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Item 1. Business

2022-11-22 compared with 2021-11-18 · 63 added, 67 removed, 125 unchanged (51% of the section changed)

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 energy transition away from fossil fuels.

As used in this report, unless the context indicates otherwise, the terms “we,” “our,” “us,” the “Company,” "Air Products," or “registrant” include controlled subsidiaries, affiliates, and predecessors of Air Products and our controlled subsidiaries and affiliates.

About Air Products

Air Products and Chemicals, Inc., a Delaware corporation originally founded in 1940, provides essential industrial gases, related equipment, and applications expertise to customers around the world.

We have a sustainability-driven two-pillar growth strategy that includes expansion and efficient operation of our core industrial gases business and execution of projects that provide world-scale clean hydrogen.

We serve customers in dozens of industries, including refining, chemicals, metals, electronics, manufacturing, medical, and food.

We also develop, engineer, build, own, and operate some of the world’s largest industrial gas and carbon-capture projects, supplying clean hydrogen that will support global transportation, industrial markets, and the broader energy transition away from fossil fuels.

We have built leading positions in several growth markets, such as hydrogen, helium, and liquefied natural gas ("LNG") process technology and equipment, and provide turbomachinery, membrane systems, and cryogenic containers globally.

As used in this report, unless the context indicates otherwise, the terms “we,” “our,” “us,” the “Company,” "Air Products," or “registrant” include our controlled subsidiaries and affiliates.

Except as otherwise noted, the description of our business below reflects our continuing operations.

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During the fiscal year ended 30 September 2022 (“fiscal year 2022”), we reported our continuing operations in five reporting segments under which we managed our operations, assessed performance, and reported earnings:

Industrial Gases – Americas;

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

Industrial Gases – Asia;

Industrial Gases – Global;

Middle East and India;

and Corporate and other.

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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.

Industrial Gases Business

Our Industrial Gases business produces atmospheric gases, such as oxygen, nitrogen, and argon;

process gases, such as hydrogen, helium, carbon dioxide (CO 2 ), carbon monoxide, and syngas;

Our industrial gases business is organized and operated regionally.

Our industrial gases business produces and sells atmospheric gases, such as oxygen, nitrogen, and argon;

process gases, such as hydrogen, helium, carbon dioxide (CO 2 ), carbon monoxide, and syngas (a mixture of hydrogen and carbon monoxide);

and specialty gases.

Atmospheric gases are produced through various air separation processes, of which cryogenic is the most prevalent.

Process gases are produced by methods other than air separation.

Atmospheric gases are produced through various air separation processes, of which cryogenic is the most prevalent, while process gases are produced by methods other than air separation.

For example, hydrogen, carbon monoxide, and syngas are produced by steam methane reforming of natural gas and by the gasification of liquid and solid hydrocarbons.

Hydrogen is produced by purifying byproduct sources obtained from the chemical and petrochemical industries.

For the production of hydrogen, we purify byproduct sources obtained from the chemical and petrochemical industries.

Today, we primarily produce hydrogen from hydrocarbons without carbon capture.

Our newer energy transition projects are focused on producing clean hydrogen from hydrocarbons with carbon capture (known as “blue hydrogen”) as well as from renewable energy (known as “green hydrogen”).

Helium is produced as a byproduct of gases extracted from underground reservoirs, primarily natural gas, but also CO 2 purified before resale.

The industrial gases business also develops, builds, and operates equipment for the production or processing of gases, such as air separation units and non-cryogenic generators.

Our Industrial Gases business is organized and operated regionally.

The regional Industrial Gases segments supply gases, related equipment, and applications in the relevant region to diversified customers in many industries, including those in refining, chemicals, metals, electronics, manufacturing, and food and beverage.

The regional segments supply gases, related equipment, and applications in the relevant region to diversified customers in many industries, including those in refining, chemicals, metals, electronics, manufacturing, medical, and food.

Hydrogen is used by refiners to facilitate the conversion of heavy crude feedstock and lower the sulfur content of gasoline and diesel fuels, as well as in the developing hydrogen-for-mobility markets.

We have hydrogen fueling stations that support commercial markets in California and Japan as well as demonstration projects in Europe, Saudi Arabia, and other parts of Asia.

We have hydrogen fueling stations that support commercial markets as well as demonstration projects across the globe.

The chemicals industry uses hydrogen, oxygen, nitrogen, carbon monoxide, and syngas as feedstocks in the production of many basic chemicals.

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As a result, we maintain an inventory of helium stored in our fleet of ISO containers as well as at the U.S.

Bureau of Land Management underground storage facility in Amarillo, Texas.

Bureau of Land Management underground storage facility in Amarillo, Texas, and our storage cavern near Beaumont, Texas.

We distribute gases to our sale of gas customers through different supply modes depending on various factors including the customer's volume requirements and location.

Our supply modes are as follows:

• Liquid Bulk —Product is delivered in bulk (in liquid or gaseous form) by tanker or tube trailer and stored, usually in its liquid state, in equipment that we typically design and install at the customer’s site for vaporizing into a gaseous state as needed.

• Liquid Bulk —Product is delivered in bulk in either liquid or gaseous form via tanker or tube trailer and stored, usually in its liquid state, in equipment that we typically design and install at the customer’s site for vaporizing into a gaseous state as needed.

Liquid bulk sales are usually governed by three- to five-year contracts.

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In the United States, our packaged gas business sells products (principally helium) only for the electronics and magnetic resonance imaging industries.

• On-Site Gases —Large quantities of hydrogen, nitrogen, oxygen, carbon monoxide, and syngas (a mixture of hydrogen and carbon monoxide) are provided to customers, principally in the energy production and refining, chemical, and metals industries worldwide, that require large volumes of gases and have relatively constant demand.

• On-Site Gases —Large quantities of hydrogen, nitrogen, oxygen, carbon monoxide, and syngas are provided to customers, principally in the energy production and refining, chemical, metals, and electronics industries worldwide, that require large volumes of gases and have relatively constant demand.

Gases are produced and supplied by large facilities we construct or acquire on or near the customers’ facilities or by pipeline systems from centrally located production facilities.

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Bureau of Land Management's helium reserve.

The regional Industrial Gases segments also include our share of the results of several joint ventures accounted for by the equity method, which we report in our financial statements as income from equity affiliates.

The regional industrial gases segments also include our share of the results of several joint ventures accounted for under the equity method.

Our share of our investees' net earnings is primarily presented net of income taxes within “Equity affiliates’ income" on our consolidated income statements.

The largest of these joint ventures operate in China, India, Italy, Mexico, Saudi Arabia, South Africa, and Thailand.

The carrying value of our equity method investments is reflected as "Investment in net assets of and advances to equity affiliates" on our consolidated balance sheets.

Each of the regional industrial gases segments competes against three global industrial gas companies:

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We design and manufacture equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction, and liquid helium and liquid hydrogen transport and storage.

The Industrial Gases – Global segment includes activity primarily related to the sale of cryogenic and gas processing equipment for air separation.

The Corporate and other segment includes activity related to the sale of cryogenic and gas processing equipment for air separation.

The equipment is sold worldwide to customers in a variety of industries, including chemical and petrochemical manufacturing, oil and gas recovery and processing, and steel and primary metals processing.

The Corporate and other segment includes:

our LNG equipment business, our Gardner Cryogenics business fabricating helium and hydrogen transport and storage containers, and our Rotoflow business, which manufactures turboexpanders and other precision rotating equipment.

Steel, aluminum, and capital equipment subcomponents (compressors, etc.) are the principal raw materials in the manufacturing of equipment.

The Corporate and other segment also includes our LNG equipment business, our Gardner Cryogenics business fabricating helium and hydrogen transport and storage containers, and our Rotoflow business, which manufactures turboexpanders and other precision rotating equipment.

Steel, aluminum, and capital equipment subcomponents such as compressors are the principal raw materials in the manufacturing of equipment.

Raw materials for individual projects typically are acquired under firm purchase agreements.

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Sale of equipment constituted approximately 8%, 8%, and 6% of consolidated sales in fiscal years 2022, 2021, and 2020, respectively.

Our backlog of equipment orders was approximately $1.3 billion on 30 September 2021 (as compared to a total backlog of approximately $1.6 billion on 30 September 2020).

We estimate that approximately half of the total equipment sales backlog as of 30 September 2021 will be recognized as revenue during fiscal year 2022, dependent on execution schedules of the relevant projects.

International Operations

Through our subsidiaries, affiliates, and joint ventures accounted for using the equity method, we conduct business in 53 countries outside the United States.

Our international businesses are subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, tariffs, trade sanctions, and import and export controls, and other economic, political, and regulatory policies of local governments described in Item 1A, Risk Factors , below.

We have majority or wholly owned foreign subsidiaries that operate in Canada;

18 European countries (including the Netherlands, Spain, and the United Kingdom);

11 Asian countries (including China, South Korea, and Taiwan);

seven Latin American countries (including Brazil and Chile);

six countries in the Middle East (including Saudi Arabia), and three African countries.

We also own less-than-controlling interests in entities operating in Europe, Asia, Latin America, the Middle East, and Africa (including China, India, Italy, Mexico, Oman, Saudi Arabia, South Africa, and Thailand).

Financial information about our foreign operations and investments is included in Note 7, Summarized Financial Information of Equity Affiliates ;

Through our subsidiaries, affiliates, and joint ventures accounted for using the equity method, we conduct business in approximately 50 countries outside the United States.

Our international businesses are subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, tariffs, trade sanctions, import and export controls, and other economic, political, and regulatory policies of local governments described in Item 1A, Risk Factors , below.

We have majority or wholly owned foreign subsidiaries that operate in Canada and approximately 20 countries in Europe (including the Netherlands, Poland, Spain, and the countries of the United Kingdom);

approximately 10 countries and regions in Asia (including China, South Korea, and Taiwan);

approximately 10 countries in Latin America (including Brazil and Chile);

approximately five countries in the Middle East (including Saudi Arabia and Israel), and approximately five countries in Africa.

We also own less-than-controlling interests in entities operating in Europe, Asia, Latin America, the Middle East, and Africa.

Financial information about our foreign operations and investments is included in Note 7, Equity Affiliates ;

Note 21, Income Taxes ;

and Note 23, Business Segment and Geographic Information , to the consolidated financial statements included under Item 8, below.

Information about foreign currency translation is included under “Foreign Currency” in Note 1, Major Accounting Policies , and information on our exposure to currency fluctuations is included in Note 12, Financial Instruments , to the consolidated financial statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under Item 7A, below.

Information about foreign currency translation is included under “Foreign Currency” in Note 1, Basis of Presentation and Major Accounting Policies , and information on our exposure to currency fluctuations is included in Note 12, Financial Instruments , to the consolidated financial statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under Item 7A, below.

Technology Development

We pursue a market-oriented approach to technology development through research and development, engineering, and commercial development processes.

We conduct research and development principally in our laboratories located in the United States (Trexlertown, Pennsylvania), the United Kingdom (Basingstoke and Carrington), Spain (Barcelona), China (Shanghai), and Saudi Arabia (Dhahran).

We conduct research and development principally in our laboratories located in the United States (Allentown, Pennsylvania), the United Kingdom (Basingstoke and Carrington), Spain (Barcelona), China (Shanghai), and Saudi Arabia (Dhahran).

We also fund and cooperate in research and development programs conducted by a number of major universities and undertake research work funded by others, including the United States government.

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and similar state and foreign environmental laws relating to the designation of certain sites for investigation or remediation.

Our accounting policy for environmental expenditures is discussed in Note 1, Major Accounting Policies , and environmental loss contingencies are discussed in Note 16, Commitments and Contingencies , to the consolidated financial statements, included under Item 8, below.

Our accounting policy for environmental expenditures is discussed in Note 1, Basis of Presentation and Major Accounting Policies , and environmental loss contingencies are discussed in Note 16, Commitments and Contingencies , to the consolidated financial statements, included under Item 8, below.

Some of our operations are within jurisdictions that have or are developing regulatory regimes governing emissions of greenhouse gases (“GHG”), including CO 2 .

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In Canada, Alberta’s Technology Innovation and Emission Reduction System went into effect 1 January 2020.

In Ontario, Environment & Climate Change Canada’s Output Based Pricing System (“OBPS”) is currently in effect, however, effective 1 January 2022, Ontario’s GHG Emissions Performance Standards program will be used in lieu of adherence to the OBPS.

In Ontario, Environment & Climate Change Canada’s Output Based Pricing System (“OBPS”) was replaced by the GHG Emissions Performance Standards ("EPS") program beginning 1 January 2022.

In Singapore, the Carbon Pricing Tax Act was implemented effective 1 January 2019.

In Taiwan, Greenhouse Gases Emissions Registration and Verification Management Act will be enforced beginning in 2023.

In addition, the U.S.

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We continue to develop technologies to help our facilities and our customers lower energy consumption, improve efficiency and lower emissions.

We see significant opportunities for gasification, carbon capture technologies and hydrogen for mobility and energy transition.

We see significant opportunities for hydrogen for mobility and energy transition, carbon capture technologies, and gasification.

We estimate that we spent approximately $10 million, $8 million, and $4 million in fiscal years 2022, 2021, and 2020, respectively, on capital projects reflected in continuing operations to control pollution.

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For additional information regarding environmental matters, refer to Note 16, Commitments and Contingencies , to the consolidated financial statements.

Sustainability

Our Sustainability Report details our growth strategy and the role our employees play in achieving our goals.

Through our "Grow–Conserve–Care" approach to sustainability, we are growing responsibly alongside our customers through sustainability-driven opportunities, conserving resources, and caring for our employees and communities.

Our latest Sustainability Report is available at www.airproducts.com/company/sustainability/sustainability-report.

The information posted on our website, including our Sustainability Report, is not incorporated by reference into, and does not form part of, this Annual Report on Form 10-K.

During fiscal 2022, we announced new sustainability goals, including a commitment to $15 billion in energy transition projects through 2027.

We believe our higher purpose is to bring people together to collaborate and innovate solutions to the world’s most significant energy and environmental sustainability challenges.

We are living this commitment, putting sustainability in action through our major global projects that will support the energy transition.

Human Capital Management

As of 30 September 2022, we had approximately 21,900 employees, of which over 90% were working full-time and 62% were located outside the United States.

We have collective bargaining agreements with unions and works councils at certain locations that expire on various dates over the next four years.

Approximately 17% of our total workforce is covered by such agreements.

Overall, we have a corporate strategy supported by our leaders and enabled by a positive organizational culture.

We believe our employees are our most valuable asset and are critical to our success as an organization.

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Integral to our success is the continued development of our 4S culture (Safety, Speed, Simplicity and Self-Confidence) and creating a work environment where our employees feel that they belong and matter.

Our talent related initiatives, including employee recruitment and development, diversity and inclusion and compensation and benefit programs, are focused on building and retaining the world-class and talented staff that is needed to meet our goals.

On 30 September 2021, we had approximately 20,875 employees, of whom approximately 20,625 were full-time and approximately 15,575 were located outside the United States.

We have collective bargaining agreements with unions and works councils at certain locations that expire on various dates over the next four years.

We consider relations with our employees to be good.

Our 2021 Sustainability Report details our growth strategy and the role our most valuable asset and our competitive advantage, our employees, play in achieving our goals.

Rooted in our framework of Grow- Conserve- Care, our higher purpose is to bring people together to collaborate and innovate solutions to the world’s most significant energy and environmental sustainability challenges.

Our 2021 Sustainability Report details how we care for our employees.

Our talent-related initiatives, including employee recruitment and development, diversity and inclusion, and compensation and benefit programs, focus on building and retaining the world-class talent needed to execute our two-pillar growth strategy and fulfill Air Products' higher purpose.

Safety is fundamental to who we are as a company.

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Our 2022 Sustainability Report sets forth our announced goals to further increase the percentage of women and U.S.

minorities in professional and managerial roles and the recruitment and talent development strategies we have in place to ensure we meet these goals.

Since the publication of our 2021 Sustainability Report, we have announced goals to further increase the percentage of women and U.S.

minorities in professional and managerial roles.

By 2025, we aim to achieve at least 28 percent female representation in the professional and managerial population globally.

Due to significant increase of our U.S.

minority representation, our new 2025 diversity goal is to achieve at least 30 percent U.S.

minority representation in professional and managerial roles.

We established these targets following analysis of our global employee representation metrics and future talent needs, as well as assessing industry benchmarks and peer companies.

minorities in professional and managerial roles and the recruitment and talent development strategies we have in place to ensure we meet these ambitions.

By 2025, Air Products aims to achieve at least 28 percent female representation in the professional and managerial population globally, and at least 30 percent minority representation in that same population in the United States.

We established these goals following analysis of our global employee representation metrics and future talent needs, as well as assessing industry benchmarks and peer companies.

For more information on these initiatives and to access our most recent Equal Employment Opportunity EEO-1 Report, please refer to our Diversity, Inclusion and Belonging website at www.airproducts.com/company/diversity.

The information posted on our website is not incorporated by reference into, and does not form part of, this Annual Report on Form 10-K.

As detailed in our 2022 Sustainability Report, in order to create a diverse workplace, individuals must be compensated fairly and equitably.

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We benchmark our compensation to ensure that we are keeping pace with the market to provide competitive pay and benefits.

A gender pay equity analysis completed by a third-party in 2020 resulted in no significant adverse findings for minorities in the U.S.

and for females globally.

We value the contributions of our employees, particularly in the face of the challenges posed by the COVID-19 pandemic.

Many of our employees are on the front line during the pandemic, keeping our plants running and delivering to our customers the products they need.

When possible, employees have been working from home to help maintain their health and safety as well as business continuity.

We have not laid off any of our employees or reduced their salaries due to COVID-19.

Our businesses are not subject to seasonal fluctuations to any material extent.

We maintain limited inventory where required to facilitate the supply of products to customers on a reasonable delivery schedule.

We maintain inventory where required to facilitate the supply of products to customers on a reasonable delivery schedule.

Inventory consists primarily of crude helium, industrial gas, and specialty gas inventories supplied to customers through liquid bulk and packaged gases supply modes.

We do not have a homogeneous customer base or end market, and no single customer accounts for more than 10% of our consolidated revenues.

We do not have a homogeneous customer base or end market, and no single customer accounts for more than 10% of our consolidated sales.

We do have concentrations of customers in specific industries, primarily refining, chemicals, and electronics.

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Ghasemi is a member and Chairman of the Board of Directors and the Chairman of the Executive Committee of the Board of Directors.

Major 57 Executive Vice President, General Counsel and Secretary (Executive Vice President and General Counsel since May 2017 and Secretary since December 2017).

Major 58 Executive Vice President, General Counsel and Secretary since 2017.

Previously, Mr.

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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 1. Business