# Air Products & Chemicals, Inc. (APD) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Air Products & Chemicals, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/2969/000000296924000056/apd-20240930.htm
Accession: 0000002969-24-000056
Filing date: 2024-11-21
Report date: 2024-09-30
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/APD/
All MD&A years: /company/APD/mda/
Previous year: /company/APD/mda/fy2023/ (FY 2023)
Next year: /company/APD/mda/fy2025/ (FY 2025)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

[[GREPCENT_TABLE]]
[["Business Overview","28"],["2024 in Summary","29"],["Outlook","31"],["Results of Operations","31"],["Reconciliations of Non-GAAP Financial Measures","37"],["Liquidity and Capital Resources","43"],["Pension Benefits","47"],["Critical Accounting Policies and Estimates","49"]]
[[/GREPCENT_TABLE]]

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 Annual Report on Form 10-K 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 this Annual Report on Form 10-K.

This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Unless otherwise stated, financial information is presented in millions of U.S. Dollars, except for per share data. Except for net income, which includes the results of discontinued operations, financial information is presented on a continuing operations basis.

The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted," or "non-GAAP," basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 37.

Comparisons included in the discussion that follows are for fiscal year 2024 versus ("vs.") fiscal year 2023. A discussion of changes from fiscal year 2022 to fiscal year 2023 and other financial information related to fiscal year 2022 is available in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2023, which was filed with the SEC on 16 November 2023.

For information concerning activity with our related parties, refer to Note 25, Supplemental Information, to the consolidated financial statements.

27

Table of Contents

BUSINESS OVERVIEW

Founded in 1940, Air Products and Chemicals, Inc. is a world-leading industrial gases company that has built a reputation for its innovative culture, operational excellence, and commitment to safety and the environment. Approximately 23,000 passionate, talented, and committed employees from diverse backgrounds together are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and reimagine what is possible to address the challenges facing customers, communities, and the world.

Focused on serving energy, environmental, and emerging markets, we are committed to generating a cleaner future by offering products and services that enable our customers to improve their environmental performance, product quality, and productivity. Our core industrial gases business provides essential gases, related equipment, and applications expertise to customers in dozens of industries, including refining, chemicals, metals, electronics, manufacturing, medical, and food. We also develop, engineer, build, own, and operate some of the world's largest clean hydrogen projects that will support the transition to low- and zero-carbon energy in the industrial and heavy-duty transportation sectors. Through our sale of equipment businesses, we also provide turbomachinery, membrane systems, and cryogenic containers globally. For additional information on our product and service offerings, including production, distribution, and end use, refer to Item 1, Business, of this Annual Report on Form 10-K.

We conduct business in approximately 50 countries and regions throughout the world. Our industrial gases business is organized and operated regionally in the Americas, Asia, Europe, and Middle East and India segments and generates the majority of our sales via our on-site and merchant supply modes. Approximately half our total revenue is generated through the on-site supply mode, which is governed by contracts that are generally long-term in nature with provisions that allow us to pass through changes in energy costs to our customers. Our Corporate and other segment includes the results of our sale of equipment businesses, costs for corporate support functions and global management activities, and other income and expenses not directly associated with the regional segments, such as foreign exchange gains and losses. For additional information regarding our supply modes and business segments, refer to Note 7, Revenue Recognition, and Note 26, Business Segment and Geographic Information, to the consolidated financial statements.

Our results of operations for the periods presented in this Annual Report on Form 10-K include the results of our former liquefied natural gas ("LNG") process technology and equipment business, which we sold to Honeywell International Inc. on 30 September 2024. This divestiture, which does not qualify for presentation as a discontinued operation, reflects our commitment to our industrial gases and clean hydrogen growth strategy. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information.

28

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2024 IN SUMMARY

Underlying results in our core industrial gases business were positive across our three largest regional segments, reflecting both merchant pricing gains and lower power costs in the Americas and Europe segments as well as favorable on-site volumes globally as we brought new plants onstream. The favorable volumes in our on-site business, which contributed approximately half our annual consolidated sales, were partially offset by lower global demand for merchant products as well as lower equipment sales in our Corporate and other segment. Additionally, the strategic productivity actions that we initiated in 2023 drove cost improvement across our organization, which partially offset higher costs resulting from inflation and increased planned maintenance activities. We also recognized higher equity affiliates' income from our unconsolidated joint ventures, particularly in the Americas segment.

Strategic capital allocation is one of our top priorities at Air Products. In addition to investing in our low- and zero-carbon hydrogen projects currently under construction, we continued to deploy capital in our core industrial gases business by investing in new industrial gas plants as well as maintaining and replacing existing facilities. Additionally, at the end of September, we recognized a gain of approximately $1.6 billion in operating income ($1.2 billion after tax, or $5.38 per share) upon completion of the sale of the LNG business. Divesting this non-core business reflects our continued focus on executing our growth strategy. We also issued $2.5 billion of green senior notes to fund projects that are expected to have environmental benefits as defined under our Green Finance Framework. These cash-generating actions will enable us to continue investing in projects that will provide clean hydrogen at scale to accelerate the energy transition while creating long-term value for our shareholders.

We believe providing a consistent dividend plays a critical part in the creation of shareholder value. During fiscal year 2024, we returned approximately $1.6 billion to our shareholders through dividend payments.

Fiscal Year 2024 Highlights

Comparisons presented in the highlights below are for fiscal year 2024 vs. fiscal year 2023.

•Sales of $12.1 billion decreased 4%, or $499.4, primarily due to 5% lower energy cost pass-through, which was partially offset by 1% higher pricing. Volume and currency were both flat versus the prior year.

•Operating income of $4.5 billion increased 79%, or $2.0 billion, primarily due to the $1.6 billion gain recognized on the sale of the LNG business during the fourth quarter of fiscal year 2024 as well as positive pricing, lower charges for business and asset actions, and favorable business mix, partially offset by an unfavorable impact from currency and higher costs. Operating margin of 36.9% increased 1,710 basis points ("bp") from 19.8% in the prior year.

•Equity affiliates' income of $647.7 increased 7%, or $43.4, as higher income from affiliates in the Americas segment was partially offset by a lower contribution from an affiliate in Europe.

•Net income of $3.9 billion increased 65%, or $1.5 billion, and net income margin of 31.9% increased 1,330 bp from 18.6% in the prior year, in each case primarily due to the $1.2 billion after-tax gain recognized upon the sale of the LNG business at the end of the fourth quarter.

•Adjusted EBITDA of $5.0 billion increased 7%, or $344.5, and adjusted EBITDA margin of 41.7% increased 440 bp from 37.3% in the prior year.

•Diluted EPS of $17.24 increased 67%, or $6.94 per share, and adjusted diluted EPS of $12.43 increased 8%, or $0.92 per share. A summary table of changes in diluted EPS is presented below.

29

Table of Contents

Changes in Diluted EPS Attributable to Air Products

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

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023","Increase (Decrease)"],["Total Diluted EPS","$17.18","","$10.33","","$6.85"],["Less: Diluted EPS from (loss) income from discontinued operations","(0.06)","","0.03","","(0.09)"],["Diluted EPS From Continuing Operations","$17.24","","$10.30","","$6.94"],["% Change from prior year","","","67","%"],["Operating Items"],["Underlying business"],["Volume","","","$0.23"],["Price, net of variable costs","","","0.70"],["Other costs","","","(0.08)"],["Currency","","","(0.09)"],["Gain on sale of business","","","5.38"],["Business and asset actions","","","0.72"],["Total Operating Items","","","$6.86"],["Other Items"],["Equity affiliates' income","","","$0.16"],["Interest expense","","","(0.15)"],["Other non-operating income/expense, net:"],["Loss on de-designation of cash flow hedges","","","(0.02)"],["Non-service pension cost, net","","","(0.05)"],["Other","","","(0.01)"],["Change in effective tax rate","","","0.17"],["Noncontrolling interests","","","(0.01)"],["Total Other Items","","","$0.09"],["Total Change in Diluted EPS From Continuing Operations","","","$6.94"],["% Change from prior year","","","67","%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023","Increase (Decrease)"],["Diluted EPS From Continuing Operations","$17.24","","$10.30","","$6.94"],["Gain on sale of business","(5.38)","","\u2014","","(5.38)"],["Business and asset actions","0.20","","0.92","","(0.72)"],["Loss on de-designation of cash flow hedges","0.02","","\u2014","","0.02"],["Non-service pension cost, net","0.34","","0.29","","0.05"],["Adjusted Diluted EPS From Continuing Operations","$12.43","","$11.51","","$0.92"],["% Change from prior year","","","8","%"]]
[[/GREPCENT_TABLE]]

30

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OUTLOOK

Statements regarding business outlook should be read in conjunction with the Forward-Looking Statements of this Annual Report on Form 10-K.

We have focused teams within Air Products executing the two pillars of our growth strategy, which are underpinned by our core competencies, technology, and more than 80 years of industrial gas experience, including over 65 years of hydrogen expertise. Our employees are dedicated to the ongoing success of our core industrial gases business while we pursue strategic high growth opportunities in clean hydrogen.

In fiscal year 2025, we expect merchant pricing improvement as well as positive volume contributions from several smaller industrial gas on-site plants that are scheduled to come onstream. Cost discipline remains a top priority as we seek to mitigate the impact of ongoing inflationary pressures through productivity actions. Economic activity in China remains uncertain. Additionally, we estimate an earnings per share headwind of approximately 4%, or $0.49, as a result of the LNG business divestiture. We expect sustained performance and our ability to raise capital to meet the cash needs of our growth strategy while rewarding shareholders through increased dividends, as we have done for the past 42 consecutive years.

Beyond fiscal year 2025, we see significant opportunity in clean hydrogen driven by demand for decarbonization solutions such as the application of green hydrogen to meet Europe's emission reduction mandates across the heavy industrial and transport sectors, blue hydrogen in the form of blue ammonia to minimize the use of coal in Asia's power plants, as well as blue and green ammonia to directly power ships. We have made significant progress in the construction of some of our energy transition projects, such as the NEOM Green Hydrogen Project that is on schedule to come onstream at the end of 2026 with first product delivery in early 2027.

RESULTS OF OPERATIONS

DISCUSSION OF CONSOLIDATED RESULTS

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%/bp"],["GAAP Measures"],["Sales","$12,100.6","","$12,600.0","","","","($499.4)","","(4","%)"],["Operating income","4,466.1","","2,494.6","","","","1,971.5","","79","%"],["Operating margin","36.9","%","","19.8","%","","","","","1,710","bp"],["Equity affiliates\u2019 income","$647.7","","$604.3","","","","$43.4","","7","%"],["Net income","3,862.4","","2,338.6","","","","1,523.8","","65","%"],["Net income margin","31.9","%","","18.6","%","","","","","1,330","bp"],["Non-GAAP Measures"],["Adjusted EBITDA","$5,046.3","","$4,701.8","","","","$344.5","","7","%"],["Adjusted EBITDA margin","41.7","%","","37.3","%","","","","","440","bp"]]
[[/GREPCENT_TABLE]]

Sales

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

[[GREPCENT_TABLE]]
[["Volume","\u2014","%"],["Price","1","%"],["Energy cost pass-through to customers","(5","%)"],["Currency","\u2014","%"],["Total Consolidated Sales Change","(4","%)"]]
[[/GREPCENT_TABLE]]

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Sales of $12.1 billion decreased 4%, or $499.4, primarily due to 5% lower energy cost pass-through driven by lower natural gas prices in North America and Europe. Sales in our on-site business, which typically represent approximately half our total company sales, fluctuate with power and fuel prices due to contract provisions that allow us to pass through changes in energy costs to our customers. The lower sales due to energy cost pass-through were partially offset by a modest 1% total company price improvement, which equates to a 2% improvement for the merchant business. The pricing improvement was attributable to our Americas and Europe segments. Volumes were flat on a total company basis as weaker global merchant demand and lower sales of equipment offset improvements in our on-site business, which were driven by new assets in Europe and Asia as well as higher demand for hydrogen in the U.S. Additionally, favorable on-site volumes in our Americas segment included a one-time asset sale associated with an early contract termination at the request of a customer. Currency was stable versus the prior year.

Cost of Sales and Gross Margin

Cost of sales of $8.2 billion decreased 8%, or $664.3, due to lower energy cost pass-through to customers of $646, a favorable impact from currency of $20, and lower other costs of $10, partially offset by higher costs associated with sales volumes of $12. Higher costs due to labor inflation and planned maintenance activities were partially offset by lower power costs in our merchant business in Europe and the Americas as well as improvements from strategic productivity actions. Gross margin of 32.5% increased 260 bp from 29.9% in the prior year. Approximately half of the margin improvement was attributable to lower energy cost pass-through to customers.

Selling and Administrative Expense

Selling and administrative expense of $942.4 decreased 2%, or $14.6, primarily due to lower incentive compensation and strategic productivity actions, partially offset by labor inflation. Selling and administrative expense as a percentage of sales increased to 7.8% from 7.6% in the prior year.

Research and Development Expense

Research and development expense of $100.2 decreased 5%, or $5.4. Research and development expense as a percentage of sales of 0.8% was flat versus the prior year.

Gain on Sale of Business

On 30 September 2024, we completed the sale of our LNG business to Honeywell International Inc. As a result of the transaction, we recorded a gain of $1,575.6 during the fourth quarter of fiscal year 2024 that is reflected within "Gain on sale of business" on our consolidated income statements ($1,198.4 after tax, or $5.38 per share). This gain was not recorded in segment results. Prior to the divestiture, the results of the LNG business were reflected within the Corporate and other segment. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information.

Business and Asset Actions

Our consolidated income statements for the fiscal years ended 30 September 2024 and 2023 reflect charges of $57.0 ($43.8 after tax, or $0.20 per share) and $244.6 ($204.9 attributable to Air Products after tax, or $0.92 per share), respectively, for strategic business and asset actions intended to optimize costs and focus resources on our growth projects. Charges for business and asset actions are not recorded in segment results.

The fiscal year 2024 charge of $57.0 was for severance and other postemployment benefits payable to employees identified under a global cost reduction plan. We originated this plan during the third quarter of fiscal year 2023, which resulted in an initial charge of $27.0. Fiscal year 2023 also included a noncash charge of $217.6 to write off assets associated with exited projects that were previously under construction in our Asia and Europe segments.

For additional information, refer to Note 5, Business and Asset Actions, to the consolidated financial statements for additional information.

Other Income (Expense), Net

Other income of $58.2 increased 67%, or $23.4, primarily due to higher income from the sale of assets as well as the favorable settlement of a legal dispute. Refer to Note 19, Commitments and Contingencies, to the consolidated financial statements for additional information. These items were partially offset by an unfavorable foreign exchange impact from the devaluation of the Argentine peso during the first quarter of fiscal year 2024.

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Operating Income and Margin

Operating income of $4.5 billion increased 79%, or $2.0 billion, primarily due to the $1.6 billion gain recognized on the sale of the LNG business during the fourth quarter of fiscal year 2024. The improvement from the prior year also reflects positive pricing, net of power and fuel costs, of $192, lower charges for business and asset actions of $188, and favorable business mix of $63. The on-site improvements reflected within favorable business mix were partially offset by lower merchant demand and recognition of higher project cost estimates related to our sale of equipment activities in fiscal year 2024. Unfavorable items versus the prior year included an unfavorable impact from currency of $25 and higher costs of $22. The higher costs were driven by labor inflation and higher planned maintenance, partially offset by improved productivity resulting from strategic business and asset actions and lower costs for incentive compensation.

Operating margin of 36.9% increased 1,710 bp from 19.8% in the prior year primarily due to the gain recognized on the sale of the LNG business, lower charges for business and asset actions, and favorable pricing. Additionally, while energy cost pass-through has no impact on profit, it does contribute to our margins. Of the 1,710 bp operating margin improvement, lower energy cost pass-through to customers contributed approximately 100 bp.

Equity Affiliates’ Income

Equity affiliates' income of $647.7 increased 7%, or $43.4, as higher income from affiliates in the Americas segment was partially offset by a lower contribution from an affiliate in Europe.

Interest Expense

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","","","","2024","2023"],["Interest incurred","","","","$507.9","","$292.9"],["Less: Capitalized interest","","","","289.1","","115.4"],["Interest expense","","","","$218.8","","$177.5"]]
[[/GREPCENT_TABLE]]

Interest incurred increased 73%, or $215.0, primarily due to a higher debt balance from senior notes issued to fund projects under our Green Finance Framework as well as borrowings on financing available for the NEOM Green Hydrogen Project. Capitalized interest increased $173.7 due to a higher carrying value of projects under construction, which is largely attributable to the NEOM Green Hydrogen Project.

Other Non-Operating Income (Expense), Net

Other non-operating expense of $73.8 increased 89%, or $34.8. We recognized non-service pension costs of $102.0 ($76.8 after tax, or $0.34 per share) in fiscal year 2024 compared to $86.8 ($65.2 after tax, or $0.29 per share) in fiscal year 2023. Additionally, in fiscal year 2024, we recorded unrealized losses of $16.3 ($4.3 attributable to Air Products after tax, or $0.02 per share) related to 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 15, Financial Instruments, to the consolidated financial statements for additional information. These unfavorable items were partially offset by higher interest income on cash and cash items and short-term investments.

Discontinued Operations

During the fourth quarter of fiscal year 2024, we recorded a pre-tax loss from discontinued operations of $19.4 ($13.9 after tax, or $0.06 per share) to increase our existing liability for retained environmental remediation obligations associated with the sale of our former Amines business in September 2006. Refer to the Pace discussion within Note 19, Commitments and Contingencies, to the consolidated financial statements for additional information. In fiscal year 2023, income from discontinued operations, net of tax, of $7.4 ($0.03 per share) primarily resulted from a net tax benefit recorded in the fourth quarter upon release of tax liabilities for uncertain tax positions taken with respect to the sale of our former Performance Materials Division ("PMD"), which was completed in 2017.

Net Income and Net Income Margin

Net income of $3.9 billion increased 65%, or $1.5 billion, and net income margin of 31.9% increased 1,330 bp from 18.6% in the prior year, in each case primarily due to the $1.2 billion after-tax gain recognized upon the sale of the LNG business at the end of the fourth quarter.

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $5.0 billion increased 7%, or $344.5, and adjusted EBITDA margin of 41.7% increased 440 bp from 37.3% in the prior year, primarily due to positive pricing, net of power and fuel costs, and favorable business mix, partially offset by labor inflation and higher planned maintenance costs. The on-site improvements reflected within favorable business mix were partially offset by lower merchant demand and recognition of higher project cost estimates related to our sale of equipment activities in fiscal year 2024. The higher costs for labor inflation and planned maintenance activities were offset by improved productivity resulting from strategic business and asset actions and lower costs for incentive compensation. While lower energy cost pass-through does not impact profit, it improved adjusted EBITDA margin by approximately 200 basis points.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. Refer to Note 24, Income Taxes, to the consolidated financial statements for details regarding factors affecting the effective tax rate.

Our effective tax rate was 19.6% and 19.1% for the fiscal years ended 30 September 2024 and 2023, respectively. Our current year effective tax rate was higher primarily due to the recognition of the $1,575.6 gain on the sale of our LNG business during the fourth quarter of fiscal year 2024. This gain increased our income from continuing operations before taxes, which diluted the impact of recurring effective tax rate reconciling items for fiscal year 2024. The gain was also recognized in jurisdictions with higher tax rates. Partially offsetting this increase were tax benefits unrelated to the sale of our LNG business, which included the release of certain unrecognized tax benefits upon expiration of the statute of limitations for uncertain tax positions taken in prior years, a tax benefit on the sale of a non-U.S. subsidiary, and a tax election for a non-U.S. subsidiary during fiscal year 2024.

Our adjusted effective tax rate, which excludes the impact of the gain on the sale of the LNG business as well as other adjustments described in the "Reconciliations of Non-GAAP Financial Measures" section, was 17.8% and 18.9% for the fiscal years ended 30 September 2024 and 2023, respectively. Our current year adjusted effective tax rate is lower primarily due to earning a greater share of income in jurisdictions with lower tax rates in addition to the tax benefits discussed above.

DISCUSSION OF RESULTS BY BUSINESS SEGMENT

Americas

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%/bp"],["Sales","$5,040.1","","$5,369.3","","","","($329.2)","","(6%)"],["Operating income","1,565.1","","1,439.7","","","","125.4","","9%"],["Operating margin","31.1","%","","26.8","%","","","","","430 bp"],["Equity affiliates\u2019 income","$158.8","","$109.2","","","","$49.6","45%"],["Adjusted EBITDA","2,423.2","","2,198.2","","","","225.0","","10%"],["Adjusted EBITDA margin","48.1","%","","40.9","%","","","","","720 bp"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Volume","1","%"],["Price","3","%"],["Energy cost pass-through to customers","(9","%)"],["Currency","(1","%)"],["Total Americas Sales Change","(6","%)"]]
[[/GREPCENT_TABLE]]

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Sales of $5.0 billion decreased 6%, or $329.2, due to lower energy cost pass-through to customers of 9% and an unfavorable currency impact of 1%, partially offset by higher pricing of 3% and higher volumes of 1%. The total segment pricing increase of 3% equates to a 6% improvement in our merchant business, where pricing was favorable across most product lines. Volumes improved modestly as higher hydrogen demand and a one-time asset sale associated with an early contract termination at the request of a customer were mostly offset by lower demand for merchant products.

Operating income of $1.6 billion increased 9%, or $125.4, due to positive pricing, net of lower power and fuel costs, of $145 and favorable business mix of $49, partially offset by higher costs of $61 and unfavorable currency of $8. Favorable business mix was attributable to the one-time asset sale as well as higher hydrogen demand. 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 31.1% increased 430 bp from 26.8% in the prior year primarily due to lower energy cost pass-through to customers and favorable pricing. Of the 430 bp operating margin improvement, lower energy cost pass-through to customers contributed approximately 250 bp.

Equity affiliates’ income of $158.8 increased 45%, or $49.6, due to higher income from an affiliate in Mexico as well as recognition of our share of income from a one-time asset sale.

Asia

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%/bp"],["Sales","$3,224.3","","$3,216.1","","","","$8.2","","\u2014%"],["Operating income","859.2","","906.5","","","","(47.3)","","(5%)"],["Operating margin","26.6","%","","28.2","%","","","","","(160 bp)"],["Equity affiliates\u2019 income","$32.9","","$29.7","","","","$3.2","11%"],["Adjusted EBITDA","1,363.1","","1,369.7","","","","(6.6)","","\u2014%"],["Adjusted EBITDA margin","42.3","%","","42.6","%","","","","","(30 bp)"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Volume","1","%"],["Price","\u2014","%"],["Energy cost pass-through to customers","1","%"],["Currency","(2","%)"],["Total Asia Sales Change","\u2014","%"]]
[[/GREPCENT_TABLE]]

Sales of $3.2 billion were flat as higher volumes of 1% and higher energy cost pass-through to customers of 1% were offset by unfavorable currency impacts of 2%. Higher volumes in our on-site business, including several new assets across the region, were offset by lower demand for merchant products. The unfavorable currency impact was primarily attributable to the strengthening of the U.S. Dollar against the Chinese Renminbi. Pricing was flat versus the prior year.

Operating income of $859.2 decreased 5%, or $47.3, primarily due to unfavorable mix of $22, an unfavorable currency impact of $21, and higher variable costs in our merchant business of $13, partially offset by favorable other costs of $12. Favorable other costs reflect lower distribution costs and strategic productivity actions that more than offset the impact of inflation. Operating margin of 26.6% decreased 160 bp from 28.2% in the prior year primarily due to unfavorable mix.

Equity affiliates’ income of $32.9 increased 11%, or $3.2, as higher income from affiliates in Thailand was partially offset by higher maintenance expense for one of our affiliates in China.

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Europe

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%/bp"],["Sales","$2,823.4","","$2,963.1","","","","($139.7)","","(5%)"],["Operating income","810.0","","663.4","","","","146.6","","22%"],["Operating margin","28.7","%","","22.4","%","","","","","630 bp"],["Equity affiliates\u2019 income","$88.1","","$102.5","","","","($14.4)","(14%)"],["Adjusted EBITDA","1,105.2","","962.1","","","","143.1","","15%"],["Adjusted EBITDA margin","39.1","%","","32.5","%","","","","","660 bp"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["Volume","1","%"],["Price","\u2014","%"],["Energy cost pass-through to customers","(8","%)"],["Currency","2","%"],["Total Europe Sales Change","(5","%)"]]
[[/GREPCENT_TABLE]]

Sales of $2.8 billion decreased 5%, or $139.7, due to lower energy cost pass-through to customers of 8%, partially offset by a favorable currency impact of 2% and higher volumes of 1%. The positive currency impact was primarily attributable 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. Pricing was flat versus the prior year.

Operating income of $810.0 increased 22%, or $146.6, due to favorable mix of $80, pricing, net of lower power and fuel costs, of $69, and a favorable impact from currency of $14, partially offset by higher costs of $16. Higher costs resulting from labor inflation were partially offset by strategic productivity actions. Operating margin of 28.7% increased 630 bp from 22.4% in the prior year due to favorable volumes and pricing as well as lower energy cost pass-through to customers. Of the 630 bp operating margin improvement, lower energy cost pass-through to customers contributed approximately 200 bp.

Equity affiliates’ income of $88.1 decreased 14%, or $14.4, driven by prior year non-recurring items for our affiliate in Italy.

Middle East and India

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%"],["Sales","$134.4","","","$162.5","","","","","($28.1)","","(17","%)"],["Operating income","5.9","","","16.9","","","","","(11.0)","","(65","%)"],["Equity affiliates\u2019 income","347.5","","","349.8","","","","","(2.3)","","(1","%)"],["Adjusted EBITDA","380.0","","","394.2","","","","","(14.2)","","(4","%)"]]
[[/GREPCENT_TABLE]]

Sales of $134.4 decreased 17%, or $28.1, and operating income of $5.9 decreased 65%, or $11.0, in each case primarily due to lower merchant volumes and pricing.

Equity affiliates' income of $347.5 decreased 1%, or $2.3, driven by higher costs for an affiliate in Saudi Arabia.

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Corporate and other

[[GREPCENT_TABLE]]
[["","","","","","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","","2023","","","","$","%"],["Sales","$878.4","","","$889.0","","","","($10.6)","","(1","%)"],["Operating loss","(292.7)","","","(287.3)","","","","(5.4)","","(2","%)"],["Equity affiliates' income","20.4","","","13.1","","","","7.3","","56","%"],["Adjusted EBITDA","(225.2)","","","(222.4)","","","","(2.8)","","(1","%)"]]
[[/GREPCENT_TABLE]]

Sales of $878.4 decreased 1%, or $10.6, and operating loss of $292.7 increased 2%, or $5.4, primarily due to lower equipment sales and higher project cost estimates. The lower profit contribution was partially offset by lower incentive compensation and strategic productivity actions.

As discussed above, we completed the sale of the LNG business on 30 September 2024. The LNG business generated operating income for this segment of approximately $135 and $120 in fiscal years 2024 and 2023, respectively.

Equity affiliates' income of $20.4 increased 56%, or $7.3, driven by higher contributions from an affiliate in Algeria.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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

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

In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude non-GAAP adjustments that we believe are not representative of our underlying business performance. For example, we exclude the impact of the non-service components of net periodic benefit/cost for our defined benefit pension plans. Non-service related components are recurring, non-operating items that include interest cost, expected returns on plan assets, prior service cost amortization, actuarial loss amortization, as well as special termination benefits, curtailments, and settlements. The net impact of non-service related components is reflected within “Other non-operating income (expense), net” on our consolidated income statements. Adjusting for the impact of non-service pension components provides management and users of our financial statements with a more accurate representation of our underlying business performance because these components are driven by factors that are unrelated to our operations, such as volatility in equity and debt markets. Further, non-service related components are not indicative of our defined benefit plans’ future contribution needs due to the funded status of the plans. We may also exclude certain expenses associated with cost reduction actions and impairment charges as well as gains on disclosed transactions, such as the sale of the LNG business. 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.

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

ADJUSTED DILUTED EPS

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

[[GREPCENT_TABLE]]
[["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","$4,466.1","","","$647.7","","($73.8)","","$944.9","","$3,842.1","","$17.24"],["2023 GAAP","2,494.6","","","604.3","","(39.0)","","551.2","","2,292.8","","10.30"],["$ Change GAAP","","","","","","","$6.94"],["% Change GAAP","","","","","","","67","%"],["2024 GAAP","$4,466.1","","","$647.7","","($73.8)","","$944.9","","$3,842.1","","$17.24"],["Gain on sale of business","(1,575.6)","","","\u2014","","\u2014","","(377.2)","","(1,198.4)","","(5.38)"],["Business and asset actions","57.0","","","\u2014","","\u2014","","13.2","","43.8","","0.20"],["Loss on de-designation of cash flow hedges(A)","\u2014","","","\u2014","","16.3","","1.4","","4.3","","0.02"],["Non-service pension cost, net","\u2014","","","\u2014","","102.0","","25.2","","76.8","","0.34"],["2024 Non-GAAP (\"Adjusted\")","$2,947.5","","","$647.7","","$44.5","","$607.5","","$2,768.6","","$12.43"],["2023 GAAP","$2,494.6","","","$604.3","","($39.0)","","$551.2","","$2,292.8","","$10.30"],["Business and asset actions(B)","244.6","","","\u2014","","\u2014","","34.7","","204.9","","0.92"],["Non-service pension cost, net","\u2014","","","\u2014","","86.8","","21.6","","65.2","","0.29"],["2023 Non-GAAP (\"Adjusted\")","$2,739.2","","","$604.3","","$47.8","","$607.5","","$2,562.9","","$11.51"],["$ Change Non-GAAP (\"Adjusted\")","","","","","","","$0.92"],["% Change Non-GAAP (\"Adjusted\")","","","","","","","8","%"],["(A ) Includes $10.6 attributable to noncontrolling interests."],["(B ) Includes $5.0 attributable to noncontrolling interests."]]
[[/GREPCENT_TABLE]]

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ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

We define adjusted EBITDA as net income less income or loss 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 tables below present 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:

[[GREPCENT_TABLE]]
[["","2024","","2023"],["","$","Margin","","$","Margin"],["Sales","$12,100.6","","","","$12,600.0"],["Net income and net income margin","$3,862.4","","31.9","%","","$2,338.6","","18.6","%"],["Less: (Loss) Income from discontinued operations, net of tax","(13.9)","","(0.1","%)","","7.4","","0.1","%"],["Add: Interest expense","218.8","","1.8","%","","177.5","","1.4","%"],["Less: Other non-operating income (expense), net","(73.8)","","(0.6","%)","","(39.0)","","(0.3","%)"],["Add: Income tax provision","944.9","","7.8","%","","551.2","","4.4","%"],["Add: Depreciation and amortization","1,451.1","","12.0","%","","1,358.3","","10.8","%"],["Less: Gain on sale of business","1,575.6","","13.0","%","","\u2014","","\u2014","%"],["Add: Business and asset actions","57.0","","0.5","%","","244.6","","1.9","%"],["Adjusted EBITDA and adjusted EBITDA margin","$5,046.3","","41.7","%","","$4,701.8","","37.3","%"],["","2024vs. 2023"],["Change GAAP"],["Net income $ change","$1,523.8"],["Net income % change","65%"],["Net income margin change","1,330 bp"],["Change Non-GAAP"],["Adjusted EBITDA $ change","$344.5"],["Adjusted EBITDA % change","7%"],["Adjusted EBITDA margin change","440 bp"]]
[[/GREPCENT_TABLE]]

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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 fiscal years ended 30 September 2024 and 2023:

Americas

[[GREPCENT_TABLE]]
[["","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","2023","","","$","%/bp"],["Sales","$5,040.1","","$5,369.3","","","","($329.2)","","(6","%)"],["Operating income","1,565.1","","1,439.7","","","","125.4","","9","%"],["Operating margin","31.1","%","26.8","%","","","","430","bp"],["Reconciliation of GAAP to Non-GAAP:"],["Operating income","$1,565.1","","$1,439.7"],["Add: Depreciation and amortization","699.3","","649.3"],["Add: Equity affiliates' income","158.8","","109.2"],["Adjusted EBITDA","$2,423.2","","$2,198.2","","","","$225.0","","10","%"],["Adjusted EBITDA margin","48.1","%","40.9","%","","","","720","bp"]]
[[/GREPCENT_TABLE]]

Asia

[[GREPCENT_TABLE]]
[["","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","2023","","","$","%/bp"],["Sales","$3,224.3","","$3,216.1","","","","$8.2","","\u2014","%"],["Operating income","859.2","","906.5","","","","(47.3)","","(5","%)"],["Operating margin","26.6","%","28.2","%","","","","(160)","bp"],["Reconciliation of GAAP to Non-GAAP:"],["Operating income","$859.2","","$906.5"],["Add: Depreciation and amortization","471.0","","433.5"],["Add: Equity affiliates' income","32.9","","29.7"],["Adjusted EBITDA","$1,363.1","","$1,369.7","","","","($6.6)","","\u2014","%"],["Adjusted EBITDA margin","42.3","%","42.6","%","","","","(30)","bp"]]
[[/GREPCENT_TABLE]]

Europe

[[GREPCENT_TABLE]]
[["","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","2023","","","$","%/bp"],["Sales","$2,823.4","","$2,963.1","","","","($139.7)","","(5","%)"],["Operating income","810.0","","663.4","","","","146.6","","22","%"],["Operating margin","28.7","%","22.4","%","","","","630","bp"],["Reconciliation of GAAP to Non-GAAP:"],["Operating income","$810.0","","$663.4"],["Add: Depreciation and amortization","207.1","","196.2"],["Add: Equity affiliates' income","88.1","","102.5"],["Adjusted EBITDA","$1,105.2","","$962.1","","","","$143.1","","15","%"],["Adjusted EBITDA margin","39.1","%","32.5","%","","","","660","bp"]]
[[/GREPCENT_TABLE]]

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Middle East and India

[[GREPCENT_TABLE]]
[["","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","2023","","","$","%/bp"],["Sales","$134.4","","$162.5","","","","($28.1)","","(17","%)"],["Operating income","5.9","","16.9","","","","(11.0)","","(65","%)"],["Reconciliation of GAAP to Non-GAAP:"],["Operating income","$5.9","","$16.9"],["Add: Depreciation and amortization","26.6","","27.5"],["Add: Equity affiliates' income","347.5","","349.8"],["Adjusted EBITDA","$380.0","","$394.2","","","","($14.2)","","(4","%)"]]
[[/GREPCENT_TABLE]]

Corporate and other

[[GREPCENT_TABLE]]
[["","","","Change vs. Prior Year"],["Fiscal Year Ended 30 September","2024","2023","","","$","%/bp"],["Sales","$878.4","","$889.0","","","","($10.6)","","(1","%)"],["Operating loss","(292.7)","","(287.3)","","","","(5.4)","","(2","%)"],["Reconciliation of GAAP to Non-GAAP:"],["Operating loss","($292.7)","","($287.3)"],["Add: Depreciation and amortization","47.1","","51.8"],["Add: Equity affiliates' income","20.4","","13.1"],["Adjusted EBITDA","($225.2)","","($222.4)","","","","($2.8)","","(1","%)"]]
[[/GREPCENT_TABLE]]

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ADJUSTED EFFECTIVE TAX RATE

The effective tax rate equals the income tax provision divided by income from continuing operations 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:

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023"],["Income tax provision","$944.9","","$551.2"],["Income from continuing operations before taxes","4,821.2","","2,882.4"],["Effective tax rate","19.6","%","19.1","%"],["Income tax provision","$944.9","","$551.2"],["Adjustments for tax impacts on disclosed items:"],["Gain on sale of business","(377.2)","","\u2014"],["Business and asset actions","13.2","","34.7"],["Loss on de-designation of cash flow hedges","1.4","","\u2014"],["Non-service pension cost, net","25.2","","21.6"],["Adjusted income tax provision","$607.5","","$607.5"],["Income from continuing operations before taxes","$4,821.2","","$2,882.4"],["Adjustments for pre-tax impacts of disclosed items:"],["Gain on sale of business","(1,575.6)","","\u2014"],["Business and asset actions","57.0","","244.6"],["Loss on de-designation of cash flow hedges","16.3","","\u2014"],["Non-service pension cost, net","102.0","","86.8"],["Adjusted income from continuing operations before taxes","$3,420.9","","$3,213.8"],["Adjusted effective tax rate","17.8","%","18.9","%"]]
[[/GREPCENT_TABLE]]

CAPITAL EXPENDITURES

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

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

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","","2024","2023"],["Cash used for investing activities","","$4,919.2","","$5,916.4"],["Proceeds from sale of assets and investments","","1,878.8","","25.4"],["Purchases of investments","","(141.4)","","(640.1)"],["Proceeds from investments","","470.7","","897.0"],["Other investing activities","","72.4","","4.8"],["NGHC expenditures not funded by Air Products' equity(A)","","(2,047.7)","","(979.1)"],["Capital expenditures","","$5,152.0","","$5,224.4"]]
[[/GREPCENT_TABLE]]

(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.

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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 30 September 2024, we had $1,571.3 of foreign cash and cash items compared to total cash and cash items of $2,979.7. 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

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023"],["Net income from continuing operations attributable to Air Products","$3,842.1","","$2,292.8"],["Adjustments to reconcile income to cash provided by operating activities:"],["Depreciation and amortization","1,451.1","","1,358.3"],["Deferred income taxes","(69.3)","","(24.7)"],["Gain on sale of business","(1,575.6)","","\u2014"],["Business and asset actions","57.0","","244.6"],["Undistributed earnings of equity method investments","(206.0)","","(261.2)"],["Gain on sale of assets and investments","(31.4)","","(15.8)"],["Share-based compensation","61.8","","59.9"],["Noncurrent lease receivables","116.2","","79.6"],["Other adjustments","183.8","","(103.0)"],["Working capital changes that provided (used) cash, excluding effects of acquisitions:"],["Trade receivables","(111.0)","","130.7"],["Inventories","(137.8)","","(129.4)"],["Other receivables","34.4","","(93.8)"],["Payables and accrued liabilities","(338.7)","","(213.3)"],["Other working capital","370.1","","(119.0)"],["Cash Provided by Operating Activities","$3,646.7","","$3,205.7"]]
[[/GREPCENT_TABLE]]

In fiscal year 2024, cash provided by operating activities was $3,646.7. Gain on sale of business of $1,575.6 related to the sale of the LNG business. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information. Business and asset actions of $57.0 included an expense recognized for severance and other benefits related to a global cost reduction plan. Refer to Note 5, Business and Asset Actions, to the consolidated financial statements for additional information. Other operating adjustments of $183.8 primarily included pension expense, net of contributions, of $89.1. Working capital accounts resulted in a net use of cash of $183.0. The use of cash of $338.7 within payables and accrued liabilities primarily resulted from a reduction of customer advances for sale of equipment projects as we recognize revenue, payments against severance actions, and payments for incentive compensation under the fiscal year 2023 plan. Inventories resulted in a use of cash of $137.8 primarily due to purchases of helium. The use of cash of $111.0 from trade receivables was primarily attributable to the timing of collections. The source of cash of $370.1 within other working capital was primarily driven by the timing of income tax payments associated with the sale of the LNG business. We expect to remit all tax payments associated with this transaction in the first half of fiscal year 2025.

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In fiscal year 2023, cash provided by operating activities was $3,205.7. Business and asset actions of $244.6 included noncash charges to write off assets related to our exit from certain projects previously under construction as well as an expense for severance and other benefits. Refer to Note 5, Business and Asset Actions, to the consolidated financial statements for additional information. The impacts associated with our operating leases are reflected within "Other adjustments," which included a lump-sum payment of $209 for a land lease associated with the NGHC joint venture. Working capital accounts resulted in a net use of cash of $424.8. The use of cash of $213.3 within payables and accrued liabilities primarily resulted from lower prices for the purchase of natural gas, a decrease in value of derivatives that hedge intercompany loans, and payments for incentive compensation under the fiscal year 2022 plan. Inventories resulted in a use of cash of $129.4 primarily due to additional packaged gases inventory, including helium. The use of cash of $119.0 within other working capital was primarily driven by the timing of income tax payments. The source of cash of $130.7 from trade receivables was primarily attributable to collection of higher natural gas costs contractually passed through to on-site customers.

Cash Flows From Investing Activities

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023"],["Additions to plant and equipment, including long-term deposits","($6,796.7)","","($4,626.4)"],["Investment in and advances to unconsolidated affiliates","\u2014","","(912.0)"],["Investment in financing receivables","(403.0)","","(665.1)"],["Proceeds from sale of assets and investments","1,878.8","","25.4"],["Purchases of investments","(141.4)","","(640.1)"],["Proceeds from investments","470.7","","897.0"],["Other investing activities","72.4","","4.8"],["Cash Used for Investing Activities","($4,919.2)","","($5,916.4)"]]
[[/GREPCENT_TABLE]]

In fiscal year 2024, cash used for investing activities was $4,919.2. The use of cash primarily resulted from capital expenditures of $6,796.7 for additions to plant and equipment, including long-term deposits, and investments in financing receivables of $403.0. Refer to the Capital Expenditures section below for further detail. Proceeds from sale of assets and investments of $1,878.8 primarily related to the sale of the LNG business. Refer to Note 4, Gain on Sale of Business, to the consolidated financial statements for additional information. Maturities of time deposits provided cash of $470.7, which exceeded purchases of time deposits of $141.4.

In fiscal year 2023, cash used for investing activities was $5,916.4. The use of cash primarily resulted from capital expenditures of $4,626.4 for additions to plant and equipment, including long-term deposits, investments in and advances to unconsolidated affiliates of $912.0, and investments in financing receivables of $665.1. Refer to the "Capital Expenditures" section below for further detail. Maturities of time deposits and short-term treasury securities provided cash of $897.0, which exceeded purchases of investments of $640.1.

Capital Expenditures

The components of our capital expenditures are detailed in the table below. Refer to page 42 for a definition of this non-GAAP measure as well as a reconciliation to cash used for investing activities.

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023"],["Additions to plant and equipment, including long-term deposits","$6,796.7","","$4,626.4"],["Investment in and advances to unconsolidated affiliates(A)","\u2014","","912.0"],["Investment in financing receivables","403.0","","665.1"],["NGHC expenditures not funded by Air Products' equity(B)","(2,047.7)","","(979.1)"],["Capital Expenditures","$5,152.0","","$5,224.4"]]
[[/GREPCENT_TABLE]]

(A)Includes contributions from noncontrolling partners in consolidated subsidiaries as discussed below.

(B)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.

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Capital expenditures in fiscal year 2024 totaled $5,152.0 compared to $5,224.4 in fiscal year 2023. 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 continued to invest capital in our core industrial gas business for new industrial gas plants as well as maintaining and replacing existing facilities. We did not recognize any investments in and advances to unconsolidated affiliates during fiscal year 2024; however, we expect to complete our remaining investment of approximately $115 associated with our investment in JIGPC in fiscal year 2025. Refer to Note 10, Equity Affiliates, to the consolidated financial statements for additional information. The investment in financing receivables of $403.0 primarily reflects payments associated with the purchase of renewable fuel assets from World Energy as well as remaining payments on the purchase of a natural gas-to-syngas processing facility in Uzbekistan. Refer to Note 3, Variable Interest Entities and to Note 6, Acquisition, to the consolidated financial statements 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 to be approximately $4.5 billion to $5.0 billion, which is driven by additional spending for our clean energy projects that are currently under construction as well as ongoing maintenance capital spending in our core industrial gases business. 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

[[GREPCENT_TABLE]]
[["Fiscal Year Ended 30 September","2024","2023"],["Long-term debt proceeds","$4,678.3","","$3,516.2"],["Payments on long-term debt","(486.2)","","(615.4)"],["Net (decrease) increase in commercial paper and short-term borrowings","(289.9)","","268.2"],["Dividends paid to shareholders","(1,564.9)","","(1,496.6)"],["Proceeds from stock option exercises","7.9","","24.0"],["Investments by noncontrolling interests","428.5","","234.9"],["Distributions to noncontrolling interests","(25.8)","","(115.9)"],["Other financing activities","(132.5)","","(205.8)"],["Cash Provided by Financing Activities","$2,615.4","","$1,609.6"]]
[[/GREPCENT_TABLE]]

In fiscal year 2024, cash provided by financing activities was $2,615.4. The source of cash was primarily driven by long-term debt proceeds of $4,678.3 as well as an increase in investments by noncontrolling interests of $428.5. Sources were partially offset by dividend payments to shareholders of $1,564.9, payments on long-term debt of $486.2 and net decreases in commercial paper and short-term borrowings of $289.9.

Long-term debt proceeds included $2.5 billion from green senior notes issued during the second quarter in U.S. Dollar-denominated fixed-rate note offerings. Consistent with our Green Finance Framework, we have allocated the net proceeds to finance or refinance, in whole or in part, existing or future projects that are expected to have environmental benefits, including those related to pollution prevention and control, renewable energy generation and procurement, and sustainable aviation fuel. Additionally, as further discussed below, the NGHC joint venture borrowed approximately $2.0 billion. These proceeds were partially offset by financing fees of approximately $112.0, which are reflected within "Other financing activities". Refer to the Credit Facilities section below as well as Note 17, Debt, to the consolidated financial statements for additional information.

In fiscal year 2023, cash provided by financing activities was $1,609.6. The source of cash was primarily attributable to long-term debt proceeds of $3,516.2 as well as an increase in commercial paper and short-term borrowings of $268.2. These cash inflows were partially offset by dividend payments to shareholders of $1,496.6 and payments on long-term debt of $615.4.

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Financing and Capital Structure

Total debt increased from $10,305.8 as of 30 September 2023 to $14,227.9 as of 30 September 2024, primarily due to the issuance of green U.S. Dollar-denominated fixed-rate notes as well as additional borrowings from the non-recourse project financing available to the NGHC joint venture for construction of the NEOM Green Hydrogen project. Total debt includes related party debt of $304.4 and $328.3 as of 30 September 2024 and 30 September 2023, respectively.

Various debt agreements to which we are a party include financial covenants and other restrictions, including restrictions pertaining to the ability to create property liens and enter into certain sale and leaseback transactions. As of 30 September 2024, we were in compliance with all of the financial and other covenants under our debt agreements.

2024 Credit Agreements

In March 2024, we entered into 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 $500.0 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. The 2024 Five-Year Credit Agreement replaced our previous $2.75 billion revolving credit agreement (the “2021 Credit Agreement”), which was terminated upon execution of the 2024 Five-Year Credit Agreement. No borrowings were outstanding under the 2021 Credit Agreement at the time of its termination, and no early termination penalties were incurred. No borrowings were outstanding under either of the 2024 Credit Agreements as of 30 September 2024.

Foreign Credit Facilities

We also have credit facilities available to certain of our foreign subsidiaries totaling $1,223.9, of which $1,129.0 was borrowed and outstanding as of 30 September 2024. The amount borrowed and outstanding as of 30 September 2023 was $1,041.4.

NEOM Green Hydrogen Project Financing

In May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $500 primarily for working capital needs. As of 30 September 2024 and 2023, the joint venture had drawn principal amounts of approximately $3.3 billion and $1.4 billion, respectively, from the available financing. 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. In fiscal year 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing a 1% increase, or $0.02 per share, from the previous dividend of $1.75 per share. We expect to continue increasing our quarterly dividend as we have done for the last 42 consecutive years.

Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. On 18 July 2024, the Board of Directors declared a quarterly dividend of $1.77 per share that was payable on 12 November 2024 to shareholders of record at the close of business on 1 October 2024. 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.

Discontinued Operations

In fiscal year 2023, cash provided by operating activities of discontinued operations was $0.6.

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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 18, 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 for the fiscal years ended 30 September:

[[GREPCENT_TABLE]]
[["","2024","2023"],["Service cost","$20.9","","$23.2"],["Non-service related costs","102.0","","86.8"],["Other","0.9","","0.9"],["Net Periodic Cost","$123.8","","$110.9"]]
[[/GREPCENT_TABLE]]

Net periodic cost was $123.8 and $110.9 in fiscal years 2024 and 2023, respectively. The increased costs from the prior year were primarily attributable to non-service related 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. The net impact of non-service related items 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 fiscal years 2024 and 2023 was not material.

The table below summarizes the assumptions used in the calculation of net periodic cost for the fiscal years ended 30 September:

[[GREPCENT_TABLE]]
[["","2024","2023"],["Weighted average discount rate \u2013 Service cost","5.6","%","5.1","%"],["Weighted average discount rate \u2013 Interest cost","5.7","%","5.3","%"],["Weighted average expected rate of return on plan assets","5.3","%","5.3","%"],["Weighted average expected rate of compensation increase","3.5","%","3.5","%"]]
[[/GREPCENT_TABLE]]

2025 Outlook

In fiscal year 2025, we expect to recognize pension expense of approximately $60 to $70 primarily driven by approximately $40 to $50 of non-service related costs, including 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.

In fiscal year 2024, we recognized net actuarial gains of $44.6 in other comprehensive income. Actuarial gains and losses are amortized into pension expense over prospective periods to the extent they are not offset by future gains or losses. Future changes in the discount rate and actual returns on plan assets could impact the actuarial gain or loss and resulting amortization in years beyond fiscal year 2025.

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Pension Funding

Funded Status

The projected benefit obligation represents the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future salary increases. The plan funded status is calculated as the difference between the projected benefit obligation and the fair value of plan assets at the end of the period.

The table below summarizes the projected benefit obligation, the fair value of plan assets, and the funded status for our U.S. and international plans as of 30 September:

[[GREPCENT_TABLE]]
[["","2024","2023"],["Projected benefit obligation","$3,951.8","","$3,511.2"],["Fair value of plan assets at end of year","3,907.5","","3,433.0"],["Plan Funded Status","($44.3)","","($78.2)"]]
[[/GREPCENT_TABLE]]

The net unfunded liability of $44.3 as of 30 September 2024 decreased $33.9 from $78.2 as of 30 September 2023, as actual return on plan assets was greater than increases to the projected benefit obligation from actuarial losses due to lower discount rates as well as the interest cost component of the net periodic pension cost.

Company Contributions

Pension funding includes both contributions to funded plans and benefit payments for unfunded plans, which are primarily non-qualified plans. With respect to funded plans, our funding policy is that contributions, combined with appreciation and earnings, will be sufficient to pay benefits without creating unnecessary surpluses.

In addition, we make contributions to satisfy all legal funding requirements while managing our capacity to benefit from tax deductions attributable to plan contributions. With the assistance of third-party actuaries, we analyze the liabilities and demographics of each plan, which help guide the level of contributions. During fiscal years 2024 and 2023, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $34.7 and $32.6, respectively.

For fiscal year 2025, cash contributions to defined benefit plans are estimated to be $30 to $40. The estimate is based on expected contributions to certain international plans and anticipated benefit payments for unfunded plans, which are dependent upon the timing of retirements. Actual future contributions will depend on future funding legislation, discount rates, investment performance, plan design, and various other factors.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 2, New Accounting Guidance, to the consolidated financial statements for a description of our major accounting policies and information concerning implementation and impact of new accounting guidance.

The accounting policies discussed below are those policies that we consider to be the most critical to understanding our financial statements because they require management's most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effects of matters that are inherently uncertain. 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. Our management has reviewed these critical accounting policies and estimates and related disclosures with the Audit and Finance Committee of our Board of Directors.

Depreciable Lives of Plant and Equipment

Plant and equipment, net as of 30 September 2024 totaled $23,370.9, and depreciation expense totaled $1,419.6 during fiscal year 2024. Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal amounts of the cost of each asset from earnings every year over its estimated economic useful life. Economic useful life is the duration of time an asset is expected to be productively employed by us, which may be less than its physical life. Assumptions on the following factors, among others, affect the determination of estimated economic useful life: wear and tear, obsolescence, technical standards, contract life, market demand, competitive position, raw material availability, and geographic location.

The estimated economic useful life of an asset is monitored to determine its appropriateness, especially when business circumstances change. For example, changes in technology, changes in the estimated future demand for products, excessive wear and tear, or unanticipated government actions may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.

Our regional industrial gas segments have numerous long-term customer supply contracts for which we construct an on-site plant on or near the customer’s facility. These contracts typically have initial contract terms of 10 to 20 years. Depreciable lives of the production assets related to long-term supply contracts are generally matched to the contract lives. Extensions to the contract term of supply frequently occur prior to the expiration of the initial term. As contract terms are extended, the depreciable life of the associated production assets is adjusted to match the new contract term, as long as it does not exceed the remaining physical life of the asset.

Our regional industrial gas segments also have contracts for liquid or gaseous bulk supply and, for smaller customers, packaged gases. The depreciable lives of production facilities associated with these contracts are generally 15 years. These depreciable lives have been determined based on historical experience combined with judgment on future assumptions such as technological advances, potential obsolescence, and competitors’ actions.

In addition, we may purchase assets through transactions accounted for as either an asset acquisition or a business combination. Depreciable lives are assigned to acquired assets based on the age and condition of the assets, the remaining duration of long-term supply contracts served by the assets, and our historical experience with similar assets. Management monitors its assumptions and may potentially need to adjust depreciable life as circumstances change.

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Impairment of Assets

There were no triggering events in fiscal year 2024 that would require impairment testing for any of our asset groups, reporting units that contain goodwill, or indefinite-lived intangibles assets. We completed our annual impairment tests for goodwill and other indefinite-lived intangible assets and concluded there were no indications of impairment. Refer to the “Impairment of Assets” subsections below for additional detail.

Impairment of Assets: Plant and Equipment

Plant and equipment meeting the held for sale criteria are reported at the lower of carrying amount or fair value less cost to sell. Plant and equipment to be disposed of other than by sale may be reviewed for impairment upon the occurrence of certain triggering events, such as unexpected contract terminations or unexpected foreign government-imposed restrictions or expropriations. Plant and equipment held for use is grouped for impairment testing at the lowest level for which there is identifiable cash flows. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such circumstances may include:

•a significant decrease in the market value of a long-lived asset grouping;

•a significant adverse change in the manner in which the asset grouping is being used or in its physical condition;

•an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the long-lived asset;

•a reduction in revenues that is other than temporary;

•a history of operating or cash flow losses associated with the use of the asset grouping; or

•changes in the expected useful life of the long-lived assets.

If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset group is compared to the carrying value to determine whether impairment exists. If an asset group is determined to be impaired, the loss is measured based on the difference between the asset group’s fair value and its carrying value. An estimate of the asset group’s fair value is based on the discounted value of its estimated cash flows.

The assumptions underlying the undiscounted future cash flow projections require significant management judgment. Factors that management must estimate include but are not limited to industry and market conditions, sales volume and prices, costs to produce, and inflation. The assumptions underlying the cash flow projections represent management’s best estimates at the time of the impairment review and could include probability weighting of cash flow projections associated with multiple potential future scenarios. Changes in key assumptions or actual conditions that differ from estimates could result in an impairment charge. We use reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.

In fiscal year 2024, there was no need to test for impairment on any of our asset groupings as no events or changes in circumstances indicated that the carrying amount of our asset groupings may not be recoverable.

Impairment of Assets: Goodwill

The acquisition method of accounting for business combinations requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the aggregate purchase price, plus the fair value of any noncontrolling interest and previously held equity interest in the acquiree, over the fair value of identifiable net assets of an acquired entity. Goodwill, net was $905.1 as of 30 September 2024. Disclosures related to goodwill are included in Note 12, Goodwill, to the consolidated financial statements.

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. The tests are done at the reporting unit level, which is defined as being equal to or one level below the operating segment for which discrete financial information is available and whose operating results are reviewed by segment managers regularly. At the time of our fiscal year 2024 testing, we had five reportable business segments, seven operating segments and 11 reporting units, eight of which included a goodwill balance. Refer to Note 26, Business Segment and Geographic Information, for additional information. Reporting units are primarily based on products and subregions within each reportable segment. The majority of our goodwill is assigned to reporting units within our regional industrial gases segments.

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As part of annual goodwill impairment testing, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Our evaluation of qualitative factors includes an assessment of relevant facts, events, and circumstances of a reporting unit including but not limited to: business performance, strategy, and outlook; macroeconomic conditions; local market dynamics; cost management; and significant changes in key personnel, customers, operating assets, or product mix. We perform a quantitative test when qualitative factors alone are not sufficient to conclude whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If we perform a quantitative test, an impairment loss will only be recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

In the fourth quarter of fiscal year 2024, we conducted our annual assessment and concluded that it was more likely than not that the fair value of each reporting unit was greater than its carrying value.

Impairment of Assets: Intangible Assets

Disclosures related to intangible assets other than goodwill are included in Note 13, Intangible Assets, to the consolidated financial statements.

Intangible assets, net with determinable lives as of 30 September 2024 totaled $275.3 and consisted primarily of customer relationships, purchased patents and technology, and land use rights. These intangible assets are tested for impairment as part of the long-lived asset grouping impairment tests. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. See the impairment discussion above under "Impairment of Assets – Plant and Equipment" for a description of how impairment losses are determined.

Indefinite-lived intangible assets as of 30 September 2024 totaled $36.3 and consisted of trade names and trademarks. Indefinite-lived intangibles are subject to impairment testing at least annually or more frequently if events or changes in circumstances indicate that potential impairment exists. As part of annual indefinite-lived intangible asset impairment testing, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of the intangible asset is less than its carrying value. Our evaluation of qualitative factors includes an assessment of relevant facts, events, and circumstances including but not limited to: business performance, strategy and outlook; macroeconomic conditions; local market dynamics; cost management; and significant changes in key personnel, customers, operating assets, or product mix. We perform a quantitative test when qualitative factors alone are not sufficient to conclude whether it is more likely than not that the fair value of the intangible asset is less than its carrying value. If we perform a quantitative test, an impairment loss will only be recognized for the amount by which the carrying value of the indefinite-lived intangible asset exceeds its fair value, not to exceed the total carrying value of the asset.

In the fourth quarter of fiscal year 2024, we conducted our annual assessment and concluded that it was more likely than not that the fair value of each asset was greater than its carrying value.

Impairment of Assets: Equity Method Investments

Investments in and advances to equity affiliates totaled $4,792.5 as of 30 September 2024. The majority of our equity method investments are ventures with other industrial gas companies. Summarized financial information of our equity affiliates is included in Note 10, Equity Affiliates, to the consolidated financial statements.

We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in fair value below the carrying value of an investment occurs. We estimate the fair value of our investments under the income approach, which considers the estimated discounted future cash flows expected to be generated by the investee, and/or the market approach, which considers market multiples of revenue and earnings derived from comparable publicly-traded industrial gas companies. Changes in key assumptions about the financial condition of an investee or actual conditions that differ from estimates could result in an impairment charge.

In fiscal year 2024, there was no need to test any of our equity method investments for impairment as no events or changes in circumstances indicated that the carrying amount of the investments may not be recoverable.

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Revenue Recognition: Cost Incurred Input Method

Revenue from sale of equipment contracts is generally recognized over time as we have an enforceable right to payment for performance completed to date and our performance under the contract terms does not create an asset with alternative use. We use a cost incurred input method to recognize revenue by which costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer.

Accounting for contracts using the cost incurred input method requires management judgment relative to assessing risks and their impact on the estimates of revenues and costs. Our estimates are impacted by factors such as the potential for incentives or penalties on performance, schedule delays, technical issues, cost inflation, labor productivity, the complexity of work performed, the availability of materials, and performance of subcontractors. When adjustments in estimated total contract revenues or estimated total costs are required, any changes in the estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of such change. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be earned, a provision for the entire estimated loss on the contract is recorded in the period in which the loss is determined.

In addition to the typical risks associated with underlying performance of engineering, project procurement, and construction activities, our sale of equipment projects within our Corporate and other segment require monitoring of risks associated with schedule, geography, and other aspects of the contract and their effects on our estimates of total revenues and total costs to complete the contract.

Changes in estimates on projects accounted for under the cost incurred input method unfavorably impacted operating income by approximately $175 in fiscal year 2024 and $115 in fiscal year 2023.

We assess the performance of our sale of equipment projects as they progress. Our earnings could be positively or negatively impacted by changes to our contractual revenues and cost forecasts on these projects.

Revenue Recognition: On-site Customer Contracts

For customers who require large volumes of gases on a long-term basis, we produce and supply gases under long-term contracts from large facilities that we build, own, and operate on or near the customer’s facilities. Certain of these on-site contracts contain complex terms and provisions regarding tolling arrangements, minimum payment requirements, variable components, pricing provisions, and amendments, which require significant judgment to determine the amount and timing of revenue recognition.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities measured using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As of 30 September 2024, accrued income taxes, including the amount recorded as noncurrent, were $619.3, and our net deferred income tax liability was $1,032.1. Tax liabilities related to uncertain tax positions as of 30 September 2024 were $101.0, excluding interest and penalties. Income tax expense for the fiscal year ended 30 September 2024 was $944.9.

Management judgment is required concerning the ultimate outcome of tax contingencies and the realization of deferred tax assets.

Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We believe that our recorded tax liabilities adequately provide for these assessments.

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Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when we do not expect sufficient sources of future taxable income to realize the benefit of the operating losses or tax credit carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation allowance is reported in income tax expense.

A 1% increase or decrease in our effective tax rate may result in a decrease or increase to net income, respectively, of approximately $48.

Disclosures related to income taxes are included in Note 24, Income Taxes, to the consolidated financial statements.

Pension and Other Postretirement Benefits

The amounts recognized in the consolidated financial statements for pension and other postretirement benefits are determined on an actuarial basis utilizing numerous assumptions. The discussion that follows provides information on the significant assumptions, expense, and obligations associated with the defined benefit plans.

Actuarial models are used in calculating the expense and liability related to the various defined benefit plans. These models have an underlying assumption that the employees render service over their service lives on a relatively consistent basis; therefore, the expense of benefits earned should follow a similar pattern.

Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans. We determine assumptions about the discount rate, the expected rate of return on plan assets, and the rate of compensation increase. Note 18, Retirement Benefits, to the consolidated financial statements includes disclosure of these rates on a weighted-average basis for both the U.S. and international plans. The actuarial models also use assumptions about demographic factors such as retirement age, mortality, and turnover rates. Mortality rates are based on the most recent U.S. and international mortality tables. We believe the actuarial assumptions are reasonable. However, actual results could vary materially from these actuarial assumptions due to economic events and differences in rates of retirement, mortality, and turnover.

One of the assumptions used in the actuarial models is the discount rate used to measure benefit obligations. This rate reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding to the expected timing of benefit payments as of the annual measurement date for each of the various plans. We measure the service cost and interest cost components of pension expense by applying spot rates along the yield curve to the relevant projected cash flows. The rates along the yield curve are used to discount the future cash flows of benefit obligations back to the measurement date. These rates change from year to year based on market conditions that affect corporate bond yields. A higher discount rate decreases the present value of the benefit obligations and results in lower pension expense. With respect to impacts on pension benefit obligations, a 50 bp increase or decrease in the discount rate may result in a decrease or increase, respectively, to pension expense of approximately $13 per year.

The expected rate of return on plan assets represents an estimate of the long-term average rate of return to be earned by plan assets reflecting current asset allocations. In determining estimated asset class returns, we take into account historical and future expected long-term returns and the value of active management, as well as the interest rate environment. Asset allocation is determined based on long-term return, volatility and correlation characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Lower returns on the plan assets result in higher pension expense. A 50 bp increase or decrease in the estimated rate of return on plan assets may result in a decrease or increase, respectively, to pension expense of approximately $16 per year.

We use a market-related valuation method for recognizing certain investment gains or losses for our significant pension plans. Investment gains or losses are the difference between the expected return and actual return on plan assets. The expected return on plan assets is determined based on a market-related value of plan assets. This is a calculated value that recognizes investment gains and losses on equities over a five-year period from the year in which they occur and reduces year-to-year volatility. The market-related value for non-equity investments equals the actual fair value. Expense in future periods will be impacted as gains or losses are recognized in the market-related value of assets.

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The expected rate of compensation increase is another key assumption. We determine this rate based on review of the underlying long-term salary increase trend characteristic of labor markets and historical experience, as well as comparison to peer companies. A 50 bp increase or decrease in the expected rate of compensation may result in an increase or decrease to pension expense, respectively, of approximately $4 per year.

Loss Contingencies

In the normal course of business, we encounter contingencies, or situations involving varying degrees of uncertainty as to the outcome and effect on our company. We accrue a liability for loss contingencies when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.

Contingencies include those associated with litigation and environmental matters, for which our accounting policy is discussed in Note 1, Basis of Presentation and Major Accounting Policies, to the consolidated financial statements, and details are provided in Note 19, Commitments and Contingencies, to the consolidated financial statements. Significant judgment is required to determine both the probability and whether the amount of loss associated with a contingency can be reasonably estimated. These determinations are made based on the best available information at the time. As additional information becomes available, we reassess probability and estimates of loss contingencies. Revisions to the estimates associated with loss contingencies could have a significant impact on our results of operations in the period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the inherent uncertainties related to environmental exposures, a significant increase to environmental liabilities could occur if a new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or our proportionate share of the liability increases. Similarly, a future charge for regulatory fines or damage awards associated with litigation could have a significant impact on our net income in the period in which it is recorded.