| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2016
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 23-1274455 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 7201 Hamilton Boulevard, Allentown, Pennsylvania | 18195-1501 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
¨
¨
Large accelerated filer | Accelerated filer¨ | Non-accelerated filer¨ | Smaller reporting company¨ | |||
| (Do not check if a smaller reporting company) | ||||||
Class | Outstanding at 31 December | |||
| Common Stock, $1 par value | ||||
| Page No. | |||||||
| |||||||
|
| ||||||
| |||||||
| |||||||
Sales Cost of sales Selling and administrative Research and development Business separation costs Project suspension costs Business restructuring and cost reduction actions Gain on previously held equity interest Other income (expense), net Operating Income Equity affiliates’ income Interest expense Income Before Taxes Income tax provision Net Income Less: Net Income Attributable to Noncontrolling Interests Net Income Attributable to Air Products Earnings Per Common Share Attributable to Air Products Net income attributable to Air Products — Basic Net income attributable to Air Products — Diluted Weighted Average Common Shares — Basic(in millions) Weighted Average Common Shares — Diluted(in millions) Dividends Declared Per Common Share — Cash The accompanying notes are an integral part of these statements. Net Income Other Comprehensive Loss, net of tax: Translation adjustments, net of tax of ($6.7) and $16.1 Net gain (loss) on derivatives, net of tax of $4.8 and ($11.4) Reclassification adjustments: Currency translation adjustment Derivatives, net of tax of ($8.0) and $5.4 Pension and postretirement benefits, net of tax of $10.1 and $10.1 Total Other Comprehensive Loss Comprehensive Income Net Income Attributable to Noncontrolling Interests Other Comprehensive Loss Attributable to Noncontrolling Interests Comprehensive Income Attributable to Air Products Assets Current Assets Cash and cash items Trade receivables, net Inventories Contracts in progress, less progress billings Prepaid expenses Other receivables and current assets Total Current Assets Investment in net assets of and advances to equity affiliates Plant and equipment, at cost Less: accumulated depreciation Plant and equipment, net Goodwill, net Intangible assets, net Noncurrent capital lease receivables Other noncurrent assets Total Noncurrent Assets Total Assets Liabilities and Equity Current Liabilities Payables and accrued liabilities Accrued income taxes Short-term borrowings Current portion of long-term debt Total Current Liabilities Long-term debt Other noncurrent liabilities Deferred income taxes Total Noncurrent Liabilities Total Liabilities Commitments and Contingencies – See Note 13 Air Products Shareholders’ Equity Common stock (par value $1 per share; issued 2016 and 2015 – 249,455,584 shares) Capital in excess of par value Retained earnings Accumulated other comprehensive loss Treasury stock, at cost (2016 – 33,805,226 shares; 2015 – 34,096,471 shares) Total Air Products Shareholders’ Equity Noncontrolling Interests Total Equity Total Liabilities and Equity The accompanying notes are an integral part of these statements. Operating Activities Net Income Less: Net income attributable to noncontrolling interests Net income attributable to Air Products Adjustments to reconcile income to cash provided by operating activities: Depreciation and amortization Deferred income taxes Gain on previously held equity interest Undistributed earnings of unconsolidated affiliates Share-based compensation Noncurrent capital lease receivables Other adjustments Working capital changes that provided (used) cash, excluding effects of acquisitions and divestitures: Trade receivables Inventories Contracts in progress, less progress billings Other receivables Payables and accrued liabilities Other working capital Cash Provided by Operating Activities Investing Activities Additions to plant and equipment Acquisitions, less cash acquired Proceeds from sale of assets and investments Other investing activities Cash Used for Investing Activities Financing Activities Long-term debt proceeds Payments on long-term debt Net increase in commercial paper and short-term borrowings Dividends paid to shareholders Proceeds from stock option exercises Excess tax benefit from share-based compensation Other financing activities Cash Used for Financing Activities Effect of Exchange Rate Changes on Cash Increase (Decrease) in Cash and Cash Items Cash and Cash Items – Beginning of Year Cash and Cash Items – End of Period The accompanying notes are an integral part of these statements. 2017 statements upon adoption. transition services agreement and were immaterial. In addition, Seifi Ghasemi, chairman, president and chief executive officer of Air Products, is serving as non-executive chairman of the Versum Board of Directors. outstanding commitments. Severance and Other Benefits Asset Actions/Other 30 September 2014 2015 Charge Amount reflected in pension liability Noncash expenses Cash expenditures Currency translation adjustment 30 September 2015 Cash expenditures Currency translation adjustment 31 December 2015 Finished goods Work in process Raw materials, supplies and other Less: Excess of FIFO cost over LIFO cost Inventories Refer to Note 3, Discontinued Operations, for additional information regarding the dispositions. Goodwill, net at 30 September 2015 Currency translation Goodwill, net at 31 December 2015 Goodwill, gross Accumulated impairment losses(A) Goodwill, net Amount is attributable to the Industrial Gases – Americas segment and includes currency translation of Forward Exchange Contracts: Cash flow hedges Net investment hedges Not designated Total Forward Exchange Contracts items. Interest rate swaps Cross currency interest rate swaps Cross currency interest rate swaps Cross currency interest rate swaps Balance Sheet Location 31 December 2015 30 September 2015 Balance Sheet Location 31 December 2015 30 September 2015 Derivatives Designated as Hedging Instruments: Forward exchange contracts Interest rate management contracts Forward exchange contracts Interest rate management contracts Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments: Forward exchange contracts Forward exchange contracts Interest rate management contracts Total Derivatives Not Designated as Hedging Instruments Total Derivatives Cash Flow Hedges, net of tax: Net gain (loss) recognized in OCI (effective portion) Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion) Net (gain) loss reclassified from OCI to other income (expense), net (effective portion) Net (gain) loss reclassified from OCI to interest expense (effective portion) Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion) Fair Value Hedges: Net gain (loss) recognized in interest expense (B) Net Investment Hedges, net of tax: Net gain (loss) recognized in OCI Derivatives Not Designated as Hedging Instruments: Net gain (loss) recognized in other income (expense), net(C) Other includes the impact on other comprehensive income (OCI) and earnings primarily related to interest rate and cross currency interest rate swaps. The impact of fair value hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in related interest rates on The impact of the non-designated hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in exchange rates on Assets Derivatives Forward exchange contracts Interest rate management contracts Liabilities Derivatives Forward exchange contracts Interest rate management contracts Long-term debt, including current portion Assets at Fair Value Derivatives Forward exchange contracts Interest rate management contracts Total Assets at Fair Value Liabilities at Fair Value Derivatives Forward exchange contracts Interest rate management contracts Total Liabilities at Fair Value Service cost Interest cost Expected return on plan assets Actuarial loss amortization Prior service cost amortization Settlements Special termination benefits Other Net periodic benefit cost $5. $79.3. financial condition, results of operations, or cash flows. 2016. Before-Tax Share-Based Compensation Cost Income Tax Benefit After-Tax Share-Based Compensation Cost Expected volatility Balance at 30 September Net income(A) Other comprehensive loss Dividends on common stock (per share $.81, $.77) Dividends to noncontrolling interests Share-based compensation Treasury shares for stock option and award plans Tax benefit of stock option and award plans Other equity transactions Balance at 31 December Balance at 30 September 2015 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCL Net current period other comprehensive income (loss) Balance at 31 December 2015 2016: (Gain) Loss on Cash Flow Hedges, net of tax Sales/Cost of sales Other income (expense), net Interest expense Total (Gain) Loss on Cash Flow Hedges, net of tax Currency Translation Adjustment(A) Pension and Postretirement Benefits, net of tax(B) The impact is reflected in Other income (expense), net and relates to the sale of an equity affiliate. The components include items such as prior service cost amortization, actuarial loss amortization, and settlements and are reflected in net periodic benefit cost. Refer to Note Numerator Net Income Attributable to Air Products Denominator(in millions) Weighted average number of common shares — Basic Effect of dilutive securities Employee stock option and other award plans Weighted average number of common shares — Diluted Earnings Per Common Share Attributable to Air Products Net Income Attributable to Air Products — Basic Net Income Attributable to Air Products — Diluted Three Months Ended 31 December 2015 Sales Operating income (loss) Depreciation and amortization Equity affiliates’ income (loss) Three Months Ended 31 December 2014 Sales Operating income (loss) Depreciation and amortization Equity affiliates’ income Total Assets 31 December 2015 30 September 2015 Three Months Ended 31 December Segment total Business separation costs Project suspension costs Business restructuring and cost reduction actions Gain on previously held equity interest Consolidated Total Increase (Decrease) Diluted Earnings per Share – GAAP Basis Business separation costs Project suspension costs Business restructuring and cost reduction actions Gain on previously held equity interest Diluted Earnings per Share – Non-GAAP Basis Operating Income (after-tax) Underlying business Volume Price/raw materials Costs Currency Operating Income Other (after-tax) Equity affiliates’ income Interest expense Income tax Noncontrolling interests Weighted average diluted shares Other Total Change in Diluted Earnings per Share – Non-GAAP Basis Sales Operating income Operating margin Equity affiliates’ income Non-GAAP Basis Adjusted EBITDA Adjusted EBITDA margin Operating income Operating margin Underlying business Volume Price Currency Energy and raw material cost pass-through Total Consolidated Change cost performance from productivity actions, partially offset by unfavorable volume mix. Industrial Gases – EMEA and Industrial Gases – Asia affiliates. $24. costs. Interest incurred Less: capitalized interest Interest expense construction, primarily as a result of our decision to exit from the Energy-from-Waste business in the second quarter of fiscal year 2016. the results of discontinued operations. Of this loss, $53.0 was recorded for contract and other obligations and $6.3 was recorded to update our estimated net realizable value for the plant assets as of 31 December 2016. We may incur additional exit costs in future periods related to other outstanding commitments. Sales Operating income Operating margin Equity affiliates’ income Adjusted EBITDA Adjusted EBITDA margin Underlying business Volume Price Currency Energy and raw material cost pass-through Total Industrial Gases – Americas Sales Change Sales Operating income Operating margin Equity affiliates’ income Adjusted EBITDA Adjusted EBITDA margin $9.5 increased $1.9. Sales Operating income Operating margin Equity affiliates’ income Adjusted EBITDA Adjusted EBITDA margin Underlying business Volume Price Currency Energy and raw material cost pass-through Total Industrial Gases – Asia Sales Change $13.5 increased $1.8. Sales Operating loss Adjusted EBITDA Income (Loss) Sales Operating income Operating margin Adjusted EBITDA Adjusted EBITDA margin other air separation unit sales. Operating loss Adjusted EBITDA productivity improvements. Sales Operating loss Adjusted EBITDA the transition service agreement with Versum. 2016 GAAP 2015 GAAP Change GAAP % Change GAAP 2016 GAAP Business separation costs Project suspension costs (tax impact $2.9) 2016 Non-GAAP Measure 2015 GAAP Business restructuring and cost reduction actions (tax impact $10.7) Gain on previously held equity interest (tax impact $6.7) 2015 Non-GAAP Measure Change Non-GAAP Measure % Change Non-GAAP Measure Operating margin is calculated by dividing operating income by sales. Net Income(A) Add: Interest expense Add: Income tax provision Add: Depreciation and amortization Add: Business separation costs Add: Project suspension costs Add: Business restructuring and cost reduction actions Less: Gain on previously held equity interest Adjusted EBITDA Change from prior year % Change from prior year Includes net income attributable to noncontrolling interests. Three Months Ended 31 December 2015 Operating income (loss) Add: Depreciation and amortization Add: Equity affiliates’ income (loss) Adjusted EBITDA Adjusted EBITDA margin Three Months Ended 31 December 2014 Operating income (loss) Add: Depreciation and amortization Add: Equity affiliates’ income Adjusted EBITDA Adjusted EBITDA margin Adjusted EBITDA change Adjusted EBITDA % change Adjusted EBITDA margin change Income Tax Provision — GAAP Income Before Taxes — GAAP Effective Tax Rate — GAAP Income Tax Provision — GAAP Project suspension costs Business restructuring and cost reduction actions Gain on previously held equity interest Income Tax Provision — Non-GAAP Measure Income Before Taxes — GAAP Business separation costs Project suspension costs Business restructuring and cost reduction actions Gain on previously held equity interest Income Before Taxes — Non-GAAP Measure Effective Tax Rate — Non-GAAP Measure tax, decreased by approximately $5. $79.3. $239.2. construction. Additions to plant and equipment Acquisitions, less cash acquired Capital expenditures on a GAAP basis Capital lease expenditures(A) Capital expenditures on a Non-GAAP basis We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities, if the arrangement qualifies as a capital lease. The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure that our management uses internally to evaluate and manage our expenditures. 2017. 2016. 2016 as a result of the repayment of commercial paper. 2016. 2016. on 3 April 2017. 2016. 2016 and 2015, respectively. 2016 to their estimated net realizable value. Refer to Note 9, Fair Value Measurements, for additional information. The disclosures about market risk that follow are on a continuing operations basis. currency and interest rate swap agreements, was composed of 64% fixed-rate debt and 36% variable-rate debt. The change in debt portfolio composition was due primarily to the repayment of commercial paper. Air Products and Chemicals, Inc. /s/ M. Scott Crocco Three Months Ended 31 December (Millions of dollars, except for share data) 2016 2015 Sales $ 1,882.5 $ 1,866.3 Cost of sales 1,318.1 1,295.9 Selling and administrative 165.7 173.9 Research and development 15.1 16.9 Business separation costs 30.2 12.0 Cost reduction and asset actions 50.0 — Other income (expense), net 24.7 4.9 Operating Income 328.1 372.5 Equity affiliates’ income 38.0 33.3 Interest expense 29.5 22.2 Income From Continuing Operations Before Taxes 336.6 383.6 Income tax provision 78.4 96.4 Income from Continuing Operations 258.2 287.2 Income From Discontinued Operations, net of tax 48.2 84.8 Net Income 306.4 372.0 Net Income Attributable to Noncontrolling Interests of Continuing Operations 6.6 6.3 Net Income Attributable to Noncontrolling Interests of Discontinued Operations — 2.1 Net Income Attributable to Air Products $ 299.8 $ 363.6 Net Income Attributable to Air Products Income from continuing operations $ 251.6 $ 280.9 Income from discontinued operations 48.2 82.7 Net Income Attributable to Air Products $ 299.8 $ 363.6 Basic Earnings Per Common Share Attributable to Air Products Income from continuing operations $ 1.16 $ 1.30 Income from discontinued operations .22 .38 Net Income Attributable to Air Products $ 1.38 $ 1.68 Diluted Earnings Per Common Share Attributable to Air Products Income from continuing operations $ 1.15 $ 1.29 Income from discontinued operations .22 .38 Net Income Attributable to Air Products $ 1.37 $ 1.67 217.7 215.8 219.7 217.6 Dividends Declared Per Common Share – Cash $ .86 $ .81 (Unaudited) Three Months Ended
31 December(Millions of dollars, except for share data) 2015 2014 $ 2,355.8 $ 2,560.8 1,598.0 1,831.0 212.0 258.2 32.4 35.4 12.0 — 14.3 — — 32.4 — 17.9 5.9 8.3 493.0 430.0 33.7 43.1 22.2 29.1 504.5 444.0 132.5 106.5 372.0 337.5 8.4 12.9 $ 363.6 $ 324.6 $ 1.68 $ 1.52 1.67 1.50 215.8 214.2 217.6 216.6 $ .81 $ .77 Three Months Ended
31 December(Millions of dollars) 2015 2014 $ 372.0 $ 337.5 (102.9 ) (244.4 ) 16.0 (23.8 ) 2.4 — (19.3 ) 13.5 21.1 20.9 (82.7 ) (233.8 ) 289.3 103.7 8.4 12.9 — (5.1 ) $ 280.9 $ 95.9 Three Months Ended 31 December (Millions of dollars) 2016 2015 Net Income $ 306.4 $ 372.0 Other Comprehensive Loss, net of tax: Translation adjustments, net of tax of $32.3 and ($6.7) (281.2 ) (102.9 ) Net gain (loss) on derivatives, net of tax of ($10.7) and $4.8 (9.8 ) 16.0 Reclassification adjustments: Currency translation adjustment — 2.4 Derivatives, net of tax of $10.6 and ($8.0) 25.6 (19.3 ) Pension and postretirement benefits, net of tax of $12.9 and $10.1 27.4 21.1 Total Other Comprehensive Loss (238.0 ) (82.7 ) Comprehensive Income 68.4 289.3 Net Income Attributable to Noncontrolling Interests 6.6 8.4 Other Comprehensive Loss Attributable to Noncontrolling Interests (3.1 ) — Comprehensive Income Attributable to Air Products $ 64.9 $ 280.9 31 December 30 September (Millions of dollars, except for share data) 2016 2016 Assets Current Assets Cash and cash items $ 655.5 $ 1,293.2 Trade receivables, net 1,063.3 1,146.2 Inventories 330.7 255.0 Contracts in progress, less progress billings 84.6 64.6 Prepaid expenses 68.6 93.9 Other receivables and current assets 485.9 538.2 Current assets of discontinued operations 860.2 926.2 Total Current Assets 3,548.8 4,317.3 Investment in net assets of and advances to equity affiliates 1,254.7 1,283.6 Plant and equipment, at cost 18,273.8 18,660.2 Less: accumulated depreciation 10,243.5 10,400.5 Plant and equipment, net 8,030.3 8,259.7 Goodwill, net 811.1 845.1 Intangible assets, net 376.7 387.9 Noncurrent capital lease receivables 1,162.6 1,221.7 Other noncurrent assets 772.0 671.0 Noncurrent assets of discontinued operations — 1,042.3 Total Noncurrent Assets 12,407.4 13,711.3 Total Assets $ 15,956.2 $ 18,028.6 Liabilities and Equity Current Liabilities Payables and accrued liabilities $ 1,677.5 $ 1,652.2 Accrued income taxes 133.7 117.9 Short-term borrowings 156.1 935.8 Current portion of long-term debt 873.3 365.4 Current liabilities of discontinued operations 89.2 211.8 Total Current Liabilities 2,929.8 3,283.1 Long-term debt 3,289.0 3,909.7 Other noncurrent liabilities 1,797.3 1,816.5 Deferred income taxes 679.0 710.4 Noncurrent liabilities of discontinued operations — 1,095.5 Total Noncurrent Liabilities 5,765.3 7,532.1 Total Liabilities 8,695.1 10,815.2 Commitments and Contingencies – See Note 11 Air Products Shareholders’ Equity Common stock (par value $1 per share; issued 2017 and 2016 - 249,455,584 shares) 249.4 249.4 Capital in excess of par value 967.5 970.0 Retained earnings 10,771.7 10,475.5 Accumulated other comprehensive loss (2,611.7 ) (2,388.3 ) Treasury stock, at cost (2017 - 31,865,632 shares; 2016 - 32,104,759 shares) (2,215.4 ) (2,227.0 ) Total Air Products Shareholders’ Equity 7,161.5 7,079.6 Noncontrolling Interests 99.6 133.8 Total Equity 7,261.1 7,213.4 Total Liabilities and Equity $ 15,956.2 $ 18,028.6 (Unaudited)(Millions of dollars, except for share data) 31 December
2015 30 September
2015 $ 279.1 $ 206.4 1,288.5 1,406.2 665.6 657.8 129.1 110.8 59.2 67.3 357.5 345.0 2,779.0 2,793.5 1,262.4 1,265.7 20,443.2 20,354.6 10,824.2 10,717.7 9,619.0 9,636.9 1,115.4 1,131.3 491.0 508.3 1,319.4 1,350.2 674.1 648.6 14,481.3 14,541.0 $ 17,260.3 $ 17,334.5 $ 1,533.5 $ 1,658.7 91.6 55.8 1,539.4 1,494.3 407.9 435.6 3,572.4 3,644.4 3,870.5 3,949.1 1,487.2 1,556.5 831.2 803.4 6,188.9 6,309.0 9,761.3 9,953.4 249.4 249.4 901.9 904.7 10,768.7 10,580.4 (2,208.6 ) (2,125.9 ) (2,344.3 ) (2,359.6 ) 7,367.1 7,249.0 131.9 132.1 7,499.0 7,381.1 $ 17,260.3 $ 17,334.5 Three Months Ended 31 December (Millions of dollars) 2016 2015 Operating Activities Net income $ 306.4 $ 372.0 Less: Net income attributable to noncontrolling interests of continuing operations 6.6 6.3 Less: Net income attributable to noncontrolling interests of discontinued operations — 2.1 Net income attributable to Air Products 299.8 363.6 Income from discontinued operations (48.2 ) (82.7 ) Income from continuing operations attributable to Air Products 251.6 280.9 Adjustments to reconcile income to cash provided by operating activities: Depreciation and amortization 206.1 214.7 Deferred income taxes (23.6 ) 31.7 Undistributed earnings of unconsolidated affiliates (6.9 ) 7.0 Gain on sale of assets and investments (5.0 ) (.9 ) Share-based compensation 9.0 8.3 Noncurrent capital lease receivables 22.3 12.2 Write-down of long-lived assets associated with restructuring 45.7 — Other adjustments 10.7 (66.2 ) Working capital changes that provided (used) cash, excluding effects of acquisitions and divestitures: Trade receivables 42.3 83.7 Inventories 9.9 (19.0 ) Contracts in progress, less progress billings (22.6 ) (20.3 ) Other receivables (7.2 ) (25.3 ) Payables and accrued liabilities 10.4 (100.7 ) Other working capital 31.6 (8.9 ) Cash Provided by Operating Activities 574.3 397.2 Investing Activities Additions to plant and equipment (239.2 ) (248.4 ) Investment in and advances to unconsolidated affiliates (8.8 ) 1.3 Proceeds from sale of assets and investments 11.4 30.8 Other investing activities (1.5 ) .6 Cash Used for Investing Activities (238.1 ) (215.7 ) Financing Activities Long-term debt proceeds 1.2 — Payments on long-term debt (14.4 ) (65.5 ) Net (decrease) increase in commercial paper and short-term borrowings (772.2 ) 46.0 Dividends paid to shareholders (186.9 ) (174.4 ) Proceeds from stock option exercises 10.7 10.3 Other financing activities (12.9 ) (16.6 ) Cash Used for Financing Activities (974.5 ) (200.2 ) Discontinued Operations Cash (used for) provided by operating activities (59.6 ) 176.9 Cash used for investing activities (19.4 ) (86.3 ) Cash provided by financing activities 69.5 2.1 Cash (Used for) Provided by Discontinued Operations (9.5 ) 92.7 Effect of Exchange Rate Changes on Cash (16.2 ) (1.3 ) (Decrease) Increase in Cash and Cash Items (664.0 ) 72.7 Cash and Cash Items – Beginning of Year 1,330.8 206.4 Cash and Cash Items – End of Period $ 666.8 $ 279.1 Less: Cash and Cash Items – Discontinued Operations 11.3 46.7 Cash and Cash Items – Continuing Operations $ 655.5 $ 232.4 (Unaudited) Three Months Ended
31 December(Millions of dollars) 2015 2014 $ 372.0 $ 337.5 8.4 12.9 363.6 324.6 232.7 235.5 42.9 26.2 — (17.9 ) 7.0 (31.3 ) 10.2 11.9 12.5 (8.1 ) (42.0 ) (60.5 ) 97.1 22.3 (14.0 ) (16.0 ) (20.0 ) 6.8 (23.7 ) (27.3 ) (113.4 ) 5.0 20.6 15.4 573.5 486.6 (350.6 ) (446.5 ) — (22.6 ) 47.2 3.7 2.0 2.2 (301.4 ) (463.2 ) — .9 (65.5 ) (38.5 ) 45.5 54.0 (174.4 ) (164.4 ) 10.3 42.1 4.9 13.4 (18.8 ) (19.4 ) (198.0 ) (111.9 ) (1.4 ) (9.3 ) 72.7 (97.8 ) 206.4 336.6 $ 279.1 $ 238.8 1.1. BASIS OF PRESENTATION AND MAJOR ACCOUNTING POLICIES 20152016 Form 10-K for a description of major accounting policies. There have been no significant changes to these accounting policies during the first three months of fiscal year 20162017 other than those detailed in Note 2, New Accounting Guidance. Certain prior year information has been reclassified to conform to the fiscal year 20162017 presentation.(U.S. 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 to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the Notes. The interim results for the periods indicated herein, however, do not reflect certain adjustments, such as the valuation of inventories on the last-in, first-out (LIFO) cost basis, which are only finally determined on an annual basis. The consolidated financial statements and related Notes included herein should be read in conjunction with the financial statements and Notes thereto included in our latest Form 10-K in order to fully understand the basis of presentation. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.2.2. NEW ACCOUNTING GUIDANCE 2016Balance Sheet Classification of Deferred TaxesNovemberFebruary 2015, the Financial Accounting Standards Board (FASB) issued guidance to simplify the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. As of the first quarter of fiscal year 2016, we adopted this guidance on a retrospective basis. Accordingly, prior year amounts have been reclassified to conform to the current year presentation. The guidance, which did not change the existing requirement to net deferred tax assets and liabilities within a jurisdiction, resulted in a reclassification adjustment that increased noncurrent deferred tax assets by $13.7 and decreased noncurrent deferred tax liabilities by $99.9 as of 30 September 2015.Discontinued OperationsIn April 2014, the FASB issued an update to change the criteria for determining which disposals qualify as a discontinued operation and to expand related disclosure requirements. Under the new guidance, a disposal is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on operations and financial results. We adopted this guidance prospectively for new disposals and new disposal groups classified as held for sale beginning in the first quarter of fiscal year 2016. This guidance had no impact on our consolidated financial statements upon adoption.New Accounting Guidance to be ImplementedRevenue RecognitionIn May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. As originally issued, this guidance was effective for us beginning in fiscal year 2018. In August 2015, the FASB deferred the effective date by one year, while providing the option to early adopt the standard on the original effective date. Accordingly, we will have the option to adopt the standard in either fiscal year 2018 or 2019. The guidance can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the adoption alternatives and impact that this update will have on our consolidated financial statements.Consolidation AnalysisIn February 2015, the FASB issued an update to amend current consolidation guidance. The guidance impacts the analysis an entity must perform in determining if it should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. TheWe adopted this guidance is effective beginningin the first quarter of fiscal year 2017, with early adoption permitted. The2017. This guidance may be applied retrospectively or usingdid not have a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently evaluating thesignificant impact this update will have on our consolidated financial statements.August 2015,addition, guidance was issued to allow for a policy election on the FASB issued an update to incorporate the U.S. Securities and Exchange Commission (SEC) Staff guidance which allowspresentation of debt issuance costs associated with a line-of-credit arrangement to be presented as a deferred asset that is subsequently amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. This change in accounting principle will be effective beginning inWe adopted the guidance during the first quarter of fiscal year 2017 on a retrospective basis. The guidance resulted in a reclassification adjustment that decreased other noncurrent assets by $17.0 with a corresponding decrease to long-term debt as of 30 September 2016. We will continue to present debt issuance costs associated with a line-of-credit arrangement as a deferred asset, regardless of whether there are any outstanding borrowings.permittedof the new guidance resulted in a $8.8 cumulative-effect adjustment to retained earnings as of 1 October 2016 to recognize deferred taxes for U.S. state net operating loss and mustother carryforwards attributable to excess tax benefits. We retroactively applied the guidance which requires presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Cash paid on employees’ behalf related to shares withheld for tax purposes continues to be applied retrospectively.classified as a financing activity. Forfeitures have not been significant historically. We have elected to account for forfeitures as they occur, rather than to estimate them.willdid not have a significant impact on our consolidated financial statements upon adoption.3.MATERIALS TECHNOLOGIES SEPARATION3. DISCONTINUED OPERATIONS the Companywe announced its intentionplans to separate itsour Materials Technologies business, which contained two divisions, Electronic Materials Division (EMD) and Performance Materials Division (PMD). As further discussed below, we completed the separation of EMD through the spin-off of Versum on 1 October 2016. In addition, we completed the sale of PMD to Evonik Industries AG on 3 January 2017. As a result, these divisions are reflected in our consolidated financial statements as discontinued operations for all periods presented.ana separate and independent publicly traded company. Subsequentpublic company by way of a distribution to the satisfaction of specific conditions, the separation will be accomplished by distribution to Air Products shareholdersProducts’ stockholders of all of the then issued and outstanding shares of common stock of Versum Materials, LLC, oron the basis of one share of Versum a newly formed company which will hold the Materials Technologies business. Versum is currently a wholly owned subsidiarycommon stock for every two shares of Air Products’ common stock held as of the Companyclose of business on 21 September 2016 (the record date for the distribution). Fractional shares of Versum common stock were not distributed to Air Products common stockholders. Air Products’ stockholders received cash in lieu of fractional shares. As a result of the distribution, Versum Materials, Inc. is now an independent public company and will be converted its common stock is listed under the symbol “VSM” on the New York Stock Exchange.a limited liability company to a Delaware corporation (Versum Materials, Inc.) priorVersum as of 31 December 2016 primarily related to the distribution.2016,fiscal year 2017, we incurred legaldetermined that it is unlikely for a buyer to assume the remaining assets and other advisory fees of $12.0 ($.06 per share)contract obligations, including the related to the intended separation. Since the announcement, we have incurred $19.5 in separation fees. These fees are reflected on the consolidated income statements as “Business separation costs.” The results of operations, financial condition, and cash flows of the Materials Technologies business will continue to be presented within our consolidated financial statements as continuing operations until the Board of Directors approves the final separation and the separation occurs, at which time we expect the financial presentation of the historical results of this business will be reflected as a discontinued operation.4.BUSINESS RESTRUCTURING AND COST REDUCTION ACTIONSThe charges we record for business restructuring and cost reduction actions have been excluded from segment operating income.Business Realignment and ReorganizationOn 18 September 2014, we announced plans to reorganize the Company, including realignment of our businesses in new reporting segments and other organizational changes, effective as of 1 October 2014.land lease. As a result, we recorded an additional loss of this reorganization, we incurred severance$59.3 ($47.1 after-tax), of which $53.0 was recorded primarily for land lease obligations and other charges throughout fiscal year 2015.In fiscal year 2015, we recognized an expense$6.3 was recorded to update our estimate of $207.7. Severance and other benefits totaled $151.9 andthe netthe elimination of approximately 2,000 positions. Asset and associated contract actions totaled $55.8 and related primarily to a plant shutdown in the Corporate and other segment and the exit of product lines within the Industrial Gases – Global and Materials Technologies segments. The 2015 charges related to the segments as follows: $31.7 in Industrial Gases – Americas, $52.2 in Industrial Gases – EMEA, $10.3 in Industrial Gases – Asia, $37.0 in Industrial Gases – Global, $27.6 in Materials Technologies, and $48.9 in Corporate and other.For the three months ended 31 December 2014, we recognized an expense of $32.4 ($21.7 after-tax, or $.10 per share). realignment and reorganization at 31 December 2015: Total $ 10.5 $ — $ 10.5 151.9 55.8 207.7 (14.0 ) — (14.0 ) — (47.4 ) (47.4 ) (113.5 ) (1.2 ) (114.7 ) (.4 ) — (.4 ) $ 34.5 $ 7.2 $ 41.7 (11.3 ) (1.8 ) (13.1 ) (.5 ) — (.5 ) $ 22.7 $ 5.4 $ 28.1 5.BUSINESS COMBINATIONOn 30 December 2014, we acquired our partner’s equity ownership interest in a liquefied atmospheric industrial gases production joint venture in North America for $22.6, which increased our ownership from 50% to 100%. 2016: Total Loss on disposal of business $ 913.5 $ 32.2 $ 945.7 Noncash expenses (913.5 ) — (913.5 ) Cash expenditures — (18.6 ) (18.6 ) Currency translation adjustment — (1.4 ) (1.4 ) 30 September 2016 $ — $ 12.2 $ 12.2 Loss on disposal of business 6.3 53.0 59.3 Noncash expenses (6.3 ) — (6.3 ) 31 December 2016 $ — $ 65.2 $ 65.2 transactionloss on disposal was accounted forrecorded as a business combination,component of discontinued operations. Of the remaining accrual, approximately $60 is included in other noncurrent liabilities of continuing operations and subsequentprimarily relates to land leases and $5 is included in current liabilities of discontinued operations.acquisition, the results are consolidated within our Industrial Gases – Americas segment. The assets acquired, primarily plantbusinesses and equipment, were recorded at their fair market values asmajor line items that comprise income from discontinued operations, net of the acquisition date.The acquisition date fair value of the previously held equity interest was determined using a discounted cash flow analysis under the income approach. The three months ended 31 December 2014 include a gain of $17.9 ($11.2after-tax, or $.05 per share) as a result of revaluing our previously held equity interest to fair value as of the acquisition date. This gain is reflectedtax, on the consolidated income statements as “Gain on previously held equity interest.”6.INVENTORIESThe components of inventories are as follows: 31 December
2015 30 September
2015 $ 483.9 $ 494.9 31.3 34.4 244.6 229.3 $ 759.8 $ 758.6 (94.2 ) (100.8 ) $ 665.6 $ 657.8 First-in, first-out (FIFO) cost approximates replacement cost.7.EQUITY AFFILIATESOn 19 April 2015, a joint venture between Air Products and ACWA Holding entered into a 20-year oxygen and nitrogen supply agreement to supply Saudi Aramco’s oil refinery and power plant being built in Jazan, Saudi Arabia. Air Products owns 25% of the joint venture and guarantees the repayment of its share of an equity bridge loan. ACWA also guarantees their share of the loan. As of 31 December 2015, we have a noncurrent liability of $94.3 for our obligation to make future equity contributions based on our proportionate share of the advances received by the joint venture under the loan. In the first quarter of 2016, we recorded a noncash transaction which resulted in an increase of $26.8 to our investment in net assets of and advances to equity affiliates, which has been excluded from the consolidated statements of cash flows. In total, we expect to invest approximately $100 in this joint venture. We determined that the joint venture is a variable interest entity, for which we are not the primary beneficiary. Air Products has also entered into a long-term sale of equipment contract with the joint venture to engineer, procure, and construct the industrial gas facilities that will supply the gases to Saudi Aramco.In December 2015, we sold our investment in Daido Air Products Electronics, Inc. for $15.9, which resulted in a gain of $.7. The carrying value at time of sale included a $12.8 investment in net assets of and advances to equity affiliates and a $2.4 foreign currency translation loss that had been deferred in accumulated other comprehensive loss.There have been no other significant changes to our investments in equity affiliates during the first three months of fiscal year 2016.8.PLANT AND EQUIPMENT, NETEnergy-from-Waste ProjectsOur Energy-from-Waste segment consists of two projects under construction in Tees Valley, United Kingdom, designed to process municipal solid waste to generate renewable power.Due to technical challenges, on-stream delays, and capital commitments for these projects, we continue to evaluate whether impairment for this asset group exists. Factors specific to the impairment assessment for this asset group include estimatinglong-term efficiency, output, and on-stream reliability of the projects. Our evaluation as of 31 December 2015 indicated that the probability weighted undiscounted cash flows of the asset group exceed the carrying value; therefore, no impairment was indicated. The carrying value of this asset group as of 31 December 2015 was $938.9. It is reasonably possible that key assumptions or actual conditions may change and result in a future impairment charge.In November 2015, the Company suspended construction of the second project until certain design issues of the first project are understood, remediated, and can be efficiently integrated into the design of the second project. During the three months ended 31 December 2016: Three Months Ended 31 December 2016 Total Performance Energy- Discontinued Materials Operations Sales $ 254.8 $ — $ 254.8 Cost of sales 179.0 — 179.0 Selling and administrative 20.4 — 20.4 Research and development 5.1 — 5.1 Other income (expense), net (.4 ) (6.5 ) (6.9 ) Operating Income (Loss) 49.9 (6.5 ) 43.4 Equity affiliates’ income .3 — .3 Income (Loss) Before Taxes 50.2 (6.5 ) 43.7 (50.5 ) (1.1 ) (51.6 ) Income (Loss) From Operations of Discontinued Operations, net of tax 100.7 (5.4 ) 95.3 Loss on Disposal, net of tax — (47.1 ) (47.1 ) Income (Loss) from Discontinued Operations, net of tax $ 100.7 $ (52.5 ) $ 48.2 The loss from operations of discontinued operations for EfW primarily relates to land leases, administrative costs, and costs incurred for ongoing project exit activities. As a result of the expected gain on sale of PMD that closed in the second quarter of 2017, we released valuation allowances related to capital loss and net operating loss carryforwards that favorably impacted our income tax provision within discontinued operations by approximately $66 during the first quarter of 2017. Three Months Ended 31 December 2015 Total Electronic Performance Energy- Discontinued Materials Materials Operations Sales $ 242.6 $ 246.9 $ — $ 489.5 Cost of sales 127.3 172.6 — 299.9 Selling and administrative 18.4 19.0 — 37.4 Research and development 10.1 5.0 — 15.1 Other income (expense), net 2.2 (1.2 ) (17.6 ) (16.6 ) Operating Income (Loss) 89.0 49.1 (17.6 ) 120.5 Equity affiliates’ income .2 .2 — .4 89.2 49.3 (17.6 ) 120.9 Income tax provision 24.9 14.5 (3.3 ) 36.1 Income (Loss) from Operations of Discontinued Operations, net of tax 64.3 34.8 (14.3 ) 84.8 Net Income Attributable to Noncontrolling Interests of Discontinued Operations 2.1 — — 2.1 Net Income (Loss) From Discontinued Operations, net of tax $ 62.2 $ 34.8 $ (14.3 ) $ 82.7 The loss from operations of discontinued operations for EfW primarily relates to project suspension costs, land leases, and administrative costs. For the three months ended 31 December 2015, income before taxes from operations of discontinued operations attributable to Air Products was $118.4. 31 December 2016 Total Performance Energy- Discontinued Materials from-Waste Operations Assets Current Assets Cash and cash items $ 11.3 $ — $ 11.3 Trade receivables, net 149.5 — 149.5 Inventories 222.2 — 222.2 Plant and equipment, net 306.8 11.0 317.8 Goodwill, net 122.4 — 122.4 Intangible assets, net 23.1 — 23.1 Other receivables and current assets 12.5 1.4 13.9 Total Current Assets 847.8 12.4 860.2 Total Assets $ 847.8 $ 12.4 $ 860.2 Liabilities Current Liabilities Payables and accrued liabilities $ 59.3 $ 10.9 $ 70.2 Accrued income taxes 11.2 — 11.2 Other current liabilities 7.8 — 7.8 Total Current Liabilities 78.3 10.9 89.2 Total Liabilities $ 78.3 $ 10.9 $ 89.2 30 September 2016 Total Electronic Performance Energy- Discontinued Materials Materials from-Waste Operations Assets Current Assets Cash and cash items $ 170.6 $ 37.5 $ — $ 208.1 Trade receivables, net 134.7 159.0 — 293.7 Inventories 138.1 226.8 — 364.9 Plant and equipment, net — — 18.2 18.2 Other receivables and current assets 34.5 5.6 1.2 41.3 Total Current Assets 477.9 428.9 19.4 926.2 Plant and equipment, net 296.5 296.5 — 593.0 Goodwill, net 180.0 125.0 — 305.0 Intangible assets, net 75.1 25.0 — 100.1 Other noncurrent assets 37.5 6.7 — 44.2 Total Noncurrent Assets 589.1 453.2 — 1,042.3 Total Assets $ 1,067.0 $ 882.1 $ 19.4 $ 1,968.5 Liabilities Current Liabilities Payables and accrued liabilities $ 85.8 $ 72.5 $ 19.0 $ 177.3 Accrued income taxes 22.7 6.0 — 28.7 Current portion of long-term debt 5.8 — — 5.8 Total Current Liabilities 114.3 78.5 19.0 211.8 Long-term debt 981.8 — — 981.8 Deferred income taxes 50.3 6.4 — 56.7 Other noncurrent liabilities 47.4 9.6 — 57.0 Total Noncurrent Liabilities 1,079.5 16.0 — 1,095.5 Total Liabilities $ 1,193.8 $ 94.5 $ 19.0 $ 1,307.3 4. BUSINESS SEPARATION COSTS incrementalseparation costs of $14.3 ($11.4 after-tax, or $.05 per share) to safely suspend construction activities of$30.2 and $12.0 for the second project.three months ended 31 December 2016 and 2015, respectively. These costs are reflected on the consolidated income statements as “Project suspension“Business separation costs” and include legal, advisory, and pension related costs.”9.GOODWILL5. COST REDUCTION AND ASSET ACTIONS Total 2016 Charge $ 34.5 $ — $ 34.5 Amount reflected in pension liability (.9 ) — (.9 ) Cash expenditures (21.6 ) — (21.6 ) Currency translation adjustment .3 — .3 30 September 2016 $ 12.3 $ — $ 12.3 2017 Charge 7.7 45.7 53.4 Noncash expenses — (45.7 ) (45.7 ) Amount reflected in pension liability (.3 ) — (.3 ) Cash expenditures (7.6 ) — (7.6 ) Currency translation adjustment (.6 ) — (.6 ) 31 December 2016 $ 11.5 $ — $ 11.5 6. INVENTORIES 31 December 30 September 2016 2016 Finished goods $ 126.5 $ 131.3 Work in process 17.3 18.3 Raw materials, supplies and other 202.0 117.1 $ 345.8 $ 266.7 Less: Excess of FIFO cost over LIFO cost (15.1 ) (11.7 ) Inventories $ 330.7 $ 255.0 7. GOODWILL 20152016 are as follows: Industrial
Gases–
Americas Industrial
Gases–
EMEA Industrial
Gases–
Asia Industrial
Gases–
Global Materials
Technologies Total $ 297.6 $ 386.5 $ 133.1 $ 19.9 $ 294.2 $ 1,131.3 (3.3 ) (12.2 ) .1 (.2 ) (.3 ) (15.9 ) $ 294.3 $ 374.3 $ 133.2 $ 19.7 $ 293.9 $ 1,115.4 31 December
2015 30 September
2015 $ 1,354.8 $ 1,375.0 (239.4 ) (243.7 ) $ 1,115.4 $ 1,131.3 Total Goodwill, net at 30 September 2016 $ 309.1 $ 380.6 $ 135.2 $ 20.2 $ 845.1 Currency translation (4.0 ) (26.9 ) (2.7 ) (.4 ) (34.0 ) Goodwill, net at 31 December 2016 $ 305.1 $ 353.7 $ 132.5 $ 19.8 $ 811.1 31 December 30 September 2016 2016 Goodwill, gross $ 1,064.6 $ 1,103.7 (253.5 ) (258.6 ) Goodwill, net $ 811.1 $ 845.1 $65.8$51.7 and $61.5$46.6 as of 31 December 20152016 and 30 September 2015,2016, respectively.10.8. FINANCIAL INSTRUMENTS dollars, Euros and British Pound Sterling, as well as British Pound Sterling and U.S. dollars. The maximum remaining term of any forward exchange contract currently outstanding and designated as a cash flow hedge at 31 December 20152016 is 3.02.5 years.pairpairs in this portfolio of forward exchange contracts isare Euros and U.S. dollars and British Pound Sterling and U.S. dollars. 31 December 2015 30 September 2015 US$
Notional Years
Average
Maturity US$
Notional Years
Average
Maturity $ 4,801.6 .6 $ 4,543.8 .5 447.1 3.9 491.3 4.0 855.6 .6 863.3 .7 $ 6,104.3 .8 $ 5,898.4 .9 31 December 2016 30 September 2016 Forward Exchange Contracts: Cash flow hedges $ 4,148.1 .4 $ 4,130.3 .5 Net investment hedges 833.3 2.7 968.2 2.7 Not designated 2,405.1 .2 2,648.3 .4 Total Forward Exchange Contracts $ 7,386.5 .6 $ 7,746.8 .7 €606.5€910.9 million ($658.4)958.0) at 31 December 20152016 and €687.7€920.7 million ($768.4)1,034.4) at 30 September 2015.2016. The designated foreigncurrency-denominated debt is located on the balance sheet in thelong-term debt and current portion of long-term debt line item.2015,2016, the outstanding interest rate swaps were denominated in U.S. dollars. The notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to hedge variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-to-one basis.These contracts effectively convert the currency denomination of a debt instrument into another currency in which we have a net equity position while changing the interest rate characteristics of the instrument. The contracts are used to hedge either certain net investments in foreign operations or nonfunctionalnon-functional currency cash flows related to intercompany loans. The current cross currency interest rate swap portfolio consists offixed-to-fixed swaps primarily between U.S. dollars and offshore Chinese Renminbi, U.S. dollars and Chilean Pesos, and U.S. dollars and British Pound Sterling. 31 December 2015 30 September 2015 US$
Notional Average
Pay % Average
Receive
% Years
Average
Maturity US$
Notional Average
Pay % Average
Receive
% Years
Average
Maturity
(fair value hedge) $ 600.0 LIBOR 2.77% 3.0 $ 600.0 LIBOR 2.77% 3.3
(net investment hedge) $ 613.5 3.34% 2.11% 3.0 $ 609.9 4.06% 2.61% 3.2
(cash flow hedge) $ 1,093.6 4.46% 2.66% 3.8 $ 1,055.2 4.29% 2.63% 3.9
(not designated) $ 9.3 3.62% .81% 2.6 $ 12.9 3.12% 3.08% 4.1 31 December 2016 30 September 2016 $ 600.0 LIBOR 2.28 % 2.0 $ 600.0 LIBOR 2.28 % 2.3 $ 522.0 3.24 % 2.41 % 2.3 $ 517.7 3.24 % 2.43 % 2.6 $ 1,088.9 4.77 % 2.72 % 3.0 $ 1,088.9 4.77 % 2.72 % 3.3 $ 23.1 3.62 % .81 % 1.6 $ 27.4 3.62 % .81 % 1.8 Other receivables $ 66.0 $ 52.1 Accrued liabilities $ 69.2 $ 110.7 Other receivables 19.0 17.6 Accrued liabilities — — Other noncurrent assets 64.0 68.5 Other noncurrent liabilities 16.0 9.2 Other noncurrent assets 170.1 153.4 Other noncurrent liabilities — .8 $ 319.1 $ 291.6 $ 85.2 $ 120.7 Other receivables $ 2.6 $ 3.2 Accrued liabilities $ 2.4 $ 3.9 Other noncurrent assets 30.4 23.3 Other noncurrent liabilities 2.5 .6 Other noncurrent assets .5 .8 Other noncurrent liabilities — — $ 33.5 $ 27.3 $ 4.9 $ 4.5 $ 352.6 $ 318.9 $ 90.1 $ 125.2 31 December 2016 30 September 2016 31 December 2016 30 September 2016 Derivatives Designated as Hedging Instruments: Forward exchange contracts Other receivables $ 62.4 $ 72.3 Accrued liabilities $ 144.2 $ 44.0 Interest rate management contracts Other receivables 32.3 19.9 Accrued liabilities — — Forward exchange contracts 73.6 44.4 1.9 9.1 Interest rate management contracts 202.6 160.0 14.8 12.0 Total Derivatives Designated as Hedging Instruments $ 370.9 $ 296.6 $ 160.9 $ 65.1 Derivatives Not Designated as Hedging Instruments: Forward exchange contracts Other receivables $ 93.4 $ 77.1 Accrued liabilities $ 47.7 $ 29.5 Forward exchange contracts — — .2 — Interest rate management contracts — — .3 .7 Total Derivatives Not Designated as Hedging Instruments $ 93.4 $ 77.1 $ 48.2 $ 30.2 Total Derivatives $ 464.3 $ 373.7 $ 209.1 $ 95.3 11,9, Fair Value Measurements, which defines fair value, describes the method for measuring fair value, and provides additional disclosures regarding fair value measurements. Three Months Ended 31 December Forward
Exchange Contracts Foreign Currency
Debt Other(A) Total 2015 2014 2015 2014 2015 2014 2015 2014 $ (4.7 ) $ (24.0 ) $ — $ — $ 20.7 $ .2 $ 16.0 $ (23.8 ) .9 (.6 ) — — — — .9 (.6 ) (1.8 ) 18.8 — — (20.2 ) (5.2 ) (22.0 ) 13.6 1.4 (.3 ) — — .8 .3 2.2 — (.4 ) .5 — — — — (.4 ) .5 $ — $ — $ — $ — $ (9.0 ) $ 3.5 $ (9.0 ) $ 3.5 $ 3.0 $ 20.1 $ 7.6 $ 31.1 $ 6.5 $ 10.1 $ 17.1 $ 61.3 $ 1.7 $ .2 $ — $ — $ — $ — $ 1.7 $ .2 Three Months Ended 31 December Total 2016 2015 2016 2015 2016 2015 2016 2015 Cash Flow Hedges, net of tax: Net gain (loss) recognized in OCI (effective portion) $ (59.4 ) $ (4.7 ) $ — $ — $ 49.6 $ 20.7 $ (9.8 ) $ 16.0 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) 49.5 (1.8 ) — — (28.2 ) (20.2 ) 21.3 (22.0 ) Net (gain) loss reclassified from OCI to interest expense (effective portion) (.8 ) 1.4 — — .7 .8 (.1 ) 2.2 Net (gain) loss reclassified from OCI to other income (expense), net (ineffective portion) (.2 ) (.4 ) — — — — (.2 ) (.4 ) Fair Value Hedges: $ — $ — $ — $ — $ (9.1 ) $ (9.0 ) $ (9.1 ) $ (9.0 ) Net Investment Hedges, net of tax: Net gain (loss) recognized in OCI $ 27.9 $ 3.0 $ 41.8 $ 7.6 $ 13.1 $ 6.5 $ 82.8 $ 17.1 Derivatives Not Designated as Hedging Instruments: $ 2.1 $ (.4 ) $ — $ — $ .8 $ — $ 2.9 $ (.4 ) recognized outstanding debt.recognized assets and liabilities denominated in nonfunctionalnon-functional currencies.20152016 that are expected to be reclassified to earnings in the next twelve months is not material.$1.1$17.4 as of 31 December 20152016 and $0.2$11.2 as of 30 September 2015.2016. Because our current credit rating is above the various pre-established thresholds, no collateral has been posted on these liability positions.$250.7$334.0 as of 31 December 20152016 and $226.9$267.6 as of 30 September 2015.2016. No financial institution is required to post collateral at this time, as all have credit ratings at or above threshold.11.9. FAIR VALUE MEASUREMENTS 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). 10,8, Financial Instruments, for a description of derivative instruments, including details on the balance sheet line classifications. 31 December 2015 30 September 2015 Carrying Value Fair Value Carrying Value Fair Value $ 163.0 $ 163.0 $ 147.1 $ 147.1 189.6 189.6 171.8 171.8 $ 90.1 $ 90.1 $ 124.4 $ 124.4 — — .8 .8 4,278.4 4,570.1 4,384.7 4,645.7 31 December 2016 30 September 2016 Carrying Value Fair Value Carrying Value Fair Value Assets Derivatives Forward exchange contracts $ 229.4 $ 229.4 $ 193.8 $ 193.8 Interest rate management contracts 234.9 234.9 179.9 179.9 Liabilities Derivatives Forward exchange contracts $ 194.0 $ 194.0 $ 82.6 $ 82.6 Interest rate management contracts 15.1 15.1 12.7 12.7 Long-term debt, including current portion 4,162.3 4,253.8 4,275.1 4,450.5 31 December 2015 30 September 2015 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 $ 163.0 $ — $ 163.0 $ — $ 147.1 $ — $ 147.1 $ — 189.6 — 189.6 — 171.8 — 171.8 — $ 352.6 $ — $ 352.6 $ — $ 318.9 $ — $ 318.9 $ — $ 90.1 $ — $ 90.1 $ — $ 124.4 $ — $ 124.4 $ — — — — — .8 — .8 — $ 90.1 $ — $ 90.1 $ — $ 125.2 $ — $ 125.2 $ — 31 December 2016 30 September 2016 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets at Fair Value Derivatives Forward exchange contracts $ 229.4 $ — $ 229.4 $ — $ 193.8 $ — $ 193.8 $ — Interest rate management contracts 234.9 — 234.9 — 179.9 — 179.9 — Total Assets at Fair Value $ 464.3 $ — $ 464.3 $ — $ 373.7 $ — $ 373.7 $ — Liabilities at Fair Value Derivatives Forward exchange contracts $ 194.0 $ — $ 194.0 $ — $ 82.6 $ — $ 82.6 $ — Interest rate management contracts 15.1 — 15.1 — 12.7 — 12.7 — Total Liabilities at Fair Value $ 209.1 $ — $ 209.1 $ — $ 95.3 $ — $ 95.3 $ — 31 December 2016 Total Level 1 Level 2 Level 3 $ 1.4 $ — $ — $ 1.4 $ 45.7 $ 11.0 $ — $ — $ 11.0 $ 6.3 12.We assessed the recoverability of the carrying value of assets associated with the EfW discontinued operation, including the air separation unit within continuing operations of our Industrial Gases- EMEA segment. We based our estimates primarily on an orderly liquidation valuation which resulted in losses for the difference between the orderly liquidation value and net book value of the assets as of 31 December 2016. For additional information, see Note 3, Discontinued Operations and Note 5, Cost Reduction and Asset Actions. 10. RETIREMENT BENEFITS 20152016 and 20142015 were as follows: Pension Benefits Other Benefits 2015 2014 2015 2014 Three Months Ended 31 December U.S. International U.S. International $ 9.0 $ 6.2 $ 10.6 $ 8.2 $ .5 $ .7 27.7 11.6 31.2 15.0 .5 .6 (50.5 ) (20.7 ) (50.5 ) (21.1 ) — — 21.1 9.2 19.8 10.5 .2 .2 .7 — .7 — — — — — (.1 ) (.1 ) — — — — 2.7 — — — — .5 1.1 .5 — — $ 8.0 $ 6.8 $ 15.5 $ 13.0 $ 1.2 $ 1.5 Pension Benefits Other Benefits 2016 2015 2016 2015 Three Months Ended 31 December U.S. International U.S. International Service Cost $ 8.3 $ 6.7 $ 9.0 $ 6.2 $ .5 $ .5 Interest Cost 24.9 7.6 27.7 11.6 .4 .5 Expected return on plan assets (52.7 ) (18.5 ) (50.5 ) (20.7 ) — — Prior service cost amortization .6 — .7 — — — Actuarial loss amortization 26.1 13.9 21.1 9.2 .2 .2 Settlements — (2.3 ) — — — — Curtailment 4.2 (3.1 ) — — — — Special termination benefits 1.1 .4 — — — — Other — 2.7 — .5 — — Net periodic benefit cost (Total) $ 12.5 $ 7.4 $ 8.0 $ 6.8 $ 1.1 $ 1.2 Less: Discontinued Operations (.6 ) (.7 ) (1.8 ) (1.4 ) — (.1 ) Net periodic benefit cost (Continuing Operations) $ 11.9 $ 6.7 $ 6.2 $ 5.4 $ 1.1 $ 1.1 2016fiscal year 2017 and 20152016 was not material.fiscal 2016,connection with the disposition of the two divisions comprising the Materials Technologies segment, we changed our method to estimateincurred settlement, curtailment, special termination benefits and other pension related costs totaling $2.5. These costs are reflected on the service cost and interest cost componentsconsolidated income statements as "Business separation costs".net periodic benefit costs for our majorEMD through the spin-off of Versum on 1 October 2016. In connection with the spin-off, the Company transferred defined benefit pension plans. Historically, we estimatedassets and obligations to Versum resulting in a net decrease in the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginningunderfunded status of the period. We have elected to useCompany's sponsored pension plans of $24. Additionally, as a spot rate approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this provides a better estimate of service and interest costs. We consider this change in rate assumption to be a change in estimate and, accordingly, are accounting for it prospectively starting in 2016. We expect that adoptionresult of the spot rate approach will reduce our fiscal 2016transfer of unrecognized losses to Versum, accumulated other comprehensive loss, net periodic benefit costof tax, decreased by approximately $30. This change does not affect the measurement of our total benefit obligation.decreaseincrease in pension expense primarily resulted from the adoption of the spot rate approach to estimate service cost and interest cost and reduced plan participation due to severance actions,a decrease in discount rates, partially offset by favorable asset experience and the adoption of new mortality tablesprojections for certain of our major plans.20152016 and 2014,2015, our cash contributions to funded pension plans and benefit payments under unfunded pension plans were $51.8$24.9 and $76.4,$51.8, respectively. Total contributions for fiscal 20162017 are expected to be approximately $100$65 to $120.$85. During fiscal 2015,2016, total contributions were $137.5.13.11. COMMITMENTS AND CONTINGENCIES $45$55 at 31 December 2015)2016) 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.$45$55 at 31 December 2015)2016) plus interest accrued thereon until final disposition of the proceedings.Whileexpectcurrently believe there are any legal proceedings, individually or in the aggregate, that any sums we may haveare reasonably possible to pay in connection with this or any other legal proceeding would have a material adverse effect on our consolidated financial position or net cash flows, a future charge for regulatory fines or damage awards could have a significant impact on our net income in the period in which it is recorded.3733 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.20152016 and 30 September 20152016 included an accrual of $78.6$80.1 and $80.6,$81.3, 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 $78$80 to a reasonably possible upper exposure of $92$94 as of 31 December 2015.2015, $30.72016, $29.8 of the environmental accrual was related to the Pace facility.We expect theThe costs we will incurare incurring under the new Consent Order are expected to be consistent with our previous estimates.2015, $18.12016, $17.3 of the environmental accrual was related to the Piedmont site.2015, $10.72016, $10.3 of the environmental accrual was related to the Pasadena site.14.12. SHARE-BASED COMPENSATION 2015,2016, we primarily granted market-based and time-based deferred stock units and restricted stock.units. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. As of 31 December 2015,2016, there were 4,756,5894,793,342 shares available for future grant under our Long-Term Incentive Plan (LTIP), which is shareholder approved.statementstatements is summarized below:Three Months Ended 31 December 2015 2014 $ 10.2 $ 11.9 (3.5 ) (4.0 ) $ 6.7 $ 7.9 Three Months Ended 31 December 2016 2015 Before-Tax Share-Based Compensation Cost $ 9.0 $ 8.3 Income Tax Benefit (3.0 ) (2.8 ) After-Tax Share-Based Compensation Cost $ 6.0 $ 5.5 2016fiscal year 2017 and 20152016 was not material.2015,2016, we granted 127,262116,740 market-based deferred stock units. The market-based deferred stock units are earned out at the end of a performance period beginning 1 October 20152016 and ending 30 September 2018,2019, conditioned on the level of the Company’s total shareholder return in relation to a defined peer group over thethree-year performance period.$134.58$156.87 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: 20.6 % Risk-free interest rate 20.5%1.4% Risk-free interest rate 2.5 1.2%Expected dividend yield2.2%% 2015,2016, we granted 136,685145,604 time-based deferred stock units at a weighted-averageweighted average grant-date fair value of $137.88.Restricted StockDuring the three months ended 31 December 2015, we issued 32,920 restricted stock units at a grant-date fair value of $138.00.15.13. EQUITY Three Months Ended 31 December 2015 2014 Air
Products Non-
controlling
Interests Total
Equity Air
Products Non-
controlling
Interests Total
Equity $ 7,249.0 $ 132.1 $ 7,381.1 $ 7,365.8 $ 155.6 $ 7,521.4 363.6 8.4 372.0 324.6 7.5 332.1 (82.7 ) — (82.7 ) (228.7 ) (5.1 ) (233.8 ) (174.7 ) — (174.7 ) (165.4 ) — (165.4 ) — (8.5 ) (8.5 ) — (6.2 ) (6.2 ) 10.2 — 10.2 11.9 — 11.9 (2.0 ) — (2.0 ) 30.1 — 30.1 4.9 — 4.9 13.5 — 13.5 (1.2 ) (.1 ) (1.3 ) (.3 ) — (.3 ) $ 7,367.1 $ 131.9 $ 7,499.0 $ 7,351.5 $ 151.8 $ 7,503.3 Three Months Ended 31 December 2016 2015 Balance at 30 September $ 7,079.6 $ 133.8 $ 7,213.4 $ 7,249.0 $ 132.1 $ 7,381.1 Net income 299.8 6.6 306.4 363.6 8.4 372.0 Other comprehensive loss (234.9 ) (3.1 ) (238.0 ) (82.7 ) — (82.7 ) Dividends on common stock (per share $0.86, $0.81) (187.1 ) — (187.1 ) (174.7 ) — (174.7 ) Dividends to noncontrolling interests — (4.2 ) (4.2 ) — (8.5 ) (8.5 ) Share-based compensation 9.0 — 9.0 8.3 — 8.3 Treasury shares for stock option and award plans (.3 ) — (.3 ) (2.0 ) — (2.0 ) Tax benefit of stock option and award plans — — — 4.9 — 4.9 Spin-off of Versum 186.5 (33.9 ) 152.6 — — — Cumulative change in accounting principle (Note 2) 8.8 — 8.8 — — — Other equity transactions .1 .4 .5 .7 (.1 ) .6 Balance at 31 December $ 7,161.5 $ 99.6 $ 7,261.1 $ 7,367.1 $ 131.9 $ 7,499.0 (A)Net income attributable to noncontrolling interests for the three months ended 31 December 2014 excludes net income of $5.4 related to redeemable noncontrolling interests, which were not part of total equity. There was no net income related to redeemable noncontrolling interests for the three months ended 31 December 2015.16.14. ACCUMULATED OTHER COMPREHENSIVE LOSS 2015: Net loss on
derivatives
qualifying as
hedges Foreign
currency
translation
adjustments Pension and
postretirement
benefits Total $ (42.9 ) $ (956.5 ) $ (1,126.5 ) $ (2,125.9 ) 16.0 (102.9 ) — (86.9 ) (19.3 ) 2.4 21.1 4.2 $ (3.3 ) $ (100.5 ) $ 21.1 $ (82.7 ) $ (46.2 ) $ (1,057.0 ) $ (1,105.4 ) $ (2,208.6 ) Total Balance at 30 September 2016 $ (65.0 ) $ (949.3 ) $ (1,374.0 ) $ (2,388.3 ) Other comprehensive loss before reclassifications (9.8 ) (281.2 ) — (291.0 ) Amounts reclassified from AOCL 25.6 — 27.4 53.0 Net current period other comprehensive income (loss) 15.8 (281.2 ) 27.4 (238.0 ) Spin-off of Versum .2 6.0 5.3 11.5 Amount attributable to noncontrolling interests — (3.1 ) — (3.1 ) Balance at 31 December 2016 $ (49.0 ) $ (1,221.4 ) $ (1,341.3 ) $ (2,611.7 ) AOCLaccumulated other comprehensive loss and the affected line item on the consolidated income statements: Three Months Ended
31 December 2015 2014 $ .9 $ (.6 ) (22.4 ) 14.1 2.2 — $ (19.3 ) $ 13.5 $ 2.4 $ — $ 21.1 $ 20.9 Three Months Ended 31 December 2016 2015 (Gain) Loss on Cash Flow Hedges, net of tax Sales/Cost of sales $ 4.6 $ .9 Other income (expense), net 21.1 (22.4 ) Interest expense (.1 ) 2.2 Total (Gain) Loss on Cash Flow Hedges, net of tax $ 25.6 $ (19.3 ) $ — $ 2.4 $ 27.4 $ 21.1 Refer to Note 7, Equity Affiliates.12,10, Retirement Benefits.17.15. EARNINGS PER SHARE Three Months Ended
31 December 2015 2014 $ 363.6 $ 324.6 215.8 214.2 1.8 2.4 217.6 216.6 $ 1.68 $ 1.52 1.67 1.50 For the three months ended 31 December 2015 and 2014, outstanding Three Months Ended 31 December 2016 2015 Numerator Income from continuing operations $ 251.6 $ 280.9 Income from discontinued operations 48.2 82.7 Net Income Attributable to Air Products $ 299.8 $ 363.6 Weighted average common shares — Basic 217.7 215.8 Effect of dilutive securities Employee stock option and other award plans 2.0 1.8 Weighted average common shares — Diluted 219.7 217.6 Basic Earnings Per Common Share Attributable to Air Products Income from continuing operations $ 1.16 $ 1.30 Income from discontinued operations .22 .38 Net Income Attributable to Air Products $ 1.38 $ 1.68 Diluted Earnings Per Common Share Attributable to Air Products Income from continuing operations $ 1.15 $ 1.29 Income from discontinued operations .22 .38 Net Income Attributable to Air Products $ 1.37 $ 1.67 .3.2 million and ..4.3 million shares were antidilutive and therefore excluded from the computation of diluted earnings per share.share for the three months ended 31 December 2016 and 2015, respectively.18.16. SUPPLEMENTAL INFORMATION Income$66.9$96.7 and $62.5$66.9 for the three months ended 31 December 2016 and 2015, and 31 December 2014, respectively.19.17. BUSINESS SEGMENT INFORMATION ●Industrial Gases – Americas●Industrial Gases – EMEA (Europe, Middle East, and Africa)●Industrial Gases – Asia●Industrial Gases – Global●Materials Technologies●Energy-from-Waste●Corporate and other Industrial
Gases–
Americas Industrial
Gases–
EMEA Industrial
Gases–
Asia Industrial
Gases–
Global Materials
Technologies Energy-
from-
Waste Corporate
and other Segment
Total $ 836.1 $ 438.3 $ 413.2 $ 104.3 $ 490.0 $ — $ 73.9 $ 2,355.8 211.8 91.7 116.7 (19.3 ) 127.2 (3.6 ) (5.2 ) 519.3 108.8 46.7 51.7 2.1 19.6 — 3.8 232.7 14.5 7.6 11.7 (.5 ) .4 — — 33.7 $ 1,003.0 $ 500.8 $ 398.7 $ 59.0 $ 524.0 $ — $ 75.3 $ 2,560.8 211.2 81.3 90.5 (17.9 ) 104.6 (2.5 ) (22.7 ) 444.5 103.6 51.1 49.6 4.3 24.0 — 2.9 235.5 17.2 10.3 14.6 .4 .6 — — 43.1 $ 5,674.3 $ 3,224.5 $ 4,155.4 $ 383.3 $ 1,705.8 $ 938.9 $ 1,178.1 $ 17,260.3 5,774.9 3,323.9 4,154.0 370.5 1,741.9 894.4 1,074.9 17,334.5 Three Months Ended 31 December 2016 Sales $ 863.9 $ 399.7 $ 438.3 $ 147.9 $ 32.7 $ 1,882.5 Operating income (loss) 223.8 88.0 118.1 8.2 (29.8 ) 408.3 Depreciation and amortization 111.8 42.2 46.7 2.0 3.4 206.1 Equity affiliates' income 14.7 9.5 13.5 .3 — 38.0 Three Months Ended 31 December 2015 Sales $ 836.3 $ 439.6 $ 414.6 $ 104.3 $ 71.5 $ 1,866.3 Operating income (loss) 211.6 92.3 117.3 (19.3 ) (17.4 ) 384.5 Depreciation and amortization 109.0 46.8 51.9 2.1 4.9 214.7 Equity affiliates' income (loss) 14.5 7.6 11.7 (.5 ) — 33.3 Total Assets 31 December 2016 $ 5,873.9 $ 3,005.0 $ 4,098.0 $ 268.5 $ 1,850.6 $ 15,096.0 30 September 2016 5,896.7 3,178.6 4,232.7 367.6 2,384.5 16,060.1 20152016 and 2014,2015, the Industrial Gases – Global segment had intersegment sales of $54.6$61.0 and $59.6,$54.6, respectively. These sales are generally transacted at market pricing. For all other segments, intersegment sales are not material for all periods presented. Equipment manufactured for our industrial gases segments areis generally transferred at cost and not reflected as an intersegment sale. Operating Income 2015 2014 $ 519.3 $ 444.5 (12.0 ) — (14.3 ) — — (32.4 ) — 17.9 $ 493.0 $ 430.0 Three Months Ended 31 December Operating Income 2016 2015 Segment total $ 408.3 $ 384.5 Business separation costs (30.2 ) (12.0 ) Cost reduction and asset actions (50.0 ) — Consolidated Total $ 328.1 $ 372.5 31 December 30 September Total Assets 2016 2016 Segment total $ 15,096.0 $ 16,060.1 Discontinued operations 860.2 1,968.5 Consolidated Total $ 15,956.2 $ 18,028.6 20152016 Form 10-K. An analysis of results for the first quarter of 20162017 is provided in the Management’s Discussion and Analysis to follow.income”income,” and “diluted earnings per share” throughout this Management’s Discussion and Analysis, unless otherwise stated.ofto non-GAAP financial measures. Included in thesenon-GAAP measures is Adjusted EBITDA, which we believe to be a useful metric to assess operating performance. The presentation of non-GAAP measures is intended to enhance the usefulness of financial information by providing measures thatwhich, when viewed together with our management uses internally to evaluatefinancial results reported in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our performance. historical financial performance and projected future results.The reconciliation of reported GAAP results tonon-GAAP measures is presented on pages 31-33.35-38. Descriptions of the excluded items appear on pages 25-26.page 31.20162017 VS. FIRST QUARTER 2015201620162017 IN SUMMARY●Sales of $2,355.8 decreased 8%, or $205.0, as underlying sales growth of 2% was more than offset by an unfavorable currency impact of 5% and lower energy contractual pass-through to customers of 5%. The increase in underlying sales primarily resulted from higher volumes in the Industrial Gases – Asia and Industrial Gases – Global segments and higher pricing in Industrial Gases – Americas, Materials Technologies, and Industrial Gases – EMEA.●Operating income of $493.0 increased 15%, or $63.0, and operating margin of 20.9% increased 410 basis points (bp). On anon-GAAP basis, operating income of $519.3 increased 17%, or $74.8, and operating margin of 22.0% increased 460 bp, primarily due to favorable cost performance and higher pricing.●Adjusted EBITDA of $785.7 increased 9%, or $62.6, primarily due to favorable cost performance and higher pricing. Adjusted EBITDA margin of 33.4% increased 520 bp.●Net income of $363.6 increased 12%, or $39.0, and diluted earnings per share of $1.67 increased 11%, or $.17. On anon-GAAP basis, net income of $387.0 increased 15%, or $51.9, and diluted earnings per share of $1.78 increased 15%, or $.23. A summary table of changes in diluted earnings per share is presented below. – Non-GAAP Basis Three Months Ended
31 December 2015 2014 $ 1.67 $ 1.50 $ .17 .06 .06 .05 .05 .10 (.10 ) (.05 ) .05 $ 1.78 $ 1.55 $ .23 $ .02 .14 .18 (.08 ) $ .26 $ (.03 ) .02 (.03 ) .02 (.01 ) $ (.03 ) $ .23 Three Months Ended 31 December Increase 2016 2015 (Decrease) Diluted Earnings per Share Net Income $ 1.37 $ 1.67 $ (.30 ) Income from Discontinued Operations .22 .38 (.16 ) Income from Continuing Operations – GAAP Basis $ 1.15 $ 1.29 $ (.14 ) Operating Income Impact (after-tax) Underlying business Volume $ (.07 ) Price/raw materials (.01 ) Costs .19 Currency (.03 ) Business separation costs (.06 ) Cost reduction and asset actions (.19 ) Operating Income $ (.17 ) Other (after-tax) Equity affiliates' income .02 Interest expense (.03 ) Income tax .06 Tax costs associated with business separation (.01 ) Weighted average diluted shares (.01 ) Other $ .03 Total Change in Diluted Earnings per Share from Continuing Operations – GAAP Basis $ (.14 ) Three Months Ended 31 December Increase 2016 2015 (Decrease) Income from Continuing Operations – GAAP Basis $ 1.15 $ 1.29 $ (.14 ) Business separation costs .12 .06 .06 Tax costs associated with business separation .01 — .01 Cost reduction and asset actions .19 — .19 Income from Continuing Operations – Non-GAAP Basis $ 1.47 $ 1.35 $ .12 Three Months Ended
31 December 2015 2014 $ Change Change $ 2,355.8 $ 2,560.8 $ (205.0 ) (8 )% 493.0 430.0 63.0 15 % 20.9 % 16.8 % 410 bp 33.7 43.1 (9.4 ) (22 )% $ 785.7 $ 723.1 $ 62.6 9 % 33.4 % 28.2 % 520 bp 519.3 444.5 74.8 17 % 22.0 % 17.4 % 460 bp Three Months Ended 31 December 2016 2015 $ Change Change Sales $ 1,882.5 $ 1,866.3 $ 16.2 1 % Operating income 328.1 372.5 (44.4 ) (12 )% Operating margin 17.4 % 20.0 % (260 bp) Equity affiliates’ income 38.0 33.3 4.7 14 % Non-GAAP Basis Adjusted EBITDA $ 652.4 $ 632.5 $ 19.9 3 % Adjusted EBITDA margin 34.7 % 33.9 % 80 bp Adjusted Operating income 408.3 384.5 23.8 6 % Adjusted Operating margin 21.7 % 20.6 % 110 bp 2 1% — 1% ( 53)% 2 (5)%1 (8)%were upincreased 2% fromas higher volumes of 1% and higher pricing of 1%. Volumes increased primarily from growth in the Industrial Gases – Asia and Industrial Gases – Global segments. The favorable pricing was drivensegments were partially offset by price increaseslower activity from our LNG business in the Corporate and other segment. Higher volumes in the Industrial Gases – AmericasGlobal segment resulted from our Jazan sale-of-equipment project. Unfavorable currency impacts, primarily from the British Pound Sterling and Industrial Gases – EMEA segmentsthe Chinese Renminbi, reduced sales by 3%. Higher energy and favorable price and mix in the Materials Technologies segment. Currency and energynatural gas contractual cost pass-through to customers both loweredincreased sales by 5%2%.$493.0 increased 15%$328.1 decreased 12%, or $63.0,$44.4, as favorable operatinghigher cost reduction and asset actions of $50, unfavorable volumes of $20, higher business separation costs of $52, favorable$18, unfavorable currency impacts of $10, and unfavorable pricing net of energy and fuelraw material costs of $41, and higher volumes of $5,$2, were partially offset by unfavorable currency impacts of $23, project suspensionfavorable net operating costs of $14, and business separation costs of $12. Additionally, the prior year included a charge of $32 for business restructuring and cost reduction actions and a gain of $18 on a previously held equity interest. Operating$56. Net operating costs were lower primarily due to benefits from our recent cost reduction actions.operational improvements and higher other income. Operating margin of 20.9% increased 41017.4% decreased 260 bp.$519.3$408.3 increased 17%, or $74.8, and operating$23.8. Operating margin of 22.0%21.7% increased 460110 bp primarily due to favorable costs, higher pricing, and lower energy pass-through.net income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, income tax provision, and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.$785.7$652.4 increased 9%3%, or $62.6,$19.9, primarily due to favorable costs, higher pricing, and lower energy pass-through.costs. Adjusted EBITDA margin of 33.4%34.7% increased 52080 bp.$33.7 decreased $9.4$38.0 increased $4.7 primarily due to currency.$1,598.0 decreased $233.0, primarily$1,318.1 increased $22.2, due to lowerhigher costs attributable to sales volumes of $52 and higher energy costs of $119,$38, partially offset by favorable currency impactimpacts of $88,$44 and lower operating costs of $45, partially offset by costs attributable to higher sales volumes of $19. Operating costs included favorable impacts from restructuring actions of $22 and lower maintenance of $15.32.2% increased 37030.0% decreased 60 bp, primarily due to unfavorable volume mix of 160 bp, partially offset by favorable costs, including lower energy pass-through, of 290 bp, and higher price, net of raw materials, of 80 bp.$212.0$165.7 decreased $46.2,$8.2, primarily due to the benefits of our cost reduction actions of $30 and favorable currency effects of $15.productivity actions. Selling and administrative expense, as a percent of sales, decreased from 10.1%9.3% to 9.0%8.8%.$32.4$15.1 decreased $3.0.$1.8. Research and development expense, as a percent of sales, was 1.4% in bothdecreased from .9% to .8%.2015.Business Separation CostsOn 16 September 2015, respectively. These costs are reflected on the Company announced its intention to separate its Materials Technologies business into an independent publicly traded company. Subsequent to the satisfactionconsolidated income statements as “Business separation costs” and include legal, advisory, and pension related costs. A significant portion of specific conditions, the separation will be accomplished by distribution to Air Products shareholders of all of the shares of common stock of Versum Materials, LLC, or Versum, a newly formed company which will hold the Materials Technologies business. Versum is currently a wholly owned subsidiary of the Company and will be converted from a limited liability company to a Delaware Corporation (Versum Materials, Inc.) prior to the distribution. During the first quarter of 2016, we incurred legal and other advisory fees of $12.0 ($.06 per share)these costs were not tax deductible because they were directly related to the intended separation. Sinceplan for the announcement, we have incurred $19.5 intax-free spin-off of Versum. In addition, our income tax provision includes additional tax expense related to the separation fees.Project Suspension CostsOur Energy-from-Waste segment consists of two projects under construction in Tees Valley, United Kingdom, designed$2.7 ($.01 per share). Refer to process municipal solid wastethe discussion on Discontinued Operations below and Note 3, Discontinued Operations, to generate renewable power. In November 2015, the Company suspended construction ofconsolidated financial statements for additional information regarding the second project until certain design issues of the first project are understood, remediated,dispositions.can be efficiently integrated into the design of the second project. Asset Actions2015,2016, we incurred incremental costsrecognized a net expense of $14.3$50.0 ($11.441.2 after-tax, or $.05$.19 per share), primarily related to safely suspend construction activitiesthe write-down of an air separation unit in the Industrial Gases – EMEA segment that was constructed mainly to provide oxygen to one of the second project. We expect additional costs to be incurred in the second quarter.Business RestructuringEnergy-from-Waste plants and Cost Reduction ActionsThrough fiscal year 2015, we incurredfor severance and other charges related to the reorganization of the Company, including realignment of our businesses in new reporting segments. For the three months ended 31 December 2014, we recognized an expense of $32.4 ($21.7 after-tax, or $.10 per share).benefits. Refer to Note 4, Business Restructuring5, Cost Reduction and Cost ReductionAsset Actions, for additional details. We expect to incur costs associated with other cost saving initiatives in future periods.Gain on Previously Held Equity InterestOn 30 December 2014, we acquired our partner’s equity ownership interest in a liquefied atmospheric industrial gases production joint venture in North America which increased our ownership from 50% to 100%. The assets acquired, primarily plant and equipment, were recorded at their fair value as of the acquisition date and resulted in a gain of $17.9 ($11.2 after-tax, or $.05 per share) during the three months ended 31 December 2014 as a result of revaluing our previously held equity interest to fair value.$5.9 decreased $2.4. No$24.7 increased $19.8 partly due to income from the transition services agreement with Versum and higher gains from asset sales. Otherwise, no individual items were significant in comparison to the prior year. Three Months Ended
31 December 2015 2014 $ 35.8 $ 40.2 13.6 11.1 $ 22.2 $ 29.1 Three Months Ended 31 December 2016 2015 Interest incurred $ 35.8 $ 35.8 Less: capitalized interest 6.3 13.6 Interest expense $ 29.5 $ 22.2 decreased $4.4. The decrease resulted from lower interest rates andwas flat as the impact offrom a higher average interest rate on the debt portfolio was offset by the impact from a lower average debt balance and a stronger U.S. dollar on the translation of foreign currency interest, partially offset by a higher average debt balance.interest. The change in capitalized interest was driven by an increasea decrease in the carrying value of projects under construction.26.3%23.3% and 24.0%25.1% in the first quarter of 20162017 and 2015,2016, respectively. The 230decrease included a 210 bp increase was primarily dueimpact from excess tax benefits on shared-based compensation in accordance with our adoption of new accounting guidance, as well as a 150 bp benefit related to the increase in and mix of income in jurisdictions with aforeign tax law changes. These benefits were partially offset by higher effective tax rate and business separation costs for which a tax benefit was not available. On a non-GAAP basis, the effective tax rate increased 140 bpdecreased 320bp from 24.1% in 2015 to 25.5%24.4% in 2016 primarilyto 21.2% in 2017 due to the increaseimpact of the excess tax benefits on share-based compensation and foreign tax law changes. Refer to Note 2, New Accounting Guidance, for additional information on our adoption of the share based compensation accounting guidance.mixoperate its two EfW projects located in Tees Valley, United Kingdom, had been discontinued and a loss on disposal of income$945.7 ($846.6 after-tax) was recorded to write down assets to their estimated net realizable value and record a liability for plant disposition costs.foreign jurisdictions with a higher effective tax rate. Three Months Ended
31 December 2015 2014 $ Change % Change $ 836.1 $ 1,003.0 $ (166.9 ) (17 )% 211.8 211.2 .6 — % 25.3 % 21.1 % 420 bp 14.5 17.2 (2.7 ) (16 )% 335.1 332.0 3.1 1 % 40.1 % 33.1 % 700 bp Three Months Ended 31 December 2016 2015 $ Change % Change Sales $ 863.9 $ 836.3 $ 27.6 3% Operating income 223.8 211.6 12.2 6% Operating margin 25.9 % 25.3 % 60 bp Equity affiliates’ income 14.7 14.5 .2 1% Adjusted EBITDA 350.3 335.1 15.2 5% Adjusted EBITDA margin 40.5 % 40.1 % 40 bp ( 32)% — 2% — (4)%5 (12)%3 (17)%1% as2% from lower volumes in both North and South America of 3% were1% each. The decrease in South America volumes primarily resulted from weakness in packaged gases and equipment. North America volumes decreased as weakness in helium was partially offset by slightly higher pricing of 2%. Volumesliquid oxygen and nitrogen volumes. In addition, HyCo volumes were down due to weakness in Latin America and in the North America steel and oil field services markets. We expect this volume weakness to continue into the next quarter. Pricingmodestly positive as a new plant onstream was higher due to the benefit of pricing actions, including recovery of inflationary and power cost increases in Latin America, and higher helium pricing. Lowermostly offset by planned maintenance outages. Higher energy contractual costpass-through to customers, primarily related to natural gas, decreasedincreased sales by 12%5%. In addition, currency reduced sales by 4% due to the weakening of the Chilean Peso, Brazilian Real, and Canadian Dollar.$211.8$223.8 increased $.6,$12.2, or 6%, as higher pricing net of energy and fuel costs of $14 and favorable operating costs of $3 were mostly offset by lower volumes of $10 and unfavorable currency impacts of $6. Operating costs were lower due to cost reduction actions and lower maintenance, partially offset by lower energy pass-through. Operating margin of 25.3% increased 420 bp from the prior year due to lower energy contractual cost pass-through to customers, higher pricing, and favorable cost performance.Industrial Gases – Americas Equity Affiliates’ IncomeEquity affiliates’ income of $14.5 decreased $2.7, primarily due to currency.Industrial Gases – Europe, Middle East, and Africa (EMEA) Three Months Ended
31 December 2015 2014 $ Change % Change $ 438.3 $ 500.8 $ (62.5 ) (12 )% 91.7 81.3 10.4 13 % 20.9 % 16.2 % 470 bp 7.6 10.3 (2.7 ) (26 )% 146.0 142.7 3.3 2 % 33.3 % 28.5 % 480 bp Industrial Gases – EMEA Sales% Change fromPrior YearUnderlying businessVolume(1)%Price1%Currency(10)%Energy and raw material cost pass-through(2)%Total Industrial Gases – EMEA Sales Change(12)%Underlying sales were flat as lower volumes of 1% were offset by higher pricing of 1%. Volumes decreased as lower packaged gas volumes, in part due to weak demand from offshore energy customers, and lower hydrogen demand from refineries was partially offset by higher liquid bulk volumes. Pricing was positive across all the sub-regions. Unfavorable currency effects from the Euro, the British Pound Sterling, and the Polish Zloty reduced sales by 10%. Lower energy contractual cost pass-through to customers decreased sales by 2%.Industrial Gases – EMEA Operating Income and MarginOperating income of $91.7 increased by 13%, or $10.4, primarily due to favorable costs, driven by cost reduction actions, of $15$27 and higher pricing net of energy and fuel costs of $4,$2 were partially offset by unfavorable currency impactslower volumes of $8.$16. Operating costs were lower due to benefits from productivity actions. Operating margin of 20.9%25.9% increased 47060 bp from the prior year primarily due to favorable cost performance partially offset by lower volumes and higher energy pass-through. Three Months Ended 31 December 2016 2015 $ Change % Change Sales $ 399.7 $ 439.6 $ (39.9 ) (9)% Operating income 88.0 92.3 (4.3 ) (5)% Operating margin 22.0 % 21.0 % 100 bp Equity affiliates’ income 9.5 7.6 1.9 25% Adjusted EBITDA 139.7 146.7 (7.0 ) (5)% Adjusted EBITDA margin 35.0 % 33.4 % 160 bp Underlying business Volume (2 )% Price — % Currency (6 )% Energy and raw material cost pass-through (1 )% Total Industrial Gases – EMEA Sales Change (9 )% $7.6 decreased $2.7 primarily due to unfavorable currency impacts. Three Months Ended
31 December 2015 2014 $ Change % Change $ 413.2 $ 398.7 $ 14.5 4% 116.7 90.5 26.2 29% 28.2 % 22.7 % 550bp 11.7 14.6 (2.9 ) (20)% 180.1 154.7 25.4 16% 43.6 % 38.8 % 480bp Three Months Ended 31 December 2016 2015 $ Change % Change Sales $ 438.3 $ 414.6 $ 23.7 6% Operating income 118.1 117.3 .8 1% Operating margin 26.9 % 28.3 % (140 bp) Equity affiliates’ income 13.5 11.7 1.8 15% Adjusted EBITDA 178.3 180.9 (2.6 ) (1)% Adjusted EBITDA margin 40.7 % 43.6 % (290 bp) 10 11% ( 21)% ( 63)% — 1% 6 4% 11%10%, partially offset by lower pricing of 2%1%. Volumes increased primarily due to new plants, in Chinaincluding the commencement of a utility pass-through, and base business growth driven by higher merchant volumes.volumes across Asia. Pricing was down slightly primarily due to continued pricing pressure on the merchant market in China due to overcapacity.helium pricing. Unfavorable currency impacts, primarily from the Chinese Renminbi, decreased sales by 6%3%. Higher energy contractual cost pass-through to customers increased sales by 1%.$116.7$118.1 increased 29%1%, or $26.2,$.8, primarily due to higher volumes of $29$7 and lower operating costs of $7,$1, partially offset by lower pricingan unfavorable currency impact of $4 and unfavorable price net of energy and fuel costs of $5 and an unfavorable currency impact of $5. The lower operating costs include the benefit of our cost reduction actions.$3. Operating margin increased 550of 26.9% decreased 140 bp from the prior year, primarily due to the higher volumesutility pass-through on new plants and favorable cost performance, partially offset by lower pricing.$11.7 decreased $2.9, including unfavorable currency impacts. Three Months Ended
31 December 2015 2014 $ Change % Change $ 104.3 $ 59.0 $ 45.3 77% (19.3 ) (17.9 ) (1.4 ) (8)% (17.7 ) (13.2 ) (4.5 ) (34)% Three Months Ended 31 December 2016 2015 $ Change % Change Sales $ 147.9 $ 104.3 $ 43.6 42% Operating income (loss) 8.2 (19.3 ) 27.5 142% Adjusted EBITDA 10.5 (17.7 ) 28.2 159% Loss$104.3$147.9 increased $45.3,$43.6, or 77%, and operating loss of $19.3 increased by $1.4.42%. The increase in sales was driven by a sale of equipment contract for multiple air separation units that will serve Saudi Aramco’s Jazan oil refinery and power plant in Saudi Arabia. Due to uncertainty over costs to complete this contract, no profit was recognized forArabia, which more than offset the three months ended 31 December 2015.Operating loss of $19.3 increased $1.4, primarily due to lower sale ofdecrease in small equipment project activity, partially offset by the benefit of our cost reduction actions.Materials Technologies Three Months Ended
31 December 2015 2014 $ Change % Change $ 490.0 $ 524.0 $ (34.0 ) (6)% 127.2 104.6 22.6 22% 26.0 % 20.0 % 600bp 147.2 129.2 18.0 14% 30.0 % 24.7 % 530bp Materials Technologies Sales% Change fromPrior YearUnderlying businessVolume(6)%Price2%Currency(2)%Total Materials Technologies Sales Change(6)%Underlying sales decreased by 4% from lower volumes of 6%, partially offset by positive pricing and mix of 2%. Unfavorable currency impacts decreased sales by 2%. Electronic Materials underlying sales decreased 2% as lower delivery system volumes, due to discontinued product lines and slower project activity, were partially offset by higher pricing. Performance Materials underlying sales decreased 6%, primarily due to lower epoxy and additive volumes primarily due to weakness in oil and gas markets.Materials Technologies Operating Income and Margin$127.2$8.2 increased 22%, or $22.6,$27.5 from an operating loss in the prior year, primarily from favorable pricingincome on the Jazan project and mix, net of raw material costs, of $28 and lower costs of $8, partially offset by lower volumes of $9 and unfavorable currency impacts of $4. Operating margin of 26.0% increased 600 bp, primarily from the favorable pricing and mix and favorable cost performance, partially offset by the lower volumes.Energy-from-Waste Three Months Ended
31 December 2015 2014 $ Change % Change $ (3.6 ) $ (2.5 ) $ (1.1 ) (44 )% (3.6 ) (2.5 ) (1.1 ) (44 )% The Energy-from-Waste segment consists of two projects that are under construction in Tees Valley, United Kingdom. These projects are designed to process municipal solid waste to generate renewable power for customers under long-term contracts. Costs being expensed during project construction include land leases and commercial and administrative costs.Despite technical challenges and on-stream delays, the Company remains focused on efforts to bring the projects on-stream. In November 2015, the Company suspended construction of the second project until certain design issues of the first project are understood, remediated, and can be efficiently integrated into the design of the second project. During the three months ended 31 December 2015, we incurred incremental costs to safely suspend construction activities of the second project. See additional discussion of these project suspension costs on page 26.Future actions and assessments could impact the disposition of the investment. Three Months Ended
31 December 2015 2014 $ Change % Change $ 73.9 $ 75.3 $ (1.4 ) (2 )% (5.2 ) (22.7 ) 17.5 77 % (1.4 ) (19.8 ) 18.4 93 % Three Months Ended 31 December 2016 2015 $ Change % Change Sales $ 32.7 $ 71.5 $ (38.8 ) (54)% Operating loss (29.8 ) (17.4 ) (12.4 ) (71)% Adjusted EBITDA (26.4 ) (12.5 ) (13.9 ) (111)% $73.9$32.7 decreased $1.4,$38.8 primarily due to lower helium container sales, partially offset by higher liquefied natural gas (LNG) project activity. We expect delays in new LNG project orders due to continued weakness in energy markets. Operating loss of $5.2 decreased $17.5$29.8 increased $12.4 due to higherlower LNG project activity, partially offset by productivity improvements and benefits from our cost reduction actions. Operating
Income Operating
Margin (A) Net
Income Diluted
EPS $ 493.0 20.9 % $ 363.6 $ 1.67 430.0 16.8 % 324.6 1.50 $ 63.0 410 bp $ 39.0 $ .17 15 % 12 % 11 % $ 493.0 20.9 % $ 363.6 $ 1.67 12.0 .5 % 12.0 .06 14.3 .6 % 11.4 .05 $ 519.3 22.0 % $ 387.0 $ 1.78 $ 430.0 16.8 % $ 324.6 $ 1.50 32.4 1.3 % 21.7 .10 (17.9 ) (.7 )% (11.2 ) (.05 ) $ 444.5 17.4 % $ 335.1 $ 1.55 $ 74.8 460 bp $ 51.9 $ .23 17 % 15 % 15 % Continuing Operations Three Months Ended 31 December 2017 vs. 2016
Provision(B) 2017 GAAP $ 328.1 17.4 % $ 78.4 $ 251.6 $ 1.15 2016 GAAP 372.5 20.0 % 96.4 280.9 1.29 Change GAAP $ (44.4 ) (260 )bp $ (18.0 ) $ (29.3 ) $ (.14 ) % Change GAAP (12 )% (10 )% (11 )% 2017 GAAP $ 328.1 17.4 % $ 78.4 $ 251.6 $ 1.15 Business separation costs 30.2 1.6 % 3.7 26.5 .12 Tax costs associated with business separation — — % (2.7 ) 2.7 .01 Cost reduction and asset actions 50.0 2.7 % 8.8 41.2 .19 2017 Non-GAAP Measure $ 408.3 21.7 % $ 88.2 $ 322.0 $ 1.47 2016 GAAP $ 372.5 20.0 % $ 96.4 $ 280.9 $ 1.29 Business separation costs 12.0 .6 % — 12.0 .06 2016 Non-GAAP Measure $ 384.5 20.6 % $ 96.4 $ 292.9 $ 1.35 Change Non-GAAP Measure $ 23.8 110 bp $ (8.2 ) $ 29.1 $ .12 % Change Non-GAAP Measure 6 % 10 % 9 % The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. net income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, income tax provision, and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.Net Income from Continuing Operations on a GAAP basis to Adjusted EBITDA: Three Months Ended
31 December 2015 2014 $ 372.0 $ 337.5 22.2 29.1 132.5 106.5 232.7 235.5 12.0 — 14.3 — — 32.4 — 17.9 $ 785.7 $ 723.1 62.6 9 % Three Months Ended 31 December 2016 2015 $ 258.2 $ 287.2 Add: Interest expense 29.5 22.2 Add: Income tax provision 78.4 96.4 Add: Depreciation and amortization 206.1 214.7 Add: Business separation costs 30.2 12.0 Add: Cost reduction and asset actions 50.0 — Adjusted EBITDA $ 652.4 $ 632.5 Three Months Ended 2017 vs. 2016 31 December Change GAAP Income from continuing operations change $ (29.0 ) Income from continuing operations % change (10 )% Change Non-GAAP Adjusted EBITDA change $ 19.9 Adjusted EBITDA % change 3 % Operating Incomeoperating income to Adjusted EBITDA: Industrial Industrial Industrial Industrial Energy- Gases– Gases– Gases– Gases– Materials from- Corporate Segment Americas EMEA Asia Global Technologies Waste and other Total $ 211.8 $ 91.7 $ 116.7 $ (19.3 ) $ 127.2 $ (3.6 ) $ (5.2 ) $ 519.3 108.8 46.7 51.7 2.1 19.6 — 3.8 232.7 14.5 7.6 11.7 (.5 ) .4 — — 33.7 $ 335.1 $ 146.0 $ 180.1 $ (17.7 ) $ 147.2 $ (3.6 ) $ (1.4 ) $ 785.7 40.1 % 33.3 % 43.6 % 30.0 % 33.4 % $ 211.2 $ 81.3 $ 90.5 $ (17.9 ) $ 104.6 $ (2.5 ) $ (22.7 ) $ 444.5 103.6 51.1 49.6 4.3 24.0 — 2.9 235.5 17.2 10.3 14.6 .4 .6 — — 43.1 $ 332.0 $ 142.7 $ 154.7 $ (13.2 ) $ 129.2 $ (2.5 ) $ (19.8 ) $ 723.1 33.1 % 28.5 % 38.8 % 24.7 % 28.2 % $ 3.1 $ 3.3 $ 25.4 $ (4.5 ) $ 18.0 $ (1.1 ) $ 18.4 $ 62.6 1 % 2 % 16 % (34 )% 14 % (44 )% 93 % 9 % 700 bp 480 bp 480 bp 530 bp 520 bp Industrial
Gases–
AmericasIndustrial
Gases–
EMEAIndustrial
Gases–
AsiaIndustrial
Gases–
GlobalCorporate
and otherSegment
TotalGAAP MEASURE Three Months Ended 31 December 2016 Operating income (loss) $ 223.8 $ 88.0 $ 118.1 $ 8.2 $ (29.8 ) $ 408.3 Operating margin 25.9 % 22.0 % 26.9 % 21.7 % Three Months Ended 31 December 2015 Operating income (loss) $ 211.6 $ 92.3 $ 117.3 $ (19.3 ) $ (17.4 ) $ 384.5 Operating margin 25.3 % 21.0 % 28.3 % 20.6 % Operating income (loss) change $ 12.2 $ (4.3 ) $ .8 $ 27.5 $ (12.4 ) $ 23.8 Operating income (loss) % change 6 % (5 )% 1 % 142 % (71 )% 6 % Operating margin change 60 bp 100 bp (140 ) bp 110 bp NON-GAAP MEASURE Three Months Ended 31 December 2016 Operating income (loss) $ 223.8 $ 88.0 $ 118.1 $ 8.2 $ (29.8 ) $ 408.3 Add: Depreciation and amortization 111.8 42.2 46.7 2.0 3.4 206.1 Add: Equity affiliates' income 14.7 9.5 13.5 .3 — 38.0 Adjusted EBITDA $ 350.3 $ 139.7 $ 178.3 $ 10.5 $ (26.4 ) $ 652.4 Adjusted EBITDA margin 40.5 % 35.0 % 40.7 % 34.7 % Three Months Ended 31 December 2015 Operating income (loss) $ 211.6 $ 92.3 $ 117.3 $ (19.3 ) $ (17.4 ) $ 384.5 Add: Depreciation and amortization 109.0 46.8 51.9 2.1 4.9 214.7 Add: Equity affiliates' income (loss) 14.5 7.6 11.7 (.5 ) — 33.3 Adjusted EBITDA $ 335.1 $ 146.7 $ 180.9 $ (17.7 ) $ (12.5 ) $ 632.5 Adjusted EBITDA margin 40.1 % 33.4 % 43.6 % 33.9 % Adjusted EBITDA change $ 15.2 $ (7.0 ) $ (2.6 ) $ 28.2 $ (13.9 ) $ 19.9 Adjusted EBITDA % change 5 % (5 )% (1 )% 159 % (111 )% 3 % Adjusted EBITDA margin change 40 bp 160 bp (290 ) bp 80 bp Three Months Ended 31 December Operating Income 2016 2015 Segment total $ 408.3 $ 384.5 Business separation costs (30.2 ) (12.0 ) Cost reduction and asset actions (50.0 ) — Consolidated Total $ 328.1 $ 372.5 Effective Tax Rate 2016 2015 $ 132.5 $ 106.5 $ 504.5 $ 444.0 26.3 % 24.0 % $ 132.5 $ 106.5 2.9 — — 10.7 — (6.7 ) $ 135.4 $ 110.5 $ 504.5 $ 444.0 12.0 — 14.3 — — 32.4 — (17.9 ) $ 530.8 $ 458.5 25.5 % 24.1 % Effective Tax Rate Three Months Ended
31 December 2016 2015 Income Tax Provision — GAAP $ 78.4 $ 96.4 Income From Continuing Operations Before Taxes — GAAP $ 336.6 $ 383.6 Effective Tax Rate — GAAP 23.3 % 25.1 % Income Tax Provision — GAAP $ 78.4 $ 96.4 Business separation costs 3.7 — Tax costs associated with business separation (2.7 ) — Cost reduction and asset actions 8.8 — Income Tax Provision — Non-GAAP Measure $ 88.2 $ 96.4 Income From Continuing Operations Before Taxes — GAAP $ 336.6 $ 383.6 Business separation costs 30.2 12.0 Cost reduction and asset actions 50.0 — Income From Continuing Operations Before Taxes — Non-GAAP Measure $ 416.8 $ 395.6 Effective Tax Rate — Non-GAAP Measure 21.2 % 24.4 % 20152016 and 2014,2015, we recognized net periodic benefit cost of $14.8$18.6 and $28.5, respectively.$11.6, respectively, in continuing operations. The decreaseincrease in pension expense primarily resulted from the adoption of the spot rate approach to estimate service cost and interest cost and reduced plan participation due to severance actions,a decrease in discount rates, partially offset by favorable asset experience and the adoption of new mortality tables for our major plans. For additional discussion on our adoptionspot rate approach, refertwo divisions comprising the former Materials Technologies segment, we incurred settlement, curtailment, special termination benefit and other pension related costs totaling $2.5. These costs are reflected on the consolidated income statements within "Business separation costs".Critical Accounting Policies and Estimates section below of this Management Discussion and Analysis.Our U.S. supplemental pension plan provides forVersum plans resulting in a lump sum benefit payment option atnet decrease in the time of retirement, or for corporate officers, six months after the retirement date. Pension settlements are recognized when cash payments exceed the sumunderfunded status of the service and interest cost componentssponsored pension plans of net periodic pension cost$24. Additionally, as a result of the plan for the fiscal year. We expecttransfer of unrecognized losses to record pension settlement losses beginning in the second quarterVersum, accumulated other comprehensive loss, net of 2016.requiredour cash contributions to funded pension plans and benefit payments under unfunded pension plans were $51.8. For the three months ended 31 December 2014, cash contributions were $76.4.$24.9 and $51.8, respectively. Total contributions for fiscal 20162017 are expected to be approximately $100$65 to $120.$85. During fiscal 2015,2016, total contributions were $137.5.12,10, Retirement Benefits, to the consolidated financial statements for details on pension cost and cash contributions. have maintained a strong financial position through the first three months of 2016. We continue to have consistent access to commercial paper markets, and cash flows from operations and financing activities are expected to meet liquidity needs for the foreseeable future.2015,2016, we had $270.3$644.9 of foreign cash and cash items compared to total cash and cash items of $279.1.$655.5. If thewe needed foreign cash and cash items are needed for operations in the U.S. or we otherwise elect to repatriate the funds, we may be required to accrue and pay U.S. taxes on a significant portion of thesethose amounts. 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 outside the U.S. Current financing alternatives do not require the additional repatriation of foreign funds.2016,2017, cash provided by operating activities was $573.5. Net income$574.3. Income from continuing operations of $363.6 is adjusted for reconciling items$251.6 included the non-cash write-down of an air separation unit in the Industrial Gases – EMEA segment that includewas constructed mainly to provide oxygen to one of the Energy-from-Waste plants. Other adjustments included depreciation and amortization, deferred income taxes, share-based compensation, noncurrent capital lease receivables, and undistributed earnings of unconsolidated affiliates. The working capital accounts were a source of cash of $64.4 which was primarily driven by a decrease in trade receivables of $42.3 and other working capital of $31.6. The decrease in trade receivables includes collections from our joint venture in Jazan, Saudi Arabia. The source of cash from other working capital was primarily due to a decrease in prepaid income taxes.expense of $16.0 and contributions to our pension plans of $51.8, primarily for a plan in the U.K. The change in trade receivables provided cash of $97.1 due to higher collections which lead to lower receivables in December. The change in payables and accrued liabilities of $113.4$100.7 was primarily driven by a decrease in the accrual for incentive compensation due to payments on the 2015 plan.2015,2017, cash provided by operatingused for investing activities was $486.6. Net income$238.1, primarily driven by capital expenditures for plant and equipment of $324.6 reflected the non-cash gain on the previously held equity interest of $17.9 and undistributed earnings of unconsolidated affiliates of $31.3. Other adjustments included pension and postretirement expense of $27.3 and contributions to our pension plans of $76.4, primarily for plans in the U.S. and U.K. The working capital accounts were a source of cash of $6.2.Investing Activities$301.4,$215.7, primarily driven by capital expenditures for plant and equipment of $350.6.$248.4. Proceeds from the sale of assets and investments of $47.2 was$30.8 were primarily driven by the receipt of $30.0 for our rights to a corporate aircraft that was under construction and $15.9 for the sale of our 20% equity investment in Daido Air Products Electronics, Inc. Refer to Note 7, Equity Affiliates, to the consolidated financial statements for additional information on the sale of our equity investment.For the first three months of 2015, cash used for investing activities was $463.2, primarily driven by capital expenditures for plant and equipment of $446.5. On 30 December 2014, we acquired our partner’s equity ownership interest in a liquefied industrial gases production joint venture in North America for $22.6 which increased our ownership from 50% to 100%. Refer to Note 5, Business Combination, to the consolidated financial statements for additional information. Three Months Ended
31 December 2015 2014 $ 350.6 $ 446.5 — 22.6 $ 350.6 $ 469.1 7.3 31.9 $ 357.9 $ 501.0 Three Months Ended 31 December 2016 2015 Additions to plant and equipment $239.2 $248.4 Acquisitions, less cash acquired — — Investment in and advances to unconsolidated affiliates 8.8 (1.3 ) Capital expenditures on a GAAP basis $248.0 $247.1 4.0 7.3 Capital expenditures on a Non-GAAP basis $252.0 $254.4 $1,300$1,000 in 2016.technologytechnologies that are under firm contracts. The sales backlog for the Company at 31 December 20152016 was $1,809,$920, compared to $1,931$1,057 at 30 September 2015.$198.0.$200.2. This consisted primarily of dividend payments of $174.4 and $20.0a $19.5 net use of cash from our borrowings (short- and long-term proceeds, net of repayments).For the first three months of 2015, cash used for financing activities was $111.9. The primary use of cash was to pay dividends of $164.4. Proceeds from stock option exercises were $42.1 and our borrowings (short- and long-term proceeds, net of repayments) were a net source of cash of $16.4.20152016 and 30 September 2015,2016, expressed as a percentage of the sum of total debt and total capitalization (total debt plus total equity), was 43.7%37.3% and 44.3%41.9%, respectively. Total debt decreased from $5,879.0$5,210.9 at 30 September 20152016 to $5,817.8$4,318.4 at 31 December 2015.2015,2016, the maximum borrowing capacity was $2,690.0. The 2013 Credit Agreement provides a source of liquidity for the Company and supports its commercial paper program. This credit facility includes a financial covenant for a maximum ratio of total debt to total capitalization (total debt plus total equity) no greater than 70%. No borrowings were outstanding under the 2013 Credit Agreement as of 31 December 2015.$88.9$35.5 are maintained by our foreign subsidiaries, all of which was borrowed and outstanding at 31 December 2015.2015,2016, we are in compliance with all of the financial and other covenants under our debt agreements.2016,2017, we did not purchase any of our outstanding shares. At 31 December 2015,2016, $485.3 in share repurchase authorization remains.At 31 December 2015,remained.capital balance was ($793), primarily duecapital. We expect approximately one billion of the proceeds to $1,947.3 of short-term borrowings and long-term debt due within the next 12 months. Maintaining the short-term borrowings balance at its current level provides flexibility in how we manage cash flowsbe utilized to pay income taxes associated with the anticipated spin-offtaxable gain on the transaction.our Materials TechnologiesDirectors declared the second quarter dividend of $.95. The dividend is payable on 8 May 2017 to shareholders of record at the close of business in 2016.2015.2015.2016. For current updates on Litigation and Environmental matters, refer to Note 13,11, Commitments and Contingencies, in this quarterly filing.2015.2016. 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, and results of operations, or liquidity.2015.U.S. generally accepted accounting principles.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.Our Energy-from-Waste segment consists of two projects under construction in Tees Valley, United Kingdom, designed to process municipal solid waste to generate renewable power. Due to technical challenges, on-stream delays, and capital commitments for these projects,continue to evaluate whether impairment for this asset group exists. Factors specific toassessed the impairment assessment for this asset group include estimating long-term efficiency, output, and on-stream reliabilityrecoverability of the projects. Our evaluationcarrying value of the assets associated with the Energy-from-Waste discontinued operation, including an air separation unit within continuing operations of our Industrial Gases – EMEA segment, and recorded losses to reduce the carrying value of the assets as of 31 December 2015 indicated that the probability weighted undiscounted cash flows of the asset group exceed the carrying value; therefore, no impairment was indicated. The carrying value of this asset group as of 31 December 2015 was $938.9. It is reasonably possible that key assumptions or actual conditions may change and result in a future impairment charge.ourthe implementation and impact of new accounting standards issued by the FASB is included in Note 2, New Accounting Guidance, to the consolidated financial statements.In fiscal 2016, we changed our method to estimate the service cost and interest cost components of net periodic benefit costs for our major defined benefit pension plans. Historically, we estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to use a spot rate approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this provides a better estimate of service and interest costs. We consider this change in rate assumption to be a change in estimate and, accordingly, are accounting for it prospectively starting in 2016. We expect that adoption of the spot rate approach will reduce our fiscal 2016 net periodic benefit cost by approximately $30. This change does not affect the measurement of our total benefit obligation.During the first quarter of fiscal year 2016, we adopted guidance on the presentation of deferred income taxes that resulted in all deferred tax liabilities and assets being classified as noncurrent on the balance sheet. Accordingly, prior year amounts were reclassified to conform to the current year presentation. The guidance, which did not change the existing requirement to net deferred tax assets and liabilities within a jurisdiction, resulted in a reclassification adjustment that increased noncurrent deferred tax assets by $13.7 and decreased noncurrent deferred tax liabilities by $99.9 as of 30 September 2015.ourthe implementation and impact of new accounting guidance.reportManagement's Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance and business outlook. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date of this report is filed.report. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, global or regional economic conditions (including, as to the United Kingdom and Europe, the impact of the recent “Brexit” referendum) and supply and demand dynamics in market segments into which the Company sells; the inability to eliminate stranded costs previously allocated to the Company’s Electronic Materials and Performance Materials divisions which have been divested and other unexpected impacts of the divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; with regard to the intended separation of Materials Technologies, general economic and business conditions that may affect the proposed separation and the execution thereof, changes in capital market conditions, and the Company’s decision not to consummate the separation due to market, economic or other events; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; our ability to execute projects involving new geographies, technologies or applications; asset impairments due to economic conditions or specific events; the impact of competitive products and pricing; challenges of implementing new technologies; ability to protect and enforce the Company’s intellectual property rights; unexpected changes in raw material supply and markets; the impact of price fluctuations in natural gas and disruptions in markets and the economy due to oil price volatility; the ability to recover increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory investigations; the success of productivity and cost reductionoperational improvement programs; the timing, impact, and other uncertainties of future acquisitions or divestitures;divestitures, including reputational impacts; political risks, including the risks of unanticipated government actions; acts of war or terrorism; the impact of changes in environmental, tax or other legislation and regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described in the Company’s Form 10-K for its fiscal year ended 30 September 30, 2015.2016. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this report to reflect any change in the Company’s assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.20152016 Form 10-K.$4,452.0$4,172.1 at 30 September 20152016 to a liability of $4,307.6$3,998.6 at 31 December 2015.2016. The decrease was due primarily to repayment of long-term debt and a stronger U.S. dollar which reducedand higher interest rates.translated valueeffect of foreign currency and interest rate swap agreements, was composed of 55% fixed-rate debt and increased45% variable-rate debt. Our debt portfolio as of 31 December 2016, including the fair valueeffect of our outstanding derivatives.of 31 December 2015,at period end, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of $130$121 and $139$137 in the net liability position of financial instruments at 31 December 20152016 and 30 September 2015,2016, respectively. A 100 bp decrease in market interest rates would result in an increase of $140$130 and $151$148 in the net liability position of financial instruments at 31 December 20152016 and 30 September 2015,2016, respectively.There were no material changes tothe variable portion of our debt portfolio since 30 September 2015.There were no material changes to the sensitivity analysis related toforeign currency exchange rates assumes an instantaneous 10% change in the foreign currency exchange rate risk on ourrates from their levels at period end, 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 $395 and $422 in the net liability position of financial instruments portfolio sinceat 31 December 2016 and 30 September 2015.20152016 (the Evaluation Date), an evaluation of the effectiveness of our disclosure controls and procedures was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.there wasother than the above, no other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.10.1 FormAmendment No. 5 dated as of Award9 June 2016, to the Revolving Credit Agreement under the Long-Term Incentive Plandated as of the Company, used for FY2015 awards.30 April 2013.10.2 Air Products and Chemicals, Inc. Retirement SavingsSenior Management Severance Plan as amended and restatedSummary Plan Description effective as of 1 JanuaryApril 2016.10.3 Amendment No. 1 to the Air Products and Chemicals, Inc. Deferred Compensation Plan effective 1 January 2016.12. Computation of Ratios of Earnings to Fixed Charges. 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. 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.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase (Registrant) Date: 29 January 201627, 2017 By: M. Scott Crocco SeniorExecutive Vice President and Chief Financial Officer10.1 Form of Award Agreement under the Long-Term Incentive Plan of the Company used for FY2015 awards.FY2017.10.2 Form of Award Agreement under the Long-Term Incentive Plan of the Company for FY2017. 10.3 Amendment No. 2 to the Air Products and Chemicals, Inc. Retirement Savings Plan as amended and restated effective as of 13 January, 2016.2017.10.3 Amendment No. 1 to the Air Products and Chemicals, Inc. Deferred Compensation Plan effective 1 January 2016.12. Computation of Ratios of Earnings to Fixed Charges. 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. 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.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 40