UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~___________________________~~

FORM 10-Q

~~(Mark One)~~



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

For the quarterly period ended 31 December ~~2017~~2019



¨☐	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)~~	~~(Zip Code)~~

~~610-481-4911~~7201 Hamilton Boulevard

Allentown, Pennsylvania18195-1501

(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~~ xYes☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ~~Yes~~ xYes☒ 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

filerx

☒

Accelerated

filer¨

☐

Non-accelerated

filer¨

☐

Smaller reporting

company¨

☐

Emerging

growth company¨

~~(Do not check if a smaller reporting 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 x☒

~~Indicate the~~The number of shares ~~outstanding of each of the issuer’s classes~~ of common stock, ~~as of the latest practicable date.~~$1 par value per share, outstanding at 31 December 2019 was 220,678,482.



~~Class~~		~~Outstanding at 31 December 2017~~
~~Common Stock, $1 par value~~		~~218,939,303~~

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

INDEX




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Income Statements – Three Months Ended 31 December ~~2017~~2019 and ~~2016~~2018	34
Consolidated Comprehensive Income Statements – Three Months Ended 31 December ~~2017~~2019 and ~~2016~~2018	45
Consolidated Balance Sheets – 31 December ~~2017~~2019 and 30 September ~~2017~~2019	56
Consolidated Statements of Cash Flows – Three Months Ended 31 December ~~2017~~2019 and ~~2016~~2018	67
Consolidated Statements of Equity – Three Months Ended 31 December 2019 and 2018	8
Notes to Consolidated Financial Statements	79

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2830
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4346
Item 4. Controls and Procedures	4446

PART II. OTHER INFORMATION

Item 5. Other Information	4447
Item 6. Exhibits	4547
Signature	4648

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:

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.

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.

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED INCOME STATEMENTS

(Unaudited)


	Three Months Ended						Three Months Ended
	31 December						31 December
(Millions of dollars, except for share and per share data)	2017			2016			2019		2018
Sales	$	2,216.6		$	1,882.5			$2,254.7		$2,224.0
Cost of sales	1,571.8			1,316.7			1,486.6		1,544.0
Facility closure							—		29.0
Selling and administrative	191.6			164.7			201.7		189.6
Research and development	14.6			15.0			17.7		15.0
Business separation costs	—			32.5
Cost reduction and asset actions	—			50.0
Other income (expense), net	22.1			24.7			12.3		8.6
Operating Income	460.7			328.3			561.0		455.0
Equity affiliates' income	13.8			38.0			58.2		52.9
Interest expense	29.8			29.5			18.7		37.3
Other non-operating income (expense), net	9.8			(.2		)	9.1		18.5
Income From Continuing Operations Before Taxes	454.5			336.6
Income Before Taxes							609.6		489.1
Income tax provision	291.8			78.4			120.7		132.1
Income From Continuing Operations	162.7			258.2
Income (Loss) From Discontinued Operations, net of tax	(1.0		)	48.2
Net Income	161.7			306.4			488.9		357.0
Net Income Attributable to Noncontrolling Interests of Continuing Operations	7.1			6.6
Net Income Attributable to Air Products	$	154.6		$	299.8
Net Income Attributable to Air Products
Income from continuing operations	$	155.6		$	251.6
Income (Loss) from discontinued operations	(1.0		)	48.2
Net income attributable to noncontrolling interests							13.3		9.5
Net Income Attributable to Air Products	$	154.6		$	299.8			$475.6		$347.5
Basic Earnings Per Common Share Attributable to Air Products								$2.15		$1.58
Income from continuing operations	$	.71		$	1.16
Income from discontinued operations	—			.22
Net Income Attributable to Air Products	$	.71		$	1.38
Diluted Earnings Per Common Share Attributable to Air Products								$2.14		$1.57
Income from continuing operations	$	.70		$	1.15
Income from discontinued operations	—			.22
Net Income Attributable to Air Products	$	.70		$	1.37
Weighted Average Common Shares – Basic (in millions)	218.9			217.7			220.9		219.9
Weighted Average Common Shares – Diluted (in millions)	220.4			219.7			222.2		221.0
Dividends Declared Per Common Share – Cash	$	.95		$	.86

The accompanying notes are an integral part of these statements.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

(Unaudited)


	Three Months Ended						Three Months Ended
	31 December						31 December
(Millions of dollars)	2017			2016			2019			2018
Net Income	$	161.7		$	306.4			$488.9			$357.0
Other Comprehensive Income (Loss), net of tax:
Translation adjustments, net of tax of ($6.6) and $32.3	136.4			(281.2		)
Net loss on derivatives, net of tax of ($5.3) and ($10.7)	(9.5		)	(9.8		)
Translation adjustments, net of tax of ($10.8) and $4.9							264.0			(68.1		)
Net gain (loss) on derivatives, net of tax of $2.6 and ($0.7)							22.1			(10.3		)
Pension and postretirement benefits, net of tax of $– and ($0.8)							—			(3.9		)
Reclassification adjustments:
Currency translation adjustment	3.1			—
Derivatives, net of tax of $1.7 and $10.6	.8			25.6
Pension and postretirement benefits, net of tax of $11.0 and $12.9	22.9			27.4
Derivatives, net of tax of ($0.8) and ($0.8)							(3.6		)	(3.1		)
Pension and postretirement benefits, net of tax of $6.5 and $5.0							19.7			15.2
Total Other Comprehensive Income (Loss)	153.7			(238.0		)	302.2			(70.2		)
Comprehensive Income	315.4			68.4			791.1			286.8
Net Income Attributable to Noncontrolling Interests	7.1			6.6			13.3			9.5
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interests	1.9			(3.1		)	15.2			(0.9		)
Comprehensive Income Attributable to Air Products	$	306.4		$	64.9			$762.6			$278.2

The accompanying notes are an integral part of these statements.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	31 December			30 September			31 December			30 September
(Millions of dollars, except for share data)	2017			2017
(Millions of dollars, except for share and per share data)							2019			2019
Assets
Current Assets
Cash and cash items	$	2,722.6		$	3,273.6			$2,406.1			$2,248.7
Short-term investments	407.1			404.0			—			166.0
Trade receivables, net	1,233.4			1,174.0			1,288.6			1,260.2
Inventories	347.4			335.4			400.6			388.3
Contracts in progress, less progress billings	85.4			84.8
Prepaid expenses	177.7			191.4			98.3			77.4
Other receivables and current assets	371.7			403.3			526.1			477.7
Current assets of discontinued operations	10.2			10.2
Total Current Assets	5,355.5			5,876.7			4,719.7			4,618.3
Investment in net assets of and advances to equity affiliates	1,258.0			1,286.9			1,339.9			1,276.2
Plant and equipment, at cost	20,040.0			19,547.8			23,099.8			22,333.7
Less: accumulated depreciation	11,408.1			11,107.6			12,407.6			11,996.1
Plant and equipment, net	8,631.9			8,440.2			10,692.2			10,337.6
Goodwill, net	790.8			721.5			816.1			797.1
Intangible assets, net	429.1			368.3			415.9			419.5
Noncurrent capital lease receivables	1,126.0			1,131.8
Noncurrent lease receivables							883.2			890.0
Other noncurrent assets	617.5			641.8			784.6			604.1
Total Noncurrent Assets	12,853.3			12,590.5			14,931.9			14,324.5
Total Assets	$	18,208.8		$	18,467.2			$19,651.6			$18,942.8
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities	$	1,609.5		$	1,814.3			$1,630.0			$1,635.7
Accrued income taxes	110.1			98.6			113.4			86.6
Short-term borrowings	87.1			144.0			36.5			58.2
Current portion of long-term debt	11.3			416.4			39.1			40.4
Current liabilities of discontinued operations	13.6			15.7
Total Current Liabilities	1,831.6			2,489.0			1,819.0			1,820.9
Long-term debt	3,414.9			3,402.4			2,937.0			2,907.3
Long-term debt – related party							328.6			320.1
Other noncurrent liabilities	1,921.9			1,611.9			1,826.7			1,712.4
Deferred income taxes	719.2			778.4			810.5			793.8
Total Noncurrent Liabilities	6,056.0			5,792.7			5,902.8			5,733.6
Total Liabilities	7,887.6			8,281.7			7,721.8			7,554.5
Commitments and Contingencies - See Note 12
Commitments and Contingencies - See Note 11
Air Products Shareholders’ Equity
Common stock (par value $1 per share; issued 2018 and 2017 - 249,455,584 shares)	249.4			249.4
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	998.1			1,001.1			1,061.7			1,070.9
Retained earnings	12,792.3			12,846.6			14,356.9			14,138.4
Accumulated other comprehensive loss	(1,695.6		)	(1,847.4		)	(2,088.6		)	(2,375.6		)
Treasury stock, at cost (2018 - 30,516,281 shares; 2017 - 31,109,510 shares)	(2,128.9		)	(2,163.5		)
Treasury stock, at cost (2020 - 28,777,102 shares; 2019 - 29,040,322 shares)							(2,023.4		)	(2,029.5		)
Total Air Products Shareholders’ Equity	10,215.3			10,086.2			11,556.0			11,053.6
Noncontrolling Interests	105.9			99.3			373.8			334.7
Total Equity	10,321.2			10,185.5			11,929.8			11,388.3
Total Liabilities and Equity	$	18,208.8		$	18,467.2			$19,651.6			$18,942.8

The accompanying notes are an integral part of these statements.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended						Three Months Ended
	31 December						31 December
(Millions of dollars)	2017			2016			2019			2018
Operating Activities
Net income	$	161.7		$	306.4			$488.9			$357.0
Less: Net income attributable to noncontrolling interests of continuing operations	7.1			6.6
Less: Net income attributable to noncontrolling interests							13.3			9.5
Net income attributable to Air Products	154.6			299.8			475.6			347.5
(Income) Loss from discontinued operations	1.0			(48.2		)
Income from continuing operations attributable to Air Products	155.6			251.6
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	227.9			206.1			289.2			258.0
Deferred income taxes	(76.7		)	(23.6		)	24.4			(1.0		)
Tax reform repatriation	310.3			—			—			46.2
Undistributed earnings of unconsolidated affiliates	34.0			(6.9		)
Facility closure							—			29.0
Undistributed (earnings) losses of unconsolidated affiliates							(26.2		)	1.0
Gain on sale of assets and investments	(.6		)	(5.0		)	(1.1		)	(0.7		)
Share-based compensation	11.8			9.0			13.9			9.3
Noncurrent capital lease receivables	23.3			22.3
Write-down of long-lived assets associated with restructuring	—			45.7
Noncurrent lease receivables							23.5			24.8
Other adjustments	5.3			10.7			30.8			12.7
Working capital changes that provided (used) cash, excluding effects of acquisitions and divestitures:
Working capital changes that provided (used) cash, excluding effects of acquisitions:
Trade receivables	(34.2		)	42.3			0.9			(73.6		)
Inventories	(8.4		)	9.9			(8.4		)	(10.4		)
Contracts in progress, less progress billings	—			(22.6		)
Other receivables	23.8			(7.2		)	1.4			10.3
Payables and accrued liabilities	(113.5		)	10.4			(115.4		)	(55.4		)
Other working capital	5.5			31.6			(41.6		)	57.5
Cash Provided by Operating Activities	564.1			574.3			667.0			655.2
Investing Activities
Additions to plant and equipment	(256.6		)	(239.2		)	(447.7		)	(403.4		)
Acquisitions, less cash acquired	(237.1		)	—
Investment in and advances to unconsolidated affiliates	—			(8.8		)	(7.1		)	—
Proceeds from sale of assets and investments	10.6			11.4			15.2			1.1
Purchases of investments	(212.2		)	—			—			(5.3		)
Proceeds from investments	208.9			—			177.0			178.0
Other investing activities	1.5			(1.5		)	1.9			3.1
Cash Used for Investing Activities	(484.9		)	(238.1		)	(260.7		)	(226.5		)
Financing Activities
Long-term debt proceeds	—			1.2
Payments on long-term debt	(408.6		)	(14.4		)	(2.8		)	(2.6		)
Net decrease in commercial paper and short-term borrowings	(40.7		)	(772.2		)	(10.4		)	(38.0		)
Dividends paid to shareholders	(207.5		)	(186.9		)	(255.7		)	(241.5		)
Proceeds from stock option exercises	34.4			10.7			5.5			4.7
Other financing activities	(18.7		)	(12.9		)	(6.9		)	(12.4		)
Cash Used for Financing Activities	(641.1		)	(974.5		)	(270.3		)	(289.8		)
Discontinued Operations
Cash used for operating activities	(3.1		)	(59.6		)
Cash used for investing activities	—			(19.4		)
Cash provided by financing activities	—			69.5
Cash Used for Discontinued Operations	(3.1		)	(9.5		)
Effect of Exchange Rate Changes on Cash	14.0			(16.2		)	21.4			(6.9		)
Decrease in cash and cash items	(551.0		)	(664.0		)
Increase in cash and cash items							157.4			132.0
Cash and Cash items – Beginning of Year	3,273.6			1,330.8			2,248.7			2,791.3
Cash and Cash Items – End of Period	$	2,722.6		$	666.8			$2,406.1			$2,923.3
Less: Cash and Cash Items – Discontinued Operations	—			11.3
Cash and Cash Items – Continuing Operations	$	2,722.6		$	655.5

The accompanying notes are an integral part of these ~~statements~~statements..

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Three Months Ended
	31 December 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 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	—		—			475.6			—			—			475.6			13.3			488.9
Other comprehensive income (loss)	—		—			—			287.0			—			287.0			15.2			302.2
Dividends on common stock (per share $1.16)	—		—			(256.0		)	—			—			(256.0		)	—			(256.0		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(1.3		)	(1.3		)
Share-based compensation	—		13.9			—			—			—			13.9			—			13.9
Issuance of treasury shares for stock option and award plans	—		(18.5		)	—			—			6.1			(12.4		)	—			(12.4		)
Investments by noncontrolling interests	—		—			—			—			—			—			11.9			11.9
Other equity transactions	—		(4.6		)	(1.1		)	—			—			(5.7		)	—			(5.7		)
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



	Three Months Ended
	31 December 2018
(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	—		—			347.5			—			—			347.5			9.5			357.0
Other comprehensive income (loss)	—		—			—			(69.3		)	—			(69.3		)	(0.9		)	(70.2		)
Dividends on common stock (per share $1.10)	—		—			(241.6		)	—			—			(241.6		)	—			(241.6		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(6.9		)	(6.9		)
Share-based compensation	—		8.9			—			—			—			8.9			—			8.9
Issuance of treasury shares for stock option and award plans	—		(7.6		)	—			—			5.6			(2.0		)	—			(2.0		)
Cumulative change in accounting principle	—		—			(17.1		)	—			—			(17.1		)	—			(17.1		)
Other equity transactions	—		(0.2		)	(0.8		)	—			—			(1.0		)	—			(1.0		)
Balance at 31 December 2018		$249.4		$1,030.4			$13,497.9			($1,811.2	)		($2,083.6	)		$10,882.9			$320.5			$11,203.4

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Millions of dollars unless otherwise indicated, except for share and per share data)



1	.	Basis of Presentation and Major Accounting Policies	9
2	.	New Accounting Guidance	10
3	.	Revenue Recognition	12
4	.	Cost Reduction Actions	13
5	.	Inventories	14
6	.	Goodwill	14
7	.	Leases	14
8	.	Financial Instruments	17
9	.	Fair Value Measurements	22
10	.	Retirement Benefits	24
11	.	Commitments and Contingencies	24
12	.	Share-Based Compensation	26
13	.	Accumulated Other Comprehensive Loss	27
14	.	Earnings per Share	28
15	.	Income Taxes	28
16	.	Supplemental Information	29
17	.	Business Segment Information	29

1. BASIS OF PRESENTATION AND MAJOR ACCOUNTING POLICIES

Refer to our 2017 Form 10-K for a description of major accounting policies. There have been no significant changes to these accounting policies during the first three months of fiscal year 2018 other than those detailed in Note 2, New Accounting Guidance, under ~~Accounting Guidance Implemented in 2018. Certain prior year information has been reclassified to conform to the fiscal year 2018 presentation.~~ The ~~notes to the~~ interim ~~consolidated financial statements, unless otherwise indicated, are on a continuing operations basis.~~

~~The~~ consolidated financial statements of Air Products and Chemicals, Inc. and its subsidiaries (“we,” “our,” “us,” the “Company,” “Air Products,” or “registrant”) included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ~~(SEC)~~(the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ~~(GAAP)~~("GAAP") have been condensed or omitted pursuant to such rules and regulations. In our opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated and contain adequate ~~disclosure~~disclosures to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the notes. The interim results for the periods indicated herein, however, do not reflect certain adjustments, such as the valuation of inventories on the last-in, first-out (LIFO) cost basis, which are only finally determined on an annual basis. In order to

To fully understand the basis of presentation, the consolidated financial statements and related notes included herein should be read in conjunction with the consolidated financial statements and notes thereto included in our ~~2017~~Annual Report on Form ~~10-K.~~10-K for the year ended 30 September 2019 ( the "2019 Form 10-K"). Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Refer to our 2019 Form 10-K for a description of major accounting policies. In fiscal year 2020, these policies were impacted by the implementation of certain new accounting guidance, including the adoption of Accounting Standards Codification ("ASC") Topic 842, Leases, and all related amendments (the "new lease standard”). We adopted the new lease standard as of 1 October 2019 under the modified retrospective approach. Comparative prior year information has not been restated and continues to be reported under the accounting standards in effect for those periods. Our updated lease policy is discussed below.

Other than the adoption of new accounting guidance as discussed in Note 2, New Accounting Guidance, and presentation changes discussed below, there were no notable changes to our accounting policies during the first three months of fiscal year 2020.

Leases

As lessee, we recognize a right-of-use ("ROU") asset and lease liability on the balance sheet for all leases with a term in excess of 12 months. We determine if an arrangement contains a lease at inception. The arrangement contains a lease when there is an identifiable asset, we obtain substantially all of the economic benefits from that asset, and we direct how and for what purpose the asset is used during the term of the arrangement. If the initial term of an arrangement is 12 months or less, we have made an accounting election to not assess if these arrangements contain a lease for inclusion on our balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since our leases generally do not provide an implicit discount rate, we use our incremental borrowing rates based on the information available at the commencement date in determining the present value of lease payments.To determine the incremental borrowing rate, we consider our unsecured borrowings and published market rates, and then adjust those rates to assume full collateralization and to factor in the individual lease term, geography, and payment structure.

Our lease term includes periods covered by options to extend or terminate the lease when it is reasonably certain that we will exercise an option to extend or not exercise an option to terminate. Lease payments consider our practical expedient to combine amounts for lease and related nonlease components for all classes of underlying assets in which we are lessee. Fixed payments and those associated with escalation clauses based on an index are included in the ROU asset and lease liability at commencement. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our variable lease payments primarily include the impact from escalation clauses that are not fixed. Prepaid lease payments are included in the recognition of ROU assets. Our lease agreements do not contain any material lease incentives, residual value guarantees or restrictions or covenants.

Foreign Currency

As further discussed in Note 2, New Accounting Guidance, we adopted new accounting guidance on hedging activities in fiscal year 2020 that changed the income statement presentation of excluded components (foreign currency forward points and currency swap basis differences) of our cash flow hedges of intercompany loans. This activity is now amortized on a straight-line basis within “Other non-operating income (expense), net" instead of being recognized in "Interest expense." In addition, gains and losses from the foreign currency remeasurement of intercompany and third-party financing transactions as well as income tax assets and liabilities and the impact of related hedges are now also reflected within “Other non-operating income (expense), net.” All other gains and losses from foreign currency transactions continue to be reflected within "Other income (expense), net" on our consolidated income statements. Comparative prior year information has not been restated.

2. NEW ACCOUNTING GUIDANCE

Accounting Guidance Implemented in ~~2018~~

~~Presentation of Net Periodic Pension and Postretirement Benefit Cost~~

In March 2017, the Financial Accounting Standards Board (FASB) issued guidance for improving the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that the service cost component of the net periodic benefit cost be presented in the same operating income line items as other compensation costs arising from services rendered by employees during the period. The non-service costs (e.g., interest cost, expected return on plan assets, amortization of actuarial gains/losses, settlements) should be presented in the income statement outside of operating income. The amendments also allow only the service cost component to be eligible for capitalization when applicable. We early adopted this guidance during the first quarter of fiscal year 2018. The amendments have been applied retrospectively for the income statement presentation requirements and prospectively for the limit on costs eligible for capitalization. The Company applied the practical expedient to use the amounts disclosed in its retirement benefits note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.

Prior to adoption of the guidance, we classified all net periodic benefit costs within operating costs, primarily within "Cost of sales" and "Selling and administrative" on the consolidated income statements. The line item classification changes required by the new guidance did not impact the Company's pre‑tax earnings or net income; however, "Operating income" and "Other non-operating income (expense), net" changed by immaterial offsetting amounts.

~~Derivative Contract Novations~~

In March 2016, the FASB issued guidance to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require re-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. We adopted this guidance in the first quarter of fiscal year 2018. This guidance did not have an impact on our consolidated financial statements upon adoption.

~~New Accounting Guidance to be Implemented~~

~~Revenue Recognition~~

In May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. We will adopt this guidance in fiscal year 2019 under the modified retrospective approach, which will result in a cumulative-effect adjustment as of 1 October 2018. We are in the process of evaluating and implementing necessary changes to accounting policies, processes, controls and systems to enable compliance with this new standard. We continue to evaluate the impact the adoption of this standard will have on our consolidated financial statements and related disclosures.Fiscal Year 2020

Leases

In February 2016, the FASB issued lease guidance ~~which~~(the "new lease guidance") that requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and qualitative disclosure requirements. The guidance is effective in fiscal year 2020, with early adoption permitted, and must be applied using a modified retrospective approach. We are currently evaluating the impact of adopting this new guidance on the consolidated financial statements, including the assessment of our current lease population under the revised definition of what qualifies as a leased asset.

The Company is the lessee under various agreements for real estate, ~~distribution equipment,~~vehicles, aircraft, and ~~vehicles~~other equipment that are ~~currently~~ accounted for as operating leases.

We adopted this guidance in fiscal year 2020 using a modified retrospective approach with the election to apply the guidance as of 1 October 2019, "the adoption date," instead of the earliest comparative period presented in the consolidated financial statements.

We elected the following practical expedients provided by this guidance:

The package of practical expedients, which allows us to carry forward the lease population and classification existing as of the adoption date, among other things;

The land easements practical expedient, which allows us to carry forward our accounting treatment for land easements on agreements existing before the adoption date;

The hindsight practical expedient, which is used to determine the reasonably certain lease term for existing leases as of the adoption date;

The component combination practical expedient, which allows us to account for lease and non-lease components associated with that lease as a single component, if certain criteria are met; and

The short-term leases practical expedient, which allows us to not record the related lease liabilities and right-of-use assets for operating leases in which we are the lessee with a term of 12 months or less.

Adoption of the standard resulted in recognition of lease liabilities and right-of-use assets on our consolidated balance sheets of $375.3 and $332.3, respectively. The standard did not materially affect our retained earnings, results of operations or liquidity. Refer to Note 7, Leases, for additional information.

Hedging Activities

In August 2017, the FASB issued guidance on hedging activities to expand the related presentation and disclosure requirements, change how companies assess effectiveness, and eliminate the separate measurement and reporting of hedge ineffectiveness. The guidance also enables more hedging strategies to become eligible for hedge accounting.

We adopted the new guidance ~~will require~~on 1 October 2019 on a modified retrospective basis. The primary impact of adoption was the ~~Company~~presentation in the consolidated income statement of foreign currency forward points and currency swap basis differences ("excluded components"), since these are excluded from the assessment of hedge effectiveness for our hedges of intercompany loans. Historically, the impacts from changes in value of these components were recorded in "Interest expense." Beginning in fiscal year 2020, the excluded components were recognized in "Other non-operating income (expense), net" consistent with the remeasurement of the intercompany loans. In the first quarter of 2020, we recognized $8.9 in "Other non-operating income (expense), net.” In the first quarter of 2019, $8.3 was recognized in “Interest expense.”

In accordance with the transition provisions of the guidance, the separate measurement of ineffectiveness for our cash flow hedging instruments existing as of the date of adoption should be eliminated through a cumulative-effect adjustment within equity. Ineffectiveness recognized for our cash flow hedging instruments existing as of the date of adoption was not material to ~~record operating leases on~~ the ~~balance sheet with a right-of-use asset and corresponding liability for future payment obligations.~~consolidated financial statements.

New Accounting Guidance to be Implemented

Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance on the measurement of credit losses, which requires measurement and recognition of expected credit losses for financial assets, including trade receivables and capital lease receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The method to determine a loss is different from the existing guidance, which requires a credit loss to be recognized when it is probable. The guidance is effective beginning in fiscal year 2021, with early adoption permitted beginning in fiscal year 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

~~Cash Flow Statement Classification~~Fair Value Measurement Disclosures

In August ~~2016,~~2018, the FASB issued guidance ~~to reduce diversity in practice on how certain cash receipts and cash payments are classified in~~which modifies the ~~statement of cash flows.~~disclosure requirements for fair value measurements. The guidance is effective ~~beginning~~in fiscal year ~~2019,~~2021, with early adoption ~~permitted, and should be applied retrospectively. We are currently evaluating the impact of adopting this new guidance on the consolidated financial statements.~~

~~Intra-Entity Asset Transfers~~

In October 2016, the FASB issued guidance on the accounting for the income tax effects of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new guidance, the income tax consequences of an intra-entity asset transfer are recognized when the transfer occurs. The guidance is effective beginning in fiscal year 2019, with early adoption permitted as of the beginning of an annual reporting period. The guidancepermitted. Certain amendments must be applied ~~on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the date of adoption.~~prospectively and other amendments retrospectively. We are currently evaluating the impact this guidance will have on the disclosures in the notes to our consolidated financial ~~statements and plan to adopt~~statements.

Retirement Benefit Disclosures

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective in fiscal year ~~2019.~~

~~Derecognition of Nonfinancial Assets~~

~~In February 2017, the FASB issued an update to clarify the scope of guidance on gains~~2021, with early adoption permitted, and ~~losses from the derecognition of nonfinancial assets and to add guidance for partial sales of nonfinancial assets. The update~~ must be ~~adopted at the same time as the new guidance~~applied on ~~revenue recognition discussed above, which we will adopt in fiscal year 2019. The guidance may be applied retrospectively or with~~ a ~~cumulative-effect adjustment to retained earnings at the date of adoption.~~retrospective basis. We are currently evaluating the impact this ~~update~~guidance will have on the disclosures in the notes to our consolidated financial statements.

~~Hedging Activities~~Cloud Computing Implementation Costs

In August ~~2017,~~2018, the FASB issued guidance ~~on hedging activities~~which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to expand the related presentation and disclosure requirements, change how companies assess effectiveness, and eliminate the separate measurement and reporting of hedge ineffectiveness. The guidance also enables more financial and nonfinancial hedging strategies to become eligible for hedge accounting.develop or obtain internal-use software. The guidance is effective in fiscal year ~~2020,~~2021, with early adoption ~~permitted. For cash flow~~permitted, and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment to eliminate the separate measurement of ineffectiveness within equity as of the beginning of the fiscal year the guidance is adopted. The amended presentation and disclosure guidance ismay be applied ~~prospectively.~~either prospectively or retrospectively. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Related Party Guidance for Variable Interest Entities

In October 2018, the FASB issued an update which amends the guidance for determining whether a decision-making fee is a variable interest. The amendments require consideration of indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety as currently required. The guidance is effective in fiscal year 2021, with early adoption permitted. The amendments must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued an update to simplify the accounting for income taxes and improve consistent application by clarifying or amending existing guidance. This guidance is effective in fiscal year 2022, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements. Depending on the provision, application can be made on a prospective, retrospective, or on a modified retrospective basis.

3. ~~DISCONTINUED OPERATIONS~~REVENUE RECOGNITION

The ~~results~~majority of the Company's revenue is generated from its sale of gas customers within its Industrial Gases regional segments. We distribute gases through either our on-site or merchant supply mode depending on various factors, including the customer's volume requirements and location. The Industrial Gases – Global and the Corporate and other segments serve our sale of equipment customers.

Disaggregation of Revenue

The tables below present our consolidated sales disaggregated by supply mode for each of our ~~former Performance Materials Division (PMD) and Energy-from-Waste (EfW) segment are reflected in our consolidated financial statements as discontinued operations for all periods presented.~~

During the second quarter of fiscal year 2017, we completed the sale of PMD to Evonik Industries AG (Evonik) for $3.8 billion in cash. A gain of $2,870 ($1,828 after-tax, or $8.32 per share) was recognized on the sale, which closed on 3 January 2017.

In fiscal year 2016, we discontinued efforts to start up and operate two EfW projects located in Tees Valley, United Kingdom. During the second quarter of fiscal year 2016, we recorded an initial loss on disposal of $945.7 ($846.6 after-tax) to write down plant assets to their estimated net realizable value and record a liability for plant disposition and other costs. Income tax benefits related only to one of the projects as the other did not qualify for a local tax deduction. During the first quarter of fiscal year 2017, we recorded an additional loss on disposal of $59.3 ($47.1 after-tax), primarily for land lease obligations and to update our estimate of the net realizable value of the plant assets as of 31 December 2016. There have been no significant changes to our estimates as of 31 December 2017.

The losses on disposal were recorded as a component of discontinued operations while the liability associated with land lease obligations was recorded in continuing operations. The remaining carrying amount of the accrual in discontinued operations at 31 December 2017 was not material.

~~Summarized Financial Information of Discontinued Operations~~

For the three months ended 31 December 2017, the loss from discontinued operations, net of tax, on the consolidated income statements of $1.0 related to ongoing EfW project exit activities and administrative costs.

~~The following table details the businesses and major line items that comprise income from discontinued operations, net of tax, on the consolidated income statements~~reporting segments for the three months ended 31 December ~~2016:~~2019 and 2018. We believe this presentation best depicts the nature, timing, type of customer, and contract terms for our sales.

Three Months Ended
31 December 2016
Total

Performance Energy- Discontinued
Materials
from-Waste^(A)
Operations
Sales $ 254.8
$ —
$ 254.8
Cost of sales 179.0
6.6
185.6
Selling and administrative 20.4
.2
20.6
Research and development 5.1
—
5.1
Other income (expense), net (.4 ) .3
(.1 )
Operating Income (Loss) 49.9
(6.5 ) 43.4
Equity affiliates’ income .3
—
.3
Income (Loss) Before Taxes 50.2
(6.5 ) 43.7
Income tax benefit^(B)
(50.5 ) (1.1 ) (51.6 )
Income (Loss) From Operations of Discontinued Operations, net of tax 100.7
(5.4 ) 95.3
Loss on Disposal, net of tax —
(47.1 ) (47.1 )
Income (Loss) From Discontinued Operations, net of tax 100.7
(52.5 ) 48.2

^(A)



	Industrial Gases– Americas		Industrial Gases– EMEA		Industrial Gases– Asia		Industrial Gases– Global		Corporate and other		Total		%
Three Months Ended 31 December 2019
On-site		$534.5		$171.4		$418.3		$—		$—		$1,124.2	50	%
Merchant	401.7		327.3		274.5		—		—		1,003.5		44	%
Sale of Equipment	—		—		—		92.6		34.4		127.0		6	%
Total		$936.2		$498.7		$692.8		$92.6		$34.4		$2,254.7	100	%



	Industrial Gases– Americas		Industrial Gases– EMEA		Industrial Gases– Asia		Industrial Gases– Global		Corporate and other		Total		%
Three Months Ended 31 December 2018
On-site		$596.0		$222.2		$381.0		$—		$—		$1,199.2	54	%
Merchant	393.2		302.0		245.8		—		—		941.0		42	%
Sale of Equipment	—		—		—		68.2		15.6		83.8		4	%
Total		$989.2		$524.2		$626.8		$68.2		$15.6		$2,224.0	100	%

~~The loss from operations of discontinued operations for EfW primarily relates to land lease obligations, administrative costs, and costs incurred for ongoing project exit activities.~~


^(B)	As a result of the expected gain on sale of PMD, we released valuation allowances related to capital loss and net operating loss carryforwards primarily during the first quarter of 2017 that favorably impacted our income tax provision within discontinued operations by approximately $69.

~~Current assets of discontinued operations on the consolidated balance sheets of $10.2 as~~

Remaining Performance Obligations

As of 31 December ~~2017~~2019, the transaction price allocated to remaining performance obligations is estimated to be approximately $19 billion. This amount includes fixed-charge contract provisions associated with our on-site and ~~30 September 2017 relate~~sale of equipment supply modes. We estimate that approximately half of this revenue will be recognized over approximately the next five years and the balance thereafter.

Expected revenue associated with new on-site plants that are not yet onstream is excluded from this amount. In addition, this amount excludes consideration associated with contracts having an expected duration of less than one year and variable consideration for which we recognize revenue at the amount to which we have the ~~remaining EfW plant~~right to invoice, including pass-through costs related to energy and ~~equipment.~~natural gas.

~~Current liabilities~~In the future, actual amounts will differ due to events outside of ~~discontinued operations on the consolidated balance sheets of $13.6~~our control, including but not limited to inflationary price escalations, currency exchange rates, and ~~$15.7 as of 31 December 2017 and 30 September 2017, respectively,~~terminated or renewed contracts.

Contract Balances

The table below details balances arising from contracts with customers:



	Balance Sheet Location	31 December 2019		30 September 2019
Assets
Contract assets – current	Other receivables and current assets		$94.4		$64.3
Contract fulfillment costs – current	Other receivables and current assets	86.1		64.5
Liabilities
Contract liabilities – current	Payables and accrued liabilities	284.9		247.4
Contract liabilities – noncurrent	Other noncurrent liabilities	53.3		49.2

Changes to our contract balances primarily relate to ~~reserves associated with the disposition~~our sale of ~~PMD.~~

4. ~~MATERIALS TECHNOLOGIES SEPARATION~~

In fiscal year 2017, we completed the separation of the divisions comprising the former Materials Technologies segment. As further discussed below, we completed the separation of the Electronic Materials Division (EMD) through the spin-off of Versum Materials, Inc. (Versum). For information on the disposition of PMD, refer to Note 3, Discontinued Operations.

~~Spin-off of EMD~~

On 1 October 2016 (the distribution date), Air Products completed the spin-off of Versum into a separate and independent public company. The spin-off was completed by way of a distribution to Air Products’ stockholders of all of the then issued and outstanding shares of common stock of Versum on the basis of one share of Versum common stock for every two shares of Air Products’ common stock held as of the close of business on 21 September 2016 (the record date for the distribution). Fractional shares of Versum common stock were not distributed to Air Products' common stockholders. Air Products’ stockholders received cash in lieu of fractional shares. The spin-off of Versum was treated as a noncash transaction in the consolidated statements of cash flows in fiscal year 2017. There has been no activity in discontinued operations on the consolidated income statements and no assets or liabilities presented in discontinued operations on the consolidated balance sheets related to EMD for the periods presented.

~~Business Separation Costs~~

In connection with the dispositions of EMD and PMD, we incurred net separation costs of $30.2 during the first quarter of fiscal year 2017. The net costs include legal and advisory fees of $32.5, which are reflected on the consolidated income statements as “Business separation costs,” and a pension settlement benefit of $2.3 that is now presented within "Other non-operating income (expense), net" as a result of the adoption of pension guidance at the beginning of fiscal year 2018. Refer to Note 2, New Accounting Guidance, for additional information.

~~Our income tax provision for~~equipment contracts. During the three months ended 31 December ~~2016 includes additional tax expense~~2019, we recognized approximately $60 in revenue associated with sale of ~~$2.7 related to the separation. No business separation costs were incurred during fiscal year 2018.~~equipment contracts that was included within our contract liabilities as of 30 September 2019.

5.4. COST REDUCTION ~~AND ASSET~~ ACTIONS

In the first quarter of fiscal year 2017, we recognized a net expense of $50.0, which included $45.7 from the write-down of an air separation unit in the Industrial Gases – EMEA segment that was constructed mainly to provide oxygen to one of the Energy-from-Waste plants.

In fiscal year ~~2017,~~2019, we recognized ~~a net~~an expense of ~~$151.4. The net expense included a charge of $154.8~~$25.5 for actions taken during fiscal year 2017, partially offset by the favorable settlement of the remaining $3.4 accrued balance associated with business restructuring actions taken in 2015. Asset actions of $88.5 included charges resulting from the write-down of an air separation unit in the Industrial Gases – EMEA segment discussed above, the planned sale of a non-industrial gas hardgoods business in the Industrial Gases – Americas segment, and the closure of a facility in the Corporate and other segment that manufactured liquefied natural gas (LNG) heat exchangers. During fiscal year 2017, severance and other benefits ~~totaled $66.3 and related to~~associated with the elimination or planned elimination of approximately ~~625 positions,~~300 positions. These actions were taken to drive cost synergies primarily ~~in the Corporate and other segment and in~~within the Industrial Gases – EMEA ~~segment. The actions in~~and the ~~Corporate and other segment were driven by the reorganization of our engineering, manufacturing, and technology functions. The 2017 charge related to the segments as follows: $39.3 in~~ Industrial Gases – Americas ~~$77.9~~segments. The charge was not recorded in ~~Industrial Gases – EMEA, $.9 in Industrial Gases – Asia, $2.5 in Industrial Gases – Global,~~segment results.

Liabilities associated with these actions are reflected on our consolidated balance sheets within "Payables and ~~$34.2 in Corporate and other.~~

~~In the first quarter of fiscal year 2018, cash expenditures for severance and other benefits totaled $13.5.~~

accrued liabilities." The ~~charges we record for cost reduction and asset actions have been excluded from segment operating income.~~

~~The following~~ table below summarizes the carrying amount of the accrual ~~for cost reduction and asset actions at~~as of 31 December ~~2017:~~2019:

Severance and
Other Benefits

Asset
Actions/Other
Total
30 September 2016 $ 12.3
$ —
$ 12.3
2017 Charge 66.3
88.5
154.8
Noncash expenses —
(84.2 ) (84.2 )
Amount reflected in pension liability (2.0 ) —
(2.0 )
Amount reflected in other noncurrent liabilities —
(2.2 ) (2.2 )
Cash expenditures (35.7 ) (1.2 ) (36.9 )
Currency translation adjustment (.3 ) —
(.3 )
30 September 2017 $ 40.6
$ .9
$ 41.5
Cash expenditures (13.5 ) (.1 ) (13.6 )
Currency translation adjustment .2
—
.2
31 December 2017 $ 27.3
$ .8
$ 28.1




2019 Charge		$25.5
Cash expenditures	(6.9		)
Amount reflected in pension liability	(0.3		)
Currency translation adjustment	(0.5		)
30 September 2019		$17.8
Cash expenditures	(5.0		)
Currency translation adjustment	0.3
31 December 2019		$13.1

~~6. BUSINESS COMBINATIONS~~

During the first quarter of fiscal year 2018, we completed three acquisitions with an aggregate purchase price, net of cash acquired, of $237.1. The largest acquisition consists primarily of three air separation units serving onsite and merchant customers in China. This acquisition is expected to strengthen our position in the region. The results of this business are consolidated within our Industrial Gases – Asia segment.

The first quarter 2018 acquisitions resulted in the recognition of $148.5 of plant and equipment, $53.7 of goodwill, $3.0 of which is deductible for tax purposes, and $53.4 of intangible assets, primarily customer relationships, having a weighted-average useful life of twelve years. The goodwill recognized on the transactions is attributable to expected growth and cost synergies and was primarily recorded in the Industrial Gases – Asia segment.

7.5. INVENTORIES

The components of inventories are as follows:


	31 December			30 September			31 December		30 September
	2017			2017			2019		2019
Finished goods	$	135.1		$	120.0			$127.0		$128.8
Work in process	17.8			15.7			29.8		27.5
Raw materials, supplies and other	218.6			223.0			243.8		232.0
Total FIFO cost	$	371.5		$	358.7
Less: Excess of FIFO cost over LIFO cost	(24.1		)	(23.3		)
Inventories	$	347.4		$	335.4			$400.6		$388.3

~~First-in, first-out (FIFO) cost approximates replacement cost.~~

8.6. GOODWILL

Changes to the carrying amount of consolidated goodwill by segment for the three months ended 31 December ~~2017~~2019 are as follows:

Industrial
Gases–
Americas

Industrial
Gases–
EMEA

Industrial
Gases–
Asia

Industrial
Gases–
Global
Total
Goodwill, net at 30 September 2017 $ 163.7
$ 402.4
$ 135.2
$ 20.2
$ 721.5
Acquisitions —
17.3
36.4
—
53.7
Currency translation 2.3
10.9
2.5
(.1 ) 15.6
Goodwill, net at 31 December 2017 $ 166.0
$ 430.6
$ 174.1
$ 20.1
$ 790.8



	Industrial Gases– Americas			Industrial Gases– EMEA		Industrial Gases– Asia		Industrial Gases– Global		Corporate and other		Total
Goodwill, net at 30 September 2019		$156.3			$432.3		$178.5		$19.6		$10.4		$797.1
Currency translation and other	(1.7		)	19.2		1.3		0.2		—		19.0
Goodwill, net at 31 December 2019		$154.6			$451.5		$179.8		$19.8		$10.4		$816.1


	31 December			30 September			31 December			30 September
	2017			2017			2019			2019
Goodwill, gross	$	1,224.4		$	1,138.7			$1,169.2			$1,162.2
Accumulated impairment losses(A)	(433.6		)	(417.2		)	(353.1		)	(365.1		)
Goodwill, net	$	790.8		$	721.5			$816.1			$797.1


^(A)	Accumulated impairment losses include the impacts of currency translation. These losses are attributable to our Latin America reporting unit ("LASA") within the Industrial Gases – Americas segment.

We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying value of goodwill might not be recoverable.

7. LEASES

As discussed in Note 2, New Accounting Guidance, we adopted the new lease guidance in fiscal year 2020 using a modified retrospective approach with the election to apply the guidance as of 1 October 2019. For adoption, we elected the package of practical expedients permitted under the transition guidance to carry forward the historical lease populations as well as their classifications existing as of the adoption date (i.e. contracts having a lease commencement date prior to 1 October 2019). Refer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 2, New Accounting Guidance, for additional information on our adoption and related policies under the new lease standard.

Lessee Accounting

The ~~accumulated impairment losses~~Company is the lessee under various agreements for real estate, vehicles, aircraft, and other equipment that are accounted for as operating leases. Our finance leases principally relate to the right to use machinery and equipment and are not material.

The operating lease expense for the three months ended 31 December 2019, which exclude short-term and variable lease expenses, as those expenses are immaterial, was $19.4.

Amounts associated with operating leases, including their presentation on our consolidated balance sheets, as of ~~$433.6~~our most recent balance sheet date and our adoption date are as follows:



	31 December 2019		1 October 2019
Operating lease ROU asset
Other noncurrent assets		$318.8		$332.3
Operating lease liabilities
Payables and accrued liabilities	67.8		68.6
Other noncurrent liabilities	296.8		306.7
Total Operating Lease Liabilities		$364.6		$375.3

The difference between the ROU assets and lease liabilities recorded upon adoption primarily relate to the land lease associated with our former Energy-from-Waste business in which a ROU asset was not recognized.



	31 December 2019
Weighted-average remaining lease term (in years)^(A)	12.9
Weighted-average discount rate^(B)	2.1	%


^(A)	Calculated on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.


^(B)	Calculated on the basis of the discount rate used to calculate the lease liability for each lease as of the reporting date and the remaining balance of the lease payments for each lease as of the reporting date.

At 31 December 2019, the maturity analysis of lease liabilities, showing the undiscounted cash flows, is as follows:



	Operating Leases
2020 (excluding the three months ended 31 December 2019)		$57.5
2021	63.4
2022	45.0
2023	36.1
2024	28.9
Thereafter	179.6
Total Undiscounted Lease Payments		$410.5
Imputed interest	(45.9		)
Present Value of Lease Liability Recognized on the Balance Sheet		$364.6

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum payments due under leases were as follows:



	Operating Leases
2020		$75.1
2021	62.6
2022	44.4
2023	35.9
2024	28.6
Thereafter	171.4
Total Undiscounted Lease Payments		$418.0

The impacts associated with our operating leases on the consolidated statements of cash flows are reflected within "Other adjustments" within operating activities. This includes the non-cash impact from operating lease costs of $19.4 as well as a use of cash of $19.0 for payments on amounts included in the measurement of the lease liability. The net impact to operating cash flows from these activities is not material.

Other than the ROU assets established upon adoption, there were no significant non-cash additions during the three months ended 31 December 2019.

We have additional operating leases that have not yet commenced as of 31 December ~~2017~~2019, the largest of which commences in the second quarter of 2020 having annual fixed payments in excess of $1 for almost 40 years.

Lessor Accounting

Historically, certain contracts associated with facilities that are ~~attributable~~built to ~~LASA~~provide product to a specific customer were accounted for as leases. As noted above, we elected the package of practical expedients permitted under the transition guidance to carry forward these lease determinations as of 30 September 2019.

In cases where operating lease treatment is appropriate, there is no difference in revenue recognition over the life of the contract as compared to accounting for the contract under a sale of gas agreement. Under the new lease standard, these contracts qualify for a practical expedient available to lessors to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. We elected to apply this practical expedient and have accounted for the combined component as product sales under the revenue standard as we control the operations and maintenance of the assets that provide the supply of gas to our customers.

In cases where sales-type lease treatment is appropriate, revenue and expense are recognized up front for the sale of equipment component of the contract as compared to revenue recognition over the life of the arrangement under contracts not qualifying as sales-type leases. Additionally, a portion of the revenue representing interest income from the financing component of the lease receivable is reflected as sales over the life of the contract. During the three months ended 31 December 2019, we recognized interest income of $18.5 on our lease receivables. As we control the operations and maintenance of the assets that provide the supply of gas to our customers, we do not expect new arrangements to qualify as leases.

Our contracts generally do not have the option to extend or terminate the lease, or provide the customer the right to purchase the asset at the end of the contract term. Instead, renewal of such contracts requires negotiation of mutually agreed upon terms by both parties. Unless the customer terminates within the ~~Industrial Gases– Americas segment~~required notice period, the contract will go into evergreen. Given the long-term duration of our contracts, there is no assumed residual value for the assets at the end of the lease term.

Lease receivables, net, primarily relate to sales-type leases and ~~include impairment charges recorded~~are mostly included within "Noncurrent lease receivables" on our consolidated balance sheets, with the remaining balance in ~~previous years~~"Other receivables and current assets."

Lease payments collected during the three months ended 31 December 2019 were $42.0. These payments reduced the lease receivable balance by $23.5 in fiscal year 2020.

At 31 December 2019, minimum lease payments expected to be collected, which reconciles to the total undiscounted minimum lease payments reflected in the table below, were as ~~well~~follows:



2020 (excluding the three months ended 31 December 2019)		$122.9
2021	159.2
2022	148.3
2023	142.0
2024	135.8
Thereafter	730.2
Total		$1,438.4
Unearned interest income	(463.6		)
Lease Receivables, net		$974.8

As previously disclosed in our 2019 Form 10-K, at 30 September 2019, prior to our adoption of the new lease guidance, minimum lease payments expected to be collected were as follows:



2020		$162.5
2021	156.9
2022	145.7
2023	139.4
2024	133.2
Thereafter	715.5
Total		$1,453.2
Unearned interest income	(472.3		)
Lease Receivables, net		$980.9

Other than lease payments received during the ~~impacts~~first three months of fiscal year 2020 and the impact of currency, ~~translation on the losses.~~there have been no changes to our minimum lease payments expected to be collected since those disclosed as of 30 September 2019 in our 2019 Form 10-K.

9.8. FINANCIAL INSTRUMENTS

Currency Price Risk Management

Our earnings, cash flows, and financial position are exposed to foreign currency risk from foreign currency-denominated transactions and net investments in foreign operations. It is our policy to seek to minimize our cash flow volatility from changes in currency exchange rates. This is accomplished by identifying and evaluating the risk that our cash flows will change in value due to changes in exchange rates and by executing ~~the appropriate~~ strategies necessary to manage such exposures. Our objective is to maintain economically balanced currency risk management strategies that provide adequate downside protection.

Forward Exchange Contracts

We enter into forward exchange contracts to reduce the cash flow exposure to foreign currency fluctuations associated with highly anticipated cash flows and certain firm commitments, such as the purchase of plant and equipment. We also enter into forward exchange contracts to hedge the cash flow exposure on intercompany loans. This portfolio of forward exchange contracts consists primarily of Euros and U.S. Dollars. The maximum remaining term of any forward exchange contract currently outstanding and designated as a cash flow hedge at 31 December ~~2017~~2019 is ~~1.5~~1.9 years.

Forward exchange contracts are also used to hedge the value of investments in certain foreign subsidiaries and affiliates by creating a liability in a currency in which we have a net equity position. The primary currency pair in this portfolio of forward exchange contracts is Euros and U.S. Dollars.

~~In addition to the forward exchange contracts that are designated as hedges, we~~We also utilize forward exchange contracts that are not designated as hedges. These contracts are used to economically hedge foreign currency-denominated monetary assets and liabilities, primarily working capital. The primary objective of these forward exchange contracts is to protect the value of foreign currency-denominated monetary assets and liabilities ~~primarily working capital,~~ from the effects of volatility in foreign exchange rates that might occur prior to their receipt or settlement. This portfolio of forward exchange contracts ~~comprises~~consists of many different foreign currency pairs, with a profile that changes from time to time depending on business activity and sourcing decisions.

The table below summarizes our outstanding currency price risk management instruments:


	31 December 2017			30 September 2017			31 December 2019			30 September 2019
	US$ Notional		Years Average Maturity	US$ Notional		Years Average Maturity	US$ Notional		Years Average Maturity	US$ Notional		Years Average Maturity
Forward Exchange Contracts:
Cash flow hedges	$	3,209.0	.5	$	3,150.2	.4		$2,659.3	0.5		$2,418.2	0.5
Net investment hedges	674.0		2.8	675.5		3.0	836.2		0.7	830.8		0.9
Not designated	390.2		.2	273.8		.1	887.6		0.6	1,053.5		0.6
Total Forward Exchange Contracts	$	4,273.2	.8	$	4,099.5	.8		$4,383.1	0.6		$4,302.5	0.6

~~In addition to the above, we~~We also use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in certain foreign subsidiaries. The designated foreign currency-denominated debt and related accrued interest ~~included €909.0~~was €953.2 million ($~~1,091.2)~~1,068.8) at 31 December ~~2017~~2019 and ~~€912.2~~€951.3 million ($~~1,077.7)~~1,036.9) at 30 September ~~2017.~~2019. The designated foreign currency-denominated debt is ~~located~~presented within "Long-term debt" on the consolidated balance ~~sheet in the long-term debt line item.~~sheets.

Debt Portfolio Management

It is our policy to identify, on a continuing basis, the need for debt capital and to evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the result of this ongoing review, ~~the~~our debt portfolio and hedging program are managed with the ~~objectives and~~ intent to (1) reduce funding risk with respect to borrowings made by us to preserve our access to debt capital and provide debt capital as required for funding and liquidity purposes, and (2) manage the aggregate interest rate risk and the debt portfolio in accordance with certain debt management parameters.

Interest Rate Management Contracts

We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and floating-to-fixed interest rate swaps (which are designated as cash flow hedges). AtAs of 31 December ~~2017,~~2019, the outstanding interest rate swaps were denominated in U.S. Dollars. The notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-to-one basis.

Cross Currency Interest Rate Swap Contracts

We enter into cross currency interest rate swap contracts when our risk management function deems necessary. These contracts may entail both the exchange of fixed- and floating-rate interest payments periodically over the life of the agreement and the exchange of one currency for another currency at inception and at a specified future date. The contracts are used to hedge either certain net investments in foreign operations or non-functional currency cash flows related to intercompany loans. The current cross currency interest rate swap portfolio consists of fixed-to-fixed swaps primarily between U.S. Dollars and ~~offshore~~ Chinese Renminbi, U.S. Dollars and ~~Chilean Pesos,~~Indian Rupee, and U.S. Dollars and ~~British Pound Sterling.~~Chilean Pesos.

The following table summarizes our outstanding interest rate management contracts and cross currency interest rate swaps:


	31 December 2017							30 September 2017							31 December 2019							30 September 2019
	US$ Notional		Average Pay %		Average Receive %		Years Average Maturity	US$ Notional		Average Pay %		Average Receive %		Years Average Maturity	US$ Notional		Average Pay %		Average Receive %		Years Average Maturity	US$ Notional		Average Pay %		Average Receive %		Years Average Maturity
Interest rate swaps (fair value hedge)	$	400.0	LIBOR		2.53	%	1.6	$	600.0	LIBOR		2.28	%	1.3		$200.0	LIBOR		2.76	%	1.8		$200.0	LIBOR		2.76	%	2.1
Cross currency interest rate swaps (net investment hedge)	$	670.1	3.73	%	2.82	%	2.6	$	539.7	3.27	%	2.59	%	1.9		$207.8	4.69	%	3.31	%	3.2		$216.8	4.80	%	3.31	%	3.5
Cross currency interest rate swaps (cash flow hedge)	$	1,027.8	5.05	%	2.82	%	2.3	$	1,095.7	4.96	%	2.78	%	2.4		$1,098.1	4.94	%	3.07	%	2.1		$1,129.3	4.92	%	3.04	%	2.3
Cross currency interest rate swaps (not designated)	$	58.1	3.34	%	2.07	%	1.3	$	41.6	3.28	%	2.32	%	1.7		$15.1	5.39	%	3.54	%	4.0		$6.1	2.55	%	3.72	%	4.5

The table below provides the amounts recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:

Carrying amounts of hedged item

Cumulative hedging adjustment, included in carrying amount

Balance Sheet Location

31 December 2019

30 September 2019

31 December 2019

30 September 2019

Long-term debt

$403.8

$404.7

$4.3

$5.2

The table below summarizes the fair value and balance sheet location of our outstanding derivatives:


	Balance Sheet Location	31 December 2017		30 September 2017		Balance Sheet Location	31 December 2017		30 September 2017		Balance Sheet Location	31 December 2019		30 September 2019		Balance Sheet Location	31 December 2019		30 September 2019
Derivatives Designated as Hedging Instruments:
Forward exchange contracts	Other receivables	$	58.6	$	81.7	Accrued liabilities	$	44.3	$	82.0	Other receivables and current assets		$66.0		$79.0	Payables and accrued liabilities		$19.6		$53.8
Interest rate management contracts	Other receivables	7.0		11.1		Accrued liabilities	14.8		10.7		Other receivables and current assets	26.7		24.8		Payables and accrued liabilities	0.3		1.1
Forward exchange contracts	Other noncurrent assets	23.2		27.1		Other noncurrent liabilities	21.9		13.8		Other noncurrent assets	8.7		11.9		Other noncurrent liabilities	0.2		0.7
Interest rate management contracts	Other noncurrent assets	79.5		102.6		Other noncurrent liabilities	38.2		22.2		Other noncurrent assets	41.8		60.9		Other noncurrent liabilities	—		0.7
Total Derivatives Designated as Hedging Instruments		$	168.3	$	222.5		$	119.2	$	128.7			$143.2		$176.6			$20.1		$56.3
Derivatives Not Designated as Hedging Instruments:
Forward exchange contracts	Other receivables	$	2.4	$	1.1	Accrued liabilities	$	6.0	$	2.2	Other receivables and current assets		$33.0		$38.7	Payables and accrued liabilities		$30.6		$36.3
Interest rate management contracts	Other receivables	—		—		Accrued liabilities	2.7		1.0
Forward exchange contracts											Other noncurrent assets	6.5		8.4		Other noncurrent liabilities	17.6		19.8
Interest rate management contracts	Other noncurrent assets	4.6		4.2		Other noncurrent liabilities	—		—		Other noncurrent assets	0.4		0.5		Other noncurrent liabilities	—		—
Total Derivatives Not Designated as Hedging Instruments		$	7.0	$	5.3		$	8.7	$	3.2			$39.9		$47.6			$48.2		$56.1
Total Derivatives		$	175.3	$	227.8		$	127.9	$	131.9			$183.1		$224.2			$68.3		$112.4

Refer to Note ~~10,~~ 9, Fair Value Measurements, which defines fair value, describes the method for measuring fair value, and provides additional disclosures regarding fair value measurements.

The tables below summarize gains (losses) recognized in other comprehensive income during the period related to our net investment and cash flow hedging relationships:



	Three Months Ended 31 December
	2019			2018
Net Investment Hedging Relationships
Forward exchange contracts		($9.1	)		$15.5
Foreign currency debt	(29.9		)	12.6
Cross currency interest rate swaps	(3.5		)	0.9
Total Amount Recognized in OCI	(42.5		)	29.0
Tax effects	10.2			(7.0		)
Net Amount Recognized in OCI		($32.3	)		$22.0



	Three Months Ended 31 December
	2019			2018
Derivatives in Cash Flow Hedging Relationships
Forward exchange contracts		$26.3			$8.9
Forward exchange contracts, excluded components	(4.5		)	(3.8		)
Other^(A)	2.9			(16.1		)
Total Amount Recognized in OCI	24.7			(11.0		)
Tax effects	(2.6		)	0.7
Net Amount Recognized in OCI		$22.1			($10.3	)

^(A)

Other primarily includes interest rate and cross currency interest rate swaps for which excluded components are recognized in “Payables and accrued liabilities” and “Other receivables and current assets” as a component of accrued interest payable and accrued interest receivable, respectively. These excluded components are recorded in “Other Non-operating income (expense), net” over the life of the cross currency interest rate swap.

The table below summarizes by contract type the ~~gain or loss~~location and amounts recognized in income related to our cash flow ~~hedges,~~and fair value ~~hedges, net investment hedges, and derivatives not designated as~~ hedging ~~instruments:~~relationships:

Three Months Ended 31 December

Forward
Exchange Contracts
Foreign Currency
Debt
Other ^(A)
Total
2017 2016 2017 2016 2017 2016 2017 2016
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion) $ 7.5
$ (59.4 ) $ —
$ —
$ (17.0 ) $ 49.6
$ (9.5 ) $ (9.8 )
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion) 1.0
4.6
—
—
—
—
1.0
4.6
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion) (17.6 ) 49.5
—
—
16.4
(28.2 ) (1.2 ) 21.3
Net (gain) loss reclassified from OCI to interest expense (effective portion) .6
(.8 ) —
—
.6
.7
1.2
(.1 )
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion) (.2 ) (.2 ) —
—
—
—
(.2 ) (.2 )
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)
$ —
$ —
$ —
$ —
$ (3.2 ) $ (9.1 ) $ (3.2 ) $ (9.1 )
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI $ (7.5 ) $ 27.9
$ (17.3 ) $ 41.8
$ (11.2 ) $ 13.1
$ (36.0 ) $ 82.8
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)
$ (1.5 ) $ 2.1
$ —
$ —
$ (1.3 ) $ .8
$ (2.8 ) $ 2.9



	Three Months Ended 31 December
	Sales					Cost of Sales					Other Income (Expense), Net					Interest Expense						Other Non-Operating Income (Expense), Net
	2019		2018			2019			2018		2019		2018			2019			2018			2019			2018
Total Amounts Presented in the Consolidated Income Statement in which the Effects of Cash Flow and Fair Value Hedges are Recorded		$2,254.7		$2,224.0			$1,486.6			$1,544.0		$12.3		$8.6			$18.7			$37.3			$9.1			$18.5
(Gain) Loss Effects of Cash Flow Hedging:
Forward Exchange Contracts:
Amount reclassified from OCI into income^(A)		$0.1		$0.4			($0.2	)		$0.2		$—		($11.9	)		$—			$4.2			($23.4	)		$—
Amount excluded from effectiveness testing recognized in earnings based on amortization approach^(A)	—		—			—			—		—		—			—			—			4.5			—
Other:
Amount reclassified from OCI into income^(B)	—		—			—			—		—		2.2			1.0			1.0			13.6			—
Total (Gain) Loss Reclassified from OCI to Income	0.1		0.4			(0.2		)	0.2		—		(9.7		)	1.0			5.2			(5.3		)	—
Tax effects	—		(0.1		)	0.1			—		—		2.3			(0.3		)	(1.4		)	1.0			—
Net (Gain) Loss Reclassified from OCI to Income		$0.1		$0.3			($0.1	)		$0.2		$—		($7.4	)		$0.7			$3.8			($4.3	)		$—
(Gain) Loss Effects of Fair Value Hedging:
Other:
Hedged items		$—		$—			$—			$—		$—		$—			($0.9	)		$2.6			$—			$—
Derivatives designated as hedging instruments	—		—			—			—		—		—			0.9			(2.6		)	—			—
Total (Gain) Loss Recognized in Income		$—		$—			$—			$—		$—		$—			$—			$—			$—			$—


^(A)	Net amount excluded from effectiveness testing recognized in interest expense for FY19, see Note 2, New Accounting Guidance, for additional details.

^(B)

Other primarily includes interest rate and cross currency interest rate swaps for which excluded components are recognized in “Payables and accrued liabilities” and ��Other receivables and current assets” as a component of accrued interest payable and accrued interest receivable, respectively. These excluded components are recorded in “Other Non-operating income (expense), net” over the life of the cross currency interest rate swap.

The table below summarizes by contract type the location and amounts recognized in income related to our derivatives not designated as hedging instruments:



	Three Months Ended 31 December
	Other Income (Expense), net					Other Non-Operating Income (Expense), net
	2019		2018			2019			2018
The Effects of Derivatives Not Designated as a Hedging Instruments:
Forward Exchange Contracts		$0.2		$0.1			($0.6	)		$—
Other	—		(0.8		)	0.4			—
Total (Gain) Loss Recognized in Income		$0.2		($0.7	)		($0.2	)		$—



^(A)	~~Other includes the impact on other comprehensive income (OCI) and earnings primarily related to interest rate and cross currency interest rate swaps.~~


^(B)	~~The impact of fair value hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in related interest rates on outstanding debt.~~


^(C)	The impact of the non-designated hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in exchange rates on assets and liabilities denominated in non-functional currencies.

The amount of ~~cash flow hedges’~~ unrealized gains and losses atrelated to cash flow hedges as of 31 December ~~2017~~2019 that are expected to be reclassified to earnings in the next twelve months is ~~approximately $14. The balance primarily consists of losses on forward exchange contracts that hedged foreign currency exposures for a sale of equipment project and intercompany loans.~~not material.

The cash flows related to all derivative contracts are reported in the operating activities section of the consolidated statements of cash flows.

Credit Risk-Related Contingent Features

Certain derivative instruments are executed under agreements that require us to maintain a minimum credit rating with both Standard & Poor’s and Moody’s. If our credit rating falls below this threshold, the counterparty to the derivative instruments has the right to request full collateralization on the derivatives’ net liability position. The net liability position of derivatives with credit risk-related contingent features was ~~$78.7~~$29.9 and $30.1 as of 31 December ~~2017~~2019 and ~~$34.6 as of~~ 30 September ~~2017.~~2019, respectively. Because our current credit rating is above the various pre-established thresholds, no0 collateral has been posted on these liability positions.

Counterparty Credit Risk Management

We execute financial derivative transactions with counterparties that are highly rated financial institutions, all of which are investment grade at this time. Some of our underlying derivative agreements give us the right to require the institution to post collateral if its credit rating falls below the pre-established thresholds with Standard & Poor’s or Moody’s. The collateral that the counterparties would be required to post was ~~$100.6~~$128.2 and $157.1 as of 31 December ~~2017~~2019 and ~~$138.5 as of~~ 30 September ~~2017.~~2019, respectively. No financial institution is required to post collateral at this time as all have credit ratings at or above threshold.

~~10.~~9. FAIR VALUE MEASUREMENTS

Fair value is defined as an exit price, ~~i.e.,~~or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:


Level 1	— Quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2	— Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.


Level 3	— Inputs that are unobservable for the asset or liability based on our own assumptions ~~(about~~about the assumptions market participants would use in pricing the asset or ~~liability).~~liability.

The methods and assumptions used to measure the fair value of financial instruments are as follows:

Short-term Investments

Short-term investments primarily include time deposits ~~and treasury securities~~ with original maturities greater than three months and less than one year. ~~The~~We estimated the fair value of ~~the~~our short-term investments, which approximates carrying value as of ~~31 December 2017 and 30 September 2017, was determined~~the balance sheet date, using level 2 inputs within the fair value hierarchy. Level 2 measurements were based on current interest rates for similar investments with comparable credit risk and time to maturity.

Derivatives

The fair value of our interest rate management contracts and forward exchange contracts are quantified using the income approach and are based on estimates using standard pricing models. These models ~~take into account~~consider the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. The computation of the fair values of these instruments is generally performed by the Company. These standard pricing models utilize inputs ~~which~~that are derived from or corroborated by observable market data such as interest rate yield curves as well as currency spot and forward ~~rates. Therefore,~~rates; therefore, the fair value of our derivatives is classified as a level 2 measurement. On an ongoing basis, we randomly test a subset of our valuations against valuations received from the transaction’s counterparty to validate the accuracy of our standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions.

Refer to Note 9, 8, Financial Instruments, for a description of derivative instruments, including details onrelated to the balance sheet line classifications.

Long-term Debt, Including Related Party

The fair value of our debt is based on estimates using standard pricing models that ~~take into account~~consider the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. These standard valuation models utilize observable market data such as interest rate yield curves and currency spot ~~rates. Therefore,~~rates; therefore, the fair value of our debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these instruments.

The carrying values and fair values of financial instruments were as follows:


	31 December 2017				30 September 2017				31 December 2019				30 September 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Derivatives
Forward exchange contracts	$	84.2	$	84.2	$	109.9	$	109.9		$114.2		$114.2		$138.0		$138.0
Interest rate management contracts	91.1		91.1		117.9		117.9		68.9		68.9		86.2		86.2
Liabilities
Derivatives
Forward exchange contracts	$	72.2	$	72.2	$	98.0	$	98.0		$68.0		$68.0		$110.6		$110.6
Interest rate management contracts	55.7		55.7		33.9		33.9		0.3		0.3		1.8		1.8
Long-term debt, including current portion	3,426.2		3,519.6		3,818.8		3,928.2
Long-term debt, including current portion and related party									3,304.7		3,349.9		3,267.8		3,350.9

The carrying amounts reported inon the consolidated balance ~~sheet~~sheets for cash and cash items, short-term investments, trade receivables, payables and accrued liabilities, accrued income taxes, and short-term borrowings approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the above table.

The following table summarizes assets and liabilities on the consolidated balance sheets that are measured at fair value on a recurring ~~basis in the consolidated balance sheets:~~basis:


	31 December 2017								30 September 2017								31 December 2019								30 September 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets at Fair Value
Derivatives
Forward exchange contracts	$	84.2	$	—	$	84.2	$	—	$	109.9	$	—	$	109.9	$	—		$114.2		$—		$114.2		$—		$138.0		$—		$138.0		$—
Interest rate management contracts	91.1		—		91.1		—		117.9		—		117.9		—		68.9		—		68.9		—		86.2		—		86.2		—
Total Assets at Fair Value	$	175.3	$	—	$	175.3	$	—	$	227.8	$	—	$	227.8	$	—		$183.1		$—		$183.1		$—		$224.2		$—		$224.2		$—
Liabilities at Fair Value
Derivatives
Forward exchange contracts	$	72.2	$	—	$	72.2	$	—	$	98.0	$	—	$	98.0	$	—		$68.0		$—		$68.0		$—		$110.6		$—		$110.6		$—
Interest rate management contracts	55.7		—		55.7		—		33.9		—		33.9		—		0.3		—		0.3		—		1.8		—		1.8		—
Total Liabilities at Fair Value	$	127.9	$	—	$	127.9	$	—	$	131.9	$	—	$	131.9	$	—		$68.3		$—		$68.3		$—		$112.4		$—		$112.4		$—

~~11.~~10. RETIREMENT BENEFITS

The components of net periodic benefit cost for ~~the~~our defined benefit pension plans for the three months ended 31 December ~~2017~~2019 and ~~2016~~2018 were as follows:



	Pension Benefits
	2019						2018
Three Months Ended 31 December	U.S.			International			U.S.			International
Service cost		$5.8			$5.9			$5.4			$4.9
Interest cost	22.8			6.2			28.4			9.0
Expected return on plan assets	(47.2		)	(19.5		)	(43.1		)	(18.9		)
Prior service cost amortization	0.3			—			0.3			—
Actuarial loss amortization	21.0			4.9			16.1			2.8
Settlements	—			—			0.8			0.2
Special termination benefits	—			—			0.7			—
Other	—			0.2			—			0.3
Net Periodic (Benefit) Cost		$2.7			($2.3	)		$8.6			($1.7	)

Pension Benefits
2017 2016
Three Months Ended 31 December U.S. International U.S. International
Service cost^(A)
$ 6.4
$ 6.3
$ 8.3
$ 6.7
Interest cost 26.7
9.2
24.9
7.6
Expected return on plan assets (50.4 ) (20.2 ) (52.7 ) (18.5 )
Prior service cost amortization .4
—
.6
—
Actuarial loss amortization 21.7
10.0
26.1
13.9
Settlements 1.8
—
—
(2.3 )
Curtailment —
—
4.2
(3.1 )
Special termination benefits —
—
1.1
.4
Other —
.5
—
2.7
Net Periodic Benefit Cost (Total) $ 6.6
$ 5.8
$ 12.5
$ 7.4
Less: Discontinued Operations —
—
(.6 ) (.7 )
Net Periodic Benefit Cost (Continuing Operations) $ 6.6
$ 5.8
$ 11.9
$ 6.7

^(A)Includes total service costs from discontinued operations of $1.3 for the three months ended 31 December 2016. There was no discontinued operations activity for the three months ended 31 December 2017.

As noted in Note 2, New Accounting Guidance, we early adopted guidance on the presentation of net periodic pension and postretirement benefit cost during the first quarter of fiscal year 2018. The amendments require that theOur service cost component of the net periodic benefit cost be presented in the same line items as other compensation costs arising from services rendered by employees during the period. The non-service related costs are presented outside of operating income in "Other non-operating income (expense), net."

~~Service~~ costs are primarily included inwithin "Cost of sales" and "Selling and administrative" on our consolidated income statements. The amount of service costs capitalized in the first three months of fiscal ~~year 2018~~years 2020 and ~~2017~~2019 were not material. The non-service related costs, including pension settlement losses, are presented outside operating income within "Other non-operating income (expense), net."

For the three months ended 31 December ~~2017~~2019 and ~~2016,~~2018, our cash contributions to funded pension plans and benefit payments under unfunded pension plans were ~~$27.4~~$8.3 and ~~$24.9,~~$19.5, respectively. Total contributions for fiscal year ~~2018~~2020 are expected to be approximately ~~$50~~$30 to ~~$70.~~$40. During fiscal year ~~2017,~~2019, total contributions were ~~$64.1.~~$40.2.

U.K. Lloyds Pensions Equalization Ruling

On 26 October 2018, the United Kingdom High Court issued a ruling related to the equalization of pension plan participants’ benefits for the gender effects of Guaranteed Minimum Pensions. As a result of this ruling, we estimated the impact of retroactively increasing benefits in our U.K. plan in accordance with the High Court ruling. We treated the additional benefits as a prior service cost, which resulted in an increase to our projected benefit obligation and accumulated other comprehensive loss of $4.7 during the first quarter of fiscal year 2019. We are amortizing this cost over the average remaining life expectancy of the U.K. participants.

~~12.~~11. COMMITMENTS AND CONTINGENCIES

Litigation

We are involved in various legal proceedings, including commercial, competition, environmental, ~~health, safety,~~intellectual property, regulatory, product liability, and insurance matters. In September 2010, the Brazilian Administrative Council for Economic Defense ~~(CADE)~~("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 ~~$54~~$45 at 31 December ~~2017)~~2019) on Air Products Brasil Ltda. This fine was based on a recommendation by a unit of the Brazilian Ministry of Justice, whose investigation began in 2003, alleging violation of competition laws with respect to the sale of industrial and medical gases. The fines are based on a percentage of our total revenue in Brazil in 2003.

We have denied the allegations made by the authorities and filed an appeal in October 2010 with the Brazilian courts. On 6 May 2014, our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE has appealed that ruling and the matter remains pending. We, with advice of our outside legal counsel, have assessed the status of this matter and have concluded that, although an adverse final judgment after exhausting all appeals is possible, such a judgment is not probable. As a result, no0 provision has been made in the consolidated financial statements. We estimate the maximum possible loss to be the full amount of the fine of R$179.2 million (approximately ~~$54~~$45 at 31 December ~~2017)~~2019) plus interest accrued thereon until final disposition of the proceedings.

Other than this matter, we do not currently believe there are any legal proceedings, individually or in the aggregate, that are reasonably possible to have a material impact on our financial condition, results of operations, or cash flows.

Environmental

In the normal course of business, we are involved in legal proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act ~~(CERCLA:~~("CERCLA," the federal Superfund law);, Resource Conservation and Recovery Act ~~(RCRA);~~("RCRA"), and similar state and foreign environmental laws relating to the designation of certain sites for investigation or remediation. Presently, there are ~~approximately 32~~30 sites on which a final settlement has not been reached where we, along with others, have been designated a potentially responsible party by the Environmental Protection Agency or are otherwise engaged in investigation or remediation, including cleanup activity at certain of our current and former manufacturing sites. We continually monitor these sites for which we have environmental exposure.

Accruals for environmental loss contingencies are recorded when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The consolidated balance sheets at 31 December ~~2017~~2019 and 30 September ~~2017~~2019 included an accrual of ~~$81.4~~$67.1 and ~~$83.6,~~$68.9, respectively, primarily as part of other noncurrent liabilities. The environmental liabilities will be paid over a period of up to 30 years. We estimate the exposure for environmental loss contingencies to range from ~~$81~~$67 to a reasonably possible upper exposure of ~~$95~~$80 as of 31 December ~~2017.~~2019.

Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. Using reasonably possible alternative assumptions of the exposure level could result in an increase to the environmental accrual. Due to the inherent uncertainties related to environmental exposures, a significant increase to the reasonably possible upper exposure level could occur if a new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or a significant increase in our proportionate share occurs. We do not expect that any sum we may have to pay in connection with environmental matters in excess of the amounts recorded or disclosed above would have a material adverse impact on our financial position or results of operations in any one year.

PACE

At 31 December ~~2017, $28.5~~2019, $24.1 of the environmental accrual was related to the Pace facility.

In 2006, we sold our Amines business, which included operations at Pace, Florida, and recognized a liability for retained environmental obligations associated with remediation activities at Pace. We are required by the Florida Department of Environmental Protection ~~(FDEP)~~("FDEP") and the United States Environmental Protection Agency (USEPA) to continue our remediation efforts. We estimated that it would take a substantial period of time to complete the groundwater remediation, and the costs through completion were estimated to range from $42 to $52. As no amount within the range was a better estimate than another, we recognized a ~~pretax~~before-tax expense of $42 in fiscal 2006 ~~of $42~~ as a component of income from discontinued operations and recorded an environmental accrual of $42 in continuing operations on the consolidated balance sheets. There has been no0 change to the estimated exposure range related to the Pace facility.

We have implemented many of the remedial corrective measures at the Pace facility required under 1995 Consent Orders issued by the FDEP and the USEPA. Contaminated soils have been bioremediated, and the treated soils have been secured in a lined on-site disposal cell. Several groundwater recovery systems have been installed to contain and remove contamination from groundwater. We completed an extensive assessment of the site to determine how well existing measures are working, what additional corrective measures may be needed, and whether newer remediation technologies that were not available in the 1990s might be suitable to more quickly and effectively remove groundwater contaminants. Based on assessment results, we completed a focused feasibility study that has identified alternative approaches that may more effectively remove contaminants. We continue to review alternative remedial approaches with the FDEP and have started additional field work to support the design of an improved groundwater recovery network with the objective of targeting areas of higher contaminant concentration and avoiding areas of high groundwater iron which has proven to be a significant operability issue for the project. In the first quarter of 2015, we entered into a new Consent Order with the FDEP requiring us to continue our remediation efforts at the Pace facility. The costs we are incurring under the new Consent Order are consistent with our previous estimates.

PIEDMONT

At 31 December ~~2017, $16.4~~2019, $14.3 of the environmental accrual was related to the Piedmont site.

On 30 June 2008, we sold our Elkton, Maryland, and Piedmont, South Carolina, production facilities and the related North American atmospheric emulsions and global pressure sensitive adhesives businesses. In connection with the sale, we recognized a liability for retained environmental obligations associated with remediation activities at the Piedmont site. This site is under active remediation for contamination caused by an insolvent prior owner.

We are required by the South Carolina Department of Health and Environmental Control ~~(SCDHEC)~~("SCDHEC") to address both contaminated soil and groundwater. Numerous areas of soil contamination have been addressed, and contaminated groundwater is being recovered and treated. ~~On 13 June 2017, the~~The SCDHEC issued its final approval to the site-wide feasibility study on 13 June 2017 and ~~with that, we will be moving towards a record~~the Record of ~~decision~~Decision for the ~~Piedmont~~ site ~~and into~~on 27 June 2018. Field work has started to support the ~~final~~ remedial design, ~~phase~~and in the fourth quarter of ~~this project.~~fiscal year 2018, we signed a Consent Agreement Amendment memorializing our obligations to complete the cleanup of the site. We estimate that ~~it will take until 2019 to complete~~ source area remediation ~~with~~and groundwater recovery and treatment ~~continuing~~will continue through 2029. Thereafter, we ~~are expecting~~expect this site to go into a state of monitored natural attenuation through 2047.

We recognized a ~~pretax~~before-tax expense of $24 in 2008 ~~of $24~~ as a component of income from discontinued operations and recorded an environmental liability of $24 in continuing operations on the consolidated balance sheets. There have been no significant changes to the estimated exposure.

PASADENA

At 31 December ~~2017, $12.0~~2019, $11.7 of the environmental accrual was related to the Pasadena site.

During the fourth quarter of 2012, management committed to permanently shutting down our polyurethane intermediates ~~(PUI)~~("PUI") production facility in Pasadena, Texas. In shutting down and dismantling the facility, we have undertaken certain obligations related to soil and groundwater contaminants. We have been pumping and treating groundwater to control off-site contaminant migration in compliance with regulatory requirements and under the approval of the Texas Commission on Environmental Quality ~~(TCEQ)~~("TCEQ"). We estimate that the pump and treat system will continue to operate until 2042.

We plan to perform additional work to address other environmental obligations at the site. This additional work includes remediating, as required, impacted soils, investigating groundwater west of the former PUI facility, performing post closure care for two closed RCRA surface impoundment units, and establishing engineering controls. In 2012, we estimated the total exposure at this site to be $13. There have been no significant changes to the estimated exposure.

~~13.~~12. SHARE-BASED COMPENSATION

We have various share-based compensation programs, which include deferred stock units, stock options, and restricted stock. During the three months ended 31 December ~~2017,~~2019, we granted market-based and time-based deferred stock units. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. As of 31 December ~~2017,~~2019, there were ~~4,627,480~~4,302,632 shares available for future grant under our Long-Term Incentive Plan ~~(LTIP)~~("LTIP"), which is shareholder approved.

Share-based compensation cost recognized ~~in continuing operations~~ on the consolidated income statements is summarized below:


	Three Months Ended						Three Months Ended
	31 December						31 December
	2017			2016			2019			2018
Before-tax share-based compensation cost	$	11.8		$	9.0			$15.4			$9.3
Income tax benefit	(3.2		)	(3.0		)	(3.7		)	(2.2		)
After-tax share-based compensation cost	$	8.6		$	6.0			$11.7			$7.1

Before-tax share-based compensation cost is primarily included in ~~selling~~"Selling and ~~administrative expense~~administrative" on our consolidated income statements. The amount of share-based compensation cost capitalized in the first three months of fiscal ~~year 2018~~years 2020 and ~~2017~~2019 was not material.

Deferred Stock Units

During the three months ended 31 December ~~2017,~~2019, we granted ~~99,130~~80,215 market-based deferred stock units. The market-based deferred stock units are earned ~~out~~ at the end of athe performance period beginning 1 October ~~2017~~2019 and ending 30 September ~~2020,~~2022, conditioned on the level of the Company’s total shareholder return in relation to a defined peer group over the three-year performance period.

The market-based deferred stock units had an estimated grant-date fair value of ~~$202.47~~$275.19 per unit, which was estimated using a Monte Carlo simulation model. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period. The calculation of the fair value of market-based deferred stock units used the following assumptions:



Expected volatility	~~18.7~~17.8	%
Risk-free interest rate	~~1.9~~1.6	%
Expected dividend yield	~~2.6~~2.4	%

In addition, during the three months ended 31 December ~~2017,~~2019, we granted ~~125,140~~110,253 time-based deferred stock units at a weighted average grant-date fair value of ~~$161.49.~~$229.09.

~~14. EQUITY~~

~~The following is a summary of the changes in total equity:~~

Three Months Ended 31 December
2017 2016

Air
Products
Non-
controlling
Interests
Total
Equity

Air
Products
Non-
controlling
Interests
Total
Equity
Balance at 30 September $ 10,086.2
$ 99.3
$ 10,185.5
$ 7,079.6
$ 133.8
$ 7,213.4
Net income 154.6
7.1
161.7
299.8
6.6
306.4
Other comprehensive income (loss) 151.8
1.9
153.7
(234.9 ) (3.1 ) (238.0 )
Dividends on common stock (per share $0.95, $0.86) (208.0 ) —
(208.0 ) (187.1 ) —
(187.1 )
Dividends to noncontrolling interests —
(7.7 ) (7.7 ) —
(4.2 ) (4.2 )
Share-based compensation 11.1
—
11.1
9.0
—
9.0
Treasury shares for stock option and award plans 19.9
—
19.9
(.3 ) —
(.3 )
Spin-off of Versum —
—
—
186.5
(33.9 ) 152.6
Cumulative change in accounting principle —
—
—
8.8
—
8.8
Other equity transactions (.3 ) 5.3
5.0
.1
.4
.5
Balance at 31 December $ 10,215.3
$ 105.9
$ 10,321.2
$ 7,161.5
$ 99.6
$ 7,261.1

~~15.~~13. ACCUMULATED OTHER COMPREHENSIVE LOSS

The ~~tables~~table below ~~summarize~~summarizes changes in accumulated other comprehensive loss ~~(AOCL)~~("AOCL"), net of tax, attributable to Air Products for the three months ended 31 December ~~2017:~~2019:

Derivatives
qualifying as
hedges

Foreign
currency
translation
adjustments

Pension and
postretirement
benefits

Total
Balance at 30 September 2017 $ (53.1 ) $ (787.1 ) $ (1,007.2 ) $ (1,847.4 )
Other comprehensive income (loss) before reclassifications (9.5 ) 136.4
—
126.9
Amounts reclassified from AOCL .8
3.1
22.9
26.8
Net current period other comprehensive income (loss) (8.7 ) 139.5
22.9
153.7
Amount attributable to noncontrolling interests —
1.9
—
1.9
Balance at 31 December 2017 $ (61.8 ) $ (649.5 ) $ (984.3 ) $ (1,695.6 )



	Derivatives qualifying as hedges			Foreign currency translation adjustments			Pension and postretirement benefits			Total
Balance at 30 September 2019		($61.4	)		($1,356.9	)		($957.3	)		($2,375.6	)
Other comprehensive income before reclassifications	22.1			264.0			—			286.1
Amounts reclassified from AOCL	(3.6		)	—			19.7			16.1
Net current period other comprehensive income	18.5			264.0			19.7			302.2
Amount attributable to noncontrolling interests	5.6			9.6			—			15.2
Balance at 31 December 2019		($48.5	)		($1,102.5	)		($937.6	)		($2,088.6	)

The table below summarizes the reclassifications out of ~~accumulated other comprehensive loss~~AOCL and the affected line item on the consolidated income statements:



	Three Months Ended
	31 December
	2019			2018
(Gain) Loss on Cash Flow Hedges, net of tax
Sales/Cost of sales		$—			$0.5
Other income/expense, net	—			(7.4		)
Interest expense	0.7			3.8
Other non-operating income (expense), net^(A)	(4.3		)	—
Total (Gain) Loss on Cash Flow Hedges, net of tax		($3.6	)		($3.1	)

Pension and Postretirement Benefits, net of tax^(B)		$19.7			$15.2

Three Months Ended
31 December
2017 2016
(Gain) Loss on Cash Flow Hedges, net of tax
Sales/Cost of sales $ 1.0
$ 4.6
Other income (expense), net (1.4 ) 21.1
Interest expense 1.2
(.1 )
Total (Gain) Loss on Cash Flow Hedges, net of tax $ .8
$ 25.6
Currency Translation Adjustment^(A)
$ 3.1
$ —
Pension and Postretirement Benefits, net of tax^(B)
$ 22.9
$ 27.4


^(A)	The fiscal year 2020 impact ~~is reflected in "Cost~~includes amortization of ~~sales"~~the excluded component and ~~relates to an equipment sale resulting from~~ the ~~termination~~effective portion of ~~a contract in~~ the ~~Industrial Gases – Asia segment.~~related hedges.


^(B)	The components of net periodic benefit cost reclassified out of ~~accumulated other comprehensive loss~~AOCL include items such as prior service cost amortization, actuarial loss amortization, and settlements and are included in “Other non-operating income (expense), net” on the consolidated income statements. Refer to Note ~~11,~~ 10, Retirement Benefits, for additional information.

~~16.~~14. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per ~~share:~~share ("EPS"):


	Three Months Ended					Three Months Ended
	31 December					31 December
	2017			2016		2019		2018
Numerator
Income from continuing operations	$	155.6		$	251.6
Income (Loss) from discontinued operations	(1.0		)	48.2
Net Income Attributable to Air Products	$	154.6		$	299.8		$475.6		$347.5
Denominator (in millions)
Weighted average common shares — Basic	218.9			217.7		220.9		219.9
Effect of dilutive securities
Employee stock option and other award plans	1.5			2.0		1.3		1.1
Weighted average common shares — Diluted	220.4			219.7		222.2		221.0
Basic Earnings Per Common Share Attributable to Air Products							$2.15		$1.58
Income from continuing operations	$	.71		$	1.16
Income from discontinued operations	—			.22
Net Income Attributable to Air Products	$	.71		$	1.38
Diluted Earnings Per Common Share Attributable to Air Products							$2.14		$1.57
Income from continuing operations	$	.70		$	1.15
Income from discontinued operations	—			.22
Net Income Attributable to Air Products	$	.70		$	1.37

~~Outstanding~~For the three months ended 31 December 2019 and 2018, there were 0 antidilutive outstanding share-based ~~awards of .1 million~~awards.

15. INCOME TAXES

U.S. Tax Cuts and ~~.2 million shares were antidilutive and therefore excluded from the computation of diluted earnings per share~~Jobs Act

Our income tax provision for the three months ended 31 December ~~2017 and 2016, respectively.~~

~~17. INCOME TAXES~~

~~U.S. Tax Cuts and Jobs Act ("the Act")~~

~~On 22 December 2017, the United States enacted~~2018 reflected a discrete net income tax expense of $40.6 related to impacts from the U.S. Tax Cuts and Jobs Act (“(the “Tax Act”). The net expense included the ~~Act”) which significantly changed existing~~reversal of a non-recurring $56.2 benefit recorded in fiscal year 2018 related to the U.S. ~~tax laws, including~~taxation of deemed foreign dividends. This was partially offset by a ~~reduction in the federal corporate income tax rate from 35%~~benefit of $15.6 to ~~21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As a result~~finalize our estimates of the impacts of the Tax Act ~~our consolidated income statements reflect a net expense of $239.0 in~~and reduce the ~~first quarter of fiscal year 2018. This includes an expense of $453.0 for the cost~~total expected costs of the deemed repatriation tax and adjustments to the future cost of repatriation from foreign investments. This expense impacted our income tax provision by $420.5 and equity affiliate income by $32.5 for future costs of repatriation that will be borne by an equity affiliate. In addition, the income tax provision was benefited by $214.0 primarily from the re-measurement of our net U.S. deferred tax liabilities at the lower corporate tax rate.tax.

Effective Tax Rate

The $420.5 adjustment recorded in the first quarter reflects a deemed repatriation tax of $364.1 that is payable over eight years and $56.4 resulting primarily from withholding taxes that were established for repatriation of foreign earnings and other impacts of the Act. We expect to apply $53.8 of existing foreign tax credits towards the $364.1 deemed repatriation tax. Of the remaining $310.3 obligation, $296.6 is recorded on our consolidated balance sheets in noncurrent liabilities.

We are reporting the impacts of the Act provisionally based upon reasonable estimates. The impacts are not yet finalized as they are dependent on factors and analysis not yet known or fully completed, including but not limited to, the final cash balances for fiscal year 2018, further book to U.S. tax adjustments for the earnings of foreign entities, the issuance of additional guidance, as well as our ongoing analysis of the Act.

As a fiscal year-end taxpayer, certain provisions of the Act become effective in our fiscal year 2018 while other provisions do not become effective until fiscal year 2019. The corporate tax rate reduction is effective as of 1 January 2018 and, accordingly, reduces our 2018 fiscal year U.S. federal statutory rate to a blended rate of approximately 24.5%.

~~Primarily due to the impact of the Act, our~~ effective tax rate was ~~64.2%~~19.8% and 27.0% for ~~our first quarter~~the three months ended 31 December ~~2017.~~2019 and 2018, respectively.

Cash Paid for Taxes (Net of Cash Refunds)

~~On a total company basis, income~~Income tax payments, net of refunds, were ~~$61.0~~$66.2 and ~~$96.7~~$28.7 for the three months ended 31 December ~~2017~~2019 and ~~2016,~~2018, respectively.

~~18.~~16. SUPPLEMENTAL INFORMATION

Facility Closure

In December 2018, one of our customers was subject to a government enforced shutdown due to environmental reasons. As a result, we recognized a charge of $29.0 during the first quarter of fiscal year 2019 primarily related to the write-off of onsite assets. This charge is reflected as “Facility closure” on our consolidated income statements for the three months ended 31 December 2018 and has not been recorded in segment results.

Related Party Transactions

We have related party sales to some of our equity affiliates and joint venture partners as well as other income primarily from fees charged for use of Air Products' patents and technology. Sales to and other income from related parties totaled approximately $90 and $100 for the three months ended 31 December 2019 and 2018, respectively. Sales agreements with related parties include terms that are consistent with those that we believe would have been negotiated at an arm’s length with an independent party.

In addition, we completed the formation of Air Products Lu An (Changzhi) Co., Ltd., a 60%-owned JV with Lu'An Clean Energy Company ("Lu'An"), and the JV acquired gasification and syngas clean-up assets from Lu'An during the third quarter of fiscal year 2018. The table below summarizes the liabilities resulting from this acquisition as reflected on our consolidated balance sheets:



	31 December		30 September
	2019		2019
Payables and accrued liabilities		$8.0		$8.9
Current portion of long-term debt	38.8		37.8
Long-term debt – related party	328.6		320.1

Changes in Estimates

Changes in estimates on projects accounted for under the cost incurred input method are recognized as a cumulative adjustment for the inception-to-date effect of such change. There were no changes in estimates for the three months ended 31 December 2019. Changes in estimates favorably impacted operating income by approximately$10 for the three months ended 31 December 2018.

17. BUSINESS SEGMENT INFORMATION

Our reporting segments reflect the manner in which our chief operating decision maker reviews results and allocates resources. Except in the Industrial Gases – EMEA and Corporate and other ~~segment,~~segments, each reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments. Our ~~liquefied natural gas (LNG)~~Industrial Gases – EMEA and ~~helium storage and distribution sale of equipment businesses are aggregated within the~~ Corporate and other ~~segment.~~segments each include the aggregation of two operating segments that meet the aggregation criteria under GAAP.

Our reporting segments are:

Industrial Gases – ~~Americas~~Americas;

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

Industrial Gases – ~~Asia~~Asia;

Industrial Gases – ~~Global~~Global; and

Corporate and other


	Industrial Gases – Americas		Industrial Gases – EMEA		Industrial Gases – Asia		Industrial Gases – Global		Corporate and other			Segment Total		Industrial Gases – Americas		Industrial Gases – EMEA		Industrial Gases – Asia		Industrial Gases – Global		Corporate and other			Total
Three Months Ended 31 December 2017
Three Months Ended 31 December 2019														Three Months Ended 31 December 2019
Sales	$	909.8	$	515.9	$	643.6	$	133.0	$	14.3		$	2,216.6		$936.2		$498.7		$692.8		$92.6		$34.4			$2,254.7	^(A)
Operating income (loss)	217.2		104.5		175.5		9.5		(46.0		)	460.7		257.2		120.5		228.5		3.6		(48.8		)	561.0		^(B)
Depreciation and amortization	117.8		49.1		56.8		1.6		2.6			227.9		131.8		48.4		101.6		2.4		5.0			289.2
Equity affiliates' income	18.6		13.1		14.2		.4		—			46.3		20.6		19.3		16.9		1.4		—			58.2
Three Months Ended 31 December 2016
Three Months Ended 31 December 2018														Three Months Ended 31 December 2018
Sales	$	863.9	$	399.7	$	438.3	$	147.9	$	32.7		$	1,882.5		$989.2		$524.2		$626.8		$68.2		$15.6			$2,224.0	^(A)
Operating income (loss)	223.3		90.0		118.4		8.2		(29.1		)	410.8		219.2		105.6		201.8		3.9		(46.5		)	484.0		^(B)
Depreciation and amortization	111.8		42.2		46.7		2.0		3.4			206.1		125.6		46.3		79.9		2.1		4.1			258.0
Equity affiliates' income	14.7		9.5		13.5		.3		—			38.0		22.6		13.7		16.2		0.4		—			52.9
Total Assets														Total Assets
31 December 2019															$5,971.3		$3,509.3		$6,478.7		$365.0		$3,327.3			$19,651.6
30 September 2019														5,832.2		3,250.8		6,240.6		325.7		3,293.5			18,942.8

Total Assets
31 December 2017 $ 5,878.6
$ 3,378.5
$ 4,592.3
$ 285.5
$ 4,063.7
$ 18,198.6
30 September 2017 5,840.8
3,276.1
4,412.1
279.6
4,648.4
18,457.0

The sales information noted above relates to external customers only. All intersegment sales are eliminated in consolidation. For the three months ended 31 December 2017 and 2016, the Industrial Gases – Global segment had intersegment sales of $61.9 and $61.0, respectively. These sales are generally transacted at market pricing. For all other segments, intersegment sales are not material for all periods presented. Equipment manufactured for our industrial gases segments is generally transferred at cost and not reflected as an intersegment sale.

In 2015, we entered into a long-term sale of equipment contract to engineer, procure, and construct industrial gas facilities with a 25%-owned joint venture for Saudi Aramco's Jazan oil refinery and power plant in Saudi Arabia. Sales related to this contract are included in the results of our Industrial Gases – Global segment and were approximately $90 and $110 during the three months ended 31 December 2017 and 2016, respectively.

~~Below is a reconciliation of segment total operating income to consolidated operating income:~~

Three Months Ended
31 December
Operating Income 2017 2016
Segment total $ 460.7
$ 410.8
Business separation costs —
(32.5 )
Cost reduction and asset actions —
(50.0 )
Consolidated Total $ 460.7
$ 328.3

~~Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:~~

Three Months Ended
31 December
Equity Affiliates' Income 2017 2016
Segment total $ 46.3
$ 38.0
Tax reform repatriation - equity method investment^(A)
(32.5 ) —
Consolidated Total $ 13.8
$ 38.0

^(A)

~~For additional~~The sales information onnoted above relates to external customers only. All intersegment sales are eliminated in consolidation. Intersegment sales are generally transacted at market pricing. We generally do not have intersegment sales from our regional industrial gases businesses. Equipment manufactured for our regional industrial gases segments are generally transferred at cost and are not reflect as an intersegment sale.


^(B)	Refer to the ~~impact of the U.S. Tax Cuts and Jobs Act, including our equity affiliate impact, refer~~Reconciliation to ~~Note 17, Income Taxes.~~Consolidated Results section below.

~~Below is a reconciliation of segment~~

Reconciliation to Consolidated Results

The table below reconciles total ~~assets~~operating income in the table above to consolidated ~~total assets:~~operating income as reflected on our consolidated income statements:

31 December 30 September
Total Assets 2017 2017
Segment total $ 18,198.6
$ 18,457.0
Discontinued operations 10.2
10.2
Consolidated Total $ 18,208.8
$ 18,467.2




	Three Months Ended
	31 December
Operating Income	2019		2018
Total		$561.0		$484.0
Facility closure	—		(29.0		)
Consolidated Operating Income		$561.0		$455.0

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for fiscal years 2020 and 2019. The disclosures provided in this quarterly report are complementary to those made in our ~~2017~~2019 Form 10-K. ~~An analysis of results for the first quarter of fiscal year 2018 is provided in this Management’s Discussion and Analysis.~~

The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this quarterly report. Unless otherwise ~~indicated,~~stated, financial information is presented on a continuing operations basis. All comparisons in the discussion are to the corresponding prior year, unless otherwise stated. All amounts presented are in accordance with U.S. generally accepted accounting principles (GAAP), except as noted. All amounts are presented in millions of dollars, except for per share ~~data, unless otherwise indicated.~~

Captions such as income from continuing operations attributable to Air Products, net income attributable to Air Products, and diluted earnings per share attributable to Air Products are simply referred to as “income from continuing operations,” “net income,” and “diluted earnings per share (EPS)” throughout this Management’s Discussion and Analysis, unless otherwise stated.data.

The financial measures included in the discussion ~~of results~~ that follows ~~includes comparisons to~~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") financial measures. The presentation of non-GAAP measures is intended to provide investors, potential investors, securities analysts, and others with useful supplemental information to evaluate the performance of the businessbasis because we believe such measures, when viewed together with ~~our~~ financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. ~~The~~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 ~~reported GAAP results to non‑GAAP~~these measures are presented on pages ~~36-39. Descriptions of the excluded items appear on pages 31 and 32.~~38-42.

FIRST QUARTER ~~2018 VS. FIRST QUARTER 2017~~

~~FIRST QUARTER 2018~~2020 IN SUMMARY

The results below are compared to the first quarter of fiscal year 2019.

Sales of ~~$2,216.6~~$2,254.7 increased ~~18%~~1%, or ~~$334.1, from underlying sales growth~~$30.7, as higher volumes of ~~15%~~6% and favorable ~~currency impacts~~pricing of 3%~~. Underlying sales increased primarily from higher volumes across~~ were mostly offset by lower energy and natural gas cost pass-through to customers of 5%, the ~~regional industrial gases businesses driven by an equipment sale resulting from the termination~~impact of a contract modification to a tolling arrangement in ~~the Industrial Gases – Asia segment, new project onstreams,~~India of 2%, and ~~base business growth.~~a negative impact from currency of 1%.

Operating income of ~~$460.7~~$561.0 increased ~~40%~~23%, or ~~$132.4,~~$106.0, and operating margin of ~~20.8%~~24.9% increased ~~340~~440 basis points ~~(bp)~~("bp"). ~~On a non-GAAP basis, operating~~

Net income of ~~$460.7~~$488.9 increased ~~12%~~37%, or ~~$49.9,~~$131.9, and ~~operating~~net income margin of ~~20.8% decreased 100~~21.7% increased 570 bp.

~~Income from continuing operations~~Adjusted EBITDA of ~~$155.6 decreased 38%~~$908.4 increased 14%, or ~~$96.0,~~$113.5, and ~~diluted earnings per share~~adjusted EBITDA margin of ~~$.70 decreased 39%~~40.3% increased 460 bp.

Diluted EPS of $2.14 increased 36%, or ~~$.45. On a non-GAAP basis, income from continuing operations~~$0.57 per share. Adjusted diluted EPS of ~~$394.6~~$2.14 increased ~~23%~~15%, or ~~$72.6, and diluted earnings~~$0.28 per ~~share of $1.79 increased 22%, or $.32.~~share. A summary table of changes in diluted ~~earnings per share~~EPS is presented below.

~~Adjusted EBITDA of $734.9 increased 12%, or $80.0. Adjusted EBITDA margin of 33.2% decreased 160 bp.~~



Changes in Diluted EPS Attributable to Air Products

	Three Months Ended
	31 December				Increase
	2019		2018		(Decrease)
Diluted EPS		$2.14		$1.57		$0.57
Operating Impacts
Underlying business
Volume						$0.15
Price, net of variable costs					0.25
Other costs					(0.12		)
Facility closure					0.10
Total Operating Impacts						$0.38
Other Impacts
Equity affiliates' income						$0.02
Interest expense					0.07
Other non-operating income (expense), net					(0.04		)
Change in effective tax rate, excluding discrete items below					(0.02		)
Tax reform repatriation					(0.07		)
Tax reform adjustment related to deemed foreign dividends					0.26
Noncontrolling interests					(0.02		)
Weighted average diluted shares					(0.01		)
Total Other Impacts						$0.19
Total Change in Diluted EPS						$0.57

Changes in Diluted Earnings per Share Attributable to Air Products

Three Months Ended
31 December Increase
2017 2016 (Decrease)
Diluted Earnings per Share
Net income $ .70
$ 1.37
$ (.67 )
Income from discontinued operations —
.22
(.22 )
Income from Continuing Operations – GAAP Basis $ .70
$ 1.15
$ (.45 )
Operating Income Impact (after-tax)
Underlying business
Volume $ .19
Price/raw materials .08
Costs (.15 )
Currency .06
Business separation costs .12
Cost reduction and asset actions .19
Total Operating Income Impact (after-tax) $ .49
Other Impact (after-tax)
Equity affiliates' income $ .03
Other non-operating income (expense), net .04
Income tax .08
Tax reform repatriation (2.06 )
Tax reform rate change and other .97
Tax costs associated with business separation .01
Weighted average diluted shares (.01 )
Total Other Impact (after-tax) $ (.94 )
Total Change in Diluted Earnings per Share from Continuing Operations – GAAP Basis $ (.45 )



	Three Months Ended
	31 December					Increase
	2019		2018			(Decrease)
Diluted EPS		$2.14		$1.57			$0.57
Facility closure	—		0.10			(0.10		)
Tax reform repatriation	—		(0.07		)	0.07
Tax reform adjustment related to deemed foreign dividends	—		0.26			(0.26		)
Adjusted Diluted EPS		$2.14		$1.86			$0.28

Three Months Ended
31 December Increase
2017 2016 (Decrease)
Income from Continuing Operations – GAAP Basis $ .70
$ 1.15
$ (.45 )
Business separation costs —
.12
(.12 )
Tax costs associated with business separation —
.01
(.01 )
Cost reduction and asset actions —
.19
(.19 )
Tax reform repatriation 2.06
—
2.06
Tax reform rate change and other (.97 ) —
(.97 )
Income from Continuing Operations – Non-GAAP Basis $ 1.79
$ 1.47
$ .32

FIRST QUARTER 2020 RESULTS OF OPERATIONS

Discussion of Consolidated Results


	Three Months Ended											Three Months Ended
	31 December											31 December
	2017			2016			$ Change			Change		2019			2018			$ Change		Change
GAAP Measures
Sales	$	2,216.6		$	1,882.5		$	334.1		18	%		$2,254.7			$2,224.0			$30.7	1	%
Operating income	460.7			328.3			132.4			40	%	561.0			455.0			106.0		23	%
Operating margin	20.8		%	17.4		%				340 bp		24.9		%	20.5		%	—		440	bp
Equity affiliates’ income	13.8			38.0			(24.2		)	(64	)%	58.2			52.9			5.3		10	%
Income from continuing operations	155.6			251.6			(96.0		)	(38	)%
Non-GAAP Basis
Net income												488.9			357.0			131.9		37	%
Net income margin												21.7		%	16.0		%	—		570	bp
Non-GAAP Measures
Adjusted EBITDA	$	734.9		$	654.9		$	80.0		12	%		$908.4			$794.9			$113.5	14	%
Adjusted EBITDA margin	33.2		%	34.8		%				(160 bp)		40.3		%	35.7		%	—		460 bp
Adjusted operating income	460.7			410.8			49.9			12	%
Adjusted operating margin	20.8		%	21.8		%				(100 bp)
Adjusted equity affiliates' income	46.3			38.0			8.3			22	%

Sales



	Sales % Change from Prior Year
~~Underlying business~~
Volume	136	%
Price	23	%
Energy and natural gas cost pass-through	—(5	)%
Currency	3(1	)%
Other^(A)	(2	)%
Total Consolidated Sales Change	181	%


^(A)	Includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in India in December 2018 (the "India contract modification").

Sales of ~~$2,216.6~~$2,254.7 increased ~~18%~~1%, or ~~$334.1. Underlying sales increased 15% from~~$30.7, as higher volumes of ~~13%~~6% and ~~higher~~favorable pricing of ~~2%. Volumes~~3% were higher across all regional Industrial Gases segments driven by an equipment sale resulting from the termination of a contract in the Industrial Gases – Asia segment, new project onstreams in the Industrial Gases – Asia and EMEA segments, and base business growth. The pricing improvement was attributable to the Industrial Gases – Asia segment. Energy and natural gas cost pass-through to customers was flat versus the prior year. Favorable currency impacts, primarily from the Euro, the British Pound Sterling, and the Chinese Renminbi, increased sales by 3%.

~~Operating Income and Margin~~

Operating income of $460.7 increased 40%, or $132.4, due to favorable volumes of $52, lower cost reduction and asset actions of $50, lower business separation costs of $33, favorable pricing, net of energy, fuel, and raw material costs, of $22, and favorable currency impacts of $16, partiallymostly offset by ~~unfavorable net operating costs of $41. Net operating costs were higher primarily due to higher planned maintenance costs. Operating margin of 20.8% increased 340 bp, primarily due to~~ lower ~~cost reduction and asset actions and lower business separation costs, partially offset by higher operating costs.~~

On a non-GAAP basis, adjusted operating income of $460.7 increased 12%, or $49.9, primarily due to higher volumes, favorable pricing, and favorable currency impacts, partially offset by unfavorable net operating costs. Adjusted operating margin of 20.8% decreased 100 bp as higher costs were partially offset by favorable pricing.

~~Adjusted EBITDA~~

We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, other non-operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.

Adjusted EBITDA of $734.9 increased 12%, or $80.0, primarily due to higher volumes and favorable pricing. Adjusted EBITDA margin of 33.2% decreased 160 bp, primarily due to the impact of an equipment sale resulting from the termination of a contract in the Industrial Gases – Asia segment of 90 bp, a new hydrogen plant in India of 40 bp, and higher planned maintenance costs of 30 bp.

~~Equity Affiliates' Income~~

Equity affiliates' income of $13.8 decreased $24.2 and includes $32.5 resulting from the U.S. Tax Cuts and Jobs Act. Refer to Note 17, Income Taxes, to the consolidated financial statements for additional information. On a non-GAAP basis, equity affiliates' income of $46.3 increased 22%, or $8.3, primarily driven by Industrial Gases – ~~Americas and Industrial Gases~~ – ~~EMEA affiliates.~~

~~Cost of Sales and Gross Margin~~

~~Cost of sales of $1,571.8 increased $255.1, or 19%, due to higher costs attributable to sales volumes of $183, unfavorable currency impacts of $36, higher other costs of $28, and higher~~ energy and natural gas cost pass-through to customers of ~~$8.~~5%, the India contract modification of 2%, and a negative impact from currency of 1%. Both volume and price were higher across the regional segments. The volume growth was driven by modest base business growth, new plants, acquisitions, and a short-term contract in Asia. The pricing improvement was attributable to our merchant business. Unfavorable currency impacts were driven by the Chinese Renminbi and Euro.

Cost of Sales and Gross Margin

Cost of sales of $1,486.6 decreased 5%, or $86.4, from total cost of sales of $1,573.0 in the prior year, which included the facility closure further discussed below. The decrease from the prior year was primarily driven by lower energy and natural gas cost pass-through to customers of $102, the favorable impact from the India contract modification of $41, the facility closure of $29 that occurred in the prior year, and positive currency impacts of $22, partially offset by higher costs attributable to sales volumes of $97 and higher other costs of $10. Gross margin of ~~29.1% decreased 100~~34.1% increased 480 bp, primarily due to ~~unfavorable costs,~~positive pricing, lower energy and natural gas cost pass-through to customers, the facility closure that occurred in the prior year, and the India contract modification, partially offset by ~~favorable currency.~~unfavorable net operating costs.

Facility Closure

In December 2018, one of our customers was subject to a government enforced shutdown due to environmental reasons. As a result, we recognized a charge of $29.0 ($22.1 after-tax, or $0.10 per share) during the first quarter of fiscal year 2019 primarily related to the write-off of onsite assets. This charge is reflected as “Facility closure” on our consolidated income statements for the three months ended 31 December 2018.

Selling and Administrative ~~Expense~~

Selling and administrative expense of ~~$191.6~~$201.7 increased ~~$26.9, primarily driven by unfavorable currency impacts and other higher costs.~~6%, or $12.1, from investing in business development resources to support our growth strategy. Selling and administrative expense as a ~~percent~~percentage of sales ~~decreased~~increased from ~~8.7%~~8.5% to ~~8.6%~~8.9%.

Research and Development

Research and development expense of ~~$14.6 decreased $.4.~~$17.7 increased 18%, or $2.7. Research and development expense as a ~~percent~~percentage of sales ~~decreased~~increased from ~~.8%~~0.7% to ~~.7%~~0.8%.

~~Business Separation Costs~~

With the disposition of the two divisions comprising the former Materials Technologies segment complete, no business separation costs were incurred during the first quarter of fiscal year 2018. Refer to Note 3, Discontinued Operations, and Note 4, Materials Technologies Separation, to the consolidated financial statements for additional information regarding the dispositions.

For the three months ended 31 December 2016, we incurred legal and advisory fees related to the dispositions of $32.5 ($26.5 after-tax, or $.12 per share). Our income tax provision for the three months ended 31 December 2016 includes additional tax expense of $2.7 ($.01 per share) related to the separation.

~~Cost Reduction and Asset Actions~~

For the three months ended 31 December 2016, we recognized a net expense of $50.0 ($41.2 after-tax, or $.19 per share), which included $45.7 from the write-down of an air separation unit in the Industrial Gases – EMEA segment that was constructed mainly to provide oxygen to one of the Energy-from-Waste plants. Refer to Note 5, Cost Reduction and Asset Actions, to the consolidated financial statements for additional details. There were no charges recorded for cost reduction and asset actions for the three months ended 31 December 2017.

Other Income (Expense), Net

Other income (expense), net of ~~$22.1 decreased $2.6,~~$12.3 increased 43%, or $3.7, primarily due to foreign exchange impacts.

Operating Income and Operating Margin

Operating income of $561.0 increased 23%, or $106.0, primarily due to positive pricing, net of power and fuel costs, of $69, favorable volumes of $40, and a charge for a facility closure of $29 in the prior year, partially offset by higher net operating costs of $30. Operating margin of 24.9% increased 440 bp, primarily due to positive pricing, the prior year facility closure, and lower ~~sales~~energy and natural gas cost pass-through to customers, partially offset by unfavorable net operating costs.

Equity Affiliates' Income

Equity affiliates' income of ~~assets and investments.~~

$58.2 increased 10%, or $5.3,primarily due to the Jazan Gas Projects Company joint venture.

Interest Expense


	Three Months Ended				Three Months Ended
	31 December				31 December
	2017		2016		2019		2018
Interest incurred	$	32.6	$	35.8		$22.4		$40.0
Less: capitalized interest	2.8		6.3
Less: Capitalized interest					3.7		2.7
Interest expense	$	29.8	$	29.5		$18.7		$37.3

Interest incurred decreased ~~$3.2 as~~44%, or $17.6. The prior year included $8.3 of interest expense related to foreign currency forward points and currency swap basis differences of our cash flow hedges of intercompany loans. As discussed in Note 2, New Accounting Guidance, to the ~~impact~~consolidated financial statements, we adopted new accounting guidance on hedging activities that changed the presentation of these items from "Interest expense, net" to “Other non-operating income (expense), net” in fiscal year 2020. In addition to this presentation change, interest expense decreased due to lower interest expense associated with financing the Lu'An joint venture and a lower average debt ~~balance of $8 was partially offset by the impact from a higher average~~balance. Capitalized interest ~~rate on the debt portfolio of $5. The change in capitalized interest was driven by a decrease~~increased 37%, or $1.0, due to an increase in the carrying value of projects under construction.

Other Non-Operating Income (Expense), Net

Other non-operating income (expense), net, of ~~$9.8~~$9.1 decreased 51%, or $9.4, primarily ~~resulted from~~due to the impact of the adoption of the guidance on hedging activities discussed above and lower interest income on cash and cash ~~items. In 2017, interest~~items, partially offset by higher non-service pension income.

Net Income and Net Income Margin

Net income ~~was not material~~of $488.9 increased 37%, or $131.9, primarily due to positive pricing and ~~was presented on our consolidated~~higher volumes as well as the impacts from the facility closure and the U.S. Tax Cuts and Jobs Act in the prior year. Net income ~~statements within "Other income (expense)~~margin of 21.7% increased 570 bp, primarily due to the factors noted above as well as lower energy pass-through and the India contract modification.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $908.4 increased 14%, ~~net."~~or $113.5, primarily due to positive pricing and higher volumes. Adjusted EBITDA margin of 40.3% increased 460 bp, primarily due to positive pricing, lower energy pass-through, and the India contract modification. The lower energy pass-through and the India contract modification contributed 230 bp.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income ~~from continuing operations~~ before taxes. The effective tax rate was ~~64.2%~~19.8% and ~~23.3%~~27.0% in the first quarter of ~~2018~~fiscal years 2020 and ~~2017,~~2019, respectively.

The ~~current year~~higher 2019 tax rate ~~was higher primarily due~~reflected a discrete net income tax expense of $40.6 related to ~~the enactment of~~impacts from the U.S. Tax Cuts and Jobs Act ("(the “Tax Act”). The net expense included the ~~Act"), which significantly changed existing U.S. tax laws, including~~reversal of a ~~reduction~~non-recurring $56.2 ($.26 per share) benefit recorded in ~~the federal corporate income tax rate from 35% to 21% that is effective 1 January~~ 2018 a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As a result of the Act, our income tax provision reflects a net income tax expense of $206.5. This included a deemed repatriation tax on accumulated unremitted foreign earnings and adjustmentsrelated to the ~~future cost~~U.S. taxation of ~~repatriation from~~deemed foreign ~~investments of $420.5,~~dividends. This was partially offset by a benefit of ~~$214.0 primarily from~~$15.6 ($0.07 per share) to finalize our estimates of the ~~re-measurement~~impacts of ~~our net U.S. deferred tax liabilities at~~ the ~~lower corporate tax rate.~~Tax Act and reduce the total expected costs of the deemed repatriation tax. Additionally, the current year included higher excess tax benefits on share-based compensation in 2020. These impacts were partially offset by beneficial changes in foreign tax law and changes in valuation allowance recorded at various entities in 2019.

The adjusted effective tax rate ~~benefited~~increased from ~~a lower U.S. federal statutory rate under~~19.0% in the ~~Act.~~

On a non-GAAP basis, the effective tax rate decreased from 21.2% in 2017 to 17.5% in 2018. We estimate that the Act reduced our non-GAAP effective tax rate by approximately 2.6% for the three months ended 31 December 2017. The tax rate for the current year was also reduced by a higher tax benefit from share-based compensation and from the mixfirst quarter of ~~income earned in countries with lower statutory tax rates.~~

~~At this time, we do not anticipate a significant change in our full-year rate in~~ fiscal year 2019 ~~versus our estimated~~to 19.8% in the first quarter of fiscal year ~~2018 full-year rate of 20.0% to 21.0% (after one-time adjustments) related to provisions of the Act.~~2020. This increase was primarily driven by beneficial changes in foreign tax law and changes in valuation allowance recorded at various entities in 2019. This increase was partially offset by higher excess tax benefits on share-based compensation in 2020.

Refer to Note ~~17,~~ 15, Income Taxes, to the consolidated financial statements for additional information.

~~Discontinued Operations~~

The results of our former Performance Materials Division (PMD) and Energy-from-Waste (EfW) segment are reflected in our consolidated financial statements as discontinued operations for all periods presented. Refer to Note 3, Discontinued Operations, to the consolidated financial statements for additional information.

Segment Analysis

Industrial Gases – Americas

Three Months Ended
31 December
2017 2016 $ Change % Change
Sales $ 909.8
$ 863.9
$ 45.9
5%
Operating income 217.2
223.3
(6.1 ) (3)%
Operating margin 23.9 % 25.8 % (190 bp)
Equity affiliates’ income 18.6
14.7
3.9
27%
Adjusted EBITDA 353.6
349.8
3.8
1%
Adjusted EBITDA margin 38.9 % 40.5 % (160 bp)

~~Industrial Gases – Americas Sales~~



	Three Months Ended
	31 December
	2019			2018			$ Change			% Change
Sales		$936.2			$989.2			($53.0	)	(5	)%
Operating income	257.2			219.2			38.0			17	%
Operating margin	27.5		%	22.2		%	—			530 bp
Equity affiliates’ income	20.6			22.6			(2.0		)	(9	)%
Adjusted EBITDA	409.6			367.4			42.2			11	%
Adjusted EBITDA margin	43.8		%	37.1		%	—			670 bp



	Sales % Change from Prior Year
~~Underlying business~~
Volume	51	%
Price	—3	%
Energy and natural gas cost pass-through	(18	)%
Currency	(1	)%
Total Industrial Gases – Americas Sales Change	(5	)%

~~Underlying sales~~Sales of $936.2 decreased 5%, or $53.0, as lower energy and natural gas cost pass-through of 8% and a negative impact from currency of 1% were ~~up 5% from~~only partially offset by positive pricing of 3% and higher volumes asof 1%. The pricing improvement was ~~flat. The higher volumes were~~driven by our merchant business.

Operating income of $257.2 increased 17%, or $38.0, primarily due to higher ~~hydrogen~~pricing, net of power and fuel costs, of $28 and favorable volumes ~~in the Gulf Coast. Lower~~of $7. Operating margin of 27.5% increased 530 bp, primarily due to positive pricing, lower energy and natural gas cost pass-through to customers, ~~of 1% was offset by~~and favorable ~~currency impacts of 1%.~~cost performance, including lower maintenance.

~~Industrial Gases – Americas Operating Income and Margin~~

~~Operating~~Equity affiliates’ income of ~~$217.2~~$20.6 decreased 3%9%, or $6.1, primarily due to higher costs of $15, partially offset by favorable volumes of $8 and favorable currency impacts of $2. The higher costs primarily included higher planned maintenance costs. Operating margin of 23.9% decreased 190 bp,$2.0, primarily due to higher costs.

~~Industrial Gases – Americas Equity Affiliates’ Income~~

~~Equity affiliates’ income of $18.6 increased $3.9 due to favorable currency and volume growth.~~

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

Three Months Ended
31 December
2017 2016 $ Change % Change
Sales $ 515.9
$ 399.7
$ 116.2
29%
Operating income 104.5
90.0
14.5
16%
Operating margin 20.3 % 22.5 % (220 bp)
Equity affiliates’ income 13.1
9.5
3.6
38%
Adjusted EBITDA 166.7
141.7
25.0
18%
Adjusted EBITDA margin 32.3 % 35.5 % (320 bp)

Industrial Gases – EMEA ~~Sales~~(Europe, Middle East, and Africa)



	Three Months Ended
	31 December
	2019			2018			$ Change			% Change
Sales		$498.7			$524.2			($25.5	)	(5)%
Operating income	120.5			105.6			14.9			14%
Operating margin	24.2		%	20.1		%	—			410 bp
Equity affiliates’ income	19.3			13.7			5.6			41%
Adjusted EBITDA	188.2			165.6			22.6			14%
Adjusted EBITDA margin	37.7		%	31.6		%	—			610 bp



	Sales % Change from Prior Year
~~Underlying business~~
Volume	176	%
Price	—3	%
Energy and natural gas cost pass-through	3(4	)%
Currency	9(2	)%
Other^(A)	(8	)%
Total Industrial Gases – EMEA Sales Change	29(5	)%


^(A)	Includes the impact from the modification of a hydrogen supply contract to a tolling arrangement in India in December 2018 (the "India contract modification").

~~Underlying sales were up 17%~~

Sales of $498.7 decreased 5%, or $25.5, as the negative impact from ~~higher volumes, primarily due to a new hydrogen plant in India. Higher merchant volumes increased sales by 3%. Pricing was flat versus~~ the ~~prior year. Higher~~India contract modification of 8%, lower energy and natural gas cost pass-through to customers ~~increased sales~~of 4%, and unfavorable currency impacts of 2% were only partially offset by favorable volumes of 6% and positive pricing of 3%. ~~Favorable currency impacts,~~Volumes increased primarily due to demand for hydrogen in our Rotterdam pipeline system and from the ~~Euro and British Pound Sterling, increased sales~~carbon dioxide business we acquired in the second quarter of fiscal year 2019. The pricing improvement was attributable to our merchant business. The negative currency impact was mainly driven by ~~9%.~~

~~Industrial Gases – EMEA Operating Income and Margin~~the Euro.

Operating income of ~~$104.5~~$120.5 increased ~~16%~~14%, or ~~$14.5,~~$14.9, primarily due to higher ~~new plant~~pricing, net of power and ~~base business~~fuel costs, of $20 and favorable volumes of ~~$11 and favorable currency impacts of $8,~~$5, partially offset by higher costs of $3$8 and ~~lower price, net~~unfavorable currency impacts of ~~power costs, of $1.~~$2. Operating margin of ~~20.3% decreased 220~~24.2% increased 410 bp, primarily due to ~~lower margins on~~favorable pricing, the ~~new hydrogen volumes in~~impact of the India contract modification, and ~~higher~~lower energy and natural gas cost ~~pass‑through~~pass-through to ~~customers.~~

~~Industrial Gases – EMEA Equity Affiliates’ Income~~customers, partially offset by higher costs. The lower energy and natural gas pass-through and the India contract modification contributed 240 bp.

Equity affiliates’ income of ~~$13.1~~$19.3 increased ~~$3.6~~41%, or $5.6, primarily due to ~~favorable currency and volume growth.~~the Jazan Gas Projects Company joint venture.

Industrial Gases – Asia


	Three Months Ended									Three Months Ended
	31 December									31 December
	2017			2016			$ Change		% Change	2019			2018			$ Change		% Change
Sales	$	643.6		$	438.3		$	205.3	47%		$692.8			$626.8			$66.0	11%
Operating income	175.5			118.4			57.1		48%	228.5			201.8			26.7		13%
Operating margin	27.3		%	27.0		%			30 bp	33.0		%	32.2		%	—		80 bp
Equity affiliates’ income	14.2			13.5			.7		5%	16.9			16.2			0.7		4%
Adjusted EBITDA	246.5			178.6			67.9		38%	347.0			297.9			49.1		16%
Adjusted EBITDA margin	38.3		%	40.7		%			(240 bp)	50.1		%	47.5		%	—		260 bp

~~Industrial Gases – Asia Sales~~



	Sales % Change from Prior Year
~~Underlying business~~
Volume	369	%
Price	74	%
Energy and natural gas cost pass-through	—	%
Currency	4(2	)%
Total Industrial Gases – Asia Sales Change	4711	%

~~Underlying sales were up 43% from~~Sales of $692.8 increased 11%, or $66.0, as higher volumes of ~~36%~~9% and ~~higher~~positive pricing of 7%4% were partially offset by unfavorable currency impacts of 2%. The volume increase ~~included 28% from an equipment sale resulting from the termination of~~was primarily driven by new plants onstream, base business growth, and a ~~contract and 8% primarily from new plant onstreams and higher merchant volumes. Merchant pricing~~short-term supply contract. Pricing improved across Asia, driven by our merchant business. The unfavorablecurrency impact was primarily ~~by China.~~attributable to the Chinese Renminbi. Energy and natural gas cost pass-through to customers was flat versus the prior year. ~~Favorable currency impacts, primarily from the Chinese Renminbi, South Korean Won, and Taiwan Dollar, increased sales by 4%.~~

~~Industrial Gases – Asia Operating Income and Margin~~

Operating income of ~~$175.5~~$228.5 increased ~~48%~~13%, or ~~$57.1,~~$26.7, due to ~~the equipment sale and merchant volumes of $40, favorable price,~~positive pricing, net of power and fuel costs, of ~~$23,~~$20 and a favorable ~~currency impact~~volumes of ~~$5,~~$16, partially offset by higher net operating costs of ~~$11.~~$6 and unfavorable currency impacts of $3. Operating margin of ~~27.3%~~33.0% increased 3080 bp, ~~as higher volumes and favorable price, net of power costs, were mostly~~primarily due to positive pricing, partially offset by ~~the dilutive impact of the equipment sale and unfavorable cost performance.~~

~~Industrial Gases – Asia Equity Affiliates’ Income~~higher net operating costs.

Equity affiliates’ income of ~~$14.2~~$16.9 increased ~~$.7.~~4%, or $0.7.

Industrial Gases – Global

Three Months Ended
31 December
2017 2016 $ Change % Change
Sales $ 133.0
$ 147.9
$ (14.9 ) (10)%
Operating income 9.5
8.2
1.3
16%
Adjusted EBITDA 11.5
10.5
1.0
10%

~~Industrial Gases – Global Sales and Operating Income~~

The Industrial Gases – Global segment includes sales of cryogenic and gas processing equipment for air separation and centralized global costs associated with management of all the Industrial Gases segments.



	Three Months Ended
	31 December
	2019		2018		$ Change			% Change
Sales		$92.6		$68.2		$24.4		36	%
Operating income	3.6		3.9		(0.3		)	(8	)%
Adjusted EBITDA	7.4		6.4		1.0			16	%

Sales of ~~$133.0 decreased $14.9,~~$92.6 increased 36%, or ~~10%.~~$24.4. The ~~decrease~~increase in sales was primarily driven by ~~lower sale of equipment activity on the multiple air separation units that will serve Saudi Aramco’s Jazan oil refinery and power plant in Saudi Arabia.~~unusually high other project activity.

Operating income of ~~$9.5 increased $1.3.~~$3.6 decreased 8%, or $0.3, as the current quarter project activity was mostly offset by favorable impacts from the Jazan project in the prior year.

Corporate and other

~~In addition to~~The Corporate and other segment includes our liquefied natural gas ~~(LNG) and helium storage~~("LNG"), turbo machinery equipment, and distribution sale of equipment businesses ~~the~~and corporate support functions that benefit all segments. The results of the Corporate and other segment also include ~~stranded costs related to~~income and expense that is not directly associated with the ~~former Materials Technologies segment~~other segments, such as ~~discontinued operations. These stranded costs primarily relate to costs in support of transition services agreements with Versum~~foreign exchange gains and Evonik, the majority of which are reimbursed to Air Products. All transition services for Evonik were completed during the first quarter of fiscal year 2018, and we expect all transition services for Versum to end in the second quarter of fiscal year 2018.

~~We will continue to take actions to reduce the costs after completion of these services.~~losses.

Three Months Ended
31 December
2017 2016 $ Change % Change
Sales $ 14.3
$ 32.7
$ (18.4 ) (56)%
Operating loss (46.0 ) (29.1 ) (16.9 ) (58)%
Adjusted EBITDA (43.4 ) (25.7 ) (17.7 ) (69)%

~~Corporate and other Sales and Operating Loss~~



	Three Months Ended
	31 December
	2019			2018			$ Change			% Change
Sales		$34.4			$15.6			$18.8		121	%
Operating loss	(48.8		)	(46.5		)	(2.3		)	(5	)%
Adjusted EBITDA	(43.8		)	(42.4		)	(1.4		)	(3	)%

Sales of ~~$14.3 decreased $18.4,~~$34.4 increased 121%, or $18.8, primarily due to ~~lower~~higher LNG ~~project~~ activity. ~~We expect delays in new LNG project orders due to continued oversupply of LNG in the market.~~ Operating loss of ~~$46.0~~$48.8 increased ~~$16.9~~5%, or $2.3, primarily due to ~~lower~~higher corporate costs, including business development costs to support our growth strategy, partially offset by the higher LNG activity.

~~RECONCILIATION~~RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

(Millions of dollars unless otherwise indicated, except for per share data)

The Company ~~has presented~~presents certain financial measures, other than in accordance with U.S. generally accepted accounting principles ("GAAP"), on an "adjusted" or "non-GAAP" basis. On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax rate. On a segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin. In addition to these measures, which are presented above, we also include certain supplemental non-GAAP ~~(“adjusted”) basis and has provided~~financial measures that are presented below to help the reader understand the impact that our non-GAAP adjustments have on the calculation of our adjusted diluted EPS. For each non-GAAP financial measure, we present below a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. ~~These financial~~

The Company's non-GAAP measures are not meant to be considered in isolation or as a substitute for the most directly comparable ~~financial~~ measure calculated in accordance with GAAP. The Company believes these non-GAAP measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business because such measures, when viewed together with ~~our~~ financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting ~~our~~the Company's historical financial performance and projected future results.

In many cases, ~~our~~ non-GAAP measures are determined by adjusting the most directly comparable GAAP ~~financial~~ measure to exclude certain disclosed items, ~~(“non-GAAP adjustments”)~~or “non-GAAP adjustments,” that ~~we believe~~the Company believes are not representative of ~~the~~ underlying business performance. For example, ~~Air Products restructured~~ the Company ~~to focus on its core Industrial Gases business. This had resulted in significant~~previously excluded certain expenses associated with cost reduction actions, impairment charges, and ~~asset actions that we believe were important for investors to understand separately from the performance of the underlying business.~~gains on disclosed transactions. The reader should be aware that wethe Company may ~~incur~~recognize similar ~~expenses~~losses or gains in the future. The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. InvestorsReaders should also consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

~~During~~The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

ADJUSTED DILUTED EPS

The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted diluted EPS, which the Company views as a key performance metric. We believe it is important for the reader to understand the per share impact of our non-GAAP adjustments as management does not consider these impacts when evaluating underlying business performance.

There were no non-GAAP adjustments to arrive at the adjusted diluted EPS in the first quarter of fiscal year 2018, we adopted accounting guidance on the presentation of net periodic pension and postretirement benefit cost. Certain prior year information has been reclassified to conform to the fiscal year 2018 presentation. Refer to Note 2, New Accounting Guidance, to the consolidated financial statements for additional information.

~~Presented below are reconciliations of the reported GAAP results to the non-GAAP measures for the first quarter of fiscal year 2018 and 2017:~~

~~CONSOLIDATED RESULTS~~2020.

Continuing Operations
Q1 2018 vs. Q1 2017 Operating
Income
Operating
Margin^(A)
Equity Affiliates' Income Income Tax
Provision Net
Income Diluted
EPS
2018 GAAP $ 460.7
20.8 % $ 13.8
$ 291.8
$ 155.6
$ .70
2017 GAAP 328.3
17.4 % 38.0
78.4
251.6
1.15
Change GAAP $ 132.4
340 bp $ (24.2 ) $ 213.4
$ (96.0 ) $ (.45 )
% Change GAAP 40 % (64 )% 272 % (38 )% (39 )%
2018 GAAP $ 460.7
20.8 % $ 13.8
$ 291.8
$ 155.6
$ .70
Tax reform repatriation^(B)
—
— % 32.5
(420.5 ) 453.0
2.06
Tax reform rate change and other^(B)
—
— % —
214.0
(214.0 ) (.97 )
2018 Non-GAAP Measure $ 460.7
20.8 % $ 46.3
$ 85.3
$ 394.6
$ 1.79
2017 GAAP $ 328.3
17.4 % $ 38.0
$ 78.4
$ 251.6
$ 1.15
Business separation costs 32.5
1.7 % —
3.7
26.5
.12
Tax costs associated with business separation —
— % —
(2.7 ) 2.7
.01
Cost reduction and asset actions 50.0
2.7 % —
8.8
41.2
.19
2017 Non-GAAP Measure $ 410.8
21.8 % $ 38.0
$ 88.2
$ 322.0
$ 1.47
Change Non-GAAP Measure $ 49.9
(100 )bp $ 8.3
$ (2.9 ) $ 72.6
$ .32
% Change Non-GAAP Measure 12 % 22 % (3 )% 23 % 22 %



	Three Months Ended 31 December
Q1 2020 vs. Q1 2019	Operating Income		Equity Affiliates' Income		Income Tax Provision			Net Income Attributable to Air Products			Diluted EPS
2020 GAAP		$561.0		$58.2		$120.7			$475.6			$2.14
2019 GAAP	455.0		52.9		132.1			347.5			1.57
Change GAAP									$128.1			$0.57
% Change GAAP								37		%	36		%
2020 GAAP		$561.0		$58.2		$120.7			$475.6			$2.14
2020 Non-GAAP Measure ("Adjusted")		$561.0		$58.2		$120.7			$475.6			$2.14
2019 GAAP		$455.0		$52.9		$132.1			$347.5			$1.57
Facility closure	29.0		—		6.9			22.1			0.10
Tax reform repatriation	—		—		15.6			(15.6		)	(0.07		)
Tax reform adjustment related to deemed foreign dividends	—		—		(56.2		)	56.2			0.26
2019 Non-GAAP Measure ("Adjusted")		$484.0		$52.9		$98.4			$410.2			$1.86
Change Non-GAAP Measure ("Adjusted")									$65.4			$0.28
% Change Non-GAAP Measure ("Adjusted")								16		%	15		%


^(A)	~~Operating margin is calculated by dividing operating income by sales.~~


^(B)	~~For additional information on the impact of the U.S. Tax Cuts and Jobs Act, including our equity affiliate impact, refer to Note 17, Income Taxes.~~

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

We define ~~Adjusted~~adjusted EBITDA as net income less income (loss) from ~~continuing~~discontinued operations, ~~(including noncontrolling interests)~~net of tax (when applicable), and excluding certain ~~disclosed items,~~non‑GAAP adjustments, which the Company does not believe to be indicative of underlying business trends, before interest expense, other non‑operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA ~~provides a~~and adjusted EBITDA margin provide useful ~~metric~~metrics for management to assess operating performance. Margin is calculated for each period by dividing each line item by consolidated sales for the respective period.

Below is a presentation of consolidated sales and a reconciliation of net income on a GAAP basis to adjusted EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:



	Three Months Ended
	31 December
	2019				2018
	$		Margin		$		Margin
Sales		$2,254.7				$2,224.0

Net income and net income margin		$488.9	21.7	%		$357.0	16.0	%
Add: Interest expense	18.7		0.8	%	37.3		1.7	%
Less: Other non-operating income (expense), net	9.1		0.4	%	18.5		0.8	%
Add: Income tax provision	120.7		5.4	%	132.1		5.9	%
Add: Depreciation and amortization	289.2		12.8	%	258.0		11.6	%
Add: Facility closure	—		—	%	29.0		1.3	%
Adjusted EBITDA and adjusted EBITDA margin		$908.4	40.3	%		$794.9	35.7	%



Change GAAP
Net income $ change		$131.9
Net income % change	37		%
Net income margin change	570		bp
Change Non-GAAP
Adjusted EBITDA $ change		$113.5
Adjusted EBITDA % change	14		%
Adjusted EBITDA margin change	460		bp

Below is a reconciliation of ~~Income from Continuing Operations on a GAAP basis~~operating income and operating margin by segment to ~~Adjusted EBITDA:~~adjusted EBITDA and adjusted EBITDA margin by segment for the three months ended 31 December 2019 and 2018:

Three Months Ended
31 December
2017 2016
Income from Continuing Operations^(A)
$ 162.7
$ 258.2
Add: Interest expense 29.8
29.5
Less: Other non-operating income (expense), net 9.8
(.2 )
Add: Income tax provision^(B)
291.8
78.4
Add: Depreciation and amortization 227.9
206.1
Add: Business separation costs —
32.5
Add: Cost reduction and asset actions —
50.0
Add: Tax reform repatriation - equity method investment^(B)
32.5
—
Adjusted EBITDA $ 734.9
$ 654.9
Change GAAP
Income from continuing operations change $ (95.5 )
Income from continuing operations % change (37 )%
Change Non-GAAP
Adjusted EBITDA change $ 80.0

Adjusted EBITDA % change 12 %


^(A)	~~Includes net income attributable to noncontrolling interests.~~


^(B)	~~For additional information on the impact of the U.S. Tax Cuts and Jobs Act, including our equity affiliate impact, refer to Note 17, Income Taxes, to the consolidated financial statements.~~

~~Below is a reconciliation of segment operating income to Adjusted EBITDA:~~



	Industrial Gases– Americas			Industrial Gases– EMEA			Industrial Gases– Asia			Industrial Gases– Global			Corporate and other			Total
GAAP MEASURES
Three Months Ended 31 December 2019
Operating income (loss)		$257.2			$120.5			$228.5			$3.6			($48.8	)		$561.0	^(A)
Operating margin	27.5		%	24.2		%	33.0		%
Three Months Ended 31 December 2018
Operating income (loss)		$219.2			$105.6			$201.8			$3.9			($46.5	)		$484.0	^(A)
Operating margin	22.2		%	20.1		%	32.2		%
Operating income (loss) change		$38.0			$14.9			$26.7			($0.3	)		($2.3	)
Operating income (loss) % change	17		%	14		%	13		%	(8		)%	(5		)%
Operating margin change	530		bp	410		bp	80		bp
NON-GAAP MEASURES
Three Months Ended 31 December 2019
Operating income (loss)		$257.2			$120.5			$228.5			$3.6			($48.8	)		$561.0	^(A)
Add: Depreciation and amortization	131.8			48.4			101.6			2.4			5.0			289.2
Add: Equity affiliates' income	20.6			19.3			16.9			1.4			—			58.2
Adjusted EBITDA		$409.6			$188.2			$347.0			$7.4			($43.8	)		$908.4
Adjusted EBITDA margin	43.8		%	37.7		%	50.1		%
Three Months Ended 31 December 2018
Operating income (loss)		$219.2			$105.6			$201.8			$3.9			($46.5	)		$484.0	^(A)
Add: Depreciation and amortization	125.6			46.3			79.9			2.1			4.1			258.0
Add: Equity affiliates' income	22.6			13.7			16.2			0.4			—			52.9
Adjusted EBITDA		$367.4			$165.6			$297.9			$6.4			($42.4	)		$794.9
Adjusted EBITDA margin	37.1		%	31.6		%	47.5		%
Adjusted EBITDA change		$42.2			$22.6			$49.1			$1.0			($1.4	)
Adjusted EBITDA % change	11		%	14		%	16		%	16		%	(3		)%
Adjusted EBITDA margin change	670		bp	610		bp	260		bp

Industrial
Gases–
Americas Industrial
Gases–
EMEA Industrial
Gases–
Asia Industrial
Gases–
Global Corporate
and other Segment
Total
GAAP MEASURE
Three Months Ended 31 December 2017
Operating income (loss) $ 217.2
$ 104.5
$ 175.5
$ 9.5
$ (46.0 ) $ 460.7
Operating margin 23.9 % 20.3 % 27.3 % 20.8 %
Three Months Ended 31 December 2016
Operating income (loss) $ 223.3
$ 90.0
$ 118.4
$ 8.2
$ (29.1 ) $ 410.8
Operating margin 25.8 % 22.5 % 27.0 % 21.8 %
Operating income (loss) change $ (6.1 ) $ 14.5
$ 57.1
$ 1.3
$ (16.9 ) $ 49.9
Operating income (loss) % change (3 )% 16 % 48 % 16 % (58 )% 12 %
Operating margin change (190 ) bp (220 ) bp 30 bp (100 ) bp
NON-GAAP MEASURE
Three Months Ended 31 December 2017
Operating income (loss) $ 217.2
$ 104.5
$ 175.5
$ 9.5
$ (46.0 ) $ 460.7
Add: Depreciation and amortization 117.8
49.1
56.8
1.6
2.6
227.9
Add: Equity affiliates' income 18.6
13.1
14.2
.4
—
46.3
Adjusted EBITDA $ 353.6
$ 166.7
$ 246.5
$ 11.5
$ (43.4 ) $ 734.9
Adjusted EBITDA margin 38.9 % 32.3 % 38.3 % 33.2 %
Three Months Ended 31 December 2016
Operating income (loss) $ 223.3
$ 90.0
$ 118.4
$ 8.2
$ (29.1 ) $ 410.8
Add: Depreciation and amortization 111.8
42.2
46.7
2.0
3.4
206.1
Add: Equity affiliates' income 14.7
9.5
13.5
.3
—
38.0
Adjusted EBITDA $ 349.8
$ 141.7
$ 178.6
$ 10.5
$ (25.7 ) $ 654.9
Adjusted EBITDA margin 40.5 % 35.5 % 40.7 % 34.8 %
Adjusted EBITDA change $ 3.8
$ 25.0
$ 67.9
$ 1.0
$ (17.7 ) $ 80.0
Adjusted EBITDA % change 1 % 18 % 38 % 10 % (69 )% 12 %
Adjusted EBITDA margin change (160 ) bp (320 ) bp (240 ) bp (160 ) bp

~~Below is a reconciliation of segment total operating income to consolidated operating income:~~

~~Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:~~

Three Months Ended
31 December
Equity Affiliates' Income 2017 2016
Segment total $ 46.3
$ 38.0
Tax reform repatriation - equity method investment^(A)
(32.5 ) —
Consolidated Total $ 13.8
$ 38.0


^(A)	~~For additional information~~The table below reconciles operating income as reflected on our consolidated income statements to total operating income in the ~~impact of the U.S. Tax Cuts and Jobs Act, including our equity affiliate impact, refer to Note 17, Income Taxes, to the consolidated financial statements.~~table above:



	Three Months Ended
	31 December
Operating Income	2019		2018
Consolidated operating income		$561.0		$455.0
Facility closure	—		29.0
Total		$561.0		$484.0

~~INCOME TAXES~~ADJUSTED EFFECTIVE TAX RATE

The tax impact onof our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense ~~impact of the transactions~~associated with each adjustment and is ~~impacted~~ primarily bydependent upon the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. For additional discussion on the ~~impacts~~impact of the U.S. Tax Cuts and Jobs Act, refer to Note ~~17,~~ 15, Income Taxes, to the consolidated financial statements.

Effective Tax Rate
Three Months Ended
31 December
2017 2016
Income Tax Provision—GAAP $ 291.8
$ 78.4
Income From Continuing Operations Before Taxes—GAAP $ 454.5
$ 336.6
Effective Tax Rate—GAAP 64.2 % 23.3 %
Income Tax Provision—GAAP $ 291.8
$ 78.4
Business separation costs —
3.7
Tax costs associated with business separation —
(2.7 )
Cost reduction and asset actions —
8.8
Tax reform repatriation (420.5 ) —
Tax reform rate change and other 214.0
—
Income Tax Provision—Non-GAAP Measure $ 85.3
$ 88.2
Income From Continuing Operations Before Taxes—GAAP $ 454.5
$ 336.6
Business separation costs —
30.2
Cost reduction and asset actions —
50.0
Tax reform repatriation - equity method investment 32.5
—
Income From Continuing Operations Before Taxes—Non-GAAP Measure $ 487.0
$ 416.8
Effective Tax Rate—Non-GAAP Measure 17.5 % 21.2 %

~~PENSION BENEFITS~~

~~As noted~~There were no non-GAAP adjustments to arrive at the adjusted effective tax rate in ~~Note 2, New Accounting Guidance, to the consolidated financial statements, we early adopted guidance on the presentation of net periodic pension and postretirement benefit cost during~~ the first quarter of fiscal year 2018. The amendments require that the service cost component of the net periodic benefit cost be presented in the same line items as other compensation costs arising from services rendered by employees during the period. The non-service related costs are presented outside of operating income in "Other non-operating income (expense), net."2020.

For the three months ended 31 December 2017 and 2016, total net periodic pension cost was $12.4 and $18.6, respectively. We recognized service-related costs of $13.2 and $19.0, respectively, on our consolidated income statements within operating income of continuing operations. The non-service benefits of $.8 and $.4 were included in "Other non-operating income (expense), net" for the three months ended 31 December 2017 and 2016, respectively. The decrease in pension expense in fiscal year 2018 results from lower loss amortization primarily due to favorable asset experience and the effects of the disposition of the former Materials Technologies segment. The costs capitalized in fiscal year 2018 and 2017 were not material.

For the three months ended 31 December 2017 and 2016, we recognized a pension settlement loss of $1.8 and a gain of $2.3, respectively, in "Other non-operating income (expense), net" on our consolidated income statements to accelerate recognition of a portion of actuarial gains and losses deferred in accumulated other comprehensive loss. The pension settlement loss in fiscal year 2018 was associated with the U.S. Supplementary Pension Plan. The pension settlement gain in fiscal year 2017 resulted from the disposition of the former Materials Technologies segment. We expect total pension settlement losses of approximately $5 in fiscal year 2018.



	Three Months Ended 31 December
	2019			2018
Income Tax Provision		$120.7			$132.1
Income Before Taxes		$609.6			$489.1
Effective Tax Rate	19.8		%	27.0		%
Income Tax Provision		$120.7			$132.1
Facility closure	—			6.9
Tax reform repatriation	—			15.6
Tax reform adjustment related to deemed foreign dividends	—			(56.2		)
Adjusted Income Tax Provision		$120.7			$98.4
Income Before Taxes		$609.6			$489.1
Facility closure	—			29.0
Adjusted Income Before Taxes		$609.6			$518.1
Adjusted Effective Tax Rate	19.8		%	19.0		%

Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the three months ended 31 December 2017 and 2016, our cash contributions to funded pension plans and benefit payments under unfunded pension plans were $27.4 and $24.9, respectively. Total contributions for fiscal 2018 are expected to be approximately $50 to $70. During fiscal 2017, total contributions were $64.1.

~~Refer to Note 11, Retirement Benefits, to the consolidated financial statements for details on pension cost and cash contributions.~~

LIQUIDITY AND CAPITAL RESOURCES

We have consistent access to commercial paper markets, and our cash balance and cash flows from operations and financing activities are expected to meet liquidity needs for the foreseeable future.

As of 31 December ~~2017,~~2019, we had ~~$1,396.9~~$1,240.1 of foreign cash and cash items compared to total cash and cash items of ~~$2,722.6.~~$2,406.1. As a result of the ~~U.S. tax reform,~~Tax Act, we currently do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S. income tax upon subsequent repatriation to the ~~United States.~~U.S. Depending on the country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.

Our cash flows from operating, investing, and financing activities, as reflected on the consolidated statements of cash flows, are summarized in the following table:



	Three Months Ended
	31 December
Cash provided by (used for)	2019			2018
Operating activities		$667.0			$655.2
Investing activities	(260.7		)	(226.5		)
Financing activities	(270.3		)	(289.8		)

Operating Activities

For the first three months of ~~2018,~~fiscal year 2020, cash provided by operating activities was ~~$564.1.~~$667.0. Income from continuing operations of ~~$155.6~~$475.6 was adjusted for items including depreciation and amortization, deferred income taxes, ~~impacts from the U.S. Tax Cuts and Jobs Act,~~ undistributed earnings of unconsolidated affiliates, gains on sale of assets and investments, share-based compensation, and noncurrent ~~capital~~ lease receivables. The ~~tax reform repatriation adjustment~~working capital accounts were a use of ~~$310.3 represents our obligation for~~cash of $163.1, primarily driven by $115.4 from payables and accrued liabilities and $41.6 from other working capital. The use of cash within "Payables and accrued liabilities" was primarily driven by a $45.2 decrease in accrued incentive compensation due to payments on the ~~deemed repatriation tax resulting from U.S. tax reform~~2019 annual incentive compensation plan and ~~is payable over a period of eight years. Undistributed earnings of unconsolidated affiliates includes $32.5 of expense resulting~~$24.9 from the ~~U.S.~~maturity of a forward exchange contract that hedged a foreign currency exposure. The use of other working capital was primarily due to an increase in contract assets and contract fulfillment costs associated with revenue generating project activity.

For the first three months of fiscal year 2019, cash provided by operating activities was $655.2 which included income from continuing operations of $347.5. The final adjustments to our estimates of the impacts of the Tax ~~Cuts~~Act is included within "Tax reform repatriation" and ~~Jobs Act.~~"Deferred income taxes." See Note ~~17,~~ 15, Income Taxes, to the consolidated financial statements for additional information. The working capital accounts were a use of cash of ~~$126.8,~~$71.6, primarily driven by ~~$113.5 from payables and accrued liabilities and $34.2~~$73.6 from trade receivables. ~~The use of cash in payables and accrued liabilities included a $39.3 decrease in accrued incentive compensation due to payments on the 2017 plan and $13.5 of severance actions.~~

For the first three months of 2017, cash provided by operating activities was $574.3. Income from continuing operations of $251.6 included the noncash write-down of an air separation unit in the Industrial Gases – EMEA segment that was constructed mainly to provide oxygen to one of the Energy-from-Waste plants. Other adjustments included depreciation and amortization, deferred income taxes, share-based compensation, noncurrent capital lease receivables, and undistributed earnings of unconsolidated affiliates. The working capital accounts were a source of cash of $64.4, which was primarily driven by a decrease in trade receivables of $42.3 and other working capital of $31.6. The decrease in trade receivables includes collections from our joint venture in Jazan, Saudi Arabia. The source of cash from other working capital was primarily due to a decrease in prepaid income taxes.

~~We estimate that cash~~Cash paid for income taxes, net of cash refunds, ~~on a continuing operations basis were $61.0~~was $66.2 and ~~$79.7~~$28.7 for the three months ended 31 December ~~2017~~2019 and ~~2016,~~2018, respectively.

Investing Activities

For the first three months of ~~2018,~~fiscal year 2020, cash used for investing activities was ~~$484.9.~~$260.7. Capital expenditures for plant and equipment were ~~$256.6. We completed~~$447.7. Proceeds from investments of $177.0 resulted from maturities of time deposits with original terms greater than three ~~acquisitions with an aggregate purchase price, net of cash acquired, of $237.1. See Note 6, Business Combinations, to the consolidated financial statements for further details.~~months but less than one year.

For the first three months of ~~2017,~~fiscal year 2019, cash used for investing activities was ~~$238.1, primarily driven by capital~~$226.5. Capital expenditures for plant and equipment were $403.4. Proceeds from investments of ~~$239.2.~~$178.0 resulted from maturities of time deposits with original terms greater than three months but less than one year.

Capital expenditures is a non-GAAP measure that we define as cash flows for additions to plant and equipment, acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates. A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:



	Three Months Ended
	31 December
	2019		2018
Cash used for investing activities		$260.7		$226.5
Proceeds from sale of assets and investments	15.2		1.1
Purchases of investments	—		(5.3		)
Proceeds from investments	177.0		178.0
Other investing activities	1.9		3.1
Capital Expenditures		$454.8		$403.4

The components of our capital expenditures are detailed in the table below:


	Three Months Ended		Three Months Ended
	31 December		31 December
	2017	2016	2019		2018
Additions to plant and equipment	$256.6	$239.2		$447.7		$403.4
Acquisitions, less cash acquired	237.1	—	—		—
Investment in and advances to unconsolidated affiliates	—	8.8	7.1		—
Capital expenditures on a GAAP basis	$493.7	$248.0
Capital lease expenditures^(A)	6.4	4.0
Capital expenditures on a Non-GAAP basis	$500.1	$252.0
Capital Expenditures				$454.8		$403.4

^(A)

~~We utilize a non-GAAP measure in the computation of capital~~

Capital expenditures and include spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities if the arrangement qualifies as a capital lease. The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure that our management uses internally to evaluate and manage our expenditures.

~~We expect capital expenditures of approximately $1,200 to $1,400 on a GAAP and non-GAAP basis~~ in fiscal year ~~2018. This range excludes possible acquisitions and our previously announced agreement to form a joint venture, Air Products Lu’an (Changzhi) Co., Ltd., with Lu’An Clean Energy Company.~~

~~Sales backlog represents our estimate of revenue~~2020 are expected to be ~~recognized~~approximately $4 billion to $4.5 billion, which primarily includes our initial expected equity affiliate investment in the ~~future on sale of equipment orders~~Jazan gas and ~~related process technologies~~power project as well as new plants that are currently under ~~firm contracts. The sales backlog~~construction or expected to start construction. It is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because we are unable to identify the ~~Company~~timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at ~~31 December 2017 was $405, compared to $481 at 30 September 2017.~~the time we enter into transactions. These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities.

Financing Activities

For the first three months of ~~2018,~~fiscal year 2020, cash used for financing activities was ~~$641.1. This consisted~~$270.3 and primarily ~~of repayment on long-term debt of $408.6,~~included dividend payments to shareholders of $207.5, and repayments of commercial paper and short-term borrowings of $40.7. Payments on long-term debt primarily related to the repayment of a 1.2% U.S. Senior Note of $400.0 that matured on 16 October 2017.$255.7.

For the first three months of ~~2017,~~fiscal year 2019, cash used for financing activities was ~~$974.5.~~$289.8. This consisted primarily of ~~repayments~~dividend payments to shareholders of ~~commercial paper~~$241.5 and ~~short-term~~repayment on short term borrowings of ~~$772.2 and dividend payments of $186.9.~~$38.0.

Financing and Capital Structure

Capital needs for the first three months of fiscal year 2020 were satisfied primarily with cash from operations. Total debt atas of 31 December ~~2017~~2019 and 30 September ~~2017,~~2019, expressed as a percentage of total capitalization (total debt plus total equity), was ~~25.4%~~21.9% and ~~28.0%~~22.6%, respectively. Total debt ~~decreased~~increased from ~~$3,962.8~~$3,326.0 at 30 September ~~2017~~2019 to ~~$3,513.3~~$3,341.2 at 31 December ~~2017 primarily due to~~2019. The current year total debt balance includes $367.4 of related party debt associated with the ~~repayment of the 1.2% U.S. Senior Note.~~Lu'An joint venture.

~~On 31 March 2017, we entered into~~We have a ~~five-year $2,500.0~~$2,300.0 revolving credit agreement with a syndicate of banks (the ~~“2017~~"Credit Agreement”) maturing 31 March 2022. Under the Credit ~~Agreement”), under which~~Agreement, senior unsecured debt is available to both the Company and certain of its subsidiaries. The ~~2017~~ Credit Agreement provides a source of liquidity for the Company and supports its commercial paper program. The Company’s only financial covenant is a maximum ratio of total debt to total capitalization ~~(total debt plus total equity)~~ no greater than 70%. No borrowings were outstanding under the ~~2017~~ Credit Agreement as of 31 December ~~2017.~~2019 or 30 September 2019.

~~Commitments totaling $16.0 are~~There were no outstanding commitments maintained by our foreign subsidiaries ~~all~~as of ~~which was borrowed and outstanding at~~ 31 December ~~2017.~~2019.

As of 31 December ~~2017,~~2019, we were in compliance with all of the financial and other covenants under our debt agreements.

On 15 September 2011, the Board of Directors authorized the repurchase of up to $1,000 of our outstanding common stock. During the first three months of fiscal year ~~2018,~~2020, we did not purchase any of our outstanding shares. At 31 December ~~2017,~~2019, $485.3 in share repurchase authorization remained.

Dividends

On 2523 January ~~2018,~~2019, the Board of Directors declared the second quarter dividend of ~~$1.10~~$1.34 per share. The dividend is payable on 1411 May ~~2018~~2020 to shareholders of record at the close of business on 21 April ~~2018.~~2020.

CONTRACTUAL OBLIGATIONS

We are obligated to make future payments under various contracts, such as debt agreements, lease agreements, unconditional purchase obligations, and other long-term obligations. As discussed in Note 17, Income Taxes, to the consolidated financial statements, our income tax provision includes an expense for a deemed repatriation tax on unremitted foreign earnings resulting from the U.S. Tax Cuts and Jobs Act that was enacted during the first quarter of fiscal year 2018. Of the expense, $297 is recorded in noncurrent liabilities and will be paid over eight years beginning in fiscal year 2019.

~~Other than the above, there have been no material changes to contractual obligations since 30 September 2017.~~

~~COMMITMENTS AND CONTINGENCIES~~

There have been no material changes to ~~commitments and contingencies~~our contractual obligations since 30 September ~~2017.~~ 2019.

PENSION BENEFITS

For ~~additional information~~the three months ended 31 December 2019 and 2018, net periodic pension cost was $0.4 and $6.9, respectively. We recognized service-related costs of $11.9 and $10.6, respectively, on ~~Litigation~~our consolidated income statements within operating income. The non-service benefits of $11.5 and ~~Environmental matters, refer~~$3.7 were included in "Other non-operating income (expense), net" for the three months ended 31 December 2019 and 2018, respectively. The decrease in pension expense in fiscal year 2020 resulted from lower interest cost and higher expected return on assets, partially offset by higher loss amortization, primarily due to the impact of lower discount rates. The amount of service costs capitalized in the first three months of fiscal years 2020 and 2019 were not material.

For the three months ended 31 December 2018, we recognized pension settlement losses of $1.0 to accelerate recognition of a portion of actuarial gains and losses deferred in accumulated other comprehensive loss. These losses are included within "Other non-operating income (expense), net" on our consolidated income statements. Pension settlement losses in fiscal year 2019 were primarily associated with the U.S. supplementary pension plan. We expect total pension settlement losses of approximately $5 to $10 in fiscal year 2020.

Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the three months ended 31 December 2019 and 2018, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $8.3 and $19.5, respectively. Total contributions for fiscal 2020 are expected to be approximately $30 to $40. During fiscal year 2019, total contributions were $40.2.

Refer to Note ~~12, Commitments and Contingencies,~~10, Retirement Benefits, to the consolidated financial statements ~~in this quarterly filing.~~for details on pension cost and cash contributions.

COMMITMENTS AND CONTINGENCIES

Refer to Note 11, Commitments and Contingencies, to the consolidated financial statements for information concerning our commitments and contingencies, including litigation and environmental matters.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes to off-balance sheet arrangements since 30 September ~~2017.~~2019. We are not a primary beneficiary in any material variable interest entity. Our off-balance sheet arrangements are not reasonably likely to have a material impact on financial condition, changes in financial condition, results of operations, or liquidity.

RELATED PARTY TRANSACTIONS

~~Our principal~~We have related party sales to some of our equity affiliates and joint venture partners as well as other income primarily from fees charged for use of Air Products' patents and technology. Sales to and other income from related parties ~~are equity affiliates operating in~~totaled approximately $90 and $100 for the ~~industrial gas business. In 2015, we entered into a long-term sale of equipment contract to engineer, procure,~~three months ended 31 December 2019 and ~~construct industrial gas facilities~~2018, respectively. Sales agreements with ~~a 25%-owned joint venture for Saudi Aramco’s Jazan oil refinery and power plant in Saudi Arabia. The agreement included~~related parties include terms that are consistent with those that we believe would have been negotiated at an arm’s length with an independent party. ~~Sales~~

In addition, we have related ~~to this contract are included in~~party liabilities with the ~~results~~partner of our ~~Industrial Gases – Global segment and were approximately $90 and $110 during~~Air Products Lu An (Changzhi) Co., Ltd. joint venture. Refer to Note 16, Supplemental Information, to the ~~three months ended 31 December 2017 and 2016, respectively.~~consolidated financial statements for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s Discussion and Analysis of our financial condition and results of operations is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Other than~~Judgments and estimates of uncertainties are required in applying our accounting policies in many areas. However, application of policies that management has identified as critical places significant importance on management’s judgment, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from these estimates, the reported results could be materially affected. A description of our major accounting policies, including those ~~detailed below and~~identified as critical, is included in ~~Note 2, New Accounting Guidance, to the consolidated financial statements, there~~our 2019 Form 10-K.

There have been no changes into our accounting ~~policy~~policies or ~~accounting estimate in~~estimates during the ~~current period~~first three months of fiscal year 2020 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.

~~Revenue Recognition~~

Revenue from equipment sale contracts is recorded primarily using the percentage-of-completion method. Changes in estimates on projects accounted for under this method did not have a material impact to operating income during the three months ended 31 December 2017. We assess the performance of our sale of equipment projects as they progress. Our earnings could be positively or negatively impacted by changes to our forecast of revenues and costs on these projects in the future.

~~Income Taxes~~

On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act, which had a significant impact on our consolidated financial statements for the three months ended 31 December 2017. The impacts reflect provisional amounts for which accounting was incomplete but a reasonable estimate could be determined. Updates to the estimates are permissible for a period of no greater than one year. Refer to Note 17, Income Taxes, to the consolidated financial statements for additional information.

NEW ACCOUNTING GUIDANCE

See Note 2, New Accounting Guidance, and Note 7, Leases, to the consolidated financial statements for information concerning the implementation and impact of new accounting guidance.

~~FORWARD-LOOKING STATEMENTS~~

This quarterly report 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 reasonable expectations and assumptions as of the date of this report. 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, global or regional economic conditions and supply and demand dynamics in market segments into which the Company sells; political risks, including the risks of unanticipated government actions; acts of war or terrorism; significant fluctuations in interest rates and foreign currencies from that currently anticipated; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; our ability to execute the projects in our backlog; asset impairments due to economic conditions or specific events; the impact of price fluctuations in natural gas and disruptions in markets and the economy due to oil price volatility; costs and outcomes of litigation or regulatory investigations; the success of productivity and operational improvement programs; the timing, impact, and other uncertainties of future acquisitions or divestitures, including reputational impacts; the Company's ability to implement and operate with new technologies; the impact of changes in environmental, tax or other legislation, economic sanctions and regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described in the Company’s Form 10-K for its fiscal year ended 30 September 2017. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this report to reflect any change in the Company’s assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information on our utilization of financial instruments and an analysis of the sensitivity of these instruments to selected changes in market rates and prices is included in our ~~2017~~2019 Form 10-K.

~~The~~Our net financial instrument position decreased from a liability of ~~$3,832.3~~$3,239.1 at 30 September ~~2017~~2019 to a liability of ~~$3,472.2~~$3,235.1 at 31 December ~~2017. The decrease was due primarily to the repayment of long-term debt.~~2019.

Interest Rate Risk

~~There were no material changes to the~~The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio ~~since~~assumes an instantaneous 100 bp move in interest rates from the level at 31 December 2019, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of $72 and $75 in the net liability position of financial instruments at 31 December 2019 and 30 September ~~2017.~~2019, respectively. A 100 bp decrease in market interest rates would result in an increase of $76 and $80 in the net liability position of financial instruments at 31 December 2019 and 30 September 2019.

There were no material changes to the sensitivity analysis related to the variable portion of our debt portfolio since 30 September ~~2017.~~2019.

Foreign Currency Exchange Rate Risk

The sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in ~~the~~ foreign currency exchange rates from their levels at ~~period end,~~31 December 2019, with all other variables held constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would result in a decrease or increase, respectively, of ~~$332~~$322 and ~~$312~~$326 in the net liability position of financial instruments at 31 December ~~2017~~2019 and 30 September ~~2017,~~2019, respectively.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of 31 December ~~2017.~~2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of 31 December ~~2017,~~2019, the disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended 31 December ~~2017~~2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

~~Transition Services Agreement~~

In connection with the spin-off of Versum Materials, Inc., the Company entered into a transition services agreement pursuant to which it will continue to provide information technology, systems applications, business processes, and associated internal controls to Versum to allow Versum the time to establish its own infrastructure and both companies sufficient time to physically separate their information technology applications and infrastructure. Management has established controls to mitigate the risk that personnel of either company obtain unauthorized access to the other company’s data and will continue to monitor and evaluate the sufficiency of the controls. We expect all transition services to end in the second quarter of fiscal year 2018.

PART II. OTHER INFORMATION

Item 5. Other Information

Not applicable.

Item 6. Exhibits.

(a) Exhibits required by Item 601 of Regulation S-K



	Exhibit No.	Description
	(3)	Articles of Incorporation and Bylaws.
	3.1	Amended and Restated Bylaws of the Company effective 26 November 2019.

	(10)	Material Contracts
	10.1	~~Air Products~~Amended and ~~Chemicals, Inc. Restricted Stock Unit Award Agreement~~Restated Deferred Compensation Program for ~~FY2018.~~Directors effective 7 October 2019.

	10.2	~~Air Products and Chemicals, Inc. Performance Share Award Agreement~~Compensation Program for ~~FY2018.~~Non-Employee Directors effective 26 November 2019.

	~~10.3~~(31)	Amended and Restated Employment Agreement, dated 14 November 2017, by and between Air Products and Chemicals, Inc. and Seifollah Ghasemi (Filed as Exhibit 10.1 to the Company's Form 8-K Report dated 14 November 2017.)

	~~10.4~~	~~Amended and Restated Air Products and Chemicals, Inc. Retirement Savings Plan effective 1 November 2017 with provisions effective 1 January 2018.~~

	~~10.5~~	~~Amended and Restated Air Products and Chemicals, Inc. Deferred Compensation Plan effective 1 January 2018.~~

	~~12.~~	~~Computation of Ratios of Earnings to Fixed Charges.~~
		Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(32)	Section 1350 Certifications
	32.1	Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

	(101)	Interactive Data Files
	101.INS	Inline XBRL Instance Document. The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

	101.SCH	Inline XBRL Taxonomy Extension Schema Document.

	101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

	101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

	101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

	101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

	104	Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101).

†	The certification attached as Exhibit 32 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Air Products and Chemicals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Air Products and Chemicals, Inc.
	(Registrant)

Date: 2624 January ~~2018~~2020	By:	/s/ M. Scott Crocco
		M. Scott Crocco
		Executive Vice President and Chief Financial Officer

4648



	Three Months Ended
	31 December 2016
							Total
	Performance			Energy-			Discontinued
	Materials			from-Waste^(A)			Operations
Sales	$	254.8		$	—		$	254.8
Cost of sales	179.0			6.6			185.6
Selling and administrative	20.4			.2			20.6
Research and development	5.1			—			5.1
Other income (expense), net	(.4		)	.3			(.1		)
Operating Income (Loss)	49.9			(6.5		)	43.4
Equity affiliates’ income	.3			—			.3
Income (Loss) Before Taxes	50.2			(6.5		)	43.7
Income tax benefit^(B)	(50.5		)	(1.1		)	(51.6		)
Income (Loss) From Operations of Discontinued Operations, net of tax	100.7			(5.4		)	95.3
Loss on Disposal, net of tax	—			(47.1		)	(47.1		)
Income (Loss) From Discontinued Operations, net of tax	100.7			(52.5		)	48.2



	Severance and Other Benefits			Asset Actions/Other			Total
30 September 2016	$	12.3		$	—		$	12.3
2017 Charge	66.3			88.5			154.8
Noncash expenses	—			(84.2		)	(84.2		)
Amount reflected in pension liability	(2.0		)	—			(2.0		)
Amount reflected in other noncurrent liabilities	—			(2.2		)	(2.2		)
Cash expenditures	(35.7		)	(1.2		)	(36.9		)
Currency translation adjustment	(.3		)	—			(.3		)
30 September 2017	$	40.6		$	.9		$	41.5
Cash expenditures	(13.5		)	(.1		)	(13.6		)
Currency translation adjustment	.2			—			.2
31 December 2017	$	27.3		$	.8		$	28.1



	Three Months Ended 31 December
	Forward Exchange Contracts						Foreign Currency Debt					Other ^(A)						Total
	2017			2016			2017			2016		2017			2016			2017			2016
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion)	$	7.5		$	(59.4	)	$	—		$	—	$	(17.0	)	$	49.6		$	(9.5	)	$	(9.8	)
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion)	1.0			4.6			—			—		—			—			1.0			4.6
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion)	(17.6		)	49.5			—			—		16.4			(28.2		)	(1.2		)	21.3
Net (gain) loss reclassified from OCI to interest expense (effective portion)	.6			(.8		)	—			—		.6			.7			1.2			(.1		)
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion)	(.2		)	(.2		)	—			—		—			—			(.2		)	(.2		)
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)	$	—		$	—		$	—		$	—	$	(3.2	)	$	(9.1	)	$	(3.2	)	$	(9.1	)
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI	$	(7.5	)	$	27.9		$	(17.3	)	$	41.8	$	(11.2	)	$	13.1		$	(36.0	)	$	82.8
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)	$	(1.5	)	$	2.1		$	—		$	—	$	(1.3	)	$	.8		$	(2.8	)	$	2.9




Total Assets
31 December 2017	$	5,878.6	$	3,378.5	$	4,592.3	$	285.5	$	4,063.7	$	18,198.6
30 September 2017	5,840.8		3,276.1		4,412.1		279.6		4,648.4		18,457.0



First Quarter 2020 in Summary	31
First Quarter 2020 Results of Operations	33
Reconciliations of Non-GAAP Financial Measures	38
Liquidity and Capital Resources	42
Contractual Obligations	44
Pension Benefits	44
Commitments and Contingencies	45
Off-Balance Sheet Arrangements	45
Related Party Transactions	45
Critical Accounting Policies and Estimates	45
New Accounting Guidance	45



	Continuing Operations
Q1 2018 vs. Q1 2017	Operating Income			Operating Margin^(A)		Equity Affiliates' Income			Income Tax Provision			Net Income			Diluted EPS
2018 GAAP	$	460.7		20.8	%	$	13.8		$	291.8		$	155.6		$	.70
2017 GAAP	328.3			17.4	%	38.0			78.4			251.6			1.15
Change GAAP	$	132.4		340	bp	$	(24.2	)	$	213.4		$	(96.0	)	$	(.45	)
% Change GAAP	40		%			(64		)%	272		%	(38		)%	(39		)%
2018 GAAP	$	460.7		20.8	%	$	13.8		$	291.8		$	155.6		$	.70
Tax reform repatriation^(B)	—			—	%	32.5			(420.5		)	453.0			2.06
Tax reform rate change and other^(B)	—			—	%	—			214.0			(214.0		)	(.97		)
2018 Non-GAAP Measure	$	460.7		20.8	%	$	46.3		$	85.3		$	394.6		$	1.79
2017 GAAP	$	328.3		17.4	%	$	38.0		$	78.4		$	251.6		$	1.15
Business separation costs	32.5			1.7	%	—			3.7			26.5			.12
Tax costs associated with business separation	—			—	%	—			(2.7		)	2.7			.01
Cost reduction and asset actions	50.0			2.7	%	—			8.8			41.2			.19
2017 Non-GAAP Measure	$	410.8		21.8	%	$	38.0		$	88.2		$	322.0		$	1.47
Change Non-GAAP Measure	$	49.9		(100	)bp	$	8.3		$	(2.9	)	$	72.6		$	.32
% Change Non-GAAP Measure	12		%			22		%	(3		)%	23		%	22		%