Document

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended 31 March 2020



☐	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.

(Exact Name of Registrant as Specified in Its Charter)

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)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
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

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 Exchange Act). Yes ☐ No ☒

The number of shares of common stock, $1 par value per share, outstanding at 31 March 2020 was 220,854,647.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

INDEX




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Income Statements – Three and Six Months Ended 31 March 2020 and 2019	5
Consolidated Comprehensive Income Statements – Three and Six Months Ended 31 March 2020 and 2019	6
Consolidated Balance Sheets – 31 March 2020 and 30 September 2019	7
Consolidated Statements of Cash Flows – Six Months Ended 31 March 2020 and 2019	8
Consolidated Statements of Equity – Three and Six Months Ended 31 March 2020 and 2019	9
Notes to Consolidated Financial Statements	11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures About Market Risk	63
Item 4. Controls and Procedures	63

PART II. OTHER INFORMATION

Item 1A. Risk Factors	64
Item 6. Exhibits	65
Signature	66

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FORWARD-LOOKING STATEMENTS

This quarterly report 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:


•	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, 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 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;


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

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•	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 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the year ended 30 September 2019. 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.

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED INCOME STATEMENTS

(Unaudited)



	Three Months Ended					Six Months Ended
	31 March					31 March
(Millions of dollars, except for share and per share data)	2020			2019		2020			2019
Sales		$2,216.3			$2,187.7		$4,471.0			$4,411.7
Cost of sales	1,460.1			1,474.7		2,946.7			3,018.7
Facility closure	—			—		—			29.0
Selling and administrative	201.7			190.0		403.4			379.6
Research and development	19.2			16.9		36.9			31.9
Company headquarters relocation income (expense)	33.8			—		33.8			—
Other income (expense), net	8.1			10.4		20.4			19.0
Operating Income	577.2			516.5		1,138.2			971.5
Equity affiliates' income	88.2			46.2		146.4			99.1
Interest expense	19.3			35.4		38.0			72.7
Other non-operating income (expense), net	7.1			13.7		16.2			32.2
Income From Continuing Operations Before Taxes	653.2			541.0		1,262.8			1,030.1
Income tax provision	148.5			107.5		269.2			239.6
Income From Continuing Operations	504.7			433.5		993.6			790.5
Loss from discontinued operations, net of tax	(14.3		)	—		(14.3		)	—
Net Income	490.4			433.5		979.3			790.5
Net income attributable to noncontrolling interests of continuing operations	12.6			12.2		25.9			21.7
Net Income Attributable to Air Products		$477.8			$421.3		$953.4			$768.8
Net Income Attributable to Air Products
Net income from continuing operations		$492.1			$421.3		$967.7			$768.8
Net loss from discontinued operations	(14.3		)	—		(14.3		)	—
Net Income Attributable to Air Products		$477.8			$421.3		$953.4			$768.8
Basic Earnings Per Common Share Attributable to Air Products*
Basic earnings per share from continuing operations		$2.22			$1.91		$4.38			$3.49
Basic earnings per share from discontinued operations	(0.06		)	—		(0.06		)	—
Basic Earnings Per Common Share Attributable to Air Products		$2.16			$1.91		$4.31			$3.49
Diluted Earnings Per Common Share Attributable to Air Products*
Diluted earnings per share from continuing operations		$2.21			$1.90		$4.36			$3.48
Diluted earnings per share from discontinued operations	(0.06		)	—		(0.06		)	—
Diluted Earnings Per Common Share Attributable to Air Products		$2.15			$1.90		$4.29			$3.48
Weighted Average Common Shares – Basic (in millions)	221.2			220.2		221.0			220.0
Weighted Average Common Shares – Diluted (in millions)	222.3			221.4		222.2			221.2

The accompanying notes are an integral part of these statements.

*Earnings per share ("EPS") is calculated independently for each component and may not sum to total EPS due to rounding.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

(Unaudited)



	Three Months Ended
	31 March
(Millions of dollars)	2020			2019
Net Income		$490.4			$433.5
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of $11.3 and $8.0	(398.2		)	51.3
Net gain (loss) on derivatives, net of tax of $6.0 and ($8.7)	(27.4		)	(35.4		)
Reclassification adjustments:
Derivatives, net of tax of ($5.0) and $11.5	(17.0		)	36.9
Pension and postretirement benefits, net of tax of $6.5 and $6.0	21.2			18.7
Total Other Comprehensive Income (Loss)	(421.4		)	71.5
Comprehensive Income	69.0			505.0
Net Income Attributable to Noncontrolling Interests	12.6			12.2
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interests	(31.8		)	5.1
Comprehensive Income Attributable to Air Products		$88.2			$487.7




	Six Months Ended
	31 March
(Millions of dollars)	2020			2019
Net Income		$979.3			$790.5
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of $0.5 and $12.9	(134.2		)	(16.8		)
Net gain (loss) on derivatives, net of tax of $8.6 and ($9.4)	(5.3		)	(45.7		)
Pension and postretirement benefits, net of tax of $– and ($0.8)	—			(3.9		)
Reclassification adjustments:
Derivatives, net of tax of ($5.8) and $10.7	(20.6		)	33.8
Pension and postretirement benefits, net of tax of $13.0 and $11.0	40.9			33.9
Total Other Comprehensive Income (Loss)	(119.2		)	1.3
Comprehensive Income	860.1			791.8
Net Income Attributable to Noncontrolling Interests	25.9			21.7
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interests	(16.6		)	4.2
Comprehensive Income Attributable to Air Products		$850.8			$765.9

The accompanying notes are an integral part of these statements.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	31 March			30 September
(Millions of dollars, except for share and per share data)	2020			2019
Assets
Current Assets
Cash and cash items		$2,220.1			$2,248.7
Short-term investments	—			166.0
Trade receivables, net	1,399.4			1,260.2
Inventories	399.7			388.3
Prepaid expenses	129.6			77.4
Other receivables and current assets	539.7			477.7
Total Current Assets	4,688.5			4,618.3
Investment in net assets of and advances to equity affiliates	1,314.6			1,276.2
Plant and equipment, at cost	23,005.2			22,333.7
Less: accumulated depreciation	12,381.5			11,996.1
Plant and equipment, net	10,623.7			10,337.6
Goodwill, net	785.3			797.1
Intangible assets, net	377.9			419.5
Noncurrent lease receivables	840.8			890.0
Other noncurrent assets	870.4			604.1
Total Noncurrent Assets	14,812.7			14,324.5
Total Assets		$19,501.2			$18,942.8
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities		$1,649.1			$1,635.7
Accrued income taxes	90.4			86.6
Short-term borrowings	29.0			58.2
Current portion of long-term debt	38.4			40.4
Total Current Liabilities	1,806.9			1,820.9
Long-term debt	2,922.1			2,907.3
Long-term debt – related party	323.1			320.1
Other noncurrent liabilities	1,881.0			1,712.4
Deferred income taxes	844.4			793.8
Total Noncurrent Liabilities	5,970.6			5,733.6
Total Liabilities	7,777.5			7,554.5
Commitments and Contingencies - See Note 13
Air Products Shareholders’ Equity
Common stock (par value $1 per share; issued 2020 and 2019 - 249,455,584 shares)	249.4			249.4
Capital in excess of par value	1,074.6			1,070.9
Retained earnings	14,537.2			14,138.4
Accumulated other comprehensive loss	(2,478.2		)	(2,375.6		)
Treasury stock, at cost (2020 - 28,600,937 shares; 2019 - 29,040,322 shares)	(2,011.1		)	(2,029.5		)
Total Air Products Shareholders’ Equity	11,371.9			11,053.6
Noncontrolling Interests	351.8			334.7
Total Equity	11,723.7			11,388.3
Total Liabilities and Equity		$19,501.2			$18,942.8

The accompanying notes are an integral part of these statements.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended
	31 March
(Millions of dollars)	2020			2019
Operating Activities
Net income		$979.3			$790.5
Less: Net income attributable to noncontrolling interests of continuing operations	25.9			21.7
Net income attributable to Air Products	953.4			768.8
Loss from discontinued operations	14.3			—
Income from continuing operations attributable to Air Products	967.7			768.8
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	583.9			520.1
Deferred income taxes	55.0			27.5
Tax reform repatriation	—			46.2
Facility closure	—			29.0
Undistributed (earnings) losses of unconsolidated affiliates	(101.6		)	(27.2		)
Gain on sale of assets and investments	(40.5		)	(2.3		)
Share-based compensation	26.9			21.2
Noncurrent lease receivables	47.1			47.6
Other adjustments	54.0			(3.5		)
Working capital changes that provided (used) cash, excluding effects of acquisitions:
Trade receivables	(111.9		)	(55.4		)
Inventories	(16.5		)	(14.2		)
Other receivables	(0.7		)	49.6
Payables and accrued liabilities	(111.8		)	(125.5		)
Other working capital	(113.1		)	3.9
Cash Provided by Operating Activities	1,238.5			1,285.8
Investing Activities
Additions to plant and equipment	(930.6		)	(963.5		)
Acquisitions, less cash acquired	—			(106.3		)
Investment in and advances to unconsolidated affiliates	(22.7		)	(1.4		)
Proceeds from sale of assets and investments	68.0			3.8
Purchases of investments	—			(5.3		)
Proceeds from investments	177.0			187.9
Other investing activities	1.9			2.7
Cash Used for Investing Activities	(706.4		)	(882.1		)
Financing Activities
Payments on long-term debt	(3.4		)	(2.7		)
Net decrease in commercial paper and short-term borrowings	(33.3		)	(6.6		)
Dividends paid to shareholders	(511.7		)	(483.1		)
Proceeds from stock option exercises	20.2			45.4
Other financing activities	(9.6		)	(12.8		)
Cash Used for Financing Activities	(537.8		)	(459.8		)
Effect of Exchange Rate Changes on Cash	(22.9		)	0.7
Decrease in cash and cash items	(28.6		)	(55.4		)
Cash and Cash items – Beginning of Year	2,248.7			2,791.3
Cash and Cash Items – End of Period		$2,220.1			$2,735.9

The accompanying notes are an integral part of these statements.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Six Months Ended
	31 March 2020
(Millions of dollars, except for per share data)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Air Products Shareholders' Equity			Non- controlling Interests			Total Equity
Balance at 30 September 2019		$249.4		$1,070.9			$14,138.4			($2,375.6	)		($2,029.5	)		$11,053.6			$334.7			$11,388.3
Net income	—		—			953.4			—			—			953.4			25.9			979.3
Other comprehensive income (loss)	—		—			—			(102.6		)	—			(102.6		)	(16.6		)	(119.2		)
Dividends on common stock (per share $2.50)	—		—			(551.9		)	—			—			(551.9		)	—			(551.9		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(4.4		)	(4.4		)
Share-based compensation	—		24.6			—			—			—			24.6			—			24.6
Issuance of treasury shares for stock option and award plans	—		(16.2		)	—			—			18.4			2.2			—			2.2
Investments by noncontrolling interests	—		—			—			—			—			—			11.9			11.9
Other equity transactions	—		(4.7		)	(2.7		)	—			—			(7.4		)	0.3			(7.1		)
Balance at 31 March 2020		$249.4		$1,074.6			$14,537.2			($2,478.2	)		($2,011.1	)		$11,371.9			$351.8			$11,723.7



	Six Months Ended
	31 March 2019
(Millions of dollars, except for per share data)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Air Products Shareholders' Equity			Non- controlling Interests			Total Equity
Balance at 30 September 2018		$249.4		$1,029.3			$13,409.9			($1,741.9	)		($2,089.2	)		$10,857.5			$318.8			$11,176.3
Net income	—		—			768.8			—			—			768.8			21.7			790.5
Other comprehensive income (loss)	—		—			—			(2.9		)	—			(2.9		)	4.2			1.3
Dividends on common stock (per share $2.26)	—		—			(497.5		)	—			—			(497.5		)	—			(497.5		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(7.0		)	(7.0		)
Share-based compensation	—		20.7			—			—			—			20.7			—			20.7
Issuance of treasury shares for stock option and award plans	—		(0.9		)	—			—			40.6			39.7			—			39.7
Cumulative change in accounting principle	—		—			(17.1		)	—			—			(17.1		)	—			(17.1		)
Other equity transactions	—		(1.4		)	(2.1		)	—			—			(3.5		)	—			(3.5		)
Balance at 31 March 2019		$249.4		$1,047.7			$13,662.0			($1,744.8	)		($2,048.6	)		$11,165.7			$337.7			$11,503.4

The accompanying notes are an integral part of these statements.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY (cont.)

(Unaudited)




	Three Months Ended
	31 March 2020
(Millions of dollars, except for per share data)	Common Stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Air Products Shareholders' Equity			Non- controlling Interests			Total Equity
Balance at 31 December 2019		$249.4		$1,061.7			$14,356.9			($2,088.6	)		($2,023.4	)		$11,556.0			$373.8			$11,929.8
Net income	—		—			477.8			—			—			477.8			12.6			490.4
Other comprehensive income (loss)	—		—			—			(389.6		)	—			(389.6		)	(31.8		)	(421.4		)
Dividends on common stock (per share $1.34)	—		—			(295.9		)	—			—			(295.9		)	—			(295.9		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(3.1		)	(3.1		)
Share-based compensation	—		10.7			—			—			—			10.7			—			10.7
Issuance of treasury shares for stock option and award plans	—		2.3			—			—			12.3			14.6			—			14.6
Other equity transactions	—		(0.1		)	(1.6		)	—			—			(1.7		)	0.3			(1.4		)
Balance at 31 March 2020		$249.4		$1,074.6			$14,537.2			($2,478.2	)		($2,011.1	)		$11,371.9			$351.8			$11,723.7

Three Months Ended

31 March 2019

(Millions of dollars, except for per share data)

Common Stock

Capital in Excess of Par Value

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Treasury Stock

Air

Products Shareholders' Equity

Non-

controlling

Interests

Total

Equity

Balance at 31 December 2018

$249.4

$1,030.4

$13,497.9