News Column

AIR PRODUCTS & CHEMICALS INC /DE/ - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

April 24, 2014

(Millions of dollars, except for share data)

The disclosures in this quarterly report are complementary to those made in our 2013 Form 10-K. An analysis of results for the second quarter and first six months of 2014 is provided in the Management's Discussion and Analysis to follow.

All comparisons in the discussion are to the corresponding prior year unless otherwise stated. All amounts presented are in accordance with U.S. generally accepted accounting principles (GAAP), except as noted.

Captions such as income from continuing operations attributable to Air Products, net income attributable to Air Products, and diluted earnings per share attributable to Air Products are simply referred to as "income from continuing operations," "net income," and "diluted earnings per share" throughout this Management's Discussion and Analysis, unless otherwise stated.

SECOND QUARTER 2014 VS. SECOND QUARTER 2013



SECOND QUARTER 2014 IN SUMMARY

- Sales of $2,581.9 increased 4%, or $97.7. Underlying sales were flat as volume growth in Merchant Gases and Electronics and Performance Materials were offset by lower volumes in Tonnage Gases, including the exit from our polyurethane intermediates (PUI) business. Higher energy contractual cost pass-through to customers increased sales 4%. - Operating income of $384.7 decreased 1%, or $5.0, as strong results in Electronics and Performance Materials were more than offset by lower results in Merchant Gases and Tonnage Gases. Operating margin of 14.9% decreased 80 basis points (bp), as higher costs and the effects of higher energy cost pass-through were partially offset by higher volumes. - Income from continuing operations of $283.5 decreased 2%, or $5.8, and diluted earnings per share from continuing operations of $1.32 decreased 4%, or $.05. A summary table of changes in diluted earnings per share is presented below. - We increased our quarterly dividend by 8% from $.71 to $.77 per share. This represents the 32nd consecutive year that we have increased our dividend payment. 25



--------------------------------------------------------------------------------

Table of Contents

Changes in Diluted Earnings per Share Attributable to Air Products

Three Months Ended 31 March Increase 2014 2013 (Decrease) Diluted Earnings per Share Net Income $ 1.32$ 1.38$ (.06 ) Income from Discontinued Operations - .01 (.01 ) Income from Continuing Operations $ 1.32$ 1.37$ (.05 ) Operating Income (after-tax) Underlying business Volume $ .09 Price/raw materials (.07 ) Costs (.04 ) Operating Income (.02 ) Other (after-tax) Equity affiliates' income (.03 ) Interest expense .01 Income tax .01 Weighted average diluted shares (.02 ) Other (.03 ) Total Change in Diluted Earnings per Share from Continuing Operations $ (.05 ) RESULTS OF OPERATIONS



Discussion of Consolidated Results

Three Months Ended 31 March 2014 2013 $ Change Change Sales $ 2,581.9$ 2,484.2$ 97.7 4% Operating income 384.7 389.7 (5.0 ) (1)% Operating margin 14.9 % 15.7 % (80bp ) Equity affiliates' income 30.4 39.8 (9.4 ) (24)% Sales % Change from Prior Year Underlying business Volume - % Price - % Currency - % Energy and raw material cost pass-through 4 % Total Consolidated Change 4 %



Underlying sales were flat as higher volumes in the Merchant Gases and Electronics and Performance Materials segments were offset by lower Tonnage Gases volumes from planned outages and the exit from our PUI business. Higher energy contractual cost pass-through to customers increased sales by 4%.

26



--------------------------------------------------------------------------------

Table of Contents

Operating Income

Operating income of $384.7 decreased 1%, or $5.0, as the lower recovery of raw material costs in pricing of $20, higher costs of $5, and the prior year gain on a sale of our investment of an equity affiliate of $5, were mostly offset by higher volumes of $27. The higher raw material costs included the effects of severe weather in North America, primarily in our Merchant Gases segment.

Equity Affiliates' Income

Income from equity affiliates of $30.4 decreased $9.4 primarily due to higher costs in Merchant Gases affiliates and unfavorable currency impacts in Mexico, South Africa, and India.

Selling and Administrative Expense

Selling and administrative expense of $263.4 decreased $3.2, primarily due to currency impacts. Selling and administrative expense, as a percent of sales, decreased from 10.7% to 10.2%.

Research and Development

Research and development expense of $33.2 increased $.9. Research and development expense, as a percent of sales, was 1.3% in 2014 and 2013.

Other Income (Expense), Net

Other income (expense), net of $17.0 decreased $1.0. The current year included gains from the sales of emission credits. The prior year included a gain from the sale of our investment in an equity affiliate. Otherwise, no individual items were significant in comparison to the prior year.

Interest Expense Three Months Ended 31 March 2014 2013 Interest incurred $ 39.4$ 39.9 Less: capitalized interest 7.9 4.7 Interest expense $ 31.5$ 35.2



Interest incurred decreased $.5. The decrease was driven primarily by a lower average interest rate on the debt portfolio. The change in capitalized interest was driven by an increase in project spending.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. The effective tax rate was 24.0% and 24.3% in the second quarter of 2014 and 2013, respectively.

27



--------------------------------------------------------------------------------

Table of Contents Segment Analysis Merchant Gases Three Months Ended 31 March 2014 2013 $ Change Change Sales $ 1,040.1$ 1,003.2$ 36.9 4% Operating income 143.4 168.1 (24.7 ) (15)% Operating margin 13.8 % 16.8 % (300bp ) Equity affiliates' income 28.7 34.2 (5.5 ) (16)% Merchant Gases Sales % Change from Prior Year Underlying business Volume 4 % Price 1 % Currency (1 )% Total Merchant Gases Sales Change 4 %



Underlying sales increased 5% from higher volumes of 4% and higher pricing of 1%. Volumes were higher from continued strength in liquid oxygen, nitrogen, and argon, partially offset by supply limitations for helium globally and continued packaged gases demand weakness in Europe. Currency had an unfavorable impact on sales of 1%.

In the U.S./Canada, sales increased 11%, with increased volumes of 6% and pricing up 5%. Higher liquid oxygen and nitrogen volumes to oilfield services, food, and metals were partially offset by lower helium volumes. Volumes also increased as a result of our EPCO Carbondioxide Products, Inc. acquisition. Pricing was higher primarily due to higher pricing in liquid oxygen, liquid nitrogen, and helium, including actions to recover higher weather related costs.

In Europe, sales increased 2%, due to a favorable currency impact of 4%, partially offset by volumes down 1% and lower price of 1%. Volumes were lower as higher liquid oxygen, nitrogen, and argon volumes were more than offset by lower helium volumes due to supply limitations and lower cylinder volumes. Pricing was lower as lower pricing in liquid products and packaged gases were partially offset by higher helium pricing.

In Asia, sales increased 6%, with higher volumes of 6% and increased pricing of 1%, partially offset by an unfavorable currency impact of 1%. Volumes were higher as higher liquid oxygen and nitrogen volumes were partially offset by lower helium volumes. Pricing increased as higher helium pricing was partially offset by lower pricing in liquid oxygen, nitrogen, and argon, particularly in China, driven in part by a higher mix of wholesale customers.

In South America, sales decreased 9%, with higher volumes of 3% and higher pricing of 2% more than offset by unfavorable currency impacts of 14% primarily from the Chilean Peso. Volumes increased due to higher volumes in liquid oxygen and liquid nitrogen in Brazil and modestly higher volumes in Indura as the region continues to experience slower economic growth than expected.

Merchant Gases Operating Income and Margin

Operating income was lower by $24.7 due to lower price recovery of costs of $11 from higher power and fuel costs, including severe weather impacts in North America, and higher operating costs of $8. The prior year also included the gain on a sale of our investment in an equity affiliate of $5. Operating margin decreased 300 bp from prior year, primarily due to the higher costs, including weather impacts.

Merchant Gases Equity Affiliates' Income

Merchant Gases equity affiliates' income of $28.7 decreased $5.5 due to higher costs and unfavorable currency impacts in Mexico, South Africa, and India.

28



--------------------------------------------------------------------------------

Table of Contents Tonnage Gases Three Months Ended 31 March 2014 2013 $ Change Change Sales $ 839.9$ 808.5$ 31.4 4% Operating income 112.2 123.2 (11.0 ) (9)% Operating margin 13.4 % 15.2 % (180bp ) Tonnage Gases Sales % Change from Prior Year Underlying business Volume (8 )% Energy and raw material cost pass-through 11 % Currency 1 % Total Tonnage Gases Sales Change 4 %



Sales increased 4%, or $31.4. Volumes decreased 8% as strong demand in the U.S. Gulf Coast hydrogen system was more than offset by reduced volumes due to plant outages, lower volumes in Latin America, and the exit from our PUI business. The lower PUI volumes decreased sales by 5%. As of the end of the first quarter of 2014, our exit from the PUI business was complete. Higher energy contractual cost pass-through to customers increased sales by 11% and favorable currency impacts increased sales by 1%.

Tonnage Gases Operating Income and Margin

Operating income was lower by 9% primarily from lower volumes of $5 and higher operating costs, including maintenance costs, of $5. Operating margin decreased 180 bp from the prior year, primarily due to the higher pass-through of energy costs and higher maintenance costs.

Electronics and Performance Materials

Three Months Ended 31 March 2014 2013 $ Change Change Sales $ 591.7$ 548.8$42.9 8% Operating income 107.1 77.5 29.6 38% Operating margin 18.1 % 14.1 % 400bp



Electronics and Performance Materials Sales

% Change from Prior Year Underlying business Volume 9 % Price (1 )% Currency - % Total Electronics and Performance Materials Sales Change 8 %



Sales increased 8% from higher volumes of 9%, partially offset by lower pricing of 1%. Electronics sales increased 6% due to higher delivery systems equipment sales and higher materials volumes partially offset by the impact of product exits. Performance Materials sales increased 10% from higher volumes of 10% and favorable currency of 1%, partially offset by lower pricing of 1%. The higher volumes were across all product lines and major regions driven by strength in the automobile, coatings, and oilfield end markets.

29



--------------------------------------------------------------------------------

Table of Contents

Electronics and Performance Materials Operating Income and Margin

Operating income increased 38%, or $29.6, primarily due to higher volumes of $29 and lower costs of $10, partially offset by unfavorable price and mix impacts of $9. The lower costs included the benefits of our recent business restructuring and cost reduction actions. Operating margin of 18.1% increased 400 bp due to the higher volumes and improved cost performance.

Equipment and Energy Three Months Ended 31 March 2014 2013 $ Change Change Sales $ 110.2$ 123.7$(13.5 ) (11)% Operating income 22.9 20.6 2.3 11%



Equipment and Energy Sales and Operating Income

Sales of $110.2 decreased as lower air separation unit (ASU) activity was partially offset by higher liquefied natural gas (LNG) activity. Operating income of $22.9 increased due to the favorable mix impact of the higher LNG activity.

The sales backlog for the Equipment business at 31 March 2014 was $338 compared to $402 at 30 September 2013.

Other

Other operating income (loss) primarily includes other expense and income that cannot be directly associated with the business segments, including foreign exchange gains and losses. Also included are LIFO inventory adjustments, as the business segments use FIFO, and the LIFO pool adjustments are not allocated to the business segments.

Other operating loss was $(.9) versus operating income of $.3 in the prior year. No individual items were significant in comparison to the prior year.

FIRST SIX MONTHS 2014 VS. FIRST SIX MONTHS 2013



FIRST SIX MONTHS 2014 IN SUMMARY

- Sales of $5,127.4 increased 2%, or $80.8. Underlying sales were flat as higher volumes in the Merchant Gases and Electronics and Performance Materials segments were offset by lower volumes in our Tonnage Gases and Equipment and Energy segments, including the exit from our PUI business. Higher energy contractual cost pass-through to customers increased sales 2%. - Operating income of $770.3 increased 1%, or $8.2, as strong results in Electronics and Performance Materials and Equipment and Energy were partially offset by lower results in Merchant Gases and Tonnage Gases. Operating margin of 15.0% decreased 10 bp with the impact of higher costs mostly offset by higher volumes. - Income from continuing operations of $570.6 increased 1%, or $4.4, and diluted earnings per share from continuing operations of $2.66 decreased $.01. A summary table of changes in diluted earnings per share is presented below. - We increased our quarterly dividend by 8% from $.71 to $.77 per share. This represents the 32nd consecutive year that we have increased our dividend payment. 30



--------------------------------------------------------------------------------

Table of Contents

Changes in Diluted Earnings per Share Attributable to Air Products

Six Months Ended 31 March Increase 2014 2013 (Decrease) Diluted Earnings per Share Net Income $2.67$2.68$ (.01 ) Income from Discontinued Operations .01 .01 - Income from Continuing Operations $2.66$2.67$ (.01 ) Operating Income (after-tax) Underlying business Volume $ .21 Price/raw materials (.12 ) Costs (.05 ) Currency (.01 ) Operating Income .03 Other (after-tax) Equity affiliates' income (.04 ) Interest expense .02 Income tax .01 Weighted average diluted shares (.03 ) Other (.04 ) Total Change in Diluted Earnings per Share from Continuing Operations $ (.01 ) RESULTS OF OPERATIONS



Discussion of Consolidated Results

Six Months Ended 31 March 2014 2013 $ Change Change Sales $ 5,127.4$ 5,046.6$ 80.8 2 % Operating income 770.3 762.1 8.2 1 % Operating margin 15.0 % 15.1 % (10 bp) Equity affiliates' income 68.6 81.2 (12.6 ) (16 )% Sales % Change from Prior Year Underlying business Volume - % Price - % Currency - % Energy and raw material cost pass-through 2 % Total Consolidated Change 2 %



Volumes were flat as higher volumes in the Merchant Gases and Electronics and Performance Materials segments were offset by lower volumes in our Tonnage Gases and Equipment and Energy segments, including the exit from our PUI business. Pricing was flat as higher pricing in Merchant Gases was offset by lower pricing in Electronics and Performance Materials. Higher energy contractual cost pass-through to customers increased sales 2%.

31



--------------------------------------------------------------------------------

Table of Contents

Operating Income

Operating income of $770.3 increased 1%, or $8.2 primarily due to higher volumes of $57, partially offset by lower recovery of raw material costs in pricing of $34 and higher operating costs, including maintenance costs in Tonnage Gases, of $8. Prior year operating income included the gain on a sale of our investment in an equity affiliate of $5.

Equity Affiliates' Income

Income from equity affiliates of $68.6 decreased $12.6, due to lower results in a Tonnage Gases affiliate, higher costs in Merchant Gases affiliates, and unfavorable currency impacts in Mexico, South Africa, and India.

Selling and Administrative Expense

Selling and administrative expense of $544.3 increased $9.5, including the impacts of inflation. Selling and administrative expense, as a percent of sales, was 10.6% in 2014 and 2013.

Research and Development

Research and development expense of $66.7 increased $1.1 primarily due to inflation. Research and development expense, as a percent of sales, was 1.3% in 2014 and 2013.

Other Income (Expense), Net

Other income (expense), net of $37.4 increased $7.8. The current year included gains from the sales of emissions credits. The prior year included the gain on a sale of our investment in an equity affiliate. Otherwise, no individual items were significant in comparison to the prior year.

Interest Expense Six Months Ended 31 March 2014 2013 Interest incurred $80.2$82.6 Less: capitalized interest 15.4 11.6 Interest expense $64.8$71.0



Interest incurred decreased $2.4. The decrease was driven primarily by a lower average interest rate on the debt portfolio, partially offset by a higher average debt balance. The change in capitalized interest was driven by an increase in project spending.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. The effective tax rate was 24.1% and 24.3% in 2014 and 2013, respectively.

Discontinued Operations

The Homecare business, which had been previously reported as part of the Merchant Gases business segment, has been accounted for as a discontinued operation.

In the third quarter of 2012, we sold the majority of our Homecare business to The Linde Group for total sale proceeds of 590 million ($777) and recognized a gain of $207.4 ($150.3 after-tax, or $.70 per share). In the third quarter of 2012, an impairment charge of $33.5 ($29.5 after-tax, or $.14 per share) was recorded to write down the remaining business, which was primarily in the United Kingdom and Ireland, to its estimated net realizable value. In the fourth quarter of 2013, we recorded an additional charge of $18.7 ($13.6 after-tax, or $.06 per share) to update our estimate of net realizable value. In the first quarter of 2014, we sold the remaining portion of the Homecare business for 6.1 million ($9.8) and recorded a gain on the sale of $2.4.

Refer to Note 3, Discontinued Operations, to the consolidated financial statements for additional details on this business.

32



--------------------------------------------------------------------------------

Table of Contents Segment Analysis Merchant Gases Six Months Ended 31 March 2014 2013 $ Change Change Sales $ 2,087.8$ 2,012.3$ 75.5 4 % Operating income 312.6 339.1 (26.5 ) (8 )% Operating margin 15.0 % 16.9 % (190 bp) Equity affiliates' income 63.4 69.9 (6.5 ) (9 )% Merchant Gases Sales % Change from Prior Year Underlying business Volume 4 % Price 1 % Currency (1 )% Total Merchant Gases Sales Change 4 %



Underlying sales increased 5% due to higher volumes of 4% and higher pricing of 1%. Currency had an unfavorable impact on sales of 1%.

In the U.S./Canada, sales increased 8%, with volumes up 5% and price up 3%. Volumes increased as higher liquid oxygen and liquid nitrogen volumes to oilfield services and metals end markets were partially offset by helium supply limitations. Volumes also increased as a result of our EPCO Carbondioxide Products, Inc. acquisition. Pricing was higher primarily due to helium.

In Europe, sales increased 2%, as favorable currency impacts of 4% were partially offset by volumes down 1% and lower price of 1%. Volumes were down as higher liquid oxygen, nitrogen, and argon volumes were more than offset by lower helium volumes due to supply limitations and lower packaged gases volumes.

In Asia, sales increased 6%, due to volumes up 7% partially offset by pricing down 1%. Volumes were higher as higher liquid oxygen, nitrogen, and argon volumes were partially offset by lower helium volumes. Pricing decreased in liquid oxygen, nitrogen, and argon, particularly in China, driven by a higher mix of wholesale customers.

In South America, sales decreased 7%, as an unfavorable currency impact of 10% was partially offset by higher volumes of 2% and higher pricing of 1%. The unfavorable currency impact was primarily due to the Chilean Peso.

Merchant Gases Operating Income and Margin

Operating income of $312.6 was lower by $26.5, or 8%, as higher operating costs of $18 and lower recovery of raw material costs in pricing of $16 were partially offset by higher volumes of $15. The prior year also included the gain on a sale of our investment in an equity affiliate of $5. Operating margin decreased 190 bp from prior year, primarily due to higher power and fuel costs, including the severe weather impacts in North America.

Merchant Gases Equity Affiliates' Income

Merchant Gases equity affiliates' income of $63.4 decreased $6.5, primarily from unfavorable currency impacts in Mexico, South Africa, and India and higher costs.

33



--------------------------------------------------------------------------------

Table of Contents Tonnage Gases Six Months Ended 31 March 2014 2013 $ Change Change Sales $ 1,648.0$ 1,706.9$ (58.9 ) (3 )% Operating income 229.8 261.3 (31.5 ) (12 )% Operating margin 13.9 % 15.3 % (140 bp) Tonnage Gases Sales % Change from Prior Year Underlying business Volume (10 )% Currency 1 % Energy and raw material cost pass-through 6 % Total Tonnage Gases Sales Change (3 )%



Volumes decreased 10% as strong demand in the U.S. Gulf Coast hydrogen system was more than offset by reduced volumes due to plant outages and lower volumes in Latin America and our PUI business. The lower PUI volumes decreased sales by 4%. As of the end of the first quarter of 2014, our exit from the PUI business was complete. Favorable currency impacts increased sales by 1%. Higher energy contractual cost pass-through to customers increased sales by 6%.

Tonnage Gases Operating Income and Margin

Operating income decreased primarily due to lower volumes of $18 and higher costs, including maintenance, of $13. Operating margin decreased 140 bp from prior year, primarily due to the higher maintenance costs and higher pass-through of energy costs.

Electronics and Performance Materials

Six Months Ended 31 March 2014 2013 $ Change Change Sales $ 1,170.8$ 1,097.8$ 73.0 7 % Operating income 190.6 138.8 51.8 37 % Operating margin 16.3 % 12.6 % 370 bp



Electronics and Performance Materials Sales

% Change from Prior Year Underlying business Volume 8 % Price (1 )% Total Electronics and Performance Materials Sales Change 7 %



Sales increased 7% as higher volumes of 8% were partially offset by lower pricing of 1%. Electronics sales increased 5% as higher delivery systems equipment sales and materials volumes of 6% were partially offset by lower pricing of 1%. Performance Materials sales increased by 9% as higher volumes of 10% were partially offset by lower pricing of 1%. The increase in volumes was primarily due to strength in the automobile and coatings end markets. The lower pricing was primarily due to unfavorable mix impacts.

Electronics and Performance Materials Operating Income and Margin

Operating income of $190.6 increased 37%, or $51.8, from higher volumes of $47 and lower operating costs of $21, partially offset by unfavorable price and mix impacts of $18. The lower operating costs primarily include the benefits of our recent business restructuring and cost reduction actions. Operating margin of 16.3% increased 370 bp due to the higher volumes and improved cost performance.

34



--------------------------------------------------------------------------------

Table of Contents Equipment and Energy Six Months Ended 31 March 2014 2013 $ Change Change Sales $ 220.8$ 229.6$(8.8 ) (4 )% Operating income 43.4 29.0 14.4 50 %



Equipment and Energy Sales and Operating Income

Sales of $220.8 decreased as lower ASU project activity was partially offset by higher LNG project activity. Operating income of $43.4 increased from the higher LNG activity.

The sales backlog for the Equipment business at 31 March 2014 was $338, compared to $402 at 30 September 2013.

Other

Other operating loss was $(6.1) compared to $(6.1) in the prior year. No individual items were significant in comparison to the prior year.

PENSION BENEFITS

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. For the six months ended 31 March 2014, required contributions to funded pension plans and benefit payments under unfunded pension plans were $43.9. For the six months ended 31 March 2013, cash contributions were $238.9, which included voluntary contributions of $220. Total contributions for fiscal 2014 are expected to be approximately $80 to $100. During fiscal 2013, total contributions were $300.8.

Refer to Note 9, Retirement Benefits, to the consolidated financial statements for details on pension cost and cash contributions.

35



--------------------------------------------------------------------------------

Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

We have maintained a strong financial position through the first six months of 2014. We continue to have consistent access to commercial paper markets and cash flows from operations and financing activities are expected to meet liquidity needs for the foreseeable future.

As of 31 March 2014, we had $345.7 of foreign cash and cash items compared to total cash and cash items of $356.9. If the foreign cash and cash items are needed for operations in the U.S. or we otherwise elect to repatriate the funds, we may be required to accrue and pay U.S. taxes on a significant portion of these amounts. 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 outside the U.S. Current financing alternatives do not require the repatriation of foreign funds.

The narrative below refers to the consolidated statements of cash flows included on page 6.

Operating Activities

For the first six months of 2014, cash provided by operating activities was $1,024.7, including income from continuing operations of $570.6. Income from continuing operations is adjusted for non-cash items that include depreciation and amortization, undistributed earnings of equity affiliates, share-based compensation expense, and noncurrent capital lease receivables. The working capital accounts were a use of cash of $125.9, including an increase in trade receivables of $82.0 and a decrease in accounts payable and accrued liabilities of $130.0 which included payments related to the 2013 business restructuring and cost reduction plan of $17.8, a reduction in accrued interest of $21.7, and payments associated with projects accounted for as capital leases of $56.3.

We contributed $43.9 to our pension plans, primarily for plans in the U.K. Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications.

For the first six months of 2013, cash provided by operating activities was $598.2, primarily driven by income from continuing operations of $566.2. Cash used in working capital of $172.4 was driven by a decrease in payables and accrued liabilities and included payments related to the business restructuring and cost reduction plans of $40.5 and a reduction in accrued interest of $17.3. We contributed $238.9 to our pension plans, primarily for plans in the U.S. The non-cash impact of noncurrent capital lease receivables reduced cash provided by operating activities by $123.2.

Investing Activities

For the first six months of 2014, cash used for investing activities was $791.4, primarily driven by capital expenditures for plant and equipment of $802.2.

For the first six months of 2013, cash used for investing activities was $702.2, primarily driven by capital expenditures for plant and equipment of $707.3.

Capital expenditures are detailed in the table below:

Six Months Ended 31 March 2014 2013 Additions to plant and equipment $802.2$707.3 Capital expenditures on a GAAP basis $802.2$707.3 Capital lease expenditures(A) 99.1 126.7 Capital expenditures on a Non-GAAP basis $901.3$834.0 (A) We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities, if the arrangements qualifies as a capital lease. The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure that our management uses internally to evaluate and manage our expenditures. 36



--------------------------------------------------------------------------------

Table of Contents

Financing Activities

For the first six months of 2014, cash used by financing activities was $337.7. Our borrowings (short- and long-term proceeds, net of repayments) were a net use of cash of $81.1, driven primarily by the repayment of a 3.75% Eurobond of 300 million ($401.0) in November 2013, partially offset by an increase in commercial paper and short-term borrowings of $370.9. The primary additional use of cash was to pay dividends of $300.2.

For the first six months of 2013, cash provided by financing activities was $42.7. Our borrowings (short- and long-term proceeds, net of repayments) were a net source of cash of $716.4, driven primarily by an increase in commercial paper and short-term borrowings of $604.4. Primary uses of cash were to purchase 5.7 million shares of treasury stock for $461.6 and to pay dividends of $268.9.

Discontinued Operations

For the first six months of 2014, cash provided by discontinued operations was $10.5. The sale of the remaining Homecare business, which was primarily in the United Kingdom and Ireland, generated proceeds of 6.1 million ($9.8) and a $2.4 gain which are included in discontinued operations in the consolidated statements of cash flows. Refer to Note 3, Discontinued Operations, to the consolidated financial statements for additional information.

Financing and Capital Structure

Total debt at 31 March 2014 and 30 September 2013, expressed as a percentage of the sum of total debt and total capitalization (total debt plus total equity plus redeemable noncontrolling interest), was 43.9% and 45.3%, respectively. Total debt decreased from $6,273.6 at 30 September 2013 to $6,167.1 at 31 March 2014.

During fiscal 2013, we entered into a five-year $2,500.0 revolving credit agreement maturing 30 April 2018 with a syndicate of banks (the "2013 Credit Agreement"), under which senior unsecured debt is available to both the Company and certain of its subsidiaries. The 2013 Credit Agreement provides a source of liquidity for the Company and supports its commercial paper program. The Company's only financial covenant is a maximum ratio of total debt to total capitalization of 70%. No borrowings were outstanding under the 2013 Credit Agreement as of 31 March 2014.

Effective 11 June 2012, we entered into an offshore Chinese Renminbi (RMB) syndicated credit facility of RMB1,000.0 million ($160.9), that was to mature in June 2015. On 20 March 2014, we repaid the outstanding balance of RMB 250.0 million ($40.2) and terminated the credit facility. Additional commitments totaling $290.5 are maintained by our foreign subsidiaries, of which $253.4 was borrowed and outstanding at 31 March 2014.

As of 31 March 2014, we are in compliance with all of the financial and other covenants under our debt agreements.

As of 31 March 2014, we classified $400.0 of commercial paper and our 3.875% Eurobond of 300 million ($413) maturing in March 2015 as long-term debt because we have the ability to refinance the debt under the 2013 Credit Agreement. Our current intent is to refinance this debt via the U.S. or European public or private placement markets.

On 15 September 2011, the Board of Directors authorized the repurchase of up to $1,000 of our outstanding common stock. During the first six months of fiscal year 2014, no shares were purchased. At 31 March 2014, $485.3 in share repurchase authorization remains.

CONTRACTUAL OBLIGATIONS

We are obligated to make future payments under various contracts such as debt agreements, lease agreements, unconditional purchase obligations, and other long-term obligations. Other than the repayment of a maturing 3.75% Eurobond of 300 million ($401.0) in November 2013 and the termination of our offshore Chinese Renminbi syndicated credit facility, there have been no material changes to contractual obligations since 30 September 2013.

COMMITMENTS AND CONTINGENCIES

Other than the operations guarantee associated with the sale of the remaining portion of the Homecare business as discussed in Note 3, Discontinued Operations, to the consolidated financial statements, there have been no material changes to commitments and contingencies since 30 September 2013. For current updates on Litigation and Environmental matters, refer to Note 10, Commitments and Contingencies, in this quarterly filing.

37



--------------------------------------------------------------------------------

Table of Contents

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes to off-balance sheet arrangements since 30 September 2013. We are not a primary beneficiary in any material variable interest entity. Our off-balance sheet arrangements are not reasonably likely to have a material impact on financial condition, changes in financial condition, and results of operations or liquidity.

RELATED PARTY TRANSACTIONS

Our principal related parties are equity affiliates operating in the industrial gas business. We did not engage in any material transactions involving related parties that included terms or other aspects that differ from those which would be negotiated at arm's length with clearly independent parties.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of our financial condition and results of operations is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Information concerning our implementation and impact of new accounting standards issued by the FASB is included in Note 2, New Accounting Guidance, to the consolidated financial statements. There have been no changes in accounting policy in the current period that had a material impact on our financial condition, change in financial condition, liquidity, or results of operations.

NEW ACCOUNTING GUIDANCE

See Note 2, New Accounting Guidance, to the consolidated financial statements for information concerning our implementation and impact of new accounting guidance.

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance and business outlook. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date this report is filed. 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, weakening or reversal of global or regional economic recovery; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; the impact of competitive products and pricing; unexpected changes in raw material supply and markets including helium; the impact of price fluctuations in natural gas; unanticipated asset impairments or losses; the ability to recover increased energy and raw material costs, including weather related costs, from customers; costs and outcomes of litigation or regulatory investigations; the impact of management and organizational changes, including pension settlement and other associated costs; the success of productivity programs; the timing, impact, and other uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; political risks, including the risks of unanticipated government actions that may result in project delays, cancellations or expropriations; the impact of changes in environmental, tax or other legislation and regulatory activities in jurisdictions in which the Company and its affiliates operate; the impact on the effective tax rate of changes in the mix of earnings among our U.S. and international operations; and other risk factors described in the Company's Form 10-K for its fiscal year ended September 30, 2013. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this report to reflect any change in the Company's assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

38



--------------------------------------------------------------------------------

Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses