apd-20200630

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 30 June 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)

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)

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
0.500% Euro Notes due 2028	APD28	New York Stock Exchange
0.800% Euro Notes due 2032	APD32	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 30 June 2020 was 220,894,376.

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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 Nine Months Ended 30 June 2020 and 2019			5
Consolidated Comprehensive Income Statements – Three and Nine Months Ended 30 June 2020 and 2019			6
Consolidated Balance Sheets – 30 June 2020 and 30 September 2019			7
Consolidated Statements of Cash Flows – Nine Months Ended 30 June 2020 and 2019			8
Consolidated Statements of Equity – Three and Nine Months Ended 30 June 2020 and 2019			9
Notes to Consolidated Financial Statements			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Item 3. Quantitative and Qualitative Disclosures About Market Risk			65
Item 4. Controls and Procedures			65

PART II. OTHER INFORMATION

Item 1A. Risk Factors			66

Item 6. Exhibits			67
Signature			68

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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;

•our ability to execute the projects in our backlog;

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

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

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

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

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

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

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

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

•asset impairments due to economic conditions or specific events;

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FORWARD-LOOKING STATEMENTS (CONTINUED)

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

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

•availability and cost of raw materials; and

•the success of productivity and operational improvement programs.

In addition to the foregoing factors, forward-looking statements contained herein are qualified with respect to the risks disclosed elsewhere in this document, including in Item 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 and in Part II, Item 1A, Risk Factors, of this report. 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			Nine Months Ended
	30 June			30 June
(Millions of dollars, except for share and per share data)	2020	2019	2020	2019
Sales	$2,065.2	$2,224.0	$6,536.2	$6,635.7
Cost of sales	1,344.9	1,466.0	4,291.6	4,484.7
Facility closure	—	—	—	29.0
Selling and administrative	176.9	188.5	580.3	568.1
Research and development	19.9	18.1	56.8	50.0

Cost reduction actions	—	25.5	—	25.5


Gain on exchange of equity affiliate investments	—	29.1	—	29.1

Company headquarters relocation income (expense)	—	—	33.8	—








Other income (expense), net	15.7	14.7	36.1	33.7
Operating Income	539.2	569.7	1,677.4	1,541.2
Equity affiliates' income	51.2	56.4	197.6	155.5
Interest expense	32.1	34.2	70.1	106.9
Other non-operating income (expense), net	8.1	17.6	24.3	49.8

Income From Continuing Operations Before Taxes	566.4	609.5	1,829.2	1,639.6
Income tax provision	109.3	109.3	378.5	348.9
Income From Continuing Operations	457.1	500.2	1,450.7	1,290.7
Loss from discontinued operations, net of tax	—	—	(14.3)	—
Net Income	457.1	500.2	1,436.4	1,290.7
Net income attributable to noncontrolling interests of continuing operations	10.6	12.2	36.5	33.9

Net Income Attributable to Air Products	$446.5	$488.0	$1,399.9	$1,256.8

Net Income Attributable to Air Products
Net income from continuing operations	$446.5	$488.0	$1,414.2	$1,256.8
Net loss from discontinued operations	—	—	(14.3)	—
Net Income Attributable to Air Products	$446.5	$488.0	$1,399.9	$1,256.8

Basic Earnings Per Common Share Attributable to Air Products*
Basic earnings per share from continuing operations	$2.02	$2.21	$6.40	$5.71
Basic earnings per share from discontinued operations	—	—	(0.06)	—
Basic Earnings Per Common Share Attributable to Air Products	$2.02	$2.21	$6.33	$5.71
Diluted Earnings Per Common Share Attributable to Air Products*
Diluted earnings per share from continuing operations	$2.01	$2.20	$6.36	$5.68
Diluted earnings per share from discontinued operations	—	—	(0.06)	—
Diluted Earnings Per Common Share Attributable to Air Products	$2.01	$2.20	$6.30	$5.68

Weighted Average Common Shares – Basic (in millions)	221.2	220.6	221.1	220.2
Weighted Average Common Shares – Diluted (in millions)	222.4	221.9	222.3	221.4

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
	30 June
(Millions of dollars)	2020	2019
Net Income	$457.1	$500.2
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of ($10.2) and ($3.3)	106.9	(48.8)
Net gain (loss) on derivatives, net of tax of $8.1 and $4.5	23.4	7.5

Reclassification adjustments:
Currency translation adjustment	—	(2.6)
Derivatives, net of tax of ($7.3) and ($3.5)	(23.2)	(13.1)
Pension and postretirement benefits, net of tax of $6.4 and $4.8	19.8	14.8
Total Other Comprehensive Income (Loss)	126.9	(42.2)
Comprehensive Income	584.0	458.0


Net Income Attributable to Noncontrolling Interests	10.6	12.2
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interests	1.8	(5.6)
Comprehensive Income Attributable to Air Products	$571.6	$451.4



	Nine Months Ended
	30 June
(Millions of dollars)	2020	2019
Net Income	$1,436.4	$1,290.7
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of ($9.7) and $9.6	(27.3)	(65.6)
Net gain (loss) on derivatives, net of tax of $16.7 and ($4.9)	18.1	(38.2)
Pension and postretirement benefits, net of tax of $— and ($0.8)	—	(3.9)
Reclassification adjustments:
Currency translation adjustment	—	(2.6)
Derivatives, net of tax of ($13.1) and $7.2	(43.8)	20.7
Pension and postretirement benefits, net of tax of $19.4 and $15.8	60.7	48.7
Total Other Comprehensive Income (Loss)	7.7	(40.9)
Comprehensive Income	1,444.1	1,249.8
Net Income Attributable to Noncontrolling Interests	36.5	33.9
Other Comprehensive Loss Attributable to Noncontrolling Interests	(14.8)	(1.4)
Comprehensive Income Attributable to Air Products	$1,422.4	$1,217.3

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)


	30 June	30 September
(Millions of dollars, except for share and per share data)	2020	2019
Assets
Current Assets
Cash and cash items	$3,921.4	$2,248.7
Short-term investments	2,515.7	166.0
Trade receivables, net	1,409.7	1,260.2
Inventories	410.9	388.3

Prepaid expenses	185.9	77.4
Other receivables and current assets	562.9	477.7

Total Current Assets	9,006.5	4,618.3
Investment in net assets of and advances to equity affiliates	1,346.1	1,276.2
Plant and equipment, at cost	24,198.0	22,333.7
Less: accumulated depreciation	12,729.1	11,996.1
Plant and equipment, net	11,468.9	10,337.6
Goodwill, net	799.3	797.1
Intangible assets, net	380.9	419.5
Noncurrent lease receivables	820.6	890.0
Other noncurrent assets	959.8	604.1

Total Noncurrent Assets	15,775.6	14,324.5
Total Assets	$24,782.1	$18,942.8
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities	$1,668.5	$1,635.7
Accrued income taxes	83.6	86.6
Short-term borrowings	14.3	58.2
Current portion of long-term debt	824.6	40.4

Total Current Liabilities	2,591.0	1,820.9
Long-term debt	7,073.2	2,907.3
Long-term debt – related party	285.6	320.1
Other noncurrent liabilities	1,866.9	1,712.4
Deferred income taxes	942.0	793.8

Total Noncurrent Liabilities	10,167.7	5,733.6
Total Liabilities	12,758.7	7,554.5
Commitments and Contingencies - See Note 14
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	1,084.8	1,070.9
Retained earnings	14,686.6	14,138.4
Accumulated other comprehensive loss	(2,353.1)	(2,375.6)
Treasury stock, at cost (2020 - 28,561,208 shares; 2019 - 29,040,322 shares)	(2,008.4)	(2,029.5)
Total Air Products Shareholders’ Equity	11,659.3	11,053.6
Noncontrolling Interests	364.1	334.7
Total Equity	12,023.4	11,388.3
Total Liabilities and Equity	$24,782.1	$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)


	Nine Months Ended
	30 June
(Millions of dollars)	2020	2019
Operating Activities
Net income	$1,436.4	$1,290.7
Less: Net income attributable to noncontrolling interests of continuing operations	36.5	33.9

Net income attributable to Air Products	1,399.9	1,256.8
Loss from discontinued operations	14.3	—
Income from continuing operations attributable to Air Products	1,414.2	1,256.8
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	874.5	789.2
Deferred income taxes	160.0	37.8
Tax reform repatriation	—	49.4
Facility closure	—	29.0
Undistributed (earnings) losses of unconsolidated affiliates	(111.0)	(56.9)
Gain on sale of assets and investments	(36.9)	(17.5)
Share-based compensation	39.4	31.0
Noncurrent lease receivables	69.1	71.7



Other adjustments	107.6	(0.7)
Working capital changes that provided (used) cash, excluding effects of acquisitions:
Trade receivables	(106.2)	(139.5)
Inventories	(25.3)	(13.5)
Other receivables	(23.2)	70.6
Payables and accrued liabilities	(184.7)	(94.8)
Other working capital	(164.3)	(9.2)
Cash Provided by Operating Activities	2,013.2	2,003.4
Investing Activities
Additions to plant and equipment, including long-term deposits	(2,045.2)	(1,507.6)
Acquisitions, less cash acquired	—	(107.0)
Investment in and advances to unconsolidated affiliates	(24.4)	(15.7)
Proceeds from sale of assets and investments	74.3	8.8
Purchases of investments	(2,515.5)	(5.3)
Proceeds from investments	177.0	190.5

Other investing activities	2.9	0.8
Cash Used for Investing Activities	(4,330.9)	(1,435.5)
Financing Activities
Long-term debt proceeds	4,895.7	—
Payments on long-term debt	(3.4)	(5.4)
Net decrease in commercial paper and short-term borrowings	(48.0)	37.7

Dividends paid to shareholders	(807.6)	(738.4)

Proceeds from stock option exercises	23.2	63.3

Other financing activities	(54.4)	(18.0)
Cash Provided by (Used for) Financing Activities	4,005.5	(660.8)





Effect of Exchange Rate Changes on Cash	(15.1)	(1.6)
Increase (Decrease) in Cash and Cash Items	1,672.7	(94.5)
Cash and Cash items – Beginning of Year	2,248.7	2,791.3
Cash and Cash Items – End of Period	$3,921.4	$2,696.8

The accompanying notes are an integral part of these statements.

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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Nine Months Ended
	30 June 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	—	—	1,399.9	—	—	1,399.9	36.5	1,436.4
Other comprehensive income (loss)	—	—	—	22.5	—	22.5	(14.8)	7.7
Dividends on common stock (per share $3.84)	—	—	(847.9)	—	—	(847.9)	—	(847.9)
Dividends to noncontrolling interests	—	—	—	—	—	—	(4.5)	(4.5)
Share-based compensation	—	34.5	—	—	—	34.5	—	34.5
Issuance of treasury shares for stock option and award plans	—	(16.1)	—	—	21.1	5.0	—	5.0
Investments by noncontrolling interests	—	—	—	—	—	—	11.9	11.9


Other equity transactions	—	(4.5)	(3.8)	—	—	(8.3)	0.3	(8.0)
Balance at 30 June 2020	$249.4	$1,084.8	$14,686.6	($2,353.1)	($2,008.4)	$11,659.3	$364.1	$12,023.4


	Nine Months Ended
	30 June 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	—	—	1,256.8	—	—