2020Annual Report Images featured on the cover and in this Report were taken prior to mask-wearing and social-distancing protocols related to COVID-19. Proud to be designated as a critical industry, Air Products has put important protocols and procedures in place to help keep our employees, customers and communities safe while continuing to run our facilities around the world, provide the critical products and services that society needs, and win important projects. We Stand Together.We StandTogetherCOVID-19 Our Businesses
Air Products reported fiscal year 2020 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 segments (Americas, EMEA, and Asia)
produce and sell atmospheric gases, such as oxygen, nitrogen, and argon;
process gases, such as hydrogen, helium, carbon dioxide, carbon monoxide,
and syngas (a mixture of hydrogen and carbon monoxide); and specialty
gases. We serve customers in many industries, including refining, chemical,
gasification, metals, electronics, manufacturing, and food and beverage.
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 activity related to the
sale of 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.
The Corporate and other segment includes our liquefied natural gas
(LNG), turbo machinery equipment and services, and distribution sale of
equipment businesses, as well as corporate support functions that benefit
all segments.
III
Financial highlights
Consolidated sales by region
Consolidated sales by business segment
24%
12%
41%
19%
4%
n U.S./Canada
n Europe/Middle East/Africa
n Asia (excluding China)
n China
n Latin America
22%
41%
31%
4%
2%
n Industrial Gases – Americas
n Industrial Gases – EMEA
n Industrial Gases – Asia
n Industrial Gases – Global
n Corporate and other
Millions of dollars, except for per share data
2020
2019
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
$8,856
21.8%
25.3%
8.9%
$3,560
40.9%
24.9%
11.7%
$2,717
$8.55
8.38
5.18
$8,919
20.3%
24.0%
9.4%
$2,113
38.9%
24.3%
13.1%
$2,129
$7.94
8.21
4.58
(1) %
150 bp
130 bp
(50) bp
68%
200 bp
60 bp
(140) bp
28%
8%
2%
13%
(A) Fiscal year 2020 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 | 2020 Annual Report
II
Non-GAAP measures
(Millions of dollars unless otherwise indicated, except for per
share data)
Adjusted EBITDA
We define adjusted EBITDA as net income less income (loss)
from discontinued operations, net of tax, and excluding non-
GAAP adjustments, which we do not believe to be indicative
of underlying business trends, before interest expense, other
non-operating income (expense), net, income tax provision, and
depreciation and amortization expense. Adjusted EBITDA and
adjusted EBITDA margin provide useful metrics for management
to assess operating performance. Net income margin and
adjusted EBITDA margin are calculated by dividing net income
and adjusted EBITDA, respectively, by consolidated sales for
each 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:
2020
Sales
Net income
Net income margin
Net income
Q1
$2,254.7
$488.9
Q2
Q3
Q4
Total
$2,216.3
$ 490.4
$2,065.2
$2,320.1
$457.1
$494.7
$8,856.3
$1,931.1
21.7%
22.1%
22.1%
21.3%
21.8%
$488.9
$490.4
$457.1
$494.7
$1,931.1
Less: 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: Company headquarters relocation income (expense)
Less: India Finance Act 2020 – equity affiliate income
impact
—
18.7
9.1
120.7
289.2
—
—
(14.3)
19.3
7.1
148.5
294.7
33.8
33.8
—
32.1
8.1
109.3
290.6
—
—
—
39.2
6.4
99.9
310.5
—
—
(14.3)
109.3
30.7
478.4
1,185.0
33.8
33.8
Adjusted EBITDA
Adjusted EBITDA margin
$908.4
40.3%
$892.5
40.3%
$881.0
42.7%
$937.9
$3,619.8
40.4%
40.9%
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
Q1
$ 2,224.0
$357.0
Q2
Q3
Q4
$2,187.7
$433.5
$2,224.0
$500.2
$2,283.2
$518.7
Total
$8,918.9
$1,809.4
16.0%
19.8%
22.5%
22.7%
20.3%
$357.0
–
37.3
18.5
132.1
258.0
29.0
—
—
$433.5
$500.2
$518.7
$1,809.4
—
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
35.7%
$824.8
37.7%
$891.6
40.1%
$956.7
$3,468.0
41.9%
38.9%
III
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
Adjusted EBITDA
Adjusted EBITDA margin
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
Air Products | 2020 Annual Report
IV
Q1
$ 2,216.6
$161.7
7.3%
$161.7
(1.0)
29.8
9.8
291.8
227.9
—
32.5
$734.9
33.2%
Q1
$1,882.5
$306.4
16.3%
$306.4
48.2
29.5
(0.2)
78.4
206.1
32.5
50.0
—
—
—
Q2
$2,155.7
$423.6
Q3
Q4
$2,259.0
$487.9
$2,298.9
$459.7
19.7%
21.6%
20.0%
$423.6
$487.9
$459.7
—
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)
$739.1
34.3%
$819.5
36.3%
$822.0
35.8%
Q2
Q3
Q4
$1,980.1
$2,135.7
107.9%
$2,135.7
1,825.6
30.5
5.3
94.5
211.8
—
10.3
—
—
—
$2,121.9
$104.1
4.9%
$104.1
(2.3)
29.8
3.7
89.3
216.9
—
42.7
162.1
—
79.5
$723.0
34.1%
$2,203.1
$475.0
21.6%
$475.0
(5.5)
30.8
7.8
(1.3)
231.0
—
48.4
—
12.2
—
$769.4
34.9%
$654.9
34.8%
$651.9
32.9%
Q1
$1,866.3
$372.0
19.9%
$372.0
84.8
22.2
96.4
214.7
12.0
—
—
—
Q2
$1,777.4
($465.5)
Q3
$1,914.5
$354.1
Q4
$1,945.5
$400.9
(26.2)%
18.5%
20.6%
($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
33.9%
$637.9
35.9%
$673.9
35.2%
$677.2
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
Income (loss) 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
16.5%
$337.5
Q2
$1,885.3
$296.9
Q3
$1,934.4
$333.2
15.7%
17.2%
$296.9
$333.2
Q4
$1,963.6
$350.0
17.8%
$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
28.8%
$558.4
29.6%
$601.8
31.1%
$651.1
33.2%
Q1
$2,545.5
$299.0
11.7%
$299.0
1.3
33.3
95.3
234.2
—
—
—
Q2
$2,581.9
$291.6
11.3%
$291.6
(2.1)
31.5
93.0
229.1
—
—
—
Q3
$2,634.6
$ 323.4
12.3%
$323.4
(2.0)
31.3
103.0
239.0
—
—
—
Q4
$2,677.0
$79.1
3.0%
$79.1
(0.1)
29.0
78.1
254.6
12.7
310.1
5.5
$660.5
25.9%
$647.3
25.1%
$698.7
$769.2
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.
V
Adjusted Operating Margin
Below is a reconciliation of adjusted operating margin to
operating margin on a GAAP basis. Operating margin and
adjusted operating margin are calculated by dividing operating
income and adjusted operating income, respectively, by
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.
Year Ended 30 September
Sales
Operating income
Operating margin
Operating income
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation (income) expense
Adjusted operating income
Adjusted operating margin
2020
$8,856.3
2,237.6
25.3%
$2,237.6
—
—
—
(33.8)
$2,203.8
24.9%
2019
Change
$8,918.9
2,144.4
24.0%
130 bp
$2,144.4
29.0
25.5
(29.1)
—
$2,169.8
24.3%
60 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 disclosed items that we believe are not representative
of 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. 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.
Year Ended 30 September
2020 2019
2018
2017
2016
2015
2014
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
Company headquarters relocation (income) expense
Gain on land sales
India Finance Act 2020
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
Change GAAP
Diluted EPS $ change
Diluted EPS % change
Change Non-GAAP
Adjusted diluted EPS $ change
Adjusted diluted EPS % change
Air Products | 2020 Annual Report
VI
$8.55
—
—
—
—
—
—
—
—
(0.12)
—
(0.06)
—
—
—
—
—
—
—
—
$8.38
$7.94
—
0.10
—
—
0.08
—
(0.13)
—
—
—
—
—
0.02
—
(0.06)
0.26
—
—
—
$8.21
$6.59
(0.08)
—
—
—
—
—
—
—
—
—
—
—
0.15
—
2.16
(0.25)
(0.96)
(0.16)
—
$7.45
$5.16
—
—
0.12
(0.02)
0.49
0.70
—
—
—
(0.03)
—
0.36
0.03
—
—
—
—
—
(0.50)
$6.31
$5.04
—
—
0.21
0.24
0.11
—
—
—
—
—
—
—
0.02
0.02
—
—
—
—
—
$5.64
$4.29
—
—
0.03
—
0.61
—
—
(0.05)
—
(0.13)
—
—
0.06
0.07
—
—
—
—
—
$4.88
$3.24
—
—
—
—
0.03
1.27
—
—
—
—
—
—
0.02
—
—
—
—
—
(0.14)
$4.42
$0.61
8% 20% 28% 2% 17% 32%
$ 0.75
$ 1.43
$0.12
$1.05
$1.35
$0.17
$0.76
$0.76
2% 10% 18% 12% 16%
$0.67
$1.14
$0.46
10%
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)
Net income
2020
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
$494.7
$457.1
$490.4
$488.9
$518.7
$500.2
$433.5
$357.0
Total liabilities and equity
25,168.5
24,782.1
19,501.2
19,651.6
18,942.8
19,531.9
19,244.5
19,142.0
19,178.3
Four-Quarter Trailing Net Income $1,931.1
Five-Quarter Average Total
Liabilities and Equity
ROCE (GAAP Basis)
ROCE (GAAP Basis) change
21,609.2
8.9%
(50) bp
ROCE (Non-GAAP Basis)
$1,809.4
19,207.9
9.4%
Net income
$494.7
$457.1
$490.4
$488.9
$518.7
$500.2
$433.5
$357.0
Loss from discontinued
operations, net of tax
Interest expense
Facility closure
Cost reduction actions
Gain on exchange of equity
affiliate investments
Company headquarters relocation
(income) expense
India Finance Act 2020
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to
deemed foreign dividends
—
39.2
—
32.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Tax other(A)
(6.6)
(6.2)
14.3
19.3
—
—
—
(33.8)
(33.8)
—
—
—
24.1
—
18.7
—
30.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34.2
—
25.5
(29.1)
—
—
—
3.2
—
—
35.4
—
—
—
—
—
5.0
—
—
(3.7)
(6.1)
(12.8)
(8.2)
—
37.3
29.0
—
—
—
—
—
(15.6)
56.2
(17.0)
Return After-Tax (Non-GAAP Basis) $527.3
$483.0
$480.5
$503.9
$542.7
$521.2
$465.7
$446.9
Total Capital
Total liabilities and equity
$25,168.5 $24,782.1
$19,501.2
$19,651.6
$18,942.8
$19,531.9 $19,244.5
$19,142.0 $19,178.3
Less: Payables and accrued
liabilities
1,833.2
1,668.5
1,649.1
1,630.0
1,635.7
1,543.2
1,513.7
1,738.3
1,817.8
Less: Accrued income taxes
105.8
83.6
90.4
113.4
Less: Other noncurrent liabilities
1,916.0
1,866.9
1,881.0
1,826.7
Less: Deferred income taxes
962.6
942.0
844.4
810.5
86.6
1,712.4
793.8
65.6
70.7
111.9
59.6
1,553.6
1,560.5
1,551.6
1,536.9
823.2
805.4
768.9
775.1
Capital Employed
(Non-GAAP Basis)
Four-Quarter Trailing Return
After-Tax—Non-GAAP
Five-Quarter Average Capital
Employed—Non-GAAP
ROCE (Non-GAAP Basis)
$20,350.9 $20,221.1
$15,036.3
$15,271.0
$14,714.3
$15,546.3 $15,294.2
$14,971.3 $14,988.9
$1,994.7
17,118.7
11.7%
$1,976.5
15,103.0
13.1%
ROCE (Non-GAAP Basis) change
(140) bp
(A) Represents the tax impact on interest expense and our pre-tax non-GAAP adjustments.
VII
To our shareholders
My fellow shareholders:
Over the past six years, we have transformed Air Products into the best
performing industrial gas company in the world. By executing our strategic
Five-Point Plan, we are creating sustainable growth opportunities that deliver
value to our shareholders, customers, employees and communities around the
world.
In 2020, the world faced unprecedented challenges due to the COVID-19
pandemic. I am very proud of the dedicated team of more than 19,000
employees at Air Products who kept our 750+ plants running, supplied our
customers with essential products, executed significant projects and improved
our profitability, all under very challenging conditions.
Despite the challenges, we delivered strong financial results, as you can see
below. Our on-site business—which represents about half of our sales—
continued to deliver stable cash flow. Our business model supports and enables
our strong financial position. We continued to execute on our gasification,
carbon capture and hydrogen for mobility growth strategy, and we successfully
raised about $5 billion of debt to ensure we are ready for even more profitable
growth opportunities. Meanwhile, we returned about $1.1 billion to our
shareholders through our dividend, which we increased for the 38th consecutive
year.
Seifi Ghasemi
Chairman, President and
Chief Executive Officer of
Air Products
Adjusted earnings
per share trend*
Adjusted EBITDA margin trend*
Up over 1,500 basis points
$9.00
$8.50
$8.00
$7.50
$7.00
$6.50
$6.00
$5.50
$5.00
$4.50
$4.00
+2%
+10%
+18%
11% CAGR
+12%
+16%
+10%
44%
42%
40%
38%
36%
34%
32%
30%
28%
26.5%
26%
25.1%
42.7%
41.9%
40.1% 40.3% 40.3%
40.4%
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%
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
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
Q1
20
Q2
20
Q3
20
Q4
20
24%
* Amounts are non-GAAP financial measures. See reconciliation to GAAP results on pages III-VII.
Air Products | 2020 Annual Report
VIII
Fiscal 2020 Performance
Our fiscal 2020 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 website, which highlight our achievements and plans for the future.
One specific area I want to highlight is safety, which is always our highest
priority. Although our safety record improved in fiscal 2020, with a 63
percent improvement in the employee lost-time injury rate and 31 percent
improvement in the employee recordable injury rate since fiscal 2014, we did
not achieve our ultimate goal: zero incidents and accidents.
Safety is a moral responsibility, and our people know that the challenges of
COVID-19 cannot distract us from that ultimate goal.
Making Our Dream a Reality
I do not like 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 for Air Products to be the leader in providing
solutions to the world’s environmental challenges through:
• 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.
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 . . .
. . . a company that is focused on innovation to solve the substantial
environmental issues facing all humanity . . .
. . . 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.
I am proud to say
that we have
continued to create
and win projects
that help customers
and countries meet
their growing needs
for cleaner energy
and environmental
solutions. In doing
so, we are making
our dream a reality.
IX
To our shareholders continued
Making Our Dream a Reality in Fiscal 2020
$7 billion NEOM project | Announced the
NEOM project, which will enable Air Products
to supply carbon-free hydrogen to power
buses and trucks by 2025 and eliminate three million
tons-per-year of CO2 emissions and smog-forming
emissions and other pollutants from the equivalent of
more than 700,000 cars.
O H
H
H C
H
$2 billion Indonesia project |
Signed a long-term on-site contract for a
world-scale coal-to-methanol production
facility in Indonesia, supporting energy independence
and enabling the production of nearly two million
tons-per-year of methanol.
Largest-ever U.S. investment (Texas) |
Announced our largest-ever U.S. investment
for the Gulf Coast Ammonia project in Texas.
Multiple on-site projects for electronics
customers | Completed multiple on-site
projects for electronics manufacturers in
China and Malaysia.
Construction of 3 nitrogen plants
(The Netherlands) | Began construction of
three nitrogen plants to condition imported
natural gas for Gasunie supporting a national
energy project in Groningen, Netherlands.
Steam methane reformer and cold box
(Louisiana) | Brought onstream a steam
methane reformer and cold box to supply
products to our U.S. Gulf Coast pipeline in Louisiana.
Acquisition of 5 operating U.S.
hydrogen plants | Completed the
acquisition of five operating U.S. hydrogen
plants and supplied hydrogen to PBF Energy in
California and Delaware.
World-leading LNG process
technology | Selected to supply our
world-leading LNG process technology and equipment
for Mozambique’s first onshore LNG project; Qatargas’
massive LNG production expansion project in Ras Laffan,
State of Qatar; and Sonatrach’s GL1Z LNG facility in
Arzew, Algeria.
Higher Purpose
We obviously are committed to delivering superior
financial performance, but our people also know they
are supporting a higher purpose in the work they do
every day. Our higher purpose at Air Products is to bring
people around the world together, so that they can, in an
open environment, collaborate and innovate solutions to
some of the most significant energy and environmental
challenges we all face.
As we deploy these sustainable solutions alongside our
customers, we also continue to make commitments to
further improve our own sustainability performance. We
announced our “Third by ’30” carbon intensity reduction
goal, focused on reducing carbon dioxide emissions
relative to the amount of energy that we are delivering
to the world. The goal is fully aligned with our business
strategy, is near-term and measurable, and holds us
accountable for delivering.
Air Products | 2020 Annual Report
X
We also announced new goals to further drive diversity
and build our culture where people feel they belong
and matter. We will aim to achieve at least 28 percent
female representation globally, and at least 20 percent
minority representation in the U.S. in our professional
and managerial population by 2025. Our growth projects
give us a unique opportunity to bring diverse talent
into our company. As we measure our progress, we will
continually stretch and drive for further improvement.
Our Higher Purpose:
Bringing people together to
collaborate and innovate solutions
to the world’s most significant energy and
environmental sustainability challenges.
Acknowledgments
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 innovating alongside you, we serve our higher purpose –
supplying products that benefit the environment and help you be more efficient and
sustainable. Thank you for your continued confidence and trust in us.
To our employees . . . Through your dedication and commitment, you continue to play
a critical role and make a difference to the world every day, and especially during these
challenging times.
To our shareholders . . . As always, thank you for your confidence and trust in
Air Products. Our priority remains creating superior value for you.
Despite significant uncertainty in the global economy and ongoing challenges from
COVID-19, we continue to deliver value through our stable business model, financial
position, exciting growth opportunities, and most importantly, our continuing
commitment and dedication to stand together and work together to make a difference
for our world.
Seifi Ghasemi
Chairman, President and
Chief Executive Officer of Air Products
XI
Board of Directors
Susan K. Carter
Retired 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.
Lisa A. Davis
Former Member of the Managing Board of
Siemens AG and Former Chair and CEO of
Siemens Corporation USA.
Director of the Company since 2020.
Chadwick C. (Chad) Deaton
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.
Edward L. Monser
(Lead Director)
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 and
Chief Operating Officer
For more information about corporate
governance practices at Air Products,
visit our Governance website at
www.airproducts.com/company/governance.
Air Products | 2020 Annual Report
XII
Table of Contents
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 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
or
Commission file number 001-04534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
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) (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
Common Stock, par value $1.00 per share
0.375% Euro Notes due 2021
1.000% Euro Notes due 2025
0.500% Euro Notes due 2028
0.800% Euro Notes due 2032
Trading Symbol(s)
APD
APD21B
APD25
APD28
APD32
Name of each exchange on which registered
New York Stock Exchange
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).
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
Yes ☒
Yes ☐
No ☐
No ☒
Yes ☒
No ☐
Yes ☒
No ☐
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
☐
☒
Yes ☐
No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant on 31 March 2020 was approximately $44.0 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 2020 was 221,026,592.
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on 28 January 2021 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 2020
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 . . . . . . . . . . . . . . . .
4
9
16
16
17
17
18
20
21
48
50
118
119
119
119
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120
120
120
120
120
121
125
2
Table of Contents
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,” "future," “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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the duration and impacts of the novel coronavirus (“COVID-19”) global pandemic and efforts to contain its
transmission, including the effect of these factors on our business, our customers, economic conditions and
markets generally;
changes in global or regional economic conditions, supply and demand dynamics in the market segments we
serve, or in the financial markets that may affect the availability and terms on which we may obtain financing;
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;
our ability 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, public health crises, acts of war, or terrorism;
the impact on our business and customers 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;
3
Table of Contents
FORWARD-LOOKING STATEMENTS (CONTINUED)
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.
•
•
•
•
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. We are the world’s largest supplier of hydrogen and have built leading positions in growth
markets such as helium and liquefied natural gas ("LNG") process technology and equipment. We also develop,
engineer, build, own and operate 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, carbon capture projects, and world-scale carbon-free hydrogen projects supporting global transportation
and the energy transition.
As used in this report, unless the context indicates otherwise, the terms “we,” “our,” “us,” the “Company,” "Air
Products," or “registrant” include controlled subsidiaries, affiliates, and predecessors of Air Products and our
controlled subsidiaries and affiliates.
During the fiscal year ended 30 September 2020 (“fiscal year 2020”), we reported our continuing operations in five
reporting segments under which we managed our 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 our business below reflects our continuing operations. Refer to Note
6, Discontinued Operations, to the consolidated financial statements for activity associated with discontinued
operations.
Industrial Gases Business
Our Industrial Gases business produces atmospheric gases, such as oxygen, nitrogen, and argon, process gases,
such as hydrogen, helium, carbon dioxide (CO2), 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
CO2 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.
4
Table of Contents
Our 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 as well as in the developing mobility markets. 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.
Industrial gases are generally produced at or near the point of use given the complexity and inefficiency with storing
molecules at low temperatures. Helium, however, is generally sourced globally, at long distances from point of sale.
As a result, we maintain an inventory of helium stored in our fleet of ISO containers as well as the U.S. Bureau of
Land Management underground storage facility in Amarillo, Texas.
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 that we typically design and install 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. We operate
packaged gas businesses in Europe, Asia, and Latin America. In the United States, our 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. We also deliver 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 2020, no significant difficulties were encountered in obtaining adequate supplies of
power and natural gas.
We obtain 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 share of 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 China, India, Italy, Mexico, Saudi Arabia, South Africa, and Thailand.
5
Table of Contents
Each of the regional Industrial Gases segments competes against three global industrial gas companies: Air Liquide
S.A., Messer 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 94%, 96%, and 94% of consolidated sales in fiscal
years 2020, 2019, and 2018, respectively. Sales of atmospheric gases constituted approximately 47%, 46%, and
46% of consolidated sales in fiscal years 2020, 2019, and 2018, respectively, while sales of tonnage hydrogen,
syngas, and related products constituted approximately 22%, 26%, and 25% of consolidated sales in fiscal years
2020, 2019, and 2018, respectively.
Industrial Gases Equipment
We design and manufacture equipment for air separation, hydrocarbon recovery and purification, natural gas
liquefaction, and liquid helium and liquid hydrogen transport and storage. The Industrial Gases – Global segment
includes activity related to the sale of 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 our 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 6%, 4%, and 6% of consolidated sales in fiscal years 2020, 2019, and
2018, respectively.
The backlog of equipment orders was approximately $1.6 billion on 30 September 2020 (as compared to a total
backlog of approximately $0.9 billion on 30 September 2019). We estimate that approximately 50% of the total
equipment sales backlog as of 30 September 2020 will be recognized as revenue during fiscal year 2021,
dependent on execution schedules of the relevant projects.
International Operations
Through our subsidiaries, affiliates, and joint ventures accounted for using the equity method, we conduct business
in 53 countries outside the United States. Our 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.
We have majority or wholly owned foreign subsidiaries that operate in Canada; 18 European countries (including
the Netherlands, Spain, and the United Kingdom); 11 Asian countries (including China, South Korea, and Taiwan);
seven Latin American countries (including Brazil and Chile); six countries in the Middle East (including Saudi
Arabia), and three African countries. We also own 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 our foreign operations and investments is included in Note 8, Summarized Financial
Information of Equity Affiliates; Note 22, Income Taxes; and Note 25, Business Segment and Geographic
Information, to the consolidated financial statements included under Item 8, below. Information about foreign
currency translation is included under “Foreign Currency” in Note 1, Major Accounting Policies, and information on
our exposure to currency fluctuations is included in Note 13, Financial Instruments, to the consolidated financial
statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under Item 7A,
below.
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Technology Development
We pursue 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), the United Kingdom (Basingstoke and
Carrington), Spain (Barcelona), China (Shanghai), and Saudi Arabia (Dhahran). We also fund and cooperate in
research and development programs conducted by a number of major universities and undertake research work
funded by others, including the United States government.
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.
During fiscal year 2020, we owned approximately 850 United States patents, approximately 3,600 foreign patents,
and were a licensee under certain patents owned by others. While the patents and licenses are considered
important, we do not consider our business as a whole to be materially dependent upon any particular patent,
patent license, or group of patents or licenses.
Environmental Regulation
We are subject to various environmental laws and regulations in the countries in which we have operations.
Compliance with these laws and regulations results in higher capital expenditures and costs. In the normal course of
business, we are involved in legal proceedings under the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA," the federal Superfund law); Resource Conservation and Recovery Act ("RCRA"); and
similar state and foreign environmental laws relating to the designation of certain sites for investigation or
remediation. Our accounting policy for environmental expenditures is discussed in Note 1, Major Accounting
Policies, and environmental loss contingencies are discussed in Note 17, Commitments and Contingencies, to the
consolidated financial statements, included under Item 8, below.
Some of our operations are within jurisdictions that have or are developing regulatory regimes governing emissions
of greenhouse gases (“GHG”), including CO2. 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 the Netherlands, a CO2 emissions tax will come into
force on 1 January 2021. In Canada, Alberta’s Technology Innovation and Emission Reduction (“TIER”) System
went into effect 1 January 2020. In Ontario, Environment & Climate Change Canada’s ("ECCC”) Output Based
Pricing System (“OBPS”) is currently in effect, however, on 20 September 2020, ECCC granted approval of
Ontario’s GHG Emissions Performance Standards program, which will be used in lieu of adherence to the OBPS,
with the effective date to be determined. 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 emissions. 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 see significant
opportunities for gasification, carbon capture technologies and hydrogen for mobility and energy transition.
We estimate that we spent approximately $4 million, $5 million, and $3 million in fiscal years 2020, 2019, and 2018,
respectively, on capital projects reflected in continuing operations to control pollution. Capital expenditures to control
pollution are estimated to be approximately $6 million in both fiscal years 2021 and 2022.
For additional information regarding environmental matters, refer to Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Environmental Matters” and Note 17, Commitments and
Contingencies, to the consolidated financial statements.
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Employees
We believe our employees are our most valuable asset and are critical to our success as an organization. Our goal
is to be the safest, most diverse and most profitable industrial gas company in the world, providing excellent service
to our customers. Integral to our success is the continued development of our 4S culture (Safety, Speed, Simplicity
and Self-Confidence) and creating a work environment where all employees feel that they belong and matter. Our
talent related initiatives, including employee recruitment and development, diversity and inclusion and compensation
and benefit programs, are focused on building and retaining the world-class and talented staff that is needed to
meet our goals.
On 30 September 2020 we had approximately 19,275 employees, of whom approximately 19,000 were full-time and
of whom approximately 14,150 were located outside the United States. We have collective bargaining agreements
with unions at certain locations that expire on various dates over the next four years. We consider relations with our
employees to be good.
We value the contributions of our employees, particularly in the face of the challenges posed by the COVID-19
pandemic. Many of our employees are on the front line during the pandemic, keeping our plants running and
delivering to our customers the products they need. When possible, employees have been working from home to
help maintain their health and safety as well as business continuity. We have not laid off any of our employees or
reduced their salaries due to COVID-19.
In October 2020, we announced goals to further increase the percentage of women and U.S. minorities in
professional and managerial roles. By 2025, we aim to achieve at least 28 percent female representation in the
professional and managerial population globally, and at least 20 percent minority representation in that same
population in the United States. These measures are increases from 25 and 17 percent representation (2020
baseline), respectively. We established these new targets following analysis of our global employee representation
metrics and future talent needs, as well as assessing industry benchmarks and peer companies.
Seasonality
Our businesses are not subject to seasonal fluctuations to any material extent.
Inventories
We maintain 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 we are required to
file with the Securities and Exchange Commission ("SEC"), including our 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
our website at www.airproducts.com. Such documents are available as soon as reasonably practicable after
electronic filing of the material with the SEC. All such reports filed during the period covered by this report were
available on our 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.
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Our Executive Officers
Our executive officers and their respective positions and ages on 19 November 2020 follow. Information with
respect to offices held is stated in fiscal years.
Name
M. Scott Crocco
Seifi Ghasemi
Sean D. Major
Office
Age
56 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).
76 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.
56 Executive Vice President, General Counsel and Secretary (Executive Vice President
and General Counsel since May 2017 and Secretary since December 2017).
Previously, Mr. Major served as Executive Vice President, General Counsel and
Secretary for Joy Global Inc. from 2007 to 2017.
Dr. Samir J. Serhan
59 Executive Vice President and Chief Operating Officer (Executive Vice President since
December 2016 and Chief Operating Officer since May 2020). Dr. Serhan served as
President, Global HyCO, from 2014 to 2016 for Praxair Inc. From 2000-2014, he
worked in leadership positions in the U.S. and Germany for The Linde Group,
including as Managing Director of Linde Engineering from 2008-2014.
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 carefully consider the risk factors discussed below. Any of
these 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 securities. In addition to the following risks, 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.
Risks Related to Economic Conditions
The COVID-19 global pandemic may materially and adversely impact our business, financial condition and results
of operations.
The COVID-19 global pandemic and efforts to reduce its spread have led to a significant decline of economic
activity and significant disruption and volatility in global markets. These factors have led to reduced demand for
industrial gas products, particularly in our merchant business. We expect demand to continue to be impacted as
well as the timing of certain planned maintenance activities. In addition, COVID-19 may result in reduced sales in
our other businesses, lower returns for certain of our projects, and the potential delay or cancellation of certain
projects in our pipeline. In addition, we are monitoring the health of our employees and many of our employees,
including those based at our headquarters, are working remotely in accordance with health safety guidance and
applicable governmental orders. Action by health or other governmental authorities requiring the closure of our
facilities or recommending other physical distancing measures could negatively impact our business and those of
our service providers and customers. Although we have business continuity and other safeguards in place, we
cannot be certain that they will be fully effective for extended periods of time. As the pandemic and responses to it
continue to evolve we may experience further adverse impacts on our operations and our ability to access capital on
favorable terms, or at all, may be impaired. In addition, we may face unpredictable increases in demand for certain
of our products when restrictions on business and travel end. If demand for our products exceeds our capacity, it
could adversely affect our financial results and customer relationships. Although the duration and ultimate impact of
these factors is unknown at this time, the decline in economic conditions due to COVID-19, or another disease-
causing similar impacts, may adversely affect our business, financial condition and results of operations and such
impact may be material.
Further, to the extent COVID-19 adversely affects our business, financial condition, and results of operations and
global economic conditions more generally, it may also have the effect of heightening many of the other risks
described herein.
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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, including most recently due to COVID-19, 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.
In addition, our operating results in one or more segments may 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 reduce demand for our products and services,
and impair the ability of such customers to satisfy their obligations to us, resulting in uncollected receivables,
unanticipated contract terminations, project delays or the 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 defaults or other
inabilities to operate facilities profitably and may force sale or abandonment of facilities and equipment or prevent
projects from coming on-stream when expected. These or other events associated with weak economic conditions
or specific 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 2020, 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 markets such as China, India, Indonesia, 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, which we believe to have 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. In addition, our properties and contracts in these locations may be
subject to seizure and cancellation, respectively, without full compensation for loss. Successful operation of
particular facilities or execution of projects may be disrupted by civil unrest, acts of war, 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.
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Furthermore, 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.
Risks Related to Our Business
Operational and project execution risks, particularly with respect to our largest projects, may adversely affect our
operations or financial results.
A significant and growing portion of our business involves gasification and other large-scale projects that involve
challenging engineering, procurement and construction phases that may last up to several years. These projects
are technically complex, often reliant on significant interaction with government authorities and face significant
financing, development, operational and reputational 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,
supply difficulties, geopolitical risks 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 financing for 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, suppliers and other third parties, any of which could adversely affect our ability to secure new projects in
the future.
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, unplanned 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.
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Further, we cannot guarantee that our internal controls and compliance systems will always protect us from acts
committed by employees, agents, business partners or that businesses that we acquire would not 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 U.S. 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 indemnification provisions.
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 our internal controls environment and financial reporting 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 internal controls
environment and internal controls over financial reporting. Each of these consequences could adversely affect our
business, reputation and our financial statements.
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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.
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. Additionally, there is
also a risk that our new technologies may become obsolete and replaced by other market alternatives. 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.
Protecting our intellectual property is critical to our technological development and we may suffer competitive harm
from infringement on such rights.
As we develop new technologies, it is critical that we protect our intellectual property assets against third-party
infringement. We own a number of patents and other forms of intellectual property related to our products and
services. As we develop new technologies there is a risk that our patent applications may not be granted, or we may
not receive sufficient protection of our proprietary interests. We may also expend considerable resources in
defending our patents against third-party infringement. It is critical that we protect our proprietary interests to
prevent competitive harm.
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Legal and Regulatory Risks
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 GHG emissions, including CO2, which may lead to direct and indirect costs
on our operations. Furthermore, some jurisdictions have various mechanisms to target the power sector to achieve
emission reductions, which often result in higher power costs.
Increased public concern and governmental action may result in more international, U.S. federal and/or regional
requirements to reduce or mitigate the effects of GHG emissions. 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 or governmental action that limits or taxes GHG emissions
could negatively impact our growth, increase our operating costs, or reduce demand for certain of our products.
Our financial results may be affected by various legal and regulatory proceedings, including 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 adverse 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 our financial results. For a more detailed description of these matters, see Item 1, Business–
Environmental Regulation, above.
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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. Our 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 accumulated, unremitted
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.
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.
General Risk Factors
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, pandemics, 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, customers and
partners, 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.
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 overall.
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 competitors 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.
15
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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; Medellin, Colombia; and Santiago, Chile. We lease the
principal administrative offices in Shanghai, China; Pune, India; Vadodara, India; and Dhahran, Saudi Arabia. We
lease administrative offices in the United States, Canada, Spain, Malaysia, and China for our Global Business
Support organization. In addition, we are currently constructing new administrative offices and a co-located research
and development facility in Trexlertown, Pennsylvania in preparation for re-location of our principal offices to the
nearby site.
Descriptions of the properties used by our five business segments are provided below. 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 425 production and distribution facilities in North and South
America. Approximately 25% of these facilities are located on owned property and 10% are integrated sites that
serve dedicated customers as well as merchant customers. We have 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, Medellin, and Santiago offices
referred to above, and at 12 leased properties located throughout North and South America.
We built hydrogen fueling stations that 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 200 production and distribution facilities in Europe, the Middle
East, India, and Africa, approximately one-third of which are on owned property. We have 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 15 leased local office sites, located
throughout the region.
Industrial Gases – Asia
This business segment currently operates from over 211 production and distribution facilities within Asia,
approximately 25% of which are on owned property or long-duration term grants. We have 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 30 leased office locations throughout the region.
Industrial Gases – Global
Management, sales, and engineering support for this business segment is based in our principal administrative
offices noted above.
Equipment is manufactured in Missouri in the United States and Shanghai, China.
Research and development activities for this business segment are conducted at owned locations in the United
States, the United Kingdom, and Spain, and three leased locations in Europe and Asia.
Helium is processed at multiple sites in the United States and then distributed to and from transfill sites globally.
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Corporate and other
Corporate administrative functions are based in our 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.
The Gardner Cryogenic business operates at facilities in Pennsylvania and Kansas in the United States.
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, we and our 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.
We are 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 we, along with others, have 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 our environmental exposure is included under Item 1, Business–Environmental
Regulation, and Note 17, Commitments and Contingencies, to the consolidated financial statements.
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 $32 million at 30 September
2020) 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 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. 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.
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.
Additional information on our legal proceedings can be found in Note 17, Commitments and Contingencies, to the
consolidated financial statements.
Item 4. Mine Safety Disclosures.
Not applicable.
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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 2020,
there were 4,957 record holders of our common stock.
Cash dividends on our 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 2020 and 2019 is summarized below:
Fourth quarter
Third quarter
Second quarter
First quarter
Total
2020
$1.34
$1.34
$1.34
$1.16
$5.18
2019
$1.16
$1.16
$1.16
$1.10
$4.58
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 Exchange Act through repurchase agreements established with one or more
brokers. There were no purchases of stock during fiscal year 2020. At 30 September 2020, $485.3 million in share
repurchase authorization remained. Additional purchases will be completed at our discretion while maintaining
sufficient funds for investing in businesses and growth opportunities.
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Performance Graph
The performance graph below compares the five-year cumulative returns of our 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.
Sept 2015 Sept 2016 Sept 2017 Sept 2018 Sept 2019 Sept 2020
Air Products & Chemicals, Inc.
S&P 500 Index
S&P 500 Materials Index
100
100
100
120
115
122
134
137
148
153
161
154
208
168
158
285
194
178
19
COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER RETURNAir Products & Chemicals, Inc., S&P 500 Index, and S&P 500 Materials IndexComparative Growth of a $100 Investment(Assumes Reinvestment of All Dividends)Air Products & Chemicals, Inc.(APD)S&P 500 Index(SPX)S&P 500 Materials Index(S5MATR)Sept 2015Sept 2016Sept 2017Sept 2018Sept 2019Sept 20205075100125150175200225250275300 Table of Contents
Item 6. Selected Financial Data.
(Millions of dollars, except for share and per share data)
Sales
Operating income
Operating margin
Equity affiliates’ income(A)
Net income(B)
Net income margin
Income from continuing operations
2020
$8,856
2,238
25.3 %
265
2019
2018
2017
2016
$8,919
$8,930
$8,188
$7,504
2,144
1,966
1,440
1,535
24.0 %
22.0 %
17.6 %
20.5 %
215
175
80
1,931
1,809
1,533
3,021
147
662
21.8 %
20.3 %
17.2 %
36.9 %
8.8 %
1,945
1,809
1,491
1,155
1,122
Basic earnings per common share from continuing operations
Diluted earnings per common share from continuing operations
8.59
8.55
7.99
7.94
6.64
6.59
5.20
5.16
5.08
5.04
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)
$8.38
3,620
40.9 %
5.18
25,169
7,908
$8.21
$7.45
$6.31
$5.64
3,468
3,116
2,799
2,622
38.9 %
34.9 %
34.2 %
34.9 %
4.58
4.25
3.71
3.39
18,943
19,178
18,467
18,029
3,326
3,813
3,963
5,211
(A)
(B)
(C)
(D)
(E)
Fiscal year 2020 included a benefit of $34 related to legislation passed by the Indian government in the second quarter. Fiscal year 2018
included an expense of $29 related to the U.S. Tax Cuts and Jobs Act. 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.
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
of $847 related to the exit of Energy-from-Waste, partially offset by income from operations of the former Electronic Materials and
Performance Materials divisions.
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 32. 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 33.
Total assets as of 30 September 2020 was impacted by proceeds from the issuance of U.S. Dollar- and Euro-denominated fixed-rate notes
in the third quarter of fiscal year 2020. Total assets as of 30 September 2017 and 2016 included those associated with continuing and
discontinued operations.
Total debt includes long-term debt and current portion of long-term debt, including debt owed to related parties, and short-term borrowings
as of the end of the fiscal year for continuing operations. Long-term obligations increased in fiscal year 2020 due to the issuance of U.S.
Dollar- and Euro-denominated fixed-rate notes in the third quarter. 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.
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Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview............................................................................................................................................
2020 in Summary...............................................................................................................................................
2021 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.................................................................................................................................
22
22
24
24
31
35
38
40
41
41
41
41
42
48
This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995, including statements about business outlook. These forward-
looking statements are based on management’s expectations and assumptions as of the date of this Annual Report
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 2020 and 2019. For the discussion of changes from fiscal year 2018 to fiscal year 2019 and other
financial information related to fiscal year 2018, refer to Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, of our Form 10-K for the fiscal year ended 30 September 2019. This
document was filed with the SEC on 26 November 2019.
The following discussion should be read in conjunction with the consolidated financial statements and the
accompanying notes contained in this Annual Report. Unless otherwise stated, financial information is presented in
millions of dollars, except for per share data. Except for net income, which includes the results of discontinued
operations, financial information is presented on a continuing operations basis.
The financial measures 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 an "adjusted,"
or "non-GAAP," basis because we believe such measures, when viewed together with financial results computed in
accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical
financial performance. For each non-GAAP financial measure, including adjusted diluted earnings per share
("EPS"), adjusted EBITDA, adjusted EBITDA margin, 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 beginning on page 31.
In March 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global
pandemic and recommended containment and mitigation measures worldwide. In response to COVID-19, we
implemented certain health and safety policies to help keep our employees, contractors, customers, and
communities safe while continuing to run our facilities, which generally have been considered "essential" by local
governments and public health authorities. In compliance with government protocols, our non-essential employees
were instructed to work from home until government mandated restrictions allow for a return to the workplace.
Those working and visiting our sites are required to follow appropriate procedures, including completion of trainings
and performance of self- and on-site screenings, as well as adhere to our personal protective equipment, social
distancing, and personal hygiene protocols.
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BUSINESS OVERVIEW
Air Products and Chemicals, Inc. is a world-leading industrial gases company that has been in operation for 80
years. Focused on serving energy, environment and emerging markets, we provide 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. We develop, engineer, build, own and operate
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 50 countries, in fiscal year 2020 we had sales of $8.9 billion and assets of $25.2 billion.
Approximately 19,275 passionate, talented and committed full- and part-time employees from diverse backgrounds
are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance
sustainability and address the challenges facing customers, communities, and the world.
As of 30 September 2020, 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 25,
Business Segment and Geographic Information, to the consolidated financial statements for additional details on
our reportable business segments.
2020 IN SUMMARY
In fiscal year 2020, our number one priority was the safety and well-being of our people. Since the beginning of the
COVID-19 pandemic, we have kept our global plants running, supplied critical products, and supported our local
communities during this time of need. We continued to win significant new growth projects around the world and
serve our customers, delivering stable results despite the significant health crisis facing the world. We also
remained focused on sustainability and our commitment to advancing diversity and inclusion. We set new goals that
are aligned with Air Products' business strategy and higher purpose to create innovative solutions that benefit the
environment, enhance sustainability, and address the challenges facing customers, communities, and the world.
Fiscal year 2020 results and highlights are summarized below:
•
Sales of $8,856.3 decreased 1%, or $62.6, as 3% higher pricing and 2% favorable volumes were more than
offset by 4% lower energy and natural gas cost pass-through to customers, 1% unfavorable currency, and the
1% impact of a contract modification to a tolling arrangement in India. We estimate that COVID-19 negatively
impacted our overall sales by approximately 4%, primarily driven by lower volumes in our merchant business in
the regional industrial gas segments.
• Operating income of $2,237.6 increased 4%, or $93.2, and operating margin of 25.3% increased 130 bp.
•
•
•
Net income of $1,931.1 increased 7%, or $121.7, and net income margin of 21.8% increased 150 bp.
Adjusted EBITDA of $3,619.8 increased 4%, or $151.8, and adjusted EBITDA margin of 40.9% increased 200
bp.
Diluted EPS of $8.55 increased 8%, or $0.61, and adjusted diluted EPS of $8.38 increased 2%, or $0.17. We
estimate that COVID-19 negatively impacted our fiscal year 2020 EPS by approximately $0.60-$0.65 per share.
A summary table of changes in diluted EPS is presented below.
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Fiscal year 2020 results and highlights (continued):
• We increased our quarterly dividend by over 15% from $1.16 to $1.34 per share, representing the largest
dividend increase in our 80-year history. This is the 38th consecutive year that we have increased our quarterly
dividend payment.
• We successfully executed a debt offering of approximately $5 billion during the third quarter, supporting
significant opportunities to invest in high-return industrial gas projects and the repayment of upcoming debt
maturities. The issuance included both U.S. Dollar- and Euro-denominated fixed-rate notes.
Changes in Diluted EPS Attributable to Air Products
The per share impacts presented in the table below were calculated independently and may not sum to the total
change in diluted EPS due to rounding.
Year Ended 30 September
Diluted EPS
Total Diluted EPS
Less: Diluted EPS from loss from discontinued operations
Diluted EPS From Continuing Operations
Operating Impacts
Underlying business
Volume
Price, net of variable costs
Other costs
Currency
Facility closure
Company headquarters relocation income (expense)
Cost reduction actions
Gain on exchange of equity affiliate investments
Total Operating Impacts
Other Impacts
Equity affiliates' income
Interest expense
Other non-operating income (expense), net
Change in effective tax rate, excluding discrete items below
India Finance Act 2020
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Noncontrolling interests
Weighted average diluted shares
2020
2019
Increase
(Decrease)
$8.49
(0.06)
$8.55
$7.94
—
$7.94
$0.55
(0.06)
$0.61
($0.19)
0.77
(0.38)
(0.07)
0.10
0.12
0.08
(0.13)
$0.30
$0.06
0.10
(0.13)
0.04
0.06
(0.06)
0.26
0.02
(0.03)
$0.32
$0.61
Total Other Impacts
Total Change in Diluted EPS From Continuing Operations(A)
(A) Includes an estimated negative impact of $0.60-$0.65 from COVID-19. This estimate includes impacts on our sales, costs,
and equity affiliates' income.
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Year Ended 30 September
Diluted EPS From Continuing Operations
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation (income) expense
India Finance Act 2020
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Adjusted Diluted EPS From Continuing Operations
2020
$8.55
—
—
—
(0.12)
(0.06)
—
—
—
$8.38
2019
$7.94
0.10
0.08
(0.13)
—
—
0.02
(0.06)
0.26
$8.21
Increase
(Decrease)
$0.61
(0.10)
(0.08)
0.13
(0.12)
(0.06)
(0.02)
0.06
(0.26)
$0.17
2021 OUTLOOK
As COVID-19 continues, we remain focused on the safety and well-being of our people. We are committed to safely
maintaining plant operations and ensuring business continuity, including providing financial security for employees,
reliably supplying critical products and services to our customers, and winning new opportunities for world-scale
projects.
We expect lower volumes from COVID-19 to continue into fiscal year 2021 with recovery in demand depending on
the duration of COVID-19 and measures implemented by governments, public health authorities and businesses to
mitigate its spread. Given the dynamic nature of these circumstances, the future impact on our ongoing business,
results of operations, and overall financial performance cannot be reasonably estimated.
Despite the uncertainty of the duration of COVID-19, we will continue to focus on pricing discipline in our merchant
business and expect our onsite business model, which represents approximately half of our business, to continue
generating stable cash flow. This will allow us to execute our strategic focus on our industrial gas business and the
creation of long-term shareholder value, including the ongoing growth of our dividend, continued execution of
projects in our backlog, and new investments in high-return industrial gas projects.
A long-term onsite customer in Asia delayed restarting their plant following a planned major maintenance turnaround
completed in September 2020. While we expect the plant to restart in fiscal year 2021, we are negotiating with the
customer regarding contract terms that could impact sales in our Industrial Gases – Asia segment.
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
2020
2019
$ Change
Change
$8,856.3
$8,918.9
2,237.6
2,144.4
($62.6)
93.2
25.3 %
24.0 %
$264.8
1,931.1
$215.4
1,809.4
21.8 %
20.3 %
49.4
121.7
$3,619.8
$3,468.0
151.8
40.9 %
38.9 %
(1) %
4 %
130 bp
23 %
7 %
150 bp
4 %
200 bp
24
Table of Contents
Sales
Sales % Change from Prior Year
Volume
Price
Energy and natural gas cost pass-through
Currency
Other(A)
Total Consolidated Sales Change
(A)
2 %
3 %
(4) %
(1) %
(1) %
(1) %
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 $8,856.3 decreased 1%, or $62.6, as higher pricing of 3% and favorable volumes of 2% were more than
offset by lower energy and natural gas cost pass-through to customers of 4%, unfavorable currency of 1%, and the
impact from the India contract modification of 1%. The pricing improvement was attributable to our merchant
business across the regional segments. The volume growth exceeded the negative impacts from COVID-19 and
was primarily driven by acquisitions, new plants, and higher sale of equipment project activity. We estimate that
COVID-19 negatively impacted overall sales by approximately 4%, primarily driven by lower volumes in our
merchant business across the regional segments as our onsite business remained stable. Unfavorable currency
impacts were driven by the Chilean Peso, Chinese Renminbi, Euro, and South Korean Won.
Cost of Sales and Gross Margin
Cost of sales of $5,858.1 decreased 2%, or $146.4, from total cost of sales of $6,004.5 in the prior year, which
included the facility closure further discussed below. The decrease from the prior year was driven by lower energy
and natural gas cost pass-through to customers of $314, positive currency impacts of $73, the favorable impact
from the India contract modification of $41, and the prior year facility closure of $29, partially offset by higher costs
attributable to sales volumes of $250 and higher other costs, including planned maintenance, of $61. Gross margin
of 33.9% increased 120 bp from 32.7% in the prior year, primarily due to positive pricing, lower energy and natural
gas cost pass-through to customers, and the prior year facility closure, partially offset by unfavorable volume mix
and net operating costs.
Facility Closure
In fiscal year 2019, 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 $0.10 per share) primarily related to the
write-off of onsite assets. This charge was reflected as “Facility closure” on our consolidated income statements for
the fiscal year ended 30 September 2019 and was not recorded in segment results.
Selling and Administrative
Selling and administrative expense of $775.9 increased 3%, or $25.9, due to higher business development costs to
support our growth strategy and higher incentive compensation, partially offset by currency impacts and lower travel
expenses. Selling and administrative expense, as a percentage of sales, increased from 8.4% to 8.8%.
Research and Development
Research and development expense of $83.9 increased 15%, or $11.0, primarily due to higher product development
costs. Research and development expense as a percentage of sales increased from 0.8% to 0.9%.
Company Headquarters Relocation Income (Expense)
During the second quarter of fiscal year 2020, we sold property at our current corporate headquarters located in
Trexlertown, Pennsylvania, for net proceeds of $44.1. The sale was completed in anticipation of relocating our U.S.
headquarters and resulted in a gain of $33.8 ($25.6 after-tax, or $0.12 per share). This gain is reflected on our
consolidated income statements as "Company headquarters relocation income (expense)" for the fiscal year ended
30 September 2020 and was not recorded in segment results.
25
Table of Contents
Cost Reduction Actions
In fiscal year 2019, we recognized an expense of $25.5 ($18.8 after-tax, or $0.08 per share) for severance and
other benefits associated with position eliminations, primarily within the Industrial Gases – EMEA and the Industrial
Gases – Americas segments. This expense was reflected as "Cost reduction actions" on our consolidated income
statements for the fiscal year ended 30 September 2019 and was not recorded in segment results. Refer to Note 5,
Cost Reduction Actions, to the consolidated financial statements for additional information.
Gain on Exchange of Equity Affiliate Investments
In fiscal year 2019, we recognized a net gain of $29.1 ($0.13 per share) resulting from the exchange of two 50%-
owned industrial gas joint ventures in China. The net gain was reflected as "Gain on exchange of equity affiliate
investments" on our consolidated income statements for the fiscal year ended 30 September 2019 and was not
recorded in segment results. Refer to Note 3, Acquisitions, to the consolidated financial statements for additional
information.
Other Income (Expense), Net
Other income (expense), net of $65.4 increased 33%, or $16.1, primarily due to the adjustment of a benefit plan
liability resulting from a change in plan terms.
Operating Income and Margin
Operating income of $2,237.6 increased 4%, or $93.2, due to positive pricing, net of power and fuel costs, of $212,
income associated with the company headquarters relocation of $34, and prior year charges for a facility closure of
$29 and cost reduction actions of $26, partially offset by higher net operating costs of $104, including planned
maintenance, unfavorable volume mix of $55, a gain on the exchange of equity affiliates of $29 in the prior year, and
unfavorable currency of $20.
Operating margin of 25.3% increased 130 bp, primarily due to positive pricing, lower energy and natural gas cost
pass-through to customers, the impact of income associated with the company headquarters relocation, and prior
year charges for a facility closure and cost reduction actions, partially offset by unfavorable volume mix, higher
operating costs, and a gain on the exchange of two equity affiliates in the prior year.
Equity Affiliates’ Income
Equity affiliates' income of $264.8 increased 23%, or $49.4, primarily due to a current year benefit of $33.8 for the
release of our share of accumulated dividend distribution taxes related to an Indian affiliate as a result of the
enactment of a tax law in India. Refer to Note 22, Income Taxes, to the consolidated financial statements for
additional information. The current year also includes higher income from affiliates in India, Italy, and Saudi Arabia,
partially offset by negative impacts from COVID-19.
Interest Expense
Interest incurred
Less: Capitalized interest
Interest expense
2020
$125.2
15.9
$109.3
2019
$150.5
13.5
$137.0
Interest incurred decreased 17%, or $25.3. The prior year included an expense of $33.3 related to foreign currency
forward points and currency swap basis differences ("excluded components") of our cash flow hedges of
intercompany loans. As discussed in Note 2, New Accounting Guidance, to the consolidated financial statements,
we adopted new accounting guidance on hedging activities that changed the presentation of these items from
"Interest expense, net" to “Other non-operating income (expense), net” in fiscal year 2020. In addition to this
presentation change, interest incurred decreased due to lower expenses related to the Lu'An joint venture financing
and a lower average interest rate on the debt portfolio, partially offset by a higher debt balance due to the issuance
of debt during the third quarter of fiscal year 2020. Refer to Note 15, Debt, to the consolidated financial statements
for additional information. We expect interest expense to be higher in future periods due to this issuance.
Capitalized interest increased 18%, or $2.4, due to an increase in the carrying value of projects under construction.
26
Table of Contents
Other Non-Operating Income (Expense), Net
Other non-operating income of $30.7 decreased 54%, or $36.0, primarily due to an expense of $33.5 for the
excluded components of cash flow hedges of intercompany loans. These components were historically recorded in
"Interest expense" prior to the adoption of the guidance discussed above. The current year also included lower
interest income on cash and cash items. These factors were partially offset by higher non-service pension income
due to lower interest cost and higher expected asset returns, primarily for our U.S. pension plans. The prior year
includes a settlement loss of $5.0 ($3.8 after-tax, or $0.02 per share) associated with the U.S. Supplementary
Pension Plan.
Discontinued Operations
During the second quarter of fiscal year 2020, we recorded a pre-tax loss from discontinued operations of $19.0
($14.3 after-tax, or $0.06 per share) to increase our liability for retained environmental obligations associated with
the sale of our former Amines business in September 2006. Refer to the Pace discussion within Note 17,
Commitments and Contingencies, to the consolidated financial statements for additional information.
Net Income and Net Income Margin
Net income of $1,931.1 increased 7%, or $121.7, primarily due to higher pricing and income from the sale of
property at our current corporate headquarters. In addition, the prior year was negatively impacted by a facility
closure, cost reduction actions, and the U.S. Tax Cuts and Jobs Act. These factors were partially offset by higher
costs, including the after-tax loss from discontinued operations, unfavorable volume mix, and a gain on the
exchange of two equity affiliates in the prior year. Net income margin of 21.8% increased 150 bp, primarily due to
the factors noted above as well as lower energy and natural gas cost pass-through to customers.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA of $3,619.8 increased 4%, or $151.8, primarily due to higher pricing, partially offset by higher
operating costs. Adjusted EBITDA margin of 40.9% increased 200 bp, primarily due to the higher pricing and lower
energy and natural gas cost pass-through to customers, partially offset by unfavorable volume mix and higher
operating costs.
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 19.7% and 21.0% for the fiscal years ended 30 September 2020 and 2019, respectively.
The 2019 tax rate reflected a discrete net income tax expense of $43.8 related to impacts from the U.S. Tax Cuts
and Jobs Act (the “Tax Act”). The net expense included the reversal of a non-recurring $56.2 ($0.26 per share)
benefit recorded in 2018 related to the U.S. taxation of deemed foreign dividends. This was partially offset by a
benefit of $12.4 ($0.06 per share) to finalize our estimates of the impacts of the Tax Act and reduce the total
expected costs of the deemed repatriation tax. In addition, the net expense from the Tax Act was partially offset by
benefits from changes in valuation allowance recorded at various entities in 2019.
The lower current year rate reflects favorable impacts from higher benefits on the revaluation of deferred tax
accounts due to enacted changes in foreign tax law, changes in the tax profile of U.S. entities in various state
jurisdictions, and higher excess tax benefits on share-based compensation. These items were partially offset by the
enactment of the India Finance Act 2020 (the "India Finance Act"), which increased income tax expense by $20.3.
The enactment also increased equity affiliates' income by $33.8 for changes in the future tax costs of repatriated
earnings. The overall impact to net income resulting from the India Finance Act was a benefit of $13.5 ($0.06 per
share).
The adjusted effective tax rate was 19.1% and 19.4% for the fiscal years ended 30 September 2020 and 2019,
respectively. The lower current year rate reflects favorable impacts from higher benefits on the revaluation of
deferred tax accounts due to enacted changes in foreign tax law, changes in the tax profile of U.S. entities in various
state jurisdictions, and higher excess tax benefits on share-based compensation. These items were partially offset
by benefits from changes in valuation allowances recorded at various entities in 2019.
Refer to Note 22, Income Taxes, to the consolidated financial statements for additional information.
27
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Segment Analysis
Industrial Gases – Americas
Year Ended 30 September
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
2020
2019
$3,630.7
1,012.4
$3,873.5
997.7
27.9 %
25.8 %
$84.3
1,656.2
$84.8
1,587.7
45.6 %
41.0 %
$ Change
($242.8)
14.7
($0.5)
68.5
Change
(6) %
1 %
210 bp
(1) %
4 %
460 bp
(1) %
3 %
(6) %
(2) %
(6) %
Sales of $3,630.7 decreased 6%, or $242.8, as lower energy and natural gas cost pass-through to customers
of 6%, a negative impact from currency of 2%, and lower volumes of 1% were partially offset by positive pricing
of 3%. The pricing improvement was driven by our merchant business. Lower volumes, particularly in our merchant
business, were primarily driven by COVID-19, which began impacting this segment at the end of March 2020 and
continued through the end of the fiscal year. The negative impact of COVID-19 was partially offset by positive
contributions from the commencement of a long-term hydrogen supply agreement with PBF Energy Inc. from assets
we acquired in April. The unfavorable currency impact was driven by the Chilean Peso.
Operating income of $1,012.4 increased 1%, or $14.7, due to higher pricing, net of power and fuel costs, of $95,
partially offset by higher net operating costs of $40, lower volumes of $33, and unfavorable currency impacts of $7.
Operating margin of 27.9% increased 210 bp, primarily due to positive pricing and lower energy and natural gas
cost pass-through to customers, partially offset by lower volumes and unfavorable net operating costs.
Equity affiliates’ income of $84.3 decreased 1%, or $0.5.
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Table of Contents
Industrial Gases – EMEA
Sales
Operating income
Operating margin
Equity affiliates’ income
Adjusted EBITDA
Adjusted EBITDA margin
2020
2019
$1,926.3
473.3
$2,002.5
472.4
24.6 %
23.6 %
$74.8
744.0
$69.0
730.9
38.6 %
36.5 %
$ Change
($76.2)
0.9
$5.8
13.1
Change
(4) %
— %
100 bp
8 %
2 %
210 bp
Sales % Change from Prior Year
Volume
Price
Energy and natural gas cost pass-through
Currency
Other(A)
Total Industrial Gases – EMEA Sales Change
(A)
— %
3 %
(4) %
(1) %
(2) %
(4) %
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 $1,926.3 decreased 4%, or $76.2, as lower energy and natural gas cost pass-through to customers of 4%,
the negative impact from the India contract modification of 2%, and unfavorable currency impacts of 1% were only
partially offset by positive pricing of 3%. The pricing improvement was attributable to our merchant business.
Volumes were flat versus the prior year as improvements from acquisitions and demand for hydrogen in our
Rotterdam pipeline system were offset by lower volumes from COVID-19, particularly in our merchant business.
COVID-19 began impacting this segment at the end of March 2020 and continued through the end of the fiscal year.
The negative currency impact was mainly driven by the Euro.
Operating income of $473.3 was flat as higher pricing, net of power and fuel costs, of $71 was offset by higher costs
of $41, unfavorable volume mix of $27, and unfavorable currency impacts of $3. Operating margin of 24.6%
increased 100 bp, primarily due to favorable pricing, lower energy and natural gas cost pass-through to customers,
and the India contract modification, partially offset by higher costs and unfavorable volume mix.
Equity affiliates’ income of $74.8 increased 8%, or $5.8, primarily due to Jazan Gas Projects Company, which began
to contribute in the second half of fiscal year 2019, and higher income from an affiliate in Italy.
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Table of Contents
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
2020
2019
$2,716.5
870.3
$2,663.6
864.2
32.0 %
32.4 %
$61.0
1,330.7
$58.4
1,284.1
49.0 %
48.2 %
$ Change
$52.9
6.1
$2.6
46.6
Change
2 %
1 %
(40) bp
4 %
4 %
80 bp
1 %
2 %
— %
(1) %
2 %
Sales of $2,716.5 increased 2%, or $52.9, as positive pricing of 2% and higher volumes of 1% were partially offset
by unfavorable currency impacts of 1%. Volume improvements from new plants were partially offset by negative
impacts from planned maintenance outages, completion of a short-term supply contract, and COVID-19, which
began impacting this segment in the second quarter and continued through the end of the fiscal year. The negative
impact from COVID-19 was primarily on our merchant volumes. Pricing improved across Asia, driven by our
merchant business. The unfavorable currency impact was primarily attributable to the Chinese Renminbi and the
South Korean Won. Energy and natural gas cost pass-through to customers was flat versus the prior year.
Operating income of $870.3 increased 1%, or $6.1, due to positive pricing, net of power and fuel costs, of $46 and
favorable net operating costs of $4, partially offset by unfavorable volume mix of $33 and currency impacts of
$11. Operating margin of 32.0% decreased 40 bp, as unfavorable volume mix more than offset positive pricing.
Equity affiliates’ income of $61.0 increased 4%, or $2.6.
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 loss
Adjusted EBITDA
* Not meaningful
2020
$364.9
(40.0)
(19.5)
2019
$261.0
(11.7)
0.1
$ Change
$103.9
(28.3)
(19.6)
Change
40 %
(242) %
N/M*
Sales of $364.9 increased 40%, or $103.9, primarily due to higher sale of equipment activity. Operating loss of
$40.0 increased 242%, or $28.3, as higher project and product development costs were only partially offset by
higher sale of equipment and other project activity.
30
Table of Contents
Corporate and other
The Corporate and other segment includes our LNG, turbo machinery equipment and services, and distribution sale
of equipment businesses as well as our 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
2020
$217.9
(112.2)
(91.6)
2019
$118.3
(152.8)
(134.8)
$ Change
$99.6
40.6
43.2
Change
84 %
27 %
32 %
Sales of $217.9 increased 84%, or $99.6, primarily due to higher LNG sale of equipment activity. Operating loss of
$112.2 decreased 27%, or $40.6, primarily due to the higher LNG sale of equipment activity, partially offset by
higher business development costs to support our growth strategy.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Millions of dollars unless otherwise indicated, except for per share data)
We present certain financial measures, other than in accordance with U.S. generally accepted accounting principles
("GAAP"), on an "adjusted" or "non-GAAP" basis. On a consolidated basis, these measures include adjusted diluted
earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax rate. On a
segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin. In addition to these
measures, 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 GAAP.
Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the most
directly comparable measure calculated in accordance with GAAP. We believe these non-GAAP financial measures
provide investors, potential investors, securities analysts, and others with useful information to evaluate the
performance of our 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 our historical
financial performance and projected future results.
In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP
measure to exclude certain disclosed items, or “non-GAAP adjustments,” that we believe are not representative of
underlying business performance. For example, we previously excluded certain expenses associated with cost
reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware that we
may recognize similar losses or gains in the future. Readers should also consider the limitations associated with
these non-GAAP financial measures, including the potential lack of comparability of these measures from one
company to another.
The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact
of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various
relevant jurisdictions and the taxability of the adjustments in those jurisdictions.
31
Table of Contents
ADJUSTED DILUTED EPS
The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major
components used to calculate adjusted diluted EPS from continuing operations, which we view as a key
performance metric. 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 per share impact for each non-GAAP adjustment was calculated independently and may not sum to total
adjusted diluted EPS due to rounding.
Year Ended 30 September
2020 GAAP
2019 GAAP
Change GAAP
% Change GAAP
2020 GAAP
Operating
Income
Equity
Affiliates'
Income
Income Tax
Provision
Net Income
Attributable to
Air Products
$2,237.6
$264.8
$478.4
$1,901.0
2,144.4
215.4
480.1
1,760.0
$141.0
Diluted
EPS
$8.55
7.94
$0.61
8 %
8 %
$2,237.6
$264.8
$478.4
$1,901.0
$8.55
(0.12)
(0.06)
$8.38
$7.94
0.10
0.08
(0.13)
0.02
(0.06)
0.26
$8.21
$0.17
Company headquarters relocation (income) expense
(33.8)
—
(8.2)
India Finance Act 2020
2020 Non-GAAP Measure ("Adjusted")
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
(25.6)
(13.5)
—
(33.8)
(20.3)
$2,203.8
$231.0
$449.9
$1,861.9
$2,144.4
$215.4
$480.1
$1,760.0
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
2019 Non-GAAP Measure ("Adjusted")
Change Non-GAAP Measure ("Adjusted")
$2,169.8
$215.4
$451.1
$1,819.4
$42.5
% Change Non-GAAP Measure ("Adjusted")
(A)
Before-tax impact of $5.0 is reflected on the consolidated income statements within “Other non-operating income (expense), net.”
2 %
2 %
The table below provides a reconciliation of adjusted diluted EPS to GAAP diluted EPS for each fiscal year noted:
Year Ended 30 September
Diluted EPS
Change in inventory valuation method
Facility closure
Business separation costs
Tax (benefit) costs associated with business separation
Cost reduction and asset actions
Goodwill and intangible asset impairment charge
Gain on exchange of equity affiliate investments
Company headquarters relocation (income) expense
Gain on land sale
India Finance Act 2020
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
2020
2019
2018
2017
2016
$8.55
—
—
—
—
—
—
—
(0.12)
—
(0.06)
—
—
—
—
—
—
—
—
$7.94
—
0.10
—
—
0.08
—
(0.13)
—
—
—
—
0.02
—
(0.06)
0.26
—
—
—
$8.38
$8.21
32
$6.59
(0.08)
—
—
—
—
—
—
—
—
—
—
0.15
—
2.16
(0.25)
(0.96)
(0.16)
—
$7.45
$5.16
—
—
0.12
(0.02)
0.49
0.70
—
—
(0.03)
—
0.36
0.03
—
—
—
—
—
(0.50)
$6.31
$5.04
—
—
0.21
0.24
0.11
—
—
—
—
—
—
0.02
0.02
—
—
—
—
—
$5.64
Table of Contents
ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN
We define adjusted EBITDA as net income less income (loss) from discontinued operations, net of tax, and
excluding non-GAAP adjustments, which we do not believe to be indicative of underlying business trends, before
interest expense, other non-operating income (expense), net, income tax provision, and depreciation and
amortization expense. Adjusted EBITDA and adjusted EBITDA margin provide useful metrics for management to
assess operating performance. Margins are calculated independently for each period by dividing each line item by
consolidated sales for the respective period and may not sum to total margin due to rounding.
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:
Year Ended 30 September
Sales
2020
$8,856.3
2019
$8,918.9
2018
$8,930.2
2017
$8,187.6
2016
$7,503.7
$
Margin
$
Margin
$
Margin
$
Margin
$
Margin
Net income and net income
margin
$1,931.1
21.8 % $1,809.4
20.3 % $1,532.9
17.2 % $3,021.2
36.9 % $661.5
8.8 %
Less: (Loss) Income from
discontinued operations, net of tax
(14.3)
(0.2) %
—
— %
42.2
0.5 % 1,866.0
22.8 %
(460.5)
(6.1) %
Add: Interest expense
109.3
1.2 % 137.0
1.5 % 130.5
1.5 % 120.6
1.5 % 115.2
1.5 %
Less: Other non-operating income
(expense), net
30.7
0.3 %
66.7
0.7 %
5.1
0.1 %
16.6
0.2 %
(5.4)
(0.1) %
Add: Income tax provision
478.4
5.4 % 480.1
5.4 % 524.3
5.9 % 260.9
3.2 % 432.6
5.8 %
1,185.0
13.4 % 1,082.8
12.1 % 970.7
10.9 % 865.8
10.6 % 854.6
11.4 %
— %
—
— %
24.1
0.3 %
Add: Depreciation and
amortization
Less: Change in inventory
valuation method
Add: Facility closure
Add: Business separation costs
Add: Cost reduction and asset
actions
Add: Goodwill and intangible
asset impairment charge
Less: Gain on exchange of equity
affiliate investments
Less: Company headquarters
relocation income (expense)
Less: Gain on land sale
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
—
—
—
—
—
—
— %
29.0
0.3 %
— %
—
— %
— %
25.5
0.3 %
— %
—
— %
— %
29.1
0.3 %
33.8
0.4 %
—
— %
—
—
—
— %
— %
— %
—
—
—
—
—
—
— %
— %
— %
— %
— %
—
—
—
—
—
—
—
—
—
—
— %
—
—
— %
— %
—
—
— %
— %
— %
32.5
0.4 %
50.6
0.7 %
— % 151.4
1.8 %
34.5
0.4 %
— % 162.1
2.0 %
— %
— %
—
—
— %
— %
— %
12.2
0.2 %
— %
—
— %
— %
79.5
1.0 %
—
—
—
—
—
—
— %
— %
— %
— %
— %
— %
— %
28.5
0.3 %
— %
—
—
— %
6.9
0.1 %
— %
—
— %
$3,619.8
40.9 % $3,468.0
38.9 % $3,115.5
34.9 % $2,799.2
34.2 % $2,621.8
34.9 %
Less: India Finance Act 2020
33.8
0.4 %
Year Ended 30 September
2020 vs. 2019
2019 vs. 2018
2018 vs. 2017
2017 vs. 2016
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
$121.7
7%
150 bp
$151.8
4%
200 bp
($1,488.3)
(49)%
(1,970) bp
$316.3
11%
70 bp
$2,359.7
357%
2,810 bp
$177.4
7%
(70) bp
$276.5
18%
310 bp
$352.5
11%
400 bp
33
Table of Contents
Below is reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted
EBITDA margin by segment:
Year Ended 30 September
2020 GAAP Measures
Operating income (loss)
Operating margin
2019 GAAP Measures
Operating income (loss)
Operating margin
2020 vs. 2019
Operating income/loss change
Operating income/loss % change
Operating margin change
2020 Non-GAAP Measures
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
$1,012.4
$473.3
$870.3
($40.0)
($112.2)
$2,203.8
27.9 %
24.6 %
32.0 %
$997.7
$472.4
$864.2
($11.7)
($152.8)
$2,169.8
25.8 %
23.6 %
32.4 %
$14.7
$0.9
$6.1
($28.3)
$40.6
1 %
— %
1 %
(242) %
27 %
210 bp
100 bp
(40) bp
$1,012.4
$473.3
$870.3
($40.0)
($112.2)
$2,203.8
559.5
84.3
195.9
74.8
399.4
61.0
9.6
10.9
20.6
1,185.0
—
231.0
$1,656.2
$744.0
$1,330.7
($19.5)
($91.6)
$3,619.8
Adjusted EBITDA margin
45.6 %
38.6 %
49.0 %
2019 Non-GAAP Measures
Operating income (loss)
Add: Depreciation and amortization
Add: Equity affiliates' income
Adjusted EBITDA
$997.7
$472.4
$864.2
($11.7)
($152.8)
$2,169.8
505.2
84.8
189.5
69.0
361.5
58.4
$1,587.7
$730.9
$1,284.1
8.6
3.2
$0.1
18.0
1,082.8
—
215.4
($134.8)
$3,468.0
Adjusted EBITDA margin
41.0 %
36.5 %
48.2 %
2020 vs. 2019
Adjusted EBITDA change
Adjusted EBITDA % change
Adjusted EBITDA margin change
$68.5
$13.1
$46.6
($19.6)
$43.2
4 %
2 %
460 bp
210 bp
4 %
80 bp
N/M*
32 %
* Not meaningful
(A)
The table below reconciles consolidated operating income as reflected on our consolidated income statements to total operating income
disclosed in the table above for the years ended 30 September:
(A)
(A)
(A)
(B)
(A)
(B)
Operating Income
Consolidated operating income
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation (income) expense
Total
2020
2019
$2,237.6
$2,144.4
—
—
—
(33.8)
29.0
25.5
(29.1)
—
$2,203.8
$2,169.8
(B)
The table below reconciles consolidated equity affiliates' income as reflected on our consolidated income statements to total equity affiliates'
income disclosed in the table above for the years ended 30 September:
Equity Affiliates' Income
Consolidated equity affiliates' income
India Finance Act 2020
Total
2020
2019
$264.8
$215.4
(33.8)
—
$231.0
$215.4
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Table of Contents
ADJUSTED EFFECTIVE TAX RATE
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.
Year Ended 30 September
Income Tax Provision
Income From Continuing Operations Before Taxes
Effective Tax Rate
Income Tax Provision
Facility closure
Cost reduction actions
Company headquarters relocation
India Finance Act 2020
Pension settlement loss
Tax reform repatriation
Tax reform adjustment related to deemed foreign dividends
Adjusted Income Tax Provision
Income From Continuing Operations Before Taxes
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation (income) expense
India Finance Act 2020 - equity affiliate income impact
Pension settlement loss
Adjusted Income From Continuing Operations Before Taxes
Adjusted Effective Tax Rate
Effective Tax Rate
2020
2019
$478.4
$2,423.8
$480.1
$2,289.5
19.7 %
21.0 %
$478.4
—
—
(8.2)
(20.3)
—
—
—
$449.9
$2,423.8
—
—
—
(33.8)
(33.8)
—
$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
$2,356.2
$2,319.9
19.1 %
19.4 %
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance and cash flows from operations are our primary sources of liquidity and are generally sufficient to
meet our liquidity needs. In addition, we have the flexibility to access capital through a variety of financing activities,
including accessing the capital markets, drawing upon our credit facility, or alternatively, accessing the commercial
paper markets. During the third quarter of fiscal year 2020, we issued U.S. Dollar- and Euro-denominated fixed-rate
notes with aggregate principal amounts of $3.8 billion and €1.0 billion ($1.2 billion as of 30 September 2020),
respectively. We intend to use the majority of the proceeds to fund growth projects and repay debt maturities
through 2021, including a €350.0 million Eurobond due in June 2021. At this time, we have not utilized, nor do we
expect to access, our credit facility for additional liquidity. In addition, we have considered the impacts of COVID-19
on our liquidity and capital resources and do not expect it to impact our ability to meet future liquidity needs.
As of 30 September 2020, we had $1,376.6 of foreign cash and cash items compared to total cash and cash items
of $5,253.0. Since the enactment of the Tax Act, we do not expect that a significant portion of the earnings of our
foreign subsidiaries and affiliates will be subject to U.S. income tax upon repatriation to the U.S. Depending on the
country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign
withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our
intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional
taxes outside the U.S.
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Table of Contents
The table below summarizes our cash flows from operating, investing, and financing activities as reflected on the
consolidated statements of cash flows for the years ended 30 September:
Cash Provided by (Used for)
Operating activities
Investing activities
Financing activities
2020
$3,264.7
(3,560.0)
3,284.7
2019
$2,969.9
(2,113.4)
(1,370.5)
Operating Activities
For the fiscal year ended 30 September 2020, cash provided by operating activities was $3,264.7. Income from
continuing operations of $1,901.0 was adjusted for items including depreciation and amortization, deferred income
taxes, undistributed earnings of unconsolidated affiliates, gain on sale of assets and investments, share-based
compensation, noncurrent capital lease receivables, and certain other adjustments. We recorded a net benefit of
$13.5 on our consolidated income statements related to a recently enacted tax law in India during the second
quarter. This net benefit, which is further discussed in Note 22, Income Taxes, to the consolidated financial
statements, increased "Undistributed earnings of unconsolidated affiliates" by $33.8 and increased "Deferred
income taxes" by $20.3. The "Gain on sale of assets and investments" of $45.8 includes a gain of $33.8 related to
the sale of property at our current corporate headquarters. Refer to Note 23, Supplemental Information, to the
consolidated financial statements for additional information. The working capital accounts were a use of cash of
$40.1, primarily driven by other working capital uses of $130.6, partially offset by a source of $84.4 from other
receivables. The use of cash within "Other working capital" was primarily due to timing of tax payments and a tax
benefit as a result of the assets acquired in April 2020 from PBF Energy Inc. The source of cash within "Other
receivables" was primarily driven by maturities of forward exchange contracts.
For the fiscal year ended 30 September 2019, cash provided by operating activities was $2,969.9, including income
from continuing operations of $1,760.0. The gain on sale of assets and investments included 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 3, 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.
Investing Activities
For the fiscal year ended 30 September 2020, cash used for investing activities was $3,560.0. Payments for
additions to plant and equipment, including long-term deposits, were $2,509.0. This includes the acquisition of five
operating hydrogen production plants from PBF Energy Inc. in Delaware and California for approximately $580
during the third quarter. Additionally, acquisitions, less cash acquired, includes $183.3 for three businesses we
acquired on 1 July 2020, the largest of which was a business in Israel that primarily offers merchant gas products.
Refer to Note 3, Acquisitions, to the consolidated financial statements for additional information. Purchases of
investments of $2,865.5 relate to time deposits and treasury securities with terms greater than three months and
less than one year and exceeded proceeds from investments of $1,938.0. Proceeds from sale of assets and
investments of $80.3 includes net proceeds of $44.1 related to the sale of property at our current corporate
headquarters in the second quarter.
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 3, 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 purchases of $172.1.
36
Table of Contents
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
2020
$3,560.0
80.3
(2,865.5)
1,938.0
3.9
$2,716.7
2019
$2,113.4
11.1
(172.1)
190.5
(14.3)
$2,128.6
2020
$2,509.0
183.3
24.4
$2,716.7
2019
$1,989.7
123.2
15.7
$2,128.6
Capital expenditures in fiscal year 2020 totaled $2,716.7 compared to $2,128.6 in fiscal year 2019. The increase of
$588.1 was primarily due to the acquisition of the hydrogen production plants from PBF Energy Inc., as noted
above. Additions to plant and equipment also included support capital of a routine, ongoing nature, including
expenditures for distribution equipment and facility improvements.
2021 Outlook for Investing Activities
Due to the significant uncertainty that remains regarding the duration of COVID-19, the pace of recovery, and its
negative impact on the global economy, we are not providing capital expenditure guidance for fiscal year 2021. We
are monitoring our projects to determine whether capital spending and project onstream timing may be delayed for
those currently under construction.
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.
Financing Activities
In fiscal year 2020, cash provided by financing activities was $3,284.7 as we successfully accessed the debt
markets in April 2020 to support opportunities for growth projects and repay upcoming debt maturities. Long-term
debt proceeds of $4,895.8, as further discussed below under "Financing and Capital Structure," were partially offset
by dividend payments to shareholders of $1,103.6 and payments on long-term debt of $406.6 primarily related to
the repayment of a 2.0% Eurobond of €300.0 million ($353.9) that matured on 7 August 2020. Other financing
activities were a use of cash of $80.1 and included financing charges associated with the third quarter debt
issuance.
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.
37
Table of Contents
Financing and Capital Structure
Capital needs in fiscal year 2020 were satisfied primarily with cash from operations. Total debt increased from
$3,326.0 at 30 September 2019 to $7,907.8 at 30 September 2020 due to the issuance of U.S. Dollar- and Euro-
denominated fixed-rate notes in the third quarter, partially offset by the repayment of a 2.0% Eurobond. For
additional information, refer to Note 15, Debt, to the consolidated financial statements. Similarly, cash and cash
items and short-term investments increased from $2,248.7 and $166.0, respectively, at the end of 2019 to $5,253.0
and $1,104.9, respectively, at the end of 2020, primarily due to the issuance of the notes. The current year total debt
balance includes $338.5 of related party debt associated with the Lu'An joint venture.
We have a $2,300.0 five-year revolving credit agreement with a syndicate of banks (the "Credit Agreement”)
maturing 31 March 2022. Under the Credit Agreement, senior unsecured debt is available to us and certain of our
subsidiaries. The Credit Agreement provides us a source of liquidity and supports our commercial paper program.
Our only financial covenant under the Credit Agreement is a maximum ratio of total debt to total capitalization, or
total debt plus total equity, no greater than 70%. Total debt as of 30 September 2020 and 30 September 2019,
expressed as a percentage of total capitalization was 38.9% and 22.6%, respectively. No borrowings were
outstanding under the Credit Agreement as of 30 September 2020.
There were no commitments maintained by our foreign subsidiaries at 30 September 2020.
As of 30 September 2020, 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 2020 or 2019. As of 30
September 2020, $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. In 2020, the Board of Directors increased our quarterly dividend by over 15% from $1.16 to $1.34 per
share, representing the largest dividend increase in our 80-year history. This is the 38th consecutive year that we
have increased our quarterly dividend payment.
On 19 November 2020, the Board of Directors declared the first quarter 2021 dividend of $1.34 per share. The
dividend is payable on 8 February 2021 to shareholders of record as of 4 January 2021.
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 2020:
Total
2021
2022
2023
2024
2025 Thereafter
Debt maturities
$7,950
$470
$442
$456
$456
$416
$5,710
Contractual interest on debt
1,772
155
141
129
121
102
1,124
Operating leases
Pension obligations
Unconditional purchase obligations
Deemed repatriation tax related to
the Tax Act
Obligation for future contribution to
an equity affiliate
475
598
79
51
56
45
47
42
37
42
30
28
226
390
9,556
1,460
460
450
455
454
6,277
211
21
21
21
39
50
100
100
—
—
—
—
59
—
Total Contractual Obligations
$20,662 $2,336 $1,165 $1,145 $1,150 $1,080 $13,786
38
Table of Contents
Debt Obligations
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 15,
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 $632 of long-term debt subject to variable interest rates at 30
September 2020, 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 2020.
Variable interest rates are primarily determined by U.S. short-term tax-exempt interest rates and by interbank offer
rates.
Leases
We are the lessee under various agreements for real estate, vehicles, aircraft, and other equipment. Refer to Note
12, Leases, to the consolidated financial statements for additional information.
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 16, Retirement Benefits, to the consolidated financial statements. These payments are based upon the
current valuation assumptions and regulatory environment.
The total accrued liability for pension benefits 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
We are obligated to make future payments under unconditional purchase obligations, which primarily relate to
helium and rare gases as well as commitments for purchases of plant and equipment. For additional information,
refer to Note 17, Commitments and Contingencies, to the consolidated financial statements.
Income Tax Liabilities
Tax liabilities related to unrecognized tax benefits as of 30 September 2020 were $237.0. These tax liabilities are
not included in 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 $211 for deemed repatriation tax that is payable through 2026 related
to the Tax Act. Refer to Note 22, 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 guaranteed the repayment of our 25% share of an equity bridge loan that has been provided to fund equity
commitments to the joint venture. In total, we expect to invest approximately $100 in this joint venture. As of 30
September 2020, our consolidated balance sheets included $94.4 reflected within "Payables and accrued liabilities"
for our obligation to make future equity contributions in 2021 based on our proportionate share of the advances
received by the joint venture under the loan.
Future 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. In July 2020, we commenced the process to secure project financing with our
partners for the JV, which will purchase the gasification assets, power block, and the associated utilities from Saudi
Aramco for approximately $12 billion. Our future investment is not considered a contractual obligation until definitive
agreements have been signed; therefore, it is not included in the contractual obligations table above.
39
Table of Contents
PENSION BENEFITS
We and certain of our 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 2020
measurement date increased to $4,775.1 from $4,504.8 at the end of fiscal year 2019. The projected benefit
obligation for these plans was $5,373.5 and $5,145.6 at the end of fiscal years 2020 and 2019, respectively. The net
unfunded liability decreased $42.4 from $640.8 to $598.4, primarily due to favorable asset experience. Refer to
Note 16, Retirement Benefits, to the consolidated financial statements for additional disclosures on our
postretirement benefits.
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
2020
$7.0
5.2
2.4 %
2.3 %
6.3 %
3.4 %
2019
$27.6
7.2
3.4 %
3.4 %
6.4 %
3.5 %
Pension expense decreased from the prior year due to lower interest cost and higher total assets, partially offset by
higher actuarial loss amortization due to the impact of lower discount rates. Special items (settlements, termination
benefits, and curtailments) decreased from the prior year primarily due to lower pension settlement losses. In fiscal
year 2020, special items of $5.2 included pension settlement losses of $5.0 related to lump sum payouts from the
U.S. Supplementary Pension Plan. These amounts are reflected within "Other non-operating income (expense), net"
on the consolidated income statements. In fiscal year 2019, special items of $7.2 included pension settlement
losses of $6.4 related to lump sum payouts from the U.S. Supplementary Pension Plan and $0.8 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.
2021 Outlook
In fiscal year 2021, we expect pension income of approximately $25 to $35, which includes expected pension
settlement losses of $0 to $5, depending on the timing of retirements. The expected income range reflects lower
expected interest cost and higher total assets. In fiscal year 2021, we expect our net pension income to include
approximately $100 for amortization of actuarial losses.
In fiscal year 2020, pension expense included amortization of actuarial losses of $103.2. Net actuarial losses of
$83.5 were recognized in accumulated other comprehensive income in fiscal year 2020. 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 2021.
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.
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Table of Contents
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 2020 and 2019, our
cash contributions to funded plans and benefit payments for unfunded plans were $37.5 and $40.2, respectively.
For fiscal year 2021, cash contributions to defined benefit plans are estimated to be $45 to $55. 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. We do not expect
COVID-19 to impact our contribution forecast for fiscal year 2021. Refer to the Contractual Obligations discussion
on page 38 for a projection of future contributions.
ENVIRONMENTAL MATTERS
As discussed above in Item 1, “Business–Environmental Regulation”, we are subject to various environmental laws
and regulations in the countries in which we have operations, which results in higher capital expenditures and costs.
The amounts charged to income from continuing operations related to environmental matters totaled $18.3 and
$14.2 in fiscal years 2020 and 2019, respectively. These amounts represent an estimate of expenses for
compliance with environmental laws and activities undertaken to meet our internal standards. We estimate that we
spent approximately $4 and $5, in fiscal years 2020 and 2019, respectively, on capital projects reflected in
continuing operations to control pollution. We expect that our capital expenditures to control pollution will be
approximately $6 in both fiscal years 2021 and 2022.
Our accounting policy for environmental expenditures is discussed in Note 1, Major Accounting Policies, to the
consolidated financial statements, and environmental loss contingencies are discussed in Note 17, Commitments
and Contingencies, to the consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have entered into certain guarantee agreements as discussed in Note 17, 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
See Note 23, Supplemental Information, to the consolidated financial statements for information concerning activity
with our related parties.
INFLATION
We operate in many countries that experience volatility in inflation and foreign exchange rates. The ability to pass
on inflationary cost increases is an uncertainty due to general economic conditions and competitive situations. It is
estimated that the cost of replacing our plant and equipment today is greater than its historical cost. Accordingly,
depreciation expense would be greater if the expense were stated on a current cost basis.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1, Major Accounting Policies, to the consolidated financial statements describes our major accounting policies.
Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. However,
application of the critical accounting policies discussed below requires management’s significant judgments, often
as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ
materially from the estimates made, the reported results could be materially affected. Our management has
reviewed these critical accounting policies and estimates and related disclosures with our audit committee.
Depreciable Lives of Plant and Equipment
Net plant and equipment at 30 September 2020 totaled $11,964.7, and depreciation expense totaled $1,150.5
during fiscal year 2020. Plant and equipment is recorded at cost and depreciated using the straight-line method,
which deducts equal amounts of the cost of each asset from earnings every year over its estimated economic useful
life.
Economic useful life is the duration of time an asset is expected to be productively employed by us, which may be
less than its physical life. Assumptions on the following factors, among others, affect the determination of estimated
economic useful life: wear and tear, obsolescence, technical standards, contract life, market demand, competitive
position, raw material availability, and geographic location.
The estimated economic useful life of an asset is monitored to determine its appropriateness, especially when
business circumstances change. For example, changes in technology, changes in the estimated future demand for
products, excessive wear and tear, or unanticipated government actions may result in a shorter estimated useful life
than originally anticipated. In these cases, we would depreciate the remaining net book value over the new
estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the
estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a
prospective basis.
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 supply 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 associated production assets is adjusted to
match the new contract term, as long as it does not exceed the remaining physical life of the asset.
Our regional Industrial 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 the age and condition of the assets, the
remaining duration of long-term supply contracts served by the assets, and our historical experience with similar
assets. Management monitors its assumptions and may potentially need to adjust depreciable life as circumstances
change.
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Impairment of Assets
While our results of operations have been negatively affected by COVID-19 as of and for the fiscal year ended 30
September 2020, there have been no triggering events that would require impairment testing for any of our asset
groups, reporting units that contain goodwill, indefinite-lived intangible assets, or equity method investments. As
further discussed below, we completed our annual impairment tests and concluded there were no indications of
impairment. We will continue to evaluate the nature and extent of COVID-19 impacts on our business and any
impact they may have on management's estimates, particularly those for our Latin America business. The duration
and severity of the COVID-19 outbreak and its long-term impact on our business is uncertain.
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 and could include probability weighting of cash
flow projections associated with multiple potential future scenarios. Changes in key assumptions or actual
conditions that differ from estimates could result in an impairment charge. We use reasonable and supportable
assumptions when performing impairment reviews and cannot predict the occurrence of future events and
circumstances that could result in impairment charges.
In fiscal year 2020, 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.
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 $891.5 as of 30 September 2020. Disclosures related to goodwill are
included in Note 10, Goodwill, to the consolidated financial statements.
We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes
in circumstances indicate 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 reportable business segments, seven operating segments and ten reporting units, seven of which include
a goodwill balance. Refer to Note 25, Business Segment and Geographic Information, for additional information.
Reporting units are primarily based on products and subregions within each reportable segment. The majority of our
goodwill is assigned to reporting units within our regional Industrial Gases segments.
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As part of 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. However, 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 2020, we conducted our annual goodwill impairment test. We determined that
the fair value of all our reporting units substantially exceeded their carrying value except for our Latin America
reporting unit (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 10%. 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 320 basis points or a decrease in adjusted EBITDA margin of
approximately 290 basis points would result in the fair value of the reporting unit being equal to its carrying value. As
of 30 September 2020, the carrying value of LASA goodwill was $56.1, or less than 1% of consolidated total assets.
The carrying value of LASA's other material assets at 30 September 2020 included: Plant and equipment, net of
$309.2; customer relationships of $112.1; and trade names and trademarks of $38.2. 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, changes in the
strategy of the reporting unit, 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.
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Impairment of Assets – Intangible Assets
Intangible assets, net with determinable lives at 30 September 2020 totaled $394.8 and consisted primarily of
customer relationships, purchased patents and technology, and land use rights. These intangible assets are tested
for impairment as part of the long-lived asset grouping impairment tests. Impairment testing of the asset group
occurs whenever events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. See the impairment discussion above under "Impairment of Assets – Plant and Equipment" for a
description of how impairment losses are determined.
Indefinite-lived intangible assets at 30 September 2020 totaled $41.0 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 11, Intangible Assets, to the
consolidated financial statements.
In the fourth quarter of 2020, 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 $1,432.2 at 30 September 2020. The majority of our
investments are non-publicly traded ventures with other companies in the industrial gas business. Summarized
financial information of equity affiliates is included in Note 8, Summarized Financial Information of Equity Affiliates,
to the consolidated financial statements. Equity investments are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the investment may not be recoverable.
An impairment loss is recognized in the event that an other-than-temporary decline in fair value below the carrying
value of an investment occurs. 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 2020, there was no need to test any of our equity affiliate investments for impairment, 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.
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In addition to the typical risks associated with underlying performance of project procurement and construction
activities, our sale of equipment projects within our Industrial Gases – Global segment require monitoring of risks
associated with schedule, geography, and other aspects of the contract and their effects on our estimates of total
revenues and total costs to complete the contract.
Changes in estimates on projects accounted for under the cost incurred input method, including the Jazan project,
favorably impacted operating income by approximately $7 and $37 in fiscal years 2020 and 2019, 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.
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. As of 30 September 2020, accrued income taxes, including the amount recorded as
noncurrent, was $296.7, and net deferred tax liabilities were $847.5. Tax liabilities related to uncertain tax positions
as of 30 September 2020 were $237.0, excluding interest and penalties. Income tax expense for the fiscal year
ended 30 September 2020 was $478.4. Disclosures related to income taxes are included in Note 22, Income Taxes,
to the consolidated financial statements.
Management judgment is required concerning the ultimate outcome of tax contingencies and the realization of
deferred tax assets.
Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of
operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after
tax returns have been filed. We believe that our recorded tax liabilities adequately provide for these assessments.
Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when we do not
expect sufficient sources of future taxable income to realize the benefit of the operating losses or tax credit
carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized
if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the
deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted
future taxable income and available tax planning strategies that could be implemented to realize or renew net
deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation
allowance is reported in the income tax expense.
A 1% increase or decrease in our effective tax rate may result in a decrease or increase to net income, respectively,
of approximately $24.
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Pension and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements for pension and other postretirement benefits are
determined on an actuarial basis utilizing numerous assumptions. The discussion that follows provides information
on the significant assumptions and expense associated with the defined benefit plans.
Actuarial models are used in calculating the expense and liability related to the various defined benefit plans. These
models have an underlying assumption that the employees render service over their service lives on a relatively
consistent basis; therefore, the expense of benefits earned should follow a similar pattern.
Several assumptions and statistical variables are used in the models to calculate the expense and liability related to
the plans. We determine assumptions about the discount rate, the expected rate of return on plan assets, and the
rate of compensation increase. Note 16, Retirement Benefits, to the consolidated financial statements includes
disclosure of these rates on a weighted-average basis for both the U.S. and international plans. The actuarial
models also use assumptions about demographic factors such as retirement age, mortality, and turnover rates.
Mortality rates are based on the most recent U.S. and international mortality tables. We believe the actuarial
assumptions are reasonable. However, actual results could vary materially from these actuarial assumptions due to
economic events and differences in rates of retirement, mortality, and turnover.
One of the assumptions used in the actuarial models is the discount rate used to measure benefit obligations. This
rate reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding
to the expected timing of benefit payments as of the annual measurement date for each of the various plans. We
measure the service cost and interest cost components of pension expense by applying spot rates along the yield
curve to the relevant projected cash flows. The rates along the yield curve are used to discount the future cash
flows of benefit obligations back to the measurement date. These rates change from year to year based on market
conditions that affect corporate bond yields. A higher discount rate decreases the present value of the benefit
obligations and results in lower pension expense. A 50 bp increase or decrease in the discount rate may result in a
decrease or increase to pension expense, respectively, of approximately $26 per year.
The expected rate of return on plan assets represents an estimate of the long-term average rate of return to be
earned by plan assets reflecting current asset allocations. In determining estimated asset class returns, we take into
account historical and future expected long-term returns and the value of active management, as well as the interest
rate environment. Asset allocation is determined based on long-term return, volatility and correlation characteristics
of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Lower returns on the plan
assets result in higher pension expense. A 50 bp increase or decrease in the estimated rate of return on plan assets
may result in a decrease or increase to pension expense, respectively, of approximately $22 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 or decrease in the expected rate of compensation may result in an
increase or decrease to pension expense, respectively, of approximately $12 per year.
Loss Contingencies
In the normal course of business, we encounter contingencies, or situations involving varying degrees of uncertainty
as to the outcome and effect on our company. We accrue a liability for loss contingencies when it is considered
probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range
of possible loss can be established, the most probable amount in the range is accrued. If no amount within this
range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.
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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 17, Commitments and Contingencies, to the consolidated financial statements. Significant judgment is
required to determine both the probability and whether the amount of loss associated with a contingency can be
reasonably estimated. These determinations are made based on the best available information at the time. As
additional information becomes available, we reassess probability and estimates of loss contingencies. Revisions to
the estimates associated with loss contingencies could have a significant impact on our results of operations in the
period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the inherent
uncertainties related to environmental exposures, a significant increase to environmental liabilities could occur if a
new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or our
proportionate share of the liability increases. Similarly, a future charge for regulatory fines or damage awards
associated with litigation could have a significant impact on our net income in the period in which it is recorded.
NEW ACCOUNTING GUIDANCE
See Note 2, New Accounting Guidance, and Note 12, Leases, to the consolidated financial statements for
information concerning the implementation and impact of new accounting guidance.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our earnings, cash flows, and financial position are exposed to market risks arising from 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 related major accounting policies, refer to Note 1, Major Accounting Policies, and Note 13,
Financial Instruments, to the consolidated financial statements. 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 the current portion and amounts
owed to related parties; interest rate swaps; cross currency interest rate swaps; and foreign exchange-forward
contracts. The net market value of these financial instruments combined is referred to below as the "net financial
instrument position" and is disclosed in Note 14, Fair Value Measurements, to the consolidated financial statements.
Our net financial instrument position increased from a liability of $3,239.1 at 30 September 2019 to a liability of
$8,220.7 at 30 September 2020 due to the issuance of the $3.8 billion U.S. Dollar-denominated notes and €1.0
billion Eurobonds in the third quarter of fiscal year 2020. See Note 15, Debt, for additional information.
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 values 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 as of the valuation date, such as interest rates, spot and forward exchange rates, and
implied volatilities.
Interest Rate Risk
Our debt portfolio as of 30 September 2020, including the effect of currency and interest rate swap agreements,
was composed of 89% fixed-rate debt and 11% variable-rate debt. 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. The increase in fixed rate debt is the result of the U.S. Dollar- and Euro-denominated notes
issued during the third quarter of fiscal year 2020.
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 2020, with all other variables
held constant. A 100 bp increase in market interest rates would result in a decrease of $711 and $75 in the net
liability position of financial instruments at 30 September 2020 and 2019, respectively. A 100 bp decrease in market
interest rates would result in an increase of $846 and $80 in the net liability position of financial instruments at 30
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September 2020 and 2019, respectively. The longer maturities and increased principal associated with the U.S.
Dollar- and Euro-denominated notes issued during the third quarter of fiscal year 2020 created a higher sensitivity to
market interest rates.
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 of interest incurred per year at 30 September 2020 and
2019. A 100 bp decline in interest rates would lower interest incurred by $8 per year at 30 September 2020 and
2019.
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 2020 and 2019, 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 $360 and $326 in the net liability position of financial instruments at
30 September 2020 and 2019, 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 or liability or cash flow exposure related to all of the
financial instruments in the above sensitivity analysis for which the impact of a movement in exchange rates would
be in the opposite direction and materially equal to the impact on the instruments in the analysis.
The majority of our sales are denominated in foreign currencies as they are derived outside the United States.
Therefore, financial results 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.
COVID-19 Risks and Uncertainties
Refer to Item 1A. Risk Factors within this Annual Report on Form 10-K for additional discussion of current and
potential risks of COVID-19 on our business and financial performance.
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Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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 2020, 2019, and 2018.................................
Consolidated Comprehensive Income Statements – Years Ended 30 September 2020, 2019, and 2018.......
Consolidated Balance Sheets – 30 September 2020 and 2019........................................................................
Consolidated Statements of Cash Flows – Years Ended 30 September 2020, 2019, and 2018......................
Consolidated Statements of Equity – Years Ended 30 September 2020, 2019, and 2018...............................
Notes to Consolidated Financial Statements.....................................................................................................
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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 2020, 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 2020 as stated in its report which appears herein.
/s/ Seifi Ghasemi
Seifi Ghasemi
Chairman, President, and
Chief Executive Officer
19 November 2020
/s/ M. Scott Crocco
M. Scott Crocco
Executive Vice President and
Chief Financial Officer
19 November 2020
51
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the 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 sheets of Air Products and Chemicals, Inc. and
subsidiaries (the "Company") as of September 30, 2020 and 2019, the related consolidated income statements,
comprehensive income statements, statements of equity, and statements of cash flows, for each of the two years in
the period ended September 30, 2020, and the related notes (collectively referred to as the "financial statements").
We also have audited the Company’s internal control over financial reporting as of September 30, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of
the two years in the period ended September 30, 2020, 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, 2020, 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 audits 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.
52
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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.
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 4 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, pricing provisions, and variable components that are specific to a customer
arrangement, including certain contracts with related parties. These arrangements 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 evaluate these contract
terms, including amendments, when determining the amount of revenue to be recognized. This required a high
degree of auditor judgment when performing procedures to audit management’s identification and assessment of
contract terms when determining 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 the evaluation of complex terms and provisions in certain on-site
industrial gas customer contracts.
• We evaluated the terms included within original customer contracts and related amendments to assess the
accounting for provisions such as minimum payment requirements, pricing provisions, settlement terms,
and variable components that require management to apply judgment in determining revenue recognition
associated with the contract.
53
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• We tested the probability of collection of variable components, including penalties, which impacts the
amount and timing of revenue which the Company expects to collect.
• We inquired of personnel who oversee operations, customer relations, and revenue recognition as to the
presence of contract amendments, and interpretation of contract terms.
• We considered the nature of transactions with related parties and any potential impact on revenue
recognition.
• We evaluated customer transactions and agreed the amount of revenue recognized to underlying contracts,
customer invoices, and cash receipts.
• We considered customer payment history, subsequent events, write-offs of customer receivables,
collectability, modification of contract terms, and other factors that could impact the amount and timing of
revenue recognition.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 19, 2020
We have served as the Company's auditor since 2018.
54
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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 statements of income, comprehensive income, cash flows and
equity of Air Products and Chemicals, Inc. and Subsidiaries (the Company) for the year ended 30 September 2018,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the
year 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 audit. 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 audit 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 audit 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 audit 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 audit provides 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
55
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Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
Year Ended 30 September (Millions of dollars, except for share and per share data)
Sales
Cost of sales
Facility closure
Selling and administrative
Research and development
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation income (expense)
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
(Loss) 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 (loss) income from discontinued operations
Net Income Attributable to Air Products
Per Share Data*
Basic EPS from continuing operations
Basic EPS from discontinued operations
Basic EPS Attributable to Air Products
Diluted EPS from continuing operations
Diluted EPS from discontinued operations
Diluted EPS Attributable to Air Products
Weighted Average Common Shares (in millions)
Basic
Diluted
2020
2019
29.0
750.0
72.9
25.5
29.1
—
49.3
—
775.9
83.9
—
—
33.8
65.4
2018
$8,856.3 $8,918.9 $8,930.2
5,858.1 5,975.5 6,189.5
—
760.8
64.5
—
—
—
50.2
2,237.6 2,144.4 1,965.6
174.8
130.5
5.1
2,423.8 2,289.5 2,015.0
524.3
1,945.4 1,809.4 1,490.7
42.2
1,931.1 1,809.4 1,532.9
35.1
$1,886.7 $1,760.0 $1,497.8
264.8
109.3
30.7
215.4
137.0
66.7
478.4
480.1
(14.3)
44.4
49.4
—
$1,901.0 $1,760.0 $1,455.6
42.2
$1,886.7 $1,760.0 $1,497.8
(14.3)
—
$8.59
(0.06)
$8.53
$8.55
(0.06)
$8.49
$7.99
$6.64
—
$7.99
$7.94
—
0.19
$6.83
$6.59
0.19
$7.94
$6.78
221.2
222.3
220.3
221.6
219.3
220.8
*Earnings per share ("EPS") is calculated independently for each component and may not sum to total EPS due to rounding.
The accompanying notes are an integral part of these statements.
56
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Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
Year ended 30 September (Millions of dollars)
Net Income
Other Comprehensive Income (Loss), net of tax:
2020
2019
2018
$1,931.1
$1,809.4
$1,532.9
Translation adjustments, net of tax of ($29.4), $25.1, and $1.1
Net gain (loss) on derivatives, net of tax of $23.7, ($1.5), and $9.7
Pension and postretirement benefits, net of tax of ($15.6), ($97.9), and $55.2
Reclassification adjustments:
Currency translation adjustment
Derivatives, net of tax of ($17.7), $4.5, and ($9.2)
Pension and postretirement benefits, net of tax of $27.1, $20.5, and $44.9
233.4
(356.2)
(244.6)
43.5
(68.2)
(44.1)
45.9
(326.2)
179.4
(2.6)
3.1
—
(57.7)
82.5
12.3
63.2
233.5
(653.6)
(30.4)
133.1
86.5
2,164.6
1,155.8
1,619.4
44.4
(2.0)
49.4
35.1
(19.9)
(19.0)
$2,122.2
$1,126.3
$1,603.3
Total Other Comprehensive Income (Loss)
Comprehensive Income
Net Income Attributable to Noncontrolling Interests
Other Comprehensive Loss Attributable to Noncontrolling Interests
Comprehensive Income Attributable to Air Products
The accompanying notes are an integral part of these statements.
57
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Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
30 September (Millions of dollars, except for share and per share data)
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 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 17
Air Products Shareholders’ Equity
Common stock (par value $1 per share; issued 2020 and 2019 - 249,455,584 shares)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (2020 - 28,438,125 shares; 2019 - 29,040,322 shares)
Total Air Products Shareholders' Equity
Noncontrolling Interests
Total Equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
58
2020
2019
$5,253.0
1,104.9
1,274.8
404.8
164.5
482.9
8,684.9
1,432.2
11,964.7
891.5
435.8
816.3
943.1
16,483.6
$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
$25,168.5 $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
249.4
1,070.9
14,138.4
(2,375.6)
$1,833.2
105.8
7.7
470.0
2,416.7
7,132.9
297.2
1,916.0
962.6
10,308.7
12,725.4
249.4
1,094.8
14,875.7
(2,140.1)
(2,000.0)
12,079.8
363.3
12,443.1
(2,029.5)
11,053.6
334.7
11,388.3
$25,168.5 $18,942.8
Table of Contents
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 30 September (Millions of dollars)
Operating Activities
Net income
Less: Net income attributable to noncontrolling interests of continuing operations
Net income attributable to Air Products
Loss (Income) from discontinued operations
Income from continuing operations attributable to Air Products
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Tax reform repatriation
Facility closure
Undistributed (earnings) losses of unconsolidated affiliates
Gain on sale of assets and investments
Share-based compensation
Noncurrent lease receivables
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, including long-term deposits
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 Provided by (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.
59
2020
2019
2018
$1,931.1
44.4
1,886.7
14.3
1,901.0
$1,809.4
$1,532.9
49.4
35.1
1,760.0
1,497.8
—
(42.2)
1,760.0
1,455.6
1,185.0
165.0
—
—
(161.9)
(45.8)
53.5
91.6
116.4
43.2
(5.2)
84.4
(31.9)
(130.6)
3,264.7
(2,509.0)
(183.3)
(24.4)
80.3
(2,865.5)
1,938.0
3.9
(3,560.0)
4,895.8
(406.6)
(54.9)
(1,103.6)
34.1
(80.1)
3,284.7
—
—
—
—
14.9
3,004.3
2,248.7
$5,253.0
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
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)
2,969.9
2,547.2
(1,989.7)
(1,568.4)
(123.2)
(345.4)
(15.7)
11.1
(172.1)
190.5
(14.3)
—
48.8
(530.3)
748.2
5.5
(2,113.4)
(1,641.6)
—
(428.6)
3.9
(994.0)
68.1
(19.9)
0.5
(418.7)
(78.5)
(897.8)
76.2
(41.5)
(1,370.5)
(1,359.8)
—
—
—
—
(28.6)
(542.6)
(12.8)
18.6
—
5.8
(33.9)
(482.3)
2,791.3
3,273.6
$2,248.7
$2,791.3
Table of Contents
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
Year ended 30 September
(Millions of dollars,
except for per share data)
Balance 30 September 2017
Net income
Other comprehensive income (loss)
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
Balance 30 September 2019
Net income
Other comprehensive income (loss)
Dividends on common stock (per
share $5.18)
Dividends to noncontrolling interests
Share-based compensation
Issuance of treasury shares for stock
option and award plans
Investments by noncontrolling
interests
Other equity transactions
Capital
in Excess
of Par
Value
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Common
Stock
Treasury
Stock
Air Products
Shareholders’
Equity
Non-
controlling
Interests
Total
Equity
$249.4 $1,001.1 $12,846.6
— 1,497.8
—
($1,847.4) ($2,163.5)
—
—
$10,086.2
1,497.8
$99.3 $10,185.5
1,532.9
35.1
—
—
—
—
—
—
—
—
—
—
38.1
(11.3)
—
1.4
—
105.5
(931.8)
—
—
—
—
(2.7)
—
—
—
—
—
—
—
—
—
—
74.3
—
—
105.5
(19.0)
86.5
(931.8)
—
(931.8)
—
(29.9)
38.1
63.0
—
—
—
227.4
(1.3)
5.9
(29.9)
38.1
63.0
227.4
4.6
$249.4 $1,029.3 $13,409.9
— 1,760.0
—
($1,741.9) ($2,089.2)
—
—
$10,857.5
1,760.0
$318.8 $11,176.3
1,809.4
49.4
—
—
(633.7)
—
(633.7)
(19.9)
(653.6)
—
—
—
—
—
—
—
—
—
—
—
— (1,008.3)
—
40.7
2.2
—
—
—
—
—
—
—
—
—
—
59.7
—
(12.2)
40.7
61.9
—
—
(1,008.3)
—
(1,008.3)
—
(17.1)
(1.3)
(6.1)
—
—
—
—
(17.1)
(7.4)
—
(1.4)
$249.4 $1,070.9 $14,138.4
— 1,886.7
—
($2,375.6) ($2,029.5)
—
—
$11,053.6
1,886.7
$334.7 $11,388.3
1,931.1
44.4
—
—
235.5
— (1,144.1)
—
44.2
—
—
—
—
—
—
—
—
—
—
235.5
(2.0)
233.5
(1,144.1)
—
(1,144.1)
—
(31.8)
44.2
15.4
—
—
—
(14.1)
—
29.5
—
—
—
(6.2)
—
(5.3)
—
—
—
—
—
(11.5)
17.1
0.9
(12.2)
40.7
61.9
(17.1)
(8.8)
(31.8)
44.2
15.4
17.1
(10.6)
Balance 30 September 2020
$249.4 $1,094.8 $14,875.7
($2,140.1) ($2,000.0)
$12,079.8
$363.3 $12,443.1
The accompanying notes are an integral part of these statements.
60
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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars unless otherwise indicated, except for share and per share data)
1. Major Accounting Policies.........................................................................................................................
2. New Accounting Guidance........................................................................................................................
3. Acquisitions...............................................................................................................................................
4. Revenue Recognition................................................................................................................................
5. Cost Reduction Actions.............................................................................................................................
6. Discontinued Operations...........................................................................................................................
7.
Inventories.................................................................................................................................................
8. Summarized Financial Information of Equity Affiliates..............................................................................
9. Plant and Equipment, net..........................................................................................................................
10. Goodwill....................................................................................................................................................
11.
Intangible Assets.......................................................................................................................................
12. Leases.......................................................................................................................................................
13. Financial Instruments................................................................................................................................
14. Fair Value Measurements.........................................................................................................................
15. Debt...........................................................................................................................................................
16. Retirement Benefits...................................................................................................................................
17. Commitments and Contingencies.............................................................................................................
18. Capital Stock.............................................................................................................................................
19. Share-Based Compensation.....................................................................................................................
20. Accumulated Other Comprehensive Loss................................................................................................
21. Earnings Per Share...................................................................................................................................
22.
Income Taxes............................................................................................................................................
23. Supplemental Information.........................................................................................................................
24. Summary by Quarter (Unaudited).............................................................................................................
25. Business Segment and Geographic Information......................................................................................
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70
71
73
76
76
76
77
78
78
79
80
82
87
89
91
97
101
102
105
106
106
112
114
116
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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. The comprehensive income related to discontinued operations has not
been segregated and is included in the consolidated comprehensive income statements. There were no assets and
liabilities presented as discontinued operations on the consolidated balance sheets. Refer to Note 6, Discontinued
Operations, for additional information.
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.
Certain prior year information has been reclassified to conform to the fiscal year 2020 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.
COVID-19 Risks and Uncertainties
In March 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global
pandemic and recommended containment and mitigation measures worldwide. COVID-19 had a negative impact on
our operating results in fiscal year 2020, primarily in the regional industrial gas segments. We continue to monitor its
impact on our operations; however, we are unable to predict the future impact that COVID-19 will have on our future
financial position and operating results due to numerous uncertainties, including the duration and severity of the
outbreak.
Revenue Recognition
We recognize 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.
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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.
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 4, 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 9, 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 14, Fair Value Measurements, and Note 16, Retirement Benefits, for
information on the methods and assumptions used in our fair value measurements.
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Financial Instruments
We address certain financial exposures through a controlled program of risk management that includes the use of
derivative financial instruments. The types of derivative financial instruments permitted for such risk management
programs are specified in policies set by management. Refer to Note 13, Financial Instruments, for further detail on
the types and use of derivative instruments into which we enter.
Major financial institutions are counterparties to all of these derivative contracts. We have established counterparty
credit guidelines and generally enter into transactions with financial institutions of investment grade or better.
Management believes the risk of incurring losses related to credit risk is remote, and any losses would be
immaterial to the consolidated financial results, financial condition, or liquidity.
We recognize derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into,
we generally designate the derivative as either (1) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (cash flow hedge), (2) a hedge of a net
investment in a foreign operation (net investment hedge), or (3) a hedge of the fair value of a recognized asset or
liability (fair value hedge).
The following details the accounting treatment of our cash flow, fair value, net investment, and non-designated
hedges:
•
•
•
•
Changes in the fair value of a derivative that is designated as and meets the cash flow hedge criteria are
recorded in accumulated other comprehensive loss ("AOCL") to the extent effective and then recognized in
earnings when the hedged items affect earnings.
Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair
value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged
risk, are recorded in current period earnings.
Changes in the fair value of a derivative and foreign currency debt that are designated as and meet all the
required criteria for a hedge of a net investment are recorded as translation adjustments in AOCL.
Changes in the fair value of a derivative that is not designated as a hedge are recorded immediately in
earnings.
We formally document the relationships between hedging instruments and hedged items, as well as our risk
management objective and strategy for undertaking various hedge transactions. This process includes relating
derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance
sheet or to specific firm commitments or forecasted transactions. We also formally assess, at the inception of the
hedge and on an ongoing basis, whether derivatives are highly effective in offsetting changes in fair values or cash
flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge, or if a derivative
ceases to be a highly effective hedge, we will discontinue hedge accounting with respect to that derivative
prospectively.
Foreign Currency
Since we do business in many foreign countries, fluctuations in currency exchange rates affect our financial position
and results of operations.
In most of our foreign operations, the local currency is considered the functional currency. Foreign subsidiaries
translate their assets and liabilities into U.S. dollars at current exchange rates in effect as of the balance sheet date.
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. Net foreign exchange losses reflected in "Other income (expense), net" were not
material for the periods presented. Refer to the Other Non-Operating Income (Expense), Net section below for
discussion on other foreign currency presentation.
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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 our 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 $18.3, $14.2, and $12.8 in
fiscal years 2020, 2019, and 2018, respectively. In addition, we recorded a pre-tax expense of $19.0 in results from
discontinued operations to increase our environmental accrual for the Pace facility in the second quarter of fiscal
year 2020. Refer to the Pace discussion within Note 17, Commitments and Contingencies, for additional
information.
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.
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 our 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 our overall environmental exposure and serves as a tool to
facilitate ongoing communication among our technical experts, environmental managers, environmental lawyers,
and financial management to ensure that required accruals are recorded and potential exposures disclosed.
Given inherent uncertainties in evaluating environmental exposures, actual costs to be incurred at identified sites in
future periods may vary from the estimates. Refer to Note 17, Commitments and Contingencies, for additional
information on our environmental loss contingencies.
The accruals for environmental liabilities are reflected in the consolidated balance sheets, primarily as part of other
noncurrent liabilities.
Litigation
In the normal course of business, we are involved in legal proceedings. We accrue a liability for such matters when
it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a
range of possible loss can be established, the most probable amount in the range is accrued. If no amount within
this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.
The accrual for a litigation loss contingency includes estimates of potential damages and other directly related costs
expected to be incurred. Refer to Note 17, Commitments and Contingencies, for additional information on our
current legal proceedings.
Share-Based Compensation
We have various share-based compensation programs, which include deferred stock units, stock options, and
restricted stock. We expense the grant-date fair value of these awards over the vesting period during which
employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who
would meet the requirements for vesting of awards upon their retirement. Refer to Note 19, Share-Based
Compensation, for additional information regarding these awards and the models and assumptions used to
determine the grant-date fair value of our awards.
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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 22, Income Taxes.
Other Non-Operating Income (Expense), net
Other non-operating income (expense), net includes interest income associated with our cash and cash items and
short-term investments, certain impacts from hedging activities, 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.
In fiscal year 2020, we adopted new accounting guidance on hedging activities that changed the income statement
presentation of excluded components (foreign currency forward points and currency swap basis differences) of our
cash flow hedges of intercompany loans. This activity is amortized on a straight-line basis within “Other non-
operating income (expense), net." In addition, gains and losses from the foreign currency remeasurement of
balances associated with intercompany and third-party financing transactions, related income tax assets and
liabilities, and the impact of related hedges are also reflected within “Other non-operating income (expense), net.”
Refer to Note 2, New Accounting Guidance, for additional information.
Cash and Cash Items
Cash and cash items include cash, time deposits, and treasury securities acquired with an original maturity of three
months or less.
Short-term Investments
Short-term investments include time deposits and treasury securities with original maturities greater than three
months and less than one year.
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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 their inability to pay.
The allowance excludes amounts associated with customer disputes over contractual terms and conditions.
Changes to the carrying amount of the allowance for doubtful accounts are summarized below:
Balance at 30 September 2017
Provision for credit losses
Write-offs charged against the allowance
Currency translation and other
Balance at 30 September 2018
Provision for credit losses
Write-offs charged against the allowance
Currency translation and other
Balance at 30 September 2019
Provision for credit losses
Write-offs charged against the allowance
Currency translation and other
Balance at 30 September 2020
$22.6
11.2
(7.2)
(0.2)
$26.4
7.7
(6.8)
(2.5)
$24.8
7.7
(8.3)
(0.3)
$23.9
Inventories
We carry inventory that is comprised of finished goods, work-in-process, raw materials and supplies. Refer to
Note 7, 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. 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. We use the cumulative earnings
approach for determining cash flow presentation of cash distributions received from equity method investees. Equity
investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the investment may not be recoverable.
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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 9, 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.
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 $15.9, $13.5, and $19.5 in fiscal years 2020, 2019,
and 2018, respectively.
Leases
As lessee, we recognize a right-of-use ("ROU") asset and lease liability on the balance sheet for all leases with a
term in excess of 12 months. We determine if an arrangement contains a lease at inception. The arrangement
contains a lease when there is an identifiable asset, we obtain substantially all of the economic benefits from that
asset, and we direct how and for what purpose the asset is used during the term of the arrangement. If the initial
term of an arrangement is 12 months or less, we have made an accounting election to not assess if these
arrangements contain a lease for inclusion on our balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the
commencement date based on the present value of lease payments over the lease term. Since our leases generally
do not provide an implicit discount rate, we use our incremental borrowing rates based on the information available
at the commencement date in determining the present value of lease payments. To determine the incremental
borrowing rate, we consider our unsecured borrowings and published market rates, and then adjust those rates to
assume full collateralization and to factor in the individual lease term, geography, and payment structure.
Our lease term includes periods covered by options to extend or terminate the lease when it is reasonably certain
that we will exercise an option to extend or not exercise an option to terminate. Lease payments consider our
practical expedient to combine amounts for lease and related non-lease components for all classes of underlying
assets in which we are lessee. Fixed payments and payments associated with escalation clauses based on an
index are included in the ROU asset and lease liability at commencement. Variable lease payments are excluded
from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those
payments is incurred. Our variable lease payments primarily include the impact from escalation clauses that are not
fixed or based on an index. Prepaid lease payments are included in the recognition of ROU assets. Our lease
agreements do not contain any material lease incentives, residual value guarantees or restrictions or covenants.
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.
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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 $241.4 and $208.2 at 30 September 2020 and 2019, 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 measurement period of one year.
Goodwill is subject to impairment testing at least annually. In addition, goodwill is tested more frequently if a change
in circumstances or the occurrence of events indicates that potential impairment exists. Refer to Note 10, Goodwill,
for further detail.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, purchased patents and
technology, and land use rights. The cost of intangible assets with determinable lives is amortized on a straight-line
basis over the estimated period of economic benefit. No residual value is estimated for these intangible assets.
Indefinite-lived intangible assets consist of trade names and trademarks. Indefinite-lived intangibles are subject to
impairment testing at least annually. In addition, intangible assets are tested more frequently if a change in
circumstances or the occurrence of events indicates that potential impairment exists.
Customer relationships are generally amortized over periods of five to twenty-five years. Purchased patents and
technology and other 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 11, 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, are recognized systematically over subsequent periods. Refer to Note 16,
Retirement Benefits, for disclosures related to our pension and other postretirement benefits.
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2. NEW ACCOUNTING GUIDANCE
Accounting Guidance Implemented in Fiscal Year 2020
Leases
In February 2016, the FASB issued lease guidance (the "new lease 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.
We are the lessee under various agreements for real estate, vehicles, aircraft, and other equipment that are
accounted for as operating leases.
We adopted this guidance in fiscal year 2020 using a modified retrospective approach with the election to apply the
guidance as of 1 October 2019, "the adoption date," instead of the earliest comparative period presented in the
consolidated financial statements.
We elected the following practical expedients provided by this guidance:
•
•
•
•
•
The package of practical expedients, which allows us to carry forward the lease population and
classification existing as of the adoption date, among other things;
The land easements practical expedient, which allows us to carry forward our accounting treatment for land
easements on agreements existing before the adoption date;
The hindsight practical expedient, which is used to determine the reasonably certain lease term for existing
leases as of the adoption date;
The component combination 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.
Adoption of the standard resulted in recognition of lease liabilities and right-of-use assets on our consolidated
balance sheets as of the adoption date of $375.3 and $332.3, respectively. The standard did not materially affect
our retained earnings, results of operations or liquidity. Refer to Note 12, Leases, for additional information.
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 adopted the new guidance on 1 October 2019 on a modified retrospective basis. The primary impact of adoption
was the presentation in the consolidated income statement of foreign currency forward points and currency swap
basis differences ("excluded components"), since these are excluded from the assessment of hedge effectiveness
for our hedges of intercompany loans. Historically, the impacts from changes in value of these components were
recorded in "Interest expense." In fiscal year 2020, excluded components of $33.5 were recognized in "Other non-
operating income (expense), net" consistent with the remeasurement of the intercompany loans. Interest expense of
$33.3 and $42.6 in fiscal years 2019 and 2018, respectively, has not been restated to conform to the 2020
presentation.
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. Ineffectiveness recognized for our cash flow hedging instruments existing as of the date of
adoption was not material to the consolidated financial statements.
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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 adopted this guidance in the fourth quarter of
fiscal year 2020 and updated the disclosures contained in Note 16, Retirement Benefits, accordingly. Other than the
modification of certain disclosures, this guidance had no effect on our consolidated financial statements.
New Accounting Guidance to be Implemented
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. We will adopt this guidance at the beginning of fiscal year 2021 under the modified
retrospective approach with an adjustment to retained earnings as of the effective date. This guidance will not have
a material impact on our consolidated financial statements upon adoption.
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. We will adopt this guidance at the
beginning of fiscal year 2021. This guidance will not have a material impact on our consolidated financial statements
upon adoption.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued an update to simplify the accounting for income taxes and improve consistent
application by clarifying or amending existing guidance. We will adopt this guidance at the beginning of fiscal year
2021. This guidance will not have a material impact on our consolidated financial statements upon adoption.
Reference Rate Reform
In March 2020, the FASB issued an update to provide practical expedients and exceptions for applying GAAP to
contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.
This update is primarily applicable to our contracts and hedging relationships that reference LIBOR. The
amendments may be applied to impacted contracts and hedges prospectively through 31 December 2022. To date,
we have had no impacts on our hedging relationships related to reference rate reform. We will continue to evaluate
the impact this guidance could have on our consolidated financial statements.
3. ACQUISITIONS
Fiscal Year 2020
Asset Acquisition
On 17 April 2020, we acquired five operating hydrogen production plants from PBF Energy Inc. ("PBF") and
commenced contractual long-term supply of hydrogen from those plants to PBF's refineries. We accounted for the
transaction as an asset acquisition and recorded the aggregate purchase price of approximately $580 to plant and
equipment on our consolidated balance sheets.
Business Combinations
We completed three acquisitions on 1 July 2020 that were accounted for as business combinations. These
acquisitions had an aggregate purchase price, net of cash acquired, of $185.4. The largest of these acquisitions
was the purchase of Oxygen & Argon Works Ltd., the leading manufacturer and marketer of industrial gases in
Israel, primarily offering merchant gas products. We expect this acquisition to create growth opportunities in the
region and allow us to leverage synergies and operating efficiencies. The results of this business are consolidated
within our Industrial Gases – EMEA segment and did not materially impact our consolidated income statement.
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Our fiscal year 2020 business combinations resulted in the recognition of plant and equipment of $71.2, goodwill of
$71.1, and intangible assets of $50.7, partially offset by net liabilities acquired. The goodwill recognized on the
transactions, $8.1 of which is deductible for tax purposes, is attributable to expected growth and cost synergies. The
intangible assets recognized primarily resulted from acquired customer relationships, having a weighted-average
useful life of 19 years.
The acquired assets and liabilities resulting from our 2020 business combinations were recorded at their estimated
fair values, which were calculated based primarily on a preliminary purchase price allocation prepared by
independent valuation specialists. 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.
Fiscal Year 2019
As further discussed below, we completed three business combinations in fiscal year 2019.
Exchange of Equity Affiliate Investments
We previously 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 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 was reflected as "Gain on exchange of equity affiliate investments" on our
consolidated income statements in fiscal year 2019 and was excluded from the results of the Industrial Gases –
Asia segment.
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 are consolidated within our Industrial Gases – Asia segment.
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 in the second quarter. The results of this
business are consolidated within our Industrial Gases – EMEA segment.
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 results of the JV are
consolidated within the Industrial Gases – Asia segment.
Air Products contributed four large air separation units to the JV, and the JV acquired gasification and syngas clean-
up assets from Lu’An. 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, and we established a liability 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 were excluded from the consolidated statement of cash flows for the fiscal year ended 30
September 2018. Refer to Note 15, Debt, for additional information on our related party debt.
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Business Combinations
We completed eight acquisitions that were accounted for as business combinations in fiscal year 2018. 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. The results of this business are consolidated within our Industrial Gases – Asia
segment.
4. REVENUE RECOGNITION
Nature of Goods and Services
The principal activities from which we generate sales from our 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. We also deliver smaller quantities of product through small
on-site plants (cryogenic or non-cryogenic generators), typically via 10- to 15- year sale of gas contracts.
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 we typically design and install 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.
We mitigate energy and natural gas price risk contractually through pricing formulas, surcharges, and cost pass-
through arrangements.
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Industrial Gases – Equipment
We design and manufacture equipment for air separation, hydrocarbon recovery and purification, natural gas
liquefaction, 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 $7, $37, and $38 in fiscal years 2020, 2019, and
2018, 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 for fiscal years 2020 and 2019 disaggregated by supply mode for
each of our reporting segments. We believe this presentation best depicts the nature, timing, type of customer, and
contract terms for our sales.
2020
On-site
Merchant
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
%
$2,040.2
$629.3 $1,652.8
1,590.5 1,297.0 1,063.7
$—
—
$— $4,322.3
49 %
— 3,951.2
45 %
Sale of Equipment
—
—
—
364.9
217.9
582.8
6 %
Total
2019
On-site
Merchant
Sale of Equipment
Total
$3,630.7 $1,926.3 $2,716.5
$364.9
$217.9 $8,856.3 100 %
$2,230.6
$728.4 $1,622.6
1,642.9 1,274.1 1,041.0
$—
—
$— $4,581.6
52 %
— 3,958.0
44 %
—
—
—
261.0
118.3
379.3
4 %
$3,873.5 $2,002.5 $2,663.6
$261.0
$118.3 $8,918.9 100 %
Remaining Performance Obligations
As of 30 September 2020, the transaction price allocated to remaining performance obligations is estimated to be
approximately $22 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 having 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.
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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.
Contract Balances
The table below details balances arising from contracts with customers:
30 September
Assets
Balance Sheet Location
2020
2019
Contract assets – current
Other receivables and current assets
Contract fulfillment costs – current
Other receivables and current assets
Liabilities
Contract liabilities – current
Payables and accrued liabilities
Contract liabilities – noncurrent
Other noncurrent liabilities
$55.9
109.9
$64.3
64.5
313.8
57.9
247.4
49.2
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.
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.
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 2020 and 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 fiscal year ended 30 September 2020, we recognized approximately $145 in revenue associated with
sale of equipment contracts that was included within our contract liabilities as of 30 September 2019. 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 fiscal year ended 30 September 2020 were not
materially impacted by any other factors.
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5. 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 were taken to drive cost synergies
primarily within the Industrial Gases – EMEA and the Industrial Gases – Americas segments. The charge was not
recorded in segment results.
Liabilities associated with these actions are reflected on our consolidated balance sheets within "Payables and
accrued liabilities." The table below summarizes the carrying amount of the accrual as of 30 September 2020:
2019 Charge
Cash expenditures
Amount reflected in pension liability
Currency translation adjustment
30 September 2019
Cash expenditures
Currency translation adjustment
30 September 2020
$25.5
(6.9)
(0.3)
(0.5)
$17.8
(13.5)
0.4
$4.7
6. DISCONTINUED OPERATIONS
In fiscal year 2020, loss from discontinued operations, net of tax, was $14.3. This resulted from a pre-tax loss
of $19.0 recorded in the second quarter to increase our existing liability for retained environmental obligations
associated with the sale of our former Amines business in September 2006. Refer to the Pace discussion within
Note 17, Commitments and Contingencies, for additional information. The loss did not have an impact on our cash
flows for the fiscal year ended 30 September 2020.
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
in fiscal year 2017. These benefits were partially offset by an after-tax loss of $1.0 associated with Energy-from-
Waste project exit activities.
7. INVENTORIES
The components of inventories are as follows:
30 September
Finished goods
Work in process
Raw materials, supplies and other
Inventories
2020
$134.5
21.3
249.0
$404.8
2019
$128.8
27.5
232.0
$388.3
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8. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The summarized financial information below is on a combined 100% basis and has been compiled based on
financial statements of the companies accounted for by the equity method. The amounts presented include the
accounts of the following equity affiliates:
Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (25%);
INOX Air Products Private Limited (50%);
Air Products South Africa (Proprietary) Limited (50%);
Jazan Gas Projects Company (26%);
Bangkok Cogeneration Company Limited (49%);
Kulim Industrial Gases Sdn. Bhd. (50%);
Bangkok Industrial Gases Co., Ltd. (49%);
Chengdu Air & Gas Products Ltd. (50%);
Helios S.p.A. (49%);
INFRA Group (40%);
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
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.
2020
$1,943.5
4,529.2
765.3
2,958.8
2019
$2,885.6
1,193.4
763.4
492.4
2019
$1,660.6
4,400.4
725.1
2,853.6
2018
$2,663.1
1,050.6
635.3
388.0
2020
$2,809.1
1,212.5
748.6
567.8
Dividends received from equity affiliates were $107.0, $144.3, and $122.5 in fiscal years 2020, 2019, and 2018,
respectively.
The investment in net assets of and advances to equity affiliates as of 30 September 2020 and 2019 included
investment in foreign affiliates of $1,431.3 and $1,275.4, respectively.
As of 30 September 2020 and 2019, the amount of investment in companies accounted for by the equity method
included equity method goodwill of $50.0 and $42.8, respectively.
India Finance Act 2020
For the fiscal year ended 30 September 2020, equity affiliates' income includes a benefit of $33.8 due to tax
legislation passed by the Indian government (the "India Finance Act"). This benefit relates to INOX Air Products
Private Limited for the release of our share of accumulated dividend distribution taxes and is included in the fiscal
year 2020 net income on a 100% basis in the table above. Refer to Note 22, Income Taxes, for additional
information.
U.S. Tax Cuts and Jobs Act
For the fiscal 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 22, Income Taxes, for additional information.
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Jazan Gas Project Company
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 2020, our consolidated balance sheets included
$94.4 reflected within "Payables and accrued liabilities" for our obligation to make future equity contributions in 2021
based on our proportionate share of the advances received by the joint venture under the loan.
9. PLANT AND EQUIPMENT, NET
The major classes of plant and equipment are as follows:
30 September
Land
Buildings
Production facilities(A)
Distribution and other machinery and equipment(B)
Construction in progress
Plant and equipment, at cost
Less: Accumulated depreciation
Plant and equipment, net
(A)
Useful Life
in years
30
10 to 20
5 to 25
2020
$296.8
997.8
17,289.7
4,807.7
1,784.2
25,176.2
13,211.5
$11,964.7
2019
$281.5
946.8
15,602.1
4,491.9
1,011.4
22,333.7
11,996.1
$10,337.6
Depreciable lives of production facilities related to long-term customer supply contracts are matched to the contract lives.
(B)
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 $1,150.5, $1,049.7, and $940.7 in fiscal years 2020, 2019, and 2018, respectively.
10. GOODWILL
Changes to the carrying amount of consolidated goodwill by segment are as follows:
Goodwill, net at 30 September 2018
Acquisitions
Currency translation and other
Goodwill, net at 30 September 2019
Acquisitions
Currency translation and other
Goodwill, net at 30 September 2020
30 September
Goodwill, gross
Accumulated impairment losses(A)
Goodwill, net
Industrial
Gases–
Americas
$162.1
—
(5.8)
$156.3
—
(3.7)
$152.6
Industrial
Gases–
EMEA
$424.4
38.5
(30.6)
$432.3
66.6
25.2
$524.1
Industrial
Gases–
Asia
$171.9
10.1
(3.5)
$178.5
—
1.9
$180.4
Industrial
Gases–
Global
$20.1
—
(0.5)
$19.6
—
(0.1)
$19.5
Corporate
and other
$10.4
—
—
$10.4
4.5
—
$14.9
Total
$788.9
48.6
(40.4)
$797.1
71.1
23.3
$891.5
2020
2019
2018
$1,230.2 $1,162.2 $1,194.7
(405.8)
$788.9
(365.1)
$797.1
(338.7)
$891.5
(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.
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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 2020, we conducted our annual goodwill impairment test and determined that the fair value of all our reporting
units exceeded their carrying value.
11. INTANGIBLE ASSETS
The table below summarizes the major classes of our intangible assets:
30 September
Customer relationships
Patents and technology
Other
Total finite-lived intangible assets
Trade names and trademarks
(indefinite-lived)
Total Intangible Assets
Gross
$538.0
39.1
77.6
654.7
52.2
$706.9
2020
Accumulated
Amortization/
Impairment
2019
Accumulated
Amortization/
Impairment
Net
Net
Gross
($209.9) $328.1
$487.9
($179.8) $308.1
(16.3)
(33.7)
22.8
43.9
(259.9)
394.8
39.0
75.0
601.9
(13.3)
(33.4)
25.7
41.6
(226.5)
375.4
(11.2)
41.0
56.2
(12.1)
44.1
($271.1) $435.8
$658.1
($238.6) $419.5
The increase in net intangible assets in fiscal year 2020 was primarily attributable to intangible assets acquired
through business combinations, partially offset by amortization.
Amortization expense for intangible assets was $34.5, $33.1, and $30.0 in fiscal years 2020, 2019, and 2018,
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 2020:
2021
2022
2023
2024
2025
Thereafter
Total
$36.6
34.1
33.0
31.8
30.7
228.6
$394.8
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 2020, 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.
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12. LEASES
As discussed in Note 2, New Accounting Guidance, we adopted the new lease guidance in fiscal year 2020 using a
modified retrospective approach with the election to apply the guidance as of 1 October 2019. For adoption, we
elected the package of practical expedients permitted under the transition guidance to carry forward the historical
lease populations as well as their classifications existing as of the adoption date (i.e. contracts having a lease
commencement date prior to 1 October 2019). Refer to Note 1, Major Accounting Policies, and Note 2, New
Accounting Guidance, for additional information on our adoption and related policies under the new lease standard.
Lessee Accounting
We are the lessee under various agreements for real estate, vehicles, aircraft, and other equipment that are
accounted for as operating leases. Our finance leases principally relate to the right to use machinery and equipment
and are not material.
The operating lease expense for fiscal year 2020 was $80.1. This amount excludes short-term and variable lease
expenses, which were not material.
Amounts associated with operating leases and their presentation on our consolidated balance sheets as of our most
recent balance sheet date and our adoption date are as follows:
Operating lease ROU asset
Other noncurrent assets
Operating lease liabilities
Payables and accrued liabilities
Other noncurrent liabilities
Total Operating Lease Liabilities
30 September 2020
1 October 2019
$376.8
70.7
335.8
$406.5
$332.3
68.6
306.7
$375.3
The difference between the ROU assets and lease liabilities recorded upon adoption primarily relate to the land
lease associated with our former Energy-from-Waste business in which an ROU asset was not recognized.
Weighted-average remaining lease term (in years)(A)
Weighted-average discount rate(B)
(A) Calculated on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.
(B) Calculated on the basis of the discount rate used to calculate the lease liability for each lease and the remaining balance of
30 September 2020
15.7
2.1 %
the lease payments for each lease as of the reporting date.
At 30 September 2020, the maturity analysis of lease liabilities, showing the undiscounted cash flows, were as
follows:
2021
2022
2023
2024
2025
Thereafter
Total Undiscounted Lease Payments
Imputed interest
Present Value of Lease Liability Recognized on the Balance Sheet
80
Operating
Leases
$78.5
55.7
46.5
37.5
30.5
226.0
474.7
(68.2)
$406.5
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As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease
guidance, our rent expense under operating leases, including month-to-month agreements was $87.0 and $82.7 in
fiscal years 2019 and 2018, respectively. In addition, minimum payments due under leases were as follows:
2020
2021
2022
2023
2024
Thereafter
Total Undiscounted Lease Payments
Operating
Leases
$75.1
62.6
44.4
35.9
28.6
171.4
$418.0
The impacts associated with our operating leases on the consolidated statements of cash flows are reflected within
"Other adjustments" within operating activities. This includes the non-cash operating lease expense of $80.1 as well
as a use of cash of $90.0 for payments on amounts included in the measurement of the lease liability for fiscal year
2020.
In addition to the ROU assets established upon adoption, we recorded $110 of non-cash additions during fiscal year
2020.
We have additional operating leases that have not yet commenced as of 30 September 2020 having lease
payments totaling approximately $60.
Lessor Accounting
Historically, certain contracts associated with facilities that are built to provide product to a specific customer were
accounted for as leases. As noted above, we elected the package of practical expedients permitted under the
transition guidance to carry forward these lease determinations as of 30 September 2019. As we generally control
the operations and maintenance of the assets that provide the supply of gas to our customers, there have been no
new arrangements that qualified as a lease in fiscal year 2020.
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. Under the new lease
standard, these contracts qualify for a practical expedient available to lessors to combine the lease and non-
lease components and account for the combined component in accordance with the accounting treatment for the
predominant component. We elected to apply this practical expedient and have accounted for the combined
component as product sales under the revenue standard as we control the operations and maintenance of the
assets that provide the supply of gas to our customers.
In cases where sales-type lease treatment is appropriate, 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 sales-type 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. During fiscal
year 2020, we recognized interest income of $71.2 on our lease receivables.
Our contracts generally do not have the option to extend or terminate the lease or provide the customer the right to
purchase the asset at the end of the contract term. Instead, renewal of such contracts requires negotiation of
mutually agreed terms by both parties. Unless the customer terminates within the required notice period, the
contract will go into evergreen. Given the long-term duration of our contracts, there is no assumed residual value for
the assets at the end of the lease term.
Lease receivables, net, primarily relate to sales-type leases and are mostly included within "Noncurrent lease
receivables" on our consolidated balance sheets, with the remaining balance in "Other receivables and current
assets." As of 30 September 2020 and 2019, the credit quality of lease receivables did not require a material
allowance for credit losses.
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Lease payments collected in fiscal years 2020, 2019, and 2018 were $162.8, $171.6, and $182.7, respectively.
These payments reduced the lease receivable balance by $91.6, $94.6, and $97.4 in fiscal years 2020, 2019, and
2018, respectively.
At 30 September 2020, minimum lease payments expected to be collected, which reconciles to lease receivables,
net, were as follows:
2021
2022
2023
2024
2025
Thereafter
Total
Unearned interest income
Lease Receivables, net
$153.9
147.0
142.5
136.2
130.7
608.5
1,318.8
(415.8)
$903.0
As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease
guidance, minimum lease payments expected to be collected were as follows:
2020
2021
2022
2023
2024
Thereafter
Total
Unearned interest income
Lease Receivables, net
$162.5
156.9
145.7
139.4
133.2
715.5
1,453.2
(472.3)
$980.9
Other than lease payments received during fiscal year 2020 and the impact of currency, there have been no
significant changes to our minimum lease payments expected to be collected since those disclosed as of 30
September 2019 in our 2019 Form 10-K.
13. FINANCIAL INSTRUMENTS
Currency Price Risk Management
Our earnings, cash flows, and financial position are exposed to foreign currency risk from foreign currency-
denominated transactions and net investments in foreign operations. It is our policy to 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
and third-party debt. 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 2020 is 2.8 years.
Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and
affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this
portfolio of forward exchange contracts is Euros and U.S. Dollars.
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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.
The table below summarizes our outstanding currency price risk management instruments:
30 September
Forward Exchange Contracts
Cash flow hedges
Net investment hedges
Not designated
Total Forward Exchange Contracts
2020
2019
US$
Notional
$2,842.1
636.6
1,685.2
$5,163.9
Years
Average
Maturity
0.5
3.8
0.3
0.8
US$
Notional
$2,418.2
830.8
1,053.5
$4,302.5
Years
Average
Maturity
0.5
0.9
0.6
0.6
The increase in the notional value of cash flow hedges from 30 September 2019 to 30 September 2020 is primarily
due to the addition of a forward exchange contract that hedges the repayment of our Eurobond maturing in fiscal
year 2021. The increase in the notional value of our forward exchange contracts that are not designated is primarily
due to the origination of forward exchange contracts that offset other forward exchange contracts previously
designated as net investment hedges or cash flow hedges that were de-designated during fiscal year 2020.
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
€1,288.7 million ($1,510.8) at 30 September 2020 and €951.3 million ($1,036.9) at 30 September 2019. 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 to 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 2020, 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
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swaps primarily between U.S. Dollars and Chinese Renminbi, U.S. Dollars and Indian Rupee, and U.S. Dollars and
Chilean Pesos.
The following table summarizes our outstanding interest rate management contracts and cross currency interest
rate swaps:
30 September
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)
2020
2019
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
US$
Notional
Average
Pay %
Average
Receive
%
Years
Average
Maturity
$200.0
LIBOR
2.76 %
1.1 $200.0
LIBOR
2.76 %
$201.6
4.27 %
3.12 %
3.2 $216.8
4.80 % 3.31 %
$1,057.9
4.83 %
2.98 %
2.5 $1,129.3
4.92 % 3.04 %
$12.8
5.39 %
3.54 %
3.2
$6.1
2.55 % 3.72 %
2.1
3.5
2.3
4.5
The table below provides the amounts recorded on the consolidated balance sheet related to cumulative basis
adjustments for fair value hedges:
30 September
Long-term debt
Carrying amounts of hedged item
Cumulative hedging adjustment, included in
carrying amount
2020
2019
2020
2019
$405.4
$404.7
$5.7
$5.2
The table below summarizes the fair value and balance sheet location of our outstanding derivatives:
30 September
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
Forward exchange contracts
Interest rate management
contracts
Total Derivatives Not
Designated as Hedging
Instruments
Total Derivatives
Balance Sheet
Location
2020
2019
Balance Sheet
Location
2020
2019
Other
receivables and
current assets
Other
receivables and
current assets
Other noncurrent
assets
Other noncurrent
assets
Other
receivables and
current assets
Other noncurrent
assets
Other noncurrent
assets
$51.1
$79.0
Payables and
accrued liabilities
$22.5
$53.8
14.7
0.8
44.3
Payables and
accrued liabilities
24.8
Other noncurrent
liabilities
11.9
Other noncurrent
liabilities
60.9
0.4
33.0
1.7
1.1
0.7
0.7
$110.9
$176.6
$57.6
$56.3
$31.7
—
0.7
$38.7
Payables and
accrued liabilities
Other noncurrent
liabilities
8.4
Other noncurrent
liabilities
0.5
$32.4
$143.3
$47.6
$224.2
$28.0
$36.3
—
—
19.8
—
$28.0
$85.6
$56.1
$112.4
Refer to Note 14, Fair Value Measurements, which defines fair value, describes the method for measuring fair
value, and provides additional disclosures regarding fair value measurements.
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The tables below summarize gains (losses) recognized in other comprehensive income during the period related to
our net investment and cash flow hedging relationships:
Net Investment Hedging Relationships
Forward exchange contracts
Foreign currency debt
Cross currency interest rate swaps
Total Amount Recognized in OCI
Tax effects
Net Amount Recognized in OCI
Derivatives in Cash Flow Hedging Relationships
Forward exchange contracts
Forward exchange contracts, excluded components
Other(A)
Total Amount Recognized in OCI
Tax effects
Net Amount Recognized in OCI
2020
2019
($15.9)
(100.2)
1.9
(114.2)
28.2
($86.0)
$51.5
65.3
12.6
129.4
(30.9)
$98.5
2020
2019
$116.6
(15.2)
(34.2)
67.2
(23.7)
$43.5
($30.3)
(16.1)
0.8
(45.6)
1.5
($44.1)
(A)
Other primarily includes interest rate and cross currency interest rate swaps for which excluded components are
recognized in “Payables and accrued liabilities” and “Other receivables and current assets” as a component of accrued
interest payable and accrued interest receivable, respectively. These excluded components are recorded in “Other Non-
operating income (expense), net” over the life of the cross currency interest rate swap. Other also includes the
recognition of our share of gains and losses, net of tax, related to interest rate swaps held by our equity affiliates.
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The table below summarizes the location and amounts recognized in income related to our cash flow and fair value
hedging relationships by contract type:
Sales
Cost of Sales
Other Income
(Expense), Net
Interest Expense
Other Non-
Operating
Income
(Expense), Net
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
$8,856.3 $8,918.9
$5,858.1 $5,975.5
$65.4 $49.3
$109.3 $137.0
$30.7 $66.7
($0.2)
$0.5
($1.0)
$0.3
$— $28.5
$— $16.0
($117.9)
$—
—
—
—
—
—
—
—
—
17.0
—
—
—
—
—
—
(32.4)
4.2
3.9
22.5
(0.2)
—
0.5
(0.1)
(1.0)
0.2
0.3
(0.1)
—
—
(3.9)
0.9
4.2
19.9
(1.4)
(5.2)
(78.4)
18.9
—
—
—
($0.2)
$0.4
($0.8)
$0.2
$—
($3.0)
$2.8 $14.7
($59.5)
$—
$—
$—
$—
$—
$—
$—
$0.5
$4.3
$—
$—
—
—
—
—
—
—
(0.5)
(4.3)
—
—
$—
$—
$—
$—
$—
$—
$—
$—
$—
$—
Total Amounts Presented in the
Consolidated Income Statement
in which the Effects of Cash Flow
and Fair Value Hedges are
Recorded
(Gain) Loss Effects of Cash Flow
Hedging:
Forward Exchange Contracts:
Amount reclassified from OCI
into income(A)
Amount excluded from
effectiveness testing
recognized in earnings based
on amortization approach(A)
Other:
Amount reclassified from OCI
into income(B)
Total (Gain) Loss Reclassified
from OCI to Income
Tax effects
Net (Gain) Loss Reclassified from
OCI to Income
(Gain) Loss Effects of Fair Value
Hedging:
Other:
Hedged items
Derivatives designated as
hedging instruments
Total (Gain) Loss Recognized in
Income
(A)
(B)
Net amount excluded from effectiveness testing recognized in interest expense for fiscal year 2019, see Note 2, New Accounting
Guidance, for additional details.
Other primarily includes interest rate and cross currency interest rate swaps for which excluded components are recognized in
“Payables and accrued liabilities” and “Other receivables and current assets” as a component of accrued interest payable and accrued
interest receivable, respectively. These excluded components are recorded in “Other Non-operating income (expense), net” over the
life of the cross currency interest rate swap.
The table below summarizes the location and amounts recognized in income related to our derivatives not
designated as hedging instruments by contract type:
Other Income
(Expense), Net
Other Non-Operating
Income (Expense), Net
2020
The Effects of Derivatives Not Designated as Hedging Instruments:
Forward Exchange Contracts
Other
Total (Gain) Loss Recognized in Income
2019
2020
2019
$1.3
(2.0)
($0.7)
$1.1
0.7
$1.8
$—
—
$—
($1.5)
—
($1.5)
The amount of unrealized gains and losses related to cash flow hedges as of 30 September 2020 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.
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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 $30.0 and $30.1 as of 30 September
2020 and 2019, respectively. Because our current credit rating is above the various pre-established thresholds, no
collateral has been posted on these liability positions.
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 $76.5 and $157.1 as of 30 September
2020 and 2019, respectively. No financial institution is required to post collateral at this time, as all have credit
ratings at or above threshold.
14. 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—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—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.
Level 3—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. 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 13, Financial Instruments, for a description of derivative instruments, including details related to the
balance sheet line classifications.
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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.
The carrying values and fair values of financial instruments were as follows:
30 September
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
2020
2019
Carrying Value
Fair Value Carrying Value
Fair Value
$83.6
59.7
$83.5
2.1
$83.6
59.7
$83.5
2.1
$138.0
86.2
$138.0
86.2
$110.6
1.8
$110.6
1.8
7,900.1
8,278.4
3,267.8
3,350.9
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
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
2020
2019
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
$83.6
$—
$83.6
$—
$138.0
$—
$138.0
$—
59.7
—
59.7
—
86.2
—
86.2
—
$143.3
$—
$143.3
$—
$224.2
$—
$224.2
$—
$83.5
$—
$83.5
$—
$110.6
$—
$110.6
$—
2.1
—
2.1
—
1.8
—
1.8
—
$85.6
$—
$85.6
$—
$112.4
$—
$112.4
$—
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15. DEBT
In fiscal year 2020, Air Products issued U.S. Dollar- and Euro-denominated fixed-rate notes in multiple tranches with
aggregate principal amounts of $3.8 billion and €1.0 billion ($1.2 billion as of 30 September 2020), respectively. The
U.S. Dollar-denominated notes were issued on 30 April 2020, and the Euro-denominated notes were issued on 5
May 2020. The proceeds from these notes were reduced by deferred financing charges and discounts of
approximately $45, which are being amortized over the life of the underlying bonds. We intend to use the majority of
the proceeds to fund growth projects and repay debt maturities through 2021. In August 2020, we repaid a 2.0%
Eurobond of €300.0 million that had been previously reflected as long-term debt due to our intent to refinance as of
30 September 2019.
Total Debt
The table below summarizes our total outstanding debt as reflected on our consolidated balance sheets as of 30
September 2020 and 2019:
30 September
Short-term borrowings(A)
Current portion of long-term debt(B)(C)
Long-term debt
Long-term debt – related party(B)
Total Debt
(A)
2020
$7.7
470.0
7,132.9
297.2
$7,907.8
2019
$58.2
40.4
2,907.3
320.1
$3,326.0
Includes bank obligations with weighted average interest rates of 1.6% and 3.7% as of 30 September 2020 and 2019,
respectively.
(B) Our related party debt resulted from the 2018 acquisition of gasification and syngas clean-up assets from our joint venture
partner, Lu'An, who partially funded the acquisition with a loan to the joint venture.
(C)
Includes current portions of long-term debt owed to Lu'An of $41.3 and $37.8 as of 30 September 2020 and 2019,
respectively.
Long-term Debt
The coupon interest rates, maturities, and carrying amounts of our long-term debt as of 30 September 2020 and
2019 are summarized in the table below:
30 September
Payable in U.S. Dollars
Debentures
8.75%
Medium-term Notes (weighted average rate)
Fiscal Year
Maturities
2020
2019
2021
$18.4
$18.4
Series E 7.6%
Senior Notes
Note 3.0%
Note 2.75%
Note 3.35%
Note 1.50%
Note 1.85%
Note 2.05%
Note 2.70%
Note 2.80%
2026
17.2
2022
2023
2024
2026
2027
2030
2040
2050
400.0
400.0
400.0
550.0
650.0
900.0
750.0
950.0
Other (weighted average rate)
Variable-rate industrial revenue bonds 0.1%
2035 to 2050
631.9
17.2
400.0
400.0
400.0
—
—
—
—
—
631.9
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30 September
Payable in Other Currencies
Eurobonds 2.0%
Eurobonds 0.375%
Eurobonds 1.0%
Eurobonds 0.50%
Eurobonds 0.80%
Other
Related Party
Chinese Renminbi 5.5%
Capital Lease Obligations (weighted average rate)
Foreign 10.9%
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
(A)
Fiscal Year
Maturities
2020
2021
2025
2028
2032
2023
2020
—
410.3
351.7
586.2
586.2
0.6
2021 to 2027
338.5
2019
327.0
381.5
327.0
—
—
3.8
357.9
2021 to 2036
9.2
7,950.2
(55.8)
5.7
7,900.1
(470.0)
(297.2)
$7,132.9
10.1
3,274.8
(12.2)
5.2
3,267.8
(40.4)
(320.1)
$2,907.3
We have entered into LIBOR-based interest rate swap arrangements with various counterparty financial institutions on
the 3.0% Senior Note maturing in fiscal year 2022. These interest rate swaps have been designated as fair value
hedges of the Note. Refer to Note 13, Financial Instruments, for additional information.
Maturities of long-term debt, including principal amounts owed to related parties, in each of the next five years and
thereafter are as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$470.4
441.7
456.3
456.4
415.8
5,709.6
$7,950.2
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 2020, we are in compliance with all the financial and other covenants under our debt
agreements.
There were no additional commitments maintained by our foreign subsidiaries as of 30 September 2020.
Cash paid for interest, net of amounts capitalized, was $67.2, $155.9, and $123.1 in fiscal years 2020, 2019, and
2018, respectively.
Credit Agreement
We have a $2,300 five-year revolving credit agreement maturing 31 March 2022 with a syndicate of banks (the
“Credit Agreement”). Under the Credit Agreement, senior unsecured debt is available to us and certain of our
subsidiaries. The Credit Agreement provides us a source of liquidity and supports our commercial paper program.
Our only financial covenant under the Credit Agreement is a maximum ratio of total debt to total capitalization, or
total debt plus total equity, no greater than 70%. No borrowings were outstanding under the Credit Agreement as of
30 September 2020.
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16. RETIREMENT BENEFITS
We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover
a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried
pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined
contribution plans were offered to new employees. The principal defined contribution plan is the Retirement Savings
Plan, in which a substantial portion of the U.S. employees participate. A similar plan is offered to U.K. employees.
We also provide other postretirement benefits consisting primarily of healthcare benefits to U.S. retirees who meet
age and service requirements.
Defined Benefit Pension Plans
Pension benefits earned are generally based on years of service and compensation during active employment. The
components of net periodic benefit cost for our defined benefit pension plans for fiscal years 2020, 2019, and 2018
were as follows:
Year Ended 30 September
Service cost
Interest cost
Expected return on plan assets
Prior service cost amortization
Actuarial loss amortization
Settlements
Special termination benefits
Other
Net Periodic (Benefit) Cost
2020
2019
2018
U.S. International
U.S.
International
U.S.
International
$23.4
91.2
(188.7)
1.2
83.7
5.0
—
—
$15.8
$23.3
24.8
(77.4)
—
19.5
0.2
—
0.8
($8.8)
$21.4
113.4
(172.5)
1.1
65.3
6.2
0.7
—
$19.3
35.8
$25.5
107.2
(75.1)
(201.6)
—
10.9
0.2
0.1
0.8
1.6
87.4
45.0
0.4
—
$25.5
37.3
(81.7)
—
40.2
3.5
—
1.5
$35.6
($8.0)
$65.5
$26.3
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 2020, 2019 and 2018 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 $5.0, $6.2 and $5.2 in fiscal years 2020, 2019 and 2018, 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.
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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:
2020
2019
2018
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
3.3 %
2.9 %
7.0 %
3.5 %
1.5 %
1.3 %
5.0 %
3.3 %
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 %
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
2020
U.S.
2.7 %
3.5 %
International
1.5 %
3.3 %
2019
U.S.
3.2 %
3.5 %
International
1.5 %
3.3 %
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
2020
2019
U.S.
International
U.S.
International
$3,281.6
23.4
91.2
1.6
190.5
(11.7)
—
—
(152.5)
(0.3)
$3,423.8
$1,864.0
23.3
24.8
—
(11.6)
(0.9)
—
1.2
(49.8)
98.7
$1,949.7
$2,922.8
21.4
113.4
1.1
380.3
(12.2)
0.7
—
(146.2)
0.3
$3,281.6
$1,660.5
19.3
35.8
4.7
300.2
(1.6)
0.1
1.3
(47.7)
(108.6)
$1,864.0
2020
2019
U.S.
International
U.S.
International
$2,832.4
364.6
15.5
—
(152.5)
(11.7)
—
$3,048.3
($375.5)
$1,672.4
(3.1)
22.0
1.2
(49.8)
(0.9)
85.0
$1,726.8
($222.9)
$2,684.9
289.9
16.0
—
(146.2)
(12.2)
—
$2,832.4
($449.2)
$1,588.2
208.0
24.2
1.3
(47.7)
(1.6)
(100.0)
$1,672.4
($191.6)
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Amounts Recognized
Noncurrent assets
Accrued liabilities
Noncurrent liabilities
Net Liability Recognized
2020
2019
U.S.
International
U.S.
International
$26.5
10.5
391.5
$375.5
$—
0.2
222.7
$222.9
$17.3
18.3
448.2
$449.2
$11.4
—
203.0
$191.6
The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a
pretax basis during fiscal years 2020 and 2019 consist of the following:
Net actuarial loss arising during the period
Amortization of net actuarial loss
Prior service cost arising during the period
Amortization of prior service cost
Total
2020
2019
U.S.
International
U.S.
International
$14.6
(88.7)
1.6
(1.2)
($73.7)
$68.9
(19.7)
—
—
$49.2
$262.9
$161.5
(71.5)
1.1
(1.1)
$191.4
(11.1)
4.7
—
$155.1
The net actuarial loss represents the actual changes in the estimated obligation and plan assets that have not yet
been recognized in the consolidated income statements and are included in accumulated other comprehensive loss.
Actuarial losses arising during fiscal year 2020 are primarily attributable to lower discount rates, 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 seven years as
of 30 September 2020. For U.K. participants, accumulated actuarial gains and losses that exceed a corridor are
amortized over the average remaining life expectancy, which was approximately twenty-five years as of 30
September 2020.
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
2020
2019
U.S.
International
U.S.
International
$797.7
$643.2
$871.8
$594.0
7.0
—
3.6
0.4
6.6
—
3.6
0.4
$804.7
$647.2
$878.4
$598.0
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 $5,166.5
and $4,931.6 as of 30 September 2020 and 2019, respectively.
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The following table provides information on pension plans where the benefit liability exceeds the value of plan
assets:
30 September
Pension Plans with PBO in Excess of Plan Assets:
PBO
Fair value of plan assets
PBO in excess of plan assets
Pension Plans with ABO in Excess of Plan Assets:
ABO
Fair value of plan assets
ABO in excess of plan assets
2020
2019
U.S.
International
U.S.
International
$3,202.2
2,800.3
$1,949.7
1,726.7
$401.9
$223.0
$3,081.4
2,800.3
$281.1
$475.8
324.4
$151.4
$3,069.2
2,602.8
$466.4
$2,941.2
2,602.8
$338.4
$521.1
318.0
$203.1
$413.3
266.5
$146.8
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 2020 were $86.6 and $91.7, respectively. As of 30
September 2019, the U.K. pension plan had plan assets in excess of both PBO and ABO and was therefore not
included in the table above. As of 30 September 2020, the PBO of this plan exceeded the fair value of plan assets,
resulting in an increase to the International balances.
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. 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:
2020 Target Allocation
2020 Actual Allocation
2019 Actual Allocation
U.S.
International
U.S.
International
U.S.
International
Asset Category
Equity securities
Debt securities
Real estate and other
Cash
Total
42 - 57%
35 - 50%
— - 10%
— %
40 - 49%
51 - 60%
— %
— %
51 %
43 %
5 %
1 %
100 %
43 %
56 %
— %
1 %
100 %
38 %
56 %
6 %
— %
100 %
42 %
57 %
— %
1 %
100 %
In fiscal year 2020, 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 7.6%, 5.1%, 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 2020, the 5.0% 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 5.7%
and was derived from expected equity and debt security returns of 7.3% and 1.8%, respectively.
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The following table summarizes pension plan assets measured at fair value by asset class (see Note 14, Fair Value
Measurements, for definition of the levels):
30 September
Total Level 1
Level 2 Level 3
Total Level 1
Level 2 Level 3
2020
2019
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
$16.9 $16.9
$—
$—
$13.7 $13.7
$—
$—
573.9 573.9
213.1 213.1
—
—
762.0
—
762.0
—
—
—
401.1 401.1
152.9 152.9
—
—
524.8
—
524.8
—
—
—
1,312.7
— 1,312.7
—
1,572.1
— 1,572.1
—
$2,878.6 $803.9 $2,074.7
$—
$2,664.6 $567.7 $2,096.9
$—
169.7
$3,048.3
167.8
$2,832.4
$13.9 $13.9
$—
$—
$13.4 $13.4
$—
$—
746.8
694.1
15.5
256.5
—
—
—
—
746.8
694.1
15.5
—
—
—
— 256.5
711.3
679.9
13.7
254.1
—
—
—
—
711.3
679.9
13.7
—
—
—
— 254.1
$1,726.8 $13.9 $1,456.4 $256.5
$1,672.4 $13.4 $1,404.9 $254.1
(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, which
comprised of investments in insurance contracts:
Balance at 30 September 2018
Actual return on plan assets:
Assets held at end of year
Purchases, sales, and settlements, net
Balance at 30 September 2019
Actual return on plan assets:
Assets held at end of year
Balance at 30 September 2020
$217.7
38.1
(1.7)
$254.1
2.4
$256.5
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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.
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 2020 were $37.5.
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 $45 to $55 to the defined
benefit pension plans in fiscal year 2021. 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:
2021
2022
2023
2024
2025
2026-2030
U.S.
$163.7
165.2
169.8
174.0
177.9
932.6
International
$52.0
52.8
56.9
60.2
59.9
334.4
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may
vary significantly from these estimates.
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.
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Defined Contribution Plans
We maintain a non-leveraged 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 our common stock in the ESOP totaled 2,001,152
as of 30 September 2020.
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
expensed to income in fiscal years 2020, 2019, and 2018 were $45.6, $40.6, and $34.2, 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 2020, 2019, and 2018. Accumulated postretirement benefit obligations as of the end of fiscal
years 2020 and 2019 were $38.6 and $43.7, respectively, of which $7.2 and $7.7 were current obligations,
respectively.
We recognize changes in other postretirement benefit plan obligations in other comprehensive income on a pretax
basis. In fiscal years 2020 and 2019, we recognized gains that arose during the period of $1.3 and $6.1,
respectively. There was no net actuarial loss amortization in fiscal years 2020 and 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
$3.0 and $1.7 as of 30 September 2020 and 2019, respectively.
17. 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 $32 at 30 September 2020) 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 $32 at 30 September 2020) plus interest accrued thereon until final disposition of the proceedings.
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.
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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 2020 and 2019
included an accrual of $84.7 and $68.9, 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 $84 to a reasonably possible upper exposure of $98 as of 30 September 2020.
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 2020, $42.2 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 recognized a before-tax expense of $42 in fiscal year 2006 in
results from discontinued operations and recorded an environmental accrual of $42 in continuing operations on the
consolidated balance sheets.
During the second quarter of fiscal year 2020, we completed an updated cost review of the environmental
remediation status at the Pace facility. The review was completed in conjunction with requirements to maintain
financial assurance per the Consent Order issued by the FDEP and the USEPA discussed below. Based on our
review, we expect ongoing activities to continue for 30 years. Additionally, we will require near-term spending to
install new groundwater recovery wells and piping, in addition to future capital to consider the extended time horizon
for remediation at the site. As a result of these changes, we increased our environmental accrual for this site by $19
in continuing operations on the consolidated balance sheets and recognized a pre-tax expense of $19 in results
from discontinued operations in the second quarter of fiscal year 2020.
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 corrective action management unit. Several groundwater recovery systems
have been installed to contain and remove contamination from groundwater. We completed an extensive
assessment of the site to determine the efficacy of existing measures, 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 remediate groundwater. 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, along with the completion of a cost review every 5 years. In the second
quarter of fiscal year 2020, we completed an updated cost review which resulted in a change in assumptions
regarding future operating costs as discussed above. The costs we are incurring based on the fiscal year 2020
review are higher than our previous estimates.
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Piedmont
At 30 September 2020, $13.3 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 2020, $11.5 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.
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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 2018
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2019
Additional accruals
Liabilities settled
Accretion expense
Currency translation adjustment
Balance at 30 September 2020
$190.4
14.7
(2.1)
8.7
(3.5)
$208.2
22.0
(2.8)
9.5
4.5
$241.4
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 2021, is approximately $100. As of 30
September 2020, our consolidated balance sheets included $94.4 reflected within "Payables and accrued liabilities"
for our obligation to make future equity contributions in 2021 based on our proportionate share of the advances
received by the joint venture under the loan.
Air Products has also entered into a long-term sale of equipment contract with the joint venture to engineer, procure,
and construct the industrial gas facilities that will supply gases to Saudi Aramco. We provided bank guarantees to
the joint venture to support our performance under the contract. As of 30 September 2020, our maximum potential
payments were $247. Exposures under the guarantees will be 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 2020, maximum potential payments
under joint and several guarantees were $25.0. 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.
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Unconditional Purchase Obligations
We are obligated to make future payments under unconditional purchase obligations as summarized below:
2021
2022
2023
2024
2025
Thereafter
Total
$1,460
460
450
455
454
6,277
$9,556
Approximately $7.9 billion of our unconditional purchase obligations relate to helium and rare gases. The majority of
these obligations occur after fiscal year 2025. 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.
We estimate our maximum obligation for future purchases of plant and equipment to be approximately $1.0 billion
based on open purchase orders as of 30 September 2020. 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 2021; however, timing of actual
satisfaction of the obligation may vary.
Our unconditional purchase obligations also include commitments for power and natural gas supply as well as
feedstock supply or numerous HyCO (hydrogen, carbon monoxide, and syngas) facilities. Our long-term sales
contracts to customers are generally matched to the term of these obligations and provide recovery of price
increases. As a result, we do not believe these purchase obligations would have a material effect on our financial
condition or results of operations.
18. CAPITAL STOCK
Common Stock
Authorized common stock consists of 300 million shares with a par value of $1 per share. As of 30 September 2020,
249 million shares were issued, with 221 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 2020. At 30 September 2020, $485.3 in share repurchase authorization
remains.
A summary of the changes in common shares in fiscal year 2020 is presented below:
Year Ended 30 September
Number of common shares outstanding, beginning of year
Issuance of treasury shares for stock option and award plans
Number of common shares outstanding, end of year
2020
220,415,262
2019
219,515,245
2018
218,346,074
602,197
221,017,459
900,017
220,415,262
1,169,171
219,515,245
Preferred Stock
Authorized preferred stock consisted 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 preferred shares issued or outstanding
as of 30 September 2020 and 2019.
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19. SHARE-BASED COMPENSATION
We have various share-based compensation programs, which include deferred stock units, stock options, and
restricted stock. During the fiscal year ended 30 September 2020, we granted market-based and time-based
deferred stock units. 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. As of 30 September 2020, there were 4,341,614 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
Income tax benefit
After-tax share-based compensation cost
2020
$55.8
(13.0)
$42.8
2019
$41.2
(9.7)
$31.5
2018
$38.8
(9.1)
$29.7
Before-tax share-based compensation cost is primarily included in "Selling and administrative expense" on our
consolidated income statements. The amount of share-based compensation cost capitalized in fiscal years 2020,
2019, and 2018 was not material.
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
2020
$55.8
—
—
$55.8
2019
$41.1
—
0.1
$41.2
2018
$38.3
0.2
0.3
$38.8
Deferred Stock Units
We have granted deferred stock units to executives, selected employees, and outside directors. These deferred
stock units entitle the recipient to one share of common stock upon vesting, which is conditioned, for employee
recipients, on continued employment during the deferral period and may be conditioned on achieving certain
performance targets. We grant deferred stock unit awards with a two- to five-year deferral period that is subject to
payout upon death, disability, or retirement. Deferred stock units issued to outside directors are paid after service on
the Board of Directors ends at the time elected by the director (not to exceed 10 years after service ends). We
generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period;
however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for
vesting upon retirement. 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 our share price appreciation and dividends paid, or "total shareholder return," in relation to a defined
peer group over a three-year performance period beginning 1 October of the fiscal year of grant. We granted
80,215, 114,929, and 105,268 market-based deferred stock units in fiscal years 2020, 2019, and 2018, respectively.
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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 $275.19, $229.61, and $202.50 per unit in
fiscal years 2020, 2019, and 2018, respectively. The calculation of the fair value of these market-based deferred
stock units used the following assumptions:
Expected volatility
Risk-free interest rate
Expected dividend yield
2020
17.8 %
1.6 %
2.4 %
2019
17.5 %
2.8 %
2.6 %
2018
18.7 %
1.9 %
2.6 %
In addition, we granted 123,448 time-based deferred stock units at a weighted average grant-date fair value of
$230.92. In fiscal years 2019 and 2018, we granted 169,666 and 143,379 time-based deferred stock units at a
weighted average grant-date fair value of and $168.68 and $162.11, respectively.
A summary of deferred stock unit activity in fiscal year 2020 is presented below:
Deferred stock units outstanding at 30 September 2019
Granted
Paid out
Forfeited/adjustments
Deferred stock units outstanding at 30 September 2020
Shares (000)
976
203
(300)
47
926
Weighted Average
Grant-
Date Fair Value
$156.31
252.53
141.08
131.35
$181.14
Cash payments made for deferred stock units totaled $4.8, $1.9, and $2.2 in fiscal years 2020, 2019, and 2018,
respectively. As of 30 September 2020, there was $52.7 of unrecognized compensation cost related to deferred
stock units. This cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value
of deferred stock units paid out during fiscal years 2020, 2019, and 2018, including shares vested in prior periods,
was $65.4, $19.2, and $38.5, respectively.
Stock Options
We have granted awards of options to purchase common stock to executives and selected employees. The
exercise price of stock options equals the market price of our stock on the date of the grant. Options generally vest
incrementally over three years and remain exercisable for ten years from the date of grant. We have not issued
stock option awards since fiscal year 2015. As of 30 September 2020, there was no unrecognized compensation
cost as all stock option awards were fully vested.
A summary of stock option activity in fiscal year 2020 is presented below:
Stock options outstanding and exercisable at 30 September 2019
Exercised
Forfeited
Stock options outstanding and exercisable at 30 September 2020
Shares (000)
Weighted Average
Exercise Price
1,344
(403)
—
941
$93.75
86.28
—
$96.95
The weighted average remaining contractual term of stock options outstanding and exercisable at 30 September
2020 was 2.7 years. The aggregate intrinsic value of these stock options was $189, which represents the amount by
which our closing stock price of $297.86 as of 30 September 2020 exceeds the exercise price multiplied by the
number of in-the-money options outstanding or exercisable. The intrinsic value of stock options exercised during
fiscal years 2020, 2019, and 2018 was $65.7, $87.2, and $90.4, respectively.
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Compensation cost is generally recognized over the stated vesting period consistent with the terms of the
arrangement, which is 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.
Cash received from option exercises during fiscal year 2020 was $34.1. The total tax benefit realized from stock
option exercises in fiscal year 2020 was $15.4, of which $14.2 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. Historically, forfeitures have not been significant.
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 in fiscal year 2020 is presented below:
Restricted stock outstanding at 30 September 2019
Vested
Restricted stock outstanding at 30 September 2020
Shares (000)
26
(26)
—
Weighted Average
Grant-
Date Fair Value
$138.00
138.00
$—
As of 30 September 2020, 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 2020, 2019, and 2018 was $6.1, $2.6, and
$2.2, respectively.
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20. ACCUMULATED OTHER COMPREHENSIVE LOSS
The table below summarizes changes in accumulated other comprehensive loss ("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 2017
($53.1)
($787.1)
($1,007.2) ($1,847.4)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from AOCL
Net current period other comprehensive income (loss)
Amount attributable to noncontrolling interests
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
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 2020
45.9
(30.4)
$15.5
—
(244.6)
3.1
179.4
133.1
($241.5)
$312.5
(19.3)
105.8
$86.5
(18.8)
(0.2)
(19.0)
($37.6)
(44.1)
($1,009.8)
(356.2)
($694.5) ($1,741.9)
(726.5)
(326.2)
12.3
(2.6)
63.2
72.9
($31.8)
($358.8)
($263.0)
($653.6)
(8.0)
(11.7)
(0.2)
(19.9)
($61.4)
($1,356.9)
($957.3) ($2,375.6)
43.5
(57.7)
233.4
—
($14.2)
$233.4
(68.2)
208.7
82.5
$14.3
24.8
$233.5
(21.1)
19.3
(0.2)
(2.0)
($54.5)
($1,142.8)
($942.8) ($2,140.1)
The table below summarizes the reclassifications out of AOCL and the affected line item on the consolidated income
statements:
Year Ended 30 September
(Gain) Loss on Cash Flow Hedges, net of tax
Sales/Cost of sales
Other income (expense), net
Interest expense
Other non-operating income (expense), net(A)
Total (Gain) Loss on Cash Flow Hedges, net of tax
2020
2019
2018
($1.0)
—
2.8
(59.5)
($57.7)
$0.6
(3.0)
14.7
—
$12.3
$7.1
(42.6)
5.1
—
($30.4)
Currency Translation Adjustment(B)
$—
($2.6)
$3.1
Pension and Postretirement Benefits, net of tax(C)
(A) The fiscal year 2020 impact includes amortization of the excluded component and the effective portion of the related
$82.5
$63.2
$133.1
hedges.
(B) 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 3, Acquisitions, for additional information. 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.
(C) 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 16, Retirement Benefits, for additional information.
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21. EARNINGS PER SHARE
The table below details the computation of basic and diluted earnings per share ("EPS"):
Year Ended 30 September
Numerator
Net income from continuing operations
Net (loss) 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
Per Share Data*
Basic EPS from continuing operations
Basic EPS from discontinued operations
Basic EPS Attributable to Air Products
Diluted EPS from continuing operations
Diluted EPS from discontinued operations
Diluted EPS Attributable to Air Products
2020
2019
2018
$1,901.0
$1,760.0
$1,455.6
(14.3)
—
42.2
$1,886.7
$1,760.0
$1,497.8
221.2
220.3
219.3
1.1
222.3
1.3
221.6
1.5
220.8
$8.59
(0.06)
$8.53
$8.55
(0.06)
$8.49
$7.99
—
$7.99
$7.94
—
$7.94
$6.64
0.19
$6.83
$6.59
0.19
$6.78
*EPS is calculated independently for each component and may not sum to total EPS due to rounding.
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. To the extent
they would have been dilutive, the incremental shares, or the difference between shares assumed to be issued
versus purchased, are included in the denominator of the diluted EPS calculation. There were no antidilutive
outstanding share-based awards in fiscal years 2020 and 2019. Outstanding share-based awards of 0.1 million
shares were antidilutive and therefore excluded from the computation of diluted EPS for fiscal year 2018.
22. INCOME TAXES
The following table summarizes the income of U.S. and foreign operations before taxes:
United States income
Foreign income
Equity affiliates' income
Income from Continuing Operations Before Taxes
2020
$943.7
1,215.3
264.8
$2,423.8
2019
$723.3
1,350.8
215.4
$2,289.5
2018
$688.5
1,151.7
174.8
$2,015.0
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.
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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.
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.
As of 30 September 2020, the remaining balance of the deemed repatriation tax obligation is $211.4, $190.9 of
which is presented on our consolidated balance sheets in noncurrent liabilities. We are paying the obligation in
installments over six remaining years.
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 21.0% federal tax rate applied 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
2020
$26.9
23.8
262.7
313.4
108.8
(3.6)
59.8
165.0
$478.4
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
Total company income tax payments, net of refunds, were $379.9, $324.3, and $372.0 in fiscal years 2020, 2019,
and 2018, respectively.
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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
Share-based compensation
Tax reform repatriation
Tax reform rate change and other
Tax restructuring benefit
Domestic production activities
Other
Effective Tax Rate
2020
21.0 %
0.6
(2.3)
0.1
0.9
(0.8)
—
—
—
—
0.2
19.7 %
2019
21.0 %
1.0
(2.0)
1.0
0.1
(0.6)
1.9
—
—
—
(1.4)
21.0 %
2018
24.5 %
1.0
(2.1)
(1.0)
(0.4)
(1.0)
19.5
(11.1)
(1.8)
(0.4)
(1.2)
26.0 %
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 Tax Act, our
effective non-U.S. tax rates in fiscal years 2020 and 2019 are higher than our statutory rate of 21.0% in those years.
Our income tax holidays relate to operations in jurisdictions that provide reduced income tax rates for certain
qualifying activities and are conditional upon us meeting certain operating thresholds. The impact of these tax
holidays decreased income tax expense by $26.9 ($0.12 per share) in fiscal year 2020, primarily related to a
preferential tax rate in China that is effective until 31 December 2030. This includes the impact of remeasurement of
the deferred tax assets and liabilities due to an extension of the holiday period in China. The impact of tax holidays
in fiscal years 2019 and 2018 were not material.
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. The enactment of
the India Finance Act 2020, increased income tax expense by $20.3 and increased equity affiliate income by $33.8
for changes in the future tax costs of repatriated earnings. In addition, the Tax Act included 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.
Share-based compensation reflects the impact from recognition of $20.0, $14.6, and $21.5 of excess tax benefits in
our provision for income taxes during fiscal years 2020, 2019, and 2018, 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.
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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
2020
2019
$209.0
112.6
40.3
67.0
30.4
64.6
(95.0)
428.9
1,110.9
—
58.7
19.3
83.6
3.9
1,276.4
$847.5
$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
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
2020
2019
$115.1
$115.2
962.6
$847.5
793.8
$678.6
Deferred tax liabilities related to plant and equipment increased due to the impact of accelerated tax depreciation
deductions in excess of book depreciation primarily in the United States. The deferred tax component for currency
transactions moved into an overall deferred tax asset position due primarily to currency movements on hedging
transactions as several foreign based currencies strengthened against the U.S. dollar in fiscal year 2020. We also
realized a deferred tax liability related to the unrealized foreign exchange gain for a euro denominated financial
instrument. Unremitted earnings of foreign entities increased primarily as a result of the enactment of the India
Finance Act 2020 which increased the future tax costs of repatriated earnings.
As of 30 September 2020, we had the following deferred tax assets for certain tax credits:
Jurisdiction
U.S. State
U.S. Federal
Foreign
Gross Tax Asset
$2.0
14.1
28.6
Expiration Period
2021 - 2034
2027 - 2030
2021 - 2025; Indefinite
Of the $28.6 foreign tax credits, $13.3 have indefinite carryforward periods.
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As of 30 September 2020, we 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
$323.2
24.4
236.6
274.8
Expiration Period
2021 - 2040
2025
2021 - 2030; Indefinite
Indefinite
In fiscal year 2020, the U.S. Federal capital losses increased by $22.6 primarily due to the recognition of a capital
loss for the liquidation of a foreign subsidiary. Of the $236.6 of foreign net operating loss carryforwards, $83.1 have
indefinite carryforward periods. Foreign net operating losses decreased by $116.0 in fiscal year 2020 primarily due
to utilization in China and a tax election in India that reduced tax loss carryforwards and decreased plant and
equipment net deferred tax liabilities.
The valuation allowance was $95.0 and $92.1 as of 30 September 2020 and 2019, respectively. As of 30
September 2020, the balance primarily related to $40.3 of foreign credits and loss carryforwards as well as $52.2
related to foreign capital losses that were generated from the loss recorded on the exit from the Energy-from-Waste
project 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 2020.
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 $4.7 billion as of 30 September 2020. An estimated $454.4 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
Unrecognized tax benefits balance at end of year
2020
$231.7
7.6
17.7
(4.1)
(1.2)
(14.0)
(0.7)
$237.0
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)
(0.3)
$233.6
As of 30 September 2020 and 2019, we had $237.0 and $231.7 of unrecognized tax benefits, excluding interest and
penalties, respectively. Of these benefits, $86.1 and $75.0 as of 30 September 2020 and 2019, 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 $6.1, $12.0, and ($2.4) in fiscal years 2020, 2019, and 2018, respectively. Our accrued balance for interest
and penalties was $25.2 and $19.5 as of 30 September 2020 and 2019, respectively.
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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 our former Performance Materials Division in fiscal year 2017. 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.
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.
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
Open Tax Years
2017 - 2020
2012 - 2020
2015 - 2020
2017 - 2020
2017 - 2020
2016 - 2020
2015 - 2020
2016 - 2020
2015 - 2020
2010 - 2020
2015 - 2020
2017 - 2020
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23. SUPPLEMENTAL INFORMATION
Other Receivables and Current Assets
30 September
Contract assets
Contract fulfillment costs
Derivative instruments
Current lease receivables
Other
Other receivables and current assets
Other Noncurrent Assets
30 September
Operating lease right-of-use assets
Deferred tax assets
Derivative instruments
Noncurrent customer receivable
Prepaid tax
Pension benefits
Long-term deposits on plant and equipment
Other
Other noncurrent assets
Payables and Accrued Liabilities
30 September
Trade creditors
Contract liabilities
Dividends payable
Accrued payroll and employee benefits
Obligation for future contribution to an equity affiliate
Current lease obligations
Derivative instruments
Pension and postretirement benefits
Other
Payables and accrued liabilities
112
2020
$55.9
109.9
97.5
86.7
132.9
2019
$64.3
64.5
142.5
90.9
115.5
$482.9 $477.7
2020
2019
$—
115.2
81.7
118.0
17.0
28.7
—
243.5
$943.1 $604.1
$376.8
115.1
45.8
—
19.3
26.5
100.0
259.6
2020
2019
$546.2 $528.2
247.4
255.7
186.1
313.8
296.2
196.8
94.4
70.7
50.9
17.9
246.3
94.4
—
91.2
26.0
206.7
$1,833.2 $1,635.7
Table of Contents
Other Noncurrent Liabilities
30 September
Pension benefits
Postretirement benefits
Operating lease liabilities(A)
Asset retirement obligations
Long-term accrued income taxes related to U.S. tax reform
Contingencies related to uncertain tax positions
Environmental liabilities
Contract liabilities
Derivative instruments
Noncurrent customer liability
Obligations associated with Energy-from-Waste(A)
Other
Other noncurrent liabilities
2020
2019
$614.2 $651.2
36.0
31.4
335.8
236.2
190.9
138.6
73.6
57.9
34.7
—
—
202.7
—
201.9
215.4
123.3
59.1
49.2
21.2
118.0
57.8
179.3
$1,916.0 $1,712.4
(A)
In connection with our adoption of the new lease guidance, the presentation of our lease liability associated with our former
Energy-from-Waste project has been recorded in aggregate with our other operating lease liabilities effective 1 October
2019.
Company Headquarters Relocation Income (Expense)
During the second quarter of fiscal year 2020, we sold property at our current corporate headquarters located in
Trexlertown, Pennsylvania, for net proceeds of $44.1. The sale was completed in anticipation of relocating our U.S.
headquarters and resulted in a gain of $33.8. This gain is reflected on our consolidated income statements as
"Company headquarters relocation income (expense)" for the fiscal year ended 30 September 2020 and has been
excluded from the results of the Corporate and other segment.
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 during the first quarter of fiscal year 2019 primarily related to
the write-off of onsite assets. This charge was reflected as “Facility closure” on our consolidated income statements
for the fiscal year ended 30 September 2019 and was not recorded in segment results.
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 $335, $410, and $360 for the fiscal years ended 30 September 2020, 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. As of 30 September 2020 and 2019, our
consolidated balance sheets include related party trade receivables of approximately $95 and $130, respectively.
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24. SUMMARY BY QUARTER (UNAUDITED)
The tables below provide unaudited selected financial data and weighted average share information for each
quarter of fiscal years 2020 and 2019:
2020
Sales
Gross profit
Q1
Q2
Q3
Q4
Total
$2,254.7
$2,216.3
$2,065.2
$2,320.1
$8,856.3
768.1
756.2
720.3
753.6
2,998.2
Company headquarters relocation income
(expense) (See Note 23)
Operating income
Equity affiliates' income
Income tax provision
Income from continuing operations
Loss from discontinued operations, net of tax (See
Note 6)
Net income
Net Income Attributable to Air Products
Net income from continuing operations
Net loss from discontinued operations
Net Income Attributable to Air Products
Per Share Data*
Basic EPS from continuing operations
Basic EPS from discontinued operations
Basic EPS Attributable to Air Products
Diluted EPS from continuing operations
Diluted EPS from discontinued operations
Diluted EPS Attributable to Air Products
Weighted Average Common Shares (in
millions)
Basic
Diluted
Dividend Information
—
561.0
58.2
120.7
488.9
—
488.9
$475.6
—
$475.6
$2.15
—
$2.15
$2.14
—
$2.14
33.8
577.2
88.2 (A)
148.5 (A)
504.7
(14.3)
490.4
—
539.2
51.2
109.3
457.1
—
457.1
—
33.8
560.2
2,237.6
67.2
99.9
264.8 (A)
478.4 (A)
494.7
1,945.4
—
(14.3)
494.7
1,931.1
$492.1
(14.3)
$477.8
$446.5
$486.8
$1,901.0
—
—
(14.3)
$446.5
$486.8
$1,886.7
$2.22
(0.06)
$2.16
$2.21
(0.06)
$2.15
$2.02
—
$2.02
$2.01
—
$2.01
$2.20
—
$2.20
$2.19
—
$2.19
$8.59
(0.06)
$8.53
$8.55
(0.06)
$8.49
220.9
222.2
221.2
222.3
221.2
222.4
221.3
222.6
221.2
222.3
Dividends declared per common share
$1.16
$1.34
$1.34
$1.34
$5.18
* EPS is calculated independently for each component and may not sum to total EPS due to rounding.
(A)
Includes the impact of the enactment of India Finance Act 2020, which increased equity affiliates' income by $33.8 and our income tax
provision by $20.3. Refer to Note 22, Income Taxes, for additional information.
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2019
Sales
Gross profit
Cost reduction actions (See Note 5)
Gain on exchange of equity affiliate investments
(See Note 3)
Operating income
Equity affiliates' income
Pension settlement loss (See Note 16)
Income tax provision
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Net Income Attributable to Air Products
Q1
Q2
Q3
Q4
Total
$2,224.0
$2,187.7
$2,224.0
$2,283.2
651.0 (A)
—
—
455.0
52.9
—
132.1 (B)
357.0
—
357.0
713.0
—
—
516.5
46.2
5.0
107.5
433.5
—
433.5
758.0
25.5
29.1
569.7
56.4
—
109.3 (B)
500.2
—
500.2
$8,918.9
2,914.4 (A)
25.5
29.1
792.4
—
—
603.2
2,144.4
59.9
—
131.2
518.7
—
215.4
5.0
480.1 (B)
1,809.4
—
518.7
1,809.4
Net income from continuing operations
$347.5
$421.3
$488.0
$503.2
$1,760.0
Net income from discontinued operations
—
—
—
—
—
Net Income Attributable to Air Products
$347.5
$421.3
$488.0
$503.2
$1,760.0
Per Share Data*
Basic EPS from continuing operations
Basic EPS from discontinued operations
Basic EPS Attributable to Air Products
Diluted EPS from continuing operations
Diluted EPS from discontinued operations
Diluted EPS Attributable to Air Products
Weighted Average Common Shares (in
millions)
Basic
Diluted
Dividend Information
$1.58
—
$1.58
$1.57
—
$1.57
$1.91
—
$1.91
$1.90
—
$1.90
$2.21
—
$2.21
$2.20
—
$2.20
$2.28
—
$2.28
$2.27
—
$2.27
$7.99
—
$7.99
$7.94
—
$7.94
219.9
221.0
220.2
221.4
220.6
221.9
220.7
222.1
220.3
221.6
Dividends declared per common share
$1.10
$1.16
$1.16
$1.16
$4.58
* EPS is calculated independently for each component and may not sum to total EPS due to rounding.
(A)
(B)
Includes the impact of a facility closure charge of $29.0 resulting from the government enforced shutdown of a customer in December 2018.
Refer to Note 23, Supplemental Information, for additional information.
Includes a discrete net income tax expense of $43.8, primarily recorded in the first quarter of fiscal year 2019 to finalize our estimates of the
impacts of the U.S. Tax Cuts and Jobs Act. Refer to Note 22, Income Taxes, for additional information.
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25. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Our reporting segments reflect the manner in which our chief operating decision maker reviews results and
allocates resources. Except in the 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, and argon; process gases,
such as hydrogen, helium, carbon dioxide (CO2), carbon monoxide, and syngas (a mixture of hydrogen and carbon
monoxide); and specialty gases. 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.
We supply gases to diversified 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. 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 energy, natural gas, and hydrocarbon
price fluctuations contractually through pricing formulas, surcharges, and 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 China, India, Italy, Mexico, Saudi Arabia, South
Africa, 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 activity related to the sale of 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 business is based
primarily on technological performance, service, technical know-how, price, and performance guarantees.
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Corporate and other
The Corporate and other segment includes our liquefied natural gas, turbo machinery equipment and services, and
distribution sale of equipment businesses as well as our 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.
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.
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 Information
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Total
2020
Sales
$3,630.7 $1,926.3 $2,716.5
$364.9
Operating income (loss)
1,012.4
Depreciation and amortization
Equity affiliates' income
Expenditures for long-lived assets
Investments in net assets of and
advances to equity affiliates
Total assets
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
559.5
84.3
473.3
195.9
74.8
870.3
399.4
61.0
1,264.7
327.6
690.3
$217.9 $8,856.3 (A)
(112.2) 2,203.8 (B)
20.6 1,185.0
—
231.0 (B)
191.1 2,509.0
(40.0)
9.6
10.9
35.3
310.9
535.2
539.7
46.4
— 1,432.2
6,610.1 3,917.0 6,842.9
397.8 7,400.7 25,168.5
$3,873.5 $2,002.5 $2,663.6
$261.0
997.7
505.2
84.8
472.4
189.5
69.0
864.2
361.5
58.4
(11.7)
8.6
3.2
$118.3 $8,918.9 (A)
(152.8) 2,169.8 (B)
18.0 1,082.8
—
215.4 (B)
545.8
216.3 1,105.5
33.8
88.3 1,989.7
301.6
493.4
445.5
35.7
— 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
927.9
485.3
82.0
445.8
198.6
61.1
689.9
265.8
58.3
53.9
8.1
1.9
$84.0 $8,930.2 (A)
(176.0) 1,941.5 (B)
12.9
—
970.7
203.3 (B)
Expenditures for long-lived assets
(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.
49.6 1,568.4
791.9
163.1
546.5
17.3
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Reconciliations to Consolidated Results
Operating Income
The table below reconciles total operating income disclosed in the table above to consolidated operating income as
reflected on our consolidated income statements:
Year Ended 30 September
Total
Change in inventory valuation method
Facility closure
Cost reduction actions
Gain on exchange of equity affiliate investments
Company headquarters relocation income (expense)
Consolidated Operating Income
Equity Affiliates' Income
2019
2020
2018
$2,203.8 $2,169.8 $1,941.5
24.1
—
—
—
—
$2,237.6 $2,144.4 $1,965.6
—
(29.0)
(25.5)
29.1
—
—
—
—
—
33.8
The table below reconciles total equity affiliates' income disclosed in the table above to consolidated equity affiliates'
income as reflected on our consolidated income statements:
Year Ended 30 September
Total
India Finance Act 2020
Tax reform repatriation - equity method investment
Consolidated Equity Affiliates' Income
2020
$231.0
33.8
—
$264.8
2019
$215.4
—
—
$215.4
2018
$203.3
—
(28.5)
$174.8
Geographic Information
Sales to External Customers
Year Ended 30 September
United States
China
Other foreign operations
Total
Long-Lived Assets(A)
30 September
United States
China
Other foreign operations
Total
(A)
Long-lived assets represents plant and equipment, net.
Geographic information is based on country of origin.
2019
2020
2018
$3,359.6 $3,351.8 $3,149.6
1,585.7
4,194.9
$8,856.3 $8,918.9 $8,930.2
1,719.7
3,777.0
1,730.2
3,836.9
2019
2020
2018
$4,633.9 $3,721.3 $3,512.7
3,066.6
3,344.4
$11,964.7 $10,337.6 $9,923.7
3,719.4
3,611.4
3,302.6
3,313.7
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Not applicable.
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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,
our management conducted an evaluation of the effectiveness of our disclosure controls and procedures as of 30
September 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that,
as of 30 September 2020, 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 2020 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
2020, our 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 our internal control over financial reporting during the fourth quarter of fiscal year 2020 that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Deloitte & Touche LLP, our independent registered public accounting firm, has audited our internal control over
financial reporting as of 30 September 2020. 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.
On 19 November 2020, Margaret G. McGlynn informed the Company of her retirement from the Company’s Board
of Directors, effective 23 November 2020. Ms. McGlynn indicated that her decision to retire was not a result of any
disagreement with the Company.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item relating to our 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 28 January 2021. The information required by this item relating to our executive officers is set forth in Item 1
of Part I of this report.
The information required by this item relating to our Audit and Finance Committee and our Audit and Finance
Committee Financial Expert is incorporated herein by reference to the sections captioned “Board Structure–
Standing Committees of the Board” in the Proxy Statement for the Annual Meeting of Shareholders to be held on 28
January 2021.
The information required by this item relating to our 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 “The Board of Directors–Selection of Directors” in the Proxy Statement for the
Annual Meeting of Shareholders to be held on 28 January 2021.
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” in the
Proxy Statement for the Annual Meeting of Shareholders to be held on 28 January 2021.
We have 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/company/governance/code-of-conduct.
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Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference to the sections captioned “Executive
Compensation” and “Compensation of Directors” in the Proxy Statement for the Annual Meeting of Shareholders to
be held on 28 January 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information required by this item is incorporated herein by reference to the sections captioned "Information
About Stock Ownership" and “Equity Compensation Plan Information” in the Proxy Statement for the Annual
Meeting of Shareholders to be held on 28 January 2021.
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 “The Board of
Directors–Director Independence” and “Board Practices, Processes and Policies–Transactions with Related
Persons” in the Proxy Statement for the Annual Meeting of Shareholders to be held on 28 January 2021.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated herein by reference to the section captioned “Fees of
Independent Registered Public Accounting Firm” in the Proxy Statement for the Annual Meeting of Shareholders to
be held on 28 January 2021.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The documents below are filed as a part of this report:
(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.................................. 52
Report of KPMG LLP, Independent Registered Public Accounting Firm.................................................... 55
Consolidated Income Statements – Years Ended 30 September 2020, 2019, and 2018.......................... 56
Consolidated Comprehensive Income Statements – Years Ended 30 September 2020, 2019, and 2018 57
Consolidated Balance Sheets – 30 September 2020 and 2019................................................................ 58
Consolidated Statements of Cash Flows – Years Ended 30 September 2020, 2019, and 2018............... 59
Consolidated Statements of Equity – Years Ended 30 September 2020, 2019, and 2018........................ 60
(2) Financial Statement Schedules. Financial statement schedules are omitted as they are either not
required or the information is otherwise included in the consolidated financial statements or notes
thereto.
(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 121 of this report.
Item 16. Form 10-K Summary.
None.
120
Table of Contents
Exhibit No. Description
INDEX TO EXHIBITS
(3)
3.1
3.2
3.3
3.4
(4)
4.1
4.2
4.3
(10)
10.1
10.2
10.3
10.4
10.5
10.5(a)
10.5(b)
10.5(c)
10.5(d)
10.5(e)
Articles of Incorporation and Bylaws.
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 Current
Report on Form 8-K dated 26 November 2019.)*
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 10, 1995, between the Company and The Bank of New York Trust,
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. 033-57357.)*
Indenture, dated as of April 30, 2020, between the Company and The Bank of New York Trust
Company, N.A., as Trustee (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
April 30, 2020).*
Description of Securities
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.)*†
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.)*†
Deferred Compensation Program for Directors, effective 7 October 2019. (Filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for quarter ended 31 December 2019.)*†
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 Performance Share Award Agreement under the Long-Term Incentive Plan of the
Company, used for FY2019 awards. (Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended 31 December 2018.)*†
Form of Performance Share Award Agreement under the Long-Term Incentive Plan of the
Company, used for FY2019 awards. (Filed as Exhibit 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.)*†
Form of Restricted Stock Award Agreement under the Long-Term Incentive Plan of the Company,
used for FY2020 awards. (Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended 31 March 2020.)*†
Form of Performance Share Award Agreement under the Long-Term Incentive Plan of the
Company, used for FY2020 awards. (Filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended 31 March 2020.)*†
121
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Exhibit No. Description
INDEX TO EXHIBITS
10.6
10.6(a)
10.6(b)
10.6(c)
10.6(d)
10.6(e)
10.7
10.7(a)
10.7(b)
10.7(c)
10.8
10.9
10.9(a)
10.10
10.11
10.12
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. (Filed as Exhibit 10.6D to the Company's Annual Report on
Form 10-K for the fiscal year ended 30 September 2019.).*†
Amendment No. 5 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended
and restated effective 1 August 2019. (Filed as Exhibit 10.6E to the Company's Annual Report on
Form 10-K for the fiscal year ended 30 September 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.)*†
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.)*†
122
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Exhibit No. Description
INDEX TO EXHIBITS
10.13
10.14
10.15
10.16
10.17
(16)
16.1
21
(23)
23.1
23.2
24
(31)
31.1
31.2
(32)
32.1
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.)*†
Amendment to Employment Agreement, dated May 21, 2020, between Air Products and
Chemicals, Inc. and Seifollah Ghasemi. (Filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed May 21, 2020.)*†
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.)*†
Compensation Programs for Nonemployee Directors effective 26 November 2019. (Filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended 31 December
2019.)*†
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.
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.††
(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).
123
Table of Contents
*
†
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
SEC 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.
124
Table of Contents
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: 19 November 2020
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)
19 November 2020
/s/ Russell A. Flugel
19 November 2020
(Russell A. Flugel)
Senior Vice President, Corporate Controller, and
Principal Accounting Officer
19 November 2020
19 November 2020
19 November 2020
19 November 2020
*
(Susan K. Carter)
Director
*
(Charles I. Cogut)
Director
*
(Lisa A. Davis)
Director
*
(Chad C. Deaton)
Director
125
Table of Contents
Signature and Title
*
(David H. Y. Ho)
Director
*
(Margaret G. McGlynn)
Director
*
(Edward L. Monser)
Director
*
(Matthew H. Paull)
Director
Date
19 November 2020
19 November 2020
19 November 2020
19 November 2020
* 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: 19 November 2020
126
Shareholders’ informationCommon stock informationTicker Symbol: APDExchange Listing: New York Stock ExchangeTransfer Agent and Registrar:Broadridge Corporate Issuer Solutions, Inc.P.O. Box 1342Brentwood, NY 11717Phone: 844-318-0129International: 720-358-3595Fax: 215-553-5402shareholder.broadridge.comPublications for shareholdersIn addition to this Annual Report and the accompanying Annual Report on Form 10-K, Air Products informs shareholdersabout Company news through:Notice of Annual Meeting and Proxy Statement—made availableto shareholders in mid-December and posted to the Company’swebsite at investors.airproducts.com/shareholder-info. 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 programCurrent 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/airproducts. New investors can obtain information on the website or by calling:Phone: 844-318-0129International: 720-358-3595Annual meetingThe 2021 annual meeting of shareholders will be held on Thursday, January 28, 2021.Annual certificationsThe 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 YorkStock Exchange Listed Company Manual.Additional informationThe forward-looking statements contained in this Annual Report are qualified by reference to the section entitled “Forward-LookingStatements” beginning on page 3 of the accompanying Annual Report on Form 10-K. For more information, please contact us at:Corporate Headquarters Air Products7201 Hamilton BoulevardAllentown, PA 18195-1501T 610-481-4911F 610-481-5900Corporate Secretary’s Office Sean D. Major, Executive Vice President,General Counsel and SecretaryT 610-481-4880Investor Relations OfficeSimon Moore, Vice President, Investor Relations, Corporate Relations and Sustainability T 610-481-5775tell me moreairproducts.com© Air Products and Chemicals, Inc., 2020 (43542) 900-21-002-GLB