UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 30 September 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from                  to                 

Commission file number 001-04534

AIR PRODUCTS AND CHEMICALS, INC.

Delaware	23-1274455
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

7201 Hamilton Boulevard

Allentown, Pennsylvania 18195-1501

(Address of Principal Executive Offices and Zip Code)

610-481-4911

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Trading Symbol(s)	Registered on:
Common Stock, par value $1.00 per share	APD	New York Stock Exchange
2.000% Euro Notes due 2020	APD20	New York Stock Exchange
0.375% Euro Notes due 2021	APD21B	New York Stock Exchange
1.000% Euro Notes due 2025	APD25	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.	Yes	☒	No	☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.	Yes	☐	No	☒
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.	Yes	☒	No	☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.				☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).	Yes	☐	No	☒

The aggregate market value of the voting stock held by non-affiliates of the registrant on 29 March 2019 was approximately $42.0 billion. For purposes of the foregoing calculations, all directors and/or executive officers have been deemed to be affiliates, but the registrant disclaims that any such director and/or executive officer is an affiliate.

The number of shares of common stock outstanding as of 31 October 2019 was 220,433,925.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on 23 January 2020 are incorporated by reference into Part III.

AIR PRODUCTS AND CHEMICALS, INC.

ANNUAL REPORT ON FORM 10-K

For the fiscal year ended 30 September 2019

TABLE OF CONTENTS

ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	8
ITEM 1B.	UNRESOLVED STAFF COMMENTS	14
ITEM 2.	PROPERTIES	14
ITEM 3.	LEGAL PROCEEDINGS	15
ITEM 4.	MINE SAFETY DISCLOSURES	16
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES	17
ITEM 6.	SELECTED FINANCIAL DATA	19
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	49
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	116
ITEM 9A.	CONTROLS AND PROCEDURES	117
ITEM 9B.	OTHER INFORMATION	117
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	118
ITEM 11.	EXECUTIVE COMPENSATION	118
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	119
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	120
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	120
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	121
ITEM 16.	FORM 10-K SUMMARY	121
INDEX TO EXHIBITS		122
SIGNATURES		126

2

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and can generally be identified by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “outlook,” “plan,” “positioned,” “possible,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar expressions or variations thereof, or the negative thereof, but these terms are not the exclusive means of identifying such statements. Forward-looking statements are based on management’s expectations and assumptions as of the date of this report and are not guarantees of future performance. You are cautioned not to place undue reliance on our forward-looking statements.

Forward-looking statements may relate to a number of matters, including expectations regarding revenue, margins, expenses, earnings, tax provisions, cash flows, pension obligations, share repurchases or other statements regarding economic conditions or our business outlook; statements regarding plans, projects, strategies and objectives for our future operations, including our ability to win new projects and execute the projects in our backlog; and statements regarding our expectations with respect to pending legal claims or disputes. While forward-looking statements are made in good faith and based on assumptions, expectations and projections that management believes are reasonable based on currently available information, actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation:

• changes in global or regional economic conditions, supply and demand dynamics in the market segments we serve, or in the financial markets;

• risks associated with having extensive international operations, including political risks, risks associated with unanticipated government actions and risks of investing in developing markets;

• project delays, contract terminations, customer cancellations, or postponement of projects and sales;

• our ability to develop and operate large scale and technically complex projects, including gasification projects;

• the future financial and operating performance of major customers and joint venture partners;

• our ability to develop, implement, and operate new technologies, or to execute the projects in our backlog;

• tariffs, economic sanctions and regulatory activities in jurisdictions in which we and our affiliates and joint ventures operate;

• the impact of environmental, tax or other legislation, as well as regulations affecting our business and related compliance requirements, including legislation or regulations related to global climate change;

• changes in tax rates and other changes in tax law;

• the timing, impact, and other uncertainties relating to acquisitions and divestitures, including our ability to integrate acquisitions and separate divested businesses, respectively;

• risks relating to cybersecurity incidents, including risks from the interruption, failure or compromise of our information systems;

• catastrophic events, such as natural disasters, acts of war, or terrorism;

• the impact of price fluctuations in oil and natural gas and disruptions in markets and the economy due to oil and natural gas price volatility;

• costs and outcomes of legal or regulatory proceedings and investigations;

• asset impairments due to economic conditions or specific events;

• significant fluctuations in interest rates and foreign currency exchange rates from those currently anticipated;

• damage to facilities, pipelines or delivery systems, including those we own or operate for third parties;

• availability and cost of raw materials; and

• the success of productivity and operational improvement programs.

3

In addition to the foregoing factors, forward-looking statements contained herein are qualified with respect to the risks disclosed elsewhere in this document, including in Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk. Any of these factors, as well as those not currently anticipated by management, could cause our results of operations, financial condition or liquidity to differ materially from what is expressed or implied by any forward-looking statement. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

PART I

ITEM 1.    BUSINESS

Air Products and Chemicals, Inc., a Delaware corporation originally founded in 1940, serves customers globally with a unique portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, equipment, and services. The Company is the world’s largest supplier of hydrogen and has built leading positions in growth markets such as helium and liquefied natural gas ("LNG") process technology and equipment. The Company also develops, engineers, builds, owns and operates some of the world’s largest industrial gas projects, including gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and chemicals.

As used in this report, unless the context indicates otherwise, the terms “we,” “our,” “us,” the “Company,” or “registrant” include controlled subsidiaries, affiliates, and predecessors of Air Products and its controlled subsidiaries and affiliates.

During its fiscal year ended 30 September 2019 (“fiscal year 2019”), the Company reported its continuing operations in five reporting segments under which it managed its operations, assessed performance, and reported earnings: Industrial Gases – Americas; Industrial Gases – EMEA (Europe, Middle East, and Africa); Industrial Gases – Asia; Industrial Gases – Global; and Corporate and other.

Except as otherwise noted, the description of the Company's business below reflects the Company's continuing operations. Refer to Note 4, Discontinued Operations, to the consolidated financial statements for additional details on our discontinued operations.

Industrial Gases Business

The Company’s Industrial Gases business produces atmospheric gases, such as oxygen, nitrogen, and argon, process gases, such as hydrogen, helium, carbon dioxide, carbon monoxide, and syngas, and specialty gases. Atmospheric gases are produced through various air separation processes of which cryogenic is the most prevalent. Process gases are produced by methods other than air separation. For example, hydrogen, carbon monoxide and syngas are produced by steam methane reforming of natural gas and by the gasification of liquid and solid hydrocarbons. Hydrogen is produced by purifying byproduct sources obtained from the chemical and petrochemical industries; and helium is produced as a byproduct of gases extracted from underground reservoirs, primarily natural gas, but also carbon dioxide purified before resale. The Industrial Gases business also develops, builds and operates equipment for the production or processing of gases, such as air separation units and non-cryogenic generators.

The Company’s Industrial Gases business is organized and operated regionally. The regional Industrial Gases segments (Americas, EMEA, and Asia) supply gases and related equipment in the relevant region to diversified customers in many industries, including those in refining, chemical, gasification, metals, electronics, manufacturing, and food and beverage. Hydrogen is used by refiners to facilitate the conversion of heavy crude feedstock and lower the sulfur content of gasoline and diesel fuels. The chemicals industry uses hydrogen, oxygen, nitrogen, carbon monoxide, and syngas as feedstocks in the production of many basic chemicals. The energy production industry uses nitrogen injection for enhanced recovery of oil and natural gas and oxygen for gasification. Oxygen is used in combustion and industrial heating applications, including in the gasification, steel, certain nonferrous metals, glass, and cement industries. Nitrogen applications are used in food processing for freezing and preserving flavor and nitrogen for inerting is used in various fields, including the metals, chemical, and semiconductor industries. Helium is used in laboratories and healthcare for cooling and in other industries for pressurizing, purging, and lifting. Argon is used in the metals and other industries for its unique inerting, thermal conductivity, and other properties. Industrial gases are also used in welding and providing healthcare and are utilized in various manufacturing processes to make them more efficient and to optimize performance.

4

We distribute gases to our sale of gas customers through different supply modes depending on various factors including the customer's volume requirements and location. Our supply modes are as follows:

Liquid Bulk—Product is delivered in bulk (in liquid or gaseous form) by tanker or tube trailer and stored, usually in its liquid state, in equipment designed and installed typically by the Company at the customer’s site for vaporizing into a gaseous state as needed. Liquid bulk sales are usually governed by three- to five-year contracts.

Packaged Gases—Small quantities of product are delivered in either cylinders or dewars. The Company operates packaged gas businesses in Europe, Asia, and Latin America. In the United States, the Company’s packaged gas business sells products (principally helium) only for the electronics and magnetic resonance imaging industries.

On-Site Gases—Large quantities of hydrogen, nitrogen, oxygen, carbon monoxide, and syngas (a mixture of hydrogen and carbon monoxide) are provided to customers, principally in the energy production and refining, chemical, gasification, and metals industries worldwide, that require large volumes of gases and have relatively constant demand. Gases are produced at large facilities located adjacent to customers’ facilities or by pipeline systems from centrally located production facilities and are generally governed by 15- to 20- year contracts. The Company also delivers small quantities of product through small on-site plants (cryogenic or non-cryogenic generators), typically either via a 10- to 15- year sale of gas contract or through the sale of the equipment to the customer.

Electricity is the largest cost component in the production of atmospheric gases. Steam methane reformers utilize natural gas as the primary raw material and gasifiers use liquid and solid hydrocarbons as the principal raw material for the production of hydrogen, carbon monoxide and syngas. We mitigate electricity, natural gas, and hydrocarbon price fluctuations contractually through pricing formulas, surcharges, and cost pass-through and tolling arrangements. During fiscal year 2019, no significant difficulties were encountered in obtaining adequate supplies of power and natural gas.

The Company obtains helium from a number of sources globally, including crude helium for purification from the U.S. Bureau of Land Management's helium reserve.

The regional Industrial Gases segments also include our interests in the results of several joint ventures accounted for by the equity method, which are reported in our financial statements as income from equity affiliates. The largest of these joint ventures operate in Mexico, Italy, South Africa, India, Saudi Arabia, and Thailand.

Each of the regional Industrial Gases segments competes against two global industrial gas companies: Air Liquide S.A. and Linde plc (the successor to Praxair, Inc. and Linde AG, pursuant to a combination that became effective on 31 October 2018), as well as regional competitors. Competition in Industrial Gases is based primarily on price, reliability of supply, and the development of industrial gas applications. We derive a competitive advantage in locations where we have pipeline networks, which enable us to provide reliable and economic supply of products to our larger customers.

Overall regional industrial gases sales constituted approximately 96%, 94%, and 90% of consolidated sales in fiscal years 2019, 2018, and 2017, respectively. Sales of atmospheric gases constituted approximately 46%, 46%, 45% of consolidated sales in fiscal years 2019, 2018, and 2017, respectively, while sales of tonnage hydrogen, syngas, and related products constituted approximately 26%, 25%, and 24% of consolidated sales in fiscal years 2019, 2018, and 2017, respectively.

5

Industrial Gases Equipment

The Company designs and manufactures equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction ("LNG"), and liquid helium and liquid hydrogen transport and storage. The Industrial Gases – Global segment includes activity related to cryogenic and gas processing equipment for air separation. The equipment is sold worldwide to customers in a variety of industries, including chemical and petrochemical manufacturing, oil and gas recovery and processing, and steel and primary metals processing. The Corporate and other segment includes three global equipment businesses: our LNG equipment business, our Gardner Cryogenics business fabricating helium and hydrogen transport and storage containers, and our Rotoflow business, which manufactures turboexpanders and other precision rotating equipment. Steel, aluminum, and capital equipment subcomponents (compressors, etc.) are the principal raw materials in the manufacturing of equipment. Raw materials for individual projects typically are acquired under firm purchase agreements. Equipment is produced at the Company’s manufacturing sites with certain components being procured from subcontractors and vendors. Competition in the equipment business is based primarily on technological performance, service, technical know-how, price, and performance guarantees. Sale of equipment constituted approximately 4%, 6%, and 10% of consolidated sales in fiscal years 2019, 2018, and 2017, respectively.

The backlog of equipment orders was approximately $.9 billion on 30 September 2019 (as compared to a total backlog of approximately $.2 billion on 30 September 2018). The Company estimates that approximately 50% of the total equipment sales backlog as of 30 September 2019 will be recognized as revenue during fiscal year 2020, dependent on execution schedules of the relevant projects.

International Operations

The Company, through subsidiaries, affiliates, and joint ventures accounted for using the equity method, conducts business in 51 countries outside the United States. Its international businesses are subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, tariffs, trade sanctions, and import and export controls, and other economic, political, and regulatory policies of local governments described in Item 1A, Risk Factors, below.

The Company has majority or wholly owned foreign subsidiaries that operate in Canada; 17 European countries (including the Netherlands, Spain, and the United Kingdom); nine Asian countries (including China, South Korea, and Taiwan); seven Latin American countries (including Brazil and Chile); five countries in the Middle East (including Saudi Arabia), and three African countries. The Company also owns less-than-controlling interests in entities operating in Europe, Asia, Latin America, the Middle East, and Africa (including China, Germany, India, Italy, Mexico, Oman, Saudi Arabia, South Africa, and Thailand).

Financial information about the Company’s foreign operations and investments is included in Note 9, Summarized Financial Information of Equity Affiliates; Note 23, Income Taxes; and Note 26, Business Segment and Geographic Information, to the consolidated financial statements included under Item 8, below. Information about foreign currency translation is included under “Foreign Currency” in Note 1, Major Accounting Policies, and information on the Company’s exposure to currency fluctuations is included in Note 14, Financial Instruments, to the consolidated financial statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under Item 7A, below. Export sales from operations in the United States to third-party customers amounted to $41.3 million, $33.1 million, and $64.2 million in fiscal years 2019, 2018, and 2017, respectively.

Technology Development

The Company pursues a market-oriented approach to technology development through research and development, engineering, and commercial development processes. It conducts research and development principally in its laboratories located in the United States (Trexlertown, Pennsylvania), Canada (Vancouver), the United Kingdom (Basingstoke and Carrington), Spain (Barcelona), China (Shanghai), and Saudi Arabia (Dhahran). The Company also funds and cooperates in research and development programs conducted by a number of major universities and undertakes research work funded by others, principally the United States government.

The Company’s research groups are aligned with and support the research efforts of various businesses throughout the Company. Development of technology for use within the Industrial Gases business focuses primarily on new and improved processes and equipment for the production and delivery of industrial gases and new or improved applications for industrial gas products.

6

During fiscal year 2019, the Company owned approximately 857 United States patents, approximately 3,733 foreign patents, and was a licensee under certain patents owned by others. The increase in the number of patents compared to fiscal year 2018 is primarily attributable to the acquisition of General Electric Company’s gasification business, completed in August 2019, inclusive of its related patent estate. While the patents and licenses are considered important, the Company does not consider its business as a whole to be materially dependent upon any particular patent, patent license, or group of patents or licenses.

Environmental Controls

The Company is subject to various environmental laws and regulations in the countries in which it has operations. Compliance with these laws and regulations results in higher capital expenditures and costs. In the normal course of business, the Company is involved in legal proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA," the federal Superfund law); Resource Conservation and Recovery Act ("RCRA"); and similar state and foreign environmental laws relating to the designation of certain sites for investigation or remediation. The Company’s accounting policy for environmental expenditures is discussed in Note 1, Major Accounting Policies, and environmental loss contingencies are discussed in Note 18, Commitments and Contingencies, to the consolidated financial statements, included under Item 8, below.

The amounts charged to income from continuing operations related to environmental matters totaled $14.2 million, $12.8 million, and $11.4 million in fiscal years 2019, 2018, and 2017, respectively. These amounts represent an estimate of expenses for compliance with environmental laws and activities undertaken to meet internal Company standards. Refer to Note 18, Commitments and Contingencies, to the consolidated financial statements for additional information.

The Company estimates that we spent approximately $5 million, $3 million, and $7 million in fiscal years 2019, 2018, and 2017, respectively, on capital projects reflected in continuing operations to control pollution. Capital expenditures to control pollution are estimated to be approximately $5 million in both fiscal years 2020 and 2021.

Employees

On 30 September 2019, the Company (including majority-owned subsidiaries) had approximately 17,700 employees, of whom approximately 17,440 were full-time employees and of whom approximately 12,950 were located outside the United States. The Company has collective bargaining agreements with unions at various locations that expire on various dates over the next four years. The Company considers relations with its employees to be satisfactory.

Seasonality

The Company’s businesses are not subject to seasonal fluctuations to any material extent.

Inventories

The Company maintains limited inventory where required to facilitate the supply of products to customers on a reasonable delivery schedule. Inventory consists primarily of crude helium, industrial gas, and specialty gas inventories supplied to customers through liquid bulk and packaged gases supply modes.

Customers

We do not have a homogeneous customer base or end market, and no single customer accounts for more than 10% of our consolidated revenues. We do have concentrations of customers in specific industries, primarily refining, chemicals, and electronics. Within each of these industries, we have several large-volume customers with long-term contracts. A negative trend affecting one of these industries, or the loss of one of these major customers, although not material to our consolidated revenue, could have an adverse impact on our financial results.

Governmental Contracts

Our business is not subject to a government entity’s renegotiation of profits or termination of contracts that would be material to our business as a whole.

Available Information

All periodic and current reports, registration statements, proxy statements, and other filings that the Company is required to file with the Securities and Exchange Commission ("SEC"), including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available free of charge through the Company’s website at www.airproducts.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. All such reports filed during the period

7

covered by this report were available on the Company’s website on the same day as filing. In addition, our filings with the SEC are available free of charge on the SEC's website, www.sec.gov.

Executive Officers of the Company

The Company’s executive officers and their respective positions and ages on 26 November 2019 follow. Information with respect to offices held is stated in fiscal years.

Name	Age	Office
M. Scott Crocco	55	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).
Seifi Ghasemi	75	Chairman, President, and Chief Executive Officer (became Chairman, President and Chief Executive Officer in 2014 and previously served as Chairman and Chief Executive Officer of Rockwood Holdings, Inc. from 2001 to 2014). Mr. Ghasemi is a member and Chairman of the Board of Directors and the Chairman of the Executive Committee of the Board of Directors.
Sean D. Major	55	Executive Vice President, General Counsel and Secretary (Secretary since December 2017 and Executive Vice President and General Counsel since May 2017). Previously, Mr. Major served as Executive Vice President, General Counsel and Secretary for Joy Global Inc. from 2007 to 2017.
Dr. Samir J. Serhan	58	Executive Vice President (since December 2016). Previously, Dr. Serhan served as President, Global HyCO, since 2014 for Praxair Inc. From 2000-2014, he worked in leadership positions in the U.S. and Germany for The Linde Group, including Managing Director of Linde Engineering from 2008-2014.

ITEM 1A.    RISK FACTORS

Our operations are affected by various risks, many of which are beyond our control. In evaluating investment in the Company and the forward-looking information contained in this Annual Report on Form 10-K or presented elsewhere by management from time to time, you should consider the following risk factors. Any of the following risks could have a material adverse effect on our business, operating results, financial condition, and the actual outcome of matters as to which forward-looking statements are made and could adversely affect the value of an investment in our common stock as well. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that adversely affect our business, performance, or financial condition in the future that are not presently known, are not currently believed to be significant, or are not identified below because they are common to all businesses.

Changes in global and regional economic conditions, the markets we serve, or the financial markets may adversely affect our results of operations and cash flows.

Unfavorable conditions in the global economy or regional economies, the markets we serve or financial markets may decrease the demand for our goods and services and adversely impact our revenues, operating results, and cash flows.

Demand for our products and services depends in part on the general economic conditions affecting the countries and markets in which we do business. Weak economic conditions in certain geographies and changing supply and demand balances in the markets we serve have negatively impacted demand for our products and services in the past and may do so in the future. Reduced demand for our products and services would have a negative impact on our revenues and earnings. In addition, reduced demand could depress sales, reduce our margins, constrain our operating flexibility or reduce efficient utilization of our manufacturing capacity, or result in charges which are unusual or nonrecurring. Excess capacity in our manufacturing facilities or those of our competitors could decrease our ability to maintain pricing and generate profits.

Our operating results in one or more segments may also be affected by uncertain or deteriorating economic conditions for particular customer markets within a segment. A decline in the industries served by our customers or adverse events or circumstances affecting individual customers can impair the ability of such customers to satisfy their obligations to the Company, resulting in uncollected receivables, unanticipated contract terminations, project delays, or inability to recover plant investments, any of which may negatively impact our financial results.

Weak overall demand or specific customer conditions may also cause customer shutdowns or default, or other inabilities to operate facilities profitably, and may force sale or abandonment of facilities and equipment or prevent projects from coming on-stream. These or other events associated with weak economic conditions or specific end

8

market, product, or customer events may require us to record an impairment on tangible assets, such as facilities and equipment, or intangible assets, such as intellectual property or goodwill, which would have a negative impact on our financial results.

Our extensive international operations can be adversely impacted by operational, economic, political, security, legal, and currency translation risks that could decrease profitability.

In fiscal year 2019, over 60% of our sales were derived from customers outside the United States and many of our operations, suppliers, and employees are located outside the United States. Our operations in foreign jurisdictions may be subject to risks including exchange control regulations, import and trade restrictions, trade policy and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. Changing economic and political conditions within foreign jurisdictions, strained relations between countries, or the imposition of tariffs or international sanctions can cause fluctuations in demand, price volatility, supply disruptions, or loss of property. The occurrence of any of these risks could have a material adverse impact on our financial condition, results of operation, and cash flows.

Our growth strategies depend in part on our ability to further penetrate markets outside the United States, particularly in higher-growth markets such as China, India, Russia and the Middle East, and involve significantly larger and more complex projects, including gasification projects, some in regions where there is the potential for significant economic and political disruptions. We are actively investing large amounts of capital and other resources, in some cases through joint ventures, in developing markets with high growth potential. Our operations in these markets may be subject to greater risks than those faced by our operations in mature economies, including political and economic instability, project delay or abandonment due to unanticipated government actions, inadequate investment in infrastructure, undeveloped property rights and legal systems, unfamiliar regulatory environments, relationships with local partners, language and cultural differences and increased difficulty recruiting, training and retaining qualified employees. Our contracts in these locations may be subject to cancellation without full compensation for loss. Successful operation of particular facilities or execution of projects may be disrupted by civil unrest, acts of sabotage or terrorism, and other local security concerns. Such concerns may require us to incur greater costs for security or require us to shut down operations for a period of time.

Because the majority of our revenue is generated from sales outside the United States, we are exposed to fluctuations in foreign currency exchange rates. Our business is primarily exposed to translational currency risk as the results of our foreign operations are translated into U.S. dollars at current exchange rates throughout the fiscal period. Our policy is to minimize cash flow volatility from changes in currency exchange rates. We choose not to hedge the translation of our foreign subsidiaries’ earnings into dollars. Accordingly, reported sales, net earnings, cash flows, and fair values have been, and in the future will be, affected by changes in foreign exchange rates. For a more detailed discussion of currency exposure, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, below.

Operational and project execution risks may adversely affect our operations or financial results.

Gasification and other large projects involve challenging engineering, procurement and construction phases that may occur in more risky locations and over extended time periods, sometimes up to several years. These projects are large scale and technically complex and, as a result, face greater development and operational risks. We may encounter difficulties in engineering, delays in designs or materials provided by the customer or a third party, equipment and materials delivery delays, schedule changes, customer scope changes, delays related to obtaining regulatory permits and rights-of-way, inability to find adequate sources of labor in the locations where we are building new plants, weather-related delays, delays by customers' contractors in completing their portion of a project, technical or transportation difficulties, cost overruns and other factors, many of which are beyond our control, that may impact our ability to complete a project within the original delivery schedule. In some cases, delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for the delay. We may not be able to recover any of these costs. In addition, in some cases we seek limited recourse financing for certain large projects and face market risk associated with the availability and terms of such financing. These financing arrangements may require that we comply with certain performance requirements which, if not met, could result in default and restructuring costs or other losses. All of these factors could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts in the future.

9

The operation of our facilities, pipelines, and delivery systems inherently entails hazards that require continuous oversight and control, such as pipeline leaks and ruptures, fire, explosions, toxic releases, mechanical failures, or vehicle accidents. If operational risks materialize, they could result in loss of life, damage to the environment, or loss of production, all of which could negatively impact our ongoing operations, reputation, financial results, and cash flows. In addition, our operating results are dependent on the continued operation of our production facilities and our ability to meet customer requirements, which depend, in part, on our ability to properly maintain and replace aging assets.

We are subject to extensive government regulation in the jurisdictions in which we do business. Regulations addressing, among other things, import/export restrictions, anti-bribery and corruption, and taxes, can negatively impact our financial condition, results of operation, and cash flows.

We are subject to government regulation in the United States and in the foreign jurisdictions where we conduct business. The application of laws and regulations to our business is sometimes unclear. Compliance with laws and regulations may involve significant costs or require changes in business practices that could result in reduced profitability. If there is a determination that we have failed to comply with applicable laws or regulations, we may be subject to penalties or sanctions that could adversely impact our reputation and financial results. Compliance with changes in laws or regulations can result in increased operating costs and require additional capital expenditures. Export controls or other regulatory restrictions could prevent us from shipping our products to and from some markets or increase the cost of doing so. Changes in tax laws and regulations and international tax treaties could affect the financial results of our businesses. Increasingly aggressive enforcement of anti-bribery and anti-corruption requirements, including the U.S. Foreign Corrupt Practices Act, the United Kingdom Bribery Act and the China Anti-Unfair Competition Law, could subject us to criminal or civil sanctions if a violation is deemed to have occurred. In addition, we are subject to laws and sanctions imposed by the U.S. and other jurisdictions where we do business that may prohibit us, or certain of our affiliates, from doing business in certain countries, or restricting the kind of business that we may conduct. Such restrictions may provide a competitive advantage to competitors who are not subject to comparable restrictions or prevent us from taking advantage of growth opportunities.

Further, we cannot guarantee that our internal controls and compliance systems will always protect us from acts committed by employees, agents, business partners, or businesses that we acquire that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, kickbacks and false claims, pricing, sales and marketing practices, conflicts of interest, competition, export and import compliance, money laundering, and data privacy. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and non-monetary penalties, and could cause us to incur significant legal and investigatory fees. In addition, the government may seek to hold us liable as a successor for violations committed by companies in which we invest or that we acquire.

We may be unable to successfully identify, execute or effectively integrate acquisitions, or effectively disentangle divested businesses.

Our ability to grow revenue, earnings, and cash flow at anticipated rates depends in part on our ability to identify, successfully acquire and integrate businesses and assets at appropriate prices, and realize expected growth, synergies, and operating efficiencies. We may not be able to complete transactions on favorable terms, on a timely basis or at all. In addition, our results of operations and cash flows may be adversely impacted by the failure of acquired businesses or assets to meet expected returns, the failure to integrate acquired businesses, the inability to dispose of non-core assets and businesses on satisfactory terms and conditions, and the discovery of unanticipated liabilities or other problems in acquired businesses or assets for which we lack adequate contractual protections or insurance. In addition, we may incur asset impairment charges related to acquisitions that do not meet expectations.

We continually assess the strategic fit of our existing businesses and may divest businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment. These transactions pose risks and challenges that could negatively impact our business and financial statements. For example, when we decide to sell or otherwise dispose of a business or assets, we may be unable to do so on satisfactory terms within our anticipated time frame or at all. In addition, divestitures or other dispositions may dilute our earnings per share, have other adverse financial and accounting impacts, distract management, and give rise to disputes with buyers. In addition, we have agreed, and may in the future agree, to indemnify buyers against known and unknown contingent liabilities. Our financial results could be impacted adversely by claims under these indemnities.

10

The security of our information technology systems could be compromised, which could adversely affect our ability to operate.

We depend on information technology to enable us to operate efficiently and interface with customers as well as to maintain financial accuracy and efficiency. Our information technology capabilities are delivered through a combination of internal and external services and service providers. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to our confidential business information due to a security breach. In addition, our information technology systems may be damaged, disrupted or shut down due to attacks by computer hackers, computer viruses, employee error or malfeasance, power outages, hardware failures, telecommunication or utility failures, catastrophes or other unforeseen events, and in any such circumstances our system redundancy and other disaster recovery planning may be ineffective or inadequate. Security breaches of our systems (or the systems of our customers, suppliers or other business partners) could result in the misappropriation, destruction or unauthorized disclosure of confidential information or personal data belonging to us or to our employees, partners, customers or suppliers, and may subject us to legal liability.

As with most large systems, our information technology systems have in the past been, and in the future likely will be subject to computer viruses, malicious codes, unauthorized access and other cyber-attacks, and we expect the sophistication and frequency of such attacks to continue to increase. To date, we are not aware of any significant impact on our operations or financial results from such attempts; however, unauthorized access could disrupt our business operations, result in the loss of assets, and have a material adverse effect on our business, financial condition, or results of operations. Any of the attacks, breaches or other disruptions or damage described above could: interrupt our operations at one or more sites; delay production and shipments; result in the theft of our and our customers’ intellectual property and trade secrets; damage customer and business partner relationships and our reputation; result in defective products or services, legal claims and proceedings, liability and penalties under privacy laws, or increased costs for security and remediation; or raise concerns regarding our accounting for transactions. Each of these consequences could adversely affect our business, reputation and our financial statements.

Our business involves the use, storage, and transmission of information about our employees, vendors, and customers. The protection of such information, as well as our proprietary information, is critical to us. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. We have established policies and procedures to help protect the security and privacy of this information. We also, from time to time, export sensitive customer data and technical information to recipients outside the United States. Breaches of our security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers, including the potential loss or disclosure of such information or data as a result of fraud, trickery, or other forms of deception, could expose us, our customers, or the individuals affected to a risk of loss or misuse of this information, which could ultimately result in litigation and potential legal and financial liability. These events could also damage our reputation or otherwise harm our business.

Interruption in ordinary sources of raw material or energy supply or an inability to recover increases in energy and raw material costs from customers could result in lost sales or reduced profitability.

Hydrocarbons, including natural gas, are the primary feedstock for the production of hydrogen, carbon monoxide, and syngas. Energy, including electricity, natural gas, and diesel fuel for delivery trucks is the largest cost component of our business. Because our industrial gas facilities use substantial amounts of electricity, energy price fluctuations could materially impact our revenues and earnings. A disruption in the supply of energy, components, or raw materials, whether due to market conditions, legislative or regulatory actions, natural events, or other disruption, could prevent us from meeting our contractual commitments and harm our business and financial results.

Our supply of crude helium for purification and resale is largely dependent upon natural gas production by crude helium suppliers. Lower natural gas production resulting from natural gas pricing dynamics, supplier operating or transportation issues or other interruptions in sales from crude helium suppliers, can reduce our supplies of crude helium available for processing and resale to customers.

We typically contract to pass-through cost increases in energy and raw materials to customers, but cost variability can still have a negative impact on our results. We may be unable to raise prices as quickly as costs rise, or competitive pressures may prevent full recovery of such costs. Increases in energy or raw material costs that cannot be passed on to customers for competitive or other reasons may negatively impact our revenues and earnings. Even where costs are passed through, price increases can cause lower sales volume.

11

Catastrophic events could disrupt our operations or the operations of our suppliers or customers, having a negative impact on our business, financial results, and cash flows.

Our operations could be impacted by catastrophic events outside our control, including severe weather conditions such as hurricanes, floods, earthquakes, storms, epidemics, or acts of war and terrorism. Any such event could cause a serious business disruption that could affect our ability to produce and distribute products and possibly expose us to third-party liability claims. Additionally, such events could impact our suppliers or customers, which could cause energy and raw materials to be unavailable to us, or our customers to be unable to purchase or accept our products and services. Any such occurrence could have a negative impact on our operations and financial results.

New technologies create performance risks that could impact our financial results or reputation.

We are continually developing and implementing new technologies and product offerings. Existing technologies are being implemented in products and designs or at scales beyond our experience base. These technological expansions can create nontraditional performance risks to our operations. Failure of the technologies to work as predicted, or unintended consequences of new designs or uses, could lead to cost overruns, project delays, financial penalties, or damage to our reputation. In addition, large scale gasification projects may contain processes or technologies that we have not operated at the same scale or in the same combination, and although such projects generally include technologies and processes that have been demonstrated previously by others, such technologies or processes may be new to us and may introduce new risks to our operations. Performance difficulties on these larger projects may have a material adverse effect on our operations and financial results. In addition, performance challenges may adversely affect our reputation and our ability to obtain future contracts for gasification projects.

Legislative, regulatory and societal responses to global climate change create financial risk.

We are the world’s leading supplier of hydrogen, the primary use of which is the production of ultra-low sulfur transportation fuels that have significantly reduced transportation emissions and helped improve human health. To make the high volumes of hydrogen needed by our customers, we use steam methane reforming, which releases carbon dioxide. In addition, although gasification enables the conversion of lower value feedstocks into cleaner energy and value-added products, our gasification projects will increase our carbon footprint because the gasification process produces carbon dioxide. Some of our operations are within jurisdictions that have or are developing regulatory regimes governing emissions of greenhouse gases ("GHGs"), including carbon dioxide. These include existing coverage under the European Union Emission Trading system, the California cap and trade scheme, China’s Emission Trading Scheme and its nation-wide expansion, and South Korea’s Emission Trading Scheme. In Canada, Alberta and Ontario are both in the development/approval process for new GHG regulations. Alberta’s Carbon Competitiveness Incentive Regulation will end December 31, 2019 and will be replaced by the proposed Technology Innovation and Emission Reduction ("TIER") System or Environment & Climate Change Canada's Output Based Pricing System ("OBPS"). In lieu of adherence to the OBPS, Ontario seeks approval from Environment & Climate Change Canada to implement their proposed GHG Emissions Performance Standards program. In addition, the U.S. Environmental Protection Agency ("EPA") requires mandatory reporting of GHG emissions and is regulating GHG emissions for new construction and major modifications to existing facilities. Some jurisdictions have various mechanisms to target the power sector to achieve emission reductions, which often result in higher power costs.

Increased public concern may result in more international, U.S. federal, and/or regional requirements to reduce or mitigate the effects of GHG. Although uncertain, these developments could increase our costs related to consumption of electric power, hydrogen production and application of our gasification technology. We believe we will be able to mitigate some of the increased costs through contractual terms, but the lack of definitive legislation or regulatory requirements prevents an accurate estimate of the long-term impact these measures will have on our operations. Any legislation that limits or taxes GHG emissions could negatively impact our growth, increase our operating costs, or reduce demand for certain of our products.

12

Our financial results may be affected by various legal and regulatory proceedings, including those involving antitrust, tax, environmental, or other matters.

We are subject to litigation and regulatory investigations and proceedings in the normal course of business and could become subject to additional claims in the future, some of which could be material. While we seek to limit our liability in our commercial contractual arrangements, there are no guarantees that each contract will contain suitable limitations of liability or that limitations of liability will be enforceable. Also, the outcome of existing legal proceedings may differ from our expectations because the outcomes of litigation, including regulatory matters, are often difficult to predict reliably. Various factors or developments can lead us to change current estimates of liabilities and related insurance receivables, where applicable, or make such estimates for matters previously not susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on our financial condition, results of operations, and cash flows in any particular period.

Costs and expenses resulting from compliance with environmental regulations may negatively impact our operations and financial results.

We are subject to extensive federal, state, local, and foreign environmental and safety laws and regulations concerning, among other things, emissions in the air; discharges to land and water; and the generation, handling, treatment, and disposal of hazardous waste and other materials. We take our environmental responsibilities very seriously, but there is a risk of environmental impact inherent in our manufacturing operations and in the transportation of our products. Future developments and more stringent environmental regulations may require us to make additional unforeseen environmental expenditures. In addition, laws and regulations may require significant expenditures for environmental protection equipment, compliance, and remediation. These additional costs may adversely affect financial results. For a more detailed description of these matters, see Item 1, Business–Environmental Controls, above.

Implementation of the United Kingdom’s (“UK”) exit from European Union (“EU”) membership could adversely affect our European Operations.

The UK’s exit from EU membership may adversely affect customer demand, our relationships with customers and suppliers and our European business. Although it is unknown what the terms of the United Kingdom’s future relationship with the EU will be, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and EU members and increased regulatory complexities. Any of these factors could adversely affect customer demand, our relationships with customers and suppliers, and our European business.

Inability to compete effectively in a segment could adversely impact sales and financial performance.

We face strong competition from large global competitors and many smaller regional ones in many of our business segments. Introduction by competitors of new technologies, competing products, or additional capacity could weaken demand for or impact pricing of our products, negatively impacting financial results. In addition, competitors’ pricing policies could affect our profitability or market share.

A change of tax law in key jurisdictions could result in a material increase in our tax expense.

The multinational nature of our business subjects us to taxation in the United States and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The company’s future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation.

Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws, could significantly increase our effective tax rate and adversely impact our financial condition, results of operations or cash flows. In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Act"), which significantly revised the U.S. federal corporate income tax law by, among other things, lowering the corporate income tax rate, implementing a territorial tax system, and imposing a one-time tax on unremitted cumulative non-U.S. earnings of foreign subsidiaries. Various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue. Further changes in tax laws in the U.S. or foreign jurisdictions where we operate could have a material adverse effect on our business, results of operations, or financial condition.

13

We could incur significant liability if the distribution of Versum common stock to our stockholders is determined to be a taxable transaction.

We have received an opinion from outside tax counsel to the effect that the spin-off of Versum qualifies as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code. The opinion relies on certain facts, assumptions, representations and undertakings from Versum and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, our shareholders and we may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of tax counsel we have received, the IRS could determine on audit that the spin-off is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. If the spin-off is determined to be taxable for U.S. federal income tax purposes, our shareholders that are subject to U.S. federal income tax and we could incur significant U.S. federal income tax liabilities.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

We have not received any written comments from the Commission staff that remain unresolved.

ITEM 2.    PROPERTIES

Air Products and Chemicals, Inc. owns its principal administrative offices, which are the Company’s headquarters located in Trexlertown, Pennsylvania, Hersham, England, and Santiago, Chile. The Company leases the principal administrative office in Shanghai, China. The Company leases administrative offices in the United States, Spain, Malaysia, and China for its Global Business Support organization.

The following is a description of the properties used by our five business segments. We believe that our facilities are suitable and adequate for our current and anticipated future levels of operation.

Industrial Gases – Americas

This business segment currently operates from over 400 production and distribution facilities in North and South America (approximately one-fourth of which are located on owned property), and 10% of which are integrated sites that serve dedicated customers as well as merchant customers. The Company has sufficient property rights and permits for the ongoing operation of our pipeline systems in the Gulf Coast, California, and Arizona in the United States and Alberta and Ontario, Canada. Management and sales support is based in our Trexlertown and Santiago offices referred to above, and at 12 leased properties located throughout North and South America.

Hydrogen fueling stations built by the Company support commercial markets in California and Japan as well as demonstration projects in Europe and other parts of Asia.

Industrial Gases – EMEA

This business segment currently operates from over 180 production and distribution facilities in Europe, the Middle East, and Africa (approximately one-third of which are on owned property). The Company has sufficient property rights and permits for the ongoing operation of our pipeline systems in the Netherlands, the United Kingdom, Belgium, France, and Germany. Management and sales support for this business segment is based in Hersham, England, referred to above, Barcelona, Spain and at 16 leased regional office sites and at least 15 leased local office sites, located throughout the region.

Industrial Gases – Asia

Industrial Gases – Asia currently operates from over 170 production and distribution facilities within Asia (approximately one-fourth of which are on owned property or long-duration term grants). The Company has sufficient property rights and permits for the ongoing operation of our pipeline systems in China, South Korea, Taiwan, Malaysia, Singapore, and Indonesia. Management and sales support for this business segment is based in Shanghai, China and Kuala Lumpur, Malaysia, and in 18 leased office locations throughout the region.

14

Industrial Gases – Global

Management, sales, and engineering support for this business segment is based in our principal administrative offices noted above, and an office in India.

Equipment is manufactured in Missouri, Pennsylvania, and China.

Research and development ("R&D") activities for this business segment are conducted at owned locations in the U.S., the United Kingdom, and Spain, and 4 leased locations in Canada, Europe, and Asia.

Helium is processed at multiple sites in the U.S. and then distributed to/from transfill sites globally.

Corporate and other

Corporate administrative functions are based in the Company’s administrative offices referred to above.

The LNG business operates a manufacturing facility in Florida in the United States with management, engineering, and sales support based in the Trexlertown offices referred to above and a nearby leased office.

The Gardner Cryogenic business operates at facilities in Pennsylvania and Kansas in the United States and in France.

The Rotoflow business operates manufacturing and service facilities in Texas and Pennsylvania in the United States with management, engineering, and sales support based in the Trexlertown offices referred to above and a nearby leased office.

ITEM 3.    LEGAL PROCEEDINGS

In the normal course of business, the Company and its subsidiaries are involved in various legal proceedings, including commercial, competition, environmental, intellectual property, regulatory, product liability, and insurance matters. Although litigation with respect to these matters is routine and incidental to the conduct of our business, such litigation could result in large monetary awards, especially if compensatory and/or punitive damages are awarded. However, we believe that litigation currently pending to which we are a party will be resolved without any material adverse effect on our financial position, earnings, or cash flows.

From time to time, we are also involved in proceedings, investigations, and audits involving governmental authorities in connection with environmental, health, safety, competition, and tax matters.

The Company is a party to proceedings under CERCLA, RCRA, and similar state and foreign environmental laws relating to the designation of certain sites for investigation or remediation. Presently there are 31 sites on which a final settlement has not been reached where the Company, along with others, has been designated a potentially responsible party by the Environmental Protection Agency or is otherwise engaged in investigation or remediation, including cleanup activity at certain of its current and former manufacturing sites. We do not expect that any sums we may have to pay in connection with these environmental matters would have a material adverse impact on our consolidated financial position. Additional information on the Company’s environmental exposure is included under Item 1, Business–Environmental Controls.

In September 2010, the Brazilian Administrative Council for Economic Defense ("CADE") issued a decision against our Brazilian subsidiary, Air Products Brasil Ltda., and several other Brazilian industrial gas companies for alleged anticompetitive activities. CADE imposed a civil fine of R$179.2 million (approximately $43 million at 30 September 2019) on Air Products Brasil Ltda. This fine was based on a recommendation by a unit of the Brazilian Ministry of Justice, whose investigation began in 2003, alleging violation of competition laws with respect to the sale of industrial and medical gases. The fines are based on a percentage of the Company’s total revenue in Brazil in 2003.

We have denied the allegations made by the authorities and filed an appeal in October 2010 to the Brazilian courts. On 6 May 2014, our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE has appealed that ruling and the matter remains pending. The Company, with advice of its outside legal counsel, has assessed the status of this matter and has concluded that, although an adverse final judgment after exhausting all appeals is possible, such a judgment is not probable. As a result, no provision has been made in the consolidated financial statements.

In November 2019, the Company finalized a Consent Order with the City of Santa Clara, CA (“City”) to address certain alleged administrative violations at its Santa Clara facility. The Consent Order requires the Company to pay the City approximately $.6 million to settle the allegations, which includes an enforcement penalty and funding for various supplemental environmental and training projects.

15

Other than the CADE matter discussed above, we do not currently believe there are any legal proceedings, individually or in the aggregate, that are reasonably possible to have a material impact on our financial condition, results of operations, or cash flows. However, a future charge for regulatory fines or damage awards could have a significant impact on our net income in the period in which it is recorded.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

16

PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,

AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the symbol "APD." As of 31 October 2019, there were 5,166 record holders of our common stock.

Cash dividends on the Company’s common stock are paid quarterly. It is our expectation that we will continue to pay cash dividends in the future at comparable or increased levels. The Board of Directors determines whether to declare dividends and the timing and amount based on financial condition and other factors it deems relevant. Dividend information for each quarter of fiscal years 2019 and 2018 is summarized below:

	2019		2018
First quarter		$1.10		$.95
Second quarter	1.16		1.10
Third quarter	1.16		1.10
Fourth quarter	1.16		1.10
Total		$4.58		$4.25

Purchases of Equity Securities by the Issuer

On 15 September 2011, the Board of Directors authorized the repurchase of up to $1.0 billion of our outstanding common stock. This program does not have a stated expiration date. We repurchase shares pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, through repurchase agreements established with one or more brokers. There were no purchases of stock during fiscal year 2019. At 30 September 2019, $485.3 million in share repurchase authorization remained. Additional purchases will be completed at the Company’s discretion while maintaining sufficient funds for investing in its businesses and growth opportunities.

17

Performance Graph

The performance graph below compares the five-year cumulative returns of the Company’s common stock with those of the Standard & Poor’s 500 Index (S&P 500 Index) and the Standard & Poor’s 500 Materials Index (S&P 500 Materials Index). The figures assume an initial investment of $100 and the reinvestment of all dividends.

COMPARISON OF FIVE YEAR CUMULATIVE SHAREHOLDER RETURN

Air Products, S&P 500 Index, and S&P 500 Materials Index

Comparative Growth of a $100 Investment

(Assumes Reinvestment of All Dividends)

	Sept 2014	Sept 2015	Sept 2016	Sept 2017	Sept 2018	Sept 2019
Air Products	100	100	120	134	153	208
S&P 500 Index	100	99	115	136	160	167
S&P 500 Materials Index	100	82	100	122	126	130

18

ITEM 6.    SELECTED FINANCIAL DATA

(Millions of dollars, except for share and per share data)	2019			2018			2017			2016			2015
Sales		$8,919			$8,930			$8,188			$7,504			$7,824
Operating income	2,144			1,966			1,440			1,535			1,276
Operating margin	24.0		%	22.0		%	17.6		%	20.5		%	16.3		%
Equity affiliates’ income(A)	215			175			80			147			152
Net income(B)(C)	1,809			1,533			3,021			662			1,318
Net income margin(C)	20.3		%	17.2		%	36.9		%	8.8		%	16.8		%
Income from continuing operations	1,809			1,491			1,155			1,122			966
Basic earnings per common share from continuing operations	7.99			6.64			5.20			5.08			4.34
Diluted earnings per common share from continuing operations	7.94			6.59			5.16			5.04			4.29
Adjusted diluted earnings per common share from continuing operations(C)		$8.21			$7.45			$6.31			$5.64			$4.88
Adjusted EBITDA(C)	3,468			3,116			2,799			2,622			2,422
Adjusted EBITDA margin(C)	38.9		%	34.9		%	34.2		%	34.9		%	31.0		%
Dividends declared per common share	4.58			4.25			3.71			3.39			3.20
Total assets(D)	18,943			19,178			18,467			18,029			17,317
Total debt(E)	3,326			3,813			3,963			5,211			5,856

^(A)  Fiscal year 2017 included the impact of an other-than-temporary noncash impairment charge of $80 on a 25%‑owned equity affiliate in Saudi Arabia.

^(B)  Fiscal year 2017 included net income from discontinued operations of $1,866 primarily resulting from the sale of the Performance Materials Division to Evonik Industries AG. Fiscal year 2016 included a net loss from discontinued operations of $465, which included an after-tax loss on the disposal of the Energy-from-Waste business of $847, partially offset by income from operations of the former Electronic Materials and Performance Materials divisions.

^(C)  A reconciliation of adjusted diluted earnings per common share from continuing operations to diluted earnings per common share from continuing operations on a GAAP basis is presented on page 30. A reconciliation of adjusted EBITDA and adjusted EBITDA margin to net income and net income margin on a GAAP basis, respectively, is presented on page 31.

^(D)  Total assets includes assets from continuing and discontinued operations.

^(E)  Total debt includes long-term debt and current portion of long-term debt, including debt to related parties, and short-term borrowings as of the end of the year for continuing operations. Long-term obligations decreased in fiscal year 2017 primarily due to debt repayments subsequent to the spin-off of the former Electronic Materials division as Versum Materials, Inc.

19

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

Business Overview	21
2019 in Summary	21
2020 Outlook	23
Results of Operations	23
Reconciliations of Non-GAAP Financial Measures	29
Liquidity and Capital Resources	34
Contractual Obligations	37
Pension Benefits	38
Environmental Matters	40
Off-Balance Sheet Arrangements	41
Related Party Transactions	41
Inflation	41
Critical Accounting Policies and Estimates	41
New Accounting Guidance	46

This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this report and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, those described in Forward-Looking Statements and Item 1A, Risk Factors, of this Annual Report on Form 10-K.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for fiscal years 2019 and 2018. For the discussion of changes from fiscal year 2017 to fiscal year 2018 and other financial information related to fiscal year 2017, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our fiscal year 2018 Form 10-K. This document was filed with the United States Securities and Exchange Commission on 20 November 2018.

The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this report. Financial information is presented in millions of dollars, except for per share data. Except for net income, financial information is presented on a continuing operations basis.

The financial measures included in the discussion that follows are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on a non-GAAP ("adjusted") basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting the Company's historical financial performance and projected future results. For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax rate, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of these measures are presented on pages 29-33.

20

BUSINESS OVERVIEW

Air Products and Chemicals, Inc. is a world-leading industrial gases company in operation for nearly 80 years. Focused on serving energy, environment and emerging markets, the Company provides essential industrial gases, related equipment and applications expertise to customers in dozens of industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage. Air Products is also the global leader in the supply of liquefied natural gas ("LNG") process technology and equipment. The Company also develops, engineers, builds, owns and operates some of the world's largest industrial gas projects, including gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and chemicals. With operations in 51 countries outside the United States, in fiscal year 2019 we had sales of $8.9 billion, assets of $18.9 billion, and a worldwide workforce of approximately 17,700 full- and part-time employees.

As of 30 September 2019, our operations were organized into five reportable business segments:

• Industrial Gases – Americas;

• Industrial Gases – EMEA (Europe, Middle East, and Africa);

• Industrial Gases – Asia;

• Industrial Gases – Global; and

• Corporate and other

This Management’s Discussion and Analysis discusses our results based on these operations. Refer to Note 26, Business Segment and Geographic Information, to the consolidated financial statements for additional details on our reportable business segments.

2019 IN SUMMARY

In fiscal year 2019, we remained focused on improving our existing business while deploying capital into larger, more complex industrial gas projects. We continued to execute our gasification strategy, with the Lu'An project in China reaching its first full year of operation and the progression of other projects such as the Jiutai coal-to-syngas project and the Debang syngas project. We also received a number of important recognitions for our strong focus on sustainability and our commitment to advancing diversity and inclusion. The results below are compared to fiscal year 2018.

• Sales of $8,918.9 were flat as favorable pricing of 3% and higher volumes of 2% were offset by negative currency impacts of 3% and the negative impact of a contract modification to a tolling arrangement in India of 2%.

• Operating income of $2,144.4 increased 9%, or $178.8, and operating margin of 24.0% increased 200 bp.

• Net income of $1,809.4 increased 18%, or $276.5, and net income margin of 20.3% increased 310 bp.

• Adjusted EBITDA of $3,468.0 increased 11%, or $352.5, and adjusted EBITDA margin of 38.9% increased 400 bp.

• Diluted EPS of $7.94 increased 20%, or $1.35 per share. Adjusted diluted EPS of $8.21 increased 10%, or $.76 per share. A summary table of changes in diluted EPS is presented on the following page.

• We increased our quarterly dividend by 5% from $1.10 to $1.16 per share, or $4.64 per share annually. This is the 37th consecutive year that we have increased our dividend payment, reflecting continued confidence in our financial strength, significant cash flows, and growth outlook.

21

Changes in Diluted EPS Attributable to Air Products

					Increase
	2019		2018		(Decrease)
Diluted EPS		$7.94		$6.59		$1.35
Operating Income Impact (after-tax)
Underlying business
Volume						$.40
Price, net of variable costs					.81
Other costs					(.17		)
Currency					(.20		)
Facility closure					(.10		)
Change in inventory valuation method					(.08		)
Cost reduction actions					(.08		)
Gain on exchange of equity affiliate investments					.13
Total Operating Income Impact (after-tax)						$.71
Other Impact (after-tax)
Equity affiliates' income					.04
Interest expense					(.02		)
Other non-operating income (expense), net					.21
Change in effective tax rate, excluding discrete items below					(.09		)
Tax reform repatriation					2.22
Tax reform adjustment related to deemed foreign dividends					(.51		)
Tax reform rate change and other					(.96		)
Tax restructuring					(.16		)
Noncontrolling interests					(.06		)
Weighted average diluted shares					(.03		)
Total Other Impact (after-tax)						$.64
Total Change in Diluted EPS						$1.35

							Increase
	2019			2018			(Decrease)
Diluted EPS		$7.94			$6.59			$1.35
Facility closure	.10			—			.10
Change in inventory valuation method	—			(.08		)	.08
Cost reduction actions	.08			—			.08
Gain on exchange of equity affiliate investments	(.13		)	—			(.13		)
Pension settlement loss	.02			.15			(.13		)
Tax reform repatriation	(.06		)	2.16			(2.22		)
Tax reform adjustment related to deemed foreign dividends	.26			(.25		)	.51
Tax reform rate change and other	—			(.96		)	.96
Tax restructuring	—			(.16		)	.16
Adjusted Diluted EPS		$8.21			$7.45			$.76

22

2020 OUTLOOK

In fiscal year 2020, we intend to grow our earnings by continuing to improve our base businesses and execute against our capital deployment strategy. Backed by our current financial position, we will strive to continue to win and invest in key growth projects, including large gasification projects that are consistent with our onsite business model. We expect earnings to grow from an investment in a new equity affiliate that will acquire the gasification, power, and industrial gas assets at Jazan Economic City, Saudi Arabia ("the Jazan gas and power project").

The above guidance should be read in conjunction with the Forward-Looking Statements of this Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Discussion of Consolidated Results

	2019			2018			$ Change			Change
GAAP Measures
Sales		$8,918.9			$8,930.2			($11.3	)	—	%
Operating income	2,144.4			1,965.6			178.8			9	%
Operating margin	24.0		%	22.0		%	—			200 bp
Equity affiliates’ income		$215.4			$174.8			$40.6		23	%
Net income	1,809.4