Air Products Chemicals Inc
For the period ended Mar 31, 2024. Filed Apr 30, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed Apr 30, 2024
APD$304.84-1.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-12-31; filed 2024-02-05.
0000002969-24-000010
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsFirst Quarter 2024 in SummaryFirst Quarter 2024 Results of OperationsReconciliations of Non-GAAP Financial MeasuresLiquidity and Capital ResourcesPension BenefitsCritical Accounting Policies and EstimatesCurrent report: 10-Q
Period ended 2024-03-31; filed 2024-04-30.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsSecond Quarter 2024 in SummarySecond Quarter 2024 Results of OperationsFirst Six Months 2024 in SummaryFirst Six Months 2024 Results of OperationsReconciliations of Non-GAAP Financial MeasuresLiquidity and Capital ResourcesPension BenefitsCritical Accounting Policies and EstimatesThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 140 previous paragraphs and 195 current paragraphs.
67 unchanged; 37 reworded; 78 added; 34 removed; 2 previous and 13 current paragraphs rearranged.
Tables are not compared: 28 previous and 42 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (78)
Current report
SECOND QUARTER 2024 VS. SECOND QUARTER 2023
Current report
•Sales of $2,930.2 decreased 8%, or $269.9, as lower energy cost pass-through to customers of 6%, lower volumes of 2%, and an unfavorable impact from currency of 1% were partially offset by higher pricing of 1%.
Current report
•Operating income of $637.2 increased 39%, or $177.4, as lower costs and positive pricing were partially offset by lower volumes and unfavorable currency impacts. Operating margin of 21.7% increased 730 basis points ("bp") due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Current report
•Equity affiliates' income of $143.3 decreased 14%, or $22.6, as lower contributions from affiliates in our Europe and Middle East and India segments were partially offset by higher income from affiliates in the Americas segment.
Current report
•Net income of $580.9 increased 29%, or $131.0, primarily due to lower costs and positive pricing, partially offset by lower equity affiliates' income, lower volumes, and higher interest expense. Net income margin of 19.8% increased 570 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Current report
•Adjusted EBITDA of $1,198.3 increased 4%, or $47.4, and adjusted EBITDA margin of 40.9% increased 490 bp.
Current report
Discussion of Second Quarter Consolidated Results
Current report
Sales of $2,930.2 decreased 8%, or $269.9, as lower energy cost pass-through to customers of 6% driven by lower natural gas prices in the Americas and Europe segments, lower volumes of 2%, and an unfavorable impact from currency of 1% were partially offset by higher pricing of 1%. Volume was down overall primarily due to weaker merchant demand, which was partially offset by higher demand for hydrogen as well as contributions from new on-site assets.
Current report
Cost of sales of $1,991.5 decreased 13%, or $291.3, due to lower energy cost pass-through to customers of $201, lower costs associated with sales volumes of $43, lower other costs of $28 driven by lower power costs in our merchant business, and a favorable impact from currency of $19. Gross margin of 32.0% increased 330 bp from 28.7% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by approximately 200 bp.
Current report
Selling and administrative expense of $240.6 decreased 4%, or $10.6, primarily due to lower incentive compensation. Selling and administrative expense as a percentage of sales increased to 8.2% from 7.8% in the prior year.
Current report
Our consolidated income statements for the three months ended 31 March 2024 and 2023 include charges of $57.0 ($43.8 after tax, or $0.20 per share) and $185.6 ($153.7 attributable to Air Products after tax, or $0.69 per share), respectively, for strategic business and asset actions intended to optimize costs and focus resources on our growth projects. Charges for business and asset actions are not recorded in segment results.
Current report
The current year charge of $57.0 was for severance and other postemployment benefits payable to employees identified under a global cost reduction plan that was initiated in June 2023. The prior year charge of $185.6 resulted from the noncash write-off of assets related to our withdrawal from projects in Indonesia and Ukraine.
Current report
Other income of $21.5 increased $15.0 primarily due to higher income from the sale of assets.
Current report
Operating income of $637.2 increased 39%, or $177.4, as lower charges for business and asset actions of $129, positive pricing, net of power and fuel costs, of $45, and lower other costs of $32 were partially offset by lower volumes of $20 and an unfavorable impact from currency of $8. The lower costs included favorable non-recurring items such as sales of assets as well as lower incentive compensation and distribution costs, partially offset by the impact of labor inflation. Operating margin of 21.7% increased 730 bp from 14.4% in the prior year due to the factors above as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 150 basis points.
Current report
Equity affiliates' income of $143.3 decreased 14%, or $22.6, as lower contributions from affiliates in our Europe and Middle East and India segments were partially offset by higher income from affiliates in the Americas segment.
Current report
Other non-operating expense of $9.2 decreased 34%, or $4.7, as higher interest income on cash and cash items and short-term investments was partially offset by higher non-service pension costs.
Current report
Net income of $580.9 increased 29%, or $131.0, primarily due to lower charges for business and asset actions, favorable pricing, and lower other costs, partially offset by lower equity affiliates' income, lower volumes, and higher interest expense. Net income margin of 19.8% increased 570 bp from 14.1% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 150 bp.
Current report
Adjusted EBITDA of $1,198.3 increased 4%, or $47.4, as higher pricing and lower costs were partially offset by lower equity affiliates' income. Adjusted EBITDA margin of 40.9% increased 490 bp from 36.0% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 250 bp.
Current report
Our effective tax rate was 18.3% and 21.2% for the three months ended 31 March 2024 and 2023, respectively. Our current quarter rate was lower primarily due to a discrete tax impact recorded in the prior year from business and asset actions further discussed below as well as earning a greater share of income in jurisdictions with lower tax rates and the impact from equity affiliates' income.
Current report
In the prior year, we recognized a charge of $185.6 ($153.7 attributable to Air Products after tax) related to various business and asset actions. Refer to Note 4, Business and Asset Actions, for additional information. This charge included certain losses for which we could not recognize an income tax benefit. Therefore, we recorded a valuation allowance of $31.7 against deferred tax assets resulting from the charge. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary.
Current report
Sales of $1,245.8 decreased 9%, or $127.3, due to lower energy cost pass-through to customers of 12% driven by lower natural gas prices in North America and an unfavorable impact from currency of 1%, partially offset higher pricing of 3% and higher volumes of 1%. Volumes improved modestly as higher demand for hydrogen in our on-site business was partially offset by weaker merchant volume.
Current report
Operating income of $371.9 increased 15%, or $47.7, primarily due to positive pricing, net of power and fuel costs, of $37 and favorable volumes of $19, partially offset by higher costs of $7. Higher costs for labor inflation were partially offset by lower incentive compensation. Operating margin of 29.9% increased 630 bp from 23.6% in the prior year due to these factors as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 300 basis points.
Current report
Equity affiliates’ income of $44.2 increased 57%, or $16.1, driven by higher income from an affiliate in Mexico as well as recognition of our share of income from an asset sale.
Current report
Sales of $779.7 decreased 4%, or $34.2, due to an unfavorable impact from currency of 4% driven by strengthening of the U.S. Dollar against the Chinese Renminbi and lower volumes of 1%, partially offset by higher energy cost pass-through to customers of 1%. Volumes declined as weak economic growth in China and lower demand for merchant products more than offset higher on-site volumes, which included contributions from several new industrial gas plants. Pricing was flat versus the prior year.
Current report
Operating income of $203.6 decreased 13%, or $29.4, primarily due to lower volumes, including unfavorable business mix, of $21 and an unfavorable currency impact of $10, partially offset by lower costs of $5. Lower distribution costs were partially offset by labor inflation. Operating margin of 26.1% decreased 250 bp from 28.6% in the prior year.
Current report
Equity affiliates’ income of $8.3 increased 14%, or $1.0, driven by higher income from an affiliate in Thailand.
Current report
Sales of $667.9 decreased 11%, or $85.0, due to lower energy cost pass-through to customers of 6% driven by lower natural gas prices across the region, lower volumes of 6%, and lower pricing of 1%, partially offset by a favorable impact from currency of 2%. Volumes were lower due to weak merchant demand as well as a planned maintenance outage, which were partially offset by contributions from an on-site facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023. Currency positively impacted sales primarily due to the weakening of the U.S. Dollar against the Euro and the British Pound Sterling.
Current report
Operating income of $201.0 increased 16%, or $27.8, primarily due to pricing, net of lower power and fuel costs, of $11, lower other costs of $10, and a favorable currency impact of $4. Other costs were favorable primarily due to higher income from the sale of assets as well as lower distribution costs, partially offset by higher costs for labor inflation. Operating margin of 30.1% increased 710 bp from 23.0% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by approximately 200 bp, and favorable business mix.
Current report
Equity affiliates’ income of $11.7 decreased 60%, or $17.8, driven by prior year non-recurring items for our affiliate in Italy.
Current report
Sales of $35.7 decreased 20%, or $9.1, primarily due to lower volumes. Operating income of $5.6 increased $4.3 as lower costs, including planned maintenance, more than offset the lower volumes.
Current report
Equity affiliates' income of $73.9 decreased 25%, or $25.0, primarily due to higher interest and other operating costs related to the Jazan gasification and power project.
Current report
Sales of $201.1 decreased 7%, or $14.3, and operating loss of $87.9 increased 2%, or $1.6, primarily due to lower non-LNG sale of equipment activity. The negative impact to operating loss was partially offset by lower corporate costs.
Current report
FIRST SIX MONTHS 2024 VS. FIRST SIX MONTHS 2023
Current report
•Sales of $5,927.6 decreased 7%, or $447.2, as lower energy cost pass-through to customers of 9% was partially offset by higher pricing of 1% and higher volumes of 1%.
Current report
•Equity affiliates' income of $301.7 increased 9%, or $25.8, primarily due to higher income from our affiliate in Mexico.
Current report
•Net income of $1,202.5 increased 16%, or $168.8, primarily due to lower charges for business and asset actions, favorable pricing, and higher equity affiliates' income, partially offset by higher interest expense and higher other costs. Net income margin of 20.3% increased 410 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Current report
•Adjusted EBITDA of $2,372.8 increased 6%, or $138.4, and adjusted EBITDA margin of 40.0% increased 490 bp.
Showing the first 40 of 78 passages. Open the source sections for the rest.
Removed paragraphs (34)
Previous report
About Air Products
Previous report
Founded in 1940, Air Products and Chemicals, Inc. is a world-leading industrial gases company that has built a reputation for its innovative culture, operational excellence, and commitment to safety and the environment. Approximately 23,000 passionate, talented, and committed employees from diverse backgrounds together are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and reimagine what is possible to address the challenges facing customers, communities, and the world. For information on our product and service offerings, refer to our 2023 Form 10-K.
Previous report
FIRST QUARTER 2024 VS. FIRST QUARTER 2023
Previous report
•Sales of $2,997.4 decreased 6%, or $177.3, as lower energy cost pass-through to customers of 11% was partially offset by higher volumes of 3%, higher pricing of 1%, and a favorable impact from currency of 1%.
Previous report
•Equity affiliates' income of $158.4 increased 44%, or $48.4, primarily due to higher income from the JIGPC joint venture as well as our affiliate in Mexico.
Previous report
•Net income of $621.6 increased 6%, or $37.8, primarily due to higher equity affiliates' income, favorable pricing, and higher volumes, partially offset by higher costs. Net income margin of 20.7% increased 230 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Previous report
•Adjusted EBITDA of $1,174.5 increased 8%, or $91.0, and adjusted EBITDA margin of 39.2% increased 510 bp.
Previous report
Discussion of Consolidated Results
Previous report
Sales of $2,997.4 decreased 6%, or $177.3, as lower energy cost pass-through to customers of 11% was partially offset by higher volumes of 3%, higher pricing of 1%, and a favorable currency impact of 1%. Lower natural gas prices in the Americas and Europe segments drove the lower energy cost pass-through to our on-site customers. The volume improvement was primarily attributable to strong demand for hydrogen in our on-site business, which was partially offset by weaker demand for helium in our merchant business.
Previous report
Operating income of $666.9 increased 2%, or $14.9, as positive pricing, net of power and fuel costs, of $41 and higher volumes of $30 were partially offset by higher costs of $56. The higher costs were driven by planned maintenance, labor inflation, and higher depreciation expense. Operating margin of 22.2% increased 170 bp from 20.5% in the prior year primarily due to lower energy cost pass-through to customers, which positively impacted margin by about 200 basis points, as well as our pricing actions, partially offset by higher costs.
Previous report
Equity affiliates' income of $158.4 increased 44%, or $48.4, primarily due to a higher contribution from the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023, as well as higher income from our affiliate in Mexico.
Previous report
Other non-operating expense of $14.8 increased $14.2, primarily due to higher non-service pension costs as well as lower interest income on cash and cash items. The lower interest income was attributable to a lower balance of time deposits and short-term treasury securities.
Previous report
Net income of $621.6 increased 6%, or $37.8, primarily due to higher equity affiliates' income, favorable pricing, and higher volumes, partially offset by higher costs. Net income margin of 20.7% increased 230 bp from 18.4% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 200 bp.
Previous report
Adjusted EBITDA of $1,174.5 increased 8%, or $91.0, primarily due to higher equity affiliates' income, higher volumes, and favorable pricing, partially offset by higher costs. Adjusted EBITDA margin of 39.2% increased 510 bp from 34.1% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 400 bp.
Previous report
Our effective tax rate was 17.9% and 18.9% for the three months ended 31 December 2023 and 2022, respectively. The current year rate was lower primarily due to earning a greater share of income in jurisdictions with lower tax rates and higher equity affiliates' income. Additionally, we released certain foreign unrecognized tax benefits during the first quarter of fiscal year 2024 upon expiration of the statute of limitations for uncertain tax positions taken in prior years. These impacts were partially offset by lower excess tax benefits on share-based compensation in the first quarter of fiscal year 2024.
Previous report
Sales of $1,252.1 decreased 10%, or $132.1, due to lower energy cost pass-through to customers of 15%, which was driven by lower natural gas prices, partially offset by higher volumes of 3% and higher pricing of 2%. The volume improvement was attributable to better demand for hydrogen in our on-site business.
Previous report
Operating income of $354.4 increased 3%, or $11.4, primarily due to positive pricing, net of power and fuel costs, of $33 and favorable volumes of $12, partially offset by higher costs of $34, including higher costs for planned maintenance, higher depreciation expense, and labor inflation. Operating margin of 28.3% increased 350 bp from 24.8% in the prior year primarily due to lower energy cost pass-through to customers, which positively impacted margin by about 400 basis points, as well as our pricing actions, partially offset by higher costs.
Previous report
Equity affiliates’ income of $37.1 increased $20.7 driven by an affiliate in Mexico.
Previous report
Operating income of $211.2 decreased 10%, or $24.7, primarily due to negative volume mix of $13 and higher costs of $7, including higher maintenance costs and labor inflation. Operating margin of 26.6% decreased 370 bp from 30.3% in the prior year.
Previous report
Operating income of $197.6 increased 36%, or $51.8, primarily due to higher volumes of $51, a net pricing impact of $13 due to lower power costs, and favorable currency of $8, partially offset by higher costs of $20. The higher costs were driven by labor inflation and higher costs for planned maintenance. Operating margin of 27.0% increased 860 bp from 18.4% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 350 bp.
Previous report
Equity affiliates’ income of $20.7 increased 17%, or $3.0, driven by affiliates in Italy and South Africa.
Previous report
Sales of $35.4 decreased 14%, or $6.0, and operating income of $3.9 decreased 42%, or $2.8, primarily due to lower volumes.
Previous report
Sales of $184.9 increased 3%, or $5.5, and reflected higher LNG sale of equipment activity. Despite higher sales, operating loss of $100.2 increased 26%, or $20.8, primarily due to higher costs for certain non-LNG sale of equipment projects.
Previous report
We have a five-year $2.75 billion revolving credit agreement maturing 31 March 2026 with a syndicate of banks (the “2021 Credit Agreement”), under which senior unsecured debt is available to us and certain of our subsidiaries. The 2021 Credit Agreement provides a source of liquidity and supports our commercial paper program. No borrowings were outstanding under the 2021 Credit Agreement as of 31 December 2023. At this time, we do not expect to borrow from the facility.
Previous report
The only financial covenant in the 2021 Credit Agreement is a maximum ratio of total debt to total capitalization (equal to total debt plus total equity) not to exceed 70%. The 2021 Credit Agreement defines total debt as the aggregate principal amount of all indebtedness, excluding limited recourse debt of any project financed subsidiary. Accordingly, this calculation does not consider borrowings associated with NGHC. Total debt to total capitalization was 38.7% and 36.6% as of 31 December 2023 and 30 September 2023, respectively.
Reworded paragraphs (37)
Previous wording
The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted", or "non-GAAP", basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 40.
Current wording
The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted", or "non-GAAP", basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 52.
Previous wording
Comparisons included in the discussion that follows are for the first quarter of fiscal year 2024 versus ("vs.") the first quarter of fiscal year 2023. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2023 Form 10-K.
Current wording
Comparisons included in the discussion that follows are for the second quarter and first six months of fiscal year 2024 versus ("vs.") the second quarter and first six months of fiscal year 2023. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2023 Form 10-K.
Previous wording
•Diluted EPS of $2.73 increased 6%, or $0.16 per share, and included an unfavorable impact from non-service related pension costs. Adjusted diluted EPS of $2.82 increased 7%, or $0.18 per share. A summary table of changes in diluted EPS is presented below.
Current wording
•Diluted EPS of $2.57 increased 30%, or $0.60 per share. Diluted EPS for the second quarter of fiscal years 2024 and 2023 included unfavorable impacts from business and asset actions as well as non-service related pension costs. On a non-GAAP basis, adjusted diluted EPS of $2.85 increased 4%, or $0.11 per share. A summary table of changes in diluted EPS is presented below.
Previous wording
In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42 nd consecutive year of dividend increases. The new dividend was declared on 25 January 2024 and is payable on 13 May 2024 to shareholders of record at the close of business on 1 April 2024.
Current wording
•In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42 nd consecutive year of dividend increases.
Previous wording
The table below summarizes the diluted per share impact of our non-GAAP adjustments for the first quarter of fiscal years 2024 and 2023:
Current wording
The table below summarizes the diluted per share impact of our non-GAAP adjustments for the second quarter of fiscal years 2024 and 2023:
Previous wording
FIRST QUARTER 2024 RESULTS OF OPERATIONS
Current wording
SECOND QUARTER 2024 RESULTS OF OPERATIONS
Previous wording
Research and development expense of $25.7 increased 5%, or $1.3. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.
Current wording
Research and development expense of $25.4 decreased 7%, or $1.8. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.
Previous wording
Interest incurred increased 93%, or $52.3, driven by a higher debt balance, including borrowings on project financing for the NEOM Green Hydrogen Project as well as the multi-currency green bonds that were issued during the second quarter of fiscal year 2023 to finance projects that are expected to have environmental benefits as defined under our Green Finance Framework. Capitalized interest increased $40.0 due to a higher carrying value of projects under construction, including the NEOM Green Hydrogen Project.
Current wording
Interest incurred increased 96%, or $61.4, primarily due to a higher debt balance from senior notes that were issued in March 2023 and February 2024 to fund projects under our Green Finance Framework as well as borrowings on financing available for the NEOM Green Hydrogen Project. Capitalized interest increased $42.4 due to a higher carrying value of projects under construction, including the NEOM Green Hydrogen Project.
Previous wording
Our adjusted effective tax rate, which excludes the impact of the non-service components of net periodic cost for our defined benefit pension plans, was 18.1% and 19.1% for the three months ended 31 December 2023 and 2022, respectively.
Current wording
Our adjusted effective tax rate, which excludes the impact of the business and asset actions discussed above as well as the non-service components of net periodic cost for our defined benefit pension plans, was 18.9% and 19.7% for the three months ended 31 March 2024 and 2023, respectively. The current quarter rate was lower due to the higher income in jurisdictions with lower tax rates as well as the impact from equity affiliates' income.
Previous wording
Discussion of Results by Business Segment
Current wording
Discussion of Second Quarter Results by Business Segment
Previous wording
•Operating income of $666.9 increased 2%, or $14.9, as positive pricing and higher volumes were partially offset by higher costs. Operating margin of 22.2% increased 170 basis points ("bp") due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Current wording
•Operating income of $1,304.1 increased 17%, or $192.3, as lower charges for business and asset actions, positive pricing, and higher volumes were partially offset by higher other costs and unfavorable currency. Operating margin of 22.0% increased 460 bp due to these factors as well as a positive impact from lower energy cost pass-through to customers.
Previous wording
The per share impacts presented in the table below were calculated independently and do not sum to the total change in diluted EPS due to rounding.
Current wording
The per share impacts presented in the tables below were calculated independently and do not sum to the total change in diluted EPS due to rounding.
Previous wording
Cost of sales of $2,067.2 decreased 9%, or $205.1, due to lower energy cost pass-through to customers of $340, partially offset by higher costs associated with sales volumes of $78, an unfavorable impact from currency of $30, and higher other costs of $27. The higher costs were driven by planned maintenance, higher depreciation expense, and inflation, partially offset by lower power costs in our merchant business across most regions. Gross margin of 31.0% increased 260 bp from 28.4% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by about 300 bp.
Current wording
Cost of sales of $4,058.7 decreased 11%, or $496.4, due to lower energy cost pass-through to customers of $542, partially offset by higher costs associated with sales volumes of $35 and an unfavorable impact from currency of $11. Other costs were flat as lower power costs in our merchant business across most regions offset labor inflation and higher planned maintenance. Gross margin of 31.5% increased 300 bp from 28.5% in the prior year primarily due to lower energy cost pass-through to customers, which favorably impacted margin by approximately 250 bp.
Previous wording
Selling and administrative expense of $238.4 increased 2%, or $4.0, primarily due to additional costs to support growth and labor inflation. Selling and administrative expense as a percentage of sales increased to 8.0% from 7.4% in the prior year.
Current wording
Selling and administrative expense of $479.0 decreased 1%, or $6.6, as lower incentive compensation was mostly offset by labor inflation. Selling and administrative expense as a percentage of sales increased to 8.1% from 7.6% in the prior year.
Previous wording
Other income of $0.8 decreased 90%, or $7.6, primarily due to an unfavorable foreign exchange impact from the devaluation of the Argentine peso.
Current wording
Other income of $22.3 increased 50%, or $7.4, as higher income from the sale of assets was partially offset by an unfavorable foreign exchange impact from the devaluation of the Argentine peso during the first quarter.
Previous wording
Sales of $793.8 increased 2%, or $16.0, due to higher energy cost pass-through to customers of 2% and higher pricing of 1%, partially offset by an unfavorable impact from currency of 1%. Overall volumes were flat as higher volumes in our on-site business, including contributions from several new industrial gas plants, were offset by weak economic growth in China and lower demand for helium.
Current wording
Sales of $1,573.5 decreased 1%, or $18.2, due to an unfavorable currency impact of 3% driven by strengthening of the U.S. Dollar against the Chinese Renminbi, partially offset by higher pricing of 1% and higher energy cost pass-through to customers of 1%. Overall volumes were flat as higher volumes in our on-site business, including contributions from several new industrial gas plants, were offset by weak economic growth in China and lower demand for merchant products.
Previous wording
Equity affiliates’ income of $4.2 decreased 43%, or $3.2, driven by higher maintenance expense for one of our affiliates in China.
Current wording
Equity affiliates’ income of $12.5 decreased 15%, or $2.2, as higher maintenance expense for one of our affiliates in China was partially offset by higher income from an affiliate in Thailand.
Previous wording
Sales of $731.2 decreased 8%, or $60.7, due to lower energy cost pass-through to customers of 20%, which was driven by lower natural gas prices, and lower pricing of 2%. These impacts were partially offset by higher volumes of 9% and a favorable impact from currency of 5%. The volume improvement was driven by a facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023. Currency positively impacted sales due to the weakening of the U.S. Dollar against the Euro.
Current wording
Sales of $1,399.1 decreased 9%, or $145.7, due to lower energy cost pass-through to customers of 13% driven by lower natural gas prices across the region and lower pricing of 2%, partially offset by a favorable impact from currency of 4% and higher volumes of 2%. Currency positively impacted sales primarily due to the weakening of the U.S. Dollar against the Euro. The volume improvement was driven by contribution from an on-site facility in Uzbekistan that we acquired in the third quarter of fiscal year 2023, which was partially offset by lower merchant demand.
Previous wording
Equity affiliates' income of $92.9 increased 45%, or $28.8, primarily due to a higher contribution from the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023.
Current wording
Equity affiliates' income of $166.8 increased 2%, or $3.8, as a higher contribution from JIGPC's completion of the second phase of the asset purchase in January 2023 was partially offset by higher interest and other operating costs related to the Jazan gasification and power project.
Previous wording
The tables below present sales and a reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted EBITDA margin by segment for the three months ended 31 December 2023 and 2022:
Current wording
The tables below present sales and a reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted EBITDA margin by segment for the three and six months ended 31 March 2024 and 2023:
Previous wording
As of 31 December 2023, we had $1,852.1 of foreign cash and cash items compared to total cash and cash items of $1,962.6. We do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S. income tax upon repatriation to the U.S. Depending on the country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.
Current wording
As of 31 March 2024, we had $1,333.0 of foreign cash and cash items compared to total cash and cash items of $2,535.0. We do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S. income tax upon repatriation to the U.S. Depending on the country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.
Previous wording
For the first three months of fiscal year 2024, cash provided by operating activities was $626.6. The working capital accounts were a use of cash of $369.6, primarily driven by $268.5 from payables and accrued liabilities, $64.5 from other receivables, and $48.6 from inventories. The use of cash within payables and accrued liabilities primarily resulted from payments for incentive compensation under the fiscal year 2023 plan, a reduction of customer advances for sale of equipment projects as we recognized revenue, and a reduction of liabilities associated with accrued utilities. The use of cash within other receivables primarily relates to the payment of value added taxes incurred in the construction of our larger projects for which we will claim a refund in the near term. The use of cash within inventories primarily relates to purchases of helium.
Current wording
For the first six months of fiscal year 2024, cash provided by operating activities was $1,428.3. We recorded a charge of $57.0 for the accrual of severance and other postemployment benefits. Refer to Note 4, Business and Asset Actions, to the consolidated financial statements for additional information. The working capital accounts were a use of cash of $486.1. A use of cash of $301.0 within "Payables and accrued liabilities" primarily resulted from payments for incentive compensation under the fiscal year 2023 plan, a reduction of customer advances for sale of equipment projects as we recognized revenue, and a reduction of liabilities associated with accrued utilities. The use of cash of $111.7 within "Other working capital" primarily related to the timing of tax payments. The use of cash of $72.7 within "Inventories" primarily related to purchases of helium. The use of cash of $31.6 within "Other receivables" primarily related to the payment of value added taxes incurred in the construction of our larger projects for which we will claim a refund in the near term.
Previous wording
For the first three months of fiscal year 2023, cash provided by operating activities was $719.3. Distributed earnings of equity method investments reflect distributions in excess of earnings for the period of $17.2. Other adjustments of $99.0 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $337.6, primarily driven by $257.6 from payables and accrued liabilities and $102.8 from inventory. The use of cash within payables and accrued liabilities primarily resulted from the decrease in value of derivatives that hedge intercompany loans, payments for incentive compensation under the fiscal year 2022 plan and a reduction of liabilities associated with the purchase of natural gas.
Current wording
For the first six months of fiscal year 2023, cash provided by operating activities was $1,358.0. Business and asset actions of $185.6 included noncash charges to write-down the full carrying value of assets previously under construction in our Asia and Europe segments. Other adjustments of $70.9 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $589.3, primarily driven by $451.3 from payables and accrued liabilities, $124.7 from other working capital, and $112.3 from inventory, partially offset by a source of cash of $162.0 from trade receivables, less allowances. The use of cash within payables and accrued liabilities primarily resulted from the impact of lower prices for the purchase of natural gas, a decrease in value of derivatives that hedge intercompany loans, and payments for incentive compensation under the fiscal year 2022 plan. The use of cash within other working capital primarily relates to the timing of income tax payments. The source of cash within trade receivables includes lower natural gas costs contractually passed through to customers.
Previous wording
For the first three months of fiscal year 2024, cash used for investing activities was $1,665.6. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $1,445.5 and an investment in financing receivables of $301.8. Refer to the Capital Expenditures section below for further detail. Proceeds from investments of $120.1 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $55.5.
Current wording
For the first six months of fiscal year 2024, cash used for investing activities was $3,226.0. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $3,114.9 and an investment in financing receivables of $392.4. Refer to the "Capital Expenditures" section below for further detail. Proceeds from investments of $367.4 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $136.4.
Previous wording
For the first three months of fiscal year 2023, cash used for investing activities was $256.2. Capital expenditures for additions to plant and equipment, including long-term deposits, were $834.2. Proceeds from investments of $591.5 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $19.2.
Current wording
For the first six months of fiscal year 2023, cash used for investing activities was $2,476.0. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $1,841.1 as well as investment in and advances to unconsolidated affiliates of $912.0, which primarily included our investment in the second phase of the Jazan gasification and power project. Proceeds from investments of $611.6 resulted from maturities of time deposits and treasury securities with terms greater than three months but less than one year and exceeded purchases of investments of $290.5.
Previous wording
The components of our capital expenditures are detailed in the table below. Refer to page 45 for a definition of this non-GAAP measure as well as a reconciliation to cash used for investing activities.
Current wording
The components of our capital expenditures are detailed in the table below. Refer to page 57 for a definition of this non-GAAP financial measure as well as a reconciliation to cash used for investing activities.
Previous wording
Capital expenditures for the first three months of fiscal year 2024 totaled $1,385.7 compared to $724.5 for the first three months of fiscal year 2023. The investment in financing receivables of $301.8 primarily reflects payments associated with the purchase of renewable fuel assets from World Energy as well as the purchase of a natural gas-to-syngas processing facility in Uzbekistan. Refer to Note 3, Variable Interest Entities, and Note 18, Supplemental Information, to the consolidated financial statements, respectively, for additional information.
Current wording
Capital expenditures for the first six months of fiscal year 2024 totaled $2,671.1 compared to $2,417.8 for the first six months of fiscal year 2023. The investment in financing receivables of $392.4 primarily reflects payments associated with the purchase of renewable fuel assets from World Energy as well as the purchase of a natural gas-to-syngas processing facility in Uzbekistan. Refer to Note 3, Variable Interest Entities, and Note 16, Supplemental Information, to the consolidated financial statements, respectively, for additional information.
Previous wording
For the first three months of fiscal year 2024, cash provided by financing activities was $1,362.8. The source of cash was primarily driven by net increase in commercial paper and short-term borrowings of $1,020.9 and long-term debt proceeds of $810.4, partially offset by dividend payments to shareholders of $388.9 and payments on long-term debt of $54.8.
Current wording
For the first six months of fiscal year 2023, cash provided by financing activities was $603.4. The source of cash was primarily driven by long-term debt proceeds of $1,891.6, which was largely attributable to multi-currency green bonds totaling $1.4 billion that were issued during the second quarter of fiscal year 2023 under our Green Finance Framework. These proceeds were partially offset by dividend payments to shareholders of $719.2 and payments on long-term debt of $596.0.
Previous wording
Total debt increased from $10,305.8 as of 30 September 2023 to $12,107.7 as of 31 December 2023. The increase from 30 September 2023 was primarily due to the issuance of commercial paper as well as additional borrowings under the project financing associated with the NEOM Green Hydrogen Project as discussed in Note 3, Variable Interest Entities, to the consolidated financial statements. As of 31 December 2023, we classified our outstanding commercial paper, which totaled approximately $1.3 billion, as well as our 3.35% Senior Note of $400 maturing in July 2024 as long-term debt as we have the ability to refinance the debt under our $2.75 billion revolving credit agreement (the “2021 Credit Agreement”), which is further discussed below. Our current intent is to refinance this debt via the U.S. public debt market.
Current wording
Total debt increased from $10,305.8 as of 30 September 2023 to $13,621.7 as of 31 March 2024 primarily due to the $2.5 billion issuance of senior notes intended for projects defined under our Green Finance Framework as well as additional borrowings under the project financing associated with the NEOM Green Hydrogen Project as discussed in Note 3, Variable Interest Entities, to the consolidated financial statements. Total debt includes related party debt of $289.8 and $328.3 as of 31 March 2024 and 30 September 2023, respectively.
Previous wording
We also have credit facilities available to certain of our foreign subsidiaries totaling $1,611.4, of which $1,091.1 was borrowed and outstanding as of 31 December 2023. The amount borrowed and outstanding as of 30 September 2023 was $1,041.4.
Current wording
We also have credit facilities available to certain of our foreign subsidiaries totaling $1,241.6, of which $1,080.7 was borrowed and outstanding as of 31 March 2024. The amount borrowed and outstanding as of 30 September 2023 was $1,041.4.
Previous wording
In May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $500 primarily for working capital needs. The joint venture had borrowed $2.1 billion and $1.4 billion of the available financing as of 31 December 2023 and 30 September 2023, respectively. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.
Current wording
In May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $500 primarily for working capital needs. As of 31 March 2024, the joint venture had borrowed short- and long-term principal amounts totaling $2.5 billion compared to $1.4 billion as of 30 September 2023. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.
Previous wording
The Board of Directors determines whether to declare cash dividends on our common stock and the timing and amount based on financial condition and other factors it deems relevant. Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. On 15 November 2023, the Board of Directors declared a quarterly dividend of $1.75 per share that is payable on 12 February 2024 to shareholders of record at the close of business on 2 January 2024.
Current wording
The Board of Directors determines whether to declare cash dividends on our common stock and the timing and amount based on financial condition and other factors it deems relevant. Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42 nd consecutive year of dividend increases. The new dividend was declared on 25 January 2024 and is payable on 13 May 2024 to shareholders of record at the close of business on 1 April 2024.
Previous wording
Net periodic cost was $30.2 and $25.8 for the three months ended 31 December 2023 and 2022, respectively. The increased costs versus the prior year were primarily attributable to non-service costs, which were driven by lower expected returns on plan assets due to a smaller beginning balance of plan assets and higher interest cost, partially offset by a decrease in actuarial loss amortization. Non-service related components of net periodic cost are reflected within "Other non-operating income (expense), net" on our consolidated income statements.
Current wording
Net periodic cost was $30.4 and $60.6 for the three and six months ended 31 March 2024, respectively. Net periodic cost was $28.9 and $54.7 for the three and six months ended 31 March 2023, respectively. The increased costs versus the prior year were primarily attributable to non-service costs, which were driven by lower expected returns on plan assets due to a smaller beginning balance of plan assets and higher interest cost, partially offset by a decrease in actuarial loss amortization. Non-service related components of net periodic cost are reflected within "Other non-operating income (expense), net" on our consolidated income statements.
Previous wording
Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first three months of fiscal years 2024 and 2023 was not material.
Current wording
Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first six months of fiscal years 2024 and 2023 was not material.
Previous wording
Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the three months ended 31 December 2023 and 2022, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $12.0 and $8.0, respectively.
Current wording
Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the six months ended 31 March 2024 and 2023, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $19.2 and $15.4, respectively.
Previous wording
A description of our major accounting policies, including those that we consider to be the most critical to understanding our financial statements, is included in our 2023 Form 10-K. There were no changes to our accounting policies during the first three months of fiscal year 2024.
Current wording
A description of our major accounting policies, including those that we consider to be the most critical to understanding our financial statements, is included in our 2023 Form 10-K. There were no changes to our accounting policies during the first six months of fiscal year 2024.
Previous wording
Judgments and estimates of uncertainties are required to apply our accounting policies in many areas. However, application of policies that management has identified as critical places significant importance on management’s judgment, often as the result of the need to make estimates about the effects of matters that are inherently uncertain. During the first three months of fiscal year 2024, we recorded changes to project cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded a cumulative effect adjustment that unfavorably impacted operating income by approximately $30 for the three months ended 31 December 2023. There were no other changes to our estimates during the first three months of fiscal year 2024 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.
Current wording
Judgments and estimates of uncertainties are required to apply our accounting policies in many areas. However, application of policies that management has identified as critical places significant importance on management’s judgment, often as the result of the need to make estimates about the effects of matters that are inherently uncertain. During the first six months of fiscal year 2024, we recorded changes to project cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded cumulative effect adjustments that unfavorably impacted operating income by approximately $35 and $65 for the three and six months ended 31 March 2024, respectively. There were no other changes to our estimates during the first six months of fiscal year 2024 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.
Rearranged current paragraphs (13)
Current report — wording carried from elsewhere
The per share impacts presented in the tables below were calculated independently and may not sum to the total change in diluted EPS due to rounding.
Current report — wording carried from elsewhere
•In January 2024, the Board of Directors increased the quarterly dividend to $1.77 per share, representing our 42 nd consecutive year of dividend increases.
Current report — wording carried from elsewhere
Changes in Diluted EPS Attributable to Air Products
Current report — wording carried from elsewhere
The table below summarizes the diluted per share impact of our non-GAAP adjustments for the first six months of fiscal years 2024 and 2023:
Current report — wording carried from elsewhere
The table below summarizes the major factors that impacted consolidated sales for the periods presented:
Current report — wording carried from elsewhere
Cost of Sales and Gross Margin
Current report — wording carried from elsewhere
Research and development expense of $51.1 decreased 1%, or $0.5. Research and development expense as a percentage of sales increased to 0.9% from 0.8% in the prior year.
Current report — wording carried from elsewhere
Other Non-Operating Income (Expense), net
Current report — wording carried from elsewhere
Net Income and Net Income Margin
Current report — wording carried from elsewhere
The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:
Current report — wording carried from elsewhere
The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:
Current report — wording carried from elsewhere
The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:
Current report — wording carried from elsewhere
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
For the first three months of fiscal year 2023, cash used for financing activities was $85.6. The use of cash was primarily driven by dividend payments to shareholders of $359.4 and payments on long-term debt of $195.9 partially offset by long-term debt proceeds of $476.3.
Previous report — wording carried elsewhere
Total debt includes related party debt of $294.8 and $328.3 as of 31 December 2023 and 30 September 2023, respectively.