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Item 7. Management’s Discussion and Analysis

2021-11-18 compared with 2020-11-19 · 340 added, 455 removed, 442 unchanged (64% of the section changed)

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Liquidity and Capital Resources

Contractual Obligations

Pension Benefits

Environmental Matters

Off-Balance Sheet Arrangements

Related Party Transactions

Critical Accounting Policies and Estimates

New Accounting Guidance

This Management’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 business outlook.

These forward-looking statements are based on management’s expectations and assumptions as of the date of this Annual Report and are not guarantees of future performance.

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, those described in Forward-Looking Statements and Item 1A, Risk Factors , of this Annual Report on Form 10-K.

The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for fiscal years 2020 and 2019.

For the discussion of changes from fiscal year 2018 to fiscal year 2019 and other financial information related to fiscal year 2018, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Form 10-K for the fiscal year ended 30 September 2019.

This document was filed with the SEC on 26 November 2019.

These forward-looking statements are based on management’s expectations and assumptions as of the date of this Annual Report on Form 10-K and are not guarantees of future performance.

The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report.

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Except for net income, which includes the results of discontinued operations, financial information is presented on a continuing operations basis.

The financial measures included in the discussion that follows are presented in accordance with U.S.

The content of our Management's Discussion and Analysis has been updated pursuant to SEC disclosure modernization rules that are effective as of the date of this Annual Report.

Comparisons of our results of operations and liquidity and capital resources are for fiscal years 2021 and 2020.

For a discussion of changes from fiscal year 2019 to fiscal year 2020 and other financial information related to fiscal year 2019, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended 30 September 2020.

This document was filed with the SEC on 19 November 2020.

The financial measures discussed below are presented in accordance with U.S.

generally accepted accounting principles ("GAAP"), except as noted.

We present certain financial measures on an "adjusted," or "non-GAAP," basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance.

For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax rate, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

These reconciliations and explanations regarding the use of these measures are presented beginning on page 31.

In March 2020, the World Health Organization declared the novel strain of coronavirus, COVID-19, a global pandemic and recommended containment and mitigation measures worldwide.

In response to COVID-19, we implemented certain health and safety policies to help keep our employees, contractors, customers, and communities safe while continuing to run our facilities, which generally have been considered "essential" by local governments and public health authorities.

In compliance with government protocols, our non-essential employees were instructed to work from home until government mandated restrictions allow for a return to the workplace.

Those working and visiting our sites are required to follow appropriate procedures, including completion of trainings and performance of self- and on-site screenings, as well as adhere to our personal protective equipment, social distancing, and personal hygiene protocols.

For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

These reconciliations and explanations regarding the use of non-GAAP measures are presented under "Reconciliations of Non-GAAP Financial Measures" beginning on page 31.

For information concerning activity with our related parties, refer to Note 22, Supplemental Information , to the consolidated financial statements.

BUSINESS OVERVIEW

Air Products and Chemicals, Inc.

is a world-leading industrial gases company that has been in operation for 80 years.

Focused on serving energy, environment and emerging markets, we provide essential industrial gases, related equipment and applications expertise to customers in dozens of industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage.

Air Products is also the global leader in the supply of liquefied natural gas ("LNG") process technology and equipment.

We develop, engineer, build, own and operate some of the world's largest industrial gas projects, including gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and chemicals.

With operations in 50 countries, in fiscal year 2020 we had sales of $8.9 billion and assets of $25.2 billion.

Approximately 19,275 passionate, talented and committed full- and part-time employees from diverse backgrounds are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability and address the challenges facing customers, communities, and the world.

As of 30 September 2020, our operations were organized into five reportable business segments:

Air Products and Chemicals, Inc., a Delaware corporation originally founded in 1940, serves customers globally with a unique portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, equipment, and services.

Focused on serving energy, environment and emerging markets, we provide essential industrial gases, related equipment, and applications expertise to customers in dozens of industries, including refining, chemicals, metals, electronics, manufacturing, and food and beverage.

We are the world's largest supplier of hydrogen and have built leading positions in growth markets such as helium and liquefied natural gas ("LNG") process technology and equipment.

We develop, engineer, build, own, and operate some of the world's largest industrial gas projects, including gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels, and chemicals and are developing carbon capture projects and world-scale low carbon and carbon-free hydrogen projects that will support global transportation and the energy transition away from fossil fuels.

With operations in over 50 countries, in fiscal year 2021 we had sales of $10.3 billion and assets of $26.9 billion.

Approximately 20,875 passionate, talented, and committed employees from diverse backgrounds are driven by our higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and address the challenges facing customers, communities, and the world.

As of 30 September 2021, our operations were organized into five reportable business segments under which we managed our operations, assessed performance, and reported earnings:

• Industrial Gases – Americas;

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Refer to Note 23, Business Segment and Geographic Information , to the consolidated financial statements for additional details on our reportable business segments.

On 4 November 2021, we announced the reorganization of our industrial gases segments effective 1 October 2021.

Refer to Note 24, Subsequent Events , for additional information.

2021 IN SUMMARY

In fiscal year 2020, our number one priority was the safety and well-being of our people.

Since the beginning of the COVID-19 pandemic, we have kept our global plants running, supplied critical products, and supported our local communities during this time of need.

We continued to win significant new growth projects around the world and serve our customers, delivering stable results despite the significant health crisis facing the world.

We also remained focused on sustainability and our commitment to advancing diversity and inclusion.

We set new goals that are aligned with Air Products' business strategy and higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and address the challenges facing customers, communities, and the world.

Fiscal year 2020 results and highlights are summarized below:

• Sales of $8,856.3 decreased 1%, or $62.6, as 3% higher pricing and 2% favorable volumes were more than offset by 4% lower energy and natural gas cost pass-through to customers, 1% unfavorable currency, and the 1% impact of a contract modification to a tolling arrangement in India.

We estimate that COVID-19 negatively impacted our overall sales by approximately 4%, primarily driven by lower volumes in our merchant business in the regional industrial gas segments.

• Operating income of $2,237.6 increased 4%, or $93.2, and operating margin of 25.3% increased 130 bp.

• Net income of $1,931.1 increased 7%, or $121.7, and net income margin of 21.8% increased 150 bp.

• Adjusted EBITDA of $3,619.8 increased 4%, or $151.8, and adjusted EBITDA margin of 40.9% increased 200 bp.

• Diluted EPS of $8.55 increased 8%, or $0.61, and adjusted diluted EPS of $8.38 increased 2%, or $0.17.

We estimate that COVID-19 negatively impacted our fiscal year 2020 EPS by approximately $0.60-$0.65 per share.

A summary table of changes in diluted EPS is presented below.

Fiscal year 2020 results and highlights (continued):

• We increased our quarterly dividend by over 15% from $1.16 to $1.34 per share, representing the largest dividend increase in our 80-year history.

In fiscal year 2021, we continued to execute our growth strategy, including announcement of several new gasification, carbon capture, and hydrogen projects that will drive the world’s energy transition from fossil fuels.

At the same time, we remained focused on our base business, delivering consistent results despite external challenges globally and absorbing costs for additional resources needed to support growth.

In the second half of the year, demand for most merchant products returned to pre-pandemic levels.

Additionally, we continued to create shareholder value by increasing the quarterly dividend on our common stock to $1.50 per share, representing a 12% increase from the previous dividend.

This is the 39 th consecutive year that we have increased our quarterly dividend payment.

• We successfully executed a debt offering of approximately $5 billion during the third quarter, supporting significant opportunities to invest in high-return industrial gas projects and the repayment of upcoming debt maturities.

The issuance included both U.S.

Dollar- and Euro-denominated fixed-rate notes.

Fiscal year 2021 results are summarized below:

• Sales of $10.3 billion increased 17%, or $1.5 billion, due to higher energy and natural gas cost pass-through to customers, higher volumes, favorable currency impacts, and positive pricing that more than offset power cost increases in the second half of the year.

• Operating income of $2,281.4 increased 2%, or $43.8, and operating margin of 22.1% decreased 320 basis points ("bp").

• Net income of $2,114.9 increased 10%, or $183.8, and net income margin of 20.5% decreased 130 bp.

• Adjusted EBITDA of $3,883.2 increased 7%, or $263.4, and adjusted EBITDA margin of 37.6% decreased 330 bp.

• Diluted EPS of $9.12 increased 7%, or $0.57 per share, and adjusted diluted EPS of $9.02 increased 8%, or $0.64 per share.

A summary table of changes in diluted EPS is presented below.

Changes in Diluted EPS Attributable to Air Products

The per share impacts presented in the table below were calculated independently and may not sum to the total change in diluted EPS due to rounding.

Year Ended 30 September 2020 2019 (Decrease)

Fiscal Year Ended 30 September 2021 2020 (Decrease)

Total Diluted EPS $9.43 $8.49 $0.94

Diluted EPS from loss from discontinued operations (0.06) — (0.06)

Diluted EPS from income (loss) from discontinued operations 0.32 (0.06) 0.38

Diluted EPS From Continuing Operations

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Underlying business

Volume ($0.19)

Price, net of variable costs 0.34

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Facility closure (0.08)

Company headquarters relocation income (expense) 0.12

Cost reduction actions 0.08

Gain on exchange of equity affiliate investments (0.13)

Company headquarters relocation income (0.12)

Gain on exchange with joint venture partner 0.12

Total Operating Impacts $0.15

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India Finance Act 2020 (0.06)

Tax reform repatriation (0.06)

Tax reform adjustment related to deemed foreign dividends 0.26

Noncontrolling interests 0.02

Tax election benefit and other 0.05

Noncontrolling interests (A)

Weighted average diluted shares (0.01)

Total Other Impacts $0.40

Total Change in Diluted EPS From Continuing Operations (A)

(A) Includes an estimated negative impact of $0.60-$0.65 from COVID-19.

This estimate includes impacts on our sales, costs, and equity affiliates' income.

Year Ended 30 September 2020 2019 (Decrease)

Total Change in Diluted EPS From Continuing Operations $0.57

(A) Despite higher sales volumes, the volume impact on diluted EPS was flat due to reduced contributions from our 60%-owned joint venture with Lu'An Clean Energy Company that we consolidate within our Industrial Gases – Asia segment.

Refer to the sales discussion below for additional detail.

The volume impact from the Lu'An facility is partially offset by the positive impact of lower net income being attributed to our joint venture partner within "Noncontrolling interests."

Fiscal Year Ended 30 September 2021 2020 Increase

Diluted EPS From Continuing Operations $9.12 $8.55 $0.57

Facility closure 0.08 — 0.08

Cost reduction actions — 0.08 (0.08)

Gain on exchange of equity affiliate investments — (0.13) 0.13

Company headquarters relocation (income) expense (0.12) — (0.12)

Gain on exchange with joint venture partner (0.12) — (0.12)

Company headquarters relocation income — (0.12) 0.12

India Finance Act 2020 — (0.06) 0.06

Pension settlement loss — 0.02 (0.02)

Tax reform repatriation — (0.06) 0.06

Tax reform adjustment related to deemed foreign dividends — 0.26 (0.26)

Tax election benefit and other (0.05) — (0.05)

Adjusted Diluted EPS From Continuing Operations $9.02 $8.38 $0.64

As COVID-19 continues, we remain focused on the safety and well-being of our people.

We are committed to safely maintaining plant operations and ensuring business continuity, including providing financial security for employees, reliably supplying critical products and services to our customers, and winning new opportunities for world-scale projects.

We expect lower volumes from COVID-19 to continue into fiscal year 2021 with recovery in demand depending on the duration of COVID-19 and measures implemented by governments, public health authorities and businesses to mitigate its spread.

Given the dynamic nature of these circumstances, the future impact on our ongoing business, results of operations, and overall financial performance cannot be reasonably estimated.

Despite the uncertainty of the duration of COVID-19, we will continue to focus on pricing discipline in our merchant business and expect our onsite business model, which represents approximately half of our business, to continue generating stable cash flow.

This will allow us to execute our strategic focus on our industrial gas business and the creation of long-term shareholder value, including the ongoing growth of our dividend, continued execution of projects in our backlog, and new investments in high-return industrial gas projects.

A long-term onsite customer in Asia delayed restarting their plant following a planned major maintenance turnaround completed in September 2020.

While we expect the plant to restart in fiscal year 2021, we are negotiating with the customer regarding contract terms that could impact sales in our Industrial Gases – Asia segment.

The above guidance should be read in conjunction with the Forward-Looking Statements of this Annual Report on Form 10-K.

The guidance below should be read in conjunction with the Forward-Looking Statements of this Annual Report on Form 10-K.

We believe our achievements in 2021 are just the beginning of our journey providing gasification, carbon capture, and hydrogen for mobility solutions to address the world’s most significant energy and environmental sustainability challenges.

For example, we expect our world-scale Jazan gasification project with Aramco, ACWA Power, and Air Products Qudra to begin contributing to our results in the first quarter of fiscal year 2022.

We expect to continue to pursue new, high-return opportunities that are aligned with our growth strategy and to add the resources necessary for project development and execution.

We remain committed to creating shareholder value through capital deployment and delivering increased dividends, as we have done for the past 39 consecutive years.

The duration and extent of ongoing global challenges, such as rising energy costs, energy consumption curtailment, and supply chain disruptions, remain uncertain.

For our merchant business, we plan to continue pricing actions to recover higher energy costs.

We expect to add new projects to our onsite business model, which has contractual protection from energy cost fluctuations and generates stable cash flow.

We expect higher costs from planned maintenance activities on our facilities in fiscal year 2022 and higher pension expense resulting from lower expected returns on assets.

Additionally, we expect the Lu’An facility to continue operating under the interim agreement discussed below through fiscal year 2022.

In fiscal year 2022, we will also continue to focus on our other sustainability goals, including our commitment to reduce our carbon dioxide emissions intensity and advance diversity and inclusion.

On 4 November 2021, we announced the reorganization of our industrial gases segments, including the separation of our Industrial Gases – EMEA segment into two separate reporting segments:

Industrial Gases – Europe and Industrial Gases – Middle East.

The results of an affiliate formerly reflected in the Industrial Gases – Asia segment will now be reported in the Industrial Gases – Middle East segment.

Additionally, the results of our Industrial Gases – Global operating segment will be reflected in the Corporate and other segment.

Beginning with our Quarterly Report on Form 10-Q for the first quarter of fiscal year 2022, segment results will be presented on a retrospective basis to reflect the reorganization.

RESULTS OF OPERATIONS

Discussion of Consolidated Results

2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change Change

GAAP Measures

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Energy and natural gas cost pass-through 6 %

Currency (1) %

Total Consolidated Sales Change 17 %

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

Sales of $8,856.3 decreased 1%, or $62.6, as higher pricing of 3% and favorable volumes of 2% were more than offset by lower energy and natural gas cost pass-through to customers of 4%, unfavorable currency of 1%, and the impact from the India contract modification of 1%.

The pricing improvement was attributable to our merchant business across the regional segments.

The volume growth exceeded the negative impacts from COVID-19 and was primarily driven by acquisitions, new plants, and higher sale of equipment project activity.

We estimate that COVID-19 negatively impacted overall sales by approximately 4%, primarily driven by lower volumes in our merchant business across the regional segments as our onsite business remained stable.

Unfavorable currency impacts were driven by the Chilean Peso, Chinese Renminbi, Euro, and South Korean Won.

Sales of $10,323.0 increased 17%, or $1,466.7, due to higher energy and natural gas cost pass-through to customers of 6%, higher volumes of 5%, favorable currency impacts of 4%, and positive pricing of 2%.

We experienced significantly higher energy and natural gas costs in the second half of fiscal year 2021, particularly in North America and Europe.

Contractual provisions associated with our on-site business, which represents approximately half our total company sales, allow us to pass these costs to our customers.

Positive volumes from new assets, our sale of equipment businesses, and merchant demand recovery from COVID-19 were partially offset by reduced contributions from the Lu'An gasification project discussed below.

Favorable currency was primarily driven by the appreciation of the British Pound Sterling, Chinese Renminbi, Euro, and South Korean Won against the U.S.

Continued focus on pricing actions, including energy cost recovery, in our merchant businesses resulted in price improvement in each of our three regional segments.

Lu’An Clean Energy Company (“Lu’An”), a long-term onsite customer in Asia with which we have a consolidated joint venture, restarted its facility in the third quarter of fiscal year 2021 following successful completion of major maintenance work in September 2020.

Our facility resumed operations, and the joint venture is supplying product at reduced charges as agreed upon with Lu'An under a short-term agreement reached in the first quarter of fiscal year 2021.

As a result of this agreement, we recognized lower revenue in our Industrial Gases – Asia segment in each quarter of fiscal year 2021.

We expect this short-term reduction in charges to extend through fiscal year 2022.

Cost of Sales and Gross Margin

Cost of sales of $5,858.1 decreased 2%, or $146.4, from total cost of sales of $6,004.5 in the prior year, which included the facility closure further discussed below.

The decrease from the prior year was driven by lower energy and natural gas cost pass-through to customers of $314, positive currency impacts of $73, the favorable impact from the India contract modification of $41, and the prior year facility closure of $29, partially offset by higher costs attributable to sales volumes of $250 and higher other costs, including planned maintenance, of $61.

Gross margin of 33.9% increased 120 bp from 32.7% in the prior year, primarily due to positive pricing, lower energy and natural gas cost pass-through to customers, and the prior year facility closure, partially offset by unfavorable volume mix and net operating costs.

Total cost of sales of $7,209.3, including the facility closure discussed below, increased 23%, or $1,351.2.

The increase from the prior year was primarily due to higher energy and natural gas cost pass-through to customers of $479, higher costs associated with sales volumes of $433, unfavorable currency impacts of $233, and higher costs, including power and other cost inflation, of $183.

Gross margin of 30.2% decreased 370 bp from 33.9% in the prior year, primarily due to higher energy and natural gas cost pass-through to customers, higher costs, and the reduced Lu'An contribution, partially offset by the positive impact of our pricing actions.

Facility Closure

In fiscal year 2019, one of our customers was subject to a government enforced shutdown due to environmental reasons.

As a result, we recognized a charge of $29.0 ($22.1 after-tax, or $0.10 per share) primarily related to the write-off of onsite assets.

This charge was reflected as “Facility closure” on our consolidated income statements for the fiscal year ended 30 September 2019 and was not recorded in segment results.

In the second quarter of fiscal year 2021, we recorded a charge of $23.2 ($17.4 after-tax, or $0.08 per share) primarily for a noncash write-down of assets associated with a contract termination in the Industrial Gases – Americas segment.

This charge is reflected as "Facility closure" on our consolidated income statements for the fiscal year ended 30 September 2021 and was not recorded in segment results.

Selling and Administrative

Selling and administrative expense of $775.9 increased 3%, or $25.9, due to higher business development costs to support our growth strategy and higher incentive compensation, partially offset by currency impacts and lower travel expenses.

Selling and administrative expense, as a percentage of sales, increased from 8.4% to 8.8%.

Selling and administrative expense of $828.4 increased 7%, or $52.5, primarily driven by higher spending for business development resources to support our growth strategy and unfavorable currency impacts.

Selling and administrative expense as a percentage of sales decreased to 8.0% from 8.8% in the prior year.

Research and Development

Research and development expense of $83.9 increased 15%, or $11.0, primarily due to higher product development costs.

Research and development expense as a percentage of sales increased from 0.8% to 0.9%.

Company Headquarters Relocation Income (Expense)

During the second quarter of fiscal year 2020, we sold property at our current corporate headquarters located in Trexlertown, Pennsylvania, for net proceeds of $44.1.

The sale was completed in anticipation of relocating our U.S.

headquarters and resulted in a gain of $33.8 ($25.6 after-tax, or $0.12 per share).

This gain is reflected on our consolidated income statements as "Company headquarters relocation income (expense)" for the fiscal year ended 30 September 2020 and was not recorded in segment results.

Cost Reduction Actions

In fiscal year 2019, we recognized an expense of $25.5 ($18.8 after-tax, or $0.08 per share) for severance and other benefits associated with position eliminations, primarily within the Industrial Gases – EMEA and the Industrial Gases – Americas segments.

This expense was reflected as "Cost reduction actions" on our consolidated income statements for the fiscal year ended 30 September 2019 and was not recorded in segment results.

Refer to Note 5, Cost Reduction Actions , to the consolidated financial statements for additional information.

Gain on Exchange of Equity Affiliate Investments

In fiscal year 2019, we recognized a net gain of $29.1 ($0.13 per share) resulting from the exchange of two 50%-owned industrial gas joint ventures in China.

The net gain was reflected as "Gain on exchange of equity affiliate investments" on our consolidated income statements for the fiscal year ended 30 September 2019 and was not recorded in segment results.

Research and development expense of $93.5 increased 11%, or $9.6, primarily due to higher product development costs in our Industrial Gases – Global segment .

Research and development expense as a percentage of sales of 0.9% was flat versus the prior year.

Gain on Exchange with Joint Venture Partner

In the second quarter of fiscal year 2021, we recognized a gain of $36.8 ($27.3 after-tax, or $0.12 per share) on an exchange with the Tyczka Group, a former joint venture partner in our Industrial Gases – EMEA segment.

As part of the exchange, we separated our 50/50 joint venture in Germany into two separate businesses so each party could acquire a portion of the business on a 100% basis.

The gain included $12.7 from the revaluation of our previously held equity interest in the portion of the business that we retained and $24.1 from the sale of our equity interest in the remaining business.

The gain is reflected as "Gain on exchange with joint venture partner" on our consolidated income statements for the fiscal year ended 30 September 2021 and was not recorded in segment results.

Refer to Note 3, Acquisitions , to the consolidated financial statements for additional information.

Company Headquarters Relocation Income (Expense)

In anticipation of relocating our U.S.

headquarters, we sold property at our corporate headquarters located in Trexlertown, Pennsylvania, in the second quarter of fiscal year 2020.

We received net proceeds of $44.1 and recorded a gain of $33.8 ($25.6 after-tax, or $0.12 per share), which is reflected on our consolidated income statements as "Company headquarters relocation income (expense)" for the fiscal year ended 30 September 2020.

The gain was not recorded in the results of the Corporate and other segment.

Other Income (Expense), Net

Other income (expense), net of $65.4 increased 33%, or $16.1, primarily due to the adjustment of a benefit plan liability resulting from a change in plan terms.

Other income of $52.8 decreased 19%, or $12.6.

The prior year was favorably impacted by an adjustment for a benefit plan liability due to a change in plan terms.

This impact was partially offset by the settlement of a supply contract in the current year.

Operating Income and Margin

Operating income of $2,237.6 increased 4%, or $93.2, due to positive pricing, net of power and fuel costs, of $212, income associated with the company headquarters relocation of $34, and prior year charges for a facility closure of $29 and cost reduction actions of $26, partially offset by higher net operating costs of $104, including planned maintenance, unfavorable volume mix of $55, a gain on the exchange of equity affiliates of $29 in the prior year, and unfavorable currency of $20.

Operating margin of 25.3% increased 130 bp, primarily due to positive pricing, lower energy and natural gas cost pass-through to customers, the impact of income associated with the company headquarters relocation, and prior year charges for a facility closure and cost reduction actions, partially offset by unfavorable volume mix, higher operating costs, and a gain on the exchange of two equity affiliates in the prior year.

Operating income of $2,281.4 increased 2%, or $43.8, as favorable currency of $96, positive pricing, net of power and fuel costs, of $95, and a gain on an exchange with a joint venture partner of $37 were partially offset by higher operating costs of $127, prior year income associated with the company headquarters relocation of $34, and a facility closure of $23.

Despite higher sales volumes, the volume impact on operating income was minimal due to reduced contributions from Lu'An.

Unfavorable operating costs were driven by the addition of resources to support our growth strategy and higher planned maintenance activities.

Operating margin of 22.1% decreased 320 bp from 25.3% in the prior year, primarily due to the higher operating costs, higher energy and natural gas cost pass-through to customers, which contributed to sales but not operating income, and reduced contributions from Lu'An, partially offset by positive pricing.

The positive impact from a gain on an exchange with a joint venture partner in the current year was offset by prior year income associated with the company headquarters relocation.

Equity Affiliates’ Income

Equity affiliates' income of $264.8 increased 23%, or $49.4, primarily due to a current year benefit of $33.8 for the release of our share of accumulated dividend distribution taxes related to an Indian affiliate as a result of the enactment of a tax law in India.

Equity affiliates' income of $294.1 increased 11%, or $29.3.

Higher income from affiliates in the regional segments was partially offset by a prior year benefit of $33.8 from the enactment of the India Finance Act 2020.

Refer to Note 21, Income Taxes , to the consolidated financial statements for additional information.

The current year also includes higher income from affiliates in India, Italy, and Saudi Arabia, partially offset by negative impacts from COVID-19.

We expect our equity affiliates' income to grow in future periods due to our investment in the Jazan Integrated Gasification and Power Company joint venture.

Interest Expense

Fiscal Year Ended 30 September 2021 2020

Interest incurred $170.1 $125.2

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Interest expense $141.8 $109.3

Interest incurred decreased 17%, or $25.3.

The prior year included an expense of $33.3 related to foreign currency forward points and currency swap basis differences ("excluded components") of our cash flow hedges of intercompany loans.

As discussed in Note 2, New Accounting Guidance , to the consolidated financial statements, we adopted new accounting guidance on hedging activities that changed the presentation of these items from "Interest expense, net" to “Other non-operating income (expense), net” in fiscal year 2020.

In addition to this presentation change, interest incurred decreased due to lower expenses related to the Lu'An joint venture financing and a lower average interest rate on the debt portfolio, partially offset by a higher debt balance due to the issuance of debt during the third quarter of fiscal year 2020.

Refer to Note 15, Debt , to the consolidated financial statements for additional information.

We expect interest expense to be higher in future periods due to this issuance.

Capitalized interest increased 18%, or $2.4, due to an increase in the carrying value of projects under construction.

Interest incurred increased 36%, or $44.9, primarily driven by a higher debt balance due to the issuance of U.S.

Dollar- and Euro-denominated fixed-rate notes in the third quarter of fiscal year 2020.

Capitalized interest increased $12.4 due to a higher carrying value of projects under construction.

Other Non-Operating Income (Expense), Net

Other non-operating income of $30.7 decreased 54%, or $36.0, primarily due to an expense of $33.5 for the excluded components of cash flow hedges of intercompany loans.

These components were historically recorded in "Interest expense" prior to the adoption of the guidance discussed above.

The current year also included lower interest income on cash and cash items.

These factors were partially offset by higher non-service pension income due to lower interest cost and higher expected asset returns, primarily for our U.S.

Other non-operating income of $73.7 increased $43.0.

We recorded higher non-service pension income in 2021 due to lower interest costs and higher total assets, primarily for our U.S.

pension plans.

The prior year includes a settlement loss of $5.0 ($3.8 after-tax, or $0.02 per share) associated with the U.S.

Supplementary Pension Plan.

The current year also included favorable currency impacts.

These factors were partially offset by lower interest income on cash and cash items due to lower interest rates.

Discontinued Operations

During the second quarter of fiscal year 2020, we recorded a pre-tax loss from discontinued operations of $19.0 ($14.3 after-tax, or $0.06 per share) to increase our liability for retained environmental obligations associated with the sale of our former Amines business in September 2006.

Refer to the Pace discussion within Note 17, Commitments and Contingencies , to the consolidated financial statements for additional information.

Income from discontinued operations, net of tax, was $70.3 ($0.32 per share) for the fiscal year ended 30 September 2021.

This included net tax benefits of $60.0 recorded for the release of tax reserves for uncertain tax positions, of which $51.8 ($0.23 per share) was recorded in the fourth quarter for liabilities associated with the 2017 sale of our former Performance Materials Division ("PMD") and $8.2 was recorded in the third quarter for liabilities associated with our former Energy-from-Waste business.

Additionally, we recorded a tax benefit from discontinued operations of $10.3 in the first quarter, primarily from the settlement of a state tax appeal related to the gain on the sale of PMD.

In fiscal year 2020, loss from discontinued operations, net of tax, was $14.3 ($0.06 per share).

This resulted from a pre-tax loss of $19.0 recorded in the second quarter to increase our existing liability for retained environmental obligations associated with the sale of our former Amines business in September 2006.

Refer to the Pace discussion within Note 16, Commitments and Contingencies , for additional information.

Net Income and Net Income Margin

Net income of $1,931.1 increased 7%, or $121.7, primarily due to higher pricing and income from the sale of property at our current corporate headquarters.

In addition, the prior year was negatively impacted by a facility closure, cost reduction actions, and the U.S.

Tax Cuts and Jobs Act.

These factors were partially offset by higher costs, including the after-tax loss from discontinued operations, unfavorable volume mix, and a gain on the exchange of two equity affiliates in the prior year.

Net income margin of 21.8% increased 150 bp, primarily due to the factors noted above as well as lower energy and natural gas cost pass-through to customers.

Net income of $2,114.9, including income from discontinued operations discussed above, increased 10%, or $183.8.

On a continuing operations basis, the increase was primarily driven by positive pricing, net of power and fuel costs, favorable currency impacts, higher equity affiliates' income, and a gain on an exchange with a joint venture partner, partially offset by unfavorable operating costs and a loss from a facility closure.

In addition, less net income was attributable to noncontrolling interests, including our Lu'An joint venture partner, in the current year.

The prior year included income associated with the company headquarters relocation and a net benefit from the India Finance Act 2020.

Net income margin of 20.5% decreased 130 bp from 21.8% in the prior year, primarily due to higher energy and natural gas cost pass-through to customers, which decreased margin by approximately 100 bp, and unfavorable net operating costs, partially offset by the impact from our pricing actions.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA of $3,619.8 increased 4%, or $151.8, primarily due to higher pricing, partially offset by higher operating costs.

Adjusted EBITDA margin of 40.9% increased 200 bp, primarily due to the higher pricing and lower energy and natural gas cost pass-through to customers, partially offset by unfavorable volume mix and higher operating costs.

Adjusted EBITDA of $3,883.2 increased 7%, or $263.4, primarily due to favorable currency impacts, positive pricing, net of power and fuel costs, and higher equity affiliates' income, partially offset by unfavorable operating costs.

Adjusted EBITDA margin of 37.6% decreased 330 bp from 40.9% in the prior year, primarily due to higher energy and natural gas cost pass-through to customers, which decreased margin by approximately 200 bp, and the unfavorable net operating costs.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes.

The effective tax rate was 19.7% and 21.0% for the fiscal years ended 30 September 2020 and 2019, respectively.

The 2019 tax rate reflected a discrete net income tax expense of $43.8 related to impacts from the U.S.

Tax Cuts and Jobs Act (the “Tax Act”).

The net expense included the reversal of a non-recurring $56.2 ($0.26 per share) benefit recorded in 2018 related to the U.S.

taxation of deemed foreign dividends.

This was partially offset by a benefit of $12.4 ($0.06 per share) to finalize our estimates of the impacts of the Tax Act and reduce the total expected costs of the deemed repatriation tax.

In addition, the net expense from the Tax Act was partially offset by benefits from changes in valuation allowance recorded at various entities in 2019.

The lower current year rate reflects favorable impacts from higher benefits on the revaluation of deferred tax accounts due to enacted changes in foreign tax law, changes in the tax profile of U.S.

entities in various state jurisdictions, and higher excess tax benefits on share-based compensation.

These items were partially offset by the enactment of the India Finance Act 2020 (the "India Finance Act"), which increased income tax expense by $20.3.

The enactment also increased equity affiliates' income by $33.8 for changes in the future tax costs of repatriated earnings.

The overall impact to net income resulting from the India Finance Act was a benefit of $13.5 ($0.06 per share).

The adjusted effective tax rate was 19.1% and 19.4% for the fiscal years ended 30 September 2020 and 2019, respectively.

The lower current year rate reflects favorable impacts from higher benefits on the revaluation of deferred tax accounts due to enacted changes in foreign tax law, changes in the tax profile of U.S.

entities in various state jurisdictions, and higher excess tax benefits on share-based compensation.

These items were partially offset by benefits from changes in valuation allowances recorded at various entities in 2019.

Our effective tax rate was 18.5% and 19.7% for the fiscal years ended 30 September 2021 and 2020, respectively.

The current year rate was lower primarily due to income tax benefits of $21.5 recorded upon expiration of the statute of limitations for tax reserves previously established for uncertain tax positions taken in prior years.

This included a benefit of $12.2 ($0.05 per share) for release of reserves established in 2017 for a tax election related to a non-U.S.

subsidiary and other previously disclosed items ("tax election benefit and other").

Refer to Note 21 Income Taxes , to the consolidated financial statements for additional information.

Additionally, the fiscal year 2020 effective tax rate reflected the unfavorable impact of India Finance Act 2020, which resulted in additional net income of $13.5 ($0.06 per share).

This included an increase to equity affiliates' income of $33.8, partially offset by an increase to our income tax provision of $20.3 for changes in the future tax costs of repatriated earnings.

The adjusted effective tax rate was 18.9% and 19.1% for the fiscal years ended 30 September 2021 and 2020, respectively.

Segment Analysis

Industrial Gases – Americas

Year Ended 30 September 2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change Change

Sales $4,167.6 $3,630.7 $536.9 15 %

6 unchanged sentences

Energy and natural gas cost pass-through 11 %

Currency (2) %

Total Industrial Gases – Americas Sales Change 15 %

Sales of $3,630.7 decreased 6%, or $242.8, as lower energy and natural gas cost pass-through to customers of 6%, a negative impact from currency of 2%, and lower volumes of 1% were partially offset by positive pricing of 3%.

The pricing improvement was driven by our merchant business.

Lower volumes, particularly in our merchant business, were primarily driven by COVID-19, which began impacting this segment at the end of March 2020 and continued through the end of the fiscal year.

The negative impact of COVID-19 was partially offset by positive contributions from the commencement of a long-term hydrogen supply agreement with PBF Energy Inc.

from assets we acquired in April.

The unfavorable currency impact was driven by the Chilean Peso.

Operating income of $1,012.4 increased 1%, or $14.7, due to higher pricing, net of power and fuel costs, of $95, partially offset by higher net operating costs of $40, lower volumes of $33, and unfavorable currency impacts of $7.

Operating margin of 27.9% increased 210 bp, primarily due to positive pricing and lower energy and natural gas cost pass-through to customers, partially offset by lower volumes and unfavorable net operating costs.

Equity affiliates’ income of $84.3 decreased 1%, or $0.5.

Sales of $4,167.6 increased 15%, or $536.9, due to higher energy and natural gas cost pass-through to customers of 11% and positive pricing of 4%, as volumes and currency were flat versus the prior year.

Energy and natural gas cost pass through to customers was higher in fiscal year 2021 primarily due to natural gas prices, which rose significantly in the second quarter and remained elevated throughout the year.

The pricing improvement was attributable to continued focus on pricing actions in our merchant business.

Volumes were flat as positive contributions from new assets, including hydrogen assets we acquired in April 2020, were offset by lower hydrogen and merchant demand.

Demand for most merchant products returned to pre-pandemic levels in the second half of 2021.

Operating income of $1,065.5 increased 5%, or $53.1, due to higher pricing, net of power and fuel costs, of $79 and favorable currency of $10, partially offset by higher operating costs, including planned maintenance, of $36.

Operating margin of 25.6% decreased 230 bp from 27.9% in the prior year primarily due to higher energy and natural gas cost pass-through to customers, which negatively impacted margin by approximately 250 bp, and higher operating costs, partially offset by the impact of our pricing actions.

Equity affiliates’ income of $112.5 increased 33%, or $28.2, primarily driven by higher income from affiliates in Mexico.

Industrial Gases – EMEA

2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change Change

Sales $2,444.9 $1,926.3 $518.6 27 %

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Energy and natural gas cost pass-through 5 %

Currency (1) %

Total Industrial Gases – EMEA Sales Change 27 %

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

Sales of $1,926.3 decreased 4%, or $76.2, as lower energy and natural gas cost pass-through to customers of 4%, the negative impact from the India contract modification of 2%, and unfavorable currency impacts of 1% were only partially offset by positive pricing of 3%.

The pricing improvement was attributable to our merchant business.

Volumes were flat versus the prior year as improvements from acquisitions and demand for hydrogen in our Rotterdam pipeline system were offset by lower volumes from COVID-19, particularly in our merchant business.

COVID-19 began impacting this segment at the end of March 2020 and continued through the end of the fiscal year.

The negative currency impact was mainly driven by the Euro.

Operating income of $473.3 was flat as higher pricing, net of power and fuel costs, of $71 was offset by higher costs of $41, unfavorable volume mix of $27, and unfavorable currency impacts of $3.

Operating margin of 24.6% increased 100 bp, primarily due to favorable pricing, lower energy and natural gas cost pass-through to customers, and the India contract modification, partially offset by higher costs and unfavorable volume mix.

Equity affiliates’ income of $74.8 increased 8%, or $5.8, primarily due to Jazan Gas Projects Company, which began to contribute in the second half of fiscal year 2019, and higher income from an affiliate in Italy.

Sales of $2,444.9 increased 27%, or $518.6, due to higher volumes of 12%, favorable currency impacts of 7%, higher energy and natural gas cost pass-through to customers of 5%, and positive pricing of 3%.

The volume improvement was primarily driven by our base merchant business and new assets, including those from a business in Israel that we acquired in the fourth quarter of 2020.

While our liquid bulk business has largely recovered from COVID-19, demand for packaged gases and hydrogen continues to be lower than pre-pandemic levels.

Favorable currency impacts were primarily driven by the appreciation of the British Pound Sterling and Euro against the U.S.

Energy and natural gas cost pass-through to customers was higher primarily in the second half of the year as we experienced significantly higher natural gas and electricity costs in Europe.

The pricing improvement was primarily attributable to our merchant business.

Operating income of $557.4 increased 18%, or $84.1, due to higher volumes of $59, favorable currency impacts of $31, and positive pricing, net of power and fuel costs, of $11, partially offset by unfavorable costs of $17.

Operating margin of 22.8% decreased 180 bp from 24.6% in the prior year, primarily due to impacts from higher energy and natural gas cost pass-through to customers, which negatively impacted margin by approximately 100 bp, and unfavorable operating costs.

Equity affiliates’ income of $93.7 increased 25%, or $18.9, primarily due to higher income from affiliates in Italy, Saudi Arabia, and South Africa.

Industrial Gases – Asia

2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change Change

Sales $2,920.8 $2,716.5 $204.3 8 %

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Energy and natural gas cost pass-through — %

Currency (1) %

Total Industrial Gases – Asia Sales Change 8 %

Sales of $2,716.5 increased 2%, or $52.9, as positive pricing of 2% and higher volumes of 1% were partially offset by unfavorable currency impacts of 1%.

Volume improvements from new plants were partially offset by negative impacts from planned maintenance outages, completion of a short-term supply contract, and COVID-19, which began impacting this segment in the second quarter and continued through the end of the fiscal year.

The negative impact from COVID-19 was primarily on our merchant volumes.

Pricing improved across Asia, driven by our merchant business.

The unfavorable currency impact was primarily attributable to the Chinese Renminbi and the South Korean Won.

Energy and natural gas cost pass-through to customers was flat versus the prior year.

Operating income of $870.3 increased 1%, or $6.1, due to positive pricing, net of power and fuel costs, of $46 and favorable net operating costs of $4, partially offset by unfavorable volume mix of $33 and currency impacts of $11.

Operating margin of 32.0% decreased 40 bp, as unfavorable volume mix more than offset positive pricing.

Equity affiliates’ income of $61.0 increased 4%, or $2.6.

Sales of $2,920.8 increased 8%, or $204.3, due to favorable currency of 7% and positive pricing of 1%, as both volumes and energy and natural gas cost pass-through to customers were flat.

Positive volume contributions from our base merchant business and new plants were offset by reduced contributions from Lu'An.

The favorable currency impact was primarily attributable to the appreciation of the Chinese Renminbi and South Korean Won against the U.S.

Operating income of $838.3 decreased 4%, or $32.0, primarily due to unfavorable volume mix of $62 and higher operating costs, including inflation and product sourcing costs, of $32, partially offset by favorable currency of $59.

Operating margin of 28.7% decreased 330 bp from 32.0% in the prior year primarily due to reduced contributions from Lu'An.

Equity affiliates’ income of $81.4 increased 33%, or $20.4, primarily due to higher income from an affiliate in India.

Industrial Gases – Global

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

2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change % Change

Sales $511.0 $364.9 $146.1 40 %

Operating loss (60.6) (40.0) (20.6) (52 %)

Adjusted EBITDA (19.5) 0.1 (19.6) N/M*

* Not meaningful

Sales of $364.9 increased 40%, or $103.9, primarily due to higher sale of equipment activity.

Operating loss of $40.0 increased 242%, or $28.3, as higher project and product development costs were only partially offset by higher sale of equipment and other project activity.

Adjusted EBITDA (43.2) (19.5) (23.7) (122 %)

Sales of $511.0 increased 40%, or $146.1, due to higher sale of equipment project activity.

Despite higher sales, operating loss of $60.6 increased 52%, or $20.6, as higher project costs and product development spending were partially offset by income from the settlement of a supply contract.

Corporate and other

The Corporate and other segment includes our LNG, turbo machinery equipment and services, and distribution sale of equipment businesses as well as our corporate support functions that benefit all segments.

The Corporate and other segment includes our LNG, turbo machinery equipment and services, and distribution sale of equipment businesses as well as corporate support functions that benefit all segments.

The results of the Corporate and other segment also include income and expense that is not directly associated with the other segments, such as foreign exchange gains and losses.

2020 2019 $ Change Change

Fiscal Year Ended 30 September 2021 2020 $ Change % Change

Sales $278.7 $217.9 $60.8 28 %

1 unchanged sentence

Adjusted EBITDA (108.5) (91.6) (16.9) (18 %)

Sales of $217.9 increased 84%, or $99.6, primarily due to higher LNG sale of equipment activity.

Operating loss of $112.2 decreased 27%, or $40.6, primarily due to the higher LNG sale of equipment activity, partially offset by higher business development costs to support our growth strategy.

Sales of $278.7 increased 28%, or $60.8, primarily due to higher project activity in our distribution sale of equipment and turbo machinery equipment and services businesses.

Despite higher sales, operating loss of $132.8 increased 18%, or $20.6, as higher business development and corporate support costs were only partially offset by higher sale of equipment activity.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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generally accepted accounting principles ("GAAP"), on an "adjusted" or "non-GAAP" basis.

On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, and adjusted effective tax rate.

On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures.

On a segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin.

In addition to these measures, we also include certain supplemental non-GAAP financial measures that are presented below to help the reader understand the impact that our non-GAAP adjustments have on the calculation of our adjusted diluted EPS.

For each non-GAAP financial measure, we present below a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

In addition to these measures, we also present certain supplemental non-GAAP financial measures to help the reader understand the impact that certain disclosed items, or "non-GAAP adjustments," have on the calculation of our adjusted diluted EPS.

For each non-GAAP financial measure, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable measure calculated in accordance with GAAP.

We believe these non-GAAP financial measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of our business because such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.

In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude certain disclosed items, or “non-GAAP adjustments,” that we believe are not representative of underlying business performance.

In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude non-GAAP adjustments that we believe are not representative of our underlying business performance.

For example, we previously excluded certain expenses associated with cost reduction actions, impairment charges, and gains on disclosed transactions.

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Readers should also consider the limitations associated with these non-GAAP financial measures, including the potential lack of comparability of these measures from one company to another.

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

When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments.

These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

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The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted diluted EPS from continuing operations, which we view as a key performance metric.

We believe it is important for the reader to understand the per share impact of our non-GAAP adjustments as management does not consider these impacts when evaluating underlying business performance.

In periods that we have non-GAAP adjustments, we believe it is important for the reader to understand the per share impact of each such adjustment because management does not consider these impacts when evaluating underlying business performance.

The per share impact for each non-GAAP adjustment was calculated independently and may not sum to total adjusted diluted EPS due to rounding.

Year Ended 30 September Operating Income Equity Affiliates' Income Income Tax Provision Net Income Attributable to Air Products Diluted EPS

Fiscal Year Ended 30 September Operating Income Equity Affiliates' Income Income Tax Provision Net Income Attributable to Air Products Diluted EPS

2021 GAAP $2,281.4 $294.1 $462.8 $2,028.8 $9.12

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2021 GAAP $2,281.4 $294.1 $462.8 $2,028.8 $9.12

Company headquarters relocation (income) expense (33.8) — (8.2) (25.6) (0.12)

India Finance Act 2020 — (33.8) (20.3) (13.5) (0.06)

2020 Non-GAAP Measure ("Adjusted")

$2,203.8 $231.0 $449.9 $1,861.9 $8.38

2019 GAAP $2,144.4 $215.4 $480.1 $1,760.0 $7.94

Facility closure 23.2 — 5.8 17.4 0.08

Cost reduction actions 25.5 — 6.7 18.8 0.08

Gain on exchange of equity affiliate investments (29.1) — — (29.1) (0.13)

Pension settlement loss (A)

— — 1.2 3.8 0.02

Tax reform repatriation — — 12.4 (12.4) (0.06)

Tax reform adjustment related to deemed foreign dividends — — (56.2) 56.2 0.26

2019 Non-GAAP Measure ("Adjusted")

Gain on exchange with joint venture partner (36.8) — (9.5) (27.3) (0.12)

Tax election benefit and other — — 12.2 (12.2) (0.05)

2021 Non-GAAP ("Adjusted")

$2,267.8 $294.1 $471.3 $2,006.7 $9.02

Change Non-GAAP Measure ("Adjusted") $42.5 $0.17

% Change Non-GAAP Measure ("Adjusted") 2 % 2 %

(A) Before-tax impact of $5.0 is reflected on the consolidated income statements within “Other non-operating income (expense), net.”

The table below provides a reconciliation of adjusted diluted EPS to GAAP diluted EPS for each fiscal year noted:

Year Ended 30 September 2020 2019 2018 2017 2016

Diluted EPS $8.55 $7.94 $6.59 $5.16 $5.04

Change in inventory valuation method — — (0.08) — —

Facility closure — 0.10 — — —

Business separation costs — — — 0.12 0.21

Tax (benefit) costs associated with business separation — — — (0.02) 0.24

Cost reduction and asset actions — 0.08 — 0.49 0.11

Goodwill and intangible asset impairment charge — — — 0.70 —

Gain on exchange of equity affiliate investments — (0.13) — — —

2020 GAAP $2,237.6 $264.8 $478.4 $1,901.0 $8.55

Company headquarters relocation (income) expense (33.8) — (8.2) (25.6) (0.12)

Gain on land sale — — — (0.03) —

India Finance Act 2020 — (33.8) (20.3) (13.5) (0.06)

Equity method investment impairment charge — — — 0.36 —

Pension settlement loss — 0.02 0.15 0.03 0.02

Loss on extinguishment of debt — — — — 0.02

Tax reform repatriation — (0.06) 2.16 — —

Tax reform adjustment related to deemed foreign dividends — 0.26 (0.25) — —

Tax reform rate change and other — — (0.96) — —

Tax restructuring — — (0.16) — —

Tax election benefit — — — (0.50) —

Adjusted Diluted EPS $8.38 $8.21 $7.45 $6.31 $5.64

2020 Non-GAAP ("Adjusted")

$2,203.8 $231.0 $449.9 $1,861.9 $8.38

Change Non-GAAP ("Adjusted") $0.64

% Change Non-GAAP ("Adjusted") 8 %

Adjusted EBITDA and Adjusted EBITDA Margin

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Margins are calculated independently for each period by dividing each line item by consolidated sales for the respective period and may not sum to total margin due to rounding.

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

Year Ended 30 September 2020 2019 2018 2017 2016

The tables below present consolidated sales and a reconciliation of net income on a GAAP basis to adjusted EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:

Fiscal Year Ended 30 September 2021 2020

$ Margin $ Margin

Sales $10,323.0 $8,856.3

$ Margin $ Margin $ Margin $ Margin $ Margin

Net income and net income margin $2,114.9 20.5 % $1,931.1 21.8 %

(Loss) Income from discontinued operations, net of tax (14.3) (0.2) % — — % 42.2 0.5 % 1,866.0 22.8 % (460.5) (6.1) %

Income (Loss) from discontinued operations, net of tax 70.3 0.7 % (14.3) (0.2 %)

Interest expense 141.8 1.4 % 109.3 1.2 %

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Depreciation and amortization 1,321.3 12.8 % 1,185.0 13.4 %

Change in inventory valuation method — — % — — % 24.1 0.3 % — — % — — %

Facility closure 23.2 0.2 % — — %

Business separation costs — — % — — % — — % 32.5 0.4 % 50.6 0.7 %

Cost reduction and asset actions — — % 25.5 0.3 % — — % 151.4 1.8 % 34.5 0.4 %

Goodwill and intangible asset impairment charge — — % — — % — — % 162.1 2.0 % — — %

Gain on exchange of equity affiliate investments — — % 29.1 0.3 % — — % — — % — — %

Gain on exchange with joint venture partner 36.8 0.4 % — — %

Company headquarters relocation income (expense) — — % 33.8 0.4 %

Gain on land sale — — % — — % — — % 12.2 0.2 % — — %

India Finance Act 2020 33.8 0.4 % — — % — — % — — % — — %

Equity method investment impairment charge — — % — — % — — % 79.5 1.0 % — — %

Loss on extinguishment of debt — — % — — % — — % — — % 6.9 0.1 %

Tax reform repatriation - equity method investment — — % — — % 28.5 0.3 % — — % — — %

India Finance Act 2020 – equity affiliate income impact — — % 33.8 0.4 %

Adjusted EBITDA and adjusted EBITDA margin $3,883.2 37.6 % $3,619.8 40.9 %

Year Ended 30 September 2020 vs.

2019 2019 vs.

2018 2018 vs.

2017 2017 vs.

Fiscal Year Ended 30 September 2021 vs.

Net income $ change $183.8

Net income % change 10%

Net income margin change 150 bp 310 bp (1,970) bp 2,810 bp

Net income margin change (130) bp

Change Non-GAAP

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Adjusted EBITDA % change 7%

Adjusted EBITDA margin change 200 bp 400 bp 70 bp (70) bp

Below is reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted EBITDA margin by segment:

Year Ended 30 September Industrial

Adjusted EBITDA margin change (330) bp

The tables below present sales and a reconciliation of operating income and operating margin to adjusted EBITDA and adjusted EBITDA margin for each of our reporting segments for the fiscal years ended 30 September:

Sales Industrial

Americas Industrial

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and other Total

2020 GAAP Measures

$4,167.6 $2,444.9 $2,920.8 $511.0 $278.7 $10,323.0

3,630.7 1,926.3 2,716.5 364.9 217.9 8,856.3

Americas Industrial

EMEA Industrial

Asia Industrial

Global Corporate

and other Total

Operating income (loss) $1,065.5 $557.4 $838.3 ($60.6) ($132.8) $2,267.8 (A)

Operating margin 25.6 % 22.8 % 28.7 %

2019 GAAP Measures

Operating income (loss) $1,012.4 $473.3 $870.3 ($40.0) ($112.2) $2,203.8 (A)

Operating margin 27.9 % 24.6 % 32.0 %

2020 Change GAAP

Operating income/loss $ change $53.1 $84.1 ($32.0) ($20.6) ($20.6)

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Operating margin change (230) bp (180) bp (330) bp

2020 Non-GAAP Measures

2021 Non-GAAP

Operating income (loss) $1,065.5 $557.4 $838.3 ($60.6) ($132.8) $2,267.8 (A)

Depreciation and amortization 611.9 229.8 444.4 10.9 24.3 1,321.3

Equity affiliates' income 84.3 74.8 61.0 10.9 — 231.0 (B)

Equity affiliates' income 112.5 93.7 81.4 6.5 — 294.1 (A)

Adjusted EBITDA $1,789.9 $880.9 $1,364.1 ($43.2) ($108.5) $3,883.2

Adjusted EBITDA margin 42.9 % 36.0 % 46.7 %

2019 Non-GAAP Measures

2020 Non-GAAP

Operating income (loss) $1,012.4 $473.3 $870.3 ($40.0) ($112.2) $2,203.8 (A)

Depreciation and amortization 559.5 195.9 399.4 9.6 20.6 1,185.0

Equity affiliates' income 84.8 69.0 58.4 3.2 — 215.4 (B)

Equity affiliates' income 84.3 74.8 61.0 10.9 — 231.0 (A)

Adjusted EBITDA $1,656.2 $744.0 $1,330.7 ($19.5) ($91.6) $3,619.8

Adjusted EBITDA margin 45.6 % 38.6 % 49.0 %

2020 Change Non-GAAP

Adjusted EBITDA $ change $133.7 $136.9 $33.4 ($23.7) ($16.9)

Adjusted EBITDA % change 4 % 2 % 4 % N/M* 32 %

Adjusted EBITDA % change 8 % 18 % 3 % (122 %) (18 %)

Adjusted EBITDA margin change (270) bp (260) bp (230) bp

* Not meaningful

(A) The table below reconciles consolidated operating income as reflected on our consolidated income statements to total operating income disclosed in the table above for the years ended 30 September:

(A) Refer to the Reconciliations to Consolidated Results section below.

Reconciliations to Consolidated Results

The table below reconciles consolidated operating income as reflected on our consolidated income statements to total operating income in the table above for the fiscal years ended 30 September:

Operating Income 2021 2020

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Facility closure 23.2 —

Cost reduction actions — 25.5

Gain on exchange of equity affiliate investments — (29.1)

Gain on exchange with joint venture partner (36.8) —

Company headquarters relocation (income) expense — (33.8)

Total $2,267.8 $2,203.8

(B) The table below reconciles consolidated equity affiliates' income as reflected on our consolidated income statements to total equity affiliates' income disclosed in the table above for the years ended 30 September:

The table below reconciles consolidated equity affiliates' income as reflected on our consolidated income statements to total equity affiliates' income in the table above for the fiscal years ended 30 September:

Equity Affiliates' Income 2021 2020

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Adjusted Effective Tax Rate

The tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense associated with each adjustment and is primarily dependent upon the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

Effective Tax Rate

Year Ended 30 September 2020 2019

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes.

When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments.

These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

Fiscal Year Ended 30 September 2021 2020

Income tax provision $462.8 $478.4

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Facility closure 5.8 —

Cost reduction actions — 6.7

Gain on exchange with joint venture partner (9.5) —

Company headquarters relocation — (8.2)

India Finance Act 2020 — (20.3)

Pension settlement loss — 1.2

Tax reform repatriation — 12.4

Tax reform adjustment related to deemed foreign dividends — (56.2)

Tax election benefit and other 12.2 —

Adjusted income tax provision $471.3 $449.9

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Facility closure 23.2 —

Cost reduction actions — 25.5

Gain on exchange of equity affiliate investments — (29.1)

Gain on exchange with joint venture partner (36.8) —

Company headquarters relocation (income) expense — (33.8)

India Finance Act 2020 – equity affiliate income impact — (33.8)

Pension settlement loss — 5.0

Adjusted income from continuing operations before taxes $2,493.8 $2,356.2

Adjusted effective tax rate 18.9 % 19.1 %

Capital Expenditures

We define capital expenditures as cash flows for additions to plant and equipment, acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates.

A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:

Fiscal Year Ended 30 September 2021 2020

Cash used for investing activities $2,732.9 $3,560.0

Proceeds from sale of assets and investments 37.5 80.3

Purchases of investments (2,100.7) (2,865.5)

Proceeds from investments 1,875.2 1,938.0

Other investing activities 5.8 3.9

Capital expenditures $2,550.7 $2,716.7

LIQUIDITY AND CAPITAL RESOURCES

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In addition, we have the flexibility to access capital through a variety of financing activities, including accessing the capital markets, drawing upon our credit facility, or alternatively, accessing the commercial paper markets.

During the third quarter of fiscal year 2020, we issued U.S.

Dollar- and Euro-denominated fixed-rate notes with aggregate principal amounts of $3.8 billion and €1.0 billion ($1.2 billion as of 30 September 2020), respectively.

We intend to use the majority of the proceeds to fund growth projects and repay debt maturities through 2021, including a €350.0 million Eurobond due in June 2021.

At this time, we have not utilized, nor do we expect to access, our credit facility for additional liquidity.

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As of 30 September 2021, we had $1,590.4 of foreign cash and cash items compared to total cash and cash items of $4,468.9.

Since the enactment of the Tax Act, we do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S.

We do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S.

income tax upon repatriation to the U.S.

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However, since we have significant current investment plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.

The table below summarizes our cash flows from operating, investing, and financing activities as reflected on the consolidated statements of cash flows for the years ended 30 September:

Cash Provided by (Used for) 2020 2019

Operating activities $3,264.7 $2,969.9

Investing activities (3,560.0) (2,113.4)

Financing activities 3,284.7 (1,370.5)

Operating Activities

Cash Flows From Operations

Fiscal Year Ended 30 September 2021 2020

Income from continuing operations attributable to Air Products $2,028.8 $1,901.0

Adjustments to reconcile income to cash provided by operating activities:

Depreciation and amortization 1,321.3 1,185.0

Deferred income taxes 94.0 165.0

Facility closure 23.2 —

Undistributed earnings of equity method investments (138.2) (161.9)

Gain on sale of assets and investments (37.2) (45.8)

Share-based compensation 44.5 53.5

Noncurrent lease receivables 98.8 91.6

Other adjustments (116.7) 116.4

Changes in working capital accounts 16.7 (40.1)

Cash Provided by Operating Activities $3,335.2 $3,264.7

For the fiscal year ended 30 September 2021, cash provided by operating activities was $3,335.2.

Income from continuing operations of $1,901.0 was adjusted for items including depreciation and amortization, deferred income taxes, undistributed earnings of unconsolidated affiliates, gain on sale of assets and investments, share-based compensation, noncurrent capital lease receivables, and certain other adjustments.

Other adjustments of $116.7 included pension plan contributions of $44.6 and pension income of $38.9 that did not have a cash impact.

The working capital accounts were a source of cash of $16.7, primarily driven by a $187.9 source of cash from payables and accrued liabilities, partially offset by a $130.5 use of cash from trade receivables, less allowances.

The source of cash within payables and accrued liabilities primarily resulted from higher natural gas costs, which also drove the use of cash within trade receivables as we contractually passed through these higher costs to customers.

For the fiscal year ended 30 September 2020, cash provided by operating activities was $3,264.7.

We recorded a net benefit of $13.5 on our consolidated income statements related to a recently enacted tax law in India during the second quarter.

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The source of cash within "Other receivables" was primarily driven by maturities of forward exchange contracts.

For the fiscal year ended 30 September 2019, cash provided by operating activities was $2,969.9, including income from continuing operations of $1,760.0.

The gain on sale of assets and investments included a gain of $14.1 recognized on the disposition of our interest in High-Tech Gases (Beijing) Co., Ltd., a previously held equity investment in our Industrial Gases - Asia segment.

Refer to Note 3, Acquisitions , to the consolidated financial statements for additional information.

The working capital accounts were a use of cash of $25.3, primarily driven by $69.0 from trade receivables and $41.8 from payables and accrued liabilities, partially offset by $79.8 from other receivables.

The use of cash within "Payables and accrued liabilities" was primarily driven by a $48.9 decrease in accrued utilities and a $30.3 decrease in accrued interest, partially offset by a $51.6 increase in customer advances primarily related to sale of equipment activity.

The decrease in accrued utilities was primarily driven by a contract modification to a tolling arrangement in India and lower utility costs in the Industrial Gases – Americas segment.

The source of cash from other receivables of $79.8 was primarily due to the maturities of forward exchange contracts that hedged foreign currency exposures and the collection of value added taxes.

Investing Activities

Cash Flows From Investing Activities

Fiscal Year Ended 30 September

Additions to plant and equipment, including long-term deposits ($2,464.2) ($2,509.0)

Acquisitions, less cash acquired (10.5) (183.3)

Investment in and advances to unconsolidated affiliates (76.0) (24.4)

Proceeds from sale of assets and investments 37.5 80.3

Purchases of investments (2,100.7) (2,865.5)

Proceeds from investments 1,875.2 1,938.0

Other investing activities 5.8 3.9

Cash Used for Investing Activities ($2,732.9) ($3,560.0)

For the fiscal year ended 30 September 2021, cash used for investing activities was $2,732.9.

Capital expenditures for plant and equipment, including long-term deposits, were $2,464.2.

Purchases of investments with terms greater than three months but less than one year of $2,100.7 exceeded proceeds from investments of $1,875.2, which resulted from maturities of time deposits and treasury securities.

For the fiscal year ended 30 September 2020, cash used for investing activities was $3,560.0.

Payments for additions to plant and equipment, including long-term deposits, were $2,509.0.

This includes the acquisition of five operating hydrogen production plants from PBF Energy Inc.

in Delaware and California for approximately $580 during the third quarter.

in Delaware and California for approximately $580.

Additionally, acquisitions, less cash acquired, includes $183.3 for three businesses we acquired on 1 July 2020, the largest of which was a business in Israel that primarily offers merchant gas products.

Refer to Note 3, Acquisitions , to the consolidated financial statements for additional information.

Purchases of investments of $2,865.5 relate to time deposits and treasury securities with terms greater than three months and less than one year and exceeded proceeds from investments of $1,938.0.

Proceeds from sale of assets and investments of $80.3 includes net proceeds of $44.1 related to the sale of property at our current corporate headquarters in the second quarter.

For the fiscal year ended 30 September 2019, cash used for investing activities was $2,113.4.

Payments for additions to plant and equipment totaled $1,989.7.

Cash paid for acquisitions, net of cash acquired, was $123.2.

Refer to Note 3, Acquisitions , to the consolidated financial statements for further details.

Proceeds from investments of $190.5 resulting from maturities of short-term instruments with original maturities greater than three months and less than one year exceeded purchases of $172.1.

Capital Expenditures

Capital expenditures is a non-GAAP measure that we define as cash flows for additions to plant and equipment, acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates.

A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:

Cash used for investing activities $3,560.0 $2,113.4

Proceeds from sale of assets and investments 80.3 11.1

Purchases of investments (2,865.5) (172.1)

Proceeds from investments 1,938.0 190.5

Other investing activities 3.9 (14.3)

Purchases of investments of $2,865.5 related to time deposits and treasury securities with terms greater than three months and less than one year and exceeded proceeds from investments of $1,938.0.

Proceeds from sale of assets and investments of $80.3 included net proceeds of $44.1 related to the sale of property at our current corporate headquarters.

Capital Expenditures

Capital expenditures is a non-GAAP financial measure that we define as cash flows for additions to plant and equipment, including long-term deposits, acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates.

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

Additions to plant and equipment $2,509.0 $1,989.7

We present a reconciliation of our capital expenditures to cash used for investing activities on page 36.

Fiscal Year Ended 30 September 2021 2020

Additions to plant and equipment, including long-term deposits $2,464.2 $2,509.0

Acquisitions, less cash acquired 10.5 183.3

Investments in and advances to unconsolidated affiliates 24.4 15.7

Investment in and advances to unconsolidated affiliates 76.0 24.4

Capital Expenditures $2,550.7 $2,716.7

Capital expenditures in fiscal year 2021 totaled $2,550.7 compared to $2,716.7 in fiscal year 2020.

The increase of $588.1 was primarily due to the acquisition of the hydrogen production plants from PBF Energy Inc., as noted above.

The decrease of $166.0 was primarily driven by the prior year acquisition of five operating hydrogen production plants from PBF, partially offset by lower spending for acquisitions.

Additions to plant and equipment also included support capital of a routine, ongoing nature, including expenditures for distribution equipment and facility improvements.

Outlook for Investing Activities

Due to the significant uncertainty that remains regarding the duration of COVID-19, the pace of recovery, and its negative impact on the global economy, we are not providing capital expenditure guidance for fiscal year 2021.

We are monitoring our projects to determine whether capital spending and project onstream timing may be delayed for those currently under construction.

We expect capital expenditures for fiscal year 2022 to be approximately $4.5 to $5 billion.

In the first quarter of fiscal year 2022, we paid $1.6 billion, including approximately $130 from a non-controlling partner in one of our subsidiaries, for the initial investment in the Jazan gasification and power project.

We expect to make an additional investment of approximately $1 billion, which includes contribution from our non-controlling partner, for phase II of the project in 2023.

Refer to Note 24, Subsequent Events , to the consolidated financial statements for additional information.

It is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because we are unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at the time we enter into transactions.

These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities.

We anticipate capital expenditures to be funded principally with our current cash balance and cash generated from continuing operations.

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and (3) investment in large industrial gas projects driven by demand for more energy, cleaner energy, and emerging market growth.

Financing Activities

Cash Flows From Financing Activities

Fiscal Year Ended 30 September

Long-term debt proceeds $178.9 $4,895.8

Payments on long-term debt (462.9) (406.6)

Net increase (decrease) in commercial paper and short-term borrowings 1.0 (54.9)

Dividends paid to shareholders (1,256.7) (1,103.6)

Proceeds from stock option exercises 10.6 34.1

Investments by noncontrolling interests 136.6 17.1

Other financing activities (28.4) (97.2)

Cash (Used for) Provided by Financing Activities ($1,420.9) $3,284.7

In fiscal year 2021, cash used for financing activities was $1,420.9 and primarily included dividend payments to shareholders of $1,256.7 and payments on long-term debt of $462.9, partially offset by long-term debt proceeds of $178.9 and investments by noncontrolling interests of $136.6.

The payments on long-term debt included the repayment of a €350.0 million Eurobond ($428) in June 2021.

In November 2021, we repaid our 3.0% Senior Note of $400, plus interest, on its maturity date.

In fiscal year 2020, cash provided by financing activities was $3,284.7 as we successfully accessed the debt markets in April 2020 to support opportunities for growth projects and repay upcoming debt maturities.

Long-term debt proceeds of $4,895.8, as further discussed below under "Financing and Capital Structure," were partially offset by dividend payments to shareholders of $1,103.6 and payments on long-term debt of $406.6 primarily related to the repayment of a 2.0% Eurobond of €300.0 million ($353.9) that matured on 7 August 2020.

Long-term debt proceeds of $4,895.8 were partially offset by dividend payments to shareholders of $1,103.6 and payments on long-term debt of $406.6 primarily related to the repayment of a 2.0% Eurobond of €300.0 million ($353.9) that matured on 7 August 2020.

Other financing activities were a use of cash of $97.2 and included financing charges associated with the third quarter debt issuance.

For the fiscal year ended 2019, cash used for financing activities was $1,370.5.

This use of cash was largely attributable to dividend payments to shareholders of $994.0 and payments on long-term debt of $428.6.

Payments on long-term debt primarily related to the repayment of a 4.375% U.S.

Senior Note of $400.0 that matured on 21 August 2019.

Financing and Capital Structure

Capital needs in fiscal year 2020 were satisfied primarily with cash from operations.

Total debt increased from $3,326.0 at 30 September 2019 to $7,907.8 at 30 September 2020 due to the issuance of U.S.

Dollar- and Euro-denominated fixed-rate notes in the third quarter, partially offset by the repayment of a 2.0% Eurobond.

For additional information, refer to Note 15, Debt , to the consolidated financial statements.

Similarly, cash and cash items and short-term investments increased from $2,248.7 and $166.0, respectively, at the end of 2019 to $5,253.0 and $1,104.9, respectively, at the end of 2020, primarily due to the issuance of the notes.

The current year total debt balance includes $338.5 of related party debt associated with the Lu'An joint venture.

We have a $2,300.0 five-year revolving credit agreement with a syndicate of banks (the "Credit Agreement”) maturing 31 March 2022.

Under the Credit Agreement, senior unsecured debt is available to us and certain of our subsidiaries.

The Credit Agreement provides us a source of liquidity and supports our commercial paper program.

Our only financial covenant under the Credit Agreement is a maximum ratio of total debt to total capitalization, or total debt plus total equity, no greater than 70%.

Capital needs in fiscal year 2021 were satisfied with cash from operations.

Total debt decreased from $7,907.8 as of 30 September 2020 to $7,637.2 as of 30 September 2021, primarily due to repayment of the €350 million Eurobond, partially offset by proceeds from long-term borrowings on our foreign commitments.

Total debt includes related party debt of $358.4 and $338.5 as of 30 September 2021 and 30 September 2020, respectively, primarily associated with the Lu'An joint venture.

For additional detail, refer to Note 14, Debt , to the consolidated financial statements.

On 31 March 2021, we entered into a five-year $2,500 revolving credit agreement with a syndicate of banks (the “2021 Credit Agreement”), under which senior unsecured debt is available to us and certain of our subsidiaries.

The 2021 Credit Agreement provides a source of liquidity and supports our commercial paper program.

The only financial covenant in the 2021 Credit Agreement is a maximum ratio of total debt to capitalization (equal to total debt plus total equity) not to exceed 70%.

Total debt as of 30 September 2021 and 30 September 2020, expressed as a percentage of total capitalization, was 35.2% and 38.9%, respectively.

No borrowings were outstanding under the 2021 Credit Agreement as of 30 September 2021.

There were no commitments maintained by our foreign subsidiaries at 30 September 2020.

The 2021 Credit Agreement replaced our previous five-year $2,300.0 revolving credit agreement, which was to have matured on 31 March 2022.

No borrowings were outstanding under the previous agreement as of 30 September 2020 or at the time of its termination.

No early termination penalties were incurred.

Commitments of $296.7 are maintained by our foreign subsidiaries, $176.2 of which was borrowed and outstanding as of 30 September 2021.

As of 30 September 2021, we are in compliance with all of the financial and other covenants under our debt agreements.

On 15 September 2011, the Board of Directors authorized the repurchase of up to $1,000 of our outstanding common stock.

We did not purchase any of our outstanding shares during fiscal years 2020 or 2019.

We did not purchase any of our outstanding shares in fiscal years 2021 or 2020.

As of 30 September 2021, $485.3 in share repurchase authorization remains.

Dividends are declared by the Board of Directors and are usually paid during the sixth week after the close of the fiscal quarter.

In 2020, the Board of Directors increased our quarterly dividend by over 15% from $1.16 to $1.34 per share, representing the largest dividend increase in our 80-year history.

Cash dividends on our common stock are paid quarterly, usually during the sixth week after the close of the fiscal quarter.

We expect to continue to pay cash dividends in the future at comparable or increased levels.

The Board of Directors determines whether to declare dividends and the timing and amount based on financial condition and other factors it deems relevant.

In 2021, the Board of Directors increased the quarterly dividend on our common stock to $1.50 per share, representing a 12% increase from the previous dividend of $1.34 per share.

This is the 39 th consecutive year that we have increased our quarterly dividend payment.

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The dividend is payable on 14 February 2022 to shareholders of record as of 3 January 2022.

CONTRACTUAL OBLIGATIONS

We are obligated to make future payments under various contracts, such as debt agreements, lease agreements, unconditional purchase obligations, and other long-term obligations.

The following table summarizes our obligations on a continuing operations basis as of 30 September 2020:

Total 2021 2022 2023 2024 2025 Thereafter

Debt maturities $7,950 $470 $442 $456 $456 $416 $5,710

Contractual interest on debt 1,772 155 141 129 121 102 1,124

Operating leases 475 79 56 47 37 30 226

Pension obligations 598 51 45 42 42 28 390

Unconditional purchase obligations 9,556 1,460 460 450 455 454 6,277

Deemed repatriation tax related to the Tax Act 211 21 21 21 39 50 59

Obligation for future contribution to an equity affiliate 100 100 — — — — —

Total Contractual Obligations $20,662 $2,336 $1,165 $1,145 $1,150 $1,080 $13,786

Debt Obligations

Our debt obligations include the maturity payments of the principal amount of long-term debt, including the current portion and amounts owed to related parties, and the related contractual interest obligations.

Refer to Note 15, Debt , to the consolidated financial statements for additional information on our debt obligations.

Contractual interest is the interest we are contracted to pay on our debt obligations without taking into account the interest impact of interest rate swaps related to any of this debt, which at current interest rates would slightly decrease contractual interest.

We had approximately $632 of long-term debt subject to variable interest rates at 30 September 2020, excluding fixed-rate debt that has been swapped to variable-rate debt.

The rate assumed for the variable interest component of the contractual interest obligation was the rate in effect at 30 September 2020.

Variable interest rates are primarily determined by U.S.

short-term tax-exempt interest rates and by interbank offer rates.

We are the lessee under various agreements for real estate, vehicles, aircraft, and other equipment.

Refer to Note 12, Leases , to the consolidated financial statements for additional information.

Pension Obligations

The amounts in the table above represent the current estimated cash payments to be made by us that, in total, equal the recognized pension liabilities for our U.S.

and international pension plans.

For additional information, refer to Note 16, Retirement Benefits , to the consolidated financial statements.

These payments are based upon the current valuation assumptions and regulatory environment.

The total accrued liability for pension benefits may be impacted by interest rates, plan demographics, actual return on plan assets, continuation or modification of benefits, and other factors.

Such factors can significantly impact the amount of the liability and related contributions.

Unconditional Purchase Obligations

We are obligated to make future payments under unconditional purchase obligations, which primarily relate to helium and rare gases as well as commitments for purchases of plant and equipment.

For additional information, refer to Note 17, Commitments and Contingencies , to the consolidated financial statements.

Income Tax Liabilities

Tax liabilities related to unrecognized tax benefits as of 30 September 2020 were $237.0.

These tax liabilities are not included in the table above as it is impractical to determine a cash impact by year given that payments will vary according to changes in tax laws, tax rates, and our operating results.

In addition, there are uncertainties in timing of the effective settlement of our uncertain tax positions with respective taxing authorities.

However, the table above includes our accrued liability of approximately $211 for deemed repatriation tax that is payable through 2026 related to the Tax Act.

Refer to Note 22, Income Taxes , to the consolidated financial statements for additional information.

Obligation for Future Contribution to an Equity Affiliate

On 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.

We guaranteed the repayment of our 25% share of an equity bridge loan that has been provided to fund equity commitments to the joint venture.

In total, we expect to invest approximately $100 in this joint venture.

As of 30 September 2020, our consolidated balance sheets included $94.4 reflected within "Payables and accrued liabilities" for our obligation to make future equity contributions in 2021 based on our proportionate share of the advances received by the joint venture under the loan.

Future Investment in Jazan Gas and Power Project

On 12 August 2018, Air Products entered an agreement to form a gasification/power joint venture ("JV") with Saudi Aramco and ACWA in Jazan, Saudi Arabia.

Air Products expects to own 51% of the JV, with Saudi Aramco and ACWA Power owning the balance.

In July 2020, we commenced the process to secure project financing with our partners for the JV, which will purchase the gasification assets, power block, and the associated utilities from Saudi Aramco for approximately $12 billion.

Our future investment is not considered a contractual obligation until definitive agreements have been signed;

therefore, it is not included in the contractual obligations table above.

Discontinued Operations

In fiscal year 2021, cash provided by operating activities of discontinued operations of $6.7 resulted from cash received as part of a state tax settlement related to the sale of PMD in fiscal year 2017.

PENSION BENEFITS

We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of its worldwide employees.

We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees.

The principal defined benefit pension plans are the U.S.

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Pension Expense

Pension expense, including special items noted below $7.0 $27.6

Pension (income)/expense, including special items noted below ($37.3) $7.0

Settlements, termination benefits, and curtailments ("special items") 1.8 5.2

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Weighted average expected rate of compensation increase 3.4 % 3.4 %

Pension expense decreased from the prior year due to lower interest cost and higher total assets, partially offset by higher actuarial loss amortization due to the impact of lower discount rates.

Special items (settlements, termination benefits, and curtailments) decreased from the prior year primarily due to lower pension settlement losses.

In fiscal year 2020, special items of $5.2 included pension settlement losses of $5.0 related to lump sum payouts from the U.S.

Supplementary Pension Plan.

These amounts are reflected within "Other non-operating income (expense), net" on the consolidated income statements.

In fiscal year 2019, special items of $7.2 included pension settlement losses of $6.4 related to lump sum payouts from the U.S.

Supplementary Pension Plan and $0.8 of termination benefits.

Lloyds Equalization Ruling

On 26 October 2018, the United Kingdom High Court issued a ruling related to the equalization of pension plan participants’ benefits for the gender effects of Guaranteed Minimum Pensions.

As a result of this ruling, we estimated the impact of retroactively increasing benefits in our U.K.

plan in accordance with the High Court ruling.

We treated the additional benefits as a prior service cost, which resulted in an increase to our projected benefit obligation and accumulated other comprehensive loss of $4.7 during the first quarter of fiscal year 2019.

We are amortizing this cost over the average remaining life expectancy of the U.K.

participants.

In fiscal year 2021, we expect pension income of approximately $25 to $35, which includes expected pension settlement losses of $0 to $5, depending on the timing of retirements.

The expected income range reflects lower expected interest cost and higher total assets.

In fiscal year 2021, we expect our net pension income to include approximately $100 for amortization of actuarial losses.

We recognized pension income of $37.3 in fiscal year 2021 versus expense of $7.0 in fiscal year 2020, primarily due to lower interest cost and higher total assets.

Special items decreased from the prior year primarily due to lower pension settlement losses.

In fiscal year 2022, we expect pension impacts to range from $5 million of income to $5 million of expense, which includes potential settlement losses of $5 to $10 million, depending on the timing of retirements.

This forecast reflects a lower expected estimated return on assets due to the increased percentage of fixed income investments within the plan asset portfolios and higher interest cost, partially offset by lower forecasted actuarial loss amortization.

In fiscal year 2022, our expected range of pension impacts includes approximately $80 for amortization of actuarial losses.

In fiscal year 2021, pension expense included amortization of actuarial losses of $97.8.

Net actuarial losses of $83.5 were recognized in accumulated other comprehensive income in fiscal year 2020.

Actuarial (gains) losses are amortized into pension expense over prospective periods to the extent they are not offset by future gains or losses.

Future changes in the discount rate and actual returns on plan assets different from expected returns would impact the actuarial (gains) losses and resulting amortization in years beyond fiscal year 2021.

Net actuarial gains of $360.8 were recognized in accumulated other comprehensive income in fiscal year 2021.

Actuarial gains and losses are amortized into pension expense over prospective periods to the extent they are not offset by future gains or losses.

Future changes in the discount rate and actual returns on plan assets could impact the actuarial gain or loss and resulting amortization in years beyond fiscal year 2022.

Pension Funding

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We do not expect COVID-19 to impact our contribution forecast for fiscal year 2022.

Refer to the Contractual Obligations discussion on page 38 for a projection of future contributions.

ENVIRONMENTAL MATTERS

As discussed above in Item 1, “ Business–Environmental Regulation ”, we are subject to various environmental laws and regulations in the countries in which we have operations, which results in higher capital expenditures and costs.

The amounts charged to income from continuing operations related to environmental matters totaled $18.3 and $14.2 in fiscal years 2020 and 2019, respectively.

These amounts represent an estimate of expenses for compliance with environmental laws and activities undertaken to meet our internal standards.

We estimate that we spent approximately $4 and $5, in fiscal years 2020 and 2019, respectively, on capital projects reflected in continuing operations to control pollution.

We expect that our capital expenditures to control pollution will be approximately $6 in both fiscal years 2021 and 2022.

Our accounting policy for environmental expenditures is discussed in Note 1, Major Accounting Policies , to the consolidated financial statements, and environmental loss contingencies are discussed in Note 17, Commitments and Contingencies , to the consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We have entered into certain guarantee agreements as discussed in Note 17, Commitments and Contingencies , to the consolidated financial statements.

In addition, we are not a primary beneficiary in any material variable interest entity.

Our off-balance sheet arrangements are not reasonably likely to have a material impact on financial condition, changes in financial condition, results of operations, or liquidity.

RELATED PARTY TRANSACTIONS

See Note 23, Supplemental Information , to the consolidated financial statements for information concerning activity with our related parties.

We operate in many countries that experience volatility in inflation and foreign exchange rates.

The ability to pass on inflationary cost increases is an uncertainty due to general economic conditions and competitive situations.

It is estimated that the cost of replacing our plant and equipment today is greater than its historical cost.

Accordingly, depreciation expense would be greater if the expense were stated on a current cost basis.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1, Major Accounting Policies , to the consolidated financial statements describes our major accounting policies.

Judgments and estimates of uncertainties are required in applying our accounting policies in many areas.

However, application of the critical accounting policies discussed below requires management’s significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain.

If actual results were to differ materially from the estimates made, the reported results could be materially affected.

Our management has reviewed these critical accounting policies and estimates and related disclosures with our audit committee.

Refer to Note 1, Major Accounting Policies , and Note 2, New Accounting Guidance , to the consolidated financial statements for a description of our major accounting policies and information concerning implementation and impact of new accounting guidance.

The accounting policies discussed below are those policies that we consider to be the most critical to understanding our financial statements because they require management's most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effects of matters that are inherently uncertain.

These estimates reflect our best judgment about current and/or future economic and market conditions and their effect based on information available as of the date of our consolidated financial statements.

If conditions change, actual results may differ materially from these estimates.

Our management has reviewed these critical accounting policies and estimates and related disclosures with the Audit and Finance Committee of our Board of Directors.

Depreciable Lives of Plant and Equipment

Net plant and equipment at 30 September 2020 totaled $11,964.7, and depreciation expense totaled $1,150.5 during fiscal year 2020.

Plant and equipment, net at 30 September 2021 totaled $13,254.6, and depreciation expense totaled $1,284.1 during fiscal year 2021.

Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal amounts of the cost of each asset from earnings every year over its estimated economic useful life.

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These contracts typically have initial contract terms of 10 to 20 years.

Depreciable lives of the production assets related to long-term supply contracts are matched to the contract lives.

Depreciable lives of the production assets related to long-term supply contracts are generally matched to the contract lives.

Extensions to the contract term of supply frequently occur prior to the expiration of the initial term.

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Impairment of Assets

While our results of operations have been negatively affected by COVID-19 as of and for the fiscal year ended 30 September 2020, there have been no triggering events that would require impairment testing for any of our asset groups, reporting units that contain goodwill, indefinite-lived intangible assets, or equity method investments.

As further discussed below, we completed our annual impairment tests and concluded there were no indications of impairment.

We will continue to evaluate the nature and extent of COVID-19 impacts on our business and any impact they may have on management's estimates, particularly those for our Latin America business.

The duration and severity of the COVID-19 outbreak and its long-term impact on our business is uncertain.

As discussed below, there were no triggering events in fiscal year 2021 that would require impairment testing for any of our asset groups, reporting units that contain goodwill, indefinite-lived intangibles assets, or equity method investments.

We completed our annual impairment tests for goodwill and other indefinite-lived intangible assets and concluded there were no indications of impairment.

Impairment of Assets – Plant and Equipment

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Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Such circumstances would include a significant decrease in the market value of a long-lived asset grouping, a significant adverse change in the manner in which the asset grouping is being used or in its physical condition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the long-lived asset, a history of operating or cash flow losses associated with the use of the asset grouping, or changes in the expected useful life of the long-lived assets.

Such circumstances would include:

(1) a significant decrease in the market value of a long-lived asset grouping;

(2) a significant adverse change in the manner in which the asset grouping is being used or in its physical condition;

(3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the long-lived asset;

(4) a reduction in revenues that is other than temporary;

(5) a history of operating or cash flow losses associated with the use of the asset grouping;

or (6) changes in the expected useful life of the long-lived assets.

If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by that asset group is compared to the carrying value to determine whether impairment exists.

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We use reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.

In fiscal year 2020, there was no need to test for impairment on any of our asset groupings as no events or changes in circumstances indicated that the carrying amount of the asset groupings may not be recoverable.

In fiscal year 2021, there was no need to test for impairment on any of our asset groupings as no events or changes in circumstances indicated that the carrying amount of our asset groupings may not be recoverable.

Impairment of Assets – Goodwill

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Management judgment is required in the determination of each assumption utilized in the valuation model, and actual results could differ from the estimates.

During the fourth quarter of fiscal year 2020, we conducted our annual goodwill impairment test.

We determined that the fair value of all our reporting units substantially exceeded their carrying value except for our Latin America reporting unit (LASA), which is further discussed below.

Substantially all of the remaining goodwill balance related to reporting units in which the fair value exceeded the carrying value by at least 100%.

The fair value of LASA exceeded its carrying value by 10%.

Revenue growth and adjusted EBITDA margin assumptions are two primary drivers of the fair value.

We determined that, with other assumptions held constant, a decrease in revenue growth rates of approximately 320 basis points or a decrease in adjusted EBITDA margin of approximately 290 basis points would result in the fair value of the reporting unit being equal to its carrying value.

As of 30 September 2020, the carrying value of LASA goodwill was $56.1, or less than 1% of consolidated total assets.

The carrying value of LASA's other material assets at 30 September 2020 included:

Plant and equipment, net of $309.2;

customer relationships of $112.1;

and trade names and trademarks of $38.2.

The trade names and trademarks are classified as indefinite-lived intangible assets.

During the fourth quarter of fiscal year 2021, we conducted our annual goodwill impairment test, noting no indications of impairment.

The fair value of all of our reporting units substantially exceeded their carrying value.

Due to the reorganization of our business effective as of 1 October 2021, we conducted an additional impairment test on our existing reporting units as of 30 September 2021.

The fair value of all of our reporting units substantially exceeded their carrying value at 30 September 2021.

Future events that could have a negative impact on the level of excess fair value over carrying value of the reporting units include, but are not limited to:

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Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer.

Accounting for contracts using the cost incurred input method requires management judgment relative to assessing risks and their impact on the estimate of revenues and costs.

Our estimates are impacted by factors such as the potential for incentives or penalties on performance, schedule and technical issues, labor productivity, the complexity of work performed, the cost and availability of materials, and performance of subcontractors.

Accounting for contracts using the cost incurred input method requires management judgment relative to assessing risks and their impact on the estimates of revenues and costs.

Our estimates are impacted by factors such as the potential for incentives or penalties on performance, schedule delays, technical issues, labor productivity, the complexity of work performed, the cost and availability of materials, and performance of subcontractors.

When adjustments in estimated total contract revenues or estimated total costs are required, any changes in the estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of such change.

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In addition to the typical risks associated with underlying performance of project procurement and construction activities, our sale of equipment projects within our Industrial Gases – Global segment require monitoring of risks associated with schedule, geography, and other aspects of the contract and their effects on our estimates of total revenues and total costs to complete the contract.

Changes in estimates on projects accounted for under the cost incurred input method, including the Jazan project, favorably impacted operating income by approximately $7 and $37 in fiscal years 2020 and 2019, respectively.

Changes in estimates on projects accounted for under the cost incurred input method unfavorably impacted operating income by approximately $19 in fiscal year 2021 as compared to a favorable impact of $7 in fiscal year 2020.

Our changes in estimates would not have significantly impacted amounts recorded in prior years.

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The amounts recognized in the consolidated financial statements for pension and other postretirement benefits are determined on an actuarial basis utilizing numerous assumptions.

The discussion that follows provides information on the significant assumptions and expense associated with the defined benefit plans.

The discussion that follows provides information on the significant assumptions, expense, and obligations associated with the defined benefit plans.

Actuarial models are used in calculating the expense and liability related to the various defined benefit plans.

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The expected return on plan assets is determined based on a market-related value of plan assets.

For equities, this is a calculated value that recognizes investment gains and losses in fair value related to equities over a five-year period from the year in which they occur and reduces year-to-year volatility.

This is a calculated value that recognizes investment gains and losses on equities over a five-year period from the year in which they occur and reduces year-to-year volatility.

The market-related value for non-equity investments equals the actual fair value.

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Similarly, a future charge for regulatory fines or damage awards associated with litigation could have a significant impact on our net income in the period in which it is recorded.

NEW ACCOUNTING GUIDANCE

See Note 2, New Accounting Guidance , and Note 12, Leases , to the consolidated financial statements for information concerning the implementation and impact of new accounting guidance.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis