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

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


Second Quarter 2024 in Summary			37
Second Quarter 2024 Results of Operations			39
First Six Months 2024 in Summary			45
First Six Months 2024 Results of Operations			47
Reconciliations of Non-GAAP Financial Measures			52
Liquidity and Capital Resources			58
Pension Benefits			61
Critical Accounting Policies and Estimates			62

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 financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 52.

Comparisons included in the discussion that follows are for the second quarter and first six months of fiscal year 2024 versus ("vs.") the second quarter and first six months 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.

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 17, Business Segment Information, to the consolidated financial statements for additional information.

For information concerning activity with our related parties, refer to Note 16, Supplemental Information, to the consolidated financial statements.

SECOND QUARTER 2024 VS. SECOND QUARTER 2023

SECOND QUARTER 2024 IN SUMMARY

Sales of $2,930.2 decreased 8%, or $269.9, as lower energy cost pass-through to customers of 6%, lower volumes of 2%, and an unfavorable impact from currency of 1% were partially offset by higher pricing of 1%.
Operating income of $637.2 increased 39%, or $177.4, as lower costs and positive pricing were partially offset by lower volumes and unfavorable currency impacts. Operating margin of 21.7% increased 730 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 $143.3 decreased 14%, or $22.6, as lower contributions from affiliates in our Europe and Middle East and India segments were partially offset by higher income from affiliates in the Americas segment.
Net income of $580.9 increased 29%, or $131.0, primarily due to lower costs and positive pricing, partially offset by lower equity affiliates' income, lower volumes, and higher interest expense. Net income margin of 19.8% increased 570 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Adjusted EBITDA of $1,198.3 increased 4%, or $47.4, and adjusted EBITDA margin of 40.9% increased 490 bp.
Diluted EPS of $2.57 increased 30%, or $0.60 per share. Diluted EPS for the second quarter of fiscal years 2024 and 2023 included unfavorable impacts from business and asset actions as well as non-service related pension costs. On a non-GAAP basis, adjusted diluted EPS of $2.85 increased 4%, or $0.11 per share. A summary table of changes in diluted EPS is presented below.
In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42nd consecutive year of dividend increases.

Changes in Diluted EPS Attributable to Air Products

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


	Three Months Ended
	31 March		Increase
	2024	2023	(Decrease)
Diluted EPS	$2.57	$1.97	$0.60



Operating Impacts
Underlying business
Volume			(0.07)
Price, net of variable costs			0.16
Other costs			0.12
Currency			(0.03)


Business and asset actions			0.49






Total Operating Impacts			$0.67
Other Impacts
Equity affiliates' income			($0.08)

Interest expense			(0.07)
Other non-operating income/expense, net			0.02


Change in effective tax rate			0.03







Noncontrolling interests			0.03

Total Other Impacts			($0.07)
Total Change in Diluted EPS			$0.60
% Change from prior year			30	%

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


	Three Months Ended
	31 March		Increase
	2024	2023	(Decrease)
Diluted EPS	$2.57	$1.97	$0.60


Business and asset actions	0.20	0.69	(0.49)









Non-service pension cost, net	0.08	0.08	—







Adjusted Diluted EPS	$2.85	$2.74	$0.11
% Change from prior year			4	%

SECOND QUARTER 2024 RESULTS OF OPERATIONS

Discussion of Second Quarter Consolidated Results


	Three Months Ended
	31 March				Change vs. Prior Year
	2024		2023		$	%/bp
GAAP Measures
Sales	$2,930.2		$3,200.1		($269.9)	(8	%)
Operating income	637.2		459.8		177.4	39	%
Operating margin	21.7	%	14.4	%		730	bp
Equity affiliates’ income	$143.3		$165.9		($22.6)	(14	%)
Net income	580.9		449.9		131.0	29	%
Net income margin	19.8	%	14.1	%		570	bp
Non-GAAP Measures
Adjusted EBITDA	$1,198.3		$1,150.9		$47.4	4	%
Adjusted EBITDA margin	40.9	%	36.0	%		490	bp

Sales

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



Volume	(2	%)
Price	1	%
Energy cost pass-through to customers	(6	%)
Currency	(1	%)
Total Consolidated Sales Change	(8	%)

Sales of $2,930.2 decreased 8%, or $269.9, as lower energy cost pass-through to customers of 6% driven by lower natural gas prices in the Americas and Europe segments, lower volumes of 2%, and an unfavorable impact from currency of 1% were partially offset by higher pricing of 1%. Volume was down overall primarily due to weaker merchant demand, which was partially offset by higher demand for hydrogen as well as contributions from new on-site assets.

Cost of Sales and Gross Margin

Cost of sales of $1,991.5 decreased 13%, or $291.3, due to lower energy cost pass-through to customers of $201, lower costs associated with sales volumes of $43, lower other costs of $28 driven by lower power costs in our merchant business, and a favorable impact from currency of $19. Gross margin of 32.0% increased 330 bp from 28.7% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by approximately 200 bp.

Selling and Administrative Expense

Selling and administrative expense of $240.6 decreased 4%, or $10.6, primarily due to lower incentive compensation. Selling and administrative expense as a percentage of sales increased to 8.2% from 7.8% in the prior year.

Research and Development Expense

Research and development expense of $25.4 decreased 7%, or $1.8. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.

Business and Asset Actions

Our consolidated income statements for the three months ended 31 March 2024 and 2023 include charges of $57.0 ($43.8 after tax, or $0.20 per share) and $185.6 ($153.7 attributable to Air Products after tax, or $0.69 per share), respectively, for strategic business and asset actions intended to optimize costs and focus resources on our growth projects. Charges for business and asset actions are not recorded in segment results.

The current year charge of $57.0 was for severance and other postemployment benefits payable to employees identified under a global cost reduction plan that was initiated in June 2023. The prior year charge of $185.6 resulted from the noncash write-off of assets related to our withdrawal from projects in Indonesia and Ukraine.

Other Income (Expense), Net

Other income of $21.5 increased $15.0 primarily due to higher income from the sale of assets.

Operating Income and Operating Margin

Operating income of $637.2 increased 39%, or $177.4, as lower charges for business and asset actions of $129, positive pricing, net of power and fuel costs, of $45, and lower other costs of $32 were partially offset by lower volumes of $20 and an unfavorable impact from currency of $8. The lower costs included favorable non-recurring items such as sales of assets as well as lower incentive compensation and distribution costs, partially offset by the impact of labor inflation. Operating margin of 21.7% increased 730 bp from 14.4% in the prior year due to the factors above as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 150 basis points.

Equity Affiliates' Income

Equity affiliates' income of $143.3 decreased 14%, or $22.6, as lower contributions from affiliates in our Europe and Middle East and India segments were partially offset by higher income from affiliates in the Americas segment.

Interest Expense


	Three Months Ended
	31 March
	2024	2023
Interest incurred	$125.5	$64.1
Less: Capitalized interest	65.6	23.2
Interest expense	$59.9	$40.9

Interest incurred increased 96%, or $61.4, primarily due to a higher debt balance from senior notes that were issued in March 2023 and February 2024 to fund projects under our Green Finance Framework as well as borrowings on financing available for the NEOM Green Hydrogen Project. Capitalized interest increased $42.4 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 $9.2 decreased 34%, or $4.7, as higher interest income on cash and cash items and short-term investments was partially offset by higher non-service pension costs.

Net Income and Net Income Margin

Net income of $580.9 increased 29%, or $131.0, primarily due to lower charges for business and asset actions, favorable pricing, and lower other costs, partially offset by lower equity affiliates' income, lower volumes, and higher interest expense. Net income margin of 19.8% increased 570 bp from 14.1% 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 approximately 150 bp.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $1,198.3 increased 4%, or $47.4, as higher pricing and lower costs were partially offset by lower equity affiliates' income. Adjusted EBITDA margin of 40.9% increased 490 bp from 36.0% 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 250 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 18.3% and 21.2% for the three months ended 31 March 2024 and 2023, respectively. Our current quarter rate was lower primarily due to a discrete tax impact recorded in the prior year from business and asset actions further discussed below as well as earning a greater share of income in jurisdictions with lower tax rates and the impact from equity affiliates' income.

In the prior year, we recognized a charge of $185.6 ($153.7 attributable to Air Products after tax) related to various business and asset actions. Refer to Note 4, Business and Asset Actions, for additional information. This charge included certain losses for which we could not recognize an income tax benefit. Therefore, we recorded a valuation allowance of $31.7 against deferred tax assets resulting from the charge. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary.

Our adjusted effective tax rate, which excludes the impact of the business and asset actions discussed above as well as the non-service components of net periodic cost for our defined benefit pension plans, was 18.9% and 19.7% for the three months ended 31 March 2024 and 2023, respectively. The current quarter rate was lower due to the higher income in jurisdictions with lower tax rates as well as the impact from equity affiliates' income.

Discussion of Second Quarter Results by Business Segment

Americas


	Three Months Ended
	31 March				Change vs. Prior Year
	2024		2023		$	%/bp
Sales	$1,245.8		$1,373.1		($127.3)	(9	%)
Operating income	371.9		324.2		47.7	15	%
Operating margin	29.9	%	23.6	%		630	bp
Equity affiliates’ income	$44.2		$28.1		$16.1	57	%
Adjusted EBITDA	590.2		514.0		76.2	15	%
Adjusted EBITDA margin	47.4	%	37.4	%		1,000	bp

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



Volume	1	%
Price	3	%
Energy cost pass-through to customers	(12	%)
Currency	(1	%)
Total Americas Sales Change	(9	%)

Sales of $1,245.8 decreased 9%, or $127.3, due to lower energy cost pass-through to customers of 12% driven by lower natural gas prices in North America and an unfavorable impact from currency of 1%, partially offset higher pricing of 3% and higher volumes of 1%. Volumes improved modestly as higher demand for hydrogen in our on-site business was partially offset by weaker merchant volume.

Operating income of $371.9 increased 15%, or $47.7, primarily due to positive pricing, net of power and fuel costs, of $37 and favorable volumes of $19, partially offset by higher costs of $7. Higher costs for labor inflation were partially offset by lower incentive compensation. Operating margin of 29.9% increased 630 bp from 23.6% in the prior year due to these factors as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 300 basis points.

Equity affiliates’ income of $44.2 increased 57%, or $16.1, driven by higher income from an affiliate in Mexico as well as recognition of our share of income from an asset sale.

Asia


	Three Months Ended
	31 March				Change vs. Prior Year
	2024		2023		$	%/bp
Sales	$779.7		$813.9		($34.2)	(4	%)
Operating income	203.6		233.0		(29.4)	(13	%)
Operating margin	26.1	%	28.6	%		(250	bp)
Equity affiliates’ income	$8.3		$7.3		$1.0	14	%
Adjusted EBITDA	328.3		350.3		(22.0)	(6	%)
Adjusted EBITDA margin	42.1	%	43.0	%		(90	bp)

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



Volume	(1	%)
Price	—	%

Energy cost pass-through to customers	1	%
Currency	(4	%)
Total Asia Sales Change	(4	%)

Sales of $779.7 decreased 4%, or $34.2, due to an unfavorable impact from currency of 4% driven by strengthening of the U.S. Dollar against the Chinese Renminbi and lower volumes of 1%, partially offset by higher energy cost pass-through to customers of 1%. Volumes declined as weak economic growth in China and lower demand for merchant products more than offset higher on-site volumes, which included contributions from several new industrial gas plants. Pricing was flat versus the prior year.

Operating income of $203.6 decreased 13%, or $29.4, primarily due to lower volumes, including unfavorable business mix, of $21 and an unfavorable currency impact of $10, partially offset by lower costs of $5. Lower distribution costs were partially offset by labor inflation. Operating margin of 26.1% decreased 250 bp from 28.6% in the prior year.

Equity affiliates’ income of $8.3 increased 14%, or $1.0, driven by higher income from an affiliate in Thailand.

Europe


	Three Months Ended
	31 March				Change vs. Prior Year
	2024		2023		$	%/bp
Sales	$667.9		$752.9		($85.0)	(11	%)
Operating income	201.0		173.2		27.8	16	%
Operating margin	30.1	%	23.0	%		710	bp
Equity affiliates’ income	$11.7		$29.5		($17.8)	(60	%)
Adjusted EBITDA	263.5		251.0		12.5	5	%
Adjusted EBITDA margin	39.5	%	33.3	%		620	bp

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



Volume	(6	%)
Price	(1	%)
Energy cost pass-through to customers	(6	%)
Currency	2	%
Total Europe Sales Change	(11	%)

Sales of $667.9 decreased 11%, or $85.0, due to lower energy cost pass-through to customers of 6% driven by lower natural gas prices across the region, lower volumes of 6%, and lower pricing of 1%, partially offset by a favorable impact from currency of 2%. Volumes were lower due to weak merchant demand as well as a planned maintenance outage, which were partially offset by contributions from an on-site facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023. Currency positively impacted sales primarily due to the weakening of the U.S. Dollar against the Euro and the British Pound Sterling.

Operating income of $201.0 increased 16%, or $27.8, primarily due to pricing, net of lower power and fuel costs, of $11, lower other costs of $10, and a favorable currency impact of $4. Other costs were favorable primarily due to higher income from the sale of assets as well as lower distribution costs, partially offset by higher costs for labor inflation. Operating margin of 30.1% increased 710 bp from 23.0% 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 approximately 200 bp, and favorable business mix.

Equity affiliates’ income of $11.7 decreased 60%, or $17.8, driven by prior year non-recurring items for our affiliate in Italy.

Middle East and India


	Three Months Ended
	31 March		Change vs. Prior Year
	2024	2023	$	%
Sales	$35.7	$44.8	($9.1)	(20	%)
Operating income	5.6	1.3	4.3	331	%
Equity affiliates' income	73.9	98.9	(25.0)	(25	%)
Adjusted EBITDA	86.2	106.8	(20.6)	(19	%)

Sales of $35.7 decreased 20%, or $9.1, primarily due to lower volumes. Operating income of $5.6 increased $4.3 as lower costs, including planned maintenance, more than offset the lower volumes.

Equity affiliates' income of $73.9 decreased 25%, or $25.0, primarily due to higher interest and other operating costs related to the Jazan gasification and power project.

Corporate and other


	Three Months Ended
	31 March		Change vs. Prior Year
	2024	2023	$	%
Sales	$201.1	$215.4	($14.3)	(7	%)
Operating loss	(87.9)	(86.3)	(1.6)	(2	%)
Adjusted EBITDA	(69.9)	(71.2)	1.3	2	%

Sales of $201.1 decreased 7%, or $14.3, and operating loss of $87.9 increased 2%, or $1.6, primarily due to lower non-LNG sale of equipment activity. The negative impact to operating loss was partially offset by lower corporate costs.

FIRST SIX MONTHS 2024 VS. FIRST SIX MONTHS 2023

FIRST SIX MONTHS 2024 IN SUMMARY

Sales of $5,927.6 decreased 7%, or $447.2, as lower energy cost pass-through to customers of 9% was partially offset by higher pricing of 1% and higher volumes of 1%.
Operating income of $1,304.1 increased 17%, or $192.3, as lower charges for business and asset actions, positive pricing, and higher volumes were partially offset by higher other costs and unfavorable currency. Operating margin of 22.0% increased 460 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Equity affiliates' income of $301.7 increased 9%, or $25.8, primarily due to higher income from our affiliate in Mexico.
Net income of $1,202.5 increased 16%, or $168.8, primarily due to lower charges for business and asset actions, favorable pricing, and higher equity affiliates' income, partially offset by higher interest expense and higher other costs. Net income margin of 20.3% increased 410 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Adjusted EBITDA of $2,372.8 increased 6%, or $138.4, and adjusted EBITDA margin of 40.0% increased 490 bp.
Diluted EPS of $5.30 increased 17%, or $0.76 per share. Diluted EPS for the first half of fiscal years 2024 and 2023 included unfavorable impacts from business and asset actions as well as non-service related pension costs. On a non-GAAP basis, adjusted diluted EPS of $5.67 increased 5%, or $0.29 per share. A summary table of changes in diluted EPS is presented below.
In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42nd consecutive year of dividend increases.

Changes in Diluted EPS Attributable to Air Products

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


	Six Months Ended
	31 March		Increase
	2024	2023	(Decrease)
Diluted EPS	$5.30	$4.54	$0.76



Operating Impacts
Underlying business
Volume			$0.04
Price, net of variable costs			0.31
Other costs			(0.09)
Currency			(0.03)


Business and asset actions			0.49






Total Operating Impacts			$0.72
Other Impacts
Equity affiliates' income			$0.09

Interest expense			(0.11)
Other non-operating income/expense, net, excluding discrete item below			(0.01)
Non-service pension cost, net			(0.03)

Change in effective tax rate			0.06







Noncontrolling interests			0.03

Total Other Impacts			$0.03
Total Change in Diluted EPS			$0.76
% Change from prior year			17	%

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


	Six Months Ended
	31 March		Increase
	2024	2023	(Decrease)
Diluted EPS	$5.30	$4.54	$0.76


Business and asset actions	0.20	0.69	(0.49)









Non-service pension cost, net	0.17	0.14	0.03







Adjusted Diluted EPS	$5.67	$5.38	$0.29
% Change from prior year			5	%

FIRST SIX MONTHS 2024 RESULTS OF OPERATIONS

Discussion of First Six Months Consolidated Results


	Six Months Ended
	31 March				Changes
	2024		2023		$	%/bp
GAAP Measures
Sales	$5,927.6		$6,374.8		($447.2)	(7	%)
Operating income	1,304.1		1,111.8		192.3	17	%
Operating margin	22.0	%	17.4	%		460	bp
Equity affiliates’ income	$301.7		$275.9		$25.8	9	%
Net income	1,202.5		1,033.7		168.8	16	%
Net income margin	20.3	%	16.2	%		410	bp
Non-GAAP Measures
Adjusted EBITDA	$2,372.8		$2,234.4		$138.4	6	%
Adjusted EBITDA margin	40.0	%	35.1	%		490	bp

Sales

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


Volume	1	%
Price	1	%
Energy cost pass-through to customers	(9	%)
Currency	—	%
Total Consolidated Sales Change	(7	%)

Sales of $5,927.6 decreased 7%, or $447.2, as lower energy cost pass-through to customers of 9% driven by lower natural gas prices in the Americas and Europe segments was partially offset by higher volumes of 1% and higher pricing of 1%. Volumes improved modestly as strong demand for hydrogen and contributions from new assets in our on-site business were partially offset by weaker merchant demand. Currency was flat versus the prior year.

Cost of Sales and Gross Margin

Cost of sales of $4,058.7 decreased 11%, or $496.4, due to lower energy cost pass-through to customers of $542, partially offset by higher costs associated with sales volumes of $35 and an unfavorable impact from currency of $11. Other costs were flat as lower power costs in our merchant business across most regions offset labor inflation and higher planned maintenance. Gross margin of 31.5% increased 300 bp from 28.5% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by approximately 250 bp.

Selling and Administrative Expense

Selling and administrative expense of $479.0 decreased 1%, or $6.6, as lower incentive compensation was mostly offset by labor inflation. Selling and administrative expense as a percentage of sales increased to 8.1% from 7.6% in the prior year.

Research and Development Expense

Research and development expense of $51.1 decreased 1%, or $0.5. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.

Business and Asset Actions

Our consolidated income statements for the six months ended 31 March 2024 and 2023 include charges of $57.0 ($43.8 after tax, or $0.20 per share) and $185.6 ($153.7 attributable to Air Products after tax, or $0.69 per share), respectively, for strategic business and asset actions intended to optimize costs and focus resources on our growth projects. Charges for business and asset actions are not recorded in segment results.

Other Income (Expense), Net

Other income of $22.3 increased 50%, or $7.4, as higher income from the sale of assets was partially offset by an unfavorable foreign exchange impact from the devaluation of the Argentine peso during the first quarter.

Operating Income and Operating Margin

Operating income of $1,304.1 increased 17%, or $192.3, as lower charges for business and asset actions of $129, positive pricing, net of power and fuel costs, of $86, and higher volumes of $11 were partially offset by higher other costs of $25 and an unfavorable impact from currency of $8. The higher other costs were driven by labor inflation and higher planned maintenance, partially offset by lower incentive compensation as well as higher income from the sale of assets. Operating margin of 22.0% increased 460 bp from 17.4% 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 approximately 150 basis points.

Equity Affiliates' Income

Equity affiliates' income of $301.7 increased 9%, or $25.8, primarily due to higher income from our affiliate in Mexico.

Interest Expense


	Six Months Ended
	31 March
	2024	2023
Interest incurred	$234.1	$120.4
Less: Capitalized interest	120.7	38.3
Interest expense	$113.4	$82.1

Interest incurred increased 94%, or $113.7, primarily due to a higher debt balance from senior notes that were issued in March 2023 and February 2024 to fund projects under our Green Finance Framework as well as borrowings on financing available for the NEOM Green Hydrogen Project. Capitalized interest increased $82.4 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 $24.0 increased 66%, or $9.5, as higher non-service pension costs were partially offset by higher interest income on cash and cash items and short-term investments.

Net Income and Net Income Margin

Net income of $1,202.5 increased 16%, or $168.8, primarily due to lower charges for business and asset actions, favorable pricing, and higher equity affiliates' income, partially offset by higher interest expense and higher other costs. Net income margin of 20.3% increased 410 bp from 16.2% in the prior year due to these factors as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 150 bp.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $2,372.8 increased 6%, or $138.4, as higher pricing, volumes, and equity affiliates' income were partially offset by higher costs. Adjusted EBITDA margin of 40.0% increased 490 bp from 35.1% in the prior year due to these factors as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 300 bp.

Effective Tax Rate

Our effective tax rate was 18.1% and 19.9% for the six months ended 31 March 2024 and 2023, respectively. Our current quarter rate was lower primarily due to a discrete tax impact recorded in the prior year from business and asset actions further discussed below as well as earning a greater share of income in jurisdictions with lower tax rates and the impact from equity affiliates' income.

Our adjusted effective tax rate, which excludes the impact of the business and asset actions discussed above as well as the non-service components of net periodic cost for our defined benefit pension plans, was 18.5% and 19.4% for the six months ended 31 March 2024 and 2023, respectively. The current year rate was lower due to the higher income in jurisdictions with lower tax rates as well as the impact from equity affiliates' income.

Discussion of First Six Months Results by Business Segment

Americas


	Six Months Ended
	31 March				Changes
	2024		2023		$	%/bp
Sales	$2,497.9		$2,757.3		($259.4)	(9	%)
Operating income	726.3		667.2		59.1	9	%
Operating margin	29.1	%	24.2	%		490	bp
Equity affiliates’ income	$81.3		$44.5		$36.8	83	%
Adjusted EBITDA	1,151.4		1,029.4		122.0	12	%
Adjusted EBITDA margin	46.1	%	37.3	%		880 bp

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



Volume	2	%
Price	2	%
Energy cost pass-through to customers	(13	%)
Currency	—	%
Total Americas Sales Change	(9	%)

Sales of $2,497.9 decreased 9%, or $259.4, as lower energy cost pass-through to customers of 13% driven by lower natural gas prices in North America was partially offset by higher volumes of 2% and higher pricing of 2%. Volumes improved modestly as higher demand for hydrogen in our on-site business was partially offset by weaker merchant volume. Currency was flat versus the prior year.

Operating income of $726.3 increased 9%, or $59.1, primarily due to positive pricing, net of power and fuel costs, of $70 and favorable volumes of $31, partially offset by higher costs of $41. The higher costs were driven by higher planned maintenance and labor inflation, partially offset by lower incentive compensation. Operating margin of 29.1% increased 490 bp from 24.2% in the prior year due to these factors as well as lower energy cost pass-through to customers, which positively impacted margin by about 350 basis points.

Equity affiliates’ income of $81.3 increased 83%, or $36.8, driven by higher income from an affiliate in Mexico.

Asia


	Six Months Ended
	31 March				Changes
	2024		2023		$	%/bp
Sales	$1,573.5		$1,591.7		($18.2)	(1	%)
Operating income	414.8		468.9		(54.1)	(12	%)
Operating margin	26.4	%	29.5	%		(310	bp)
Equity affiliates’ income	$12.5		$14.7		($2.2)	(15	%)
Adjusted EBITDA	655.5		695.5		(40.0)	(6	%)
Adjusted EBITDA margin	41.7	%	43.7	%		(200	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	1	%
Currency	(3	%)
Total Asia Sales Change	(1	%)

Sales of $1,573.5 decreased 1%, or $18.2, due to an unfavorable currency impact of 3% driven by strengthening of the U.S. Dollar against the Chinese Renminbi, partially offset by higher pricing of 1% and higher energy cost pass-through to customers 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 merchant products.

Operating income of $414.8 decreased 12%, or $54.1, primarily due to unfavorable business mix of $34, an unfavorable currency impact of $12, and lower pricing, net of power and fuel costs, of $6. The cost impact was relatively flat as lower incentive compensation and distribution costs were mostly offset by labor inflation and higher planned maintenance. Operating margin of 26.4% decreased 310 bp from 29.5% in the prior year primarily due to unfavorable business mix.

Equity affiliates’ income of $12.5 decreased 15%, or $2.2, as higher maintenance expense for one of our affiliates in China was partially offset by higher income from an affiliate in Thailand.

Europe


	Six Months Ended
	31 March				Changes
	2024		2023		$	%/bp
Sales	$1,399.1		$1,544.8		($145.7)	(9	%)
Operating income	398.6		319.0		79.6	25	%
Operating margin	28.5	%	20.6	%		790	bp
Equity affiliates’ income	$32.4		$47.2		($14.8)	(31	%)
Adjusted EBITDA	530.0		458.8		71.2	16	%
Adjusted EBITDA margin	37.9	%	29.7	%		820	bp

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



Volume	2	%
Price	(2	%)
Energy cost pass-through to customers	(13	%)
Currency	4	%
Total Europe Sales Change	(9	%)

Sales of $1,399.1 decreased 9%, or $145.7, due to lower energy cost pass-through to customers of 13% driven by lower natural gas prices across the region and lower pricing of 2%, partially offset by a favorable impact from currency of 4% and higher volumes of 2%. Currency positively impacted sales primarily due to the weakening of the U.S. Dollar against the Euro. The volume improvement was driven by contribution from an on-site facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023, which was partially offset by lower merchant demand.

Operating income of $398.6 increased 25%, or $79.6, due to higher volumes of $53, pricing, net of lower power and fuel costs, of $24, and a favorable impact from currency of $13, partially offset by higher costs of $10. The higher costs were driven by labor inflation and higher planned maintenance, partially offset by income from the sale of assets and lower distribution costs. Operating margin of 28.5% increased 790 bp from 20.6% 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 300 bp.

Equity affiliates’ income of $32.4 decreased 31%, or $14.8, driven by prior year non-recurring items for our affiliate in Italy.

Middle East and India


	Six Months Ended
	31 March		Changes
	2024	2023	$	%
Sales	$71.1	$86.2	($15.1)	(18	%)
Operating income	9.5	8.0	1.5	19	%
Equity affiliates' income	166.8	163.0	3.8	2	%
Adjusted EBITDA	189.6	184.2	5.4	3	%

Sales of $71.1 decreased 18%, or $15.1, primarily due to lower volumes. Despite lower sales, operating income of $9.5 increased 19%, or $1.5, primarily due to lower costs, including planned maintenance.

Equity affiliates' income of $166.8 increased 2%, or $3.8, as a higher contribution from JIGPC's completion of the second phase of the asset purchase in January 2023 was partially offset by higher interest and other operating costs related to the Jazan gasification and power project.

Corporate and other


	Six Months Ended
	31 March		Changes
	2024	2023	$	%
Sales	$386.0	$394.8	($8.8)	(2	%)
Operating loss	(188.1)	(165.7)	(22.4)	(14	%)
Adjusted EBITDA	(153.7)	(133.5)	(20.2)	(15	%)

Sales of $386.0 decreased 2%, or $8.8, and operating loss of $188.1 increased 14%, or $22.4, primarily due to lower non-LNG sale of equipment activity. The negative impact to operating loss was partially offset by lower corporate costs.

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 March
Q2 2024 vs. Q2 2023	Operating Income	Equity Affiliates' Income	Other Non-Operating Income/Expense, Net	Income Tax Provision	Net Income Attributable to Air Products	Diluted EPS
Q2 2024 GAAP	$637.2	$143.3	($9.2)	$130.5	$572.4	$2.57
Q2 2023 GAAP	459.8	165.9	(13.9)	121.0	439.8	1.97
$ Change GAAP						$0.60
% Change GAAP						30	%

Q2 2024 GAAP	$637.2	$143.3	($9.2)	$130.5	$572.4	$2.57


Business and asset actions	57.0	—	—	13.2	43.8	0.20









Non-service pension cost, net	—	—	25.1	6.2	18.9	0.08








Q2 2024 Non-GAAP ("Adjusted")	$694.2	$143.3	$15.9	$149.9	$635.1	$2.85

Q2 2023 GAAP	$459.8	$165.9	($13.9)	$121.0	$439.8	$1.97


Business and asset actions(A)	185.6	—	—	26.9	153.7	0.69









Non-service pension cost, net	—	—	22.9	5.7	17.2	0.08








Q2 2023 Non-GAAP ("Adjusted")	$645.4	$165.9	$9.0	$153.6	$610.7	$2.74
$ Change Non-GAAP ("Adjusted")						$0.11
% Change Non-GAAP ("Adjusted")						4	%

(A)Charge includes $5.0 attributable to noncontrolling interests.



	Six Months Ended 31 March
2024 vs. 2023	Operating Income	Equity Affiliates' Income	Other Non-Operating Income/Expense, Net	Income Tax Provision	Net Income Attributable to Air Products	Diluted EPS
2024 GAAP	$1,304.1	$301.7	($24.0)	$265.9	$1,181.7	$5.30
2023 GAAP	1,111.8	275.9	(14.5)	257.4	1,012.0	4.54
$ Change GAAP						$0.76
% Change GAAP						17	%

2024 GAAP	$1,304.1	$301.7	($24.0)	$265.9	$1,181.7	$5.30


Business and asset actions	57.0	—	—	13.2	43.8	0.20









Non-service pension cost, net	—	—	50.0	12.4	37.6	0.17








2024 Non-GAAP ("Adjusted")	$1,361.1	$301.7	$26.0	$291.5	$1,263.1	$5.67

2023 GAAP	$1,111.8	$275.9	($14.5)	$257.4	$1,012.0	$4.54


Business and asset actions(A)	185.6	—	—	26.9	153.7	0.69









Non-service pension cost, net	—	—	42.4	10.6	31.8	0.14








2023 Non-GAAP ("Adjusted")	$1,297.4	$275.9	$27.9	$294.9	$1,197.5	$5.38
$ Change Non-GAAP ("Adjusted")						$0.29
% Change Non-GAAP ("Adjusted")						5	%

(A ) Charge includes $5.0 attributable to noncontrolling interests.

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 March						Six Months Ended 31 March
	2024			2023			2024			2023
	$	Margin		$	Margin		$	Margin		$	Margin
Sales	$2,930.2			$3,200.1			$5,927.6			$6,374.8

Net income and net income margin	$580.9	19.8	%	$449.9	14.1	%	$1,202.5	20.3	%	$1,033.7	16.2	%

Add: Interest expense	59.9	2.0	%	40.9	1.3	%	113.4	1.9	%	82.1	1.3	%
Less: Other non-operating income (expense), net	(9.2)	(0.3	%)	(13.9)	(0.4	%)	(24.0)	(0.4	%)	(14.5)	(0.2	%)
Add: Income tax provision	130.5	4.5	%	121.0	3.8	%	265.9	4.5	%	257.4	4.0	%
Add: Depreciation and amortization	360.8	12.3	%	339.6	10.6	%	710.0	12.0	%	661.1	10.4	%
Add: Business and asset actions	57.0	1.9	%	185.6	5.8	%	57.0	1.0	%	185.6	2.9	%









Adjusted EBITDA and adjusted EBITDA margin	$1,198.3	40.9	%	$1,150.9	36.0	%	$2,372.8	40.0	%	$2,234.4	35.1	%


Change GAAP
Net income $ change	$131.0						$168.8
Net income % change	29%						16%
Net income margin change	570bp						410 bp
Change Non-GAAP
Adjusted EBITDA $ change	$47.4						$138.4
Adjusted EBITDA % change	4%						6%
Adjusted EBITDA margin change	490bp						490 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 and six months ended 31 March 2024 and 2023:

Americas


	Three Months Ended							Six Months Ended
	31 March				Change vs. Prior Year			31 March				Change vs. Prior Year
	2024		2023		$	%/bp		2024		2023		$	%/bp
Sales	$1,245.8		$1,373.1		($127.3)	(9	%)	$2,497.9		$2,757.3		($259.4)	(9	%)

Operating income	$371.9		$324.2		$47.7	15	%	$726.3		$667.2		$59.1	9	%
Operating margin	29.9	%	23.6	%		630	bp	29.1	%	24.2	%		490	bp

Reconciliation of GAAP to Non-GAAP:
Operating income	$371.9		$324.2					$726.3		$667.2
Add: Depreciation and amortization	174.1		161.7					343.8		317.7
Add: Equity affiliates' income	44.2		28.1					81.3		44.5
Adjusted EBITDA	$590.2		$514.0		$76.2	15	%	$1,151.4		$1,029.4		$122.0	12	%
Adjusted EBITDA margin	47.4	%	37.4	%		1,000	bp	46.1	%	37.3	%		880	bp

Asia


	Three Months Ended							Six Months Ended
	31 March				Change vs. Prior Year			31 March				Changes vs. Prior Year
	2024		2023		$	%/bp		2024		2023		$	%/bp
Sales	$779.7		$813.9		($34.2)	(4	%)	$1,573.5		$1,591.7		($18.2)	(1	%)

Operating income	$203.6		$233.0		($29.4)	(13	%)	$414.8		$468.9		($54.1)	(12	%)
Operating margin	26.1	%	28.6	%		(250	bp)	26.4	%	29.5	%		(310	bp)

Reconciliation of GAAP to Non-GAAP:
Operating income	$203.6		$233.0					$414.8		$468.9
Add: Depreciation and amortization	116.4		110.0					228.2		211.9
Add: Equity affiliates' income	8.3		7.3					12.5		14.7
Adjusted EBITDA	$328.3		$350.3		($22.0)	(6	%)	$655.5		$695.5		($40.0)	(6	%)
Adjusted EBITDA margin	42.1	%	43.0	%		(90	bp)	41.7	%	43.7	%		(200	bp)

Europe


	Three Months Ended							Six Months Ended
	31 March				Change vs. Prior Year			31 March				Changes vs. Prior Year
	2024		2023		$	%/bp		2024		2023		$	%/bp
Sales	$667.9		$752.9		($85.0)	(11	%)	$1,399.1		$1,544.8		($145.7)	(9	%)

Operating income	$201.0		$173.2		$27.8	16	%	$398.6		$319.0		$79.6	25	%
Operating margin	30.1	%	23.0	%		710	bp	28.5	%	20.6	%		790	bp

Reconciliation of GAAP to Non-GAAP:
Operating income	$201.0		$173.2					$398.6		$319.0
Add: Depreciation and amortization	50.8		48.3					99.0		92.6
Add: Equity affiliates' income	11.7		29.5					32.4		47.2
Adjusted EBITDA	$263.5		$251.0		$12.5	5	%	$530.0		$458.8		$71.2	16	%
Adjusted EBITDA margin	39.5	%	33.3	%		620	bp	37.9	%	29.7	%		820	bp

Middle East and India


	Three Months Ended					Six Months Ended
	31 March		Change vs. Prior Year			31 March		Changes vs. Prior Year
	2024	2023	$	%/bp		2024	2023	$	%/bp
Sales	$35.7	$44.8	($9.1)	(20	%)	$71.1	$86.2	($15.1)	(18	%)

Operating income	$5.6	$1.3	$4.3	331	%	$9.5	$8.0	$1.5	19	%
Reconciliation of GAAP to Non-GAAP:
Operating income	$5.6	$1.3				$9.5	$8.0
Add: Depreciation and amortization	6.7	6.6				13.3	13.2
Add: Equity affiliates' income	73.9	98.9				166.8	163.0
Adjusted EBITDA	$86.2	$106.8	($20.6)	(19	%)	$189.6	$184.2	$5.4	3	%

Corporate and other


	Three Months Ended					Six Months Ended
	31 March		Change vs. Prior Year			31 March		Changes vs. Prior Year
	2024	2023	$	%/bp		2024	2023	$	%/bp
Sales	$201.1	$215.4	($14.3)	(7	%)	$386.0	$394.8	($8.8)	(2	%)

Operating loss	($87.9)	($86.3)	($1.6)	(2	%)	($188.1)	($165.7)	($22.4)	(14	%)
Reconciliation of GAAP to Non-GAAP:
Operating loss	($87.9)	($86.3)				($188.1)	($165.7)
Add: Depreciation and amortization	12.8	13.0				25.7	25.7
Add: Equity affiliates' income	5.2	2.1				8.7	6.5
Adjusted EBITDA	($69.9)	($71.2)	$1.3	2	%	($153.7)	($133.5)	($20.2)	(15	%)

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 March				Six Months Ended 31 March
	2024		2023		2024		2023
Income tax provision	$130.5		$121.0		$265.9		$257.4
Income before taxes	711.4		570.9		1,468.4		1,291.1
Effective tax rate	18.3	%	21.2	%	18.1	%	19.9	%


Income tax provision	$130.5		$121.0		$265.9		$257.4
Business and asset actions tax impact	13.2		26.9		13.2		26.9

Non-service pension tax impact	6.2		5.7		12.4		10.6















Adjusted income tax provision	$149.9		$153.6		$291.5		$294.9

Income before taxes	$711.4		$570.9		$1,468.4		$1,291.1

Business and asset actions	57.0		185.6		57.0		185.6
Non-service pension cost, net	25.1		22.9		50.0		42.4










Adjusted income before taxes	$793.5		$779.4		$1,575.4		$1,519.1
Adjusted effective tax rate	18.9	%	19.7	%	18.5	%	19.4	%

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:



	Six Months Ended
	31 March
	2024	2023
Cash used for investing activities	$3,226.0	$2,476.0
Proceeds from sale of assets and investments	20.2	7.2
Purchases of investments	(136.4)	(290.5)
Proceeds from investments	367.4	611.6
Other investing activities	30.1	(51.2)
NGHC expenditures not funded by Air Products' equity(A)	(836.2)	(335.3)
Capital expenditures	$2,671.1	$2,417.8

(A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture.

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 March 2024, we had $1,333.0 of foreign cash and cash items compared to total cash and cash items of $2,535.0. 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


	Six Months Ended
	31 March
	2024	2023
Net income attributable to Air Products	$1,181.7	$1,012.0

Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	710.0	661.1
Deferred income taxes	6.9	29.0
Business and asset actions	57.0	185.6

Undistributed earnings of equity method investments	(118.2)	(78.1)
Gain on sale of assets and investments	(18.2)	(3.9)
Share-based compensation	28.5	31.2
Noncurrent lease receivables	40.2	39.5


Other adjustments	26.5	70.9
Changes in working capital accounts	(486.1)	(589.3)
Cash Provided by Operating Activities	$1,428.3	$1,358.0

For the first six months of fiscal year 2024, cash provided by operating activities was $1,428.3. We recorded a charge of $57.0 for the accrual of severance and other postemployment benefits. Refer to Note 4, Business and Asset Actions, to the consolidated financial statements for additional information. The working capital accounts were a use of cash of $486.1. A use of cash of $301.0 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 of $111.7 within "Other working capital" primarily related to the timing of tax payments. The use of cash of $72.7 within "Inventories" primarily related to purchases of helium. The use of cash of $31.6 within "Other receivables" primarily related 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.

For the first six months of fiscal year 2023, cash provided by operating activities was $1,358.0. Business and asset actions of $185.6 included noncash charges to write-down the full carrying value of assets previously under construction in our Asia and Europe segments. Other adjustments of $70.9 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $589.3, primarily driven by $451.3 from payables and accrued liabilities, $124.7 from other working capital, and $112.3 from inventory, partially offset by a source of cash of $162.0 from trade receivables, less allowances. The use of cash within payables and accrued liabilities primarily resulted from the impact of lower prices for the purchase of natural gas, a decrease in value of derivatives that hedge intercompany loans, and payments for incentive compensation under the fiscal year 2022 plan. The use of cash within other working capital primarily relates to the timing of income tax payments. The source of cash within trade receivables includes lower natural gas costs contractually passed through to customers.

Cash Flows From Investing Activities


	Six Months Ended
	31 March
	2024		2023
Additions to plant and equipment, including long-term deposits	$	(3,114.9)	$	(1,841.1)

Investment in and advances to unconsolidated affiliates	—		(912.0)
Investment in financing receivables	(392.4)		—
Proceeds from sale of assets and investments	20.2		7.2
Purchases of investments	(136.4)		(290.5)
Proceeds from investments	367.4		611.6

Other investing activities	30.1		(51.2)
Cash Used for Investing Activities	($3,226.0)		($2,476.0)

For the first six months of fiscal year 2024, cash used for investing activities was $3,226.0. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $3,114.9 and an investment in financing receivables of $392.4. Refer to the "Capital Expenditures" section below for further detail. Proceeds from investments of $367.4 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 $136.4.

For the first six months of fiscal year 2023, cash used for investing activities was $2,476.0. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $1,841.1 as well as investment in and advances to unconsolidated affiliates of $912.0, which primarily included our investment in the second phase of the Jazan gasification and power project. Proceeds from investments of $611.6 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 $290.5.

Capital Expenditures

The components of our capital expenditures are detailed in the table below. Refer to page 57 for a definition of this non-GAAP financial measure as well as a reconciliation to cash used for investing activities.


	Six Months Ended
	31 March
	2024	2023
Additions to plant and equipment, including long-term deposits	$3,114.9	$1,841.1

Investment in and advances to unconsolidated affiliates	—	912.0
Investment in financing receivables	392.4	—
NGHC expenditures not funded by Air Products' equity(A)	(836.2)	(335.3)
Capital Expenditures	$2,671.1	$2,417.8

(A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture.

Capital expenditures for the first six months of fiscal year 2024 totaled $2,671.1 compared to $2,417.8 for the first six months of fiscal year 2023. The investment in financing receivables of $392.4 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 16, 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


	Six Months Ended
	31 March
	2024		2023
Long-term debt proceeds	$	3,649.0	$	1,891.6
Payments on long-term debt	(64.7)		(596.0)
Decrease in commercial paper and short-term borrowings	(131.9)		(16.3)

Dividends paid to shareholders	(777.9)		(719.2)

Proceeds from stock option exercises	5.7		17.1
Investments by noncontrolling interests	142.6		72.8

Other financing activities	(110.3)		(46.6)
Cash Provided by Financing Activities	$2,712.5		$603.4

For the first six months of fiscal year 2024, cash provided by financing activities was $2,712.5. The source of cash was primarily driven by long-term debt proceeds of $3,649.0, which was largely attributable to U.S. Dollar-denominated green bonds totaling $2.5 billion that were issued during the second quarter of fiscal year 2024 under our Green Finance Framework as well as borrowings from project financing associated with the NGHC joint venture, partially offset by dividend payments to shareholders of $777.9.

For the first six months of fiscal year 2023, cash provided by financing activities was $603.4. The source of cash was primarily driven by long-term debt proceeds of $1,891.6, which was largely attributable to multi-currency green bonds totaling $1.4 billion that were issued during the second quarter of fiscal year 2023 under our Green Finance Framework. These proceeds were partially offset by dividend payments to shareholders of $719.2 and payments on long-term debt of $596.0.

Financing and Capital Structure

Debt

Total debt increased from $10,305.8 as of 30 September 2023 to $13,621.7 as of 31 March 2024 primarily due to the $2.5 billion issuance of senior notes intended for projects defined under our Green Finance Framework 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. Total debt includes related party debt of $289.8 and $328.3 as of 31 March 2024 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 March 2024, we were in compliance with all of the financial and other covenants under our debt agreements.

Credit Facilities

In March 2024, we entered into a five-year $3.0 billion revolving credit agreement maturing 31 March 2029 (the “2024 Credit Agreement”) as well as a 364-day $500 revolving credit agreement maturing 27 March 2025 that we have the ability to convert into a term loan maturing 27 March 2026. Both agreements are syndicated facilities that provide a source of liquidity and support our commercial paper program through availability of senior unsecured debt to us and certain of our subsidiaries. As of 31 March 2024, no borrowings were outstanding under either agreement. The 2024 Credit Agreement replaced our previous $2.75 billion revolving credit agreement (the “2021 Credit Agreement”), which was terminated upon execution of the 2024 Credit Agreement. No borrowings were outstanding under the 2021 Credit Agreement at the time of its termination, and no early termination penalties were incurred.

We also have credit facilities available to certain of our foreign subsidiaries totaling $1,241.6, of which $1,080.7 was borrowed and outstanding as of 31 March 2024. 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. As of 31 March 2024, the joint venture had borrowed short- and long-term principal amounts totaling $2.5 billion compared to $1.4 billion as of 30 September 2023. 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. 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 11, Retirement Benefits, to the consolidated financial statements.

Net Periodic Cost

The table below summarizes the components of net periodic cost for our U.S. and international defined benefit pension plans:


	Three Months Ended		Six Months Ended
	31 March		31 March
	2024	2023	2024	2023
Service cost	$5.2	$5.8	$10.4	$11.8







Non-service cost	25.1	22.9	50.0	42.4
Other	0.1	0.2	0.2	0.5
Net Periodic Cost	$30.4	$28.9	$60.6	$54.7

Net periodic cost was $30.4 and $60.6 for the three and six months ended 31 March 2024, respectively. Net periodic cost was $28.9 and $54.7 for the three and six months ended 31 March 2023, 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 six 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 six months ended 31 March 2024 and 2023, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $19.2 and $15.4, 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 six 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 six 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 cumulative effect adjustments that unfavorably impacted operating income by approximately $35 and $65 for the three and six months ended 31 March 2024, respectively. There were no other changes to our estimates during the first six months of fiscal year 2024 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.

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