larger projects for which we will claim a refund in the near term. The use of cash within inventories primarily relates to purchases of helium.

For the first three months of fiscal year 2023, cash provided by operating activities was $719.3. Distributed earnings of equity method investments reflect distributions in excess of earnings for the period of $17.2. Other adjustments of $99.0 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $337.6, primarily driven by $257.6 from payables and accrued liabilities and $102.8 from inventory. The use of cash within payables and accrued liabilities primarily resulted from the decrease in value of derivatives that hedge intercompany loans, payments for incentive compensation under the fiscal year 2022 plan and a reduction of liabilities associated with the purchase of natural gas.

Cash Flows From Investing Activities

			Three Months Ended
			31 December
			2023			2022
Additions to plant and equipment, including long-term deposits			($1,445.5)			($834.2)
Investment in financing receivables			(301.8)			—
Proceeds from sale of assets and investments			4.2			4.0
Purchases of investments			(55.5)			(19.2)
Proceeds from investments			120.1			591.5
Other investing activities			12.9			1.7
Cash Used for Investing Activities			($1,665.6)			($256.2)

For the first three months of fiscal year 2024, cash used for investing activities was $1,665.6. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $1,445.5 and an investment in financing receivables of $301.8. Refer to the Capital Expenditures section below for further detail. Proceeds from investments of $120.1 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $55.5.

For the first three months of fiscal year 2023, cash used for investing activities was $256.2. Capital expenditures for additions to plant and equipment, including long-term deposits, were $834.2. Proceeds from investments of $591.5 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $19.2.

Capital Expenditures

The components of our capital expenditures are detailed in the table below. Refer to page 45 for a definition of this non-GAAP measure as well as a reconciliation to cash used for investing activities.

						Three Months Ended
						31 December
						2023			2022
Additions to plant and equipment, including long-term deposits						$1,445.5			$834.2
Investment in financing receivables						301.8			—
NGHC expenditures not funded by Air Products' equity(A)						(361.6)			(109.7)
Capital Expenditures						$1,385.7			$724.5

(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.

Capital expenditures for the first three months of fiscal year 2024 totaled $1,385.7 compared to $724.5 for the first three months of fiscal year 2023. The investment in financing receivables of $301.8 primarily reflects payments associated with the purchase of renewable fuel assets from World Energy as well as the purchase of a natural gas-to-syngas processing facility in Uzbekistan. Refer to Note 3, Variable Interest Entities, and Note 18, Supplemental Information, to the consolidated financial statements, respectively, for additional information.

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 we are 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.

We continue to expect capital expenditures for fiscal year 2024 to be approximately $5.0 billion to $5.5 billion.

Cash Flows From Financing Activities

			Three Months Ended
			31 December
			2023			2022
Long-term debt proceeds			$810.4			$476.3
Payments on long-term debt			(54.8)			(195.9)
Net increase (decrease) in commercial paper and short-term borrowings			1,020.9			(4.1)
Dividends paid to shareholders			(388.9)			(359.4)
Proceeds from stock option exercises			5.3			14.0
Investments by noncontrolling interests			34.5			—
Other financing activities			(64.6)			(16.5)
Cash Provided by (Used for) Financing Activities			$1,362.8			($85.6)

For the first three months of fiscal year 2024, cash provided by financing activities was $1,362.8. The source of cash was primarily driven by net increase in commercial paper and short-term borrowings of $1,020.9 and long-term debt proceeds of $810.4, partially offset by dividend payments to shareholders of $388.9 and payments on long-term debt of $54.8.

For the first three months of fiscal year 2023, cash used for financing activities was $85.6. The use of cash was primarily driven by dividend payments to shareholders of $359.4 and payments on long-term debt of $195.9 partially offset by long-term debt proceeds of $476.3.

Financing and Capital Structure

Debt

Total debt increased from $10,305.8 as of 30 September 2023 to $12,107.7 as of 31 December 2023. The increase from 30 September 2023 was primarily due to the issuance of commercial paper as well as additional borrowings under the project financing associated with the NEOM Green Hydrogen Project as discussed in Note 3, Variable Interest Entities, to the consolidated financial statements. As of 31 December 2023, we classified our outstanding commercial paper, which totaled approximately $1.3 billion, as well as our 3.35% Senior Note of $400 maturing in July 2024 as long-term debt as we have the ability to refinance the debt under our $2.75 billion revolving credit agreement (the “2021 Credit Agreement”), which is further discussed below. Our current intent is to refinance this debt via the U.S. public debt market.

Total debt includes related party debt of $294.8 and $328.3 as of 31 December 2023 and 30 September 2023, respectively.

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 31 December 2023, we were in compliance with all of the financial and other covenants under our debt agreements.

2021 Credit Agreement

We have a five-year $2.75 billion revolving credit agreement maturing 31 March 2026 with a syndicate of banks (the “2021 Credit Agreement”), under which senior unsecured debt is available to us and certain of our subsidiaries. The 2021 Credit Agreement provides a source of liquidity and supports our commercial paper program. No borrowings were outstanding under the 2021 Credit Agreement as of 31 December 2023. At this time, we do not expect to borrow from the facility.

The only financial covenant in the 2021 Credit Agreement is a maximum ratio of total debt to total capitalization (equal to total debt plus total equity) not to exceed 70%. The 2021 Credit Agreement defines total debt as the aggregate principal amount of all indebtedness, excluding limited recourse debt of any project financed subsidiary. Accordingly, this calculation does not consider borrowings associated with NGHC. Total debt to total capitalization was 38.7% and 36.6% as of 31 December 2023 and 30 September 2023, respectively.

Foreign Credit Facilities

We also have credit facilities available to certain of our foreign subsidiaries totaling $1,611.4, of which $1,091.1 was borrowed and outstanding as of 31 December 2023. The amount borrowed and outstanding as of 30 September 2023 was $1,041.4.

NEOM Green Hydrogen Project Financing

In May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $500 primarily for working capital needs. The joint venture had borrowed $2.1 billion and $1.4 billion of the available financing as of 31 December 2023 and 30 September 2023, respectively. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.

Dividends

The Board of Directors determines whether to declare cash dividends on our common stock and the timing and amount based on financial condition and other factors it deems relevant. Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. On 15 November 2023, the Board of Directors declared a quarterly dividend of $1.75 per share that is payable on 12 February 2024 to shareholders of record at the close of business on 2 January 2024.

In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42nd consecutive year of dividend increases. The new dividend was declared on 25 January 2024 and is payable on 13 May 2024 to shareholders of record at the close of business on 1 April 2024.

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. The shift to defined contribution plans is expected to continue to reduce volatility of both plan expense and contributions. For additional information, refer to Note 9, 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
			31 December
			2023			2022
Service cost			$5.2			$6.0
Non-service cost			24.9			19.5
Other			0.1			0.3
Net Periodic Cost			$30.2			$25.8

Net periodic cost was $30.2 and $25.8 for the three months ended 31 December 2023 and 2022, respectively. The increased costs versus the prior year were primarily attributable to non-service costs, which were driven by lower expected returns on plan assets due to a smaller beginning balance of plan assets and higher interest cost, partially offset by 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 three months of fiscal years 2024 and 2023 was not material.

Company Contributions

Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the three months ended 31 December 2023 and 2022, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $12.0 and $8.0, respectively.

Total contributions for fiscal year 2024 are expected to be approximately $35 to $45. During fiscal year 2023, total contributions were $32.6.

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 2023 Form 10-K. There were no changes to our accounting policies during the first three months of fiscal year 2024.

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 three months of fiscal year 2024, we recorded changes to project cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded a cumulative effect adjustment that unfavorably impacted operating income by approximately $30 for the three months ended 31 December 2023. There were no other changes to our estimates during the first three months of fiscal year 2024 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.