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Item 1. Business

2023-11-16 compared with 2022-11-22 · 93 added, 84 removed, 104 unchanged (63% of the section changed)

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

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.

Refer to Note 5, Discontinued Operations , to the consolidated financial statements for activity associated with discontinued operations.

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:

Air Products and Chemicals, Inc., a Delaware corporation originally founded in 1940, is a world-leading industrial gases company that has built a reputation for its innovative culture, operational excellence, and commitment to safety and the environment.

Focused on serving energy, environmental, and emerging markets, we offer a portfolio of products and services that enables customers to improve their environmental performance, product quality, and productivity.

Air Products has a sustainability-driven two-pillar growth strategy consisting of the expansion and efficient operation of our core industrial gases business and the execution of projects that provide world-scale clean hydrogen.

Our industrial gases business provides essential gases, related equipment, and applications expertise to 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 clean hydrogen projects that will support the transition to low- and zero-carbon energy in the heavy-duty transportation and industrial sectors.

Additionally, we are the world leader in the supply of liquefied natural gas ("LNG") process technology and equipment and provide turbomachinery, membrane systems, and cryogenic containers globally.

We manage our operations, assess performance, and report earnings under five reportable segments:

Middle East and India;

and Corporate and other.

The discussion that follows is based on those operations.

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

The discussion that follows is based on these operations.

Refer to Note 25, Business Segment and Geographic Information , to the consolidated financial statements for additional information.

Our Businesses

Industrial Gases Business

Our industrial gases business is organized and operated regionally.

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

Our industrial gases business, which is organized and operated regionally in the Americas, Asia, Europe, and Middle East and India segments, 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, 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.

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.

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.

Overall regional industrial gases sales constituted over 90% of consolidated sales in fiscal years 2023, 2022, and 2021, approximately half of which were attributable to atmospheric gases.

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

Air Liquide S.A., Linde plc, and Messer Group GmbH, as well as regional competitors.

Competition in industrial gases is based primarily on price, reliability of supply, and the development of industrial gas applications.

We derive a competitive advantage in locations where we have pipeline networks, which enable us to provide a reliable and economic supply of products to our larger customers.

Industrial gases are generally produced at or near the point of use given the complexity and inefficiency of storing molecules at low temperatures.

The industrial gases business develops, builds, and operates equipment for the production or processing of gases.

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

To produce hydrogen, we purify byproduct sources obtained from the chemical and petrochemical industries.

We have historically produced hydrogen from hydrocarbons exclusively without carbon capture (known as "gray hydrogen");

however, we are also investing in projects that are intended to create a reliable and consistent world-scale source of low-carbon hydrogen produced from hydrocarbons with carbon capture (known as “blue hydrogen”) as well as carbon-free hydrogen produced from renewable energy (known as “green hydrogen”).

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Electricity is the largest cost component in the production of atmospheric gases.

To produce hydrogen, carbon monoxide, and syngas, steam methane reformers use natural gas as the primary raw material, while gasifiers use liquid and solid hydrocarbons as the primary raw material.

We mitigate electricity, natural gas, and hydrocarbon price fluctuations contractually through pricing formulas, surcharges, cost pass-through provisions, and tolling arrangements.

During fiscal year 2023, no significant difficulties were encountered in obtaining adequate supplies of power and natural gas.

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

Because helium is generally sourced globally at long distances from point of sale, we maintain an inventory of helium in our fleet of ISO containers as well as at the U.S.

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

We obtain helium from several sources globally, including crude helium for purification from the U.S.

Bureau of Land Management's helium reserve.

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

Our supply modes are as follows:

• On-Site Gases— Supply mode associated with customers, 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.

These sale of gas contracts are generally governed by 15- to 20-year contracts.

We also deliver smaller quantities of product through small on-site plants (cryogenic or non-cryogenic generators), typically via a 10- to 15-year sale of gas contract.

The contracts within this supply mode generally contain fixed monthly charges and/or minimum purchase requirements with price escalation provisions that are typically based on external indices.

Our on-site supply mode generates approximately half our total company sales.

• Merchant Gases— Supply mode for liquid bulk and packaged gas products.

Liquid bulk product is delivered in bulk in either 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 sales are usually governed by three- to five-year contracts.

Packaged gas products are delivered in small quantities in either cylinders or dewars.

We operate packaged gas businesses in Europe, Asia, and Latin America.

We maintain inventory in locations that facilitate supply of products to customers on a reasonable delivery schedule.

Inventory consists primarily of crude helium, specialty gases, and other industrial gases supplied via the merchant gases supply mode.

The refining industry uses hydrogen to facilitate the conversion of heavy crude feedstock and lower the sulfur content of gasoline and diesel fuels.

This produces cleaner transportation fuels that can be used with other equipment, particularly in the developing hydrogen-for-mobility markets, to significantly reduce emissions that contribute to climate change.

Many other industries that already benefit from hydrogen’s unique properties to improve quality, optimize performance, and reduce costs are also looking to hydrogen as a fuel that can help decarbonize their manufacturing processes.

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

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Industrial gases are also used in welding and providing healthcare and are utilized in various manufacturing processes to make them more efficient and to optimize performance.

Industrial gases are generally produced at or near the point of use given the complexity and inefficiency with storing molecules at low temperatures.

Helium, however, is generally sourced globally, at long distances from point of sale.

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, 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 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.

• Packaged Gases —Small quantities of product are delivered in either cylinders or dewars.

We operate packaged gas businesses in Europe, Asia, and Latin America.

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 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.

These sale of gas contracts are generally governed by 15- to 20-year contracts.

We also deliver smaller quantities of product through small on-site plants (cryogenic or non-cryogenic generators), typically via a 10- to 15-year sale of gas contract.

Electricity is the largest cost component in the production of atmospheric gases.

Steam methane reformers utilize natural gas as the primary raw material and gasifiers use liquid and solid hydrocarbons as the principal raw material for the production of hydrogen, carbon monoxide, and syngas.

We mitigate electricity, natural gas, and hydrocarbon price fluctuations contractually through pricing formulas, surcharges, and cost pass-through and tolling arrangements.

During fiscal year 2022, no significant difficulties were encountered in obtaining adequate supplies of power and natural gas.

We obtain helium from a number of sources globally, including crude helium for purification from the U.S.

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 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:

Air Liquide S.A., Messer, and Linde plc, as well as regional competitors.

Competition in industrial gases is based primarily on price, reliability of supply, and the development of industrial gas applications.

We derive a competitive advantage in locations where we have pipeline networks, which enable us to provide reliable and economic supply of products to our larger customers.

Overall regional industrial gases sales constituted approximately 92%, 92%, and 94% of consolidated sales in fiscal years 2022, 2021, and 2020, respectively.

Sales of atmospheric gases constituted approximately 43%, 47%, and 47% of consolidated sales in fiscal years 2022, 2021, and 2020, respectively, while sales of tonnage hydrogen, syngas, and related products constituted approximately 28%, 22%, and 22% of consolidated sales in fiscal years 2022, 2021, and 2020, respectively.

Table of Conte n t s

Industrial Gases Equipment

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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 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.

The Corporate and other segment also includes the results of our LNG equipment business, our Gardner Cryogenics business, which fabricates 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.

Equipment is produced at our manufacturing sites with certain components being procured from subcontractors and vendors.

Equipment is produced at our manufacturing sites with certain components procured from subcontractors and vendors.

Competition in the equipment business is based primarily on plant efficiency, service, technical know-how, and price, as well as schedule and plant performance guarantees.

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

Our sale of equipment supply mode constituted less than 10% of consolidated sales in fiscal years 2023, 2022, and 2021.

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.

Within each of these industries, we have several large-volume customers with long-term contracts.

A negative trend affecting one of these industries, or the loss of one of these major customers, although not material to our consolidated revenue, could have an adverse impact on our financial results.

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

Governmental Contracts

Our business is not subject to a government entity’s renegotiation of profits or termination of contracts that would be material to our business as a whole.

Equity Affiliates

Our reporting segments include our share of the results of 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 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.

Substantially all our equity method investments are in foreign industrial gas producers, the largest of which operate in China, India, Italy, Mexico, Saudi Arabia, South Africa, and Thailand.

For additional information regarding these investments, refer to Note 9, Equity Affiliates , to the consolidated financial statements under Item 8 below.

International Operations

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

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

We have controlling interests in foreign subsidiaries that operate in Canada and approximately 10 countries in Latin America (primarily Chile and Brazil);

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

approximately 25 countries in the Europe and Africa region (primarily the Netherlands, the countries of the United Kingdom, and Spain);

and approximately five countries in the Middle East, primarily Saudi Arabia.

As discussed under "Equity Affiliates" above, we also own non-controlling interests in entities operating in Africa, Asia, Europe, Latin America, and the Middle East.

Financial information about our foreign operations and investments is included in Note 9, Equity Affiliates ;

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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 14, Financial Instruments , to the consolidated financial statements, included under Item 8, below, and in “Foreign Currency Exchange Rate Risk,” included under Item 7A, below.

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Technology Development

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Environmental Protection Agency (“EPA”) requires mandatory reporting of GHG emissions and is regulating GHG emissions for new construction and major modifications to existing facilities.

Some jurisdictions have various mechanisms to target the power sector to achieve emission reductions, which often result in higher power costs.

The European Union has issued the Corporate Sustainability Reporting Directive ("CSRD") and California has enacted the Climate Corporate Data Accountability Act and the Climate Related Financial Risk Act that will require reporting and third-party assurance of GHG emissions information for certain entities, and a similar proposal is under consideration by the U.S.

Securities and Exchange Commission ("SEC").

Furthermore, some jurisdictions have various mechanisms to target the power sector to achieve emission reductions, which often result in higher power costs.

Increased public concern may result in more international, U.S.

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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.

Capital expenditures to control pollution are estimated to be approximately $11 million in both fiscal years 2023 and 2024.

Expenditures for capital projects intended to control pollution from existing operating facilities as required under current environmental regulations were not material in fiscal years 2023, 2022, and 2021.

We do not expect material expenditures for these projects in fiscal year 2024.

For additional information regarding environmental matters, refer to Note 18, Commitments and Contingencies , to the consolidated financial statements.

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Sustainability

Sustainability is at the core of our higher purpose to bring people together to collaborate and innovate solutions to the world’s most significant energy and environmental sustainability challenges.

As of the end of fiscal year 2023, we have committed capital of approximately $15 billion to projects intended to accelerate the energy transition, some of which are already being executed in the United States, Canada, and Saudi Arabia.

These low- and zero-carbon hydrogen and other first mover projects demonstrate our commitment to making investments that will make a meaningful difference on climate issues, allowing us to support our customers’ sustainability journeys, conserve resources, and care for our employees and communities.

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

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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.

Over 20% 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.

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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.

For more information on these initiatives and to access our most recently published 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.

As detailed in our 2023 Sustainability Report, in order to create an engaged workforce, individuals must be compensated fairly and equitably.

A work environment where employees know they belong and matter includes fair and equitable pay.

Our pay practices apply equally to all employees irrespective of gender, race, religion, disability, age, or any other form of personal difference.

We strive to pay competitively in local markets where we do business and compete for talent.

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

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

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 sales.

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

Within each of these industries, we have several large-volume customers with long-term contracts.

Governmental Contracts

Our business is not subject to a government entity’s renegotiation of profits or termination of contracts that would be material to our business as a whole.

We pay competitively in local markets where we do business and compete for talent.

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

Our compensation programs are generally comprised of base pay, annual variable pay (bonus), and for eligible employees, long-term incentives (stock awards under the Air Products Long-Term Incentive Plan).

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Available Information

All periodic and current reports, registration statements, proxy statements, and other filings that we are required to file with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available free of charge through our website at www.airproducts.com.

All periodic and current reports, registration statements, proxy statements, and other filings that we are required to file with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), are available free of charge through our website at www.airproducts.com.

Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC.

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and Germany for The Linde Group, including as Managing Director of Linde Engineering from 2008-2014.

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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