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
Sean D. Major, Executive Vice President,
General Counsel and Secretary
T 610-481-4880
Investor Relations Office
Simon Moore, Vice President,
Investor Relations and
Corporate Relations
T 610-481-5775
Back Cover
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© Air Products and Chemicals, Inc., 2019 (42863) 900-20-001-GLB
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Inside Front Cover
Inside Back Cover
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Exchange Listing: New York Stock Exchange
economically purchase shares of Air Products’ common stock and
Shareholders’ information
Common stock information
Ticker Symbol: APD
Transfer Agent and Registrar:
Broadridge Corporate Issuer Solutions, Inc.
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
Direct investment program
Current shareholders and new investors can conveniently 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
January 23, 2020.
The 2020 annual meeting of shareholders will be held on Thursday,
In addition to this Annual Report and the accompanying Annual
Report on Form 10-K, Air Products informs shareholders
Annual certifications
about Company news through:
The most recent certifications by our Chief Executive Officer and
Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Notice of Annual Meeting and Proxy Statement—made available
Oxley Act of 2002 are filed as exhibits to our Form 10-K. We have
to shareholders in mid-December and posted to the Company’s
also filed with the New York Stock Exchange the most recent Annual
website at www.airproducts.com/annualmeetingmaterials.
CEO Certification as required by Section 303A.12(a) of the New York
Earnings information—shareholders and investors can obtain
copies of earnings releases, periodic and current reports, and news
releases by visiting investors.airproducts.com. Shareholders and
investors can also register for e-mail updates at that website.
Stock Exchange Listed Company Manual.
Additional information
The forward-looking statements contained in this Annual Report
are qualified by reference to the section entitled “Forward-Looking
Statements” beginning on page 3 of the accompanying Annual
Report on Form 10-K.
Air Products | 2019 Annual Report
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Inside front cover goes here
Our Businesses
Air Products reported fiscal year 2019 results under five segments:
• Industrial Gases – Americas
• Industrial Gases – EMEA (Europe, Middle East, and Africa)
• Industrial Gases – Asia
• Industrial Gases – Global
• Corporate and other
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, helium, carbon dioxide, carbon monoxide, syngas,
and specialty gases. We serve customers in many industries, including
refining, chemical, gasification, metals, electronics, manufacturing, food
and beverage, welding, and healthcare. 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.
The Industrial Gases – Global segment includes atmospheric sale of
equipment businesses, such as air separation units and noncryogenic
generators, as well as global resources associated with the Industrial Gases
business. 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 the Industrial Gases segments.
The Corporate and other segment includes three global equipment
businesses: liquefied natural gas (LNG) equipment, liquid helium and
liquid hydrogen transport and storage containers, and turboexpanders and
other precision rotating equipment. This segment also includes corporate
support functions that benefit all segments.
42863_Annual_Report_2019_Narrative.indd 3
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Financial highlights
Non-GAAP measures
Consolidated sales by region
Consolidated sales by business segment
Adjusted EBITDA
25%
11%
19%
41%
4%
■ U.S./Canada
■ Europe/Middle East/Africa
■ Asia (excluding China)
■ China
■ Latin America
23%
43%
30%
■ IG – Americas
■ IG – EMEA
■ IG – Asia
■ IG – Global
■ Corporate and other
3%
1%
Millions of dollars, except for per share data
2019
2018
Change
FOR THE YEAR (all from continuing operations, unless otherwise indicated)
GAAP
Sales
Net income margin(A)
Operating margin
Return on capital employed (“ROCE”) (GAAP Basis)
Cash used for investing activities
NON-GAAP
Adjusted EBITDA margin(B)
Adjusted operating margin (B)
ROCE (Non-GAAP Basis)(B)
Capital expenditures(C)
PER SHARE
GAAP diluted earnings per share (“EPS”)
Adjusted diluted EPS(B)
Dividends declared per common share
$ 8,919
$ 8,930
20.3%
24.0%
9.4%
17.2%
22.0%
8.2%
$ 2,113
$ 1,642
38.9%
24.3%
13.1%
34.9%
21.7%
12.4%
$ 2,129
$ 1,914
$ 7.94
$ 6.59
8.21
4.58
7.45
4.25
–%
310 bp
200 bp
120 bp
29%
400 bp
260 bp
70 bp
11%
20%
10%
8%
(A) Fiscal year 2018 includes the impact from discontinued operations.
(B) Amounts are non-GAAP financial measures. See pages III-VII for reconciliation to the comparable GAAP measures.
(C) Amounts are non-GAAP financial measures. See reconciliation to the comparable GAAP measures within Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, of the accompanying Annual Report on Form 10-K.
Air Products | 2019 Annual Report
II
42863_Annual_Report_2019_Narrative.indd 4
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We define Adjusted EBITDA as net income less income (loss)
from discontinued operations, net of tax, and excluding certain
non-GAAP adjustments, 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 and adjusted EBITDA margin provide useful metrics for
Adjusted EBITDA
Adjusted EBITDA margin
$ 794.9
$ 824.8
$ 891.6
$ 956.7
$3,468.0
35.7%
37.7%
40.1%
41.9%
38.9%
2019
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision
Add: Depreciation and amortization
Add: Facility closure
Add: Cost reduction actions
Less: Gain on exchange of equity affiliate investments
2018
Sales
Net income
Net income margin
Net income
net of tax
Add: Interest expense
Less: Income (loss) from discontinued operations,
Less: Other non-operating income (expense), net
Add: Income tax provision
Add: Depreciation and amortization
Less: Change in inventory valuation method
Add: Tax reform repatriation - equity method investment
Q1
$2,224.0
$ 357.0
Q2
$2,187.7
$ 433.5
Q3
$2,224.0
$ 500.2
Q4
$ 2,283.2
$ 518.7
Total
$ 8,918.9
$ 1,809.4
16.0%
19.8%
22.5%
22.7%
20.3%
$ 357.0
$ 433.5
$ 500.2
$ 518.7
$ 1,809.4
—
37.3
18.5
132.1
258.0
29.0
—
—
(1.0)
29.8
9.8
291.8
227.9
—
32.5
—
35.4
13.7
107.5
262.1
—
—
—
—
30.4
11.1
56.2
240.0
—
—
—
34.2
17.6
109.3
269.1
—
25.5
29.1
43.2
34.9
12.8
107.1
245.6
—
—
—
30.1
16.9
131.2
293.6
—
—
—
—
137.0
66.7
480.1
1,082.8
29.0
25.5
29.1
—
35.4
(28.6)
69.2
257.2
24.1
(4.0)
42.2
130.5
5.1
524.3
970.7
24.1
28.5
Q1
$ 2,216.6
$ 161.7
Q2
$2,155.7
$ 423.6
Q3
$2,259.0
$ 487.9
Q4
$2,298.9
$ 459.7
Total
$8,930.2
$ 1,532.9
7.3%
19.7%
21.6%
20.0%
17.2%
$ 161.7
$ 423.6
$ 487.9
$ 459.7
$ 1,532.9
Adjusted EBITDA
Adjusted EBITDA margin
$ 734.9
$ 739.1
$ 819.5
$ 822.0
$ 3,115.5
33.2%
34.3%
36.3%
35.8%
34.9%
Consolidated sales by business segment
Adjusted EBITDA
Non-GAAP measures
We define Adjusted EBITDA as net income less income (loss)
management to assess operating performance. Net income
from discontinued operations, net of tax, and excluding certain
margin and adjusted EBITDA margin are calculated by dividing
non-GAAP adjustments, which the Company does not believe
each measure by consolidated sales for the respective period.
to be indicative of underlying business trends, before interest
Below is a presentation of consolidated sales and a reconciliation
expense, other non-operating income (expense), net, income tax
of net income on a GAAP basis to adjusted EBITDA and net income
provision, and depreciation and amortization expense. Adjusted
margin on a GAAP basis to adjusted EBITDA margin.
EBITDA and adjusted EBITDA margin provide useful metrics for
2019
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision
Add: Depreciation and amortization
Add: Facility closure
Add: Cost reduction actions
Less: Gain on exchange of equity affiliate investments
Q1
$2,224.0
$ 357.0
Q2
$2,187.7
$ 433.5
Q3
$2,224.0
$ 500.2
Q4
$ 2,283.2
$ 518.7
Total
$ 8,918.9
$ 1,809.4
16.0%
19.8%
22.5%
22.7%
20.3%
$ 357.0
$ 433.5
$ 500.2
$ 518.7
$ 1,809.4
—
37.3
18.5
132.1
258.0
29.0
—
—
—
35.4
13.7
107.5
262.1
—
—
—
—
34.2
17.6
109.3
269.1
—
25.5
29.1
—
30.1
16.9
131.2
293.6
—
—
—
—
137.0
66.7
480.1
1,082.8
29.0
25.5
29.1
Adjusted EBITDA
Adjusted EBITDA margin
$ 794.9
$ 824.8
$ 891.6
$ 956.7
$3,468.0
35.7%
37.7%
40.1%
41.9%
38.9%
2018
Sales
Net income
Net income margin
Net income
Less: Income (loss) from discontinued operations,
net of tax
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision
Add: Depreciation and amortization
Less: Change in inventory valuation method
Add: Tax reform repatriation - equity method investment
Q1
$ 2,216.6
$ 161.7
Q2
$2,155.7
$ 423.6
Q3
$2,259.0
$ 487.9
Q4
$2,298.9
$ 459.7
Total
$8,930.2
$ 1,532.9
7.3%
19.7%
21.6%
20.0%
17.2%
$ 161.7
$ 423.6
$ 487.9
$ 459.7
$ 1,532.9
(1.0)
29.8
9.8
291.8
227.9
—
32.5
—
30.4
11.1
56.2
240.0
—
—
43.2
34.9
12.8
107.1
245.6
—
—
—
35.4
(28.6)
69.2
257.2
24.1
(4.0)
42.2
130.5
5.1
524.3
970.7
24.1
28.5
Adjusted EBITDA
Adjusted EBITDA margin
$ 734.9
$ 739.1
$ 819.5
$ 822.0
$ 3,115.5
33.2%
34.3%
36.3%
35.8%
34.9%
42863_Annual_Report_2019_Narrative.indd 5
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Millions of dollars, except for per share data
2019
2018
Change
FOR THE YEAR (all from continuing operations, unless otherwise indicated)
Return on capital employed (“ROCE”) (GAAP Basis)
Cash used for investing activities
$ 2,113
$ 1,642
GAAP
Sales
Net income margin(A)
Operating margin
NON-GAAP
Adjusted EBITDA margin(B)
Adjusted operating margin (B)
ROCE (Non-GAAP Basis)(B)
Capital expenditures(C)
PER SHARE
GAAP diluted earnings per share (“EPS”)
Adjusted diluted EPS(B)
Dividends declared per common share
$ 8,919
$ 8,930
20.3%
24.0%
9.4%
38.9%
24.3%
13.1%
17.2%
22.0%
8.2%
34.9%
21.7%
12.4%
$ 2,129
$ 1,914
$ 7.94
$ 6.59
8.21
4.58
7.45
4.25
–%
310 bp
200 bp
120 bp
29%
400 bp
260 bp
70 bp
11%
20%
10%
8%
(A) Fiscal year 2018 includes the impact from discontinued operations.
(B) Amounts are non-GAAP financial measures. See pages III-VII for reconciliation to the comparable GAAP measures.
(C) Amounts are non-GAAP financial measures. See reconciliation to the comparable GAAP measures within Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, of the accompanying Annual Report on Form 10-K.
2017
Sales
Net income
Net income margin
Net income
Less: Income (loss) from discontinued operations, net of tax
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision (benefit)
Add: Depreciation and amortization
Add: Business separation costs
Add: Cost reduction and asset actions
Add: Goodwill and intangible asset impairment charge
Less: Gain on land sale
Add: Equity method investment impairment charge
Adjusted EBITDA
Adjusted EBITDA margin
2016
Sales
Net income
Net income margin
Net income
Less: Income (loss) from discontinued operations, net of tax
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Cost reduction and asset actions
Add: Pension settlement loss
Add: Loss on extinguishment of debt
Adjusted EBITDA
Adjusted EBITDA margin
Q1
$1,882.5
$ 306.4
Q2
$1,980.1
$2,135.7
Q3
$2,121.9
$ 104.1
Q4
$2,203.1
$ 475.0
16.3%
107.9%
4.9%
21.6%
$ 306.4
48.2
29.5
(.2)
78.4
206.1
32.5
50.0
—
—
—
$ 2,135.7
1,825.6
30.5
5.3
94.5
211.8
—
10.3
—
—
—
$ 104.1
$ 475.0
(2.3)
29.8
3.7
89.3
216.9
—
42.7
162.1
—
79.5
(5.5)
30.8
7.8
(1.3)
231.0
—
48.4
—
12.2
—
$ 654.9
$ 651.9
$ 723.0
$ 769.4
34.8%
32.9%
34.1%
34.9%
Q1
$1,866.3
$ 372.0
Q2
$ 1,777.4
($465.5)
Q3
$1,914.5
$ 354.1
Q4
$1,945.5
$ 400.9
19.9%
(26.2)%
18.5%
20.6%
$ 372.0
84.8
22.2
96.4
214.7
12.0
—
—
—
($465.5)
(750.2)
25.7
93.5
213.9
7.4
10.7
2.0
—
$ 354.1
$ 400.9
98.4
35.1
145.9
213.5
9.5
13.2
1.0
–
106.5
32.2
96.8
212.5
21.7
10.6
2.1
6.9
$ 632.5
$ 637.9
$ 673.9
$ 677.2
33.9%
35.9%
35.2%
34.8%
2015
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Less: Gain on previously held equity interest
Less: Gain on land sales
Add: Pension settlement loss
Add: Loss on extinguishment of debt
Adjusted EBITDA
Adjusted EBITDA margin
2014(A)
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business restructuring and cost reduction actions
Add: Goodwill and intangible asset impairment charge
Add: Pension settlement loss
Adjusted EBITDA
Adjusted EBITDA margin
Materials Technologies segment.
Q1
$2,041.0
$ 337.5
Q2
$1,885.3
$ 296.9
Q3
$ 1,934.4
$ 333.2
Q4
$1,963.6
$350.0
16.5%
15.7%
17.2%
17.8%
$ 337.5
$ 296.9
$ 333.2
$ 350.0
76.7
28.8
76.8
215.3
—
24.3
17.9
—
—
—
1.3
33.3
95.3
234.2
—
—
—
103.4
23.2
63.0
213.9
—
52.9
—
—
11.9
—
(2.1)
31.5
93.0
229.1
—
—
—
99.4
28.1
74.7
214.2
—
49.6
—
—
1.4
–
(2.0)
31.3
103.0
239.0
—
—
—
$ 588.1
$ 558.4
$ 601.8
$ 651.1
28.8%
29.6%
31.1%
33.2%
Q1
$ 2,545.5
$ 299.0
Q2
$2,581.9
$ 291.6
Q3
$2,634.6
$ 323.4
11.7%
11.3%
12.3%
Q4
$2,677.0
79.1
3.0%
$ 299.0
$ 291.6
$ 323.4
$ 79.1
72.2
22.7
85.7
215.1
7.5
53.3
—
33.6
6.0
16.6
(.1)
29.0
78.1
254.6
12.7
310.1
5.5
(A) Fiscal year 2014 is presented as previously reported in our Annual Report on Form 10-K for the year ended September 30, 2016, which included the results of the former
$ 660.5
$ 647.3
$ 698.7
$ 769.2
25.9%
25.1%
26.5%
28.7%
IV
42863_Annual_Report_2019_Narrative.indd 6
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Air Products | 2019 Annual Report 2017
Sales
Net income
Net income margin
Net income
Less: Income (loss) from discontinued operations, net of tax
Add: Interest expense
Less: Other non-operating income (expense), net
Add: Income tax provision (benefit)
Add: Depreciation and amortization
Add: Business separation costs
Add: Cost reduction and asset actions
Add: Goodwill and intangible asset impairment charge
Add: Equity method investment impairment charge
Less: Gain on land sale
Adjusted EBITDA
Adjusted EBITDA margin
2016
Sales
Net income
Net income margin
Net income
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Cost reduction and asset actions
Add: Pension settlement loss
Add: Loss on extinguishment of debt
Adjusted EBITDA
Adjusted EBITDA margin
Less: Income (loss) from discontinued operations, net of tax
Q1
$1,882.5
$ 306.4
$ 306.4
48.2
29.5
(.2)
78.4
206.1
32.5
50.0
—
—
—
Q1
$1,866.3
$ 372.0
$ 372.0
84.8
22.2
96.4
214.7
12.0
—
—
—
Q2
$1,980.1
$2,135.7
$ 2,135.7
1,825.6
30.5
5.3
94.5
211.8
—
10.3
—
—
—
Q2
$ 1,777.4
($465.5)
($465.5)
(750.2)
25.7
93.5
213.9
7.4
10.7
2.0
—
(2.3)
29.8
3.7
89.3
216.9
—
42.7
162.1
—
79.5
98.4
35.1
145.9
213.5
9.5
13.2
1.0
–
(5.5)
30.8
7.8
(1.3)
231.0
—
48.4
—
12.2
—
106.5
32.2
96.8
212.5
21.7
10.6
2.1
6.9
$ 654.9
$ 651.9
$ 723.0
$ 769.4
34.8%
32.9%
34.1%
34.9%
19.9%
(26.2)%
18.5%
20.6%
Q3
$1,914.5
$ 354.1
Q4
$1,945.5
$ 400.9
$ 354.1
$ 400.9
$ 632.5
$ 637.9
$ 673.9
$ 677.2
33.9%
35.9%
35.2%
34.8%
16.3%
107.9%
4.9%
21.6%
Q3
$2,121.9
$ 104.1
Q4
$2,203.1
$ 475.0
$ 104.1
$ 475.0
2015
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business separation costs
Add: Business restructuring and cost reduction actions
Less: Gain on previously held equity interest
Less: Gain on land sales
Add: Pension settlement loss
Add: Loss on extinguishment of debt
Adjusted EBITDA
Adjusted EBITDA margin
2014(A)
Sales
Net income
Net income margin
Net income
Less: Income from discontinued operations, net of tax
Add: Interest expense
Add: Income tax provision
Add: Depreciation and amortization
Add: Business restructuring and cost reduction actions
Add: Goodwill and intangible asset impairment charge
Add: Pension settlement loss
Adjusted EBITDA
Adjusted EBITDA margin
Q1
$2,041.0
$ 337.5
Q2
$1,885.3
$ 296.9
Q3
$ 1,934.4
$ 333.2
Q4
$1,963.6
$350.0
16.5%
15.7%
17.2%
17.8%
$ 337.5
$ 296.9
$ 333.2
$ 350.0
76.7
28.8
76.8
215.3
—
24.3
17.9
—
—
—
103.4
23.2
63.0
213.9
—
52.9
—
—
11.9
—
99.4
28.1
74.7
214.2
—
49.6
—
—
1.4
–
72.2
22.7
85.7
215.1
7.5
53.3
—
33.6
6.0
16.6
$ 588.1
$ 558.4
$ 601.8
$ 651.1
28.8%
29.6%
31.1%
33.2%
Q1
$ 2,545.5
$ 299.0
Q2
$2,581.9
$ 291.6
Q3
$2,634.6
$ 323.4
11.7%
11.3%
12.3%
Q4
$2,677.0
79.1
3.0%
$ 299.0
$ 291.6
$ 323.4
$ 79.1
1.3
33.3
95.3
234.2
—
—
—
(2.1)
31.5
93.0
229.1
—
—
—
(2.0)
31.3
103.0
239.0
—
—
—
(.1)
29.0
78.1
254.6
12.7
310.1
5.5
$ 660.5
$ 647.3
$ 698.7
$ 769.2
25.9%
25.1%
26.5%
28.7%
(A) Fiscal year 2014 is presented as previously reported in our Annual Report on Form 10-K for the year ended September 30, 2016, which included the results of the former
Materials Technologies segment.
42863_Annual_Report_2019_Narrative.indd 7
V
12/4/19 12:52 PM
Adjusted Operating Margin
Below is a reconciliation of adjusted operating margin to
operating margin on a GAAP basis. Operating margin and
consolidated sales for each period. The adjusted measures
exclude the impact of certain disclosed items that we believe are
adjusted operating margin are calculated by dividing operating
not representative of underlying business performance.
income and adjusted operating income, respectively, by
Return on capital employed (“ROCE”) (Non-GAAP Basis)
Return on capital employed (“ROCE”) is calculated on a continuing
operations basis. Management considers this measure to be useful
in evaluating the Company’s returns on capital.
Sales
Operating income
Operating margin
Operating income
Change in inventory valuation method
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Adjusted operating income
Adjusted operating margin
2019
$8,918.9
2,144.4
24.0 %
$ 2,144.4
—
29.0
25.5
(29.1)
$2,169.8
24.3 %
Change
200 bp
2018
$8,930.2
1,965.6
22.0%
$ 1,965.6
(24.1)
—
—
—
$ 1,941.5
21.7 %
260 bp
Adjusted Diluted Earnings Per Share (EPS)
Adjusted diluted EPS is calculated as net income from continuing
operations attributable to Air Products, excluding the impact
of certain items that we believe are not representative of our
underlying business performance, 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.
Diluted EPS
Change in inventory valuation method
Facility closure
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring, cost reduction, and asset actions
Goodwill and intangible asset impairment charge
Gain on exchange of equity affiliate investments
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Pension settlement loss
Loss on extinguishment of debt
Tax reform repatriation
Tax reform adjustment related to deemed foreign
dividends
Tax reform rate change and other
Tax restructuring
Tax election benefit
Adjusted Diluted EPS
Diluted EPS $ change
Diluted EPS % change
Adjusted Diluted EPS $ change
Adjusted Diluted EPS % change
VI
2019
2018
2017
2016
2015
2014
$ 7.94
$ 6.59
$ 5.16
$ 5.04
$ 4.29
$ 3.24
—
.10
—
—
.08
—
(.13)
—
—
—
.02
—
(.06)
.26
—
—
—
(.08)
—
—
—
—
—
—
—
—
—
.15
—
2.16
(.25)
(.96)
(.16)
—
$ 8.21
$ 1.35
$ 7.45
$ 1.43
—
—
.12
(.02)
.49
.70
—
—
(.03)
.36
.03
—
—
—
—
—
(.50)
$ 6.31
$ .12
—
—
.21
.24
.11
—
—
—
—
—
.02
.02
—
—
—
—
—
—
—
.03
—
.61
—
—
(.05)
(.13)
—
.06
.07
—
—
—
—
—
$ 5.64
$ .75
$ 4.88
$ 1.05
20%
28%
2%
17%
32%
$ .76
$ 1.14
$ .67
$ .76
$ .46
10%
18%
12%
16%
10%
—
—
—
—
.03
1.27
—
—
—
—
.02
—
—
—
—
—
(.14)
$ 4.42
42863_Annual_Report_2019_Narrative.indd 8
12/4/19 12:52 PM
ROCE (GAAP Basis)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Net income
$ 518.7 $ 500.2 $ 433.5
$ 357.0
$ 459.7
$ 487.9 $ 423.6 $ 161.7
$ 475.0
Total liabilities and equity
18,942.8
19,531.9
19,244.5
19,142.0
19,178.3
19,206.0
18,511.1
18,208.8
18,467.2
2019
2018
2017
Q4
Net income
$ 518.7 $ 500.2 $ 433.5
$ 357.0
$ 459.7
$ 487.9 $ 423.6 $ 161.7
$ 475.0
Four-Quarter Trailing Net Income
1,809.4
Five-Quarter Average Total
Liabilities and Equity
ROCE (GAAP Basis)
ROCE (GAAP Basis) change
ROCE (Non-GAAP Basis)
19,207.9
9.4%
120 bp
—
30.1
—
—
—
—
—
—
—
—
—
—
—
—
34.2
—
—
25.5
(29.1)
—
—
3.2
—
—
—
—
—
35.4
—
—
—
—
—
—
—
—
—
—
5.0
Income (loss) from discontinued
operations, net of tax
Interest expense
Change in inventory valuation
method
Facility closure
Cost reduction and asset actions
Gain on exchange of equity
affiliate investments
Gain on land sale
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to
deemed foreign dividends
Tax reform rate change and other
Tax restructuring
Tax election benefit
Tax other(A)
Total Capital
Less: Payables and accrued
liabilities
56.2
(56.2)
1,532.9
18,714.3
8.2%
—
35.4
(24.1)
—
—
—
—
43.7
24.1
2.2
3.1
—
(8.5)
1,776.2
14,378.4
12.4%
—
37.3
—
29.0
—
(15.6)
—
—
—
—
—
—
111.9
1,551.6
768.9
—
—
Return After-Tax—Non GAAP
542.7 $ 521.2 $ 465.7
$ 446.9
$ 479.4
$ 472.8 $ 411.6 $ 412.4
$ 423.9
(6.1)
(12.8)
(8.2)
(17.0)
(6.8)
(3.6)
(19.1)
Total liabilities and equity
$18,942.8 $19,531.9 $19,244.5
$19,142.0
$ 19,178.3
$19,206.0 $ 18,511.1 $18,208.8 $18,467.2
1,635.7
1,543.2
1,513.7
1,738.3
1,817.8
1,968.4
1,551.6
1,609.5
1,814.3
Less: Accrued income taxes
86.6
65.6
70.7
59.6
46.0
76.6
110.1
98.6
Less: Other noncurrent liabilities
1,712.4
1,553.6
1,560.5
1,536.9
1,831.8
1,923.5
1,921.9
1,611.9
Less: Deferred income taxes
793.8
823.2
805.4
775.1
678.6
699.7
719.2
778.4
Less: Current liabilities of
discontinued operations
Less: Assets of discontinued
operations
—
—
—
—
—
—
—
—
—
—
—
—
13.6
15.7
10.2
10.2
Capital Employed—Non GAAP
$ 14,714.3 $15,546.3 $15,294.2
$14,971.3
$14,988.9
$ 14,681.2 $14,259.7 $ 13,824.3 $ 14,138.1
Four-Quarter Trailing Return
After-Tax—Non-GAAP
Five-Quarter Average Capital
Employed—Non-GAAP
ROCE (Non-GAAP Basis)
ROCE (Non-GAAP Basis) change
1,976.5
15,103.0
13.1%
70 bp
(A) Represents the tax impact on our pre-tax non-GAAP adjustments.
(43.2)
34.9
—
30.4
1.0
29.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(38.8)
—
—
—
—
—
—
—
—
—
453.0
(214.0)
5.5
30.8
—
—
48.4
—
(12.2)
.9
—
—
—
—
(111.4)
(13.1)
Air Products | 2019 Annual Report
Sales
Operating income
Operating margin
Operating income
Change in inventory valuation method
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Adjusted operating income
Adjusted operating margin
consolidated sales for each period. The adjusted measures
exclude the impact of certain disclosed items that we believe are
not representative of underlying business performance.
Change
200 bp
2019
$8,918.9
2,144.4
24.0 %
$ 2,144.4
—
29.0
25.5
(29.1)
$2,169.8
24.3 %
2018
$8,930.2
1,965.6
22.0%
$ 1,965.6
(24.1)
—
—
—
$ 1,941.5
21.7 %
260 bp
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.
2019
2018
2017
2016
2015
2014
$ 7.94
$ 6.59
$ 5.16
$ 5.04
$ 4.29
$ 3.24
Diluted EPS
Change in inventory valuation method
Facility closure
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring, cost reduction, and asset actions
Goodwill and intangible asset impairment charge
Gain on exchange of equity affiliate investments
(.13)
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Pension settlement loss
Loss on extinguishment of debt
Tax reform repatriation
Tax reform adjustment related to deemed foreign
dividends
Tax reform rate change and other
—
.10
—
—
.08
—
—
—
—
.02
—
.26
—
—
—
(.06)
(.08)
—
—
—
—
—
—
—
—
—
.15
—
2.16
(.25)
(.96)
(.16)
—
(.02)
—
—
.12
.49
.70
—
—
(.03)
.36
.03
—
—
—
—
—
—
—
.21
.24
.11
—
—
—
—
—
.02
.02
—
—
—
—
—
Tax restructuring
Tax election benefit
Adjusted Diluted EPS
Diluted EPS $ change
Diluted EPS % change
Adjusted Diluted EPS $ change
Adjusted Diluted EPS % change
$ .76
$ 1.14
$ .67
$ .76
$ .46
10%
18%
12%
$ 8.21
$ 1.35
$ 7.45
$ 1.43
(.50)
$ 6.31
$ .12
20%
28%
2%
$ 5.64
$ .75
$ 4.88
$ 1.05
17%
16%
32%
10%
(.05)
(.13)
—
—
.03
—
.61
—
—
—
.06
.07
—
—
—
—
—
—
—
—
—
.03
1.27
—
—
—
—
.02
—
—
—
—
—
(.14)
$ 4.42
Return on capital employed (“ROCE”) (Non-GAAP Basis)
Return on capital employed (“ROCE”) is calculated on a continuing
operations basis. Management considers this measure to be useful
in evaluating the Company’s returns on capital.
ROCE (GAAP Basis)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2019
2018
2017
Q4
Net income
$ 518.7 $ 500.2 $ 433.5
$ 357.0
$ 459.7
$ 487.9 $ 423.6 $ 161.7
$ 475.0
Total liabilities and equity
18,942.8
19,531.9
19,244.5
19,142.0
19,178.3
19,206.0
18,511.1
18,208.8
18,467.2
Four-Quarter Trailing Net Income
1,809.4
Five-Quarter Average Total
Liabilities and Equity
ROCE (GAAP Basis)
ROCE (GAAP Basis) change
ROCE (Non-GAAP Basis)
19,207.9
9.4%
120 bp
1,532.9
18,714.3
8.2%
Net income
$ 518.7 $ 500.2 $ 433.5
$ 357.0
$ 459.7
$ 487.9 $ 423.6 $ 161.7
$ 475.0
Income (loss) from discontinued
operations, net of tax
Interest expense
Change in inventory valuation
method
Facility closure
Cost reduction and asset actions
Gain on exchange of equity
affiliate investments
Gain on land sale
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to
deemed foreign dividends
Tax reform rate change and other
Tax restructuring
Tax election benefit
Tax other(A)
—
30.1
—
—
—
—
—
—
—
—
—
—
—
—
34.2
—
—
25.5
(29.1)
—
—
3.2
—
—
—
—
—
35.4
—
—
—
—
—
5.0
—
—
—
—
—
—
37.3
—
29.0
—
—
—
—
(15.6)
—
35.4
(24.1)
—
—
—
—
43.7
24.1
56.2
(56.2)
—
—
—
2.2
3.1
—
(8.5)
(43.2)
34.9
—
30.4
1.0
29.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(38.8)
—
—
—
—
—
—
—
453.0
—
(214.0)
—
—
(6.8)
(3.6)
(19.1)
5.5
30.8
—
—
48.4
—
(12.2)
.9
—
—
—
—
(111.4)
(13.1)
(6.1)
(12.8)
(8.2)
(17.0)
Return After-Tax—Non GAAP
542.7 $ 521.2 $ 465.7
$ 446.9
$ 479.4
$ 472.8 $ 411.6 $ 412.4
$ 423.9
Total Capital
Total liabilities and equity
$18,942.8 $19,531.9 $19,244.5
$19,142.0
$ 19,178.3
$19,206.0 $ 18,511.1 $18,208.8 $18,467.2
Less: Payables and accrued
liabilities
1,635.7
1,543.2
1,513.7
1,738.3
1,817.8
1,968.4
1,551.6
1,609.5
1,814.3
Less: Accrued income taxes
86.6
65.6
70.7
Less: Other noncurrent liabilities
1,712.4
1,553.6
1,560.5
Less: Deferred income taxes
793.8
823.2
805.4
Less: Current liabilities of
discontinued operations
Less: Assets of discontinued
operations
—
—
—
—
—
—
111.9
1,551.6
768.9
—
—
59.6
46.0
76.6
110.1
98.6
1,536.9
1,831.8
1,923.5
1,921.9
1,611.9
775.1
678.6
699.7
719.2
778.4
—
—
—
—
—
—
13.6
15.7
10.2
10.2
Capital Employed—Non GAAP
$ 14,714.3 $15,546.3 $15,294.2
$14,971.3
$14,988.9
$ 14,681.2 $14,259.7 $ 13,824.3 $ 14,138.1
Four-Quarter Trailing Return
After-Tax—Non-GAAP
Five-Quarter Average Capital
Employed—Non-GAAP
ROCE (Non-GAAP Basis)
ROCE (Non-GAAP Basis) change
1,976.5
15,103.0
13.1%
70 bp
(A) Represents the tax impact on our pre-tax non-GAAP adjustments.
1,776.2
14,378.4
12.4%
42863_Annual_Report_2019_Narrative.indd 9
VII
12/4/19 12:52 PM
To our shareholders*
My fellow shareholders,
In my fi rst letter to you fi ve years ago, I described a strategic Five-Point
Plan to substantially reposition Air Products and make it the best
performing industrial gas company in the world.
The key points were:
1. Restructure Air Products’ portfolio by selling non-core assets and
focusing on our core business—industrial gases.
2. Substantially change and simplify the organizational structure to
make us more effi cient, improve decision making, eliminate
unnecessary layers of management, and make us more
responsive to our customers.
3. Focus on changing Air Products’ culture by emphasizing safety,
simplicity, speed, and self-confi dence.
4. Focus on cash generation by improving productivity, reducing debt
and controlling capital expenditures.
5. Change the incentive compensation system to ensure that it is
directly related to performance by each unit around the globe, with
a focus on cash generation and profi tability.
We have successfully implemented this Plan, and as you can see from
these charts, the results speak for themselves.
Seifi Ghasemi
Chairman, President and
Chief Executive Offi cer of Air Products
Adjusted earnings per share
Adjusted EBITDA margin trend
Up almost 1700 basis points
$8.50
$8.00
$7.50
$7.00
$6.50
$6.00
$5.50
$5.00
$4.50
$4.00
42%
40%
38%
36%
34%
32%
30%
28%
41.9%
40.1%
37.7%
36.3%
34.9%
34.1%
34.3%
35.8%
35.7%
35.9%
35.2%
34.8%
34.8%
32.9%
33.2%
33.9%
33.2%
31.1%
29.6%
28.8%
28.7%
26.5%
26%
25.1%
13 % C A G R
+10%
+18%
+12%
+16%
+10%
FY14
FY15
FY16
FY17
FY18
FY19
Q2
14
Q3
14
Q4
14
Q1
15
Q2
15
Q3
15
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Q3
17
Q4
17
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Q3
19
Q4
19
24%
* The results included in this letter are non-GAAP.
See reconciliation to GAAP results on pages III-VII.
Air Products | 2019 Annual Report
VIII
42863_Annual_Report_2019_Narrative.indd 10
12/4/19 12:52 PM
“But I do not want to focus on past performance,
because I like the dreams of the future more than
the history of the past.”
Five Point Plan: Moving Forward
Sustain
the lead
Deploy
capital
Evolve
portfolio
Safest, most diverse,
Strategically
and most profitable
Grow onsite
portion
Best-in-class
performance
Productivity
invest significant
available capacity
Win profitable
growth projects
globally
Energy,
environment and
emerging markets
Change
culture
4S
Belong
and matter
Inclusion
Committed and
motivated
Enjoyable work
environment
Positive attitudes
Proud to innovate
and open minds
and solve
challenges
My fellow shareholders,
In my first letter to you five years ago, I described a strategic Five-Point
Plan to substantially reposition Air Products and make it the best
performing industrial gas company in the world.
The key points were:
1. Restructure Air Products’ portfolio by selling non-core assets and
focusing on our core business—industrial gases.
2. Substantially change and simplify the organizational structure to
make us more efficient, improve decision making, eliminate
unnecessary layers of management, and make us more
responsive to our customers.
3. Focus on changing Air Products’ culture by emphasizing safety,
simplicity, speed, and self-confidence.
4. Focus on cash generation by improving productivity, reducing debt
and controlling capital expenditures.
5. Change the incentive compensation system to ensure that it is
directly related to performance by each unit around the globe, with
a focus on cash generation and profitability.
We have successfully implemented this Plan, and as you can see from
these charts, the results speak for themselves.
41.9%
40.1%
Q3
19
Q4
19
“But I do not want to focus on past performance,
because I like the dreams of the future more than
the history of the past.”
Our dream of the future is to make sure
Air Products will continue to be the safest, most
diverse and most profitable industrial gas company
in the world, providing excellent service to our
customers.
Our dream of the future is for Air Products to
become the largest American chemical company as
measured by market capitalization.
Our dream of the future is to be a company that
has a higher purpose beyond just creating value for
shareholders through improved financial
performance . . .
. . . a company where people from all walks of life
and nationalities come together, work together, and
feel that they belong and that their contributions
matter and are appreciated . . .
Our dream of the future is for Air Products to be
the leader in providing solutions to the world’s
environmental challenges through:
. . . a company that is focused on innovation to solve
the substantial environmental issues facing all
humanity . . .
• Gasification of coal, petcoke, and refinery
residues;
• Developing solutions to capture CO2 from gasifiers
and hydrogen plants; and
• Further developing technologies and making
Air Products the leader in providing hydrogen for
transportation around the world.
. . . a company that is compassionate and contributes
to the well-being of all the communities in which we
operate around the globe . . .
. . . a global company that brings people from all
over the world together, to collaborate, improve
understanding and prevent conflicts that arise from
misunderstanding.
We will work hard to realize our dreams of the future by executing on our current Five-Point Plan.
Five Point Plan: Moving Forward
Sustain
the lead
Deploy
capital
Safest, most diverse,
and most profitable
Best-in-class
performance
Productivity
Strategically
invest significant
available capacity
Win profitable
growth projects
globally
Evolve
portfolio
Grow onsite
portion
Energy,
environment and
emerging markets
Change
culture
Belong
and matter
4S
Inclusion
Committed and
motivated
Enjoyable work
environment
Positive attitudes
and open minds
Proud to innovate
and solve
challenges
42863_Annual_Report_2019_Narrative.indd 11
IX
12/4/19 12:52 PM
To our shareholders continued
Fiscal 2019 Performance
Our fiscal 2019 financial performance is detailed in the
accompanying Annual Report on Form 10-K, and I would
encourage you to also see the investor slides on our web
site, which highlight our achievements and plans for the
future. One specific area I do want to mention is that I am
not satisfied with our safety performance in 2019. Safety
is our #1 priority and a moral responsibility; the only
acceptable goal is zero accidents and zero incidents.
Sustainable Growth for a Sustainable Future
Although we have improved our lost-time injury rate by
63 percent and our recordable injury rate by 22 percent
since 2014, our safety performance in fiscal 2019 was not
acceptable. Our people are redoubling their efforts in this
area so that we can move forward toward our ultimate
goal of an accident- and incident-free work environment.
Gasification
“Today”
CO2 Capture
“Tomorrow”
H2 for Mobility
“The day after tomorrow”
As we move forward, we see significant opportunities
to solve sustainability challenges through gasification,
carbon capture technology solutions, and hydrogen
for mobility. Gasification enables an environmentally
friendly way to use plentiful, lower value feedstocks, and
technology strength is key in this area. Completing the
acquisition of GE’s gasification technology this year, and
with our other capabilities, we can provide a complete
solution to our customers, including development,
technology, engineering, construction, and operation of
large syngas projects.
Importantly, the carbon dioxide (CO2) stream from
gasification is capture ready. We see significant
opportunities to capture CO2 from gasifiers and hydrogen
plants for use in enhanced oil recovery, sequestration
and dry reforming. We have experience and technology
strengths and are continuing to innovate. We are also a
leader in hydrogen fueling systems and infrastructure,
and we see great potential in the years ahead to extend
our leadership.
Together, our gasification, carbon capture and hydrogen
for mobility efforts will continue to transform the
contributions we are making to solve the urgent
environmental issues of our world.
X
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Air Products | 2019 Annual Report Although we have improved our lost-time injury rate by
63 percent and our recordable injury rate by 22 percent
since 2014, our safety performance in fiscal 2019 was not
acceptable. Our people are redoubling their efforts in this
area so that we can move forward toward our ultimate
goal of an accident- and incident-free work environment.
Acknowledgments
Sustainable Growth for a Sustainable Future
H2 for Mobility
“The day after tomorrow”
Importantly, the carbon dioxide (CO2) stream from
gasification is capture ready. We see significant
opportunities to capture CO2 from gasifiers and hydrogen
plants for use in enhanced oil recovery, sequestration
and dry reforming. We have experience and technology
strengths and are continuing to innovate. We are also a
leader in hydrogen fueling systems and infrastructure,
and we see great potential in the years ahead to extend
our leadership.
Together, our gasification, carbon capture and hydrogen
for mobility efforts will continue to transform the
contributions we are making to solve the urgent
environmental issues of our world.
As I do each year, in closing, I want to sincerely thank those who have supported us 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 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 trusting us and giving us your business.
To our employees . . . It is an honor and privilege to work with the great team at
Air Products. Thank you for never being satisfied in executing against our Five-Point
Plan. Being the biggest industrial gas company in the world was never our end goal;
being the best has always been. We have a unique opportunity to continue our drive
forward with our focused strategy and take Air Products to a benchmark level of
success.
To our shareholders . . . Thank you for your confidence and trust in Air Products. Our
priority remains creating superior value for you.
As a final note, I want to assure our shareholders that all of us at Air Products fully
appreciate that the world is ever-changing. That has been the case throughout history.
We are committed to transform our company and adapt to this changing world so we
can maintain our leadership positions, grow, and create value for our shareholders,
customers, employees and communities.
Seifi Ghasemi
Chairman, President and
Chief Executive Offi cer of Air Products
42863_Annual_Report_2019_Narrative.indd 13
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12/4/19 12:52 PM
Start page 1 of 10-K here
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
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, Merck & Co., Inc. Global
Vaccine and Infectious Disease Division and
Retired President and Chief Executive Officer,
International AIDS Vaccine Initiative.
Director of the Company since 2005.
Edward L. Monser
Retired President and Chief Operating Officer
of Emerson Electric Co.
Director of the Company since 2013.
Matthew H. Paull
Retired 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
Sean D. Major
Executive Vice President, General Counsel
and Secretary
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.
XII
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Air Products | 2019 Annual Report 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 2019
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.
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
23-1274455
(I.R.S. Employer Identification No.)
7201 Hamilton Boulevard
Allentown, Pennsylvania 18195-1501
(Address of Principal Executive Offices and Zip Code)
610-481-4911
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Trading Symbol(s)
Common Stock, par value $1.00 per share
2.000% Euro Notes due 2020
0.375% Euro Notes due 2021
1.000% Euro Notes due 2025
APD
APD20
APD21B
APD25
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 every Interactive Data File required to be
submitted 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 such files).
Yes
Yes
No
No
Yes
No
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 29 March 2019 was approximately $42.0 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 2019 was 220,433,925.
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on 23 January 2020 are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
AIR PRODUCTS AND CHEMICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended 30 September 2019
TABLE OF CONTENTS
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . .
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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14
15
16
17
19
20
47
49
116
117
117
118
118
119
120
120
121
121
122
126
2
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to
historical or current facts and can generally be identified by words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “forecast,” “goal,” “intend,” “may,” “outlook,” “plan,” “positioned,” “possible,” “potential,” “project,” “should,”
“target,” “will,” “would,” and similar expressions or variations thereof, or the negative thereof, but these terms are not the
exclusive means of identifying such statements. Forward-looking statements are based on management’s expectations
and assumptions as of the date of this report and are not guarantees of future performance. You are cautioned not to
place undue reliance on our forward-looking statements.
Forward-looking statements may relate to a number of matters, including expectations regarding revenue, margins,
expenses, earnings, tax provisions, cash flows, pension obligations, share repurchases or other statements regarding
economic conditions or our business outlook; statements regarding plans, projects, strategies and objectives for our
future operations, including our ability to win new projects and execute the projects in our backlog; and statements
regarding our expectations with respect to pending legal claims or disputes. While forward-looking statements are made
in good faith and based on assumptions, expectations and projections that management believes are reasonable based
on currently available information, actual performance and financial results may differ materially from projections and
estimates expressed in the forward-looking statements because of many factors, including, without limitation:
•
•
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•
•
•
•
•
•
•
•
•
•
•
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changes in global or regional economic conditions, supply and demand dynamics in the market segments we serve,
or in the financial markets;
risks associated with having extensive international operations, including political risks, risks associated with
unanticipated government actions and risks of investing in developing markets;
project delays, contract terminations, customer cancellations, or postponement of projects and sales;
our ability to develop and operate large scale and technically complex projects, including gasification projects;
the future financial and operating performance of major customers and joint venture partners;
our ability to develop, implement, and operate new technologies, or to execute the projects in our backlog;
tariffs, economic sanctions and regulatory activities in jurisdictions in which we and our affiliates and joint ventures
operate;
the impact of environmental, tax or other legislation, as well as regulations affecting our business and related
compliance requirements, including legislation or regulations related to global climate change;
changes in tax rates and other changes in tax law;
the timing, impact, and other uncertainties relating to acquisitions and divestitures, including our ability to integrate
acquisitions and separate divested businesses, respectively;
risks relating to cybersecurity incidents, including risks from the interruption, failure or compromise of our information
systems;
catastrophic events, such as natural disasters, acts of war, or terrorism;
the impact of price fluctuations in oil and natural gas and disruptions in markets and the economy due to oil and
natural gas price volatility;
costs and outcomes of legal or regulatory proceedings and investigations;
asset impairments due to economic conditions or specific events;
significant fluctuations in interest rates and foreign currency exchange rates from those currently anticipated;
damage to facilities, pipelines or delivery systems, including those we own or operate for third parties;
availability and cost of raw materials; and
the success of productivity and operational improvement programs.
3
In addition to the foregoing factors, forward-looking statements contained herein are qualified with respect to the risks
disclosed elsewhere in this document, including in Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures About Market
Risk. Any of these factors, as well as those not currently anticipated by management, could cause our results of
operations, financial condition or liquidity to differ materially from what is expressed or implied by any forward-looking
statement. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking
statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events,
conditions, or circumstances upon which any such forward-looking statements are based.
PART I
ITEM 1.
BUSINESS
Air Products and Chemicals, Inc., a Delaware corporation originally founded in 1940, serves 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 liquefied natural gas ("LNG") process technology and equipment. The
Company also develops, engineers, builds, owns and operates some of the world’s largest industrial gas projects,
including gasification projects that sustainably convert abundant natural resources into syngas for the production of
high-value power, fuels and chemicals.
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.
During its fiscal year ended 30 September 2019 (“fiscal year 2019”), 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. Refer to Note 4, Discontinued Operations, to the consolidated financial statements for additional details
on our discontinued operations.
Industrial Gases Business
The Company’s Industrial Gases business produces atmospheric gases, such as oxygen, nitrogen, and argon,
process gases, such as hydrogen, helium, carbon dioxide, carbon monoxide, and syngas, and specialty gases.
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, carbon
monoxide and syngas are produced by steam methane reforming of natural gas and by the gasification of liquid and
solid hydrocarbons. Hydrogen is produced 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 Industrial Gases business also develops,
builds and operates equipment for the production or processing of gases, such as air separation units and non-
cryogenic generators.
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 refining, chemical, gasification, metals, electronics, manufacturing,
and food and beverage. 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 gasification, 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.
4
We distribute gases to our sale of gas customers through different supply modes depending on various factors
including the customer's volume requirements and location. Our supply modes are as follows:
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 in the energy production and
refining, chemical, gasification, and metals industries worldwide, that require large volumes of gases and
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. Steam methane reformers utilize
natural gas as the primary raw material and gasifiers use liquid and solid hydrocarbons as the principal raw material
for the production of hydrogen, carbon monoxide and syngas. We mitigate electricity, natural gas, and hydrocarbon
price fluctuations contractually through pricing formulas, surcharges, and cost pass-through and tolling
arrangements. During fiscal year 2019, 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.
The regional Industrial Gases segments also include our interests in the results of several joint ventures accounted
for by the equity method, which are reported in our financial statements as income from equity affiliates. 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 two global industrial gas companies: Air Liquide
S.A. and Linde plc (the successor to Praxair, Inc. and Linde AG, pursuant to a combination that became effective on
31 October 2018), as well as regional competitors. Competition in Industrial Gases 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
our larger customers.
Overall regional industrial gases sales constituted approximately 96%, 94%, and 90% of consolidated sales in fiscal
years 2019, 2018, and 2017, respectively. Sales of atmospheric gases constituted approximately 46%, 46%, 45% of
consolidated sales in fiscal years 2019, 2018, and 2017, respectively, while sales of tonnage hydrogen, syngas, and
related products constituted approximately 26%, 25%, and 24% of consolidated sales in fiscal years 2019, 2018,
and 2017, respectively.
5
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 activity related to cryogenic and gas processing 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 three global equipment businesses: our LNG equipment business, our Gardner Cryogenics
business fabricating helium and hydrogen transport and storage containers, and our Rotoflow business, which
manufactures turboexpanders and other precision rotating equipment. Steel, aluminum, and capital equipment
subcomponents (compressors, etc.) are the principal raw materials in the manufacturing of equipment. Raw
materials for individual projects typically 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 4%, 6%, and 10% of
consolidated sales in fiscal years 2019, 2018, and 2017, respectively.
The backlog of equipment orders was approximately $.9 billion on 30 September 2019 (as compared to a total
backlog of approximately $.2 billion on 30 September 2018). The Company estimates that approximately 50% of
the total equipment sales backlog as of 30 September 2019 will be recognized as revenue during fiscal year 2020,
dependent on execution schedules of the relevant projects.
International Operations
The Company, through subsidiaries, affiliates, and joint ventures accounted for using the equity method, conducts
business in 51 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, tariffs,
trade sanctions, and 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 Netherlands, Spain, and the United Kingdom); nine Asian countries (including China, South Korea,
and Taiwan); seven Latin American countries (including Brazil and Chile); five countries in the Middle East
(including Saudi Arabia), and three African countries. The Company also owns less-than-controlling interests in
entities operating in Europe, Asia, Latin America, the Middle East, and Africa (including China, Germany, India, Italy,
Mexico, Oman, Saudi Arabia, South Africa, and Thailand).
Financial information about the Company’s foreign operations and investments is included in Note 9, Summarized
Financial Information of Equity Affiliates; Note 23, Income Taxes; and Note 26, 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 14, 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 $41.3
million, $33.1 million, and $64.2 million in fiscal years 2019, 2018, and 2017, 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), China (Shanghai), and Saudi Arabia (Dhahran). 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.
6
During fiscal year 2019, the Company owned approximately 857 United States patents, approximately 3,733 foreign
patents, and was a licensee under certain patents owned by others. The increase in the number of patents
compared to fiscal year 2018 is primarily attributable to the acquisition of General Electric Company’s gasification
business, completed in August 2019, inclusive of its related patent estate. 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 18, Commitments and
Contingencies, to the consolidated financial statements, included under Item 8, below.
The amounts charged to income from continuing operations related to environmental matters totaled $14.2 million,
$12.8 million, and $11.4 million in fiscal years 2019, 2018, and 2017, respectively. These amounts represent an
estimate of expenses for compliance with environmental laws and activities undertaken to meet internal Company
standards. Refer to Note 18, Commitments and Contingencies, to the consolidated financial statements for
additional information.
The Company estimates that we spent approximately $5 million, $3 million, and $7 million in fiscal years 2019,
2018, and 2017, respectively, on capital projects reflected in continuing operations to control pollution. Capital
expenditures to control pollution are estimated to be approximately $5 million in both fiscal years 2020 and 2021.
Employees
On 30 September 2019, the Company (including majority-owned subsidiaries) had approximately 17,700
employees, of whom approximately 17,440 were full-time employees and of whom approximately 12,950 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.
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, we have 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.
Available Information
All periodic and current reports, registration statements, proxy 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
7
covered by this report were available on the Company’s website on the same day as filing. In addition, our filings
with the SEC are available free of charge on the SEC's website, www.sec.gov.
Executive Officers of the Company
The Company’s executive officers and their respective positions and ages on 26 November 2019 follow. Information
with respect to offices held is stated in fiscal years.
Age
55
Name
M. Scott Crocco
Seifi Ghasemi
Sean D. Major
Dr. Samir J. Serhan
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).
75 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. from 2001 to 2014). Mr. Ghasemi is a
member and Chairman of the Board of Directors and the Chairman of the Executive
Committee of the Board of Directors.
Executive Vice President, General Counsel and Secretary (Secretary since
December 2017 and Executive Vice President and General Counsel since May
2017). Previously, Mr. Major served as Executive Vice President, General Counsel
and Secretary for Joy Global Inc. from 2007 to 2017.
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, including
Managing Director of Linde Engineering from 2008-2014.
55
58
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.
Changes in global and regional economic conditions, the markets we serve, or the financial markets may
adversely affect our results of operations and cash flows.
Unfavorable conditions in the global economy or regional economies, the markets we serve or financial markets
may decrease the demand for our goods and services and adversely impact our revenues, operating results, and
cash flows.
Demand for our products and services depends in part on the general economic conditions affecting the countries
and markets in which we do business. Weak economic conditions in certain geographies and changing supply and
demand balances in the markets we serve have negatively impacted demand for our products and services in the
past and may do so in the future. Reduced demand for our products and services would have a negative impact on
our revenues and earnings. In addition, reduced demand could depress sales, reduce our margins, constrain our
operating flexibility or reduce efficient utilization of our manufacturing capacity, or result in charges which are
unusual or nonrecurring. Excess capacity in our manufacturing facilities or those of our competitors could decrease
our ability to maintain pricing and generate profits.
Our operating results in one or more segments may also be affected by uncertain or deteriorating economic
conditions for particular customer markets within a 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, any of which may negatively impact 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
8
market, product, or customer events may require us 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, and currency translation risks that could decrease profitability.
In fiscal year 2019, 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 operations in foreign jurisdictions
may be subject to risks including exchange control regulations, import and trade restrictions, 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 the imposition of tariffs or 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.
Our growth strategies depend in part on our ability to further penetrate markets outside the United States,
particularly in higher-growth markets such as China, India, Russia and the Middle East, and involve significantly
larger and more complex projects, including gasification projects, some in regions where there is the potential for
significant economic and political disruptions. We are actively investing large amounts of capital and other
resources, in some cases through joint ventures, in developing markets with high growth potential. Our operations
in these markets 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 increased difficulty recruiting,
training and retaining qualified employees. Our contracts in these locations may be subject to cancellation without
full compensation for loss. Successful operation of particular facilities or execution of 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 require us 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.
Gasification and other large projects involve challenging engineering, procurement and construction phases that
may occur in more risky locations and over extended time periods, sometimes up to several years. These projects
are large scale and technically complex and, as a result, face greater development and operational risks. 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, customer scope changes, delays related to obtaining
regulatory permits and rights-of-way, inability to find adequate sources of labor in the locations where we are
building new plants, weather-related delays, delays by customers' contractors in completing their portion of a
project, technical or transportation difficulties, cost overruns and other factors, many of which are beyond our
control, that 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. In addition, in some cases we seek
limited recourse financing for certain large projects and face market risk associated with the availability and terms of
such financing. These financing arrangements may require that we comply with certain performance requirements
which, if not met, could result in default and restructuring costs or other losses. All of these factors could also
negatively impact our reputation or relationships with our customers, which could adversely affect our ability to
secure new contracts in the future.
9
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 depend, in part, on our ability to properly maintain and replace aging
assets.
We are subject to extensive government regulation in the jurisdictions in which we do business.
Regulations addressing, among other things, 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 in the foreign jurisdictions where we conduct
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 practices that could result in reduced
profitability. If there is a determination that we have failed to comply with applicable laws or regulations, we may be
subject to penalties or sanctions that could adversely impact our reputation and financial results. Compliance with
changes in laws or regulations can result in increased operating costs and require additional capital expenditures.
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 is deemed to have occurred. In
addition, we are subject to laws and sanctions imposed by the U.S. and 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 we may conduct. 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, business partners, or businesses that we acquire 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 identify, 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 growth,
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 adequate contractual protections or
insurance. In addition, 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, distract management, and give rise to disputes 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 adversely by claims under these indemnities.
10
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 due to a security breach. In addition, our information technology 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, and may
subject us to legal liability.
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 at one or more sites; delay production and shipments; result in the theft of our and
our customers’ intellectual property and trade secrets; damage customer and business partner relationships and our
reputation; result in defective products or services, legal claims and proceedings, liability and penalties under
privacy laws, or increased costs for security and remediation; or raise concerns regarding our accounting for
transactions. Each of these consequences could adversely affect our business, reputation and our 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 proprietary 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, which could ultimately result in litigation and potential legal and financial liability. These
events could also 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 and harm 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 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 of such costs. Increases in energy or raw material costs that cannot
be passed on to customers for competitive or other reasons may negatively impact our revenues and earnings.
Even where costs are passed through, price increases can cause lower sales volume.
11
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 us to third-party liability claims. Additionally, such events could impact our suppliers or customers, which
could cause energy and raw materials to be unavailable to us, or our customers to 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 reputation. In addition, 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 and may introduce new risks to our operations. Performance
difficulties on these larger projects may have a material adverse effect on our operations and financial results. In
addition, performance challenges may adversely affect our reputation and our ability to obtain future contracts for
gasification projects.
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. In addition, although gasification enables the conversion of lower value feedstocks into cleaner
energy and value-added products, our gasification projects will increase our carbon footprint because the
gasification process produces carbon dioxide. Some of our operations are within jurisdictions that have or are
developing regulatory regimes governing emissions of greenhouse gases ("GHGs"), including carbon dioxide.
These include existing coverage under the European Union Emission Trading system, the California cap and trade
scheme, China’s Emission Trading Scheme and its nation-wide expansion, and South Korea’s Emission Trading
Scheme. In Canada, Alberta and Ontario are both in the development/approval process for new GHG
regulations. Alberta’s Carbon Competitiveness Incentive Regulation will end December 31, 2019 and will be
replaced by the proposed Technology Innovation and Emission Reduction ("TIER") System or Environment &
Climate Change Canada's Output Based Pricing System ("OBPS"). In lieu of adherence to the OBPS, Ontario
seeks approval from Environment & Climate Change Canada to implement their proposed GHG Emissions
Performance Standards program. 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, hydrogen production and application of our gasification technology. We believe we
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.
12
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. 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 in the
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.
Implementation of the United Kingdom’s (“UK”) exit from European Union (“EU”) membership 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.
Inability to compete effectively in a segment could adversely impact sales and financial performance.
We face strong competition from 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.
A change of tax law in key jurisdictions could result in a material increase in our tax expense.
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.
Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation
of such laws, could significantly increase our effective tax rate and adversely impact our financial condition, results
of operations or cash flows. In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"), which
significantly revised the U.S. federal corporate income tax law by, among other things, lowering the corporate
income tax rate, implementing a territorial tax system, and imposing a one-time tax on unremitted cumulative non-
U.S. earnings of foreign subsidiaries. Various levels of government are increasingly focused on tax reform and other
legislative action to increase tax revenue. Further changes in tax laws in the U.S. or foreign jurisdictions where we
operate could have a material adverse effect on our business, results of operations, or financial condition.
13
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, Hersham, England, and Santiago, Chile. The Company leases the principal
administrative office in Shanghai, China. 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 one-fourth 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 12 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 180 production and distribution facilities in Europe, the Middle
East, and Africa (approximately one-third 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 16 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 one-fourth 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 18 leased office locations throughout the region.
14
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., the United Kingdom, and Spain, 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 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.
The Gardner Cryogenic business operates at facilities in Pennsylvania and Kansas in the United States and in
France.
The Rotoflow business operates manufacturing and service facilities in Texas and Pennsylvania 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 commercial, competition, environmental, intellectual property, regulatory, product liability, and insurance
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, RCRA, and similar state and foreign environmental laws
relating to the designation of certain sites for investigation or remediation. Presently there are 31 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 $43 million at 30 September
2019) 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.
In November 2019, the Company finalized a Consent Order with the City of Santa Clara, CA (“City”) to address
certain alleged administrative violations at its Santa Clara facility. The Consent Order requires the Company to pay
the City approximately $.6 million to settle the allegations, which includes an enforcement penalty and funding for
various supplemental environmental and training projects.
15
Other than the CADE matter discussed above, 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.
16
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol "APD." As of 31 October 2019,
there were 5,166 record holders of our common stock.
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.
Dividend information for each quarter of fiscal years 2019 and 2018 is summarized below:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
2019
$1.10
1.16
1.16
1.16
$4.58
2018
$.95
1.10
1.10
1.10
$4.25
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 one or more brokers. There were no purchases of stock during fiscal year 2019. At 30
September 2019, $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.
17
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 2014 Sept 2015 Sept 2016 Sept 2017 Sept 2018 Sept 2019
Air Products
S&P 500 Index
S&P 500 Materials Index
100
100
100
100
99
82
120
115
100
134
136
122
153
160
126
208
167
130
18
ITEM 6.
SELECTED FINANCIAL DATA
(Millions of dollars, except for share and per share data)
2019
2018
2017
2016
2015
Sales
Operating income
Operating margin
Equity affiliates’ income(A)
Net income(B)(C)
Net income margin(C)
Income from continuing operations
Basic earnings per common share from continuing operations
Diluted earnings per common share from continuing operations
Adjusted diluted earnings per common share from continuing
operations(C)
Adjusted EBITDA(C)
Adjusted EBITDA margin(C)
Dividends declared per common share
Total assets(D)
Total debt(E)
$8,919
$8,930
$8,188
$7,504
$7,824
2,144
1,966
1,440
1,535
1,276
24.0%
22.0%
17.6%
20.5%
16.3%
215
1,809
175
1,533
80
3,021
147
662
152
1,318
20.3%
17.2%
36.9%
8.8%
16.8%
1,809
1,491
1,155
1,122
7.99
7.94
$8.21
3,468
6.64
6.59
$7.45
3,116
5.20
5.16
$6.31
2,799
5.08
5.04
$5.64
2,622
966
4.34
4.29
$4.88
2,422
38.9%
34.9%
34.2%
34.9%
31.0%
4.58
4.25
3.71
3.39
3.20
18,943
19,178
18,467
18,029
17,317
3,326
3,813
3,963
5,211
5,856
(A) Fiscal year 2017 included the impact of an other-than-temporary noncash impairment charge of $80 on a 25% owned equity affiliate in
Saudi Arabia.
(B) Fiscal year 2017 included net income from discontinued operations of $1,866 primarily resulting from the sale of the Performance Materials
Division to Evonik Industries AG. Fiscal year 2016 included a net loss from discontinued operations of $465, which included an after-tax
loss on the disposal of the Energy-from-Waste business of $847, partially offset by income from operations of the former Electronic
Materials and Performance Materials divisions.
(C) A reconciliation of adjusted diluted earnings per common share from continuing operations to diluted earnings per common share from
continuing operations on a GAAP basis is presented on page 30. A reconciliation of adjusted EBITDA and adjusted EBITDA margin to net
income and net income margin on a GAAP basis, respectively, is presented on page 31.
(D) Total assets includes assets from continuing and discontinued operations.
(E) Total debt includes long-term debt and current portion of long-term debt, including debt to related parties, and short-term borrowings as of
the end of the year for continuing operations. Long-term obligations decreased in fiscal year 2017 primarily due to debt repayments
subsequent to the spin-off of the former Electronic Materials division as Versum Materials, Inc.
19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Business Overview ..........................................................................................................................................
2019 in Summary .............................................................................................................................................
2020 Outlook ....................................................................................................................................................
Results of Operations ......................................................................................................................................
Reconciliations 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 ...............................................................................................................................
21
21
23
23
29
34
37
38
40
41
41
41
41
46
This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook.
These forward-looking statements are based on management’s expectations and assumptions as of the date of this
report and are not guarantees of future performance. Actual performance and financial results may differ materially
from projections and estimates expressed in the forward-looking statements because of many factors not
anticipated by management, including, without limitation, those described in Forward-Looking Statements and Item
1A, Risk Factors, of this Annual Report on Form 10-K.
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for
fiscal years 2019 and 2018. For the discussion of changes from fiscal year 2017 to fiscal year 2018 and other
financial information related to fiscal year 2017, refer to Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of our fiscal year 2018 Form 10-K. This document was filed with the United
States Securities and Exchange Commission on 20 November 2018.
The following discussion should be read in conjunction with the consolidated financial statements and the
accompanying notes contained in this report. Financial information is presented in millions of dollars, except for per
share data. Except for net income, financial information is presented on a continuing operations basis.
The financial measures included in the discussion that follows are presented in accordance with U.S. generally
accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on a non-GAAP
("adjusted") basis because we believe such measures, when viewed together with financial results computed in
accordance with GAAP, provide a more complete understanding of the factors and trends affecting the Company's
historical financial performance and projected future results. For each non-GAAP financial measure, including
adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax
rate, we present a reconciliation to the most directly comparable financial measure calculated in accordance with
GAAP. These reconciliations and explanations regarding the use of these measures are presented on pages 29-33.
20
BUSINESS OVERVIEW
Air Products and Chemicals, Inc. is a world-leading industrial gases company in operation for nearly 80 years.
Focused on serving energy, environment and emerging markets, the Company provides essential industrial gases,
related equipment and applications expertise to customers in dozens of industries, including refining, chemical,
metals, electronics, manufacturing, and food and beverage. Air Products is also the global leader in the supply of
liquefied natural gas ("LNG") process technology and equipment. The Company also develops, engineers, builds,
owns and operates some of the world's largest industrial gas projects, including gasification projects that
sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and
chemicals. With operations in 51 countries outside the United States, in fiscal year 2019 we had sales of $8.9
billion, assets of $18.9 billion, and a worldwide workforce of approximately 17,700 full- and part-time employees.
As of 30 September 2019, 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
This Management’s Discussion and Analysis discusses our results based on these operations. Refer to Note 26,
Business Segment and Geographic Information, to the consolidated financial statements for additional details on
our reportable business segments.
2019 IN SUMMARY
In fiscal year 2019, we remained focused on improving our existing business while deploying capital into larger,
more complex industrial gas projects. We continued to execute our gasification strategy, with the Lu'An project in
China reaching its first full year of operation and the progression of other projects such as the Jiutai coal-to-syngas
project and the Debang syngas project. We also received a number of important recognitions for our strong focus
on sustainability and our commitment to advancing diversity and inclusion. The results below are compared to fiscal
year 2018.
• Sales of $8,918.9 were flat as favorable pricing of 3% and higher volumes of 2% were offset by negative
currency impacts of 3% and the negative impact of a contract modification to a tolling arrangement in India
of 2%.
• Operating income of $2,144.4 increased 9%, or $178.8, and operating margin of 24.0% increased 200 bp.
• Net income of $1,809.4 increased 18%, or $276.5, and net income margin of 20.3% increased 310 bp.
• Adjusted EBITDA of $3,468.0 increased 11%, or $352.5, and adjusted EBITDA margin
of 38.9% increased 400 bp.
• Diluted EPS of $7.94 increased 20%, or $1.35 per share. Adjusted diluted EPS of $8.21 increased 10%, or $.76
per share. A summary table of changes in diluted EPS is presented on the following page.
• We increased our quarterly dividend by 5% from $1.10 to $1.16 per share, or $4.64 per share annually. This is
the 37th consecutive year that we have increased our dividend payment, reflecting continued confidence in our
financial strength, significant cash flows, and growth outlook.
21
Changes in Diluted EPS Attributable to Air Products
Diluted EPS
Operating Income Impact (after-tax)
Underlying business
Volume
Price, net of variable costs
Other costs
Currency
Facility closure
Change in inventory valuation method
Cost reduction actions
Gain on exchange of equity affiliate investments
Total Operating Income Impact (after-tax)
Other Impact (after-tax)
Equity affiliates' income
Interest expense
Other non-operating income (expense), net
Change in effective tax rate, excluding discrete items below
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Tax reform rate change and other
Tax restructuring
Noncontrolling interests
Weighted average diluted shares
Total Other Impact (after-tax)
Total Change in Diluted EPS
Diluted EPS
Facility closure
Change in inventory valuation method
Cost reduction actions
Gain on exchange of equity affiliate investments
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Tax reform rate change and other
Tax restructuring
Adjusted Diluted EPS
22
2019
2018
Increase
(Decrease)
$7.94
$6.59
$1.35
$.40
.81
(.17)
(.20)
(.10)
(.08)
(.08)
.13
$.71
.04
(.02)
.21
(.09)
2.22
(.51)
(.96)
(.16)
(.06)
(.03)
$.64
$1.35
2019
2018
(Decrease)
Increase
$7.94
.10
—
.08
(.13)
.02
(.06)
.26
—
—
$8.21
$6.59
—
(.08)
—
—
.15
2.16
(.25)
(.96)
(.16)
$7.45
$1.35
.10
.08
.08
(.13)
(.13)
(2.22)
.51
.96
.16
$.76
2020 OUTLOOK
In fiscal year 2020, we intend to grow our earnings by continuing to improve our base businesses and execute
against our capital deployment strategy. Backed by our current financial position, we will strive to continue to win
and invest in key growth projects, including large gasification projects that are consistent with our onsite business
model. We expect earnings to grow from an investment in a new equity affiliate that will acquire the gasification,
power, and industrial gas assets at Jazan Economic City, Saudi Arabia ("the Jazan gas and power project").
The above guidance should be read in conjunction with the Forward-Looking Statements of this Annual Report on
Form 10-K.
RESULTS OF OPERATIONS
Discussion of Consolidated Results
GAAP Measures
Sales
Operating income
Operating margin
Equity affiliates’ income
Net income
Net income margin
Non-GAAP Measures
Adjusted EBITDA
Adjusted EBITDA margin
Sales
Sales % Change from Prior Year
Volume
Price
Energy and raw material cost pass-through
Currency
Other(A)
Total Consolidated Sales Change
2019
2018
$ Change
Change
$8,918.9
$8,930.2
2,144.4
1,965.6
($11.3)
178.8
24.0%
22.0%
—
$215.4
1,809.4
$174.8
1,532.9
$40.6
276.5
20.3%
17.2%
—
— %
9 %
200 bp
23 %
18 %
310 bp
$3,468.0
$3,115.5
$352.5
11 %
38.9%
34.9%
—
400 bp
2 %
3 %
— %
(3)%
(2)%
— %
(A)
Includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in India in December 2018
("the India contract modification").
Sales of $8,918.9 were flat as favorable pricing of 3% and higher volumes of 2% were offset by negative currency
impacts of 3% and the impact of the India contract modification of 2%. The pricing improvement was primarily
attributable to our merchant business across the regional segments. Volumes were higher from new projects,
mainly the Lu'An project in Asia, and positive base business growth. These drivers were partially offset by lower
Jazan sale of equipment activity, which negatively impacted volumes by 2%, and a prior year equipment sale
resulting from a contract termination in Asia. Unfavorable currency impacts were driven by the Chinese Renminbi,
Euro, and British Pound Sterling. Energy and natural gas cost pass-through to customers was flat versus the prior
year.
23
Cost of Sales and Gross Margin
Cost of sales, including the facility closure discussed below, was $6,004.5. Total cost of sales decreased 3%, or
$185.0, as a favorable impact from the India contract modification of $193 and positive currency impacts of $189
were partially offset by higher other costs of $67, higher costs attributable to sales volumes of $44, higher energy
and natural gas cost pass-through to customers of $33, the facility closure of $29, and a benefit of $24 for the
change in inventory valuation method for our United States industrial gas inventories in the prior year. Gross margin
of 32.7% increased 200 bp, primarily due to positive pricing, favorable volume mix, and the India contract
modification, partially offset by unfavorable net operating costs.
Facility Closure
In December 2018, one of our customers was subject to a government enforced shutdown due to environmental
reasons. As a result, we recognized a charge of $29.0 ($22.1 after-tax, or $.10 per share) during the first quarter of
fiscal year 2019 primarily related to the write-off of onsite assets. This charge is reflected as “Facility closure” on our
consolidated income statements. We do not expect to recognize additional charges related to this shutdown.
Selling and Administrative Expense
Selling and administrative expense of $750.0 decreased 1%, or $10.8. Selling and administrative expense as a
percent of sales decreased from 8.5% to 8.4%.
Research and Development
Research and development expense of $72.9 increased 13%, or $8.4. Research and development expense as a
percent of sales increased to .8% from .7%.
Cost Reduction and Asset Actions
In fiscal year 2019, we recognized an expense of $25.5 ($18.8 after-tax, or $.08 per share) for severance and other
benefits associated with position eliminations that are expected to drive cost synergies, primarily within the
Industrial Gases – EMEA and the Industrial Gases – Americas segments. This expense has been reflected as "Cost
reduction and asset actions" on our consolidated income statements.
Gain on Exchange of Equity Affiliate Investments
In fiscal year 2019, we recognized a net gain of $29.1 ($.13 per share) resulting from the exchange of two 50%-
owned industrial gas joint ventures in China. Refer to Note 7, Acquisitions, to the consolidated financial statements
for additional information. The net gain has been reflected as "Gain on exchange of equity affiliate investments" on
our consolidated income statements. There were no tax impacts on the exchange.
Other Income (Expense), Net
Other income (expense), net of $49.3 decreased 2%, or $.9, primarily due to lower income from transition services
agreements, mostly offset by income from the sale of assets and investments and a favorable foreign exchange
impact.
Operating Income and Margin
Operating income of $2,144.4 increased 9%, or $178.8, as positive pricing, net of power and fuel costs, of $220,
favorable volumes of $110, and a gain on the exchange of two 50%-owned equity affiliates of $29 were partially
offset by unfavorable currency impacts of $55, higher net operating costs of $46, a charge for a facility closure
of $29, a charge for cost reduction actions of $26, and the impact of the change in inventory valuation method of
$24 in the prior year. Operating margin of 24.0% increased 200 bp, primarily due to positive pricing and favorable
volume mix, partially offset by unfavorable net operating costs.
Equity Affiliates’ Income
Income from equity affiliates of $215.4 increased 23%, or $40.6, primarily due to an expense of $28.5 in the prior
year resulting from the U.S. Tax Cuts and Jobs Act, favorable volumes, and new plant contributions. For additional
information on the U.S. Tax Cuts and Jobs Act, refer to Note 23, Income Taxes, to the consolidated financial
statements.
24
Interest Expense
Interest incurred
Less: Capitalized interest
Interest Expense
2019
$150.5
13.5
$137.0
2018
$150.0
19.5
$130.5
Interest incurred increased $.5 as interest expense associated with financing the Lu'An joint venture was mostly
offset by favorable impacts from currency, a lower average interest rate on the debt portfolio, and a lower average
debt balance. Capitalized interest decreased 31%, or $6.0, due to a decrease in the carrying value of projects under
construction, primarily driven by the Lu'An project in Asia.
Other Non-Operating Income (Expense), Net
Other non-operating income (expense), net of $66.7 increased $61.6, primarily due to lower pension settlement
losses, higher non-service pension income, and higher interest income on cash and cash items. The prior year
included pension settlement losses of $43.7 ($33.2 after-tax, or $.15 per share) primarily in connection with the
transfer of certain pension assets and payment obligations to an insurer for our U.S. salaried and hourly plans. In
fiscal year 2019, we recognized a pension settlement loss of $5.0 ($3.8 after-tax, or $.02 per share) associated with
the U.S. Supplementary Pension Plan during the second quarter.
Net Income and Net Income Margin
Net income of $1,809.4 increased 18%, or $276.5, primarily due to impacts from the U.S. Tax Cuts and Jobs Act,
positive pricing, and favorable volumes. Net income margin of 20.3% increased 310 bp.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA of $3,468.0 increased 11%, or $352.5, primarily due to positive pricing and higher volumes,
partially offset by unfavorable currency. Adjusted EBITDA margin of 38.9% increased 400 bp, primarily due to
higher volumes, positive pricing, and the India contract modification. The India contract modification contributed
80 bp.
Effective Tax Rate
The effective tax rate equals the income tax provision divided by income from continuing operations before taxes.
The effective tax rate was 21.0% and 26.0% in fiscal years 2019 and 2018, respectively.
The current year rate was lower primarily due to impacts related to the enactment of the U.S. Tax Cuts and Jobs Act
(the “Tax Act") in 2018, which significantly changed existing U.S. tax laws, including a reduction in the federal
corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as
other changes. As a result of the Tax Act, our income tax provision reflects discrete net income tax costs of $43.8
and $180.6 in fiscal years 2019 and 2018, respectively. The current year included a cost of $56.2 ($.26 per share)
for the reversal of a benefit recorded in 2018 related to the U.S. taxation of deemed foreign dividends. We recorded
this reversal based on regulations issued in 2019. The 2019 reversal was partially offset by a favorable adjustment
of $12.4 ($.06 per share) that was recorded as we completed our estimates of the impacts of the Tax Act. This
adjustment is primarily related to foreign tax items, including the deemed repatriation tax for foreign tax
redeterminations. In addition, the current year rate included a net gain on the exchange of two equity affiliates of
$29.1, which was not a taxable transaction. The higher 2018 expense resulting from the Tax Act was partially offset
by a $35.7 tax benefit from the restructuring of foreign subsidiaries, a $9.1 benefit from a foreign audit settlement
agreement, and higher excess tax benefits on share-based compensation.
The adjusted effective tax rate was 19.4% and 18.6% in fiscal years 2019 and 2018, respectively. The lower prior
year rate was primarily due to the $9.1 benefit from a foreign audit settlement agreement and higher excess tax
benefits on share-based compensation.
25
Refer to Note 23, Income Taxes, to the consolidated financial statements for additional information.
Discontinued Operations
In fiscal year 2018, income from discontinued operations, net of tax, of $42.2 included an income tax benefit
of $25.6 resulting from the resolution of uncertain tax positions taken in conjunction with the disposition of our
former European Homecare business in fiscal year 2012. In addition, we recorded an after-tax benefit
of $17.6 resulting from the resolution of certain post-closing adjustments associated with the sale of our former
Performance Materials Division. These benefits were partially offset by an after-tax loss of $1.0 related to Energy-
from-Waste.
Segment Analysis
Industrial Gases – Americas
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
Sales % Change from Prior Year
Volume
Price
Energy and natural gas cost pass-through
Currency
Total Industrial Gases – Americas Sales Change
2019
2018
$3,873.5
997.7
$3,758.8
927.9
25.8%
24.7%
$84.8
1,587.7
$82.0
1,495.2
41.0%
39.8%
$ Change
$114.7
69.8
—
$2.8
92.5
—
Change
3%
8%
110 bp
3%
6%
120 bp
1 %
3 %
— %
(1)%
3 %
Sales of $3,873.5 increased 3%, or $114.7, as positive pricing of 3% and higher volumes of 1% were partially offset
by a negative impact from currency of 1%. The pricing improvement was primarily driven by our merchant business.
Energy and natural gas cost pass-through to customers was flat versus the prior year.
Operating income of $997.7 increased 8%, or $69.8, as higher pricing, net of power and fuel costs, of $85 and
favorable volumes of $34 were partially offset by higher costs of $44 and unfavorable currency impacts of $5. The
higher costs were primarily driven by distribution costs. Operating margin of 25.8% increased 110 bp as positive
pricing and higher volumes were partially offset by unfavorable costs.
Equity affiliates’ income of $84.8 increased 3%, or $2.8, primarily due to positive pricing and lower costs, partially
offset by unfavorable impacts from currency.
26
Industrial Gases – EMEA
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
Sales % Change from Prior Year
Volume
Price
Energy and natural gas cost pass-through
Currency
Other(A)
Total Industrial Gases – EMEA Sales Change
2019
2018
$2,002.5
472.4
$2,193.3
445.8
23.6%
20.3%
$69.0
730.9
$61.1
705.5
36.5%
32.2%
$ Change
($190.8)
26.6
—
$7.9
25.4
—
Change
(9)%
6 %
330 bp
13 %
4 %
430 bp
2 %
3 %
— %
(5)%
(9)%
(9)%
(A)
Includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in India in December 2018
("the India contract modification").
Sales of $2,002.5 decreased 9%, or $190.8, as the negative impact from the India contract modification of 9% and
unfavorable currency impacts of 5% were partially offset by positive pricing of 3% and higher volumes of 2%. The
negative currency impact was mainly driven by the Euro and British Pound Sterling. The pricing improvement was
mostly attributable to our merchant business. The volume increase was primarily driven by acquisition activity as
our base business remained stable. Energy and natural gas cost pass-through to customers was flat versus the
prior year.
Operating income of $472.4 increased 6%, or $26.6, primarily due to higher pricing, net of power and fuel costs, of
$60, partially offset by unfavorable currency impacts of $25 and higher costs of $10. Operating margin of 23.6%
increased 330 bp as favorable pricing and the impact of the India tolling arrangement were partially offset by higher
costs.
Equity affiliates’ income of $69.0 increased 13%, or $7.9, primarily due to the Jazan Gas Projects Company joint
venture.
Industrial Gases – Asia
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
Sales % Change from Prior Year
Volume
Price
Energy and natural gas cost pass-through
Currency
Total Industrial Gases – Asia Sales Change
2019
2018
$2,663.6
864.2
$2,458.0
689.9
32.4%
28.1%
$58.4
1,284.1
$58.3
1,014.0
48.2%
41.3%
$ Change
$205.6
174.3
—
$.1
270.1
—
Change
8%
25%
430 bp
—%
27%
690 bp
9 %
3 %
— %
(4)%
8 %
27
Sales of $2,663.6 increased 8%, or $205.6, as higher volumes of 9% and positive pricing of 3% were partially offset
by unfavorable currency impacts of 4%. The volume increase was primarily driven by new plants onstream, mainly
the Lu'An gasification project, and base business growth, partially offset by the impact of a prior year equipment
sale resulting from a contract termination. Pricing improved across Asia, primarily driven by our merchant
business. The unfavorable currency impact was primarily attributable to the Chinese Renminbi. Energy and natural
gas cost pass-through to customers was flat versus the prior year.
Operating income of $864.2 increased 25%, or $174.3, due to higher volumes of $117, favorable pricing, net of
power and fuel costs, of $73, and lower net operating costs of $14, partially offset by unfavorable currency impacts
of $30. Operating margin of 32.4% increased 430 bp, primarily due to higher volumes and positive pricing.
Equity affiliates’ income of $58.4 was flat versus the prior year.
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
2019
$261.0
(11.7)
.1
2018
$436.1
53.9
63.9
$ Change
($175.1)
(65.6)
(63.8)
Change
(40)%
(122)%
(100)%
Sales of $261.0 decreased 40%, or $175.1. The decrease in sales was primarily driven by lower sale of equipment
activity as we near completion on the multiple air separation units that will serve Saudi Aramco’s Jazan oil refinery
and power plant in Saudi Arabia. We expect to complete this project by the end of the first quarter of fiscal year
2020.
Operating loss of $11.7 decreased $65.6 from operating income of $53.9 in the prior year, primarily due to the lower
sale of equipment activity.
Corporate and other
The Corporate and other segment includes our LNG, turbo machinery equipment, and helium storage and
distribution sale of equipment businesses and corporate support functions that benefit all segments. The results of
the Corporate and other segment also include income and expense that is not directly associated with the other
segments, such as foreign exchange gains and losses.
Sales
Operating loss
Adjusted EBITDA
2019
$118.3
(152.8)
(134.8)
2018
$84.0
(176.0)
(163.1)
$ Change
$34.3
23.2
28.3
Change
41%
13%
17%
Sales of $118.3 increased 41%, or $34.3, primarily due to higher turbo machinery activity. Operating loss of $152.8
decreased 13%, or $23.2, primarily due to income generated from turbo machinery and lower corporate costs.
28
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
Millions of dollars unless otherwise indicated, except for per share data
The Company presents certain financial measures on a non-GAAP (“adjusted”) basis. On a consolidated basis,
these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin,
and adjusted effective tax rate. On a segment basis, these measures include adjusted EBITDA and adjusted
EBITDA margin. In addition to these measures, which are presented above, we also include certain supplemental
non-GAAP financial measures that are presented below to help the reader understand the impact that our non-
GAAP adjustments have on the calculation of our adjusted diluted EPS. For each non-GAAP financial measure, we
present below a reconciliation to the most directly comparable financial measure calculated in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP").
The Company's non-GAAP measures are not meant to be considered in isolation or as a substitute for the most
directly comparable measure calculated in accordance with GAAP. The Company believes these non-GAAP
measures provide investors, potential investors, securities analysts, and others with useful information to evaluate
the performance of the business because such measures, when viewed together with financial results computed in
accordance with GAAP, provide a more complete understanding of the factors and trends affecting the Company's
historical financial performance and projected future results.
In many cases, non-GAAP measures are determined by adjusting the most directly comparable GAAP measure to
exclude certain disclosed items, or “non-GAAP adjustments,” that the Company believes are not representative of
underlying business performance. For example, the Company previously excluded certain expenses associated
with cost reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware
that the Company may recognize similar losses or gains in the future. Readers 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.
The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact
of the transactions. These tax impacts are primarily driven by the statutory tax rate of the various relevant
jurisdictions and the taxability of the adjustments in those jurisdictions.
29
Consolidated Results
The tables below provide a reconciliation to the most directly comparable GAAP measure for each of the major
components used to calculate adjusted diluted EPS, which the Company views as a key performance metric. We
believe it is important for the reader to understand the per share impact of our non-GAAP adjustments as
management does not consider these impacts when evaluating underlying business performance. The measures
presented are based on continuing operations.
2019 GAAP
2018 GAAP
Change GAAP
% Change GAAP
2019 GAAP
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Pension settlement loss(A)
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Operating
Income
$2,144.4
1,965.6
Equity
Affiliates'
Income
$215.4
174.8
Net Income
Attributable
to Air
Products
Income Tax
Provision
$480.1
$1,760.0
524.3
1,455.6
$304.4
Diluted
EPS
$7.94
6.59
$1.35
21%
20%
$2,144.4
$215.4
$480.1
$1,760.0
$7.94
29.0
25.5
(29.1)
—
—
—
—
—
—
—
—
—
6.9
6.7
—
1.2
12.4
(56.2)
22.1
18.8
(29.1)
3.8
(12.4)
56.2
.10
.08
(.13)
.02
(.06)
.26
2019 Non-GAAP Measures ("Adjusted")
$2,169.8
$215.4
$451.1
$1,819.4
$8.21
2018 GAAP
Change in inventory valuation method
Pension settlement loss(A)
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Tax reform rate change and other
Tax restructuring
2018 Non-GAAP Measures ("Adjusted")
Change Non-GAAP Measures ("Adjusted")
% Change Non-GAAP Measures ("Adjusted")
(A)
$1,965.6
$174.8
$524.3
$1,455.6
$6.59
(24.1)
—
—
—
—
—
—
—
(6.6)
10.5
28.5
(448.6)
—
—
—
56.2
211.8
35.7
(17.5)
33.2
477.1
(56.2)
(211.8)
(35.7)
$1,941.5
$203.3
$383.3
$1,644.7
$174.7
(.08)
.15
2.16
(.25)
(.96)
(.16)
$7.45
$.76
11%
10%
The before-tax impact of $5.0 and $43.7 for fiscal years 2019 and 2018, respectively, is reflected on the consolidated income statements
within "Other non-operating income (expense), net."
The table below provides a reconciliation of adjusted diluted EPS to GAAP diluted EPS for fiscal years 2017, 2016,
and 2015:
Diluted EPS
Business separation costs
Tax (benefit) costs associated with business separation
Business restructuring, cost reduction, and asset actions
Goodwill and intangible asset impairment charge
Gain on previously held equity interest
Gain on land sales
Equity method investment impairment charge
Pension settlement loss
Loss on extinguishment of debt
Tax election benefit
Adjusted Diluted EPS
30
2017
$5.16
.12
(.02)
.49
.70
—
(.03)
.36
.03
—
(.50)
$6.31
2016
$5.04
.21
.24
.11
—
—
—
—
.02
.02
—
$5.64
2015
$4.29
.03
—
.61
—
(.05)
(.13)
—
.06
.07
—
$4.88
Adjusted EBITDA
We define Adjusted EBITDA as net income less income (loss) from discontinued operations, net of tax, and
excluding certain non GAAP adjustments, 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 and adjusted EBITDA margin provide useful metrics for
management to assess operating performance. Margin is calculated for each period by dividing each line item by
consolidated sales for the respective period.
Below is a presentation of consolidated sales and a reconciliation of net income on a GAAP basis to adjusted
EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:
Sales
$8,918.9
$8,930.2
$8,187.6
$7,503.7
$7,824.3
2019
2018
2017
2016
2015
Net income and net income margin
$1,809.4
20.3%
$1,532.9
17.2%
$3,021.2
36.9%
$661.5
8.8 %
$1,317.6
16.8 %
2019
2018
2017
2016
2015
$
Margin
$
Margin
$
Margin
$
Margin
$
Margin
Less: Income (Loss) from discontinued
operations, net of tax
Add: Interest expense
Less: Other non-operating income
(expense), net
Add: Income tax provision
—
137.0
66.7
480.1
—%
1.5%
.7%
5.4%
Add: Depreciation and amortization
1,082.8
12.1%
Less: Change in inventory valuation method
Add: Facility closure
Add: Business separation costs
Add: Business restructuring, cost reduction,
and asset actions
Add: Goodwill and intangible asset
impairment charge
Less: Gain on previously held equity interest
Less: Gain on exchange of equity affiliate
investments
Less: Gain on land sales
Add: Equity method investment impairment
charge
Add: Loss on extinguishment of debt
Add: Tax reform repatriation - equity method
investment
Adjusted EBITDA and adjusted EBITDA
margin
Change GAAP
Net income $ change
Net income % change
Net income margin change
Change Non-GAAP
Adjusted EBITDA $ change
Adjusted EBITDA % change
Adjusted EBITDA margin change
42.2
130.5
5.1
524.3
970.7
24.1
—
—
—
—
—
—
—
—
—
28.5
.5%
1.5%
.1%
5.9%
10.9%
.3%
—%
—%
—%
—%
—%
—%
—%
—%
—%
.3%
1,866.0
22.8%
(460.5)
(6.1)%
120.6
1.5%
115.2
1.5 %
16.6
260.9
865.8
—
—
32.5
.2%
3.2%
10.6%
—%
—%
.4%
151.4
1.8%
162.1
—
—
12.2
79.5
—
—
2.0%
—%
—%
.2%
1.0%
—%
—%
(5.4)
432.6
854.6
—
—
50.6
34.5
—
—
—
—
—
6.9
—
351.7
102.8
(42.3)
300.2
858.5
—
—
7.5
4.5 %
1.3 %
(.5)%
3.8 %
11.0 %
— %
— %
.1 %
(.1)%
5.8 %
11.4 %
— %
— %
.7 %
.4 %
180.1
2.4 %
— %
— %
— %
— %
— %
.1 %
— %
—
17.9
—
33.6
—
16.6
— %
.2 %
— %
.4 %
— %
.2 %
—
— %
—
29.0
—
25.5
—
—
29.1
—
—
—
—
—%
.3%
—%
.3%
—%
—%
.3%
—%
—%
—%
—%
$3,468.0
38.9%
$3,115.5
34.9%
$2,799.2
34.2%
$2,621.8
34.9%
$2,422.4
31.0%
2019
2018
2017
2016
$276.5
($1,488.3)
$2,359.7
($656.1)
18 %
310 bp
(49 )%
(1,970) bp
357 %
2,810 bp
(50 )%
(800) bp
$352.5
$316.3
$177.4
$199.4
11 %
400 bp
11 %
70 bp
7 %
(70) bp
8 %
390 bp
31
Below is reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted
EBITDA margin by segment:
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
GAAP Measure
Twelve Months Ended 30
September 2019
Operating income (loss)
Operating margin
Twelve Months Ended 30
September 2018
Operating income (loss)
Operating margin
2019 vs. 2018
$997.7
$472.4
$864.2
($11.7)
($152.8)
$2,169.8
25.8 %
23.6 %
32.4 %
$927.9
$445.8
$689.9
$53.9
($176.0)
$1,941.5
24.7 %
20.3 %
28.1 %
Operating income (loss) change
$69.8
$26.6
$174.3
($65.6)
$23.2
Operating income (loss) % change
Operating margin change
8 %
110 bp
6 %
330 bp
25 %
430 bp
(122)%
13 %
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
Non-GAAP Measure
Twelve Months Ended 30
September 2019
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
Adjusted EBITDA margin
Twelve Months Ended 30
September 2018
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
Adjusted EBITDA margin
2019 vs. 2018
Adjusted EBITDA change
Adjusted EBITDA % change
Adjusted EBITDA margin change
$997.7
505.2
84.8
$472.4
189.5
69.0
$864.2
361.5
58.4
$1,587.7
$730.9
$1,284.1
41.0 %
36.5 %
48.2 %
($11.7)
($152.8)
$2,169.8
8.6
3.2
$.1
18.0
—
1,082.8
215.4
($134.8)
$3,468.0
$927.9
485.3
82.0
$445.8
198.6
61.1
$689.9
265.8
58.3
$53.9
($176.0)
$1,941.5
8.1
1.9
12.9
—
970.7
203.3
$1,495.2
$705.5
$1,014.0
$63.9
($163.1)
$3,115.5
39.8 %
32.2 %
41.3 %
$92.5
$25.4
$270.1
($63.8)
$28.3
6 %
120 bp
4 %
430 bp
27 %
690 bp
(100)%
17 %
(A)
(A)
(A)
(B)
(A)
(B)
(A) The table below reconciles operating income as reflected on our consolidated income statements to total operating income
in the table above:
Operating Income
Consolidated operating income
Change in inventory valuation method
Facility closure
Cost reduction and asset actions
Gain on exchange of equity affiliate investments
Total
32
2019
2018
$2,144.4
$1,965.6
—
29.0
25.5
(29.1)
(24.1)
—
—
—
$2,169.8
$1,941.5
(B) The table below reconciles equity affiliates' income as reflected on our consolidated income statements to total equity
affiliates' income in the table above:
Equity Affiliates' Income
Consolidated equity affiliates' income
Tax reform repatriation - equity method investment
Total
Income Taxes
2019
2018
$215.4
—
$215.4
$174.8
28.5
$203.3
The tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax
expense associated with each adjustment and is primarily dependent upon the statutory tax rate of the various
relevant jurisdictions and the taxability of the adjustments in those jurisdictions. For additional discussion on the
impact of the U.S. Tax Cuts and Jobs Act, refer to Note 23, Income Taxes, to the consolidated financial statements.
Income Tax Provision
Income From Continuing Operations Before Taxes
Effective Tax Rate
Income Tax Provision
Change in inventory valuation method
Facility closure
Cost reduction actions
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Tax reform rate change and other
Tax restructuring
Adjusted Income Tax Provision
Income from Continuing Operations Before Taxes
Change in inventory valuation method
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Pension settlement loss
Tax reform repatriation - equity method investment
Adjusted Income From Continuing Operations Before Taxes
Adjusted Effective Tax Rate
Effective Tax Rate
2018
2019
$524.3
$480.1
$2,015.0
$2,289.5
21.0%
26.0%
$480.1
—
6.9
6.7
1.2
12.4
(56.2)
—
—
$451.1
$2,289.5
—
29.0
25.5
(29.1)
5.0
—
$2,319.9
$524.3
(6.6)
—
—
10.5
(448.6)
56.2
211.8
35.7
$383.3
$2,015.0
(24.1)
—
—
—
43.7
28.5
$2,063.1
19.4%
18.6%
33
LIQUIDITY AND CAPITAL RESOURCES
We maintained a strong financial position throughout fiscal year 2019. As of 30 September 2019, our consolidated
balance sheet included cash and cash items of $2,248.7. 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 2019, we had $971.5 of foreign cash and cash items compared to a total amount of cash and
cash items of $2,248.7. As a result of the Tax Act, we do not expect that a significant portion of our foreign
subsidiaries' and affiliates' earnings will be subject to U.S. income tax upon subsequent repatriation to the United
States. The repatriation of these earnings may be subject to foreign withholding and other taxes depending on the
country in which the subsidiaries and affiliates reside. However, because we have significant current investment
plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that
would be subject to additional taxes outside the U.S. Refer to Note 23, Income Taxes, for additional information.
The table below summarizes our cash flows from operating activities, investing activities, and financing activities
from continuing operations as reflected on the consolidated statements of cash flows:
Cash Provided by (Used for)
Operating activities
Investing activities
Financing activities
2019
$2,969.9
(2,113.4)
(1,370.5)
2018
$2,547.2
(1,641.6)
(1,359.8)
Operating Activities
For the fiscal year ended 30 September 2019, cash provided by operating activities was $2,969.9. Income from
continuing operations of $1,760.0 was adjusted for items including depreciation and amortization, deferred income
taxes, impacts from the Tax Act, a charge for the facility closure of one of our customers, undistributed earnings of
unconsolidated affiliates, gain on sale of assets and investments, share-based compensation, noncurrent capital
lease receivables, and certain other adjustments. The caption "Gain on sale of assets and investments" includes a
gain of $14.1 recognized on the disposition of our interest in High-Tech Gases (Beijing) Co., Ltd., a previously held
equity investment in our Industrial Gases – Asia segment. Refer to Note 7, Acquisitions, to the consolidated
financial statements for additional information. The working capital accounts were a use of cash of $25.3, primarily
driven by $69.0 from trade receivables and $41.8 from payables and accrued liabilities, partially offset by $79.8
from other receivables. The use of cash within "Payables and accrued liabilities" was primarily driven by a $48.9
decrease in accrued utilities and a $30.3 decrease in accrued interest, partially offset by a $51.6 increase in
customer advances primarily related to sale of equipment activity. The decrease in accrued utilities was primarily
driven by a contract modification to a tolling arrangement in India and lower utility costs in the Industrial Gases –
Americas segment. The source of cash from other receivables of $79.8 was primarily due to the maturities of
forward exchange contracts that hedged foreign currency exposures and the collection of value added taxes.
For the fiscal year ended 30 September 2018, cash provided by operating activities was $2,547.2, including income
from continuing operations of $1,455.6. Other adjustments of $131.6 include a $54.9 net impact from the
remeasurement of intercompany transactions. The related hedging instruments that eliminate the earnings impact
are included as a working capital adjustment in other receivables or payables and accrued liabilities. In addition,
other adjustments were impacted by cash received from the early termination of a cross currency swap of $54.4, as
well as the excess of pension expense over pension contributions of $23.5. The working capital accounts were a
use of cash of $265.4, primarily driven by payables and accrued liabilities, inventories, and trade receivables,
partially offset by other receivables. The use of cash in payables and accrued liabilities of $277.7 includes a
decrease in customer advances of $145.7 primarily related to sale of equipment activity and $67.1 for maturities of
forward exchange contracts that hedged foreign currency exposures. The use of cash in inventories primarily
resulted from the purchase of helium molecules. In addition, inventories reflect the noncash impact of our change in
accounting for U.S. inventories from LIFO to FIFO. The source of cash from other receivables of $128.3 was
primarily due to the maturities of forward exchange contracts that hedged foreign currency exposures.
34
Investing Activities
For the fiscal year ended 30 September 2019, cash used for investing activities was $2,113.4. Payments for
additions to plant and equipment totaled $1,989.7. Cash paid for acquisitions, net of cash acquired, was $123.2.
Refer to Note 7, Acquisitions, to the consolidated financial statements for further details. Proceeds from investments
of $190.5 resulting from maturities of short-term instruments with original maturities greater than three months and
less than one year exceeded purchase of $172.1.
For the fiscal year ended 30 September 2018, cash used for investing activities was $1,641.6. Payments for
additions to plant and equipment totaled $1,568.4. Cash paid for acquisitions, net of cash acquired, was $345.4.
Refer to Note 7, Acquisitions, to the consolidated financial statements for further details. Proceeds from investments
of $748.2 exceeded our purchases of investments of $530.3.
Capital Expenditures
Capital expenditures is a non-GAAP measure that we define as cash flows for additions to plant and equipment,
acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates. A reconciliation of
cash used for investing activities to our reported capital expenditures is provided below:
Cash used for investing activities
Proceeds from sale of assets and investments
Purchases of investments
Proceeds from investments
Other investing activities
Capital Expenditures
The components of our capital expenditures are detailed in the table below:
Additions to plant and equipment
Acquisitions, less cash acquired
Investments in and advances to unconsolidated affiliates
Capital Expenditures
2019
$2,113.4
11.1
(172.1)
190.5
(14.3)
$2,128.6
2018
$1,641.6
48.8
(530.3)
748.2
5.5
$1,913.8
2019
$1,989.7
123.2
15.7
$2,128.6
2018
$1,568.4
345.4
—
$1,913.8
Capital expenditures in fiscal year 2019 totaled $2,128.6 compared to $1,913.8 in fiscal year 2018. The increase of
$214.8 was primarily due to major project spending, including payment for gasification and syngas clean up assets
from Lu'An. Additions to plant and equipment also included support capital of a routine, ongoing nature, including
expenditures for distribution equipment and facility improvements.
2020 Outlook for Investing Activities
Capital expenditures in fiscal year 2020 are expected to be approximately $4 billion to $4.5 billion, which primarily
includes our initial expected equity affiliate investment in the Jazan gas and power project as well as new plants
that are currently under construction or expected to start construction. It is not possible, without unreasonable
efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because we are
unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of
competing opportunities at the time we enter into transactions. These decisions, either individually or in the
aggregate, could have a significant effect on our cash used for investing activities.
We anticipate capital expenditures to be funded principally with our current cash balance and cash generated from
continuing operations. In addition, we intend to continue to evaluate (1) acquisitions of small- and medium-sized
industrial gas companies or assets from other industrial gas companies; (2) purchases of existing industrial gas
facilities from our customers to create long-term contracts under which we own and operate the plant and sell
industrial gases to the customer based on a fixed fee; and (3) investment in large industrial gas projects driven by
demand for more energy, cleaner energy, and emerging market growth.
35
Financing Activities
For the fiscal year ended 2019, cash used for financing activities was $1,370.5. This use of cash was largely
attributable to dividend payments to shareholders of $994.0 and payments on long-term debt of $428.6. Payments
on long-term debt primarily related to the repayment of a 4.375% U.S. Senior Note of $400.0 that matured on 21
August 2019.
For the fiscal year ended 2018, cash used for financing activities was $1,359.8. This use of cash was largely
attributable to dividend payments to shareholders of $897.8 and payments on long-term debt of $418.7. Payments
on long-term debt primarily related to the repayment of a 1.2% U.S. Senior Note of $400.0 that matured on 16
October 2017.
Financing and Capital Structure
Capital needs in fiscal year 2019 were satisfied primarily with cash from operations. At the end of 2019, total debt
outstanding was $3,326.0 compared to $3,812.6 at the end of 2018, and cash and cash items were $2,248.7
compared to $2,791.3 at the end of 2018. Total debt as of 30 September 2019 includes related party debt $357.9
associated with the Lu'An joint venture.
On 31 March 2017, we entered into a five-year $2,500.0 revolving credit agreement maturing 31 March 2022 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. On 28 September 2018, we amended the 2017 Credit Agreement to
reduce the maximum borrowing capacity to $2,300.0. No other terms were impacted by the amendment.
The 2017 Credit Agreement provides a source of liquidity for the Company and supports its commercial paper
program. The Company’s only financial covenant under the 2017 Credit Agreement is a maximum ratio of total debt
to total capitalization (total debt plus total equity) no greater than 70%. Total debt at 30 September 2019 and 2018
expressed as a percentage of total capitalization was 22.6% and 25.4%, respectively. No borrowings were
outstanding under the 2017 Credit Agreement as of 30 September 2019.
As of 30 September 2019, we classified our 2.000% Eurobond of €300 million ($327.0) maturing in August 2020 as
long-term debt because we have the ability to refinance the debt under the 2017 Credit Agreement. Our current
intent is to refinance this debt via the U.S. or European public or private placement markets.
Commitments totaling $2.3 are maintained by our foreign subsidiaries, all of which was borrowed and outstanding
at 30 September 2019.
As of 30 September 2019, 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 2019 or 2018. As of 30
September 2019, $485.3 in share repurchase authorization remains.
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 2019, the Board of Directors increased the quarterly dividend from $1.10 per share to $1.16
per share, or $4.64 per share annually.
On 26 November 2019, the Board of Directors declared the first quarter 2020 dividend of $1.16 per share. The
dividend is payable on 10 February 2020 to shareholders of record at the close of business on 2 January 2020.
36
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 2019:
Debt maturities
Contractual interest on debt
Capital leases
Operating leases
Pension obligations
Unconditional purchase obligations
Deemed repatriation tax related to
the Tax Act
Obligation for future contribution to
an equity affiliate
Total Contractual Obligations
Debt Obligations
Total
$3,275
2020
$367
2021
$440
2022
$439
2023
$454
2024 Thereafter
$454
$1,121
466
21
418
641
8,310
215
100
78
2
75
35
69
3
63
51
55
1
44
52
44
1
36
52
35
1
29
52
185
13
171
399
1,358
407
369
349
350
5,477
—
100
21
—
21
—
21
—
37
—
115
—
$13,446
$2,015
$1,054
$981
$957
$958
$7,481
Our debt obligations include the maturity payments of the principal amount of long-term debt, including the current
portion and amounts owed to related parties, and the related contractual interest obligations. Refer to Note 16,
Debt, to the consolidated financial statements for additional information on our debt obligations.
Contractual interest is the interest we are contracted to pay on our 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 approximately $635 of long-term debt subject to variable interest rates at 30
September 2019, 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 2019.
Variable interest rates are primarily determined by U.S. short-term tax-exempt interest rates and by interbank offer
rates.
Leases
Refer to Note 13, 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 for our U.S. and international pension plans. For additional information, refer
to Note 17, 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 may be 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 $7,100 of our unconditional purchase obligations relate to helium purchases. The majority of these
obligations occur after fiscal year 2024. Helium purchases include crude feedstock supply to 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-
if-tendered provisions. The refined helium is distributed globally and sold as a merchant gas, primarily under
medium-term requirements contracts. While contract terms in our helium sourcing contracts are generally longer
than our customer sales contracts, helium is a rare gas used in applications with few or no substitutions because of
its unique physical and chemical properties.
37
Approximately $160 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.
We estimate our maximum obligation for future purchases of plant and equipment to be approximately $890 based
on open purchase orders as of 30 September 2019. This includes spending for the Jiutai coal-to-syngas project.
Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the
option to reschedule, cancel, or otherwise modify based on our business needs. We have disclosed this obligation
in fiscal year 2020; however, timing of actual satisfaction of the obligation may vary.
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.
Income Tax Liabilities
Tax liabilities related to unrecognized tax benefits as of 30 September 2019 were $231.7. These tax liabilities were
excluded from the table above 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. However, the table above
includes our accrued liability of approximately $215 for deemed repatriation tax that is payable through 2026 related
to the Tax Act. Refer to Note 23, Income Taxes, to the consolidated financial statements for additional information.
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.
We guarantee the repayment of our 25% share of an equity bridge loan to fund equity commitments to the joint
venture. In total, we expect to invest approximately $100 in this joint venture. As of 30 September 2019, payables
and accrued liabilities included $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.
Expected Equity Affiliate Investment in Jazan Gas and Power Project
On 12 August 2018, Air Products entered an agreement to form a gasification/power joint venture ("JV") with Saudi
Aramco and ACWA in Jazan, Saudi Arabia. Air Products expects to own 51% of the JV, with Saudi Aramco and
ACWA Power owning the balance. The JV will purchase the gasification assets, power block, and the associated
utilities from Saudi Aramco for approximately $11.5 billion. Our expected equity affiliate investment has been
excluded from the contractual obligations table above pending financial closing, which is currently expected in fiscal
year 2020.
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, after which
defined contribution plans were offered to new employees. The shift to defined contribution plans is expected to
continue to reduce volatility of both plan expense and contributions.
The fair market value of plan assets for our defined benefit pension plans as of the 30 September 2019
measurement date increased to $4,504.8 from $4,273.1 at the end of fiscal year 2018. The projected benefit
obligation for these plans was $5,145.6 and $4,583.3 at the end of fiscal years 2019 and 2018, respectively. The
net unfunded liability increased $330.6 from $310.2 to $640.8, primarily due to lower discount rates partially offset
by favorable asset experience. Refer to Note 17, Retirement Benefits, to the consolidated financial statements for
additional disclosures on our postretirement benefits.
38
Pension Expense
Pension expense, including special items noted below
Settlements, termination benefits, and curtailments ("special items")
Weighted average discount rate – Service cost
Weighted average discount rate – Interest cost
Weighted average expected rate of return on plan assets
Weighted average expected rate of compensation increase
2019
$27.6
7.2
3.4%
3.4%
6.4%
3.5%
2018
$91.8
48.9
3.2%
2.9%
6.9%
3.5%
Pension expense decreased from the prior year due to lower pension settlements, lower loss amortization, primarily
from favorable asset experience and the impact of higher discount rates, partially offset by lower expected returns
on assets. Special items (settlements, termination benefits, and curtailments) decreased from the prior year
primarily due to lower pension settlement losses. In fiscal year 2019, special items of $7.2 included pension
settlement losses of $6.4, of which $5.0 was recorded during the second quarter and related to the U.S.
Supplementary Pension Plan, and $.8 of termination benefits. These amounts are reflected within "Other non-
operating income (expense), net" on the consolidated income statements. In fiscal year 2018, special items of
$48.9 included a pension settlement loss of $43.7 primarily in connection with the transfer of certain pension assets
and payment obligations for our U.S. salaried and hourly plans to an insurer during the fourth quarter, $4.8 of
pension settlement losses related to lump sum payouts from the U.S. Supplementary Pension Plan, and $.4 of
termination benefits.
U.K. Lloyds Equalization Ruling
On 26 October 2018, the United Kingdom High Court issued a ruling related to the equalization of pension plan
participants’ benefits for the gender effects of Guaranteed Minimum Pensions. As a result of this ruling, we
estimated the impact of retroactively increasing benefits in our U.K. plan in accordance with the High Court ruling.
We treated the additional benefits as a prior service cost, which resulted in an increase to our projected benefit
obligation and accumulated other comprehensive loss of $4.7 during the first quarter of fiscal year 2019. We are
amortizing this cost over the average remaining life expectancy of the U.K. participants.
2020 Outlook
In fiscal year 2020, we expect pension expense to be approximately $5 to $20, which includes expected pension
settlement losses of $5 to $10, depending on the timing of retirements. The expected range reflects lower expected
interest cost and higher total assets, partially offset by higher expected loss amortization primarily due to the impact
of lower discount rates. In fiscal year 2020, we expect pension expense to include approximately $105 for
amortization of actuarial losses.
In fiscal year 2019, pension expense included amortization of actuarial losses of $76.2. Net actuarial losses of
$424.4 were recognized in accumulated other comprehensive income in fiscal year 2019. 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 fiscal year 2020.
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 2019 and 2018, our
cash contributions to funded plans and benefit payments for unfunded plans were $40.2 and $68.3, respectively.
For fiscal year 2020, cash contributions to defined benefit plans are estimated to be $30 to $40. The estimate is
based on expected contributions to certain international plans and anticipated benefit payments for unfunded plans,
which are dependent upon the timing of retirements. Actual future contributions will depend on future funding
legislation, discount rates, investment performance, plan design, and various other factors. Refer to the Contractual
Obligations discussion on page 37 for a projection of future contributions.
39
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 CERCLA, 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 18, Commitments and Contingencies, to
the consolidated financial statements.
The amounts charged to income from continuing operations related to environmental matters totaled $14.2 and
$12.8 in fiscal years 2019 and 2018, respectively. These amounts represent an estimate of expenses for
compliance with environmental laws and activities undertaken to meet internal Company standards. Refer to Note
18, Commitments and Contingencies, to the consolidated financial statements for additional information.
Although precise amounts are difficult to determine, we estimate that we spent $5 and $3, in fiscal years 2019 and
2018, respectively, on capital projects to control pollution. Capital expenditures to control pollution are estimated to
be approximately $5 in both fiscal years 2020 and 2021.
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 $68 to a reasonably possible upper exposure of $82 as of 30 September 2019. The
consolidated balance sheets at 30 September 2019 and 2018 included an accrual of $68.9 and $76.8, respectively,
primarily as part of other noncurrent liabilities. The accrual for the environmental obligations includes amounts for
the Pace, Florida; Piedmont, South Carolina; and Pasadena, Texas, locations which were a part of previously
divested chemicals businesses. Refer to Note 18, 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 ("GHGs"), including carbon dioxide. These include existing coverage under the European
Union Emission Trading system, the California cap and trade scheme, China’s Emission Trading Scheme and its
nation-wide expansion, and South Korea’s Emission Trading Scheme. In Canada, Alberta and Ontario are both in
the development/approval process for new GHG regulations. Alberta’s Carbon Competitiveness Incentive
Regulation will end December 31, 2019 and will be replaced by the proposed Technology Innovation and Emission
Reduction ("TIER") System or Environment & Climate Change Canada's Output Based Pricing System ("OBPS"). In
lieu of adherence to the OBPS, Ontario seeks approval from Environment & Climate Change Canada to implement
their proposed GHG Emissions Performance Standards program. 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, hydrogen production and application of our gasification technology. We believe we
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 also have
developed 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.
40
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into certain guarantee agreements as discussed in Note 18, Commitments and Contingencies, to
the consolidated financial statements. In addition, 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
We have related party sales to some of our equity affiliates and joint venture partners as well as other income
primarily from fees charged for use of Air Products' patents and technology. Sales to and other income from related
parties totaled approximately $410 and $360 in fiscal years 2019 and 2018, respectively. Sales agreements with
related parties include terms that are consistent with those that we believe would have been negotiated at an arm’s
length with an independent party.
In addition, we completed the formation of Air Products Lu An (Changzhi) Co., Ltd., a 60%-owned JV with Lu'An
Clean Energy Company ("Lu'An"), and the JV acquired gasification and syngas clean-up assets from Lu'An during
the third quarter of fiscal year 2018. Refer to Note 7, Acquisitions, to the consolidated financial statements for
additional information on outstanding liabilities associated with the acquisition.
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.
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 2019 totaled $10,337.6, and depreciation expense totaled $1,049.7
during fiscal year 2019. 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.
41
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.
In addition, we may purchase assets through transactions accounted for as either an asset acquisition or a
business combination. Depreciable lives are assigned to acquired assets based on our historical experience with
similar assets. Management monitors its assumptions and may potentially need to adjust depreciable life as
circumstances change.
Impairment of Assets – Plant and Equipment
Plant and equipment meeting the held for sale criteria are reported at the lower of carrying amount or fair value less
cost to sell. Plant and equipment to be disposed of other than by sale may be reviewed for impairment upon the
occurrence of certain triggering events, such as unexpected contract terminations or unexpected foreign
government-imposed restrictions or expropriations. Plant and equipment held for use is grouped for impairment
testing at the lowest level for which there is identifiable cash flows. Impairment testing of the asset group occurs
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. Such circumstances 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.
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.
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.
In fiscal year 2019, there was no need to test for impairment on any of our asset groupings as no events or changes
in circumstances indicated that the carrying amount of the asset groupings may not be recoverable. However, one
of our customers was subject to a government enforced shutdown due to environmental reasons. As a result, we
recognized a charge of $29.0 during the first quarter of fiscal year 2019 primarily related to the write-off of related
onsite assets. Refer to Note 24, Supplemental Information, to the consolidated financial statements for additional
information.
Impairment of Assets – Goodwill
The acquisition method of accounting for business combinations requires us to make use of estimates and
judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable
intangible assets. Goodwill represents the excess of the aggregate purchase price (plus the fair value of any
noncontrolling interest and previously held equity interest in the acquiree) over the fair value of identifiable net
assets of an acquired entity. Goodwill was $797.1 as of 30 September 2019. Disclosures related to goodwill are
included in Note 11, Goodwill, to the consolidated financial statements.
We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes
in circumstances indicate that the carrying value of goodwill might not be recoverable. The tests are done at the
reporting unit level, which is defined as being equal to or one level below the operating segment for which discrete
financial information is available and whose operating results are reviewed by segment managers regularly. We
have five business segments that are comprised of ten reporting units within seven operating segments. Refer to
Note 26, Business Segment and Geographic Information, for additional information. Reporting units are primarily
based on products and subregions within each reportable segment. The majority of our goodwill is assigned to
reporting units within our regional Industrial Gases segments.
42
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 choose to bypass the qualitative assessment and conduct quantitative testing to determine if the
carrying value of the reporting unit exceeds its fair value. An impairment loss will be recognized for the amount by
which the carrying value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill
allocated to that reporting unit.
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 adjusted EBITDA margins, discount rate, and exit multiple. Projected
revenue growth rates and operating profit and/or adjusted 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.
During the fourth quarter of fiscal year 2019, we conducted our annual goodwill impairment test. We determined
that the fair value of all our reporting units substantially exceeded their carrying value except LASA, which is further
discussed below. Substantially all of the remaining goodwill balance related to reporting units in which the fair value
exceeded the carrying value by at least 100%.
The fair value of LASA exceeded its carrying value by 11%. Revenue growth and adjusted EBITDA margin
assumptions are two primary drivers of the fair value. We determined that, with other assumptions held constant, a
decrease in revenue growth rates of approximately 310 basis points or a decrease in adjusted EBITDA margin of
approximately 300 basis points would result in the fair value of the reporting unit being equal to its carrying value.
As of 30 September 2019, the carrying value of LASA goodwill was $59.8, or less than 1% of consolidated total
assets. The carrying value of LASA's other material assets at 30 September 2019 included: Plant and equipment,
net of $339.2; customer relationships of $129.0; and trade names and trademarks of $41.3. 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.
Impairment of Assets – Intangible Assets
Intangible assets, net with determinable lives at 30 September 2019 totaled $375.4 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 value 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.
43
Indefinite-lived intangible assets at 30 September 2019 totaled $44.1 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.
Disclosures related to intangible assets other than goodwill are included in Note 12, Intangible Assets, to the
consolidated financial statements.
In the fourth quarter of 2019, we conducted our annual impairment test of indefinite-lived intangibles which resulted
in no impairment.
Impairment of Assets – Equity Method Investments
Investments in and advances to equity affiliates totaled $1,276.2 at 30 September 2019. 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 9, 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.
An impairment loss is recognized in the event that an other-than-temporary decline in fair value of an investment
occurs. 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.
In fiscal year 2019, there was no need to test for impairment on any of our equity affiliate investments as no events
or changes in circumstances indicated that the carrying amount of the investments may not be recoverable.
Revenue Recognition – Cost Incurred Input Method
Revenue from equipment sale contracts is generally recognized over time as we have an enforceable right to
payment for performance completed to date and our performance under the contract terms does not create an
asset with alternative use. We use a cost incurred input method to recognize revenue by which costs incurred to
date relative to total estimated costs at completion are used to measure progress toward satisfying performance
obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and
proportionate to the transfer of control to the customer.
Accounting for contracts using the cost incurred input method requires management judgment relative to assessing
risks and their impact on the 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 are required, any changes in the
estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of such
change. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be
earned, a provision for the entire estimated loss on the contract is recorded in the period in which the loss is
determined.
In addition to the typical risks associated with underlying performance of project procurement and construction
activities, our Jazan large air separation unit sale of equipment project within our Industrial Gases – Global segment
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 cost incurred input method, including the Jazan project,
favorably impacted operating income by approximately $37 and $38 in fiscal years 2019 and 2018, respectively.
Our changes in estimates would not have significantly impacted amounts recorded in prior years.
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.
44
Revenue Recognition – On-site Customer Contracts
For customers who require large volumes of gases on a long-term basis, we produce and supply gases under long-
term contracts from large facilities that we build, own and operate on or near the customer’s facilities. Certain of
these on-site contracts contain complex terms and provisions such as tolling arrangements, minimum payment
requirements, variable components and pricing provisions that require significant judgment to determine the amount
and timing of revenue recognition.
Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax 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 2019, accrued income taxes, including the amount recorded in
noncurrent, was $302.0 and net deferred tax liabilities was $678.6. Tax liabilities related to uncertain tax positions
as of 30 September 2019 were $231.7, excluding interest and penalties. Income tax expense for the year ended 30
September 2019 was $480.1 and includes a discrete net income tax expense of $43.8 related to the Tax Act.
Disclosures related to income taxes are included in Note 23, 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% increase/decrease in our effective tax rate would decrease/increase net income by approximately $23.
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 17, Retirement Benefits, to the consolidated financial statements includes
disclosure of these rates on a weighted-average basis for both the U.S. and international plans. The actuarial
models also use assumptions about demographic factors such as retirement age, mortality, and turnover rates.
Mortality rates are based on the most recent U.S. and international mortality tables. We believe the actuarial
assumptions are reasonable. However, actual results could vary materially from these actuarial assumptions due to
economic events and different rates of retirement, mortality, and turnover.
45
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. The
Company measures the service cost and interest cost components of pension expense by applying spot rates along
the yield curve to the relevant projected cash flows. The rates along the yield curve are used to discount the future
cash flows of benefit obligations back to the measurement date. These rates change from year to year based on
market conditions that affect corporate bond yields. A higher discount rate decreases the present value of the
benefit obligations and results in lower pension expense. A 50 bp increase/decrease in the discount rate decreases/
increases pension expense by approximately $18 per year.
The expected rate of return on plan assets represents an estimate of the long-term average rate of return to be
earned by plan assets reflecting current asset allocations. In determining estimated asset class returns, we take into
account historical and future expected long-term returns and the value of active management, as well as the
interest rate environment. Asset allocation is determined based on long-term return, volatility and correlation
characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Lower returns
on the plan assets result in higher pension expense. A 50 bp increase/decrease in the estimated rate of return on
plan assets decreases/increases pension expense by approximately $20 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
non-equity investments equals the actual fair value. Expense in future periods will be impacted as gains or losses
are recognized in the market-related value of assets.
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 $8 per year.
Loss Contingencies
In the normal course of business, we encounter contingencies, or situations involving varying degrees of uncertainty
as to the outcome and effect on the Company. We accrue a liability for loss contingencies when it is considered
probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range
of possible loss can be established, the most probable amount in the range is accrued. If no amount within this
range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.
Contingencies include those associated with litigation and environmental matters, for which our accounting policy is
discussed in Note 1, Major Accounting Policies, to the consolidated financial statements, and details are provided in
Note 18, Commitments and Contingencies, to the consolidated financial statements. Significant judgment is
required to determine both the probability and whether the amount of loss associated with a contingency can be
reasonably estimated. These determinations are made based on the best available information at the time. As
additional information becomes available, we reassess probability and estimates of loss contingencies. Revisions to
the estimates associated with loss contingencies could have a significant impact on our results of operations in the
period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the inherent
uncertainties related to environmental exposures, a significant increase to environmental liabilities could occur if a
new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or our
proportionate share 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
See Note 2, New Accounting Guidance, to the consolidated financial statements for information concerning the
implementation and impact of new accounting guidance.
46
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 14, 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 and related party
portions), 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 15, Fair Value Measurements, to the consolidated financial statements. At 30 September
2019 and 2018, the net financial instrument position was a liability of $3,239.1 and $3,736.2, 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 2019, including the effect of currency and interest rate swap agreements,
was composed of 74% fixed-rate debt and 26% variable-rate debt. Our debt portfolio as of 30 September 2018,
including the effect of currency and interest rate swap agreements, was composed of 66% fixed-rate debt and 34%
variable-rate debt. The decrease in variable-rate debt was the result of the repayment and maturity of the 4.375%
Senior Note and related fixed-to-variable interest rate swaps.
The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an
instantaneous 100 bp parallel move in interest rates from the level at 30 September 2019, with all other variables
held constant. A 100 bp increase in market interest rates would result in a decrease of $75 and $96 in the net
liability position of financial instruments at 30 September 2019 and 2018, respectively. A 100 bp decrease in market
interest rates would result in an increase of $80 and $101 in the net liability position of financial instruments at 30
September 2019 and 2018, 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 $8 and $13 of interest incurred per year at the end of 30
September 2019 and 2018, respectively. A 100 bp decline in interest rates would lower interest incurred by $8 and
$13 per year at 30 September 2019 and 2018, 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 2019 and 2018, 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 $326 and $329 in the net liability position of financial instruments at
30 September 2019 and 2018, respectively.
The primary currency pairs for which we have exchange rate exposure are the Euro and U.S. Dollar and Chinese
Renminbi and U.S. Dollar. 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.
47
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 Chinese Renminbi
and the Euro represent the largest exposures in terms of our foreign earnings. We estimate that a 10% reduction in
either the Chinese Renminbi or the Euro versus the U.S. Dollar would lower our annual operating income by
approximately $40 and $25, respectively.
48
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report on Internal Control Over Financial Reporting ...............................................................
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm .........................................
Report of KPMG LLP, Independent Registered Public Accounting Firm ..........................................................
Consolidated Income Statements – Years Ended 30 September 2019, 2018, and 2017 .................................
Consolidated Comprehensive Income Statements – Years Ended 30 September 2019, 2018, and 2017.......
Consolidated Balance Sheets – 30 September 2019 and 2018 .......................................................................
Consolidated Statements of Cash Flows – Years Ended 30 September 2019, 2018, and 2017 ......................
Consolidated Statements of Equity – Years Ended 30 September 2019, 2018, and 2017...............................
Notes to Consolidated Financial Statements ...................................................................................................
50
51
53
54
55
56
57
58
59
49
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 2019, the Company’s internal control over financial reporting was effective.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued its opinion on the Company’s
internal control over financial reporting as of 30 September 2019 as stated in its report which appears herein.
/s/ Seifi Ghasemi
Seifi Ghasemi
Chairman, President, and
Chief Executive Officer
26 November 2019
/s/ M. Scott Crocco
M. Scott Crocco
Executive Vice President and
Chief Financial Officer
26 November 2019
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Air Products and Chemicals, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Air Products and Chemicals, Inc. and
subsidiaries (the "Company") as of September 30, 2019, the related consolidated income statement,
comprehensive income statement, statement of equity, and statement of cash flows, for the year then ended, and
the related notes and the schedule listed in Item 15(a)(2) as of and for the year ended September 30, 2019
(collectively referred to as the "financial statements"). We also have audited the Company’s internal control over
financial reporting as of September 30, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of September 30, 2019, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, 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 financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audit of the financial statements included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
51
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue - On-site Industrial Gas Customer Contracts - Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
On-site industrial gas customer contracts involve large capital investments to construct facilities and serve
customers who require large volumes of gases and have relatively constant demand. The Company builds, owns
and operates facilities on or near the customer’s facilities to produce and supply the customer with gases under a
long-term arrangement. Typically, these contracts have 15 to 20-year terms and contain fixed monthly charges and/
or minimum purchase requirements. Revenue associated with these contracts is generally recognized over time
during the period in which the Company delivers or makes available the agreed upon quantity of gases. In addition,
certain on-site industrial gas contracts contain complex terms and provisions such as tolling arrangements,
minimum payment requirements, variable components, and pricing provisions that are specific to a customer
arrangement, which may require greater judgment in determining when contractual requirements have been met
impacting the timing and amount of revenue to be recorded.
We identified revenue recognition for certain on-site industrial gas customer contracts with complex terms and
provisions as a critical audit matter because of the judgments necessary for management to assess complex
contract terms and provisions in order to determine the amount and timing of revenue recognition. This required a
high degree of auditor judgment when performing procedures to audit management’s determination of the amount
and timing of revenue recognition and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenue recognition for certain on-site industrial gas customer contracts with
complex terms and provisions included the following procedures, among others:
• We tested the effectiveness of the Company’s controls related to the amount and timing of revenue recognition,
including controls over identifying and assessing complex contract terms and provisions in certain on-site
industrial gas customer contracts.
• We evaluated the terms included within customer contracts to assess the accounting for provisions such as
tolling arrangements, minimum payment requirements, pricing provisions, and variable components that require
management to apply judgment in determining revenue recognition associated with the contract.
• We tested the probability of collection of variable components, including penalties, which impacts the amount of
revenue to which the Company is entitled.
• We considered subsequent events, write-offs of customer receivables, collectability, and other factors that
would impact the amount and timing of revenue recognition.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 26, 2019
We have served as the Company's auditor since 2018.
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Air Products and Chemicals, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Air Products and Chemicals, Inc. and
Subsidiaries (the Company) as of 30 September 2018, the related consolidated income statements, consolidated
comprehensive income statements, consolidated statements of cash flows and consolidated statements of equity
for each of the years in the two year period ended 30 September 2018, and the related notes and financial
statement schedule referred to in Item 15(a)(2) in the Form 10-K (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of 30 September 2018, and the results of its operations and its cash flows for each of
the years in the two year period ended 30 September 2018, in conformity with U.S. generally accepted accounting
principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2002 to 2018.
Philadelphia, Pennsylvania
November 20, 2018
53
The Consolidated Financial Statements
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
Millions of dollars, except for share and per share data
Year Ended 30 September
Sales
Cost of sales
Facility closure
Selling and administrative
Research and development
Business separation costs
Cost reduction and asset actions
Goodwill and intangible asset impairment charge
Gain on exchange of equity affiliate investments
Other income (expense), net
Operating Income
Equity affiliates' income
Interest expense
Other non-operating income (expense), net
Income From Continuing Operations Before Taxes
Income tax provision
Income From Continuing Operations
Income from discontinued operations, net of tax
Net Income
Net income attributable to noncontrolling interests of continuing operations
Net Income Attributable to Air Products
Net Income Attributable to Air Products
Net income from continuing operations
Net income from discontinued operations
Net Income Attributable to Air Products
Basic Earnings Per Common Share Attributable to Air Products
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic Earnings Per Common Share Attributable to Air Products
Diluted Earnings Per Common Share Attributable to Air Products
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted Earnings Per Common Share 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.
54
2019
2018
2017
$8,918.9 $8,930.2 $8,187.6
5,751.5
6,189.5
—
—
713.5
760.8
57.6
64.5
32.5
—
151.4
—
162.1
—
—
—
121.0
50.2
1,440.0
1,965.6
80.1
174.8
120.6
130.5
16.6
5.1
1,416.1
2,015.0
260.9
524.3
1,155.2
1,490.7
1,866.0
42.2
3,021.2
1,532.9
20.8
35.1
$1,760.0 $1,497.8 $3,000.4
5,975.5
29.0
750.0
72.9
—
25.5
—
29.1
49.3
2,144.4
215.4
137.0
66.7
2,289.5
480.1
1,809.4
—
1,809.4
49.4
$1,760.0 $1,455.6 $1,134.4
1,866.0
$1,760.0 $1,497.8 $3,000.4
42.2
—
$7.99
—
$6.64
.19
$5.20
8.56
$7.99
$6.83
$13.76
$7.94
—
$7.94
220.3
221.6
$6.59
.19
$5.16
8.49
$6.78
$13.65
219.3
220.8
218.0
219.8
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Millions of dollars
Year ended 30 September
Net Income
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of $25.1, $1.1, and ($19.3)
Net gain (loss) on derivatives, net of tax of ($1.5), $9.7, and ($11.0)
Pension and postretirement benefits, net of tax of ($97.9), $55.2, and $109.0
Reclassification adjustments:
Currency translation adjustment
Derivatives, net of tax of $4.5, ($9.2), and $11.7
Pension and postretirement benefits, net of tax of $20.5, $44.9, and $50.7
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.
2019
2018
2017
$1,809.4
$1,532.9
$3,021.2
(356.2)
(44.1)
(326.2)
(2.6)
12.3
63.2
(653.6)
(244.6)
45.9
179.4
3.1
(30.4)
133.1
86.5
101.9
(12.6)
251.6
57.3
24.2
110.7
533.1
1,155.8
1,619.4
3,554.3
49.4
35.1
20.8
(19.9)
(19.0)
3.7
$1,126.3
$1,603.3
$3,529.8
55
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Millions of dollars, except for share and per share data
30 September
Assets
Current Assets
Cash and cash items
Short-term investments
Trade receivables, net
Inventories
Prepaid expenses
Other receivables and current assets
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
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
Total Current Liabilities
Long-term debt
Long-term debt – related party
Other noncurrent liabilities
Deferred income taxes
Total Noncurrent Liabilities
Total Liabilities
Commitments and Contingencies - See Note 18
Air Products Shareholders’ Equity
Common stock (par value $1 per share; issued 2019 and 2018 - 249,455,584 shares)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (2019 - 29,040,322 shares; 2018 - 29,940,339 shares)
Total Air Products Shareholders' Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
56
2019
2018
$2,248.7
166.0
1,260.2
388.3
77.4
477.7
4,618.3
1,276.2
10,337.6
797.1
419.5
890.0
604.1
14,324.5
$18,942.8
$1,635.7
86.6
58.2
40.4
1,820.9
2,907.3
320.1
1,712.4
793.8
5,733.6
7,554.5
$2,791.3
184.7
1,207.2
396.1
129.6
373.3
5,082.2
1,277.2
9,923.7
788.9
438.5
1,013.3
654.5
14,096.1
$19,178.3
$1,817.8
59.6
54.3
406.6
2,338.3
2,967.4
384.3
1,536.9
775.1
5,663.7
8,002.0
249.4
1,070.9
14,138.4
(2,375.6)
(2,029.5)
11,053.6
334.7
11,388.3
$18,942.8
249.4
1,029.3
13,409.9
(1,741.9)
(2,089.2)
10,857.5
318.8
11,176.3
$19,178.3
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Millions of dollars
Year ended 30 September
Operating Activities
Net income
Less: Net income attributable to noncontrolling interests of continuing operations
Net income attributable to Air Products
Income from discontinued operations
Income from continuing operations attributable to Air Products
Adjustments to reconcile income to cash provided by operating activities:
2019
2018
2017
$1,809.4
49.4
1,760.0
—
1,760.0
$1,532.9
35.1
1,497.8
(42.2)
1,455.6
$3,021.2
20.8
3,000.4
(1,866.0)
1,134.4
Depreciation and amortization
Deferred income taxes
Tax reform repatriation
Facility closure
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 cost reduction actions
Other adjustments
Working capital changes that provided (used) cash, excluding effects of acquisitions:
Trade receivables
Inventories
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 increase (decrease) in commercial paper and short-term borrowings
Dividends paid to shareholders
Proceeds from stock option exercises
Other financing activities
Cash Used for Financing Activities
Discontinued Operations
Cash used for operating activities
Cash provided by investing activities
Cash provided by financing activities
Cash 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
The accompanying notes are an integral part of these statements.
1,082.8
57.6
49.4
29.0
(75.8)
(24.2)
41.2
94.6
—
—
—
(19.4)
(69.0)
(3.0)
79.8
(41.8)
8.7
2,969.9
(1,989.7)
(123.2)
(15.7)
11.1
(172.1)
190.5
(14.3)
(2,113.4)
—
(428.6)
3.9
(994.0)
68.1
(19.9)
(1,370.5)
—
—
—
—
(28.6)
(542.6)
2,791.3
$2,248.7
970.7
(55.4)
240.6
—
(59.8)
(6.9)
38.8
97.4
—
—
—
131.6
(42.8)
(64.2)
128.3
(277.7)
(9.0)
2,547.2
(1,568.4)
(345.4)
—
48.8
(530.3)
748.2
5.5
(1,641.6)
.5
(418.7)
(78.5)
(897.8)
76.2
(41.5)
(1,359.8)
(12.8)
18.6
—
5.8
(33.9)
(482.3)
3,273.6
$2,791.3
865.8
(38.0)
—
—
(65.8)
(24.3)
39.9
92.2
162.1
79.5
69.2
165.4
(73.6)
6.4
105.4
163.8
(154.0)
2,528.4
(1,039.7)
(8.2)
(8.1)
42.5
(2,692.6)
2,290.7
3.4
(1,412.0)
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
$3,273.6
57
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
Millions of dollars
Year ended 30 September
Balance 30 September 2016
Net income
Other comprehensive income (loss)
Dividends on common stock (per
share $3.71)
Dividends to noncontrolling interests
Share-based compensation
Issuance of treasury shares for stock
option and award plans
Spin-off of Versum
Cumulative change in accounting
principle
Other equity transactions
Balance 30 September 2017
Net income
Other comprehensive income
Dividends on common stock (per
share $4.25)
Dividends to noncontrolling interests
Share-based compensation
Issuance of treasury shares for stock
option and award plans
Lu'An joint venture
Other equity transactions
Balance 30 September 2018
Net income
Other comprehensive income (loss)
Dividends on common stock (per
share $4.58)
Dividends to noncontrolling interests
Share-based compensation
Issuance of treasury shares for stock
option and award plans
Cumulative change in accounting
principle
Other equity transactions
Common
Stock
$249.4
—
—
—
—
—
—
—
—
—
$249.4
—
—
—
—
—
—
—
—
$249.4
—
—
—
—
—
—
—
—
Balance 30 September 2019
$249.4
Capital
in Excess
of Par
Value
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
$970.0 $10,475.5
3,000.4
—
—
—
—
40.7
(9.6)
—
—
—
(808.5)
—
—
—
175.0
8.8
—
(4.6)
$1,001.1 $12,846.6
1,497.8
—
—
—
—
38.1
(11.3)
—
(931.8)
—
—
—
—
1.4
—
(2.7)
$1,029.3 $13,409.9
1,760.0
—
Treasury
Stock
($2,227.0)
—
—
—
—
—
63.5
—
—
—
($2,163.5)
—
—
—
—
—
74.3
—
($2,388.3)
—
529.4
—
—
—
—
11.5
—
—
($1,847.4)
—
105.5
—
—
—
—
—
—
($1,741.9)
—
—
($2,089.2)
—
—
—
(633.7)
— (1,008.3)
—
40.7
2.2
—
—
—
—
(17.1)
—
—
—
—
—
—
—
—
59.7
—
(1.3)
(6.1)
$1,070.9 $14,138.4
—
($2,375.6)
—
($2,029.5)
Air Products
Shareholders’
Equity
Non-
controlling
Interests
$7,079.6
3,000.4
529.4
(808.5)
—
40.7
53.9
186.5
8.8
(4.6)
$10,086.2
1,497.8
105.5
$133.8
20.8
3.7
—
(28.0)
—
—
(33.9)
—
2.9
$99.3
35.1
(19.0)
Total
Equity
$7,213.4
3,021.2
533.1
(808.5)
(28.0)
40.7
53.9
152.6
8.8
(1.7)
$10,185.5
1,532.9
86.5
(931.8)
—
(931.8)
—
38.1
63.0
—
(1.3)
$10,857.5
1,760.0
(633.7)
(29.9)
—
—
227.4
5.9
$318.8
49.4
(19.9)
(29.9)
38.1
63.0
227.4
4.6
$11,176.3
1,809.4
(653.6)
(1,008.3)
—
(1,008.3)
40.7
61.9
(17.1)
(7.4)
$11,053.6
(12.2)
—
—
—
(1.4)
$334.7
(12.2)
40.7
61.9
(17.1)
(8.8)
$11,388.3
The accompanying notes are an integral part of these statements.
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Millions of dollars, except for share and per share data
1. Major Accounting Policies .........................................................................................................................
2. New Accounting Guidance ........................................................................................................................
3. Revenue Recognition ...............................................................................................................................
4. Discontinued Operations ...........................................................................................................................
5. Materials Technologies Separation ...........................................................................................................
6. Cost Reduction and Asset Actions ............................................................................................................
7. Acquisitions ...............................................................................................................................................
8. Inventories ................................................................................................................................................
9. Summarized Financial Information of Equity Affiliates ..............................................................................
10. Plant and Equipment, net ..........................................................................................................................
11. Goodwill ....................................................................................................................................................
12. Intangible Assets .......................................................................................................................................
13. Leases ......................................................................................................................................................
14. Financial Instruments ................................................................................................................................
15. Fair Value Measurements .........................................................................................................................
16. Debt ..........................................................................................................................................................
17. Retirement Benefits ..................................................................................................................................
18. Commitments and Contingencies .............................................................................................................
19. Capital Stock .............................................................................................................................................
20. Share-Based Compensation .....................................................................................................................
21. Accumulated Other Comprehensive Loss .................................................................................................
22. Earnings per Share ...................................................................................................................................
23. Income Taxes ............................................................................................................................................
24. Supplemental Information .........................................................................................................................
25. Summary by Quarter (Unaudited) .............................................................................................................
26. Business Segment and Geographic Information .......................................................................................
60
66
68
71
72
72
73
74
75
76
77
78
79
80
84
86
88
96
99
100
103
105
105
110
112
114
59
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 (“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 losses or receive benefits significant to the VIE is
considered the primary beneficiary of that entity. We have determined that we are not a primary beneficiary of any
material VIE.
The results of operations and cash flows for our discontinued operations have been segregated from the results of
continuing operations and segment results. There were no assets and liabilities presented as discontinued
operations on the consolidated balance sheets. The comprehensive income related to discontinued operations has
not been segregated and is included in the consolidated comprehensive income statement for fiscal years 2018 and
2017. Refer to Note 4, Discontinued Operations, for detail of the businesses presented in discontinued operations.
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.
Reclassifications
The consolidated financial statements and accompanying notes reflect accounting guidance that was adopted
during fiscal year 2019. Refer to Note 2, New Accounting Guidance, for additional information. Certain prior year
information has been reclassified to conform to the fiscal year 2019 presentation.
Estimates and Assumptions
The preparation of the financial statements in conformity with 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
The Company recognizes revenue when or as performance obligations are satisfied, which occurs when control is
transferred to the customer.
We determine the transaction price of our contracts based on the amount of consideration to which we expect to be
entitled to receive in exchange for the goods or services provided. Our contracts within the scope of revenue
guidance do not contain payment terms that include a significant financing component.
Sales returns and allowances are not a business practice in the industry.
Our sale of gas contracts are either accounted for over time during the period in which we deliver or make available
the agreed upon quantity of goods or at a point in time when the customer receives and obtains control of the
product, which generally occurs upon delivery. We generally recognize revenue from our sale of gas contracts
based on the right to invoice practical expedient.
Our sale of equipment contracts are generally comprised of a single performance obligation as the individual
promised goods or services contained within the contracts are integrated with or dependent upon other goods or
services in the contract for a single output to the customer. Revenue from our sale of equipment contracts is
generally recognized over time as we have an enforceable right to payment for performance completed to date and
our performance under the contract terms does not create an asset with alternative use. We recognize these
contracts using a cost incurred input method by which costs incurred to date relative to total estimated costs at
completion are used to measure progress toward satisfying performance obligations.
60
Amounts billed for shipping and handling fees are classified as sales in the consolidated income statements.
Shipping and handling activities for our sale of equipment contracts may be performed after the customer obtains
control of the promised goods. In these cases, we have elected to apply the practical expedient to account for
shipping and handling as activities to fulfill the promise to transfer the goods. For our sale of gas contracts, control
generally transfers to the customer upon delivery.
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.
For additional information, refer to Note 3, Revenue Recognition.
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 10, Plant and Equipment, net.
Selling and Administrative
The principal components of selling and administrative expenses are compensation, advertising, and promotional
costs.
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 assets and
liabilities 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 15, Fair Value Measurements, and Note 17, Retirement Benefits, 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 14, 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.
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).
61
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 consolidated income
statements fluctuates from period to period, depending on the value of the U.S. 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
$14.2, $12.8, and $11.4 in fiscal years 2019, 2018, and 2017, respectively.
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, remediation costs, post-remediation monitoring costs, natural resource damages,
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 consider any
claims for recoveries from insurance or other parties and are not discounted.
62
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 18, 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 18, 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 20, Share-Based
Compensation, for additional information regarding these awards and 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 allowances 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 23, Income Taxes.
Other Non-Operating Income (Expense), net
Other non-operating income (expense), net primarily includes interest income associated with our cash and cash
items and short-term investments and non-service cost components of net periodic pension and postretirement
benefit cost. Our non-service costs primarily include interest cost, expected return on plan assets, amortization of
actuarial gains and losses, and settlements.
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.
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Short-term Investments
Short-term investments include time deposits and certificates of deposit 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. Allowances for doubtful accounts were $88.2 and $91.3 as of 30 September
2019 and 2018, respectively. Provisions to the allowance for doubtful accounts charged against income were $48.8,
$24.0, and $45.8 in fiscal years 2019, 2018, and 2017, respectively.
Inventories
We carry inventory that is comprised of finished goods, work-in-process, raw materials and supplies. Refer to Note
8, Inventories, for further detail.
Inventories on our consolidated balance sheets are stated at the lower of cost or net realizable value. We write
down our inventories for estimated obsolescence or unmarketable inventory based upon assumptions about future
demand and market conditions.
Effective 1 July 2018, we determine the cost of all our inventories on a first-in, first-out basis ("FIFO"). Prior to 1 July
2018, we determined the cost of our industrial gas inventories in the United States on a last-in, first-out basis
("LIFO"). We applied this accounting change as a cumulative effect adjustment to cost of sales in the fourth quarter
of fiscal year 2018 and did not restate prior period financial statements because the impact was not material. This
change decreased our cost of sales by $24.1 for the quarter and fiscal year ended 30 September 2018.
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, net
Plant and equipment, net 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 10, Plant and
Equipment, net, for further detail.
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 five years.
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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 $13.5, $19.5, and $19.0 in fiscal years 2019, 2018,
and 2017, 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 meeting the held for sale criteria 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 $208.2 and $190.4 at 30 September 2019 and 2018, 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 values. Any excess purchase price (plus the
fair value of any noncontrolling interest and previously held equity interest in the acquiree) 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 about facts and circumstances that
existed as of the acquisition date needed to finalize underlying estimates is obtained or when we determine that
such information is not obtainable, 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 11, 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 finite-lived intangibles are generally amortized over periods of five to fifteen years. Other
intangibles includes land use rights, which 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 12, Intangible
Assets, for further detail.
Retirement Benefits
The cost of pension benefits is generally 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 17,
Retirement Benefits, for disclosures related to our pension and other postretirement benefits.
65
2. NEW ACCOUNTING GUIDANCE
Accounting Guidance Implemented in Fiscal Year 2019
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued the new revenue standard, which is 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 adopted this guidance under the modified
retrospective approach as of 1 October 2018. Upon adoption, we no longer present "Contracts in progress, less
progress billings" on our consolidated balance sheets and have expanded disclosure requirements. Otherwise,
adoption of this guidance did not impact our consolidated financial statements, and no adjustment was necessary to
opening retained earnings. Accordingly, sales presented during fiscal year 2019 would not change if presented
under accounting standards in effect prior to 1 October 2018. Refer to Note 3, Revenue Recognition, for additional
information.
Cash Flow Statement Classification
In August 2016, the FASB issued guidance to reduce diversity in practice related to the classification of certain cash
receipts and cash payments in the statement of cash flows. We adopted this guidance retrospectively in the first
quarter of fiscal year 2019 and elected to use the cumulative earnings approach to determine the classification of
distributions received from equity affiliates. As a result, we reclassified net activity from operating activities to
investing activities of $7.5 and $5.7 for the fiscal years ended 30 September 2018 and 2017, respectively.
Intra-Entity Asset Transfers
In October 2016, the FASB issued guidance on accounting for the income tax effects of intra-entity transfers of
assets other than inventory. Previous guidance prohibited the recognition of current and deferred income taxes for
an intra-entity asset transfer until the asset had 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. We adopted this
guidance in the first quarter of fiscal year 2019 on a modified retrospective basis through a cumulative-effect
adjustment of $17.1 that decreased retained earnings as of 1 October 2018.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued guidance allowing for a reclassification from accumulated other comprehensive
income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. We adopted this
guidance in the fourth quarter and elected to not reclassify the income tax effects stranded in accumulated other
comprehensive income to retained earnings. As a result, there was no impact on the Company’s consolidated
financial statements. Our policy for releasing the income tax effects from accumulated other comprehensive income
utilizes either the specific identification approach or the portfolio approach based on the nature of the underlying
item and when it is reclassified to earnings.
New Accounting Guidance to be Implemented
Leases
In February 2016, the FASB issued guidance that 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 Company is the lessee under various agreements for real estate, distribution equipment, aircraft, and vehicles
that are currently accounted for as operating leases.
We will adopt this guidance in fiscal year 2020 using a modified retrospective approach with the election to apply
the guidance as of the adoption date instead of the earliest comparative period presented in the consolidated
financial statements.
66
Upon adoption, we will elect the following practical expedients provided by this guidance:
• The package of practical expedients, which allows us to carry forward the historical lease population and
classification, among other things;
• The land easements practical expedient, which allows us to carry forward our current accounting treatment
for land easements on existing agreements;
• The hindsight practical expedient, which is used to determine the reasonably certain lease term for existing
leases as of the date of adoption;
• The single component practical expedient, which allows us to account for lease and non-lease components
associated with that lease as a single component, if certain criteria are met; and
• The short-term leases practical expedient, which allows us to not record the related lease liabilities and
right-of-use assets for operating leases in which we are the lessee with a term of 12 months or less.
We expect adoption of the standard will result in recognition of lease liabilities and right-of-use assets on our
consolidated balance sheets of approximately $380 and $340, respectively. The standard will not materially affect
our results of operations or liquidity.
Credit Losses on Financial Instruments
In June 2016, the FASB issued guidance 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 guidance will have on our
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 hedging strategies to become eligible for
hedge accounting.
We will adopt the new guidance on 1 October 2019 on a prospective basis. The primary impact of adoption will be
the presentation in the consolidated income statement of excluded components of our cash flow hedges of
intercompany loans. Excluded components are certain portions of the change in fair value of derivative instruments
that are excluded from the assessment of hedge effectiveness. Historically, the impacts from changes in value of
these components were recorded in "Interest expense." Beginning in fiscal year 2020, we will present these
excluded components in "Other non-operating income (expense), net" consistent with the remeasurement of the
intercompany loans. In fiscal years 2019 and 2018, the excluded components recognized within "Interest expense”
totaled approximately $35 and $40, respectively.
In accordance with the transition provisions of the guidance, the separate measurement of ineffectiveness for our
cash flow hedging instruments existing as of the date of adoption should be eliminated through a cumulative-effect
adjustment within equity.
Fair Value Measurement Disclosures
In August 2018, the FASB issued guidance which modifies the disclosure requirements for fair value
measurements. The guidance is effective in fiscal year 2021, with early adoption permitted. Certain amendments
must be applied prospectively and other amendments retrospectively. We are currently evaluating the impact this
guidance will have on the disclosures in the notes to our consolidated financial statements.
Retirement Benefit Disclosures
In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor
defined benefit pension or other postretirement plans. The guidance is effective in fiscal year 2021, with early
adoption permitted, and must be applied on a retrospective basis. We are currently evaluating the impact this
guidance will have on the disclosures in the notes to our consolidated financial statements.
67
Cloud Computing Implementation Costs
In August 2018, the FASB issued guidance which aligns the capitalization requirements for implementation costs
incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for
implementation costs incurred to develop or obtain internal-use software. The guidance is effective in fiscal year
2021, with early adoption permitted, and may be applied either prospectively or retrospectively. We are currently
evaluating the impact this guidance will have on our consolidated financial statements.
Related Party Guidance for Variable Interest Entities
In October 2018, the FASB issued an update which amends the guidance for determining whether a decision-
making fee is a variable interest. The amendments require consideration of indirect interests held through related
parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety
as currently required. The guidance is effective in fiscal year 2021, with early adoption permitted. The amendments
must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the
earliest period presented. We are currently evaluating the impact this guidance will have on our consolidated
financial statements.
3. REVENUE RECOGNITION
Nature of Goods and Services
The principal activities from which the Company generates its sales from its contracts with customers, separated
between our regional industrial gases businesses and industrial gases equipment businesses, are described below
with their respective revenue recognition policies. For an overall summary of these policies and discussion on
payment terms and presentation, refer to Note 1, Major Accounting Policies.
Industrial Gases – Regional
Our regional industrial gases businesses 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, helium, carbon
dioxide, carbon monoxide, syngas, and specialty gases. We distribute gases to our sale of gas customers through
different supply modes depending on various factors including the customer's volume requirements and location.
Our supply modes are as follows:
On-site Gases—Supply mode associated with customers who require large volumes of gases and have
relatively constant demand. Gases are produced and supplied by large facilities we construct on or near the
customers’ facilities or by pipeline systems from centrally located production facilities. These sale of gas
contracts generally have 15- to 20- year terms. The Company also delivers smaller quantities of product
through small on-site plants (cryogenic or non-cryogenic generators), typically via a 10- to 15- year sale of
gas contract. The contracts within this supply mode generally contain fixed monthly charges and/or
minimum purchase requirements with price escalation provisions that are generally based on external
indices. Revenue associated with this supply mode is generally recognized over time during the period in
which we deliver or make available the agreed upon quantity of goods.
Merchant Gases—Supply mode associated with liquid bulk and packaged gases customers. Liquid bulk
customers receive delivery of product in liquid or gaseous form by tanker or tube trailer. The product is
stored, usually in its liquid state, in equipment typically designed and installed by the Company at the
customer’s site for vaporizing into a gaseous state as needed. Packaged gases customers receive small
quantities of product delivered in either cylinders or dewars. Both liquid bulk and packaged gases sales do
not contain minimum purchase requirements as they are governed by contracts and/or purchase orders
based on the customer's requirements. These contracts contain stated terms that are generally 5 years or
less. Performance obligations associated with this supply mode are satisfied at a point in time when the
customer receives and obtains control of the product, which generally occurs upon delivery.
The timing of revenue recognition for our regional industrial gases businesses is generally consistent with our right
to invoice the customer. Variable components of consideration that may not be resolved within the month, such as
the ability to earn an annual bonus or incur a penalty, are more relevant to on-site contracts and are considered
constrained as they can be impacted by a single significant event such as a plant outage, which could occur at the
end of a contract period. We consider contract modifications on an individual basis to determine appropriate
accounting treatment. However, contract modifications are generally accounted for prospectively as they relate to
distinct goods or services associated with future periods of performance.
68
We mitigate energy and natural gas price risk contractually through pricing formulas, surcharges, and cost pass-
through arrangements.
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 and the Corporate and other segments serve our sale of equipment customers.
Our sale of equipment contracts are generally comprised of a single performance obligation as the individual
promised goods or services contained within the contracts are integrated with or dependent upon other goods or
services in the contract for a single output to the customer.
Revenue from our sale of equipment contracts is generally recognized over time as we have an enforceable right to
payment for performance completed to date and our performance under the contract terms does not create an
asset with alternative use. Otherwise, sale of equipment contracts are satisfied at the point in time the customer
obtains control of the equipment, which is generally determined based on the shipping terms of the contract. For
contracts recognized over time, we primarily recognize revenue using a cost incurred input method by which costs
incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying
performance obligations. Costs incurred include material, labor, and overhead costs and represent work
contributing and proportionate to the transfer of control to the customer.
Since our contracts are generally comprised of a single performance obligation, contract modifications are typically
accounted for as part of the existing contract and are recognized as a cumulative adjustment for the inception-to-
date effect of such change. In addition, changes in estimates on projects accounted for under the cost incurred
input method are recognized as a cumulative adjustment for the inception-to-date effect of such change. Changes
in estimates favorably impacted operating income by approximately $37, $38, and $27 in fiscal years 2019, 2018,
and 2017, respectively. Our changes in estimates would not have significantly impacted amounts recorded in prior
years.
Disaggregation of Revenue
The table below presents our consolidated sales disaggregated by each of the supply modes described above for
each of our reporting segments for the year ended 30 September 2019. We believe this presentation best depicts
the nature, timing, type of customer, and contract terms for our sales.
2019
On-site
Merchant
Sale of Equipment
Total
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
%
$2,230.6
1,642.9
$728.4
$1,622.6
1,274.1
1,041.0
—
—
—
$3,873.5
$2,002.5
$2,663.6
$—
—
261.0
$261.0
$— $4,581.6
— 3,958.0
118.3
379.3
52%
44%
4%
$118.3
$8,918.9 100%
Approximately 5% of total consolidated sales for the year ended 30 September 2019 was associated with lease
revenue relating to our on-site supply mode and therefore not within the scope of the new revenue standard.
Remaining Performance Obligations
As of 30 September 2019, the transaction price allocated to remaining performance obligations is estimated to be
approximately $14 billion. This amount includes fixed-charge contract provisions associated with our on-site and
sale of equipment supply modes. We estimate that approximately half of this revenue will be recognized over
approximately the next five years and the balance thereafter.
Expected revenue associated with new on-site plants that are not yet onstream is excluded from this amount. In
addition, this amount excludes consideration associated with contracts determined to be leases, those with an
expected duration of less than one year, and variable consideration for which we recognize revenue at the amount
to which we have the right to invoice, including pass-through costs related to energy and natural gas.
In the future, actual amounts will differ due to events outside of our control, including but not limited to inflationary
price escalations, currency exchange rates, and terminated or renewed contracts.
69
Contract Balances
Upon adoption of the new revenue standard, we no longer present "Contracts in progress, less progress billings" on
our consolidated balance sheets. The balance as of 30 September 2018 has been reclassified to "Other receivables
and current assets."
Our sale of equipment contracts generally contain a single performance obligation which, as discussed below,
results in presentation of either a contract asset or contract liability.
The table below details balances arising from contracts with customers as of our most recent balance sheet date
and our date of adoption:
30 September 2019
1 October 2018
Assets
Contract assets – current
Contract fulfillment costs – current
Liabilities
Contract liabilities – current
Contract liabilities – noncurrent
$64.3
64.5
247.4
49.2
$53.0
50.7
174.5
53.5
Contract assets and liabilities result from differences in timing of revenue recognition and customer invoicing. These
balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each
reporting period.
Contract assets primarily relate to our sale of equipment contracts for which revenue is recognized over time. These
balances represent unbilled revenue, which occurs when revenue recognized under the measure of progress
exceeds the amount invoiced to our customers. Our ability to invoice the customer for contract asset balances is not
only based on the passage of time, but also the achievement of certain contractual milestones. Our contract assets
are included within "Other receivables and current assets" on the consolidated balance sheets.
Contract fulfillment costs primarily include deferred costs related to sale of equipment projects that cannot be
inventoried and for which we expect to recognize revenue upon transfer of control at project completion or costs
related to fulfilling a specific anticipated contract. Contract fulfillment costs are generally classified as current and
are included within "Other receivables and current assets" on the consolidated balance sheets.
Costs to obtain a contract, or contract acquisition costs, are capitalized only after we have established a contract
with the customer. We elected to apply the practical expedient to expense these costs as they are incurred if the
amortization period of the asset that would have otherwise been recognized is one year or less. Our contract
acquisition costs capitalized as of 30 September 2019 were not material.
Contract liabilities include advance payments or right to consideration prior to performance under the contract.
Contract liabilities are recognized as revenue when or as we perform under the contract. The increase in our
contract liabilities – current balance primarily relates to new sale of equipment projects as balances associated with
our sale of gas contracts are generally related to fixed charges and are relatively consistent period over period.
During the year ended 30 September 2019, we recognized approximately $110 in revenue associated with sale of
equipment contracts that was included within our contract liabilities as of 30 September 2018. The current and
noncurrent portions of our contract liabilities are included within "Payables and accrued liabilities" and "Other
noncurrent liabilities" on our consolidated balance sheets, respectively. Advanced payments from our customers do
not represent a significant financing component as these payments are intended for purposes other than financing,
such as to meet working capital demands or to protect us from our customer failing to meet its obligations under the
terms of the contract.
Changes in contract asset and liability balances during the year ended 30 September 2019 were not materially
impacted by any other factors.
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4. DISCONTINUED OPERATIONS
In fiscal year 2018, income from discontinued operations, net of tax, was $42.2. This included an income tax benefit
of $25.6 resulting from the resolution of uncertain tax positions taken in conjunction with the disposition of our
former European Homecare business in fiscal year 2012 and an after-tax benefit of $17.6 resulting from the
resolution of certain post-closing adjustments associated with the sale of our former Performance Materials Division
("PMD") in fiscal year 2017. These benefits were partially offset by an after-tax loss of $1.0 related to Energy-from-
Waste ("EfW").
There were no assets or liabilities presented in discontinued operations on the consolidated balance sheets as of
30 September 2019 or 2018.
The following table details income from discontinued operations, net of tax, on the consolidated income statements
for fiscal year 2017:
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 of business, 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 related to costs incurred for ongoing project exit
activities, administrative costs, and land lease obligations.
As a result of the expected gain on the 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 included expense for income tax reserves for uncertain tax positions of $28.0 gross ($21.0
net) in various jurisdictions.
In fiscal year 2017, income from discontinued operations, net of tax, of $1,866.0 included a gain
of $2,870 ($1,828 after-tax, or $8.32 per share) for the sale of PMD. Refer to Note 5, Materials Technologies
Separation, for additional information. In addition, we recorded a loss on the disposal of EfW of $59.3 ($47.1 after-
tax) during the first quarter of 2017, primarily for land lease obligations and to update our estimate of the net
realizable value of the plant assets. The loss on disposal was recorded as a component of discontinued operations
while the liability associated with land lease obligations was and continues to be recorded in continuing operations.
As of 30 September 2019, liabilities associated with EfW recorded in continuing operations were
approximately $58 and primarily related to the land lease obligations.
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5. MATERIALS TECHNOLOGIES SEPARATION
As further discussed below, we completed the separation of the divisions comprising the former Materials
Technologies segment through the spin-off of EMD as Versum Materials, Inc. and the sale of PMD to Evonik
Industries AG ("Evonik") in fiscal year 2017. In connection with the dispositions, we incurred net separation costs of
$30.2. The net costs included legal and advisory fees of $32.5, which are reflected on the consolidated income
statements as “Business separation costs,” and a pension settlement benefit of $2.3 presented within "Other non-
operating income (expense), net." Our fiscal year 2017 income tax provision included net tax benefits of $5.5,
primarily related to changes in tax positions on business separation activities.
Spin-off of EMD
On 1 October 2016 (the distribution date), Air Products completed the spin-off of its Electronic Materials Division
(EMD) as Versum Materials, Inc. ("Versum"), 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. The spin-off of Versum was treated as a noncash
transaction in the consolidated statement 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. We recognized a gain on the sale
of $2,870 ($1,828 after-tax, or $8.32 per share), which is reflected within "Income from discontinued operations, net
of tax" for the year ended 30 September 2017.
6. COST REDUCTION AND ASSET ACTIONS
The charges we record for cost reduction and asset actions are not recorded in segment results. Liabilities
associated with these actions are reflected on our consolidated balance sheets within "Payables and accrued
liabilities."
Fiscal Year 2019 Cost Reduction Actions
In fiscal year 2019, we recognized an expense of $25.5 for severance and other benefits associated with the
elimination or planned elimination of approximately 300 positions. These actions are expected to drive cost
synergies primarily within the Industrial Gases – EMEA and the Industrial Gases – Americas segments.
The following table summarizes the carrying amount of the accrual as of 30 September 2019.
2019 Charge
Cash expenditures
Amount reflected in pension liability
Currency translation adjustment
30 September 2019
$25.5
(6.9)
(.3)
(.5)
$17.8
Fiscal Year 2017 Cost Reduction and Asset Actions
In fiscal year 2017, we recognized a net expense of $151.4 for cost reduction and asset actions. The net expense
included a charge of $154.8 for actions taken in 2017 ("the 2017 charge"), partially offset by the favorable
settlement of the remaining $3.4 accrued balance associated with business restructuring actions taken in 2015.
The 2017 charge included $88.5 for asset actions related to the write-down of an air separation unit in the Industrial
Gases – EMEA segment that was constructed mainly to provide oxygen to a former EfW plant; the planned sale of
a non-industrial gas hardgoods business in the Industrial Gases – Americas segment; and the closure of an LNG
heat exchanger manufacturing facility in the Corporate and other segment. The 2017 charge also included $66.3 for
severance and other benefits associated with the elimination of approximately 625 positions, primarily in the
Corporate and other and Industrial Gases – EMEA segments. 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.
72
7. ACQUISITIONS
Fiscal Year 2019 Business Combinations
As further discussed below, we completed three business combinations in fiscal year 2019.
Exchange of Equity Affiliate Investments
As of 30 September 2018, we held 50% ownership interests in High-Tech Gases (Beijing) Co., Ltd. ("High-Tech
Gases") and WuXi Hi-Tech Gas Co., Ltd. ("WuXi"), both of which were joint ventures with another industrial gas
company in China. We accounted for these arrangements as equity method investments in our Industrial Gases –
Asia segment through 30 April 2019.
On 1 May 2019, we acquired our partner's 50% interest in WuXi in exchange for our 50% interest in High-Tech
Gases. The purpose of the exchange was to simplify the current structure of the two entities and to allow each party
to serve its customers more efficiently in their respective geographies. Subsequent to the acquisition date, we own
100% of WuXi and no longer have an equity interest in High-Tech Gases.
The exchange resulted in a net gain of $29.1, of which $15.0 resulted from the revaluation of our previously held
equity interest in WuXi to its acquisition date fair value and $14.1 resulted from the disposition of our interest in
High-Tech Gases. The net gain has been reflected as "Gain on exchange of equity affiliate investments" on our
consolidated income statements in fiscal year 2019 and was not recorded in segment results. There were no tax
impacts on the exchange.
We revalued our previously held 50% equity interest in WuXi based on an estimated acquisition date fair value of
$27.0. We calculated this fair value using a discounted cash flow analysis under the income approach, which
required estimates and assumptions regarding projected revenue growth, customer attrition rates, profit margin, and
discount rate.
The acquisition of the remaining interest in WuXi was accounted for as a business combination. The results of this
business have been consolidated within our Industrial Gases – Asia segment as of the acquisition date. Upon
acquisition, we recognized plant and equipment of $28.0, intangible assets of $27.4, and goodwill of $3.9. The
intangible assets were primarily customer relationships, having a weighted-average useful life of approximately 10
years. The goodwill recognized on the transaction, none of which is deductible for tax purposes, was recorded in
the Industrial Gases – Asia segment and is attributable to expected growth synergies. The acquisition did not
materially impact our consolidated income statements for the periods presented.
Other Fiscal Year 2019 Business Combinations
The remaining business combinations completed in fiscal year 2019 had total consideration, net of cash acquired,
of $126.6. The largest of these business combinations was the acquisition of ACP Europe SA ("ACP"), the largest
independent carbon dioxide business in Continental Europe, which closed on 1 March 2019. We expect this
acquisition to enable us to better serve existing merchant customers and pursue new industrial gas growth
opportunities across additional European geographies. The results of this business are consolidated within our
Industrial Gases – EMEA segment and did not materially impact our consolidated income statements for the periods
presented.
Our other 2019 business combinations resulted in the recognition of plant and equipment of $75.1 and goodwill of
$44.7, partially offset by net liabilities acquired. The goodwill recognized on the transactions, $1.7 of which is
deductible for tax purposes, was primarily recorded in the Industrial Gases – EMEA segment and is attributable to
expected growth and cost synergies.
The acquired assets and liabilities resulting from our 2019 business combinations were recorded at their estimated
fair values, which were calculated based on a preliminary purchase price allocation prepared by management. We
may record adjustments to these assets and liabilities during the preliminary purchase price allocation period, which
could be up to one year from the acquisition date.
73
Fiscal Year 2018 Asset Acquisition
On 26 April 2018 ("the acquisition date"), we completed the formation of Air Products Lu An (Changzhi) Co., Ltd.
(“the JV”), a 60%-owned joint venture with Lu’An Clean Energy Company ("Lu’An"). The JV receives coal, steam
and power from Lu’An and supplies syngas to Lu’An under a long-term onsite contract. The results of the JV are
consolidated within the Industrial Gases – Asia segment.
Air Products contributed four large air separation units to the JV with a carrying value of approximately $300, and
the JV acquired gasification and syngas clean-up assets from Lu’An for 7.9 billion RMB (approximately $1.2 billion).
As a result, the carrying value of the plant and equipment of the JV was approximately $1.5 billion at the acquisition
date.
We accounted for the acquisition of the gasification and syngas clean-up assets as an asset acquisition. In
connection with closing the acquisition, we paid net cash of approximately 1.5 billion RMB ($235) and issued equity
of 1.4 billion RMB ($227) to Lu'An for their noncontrolling interest in the JV. In addition, Lu'An made a loan of 2.6
billion RMB to the JV with regularly scheduled principal and interest payments at a fixed interest rate of 5.5%, and
we established a liability of 2.3 billion RMB for remaining cash payments. The issuance of equity to Lu'An for their
noncontrolling interest, the long-term debt, and the liability for the remaining cash payments were noncash
transactions that have been excluded from the consolidated statement of cash flows for the fiscal year ended 30
September 2018.
The following table summarizes the liabilities resulting from this acquisition as reflected on our consolidated balance
sheets:
30 September
Payables and accrued liabilities
Current portion of long-term debt
Long-term debt – related party
Fiscal Year 2018 Business Combinations
2019
$8.9
37.8
320.1
2018
$330.0
—
384.3
In fiscal year 2018, we completed eight acquisitions that were accounted for as business combinations. These
acquisitions had total consideration, net of cash acquired, of $355.4. The largest of the acquisitions was completed
during the first quarter of fiscal year 2018 and primarily consisted of three air separation units serving onsite and
merchant customers in China, which strengthened our position in the region. The results of this business are
consolidated within our Industrial Gases – Asia segment.
8. INVENTORIES
The components of inventories are as follows:
30 September
Finished goods
Work in process
Raw materials, supplies and other
Inventories
2019
$128.8
27.5
232.0
$388.3
2018
$125.4
21.2
249.5
$396.1
74
9. 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%);
INFRA Group (40%);
INOX Air Products Private Limited (50%);
Jazan Gas Projects Company (26%);
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%);
and principally, other industrial gas producers.
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
2019
$1,660.6
4,400.4
725.1
2,853.6
2018
$2,663.1
1,050.6
635.3
388.0
2018
$1,556.9
4,340.8
635.7
2,652.5
2017
$2,343.3
878.6
509.5
343.5
2019
$2,885.6
1,193.4
763.4
492.4
Dividends received from equity affiliates were $144.3, $122.5, and $99.5 in fiscal years 2019, 2018, and 2017,
respectively.
The investment in net assets of and advances to equity affiliates as of 30 September 2019 and 2018 included
investment in foreign affiliates of $1,275.4 and $1,276.0, respectively.
As of 30 September 2019 and 2018, the amount of investment in companies accounted for by the equity method
included equity method goodwill of $42.8 and $42.4, respectively.
Exchange of Equity Affiliate Investments
As of 30 September 2018, we held 50% ownership interests in High-Tech Gases (Beijing) Co., Ltd. ("High-Tech
Gases") and WuXi Hi-Tech Gas Co., Ltd. ("WuXi"), both of which were joint ventures with another industrial gas
company in China. We accounted for these arrangements as equity method investments in our Industrial Gases –
Asia segment through 30 April 2019.
On 1 May 2019, we acquired our partner's 50% interest in WuXi in exchange for our 50% interest in High-Tech
Gases. Subsequent to the acquisition date, we own 100% of WuXi and no longer have an equity interest in High-
Tech Gases. The results and financial position of this business have been consolidated within our Industrial Gases
– Asia segment as of the acquisition date.
Refer to Note 7, Acquisitions, to the consolidated financial statements for additional information.
U.S. Tax Cuts and Jobs Act
For the year ended 30 September 2018, equity affiliates' income includes an expense of $28.5 for our proportionate
share of the impact of the U.S. Tax Cuts and Jobs Act primarily recorded during the first quarter of fiscal year 2018.
This expense is included in the fiscal year 2018 net income on a 100% basis in the table above. Refer to Note 23,
Income Taxes, for additional information.
75
Equity Affiliate Impairment Charge
During the third quarter of fiscal year 2017, we recorded an other-than-temporary impairment charge of $79.5 on
our investment in Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (AHG), a 25%-owned equity affiliate in
our Industrial Gases – EMEA segment. The impairment charge is reflected on our consolidated income statements
within “Equity affiliates' income." This charge was not deductible for tax purposes and has been excluded from
segment results.
The decline in value resulted 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 drove our
updated valuation of AHG included 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.
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 26% 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.
As of 30 September 2018, other noncurrent liabilities included $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. During 2019, this balance was reclassified from other noncurrent liabilities to payables and accrued liabilities
on our consolidated balance sheets as the obligation is required to be funded within the next twelve months. This
noncash transaction has been excluded from the consolidated statement of cash flows for the year ended 30
September 2019.
10. 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
2019
$281.5
946.8
15,602.1
4,491.9
1,011.4
22,333.7
11,996.1
$10,337.6
2018
$269.4
988.6
15,082.8
4,400.9
748.5
21,490.2
11,566.5
$9,923.7
(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 $1,049.7, $940.7, and $843.2 in fiscal years 2019, 2018, and 2017, respectively.
76
11. GOODWILL
Changes to the carrying amount of consolidated goodwill by segment are as follows:
Goodwill, net at 30 September 2017
Acquisitions
Currency translation and other
Goodwill, net at 30 September 2018
Acquisitions
Currency translation and other
Goodwill, net at 30 September 2019
30 September
Goodwill, gross
Accumulated impairment losses(A)
Goodwill, net
Industrial
Gases–
Americas
$163.7
—
(1.6)
$162.1
—
(5.8)
$156.3
Industrial
Gases–
EMEA
$402.4
29.5
(7.5)
$424.4
38.5
(30.6)
$432.3
Industrial
Gases–
Asia
$135.2
38.1
(1.4)
$171.9
10.1
(3.5)
$178.5
Industrial
Gases–
Global
$20.2
—
(.1)
$20.1
—
(.5)
$19.6
Corporate
and other
$—
10.4
—
$10.4
—
—
$10.4
Total
$721.5
78.0
(10.6)
$788.9
48.6
(40.4)
$797.1
2019
$1,162.2
(365.1)
$797.1
2018
$1,194.7
(405.8)
$788.9
2017
$1,138.7
(417.2)
$721.5
(A)
Accumulated impairment losses include the impacts of currency translation. These losses are attributable to our Latin
America reporting unit (LASA) within the Industrial Gases – Americas segment.
We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes
in circumstances indicate that the carrying value of goodwill might not be recoverable. The impairment test for
goodwill involves calculating the fair value of each reporting unit and comparing that value to the carrying value. If
the fair value of the reporting unit is less than its carrying value, the difference is recorded as a goodwill impairment
charge, not to exceed the total amount of goodwill allocated to that reporting unit. During the fourth quarter of fiscal
year 2019, we conducted our annual goodwill impairment test and determined that the fair value of all our reporting
units exceeded their carrying value.
During the third quarter of fiscal year 2017, we conducted an interim impairment test of the goodwill associated with
our Latin America Reporting unit (LASA) within the Industrial Gases – Americas segment. This was driven by
Management's decision to lower long-term growth projections in response to declining volumes and weak economic
conditions in Latin America during fiscal year 2017. We determined that the fair value of LASA was less than its
carrying value and recorded a noncash impairment charge of $145.3, which 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.
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.
77
12. INTANGIBLE ASSETS
The table below summarizes the major classes of our intangible assets:
Customer relationships
Patents and technology
Other
Total finite-lived intangibles
Trade names and trademarks,
indefinite-lived
Total Intangible Assets
30 September 2019
30 September 2018
Accumulated
Amortization/
Impairment
Net
($179.8)
$308.1
(13.3)
(33.4)
25.7
41.6
(226.5)
375.4
Accumulated
Amortization/
Impairment
Net
($165.5)
$326.4
(11.9)
(33.8)
22.1
38.8
(211.2)
387.3
Gross
$491.9
34.0
72.6
598.5
(12.1)
44.1
64.8
(13.6)
51.2
($238.6)
$419.5
$663.3
($224.8)
$438.5
Gross
$487.9
39.0
75.0
601.9
56.2
$658.1
The decrease in net intangible assets in fiscal year 2019 was primarily attributable to amortization and the impact of
currency translation, partially offset by intangible assets acquired through an exchange of equity affiliate
investments. For additional information on the exchange, refer to Note 7, Acquisitions.
Amortization expense for intangible assets was $33.1, $30.0, and $22.6 in fiscal years 2019, 2018, and 2017,
respectively. Refer to Note 1, Major Accounting Policies, for the amortization periods for each major class of
intangible assets. The table below details projected annual amortization expense for intangible assets as of 30
September 2019:
2020
2021
2022
2023
2024
Thereafter
Total
$35.3
33.5
30.8
29.6
28.6
217.6
$375.4
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. During the fourth quarter of fiscal year 2019, we conducted our annual impairment test of
indefinite-lived intangible assets and determined that the fair value of all our intangible assets exceeded their
carrying value.
During the third quarter of fiscal year 2017, we conducted an interim impairment test of the indefinite-lived intangible
assets associated with LASA and recorded a noncash impairment charge of $16.8 to write down the carrying value
of the trade names and trademarks to their fair value. The impairment charge has been excluded from the Industrial
Gases – Americas segment's operating income and is reflected on our consolidated income statements within
“Goodwill and intangible asset impairment charge." As discussed in Note 11, Goodwill, the reduction in value
resulted from lowered long-term growth projections. We estimated the fair value of the indefinite-lived intangibles
associated with LASA utilizing the royalty savings method, a form of the income approach.
In addition, we tested the recoverability of LASA long-lived assets, including finite-lived intangible assets subject to
amortization, in fiscal year 2017 and concluded that they were recoverable from expected future undiscounted cash
flows.
78
13. LEASES
Lessee Accounting
Capital leases, primarily for the right to use machinery and equipment, are included with owned plant and
equipment within "Plant and Equipment, net" on the consolidated balance sheets in the amount of $23.1 and $21.6
at 30 September 2019 and 2018, respectively. Related amounts of accumulated depreciation are $7.2 and $6.1,
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 $87.0, $82.7, and $65.8 in fiscal years 2019, 2018, and 2017, respectively.
At 30 September 2019, minimum payments due under leases are as follows:
2020
2021
2022
2023
2024
Thereafter
Total
Capital
Leases
Operating
Leases
$1.7
2.5
1.3
1.1
1.1
12.8
$20.5
$75.1
62.6
44.4
35.9
28.6
171.4
$418.0
The present value of the above future capital lease payments totaled $10.1. Refer to Note 16, Debt.
Lessor Accounting
Certain contracts associated with facilities that are built to provide product to a specific customer have been
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 under a sale of gas agreement.
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. As discussed in Note 2, New Accounting Guidance, upon adoption of
the new lease guidance we will elect the package of practical expedients permitted under the transition guidance to
carry forward these lease determinations as of 30 September 2019.
Operating Leases
Assets subject to operating lease treatment in which we are the lessor are recorded within "Plant and equipment,
net" on the consolidated balance sheets. As of 30 September 2019, plant and equipment, at cost, was $2.9 billion,
and accumulated depreciation was $.5 billion. Assets subject to operating leases include those of the Lu’An joint
venture, which is discussed in Note 7, Acquisitions.
At 30 September 2019, minimum lease payments expected to be collected are as follows:
2020
2021
2022
2023
2024
Thereafter
Total
79
$321.7
287.3
283.1
278.4
275.5
3,042.5
$4,488.5
Capital Leases
Lease receivables, net, are primarily included within "Noncurrent capital lease receivables" on our consolidated
balance sheets, with the remaining balance in "Other receivables and current assets." Allowances for credit losses
associated with capital lease receivables are recorded using the specific identification method. As of 30 September
2019 and 2018, the credit quality of capital lease receivables did not require a material allowance for credit losses.
The components of lease receivables were as follows:
30 September
Gross minimum lease payments receivable
Unearned interest income
Lease Receivables, net
2019
$1,453.2
(472.3)
$980.9
2018
$1,673.7
(568.3)
$1,105.4
Lease payments collected in fiscal years 2019, 2018, and 2017 were $171.6, $182.7, and $183.6, respectively.
These payments reduced the lease receivable balance by $94.6, $97.4, and $92.2 in fiscal years 2019, 2018, and
2017, respectively.
At 30 September 2019, minimum lease payments expected to be collected are as follows:
2020
2021
2022
2023
2024
Thereafter
Total
$162.5
156.9
145.7
139.4
133.2
715.5
$1,453.2
14. 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 seek 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 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
2019 is 2.2 years.
Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and
affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this
portfolio of forward exchange contracts is Euros and U.S. Dollars.
We also utilize forward exchange contracts that are not designated as hedges. These contracts are used to
economically hedge foreign currency-denominated monetary assets and liabilities, primarily working capital. The
primary objective of these forward exchange contracts is to protect the value of foreign currency-denominated
monetary assets and liabilities from the effects of volatility in foreign exchange rates that might occur prior to their
receipt or settlement. This portfolio of forward exchange contracts consists of many different foreign currency pairs,
with a profile that changes from time to time depending on business activity and sourcing decisions.
80
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 2019
30 September 2018
US$
Notional
$2,418.2
830.8
1,053.5
$4,302.5
Years
Average
Maturity
0.5
0.9
0.6
0.6
US$
Notional
$2,489.1
457.5
1,736.1
$4,682.7
Years
Average
Maturity
0.4
1.7
0.8
0.7
The notional value of forward exchange contracts not designated decreased from the prior year as a result of
maturities.
We also use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in
certain foreign subsidiaries. The designated foreign currency-denominated debt and related accrued interest was
€951.3 million ($1,036.9) at 30 September 2019 and €908.8 million ($1,054.6) at 30 September 2018. The
designated foreign currency-denominated debt is presented within "Long-term debt" on the consolidated balance
sheets.
Debt Portfolio Management
It is our policy to identify on a continuing basis the need for debt capital and evaluate the financial risks inherent in
funding the Company with debt capital. Reflecting the result of this ongoing review, our debt portfolio and hedging
program are managed with the intent to (1) reduce funding risk with respect to borrowings made by us to preserve
our access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) manage
the aggregate interest rate risk and the debt portfolio in accordance with certain debt management parameters.
Interest Rate Management Contracts
We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to
maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance
with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt
portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which
are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest
rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and
floating-to-fixed interest rate swaps (which are designated as cash flow hedges). As of 30 September 2019, the
outstanding interest rate swaps were denominated in U.S. Dollars. The notional amount of the interest rate swap
agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge
variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy
not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-
to-one basis.
Cross Currency Interest Rate Swap Contracts
We enter into cross currency interest rate swap contracts when our risk management function deems necessary.
These contracts may entail both the exchange of fixed- and floating-rate interest payments periodically over the life
of the agreement and the exchange of one currency for another currency at inception and at a specified future date.
The contracts are used to hedge either certain net investments in foreign operations or non-functional currency
cash flows related to intercompany loans. The current cross currency interest rate swap portfolio consists of fixed-
to-fixed swaps primarily between U.S. Dollars and Chinese Renminbi, U.S. Dollars and Indian Rupee, and U.S.
Dollars and Chilean Pesos.
81
The following table summarizes our outstanding interest rate management contracts and cross currency interest
rate swaps:
30 September 2019
30 September 2018
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
$200.0
LIBOR
2.76%
2.1
$600.0
LIBOR
2.60%
1.6
$216.8
4.80%
3.31%
3.5
$201.7
4.42%
2.97%
$1,129.3
4.92%
3.04%
2.3
$1,052.7
4.99%
2.89%
$6.1
2.55%
3.72%
4.5
$80.2
4.88%
3.43%
3.1
2.3
3.9
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)
The table below summarizes the fair value and balance sheet location of our outstanding derivatives:
Balance Sheet
30 September
Balance Sheet
30 September
Location
2019
2018
Location
2019
2018
Derivatives Designated as
Hedging Instruments:
Forward exchange contracts
Interest rate management
contracts
Forward exchange contracts
Interest rate management
contracts
Total Derivatives Designated as
Hedging Instruments
Derivatives Not Designated as
Hedging Instruments:
Forward exchange contracts
Interest rate management
contracts
Forward exchange contracts
Interest rate management
contracts
Total Derivatives Not
Designated as Hedging
Instruments
Total Derivatives
Other receivables
$79.0
$24.9 Accrued liabilities
$53.8
$37.0
Other receivables
24.8
24.3 Accrued liabilities
1.1
Other noncurrent
assets
Other noncurrent
assets
11.9
19.8
60.9
48.7
Other noncurrent
liabilities
Other noncurrent
liabilities
.7
.7
2.3
4.6
11.6
$176.6
$117.7
$56.3
$55.5
Other receivables
38.7
7.9 Accrued liabilities
$36.3
$14.9
Other receivables
Other noncurrent
assets
Other noncurrent
assets
—
8.4
.5
4.0 Accrued liabilities
—
—
16.2
Other noncurrent
liabilities
Other noncurrent
liabilities
.3
19.8
23.7
—
—
$47.6
$28.4
$224.2
$146.1
$56.1
$112.4
$38.6
$94.1
Refer to Note 15, Fair Value Measurements, which defines fair value, describes the method for measuring fair
value, and provides additional disclosures regarding fair value measurements.
82
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
2019
2018
2019
2018
2019
2018
2019
2018
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)
($35.7)
$2.4
$—
$—
($8.4)
$43.5
($44.1)
$45.9
.6
7.1
—
—
—
—
.6
7.1
21.8
(7.8)
12.1
1.2
—
—
—
(24.7)
(33.8)
(2.9)
(41.6)
—
2.6
3.9
14.7
5.1
—
(.5)
—
—
(.1)
(.5)
(.1)
(1.0)
$—
$—
$—
$—
$4.3
($10.1)
$4.3
($10.1)
$39.1
($.6)
$49.6
$10.2
$9.8
$11.0
$98.5
$20.6
($1.3)
($4.0)
$—
$—
$2.0
($.8)
$.7
($4.8)
(A)
(B)
(C)
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 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 was largely offset by recognized gains and losses resulting from the impact of
changes in exchange rates on assets and liabilities denominated in non-functional currencies.
The amount of cash unrealized gains and losses related to cash flow hedges as of 30 September 2019 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 $30.1 as of 30 September 2019 and
$33.4 as of 30 September 2018, respectively. Because our current credit rating is above the various pre-established
thresholds, no collateral has been posted on these liability positions.
83
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 $157.1 as of 30 September 2019
and $97.6 as of 30 September 2018, respectively. No financial institution is required to post collateral at this time,
as all have credit ratings at or above threshold.
15. FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, or 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 primarily include time deposits with original maturities greater than three months and less
than one year. We estimated the fair value of our short-term investments, which approximates carrying value as of
the balance sheet date, 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 consider 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 that 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 14, Financial Instruments, for a description of derivative instruments, including details related to the
balance sheet line classifications.
Long-term Debt, Including Related Party
The fair value of our debt is based on estimates using standard pricing models that consider 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.
84
The carrying values and fair values of financial instruments were as follows:
30 September 2019
30 September 2018
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
and related party
$138.0
86.2
$110.6
1.8
$138.0
86.2
$110.6
1.8
$68.8
77.3
$80.2
13.9
$68.8
77.3
$80.2
13.9
3,267.8
3,350.9
3,758.3
3,788.2
The carrying amounts reported on the consolidated balance sheets for cash and cash items, short-term
investments, trade receivables, payables and accrued liabilities, accrued income taxes, and short-term borrowings
approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been
excluded from the above table.
The following table summarizes assets and liabilities on the consolidated balance sheets that are measured at fair
value on a recurring basis:
30 September 2019
30 September 2018
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
$138.0
$— $138.0
$—
$68.8
$—
$68.8
$—
86.2
—
86.2
—
77.3
—
77.3
$224.2
$— $224.2
$— $146.1
$— $146.1
—
$—
$110.6
$— $110.6
$—
$80.2
$—
$80.2
$—
1.8
—
1.8
—
13.9
—
13.9
$112.4
$— $112.4
$—
$94.1
$—
$94.1
—
$—
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:
Investment in Equity Affiliate(A)
30 June 2017
Total
$68.5
Level 1
$—
Level 2
$—
Level 3
$68.5
2017
Loss
$79.5
(A)
In fiscal year 2017, 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 events during fiscal years 2018 or 2019 requiring reassessment of our investment. For additional information,
see Note 9, Summarized Financial Information of Equity Affiliates.
85
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 11, Goodwill,
and Note 12, 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.
16. DEBT
The tables below summarize our outstanding debt at 30 September 2019 and 2018:
Total Debt
30 September
Short-term borrowings
Current portion of long-term debt(A)(B)
Long-term debt
Long-term debt – related party(B)
Total Debt
2019
$58.2
40.4
2,907.3
320.1
$3,326.0
2018
$54.3
406.6
2,967.4
384.3
$3,812.6
(A)
(B)
Fiscal year 2019 includes the current portion of long-term debt owed to a related party of $37.8.
Refer to Note 7, Acquisitions, for additional information regarding related party debt.
Short-term Borrowings
Short-term borrowings consisted of bank obligations of $58.2 and $54.3 at 30 September 2019 and 2018,
respectively. The weighted average interest rate of short-term borrowings outstanding at 30 September 2019
and 2018 was 3.7% and 5.0%, respectively.
86
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 4.375%
Note 3.0%
Note 2.75%
Note 3.35%
Other (weighted average rate)
Variable-rate industrial revenue bonds 1.44%
Other .25%(A)
Payable in Other Currencies
Eurobonds 2.0%
Eurobonds .375%
Eurobonds 1.0%
Other 2.9%
Related Party(B)
Chinese Renminbi 5.5%
Capital Lease Obligations
Foreign 10.3%
Total Principal Amount
Less: Unamortized discount and debt issuance costs
Less: Fair value hedge accounting adjustments(A)
Total Long-term Debt
Less: Current portion of long-term debt
Less: Long-term debt – related party
Long-term Debt
Fiscal Year
Maturities
2019
2018
2021
2026
2019
2022
2023
2024
2035 to 2050
2020
2021
2025
2020 to 2023
2020 to 2026
2020 to 2036
$18.4
17.2
—
400.0
400.0
400.0
631.9
—
327.0
381.5
327.0
3.8
357.9
$18.4
17.2
400.0
400.0
400.0
400.0
631.9
.9
348.1
406.2
348.1
8.0
384.3
10.1
3,274.8
(12.2)
5.2
3,267.8
(40.4)
(320.1)
$2,907.3
10.5
3,773.6
(15.3)
—
3,758.3
(406.6)
(384.3)
$2,967.4
(A)
(B)
The Company has entered into LIBOR-based interest rate swap arrangements with various counterparty financial
institutions on certain of our outstanding fixed-rate senior notes, which have maturity dates between 2019 and 2022.
These interest rate swaps have been designated as fair value hedges of the notes. Refer to Note 14, Financial
Instruments, for additional information. The fiscal year 2018 fair value hedge accounting adjustment is reflected as
"Other" senior notes in the table above.
Refer to Note 7, Acquisitions, for additional information regarding related party debt.
Maturities of long-term debt, including related party, in each of the next five years and beyond are as follows:
2020
2021
2022
2023
2024
Thereafter
Total
87
$367.4
440.2
439.3
453.7
453.4
1,120.8
$3,274.8
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 2019, we are in compliance with all the financial and other covenants under our debt
agreements.
As of 30 September 2019, we classified our 2.0% Eurobond of €300.0 million ($327.0) maturing in August 2020 as
long-term debt because we have the ability to refinance the debt under the 2017 Credit Agreement. Our current
intent is to refinance this debt via the U.S. or European public or private placement markets.
Additional commitments totaling $2.3 are maintained by our foreign subsidiaries, all of which were borrowed and
outstanding at 30 September 2019.
Cash paid for interest, net of amounts capitalized, was $155.9, $123.1, and $125.9 in fiscal years 2019, 2018, and
2017, respectively.
2017 Credit Agreement
On 31 March 2017, we entered into a five-year $2,500 revolving credit agreement maturing 31 March 2022 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. On 28 September 2018, we amended the 2017 Credit Agreement to
reduce the maximum borrowing capacity to $2,300. No other terms were impacted by the amendment.
The 2017 Credit Agreement provides a source of liquidity for the Company and supports our commercial paper
program. The Company’s only financial covenant under the 2017 Credit Agreement 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 2019.
17. 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, after which
defined contribution plans were offered to new employees. 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.
88
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 in fiscal years 2019, 2018, and 2017 included the following components:
2019
2018
2017
International
U.S.
International
U.S.
International
Service cost
Interest cost
Expected return on plan assets
Amortization
Net actuarial loss
Prior service cost (credit)
Settlements
Curtailments
Special termination benefits
Other
Net Periodic Benefit Cost/
(Benefit) – Total
Less: Discontinued Operations
Net Periodic Benefit Cost/
(Benefit) – Continuing
Operations
U.S.
$21.4
113.4
(172.5)
$19.3
35.8
$25.5
107.2
$25.5
37.3
$29.0
107.5
(75.1)
(201.6)
(81.7)
(207.7)
65.3
10.9
1.1
6.2
—
.7
—
—
.2
—
.1
.8
87.4
1.6
45.0
—
.4
—
40.2
—
3.5
—
—
1.5
88.7
2.3
10.5
4.3
2.8
—
$35.6
—
($8.0)
$65.5
—
—
$26.3
—
$37.4
(.7)
$25.9
32.2
(75.2)
54.7
(.1)
1.7
(1.3)
.4
1.1
$39.4
(4.1)
$35.6
($8.0)
$65.5
$26.3
$36.7
$35.3
Our service costs are primarily included within "Cost of sales" and "Selling and administrative" on our consolidated
income statements. The amount of service costs capitalized in fiscal years 2019 and 2018 and the amount of net
periodic benefit costs capitalized in fiscal year 2017 were not material. The non-service related costs, including
pension settlement losses, are presented outside operating income within "Other non-operating income (expense),
net."
During the fourth quarter of fiscal year 2018, we recognized a pension settlement loss of $43.7 primarily in
connection with the transfer of certain pension assets and payment obligations for our U.S. salaried and hourly
plans to an insurer through the purchase of an irrevocable, nonparticipating group annuity contract. The transaction
does not change the amount of the monthly pension benefits received by affected retirees.
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 $6.2, $5.2 and $10.5 in fiscal years 2019, 2018 and 2017, 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.
89
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:
2019
2018
2017
U.S.
International
U.S.
International
U.S.
International
Discount rate – Service cost
Discount rate – Interest cost
Expected return on plan assets
Rate of compensation increase
4.3%
4.0%
7.0%
3.5%
2.5%
2.2%
5.3%
3.5%
3.9%
3.3%
7.5%
3.5%
2.6%
2.2%
5.8%
3.6%
3.6%
3.0%
8.0%
3.5%
2.1%
1.8%
6.1%
3.5%
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
2019
U.S.
3.2%
3.5%
International
1.5%
3.3%
2018
U.S.
4.3%
3.5%
International
2.5%
3.5%
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 loss (gain)
Settlements
Special termination benefits
Participant contributions
Benefits paid
Currency translation and 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
Benefits paid
Settlements
Currency translation and other
Fair Value at End of Year
Funded Status at End of Year
2019
2018
U.S.
International
U.S.
International
$2,922.8
21.4
113.4
1.1
380.3
(12.2)
.7
—
(146.2)
.3
$3,281.6
$1,660.5
19.3
35.8
4.7
300.2
(1.6)
.1
1.3
(47.7)
(108.6)
$1,864.0
$3,357.7
25.5
107.2
.1
(217.8)
(193.0)
.4
—
(157.3)
—
$2,922.8
$1,749.5
25.5
37.3
.7
(33.9)
(24.6)
—
1.4
(51.3)
(44.1)
$1,660.5
2019
2018
U.S.
International
U.S.
International
$1,588.2
208.0
24.2
1.3
(47.7)
(1.6)
(100.0)
$1,672.4
($191.6)
$2,869.2
150.2
14.6
—
(157.3)
(191.8)
—
$2,684.9
($237.9)
$1,540.0
115.5
53.7
1.4
(51.3)
(24.6)
(46.5)
$1,588.2
($72.3)
$2,684.9
289.9
16.0
—
(146.2)
(12.2)
—
$2,832.4
($449.2)
90
Amounts Recognized
Noncurrent assets
Accrued liabilities
Noncurrent liabilities
Net Liability Recognized
2019
2018
U.S.
International
U.S.
International
$17.3
18.3
448.2
$449.2
$11.4
—
203.0
$191.6
$28.2
23.5
242.6
$237.9
$103.5
1.2
174.6
$72.3
Fiscal year 2018 settlements in the table above primarily reflect the impact of the transfer of certain pension
obligations and plan assets of our U.S. salaried and hourly plans to an insurer through the purchase of an
irrevocable, nonparticipating group annuity contract in the fourth quarter of fiscal year 2018.
The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a
pretax basis during fiscal years 2019 and 2018 consist of the following:
Net actuarial loss (gain) arising during the period
Amortization of net actuarial loss
Prior service cost arising during the period
Amortization of prior service cost
Total
2019
2018
U.S.
$262.9
(71.5)
1.1
(1.1)
$191.4
International
U.S.
International
$161.5
(11.1)
4.7
—
($167.7)
(132.4)
.1
(1.6)
($64.6)
(43.7)
.7
—
$155.1
($301.6)
($107.6)
The net actuarial gain 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 losses arising during fiscal year 2019 are primarily attributable to lower discount rates and partially
offset by 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 U.S. participants, which was approximately 7 years as
of 30 September 2019. For U.K. participants, accumulated actuarial gains and losses that exceed a corridor are
amortized over the average remaining life expectancy, which was approximately 25 years as of 30 September
2019.
The components recognized in accumulated other comprehensive loss on a pretax basis at 30 September
consisted of the following:
Net actuarial loss
Prior service cost (credit)
Net transition liability
Total
2019
2018
U.S.
$871.8
6.6
—
$878.4
International
U.S.
International
$594.0
3.6
.4
$598.0
$680.4
$443.6
6.6
—
(1.1)
.4
$687.0
$442.9
The amount of accumulated other comprehensive loss at 30 September 2019 that is expected to be recognized as
a component of net periodic pension cost during fiscal year 2020, excluding amounts that may be recognized
through settlement losses, is as follows:
Net actuarial loss
Prior service cost (credit)
U.S.
$84.2
1.4
International
$19.2
—
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 $4,931.6
and $4,376.4 as of 30 September 2019 and 2018, respectively.
91
The following table provides information on pension plans where the benefit liability exceeds the value of plan
assets:
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
30 September 2019
30 September 2018
U.S.
International
U.S.
International
$3,069.2
2,602.8
$2,941.2
2,602.8
$521.1
318.0
$413.3
266.5
$2,733.6
2,467.5
$2,608.6
2,467.5
$452.6
276.8
$357.9
228.2
The tables above include several pension arrangements that are not funded because of jurisdictional practice. The
ABO and PBO related to these plans as of 30 September 2019 were $92.6 and $99.2, respectively.
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. As of 30 September 2019, actual
allocations vary from target due to market movements, primarily lower interest rates in the fourth quarter.
Subsequent to 30 September 2019, rebalancing actions have been taken so that the U.S. salaried and hourly plan
portfolio is within asset allocation target ranges. 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:
Asset Category
Equity securities
Debt securities
Real estate and other
Cash
Total
2019 Target Allocation
2019 Actual Allocation
2018 Actual Allocation
U.S.
International
U.S.
International
U.S.
International
- 58%
43
34
- 49%
— - 10%
—%
39 - 49%
51 - 61%
—%
—%
38%
56%
6%
—%
100%
42%
57%
—%
1%
100%
41%
50%
8%
1%
100%
46%
53%
—%
1%
100%
In fiscal year 2019, the 7.0% 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 7.8%, 4.7%, and 6.5%, 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 fiscal year 2019, the 5.3% 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 5.8%
and was derived from expected equity and debt security returns of 7.4% and 2.7%, respectively.
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The following table summarizes pension plan assets measured at fair value by asset class (see Note 15, Fair Value
Measurements, for definition of the levels):
U.S. Qualified Pension Plans
Cash and cash equivalents
Equity securities
Equity mutual funds
Equity pooled funds
Fixed income:
Bonds (government
and corporate)
Total U.S. Qualified Pension
Plans at Fair Value
Real estate pooled funds(A)
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
30 September 2019
30 September 2018
Total
Level 1 Level 2 Level 3
Total
Level 1
Level 2
Level 3
$13.7
401.1
152.9
524.8
$13.7
401.1
152.9
—
$—
—
—
524.8
$—
—
—
—
$13.8
397.9
173.8
545.2
$13.8
397.9
173.8
$—
—
—
—
545.2
$—
—
—
—
1,572.1
— 1,572.1
— 1,344.6
— 1,344.6
—
$2,664.6 $567.7 $2,096.9
$— $2,475.3 $585.5 $1,889.8
$—
$167.8
$2,832.4
$209.6
$2,684.9
$13.4
711.3
679.9
13.7
254.1
$13.4
—
—
—
—
$—
711.3
679.9
13.7
$—
—
—
—
— 254.1
$15.8
727.9
615.2
11.6
217.7
$15.8
—
—
—
—
$—
727.9
615.2
11.6
$—
—
—
—
— 217.7
$1,672.4
$13.4 $1,404.9 $254.1
$1,588.2
$15.8 $1,354.7 $217.7
(A) Real estate pooled funds consist of funds that invest in properties. These funds generally allow for quarterly redemption with
30 days' notice. Timing for redemption could be delayed based on the priority of our request and the availability of funds.
Interests in these funds are valued using the net asset value (NAV) per share practical expedient and are not classified in
the fair value hierarchy.
The following table summarizes changes in fair value of the pension plan assets classified as Level 3, by asset
class:
30 September 2017
Actual return on plan assets:
Assets held at end of year
Assets sold during the period
Purchases, sales, and settlements, net
30 September 2018
Actual return on plan assets:
Assets held at end of year
Purchases, sales, and settlements, net
30 September 2019
Other
Pooled Funds
$7.8
Insurance
Contracts
$41.4
—
.5
(8.3)
$—
—
—
$—
.9
—
175.4
$217.7
38.1
(1.7)
$254.1
Total
$49.2
.9
.5
167.1
$217.7
38.1
(1.7)
$254.1
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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.
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.
Equity Mutual and Pooled Funds
Shares of mutual funds are valued at the 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 based on the value of the underlying traded
holdings 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.
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 assets 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 and discount rates that require inputs with limited observability.
Contributions and Projected Benefit Payments
Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2019 were $40.2.
Contributions for funded plans resulted primarily from contractual and regulatory requirements. Benefit payments to
unfunded plans were due primarily to the timing of retirements. We anticipate contributing $30 to $40 to the defined
benefit pension plans in fiscal year 2020. 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:
2020
2021
2022
2023
2024
2025-2029
U.S.
$166.8
160.0
166.0
170.1
174.1
919.9
International
$47.9
49.1
50.1
54.3
58.0
308.3
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may
vary significantly from these estimates.
94
U.K. Lloyds Equalization Ruling
On 26 October 2018, the United Kingdom High Court issued a ruling related to the equalization of pension plan
participants’ benefits for the gender effects of Guaranteed Minimum Pensions. As a result of this ruling, we
estimated the impact of retroactively increasing benefits in our U.K. plan in accordance with the High Court ruling.
We treated the additional benefits as a prior service cost, which resulted in an increase to our projected benefit
obligation and accumulated other comprehensive loss of $4.7 during the first quarter of fiscal year 2019. We are
amortizing this cost over the average remaining life expectancy of the U.K. participants.
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 2,197,262 as of 30 September 2019.
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 fiscal years 2019, 2018, and 2017 were $40.6, $34.2,
and $33.7, 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 these benefits were not
material in fiscal years 2019, 2018, and 2017. Accumulated postretirement benefit obligations as of the end of fiscal
years 2019 and 2018 were $43.7 and $56.4, respectively, of which $7.7 and $9.4 were current obligations,
respectively.
We recognize changes in other postretirement benefit plan obligations in other comprehensive income on a pretax
basis. In fiscal years 2019 and 2018, we recognized gains that arose during the period of $6.1 and $3.1,
respectively. In fiscal year 2018, we recognized net actuarial loss amortization of $.3. There was no net actuarial
loss amortization in fiscal year 2019 as the corridor for the plan was not exceeded.
The net actuarial gain/loss recognized in accumulated other comprehensive loss on a pretax basis was a net gain
of $1.7 and a net loss of $4.4 as of 30 September 2019 and 2018, respectively.
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 have no impact on
plan obligations.
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18. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are involved in various legal proceedings, including commercial, competition, environmental, intellectual
property, regulatory, 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 $43 at 30 September 2019) 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 $43 at 30 September 2019) 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.
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 31 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 2019 and 2018
included an accrual of $68.9 and $76.8, 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 $68 to a reasonably possible upper exposure of $82 as of 30 September 2019.
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 2019, $24.3 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 before-tax expense of $42 in
fiscal 2006 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.
96
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 have 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 consistent
with our previous estimates.
Piedmont
At 30 September 2019, $14.7 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. The SCDHEC issued its final approval to the site-wide
feasibility study on 13 June 2017 and the Record of Decision for the site on 27 June 2018. Field work has started to
support the remedial design, and in the fourth quarter of fiscal year 2018, we signed a Consent Agreement
Amendment memorializing our obligations to complete the cleanup of the site. We estimate that source area
remediation and groundwater recovery and treatment will continue through 2029. Thereafter, we expect this site to
go into a state of monitored natural attenuation through 2047.
We recognized a before-tax expense of $24 in 2008 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 2019, $11.8 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.
97
ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations are primarily associated with long-term on-site 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 term. These obligations are primarily reflected within "Other noncurrent liabilities" on the consolidated
balance sheets. 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 were as follows:
Balance at 30 September 2017
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2018
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2019
$144.7
43.8
(2.6)
7.2
(2.7)
$190.4
14.7
(2.1)
8.7
(3.5)
$208.2
The increase in the liability during fiscal year 2018 primarily related to new obligations associated with the Lu'An
asset acquisition completed in April 2018.
GUARANTEES AND WARRANTIES
We guaranteed the repayment of our 25% share of an equity bridge loan that has been provided to fund equity
commitments to a joint venture arrangement with ACWA Holding in Saudi Arabia. ACWA also guarantees their
share of the loan. Our maximum exposure under the guarantee, which expires in 2020, is approximately $100. As of
30 September 2018, other noncurrent liabilities included $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. During
2019, this balance was reclassified from other noncurrent liabilities to payables and accrued liabilities on our
consolidated balance sheets as the obligation is required to be funded within the next twelve months.
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 provided bank
guarantees to the joint venture to support our performance under the contract. As of 30 September 2019, our
maximum potential payments were $247. 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 2019, maximum potential payments
under joint and several guarantees were $26.0. Exposures under the guarantees decline over time and will be
completely extinguished by 2024.
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.
98
UNCONDITIONAL PURCHASE OBLIGATIONS
We are obligated to make future payments under unconditional purchase obligations as summarized below:
2020
2021
2022
2023
2024
Thereafter
Total
$1,358
407
369
349
350
5,477
$8,310
Approximately $7,100 of our unconditional purchase obligations relate to helium purchases. The majority of these
obligations occur after fiscal year 2024. Helium purchases include crude feedstock supply to 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-
if-tendered provisions. The refined helium is distributed globally and sold as a merchant gas, primarily under
medium-term requirements contracts. While contract terms in our helium sourcing contracts are generally longer
than our customer sales contracts, helium is a rare gas used in applications with few or no substitutions because of
its unique physical and chemical properties.
Approximately $160 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.
We estimate our maximum obligation for future purchases of plant and equipment to be approximately $890 based
on open purchase orders as of 30 September 2019. This includes spending for the Jiutai coal-to-syngas project.
Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the
option to reschedule, cancel, or otherwise modify based on our business needs. We have disclosed this obligation
in fiscal year 2020; however, timing of actual satisfaction of the obligation may vary.
19. CAPITAL STOCK
Common Stock
Authorized common stock consists of 300 million shares with a par value of $1 per share. As of 30 September
2019, 249 million shares were issued, with 220 million outstanding.
On 15 September 2011, the Board of Directors authorized the repurchase of up to $1.0 billion 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 2019. At 30 September 2019, $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
2019
2018
2017
219,515,245
900,017
220,415,262
218,346,074
1,169,171
219,515,245
217,350,825
995,249
218,346,074
99
Preferred Stock
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 2019 and 2018.
20. 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 2019, there were
4,581,960 shares available for future grant under our Long-Term Incentive Plan (LTIP), which is shareholder
approved.
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
2019
$41.2
—
$41.2
(9.7)
$31.5
2018
$38.8
—
$38.8
(9.1)
$29.7
2017
$40.7
.8
$39.9
(14.0)
$25.9
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 fiscal years 2019,
2018, and 2017 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
2019
$41.1
—
.1
$41.2
2018
$38.3
.2
.3
$38.8
2017
$34.5
1.4
4.8
$40.7
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 ten 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. We have elected to account for forfeitures as they occur, rather than to estimate them.
Forfeitures have not been significant historically.
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 beginning 1 October of the fiscal year of grant. We
granted 114,929, 105,268, and 117,692 market-based deferred stock units in fiscal years 2019, 2018, and 2017,
respectively.
100
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
estimated grant-date fair value of market-based deferred stock units was $229.61, $202.50, and $156.87 per unit in
fiscal years 2019, 2018, and 2017, respectively. The calculation of the fair value used the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2019
2018
2017
17.5%
2.8%
2.6%
18.7%
1.9%
2.6%
20.6%
1.4%
2.5%
In addition, during fiscal year 2019, we granted 169,666 time-based deferred stock units at a weighted average
grant-date fair value of $168.68. In fiscal years 2018 and 2017, we granted 143,379 and 165,121 time-based
deferred stock units at a weighted average grant-date fair value of and $162.11 and $143.75, respectively.
Deferred Stock Units
Outstanding at 30 September 2018
Granted
Paid out
Forfeited/adjustments
Outstanding at 30 September 2019
Shares (000)
940
285
(113)
(136)
976
Weighted Average
Grant-
Date Fair Value
$137.78
193.29
119.59
136.11
$156.31
Cash payments made for deferred stock units were $1.9, $2.2, and $2.1 in fiscal years 2019, 2018, and 2017,
respectively. As of 30 September 2019, there was $49.2 of unrecognized compensation cost related to deferred
stock units. The cost is expected to be recognized over a weighted average period of 1.6 years. The total fair value
of deferred stock units paid out during fiscal years 2019, 2018, and 2017, including shares vested in prior periods,
was $19.2, $38.5, and $36.6, 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. The Company has not
issued stock option awards since fiscal year 2015.
A summary of stock option activity is presented below:
Stock Options
Outstanding at 30 September 2018
Exercised
Forfeited
Outstanding and Exercisable at 30 September 2019
Stock Options
Shares (000)
Weighted Average
Exercise Price
2,186
(842)
—
1,344
$89.33
82.27
—
$93.75
Weighted Average
Remaining Contractual
Term (in years)
Aggregate Intrinsic
Value
Outstanding and Exercisable at 30 September 2019
3.4
$172
The aggregate intrinsic value represents the amount by which our closing stock price of $221.86 as of 30
September 2019 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 fiscal years 2019, 2018, and 2017
was $87.2, $90.4, and $57.3, respectively.
101
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 2019, there was no unrecognized compensation cost as all stock option awards were fully vested.
Cash received from option exercises during fiscal year 2019 was $68.1. The total tax benefit realized from stock
option exercises in fiscal year 2019 was $20.4, of which $16.4 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 elected to account for
forfeitures as they occur, rather than to estimate them. Forfeitures have not been significant historically.
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.
A summary of restricted stock activity is presented below:
Restricted Stock
Outstanding at 30 September 2018
Vested
Outstanding at 30 September 2019
Shares (000)
42
(16)
26
Weighted Average
Grant-
Date Fair Value
$140.28
144.09
$138.00
As of 30 September 2019, there was no unrecognized compensation cost as all restricted stock awards were fully
vested. The total fair value of restricted stock vested during fiscal years 2019, 2018, and 2017 was $2.6, $2.2, and
$4.1, respectively.
Versum Spin-off
As discussed in Note 4, Discontinued Operations, Air Products completed the spin-off of Versum on 1 October
2016. In connection with the spin-off, 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 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.
102
21. 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 2016
($65.0)
($949.3)
($1,374.0)
($2,388.3)
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
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 2018
Other comprehensive loss before reclassifications
Amounts reclassified from AOCL
Net current period other comprehensive loss
Amount attributable to noncontrolling interest
Balance at 30 September 2019
(12.6)
24.2
$11.6
.2
(.1)
101.9
57.3
$159.2
6.0
3.0
251.6
110.7
340.9
192.2
$362.3
$533.1
5.3
.8
11.5
3.7
($53.1)
($787.1)
($1,007.2)
($1,847.4)
45.9
(30.4)
$15.5
—
($37.6)
(44.1)
12.3
($31.8)
(8.0)
(244.6)
3.1
($241.5)
(18.8)
($1,009.8)
(356.2)
(2.6)
($358.8)
(11.7)
179.4
133.1
$312.5
(.2)
(19.3)
105.8
$86.5
(19.0)
($694.5)
(326.2)
($1,741.9)
(726.5)
63.2
72.9
($263.0)
($653.6)
(.2)
(19.9)
($61.4)
($1,356.9)
($957.3)
($2,375.6)
103
The table below summarizes the reclassifications out of AOCL 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
Cost of sales(A)
Cost reduction and asset actions(B)
Gain on exchange of equity affiliate investments(C)
Loss from discontinued operations, net of tax(D)
Total Currency Translation Adjustment
2019
2018
2017
$.6
(3.0)
14.7
$12.3
$—
—
(2.6)
—
($2.6)
$7.1
(42.6)
5.1
($30.4)
$3.1
—
—
—
$3.1
$18.3
5.1
.8
$24.2
$—
8.2
—
49.1
$57.3
Pension and Postretirement Benefits, net of tax(E)
$63.2
$133.1
$110.7
(A)
(B)
(C)
(D)
(E)
The fiscal year 2018 impact relates to an equipment sale resulting from the termination of a contract in the Industrial
Gases – Asia segment during the first quarter.
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 2019 impact relates to a net gain on the exchange of two equity affiliates with a joint venture partner.
Refer to Note 7, Acquisitions, for additional information.
The fiscal year 2017 impact relates to the sale of PMD during the second quarter.
The components of net periodic benefit cost reclassified out of AOCL include items such as prior service cost
amortization, actuarial loss amortization, and settlements and are included in “Other non-operating income (expense),
net” on the consolidated income statements. Refer to Note 17, Retirement Benefits, for additional information.
104
22. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS):
30 September
Numerator
Net income from continuing operations
Net income 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
Basic earnings per share from continuing operations
Basic earnings per share from discontinued operations
Basic Earnings Per Common Share Attributable to Air Products
Diluted EPS Attributable to Air Products
Diluted earnings per share from continuing operations
Diluted earnings per share from discontinued operations
Diluted Earnings Per Common Share Attributable to Air Products
2019
2018
2017
$1,760.0
$1,455.6
—
42.2
$1,760.0
$1,497.8
$1,134.4
1,866.0
$3,000.4
220.3
219.3
218.0
1.3
221.6
$7.99
—
$7.99
$7.94
—
$7.94
1.5
220.8
$6.64
.19
$6.83
$6.59
.19
$6.78
1.8
219.8
$5.20
8.56
$13.76
$5.16
8.49
$13.65
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 2019 and 2017, respectively. Outstanding share-based awards of .1
million shares were antidilutive and therefore excluded from the computation of diluted EPS for fiscal year 2018.
23. 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
2019
2018
2017
$723.3
1,350.8
215.4
$2,289.5
$688.5
1,151.7
174.8
$2,015.0
$669.8
666.2
80.1
$1,416.1
On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act (the “Tax Act” or "Tax reform"),
which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate
from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. Our
consolidated income statements reflect a discrete net income tax expense of $43.8 and $180.6 in fiscal years 2019
and 2018, respectively, related to impacts of the Tax Act.
In fiscal year 2019, our income tax expense reflects the reversal of a non-recurring $56.2 benefit recorded in fiscal
year 2018 related to the U.S. taxation of deemed foreign dividends. This was partially offset by a benefit of $12.4 to
reduce the total expected costs of the deemed repatriation tax. The non-recurring benefit recorded in fiscal year
2018 was eliminated by regulations issued in fiscal year 2019.
105
In fiscal year 2018, our consolidated income statements reflect a discrete net income tax expense of $180.6 and a
$28.5 reduction to equity affiliates' income for the impacts of the Tax Act. The income tax expense of $180.6
included a cost of $392.4, which included $322.1 for the deemed repatriation tax and $70.3 primarily for additional
foreign taxes on the repatriation of foreign earnings. This cost was partially offset by a $211.8 benefit primarily from
the re-measurement of our net U.S. deferred tax liabilities at the lower corporate tax rate. The deemed repatriation
tax of $322.1 included the $56.2 non-recurring benefit related to the U.S. taxation of deemed foreign dividends that
was eliminated in 2019. We have historically asserted our intention to indefinitely reinvest foreign earnings in
certain foreign subsidiaries. We reevaluated our historic assertions as a result of enactment of the Tax Act and
adjusted our position relative to the indefinitely reinvested earnings of various foreign subsidiaries. The impact of
these changes is included in the $70.3 for additional foreign taxes on the repatriation of foreign earnings recorded
in fiscal year 2018.
After applying tax credits, the balance of the deemed repatriation tax obligation is $256.8, which we are paying in
installments over seven remaining years. As of 30 September 2019, we recorded $215.4 of this obligation on our
consolidated balance sheets in noncurrent liabilities.
While our accounting for the provisions of the Tax Act is not provisional, further adjustments to the deemed
repatriation tax could result from future U.S. or foreign tax examinations of the years impacted by the calculation or
from the issuance of additional federal or state guidance.
As a fiscal year-end taxpayer, certain provisions of the Tax Act became effective in our fiscal year 2018 while other
provisions did not become effective until fiscal year 2019. The corporate tax rate reduction was effective as of 1
January 2018 and, accordingly, reduced our 2018 fiscal year U.S. federal statutory rate to a blended rate of
approximately 24.5%. The 21% federal tax rate now applies to our fiscal year ended 30 September 2019 and each
year thereafter.
The following table details the components of the provision for income taxes:
Current Tax Provision
Federal
State
Foreign
Total Current Tax Provision
Deferred Tax Provision
Federal
State
Foreign
Total Deferred Tax Provision
Total Income Tax Provision
2019
2018
$163.7
23.3
235.5
422.5
9.7
2.4
45.5
57.6
$480.1
$305.1
17.7
256.9
579.7
(121.7)
12.5
53.8
(55.4)
$524.3
2017
$62.8
7.0
229.1
298.9
1.4
6.0
(45.4)
(38.0)
$260.9
Total company income tax payments, net of refunds, were $324.3, $372.0, and $1,348.8 in fiscal years 2019, 2018,
and 2017, respectively. Tax payments were higher in fiscal year 2017 due to taxes related to the $2,870 gain on the
sale of PMD. Refer to Note 4, Discontinued Operations, for additional information.
106
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
Tax on foreign repatriated earnings
Domestic production activities
Share-based compensation
Tax reform repatriation
Tax reform rate change and other
Tax restructuring benefit
Non-deductible goodwill impairment charge
Non-U.S. subsidiary tax election
Business separation costs
Other
Effective Tax Rate
2019
21.0%
1.0
(2.0)
1.0
.1
—
(.6)
1.9
—
—
—
—
—
(1.4)
21.0%
2018
24.5%
1.0
(2.1)
(1.0)
(.4)
(.4)
(1.0)
19.5
(11.1)
(1.8)
—
—
—
(1.2)
26.0%
2017
35.0%
1.0
(2.0)
(7.9)
(2.2)
(.8)
(1.2)
—
—
—
3.6
(7.7)
.2
.4
18.4%
Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates that are
different than the U.S. federal statutory rate and include tax holidays and incentives. As a result of the reduction in
the federal corporate income tax rates under the Tax Act, our effective non-U.S. tax rate is now higher than our
fiscal year 2019 U.S. statutory rate of 21.0%. As a result of the lower statutory rate in fiscal year 2019 versus fiscal
year 2018, the net impact of foreign tax rates reflects the cost of foreign rates higher than the U.S. federal statutory
rate.
Tax on foreign repatriated earnings includes benefits and costs related to U.S. and additional foreign taxation on the
current and future repatriation of foreign earnings and a U.S. benefit for related foreign tax credits. In addition, the
Tax Act also enacted new provisions related to the taxation of foreign operations, known as Global Intangible Low
Tax Income (“GILTI”). We have elected as an accounting policy to account for GILTI as a period cost when incurred.
This and various other provisions of the Tax Act did not become effective until fiscal year 2019 and did not impact
our tax provision in fiscal year 2018.
The Tax Act repealed the domestic production activities deduction, effective for our fiscal 2019 tax year, and
lowered the benefit taken in fiscal year 2018.
Share-based compensation reflects the impact from recognition of $14.6, $21.5, and $17.6 of excess tax benefits in
our provision for income taxes during fiscal years 2019, 2018, and 2017, respectively.
In fiscal year 2018, we recognized a tax benefit of $35.7, net of reserves for uncertain tax positions, and a
corresponding decrease to net deferred tax liabilities resulting from the restructuring of several foreign subsidiaries.
In fiscal year 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. Refer to
Note 11, Goodwill, for additional information regarding the impairment charge.
107
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
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
2019
2018
$227.1
140.6
31.1
69.6
—
57.7
(92.1)
434.0
954.6
23.9
31.0
14.8
80.0
8.3
1,112.6
$678.6
$153.1
143.5
17.1
42.5
3.8
45.4
(105.0)
300.4
811.8
—
36.1
16.3
84.3
5.6
954.1
$653.7
Deferred tax assets and liabilities are included within the consolidated balance sheets as follows:
Deferred Tax Assets
Other noncurrent assets
Deferred Tax Liabilities
Deferred income taxes
Net Deferred Income Tax Liability
2019
2018
$115.2
$121.4
793.8
$678.6
775.1
$653.7
Retirement benefits and compensation accruals are impacted significantly by the changes in plan assets and
benefit obligations that have been recognized in other comprehensive income. Refer to Note 17, Retirement
Benefits, for additional information. Deferred tax liabilities related to plant and equipment increased due to the
impact of an increase in accelerated tax depreciation deductions in excess of book depreciation in multiple
jurisdictions. The deferred tax component for currency transactions moved into an overall deferred tax liability
position due primarily to currency movements on hedging transactions as several foreign based currencies
weakened against the U.S. dollar in fiscal year 2019. Reserves and accruals were impacted by an increase in tax
deferred deductions related to the timing of recognizing accruals for local tax and accounting purposes.
As of 30 September 2019, the Company had the following deferred tax assets for certain tax credits:
Jurisdiction
U.S. State
U.S. Federal
Foreign
Gross Tax Asset
$1.7
13.3
20.8
Expiration Period
2020 - 2034
2024 - 2029
2020 - 2025; Indefinite
108
The generation of $13.3 in excess U.S. foreign tax credits in fiscal year 2019 increased the balance of the tax
credits and other tax carryforwards component. Of the $20.8 foreign tax credits, $5.8 have indefinite carryforward
periods.
As of 30 September 2019, the Company had the following loss carryforwards:
Jurisdiction
U.S. State Net Operating Loss
U.S. Federal Capital Loss
Foreign Net Operating Loss
Foreign Capital Loss
Gross Loss Carryforward
$296.3
1.8
Expiration Period
2020 - 2034
2023
352.6
262.5
2020 - 2029; Indefinite
Indefinite
Of the $352.6 of foreign net operating loss carryforwards, $148.9 have indefinite carryforward periods.
The valuation allowance as of 30 September 2019 of $92.1 primarily related to $42.8 of foreign credits and loss
carryforwards as well as $44.6 related to foreign capital losses that were generated from the loss recorded on the
exit from the EfW 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, as of 30 September
2019.
As a result of the Tax Act, we recorded $373.2 of federal income tax from the deemed repatriation tax on
approximately $5.8 billion of previously undistributed earnings from our foreign subsidiaries and corporate joint
ventures. These earnings are now eligible to be repatriated to the U.S. with reduced U.S. tax impacts. However,
such earnings may be subject to foreign withholding and other taxes. We record foreign and U.S. income taxes on
the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are
indefinitely reinvested. The 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 $4.2 billion as of 30 September 2019. An estimated $359.6 in additional foreign
withholding and other income taxes would be due if these earnings were remitted as dividends.
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
2019
$233.6
7.8
14.2
(14.7)
(1.5)
(3.9)
(3.8)
$231.7
2018
$146.4
26.4
119.2
(41.3)
(14.2)
(2.6)
(.3)
$233.6
2017
$90.2
47.5
16.1
(4.0)
(2.0)
(3.2)
1.8
$146.4
As of 30 September 2019 and 2018, we had $231.7 and $233.6 of unrecognized tax benefits, excluding interest
and penalties, respectively, of which $75.0 and $88.6, respectively, would impact the effective tax rate from
continuing operations if recognized.
Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense
and totaled $12.0, ($2.4), and $3.7 in fiscal years 2019, 2018, and 2017, respectively. Our accrued balance for
interest and penalties was $19.5 and $8.4 as of 30 September 2019 and 2018, respectively.
In fiscal year 2018, $119.2 in additions for tax positions of prior years related primarily to uncertain state tax filing
positions taken related to the sale of PMD. Additions for tax positions of the current year in fiscal year 2018 of $26.4
included uncertain tax positions related to the restructuring of foreign subsidiaries and reserves for ongoing transfer
pricing uncertainties.
109
In fiscal year 2018, we received a final audit settlement agreement that resolved uncertainties related to
unrecognized tax benefits of $43.1, including interest. This settlement primarily related to tax positions taken in
conjunction with the disposition of our Homecare business in 2012. As a result, we recorded an income tax benefit
of $25.6, including interest, in income from discontinued operations during 2018. The settlement also resulted in an
income tax benefit of approximately $9.1, including interest, in continuing operations for the release of tax reserves
on other matters. The reduction in prior year positions and settlement payments also reflect the settlement of U.S.
federal tax audits for 2012 through 2014 reported in the first quarter of the year.
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 as of the date of this
report.
We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:
Major Tax Jurisdiction
North America
United States – Federal
United States – State
Canada
Europe
France
Germany
Netherlands
Spain
United Kingdom
Asia
China
South Korea
Taiwan
Latin America
Chile
24. SUPPLEMENTAL INFORMATION
Other Receivables and Current Assets
30 September
Contract assets
Contract fulfillment costs
Derivative instruments
Current capital lease receivables
Contracts in progress, less progress billings
Other
Other receivables and current assets
Other Noncurrent Assets
30 September
Derivative instruments
Noncurrent customer receivable
Prepaid tax
Deferred tax assets
Pension benefits
Other
Other noncurrent assets
110
Open Tax Years
2016 - 2019
2010 - 2019
2015 - 2019
2016 - 2019
2013 - 2019
2018 - 2019
2015 - 2019
2015 - 2019
2014 - 2019
2010 - 2019
2014 - 2019
2016 - 2019
2019
$64.3
64.5
142.5
90.9
—
115.5
$477.7
2019
$81.7
118.0
17.0
115.2
28.7
243.5
$604.1
2018
$—
—
61.1
92.1
77.5
142.6
$373.3
2018
$85.0
92.4
13.2
121.4
131.7
210.8
$654.5
Payables and Accrued Liabilities
30 September
Trade creditors
Payables associated with Lu'An
Contract liabilities
Accrued payroll and employee benefits
Pension and postretirement benefits
Dividends payable
Derivative instruments
Obligation for future contribution to an equity affiliate
Other
Payables and accrued liabilities
Other Noncurrent Liabilities
30 September
Pension benefits
Postretirement benefits
Noncurrent customer liability
Long-term accrued income taxes related to U.S. tax reform
Contingencies related to uncertain tax positions
Contract liabilities
Environmental liabilities
Derivative instruments
Asset retirement obligations
Obligation for future contribution to an equity affiliate
Obligations associated with EfW
Other
Other noncurrent liabilities
Facility Closure
2019
$519.3
8.9
247.4
186.1
26.0
255.7
91.2
94.4
2018
$594.6
330.0
156.6
201.4
34.1
241.5
54.2
—
206.7
205.4
$1,635.7 $1,817.8
2019
2018
$651.2
$417.2
36.0
118.0
215.4
123.3
49.2
59.1
21.2
47.0
92.4
184.4
113.2
58.2
64.6
39.9
201.9
189.5
—
57.8
94.4
63.3
179.3
172.8
$1,712.4 $1,536.9
In December 2018, one of our customers was subject to a government enforced shutdown due to environmental
reasons. As a result, we recognized a charge of $29.0 during the first quarter of fiscal year 2019 primarily related to
the write-off of onsite assets. This charge is reflected as “Facility closure” on our consolidated income statements
for the fiscal year ended 30 September 2019 and has not been recorded in segment results. Annual sales and
operating income associated with this customer prior to the facility closure were not material to the Industrial Gases
– Asia segment. We do not expect to recognize additional charges related to this shutdown.
Sales to and Other Income From Related Parties
We have related party sales to some of our equity affiliates and joint venture partners as well as other income
primarily from fees charged for use of Air Products' patents and technology. Sales to and other income from related
parties totaled approximately $410, $360, and $600 in fiscal years 2019, 2018, and 2017, respectively. Sales
agreements with related parties include terms that are consistent with those that we believe would have been
negotiated at an arm’s length with an independent party.
111
25. SUMMARY BY QUARTER (UNAUDITED)
The table below provides unaudited selected financial data and weighted average share information for each
quarter of fiscal year 2019:
2019
Sales
Gross profit
Cost reduction actions (See Note 6)
Gain on exchange of equity affiliate
investments (See Note 7)
Operating income
Equity affiliates' income
Pension settlement loss (See Note 17)
Income tax provision
Income from continuing operations
Income from discontinued operations,
net of tax
Net income
Net Income Attributable to Air
Products
Net income from continuing
operations
Net income from discontinued
operations
Net Income Attributable to Air
Products
Basic Earnings Per Common Share
Attributable to Air Products
Basic earnings per share from
continuing operations
Basic earnings per share from
discontinued operations
Basic Earnings Per Common Share
Attributable to Air Products
Diluted Earnings Per Common Share
Attributable to Air Products
Diluted earnings per share from
continuing operations
Diluted earnings per share from
discontinued operations
Diluted Earnings Per Common Share
Attributable to Air Products
Weighted Average Common Shares
(in millions)
Basic
Diluted
Dividend Information
Dividends declared per common
share
Q1
$2,224.0
651.0 (A)
—
—
455.0
52.9
—
132.1 (B)
357.0
—
357.0
Q2
$2,187.7
713.0
—
—
516.5
46.2
5.0
107.5
433.5
—
433.5
Q3
$2,224.0
758.0
25.5
29.1
569.7
56.4
—
109.3 (B)
500.2
—
500.2
Q4
$2,283.2
792.4
—
—
603.2
59.9
—
131.2
518.7
—
518.7
Total
$8,918.9
2,914.4 (A)
25.5
29.1
2,144.4
215.4
5.0
480.1 (B)
1,809.4
—
1,809.4
$347.5
$421.3
$488.0
$503.2
$1,760.0
—
—
—
—
—
$347.5
$421.3
$488.0
$503.2
$1,760.0
$1.58
$1.91
$2.21
$2.28
$7.99
—
—
—
—
—
$1.58
$1.91
$2.21
$2.28
$7.99
$1.57
$1.90
$2.20
$2.27
$7.94
—
—
—
—
—
$1.57
$1.90
$2.20
$2.27
$7.94
219.9
221.0
220.2
221.4
220.6
221.9
220.7
222.1
220.3
221.6
$1.10
$1.16
$1.16
$1.16
$4.58
112
The table below provides unaudited selected financial data and weighted average share information for each
quarter of fiscal year 2018:
2018
Sales
Gross profit
Operating income
Equity affiliates' income
Pension settlement loss (See Note 17)
Income tax provision
Income from continuing operations
Income from discontinued operations,
net of tax (See Note 4)
Net income
Net Income Attributable to Air
Products
Net income from continuing
operations
Net income from discontinued
operations
Net Income Attributable to Air
Products
Basic Earnings Per Common Share
Attributable to Air Products
Basic earnings per share from
continuing operations
Basic earnings per share from
discontinued operations
Basic Earnings Per Common Share
Attributable to Air Products
Diluted Earnings Per Common Share
Attributable to Air Products
Diluted earnings per share from
continuing operations
Diluted earnings per share from
discontinued operations
Diluted Earnings Per Common Share
Attributable to Air Products
Weighted Average Common Shares
(in millions)
Basic
Diluted
Dividend Information
Dividends declared per common
share
Q1
Q2
Q3
Q4
Total
$2,216.6
$2,155.7
$2,259.0
$2,298.9
644.8
460.7
13.8
—
291.8 (B)
162.7
(1.0)
161.7
649.2
455.4
43.7
—
56.2 (D)
423.6
—
423.6
713.6
515.8
58.1
—
107.1
444.7
43.2
487.9
733.1 (C)
533.7
59.2
43.7
69.2 (B)(D)
459.7
—
459.7
$8,930.2
2,740.7 (C)
1,965.6
174.8
43.7
524.3 (B)(D)
1,490.7
42.2
1,532.9
$155.6
$416.4
$430.7
$452.9
$1,455.6
(1.0)
—
43.2
—
42.2
$154.6
$416.4
$473.9
$452.9
$1,497.8
$.71
—
$.71
$.70
—
$.70
218.9
220.4
$1.90
—
$1.90
$1.89
—
$1.89
219.4
220.8
$1.96
.20
$2.16
$1.95
.20
$2.15
219.5
220.9
$2.06
—
$2.06
$2.05
—
$2.05
219.6
220.9
$6.64
.19
$6.83
$6.59
.19
$6.78
219.3
220.8
$.95
$1.10
$1.10
$1.10
$4.25
(A)
Includes the impact of a facility closure charge of $29.0 resulting from the government enforced shutdown of a customer.
Refer to Note 24, Supplemental Information, for additional information.
(B) Our income tax provision for fiscal years 2019 and 2018 reflects impacts from the U.S. Tax Cuts and Jobs Act (the "Tax
Act"). Refer to Note 23, Income Taxes, for additional information. Fiscal year 2019 includes a discrete net income tax
expense of $43.8, primarily recorded in the first quarter to finalize our estimates of the impacts of the Tax Act. Fiscal year
2018 includes a discrete net income tax expense of $180.6, primarily recorded in the first quarter for our initial estimates of
the impacts of the Tax Act.
(C)
(D)
Includes the impact of a benefit of $24.1 for the change in inventory valuation method for our United States industrial gas
inventories. Refer to Note 1, Major Accounting Policies, for additional information.
Includes an income tax benefit of $35.7, net of reserves for uncertain tax positions, resulting from the restructuring of
several foreign subsidiaries, primarily during the second quarter.
113
26. 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 Industrial Gases – EMEA and Corporate and other segments, each reporting
segment meets the definition of an operating segment and does not include the aggregation of multiple operating
segments. Our Industrial Gases – EMEA and Corporate and other segment each include the aggregation of two
operating segments that meet the aggregation criteria under GAAP.
Our reporting segments are:
•
•
•
•
Industrial Gases – Americas;
Industrial Gases – EMEA (Europe, Middle East, and Africa);
Industrial Gases – Asia;
Industrial Gases – Global; and
• 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, argon, and rare gases
(primarily recovered by the cryogenic distillation of air), process gases such as hydrogen, helium, carbon dioxide,
carbon monoxide, syngas (a mixture of hydrogen and carbon monoxide), and specialty gases, and equipment for
the production or processing of gases, such as air separation units and non-cryogenic generators.
We supply gases to customers in many industries, including those in refining, chemical, gasification, metals,
electronics, manufacturing, and food and beverage. 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.
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 price
fluctuations contractually through pricing formulas, surcharges, cost pass-through, and tolling 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 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.
Corporate and other
The Corporate and other segment includes our LNG equipment and helium storage and distribution sale of
equipment businesses and corporate support functions that benefit all segments. Competition for the 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 other segments,
including foreign exchange gains and losses.
114
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.
Business Segment
2019
Sales
Operating income (loss)
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
Total assets
2018
Sales
Operating income (loss)
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
Total assets
2017
Sales
Operating income (loss)
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
$3,873.5 $2,002.5 $2,663.6
$261.0
$118.3 $8,918.9
997.7
505.2
84.8
545.8
301.6
472.4
189.5
69.0
216.3
864.2
361.5
58.4
1,105.5
493.4
445.5
(11.7)
(152.8)
2,169.8
8.6
3.2
33.8
35.7
18.0
—
88.3
1,082.8
215.4
1,989.7
— 1,276.2
5,832.2
3,250.8
6,240.6
325.7
3,293.5 18,942.8
$3,758.8 $2,193.3 $2,458.0
$436.1
$84.0 $8,930.2
927.9
485.3
82.0
546.5
312.1
445.8
198.6
61.1
163.1
689.9
265.8
58.3
791.9
503.3
445.6
53.9
8.1
1.9
17.3
16.2
(176.0)
1,941.5
12.9
—
970.7
203.3
49.6
1,568.4
— 1,277.2
5,904.0
3,280.4
5,899.5
240.1
3,854.3 19,178.3
$3,637.0 $1,780.4 $1,964.7
$722.9
$82.6 $8,187.6
946.1
464.4
58.1
427.2
395.5
177.1
47.1
143.2
532.6
203.2
53.5
337.8
71.1
8.9
.9
25.6
(171.5)
1,773.8
12.2
—
865.8
159.6
105.9
1,039.7
(A)
(B)
(B)
(A)
(B)
(B)
(A)
(B)
(B)
(A) The sales information noted above relates to external customers only. All intersegment sales are eliminated in consolidation.
Intersegment sales are generally transacted at market pricing. We generally do not have intersegment sales from our
regional industrial gases businesses. Equipment manufactured for our regional industrial gases segments are generally
transferred at cost and are not reflected as an intersegment sale.
(B) Refer to the Reconciliations to Consolidated Results section below.
115
Reconciliations to Consolidated Results
The table below reconciles total operating income in the table above to consolidated operating income as reflected
on our consolidated income statements:
Operating Income
Total
Change in inventory valuation method
Facility closure
Business separation costs
Cost reduction and asset actions
Goodwill and intangible asset impairment charge
Gain on exchange of equity affiliate investments
Gain on land sale
Consolidated Operating Income
2019
$2,169.8
—
(29.0)
—
(25.5)
—
29.1
—
$2,144.4
2018
$1,941.5
24.1
—
—
—
—
—
—
$1,965.6
2017
$1,773.8
—
—
(32.5)
(151.4)
(162.1)
—
12.2
$1,440.0
The table below reconciles total equity affiliates' income in the table above to consolidated equity affiliates' income
as reflected on our consolidated income statements:
Equity Affiliates' Income
Total
Equity method investment impairment charge
Tax reform repatriation - equity method investment
Consolidated Equity Affiliates' Income
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
2019
$215.4
—
—
$215.4
2018
$203.3
—
(28.5)
$174.8
2017
$159.6
(79.5)
—
$80.1
2019
$3,351.8
2,090.3
953.1
1,730.2
793.5
$8,918.9
2019
$3,721.3
1,278.9
933.8
3,302.6
1,101.0
$10,337.6
2018
$3,149.6
2,292.5
904.0
1,585.7
998.4
$8,930.2
2018
$3,512.7
1,283.3
899.8
3,066.6
1,161.3
$9,923.7
2017
$2,886.8
2,478.5
849.6
1,143.4
829.3
$8,187.6
2017
$3,407.4
1,279.0
778.5
1,737.9
1,237.4
$8,440.2
(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 $41.3, $33.1, and $64.2 in fiscal years 2019, 2018, and 2017, respectively.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
116
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 2019. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of 30 September 2019, 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 2019 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 2019,
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 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Company’s
internal control over financial reporting as of 30 September 2019. The Report of the Independent Registered Public
Accounting Firm is provided under Part II, Item 8, of this Form 10-K.
ITEM 9B.
OTHER INFORMATION
None.
117
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 23 January 2020. 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 23 January 2020.
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 23 January 2020.
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 23 January 2020.
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 23 January 2020.
118
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 2019 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))
(1)
(3)
2,567,962
54,304
2,622,266
$93.75
—
$93.75
(2)
4,581,960
—
4,581,960
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. The amount presented assumes the
maximum potential payout.
Represents authorized shares that were available for future grants as of 30 September 2019. 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 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.
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 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.
119
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, 2019” and “Air Products Stock Beneficially Owned by Officers and Directors” in the Proxy
Statement for the Annual Meeting of Shareholders to be held on 23 January 2020.
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 23 January 2020.
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 23
January 2020.
120
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The documents below are filed as a part of this report:
PART IV
(1) Financial Statements. The following is a list of the Consolidated Financial Statements of Air Products
and Chemicals, Inc. and its subsidiaries included in Item 8 of Part II of this report:
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm ..................................
Report of KPMG LLP, Independent Registered Public Accounting Firm ...................................................
Consolidated Income Statements – Years Ended 30 September 2019, 2018, and 2017..........................
Consolidated Comprehensive Income Statements – Years Ended 30 September 2019, 2018, and 2017
Consolidated Balance Sheets – 30 September 2019 and 2018 ................................................................
Consolidated Statements of Cash Flows – Years Ended 30 September 2019, 2018, and 2017...............
Consolidated Statements of Equity – Years Ended 30 September 2019, 2018, and 2017 .......................
51
53
54
55
56
57
58
(2) Financial Statement Schedules. The financial statement schedule below is filed as a part of this report
as required by Form 10-K. 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.
Schedule II Valuation and Qualifying Accounts for the three fiscal years ended 30 September 2019 ......
128
(3)
Exhibits. The exhibits filed as a part of this report as required by Item 601 of Regulation S-K are listed
in the Index to Exhibits located on page 122 of this report.
ITEM 16.
FORM 10-K SUMMARY
None.
121
Exhibit No. Description
INDEX TO EXHIBITS
(2)
(3)
3.1
3.2
3.3
3.4
(4)
4.1
4.2
4.3
4.4
4.5
(10)
10.1
Plan of acquisition, reorganization, arrangement, liquidation or succession.
Articles of Incorporation and By-Laws.
Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2 to the Company’s
Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Quarterly Report on Form 10-Q for the quarter ended
30 June 2014.)*
Amended and Restated Bylaws of the Company. (Filed as Exhibit 3.1 to the Company’s Form 8-K
Report dated 21 November 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
File 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 on Form S-3 filed January 19, 1995, File No. 33-57357.)*
Description of 2.000% Euro Notes due 2020 (incorporated by reference to the description included
in the Company’s prospectus filed under Rule 424(b)(5) under the Securities Act of 1933 on August
5, 2013, appearing under the headings “Description of Notes” in the prospectus supplement dated
July 31, 2013 and “Description of Securities” in the base prospectus dated November 22, 2011,
which form a part of the Company’s Registration Statement on Form S-3 (File No. 333-178120)).*
Description of 0.375% Euro Notes due 2021(incorporated by reference to the description included
in the Company’s prospectus filed under Rule 424(b)(5) under the Securities Act of 1933 on May
25, 2016, appearing under the headings “Description of Notes” in the prospectus supplement
dated May 24, 2016 and “Description of Securities” in the base prospectus dated November 24,
2014, which form a part of the Company’s Registration Statement on Form S-3 (File No.
333-200537)).*
Description of 1.000% Euro Notes due 2025 (incorporated by reference to the description included
in the Company’s prospectus filed under Rule 424(b)(5) under the Securities Act of 1933 on
February 4, 2015, appearing under the headings “Description of Notes” in the prospectus
supplement dated February 3, 2015 and “Description of Securities” in the base prospectus dated
November 24, 2014, which form a part of the Company’s Registration Statement on Form S-3 (File
No. 333-200537)).*
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 Annual Report on Form 10-K for the fiscal year ended
30 September 1989.)*†
122
Exhibit No. Description
10.2
10.3
10.4
10.5
10.5(a)
10.5(b)
10.5(c)
10.6
10.6(a)
10.6(b)
10.6(c)
10.6(d)
10.6(e)
10.7
10.7(a)
Annual Incentive Plan as Amended and Restated effective 1 October 2008. (Filed as Exhibit 10.7
to the Company’s Quarterly Report on Form 10-Q 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 Annual Report on Form 10-K for the fiscal year ended 30 September 2002.)*†
Amended and Restated Deferred Compensation Program for Directors, effective 25 January 2017.
(Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended 30
September 2017.)*†
Amended and Restated Long-Term Incentive Plan of the Company effective 1 October 2014. (Filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on 23 September 2014.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2018
awards. (Filed as Exhibit 10.1 and 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended 31 December 2017.)*†
Form of Award Agreement under the Long-Term Incentive Plan of the Company, used for FY2019
awards. (Filed as Exhibit 10.1 and 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended 31 December 2018.)*†
Restricted Stock Unit Retention Award Agreement dated 3 December 2018 under the Long-Term
Incentive Plan of the Company. (Filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the quarter ended 31 December 2018.)*†
Air Products and Chemicals, Inc. Retirement Savings Plan as amended and restated effective 1
November 2017 with provisions effective 1 January 2018. (Filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended 31 December 2017.)*†
Amendment No. 1 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 November 2017 with provisions effective 1 January 2018. (Filed as Exhibit
10.6(a) to the Company's Annual Report on Form 10-K for the fiscal year ended 30 September
2018). *†
Amendment No. 2 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 January 2019. (Filed as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended 31 December 2018.)*†
Amendment No. 3 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 January 2019. (Filed as Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended 31 December 2018.)*†
Amendment No. 4 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 August 2019.†
Amendment No. 5 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 August 2019.†
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 Annual Report on Form 10-K for
the fiscal year ended 30 September 2014.)*†
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 Annual Report on Form 10-K for the fiscal year ended 30 September
2015.)*†
123
Exhibit No. Description
10.7(b)
10.7(c)
10.8
10.9
10.9(a)
10.10
10.11
10.12
10.13
10.14
10.16
16
16.1
21
(23)
23.1
23.2
24
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 Annual Report on Form 10-K 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.(Filed as Exhibit 10.7(c) to
the Company's Annual Report on Form 10-K for the fiscal year ended 30 September 2017.)*†
Deferred Compensation Plan as Amended and Restated effective 1 January 2018. (Filed as Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended 31 December
2017.)*†
Revolving Credit Facility dated as of 31 March 2017 for $2,500,000,000. (Filed as Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended 31 March 2017.)*
Amendment and Appointment of Successor Administrative Agent dated 28 September 2018 to the
Revolving Credit Agreement dated 31 March 2017. (Filed as Exhibit 10.9(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended 30 September 2018.) *
Air Products and Chemicals, Inc. Executive Separation Program as amended effective as of 20
July 2018. (Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year
ended 30 September 2018.)*†
Form of Change in Control Severance Agreement for an Executive Officer. (filed as Exhibit 10.2 of
the Company's Current Report on Form 8-K dated 23 September 2014.)*†
Compensation Program for Non-Employee Directors effective 1 July 2017. (Filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q 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 Current Report on Form 8-K dated
15 January 2014.)*†
Amended and Restated Employment Agreement dated 14 November 2017, between the Company
and Seifollah Ghasemi. (Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed
14 November 2017.)*†
Senior Management Severance and Summary Plan Description effective as of 1 October 2017.
(Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended 30
September 2017.)*†
Letter re change in certifying accountant
Letter from KPMG LLP (Filed as Exhibit 16.1 to the Company’s Current Report on Form 8-K dated
26 July 2018).*
Subsidiaries of the registrant.
Consents of Experts and Counsel.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
Power of Attorney.
124
Exhibit No. Description
(31)
31.1
31.2
(32)
32.1
(99)
99.1
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.††
Additional Financial Exhibits
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)
Interactive Data Files
101.INS
Inline XBRL Instance Document. The XBRL Instance Document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101).
*
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.
125
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: 26 November 2019
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)
26 November 2019
/s/ Russell A. Flugel
26 November 2019
(Russell A. Flugel)
Senior Vice President, Corporate Controller, and
Principal Accounting Officer
26 November 2019
26 November 2019
26 November 2019
26 November 2019
26 November 2019
*
(Susan K. Carter)
Director
*
(Charles I. Cogut)
Director
*
(Chad C. Deaton)
Director
*
(David H. Y. Ho)
Director
*
(Margaret G. McGlynn)
Director
126
Signature and Title
*
(Edward L. Monser)
Director
*
(Matthew H. Paull)
Director
Date
26 November 2019
26 November 2019
*
Sean D. Major, Executive Vice President, General Counsel and Secretary, by signing his 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/ Sean D. Major
Sean D. Major
Executive Vice President, General Counsel and
Secretary
Date: 26 November 2019
127
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE II–VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended 30 September 2019, 2018, and 2017
Year Ended 30 September 2019
Allowance for doubtful accounts
Allowance for deferred tax assets
Year Ended 30 September 2018
Allowance for doubtful accounts
Allowance for deferred tax assets
Year Ended 30 September 2017
Allowance for doubtful accounts
Allowance for deferred tax assets(B)
Balance at
Beginning
of Period
Additions
Charged to
Expense
Additions
Charged to
Other Accounts
Other
Changes(A)
Balance
at End of
Period
$91
105
$94
108
$55
165
$12
5
$17
3
$7
6
$37
2
$7
4
$39
7
($52)
(20)
($27)
(10)
($7)
(70)
$88
92
$91
105
$94
108
(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 4, Discontinued Operations, for additional information.
128
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Shareholders’ information
Common stock information
Ticker Symbol: APD
Exchange Listing: New York Stock Exchange
Transfer Agent and Registrar:
Broadridge Corporate Issuer Solutions, Inc.
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 and the accompanying Annual
Report on Form 10-K, 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
copies of earnings releases, periodic and current reports, and news
releases by visiting investors.airproducts.com. 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 2020 annual meeting of shareholders will be held on Thursday,
January 23, 2020.
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 Annual Report
are qualified by reference to the section entitled “Forward-Looking
Statements” beginning on page 3 of the accompanying Annual
Report on Form 10-K.
Air Products | 2019 Annual Report
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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
Sean D. Major, Executive Vice President,
General Counsel and Secretary
T 610-481-4880
Investor Relations Office
Simon Moore, Vice President,
Investor Relations and
Corporate Relations
T 610-481-5775
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