2017 Annual Report
On the cover:
Building on more than 30 years of continuous growth and investment in China,
in September 2017, Air Products announced an agreement to form a $1.3 billion
joint venture (JV) with Lu’An Clean Energy Company serving the syngas-to-liquids
production facility in Changzhi City, Shanxi Province, China. The JV will own and
operate the air separation units, gasifiers and syngas cleanup systems to provide
syngas to Lu’An under a long-term agreement. The creation of this world-class JV
is perfectly in line with Air Products’ strategy to deploy cash to grow through asset
buybacks and by expanding its scope of supply.
Air Products | 2017 Annual Report
Air Products | 2017 Annual Report
Our Businesses
Air Products reported fiscal 2017 results under five segments:
• Industrial Gases – Americas
• Industrial Gases – EMEA (Europe, Middle East, and Africa)
• Industrial Gases – Asia
• Industrial Gases – Global
• Corporate and other
Regional Industrial Gases
The regional Industrial Gases (Americas, EMEA, and Asia) segments
produce and sell atmospheric gases such as oxygen, nitrogen, and argon
(primarily recovered by the cryogenic distillation of air) and process
gases such as hydrogen, carbon monoxide, helium, syngas, and specialty
gases. We supply gases to customers in many industries, including
metals, glass, chemical processing, energy production and refining, food
processing, metallurgical industries, medical, and general manufacturing.
We distribute gases to customers through a variety of supply modes,
including liquid or gaseous bulk supply delivered by tanker or tube
trailer and, for smaller customers, packaged gases delivered in cylinders
and dewars or small on-sites (cryogenic or non-cryogenic generators).
For large-volume customers, we construct an on-site plant adjacent to or
near the customer’s facility or deliver product from one of our pipelines.
Industrial Gases – Global
The Industrial Gases – Global segment includes cryogenic and gas
processing equipment sales for air separation. The equipment is sold
worldwide to customers in a variety of industries, including chemical
and petrochemical manufacturing, oil and gas recovery and processing,
and steel and primary metals processing. The Industrial Gases – Global
segment also includes centralized global costs associated with managing
all of the Industrial Gases segments.
Corporate and other
The Corporate and other segment includes two global businesses: the
liquefied natural gas sale of equipment and process technology business,
and the liquid helium and liquid hydrogen transport and storage container
business. It also includes corporate support functions that benefit all
business segments.
I
II
Financial highlights
Consolidated sales
by region
n U.S./Canada
n Europe/Middle East/India
n China
n Asia (excluding China)
n Latin America
39%
31%
14%
5%
11%
Consolidated sales
by business segment
n IG – Americas
n IG – EMEA
n IG – Asia
n IG – Global
n Corporate and other
22%
24%
44%
9%
1%
Millions of dollars, except for share and per share data
2017
2016
Change
9%
(7%)
(300) bp
3%
375%
16%
(110) bp
(220) bp
9%
— bp
13%
7%
(80) bp
14%
(30) bp
(120) bp
2%
12%
9%
42%
$ 8,188
1,428
$ 7,504
1,530
17.4%
1,134
3,000
1,056
10.1%
13.2%
1,720
21.6%
1,386
2,795
34.1%
1,066
12.1%
16.1%
$ 5.16
6.31
3.71
46.19
$10,086
218
5,700
15,300
20.4%
1,100
631
908
11.2%
15.4 %
1,620
21.6%
1,230
2,622
34.9%
935
12.4%
17.3 %
$ 5.04
6.64
3.39
32.57
$ 7,080
216
6,000
18,600
33.9%
33.2%
35.9%
35.2% 34.8% 34.7%
34.9%
34.0%
32.9%
FOR THE YEAR (all from continuing operations, unless otherwise indicated)
GAAP
Sales
Operating income
Operating margin
Net income from continuing operations attributable to Air Products
Net income attributable to Air Products
Capital expenditures
Return on capital employed (ROCE)
Return on average shareholders’ equity
NON-GAAP
Adjusted operating income (A)
Adjusted operating margin (A)
Adjusted net income attributable to Air Products(A)
Adjusted EBITDA(A)(B)
Adjusted EBITDA margin(A)(B)
Adjusted capital expenditures(A)
Adjusted ROCE(B)
Adjusted return on average Air Products shareholders’ equity (B)
PER SHARE
GAAP diluted earnings per share (EPS)
Adjusted diluted EPS(A)
Dividends declared
Book value
AT YEAR END
Air Products shareholders’ equity
Shares outstanding (in millions)
Shareholders
Employees (C)
Adjusted EBITDA Margin Trend(B)
31.1%
29.6%
28.7% 28.8%
26.5%
25.1%
36%
34%
32%
30%
28%
26%
24%
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
Q117
Q217
Q317
Q417
(A) Amounts are non-GAAP measures. See reconciliation to GAAP results within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,
of the accompanying Form 10-K.
(B) Amounts are non-GAAP measures. See pages III-V for reconciliation to GAAP results. Fiscal years 2015 through 2017 are presented on a continuing operations basis. Fiscal year 2014 is
presented as previously reported, including the results of the former Materials Technologies segment.
(C) Includes full- and part-time employees from continuing and discontinued operations.
Non-GAAP measures
Adjusted EBITDA
We define Adjusted EBITDA as income from continuing operations
(benefit), and depreciation and amortization expense. Adjusted
(including noncontrolling interests) excluding certain disclosed
EBITDA provides a useful metric for management to assess
items, which the Company does not believe to be indicative of
operating performance. Below is a reconciliation of Income from
underlying business trends, before interest expense, other
Continuing Operations on a GAAP basis to Adjusted EBITDA:
non-operating income (expense), net, income tax provision
2017(A)
Q1
Q2
Income from Continuing Operations
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision (benefit)
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Add: Pension settlement loss
Add: Goodwill and intangible asset impairment charge
Less: Gain on land sale
Add: Equity method investment impairment charge
Adjusted EBITDA
$ 258.2
29.5
—
78.4
206.1
30.2
50.0
—
—
—
—
$ 652.4
$ 310.1
30.5
9.7
94.5
211.8
—
10.3
4.1
—
—
—
$ 651.6
Q3
$ 106.4
29.8
9.8
89.3
216.9
—
42.7
5.5
162.1
—
79.5
$ 722.4
Q4
Total
$ 480.5
30.8
9.5
(1.3)
231.0
—
48.4
.9
—
12.2
—
$ 768.6
$1,155.2
120.6
29.0
260.9
865.8
30.2
151.4
10.5
162.1
12.2
79.5
$2,795.0
Adjusted EBITDA margin
2016(A)
34.7%
Q1
32.9%
Q2
34.0%
Q3
34.9%
Q4
34.1%
Total
Income from Continuing Operations
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Add: Pension settlement loss
Add: Loss on extinguishment of debt
Adjusted EBITDA
$ 287.2
22.2
96.4
214.7
12.0
—
—
—
$ 632.5
$ 284.7
25.7
93.5
213.9
7.4
10.7
2.0
—
$ 637.9
$ 255.7
35.1
145.9
213.5
9.5
13.2
1.0
—
$ 673.9
$ 294.4
32.2
96.8
212.5
21.7
10.6
2.1
6.9
$ 677.2
$ 1,122.0
115.2
432.6
854.6
50.6
34.5
5.1
6.9
$2,621.5
Adjusted EBITDA margin
2015(A)
Income from Continuing Operations
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Add: Pension settlement loss
Less: Gain on previously held equity interest
Less: Gain on land sales
Add: Loss on extinguishment of debt
Adjusted EBITDA
Adjusted EBITDA margin
2014(A)
33.9%
Q1
35.9%
Q2
35.2%
Q3
34.8%
Q4
34.9%
Total
$ 260.8
28.8
76.8
215.3
—
24.3
—
17.9
—
—
$ 588.1
$ 193.5
23.2
63.0
213.9
—
52.9
11.9
—
—
—
$ 558.4
$ 233.8
28.1
74.7
214.2
—
49.6
1.4
—
—
—
$ 601.8
$ 277.8
22.7
85.7
215.1
7.5
53.3
6.0
—
33.6
16.6
$ 651.1
$ 965.9
102.8
300.2
858.5
7.5
180.1
19.3
17.9
33.6
16.6
$2,399.4
28.8%
Q1
29.6%
Q2
31.1%
Q3
33.2%
Q4
30.7%
Total
Income from Continuing Operations
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business restructuring and cost reduction actions
Add: Pension settlement loss
Add: Goodwill and intangible asset impairment charge
Adjusted EBITDA
$ 297.7
33.3
95.3
234.2
—
—
—
$ 660.5
$ 293.7
31.5
93.0
229.1
—
—
—
$ 647.3
$ 325.4
31.3
103.0
239.0
—
—
—
$ 698.7
$ 79.2
29.0
78.1
254.6
12.7
5.5
310.1
$ 769.2
$ 996.0
125.1
369.4
956.9
12.7
5.5
310.1
$2,775.7
Adjusted EBITDA margin
25.9%
25.1%
26.5%
28.7%
26.6%
(A) Fiscal years 2015 through 2017 are presented on a continuing operations basis. Fiscal year 2014 is presented as previously reported, including the results of the former Materials Technologies
segment.
III
Non-GAAP measures
Return on capital employed (ROCE)
Return on capital employed (ROCE) is calculated on a continuing
income attributable to noncontrolling interests. This non-GAAP
operations basis as earnings after-tax divided by five-quarter
measure has been adjusted for the impact of the disclosed items
average total capital. Earnings after-tax is calculated based on
detailed below. Total capital consists of total debt, total equity,
trailing four quarters and is defined as the sum of net income
and redeemable noncontrolling interest less noncontrolling
from continuing operations attributable to Air Products, interest
interests and total assets of discontinued operations..
expense, after-tax, at our effective quarterly tax rate, and net
Net income from continuing operations attributable to Air Products
Interest expense
Interest expense tax impact
Interest expense, after-tax
Net income attributable to noncontrolling interests of continuing operations
Earnings After-Tax—GAAP
Disclosed items, after-tax
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on land sale
Equity method investment impairment charge
Loss on extinguishment of debt
Tax election benefit
Earnings After-Tax—Non-GAAP
Five-Quarter Average Total Capital
ROCE—GAAP
Change GAAP-based Measure
ROCE—Non-GAAP items
Change Non-GAAP-based Measure
2017
2016
$ 1,134.4
$ 1,099.5
120.6
(27.5)
93.1
20.8
115.2
(32.6)
82.6
22.5
$ 1,248.3
$ 1,204.6
26.5
(5.5)
109.3
6.6
154.1
(7.6)
79.5
—
(111.4)
$ 1,499.8
46.7
51.8
24.7
3.3
—
—
—
4.3
—
$ 1,335.4
$12,391.8
$ 10,779.4
10.1%
(110)bp
12.1%
(30)bp
11.2%
12.4%
IV
Air Products | 2017 Annual Report
Return on average Air Products shareholders’ equity
Return on Air Products shareholders’ equity is calculated using net
tinued operations). On a non-GAAP basis, income from continuing
income from continuing operations attributable to Air Products
operations attributable to Air Products has been adjusted for the
divided by five-quarter average Air Products shareholders’ equity
after-tax impact of the disclosed items detailed below.
on a total company basis (includes both continuing and discon-
Five-quarter average Air Products shareholders’ equity
2017
$8,611.4
2016
$7,131.5
Net income from continuing operations attributable to Air Products—GAAP
$1,134.4
$1,099.5
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Loss on extinguishment of debt
Tax election benefit
26.5
(5.5)
109.3
6.6
154.1
—
(7.6)
79.5
—
(111.4)
46.7
51.8
24.7
3.3
—
—
—
—
4.3
—
2015
$7,377.0
$ 933.3
7.5
—
132.9
12.4
—
(11.2)
(28.3)
—
14.2
—
Adjusted net income from continuing operations attributable to Air Products
$ 1,385.9
$ 1,230.3
$ 1,060.8
Return on Air Products Shareholders’ Equity—GAAP
Adjusted Return on Air Products Shareholders’ Equity
13.2%
16.1%
15.4%
17.3%
12.7%
14.4%
Diluted Earnings Per Share (EPS)
Diluted EPS is calculated as income from continuing operations
attributable to Air Products divided by the weighted average
common shares that reflects the potential dilution that could
occur if stock options or other share-based awards were exercised
or converted into common stock. Adjusted EPS is a non-GAAP
measure in which income has been adjusted for the impact of the
disclosed items detailed below.
Diluted EPS—GAAP
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Loss on extinguishment of debt
Tax election benefit
Adjusted Diluted EPS
Diluted EPS—GAAP change
Diluted EPS—GAAP % change
Adjusted Diluted EPS change
Adjusted Diluted EPS % change
2017
2016
2015
2014
$ 5.16
$ 5.04
$ 4.29
$ 3.24
.12
(.02)
.49
.03
.70
—
(.03)
.36
—
(.50)
.21
.24
.11
.02
—
—
—
—
.02
—
.03
—
.61
.06
—
(.05)
(.13)
—
.07
—
$ 6.31
$ .12
$ 5.64
$ .75
$ 4.88
$ 1.05
2%
17%
32%
$ .67
$ .76
$ .46
12%
16%
10%
—
—
.03
.02
1.27
—
—
—
—
(.14)
$ 4.42
V
To our shareholders*
Seifi Ghasemi
Chairman, President and Chief Executive Officer
of Air Products, and recipient of the 2017 biennial
International Palladium Medal from Société de
Chimie Industrielle
*The results included in this letter are non-GAAP.
See reconciliation to GAAP results within Item 7,
Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of the
accompanying Form 10-K. Fiscal years 2015 through 2017
are presented on a continuing operations basis. Fiscal
year 2014 is presented as previously reported, including
the results of the former Materials Technologies segment.
VI
My fellow shareholders,
I am very proud of the talented, committed
and dedicated team at Air Products, our people,
who delivered another set of excellent results in
fiscal 2017.
Record adjusted diluted EPS of $6.31 increased
12 percent, our third consecutive year delivering
greater than 10 percent adjusted diluted EPS
growth. Adjusted EBITDA of $2.8 billion increased
seven percent over the prior year on strong
volumes and productivity. Adjusted EBITDA
margin of 34.1 percent declined 80 basis points
but increased 10 basis points versus prior year
excluding the impact of higher energy pass-through.
We also generated strong cash flow and returned
about $800 million of that through dividends.
Strong Execution
Ultimately our success is built on providing excellent
service to our customers. We are committed to providing
them with the right innovations and solutions to make
their processes better.
During the year, our teams worked diligently to
successfully execute major projects around the world
for our customers. We brought on-stream a world-class
hydrogen project in India, a large air separation unit (ASU)
in Korea and our seventh ASU in China providing oxygen
for coal gasification. We continue to make great progress
on the Jazan project in the Kingdom of Saudi Arabia and
currently expect onstream in phases starting in fiscal
year 2019. We also established a world-class technology
center in the Dhahran Techno Valley Science Park to
serve Saudi Arabia and the Middle East region. And we
continued to win new projects around the world for
key customers in the electronics, manufacturing and
chemical markets that will drive growth.
Air Products | 2017 Annual Report Promises Made, Promises Kept
Three years ago, we made very specific promises to you, our shareholders. Working together, the Air Products
team has delivered on every one of those promises.
Three years ago we said:
We would be the safest
industrial gas company in
the world.
We would be the most
profitable industrial gas
company in the world.
We would divest
non-core assets.
We would have the best
balance sheet in the industry.
We would deliver
adjusted diluted EPS growth
of 10 percent every year.
Done
Done
Done
Done
Done
We are the safest industrial gas company, with a 75 percent
improvement in our employee lost-time injury rate over the past three
years. This is a clear indication that our 15,000 employees around the
world are focused on safety and operational excellence. This focus is
also driving our strong financial performance.
We are the most profitable industrial gas company, with an adjusted
EBITDA margin of more than 34 percent, an increase of 900 basis points
from three-and-a-half years ago.
We sold our Performance Materials business to Evonik for 15.8x EBITDA.
We also spun-off our Electronic Materials business as Versum Materials;
they have delivered very strong results and are thriving as a leading
electronic materials company.
Air Products has the strongest balance sheet in the industry, and we are
well-positioned to take advantage of tremendous growth opportunities
in industrial gases.
We delivered adjusted EPS growth of 10 percent in 2015, 16 percent in
2016 and 12 percent in 2017.
We have a great team that is totally focused on delivering strong performance, day in and day out. What is most
exciting to me right now is that we are very well positioned to grow Air Products and create significant further
value for you, our shareholders. We have the balance sheet to do it.
Pursuing Growth
Our portfolio actions and the strong cash flow generation
of our company provide us with an expected capacity of
over $8 billion to invest over the next three years. We see
strong investment opportunities for growth:
existing rather than new production assets. The Lu’An
project we announced in September, which is featured
on the cover of this report, is a perfect example of this
area of growth for us.
• First, acquisitions of small- and medium-sized
• Third, executing very large industrial gas projects
industrial gas companies or assets or businesses from
other industrial gas companies.
• Second, purchasing existing industrial gas facilities
from customers to create long-term contracts where
Air Products owns and operates the plants and sells
industrial gases to customers based on a fixed fee. We
see opportunities for oxygen and hydrogen plants
around the world in this ‘asset buyback’ category.
We also see the opportunity to expand our scope of
supply to include operating existing gasification units
and the sale of syngas to customers under long-term
agreements. Essentially, these opportunities are the
same as the traditional on-site business model that
we have—something that we do every day—but with
around the world driven by demand for more energy,
cleaner energy and emerging market growth. The
Jazan project is a great example of how big these
projects can be, representing close to $2 billion of
capital investment. Some of these new large projects
could also include gasification and syngas supply.
For example, in November, we signed an investment
cooperation agreement with Yankuang Group for a $3.5
billion coal-to-syngas production facility to be built in
Yulin City, Shaanxi Province, China.
We are committed to staying disciplined, and we will not
invest unless we are confident the risk/return profile will
create significant value for you, our shareholders.
VII
To our shareholders
Air Products will be the safest,
Acknowledgments
most diverse and most profitable
industrial gas company in the world,
providing excellent service to our
customers.
Elevating Diversity and Inclusion
in our Goal
In addition to being the safest and most profitable
industrial gas company in the world, we elevated our
commitment to diversity and inclusion by explicitly
incorporating it in our goal. This is a natural extension
of the culture we are building at Air Products. I believe
this focus on diversity and inclusion will contribute
to maintaining our position as the most profitable
industrial gas company over the long term, because,
as I’ve always said, the degree of commitment and
motivation of our people is the real sustainable
competitive advantage that we have. We want to
ensure we are providing opportunities and the right
environment for everyone to contribute and succeed,
regardless of gender, color, race, religion, orientation,
country of origin or any other dimension of diversity.
In closing, I want to thank those who have
supported us throughout the year and helped
us achieve our success.
To our customers . . . In serving you, we serve
our higher purpose, supplying products that
benefit the environment and help you to be
more efficient and sustainable. Providing you
with innovative products and excellent service
is the reason Air Products exists and underpins
everything we do. Thank you for giving us
your business.
To our employees . . . It is an honor and
privilege to work with the great team at
Air Products. You delivered excellent safety
and financial performance and are continuing
to drive for simplicity and self-confidence in
everything you do. Thank you for never being
satisfied. I know you share my passion to
implement our culture of safety, simplicity,
speed and self confidence, so that we continue
to be the best in the industry.
To our shareholders . . . Thank you for your
confidence and trust in Air Products. Our
priority remains creating superior value
for you.
Seifi Ghasemi
Chairman, President and Chief Executive Officer
of Air Products
VIII
Air Products | 2017 Annual Report Board of Directors
Susan K. Carter
Senior Vice President and Chief Financial
Officer of Ingersoll-Rand Plc.
Director of the Company since 2011.
David H. Y. Ho
Chairman and Founder of Kiina
Investment Ltd.
Director of the Company since 2013.
Charles I. Cogut
Senior Mergers and Acquisitions Counsel and
Retired Partner, Simpson Thacher & Bartlett LLP.
Director of the Company since 2015.
Chadwick C. (Chad) Deaton
(Lead Director)
Retired Chairman and Chief Executive Officer
of Baker Hughes Incorporated.
Director of the Company since 2010.
Seifi Ghasemi
Chairman, President and Chief Executive
Officer of the Company.
Director of the Company since 2013.
Margaret G. McGlynn
Retired President, International AIDS Vaccine
Initiative and Merck & Co., Inc. Global Vaccine
and Infectious Disease Division.
Director of the Company since 2005.
Edward L. Monser
President and Chief Operating Officer
of Emerson Electric Co.
Director of the Company since 2013.
Matthew H. Paull
Former Senior Executive Vice President and
Chief Financial Officer of McDonald’s
Corporation.
Director of the Company since 2013.
Executive Officers
Seifi Ghasemi
Chairman, President and
Chief Executive Officer
M. Scott Crocco
Executive Vice President and
Chief Financial Officer
Jennifer L. Grant
Senior Vice President and
Chief Human Resources Officer
Sean D. Major
Executive Vice President and
General Counsel
Corning F. Painter
Executive Vice President
Industrial Gases
Dr. Samir J. Serhan
Executive Vice President
For more information about corporate
governance practices at Air Products,
visit our Governance website at
www.airproducts.com/company/governance.
IX
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended 30 September 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition
period from to
Commission file number 001-04534
AIR PRODUCTS AND CHEMICALS, INC.
7201 Hamilton Boulevard
State of incorporation: Delaware
Allentown, Pennsylvania, 18195-1501
I.R.S. identification number: 23-1274455
Tel. (610) 481-4911
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, par value $1.00 per share
2.0% Euro Notes due 2020
0.375% Euro Notes due 2021
1.0% Euro Notes due 2025
Registered on:
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
YES
YES
NO
NO
YES
NO
YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES
NO
The aggregate market value of the voting stock held by non-affiliates of the registrant on 31 March 2017 was approximately $29.3 billion. For
purposes of the foregoing calculations, all directors and/or executive officers have been deemed to be affiliates, but the registrant disclaims that
any such director and/or executive officer is an affiliate.
The number of shares of common stock outstanding as of 31 October 2017 was 218,618,346.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on 25 January 2018 are incorporated by
reference into Part III.
AIR PRODUCTS AND CHEMICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended 30 September 2017
TABLE OF CONTENTS
ITEM 1.
BUSINESS ........................................................................................................................
ITEM 1A.
RISK FACTORS ................................................................................................................
ITEM 1B.
UNRESOLVED STAFF COMMENTS ................................................................................
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
PROPERTIES ...................................................................................................................
LEGAL PROCEEDINGS ...................................................................................................
MINE SAFETY DISCLOSURES ........................................................................................
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES ................................
SELECTED FINANCIAL DATA ..........................................................................................
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................................................
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................................
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE .......................................................................................
ITEM 9A.
CONTROLS AND PROCEDURES ....................................................................................
ITEM 9B.
OTHER INFORMATION ....................................................................................................
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ..................
ITEM 11.
EXECUTIVE COMPENSATION ........................................................................................
ITEM 12.
ITEM 13.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS ...................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ..............................................................................................................
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES .........................................................
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .................................................
INDEX TO EXHIBITS ...............................................................................................................................
SIGNATURES ..........................................................................................................................................
3
7
13
13
14
14
15
17
19
54
56
123
123
123
123
124
124
125
125
126
127
131
2
PART I
ITEM 1
BUSINESS
Air Products and Chemicals, Inc. (“we,” “our,” “us,” the “Company,” “Air Products,” or “registrant”), a Delaware
corporation originally founded in 1940, serves energy, electronics, chemicals, metals, and manufacturing customers
globally with a unique portfolio of products, services, and solutions that include atmospheric gases, process and
specialty gases, equipment, and services. The Company is the world’s largest supplier of hydrogen and has built
leading positions in growth markets such as helium and natural gas liquefaction. As used in this report, unless the
context indicates otherwise, the terms “we,” “our,” “us,” the “Company,” or “registrant” include controlled
subsidiaries, affiliates, and predecessors of Air Products and its controlled subsidiaries and affiliates.
On 1 October 2016, the Company completed the spin-off of its former Electronic Materials business by distributing
to Air Products shareholders on a pro rata basis all of the issued and outstanding stock of Versum Materials, Inc.
("Versum"), the entity Air Products incorporated to hold this business, which established Versum as an independent
publicly traded corporation. On 3 January 2017, Air Products completed the sale of its Performance Materials
business to Evonik Industries AG. The results of operations, financial condition, and cash flows for the Electronic
Materials and Performance Materials businesses are presented herein as discontinued operations. On 29 March
2016, the Board of Directors approved the Company's exit of its Energy-from-Waste ("EfW") business and efforts to
start up and operate the two EfW projects located in Tees Valley, United Kingdom, were discontinued. Since that
time, the EfW segment has been presented as a discontinued operation.
During its fiscal year ended 30 September 2017 (“fiscal year 2017”), the Company reported its continuing
operations in five reporting segments under which it managed its operations, assessed performance, and reported
earnings: Industrial Gases – Americas; Industrial Gases – EMEA (Europe, Middle East, and Africa); Industrial
Gases – Asia; Industrial Gases – Global; and Corporate and other.
Except as otherwise noted, the description of the Company's business below reflects the Company's continuing
operations, which excludes the Electronic Materials, Performance Materials, and EfW businesses. Refer to Note 25,
Business Segment and Geographic Information, and Note 3, Discontinued Operations, to the consolidated financial
statements for additional details on our reportable business segments and our discontinued operations.
Industrial Gases Business
The Company’s Industrial Gases business produces atmospheric gases (oxygen, nitrogen, argon, and rare gases);
process gases (hydrogen, helium, carbon dioxide, carbon monoxide, syngas, and specialty gases); and equipment
for the production or processing of gases, such as air separation units and non-cryogenic generators. Atmospheric
gases are produced through various air separation processes of which cryogenic is the most prevalent. Process
gases are produced by methods other than air separation. For example, hydrogen is produced by steam methane
reforming of natural gas or by purifying byproduct sources obtained from the chemical and petrochemical industries;
and helium is produced as a byproduct of gases extracted from underground reservoirs, primarily natural gas, but
also carbon dioxide purified before resale.
The Company’s Industrial Gases business is organized and operated regionally. The regional Industrial Gases
segments (Americas, EMEA, and Asia) supply gases and related equipment in the relevant region to diversified
customers in many industries, including those in metals, glass, chemical processing, electronics, energy production
and refining, food processing, medical, and general manufacturing. Hydrogen is used by refiners to facilitate the
conversion of heavy crude feedstock and lower the sulfur content of gasoline and diesel fuels. The chemicals
industry uses hydrogen, oxygen, nitrogen, carbon monoxide, and syngas as feedstocks in the production of many
basic chemicals. The energy production industry uses nitrogen injection for enhanced recovery of oil and natural
gas and oxygen for gasification. Oxygen is used in combustion and industrial heating applications, including in the
steel, certain nonferrous metals, glass, and cement industries. Nitrogen applications are used in food processing for
freezing and preserving flavor and nitrogen for inerting is used in various fields, including the metals, chemical, and
semiconductor industries. Helium is used in laboratories and healthcare for cooling and in other industries for
pressurizing, purging, and lifting. Argon is used in the metals and other industries for its unique inerting, thermal
conductivity, and other properties. Industrial gases are also used in welding and providing healthcare and are
utilized in various manufacturing processes to make them more efficient and to optimize performance.
3
We distribute gases to our customers through a variety of supply modes:
Liquid Bulk—Product is delivered in bulk (in liquid or gaseous form) by tanker or tube trailer and stored,
usually in its liquid state, in equipment designed and installed typically by the Company at the customer’s
site for vaporizing into a gaseous state as needed. Liquid bulk sales are usually governed by three- to five-
year contracts.
Packaged Gases—Small quantities of product are delivered in either cylinders or dewars. The Company
operates packaged gas businesses in Europe, Asia, and Latin America. In the United States, the
Company’s packaged gas business sells products (principally helium) only for the electronics and magnetic
resonance imaging industries.
On-Site Gases—Large quantities of hydrogen, nitrogen, oxygen, carbon monoxide, and syngas (a mixture
of hydrogen and carbon monoxide) are provided to customers, principally the energy production and
refining, chemical, and metals industries worldwide who require large volumes of gases that have relatively
constant demand. Gases are produced at large facilities located adjacent to customers’ facilities or by
pipeline systems from centrally located production facilities and are generally governed by 15- to 20- year
contracts. The Company also delivers small quantities of product through small on-site plants (cryogenic or
non-cryogenic generators), typically either via a 10- to 15- year sale of gas contract or through the sale of
the equipment to the customer.
Electricity is the largest cost component in the production of atmospheric gases, and natural gas is the principal raw
material for hydrogen, carbon monoxide, and syngas production. We mitigate electricity and natural gas price
fluctuations contractually through pricing formulas, surcharges, and cost pass-through arrangements. During fiscal
year 2017, no significant difficulties were encountered in obtaining adequate supplies of power and natural gas.
The Company obtains helium from a number of sources globally, including crude helium for purification from the
U.S. Bureau of Land Management's helium reserve. Qatar is a significant supplier of helium globally, providing over
25% of the world's supply. During 2017, multiple Arab states cut diplomatic ties with and closed their borders to
Qatar, disrupting helium production and transportation for several weeks. Air Products' helium business was not
materially affected during this initial phase of the embargo due to its diverse sourcing of crude helium, but customer
demand exceeded supply during this period and supply challenges may recur prior to resolution of the embargo.
The regional Industrial Gases segments also include our share of the results of several joint ventures accounted for
by the equity method. The largest of these joint ventures operate in Mexico, Italy, South Africa, India, Saudi Arabia,
and Thailand.
Each of the regional Industrial Gases segments competes against three global industrial gas companies: Air Liquide
S.A., Linde AG, and Praxair, Inc.; as well as regional competitors. Competition in Industrial Gases is based primarily
on price, reliability of supply, and the development of industrial gas applications. In locations where we have
pipeline networks, which enable us to provide reliable and economic supply of products to larger customers, we
derive a competitive advantage.
Overall regional industrial gases sales constituted approximately 90% of consolidated sales in fiscal year 2017,
90% in fiscal year 2016, and 92% in fiscal year 2015. Sales of tonnage hydrogen and related products constituted
approximately 24% of consolidated sales in fiscal year 2017, 21% in fiscal year 2016, and 24% in fiscal year 2015.
Sales of atmospheric gases constituted approximately 45% of consolidated sales in fiscal year 2017, 46% in fiscal
year 2016 and 45% in fiscal year 2015.
Industrial Gases Equipment
The Company designs and manufactures equipment for air separation, hydrocarbon recovery and purification,
natural gas liquefaction ("LNG"), and liquid helium and liquid hydrogen transport and storage. The Industrial Gases–
Global segment includes cryogenic and non-cryogenic equipment for air separation. The equipment is sold
worldwide to customers in a variety of industries, including chemical and petrochemical manufacturing, oil and gas
recovery and processing, and steel and primary metals processing. The Corporate and other segment includes two
global equipment businesses, our LNG equipment business, and our liquid helium and liquid hydrogen transport
and storage containers business. Steel, aluminum, and capital equipment subcomponents (compressors, etc.) are
the principal raw materials in the manufacturing of equipment. Adequate raw materials for individual projects are
acquired under firm purchase agreements. Equipment is produced at the Company’s manufacturing sites with
certain components being procured from subcontractors and vendors. Competition in the equipment business is
based primarily on technological performance, service, technical know-how, price, and performance guarantees.
Sale of equipment constituted approximately 10% of consolidated sales in fiscal year 2017, 10% in fiscal year 2016,
and 8% in fiscal year 2015.
4
The backlog of equipment orders was approximately $.5 billion on 30 September 2017 (as compared with a total
backlog of approximately $1.1 billion on 30 September 2016) and primarily contains Air Products’ share of the multi-
year contract with a joint venture in Jazan, Saudi Arabia, for the construction of an industrial gas facility that will
supply gases to Saudi Arabian Oil Company ("Saudi Aramco"). Revenue from this contract is recognized under the
percentage-of-completion method based on costs incurred to date compared with total estimated costs to be
incurred. The Company estimates that approximately 80% of the total sales backlog as of 30 September 2017 will
be recognized as revenue during fiscal year 2018, dependent on execution schedules of the relevant projects.
International Operations
The Company, through subsidiaries, affiliates, and less-than-controlling interests, conducts business in 50 countries
outside the United States. Its international businesses are subject to risks customarily encountered in foreign
operations, including fluctuations in foreign currency exchange rates and controls; import and export controls; and
other economic, political, and regulatory policies of local governments described in Item 1A, Risk Factors, below.
The Company has majority or wholly owned foreign subsidiaries that operate in Canada; 17 European countries
(including the United Kingdom, the Netherlands, and Spain); 11 Asian countries (including China, South Korea, and
Taiwan); 8 Latin American countries (including Chile and Brazil); 3 African countries; and 2 Middle Eastern
countries. The Company also owns less-than-controlling interests in entities operating in Europe, Asia, Africa, the
Middle East, and Latin America (including Italy, Germany, China, India, Saudi Arabia, Thailand, Oman, South Africa,
and Mexico).
Financial information about the Company’s foreign operations and investments is included in Note 8, Summarized
Financial Information of Equity Affiliates; Note 22, Income Taxes; and Note 25, Business Segment and Geographic
Information, to the consolidated financial statements included under Item 8, below. Information about foreign
currency translation is included under “Foreign Currency” in Note 1, Major Accounting Policies, and information on
the Company’s exposure to currency fluctuations is included in Note 13, Financial Instruments, to the consolidated
financial statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under
Item 7A, below. Export sales from operations in the United States to third-party customers amounted to $64.2
million, $134.9 million, and $231.5 million in fiscal years 2017, 2016, and 2015, respectively.
Technology Development
The Company pursues a market-oriented approach to technology development through research and development,
engineering, and commercial development processes. It conducts research and development principally in its
laboratories located in the United States (Trexlertown, Pennsylvania); Canada (Vancouver); the United Kingdom
(Basingstoke and Carrington); Spain (Barcelona); and China (Shanghai). The Company also funds and cooperates
in research and development programs conducted by a number of major universities and undertakes research work
funded by others, principally the United States government.
The Company’s research groups are aligned with and support the research efforts of various businesses throughout
the Company. Development of technology for use within the Industrial Gases business focuses primarily on new
and improved processes and equipment for the production and delivery of industrial gases and new or improved
applications for industrial gas products.
Research and development expenditures were $57.8 million during fiscal year 2017, $71.6 million during fiscal year
2016, and $76.4 million in fiscal year 2015. Amounts expended on customer sponsored research activities were
immaterial.
During fiscal year 2017, the Company owned approximately 532 United States patents, approximately 2,544 foreign
patents, and was a licensee under certain patents owned by others. While the patents and licenses are considered
important, the Company does not consider its business as a whole to be materially dependent upon any particular
patent, patent license, or group of patents or licenses.
Environmental Controls
The Company is subject to various environmental laws and regulations in the countries in which it has operations.
Compliance with these laws and regulations results in higher capital expenditures and costs. In the normal course
of business, the Company is involved in legal proceedings under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA", the federal Superfund law); Resource Conservation and Recovery Act
(RCRA); and similar state and foreign environmental laws relating to the designation of certain sites for investigation
or remediation. The Company’s accounting policy for environmental expenditures is discussed in Note 1, Major
Accounting Policies, and environmental loss contingencies are discussed in Note 17, Commitments and
Contingencies, to the consolidated financial statements, included under Item 8, below.
5
The amounts charged to income from continuing operations related to environmental matters totaled $11.4 million in
fiscal year 2017, $12.2 million in fiscal 2016, and $11.8 million in 2015. These amounts represent an estimate of
expenses for compliance with environmental laws and activities undertaken to meet internal Company standards.
Refer to Note 17, Commitments and Contingencies, to the consolidated financial statements for additional
information.
The Company estimates that we spent approximately $7 million in 2017, $3 million in 2016, and $2 million in 2015
on capital projects reflected in continuing operations to control pollution. Capital expenditures to control pollution in
future years are estimated to be approximately $3 million in both 2018 and 2019.
Employees
On 30 September 2017, the Company (including majority-owned subsidiaries) had approximately 15,300
employees, of whom approximately 15,000 were full-time employees and of whom approximately 10,800 were
located outside the United States. The Company has collective bargaining agreements with unions at various
locations that expire on various dates over the next four years. The Company considers relations with its employees
to be satisfactory.
Available Information
All periodic and current reports, registration statements, and other filings that the Company is required to file with
the Securities and Exchange Commission ("SEC"), including the Company’s annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available free of charge through the
Company’s website at www.airproducts.com. Such documents are available as soon as reasonably practicable after
electronic filing of the material with the SEC. All such reports filed during the period covered by this report were
available on the Company’s website on the same day as filing.
The public may also read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports,
proxy, and information statements, and other information regarding issuers that file electronically with the SEC. The
address of that site is www.sec.gov.
Seasonality
The Company’s businesses are not subject to seasonal fluctuations to any material extent.
Inventories
The Company maintains limited inventory where required to facilitate the supply of products to customers on a
reasonable delivery schedule. Inventory consists primarily of crude helium, industrial gas, and specialty gas
inventories supplied to customers through liquid bulk and packaged gases supply modes.
Customers
We do not have a homogeneous customer base or end market, and no single customer accounts for more than
10% of our consolidated revenues. We do have concentrations of customers in specific industries, primarily refining,
chemicals, and electronics. Within each of these industries, the Company has several large-volume customers with
long-term contracts. A negative trend affecting one of these industries, or the loss of one of these major customers,
although not material to our consolidated revenue, could have an adverse impact on our financial results.
Governmental Contracts
Our business is not subject to a government entity’s renegotiation of profits or termination of contracts that would be
material to our business as a whole.
6
Executive Officers of the Company
The Company’s executive officers and their respective positions and ages on 16 November 2017 follow. Information
with respect to offices held is stated in fiscal years.
Name
M. Scott Crocco
Age
53
Russell A. Flugel
48
Seifi Ghasemi
73
Office
Executive Vice President and Chief Financial Officer (became Executive Vice
President and Chief Financial Officer in 2016; Senior Vice President and Chief
Financial Officer in 2013; and Vice President and Corporate Controller in 2008).
Vice President, Corporate Controller and Principal Accounting Officer (became Vice
President, Corporate Controller and Principal Accounting Officer in 2015; Corporate
Controller in 2014; Director, Accounting and Corporate Decision Support in 2013; and
Director, Corporate Decision Support, Technical Accounting and Consolidation in
2011).
Chairman, President, and Chief Executive Officer (became Chairman, President and
Chief Executive Officer in 2014 and previously served as Chairman and Chief
Executive Officer of Rockwood Holdings, Inc. beginning in 2001). Mr. Ghasemi is a
member and Chairman of the Board of Directors and the Chairman of the Executive
Committee of the Board of Directors.
Jennifer L. Grant
45
Vice President and Chief Human Resources Officer (became Vice President and
Chief Human Resources Officer in 2013). Prior to joining Air Products, was Vice
President of Human Resources for Pfizer Inc. Specialty Products and Oncology
Divisions from 2009-2013.
Sean D. Major
53
Executive Vice President and General Counsel (since May, 2017). Previously, Mr.
Major served as Executive Vice President, General Counsel and Secretary for Joy
Global since 2007.
Corning F. Painter
55
Executive Vice President Industrial Gases (became Executive Vice President
Industrial Gases in 2015; Senior Vice President and General Manager –Merchant
Gases in 2014; Senior Vice President – Supply Chain in 2012; and Senior Vice
President –Corporate Strategy and Technology in 2011.
Dr. Samir Serhan
56
Executive Vice President (since December, 2016). Previously, Dr. Serhan served as
President, Global HyCO, since 2014 for Praxair Inc. From 2000-2014, he worked in
leadership positions in the U.S. and Germany for The Linde Group.
ITEM 1A.
RISK FACTORS
Our operations are affected by various risks, many of which are beyond our control. In evaluating investment in the
Company and the forward-looking information contained in this Annual Report on Form 10-K or presented
elsewhere by management from time to time, you should consider the following risk factors. Any of the following
risks could have a material adverse effect on our business, operating results, financial condition, and the actual
outcome of matters as to which forward-looking statements are made and could adversely affect the value of an
investment in our common stock as well. While we believe we have identified and discussed below the key risk
factors affecting our business, there may be additional risks and uncertainties that adversely affect our business,
performance, or financial condition in the future that are not presently known, are not currently believed to be
significant, or are not identified below because they are common to all businesses.
Unfavorable conditions in the global economy, the markets we serve, or the financial markets, may decrease the
demand for our goods and services and adversely impact our revenues, operating results, and cash flows.
Demand for the Company’s products and services depends in part on the general economic conditions affecting the
countries and markets in which the Company does business. Weak economic conditions in certain geographies and
changing supply and demand balances in markets served by the Company have impacted in the past and may
impact in the future demand for the Company’s products and services, in turn negatively impacting the Company’s
revenues and earnings. Unfavorable conditions can depress sales, affect our margins, constrain our operating
flexibility, impact efficient utilization of the Company’s manufacturing capacity, or result in charges which are unusual
or nonrecurring. Excess capacity in the Company’s or its competitors’ manufacturing facilities can decrease the
Company’s ability to maintain pricing and generate profits.
7
Our operating results in one or more segments may also be affected by uncertain or deteriorating economic
conditions particularly germane to that segment or to particular customer markets within that segment. A decline in
the industries served by our customers or adverse events or circumstances affecting individual customers can
impair the ability of such customers to satisfy their obligations to the Company, resulting in uncollected receivables,
unanticipated contract terminations, project delays, or inability to recover plant investments negatively impacting our
financial results.
Weak overall demand or specific customer conditions may also cause customer shutdowns or default, or other
inabilities to operate facilities profitably, and may force sale or abandonment of facilities and equipment or prevent
projects from coming on-stream. These or other events associated with weak economic conditions or specific end
market, product, or customer events may require the Company to record an impairment on tangible assets, such as
facilities and equipment, or intangible assets, such as intellectual property or goodwill, which would have a negative
impact on our financial results.
Our extensive international operations can be adversely impacted by operational, economic, political,
security, legal risks, and currency translation, that could decrease profitability.
In 2017, over 60% of our sales were derived from customers outside the United States and many of our operations,
suppliers, and employees are located outside the United States. Our growth strategy depends in part on our ability
to further penetrate markets outside the United States, particularly in high-growth markets. Our operations in foreign
jurisdictions may be subject to risks including exchange control regulations, import and trade restrictions, and trade
policy and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S.
companies doing business abroad. Changing economic and political conditions within foreign jurisdictions, strained
relations between countries, or imposition of international sanctions can cause fluctuations in demand, price
volatility, supply disruptions, or loss of property. The occurrence of any of these risks could have a material adverse
impact on our financial condition, results of operation, and cash flows.
We are actively investing significant capital and other resources in developing markets, which present special risks,
including through joint ventures. Our developing market operations may be subject to greater risks than those faced
by our operations in mature economies, including political and economic instability, project delay or abandonment
due to unanticipated government actions, inadequate investment in infrastructure, undeveloped property rights and
legal systems, unfamiliar regulatory environments, relationships with local partners, language and cultural
differences and talent risks. Our contractual relationship within these jurisdictions may be subject to cancellation
without full compensation for loss. Successful operation of particular facilities or projects may be disrupted by civil
unrest, acts of sabotage or terrorism, and other local security concerns. Such concerns may require us to incur
greater costs for security or to shut down operations for a period of time.
Because the majority of our revenue is generated from sales outside the United States, we are exposed to
fluctuations in foreign currency exchange rates. Our business is primarily exposed to translational currency risk as
the results of our foreign operations are translated into U.S. dollars at current exchange rates throughout the fiscal
period. Our policy is to minimize cash flow volatility from changes in currency exchange rates. We choose not to
hedge the translation of our foreign subsidiaries’ earnings into dollars. Accordingly, reported sales, net earnings,
cash flows, and fair values have been and in the future will be affected by changes in foreign exchange rates. For a
more detailed discussion of currency exposure, see Item 7A - Quantitative and Qualitative Disclosures About Market
Risk, below.
Operational and project execution risks may adversely affect our operations or financial results.
The operation of our facilities, pipelines, and delivery systems inherently entails hazards that require continuous
oversight and control, such as pipeline leaks and ruptures, fire, explosions, toxic releases, mechanical failures, or
vehicle accidents. If operational risks materialize, they could result in loss of life, damage to the environment, or loss
of production, all of which could negatively impact our ongoing operations, reputation, financial results, and cash
flows. In addition, our operating results are dependent on the continued operation of our production facilities and our
ability to meet customer requirements, which depends, in part, on our ability to properly maintain and replace aging
assets.
8
Some of our projects involve challenging engineering, procurement and construction phases that may occur over
extended time periods, sometimes up to several years. We may encounter difficulties in engineering, delays in
designs or materials provided by the customer or a third party, equipment and materials delivery delays, schedule
changes, delays from customer failure to timely obtain regulatory permits and rights-of-way, inability to find
adequate sources of labor in the geographies where we are building new plants, weather-related delays, delays by
subcontractors in completing their portion of the project and other factors, some of which are beyond our control,
but which may impact our ability to complete a project within the original delivery schedule. In some cases, delays
and additional costs may be substantial, and we may be required to cancel a project and/or compensate the
customer for the delay. We may not be able to recover any of these costs. These factors could also negatively
impact our reputation or relationships with our customers, which could adversely affect our ability to secure new
contracts.
We are subject to extensive government regulation in jurisdictions around the globe in which we do
business. Regulations addressing, among other things, environmental compliance, import/export
restrictions, anti-bribery and corruption, and taxes, can negatively impact our financial condition, results of
operation, and cash flows.
We are subject to government regulation in the United States and foreign jurisdictions in which we conducts our
business. The application of laws and regulations to our business is sometimes unclear. Compliance with laws and
regulations may involve significant costs or require changes in business practice that could result in reduced
profitability. Determination of noncompliance can result in penalties or sanctions that could also impact financial
results. Compliance with changes in laws or regulations can require additional capital expenditures or increase
operating costs. Export controls or other regulatory restrictions could prevent us from shipping our products to and
from some markets or increase the cost of doing so. Changes in tax laws and regulations and international tax
treaties could affect the financial results of our businesses. Increasingly aggressive enforcement of anti-bribery and
anti-corruption requirements, including the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and
the China Anti-Unfair Competition Law, could subject us to criminal or civil sanctions if a violation occurs. In
addition, we are subject to laws and sanctions imposed by the U.S. or by other jurisdictions where we do business
that may prohibit us or certain of our affiliates from doing business in certain countries, or restricting the kind of
business that may be conducted. Such restrictions may provide a competitive advantage to competitors who are not
subject to comparable restrictions or prevent us from taking advantage of growth opportunities.
Further, we cannot guarantee that our internal controls and compliance systems will always protect us from acts
committed by employees, agents or our business partners (or of businesses we acquire or partner with) that would
violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud,
kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and
import compliance, money laundering and data privacy. Any such improper actions or allegations of such acts could
damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions
and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties
and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us
liable as a successor for violations committed by companies in which we invest or that we acquire.
We may be unable to successfully execute or effectively integrate acquisitions, or effectively disentangle
divested businesses.
Our ability to grow revenue, earnings, and cash flow at anticipated rates depends in part on our ability to identify,
successfully acquire and integrate businesses and assets at appropriate prices; and realize expected synergies and
operating efficiencies. We may not be able to complete transactions on favorable terms, on a timely basis or at all.
In addition, our results of operations and cash flows may be adversely impacted by the failure of acquired
businesses or assets to meet expected returns, the failure to integrate acquired businesses, the inability to dispose
of non-core assets and businesses on satisfactory terms and conditions, and the discovery of unanticipated
liabilities or other problems in acquired businesses or assets for which we lack contractual protections or insurance.
We may incur asset impairment charges related to acquisitions that do not meet expectations.
We continually assess the strategic fit of our existing businesses and may divest businesses that are deemed not to
fit with our strategic plan or are not achieving the desired return on investment. These transactions pose risks and
challenges that could negatively impact our business and financial statements. For example, when we decide to sell
or otherwise dispose of a business or assets, we may be unable to do so on satisfactory terms within our
anticipated time frame or at all. In addition, divestitures or other dispositions may dilute our earnings per share,
have other adverse financial and accounting impacts and distract management, and disputes may arise with
buyers. In addition, we have agreed and may in the future agree to indemnify buyers against known and unknown
contingent liabilities. Our financial results could be impacted by claims under these indemnities.
9
The security of our Information Technology systems could be compromised, which could adversely affect
our ability to operate.
We depend on information technology to enable us to operate efficiently and interface with customers as well as to
maintain financial accuracy and efficiency. Our information technology capabilities are delivered through a
combination of internal and external services and service providers. If we do not allocate and effectively manage the
resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction
errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to our
confidential business information or multiple site impact through a security breach. In addition, these systems may
be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error or
malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other
unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning
may be ineffective or inadequate. Security breaches of our systems (or the systems of our customers, suppliers or
other business partners) could result in the misappropriation, destruction or unauthorized disclosure of confidential
information or personal data belonging to us or to our employees, partners, customers or suppliers.
As with most large systems, our information technology systems have in the past been and in the future likely will
be subject to computer viruses, malicious codes, unauthorized access and other cyber-attacks, and we expect the
sophistication and frequency of such attacks to continue to increase. To date, we are not aware of any significant
impact on our operations or financial results from such attempts; however, unauthorized access could disrupt our
business operations, result in the loss of assets, and have a material adverse effect on our business, financial
condition, or results of operations. Any of the attacks, breaches or other disruptions or damage described above
could interrupt our operations, delay production and shipments, result in theft of our and our customers’ intellectual
property and trade secrets, damage customer and business partner relationships and our reputation, or result in
defective products or services, legal claims and proceedings, liability and penalties under privacy laws and
increased costs for security and remediation, each of which could adversely affect our business, reputation and
financial statements.
Our business involves the use, storage, and transmission of information about our employees, vendors, and
customers. The protection of such information, as well as our information, is critical to us. The regulatory
environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of
new and constantly changing requirements. We have established policies and procedures to help protect the
security and privacy of this information. We also, from time to time, export sensitive customer data and technical
information to recipients outside the United States. Breaches of our security measures or the accidental loss,
inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential data
about us or our customers, including the potential loss or disclosure of such information or data as a result of fraud,
trickery, or other forms of deception, could expose us, our customers, or the individuals affected to a risk of loss or
misuse of this information, result in litigation and potential liability for us, damage our reputation, or otherwise harm
our business.
Interruption in ordinary sources of raw material or energy supply or an inability to recover increases in
energy and raw material costs from customers could result in lost sales or reduced profitability.
Hydrocarbons, including natural gas, are the primary feedstock for the production of hydrogen, carbon monoxide,
and syngas. Energy, including electricity, natural gas, and diesel fuel for delivery trucks, is the largest cost
component of our business. Because our industrial gas facilities use substantial amounts of electricity, energy price
fluctuations could materially impact our revenues and earnings. A disruption in the supply of energy, components, or
raw materials, whether due to market conditions, legislative or regulatory actions, natural events, or other disruption,
could prevent us from meeting our contractual commitments, harming our business and financial results.
Our supply of crude helium for purification and resale is largely dependent upon natural gas production by crude
helium suppliers. Lower natural gas production resulting from natural gas pricing dynamics, supplier operating or
transportation issues (such as the Qatar embargo) or other interruptions in sales from crude helium suppliers, can
reduce our supplies of crude helium available for processing and resale to customers.
We typically contract to pass through cost increases in energy and raw materials to customers, but cost variability
can still have a negative impact on our results. We may be unable to raise prices as quickly as costs rise, or
competitive pressures may prevent full recovery. Increases in energy or raw material costs that cannot be passed
on to customers for competitive or other reasons would negatively impact our revenues and earnings. Even where
costs are passed through, price increases can cause lower sales volume.
10
Catastrophic events could disrupt our operations or the operations of our suppliers or customers, having a
negative impact on our business, financial results, and cash flows.
Our operations could be impacted by catastrophic events outside our control, including severe weather conditions
such as hurricanes, floods, earthquakes, storms, epidemics, or acts of war and terrorism. Any such event could
cause a serious business disruption that could affect our ability to produce and distribute products and possibly
expose it to third-party liability claims. Additionally, such events could impact our suppliers or customers, in which
event energy and raw materials may be unavailable to us, or our customers may be unable to purchase or accept
our products and services. Any such occurrence could have a negative impact on our operations and financial
results.
New technologies create performance risks that could impact our financial results or reputation.
We are continually developing and implementing new technologies and product offerings. Existing technologies are
being implemented in products and designs or at scales beyond our experience base. These technological
expansions can create nontraditional performance risks to our operations. Failure of the technologies to work as
predicted or unintended consequences of new designs or uses could lead to cost overruns, project delays, financial
penalties, or damage to our reputations. Large scale gasification projects may contain processes or technologies
that we have not operated at the same scale or in the same combination and, although such projects generally
include technologies and processes that have been demonstrated previously by others, such technologies or
processes may be new to us.
Our financial results may be affected by various legal and regulatory proceedings, including those
involving antitrust, tax, environmental, or other matters.
We are subject to litigation and regulatory investigations and proceedings in the normal course of business and
could become subject to additional claims in the future, some of which could be material. While we seek to limit our
liability in our commercial contractual arrangements, there are no guarantees that each contract will contain suitable
limitations of liability or that limitations of liability will be enforceable at law. Also, the outcome of existing legal
proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are
often difficult to predict reliably. Various factors or developments can lead us to change current estimates of
liabilities and related insurance receivables, where applicable, or make such estimates for matters previously not
susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement,
significant regulatory developments, or changes in applicable law. A future adverse ruling, settlement, or
unfavorable development could result in charges that could have a material adverse effect on our financial
condition, results of operations, and cash flows in any particular period.
Costs and expenses resulting from compliance with environmental regulations may negatively impact our
operations and financial results.
We are subject to extensive federal, state, local, and foreign environmental and safety laws and regulations
concerning, among other things, emissions in the air; discharges to land and water; and the generation, handling,
treatment, and disposal of hazardous waste and other materials. We take our environmental responsibilities very
seriously, but there is a risk of environmental impact inherent in our manufacturing operations and transportation of
our products. Future developments and more stringent environmental regulations may require us to make additional
unforeseen environmental expenditures. In addition, laws and regulations may require significant expenditures for
environmental protection equipment, compliance, and remediation. These additional costs may adversely affect
financial results. For a more detailed description of these matters, see Item 1 - Business Environmental Controls,
above.
11
Legislative, regulatory and societal responses to global climate change create financial risk.
We are the world’s leading supplier of hydrogen, the primary use of which is the production of ultra-low sulfur
transportation fuels that have significantly reduced transportation emissions and helped improve human health. To
make the high volumes of hydrogen needed by our customers, we use steam methane reforming, which releases
carbon dioxide. Some of our operations are within jurisdictions that have or are developing regulatory regimes
governing emissions of greenhouse gases ("GHG"), including carbon dioxide. These include existing coverage
under the European Union Emission Trading Scheme, California and Ontario cap and trade schemes, Alberta’s
Specified Gas Emitters Regulation, China’s Emission Trading Scheme pilots, South Korea’s Emission Trading
Scheme, and mandatory reporting and anticipated constraints on GHG emissions under an Ontario cap and trade
scheme, nation-wide expansion of the China Emission Trading Scheme, and revisions to the Alberta regulation. In
addition, the U.S. Environmental Protection Agency ("EPA") requires mandatory reporting of GHG emissions and is
regulating GHG emissions for new construction and major modifications to existing facilities. Some jurisdictions
have various mechanisms to target the power sector to achieve emission reductions, which often result in higher
power costs.
Increased public concern may result in more international, U.S. federal, and/or regional requirements to reduce or
mitigate the effects of GHG. Although uncertain, these developments could increase our costs related to
consumption of electric power and hydrogen production. We believe it will be able to mitigate some of the increased
costs through contractual terms, but the lack of definitive legislation or regulatory requirements prevents an
accurate estimate of the long-term impact these measures will have on our operations. Any legislation that limits or
taxes GHG emissions could negatively impact our growth, increase our operating costs, or reduce demand for
certain of our products.
Implementation of the United Kingdom’s (“UK”) exit from European Union (“EU”) membership, or recent
political instability in Spain, could adversely affect our European Operations.
The UK’s exit from EU membership may adversely affect customer demand, our relationships with customers and
suppliers and our European business. Although it is unknown what the terms of the United Kingdom’s future
relationship with the EU will be, it is possible that there will be greater restrictions on imports and exports between
the United Kingdom and EU members and increased regulatory complexities. Any of these factors could adversely
affect customer demand, our relationships with customers and suppliers and our European business.
In addition, there has been recent political instability in Catalonia, Spain. We maintain an administrative office in
Catalonia which provides transactional accounting and other support services for our entire European business, and
fiscal year 2017 sales of approximately US$320 million were attributable to Spain. These operations could be
impacted by the outcome of the current unrest.
Inability to compete effectively in a segment could adversely impact sales and financial performance.
We face strong competition from several large global competitors and many smaller regional ones in many of our
business segments. Introduction by competitors of new technologies, competing products, or additional capacity
could weaken demand for or impact pricing of our products, negatively impacting financial results. In addition,
competitors’ pricing policies could affect our profitability or market share.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or foreign tax
legislation or exposure to additional tax liabilities.
The multinational nature of our business subjects us to taxation in the United States and numerous foreign
jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant
change. The company’s future effective tax rates could be affected by changes in the mix of earnings in countries
with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax
laws or their interpretation. For example, the United States Congress is considering comprehensive tax reform
which, among other things, may significantly reduce the corporate tax rate and change certain U.S. tax rules
impacting the way U.S. based multinationals are taxed on foreign income. Changes to the tax system in the United
States, particularly a proposed mandatory deemed repatriation tax, could have a material impact to our financial
statements. The cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign
subsidiaries and corporate joint ventures on the consolidated balance sheets amounted to $6,032.5 as of 30
September 2017. The potential impact of the mandatory deemed repatriation proposal and other proposals is
uncertain at this time, especially as the outcome of U.S. tax reform discussions is unknown. At this time, we are
properly reflecting the provision for taxes on income using all current enacted global tax laws in every jurisdiction in
which we operate.
12
We could incur significant liability if the distribution of Versum common stock to our stockholders is
determined to be a taxable transaction.
We have received an opinion from outside tax counsel to the effect that the spin-off of Versum qualifies as a
transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code. The opinion relies
on certain facts, assumptions, representations and undertakings from Versum and us regarding the past and future
conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions,
representations or undertakings are incorrect or not satisfied, our shareholders and we may not be able to rely on
the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of tax
counsel we have received, the IRS could determine on audit that the spin-off is taxable if it determines that any of
these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees
with the conclusions in the opinion. If the spin-off is determined to be taxable for U.S. federal income tax purposes,
our shareholders that are subject to U.S. federal income tax and we could incur significant U.S. federal income tax
liabilities.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
We have not received any written comments from the Commission staff that remain unresolved.
ITEM 2.
PROPERTIES
Air Products and Chemicals, Inc. owns its principal administrative offices, which are the Company’s headquarters
located in Trexlertown, Pennsylvania, as well as Hersham, England, Shanghai, China, and Santiago, Chile. The
Company leases administrative offices in the United States, Spain, Malaysia, and China for its Global Business
Support organization.
The following is a description of the properties used by our five business segments. We believe that our facilities
are suitable and adequate for our current and anticipated future levels of operation.
Industrial Gases – Americas
This business segment currently operates from over 400 production and distribution facilities in North and South
America (approximately 1/4th of which are located on owned property), and 10% of which are integrated sites that
serve dedicated customers as well as merchant customers. The Company has sufficient property rights and permits
for the ongoing operation of our pipeline systems in the Gulf Coast, California, and Arizona in the United States and
Alberta and Ontario, Canada. Management and sales support is based in our Trexlertown and Santiago offices
referred to above, and at 10 leased properties located throughout North and South America.
Hydrogen fueling stations built by the Company support commercial markets in California and Japan as well as
demonstration projects in Europe and other parts of Asia.
Industrial Gases – EMEA
This business segment currently operates from over 150 production and distribution facilities in Europe, the Middle
East, and Africa (approximately 1/3rd of which are on owned property). The Company has sufficient property rights
and permits for the ongoing operation of our pipeline systems in the Netherlands, the United Kingdom, Belgium,
France, and Germany. Management and sales support for this business segment is based in Hersham, England
referred to above, Barcelona, Spain and at 12 leased regional office sites and at least 15 leased local office sites,
located throughout the region.
Industrial Gases – Asia
Industrial Gases – Asia currently operates from over 170 production and distribution facilities within Asia
(approximately 1/4th of which are on owned property or long duration term grants). The Company has sufficient
property rights and permits for the ongoing operation of our pipeline systems in China, South Korea, Taiwan,
Malaysia, Singapore, and Indonesia. Management and sales support for this business segment is based in
Shanghai, China and Kuala Lumpur, Malaysia, and in 12 leased office locations throughout the region.
13
Industrial Gases – Global
Management, sales, and engineering support for this business segment is based in our principal administrative
offices noted above, and an office in India.
Equipment is manufactured in Missouri, Pennsylvania, and China.
Research and development ("R&D") activities for this business segment are conducted at owned locations in the
U.S. and the United Kingdom, and 4 leased locations in Canada, Europe, and Asia.
Helium is processed at multiple sites in the U.S. and then distributed to/from transfill sites globally.
Corporate and other
Corporate administrative functions are based in the Company’s administrative offices referred to above.
The Gardner Cryogenic business operates at facilities in Pennsylvania and Kansas in the United States and in
France.
The LNG business operates a manufacturing facility in Florida in the United States with management, engineering,
and sales support based in the Trexlertown offices referred to above and a nearby leased office.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are involved in various legal proceedings,
including contract, product liability, intellectual property, insurance, and regulatory matters. Although litigation with
respect to these matters is routine and incidental to the conduct of our business, such litigation could result in large
monetary awards, especially if compensatory and/or punitive damages are awarded. However, we believe that
litigation currently pending to which we are a party will be resolved without any material adverse effect on our
financial position, earnings, or cash flows.
From time to time, we are also involved in proceedings, investigations, and audits involving governmental
authorities in connection with environmental, health, safety, competition, and tax matters.
The Company is a party to proceedings under CERCLA, the RCRA, and similar state and foreign environmental
laws relating to the designation of certain sites for investigation or remediation. Presently there are approximately
32 sites on which a final settlement has not been reached where the Company, along with others, has been
designated a potentially responsible party by the Environmental Protection Agency or is otherwise engaged in
investigation or remediation, including cleanup activity at certain of its current and former manufacturing sites. We
do not expect that any sums we may have to pay in connection with these environmental matters would have a
material adverse impact on our consolidated financial position. Additional information on the Company’s
environmental exposure is included under Item 1 - Business Environmental Controls.
In September 2010, the Brazilian Administrative Council for Economic Defense ("CADE") issued a decision against
our Brazilian subsidiary, Air Products Brasil Ltda., and several other Brazilian industrial gas companies for alleged
anticompetitive activities. CADE imposed a civil fine of R$179.2 million (approximately $57 million at 30 September
2017) on Air Products Brasil Ltda. This fine was based on a recommendation by a unit of the Brazilian Ministry of
Justice, whose investigation began in 2003, alleging violation of competition laws with respect to the sale of
industrial and medical gases. The fines are based on a percentage of the Company’s total revenue in Brazil in 2003.
We have denied the allegations made by the authorities and filed an appeal in October 2010 to the Brazilian courts.
On 6 May 2014, our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE has
appealed that ruling and the matter remains pending. The Company, with advice of its outside legal counsel, has
assessed the status of this matter and has concluded that, although an adverse final judgment after exhausting all
appeals is possible, such a judgment is not probable. As a result, no provision has been made in the consolidated
financial statements.
Other than this matter, we do not currently believe there are any legal proceedings, individually or in the aggregate,
that are reasonably possible to have a material impact on our financial condition, results of operations, or cash
flows. However, a future charge for regulatory fines or damage awards could have a significant impact on our net
income in the period in which it is recorded.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable
14
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock (ticker symbol APD) is listed on the New York Stock Exchange. Our transfer agent and registrar
is Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342, Brentwood, New York 11717, telephone
(844) 318-0129 (U.S.) or (720) 358-3595 (all other locations); website, http://shareholder.broadridge.com/
airproducts; and e-mail address, shareholder@broadridge.com. As of 31 October 2017, there were 5,644 record
holders of our common stock. Quarterly stock prices, as reported on the New York Stock Exchange composite tape
of transactions, and dividend information for the last two fiscal years appear below. Cash dividends on the
Company’s common stock are paid quarterly. It is our expectation that we will continue to pay cash dividends in the
future at comparable or increased levels. The Board of Directors determines whether to declare dividends and the
timing and amount based on financial condition and other factors it deems relevant.
Quarterly Stock Information
2017
First
Second
Third
Fourth
2016
First
Second
Third
Fourth
$
$
High
150.45 $
149.46
147.66
152.26
High
133.78 $
136.88
141.53
146.82
Low
129.00 $
133.63
134.09
141.88
Low
117.80 $
106.63
124.78
127.72
Close
143.82 $
135.29
143.06
151.22
$
Close
121.02 $
133.99
132.12
139.84
$
Dividend
.86
.95
.95
.95
3.71
Dividend
.81
.86
.86
.86
3.39
Purchases of Equity Securities by the Issuer
On 15 September 2011, the Board of Directors authorized the repurchase of up to $1.0 billion of our outstanding
common stock. This program does not have a stated expiration date. We repurchase shares pursuant to
Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, through repurchase
agreements established with several brokers. There were no purchases of stock during fiscal year 2017. At 30
September 2017, $485.3 million in share repurchase authorization remained. Additional purchases will be
completed at the Company’s discretion while maintaining sufficient funds for investing in its businesses and growth
opportunities.
15
Performance Graph
The performance graph below compares the five-year cumulative returns of the Company’s common stock with
those of the Standard & Poor’s 500 Index (S&P 500 Index) and the Standard & Poor’s 500 Materials Index (S&P
500 Materials Index). The figures assume an initial investment of $100 and the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER RETURN
Air Products, S&P 500 Index, and S&P 500 Materials Index
Comparative Growth of a $100 Investment
(Assumes Reinvestment of All Dividends)
Sept 2012 Sept 2013 Sept 2014 Sept 2015 Sept 2016 Sept 2017
Air Products
S&P 500 Index
S&P 500 Materials Index
100
100
100
133
120
117
170
143
142
164
139
113
200
163
140
223
194
171
16
ITEM 6.
SELECTED FINANCIAL DATA
Unless otherwise indicated, information presented is on a continuing operations basis.
(Millions of dollars, except for share and per share data)
Operating Results
2017(A)
2016(A)
2015(A)
2014(A)
2013(A)
Sales
Cost of sales
Selling and administrative
Research and development
Business restructuring and cost reduction actions
Operating income
Equity affiliates’ income(B)
Income from continuing operations attributable to Air Products
Net income attributable to Air Products(C)
Basic earnings per common share attributable to Air Products:
Income from continuing operations
Net income(C)
Diluted earnings per common share attributable to Air Products:
Income from continuing operations
Net income(C)
Year-End Financial Position
Plant and equipment, at cost
Total assets(C)(D)(E)
Working capital(C)
Total debt(E)(F)
Redeemable noncontrolling interest
Air Products shareholders’ equity(C)
Total equity(C)
Financial Ratios
Return on average Air Products shareholders’ equity(G)
Operating margin
Selling and administrative as a percentage of sales
Total debt to total capitalization(E)(F)(H)
Other Data
$ 8,188
$ 7,504
$ 7,824
$ 8,384
$ 8,313
5,753
716
58
151
1,428
80
1,134
3,000
5.20
13.76
5.16
13.65
5,177
685
72
35
1,530
147
1,100
631
5.08
2.92
5.04
2.89
5,598
773
76
180
1,233
152
933
1,278
4.34
5.95
4.29
5.88
6,208
892
79
11
924
149
697
992
3.28
4.66
3.24
4.61
6,138
896
74
98
1,149
165
869
994
4.14
4.74
4.09
4.68
$ 19,548
$ 18,660
$ 17,999
$ 18,180
$ 17,676
18,467
18,029
17,317
17,648
17,740
3,388
3,963
—
10,086
10,186
1,034
5,211
—
7,080
7,213
(851)
5,856
—
7,249
7,381
199
6,081
287
7,366
7,521
100
6,231
376
7,042
7,199
13.2%
17.4%
8.7%
28.0%
15.4%
20.4%
9.1%
41.9%
12.7%
15.8%
9.9%
44.2%
9.5%
11.0%
10.6%
43.8%
13.3%
13.8%
10.8%
45.1%
Income from continuing operations including noncontrolling interests $ 1,155
Adjusted EBITDA(I)
Depreciation and amortization
Capital expenditures on a GAAP basis(J)
Capital expenditures on a non-GAAP basis(J)
Cash provided by operating activities
1,056
1,066
2,795
866
2,534
Cash used for investing activities
Cash (used for) provided by financing activities
Dividends declared per common share
Weighted Average Common Shares – Basic (in millions)
Weighted Average Common Shares – Diluted (in millions)
(1,418)
(2,041)
3.71
218
220
$ 1,122
$
966
$
691
$
900
2,622
855
908
935
2,259
(865)
(860)
3.39
216
218
2,399
859
1,201
1,575
2,047
2,275
876
1,297
1,498
1,862
2,247
825
1,400
1,642
1,313
(1,147)
(1,257)
(1,354)
(960)
3.20
215
217
(524)
3.02
213
215
112
2.77
210
212
Book value per common share at year-end
$ 46.19
$ 32.57
$ 33.66
$ 34.49
$ 33.35
Shareholders at year-end
Employees at year-end(K)
5,700
6,000
6,400
6,600
7,000
15,300
18,600
19,700
21,200
21,600
17
(A) Unless otherwise stated, selected financial data is presented on a GAAP basis. Our operating results were impacted by certain items which
management does not believe to be indicative of ongoing business trends and are excluded from the non-GAAP measure. Refer to pages
31-37 for reconciliations of the GAAP to non-GAAP measures for fiscal year 2017, 2016, and 2015. Descriptions of the excluded items
appear on pages 24-26. For 2014, these items include: (i) a charge to operating income of $11 ($7 after-tax, or $.03 per share) related to
business restructuring and cost reduction actions, (ii) pension settlement losses of $5 ($3 after-tax, or $.02 per share), and (iii) a goodwill
and intangible asset impairment charge of $310 ($275 attributable to Air Products, after-tax, or $1.27 per share). For 2013, these items
include: (i) a charge to operating income of $98 ($71 after-tax, or $.33 per share) related to business restructuring and cost reduction
actions, and (ii) expenses of $10 ($6 after-tax, or $.03 per share) related to advisory costs.
(B) For 2017, includes the impact of a noncash impairment charge of $79.5 ($.36 per share) on our investment in Abdullah Hashim Industrial
Gases & Equipment Co., Ltd. (AHG), a 25% owned equity affiliate in our Industrial Gases – EMEA segment.
(C)
Information presented on a total company basis, which includes both continuing and discontinued operations.
(D) Reflects adoption of guidance on the presentation of deferred income taxes on a retrospective basis. Refer to Note 2, New Accounting
Guidance, for additional information.
(E) Reflects adoption of guidance on the presentation of deferred financing costs on a retrospective basis. Refer to Note 2, New Accounting
Guidance, for additional information.
(F)
Total debt includes long-term debt, current portion of long-term debt, and short-term borrowings as of the end of the year for continuing
operations.
(G) Calculated using income from continuing operations attributable to Air Products and five-quarter average Air Products shareholders’ equity.
(H) Total capitalization includes total debt for continuing operations plus total equity plus redeemable noncontrolling interest as of the end of
the year.
(I)
A reconciliation of Income from Continuing Operations on a GAAP basis to Adjusted EBITDA is presented on pages 34-36.
(J) Capital expenditures presented on a GAAP basis include additions to plant and equipment, investment in and advances to unconsolidated
affiliates, and acquisitions. The Company utilizes a non-GAAP measure in the computation of capital expenditures and includes spending
associated with facilities accounted for as capital leases and purchases of noncontrolling interests. Refer to page 39 for a reconciliation of
the GAAP to non-GAAP measures for 2017, 2016, and 2015. For 2014, the GAAP measure was adjusted by $200 for spending associated
with facilities accounted for as capital leases. For 2013, the GAAP measure was adjusted by $228 and $14 for spending associated with
facilities accounted for as capital leases and purchases of noncontrolling interests, respectively.
(K)
Includes full- and part-time employees from continuing and discontinued operations.
18
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business Overview .......................................................................................................................
2017 in Summary .........................................................................................................................
2018 Outlook ................................................................................................................................
Results of Operations ...................................................................................................................
Reconciliation of Non-GAAP Financial Measures ........................................................................
Liquidity and Capital Resources ...................................................................................................
Contractual Obligations ................................................................................................................
Pension Benefits ..........................................................................................................................
Environmental Matters .................................................................................................................
Off-Balance Sheet Arrangements .................................................................................................
Related Party Transactions ..........................................................................................................
Inflation .........................................................................................................................................
Critical Accounting Policies and Estimates ...................................................................................
New Accounting Guidance ...........................................................................................................
Forward-Looking Statements .......................................................................................................
20
20
22
22
31
37
41
43
44
45
45
45
46
52
53
The following discussion should be read in conjunction with the consolidated financial statements and the
accompanying notes contained in this report. 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. All amounts are presented in millions of dollars, except for per share data,
unless otherwise indicated.
The results of our former Materials Technologies segment, which contained the Electronic Materials Division (EMD)
and the Performance Materials Division (PMD), and the former Energy-from-Waste segment have been presented
as discontinued operations. The results of operations and cash flows of these businesses have been removed from
the results of continuing operations and segment results for all periods presented. Unless otherwise indicated,
financial information is presented on a continuing operations basis. Refer to Note 3, Discontinued Operations, to the
consolidated financial statements for additional information regarding the discontinued businesses.
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 (EPS)” throughout this Management’s
Discussion and Analysis, unless otherwise stated.
The discussion of results that follows includes comparisons to certain non-GAAP ("adjusted") financial measures.
The presentation of non-GAAP measures is intended to provide investors, potential investors, securities analysts,
and others with useful supplemental information to evaluate the performance of the business because such
measures, when viewed together with our financial results computed in accordance with GAAP, provide a more
complete understanding of the factors and trends affecting our historical financial performance and projected future
results. The reconciliations of reported GAAP results to non-GAAP measures are presented on pages 31-37.
Descriptions of the excluded items appear on pages 24-26.
19
BUSINESS OVERVIEW
Air Products and Chemicals, Inc. is a world-leading Industrial Gases company in operation for over 75 years. The
Company’s core industrial gases business provides atmospheric and process gases and related equipment to
manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. Air
Products is also the world’s leading supplier of liquefied natural gas process technology and equipment. With
operations in 50 countries, in 2017 we had sales of $8.2 billion, total company assets, including assets of both
continuing and discontinued operations, of $18.5 billion, and a worldwide workforce of approximately 15,300 full-
and part-time employees from continuing and discontinued operations.
As of 30 September 2017, our operations were organized into five reportable business segments: Industrial
Gases – Americas; Industrial Gases – EMEA (Europe, Middle East, and Africa); Industrial Gases – Asia; Industrial
Gases – Global; and Corporate and other. The financial statements and analysis that follow discuss our results
based on these operations. Refer to Note 25, Business Segment and Geographic Information, to the consolidated
financial statements for additional details on our reportable business segments.
2017 IN SUMMARY
In 2017, we were able to focus on our core industrial gases business by completing the separation of EMD through
the spin-off of Versum Materials, Inc. (Versum) and the sale of PMD to Evonik Industries AG (Evonik). Sales of $8.2
billion increased nine percent over the prior year, primarily due to volume growth from new project onstreams
across our regional industrial gases businesses, underlying growth in the base business, and continued progress
on the Jazan project within our Industrial Gases – Global segment, partially offset by weaker liquefied natural gas
(LNG) equipment sales. We delivered operating margin of 17.4%, adjusted operating margin of 21.6%, and
adjusted EBITDA margin of 34.1% as our productivity actions were offset by the impact of energy cost pass-through
to customers. Diluted EPS of $5.16 increased 2% from the prior year. On a non-GAAP basis, adjusted diluted EPS
of $6.31 increased 12%.
Highlights for 2017
• Sales of $8,187.6 increased 9%, or $683.9 as underlying sales growth of 7% and higher energy and natural gas
cost pass through to customers of 3% were partially offset by unfavorable currency impacts of 1%. Underlying
sales increased primarily from higher volumes across the industrial gases businesses, including the Jazan
project, partially offset by lower LNG sales in the corporate and other segment.
• Operating income of $1,427.6 decreased 7%, or $102.1, primarily due to a noncash goodwill and intangible
asset impairment charge and higher cost reduction and asset actions, partially offset by favorable volumes and
lower other costs. Operating margin of 17.4% decreased 300 bp. On a non GAAP basis, adjusted operating
income of $1,769.6 increased 9%, or $149.7, and adjusted operating margin of 21.6% was flat.
• Adjusted EBITDA of $2,795.0 increased 7%, or $173.5. Adjusted EBITDA margin of 34.1% decreased 80 bp and
was negatively impacted by 90 bp from higher contractual energy pass-through to customers. Excluding this
impact, adjusted EBITDA margin was up 10 bp.
•
Income from continuing operations of $1,134.4 increased 3%, or $34.9, and diluted EPS of $5.16 increased 2%,
or $.12. On a non-GAAP basis, adjusted income from continuing operations of $1,385.9 increased 13%, or
$155.6, and adjusted diluted EPS of $6.31 increased 12%, or $.67. A summary table of changes in diluted
earnings per share, including a non GAAP reconciliation, is presented below.
• We completed the spin-off of EMD as Versum on 1 October 2016.
• We completed the sale of PMD to Evonik on 3 January 2017.
• We entered into an agreement to form a $1.3 billion joint venture in China with Lu’An Clean Energy Company.
• We increased our quarterly dividend by 10% from $.86 to $.95 per share. This represents the 35th consecutive
year that we have increased our dividend payment.
20
Changes in Diluted Earnings per Share Attributable to Air Products
Diluted Earnings per Share
Net income
Income (Loss) from discontinued operations
Income from Continuing Operations – GAAP Basis
Operating Income Impact (after-tax)
Underlying business
Volume
Price/raw materials
Costs
Currency
Business separation costs
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on land sale
Total Operating Income Impact (after-tax)
Other Impact (after-tax)
Equity affiliates' income
Equity method investment impairment charge
Interest expense
Other non-operating income (expense), net
Loss on extinguishment of debt
Income tax
Tax costs associated with business separation
Tax election benefit
Noncontrolling interests
Weighted average diluted shares
Total Other Impact (after-tax)
Total Change in Diluted Earnings per Share from
Continuing Operations – GAAP Basis
2017
2016
Increase
(Decrease)
$
$
13.65 $
8.49
5.16 $
2.89 $
(2.15)
5.04 $
10.76
10.64
.12
$
$
$
$
.29
.03
.24
(.03)
.09
(.38)
(.01)
(.70)
.03
(.44)
.04
(.36)
(.02)
.10
.02
.07
.26
.50
(.01)
(.04)
.56
.12
2017
2016
Increase
(Decrease)
Income from Continuing Operations – GAAP Basis
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on land sale
Equity method investment impairment charge
Loss on extinguishment of debt
Tax election benefit
Income from Continuing Operations – Non-GAAP Basis
$
$
5.16 $
.12
(.02)
.49
.03
.70
(.03)
.36
—
(.50)
6.31 $
5.04 $
.21
.24
.11
.02
—
—
—
.02
—
5.64 $
.12
(.09)
(.26)
.38
.01
.70
(.03)
.36
(.02)
(.50)
.67
21
2018 OUTLOOK
In 2018, we intend to build on our strong fiscal year 2017 operating results through a combination of base business
growth, new project onstreams, and productivity benefits. We expect lower income from transition services
agreements to be offset by cost reductions associated with these services. Our recent portfolio actions, including
the spin-off of Versum and the sale PMD, and improved operating results have positioned us with a strong balance
sheet and the opportunity to invest in our core industrial gases business to drive future growth and create
shareholder value.
The above guidance should be read in conjunction with the section entitled “Forward-Looking Statements.”
RESULTS OF OPERATIONS
Discussion of Consolidated Results
Sales
Operating income
Operating margin
Equity affiliates’ income
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA margin
Adjusted operating income
Adjusted operating margin
Adjusted equity affiliates' income
Sales
Underlying business
Volume
Price
Energy and raw material cost pass-through
Currency
Total Consolidated Change
2017
2016
2015
$ 8,187.6
1,427.6
$ 7,503.7
1,529.7
$ 7,824.3
1,233.2
17.4%
80.1
20.4%
147.0
15.8%
152.3
$ 2,795.0
$ 2,621.5
$ 2,399.4
34.1%
34.9%
30.7%
1,769.6
1,619.9
1,388.6
21.6%
159.6
21.6%
147.0
17.7%
152.3
% Change from Prior Year
2016
2017
6 %
1 %
3 %
(1)%
9 %
3 %
— %
(4)%
(3)%
(4)%
2017 vs. 2016
Sales of $8,187.6 increased 9%, or $683.9. Underlying sales increased 7% from higher volumes of 6% and higher
pricing of 1%. Higher volumes, primarily due to new project onstreams, underlying base business growth across the
Industrial Gases regions, and continued progress on the Jazan project within our Industrial Gases – Global
segment, were partially offset by lower LNG project activity in the Corporate and other segment. The pricing
improvement was primarily attributable to the Industrial Gases – Asia segment. Higher energy and natural gas cost
pass-through to customers increased sales by 3%, and unfavorable currency effects reduced sales by 1%.
2016 vs. 2015
Sales of $7,503.7 decreased 4.0%, or $320.6. Underlying sales increased 3%, primarily due to higher volumes in
the Industrial Gases – Global and Industrial Gases – Asia segments, partially offset by lower volumes in all other
segments. Price was flat as increases in the Industrial Gases – Americas and Industrial Gases – EMEA segments
were offset by lower prices in the Industrial Gases – Asia segment. Underlying sales growth was more than offset
by lower energy contractual cost pass-through to customers of 4% and unfavorable currency of 3%.
22
Operating Income and Margin
2017 vs. 2016
Operating income of $1,427.6 decreased 7%, or $102.1, as a goodwill and intangible asset impairment charge of
$162, higher cost reduction and asset actions of $117, unfavorable currency impacts of $9, and higher pension
settlement losses of $5 were partially offset by favorable volumes of $83, favorable net operating costs of $69,
lower business separation costs of $20, a gain on the sale of land of $12, and favorable pricing, net of energy, fuel,
and raw material costs, of $7. Net operating costs were lower primarily due to benefits from cost reduction actions
and higher other income. Operating margin of 17.4% decreased 300 bp, primarily due to the goodwill and intangible
asset impairment charge and higher cost reduction and asset actions.
On a non-GAAP basis, adjusted operating income of $1,769.6 increased 9%, or $149.7, primarily due to higher
volumes and favorable cost performance. Adjusted operating margin of 21.6% was flat as higher energy and natural
gas pass-through to customers was offset by lower costs.
2016 vs. 2015
Operating income of $1,529.7 increased 24%, or $296.5, as lower operating costs of $235, lower business
restructuring and cost reduction actions of $146, favorable pricing, net of energy, fuel, and raw material costs, of
$33, and lower pension settlement losses of $14 were partially offset by higher business separation costs of $43,
unfavorable currency impacts of $35, and lower volumes of $2. In addition, fiscal year 2015 included a gain on land
sales of $34 and a gain of $18 on a previously held equity interest. Operating costs decreased due to benefits from
our cost reduction actions of $115, lower pension expense of $33, lower maintenance expense of $37, and lower
other costs of $50.
Operating margin of 20.4% increased 460 bp, primarily due to favorable costs and favorable pricing, net of energy,
fuel, and raw material costs.
On a non-GAAP basis, adjusted operating income of $1,619.9 increased 17%, or $231.3, and adjusted operating
margin of 21.6% increased 390 bp.
Adjusted EBITDA
We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding
certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before
interest expense, other non operating income (expense), net, income tax provision, and depreciation and
amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating
performance.
2017 vs. 2016
Adjusted EBITDA of $2,795.0 increased $173.5, or 7%, primarily due to higher volumes and favorable cost
performance. Adjusted EBITDA margin of 34.1% decreased 80 bp, primarily due to a 90 bp impact from higher
energy pass-through to customers.
2016 vs. 2015
Adjusted EBITDA of $2,621.5 increased $222.1, or 9%, primarily due to favorable costs and favorable pricing, net of
energy, fuel, and raw material costs. Adjusted EBITDA margin of 34.9% increased 420 bp.
Equity Affiliates’ Income
2017 vs. 2016
Income from equity affiliates of $80.1 decreased $66.9, primarily due to a noncash impairment charge of $79.5 ($.
36 per share) on our investment in Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (AHG), a 25% owned
equity affiliate in our Industrial Gases – EMEA segment. This charge has been excluded from segment results. On a
non-GAAP basis, adjusted equity affiliates' income of $159.6 increased 9%, or $12.6.
Refer to Note 8, Summarized Financial Information of Equity Affiliates, to the consolidated financial statements for
additional information regarding the impairment charge.
2016 vs. 2015
Income from equity affiliates of $147.0 decreased $5.3, as lower income from Industrial Gases – Americas and
Industrial Gases – EMEA affiliates was partially offset by higher income from Industrial Gases – Asia affiliates.
23
Cost of Sales and Gross Margin
2017 vs. 2016
Cost of sales of $5,753.4 increased $576.8, or 11%, due to higher costs attributable to sales volumes of $418,
higher energy and natural gas cost pass-through to customers of $218, and higher other costs of $24, partially
offset by favorable currency impacts of $83.
Gross margin of 29.7% decreased 130 bp, primarily due to higher energy and natural gas cost pass-through to
customers and unfavorable volume mix.
2016 vs. 2015
Cost of sales of $5,176.6 decreased $421.6, or 8%, primarily due to lower energy costs of $271, a favorable
currency impact of $192, and lower operating costs of $148, partially offset by higher costs attributable to sales
volumes of $189. Operating costs included favorable impacts from cost reduction actions of $48, lower
maintenance costs of $37, lower pension expense of $21, as well as the benefits of other operational improvements
and productivity. Costs associated with volumes were higher primarily due to the Jazan sale of equipment activity.
Gross margin of 31.0% increased 250 bp, primarily due to lower costs.
Selling and Administrative Expense
2017 vs. 2016
Selling and administrative expense of $715.6 increased $30.6, or 4%, primarily due to costs in support of transition
services agreements with Versum and Evonik, for which the reimbursement is reflected in "Other income (expense),
net." Selling and administrative expense as a percent of sales decreased to 8.7% from 9.1%.
2016 vs. 2015
Selling and administrative expense of $685.0 decreased $88.0, or 11%, primarily due to the benefits of cost
reduction actions of $59 and favorable currency effects of $27. Selling and administrative expense as a percent of
sales decreased to 9.1% from 9.9%.
Research and Development
2017 vs. 2016
Research and development expense of $57.8 decreased $13.8, or 19%. Research and development expense as a
percent of sales decreased to .7% from 1.0%.
2016 vs. 2015
Research and development expense of $71.6 decreased $4.8, or 6%. Fiscal year 2016 and 2015 research and
development expense as a percent of sales was 1.0%.
Business Separation Costs
In connection with the disposition of EMD and PMD, we incurred separation costs of $30.2 ($26.5 after-tax, or $.12
per share), $50.6 ($46.7 after-tax, or $.21 per share), and $7.5 ($.03 per share) in fiscal year 2017, 2016, and 2015,
respectively. These costs are reflected on the consolidated income statements as “Business separation costs” and
include legal, advisory, and pension related costs.
Our fiscal year 2017 income tax provision includes net tax benefits of $5.5 ($.02 per share) primarily related to
changes in tax positions on business separation activities. Our fiscal year 2016 income tax provision includes
additional tax expense related to the separation of $51.8 ($.24 per share), of which $45.7 resulted from a dividend
that was declared in June 2016 to repatriate $443.8 from a subsidiary in South Korea to the U.S. in anticipation of
the separation of EMD from the industrial gases business in South Korea.
Refer to Note 3, Discontinued Operations, to the consolidated financial statements for additional information
regarding the dispositions.
24
Business Restructuring and Cost Reduction Actions
We recorded charges in fiscal year 2017, 2016, and 2015 for business restructuring and cost reduction actions. The
charges for these actions are excluded from segment operating income. Refer to Note 5, Business Restructuring
and Cost Reduction Actions, to the consolidated financial statements for additional details on these actions.
Cost Reduction Actions
In fiscal year 2017, we recognized a net expense of $151.4 ($109.3 attributable to Air Products, after-tax, or $.
49 per share), of which $154.8 related to actions taken during the current year, partially offset by the favorable
settlement of the remaining $3.4 accrued balance associated with prior business restructuring actions. Asset
actions totaled $88.5 and included charges resulting from the write down of an air separation unit in the Industrial
Gases – EMEA segment that was constructed mainly to provide oxygen to one of the Energy from Waste plants,
the planned sale of a non-industrial gas hardgoods business in the Industrial Gases – Americas segment, and the
closure of a facility in the Corporate and other segment that manufactured LNG heat exchangers. Severance and
other benefits totaled $66.3 and related to the elimination or planned elimination of approximately 625 positions,
primarily in the Corporate and other segment and in the Industrial Gases – EMEA segment. The actions in the
Corporate and other segment were driven by the reorganization of our engineering, manufacturing, and technology
functions.
In fiscal year 2016, we recognized an expense of $34.5 ($24.7 after-tax, or $.11 per share) for severance and other
benefits related to cost reduction actions which resulted in the elimination of approximately 610 positions. The
expenses related primarily to the Industrial Gases – Americas segment and the Industrial Gases – EMEA segment.
Business Realignment and Reorganization
In fiscal year 2015, we recognized an expense of $180.1 ($132.9 after-tax, or $.61 per share). Severance and other
benefits totaled $131.5 and related to the elimination of approximately 1,700 positions. Asset and associated
contract actions totaled $48.6 and related primarily to a plant shutdown in the Corporate and other segment and the
exit of a product line within the Industrial Gases – Global segment.
Pension Settlement Loss
Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for
corporate officers, six months after their retirement date. A participant's vested benefit is considered settled upon
cash payment of the lump sum. We recognize pension settlement losses when cash payments exceed the sum of
the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. We recognized
pension settlement losses of $10.5 ($6.6 after-tax, or $.03 per share), $5.1 ($3.3 after-tax, or $.02 per share), and
$19.3 ($12.4 after-tax, or $.06 per share) in fiscal year 2017, 2016, and 2015, respectively, to accelerate recognition
of a portion of actuarial losses deferred in accumulated other comprehensive loss, primarily associated with the
U.S. Supplementary Pension Plan.
Goodwill and Intangible Asset Impairment Charge
During the third quarter of fiscal year 2017, we determined that the goodwill and indefinite-lived intangible assets
(primarily acquired trade names) associated with our Latin America reporting unit of our Industrial Gases –
Americas segment were impaired. We recorded a noncash impairment charge of $162.1 ($154.1 attributable to Air
Products, after-tax, or $.70 per share), which was driven by lower economic growth and profitability in the region.
Refer to Note 10, Goodwill, and Note 11, Intangible Assets, to the consolidated financial statements for additional
details.
25
Gain on Previously Held Equity Interest
On 30 December 2014, we acquired our partner’s equity ownership interest in a liquefied atmospheric industrial
gases production joint venture in North America for $22.6, which increased our ownership from 50% to 100%. The
transaction was accounted for as a business combination, and subsequent to the acquisition, the results were
consolidated within our Industrial Gases – Americas segment. We recorded a gain of $17.9 ($11.2 after-tax, or $.05
per share) as a result of revaluing our previously held equity interest to fair value as of the acquisition date. Refer to
Note 6, Business Combination, to the consolidated financial statements for additional details.
Other Income (Expense), Net
Items recorded to other income (expense), net arise from transactions and events not directly related to our
principal income earning activities. The detail of other income (expense), net is presented in Note 23, Supplemental
Information, to the consolidated financial statements.
2017 vs. 2016
Other income (expense), net of $121.0 increased $71.6, primarily due to income from transition services
agreements with Versum and Evonik, income from the sale of assets and investments, including a gain of $12.2
($7.6 after-tax, or $.03 per share) resulting from the sale of a parcel of land, and a favorable foreign exchange
impact.
2016 vs. 2015
Other income (expense), net of $49.4 increased $3.9, primarily due to lower foreign exchange losses, favorable
contract settlements, and receipt of a government subsidy. Fiscal year 2015 included a gain of $33.6 ($28.3
after tax, or $.13 per share) resulting from the sale of two parcels of land. No other individual items were significant
in comparison to fiscal year 2015.
Interest Expense
Interest incurred
Less: Capitalized interest
Interest Expense
2017
139.6 $
19.0
120.6 $
2016
147.9 $
32.7
115.2 $
2015
151.9
49.1
102.8
$
$
2017 vs. 2016
Interest incurred decreased $8.3 as the impact from a lower average debt balance of $26 was partially offset by the
impact from a higher average interest rate on the debt portfolio of $19. The change in capitalized interest was
driven by a decrease in the carrying value of projects under construction, primarily as a result of our decision to exit
from the Energy-from-Waste business.
2016 vs. 2015
Interest incurred decreased $4.0. The decrease primarily resulted from a stronger U.S. dollar on the translation of
foreign currency interest of $6, partially offset by a higher average debt balance of $2. The change in capitalized
interest was driven by a decrease in the carrying value of projects under construction, primarily as a result of our
exit from the Energy-from-Waste business.
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net of $29.0 in fiscal year 2017 primarily resulted from interest income on
cash and time deposits, which are comprised primarily of proceeds from the sale of PMD. Interest income was
included in "Other income (expense), net" in 2016 and 2015. Interest income in previous periods was not material.
Loss on Extinguishment of Debt
On 30 September 2016, in anticipation of the spin-off of EMD, Versum issued $425.0 of notes to Air Products, who
then exchanged these notes with certain financial institutions for $418.3 of Air Products’ outstanding commercial
paper. This noncash exchange, which was excluded from the consolidated statements of cash flows, resulted in a
loss of $6.9 ($4.3 after-tax, or $.02 per share).
In September 2015, we made a payment of $146.6 to redeem 3,000,000 Unidades de Fomento (“UF”) Series E
6.30% Bonds due 22 January 2030 that had a carrying value of $130.0 and resulted in a net loss of $16.6 ($14.2
after-tax, or $.07 per share).
26
Effective Tax Rate
The effective tax rate equals the income tax provision divided by income from continuing operations before taxes.
Refer to Note 22, Income Taxes, to the consolidated financial statements for details on factors affecting the effective
tax rate.
2017 vs. 2016
The effective tax rate was 18.4% and 27.8% in 2017 and 2016, respectively. The current year rate included an
impact of approximately 700 bp from a net income tax benefit resulting from a tax election related to a non-U.S.
subsidiary and an impact of approximately 100 bp from excess tax benefits on share-based compensation resulting
from the adoption of new accounting guidance in the first quarter of fiscal year 2017. These impacts were partially
offset by an increase of approximately 200 bp due to both a goodwill impairment charge in our Latin America
reporting unit and an impairment of an equity method investment for which no tax benefits were available. The 2016
rate included a 330 bp impact from tax costs associated with business separation, primarily resulting from a
dividend declared in 2016 to repatriate cash from a foreign subsidiary as discussed above under Business
Separation Costs. The remaining change was primarily due to the impact of business separation costs for which a
tax benefit was estimated to not be available. On a non-GAAP basis, the adjusted effective tax rate decreased from
24.2% in 2016 to 23.2% in 2017, primarily due to excess tax benefits on share-based compensation. Refer to Note
2, New Accounting Guidance, to the consolidated financial statements for additional information on our adoption of
the share-based compensation accounting guidance.
2016 vs. 2015
The effective tax rate was 27.8% and 23.7% in 2016 and 2015, respectively. The change included a 330 bp impact
from tax costs associated with business separation, primarily resulting from a dividend declared in 2016 to
repatriate cash from a foreign subsidiary as discussed above under Business Separation Costs. The remaining
80 bp change was primarily due to the increase in mix of income in jurisdictions with a higher effective tax rate and
the impact of business separation costs for which a tax benefit was estimated to not be available. On a non-GAAP
basis, the adjusted effective tax rate increased from 24.0% in 2015 to 24.2% in 2016, primarily due to the increase
in and mix of income in jurisdictions with a higher effective tax rate.
Discontinued Operations
The results of our former Materials Technologies segment and the former Energy-from-Waste segment have been
presented as discontinued operations. Refer to Note 3, Discontinued Operations, to the consolidated financial
statements for additional information, including detail of the major line items that comprise income from
discontinued operations, net of tax, on the consolidated income statements for the fiscal years ended 30 September
2017, 2016, and 2015.
Materials Technologies
On 16 September 2015, we announced plans to separate our Materials Technologies segment, which contained
EMD and PMD. On 1 October 2016, we completed the separation of EMD through the spin-off of Versum. On
3 January 2017, we completed the sale of PMD to Evonik for $3.8 billion in cash. A gain of $2,870 ($1,828 after-tax,
or $8.32 per share) was recognized on the sale. As a result of the dispositions, both EMD and PMD are reflected in
our consolidated financial statements as discontinued operations for all periods presented.
Energy-from-Waste
On 29 March 2016, the Board of Directors approved the Company’s exit of its Energy from Waste (EfW) business
and efforts to start up and operate the two EfW projects located in Tees Valley, United Kingdom, were discontinued.
Since that time, the EfW segment has been presented as a discontinued operation. Our fiscal year 2016 loss from
discontinued operations, net of tax, includes a loss on disposal of $945.7 ($846.6 after-tax) recorded to write down
plant assets to their estimated net realizable value and record a liability for plant disposition and other costs.
During the first quarter of fiscal year 2017, we determined that it is unlikely for a buyer to assume the remaining
assets and contract obligations, including land lease obligations. As a result, we recorded an additional loss of
$59.3 ($47.1 after-tax) in results of discontinued operations, of which $53.0 was recorded primarily for land lease
obligations and $6.3 was recorded to update our estimate of the net realizable value of the plant assets as of
31 December 2016. There have been no changes to our estimates during the remainder of fiscal year 2017. We
may incur additional exit costs in future periods related to other outstanding commitments.
27
Segment Analysis
Industrial Gases – Americas
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
Industrial Gases – Americas Sales
Underlying business
Volume
Price
Energy and raw material cost pass-through
Currency
Total Industrial Gases – Americas Change
2017
2016
2015
$ 3,637.0
950.6
$ 3,344.1
893.2
$ 3,694.5
806.1
26.1%
58.1
1,473.1
40.5%
26.7%
52.7
1,389.5
41.6%
21.8%
64.6
1,288.2
34.9%
% Change from Prior Year
2017
2016
2%
—%
6%
1%
9%
(2)%
1 %
(6)%
(2)%
(9)%
2017 vs. 2016
Underlying sales were up 2% from stronger hydrogen volumes and a new hydrogen plant in Canada. Higher energy
and natural gas cost pass-through to customers increased sales by 6%. Favorable currency effects, primarily from
the Chilean Peso, increased sales by 1%.
Operating income of $950.6 increased 6%, or $57.4, primarily due to lower operating costs of $37 and higher
volumes of $18. Operating costs were lower due to benefits from productivity improvements. Operating margin
decreased 60 bp from the prior year primarily due to higher energy and natural gas pass-through to customers,
partially offset by favorable cost performance.
Equity affiliates’ income of $58.1 increased $5.4, primarily due to lower maintenance expense and a new plant
onstream.
2016 vs. 2015
Underlying sales decreased 1% from lower volumes of 2%, partially offset by higher pricing of 1%. Volumes were
down due to weakness in Latin America and lower steel demand in North America. Pricing was higher due to the
benefit of pricing actions, mainly the recovery of inflationary and power cost increases in Latin America. Lower
energy contractual cost pass-through to customers, primarily natural gas, decreased sales by 6%. Currency
decreased sales by 2% primarily due to the impacts of the Chilean Peso, Brazilian Real, and Canadian Dollar.
Operating income of $893.2 increased 11%, or $87.1, due to lower operating costs of $108 and higher pricing, net
of energy and fuel costs, of $26, partially offset by lower volumes of $33 and unfavorable currency impacts of $14.
Operating costs were lower due to benefits from cost reduction actions. Operating margin increased 490 bp from
fiscal year 2015, primarily due to the lower costs, with additional benefits from lower energy pass-through and
higher pricing.
Equity affiliates’ income of $52.7 decreased $11.9, primarily due to unfavorable currency impacts and higher
maintenance expense.
28
Industrial Gases – EMEA
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
Industrial Gases – EMEA Sales
Underlying business
Volume
Price
Energy and raw material cost pass-through
Currency
Total Industrial Gases – EMEA Change
2017
2016
2015
$ 1,780.4
387.1
$ 1,704.4
384.6
$ 1,866.4
331.3
21.7%
47.1
611.3
34.3%
22.6%
36.5
606.8
35.6%
17.8%
42.4
568.0
30.4%
% Change from Prior Year
2016
2017
6 %
— %
1 %
(3)%
4 %
(2)%
1 %
(4)%
(4)%
(9)%
2017 vs. 2016
Underlying sales were up 6% from higher volumes as pricing was flat. Volumes increased primarily due to a new
plant onstream in India. Higher energy and natural gas cost pass-through to customers increased sales by 1%.
Unfavorable currency effects, primarily from the British Pound Sterling, reduced sales by 3%.
Operating income of $387.1 increased 1%, or $2.5, primarily due to lower operating costs of $21 and higher
volumes, including a new plant onstream, of $15, partially offset by lower price net of power costs of $18 and
unfavorable currency impacts of $15. Operating costs were lower primarily due to benefits from operational
improvements. Operating margin decreased 90 bp from the prior year, as lower price net of power costs, higher
energy and natural gas pass-through to customers, and unfavorable currency impacts were partially offset by
favorable cost performance.
Equity affiliates’ income of $47.1 increased $10.6, primarily due to higher volumes.
2016 vs. 2015
Underlying sales decreased 1% as lower volumes of 2% were partially offset by higher pricing of 1%. Volumes
decreased primarily due to continued weakness in the European economy. Lower energy and natural gas
contractual cost pass-through to customers decreased sales by 4%. Unfavorable currency effects from the Euro
and the British Pound Sterling reduced sales by 4%. Other than the impact on currency, the Brexit vote in June of
2016 did not have a notable impact on our business.
Operating income of $384.6 increased 16%, or $53.3, primarily due to favorable operating costs of $60 and higher
pricing, net of energy and fuel costs, of $20, partially offset by unfavorable currency impacts of $18 and lower
volumes of $9. Operating margin increased 480 bp from fiscal year 2015 primarily due to favorable cost
performance, higher pricing, and lower energy pass-through.
Equity affiliates’ income of $36.5 decreased $5.9, primarily due to unfavorable currency impacts.
Industrial Gases – Asia
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
2017
2016
2015
$ 1,964.7
531.2
$ 1,720.4
451.0
$ 1,661.3
389.3
27.0%
53.5
787.9
40.1%
26.2%
57.8
706.7
41.1%
23.4%
46.1
645.3
38.8%
29
Industrial Gases – Asia Sales
Underlying business
Volume
Price
Energy and raw material cost pass-through
Currency
Total Industrial Gases – Asia Change
% Change from Prior Year
2017
2016
14 %
1 %
— %
(1)%
14 %
10 %
(1)%
— %
(5)%
4 %
2017 vs. 2016
Underlying sales were up 15% from higher volumes of 14% and higher pricing of 1%. Volumes increased primarily
due to new plant onstreams, sale of equipment activity, and base business growth driven by higher merchant
volumes across Asia. Pricing was up 1% primarily due to increases in China wholesale, spot, and underlying prices
during the second half of the year across all merchant liquid product lines. Unfavorable currency effects reduced
sales by 1%, primarily from the Chinese Renminbi, partially offset by strengthening of the South Korean Won and
Taiwan Dollar.
Operating income of $531.2 increased 18%, or $80.2, due to higher volumes of $68 and higher price net of power
costs of $24, partially offset by higher operating costs of $8 and an unfavorable currency impact of $4. Operating
margin increased 80 bp versus the prior year, primarily due to higher price net of power costs and favorable
volumes partially offset by unfavorable cost performance.
Equity affiliates’ income of $53.5 decreased $4.3, primarily due to favorable contract and insurance settlements in
the prior year.
2016 vs. 2015
Underlying sales increased by 9% from higher volumes of 10%, partially offset by lower pricing of 1%. Volumes
were higher primarily from new plants in China and higher merchant volumes across Asia. Pricing was down due to
continued pricing pressure on merchant products in China and helium oversupply into Asia. Unfavorable currency
impacts, primarily from the Chinese Renminbi, Korean Won, and Taiwanese Dollar decreased sales by 5%.
Operating income of $451.0 increased 16%, or $61.7, primarily due to higher volumes of $66 and lower operating
costs of $27, partially offset by an unfavorable currency impact of $19 and unfavorable pricing, net of energy and
fuel costs, of $12. The lower operating costs were driven by our operational improvements. Operating margin
increased 280 bp due to favorable cost performance and higher volumes.
Equity affiliates’ income of $57.8 increased $11.7 primarily due to favorable contract and insurance settlements,
higher volumes, and improved cost performance.
Industrial Gases – Global
The Industrial Gases – Global segment includes sales of cryogenic and gas processing equipment for air
separation and centralized global costs associated with management of all the Industrial Gases segments.
Sales
Operating income (loss)
Adjusted EBITDA
$
2017
722.9 $
71.3
81.1
2016
498.8 $
(21.3)
(13.4)
2015
286.7
(51.6)
(35.9)
2017 vs. 2016
Sales of $722.9 increased $224.1, or 45%. The increase in sales was primarily driven by a sale of equipment
contract for multiple air separation units that will serve Saudi Aramco’s Jazan oil refinery and power plant in Saudi
Arabia. In 2017, we recognized approximately $540 of sales related to the Jazan project.
Operating income of $71.3 increased $92.6 from an operating loss in the prior year, primarily from income on the
Jazan project and productivity improvements.
30
2016 vs. 2015
Sales of $498.8 increased $212.1, or 74%. The increase in sales was driven by the Jazan project which more than
offset the decrease in small equipment and other air separation unit sales. In 2016, we recognized approximately
$300 of sales related to the Jazan project.
Operating loss of $21.3 decreased 59%, or $30.3, primarily from income on the Jazan project and benefits from
cost reduction actions, partially offset by lower other sale of equipment project activity and a gain associated with
the cancellation of a sale of equipment contract that was recorded in fiscal year 2015.
Corporate and other
The Corporate and other segment includes two ongoing global businesses (our LNG equipment business and our
liquid helium and liquid hydrogen transport and storage container businesses), and corporate support functions that
benefit all the segments. Corporate and other also includes income and expense that is not directly associated with
the business segments, including foreign exchange gains and losses and stranded costs. Stranded costs result
from functional support previously provided to the two divisions comprising the former Materials Technologies
segment. The majority of these costs are reimbursed to Air Products pursuant to short-term transition services
agreements under which Air Products provides transition services to Versum for EMD and to Evonik for PMD. The
reimbursement for costs in support of the transition services has been reflected on the consolidated income
statements within "Other income (expense), net."
Sales
Operating loss
Adjusted EBITDA
$
2017
82.6 $
(170.6)
(158.4)
2016
236.0 $
(87.6)
(68.1)
2015
315.4
(86.5)
(66.2)
2017 vs. 2016
Sales of $82.6 decreased $153.4, primarily due to lower LNG project activity. We expect continued weakness in
new LNG project orders due to continued oversupply of LNG in the market. Operating loss of $170.6 increased
$83.0 due to lower LNG activity, partially offset by productivity improvements and income from transition service
agreements with Versum and Evonik.
2016 vs. 2015
Sales of $236.0 decreased $79.4, or 25%, primarily due to lower LNG sale of equipment activity. Operating loss of
$87.6 increased 1%, or $1.1, due to lower LNG activity, mostly offset by benefits from our recent cost reduction
actions and lower foreign exchange losses.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Millions of dollars unless otherwise indicated, except for per share data)
The Company has presented certain financial measures on a non-GAAP (“adjusted”) basis and has provided a
reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These
financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable
financial measure calculated in accordance with GAAP. The Company believes these non-GAAP measures provide
investors, potential investors, securities analysts, and others with useful supplemental information to evaluate the
performance of the business because such measures, when viewed together with our financial results computed in
accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical
financial performance and projected future results.
In many cases, our non-GAAP measures are determined by adjusting the most directly comparable GAAP financial
measure to exclude certain disclosed items (“non-GAAP adjustments”) that we believe are not representative of the
underlying business performance. For example, Air Products has executed its strategic plan to restructure the
Company to focus on its core Industrial Gases business. This resulted in significant cost reduction and asset
actions that we believe are important for investors to understand separately from the performance of the underlying
business. The reader should be aware that we may incur similar expenses in the future. The tax impact of our non-
GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is
impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments
in those jurisdictions. Investors should also consider the limitations associated with these non-GAAP measures,
including the potential lack of comparability of these measures from one company to another.
31
Presented below are reconciliations of the reported GAAP results to the non-GAAP measures:
CONSOLIDATED RESULTS
Continuing Operations
2017 GAAP
2016 GAAP
Change GAAP
% Change GAAP
2017 GAAP
Business separation costs(C)
Tax benefit associated with business separation(C)
Business restructuring and cost reduction actions(D)
Pension settlement loss
Goodwill and intangible asset impairment charge(E)
Gain on land sale(F)
Equity method investment impairment charge
Tax election benefit
2017 Non-GAAP Measure
2016 GAAP
Business separation costs(C)
Tax costs associated with business separation(C)
Business restructuring and cost reduction actions
Pension settlement loss
Loss on extinguishment of debt(G)
2016 Non-GAAP Measure
Change Non-GAAP Measure
% Change Non-GAAP Measure
Operating
Income
Operating
Margin(A)
Equity
Affiliates'
Income
17.4 % $
80.1
$ 1,427.6
1,529.7
Income Tax
Provision(B)
260.9
$
Net
Income
Diluted
EPS
$ 1,134.4
$ 5.16
20.4 %
147.0
432.6
1,099.5
5.04
$ (102.1)
(300)bp $
(66.9)
$ (171.7)
$
34.9
$
.12
(7)%
(46)%
(40)%
3%
2%
$ 1,427.6
17.4 % $
80.1
$
260.9
$ 1,134.4
$ 5.16
30.2
—
151.4
10.5
162.1
(12.2)
—
—
.4 %
— %
1.8 %
.1 %
2.0 %
(.1 )%
— %
— %
—
—
—
—
—
—
79.5
—
$ 1,769.6
21.6 % $ 159.6
$ 1,529.7
20.4 % $ 147.0
50.6
—
34.5
5.1
—
.7 %
— %
.4 %
.1 %
— %
—
—
—
—
—
$ 1,619.9
$ 149.7
21.6 % $ 147.0
—bp $
12.6
$
$
$
$
3.7
5.5
41.6
3.9
4.6
(4.6)
—
111.4
427.0
26.5
(5.5)
109.3
6.6
154.1
(7.6)
79.5
(111.4)
.12
(.02)
.49
.03
.70
(.03)
.36
(.50)
$ 1,385.9
$ 6.31
432.6
$ 1,099.5
$ 5.04
3.9
(51.8)
9.8
1.8
2.6
46.7
51.8
24.7
3.3
4.3
.21
.24
.11
.02
.02
398.9
$ 1,230.3
$ 5.64
28.1
$
155.6
$
.67
9 %
9 %
7 %
13%
12%
32
2016 GAAP
2015 GAAP
Change GAAP
% Change GAAP
2016 GAAP
Business separation costs(C)
Tax costs associated with business separation(C)
Business restructuring and cost reduction actions
Pension settlement loss
Loss on extinguishment of debt(G)
2016 Non-GAAP Measure
2015 GAAP
Business separation costs(C)
Business restructuring and cost reduction actions
Pension settlement loss
Gain on previously held equity interest
Gain on land sales(F)
Loss on extinguishment of debt(G)
2015 Non-GAAP Measure
Change Non-GAAP Measure
% Change Non-GAAP Measure
Continuing Operations
$ 1,529.7
1,233.2
$
296.5
Operating
Income
Operating
Margin(A)
Equity
Affiliates'
Income
20.4 % $ 147.0
Income Tax
Provision(B)
432.6
$
Net
Income
Diluted
EPS
$ 1,099.5
$ 5.04
15.8 %
152.3
300.2
933.3
4.29
460bp $
(5.3)
24%
(3)%
$ 1,529.7
20.4 % $ 147.0
50.6
—
34.5
5.1
—
.7 %
— %
.4 %
.1 %
— %
—
—
—
—
—
$ 1,619.9
21.6 % $ 147.0
$ 1,233.2
15.8 % $ 152.3
7.5
180.1
19.3
(17.9)
(33.6)
—
.1 %
2.3 %
.2 %
(.3)%
(.4)%
— %
—
—
—
—
—
—
$
$
$
$
132.4
$
166.2
$
.75
44%
18%
17%
432.6
$ 1,099.5
$ 5.04
3.9
(51.8)
9.8
1.8
2.6
46.7
51.8
24.7
3.3
4.3
.21
.24
.11
.02
.02
398.9
$ 1,230.3
$ 5.64
300.2
$
933.3
$ 4.29
—
47.2
6.9
(6.7)
(5.3)
2.4
7.5
132.9
12.4
(11.2)
(28.3)
14.2
.03
.61
.06
(.05)
(.13)
.07
$ 1,388.6
$
231.3
17%
17.7 % $ 152.3
390bp $
(5.3)
$
$
344.7
$ 1,060.8
$ 4.88
54.2
$
169.5
$
.76
(3)%
16%
16%
16%
(A)
(B)
(C)
(D)
(E)
(F)
(G)
Operating margin is calculated by dividing operating income by sales.
The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense impact of
the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of
the adjustments in those jurisdictions.
Refer to Note 4, Materials Technologies Separation, to the consolidated financial statements for additional information.
Noncontrolling interests impact of $.5 in fiscal year 2017.
Noncontrolling interests impact of $3.4 in fiscal year 2017.
Reflected on the consolidated income statements in “Other income (expense), net.”
Income from continuing operations before taxes impact of $6.9 and $16.6 in 2016 and 2015, respectively.
33
ADJUSTED EBITDA
We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding
certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before
interest expense, other non-operating income (expense), net, income tax provision, and depreciation and
amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating
performance.
Below is a reconciliation of Income from Continuing Operations on a GAAP basis to Adjusted EBITDA:
Income from Continuing Operations(A)
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Add: Pension settlement loss
Add: Goodwill and intangible asset impairment charge
Less: Gain on previously held equity interest
Add: Advisory costs
Less: Gain on land sales(B)
Add: Equity method investment impairment charge
Add: Loss on extinguishment of debt
Adjusted EBITDA
Change GAAP
2017
2016
2015
2014
2013
$ 1,155.2
$ 1,122.0
$
965.9
$ 691.0
$
120.6
29.0
260.9
865.8
30.2
151.4
10.5
162.1
—
—
12.2
79.5
—
115.2
—
432.6
854.6
50.6
34.5
5.1
—
—
—
—
—
6.9
102.8
124.0
—
300.2
858.5
7.5
180.1
19.3
—
17.9
—
33.6
—
16.6
—
258.1
875.6
—
11.1
5.2
310.1
—
—
—
—
—
900.0
138.8
—
275.1
824.6
—
98.3
—
—
—
10.1
—
—
—
$ 2,795.0
$ 2,621.5
$ 2,399.4
$ 2,275.1
$ 2,246.9
Income from continuing operations change
Income from continuing operations % change
$
33.2
$
156.1
$
274.9
$ (209.0)
3%
16%
40%
(23)%
Change Non-GAAP
Adjusted EBITDA change
Adjusted EBITDA % change
$
173.5
$
222.1
$
124.3
$
28.2
7%
9%
5%
1 %
(A) Includes net income attributable to noncontrolling interests.
(B) Reflected on the consolidated income statements in “Other income (expense), net.”
34
Below is a summary of segment operating income:
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Segment
Total
GAAP Measure
Twelve Months Ended 30 September 2017
Operating income (loss)
Operating margin
$ 950.6
$ 387.1
$ 531.2
$
71.3
$ (170.6)
$ 1,769.6
26.1 %
21.7 %
27.0 %
21.6 %
Twelve Months Ended 30 September 2016
Operating income (loss)
Operating margin
$ 893.2
$ 384.6
$ 451.0
$
(21.3) $
(87.6)
$ 1,619.9
26.7 %
22.6 %
26.2 %
21.6 %
Twelve Months Ended 30 September 2015
Operating income (loss)
Operating margin
2017 vs. 2016
Operating income (loss) change
Operating income (loss) % change
Operating margin change
2016 vs. 2015
Operating income (loss) change
Operating income (loss) % change
Operating margin change
$ 806.1
$ 331.3
$ 389.3
$
(51.6) $
(86.5)
$ 1,388.6
21.8 %
17.8 %
23.4 %
17.7 %
$
57.4
$
2.5
$
80.2
$
92.6
$
(83.0)
$ 149.7
6 %
(60) bp
1 %
(90) bp
18 %
80 bp
435%
(95)%
9 %
— bp
$
87.1
$
53.3
$
61.7
$
30.3
$
(1.1)
$ 231.3
11 %
490 bp
16 %
480 bp
16 %
280 bp
59%
(1)%
17 %
390 bp
35
Below is a reconciliation of segment operating income to adjusted EBITDA:
Non-GAAP Measure
Twelve Months Ended 30 September 2017
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
Adjusted EBITDA margin(A)
Twelve Months Ended 30 September 2016
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
Adjusted EBITDA margin(A)
Twelve Months Ended 30 September 2015
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income (loss)
Adjusted EBITDA
Adjusted EBITDA margin(A)
2017 vs. 2016
Adjusted EBITDA change
Adjusted EBITDA % change
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Segment
Total
$ 950.6
$ 387.1
$ 531.2
464.4
58.1
177.1
47.1
203.2
53.5
$1,473.1
$ 611.3
$ 787.9
$
$
71.3
$ (170.6)
$1,769.6
8.9
.9
12.2
—
865.8
159.6
81.1
$ (158.4)
$2,795.0
40.5 %
34.3 %
40.1 %
34.1 %
$ 893.2
$ 384.6
$ 451.0
$
(21.3) $
(87.6)
$1,619.9
443.6
52.7
185.7
36.5
197.9
57.8
7.9
—
19.5
—
854.6
147.0
$1,389.5
$ 606.8
$ 706.7
$
(13.4) $
(68.1)
$2,621.5
41.6 %
35.6 %
41.1 %
34.9 %
$ 806.1
$ 331.3
$ 389.3
$
(51.6) $
(86.5)
$1,388.6
417.5
64.6
194.3
42.4
209.9
46.1
16.5
(.8)
20.3
—
858.5
152.3
$1,288.2
$ 568.0
$ 645.3
$
(35.9) $
(66.2)
$2,399.4
34.9 %
30.4 %
38.8 %
30.7 %
$
83.6
$
4.5
$
81.2
$
94.5
$
(90.3)
$ 173.5
6 %
1 %
11 %
705%
(133)%
7 %
(80) bp
Adjusted EBITDA margin change
(110) bp
(130) bp
(100) bp
2016 vs. 2015
Adjusted EBITDA change
Adjusted EBITDA % change
Adjusted EBITDA margin change
$ 101.3
$
38.8
$
61.4
$
22.5
$
(1.9)
$ 222.1
8 %
7 %
670 bp
520 bp
10 %
230 bp
63%
(3)%
9 %
420 bp
(A) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by sales.
36
INCOME TAXES
The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense
impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and
the taxability of the adjustments in those jurisdictions.
Income Tax Provision—GAAP
Income from Continuing Operations before Taxes—GAAP
Effective Tax Rate—GAAP
Income Tax Provision—GAAP
Business separation costs
Tax benefit (costs) associated with business separation
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Loss on extinguishment of debt
Tax election benefit
Income Tax Provision—Non-GAAP Measure
Income from Continuing Operations before Taxes—GAAP
Business separation costs
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Loss on extinguishment of debt
Effective Tax Rate
2017
2016
2015
$
260.9
$
432.6
$
300.2
$ 1,416.1
$ 1,554.6
$ 1,266.1
18.4%
27.8%
23.7%
$
260.9
$
432.6
$
300.2
3.7
5.5
41.6
3.9
4.6
—
(4.6)
—
—
111.4
3.9
(51.8)
9.8
1.8
—
—
—
—
2.6
—
—
—
47.2
6.9
—
(6.7)
(5.3)
—
2.4
—
$
427.0
$
398.9
$
344.7
$ 1,416.1
$ 1,554.6
$ 1,266.1
30.2
151.4
10.5
162.1
—
(12.2)
79.5
—
50.6
34.5
5.1
—
—
—
—
6.9
7.5
180.1
19.3
—
(17.9)
(33.6)
—
16.6
Income from Continuing Operations Before Taxes—Non-GAAP Measure
$ 1,837.6
$ 1,651.7
$ 1,438.1
Effective Tax Rate—Non-GAAP Measure
23.2%
24.2%
24.0%
LIQUIDITY AND CAPITAL RESOURCES
We maintained a strong financial position throughout 2017 and as of 30 September 2017 our consolidated balance
sheet included cash and cash items of $3,273.6. The cash and cash items balance is higher than our historical
trend and primarily results from the sale of PMD to Evonik on 3 January 2017. We continue to have consistent
access to commercial paper markets, and cash flows from operating and financing activities are expected to meet
liquidity needs for the foreseeable future.
As of 30 September 2017, we had $1,530.2 of foreign cash and cash items compared to a total amount of cash and
cash items of $3,273.6. 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.
37
Our cash flows from operating, investing, and financing activities from continuing operations, as reflected in the
consolidated statements of cash flows, are summarized in the following table:
Cash provided by (used for)
Operating activities
Investing activities
Financing activities
Operating Activities
$
2017
2,534.1 $
(1,417.7)
(2,040.9)
2016
2,258.8 $
(864.8)
(860.2)
2015
2,047.0
(1,146.7)
(960.4)
For the year ended 2017, cash provided by operating activities was $2,534.1. Income from continuing operations of
$1,134.4 included a goodwill and intangible impairment charge of $162.1, an equity method investment impairment
charge of $79.5, and a write-down of long-lived assets associated with restructuring of $69.2. Refer to Note 5,
Business Restructuring and Cost Reduction Actions; Note 8, Summarized Financial Information of Equity Affiliates;
Note 10, Goodwill; and Note 11, Intangible Assets, of the consolidated financial statements for additional
information on these charges. Other specifically identified adjustments to income from continuing operations include
depreciation and amortization, deferred income taxes, share-based compensation, noncurrent capital lease
receivables, and undistributed earnings of unconsolidated affiliates. Other adjustments of $165.4 included changes
in uncertain tax positions and the fair value of foreign exchange contracts that hedge intercompany loans as well as
pension contributions and expense. The working capital accounts were a source of cash of $48.0 that were
primarily driven by payables and accrued liabilities and other receivables, partially offset by other working capital
and trade receivables. The increase in payables and accrued liabilities of $163.8 was primarily due to timing
differences related to payables and accrued liabilities and an increase in customer advances of $52.8 primarily
related to sale of equipment activity. The source of cash from other receivables of $124.7 was primarily due to the
maturities of forward exchange contracts that hedged foreign currency exposures. Other working capital was a use
of cash of $154.0, primarily driven by payments for income taxes. Trade receivables was a use of cash of $73.6
which is primarily due to timing differences.
For the year ended 2016, cash provided by operating activities was $2,258.8. Income from continuing operations of
$1,099.5 included a loss on extinguishment of debt of $6.9. Other adjustments of $156.7 were primarily driven by
the remeasurement of intercompany transactions as the related hedging instruments that eliminate the earnings
impact are included in other receivables and payables and accrued liabilities. The working capital accounts were a
source of cash of $21.2 that were primarily driven by payables and accrued liabilities and inventory partially offset
by trade receivables and other working capital. The increase in payables and accrued liabilities of $60.1 was
primarily related to an increase in customer advances which includes payment from our joint venture in Jazan,
Saudi Arabia and was partially offset by the changes in the fair value of foreign exchange contracts that hedge
intercompany loans. The use of cash from other working capital of $47.8 was primarily driven by advances
associated with the purchase of helium partially offset by an increase in accrued income taxes, including the
impacts of higher income.
For the year ended 2015, cash provided by operating activities was $2,047.0. Income from continuing operations of
$933.3 included the write-down of long-lived assets associated with business restructuring of $40.2, a noncash gain
on the previously held equity interest of $17.9, and a loss on extinguishment of debt of $16.6. Other adjustments
included pension and postretirement expense of $120.1 and contributions to our pension plans of $137.5, primarily
for plans in the U.S. and U.K. Management considers various factors when making pension funding decisions,
including tax, cash flow, and regulatory implications. The working capital accounts were a source of cash of $256.0.
The increase of payables and accrued liabilities of $134.9 includes an increase in accrued incentive compensation
of $72.7.
Investing Activities
For the year ended 30 September 2017, cash used for investing activities was $1,417.7. Capital expenditures for
plant and equipment was $1,039.7. Purchases of investments of $2,692.6 include short-term instruments with
original maturities greater than three months and less than one year. Proceeds from investments of $2,290.7
resulted from maturities of short-term instruments with original maturities greater than three months and less than
one year.
For the year ended 30 September 2016, cash used for investing activities was $864.8, driven by capital
expenditures for plant and equipment of $907.7. Proceeds from the sale of assets and investments of $44.6 was
primarily driven by the receipt of $30.0 for our rights to a corporate aircraft that was under construction.
38
For the year ended 30 September 2015, cash used for investing activities was $1,146.7, primarily capital
expenditures for plant and equipment. On 30 December 2014, we acquired our partner’s equity ownership interest
in a liquefied atmospheric industrial gases production joint venture in North America which increased our ownership
from 50% to 100%. Refer to Note 6, Business Combination, to the consolidated financial statements for additional
information.
Capital Expenditures
Capital expenditures are detailed in the following table:
Additions to plant and equipment
Acquisitions, less cash acquired
Investments in and advances to unconsolidated affiliates
Capital Expenditures on a GAAP Basis
Capital lease expenditures(A)
Purchase of noncontrolling interests in a subsidiary(A)
Capital Expenditures on a Non-GAAP Basis
$
$
$
2017
1,039.7 $
8.2
8.1
1,056.0 $
9.9
—
1,065.9 $
2016
907.7 $
—
—
907.7 $
27.2
—
934.9 $
2015
1,162.4
34.5
4.3
1,201.2
95.6
278.4
1,575.2
(A)
We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities
accounted for as capital leases and purchases of noncontrolling interests. 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 in the consolidated statements of cash flows within "Cash Provided by Operating Activities" if
the arrangement qualifies as a capital lease. Additionally, the purchase of subsidiary shares from noncontrolling interests
is accounted for as a financing activity in the statement of cash flows. 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.
Capital expenditures on a GAAP basis in 2017 totaled $1,056.0, compared to $907.7 in 2016. The increase of
$148.3 was primarily due to higher capital expenditures on facility improvement projects and major project
spending. Additions to plant and equipment also included support capital of a routine, ongoing nature, including
expenditures for distribution equipment and facility improvements. Spending in 2017 and 2016 included plant and
equipment constructed to provide oxygen and nitrogen for coal to liquid fuel in China, hydrogen to global markets,
oxygen to the steel industry, and nitrogen for the electronics industry.
Capital expenditures on a non-GAAP basis in 2017 totaled $1,065.9 compared to $934.9 in 2016. The increase of
$131.0 was primarily due to higher capital expenditures on facility improvement projects and major project spending
partially offset by lower capital lease expenditures.
On 19 April 2015, a joint venture between Air Products and ACWA Holding entered into a 20-year oxygen and
nitrogen supply agreement to supply Saudi Aramco’s oil refinery and power plant being built in Jazan, Saudi Arabia.
Air Products owns 25% of the joint venture. During 2016 and 2015, we recorded noncash transactions which
resulted in an increase of $26.9 and $67.5, respectively, to our investment in net assets of and advances to equity
affiliates for our obligation to invest in the joint venture. These noncash transactions were excluded from the
consolidated statements of cash flows and there was no impact in 2017. In total, we expect to invest approximately
$100 in this joint venture. Air Products has also entered into a sale of equipment contract with the joint venture to
engineer, procure, and construct the industrial gas facilities that will supply the gases to Saudi Aramco.
Sales backlog represents our estimate of revenue to be recognized in the future on our share of Air Products’ sale
of equipment orders and related process technology that are under firm contracts. The sales backlog for the
Company at 30 September 2017 was $481 compared to $1,057 at 30 September 2016. The decrease was primarily
driven by progress on the Jazan project.
39
2018 Outlook
Capital expenditures for new plant and equipment in 2018 are expected to be approximately $1,000 to $1,200. This
range excludes possible acquisitions and our previously announced agreement to form a joint venture, Air Products
Lu’an (Changzhi) Co., Ltd., with Lu’An Clean Energy Company that will build, own and operate four large air
separation units as discussed in the Contractual Obligations section on page 43. A majority of the total capital
expenditures is expected to be for new plants that are currently under construction or expected to start construction.
It is anticipated that capital expenditures will be funded principally with our current cash balance and cash
generated from continuing operations. In addition, we intend to continue to evaluate acquisitions of small and
medium size industrial gas companies or assets from other industrial gas companies; the purchase of existing
industrial gas facilities from our customers to create long-term contracts where we own and operate the plant and
sell industrial gases to the customer based on a fixed fee; and investment in very large industrial gas projects driven
by demand for more energy, cleaner energy, and emerging market growth.
Financing Activities
For the year ended 2017, cash used for financing activities was $2,040.9. This consisted primarily of repayments of
commercial paper and short-term borrowings of $798.6, dividend payments to shareholders of $787.9 and
payments on long-term debt of $483.9. Payments on long-term debt primarily consisted of the repayment of a
4.625% Eurobond of €300 million ($317.2) that matured on 15 March 2017 and $138.0 for the repayment of
industrial revenue bonds.
For the year ended 2016, cash used for financing activities was $860.2. Our borrowings (short- and long-term
proceeds, net of repayments) were a net use of cash of $237.7 and included the repayment of the 2.0% Senior
Note of $350.0 million on 2 August 2016, and a $144.2 use of cash for net commercial paper and other short-term
debt borrowings which were partially offset by debt proceeds from the issuance of a .375% Eurobond of €350
million ($386.9) on 1 June 2016. Versum distributed in-kind notes with an aggregate principal amount of $425.0 to
Air Products. However, since Air Products exchanged these notes with certain financial institutions for $418.3 of Air
Products’ outstanding commercial paper, this noncash debt for debt exchange was excluded from the consolidated
statements of cash flows. Refer to Note 4, Materials Technologies Separation, to the consolidated financial
statements for additional details. We also used cash to pay dividends of $721.2 and received proceeds from stock
option exercises of $141.3.
For the year ended 2015, cash used for financing activities was $960.4 primarily attributable to cash used to pay
dividends of $677.5 and payments for subsidiary shares from noncontrolling interest of $278.4, which was partially
offset by proceeds from stock option exercises of $121.3. Our borrowings were a net use of cash of $73.9 and
included $285.2 of net commercial paper and other short-term debt issuances, debt proceeds from the issuance of
a 1.0% Eurobond of €300 million ($335.3), repayment of a 3.875% Eurobond of €300 million ($335.9), repayment of
Industrial Revenue Bonds totaling $147.2, and repayment of 3,000,000 Unidades de Fomento (“UF”) Series E
6.30% Bonds totaling $146.6. Refer to Note 15, Debt, to the consolidated financial statements for additional details.
Discontinued Operations
For the year ended 2017, cash flows of discontinued operations primarily included impacts associated with the spin-
off of EMD as Versum on 1 October 2016 and the sale of PMD to Evonik on 3 January 2017. Cash used for
operating activities of $966.2 was primarily driven by taxes paid on the gain on the sale of PMD. Cash provided by
investing activities of $3,750.6 primarily resulted from the proceeds on the sale of PMD. Cash provided by financing
activities resulted from a $69.5 receipt of cash from Versum related to finalization of the spin-off. Refer to Note 3,
Discontinued Operations, to the consolidated financial statements for additional information.
For the year ended 2016, discontinued operations primarily includes the Energy-from-Waste business, which the
Company decided to exit in the second quarter of 2016, and the Materials Technologies business which contained
two divisions, EMD and PMD. Cash provided by discontinued operations was $753.6 primarily driven by income
from operations of discontinued operations, which excludes the noncash impairment charge, of $386.1 and long-
term debt proceeds from Versum's Term Loan B of $575.0, partially offset by capital expenditures for plant and
equipment of $245.1. Refer to Note 3, Discontinued Operations, to the consolidated financial statements for
additional information.
For the year ended 2015, cash used by discontinued operations was $47.2. The use of cash was primarily driven by
expenditures for plant and equipment of $452.4 which primarily related to the Energy-from-Waste facilities. This use
of cash was partially offset by income from discontinued operations of $344.6. Refer to Note 3, Discontinued
Operations, to the consolidated financial statements for additional information.
40
Financing and Capital Structure
Capital needs in 2017 were satisfied primarily with cash from operations. At the end of 2017, total debt outstanding
was $3,962.8 compared to $5,210.9 at the end of 2016, and cash and cash items were $3,273.6 compared to
$1,293.2 at the end of 2016.
On 31 March 2017, we entered into a five-year $2,500.0 revolving credit agreement with a syndicate of banks (the
“2017 Credit Agreement”), under which senior unsecured debt is available to both the Company and certain of its
subsidiaries. The 2017 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 (total debt plus total equity) no greater than 70%. Total debt at 30 September 2017 and 2016,
expressed as a percentage of total capitalization (total debt plus total equity), was 28.0% and 41.9%, respectively.
No borrowings were outstanding under the 2017 Credit Agreement as of 30 September 2017.
The 2017 Credit Agreement terminates and replaces our previous $2,690.0 revolving credit agreement (the “2013
Credit Agreement”), which was to mature 30 April 2018. No borrowings were outstanding under the previous
agreement at the time of its termination, and no early termination penalties were incurred.
Commitments totaling $23.4 are maintained by our foreign subsidiaries, all of which was borrowed and outstanding
at 30 September 2017.
As of 30 September 2017, we are in compliance with all of the financial and other covenants under our debt
agreements.
On 15 September 2011, the Board of Directors authorized the repurchase of up to $1,000 of our outstanding
common stock. We did not purchase any of our outstanding shares during fiscal years 2017, 2016 or 2015. At
30 September 2017, $485.3 in share repurchase authorization remains.
2018 Outlook
Cash flows from operations and financing activities are expected to meet liquidity needs for the foreseeable future
and our working capital balance was $3,387.7 at 30 September 2017. We expect that we will continue to be in
compliance with all of our financial covenants.
On 16 October 2017, we repaid a 1.2% Senior Note of $400 that matured on 15 October 2017. As of 30 September
2017, this note was reflected in current portion of long-term debt on the consolidated balance sheets.
Dividends
Dividends are declared by the Board of Directors and are usually paid during the sixth week after the close of the
fiscal quarter. During 2017, the Board of Directors increased the quarterly dividend from $.86 per share to $.95 per
share.
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. The following table summarizes our obligations
on a continuing operations basis as of 30 September 2017:
Total
2018
2019
2020
2021
2022 Thereafter
Long-term debt obligations
Debt maturities
Contractual interest
Capital leases
Operating leases
Pension obligations
Unconditional purchase obligations
Obligation for future contribution to
an equity affiliate
Total Contractual Obligations
$ 3,837 $
438
30
314
698
6,533
100
416 $
76
2
57
52
822
—
409 $
356 $
433 $
401 $
1,822
75
2
46
47
234
—
57
2
35
47
275
100
49
3
27
46
309
—
37
1
23
48
285
—
144
20
126
458
4,608
—
$ 11,950 $
1,425 $
813 $
872 $
867 $
795 $
7,178
41
Long-Term Debt Obligations
The long-term debt obligations include the maturity payments of long-term debt, including current portion, and the
related contractual interest obligations. Refer to Note 15, Debt, to the consolidated financial statements for
additional information on long-term debt.
Contractual interest is the interest we are contracted to pay on the long-term debt obligations without taking into
account the interest impact of interest rate swaps related to any of this debt, which at current interest rates would
slightly decrease contractual interest. We had $655 of long-term debt subject to variable interest rates at 30
September 2017, excluding fixed-rate debt that has been swapped to variable-rate debt. The rate assumed for the
variable interest component of the contractual interest obligation was the rate in effect at 30 September 2017.
Variable interest rates are primarily determined by U.S. short-term tax-exempt interest rates and by interbank offer
rates.
Leases
Refer to Note 12, Leases, to the consolidated financial statements for additional information on capital and
operating leases.
Pension Obligations
The amounts in the table above represent the current estimated cash payments to be made by us that in total equal
the recognized pension liabilities, less the net pension liability transferred to discontinued operations. Refer to Note
16, Retirement Benefits, to the consolidated financial statements. These payments are based upon the current
valuation assumptions and regulatory environment.
The total accrued liability for pension benefits is impacted by interest rates, plan demographics, actual return on
plan assets, continuation or modification of benefits, and other factors. Such factors can significantly impact the
amount of the liability and related contributions.
Unconditional Purchase Obligations
Approximately $5,600 of our unconditional purchase obligations relate to helium purchases, which include crude
feedstock supply to multiple helium refining plants in North America as well as refined helium purchases from
sources around the world. As a rare byproduct of natural gas production in the energy sector, these helium sourcing
agreements are medium- to long-term and contain take-or-pay provisions. The refined helium is distributed globally
and sold as a merchant gas, primarily under medium-term requirements contracts. While contract terms in the
energy sector are longer than those in merchant, helium is a rare gas used in applications with few or no
substitutions because of its unique physical and chemical properties.
Approximately $280 of our long-term unconditional purchase obligations relate to feedstock supply for numerous
HyCO (hydrogen, carbon monoxide, and syngas) facilities. The price of feedstock supply is principally related to the
price of natural gas. However, long-term take-or-pay sales contracts to HyCO customers are generally matched to
the term of the feedstock supply obligations and provide recovery of price increases in the feedstock supply. Due to
the matching of most long-term feedstock supply obligations to customer sales contracts, we do not believe these
purchase obligations would have a material effect on our financial condition or results of operations.
The unconditional purchase obligations also include other product supply and purchase commitments and electric
power and natural gas supply purchase obligations, which are primarily pass-through contracts with our customers.
Purchase commitments to spend approximately $300 for additional plant and equipment are included in the
unconditional purchase obligations in 2018. In addition, we have purchase commitments totaling approximately
$180 in 2018 relating to our long-term sale of equipment project for Saudi Aramco’s Jazan oil refinery.
We also purchase materials, energy, capital equipment, supplies, and services as part of the ordinary course of
business under arrangements that are not unconditional purchase obligations. The majority of such purchases are
for raw materials and energy, which are obtained under requirements-type contracts at market prices.
Obligation for Future Contribution to an Equity Affiliate
On 19 April 2015, a joint venture between Air Products and ACWA Holding entered into a 20-year oxygen and
nitrogen supply agreement to supply Saudi Aramco’s oil refinery and power plant being built in Jazan, Saudi Arabia.
Air Products owns 25% of the joint venture and guarantees the repayment of its share of an equity bridge loan. In
total, we expect to invest approximately $100 in this joint venture. As of 30 September 2017 and 2016, we recorded
a noncurrent liability of $94.4 for our obligation to make future equity contributions in 2020 based on our
proportionate share of the advances received by the joint venture under the loan.
42
Investment in Joint Venture
On 10 September 2017, Air Products signed an agreement to form a joint venture, Air Products Lu’an (Changzhi)
Co., Ltd., with Lu’An Clean Energy Company. Air Products has already invested $300 million to build, own, and
operate four large air separation units to supply the Changzhi City site. Under the agreement, Air Products will
contribute the air separation units and invest an additional $500. Air Products will own 60% of the joint venture and
will consolidate its financial results. Closing will occur upon the completion of initial operational start-up and
government and regulatory approvals. Due to the uncertainty of those milestones, the additional investment has
been excluded from the contractual obligations table above.
Income Tax Liabilities
Noncurrent deferred income tax liabilities as of 30 September 2017 were $778.4. Tax liabilities related to
unrecognized tax benefits as of 30 September 2017 were $146.4. These tax liabilities were excluded from the
Contractual Obligations table as it is impractical to determine a cash impact by year given that payments will vary
according to changes in tax laws, tax rates, and our operating results. In addition, there are uncertainties in timing
of the effective settlement of our uncertain tax positions with respective taxing authorities. Refer to Note 22, Income
Taxes, to the consolidated financial statements for additional information.
PENSION BENEFITS
The Company and certain of its subsidiaries sponsor defined benefit pension plans and defined contribution plans
that cover a substantial portion of its worldwide employees. The principal defined benefit pension plans are the U.S.
salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005 and were
replaced with defined contribution plans. The shift to defined contribution plans is expected to continue to reduce
volatility of both plan expense and contributions.
The fair market value of plan assets for our defined benefit pension plans as of the 30 September 2017
measurement date increased to $4,409.2 from $4,116.4 at the end of fiscal year 2016. The projected benefit
obligation for these plans was $5,107.1 and $5,327.3 at the end of fiscal years 2017 and 2016, respectively. The
net unfunded liability decreased by approximately $513 from $1,211 to $698, primarily due to higher discount rates,
favorable asset experience and the effects of the Versum spin-off and the sale of PMD to Evonik. Refer to Note 16,
Retirement Benefits, to the consolidated financial statements for comprehensive and detailed disclosures on our
postretirement benefits.
Pension Expense
Pension expense – Continuing operations
Special terminations, settlements, and curtailments (included above)
Weighted average discount rate(A)
Weighted average expected rate of return on plan assets
Weighted average expected rate of compensation increase
$
2017
72.0
15.0
$
3.0%
7.4%
3.5%
$
2016
55.8
6.0
4.1%
7.5%
3.5%
2015
115.0
30.5
4.0%
7.4%
3.5%
(A)
Effective in 2016, the Company began to measure the service cost and interest cost components of pension expense by
applying spot rates along the yield curve to the relevant projected cash flows, as we believe this provides a better
measurement of these costs. The Company accounted for this as a change in accounting estimate and, accordingly,
accounted for it prospectively. This change did not affect the measurement of the total benefit obligation.
2017 vs. 2016
Pension expense, excluding special items, increased from the prior year primarily due to a decrease in the discount
rate offset by favorable asset experience. Special items of $15.0 included pension settlement losses of $10.5
related to the U.S. Supplementary Pension Plan, curtailment and special termination benefits of $4.5, $2.5 of which
was reflected in "Business separation costs" and $2.0 reflected in "Business restructuring and cost reduction
actions" on the consolidated income statements.
2016 vs. 2015
Pension expense, excluding special items, decreased from fiscal year 2015 due to the adoption of the spot rate
approach, which reduced service cost and interest cost, and the impacts from expected return on assets and
demographic gains, partially offset by the impact of the adoption of new mortality tables for our major plans. Special
items of $6.0 included pension settlement losses of $5.1, special termination benefits of $2.0, and curtailment gains
of $1.1. These resulted primarily from our recent business restructuring and cost reduction actions.
43
2018 Outlook
In 2018, pension expense, excluding special items, is expected to be relatively flat compared to 2017 with a range
of approximately $50 to $55. This results from lower loss amortization primarily due to favorable asset experience,
offset by the impact of lower discount rates and a lower expected return on assets. Pension settlement losses of $5
to $10 are expected, depending on the timing of retirements. In 2018, we expect pension expense to include
approximately $128 for amortization of actuarial losses. In 2017, total company pension expense, which includes
both continuing and discontinued operations, included amortization of actuarial losses of $143. Net actuarial losses
of $352 were recognized in accumulated other comprehensive income in 2017. Actuarial gains/losses are amortized
into pension expense over prospective periods to the extent they are not offset by future gains or losses. Future
changes in the discount rate and actual returns on plan assets different from expected returns would impact the
actuarial gains/losses and resulting amortization in years beyond 2018.
As noted in Note 2, New Accounting Guidance, to the consolidated financial statements, we expect to early adopt
guidance on the presentation of net periodic pension and postretirement benefit cost in 2018. The amendments
require that the service cost component of the net periodic benefit cost be presented in the same line items as other
compensation costs arising from services rendered by employees during the period. The other components of net
periodic benefit cost will be presented outside of operating income.
Pension Funding
Pension funding includes both contributions to funded plans and benefit payments for unfunded plans, which are
primarily non-qualified plans. With respect to funded plans, our funding policy is that contributions, combined with
appreciation and earnings, will be sufficient to pay benefits without creating unnecessary surpluses.
In addition, we make contributions to satisfy all legal funding requirements while managing our capacity to benefit
from tax deductions attributable to plan contributions. With the assistance of third party actuaries, we analyze the
liabilities and demographics of each plan, which help guide the level of contributions. During 2017 and 2016, our
cash contributions to funded plans and benefit payments for unfunded plans were $64.1 and $79.3, respectively.
For 2018, cash contributions to defined benefit plans are estimated to be $50 to $70. The estimate is based on
expected contributions to certain international plans and anticipated benefit payments for unfunded plans, which
are dependent upon the timing of retirements and future cost reduction actions. Actual future contributions will
depend on future funding legislation, discount rates, investment performance, plan design, and various other
factors. Refer to the Contractual Obligations discussion on pages 41-43 for a projection of future contributions.
ENVIRONMENTAL MATTERS
We are subject to various environmental laws and regulations in the countries in which we have operations.
Compliance with these laws and regulations results in higher capital expenditures and costs. In the normal course
of business, we are involved in legal proceedings under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA: the federal Superfund law); Resource Conservation and Recovery Act
(RCRA); and similar state and foreign environmental laws relating to the designation of certain sites for investigation
or remediation. Our accounting policy for environmental expenditures is discussed in Note 1, Major Accounting
Policies, to the consolidated financial statements, and environmental loss contingencies are discussed in Note 17,
Commitments and Contingencies, to the consolidated financial statements.
The amounts charged to income from continuing operations related to environmental matters totaled $11.4, $12.2,
and $11.8 in 2017, 2016, and 2015, respectively. These amounts represent an estimate of expenses for compliance
with environmental laws and activities undertaken to meet internal Company standards. Future costs are not
expected to be materially different from these amounts. Refer to Note 17, Commitments and Contingencies, to the
consolidated financial statements for additional information.
Although precise amounts are difficult to determine, we estimate that we spent $7 in 2017, $3 in 2016, and $2 in
2015 on capital projects to control pollution. Capital expenditures to control pollution in future years are estimated to
be approximately $3 in both 2018 and 2019.
We accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability
has been incurred and the amount of loss can be reasonably estimated. The potential exposure for such costs is
estimated to range from $83 to a reasonably possible upper exposure of $97 as of 30 September 2017. The
consolidated balance sheets at 30 September 2017 and 2016 included an accrual of $83.6 and $81.4, respectively.
The accrual for the environmental obligations includes amounts for the Pace, Florida; Piedmont, South Carolina;
44
and Pasadena, Texas, locations which were a part of previously divested chemicals businesses. Refer to Note 17,
Commitments and Contingencies, to the consolidated financial statements for further details on these facilities.
Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent
uncertainties in evaluating environmental exposures. Subject to the imprecision in estimating future environmental
costs, we do not expect that any sum we may have to pay in connection with environmental matters in excess of
the amounts recorded or disclosed above would have a material adverse impact on our financial position or results
of operations in any one year.
Some of our operations are within jurisdictions that have or are developing regulatory regimes governing emissions
of greenhouse gases ("GHG"), including carbon dioxide. These include existing coverage under the European
Union Emission Trading Scheme, California and Ontario cap and trade schemes, Alberta’s Specified Gas Emitters
Regulation, China’s Emission Trading Scheme pilots, South Korea’s Emission Trading Scheme, and mandatory
reporting and anticipated constraints on GHG emissions under an Ontario cap and trade scheme, nation-wide
expansion of the China Emission Trading Scheme, and revisions to the Alberta regulation. In addition, the U.S.
Environmental Protection Agency ("EPA") requires mandatory reporting of GHG emissions and is regulating GHG
emissions for new construction and major modifications to existing facilities. Some jurisdictions have various
mechanisms to target the power sector to achieve emission reductions, which often result in higher power costs.
Increased public concern may result in more international, U.S. federal, and/or regional requirements to reduce or
mitigate the effects of GHG. Although uncertain, these developments could increase our costs related to
consumption of electric power and hydrogen production. We believe it will be able to mitigate some of the increased
costs through contractual terms, but the lack of definitive legislation or regulatory requirements prevents an
accurate estimate of the long-term impact these measures will have on our operations. Any legislation that limits or
taxes GHG emissions could negatively impact our growth, increase our operating costs, or reduce demand for
certain of our products.
Regulation of GHG may also produce new opportunities for us. We continue to develop technologies to help our
facilities and our customers lower energy consumption, improve efficiency, and lower emissions. We are also
developing a portfolio of technologies that capture carbon dioxide from steam methane reforming, enable cleaner
transportation fuels, and facilitate alternate fuel source development. In addition, the potential demand for clean
coal could increase demand for oxygen, one of our main products, and our proprietary technology for delivering
low-cost oxygen.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into certain guarantee agreements as discussed in Note 17, Commitments and Contingencies, to
the consolidated financial statements. 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, results of operations, or liquidity.
RELATED PARTY TRANSACTIONS
Our principal related parties are equity affiliates operating in the industrial gas business. In 2015, we entered into a
long-term sale of equipment contract to engineer, procure, and construct industrial gas facilities with a 25% owned
joint venture for Saudi Aramco’s Jazan oil refinery and power plant in Saudi Arabia. The agreement included terms
that are consistent with those that we believe would have been negotiated at an arm’s length with an independent
party. Sales related to this contract are included in the results of our Industrial Gases – Global segment and were
approximately $540 and $300 during fiscal year 2017 and 2016, respectively. Sales related to this contract were not
material during fiscal year 2015.
INFLATION
We operate in many countries that experience volatility in inflation and foreign exchange rates. The ability to pass
on inflationary cost increases is an uncertainty due to general economic conditions and competitive situations. It is
estimated that the cost of replacing our plant and equipment today is greater than its historical cost. Accordingly,
depreciation expense would be greater if the expense were stated on a current cost basis.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1, Major Accounting Policies, to the consolidated financial statements describes our major accounting policies.
Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. However,
application of the critical accounting policies discussed below requires management’s significant judgments, often
as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ
materially from the estimates made, the reported results could be materially affected. Our management has
reviewed these critical accounting policies and estimates and related disclosures with our audit committee.
Depreciable Lives of Plant and Equipment
Net plant and equipment at 30 September 2017 totaled $8,440.2, and depreciation expense totaled $843.2 during
2017. Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal
amounts of the cost of each asset from earnings every year over its estimated economic useful life.
Economic useful life is the duration of time an asset is expected to be productively employed by us, which may be
less than its physical life. Assumptions on the following factors, among others, affect the determination of estimated
economic useful life: wear and tear, obsolescence, technical standards, contract life, market demand, competitive
position, raw material availability, and geographic location.
The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of
changed business circumstances. For example, changes in technology, changes in the estimated future demand for
products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In
these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby
increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased,
the adjustment to the useful life decreases depreciation expense per year on a prospective basis.
The regional Industrial Gases segments have numerous long-term customer supply contracts for which we
construct an on-site plant adjacent to or near the customer’s facility. These contracts typically have initial contract
terms of 10 to 20 years. Depreciable lives of the production assets related to long-term contracts are matched to the
contract lives. Extensions to the contract term of supply frequently occur prior to the expiration of the initial term. As
contract terms are extended, the depreciable life of the remaining net book value of the production assets is
adjusted to match the new contract term, as long as it does not exceed the remaining physical life of the asset.
Our regional Industrial Gases segments also have contracts for liquid or gaseous bulk supply and, for smaller
customers, packaged gases. The depreciable lives of production facilities associated with these contracts are
generally 15 years. These depreciable lives have been determined based on historical experience combined with
judgment on future assumptions such as technological advances, potential obsolescence, competitors’ actions, etc.
Management monitors its assumptions and may potentially need to adjust depreciable life as circumstances
change.
A change in the weighted average remaining depreciable life by one year for assets associated with our regional
Industrial Gases segments would impact annual depreciation expense as summarized below:
Industrial Gases – Regional
Impairment of Assets
Plant and Equipment
Decrease Life
By 1 Year
$
40 $
Increase Life
By 1 Year
(35)
Plant and equipment held for use is grouped for impairment testing at the lowest level for which there is identifiable
cash flows. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. Such circumstances would include a significant
decrease in the market value of a long-lived asset grouping, a significant adverse change in the manner in which
the asset grouping is being used or in its physical condition, an accumulation of costs significantly in excess of the
amount originally expected for the acquisition or construction of the long-lived asset, a history of operating or cash
flow losses associated with the use of the asset grouping, or changes in the expected useful life of the long-lived
assets.
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If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by that
asset group is compared to the carrying value to determine whether impairment exists. If an asset group is
determined to be impaired, the loss is measured based on the difference between the asset group’s fair value and
its carrying value. An estimate of the asset group’s fair value is based on the discounted value of its estimated cash
flows. Assets that meet the held for sale criteria are reported at the lower of carrying amount or fair value less cost
to sell.
The assumptions underlying the undiscounted future cash flow projections require significant management
judgment. Factors that management must estimate include industry and market conditions, sales volume and
prices, costs to produce, inflation, etc. The assumptions underlying the cash flow projections represent
management’s best estimates at the time of the impairment review. Changes in key assumptions or actual
conditions that differ from estimates could result in an impairment charge. We use reasonable and supportable
assumptions when performing impairment reviews and cannot predict the occurrence of future events and
circumstances that could result in impairment charges.
On 29 March 2016, the Board of Directors approved the Company’s exit of its Energy-from-Waste business.
Accordingly, we assessed the recoverability of capital costs for the two projects associated with this business and
recorded an impairment charge to the results of discontinued operations of $913.5 to reduce the carrying values of
plant assets to their estimated net realizable value. We estimated the net realizable value of the projects assuming
an orderly liquidation of assets capable of being marketed on a secondary equipment market based on market
quotes and our experience with selling similar equipment. An asset’s orderly liquidation value is the amount that
could be realized from a liquidation sale, given a reasonable period of time to find a buyer, selling the asset in the
existing condition where it is located, and assuming the highest and best use of the asset by market participants.
The valuation includes inputs that are unobservable and therefore considered Level 3 inputs in the fair value
hierarchy. The loss was measured as the difference between the orderly liquidation value of the assets and the net
book value of the assets. During the first quarter of fiscal year 2017, we recorded an additional loss of $6.3 to
update our estimate of the net realizable value of the plant assets as of 31 December 2016 of $11.0. In addition, a
charge of $45.7 was recorded to continuing operations to write-down the air separation unit in the Industrials
Gases–EMEA segment that was constructed mainly to provide oxygen to one of the Energy-from-Waste plants to
its net realizable value of $1.4. There have been no changes to our estimates during the remainder of 2017. Refer
to Note 3, Discontinued Operations, and Note 5, Business Restructuring and Cost Reduction Actions, for additional
information.
In the third quarter of 2017, we performed interim impairment testing of our Latin America reporting unit (LASA)
long-lived assets and indefinite-lived intangible assets, including goodwill, as of 30 June 2017. See the discussions
below under Goodwill and Intangible Assets on 2017 Impairment Testing. We also tested the recoverability of
LASA's long-lived assets, including finite-lived intangible assets subject to amortization, and concluded that they
were recoverable from expected future undiscounted cash flows.
Goodwill
The acquisition method of accounting for business combinations requires us to make use of estimates and
judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable
intangible assets. Goodwill represents the excess of the aggregate purchase price over the fair value of identifiable
net assets of an acquired entity. Goodwill was $721.5 as of 30 September 2017. Disclosures related to goodwill are
included in Note 10, Goodwill, to the consolidated financial statements.
We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes
in circumstances indicate the need for more frequent testing. The tests are done at the reporting unit level, which is
defined as being equal to or one level below the operating segment for which discrete financial information is
available and whose operating results are reviewed by segment managers regularly. We have five business
segments and eleven reporting units. Reporting units are primarily based on products and subregions within each
business segment. The majority of our goodwill is assigned to reporting units within the three regional Industrial
Gases segments.
As part of the goodwill impairment testing, we have the option to first assess qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we choose not
to complete a qualitative assessment for a given reporting unit, or if the initial assessment indicates that it is more
likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is
required. We chose to bypass the qualitative assessment and conduct quantitative testing, as further described
below.
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As described in Note 2, New Accounting Guidance, to the consolidated financial statements, we elected to early
adopt the new accounting guidance which simplified the test for goodwill impairment by eliminating Step 2, which
measured the impairment loss based on the fair value of goodwill. Under the new guidance, an impairment loss will
be recognized for the amount by which the carrying amount of the reporting unit exceeds its fair value, not to
exceed the total amount of goodwill allocated to that reporting unit.
To determine the fair value of a reporting unit, we initially use an income approach valuation model, representing
the present value of estimated future cash flows. Our valuation model uses a discrete growth period and an
estimated exit trading multiple. The income approach is an appropriate valuation method due to our capital-
intensive nature, the long-term contractual nature of our business, and the relatively consistent cash flows
generated by our reporting units. The principal assumptions utilized in our income approach valuation model include
revenue growth rates, operating profit and/or EBITDA margins, discount rate, and exit multiple. Projected revenue
growth rates and operating profit and/or EBITDA assumptions are consistent with those utilized in our operating
plan and/or revised forecasts and long-term financial planning process. The discount rate assumption is calculated
based on an estimated market-participant risk-adjusted weighted-average cost of capital, which includes factors
such as the risk-free rate of return, cost of debt, and expected equity premiums. The exit multiple is determined
from comparable industry transactions and where appropriate, reflects expected long-term growth rates.
If our initial review under the income approach indicates there may be impairment, we incorporate results under the
market approach to further evaluate the existence of impairment. When the market approach is utilized, fair value is
estimated based on market multiples of revenue and earnings derived from comparable publicly-traded industrial
gases companies and/or regional manufacturing companies engaged in the same or similar lines of business as the
reporting unit, adjusted to reflect differences in size and growth prospects. When both the income and market
approach are utilized, we review relevant facts and circumstances and make a qualitative assessment to determine
the proper weighting. Management judgment is required in the determination of each assumption utilized in the
valuation model, and actual results could differ from the estimates.
2017 Impairment Testing
For the first nine months of fiscal year 2017, volumes declined in our Latin America reporting unit (LASA), and
overall revenue growth did not meet expectations. Due to weak economic conditions in Latin America and
expectations for continued volume weakness in the Latin American countries and markets in which we operate, we
lowered our long-term growth projections for LASA by more than 200 basis points, which also unfavorably impacted
our EBITDA margin. Management considered the revised projections for LASA to be indicators of potential
impairment and, accordingly, performed interim impairment testing of our long-lived assets and indefinite-lived
intangible assets, including goodwill, as of 30 June 2017 utilizing the revised projections. LASA represents
approximately 6% of the Company’s total revenue with business units in Chile, Colombia, and other Latin America
countries.
We estimated the fair value of LASA as of 30 June 2017 based on two valuation approaches, the income approach
and the market approach, as described above. We reviewed relevant facts and circumstances in determining the
weighting of the approaches. Under the income approach, we estimated the fair value of LASA based on
management's estimates of revenue growth rates and EBITDA margins, taking into consideration business and
market conditions for the Latin American countries and markets in which we operate. These estimates were
consistent with our revised forecast and long-term financial planning processes, which included a reduction in sales
growth by more than 200 basis points from that previously identified. We calculated the discount rate based on a
market-participant, risk-adjusted weighted average cost of capital, which considers industry-specific rates of return
on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size and
geography. Under the market approach, we estimated fair value based on market multiples of revenue and earnings
derived from publicly-traded industrial gases companies and regional manufacturing companies, adjusted to reflect
differences in size and growth prospects.
Based on the results of the valuations, we determined that the goodwill associated with LASA was impaired and
recorded a noncash impairment charge of $145.3, the amount by which the carrying amount of the reporting unit
exceeded its fair value, during the third quarter of 2017. This impairment is reflected on our consolidated income
statements within “Goodwill and intangible asset impairment charge.” This charge was not deductible for tax
purposes and has been excluded from segment operating income.
During the fourth quarter of 2017, we conducted our annual goodwill impairment testing. We determined that the fair
value of all our reporting units substantially exceeded their carrying value except LASA, for which the fair value
equaled the carrying value.
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The excess of fair value over carrying value for our reporting units other than LASA ranged from approximately 80%
to approximately 350%. Management judgment is required in the determination of each assumption utilized in the
valuation model, and actual results could differ from the estimates. In order to evaluate the sensitivity of the fair
value calculation on the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of these
reporting units. In this scenario, the fair value of our reporting units continued to exceed their carrying value by a
range of approximately 60% to 300%.
As of 30 September 2017, the carrying value of Latin America goodwill was $67.3, or less than 1% of consolidated
total assets. Further events that could have a negative impact on the level of excess fair value over carrying value
of the reporting unit include but are not limited to a decline in market share, pricing pressures, and further economic
weakening in the markets we serve. Revenue growth and EBITDA margin assumptions are two primary drivers of
the fair value of LASA. We determined that, with other assumptions held constant, a decrease in revenue growth
rates of approximately 125 basis points or a decrease in EBITDA margin of approximately 225 basis points would
result in an impairment of the remaining goodwill balance. The carrying value of LASA's other material assets at 30
September 2017 included: Plant and equipment, net of $345.3; customer relationships of $166.3; and trade names
and trademarks of $46.9. The trade names and trademarks are classified as indefinite-lived intangible assets.
Future events that could have a negative impact on the level of excess fair value over carrying value of the
reporting units include, but are not limited to: long-term economic weakness, decline in market share, pricing
pressures, inability to successfully implement cost improvement measures, increases to our cost of capital, and
changes to the structure of our business as a result of future reorganizations or divestitures of assets or
businesses. Negative changes in one or more of these factors, among others, could result in impairment charges.
We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth fiscal quarter and
whenever there are indicators of potential impairment, such as significant adverse changes in business climate or
operating results or changes in management’s business outlook or strategy.
Intangible Assets
Intangible assets with determinable lives at 30 September 2017 totaled $321.4 and consisted primarily of customer
relationships, purchased patents and technology, and land use rights. These intangible assets are tested for
impairment as part of the long-lived asset grouping impairment tests. Impairment testing of the asset group occurs
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. See the impairment discussion above under Plant and Equipment for a description of how impairment
losses are determined.
Indefinite-lived intangible assets at 30 September 2017 totaled $46.9 and consisted of trade names and
trademarks. Indefinite-lived intangibles are subject to impairment testing at least annually or more frequently if
events or changes in circumstances indicate that potential impairment exists. The impairment test for indefinite-lived
intangible assets involves calculating the fair value of the indefinite-lived intangible assets and comparing the fair
value to their carrying value. If the fair value is less than the carrying value, the difference is recorded as an
impairment loss. To determine fair value, we utilize the royalty savings method, a form of the income approach. This
method values an intangible asset by estimating the royalties avoided through ownership of the asset.
2017 Impairment Testing
In the third quarter of 2017, we conducted an interim impairment test and determined that the carrying value of the
LASA indefinite-lived intangible assets was impaired. We determined that the carrying value of trade names and
trademarks was in excess of fair value, and as a result, we recorded a noncash impairment charge of $16.8 to
reduce these indefinite-lived intangible assets to their fair value. This impairment is reflected on our consolidated
income statements within “Goodwill and intangible asset impairment charge"
In the fourth quarter of 2017, we conducted our annual impairment test of indefinite-lived intangibles and found no
indications of impairment.
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Equity Investments
Investments in and advances to equity affiliates totaled $1,286.9 at 30 September 2017. The majority of our
investments are non-publicly traded ventures with other companies in the industrial gas business. Summarized
financial information of equity affiliates is included in Note 8, Summarized Financial Information of Equity Affiliates,
to the consolidated financial statements. Equity investments are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the investment may not be recoverable.
In the event that a decline in fair value of an investment occurs, and the decline in value is considered to be
other than temporary, an impairment loss would be recognized. Management’s estimate of fair value of an
investment is based on the income approach and/or market approach. We utilize estimated discounted future cash
flows expected to be generated by the investee under the income approach. For the market approach, we utilize
market multiples of revenue and earnings derived from comparable publicly-traded industrial gases companies.
Changes in key assumptions about the financial condition of an investee or actual conditions that differ from
estimates could result in an impairment charge.
During the third quarter of fiscal year 2017, Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (AHG), a
25% owned equity affiliate in our Industrial Gases – EMEA segment, completed a review of its business plan and
outlook. As a result of the revised business plan, we determined there was an other-than-temporary impairment of
our investment in AHG and, therefore, recorded a noncash impairment charge of $79.5 to reduce the carrying value
of our investment. This charge is reflected on our consolidated income statements within “Equity affiliates' income”
and was not deductible for tax purposes.
The decline in value results from expectations for lower future cash flows to be generated by AHG, primarily due to
challenging economic conditions in Saudi Arabia, including the impacts of lower prices in the oil and gas industry,
increased competition, and capital project growth opportunities not materializing as anticipated. The AHG
investment was valued based on the results of the income and market valuation approaches.
The income approach utilized a discount rate based on a market-participant, risk-adjusted weighted average cost of
capital, which considers industry required rates of return on debt and equity capital for a target industry capital
structure adjusted for risks associated with size and geography. Other significant estimates and assumptions that
drive our updated valuation of AHG include revenue growth rates and profit margins that were lower than those
upon acquisition and our assessment of AHG's business improvement plan effectiveness.
Under the market approach, we estimated fair value based on market multiples of revenue and earnings derived
from publicly-traded industrial gases companies engaged in similar lines of business, adjusted to reflect differences
in size and growth prospects.
As of 30 September 2017, the carrying value of our investment in AHG is $66.7 and is reflected in our Industrial
Gases – EMEA segment. The investment is reported in “Investment in net assets of and advances to equity
affiliates” on our consolidated balance sheets.
Revenue Recognition – Percentage-of-Completion Method
Revenue from equipment sale contracts is recorded primarily using the percentage-of-completion method. Under
this method, revenue from the sale of major equipment, such as liquefied natural gas (LNG) heat exchangers and
large air separation units, is recognized based on costs or labor hours incurred to date compared with total
estimated costs or labor hours to be incurred. We estimate the profit on a contract as the difference between the
total estimated revenue and expected costs to complete the contract and recognize the profit over the life of the
contract.
Accounting for contracts using the percentage-of-completion method requires management judgment relative to
assessing risks and their impact on the estimate of revenues and costs. Our estimates are impacted by factors such
as the potential for incentives or penalties on performance, schedule and technical issues, labor productivity, the
complexity of work performed, the cost and availability of materials, and performance of subcontractors. When
adjustments in estimated total contract revenues or estimated total costs or labor hours are required, any changes
in the estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of
such change. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be
earned, a provision for the entire estimated loss on the contract is recorded in the period in which the loss is
determined.
Our Jazan large air separation unit sale of equipment project within our Industrial Gases – Global segment spans
several years. In addition to the typical risks associated with underlying performance of project procurement and
50
construction activities, this project requires monitoring of risks associated with schedule, geography, and other
aspects of the contract and their effects on our estimates of total revenues and total costs to complete the contract.
Changes in estimates on projects accounted for under the percentage-of-completion method, including the Jazan
project, favorably impacted operating income by approximately $27 in fiscal year 2017 and $20 in fiscal year 2016.
Our changes in estimates would not have significantly impacted amounts recorded in prior years. Changes in
estimates during fiscal year 2015 were not significant.
We assess the performance of our sale of equipment projects as they progress. Our earnings could be positively or
negatively impacted by changes to our forecast of revenues and costs on these projects.
Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of
assets and liabilities measured using enacted tax rates in effect for the year in which the differences are expected
to be recovered or settled. At 30 September 2017, accrued income taxes and net deferred tax liabilities amounted
to $98.6 and $603.9, respectively. Tax liabilities related to uncertain tax positions as of 30 September 2017 were
$146.4, excluding interest and penalties. Income tax expense for the year ended 30 September 2017 was $260.9.
Disclosures related to income taxes are included in Note 22, Income Taxes, to the consolidated financial
statements.
Management judgment is required concerning the ultimate outcome of tax contingencies and the realization of
deferred tax assets.
Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of
operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after
tax returns have been filed. We believe that our recorded tax liabilities adequately provide for these assessments.
Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when we do not
expect sufficient sources of future taxable income to realize the benefit of the operating losses or tax credit
carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized
if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the
deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted
future taxable income and available tax planning strategies that could be implemented to realize or renew net
deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation
allowance is reported in the income tax expense.
A 1% point increase/decrease in our effective tax rate would decrease/increase net income by approximately $14.
Pension and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements for pension and other postretirement benefits are
determined on an actuarial basis utilizing numerous assumptions. The discussion that follows provides information
on the significant assumptions and expense associated with the defined benefit plans.
Actuarial models are used in calculating the expense and liability related to the various defined benefit plans. These
models have an underlying assumption that the employees render service over their service lives on a relatively
consistent basis; therefore, the expense of benefits earned should follow a similar pattern.
Several assumptions and statistical variables are used in the models to calculate the expense and liability related to
the plans. We determine assumptions about the discount rate, the expected rate of return on plan assets, and the
rate of compensation increase. Note 16, Retirement Benefits, to the consolidated financial statements includes
disclosure of these rates on a weighted-average basis for both the domestic and international plans. The actuarial
models also use assumptions about demographic factors such as retirement age, mortality, and turnover rates.
Mortality rates are based on the most recent Society of Actuaries tables. We believe the actuarial assumptions are
reasonable. However, actual results could vary materially from these actuarial assumptions due to economic events
and different rates of retirement, mortality, and turnover.
One of the assumptions used in the actuarial models is the discount rate used to measure benefit obligations. This
rate reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding
to the expected timing of benefit payments as of the annual measurement date for each of the various plans.
Effective in 2016, the Company began to measure the service cost and interest cost components of pension
expense by applying spot rates along the yield curve to the relevant projected cash flows, as we believe this
provides a better measurement of these costs. The Company accounted for this as a change in accounting
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estimate and, accordingly accounted for it on a prospective basis. This change did not affect the measurement of
the total benefit obligation. The rate is used to discount the future cash flows of benefit obligations back to the
measurement date. This rate changes from year-to-year based on market conditions that affect corporate bond
yields. A higher discount rate decreases the present value of the benefit obligations and results in lower pension
expense. A 50 bp increase/decrease in the discount rate decreases/increases pension expense by approximately
$36 per year.
The expected rate of return on plan assets represents an estimate of the average rate of return to be earned by
plan assets over the period that the benefits included in the benefit obligation are to be paid. The expected return
on plan assets assumption is based on a weighted average of estimated long-term returns of major asset classes
and the historical performance of plan assets. In determining estimated asset class returns, we take into account
historical and future expected long-term returns and the value of active management, as well as the interest rate
environment. Asset allocation is determined based on long-term return, volatility and correlation characteristics of
the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Lower returns on the plan assets
result in higher pension expense. A 50 bp increase/decrease in the estimated rate of return on plan assets
decreases/increases pension expense by approximately $19 per year.
We use a market-related valuation method for recognizing certain investment gains or losses for our significant
pension plans. Investment gains or losses are the difference between the expected return and actual return on plan
assets. The expected return on plan assets is determined based on a market-related value of plan assets. For
equities, this is a calculated value that recognizes investment gains and losses in fair value related to equities over
a five-year period from the year in which they occur and reduces year-to-year volatility. The market-related value for
fixed income investments equals the actual fair value. Expense in future periods will be impacted as gains or losses
are recognized in the market-related value of assets.
The expected rate of compensation increase is another key assumption. We determine this rate based on review of
the underlying long-term salary increase trend characteristic of labor markets and historical experience, as well as
comparison to peer companies. A 50 bp increase/decrease in the expected rate of compensation increases/
decreases pension expense by approximately $15 per year.
Loss Contingencies
In the normal course of business, we encounter contingencies (i.e., situations involving varying degrees of
uncertainty as to the outcome and effect on us). We accrue a liability for loss contingencies when it is considered
probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range
of possible loss can be established, the most probable amount in the range is accrued. If no amount within
this range is a better estimate than any other amount within the range, the minimum amount in the range is
accrued.
Contingencies include those associated with litigation and environmental matters, for which our accounting policy is
discussed in Note 1, Major Accounting Policies, to the consolidated financial statements, and particulars are
provided in Note 17, Commitments and Contingencies, to the consolidated financial statements. Significant
judgment is required in both determining probability and whether the amount of loss associated with a contingency
can be reasonably estimated. These determinations are made based on the best available information at the time.
As additional information becomes available, we reassess probability and estimates of loss contingencies.
Revisions in the estimates associated with loss contingencies could have a significant impact on our results of
operations in the period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the
inherent uncertainties related to environmental exposures, a significant increase to environmental liabilities could
occur if a new site is designated, the scope of remediation is increased, or our proportionate share is increased.
Similarly, a future charge for regulatory fines or damage awards associated with litigation could have a significant
impact on our net income in the period in which it is recorded.
NEW ACCOUNTING GUIDANCE
In the first quarter of fiscal year 2017, we adopted guidance requiring that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the
debt instead of as a separate deferred asset. The guidance resulted in a reclassification adjustment that decreased
other noncurrent assets by $17.0 with a corresponding decrease to long-term debt as of 30 September 2016. We
have elected to continue to present debt issuance costs associated with a line-of-credit arrangement as a deferred
asset, regardless of whether there are any outstanding borrowings.
In addition, during the first quarter of fiscal year 2017, we adopted guidance that simplified the accounting for
employee share-based payments. The new guidance requires excess tax benefits and deficiencies to be
52
recognized in the income statement rather than in additional paid-in capital on the balance sheet. As a result of
applying this change prospectively, we recognized $17.6 of excess tax benefits in our provision for income taxes
during fiscal year 2017. Adoption of this guidance resulted in the presentation of excess tax benefits as an operating
activity on the statement of cash flows rather than a financing activity. We applied these presentation changes
retrospectively to all periods presented.
In the third quarter of fiscal year 2017, we elected to early adopt guidance which simplified the test for goodwill
impairment by eliminating Step 2, which measured the impairment loss based on the fair value of goodwill. Under
the new guidance, an impairment loss will be recognized for the amount by which the carrying amount of the
reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Refer
to Note 10, Goodwill, for a discussion of our interim and annual goodwill impairment tests.
See Note 2, New Accounting Guidance, to the consolidated financial statements for information concerning the
implementation and impact of new accounting guidance.
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook.
These forward-looking statements are based on management’s reasonable expectations and assumptions as of the
date of this report. 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, global or regional economic conditions and supply and demand dynamics in market segments
into which the Company sells; political risks, including the risks of unanticipated government actions; acts of war or
terrorism; the inability to eliminate stranded costs previously allocated to the Company's Electronic Materials and
Performance Materials divisions, which have been divested, and other unexpected impacts of the divestitures;
significant fluctuations in interest rates and foreign currencies from that currently anticipated; future financial and
operating performance of major customers; unanticipated contract terminations or customer cancellations or
postponement of projects and sales; our ability to execute the projects in our backlog; asset impairments due to
economic conditions or specific events; the impact of price fluctuations in natural gas and disruptions in markets
and the economy due to oil price volatility; costs and outcomes of litigation or regulatory investigations; the success
of productivity and operational improvement programs; the timing, impact, and other uncertainties of future
acquisitions or divestitures, including reputational impacts; the Company's ability to implement and operate with
new technologies; the impact of changes in environmental, tax or other legislation, economic sanctions and
regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described
in Part I, Item 1A. Risk Factors, of this Form 10-K. 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.
53
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings, cash flows, and financial position are exposed to market risks relating to fluctuations in interest rates
and foreign currency exchange rates. It is our policy to minimize our cash flow exposure to adverse changes in
currency exchange rates and to manage the financial risks inherent in funding with debt capital.
We address these financial exposures through a controlled program of risk management that includes the use of
derivative financial instruments. We have established counterparty credit guidelines and generally enter into
transactions with financial institutions of investment grade or better, thereby minimizing the risk of credit loss. All
instruments are entered into for other than trading purposes. For details on the types and use of these derivative
instruments and the major accounting policies, see Note 1, Major Accounting Policies, and Note 13, Financial
Instruments, to the consolidated financial statements, for additional information. Additionally, we mitigate adverse
energy price impacts through our cost pass-through contracts with customers and price increases.
Our derivative and other financial instruments consist of long-term debt (including current portion), interest rate
swaps, cross currency interest rate swaps, and foreign exchange-forward contracts. The net market value of these
financial instruments combined is referred to below as the net financial instrument position and is disclosed in Note
14, Fair Value Measurements, to the consolidated financial statements.
At 30 September 2017 and 2016, the net financial instrument position was a liability of $3,832.3 and $4,195.6,
respectively. The decrease in the net financial instrument position was primarily due to the repayment of long-term
debt.
The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in
market rates and prices. Market values are the present value of projected future cash flows based on the market
rates and prices chosen. The market values for interest rate risk and foreign currency risk are calculated by us
using a third-party software model that utilizes standard pricing models to determine the present value of the
instruments based on market conditions (interest rates, spot and forward exchange rates, and implied volatilities) as
of the valuation date.
Interest Rate Risk
Our debt portfolio as of 30 September 2017, including the effect of currency and interest rate swap agreements,
was composed of 65% fixed-rate debt and 35% variable-rate debt. Our debt portfolio as of 30 September 2016,
including the effect of currency and interest rate swap agreements, was composed of 55% fixed-rate debt and 45%
variable-rate debt. The change in debt portfolio composition was due primarily to the repayment of commercial
paper.
The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an
instantaneous 100 bp move in interest rates from the level at 30 September 2017, with all other variables held
constant. A 100 bp increase in market interest rates would result in a decrease of $112 and $137 in the net liability
position of financial instruments at 30 September 2017 and 2016, respectively. A 100 bp decrease in market interest
rates would result in an increase of $119 and $148 in the net liability position of financial instruments at 30
September 2017 and 2016, respectively.
Based on the variable-rate debt included in our debt portfolio, including the interest rate swap agreements, a 100 bp
increase in interest rates would result in an additional $14 and $24 of interest incurred per year at the end of 30
September 2017 and 2016, respectively. A 100 bp decline in interest rates would lower interest incurred by $14 and
$24 per year at 30 September 2017 and 2016, respectively.
Foreign Currency Exchange Rate Risk
The sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in the
foreign currency exchange rates from their levels at 30 September 2017 and 2016, with all other variables held
constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would
result in a decrease or increase, respectively, of $312 and $422 in the net liability position of financial instruments at
30 September 2017 and 2016, respectively. The change in exchange rate sensitivity from 30 September 2016 to 30
September 2017 was due primarily to a reduction in our portfolio of forward exchange contracts. Refer to Note 13,
Financial Instruments, for additional information about our outstanding forward exchange contracts.
54
The primary currency pair for which we have exchange rate exposure is Euros and U.S. Dollars. Foreign currency
debt, cross currency interest rate swaps, and foreign exchange-forward contracts are used in countries where we
do business, thereby reducing our net asset exposure. Foreign exchange-forward contracts and cross currency
interest rate swaps are also used to hedge our firm and highly anticipated foreign currency cash flows. Thus, there
is either an asset/liability or cash flow exposure related to all of the financial instruments in the above sensitivity
analysis for which the impact of a movement in exchange rates would be in the opposite direction and materially
equal to the impact on the instruments in the analysis.
The majority of the Company’s sales are derived from outside of the United States and denominated in foreign
currencies. Financial results therefore will be affected by changes in foreign currency rates. The Euro and the
Chinese Renminbi represent the largest exposures in terms of our foreign earnings. We estimate that a 10%
reduction in either the Euro or the Chinese Renminbi versus the U.S. Dollar would lower our annual operating
income by approximately $25 and $20, respectively.
55
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Air Products’ management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control over financial reporting, which is defined in the following sentences, is a process
designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles and
includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
(ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting can only provide reasonable assurance and
may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of our
internal control over financial reporting may vary over time. Our processes contain self-monitoring mechanisms, and
actions are taken to correct deficiencies as they are identified.
Management has evaluated the effectiveness of its internal control over financial reporting based on criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that, as of
30 September 2017, the Company’s internal control over financial reporting was effective.
KPMG LLP, an independent registered public accounting firm, has issued its opinion on the Company’s internal
control over financial reporting as of 30 September 2017 as stated in its report which appears herein.
/s/ Seifi Ghasemi
Seifi Ghasemi
Chairman, President, and
Chief Executive Officer
16 November 2017
/s/ M. Scott Crocco
M. Scott Crocco
Executive Vice President and
Chief Financial Officer
16 November 2017
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Air Products and Chemicals, Inc.:
We have audited the accompanying consolidated balance sheets of Air Products and Chemicals, Inc. and
Subsidiaries (the Company) as of 30 September 2017 and 2016, and the related consolidated income statements,
consolidated comprehensive income statements, consolidated statements of cash flows, and equity for each of the
years in the three-year period ended 30 September 2017. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule referred to in Item 15(a)(2) in this Form 10-K.
We have also audited the Company’s internal control over financial reporting as of 30 September 2017, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is responsible for these consolidated
financial statements and financial statement schedule, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express
an opinion on these consolidated financial statements and financial statement schedule and an opinion on the
Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Air Products and Chemicals, Inc. and Subsidiaries as of 30 September 2017 and 2016, and the
results of its operations and its cash flows for each of the years in the three-year period ended 30 September 2017,
in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. Also in our opinion, Air Products and Chemicals, Inc.
and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of 30
September 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Philadelphia, Pennsylvania
16 November 2017
57
The Consolidated Financial Statements
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
Year ended 30 September (Millions of dollars, except for share and per share data)
Sales
Cost of sales
Selling and administrative
Research and development
Business separation costs
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Other income (expense), net
Operating Income
Equity affiliates' income
Interest expense
Other non-operating income (expense), net
Loss on extinguishment of debt
Income From Continuing Operations Before Taxes
Income tax provision
Income From Continuing Operations
Income (Loss) From Discontinued Operations, net of tax
Net Income
Net Income Attributable to Noncontrolling Interests of Continuing
Operations
Net Income Attributable to Noncontrolling Interests of Discontinued
Operations
Net Income Attributable to Air Products
Net Income Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
Basic Earnings Per Common Share Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
Diluted Earnings Per Common Share Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
Weighted Average Common Shares — Basic (in millions)
Weighted Average Common Shares — Diluted (in millions)
The accompanying notes are an integral part of these statements.
58
2016
2017
2015
$ 8,187.6 $ 7,503.7 $ 7,824.3
5,598.2
773.0
76.4
7.5
180.1
19.3
—
17.9
45.5
1,233.2
152.3
102.8
—
16.6
1,266.1
300.2
965.9
351.7
1,317.6
5,176.6
685.0
71.6
50.6
34.5
5.1
—
—
49.4
1,529.7
147.0
115.2
—
6.9
1,554.6
432.6
1,122.0
(460.5)
661.5
5,753.4
715.6
57.8
30.2
151.4
10.5
162.1
—
121.0
1,427.6
80.1
120.6
29.0
—
1,416.1
260.9
1,155.2
1,866.0
3,021.2
20.8
22.5
32.6
—
$ 3,000.4 $
7.9
7.1
631.1 $ 1,277.9
$ 1,134.4 $ 1,099.5 $
1,866.0
$ 3,000.4 $
(468.4)
631.1 $ 1,277.9
933.3
344.6
$
$
$
$
5.20 $
8.56
13.76 $
5.08 $
(2.16)
2.92 $
4.34
1.61
5.95
5.16 $
8.49
13.65 $
5.04 $
(2.15)
2.89 $
218.0
219.8
216.4
218.3
4.29
1.59
5.88
214.9
217.3
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Year ended 30 September (Millions of dollars)
Net Income
2017
$ 3,021.2 $
2016
2015
661.5 $ 1,317.6
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of ($19.3), ($19.8), and $45.2
Net gain (loss) on derivatives, net of tax of ($11.0), $9.1, and ($16.0)
Pension and postretirement benefits, net of tax of $109.0, ($157.4), and
($148.5)
Reclassification adjustments:
Currency translation adjustment
Derivatives, net of tax of $11.7, ($9.4), and $7.0
Pension and postretirement benefits, net of tax of $50.7, $43.0, and $47.7
Total Other Comprehensive Income (Loss)
Comprehensive Income
Net Income Attributable to Noncontrolling Interests
Other Comprehensive Income (Loss) Attributable to Noncontrolling
Interests
Comprehensive Income Attributable to Air Products
The accompanying notes are an integral part of these statements.
101.9
(12.6)
9.9
13.7
(699.3)
(35.0)
251.6
(335.1)
(278.5)
57.3
24.2
110.7
533.1
3,554.3
20.8
2.7
(36.0)
87.2
—
20.8
97.0
(257.6)
(895.0)
403.9
30.4
422.6
39.7
3.7
4.8
(11.0)
$ 3,529.8 $
368.7 $
393.9
59
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
30 September (Millions of dollars, except for share data)
Assets
Current Assets
Cash and cash items
Short-term investments
Trade receivables, net
Inventories
Contracts in progress, less progress billings
Prepaid expenses
Other receivables and current assets
Current assets of discontinued operations
Total Current Assets
Investment in net assets of and advances to equity affiliates
Plant and equipment, net
Goodwill, net
Intangible assets, net
Noncurrent capital lease receivables
Other noncurrent assets
Noncurrent assets of discontinued operations
Total Noncurrent Assets
Total Assets
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities
Accrued income taxes
Short-term borrowings
Current portion of long-term debt
Current liabilities of discontinued operations
Total Current Liabilities
Long-term debt
Other noncurrent liabilities
Deferred income taxes
Noncurrent liabilities of discontinued operations
Total Noncurrent Liabilities
Total Liabilities
Commitments and Contingencies – See Note 17
Air Products Shareholders’ Equity
Common stock (par value $1 per share; issued 2017 and 2016 - 249,455,584 shares)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (2017 - 31,109,510 shares; 2016 - 32,104,759 shares)
Total Air Products Shareholders' Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
60
2017
2016
3,273.6 $
404.0
1,174.0
335.4
84.8
191.4
403.3
10.2
5,876.7
1,286.9
8,440.2
721.5
368.3
1,131.8
641.8
—
12,590.5
18,467.2 $
1,814.3 $
98.6
144.0
416.4
15.7
2,489.0
3,402.4
1,611.9
778.4
—
5,792.7
8,281.7
1,293.2
—
1,146.2
255.0
64.6
93.9
538.2
926.2
4,317.3
1,283.6
8,259.7
845.1
387.9
1,221.7
671.0
1,042.3
13,711.3
18,028.6
1,652.2
117.9
935.8
365.4
211.8
3,283.1
3,909.7
1,816.5
710.4
1,095.5
7,532.1
10,815.2
249.4
1,001.1
12,846.6
(1,847.4)
(2,163.5)
10,086.2
99.3
10,185.5
18,467.2 $
249.4
970.0
10,475.5
(2,388.3)
(2,227.0)
7,079.6
133.8
7,213.4
18,028.6
$
$
$
$
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 30 September (Millions of dollars)
Operating Activities
Net income
Less: Net income attributable to noncontrolling interests of continuing operations
Less: Net income attributable to noncontrolling interests of discontinued operations
Net income attributable to Air Products
(Income) Loss from discontinued operations attributable to Air Products
Income from continuing operations attributable to Air Products
Adjustments to reconcile income to cash provided by operating activities:
2017
2016
2015
$ 3,021.2 $
20.8
—
3,000.4
(1,866.0)
1,134.4
661.5 $ 1,317.6
32.6
7.1
1,277.9
(344.6)
933.3
22.5
7.9
631.1
468.4
1,099.5
Depreciation and amortization
Deferred income taxes
Loss on extinguishment of debt
Gain on previously held equity interest
Undistributed earnings of unconsolidated affiliates
Gain on sale of assets and investments
Share-based compensation
Noncurrent capital lease receivables
Goodwill and intangible asset impairment charge
Equity method investment impairment charge
Write-down of long-lived assets associated with restructuring
Other adjustments
Working capital changes that provided (used) cash, excluding effects of acquisitions and
divestitures:
Trade receivables
Inventories
Contracts in progress, less progress billings
Other receivables
Payables and accrued liabilities
Other working capital
Cash Provided by Operating Activities
Investing Activities
Additions to plant and equipment
Acquisitions, less cash acquired
Investment in and advances to unconsolidated affiliates
Proceeds from sale of assets and investments
Purchases of investments
Proceeds from investments
Other investing activities
Cash Used for Investing Activities
Financing Activities
Long-term debt proceeds
Payments on long-term debt
Net (decrease) increase in commercial paper and short-term borrowings
Dividends paid to shareholders
Proceeds from stock option exercises
Payment for subsidiary shares to noncontrolling interests
Other financing activities
Cash Used for Financing Activities
Discontinued Operations
Cash (used for) provided by operating activities
Cash provided by (used for) investing activities
Cash provided by (used for) financing activities
Cash (Used for) Provided by Discontinued Operations
Effect of Exchange Rate Changes on Cash
Increase (Decrease) in cash and cash items
Cash and Cash items – Beginning of Year
Cash and Cash Items – End of Period
Less: Cash and Cash Items – Discontinued Operations
Cash and Cash Items – Continuing Operations
The accompanying notes are an integral part of these statements.
61
865.8
(38.0)
—
—
(60.1)
(24.3)
39.9
92.2
162.1
79.5
69.2
165.4
(73.6)
6.4
(19.3)
124.7
163.8
(154.0)
2,534.1
(1,039.7)
(8.2)
(8.1)
42.5
(2,692.6)
2,290.7
(2.3)
(1,417.7)
2.4
(483.9)
(798.6)
(787.9)
68.4
—
(41.3)
(2,040.9)
(966.2)
3,750.6
69.5
2,853.9
13.4
1,942.8
1,330.8
854.6
61.8
6.9
—
(51.1)
(7.3)
31.0
85.5
—
—
—
156.7
(44.8)
32.2
28.2
(6.7)
60.1
(47.8)
2,258.8
(907.7)
—
—
44.6
—
—
(1.7)
(864.8)
386.9
(480.4)
(144.2)
(721.2)
141.3
—
(42.6)
(860.2)
401.9
(204.2)
555.9
753.6
7.5
1,294.9
206.4
$ 3,273.6 $ 1,501.3 $
208.1 $
$
$ 3,273.6 $ 1,293.2 $
— $
858.5
9.4
16.6
(17.9)
(101.8)
(29.7)
39.5
(10.1)
—
—
40.2
53.0
(40.7)
38.0
16.9
48.9
134.9
58.0
2,047.0
(1,162.4)
(34.5)
(4.3)
55.3
—
—
(.8)
(1,146.7)
340.3
(699.4)
285.2
(677.5)
121.3
(278.4)
(51.9)
(960.4)
422.7
(453.0)
(16.9)
(47.2)
(22.9)
(130.2)
336.6
206.4
23.3
183.1
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
Year ended 30 September
(Millions of dollars)
Balance 30 September 2014
Net income
Other comprehensive loss
Cash dividends ($3.20 per share)
Share-based compensation expense
Issuance of treasury shares for stock
option and award plans
Tax benefit of stock option and award
plans
Dividends to noncontrolling interests
Purchase of noncontrolling interests
Other
Balance 30 September 2015
Net income
Other comprehensive income (loss)
Cash dividends ($3.39 per share)
Share-based compensation expense
Issuance of treasury shares for stock
option and award plans
Tax benefit of stock option and award
plans
Dividends to noncontrolling interests
Other
Balance 30 September 2016
Net income
Other comprehensive income
Cash dividends ($3.71 per share)
Share-based compensation expense
Issuance of treasury shares for stock
option and award plans
Dividends to noncontrolling interests
Spin-off of Versum
Cumulative change in accounting
principle
Other
Capital
in Excess
of Par
Value
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Common
Stock
Treasury
Stock
Air Products
Shareholders’
Equity
Non-
controlling
Interests
$
249.4 $
842.0 $ 9,993.2 $
(1,241.9) $ (2,476.9) $
1,277.9
(687.9)
(884.0)
155.6 $
28.2
(11.0)
7,365.8 $
1,277.9
(884.0)
(687.9)
43.7
117.3
102.2
$
249.4 $
904.7 $ 10,580.4 $
(2,125.9) $ (2,359.6) $
43.7
(15.1)
32.0
(.3)
2.4
(2.8)
(262.4)
37.6
(5.5)
33.2
631.1
(733.7)
(2.3)
$
249.4 $
970.0 $ 10,475.5 $
(2,388.3) $ (2,227.0) $
3,000.4
(808.5)
529.4
40.7
(9.6)
63.5
53.9
175.0
11.5
8.8
(4.6)
186.5
8.8
(4.6)
Total
Equity
7,521.4
1,306.1
(895.0)
(687.9)
43.7
102.2
32.0
(38.0)
(.5)
(2.9)
7,381.1
661.5
(257.6)
(733.7)
37.6
127.1
33.2
(33.6)
(2.2)
7,213.4
3,021.2
533.1
(808.5)
40.7
53.9
(28.0)
152.6
8.8
2.9
(1.7)
99.3 $ 10,185.5
132.6
127.1
32.0
(.3)
(.4)
7,249.0 $
631.1
(262.4)
(733.7)
37.6
33.2
(2.3)
7,079.6 $
3,000.4
529.4
(808.5)
40.7
(38.0)
(.2)
(2.5)
132.1 $
30.4
4.8
(33.6)
.1
133.8 $
20.8
3.7
(28.0)
(33.9)
Balance 30 September 2017
$
249.4 $ 1,001.1 $ 12,846.6 $
(1,847.4) $ (2,163.5) $
10,086.2 $
The accompanying notes are an integral part of these statements.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except for share and per share data)
13.
12.
1. Major Accounting Policies ...................................................................................................
2. New Accounting Guidance ..................................................................................................
3. Discontinued Operations ....................................................................................................
4. Materials Technologies Separation .....................................................................................
5. Business Restructuring and Cost Reduction Actions ..........................................................
6. Business Combination ........................................................................................................
Inventories ..........................................................................................................................
7.
8. Summarized Financial Information of Equity Affiliates ........................................................
9. Plant and Equipment, net ...................................................................................................
10. Goodwill ..............................................................................................................................
Intangible Assets ................................................................................................................
11.
Leases ................................................................................................................................
Financial Instruments ..........................................................................................................
14.
Fair Value Measurements ...................................................................................................
15. Debt ....................................................................................................................................
16. Retirement Benefits ............................................................................................................
17. Commitments and Contingencies .......................................................................................
18. Capital Stock ......................................................................................................................
19. Share-Based Compensation ...............................................................................................
20. Accumulated Other Comprehensive Loss ..........................................................................
21. Earnings per Share .............................................................................................................
22.
Income Taxes ......................................................................................................................
23. Supplemental Information ...................................................................................................
24. Summary by Quarter (Unaudited) .......................................................................................
25. Business Segment and Geographic Information ................................................................
64
70
72
77
77
79
79
79
81
82
83
84
85
89
91
93
101
105
105
109
110
111
114
117
119
63
1. MAJOR ACCOUNTING POLICIES
Basis of Presentation and Consolidation Principles
The accompanying consolidated financial statements of Air Products and Chemicals, Inc. were prepared in
accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and
include the accounts of Air Products and Chemicals, Inc. and those of its controlled subsidiaries (“we,” “our,” “us,”
the “Company,” “Air Products,” or “registrant”), which are generally majority owned. Intercompany transactions and
balances are eliminated in consolidation.
We consolidate all entities that we control. The general condition for control is ownership of a majority of the voting
interests of an entity. Control may also exist in arrangements where we are the primary beneficiary of a variable
interest entity (VIE). An entity that has both the power to direct the activities that most significantly impact the
economic performance of a VIE and the obligation to absorb the losses or receive the benefits significant to the VIE
is considered the primary beneficiary of that entity. We have determined that we are not a primary beneficiary in any
material VIE.
Reclassifications
The results of the divisions comprising the former Materials Technologies segment and the former
Energy from Waste segment have been presented as discontinued operations. Refer to Note 3, Discontinued
Operations, for additional details. The results of operations and cash flows of these businesses have been removed
from the results of continuing operations and segment results for all periods presented. The assets and liabilities of
the discontinued operations have been reclassified and are segregated in the consolidated balance sheets. The
comprehensive income related to these businesses has not been segregated and is included in the consolidated
comprehensive income statement for all periods presented. The notes to the consolidated financial statements,
unless otherwise indicated, are on a continuing operations basis. The term "total company" includes both continuing
and discontinued operations.
The consolidated financial statements and accompanying notes reflect accounting guidance that was adopted
during fiscal year 2017. Refer to Note 2, New Accounting Guidance, for additional information. Certain prior year
information has been reclassified to conform to the fiscal year 2017 presentation.
Estimates and Assumptions
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized as risk and title to the product transfer to the customer (which generally
occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably
assured. Sales returns and allowances are not a business practice in the industry.
Revenue from equipment sale contracts is recorded primarily using the percentage-of-completion method. Under
this method, revenue from the sale of major equipment, such as liquefied natural gas (LNG) heat exchangers and
large air separation units, is recognized based on costs or labor hours incurred to date compared with total
estimated costs or labor hours to be incurred. When adjustments in estimated total contract revenues or estimated
total costs or labor hours are required, any changes in the estimated profit from prior estimates are recognized in
the current period for the inception-to-date effect of such change. Changes in estimates on projects accounted for
under the percentage-of-completion method favorably impacted operating income by approximately $27 in fiscal
year 2017 and approximately $20 in fiscal year 2016. Our changes in estimates would not have significantly
impacted amounts recorded in prior years. Changes in estimates during fiscal year 2015 were not significant.
64
Certain contracts associated with facilities that are built to provide product to a specific customer are required to be
accounted for as leases. In cases where operating lease treatment is appropriate, there is no difference in revenue
recognition over the life of the contract as compared to accounting for the contract as product sales. In cases where
capital lease treatment is appropriate, the timing of revenue and expense recognition is impacted. Revenue and
expense are recognized up front for the sale of equipment component of the contract as compared to revenue
recognition over the life of the arrangement under contracts not qualifying as capital leases. Additionally, a portion of
the revenue representing interest income from the financing component of the lease receivable is reflected as sales
over the life of the contract. Allowances for credit losses associated with capital lease receivables are recorded
using the specific identification method. As of 30 September 2017 and 2016, the credit quality of capital lease
receivables did not require a material allowance for credit losses.
If an arrangement involves multiple deliverables, the delivered items are considered separate units of accounting if
the items have value on a stand-alone basis. Revenues are allocated to each deliverable based upon relative
selling prices derived from company specific evidence.
Amounts billed for shipping and handling fees are classified as sales in the consolidated income statements.
Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes
imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the
consolidated income statements. We record a liability until remitted to the respective taxing authority.
Cost of Sales
Cost of sales predominantly represents the cost of tangible products sold. These costs include labor, raw materials,
plant engineering, power, depreciation, production supplies and materials packaging costs, and maintenance costs.
Costs incurred for shipping and handling are also included in cost of sales.
Depreciation
Depreciation is recorded using the straight-line method, which deducts equal amounts of the cost of each asset
from earnings every year over its expected economic useful life. The principal lives for major classes of plant and
equipment are summarized in Note 9, Plant and Equipment, net.
Selling and Administrative
The principal components of selling and administrative expenses are compensation, advertising, and promotional
costs. Selling and administrative expenses also include costs for functional support previously provided to EMD and
PMD and in support of transition services agreements with Versum and with Evonik, for which the reimbursement is
reflected in "Other income (expense), net" on our consolidated income statements.
Postemployment Benefits
We provide termination benefits to employees as part of ongoing benefit arrangements and record a liability for
termination benefits when probable and estimable. These criteria are met when management, with the appropriate
level of authority, approves and commits to its plan of action for termination; the plan identifies the employees to be
terminated and their related benefits; and the plan is to be completed within one year. We do not provide material
one-time benefit arrangements.
Fair Value Measurements
We are required to measure certain assets and liabilities at fair value, either upon initial measurement or for
subsequent accounting or reporting. For example, fair value is used in the initial measurement of net assets
acquired in a business combination; on a recurring basis in the measurement of derivative financial instruments;
and on a nonrecurring basis when long-lived assets are written down to fair value when held for sale or determined
to be impaired. Refer to Note 14, Fair Value Measurements, for information on the methods and assumptions used
in our fair value measurements.
Financial Instruments
We address certain financial exposures through a controlled program of risk management that includes the use of
derivative financial instruments. The types of derivative financial instruments permitted for such risk management
programs are specified in policies set by management. Refer to Note 13, Financial Instruments, for further detail on
the types and use of derivative instruments into which we enter.
Major financial institutions are counterparties to all of these derivative contracts. We have established counterparty
credit guidelines and generally enter into transactions with financial institutions of investment grade or better.
65
Management believes the risk of incurring losses related to credit risk is remote, and any losses would be
immaterial to the consolidated financial results, financial condition, or liquidity.
We recognize derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into,
we generally designate the derivative as either (1) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (cash flow hedge), (2) a hedge of a net
investment in a foreign operation (net investment hedge), or (3) a hedge of the fair value of a recognized asset or
liability (fair value hedge).
The following details the accounting treatment of our cash flow, fair value, net investment, and non-designated
hedges:
• Changes in the fair value of a derivative that is designated as and meets the cash flow hedge criteria are
recorded in accumulated other comprehensive loss (AOCL) to the extent effective and then recognized in
earnings when the hedged items affect earnings.
• Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value
hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are
recorded in current period earnings.
• Changes in the fair value of a derivative and foreign currency debt that are designated as and meet all the
required criteria for a hedge of a net investment are recorded as translation adjustments in AOCL.
• Changes in the fair value of a derivative that is not designated as a hedge are recorded immediately in earnings.
We formally document the relationships between hedging instruments and hedged items, as well as our risk
management objective and strategy for undertaking various hedge transactions. This process includes relating
derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions. We also formally assess, at the inception of the
hedge and on an ongoing basis, whether derivatives are highly effective in offsetting changes in fair values or cash
flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative
ceases to be a highly effective hedge, we will discontinue hedge accounting with respect to that derivative
prospectively.
Foreign Currency
Since we do business in many foreign countries, fluctuations in currency exchange rates affect our financial position
and results of operations.
In most of our foreign operations, the local currency is considered the functional currency. Foreign subsidiaries
translate their assets and liabilities into U.S. dollars at current exchange rates in effect at the end of the fiscal
period. The gains or losses that result from this process are shown as translation adjustments in AOCL in the equity
section of the balance sheet.
The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the average exchange
rates that prevail during the period. Therefore, the U.S. dollar value of these items on the income statement
fluctuates from period to period, depending on the value of the dollar against foreign currencies. Some transactions
are made in currencies different from an entity’s functional currency. Gains and losses from these foreign currency
transactions are generally reflected in "Other income (expense), net" on our consolidated income statements as
they occur.
Environmental Expenditures
Accruals for environmental loss contingencies are recorded when it is probable that a liability has been incurred and
the amount of loss can be reasonably estimated. Remediation costs are capitalized if the costs improve the
Company’s property as compared with the condition of the property when originally constructed or acquired, or if
the costs prevent environmental contamination from future operations. We expense environmental costs related to
existing conditions resulting from past or current operations and from which no current or future benefit is
discernible. The amounts charged to income from continuing operations related to environmental matters totaled
$11.4, $12.2, and $11.8 in 2017, 2016, and 2015, respectively.
66
The measurement of environmental liabilities is based on an evaluation of currently available information with
respect to each individual site and considers factors such as existing technology, presently enacted laws and
regulations, and prior experience in remediation of contaminated sites. An environmental liability related to cleanup
of a contaminated site might include, for example, a provision for one or more of the following types of costs: site
investigation and testing costs, cleanup costs, costs related to soil and water contamination resulting from tank
ruptures, post-remediation monitoring costs, and outside legal fees. These liabilities include costs related to other
potentially responsible parties to the extent that we have reason to believe such parties will not fully pay their
proportionate share. They do not take into account any claims for recoveries from insurance or other parties and
are not discounted.
As assessments and remediation progress at individual sites, the amount of projected cost is reviewed, and the
liability is adjusted to reflect additional technical and legal information that becomes available. Management has an
established process in place to identify and monitor the Company’s environmental exposures. An environmental
accrual analysis is prepared and maintained that lists all environmental loss contingencies, even where an accrual
has not been established. This analysis assists in monitoring the Company’s overall environmental exposure and
serves as a tool to facilitate ongoing communication among the Company’s technical experts, environmental
managers, environmental lawyers, and financial management to ensure that required accruals are recorded and
potential exposures disclosed.
Given inherent uncertainties in evaluating environmental exposures, actual costs to be incurred at identified sites in
future periods may vary from the estimates. Refer to Note 17, Commitments and Contingencies, for additional
information on the Company’s environmental loss contingencies.
The accruals for environmental liabilities are reflected in the consolidated balance sheets, primarily as part of other
noncurrent liabilities.
Litigation
In the normal course of business, we are involved in legal proceedings. We accrue a liability for such matters when
it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a
range of possible loss can be established, the most probable amount in the range is accrued. If no amount within
this range is a better estimate than any other amount within the range, the minimum amount in the range is
accrued. The accrual for a litigation loss contingency includes estimates of potential damages and other directly
related costs expected to be incurred. Refer to Note 17, Commitments and Contingencies, for additional information
on our current legal proceedings.
Share-Based Compensation
We have various share-based compensation programs, which include deferred stock units, stock options, and
restricted stock. We expense the grant-date fair value of these awards over the vesting period during which
employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who
would meet the requirements for vesting of awards upon their retirement. Refer to Note 19, Share-Based
Compensation, for information on the models and assumptions used to determine the grant-date fair value of our
awards.
Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be
recovered or settled. A principal temporary difference results from the excess of tax depreciation over book
depreciation because accelerated methods of depreciation and shorter useful lives are used for income tax
purposes. The cumulative impact of a change in tax rates or regulations is included in income tax expense in the
period that includes the enactment date. We recognize deferred tax assets net of existing valuation allowance to the
extent we believe that these assets are more likely than not to be realized considering all available evidence.
A tax benefit for an uncertain tax position is recognized when it is more likely than not that the position will be
sustained upon examination based on its technical merits. This position is measured as the largest amount of tax
benefit that is greater than 50% likely of being realized. Interest and penalties related to unrecognized tax benefits
are recognized as a component of income tax expense. For additional information regarding our income taxes, refer
to Note 22, Income Taxes.
67
Other Non-Operating Income (Expense), net
Beginning in the second quarter of fiscal year 2017, other non-operating income (expense), net includes interest
income associated with our cash and cash items and short-term investments. Interest income was included in
"Other income (expense), net" in 2016 and 2015. Interest income in previous periods was not material.
Cash and Cash Items
Cash and cash items include cash, time deposits, treasury securities, and certificates of deposit acquired with an
original maturity of three months or less.
Short-term investments
Short-term investments include time deposits with original maturities greater than three months and less than one
year.
Trade Receivables, net
Trade receivables comprise amounts owed to us through our operating activities and are presented net of
allowances for doubtful accounts. The allowances for doubtful accounts represent estimated uncollectible
receivables associated with potential customer defaults on contractual obligations. A provision for customer defaults
is made on a general formula basis when it is determined that the risk of some default is probable and estimable but
cannot yet be associated with specific customers. The assessment of the likelihood of customer defaults is based
on various factors, including the length of time the receivables are past due, historical experience, and existing
economic conditions. The allowance also includes amounts for certain customers where a risk of default has been
specifically identified, considering factors such as the financial condition of the customer and customer disputes
over contractual terms and conditions. Allowance for doubtful accounts were $93.5 and $55.3 as of fiscal year end
30 September 2017 and 2016, respectively. Provisions to the allowance for doubtful accounts charged against
income were $45.8, $21.8 and $25.9 in 2017, 2016, and 2015, respectively.
Inventories
Inventories are stated at the lower of cost or market. We write down our inventories for estimated obsolescence or
unmarketable inventory based upon assumptions about future demand and market conditions.
We utilize the last-in, first-out (LIFO) method for determining the cost of inventories in the United States for the
Industrial Gases regional and global segments. Inventories for these segments outside of the United States are
accounted for on the first-in, first-out (FIFO) method, as the LIFO method is generally not permitted in the foreign
jurisdictions where these segments operate. At the business segment level, inventories are recorded at FIFO and
the LIFO pool adjustments are not allocated to the business segments.
Equity Investments
The equity method of accounting is used when we exercise significant influence but do not have operating control,
generally assumed to be 20% – 50% ownership. Under the equity method, original investments are recorded at cost
and adjusted by our share of undistributed earnings or losses of these companies. Equity investments are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment
may not be recoverable.
Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation. Construction costs, labor, and applicable
overhead related to installations are capitalized. Expenditures for additions and improvements that extend the lives
or increase the capacity of plant assets are capitalized. The costs of maintenance and repairs of plant and
equipment are charged to expense as incurred.
Fully depreciated assets are retained in the gross plant and equipment and accumulated depreciation accounts until
they are removed from service. In the case of disposals, assets and related depreciation are removed from the
accounts, and the net amounts, less proceeds from disposal, are included in income. Refer to Note 9, Plant and
Equipment, net, for further detail.
68
Computer Software
We capitalize costs incurred to purchase or develop software for internal use. Capitalized costs include purchased
computer software packages, payments to vendors/consultants for development and implementation or modification
to a purchased package to meet our requirements, payroll and related costs for employees directly involved in
development, and interest incurred while software is being developed. Capitalized computer software costs are
reflected in "Plant and equipment, net" on the consolidated balance sheets and are depreciated over the estimated
useful life of the software, generally a period of three to ten years.
Capitalized Interest
As we build new plant and equipment, we include in the cost of these assets a portion of the interest payments we
make during the year. The amount of capitalized interest was $19.0, $32.7, and $49.1 in 2017, 2016, and 2015,
respectively.
Impairment of Long-Lived Assets
Long-lived assets are grouped for impairment testing at the lowest level for which there are identifiable cash flows
that are largely independent of the cash flows of other assets and liabilities and are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be
recoverable. We assess recoverability by comparing the carrying amount of the asset group to estimated
undiscounted future cash flows expected to be generated by the asset group. If an asset group is considered
impaired, the impairment loss to be recognized is measured as the amount by which the asset group’s carrying
amount exceeds its fair value. Long-lived assets to be sold are reported at the lower of carrying amount or fair value
less cost to sell.
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred. The
fair value of the liability is measured using discounted estimated cash flows and is adjusted to its present value in
subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as
part of the carrying amount of the related long-lived asset and depreciated over the asset’s useful life. Our asset
retirement obligations are primarily associated with on-site long-term supply contracts, under which we have built a
facility on land owned by the customer and are obligated to remove the facility at the end of the contract term. Our
asset retirement obligations totaled $144.7 and $119.9 at 30 September 2017 and 2016, respectively.
Goodwill
Business combinations are accounted for using the acquisition method. The purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair market values. Any excess purchase price
over the fair market value of the net assets acquired, including identified intangibles, is recorded as goodwill.
Preliminary purchase price allocations are made at the date of acquisition and finalized when information needed to
affirm underlying estimates is obtained, within a maximum allocation period of one year.
Goodwill is subject to impairment testing at least annually. In addition, goodwill is tested more frequently if a change
in circumstances or the occurrence of events indicates that potential impairment exists. Refer to Note 10, Goodwill,
for further detail.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, purchased patents and
technology, and land use rights. The cost of intangible assets with determinable lives is amortized on a straight-line
basis over the estimated period of economic benefit. No residual value is estimated for these intangible assets.
Indefinite-lived intangible assets consist of trade names and trademarks. Indefinite-lived intangibles are subject to
impairment testing at least annually. In addition, intangible assets are tested more frequently if a change in
circumstances or the occurrence of events indicates that potential impairment exists.
Customer relationships are generally amortized over periods of five to twenty-five years. Purchased patents and
technology and other are generally amortized over periods of five to fifteen years. Land use rights, which are
included in other intangibles, are generally amortized over a period of fifty years. Amortizable lives are adjusted
whenever there is a change in the estimated period of economic benefit. Refer to Note 11, Intangible Assets, for
further detail.
69
Retirement Benefits
The cost of pension benefits is recognized over the employees’ service period. We use actuarial methods and
assumptions in the valuation of defined benefit obligations and the determination of expense. Differences between
actual and expected results or changes in the value of obligations and plan assets are not recognized in earnings
as they occur but, rather, systematically and gradually over subsequent periods. Refer to Note 16, Retirement
Benefits, for disclosures related to our pension and other postretirement benefits.
2. NEW ACCOUNTING GUIDANCE
Accounting Guidance Implemented in 2017
Simplifying Goodwill Impairment Test
In January 2017, the Financial Accounting Standards Board (FASB) issued guidance to simplify the test for goodwill
impairment by eliminating Step 2, which measured the impairment loss based on the fair value of goodwill. Under
the new guidance, an impairment loss will be recognized for the amount by which the carrying amount of the
reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. The
guidance is effective for annual or interim goodwill impairments tests conducted in fiscal year 2021, with early
adoption permitted, and should be applied prospectively. We elected to early adopt this guidance during the third
quarter of fiscal year 2017.
Share-Based Compensation
In March 2016, the FASB issued an update to simplify the accounting for employee share-based payments,
including the income tax impacts, the classification on the statement of cash flows, and forfeitures. We elected to
early adopt this guidance in the first quarter of fiscal year 2017. The new guidance requires excess tax benefits and
deficiencies to be recognized in the income statement rather than in additional paid-in capital on the balance sheet.
As a result of applying this change prospectively, we recognized $17.6 of excess tax benefits in our provision for
income taxes during fiscal year 2017. In addition, adoption of the new guidance resulted in an $8.8 cumulative-
effect adjustment to retained earnings as of 1 October 2016 to recognize deferred taxes for U.S. state net operating
loss and other carryforwards attributable to excess tax benefits. We retrospectively applied the guidance on cash
flow presentation, which requires excess tax benefits to be presented as an operating activity rather than as a
financing activity. Cash paid on employees’ behalf related to shares withheld for tax purposes continues to be
classified as a financing activity. Forfeitures have not been significant historically. We have elected to account for
forfeitures as they occur, rather than to estimate them.
Share-Based Compensation Modification Accounting
In May 2017, the FASB issued an update to amend the scope of modification accounting associated with share-
based payment awards. The guidance limits the use of modification accounting to instances where the fair value,
vesting conditions, or award classification are different immediately before and after the modification. This guidance
is effective in fiscal year 2019, with early adoption permitted, and should be applied prospectively. We adopted this
guidance during the fourth quarter of fiscal year 2017. This guidance did not have a significant impact on our
consolidated financial statements upon adoption.
Consolidation Analysis
In February 2015, the FASB issued an update to amend current consolidation guidance. The guidance impacts the
analysis an entity must perform in determining if it should consolidate certain legal entities such as limited
partnerships, limited liability corporations, and securitization structures. We adopted this guidance in the first quarter
of fiscal year 2017. This guidance did not have a significant impact on our consolidated financial statements upon
adoption.
Debt Issuance Costs
In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be
presented in the balance sheet as a direct deduction from the carrying amount of the debt instead of as a separate
deferred asset. In addition, guidance was issued to allow for a policy election on the presentation of debt issuance
costs associated with a line-of-credit arrangement, regardless of whether there are any outstanding borrowings. We
adopted the guidance during the first quarter of fiscal year 2017 on a retrospective basis. The guidance resulted in
a reclassification adjustment that decreased other noncurrent assets by $17.0 with a corresponding decrease to
70
long-term debt as of 30 September 2016. We will continue to present debt issuance costs associated with a line-of-
credit arrangement as a deferred asset, regardless of whether there are any outstanding borrowings.
Adoption of this guidance also impacted the presentation of debt issuance costs related to our discontinued
operations. As of 30 September 2016, noncurrent assets and noncurrent liabilities of discontinued operations were
both reduced by $9.6.
Definition of a Business
In January 2017, the FASB issued guidance that clarifies the definition of a business to assist in determining
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new
guidance, fewer transactions are expected to be accounted for as business combinations. We elected to early
adopt this guidance prospectively beginning in the first quarter of fiscal year 2017. This guidance did not have a
significant impact on our consolidated financial statements upon adoption.
New Accounting Guidance to be Implemented
Revenue Recognition
In May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected
to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. We
have the option to adopt the standard in either fiscal year 2018 or 2019, either retrospectively or as a cumulative-
effect adjustment as of the date of adoption under the modified retrospective approach. We expect to adopt this
guidance in fiscal year 2019 under the modified retrospective approach, which will result in a cumulative-effect
adjustment as of 1 October 2018. To date, we have focused on identifying potential impacts on our onsite gases
and sale of equipment businesses and on efforts needed to meet the expanded disclosure requirements. Our
evaluation of the effect of the new standard will extend over future periods.
Leases
In February 2016, the FASB issued guidance which requires lessees to recognize a right-of-use asset and lease
liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The
guidance also expands the quantitative and qualitative disclosure requirements. The guidance is effective in fiscal
year 2020, with early adoption permitted, and must be applied using a modified retrospective approach. We are
currently evaluating the impact of adopting this new guidance on the consolidated financial statements, including
the assessment of our current lease population under the revised definition of what qualifies as a leased asset. The
Company is the lessee under various agreements for real estate, distribution equipment, aircraft, and vehicles that
are currently accounted for as operating leases as discussed in Note 12, Leases. The new guidance will require the
Company to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for
future payment obligations. The Company is currently considered the lessor under certain agreements associated
with facilities that are built to provide product to a specific customer.
Derivative Contract Novations
In March 2016, the FASB issued guidance to clarify that a change in the counterparty to a derivative instrument that
has been designated as a hedging instrument does not, in and of itself, require re-designation of that hedging
relationship provided that all other hedge accounting criteria continue to be met. This guidance is effective in fiscal
year 2018, with early adoption permitted. We do not expect adoption of this guidance to have a significant impact
on our consolidated financial statements.
Credit Losses on Financial Instruments
In June 2016, the FASB issued an update on the measurement of credit losses, which requires measurement and
recognition of expected credit losses for financial assets, including trade receivables and capital lease receivables,
held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts. The method to determine a loss is different from the existing guidance, which requires a credit loss to be
recognized when it is probable. The guidance is effective beginning in fiscal year 2021, with early adoption
permitted beginning in fiscal year 2020. We are currently evaluating the impact this update will have on our
consolidated financial statements.
Cash Flow Statement Classification
In August 2016, the FASB issued guidance to reduce diversity in practice on how certain cash receipts and cash
payments are classified in the statement of cash flows. The guidance is effective beginning fiscal year 2019, with
early adoption permitted, and should be applied retrospectively. We are currently evaluating the impact of adopting
this new guidance on the consolidated financial statements
71
Intra-Entity Asset Transfers
In October 2016, the FASB issued guidance on the accounting for the income tax effects of intra-entity transfers of
assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an
intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, the income tax
consequences of an intra-entity asset transfer are recognized when the transfer occurs. The guidance is effective
beginning in fiscal year 2019, with early adoption permitted as of the beginning of an annual reporting period. The
guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the date of adoption. We are currently evaluating the impact this guidance will have on our
consolidated financial statements and plan to adopt the guidance in fiscal year 2019.
Derecognition of Nonfinancial Assets
In February 2017, the FASB issued an update to clarify the scope of guidance on gains and losses from the
derecognition of nonfinancial assets and to add guidance for partial sales of nonfinancial assets. The update must
be adopted at the same time as the new guidance on revenue recognition discussed above, which we intend to
adopt in fiscal year 2019. The guidance may be applied retrospectively or with a cumulative-effect adjustment to
retained earnings at the date of adoption. We are currently evaluating the impact this update will have on our
consolidated financial statements.
Presentation of Net Periodic Pension and Postretirement Benefit Cost
In March 2017, the FASB issued guidance for improving the presentation of net periodic pension cost and net
periodic postretirement benefit cost. The amendments require that the service cost component of the net periodic
benefit cost be presented in the same line items as other compensation costs arising from services rendered by
employees during the period. The other components of net periodic benefit cost (e.g., interest cost, expected return
on plan assets, and amortization of actuarial gains/losses) should be presented in the income statement separately
from the service cost component and outside of operating income. The amendments also allow only the service
cost component to be eligible for capitalization when applicable. The guidance is effective beginning in fiscal year
2019, with early adoption permitted as of the beginning of fiscal year 2018. The amendments should be applied
retrospectively for the presentation requirements and prospectively for the capitalization of the service cost
component requirements. We expect to early adopt this guidance beginning fiscal year 2018.
We currently classify all net periodic pension costs within operating costs, primarily within cost of sales and selling
and administrative expense. The line item classification changes required by the new guidance will not impact the
Company's pretax earnings or net income; however, operating income and other non-operating income (expense),
net will change by offsetting amounts that are not expected to be material to the Company's consolidated financial
statements.
Hedging Activities
In August 2017, the FASB issued guidance on hedging activities to expand the related presentation and disclosure
requirements, change how companies assess effectiveness, and eliminate the separate measurement and
reporting of hedge ineffectiveness. The guidance also enables more financial and nonfinancial hedging strategies to
become eligible for hedge accounting. The guidance is effective in fiscal year 2020, with early adoption permitted.
For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect
adjustment to eliminate the separate measurement of ineffectiveness within equity as of the beginning of the fiscal
year the guidance is adopted. The amended presentation and disclosure guidance is applied prospectively. We are
currently evaluating the impact this guidance will have on our consolidated financial statements.
3. DISCONTINUED OPERATIONS
Materials Technologies
On 16 September 2015, we announced plans to separate our Materials Technologies segment, which contained
two divisions, the Electronic Materials Division (EMD) and the Performance Materials Division (PMD). As further
discussed below, we completed the separation of EMD through the spin-off of Versum Materials, Inc. (Versum) and
the sale of PMD to Evonik Industries AG (Evonik) in fiscal year 2017. As a result, these divisions are reflected in our
consolidated financial statements as discontinued operations for all periods presented.
72
Spin-off of EMD
On 1 October 2016 (the distribution date), Air Products completed the spin-off of Versum into a separate and
independent public company. The spin-off was completed by way of a distribution to Air Products’ stockholders of all
of the then issued and outstanding shares of common stock of Versum on the basis of one share of Versum
common stock for every two shares of Air Products’ common stock held as of the close of business on
21 September 2016 (the record date for the distribution). Fractional shares of Versum common stock were not
distributed to Air Products' common stockholders. Air Products’ stockholders received cash in lieu of fractional
shares. As a result of the distribution, Versum is now an independent public company, and its common stock is
listed under the symbol “VSM” on the New York Stock Exchange. The spin-off of Versum was treated as a noncash
transaction in the consolidated statements of cash flows in fiscal year 2017.
Sale of PMD
On 3 January 2017, we completed the sale of PMD to Evonik for $3.8 billion in cash. A gain of $2,870 ($1,828
after tax, or $8.32 per share) was recognized on the sale. A portion of the proceeds from the sale have been
included in "Short-term investments" on the consolidated balance sheets. Interest income earned on the sale
proceeds has been reflected on the consolidated income statements within “Other non-operating income (expense),
net."
Energy-from-Waste
On 29 March 2016, the Board of Directors approved the Company’s exit of its Energy from Waste (EfW) business
and efforts to start up and operate the two EfW projects located in Tees Valley, United Kingdom, were discontinued.
Since that time, the EfW segment has been presented as a discontinued operation.
During the second quarter of fiscal year 2016, we recorded a loss of $945.7 ($846.6 after-tax) to write down plant
assets to their estimated net realizable value and record a liability for plant disposition and other costs. Income tax
benefits related only to one of the projects as the other did not qualify for a local tax deduction. We estimated the
net realizable value of the projects assuming an orderly liquidation of assets capable of being marketed on a
secondary equipment market based on market quotes and our experience with selling similar equipment. An asset’s
orderly liquidation value is the amount that could be realized from a liquidation sale, given a reasonable period of
time to find a buyer, selling the asset in the existing condition where it is located, and assuming the highest and best
use of the asset by market participants. A valuation allowance of $58.0 and unrecognized tax benefits of $7.9 were
recorded relating to deferred tax assets on capital assets generated from the loss.
During the first quarter of fiscal year 2017, we determined that it is unlikely for a buyer to assume the remaining
assets and contract obligations, including land lease obligations. As a result, we recorded an additional loss of
$59.3 ($47.1 after-tax) in results of discontinued operations, of which $53.0 was recorded primarily for land lease
obligations and $6.3 was recorded to update our estimate of the net realizable value of the plant assets as of
31 December 2016. There have been no changes to our estimates during the remainder of fiscal year 2017. We
may incur additional exit costs in future periods related to other outstanding commitments.
73
The following table summarizes the carrying amount of the accrual for our actions to dispose of the EfW business at
30 September 2017:
Loss on disposal of business
Noncash expenses
Cash expenditures
Currency translation adjustment
30 September 2016
Loss on disposal of business
Noncash expenses
Cash expenditures
Currency translation adjustment
Amount reflected in other noncurrent liabilities
30 September 2017
Asset
Actions
Contract
Actions/
Other
Total
$
$
$
913.5 $
(913.5)
—
—
— $
6.3
(6.3)
—
—
—
— $
32.2 $
—
(18.6)
(1.4)
12.2 $
53.0
—
(1.4)
7.3
(65.3)
5.8 $
945.7
(913.5)
(18.6)
(1.4)
12.2
59.3
(6.3)
(1.4)
7.3
(65.3)
5.8
The loss on disposal was recorded as a component of discontinued operations. The amount reflected in other
noncurrent liabilities primarily relates to land lease obligations and is recorded in continuing operations. The
remaining accrual is reflected in current liabilities of discontinued operations.
Summarized Financial Information of Discontinued Operations
The following tables detail the businesses and major line items that comprise income from discontinued operations,
net of tax, on the consolidated income statements:
Total
Year Ended 30 September 2017
Sales
Cost of sales
Selling and administrative
Research and development
Other income (expense), net
Operating Income (Loss)
Equity affiliates’ income
Income (Loss) Before Taxes
Income tax benefit(B)
Income (Loss) From Operations of Discontinued Operations, net of tax
Gain (Loss) on Disposal, net of tax(C)
Income (Loss) From Discontinued Operations, net of tax
$
— $
Materials
Performance Energy-from- Discontinued
Waste(A)
Operations
254.8
196.1
23.2
5.1
(1.7)
28.7
.3
29.0
(56.5)
85.5
1,780.5
1,866.0
254.8 $
182.3
22.5
5.1
.3
45.2
.3
45.5
(50.8)
96.3
1,827.6
1,923.9 $
13.8
.7
—
(2.0)
(16.5)
—
(16.5)
(5.7)
(10.8)
(47.1)
(57.9) $
$
(A)
(B)
(C)
The loss from operations of discontinued operations for EfW primarily relates to costs incurred for ongoing project exit
activities, administrative costs, and land lease obligations.
As a result of the expected gain on sale of PMD, we released valuation allowances related to capital loss and net operating
loss carryforwards primarily during the first quarter of 2017 that favorably impacted our income tax provision within
discontinued operations by approximately $69.
After-tax gain on sale of $1,827.6 includes expense for income tax reserves for uncertain tax positions of $28.0 gross ($21.0
net) in various jurisdictions.
74
Year Ended 30 September 2016
Sales
Cost of sales
Selling and administrative
Research and development
Other income (expense), net
Operating Income (Loss)
Equity affiliates’ income
Interest expense
Income (Loss) Before Taxes(B)
Income tax provision (benefit)
Total
— $
Materials
Waste(A)
Electronic Performance Energy-from- Discontinued
Operations
Materials
2,020.7
$
1,250.7
167.1
61.3
(6.3)
535.3
1.6
.3
536.6
150.5
1,059.1 $
704.5
76.6
19.6
4.2
262.6
1.4
—
264.0
80.5
961.6 $
521.6
87.7
40.8
2.2
313.7
.2
.3
313.6
73.4
24.6
2.8
.9
(12.7)
(41.0)
—
—
(41.0)
(3.4)
Income (Loss) From Operations of Discontinued
Operations, net of tax
Loss on Disposal, net of tax
Income (Loss) From Discontinued Operations, net of tax
Net Income Attributable to Noncontrolling Interests of
Discontinued Operations
240.2
—
240.2
7.9
183.5
—
183.5
—
(37.6)
386.1
(846.6)
(884.2)
—
(846.6)
(460.5)
7.9
Net Income (Loss) From Discontinued Operations
$
232.3 $
183.5 $
(884.2) $
(468.4)
(A)
(B)
The loss from operations of discontinued operations for EfW primarily relates to project suspension costs, land lease
obligations, and administrative costs.
In fiscal year 2016, income before taxes from operations of discontinued operations attributable to Air Products was $527.1.
Total
Year Ended 30 September 2015
Sales
Cost of sales
Selling and administrative
Research and development
Other income (expense), net(B)
Operating Income (Loss)
Equity affiliates’ income
Interest expense
Income (Loss) Before Taxes(C)
Income tax provision (benefit)
Income (Loss) From Discontinued Operations, net of tax
Net Income Attributable to Noncontrolling Interests of
Discontinued Operations
Materials
Waste(A)
Electronic Performance Energy-from- Discontinued
Operations
Materials
2,070.6
$
1,345.9
168.7
62.4
1,086.5 $
754.0
79.9
23.2
984.1 $
586.8
86.4
37.5
— $
5.1
2.4
1.7
—
(9.2)
—
—
(9.2)
(2.4)
(6.8)
—
(27.7)
465.9
2.2
.7
467.4
115.7
351.7
7.1
(18.5)
(9.2)
254.9
1.0
.1
255.8
49.7
206.1
7.1
220.2
1.2
.6
220.8
68.4
152.4
—
Net Income (Loss) From Discontinued Operations
$
199.0 $
152.4 $
(6.8) $
344.6
(A)
(B)
(C)
The loss from operations of discontinued operations for EfW primarily relates to land lease obligations and administrative
costs.
Primarily includes business restructuring and cost reduction actions.
In fiscal year 2015, income before taxes from operations of discontinued operations attributable to Air Products was $458.9.
75
The following tables detail the businesses and major line items that comprise assets and liabilities of discontinued
operations on the consolidated balance sheets:
30 September 2017
Assets
Current Assets
Plant and equipment, net
Total Current Assets
Total Assets
Liabilities
Current Liabilities
Payables and accrued liabilities
Total Current Liabilities
Total Liabilities
30 September 2016
Assets
Current Assets
Cash and cash items
Trade receivables, net
Inventories
Plant and equipment, net
Other receivables and current assets
Total Current Assets
Plant and equipment, net
Goodwill, net
Intangible assets, net
Other noncurrent assets
Total Noncurrent Assets
Total Assets
Liabilities
Current Liabilities
Payables and accrued liabilities
Accrued income taxes
Current portion of long-term debt
Total Current Liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Total Noncurrent Liabilities
Total Liabilities
Performance Energy-from- Discontinued
Operations
Waste
Materials
Total
$
$
$
$
— $
—
— $
9.2 $
9.2
9.2 $
10.2 $
10.2
10.2 $
6.5 $
6.5
6.5 $
10.2
10.2
10.2
15.7
15.7
15.7
Total
Electronic Performance Energy-from- Discontinued
Operations
Materials
Materials
Waste
$
170.6 $
134.7
138.1
—
34.5
477.9
296.5
180.0
75.1
37.5
589.1
$ 1,067.0 $
$
85.8 $
22.7
5.8
114.3
981.8
50.3
47.4
1,079.5
$ 1,193.8 $
37.5 $
159.0
226.8
—
5.6
428.9
296.5
125.0
25.0
6.7
453.2
882.1 $
72.5 $
6.0
—
78.5
—
6.4
9.6
16.0
94.5 $
— $
—
—
18.2
1.2
19.4
—
—
—
—
—
19.4 $
19.0 $
—
—
19.0
—
—
—
—
19.0 $
208.1
293.7
364.9
18.2
41.3
926.2
593.0
305.0
100.1
44.2
1,042.3
1,968.5
177.3
28.7
5.8
211.8
981.8
56.7
57.0
1,095.5
1,307.3
76
4. MATERIALS TECHNOLOGIES SEPARATION
Business Separation Costs
In connection with the disposition of the divisions comprising the former Materials Technologies segment, we
incurred separation costs of $30.2, $50.6, and $7.5 in 2017, 2016, and 2015, respectively. These costs are reflected
on the consolidated income statements as “Business separation costs” and include legal, advisory, and pension
related costs.
Our fiscal year 2017 income tax provision includes net tax benefits of $5.5 primarily related to changes in tax
positions on business separation activities. Our fiscal year 2016 income tax provision includes additional tax
expense related to the separation of $51.8, of which $45.7 resulted from a dividend that was declared in June 2016
to repatriate $443.8 from a subsidiary in South Korea to the U.S. in anticipation of the separation of EMD from the
industrial gases business in South Korea.
Transition Services Agreements
In connection with the spin-off of Versum, we entered into various agreements necessary to effect the spin-off and
to govern the ongoing relationships between Air Products and Versum after the separation, including a transition
services agreement by which we provide certain transition services to Versum. We expect all transition services to
end in 2018. Seifi Ghasemi, chairman, president and chief executive officer of Air Products, is serving as
non executive chairman of the Versum Board of Directors.
In connection with the sale of PMD, we entered into a transition services agreement by which we provide certain
transition services to Evonik for no longer than 12 months from the date of sale of 3 January 2017.
The reimbursement for costs in support of the transition services agreements with Versum and Evonik has been
reflected on the consolidated income statements within “Other income (expense), net.”
Loss on Extinguishment of Debt
On 30 September 2016, in anticipation of the spin-off, Versum entered into certain financing transactions to allow
for a cash distribution of $550.0 and a distribution in-kind of senior unsecured notes (the "Notes") issued by Versum
with an aggregate principal amount of $425.0 to Air Products. Air Products then exchanged these Notes with certain
financial institutions for $418.3 of Air Products’ outstanding commercial paper. This noncash exchange, which was
excluded from the consolidated statements of cash flows, resulted in a loss of $6.9 that has been reflected on the
consolidated income statements as “Loss on extinguishment of debt.” This loss was deductible for tax purposes.
5. BUSINESS RESTRUCTURING AND COST REDUCTION ACTIONS
The charges we record for business restructuring and cost reduction actions have been excluded from segment
operating income.
Cost Reduction Actions
In fiscal year 2017, we recognized a net expense of $151.4. The year-to-date net expense included a charge of
$154.8 for actions taken during fiscal year 2017, partially offset by the favorable settlement of the remaining $3.4
accrued balance associated with business restructuring actions taken in 2015. Asset actions of $88.5 included
charges resulting from the write-down of an air separation unit in the Industrial Gases – EMEA segment that was
constructed mainly to provide oxygen to one of the Energy-from-Waste plants, the planned sale of a non-industrial
gas hardgoods business in the Industrial Gases – Americas segment, and the closure of a facility in the Corporate
and other segment that manufactured liquefied natural gas (LNG) heat exchangers. During fiscal year 2017,
severance and other benefits totaled $66.3 and related to the elimination or planned elimination of approximately
625 positions, primarily in the Corporate and other segment and in the Industrial Gases – EMEA segment. The
actions in the Corporate and other segment were driven by the reorganization of our engineering, manufacturing,
and technology functions.
The 2017 charge related to the segments as follows: $39.3 in Industrial Gases – Americas, $77.9 in Industrial
Gases – EMEA, $.9 in Industrial Gases – Asia, $2.5 in Industrial Gases – Global, and $34.2 in Corporate and other.
In fiscal year 2016, we recognized an expense of $34.5 for severance and other benefits related to cost reduction
actions which resulted in the elimination of approximately 610 positions. The expenses related primarily to the
Industrial Gases – Americas segment and the Industrial Gases – EMEA segment.
77
The following table summarizes the carrying amount of the accrual for cost reduction actions at 30 September
2017:
2016 Charge
Amount reflected in pension liability
Cash expenditures
Currency translation adjustment
30 September 2016
2017 Charge
Noncash expenses
Amount reflected in pension liability
Amount reflected in other noncurrent liabilities
Cash expenditures
Currency translation adjustment
30 September 2017
Business Realignment and Reorganization
Severance and
Other Benefits
$
Asset
Actions/Other
Total
34.5 $
(.9)
(21.6)
.3
12.3 $
66.3
—
(2.0)
—
(35.7)
(.3)
40.6 $
— $
—
—
—
— $
88.5
(84.2)
—
(2.2)
(1.2)
—
.9 $
34.5
(.9)
(21.6)
.3
12.3
154.8
(84.2)
(2.0)
(2.2)
(36.9)
(.3)
41.5
$
$
On 18 September 2014, we announced plans to reorganize the Company, including realignment of our businesses
in new reporting segments and other organizational changes, effective as of 1 October 2014. As a result of this
reorganization, we incurred severance and other charges.
In fiscal year 2015, we recognized an expense of $180.1. Severance and other benefits totaled $131.5 and related
to the elimination of approximately 1,700 positions. Asset and associated contract actions totaled $48.6 and related
primarily to a plant shutdown in the Corporate and other segment and the exit of a product line within the Industrial
Gases – Global segment. The 2015 charges related to the segments as follows: $31.7 in Industrial Gases –
Americas, $52.2 in Industrial Gases – EMEA, $10.3 in Industrial Gases – Asia, $37.0 in Industrial Gases – Global,
and $48.9 in Corporate and other.
During the fourth quarter of 2014, an expense of $11.1 was incurred relating to the elimination of approximately 40
positions.
The following table summarizes the carrying amount of the accrual for the business realignment and reorganization
at 30 September 2017:
2014 Charge
Cash expenditures
30 September 2014
2015 Charge
Amount reflected in pension liability
Noncash expenses
Cash expenditures
Currency translation adjustment
30 September 2015
Cash expenditures
Currency translation adjustment
30 September 2016
Accrual settlement
30 September 2017
Severance and
Other Benefits
$
Asset
Actions/Other
Total
11.1 $
(1.7)
9.4 $
131.5
(11.2)
—
(100.3)
(.4)
29.0 $
(28.6)
(.4)
— $
—
— $
— $
—
— $
48.6
—
(40.2)
(1.2)
—
7.2 $
(3.8)
—
3.4 $
(3.4)
— $
11.1
(1.7)
9.4
180.1
(11.2)
(40.2)
(101.5)
(.4)
36.2
(32.4)
(.4)
3.4
(3.4)
—
$
$
$
$
78
6. BUSINESS COMBINATION
On 30 December 2014, we acquired our partner’s equity ownership interest in a liquefied atmospheric industrial
gases production joint venture in North America for $22.6, which increased our ownership from 50% to 100%. The
transaction was accounted for as a business combination, and subsequent to the acquisition, the results are
consolidated within our Industrial Gases – Americas segment. The assets acquired, primarily plant and equipment,
were recorded at their fair market values as of the acquisition date.
The acquisition date fair value of the previously held equity interest was determined using a discounted cash flow
analysis under the income approach. The twelve months ended 30 September 2015 include a gain of $17.9 as a
result of revaluing our previously held equity interest to fair value as of the acquisition date. This gain is reflected on
the consolidated income statements as “Gain on previously held equity interest.”
7. INVENTORIES
The components of inventories are as follows:
30 September
Finished goods
Work in process
Raw materials, supplies and other
Total FIFO Cost
Less: Excess of FIFO cost over LIFO cost
Inventories
2017
120.0 $
15.7
223.0
358.7
(23.3)
335.4 $
$
$
2016
131.3
18.3
117.1
266.7
(11.7)
255.0
Inventories valued using the LIFO method comprised 48.7% and 22.9% of consolidated inventories before LIFO
adjustment at 30 September 2017 and 2016, respectively. Liquidation of LIFO inventory layers in 2017, 2016, and
2015 did not materially affect the results of operations.
FIFO cost approximates replacement cost.
8. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The summarized financial information below is on a combined 100% basis and has been compiled based on
financial statements of the companies accounted for by the equity method. The amounts presented include the
accounts of the following equity affiliates:
Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (25%);
Air Products South Africa (Proprietary) Limited (50%);
Bangkok Cogeneration Company Limited (49%);
Bangkok Industrial Gases Co., Ltd. (49%);
Chengdu Air & Gas Products Ltd. (50%);
Helios S.p.A. (49%);
High-Tech Gases (Beijing) Co., Ltd. (50%);
INFRA Group (40%);
INOX Air Products Limited (50%);
Jazan Gas Projects Company (25%);
Kulim Industrial Gases Sdn. Bhd. (50%);
Sapio Produzione Idrogeno Ossigeno S.r.l. (49%);
Tecnologia en Nitrogeno S. de R.L. de C.V. (50%);
Tyczka Industrie-Gases GmbH (50%);
WuXi Hi-Tech Gas Co., Ltd. (50%);
and principally, other industrial gas producers.
79
30 September
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Year Ended 30 September
Net sales
Sales less cost of sales
Operating income
Net income
$
$
2017
2,343.3 $
878.6
509.5
343.5
2017
1,333.2 $
4,026.9
666.8
2,194.3
2016
2,271.6 $
871.5
482.1
334.1
2016
1,436.7
3,063.3
694.8
1,540.4
2015
2,460.5
922.7
512.4
343.5
The increase in noncurrent assets and noncurrent liabilities is primarily related to Jazan Gas Projects Company.
Dividends received from equity affiliates were $99.5, $95.9, and $50.5 in 2017, 2016, and 2015, respectively.
The investment in net assets of and advances to equity affiliates as of 30 September 2017 and 2016 included
investment in foreign affiliates of $1,285.1 and $1,281.5, respectively.
As of 30 September 2017 and 2016, the amount of investment in companies accounted for by the equity method
included equity method goodwill in the amount of $45.8 and $109.5, respectively. The decrease was primarily
driven by an other-than-temporary impairment of our investment in an equity affiliate in Saudi Arabia discussed
below.
Equity Affiliate Impairment Charge
During the third quarter of fiscal year 2017, Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (AHG), a
25% owned equity affiliate in our Industrial Gases – EMEA segment, completed a review of its business plan and
outlook. As a result of the revised business plan, we determined there was an other-than-temporary impairment of
our investment in AHG and, therefore, recorded a noncash impairment charge of $79.5 to reduce the carrying value
of our investment. This charge is reflected on our consolidated income statements within “Equity affiliates' income”
and was not deductible for tax purposes. This charge has been excluded from segment results.
The decline in value results from expectations for lower future cash flows to be generated by AHG, primarily due to
challenging economic conditions in Saudi Arabia, including the impacts of lower prices in the oil and gas industry,
increased competition, and capital project growth opportunities not materializing as anticipated. The AHG
investment was valued based on the results of the income and market valuation approaches.
The income approach utilized a discount rate based on a market-participant, risk-adjusted weighted average cost of
capital, which considers industry required rates of return on debt and equity capital for a target industry capital
structure adjusted for risks associated with size and geography. Other significant estimates and assumptions that
drive our updated valuation of AHG include revenue growth rates and profit margins that were lower than those
upon acquisition and our assessment of AHG's business improvement plan effectiveness.
Under the market approach, we estimated fair value based on market multiples of revenue and earnings derived
from publicly-traded industrial gases companies engaged in similar lines of business, adjusted to reflect differences
in size and growth prospects.
As of 30 September 2017, the carrying value of our investment in AHG is $66.7 and is reflected in our Industrial
Gases – EMEA segment. The investment is reported in “Investment in net assets of and advances to equity
affiliates” on our consolidated balance sheets.
There have been no other significant changes to our investments in equity affiliates during fiscal year 2017.
Jazan
On 19 April 2015, a joint venture between Air Products and ACWA Holding entered into a 20-year oxygen and
nitrogen supply agreement to supply Saudi Aramco’s oil refinery and power plant being built in Jazan, Saudi Arabia.
Air Products owns 25% of the joint venture and guarantees the repayment of its share of an equity bridge loan.
ACWA also guarantees their share of the loan. We determined that the joint venture is a variable interest entity, for
which we are not the primary beneficiary.
80
As of 30 September 2017 and 2016, other noncurrent liabilities included $94.4 for our obligation to make future
equity contributions based on our proportionate share of the advances received by the joint venture under the loan.
During fiscal year 2016 and 2015, we recorded noncash transactions that resulted in an increase of $26.9 and
$67.5, respectively, to our investment in net assets of and advances to equity affiliates. These noncash transactions
have been excluded from the consolidated statement of cash flows. In total, we expect to invest approximately $100
in this joint venture. There has been no change to our investment during fiscal year 2017.
Air Products has a long-term sale of equipment contract with the joint venture to engineer, procure, and construct
the industrial gas facilities that will supply the gases to Saudi Aramco. Sales related to this contract are included in
the results of our Industrial Gases – Global segment and were approximately $540 and $300 during fiscal year
2017 and 2016, respectively. Sales related to this contract were not material during fiscal year 2015.
9. PLANT AND EQUIPMENT, NET
The major classes of plant and equipment are as follows:
30 September
Land
Buildings
Production facilities(A)
Distribution and other machinery and equipment(B)
Construction in progress
Plant and equipment, at cost
Less: accumulated depreciation
Plant and equipment, net
Useful Life
in years
30
10 to 20
5 to 25
2017
231.0 $
977.8
13,577.1
3,944.0
817.9
19,547.8
11,107.6
8,440.2 $
2016
202.9
918.6
12,391.9
3,821.0
1,325.8
18,660.2
10,400.5
8,259.7
$
$
(A)
(B)
Depreciable lives of production facilities related to long-term customer supply contracts are matched to the contract lives.
The depreciable lives for various types of distribution equipment are 10 to 25 years for cylinders, depending on the nature
and properties of the product; 20 years for tanks; 7.5 years for customer stations; and 5 to 15 years for tractors and
trailers.
Depreciation expense was $843.2, $832.3, and $834.5 in 2017, 2016, and 2015, respectively.
81
10. GOODWILL
Changes to the carrying amount of consolidated goodwill by segment are as follows:
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Goodwill, net at 30 September 2015
Currency translation
Goodwill, net at 30 September 2016
Impairment loss
Acquisitions
Currency translation
Goodwill, net at 30 September 2017
$
$
$
297.6 $
11.5
309.1 $
(145.3)
—
(.1)
163.7 $
386.5 $
(5.9)
380.6 $
—
3.5
18.3
402.4 $
133.1 $
2.1
135.2 $
—
—
—
135.2 $
19.9 $
.3
20.2 $
—
—
—
20.2 $
Total
837.1
8.0
845.1
(145.3)
3.5
18.2
721.5
30 September
Goodwill, gross
Accumulated impairment losses
Goodwill, net
2017
1,138.7 $
(417.2)
721.5 $
2016
1,103.7 $
(258.6)
845.1 $
2015
1,080.8
(243.7)
837.1
$
$
We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes
in circumstances indicate that the carrying value of goodwill might not be recoverable. As described in Note 2, New
Accounting Guidance, we elected to early adopt new accounting guidance that simplifies the test for goodwill
impairment during the third quarter of fiscal year 2017.
For the first nine months of fiscal year 2017, volumes declined in our Latin America reporting unit (LASA), and
overall revenue growth did not meet expectations. Due to weak economic conditions in Latin America and
expectations for continued volume weakness in the Latin American countries and markets in which we operate, we
lowered our long-term growth projections. We conducted an interim impairment test of the goodwill associated with
LASA within the Industrial Gases – Americas segment as of 30 June 2017. As a result, we recorded a noncash
goodwill impairment charge of $145.3, which has been reflected on our consolidated income statements within
“Goodwill and intangible asset impairment charge.” This charge was not deductible for tax purposes and has been
excluded from segment operating income.
LASA includes assets and goodwill associated with operations in Chile and other Latin American countries. We
estimated the fair value of LASA based on two valuation approaches, the income approach and the market
approach. We reviewed relevant facts and circumstances in determining the weighting of the approaches.
Under the income approach, we estimated the fair value of LASA based on the present value of estimated future
cash flows. Cash flow projections were based on management’s estimates of revenue growth rates and EBITDA
margins, taking into consideration business and market conditions for the Latin American countries and markets in
which we operate. We calculated the discount rate based on a market-participant, risk-adjusted weighted average
cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry
capital structure, adjusted for risks associated with business size and geography.
Under the market approach, we estimated fair value based on market multiples of revenue and earnings derived
from publicly-traded industrial gases companies and regional manufacturing companies, adjusted to reflect
differences in size and growth prospects.
Management judgment is required in the determination of each assumption utilized in the valuation model, and
actual results could differ from our estimates.
The accumulated impairment losses of $417.2 as of 30 September 2017 are attributable to LASA within the
Industrial Gases– Americas segment and include the LASA impairment charge recorded in fiscal year 2014 as well
as the impacts of currency translation on the losses.
Prior to completing the LASA goodwill impairment test, we tested the recoverability of LASA’s long-lived assets and
other indefinite-lived intangible assets. Refer to Note 11, Intangible Assets, for additional information.
During the fourth quarter of 2017, we conducted our annual goodwill impairment test. We determined that the fair
value of all our reporting units exceeded their carrying value except LASA, for which the fair value equaled the
carrying value.
82
11. INTANGIBLE ASSETS
The table below provides details of acquired intangible assets:
30 September 2017
30 September 2016
$
Customer relationships
Patents and technology
Other
Total finite-lived intangibles
Trade names and trademarks,
indefinite-lived
Gross
424.1 $
13.4
73.4
510.9
67.8
Accumulated
Amortization/
Impairment
Accumulated
Amortization/
Impairment
Gross
Net
400.6 $
(118.2) $
282.4
13.6
73.0
487.2
(10.1)
(33.7)
3.5
39.3
(162.0)
325.2
Net
281.8 $
2.8
36.8
321.4
(142.3) $
(10.6)
(36.6)
(189.5)
(20.9)
46.9
66.2
(3.5)
62.7
Total Intangible Assets
$
578.7 $
(210.4) $
368.3 $
553.4 $
(165.5) $
387.9
The decrease in net intangible assets from 2016 to 2017 is primarily due to amortization and an impairment charge
recorded during the third quarter of fiscal year 2017. Amortization expense for intangible assets was $22.6, $22.3,
and $24.0 in 2017, 2016, and 2015, respectively. Refer to Note 1, Major Accounting Policies, for amortization
periods associated with our intangible assets.
Indefinite-lived intangible assets are subject to impairment testing at least annually or more frequently if events or
changes in circumstances indicate that potential impairment exists. The impairment test for indefinite-lived
intangible assets involves calculating the fair value of the indefinite-lived intangible assets and comparing the fair
value to their carrying value. If the fair value is less than the carrying value, the difference is recorded as an
impairment loss.
As discussed in Note 10, Goodwill, in response to weak Latin America economic conditions and expectations for
continued volume weakness in the Latin American countries and markets in which we operate, we lowered our
long-term growth projections. An interim impairment test of indefinite-lived intangibles associated with LASA was
conducted as of 30 June 2017 utilizing the royalty savings method, a form of the income approach. We determined
that the carrying value of trade names and trademarks was in excess of fair value, and as a result, we recorded a
noncash impairment charge of $16.8 to reduce these indefinite-lived intangible assets to their fair value. This
charge is reflected within “Goodwill and intangible asset impairment charge” on our consolidated income
statements. These trade names and trademarks are included in our Industrial Gases – Americas segment. This
charge has been excluded from segment operating income. We tested the recoverability of LASA long-lived assets,
including finite-lived intangible assets subject to amortization, and concluded that they were recoverable from
expected future undiscounted cash flows.
In the fourth quarter of 2017, we conducted our annual impairment test of indefinite-lived intangibles and found no
indications of impairment.
Projected annual amortization expense for intangible assets as of 30 September 2017 is as follows:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
22.1
21.8
21.6
20.1
17.4
218.4
321.4
83
12. LEASES
Lessee Accounting
Capital leases, primarily for the right to use machinery and equipment, are included with owned plant and
equipment on the consolidated balance sheet in the amount of $22.3 and $22.4 at 30 September 2017 and 2016,
respectively. Related amounts of accumulated depreciation are $5.3 and $4.5, respectively.
Operating leases principally relate to real estate and also include aircraft, distribution equipment, and vehicles.
Certain leases include escalation clauses, renewal, and/or purchase options. Rent expense is recognized on a
straight-line basis over the minimum lease term. Rent expense under operating leases, including month-to-month
agreements, was $65.8 in 2017, $67.6 in 2016, and $70.4 in 2015.
At 30 September 2017, minimum payments due under leases associated with continuing operations are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
Capital
Leases
Operating
Leases
2.2 $
1.8
1.6
3.0
1.5
19.9
30.0 $
56.6
45.8
35.2
27.1
22.9
126.6
314.2
$
$
The present value of the above future capital lease payments totaled $10.8. Refer to Note 15, Debt.
Included in the operating lease payments disclosed above are future minimum payments due under leases related
to the Energy-from-Waste discontinued operations (i.e., Tees Valley, United Kingdom ) of approximately $2 in each
of the next five years and $40 thereafter, for a total lease commitment of approximately $50. As discussed in Note
3, Discontinued Operations, during the first quarter of 2017, we recorded an accrual for these lease obligations to
other noncurrent liabilities in continuing operations.
Lessor Accounting
As discussed under Revenue Recognition in Note 1, Major Accounting Policies, certain contracts associated with
facilities that are built to provide product to a specific customer are required to be accounted for as leases. Lease
receivables, net, are primarily included in noncurrent capital lease receivables on our consolidated balance sheets,
with the remaining balance in other receivables and current assets.
The components of lease receivables were as follows:
30 September
Gross minimum lease payments receivable
Unearned interest income
Lease Receivables, net
$
$
2017
1,897.0 $
(671.9)
1,225.1 $
2016
2,072.6
(762.7)
1,309.9
Lease payments collected in 2017, 2016, and 2015 were $183.6, $186.0, and $146.6, respectively. These
payments reduced the lease receivable balance by $92.2, $85.5, and $68.8 in 2017, 2016, and 2015, respectively.
At 30 September 2017, minimum lease payments expected to be collected are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
182.0
176.4
171.4
165.5
154.1
1,047.6
1,897.0
84
13. FINANCIAL INSTRUMENTS
Currency Price Risk Management
Our earnings, cash flows, and financial position are exposed to foreign currency risk from foreign currency-
denominated transactions and net investments in foreign operations. It is our policy to minimize our cash flow
volatility from changes in currency exchange rates. This is accomplished by identifying and evaluating the risk that
our cash flows will change in value due to changes in exchange rates and by executing the appropriate strategies
necessary to manage such exposures. Our objective is to maintain economically balanced currency risk
management strategies that provide adequate downside protection.
Forward Exchange Contracts
We enter into forward exchange contracts to reduce the cash flow exposure to foreign currency fluctuations
associated with highly anticipated cash flows and certain firm commitments, such as the purchase of plant and
equipment. We also enter into forward exchange contracts to hedge the cash flow exposure on intercompany loans.
This portfolio of forward exchange contracts consists primarily of Euros and U.S. Dollars. The maximum remaining
term of any forward exchange contract currently outstanding and designated as a cash flow hedge at 30 September
2017 is 1.8 years.
Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and
affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this
portfolio of forward exchange contracts is Euros and U.S. Dollars.
In addition to the forward exchange contracts that are designated as hedges, we utilize forward exchange contracts
that are not designated as hedges. These contracts are used to economically hedge foreign currency-denominated
monetary assets and liabilities, primarily working capital. The primary objective of these forward exchange contracts
is to protect the value of foreign currency-denominated monetary assets and liabilities from the effects of volatility in
foreign exchange rates that might occur prior to their receipt or settlement. This portfolio of forward exchange
contracts consists of many different foreign currency pairs, with a profile that changes from time to time depending
on business activity and sourcing decisions.
The table below summarizes our outstanding currency price risk management instruments:
Forward Exchange Contracts
Cash flow hedges
Net investment hedges
Not designated
Total Forward Exchange Contracts
30 September 2017
30 September 2016
US$
Notional
3,150.2
675.5
273.8
4,099.5
$
$
Years
Average
Maturity
.4 $
3.0
.1
.8 $
US$
Notional
4,130.3
968.2
2,648.3
7,746.8
Years
Average
Maturity
.5
2.7
.4
.7
The notional value of forward exchange contracts not designated in the table above includes forward contracts
which were hedging intercompany loans that were repaid prior to their original maturity dates in anticipation of the
spin-off of Versum. The forward exchange contracts no longer qualified as cash flow hedges due to the early
repayment of the loans. We entered into additional forward exchange contracts to offset these outstanding
positions to eliminate any future earnings impact. The decrease in notional value from 30 September 2016 to 30
September 2017 is primarily due to the maturity of the aforementioned intercompany loan hedges and their
offsetting positions.
In addition to the above, we use foreign currency-denominated debt to hedge the foreign currency exposures of our
net investment in certain foreign subsidiaries. The designated foreign currency-denominated debt and related
accrued interest included €912.2 million ($1,077.7) at 30 September 2017 and €920.7 million ($1,034.4) at 30
September 2016. The designated foreign currency-denominated debt is located on the balance sheet in the long-
term debt line item.
85
Debt Portfolio Management
It is our policy to identify on a continuing basis the need for debt capital and evaluate the financial risks inherent in
funding the Company with debt capital. Reflecting the result of this ongoing review, the debt portfolio and hedging
program are managed with the objectives and intent to (1) reduce funding risk with respect to borrowings made by
us to preserve our access to debt capital and provide debt capital as required for funding and liquidity purposes,
and (2) manage the aggregate interest rate risk and the debt portfolio in accordance with certain debt management
parameters.
Interest Rate Management Contracts
We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to
maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance
with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt
portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which
are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest
rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and
floating-to-fixed interest rate swaps (which are designated as cash flow hedges). At 30 September 2017, the
outstanding interest rate swaps were denominated in U.S. Dollars. The notional amount of the interest rate swap
agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge
variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy
not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-
to-one basis.
Cross Currency Interest Rate Swap Contracts
We enter into cross currency interest rate swap contracts when our risk management function deems necessary.
These contracts may entail both the exchange of fixed- and floating-rate interest payments periodically over the life
of the agreement and the exchange of one currency for another currency at inception and at a specified future date.
The contracts are used to hedge either certain net investments in foreign operations or nonfunctional currency cash
flows related to intercompany loans. The current cross currency interest rate swap portfolio consists of fixed-to-fixed
swaps primarily between U.S. Dollars and offshore Chinese Renminbi, U.S. Dollars and Chilean Pesos, and U.S.
Dollars and British Pound Sterling.
The following table summarizes our outstanding interest rate management contracts and cross currency interest
rate swaps:
30 September 2017
30 September 2016
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
$
600.0
LIBOR
2.28%
1.3 $
600.0
LIBOR
2.28%
2.3
$
539.7
3.27%
2.59%
1.9 $
517.7
3.24%
2.43%
$ 1,095.7
4.96%
2.78%
2.4 $ 1,088.9
4.77%
2.72%
$
41.6
3.28%
2.32%
1.7 $
27.4
3.62%
.81%
2.6
3.3
1.8
Interest rate swaps
(fair value hedge)
Cross currency
interest rate swaps
(net investment
hedge)
Cross currency
interest rate swaps
(cash flow hedge)
Cross currency
interest rate swaps
(not designated)
86
The table below summarizes the fair value and balance sheet location of our outstanding derivatives:
Balance Sheet
30 September
Balance Sheet
30 September
Location
2017
2016
Location
2017
2016
Derivatives Designated as
Hedging Instruments:
Forward exchange contracts
Interest rate management contracts Other receivables
Other receivables $ 81.7 $ 72.3 Accrued liabilities $ 82.0 $ 44.0
—
19.9 Accrued liabilities
11.1
10.7
Other noncurrent
assets
Other noncurrent
assets
27.1
44.4
102.6
160.0
Other noncurrent
liabilities
Other noncurrent
liabilities
13.8
9.1
22.2
12.0
$ 222.5 $ 296.6
$128.7 $ 65.1
Forward exchange contracts
Interest rate management contracts
Total Derivatives Designated as
Hedging Instruments
Derivatives Not Designated as
Hedging Instruments:
Forward exchange contracts
Other receivables
Interest rate management contracts Other receivables
Interest rate management contracts
Total Derivatives Not Designated
as Hedging Instruments
Total Derivatives
Other noncurrent
assets
1.1
—
4.2
77.1 Accrued liabilities $ 2.2 $ 29.5
—
— Accrued liabilities
1.0
Other noncurrent
liabilities
—
—
.7
5.3 $ 77.1
$
$ 227.8 $ 373.7
$ 3.2 $ 30.2
$131.9 $ 95.3
Refer to Note 14, Fair Value Measurements, which defines fair value, describes the method for measuring fair
value, and provides additional disclosures regarding fair value measurements.
87
The table below summarizes the gain or loss related to our cash flow hedges, fair value hedges, net investment
hedges, and derivatives not designated as hedging instruments:
Year Ended 30 September
Forward
Exchange Contracts
Foreign
Currency
Debt
Other(A)
Total
2017
2016
2017
2016
2017
2016
2017
2016
Cash Flow Hedges, net of
tax:
Net gain (loss) recognized in
OCI (effective portion)
Net (gain) loss reclassified
from OCI to sales/cost of sales
(effective portion)
Net (gain) loss reclassified
from OCI to other income
(expense), net (effective
portion)
Net (gain) loss reclassified
from OCI to interest expense
(effective portion)
Net (gain) loss reclassified
from OCI to other income
(expense), net (ineffective
portion)
Fair Value Hedges:
Net gain (loss) recognized in
interest expense(B)
Net Investment Hedges, net
of tax:
Net gain (loss) recognized in
OCI
Derivatives Not Designated
as Hedging Instruments:
Net gain (loss) recognized in
other income (expense), net(C)
$
.3 $
10.5 $ — $ — $ (12.9) $
3.2 $ (12.6) $ 13.7
18.3
.2
—
—
—
—
18.3
.2
(3.8)
(25.7)
(2.1)
6.7
—
—
—
10.5
(20.3)
6.7
(46.0)
—
2.9
3.3
.8
10.0
(1.6)
(.2)
—
—
—
—
(1.6)
(.2)
$
— $
— $ — $ — $ (14.7) $ (8.8) $ (14.7) $ (8.8)
$
(11.1) $
17.4 $ (32.8) $ (9.6) $ (15.6) $ 35.0 $ (59.5) $ 42.8
$
4.1 $
(1.8) $ — $ — $ (2.4) $ (1.6) $
1.7 $ (3.4)
(A)
(B)
(C)
Other includes the impact on other comprehensive income (OCI) and earnings primarily related to interest rate and cross
currency interest rate swaps.
The impact of fair value hedges noted above was largely offset by recognized gains and losses resulting from the impact
of changes in related interest rates on outstanding debt.
The impact of the non-designated hedges noted above was largely offset by recognized gains and losses resulting from
the impact of changes in exchange rates on assets and liabilities denominated in nonfunctional currencies.
The amount of cash flow hedges’ unrealized gains and losses at 30 September 2017 that are expected to be
reclassified to earnings in the next twelve months is not material.
The cash flows related to all derivative contracts are reported in the operating activities section of the consolidated
statements of cash flows.
Credit Risk-Related Contingent Features
Certain derivative instruments are executed under agreements that require us to maintain a minimum credit rating
with both Standard & Poor’s and Moody’s. If our credit rating falls below this threshold, the counterparty to the
derivative instruments has the right to request full collateralization on the derivatives’ net liability position. The net
liability position of derivatives with credit risk-related contingent features was $34.6 as of 30 September 2017 and
$11.2 as of 30 September 2016. Because our current credit rating is above the various pre-established thresholds,
no collateral has been posted on these liability positions.
88
Counterparty Credit Risk Management
We execute financial derivative transactions with counterparties that are highly rated financial institutions, all of
which are investment grade at this time. Some of our underlying derivative agreements give us the right to require
the institution to post collateral if its credit rating falls below the pre-established thresholds with Standard & Poor’s
or Moody’s. The collateral that the counterparties would be required to post was $138.5 as of 30 September 2017
and $267.6 as of 30 September 2016. No financial institution is required to post collateral at this time, as all have
credit ratings at or above the threshold.
14. FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, i.e., the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels as follows:
Level 1—
Level 2—
Level 3—
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Inputs that are observable for the asset or liability, either directly or indirectly through market
corroboration, for substantially the full term of the asset or liability.
Inputs that are unobservable for the asset or liability based on our own assumptions (about the
assumptions market participants would use in pricing the asset or liability).
The methods and assumptions used to measure the fair value of financial instruments are as follows:
Short-term Investments
Short-term investments include time deposits with original maturities greater than three months and less than one
year. The estimated fair value of the short-term investments, which approximates carrying value as of 30
September 2017 and 2016, was determined using level 2 inputs within the fair value hierarchy. Level 2
measurements were based on current interest rates for similar investments with comparable credit risk and time to
maturity.
Derivatives
The fair value of our interest rate management contracts and forward exchange contracts are quantified using the
income approach and are based on estimates using standard pricing models. These models take into account the
value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that
match both the time to maturity and currency of the underlying instruments. The computation of the fair values of
these instruments is generally performed by the Company. These standard pricing models utilize inputs which are
derived from or corroborated by observable market data such as interest rate yield curves as well as currency spot
and forward rates. Therefore, the fair value of our derivatives is classified as a level 2 measurement. On an ongoing
basis, we randomly test a subset of our valuations against valuations received from the transaction’s counterparty
to validate the accuracy of our standard pricing models. Counterparties to these derivative contracts are highly
rated financial institutions.
Refer to Note 13, Financial Instruments, for a description of derivative instruments, including details on the balance
sheet line classifications.
Long-term Debt
The fair value of our debt is based on estimates using standard pricing models that take into account the value of
future cash flows as of the balance sheet date, discounted to a present value using discount factors that match
both the time to maturity and currency of the underlying instruments. These standard valuation models utilize
observable market data such as interest rate yield curves and currency spot rates. Therefore, the fair value of our
debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these
instruments.
89
The carrying values and fair values of financial instruments were as follows:
30 September 2017
30 September 2016
Carrying Value
Fair Value
Carrying Value
Fair Value
Assets
Derivatives
Forward exchange contracts
Interest rate management contracts
Liabilities
Derivatives
Forward exchange contracts
Interest rate management contracts
Long-term debt, including current portion
$
$
109.9 $
117.9
109.9 $
117.9
193.8 $
179.9
193.8
179.9
98.0 $
33.9
3,818.8
98.0 $
33.9
3,928.2
82.6 $
12.7
4,275.1
82.6
12.7
4,474.0
The carrying amounts reported in the balance sheet for cash and cash items, short-term investments, trade
receivables, payables and accrued liabilities, accrued income taxes, and short-term borrowings approximate fair
value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the
above table.
The following table summarizes assets and liabilities measured at fair value on a recurring basis in the consolidated
balance sheets:
30 September 2017
30 September 2016
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Assets at Fair Value
Derivatives
Forward exchange
contracts
Interest rate
management
contracts
Total Assets at Fair
Value
Liabilities at Fair
Value
Derivatives
Forward exchange
contracts
Interest rate
management
contracts
Total Liabilities at Fair
Value
$ 109.9 $
— $ 109.9 $
— $ 193.8 $
— $ 193.8 $
—
117.9
—
117.9
—
179.9
—
179.9
$ 227.8 $
— $ 227.8 $
— $ 373.7 $
— $ 373.7 $
—
—
$
98.0 $
— $
98.0 $
— $
82.6 $
— $
82.6 $
—
33.9
—
33.9
—
12.7
—
12.7
$ 131.9 $
— $ 131.9 $
— $
95.3 $
— $
95.3 $
—
—
90
The following is a tabular presentation of nonrecurring fair value measurements along with the level within the fair
value hierarchy in which the fair value measurement in its entirety falls:
31 December 2016
Total
Level 1
Level 2
Level 3
2017
Loss
2016
Loss
Plant and Equipment – Continuing operations (A)
Plant and Equipment—Discontinued operations(A)
$
$
1.4 $
11.0 $
— $
— $
— $
— $
1.4 $
45.7 $
—
11.0 $
6.3 $ 913.5
(A)
We assessed the recoverability of the carrying value of assets associated with the EfW discontinued operation, including
the air separation unit within continuing operations of our Industrial Gases – EMEA segment. We based our estimates
primarily on an orderly liquidation valuation which resulted in losses for the difference between the orderly liquidation
value and net book value of the assets as of 31 December 2016 during fiscal year 2017. There have been no significant
updates to our estimates as of 30 September 2017. For additional information, see Note 3, Discontinued Operations, and
Note 5, Business Restructuring and Cost Reduction Actions.
Investment in Equity Affiliate(A)
30 June 2017
Total
Level 1
Level 2
Level 3
2017
Loss
$
68.5 $
— $
— $
68.5 $
79.5
(A) We assessed the recoverability of the carrying value of our equity investment in AHG. We estimated the fair value of our
investment using weighting of the results of the income and market approaches. An impairment loss was recognized for the
difference between the carrying amount and the fair value of the investment as of 30 June 2017. There have been no
updates to our estimates as of 30 September 2017. For additional information, see Note 8, Summarized Financial
Information of Equity Affiliates.
During the third quarter ended 30 June 2017, we recognized a goodwill impairment charge of $145.3 and an
intangible asset impairment charge of $16.8 associated with our LASA reporting unit. Refer to Note 10, Goodwill,
and Note 11, Intangible Assets, for more information related to these charges and the associated fair value
measurement methods and significant inputs/assumptions, which were classified as Level 3 since unobservable
inputs were utilized in the fair value measurements.
15. DEBT
The tables below summarize our outstanding debt at 30 September 2017 and 2016:
Total Debt
30 September
Short-term borrowings
Current portion of long-term debt
Long-term debt
Total Debt
Short-term Borrowings
30 September
Bank obligations
Commercial paper
Total Short-term Borrowings
2017
144.0 $
416.4
3,402.4
3,962.8 $
2017
144.0 $
—
144.0 $
2016
935.8
365.4
3,909.7
5,210.9
2016
133.1
802.7
935.8
$
$
$
$
The weighted average interest rate of short-term borrowings outstanding at 30 September 2017 and 2016 was
4.6% and 1.1%, respectively.
Cash paid for interest, net of amounts capitalized, was $125.9 in 2017, $120.6 in 2016, and $96.8 in 2015.
91
Long-term Debt
30 September
Payable in U.S. Dollars
Debentures
8.75%
Medium-term Notes (weighted average rate)
Series E 7.6%
Senior Notes
Note 1.2%
Note 4.375%
Note 3.0%
Note 2.75%
Note 3.35%
Other (weighted average rate)
Variable-rate industrial revenue bonds .87%
Other .89%
Payable in Other Currencies
Eurobonds 4.625%
Eurobonds 2.0%
Eurobonds 1.0%
Eurobonds .375%
Other 4.3%
Capital Lease Obligations
United States 5.0%
Foreign 10.7%
Total Principal Amount
Less: Unamortized Discount and Debt Issuance Costs
Total Long-term Debt
Less: Current portion of long-term debt
Long-term Debt
Fiscal Year
Maturities
2017
2016
2021 $
18.4 $
2026
2018
2019
2022
2023
2024
2035 to 2050
2018 to 2019
2017
2020
2025
2021
2018 to 2022
2018
2018 to 2036
17.2
400.0
400.0
400.0
400.0
400.0
631.9
10.9
—
354.4
354.4
413.5
25.8
.2
10.6
3,837.3
(18.5)
3,818.8
(416.4)
3,402.4 $
$
18.4
17.2
400.0
400.0
400.0
400.0
400.0
769.9
25.7
337.0
337.0
337.0
393.2
52.9
.5
9.7
4,298.5
(23.4)
4,275.1
(365.4)
3,909.7
416.4
409.0
356.1
433.3
401.0
1,821.5
3,837.3
Maturities of long-term debt in each of the next five years and beyond are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
Various debt agreements to which we are a party include financial covenants and other restrictions, including
restrictions pertaining to the ability to create property liens and enter into certain sale and leaseback transactions.
As of 30 September 2017, we are in compliance with all the financial and other covenants under our debt
agreements.
Additional commitments totaling $23.4 are maintained by our foreign subsidiaries, all of which were borrowed and
outstanding at 30 September 2017.
92
2017 Credit Agreement
On 31 March 2017, we entered into a five-year $2,500.0 revolving credit agreement with a syndicate of banks (the
“2017 Credit Agreement”), under which senior unsecured debt is available to both the Company and certain of its
subsidiaries. The 2017 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 (total debt plus total equity) no greater than 70%. No borrowings were outstanding under the 2017
Credit Agreement as of 30 September 2017.
The 2017 Credit Agreement terminates and replaces our previous $2,690.0 revolving credit agreement (the “2013
Credit Agreement”), which was to mature 30 April 2018. No borrowings were outstanding under the previous
agreement at the time of its termination, and no early termination penalties were incurred.
Loss on Extinguishment of Debt
In September 2016, we exchanged notes issued to us by Versum in anticipation of the spin-off. The exchange
resulted in a loss of $6.9. Refer to Note 4, Materials Technologies Separation, for additional information. In
September 2015, we made a payment of $146.6 to redeem 3,000,000 Unidades de Fomento (“UF”) Series E 6.30%
Bonds due 22 January 2030 that had a carrying value of $130.0 and resulted in a net loss of $16.6. The fiscal year
2016 and 2015 losses are reflected on the consolidated income statements as “Loss on extinguishment of debt.”
16. RETIREMENT BENEFITS
The Company and certain of its subsidiaries sponsor defined benefit pension plans and defined contribution plans
that cover a substantial portion of its worldwide employees. The principal defined benefit pension plans are the U.S.
salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005 and were
replaced with defined contribution plans. The principal defined contribution plan is the Retirement Savings Plan, in
which a substantial portion of the U.S. employees participate; a similar plan is offered to U.K. employees. We also
provide other postretirement benefits consisting primarily of healthcare benefits to U.S. retirees who meet age and
service requirements.
Defined Benefit Pension Plans
Pension benefits earned are generally based on years of service and compensation during active employment. The
cost of our defined benefit pension plans included the following components:
2017
2016
2015
International
U.S.
International
U.S.
International
U.S.
29.0 $
107.5
(207.7)
88.7
2.3
10.5
4.3
2.8
—
Service cost
Interest cost
$
Expected return on plan assets
Amortization
Net actuarial loss
Prior service cost
Settlements
Curtailments
Special termination benefits
Other
Net Periodic Benefit Cost –
Total
Less: Discontinued
Operations
Net Periodic Benefit Cost –
Continuing Operations
25.9 $
32.2
(75.2)
36.5 $
24.3 $
42.2 $
110.7
(202.0)
44.3
(78.3)
124.7
(202.0)
54.7
(.1)
1.7
(1.3)
.4
1.1
85.3
2.8
5.1
—
2.0
(.3)
35.6
(.2)
1.3
(1.1)
—
2.1
78.9
2.8
18.9
5.3
7.2
1.0
31.3
57.8
(79.8)
41.4
—
2.3
—
1.5
2.1
$
37.4 $
39.4 $
40.1 $
28.0 $
79.0 $
56.6
(.7)
(4.1)
(7.9)
(4.4)
(12.9)
(7.7)
$
36.7 $
35.3 $
32.2 $
23.6 $
66.1 $
48.9
93
Net periodic benefit cost is primarily included in cost of sales, selling and administrative expense, and pension
settlement loss on our consolidated income statements. The amount of net periodic benefit cost capitalized in 2017,
2016, and 2015 was not material.
Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for
corporate officers, six months after their retirement date. A participant’s vested benefit is considered settled upon
cash payment of the lump sum. We recognize pension settlement losses when cash payments exceed the sum of
the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. In 2017, 2016,
and 2015, we recognized pension settlement losses of $10.5, $5.1 and $19.3 in results from continuing operations,
respectively, to accelerate recognition of a portion of actuarial losses deferred in accumulated other comprehensive
loss, primarily associated with the U.S. Supplementary Pension Plan. Special termination benefits are primarily
related to the business restructuring and cost reduction actions initiated in their respective years.
In connection with the disposition of the two divisions comprising the former Materials Technologies segment, we
incurred settlement, curtailment, and special termination benefits totaling $6.0 for the year ended 30 September
2017, of which $2.5 was reflected in "Business separation costs" and $3.5 was reflected in the results of
discontinued operations on the consolidated income statements.
We calculate net periodic benefit cost for a given fiscal year based on assumptions developed at the end of the
previous fiscal year. The following table sets forth the weighted average assumptions used in the calculation of net
periodic benefit cost:
2017
2016
2015
U.S.
International
U.S.
International
U.S.
International
Discount rate(A)
Expected return on plan assets
Rate of compensation increase
3.5%
8.0%
3.5%
2.0%
6.1%
3.5%
4.3%
8.0%
3.5%
3.3%
6.3%
3.5%
4.3%
8.3%
3.5%
3.6%
6.1%
3.6%
(A)
Effective in 2016, the Company began to measure the service cost and interest cost components of pension expense by
applying spot rates along the yield curve to the relevant projected cash flows, as we believe this provides a better
measurement of these costs. The Company accounted for this in 2016 as a change in accounting estimate and,
accordingly, accounted for it on a prospective basis. This change did not affect the measurement of the total benefit
obligation. The 2017 discount rates used to measure the service cost and interest cost of our U.S. pension plans were
3.6% and 3.0%, respectively. The rates used to measure the service cost and interest cost of our major International
pension plans were 2.1% and 1.8%, respectively. The previous method would have used a single discount rate for both
service and interest costs.
The projected benefit obligation (PBO) is the actuarial present value of benefits attributable to employee service
rendered to date, including the effects of estimated future salary increases. The following table sets forth the
weighted average assumptions used in the calculation of the PBO:
Discount rate
Rate of compensation increase
2017
U.S.
3.8%
3.5%
International
2.4%
3.6%
2016
U.S.
3.5%
3.5%
International
2.0%
3.5%
94
The following tables reflect the change in the PBO and the change in the fair value of plan assets based on the plan
year measurement date, as well as the amounts recognized in the consolidated balance sheets:
Change in Projected Benefit Obligation
Obligation at beginning of year
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Divestitures
Curtailments
Settlement (gain) loss
Special termination benefits
Participant contributions
Benefits paid
Currency translation/other
Obligation at End of Year
Change in Plan Assets
Fair value at beginning of year
Actual return on plan assets
Company contributions
Participant contributions
Divestitures
Benefits paid
Settlements
Currency translation/other
Fair Value at End of Year
Funded Status at End of Year
Amounts Recognized
Noncurrent assets
Accrued liabilities
Noncurrent liabilities
Net Amount Recognized
2017
2016
U.S.
International
U.S.
International
3,477.7 $
29.0
107.5
1.9
(68.0)
—
(17.3)
7.0
2.8
—
(182.9)
—
3,357.7 $
2017
1,849.6 $
25.9
32.2
—
(132.4)
(34.1)
(4.2)
—
—
1.4
(46.5)
57.6
1,749.5 $
3,139.9 $
36.5
110.7
1.2
380.2
—
(.4)
5.4
2.0
—
(197.4)
(.4)
3,477.7 $
2016
1,647.9
24.3
44.3
—
376.4
—
(1.2)
(3.4)
—
1.6
(46.6)
(193.7)
1,849.6
U.S.
International
U.S.
International
2,705.3 $
319.6
27.2
—
—
(182.9)
—
—
2,869.2 $
(488.5) $
1,411.1 $
87.9
42.2
1.4
(3.0)
(46.5)
(5.3)
52.2
1,540.0 $
(209.5) $
2,613.6 $
275.2
13.9
—
—
(197.4)
—
—
2,705.3 $
(772.4) $
5.3 $
(12.6)
(481.2)
(488.5) $
13.1 $
—
(222.6)
(209.5) $
— $
(24.1)
(748.3)
(772.4) $
1,302.8
273.2
65.4
1.6
—
(46.6)
(3.4)
(181.9)
1,411.1
(438.5)
—
—
(438.5)
(438.5)
$
$
$
$
$
$
$
The above table in 2016 includes the projected benefit obligation and plan assets associated with discontinued
businesses. Upon completion of the spin-off of Versum on 1 October 2016, the Company transferred defined benefit
pension assets and obligations that resulted in a net decrease in the underfunded status of the Company's
sponsored pension plans of $24. Additionally, as a result of the transfer of unrecognized losses to Versum,
accumulated other comprehensive loss, net of tax, decreased by approximately $5. In connection with the sale of
PMD to Evonik on 3 January 2017, the Company transferred defined benefit pension obligations that resulted in a
net decrease in the underfunded status of the Company's sponsored pension plans of $7.
Certain U.S. plans offered terminated vested participants an election to receive their accrued pension benefit as a
one-time lump sum payment in 2016. Benefits paid in 2016 include $52.9 of lump sum cash payments in connection
with this offering.
95
The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a
pretax basis during 2017 and 2016 consist of the following:
2017
2016
U.S.
International
U.S.
International
Net actuarial (gain) loss arising during the period
$
(189.8) $
Amortization of net actuarial loss
Prior service cost (credit) arising during the period
Amortization of prior service cost
(103.3)
1.9
(2.3)
Total
$
(293.5) $
(162.0) $
(55.7)
—
.1
(217.6) $
311.8 $
(90.4)
1.2
(2.8)
172.1
(36.5)
(.1)
.2
219.8 $
135.7
The net actuarial (gain) loss represents the actual changes in the estimated obligation and plan assets that have
not yet been recognized in the consolidated income statements and are included in accumulated other
comprehensive loss. Actuarial gains arising during 2017 are primarily attributable to higher discount rates and
higher than expected return on plan assets. Accumulated actuarial gains and losses that exceed a corridor are
amortized over the average remaining service period of participants, which was approximately 9 years as of 30
September 2017.
The components recognized in accumulated other comprehensive loss on a pretax basis at 30 September
consisted of:
2017
2016
Net actuarial loss
Prior service cost (credit)
Net transition liability
Total
$
$
U.S.
980.5 $
8.1
—
988.6 $
International
551.9 $
(1.8)
.4
550.5 $
U.S.
International
1,273.6 $
769.6
8.5
—
(1.9)
.4
1,282.1 $
768.1
The amount of accumulated other comprehensive loss at 30 September 2017 that is expected to be recognized as
a component of net periodic pension cost during fiscal year 2018, excluding discontinued operations and amounts
that may be recognized through settlement losses, is as follows:
Net actuarial loss
Prior service cost (credit)
$
U.S.
88.5 $
1.5
International
39.9
(.1)
The accumulated benefit obligation (ABO) is the actuarial present value of benefits attributed to employee service
rendered to a particular date, based on current salaries. The ABO for all defined benefit pension plans was $4,842.8
and $4,954.9 as of 30 September 2017 and 2016, respectively.
The following table provides information on pension plans where the benefit liability exceeds the value of plan
assets:
30 September 2017
30 September 2016
U.S.
International
U.S.
International
Pension Plans with PBO in Excess of Plan Assets:
PBO
Fair value of plan assets
Pension Plans with ABO in Excess of Plan Assets:
ABO
Fair value of plan assets
$
$
3,116.7 $
2,623.0
465.7 $
243.1
3,477.7 $
2,705.3
1,849.6
1,411.1
2,951.0 $
2,623.0
365.6 $
197.1
3,242.5 $
2,705.3
1,673.6
1,370.1
Included in the tables above are several pension arrangements that are not funded because of jurisdictional
practice. The ABO and PBO related to these plans as of 30 September 2017 were $99.0 and $107.8, respectively.
96
Pension Plan Assets
Our pension plan investment strategy is to invest in diversified portfolios to earn a long-term return consistent with
acceptable risk in order to pay retirement benefits and meet regulatory funding requirements while minimizing
company cash contributions over time. De-risking strategies are also employed for closed plans as funding
improves, generally resulting in higher allocations to long duration bonds. The plans invest primarily in passive and
actively managed equity and debt securities. Equity investments are diversified geographically and by investment
style and market capitalization. Fixed income investments include sovereign, corporate and asset-backed securities
generally denominated in the currency of the plan.
Asset allocation targets are established based on the long-term return, volatility and correlation characteristics of
the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Actual allocations vary from
target due to market changes and are reviewed regularly. Assets are routinely rebalanced through contributions,
benefit payments, and otherwise as deemed appropriate. The actual and target allocations at the measurement
date are as follows:
2017 Target Allocation
2017 Actual Allocation
2016 Actual Allocation
U.S.
International
U.S.
International
U.S.
International
46-66%
32-42%
0-10%
—
46-57%
41-53%
0-2%
—
58%
34%
7%
1%
100%
53%
46%
1%
—%
100%
65%
28%
7%
—%
100%
60%
38%
1%
1%
100%
Asset Category
Equity securities
Debt securities
Real estate/other
Cash
Total
In 2017, the 8.0% expected return for U.S. plan assets was based on a weighted average of estimated long-term
returns of major asset classes and the historical performance of plan assets. The estimated long-term return for
equity, debt securities, and real estate is 8.2%, 5.0%, and 7.0%, respectively. In determining asset class returns, we
take into account historical long-term returns and the value of active management, as well as other economic and
market factors.
In 2017, the 6.1% expected rate of return for international plan assets was based on a weighted average return for
plans outside the U.S., which vary significantly in size, asset structure and expected returns. The expected asset
return for the U.K. plan, which represents over 80% of the assets of our International plans, is 6.6% and was
derived from expected equity and debt security returns of 7.3% and 3.5%, respectively.
97
The following table summarizes pension plan assets measured at fair value by asset class (see Note 14, Fair Value
Measurements, for definition of the levels):
30 September 2017
30 September 2016
Total
Level 1 Level 2 Level 3
Total
Level 1
Level 2
Level 3
U.S. Qualified Pension Plans
Cash and cash equivalents
$
13.6 $
13.6 $
598.6
276.5
787.0
985.7
207.8
Equity securities
Equity mutual funds
Equity pooled funds
Fixed income:
Bonds (government
and corporate)
Real estate pooled funds
Total U.S. Qualified Pension
Plans
International Pension Plans
Cash and cash equivalents
Equity pooled funds
Fixed income pooled funds
Other pooled funds
Insurance contracts
Total International Pension
Plans
— $
—
598.6
276.5
—
— 787.0
— $
—
—
—
12.7 $
12.7 $
— $
637.0
300.2
815.5
637.0
300.2
—
—
— 815.5
—
—
—
—
—
— 985.7
—
747.8
— 747.8
—
— 207.8
192.1
—
— 192.1
$2,869.2 $ 888.7 $1,772.7 $ 207.8 $2,705.3 $ 949.9 $1,563.3 $ 192.1
$
7.3 $
821.4
651.3
18.6
41.4
— $
7.3 $
— 821.4
— 651.3
—
10.8
—
—
— $
—
—
7.8
41.4
6.6 $
6.6 $
— $
854.8
486.9
17.0
45.8
— 854.8
— 486.9
—
—
9.7
—
—
—
—
7.3
45.8
$1,540.0 $
7.3 $1,483.5 $
49.2 $1,411.1 $
6.6 $1,351.4 $
53.1
The above table in 2016 includes plan assets associated with discontinued businesses. Upon completion of the
spin-off of Versum on 1 October 2016, the Company transferred approximately $3 of international plan assets.
The following table summarizes changes in fair value of the pension plan assets classified as Level 3, by asset
class:
30 September 2015
Actual return on plan assets:
Assets held at end of year
Assets sold during the period
Purchases, sales, and settlements, net
30 September 2016
Actual return on plan assets:
Assets held at end of year
Assets sold during the period
Purchases, sales, and settlements, net
30 September 2017
Real Estate
Pooled Funds
Other
Pooled Funds
Insurance
Contracts
$
$
$
174.2 $
6.6 $
45.3 $
17.9
—
—
192.1 $
15.7
—
—
207.8 $
.1
.3
.3
7.3 $
1.2
.3
(1.0)
7.8 $
3.2
—
(2.7)
45.8 $
(1.0)
—
(3.4)
41.4 $
Total
226.1
21.2
.3
(2.4)
245.2
15.9
.3
(4.4)
257.0
The descriptions and fair value methodologies for the U.S. and International pension plan assets are as follows:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity.
98
Equity Securities
Equity securities are valued at the closing market price reported on a U.S. or international exchange where the
security is actively traded and are therefore classified as Level 1 assets.
Mutual and Pooled Funds
Shares of mutual funds are valued at the net asset value (NAV) of the fund and are classified as Level 1 assets.
Units of pooled funds are valued at the per unit NAV determined by the fund manager and are classified as Level 2
assets.
Corporate and Government Bonds
Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market
prices from observable pricing sources at the reporting date or valued based upon comparable securities with
similar yields and credit ratings.
Real Estate Pooled Funds
Real estate pooled funds are classified as Level 3 assets, as they are carried at the estimated fair value of the
underlying properties. Estimated fair value is calculated utilizing a combination of key inputs, such as revenue and
expense growth rates, terminal capitalization rates, and discount rates. These key inputs are consistent with
practices prevailing within the real estate investment management industry.
Other Pooled Funds
Other pooled funds classified as Level 2 assets are valued at the NAV of the shares held at year end, which is
based on the fair value of the underlying investments. Securities and interests classified as Level 3 are carried at
the estimated fair value. The estimated fair value is based on the fair value of the underlying investment values,
which includes estimated bids from brokers or other third-party vendor sources that utilize expected cash flow
streams and other uncorroborated data including counterparty credit quality, default risk, discount rates, and the
overall capital market liquidity.
Insurance Contracts
Insurance contracts are classified as Level 3 assets, as they are carried at contract value, which approximates the
estimated fair value. The estimated fair value is based on the fair value of the underlying investment of the
insurance company.
Contributions and Projected Benefit Payments
Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2017 were $64.1.
Contributions for funded plans resulted primarily from contractual and regulatory requirements. Benefit payments to
unfunded plans were due primarily to the timing of retirements and cost reduction actions. We anticipate
contributing $50 to $70 to the defined benefit pension plans in 2018. These contributions are anticipated to be
driven primarily by contractual and regulatory requirements for funded plans and benefit payments for unfunded
plans, which are dependent upon timing of retirements.
Projected benefit payments, which reflect expected future service, are as follows:
2018
2019
2020
2021
2022
2023-2027
$
U.S.
158.5 $
163.4
167.3
171.4
177.2
938.5
International
50.9
53.4
53.8
56.8
59.3
333.3
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may
vary significantly from these estimates.
99
Defined Contribution Plans
We maintain a nonleveraged employee stock ownership plan (ESOP) which forms part of the Air Products and
Chemicals, Inc. Retirement Savings Plan (RSP). The ESOP was established in May of 2002. The balance of the
RSP is a qualified defined contribution plan including a 401(k) elective deferral component. A substantial portion of
U.S. employees are eligible and participate.
We treat dividends paid on ESOP shares as ordinary dividends. Under existing tax law, we may deduct dividends
which are paid with respect to shares held by the plan. Shares of the Company’s common stock in the ESOP
totaled 2,483,225 as of 30 September 2017.
Our contributions to the RSP include a Company core contribution for certain eligible employees who do not receive
their primary retirement benefit from the defined benefit pension plans, with the core contribution based on a
percentage of pay that is dependent on years of service. For the RSP, we also make matching contributions on
overall employee contributions as a percentage of the employee contribution and include an enhanced contribution
for certain eligible employees that do not participate in the defined benefit pension plans. Worldwide contributions,
excluding discontinued operations, expensed to income in 2017, 2016, and 2015 were $33.7, $34.6, and $36.8,
respectively.
Other Postretirement Benefits
We provide other postretirement benefits consisting primarily of healthcare benefits to certain U.S. retirees who
meet age and service requirements. The healthcare benefit is a continued medical benefit until the retiree reaches
age 65. Healthcare benefits are contributory, with contributions adjusted periodically. The retiree medical costs are
capped at a specified dollar amount, with the retiree contributing the remainder.
The cost of our other postretirement benefit plans includes the following components:
Service cost
Interest cost
Amortization of net actuarial loss
Net Periodic Postretirement Cost
Less: Discontinued Operations
Net Periodic Postretirement Cost – Continuing Operations
$
$
$
$
2017
2016
1.1 $
1.6
.2
2.9 $
— $
2.9 $
2.2 $
2.0
.7
4.9 $
(.4) $
4.5 $
2015
2.8
2.2
.8
5.8
(.7)
5.1
We calculate net periodic postretirement cost for a given fiscal year based on assumptions developed at the end of
the previous fiscal year. The discount rate assumption used in the calculation of net periodic postretirement cost for
2017, 2016, and 2015 was 1.9%, 2.4%, and 2.6%, respectively.
We measure the other postretirement benefits as of 30 September. The discount rate assumption used in the
calculation of the accumulated postretirement benefit obligation was 2.4% and 1.9% for 2017 and 2016,
respectively.
The following table reflects the change in the accumulated postretirement benefit obligation and the amounts
recognized in the consolidated balance sheets:
Obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Curtailment gain
Benefits paid
Obligation at End of Year
Amounts Recognized
Accrued liabilities
Noncurrent liabilities
100
$
$
$
2017
86.3 $
1.1
1.6
(7.2)
(3.5)
(11.3)
67.0 $
10.0 $
57.0
2016
86.9
2.2
2.0
7.5
—
(12.3)
86.3
11.4
74.9
In 2016, the above table included the projected benefit obligations associated with discontinued businesses.
The changes in benefit obligation that have been recognized in other comprehensive income on a pretax basis
during 2017 and 2016 for our other postretirement benefit plans consist of the following:
Net actuarial loss (gain) arising during the period
Amortization of net actuarial loss
Total
2017
(10.7) $
(.2)
(10.9) $
2016
7.5
(.7)
6.8
$
$
The net actuarial loss recognized in accumulated other comprehensive loss on a pretax basis was $7.8 at 30
September 2017 and $18.7 at 30 September 2016. Of the 30 September 2017 net actuarial loss, it is estimated that
$.3, which excludes discontinued operations, will be amortized into net periodic postretirement cost during fiscal
year 2018.
The effect of a change in the healthcare trend rate is tempered by a cap on the average retiree medical cost. The
expected per capita claims costs are currently assumed to be greater than the annual cap; therefore, the assumed
healthcare cost trend rate, ultimate trend rate, and the year the ultimate trend rate is reached in 2017 and 2016
does not apply as it has no impact on plan obligations.
Projected benefit payments are as follows:
2018
2019
2020
2021
2022
2023-2027
$
10.1
9.5
9.0
8.4
7.7
24.2
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may
vary significantly from these estimates.
17. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are involved in various legal proceedings, including commercial, competition, environmental, health, safety,
product liability, and insurance matters. In September 2010, the Brazilian Administrative Council for Economic
Defense (CADE) issued a decision against our Brazilian subsidiary, Air Products Brasil Ltda., and several other
Brazilian industrial gas companies for alleged anticompetitive activities. CADE imposed a civil fine of R$179.2
million (approximately $57 at 30 September 2017) on Air Products Brasil Ltda. This fine was based on a
recommendation by a unit of the Brazilian Ministry of Justice, whose investigation began in 2003, alleging violation
of competition laws with respect to the sale of industrial and medical gases. The fines are based on a percentage of
our total revenue in Brazil in 2003.
We have denied the allegations made by the authorities and filed an appeal in October 2010 with the Brazilian
courts. On 6 May 2014, our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE
has appealed that ruling and the matter remains pending. We, with advice of our outside legal counsel, have
assessed the status of this matter and have concluded that, although an adverse final judgment after exhausting all
appeals is possible, such a judgment is not probable. As a result, no provision has been made in the consolidated
financial statements. We estimate the maximum possible loss to be the full amount of the fine of R$179.2 million
(approximately $57 at 30 September 2017) plus interest accrued thereon until final disposition of the proceedings.
Other than this matter, we do not currently believe there are any legal proceedings, individually or in the aggregate,
that are reasonably possible to have a material impact on our financial condition, results of operations, or cash
flows.
101
ENVIRONMENTAL
In the normal course of business, we are involved in legal proceedings under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA: the federal Superfund law); Resource Conservation and
Recovery Act (RCRA); and similar state and foreign environmental laws relating to the designation of certain sites
for investigation or remediation. Presently, there are approximately 32 sites on which a final settlement has not
been reached where we, along with others, have been designated a potentially responsible party by the
Environmental Protection Agency or are otherwise engaged in investigation or remediation, including cleanup
activity at certain of our current and former manufacturing sites. We continually monitor these sites for which we
have environmental exposure.
Accruals for environmental loss contingencies are recorded when it is probable that a liability has been incurred and
the amount of loss can be reasonably estimated. The consolidated balance sheets at 30 September 2017 and 2016
included an accrual of $83.6 and $81.4, respectively, primarily as part of other noncurrent liabilities. The
environmental liabilities will be paid over a period of up to 30 years. We estimate the exposure for environmental
loss contingencies to range from $83 to a reasonably possible upper exposure of $97 as of 30 September 2017.
Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent
uncertainties in evaluating environmental exposures. Using reasonably possible alternative assumptions of the
exposure level could result in an increase to the environmental accrual. Due to the inherent uncertainties related to
environmental exposures, a significant increase to the reasonably possible upper exposure level could occur if a
new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or a
significant increase in our proportionate share occurs. We do not expect that any sum we may have to pay in
connection with environmental matters in excess of the amounts recorded or disclosed above would have a
material adverse impact on our financial position or results of operations in any one year.
Pace
At 30 September 2017, $28.9 of the environmental accrual was related to the Pace facility.
In 2006, we sold our Amines business, which included operations at Pace, Florida, and recognized a liability for
retained environmental obligations associated with remediation activities at Pace. We are required by the Florida
Department of Environmental Protection (FDEP) and the United States Environmental Protection Agency
(USEPA) to continue our remediation efforts. We estimated that it would take a substantial period of time to
complete the groundwater remediation, and the costs through completion were estimated to range from $42 to $52.
As no amount within the range was a better estimate than another, we recognized a pretax expense in fiscal 2006
of $42 as a component of income from discontinued operations and recorded an environmental accrual of $42 in
continuing operations on the consolidated balance sheets. There has been no change to the estimated exposure
range related to the Pace facility.
We have implemented many of the remedial corrective measures at the Pace facility required under 1995 Consent
Orders issued by the FDEP and the USEPA. Contaminated soils have been bioremediated, and the treated soils
have been secured in a lined on-site disposal cell. Several groundwater recovery systems have been installed to
contain and remove contamination from groundwater. We completed an extensive assessment of the site to
determine how well existing measures are working, what additional corrective measures may be needed, and
whether newer remediation technologies that were not available in the 1990s might be suitable to more quickly and
effectively remove groundwater contaminants. Based on assessment results, we completed a focused feasibility
study that has identified alternative approaches that may more effectively remove contaminants. We continue to
review alternative remedial approaches with the FDEP and recently started additional field work to support the
design of an improved groundwater recovery network with the objective of targeting areas of higher contaminant
concentration and avoiding areas of high groundwater iron which has proven to be a significant operability issue for
the project. In the first quarter of 2015, we entered into a new Consent Order with the FDEP requiring us to continue
our remediation efforts at the Pace facility. The costs we are incurring under the new Consent Order are expected to
be consistent with our previous estimates.
102
Piedmont
At 30 September 2017, $16.7 of the environmental accrual was related to the Piedmont site.
On 30 June 2008, we sold our Elkton, Maryland, and Piedmont, South Carolina, production facilities and the related
North American atmospheric emulsions and global pressure sensitive adhesives businesses. In connection with the
sale, we recognized a liability for retained environmental obligations associated with remediation activities at the
Piedmont site. This site is under active remediation for contamination caused by an insolvent prior owner. We are
required by the South Carolina Department of Health and Environmental Control (SCDHEC) to address both
contaminated soil and groundwater. Numerous areas of soil contamination have been addressed, and
contaminated groundwater is being recovered and treated. On 13 June 2017, the SCDHEC issued its final approval
to the site-wide feasibility study, and with that we will be moving towards a record of decision for the Piedmont site
and into the final remedial design phase of this project. We estimate that it will take until 2019 to complete source
area remediation, with groundwater recovery and treatment continuing through 2029. Thereafter, we are expecting
this site to go into a state of monitored natural attenuation through 2047. We recognized a pretax expense in 2008
of $24 as a component of income from discontinued operations and recorded an environmental liability of $24 in
continuing operations on the consolidated balance sheets. There have been no significant changes to the estimated
exposure.
Pasadena
At 30 September 2017, $12.1 of the environmental accrual was related to the Pasadena site.
During the fourth quarter of 2012, management committed to permanently shutting down our polyurethane
intermediates (PUI) production facility in Pasadena, Texas. In shutting down and dismantling the facility, we have
undertaken certain obligations related to soil and groundwater contaminants. We have been pumping and treating
groundwater to control off-site contaminant migration in compliance with regulatory requirements and under the
approval of the Texas Commission on Environmental Quality (TCEQ). We estimate that the pump and treat system
will continue to operate until 2042. We plan to perform additional work to address other environmental obligations at
the site. This additional work includes remediating, as required, impacted soils, investigating groundwater west of
the former PUI facility, performing post closure care for two closed RCRA surface impoundment units, and
establishing engineering controls. In 2012, we estimated the total exposure at this site to be $13. There have been
no significant changes to the estimated exposure.
ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations are primarily associated with on-site long-term supply contracts under which we
have built a facility on land owned by the customer and are obligated to remove the facility at the end of the contract
term. The retirement of assets includes the contractually required removal of a long-lived asset from service and
encompasses the sale, removal, abandonment, recycling, or disposal of the assets as required at the end of the
contract terms. The timing and/or method of settlement of these obligations are conditional on a future event that
may or may not be within our control.
Changes to the carrying amount of our asset retirement obligations are as follows:
Balance at 30 September 2015
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2016
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2017
$
$
$
109.4
10.4
(4.4)
5.4
(.9)
119.9
22.7
(4.1)
5.8
.4
144.7
These obligations are primarily reflected in "Other noncurrent liabilities" on the consolidated balance sheets.
103
GUARANTEES AND WARRANTIES
In April 2015, we entered into joint venture arrangements in Saudi Arabia. An equity bridge loan has been provided
to the joint venture until 2020 to fund equity commitments. We guaranteed the repayment of our 25% share of this
loan, and our venture partner guaranteed repayment of its share. Our maximum exposure under the guarantee is
approximately $100. As of 30 September 2017 and 2016, we recorded a noncurrent liability of $94.4 for our
obligation to make future equity contributions based on our proportionate share of the advances received by the
joint venture under the loan.
Air Products has also entered into a long-term sale of equipment contract with the joint venture to engineer,
procure, and construct the industrial gas facilities that will supply gases to Saudi Aramco. We have provided bank
guarantees to the joint venture of up to $262 to support our performance under the contract. Exposures under the
guarantees decline over time and will be completely extinguished after completion of the project.
We are party to an equity support agreement and operations guarantee related to an air separation facility
constructed in Trinidad for a venture in which we own 50%. At 30 September 2017, maximum potential payments
under joint and several guarantees were $28.0. Exposures under the guarantees decline over time and will be
completely extinguished by 2024.
During the first quarter of 2014, we sold the remaining portion of our Homecare business and entered into an
operations guarantee related to obligations under certain homecare contracts assigned in connection with the
transaction. Our maximum potential payment under the guarantee is £20 million (approximately $25 at 30
September 2017), and our exposure will be extinguished by 2020.
To date, no equity contributions or payments have been made since the inception of these guarantees. The fair
value of the above guarantees is not material.
We, in the normal course of business operations, have issued product warranties related to equipment sales. Also,
contracts often contain standard terms and conditions which typically include a warranty and indemnification to the
buyer that the goods and services purchased do not infringe on third-party intellectual property rights. The provision
for estimated future costs relating to warranties is not material to the consolidated financial statements.
We do not expect that any sum we may have to pay in connection with guarantees and warranties will have a
material adverse effect on our consolidated financial condition, liquidity, or results of operations.
UNCONDITIONAL PURCHASE OBLIGATIONS
We are obligated to make future payments under unconditional purchase obligations as summarized below:
2018
2019
2020
2021
2022
Thereafter
Total
$
$
822
234
275
309
285
4,608
6,533
Approximately $5,600 of our unconditional purchase obligations relate to helium purchases, which include crude
feedstock supply to multiple helium refining plants in North America as well as refined helium purchases from
sources around the world. As a rare byproduct of natural gas production in the energy sector, these helium sourcing
agreements are medium- to long-term and contain take-or-pay provisions. The refined helium is distributed globally
and sold as a merchant gas, primarily under medium-term requirements contracts. While contract terms in the
energy sector are longer than those in merchant, helium is a rare gas used in applications with few or no
substitutions because of its unique physical and chemical properties.
Approximately $280 of our long-term unconditional purchase obligations relate to feedstock supply for numerous
HyCO (hydrogen, carbon monoxide, and syngas) facilities. The price of feedstock supply is principally related to the
price of natural gas. However, long-term take-or-pay sales contracts to HyCO customers are generally matched to
the term of the feedstock supply obligations and provide recovery of price increases in the feedstock supply. Due to
the matching of most long-term feedstock supply obligations to customer sales contracts, we do not believe these
purchase obligations would have a material effect on our financial condition or results of operations.
104
The unconditional purchase obligations also include other product supply and purchase commitments and electric
power and natural gas supply purchase obligations, which are primarily pass-through contracts with our customers.
Purchase commitments to spend approximately $300 for additional plant and equipment are included in the
unconditional purchase obligations in 2018. In addition, we have purchase commitments totaling approximately
$180 in 2018 relating to our long-term sale of equipment project for Saudi Aramco’s Jazan oil refinery.
18. CAPITAL STOCK
Common Stock
Authorized common stock consists of 300 million shares with a par value of $1 per share. As of 30 September
2017, 249 million shares were issued, with 218 million outstanding.
On 15 September 2011, the Board of Directors authorized the repurchase of up to $1,000 of our outstanding
common stock. We repurchase shares pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of
1934, as amended, through repurchase agreements established with several brokers. We did not purchase any of
our outstanding shares during fiscal year 2017. At 30 September 2017, $485.3 in share repurchase authorization
remains.
The following table reflects the changes in common shares:
Year ended 30 September
Number of Common Shares Outstanding
Balance, beginning of year
Issuance of treasury shares for stock option and award plans
Balance, end of year
Preferred Stock
2017
2016
2015
217,350,825
995,249
218,346,074
215,359,113
1,991,712
217,350,825
213,538,144
1,820,969
215,359,113
Authorized preferred stock consists of 25 million shares with a par value of $1 per share, of which 2.5 million were
designated as Series A Junior Participating Preferred Stock. There were no shares issued or outstanding as of 30
September 2017 and 2016.
19. SHARE-BASED COMPENSATION
We have various share-based compensation programs, which include deferred stock units, stock options, and
restricted stock. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from
treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted
stock awards. Share information presented is on a total company basis. As of 30 September 2017, there were
4,922,382 shares available for future grant under our Long-Term Incentive Plan (LTIP), which is shareholder
approved.
In connection with the spin-off of Versum, the Company adjusted the number of deferred stock units and stock
options pursuant to existing anti-dilution provisions in the LTIP to preserve the intrinsic value of the awards
immediately before and after the separation. The outstanding awards will continue to vest over the original vesting
period defined at the grant date. Outstanding awards at the time of spin-off were primarily converted into awards of
the holders' employer following the separation.
Stock awards held upon separation were adjusted based upon the conversion ratio of Air Products' New York Stock
Exchange (“NYSE”) volume weighted-average closing stock price on 30 September 2016 ($150.35) to the NYSE
volume weighted-average opening stock price on 3 October 2016 ($140.38), or 1.071. The adjustment to the
awards did not result in incremental fair value, and no incremental compensation expense was recorded related to
the conversion of these awards.
105
Share-based compensation cost recognized in the consolidated income statements is summarized below:
Before-Tax Share-Based Compensation Cost – Total
Before-Tax Share-Based Compensation Cost – Discontinued Operations
Before-Tax Share-Based Compensation Cost – Continuing Operations
Income tax benefit – Continuing Operations
After-Tax Share-Based Compensation Cost – Continuing Operations
$
$
$
2017
40.7 $
.8
39.9 $
(14.0)
25.9 $
2016
37.6 $
6.6
31.0 $
(10.8)
20.2 $
2015
45.7
6.2
39.5
(13.8)
25.7
Before-tax share-based compensation cost is primarily included in selling and administrative expense on our
consolidated income statements. The amount of share-based compensation cost capitalized in 2017, 2016, and
2015 was not material.
On a total company basis, before-tax share-based compensation cost by type of program was as follows:
Deferred stock units
Stock options
Restricted stock
Before-Tax Share-Based Compensation Cost – Total
Deferred Stock Units
2017
34.5 $
1.4
4.8
40.7 $
2016
29.9 $
4.2
3.5
37.6 $
2015
28.8
12.6
4.3
45.7
$
$
We have granted deferred stock units to executives, selected employees, and outside directors. These deferred
stock units entitle the recipient to one share of common stock upon vesting, which is conditioned, for employee
recipients, on continued employment during the deferral period and may be conditioned on achieving certain
performance targets. We grant deferred stock unit awards with a two- to five-year deferral period that is subject to
payout upon death, disability, or retirement. Deferred stock units issued to outside directors are paid after service on
the Board of Directors ends at the time elected by the director (not to exceed 10 years after service ends). We
generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period;
however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for
vesting upon retirement.
Market-based deferred stock units vest as long as the employee continues to be employed by the Company and
upon the achievement of the performance target. The performance target, which is approved by the Compensation
Committee, is the Company’s total shareholder return (share price appreciation and dividends paid) in relation to a
defined peer group over a three year performance period. In 2017, we granted 117,692 market-based deferred
stock units that are earned out at the end of the three-year performance period beginning 1 October 2016 and
ending 30 September 2019. In 2016, we granted 130,167 market-based deferred stock units that are earned out at
the end of the three-year performance period beginning 1 October 2015 and ending 30 September 2018.
The fair value of market-based deferred stock units was estimated using a Monte Carlo simulation model as these
equity awards are tied to a market condition. The model utilizes multiple input variables that determine the
probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We
generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period. The
calculation of the fair value of market-based deferred stock units used the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2017
2016
20.6%
1.4%
2.5%
20.5%
1.2%
2.2%
The estimated grant-date fair value of market-based deferred stock units was $156.87 and $135.49 per unit in 2017
and 2016, respectively.
In addition, during 2017, we granted 165,121 time-based deferred stock units at a weighted average grant-date fair
value of $143.75.
106
Deferred Stock Units
Outstanding at 30 September 2016
Equitable adjustment upon separation(A)
Surrender upon separation(B)
Granted
Paid out
Forfeited/adjustments
Outstanding at 30 September 2017
Shares (000)
Weighted Average
Grant-
Date Fair Value
119.44
—
132.88
148.89
83.65
121.99
127.29
1,001 $
65
(89)
283
(235)
(50)
975 $
(A)
(B)
Applicable deferred stock units have been adjusted by the conversion ratio of 1.071 to preserve the intrinsic value
immediately before and after the spin-off of Versum.
In connection with the spin-off of Versum, EMD employees surrendered their outstanding Air Products equity awards,
which were converted into Versum equity awards of equivalent fair value.
Cash payments made for deferred stock units were $2.1, $2.9, and $9.6 in 2017, 2016, and 2015, respectively. As
of 30 September 2017, there was $39.0 of unrecognized compensation cost related to deferred stock units. The
cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value of deferred stock
units paid out during 2017, 2016, and 2015, including shares vested in prior periods, was $36.6, $41.6, and $35.5,
respectively.
Stock Options
We have granted awards of options to purchase common stock to executives and selected employees. The
exercise price of stock options equals the market price of our stock on the date of the grant. Options generally vest
incrementally over three years, and remain exercisable for ten years from the date of grant. In 2017 and 2016, no
stock options were awarded.
Fair values of stock options were estimated using a Black Scholes model that used the assumptions noted in the
table below. Expected volatility and expected dividend yield are based on actual historical experience of our stock
and dividends over the historical period equal to the expected life. The expected life represents the period of time
that options granted are expected to be outstanding based on an analysis of Company-specific historical exercise
data. Ranges are used when certain groups of employees exhibit different behavior, such as timing of exercise. The
risk-free rate is based on the U.S. Treasury Strips with terms equal to the expected time of exercise as of the grant
date.
Expected volatility
Expected dividend yield
Expected life (in years)
Risk-free interest rate
The weighted average grant-date fair value of options granted during 2015 was $37.19 per option.
2015
30.3%
2.6%
7.5
2.2%
107
A summary of stock option activity is presented below:
Stock Options
Outstanding at 30 September 2016
Equitable adjustment upon separation(A)
Surrender upon separation(B)
Exercised
Forfeited
Outstanding at 30 September 2017
Exercisable at 30 September 2017
Stock Options
Outstanding at 30 September 2017
Exercisable at 30 September 2017
Shares (000)
Weighted Average
Exercise Price
3,916 $
277
(102)
(886)
(3)
3,202 $
3,149 $
90.28
—
97.63
80.76
105.28
84.85
84.00
Weighted Average
Remaining Contractual
Term (in years)
Aggregate Intrinsic
Value
4.3 $
4.3 $
213
212
(A)
(B)
Applicable deferred stock units have been adjusted by the conversion ratio of 1.071 to preserve the intrinsic value
immediately before and after the spin-off of Versum.
In connection with the spin-off of Versum, EMD employees surrendered their outstanding Air Products equity awards,
which were converted into Versum equity awards of equivalent fair value.
The aggregate intrinsic value represents the amount by which our closing stock price of $151.22 as of 30
September 2017 exceeds the exercise price multiplied by the number of in-the-money options outstanding or
exercisable.
On a total company basis, the intrinsic value of stock options exercised during 2017, 2016, and 2015 was $57.3,
$115.3, and $115.5, respectively.
Compensation cost is generally recognized over the stated vesting period consistent with the terms of the
arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition is accelerated for
retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. As of
30 September 2017, there was $.1 of unrecognized compensation cost related to nonvested stock options, which is
expected to be recognized over a weighted average period of 0.2 years.
Cash received from option exercises during 2017 was $68.4. The total tax benefit realized from stock option
exercises in 2017 was $19.9, of which $13.9 was the excess tax benefit.
Restricted Stock
The grant-date fair value of restricted stock is estimated on the date of grant based on the closing price of the stock,
and compensation cost is generally amortized to expense on a straight-line basis over the vesting period during
which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals
who would meet the requirements for vesting of awards upon their retirement.
We have issued shares of restricted stock to certain officers. Participants are entitled to cash dividends and to vote
their respective shares. Restrictions on shares lift in one to four years or upon the earlier of retirement, death, or
disability. The shares are nontransferable while subject to forfeiture.
108
A summary of restricted stock activity is presented below:
Restricted Stock
Outstanding at 30 September 2016
Vested
Outstanding at 30 September 2017
Shares (000)
Weighted Average
Grant-
Date Fair Value
128.16
113.50
135.74
85 $
(29)
56 $
As of 30 September 2017, there was $.4 of unrecognized compensation cost related to restricted stock awards. The
cost is expected to be recognized over a weighted average period of 1.4 years. The total fair value of restricted
stock vested during 2017, 2016, and 2015 was $4.1, $4.3, and $1.4, respectively.
20. ACCUMULATED OTHER COMPREHENSIVE LOSS
The table below summarizes changes in AOCL, net of tax, attributable to Air Products:
Derivatives
qualifying
as hedges
Foreign
currency
translation
adjustments
Pension and
postretirement
benefits
Total
Balance at 30 September 2014
Other comprehensive loss before reclassifications
Amounts reclassified from AOCL
Net current period other comprehensive loss
Amount attributable to noncontrolling interest
Balance at 30 September 2015
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCL
Net current period other comprehensive income
(loss)
Amount attributable to noncontrolling interest
Balance at 30 September 2016
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCL
Net current period other comprehensive income
Spin-off of Versum
Amount attributable to noncontrolling interest
Balance at 30 September 2017
$
$
$
$
$
$
$
(28.5) $
(35.0)
20.8
(14.2) $
.2
(42.9) $
13.7
(36.0)
(22.3) $
(.2)
(65.0) $
(12.6)
24.2
11.6 $
.2
(.1)
(53.1) $
(268.7) $
(699.3)
(944.7) $ (1,241.9)
(1,012.8)
(278.5)
—
97.0
117.8
(699.3) $
(181.5) $
(895.0)
(11.5)
.3
(11.0)
(956.5) $
(1,126.5) $ (2,125.9)
9.9
2.7
(335.1)
(311.5)
87.2
53.9
12.6 $
(247.9) $
(257.6)
5.4
(.4)
4.8
(949.3) $
(1,374.0) $ (2,388.3)
101.9
57.3
251.6
110.7
159.2 $
362.3 $
6.0
3.0
5.3
.8
340.9
192.2
533.1
11.5
3.7
(787.1) $
(1,007.2) $ (1,847.4)
109
The table below summarizes the reclassifications out of accumulated other comprehensive loss and the affected
line item on the consolidated income statements:
(Gain) Loss on Cash Flow Hedges, net of tax
Sales/Cost of sales
Other income (expense), net
Interest expense
Total (Gain) Loss on Cash Flow Hedges, net of tax
Currency Translation Adjustment
Business restructuring and cost reduction actions(A)
Income from discontinued operations, net of tax(B)
Total Currency Translation Adjustment
Pension and Postretirement Benefits, net of tax(C)
2017
2016
2015
$
$
$
$
$
18.3 $
5.1
.8
24.2 $
8.2 $
49.1
57.3 $
.2 $
(46.2)
10.0
(36.0) $
— $
2.7
2.7 $
.6
16.9
3.3
20.8
—
—
—
110.7 $
87.2 $
97.0
(A)
(B)
(C)
The fiscal year 2017 impact relates to the planned sale of a non-industrial gas hardgoods business in the Industrial
Gases – Americas segment recorded in the third quarter.
The fiscal year 2017 impact relates to the sale of PMD during the second quarter. The fiscal year 2016 impact primarily
relates to the sale of an equity affiliate in the first quarter.
The components include items such as prior service cost amortization, actuarial loss amortization, and settlements and
are reflected in net periodic benefit cost. Refer to Note 16, Retirement Benefits.
21. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS):
30 September
Numerator
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
Denominator (in millions)
Weighted average common shares — Basic
Effect of dilutive securities
Employee stock option and other award plans
Weighted average common shares — Diluted
Basic EPS Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
Diluted EPS Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued operations
Net Income Attributable to Air Products
2017
2016
2015
1,134.4 $
1,866.0
3,000.4 $
1,099.5 $
(468.4)
933.3
344.6
631.1 $
1,277.9
218.0
1.8
219.8
5.20 $
8.56
13.76 $
5.16 $
8.49
13.65 $
216.4
1.9
218.3
5.08 $
(2.16)
2.92 $
5.04 $
(2.15)
2.89 $
214.9
2.4
217.3
4.34
1.61
5.95
4.29
1.59
5.88
$
$
$
$
$
$
110
Diluted EPS attributable to Air Products reflects the potential dilution that could occur if stock options or other share-
based awards were exercised or converted into common stock. The dilutive effect is computed using the treasury
stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise
are used by the Company to purchase common stock at the average market price during the period. The
incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would
have been dilutive, are included in the denominator of the diluted EPS calculation. There were no antidilutive
outstanding share-based awards in fiscal year 2017. Outstanding share-based awards of .2 million shares were
antidilutive and therefore excluded from the computation of diluted EPS for 2016 and 2015.
22. INCOME TAXES
The following table summarizes the income of U.S. and foreign operations before taxes:
Income from Continuing Operations before Taxes
United States
Foreign
Income from equity affiliates
Total
2017
2016
2015
$
$
669.8 $
666.2
80.1
1,416.1 $
631.7 $
775.9
147.0
1,554.6 $
507.5
606.3
152.3
1,266.1
The following table shows the components of the provision for income taxes:
Current Tax Provision
Federal
State
Foreign
Deferred Tax Provision
Federal
State
Foreign
2017
2016
$
62.8 $
171.0 $
7.0
229.1
298.9
1.4
6.0
(45.4)
(38.0)
260.9 $
21.2
178.6
370.8
45.0
2.8
14.0
61.8
432.6 $
2015
117.0
8.1
165.7
290.8
1.5
17.8
(9.9)
9.4
300.2
Income Tax Provision
$
The effective tax rate equals the income tax provision divided by income from continuing operations before taxes. A
reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is as
follows:
(Percent of income before taxes)
U.S. federal statutory tax rate
State taxes, net of federal benefit
Income from equity affiliates
Foreign tax differentials
U.S. taxes on foreign earnings
Domestic production activities
Non-deductible goodwill impairment charge
Non-U.S. subsidiary tax election
Business separation costs
Share-based compensation
Other
Effective Tax Rate
111
2017
35.0%
1.0
(2.0)
(7.9)
(2.2)
(.8)
3.6
(7.7)
.2
(1.2)
.4
18.4%
2016
35.0%
1.2
(3.3)
(6.6)
(3.1)
(.8)
—
—
4.2
—
1.2
27.8%
2015
35.0%
1.1
(4.0)
(5.9)
(2.1)
(1.0)
—
—
.2
—
.4
23.7%
Total company income tax payments, net of refunds, were $1,348.8 in 2017, $440.8 in 2016, and $392.9 in 2015.
Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates lower than
the U.S. federal statutory tax rate of 35.0%. Foreign earnings are subject to local country tax rates that are
generally below the 35.0% U.S. federal statutory rate and include tax holidays and incentives. As a result, our
effective non-U.S. tax rate is typically lower than the U.S. statutory rate. If foreign pre-tax earnings increase relative
to U.S. pre-tax earnings, this rate difference could increase. The jurisdictions in which we earn pre-tax earnings
subject to lower foreign taxes than the U.S. statutory rate include South Korea, Taiwan, the United Kingdom, China,
Canada, Spain and Belgium. As approximately 80% of the undistributed earnings are in countries with a statutory
tax rate of 24% or higher, we do not generate a disproportionate amount of taxable income in countries with very
low tax rates. U.S. taxes on foreign earnings are a tax benefit primarily due to foreign tax credits on the repatriation
of foreign earnings to the U.S.
In 2017, the effective tax rate was impacted by a tax election made with respect to a Chilean holding company
resulting in an income tax benefit of $111.4 on tax losses related to investments in Chile. The effective tax rate was
also impacted by a goodwill impairment charge of $145.3 for which no tax benefits were available. See Note 10,
Goodwill, for additional information regarding the impairment charge.
During the first quarter of fiscal year 2017, we adopted new accounting guidance that requires excess tax benefits
and deficiencies from share-based compensation to be recognized in the income statement rather than in additional
paid-in capital on the balance sheet. As a result of applying this change prospectively, we recognized $17.6 of
excess tax benefits in our provision for income taxes during fiscal year 2017. See Note 2, New Accounting
Guidance, for additional information.
In 2016, the effective tax rate was impacted by tax costs of $51.8 incurred in anticipation of the tax-free spin-off of
Versum, primarily for a dividend declared during the third quarter of 2016 to repatriate $443.8 from a subsidiary in
South Korea to the U.S. Previously, most of these foreign earnings were considered to be indefinitely reinvested. In
addition, a tax benefit was not available on a significant portion of the business separation costs. See Note 4,
Materials Technologies Separation, for additional information.
The significant components of deferred tax assets and liabilities are as follows:
30 September
Gross Deferred Tax Assets
Retirement benefits and compensation accruals
Tax loss carryforwards
Tax credits and other tax carryforwards
Reserves and accruals
Partnership and other investments
Currency losses
Other
Valuation allowance
Deferred Tax Assets
Gross Deferred Tax Liabilities
Plant and equipment
Currency gains
Unremitted earnings of foreign entities
Partnership and other investments
Intangible assets
Other
Deferred Tax Liabilities
Net Deferred Income Tax Liability
112
2017
2016
$
370.1 $
64.5
76.1
88.2
—
20.7
37.2
(107.7)
549.1
1,035.6
—
20.9
5.4
81.9
9.2
1,153.0
$
603.9 $
527.6
101.1
56.0
74.9
5.8
—
19.3
(165.1)
619.6
985.1
46.8
5.4
—
91.0
16.7
1,145.0
525.4
Deferred tax assets and liabilities are included within the consolidated financial statements as follows:
Deferred Tax Assets
Other noncurrent assets
Deferred Tax Liabilities
Deferred income taxes
Net Deferred Income Tax Liability
2017
2016
174.5 $
185.0
778.4
603.9 $
710.4
525.4
$
$
Gross federal tax credit carryforwards as of 30 September 2017 were $53.9. The federal tax carryforwards have
expiration periods between 2025 and 2027. Gross state loss and tax credit carryforwards as of 30 September 2017
were $75.2 and $1.2, respectively. The state tax carryforwards have expiration periods between 2024 and 2034.
Gross foreign loss and tax credit carryforwards as of 30 September 2017 were $247.3 and $21.0, respectively.
Foreign tax carryforwards of $221.7 have expiration periods between 2018 and 2027; the remainder have unlimited
carryforward periods.
The valuation allowance as of 30 September 2017 of $107.7, primarily related to the tax benefit of foreign loss
carryforwards of $52.4 as well as foreign capital assets of $49.1 that were generated from the loss recorded on the
exit from the Energy-from-Waste business in 2016. If events warrant the reversal of the valuation allowance, it
would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of
deferred tax liabilities will be sufficient to utilize our deferred tax assets, net of existing valuation allowance, at 30
September 2017. The reduction in the valuation allowances and tax loss carryforwards in 2017 was primarily due to
the gain on sale of the PMD business, which resulted in the utilization of federal capital loss carryforwards as well
as certain state loss carryforward balances from the prior year. See Note 3, Discontinued Operations, for additional
information. This reduction was offset in part by an increase in foreign tax loss carryforwards. Retirement benefits
and compensation accruals are impacted significantly by the changes in plan assets and benefit obligation that
have been recognized in other comprehensive income. See Note 16, Retirement Benefits, for additional
information. The repayment of a Eurobond of €300 million ($317.2) that matured on 15 March 2017, resulted in a
significant reduction of the deferred tax liabilities related to currency gains.
We record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures
unless those earnings are indefinitely reinvested outside of the U.S. These cumulative undistributed earnings that
are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in
retained earnings on the consolidated balance sheets and amounted to $6,032.5 as of 30 September 2017. An
estimated $1,443.9 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as
dividends after payment of all deferred taxes.
A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:
Unrecognized Tax Benefits
Balance at beginning of year
Additions for tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Statute of limitations expiration
Foreign currency translation
Balance at End of Year
$
$
2017
90.2 $
47.5
16.1
(4.0)
(2.0)
(3.2)
1.8
146.4 $
2016
83.8 $
12.5
2.9
—
(5.6)
(2.9)
(.5)
90.2 $
2015
93.1
4.7
3.0
(2.2)
(.6)
(8.3)
(5.9)
83.8
At 30 September 2017 and 2016, we had $146.4 and $90.2 of unrecognized tax benefits, excluding interest and
penalties, of which $73.8 and $46.5, respectively, would impact the effective tax rate if recognized.
Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense
and totaled $3.7 in 2017, $1.8 in 2016, and $(1.9) in 2015. Our accrued balance for interest and penalties was
$12.1 and $8.4 as of 30 September 2017 and 2016, respectively. The additions to unrecognized tax benefits in
2017 include unrecognized tax positions of $34.1 in various jurisdictions related to the sale of the PMD business
and the spin-off of the EMD business. See Note 3, Discontinued Operations, and Note 4, Materials Technologies
Separation, for additional information.
113
We are currently under examination in a number of tax jurisdictions, some of which may be resolved in the next
twelve months. As a result, it is reasonably possible that a change in the unrecognized tax benefits may occur
during the next twelve months. However, quantification of an estimated range cannot be made at this time.
We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:
Major Tax Jurisdiction
North America
United States
Canada
Europe
France
Germany
Netherlands
Spain
United Kingdom
Asia
China
South Korea
Taiwan
Latin America
Chile
23. SUPPLEMENTAL INFORMATION
Other Receivables and Current Assets
30 September
Derivative instruments
Other receivables
Current capital lease receivables
Prepaid inventory
Other
Other receivables and current assets
Other Noncurrent Assets
30 September
Derivative instruments
Other long-term receivables
Prepaid tax
Deferred tax assets
Pension benefits
Deposits
Other
Other noncurrent assets
114
Open Tax Years
2011-2017
2013-2017
2014-2017
2012-2017
2012-2017
2011-2017
2014-2017
2012-2017
2010-2017
2012-2017
2013-2017
$
2016
2017
93.9 $ 169.3
181.7
88.2
92.8
6.2
$ 403.3 $ 538.2
188.0
93.3
—
28.1
2017
2016
$ 133.9 $ 204.4
16.9
37.0
185.0
—
36.5
191.2
$ 641.8 $ 671.0
82.1
5.1
174.5
18.4
34.8
193.0
Payables and Accrued Liabilities
30 September
Trade creditors
Customer advances
Accrued payroll and employee benefits
Pension and postretirement benefits
Dividends payable
Outstanding payments in excess of certain cash balances
Accrued interest expense
Derivative instruments
Severance and other costs associated with business restructuring and cost reduction actions
Other
Payables and accrued liabilities
Other Noncurrent Liabilities
30 September
Pension benefits
Postretirement benefits
Other employee benefits
Contingencies related to uncertain tax positions
Advance payments
Environmental liabilities
Derivative instruments
Asset retirement obligations
Obligation for future contribution to an equity affiliate
Obligations associated with EfW
Other
Other noncurrent liabilities
Other Income (Expense), Net
30 September
Technology and royalty income
Interest income(A)
Foreign exchange
Sale of assets and investments
Contract settlements
Transition service agreements reimbursement(B)
Other
Other income (expense), net
2017
2016
$ 659.5 $ 578.8
371.2
217.1
35.5
186.9
11.9
47.9
73.5
15.7
438.9
187.1
22.6
207.5
4.5
42.2
95.9
41.5
114.6
113.7
$ 1,814.3 $ 1,652.2
2017
2016
$ 703.8 $ 1,155.1
74.9
57.0
99.3
130.6
39.0
72.3
36.0
144.0
94.4
65.3
104.1
78.0
43.8
70.3
21.8
116.1
94.4
—
170.2
58.0
$ 1,611.9 $ 1,816.5
$
2017
20.8 $
1.5
4.3
24.3
14.3
38.4
17.4
2016
19.0 $
6.1
(7.2)
8.8
12.6
—
10.1
$ 121.0 $
49.4 $
2015
22.8
4.2
(22.6)
36.3
—
—
4.8
45.5
(A)
(B)
Beginning in the second quarter of fiscal year 2017, interest income associated with our short-term investments is
reflected on the consolidated income statements in "Other non-operating income (expense), net."
Reflects reimbursement for costs in support of transition services agreements with Versum for EMD and with Evonik for
PMD. Refer to Note 4, Materials Technologies Separation, for additional information.
Gain on Land Sales
During the fourth quarter of 2017, we sold a parcel of land resulting in a gain of $12.2. During the fourth quarter of
2015, we sold two parcels of land resulting in a gain of $33.6. The gains are reflected in sale of assets and
investments in the table above.
115
Redeemable Noncontrolling Interest
In July 2015, we completed the purchase of an additional 30.5% equity interest in our Indura S.A. subsidiary for
$277.9. We currently have a 97.8% controlling equity interest in Indura S.A. As redeemable noncontrolling interest
is not part of total equity, the impacts below are excluded from our consolidated statements of equity.
The following is a summary of the changes in redeemable noncontrolling interest for the year ended 30 September
2015:
Balance at 30 September 2014
Net income
Dividends
Purchase of noncontrolling interest
Currency translation adjustment
Balance at 30 September 2015
$
$
287.2
11.5
(2.0)
(277.9)
(18.8)
—
116
24. SUMMARY BY QUARTER (UNAUDITED)
These tables summarize the unaudited results of operations for each quarter of 2017 and 2016:
2017
Sales
Gross profit(A)
Business separation costs(B)
Business restructuring and cost reduction
actions(C)
Pension settlement loss(D)
Goodwill and intangible asset impairment
charge(E)
Gain on land sale(F)
Operating income(A)
Equity affiliates' income (loss)
Income tax provision (benefit)
Net income
Net income attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued
operations
Net income attributable to Air Products
Basic Earnings Per Common Share
Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued
operations
Net income attributable to Air Products
Diluted Earnings Per Common Share
Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued
operations
Net income attributable to Air Products
Dividends declared per common share
Market price per common share – High
Market price per common share – Low
Q1
$1,882.5
564.4
30.2
50.0
—
—
—
328.1
38.0
78.4
306.4
251.6
48.2
299.8
1.16
.22
1.38
1.15
.22
1.37
.86
150.45
129.00
Q2
Q3
Q4
Total
$1,980.1
$2,121.9
$2,203.1
$8,187.6
576.3
—
10.3
4.1
—
—
391.2
34.2
94.5
2,135.7
635.7
—
42.7
5.5
162.1
—
252.6
(36.9) (G)
89.3
104.1
657.8
—
48.4
.9
—
12.2
455.7
44.8
(1.3) (H)
2,434.2
30.2
151.4
10.5
162.1
12.2
1,427.6
80.1 (G)
260.9 (H)
475.0
3,021.2
304.4
104.2
474.2
1,134.4
1,825.6 (I)
2,130.0
(2.3)
101.9
(5.5)
468.7
1,866.0 (I)
3,000.4
1.40
8.38
9.78
1.39
8.31
9.70
.95
.48
(.01)
.47
.47
(.01)
.46
.95
2.17
(.02)
2.15
2.15
(.02)
2.13
.95
5.20
8.56
13.76
5.16
8.49
13.65
3.71
149.46
133.63
147.66
134.09
152.26
141.88
117
2016
Sales
Gross profit(A)
Business separation costs(B)
Business restructuring and cost reduction
actions(C)
Pension settlement loss(D)
Operating income(A)
Equity affiliates' income
Loss on extinguishment of debt(J)
Income tax provision
Net income (loss)
Net income attributable to Air Products
Q1
$1,866.3
570.4
12.0
—
—
372.5
33.3
—
96.4
372.0
Q2
Q3
Q4
Total
$1,777.4
$1,914.5
$1,945.5
$7,503.7
564.4
7.4
10.7
2.0
371.6
32.3
594.3
9.5
13.2
1.0
394.6
42.1
598.0
21.7
10.6
2.1
391.0
39.3
2,327.1
50.6
34.5
5.1
1,529.7
147.0
—
93.5 (K)
(465.5)
—
145.9 (K)
354.1
6.9
96.8 (K)
400.9
6.9
432.6 (K)
661.5
Income from continuing operations
280.9
278.9
250.3
289.4
1,099.5
Income (Loss) from discontinued
operations
Net income (loss) attributable to Air
Products
Basic Earnings Per Common Share
Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued
operations
Net income (loss) attributable to Air
Products
Diluted Earnings Per Common Share
Attributable to Air Products
Income from continuing operations
Income (Loss) from discontinued
operations
Net income (loss) attributable to Air
Products
Dividends declared per common share
Market price per common share – High
Market price per common share – Low
82.7
(752.2)
96.5
104.6
(468.4)
363.6
(473.3)
346.8
394.0
631.1
1.30
.38
1.68
1.29
.38
1.67
.81
133.78
117.80
1.29
(3.48)
(2.19)
1.28
(3.45)
(2.17)
.86
1.16
.44
1.60
1.15
.44
1.59
.86
1.33
.48
1.81
1.32
.48
1.80
.86
5.08
(2.16)
2.92
5.04
(2.15)
2.89
3.39
136.88
106.63
141.53
124.78
146.82
127.72
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
Changes in estimates on projects accounted for under the percentage of completion method favorably impacted income
by approximately $27 in fiscal year 2017 and $20 in fiscal year 2016, primarily during the fourth quarter. For additional
information, see Note 1, Major Accounting Policies (Revenue Recognition).
For additional information, see Note 4, Materials Technologies Separation.
For additional information, see Note 5, Business Restructuring and Cost Reduction Actions.
For additional information, see Note 16, Retirement Benefits.
For additional information, see Note 10, Goodwill, and Note 11, Intangible Assets.
The gain is reflected on the consolidated income statements in "Other income (expense), net." For additional information,
see Note 23, Supplemental Information.
Includes the impact of an other-than-temporary impairment of an investment in an equity affiliate. For additional
information, see Note 8, Summarized Financial Information of Equity Affiliates.
Includes the impact of a tax election benefit related to a non-U.S. subsidiary. For additional information, see Note 22,
Income Taxes.
Includes the after-tax gain on the sale of PMD. For additional information, see Note 3, Discontinued Operations.
For additional information, see Note 15, Debt.
Includes income tax expense for tax costs associated with business separation. For additional information, see Note 4,
Materials Technologies Separation.
118
25. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Our reporting segments reflect the manner in which our chief operating decision maker reviews results and
allocates resources. Except in the Corporate and other segment, each reporting segment meets the definition of an
operating segment and does not include the aggregation of multiple operating segments. Our liquefied natural gas
(LNG) and helium storage and distribution sale of equipment businesses are aggregated within the Corporate and
other segment.
Our reporting segments are:
•
•
•
•
Industrial Gases – Americas
Industrial Gases – EMEA (Europe, Middle East, and Africa)
Industrial Gases – Asia
Industrial Gases – Global
• Corporate and other
Industrial Gases – Regional
The regional Industrial Gases segments (Americas, EMEA, and Asia) include the results of our regional industrial
gas businesses, which produce and sell atmospheric gases such as oxygen, nitrogen, and argon (primarily
recovered by the cryogenic distillation of air) and process gases such as hydrogen, carbon monoxide, helium,
syngas, and specialty gases. We supply gases to customers in many industries, including those in metals, glass,
chemical processing, energy production and refining, food processing, metallurgical industries, medical, and
general manufacturing. We distribute gases to our customers through a variety of supply modes including liquid or
gaseous bulk supply delivered by tanker or tube trailer and, for smaller customers, packaged gases delivered in
cylinders and dewars or small on-sites (cryogenic or non-cryogenic generators). For large-volume customers, we
construct an on-site plant adjacent to or near the customer’s facility or deliver product from one of our pipelines. We
are the world’s largest provider of hydrogen, which is used by refiners to facilitate the conversion of heavy crude
feedstock and lower the sulfur content of gasoline and diesel fuels.
Electricity is the largest cost component in the production of atmospheric gases, and natural gas is the principal raw
material for hydrogen, carbon monoxide, and syngas production. We mitigate energy and natural gas prices
contractually through pricing formulas, surcharges, and cost pass-through arrangements. The regional Industrial
Gases segments also include our share of the results of several joint ventures accounted for by the equity method.
The largest of these joint ventures operate in Mexico, Italy, South Africa, India, Saudi Arabia, and Thailand. Each of
the regional Industrial Gases segments competes against global industrial gas companies as well as regional
competitors. Competition is based primarily on price, reliability of supply, and the development of industrial gas
applications. We derive a competitive advantage in locations where we have pipeline networks, which enable us to
provide reliable and economic supply of products to larger customers.
Industrial Gases – Global
The Industrial Gases – Global segment includes cryogenic and gas processing equipment sales for air separation.
The equipment is sold worldwide to customers in a variety of industries, including chemical and petrochemical
manufacturing, oil and gas recovery and processing, and steel and primary metals processing. The Industrial
Gases – Global segment also includes centralized global costs associated with management of all the Industrial
Gases segments. These costs include Industrial Gases global administrative costs, product development costs, and
research and development costs. We compete with a large number of firms for all the offerings included in the
Industrial Gases – Global segment. Competition in the equipment businesses is based primarily on technological
performance, service, technical know-how, price, and performance guarantees.
119
Corporate and other
The Corporate and other segment includes two ongoing global businesses (our LNG equipment business and our
liquid helium and liquid hydrogen transport and storage container businesses), and corporate support functions that
benefit all the segments. Competition for the two sale of equipment businesses is based primarily on technological
performance, service, technical know-how, price, and performance guarantees. Corporate and other also includes
income and expense that is not directly associated with the business segments, including foreign exchange gains
and losses and stranded costs. Stranded costs result from functional support previously provided to the two
divisions comprising the former Materials Technologies segment. The majority of these costs are reimbursed to Air
Products pursuant to short-term transition services agreements under which Air Products provides transition
services to Versum for EMD and to Evonik for PMD. The reimbursement for costs in support of the transition
services has been reflected on the consolidated income statements within “Other income (expense), net.” Refer to
Note 4, Materials Technologies Separation, for additional information.
Also included are LIFO inventory adjustments, as the business segments use FIFO, and the LIFO pool adjustments
are not allocated to the business segments.
In addition to assets of the global businesses included in this segment, other assets include cash, deferred tax
assets, and financial instruments.
Customers
We do not have a homogeneous customer base or end market, and no single customer accounts for more than
10% of our consolidated revenues.
Accounting Policies
The accounting policies of the segments are the same as those described in Note 1, Major Accounting Policies. We
evaluate the performance of segments based upon reported segment operating income.
120
Business Segment
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Segment
Total
2017
Sales to external customers
Operating income (loss)
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
$
3,637.0 $
950.6
464.4
58.1
427.2
287.5
1,780.4 $
1,964.7 $
722.9 $
82.6 $
8,187.6
387.1
177.1
47.1
143.2
508.6
531.2
203.2
53.5
337.8
471.8
71.3
8.9
.9
25.6
19.0
(170.6)
1,769.6
12.2
—
865.8
159.6
105.9
1,039.7
—
1,286.9
Total assets
5,840.8
3,276.1
4,412.1
279.6
4,648.4
18,457.0
2016
Sales to external customers
Operating income (loss)
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
$
3,344.1 $
893.2
443.6
52.7
406.6
250.6
1,704.4 $
1,720.4 $
498.8 $
236.0 $
7,503.7
384.6
185.7
36.5
159.5
580.5
451.0
197.9
57.8
313.3
442.5
(21.3)
7.9
—
6.0
10.0
(87.6)
19.5
—
22.3
1,619.9
854.6
147.0
907.7
—
1,283.6
Total assets
5,896.7
3,178.6
4,232.7
367.6
2,384.5
16,060.1
2015
Sales to external customers
Operating income (loss)
Depreciation and amortization
Equity affiliates' income (loss)
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
$
3,694.5 $
806.1
417.5
64.6
414.5
249.7
1,866.4 $
1,661.3 $
286.7 $
315.4 $
7,824.3
331.3
194.3
42.4
215.6
564.1
389.3
209.9
46.1
402.5
421.7
(51.6)
16.5
(.8)
94.8
14.3
(86.5)
1,388.6
20.3
—
35.0
858.5
152.3
1,162.4
—
1,249.8
Total assets
5,782.5
3,324.1
4,159.1
370.5
1,123.8
14,760.0
Below is a reconciliation of segment total operating income to consolidated operating income:
2016
2017
2015
$ 1,769.6 $ 1,619.9 $ 1,388.6
(7.5)
(180.1)
(19.3)
—
17.9
33.6
$ 1,427.6 $ 1,529.7 $ 1,233.2
(30.2)
(151.4)
(10.5)
(162.1)
—
12.2
(50.6)
(34.5)
(5.1)
—
—
—
Operating Income
Segment total
Business separation costs
Business restructuring and cost reduction actions
Pension settlement loss
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales(A)
Consolidated Total
(A) Reflected on the consolidated income statements in “Other income (expense), net.”
121
Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:
Equity Affiliates' Income
Segment total
Equity method investment impairment charge
Consolidated Total
2017
2016
2015
$
$
159.6 $
(79.5)
80.1 $
147.0 $
—
147.0 $
152.3
—
152.3
Below is a reconciliation of segment total assets to consolidated total assets:
Total Assets
Segment total
Discontinued operations
Consolidated Total
2017
2016
2015
$ 18,457.0 $ 16,060.1 $ 14,760.0
2,556.6
$ 18,467.2 $ 18,028.6 $ 17,316.6
1,968.5
10.2
The sales information noted above relates to external customers only. All intersegment sales are eliminated in
consolidation. The Industrial Gases – Global segment had intersegment sales of $239.0 in 2017, $232.4 in 2016,
and $242.8 in 2015. These sales are generally transacted at market pricing. For all other segments, intersegment
sales are not material for all periods presented. Equipment manufactured for our regional industrial gases segments
are generally transferred at cost and not reflected as an intersegment sale.
Geographic Information
Sales to External Customers
United States
Europe, including Middle East
Asia, excluding China and India
China
Other(A)
Total
Long-Lived Assets(B)
United States
Europe, including Middle East
Asia, excluding China and India
China
Other(A)
Total
2017
2016
2015
$ 2,886.8 $ 2,911.7 $ 3,369.8
1,989.2
736.8
957.8
770.7
$ 8,187.6 $ 7,503.7 $ 7,824.3
2,478.5
849.6
1,143.4
829.3
2,186.5
721.4
1,020.4
663.7
2017
2016
2015
$ 3,407.4 $ 3,411.4 $ 3,502.9
1,379.8
627.1
1,682.8
1,044.7
$ 8,440.2 $ 8,259.7 $ 8,237.3
1,279.0
778.5
1,737.9
1,237.4
1,292.5
707.0
1,675.8
1,173.0
(A)
Includes Canada, Latin America, and India.
(B) Long-lived assets include plant and equipment, net.
Geographic information is based on country of origin. Included in United States revenues are export sales to
third party customers of $64.2 in 2017, $134.9 in 2016, and $231.5 in 2015.
122
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15 (e) and
15d-15 (e) under the Exchange Act). Under the supervision of the Chief Executive Officer and Chief Financial
Officer, the Company’s management conducted an evaluation of the effectiveness of the Company’s disclosure
controls and procedures as of 30 September 2017. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of 30 September 2017, the disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Management has evaluated the
effectiveness of its internal control over financial reporting as of 30 September 2017 based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that evaluation, management concluded that, as of 30 September 2017,
the Company’s internal control over financial reporting was effective. Management’s Report on Internal Control over
Financial Reporting is provided under Part II, Item 8, of this Form 10-K.
There was no change in the Company’s internal control over financial reporting during the fourth quarter of fiscal
year 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
KPMG LLP, the Company’s independent registered public accounting firm, has audited the Company’s internal
control over financial reporting as of 30 September 2017. The Report of the Independent Registered Public
Accounting Firm is provided under Part II, Item 8, of this Form 10-K.
Transition Services Agreement
In connection with the spin-off of Versum Materials, Inc., the Company entered into a transition services agreement
pursuant to which it will continue to provide information technology, systems applications, business processes, and
associated internal controls to Versum to allow Versum the time to establish its own infrastructure and both
companies sufficient time to physically separate their information technology applications and infrastructure.
Management has established controls to mitigate the risk that personnel of either company obtain unauthorized
access to the other company’s data and will continue to monitor and evaluate the sufficiency of the controls. We
expect all transition services to end in 2018.
ITEM 9B.
OTHER INFORMATION
Not applicable
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item relating to the Company’s directors and nominees is incorporated herein by
reference to the section captioned “The Board of Directors” in the Proxy Statement for the Annual Meeting of
Shareholders to be held on 25 January 2018. The information required by this item relating to the Company’s
executive officers is set forth in Item 1 of Part I of this report.
The information required by this item relating to the Company’s Audit and Finance Committee and its Audit and
Finance Committee Financial Expert is incorporated herein by reference to the sections captioned “Standing
Committees Of The Board” and “Audit and Finance Committee” in the Proxy Statement for the Annual Meeting of
Shareholders to be held on 25 January 2018.
123
The information required by this item relating to the Company’s procedures regarding the consideration of
candidates recommended by shareholders and a procedure for submission of such candidates is incorporated
herein by reference to the section captioned “Selection of Directors” in the Proxy Statement for the Annual Meeting
of Shareholders to be held on 25 January 2018.
The information required by the item relating to Section 16(a) Beneficial Ownership Reporting Compliance is
incorporated herein by reference to the section captioned “Section 16(a) Beneficial Ownership Reporting
Compliance” in the Proxy Statement for the Annual Meeting of Shareholders to be held on 25 January 2018.
The Company has adopted a Code of Conduct that applies to all employees, including the Chief Executive Officer,
the Chief Financial Officer, and the Principal Accounting Officer. The Code of Conduct can be found at our website
at www.airproducts.com/codeofconduct.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections captioned “Compensation
of Executive Officers” and “Compensation of Directors” in the Proxy Statement for the Annual Meeting of
Shareholders to be held on 25 January 2018.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance Under Equity Compensation Plans.
Equity Compensation Plan Information
The following table provides information as of 30 September 2017 about Company stock that may be issued upon
the exercise of options, warrants, and rights granted to employees or members of the Board under the Company’s
existing equity compensation plans, including plans approved by shareholders and plans that have not been
approved by shareholders in reliance on the NYSE’s former treasury stock exception or other applicable exception
to the Exchange’s listing requirements.
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted-average
exercise price of
outstanding options,
warrants, and rights
Number of Securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
4,316,028
70,304
4,386,332
(1)
(3)
$
$
85.00
$—
85.00
(2)
4,922,382
—
4,922,382
Total
(1)
(2)
(3)
Represents Long-Term Incentive Plan outstanding stock options and deferred stock units that have been granted. Deferred stock units
entitle the recipient to one share of Company common stock upon vesting, which is conditioned on continued employment during a
deferral period and may also be conditioned on earn-out against certain performance targets.
Represents authorized shares that were available for future grants as of 30 September 2017. These shares may be used for options,
deferred stock units, restricted stock, and other stock-based awards to officers, directors, and key employees. Full value awards such
as restricted stock are limited to 20% of cumulative awards after 1 October 2001.
This number represents deferred stock units issued under the Deferred Compensation Plan, which are purchased for the fair market
value of the underlying shares of stock with eligible deferred compensation.
The Deferred Compensation Plan was not approved by shareholders. It does not require shareholder approval
because participants forego compensation equal to the full market value of any share units credited under the
plans.
124
Deferred Compensation Plan—The Company’s Deferred Compensation Plan is an unfunded employee retirement
benefit plan available to certain of the Company’s U.S.-based management and other highly compensated
employees (and those of its subsidiaries) who receive awards under the Company’s Annual Incentive Plan, which is
the annual cash bonus plan for executives and key salaried employees of the Company and its subsidiaries.
Because participants forego current compensation to “purchase” deferred stock units for full value under the Plan, it
is not required to be approved by shareholders under the NYSE listing standards. Under the Plan, participants may
defer a portion of base salary (elective deferrals) which cannot be contributed to the Company’s Retirement Savings
Plan, a 401(k) and profit-sharing plan offered to all salaried employees (RSP), because of tax limitations and earn
matching contributions from the Company that they would have received if their elective deferrals had been
contributed to the RSP (matching credits). In addition, participants in the Plan may defer all or a portion of their
bonus awards under the Annual Incentive Plan (bonus deferrals) under the Deferred Compensation Plan. Finally,
certain participants under the Plan who participate in the profit-sharing component of the RSP rather than the
Company’s salaried pension plans receive contribution credits under the Plan which are a percentage ranging from
4%-6%, based on their years of service, of their salary in excess of tax limitations and their bonus awards under the
Annual Incentive Plan (contribution credits). The dollar amount of elective deferrals, matching credits, bonus
deferrals, and contribution credits is initially credited to an unfunded account, which earns interest credits.
Participants are periodically permitted while employed by the Company to irrevocably convert all or a portion of their
interest-bearing account to deferred stock units in a Company stock account. Upon conversion, the Company stock
account is credited with deferred stock units based on the fair market value of a share of Company stock on the
date of crediting. Dividend equivalents corresponding to the number of units are credited quarterly to the interest-
bearing account. Deferred stock units generally are paid after termination of employment in shares of Company
stock.
The Deferred Compensation Plan was formerly known as the Supplementary Savings Plan. The name was
changed in 2006 when the deferred bonus program, previously administered under the Annual Incentive Plan, was
merged into this Plan.
Certain information required by this item regarding the beneficial ownership of the Company’s common stock is
incorporated herein by reference to the sections captioned “Persons Owning More than 5% of Air Products Stock as
of September 30, 2017” and “Air Products Stock Beneficially Owned by Officers and Directors” in the Proxy
Statement for the Annual Meeting of Shareholders to be held on 25 January 2018.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference to the sections captioned “Director
Independence” and “Transactions with Related Persons” in the Proxy Statement for the Annual Meeting of
Shareholders to be held on 25 January 2018.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section captioned “Independent
Registered Public Accountant” in the Proxy Statement for the Annual Meeting of Shareholders to be held on
25 January 2018.
125
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
PART IV
(1) The Company’s 2017 consolidated financial statements and the Report of the Independent Registered
Public Accounting Firm are included in Part II, Item 8.
Report of Independent Registered Public Accounting Firm dated 16 November 2017...............................
Consolidated Income Statements for the three fiscal years ended 30 September 2017 ............................
Consolidated Comprehensive Income Statements for the three fiscal years ended 30 September 2017 ..
Consolidated Balance Sheets as of 30 September 2017 and 2016 ...........................................................
Consolidated Statements of Cash Flows for the three fiscal years ended 30 September 2017 .................
Consolidated Statements of Equity for the three fiscal years ended 30 September 2017 ..........................
57
58
59
60
61
62
(2) Financial Statement Schedules—the following additional information should be read in conjunction with
the consolidated financial statements in the Company’s 2017 consolidated financial statements.
Schedule II Valuation and Qualifying Accounts for the three fiscal years ended 30 September 2017 ........
133
All other schedules are omitted because the required matter or conditions are not present or because
the information required by the Schedules is submitted as part of the consolidated financial statements
and notes thereto.
(3)
Exhibits—The exhibits filed as a part of this Annual Report on Form 10-K are listed in the Index to
Exhibits located on page 127 of this Report.
126
Exhibit No.
INDEX TO EXHIBITS
Description
(2)
2.1
2.2
2.3
(3)
3.1
3.2
3.3
3.4
(4)
4.1
4.2
(10)
10.1
10.2
10.3
10.4
Plan of acquisition, reorganization, arrangement, liquidation or succession.
Purchase Agreement dated as of 6 May 2016, by and between Air Products and Chemicals, Inc.
and Evonik Industries. (Filed as Exhibit 2.1 to the Company’s Form 8-K Report dated 6 May 2016.)
Separation Agreement dated as of 29 September 2016, by and between Air Products and
Chemicals, Inc. and Versum Materials, Inc. (Filed as Exhibit 2.1 to the Company’s Form 8-K Report
dated 5 October 2016.)
Tax Matters Agreement dated as of 29 September 2016, by and between Air Products and
Chemicals, Inc. and Versum Materials, Inc. (Filed as Exhibit 2.2 to the Company’s Form 8-K Report
dated 5 October 2016.)
Articles of Incorporation and By-Laws.
Amended and Restated By-Laws of the Company. (Filed as Exhibit 3.1 to the Company’s Form 8-K
Report dated 21 November 2014.)*
Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2 to the Company’s
Form 10-K Report for the fiscal year ended 30 September 1987.)*
Amendment to the Restated Certificate of Incorporation of the Company dated 25 January 1996.
(Filed as Exhibit 3.3 to the Company’s Form 10-K Report for the fiscal year ended 30 September
1996.)*
Amendment to the Restated Certificate of Incorporation of the Company dated 28 January 2014.
(Filed as Exhibit 10.2 to the Company’s Form 10-Q Report for the quarter ended 30 June 2014.)*
Instruments defining the rights of security holders, including indentures. Upon request of the
Securities and Exchange Commission, the Company hereby undertakes to furnish copies of the
instruments with respect to its long-term debt.
Indenture, dated as of January 18, 1985, between the Company and The Chase Manhattan Bank
(National Association), as Trustee. (Filed as Exhibit 4(a) to the Company’s Registration Statement
No. 33-36974.)*
Indenture, dated as of January 10, 1995, between the Company and The Bank of New York Trust
Company, N.A. (formerly Wachovia Bank, National Association and initially First Fidelity Bank
Company, National Association), as Trustee. (Filed as Exhibit 4(a) to the Company’s Registration
Statement No. 33-57357.)*
Material Contracts
1990 Deferred Stock Plan of the Company, as amended and restated effective 1 October 1989.
(Filed as Exhibit 10.1 to the Company’s Form 10-K Report for the fiscal year ended
30 September 1989.)*†
Annual Incentive Plan as Amended and Restated effective 1 October 2008. (Filed as Exhibit 10.7
to the Company’s Form 10-Q Report for the quarter ended 31 March 2009.)*†
Stock Incentive Program of the Company effective 1 October 1996. (Filed as Exhibit 10.21 to the
Company’s Form 10-K Report for the fiscal year ended 30 September 2002.)*†
Amended and Restated Deferred Compensation Program for Directors, effective 25 January
2017.†
127
Exhibit No.
10.5
Description
Amended and Restated Long-Term Incentive Plan of the Company effective 1 October 2014. (Filed
as Exhibit 10.1 to the Company’s Form 8-K filed on 23 September 2014.)†
10.5(a)
10.5(b)
10.5(c)
10.5(d)
10.5(e)
10.5(f)
10.5(g)
10.5(h)
10.5(i)
10.5(j)
10.6
10.6(a)
10.6(b)
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY 2008
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2007.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY 2009
Awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2008.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for
FY2010 awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2009.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for
FY2011 awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2010.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2012
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2011.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2013
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2012.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2014
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2013.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2015
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2014.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2016
awards. (Filed as Exhibit 10.1 to the Company’s Form 10-Q Report for the quarter ended
31 December 2015.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2017
awards. (Filed as Exhibit 10.1 and 10.2 to the Company’s Form 10-Q Report for the quarter ended
31 December 2016.)*†
Air Products and Chemicals, Inc. Retirement Savings Plan as amended and restated effective
1 January 2016. (Filed as Exhibit 10.2 to the Company’s Form 10-Q Report for the quarter ended
31 December 2015)*†
Amendment No. 1 to the Air Products and Chemicals, Inc. Retirement Savings Plan as Amended
and Restated effective 1 January 2016. (Filed as Exhibit 10.6(a) to the Company's Form 10-K
report for the fiscal year ended 30 September 2016.)*†
Amendment No. 2 to the Air Products and Chemicals, Inc. Retirement Savings Plan as Amended
and Restated effective 3 January 2017. (Files as Exhibit 10.3 to the Company's Form 10-Q Report
for the quarter ended 31 December 2016.)*†
10.6(c)
Amendment No. 3 to the Air Products and Chemicals, Inc. Retirement Savings Plan as Amended
and Restated effective 27 February 2017.†
128
Exhibit No.
10.7
Supplementary Pension Plan of Air Products and Chemicals, Inc. as Amended and Restated
effective August 1, 2014. (Filed as Exhibit 10.10 to the Company’s Form 10-K Report for the fiscal
year ended 30 September 2014.)*†
Description
10.7(a)
10.7(b)
10.7(c)
10.8
10.8(a)
10.8(b)
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
12
14
21
Amendment No. 1 dated as of 30 September 2015 to the Supplementary Pension Plan of Air
Products and Chemicals, Inc. as Amended and Restated effective 1 August 2014. (Filed as Exhibit
10.10(a) to the Company’s Form 10-K Report for the fiscal year ended 30 September 2015.)†
Amendment No. 2 dated as of 30 September 2016 to the Supplementary Pension Plan of Air
Products and Chemicals, Inc. as Amended and Restated effective 1 August 2014. (Filed as Exhibit
10.7(b) to the Company's Form 10-K Report for fiscal year ended 30 September 2016.)†
Amendment No. 3 dated as of 26 July 2017 to the Supplementary Pension Plan of Air Products
and Chemicals, Inc. as Amended and Restated effective 1 August 2017.†
Deferred Compensation Plan as Amended and Restated effective 1 August 2014. (Filed as Exhibit
10.11 to the Company’s Form 10-K Report for the fiscal year ended 30 September 2014.)*†
Amendment No. 1 dated as of 1 January 2016 to the Deferred Compensation Plan as Amended
and Restated effective 1 August 2014. (Filed as Exhibit 10.3 to the Company’s Form 10-Q Report
for the quarter ended 31 December 2015.)†
Amendment No. 2 dated as of 30 September 2016 to the Deferred Compensation Plan as
Amended and Restated effective 1 August 2014. (Filed as Exhibit 10.8(b) to the Company's Form
10-K Report for fiscal year ended 30 September 2016.)*†
Revolving Credit Facility dated as of 31 March 2017 for $2,500,000,000. (Filed as Exhibit 10.1 to
the Company’s Form 10-Q Report for the quarter ended 31 March 2017.)*
Air Products and Chemicals, Inc. Executive Separation Program as amended effective as of
19 July 2017.
Form of Change in Control Severance Agreement for an Executive Officer. (filed as Exhibit 10.2 of
the Company's Form 8-K Report dated 23 September 2014.)*†
Compensation Program for Non-Employee Directors effective 1 July 2017. (Filed as Exhibit 10.2 to
the Company's Form 10-Q Report for the quarter ended 30 June 2017.)*†
Air Products and Chemicals, Inc. Corporate Executive Committee Retention Agreements effective
as of 10 January 2014. (Filed as Exhibit 10.1 to the Company’s Form 8-K Report dated 15 January
2014.)*†
Employment Agreement for an Executive Officer. (Filed as Exhibit 10.1 to the Company’s Form 8-K
filed on 18 June 2014)*†
Retirement and Retention Agreement for an Executive Officer.†
Senior Management Severance and Summary Plan Description effective as of 1 October 2017.
Computation of Ratios of Earnings to Fixed Charges.
Code of Conduct revised on 17 May 2012. (Filed as Exhibit 14 to the Company’s Form 8-K Report
filed on 23 May 2012.)*
Subsidiaries of the registrant.
(23)
Consents of Experts and Counsel.
129
Exhibit No.
Description
23.1
24
(31)
31.1
31.2
(32)
32.1
99.1
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Rule 13a-14(a)/15d-14(a) Certifications.
Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Section 1350 Certifications.
Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.††
Description of Common Stock (Filed as Exhibit 99.1 to the Company’s Form 10-K Report for the
fiscal year ended 30 September 2014.)*
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
*
Previously filed as indicated and incorporated herein by reference. Exhibits incorporated by reference are located in SEC
File No. 001-04534 unless otherwise indicated.
†
Indicated management contract or compensatory arrangement.
†† The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K, is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference into any filing of Air Products and
Chemicals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in
such filing.
130
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
By:
/s/ M. Scott Crocco
M. Scott Crocco
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: 16 November 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title
Date
/s/ Seifi Ghasemi
(Seifi Ghasemi)
Director, Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
/s/ Russell A. Flugel
(Russell A. Flugel)
Vice President and Corporate Controller
(Principal Accounting Officer)
*
(Susan K. Carter)
Director
*
(Charles I. Cogut)
Director
*
(Chad C. Deaton)
Director
*
(David H. Y. Ho)
Director
*
(Margaret G. McGlynn)
Director
131
16 November 2017
16 November 2017
16 November 2017
16 November 2017
16 November 2017
16 November 2017
16 November 2017
Signature and Title
*
(Edward L. Monser)
Director
*
(Matthew H. Paull)
Director
Date
16 November 2017
16 November 2017
* Mary T. Afflerbach, Vice President, Corporate Secretary, and Chief Governance Officer, by signing her name
hereto, does sign this document on behalf of the above noted individuals, pursuant to a power of attorney duly
executed by such individuals, which is filed with the Securities and Exchange Commission herewith.
/s/ Mary T. Afflerbach
Mary T. Afflerbach
Attorney-in-Fact
Date: 16 November 2017
132
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE II–VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended 30 September 2017, 2016, and 2015
Year Ended 30 September 2017
Allowance for doubtful accounts
Allowance for deferred tax assets (B)
Year Ended 30 September 2016
Allowance for doubtful accounts
Allowance for deferred tax assets(C)
Year Ended 30 September 2015
Allowance for doubtful accounts
Allowance for deferred tax assets
Balance at
Beginning
of Period
Additions
Charged to
Expense
Additions
Charged to
Other Accounts
Other
Changes(A)
Balance
at End of
Period
$55
165
$48
112
$58
106
$7
6
$9
1
$8
—
$39
7
$13
52
$18
9
($7)
(70)
($15)
—
($36)
(3)
$94
108
$55
165
$48
112
(A) Other changes related to allowance for doubtful accounts primarily includes write-offs of uncollectible trade receivables, net
of recoveries. Other Changes also includes the impact of foreign currency translation adjustments.
(B) The decrease in the valuation allowance was primarily due to the utilization of federal and state loss carryforwards as a
result of recognizing the gain on the sale of our PMD business. This benefit was recorded in discontinued operations. See
Note 3, Discontinued Operations, for additional information.
(C) The increase in the valuation allowance was primarily due to the loss recorded on the exit from the Energy-from-Waste
business. These costs were recorded in discontinued operations. See Note 3, Discontinued Operations, for additional
information.
133
Shareholders’ information
Common stock information
Ticker Symbol: APD
Exchange Listing: New York Stock Exchange
Transfer Agent and Registrar:
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Phone: 844-318-0129
International: 720-358-3595
Fax: 215-553-5402
shareholder@broadridge.com
Publications for shareholders
In addition to this Annual Report on Form 10-K for the fiscal year
ended September 30, 2017, Air Products informs shareholders
about Company news through:
Notice of Annual Meeting and Proxy Statement—made available
to shareholders in mid-December and posted to the Company’s
website at www.airproducts.com/annualmeetingmaterials.
Earnings information—shareholders and investors can obtain cop-
ies of earnings releases, Annual Reports, 10-Ks and news releases
by visiting www.airproducts.com/investors/overview. Shareholders
and investors can also register for e-mail updates at that website.
Direct investment program
Current shareholders and new investors can conveniently and
economically purchase shares of Air Products’ common stock and
reinvest cash dividends through Broadridge Corporate Issuer
Solutions. Registered shareholders can purchase shares on
Broadridge Corporate Issuer Solutions, shareholder@broadridge.com.
New investors can obtain information on the website or by calling:
Phone: 844-318-0129
International: 720-358-3595
Annual meeting
The annual meeting of shareholders will be held on Thursday,
January 25, 2018.
Annual certifications
The most recent certifications by our Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 are filed as exhibits to our Form 10-K. We have also filed
with the New York Stock Exchange the most recent Annual CEO
Certification as required by Section 303A.12(a) of the New York
Stock Exchange Listed Company Manual.
Additional information
The forward-looking statements contained in this Report are
qualified by reference to the section entitled “Forward-Looking
Statements” on page 53 of the Form 10-K section.
For more information,
please contact us at:
Corporate Headquarters
Air Products
7201 Hamilton Boulevard
Allentown, PA 18195-1501
T 610-481-4911
F 610-481-5900
Corporate Secretary’s Office
Mary Afflerbach, Vice President,
Corporate Secretary and
Chief Governance Officer
T 610-481-2297
Investor Relations Office
Simon Moore, Vice President,
Investor Relations and
Corporate Relations
T 610-481-5775
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