UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~___________________________~~

FORM 10-Q

~~(Mark One)~~



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

For the quarterly period ended ~~30 June~~31 December 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)~~

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
~~2.0%~~2.000% Euro Notes due 2020	APD20	New York Stock Exchange
0.375% Euro Notes due 2021	APD21B	New York Stock Exchange
~~1.0%~~1.000% Euro Notes due 2025	APD25	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated

filer

☒

Accelerated

filer

☐

Non-accelerated

filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock, $1 par value per share, outstanding at ~~30 June~~31 December 2019 was ~~220,355,139.~~220,678,482.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

INDEX




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Income Statements – Three ~~and Nine~~ Months Ended ~~30 June~~31 December 2019 and 2018	4
Consolidated Comprehensive Income Statements – Three ~~and Nine~~ Months Ended ~~30 June~~31 December 2019 and 2018	5
Consolidated Balance Sheets – ~~30 June~~31 December 2019 and 30 September ~~2018~~2019	6
Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~30 June~~31 December 2019 and 2018	7
Consolidated Statements of Equity – Three ~~and Nine~~ Months Ended ~~30 June~~31 December 2019 and 2018	8
Notes to Consolidated Financial Statements	109

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3430
Item 3. Quantitative and Qualitative Disclosures About Market Risk	5746
Item 4. Controls and Procedures	5746

PART II. OTHER INFORMATION

Item 5. Other Information	5847
Item 6. Exhibits	5847
Signature	5948

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 ~~2018.~~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				Nine Months Ended				Three Months Ended
	30 June								31 December
(Millions of dollars, except for share and per share data)	2019		2018		2019		2018		2019		2018
Sales		$2,224.0		$2,259.0		$6,635.7		$6,631.3		$2,254.7		$2,224.0
Cost of sales	1,466.0		1,545.4		4,484.7		4,623.7		1,486.6		1,544.0
Facility closure	—		—		29.0		—		—		29.0
Selling and administrative	188.5		188.6		568.1		574.8		201.7		189.6
Research and development	18.1		15.0		50.0		44.1		17.7		15.0
Cost reduction actions	25.5		—		25.5		—
Gain on exchange of equity affiliate investments	29.1		—		29.1		—
Other income (expense), net	14.7		5.8		33.7		43.2		12.3		8.6
Operating Income	569.7		515.8		1,541.2		1,431.9		561.0		455.0
Equity affiliates' income	56.4		58.1		155.5		115.6		58.2		52.9
Interest expense	34.2		34.9		106.9		95.1		18.7		37.3
Other non-operating income (expense), net	17.6		12.8		49.8		33.7		9.1		18.5
Income From Continuing Operations Before Taxes	609.5		551.8		1,639.6		1,486.1
Income Before Taxes									609.6		489.1
Income tax provision	109.3		107.1		348.9		455.1		120.7		132.1
Income From Continuing Operations	500.2		444.7		1,290.7		1,031.0
Income From Discontinued Operations, net of tax	—		43.2		—		42.2
Net Income	500.2		487.9		1,290.7		1,073.2		488.9		357.0
Net Income Attributable to Noncontrolling Interests of Continuing Operations	12.2		14.0		33.9		28.3
Net Income Attributable to Air Products		$488.0		$473.9		$1,256.8		$1,044.9
Net Income Attributable to Air Products
Income from continuing operations		$488.0		$430.7		$1,256.8		$1,002.7
Income from discontinued operations	—		43.2		—		42.2
Net income attributable to noncontrolling interests									13.3		9.5
Net Income Attributable to Air Products		$488.0		$473.9		$1,256.8		$1,044.9		$475.6		$347.5
Basic Earnings Per Common Share Attributable to Air Products										$2.15		$1.58
Income from continuing operations		$2.21		$1.96		$5.71		$4.57
Income from discontinued operations	—		.20		—		.19
Net Income Attributable to Air Products		$2.21		$2.16		$5.71		$4.76
Diluted Earnings Per Common Share Attributable to Air Products										$2.14		$1.57
Income from continuing operations		$2.20		$1.95		$5.68		$4.54
Income from discontinued operations	—		.20		—		.19
Net Income Attributable to Air Products		$2.20		$2.15		$5.68		$4.73
Weighted Average Common Shares – Basic (in millions)	220.6		219.5		220.2		219.3		220.9		219.9
Weighted Average Common Shares – Diluted (in millions)	221.9		220.9		221.4		220.7		222.2		221.0

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
30 June
(Millions of dollars) 2019 2018
Net Income
$500.2

$487.9
Other Comprehensive Loss, net of tax:
Translation adjustments, net of tax of ($3.3) and $5.2 (48.8 ) (392.4 )
Net gain on derivatives, net of tax of $4.5 and $8.8 7.5
27.1
Reclassification adjustments:
Currency translation adjustment (2.6 ) —
Derivatives, net of tax of ($3.5) and ($5.5) (13.1 ) (17.7 )
Pension and postretirement benefits, net of tax of $4.8 and $7.8 14.8
26.0
Total Other Comprehensive Loss (42.2 ) (357.0 )
Comprehensive Income 458.0
130.9
Net Income Attributable to Noncontrolling Interests 12.2
14.0
Other Comprehensive Loss Attributable to Noncontrolling Interests (5.6 ) (14.5 )
Comprehensive Income Attributable to Air Products
$451.4

$131.4

Nine Months Ended
30 June
(Millions of dollars) 2019 2018
Net Income
$1,290.7

$1,073.2
Other Comprehensive Loss, net of tax:
Translation adjustments, net of tax of $9.6 and ($14.6) (65.6 ) (130.4 )
Net gain (loss) on derivatives, net of tax of ($4.9) and $7.5 (38.2 ) 35.4
Pension and postretirement benefits, net of tax of ($0.8) and $– (3.9 ) —
Reclassification adjustments:
Currency translation adjustment (2.6 ) 3.1
Derivatives, net of tax of $7.2 and ($7.1) 20.7
(24.4 )
Pension and postretirement benefits, net of tax of $15.8 and $26.7 48.7
75.5
Total Other Comprehensive Loss (40.9 ) (40.8 )
Comprehensive Income 1,249.8
1,032.4
Net Income Attributable to Noncontrolling Interests 33.9
28.3
Other Comprehensive Loss Attributable to Noncontrolling Interests (1.4 ) (10.4 )
Comprehensive Income Attributable to Air Products
$1,217.3

$1,014.5



	Three Months Ended
	31 December
(Millions of dollars)	2019			2018
Net Income		$488.9			$357.0
Other Comprehensive Income (Loss), net of tax:
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:
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)	302.2			(70.2		)
Comprehensive Income	791.1			286.8
Net Income Attributable to Noncontrolling Interests	13.3			9.5
Other Comprehensive Income (Loss) Attributable to Noncontrolling Interests	15.2			(0.9		)
Comprehensive Income Attributable to Air Products		$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)


	30 June			30 September			31 December			30 September
(Millions of dollars, except for share and per share data)	2019			2018			2019			2019
Assets
Current Assets
Cash and cash items		$2,696.8			$2,791.3			$2,406.1			$2,248.7
Short-term investments	—			184.7			—			166.0
Trade receivables, net	1,340.7			1,207.2			1,288.6			1,260.2
Inventories	408.3			396.1			400.6			388.3
Prepaid expenses	97.2			129.6			98.3			77.4
Other receivables and current assets	372.2			373.3			526.1			477.7
Total Current Assets	4,915.2			5,082.2			4,719.7			4,618.3
Investment in net assets of and advances to equity affiliates	1,290.4			1,277.2			1,339.9			1,276.2
Plant and equipment, at cost	22,425.6			21,490.2			23,099.8			22,333.7
Less: accumulated depreciation	11,998.0			11,566.5			12,407.6			11,996.1
Plant and equipment, net	10,427.6			9,923.7			10,692.2			10,337.6
Goodwill, net	820.4			788.9			816.1			797.1
Intangible assets, net	441.1			438.5			415.9			419.5
Noncurrent capital lease receivables	938.4			1,013.3
Noncurrent lease receivables							883.2			890.0
Other noncurrent assets	698.8			654.5			784.6			604.1
Total Noncurrent Assets	14,616.7			14,096.1			14,931.9			14,324.5
Total Assets		$19,531.9			$19,178.3			$19,651.6			$18,942.8
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities		$1,543.2			$1,817.8			$1,630.0			$1,635.7
Accrued income taxes	65.6			59.6			113.4			86.6
Short-term borrowings	79.9			54.3			36.5			58.2
Current portion of long-term debt	466.5			406.6			39.1			40.4
Total Current Liabilities	2,155.2			2,338.3			1,819.0			1,820.9
Long-term debt	2,951.7			2,967.4			2,937.0			2,907.3
Long-term debt – related party	321.6			384.3			328.6			320.1
Other noncurrent liabilities	1,553.6			1,536.9			1,826.7			1,712.4
Deferred income taxes	823.2			775.1			810.5			793.8
Total Noncurrent Liabilities	5,650.1			5,663.7			5,902.8			5,733.6
Total Liabilities	7,805.3			8,002.0			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 2019 and 2018 - 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	1,059.9			1,029.3			1,061.7			1,070.9
Retained earnings	13,891.9			13,409.9			14,356.9			14,138.4
Accumulated other comprehensive loss	(1,781.4		)	(1,741.9		)	(2,088.6		)	(2,375.6		)
Treasury stock, at cost (2019 - 29,100,445 shares; 2018 - 29,940,339 shares)	(2,033.7		)	(2,089.2		)
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	11,386.1			10,857.5			11,556.0			11,053.6
Noncontrolling Interests	340.5			318.8			373.8			334.7
Total Equity	11,726.6			11,176.3			11,929.8			11,388.3
Total Liabilities and Equity		$19,531.9			$19,178.3			$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)


	Nine Months Ended						Three Months Ended
	30 June						31 December
(Millions of dollars)	2019			2018			2019			2018
Operating Activities
Net income		$1,290.7			$1,073.2			$488.9			$357.0
Less: Net income attributable to noncontrolling interests of continuing operations	33.9			28.3
Less: Net income attributable to noncontrolling interests							13.3			9.5
Net income attributable to Air Products	1,256.8			1,044.9			475.6			347.5
Income from discontinued operations	—			(42.2		)
Income from continuing operations attributable to Air Products	1,256.8			1,002.7
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	789.2			713.5			289.2			258.0
Deferred income taxes	37.8			(86.9		)	24.4			(1.0		)
Tax reform repatriation	49.4			310.3			—			46.2
Facility closure	29.0			—			—			29.0
Undistributed earnings of unconsolidated affiliates	(56.9		)	(34.8		)
Undistributed (earnings) losses of unconsolidated affiliates							(26.2		)	1.0
Gain on sale of assets and investments	(17.5		)	(5.2		)	(1.1		)	(0.7		)
Share-based compensation	31.0			30.4			13.9			9.3
Noncurrent capital lease receivables	71.7			73.7
Noncurrent lease receivables							23.5			24.8
Other adjustments	(.7		)	(23.2		)	30.8			12.7
Working capital changes that provided (used) cash, excluding effects of acquisitions:
Trade receivables	(139.5		)	(50.5		)	0.9			(73.6		)
Inventories	(13.5		)	16.0			(8.4		)	(10.4		)
Other receivables	70.6			85.5			1.4			10.3
Payables and accrued liabilities	(94.8		)	(164.9		)	(115.4		)	(55.4		)
Other working capital	(9.2		)	(10.4		)	(41.6		)	57.5
Cash Provided by Operating Activities	2,003.4			1,856.2			667.0			655.2
Investing Activities
Additions to plant and equipment	(1,507.6		)	(1,158.1		)	(447.7		)	(403.4		)
Acquisitions, less cash acquired	(107.0		)	(320.2		)
Investment in and advances to unconsolidated affiliates	(15.7		)	—			(7.1		)	—
Proceeds from sale of assets and investments	8.8			45.8			15.2			1.1
Purchases of investments	(5.3		)	(349.8		)	—			(5.3		)
Proceeds from investments	190.5			745.2			177.0			178.0
Other investing activities	.8			5.3			1.9			3.1
Cash Used for Investing Activities	(1,435.5		)	(1,031.8		)	(260.7		)	(226.5		)
Financing Activities
Long-term debt proceeds	—			.5
Payments on long-term debt	(5.4		)	(418.2		)	(2.8		)	(2.6		)
Net increase (decrease) in commercial paper and short-term borrowings	37.7			(46.1		)
Net decrease in commercial paper and short-term borrowings							(10.4		)	(38.0		)
Dividends paid to shareholders	(738.4		)	(656.6		)	(255.7		)	(241.5		)
Proceeds from stock option exercises	63.3			58.2			5.5			4.7
Other financing activities	(18.0		)	(35.6		)	(6.9		)	(12.4		)
Cash Used for Financing Activities	(660.8		)	(1,097.8		)	(270.3		)	(289.8		)
Discontinued Operations
Cash used for operating activities	—			(12.8		)
Cash provided by investing activities	—			18.6
Cash provided by financing activities	—			—
Cash Provided by Discontinued Operations	—			5.8
Effect of Exchange Rate Changes on Cash	(1.6		)	(19.5		)	21.4			(6.9		)
Decrease in cash and cash items	(94.5		)	(287.1		)
Increase in cash and cash items							157.4			132.0
Cash and Cash items – Beginning of Year	2,791.3			3,273.6			2,248.7			2,791.3
Cash and Cash Items – End of Period		$2,696.8			$2,986.5			$2,406.1			$2,923.3

The accompanying notes are an integral part of these statements.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Nine Months Ended																							Three Months Ended
	30 June 2019																							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			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
Balance at 30 September 2019																									$249.4		$1,070.9			$14,138.4			($2,375.6	)		($2,029.5	)		$11,053.6			$334.7			$11,388.3
Net income	—		—			1,256.8			—			—			1,256.8			33.9			1,290.7			—		—			475.6			—			—			475.6			13.3			488.9
Other comprehensive income (loss)	—		—			—			(39.5		)	—			(39.5		)	(1.4		)	(40.9		)	—		—			—			287.0			—			287.0			15.2			302.2
Dividends on common stock (per share $3.42)	—		—			(752.6		)	—			—			(752.6		)	—			(752.6		)
Dividends on common stock (per share $1.16)																								—		—			(256.0		)	—			—			(256.0		)	—			(256.0		)
Dividends to noncontrolling interests	—		—			—			—			—			—			(10.0		)	(10.0		)	—		—			—			—			—			—			(1.3		)	(1.3		)
Share-based compensation	—		30.5			—			—			—			30.5			—			30.5			—		13.9			—			—			—			13.9			—			13.9
Issuance of treasury shares for stock option and award plans	—		1.5			—			—			55.5			57.0			—			57.0			—		(18.5		)	—			—			6.1			(12.4		)	—			(12.4		)
Cumulative change in accounting principle	—		—			(17.1		)	—			—			(17.1		)	—			(17.1		)
Investments by noncontrolling interests																								—		—			—			—			—			—			11.9			11.9
Other equity transactions	—		(1.4		)	(5.1		)	—			—			(6.5		)	(.8		)	(7.3		)	—		(4.6		)	(1.1		)	—			—			(5.7		)	—			(5.7		)
Balance at 30 June 2019		$249.4		$1,059.9			$13,891.9			($1,781.4	)		($2,033.7	)		$11,386.1			$340.5			$11,726.6
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

Nine Months Ended
30 June 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 2017
$249.4

$1,001.1

$12,846.6

($1,847.4 )
($2,163.5 )
$10,086.2

$99.3

$10,185.5
Net income attributable to Air Products —
—
1,044.9
—
—
1,044.9
28.3
1,073.2
Other comprehensive income (loss) —
—
—
(30.4 ) —
(30.4 ) (10.4 ) (40.8 )
Dividends on common stock (per share $3.15) —
—
(690.3 ) —
—
(690.3 ) —
(690.3 )
Dividends to noncontrolling interests —
—
—
��
—
—
(26.0 ) (26.0 )
Share-based compensation —
29.7
—
—
—
29.7
—
29.7
Issuance of treasury shares for stock option and award plans —
(12.3 ) —
—
57.8
45.5
—
45.5
Lu'An joint venture —
—
—
—
—
—
227.4
227.4
Other equity transactions —
1.3
(.9 ) —
—
.4
5.4
5.8
Balance at 30 June 2018
$249.4

$1,019.8

$13,200.3

($1,877.8 )
($2,105.7 )
$10,486.0

$324.0

$10,810.0

~~AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries~~

~~CONSOLIDATED STATEMENTS OF EQUITY (cont.)~~

~~(Unaudited)~~

Three Months Ended
30 June 2019
(Millions of dollars, except for per share data) Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Air
Products Shareholders' Equity

Non-
controlling
Interests

Total
Equity

Balance at 31 March 2019
$249.4

$1,047.7

$13,662.0

($1,744.8 )
($2,048.6 )
$11,165.7

$337.7

$11,503.4
Net income —
—
488.0
—
—
488.0
12.2
500.2
Other comprehensive income (loss) —
—
—
(36.6 ) —
(36.6 ) (5.6 ) (42.2 )
Dividends on common stock (per share $1.16) —
—
(255.1 ) —
—
(255.1 ) —
(255.1 )
Dividends to noncontrolling interests —
—
—
—
—
—
(3.0 ) (3.0 )
Share-based compensation —
9.8
—
—
—
9.8
—
9.8
Issuance of treasury shares for stock option and award plans —
2.4
—
—
14.9
17.3
—
17.3
Other equity transactions —
—
(3.0 ) —
—
(3.0 ) (.8 ) (3.8 )
Balance at 30 June 2019
$249.4

$1,059.9

$13,891.9

($1,781.4 )
($2,033.7 )
$11,386.1

$340.5

$11,726.6

Three Months Ended
30 June 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 31 March 2018
$249.4

$1,011.2

$12,966.6

($1,535.3 )
($2,111.1 )
$10,580.8

$112.4

$10,693.2
Net income —
—
473.9
—
—
473.9
14.0
487.9
Other comprehensive income (loss) —
—
—
(342.5 ) —
(342.5 ) (14.5 ) (357.0 )
Dividends on common stock (per share $1.10) —
—
(241.2 ) —
—
(241.2 ) —
(241.2 )
Dividends to noncontrolling interests —
—
—
—
—
—
(15.4 ) (15.4 )
Share-based compensation —
7.9
—
—
—
7.9
—
7.9
Issuance of treasury shares for stock option and award plans —
—
—
—
5.4
5.4
—
5.4
Lu'An joint venture —
—
—
—
—
—
227.4
227.4
Other equity transactions —
.7
1.0
—
—
1.7
.1
1.8
Balance at 30 June 2018
$249.4

$1,019.8

$13,200.3

($1,877.8 )
($2,105.7 )
$10,486.0

$324.0

$10,810.0

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



	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	10	.	Basis of Presentation and Major Accounting Policies	9
2	.	New Accounting Guidance	11	.	New Accounting Guidance	10
3	.	Revenue Recognition	13	.	Revenue Recognition	12
4	.	Discontinued Operations	16	.	Cost Reduction Actions	13
5	.	Cost Reduction Actions	17	.	Inventories	14
6	.	Acquisitions	17	.	Goodwill	14
7	.	Inventories	18	.	Leases	14
8	.	Goodwill	19	.	Financial Instruments	17
9	.	Financial Instruments	19	.	Fair Value Measurements	22
10	.	Fair Value Measurements	23	.	Retirement Benefits	24
11	.	Retirement Benefits	25	.	Commitments and Contingencies	24
12	.	Commitments and Contingencies	26	.	Share-Based Compensation	26
13	.	Share-Based Compensation	28	.	Accumulated Other Comprehensive Loss	27
14	.	Accumulated Other Comprehensive Loss	29	.	Earnings per Share	28
15	.	Earnings per Share	30	.	Income Taxes	28
16	.	Income Taxes	30	.	Supplemental Information	29
17	.	Supplemental Information	31	.	Business Segment Information	29
18	.	Business Segment Information	32

1. BASIS OF PRESENTATION AND MAJOR ACCOUNTING POLICIES

The interim 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 notes to the interim consolidated financial statements, unless otherwise indicated, are on a continuing operations basis.~~

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 ~~2018~~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 ~~2018~~2019 Form 10-K for a description of major accounting policies. In fiscal year ~~2019,~~2020, these policies were impacted by the implementation of certain new accounting guidance, including the adoption of Accounting Standards Codification ~~(ASC)~~("ASC") Topic ~~606, Revenue from Contracts with Customers,~~842, Leases, and all related amendments ~~(“the new revenue~~(the "new lease standard”). We adopted the new ~~revenue~~lease standard as of 1 October ~~2018~~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 ~~revenue recognition~~lease policy ~~which reflects the principles under the new revenue standard,~~ 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 ~~have been~~were no notable changes to our accounting policies during the first ~~nine~~three months of fiscal year ~~2019.~~2020.

~~Certain~~

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 ~~reclassified to conform to the fiscal year 2019 presentation.~~

~~Revenue Recognition~~

~~The Company recognizes revenue when or as performance obligations are satisfied, which occurs when control is transferred to the customer.~~

We determine the transaction price of our contracts based on the amount of consideration to which we expect to be entitled to receive in exchange for the goods or services provided. Our contracts within the scope of revenue guidance do not contain payment terms that include a significant financing component.

~~Sales returns and allowances are not a business practice in the industry.~~

Our sale of gas contracts are either accounted for over time during the period in which we deliver or make available the agreed upon quantity of goods or at a point in time when the customer receives and obtains control of the product, which generally occurs upon delivery. We generally recognize revenue from our sale of gas contracts based on the right to invoice practical expedient.

Our sale of equipment contracts are generally comprised of a single performance obligation as the individual promised goods or services contained within the contracts are integrated with or dependent upon other goods or services in the contract for a single output to the customer. Revenue from our sale of equipment contracts is generally recognized over time as we have an enforceable right to payment for performance completed to date and our performance under the contract terms does not create an asset with alternative use. We recognize these contracts using a cost incurred input method by which costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations.

Amounts billed for shipping and handling fees are classified as sales in the consolidated income statements. Shipping and handling activities for our sale of equipment contracts may be performed after the customer obtains control of the promised goods. In these cases, we have elected to apply the practical expedient to account for shipping and handling as activities to fulfill the promise to transfer the goods. For our sale of gas contracts, control generally transfers to the customer upon delivery.

Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the consolidated income statements.

~~For additional information, refer to Note 3, Revenue Recognition.~~restated.

2. NEW ACCOUNTING GUIDANCE

Accounting Guidance Implemented in Fiscal Year ~~2019~~

~~Revenue Recognition~~

In May 2014, the Financial Accounting Standards Board (FASB) issued the new revenue standard, which is 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 adopted this guidance under the modified retrospective approach as of 1 October 2018. Upon adoption, we no longer present "Contracts in progress, less progress billings" on our consolidated balance sheets and have expanded disclosure requirements. Otherwise, adoption of this guidance did not impact our consolidated financial statements, and no adjustment was necessary to opening retained earnings. Accordingly, sales presented during the first nine months of fiscal year 2019 would not change if presented under accounting standards in effect prior to 1 October 2018.

For additional information, including the balance sheet impacts of no longer presenting "Contracts in progress, less progress billings" and expanded disclosures under the new revenue standard, refer to Note 3, Revenue Recognition.

~~Cash Flow Statement Classification~~

In August 2016, the FASB issued guidance to reduce diversity in practice related to the classification of certain cash receipts and cash payments in the statement of cash flows. We adopted this guidance retrospectively in the first quarter of fiscal year 2019 and elected to use the cumulative earnings approach to determine the classification of distributions received from equity affiliates. As a result, we reclassified $7.1 of net activity from operating activities to investing activities for the nine months ended 30 June 2018.

~~Intra-Entity Asset Transfers~~

In October 2016, the FASB issued guidance on accounting for the income tax effects of intra-entity transfers of assets other than inventory. Previous guidance prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had 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. We adopted this guidance in the first quarter of fiscal year 2019 on a modified retrospective basis through a cumulative-effect adjustment of $17.1 that decreased retained earnings as of 1 October 2018.

~~New Accounting Guidance to be Implemented~~2020

Leases

In February 2016, the FASB issued lease guidance (the "new lease guidance") that requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and qualitative disclosure requirements.

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. ~~The new guidance will require the Company to record all leases, including operating leases, on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations.~~

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

We ~~expect to elect~~elected the following practical expedients provided by this guidance:

The package of practical expedients, ~~permitted under the transition guidance,~~ which ~~among other things,~~ allows us to carry forward the ~~historical~~ lease ~~classification. We intend to also elect~~population and classification existing as of the adoption date, among other things;

The land easements practical expedient, ~~related to land easements, allowing~~which allows us to carry forward our ~~current~~ accounting treatment for land easements on agreements existing ~~agreements. In addition, we expect to elect~~before the adoption date;

The hindsight practical expedient, which is used to determine the reasonably certain lease term for existing leases as of the ~~date~~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 ~~adoption~~.12 months or less.

~~We are evaluating~~Adoption of the ~~impact the guidance will have~~standard resulted in recognition of lease liabilities and right-of-use assets on our consolidated ~~financial statements.~~ 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 ~~addition, we are implementing a new software application~~August 2017, the FASB issued guidance on hedging activities to ~~administer~~expand the ~~accounting~~related presentation and disclosure requirements, ~~under~~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.~~guidance on 1 October 2019 on a modified retrospective basis. The primary impact of adoption was the presentation in the consolidated income statement of foreign currency forward points and currency swap basis differences ("excluded components"), since these are excluded from the assessment of hedge effectiveness for our hedges of intercompany loans. Historically, the impacts from changes in value of these components were recorded in "Interest expense." 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 the 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.

~~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. The guidance is effective in fiscal year 2020, with early adoption permitted. For cash flow 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 is applied prospectively. We are evaluating the impact this guidance will have on our consolidated financial statements and expect to adopt this guidance at the beginning of fiscal year 2020.

~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~

In February 2018, the FASB issued guidance allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. The guidance is effective in fiscal year 2020, with early adoption permitted, including adoption in an interim period. If elected, the reclassification can be applied in either the period of adoption or retrospectively to the period of the enactment of the U.S. Tax Cuts and Jobs Act (i.e., our first quarter of fiscal year 2018). We are evaluating the adoption alternatives and the impact this guidance will have on our consolidated financial statements.

Fair Value Measurement Disclosures

In August 2018, the FASB issued guidance ~~that~~which modifies the disclosure requirements for fair value measurements. The guidance is effective in fiscal year 2021, with early adoption permitted. Certain amendments must be applied prospectively ~~while~~and other amendments ~~must be applied~~ retrospectively. We are currently evaluating the impact this guidance will have on the disclosures in the notes to our consolidated financial statements.

Retirement Benefit Disclosures

In August 2018, the FASB issued guidance ~~that~~which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement ~~benefit~~ plans. The guidance is effective in fiscal year 2021, with early adoption permitted, and must be applied on a retrospective basis. We are currently evaluating the impact this guidance will have on the disclosures in the notes to our consolidated financial statements.

Cloud Computing Implementation Costs

In August 2018, the FASB issued guidance ~~that~~which aligns the capitalization requirements for implementation costs incurred in a hosting arrangement that is a service contract with the existing capitalization requirements for implementation costs incurred to develop or obtain internal-use software. The guidance is effective in fiscal year 2021, with early adoption permitted, and may be applied 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 ~~that~~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 ~~required under current accounting standards.~~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. REVENUE RECOGNITION

~~Nature~~The majority of ~~Goods and Services~~

~~The principal activities~~the Company's revenue is generated from ~~which the Company generates~~ its sales from its contracts with customers, separated between our regional industrial gases businesses and industrial gases equipment businesses, are described below with their respective revenue recognition policies. For an overall summary of these policies and discussion on payment terms and presentation, refer to Note 1, Basis of Presentation and Major Accounting Policies.

~~Industrial Gases – Regional~~

Our regional industrial gases businesses produce and sell atmospheric gases such as oxygen, nitrogen, and argon (primarily recovered by the cryogenic distillation of air) and process gases such as hydrogen, helium, carbon dioxide, carbon monoxide, syngas, and specialty gases. We distribute gases to our sale of gas customers within its Industrial Gases regional segments. We distribute gases through ~~different~~either our on-site or merchant supply ~~modes~~mode depending on various factors, including the customer's volume requirements and location. ~~Our supply modes are as follows:~~

On-Site Gases—Supply mode associated with customers who require large volumes of gases and have relatively constant demand. Gases are produced and supplied by large facilities we construct on or near the customers’ facilities or by pipeline systems from centrally located production facilities. These sale of gas contracts generally have 15- to 20- year terms. The Company also delivers smaller quantities of product through small on-site plants (cryogenic or non-cryogenic generators), typically via a 10- to 15- year sale of gas contract. The contracts within this supply mode generally contain fixed monthly charges and/or minimum purchase requirements with price escalation provisions that are generally based on external indices. Revenue associated with this supply mode is generally recognized over time during the period in which we deliver or make available the agreed upon quantity of goods.

Merchant Gases—Supply mode associated with liquid bulk and packaged gases customers. Liquid bulk customers receive delivery of product in liquid or gaseous form by tanker or tube trailer. The product is stored, usually in its liquid state, in equipment typically designed and installed by the Company at the customer’s site for vaporizing into a gaseous state as needed. Packaged gases customers receive small quantities of product delivered in either cylinders or dewars. Both liquid bulk and packaged gases sales do not contain minimum purchase requirements as they are governed by contracts and/or purchase orders based on the customer's requirements. These contracts contain stated terms that are generally 5 years or less. Performance obligations associated with this supply mode are satisfied at a point in time when the customer receives and obtains control of the product, which generally occurs upon delivery.

The timing of revenue recognition for our regional industrial gases businesses is generally consistent with our right to invoice the customer. Variable components of consideration that may not be resolved within the month, such as the ability to earn an annual bonus or incur a penalty, are more relevant to on-site contracts and are considered constrained as they can be impacted by a single significant event such as a plant outage, which could occur at the end of a contract period. We consider contract modifications on an individual basis to determine appropriate accounting treatment. However, contract modifications are generally accounted for prospectively as they relate to distinct goods or services associated with future periods of performance.

~~We mitigate energy and natural gas price risk contractually through pricing formulas, surcharges, and cost pass-through arrangements.~~

~~Industrial Gases – Equipment~~

~~The Company designs and manufactures equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction (LNG), and liquid helium and liquid hydrogen transport and storage.~~ The Industrial Gases – Global and the Corporate and other segments serve our sale of equipment customers.

Revenue from our sale of equipment contracts is generally recognized over time as we have an enforceable right to payment for performance completed to date and our performance under the contract terms does not create an asset with alternative use. Otherwise, sale of equipment contracts are satisfied at the point in time the customer obtains control of the equipment, which is generally determined based on the shipping terms of the contract. For contracts recognized over time, we primarily recognize revenue using a cost incurred input method by which costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer.

Since our contracts are generally comprised of a single performance obligation, contract modifications are typically accounted for as part of the existing contract and are recognized as a cumulative adjustment for the inception-to-date effect of such change.

Disaggregation of Revenue

The ~~table~~tables below ~~presents~~present our consolidated sales disaggregated by ~~each of the~~ supply ~~modes described above~~mode for each of our reporting ~~segments.~~segments for the three months ended 31 December 2019 and 2018. We believe this presentation best depicts the nature, timing, type of customer, and contract terms for our sales.

Industrial
Gases–
Americas Industrial
Gases–
EMEA Industrial
Gases–
Asia Industrial
Gases–
Global Corporate
and other Total %
Three Months Ended 30 June 2019
On-site
$537.1

$165.0

$402.9

$—

$—

$1,105.0
50 %
Merchant 418.2
329.6
276.5
—
—
1,024.3
46 %
Sale of Equipment —
—
—
57.9
36.8
94.7
4 %
Total
$955.3

$494.6

$679.4

$57.9

$36.8

$2,224.0
100 %


															Industrial Gases– Americas		Industrial Gases– EMEA		Industrial Gases– Asia		Industrial Gases– Global		Corporate and other		Total		%
	Industrial Gases– Americas		Industrial Gases– EMEA		Industrial Gases– Asia		Industrial Gases– Global		Corporate and other		Total		%
Nine Months Ended 30 June 2019
Three Months Ended 31 December 2019															Three Months Ended 31 December 2019
On-site		$1,714.0		$565.8		$1,169.9		$—		$—		$3,449.7	52	%		$534.5		$171.4		$418.3		$—		$—		$1,124.2	50	%
Merchant	1,222.2		947.4		761.7		—		—		2,931.3		44	%	401.7		327.3		274.5		—		—		1,003.5		44	%
Sale of Equipment	—		—		—		179.9		74.8		254.7		4	%	—		—		—		92.6		34.4		127.0		6	%
Total		$2,936.2		$1,513.2		$1,931.6		$179.9		$74.8		$6,635.7	100	%		$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	%

Approximately 5% and 4% of total consolidated sales for the three and nine months ended 30 June 2019, respectively, was associated with lease revenue relating to our on-site supply mode and therefore not within the scope of the new revenue standard.

Remaining Performance Obligations

As of ~~30 June~~31 December 2019, the transaction price allocated to remaining performance obligations is estimated to be approximately ~~$14~~$19 billion. This amount includes fixed-charge contract provisions associated with our on-site and sale of equipment supply modes. We estimate that approximately half of this revenue will be recognized over approximately the next five years and the balance thereafter.

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

In the future, actual amounts will differ due to events outside of our control, including but not limited to inflationary price escalations, currency exchange rates, and terminated or renewed contracts.

Contract Balances

Upon adoption of the new revenue standard, we no longer present "Contracts in progress, less progress billings" on our consolidated balance sheets. The balance as of 30 September 2018 has been reclassified to "~~Other receivables and current assets" within this quarterly report.~~

~~Our sale of equipment contracts generally contain a single performance obligation which, as discussed below, results in presentation of either a contract asset or contract liability.~~

~~The table below summarizes the balance sheet impacts of no longer presenting "Contracts in progress, less progress billings" upon adoption of the new revenue standard on 1 October 2018:~~

30 September 2018
New Revenue Standard Adjustments
1 October 2018
Assets
Current Assets
Cash and cash items
$2,791.3

$—

$2,791.3
Short-term investments 184.7
—
184.7
Trade receivables, net 1,207.2
—
1,207.2
Inventories 396.1
—
396.1
Contracts in progress, less progress billings 77.5
(77.5 ) —
Prepaid expenses 129.6
—
129.6
Other receivables and current assets 295.8
103.7
399.5
Total Current Assets 5,082.2
26.2
5,108.4
Total Noncurrent Assets 14,096.1
—
14,096.1
Total Assets
$19,178.3

$26.2

$19,204.5
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities
$1,817.8

$26.2

$1,844.0
Accrued income taxes 59.6
—
59.6
Short-term borrowings 54.3
—
54.3
Current portion of long-term debt 406.6
—
406.6
Total Current Liabilities 2,338.3
26.2
2,364.5
Total Noncurrent Liabilities 5,663.7
—
5,663.7
Total Liabilities 8,002.0
26.2
8,028.2
Total Equity 11,176.3
—
11,176.3
Total Liabilities and Equity
$19,178.3

$26.2

$19,204.5

The table below details balances arising from contracts with ~~customers as of our most recent balance sheet date and our date of adoption:~~customers:


	30 June 2019		1 October 2018		Balance Sheet Location	31 December 2019		30 September 2019
Assets
Contract assets – current		$43.0		$53.0	Other receivables and current assets		$94.4		$64.3
Contract fulfillment costs – current	66.4		50.7		Other receivables and current assets	86.1		64.5
Liabilities
Contract liabilities – current	181.1		174.5		Payables and accrued liabilities	284.9		247.4
Contract liabilities – noncurrent	52.8		53.5		Other noncurrent liabilities	53.3		49.2

~~Contract assets and liabilities result from differences in timing of revenue recognition and customer invoicing. These~~Changes to our contract balances ~~are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.~~

~~Contract assets~~ primarily relate to our sale of equipment contracts for which revenue is recognized over time. These balances represent unbilled revenue, which occurs when revenue recognized under the measure of progress exceeds the amount invoiced to our customers. Our ability to invoice the customer for contract asset balances is not only based on the passage of time, but also the achievement of certain contractual milestones. Our contract assets are included within "Other receivables and current assets" on the consolidated balance sheets.

Contract fulfillment costs primarily include deferred costs related to sale of equipment projects that cannot be inventoried and for which we expect to recognize revenue upon transfer of control at project completion or costs related to fulfilling a specific anticipated contract. Contract fulfillment costs are generally classified as current and are included within "Other receivables and current assets" on the consolidated balance sheets.

Costs to obtain a contract, or contract acquisition costs, are capitalized only after we have established a contract with the customer. We elected to apply the practical expedient to expense these costs as they are incurred if the amortization period of the asset that would have otherwise been recognized is one year or less. Our contract acquisition costs capitalized as of 30 June 2019 were not material.

Contract liabilities include advance payments or right to consideration prior to performance under the contract. Contract liabilities are recognized as revenue when or as we perform under the contract. Changes in our contract liability balances primarily relate to sale of equipment projects.contracts. During the ~~nine~~three months ended ~~30 June~~31 December 2019, we recognized approximately ~~$100~~$60 in revenue associated with sale of equipment contracts that was included within our contract liabilities as of 30 September 2018. The current and noncurrent portions of our contract liabilities are included within "Payables and accrued liabilities" and "Other noncurrent liabilities" on our consolidated balance sheets, respectively. Advanced payments from our customers do not represent a significant financing component as these payments are intended for purposes other than financing, such as to meet working capital demands or to protect us from our customer failing to meet its obligations under the terms of the contract.

~~Changes in contract asset and liability balances during the nine months ended 30 June 2019 were not materially impacted by any other factors.~~2019.

4. ~~DISCONTINUED OPERATIONS~~

For the three and nine months ended 30 June 2018, income from discontinued operations, net of tax, on the consolidated income statements was $43.2 and $42.2, respectively. During the third quarter of fiscal year 2018, we recorded an income tax benefit of $25.6 resulting from the resolution of uncertain tax positions taken in conjunction with the disposition of our former European Homecare business in fiscal year 2012. In addition, we recorded an after-tax benefit of $17.6 resulting from the resolution of certain post-closing adjustments associated with the sale of our former Performance Materials Division. The nine months ended 30 June 2018 also includes an after-tax loss of $1.0 related to Energy-from-Waste project exit activities and administrative costs incurred during the first quarter of fiscal year 2018.

5. COST REDUCTION ACTIONS

~~During the third quarter of~~In fiscal year 2019, we recognized an expense of $25.5 for severance and other benefits associated with the elimination or planned elimination of approximately 300 positions. These actions ~~are expected~~were taken to drive cost synergies primarily within the Industrial Gases – EMEA and the Industrial Gases – Americas segments. The ~~expense has been reflected as “Cost reduction actions” on the consolidated income statements and~~charge was ~~excluded from~~not recorded in segment ~~operating income for the three and nine months ended 30 June 2019.~~results.

~~The following table summarizes the carrying amount of the accrual as of 30 June 2019. This amount is~~Liabilities associated with these actions are reflected on our consolidated balance sheets within "Payables and accrued liabilities." The table below summarizes the carrying amount of the accrual as of 31 December 2019:




2019 Charge		$25.5
Cash expenditures	(~~4.7~~6.9		)
Amount reflected in pension liability	(.30.3		)
Currency translation adjustment	.1(0.5		)
30 September 2019		$17.8
~~30 June~~Cash expenditures	(5.0		)
Currency translation adjustment	0.3
31 December 2019		$~~20.6~~13.1

~~6. ACQUISITIONS~~

~~Fiscal Year 2019 Business Combinations~~

~~Exchange of Equity Affiliate Investments~~

As of 30 September 2018, we held 50% ownership interests in High-Tech Gases (Beijing) Co., Ltd. ("High-Tech Gases") and WuXi Hi-Tech Gas Co., Ltd. ("WuXi"), both of which were joint ventures with another industrial gas company in China. We accounted for these arrangements as equity method investments in our Industrial Gases – Asia segment through 30 April 2019.

On 1 May 2019, we acquired our partner's 50% interest in WuXi in exchange for our 50% interest in High-Tech Gases. The purpose of the exchange was to simplify the current structure of the two entities and to allow each party to serve its customers more efficiently in their respective geographies. Subsequent to the acquisition date, we own 100% of WuXi and no longer have an equity interest in High-Tech Gases.

The exchange resulted in a net gain of $29.1, of which $15.0 resulted from the revaluation of our previously held equity interest in WuXi to its acquisition date fair value and $14.1 resulted from the disposition of our interest in High-Tech Gases. The net gain has been reflected as "Gain on exchange of equity affiliate investments" on our consolidated income statements and was excluded from segment operating income for the three and nine months ended 30 June 2019. There were no tax impacts on the exchange.

We revalued our previously held 50% equity interest in WuXi based on an estimated acquisition date fair value of $27.0. We calculated this fair value using a discounted cash flow analysis under the income approach, which required estimates and assumptions regarding projected revenue growth, customer attrition rates, profit margin, and discount rate.

The acquisition of the remaining interest in WuXi was accounted for as a business combination. The results of this business have been consolidated within our Industrial Gases – Asia segment as of the acquisition date. Upon acquisition, we recognized plant and equipment of $28.0, intangible assets of $27.6, and goodwill of $4.2. The intangible assets were primarily customer relationships, having a weighted-average useful life of approximately 10 years. The goodwill recognized on the transaction, none of which is deductible for tax purposes, was recorded in the Industrial Gases – Asia segment and is attributable to expected growth synergies. The acquisition did not materially impact our consolidated income statements for the periods presented.

~~ACP Europe SA Acquisition~~

On 1 March 2019, we completed the acquisition of ACP Europe SA ("ACP"), the largest independent carbon dioxide business in Continental Europe, for an aggregate purchase price, net of cash acquired, of $106.3. We expect this acquisition to enable us to better serve existing merchant customers and pursue new industrial gas growth opportunities across additional European geographies. The results of this business are consolidated within our Industrial Gases – EMEA segment and did not materially impact our consolidated income statements for the periods presented.

The acquisition of ACP was accounted for as a business combination and resulted in the recognition of plant and equipment of $74.6 and goodwill of $38.0, partially offset by net liabilities acquired. The goodwill recognized on the transaction, none of which is deductible for tax purposes, was recorded in the Industrial Gases – EMEA segment and is attributable to expected growth and cost synergies.

The acquired assets and liabilities resulting from our 2019 business combinations were recorded at their estimated fair values, which were calculated based on a preliminary purchase price allocation prepared by management. We may record adjustments to these assets and liabilities during the preliminary purchase price allocation period, which could be up to one year from the acquisition date.

~~Fiscal Year 2018 Asset Acquisition~~

On 26 April 2018 ("the acquisition date"), we completed the formation of Air Products Lu An (Changzhi) Co., Ltd. ("the JV"), a 60%-owned joint venture with Lu'An Clean Energy Company ("Lu'An"). The JV receives coal, steam, and power from Lu’An and supplies syngas to Lu’An under a long-term onsite contract. The results of the JV are consolidated within the Industrial Gases – Asia segment.

Air Products contributed four large air separation units to the JV with a carrying value of approximately $300, and the JV acquired gasification and syngas clean-up assets from Lu’An for 7.9 billion RMB (approximately $1.2 billion). As a result, the carrying value of the plant and equipment of the JV was approximately $1.5 billion at the acquisition date.

We accounted for the acquisition of the gasification and syngas clean-up assets as an asset acquisition. In connection with closing the acquisition, we paid net cash of approximately 1.5 billion RMB ($235) and issued equity of 1.4 billion RMB ($227) to Lu'An for their noncontrolling interest in the JV.

In addition, Lu'An made a loan of 2.6 billion RMB to the JV with regularly scheduled principal and interest payments at a fixed interest rate of 5.5%, and we established a liability of 2.3 billion RMB for cash payments expected to be made to or on behalf of Lu'An in 2019. Long-term debt payable to Lu'An of $321.6 and $384.3 as of 30 June 2019 and 30 September 2018, respectively, is presented on the consolidated balance sheets as "Long-term debt – related party." As of 30 June 2019, $62.9 of the loan is reflected within "Current portion of long-term debt." The expected remaining cash payments are presented within "Payables and accrued liabilities" and were $80.8 and $330.0 as of 30 June 2019 and 30 September 2018, respectively.

The issuance of equity to Lu'An for their noncontrolling interest, the long-term debt, and the liability for the remaining cash payments were noncash transactions that have been excluded from the consolidated statement of cash flows for the nine months ended 30 June 2018.

~~Fiscal Year 2018 Business Combinations~~

During the first nine months of fiscal year 2018, we completed eight acquisitions that were accounted for as business combinations. These acquisitions had an aggregate purchase price, net of cash acquired, of $355.4. The largest of the acquisitions was completed during the first quarter of fiscal year 2018 and primarily consisted of three air separation units serving onsite and merchant customers in China, which strengthened our position in the region. The results of this business are consolidated within our Industrial Gases – Asia segment.

7.5. INVENTORIES

The components of inventories are as follows:


	30 June		30 September		31 December		30 September
	2019		2018		2019		2019
Finished goods		$135.1		$125.4		$127.0		$128.8
Work in process	29.9		21.2		29.8		27.5
Raw materials, supplies and other	243.3		249.5		243.8		232.0
Inventories		$408.3		$396.1		$400.6		$388.3

8.6. GOODWILL

Changes to the carrying amount of consolidated goodwill by segment for the ~~nine~~three months ended ~~30 June~~31 December 2019 are as follows:

Industrial
Gases–
Americas

Industrial
Gases–
EMEA

Industrial
Gases–
Asia

Industrial
Gases–
Global
Corporate and other Total
Goodwill, net at 30 September 2018
$162.1

$424.4

$171.9

$20.1

$10.4

$788.9
Acquisitions —
38.0
4.2
—
—
42.2
Currency translation and other (1.9 ) (7.5 ) (1.1 ) (.2 ) —
(10.7 )
Goodwill, net at 30 June 2019
$160.2

$454.9

$175.0

$19.9

$10.4

$820.4



	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


	30 June			30 September			31 December			30 September
	2019			2018			2019			2019
Goodwill, gross		$1,212.9			$1,194.7			$1,169.2			$1,162.2
Accumulated impairment losses^(A)	(392.5		)	(405.8		)	(353.1		)	(365.1		)
Goodwill, net		$820.4			$788.9			$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)~~("LASA") within the Industrial Gases – Americas ~~segment and include the impacts of currency translation.~~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.

9.7. 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 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 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 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 built to provide product to a specific customer were accounted for as leases. As noted above, we elected the package of practical expedients permitted under the transition guidance to carry forward these lease determinations as of 30 September 2019.

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 required notice period, the contract will go into evergreen. Given the long-term duration of our contracts, there is no assumed residual value for the assets at the end of the lease term.

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

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 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 first three months of fiscal year 2020 and the impact of currency, 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.

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 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 ~~30 June~~31 December 2019 is ~~2.3~~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.

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

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


	30 June 2019			30 September 2018			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		$2,656.2	0.4		$2,489.1	0.4		$2,659.3	0.5		$2,418.2	0.5
Net investment hedges	553.0		1.0	457.5		1.7	836.2		0.7	830.8		0.9
Not designated	921.7		0.9	1,736.1		0.8	887.6		0.6	1,053.5		0.6
Total Forward Exchange Contracts		$4,130.9	0.6		$4,682.7	0.7		$4,383.1	0.6		$4,302.5	0.6

~~The notional value of forward exchange contracts not designated decreased from the prior year as a result of maturities.~~

We also use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in certain foreign subsidiaries. The designated foreign currency-denominated debt and related accrued interest was ~~€940.4~~€953.2 million ($~~1,069.6)~~1,068.8) at ~~30 June~~31 December 2019 and ~~€908.8~~€951.3 million ($~~1,054.6)~~1,036.9) at 30 September ~~2018.~~2019. The designated foreign currency-denominated debt is presented within "Long-term debt" on the consolidated balance sheets.

Debt Portfolio Management

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

Interest Rate Management Contracts

We enter into interest rate swaps to change the fixed/variable interest rate mix of our debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within the parameters set by management. In accordance with these parameters, the agreements are used to manage interest rate risks and costs inherent in our debt portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which are designated as fair value hedges), pre-issuance interest rate swaps and treasury locks (which hedge the interest rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and floating-to-fixed interest rate swaps (which are designated as cash flow hedges). As of ~~30 June~~31 December 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 Chinese Renminbi, U.S. Dollars and Indian Rupee, and U.S. Dollars and Chilean Pesos.

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


	30 June 2019							30 September 2018							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)		$600.0	LIBOR		2.60	%	0.9		$600.0	LIBOR		2.60	%	1.6		$200.0	LIBOR		2.76	%	1.8		$200.0	LIBOR		2.76	%	2.1
Cross currency interest rate swaps (net investment hedge)		$246.6	4.55	%	3.09	%	2.9		$201.7	4.42	%	2.97	%	3.1		$207.8	4.69	%	3.31	%	3.2		$216.8	4.80	%	3.31	%	3.5
Cross currency interest rate swaps (cash flow hedge)		$1,063.5	4.85	%	2.94	%	2.2		$1,052.7	4.99	%	2.89	%	2.3		$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)		$29.6	4.17	%	3.61	%	4.6		$80.2	4.88	%	3.43	%	3.9		$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	30 June 2019		30 September 2018		Balance Sheet Location	30 June 2019		30 September 2018		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		$28.3		$24.9	Accrued liabilities		$32.3		$37.0	Other receivables and current assets		$66.0		$79.0	Payables and accrued liabilities		$19.6		$53.8
Interest rate management contracts	Other receivables	14.0		24.3		Accrued liabilities	.6		2.3		Other receivables and current assets	26.7		24.8		Payables and accrued liabilities	0.3		1.1
Forward exchange contracts	Other noncurrent assets	27.9		19.8		Other noncurrent liabilities	.8		4.6		Other noncurrent assets	8.7		11.9		Other noncurrent liabilities	0.2		0.7
Interest rate management contracts	Other noncurrent assets	36.1		48.7		Other noncurrent liabilities	7.3		11.6		Other noncurrent assets	41.8		60.9		Other noncurrent liabilities	—		0.7
Total Derivatives Designated as Hedging Instruments			$106.3		$117.7			$41.0		$55.5			$143.2		$176.6			$20.1		$56.3
Derivatives Not Designated as Hedging Instruments:
Forward exchange contracts	Other receivables		$7.9		$7.9	Accrued liabilities		$13.4		$14.9	Other receivables and current assets		$33.0		$38.7	Payables and accrued liabilities		$30.6		$36.3
Interest rate management contracts	Other receivables	—		4.0		Accrued liabilities	—		—
Forward exchange contracts	Other noncurrent assets	22.8		16.2		Other noncurrent liabilities	26.1		23.7		Other noncurrent assets	6.5		8.4		Other noncurrent liabilities	17.6		19.8
Interest rate management contracts	Other noncurrent assets	.7		.3		Other noncurrent liabilities	—		—		Other noncurrent assets	0.4		0.5		Other noncurrent liabilities	—		—
Total Derivatives Not Designated as Hedging Instruments			$31.4		$28.4			$39.5		$38.6			$39.9		$47.6			$48.2		$56.1
Total Derivatives			$137.7		$146.1			$80.5		$94.1			$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 ~~table~~tables below ~~summarizes~~summarize gains (losses) recognized in other comprehensive income during the ~~gain or loss~~period related to our net investment and cash flow ~~hedges, fair value hedges, net investment hedges, and derivatives not designated as~~ hedging ~~instruments:~~relationships:

Three Months Ended 30 June

Forward
Exchange Contracts
Foreign Currency
Debt
Other ^(A)
Total
2019 2018 2019 2018 2019 2018 2019 2018
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion)
$1.7

($34.4 )
$—

$—

$5.8

$61.5

$7.5

$27.1
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion) —
1.9
—
—
—
—
—
1.9
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion) (6.9 ) 33.7
—
—
(9.7 ) (55.6 ) (16.6 ) (21.9 )
Net (gain) loss reclassified from OCI to interest expense (effective portion) 3.1
.8
—
—
.7
2.0
3.8
2.8
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion) (.2 ) —
—
—
(.1 ) (.5 ) (.3 ) (.5 )
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)

$—

$—

$—

$—

$2.0

($2.1 )
$2.0

($2.1 )
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI
($2.1 )
$16.2

($11.3 )
$44.2

$3.4

$36.9

($10.0 )
$97.3
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)

($.8 )
($.3 )
$—

$—

$.7

$2.2

($.1 )
$1.9

Nine Months Ended 30 June

Forward
Exchange Contracts
Foreign Currency
Debt
Other ^(A)
Total
2019 2018 2019 2018 2019 2018 2019 2018
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion)
($14.1 )
$5.0

$—

$—

($24.1 )
$30.4

($38.2 )
$35.4
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion) .4
6.9
—
—
—
—
.4
6.9
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion) 2.6
(13.2 ) —
—
6.5
(23.4 ) 9.1
(36.6 )
Net (gain) loss reclassified from OCI to interest expense (effective portion) 9.4
3.0
—
—
2.0
3.3
11.4
6.3
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion) (.1 ) (.5 ) —
—
(.1 ) (.5 ) (.2 ) (1.0 )
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)

$—

$—

$—

$—

$4.6

($8.9 )
$4.6

($8.9 )
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI
$15.9

($6.5 )
$15.5

$4.7

$1.3

$2.4

$32.7

$.6
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)

($3.1 )
($.2 )
$—

$—

$.2

($1.3 )
($2.9 )
($1.5 )



	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)

~~Includes the impact on other comprehensive income (OCI) and earnings~~Other primarily ~~related to~~includes interest rate and cross currency interest rate ~~swaps.~~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 cash flow and fair value hedging relationships:



	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)

~~The impact~~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 ~~fair value hedges was largely offset by recognized gains~~accrued interest payable and ~~losses resulting from~~accrued interest receivable, respectively. These excluded components are recorded in “Other Non-operating income (expense), net” over the ~~impact~~life of ~~changes in related~~the cross currency interest ~~rates on outstanding debt.~~rate swap.

^(C)

The impact of the non-designated hedges 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 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	)		$—

The amount of unrealized gains and losses related to cash flow hedges as of ~~30 June~~31 December 2019 that are expected to be reclassified to earnings in the next twelve months is not material.

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

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 ~~$25.0~~$29.9 and ~~$33.4~~$30.1 as of ~~30 June~~31 December 2019 and 30 September ~~2018,~~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 ~~$90.9~~$128.2 and ~~$97.6~~$157.1 as of ~~30 June~~31 December 2019 and 30 September ~~2018,~~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, or the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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


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


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


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

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

Short-term Investments

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

Derivatives

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

Refer to Note 9, 8, Financial Instruments, for a description of derivative instruments, including details related 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 consider the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. These standard valuation models utilize observable market data such as interest rate yield curves and currency spot rates; therefore, the fair value of our debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these instruments.

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


	30 June 2019				30 September 2018				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		$86.9		$86.9		$68.8		$68.8		$114.2		$114.2		$138.0		$138.0
Interest rate management contracts	50.8		50.8		77.3		77.3		68.9		68.9		86.2		86.2
Liabilities
Derivatives
Forward exchange contracts		$72.6		$72.6		$80.2		$80.2		$68.0		$68.0		$110.6		$110.6
Interest rate management contracts	7.9		7.9		13.9		13.9		0.3		0.3		1.8		1.8
Long-term debt, including current portion and related party	3,739.8		3,816.9		3,758.3		3,788.2		3,304.7		3,349.9		3,267.8		3,350.9

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

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


	30 June 2019								30 September 2018								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		$86.9		$—		$86.9		$—		$68.8		$—		$68.8		$—		$114.2		$—		$114.2		$—		$138.0		$—		$138.0		$—
Interest rate management contracts	50.8		—		50.8		—		77.3		—		77.3		—		68.9		—		68.9		—		86.2		—		86.2		—
Total Assets at Fair Value		$137.7		$—		$137.7		$—		$146.1		$—		$146.1		$—		$183.1		$—		$183.1		$—		$224.2		$—		$224.2		$—
Liabilities at Fair Value
Derivatives
Forward exchange contracts		$72.6		$—		$72.6		$—		$80.2		$—		$80.2		$—		$68.0		$—		$68.0		$—		$110.6		$—		$110.6		$—
Interest rate management contracts	7.9		—		7.9		—		13.9		—		13.9		—		0.3		—		0.3		—		1.8		—		1.8		—
Total Liabilities at Fair Value		$80.5		$—		$80.5		$—		$94.1		$—		$94.1		$—		$68.3		$—		$68.3		$—		$112.4		$—		$112.4		$—

~~11.~~10. RETIREMENT BENEFITS

The components of net periodic benefit cost for our defined benefit pension plans for the three ~~and nine~~ months ended ~~30 June~~31 December 2019 and 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
2019 2018
Three Months Ended 30 June U.S. International U.S. International
Service cost
$5.4

$4.8

$6.4

$6.5
Interest cost 28.2
9.0
26.8
9.4
Expected return on plan assets (43.2 ) (18.9 ) (50.4 ) (20.6 )
Prior service cost amortization .3
—
.4
—
Actuarial loss amortization 16.3
2.7
21.8
10.2
Settlements .3
—
1.5
—
Special termination benefits —
—
—
—
Other —
.2
—
.3
Net Periodic Benefit Cost
$7.3

($2.2 )
$6.5

$5.8

Pension Benefits
2019 2018
Nine Months Ended 30 June U.S. International U.S. International
Service cost
$16.1

$14.6

$19.2

$19.4
Interest cost 85.0
27.0
80.3
28.2
Expected return on plan assets (129.4 ) (57.0 ) (151.2 ) (61.9 )
Prior service cost amortization .9
.1
1.2
—
Actuarial loss amortization 48.9
8.3
65.7
30.5
Settlements 6.1
.2
4.8
—
Special termination benefits .7
—
.4
—
Other —
.6
—
.9
Net Periodic Benefit Cost
$28.3

($6.2 )
$20.4

$17.1

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

Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after their retirement date. A participant’s vested benefit is considered settled upon cash payment of the lump sum. We recognize pension settlements to accelerate recognition of actuarial gains or losses deferred in accumulated other comprehensive loss when cash payments exceed the sum of the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. Pension settlements are reflected on our consolidated income statements within “Other non-operating income (expense), net.” For the ~~nine~~three months ended ~~30 June 2019, we recognized pension settlement losses of $6.3, of which $5.0 associated with the U.S. Supplementary Pension Plan was recognized during the second quarter.~~

~~For the nine months ended 30 June~~31 December 2019 and 2018, our cash contributions to funded pension plans and benefit payments under unfunded pension plans were ~~$31.0~~$8.3 and ~~$43.0,~~$19.5, respectively. Total contributions for fiscal year ~~2019~~2020 are expected to be approximately ~~$45~~$30 to ~~$65.~~$40. During fiscal year ~~2018,~~2019, total contributions were ~~$68.3.~~

$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 ~~will amortize~~are amortizing this cost over the average remaining life expectancy of the U.K. participants. ~~Given the immaterial effect on the U.K. plan's projected benefit, an interim remeasurement was not performed.~~

~~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 ~~$47~~$45 at ~~30 June~~31 December 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 ~~$47~~$45 at ~~30 June~~31 December 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 3230 sites on which a final settlement has not been reached where we, along with others, have been designated a potentially responsible party by the Environmental Protection Agency or are otherwise engaged in investigation or remediation, including cleanup activity at certain of our current and former manufacturing sites. We continually monitor these sites for which we have environmental exposure.

Accruals for environmental loss contingencies are recorded when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The consolidated balance sheets at ~~30 June~~31 December 2019 and 30 September ~~2018~~2019 included an accrual of ~~$71.1~~$67.1 and ~~$76.8,~~$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 ~~$71~~$67 to a reasonably possible upper exposure of ~~$84~~$80 as of ~~30 June~~31 December 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 ~~30 June~~31 December 2019, ~~$24.7~~$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 before-tax expense of $42 in fiscal 2006 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 ~~30 June~~31 December 2019, ~~$14.9~~$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. The SCDHEC issued its final approval to the site-wide feasibility study on 13 June 2017 and the Record of Decision for the site on 27 June 2018. Field work has started to support the remedial design, and in the fourth quarter of fiscal year 2018, we signed a Consent Agreement Amendment memorializing our obligations to complete the cleanup of the site. We estimate that source area remediation and groundwater recovery and treatment will continue through 2029. Thereafter, we expect this site to go into a state of monitored natural attenuation through 2047.

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

PASADENA

At ~~30 June~~31 December 2019, ~~$11.8~~$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 ~~nine~~three months ended ~~30 June~~31 December 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 ~~30 June~~31 December 2019, there were ~~4,473,615~~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 on the consolidated income statements is summarized below:


	Three Months Ended						Nine Months Ended						Three Months Ended
	30 June						30 June						31 December
	2019			2018			2019			2018			2019			2018
Before-tax share-based compensation cost		$9.8			$7.9			$31.0			$30.4			$15.4			$9.3
Income tax benefit	(2.3		)	(1.9		)	(7.3		)	(7.2		)	(3.7		)	(2.2		)
After-tax share-based compensation cost		$7.5			$6.0			$23.7			$23.2			$11.7			$7.1

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

Deferred Stock Units

During the ~~nine~~three months ended ~~30 June~~31 December 2019, we granted ~~114,929~~80,215 market-based deferred stock units. The market-based deferred stock units are earned at the end of the performance period beginning 1 October ~~2018~~2019 and ending 30 September ~~2021,~~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 ~~$229.61~~$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	~~17.5~~17.8	%
Risk-free interest rate	~~2.8~~1.6	%
Expected dividend yield	~~2.6~~2.4	%

In addition, during the ~~nine~~three months ended ~~30 June~~31 December 2019, we granted ~~166,119~~110,253 time-based deferred stock units at a weighted average grant-date fair value of ~~$167.82.~~$229.09.

~~14.~~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 ~~and nine~~ months ended ~~30 June~~31 December 2019:

Derivatives
qualifying as
hedges

Foreign
currency
translation
adjustments

Pension and
postretirement
benefits

Total
Balance at 31 March 2019
($49.5 )
($1,030.8 )
($664.5 )
($1,744.8 )
Other comprehensive income (loss) before reclassifications 7.5
(48.8 ) —
(41.3 )
Amounts reclassified from AOCL (13.1 ) (2.6 ) 14.8
(.9 )
Net current period other comprehensive income (loss) (5.6 ) (51.4 ) 14.8
(42.2 )
Amount attributable to noncontrolling interests .1
(5.7 ) —
(5.6 )
Balance at 30 June 2019
($55.2 )
($1,076.5 )
($649.7 )
($1,781.4 )



	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	)

Derivatives
qualifying
as hedges

Foreign
currency
translation
adjustments

Pension and
postretirement
benefits

Total
Balance at 30 September 2018
($37.6 )
($1,009.8 )
($694.5 )
($1,741.9 )
Other comprehensive loss before reclassifications (38.2 ) (65.6 ) (3.9 ) (107.7 )
Amounts reclassified from AOCL 20.7
(2.6 ) 48.7
66.8
Net current period other comprehensive income (loss) (17.5 ) (68.2 ) 44.8
(40.9 )
Amount attributable to noncontrolling interests .1
(1.5 ) —
(1.4 )
Balance at 30 June 2019
($55.2 )
($1,076.5 )
($649.7 )
($1,781.4 )

The table below summarizes the reclassifications out of AOCL and the affected line item on the consolidated income statements:


	Three Months Ended						Nine Months Ended						Three Months Ended
	30 June												31 December
	2019			2018			2019			2018			2019			2018
(Gain) Loss on Cash Flow Hedges, net of tax
Sales/Cost of sales		$—			$1.9			$.4			$6.9			$—			$0.5
Other income/expense, net	(16.9		)	(22.4		)	8.9			(37.6		)	—			(7.4		)
Interest expense	3.8			2.8			11.4			6.3			0.7			3.8
Other non-operating income (expense), net^(A)													(4.3		)	—
Total (Gain) Loss on Cash Flow Hedges, net of tax		($13.1	)		($17.7	)		$20.7			($24.4	)		($3.6	)		($3.1	)

Currency Translation Adjustment
Cost of sales^(A)		$—			$—			$—			$3.1
Gain on exchange of equity affiliate investments^(B)	(2.6		)	—			(2.6		)	—
Total Currency Translation Adjustment		($2.6	)		$—			($2.6	)		$3.1

Pension and Postretirement Benefits, net of tax^(C)		$14.8			$26.0			$48.7			$75.5
Pension and Postretirement Benefits, net of tax^(B)														$19.7			$15.2


^(A)	The fiscal year ~~2018~~2020 impact ~~relates to an equipment sale resulting from~~includes amortization of the ~~termination~~excluded component and the effective portion of ~~a contract in~~ the ~~Industrial Gases – Asia segment during the first quarter.~~related hedges.


^(B)	~~The fiscal year 2019 impact relates to a net gain on the exchange of two equity affiliates with a joint venture partner. Refer to Note 6, Acquisitions, for additional information.~~


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

~~15.~~14. EARNINGS PER SHARE

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	30 June				30 June				31 December
	2019		2018		2019		2018		2019		2018
Numerator
Income from continuing operations		$488.0		$430.7		$1,256.8		$1,002.7
Income from discontinued operations	—		43.2		—		42.2
Net Income Attributable to Air Products		$488.0		$473.9		$1,256.8		$1,044.9		$475.6		$347.5
Denominator (in millions)
Weighted average common shares — Basic	220.6		219.5		220.2		219.3		220.9		219.9
Effect of dilutive securities
Employee stock option and other award plans	1.3		1.4		1.2		1.4		1.3		1.1
Weighted average common shares — Diluted	221.9		220.9		221.4		220.7		222.2		221.0
Basic EPS Attributable to Air Products
Income from continuing operations		$2.21		$1.96		$5.71		$4.57
Income from discontinued operations	—		.20		—		.19
Net Income Attributable to Air Products		$2.21		$2.16		$5.71		$4.76
Diluted EPS Attributable to Air Products
Income from continuing operations		$2.20		$1.95		$5.68		$4.54
Income from discontinued operations	—		.20		—		.19
Net Income Attributable to Air Products		$2.20		$2.15		$5.68		$4.73
Basic Earnings Per Common Share Attributable to Air Products										$2.15		$1.58
Diluted Earnings Per Common Share Attributable to Air Products										$2.14		$1.57

For the three ~~and nine~~ months ended ~~30 June~~31 December 2019 and 2018, there were no0 antidilutive outstanding share-based awards. For the three months ended 30 June 2018, there were no antidilutive outstanding share-based awards. Outstanding share-based awards of .1 million were antidilutive and therefore excluded from the computation of diluted EPS for the nine months ended 30 June 2018.

~~16.~~15. INCOME TAXES

U.S. Tax Cuts and Jobs Act

The United States enacted the U.S. Tax Cuts and Jobs Act (the "Tax Act") on 22 December 2017. This legislation significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes.

~~We filed our 2018 federal income tax return in June 2019, which required an adjustment to our initial calculation of the deemed repatriation tax.~~ Our income tax provision for the three months ended ~~30 June 2019 includes~~31 December 2018 reflected a discrete net income tax expense of ~~$3.2 resulting~~$40.6 related to impacts from ~~this adjustment. Our income tax provision for~~ the nine months ended 30 June 2019 includes a net expense of $43.8, which reflects the net expense recorded to refine our estimates in the first quarter of 2019, within the one-year measurement period. ThisU.S. Tax Cuts and Jobs Act (the “Tax Act”). The net expense included the reversal of a non-recurring $56.2 benefit recorded in ~~the fourth quarter of~~ fiscal year 2018 related to the U.S. taxation of deemed foreign ~~dividends and~~dividends. This was partially offset by a benefit of ~~$12.4~~$15.6 to finalize our estimates of the impacts of the Tax Act and reduce the total expected costs of the deemed repatriation tax.

~~For the nine months ended 30 June 2018, our consolidated income statements reflect the impacts recorded during the first quarter of fiscal year 2018, which include a discrete net income~~Effective Tax Rate

The effective tax ~~expense of $206.5~~rate was 19.8% and 27.0% for our initial provisional estimates of the impacts of the Tax Act and a reduction to equity affiliates' income of $32.5 for future costs of repatriation related to the Tax Act that will be borne by an equity affiliate.

While our accounting for the provisions of the Tax Act is not provisional, further adjustments to the deemed repatriation tax could result from future adjustments to state tax return filing positions, U.S. or foreign tax examinations of the years impacted by the calculation, or from the issuance of additional federal or state guidance.

~~2018 Tax Restructuring and Audit Settlement~~

In the second quarter of fiscal year 2018, we recognized a $38.8 tax benefit, net of reserves for uncertain tax positions, and a decrease in net deferred tax liabilities resulting from the restructuring of foreign subsidiaries.

In the third quarter of fiscal year 2018 we received a final audit settlement agreement that resulted in an income tax benefit of approximately $9.1, including interest, in continuing operations during the three months ended ~~30 June~~31 December 2019 and 2018, ~~for the release of tax reserves.~~respectively.

~~Effective Tax Rate~~

Our effective tax rate was 17.9% and 21.3% for the three and nine months ended 30 June 2019, respectively. Our effective tax rate was 19.4% and 30.6% for the three and nine months ended 30 June 2018, respectively. The current and prior year effective tax rates were primarily impacted by the Tax Act, restructuring benefit, and audit settlement items discussed above.

Cash Paid for Taxes (Net of Cash Refunds)

~~On a total company basis, income~~Income tax payments, net of refunds, were ~~$250.8~~$66.2 and ~~$319.1~~$28.7 for the ~~nine~~three months ended ~~30 June~~31 December 2019 and 2018, respectively.

~~17.~~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 ~~nine~~three months ended ~~30 June 2019~~31 December 2018 and has not been ~~excluded from~~recorded in segment results. Annual sales and operating income associated with this customer prior to the facility closure were not material to the Industrial Gases – Asia segment. We do not expect to recognize additional charges related to this shutdown.

Related Party ~~Sales~~Transactions

We have related party sales to some of our equity affiliates and joint venture ~~partners.~~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 ~~$80~~$90 and ~~$245~~$100 for the three ~~and nine~~ months ended ~~30 June~~31 December 2019 ~~respectively,~~ and ~~$70 and $245 for the three and nine months ended 30 June~~ 2018, respectively. ~~Agreements~~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.

~~18.~~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 segments, each reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments. Our Industrial Gases – EMEA and Corporate and other 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 30 June 2019
Three Months Ended 31 December 2019															Three Months Ended 31 December 2019
Sales		$955.3		$494.6		$679.4		$57.9			$36.8			$2,224.0		$936.2		$498.7		$692.8		$92.6		$34.4			$2,254.7	^(A)
Operating income (loss)	262.2		123.4		231.4		(9.6		)	(41.3		)	566.1		257.2		120.5		228.5		3.6		(48.8		)	561.0		^(B)
Depreciation and amortization	126.3		47.8		87.9		2.2			4.9			269.1		131.8		48.4		101.6		2.4		5.0			289.2
Equity affiliates' income	21.7		18.8		14.9		1.0			—			56.4		20.6		19.3		16.9		1.4		—			58.2
Three Months Ended 30 June 2018
Three Months Ended 31 December 2018															Three Months Ended 31 December 2018
Sales		$948.7		$561.1		$623.8		$101.1			$24.3			$2,259.0		$989.2		$524.2		$626.8		$68.2		$15.6			$2,224.0	^(A)
Operating income (loss)	237.1		118.8		185.5		19.8			(45.4		)	515.8		219.2		105.6		201.8		3.9		(46.5		)	484.0		^(B)
Depreciation and amortization	120.5		49.8		69.5		2.3			3.5			245.6		125.6		46.3		79.9		2.1		4.1			258.0
Equity affiliates' income	24.1		17.5		15.1		1.4			—			58.1		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

^(A)

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


^(B)	Refer to the Reconciliation to Consolidated Results section below.

Industrial
Gases –
Americas
Industrial
Gases –
EMEA
Industrial
Gases –
Asia
Industrial
Gases –
Global
Corporate
and other
Segment
Total
Nine Months Ended 30 June 2019
Sales
$2,936.2

$1,513.2

$1,931.6

$179.9

$74.8

$6,635.7
Operating income (loss) 737.0
351.5
632.9
(17.9 ) (136.9 ) 1,566.6
Depreciation and amortization 376.8
140.4
252.7
6.3
13.0
789.2
Equity affiliates' income 62.1
45.8
44.9
2.7
—
155.5
Nine Months Ended 30 June 2018
Sales
$2,771.7

$1,638.6

$1,825.0

$335.8

$60.2

$6,631.3
Operating income (loss) 676.6
340.0
509.7
41.4
(135.8 ) 1,431.9
Depreciation and amortization 360.6
149.6
188.9
5.8
8.6
713.5
Equity affiliates' income 59.6
41.7
44.7
2.1
—
148.1
Total Assets
30 June 2019
$5,896.6

$3,399.7

$6,357.6

$284.3

$3,593.7

$19,531.9
30 September 2018 5,904.0
3,280.4
5,899.5
240.1
3,854.3
19,178.3

Reconciliation to Consolidated Results

The ~~sales information noted above relates to external customers only. All intersegment sales are eliminated in consolidation. These sales are generally transacted at market pricing.~~

We generally do not have intersegment sales from our regional industrial gases businesses. Equipment manufactured for our industrial gases segments is generally transferred at cost and not reflected as an intersegment sale.

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. For the nine months ended 30 June 2019 and 2018, changes in estimates favorably impacted operating income by approximately $15 and $25, respectively.

~~Below is a reconciliation of segment~~table below reconciles total operating income in the table above to consolidated operating ~~income:~~income as reflected on our consolidated income statements:

Three Months Ended Nine Months Ended
30 June 30 June
Operating Income 2019 2018 2019 2018
Segment total
$566.1

$515.8

$1,566.6

$1,431.9
Facility closure —
—
(29.0 ) —
Cost reduction actions (25.5 ) —
(25.5 ) —
Gain on exchange of equity affiliate investments 29.1
—
29.1
—
Consolidated Total
$569.7

$515.8

$1,541.2

$1,431.9

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

Three Months Ended Nine Months Ended
30 June 30 June
Equity Affiliates' Income 2019 2018 2019 2018
Segment total
$56.4

$58.1

$155.5

$148.1
Tax reform repatriation - equity method investment —
—
—
(32.5 )
Consolidated Total
$56.4

$58.1

$155.5

$115.6




	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 ~~2018~~2019 Form 10-K. ~~An analysis of results for the third quarter and first nine months of fiscal year 2019 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 ~~48-53. Descriptions of the excluded items appear on pages 37-38 and pages 43-44.~~38-42.

~~THIRD~~FIRST QUARTER ~~2019 VS. THIRD QUARTER 2018~~

~~THIRD QUARTER 2019~~2020 IN SUMMARY

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

Sales of ~~$2,224.0 decreased 2%~~$2,254.7 increased 1%, or ~~$35.0,~~$30.7, as ~~positive underlying sales~~higher volumes of 6% and favorable pricing of 3% were ~~more than~~mostly offset by ~~unfavorable currency impacts~~lower energy and natural gas cost pass-through to customers of 4%5%, the impact of a contract modification to a tolling arrangement in India of 3%2%, and ~~lower energy and natural gas cost pass-through to customers~~a negative impact from currency of 1%.


•	Operating income ~~of $569.7 increased 10%, or $53.9, and operating margin of 25.6% increased 280 basis points (bp). On a non-GAAP basis, adjusted operating income of $566.1 increased~~ ~~10%, or $50.3, and adjusted operating margin of~~ ~~25.5%~~ ~~increased 270 bp.~~

~~Income from continuing operations~~ of ~~$488.0~~$561.0 increased ~~13%~~23%, or ~~$57.3. On a non-GAAP~~$106.0, and operating margin of 24.9% increased 440 basis ~~adjusted~~points ("bp").

Net income ~~from continuing operations~~ of ~~$480.9~~$488.9 increased ~~12%~~37%, or ~~$50.2.~~$131.9, and net income margin of 21.7% increased 570 bp.

Adjusted EBITDA of ~~$891.6~~$908.4 increased 9%14%, or ~~$72.1. Adjusted~~$113.5, and adjusted EBITDA margin of ~~40.1%~~40.3% increased ~~380~~460 bp.

Diluted EPS of ~~$2.20~~$2.14 increased ~~13%~~36%, or ~~$.25. On a non-GAAP basis, adjusted~~$0.57 per share. Adjusted diluted EPS of ~~$2.17~~$2.14 increased ~~11%~~15%, or ~~$.22.~~$0.28 per share. A summary table of changes in diluted EPS is presented ~~on the following page.~~below.

															Changes in Diluted EPS Attributable to Air Products

	Three Months Ended							Three Months Ended
	30 June				Increase			31 December				Increase
	2019		2018		(Decrease)			2019		2018		(Decrease)
Diluted EPS from Continuing Operations – GAAP		$2.20		$1.95		$.25
Operating Income Impact (after-tax)
Diluted EPS									$2.14		$1.57		$0.57
Operating Impacts
Underlying business
Volume						($.04	)						$0.15
Price, net of variable costs					.30							0.25
Other costs					(.02		)					(0.12		)
Currency					(.05		)
Cost reduction actions					(.08		)
Gain on exchange of equity affiliate investments					.13
Total Operating Income Impact (after-tax)						$.24
Other Impact (after-tax)
Facility closure												0.10
Total Operating Impacts													$0.38
Other Impacts
Equity affiliates' income						($.01	)						$0.02
Interest expense												0.07
Other non-operating income (expense), net					.02							(0.04		)
Income tax					.02
Change in effective tax rate, excluding discrete items below												(0.02		)
Tax reform repatriation					(.02		)					(0.07		)
Tax reform adjustment related to deemed foreign dividends												0.26
Noncontrolling interests					.01							(0.02		)
Weighted average diluted shares					(.01		)					(0.01		)
Total Other Impact (after-tax)						$.01
Total Change in Diluted EPS from Continuing Operations – GAAP						$.25
Total Other Impacts													$0.19
Total Change in Diluted EPS													$0.57

Three Months Ended
30 June Increase
2019 2018 (Decrease)
Diluted EPS from Continuing Operations – GAAP
$2.20

$1.95

$.25
Cost reduction and asset actions .08
—
.08
Gain on exchange of equity affiliate investments (.13 ) —
(.13 )
Tax reform repatriation .02
—
.02
Diluted EPS from Continuing Operations – Non-GAAP Measure
$2.17

$1.95

$.22



	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

~~THIRD~~FIRST QUARTER 2020 RESULTS OF OPERATIONS

Discussion of Consolidated Results


	Three Months Ended											Three Months Ended
	30 June											31 December
	2019			2018			$ Change			Change		2019			2018			$ Change		Change
GAAP Measures
Sales		$2,224.0			$2,259.0			($35.0	)	(2	)%		$2,254.7			$2,224.0			$30.7	1	%
Operating income	569.7			515.8			53.9			10	%	561.0			455.0			106.0		23	%
Operating margin	25.6		%	22.8		%				280	bp	24.9		%	20.5		%	—		440	bp
Equity affiliates’ income	56.4			58.1			(1.7		)	(3	)%	58.2			52.9			5.3		10	%
Income from continuing operations	488.0			430.7			57.3			13	%
Net income												488.9			357.0			131.9		37	%
Net income margin												21.7		%	16.0		%	—		570	bp
Non-GAAP Measures
Adjusted EBITDA		$891.6			$819.5			$72.1		9	%		$908.4			$794.9			$113.5	14	%
Adjusted EBITDA margin	40.1		%	36.3		%				380 bp		40.3		%	35.7		%	—		460 bp
Adjusted operating income	566.1			515.8			50.3			10	%
Adjusted operating margin	25.5		%	22.8		%				270 bp

Sales



Sales	% Change from Prior Year
~~Underlying business~~
Volume	26	%
Price	43	%
Energy and natural gas cost pass-through	(15	)%
Currency	(41	)%
Other^(A)	(32	)%
Total Consolidated Sales Change	(21	)%


^(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 ~~$2,224.0 decreased~~$2,254.7 increased 1%, or $30.7, as higher volumes of 6% and favorable pricing of 3% were mostly offset by lower energy and natural gas cost pass-through to customers of 5%, the India contract modification of 2%, ~~or $35.0. Underlying sales~~and a negative impact from currency of 1%. Both volume and price were ~~up 6% due to positive pricing of 4%~~higher across the regional segments. The volume growth was driven by modest base business growth, new plants, acquisitions, and ~~favorable volumes of 2%.~~a short-term contract in Asia. The pricing improvement was attributable to our merchant businesses across the regional segments. Strong underlying volumes driven by new plants onstream were negatively impacted by lower sale of equipment activity on the Jazan project as the project nears completion and a prior year contract termination for an old flue-gas desulfurization plant. Excluding the lower Jazan sales, volumes would have increased 4% due to new plants, primarily the Lu'An project in Asia, base business growth, and acquisitions. Lower energy and natural gas cost pass-through to customers decreased sales by 1%, and unfavorablebusiness. Unfavorable currency impacts ~~primarily~~were driven by the Chinese Renminbi and ~~Euro, decreased sales by 4%. Finally, the modification of an existing hydrogen supply contract to a tolling arrangement in India, reflected in the table above as "Other," decreased sales by 3%.~~

~~Operating Income and Margin~~

Operating income of $569.7 increased 10%, or $53.9, as positive pricing, net of power and fuel costs, of $81 and a gain on the exchange of two 50%-owned equity affiliates of $29 were partially offset by a charge for cost reduction actions of $26, negative currency impacts of $12, unfavorable volume mix of $11, and higher net operating costs of $7. Operating margin of 25.6% increased 280 bp, primarily due to positive pricing and the impact of the contract modification to a tolling arrangement in India, partially offset by unfavorable volume mix.

On a non-GAAP basis, adjusted operating income of $566.1 increased 10%, or $50.3, primarily due to positive pricing, net of power and fuel costs, partially offset by negative currency impacts, unfavorable volume mix, and higher net operating costs. Adjusted operating margin of 25.5% increased 270 bp, primarily due to positive pricing and the impact of the contract modification to a tolling arrangement in India, partially offset by unfavorable volume mix.

~~Adjusted EBITDA~~

We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain 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 useful metric for management to assess operating performance.

Adjusted EBITDA of $891.6 increased 9%, or $72.1, primarily due to positive pricing, partially offset by unfavorable currency impacts. Adjusted EBITDA margin of 40.1% increased 380 bp, primarily due to higher pricing as well as the India contract modification.

~~Equity Affiliates' Income~~

~~Equity affiliates' income of $56.4 decreased 3%, or $1.7, primarily due to lower volumes, partially offset by sales associated with the Jazan Gas Projects Company joint venture.~~Euro.

Cost of Sales and Gross Margin

Cost of sales of ~~$1,466.0~~$1,486.6 decreased 5%, or ~~$79.4, due to positive currency impacts~~$86.4, from total cost of ~~$61, a favorable impact~~sales of $1,573.0 in the prior year, which included the facility closure further discussed below. The decrease from the ~~modification of a hydrogen supply contract to a tolling arrangement in India of $61, and~~prior year was primarily driven by lower energy and natural gas cost pass-through to customers of ~~$20,~~$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 ~~$49~~$97 and higher other costs of ~~$14.~~$10. Gross margin of 34.1% increased ~~250~~480 bp, primarily due to positive ~~pricing.~~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 unfavorable net operating costs.

Facility Closure

Selling and Administrative

Selling and administrative expense of ~~$188.5 was flat as favorable currency impacts were offset by higher costs for incentive compensation.~~$201.7 increased 6%, or $12.1, from investing in business development resources to support our growth strategy. Selling and administrative expense as a percentage of sales increased from ~~8.3%~~8.5% to ~~8.5%~~8.9%.

Research and Development

Research and development expense of ~~$18.1~~$17.7 increased ~~21%~~18%, or ~~$3.1.~~$2.7. Research and development expense as a percentage of sales increased from ~~.7%~~0.7% to ~~.8%~~0.8%.

~~Cost Reduction Actions~~

During the third quarter of fiscal year 2019, we recognized an expense of $25.5 ($18.8 after-tax, or $.08 per share) for severance and other benefits associated with position eliminations. Refer to Note 5, Cost Reduction Actions, to the consolidated financial statements for additional information. This expense has been reflected as "Cost reduction actions" on the consolidated income statements and was excluded from segment operating income for the three months ended 30 June 2019.

~~Gain on Exchange of Equity Affiliate Investments~~

During the third quarter of fiscal year 2019, we recognized a net gain of $29.1 ($.13 per share) resulting from the exchange of two 50%-owned industrial gas joint ventures in China. Refer to Note 6, Acquisitions, to the consolidated financial statements for additional information. The net gain has been reflected as "Gain on exchange of equity affiliate investments" on our consolidated income statements and was excluded from segment operating income for the three months ended 30 June 2019. There were no tax impacts on the exchange.

Other Income (Expense), Net

Other income (expense), net of ~~$14.7~~$12.3 increased ~~$8.9,~~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 ~~currency impacts.~~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 energy and natural gas cost pass-through to customers, partially offset by unfavorable net operating costs.

Equity Affiliates' Income

Equity affiliates' income of $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
	30 June				31 December
	2019		2018		2019		2018
Interest incurred		$37.8		$42.4		$22.4		$40.0
Less: capitalized interest	3.6		7.5
Less: Capitalized interest					3.7		2.7
Interest expense		$34.2		$34.9		$18.7		$37.3

Interest incurred decreased ~~11%~~44%, or ~~$4.6, primarily~~$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 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 ~~favorable currency impacts~~lower interest expense associated with financing the Lu'An joint venture and a lower average debt balance. Capitalized interest ~~rate on the debt portfolio. The change in capitalized interest was attributable~~increased 37%, or $1.0, due to ~~a decrease~~an increase in the carrying value of projects under ~~construction, primarily driven by the Lu'An project in Asia.~~

construction.

Other Non-Operating Income (Expense), Net

Other non-operating income (expense), net, of ~~$17.6 increased 38%~~$9.1 decreased 51%, or ~~$4.8,~~$9.4, primarily due to the impact of the adoption of the guidance on hedging activities discussed above and lower interest income on cash and cash items, partially offset by higher non-service pension ~~benefits~~income.

Net Income and Net Income Margin

Net income of $488.9 increased 37%, or $131.9, primarily due to positive pricing and higher volumes as well as the impacts from the facility closure and the U.S. Tax Cuts and Jobs Act in the ~~current~~prior year. Net income 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%, 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 ~~17.9%~~19.8% and ~~19.4%~~27.0% in the ~~third quarters~~first quarter of fiscal years 2020 and 2019, ~~and 2018,~~ respectively.

The ~~current year~~higher 2019 tax rate was lower primarily due to a non-taxable gain of $29.1 resulting from the exchange of two equity affiliates with a joint venture partner in China, higher tax benefits from share-based compensation, and final determinations of U.S. and foreign income tax. The current year benefits were partially offset byreflected a discrete net income tax expense of ~~$3.2 ($.02 per share) resulting from an adjustment in June 2019 to our initial calculation of the deemed repatriation tax~~$40.6 related to impacts from the U.S. Tax Cuts and Jobs Act ~~as well as~~(the “Tax Act”). The net expense included the reversal of a non-recurring $56.2 ($.26 per share) benefit recorded in 2018 related to the U.S. taxation of deemed foreign ~~audit settlement agreement that resulted in an income tax~~dividends. This was partially offset by a benefit of ~~approximately $9.1~~$15.6 ($0.07 per share) to finalize our estimates of the impacts of the 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 ~~the prior year.~~2020. These impacts were partially offset by beneficial changes in foreign tax law and changes in valuation allowance recorded at various entities in 2019.

~~On a non-GAAP basis, the~~The adjusted effective tax rate ~~was 18.6% and 19.4%~~increased from 19.0% in the ~~third quarters~~first quarter of fiscal ~~years~~year 2019 to 19.8% in the first quarter of fiscal year 2020. This increase was primarily driven by beneficial changes in foreign tax law and ~~2018, respectively. The current year rate~~changes in valuation allowance recorded at various entities in 2019. This increase was ~~lower due to higher tax benefits from share-based compensation and final determinations of U.S. and foreign income tax,~~ partially offset by ~~a foreign audit settlement agreement that resulted~~higher excess tax benefits on share-based compensation in ~~an income tax benefit of approximately $9.1 in the prior year.~~2020.

Refer to Note ~~16,~~ 15, Income Taxes, to the consolidated financial statements for additional information.

Segment Analysis

Industrial Gases – Americas


	Three Months Ended											Three Months Ended
	30 June											31 December
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Sales		$955.3			$948.7			$6.6		1	%		$936.2			$989.2			($53.0	)	(5	)%
Operating income	262.2			237.1			25.1			11	%	257.2			219.2			38.0			17	%
Operating margin	27.4		%	25.0		%				240 bp		27.5		%	22.2		%	—			530 bp
Equity affiliates’ income	21.7			24.1			(2.4		)	(10	)%	20.6			22.6			(2.0		)	(9	)%
Adjusted EBITDA	410.2			381.7			28.5			7	%	409.6			367.4			42.2			11	%
Adjusted EBITDA margin	42.9		%	40.2		%				270 bp		43.8		%	37.1		%	—			670 bp



Sales	% Change from Prior Year
~~Underlying business~~
Volume	—1	%
Price	43	%
Energy and natural gas cost pass-through	(18	)%
Currency	(21	)%
Total Industrial Gases – Americas Sales Change	1(5	)%

Sales of ~~$955.3 increased 1%~~$936.2 decreased 5%, or ~~$6.6. Underlying sales were up 4% from higher pricing, primarily driven by our North America merchant business. Volumes were flat~~$53.0, as base merchant business growth in North America was offset by a prior year contract termination for an old flue-gas desulfurization plant. Excluding this termination, volumes would have increased 1%. In South America, volumes and pricing improved slightly despite continued economic weakness in the region. Lowerlower energy and natural gas cost pass-through ~~to customers~~of 8% and ~~unfavorable~~a negative impact from currency ~~impacts decreased sales~~of 1% were only partially offset by 1%positive pricing of 3% and ~~2%, respectively.~~higher volumes of 1%. The pricing improvement was driven by our merchant business.

Operating income of ~~$262.2~~$257.2 increased ~~11%~~17%, or ~~$25.1,~~$38.0, primarily due to higher pricing, net of power and fuel costs, of ~~$31, partially offset by unfavorable~~$28 and favorable volumes of ~~$3.~~$7. Operating margin of ~~27.4%~~27.5% increased ~~240~~530 bp, primarily due to positive ~~pricing.~~pricing, lower energy and natural gas cost pass-through to customers, and favorable cost performance, including lower maintenance.

Equity affiliates’ income of ~~$21.7~~$20.6 decreased ~~10%~~9%, or ~~$2.4.~~$2.0, primarily due to higher costs.

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


	Three Months Ended										Three Months Ended
	30 June										31 December
	2019			2018			$ Change			% Change	2019			2018			$ Change			% Change
Sales		$494.6			$561.1			($66.5	)	(12)%		$498.7			$524.2			($25.5	)	(5)%
Operating income	123.4			118.8			4.6			4%	120.5			105.6			14.9			14%
Operating margin	24.9		%	21.2		%				370 bp	24.2		%	20.1		%	—			410 bp
Equity affiliates’ income	18.8			17.5			1.3			7%	19.3			13.7			5.6			41%
Adjusted EBITDA	190.0			186.1			3.9			2%	188.2			165.6			22.6			14%
Adjusted EBITDA margin	38.4		%	33.2		%				520 bp	37.7		%	31.6		%	—			610 bp



Sales	% Change from Prior Year
~~Underlying business~~
Volume	26	%
Price	43	%
Energy and natural gas cost pass-through	(24	)%
Currency	(52	)%
Other^(A)	(118	)%
Total Industrial Gases – EMEA Sales Change	(125	)%


^(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 ~~$494.6~~$498.7 decreased ~~12%~~5%, or ~~$66.5. Underlying sales were up 6%~~$25.5, as the negative impact from ~~higher pricing~~the India contract modification of 4% and favorable volumes of 2%. Pricing improved across all product lines throughout the region. Favorable volumes were mostly attributable to acquisition activity as our base business remained stable. Energy8%, lower energy and natural gas cost pass-through to customers ~~reduced sales by 2%. Unfavorable~~of 4%, and unfavorable currency impacts of 2% were only partially offset by favorable volumes of 6% and positive pricing of 3%. Volumes increased primarily due to demand for hydrogen in our Rotterdam pipeline system and from the ~~Euro and British Pound Sterling, decreased sales by 5%, and the modification of an existing hydrogen supply contract to a tolling arrangement in India in December 2018, reflected~~carbon dioxide business we acquired in the ~~table above as "Other," decreased sales~~second quarter of fiscal year 2019. The pricing improvement was attributable to our merchant business. The negative currency impact was mainly driven by ~~11%.~~the Euro.

Operating income of ~~$123.4~~$120.5 increased 4%14%, or ~~$4.6,~~$14.9, primarily due to higher pricing, net of power and fuel costs, of ~~$18,~~$20 and favorable volumes of $5, partially offset by higher costs of $8 and unfavorable currency impacts of ~~$7 and unfavorable volume mix of $5.~~$2. Operating margin of ~~24.9%~~24.2% increased ~~370~~410 bp, primarily due to ~~higher~~favorable pricing, ~~and~~ the impact of the India contract modification, and lower energy and natural gas cost pass-through to ~~a tolling arrangement in India,~~customers, partially offset by ~~unfavorable volume mix.~~higher costs. The lower energy and natural gas pass-through and the India contract modification contributed 240 bp.

Equity affiliates’ income of ~~$18.8~~$19.3 increased 7%41%, or ~~$1.3,~~$5.6, primarily due to ~~sales associated with~~ the Jazan Gas Projects Company joint ~~venture, partially offset by unfavorable volumes.~~venture.

Industrial Gases – Asia


	Three Months Ended										Three Months Ended
	30 June										31 December
	2019			2018			$ Change			% Change	2019			2018			$ Change		% Change
Sales		$679.4			$623.8			$55.6		9%		$692.8			$626.8			$66.0	11%
Operating income	231.4			185.5			45.9			25%	228.5			201.8			26.7		13%
Operating margin	34.1		%	29.7		%				440 bp	33.0		%	32.2		%	—		80 bp
Equity affiliates’ income	14.9			15.1			(.2		)	(1)%	16.9			16.2			0.7		4%
Adjusted EBITDA	334.2			270.1			64.1			24%	347.0			297.9			49.1		16%
Adjusted EBITDA margin	49.2		%	43.3		%				590 bp	50.1		%	47.5		%	—		260 bp



Sales	% Change from Prior Year
~~Underlying business~~
Volume	109	%
Price	54	%
Energy and natural gas cost pass-through	—	%
Currency	(62	)%
Total Industrial Gases – Asia Sales Change	911	%

Sales of ~~$679.4~~$692.8 increased 9%11%, or ~~$55.6. Underlying sales increased 15% from~~$66.0, as higher volumes of ~~10%~~9% and ~~higher~~positive pricing of 5%4% were partially offset by unfavorable currency impacts of 2%.The ~~higher volumes were mostly attributable to~~volume increase was primarily driven by new plants ~~primarily the full~~ onstream, ~~of the Lu'An project.~~base business growth, and a short-term supply contract. Pricing improved across ~~all product lines throughout~~Asia, driven by our merchant business. The unfavorablecurrency impact was primarily attributable to the ~~region.~~Chinese Renminbi. Energy and natural gas cost pass-through to customers was flat ~~while unfavorable currency impacts, primarily from~~versus the ~~Chinese Renminbi and South Korean Won, decreased sales by 6%.~~prior year.

Operating income of ~~$231.4~~$228.5 increased ~~25%~~13%, or ~~$45.9,~~$26.7, due to ~~favorable~~positive pricing, net of power and fuel costs, of ~~$31, higher~~$20 and favorable volumes of ~~$20, and lower~~$16, partially offset by higher net operating costs of $6 ~~partially offset by~~and unfavorable currency impacts of ~~$11.~~$3. Operating margin of ~~34.1%~~33.0% increased ~~440~~80 bp,primarily due to ~~higher~~positive pricing, ~~lower~~partially offset by higher net operating ~~costs, and favorable volumes.~~costs.

Equity affiliates’ income of ~~$14.9 decreased 1%~~$16.9 increased 4%, or ~~$.2.~~$0.7.

Industrial Gases – Global

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


	Three Months Ended										Three Months Ended
	30 June										31 December
	2019			2018		$ Change			% Change		2019		2018		$ Change			% Change
Sales		$57.9			$101.1		($43.2	)	(43	)%		$92.6		$68.2		$24.4		36	%
Operating income (loss)	(9.6		)	19.8		(29.4		)	(148	)%
Operating income											3.6		3.9		(0.3		)	(8	)%
Adjusted EBITDA	(6.4		)	23.5		(29.9		)	(127	)%	7.4		6.4		1.0			16	%

Sales of ~~$57.9 decreased 43%~~$92.6 increased 36%, or ~~$43.2,~~$24.4. The increase in sales was primarily ~~due to 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. We expect to complete this~~driven by unusually high other project ~~in 2019.~~activity.

Operating ~~loss of $9.6 decreased $29.4 from operating~~ income of ~~$19.8~~$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, primarily due to the lower sale of equipment activity.~~year.

Corporate and other

The Corporate and other segment includes our liquefied natural gas ~~(LNG)~~("LNG"), turbo machinery equipment, ~~and helium storage~~ and distribution sale of equipment businesses and corporate support functions that benefit all segments. The results of the Corporate and other segment also include income and expense that is not directly associated with the other segments, such as foreign exchange gains and losses.


	Three Months Ended										Three Months Ended
	30 June										31 December
	2019			2018			$ Change		% Change		2019			2018			$ Change			% Change
Sales		$36.8			$24.3			$12.5	51	%		$34.4			$15.6			$18.8		121	%
Operating loss	(41.3		)	(45.4		)	4.1		9	%	(48.8		)	(46.5		)	(2.3		)	(5	)%
Adjusted EBITDA	(36.4		)	(41.9		)	5.5		13	%	(43.8		)	(42.4		)	(1.4		)	(3	)%

Sales of ~~$36.8~~$34.4 increased ~~51%~~121%, or ~~$12.5,~~$18.8, primarily due to ~~sales generated from turbo machinery equipment and~~ higher LNG activity. Operating loss of ~~$41.3 decreased 9%~~$48.8 increased 5%, or ~~$4.1.~~$2.3, primarily due to higher corporate costs, including business development costs to support our growth strategy, partially offset by the higher LNG activity.

~~FIRST NINE MONTHS 2019 VS. FIRST NINE MONTHS 2018~~

~~FIRST NINE MONTHS 2019 IN SUMMARY~~

Operating income of $1,541.2 increased 8%, or $109.3, and operating margin of 23.2% increased 160 bp. On a non-GAAP basis, adjusted operating income of $1,566.6 increased 9%, or $134.7, and adjusted operating margin of 23.6% increased 200 bp.

~~Income from continuing operations of $1,256.8 increased 25%, or $254.1. On a non-GAAP basis, adjusted income from continuing operations of $1,316.2 increased 9%, or $113.3.~~

~~Adjusted EBITDA of $2,511.3 increased 9%, or $217.8. Adjusted EBITDA margin of 37.8% increased 320 bp.~~

~~Diluted EPS of $5.68 increased 25%, or $1.14. On a non-GAAP basis, adjusted diluted EPS of $5.94 increased 9%, or $.49. A summary table of changes in diluted earnings per share is presented below.~~


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

Changes in Diluted EPS Attributable to Air Products

Nine Months Ended
30 June Increase
2019 2018 (Decrease)
Diluted EPS from Continuing Operations – GAAP
$5.68

$4.54

$1.14
Operating Income Impact (after-tax)
Underlying business
Volume
$.25
Price, net of variable costs .56
Other costs (.15 )
Currency (.17 )
Facility closure (.10 )
Cost reduction actions (.08 )
Gain on exchange of equity affiliate investments .13
Total Operating Income Impact (after-tax)
$.44
Other Impact (after-tax)
Equity affiliates' income .03
Other non-operating income (expense), net .06
Interest expense (.04 )
Income tax (.02 )
Tax reform repatriation 2.12
Tax reform adjustment related to deemed foreign dividends (.25 )
Tax reform rate change and other (.97 )
Tax restructuring (.18 )
Noncontrolling interests (.03 )
Weighted average diluted shares (.02 )
Total Other Impact (after-tax)
$.70
Total Change in Diluted EPS from Continuing Operations – GAAP
$1.14

Nine Months Ended
30 June Increase
2019 2018 (Decrease)
Diluted EPS from Continuing Operations – GAAP
$5.68

$4.54

$1.14
Facility closure .10
—
.10
Cost reduction actions .08
—
.08
Gain on exchange of equity affiliate investments (.13 ) —
(.13 )
Pension settlement loss .02
—
.02
Tax reform repatriation (.06 ) 2.06
(2.12 )
Tax reform adjustment related to deemed foreign dividends .25
—
.25
Tax reform rate change and other —
(.97 ) .97
Tax restructuring —
(.18 ) .18
Diluted EPS from Continuing Operations – Non-GAAP Measure
$5.94

$5.45

$.49

~~FIRST NINE MONTHS RESULTS OF OPERATIONS~~

~~Discussion of Consolidated Results~~

Nine Months Ended
30 June
2019 2018 $ Change Change
Sales
$6,635.7

$6,631.3

$4.4
— %
Operating income 1,541.2
1,431.9
109.3
8 %
Operating margin 23.2 % 21.6 % 160 bp
Equity affiliates’ income 155.5
115.6
39.9
35 %
Income from continuing operations 1,256.8
1,002.7
254.1
25 %
Non-GAAP Measures
Adjusted EBITDA 2,511.3
2,293.5
217.8
9 %
Adjusted EBITDA margin 37.8 % 34.6 % 320 bp
Adjusted operating income 1,566.6
1,431.9
134.7
9 %
Adjusted operating margin 23.6 % 21.6 % 200 bp
Adjusted equity affiliates' income 155.5
148.1
7.4
5 %



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

Sales of $6,635.7 were flat as positive underlying sales of 4% and higher energy and natural gas cost pass-through to customers of 1% were offset by unfavorable currency impacts of 3% and the impact of the India contract modification of 2%. Underlying sales were up on favorable pricing of 3% and higher volumes of 1%. The pricing improvement was largely attributable to our merchant business across the regional segments. Higher volumes from new project onstreams, mainly the Lu'An project in Asia, and positive base business growth were offset by lower sale of equipment activity on the Jazan project as the project nears completion and a prior year equipment sale resulting from a contract termination in Asia. Unfavorable currency impacts were driven by the Chinese Renminbi and Euro.

~~Operating Income and Margin~~

Operating income of $1,541.2 increased 8%, or $109.3, as positive pricing, net of power and fuel costs, of $154, favorable volumes of $67, and a gain on the exchange of two 50%-owned equity affiliates of $29 were partially offset by unfavorable currency impacts of $46, higher net operating costs of $40, a charge for a facility closure of $29, and a charge for cost reduction actions of $26. Operating margin of 23.2% increased 160 bp, primarily due to positive pricing and favorable volume mix, partially offset by unfavorable net operating costs.

On a non-GAAP basis, adjusted operating income of $1,566.6 increased 9%, or $134.7, primarily due to positive pricing, net of power and fuel costs, and favorable volumes, partially offset by unfavorable currency impacts and higher net operating costs. Adjusted operating margin of 23.6% increased 200 bp, primarily due to positive pricing and favorable volume mix, partially offset by unfavorable net operating costs.

~~Adjusted EBITDA~~

Adjusted EBITDA of $2,511.3 increased 9%, or $217.8, primarily due to positive pricing and favorable volumes, partially offset by unfavorable currency impacts. Adjusted EBITDA margin of 37.8% increased 320 bp, primarily due to positive pricing and favorable volume mix.

~~Equity Affiliates' Income~~

Equity affiliates' income of $155.5 increased 35%, or $39.9, primarily due to an expense of $32.5 in the prior year resulting from the U.S. Tax Cuts and Jobs Act. Refer to Note 16, Income Taxes, to the consolidated financial statements for additional information.~~On a non-GAAP basis, adjusted equity affiliates' income of $155.5 increased 5%, or $7.4, primarily driven by favorable volumes and new plant contributions.~~

~~Cost of Sales and Gross Margin~~

Cost of sales, including the facility closure discussed below, of $4,513.7 decreased 2%, or $110.0, as positive currency impacts of $154, a favorable impact from the modification of a hydrogen supply contract to a tolling arrangement in India of $126, and lower costs attributable to sales volumes of $21 were partially offset by higher energy and natural gas cost pass-through to customers of $109, higher other costs of $53, and the facility closure of $29. Gross margin of 32.0% increased 170 bp, primarily due to positive pricing and favorable volume mix, partially offset by the facility closure. Excluding the facility closure, adjusted cost of sales of $4,484.7 decreased 3%, or $139.0, and gross margin of 32.4% increased 210 bp, primarily due to positive pricing and favorable volume mix, partially offset by higher other 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 $.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 nine months ended 30 June 2019 and has been excluded from segment results. Annual sales and operating income associated with this customer prior to the facility closure were not material to the Industrial Gases – Asia segment. We do not expect to recognize additional charges related to this shutdown.

~~Selling and Administrative Expense~~

~~Selling and administrative expense of $568.1 decreased 1%, or $6.7. Selling and administrative expense, as a percentage of sales, decreased from 8.7% to 8.6%.~~

~~Research and Development~~

~~Research and development expense of $50.0 increased 13%, or $5.9. Research and development expense as a percentage of sales increased from .7% to .8%.~~

~~Cost Reduction Actions~~

~~Gain on Exchange of Equity Affiliate Investments~~

During the third quarter of fiscal year 2019, we recognized a net gain of $29.1 ($.13 per share) resulting from the exchange of two 50%-owned industrial gas joint ventures in China. Refer to Note 6, Acquisitions, to the consolidated financial statements for additional information. The net gain has been reflected as "Gain on exchange of equity affiliate investments" on our consolidated income statements and was excluded from segment operating income for the nine months ended 30 June 2019. There were no tax impacts on the exchange.

~~Other Income (Expense), Net~~

~~Other income (expense), net of $33.7 decreased 22%, or $9.5, primarily due to lower income from transition services agreements.~~

~~Interest Expense~~

Nine Months Ended
30 June
2019 2018
Interest incurred
$116.3

$109.4
Less: capitalized interest 9.4
14.3
Interest expense
$106.9

$95.1

Interest incurred increased 6%, or $6.9, as interest expense associated with financing the Lu'An joint venture was partially offset by favorable impacts from currency, a lower average interest rate on the debt portfolio, and a lower average debt balance. The change in capitalized interest was attributable to a decrease in the carrying value of projects under construction, primarily driven by the Lu'An project in Asia.

~~Other Non-Operating Income (Expense), net~~

Other non-operating income (expense), net of $49.8 increased 48%, or $16.1, primarily due to higher interest income on cash and cash items. Non-service pension benefits in the current year were partially offset by a second quarter pension settlement loss of $5.0 ($3.8 after-tax, or $.02 per share) associated with the U.S. Supplementary Pension Plan.

~~Effective Tax Rate~~

The effective tax rate was 21.3% and 30.6% for the nine months ended 30 June 2019 and 2018, respectively. The current year rate was lower primarily due to the impacts related to the enactment of the U.S. Tax Cuts and Jobs Act (the "Tax Act") in fiscal year 2018. This legislation significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As a result of the Tax Act, our income tax provision reflects discrete net income tax expense of $43.8 and $206.5 in fiscal years 2019 and 2018, respectively. The current year net expense includes the reversal of a $56.2 ($.25 per share) benefit related to the U.S. taxation of deemed foreign dividends that was included in our fiscal year 2018 income tax provision. We reversed this benefit based on our intent to follow proposed regulations issued during the first quarter of 2019. The current year expense was partially offset by a $12.4 ($.06 per share) reduction to the total expected costs of the deemed repatriation tax for foreign tax redeterminations and other foreign tax adjustments resulting from the completion of our estimates of the impact of the Tax Act in 2019. The higher 2018 expense resulting from the Tax Act was partially offset by a $38.8 tax benefit from the restructuring of foreign subsidiaries as well as a $9.1 benefit from a foreign audit settlement agreement. The current year rate was also impacted by a non-taxable gain of $29.1 resulting from the exchange of two equity affiliates with a joint venture partner in China during the third quarter of fiscal year 2019 as well as higher benefits related to final determinations of U.S and foreign tax. Refer to Note 16, Income Taxes, to the consolidated financial statements for additional information.

On a non-GAAP basis, the adjusted effective tax rate increased from 18.9% in fiscal year 2018 to 19.2% in fiscal year 2019, primarily due to the prior year benefit of $9.1 from a foreign audit settlement agreement, partially offset by higher current year benefits related to final determinations of U.S and foreign tax.

~~Segment Analysis~~

~~Industrial Gases – Americas~~

Nine Months Ended
30 June
2019 2018 $ Change % Change
Sales
$2,936.2

$2,771.7

$164.5
6 %
Operating income 737.0
676.6
60.4
9 %
Operating margin 25.1 % 24.4 % 70 bp
Equity affiliates’ income 62.1
59.6
2.5
4 %
Adjusted EBITDA 1,175.9
1,096.8
79.1
7 %
Adjusted EBITDA margin 40.0 % 39.6 % 40 bp



~~Sales~~	~~% Change from~~ ~~Prior Year~~
~~Underlying business~~
~~Volume~~	2	%
~~Price~~	3	%
~~Energy and natural gas cost pass-through~~	3	%
~~Currency~~	(2	)%
~~Total Industrial Gases – Americas Sales Change~~	6	%

~~Sales of $2,936.2 increased 6%, or $164.5. Underlying sales were up 5% from higher pricing of 3% and higher volumes of 2%.~~The pricing improvement was primarily driven by our merchant business. The volume increase was primarily attributable to new plant onstreams, higher hydrogen demand, and North America base merchant business growth. Higher energy and natural gas cost pass-through to customers increased sales by 3%, while unfavorable currency impacts reduced sales by 2%.

Operating income of $737.0 increased 9%, or $60.4, as higher pricing, net of power and fuel costs, of $58 and favorable volumes of $40 were partially offset by higher costs of $33 and unfavorable currency impacts of $5. The higher costs were primarily driven by higher planned maintenance and transportation costs. Operating margin of 25.1% increased 70 bp as positive pricing and higher volumes were mostly offset by unfavorable costs and higher energy and natural gas cost pass-through to customers.

~~Equity affiliates’ income of $62.1 increased 4%, or $2.5, primarily due to new plant contributions and volume growth in Mexico.~~

~~Industrial Gases – EMEA~~

Nine Months Ended
30 June
2019 2018 $ Change % Change
Sales
$1,513.2

$1,638.6

($125.4 ) (8 )%
Operating income 351.5
340.0
11.5
3 %
Operating margin 23.2 % 20.7 % 250 bp
Equity affiliates’ income 45.8
41.7
4.1
10 %
Adjusted EBITDA 537.7
531.3
6.4
1 %
Adjusted EBITDA margin 35.5 % 32.4 % 310 bp



~~Sales~~	~~% Change from~~ ~~Prior Year~~
~~Underlying business~~
~~Volume~~	1	%
~~Price~~	3	%
~~Energy and natural gas cost pass-through~~	2	%
~~Currency~~	(6	)%
~~Other~~	(8	)%
~~Total Industrial Gases – EMEA Sales Change~~	(8	)%

Sales of $1,513.2 decreased 8%, or $125.4. Underlying sales were up 4% from higher pricing of 3% and higher volumes of 1%. The pricing improvement was primarily driven by our merchant business. Energy and natural gas cost pass-through to customers increased sales by 2%. Unfavorable currency impacts, primarily from the Euro and British Pound Sterling, reduced sales by 6%, and the modification of an existing hydrogen supply contract to a tolling arrangement in India in December 2018, reflected in the table above as "Other," reduced sales by 8%.

Operating income of $351.5 increased 3%, or $11.5, primarily due to higher pricing, net of power and fuel costs, of $37, partially offset by unfavorable currency impacts of $19 and higher costs of $5. Operating margin of 23.2% increased 250 bp as favorable pricing and the impact of the India tolling arrangement were partially offset by higher costs.

~~Equity affiliates’ income of $45.8 increased 10%, or $4.1, primarily due to sales associated with the Jazan Gas Projects Company joint venture.~~

~~Industrial Gases – Asia~~

Nine Months Ended
30 June
2019 2018 $ Change % Change
Sales
$1,931.6

$1,825.0

$106.6
6 %
Operating income 632.9
509.7
123.2
24 %
Operating margin 32.8 % 27.9 % 490 bp
Equity affiliates’ income 44.9
44.7
.2
— %
Adjusted EBITDA 930.5
743.3
187.2
25 %
Adjusted EBITDA margin 48.2 % 40.7 % 750 bp



~~Sales~~	~~% Change from~~ ~~Prior Year~~
~~Underlying business~~
~~Volume~~	6	%
~~Price~~	4	%
~~Energy and natural gas cost pass-through~~	1	%
~~Currency~~	(5	)%
~~Total Industrial Gases – Asia Sales Change~~	6	%

Sales of $1,931.6 increased 6%, or $106.6. Underlying sales were up 10% from higher volumes of 6% and higher pricing of 4%. The volume increase was primarily driven by new plants onstream, mainly the Lu'An project, and base business growth, partially offset by the impact from short-term sale of equipment activity in the prior year. Pricing improved across Asia, primarily driven by our merchant business. Energy and natural gas cost pass-through to customers increased sales by 1%, while unfavorable currency impacts, primarily from the Chinese Renminbi, reduced sales by 5%.

Operating income of $632.9 increased 24%, or $123.2, due to higher volumes of $81, favorable pricing, net of power and fuel costs, of $57, and lower net operating costs of $9, partially offset by unfavorable currency impacts of $24. Operating margin of 32.8% increased 490 bp primarily due to higher volumes and positive pricing.

~~Equity affiliates’ income of$44.9 was flat versus the prior year.~~

~~Industrial Gases – Global~~

Nine Months Ended
30 June
2019 2018 $ Change % Change
Sales
$179.9

$335.8

($155.9 ) (46 )%
Operating income (loss) (17.9 )
41.4
(59.3 ) (143 )%
Adjusted EBITDA (8.9 )
49.3
(58.2 ) (118 )%

Sales of $179.9 decreased 46%, or $155.9. The decrease 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. We expect to complete this project in 2019.

~~Operating loss of $17.9 decreased $59.3 from operating income of $41.4 in the prior year, primarily due to the lower sale of equipment activity.~~

~~Corporate and other~~

Nine Months Ended
30 June
2019 2018 $ Change % Change
Sales
$74.8

$60.2

$14.6
24 %
Operating loss (136.9 ) (135.8 ) (1.1 ) (1 )%
Adjusted EBITDA (123.9 ) (127.2 ) 3.3
3 %

~~Sales of $74.8 increased 24%, or $14.6, primarily due to sales generated from turbo machinery equipment. Operating loss of $136.9 increased 1%, or $1.1.~~

~~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.

The Company's non-GAAP measures are not meant to be considered in isolation or as a substitute for the most directly comparable 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 financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting the Company's historical financial performance and projected future results.

In many cases, non-GAAP measures are determined by adjusting the most directly comparable GAAP measure to exclude certain disclosed items, or “non-GAAP ~~adjustments”,~~adjustments,” that the Company believes are not representative of underlying business performance. For example, the Company previously excluded certain expenses associated with cost reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware that the Company may recognize similar losses or gains in the future. Readers 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.

The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of ~~the transactions.~~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.

~~Reconciliations of reported GAAP results~~ADJUSTED DILUTED EPS

The table below provides a reconciliation to the ~~non-GAAP measures~~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 ~~third~~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 ~~and first nine months~~ of fiscal ~~years 2019 and 2018 are presented below:~~

~~CONSOLIDATED RESULTS~~year 2020.

Continuing Operations
Three Months Ended 30 June
Q3 2019 vs. Q3 2018 Operating
Income
Operating
Margin^(A)
Equity Affiliates' Income Income Tax
Provision Net
Income Diluted
EPS
2019 GAAP
$569.7
25.6 %
$56.4

$109.3

$488.0

$2.20
2018 GAAP 515.8
22.8 % 58.1
107.1
430.7
1.95
Change GAAP
$53.9
280 bp
($1.7 )
$2.2

$57.3

$.25
% Change GAAP 10 % (3 )% 2 % 13 % 13 %
2019 GAAP
$569.7
25.6 %
$56.4

$109.3

$488.0

$2.20
Cost reduction actions 25.5
1.2 % —
6.7
18.8
.08
Gain on exchange of equity affiliate investments (29.1 ) (1.3 )% —
—
(29.1 ) (.13 )
Tax reform repatriation —
— % —
(3.2 ) 3.2
.02
2019 Non-GAAP Measure
$566.1
25.5 %
$56.4

$112.8

$480.9

$2.17
2018 GAAP
$515.8
22.8 %
$58.1

$107.1

$430.7

$1.95
2018 Non-GAAP Measure
$515.8
22.8 %
$58.1

$107.1

$430.7

$1.95
Change Non-GAAP Measure
$50.3
270 bp
($1.7 )
$5.7

$50.2

$.22
% Change Non-GAAP Measure 10 % (3 )% 5 % 12 % 11 %



	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		%

Continuing Operations
Nine Months Ended 30 June
2019 vs. 2018
Operating
Income
Operating
Margin^(A)
Equity Affiliates' Income Income Tax
Provision
Net
Income
Diluted
EPS
2019 GAAP
$1,541.2
23.2 %
$155.5

$348.9

$1,256.8

$5.68
2018 GAAP 1,431.9
21.6 % 115.6
455.1
1,002.7
4.54
Change GAAP
$109.3
160 bp
$39.9

($106.2 )
$254.1

$1.14
% Change GAAP 8 % 35 % (23 )% 25 % 25 %
2019 GAAP
$1,541.2
23.2 %
$155.5

$348.9

$1,256.8

$5.68
Facility closure 29.0
.4 % —
6.9
22.1
.10
Cost reduction actions 25.5
.4 % —
6.7
18.8
.08
Gain on exchange of equity affiliate investments (29.1 ) (.4 )% —
—
(29.1 ) (.13 )
Pension settlement loss^(B)
—
— % —
1.2
3.8
.02
Tax reform repatriation —
— % —
12.4
(12.4 ) (.06 )
Tax reform adjustment related to deemed foreign dividends —
— % —
(56.2 ) 56.2
.25
2019 Non-GAAP Measure
$1,566.6
23.6 %
$155.5

$319.9

$1,316.2

$5.94
2018 GAAP
$1,431.9
21.6 %
$115.6

$455.1

$1,002.7

$4.54
Tax reform repatriation —
— % 32.5
(420.5 ) 453.0
2.06
Tax reform rate change and other —
— % —
214.0
(214.0 ) (.97 )
Tax restructuring —
— % —
38.8
(38.8 ) (.18 )
2018 Non-GAAP Measure
$1,431.9
21.6 %
$148.1

$287.4

$1,202.9

$5.45
Change Non-GAAP Measure
$134.7
200 bp
$7.4

$32.5

$113.3

$.49
% Change Non-GAAP Measure 9 % 5 % 11 % 9 % 9 %



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


^(B)	Reflected on the consolidated income statements within "Other non-operating income (expense), net." Fiscal year 2019 includes a before-tax impact of $5.0 for the nine months ended 30 June 2019. Refer to Note 11, Retirement Benefits, to the consolidated financial statements for additional information.

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

Three Months Ended Nine Months Ended
30 June 30 June
Operating Income 2019 2018 2019 2018
Consolidated total
$569.7

$515.8

$1,541.2

$1,431.9
Facility closure —
—
29.0
—
Cost reduction actions 25.5
—
25.5
—
Gain on exchange of equity affiliate investments (29.1 ) —
(29.1 ) —
Segment total
$566.1

$515.8

$1,566.6

$1,431.9

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

Three Months Ended Nine Months Ended
30 June 30 June
Equity Affiliates' Income 2019 2018 2019 2018
Consolidated total
$56.4

$58.1

$155.5

$115.6
Tax reform repatriation - equity method investment —
—
—
32.5
Segment total
$56.4

$58.1

$155.5

$148.1

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 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 operating income ~~from continuing operations on a GAAP basis~~and operating margin by segment to adjusted ~~EBITDA:~~EBITDA and adjusted EBITDA margin by segment for the three months ended 31 December 2019 and 2018:

Three Months Ended Nine Months Ended
30 June 30 June
2019 2018 2019 2018
Income From Continuing Operations^(A)

$500.2

$444.7

$1,290.7

$1,031.0
Add: Interest expense 34.2
34.9
106.9
95.1
Less: Other non-operating income (expense), net 17.6
12.8
49.8
33.7
Add: Income tax provision 109.3
107.1
348.9
455.1
Add: Depreciation and amortization 269.1
245.6
789.2
713.5
Add: Facility closure —
—
29.0
—
Add: Cost reduction actions 25.5
—
25.5
—
Less: Gain on exchange of equity affiliate investments 29.1
—
29.1
—
Add: Tax reform repatriation - equity method investment —
—
—
32.5
Adjusted EBITDA
$891.6

$819.5

$2,511.3

$2,293.5
Adjusted EBITDA margin 40.1 % 36.3 % 37.8 % 34.6 %
Change GAAP
Income from continuing operations change
$55.5

$259.7

Income from continuing operations % change 12 % 25 %
Change Non-GAAP
Adjusted EBITDA change
$72.1

$217.8

Adjusted EBITDA % change 9 % 9 %
Adjusted EBITDA margin change 380 bp 320 bp



	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


^(A)	~~Includes net~~The table below reconciles operating income ~~attributable~~as reflected on our consolidated income statements to ~~noncontrolling interests.~~total operating income in the table above:

~~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 Segment
Total
GAAP MEASURE
Three Months Ended 30 June 2019
Operating income (loss)
$262.2

$123.4

$231.4

($9.6 )
($41.3 )
$566.1
Operating margin 27.4 % 24.9 % 34.1 % 25.5 %
Three Months Ended 30 June 2018
Operating income (loss)
$237.1

$118.8

$185.5

$19.8

($45.4 )
$515.8
Operating margin 25.0 % 21.2 % 29.7 % 22.8 %
Operating income (loss) change
$25.1

$4.6

$45.9

($29.4 )
$4.1

$50.3
Operating income (loss) % change 11 % 4 % 25 % (148 )% 9 % 10 %
Operating margin change 240 bp 370 bp 440 bp 270 bp
NON-GAAP MEASURE
Three Months Ended 30 June 2019
Operating income (loss)
$262.2

$123.4

$231.4

($9.6 )
($41.3 )
$566.1
Add: Depreciation and amortization 126.3
47.8
87.9
2.2
4.9
269.1
Add: Equity affiliates' income 21.7
18.8
14.9
1.0
—
56.4
Adjusted EBITDA
$410.2

$190.0

$334.2

($6.4 )
($36.4 )
$891.6
Adjusted EBITDA margin 42.9 % 38.4 % 49.2 % 40.1 %
Three Months Ended 30 June 2018
Operating income (loss)
$237.1

$118.8

$185.5

$19.8

($45.4 )
$515.8
Add: Depreciation and amortization 120.5
49.8
69.5
2.3
3.5
245.6
Add: Equity affiliates' income 24.1
17.5
15.1
1.4
—
58.1
Adjusted EBITDA
$381.7

$186.1

$270.1

$23.5

($41.9 )
$819.5
Adjusted EBITDA margin 40.2 % 33.2 % 43.3 % 36.3 %
Adjusted EBITDA change
$28.5

$3.9

$64.1

($29.9 )
$5.5

$72.1
Adjusted EBITDA % change 7 % 2 % 24 % (127 )% 13 % 9 %
Adjusted EBITDA margin change 270 bp 520 bp 590 bp 380 bp

Industrial
Gases–
Americas Industrial
Gases–
EMEA Industrial
Gases–
Asia Industrial
Gases–
Global Corporate
and other Segment
Total
GAAP MEASURE
Nine Months Ended 30 June 2019
Operating income (loss)
$737.0

$351.5

$632.9

($17.9 )
($136.9 )
$1,566.6
Operating margin 25.1 % 23.2 % 32.8 % 23.6 %
Nine Months Ended 30 June 2018
Operating income (loss)
$676.6

$340.0

$509.7

$41.4

($135.8 )
$1,431.9
Operating margin 24.4 % 20.7 % 27.9 % 21.6 %
Operating income (loss) change
$60.4

$11.5

$123.2

($59.3 )
($1.1 )
$134.7
Operating income (loss) % change 9 % 3 % 24 % (143 )% (1 )% 9 %
Operating margin change 70 bp 250 bp 490 bp 200 bp
NON-GAAP MEASURE
Nine Months Ended 30 June 2019
Operating income (loss)
$737.0

$351.5

$632.9

($17.9 )
($136.9 )
$1,566.6
Add: Depreciation and amortization 376.8
140.4
252.7
6.3
13.0
789.2
Add: Equity affiliates' income 62.1
45.8
44.9
2.7
—
155.5
Adjusted EBITDA
$1,175.9

$537.7

$930.5

($8.9 )
($123.9 )
$2,511.3
Adjusted EBITDA margin 40.0 % 35.5 % 48.2 % 37.8 %
Nine Months Ended 30 June 2018
Operating income (loss)
$676.6

$340.0

$509.7

$41.4

($135.8 )
$1,431.9
Add: Depreciation and amortization 360.6
149.6
188.9
5.8
8.6
713.5
Add: Equity affiliates' income 59.6
41.7
44.7
2.1
—
148.1
Adjusted EBITDA
$1,096.8

$531.3

$743.3

$49.3

($127.2 )
$2,293.5
Adjusted EBITDA margin 39.6 % 32.4 % 40.7 % 34.6 %
Adjusted EBITDA change
$79.1

$6.4

$187.2

($58.2 )
$3.3

$217.8
Adjusted EBITDA % change 7 % 1 % 25 % (118 )% 3 % 9 %
Adjusted EBITDA margin change 40 bp 310 bp 750 bp 320 bp



	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 of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense associated with each adjustment and is primarily dependent upon the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. For additional discussion on the ~~impacts~~impact of ~~our non-GAAP tax adjustments, including those resulting from~~ the U.S. Tax Cuts and Jobs Act, refer to Note ~~16,~~ 15, Income Taxes, to the consolidated financial statements.

There were no non-GAAP adjustments to arrive at the adjusted effective tax rate in the first quarter of fiscal year 2020.

Effective Tax Rate
Three Months Ended
30 June Nine Months Ended
30 June
2019 2018 2019 2018
Income Tax Provision—GAAP
$109.3

$107.1

$348.9

$455.1
Income From Continuing Operations Before Taxes—GAAP
$609.5

$551.8

$1,639.6

$1,486.1
Effective Tax Rate—GAAP 17.9 % 19.4 % 21.3 % 30.6 %
Income Tax Provision—GAAP
$109.3

$107.1

$348.9

$455.1
Facility closure —
—
6.9
—
Cost reduction actions 6.7
—
6.7
—
Pension settlement loss —
—
1.2
—
Tax reform repatriation (3.2 ) —
12.4
(420.5 )
Tax reform adjustment related to deemed foreign dividends —
—
(56.2 ) —
Tax reform rate change and other —
—
—
214.0
Tax restructuring —
—
—
38.8
Income Tax Provision—Non-GAAP Measure
$112.8

$107.1

$319.9

$287.4
Income From Continuing Operations Before Taxes—GAAP
$609.5

$551.8

$1,639.6

$1,486.1
Facility closure —
—
29.0
—
Cost reduction actions 25.5
—
25.5
—
Gain on exchange of equity affiliate investments (29.1 ) —
(29.1 ) —
Pension settlement loss —
—
5.0
—
Tax reform repatriation - equity method investment —
—
—
32.5
Income From Continuing Operations Before Taxes—Non-GAAP Measure
$605.9

$551.8

$1,670.0

$1,518.6
Effective Tax Rate—Non-GAAP Measure 18.6 % 19.4 % 19.2 % 18.9 %



	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		%

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 ~~30 June~~31 December 2019, we had ~~$1,091.4~~$1,240.1 of foreign cash and cash items compared to total cash and cash items of ~~$2,696.8.~~$2,406.1. As a result of the 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 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:


	Nine Months Ended						Three Months Ended
	30 June						31 December
Cash provided by (used for)	2019			2018			2019			2018
Operating activities		$2,003.4			$1,856.2			$667.0			$655.2
Investing activities	(1,435.5		)	(1,031.8		)	(260.7		)	(226.5		)
Financing activities	(660.8		)	(1,097.8		)	(270.3		)	(289.8		)

Operating Activities

For the first ~~nine~~three months of fiscal year ~~2019,~~2020, cash provided by operating activities was ~~$2,003.4.~~$667.0. Income from continuing operations of ~~$1,256.8~~$475.6 was adjusted for items including depreciation and amortization, deferred income taxes, ~~impacts from the Tax Act, a facility closure,~~ undistributed earnings of unconsolidated affiliates, gains on sale of assets and investments, share-based compensation, and noncurrent ~~capital~~ lease receivables. ~~Adjustments~~The working capital accounts were a use of 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 2019 annual incentive compensation plan and $24.9 from the 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 Act ~~are~~is included within "Tax reform repatriation" and "Deferred income taxes." See Note ~~16,~~ 15, Income Taxes to the consolidated financial statements for additional information. The "Gain on sale of assets and investments" includes a gain on the disposition of our interest in High-Tech Gases. Refer to Note 6, Acquisitions,, to the consolidated financial statements for additional information. The working capital accounts were a use of cash of ~~$186.4,~~$71.6, primarily driven by ~~$139.5~~$73.6 from trade receivables and $94.8 from payables and accrued liabilities. The use of cash within "Payables and accrued liabilities" was primarily driven by a $42.2 decrease in accrued utilities and a $33.5 decrease in accrued incentive compensation due to payments on the 2018 plan. The decrease in accrued utilities was primarily driven by receivables.~~a contract modification to a tolling arrangement in India~~ ~~and lower utility cost in the Industrial Gases – Americas segment.~~

For the first nine months of 2018, cash provided by operating activities was $1,856.2 which included income from continuing operations of $1,002.7. The tax reform repatriation adjustment of $310.3 represents our obligation for the deemed repatriation tax resulting from the Tax Act and is payable over a period of eight years. Undistributed earnings of unconsolidated affiliates includes $32.5 of expense resulting from the Tax Act. See Note 16, Income Taxes, to the consolidated financial statements for additional information. The working capital accounts were a use of cash of $124.3, primarily driven by $164.9 from payables and accrued liabilities. The use of cash within payables and accrued liabilities includes a decrease in customer advances of $87.5 primarily related to sale of equipment activity, a decrease of $24.8 for severance payments, and a $23.2 decrease in accrued incentive compensation due to payments on the 2017 plan.

Cash paid for income taxes, net of cash refunds, was ~~$250.8~~$66.2 and ~~$311.6~~$28.7 for the ~~nine~~three months ended ~~30 June~~31 December 2019 and 2018, respectively.

Investing Activities

For the first ~~nine~~three months of fiscal year ~~2019,~~2020, cash used for investing activities was ~~$1,435.5.~~$260.7. Capital expenditures for plant and equipment were $1,507.6 and included a $111.7 asset purchase of two air separation units in conjunction with the signing of a 20-year sale of gas contract with the customer. Cash paid for acquisitions, less cash acquired of $107.0 primarily related to our acquisition of ACP Europe SA ("ACP"). See Note 6, Acquisitions, to the consolidated financial statements for further details regarding our acquisitions.$447.7. Proceeds from investments of ~~$190.5~~$177.0 resulted from maturities of time deposits with original terms greater than three months but less than one year.

For the first ~~nine~~three months of ~~2018,~~fiscal year 2019, cash used for investing activities was ~~$1,031.8.~~$226.5. Capital expenditures for plant and equipment were ~~$1,158.1. Cash paid for acquisitions, net~~$403.4. Proceeds from investments of ~~cash acquired, was $320.2. See Note 6, Acquisitions, to the consolidated financial statements for further details. Net proceeds~~$178.0 resulted from ~~the~~ maturities of ~~short-term investments was~~time deposits with original terms greater than three months but less than one year.

Capital expenditures is a ~~source of cash of $395.4.~~

Wenon-GAAP measure that we define ~~capital expenditures~~ 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:


	Nine Months Ended				Three Months Ended
	30 June				31 December
	2019		2018		2019		2018
Additions to plant and equipment		$1,507.6		$1,158.1		$447.7		$403.4
Acquisitions, less cash acquired	107.0		320.2		—		—
Investment in and advances to unconsolidated affiliates	15.7		—		7.1		—
Capital expenditures		$1,630.3		$1,478.3
Capital Expenditures						$454.8		$403.4

~~We expect capital~~

Capital expenditures ~~of approximately $2,400 to $2,500~~ in fiscal year ~~2019. This range~~2020 are expected to be approximately $4 billion to $4.5 billion, which primarily includes our initial expected equity affiliate investment in the Jazan gas and power project as well as new plants that are currently under construction or expected to start construction. It is not possible, without unreasonable efforts, to reconcile our ~~joint venture, Air Products Lu An (Changzhi) Co., Ltd., with Lu’An Clean Energy Company,~~forecasted capital expenditures to future cash used for investing activities because we are unable to identify the timing or occurrence of our future investment activity, which ~~closed on 26 April 2018.~~

~~Sales backlog represents~~is driven by our ~~estimate~~assessment of ~~revenue to be recognized~~competing opportunities at the time we enter into transactions. These decisions, either individually or in the ~~future~~aggregate, could have a significant effect on ~~sale of equipment orders and related process technologies that are under firm contracts. The sales backlog~~our cash used for ~~the Company at 30 June 2019 was $624, compared to $204 at 30 September 2018.~~

investing activities.

Financing Activities

For the first ~~nine~~three months of fiscal year 2020, cash used for financing activities was $270.3 and primarily included dividend payments to shareholders of $255.7.

For the first three months of fiscal year 2019, cash used for financing activities was ~~$660.8 and primarily included dividend payments to shareholders of $738.4, partially offset by proceeds from stock option exercises of $63.3.~~

~~For the first nine months of 2018, cash used for financing activities was $1,097.8.~~$289.8. This consisted primarily of dividend payments to shareholders of ~~$656.6~~$241.5 and repayment on ~~long-term debt~~short term borrowings of ~~$418.2. 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.~~$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 as of ~~30 June~~31 December 2019 and 30 September ~~2018,~~2019, expressed as a percentage of total capitalization (total debt plus total equity), was ~~24.6%~~21.9% and ~~25.4%~~22.6%, respectively. Total debt increased from ~~$3,812.6~~$3,326.0 at 30 September ~~2018~~2019 to ~~$3,819.7~~$3,341.2 at ~~30 June~~31 December 2019. The current year total debt balance includes ~~$384.5~~$367.4 of related party debt associated with the Lu'An joint venture.

We have a $2,300.0 revolving credit agreement with a syndicate of banks ~~("the Credit~~(the "Credit Agreement”) maturing 31 March 2022. Under the Credit Agreement, senior unsecured debt is available to both the Company and certain of its subsidiaries. The 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 no greater than 70%. No borrowings were outstanding under the Credit Agreement as of ~~30 June~~31 December 2019 or 30 September ~~2018.~~2019.

~~Commitments totaling $2.3 are~~There were no outstanding commitments maintained by our foreign subsidiaries ~~all of which was borrowed and outstanding~~ as of ~~30 June~~31 December 2019.

As of ~~30 June~~31 December 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 ~~nine~~three months of fiscal year ~~2019,~~2020, we did not purchase any of our outstanding shares. At ~~30 June~~31 December 2019, $485.3 in share repurchase authorization remained.

Dividends

On ~~18 July~~23 January 2019, the Board of Directors declared the ~~fourth~~second quarter dividend of ~~$1.16~~$1.34 per share. The dividend is payable on 11 ~~November 2019~~May 2020 to shareholders of record at the close of business on 1 ~~October 2019.~~April 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. There have been no material changes to our contractual obligations since 30 September ~~2018.~~2019.

PENSION BENEFITS

For the ~~nine~~three months ended ~~30 June~~31 December 2019 and 2018, net periodic pension cost was ~~$22.1~~$0.4 and ~~$37.5,~~$6.9, respectively. We recognized service-related costs of ~~$31.3~~$11.9 and ~~$39.5,~~$10.6, respectively, on our consolidated income statements within operating income. The non-service benefits of ~~$9.2~~$11.5 and ~~$2.0~~$3.7 were included in "Other non-operating income (expense), net" for the ~~nine~~three months ended ~~30 June~~31 December 2019 and 2018, respectively. The decrease in pension expense in fiscal year ~~2019~~2020 resulted from lower interest cost and higher expected return on assets, partially offset by higher loss amortization, primarily due to ~~favorable asset experience, and~~ the impact of ~~higher~~lower discount ~~rates, partially offset by lower expected return on assets.~~rates. The amount of service costs capitalized in the first three months of fiscal years 2020 and 2019 ~~and 2018 was~~were not material.

For the ~~nine~~three months ended ~~30 June 2019 and~~31 December 2018, we recognized pension settlement losses of ~~$6.3 and $4.8, respectively,~~$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 ~~years~~year 2019 ~~and 2018~~ were primarily associated with the U.S. ~~Supplementary Pension Plan.~~supplementary pension plan. We expect total pension settlement losses of approximately $5 to $10 in fiscal year ~~2019.~~2020.

Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the ~~nine~~three months ended ~~30 June~~31 December 2019 and 2018, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were ~~$31.0~~$8.3 and ~~$43.0,~~$19.5, respectively. Total contributions for fiscal ~~2019~~2020 are expected to be approximately ~~$45~~$30 to ~~$65.~~$40. During fiscal year ~~2018,~~2019, total contributions were ~~$68.3.~~$40.2.

Refer to Note ~~11,~~ 10, Retirement Benefits, to the consolidated financial statements for details on pension cost and cash contributions.

COMMITMENTS AND CONTINGENCIES

Refer to Note ~~12,~~ 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 ~~2018.~~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

~~During fiscal year 2018,~~In addition, we ~~completed~~have related party liabilities with the ~~formation~~partner of our Air Products Lu An (Changzhi) Co., Ltd. ~~("the JV"), a 60%-owned~~ joint ~~venture with Lu'An Clean Energy Company ("Lu'An")~~venture. Refer to Note 16, Supplemental Information, ~~and the JV acquired gasification and syngas clean-up assets from Lu'An. In connection with the acquisition, Lu'An made a loan~~ to the ~~JV of 2.6 billion RMB and we established a liability of 2.3 billion RMB~~consolidated financial statements for cash payments expected to be made to or on behalf of Lu'An in 2019. Long-term debt payable to Lu'An of approximately $322 and $384 as of 30 June 2019 and 30 September 2018, respectively, is presented on the consolidated balance sheets as "Long-term debt – related party." As of 30 June 2019, approximately $63 of the loan is reflected within "Current portion of long-term debt." The expected remaining cash payments are presented within "Payables and accrued liabilities" and were approximately $81 and $330 as of 30 June 2019 and 30 September 2018, respectively.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.

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 identified as critical, is included in our ~~2018~~2019 Form 10-K.

There have been no changes to our accounting policies or estimates during the first ~~nine~~three months of fiscal year ~~2019~~2020 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.

NEW ACCOUNTING GUIDANCE

See Note 2, New Accounting Guidance, and Note ~~3, Revenue Recognition,~~7, Leases, to the consolidated financial statements for information concerning the implementation and impact of new accounting guidance.

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 ~~2018~~2019 Form 10-K.

Our net financial instrument position ~~increased~~decreased from a liability of ~~$3,736.2~~$3,239.1 at 30 September ~~2018~~2019 to a liability of ~~$3,759.7~~$3,235.1 at ~~30 June~~31 December 2019.

Interest Rate Risk

The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an instantaneous 100 bp move in interest rates from the level at ~~30 June~~31 December 2019, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of ~~$82~~$72 and ~~$96~~$75 in the net liability position of financial instruments at ~~30 June~~31 December 2019 and 30 September ~~2018,~~2019, respectively. A 100 bp decrease in market interest rates would result in an increase of ~~$87~~$76 and ~~$101~~$80 in the net liability position of financial instruments at ~~30 June~~31 December 2019 and 30 September ~~2018.~~2019.

There were no material changes to the sensitivity analysis related to the variable portion of our debt portfolio since 30 September ~~2018.~~2019.

Foreign Currency Exchange Rate Risk

The sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in ~~the~~ foreign currency exchange rates from their levels at ~~30 June~~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 ~~$321~~$322 and ~~$329~~$326 in the net liability position of financial instruments at ~~30 June~~31 December 2019 and 30 September ~~2018,~~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 ~~30 June~~31 December 2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of ~~30 June~~31 December 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 ~~30 June~~31 December 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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	Amended and Restated Deferred Compensation Program for Directors effective 7 October 2019.

	10.2	Compensation Program for Non-Employee Directors effective 26 November 2019.

	(31)	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: ~~25 July 2019~~24 January 2020	By:	/s/ M. Scott Crocco
		M. Scott Crocco
		Executive Vice President and Chief Financial Officer

5948



	Nine Months Ended
	30 June 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 2017		$249.4		$1,001.1			$12,846.6			($1,847.4	)		($2,163.5	)		$10,086.2			$99.3			$10,185.5
Net income attributable to Air Products	—		—			1,044.9			—			—			1,044.9			28.3			1,073.2
Other comprehensive income (loss)	—		—			—			(30.4		)	—			(30.4		)	(10.4		)	(40.8		)
Dividends on common stock (per share $3.15)	—		—			(690.3		)	—			—			(690.3		)	—			(690.3		)
Dividends to noncontrolling interests	—		—			—			��			—			—			(26.0		)	(26.0		)
Share-based compensation	—		29.7			—			—			—			29.7			—			29.7
Issuance of treasury shares for stock option and award plans	—		(12.3		)	—			—			57.8			45.5			—			45.5
Lu'An joint venture	—		—			—			—			—			—			227.4			227.4
Other equity transactions	—		1.3			(.9		)	—			—			.4			5.4			5.8
Balance at 30 June 2018		$249.4		$1,019.8			$13,200.3			($1,877.8	)		($2,105.7	)		$10,486.0			$324.0			$10,810.0



	30 September 2018		New Revenue Standard Adjustments			1 October 2018
Assets
Current Assets
Cash and cash items		$2,791.3		$—			$2,791.3
Short-term investments	184.7		—			184.7
Trade receivables, net	1,207.2		—			1,207.2
Inventories	396.1		—			396.1
Contracts in progress, less progress billings	77.5		(77.5		)	—
Prepaid expenses	129.6		—			129.6
Other receivables and current assets	295.8		103.7			399.5
Total Current Assets	5,082.2		26.2			5,108.4
Total Noncurrent Assets	14,096.1		—			14,096.1
Total Assets		$19,178.3		$26.2			$19,204.5
Liabilities and Equity
Current Liabilities
Payables and accrued liabilities		$1,817.8		$26.2			$1,844.0
Accrued income taxes	59.6		—			59.6
Short-term borrowings	54.3		—			54.3
Current portion of long-term debt	406.6		—			406.6
Total Current Liabilities	2,338.3		26.2			2,364.5
Total Noncurrent Liabilities	5,663.7		—			5,663.7
Total Liabilities	8,002.0		26.2			8,028.2
Total Equity	11,176.3		—			11,176.3
Total Liabilities and Equity		$19,178.3		$26.2			$19,204.5



	Three Months Ended 30 June
	Forward Exchange Contracts						Foreign Currency Debt					Other ^(A)						Total
	2019			2018			2019			2018		2019			2018			2019			2018
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion)		$1.7			($34.4	)		$—			$—		$5.8			$61.5			$7.5			$27.1
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion)	—			1.9			—			—		—			—			—			1.9
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion)	(6.9		)	33.7			—			—		(9.7		)	(55.6		)	(16.6		)	(21.9		)
Net (gain) loss reclassified from OCI to interest expense (effective portion)	3.1			.8			—			—		.7			2.0			3.8			2.8
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion)	(.2		)	—			—			—		(.1		)	(.5		)	(.3		)	(.5		)
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)		$—			$—			$—			$—		$2.0			($2.1	)		$2.0			($2.1	)
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI		($2.1	)		$16.2			($11.3	)		$44.2		$3.4			$36.9			($10.0	)		$97.3
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)		($.8	)		($.3	)		$—			$—		$.7			$2.2			($.1	)		$1.9




	Nine Months Ended 30 June
	Forward Exchange Contracts						Foreign Currency Debt				Other ^(A)						Total
	2019			2018			2019		2018		2019			2018			2019			2018
Cash Flow Hedges, net of tax:
Net gain (loss) recognized in OCI (effective portion)		($14.1	)		$5.0			$—		$—		($24.1	)		$30.4			($38.2	)		$35.4
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion)	.4			6.9			—		—		—			—			.4			6.9
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion)	2.6			(13.2		)	—		—		6.5			(23.4		)	9.1			(36.6		)
Net (gain) loss reclassified from OCI to interest expense (effective portion)	9.4			3.0			—		—		2.0			3.3			11.4			6.3
Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion)	(.1		)	(.5		)	—		—		(.1		)	(.5		)	(.2		)	(1.0		)
Fair Value Hedges:
Net gain (loss) recognized in interest expense^(B)		$—			$—			$—		$—		$4.6			($8.9	)		$4.6			($8.9	)
Net Investment Hedges, net of tax:
Net gain (loss) recognized in OCI		$15.9			($6.5	)		$15.5		$4.7		$1.3			$2.4			$32.7			$.6
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in other income (expense), net^(C)		($3.1	)		($.2	)		$—		$—		$.2			($1.3	)		($2.9	)		($1.5	)




	Derivatives qualifying as hedges			Foreign currency translation adjustments			Pension and postretirement benefits			Total
Balance at 30 September 2018		($37.6	)		($1,009.8	)		($694.5	)		($1,741.9	)
Other comprehensive loss before reclassifications	(38.2		)	(65.6		)	(3.9		)	(107.7		)
Amounts reclassified from AOCL	20.7			(2.6		)	48.7			66.8
Net current period other comprehensive income (loss)	(17.5		)	(68.2		)	44.8			(40.9		)
Amount attributable to noncontrolling interests	.1			(1.5		)	—			(1.4		)
Balance at 30 June 2019		($55.2	)		($1,076.5	)		($649.7	)		($1,781.4	)



~~Third~~First Quarter ~~2019~~2020 in Summary	3431
~~Third~~First Quarter 2020 Results of Operations	3633
~~First Nine Months 2019 in Summary~~	41
~~First Nine Months Results of Operations~~	42
~~Reconciliation~~Reconciliations of Non-GAAP Financial Measures	4838
Liquidity and Capital Resources	5342
Contractual Obligations	5544
Pension Benefits	5544
Commitments and Contingencies	5645
Off-Balance Sheet Arrangements	5645
Related Party Transactions	5645
Critical Accounting Policies and Estimates	5645
New Accounting Guidance	5645



	Continuing Operations
	Three Months Ended 30 June
Q3 2019 vs. Q3 2018	Operating Income			Operating Margin^(A)		Equity Affiliates' Income			Income Tax Provision			Net Income			Diluted EPS
2019 GAAP		$569.7		25.6	%		$56.4			$109.3			$488.0			$2.20
2018 GAAP	515.8			22.8	%	58.1			107.1			430.7			1.95
Change GAAP		$53.9		280	bp		($1.7	)		$2.2			$57.3			$.25
% Change GAAP	10		%			(3		)%	2		%	13		%	13		%
2019 GAAP		$569.7		25.6	%		$56.4			$109.3			$488.0			$2.20
Cost reduction actions	25.5			1.2	%	—			6.7			18.8			.08
Gain on exchange of equity affiliate investments	(29.1		)	(1.3	)%	—			—			(29.1		)	(.13		)
Tax reform repatriation	—			—	%	—			(3.2		)	3.2			.02
2019 Non-GAAP Measure		$566.1		25.5	%		$56.4			$112.8			$480.9			$2.17
2018 GAAP		$515.8		22.8	%		$58.1			$107.1			$430.7			$1.95
2018 Non-GAAP Measure		$515.8		22.8	%		$58.1			$107.1			$430.7			$1.95
Change Non-GAAP Measure		$50.3		270	bp		($1.7	)		$5.7			$50.2			$.22
% Change Non-GAAP Measure	10		%			(3		)%	5		%	12		%	11		%




	Continuing Operations
	Nine Months Ended 30 June
2019 vs. 2018	Operating Income			Operating Margin^(A)		Equity Affiliates' Income			Income Tax Provision			Net Income			Diluted EPS
2019 GAAP		$1,541.2		23.2	%		$155.5			$348.9			$1,256.8			$5.68
2018 GAAP	1,431.9			21.6	%	115.6			455.1			1,002.7			4.54
Change GAAP		$109.3		160	bp		$39.9			($106.2	)		$254.1			$1.14
% Change GAAP	8		%			35		%	(23		)%	25		%	25		%
2019 GAAP		$1,541.2		23.2	%		$155.5			$348.9			$1,256.8			$5.68
Facility closure	29.0			.4	%	—			6.9			22.1			.10
Cost reduction actions	25.5			.4	%	—			6.7			18.8			.08
Gain on exchange of equity affiliate investments	(29.1		)	(.4	)%	—			—			(29.1		)	(.13		)
Pension settlement loss^(B)	—			—	%	—			1.2			3.8			.02
Tax reform repatriation	—			—	%	—			12.4			(12.4		)	(.06		)
Tax reform adjustment related to deemed foreign dividends	—			—	%	—			(56.2		)	56.2			.25
2019 Non-GAAP Measure		$1,566.6		23.6	%		$155.5			$319.9			$1,316.2			$5.94
2018 GAAP		$1,431.9		21.6	%		$115.6			$455.1			$1,002.7			$4.54
Tax reform repatriation	—			—	%	32.5			(420.5		)	453.0			2.06
Tax reform rate change and other	—			—	%	—			214.0			(214.0		)	(.97		)
Tax restructuring	—			—	%	—			38.8			(38.8		)	(.18		)
2018 Non-GAAP Measure		$1,431.9		21.6	%		$148.1			$287.4			$1,202.9			$5.45
Change Non-GAAP Measure		$134.7		200	bp		$7.4			$32.5			$113.3			$.49
% Change Non-GAAP Measure	9		%			5		%	11		%	9		%	9		%



	Effective Tax Rate
	Three Months Ended 30 June						Nine Months Ended 30 June
	2019			2018			2019			2018
Income Tax Provision—GAAP		$109.3			$107.1			$348.9			$455.1
Income From Continuing Operations Before Taxes—GAAP		$609.5			$551.8			$1,639.6			$1,486.1
Effective Tax Rate—GAAP	17.9		%	19.4		%	21.3		%	30.6		%
Income Tax Provision—GAAP		$109.3			$107.1			$348.9			$455.1
Facility closure	—			—			6.9			—
Cost reduction actions	6.7			—			6.7			—
Pension settlement loss	—			—			1.2			—
Tax reform repatriation	(3.2		)	—			12.4			(420.5		)
Tax reform adjustment related to deemed foreign dividends	—			—			(56.2		)	—
Tax reform rate change and other	—			—			—			214.0
Tax restructuring	—			—			—			38.8
Income Tax Provision—Non-GAAP Measure		$112.8			$107.1			$319.9			$287.4
Income From Continuing Operations Before Taxes—GAAP		$609.5			$551.8			$1,639.6			$1,486.1
Facility closure	—			—			29.0			—
Cost reduction actions	25.5			—			25.5			—
Gain on exchange of equity affiliate investments	(29.1		)	—			(29.1		)	—
Pension settlement loss	—			—			5.0			—
Tax reform repatriation - equity method investment	—			—			—			32.5
Income From Continuing Operations Before Taxes—Non-GAAP Measure		$605.9			$551.8			$1,670.0			$1,518.6
Effective Tax Rate—Non-GAAP Measure	18.6		%	19.4		%	19.2		%	18.9		%