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

First Quarter 2025 in Summary			33
First Quarter 2025 Results of Operations			35
Reconciliations of Non-GAAP Financial Measures			41
Liquidity and Capital Resources			47
Pension Benefits			51
Critical Accounting Policies and Estimates			51

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 2024 (the "2024 Form 10-K"), which was filed with the SEC on 21 November 2024.

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. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts discussed are in millions of U.S. Dollars, except for per share data, which is calculated and presented on a diluted basis in U.S. Dollars per weighted average common share.

The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We 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 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 41.

Comparisons included in the discussion that follows are for the first quarter of fiscal year 2025 versus ("vs.") the first quarter of fiscal year 2024. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2024 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.

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

FIRST QUARTER 2025 VS. FIRST QUARTER 2024

FIRST QUARTER 2025 IN SUMMARY

• Sales of $2,931.5 decreased 2%, or $65.9, due to lower volumes of 2% and an unfavorable impact from currency of 1%, which were partially offset by favorable pricing of 1%. Lower volumes driven by the LNG business divestiture in September 2024, which resulted in a headwind of approximately 2%, and a lower contribution from on-sites and merchant in the Europe segment were partially offset by a significant, non-recurring sale of helium to an existing merchant customer in the Americas segment. Energy cost pass-through to customers was flat versus the prior year.

• Operating income of $643.6 decreased 3%, or $23.3, as higher costs and lower volumes were partially offset by higher pricing, net of power and fuel costs, and favorable currency. The recently divested LNG business contributed operating income of approximately $25 in the prior year. Operating margin of 22.0% decreased 20 basis points ("bp").

• Equity affiliates' income of $150.6 decreased 5%, or $7.8, driven by lower income from JIGPC in the Middle East & India segment.

• Net income of $649.8 increased 5%, or $28.2, as higher pricing, net of power and fuel costs, lower non-service pension costs, and a gain on de-designated cash flow hedges were partially offset by higher costs. Net income margin of 22.2% increased 150 bp.

• Adjusted EBITDA of $1,190.9 increased 1%, or $16.4, as higher pricing, net of power and fuel costs, was partially offset by higher costs and lower equity affiliates' income. Adjusted EBITDA margin of 40.6% increased 140 bp.

• EPS of $2.77 increased 1%, or $0.04 per share. On a non-GAAP basis, adjusted EPS of $2.86 increased 1%, or $0.04 per share. A summary table of changes to EPS is presented below.

Summary of Changes in EPS

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

			Three Months Ended						Change vs. Prior Year
			31 December
			2024			2023
EPS			$2.77			$2.73			$0.04
% Change from prior year									1		%
Operating Items
Underlying business:
Volume									(0.01)
Price, net of variable costs									0.10
Other costs									(0.07)
Currency									0.01
Shareholder activism costs									(0.10)
Total Operating Items									($0.07)
Other Items
Equity affiliates' income									($0.03)
Interest expense									0.04
Other non-operating income/expense, net:
Gain on de-designation of cash flow hedges(A)									0.05
Non-service pension cost, net									0.04
Change in effective tax rate									(0.02)
Noncontrolling interests(A)									0.02
Total Other Items									$0.10
Total Change in EPS									$0.04
% Change from prior year									1		%

(A)EPS impact reflected within "Gain on de-designation of cash flow hedges" was calculated based on an after-tax gain attributable to Air Products of $10.3. The gain attributable to our noncontrolling partners was $25.2.

The table below summarizes the diluted per share impact of our non-GAAP adjustments for the first quarter of fiscal years 2025 and 2024:

			Three Months Ended						Change vs. Prior Year
			31 December
			2024			2023
EPS			$2.77			$2.73			$0.04
Shareholder activism costs			0.10			—			0.10
Gain on de-designation of cash flow hedges			(0.05)			—			(0.05)
Non-service pension cost, net			0.04			0.08			(0.04)
Adjusted EPS			$2.86			$2.82			$0.04
% Change from prior year									1		%

FIRST QUARTER 2025 RESULTS OF OPERATIONS

Discussion of First Quarter Consolidated Results

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%/bp
GAAP Measures
Sales						$2,931.5						$2,997.4						($65.9)						(2		%)
Operating income						643.6						666.9						(23.3)						(3		%)
Operating margin						22.0		%				22.2		%										(20		bp)
Equity affiliates’ income						$150.6						$158.4						($7.8)						(5		%)
Net income						649.8						621.6						28.2						5		%
Net income margin						22.2		%				20.7		%										150		bp
Non-GAAP Measures
Adjusted EBITDA						$1,190.9						$1,174.5						$16.4						1		%
Adjusted EBITDA margin						40.6		%				39.2		%										140		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			—		%
Currency			(1		%)
Total Consolidated Sales Change			(2		%)

Sales of $2,931.5 decreased 2%, or $65.9, due to lower volumes of 2% and an unfavorable impact from currency of 1%, partially offset by favorable pricing of 1%. Unfavorable volumes were driven by the divestiture of the LNG business in September 2024 and a lower contribution from on-sites and merchant in the Europe segment, which were partially offset by a significant, non-recurring sale of helium to an existing merchant customer in the Americas segment. The impact attributable to the LNG divestiture was approximately 2%. The modest 1% total company price improvement, which equates to a 2% improvement for the merchant business, was driven by pricing in the Americas and Europe segments. The unfavorable currency impact was primarily attributable to the strengthening of the U.S. Dollar against currencies in South America and Asia. Energy cost pass-through to customers was flat versus the prior year.

Cost of Sales and Gross Margin

Cost of sales of $2,016.5 decreased 2%, or $50.7, primarily due to lower costs of $61 attributable to sales volumes and a favorable currency impact of $13, partially offset by higher costs of $26 that were driven by inflation and incentive compensation. Gross margin of 31.2% increased 20 bp from 31.0% in the prior year as pricing and favorable business mix more than offset the impact of higher costs.

Selling and Administrative Expense

Selling and administrative expense of $242.4 increased 2%, or $4.0, primarily due to incentive compensation and inflation, partially offset by productivity improvements. Selling and administrative expense as a percentage of sales increased to 8.3% from 8.0% in the prior year.

Research and Development Expense

Research and development expense of $22.0 decreased 14%, or $3.7. Research and development expense as a percentage of sales decreased to 0.8% from 0.9% in the prior year.

Shareholder Activism Costs

During the first quarter of fiscal year 2025, we incurred costs of $29.9 ($21.9 after tax, or $0.10 per share) in connection with our response to a proxy contest. These costs, which are reflected on our consolidated income statements as “Shareholder activism costs”, include legal and other professional service fees as well as incremental proxy solicitation costs related to the 2025 Annual Meeting of Shareholders.

Other Income (Expense), Net

Other income of $22.9 increased $22.1 primarily due to the sale of a U.S. equity method investment and a prior year unfavorable foreign exchange impact from the devaluation of the Argentine peso.

Operating Income and Operating Margin

Operating income of $643.6 decreased 3%, or $23.3, as shareholder activism costs of $30, higher costs of $20, and lower volumes of $2 were partially offset by positive pricing, net of power and fuel costs, of $26 and favorable currency of $3. Higher costs related to incentive compensation and inflation were partially offset by productivity improvements as well as the sale of a U.S. equity method investment. The recently divested LNG business contributed operating income of approximately $25 in the prior year. Operating margin of 22.0% decreased 20 bp from 22.2% in the prior year primarily due to the impact of higher costs, which was partially offset by higher pricing and business mix.

Equity Affiliates' Income

Equity affiliates' income of $150.6 decreased 5%, or $7.8, driven by lower income from JIGPC in the Middle East & India segment.

Interest Expense

												Three Months Ended
												31 December
												2024			2023
Interest incurred												$139.9			$108.6
Less: Capitalized interest												97.3			55.1
Interest expense												$42.6			$53.5

Interest incurred increased 29%, or $31.3, primarily due to a higher debt balance from senior notes issued in February 2024 as well as borrowings on financing available for the NEOM Green Hydrogen Project. Capitalized interest increased 77%, or $42.2, 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 income of $38.9 increased $53.7 from an expense of $14.8 in the prior year. The increase was driven by an unrealized gain of $38.8 ($10.3 attributable to Air Products after tax, or $0.05 per share) that was recorded for certain de-designated interest rate swaps associated with the financing for the NEOM Green Hydrogen Project. Refer to Note 3, Variable Interest Entities, and Note 7, Financial Instruments, to the consolidated financial statements for additional information. Additionally, non-service pension costs were $10.5 ($7.9 after tax, or $0.04 per share) for the first quarter of fiscal year 2025 compared to $24.9 ($18.7 after tax, or $0.08 per share) in the prior year. This decrease was driven by a higher expected return on plan assets, lower interest cost, and a decrease in actuarial loss amortization.

Net Income and Net Income Margin

Net income of $649.8 increased 5%, or $28.2. Higher pricing, net of power and fuel costs, was partially offset by higher costs related to shareholder activism, incentive compensation, and inflation. These costs were partially mitigated by productivity improvements. We also recognized lower non-service pension costs as well as a gain on de-designated cash flow hedges during the first quarter of fiscal year 2025. Net income margin of 22.2% increased 150 bp from 20.7% in the prior year due to these factors as well as favorable business mix.

In December 2024, the Internal Revenue Service and U.S. Department of the Treasury published final regulations that clarified certain investment tax credit eligibility requirements for Section 48 energy investment tax credits that were enacted as part of the U.S. Inflation Reduction Act of 2022. We are in the process of evaluating the impact of these regulations and expect to realize significant benefits from the tax incentives once qualifying projects come onstream in the U.S. We have not included any forecasted benefits in the calculation of our annual effective tax rate for the period ending 31 December 2024 due to uncertainty in the timing and amount of such benefits.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $1,190.9 increased 1%, or $16.4, as higher pricing, net of power and fuel costs, was partially offset by higher costs and lower equity affiliates' income. Adjusted EBITDA margin of 40.6% increased 140 bp from 39.2% in the prior year primarily due to favorable business mix and higher pricing.

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 17.8% and 17.9% for the three months ended 31 December 2024 and 2023, respectively. The current quarter effective tax rate was lower due to earning a greater share of income in jurisdictions with lower tax rates and a benefit from a U.S. state tax law change in the current period, which were mostly offset by higher net costs on foreign-related income taxed in the U.S., lower U.S. tax benefits for foreign-derived income, and the release of certain previously unrecognized tax benefits in the prior year.

Our adjusted effective tax rate, which excludes the impact of adjustments presented in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 41, was 18.7% and 18.1% for the three months ended 31 December 2024 and 2023, respectively.

Discussion of First Quarter Results by Business Segment

Americas

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%/bp
Sales						$1,287.6						$1,252.1						$35.5						3		%
Operating income						388.2						354.4						33.8						10		%
Operating margin						30.1		%				28.3		%										180		bp
Equity affiliates’ income						$35.1						$37.1						($2.0)						(5		%)
Adjusted EBITDA						596.7						561.2						35.5						6		%
Adjusted EBITDA margin						46.3		%				44.8		%										150		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			(1		%)
Currency			(1		%)
Total Americas Sales Change			3		%

Sales of $1,287.6 increased 3%, or $35.5, as higher volumes of 3% and higher pricing of 2% were partially offset by lower energy cost pass-through to customers of 1% and an unfavorable currency impact of 1%. The volume improvement was primarily due to a significant, non-recurring sale of helium to an existing merchant customer. The total segment pricing increase of 2% equates to a 4% improvement in our merchant business, where pricing was favorable across most product lines.

Operating income of $388.2 increased 10%, or $33.8, as higher volumes of $35 and positive pricing, net of power and fuel costs, of $18 were partially offset by higher costs of $15 and unfavorable currency of $4. Higher costs for inflation, planned maintenance expense, depreciation expense, and incentive compensation were partially offset by income recognized on the sale of an equity method investment. Operating margin of 30.1% increased 180 bp from 28.3% in the prior year.

Equity affiliates’ income of $35.1 decreased 5%, or $2.0.

Asia

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%/bp
Sales						$817.1						$793.8						$23.3						3		%
Operating income						216.4						211.2						5.2						2		%
Operating margin						26.5		%				26.6		%										(10		bp)
Equity affiliates’ income						$10.3						$4.2						$6.1						145		%
Adjusted EBITDA						349.6						327.2						22.4						7		%
Adjusted EBITDA margin						42.8		%				41.2		%										160		bp

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

Volume			2		%
Price			—		%
Energy cost pass-through to customers			2		%
Currency			(1		%)
Total Asia Sales Change			3		%

Sales of $817.1 increased 3%, or $23.3, as higher volumes of 2% driven by new on-site assets and higher energy cost pass-through to customers of 2% were partially offset by an unfavorable currency impact of 1%. Pricing was flat versus the prior year.

Operating income of $216.4 increased 2%, or $5.2, due to lower costs of $6 and favorable volumes of $3, partially offset by lower pricing, net of power and fuel costs, of $2 and unfavorable currency of $2. The cost improvement was primarily attributable to productivity improvements, which were partially offset by higher costs related to incentive compensation and inflation. Operating margin of 26.5% decreased 10 bp from 26.6% in the prior year.

Equity affiliates’ income of $10.3 increased 145%, or $6.1, driven by prior year maintenance expense at an affiliate in China.

Europe

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%/bp
Sales						$697.2						$731.2						($34.0)						(5		%)
Operating income						186.5						197.6						(11.1)						(6		%)
Operating margin						26.7		%				27.0		%										(30		bp)
Equity affiliates’ income						$18.2						$20.7						($2.5)						(12		%)
Adjusted EBITDA						259.2						266.5						(7.3)						(3		%)
Adjusted EBITDA margin						37.2		%				36.4		%										80		bp

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

Volume			(5		%)
Price			1		%
Energy cost pass-through to customers			(1		%)
Currency			—		%
Total Europe Sales Change			(5		%)

Sales of $697.2 decreased 5%, or $34.0, due to lower volumes of 5% and lower energy cost pass-through to customers of 1%, partially offset by higher pricing of 1%. The unfavorable volumes were driven by a lower contribution from our on-site business and lower helium in our merchant business. Currency remained flat versus the prior year.

Operating income of $186.5 decreased 6%, or $11.1, due to lower volumes of $23, partially offset by higher pricing, net of power and fuel costs, of $10 and favorable costs of $2. The lower costs were driven by productivity improvements and lower costs for planned maintenance outages, which were partially offset by inflation and higher depreciation expense. Operating margin of 26.7% decreased 30 bp from 27.0% in the prior year.

Equity affiliates’ income of $18.2 decreased 12%, or $2.5.

Middle East and India

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%
Sales						$32.8						$35.4						($2.6)						(7		%)
Operating (loss) income						(0.6)						3.9						(4.5)						(115		%)
Equity affiliates' income						85.0						92.9						(7.9)						(9		%)
Adjusted EBITDA						90.9						103.4						(12.5)						(12		%)

Sales of $32.8 decreased 7%, or $2.6, primarily due to lower demand for merchant products. Operating loss was $0.6 compared to income of $3.9 in the prior year, which also reflects the impact of higher costs.

Equity affiliates' income of $85.0 decreased 9%, or $7.9, as a higher portion of income from the JIGPC joint venture was allocated to shareholders entitled to preferred distributions. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.

Corporate and other

						Three Months Ended
						31 December												Change vs. Prior Year
						2024						2023						$						%
Sales						$96.8						$184.9						($88.1)						(48		%)
Operating loss						(117.0)						(100.2)						(16.8)						(17		%)
Equity affiliates' income						2.0						3.5						(1.5)						(43		%)
Adjusted EBITDA						(105.5)						(83.8)						(21.7)						(26		%)

Sales of $96.8 decreased 48%, or $88.1, primarily due to the divestiture of the LNG business in September 2024.

Operating loss of $117.0 increased 17%, or $16.8. The increase was driven by the divestiture of the LNG business, which generated operating income of approximately $25 for the first quarter of fiscal year 2024, as well as higher costs for incentive compensation.

Equity affiliates' income of $2.0 decreased 43%, or $1.5.

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 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 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. Additionally, during the first quarter of fiscal year 2025, we excluded costs associated with our response to actions of activist shareholders, which are not associated with the ongoing operation of our business and are difficult to predict in future periods. We may also exclude certain expenses associated with cost reduction actions and impairment charges as well as 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 EPS

The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted EPS, 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 GAAP EPS and total adjusted EPS due to rounding.

Q1 2025 vs. Q1 2024			Operating Income						Other Non-Operating Income/Expense, Net			Income Tax Provision			Net Income Attributable to Air Products			EPS
Q1 2025 GAAP			$643.6						$38.9			$140.7			$617.4			$2.77
Q1 2024 GAAP			666.9						(14.8)			135.4			609.3			2.73
$ Change GAAP																		$0.04
% Change GAAP																		1		%
Q1 2025 GAAP			$643.6						$38.9			$140.7			$617.4			$2.77
Shareholder activism costs			29.9						—			8.0			21.9			0.10
Gain on de-designation of cash flow hedges(A)			—						(38.8)			(3.3)			(10.3)			(0.05)
Non-service pension cost, net			—						10.5			2.6			7.9			0.04
Q1 2025 Non-GAAP ("Adjusted")			$673.5						$10.6			$148.0			$636.9			$2.86
Q1 2024 GAAP			$666.9						($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						$10.1			$141.6			$628.0			$2.82
$ Change Non-GAAP ("Adjusted")																		$0.04
% Change Non-GAAP ("Adjusted")																		1		%

(A) Unrealized gain attributable to noncontrolling partners was $25.2.

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
			2024									2023
			$			Margin						$			Margin
Sales			$2,931.5									$2,997.4
Net income and net income margin			$649.8			22.2		%				$621.6			20.7		%
Add: Interest expense			42.6			1.5		%				53.5			1.8		%
Less: Other non-operating income (expense), net			38.9			1.3		%				(14.8)			(0.5		%)
Add: Income tax provision			140.7			4.8		%				135.4			4.5		%
Add: Depreciation and amortization			366.8			12.5		%				349.2			11.7		%
Add: Shareholder activism costs			29.9			1.0		%				—			—		%
Adjusted EBITDA and adjusted EBITDA margin			$1,190.9			40.6		%				$1,174.5			39.2		%
Change GAAP
Net income $ change			$28.2
Net income % change			5%
Net income margin change			150bp
Change Non-GAAP
Adjusted EBITDA $ change			$16.4
Adjusted EBITDA % change			1%
Adjusted EBITDA margin change			140bp

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 2024 and 2023:

			Three Months Ended
			31 December									Change vs. Prior Year
Americas			2024			2023						$			%/bp
Sales			$1,287.6			$1,252.1						$35.5			3		%
Operating income			388.2			354.4						33.8			10		%
Operating margin			30.1		%	28.3		%							180		bp
Reconciliation of GAAP to Non-GAAP:
Operating income			$388.2			$354.4
Add: Depreciation and amortization			173.4			169.7
Add: Equity affiliates' income			35.1			37.1
Adjusted EBITDA			$596.7			$561.2						$35.5			6		%
Adjusted EBITDA margin			46.3		%	44.8		%							150		bp

			Three Months Ended
			31 December									Change vs. Prior Year
Asia			2024			2023						$			%/bp
Sales			$817.1			$793.8						$23.3			3		%
Operating income			216.4			211.2						5.2			2		%
Operating margin			26.5		%	26.6		%							(10		bp)
Reconciliation of GAAP to Non-GAAP:
Operating income			$216.4			$211.2
Add: Depreciation and amortization			122.9			111.8
Add: Equity affiliates' income			10.3			4.2
Adjusted EBITDA			$349.6			$327.2						$22.4			7		%
Adjusted EBITDA margin			42.8		%	41.2		%							160		bp

			Three Months Ended
			31 December									Change vs. Prior Year
Europe			2024			2023						$			%/bp
Sales			$697.2			$731.2						($34.0)			(5		%)
Operating income			186.5			197.6						(11.1)			(6		%)
Operating margin			26.7		%	27.0		%							(30		bp)
Reconciliation of GAAP to Non-GAAP:
Operating income			$186.5			$197.6
Add: Depreciation and amortization			54.5			48.2
Add: Equity affiliates' income			18.2			20.7
Adjusted EBITDA			$259.2			$266.5						($7.3)			(3		%)
Adjusted EBITDA margin			37.2		%	36.4		%							80		bp

			Three Months Ended
			31 December									Change vs. Prior Year
Middle East and India			2024			2023						$			%
Sales			$32.8			$35.4						($2.6)			(7		%)
Operating (loss) income			(0.6)			3.9						(4.5)			(115		%)
Reconciliation of GAAP to Non-GAAP:
Operating (loss) income			($0.6)			$3.9
Add: Depreciation and amortization			6.5			6.6
Add: Equity affiliates' income			85.0			92.9
Adjusted EBITDA			$90.9			$103.4						($12.5)			(12		%)

			Three Months Ended
			31 December									Change vs. Prior Year
Corporate and other			2024			2023						$			%
Sales			$96.8			$184.9						($88.1)			(48		%)
Operating loss			(117.0)			(100.2)						(16.8)			(17		%)
Reconciliation of GAAP to Non-GAAP:
Operating loss			($117.0)			($100.2)
Add: Depreciation and amortization			9.5			12.9
Add: Equity affiliates' income			2.0			3.5
Adjusted EBITDA			($105.5)			($83.8)						($21.7)			(26		%)

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
			2024			2023
Income tax provision			$140.7			$135.4
Income before taxes			790.5			757.0
Effective tax rate			17.8		%	17.9		%
Income tax provision			$140.7			$135.4
Shareholder activism costs tax impact			8.0			—
Gain on de-designation of cash flow hedges tax impact			(3.3)			—
Non-service pension cost, net tax impact			2.6			6.2
Adjusted income tax provision			$148.0			$141.6
Income before taxes			$790.5			$757.0
Shareholder activism costs			29.9			—
Gain on de-designation of cash flow hedges			(38.8)			—
Non-service pension cost, net			10.5			24.9
Adjusted income before taxes			$792.1			$781.9
Adjusted effective tax rate			18.7		%	18.1		%

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 project financing, which is non-recourse to Air Products, 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 its capital expenditures.

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

						Three Months Ended
						31 December
						2024			2023
Cash used for investing activities						$2,182.1			$1,665.6
Proceeds from sale of assets and investments						34.4			4.2
Purchases of investments						(117.6)			(55.5)
Proceeds from investments						5.0			120.1
Other investing activities						29.0			12.9
NGHC expenditures not funded by Air Products' equity(A)						(923.1)			(361.6)
Capital expenditures						$1,209.8			$1,385.7

(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 2024, we had $1,474.2 of foreign cash and cash items compared to total cash and cash items of $1,845.5. 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
						2024			2023
Net income attributable to Air Products						$617.4			$609.3
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization						366.8			349.2
Deferred income taxes						(6.3)			13.5
Undistributed earnings of equity method investments						(48.4)			(41.5)
Gain on sale of assets and investments						(10.1)			(1.4)
Share-based compensation						16.4			13.8
Noncurrent lease receivables						15.0			20.0
Other adjustments						(122.6)			33.3
Changes in working capital accounts						(16.5)			(369.6)
Cash Provided by Operating Activities						$811.7			$626.6

For the first three months of fiscal year 2025, cash provided by operating activities was $811.7. Other adjustments of $122.6 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $16.5. A use of cash of $47.8 within "Trade receivables" due to the timing of cash collections was partially offset by a source of cash of $30.5 within "Payables and accrued liabilities". The source of cash within "Payables and accrued liabilities" primarily resulted from an increase in accrued utilities and changes in the fair value of derivative contracts that hedge intercompany loans, partially offset by payments for incentive compensation under the fiscal year 2024 plan.

In January 2025, we made U.S. Federal and State income tax payments of approximately $395 that primarily related to the gain on the sale of the LNG business in September 2024.

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, 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 related to the payment of value added taxes incurred in the construction of our larger projects, for which we claimed a refund. The use of cash within "Inventories" primarily related to purchases of helium.

Cash Flows From Investing Activities

						Three Months Ended
						31 December
						2024			2023
Additions to plant and equipment, including long-term deposits						($2,117.6)			($1,445.5)
Investment in financing receivables						(15.3)			(301.8)
Proceeds from sale of assets and investments						34.4			4.2
Purchases of investments						(117.6)			(55.5)
Proceeds from investments						5.0			120.1
Other investing activities						29.0			12.9
Cash Used for Investing Activities						($2,182.1)			($1,665.6)

For the first three months of fiscal year 2025, cash used for investing activities was $2,182.1. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $2,117.6. Refer to the "Capital Expenditures" section below for further detail. Purchases of investments of $117.6 included purchases of time deposits, which have terms greater than three months but less than one year, and exceeded proceeds from investments of $5.0.

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.

Capital Expenditures (Non-GAAP Financial Measure)

The components of our capital expenditures are detailed in the table below. Refer to page 46 for a definition of this non-GAAP financial measure as well as a reconciliation to cash used for investing activities.

						Three Months Ended
						31 December
						2024			2023
Additions to plant and equipment, including long-term deposits						$2,117.6			$1,445.5
Investment in financing receivables						15.3			301.8
NGHC expenditures not funded by Air Products' equity(A)						(923.1)			(361.6)
Capital Expenditures						$1,209.8			$1,385.7

(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 2025 totaled $1,209.8 compared to $1,385.7 for the first three months of fiscal year 2024. Spending for plant and equipment primarily included project spending for our clean energy projects such as the NEOM Green Hydrogen Project in NEOM City, Saudi Arabia, as well as our clean energy complexes in Louisiana, United States, and Alberta, Canada. Additionally, we continue to invest capital in our core industrial gas business for new industrial gas plants as well as maintaining and replacing existing facilities. The investment in financing receivables of $15.3 during the first quarter of fiscal year 2025 relates to remaining payments associated with the purchase of a natural gas-to-syngas processing facility in Uzbekistan. The prior year investment in financing receivables of $301.8 included a payment of $100 related to this facility as well as payments associated with the purchase of renewable fuel assets from World Energy. Refer to Note 14, Supplemental Information, and Note 3, Variable Interest Entities, 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 expect capital expenditures for fiscal year 2025 in the range of $4.5 billion to $5.0 billion. We anticipate capital expenditures to be funded with our current cash balance, cash generated from continuing operations, and additional financing activities.

Cash Flows From Financing Activities

						Three Months Ended
						31 December
						2024			2023
Long-term debt proceeds						$459.2			$810.4
Payments on long-term debt						(12.1)			(54.8)
(Decrease) Increase in commercial paper and short-term borrowings						(21.5)			1,020.9
Dividends paid to shareholders						(393.6)			(388.9)
Proceeds from stock option exercises						1.1			5.3
Investments by noncontrolling interests						280.9			34.5
Other financing activities						(39.8)			(64.6)
Cash Provided by Financing Activities						$274.2			$1,362.8

For the first three months of fiscal year 2025, cash provided by financing activities was $274.2. The source of cash was driven by long-term debt proceeds of $459.2 and investments by noncontrolling interests of $280.9, both of which primarily relate to capital spending by NGHC. These sources of cash were partially offset by dividend payments to shareholders of $393.6.

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 a net increase in commercial paper and short-term borrowings of $1,020.9 and long-term debt proceeds of $810.4. The long-term debt proceeds primarily related to capital spending by NGHC. These sources of cash were partially offset by dividend payments to shareholders of $388.9 and payments on long-term debt of $54.8.

Financing and Capital Structure

Debt

Total debt increased to $14.5 billion as of 31 December 2024 from $14.2 billion as of 30 September 2024 due to additional borrowings under project financing associated with the NEOM Green Hydrogen Project as further discussed below. Total debt includes related party debt of $292.7 and $304.4 as of 31 December 2024 and 30 September 2024, 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 2024, we were in compliance with all of the financial and other covenants under our debt agreements.

Credit Facilities

We have a five-year $3.0 billion revolving credit agreement maturing 31 March 2029 (the “2024 Five-Year 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 (the "2024 364-Day Credit Agreement" and, together with the 2024 Five-Year Credit Agreement, the "2024 Credit Agreements"). Both of the 2024 Credit 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. No borrowings were outstanding under either of the 2024 Credit Agreements as of 31 December 2024.

We also have credit facilities available to certain of our foreign subsidiaries totaling $1,196.9, of which $1,102.0 was borrowed and outstanding as of 31 December 2024. The amount borrowed and outstanding as of 30 September 2024 was $1,129.0.

NEOM Green Hydrogen Project Financing

NGHC has access to project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and is being drawn over the construction period, as well as additional credit facilities totaling approximately $500 primarily for NGHC's working capital needs. Creditors of NGHC do not have recourse to the general credit of Air Products. As of 31 December 2024, the joint venture had borrowed short- and long-term principal amounts totaling $3.8 billion compared to $3.3 billion as of 30 September 2024. 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. We believe providing a consistent dividend plays a critical part in the creation of shareholder value and expect to return approximately $1.6 billion to shareholders in 2025.

Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. On 21 November 2024, the Board of Directors declared a quarterly dividend of $1.77 per share that is payable on 10 February 2025 to shareholders of record at the close of business on 2 January 2025. Additionally, on 22 January 2025, the Board of Directors approved a $0.02 per share increase to our quarterly dividend, marking the 43rd consecutive year of dividend increases. The dividend declared in January is payable on 12 May 2025 to shareholders of record at the close of business on 1 April 2025. We expect to continue our history of increasing our quarterly dividend.

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
			2024			2023
Service cost			$5.2			$5.2
Non-service cost			10.5			24.9
Other			0.1			0.1
Net Periodic Cost			$15.8			$30.2

Net periodic cost was $15.8 and $30.2 for the three months ended 31 December 2024 and 2023, respectively. The decrease in costs versus the prior year were primarily attributable to non-service costs, which were driven by a higher expected return on plan assets due to a higher beginning balance of plan assets, lower interest cost, and a decrease in actuarial loss amortization. Non-service related components of net periodic cost are reflected within "Other non-operating income (expense), net" on our consolidated income statements.

Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first three months of fiscal years 2025 and 2024 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 2024 and 2023, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $8.2 and $12.0, respectively.

Total contributions for fiscal year 2025 are expected to be approximately $30 to $40. During fiscal year 2024, total contributions were $34.7.

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 2024 Form 10-K. There were no significant changes to our accounting policies during the first three months of fiscal year 2025.

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 2025, we recorded changes to project revenue and cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded cumulative effect adjustments that unfavorably impacted operating income by approximately $28 for the three months ended 31 December 2024. There were no other changes to our estimates during the first three months of fiscal year 2025 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.