Air Products & Chemicals, Inc. - Quarter Report: 2024 June (Form 10-Q)

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(A)

The accompanying notes are an integral part of these statements.

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Air Products and Chemicals, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Millions of U.S. Dollars, unless otherwise indicated

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Major Accounting Policies

Refer to our 2023 Form 10-K for a description of major accounting policies. There have been no significant changes to these accounting policies during the first nine months of fiscal year 2024.

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billion engineering, procurement, and construction ("EPC") agreement with Air Products named as the main contractor and system integrator for the facility. NGHC secured non-recourse project financing of approximately $ billion, which is expected to fund about % of the project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $ primarily for working capital needs. Under the financing, the assets of NGHC can only be used to settle obligations of the joint venture, and creditors of NGHC do not have recourse to the general credit of Air Products. Borrowings under the financing are reflected net of unamortized discounts and debt issuance costs primarily within "Long-term debt" on our consolidated balance sheets. Total principal borrowings were $ and $ as of 30 June 2024 and 30 September 2023, respectively. The amount borrowed as of 30 June 2024 includes additional draws from the facilities that were outstanding as of 30 September 2023 as well as approximately $ drawn from a % fixed-rate Saudi Riyal loan facility that matures in November 2040.

In May 2023, NGHC entered into floating-to-fixed interest rate swaps designed to hedge long-term variable rate debt facilities available under the project financing during the construction period of the project. We discontinued cash flow hedge accounting for certain swaps during the third quarter of fiscal year 2024 and recorded an unrealized gain of $ within "Other non-operating income (expense), net" ($ attributable to Air Products after tax) on our consolidated income statements for the three and nine months ended 30 June 2024. Refer to Note 8, Financial Instruments, for additional information.

Air Products is an equal owner in NGHC with our joint venture partners, ACWA Power and NEOM Company. While we only hold one-third of the voting interests in the joint venture, substantially all the activities of the joint venture involve or are conducted on behalf of Air Products. Since we have disproportionately few voting rights relative to our economic interests in the joint venture, we determined that NGHC is a VIE. In addition, we determined that we are the primary beneficiary of NGHC since we have the power to unilaterally direct certain significant activities, including key design and construction decisions, and we share power with our joint venture partners related to other activities that are significant to the economic performance of NGHC. Therefore, we consolidate NGHC within the Middle East and India segment.

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$ Trade receivables, net Prepaid expenses Other receivables and current assets Total current assets$ $ Plant and equipment, net Operating lease right-of-use assets, net Other noncurrent assets Total noncurrent assets$ $ Total assets$ $ LiabilitiesPayables and accrued liabilities$ $ Accrued income taxes Short-term borrowings Total current liabilities$ $ Long-term debt On-site$ $ $ $ $ $ %Merchant %Sale of equipment %Total $ $ $ $ $ $ %Three Months Ended 30 June 2023AmericasAsiaEuropeMiddle East
and IndiaCorporate
and otherTotal%

During the first nine months of fiscal year 2024, we recognized sales of approximately $ associated with sale of equipment contracts that were included within our current contract liabilities as of 30 September 2023.

$ Work in process Raw materials, supplies, and other Inventories$ $

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$ $ $ $ $

Currency translation

()()

Goodwill, net as of 30 June 2024

$ $ $ $ $ $


	30 June	30 September
	2024	2023
Goodwill, gross	$	$
Accumulated impairment losses(A)	()	()
Goodwill, net	$	$

(A)We recorded impairment charges related to the Latin America reporting unit ("LASA") in the Americas segment in fiscal years 2017 and 2014. The balance of accumulated impairment losses fluctuates over time due to currency translation.

We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying value of goodwill might not be recoverable.

years.

Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this portfolio of forward exchange contracts is Euros and U.S. Dollars.

We also utilize forward exchange contracts that are not designated as hedges. These contracts are used to economically hedge foreign currency-denominated monetary assets and liabilities, primarily working capital. The primary objective of these forward exchange contracts is to protect the value of foreign currency-denominated monetary assets and liabilities from the effects of volatility in foreign exchange rates that might occur prior to their receipt or settlement. This portfolio of forward exchange contracts consists of multiple foreign currency pairs, with a profile that changes from time to time depending on our business activity and sourcing decisions.

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$ Net investment hedges Not designated Total Forward Exchange Contracts$ $

The increase in the notional value of our forward exchange contracts that are not designated is primarily due to the origination of forward exchange contracts that offset other forward exchange contracts previously designated as cash flow hedges of intercompany loans. The hedged intercompany loans were repaid early.

We also use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in certain foreign subsidiaries. The designated foreign currency-denominated debt and related accrued interest was € million ($) at 30 June 2024 and € million ($) at 30 September 2023. The designated foreign currency-denominated debt is presented within "Long-term debt" and "Current portion of long-term debt" on the consolidated balance sheets.

Debt Portfolio Management

It is our policy to identify, on a continuing basis, the need for debt capital and to evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, we manage our debt portfolio and hedging program with the intent to (1) reduce funding risk with respect to borrowings made by us to preserve our access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) manage the aggregate interest rate risk and the debt portfolio in accordance with certain debt management parameters.

Interest Rate Management Contracts

We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and floating-to-fixed interest rate swaps (which are designated as cash flow hedges). As of 30 June 2024, the outstanding interest rate swaps were denominated in U.S. Dollars. The notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-to-one basis.

Cross Currency Interest Rate Swap Contracts

We enter into cross currency interest rate swap contracts when our risk management function deems necessary. These contracts may entail both the exchange of fixed- and floating-rate interest payments periodically over the life of the agreement and the exchange of one currency for another currency at inception and at a specified future date. The contracts are used to hedge either certain net investments in foreign operations or non-functional currency cash flows related to intercompany loans. The current cross currency interest rate swap portfolio consists of fixed-to-fixed swaps primarily between the U.S. Dollar and each of the Chinese Renminbi, Indian Rupee, and Chilean Peso.

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SOFR %$ SOFR %

Interest rate swaps

(cash flow hedge)(A)

$ %$ %

Interest rate swaps

(not designated)(A)

$  %$  % %Cross currency interest rate swaps
(net investment hedge)$  % %$  % %Cross currency interest rate swaps
(cash flow hedge)$  % %$  % %Cross currency interest rate swaps
(not designated)$  % %$  % %

$ ($) ) ) $ ($)($) ) ) $ $ $

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)$ ($)$ De-designated interest rate swaps () Other ()()Total (Gain) Loss Recognized in Income($)$ ($)($)



	Nine Months Ended 30 June
	Other Income (Expense), Net		Other Non-Operating Income (Expense), Net
	2024	2023	2024	2023
The Effects of Derivatives Not Designated as Hedging Instruments:
Forward exchange contracts	($)	$	($)	($)
De-designated interest rate swaps			()
Other
Total (Gain) Loss Recognized in Income	($)	$	($)	($)

The amount of unrealized gains and losses related to cash flow hedges as of 30 June 2024 that are expected to be reclassified to earnings in the next twelve months is not material.

The cash flows related to derivative contracts are generally reported in the operating activities section of the consolidated statements of cash flows.

Credit Risk-Related Contingent Features

Certain derivative instruments are executed under agreements that require us to maintain a minimum credit rating with both Standard & Poor’s and Moody’s. If our credit rating falls below this threshold, the counterparty to the derivative instruments has the right to request full collateralization on the derivatives’ net liability position. The net liability position of derivatives with credit risk-related contingent features was $ and $ as of 30 June 2024 and 30 September 2023, respectively. Because our current credit rating is above the various pre-established thresholds, collateral has been posted on these liability positions.

Counterparty Credit Risk Management

We execute financial derivative transactions with counterparties that are highly rated financial institutions, all of which are investment grade at this time. Some of our underlying derivative agreements give us the right to require the institution to post collateral if its credit rating falls below the pre-established thresholds with Standard & Poor’s, Moody’s, or Fitch. The collateral that the counterparties would be required to post was $ and $ as of 30 June 2024 and 30 September 2023, respectively. No financial institution is required to post collateral at this time, as all have credit ratings at or above threshold.

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$ $ $ Interest rate management contracts LiabilitiesDerivativesForward exchange contracts$ $ $ $ Interest rate management contracts Long-term debt, including current portion and related party

The carrying amounts reported on the consolidated balance sheets for cash and cash items, short-term investments, trade receivables, payables and accrued liabilities, accrued income taxes, and short-term borrowings approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the above table.

$ $ $ $ $ $ $ Interest rate management contracts Total Assets at Fair Value$ $ $ $ $ $ $ $ Liabilities at Fair ValueDerivativesForward exchange contracts$ $ $ $ $ $ $ $ Interest rate management contracts Total Liabilities at Fair Value$ $ $ $ $ $ $ $

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10.

billion in a registered public offering. The proceeds from the notes were reduced by deferred financing charges and discounts of approximately $, which are being amortized through interest expense over the life of the underlying bonds. We intend to use the net proceeds to finance or refinance existing or future projects that are expected to have environmental benefits as defined under our Green Finance Framework.%2029$

Senior Note %

2031

Senior Note %

2034 Total$

Credit Facilities

In March 2024, we entered into a $ billion revolving credit agreement maturing 31 March 2029 (the “2024 Credit Agreement”) as well as a -day $ 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 30 June 2024, borrowings were outstanding under either agreement.

Borrowings under both agreements bear interest at quoted market rates plus varying spreads based on our public debt ratings. Each agreement also requires a commitment fee on unused commitments based on our public debt ratings. Pricing terms under the 2024 Credit Agreement are also subject to sustainability-driven adjustments. There are no financial maintenance covenants in either agreement.

The 2024 Credit Agreement replaced our previous $ billion revolving credit agreement (the “2021 Credit Agreement”), which was terminated upon execution of the 2024 Credit Agreement. borrowings were outstanding under the 2021 Credit Agreement at the time of its termination, and early termination penalties were incurred.

Related Party Debt

Total debt owed to related parties was $ and $ as of 30 June 2024 and 30 September 2023, respectively, of which $ and $, respectively, was reflected within "Current portion of long-term debt" on our consolidated balance sheets. Our related party debt primarily includes a loan with our joint venture partner, Lu’An Clean Energy Company.

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11.

$ $ $ $ $ Non-service cost: Interest cost Expected return on plan assets()()()()()() Prior service cost amortization Actuarial loss amortization Settlements Other Net Periodic Cost$ $ $ $ $ $



	2024			2023
Nine Months Ended 30 June	U.S.	International	Total	U.S.	International	Total
Service cost	$	$	$	$	$	$
Non-service cost:
Interest cost
Expected return on plan assets	()	()	()	()	()	()
Prior service cost amortization
Actuarial loss amortization

Settlements
Curtailments					()	()

Other
Net Periodic Cost	$	$	$	$	$	$

Our service costs are primarily included within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first nine months of fiscal years 2024 and 2023 were not material. The non-service related impacts are presented outside operating income within "Other non-operating income (expense), net."

For the nine months ended 30 June 2024 and 2023, our cash contributions to funded pension plans and benefit payments under unfunded pension plans were $ and $, respectively. Total contributions for fiscal year 2024 are expected to be approximately $ to $. During fiscal year 2023, total contributions were $.

and $, respectively, for our other postretirement benefits plan. During the three and nine months ended 30 June 2023, we recognized actuarial gain amortization of $ and $, respectively, for our other postretirement benefits plan.

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12.

million (approximately $ at 30 June 2024) on Air Products Brasil Ltda. This fine was based on a recommendation by a unit of the Brazilian Ministry of Justice, following an investigation beginning in 2003, which alleged violation of competition laws with respect to the sale of industrial and medical gases. The fines are based on a percentage of our total revenue in Brazil in 2003.

We have denied the allegations made by the authorities and filed an appeal in October 2010 with the Brazilian courts. On 6 May 2014, our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE has appealed that ruling and the matter remains pending. We, with advice of our outside legal counsel, have assessed the status of this matter and have concluded that, although an adverse final judgment after exhausting all appeals is possible, such a judgment is not probable. As a result, provision has been made in the consolidated financial statements. In the event of an adverse final judgment, we estimate the maximum possible loss to be the full amount of the fine of R$ million (approximately $ at 30 June 2024) plus interest accrued thereon until final disposition of the proceedings.

Additionally, during the third quarter of fiscal year 2024, we settled a dispute regarding energy management charges related to a severe winter weather storm that impacted the U.S. Gulf Coast in February 2021. As a result of the settlement, we recognized a gain of $ that is reflected within "Other income (expense), net" on our consolidated income statements for the three and nine months ended 30 June 2024. We collected the settlement in full in July 2024.

Environmental

In the normal course of business, we are involved in legal proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA," the federal Superfund law), Resource Conservation and Recovery Act ("RCRA"), and similar state environmental laws relating to the designation of certain sites for investigation or remediation. Presently, there are sites on which a final settlement or remediation has not been achieved where we, usually along with others, have been designated a potentially responsible party by environmental authorities or are otherwise engaged in investigation or remediation, including cleanup activity at certain of our former manufacturing sites. We continually monitor these sites for which we have environmental exposure.

Accruals for environmental loss contingencies are recorded when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The consolidated balance sheets at 30 June 2024 and 30 September 2023 included an accrual of $ and $, respectively, primarily as part of other noncurrent liabilities. The environmental liabilities will be paid over a period of up to years. We estimate the exposure for environmental loss contingencies to range from $ to a reasonably possible upper exposure of $ as of 30 June 2024.

Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. Using reasonably possible alternative assumptions of the exposure level could result in an increase to the environmental accrual. Due to the inherent uncertainties related to environmental exposures, a significant increase to the reasonably possible upper exposure level could occur if a new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or a significant increase in our proportionate share occurs. We do not expect that any sum we may have to pay in connection with environmental matters in excess of the amounts recorded or disclosed above would have a material adverse impact on our financial position or results of operations in any one year.

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of the environmental accrual was related to our facility in Pace, Florida.

In 2006, we sold our Amines business, which included operations at the Pace facility and recognized a liability for retained environmental obligations associated with remediation activities at the facility. We are required by the Florida Department of Environmental Protection ("FDEP") and the United States Environmental Protection Agency ("USEPA") to continue our remediation efforts. We recognized a before-tax expense of $ in fiscal year 2006 in results from discontinued operations and recorded an environmental accrual of $ in continuing operations on the consolidated balance sheets.

In the first quarter of 2015, we entered into a consent order with the FDEP requiring us to continue our remediation efforts at the Pace facility and complete a cost review every five years. In fiscal year 2020, we completed an updated cost review of the environmental remediation status at the Pace facility. The review was completed in conjunction with requirements to maintain financial assurance per the consent order issued by the FDEP discussed below. Based on our review, we expect ongoing activities to continue for years. As a result of these changes, we increased our environmental accrual for this site by $ in continuing operations on the consolidated balance sheets and recognized a before-tax expense of $ in results from discontinued operations in fiscal year 2020. There have been no significant changes to the estimated exposure range related to the Pace facility since fiscal year 2020.

We have implemented many of the remedial corrective measures at the Pace facility required under the 1995 consent orders issued by the FDEP and the USEPA. Contaminated soils have been bioremediated, and the treated soils have been secured in a lined on-site corrective action management unit. Several groundwater recovery systems have been installed to contain and remove contamination from groundwater. We completed an extensive assessment of the site to determine the efficacy of existing measures, what additional corrective measures may be needed, and whether newer remediation technologies that were not available in the 1990s might be better suited for groundwater remediation. Based on assessment results, we completed a focused feasibility study that has identified alternative approaches that may more effectively remove contaminants. We continue to review alternative remedial approaches with the FDEP, and we completed additional field work during 2021 to support the design of an improved groundwater recovery network. This network targets areas of higher contaminant concentration and avoids areas of high groundwater iron which has proven to be a significant operability issue for the project. The design of the optimized recovery system was initiated in fiscal year 2023, with construction expected to begin in fiscal year 2025. In fiscal years 2025 and 2026, we expect to connect groundwater recovery wells and ancillary equipment to the existing groundwater recovery system. Further, we expect additional future capital expenditures to consider the extended time horizon for remediation at the site.

Pasadena

At 30 June 2024, $ of the environmental accrual was related to a production facility site in Pasadena, Texas.

During fiscal year 2012, management committed to permanently shutting down our polyurethane intermediates ("PUI") production facility in Pasadena, Texas. In shutting down and dismantling the facility, we have undertaken certain obligations related to soil and groundwater contaminants. We have been pumping and treating groundwater to control off-site contaminant migration in compliance with regulatory requirements and under the approval of the Texas Commission on Environmental Quality ("TCEQ"). We estimate that the pump and treat system will continue to operate until 2042.

We continue to perform additional work to address other environmental obligations at the site. This additional work includes remediating, as required, impacted soils, investigating groundwater west of the former PUI facility, continuing post closure care for closed RCRA surface impoundment units, and maintaining engineering controls. Additionally, we have conducted an interim corrective action to treat impacted soils as recommended in the TCEQ 2019 Annual Report. In 2012, we estimated the total exposure at this site to be $. There have been no significant changes to the estimated exposure.

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13.

million shares available for future grant under our Long-Term Incentive Plan ("LTIP"), which is shareholder approved.

$ $ $ Income tax benefit()()()()After-tax share-based compensation cost$ $ $ $

Before-tax share-based compensation cost is primarily included in "Selling and administrative expense" on our consolidated income statements. The amount of share-based compensation cost capitalized in the first nine months of fiscal years 2024 and 2023 was not material.

Deferred Stock Units

During the nine months ended 30 June 2024, we granted market-based deferred stock units. The market-based deferred stock units are earned over the performance period beginning 1 October 2023 and ending 30 September 2026, conditioned on the level of our total shareholder return in relation to the S&P 500 Index over the performance period.

The market-based deferred stock units had an estimated grant-date fair value of $ per unit, which was estimated using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight-line basis over the applicable vesting period.

%Risk-free interest rate %Expected dividend yield %

In addition, during the nine months ended 30 June 2024, we granted time-based deferred stock units at a weighted average grant-date fair value of $.

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14.

($)($)($)Other comprehensive income (loss) before reclassifications$ ($)$ ($)Amounts reclassified from AOCL$ $ $ $ Net current period other comprehensive income (loss)$ ($)$ ($)Amount attributable to noncontrolling interests$ ($)$ $ Balance at 30 June 2024$ ($)($)($)

Derivatives
qualifying
as hedges

Foreign
currency
translation
adjustments

Pension and
postretirement
benefits

Total

Balance at 30 September 2023

($)

Other comprehensive (loss) income before reclassifications

($)

Amounts reclassified from AOCL

Net current period other comprehensive (loss) income

($)

Amount attributable to noncontrolling interests

($)

Balance at 30 June 2024

($)

($)$ $ Cost of sales() Interest expense Other non-operating income (expense), net () ()

Total Loss (Gain) on Cash Flow Hedges, net of tax

$ ($)$ ($)Currency Translation AdjustmentBusiness and asset actions$ $ $ ($)

Pension and Postretirement Benefits, net of tax(A)

$ $ $ $

(A)The components of net periodic benefit/cost reclassified out of AOCL include items such as prior service cost amortization, actuarial loss amortization, settlements, and curtailments and are included in “Other non-operating income (expense), net” on the consolidated income statements. Refer to Note 11, Retirement Benefits, for additional information.

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15.

$ $ $

Denominator (in millions)

Weighted average common shares — Basic Effect of dilutive securitiesEmployee stock option and other award plans Weighted average common shares — Diluted

Per Share Data (U.S. Dollars per share)

Basic EPS attributable to Air Products$ $ $ $

(A)Sales relate to external customers only. All intersegment sales are eliminated in consolidation.

(B)Refer to the "Reconciliation to Consolidated Results" section below.

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$ $ $ $ $

(A)

Operating income (loss) ()

(B)

Depreciation and amortization Equity affiliates' income Nine Months Ended 30 June 2023Sales$ $ $ $ $ $

(A)

Operating income (loss) ()

(B)

Depreciation and amortization Equity affiliates' income Total Assets30 June 2024$ $ $ $ $ $ 30 September 2023

(A)Sales relate to external customers only. All intersegment sales are eliminated in consolidation.

$ $ $ Business and asset actions ()()()

18.

billion in an all-cash transaction. We expect to close the sale before the end of calendar year 2024, subject to the satisfaction or waiver of customary closing conditions, including the receipt of certain regulatory approvals. The decision to divest this business reflects our continued focus on growing and efficiently operating our core industrial gas business while executing projects that will provide world-scale clean hydrogen. The expected sale does not qualify for presentation as a discontinued operation as it does not represent a strategic shift in our operations.

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


Third Quarter 2024 in Summary			38
Third Quarter 2024 Results of Operations			40
First Nine Months 2024 in Summary			45
First Nine Months 2024 Results of Operations			47
Reconciliations of Non-GAAP Financial Measures			52
Liquidity and Capital Resources			59
Pension Benefits			63
Critical Accounting Policies and Estimates			64

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 third quarter and first nine months of fiscal year 2024 versus ("vs.") the third quarter and first nine 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.

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THIRD QUARTER 2024 VS. THIRD QUARTER 2023

THIRD QUARTER 2024 IN SUMMARY

•Sales of $2,985.5 decreased 2%, or $48.4, due to an unfavorable impact from currency of 2% and lower energy cost pass-through to customers of 1%, which were partially offset by higher pricing of 1%. Volumes were flat versus the prior year.

•Operating income of $737.6 increased 14%, or $93.4, as a prior year charge for business and asset actions, positive pricing, net of power and fuel costs, and favorable business mix were partially offset by unfavorable currency and higher costs. Operating margin of 24.7% increased 350 basis points ("bp").

•Equity affiliates' income of $168.9 increased 2%, or $3.9, primarily due to higher income from an affiliate in the Americas, which was partially offset by lower contributions from affiliates in the Middle East.

•Net income of $708.9 increased 16%, or $98.4, primarily due to a prior year charge for business and asset actions, favorable pricing, net of power and fuel costs, and favorable business mix. Higher costs driven by planned maintenance and inflation were partially offset by improved productivity. Net income margin of 23.7% increased 360 bp.

•Adjusted EBITDA of $1,266.8 increased 5%, or $58.7, and adjusted EBITDA margin of 42.4% increased 260 bp.

•Diluted EPS of $3.13 increased 17%, or $0.46 per share. On a non-GAAP basis, adjusted diluted EPS of $3.20 increased 7%, or $0.22 per share. A summary table of changes in diluted EPS is presented below.

•In July 2024, we entered into an agreement to divest our liquefied natural gas ("LNG") process technology and equipment business for approximately $1.8 billion in an all-cash transaction. We expect to close the sale before the end of calendar year 2024, subject to the satisfaction or waiver of customary closing conditions, including the receipt of certain regulatory approvals.

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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.


	Three Months Ended		Change vs. Prior Year
	30 June
	2024	2023
Diluted EPS	$3.13	$2.67	$0.46


% Change from prior year			17	%
Operating Impacts
Underlying business:
Volume			0.05
Price, net of variable costs			0.16
Other costs			(0.04)
Currency			(0.04)


Business and asset actions			0.23






Total Operating Impacts			$0.36
Other Impacts
Equity affiliates' income			$0.01

Interest expense			(0.03)
Other non-operating income/expense, net:
Gain on de-designation of cash flow hedges			0.01
Non-service pension cost, net			(0.02)
Other			0.01

Change in effective tax rate			0.06







Noncontrolling interests			0.04

Total Other Impacts			$0.08
Total Change in Diluted EPS			$0.46
% Change from prior year			17	%

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


		Three Months Ended		Change vs. Prior Year
		30 June
		2024	2023
Diluted EPS		$3.13	$2.67	$0.46


Business and asset actions		—	0.23	(0.23)









Gain on de-designation of cash flow hedges		(0.01)	—	(0.01)
Non-service pension cost, net		0.09	0.07	0.02







	$47.4

Energy cost pass-through to customers1 %Currency(4 %)

Total Asia Sales Change

(4 %)

Sales of $789.6 decreased 4%, or $33.3, as an unfavorable impact from currency of 4% driven by strengthening of the U.S. Dollar against most major currencies and lower volumes of 1% were partially offset by higher energy cost pass-through to customers of 1%. Volumes declined modestly overall primarily due to lower demand for merchant products and planned maintenance outages, which were partially offset by contributions from new industrial gas on-site plants across the region. Pricing was flat versus the prior year.

Operating income of $200.1 decreased 17%, or $40.7, due to lower volumes of $26, unfavorable currency of $8, lower pricing, net of power and fuel costs, of $4, and higher costs of $3. Volume and costs were unfavorable primarily due to planned maintenance outages. Operating margin of 25.3% decreased 400 bp from 29.3% in the prior year primarily due to the planned maintenance outages.

Equity affiliates’ income of $8.7 increased 16%, or $1.2, driven by higher income from an affiliate in Thailand.

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Europe


	Three Months Ended
	30 June				Change vs. Prior Year
	2024		2023		$	%/bp
Sales	$693.4		$706.6		($13.2)	(2	%)
Operating income	204.7		176.1		28.6	16	%
Operating margin	29.5	%	24.9	%		460	bp
Equity affiliates’ income	$26.3		$28.8		($2.5)	(9	%)
Adjusted EBITDA	283.2		253.5		29.7	12	%
Adjusted EBITDA margin	40.8	%	35.9	%		490	bp

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



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

Sales of $693.4 decreased 2%, or $13.2, due to lower energy cost pass-through to customers of 2% and an unfavorable impact from currency of 1%, partially offset by higher volumes of 1%. Volumes improved modestly as contributions from a new facility in Uzbekistan were partially offset by weaker merchant demand. Pricing was flat versus the prior year.

Operating income of $204.7 increased 16%, or $28.6, primarily due to higher volumes of $19 and pricing, net of lower power and fuel costs, of $17, partially offset by higher costs of $7. Higher costs driven by labor inflation were partially offset by productivity improvements. Operating margin of 29.5% increased 460 bp from 24.9% in the prior year.

Equity affiliates’ income of $26.3 decreased 9%, or $2.5, driven by lower income from our affiliate in Italy.

Middle East and India


	Three Months Ended
	30 June		Change vs. Prior Year
	2024	2023	$	%
Sales	$32.8	$39.7	($6.9)	(17	%)
Operating (loss) income	(1.4)	5.8	(7.2)	(124	%)
Equity affiliates' income	89.2	95.5	(6.3)	(7	%)
Adjusted EBITDA	94.6	108.3	(13.7)	(13	%)

Sales of $32.8 decreased 17%, or $6.9, and operating loss of $1.4 decreased $7.2 from income of $5.8 in the prior year, in each case primarily due to lower merchant volumes and pricing.

Equity affiliates' income of $89.2 decreased 7%, or $6.3, driven by higher costs across our affiliates.

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Corporate and other


	Three Months Ended
	30 June		Change vs. Prior Year
	2024	2023	$	%
Sales	$235.0	$204.0	$31.0	15	%
Operating loss	(56.9)	(94.3)	37.4	40	%
Adjusted EBITDA	(39.5)	(78.1)	38.6	49	%

Sales of $235.0 increased 15%, or $31.0, and operating loss of $56.9 decreased 40%, or $37.4, primarily due to higher LNG and other equipment sales. Our operating results also benefited from lower costs driven by productivity improvements.

FIRST NINE MONTHS 2024 VS. FIRST NINE MONTHS 2023

FIRST NINE MONTHS 2024 IN SUMMARY

•Sales of $8,913.1 decreased 5%, or $495.6, due to lower energy cost pass-through to customers of 6%, which was partially offset by higher pricing of 1%. Volume and currency were both flat versus the prior year.

•Operating income of $2,041.7 increased 16%, or $285.7, as lower charges for business and asset actions, positive pricing, net of power and fuel costs, and favorable business mix were partially offset by higher costs and unfavorable currency. Operating margin of 22.9% increased 420 bp from 18.7% in the prior year and included a positive impact from lower energy cost pass-through to customers.

•Equity affiliates' income of $470.6 increased 7%, or $29.7, as higher income from affiliates in the Americas segment was partially offset by lower contributions from affiliates in Europe.

•Net income of $1,911.4 increased 16%, or $267.2, due to lower charges for business and asset actions, favorable pricing, and favorable business mix. Higher costs driven by inflation and planned maintenance were partially offset by lower incentive compensation, favorable non-recurring items, and improved productivity. Net income margin of 21.4% increased 390 bp and included a positive impact from lower energy cost pass-through to customers.

•Adjusted EBITDA of $3,639.6 increased 6%, or $197.1, and adjusted EBITDA margin of 40.8% increased 420 bp.

•Diluted EPS of $8.43 increased 17%, or $1.21 per share. On a non-GAAP basis, adjusted diluted EPS of $8.87 increased 6%, or $0.51 per share. A summary table of changes in diluted EPS is presented below.

•In July 2024, we entered into an agreement to divest our LNG business for approximately $1.8 billion in an all-cash transaction. We expect to close the sale before the end of calendar year 2024, subject to the satisfaction or waiver of customary closing conditions, including the receipt of certain regulatory approvals.

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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.


	Nine Months Ended		Change vs. Prior Year
	30 June
	2024	2023
Diluted EPS	$8.43	$7.22	$1.21


% Change from prior year			17	%
Operating Impacts
Underlying business:
Volume			$0.08
Price, net of variable costs			0.47
Other costs			(0.13)
Currency			(0.07)


Business and asset actions			0.72






Total Operating Impacts			$1.07
Other Impacts
Equity affiliates' income			$0.11

Interest expense			(0.14)
Other non-operating income/expense, net:
Gain on de-designation of cash flow hedges			0.01
Non-service pension cost, net			(0.03)


Change in effective tax rate			0.12







Noncontrolling interests			0.07

Total Other Impacts			$0.14
Total Change in Diluted EPS			$1.21
% Change from prior year			17	%

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


	Nine Months Ended		Change vs. Prior Year
	30 June
	2024	2023
Diluted EPS	$8.43	$7.22	$1.21


Business and asset actions	0.20	0.92	(0.72)









Gain on de-designation of cash flow hedges	(0.01)	—	(0.01)
Non-service pension cost, net	0.25	0.22	0.03







Adjusted Diluted EPS	$8.87	$8.36	$0.51
% Change from prior year			6	%

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FIRST NINE MONTHS 2024 RESULTS OF OPERATIONS

Discussion of First Nine Months Consolidated Results


	Nine Months Ended
	30 June				Changes
	2024		2023		$	%/bp
GAAP Measures
Sales	$8,913.1		$9,408.7		($495.6)	(5	%)
Operating income	2,041.7		1,756.0		285.7	16	%
Operating margin	22.9	%	18.7	%		420	bp
Equity affiliates’ income	$470.6		$440.9		$29.7	7	%
Net income	1,911.4		1,644.2		267.2	16	%
Net income margin	21.4	%	17.5	%		390	bp
Non-GAAP Measures
Adjusted EBITDA	$3,639.6		$3,442.5		$197.1	6	%
Adjusted EBITDA margin	40.8	%	36.6	%		420 bp

$129.5

Interest incurred increased 86%, or $169.6, primarily due to a higher debt balance from senior notes 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 $130.0 due to a higher carrying value of projects under construction, including the NEOM Green Hydrogen Project.

Other Non-Operating Income (Expense), net

Other non-operating expense of $25.3 decreased 3%, or $0.9. During the third quarter of fiscal year 2024, we recorded an unrealized gain of $11.2 ($3.0 attributable to Air Products after tax, or $0.01 per share) upon de-designation of certain interest rate swaps associated with the financing for the NEOM Green Hydrogen Project. Refer to Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements for additional information. Additionally, we recognized higher interest income on cash and cash items and short-term investments during the first nine months of fiscal year 2024. These favorable items were partially offset by higher non-service pension costs.

Net Income and Net Income Margin

Net income of $1,911.4 increased 16%, or $267.2, due to higher pricing, net of power and fuel costs, and favorable business mix. Additionally, strategic business and asset actions for which we incurred higher charges in the prior year resulted in productivity improvements across our organization, which partially offset higher costs driven by inflation and planned maintenance. Higher costs were partially offset by lower incentive compensation and favorable non-recurring operating items.

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Net income margin of 21.4% increased 390 bp from 17.5% in the prior year primarily due to the lower charges for business and asset actions, higher pricing, and lower energy cost pass-through to customers. Of the 390 bp improvement, lower energy cost pass-through to customers contributed approximately 150 bp.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $3,639.6 increased 6%, or $197.1, due to higher pricing, net of power and fuel costs, and favorable business mix, partially offset by higher costs. Higher costs driven by inflation and planned maintenance costs were partially offset by lower incentive compensation, favorable non-recurring operating items, and productivity improvements. Adjusted EBITDA margin of 40.8% increased 420 bp from 36.6% in the prior year primarily due to lower energy cost pass-through to customers and higher pricing. Of the 420 bp improvement, lower energy cost pass-through to customers contributed approximately 250 bp.

Effective Tax Rate

Our effective tax rate was 17.5% and 19.4% for the nine months ended 30 June 2024 and 2023, respectively. Our current year effective tax rate was lower due to earning a greater share of income in jurisdictions with lower tax rates, higher equity affiliates' income, the tax benefit from a tax election related to a non-U.S. subsidiary, and the release of certain unrecognized tax benefits upon expiration of the statute of limitations for uncertain tax positions taken in prior years. In addition, during the first nine months of fiscal year 2023, we recorded a charge for business and asset actions of $244.6 ($204.9 attributable to Air Products after tax) that included certain losses for which we could not recognize an income tax benefit and were subject to a valuation allowance of $36.0. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary. For additional information on the charge for business and asset actions, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

Our adjusted effective tax rate, which excludes the impact of the business and asset actions discussed above as well as other adjustments described in the "Reconciliations of Non-GAAP Financial Measures" section, was 17.9% and 19.1% for the nine months ended 30 June 2024 and 2023, respectively.

Discussion of First Nine Months Results by Business Segment

Americas


	Nine Months Ended
	30 June				Changes
	2024		2023		$	%/bp
Sales	$3,732.6		$4,018.0		($285.4)	(7	%)
Operating income	1,117.4		1,042.0		75.4	7	%
Operating margin	29.9	%	25.9	%		400	bp
Equity affiliates’ income	$118.8		$74.4		$44.4	60	%
Adjusted EBITDA	1,755.6		1,597.2		158.4	10	%
Adjusted EBITDA margin	47.0	%	39.8	%		720 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	(10	%)
Currency	(1	%)
Total Americas Sales Change	(7	%)

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Sales of $3,732.6 decreased 7%, or $285.4, as lower energy cost pass-through to customers of 10% driven by lower natural gas prices in North America and an unfavorable currency impact of 1% were partially offset by higher pricing of 3% and higher volumes of 1%. Pricing was favorable across all merchant product lines. Volumes improved modestly as higher demand for hydrogen in our on-site business was partially offset by weaker merchant volume.

Operating income of $1,117.4 increased 7%, or $75.4, due to positive pricing, net of power and fuel costs, of $102 and favorable volumes of $28, partially offset by higher costs of $50 and unfavorable currency of $5. The higher costs were driven by higher planned maintenance and labor inflation, partially offset by lower incentive compensation as well as the favorable settlement of a legal dispute during the third quarter. Operating margin of 29.9% increased 400 bp from 25.9% in the prior year primarily due to lower energy cost pass-through to customers and favorable pricing, which were partially offset by the impact of higher costs. Of the 400 bp improvement, lower energy cost pass-through to customers contributed approximately 250 bp.

Equity affiliates’ income of $118.8 increased 60%, or $44.4, due to higher income from an affiliate in Mexico as well as recognition of our share of income from an asset sale.

Asia


	Nine Months Ended
	30 June				Changes
	2024		2023		$	%/bp
Sales	$2,363.1		$2,414.6		($51.5)	(2	%)
Operating income	614.9		709.7		(94.8)	(13	%)
Operating margin	26.0	%	29.4	%		(340	bp)
Equity affiliates’ income	$21.2		$22.2		($1.0)	(5	%)
Adjusted EBITDA	979.8		1,052.1		(72.3)	(7	%)
Adjusted EBITDA margin	41.5	%	43.6	%		(210	bp)

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



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

Sales of $2,363.1 decreased 2%, or $51.5, due to an unfavorable currency impact of 3%, partially offset by higher energy cost pass-through to customers of 1%. Despite higher volumes from new industrial gas on-site plants across the region, overall volumes were flat primarily due to lower demand for merchant products. Pricing was flat versus the prior year.

Operating income of $614.9 decreased 13%, or $94.8, primarily due to unfavorable business mix of $59, an unfavorable currency impact of $21, lower pricing, net of power and fuel costs, of $9, and higher costs of $6. Higher costs for labor inflation and higher planned maintenance were partially offset by lower distribution costs. Operating margin of 26.0% decreased 340 bp from 29.4% in the prior year primarily due to unfavorable business mix.

Equity affiliates’ income of $21.2 decreased 5%, or $1.0, as higher maintenance expense for one of our affiliates in China was partially offset by higher income from an affiliate in Thailand.

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Europe


	Nine Months Ended
	30 June				Changes
	2024		2023		$	%/bp
Sales	$2,092.5		$2,251.4		($158.9)	(7	%)
Operating income	603.3		495.1		108.2	22	%
Operating margin	28.8	%	22.0	%		680	bp
Equity affiliates’ income	$58.7		$76.0		($17.3)	(23	%)
Adjusted EBITDA	813.2		712.3		100.9	14	%
Adjusted EBITDA margin	38.9	%	31.6	%		730	bp

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



Volume	1	%
Price	(1	%)
Energy cost pass-through to customers	(10	%)
Currency	3	%
Total Europe Sales Change	(7	%)

Sales of $2,092.5 decreased 7%, or $158.9, due to lower energy cost pass-through to customers of 10% and lower pricing of 1%, partially offset by a favorable impact from currency of 3% and higher volumes of 1%. Currency positively impacted sales primarily due to the weakening of the U.S. Dollar against the Euro. Volumes improved modestly as contributions from a new facility in Uzbekistan were partially offset by weaker merchant demand.

Operating income of $603.3 increased 22%, or $108.2, due to higher volumes of $72, pricing, net of lower power and fuel costs, of $42, and a favorable impact from currency of $12, partially offset by higher costs of $18. Higher costs driven by labor inflation were partially offset by productivity improvements as well as income from the sale of assets. Operating margin of 28.8% increased 680 bp from 22.0% in the prior year due to favorable volumes and pricing as well as lower energy cost pass-through to customers. Of the 680 bp improvement, lower energy cost pass-through to customers contributed approximately 200 bp.

Equity affiliates’ income of $58.7 decreased 23%, or $17.3, driven by prior year non-recurring items for our affiliate in Italy.

Middle East and India


	Nine Months Ended
	30 June		Changes
	2024	2023	$	%
Sales	$103.9	$125.9	($22.0)	(17	%)
Operating income	8.1	13.8	(5.7)	(41	%)
Equity affiliates' income	256.0	258.5	(2.5)	(1	%)
Adjusted EBITDA	284.2	292.5	(8.3)	(3	%)

Sales of $103.9 decreased 17%, or $22.0, and operating income of $8.1 decreased 41%, or $5.7, in each case primarily due to lower merchant volumes and pricing.

Equity affiliates' income of $256.0 decreased 1%, or $2.5, driven by higher costs in Saudi Arabia.

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Corporate and other


	Nine Months Ended
	30 June		Changes
	2024	2023	$	%
Sales	$621.0	$598.8	$22.2	4	%
Operating loss	(245.0)	(260.0)	15.0	6	%
Adjusted EBITDA	(193.2)	(211.6)	18.4	9	%

Sales of $621.0 increased 4%, or $22.2, and operating loss of $245.0 decreased 6%, or $15.0, in each case primarily due to higher LNG sales. Our operating results also benefited from lower incentive compensation, favorable non-recurring items, and productivity improvements.

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, all of which are not indicative of our defined benefit plans’ future contribution needs due to the funded status of the plans. Additionally, we exclude the impact of fair value adjustments for certain of our derivative instruments for which we discontinued cash flow hedge accounting during the third quarter of fiscal year 2024. We will continue to adjust for these unrealized gains or losses until the related hedges re-qualify for cash flow hedge accounting, which we expect to occur once the hedged transaction is consistent with the terms of the related long-term hedges. The net impact of adjustments for non-service related components as well as fair value adjustments for the de-designated cash flow hedges is reflected within “Other non-operating income (expense), net” on our consolidated income statements. Adjusting for these impacts provides management and users of our financial statements with a more accurate representation of our underlying business performance because they are driven by factors that are unrelated to our operations, such as volatility in equity and debt markets. 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.

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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 30 June
Q3 2024 vs. Q3 2023	Operating Income	Equity Affiliates' Income	Other Non-Operating Income/Expense, Net	Income Tax Provision	Net Income Attributable to Air Products	Diluted EPS
Q3 2024 GAAP	$737.6	$168.9	($1.3)	$140.6	$696.6	$3.13
Q3 2023 GAAP	644.2	165.0	(11.7)	139.6	595.6	2.67
$ Change GAAP						$0.46
% Change GAAP						17	%

Q3 2024 GAAP	$737.6	$168.9	($1.3)	$140.6	$696.6	$3.13
(Gain) Loss on de-designation of cash flow hedges(A)	—	—	(11.2)	(0.9)	(3.0)	(0.01)
Non-service pension cost, net	—	—	25.3	6.2	19.1	0.09
Q3 2024 Non-GAAP ("Adjusted")	$737.6	$168.9	$12.8	$145.9	$712.7	$3.20

Q3 2023 GAAP	$644.2	$165.0	($11.7)	$139.6	$595.6	$2.67
Business and asset actions	59.0	—	—	7.8	51.2	0.23
Non-service pension cost, net	—	—	22.0	5.4	16.6	0.07

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	Nine Months Ended 30 June
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	$2,041.7	$470.6	($25.3)	$406.5	$1,878.3	$8.43
2023 GAAP	1,756.0	440.9	(26.2)	397.0	1,607.6	7.22
$ Change GAAP						$1.21
% Change GAAP						17	%

2024 GAAP	$2,041.7	$470.6	($25.3)	$406.5	$1,878.3	$8.43
Business and asset actions	57.0	—	—	13.2	43.8	0.20
(Gain) Loss on de-designation of cash flow hedges(A)	—	—	(11.2)	(0.9)	(3.0)	(0.01)
Non-service pension cost, net	—	—	75.3	18.6	56.7	0.25
2024 Non-GAAP ("Adjusted")	$2,098.7	$470.6	$38.8	$437.4	$1,975.8	$8.87

2023 GAAP	$1,756.0	$440.9	($26.2)	$397.0	$1,607.6	$7.22
Business and asset actions(B)	244.6	—	—	34.7	204.9	0.92
Non-service pension cost, net	—	—	64.4	16.0	48.4	0.22
2023 Non-GAAP ("Adjusted")	$2,000.6	$440.9	$38.2	$447.7	$1,860.9	$8.36
$ Change Non-GAAP ("Adjusted")						$0.51
% Change Non-GAAP ("Adjusted")						6	%

(A ) Includes $7.3 attributable to noncontrolling interests. (B ) Includes $5.0 attributable to noncontrolling interests.

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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 30 June										Nine Months Ended 30 June
			2024						2023				2024			2023
			$		Margin				$		Margin		$	Margin		$	Margin
Sales			$2,985.5						$3,033.9				$8,913.1			$9,408.7

Net income and net income margin			$708.9		23.7	%			$610.5		20.1	%	$1,911.4	21.4	%	$1,644.2	17.5	%

Add: Interest expense			55.7		1.9	%			47.4		1.6	%	169.1	1.9	%	129.5	1.4	%
Less: Other non-operating income (expense), net			(1.3)		—	%			(11.7)		(0.4	%)	(25.3)	(0.3	%)	(26.2)	(0.3	%)
Add: Income tax provision			140.6		4.7	%			139.6		4.6	%	406.5	4.6	%	397.0	4.2	%
Add: Depreciation and amortization			360.3		12.1	%			339.9		11.2	%	1,070.3	12.0	%	1,001.0	10.6	%
Add: Business and asset actions			—		—	%			59.0		1.9	%	57.0	0.6	%	244.6	2.6	%









Adjusted EBITDA and adjusted EBITDA margin			$1,266.8		42.4	%			$1,208.1		39.8	%	$3,639.6	40.8	%	$3,442.5	36.6	%


			Three Months Ended 30 June				Nine Months Ended 30 June
			2024		2023		2024		2023
Income tax provision			$140.6		$139.6		$406.5		$397.0
Income before taxes			849.5		750.1		2,317.9		2,041.2
Effective tax rate			16.6	%	18.6	%	17.5	%	19.4	%


Income tax provision			$140.6		$139.6		$406.5		$397.0
Business and asset actions tax impact			—		7.8		13.2		34.7

(Gain) Loss on de-designation of cash flow hedges tax impact			(0.9)		—		(0.9)		—
Non-service pension tax impact			6.2		5.4		18.6		16.0















Adjusted income tax provision			$145.9		$152.8		$437.4		$447.7

Income before taxes			$849.5		$750.1		$2,317.9		$2,041.2

Business and asset actions			—		59.0		57.0		244.6
(Gain) Loss on de-designation of cash flow hedges			(11.2)		—		(11.2)		—
Non-service pension cost, net			25.3		22.0		75.3		64.4










	$1,607.6

	244.6

	60.9


(4,721.5)		$	(3,163.5)

	766.0

	$3,163.5

	567.3

	(1,107.9)

	188.8

2023
	$17.5
	64.4
	0.7
	$82.6

Net periodic cost was $31.1 and $91.7 for the three and nine months ended 30 June 2024, respectively. Net periodic cost was $27.9 and $82.6 for the three and nine months ended 30 June 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 of fiscal year 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 nine 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 nine months ended 30 June 2024 and 2023, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $25.6 and $22.0, respectively.

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

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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 nine 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 nine 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 $50 and $115 for the three and nine months ended 30 June 2024, respectively. There were no other changes to our estimates during the first nine months of fiscal year 2024 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information on our utilization of financial instruments and an analysis of the sensitivity of these instruments to selected changes in market rates and prices is included in our 2023 Form 10-K.

Our net financial instrument position increased from a liability of $8,990.8 at 30 September 2023 to a liability of $13,151.0 at 30 June 2024. The increase was primarily due to the issuance of green senior notes 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.

Interest Rate Risk

Our debt portfolio as of 30 June 2024, including the effect of currency and interest rate swap agreements, was composed of 87% fixed-rate debt and 13% variable-rate debt. Our debt portfolio as of 30 September 2023, including the effect of currency and interest rate swap agreements, was composed of 80% fixed-rate debt and 20% variable-rate debt. The increase in fixed-rate debt was primarily driven by the issuance of green senior notes during February 2024.

The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an instantaneous 100 bp parallel move in interest rates from the level at 30 June 2024, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of $984 and $728 in the net liability position of financial instruments at 30 June 2024 and 30 September 2023, respectively. A 100 bp decrease in market interest rates would result in an increase of $1,137 and $845 in the net liability position of financial instruments at 30 June 2024 and 30 September 2023, respectively.

There were no material changes to the sensitivity analysis related to the variable portion of our debt portfolio since 30 September 2023.

Foreign Currency Exchange Rate Risk

The sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in the foreign currency exchange rates from their levels at 30 June 2024, with all other variables held constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would result in a decrease or increase, respectively, of $341 and $308 in the net liability position of financial instruments at 30 June 2024 and 30 September 2023, respectively.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Under the supervision of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures as of 30 June 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of 30 June 2024, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended 30 June 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

During the third quarter of fiscal year 2024, we settled a dispute regarding energy management charges related to a severe winter weather storm that impacted the U.S. Gulf Coast in February 2021. As a result of the settlement, we recognized a gain of $7.7 that is reflected within "Other income (expense), net" on our consolidated income statements for the three and nine months ended 30 June 2024. We collected the settlement in full in July 2024.

Item 5. Other Information

None of the Company’s directors or Section 16 reporting officers or any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K) during the third quarter of fiscal year 2024.

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Item 6. Exhibits

(a) Exhibits required by Item 601 of Regulation S-K


	Exhibit No.	Description

	(31)	Rule 13a-14(a)/15d-14(a) Certifications

	31.1	Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(32)	Section 1350 Certifications

	32.1	Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

	(101)	Interactive Data Files

	101.INS	Inline XBRL Instance Document. The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	101.SCH	Inline XBRL Taxonomy Extension Schema Document.

	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

	104	Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101).



†	The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Air Products and Chemicals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						Air Products and Chemicals, Inc.
			(Registrant)

			By:			/s/ Melissa N. Schaeffer
						Melissa N. Schaeffer Senior Vice President and Chief Financial Officer (Principal Financial Officer)

			Date:			1 August 2024


1.	Basis of Presentation and Major Accounting Policies	12
2.	New Accounting Guidance	12
3.	Variable Interest Entities.	13
4.	Business and Asset Actions	15
5.	Revenue Recognition	16
6.	Inventories	17
7.	Goodwill	18
8.	Financial Instruments	18
9.	Fair Value Measurements	26
10.	Debt	28
11.	Retirement Benefits	29
12.	Commitments and Contingencies	30
13.	Share-Based Compensation	32
14.	Accumulated Other Comprehensive Loss	33
15.	Earnings per Share	34
16.	Supplemental Information	34
17.	Business Segment Information	35
18.	Subsequent Event	36

Air Products & Chemicals, Inc. - Quarter Report: 2024 June (Form 10-Q)

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