1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____________TO_____________
COMMISSION FILE NUMBER 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1274455
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7201 Hamilton Boulevard
Allentown, Pennsylvania 18195-1501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610)481-4911
--------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, par value $1.00 per share New York and Pacific
Preferred Stock Purchase Rights New York and Pacific
8-3/4% Debentures Due 2021 New York
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on November 3, 1997 was $9.1 billion. For purposes of the foregoing
calculation (i) all directors and/or executive officers have been deemed to be
affiliates, but the Registrant disclaims that any such director and/or executive
officer is an affiliate and (ii) Registrant's Flexible Employee Benefit Trust,
described under Item 12 of this Report, is deemed a non-affiliate.
The number of shares of Common Stock outstanding as of November 28, 1997 was
118,196,876.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended September 30, 1997.
With the exception of those portions which are incorporated by reference into
Parts I, II and IV of this Form 10-K, the Annual Report is not deemed to be
filed.
Proxy Statement for Annual Meeting of Shareholders to be held January 22,
1998 . . . Part III.
2
FORWARD LOOKING STATEMENTS
The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. Important risk factors and uncertainties
include the impact of worldwide economic growth, pricing, and other factors
resulting from fluctuations in foreign currencies, the impact of competitive
products and pricing, continued success of productivity programs, and the impact
of tax and other legislation and other regulations in the jurisdictions in which
the Company and its affiliates operate.
TABLE OF CONTENTS
Page
PART I
ITEM 1. Business ......................................................... 1
Industrial Gases................................................ 1
Chemicals....................................................... 2
Polymer Chemicals............................................ 2
Performance Chemicals........................................ 3
Chemical Intermediates....................................... 3
Equipment and Services.......................................... 4
Equipment.................................................... 4
Power Generation............................................. 4
Pure Air..................................................... 4
General......................................................... 4
Foreign Operations........................................... 4
Technology Development....................................... 5
Raw Materials and Energy..................................... 6
Environmental Controls....................................... 6
Competition.................................................. 6
Insurance.................................................... 7
American Ref-Fuel............................................ 8
Employees.................................................... 8
Executive Officers of the Company............................ 9
ITEM 2. Properties ....................................................... 9
Industrial Gases................................................ 9
Chemicals....................................................... 10
Equipment and Services.......................................... 10
ITEM 3. Legal Proceedings ................................................ 10
ITEM 4. Submission of Matters to a Vote of Security Holders .............. 10
PART II
ITEM 5. Market for the Company's Common Stock and Related
Stockholders Matters.............................................. 11
ITEM 6. Selected Financial Data .......................................... 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 11
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk ....... 11
ITEM 8. Financial Statements ............................................. 11
ITEM 9. Disagreements on Accounting and Financial Disclosure ............. 11
PART III
ITEM 10. Directors and Executive Officers of the Company .................. 11
ITEM 11. Executive Compensation ........................................... 11
ITEM 12. Security Ownership of Certain Beneficial Owners and Management ... 12
ITEM 13. Certain Relationships and Related Transactions ................... 12
PART I
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 12
3
PART I
ITEM 1. BUSINESS.
Through internal development and by acquisitions, Air Products and
Chemicals, Inc. has established an internationally recognized industrial gas and
related industrial process equipment business, and developed strong positions as
a producer of certain chemicals.
The industrial gases business segment recovers and distributes industrial
gases such as oxygen, nitrogen, argon and hydrogen and a variety of medical and
specialty gases. The chemicals business segment produces and markets polymer
chemicals, performance chemicals and chemical intermediates. The equipment and
services business segment supplies cryogenic and other process equipment and
related engineering services and includes the Company's power generation
business and flue gas treatment business.
Financial information concerning the Company's business segments appears in
Note 20 to the Consolidated Financial Statements included under Item 8 herein,
which information is incorporated herein by reference, as are all other specific
references herein to information appearing in such 1997 Financial Review Section
of the Annual Report.
As used in this Report, the term "Air Products" or "Company" includes
subsidiaries and predecessors of the registrant or its subsidiaries, unless the
context indicates otherwise.
INDUSTRIAL GASES
The principal industrial gases sold by the Company are oxygen, nitrogen,
argon (primarily recovered by the cryogenic distillation of air), hydrogen,
carbon monoxide, carbon dioxide (purchased, purified or recovered through the
processing of natural gas or the by-product streams from process plants),
synthesis gas (combined streams of hydrogen and carbon monoxide) and helium
(purchased or refined from crude helium). Medical and specialty gases are
manufactured or blended by the Company or purchased for resale.
The Company's industrial gas business involves two principal modes of
supply:
"Tonnage" or "on-site" supply -- For large volume or "tonnage" users of
industrial gases, a plant is built adjacent to or near the customer's facility
- -- hence the term "on-site". Alternatively, the gases are delivered through a
pipeline from nearby locations. Supply is generally made under contracts having
terms in excess of three years. In at least six areas -- the Houston (Texas)
Ship Channel including the Port Arthur, Texas, area; "Silicon Valley",
California; Los Angeles, California; Phoenix, Arizona; Central Louisiana; and
Rotterdam, The Netherlands -- Air Products' hydrogen, oxygen, carbon monoxide or
nitrogen gas pipelines serve multiple customers from one or more centrally
located plants. Industrial gas companies in which the Company has less than
controlling interests have pipelines in Korea, Thailand, Malaysia and Taiwan.
Merchant supply -- Smaller volumes of industrial gas products are delivered
to thousands of customers in liquid or gaseous form by tanker trucks or tube
trailers. These merchant customers use equipment designed and installed by Air
Products to store the product near the point of use, normally in liquid state,
and vaporize the product into gaseous state for their use as needed.
Increasingly, some customers are being supplied by small on-site generators
using noncryogenic technology based on adsorption and membrane technology.
Merchant customers' contract terms normally are from three to five years.
Merchant gases and various specialty gases are also delivered in cylinders,
dewars and lecture bottle sizes.
Oxygen, nitrogen, argon and hydrogen sold to merchant customers are usually
recovered at large "stand-alone" facilities located near industrial areas or
high-tech centers, or at small noncryogenic generators, or are taken from
tonnage plants used primarily to supply tonnage users. Tonnage plants are
frequently designed to have more capacity than is required by their principal
customer to recover additional product that is liquefied for sale to a merchant
market. Air Products also designs and builds systems for recovering oxygen,
hydrogen, nitrogen, carbon monoxide and low dew point gases using adsorption
technology.
1
4
Tonnage and merchant sales of atmospheric gases -- oxygen, nitrogen and
argon -- constituted approximately 24% of Air Products' consolidated sales in
fiscal 1997 and were approximately 28% and 29% in fiscal years 1996 and 1995,
respectively. Tonnage and merchant sales of industrial gases -- principally
oxygen, nitrogen and hydrogen -- to the chemical process industry, the
electronics industry and the basic steel industry, the largest consuming
industries, were approximately 14%, 10% and 5%, respectively, of Air Products'
consolidated sales in fiscal 1997.
Other important consumers of Air Products' industrial and specialty gases
are the oil industry (which uses inert nitrogen for oil well stimulation and
field pressurization and hydrogen and oxygen for refining) and the food industry
(which uses liquid nitrogen for food freezing). Air Products believes that it is
the largest liquefier of hydrogen, which it supplies to many customers including
the National Aeronautics and Space Administration for its space shuttle program.
Helium is sold for use in magnetic resonance imaging equipment, controlled
atmospheres processes and welding. Medical gases are sold in the merchant market
to hospitals and clinics, primarily for inhalation therapy.
Specialty gases include fluorine products, rare gases such as xenon, krypton
and neon and more common gases of high-purity or gases which are precisely
blended as mixtures. These gases are used in numerous industries and in
electronic and laboratory applications.
Sales of industrial gases to merchant customers and/or sales of specialty
products to the electronics industry are made principally through field sales
forces from 111 offices in 38 states in the United States and Puerto Rico, and
from 159 offices in 23 foreign countries. In addition, industrial gas companies
in which the Company has investments operate in 29 foreign countries. See
"Foreign Operations" on pages 4 and 5 of this report.
Electricity and hydrocarbons, including natural gas as a feedstock for
producing certain gases, are important to Air Products' industrial gas business.
See "Raw Materials and Energy". The Company's large truck fleet, which delivers
products to merchant customers, requires a readily available supply of gasoline
or diesel fuel. Also, environmental and health laws and regulations will
continue to affect the Company's industrial gas businesses. See "Environmental
Controls".
CHEMICALS
The Company's chemicals businesses consist of polymer chemicals,
performance chemicals, and chemical intermediates where the Company is able to
differentiate itself by the performance of its products in the customer's
application, the technical service which the Company provides, and the scale of
production and the production technology employed by the Company.
POLYMER CHEMICALS
Air Products' polymer chemicals are water-based and water-soluble products
derived primarily from vinyl acetate monomer. The principal products of these
businesses are polymer emulsions, pressure sensitive adhesives, and polyvinyl
alcohol. Total sales from these businesses constituted approximately 12% of Air
Products' consolidated sales in fiscal year 1997, 13% in fiscal year 1996 and
14% in fiscal year 1995, respectively.
Polymer Emulsions - The Company's major emulsion products are vinyl
acetate homopolymer emulsions and Airflex(R) vinyl acetate-ethylene copolymer
emulsions. The Company also produces emulsions which incorporate vinyl chloride
and various acrylates in the polymer. These products are used in adhesives,
nonwoven fabric binders, paper coatings, paints, inks and carpet backing binder
formulations.
Pressure Sensitive Adhesives - These products are water-based acrylic
emulsions which are used for both permanent and removable pressure sensitive
adhesives primarily for labels and tapes.
Polyvinyl Alcohol - These polymer products are water-soluble synthetic
resins which are used in textile warp sizes, surface sizes for paper, adhesives,
safety glass laminates and as emulsifying agents in polymerization. As a
coproduct of polyvinyl alcohol, acetic acid is a merchant product sold to a
variety of markets including textiles, pharmaceuticals and electronics.
2
5
PERFORMANCE CHEMICALS
Air Products' performance chemicals are differentiated from the
competition based on their performance when used in the customer's products and
the technical service which the Company provides. The principal products of
these businesses are specialty additives, polyurethane additives and epoxy
additives. Total sales from these businesses constituted approximately 8% of Air
Products' consolidated sales in fiscal year 1997, 10% in fiscal year 1996 and 9%
in fiscal year 1995.
Specialty Additives - These products are primarily acetylenic alcohols and
amines which are used as performance additives in coatings, lubricants,
electro-deposition processes, agricultural formulations and corrosion
inhibitors.
Polyurethane Additives - These products include catalysts and surfactants
which are used as performance control additives and processing aids in the
production of both flexible and rigid polyurethane foam around the world. The
principal end markets for polyurethane foams include furniture cushioning,
insulation, carpet underlay, bedding and automobile seating.
Epoxy Additives - These products include polyamides, aromatic amines,
cycloaliphatic amines, reactive diluents and specialty epoxy resins which are
used as performance additives in epoxy formulations by epoxy manufacturers
worldwide. The end markets for epoxies are coatings, flooring, adhesives,
reinforced composites and electrical laminates.
CHEMICAL INTERMEDIATES
The chemical intermediates businesses use the Company's proprietary
technology and scale of production to differentiate themselves from the
competition. The principal intermediates sold by the Company include amines and
polyurethane intermediates. The Company also produces certain industrial
chemicals (ammonia, methanol and nitric acid) as raw materials for its
differentiated products. Total third-party sales from the chemical intermediates
businesses constituted 11% of Air Products' consolidated sales in each of fiscal
years 1997 and 1996, and 12% in fiscal year 1995.
Amines - The Company produces a broad range of amines using ammonia and
methanol, which are both manufactured by Air Products, and other alcohol
feedstocks purchased from various suppliers. Other, more specialized amines are
produced by the hydrogenation of purchased intermediates. Substantial quantities
of these products are sold under long-term contracts to a small number of
customers. These products are used by the Company's customers as raw materials
in the manufacture of herbicides, pesticides, water treatment chemicals, animal
nutrients, polyurethane coatings, artificial sweeteners, rubber chemicals and
pharmaceuticals. Ammonia is a feedstock for its alkylamines and the excess over
this requirement is marketed as ammonium nitrate prills and solutions, which are
primarily used by customers as fertilizers or in other agricultural
applications. Methanol is principally used by Air Products as a feedstock in
methylamine production and the excess over this requirement is marketed to the
methanol market.
Polyurethane Intermediates - The Company produces dinitrotoluene ("DNT")
and toluene diamine ("TDA") for use as intermediates by the Company's customers
in the manufacture of a major precursor of flexible polyurethane foam. The
principal end markets for flexible polyurethane foams include furniture
cushioning, carpet underlay, bedding and seating in automobiles. Virtually all
of the Company's production of DNT and TDA is sold under long-term contracts to
a small number of customers.
* * *
Chemical sales are supported from various locations in the United States,
England, Germany, Brazil, Mexico, the Netherlands, Japan, China, Singapore and
South Africa and through sales representatives or distributors in most
industrialized countries. Dry products are delivered in railcars, trucks, drums,
bags and cartons. Liquid products are delivered by barge, rail tank cars,
tank-trailers, drums and pails, and, at one location, by pipeline.
The chemicals business depends on adequate energy sources, including
natural gas as a feedstock for the production of certain products (see "Raw
Materials and Energy"), and will continue to be affected by various
environmental and health laws and regulations (see "Environmental Controls").
Early in fiscal 1998, the Company announced it had begun discussions
towards combining its emulsion and redispersible powder activities with those of
Wacker-Chemie GmbH.
3
6
EQUIPMENT AND SERVICES
The equipment business of Air Products designs, manufactures and supplies
cryogenic and other process equipment, and includes the Company's power
generation business, and its flue gas treatment business.
EQUIPMENT
The Company designs and manufactures equipment for cryogenic air separation,
gas processing, natural gas liquefaction, hydrogen purification, and nitrogen
rejection. Air Products also designs and builds systems for recovering hydrogen,
nitrogen, carbon monoxide, carbon dioxide and low dew point gases using membrane
technology. Additionally, a broad range of plant design, engineering,
procurement, and construction management services is provided for the above
areas. Equipment is manufactured for use by the industrial gases segment and for
sale in industrial markets which include the Company's international industrial
gas affiliates.
The backlog of orders (including letters of intent) believed to be firm from
other companies and equity affiliates for equipment was approximately $310
million on September 30, 1997, approximately 40% of which relates to natural gas
liquefaction, as compared with a total backlog of approximately $306 million on
September 30, 1996. It is expected that approximately $237 million of the
backlog on September 30, 1997, will be completed during fiscal 1998.
POWER GENERATION
Air Products constructed, operates and has a 50% interest in a 49-megawatt
fluidized-bed coal-fired power generation facility in Stockton, California; an
85-megawatt coal waste burning power generation facility in western
Pennsylvania; a 120-megawatt gas-fired combined cycle power generation facility
in Orlando, Florida; and a 24-megawatt gas-fired combined cycle power generation
facility near Rotterdam, The Netherlands. A 112-megawatt gas-fueled power
generation facility, in which the Company has a 48.9% interest, is being
constructed in Thailand that will supply electricity to a state-owned
electricity generating authority and steam and electricity to an Air Products
industrial gases affiliate.
PURE AIR
Pure Air markets, develops, designs and builds flue gas treatment systems.
Air Products operates and owns a 50% interest in a facility utilizing Mitsubishi
Heavy Industries, Ltd. flue gas desulfurization (FGD) technology systems for
removing sulfur dioxide from the flue gas of a coal-fired power generation plant
in Indiana. Pure Air is working with a Florida utility company to develop a
facility utilizing this FGD technology and other air pollution control
technologies for treating the flue gas of a power generation plant to be powered
by Orimulsion(R) fuel.
Additional information with respect to the Company's power generation and
flue gas treatment businesses is included in Notes 8 and 16 to the Consolidated
Financial Statements included under Item 8 herein.
GENERAL
FOREIGN OPERATIONS
Air Products through subsidiaries and affiliates conducts business in
numerous countries outside the United States. The structure of the Air Products
industrial gas business in Europe mirrors the Company's United States operation.
Air Products' international business is subject to risks customarily encountered
in foreign operations, including fluctuations in foreign currency exchange rates
and controls, import and export controls, and other economic, political and
regulatory policies of local governments.
4
7
Majority and wholly owned subsidiaries operate in Australia, Brazil, Canada
and Mexico and in 12 countries in Europe and 7 countries in Asia. The Company
also has less than controlling interests in industrial gas companies in Mexico
and in 5 countries in Europe and 7 countries in Asia. Air Products also has a
70% owned subsidiary engaged in the specialty gas and helium business as well as
a 62.5% owned subsidiary engaged in the gas membrane business in China, a 51%
owned subsidiary engaged in the manufacture and sale of polymer emulsions in
Mexico, a 58% owned subsidiary engaged principally in cryogenic equipment
manufacturing in the Czech Republic and 50% owned companies in France and South
Africa (industrial gases). The Company and a French industrial gas company each
have a 24.5% interest in an Algerian company that owns and operates a helium
purification and liquefaction plant which provides helium to Air Products and
the French industrial gas company.
Financial information about Air Products' foreign operations and investments
is included in Notes 8, 10 and 20 to the Consolidated Financial Statements
included under Item 8 herein. Information about foreign currency translation is
included in Note 1 to the Consolidated Financial Statements included under Item
8 herein, under "Foreign Currency" and information on Company exposure to
currency fluctuations is included in Note 5 to the Consolidated Financial
Statements included under Item 8 herein, under "Foreign Exchange Contracts".
Export sales from operations in the United States to unconsolidated customers
amounted to $555 million, $459 million and $415 million in 1997, 1996 and 1995,
respectively. Total export sales in fiscal 1997 include $98 million in export
sales to affiliated customers. The sales to affiliated customers were primarily
equipment sales.
TECHNOLOGY DEVELOPMENT
Air Products conducts research and development principally in its
laboratories located in Trexlertown, Pennsylvania, as well as in Manchester and
Basingstoke, England; and Utrecht, Netherlands. The Company also funds and works
closely on research and development programs with a number of major universities
and conducts a sizable amount of research work funded by others, principally the
United States Government.
The Company's market-oriented approach to technology development encompasses
research and development, and engineering as well as commercial development.
The amount expended by the Company on research and development during each
of fiscal 1997 and 1996 was $114 million and $103 million during fiscal 1995.
In the industrial gases and equipment and services segments, technology
development is directed primarily to developing new and improved processes and
equipment for the production and delivery of industrial gases and cryogenic
fluids, developing new products, and developing new and improved applications
for industrial gases. It is through such applications and improvements that the
Company has become a major supplier to the electronics, polymer, petroleum,
rubber, plastics, food processing and paper industries. Through fundamental
research into sieve and polymer materials, advanced process engineering and
integrated manufacturing methods, the Company discovers, develops and improves
the economics of noncryogenic gas separation technologies. Additionally,
technology development for the equipment and services businesses is directed
primarily to reducing the capital and operating costs of its facilities and to
commercializing new technologies in gas production and separation and in power
production.
In the chemicals segment, technology development is primarily concerned with
new products and applications to strengthen and extend our present positions in
polymer and performance chemicals. In addition, a major continuing effort
supports the development of new and improved manufacturing technology for
chemical intermediates and various types of polymers.
A corporate research group supports the research efforts of the Company's
various businesses. This group includes the Company's Corporate Science and
Technology Center, which conducts exploratory research in areas important to the
long-term growth of the Company's core businesses, e.g., gas and fluid
separations, polymer science, organic synthesis, and fluorine chemicals.
As of November 1, 1997, Air Products owned 974 United States patents and
1,753 foreign patents. The Company is also licensed to practice under patents
owned by others. While the patents and licenses are considered important, Air
Products does not consider its business as a whole to be materially dependent
upon any particular patent or patent license, or group of patents or licenses.
5
8
RAW MATERIALS AND ENERGY
The Company manufactures hydrogen, carbon monoxide, synthesis gas, anhydrous
ammonia, carbon dioxide, and methanol principally from natural gas. Such
products accounted for approximately 8% of the Company's consolidated sales in
fiscal 1997. The Company's principal raw material purchases are chemical
intermediates produced by others from basic petrochemical feedstocks such as
olefins and aromatic hydrocarbons. These feedstocks are generally derived from
various crude oil fractions or from liquids extracted from natural gas. The
Company purchases its chemical intermediates from many sources and generally is
not dependent on one supplier. However, with respect to vinyl acetate monomer,
which supports the polymer business, the Company is heavily dependent on a
single supplier, under a long-term contract, which produces vinyl acetate
monomer from several facilities. The Company characterizes the availability of
these chemical intermediates as generally being readily available. The Company
uses such raw materials in the production of emulsions, polyvinyl alcohol,
amines, polyurethane intermediates, specialty additives, polyurethane additives
and epoxy additives. Such products accounted for approximately 31% of the
Company's consolidated sales in fiscal 1997. Natural gas is an energy source at
a number of the Company's facilities.
The Company's industrial gas facilities use substantial amounts of
electrical power. Any shortage of electrical power or interruption of its supply
or increase in its price which cannot be passed through to customers for
competitive reasons will adversely affect the merchant industrial gas business
of the Company.
In addition, the Company purchases finished and semifinished materials and
chemical intermediates from many suppliers. During fiscal 1997, no significant
difficulties were encountered in obtaining adequate supplies of energy or raw
materials.
ENVIRONMENTAL CONTROLS
The Company is subject to various environmental laws and regulations in the
United States and foreign countries where it has operations. Compliance with
these laws and regulations results in higher capital expenditures and costs.
Additionally, from time to time the Company is involved in proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act (the
federal Superfund law), similar state laws, and the Resource Conservation and
Recovery Act (RCRA) relating to the designation of certain sites for
investigation and possible cleanup. Additional information with respect to these
proceedings is included under Item 3, Legal Proceedings, below. The Company's
accounting policies on environmental expenditures are discussed in Note 1 to the
Consolidated Financial Statements included under Item 8 herein.
The amounts charged to earnings on an after-tax basis related to
environmental protection totaled $26 million in 1997, and $27 million both in
1996 and 1995. These amounts represent an estimate of expenses for compliance
with environmental laws, as well as remedial activities, and costs incurred to
meet internal Company standards. Such costs are estimated to be approximately
$27 million in 1998 and $29 million in 1999.
Although precise amounts are difficult to define, the Company estimates that
in fiscal 1997 it spent approximately $8 million on capital projects to control
pollution (including expenditures associated with new plants) versus $11 million
in 1996. Capital expenditures to control pollution in future years are estimated
at $9 million in 1998 and $8 million in 1999.
The exact amount to be expended by the Company and its power generation
business joint ventures on equipment to control pollution will depend upon the
timing of the capital projects and timing and content of regulations promulgated
by environmental regulatory bodies during the life of any capital investment.
Efforts are made to pass these costs through to customers. To the extent
long-term contracts have been entered into for supply of product such as for the
industrial gas on-site business and for certain chemical products, the cost of
any environmental compliance generally is contractually passed through to the
customer.
6
9
It is the Company's policy to accrue environmental investigatory and
noncapital remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated.
The potential exposure for such costs is estimated to range from $17 million to
a reasonably possible upper exposure of $39 million. The balance sheet at 30
September 1997 includes an accrual of $33 million and a receivable balance of $1
million relating to third party recoveries. At 30 September 1996, the balance
sheet accrual was $32 million, and the receivable balance was $1 million.
In addition to the environmental exposures discussed in the preceding
paragraph, there will be spending at a Company-owned manufacturing site where
the Company is undertaking RCRA corrective action remediation. The Company
estimates capital costs to implement the anticipated remedial program will range
from $26-$33 million. Spending was $1 million in fiscal 1997 and is estimated at
$9 million for fiscal 1998 and $8 million for 1999. Operating and maintenance
expenses associated with continuing the remedial program are estimated to be
approximately $1 million per year beginning in fiscal 1998 and continuing for an
estimated period of up to 30 years. A former owner and operator at the site has
agreed to reimburse the Company approximately 20% of the costs incurred in the
remediation. The cost estimates have not been reduced by the value of such
reimbursement, which the Company believes is probable of realization.
Actual costs to be incurred in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental exposures and factors
beyond the Company's control such as: lack of knowledge or scarcity of reliable
data pertaining to identified sites; method and extent of remediation ultimately
required; years of remedial activity required; number of parties involved; final
determination of the Company's liability in proportion to that of other parties;
identification of new sites; evolving environmental laws and regulations and
their application; and advances in technology.
The Company's domestic competitors face similar requirements, which are not
shared by most foreign competitors.
COMPETITION
The Company's businesses face strong competition from others, some of which
are larger and have greater resources than Air Products.
Air Products' industrial gas business competes in the United States with
three major sellers and with several regional sellers. Competition in industrial
gas markets is based primarily on price, reliability of supply, and furnishing
or developing applications for use of such gases by customers. A similar
competitive situation exists in European industrial gas markets in which the
Company competes against one or more larger entrenched competitors in most
countries.
The number of the Company's principal competitors in the chemicals business
varies from product to product, and it is not practical to identify such
competitors because of the broad range of the Company's chemical products and
the markets served, although the Company believes it has a leading or strong
market position in most of its chemical products. For amines, the competition is
principally from other large chemical companies that also have the ability to
provide competitive pricing, reliability of supply, technical service assistance
and quality products and services. The possibility of back integration by large
customers is the major competitive factor for the sale of polyurethane
intermediates. In its other chemical products, the Company competes with a large
number of chemical companies, some of which are larger, possess greater
financial resources, and are more vertically integrated than the Company.
Competition in these products is principally on the basis of price, quality,
product performance, reliability of product supply and technical service
assistance.
The Company's equipment and services businesses including power generation
compete in all aspects with a great number of firms, some of which have greater
financial resources than Air Products. Another important factor in certain
export sales is financing provided by governmental entities in the United States
and the United Kingdom as compared with financing offered by their counterparts
in other countries.
Competition is based primarily on technological performance, service,
technical know-how, price and performance guarantees. Air Products believes that
its comprehensive project development capability, operating experience,
engineering and financing capabilities and construction management experience
will enable it to compete effectively.
7
10
INSURANCE
The Company's policy is to obtain public liability and property insurance
coverage that is currently available at what management determines to be a fair
and reasonable price. The Company, for itself and its power generation and flue
gas treatment joint venture affiliates for which it assumes turnkey construction
or operating responsibility, maintains public liability and property insurance
coverage at amounts which management believes are sufficient, after retention,
to meet the Company's anticipated needs in light of historical experience to
cover future litigation and claims. There is no assurance, however, that the
Company will not incur losses beyond the limits of, or outside the coverage of,
its insurance.
AMERICAN REF-FUEL
In December 1997, the Company sold its interest in American Ref-Fuel, its
waste-to-energy partnerships with Browning-Ferris Industries, Inc., to a limited
liability company formed by Duke Energy Power Services and United American
Energy Corp. From this transaction, Air Products expects to record an after-tax
gain of approximately $35 million. As part of the transaction, Duke Energy
Capital Corporation, the parent of Duke Energy Power Services, will assume or
guarantee the Company's obligations under the financial support arrangements as
outlined in Note 16 to the Consolidated Financial Statements included under Item
8 herein. The Company will retain a limited partnership interest, entitling it
to the settlement proceeds in one project which is undergoing a power contract
restructuring. The restructuring is expected to be completed within one year.
EMPLOYEES
On September 30, 1997, the Company (including majority-owned subsidiaries)
had approximately 16,400 full-time employees of whom approximately 6,250 were
located outside the United States. The Company has collective bargaining
agreements with unions at numerous locations, which expire on various dates over
the next three years. The Company considers relations with its employees to be
satisfactory. The Company does not believe that any expiring collective
bargaining agreements will result in a material adverse impact on the Company.
8
11
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers, their respective positions and their
respective ages on December 15, 1997 follow. Except where indicated, each of the
executive officers listed below has been employed by the Company in the position
indicated during the past five fiscal years. Information with respect to offices
held is stated in fiscal years.
NAME AGE OFFICE
---- --- ------
James H. Agger 61 Senior Vice President, General Counsel and
(D)(E) Secretary (became Senior Vice President in 1997)
Robert E. Gadomski 50 Executive Vice President--Chemicals
(D)(E) (became Executive Vice President--Chemicals
in 1996; Group Vice President--Chemicals
Group 1992-1996)
John P. Jones, III 47 Executive Vice President--Gases and Equipment
(D)(E) (became Executive Vice President--Gases and
Equipment in 1996; President--Air Products
Europe, Inc. 1993-1996; Group Vice
President--Process Systems Group 1992-1993)
Joseph J. Kaminski 58 Corporate Executive Vice President
(A)(D)(E) (became Corporate Executive Vice President in
1996; Executive Vice President--Gases and
Equipment 1993-1996; President--Air Products
Europe, Inc. prior thereto)
Arnold H. Kaplan 58 Senior Vice President--Finance
(D)(E) (became Senior Vice President--Finance in
1997; Vice President--Finance in 1996; Vice
President--Energy and Materials prior thereto)
Harold A. Wagner 62 Chairman of the Board, President and Chief
(A)(B)(C)(D)(E) Executive Officer (became Chairman of the
Board and Chief Executive Officer in 1992)
- --------------------
(A) Member, Board of Directors.
(B) Member, Executive Committee of the Board of Directors.
(C) Member, Finance Committee of the Board of Directors.
(D) Member, Management Committee.
(E) Member, Corporate Executive Committee.
ITEM 2. PROPERTIES.
The principal executive offices of Air Products are located at its
headquarters in Trexlertown, near Allentown, Pennsylvania. Additional
administrative offices are located in owned facilities in Hersham, near London,
England, and Brampton, near Toronto, Canada, and in leased facilities in the
Allentown area, Pennsylvania; Tokyo, Japan; Hong Kong, People's Republic of
China; Singapore and Sao Paulo, Brazil. The management considers the Company's
facilities, described in more detail below, to be adequate to support the
business efficiently. The following information with respect to properties is as
of September 30, 1997.
INDUSTRIAL GASES
The industrial gases segment has approximately 176 plant facilities in 38
states, the majority of which recover nitrogen, oxygen and argon. The Company
has seven facilities which produce specialty gases and 27 facilities which
recover hydrogen throughout the United States. Helium is recovered at two plants
in Kansas and Texas, and acetylene is manufactured at six plants in six states
in the United States. There are 119 sales offices and/or cylinder distribution
centers located in 40 states.
The property on which the above plants are located are owned by Air Products
at approximately one-fourth of the locations, and leased by Air Products at the
remaining locations. However, in virtually all cases, the plant itself is owned
and operated by Air Products. Air Products owns approximately half of its sales
offices and cylinder distribution centers, including related real estate, and
leases the other half.
9
12
Air Products' European plant facilities total 59, and include eight plants
which recover hydrogen, six plants which manufacture dissolved acetylene, and
one which recovers carbon monoxide. The majority of European plants recover
nitrogen, oxygen and argon. In addition, there are five specialty gas centers.
There is a combined total of 107 sales offices and/or cylinder distribution
centers in Europe, and several additional facilities located in Brazil, Canada,
Japan, the People's Republic of China, Puerto Rico, Singapore, Indonesia and the
Middle East. Representative offices are located in Taiwan and in Beijing and
Shanghai in the People's Republic of China.
CHEMICALS
The chemicals segment manufactures amines, nitric acid, methanol, anhydrous
ammonia and ammonia products at its Pace, Florida, facility; alkylamines at its
St. Gabriel, Louisiana, facility; polyvinyl acetate emulsions at its South
Brunswick, New Jersey, facility; styrene emulsions, styrene acrylics, polyvinyl
acetate acrylics, and polyvinyl acetate emulsions at its San Juan del Rio
facility in Mexico; nitric acid, dinitrotoluene, toluene diamine, polyvinyl
alcohol and acetic acid at its Pasadena, Texas, facility; and polyvinyl acetate
emulsions, polyvinyl alcohol, acetic acid and acetylenic chemicals at its
Calvert City, Kentucky, facility; specialty amines at its Wichita, Kansas,
facility; and epoxy additives at its facilities in Manchester, England; Los
Angeles, California and Cumberland, Rhode Island. The chemicals segment
manufactures polyurethane additives at its Paulsboro, New Jersey, facility which
is leased in part and owned in part. The chemicals segment also manufactures
polyvinyl acetate emulsions at five smaller locations.
The chemicals segment has 16 plant facilities, four sales offices and one
laboratory in the United States and operates one plant, seven
sales/representative offices and two laboratories in Europe, laboratories in
Brazil, and Korea, one plant in Mexico, one plant in Korea, and sales offices in
Australia, Brazil, Mexico, Japan, Korea, Singapore and representative offices in
Beijing, Shanghai and Hong Kong in the People's Republic of China. Substantially
all of the chemicals segment's plants and real estate thereunder are owned.
Approximately 75% of the offices are leased by the Company and 25% are owned.
EQUIPMENT AND SERVICES
The principal facilities utilized by the equipment and services segment
include five plants and two sales offices in the United States, three plants and
three offices in Europe, one office in Japan and one plant and one sales office
in the People's Republic of China. Air Products owns approximately 50% of the
facilities and real estate in this segment and leases the remaining 50%.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business Air Products and its subsidiaries are
involved in legal proceedings including proceedings involving governmental
authorities. The Company does not expect that any sums it may have to pay in
connection with these matters would have a materially adverse effect on its
consolidated financial position nor is there any material additional exposure
expected in any one year in excess of the amounts the Company currently has
accrued. Included in these claims and actions are proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act (the
federal Superfund law), the Resource Conservation and Recovery Act (RCRA) and
similar state environmental laws relating to the designation of certain sites
for investigation or remediation. There are presently approximately 50 sites on
which a final settlement has not been reached where the Company, along with
others, has been designated a Potentially Responsible Party by the Environmental
Protection Agency or is otherwise engaged in investigation or remediation. While
monetary sanctions have not yet been determined, they may exceed $100,000.
Additional information on the Company's environmental exposure is included under
Environmental Controls on pages 6 and 7 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
10
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Market and dividend information for the Company's Common Stock appears under
"Eleven-Year Summary of Selected Financial Data" on pages 32 and 33 of the 1997
Financial Review Section of the Annual Report to Shareholders which is
incorporated herein by reference. In addition, the Company has authority to
issue 25,000,000 shares of preferred stock in series. The Board of Directors is
authorized to designate the series and to fix the relative voting, dividend,
conversion, liquidation, redemption and other rights, preferences and
limitations as between series. When preferred stock is issued, holders of Common
Stock are subject to the dividend and liquidation preferences and other prior
rights of the preferred stock. There currently is no preferred stock
outstanding.
As of November 28, 1997, there were 11,355 record holders of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The tabular information appearing under "Eleven-Year Summary of Selected
Financial Data" on pages 32 and 33 of the 1997 Financial Review Section of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The textual information appearing under "Management's Discussion and
Analysis" on pages 2 through 7 of the 1997 Financial Review Section of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The textual information appearing under "Financial Instruments Sensitivity
Analysis" on pages 7 and 8 of the 1997 Financial Review Section of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS.
The consolidated financial statements and the related notes thereto together
with the report thereon of Arthur Andersen LLP dated 4 November 1997, appearing
on pages 9 through 31 of the 1997 Financial Review Section of the Annual Report
to Shareholders, are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The biographical information relating to the Company's directors contained
on pages 2 through 5 of the Proxy Statement relating to the Company's 1998
Annual Meeting of Shareholders is incorporated herein by reference. Biographical
information relating to the Company's executive officers is set forth in Item 1
of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Other Relationships and Transactions", "Remuneration
of Directors", "Report of the Management Development and Compensation
Committee", "Compensation, Option and Long-Term Incentive Plan Tables", "Stock
Performance Information", "Pension Plans", and "Certain Agreements with
Executive Officers" appearing on pages 7 through 19 of the Proxy Statement
relating to the Company's 1998 Annual Meeting of Shareholders is incorporated
herein by reference.
11
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this Item is set forth in the section headed
"Security Ownership of Certain Beneficial Owners and Management" contained on
pages 19 through 22 of the Proxy Statement relating to the Company's 1998 Annual
Meeting of Shareholders and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Other Relationships and Transactions" appearing on
page 7 of the Proxy Statement relating to the Company's 1998 Annual Meeting of
Shareholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. The 1997 Financial Review Section of the Company's 1997 Annual Report
to Shareholders. Information contained therein is not deemed filed except as
it is incorporated by reference into this Report. The following financial
information is incorporated herein by reference:
(PAGE REFERENCES TO 1997 FINANCIAL REVIEW SECTION OF THE ANNUAL REPORT)
Management's Discussion and Analysis..................................... 2
Report of Independent Public Accountants................................. 9
Consolidated Income for the three years ended 30 September 1997......... 10
Consolidated Balance Sheets at 30 September 1997 and 1996............... 11
Consolidated Cash Flows for the three years ended 30 September 1997..... 12
Consolidated Shareholders' Equity for the three years ended 30
September 1997.......................................................... 13
Notes to Consolidated Financial Statements.............................. 14
Business Segment and Geographic Information............................. 29
Eleven-Year Summary of Selected Financial Data.......................... 32
2. The following additional information should be read in conjunction
with the financial statements in the Company's 1997 Financial Review Section
of the Annual Report to Shareholders:
(PAGE REFERENCES TO THIS REPORT)
Report of Independent Public Accountants on Schedule..................... 17
Consent of Independent Public Accountants................................ 17
Consolidated Schedule for the years ended 30 September 1997, 1996 and
1995 as follows:
SCHEDULE
NUMBER
------
VIII Valuation and Qualifying Accounts................................. 18
All other schedules are omitted because the required matter or
conditions are not present or because the information required by the
Schedules is submitted as part of the consolidated financial statements and
notes thereto.
3. Exhibits.
EXHIBIT NO. DESCRIPTION
(3) Articles of Incorporation and By-Laws.
3.1 By-Laws of the Company. (Filed as Exhibit 3.1 to the Company's Form
8-K Report dated September 18, 1997.)*
3.2 Restated Certificate of Incorporation of the Company. (Filed as
Exhibit 3.2 to the Company's Form 10-K Report for the fiscal year
ended September 30, 1987.)*
12
15
3.3 Amendment to the Restated Certificate of Incorporation of the
Company dated January 25, 1996. (Filed as Exhibit 3.3 to the
Company's Form 10-K Report for the fiscal year ended September 30,
1996.)*
(4) Instruments defining the rights of security holders, including
indentures. Upon request of the Securities and Exchange Commission,
the Company hereby undertakes to furnish copies of the instruments
with respect to its long-term debt.
4.1 Rights Agreement, dated as of March 23, 1988, between the Company
and The Chase Manhattan Bank, N.A. (Filed as Exhibit 1, 2 to the
Company's Form 8-A Registration Statement dated March 28, 1988.)*
(10) Material Contracts.
10.1 1990 Deferred Stock Plan of the Company, as amended and restated
effective October 1, 1989. (Filed as Exhibit 10.1 to the Company's
Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.2(a) Long-Term Incentive Plan of the Company, as amended. (Filed as
Exhibit 10.2 to the Company's Form 10-K Reports for each of the
fiscal years ended September 30, 1986, September 30, 1987 and
September 30, 1988.)*
10.2(b) 1990 Long-Term Incentive Plan of the Company. (Filed as Exhibit
10.2(b) to the Company's Form 10-K Report for the fiscal year ended
September 30, 1989.)*
10.2(b)(1) Amendment to 1990 Long-Term Incentive Plan of the Company, effective
July 16, 1992. (Filed as Exhibit 10.2(b)(1) to the Company's Form
10-K Report for the fiscal year ended September 30, 1993.)*
10.2(c) 1997 Long-Term Incentive Plan of the Company effective October 1,
1996. (Filed as Exhibit 10.2(c) to the Company's Form 10-K Report
for the fiscal year ended September 30, 1996.)*
10.3 1990 Annual Incentive Plan of the Company, as amended and restated
effective October 1, 1989. (Filed as Exhibit 10.3 to the Company's
Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.3(a) 1997 Annual Incentive Plan of the Company effective October 1, 1996.
10.4 Supplementary Pension Plan of the Company, as amended effective
October 1, 1988. (Filed as Exhibit 10.4 to the Company's Form 10-K
Report for the fiscal year ended September 30, 1989.)*
10.4(a) Amendment to Supplementary Pension Plan of the Company, adopted
September 20, 1995. (Filed as Exhibit 10.4(d) to the Company's Form
10-K Report for the fiscal year ended September 30, 1995.)*
10.4(b) Amendment to Supplementary Pension Plan of the Company, adopted
September 20, 1995. (Filed as Exhibit 10.4(e) to the Company's Form
10-K Report for the fiscal year ended September 30, 1995.)*
10.4(c) Amendment to Supplementary Pension Plan of the Company, adopted
November 2, 1995. (Filed as Exhibit 10.4(c) to the Company's Form
10-K Report for the fiscal year ended September 30, 1996.)*
10.4(d) Amended and Restated Trust Agreement by and between the Company and
Provident National Bank relating to the Supplementary Pension Plan
dated as of October 31, 1989. (Filed as Exhibit 10.4(a) to the
Company's Form 10-K Report for the fiscal year ended September 30,
1989.)*
10.4(e) Amendment to the Amended and Restated Trust Agreement by and between
the Company and PNC Bank, N.A. (previously Provident National Bank)
relating to the Supplementary Pension Plan dated May 1, 1995. (Filed
as Exhibit 10.4(g) to the Company's Form 10-K Report for the fiscal
year ended September 30, 1995.)*
10.4(f) Amendment to the Amended and Restated Trust Agreement by and between
the Company and PNC Bank, N.A. (previously Provident National Bank)
relating to the Supplementary Pension Plan dated May 1, 1997.
13
16
10.5 Supplementary Savings Plan of the Company as amended October 1,
1989. (Filed as Exhibit 10.5 to the Company's Form 10-K Report for
the fiscal year ended September 30, 1989.)*
10.5(a) Trust Agreement by and between the Company and Provident National
Bank relating to the Supplementary Savings Plan dated as of October
31, 1989. (Filed as Exhibit 10.5(a) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1989.)*
10.5(b) Amendment to the Trust Agreement by and between the Company and PNC
Bank, N.A. (previously Provident National Bank) relating to the
Supplementary Pension Plan dated May 1, 1995. (Filed as Exhibit
10.5(b) to the Company's Form 10-K Report for the fiscal year ended
September 30, 1995.)*
10.5(c) Amendment to the Trust Agreement by and between the Company and PNC
Bank, N.A. (previously Provident National Bank) relating to the
Supplementary Pension Plan and Supplementary Savings Plan dated May
1, 1997.
10.6(a) Amended and Restated Deferred Compensation Plan for Directors of the
Company, effective November 21, 1996. (Filed as Exhibit 10.6(a) to
the Company's Form 10-K Report for the fiscal year ended September
30, 1996.)*
10.6(b) Amended and Restated Pension Plan for Directors of the Company,
effective January 1, 1983, as amended effective January 1, 1990 and
January 1, 1994. (Filed as Exhibit 10.6(b) to the Company's Form
10-K Report for the fiscal year ended September 30, 1993.)*
10.6(c) Stock Option Plan for Directors of the Company, effective January
27, 1994.
10.7 Agreements with executives.
10.7(a) Form of Employment Agreement dated July 30, 1987, which the Company
has with each of its executive officers. (Filed as Exhibit 10.7(a)
to the Company's Form 10-K Report for the fiscal year ended
September 30, 1987.)*
10.8 Employee Severance Plans.
10.8(a) Air Products and Chemicals, Inc. Severance Plan effective March 15,
1990. (Filed as Exhibit 10.8(a) to the Company's Form 10-K Report
for the fiscal year ended September 30, 1992.)*
10.8(b) Air Products and Chemicals, Inc. Change of Control Severance Plan
effective March 15, 1990. (Filed as Exhibit 10.8(b) to the Company's
Form 10-K Report for the fiscal year ended September 30, 1992.)*
(11) Earnings per share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(13) 1997 Financial Review Section of the Annual Report to Shareholders
for the fiscal year ended September 30, 1997, which is furnished to
the Commission for information only, and not filed except as
expressly incorporated by reference in this Report.
(21) Subsidiaries of the registrant.
(24) Power of Attorney.
(27) Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only, and not
filed.
(27)(b) Reports on Form 8-K filed during the quarter ended September 30,
1997.
Current Reports on Form 8-K dated July 24, 1997, September 18, 1997,
October 13, 1997, and October 23, 1997, were filed in which Item 5
of such Form was reported.
*Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference should be located in SEC File No. 1-4534.
14
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 11, 1997
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
By: /s/ Arnold H. Kaplan
--------------------------------
Arnold H. Kaplan, Senior Vice President -- Finance
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Harold A. Wagner Director, Chairman of the December 11, 1997
-------------------- Board and President
(Harold A. Wagner) (Principal Executive Officer)
/s/ Paul E. Huck Vice President and Corporate Controller December 11, 1997
-------------------- (Principal Accounting Officer)
(Paul E. Huck)
* Director December 11, 1997
--------------------
(Dexter F. Baker)
* Director December 11, 1997
--------------------
(Tom H. Barrett)
* Director December 11, 1997
--------------------
(L. Paul Bremer)
* Director December 11, 1997
--------------------
(Robert Cizik)
* Director December 11, 1997
--------------------
(Ruth M. Davis)
* Director December 11, 1997
--------------------
(Edward E. Hagenlocker)
15
18
SIGNATURE TITLE DATE
--------- ----- ----
* Director December 11, 1997
- ------------------------
(James F. Hardymon)
* Director December 11, 1997
- ------------------------
(Joseph J. Kaminski)
* Director December 11, 1997
- ------------------------
(Terry R. Lautenbach)
* Director December 11, 1997
- ------------------------
(Rudolphus F. M. Lubbers)
- ------------------------ Director
(Takeo Shiina)
* Director December 11, 1997
- ------------------------
(Lawrason D. Thomas)
* James H. Agger, Senior Vice President, General Counsel and Secretary, by
signing his name hereto, does sign this document on behalf of the above noted
individuals, pursuant to a power of attorney duly executed by such individuals
which is filed with the Securities and Exchange Commission herewith.
/s/ James H. Agger
---------------------
James H. Agger
Attorney-in-Fact
16
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Air Products and Chemicals, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Air Products and Chemicals,
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated 4 November 1997. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule referred to in Item 14(a)(2) in this Form 10-K is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
4 November 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Air Products and Chemicals, Inc.
As independent public accountants, we hereby consent to the incorporation of
our reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 and Form S-3
(File Nos. 333-33851, 333-02461, 33-2068, 33-57017, 333-36231, 33-57023,
33-65117, 333-21145, 333-18955 and 333-21147).
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
10 December 1997
17
20
SCHEDULE VIII
CONSOLIDATED
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1997, 1996 AND 1995
- ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER CHANGES
ADDITIONS INCREASE (DECREASE)
-------------------------- -------------------
BALANCE AT CHARGED CUMULATIVE BALANCE
BEGINNING CHARGED TO TO OTHER TRANSLATION AT END OF
CLASSIFICATION OF PERIOD EXPENSE ACCOUNTS(1) ADJUSTMENTS OTHER(2) PERIOD
- ----------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS)
Amounts deducted in the consolidated
balance sheet from the asset to which
it applies:
YEAR ENDED 30 SEPTEMBER 1997
Allowance for doubtful accounts $ 13 $ 6 $ 6 $ (1) $ (4) $ 20
==== ==== ==== ===== ==== =====
YEAR ENDED 30 SEPTEMBER 1996
Allowance for doubtful accounts $ 14 $ 5 $ 1 $ -- $ (7) $ 13
==== ==== ==== ===== ==== =====
YEAR ENDED 30 SEPTEMBER 1995
Allowance for doubtful accounts $ 13 $ 8 $ (1) $ -- $ (6) $ 14
==== ==== ==== ===== ==== =====
NOTES:
(1) Includes collections on accounts previously written off and additions
applicable to businesses acquired.
(2) Primarily includes write-offs of uncollectible accounts.
18
1
Exhibit 10.3(a)
AIR PRODUCTS AND CHEMICALS, INC.
1997 Annual Incentive Plan
As Amended and Restated Effective October 1, 1996
1. PURPOSES OF THE PLAN
The purposes of this Plan are to attract, motivate and retain high
caliber people and to provide meaningful individual and group incentives within
Air Products and Chemicals, Inc. (the "Company") and Participating Subsidiaries.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Management Development and
Compensation Committee (the "Committee") of the Company's Board of Directors or
such other committee thereof consisting of such members (not less than three) of
the Board of Directors as are appointed from time to time by the Board and who
are not eligible and have not been eligible within a period of one year prior to
the date of such appointment to receive any award under this Plan.
The Committee shall have all necessary powers to administer and
interpret the Plan, such powers to include exclusive authority (within the
limitations described in the Plan) to select the employees to whom awards will
be granted under the Plan and determine the amount of any award to be made to
any employee. In order to assist it in selecting employees and determining the
amount of any award to be given to each employee selected, as aforesaid, the
Committee may take into consideration recommendations from the appropriate
officers of the Company and of each Participating Subsidiary with respect to
awards to be given to eligible employees of the Company and of each such
Participating Subsidiary, respectively.
The Committee shall have full power and authority to adopt such rules,
regulations and instruments for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or advisable. The
Committee's interpretations of the Plan, and all action taken and determinations
made by the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
shareholders and any employee of the Company or any Subsidiary.
3. ELIGIBILITY FOR PARTICIPATION
Participants in the Plan shall be selected by the Committee from among
key employees of the Company and Participating Subsidiaries. The term "employee"
shall mean any person employed full-time by the Company or a Participating
Subsidiary on a salaried basis and the term "employment" shall mean full-time
salaried employment by the Company or a Subsidiary. Employees who participate in
other incentive or benefit plans of the Company or of any Participating
Subsidiary may also participate in this Plan.
-1-
2
Awards under the Plan are for services rendered during a Fiscal Year,
based on the performance of the Company during that Fiscal Year. No employee
shall be eligible to receive an award under the Plan for a particular Fiscal
Year unless the employee is in the employment of the Company or a Participating
Subsidiary on the last day of that Fiscal Year, provided, however, that an
employee whose employment with the Company or a Participating Subsidiary
terminates during but before the end of a Fiscal Year on account of (i)
Retirement, Disability or death, (ii) in connection with a divestiture of
facilities, assets or businesses, elimination of positions, or a reorganization
or reduction in the work force of the Company or a Participating Subsidiary,
(iii) because of the commencement of part-time employment with or leave of
absence from the Company or a Subsidiary, or (iv) on or following a Change in
Control, and who at the time of such termination of employment was eligible to
participate in the Plan, shall be eligible to receive an award under the Plan
for such Fiscal Year.
4. AWARDS
(a) Prior to the end of each Fiscal Year, the Committee shall determine
whether awards shall be made under the Plan for that Fiscal Year and, if so, fix
the classes of employees eligible to receive awards based upon job grade and
salary levels, the proportions of the awards to be paid in cash and in common
stock of the Company ("Common Stock"). The Committee shall establish a basis or
schedule for determining the total amount of awards and for determining a
minimum aggregate dollar amount of awards for employees of the Company and of
each domestic Participating Subsidiary designated by the Committee who have
elected not to defer such awards that might be granted to them and such other
procedures for the making of the awards as the Committee may deem desirable.
(b) The basis (schedule) established under subparagraph (a) for
determining the amount of awards may be based on variable factors established by
the Committee from time to time, provided that the variables used to determine
an amount for a particular Fiscal Year must be capable of being fixed and
ascertainable as of the last day of such Fiscal Year. The minimum amount
established under subparagraph (a) shall become an accrued liability of the
Company on the last day of the Fiscal Year. The amounts of awards to be granted
to particular employees of the Company and of the designated domestic
Participating Subsidiaries within the eligible classes may be determined after
the close of the Fiscal Year under procedures established by the Committee.
(c) The Committee shall, in approving the grant of awards to particular
employees for any Fiscal Year, take into consideration (i) the performance of
the Company and of each Participating Subsidiary for the Fiscal Year based upon
such measure or measures of performance as the Committee shall select and (ii)
as between Participants, the contribution of the Participant during the Calendar
Year to the success of the Company or the Participating Subsidiary by which such
person is employed, including his or her position and level of responsibility,
the achievements of his or her division, group, department or other subdivision,
and the recommendations of his or her superiors. No award or awards may be
granted to any Participant for the same Fiscal Year having an aggregate value in
excess of 150% of such Participant's
3
annualized base salary rate at the end of, or at the time of any earlier
cessation of eligible employment during, the Fiscal Year. The number of shares
of Common Stock to be delivered in payment of awards or portions of awards
determined to be payable in such form shall be determined by dividing the amount
of the award to be so paid by the value of a share of Common Stock determined as
provided in paragraph 8(f) as of the date the Committee approves the grant of
the award to the Participant.
(d) The Committee shall have complete discretion with respect to the
determination of the employees to whom awards shall be made.
(e) Upon final approval by the Committee of awards to particular
Participants, awards shall be payable in cash or Common Stock or both and in
such amounts and proportions with respect to any Participant as the Committee
shall, in its discretion, determine.
(f) Notwithstanding any other provisions of this Plan to the contrary,
following or in connection with a Change in Control the Committee may, in its
sole discretion, determine to pay awards for the portion of the current Fiscal
Year preceding the Change in Control; provided, however, that no such award
shall have an aggregate value which exceeds 150% of that Participant's
annualized base salary rate immediately prior to the Change in Control. The
Committee shall determine in that connection the classes of employees eligible
to receive awards based upon job grade and salary levels, the amounts of awards
to be made with respect to particular employees within the eligible classes for
said partial Fiscal Year, and the proportions of the awards to be paid in cash
and in Common Stock and shall undertake such other procedures for the making of
the awards as the Committee may deem desirable. Such awards shall be due and
payable to Participants within thirty days following the Committee's
determination to pay said awards under this paragraph 4(f) or at such earlier
date as the Committee shall determine, but in no event earlier than the
occurrence of a Change in Control.
5. FORM AND PAYMENT OF AWARDS
(a) Subject to the provisions of this paragraph 5 relating to deferred
payment awards, awards for a particular Fiscal Year shall be distributed as soon
as feasible, but no later than the fifteenth (15th) day of the third month after
the close of the Fiscal Year, in cash or shares of Common Stock or both and,
once announced by or for the Committee to the Participant, shall not be subject
to forfeiture for any reason, whether or not payable immediately or as a
deferred payment award; provided, however, that any award will be paid to the
Participant only if the Participant is employed by the Company or a
Participating Subsidiary on the last day of the Fiscal Year, except as otherwise
permitted by paragraph 3.
(b) At the discretion of the Committee, payment of a portion of or all of
an award to any Participant may be deferred until termination of employment by
the Company or a Subsidiary, under such restrictions and terms as the Committee
may establish including those set forth in paragraph 5(d). The deferred payment
award may be payable in Common Stock or cash or both as determined by the
Committee in its sole discretion. Amounts payable in Common Stock shall be
entitled to Dividend Equivalents as provided in paragraph 6. Amounts payable in
cash shall accumulate interest at such rate and under such conditions as the
Committee shall determine.
-3-
4
(c) Any employee eligible to participate in the Plan may request, prior to
commencement of the Fiscal Year as to which an award may be granted to such
employee, that the Committee establish in its discretion that all or a part of
an amount to be awarded to him or her for such Fiscal Year shall be in the form
of a deferred payment award. The Committee shall advise the employee as soon as
practicable after receipt of such request whether any such award that may be
granted shall be in the form of a deferred payment award, the date or dates that
any such deferred payment award shall be delivered and the form of payment. Once
an employee requests a deferred award and the Committee grants the request, this
action will be binding on both the employee and the Committee, except that if
the amount designated by the Committee under Paragraph 4(a) that can be deferred
is not sufficient to fund all of the deferrals, a pro rata reduction shall be
made in each employee's deferred award and any excess shall be paid out
currently.
(d) The deferred payment awards, related Dividend Equivalents and/or
interest shall be distributed at such time, in such proportions and in such
manner as the Committee shall direct, except that no part of such award shall be
delivered before termination of employment or later than 10 years after
termination of employment. Deferred payment awards shall be subject to the
following further conditions and restrictions:
(i) Awarded but undelivered shares of Common Stock shall be reserved
and retained by the Company as treasury stock.
(ii) If a Participant dies prior to receiving his or her entire award,
the undelivered portion of any such award shall be paid to his or her Designated
Beneficiary or, if none, to his or her legal representative at such times and in
such manner as if such Participant were still living (or on such accelerated
basis as the Committee may determine).
(iii) The Committee may authorize an acceleration of the delivery date
of a portion or all of an undelivered award, related Dividend Equivalents and
interest in the case of a hardship arising from causes beyond the Participant's
control provided that the accelerated payment if made in such a case must be
limited to an amount necessary to meet such hardship. Upon a Change in Control,
the delivery date of all deferred payment awards shall be automatically
accelerated and said deferred payment awards and related Dividend Equivalents
and interest shall be due and payable to Participants immediately.
6. DIVIDENDS
No cash dividends shall be paid on awarded but undelivered shares of
Common Stock. However, when such shares of Common Stock are delivered to the
Participant, the Company shall Pay to the Participant an amount in cash which
shall be equal to the cash dividends, if any, ("Dividend Equivalent") which
would have been paid if the shares of Common Stock had been issued and
outstanding since the grant of the award. No interest shall be paid on any such
Dividend Equivalent or any part thereof.
In the event of a declaration of a dividend payable in Common Stock,
the record date for which occurs after the date of the grant of an award but
prior to the date of delivery of shares of
-4-
5
Common Stock to the Participant, the award shall be increased by such additional
number of shares, if any, which would have been delivered if the shares of
Common Stock had been issued and outstanding since the grant of the award. For
this purpose, shares payable at the delivery date as a result of prior stock
dividends shall be treated as awarded stock in determining the increase in
shares to be delivered as the result of a current stock dividend.
7. DILUTION AND OTHER ADJUSTMENTS
Notwithstanding any other provision of the Plan, in the event of any
change in the outstanding shares of Common Stock of the Company by reason of any
stock dividend, split, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change including without
limitation in connection with a Change in Control, an equitable adjustment shall
be made, as determined by the Committee (but subject to the provisions of the
first subparagraph of paragraph 9), in (a) the kind of shares subject to the
Plan or the maximum number of shares which may be awarded to any one employee,
(b) any other aspect or aspects of the plan or outstanding awards granted
thereunder as specified by the Committee or (c) any combination of the
foregoing. Such adjustment shall be made by the Committee and shall be
conclusive and binding for all purposes of the Plan.
8. MISCELLANEOUS PROVISIONS
(a) No recipient of an award shall have any rights as a Company shareholder
with respect thereto unless and until the date as of which certificates for
shares of Common Stock are issued in payment of such award.
(b) A Participant's rights and interests under the Plan may not be assigned
or transferred except, in the case of the Participant's death, to his or her
Designated Beneficiary or, in the absence of such designation, by will or the
laws of descent and distribution.
(c) No shares of Common Stock shall be issued or distributed under the Plan
unless and until all legal requirements applicable to the issuance or transfer
of such shares have been complied with to the satisfaction of the Committee and
the Company.
(d) The Company shall have the right to deduct from awards hereunder paid
in whole or in part in cash any federal, state, local or foreign taxes required
by law to be withheld with respect to such cash awards. In the case of awards to
be paid by the distribution of Common Stock, the Company shall have the right to
require, as a condition of such distribution, that the Participant or other
person receiving such Common Stock either (i) pay to the Company at the time of
distribution thereof the amount of any such taxes which the Company is required
to withhold with respect to such Common Stock or (ii) make such other
arrangements as the Company may authorize from time to time to provide for such
withholding including without limitation having the number of the shares of
Common Stock to be distributed reduced by an amount equal in value to the amount
of such taxes required to be withheld. The obligation of the Company to make
delivery of awards in cash or in Common Stock shall be subject to currency or
other restrictions imposed by any government.
-5-
6
(e) No full- or part-time employee of the Company or a Subsidiary or other
person shall have any claim or right to be granted an award under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any such employee any right to be retained in the employ of the Company or a
Subsidiary, it being understood that all Company and Subsidiary employees who
have or may receive awards under this Plan are employed at the will of the
Company or such Subsidiary and in accord with all statutory provisions.
(f) Distribution of shares of Common Stock in payment of awards under this
Plan may be made either from shares of authorized but unissued Common Stock
reserved for such purpose by the Board of Directors or from shares of authorized
and issued Common Stock reacquired by the Company and held in its treasury, as
from time to time determined by the Committee. Such shares shall be valued on
any date set forth herein (or, if such date is not expressly set forth herein,
on such date or dates as may be determined by the Committee, but not earlier
than five trading days prior to the date for which the determination is being
made) at the mean of the high and low sales prices on the New York Stock
Exchange, as reported on the composite transaction tape, or on such other
exchange as the Committee may determine.
(g) The costs and expenses of administering this Plan shall be borne by the
Company and not charged to any award nor to any employee or Participant
receiving an award. However, the Company may charge the cost of any awards made
to employees of Participating Subsidiaries, including administrative costs and
expenses related thereto, to the respective Participating Subsidiaries by which
such persons are employed.
(h) In addition to terms defined elsewhere herein, the following terms as
used in this Plan shall have the following meanings:
"Act" shall mean the Securities Exchange Act of 1934 as amended from
time to time.
"Change in Control" shall mean the first to occur of any one of the
events described below:
(i) Stock Acquisition. Any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Act), other than the Company or a
corporation, a majority of whose outstanding stock entitled to vote is
owned, directly or indirectly, by the Company, or a trustee of an
employee benefit plan sponsored solely by the Company and/or such a
corporation, is or becomes, other than by purchase from the Company or
such a corporation, the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding voting securities. Such a Change in Control
shall be deemed to have occurred on the first to occur of the date
securities are first purchased by a tender or exchange offeror, the
date on which the Company first learns of acquisition of 20% of such
securities, or the later of the effective date of an agreement for the
merger, consolidation or other reorganization of the Company or the
date of approval thereof by a majority of the Company's shareholders,
as the case may be.
-6-
7
(ii) Change in Board. During any period of two consecutive years,
individuals who at the beginning of such period were members of the
Board of Directors cease for any reason to constitute at least a
majority of the Board of Directors, unless the election or nomination
for election by the Company's shareholders of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period. Such a
Change in Control shall be deemed to have occurred on the date upon
which the requisite majority of directors fails to be elected by the
shareholders of the Company.
(iii) Other Events. Any other event or series of events which, not
withstanding any other provision of this definition, is determined, by
a majority of the outside members of the Board of Directors of the
Company serving in office at the time such event or events occur, to
constitute a change in control of the Company for purposes of this
Plan. Such a Change in Control shall be deemed to have occurred on the
date of such determination or on such other date as such majority of
outside members of the Board shall specify.
"Designated Beneficiary" shall mean the person or persons last
designated as such by the Participant on a form filed by him or her with the
Committee in accordance with such procedures as the Committee shall approve,
provided, however, that in the absence of the filing of such a form with the
Company the Designated Beneficiary shall be the person or persons who are the
Participant's beneficiary or beneficiaries of the Company's basic life
insurance.
"Disability" shall mean permanent and total disability of an employee
participating in the Plan as determined by the Committee in accordance with
uniform principles consistently applied, upon the basis of such evidence as the
Committee deems necessary and desirable.
"Fiscal Year" shall mean the twelve-month period used as the annual
accounting period by the Company.
"Participant" shall mean, as to any award granted under this Plan and
for so long as such award is outstanding, the employee to whom such award has
been granted.
"Participating Subsidiary" shall mean any Subsidiary designated by the
Committee to participate in this Plan which Subsidiary requests or accepts, by
action of its board of directors or other appropriate authority, such
designation.
"Retirement' shall mean separating from service with the Company or a
Subsidiary with the right to begin receiving immediate pension benefits under
the Company's Pension Plan for Salaried Employees or under another defined
benefit pension plan sponsored or otherwise maintained by a Subsidiary for its
employees, in either case as then in effect or, in the absence of the Pension
Plan or such other pension plan being applicable to any Participant, as
determined by the Committee in its sole discretion.
-7-
8
"Subsidiary" shall mean any domestic or foreign corporation,
partnership, association, joint stock company, trust or unincorporated
organization affiliated with the Company whether or not controlling, controlled
by or under common control with the Company.
9. AMENDMENTS AND TERMINATION
The Committee may at any time terminate or from time to time amend or
suspend this Plan in whole or in part; provided, however, that no such amendment
shall, without the consent of the Participant to whom an award has already been
granted hereunder, operate to annul such award.
Unless approved by a vote of a majority of the shares present and
entitled to be voted at a meeting of shareholders, no amendment shall be
effective to increase the maximum amount which may be awarded to any individual
for the same Fiscal Year, except as otherwise provided in paragraph 7.
10. EFFECTIVE DATE, PAST AMENDMENTS AND TERM OF THE PLAN
This Plan, previously denominated the "Air Products and Chemicals, Inc.
1979 Incentive Compensation Plan", became effective for the Fiscal Year
commencing on October 1, 1978 for awards to be made for years to and including
Fiscal Year 1983, following approval by a majority of those present at the
January 19, 1978 annual meeting of shareholders of the Company and entitled to
vote thereon. The Plan was thereafter amended as permitted by its terms
effective October 1, 1982 by action of the Board of Directors.
The Plan, as amended effective October 1, 1983, was continued in effect
indefinitely until terminated, amended or suspended as permitted under paragraph
9 following approval by the holders of a majority of the outstanding shares of
Common Stock of the Company at the January 26, 1984 annual meeting of
shareholders of the Company. The Plan was thereafter amended as permitted by its
terms effective March 1, 1986, October 1, 1986, July 15, 1987 and October 1,
1989 by action of the Committee. The Plan was renamed the 1990 Annual Incentive
Plan and restated effective as of October 1, 1989. The Plan, as set forth
herein, was renamed the 1997 Annual Incentive Plan, amended and restated
effective as of October 1, 1996.
-8-
1
Exhibit 10.4(f)
AIR PRODUCTS AND CHEMICALS, INC.
SUPPLEMENTARY PENSION PLAN
AND PRIVATE ANNUITY AGREEMENTS
AMENDMENT NO. 4
to the
AMENDED AND RESTATED TRUST AGREEMENT
This Amendment No. 4 is made and entered into as of the 1st day of May,
1997, by and between Air Products and Chemicals, Inc. (the "Company") and PNC
Bank, N.A. (previously Provident National Bank) (the "Trustee"). Capitalized
terms not defined herein are defined in Article V of the Trust Agreement, as
such term is defined below.
WHEREAS, the Company and the Trustee entered into a Trust Agreement dated
December 1, 1987, which agreement was amended as of June 14, 1989; and
WHEREAS, the Company and the Trustee, with the consent of the Participant
Representatives, entered into (a) an Amended and Restated Trust Agreement as of
October 31, 1989 which reflected, among other things, the delivery to the
Trustee of a replacement Letter of Credit upon the expiration of the initial
Letter of Credit, and (b) Amendment Nos. 1, 2 and 3 to the Amended and Restated
Trust Agreement as of April 25, 1991, April 30, 1993 and May 1, 1995,
respectively, (such Amended and Restated Trust Agreement as so amended being
referred to herein as the "Trust Agreement"), which Amendments No. 1, 2 and 3
reflected, among other things, the delivery to the Trustee of amendments to the
Letter of Credit extending the term and changing the amount of the Letter of
Credit; and
WHEREAS, in view of the fact that the Letter of Credit will expire on May
18, 1997, the Company and the Trustee have determined to amend again, with the
consent of the Participant Representatives, Subsection 1.01(a) of the Trust
Agreement to reflect the delivery to the Trustee of an amendment to the Letter
of Credit currently held by the Trustee;
2
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the parties hereto, intending to
be legally bound, agree as follows:
The first paragraph of Section 1.01(a) of the Trust Agreement shall be
amended to read in its entirety as follows:
Initial Establishment of the Trust and Funding of Trust Amount. The
Company has established with the Trustee a trust (the "Trust") consisting
of such sums of money and/or assets as from time to time shall be paid or
delivered to the Trustee (less such amounts distributed from the Trust
pursuant to Sections 2.02, 2.03, 2.05 and 4.02 hereof or otherwise
pursuant to the terms of this Trust Agreement), in whatever form held or
invested as provided herein (the "Trust Fund"). The Company, concurrently
with the establishment of the Trust, delivered to the Trustee to be held
in the Trust $100.00 in cash and a "Letter of Credit", as defined in
Article V hereof, in the amount of twenty-nine million dollars
($29,000,000.00). As of October 31, 1989, the Company delivered to the
Trustee a replacement Letter of Credit in the amount of thirty-five
million dollars ($35,000,000.00). The Company subsequently delivered to
the Trustee amendments dated April 18, 1991 and April 25, 1991 to the
Letter of Credit, which respectively extended the term of the Letter of
Credit and decreased the amount of the Letter of Credit to thirty million
dollars ($30,000,000.00). The Company subsequently delivered to the
Trustee an amendment to the Letter of Credit dated April 30, 1993 which,
among other things, extended the term of the Letter of Credit and
increased the amount of the Letter of Credit to thirty-four million
dollars ($34,000,000.00); an amendment to the Letter of Credit dated May
1, 1995 which, among other things, extended the term of the Letter of
Credit and increased the amount of the Letter of Credit to forty million
dollars ($40,000,000.00); and an amendment to the Letter of Credit dated
May 1, 1996 which increased the amount of the Letter of Credit to
forty-four million dollars ($44,000,000.00). The Company has delivered to
the Trustee an amendment to the Letter of Credit dated May 1, 1997 which,
among other things, extends the term of the Letter of Credit and increases
3
the amount of the Letter of Credit to fifty-five million dollars
($55,000,000.00) during the extended term thereof (the "Trust Amount"). It
is further contemplated that the Company may deliver another amendment to
the Letter of Credit which would increase the amount of the Letter of
Credit to sixty million dollars ($60,000,000.00) during the second year of
the extended term thereof (the "Trust Amount" if and when so increased).
IN WITNESS WHEREOF, the parties have executed this AMENDMENT NO. 4 TO THE
TRUST AGREEMENT as of the date set forth above.
AIR PRODUCTS AND CHEMICALS, INC.
Attest:
By: /s/ J. P. McAndrew
------------------------------
J. P. McAndrew
Vice President - Human Resources
/s/ Karen G. Wright
- ------------------------------
Assistant Secretary
PNC BANK, N.A.
Attest:
By: /s/ Peter M. Van Dine
------------------------------
Peter M. Van Dine
Vice President
/s/ Ralph H. Hood
- ------------------------------
4
IN WITNESS WHEREOF, the undersigned Participant Representatives, effective
as of the 1st day of May, 1997, have executed this Amendment No. 4 to the Trust
Agreement in evidence of their consent to the amendments made thereto which are
set forth above.
/s/ J. H. Agger
-----------------------------------
J. H. Agger
Participant Representative
/s/ L. J. Daley
-----------------------------------
L. J. Daley
Participant Representative
/s/ A. H. Kaplan
-----------------------------------
A. H. Kaplan
Participant Representative
/s/ J. P. McAndrew
-----------------------------------
J. P. McAndrew
Participant Representative
1
Exhibit 10.5(c)
AIR PRODUCTS AND CHEMICALS, INC.
SUPPLEMENTARY SAVINGS PLAN
AMENDMENT NO. 4
to the
TRUST AGREEMENT
This Amendment No. 4 is made and entered into as of the 1st day of May,
1997, by and between Air Products and Chemicals, Inc. (the "Company") and PNC
Bank, N.A. (previously Provident National Bank) (the "Trustee"). Capitalized
terms not defined herein are defined in Article V of the Trust Agreement as such
term is defined below.
WHEREAS, the Company and the Trustee entered into a Trust Agreement
dated October 31, 1989 and, with the consent of the Participant Representatives,
entered into Amendment Nos. 1, 2 and 3 to the Trust Agreement as of April 25,
1991, April 30, 1993 and May 1, 1995 (such Trust Agreement as so amended being
referred to herein as the "Trust Agreement"), which Amendment Nos. 1, 2 and 3
reflected, among other things, the delivery to the Trustee of amendments to the
Letter of Credit extending the term and changing the amount of the Letter of
Credit;
WHEREAS, in view of the fact that the Letter of Credit will expire on
May 18, 1997, the Company and the Trustee have determined to amend again, with
the consent of the Participant Representatives, Subsection 1.01(a) of the Trust
Agreement to reflect the delivery to the Trustee of an amendment to the Letter
of Credit currently held by the Trustee;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the parties hereto,
intending to be legally bound, agree as follows:
2
The first paragraph of Section 1.01(a) of the Trust Agreement shall be
amended to read in its entirety as follows:
Initial Establishment of the Trust and Funding of Trust
Amount. The Company has established with the Trustee a trust (the
"Trust") consisting of such sums of money and/or assets as from time to
time shall be paid or delivered to the Trustee (less such amounts
distributed from the Trust pursuant to Sections 2.02, 2.03, 2.05 and
4.02 hereof or otherwise pursuant to the terms of this Trust
Agreement), in whatever form held or invested as provided herein (the
"Trust Fund"). The Company, concurrently with the establishment of the
Trust, delivered to the Trustee to be held in the Trust $100.00 in cash
and a "Letter of Credit", as defined in Article V hereof, in the amount
of four million dollars ($4,000,000.00). The Company delivered to the
Trustee amendments dated April 18, 1991 and April 25, 1991 to the
Letter of Credit, which respectively extended the term of the Letter of
Credit and increased the amount of the Letter of Credit to four million
five hundred thousand dollars ($4,500,000.00). The Company subsequently
delivered to the Trustee an amendment to the Letter of Credit dated
April 30, 1993 which, among other things, extended the term of the
Letter of Credit and increased the amount of the Letter of Credit to
six million dollars ($6,000,000.00); an amendment to the Letter of
Credit dated May 1, 1995 which, among other things, extended the term
of the Letter of Credit and changed the amount of the Letter of Credit
to five million seven hundred and fifty thousand dollars
($5,750,000.00); and an amendment to the Letter of Credit dated May 1,
1996 which increased the amount of the Letter of Credit to six million
two hundred and fifty thousand dollars ($6,250,000.00). The Company has
delivered to the Trustee an amendment to the Letter of
3
Credit dated May 1, 1997 which, among other things, extends the term of
the Letter of Credit and changes the amount of the Letter of Credit to
six million dollars ($6,000,000.00) during the extended term thereof
(the "Trust Amount"). It is further contemplated that the Company may
deliver another amendment to the Letter of Credit which would increase
the amount of the Letter of Credit to six million five hundred thousand
dollars ($6,500,000.00) during the second year of the extended term
thereof (the "Trust Amount" if and when so increased).
IN WITNESS WHEREOF, the parties have executed this AMENDMENT NO. 4 TO
THE TRUST AGREEMENT as of the date set forth above.
AIR PRODUCTS AND CHEMICALS, INC.
Attest:
By: /s/ J. P. McAndrew
------------------------------------
J. P. McAndrew
Vice President - Human Resources
/s/ Karen G. Wright
- ------------------------------
Assistant Secretary
PNC BANK, N.A.
Attest:
By: /s/ Peter M. Van Dine
------------------------------------
Peter M. Van Dine
Vice President
/s/ Ralph H. Hood
- ------------------------------
4
IN WITNESS WHEREOF, the undersigned Participant Representatives,
effective as of the 1st day of May, 1997, have executed this Amendment No. 4 to
the Trust Agreement in evidence of their consent to the amendments made thereto
which are set forth above.
/s/ J. H. Agger
-----------------------------------
J. H. Agger
Participant Representative
/s/ L. J. Daley
-----------------------------------
L. J. Daley
Participant Representative
/s/ A. H. Kaplan
-----------------------------------
A. H. Kaplan
Participant Representative
/s/ J. P. McAndrew
-----------------------------------
J. P. McAndrew
Participant Representative
1
Exhibit 10.6(c)
AIR PRODUCTS AND CHEMICALS, INC.
STOCK OPTION PLAN FOR DIRECTORS ( THE "PLAN")
1. PURPOSES OF THE PLAN
The purposes of this Plan are (i) to assist Air Products and Chemicals,
Inc. (the "Company") in attracting and retaining individuals of superior talent,
experience, and achievement as directors of the Company and (ii) to associate
more closely the interests of such directors with those of the Company's
shareholders by encouraging and enabling directors to acquire a financial
interest in the Company through ownership in equity securities of the Company.
Certain capitalized terms used herein have the meanings set forth in Section
6(i) hereof.
2. ELIGIBILITY
Participation in the Plan is limited to directors of the Company who
have not ever been employees of the Company or any of its subsidiaries or their
respective predecessors.
3. AWARDS
One thousand (1,000) stock options ("Options" or "Stock Options") shall
automatically be granted to each eligible director who is serving as a director
of the Company immediately following the 1994 annual organizational meeting of
the Board of Directors and immediately following each annual organizational
meeting of the Board of Directors thereafter. Each such director shall receive
an option agreement dated as of the date of each such organizational meeting of
the Board of Directors, which shall be the date of grant of each such award,
evidencing the automatic annual award of such Stock Options pursuant to this
Plan. Stock Options are rights to purchase shares of common stock of the
Company, par value $1.00 ("Common Stock").
- --------------------
(*) Adopted by Board resolution on 21 October 1993; effective 27 January 1994.
2
Exhibit 10.6(c)
All Stock Options granted under the Plan shall be granted on the
following terms and conditions:
(a) Price. The purchase price per share of Common Stock covered by
each Stock Option shall be 100% of the Fair Market Value of a
share of Common Stock on the date of grant of such Option.
(b) Term and Exercisability. Stock Options shall become exercisable
six (6) months from date of grant, and shall remain exercisable
until the earlier of:
(i) ten (10) years and one (1) day from the date of grant, and
(ii) the date as of which the director ceases to serve as a
member of the Board of Directors.
Notwithstanding the foregoing, the director (in the case he or
she ceases to serve on the Board of Directors of the Company by
reason of retirement or disability) or, the director's
Designated Beneficiary or, if none, his or her legal
representative (in the case of the director's death before or
after retirement or disability), shall continue to have the same
rights to exercise any unexercised portion of the director's
Stock Option which is exercisable at the time of such
termination or death, as the director would have had if he or
she had continued to be an active director of the Company.
(c) Exercise. A director wishing to exercise his or her Stock
Option, in whole or in part, shall give written notice of such
exercise to the Company, accompanied by full payment of the
purchase price. The date of receipt of such notice and payment
shall be the "Exercise Date" for such Stock Option or portion
thereof.
(d) Payment. The purchase price of shares of Common Stock purchased
upon exercise of any Stock Option shall be paid in full in cash
at the time of exercise of the Option.
4. DILUTION ADJUSTMENTS
Notwithstanding any other provision of the Plan, in the event of any
change in the outstanding shares of Common Stock by reason of any stock dividend
or split, recapitalization, merger, consolidation, combination or exchange of
shares or other similar corporate change, an equitable adjustment shall be made,
as determined by the Board of Directors (but subject to the first paragraph of
Section 6), in (i) the kind of shares subject to Options under the Plan, (ii)
the number or kind of shares
3
Exhibit 10.6(c)
or purchase price per share subject to outstanding Stock Options, (iii) any
other aspect or aspects of the Plan or outstanding awards made thereunder as
specified by the Board of Directors, or (iv) any combination of the foregoing,
as shall be necessary to maintain the proportionate interest of the optionees
and to preserve, without increasing, the value of outstanding awards. Such
adjustments shall be made by the Board of Directors and shall be conclusive and
binding for all purposes of the Plan.
5. MISCELLANEOUS PROVISIONS
(a) The holder of a Stock Option shall have no rights as a Company
shareholder with respect thereto unless, and until the date as
of which, certificates for shares of Common Stock are issued
upon exercise or payment in respect of such award.
(b) No Stock Option or any rights or interests therein of the
recipient thereof shall be assignable or transferable by such
recipient except to his or her Designated Beneficiary or by will
or the laws of descent and distribution. During the lifetime of
the recipient, the Stock Option shall be exercisable only by, or
payable only to, as the case may be, such recipient or his or
her guardian or legal representative.
(c) All Stock Options granted under the Plan shall be evidenced by
agreements in such form and containing and/or incorporating such
terms and conditions as are set forth in this Plan.
(d) No shares of Common Stock shall be issued, delivered or
transferred upon exercise of any Stock Options granted hereunder
unless and until all legal requirements applicable to the
issuance, delivery or transfer of such shares have been complied
with including, without limitation, compliance with the
provisions of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the applicable
requirements of the exchanges on which the Company's Common
Stock may, at the time, be listed.
(e) The Company shall require, as a condition of delivery of shares
of Common Stock upon the exercise of a Stock Option, that the
director or other person receiving such Common Stock pay to the
Company at the time of distribution thereof the amount of any
taxes which the Company is required to withhold with respect to
such exercise. The obligation of the Company to make delivery of
Common Stock shall be subject to currency or other restrictions
imposed by any government.
4
Exhibit 10.6(c)
(f) Distributions of shares of Common Stock upon exercise, in
payment or in respect of awards made under this Plan, may be
made either from shares of authorized but unissued Common Stock
reserved for such purpose by the Board of Directors or from
shares of authorized and issued Common Stock reacquired by the
Company and held in its treasury, as from time to time
determined by the Board of Directors.
(g) The costs and expenses of administering this Plan shall be borne
by the Company and not charged to any award nor to any director
receiving an award.
(h) This Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any award under
this Plan and payment of awards shall be subordinate to the
claims of the Company's general creditors.
(i) In addition to the terms defined elsewhere herein, the following
terms as used in this Plan shall have the following meanings:
"Designated Beneficiary" shall mean the person or persons last
designated as such by the Participant on a form filed by him or
her with the Company.
"Fair Market Value" of a share of Common Stock of the Company on
any date set forth herein shall mean an amount equal to the mean
of the high and low sale prices on the New York Stock Exchange,
as reported on the composite transaction tape, for such date.
"Retirement" shall mean (i) resigning from serving as a
director, failing to stand for re-election as a director or
failing to be re-elected as a director after being duly
nominated, and (ii) in any such case having the right to
immediate or deferred pension benefits under the Company's
Pension Plan for Directors as then in effect or, in the absence
of such Pension Plan or another pension plan being applicable to
any director, after at least six (6) full years of service as a
director of the Company. More than six (6) months' service
during any twelve (12) month period after a director's first
election by the shareholders to the Board shall be considered as
a full year's service for this purpose.
5
Exhibit 10.6(c)
(j) Notices. All notices to the Company under this Plan shall be in
writing and shall be given as follows:
Corporate Secretary
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
(k) Governing Law. This Plan shall be governed by the laws of the
Commonwealth of Pennsylvania and shall be construed for all
purposes in accordance with the laws of said Commonwealth except
as may be required by the General Corporation Law of Delaware or
by applicable federal law.
6. AMENDMENT AND DISCONTINUANCE; NO DISCRETION
The Board of Directors of the Company may amend or modify this Plan;
provided, however, that no amendment may affect a director's rights under any
award of Stock Options under this Plan made prior to such amendment without such
director's consent; this Section 6 may not be amended; and amendments to
Sections 3 and 4 above may be made no more frequently than every six (6) months
(other than to comport with changes in the Internal Revenue Code or the rules
thereunder). The Board of Directors of the Company may suspend or discontinue
this Plan in whole or in part at any time, but any such suspension or
discontinuance shall not affect awards of Stock Options granted under this Plan
prior thereto.
No discretion concerning decisions regarding this Plan or its
administration shall be afforded to a person who is not a "disinterested person"
within the meaning of Rule 16b-3 promulgated under the Act, and awards granted
under this Plan are not subject to the discretion of any person.
6
NOTICE OF
EXERCISE OF STOCK OPTION
GRANTED UNDER THE AIR PRODUCTS AND CHEMICALS, INC. (THE "COMPANY")
STOCK OPTION PLAN FOR DIRECTORS (THE "PLAN")
To: The Corporate Secretary
Air Products and Chemicals, Inc.
On ______________________ the Company granted me an option under the Plan to
purchase shares of its Common Stock at a price of $____________ per share.
I hereby give notice of exercise of my option to purchase ________ of such
shares by payment to the Company of $_____________, the aggregate option
exercise price for such shares. My payment is made by a CHECK enclosed herewith
and/or WIRE TRANSFER of immediately available funds payable to the Company.
DELIVERY INSTRUCTIONS
Please register the shares in the following manner: Delivery Instructions:
Director's Name _____________________________ _________________________________
Address _____________________________ _________________________________
_____________________________ _________________________________
_____________________________ _________________________________
Soc Sec #_____________________________
___________________________________ Acknowledgment and Receipt of
Signature of Director Completed Option Exercise Notice
Form and Payment of Option
Exercise Price:
__________________________________
Corporate Secretary's Office
__________________________________
Exercise Date
1
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Millions of dollars, except per share)
Year Ended 30 September
-------------------------------------------------------
1997 1996 1995
---------------- ------------- ----------
Earnings
Income before cumulative effect of accounting
changes $429 $416 $368
Cumulative effect of accounting changes -- -- --
Net income --------------- ------------- ----------
$429 $416 $368
=============== ============= ==========
Primary shares
Average common shares outstanding during the year 110 112 112
Common stock equivalents from stock option
and award plans 2 2 2
--------------- ------------- ----------
Adjusted average common shares outstanding 112 114 114
=============== ============= ==========
Primary earnings per share
Income before cumulative effect of accounting
changes $3.81 $3.67 $3.23
Cumulative effect of accounting changes -- -- --
-------------- ------------- ----------
Net income $3.81 $3.67 $3.23
============== ============= ==========
Fully diluted shares
Average common shares outstanding during the year 110 112 112
Shares issuable from stock option and award plans 2 2 2
--------------- ------------- ----------
Adjusted average common shares outstanding 112 114 114
=============== ============= ==========
Fully diluted earnings per share
Income before cumulative effect of accounting
changes $3.81 $3.67 $3.23
Cumulative effect of accounting changes -- -- --
Net income --------------- ------------- ----------
$3.81 $3.67 $3.23
=============== ============= ===========
Note: The above calculations are submitted in accordance with Regulation
S-K Item 601(b)(11) although not required by Footnote 2 to Paragraph
14 of APB Opinion No. 15 because the dilution of earnings per share
is less than 3%.
1
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
Year Ended 30 September
--------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(Millions of dollars)
EARNINGS:
Income before extraordinary item and
the cumulative effect of accounting
changes: $200.9 $233.5 $368.2 $416.4 $429.3
Add (deduct):
Provision for income taxes 103.0 95.2 186.2 195.5 203.4
Fixed charges, excluding capitalized
interest 127.3 127.1 148.8 184.0 233.0
Capitalized interest amortized during
the period 7.7 8.0 9.1 9.4 8.3
Undistributed earnings of less-than-
fifty-percent-owned affiliates (8.1) (2.8) (25.4) (40.6) (31.1)
------ ------ ------ ------ ------
Earnings, as adjusted $430.8 $461.0 $686.9 $764.7 $842.9
====== ====== ====== ====== ======
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $118.6 $118.2 $139.4 $171.7 $217.8
Capitalized interest 6.3 9.7 18.5 20.0 20.9
Amortization of debt discount
premium and expense .7 .8 .2 1.5 1.8
Portion of rents under operating leases
representative of the interest factor 8.0 8.1 9.2 10.8 13.4
------ ------ ------ ------ ------
Fixed charges $133.6 $136.8 $167.3 $204.0 $253.9
====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES: 3.2 3.4 4.1 3.7 3.3
====== ====== ====== ====== ======
1
EXHIBIT 13
1997 FINANCIAL REVIEW
Management's Discussion
and Analysis
2
Company Responsibility for
Financial Statements
9
Report of Independent Public
Accountants
9
Consolidated Income
10
Consolidated Balance Sheets
11
Consolidated Cash Flows
12
Consolidated Shareholders' Equity
13
Notes to Consolidated Financial
Statements
14
Eleven-Year Summary of Selected
Financial Data
32
Major Factors Affecting Earnings*
Major factors affecting comparison of earnings per share between 1997 and 1996
were:
- - Higher volumes in most product lines
- - Impact of Carburos acquisition for most of year
- - Broad-based productivity gains
- - Unfavorable impact of stronger U.S. dollar
- - Higher interest expense
- - Prior-year results included favorable settlement
of 1994 derivative loss ($.36 per share)
Changes in Earnings per Share*
Increase
1997 1996 (Decrease)
- ---------------------------------------------------------------
Earnings per share.......... $3.90 $3.73 $.17
Less: Derivative settlement. -- .36 (.36)
- ---------------------------------------------------------------
$3.90 $3.37 $.53
- ---------------------------------------------------------------
Industrial Gases and Chemicals
Carburos ownership increase(a) $ .10
Volume ....................... 1.19
Selling price and mix ........ .32
Costs excluding depreciation . (.86)
Depreciation ................. (.20)
Currency- and exchange-related(b) (.19)
Equipment and Services(c) ....... .02
Corporate and Other(c) .......... .11
Equity affiliates' income(d) .... .06
Interest expense(d) ............. (.09)
Tax items ....................... .01
Lower average shares outstanding .06
- ------------------------------------------------
Total ......................... $ .53
- ------------------------------------------------
(a) Net of 100% interest expense on acquisition price
(b) Currency and exchange impact on operating income and equity affiliates
(c) Excluding currency-related items and equity affiliates' income
(d) Excludes impact of Carburos
*See Management's Discussion and Analysis for further information.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Consolidated
(Millions of dollars, except per share) 1997 1996 1995
- ---------------------------------------------------------------------------------------
Sales ................................. $4,637.8 $4,007.7 $3,865.3
Operating income ...................... 725.4 591.3 601.9
Equity affiliates' income ............. 66.3 80.7 51.2
Net income ............................ 429.3 416.4 368.2
Earnings per share .................... 3.90 3.73 3.29
- ---------------------------------------------------------------------------------------
Fiscal 1996 results include a $66.8 million gain ($40.7 million after tax, or
$.36 per share) from the settlement with Bankers Trust Company over losses
reported in fiscal 1994 associated with leveraged interest rate swap contracts.
The settlement included the termination of two previously closed contracts with
Bankers Trust. Prior to the settlement, there was an outstanding liability of
$61.7 million associated with these closed contracts.
The company achieved record sales, net income, and earnings per share in fiscal
1997. Sales of $4,637.8 million in fiscal 1997 were 16% above the 1996 level of
$4,007.7 million. Year-to-year operating income grew $134.1 million, or 23%, to
$725.4 million. Equity affiliates' income declined $14.4 million to $66.3
million. Net income of $429.3 million increased $12.9 million, or 3% over the
prior year. Excluding the 1996 derivative settlement gain, net income rose $53.6
million, a 14% increase. The resulting earnings per share were $3.90, a $.53
increase, or 16%. The record earnings per share were obtained in spite of an
unfavorable year-to-year currency impact of $.19.
In October 1996, the company increased ownership in Carburos Metalicos S.A.
(Carburos) from 47.6% to 96.7%. As a result of this increase in ownership,
Carburos has been included in the consolidated results for all but the first
seven weeks of the current year. Previously, the company accounted for its
investment using the equity method. See Note 17 to the consolidated financial
statements.
Sales increased primarily due to higher volumes in most businesses and the
inclusion of Carburos in the industrial gases segment for most of the year.
Volume growth coupled with broad-based productivity gains generated the 23%
improvement in operating income. Equity affiliates' income included favorable
results in power generation and several gases affiliates. However, overall
affiliates' income declined due to the movement of Carburos to consolidated
results and the impact of the economic turmoil in Southeast Asia.
In fiscal 1996, total sales of $4,007.7 million were 4% greater than the fiscal
1995 level of $3,865.3 million. Year-to-year operating income declined slightly.
Improved operating income results in the chemicals and equipment segments were
offset by a decline in the gases segment. Total equity affiliates' income rose
$29.5 million to $80.7 million. Equity affiliates' income doubled to $44.0
million in the gases segment. Affiliates' income also included higher results
from American Ref-Fuel. Net income increased $48.2 million, or $.44 per share.
Excluding the derivative settlement, in fiscal 1996, net income of $375.7
million, or $3.37 per share, was up 2%.
Segment Analysis
A description of the products and services and markets for each of the three
business segments is included in Note 20 to the consolidated financial
statements.
The segment results for fiscal 1996 and 1995 have been restated. The business to
be divested (American Ref-Fuel) and the landfill gas recovery business sold in
November 1996 are included in the corporate and other segment, while the
continuing businesses from the former environmental and energy segment (power
generation and Pure Air(TM)) are now included in the equipment and services
segment.
Industrial Gases
(Millions of dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------------
Sales ................................. $2,673.9 $2,310.5 $2,177.5
Operating income ...................... 515.2 406.7 445.7
Equity affiliates' income.............. 28.5 44.0 22.1
- ---------------------------------------------------------------------------------------
Sales during fiscal 1997 increased 16% to $2,673.9 million, while operating
income of $515.2 million was up $108.5 million, or 27% over fiscal 1996.
Currency effects reduced sales and operating income growth by approximately 2%.
The consolidation of Carburos, a leading supplier of industrial gases in Spain,
contributed approximately two-thirds of the sales growth and approximately half
of the operating income improvement for this segment. Previously, the company
accounted for its investment using the equity method.
Merchant volumes in both the domestic and European regions were 5% above the
prior year. Merchant pricing was flat in both regions year-on-year. Worldwide
tonnage gases grew 8% as a result of continued loading of recent investments,
particularly hydrogen and carbon monoxide (HYCO) facilities. Additionally,
higher operating income was driven by productivity gains in the domestic gases
business. Worldwide gases margins improved to 19.3%, a 1.7% increase over 17.6%
in fiscal 1996.
3
Equity affiliates' income for fiscal 1997 decreased $15.5 million from the prior
year to $28.5 million. This decline was due to the movement of Carburos into
consolidated results, higher infrastructure costs attributed to worldwide
expansion, and economic turmoil in Southeast Asia resulting in weaker Asian
currencies and a customer bankruptcy.
Sales during fiscal 1996 grew 6% to $2,310.5 million. The sales increase over
the prior year was attributed to 3% higher worldwide merchant gas volumes and a
10% tonnage gases volume increase in the United States, due principally to
increases in the HYCO facilities. Worldwide merchant gas prices were up
approximately 2%. There was no material impact from currency changes.
Total operating income declined $39.0 million, to $406.7 million in fiscal 1996.
Excluding a $10.8 million gain on the sale of an idle plant in fiscal 1995,
operating income declined $28.2 million, resulting in the gases segment margin
decline to 17.6% in fiscal 1996 from 20.0% in 1995. Both margins and operating
income were adversely affected by an unusual clustering of major contract
terminations and revisions in the United States. Lower prices and higher costs
in Northern Europe also contributed to lower margins. The company brought
significant new investments onstream in 1996, particularly in the expanding HYCO
businesses. Margins were unfavorably impacted as these facilities began to load.
Currency effects on operating income were immaterial.
Equity affiliates' income for 1996 was $44.0 million compared to $22.1 million
in the prior year. Strong operating performances from joint ventures in Spain,
Asia, and Mexico contributed to these higher results. Additionally, income
increased $6.5 million due to the higher ownership level of the Carburos
investment.
Chemicals
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------
Sales ................... $1,448.1 $1,362.3 $1,358.8
Operating income ........ 204.2 197.5 192.4
Equity affiliates' income .4 .3 .5
- ------------------------------------------------------------------------
Sales in 1997 increased $85.8 million to $1,448.1 million, while operating
income increased $6.7 million to $204.2 million. Excluding a $9.3 million asset
impairment loss in the release agents business (sold in second quarter of fiscal
1997), operating income rose 8% to $213.5 million. Sales and operating income
increased on broad-based volume gains in most businesses with overall volumes up
5%. Productivity gains also favorably impacted current year operating income.
Currency effects reduced sales growth by 1% and operating income growth by more
than 5% in fiscal 1997.
Sales in 1996 of $1,362.3 million were comparable to 1995 while operating income
of $197.5 million increased $5.1 million. In the second quarter of fiscal 1995,
a portion of the ammonia capacity was shut down and converted to hydrogen
production. The 1995 sales of ammonia were $24.5 million with operating income
of $12.0 million. Excluding the ammonia business, total chemical sales were up
2% in 1996, or $28.0 million, and operating income was up 9%, or $17.1 million.
The sales increase in 1996 was due primarily to the full-year impact of 1995
price increases. Overall volumes were down slightly.
Broad-based margin improvement was the major reason for the $17.1 million
increase in operating income, excluding the ammonia business. Higher selling and
general and administrative costs partially offset the margin improvements.
Currency changes did not have a material impact on operating income.
Equipment and Services
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------
Sales ................... $514.6 $314.6 $309.0
Operating income ........ 37.5 32.7 .3
Equity affiliates' income 13.9 8.5 4.8
- ------------------------------------------------------------------------
Sales of $514.6 million increased $200.0 million over the prior year on higher
sales in most product lines. Operating income increased $4.8 million to $37.5
million due to higher sales in the core equipment business. Sales backlog for
the equipment product line improved slightly to $310 million at 30 September
1997 compared with $306 million at 30 September 1996. The backlog has declined
from the unusually high level of $431 million at 31 December 1996. It is
expected $237 million of the backlog will be completed during fiscal 1998.
Liquid natural gas (LNG) heat exchangers are a significant factor in the high
quality backlog.
Equity affiliates' income increased $5.4 million to $13.9 million in fiscal 1997
due to improved operations driven by lower development spending and higher power
rates in the power generation business.
Fiscal 1996 sales of $314.6 million increased $5.6 million over the prior year
while operating income increased $32.4 million to $32.7 million. The 1996
results reflected a more profitable project mix than in 1995 and a project
buyout in the power generation business.
Equity affiliates' income of $8.5 million increased over the prior year on
improved operating performance and the settlement of a power contract dispute.
Fiscal 1995 results were reduced by weather-related power curtailments and a
planned maintenance outage.
4
CORPORATE AND OTHER This segment includes several components: unallocated
corporate income (expense); foreign exchange gains (losses); the landfill gas
business sold in November of 1996; and equity affiliates' income from American
Ref-Fuel.
In April 1996, the company announced the intention to sell its 50% interest in
American Ref-Fuel, the waste-to-energy joint venture with Browning-Ferris
Industries, Inc. In October 1997, the company entered into an agreement in
principle to sell this interest to Duke Energy Power Services and United
American Energy Corporation. The transaction is expected to close in December
1997. See Note 18 to the consolidated financial statements.
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------
Sales ................... $1.2 $20.3 $20.0
Operating loss .......... (31.5) (45.6) (36.5)
Equity affiliates' income 23.5 27.9 23.8
Sales were down $19.1 million to $1.2 million in fiscal 1997 due to the sale of
the landfill gas recovery business in November 1996. The operating loss was down
$14.1 million for the current year. Current year results include a gain of $9.5
million on the landfill gas business sale and a gain of $7.3 million on the
partial sale of the cost basis Daido Hoxan investment. Excluding these items,
the operating loss increased $2.7 million due to foreign exchange losses offset
by lower operating losses from the divested landfill gas recovery business.
Equity affiliates' income of $23.5 million was down $4.4 million from the prior
fiscal year. During fiscal year 1997, American Ref-Fuel of Hempstead refinanced
its debt which resulted in a $4.8 million reduction in equity affiliates'
income. Excluding the refinancing cost, equity affiliates' income for fiscal
1997 was comparable to the prior year.
The operating loss in fiscal 1996 increased $9.1 million from the prior year
primarily due to a foreign exchange gain in 1995 and higher net corporate
general and administrative costs offset by improved operations in the landfill
gas recovery business.
Equity affiliates' income increased to $27.9 million on improved operating
performance from American Ref-Fuel.
Settlement Gain on Leveraged Interest Rate Swaps
In January 1996, the company reached a settlement with Bankers Trust Company
over the $107.7 million of losses reported in 1994 associated with leveraged
interest rate swap contracts. The $66.8 million settlement gain ($40.7 million
after tax, or $.36 per share) was affected, in part, by the termination of
obligations stemming from two previously closed contracts. Prior to the
settlement, there was an outstanding liability of $61.7 million associated with
the closed contracts.
Interest Expense
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------------
Interest incurred ......... $180.4 $144.7 $118.2
Less: Interest capitalized 19.1 15.5 17.9
- ------------------------------------------------------------------------------
Interest expense .......... $161.3 $129.2 $100.3
- ------------------------------------------------------------------------------
Fiscal 1997 and 1996 interest incurred increased $35.7 million and $26.5
million, respectively, due to debt balances higher than the prior year. Higher
debt balances were due to the capital investment program, the Carburos
acquisition, and the ongoing share repurchase program. This increase was
partially offset by lower interest rates.
Income Taxes
1997 1996 1995
- ------------------------------------------------------------------------------
Effective tax rate 31.9% 31.7% 33.4%
The effective tax rate increased from 31.7% in fiscal 1996 to 31.9% in fiscal
1997. The effective tax rate for 1996 exclusive of the Bankers Trust settlement
was 30.8%. The fiscal 1997 tax rate increased due to lower after-tax equity
affiliates' income. The lower 1996 versus 1995 effective tax rate reflected
higher after-tax equity affiliates' income.
Environmental Matters
The company is subject to various environmental laws and regulations in the
United States and foreign countries where it has operations. Compliance with
these laws and regulations results in higher capital expenditures and costs.
Additionally, from time to time the company is involved in proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act (the
federal Superfund law), similar state laws, and the Resource Conservation and
Recovery Act (RCRA) relating to the designation of certain sites for
investigation and possible cleanup. The company's accounting policies for
environmental expenditures are discussed in Note 1 to the consolidated financial
statements.
The amounts charged to earnings on an after-tax basis related to environmental
protection totaled $25.7 million, $27.1 million, and $27.3 million for 1997,
1996, and 1995, respectively. These amounts represent an estimate of expenses
for compliance with environmental laws, as well as remedial activities, and
costs incurred to meet internal company standards. Such costs are estimated to
be approximately $27 million in 1998 and $29 million in 1999.
5
Although precise amounts are difficult to define, the company estimates that in
fiscal 1997 it spent approximately $8 million on capital projects to control
pollution (including expenditures associated with new plants) versus $11 million
in 1996. Capital expenditures to control pollution in future years are estimated
at $9 million in 1998 and $8 million in 1999.
It is the company's policy to accrue environmental investigatory and noncapital
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The potential
exposure for such costs is estimated to range from $17 million to a reasonably
possible upper exposure of $39 million. The balance sheet at 30 September 1997
included an accrual of $33.3 million and a receivable balance of $.5 million
related to third-party recoveries. At 30 September 1996, the balance sheet
accrual was $32.1 million and the receivable balance was $.6 million.
In addition to the environmental exposures discussed in the preceding paragraph,
there will be spending at a company-owned manufacturing site where the company
is undertaking RCRA corrective action remediation. The company estimates capital
costs to implement the anticipated remedial program will range from $26 - $33
million. Spending was $1.4 million in fiscal 1997 and is estimated at $9 million
for fiscal 1998 and $8 million for fiscal 1999. Operating and maintenance
expenses associated with continuing the remedial program were minimal in fiscal
1997 and are estimated at $1 million a year beginning in fiscal 1998 and will
continue for an estimated period of up to 30 years. A former owner and operator
at the site has agreed to reimburse the company 20% of the costs incurred in the
remediation. The cost estimates have not been reduced by the value of such
reimbursement, which the company believes is probable of realization.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs,
the company does not expect that any sum it may have to pay in connection with
environmental matters in excess of the amounts recorded or disclosed above would
have a materially adverse effect on its financial condition or results of
operations in any one year.
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1).
This statement provides guidance in applying existing accounting literature to
calculating, recording, and disclosing environmental remediation liabilities.
The company is required to adopt SOP 96-1 no later than fiscal 1998 and expects
this new statement to have minimal impact on the financial statements.
Liquidity, Capital Resources, and Other Financial Data
Air Products maintained its sound financial condition throughout 1997. Strong
cash flow from operations, supplemented with proceeds from debt financings,
provided funding for the company's capital spending and share repurchase
programs. Cash flow from operations and financing will meet liquidity needs for
the foreseeable future. The company's senior debt and commercial paper continue
to be rated A/A2 and A-1/P-1, respectively.
CAPITAL EXPENDITURES Capital expenditures in 1997 totaled $1,221.6 million, an
increase of 5% over the 1996 level. Additions to plant and equipment were
largely in support of worldwide expansion of the industrial gas business.
Acquisitions in 1997 included $288.4 million (49.1% share ownership) for the
third stage of the acquisition of Carburos Metalicos. Investments in
unconsolidated affiliates in 1996 included an equity investment of $120.0
million (21.5% share ownership) in Carburos, the second stage of the acquisition
process.
(Millions of dollars) 1997 1996 1995
- ------------------------------------------------------------------------------
Additions to plant and
equipment ................. $ 870.2 $ 951.3 $870.3
Investments in and advances to
unconsolidated affiliates . 47.2 197.2 29.1
Acquisitions ................. 301.2 11.6 64.9
Capital leases ............... 3.0 4.7 5.2
- ------------------------------------------------------------------------------
Total ........................ $1,221.6 $1,164.8 $969.5
- ------------------------------------------------------------------------------
Capital expenditures are expected to be approximately $1.2 billion in fiscal
1998. It is anticipated these expenditures will be funded with cash from
operations supplemented with proceeds from financing activities.
FINANCING AND CAPITAL STRUCTURE Capital needs in 1997 were satisfied with cash
from operations supplemented with additional borrowings. Total debt increased
$273.2 million to $2,468.1 million at 30 September 1997. At year end, total debt
as a percentage of debt plus equity was 48% as compared to 46% at the end of
1996.
Financing activities during 1997, principally in the United States, included the
public issuance of $314.0 million of notes with maturities ranging from three to
ten years and fixed coupon rates from 6.01% to 6.86% or variable rates
referenced to LIBOR. Additionally, the company issued $100.0 million of notes
due in 2009 with a one-time put option exercisable by the investor after two
years and $100.0 million of notes due 2014 with a one-time put option
exercisable by the investor after two and one-half years. The coupons on these
notes are indexed to LIBOR to the respective put dates. The Carburos acquisition
in October 1996 was financed primarily with proceeds from U.S. dollar debt
issuances effectively converted into Spanish Peseta liabilities through the use
of interest rate and currency swap contracts and foreign exchange contracts.
6
At year end, $135.0 million of commercial paper was outstanding compared to
$370.0 million at the end of 1996.
Substantial credit facilities are maintained to provide backup funding for
commercial paper and to ensure availability of adequate resources for corporate
liquidity. At 30 September 1997, the company's revolving credit commitments
amounted to $600.0 million with funding available in 13 currencies. No
borrowings were outstanding under these commitments at the end of 1997.
Additional commitments totaling $93.3 million are maintained by the company's
foreign subsidiaries, of which $5.5 million was utilized at year end.
At 30 September 1997, the company had unutilized shelf registrations for $425.0
million of debt securities.
During 1997, 1.9 million shares of the company's outstanding common stock were
repurchased at a cost of $135.0 million. During 1996, 1.8 million shares were
repurchased at a cost of $100.3 million.
FINANCIAL INSTRUMENTS The company enters into contractual agreements in the
ordinary course of business to hedge its exposure to interest rate and foreign
currency risks. Counterparties to these agreements are major financial
institutions. Management believes the risk of incurring losses related to credit
risk is remote and any losses would be immaterial.
Interest rate swap agreements are used to reduce interest rate risks and costs
inherent in the company's debt portfolio. The company enters into these
agreements to change the fixed/variable interest rate mix of the debt portfolio
in order to maintain the percentage of fixed and variable debt within certain
parameters set by management. Accordingly, the company enters into agreements to
both effectively convert variable-rate debt to fixed-rate debt and to
effectively convert its fixed-rate debt into variable-rate debt which is
principally indexed to LIBOR rates. The company has also entered into interest
rate swap contracts to effectively convert the stated variable rates to interest
rates based on LIBOR.
The company is also party to interest rate and currency swap contracts. These
contracts entail both the exchange of fixed- and floating-rate interest payments
periodically over the life of the agreement and the exchange of one currency for
another at inception and a specified future date. These contracts effectively
convert the currency denomination of a debt instrument into another currency in
which the company has a net equity position while changing the interest rate
characteristics of the instrument. The contracts are used to hedge intercompany
lending activities and the value of investments in certain foreign subsidiaries
and affiliates.
The company, in management of its exposure to fluctuations in foreign currency
exchange rates, has entered into a variety of foreign exchange contracts,
including forward, option combination, and purchased option contracts. These
agreements generally involve the exchange of one currency for a second currency
at some future date. The company enters into forward exchange and option
combination contracts to reduce the exposure to foreign currency fluctuations
associated with certain monetary assets and liabilities, as well as certain firm
commitments and highly anticipated cash flows. The company is also party to
purchased option contracts which, if exercised, involve the sale or purchase of
foreign currency at a fixed exchange rate for a specified period of time. These
contracts are used to hedge firm commitments and certain highly anticipated cash
flows, including export sales transactions.
Additional details on these and other financial instruments are set forth in
Notes 3, 5, and 6 to the consolidated financial statements and in the Financial
Instruments Sensitivity Analysis.
WORKING CAPITAL Working capital (excluding cash and cash items, short-term
borrowings, and current portion of long-term debt) was $623.6 million, up $134.8
million over the $488.8 million at the end of 1996. Excluding the impact of the
Carburos consolidation, working capital increased $81.6 million due mainly to an
increase in trade receivables on higher fiscal 1997 sales.
Working capital was $488.8 million at the end of 1996 versus $420.8 million at
the end of 1995. Trade receivables increased 7% on an overall sales increase of
4%. Inventories and contracts in progress grew 6%. Current liabilities decreased
due to a reduction of $16.0 million in accrued taxes.
DIVIDENDS In May 1997, the Board of Directors increased the quarterly cash
dividend to 30.0 cents per share, an increase of 9%. Dividends are declared by
the Board of Directors and, when declared, usually will be paid during the sixth
week after the close of the fiscal quarter.
NEW ACCOUNTING STANDARDS In March of 1997, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This
standard establishes new accounting and disclosure for earnings per share (EPS).
The standard will be effective for the first quarter of fiscal 1998 with earlier
application not permitted. The EPS as currently reported is the same as the
Basic EPS required by the standard. The newly required Diluted EPS is not
expected to be materially different than the Basic EPS, with historical levels
approximately 2% dilutive. Also in March 1997, the FASB issued SFAS No. 129,
"Disclosure of Information about Capital Structure." This standard does not
change the currently reported disclosures.
The FASB issued Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," in June of 1997. These standards
establish new disclosures for comprehensive income and segments and will be
effective for fiscal 1999. New disclosures will include a comprehensive income
number, operating segments in accordance with internal management structure, and
geographic sales by destination rather than source.
7
PENSION PLAN FUNDING The funding policy for pension plans is to accumulate plan
assets that, over the long run, will approximate the present value of projected
benefits payable. In fiscal 1997, the company contributed $10.7 million compared
to $51.6 million in fiscal 1996. The company expects to make contributions of
approximately $11 to $15 million in fiscal 1998.
EXCHANGE RATE FLUCTUATIONS Exchange rate fluctuations can be a significant
variable for international operations, especially fluctuations in local
currencies where hedging opportunities are unreasonably expensive, or
unavailable. In the fourth quarter of fiscal 1997, several Asian currencies
deteriorated against the dollar and continue to be an uncertainty for fiscal
1998.
ENERGY PRICING Air Products has a 50% ownership interest and serves as the
operator of a cogeneration facility which burns coal to produce electricity and
steam. This facility has a twenty-year power sale contract. During the final ten
years of the original contract, which begins during fiscal 1998, the electricity
rate paid by the customer will be based on short-term avoided costs. Natural gas
pricing has declined since the start-up of this facility; this will lower the
electricity rates paid by the customer in years 1998 through 2008. Equity
affiliates' income and operating income for the equipment and services segment
will decrease by approximately $2 million and $7 million, respectively. In
fiscal 1999, equity affiliates' income and operating income will decline by an
additional $2 million and $6 million, respectively, versus 1998.
INFLATION The financial statements are presented on a historical cost basis and
do not fully reflect the impact of prior years' inflation. While the U.S.
inflation rate has been modest for several years, the company operates in many
international areas with both inflation and currency issues. The ability to pass
on inflation costs is an uncertainty due to general economic conditions and
competitive situations. It is estimated that the cost of replacing the company's
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.
YEAR 2000 The company recognizes the need to ensure that its operations will not
be adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The company is addressing the Year 2000 financial and
operating systems risk by establishing processes for evaluating and managing the
risks associated with this problem. In 1996, the company's computing portfolio
was assessed and specific plans were initiated to ensure Year 2000 compliance on
mission-critical systems by 1999. The plans involve software replacement,
retirement, and/or renovation. Over fiscal years 1996 and 1997, approximately
$1.2 million was expended in system modification and testing by internal company
staff and contractors. The total cost of achieving Year 2000 compliance is
estimated to be approximately $18 million over the cost of normal software
upgrades and replacements.
FORWARD-LOOKING STATEMENTS The forward-looking statements contained in this
report are based on current expectations regarding important risk factors.
Actual results may differ materially from those expressed. Important risk
factors and uncertainties include the impact of worldwide economic growth,
pricing, and other factors resulting from fluctuations in foreign currencies;
the impact of competitive products and pricing; the timing of the American
Ref-Fuel divestiture; continued success of productivity programs; and the impact
of tax and other legislation and other regulations in the jurisdictions in which
the company and its affiliates operate.
Financial Instruments Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the company's
financial instruments to selected changes in market rates and prices. The range
of changes chosen reflects the company's view of changes which are reasonably
possible over a one-year period. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
market values for interest rate risk and foreign currency risk are calculated by
the company utilizing a third-party software model which utilizes standard
pricing models to determine the present value of the instruments based on the
market conditions (interest rates, spot and forward exchange rates, and implied
volatilities) as of the valuation date. The market values for equity price risk
are calculated by the financial institution which is the counterparty to the
interest rate swaps which include an equity index, based upon this financial
institution's internal policies governing such calculations and market factors
which this financial institution believes to be relevant. All instruments are
entered into for other than trading purposes. The utilization of these
instruments is described more fully in the financial instruments section of the
Management's Discussion and Analysis and Notes 3, 5, and 6 to the consolidated
financial statements. The major accounting policies for these instruments are
described in Note 1 to the consolidated financial statements.
The company's derivative and other financial instruments consist of long-term
debt (including current portion), interest rate swaps, interest rate and
currency swaps, foreign exchange-forward contracts, and foreign exchange-option
contracts. The net market value of these financial instruments combined is
referred to below as the net financial instrument position. At 30 September
1997, the net financial instrument position is a liability of $2,436.9 million.
INTEREST RATE RISK The sensitivity analysis assumes an instantaneous 100 basis
point move in interest rates from their levels of 30 September 1997, with all
other variables (including equity prices and foreign exchange rates) held
constant. A 100 basis point increase in market interest rates would result in a
$104 million decrease in the net financial instrument position. A 100 basis
point decrease in market interest rates would result in a $114 million increase
in the net financial instrument position.
8
The company's debt portfolio, including interest rate swap agreements, as of 30
September 1997 is composed primarily of debt denominated in U.S. dollars (68%).
The primary currencies of non-U.S. dollar debt are British Pounds, Netherland
Guilders, Spanish Pesetas, and Canadian Dollars. Based on the composition of the
company's debt portfolio, including interest rate swap agreements, as of 30
September 1997, a 100 basis point increase in interest rates would result in an
additional $9 million in interest incurred per year. A 100 basis point decline
would lower interest incurred by $9 million per year.
EQUITY PRICE RISK The sensitivity analysis assumes an instantaneous 10% change
in the Standard & Poor's 500 Index from its level of 30 September 1997, with all
other variables (including interest rates and foreign exchange rates) held
constant. The equity price risk within the company's financial instruments is
equal and offsetting for all movements in equity prices. There is no impact on
the net financial instrument position.
FOREIGN CURRENCY EXCHANGE RATE RISK The sensitivity analysis assumes an
instantaneous 10% change in the foreign currency exchange rates from their
levels of 30 September 1997, with all other variables (including interest rates
and equity prices) held constant. A 10% strengthening of the U.S. dollar versus
all other currencies would result in a decrease of $95 million in the net
financial instrument position. A 10% weakening of the U.S. dollar versus all
other currencies would result in an increase of $88 million in the net financial
instrument position.
The primary currencies for which the company has foreign currency exchange rate
exposure are the U.S. dollar versus the British Pound, Netherland Guilder,
Spanish Peseta, Canadian Dollar, and German Mark. Foreign currency debt and
interest rate and currency swaps are used in countries where it does business,
thereby reducing the company's net asset exposure. Foreign exchange forward and
option contracts are used to hedge the company's firm and highly anticipated
foreign currency cash flows. Thus, there is either an asset or cash flow
exposure related to all the financial instruments in the above sensitivity
analysis for which the impact of a movement in exchange rates would be in the
opposite direction and substantially equal to the impact on the instruments in
the analysis.
9
COMPANY RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
company. They conform with generally accepted accounting principles and reflect
judgments and estimates as to the expected effects of incomplete transactions
and events being accounted for currently. The company believes that the
accounting systems and related controls that it maintains are sufficient to
provide reasonable assurance that assets are safeguarded, transactions are
appropriately authorized and recorded, and the financial records are reliable
for preparing such financial statements. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal accounting
controls must be related to the benefits derived. The company maintains an
internal audit function which is responsible for evaluating the adequacy and
application of financial and operating controls and for testing compliance with
company policies and procedures.
The independent public accountants are engaged to perform an audit of the
consolidated financial statements in accordance with generally accepted auditing
standards. Their report follows.
The Audit Committee of the Board of Directors is comprised entirely of
individuals who are not employees of the company. This Committee meets
periodically with the independent public accountants, the internal auditors, and
management to consider audit results and to discuss significant internal
accounting control, auditing, and financial reporting matters. The Audit
Committee recommends the selection of the independent public accountants who are
then appointed by the Board of Directors subject to ratification by the
shareholders.
HAROLD A. WAGNER ARNOLD H. KAPLAN
CHAIRMAN, PRESIDENT, SENIOR VICE PRESIDENT - FINANCE
AND CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
4 NOVEMBER 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors, Air Products and Chemicals, Inc.:
We have audited the accompanying consolidated balance sheets of Air Products and
Chemicals, Inc. (a Delaware corporation) and subsidiaries as of 30 September
1997 and 1996, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended 30
September 1997. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Products and Chemicals,
Inc. and subsidiaries as of 30 September 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
30 September 1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective 1
October 1994, Air Products and Chemicals, Inc. changed its method of accounting
for certain investments in debt and equity securities.
ARTHUR ANDERSEN LLP
PHILADELPHIA, PENNSYLVANIA
4 NOVEMBER 1997
10
CONSOLIDATED INCOME
(Millions of dollars, except per share)
Year Ended 30 September 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Sales and Other Income
Sales (Note 1) ................................................. $4,637.8 $4,007.7 $3,865.3
Other income, net (Note 19) .................................... 24.2 25.7 25.5
- ------------------------------------------------------------------------------------------------------------------
4,662.0 4,033.4 3,890.8
- ------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of sales .................................................. 2,771.6 2,408.1 2,317.0
Selling, distribution, and administrative ...................... 1,051.3 919.9 868.7
Research and development ....................................... 113.7 114.1 103.2
- ------------------------------------------------------------------------------------------------------------------
Operating Income ............................................... 725.4 591.3 601.9
Income from equity affiliates net of related expenses (Note 8) . 66.3 80.7 51.2
Settlement gain on leveraged interest rate transactions (Note 6) -- 66.8 --
Interest expense (Note 1) ...................................... 161.3 129.2 100.3
- ------------------------------------------------------------------------------------------------------------------
Income Before Taxes ............................................ 630.4 609.6 552.8
Income taxes (Notes 1 and 10) .................................. 201.1 193.2 184.6
- ------------------------------------------------------------------------------------------------------------------
Net Income ..................................................... $429.3 $416.4 $368.2
- ------------------------------------------------------------------------------------------------------------------
Monthly Average of Common Shares Outstanding (in millions) ..... 110.0 111.7 112.1
- ------------------------------------------------------------------------------------------------------------------
Earnings per Common Share ...................................... $3.90 $3.73 $3.29
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
11
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except per share)
30 September 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash items (Note 1) .............................................................. $ 52.5 $ 78.7
Trade receivables, less allowances for doubtful accounts of $19.8 in 1997 and $13.3 in 1996 879.6 670.0
Inventories (Notes 1 and 7) ............................................................... 386.5 371.1
Contracts in progress, less progress billings ............................................. 121.3 115.2
Other current assets ...................................................................... 184.4 139.7
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Assets ................................................................ 1,624.3 1,374.7
- ----------------------------------------------------------------------------------------------------------------------------
Investments (Notes 1, 3, and 8)
Investment in net assets of and advances to equity affiliates ............................. 555.7 759.4
Other investments and advances ............................................................ 21.1 74.2
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments .................................................................... 576.8 833.6
- ----------------------------------------------------------------------------------------------------------------------------
Plant and Equipment, at cost (Notes 1, 4, 12, and 15) ..................................... 8,727.3 8,102.6
Less -- Accumulated depreciation ....................................................... 4,286.1 4,144.1
----------------------------------------------------------------------------------------------------------------------------
Plant and Equipment, net ............................................................. 4,441.2 3,958.5
- ----------------------------------------------------------------------------------------------------------------------------
Goodwill (Note 1) ......................................................................... 248.6 83.5
Other Noncurrent Assets ................................................................... 353.2 272.1
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets .............................................................................. $7,244.1 $6,522.4
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Payables, trade and other (Note 19) ....................................................... $ 616.6 $ 526.4
Accrued liabilities (Note 19) ............................................................. 315.7 241.1
Accrued income taxes ...................................................................... 15.9 39.7
Short-term borrowings (Note 19) ........................................................... 100.9 423.2
Current portion of long-term debt (Note 4) ................................................ 75.5 33.1
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities ............................................................ 1,124.6 1,263.5
- ----------------------------------------------------------------------------------------------------------------------------
Long-Term Debt (Notes 4 and 15) ........................................................... 2,291.7 1,738.6
Deferred Income and Other Noncurrent Liabilities .......................................... 449.7 363.5
Deferred Income Taxes (Notes 1 and 10) .................................................... 730.0 582.2
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities .................................................................... 4,596.0 3,947.8
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Notes 1, 9, and 11)
Common Stock (par value $1 per share; issued 1997 and 1996 - 124,727,792 shares) .......... 124.7 124.7
Capital in excess of par value ............................................................ 453.0 461.2
Retained earnings ......................................................................... 2,990.2 2,687.2
Unrealized gain on investments (Note 2) ................................................... 6.9 40.4
Cumulative translation adjustments ........................................................ (186.1) (70.2)
Treasury Stock, at cost (1997 - 5,188,676 shares; 1996 - 4,212,761 shares) ................ (297.3) (211.2)
Shares in trust (1997 - 9,687,560 shares; 1996 - 10,000,000 shares) ....................... (443.3) (457.5)
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity ........................................................... 2,648.1 2,574.6
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ................................................ $7,244.1 $6,522.4
- ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
12
CONSOLIDATED CASH FLOWS
(Millions of dollars)
Year Ended 30 September 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income .......................................................................... $429.3 $416.4 $368.2
Adjustments to reconcile income to cash provided by operating activities:
Depreciation (Note 1) ............................................................ 459.1 412.1 382.2
Impairment loss of long-lived assets ............................................. 9.3 -- --
Termination of liabilities for leveraged interest rate swaps (Note 6) ............ -- (61.7) --
Deferred income taxes (Note 10) .................................................. 94.1 87.5 65.4
Other ............................................................................ (.4) (50.4) (18.9)
Working capital changes that provided (used) cash, net of effects of acquisitions:
Trade receivables .............................................................. (151.8) (53.0) (64.2)
Inventories and contracts in progress .......................................... (13.3) (28.6) (58.3)
Payables, trade and other ...................................................... 84.2 3.2 20.7
Accrued liabilities ............................................................ 43.6 20.6 13.2
Other .......................................................................... 79.2 9.8 10.6
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities .......................................... 1,033.3 755.9 718.9
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to plant and equipment(a) ................................................. (870.2) (951.3) (870.3)
Acquisitions, less cash acquired(b) ................................................. (300.1) (6.4) (46.5)
Investment in and advances to unconsolidated affiliates ............................. (47.2) (197.2) (29.1)
Termination/closure of leveraged interest rate swaps (Note 6) ....................... -- -- (5.9)
Proceeds from sale of assets and investments ........................................ 97.6 63.2 33.6
Other ............................................................................... 17.0 11.8 1.9
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Used for Investing Activities ............................................. (1,102.9) (1,079.9) (916.3)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Long-term debt proceeds(a) .......................................................... 667.5 626.7 361.0
Payments on long-term debt .......................................................... (168.3) (168.0) (151.8)
Net increase (decrease) in commercial paper ......................................... (235.0) 42.4 179.6
Net increase in other short-term borrowings ......................................... 6.7 11.7 14.6
Dividends paid to shareholders ...................................................... (123.8) (116.7) (115.3)
Purchase of Treasury Stock (Note 9) ................................................. (135.0) (100.3) (124.1)
Other ............................................................................... 31.4 20.3 17.8
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities .......................................... 43.5 316.1 181.8
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash ............................................. (0.1) (0.9) 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
Decrease in Cash and Cash Items ..................................................... (26.2) (8.8) (12.4)
Cash and Cash Items -- Beginning of Year ............................................ 78.7 87.5 99.9
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Items -- End of Year (Note 1) ......................................... $52.5 $78.7 $87.5
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
(a) Excludes capital leases of $3.0 million, $4.7 million, and $5.2 million in
1997, 1996, and 1995, respectively.
(b) Excludes debt of $1.1 million, $5.2 million, and $18.4 million to former
shareholders of companies acquired in 1997, 1996, and 1995, respectively.
13
CONSOLIDATED SHAREHOLDERS' EQUITY
(Millions of dollars, except per share)
Year Ended 30 September 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance, Beginning and End of Year .......................................................... $124.7 $124.7 $124.7
- -----------------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value
Balance, Beginning of Year .................................................................. 461.2 465.9 477.6
Issuance of Treasury Shares and Shares in Trust for benefit and stock option and award plans,
1,254,990 shares in 1997, 625,308 shares in 1996, and 961,794 shares in 1995 ............. (26.8) (13.0) (21.5)
Tax benefit of stock option and award plans ................................................. 18.6 8.3 9.8
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ 453.0 461.2 465.9
- -----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, Beginning of Year .................................................................. 2,687.2 2,387.6 2,134.7
Net income .................................................................................. 429.3 416.4 368.2
Cash dividends -- Common Stock, $1.15 per share in 1997, $1.07 per share in 1996,
and $1.01 per share in 1995 .............................................................. (126.3) (116.8) (115.3)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ 2,990.2 2,687.2 2,387.6
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gain on Investments (Note 2)
Balance, Beginning of Year .................................................................. 40.4 41.0 --
Adjustment to 1995 beginning balance for change in accounting method, net of income
taxes of $22.8 ........................................................................... -- -- 41.5
Change in unrealized gain, net of income taxes of $18.4 in 1997, $.3 in 1996, and $.3 in 1995 (33.5) (.6) (.5)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ 6.9 40.4 41.0
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance, Beginning of Year .................................................................. (70.2) (24.0) (16.1)
Translation adjustments, net of income tax benefits of $8.7 in 1997, $1.7 in 1996,
and $29.1 in 1995 ........................................................................ (115.9) (46.2) (7.9)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ (186.1) (70.2) (24.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury Stock
Balance, Beginning of Year .................................................................. (211.2) (139.1) (57.0)
Issuance of Treasury Shares for benefit and stock option and award plans,
942,550 shares in 1997, 625,308 shares in 1996, and 961,794 shares in 1995 ............... 48.9 28.2 42.0
Purchase of Treasury Shares, 1,918,465 in 1997, 1,793,600 in 1996, and 2,687,300 in 1995
(Note 9) ................................................................................. (135.0) (100.3) (124.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ (297.3) (211.2) (139.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Shares in Trust (Note 1)
Balance, Beginning of Year .................................................................. (457.5) (457.5) (457.5)
Issuance of 312,440 shares in 1997 for benefit and stock option and award plans ............. 14.2 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year ........................................................................ (443.3) (457.5) (457.5)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity .................................................................. $2,648.1 $2,574.6 $2,398.6
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Major Accounting Policies
CONSOLIDATION PRINCIPLES The consolidated financial statements include the
accounts of Air Products and Chemicals, Inc. and its majority-owned subsidiary
companies (the company). The equity method of accounting is used when the
company has a 20% to 50% interest in other companies. Under the equity method,
original investments are recorded at cost and adjusted by the company's share of
undistributed earnings or losses of these companies.
RECLASSIFICATION Certain amounts in 1996 and 1995 have been reclassified to
conform to current year presentation.
LONG-TERM EQUIPMENT AND CONSTRUCTION REVENUE Revenues from equipment sale
contracts are recorded primarily using the percentage-of-completion method.
Under this method, revenues for sale of major equipment, such as Liquid Natural
Gas and Air Separation units, are recognized primarily based on labor costs
incurred to date compared with total estimated labor costs. The equipment sold
for the company's power generation and Pure Air(TM) flue gas treatment
facilities recognizes revenues based primarily on contract costs incurred to
date compared with total estimated contract costs. Changes to total estimated
labor or contract costs and anticipated losses, if any, are recognized in the
period determined.
DEPRECIATION In the financial statements, the straight-line method of
depreciation is used which deducts equal amounts of the cost of each asset from
earnings every year over its expected useful life. The following table shows the
estimated useful lives of different types of assets:
Classification Expected Useful Lives
- --------------------------------------------------------------------------------
Buildings and components 5 to 45 years
(principally 30 years)
- --------------------------------------------------------------------------------
Gas generating and chemical
facilities, machinery and 3 to 25 years
equipment (principally 11 to 20 years)
- --------------------------------------------------------------------------------
CAPITALIZED INTEREST As the company builds new plant and equipment or invests in
unconsolidated affiliates in the development stage, it includes in the cost of
these assets a portion of the interest payments it makes during the year. In
1997, the amount of capitalized interest was $19.1 million. In 1996, it was
$15.5 million, and in 1995, $17.9 million.
INTEREST RATE SWAP AGREEMENTS The company enters into interest rate swap
agreements to reduce interest rate risks and to modify the interest rate
characteristics of its outstanding debt. These agreements involve the exchange
of fixed- and floating-rate interest payments periodically over the life of the
agreement without the exchange of the underlying principal amounts. The net
amount to be paid or received is accrued as interest rates change and recognized
over the life of the agreements as an adjustment to interest expense. The fair
value of these swap agreements is not recognized in the financial statements.
The notional amount of these agreements is equal to or less than the designated
debt instrument being hedged. The variable rate bases of the swap instruments
and the debt to which they are designated are the same. The company will not
enter into any future interest rate swap contracts which lever a move in
interest rates on a greater than one-to-one basis.
The company is also party to interest rate and currency swap contracts. These
contracts entail both the exchange of fixed- and floating-rate interest payments
periodically over the life of the agreement and the exchange of one currency for
another currency at inception and a specified future date. The contracts are
used to hedge intercompany lending transactions and the value of investments in
certain foreign subsidiaries and affiliates. Gains and losses on the currency
component of these contracts, which hedge intercompany lending transactions, are
recognized in income and offset the foreign exchange gains and losses of the
related transaction. Gains and losses on the currency component of these
contracts which hedge investments in certain foreign subsidiaries and foreign
equity affiliates are not included in the income statement but are shown in the
cumulative translation adjustments account. The interest component of these
contracts is accounted for similarly to other interest rate swap agreements.
Gains and losses on terminated interest rate swap agreements are amortized into
income over the remaining life of the underlying debt obligation or the
remaining life of the original swap, if shorter.
FOREIGN CURRENCY The value of the U.S. dollar rises and falls day to day on
foreign currency exchanges. Since the company does business in many foreign
countries, these fluctuations affect the company's financial position and
results of operations.
Generally, foreign subsidiaries translate their assets and liabilities into U.S.
dollars at current exchange rates -- that is, the rates in effect at the end of
the fiscal period. The gains or losses that result from this process are shown
in the cumulative translation adjustments account in the shareholders' equity
section of the balance sheet. Certain forward exchange contracts are used to
hedge the value of investments in certain subsidiaries and equity affiliates.
Gains and losses on the currency component of these contracts are not included
in the income statement but are shown in the cumulative translation adjustment
account.
The revenue and expense accounts of foreign subsidiaries are translated into
U.S. dollars at the average exchange rates that prevailed during the period.
Therefore, the U.S. dollar value of these items on the income statement
fluctuates from period to period depending on the value of the dollar against
foreign currencies.
15
Some transactions of the company and its subsidiaries are made in currencies
different from their own. Gains and losses from these foreign currency
transactions are generally included in income as they occur. The company enters
into forward exchange and option combination contracts to manage the exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities denominated in a foreign currency as well as certain highly
anticipated cash flows. Gains and losses on these contracts are recognized in
income and offset the foreign exchange gains and losses of the related
transaction.
Forward exchange and option combination contracts are sometimes used to hedge
firm commitments, such as the purchase of plant and equipment, and purchased
foreign currency options are sometimes used to hedge firm commitments and
certain highly anticipated cash flows, including export sales transactions. The
contracts are designated as, and effective as, hedges. The significant
characteristics and expected terms of the highly anticipated cash flows are
indentified. Gains and losses resulting from these agreements are deferred and
reflected as adjustments of the related foreign currency transactions. Gains and
losses on terminated contracts, for which hedge criteria are met, are deferred
and recognized as an adjustment of the related foreign currency transaction.
ENVIRONMENTAL EXPENDITURES Accruals for investigatory and noncapital remediation
costs are recorded when it is probable that a liability has been incurred and
the amount of loss can be reasonably estimated. Remediation costs are
capitalized if the costs improve the company's property as compared with the
condition of the property when originally constructed or acquired or if the
costs prevent environmental contamination from future operations. Costs to
operate and maintain the capitalized facilities are expensed as incurred.
The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. While the current law
potentially imposes joint and several liability upon each party at any Superfund
site, the company's contribution to clean up these sites is expected to be
limited, given the number of other companies which have also been named as
potentially responsible parties and the volumes of waste involved. A reasonable
basis for apportionment of costs among responsible parties is determined and the
likelihood of contribution by other parties is established. If it is considered
probable that the company will only have to pay its expected share of the total
site cleanup, the liability reflects the company's expected share. In
determining the probability of contribution, the company considers the solvency
of the parties, whether responsibility is being disputed, the terms of any
existing agreements, and experience to date regarding similar matters. These
liabilities do not take into account any claims for recoveries from insurance or
third parties and are not discounted. As assessments and remediation progress at
individual sites, these liabilities are reviewed periodically and adjusted to
reflect additional technical and legal information which becomes available.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. The accruals for environmental liabilities are reflected in the
balance sheet primarily as part of other noncurrent liabilities.
INCOME TAXES The company accounts for income taxes under the liability method.
Under this method, deferred tax liabilities and assets are recognized for the
tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities using enacted tax rates. A principal temporary
difference results from the excess of tax depreciation over book depreciation
because accelerated methods of depreciation and shorter useful lives are used
for income tax purposes. The cumulative impact of a change in tax rates or
regulations is included in income tax expense in the period that includes the
enactment date.
CASH AND CASH ITEMS Cash and cash items include cash, time deposits, and
certificates of deposit acquired with an original maturity of three months or
less.
INVENTORIES To determine the cost of chemical inventories and some gas and
equipment inventories in the United States, the company uses the last-in,
first-out (LIFO) method. This method assumes the most recent cost is closer to
the cost of replacing an item that has been sold. During periods of rising
prices, LIFO maximizes the cost of goods sold and minimizes the profit reported
on the company's income statement.
All other inventory values are determined using the first-in, first-out (FIFO)
method. Cost of an item sold is based on the first item produced or on the
current market value, whichever is lower.
GOODWILL When a company is acquired, the difference between the fair value of
its net assets and the purchase price is goodwill. Goodwill is recorded as an
asset on the balance sheet and is amortized into income over periods not
exceeding 40 years. The company assesses the impairment of goodwill related to
consolidated subsidiaries in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121. The measurement of an impairment loss of goodwill
related to equity affiliates is based on expected undiscounted future cash
flows, as the investment in equity affiliates is excluded from the scope of SFAS
No. 121.
SHARES IN TRUST The company has established a trust, funded with Treasury Stock,
to provide for a portion of future payments to employees under the company's
existing compensation and benefit programs. Shares issued to the trust are
valued at market price on the date of contribution and reflected as a reduction
of shareholders' equity in the balance sheet. As shares are transferred from the
trust to fund compensation and benefit obligations, this equity account is
reduced based on the original cost of shares to the trust; the satisfaction of
liabilities is based on the fair value of shares transferred; and the difference
between the fair value of shares transferred and the original cost of shares to
the trust is charged or credited to capital in excess of par value.
16
ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
2 Accounting and Disclosure Changes
Effective fiscal 1997, the company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial and reporting
standards for stock-based employee compensation plans using a fair value-based
method. As permitted under SFAS No. 123, the company has elected to continue to
account for compensation cost using the intrinsic value-based method of
accounting as prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." The company has included disclosures
of the pro forma impact on net income of the application of the fair value-based
method of accounting in Note 11.
Effective 1 October 1994, the company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." A certain investment in
marketable equity securities is reported at fair value with the unrealized gain
on an after-tax basis recorded in a separate component of shareholders' equity.
The aggregate fair value of this equity security was $20.0 million and $73.9
million at 30 September 1997 and 1996. During the current year, approximately
18% of this investment was sold, causing a $7.3 million realized gain to be
recognized. The gross unrealized holding gain was $10.8 million and $62.7
million at 30 September 1997 and 1996.
3 Fair Value of Financial Instruments
Summarized below are the carrying values and fair values of the company's
financial instruments as of 30 September 1997 and 1996.
The fair value of the company's debt, interest rate swap agreements, forward
exchange contracts, option combination contracts, and purchased foreign currency
options is based on estimates using standard pricing models that take into
account the present value of future cash flows as of the balance sheet date. The
computation of fair values of these instruments is generally performed by the
company. The fair value of other investments is based principally on quoted
market prices. The carrying amounts reported in the balance sheet for cash and
cash items, accrued liabilities, accrued income taxes, and short-term borrowings
approximate fair value due to the short-term nature of these instruments.
Accordingly, these items have been excluded from the table below.
1997 1996
(Millions of dollars) Carrying Fair Carrying Fair
30 September Value Value Value Value
- ----------------------------------------------------------------------------------------------------------------
Assets
Other investments ................................ $21.1 $21.1 $74.2 $74.2
Currency option contracts (Note 5) ............... 1.5 2.6 7.2 3.2
Interest rate swap agreements (Note 6) ........... 69.5 85.7 19.7 13.2
Forward exchange contracts (Note 5) .............. 2.8 10.2 1.5 2.3
- ----------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt, including current portion (Note 4) $2,367.2 $2,535.4 $1,771.7 $1,839.8
- ----------------------------------------------------------------------------------------------------------------
17
4 Long-Term Debt
The following table shows the company's outstanding debt at the end of fiscal
1997 and 1996, excluding any portion of the debt required to be repaid within a
year:
(Millions of dollars)
30 September 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Payable in U.S. dollars:
8 7/8% notes, due 2001 .................................................................. $ 100.0 $ 100.0
Medium-term notes, Series C, due through 2001, weighted average interest rate 10.8% ..... 126.0 166.0
8.35% debentures, due 2002, effective interest rate 8.4% ................................ 100.0 100.0
6 1/4% notes, due 2003 .................................................................. 100.0 100.0
Medium-term notes, Series B, due through 2003, weighted average interest rate 6.1% ...... 16.0 51.0
Commercial paper, due 2001 to 2003, weighted average interest rate 5.7% ................. 80.5 --
7 3/8% notes, due 2005, effective interest rate 7.5% .................................... 150.0 150.0
8 1/2% debentures, due 2006, callable by company in 2004, effective interest rate 8.6% .. 100.0 100.0
7.578% notes, due 2006 .................................................................. 72.5 19.1
Medium-term notes, Series F, due through 2014, weighted average interest rate 5.4% ...... 375.0 --
Medium-term notes, Series D, due through 2016, weighted average interest rate 6.8% ...... 400.0 311.0
8 3/4% debentures, due 2021, effective interest rate 9.0% ............................... 100.0 100.0
Medium-term notes, Series E, due through 2026, interest rate 7.3% ....................... 300.0 250.0
California Pollution Control bonds, due 2027, weighted average interest rate of 5.8% .... 57.0 --
Other, due through 2023, weighted average interest rate 6.2% ............................ 47.1 33.5
Payable in foreign currency:
9 1/2% British Pound notes, due 1997 .................................................... -- 71.1
8.27% British Pound loan, due 1999 ...................................................... 35.5 34.4
9.2% Deutsche Mark loan, due through 2002 ............................................... 7.7 10.7
5.97% Dutch Guilder loan, due through 2006 .............................................. 60.3 70.0
Belgian Franc loans, due through 2006, weighted average interest rate 5.5% .............. 26.6 37.1
Other, due through 2003, weighted average interest rate 5.8% ............................ 15.7 11.6
Less: Unamortized discount .............................................................. (4.9) (5.3)
- ------------------------------------------------------------------------------------------------------------------------
2,265.0 1,710.2
- ------------------------------------------------------------------------------------------------------------------------
Capital lease obligations:
United States, due through 2003, weighted average interest rate 6.7% ....................... 5.3 6.0
Foreign, due through 2004, weighted average interest rate 7.6% ............................. 21.4 22.4
- ------------------------------------------------------------------------------------------------------------------------
26.7 28.4
- ------------------------------------------------------------------------------------------------------------------------
$2,291.7 $1,738.6
- ------------------------------------------------------------------------------------------------------------------------
Various debt agreements to which the company is a party include certain
financial covenants and restrictions pertaining to the ability to create
property liens and enter into certain sale and leaseback transactions.
The company has obtained the commitment of a number of commercial banks to lend
money at market rates whenever needed by the company. These committed lines of
credit also are used to support the issuance of commercial paper. In January
1996, the company entered into a $600.0 million committed, multi-currency,
syndicated credit facility which matures in January 2002. No borrowings were
outstanding under this facility at 30 September 1997. At 30 September 1997,
foreign subsidiaries had additional committed credit lines of $93.3 million,
$5.5 million of which was borrowed and outstanding.
Maturities of long-term debt in each of the next five years are as follows:
$75.5 million in 1998; $102.3 million in 1999; $209.5 million in 2000; $170.9
million in 2001; and $157.0 million in 2002.
Included in the medium-term notes, Series E, is a $100.0 million note, due in
2026, with a one-time put option exercisable by the investor in 2008. Included
in the medium-term notes, Series F, is a $100.0 million note, due in 2009, with
a one-time put option exercisable by the investor in 1999 and a $100.0 million
note, due in 2014, with a one-time put option exercisable by the investor in
1999.
18
5 Foreign Exchange Contracts
The company, in management of its exposure to fluctuations in foreign currency
exchange rates, has entered into a variety of foreign exchange contracts,
including forward, option combination, and purchased option contracts. These
agreements generally involve the exchange of one currency for a second currency
at some future date. Counterparties to these agreements are major international
financial institutions. The company's counterparty credit guidelines and
management's position regarding possible exposure to losses related to credit
risk is comparable to that for interest rate swap agreements as discussed in
Note 6.
The company enters into forward exchange and option combination contracts to
reduce the exposure to foreign currency fluctuations associated with certain
monetary assets and liabilities, as well as certain firm commitments and highly
anticipated cash flows. The company is also party to purchased option contracts
which, if exercised, involve the sale or purchase of foreign currency at a fixed
exchange rate for a specified period of time. These contracts are used to hedge
firm commitments and certain highly anticipated cash flows, including export
sales transactions, through fiscal 1998.
The table below illustrates the U.S. dollar equivalent, including offsetting
positions, of foreign exchange contracts at 30 September 1997 and 1996 along
with maturity dates, net unrealized gain (loss), and net unrealized gain (loss)
deferred. At the end of fiscal 1997, all material exposures to foreign currency
fluctuations resulting from cash flows being denominated in a currency other
than an entity's functional currency anticipated over the next year are hedged
by forward exchange, option combination, or purchased option contracts.
Net
Latest Unrealized Unrealized Net Unrealized
Contract Amount Maturity Gross Gross Unrealized Gain (Loss)
(Millions of dollars) ($U.S. Equivalent) Date Gain (Loss) Gain (Loss) Deferred
- ---------------------------------------------------------------------------------------------------------------------------------
30 September 1997
Forward exchange contracts:
$U.S./Netherland DG ............. $ 164.9 1998 $ 3.8 $ (.5) $ 3.3 $ --
$U.S./U.K. Pound Sterling ....... 78.9 1998 .2 (.3) (.1) (.1)
$U.S./$ Canadian ................ 63.5 1999 1.1 (.7) .4 .5
Netherland DG/U.K. Pound Sterling 48.3 1998 4.2 -- 4.2 4.2
Other ........................... 177.8 1998 3.5 (1.1) 2.4 2.8
- ---------------------------------------------------------------------------------------------------------------------------------
533.4 12.8 (2.6) 10.2 7.4
- ---------------------------------------------------------------------------------------------------------------------------------
Option contracts:
$U.S./German DM ................. 78.3 1998 .5 -- .5 .5
$U.S./U.K. Pound Sterling ....... 25.8 1998 -- -- -- --
$U.S./Japanese Yen .............. 19.2 1998 .4 -- .4 .4
Other ........................... 35.7 1998 .2 -- .2 .2
- ---------------------------------------------------------------------------------------------------------------------------------
159.0 1.1 -- 1.1 1.1
- ---------------------------------------------------------------------------------------------------------------------------------
$ 692.4 $ 13.9 $ (2.6) $ 11.3 $ 8.5
- ---------------------------------------------------------------------------------------------------------------------------------
30 September 1996
Forward exchange contracts:
$U.S./Netherland DG ............. $ 137.6 1997 $ 1.8 $ -- $ 1.8 $ --
$U.S./U.K. Pound Sterling ....... 107.9 1997 -- (.7) (.7) (.5)
$U.S./$ Canadian ................ 59.0 1997 -- (.2) (.2) --
Netherland DG/U.K. Pound Sterling 51.4 1998 3.2 (.5) 2.7 2.7
Other .............................. 112.0 1998 .7 (2.0) (1.3) (1.4)
- ---------------------------------------------------------------------------------------------------------------------------------
467.9 5.7 (3.4) 2.3 .8
- ---------------------------------------------------------------------------------------------------------------------------------
Option contracts:
$U.S./German DM ................. 78.7 1999 1.6 (5.1) (3.5) (3.5)
$U.S./Japanese Yen .............. 18.4 1998 1.5 (1.3) .2 .2
Other ........................... 20.7 1997 .2 (.9) (.7) (.7)
- ---------------------------------------------------------------------------------------------------------------------------------
117.8 3.3 (7.3) (4.0) (4.0)
- ---------------------------------------------------------------------------------------------------------------------------------
$ 585.7 $ 9.0 $ (10.7) $ (1.7) $ (3.2)
- ---------------------------------------------------------------------------------------------------------------------------------
The company's net equity position in its principal foreign subsidiaries at 30
September 1997 was $1,171.9 million. These subsidiaries have operations in the
United Kingdom, Germany, Spain, France, Netherlands, Belgium, Brazil, Japan,
Singapore, Indonesia, and Canada. In addition to its foreign subsidiaries, the
company has an equity position in foreign equity affiliates as disclosed in Note
8. Generally, it is the company's policy to hedge only exposures to foreign
currency fluctuations which represent actual cash flow exposures.
19
6 Interest Rate Swap Agreements
The company enters into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain the
percentage of fixed and variable rate debt within certain parameters set by
management. In accordance with these parameters, the agreements are used to
reduce interest rate risks and costs inherent in the company's debt portfolio.
Accordingly, the company enters into agreements to both effectively convert
variable-rate debt to fixed-rate debt and to effectively convert fixed-rate debt
to variable-rate debt, which is principally indexed to LIBOR rates. The company
has also entered into variable to variable interest rate swap contracts to
effectively convert the stated variable interest rates on $60.0 million of the
medium-term notes, Series C, to an average interest rate slightly above the
three-month U.S. dollar LIBOR rate. The fair value gain (loss) on the variable
to variable swaps is equally offset by a fair value loss (gain) on the related
debt agreements.
The company is also party to interest rate and currency swap contracts. These
contracts effectively convert the currency denomination of a debt instrument
into another currency in which the company has a net equity position while
changing the interest rate characteristics of the instrument.
Counterparties to interest rate swap agreements are major financial
institutions. The company has established counterparty credit guidelines and
only enters into transactions with financial institutions of investment grade or
better. Minimum credit standards become more stringent as the duration of the
swap agreement increases. The company has provisions to require collateral in
certain instances. The market value of such collateral posted in the company's
favor as of 30 September 1997 is $48.5 million and is a result of the fair value
exposure to an investment grade counterparty exceeding the company's policy
maximum. Management believes the risk of incurring losses related to credit risk
is remote.
The table below illustrates the contract or notional (face) amounts outstanding,
maturity dates, weighted average receive and pay rates as of the end of the
fiscal year, and the net unrealized gain (loss) of interest rate swap agreements
by type at 30 September 1997 and 1996. The notional amounts are used to
calculate contractual payments to be exchanged and are not generally actually
paid or received, except for the currency swap component of the contracts. The
net unrealized gain (loss) on these agreements, which equals their fair value,
is based on the relevant yield curve at the end of the fiscal year.
Weighted Weighted Unrealized Unrealized Net
Notional Average Rate Average Rate Gross Gross Unrealized
(Millions of dollars) Amount Maturities Receive Pay Gain (Loss) Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
30 September 1997
Fixed to Variable.............. $461.0 1998 - 2007 6.7% 5.6% $10.2 $ (.6) $ 9.6
Variable to Variable........... 60.0 2000 - 2001 14.5% 5.9% 68.9 -- 68.9
Interest Rate/Currency......... 354.1 1998 - 2005 6.2% 8.9% 11.2 (4.0) 7.2
- --------------------------------------------------------------------------------------------------------------------------------
$875.1 $90.3 $ (4.6) $85.7
- --------------------------------------------------------------------------------------------------------------------------------
30 September 1996
Fixed to Variable.............. $243.5 1997 - 2005 7.1% 5.7% $ 2.1 $ (.8) $ 1.3
Variable to Fixed.............. 54.0 1997 6.0% 7.3% -- (.5) (.5)
Variable to Variable........... 60.0 2000 - 2001 8.2% 5.7% 27.9 -- 27.9
Interest Rate/Currency......... 273.6 1998 - 2005 6.3% 9.3% -- (15.5) (15.5)
- --------------------------------------------------------------------------------------------------------------------------------
$631.1 $30.0 $(16.8) $13.2
- --------------------------------------------------------------------------------------------------------------------------------
Of the net unrealized gain (loss) as of 30 September 1997 and 1996, a net gain
(loss) of $16.2 million and ($6.5) million, respectively, has not been
recognized in the financial statements. At the end of fiscal 1997 and 1996, a
deferred loss of $8.6 and $9.8 million, respectively, resulted from terminated
contracts.
During the second quarter of fiscal 1996, the company reached a $66.8 million
settlement with Bankers Trust Company over $107.7 million in losses in fiscal
1994 associated with the termination and closure of leveraged interest rate swap
contracts. The settlement included the termination of two previously closed
contracts with Bankers Trust. Prior to the settlement, there was an outstanding
liability of $61.7 million associated with these closed contracts. The after-tax
gain related to this settlement was $40.7 million.
After the effects of interest rate swap agreements, the company's total debt,
including current portion, is composed of 62% fixed-rate debt and 38%
variable-rate debt as of 30 September 1997.
20
7 Inventories
The components of inventories are as follows:
(Millions of dollars)
30 September 1997 1996
- --------------------------------------------------------------------------------
Inventories at FIFO cost:
Finished goods ........... $264.3 $255.8
Work in process .......... 30.0 15.8
Raw materials and supplies 131.7 138.0
- --------------------------------------------------------------------------------
426.0 409.6
Less excess of FIFO cost over
LIFO ..................... (39.5) (38.5)
- --------------------------------------------------------------------------------
$386.5 $371.1
- --------------------------------------------------------------------------------
Inventories valued using the LIFO method comprised 51.5% and 53.4% of
consolidated inventories before LIFO adjustment at 30 September 1997 and 1996,
respectively. Liquidation of prior years' LIFO inventory layers in 1997, 1996,
and 1995 did not materially affect cost of sales in any of these years.
8 Summarized Financial Information of Equity Affiliates
The following table presents summarized financial information on a combined 100%
basis of the principal companies accounted for by the equity method. Amounts
presented include the accounts of the following equity affiliates: American
Ref-Fuel of Hempstead (50%); American Ref-Fuel of Essex County (50%); American
Ref-Fuel of Niagara (50%); American Ref-Fuel of Southeastern Connecticut (50%);
American Ref-Fuel of SEMASS (50%); Cambria CoGen Company (50%); Stockton CoGen
Company (50%); Orlando CoGen Limited, L.P. (50%); Pure Air (50%); Sapio
Produzione Idrogeno Ossigeno S.r.L. (49%); INFRA Group (40%); San Fu Chemicals
(48.1%); ProCal (50%); Korea Industrial Gases (48.90%); Air Products South
Africa (50%); Bangkok Industrial Gases Company Ltd. (49%); Sitt Tatt Industrial
Gases (30%); and principally other industrial gas producers. In fiscal 1996, the
company owned 47.6% of the outstanding shares of Carburos Metalicos S.A.
(Carburos) and accounted for its investment by the equity method.
(Millions of dollars) 1997 1996
- --------------------------------------------------------------------------------
Current assets ......... $ 624.9 $ 750.6
Noncurrent assets ...... 2,644.6 3,164.3
Current liabilities .... 519.6 559.5
Noncurrent liabilities . 1,998.5 2,128.6
Net sales .............. 1,361.2 1,465.4
Sales less cost of sales 575.2 684.9
Net income.............. 268.1 226.1
- --------------------------------------------------------------------------------
In early fiscal 1997, the company acquired an additional 49.1% of the
outstanding shares of Carburos. The consolidated operating results for Carburos
are discussed in Note 17.
The company's share of income of all equity affiliates for 1997, 1996, and 1995
was $84.3 million, $101.4 million, and $68.4 million, respectively. These
amounts exclude $18.0 million, $20.7 million, and $17.2 million of related net
expenses incurred by the company. Dividends received from equity affiliates were
$61.5 million, $63.7 million, and $45.4 million in 1997, 1996, and 1995,
respectively.
The investment in net assets of and advances to equity affiliates at 30
September 1997 and 1996 included investment in foreign affiliates of $299.3
million and $509.4 million, respectively.
As of 30 September 1997 and 1996, the amount of investment in companies
accounted for by the equity method included goodwill in the amount of $46.9
million and $121.5 million, respectively. The goodwill is being amortized into
income over periods not exceeding 40 years.
In April 1996, the company announced its plan to divest its joint venture
interest in American Ref-Fuel Company's waste-to-energy business. In October
1997, the company entered into an agreement in principle to sell this interest.
See Note 18 to the consolidated financial statements. The investment in net
assets of and advances to this waste-to-energy business was $200.5 million at 30
September 1997.
9 Capital Stock
The authorized capital stock consists of 25 million preferred shares with a par
value of $1 per share, none of which was outstanding at 30 September 1997, and
300 million shares of Common Stock with a par value of $1 per share. At 30
September 1997, the number of shares of Common Stock outstanding was
109,851,556.
In April 1996, the company announced its plan to commence a share repurchase
program with the intent to spend $600 million to acquire approximately 10% of
the 112 million common shares then outstanding. During fiscal 1997 and 1996, the
company spent $135.0 million and $100.3 million to purchase 1.9 million and 1.8
million treasury shares, respectively.
21
The company established a trust to fund a portion of future payments to
employees under existing compensation and benefit programs in fiscal 1994. The
trust, which is administered by an independent trustee, was funded with 10
million shares of Treasury Stock. It will not increase or alter the amount of
benefits or compensation which will be paid under existing plans. The
establishment of the trust will not have an effect on earnings per share or
return on average shareholders' equity. In fiscal 1997, shares have been
distributed from the trust. As of 30 September 1997, the balance of Treasury
Stock remaining in the trust is 9.7 million shares.
The Board of Directors adopted a Shareholder Rights Plan in 1988 and declared a
dividend of one Preferred Stock Purchase Right for each outstanding share of
Common Stock. Such rights only become exercisable, or transferable apart from
the Common Stock, ten business days after a person or group (Acquiring Person)
acquires beneficial ownership of, or commences a tender or exchange offer for,
20% or more of the company's Common Stock. Each right then may be exercised to
acquire one one-hundredth of a share of a newly created Series A Junior
Participating Preferred Stock at an exercise price of $200, subject to
adjustment. Alternatively, upon the occurrence of certain events (for example,
if the company is the surviving corporation in a merger with an Acquiring
Person), the rights entitle holders other than the Acquiring Person to acquire
Common Stock having a value of twice the exercise price of the rights, or, upon
the occurrence of certain other events (for example, if the company is acquired
in a merger or other business combination transaction in which the company is
not the surviving corporation), to acquire common stock of the Acquiring Person
having a value twice the exercise price of the rights. The rights may be
redeemed by the company at $.01 per right at any time until the tenth day
following public announcement that a 20% position has been acquired. The rights
will expire on 16 March 1998.
10 Income Taxes
The following table shows the components of the provision for income taxes:
(Millions of dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Federal:
Current ............................................ $ 61.3 $ 75.6 $ 81.0
Deferred ........................................... 90.6 69.5 52.0
- ---------------------------------------------------------------------------------------------------
151.9 145.1 133.0
- ---------------------------------------------------------------------------------------------------
State:
Current ............................................ 3.6 7.9 10.2
Deferred ........................................... 6.5 11.9 10.2
Impact of law/rate change .......................... -- (1.4) (.9)
- ---------------------------------------------------------------------------------------------------
10.1 18.4 19.5
- ---------------------------------------------------------------------------------------------------
Foreign:
Current ............................................ 42.1 22.2 28.0
Deferred ........................................... 4.2 7.5 4.1
Impact of law/rate change .......................... (7.2) -- --
- ---------------------------------------------------------------------------------------------------
39.1 29.7 32.1
- ---------------------------------------------------------------------------------------------------
$201.1 $193.2 $184.6
- ---------------------------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities are as
follows:
(Millions of dollars)
30 September 1997 1996
- ---------------------------------------------------------------------------------------------------
Gross deferred tax assets:
Pension and other compensation
accruals ........................................ $ 95.2 $ 72.9
Alternative minimum tax ........................... 46.3 36.3
Tax loss carryforwards ............................ 33.9 40.2
Foreign currency translation
adjustment ...................................... -- 31.5
Reserves and accruals ............................. 23.4 29.5
Postretirement benefits ........................... 29.5 23.4
Inventory ......................................... 20.4 18.0
Other ............................................. 48.2 49.0
Valuation allowance ............................... (22.6) (33.5)
- ---------------------------------------------------------------------------------------------------
Deferred tax assets .................................. 274.3 267.3
- ---------------------------------------------------------------------------------------------------
Gross deferred tax liabilities:
Plant and equipment ............................... 622.9 541.0
Investment in partnerships ........................ 198.6 181.4
Employee benefit plans ............................ 43.9 25.7
Currency gains .................................... 24.2 13.3
Foreign currency translation adjustment ........... 7.7 --
Other ............................................. 73.9 59.1
- ---------------------------------------------------------------------------------------------------
Deferred tax liabilities ............................. 971.2 820.5
- ---------------------------------------------------------------------------------------------------
Net deferred income tax liability .................... $696.9 $553.2
- ---------------------------------------------------------------------------------------------------
Net current deferred tax assets of $33.1 million and $29.0 million are included
in other current assets at 30 September 1997 and 1996, respectively.
22
The company's domestic operations are subject to taxes under the Alternative
Minimum Tax (AMT) for income tax purposes. The AMT limits the utilization of tax
benefits in the current year. The unused tax benefits are carried forward for
use in future years.
Foreign and state operating loss carryforwards on 30 September 1997 were $80.4
million and $130.1 million, respectively. Foreign losses of $36.8 million are
available to offset future foreign income through 2007. The balance of these
losses has an unlimited carryover period. State operating loss carryforwards are
available through 2012. Foreign capital loss carryforwards were $4.4 million on
30 September 1997 and have an unlimited carryover period.
The valuation allowance as of 30 September 1997 primarily relates to the tax
loss carryforwards referenced above. If events warrant the reversal of the $22.6
million valuation allowance, it would reduce intangible assets by $6.9 million
and reduce tax expense by $15.7 million.
Major differences between the federal statutory rate and the effective tax rate
are:
(Percent of income before taxes) 1997 1996 1995
- --------------------------------------------------------------------------------
United States federal statutory
rate ........................ 35.0% 35.0% 35.0%
State taxes, net of federal tax
benefit ..................... 2.2 2.2 2.4
Equity in earnings of foreign
affiliates .................. (2.5) (4.1) (2.6)
Foreign tax credits and refunds
on dividends received from
foreign affiliates .......... .1 .1 (.4)
Nonconventional fuel credits ... (.8) (1.1) (1.0)
Export tax benefits ............ (.6) (.7) (.6)
Investment tax credits ......... (1.1) (.5) (.2)
Impact of state law/rate change -- (.2) (.2)
Derivative settlement .......... -- .9 --
Other .......................... (.4) .1 1.0
- --------------------------------------------------------------------------------
Effective tax rate ............. 31.9% 31.7% 33.4%
- --------------------------------------------------------------------------------
The following table summarizes the income of U.S. and foreign operations, before
taxes:
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Income from consolidated operations:
United States ................... $426.6 $416.4 $397.7
Foreign ......................... 119.5 91.8 86.7
Income from equity affiliates ...... 84.3 101.4 68.4
- --------------------------------------------------------------------------------
$630.4 $609.6 $552.8
- --------------------------------------------------------------------------------
Income before taxes presented above is distributed geographically according to
where the income is taxed. This differs from the geographic segment operating
income presented in Note 20 in which items of income and expense are allocated
to the region where revenues are generated.
The company does not pay or record U.S. income taxes on the undistributed
earnings of its foreign subsidiaries and its 20% to 50% owned corporate joint
ventures as long as those earnings are permanently reinvested in the companies
that produced them. These cumulative undistributed earnings are included in
consolidated retained earnings on the balance sheet and amounted to $611.7
million at the end of fiscal 1997. An estimated $151.4 million in U.S. income
and foreign withholding taxes would be due if these earnings were remitted as
dividends, after payment of all deferred taxes.
11 Stock Option and Award Plans
LONG-TERM INCENTIVE PLAN The Long-Term Incentive Plan (the "Plan") provides for
four principal types of awards to executives and key employees: stock options,
stock appreciation rights, performance units, and deferred stock units. The
award type most frequently used is the nonqualified stock option with an
exercise price fixed at 100% of the fair market value of a share of Air Products
common stock ("stock") on the date of grant. Nonqualified stock options
standardly become exercisable in cumulative installments of 33 1/3% one year
after the date of grant and annually thereafter, and must be exercised no later
than ten years and one day from the date of grant.
On 1 October 1996, 319,900 premium priced stock options were granted in addition
to the fair market value stock options. These stock options have an exercise
price at 24% above market on the date of grant (or $72). The awards are 100%
vested after two years and are exercisable over an additional three-year period.
As of 30 September 1997, a total of 5,429,943 options including both fair market
value and premium priced stock options were outstanding.
23
In fiscal year 1997, the company also granted deferred stock units identified as
performance shares to executive officers and other key employees. These awards
provide for the issuance of common stock based on certain management objectives
achieved by the performance period ending 30 September 1998. The number of
shares to be paid can vary from 0% to 150% of the 226,000 base performance share
units. Compensation expense is recognized over a period ranging from two to ten
years.
Prior to the issuance of performance shares, the company granted deferred stock
units as career share awards in fiscal years 1992 through 1997 to certain
executive officers and other key employees. Career shares are deferred stock
units payable in shares of stock after retirement. Career share awards
equivalent to 449,784 and 446,950 shares of stock were outstanding at the end of
fiscal years 1997 and 1996, respectively. Compensation expense was computed by
multiplying the number of units granted by the market price of the stock on the
date of grant. The cost is recognized over a ten-year period.
The following table summarizes stock option transactions (fair market value
stock options and premium priced stock options) as follows:
Number of Average
Shares Price
- -------------------------------------------------------------------------------
Outstanding at September 30, 1994 ....... 5,200,873 $ 27.35
Granted ................................. 751,670 46.25
Exercised ............................... (806,295) 18.82
Forfeited ............................... (13,714) 42.23
- -------------------------------------------------------------------------------
Outstanding at September 30, 1995 ....... 5,132,534 31.41
Granted ................................. 794,990 52.06
Exercised ............................... (572,953) 22.08
Forfeited ............................... (15,799) 46.48
- -------------------------------------------------------------------------------
Outstanding at September 30, 1996 ....... 5,338,772 35.44
Granted ................................. 1,218,650 61.99
Exercised ............................... (1,121,978) 25.25
Forfeited ............................... (5,501) 51.88
- -------------------------------------------------------------------------------
Outstanding at September 30, 1997 ....... 5,429,943 43.46
- -------------------------------------------------------------------------------
Exercisable at end of year .............. 3,404,082
Participants at end of year ............. 490
Available for future grant at end of year 4,463,900
- -------------------------------------------------------------------------------
The following table summarizes information about options outstanding at 30
September 1997:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
$17.60 - $22.82 632,794 2.59 $21.98 632,794 $21.98
23.22 - 33.85 1,060,514 4.51 28.76 1,060,514 28.76
39.13 - 46.25 1,745,213 7.12 43.42 1,476,754 42.91
52.06 - 83.38 1,991,422 9.16 58.14 234,020 52.06
- -------------------------------------------------------------------------------------------------------------------
OTHER STOCK-BASED INCENTIVES In addition to the Long-Term Incentive Plan, there
is a Directors' Stock Option Plan. Options awarded to non-employee directors are
exercisable six months after grant date and must be exercised no later than ten
years and one day from the date of grant. Under this plan, there were 32,000 and
28,000 options outstanding and exercisable at the end of fiscal years 1997 and
1996, respectively. Option prices were $69.1875 and $50.81 per share for options
issued in fiscal 1997 and 1996, respectively. As of 30 September 1997, 5,000
stock options have been exercised under this plan.
The company grants deferred stock unit awards to certain key employees below the
executive level. Deferred stock units equivalent to 400,135 and 414,965 shares
of stock were outstanding at the end of fiscal years 1997 and 1996,
respectively. Compensation expense is computed by multiplying the number of
units granted by the market value of the stock on the date of grant. The cost is
recognized over the four-year deferral period applicable to the awards.
On 2 October 1995, the company awarded 100 stock options with an exercise price
of $52.06 per share to virtually all employees. These options vest three years
after date of grant and are exercisable over an additional seven-year period. At
30 September 1997, 1,284,300 of these options were outstanding. In November
1997, the company disclosed its intention to award 100 stock options to
virtually all employees. Approximately 1,450,000 options will be granted at an
exercise price of $82.63 per share.
24
PRO FORMA INFORMATION SFAS No. 123 requires the company to disclose pro forma
net income and pro forma earnings per share amounts as if compensation expense
were recognized for options granted after fiscal year 1995. Using this approach,
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table:
(Millions of dollars, except per share) 1997 1996
- --------------------------------------------------------------------------------
Net earnings - as reported ............ $429.3 $416.4
Net earnings - pro forma .............. 415.5 407.3
Earnings per share - as reported ...... 3.90 3.73
Earnings per share - pro forma......... 3.78 3.65
- --------------------------------------------------------------------------------
This pro forma impact may not be representative of the effects for future years
and is likely to increase as additional options are granted and amortized over
the vesting period.
For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average of assumptions:
1997 1996
- --------------------------------------------------------------------------------
Dividend yield ....................... 2.3% 2.3%
Expected volatility .................. 25.3% 23.5%
Risk-free interest rate............... 6.6% 6.1%
Expected life (years)................. 7.2 6.1
- --------------------------------------------------------------------------------
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility. Because the
company's options have characteristics different from those of traded options,
in the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its options.
12 Plant and Equipment
The major classes of plant and equipment, at cost, are as follows:
(Millions of dollars)
30 September 1997 1996
- --------------------------------------------------------------------------------
Land .................................. $ 102.8 $ 84.8
Buildings ............................. 580.2 525.5
Gas generating and chemical facilities,
machinery and equipment ............ 7,512.6 6,836.3
Construction in progress .............. 531.7 656.0
- --------------------------------------------------------------------------------
$8,727.3 $8,102.6
- --------------------------------------------------------------------------------
13 Pension Plans
The company has various pension plans which cover almost all regular employees.
The plan benefits are based primarily on years of service and employees'
compensation near retirement. The funding policy is to accumulate plan assets
that, over the long run, will approximate the present value of projected
benefits payable. Plan assets consist primarily of listed stocks, corporate
bonds, and government obligations. In fiscal 1997 and 1996, the company
contributed $10.7 and $51.6 million, respectively, to these plans.
The actuarially computed pension cost (income) includes the following
components:
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost --
benefits earned
during the
period ............. $ 32.8 $ 33.0 $ 25.9
Interest cost on
projected benefit
obligation ......... 68.2 63.4 55.6
Return on plan
assets:
Actual ............. (178.2) (97.1) (90.6)
Deferred ........... 105.2 32.7 34.6
Recognized
return ........... (73.0) (64.4) (56.0)
Net
amortization ....... (1.4) 2.6 (1.8)
- --------------------------------------------------------------------------------
Pension cost ........ $ 26.6 $ 34.6 $ 23.7
- --------------------------------------------------------------------------------
25
The following table shows the combined funded status of the U.S. plans at 30
September 1997 and 1996, foreign plans at 30 June 1997 and 1996, and amounts
recognized in the company's consolidated balance sheets at 30 September 1997 and
1996:
(Millions of dollars) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Accumulated Benefit
Benefit Obligation Benefit Obligation
Obligation Exceeds Assets Obligation Exceeds Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested ..................................................... $623.9 $102.2 $529.8 $ 93.8
Nonvested .................................................. 41.1 10.7 36.8 10.0
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation ................................ 665.0 112.9 566.6 103.8
- ----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of projected benefit obligation ....... 845.8 133.6 713.7 123.0
Plan assets at fair value ..................................... 883.1 60.3 736.9 49.7
- ----------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) less than plan
assets ........................................................ 37.3 (73.3) 23.2 (73.3)
Unamortized net transition (asset) obligation ................. (24.1) 2.3 (27.5) 2.9
Unrecognized net (gain) loss .................................. (17.7) 11.4 5.9 11.0
Unamortized prior service (income) cost ....................... (.8) 14.8 (1.2) 14.5
Adjustment required to recognize minimum liability ............ -- (15.5) -- (17.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Net pension (liability) asset ................................. $ (5.3) $(60.3) $ .4 $(62.3)
- ----------------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation was determined using the following assumptions:
1997 1996
- --------------------------------------------------------------------------------
Weighted average discount rate ... 7 3/5% 8 1/5%
Weighted average long-term rate of
compensation increase ......... 4 4/5% 5%
- --------------------------------------------------------------------------------
These rates are used in the determination of pension cost in the succeeding
year. The weighted average expected long-term return on plan assets used to
determine pension cost was 10% in fiscal 1995 through 1997.
In addition to the above plans, U.S. employees are eligible to contribute to a
401(k) plan. The company matches a portion of these contributions. Contributions
charged to income for this plan for 1997, 1996, and 1995 were $12.1 million,
$11.6 million, and $10.8 million, respectively.
14 Other Postretirement Benefits
The company provides health care and life insurance benefits for certain retired
domestic employees until the age of 65, and provides health care coverage only
for their covered dependents. The company's various health care programs include
different cost-sharing features such as participant contributions, deductibles
and copayments, and limits on the company's annual cost. The company accrues the
estimated cost of providing postretirement benefits during the employees'
applicable years of service.
The postretirement benefit cost includes the following components:
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the period ............. $3.5 $3.9 $3.2
Interest cost on accumulated post-
retirement benefit obligation .. 4.2 4.4 4.5
Net amortization ................. (.3) -- --
- --------------------------------------------------------------------------------
Postretirement benefit cost ...... $7.4 $8.3 $7.7
- --------------------------------------------------------------------------------
At 30 September 1997 and 1996, the actuarial and recorded liabilities for
postretirement benefits, none of which have been funded, are as follows:
(Millions of dollars)
30 September 1997 1996
- --------------------------------------------------------------------------------
Actuarial present value of benefit
obligation:
Retirees ............................ $21.1 $21.9
Fully eligible active plan
participants ...................... 12.5 13.2
Other active plan participants ...... 22.8 23.2
- --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation .......................... 56.4 58.3
Unrecognized net gain .................. 9.0 4.0
- --------------------------------------------------------------------------------
Accrued postretirement benefit liability $65.4 $62.3
- --------------------------------------------------------------------------------
26
The accumulated postretirement benefit obligation was determined using a
discount rate of 7 1/2% in 1997 and 8% in 1996. The weighted average assumed
health care cost trend rate is 7 1/2% for fiscal 1998 (7 4/5% and 6 1/2% were
assumed in 1997 and 1996, respectively). The weighted average health care cost
trend rate is assumed to decrease gradually to 5 1/2% by the year 2005 and
remain at that level thereafter. Increasing the health care cost trend rate by
one percentage point would increase the accumulated postretirement benefit
obligation at 30 September 1997 by approximately 4% and the postretirement
benefit cost for fiscal 1997 by approximately 5%.
15 Leases
Capital leases, primarily for machinery and equipment, are included with owned
plant and equipment on the balance sheet in the amount of $46.0 million and
$45.5 million at the end of fiscal 1997 and 1996, respectively. Related amounts
of accumulated depreciation are $23.6 million and $24.2 million, respectively.
Operating leases, including month-to-month agreements, cost the company $60.6
million in 1997, $50.0 million in 1996, and $42.8 million in 1995.
At 30 September 1997, minimum payments due under leases are as follows:
Capital Operating
(Millions of dollars) Leases Leases
- --------------------------------------------------------------------------------
1998........................... $ 8.0 $ 25.3
1999........................... 6.9 20.6
2000........................... 6.0 14.0
2001 .......................... 5.0 9.5
2002........................... 5.2 6.0
2003 and thereafter............ 10.8 32.1
- --------------------------------------------------------------------------------
$41.9 $107.5
- --------------------------------------------------------------------------------
The present value of the above future capital lease payments is included in the
liability section of the balance sheet. At the end of fiscal 1997, $5.3 million
was classified as current and $26.7 million as long-term.
16 Other Commitments and Contingencies
Subsidiaries of Air Products and Browning-Ferris Industries, Inc. (BFI) have
formed American Ref-Fuel partnerships that construct, own, and operate
facilities to incinerate municipal solid waste and generate electricity. Five
facilities -- Hempstead, New York; Essex County, New Jersey; Preston,
Connecticut; Niagara Falls, New York; and SEMASS in Rochester, Massachusetts are
in commercial operation. Financing arrangements for these projects include
agreements with Air Products and BFI to each fund one-half of certain
partnership cash deficiencies resulting from the partnership's failure to
perform. In all cases except Niagara Falls and SEMASS, (i) the sponsoring
municipality is obligated to make minimum payments that are at least sufficient
to support the project debt of the partnership in the event of failure to
deliver waste or most changes in law, and (ii) the municipality is obligated at
least to satisfy most of the outstanding project debt if the incineration
service is terminated for reasons other than default by the Ref-Fuel
partnership. If a partnership default results in termination, Air Products may
limit its financial obligation by partnership as follows:
Hempstead: Periodic debt service on 50% of the unamortized project debt. Total
unamortized debt was $210 million as of 30 September 1997. Average annual debt
service on 50% of the debt over the next five years is $10 million. Air Products
has guaranteed $5 million of additional partnership debt and annual debt service
on such debt is estimated to be $0.2 million.
Essex County: One-half of any partnership cash deficiency, including debt
service, but which is limited to $50 million related to the debt and up to an
additional $50 million if certain environmental events occur. Average annual
debt service on 50% of the debt over the next five years is $10 million.
Preston: Periodic debt service on 50% of the unamortized debt. Total unamortized
project debt was $86 million as of 30 September 1997 and $44 million of
additional partnership debt of which $22 million is guaranteed by Air Products.
Average annual debt service on 50% of the debt over the next five years is $6
million.
The financial support at SEMASS and Niagara is discussed below:
At Niagara Falls, Air Products and BFI entered into guarantees to each fund
one-half of any partnership cash deficiency, relating to variable rate debt
service. Total unamortized project debt was $165 million as of 30 September
1997. Average annual debt service on 50% of the debt over the next five years is
estimated to be $3 million.
SEMASS: Air Products and BFI entered into support agreements and guarantees (50%
each) that provide obligations to (i) lend up to $5 million to the SEMASS
Partnership in certain circumstances, (ii) defer up to $7 million of operating
cost reimbursement, and (iii) fund up to $5 million in operating damages. These
obligations have been assigned to the lenders. The SEMASS Partnership's debt of
approximately $300 million as of 30 September 1997 is not supported or
guaranteed by either Air Products or BFI.
27
General partnerships, in which subsidiaries of Air Products have a 50% interest,
own facilities in Stockton, California and Cambria County, Pennsylvania that
burn coal and coal waste, respectively, and produce electricity and steam. Air
Products is also operator of these projects. Specific performance guarantees
obligate Air Products to pay damages up to the following amounts under certain
circumstances and if the general partnership is unable to service its debt:
Stockton: Periodic debt service on the outstanding project debt ($19 million as
of 30 September 1997). Average annual debt service over the next five years is
$4 million.
Cambria: Under certain circumstances, if the facility fails to operate as a
result of not having fuel available, the outstanding project debt ($144 million
as of 30 September 1997). Otherwise, $1 million (escalates from October 1989)
annually up to a cumulative total of $17 million.
Additionally, Air Products and a subsidiary have a 50% interest in a limited
partnership that owns a natural gas-fired cogeneration facility in Orlando,
Florida. Under agreements with the partnership, Air Products provides financial
support relating to the facility's natural gas supply. In the event the
partnership's municipal utility district customer (one of the project's two
power purchasers) terminates its contract due to a partnership default, Air
Products will make available up to $15 million (escalates from February 1992) to
compensate the utility district for the higher cost of power procured from other
sources over a period of up to 5 years.
In connection with financing of the cogeneration projects, Air Products has
contracted to provide financial support in the event of a title problem at the
plant site.
Air Products and an equity affiliate effectively own 48.9% of Bangkok
Cogeneration Company. Bangkok Cogeneration Company is constructing a
cogeneration facility in Thailand and has entered into agreements providing for
financings aggregating approximately $92 million. The failure of the affiliate
to achieve certain milestones allows the lenders recourse against the company in
proportion to its ownership interest to the extent that the equity investors
have continued to draw down on loans. Such milestones include obtaining
government approvals, permits, and land rights by certain dates or by the time
project costs reach certain levels. Construction is expected to be completed in
August 1998.
In addition, the company has guaranteed repayment of borrowings of certain
domestic and foreign equity affiliates. At year end, these guarantees totaled
approximately $62 million.
The company has accrued for certain environmental investigatory and noncapital
remediation costs consistent with the policy set forth in Note 1. The potential
exposure for such costs is estimated to range from $17 million to a reasonably
possible upper exposure of $39 million. The balance sheet at 30 September 1997
includes an accrual of $33 million. The company does not expect that any sums it
may have to pay in connection with these environmental matters would have a
materially adverse effect on its consolidated financial position or results of
operations in any one year.
The company in the normal course of business has commitments, lawsuits,
contingent liabilities, and claims. However, the company does not expect that
any sum it may have to pay in connection with these matters will have a
materially adverse effect on its consolidated financial position or results of
operations.
At the end of fiscal 1997, the company had purchase commitments to spend
approximately $148 million for additional plant and equipment.
17 Acquisition of Carburos Metalicos S.A.
In November 1994, the company published a tender offer to acquire 74.2% of the
outstanding shares (9.7 million) of Carburos Metalicos S.A. (Carburos),
representing all of the shares in Carburos not owned by the company. The company
made a second tender offer in September 1995 and a third tender offer in
September 1996. The company acquired less than 1% of the outstanding shares in
the initial tender offer while the second tender offer resulted in the
acquisition of an additional 21.5% (2.8 million) of the outstanding shares at a
cost of $120.0 million.
On 22 October 1996, the company obtained control of Carburos through the
acquisition of an additional 49.1% (6.4 million) of the outstanding shares at a
cost of $288.4 million. The company now owns 96.7% of the outstanding shares in
Carburos. The acquisition was funded through the issuance of U.S. dollar debt
effectively converted to Spanish Peseta liabilities through the use of interest
rate and currency swap contracts and foreign exchange contracts.
Carburos is a leading supplier of industrial gases in Spain. This transaction
was accounted for as a step acquisition purchase and the results for the year
ended 30 September 1997 contained approximately forty-five weeks of consolidated
operating results for Carburos. Previously, the company accounted for its
investment using the equity method. The company has recorded a total of $212.2
million as cumulative goodwill related to the shares acquired in the three
tender offers. The goodwill will be amortized on a straight-line basis over
forty years.
The following table shows unaudited pro forma consolidated financial information
for the years ended 30 September 1997 and 1996. This information reflects the
acquisition as if it had occurred on 1 October 1995 and includes adjustments for
asset valuation depreciation expense, goodwill amortization, and interest
expense from acquisition debt. This information is not necessarily indicative of
future consolidated results or what actual results would have been had the
acquisition occurred at the beginning of fiscal 1996.
28
Pro forma information (unaudited):
(Millions of dollars, except per share) 1997 1996
- --------------------------------------------------------------------------------
Sales ................................. $4,682.7 $4,309.7
Net Income ............................ 430.3 423.1
Earnings Per Share .................... 3.91 3.79
- --------------------------------------------------------------------------------
18 Subsequent Event
In October 1997, the company entered into an agreement in principle to sell its
50% interest in American Ref-Fuel, its waste-to-energy joint venture with
Browning-Ferris Industries, Inc. to Duke Energy Power Services and United
American Energy Corporation. The sale is subject to the completion of a
definitive agreement and approvals by each company's board of directors and
relevant regulatory agencies. The transaction is expected to close in December
1997. The company will receive a majority of the transaction value in cash at
that time, and will retain a limited partnership interest in one project which
is undergoing a power agreement restructuring. The restructuring is expected to
be completed within one year, at which point the company would receive the
remaining cash. The operations of American Ref-Fuel are the primary component of
equity affiliates' income of the corporate and other business segment. Fiscal
1997 results included equity affiliates' income of $21.4 million before taxes.
This includes a $4.8 million charge for refinancing the debt of American
Ref-Fuel of Hempstead.
19 Supplementary Information
Payables, Trade and Other
(Millions of dollars)
30 September 1997 1996
- --------------------------------------------------------------------------------
Accounts payable, trade .............. $468.9 $396.0
Outstanding checks payable in excess
of certain cash balances .......... 40.2 50.2
Customer advances .................... 107.5 80.2
- --------------------------------------------------------------------------------
$616.6 $526.4
- --------------------------------------------------------------------------------
Accrued Liabilities
(Millions of dollars)
30 September 1997 1996
- --------------------------------------------------------------------------------
Accrued payroll and employee
benefits ......................... $ 98.8 $ 76.6
Accrued interest expense ............ 44.7 44.0
Other accrued liabilities ........... 172.2 120.5
- --------------------------------------------------------------------------------
$315.7 $241.1
- --------------------------------------------------------------------------------
Short-Term Borrowings
(Millions of dollars)
30 September 1997 1996 1995
- --------------------------------------------------------------------------------
Bank obligations................. $ 20.8 $ 31.0 $ 22.0
Commercial paper................. 54.5 370.0 271.6
Notes payable -- other........... 25.6 22.2 20.1
- --------------------------------------------------------------------------------
$100.9 $423.2 $313.7
- --------------------------------------------------------------------------------
The weighted average interest rate of short-term commercial paper outstanding as
of 30 September 1997, 1996, and 1995 was 5.7%, 5.5%, and 5.9%, respectively.
Other Income (Expense), Net
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest income ....................... $ 6.7 $ 7.3 $ 8.2
Foreign exchange ...................... (5.8) .3 5.5
Gain on sale of assets and
investments ........................ 25.1 -- 10.7
Impairment loss of long-lived assets... (9.9) -- --
Royalty and technology income ......... 2.7 1.5 2.3
Amortization of intangibles ........... (14.6) (10.7) (8.1)
Technical aid fees .................... 12.8 13.0 10.3
Miscellaneous ......................... 7.2 14.3 (3.4)
- --------------------------------------------------------------------------------
$ 24.2 $ 25.7 $ 25.5
- --------------------------------------------------------------------------------
ADDITIONAL INCOME STATEMENT INFORMATION Fiscal 1997 results were increased by
net after-tax income of $1.6 million, or $.01 per share, for special items. The
components of special items on a before- and after-tax basis were as follows: a
gain of $9.5 million ($5.9 million after tax, or $.05 per share) on the sale of
the landfill gas recovery business; a charge of $9.3 million ($6.0 million after
tax, or $.05 per share) for an impairment loss in the chemicals segment; a gain
of $7.3 million ($4.5 million after tax, or $.04 per share) on the partial sale
of a cost basis investment; a charge of $4.8 million ($2.8 million after tax, or
$.03 per share) from the debt refinancing of American Ref-Fuel of Hempstead.
Fiscal 1996 results include a $66.8 million ($40.7 million after tax, or $.36
per share) settlement with Bankers Trust Company over losses reported in fiscal
1994 associated with leveraged interest rate swap contracts. The settlement
included the termination of two previously closed contracts with Bankers Trust.
Prior to the settlement, there was an outstanding liability of $61.7 million
associated with these closed contracts.
29
Fiscal 1995 results include a gain of $10.8 million ($6.6 million after tax, or
$.06 per share) from the sale of an industrial gas plant.
ADDITIONAL CASH FLOW INFORMATION Cash paid for interest and taxes is as follows:
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest (net of amounts
capitalized) ........ $161.5 $116.6 $98.9
Taxes (net of refunds) . 89.1 98.9 87.6
- --------------------------------------------------------------------------------
Significant noncash transactions are as follows:
(Millions of dollars) 1997 1996 1995
- --------------------------------------------------------------------------------
Capital lease additions ........ $3.0 $4.7 $5.2
Receivable from terminated
environmental and energy
project ..................... -- -- 20.4
Debt associated with acquisition 1.1 5.2 18.4
- --------------------------------------------------------------------------------
Summary by Quarter
This table summarizes the unaudited results of operations for each quarter of
1997 and 1996:
(Millions of dollars, except per share) First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------------
1997
Sales................................................. $1,120.9 $1,153.1 $1,150.3 $1,213.5
Operating income...................................... 169.4 184.0 192.9 179.1
Net income............................................ 99.9 106.0 116.0 107.4
Earnings per common share............................. .91 .96 1.05 .98
Dividends per common share............................ .275 .275 .30 .30
Price per common share:
High............................................... 70 5/8 77 5/8 85 5/8 89 5/8
Low................................................ 58 66 1/2 66 3/8 79 5/8
- ---------------------------------------------------------------------------------------------------------------------------
1996
Sales................................................. $947.5 $1,012.5 $997.3 $1,050.4
Operating income...................................... 144.2 148.0 155.4 143.7
Net income............................................ 89.0 135.3 98.0 94.1
Earnings per common share............................. .80 1.21 .87 .85
Dividends per common share............................ .26 .26 .275 .275
Price per common share:
High............................................... 58 3/4 58 60 7/8 58 3/4
Low................................................ 49 3/4 50 3/8 54 3/8 51 3/4
- ---------------------------------------------------------------------------------------------------------------------------
As discussed in Note 6, the $66.8 million gain ($40.7 million after tax, or $.36
per share) from the settlement with Bankers Trust Company was recorded in the
second quarter of 1996.
Common Stock Information
Ticker Symbol: APD
Exchange Listing: New York Stock Exchange and
Pacific Stock Exchange
Transfer Agent and Registrar:
First Chicago Trust Company of New York
P.O. Box 2506, Jersey City, NJ 07303-2506
Telephone: (800) 519-3111
TDD: (201) 222-4955
Internet: http://www.fctc.com
E-mail: fctc@em.fcnbd.com
20 Business Segment and Geographic Information
The company has three business segments that manufacture products or provide
services to many different markets. The segment results for fiscal 1996 and 1995
have been restated. The business to be divested, American Ref-Fuel, and the
landfill gas recovery business sold in November 1996 are included in the
corporate and other segment, while the continuing businesses from the former
environmental and energy segment are now included in the equipment and services
segment.
The company is a leading international supplier of industrial and specialty gas
products. Principal products of the industrial gases segment are oxygen,
nitrogen, argon, hydrogen, carbon monoxide, carbon dioxide, synthesis gas, and
helium. The largest market segments are chemical processing, refining, metal
production, electronics, food processing, and medical gases. The company has its
strongest market positions in the United States and Europe.
30
The chemical businesses consist of polymer chemicals, performance chemicals, and
chemical intermediates. Polymer chemicals include polymer emulsions,
pressure-sensitive adhesives, and polyvinyl alcohol. Principal products of
performance chemicals are specialty additives, polyurethane additives, and epoxy
additives. Principal chemical intermediates are amines and polyurethane
intermediates. The company also produces certain industrial chemicals. The end
markets for the company's chemical products are extensive, including adhesive,
textile, paper, building products, agriculture, and furniture. Principal
geographic markets for the company's chemical products are North America,
Europe, and Asia.
The equipment and services segment designs and manufactures cryogenic and gas
processing equipment for air separation, gas processing, natural gas
liquefaction, hydrogen purification, and nitrogen rejection. The segment also
designs and builds systems for recovering gases using membrane technology. The
equipment is sold along with a broad range of plant design, engineering, and
operating services for the company's power generation and Pure Air(TM) flue gas
treatment facilities. Equipment is sold worldwide to companies involved in
chemical and petrochemical manufacturing, oil and gas recovery and processing,
power generation, and steel and primary metal production. Equipment is also
manufactured for the company's industrial gas business. Another important
market, particularly for air separation equipment, is the company's
international industrial gas joint ventures.
Business segment information is shown below:
Industrial Equipment Corporate
(Millions of dollars) Gases Chemicals and Services and Other Total
- ------------------------------------------------------------------------------------------------------------------------------
1997
Sales ......................................... $2,673.9 $1,448.1 $514.6 $1.2 $4,637.8
- ------------------------------------------------------------------------------------------------------------------------------
Operating income .............................. 515.2 204.2 37.5 (31.5) 725.4
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income ..................... 28.5 .4 13.9 23.5 66.3
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets ........................... 4,721.6 1,271.5 440.1 255.2 6,688.4
Investment in and advances to equity affiliates 314.6 2.4 26.0 212.7 555.7
Depreciation .................................. 347.0 102.7 7.2 2.2 459.1
Additions to plant and equipment .............. 696.0 152.6 1.7 19.9 870.2
- ------------------------------------------------------------------------------------------------------------------------------
1996
Sales ......................................... $2,310.5 $1,362.3 $314.6 $20.3 $4,007.7
- ------------------------------------------------------------------------------------------------------------------------------
Operating income .............................. 406.7 197.5 32.7 (45.6) 591.3
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income ..................... 44.0 .3 8.5 27.9 80.7
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets ........................... 3,923.3 1,225.5 345.6 268.6 5,763.0
Investment in and advances to equity affiliates 524.3 2.6 19.5 213.0 759.4
Depreciation .................................. 298.1 97.5 6.7 9.8 412.1
Additions to plant and equipment .............. 745.9 171.7 14.1 19.6 951.3
- ------------------------------------------------------------------------------------------------------------------------------
1995
Sales ......................................... $2,177.5 $1,358.8 $309.0 $20.0 $3,865.3
- ------------------------------------------------------------------------------------------------------------------------------
Operating income .............................. 445.7 192.4 .3 (36.5) 601.9
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income ..................... 22.1 .5 4.8 23.8 51.2
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets ........................... 3,564.2 1,144.5 328.3 197.8 5,234.8
Investment in and advances to equity affiliates 385.2 5.9 8.1 181.7 580.9
Depreciation .................................. 267.5 90.8 8.8 15.1 382.2
Additions to plant and equipment .............. 678.7 132.7 45.2 13.7 870.3
- ------------------------------------------------------------------------------------------------------------------------------
Notes: Corporate and other operating income includes the results from the
business to be divested, American Ref-Fuel, and the landfill gas recovery
business sold in November 1996, in addition to unallocated corporate expenses
and income and foreign exchange gains and losses. Corporate and other
identifiable assets include cash and cash items, unallocated administrative
facilities, and certain deferred items.
Identifiable assets exclude the investment in and advances to equity affiliates.
Sales are to unconsolidated customers. Sales between segments, excluding
transfers of products at cost, are not material. Products transferred at cost
consist primarily of air separation plants and distribution equipment
manufactured by the equipment and services segment for use by the industrial
gases segment. These transfers amounted to $559.0 million, $636.8 million, and
$507.0 million in 1997, 1996, and 1995, respectively.
31
Geographic information is presented below:
United Canada and
(Millions of dollars) States Europe Latin America Other Total
- ----------------------------------------------------------------------------------------------------------------------------
1997
Sales
Industrial Gases................... $1,589.9 $ 939.1 $138.1 $ 6.8 $2,673.9
Chemicals.......................... 1,357.7 45.5 33.6 11.3 1,448.1
Equipment and Services............. 320.9 193.7 -- -- 514.6
Corporate and Other................ 1.2 -- -- -- 1.2
- ----------------------------------------------------------------------------------------------------------------------------
Total............................ 3,269.7 1,178.3 171.7 18.1 4,637.8
- ----------------------------------------------------------------------------------------------------------------------------
Operating income...................... 554.3 150.8 20.9 (0.6) 725.4
- ----------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income............. 36.5 13.9 11.2 4.7 66.3
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets................... 4,164.6 2,033.1 300.4 190.3 6,688.4
Investment in and advances to
equity affiliates.................. 256.3 95.7 73.9 129.8 555.7
- ----------------------------------------------------------------------------------------------------------------------------
1996
Sales
Industrial Gases................... $1,477.8 $ 697.7 $133.3 $ 1.7 $2,310.5
Chemicals.......................... 1,282.5 56.3 9.4 14.1 1,362.3
Equipment and Services............. 236.5 78.1 -- -- 314.6
Corporate and Other................ 20.3 -- -- -- 20.3
- ----------------------------------------------------------------------------------------------------------------------------
Total............................ 3,017.1 832.1 142.7 15.8 4,007.7
- ----------------------------------------------------------------------------------------------------------------------------
Operating income...................... 460.8 115.5 14.5 0.5 591.3
- ----------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income............. 35.5 24.0 7.9 13.3 80.7
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets................... 3,992.7 1,411.8 224.4 134.1 5,763.0
Investment in and advances to
equity affiliates.................. 249.9 324.3 71.0 114.2 759.4
- ----------------------------------------------------------------------------------------------------------------------------
1995
Sales
Industrial Gases................... $1,357.6 $ 691.0 $128.9 $ -- $2,177.5
Chemicals.......................... 1,310.0 44.8 1.4 2.6 1,358.8
Equipment and Services............. 207.7 101.3 -- -- 309.0
Corporate and Other................ 20.0 -- -- -- 20.0
- ----------------------------------------------------------------------------------------------------------------------------
Total............................ 2,895.3 837.1 130.3 2.6 3,865.3
- ----------------------------------------------------------------------------------------------------------------------------
Operating income...................... 456.9 119.2 25.8 -- 601.9
- ----------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income............. 26.8 15.7 4.5 4.2 51.2
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets................... 3,569.4 1,395.4 156.1 113.9 5,234.8
Investment in and advances to
equity affiliates.................. 210.4 194.6 81.8 94.1 580.9
- ----------------------------------------------------------------------------------------------------------------------------
Notes: Included in United States sales are export sales to unconsolidated
customers of $555 million in 1997, $459 million in 1996, and $415 million in
1995. The Europe segment operates principally in the United Kingdom, France,
Germany, Netherlands, Spain, and Belgium. Equity affiliates' income and
investment in and advances to equity affiliates included under Other relates to
the company's equity affiliates in Asia and South Africa.
32
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Millions of dollars, except per share) 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Operating Results
Sales.................................................... $4,638 $4,008 $3,865 $3,485
Cost of sales............................................ 2,772 2,408 2,317 2,112
Selling, distribution, and administrative................ 1,051 920 869 789
Research and development................................. 114 114 103 97
Workforce reduction and asset write-downs................ -- -- -- --
Operating income......................................... 725 591 602 486
Equity affiliates' income(a) ............................ 66 80 51 28
(Settlement)/Loss on leveraged interest rate swaps....... -- (67) -- 107
Interest expense......................................... 161 129 100 81
Income taxes............................................. 201 193 185 92
Income from continuing operations........................ 429 416(b) 368 234(c)
Net income............................................... 429 416(b) 368 248(e)
Earnings per common share:(g)
Continuing operations................................. 3.90 3.73(b) 3.29 2.06(c)
Net income............................................ 3.90 3.73(b) 3.29 2.18(e)
- ------------------------------------------------------------------------------------------------------------------------------
Year-End Financial Position
Plant and equipment, at cost............................. $8,727 $8,103 $7,350 $6,520
Total assets............................................. 7,244 6,522 5,816 5,036
Working capital.......................................... 500 111 21 101
Long-term debt and other financings...................... 2,292 1,739 1,194 923
Shareholders' equity..................................... 2,648 2,574 2,398 2,206
- ------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on sales(h) ...................................... 9.3% 10.4% 9.5% 6.7%
Return on average shareholders' equity(h) ............... 16.6% 16.6% 16.1% 10.9%
Total debt to sum of total debt and shareholders' equity(i) 48.2% 46.0% 41.2% 36.0%
Cash provided by operations to average total debt(i) .... 40.9% 38.5% 48.6% 59.5%
Interest coverage ratio.................................. 4.4 5.1 5.5 4.5
- ------------------------------------------------------------------------------------------------------------------------------
Other Data
For the year:
Depreciation.......................................... $459 $412 $382 $353
Capital expenditures(k) .............................. 1,222 1,164 969 655
Cash dividends per common share(g) ................... 1.15 1.07 1.01 .95
Market price range per common share(g)................ 89 - 58 60 - 49 59 - 43 51 - 38
Average common shares outstanding (millions).......... 110 112 112 114
At year end:
Book value per common share(g) ....................... 24.11 23.30 21.48 19.46
Shareholders.......................................... 11,200 11,700 11,800 11,900
Employees............................................. 16,400 15,200 14,800 14,100
- ------------------------------------------------------------------------------------------------------------------------------
(a) Includes related expenses and gain on sale of investment in equity
affiliates.
(b) Includes an after-tax gain of $41 million, or $.36 per share, from a
settlement associated with leveraged interest rate swap contracts.
(c) Includes a charge of $75 million, or $.66 per share, for a loss on certain
derivative contracts.
(d) Includes a charge of $76 million, or $.67 per share, for workforce
reduction and asset write-downs.
(e) Includes a charge of $75 million, or $.66 per share, for a loss on certain
derivative contracts and a net gain of $14 million, or $.12 per share, for
the cumulative effect of accounting changes.
(f) Net income for fiscal 1992 and 1987 includes an extraordinary charge of $6
million, or $.05 per share, and $4 million, or $.04 per share,
respectively, for the early retirement of debt.
33
1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------
$3,328 $3,217 $2,931 $2,895 $2,642 $2,432 $2,132
2,030 1,937 1,755 1,775 1,601 1,452 1,279
744 724 686 659 610 545 489
92 85 80 72 71 72 57
120 -- -- -- -- -- --
369 481 435 399 382 374 327
13 16 13 17 9 (8) (9)
-- -- -- -- -- -- --
81 90 86 83 73 65 77
100 130 113 103 96 87 81
201(d) 277 249 230 222 214 160
201(d) 271(f) 249 230 222 214 156(f)
1.76(d) 2.45 2.22 2.07 2.02 1.95 1.42
1.76(d) 2.40(f) 2.22 2.07 2.02 1.95 1.38(f)
- --------------------------------------------------------------------------------------------------------
$5,953 $5,785 $5,332 $5,010 $4,442 $4,085 $3,714
4,761 4,492 4,228 3,900 3,366 3,000 2,705
322 279 117 214 262 110 145
1,016 956 945 954 854 668 616
2,102 2,098 1,841 1,688 1,445 1,272 1,147
- --------------------------------------------------------------------------------------------------------
6.0% 8.6% 8.5% 7.9% 8.4% 8.8% 7.5%
9.6% 14.0% 14.1% 14.7% 16.4% 17.6% 14.2%
37.3% 33.9% 38.1% 38.5% 38.4% 37.6% 36.8%
50.3% 52.7% 57.7% 52.7% 53.7% 65.4% 64.7%
4.4 5.4 4.2 4.2 4.6 4.9 3.9
- --------------------------------------------------------------------------------------------------------
$346(j) $340 $319 $303 $281 $258 $243
666 485 657 621 562 556 368
.89 .83 .75 .69 .63 .55 .45
50 - 37 50 - 31 37 - 21 31 - 22 25 - 18 27 - 14 27 - 16
114 113 112 111 110 110 113
18.41 18.50 16.40 15.17 13.11 11.60 10.33
11,800 11,100 10,900 11,100 11,400 11,900 12,000
15,300 14,500 14,600 14,000 14,100 13,300 12,100
- --------------------------------------------------------------------------------------------------------
(g) Data per common share are based on the average number of shares outstanding
during each year retroactively restated to reflect a two-for-one stock
split in 1992, except for book value per common share, which is based on
the number of shares outstanding at the end of each year retroactively
restated.
(h) Financial ratios were calculated using income from continuing operations.
(i) Total debt includes long-term debt, other financings, current portion of
long-term debt and other financings, and short-term borrowings as of the
end of the year.
(j) Depreciation expense in 1993 excludes $56 million associated with asset
write-downs.
(k) Capital expenditures include additions to plant and equipment, investment
in and advances to unconsolidated affiliates, acquisitions, and capital
lease additions.
1
Exhibit 21
SUBSIDIARIES OF AIR PRODUCTS AND CHEMICALS, INC.
The following is a list of the Company's subsidiaries, all of which are wholly
owned as of 30 September 1997, except for certain subsidiaries of the Registrant
which do not in the aggregate constitute a significant subsidiary as that term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934.
UNITED STATES
All companies are incorporated in the State of Delaware with the exception of
Air Products Ref-Fuel of Essex County, Inc. which is incorporated in the State
of New Jersey.
Registrant -- Air Products and Chemicals, Inc.
Air Products Helium, Inc.
Air Products Hydrogen Company, Inc.
Air Products, Incorporated
Air Products International Corporation
Air Products Manufacturing Corporation
Air Products Ref-Fuel of Essex County, Inc.
Air Products Ref-fuel of Hempstead, Inc.
APCI (U.K.), Inc.
Middletown Oxygen Company, Inc.
Permea, Inc.
Prodair Corporation
BELGIUM
Air Products S.A.
Air Products Management S.A.
BRAZIL
Air Products Gases Industriais Ltda. (The organization of this affiliate more
closely resembles a partnership with limited liability than a corporation.)
CANADA
Air Products Canada Ltd.
CHINA
Northern Air Products (Tianjin) Limited
Southern Air Products (Guangzhou) Limited
FRANCE
Air Products Industrie
Air Products S.A.
Prodair et Cie S.C.S.
Prodair S.A.
GERMANY
Air Products GmbH
THE NETHERLANDS
Air Products Nederland B.V.
Air Products (Pernis) B.V.
Air Products (Rozenburg), Inc.
SPAIN
Air Products Iberica, S.A.
S.E. de Carburos Metalicos S.A.
UNITED KINGDOM
Air Products PLC
Air Products (GB) Limited
Air Products (UK) Limited
Air Products (BR) Limited
Air Products (Chemicals) PLC (formerly Anchor Chemical Group PLC)
1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints HAROLD A. WAGNER or ARNOLD H. KAPLAN OR JAMES H.
AGGER, acting severally, his/her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him/her and in his/her
name, place and stead, in any and all capacities, to sign the Form 10-K Annual
Report for the fiscal year ended September 30, 1997 and all amendments thereto
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Harold A. Wagner Director and Chairman of the November 20, 1997
- -------------------------- Board (Principal Executive
Harold A. Wagner Officer)
/s/ Dexter F. Baker Director November 20, 1997
- ---------------------------
Dexter F. Baker
/s/ Tom H. Barrett Director November 20, 1997
- ---------------------------
Tom H. Barrett
/s/ L. Paul Bremer, III Director November 20, 1997
- --------------------------
L. Paul Bremer, III
/s/ Robert Cizik Director November 20, 1997
- --------------------------
Robert Cizik
2
/s/ Ruth M. Davis Director November 20, 1997
- ------------------------------
Ruth M. Davis
/s/ Edward E. Hagenlocker Director November 20, 1997
- ------------------------------
Edward E. Hagenlocker
/s/ James F. Hardymon Director November 20, 1997
- ------------------------------
James F. Hardymon
/s/ Joseph J. Kaminski Director November 20, 1997
- ------------------------------
Joseph J. Kaminski
/s/ Terry R. Lautenbach Director November 20, 1997
- ------------------------------
Terry R. Lautenbach
/s/ Rudolphus F. M. Lubbers Director November 20, 1997
- ------------------------------
Rudolphus F. M. Lubbers
- ------------------------------ Director November 20, 1997
Takeo Shiina
/s/ Lawrason D. Thomas Director November 20, 1997
- ------------------------------
Lawrason D. Thomas
5
1,000,000
YEAR
SEP-30-1997
OCT-01-1996
SEP-30-1997
53
0
895
15
386
1,624
8,727
4,286
4,441
1,125
2,292
0
0
125
2,523
7,244
4,638
4,638
2,772
2,772
114
6
161
630
201
429
0
0
0
429
3.90
3.90