UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended 31 March 2001
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-1274455
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(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 610-481-4911
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Indicate by check |X| 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at 8 May 2001
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Common Stock, $1 par value 227,942,740
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
INDEX
Page No.
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Part I. Financial Information
Consolidated Balance Sheets -
31 March 2001 and 30 September 2000 ................................ 4
Consolidated Income -
Three Months and Six Months Ended 31 March 2001 and 2000 ........... 5
Consolidated Statement of Comprehensive Income -
Three Months and Six Months Ended 31 March 2001 and 2000 ........... 6
Consolidated Cash Flows -
Six Months Ended 31 March 2001 and 2000 ............................ 7
Summary by Business Segments -
Three Months and Six Months Ended 31 March 2001 and 2000 ........... 8
Summary by Geographic Regions -
Three Months and Six Months Ended 31 March 2001 and 2000 ........... 11
Notes to Consolidated Financial Statements .......................... 12
Management's Discussion and Analysis ................................ 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders......... 21
Item 6. Exhibits and Reports on Form 8-K ........................... 22
Signatures .......................................................... 23
REMARKS:
The consolidated financial statements of Air Products and Chemicals, Inc. and
its subsidiaries (the "company" or "registrant") included herein have been
prepared by the company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the company, the
accompanying statements reflect all adjustments necessary to present fairly the
financial position, results of operations and cash flows for those periods
indicated, and contain adequate disclosure to make the information presented not
misleading. Such adjustments are of a normal, recurring nature unless otherwise
disclosed in the notes to consolidated financial statements. However, the
interim results for the periods indicated herein do not
2
reflect certain adjustments, such as the valuation of inventories on the LIFO
cost basis, which can only be finally determined on an annual basis. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
company's latest annual report on Form 10-K.
Results of operations for any three month or six month period are not
necessarily indicative of the results of operations for a full year.
3
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
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31 March 2001 30 September 2000
ASSETS (Unaudited)
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CURRENT ASSETS
Cash and cash items $ 100.6 $ 94.1
Trade receivables, less allowances for 1,049.8 982.7
doubtful accounts
Inventories 405.7 388.8
Contracts in progress, less progress billings 108.5 93.4
Other current assets 240.3 246.0
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TOTAL CURRENT ASSETS 1,904.9 1,805.0
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INVESTMENTS IN NET ASSETS OF AND ADVANCES TO 493.8 466.6
EQUITY AFFILIATES
PLANT AND EQUIPMENT, at cost 10,451.6 10,310.9
Less - Accumulated depreciation 5,274.9 5,054.2
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PLANT AND EQUIPMENT, net 5,176.7 5,256.7
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GOODWILL AND OTHER NONCURRENT ASSETS 709.1 742.2
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TOTAL ASSETS $8,284.5 $8,270.5
==============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 577.0 $ 578.4
Accrued liabilities 336.6 357.2
Accrued income taxes 17.1 10.0
Short-term borrowings 209.1 249.7
Current portion of long-term debt 302.0 179.5
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TOTAL CURRENT LIABILITIES 1,441.8 1,374.8
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LONG-TERM DEBT 2,515.6 2,615.8
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 534.3 561.3
DEFERRED INCOME TAXES 785.6 781.8
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TOTAL LIABILITIES 5,277.3 5,333.7
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MINORITY INTEREST IN SUBSIDIARY COMPANIES 117.4 115.5
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SHAREHOLDERS' EQUITY
Common stock (par value $1 per share, issued fiscal 2001 249.4 249.4
and 2000-249,455,584 shares)
Capital in excess of par value 360.5 342.2
Retained earnings 3,816.7 3,667.9
Unrealized gain on investments 15.4 15.7
Minimum pension liability adjustments (2.7) (2.7)
Cumulative translation adjustments (498.1) (420.8)
Net gains on cash flow hedges 1.3 --
Treasury Stock, at cost (fiscal 2001-21,419,844 shares; (731.4) (681.6)
2000-20,150,393 shares)
Shares in trust (fiscal 2001-13,850,516 shares; (321.3) (348.8)
fiscal 2000-15,086,482 shares)
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TOTAL SHAREHOLDERS' EQUITY 2,889.8 2,821.3
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,284.5 $8,270.5
==============================================================================================================
The accompanying notes are an integral part of these statements.
4
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
(Unaudited)
(Millions of dollars, except per share)
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Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
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SALES AND OTHER INCOME
Sales $1,498.3 $1,347.2 $2,939.6 $2,611.6
Other income (expense), net (9.0) 7.1 4.3 13.9
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1,489.3 1,354.3 2,943.9 2,625.5
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COSTS AND EXPENSES
Cost of sales 1,104.8 925.6 2,129.9 1,802.7
Selling and administrative 189.5 179.9 363.0 347.7
Research and development 30.8 29.9 59.3 60.0
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OPERATING INCOME 164.2 218.9 391.7 415.1
Income from equity affiliates, net of 16.9 21.3 37.8 41.6
related expenses
Loss on currency hedges related to -- 134.7 -- 247.9
BOC transaction and expenses
Interest expense 50.3 46.8 98.7 88.1
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INCOME BEFORE TAXES AND 130.8 58.7 330.8 120.7
MINORITY INTEREST
Income taxes 36.6 8.3 98.3 17.4
Minority interest (a) (.4) 2.8 2.3 5.1
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NET INCOME $94.6 $47.6 $230.2 $98.2
==========================================================================================================
BASIC EARNINGS PER COMMON $.44 $.22 $1.07 $.46
SHARE
- ----------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER $.43 $.22 $1.05 $.46
COMMON SHARE
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WEIGHTED AVERAGE NUMBER 214.5 213.3 214.4 213.2
OF COMMON SHARES (in
millions)
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WEIGHTED AVERAGE NUMBER 218.9 215.4 218.4 215.5
OF COMMON AND COMMON
EQUIVALENT SHARES (in
millions) (b)
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DIVIDENDS DECLARED PER $.19 $.18 $.38 $.36
COMMON SHARE - Cash
- ----------------------------------------------------------------------------------------------------------
(a) Minority interest primarily includes before-tax amounts.
(b) The dilution of earnings per common share is due mainly to the impact of
unexercised stock options.
The accompanying notes are an integral part of these statements.
5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(Millions of dollars)
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Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
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NET INCOME $94.6 $47.6 $230.2 $98.2
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OTHER COMPREHENSIVE INCOME
(LOSS), net of tax
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Unrealized holding gains/(losses) on .5 1.3 (.3) (2.7)
investments arising during the
period
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Foreign currency translation
adjustments:
Consolidated subsidiaries and (93.9) (34.9) (68.5) (104.0)
joint ventures
Cumulative effect of a change in -- -- (1.7) --
accounting for hedges of net
investments in foreign entities
Transaction gains (losses) resulting 34.2 16.4 (7.1) 40.7
from hedges of net investments in
foreign entities
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Total foreign currency translation (59.7) (18.5) (77.3) (63.3)
adjustments
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Cash flow hedges:
Cumulative effect of a change in -- -- (.8) --
accounting for cash flow hedges
Net gains arising during the period 5.6 -- 8.1 --
Reclassification adjustment for (5.7) -- (6.0) --
(losses) reclassified into income
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Net gains on cash flow hedges (.1) -- 1.3 --
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TOTAL OTHER COMPREHENSIVE (LOSS) (59.3) (17.2) (76.3) (66.0)
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COMPREHENSIVE INCOME $35.3 $30.4 $153.9 $32.2
=========================================================================================================================
The accompanying notes are an integral part of these statements.
6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
(Unaudited)
(Millions of dollars)
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Six Months Ended
31 March
2001 2000
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OPERATING ACTIVITIES
Net Income $230.2 $98.2
Adjustments to reconcile income to cash provided
by operating activities:
Depreciation 291.7 276.3
Impairment of long-lived assets 6.4 --
Deferred income taxes 7.1 12.9
Loss on BOC transaction -- 201.3
Undistributed (earnings) of unconsolidated affiliates (19.9) (25.5)
(Gain) on sale of assets and investments (.6) (10.9)
Other (14.6) 35.9
Working capital changes that provided (used) cash, net of
effects of acquisitions:
Trade receivables (82.2) (41.5)
Inventories and contracts in progress (37.9) 6.8
Payables, trade and other 1.6 30.7
Other (1.9) (82.6)
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CASH PROVIDED BY OPERATING ACTIVITIES 379.9 501.6
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INVESTING ACTIVITIES
Additions to plant and equipment (a) (302.3) (378.6)
Acquisitions, less cash acquired (b) -- (168.7)
Investment in and advances to equity affiliates (26.5) (16.5)
Proceeds from sale of assets and investments 32.2 30.0
Other 23.0 (15.3)
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CASH USED FOR INVESTING ACTIVITIES (273.6) (549.1)
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FINANCING ACTIVITIES
Long-term debt proceeds 54.4 507.5
Payments on long-term debt (21.4) (369.6)
Net (decrease) increase in commercial paper and other (25.7) 10.5
short-term borrowings
Purchase of treasury stock (50.0) --
Dividends paid to shareholders (81.5) (76.8)
Other 27.0 1.8
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CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (97.2) 73.4
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Effect of Exchange Rate Changes on Cash (2.6) 5.2
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Increase in Cash and Cash Items 6.5 31.1
Cash and Cash Items - Beginning of Year 94.1 61.6
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Cash and Cash Items - End of Period $100.6 $92.7
====================================================================================================================
(a) Excludes capital lease additions of $.5 million and $16.0 million in fiscal
2001 and 2000, respectively.
(b) Excludes $24.2 million of long-term debt assumed in acquisitions in fiscal
2000.
The accompanying notes are an integral part of these statements.
7
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
Business segment information is shown below:
(Millions of dollars)
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Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
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Revenues from external
customers
Gases $1,043.2 $842.1 $2,035.4 $1,622.7
Equipment 64.8 53.8 120.6 104.4
Chemicals 390.3 451.3 783.6 884.5
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Segment Totals 1,498.3 1,347.2 2,939.6 2,611.6
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Consolidated Totals $1,498.3 $1,347.2 $2,939.6 $2,611.6
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Operating income
Gases $156.8 $171.0 $348.2 $324.3
Equipment 3.5 5.6 4.6 6.8
Chemicals 18.5 50.0 55.5 101.6
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Segment Totals 178.8 226.6 408.3 432.7
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Corporate research and (14.6) (7.7) (16.6) (17.6)
development and other
(expense)
Consolidated Totals $164.2 $218.9 $391.7 $415.1
- --------------------------------------------------------------------------------------------------------------
Operating income (excluding
special items)
Gases $183.1(a) $164.7(c) $374.5(a) $318.0(c)
Equipment 3.5 5.6 4.6 6.8
Chemicals 23.1(b) 58.7(d) 60.1(b) 110.3(d)
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Segment Totals 209.7 229.0 439.2 435.1
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Corporate research and (8.6)(e) (7.7) (10.6)(e) (17.6)
development and other
(expense)
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Consolidated Totals $201.1 $221.3 $428.6 $417.5
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Equity affiliates' income
Gases $16.6 $17.8 $35.3 $34.2
Equipment .2 .5 .9 .8
Chemicals -- 3.1 1.5 6.7
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Segment Totals 16.8 21.4 37.7 41.7
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Other .1 (.1) .1 (.1)
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Consolidated Totals $16.9 $21.3 $37.8 $41.6
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8
(Millions of dollars)
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31 March
2001 2000
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Total assets
Gases $6,368.7 $6,243.1
Equipment 232.8 217.2
Chemicals 1,510.8 1,712.7
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Segment Totals 8,112.3 8,173.0
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Corporate assets 172.2 397.3
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Consolidated Totals $8,284.5 $8,570.3
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Twelve Months Ended
31 March
2001 2000
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Operating Return On Net Assets (ORONA)(f)
Gases 12.9% 10.8%
Equipment 6.3% 4.7%
Chemicals 9.6% 12.8%
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Segment Totals 12.0% 11.0%
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Consolidated Totals 11.3% 10.1%
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(a) The results for the three and six months ended 31 March 2001 exclude a cost
reduction charge of $26.3 million.
(b) The results for the three and six months ended 31 March 2001 exclude a cost
reduction charge of $4.6 million.
(c) The results for three and six months ended 31 March 2000 exclude a gain on
the sale of packaged gas facilities of $6.3 million.
(d) The results for three and six months ended 31 March 2000 exclude a cost
reduction charge of $8.7 million.
(e) The results for the three and six months ended 31 March 2001 exclude a
litigation settlement charge of $6.0 million.
(f) Operating return on net assets (ORONA) is calculated as the rolling four
quarter sum of operating income divided by the rolling five quarter average
of total assets less investments in equity affiliates. The ORONA
calculation excludes all special items impacting operating income.
9
A reconciliation of total segment operating income to consolidated income before
income taxes and minority interest is as follows:
(Millions of dollars)
- --------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------
Total segment operating
income $178.8 $226.6 $408.3 $432.7
Corporate research and (14.6) (7.7) (16.6) (17.6)
development and other
(expense)
- --------------------------------------------------------------------------------------------
Consolidated operating income 164.2 218.9 391.7 415.1
- --------------------------------------------------------------------------------------------
Equity affiliates' income 16.9 21.3 37.8 41.6
Loss on currency hedges related -- 134.7 -- 247.9
to BOC transaction and
expenses
Interest expense 50.3 46.8 98.7 88.1
- --------------------------------------------------------------------------------------------
Consolidated income before $130.8 $58.7 $330.8 $120.7
taxes and minority interest
============================================================================================
10
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
- -------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
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Revenues from external
customers
United States $1,018.8 $879.3 $1,988.6 $1,718.5
- -------------------------------------------------------------------------------------------
United Kingdom 116.1 124.4 218.9 245.5
Spain 78.0 78.9 147.8 155.7
Other Europe 152.8 149.1 294.0 289.9
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Total Europe 346.9 352.4 660.7 691.1
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Canada/Latin America 56.4 55.0 122.3 113.4
Asia 76.2 60.4 167.9 88.4
All Other -- .1 .1 .2
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Total $1,498.3 $1,347.2 $2,939.6 $2,611.6
- -------------------------------------------------------------------------------------------
Note: Geographic information is based on country of origin. The other Europe
segment operates principally in France, Germany, Netherlands, and
Belgium.
11
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted earnings per
share:
(Millions, except per share)
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Three Months Ended Six Months Ended
31 March 31 March
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------
Numerator for basic EPS
and diluted EPS-net income $94.6 $47.6 $230.2 $98.2
Denominator for basic EPS
-weighted average shares 214.5 213.3 214.4 213.2
Effect of diluted securities:
Employee stock options 3.4 1.3 3.1 1.5
Other award plans 1.0 .8 .8 .8
- --------------------------------------------------------------------------------------------------------
4.4 2.1 3.9 2.3
Denominator for diluted EPS
-weighted average shares and
assumed conversions 218.9 215.4 218.4 215.5
========================================================================================================
Basic EPS $.44 $.22 $1.07 $.46
========================================================================================================
Diluted EPS $.43 $.22 $1.05 $.46
========================================================================================================
Options on 5.6 million and 10.2 million shares of common stock were not included
in computing diluted EPS for the second quarter of fiscal 2001 and 2000,
respectively because their effects were antidilutive.
The results for the three and six months ended 31 March 2001 include a charge of
$30.9 million ($20.0 million after-tax, or $.09 per share) for a global cost
reduction plan. The plan includes 311 position eliminations, resulting in a
charge of $22.4 million for severance and termination benefits. A charge of $8.5
million was recognized for asset impairments and other related restructuring
costs. The restructuring charges included in cost of sales, selling and
administrative, and other expense were $14.4 million, $9.4 million, and $7.1
million, respectively. The results for the three and six months ended 31 March
2001, also, include a charge of $6.0 million ($3.7 million after-tax, or $.02
per share) related to a litigation settlement.
Income from equity affiliates, net of related expenses and taxes, contributed
$.07 and $.09 per share to diluted earnings per share for the three months ended
31 March 2001 and 31 March 2000, respectively. Income from equity affiliates,
net of related expenses and taxes, contributed $.16 and $.18 per share to
diluted earnings per share for the six months ended 31 March 2001 and 31 March
2000, respectively.
The company, The BOC Group plc (BOC) and L'Air Liquide S.A. (Air Liquide) of
France announced in July 1999 that they had agreed to the terms of a recommended
offer for the share capital of BOC. In May 2000, the company and Air Liquide
announced that the
12
Federal Trade Commission had indicated it would not approve the offer by 12 May
2000, the date on which the period for satisfying the preconditions to the offer
would expire, and the offer was not extended beyond 12 May 2000. As a result,
certain costs and financing fees that had been deferred were expensed in the
third quarter of fiscal 2000.
The results for the three and six months ended 31 March 2000 include a charge of
$134.7 million ($84.1 million after-tax, or $.39 per share) and $247.9 million
($154.7 million after-tax, or $.72 per share), respectively, for costs related
to the BOC transaction. These costs consist primarily of charges recorded on
purchased option and forward exchange contracts entered into to hedge the
currency exposure of the BOC transaction.
The results for the three and six months ended 31 March 2000 include a charge of
$8.7 million ($5.5 million after-tax, or $.03 per share) for the global cost
reduction plan and a gain of $6.3 million ($4.0 million after-tax, or $.02 per
share) related to the sale of packaged gas facilities. The restructuring charges
included in cost of sales, selling and administrative, and research and
development were $3.3 million, $4.4 million, and $1.0 million, respectively.
13
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER FISCAL 2001 VS. SECOND QUARTER FISCAL 2000
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales in the second quarter of fiscal 2001 of $1,498.3 million were up 11%, or
$151.1 million compared with the same quarter in the prior year. Operating
income of $164.2 million declined $54.7 million or 25%. Income from equity
affiliates was $16.9 million compared with $21.3 million in the prior year. Net
income was $94.6 million, or $.43 diluted earnings per share, compared to net
income of $47.6 million, or $.22 diluted earnings per share, in the year-ago
quarter. The results for the three months ended 31 March 2001 included an
after-tax charge of $20.0 million, or $.09 per share, for a cost reduction
program and an after-tax charge of $3.7 million, or $.02 per share, related to a
litigation settlement. The quarter ended 31 March 2000 included an after-tax
charge of $84.1 million, or $.39 per share, for costs related to the "The BOC
Group plc" (BOC) transaction. The prior year quarter also included an after-tax
charge of $5.5 million, or $.03 per share, for a cost reduction program and an
after-tax gain of $4.0 million, or $.02 per share, related to the sale of
packaged gas facilities. Excluding these special items, current year net income
of $118.3 million compares to $133.2 million in the prior year, a decrease of
11%. Diluted earnings per share excluding special items of $.54 declined 13%
from the prior year. The remaining discussion and analysis of the results of
operations excludes the impact of special items. See Summary of Business
Segments for details of special items by segment.
Gases -Sales increased 24% to $1,043.2 million in the second quarter of fiscal
2001. Natural gas cost pass-through added 13% to sales growth, while unfavorable
currency impacts reduced sales growth about 3%. The balance of the sales
increase was principally due to higher shipments to the electronics market.
Electronics volume growth continued with strong global demand for specialty
gases, particularly nitrogen trifluoride (NF3), tungsten hexafluoride (WF6), the
Solkatronic Brand products, and the Schumacher specialty chemicals. Chemical and
processing industries (CPI) tonnage volume declined 4% globally from the prior
year, primarily as the result of lower gaseous oxygen/nitrogen (GOX/GAN) volume.
GOX/GAN volume was impacted by customer outages and the rapid rise in natural
gas cost.
Liquid bulk volume declined 2% in North America as demand softened, particularly
in steel and metal processing. Same store cylinder volume declined 1% on
weakness in the automotive market. The average price for liquid oxygen/nitrogen
(LOX/LIN) increased 8% with about half the increase resulting from price
increase and surcharge initiatives.
In spite of the strong U.S. dollar, overall European gases operations improved
over the prior year quarter. The liquid bulk volume index was flat as weakness
in the United Kingdom offset gains on the continent. The European LOX/LIN price
index was up 1% from the prior year, reflecting the price increase and the
Service Plus program initiatives. Cylinder volume declined 1% primarily due to
weak industrial activity in the United Kingdom. Specialty gas and helium
cylinder sales increased year-on-year.
14
Liquid bulk volume increased 18% in Asia with strong growth in China and Korea.
Higher volume in electronics and improved operating performance in CPI drove the
11% increase in operating income to $183.1 million. Excluding unfavorable
currency and exchange related effects, operating income improved 14%. The
operating margin was 17.6%, down 2.0% from the prior year. Excluding the
unfavorable margin impact of higher natural gas cost pass-through revenues, the
operating margin was essentially unchanged from the prior year.
Equipment- Sales were $64.8 million, up $11.0 million from the prior year.
Operating income of $3.5 million declined $2.1 million from the prior year due
to an unfavorable project mix. The sales backlog at 31 March 2001 was $104
million compared to $121 million at 31 March 2000.
Chemicals- Sales in the second quarter of fiscal 2001 were $390.3 million
compared to $451.3 million in the prior year, down 14%. Excluding the impact of
the divested polyvinyl alcohol (PVOH) business, sales declined 3%. Sales growth
was reduced 1% due to unfavorable currency impacts. The overall volume decline
was 9%, excluding the impact of PVOH. The volume decline resulted from the
slowing economy, lost market share due to price increases, and customer outages.
Performance chemicals experienced an overall 9% volume decline. Emulsions
declined globally due to market share loss in response to price increases as
well as a general economic slowdown. Epoxy additives volume grew modestly, while
specialty additives and polyurethane additives declined on market weakness.
Chemical intermediates volume declined 8% as shipments of polyurethane
intermediates were reduced due to customer outages. The amines volume was
impacted by market share loss in response to price increases and a customer
outage.
Operating income of $23.1 million declined 61%, or $35.6 million from the prior
year. About two thirds of the decline resulted from lower volumes and one third
resulted from higher natural gas costs. Aggressive price increases have been
partially successful in recovering the rapid rise in costs. The operating margin
of 5.9% declined from 13.0% in the prior year.
Equity affiliates' income declined $3.1 million as the emulsions business
experienced global volume and margin pressure.
INTEREST
Interest expense of $50.3 million increased $3.5 million, or 7% over the prior
year. The increase primarily resulted from lower capitalized interest.
INCOME TAXES
The effective tax rate for the second quarter of fiscal 2001 was 27.8%, after
minority interest. The effective rate excluding the impact of special items was
29.6%. The comparable rate in the prior year was 31.0%. The 1.4% decrease was
due to increased tax credits and adjustments.
15
GLOBAL COST REDUCTION
The results for the quarter ended 31 March 2001 include a charge of $30.9
million, or $20.0 million after-tax, for a global cost reduction plan. The plan
includes 311 staff position reductions resulting in a charge of $22.4 million
for severance and termination benefits. A charge of $8.5 million was recognized
primarily for asset impairments and restructuring expenses related to the
rationalization of several facilities. The charges to cost of sales, selling and
administrative, and other expense were $14.4 million, $9.4 million, and $7.1
million, respectively. Asset impairments and other restructuring expenses
totaling $7.8 million were incurred in the fiscal quarter and $23.1 million
reflected in accrued liabilities at 31 March 2001. Benefits from the plan are
expected to be approximately $9 million in fiscal years 2002 and 2003,
respectively.
Staff reductions related to the charge recognized in the current fiscal quarter
will be completed by 31 March 2002. Of the 311 position eliminations in the
plan, 120 are related to restructuring of customer service centers and regional
management centers at Carburos Metalicos SA. (Carburos) in Spain. The total
Carburos initiative requires information system investments prior to completing
the restructuring. Therefore, the company anticipates an additional charge for
restructuring and related expenses for the Carburos initiative of about $11
million in the fourth quarter of fiscal 2001.
The company announced a global cost reduction plan in the fiscal quarter ended
31 March 2000, providing for a reduction of 103 staff positions. The plan which
resulted in a charge of $8.7 million, or $5.5 million after-tax, was completed
essentially as expected in the quarter ended 31 March 2001.
16
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
SIX MONTHS FISCAL 2001 VS. SIX MONTHS FISCAL 2000
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales for the six months ended 31 March 2001 of $2,939.6 million were 13% higher
than the $2,611.6 million reported in the prior year. Operating income of
$391.7 million declined $23.4 million, or 6% versus prior year. Income from
equity affiliates was $37.8 million compared with $41.6 million in the prior
year. Net income was $230.2 million, or $1.05 diluted earnings per share,
compared to net income of $98.2 million, or $.46 diluted earnings per share, in
the first six months of the prior year. The results for the six months ended 31
March 2001 included an after-tax charge of $20.0 million, or $.09 per share, for
a cost reduction program and an after-tax charge of $3.7 million, or $.02 per
share, related to a litigation settlement. The six months ended 31 March 2000
included an after-tax charge of $154.7 million, or $.72 per share, for costs
related to the BOC transaction. These costs consisted principally of charges
recorded on purchased option and forward exchange contracts entered into to
hedge the currency exposure of the transaction. The results of the first six
months of the prior year also included an after-tax charge of $5.5 million, or
$.03 per share, for a cost reduction program and an after-tax gain of $4.0
million, or $.02 per share, related to the sale of packaged gas facilities.
Excluding these special items, current year net income of $253.9 million was
essentially equal to that of the prior year. Diluted earnings per share
excluding special items of $1.16 declined 2% from the prior year. The remaining
discussion and analysis of the results of operations excludes the impact of
special items. See Summary of Business Segments for details of special items by
segment.
Gases- Sales of $2,035.4 million increased 25%, or $412.7 million, over the
first six months of fiscal 2000. Natural gas cost pass-through added 10% to
sales growth. Unfavorable currency impacts reduced sales growth by 4%, while the
consolidation of Korea Industrial Gases (KIG) contributed 2% to sales growth.
The balance of the sales increase was principally due to higher shipments to the
electronics market.
Electronics volume growth resulted from strong global demand for specialty gases
and chemicals. Recently completed and announced additions to NF3 and WF6
specialty gases production capacity are critical to sustained growth. Overall
CPI tonnage volume grew 1% as increased hydrogen and carbon monoxide (HYCO)
demand was largely offset by weakness in GOX/GAN.
The liquid bulk volume index in North America was essentially unchanged
year-on-year. Cylinder volume declined 2%. Weakness in the steel, metals
processing, and automotive end markets impacted both liquid bulk and cylinder
volumes. Average LOX/LIN prices increased 8% as a result of pricing and
surcharge initiatives. The surcharge recovery somewhat lags the increased fuel
and energy cost increases.
In spite of the strong U.S. dollar, overall European gases operations improved
in the current year. The liquid bulk volume index increased slightly as weakness
in the United Kingdom offset gains on the continent. The LOX/LIN price also
increased slightly from the prior year.
17
Liquid bulk volume in Asia grew about 20%. About half of this favorable variance
was due to consolidation of KIG.
Higher volume in electronics and improved operating performance in CPI drove the
18% increase in operating income. Unfavorable currency and exchange related
effects reduced operating income growth by 4%. The operating margin in the first
six months of fiscal 2001 was 18.4% compared to 19.6% in the prior year.
Excluding the unfavorable margin impact of the natural gas cost pass-through on
revenues, the operating margin in the current year was 20.0%, up 0.4% over the
prior year.
Equipment- Sales of $120.6 million rose $16.2 million from the prior year.
Operating income of $4.6 million declined $2.2 million from the prior year due
to an unfavorable project mix. The $104 million sales backlog at 31 March 2001
compared to $131 million at 31 December 2000 and $149 million at 30 September
2000. A significant increase in the sales backlog in the second six months of
fiscal 2001 is anticipated in the LNG business area.
Chemicals- Sales in the first six months of fiscal 2001 were $783.6 million
compared to $884.5 million in the prior year, down 11%. Excluding the impact of
the divested PVOH business, sales declined 1% from prior year. Sales growth was
reduced 1% due to unfavorable currency impacts. The overall volume decline was
6%, excluding the impact of PVOH. The volume decline resulted from the slowing
economy, lost market share due to price increases, and customer outages.
Performance chemicals experienced an overall 8% volume decline. Emulsions
declined globally due to market share loss in response to price increases as
well as a general economic slowdown. Epoxy additives volume grew modestly, while
specialty additives and polyurethane additives declined on market weakness.
Chemical intermediates volume declined 4%. Polyurethane intermediates were down
slightly year-on-year. The amines volume was impacted by market share loss in
response to price increases and a customer outage.
Operating income of $60.1 million declined 46%, or $50.2 million from the prior
year. Lower volumes and higher raw material and energy costs drove the
significant decline in operating income. Aggressive price increases have been
partially successful in recovering the rapid rise in costs. Unfavorable currency
and exchange related effects reduced operating income about 6%. The operating
margin of 7.7% declined from 12.5% in the prior year.
Equity affiliates' income declined $5.2 million as the emulsions business
experienced global volume and margin pressure.
INTEREST
Interest expense of $98.7 million increased $10.6 million, or 12% over the prior
year. The increase primarily resulted from lower capitalized interest.
INCOME TAXES
The effective tax rate for the first six months of fiscal 2001 was 29.9%, after
minority interest of $2.3 million. The effective rate excluding the impact of
special items was 30.5%, equal to the comparable rate in the prior year.
18
GLOBAL COST REDUCTION
The results for the six months ended 31 March 2001 include a before-tax charge
of $30.9 million for a global cost reduction program initiated in the quarter
ended 31 March 2001.
The cost reduction program in fiscal 2000 included staff reductions of 450
employees and resulted in a before-tax charge of $47.9 million. This charge was
recognized in the second and third quarters of fiscal 2000. The plan phase
initiated in the second quarter of fiscal 2000 was completed essentially as
expected as of 31 March 2001. As of 31 March 2001, there have been 366 positions
eliminated with completion of the full fiscal 2000 plan expected by 30 June
2001. Expenses of $42.3 million have been incurred with $5.6 million remaining
in accrued liabilities.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 2001 totaled $329.3
million compared to $604.0 million in the corresponding period of the prior
year. Additions to plant and equipment decreased from $378.6 million during the
first six months of fiscal 2000 to $302.3 million during the current period.
Investments in unconsolidated affiliates were $26.5 million during the first six
months of fiscal 2001 versus $16.5 million last year. There were no expenditures
for acquisitions during the current period compared to expenditures of $168.7
million during the first six months of fiscal 2000. The prior year amount
included the acquisition of the remaining 51.1 percent of the shares in KIG, the
largest industrial gas company in Korea. Capital expenditures are expected to be
approximately $800 million in fiscal 2001. It is anticipated these expenditures
will be funded with cash from operations.
Total debt at 31 March 2001 and 30 September 2000, expressed as a percentage of
the sum of total debt, shareholders' equity, and minority interest, was 50% and
51%, respectively. Total debt decreased from $3,045.0 million at 30 September
2000 to $3,026.7 million at 31 March 2001.
There was $77.0 million of commercial paper outstanding at 31 March 2001. The
company's total revolving credit commitments amounted to $600.0 million at 31
March 2001. During fiscal 2000, the company had an additional $500.0 million
revolving credit commitment which matured in October 2000. No borrowings were
outstanding under these commitments. Additional commitments totaling $71.2
million are maintained by the company's foreign subsidiaries, of which $21.4
million was utilized at 31 March 2001.
The estimated fair value of the company's long-term debt, including current
portion, as of 31 March 2001 is $3,019.4 million compared to a book value of
$2,817.6 million.
On 25 January 2001, the company announced its intention to reactivate its share
repurchase program. Through the first six months of fiscal 2001, the company has
repurchased $50 million of its shares. Based on its current outlook, the company
expects to purchase approximately $100 million of the company's shares during
fiscal 2001.
FINANCIAL INSTRUMENTS
There has been no material change in the net financial instrument position or
sensitivity to market risk since the disclosure in the annual report.
19
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this release are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. Factors that might cause forward-looking
statements to differ materially from actual results include, among other things,
overall economic and business conditions; demand and timing of the placing of
orders for the goods and services of Air Products; competitive factors in the
industries in which it competes; whether prices of natural gas and other raw
materials fall in the second half of fiscal 2001; the ability to recover
increased energy and raw material costs from customers; the availability of
utilities, particularly in California, to provide electrical power; changes in
government regulations; success of implementing cost reduction programs; the
timing, impact and other uncertainties of future acquisitions or divestitures;
fluctuations in interest rates and foreign currencies; the impact of tax and
other legislation and regulations in the jurisdictions in which Air Products and
its affiliates operate; and the timing and rate at which tax credits can be
utilized.
20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
a. The Annual Meeting of Shareholders of the Registrant was
held on 25 January 2001.
b. The following directors were elected at the meeting:
James F. Hardymon, Charles H. Noski, Paula G. Rosput, and
Lawrason D. Thomas. Directors whose term of office continued
after the meeting include: Robert Cizik, Ursula F. Fairbairn,
John P. Jones III, Mario L. Baeza, L. Paul Bremer III,
Edward E. Hagenlocker, and Terry R. Lautenbach.
c. The following matters were voted on at the Annual Meeting:
1. Election of Directors
--------------------------------------------------------------------------
NAME OF DIRECTOR NUMBER OF VOTES CAST
--------------------------------------------------------------------------
AGAINST BROKER
OR NON-
FOR WITHHELD ABSTENTIONS VOTES
--------------------------------------------------------------------------
J. F. Hardymon 206,273,279 2,302,838 0 0
--------------------------------------------------------------------------
C. H. Noski 206,234,821 2,341,296 0 0
--------------------------------------------------------------------------
P. G. Rosput 206,184,521 2,391,596 0 0
--------------------------------------------------------------------------
L. D. Thomas 206,244,213 2,331,904 0 0
--------------------------------------------------------------------------
2. Ratification of the appointment of Arthur
Andersen LLP of Philadelphia, Pennsylvania,
as independent certified public accountants
for the Registrant for the fiscal year
ending 30 September 2001.
--------------------------------------------------------------------------
NUMBER OF VOTES CAST
--------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--------------------------------------------------------------------------
207,079,466 626,457 870,194 0
--------------------------------------------------------------------------
21
3. Approval of 2002 Amendments to the Long-Term Incentive
Plan.
--------------------------------------------------------------------------
NUMBER OF VOTES CAST
--------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--------------------------------------------------------------------------
195,483,375 11,201,934 1,8 0
--------------------------------------------------------------------------
4. Approval of the Internal Revenue Code 162(M) Annual
Incentive Plan Terms
--------------------------------------------------------------------------
NUMBER OF VOTES CAST
--------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--------------------------------------------------------------------------
--------------------------------------------------------------------------
201,291,342 5,244,145 2,040,630 0
-------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a)(10.1) Form of Severance Agreement which the Company
has with one European Executive Officer dated
16 September 1999.
(a)(10.2) Amendment to form of Severance Agreement with
one European Executive Officer dated
26 February 2001.
(a)(10.3) Letter dated 19 April 2000, covering pension for a
European Executive Officer.
(a)(12) Computation of Ratios of Earnings to Fixed
Charges.
(b) Current Reports on Form 8-K dated 22 January
2001 and 25 January 2001, in which Item 5 of
such forms was reported, and 19 March 2001, in
which Item 5 and Item 9 of such forms was
reported, were filed by the Registrant during
the quarter ended 31 March 2001.
22
SIGNATURES
Pursuant to the requirements 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.
Air Products and Chemicals, Inc.
--------------------------------
(Registrant)
Date: May 11, 2001 By: /s/L. J. Daley
----------------------------------------
L. J. Daley
Vice President - Finance and Controller
(Chief Financial Officer)
23
Exhibit (a)(10.1)
16 September 1999
Leonard Broese van Groenou
23 Oatlands Close
Weybridge
Surrey KT13 9EE
England
Dear Leonard:
Air Products and Chemicals, Inc. ("Air Products") considers a sound and
vital management to be essential to protecting and enhancing its best interests
and those of its shareholders. In this connection, Air Products recognizes that,
as is the case with any publicly held corporation, the possibility of a change
in control of Air Products may develop, although no such change is now expected
or contemplated.
The Management Development and Compensation Committee of the Air Products
Board of Directors and the Board believe it imperative that the Company and the
Board be able to rely upon key members of the Company's management to continue
in their positions and to act in the best financial interests of Air Products
shareholders in the event of a bid, offer or proposal to take control of Air
Products and following any change in control of Air Products. Therefore, the
Committee and the Board have determined that appropriate steps should be taken
to protect key members of the Company's management against significant negative
personal financial consequences that might result from a change in control, and
to reinforce and encourage the continued attention and dedication of such key
members of management to their duties without distraction should the possibility
of a change in control of Air Products ever arise.
In order to induce you to remain in the employ of Air Products PLC, an
indirect, wholly owned subsidiary of Air Products organized and existing under
the laws of the United Kingdom ("APPLC"), and to assure your continued
dedication and the availability of your advice and counsel during the
possibility and pendency of, and following, a change in the control of Air
Products, Air Products agrees that it will provide you, or cause you to be
provided the severance benefits set forth in this severance agreement ("the
Agreement") in the event your employment with the Company is terminated
subsequent to a Change in Control under the circumstances described herein.
1. DEFINITIONS
-----------
"Act" means the Securities Exchange Act of 1934.
"Annual Incentive Plan" shall mean the Air Products and Chemicals, Inc.
1997 Annual Incentive Plan and/or any similar, successor or substitute
short-term bonus plan, program or pay practice.
1
"Base Salary" shall mean your total annual salary payable by the
Company in accordance with its normal compensation practices.
"Board" shall mean the Board of Directors of Air Products.
"Cause" shall mean either of the following:
(A) The willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness
or injury or any such actual or anticipated failure after the
issuance by you of a Termination Notice for Good Reason), over a
period of not less than sixty days after a demand for substantial
performance is delivered to you by the Board which specifically
identifies the manner in which the Board believes that you have
not substantially performed your duties; or
(B) The willful engaging by you in gross misconduct materially and
demonstrably injurious to the Company; provided that no act or
failure to act on your part will be considered willful if done,
or omitted to be done, by you in good faith and with reasonable
belief that your action or omission was in the best interest of
the Company, or if any member of the Board who was not a party to
such act or omission had actual knowledge of it for at least
twelve months.
"Change in Control" shall mean the first to occur of:
A. Stock Acquisition. Any "person", as such term is used in Sections
13(d) and 14(d) (2) of the Act, other than Air Products, or any
corporation a majority of whose outstanding stock entitled to
vote is owned, directly or indirectly, by Air Products (a
"Subsidiary"), or a trustee of an employee benefit plan sponsored
solely by Air Products and/or such a Subsidiary, is or becomes,
other than by purchase from Air Products or such a Subsidiary,
the "beneficial owner", as such term is defined in Rule 13d-3
under the Act, directly or indirectly, of securities of Air
Products representing 20% or more of the combined voting power of
Air Products' then outstanding voting securities. Such a Change
in Control will 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 upon which Air Products first learns
of the acquisition of 20% or more of such securities, or the
later of the effective date of an agreement for the merger,
consolidation or other reorganization of Air Products, or the
date of approval thereof by a majority of Air Products'
shareholders.
B. Change in Board. During any period of two consecutive years,
individuals who at the beginning of such period were members of
the Board cease for any reason to constitute at least a majority
thereof, unless the election or nomination for election by Air
Products' 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 will be deemed to have occurred on the date upon which
the requisite majority of directors fails to be elected by the
shareholders of Air Products.
C. Other Events. Any other event or series of events which,
notwithstanding any other provision of this definition to the
contrary, is determined, by a majority of the outside
2
members of the Board serving in office at the time such event or
events occur, to constitute a Change in Control of Air Products
for purposes of this Agreement. Such a Change in Control will be
deemed to have occurred on the date of such determination or on
such other date as said majority of outside members of the Board
shall specify.
Notwithstanding the foregoing, there shall not be a Change in Control if, in
advance of such event, you agree in writing that such event shall not constitute
a Change in Control.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Management Development and Compensation Committee
of the Board or a successor Committee of the Board.
"Common Stock" means the common stock, $1 par value, of Air Products.
"Company" means Air Products and any successor in interest thereto, and
any affiliate of Air Products in which it holds, directly or indirectly, a
controlling interest and to whom your employment has been transferred with your
consent, and shall mean Air Products and APPLC jointly or severally, as the
context requires, during any period of time in which your Dual Employment
Contracts are in effect.
"Contract Period" shall mean the period commencing on a Change in
Control and ending three years following the Change in Control.
"Disability" shall exist where, as a result of your incapacity due to
physical or mental illness or injury you have been absent from the performance
of your duties with the Company for at least six consecutive months.
"Fiscal Year" shall mean the fiscal year of the Company which commences
on October 1 of each calendar year and ends on September 30 of the following
calendar year, or such other fiscal year as the Company may adopt for keeping
its financial records.
"Good Reason" shall mean the occurrence of any of the following without
your consent:
A. An adverse change, during the Contract Period, in your aggregate
positions or offices with the Company, or a diminution in the
aggregate duties, reporting responsibilities and authority with
the Company which you held and performed during the ninety-day
period immediately preceding the beginning of the Contract
Period, or an assignment to you of duties or responsibilities,
which, in your reasonable judgment, are not consistent with your
status or positions with the Company immediately prior to the
Change in Control; provided that, any of the foregoing in
connection with Termination of your Employment for Cause,
Retirement or Disability shall not constitute Good Reason.
Notwithstanding the above, it is understood that should you be
asked to perform duties and to devote your full-time services in
a position wholly within the Company but not within APPLC, that
elimination of your employment with and duties specific to APPLC
will not be considered a termination of your employment under, or
of, this Agreement.
3
B. The failure by the Company to pay you a Base Salary, in
substantially equal installments conforming with the Company's
normal pay practices, at a rate at least equal to your Base
Salary rate in effect immediately before the beginning of the
Contract Period or a failure to increase such Base Salary each
year, beginning one year after the last increase in your Base
Salary occurring before the beginning of the Contract Period, by
an amount which at least equals, on a percentage basis, the
average annual percentage increase in your Base Salary during the
three full Fiscal Years immediately preceding the beginning of
the Contract Period; provided, however, that the Company may
reduce your Base Salary or adjust your Base Salary on a smaller
percentage basis if such reduction or adjustment is no less
favorable to you on a percentage basis than the average annual
percentage reduction or adjustment during the applicable Fiscal
Year for all Highly Compensated Employees.
C. The failure by the Company to continue the Annual Incentive Plan
and/or initiate and maintain other plans, programs or practices
providing you with benefits substantially similar in type and
amount to those under the Annual Incentive Plan, or a failure to
pay you bonus awards each year during the Contract Period under
the Annual Incentive Plan or such similar bonus plan (together,
the "Bonus Plans"), beginning no later than one year after the
date of your last grant under the Annual Incentive Plan before
the beginning of the Contract Period, at least equal in amount to
the average of the bonus awards granted to you under the Annual
Incentive Plan during and/or for each of the three full Fiscal
Years immediately preceding the beginning of the Contract Period;
provided, however, that the Company may reduce or adjust your
bonus awards paid each year to a lower amount if such reduction
or adjustment is on a basis no less favorable to you than the
basis upon which it reduces or adjusts awards under the Bonus
Plans or comparable plans for all Highly Compensated Employees
during the applicable Fiscal Year;
D. The failure by the Company to continue the Long Term Incentive
Plan and/or initiate and maintain other plans, programs or
practices providing you with benefits substantially similar in
type and amount to those under the Long Term Incentive Plan or a
failure to grant you awards each year under the Long Term
Incentive Plan and/or such similar incentive plans (together, the
"Incentive Plans"), beginning one year after your last grant
under the Long Term Incentive Plan before the beginning of the
Contract Period, at a level at least equal in the aggregate to
the average value, determined based on valuation models
normatively used by publicly held corporations of similar size to
the Company in setting long term incentive compensation levels,
of your aggregate annual awards granted each year under the Long
Term Incentive Plan during and/or for the last three Fiscal Years
preceding the beginning of the Contract Period; provided,
however, that if the Company provides the Incentive Plans or
comparable plans for Highly Compensated Employees, the Company
may maintain the level of awards granted to you each year under
the Incentive Plans at a lower value if such benefits are
determined on a basis no less favorable to you than for all
Highly Compensated Employees during the applicable Fiscal Year.
E. The failure by the Company to pay you in respect of any of your
deferred or other awards under the Bonus Plans or the Incentive
Plans when due and payable under the terms of said Plans;
4
F. The failure by the Company to pay (or reimburse you for) all
reasonable moving expenses incurred by you relating to a change
of your principal residence in connection with an employment
related relocation required by the Company and indemnify you
against any "loss" realized in the sale of your principal
residence in connection with such relocation, defined as the
difference between the actual sale price of such residence (net
of all commissions, fees, taxes and other closing costs borne by
seller) and the higher of (a) your aggregate investment in such
residence or (b) the fair market value of such residence as
determined by a real estate appraiser designated by you and
reasonably satisfactory to the Company.
G. The failure by the Company to reimburse you for reasonable travel
and other business expenses in accordance with the Company's
applicable policies, procedures and practices provided that you
properly account for such expenses in accordance with then
applicable Company policy; and
H. A material reduction in your aggregate benefits, such as the
failure by the Company to either continue in effect any employee
pension benefit or welfare benefit plan, program or practice in
which you are eligible to participate immediately before the
beginning of the Contract Period, including but not limited to,
the Pension Plans, and APPLC's life insurance, medical, dental,
health and accident, disability, severance and paid vacation
plans, programs and practices (such plans, programs and practices
herein together referred to as the "APCI Benefit Plans"), or, in
lieu thereof, to initiate and maintain other plans, programs or
practices providing you with benefits substantially similar in
type and amount to those under the APCI Benefit Plans, with your
aggregate benefits under the APCI Benefit Plans and such similar
benefit plans (together, the "Benefit Plans") comparable in type
and amount to your benefits under the APCI Benefit Plans
immediately before the beginning of the Contract Period, or the
Company's failure to maintain for you any other material fringe
benefit or perquisite enjoyed by you immediately before the
beginning of the Contract Period.
I. The failure by the Company, while you are on international
assignment or subject to taxes in a foreign jurisdiction due to a
prior international assignment, to provide or continue tax
equalization arrangements which reimburse you for or indemnify
you from paying aggregate worldwide taxes in excess of the taxes
you would have paid on your compensation excluding international
assignment benefits, allowances, and premiums, had you not
accepted the international assignment.
J. Any purported termination of your employment for Disability or
for Cause which is not effected in accordance with the procedures
required in Section 4.
K. The failure of the Company to obtain the written assumption of
this Agreement by any successor of the Company prior to the
effectiveness of any such succession.
"Highly Compensated Employees" shall mean the highest paid one percent
of employees of the Company together with all corporations, partnerships,
trusts, or other entities controlling, controlled by, or under common control
with, the Company.
5
"Long Term Incentive Plan" shall mean the Air Products and Chemicals,
Inc. 1997 Long Term Incentive Plan and/or any similar, successor or substitute
long-term incentive compensation plans or program.
"Notice Date" shall mean the date a Termination Notice prepared by the
Company or you is received by you or the Company, respectively.
"Pension Plan" shall mean the pension arrangements referred to in
Exhibit A to this Agreement (said arrangements, as amended from time to time
together with any similar, succeeding or substitute plan, contract or program).
"Retirement" shall mean (1) your voluntary retirement before attaining
the normal retirement age under the Pension Plans, with an immediate
non-actuarially reduced pension under the Pension Plans, provided that
Termination for Good Reason before such normal retirement age shall not be
deemed a Retirement for purposes of this Agreement even though you are eligible
for and elect to receive, an immediate non-actuarially reduced pension under the
Pension Plans, or (2) Termination of Employment in accordance with any
retirement arrangement other than under the Pension Plans which is established
with your consent with respect to you, provided that Termination for Good Reason
shall not be deemed a Retirement for purposes of this Agreement even though you
are eligible to retire, and receive benefits under, any such retirement
arrangement, or (3) mandatory retirement as set forth under a policy of the
Company as it existed prior to the Change in Control or as agreed to by you
following a Change in Control.
"Target Annual Bonus" shall mean the target bonus under the Annual
Incentive Plan which is approved by the Committee for the applicable Fiscal Year
for Highly Compensated Employees at your grade level or other comparable
compensation level, or, if no such target bonus has been determined for such
Fiscal Year, such target bonus for the most recent Fiscal Year for which one was
determined;
"Termination Date" means the effective date of a Termination of
Employment for any reason, including death, Disability, or Retirement, whether
by the Company or you.
"Termination", "Termination of Employment" or "Termination of your
Employment" shall mean the termination of your employment with the Company,
whether by you or the Company. It is understood, however, that should you be
asked to perform duties and to devote your full-time services in a position
wholly within the Company but not within APPLC, that elimination of your
employment with and duties specific to APPLC will not be considered a
termination of your employment under this Agreement.
"Termination Notice" shall mean the notice required by Subsection 3A.
2. TERM OF AGREEMENT
-----------------
This Agreement will commence on the date of your signing hereof and
will continue while you are in the active employment of the Company until 30
September 2001 and, beginning on 1 October 2001 and each one year anniversary
thereof, the term of this Agreement will automatically be extended for one
additional year unless, at least (90) ninety days prior to such date, either
party gives written notice to the other that it does not wish to extend this
Agreement. Notwithstanding any such written notice, if a Change in Control shall
6
have occurred prior to receipt of the notice or does occur within (90) ninety
days of receipt of the notice, the attempted termination of the Agreement by Air
Products shall be ineffective and the Agreement shall continue until the end of
your Contract Period. If a Change in Control otherwise occurs during the term of
this Agreement, this Agreement will continue in effect until the end of the
Contract Period.
3. TERMINATION PROCEDURES
----------------------
A. Termination Notice. During the Contract Period, any Termination of
Employment by the Company or by you must be communicated by a written
Termination Notice to the other party hereto. The "Termination Notice" must (i)
specify the Termination Date; (ii) indicate the specific provisions in this
Agreement, if any, applicable to the Termination and set forth in reasonable
detail the facts and circumstances, if any, claimed to provide a basis for
application of the provision so indicated; (iii) if given by the Company to you
for other than Disability or Cause, specify, with supporting calculations, the
amount the Company believes to be payable to you under this Agreement as a
result of such Termination; and (iv) contain a copy of any other notice,
resolution, demand or other document required to effect a Termination under
provisions of the Agreement identified in (ii) above.
B. Additional Termination Procedures.
---------------------------------
(i) During the Contract Period the Company may not Terminate your
Employment for Cause unless and until: (a) there has been delivered to you a
copy of a resolution Terminating your Employment for Cause duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board; (b) such resolution was adopted at a meeting of the Board called and held
for the purpose of considering such resolution; (c) you were provided reasonable
notice of the Board's intent to consider the resolution and a reasonable
opportunity, together with your counsel, to be heard by the Board at such
meeting; and (d) the resolution finds, in the good faith opinion of the Board,
that you have engaged in conduct constituting Cause and specifies the
particulars thereof in detail, which particulars must be consistent with those
specified in the notice of the Board meeting given to you.
(ii) During the Contract Period, the Company may not Terminate your
Employment for Disability if you return to the performance of your duties on a
substantially full-time basis within forty-five days of receiving the
Termination Notice specifying Disability as the basis for Termination.
C. Termination Date. "Termination Date" shall be: (i) if your employment is
-----------------
terminated due to your death, the date of your death, (ii) if your employment is
terminated for Disability, at least forty-five days after the Termination Notice
is given (provided that you have not returned to the full-time performance of
your duties during such period) and, (iii) if your employment is terminated for
any other reason, the date specified in the Termination Notice by the party
giving the Notice, which date must be at least forty-five days after the
Termination Notice if given by you for Good Reason or by the Company for any
reason other than Cause; provided, however, that if within forty-five days after
any Termination Notice is given, the party receiving such Termination Notice
notifies the other party that a dispute exists, the Termination Date will be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (which is not appealable or
with respect to which the time for appeal therefrom has expired and no appeal
has been perfected); and provided further,
7
however, that your Termination Date shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence, and your
Termination Date shall in no event be extended beyond the end of the Contract
Period.
D. Continuation of Salary and Benefits During Pendency of Dispute.
--------------------------------------------------------------
Until any dispute or controversy referred to in Subsection 3C above is finally
resolved in accordance with such Subsection, the Company will (i) continue to
pay you your full Base Salary at the higher of the rates in effect on the date
your Termination Notice is received or immediately before any purported
reduction in your Base Salary constituting Good Reason, and (ii) continue your
participation in all Benefit Plans in which you were participating before such
notice date provided that your continued participation in such Plans is possible
under the general terms and conditions thereof. If your continued participation
in any such Benefit Plans is barred by the terms thereof, the carrier or
otherwise, the Company will arrange to provide you with benefits substantially
similar to those which you would receive under such Plans. You will be entitled
to seek specific performance of your rights under this Subsection 3D until your
Termination Date during the dependency of any dispute or controversy arising
under or in connection with this Agreement.
4. Compensation Upon Termination of Employment.
--------------------------------------------
A. Termination for Cause, Death, Disability, or Retirement. If during
the Contract Period the Company terminates your employment for Cause, or your
employment is terminated due to your death, Disability or Retirement, the
Company shall pay to you or your representative in the event of death as of the
Termination Date your full Base Salary and accrued vacation pay through the
Termination Date, plus any benefits or awards which have been earned by you or
become payable to you under any policy or employee compensation or benefit plans
of the Company. The benefits payable to you, or due to your death, Disability,
Retirement or other Termination of Employment under all Benefit Plans, Bonus
Plans and Incentive Plans in which you are participating before such Termination
of Employment, will be paid as provided under such Plans and the Company will
have no further obligation, other than to continue Tax Equalization
Arrangements.
B. Termination Without Cause, Death, Retirement or Disability or for
Good Reason. If during the Contract Period the Company Terminates your
Employment other than for death, Retirement, Disability or Cause (it being
understood that a purported termination for Disability or Cause which is
disputed and finally determined not to have been proper or which is not effected
in accordance with the procedures required in Section 3 will be a Termination
other than for Cause or Disability), or you Terminate your Employment for Good
Reason, then Air Products will provide you or cause you to be provided the
payments and benefits described below in this Subsection 4B.
(i) Cash Payment. The Company will pay to you on or before the fifth
day following your Termination Date, a lump sum cash payment equal
to the sum of the following amounts:
(a) Your Base Salary through your Termination Date at the higher
of the rate in effect on the Termination Date or the rate in effect immediately
before any purported reduction in your Base Salary constituting Good Reason
(such amount to be reduced by the
8
amount of any Base Salary payments previously paid by the Company to you for the
same period or any portion thereof under Subsection 3D above or otherwise);
(b) The product of (I) the amount of the Target Annual Bonus for
which you would have been eligible if you had been employed by the Company on
the last day of the Fiscal Year or other bonus performance cycle that includes
your Termination Date, multiplied by (II) a fraction of which the numerator is
the number of days which have elapsed in such Fiscal Year through the
Termination Date and the denominator is 365.
(c) Two times your Base Salary at the rate required by
subparagraph (i)(a) above and;
(d) Two times the Target Annual Bonus for the Fiscal Year or
other bonus performance cycle in which your Termination Date occurs; and
(e) A pension payment equal to the difference between the
actuarial present values as of the Termination Date of (i) the pension benefits
you will receive under the Pension Plan and (ii) the pension benefits you would
receive by adding up to two years of credited service to your credited service
under the Pension Plan as of your Termination Date (such credited service under
this Agreement and the Pension Plan not to exceed 40 years in the aggregate),
or, if you have attained or are entitled to 40 years of credited service under
the Pension Plan as of your Termination Date, by applying two annual increases
to your Base Salary each at a rate of increase, on a percentage basis, equal to
the average annual percentage increase in your Base Salary during the three full
Fiscal Years immediately preceding the beginning of the Contract Period. For
purposes of determining present values in calculating this pension payment, it
shall be assumed that your benefits will commence in the form of a straight life
annuity as of the later of the Termination Date or the date on which you could
retire and commence a benefit under the Pension Plan without reduction for
commencement before the normal retirement date under such Plan were you employed
by the Company on such date. The interest rate used for such purposes shall be
the average of the average monthly yields for municipal bonds published monthly
by Moodys Investors' Service Inc. for the three months immediately preceding
your Termination Date. For purposes of determining actuarial present values in
calculating the pension payment, life expectancy assumptions used by the Plans's
actuaries for other purposes shall be used. The calculation of the pension
payment described in this subparagraph shall be made by a nationally recognized
firm of enrolled actuaries acceptable to you and the Company. The Company shall
pay the reasonable fees and expenses of such actuarial firm. The calculation
made by such actuarial firm shall be binding on you and the Company.
(f) For purposes of subparagraphs (i)(c), (i)(d) and (i)(e) of
this Subsection 4B, in the event you have attained age 62 on or before your
Termination Date, the amounts payable shall be reduced to an amount which bears
the same proportion to the unreduced amount as the number of months preceding
your sixty-fifth birthday bears to thirty six.
(g) The amount of the payment described in (a)-(f) shall be
reduced to the extent of any severance or redundancy benefit or payment
sponsored by the Company and/or provided or required by applicable law or
regulation, which is received by you on account of your Termination of
Employment.
9
(h) If the amount of the payment described in (a) - (g) above
cannot be finally determined on or before the fifth day following the
Termination Date, the Company will pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such payment
and will pay the remainder of such payment as soon as the amount thereof can be
determined but in no event later than the thirtieth day after your Termination
Date.
(ii) Insurance and Welfare Benefit Plans. The Company will
provide for you and your dependents following your Termination Date until the
earlier of two years following your Termination Date or your death, benefits
equivalent to those provided by the Company under all life insurance, medical,
dental, health and accident, long term disability, long term care plans or
programs in which you were participating on your Termination Date or, in the
event of a reduction in such benefits constituting Good Reason, equivalent to
those provided immediately before such reduction; provided that, such benefits
will not be provided beyond the period of time during which they would have been
provided to you under such plans or programs, as in effect on your Termination
Date or immediately before a reduction constituting Good Cause, had you not been
Terminated other than for death, Retirement, Disability or Cause or Terminated
for Good Reason, and such benefits will be provided for at least the period
during which they would have been provided to you were this Agreement not in
effect. In the event of your death during such two-year period, benefits in
respect of you or to your beneficiaries will be provided in accordance with the
terms of such plans or programs applicable to active employees of the Company.
Any continuation of benefits pursuant to this subparagraph shall not run
concurrent with any continuation rights provided pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and for
purposes of applying COBRA with respect to your coverage under any group health
plans, the end of coverage under this subparagraph shall be deemed to be the
date of a qualifying event resulting from the termination of a covered employee.
(iii) Legal Fees and Expenses. The Company will reimburse you
for all legal and other fees and expenses incurred by you as a result of
Termination of Employment, including without limitation all such fees and
expenses, if any, reasonably incurred in verifying the amount of the benefits
owed by the Company under this Agreement, in contesting or disputing the fact or
nature of any such Termination, in seeking to obtain or enforce any right or
benefit provided by this Agreement and/or in connection with any tax audit or
proceeding with respect to payments made or to be made hereunder. The Company
will pay, to the fullest extent permitted by law, all legal fees and expenses
which you may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company of the validity or enforceability of, or
liability under or as a result of, any provision of this Agreement or any
guarantee of performance thereof.
(iv) Outplacement and Financial Counseling. The Company shall,
within 30 days of the Termination Date, make available to you at the Company's
expense, individual financial counseling and outplacement counseling at times
and locations that are convenient to you, with a nationally recognized
outplacement and financial counseling firm, respectively. The financial
counseling firm may also provide you with tax counseling and tax preparation
services. You may select the organizations that will provide the outplacement,
financial and tax counseling; however, the Company's obligation to provide you
benefits under this paragraph (iv) shall be limited to $10,000.
10
(v) Excise Tax. If any payment, distribution or acceleration
of benefits, compensation or rights that is made by the Company to you or for
your benefit, pursuant to this Agreement or otherwise, results in a liability to
you for the excise tax imposed by Section 4999 of the Code, including any
payment under this paragraph, the Company shall pay you an amount equal to such
excise tax within ten days of the determination of such excise tax liability.
The amount of such excise tax liability, including whether any such tax is
properly applied, shall be determined by a nationally recognized public
accounting firm acceptable to you and the Company, which firm shall provide you
with a written opinion of the amount of the excise tax liability, if any. The
Company shall pay the reasonable fees and expenses of such accounting firm. The
determination of the firm shall be binding on you and the Company.
(vi) Interest on Unpaid Amounts. The Company shall pay you interest,
compounded quarterly, on any unpaid amount determined to be payable by the
Company to you under this Agreement from the date such amount would first have
been payable to you during the Contract Period in accordance with the provisions
of this Agreement until paid, such interest to be calculated on the basis of
120% of the applicable federal funds rate, as provided for in Section 1274(c) of
the Code, in effect from time to time during the period of such nonpayment.
(vii) Mitigation. You shall not be obligated to seek other
employment or take any other action to mitigate the amounts payable to you under
any of the provisions of this Agreement, nor shall the amount of any payment
hereunder be reduced by any compensation earned as result of your employment by
another employer, except that any continued insurance and welfare benefits
provided for by paragraph (ii) shall not duplicate any benefits that are
provided to you and your family by such other employer and shall be secondary to
any coverage provided by such other employer.
(viii) Waiver. You will have the right to waive in writing prior to
the date of payment or receipt any payment, benefit or portion thereof selected
by you, which would otherwise be due to you from the Company under this
Agreement or any other plans, arrangement or agreement with the Company, any
person or entity whose actions result in the Change in Control or any person or
entity affiliated with the Company or such person or entity.
C. Tax Withholding and Equalization: Survival of Obligations. Except as
specifically provided herein, any payments provided for under this Agreement
shall be paid net of any applicable tax withholding required under federal,
state, or local law of the United States or the United Kingdom or other
applicable taxing jurisdiction. If you are on international assignment at the
time any payments provided for under this Agreement are made or such payments
are subject to tax by a foreign jurisdiction due to a prior international
assignment, the Company shall pay on your behalf, or reimburse you for, any
foreign taxes applicable to the payments to the extent the total of such taxes,
together with any taxes imposed by your home country, exceed the tax liability
you would have had on such payments had you not accepted the international
assignment. The obligations of the Company set forth in this Section 4 shall
survive your Termination of Employment and the end of the Contract Period to the
extent not previously performed in full.
5. INDEMNIFICATION
---------------
If you are made a party or threatened to be made a party to or are
otherwise involved at any time before or during the Contract Period in any
action, suit or proceeding, other than one
11
instituted by you or by the Internal Revenue Service, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding") by reason of the
fact that you are a party to this Agreement, you will be indemnified and held
harmless by the Company, to the fullest extent permitted by applicable law
(regardless of the outcome of the proceeding), against all expense, liability
and loss (including attorney's fees, judgments, fines and amounts paid in
settlement) reasonably incurred or suffered by you in connection therewith. You
will notify the Company in the event of the commencement or threat of
commencement of any proceeding in respect of which indemnity may be sought under
this Section.
The Company will at its expense participate in and assume the defense
of any such proceeding, including the employment of counsel chosen by it (and as
to whom you have no reasonable objection) and the payment of the fees and
disbursements of such counsel. You will cooperate with the Company in respect of
such defense and may retain separate counsel at your expense to participate in
such defense. In the event that, in the opinion of your counsel, you and the
Company or any other executive represented by the Company's counsel in such
proceeding have a conflict of interest in respect of the proceeding, then you
may employ counsel as separate counsel to represent or defend you in the
proceeding and the Company will pay for the reasonable fees and disbursements of
such counsel. The provisions of this Section shall be inapplicable to any
proceeding instituted by the Company during the Contract Period which shall, as
to your defense and fees and expenses thereof, be governed by paragraph (iii) of
Subsection 4B hereof.
Your rights under this Section 5 are not exclusive of any other right
which you may have or hereafter acquire under any statute, certificate of
incorporation, by-law, agreement, insurance policy or otherwise, and shall
survive your Termination of Employment and the end of the Contract Period.
6. SUCCESSORS; BINDING AGREEMENT
-----------------------------
Air Products will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Air Products, to expressly, by written agreement in
form and substance satisfactory to you, assume and agree to perform this
Agreement in the same manner and to the same extent that Air Products would be
required to perform it if no such succession had taken place. As used in this
Agreement, during the Contract Period "Air Products" and "Company" mean Air
Products and the Company as hereinbefore defined and any successor to the
business and/or assets of Air Products and the Company as aforesaid which
executes and delivers the agreement provided for in this Section 6 or which
becomes bound by all the terms and provisions of this Agreement by operation of
law or otherwise.
This Agreement will inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devises and legatees, but neither this Agreement nor any of your
rights or obligations hereunder may be assigned or pledged by you. If you should
die while any amounts would still be payable to you under Subsection 4B hereof
if you had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.
12
7. NOTICE
------
For purposes of this Agreement, notices and all other communications
provided for in this Agreement must be in writing and will be deemed to have
been duly given when delivered or mailed by certified mail, return receipt
requested, postage prepaid, as to you, addressed to your address set forth on
the first page of this Agreement, and as to Air Products, addressed to the
address printed on the first page of this Agreement or such other location as
you know to be the chief executive offices of Air Products directed to the
attention of the chief executive officer of Air Products with a copy to the
secretary of Air Products. You and Air Products may change your respective
notice addresses hereunder by furnishing such new address to the other in
writing in accordance herewith, except that notices of change of address will be
effective only upon receipt.
8. MISCELLANEOUS
-------------
A. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and an officer of Air Products specifically designated
by the Board (which will in any event include Air Products chief executive
officer). No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time.
Notwithstanding the foregoing, prior to a Change in Control Air Products may
unilaterally amend this Agreement as may from time to time be required to assure
that this Agreement does not violate or cause the Company to be in violation of
applicable law or that any payment provided for hereunder would not be
prohibited by applicable law; provided that all other employment or other
agreements between the Company and other key members of its management
substantially similar to this Agreement are similarly amended at such time.
B. Nondisclosure. You hereby ratify and affirm, and agree to be bound
by, the terms and provisions of your Employee Patent and Confidential
Information Agreements with the Company dated as of the date hereof (your
"Employee Agreement") during the Contract Period and thereafter in accordance
with the terms of your Employee Agreement, which Agreement is incorporated by
reference herein and made a part hereof as if set forth in full herein.
C. Exclusive Agreement. Except for your Employee Agreement and any
similar, succeeding or substitute agreement between you and the Company, no
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. Notwithstanding any other provision
of this Agreement, this Agreement does not affect the Company's right to
terminate your employment or to alter your compensation, benefits, position or
other terms and conditions of employment with the Company prior to a Change in
Control, or your right to resign from employment with the Company prior to a
Change in Control, and any such termination, resignation or other action with
respect to your terms and conditions of employment prior to a Change in Control
will give rise to no rights or obligations in either of the parties hereto under
this Agreement.
D. Other Plans and Programs. Nothing in this Agreement shall prevent or
limit your continuing or future participation in any benefit, bonus, incentive
or other plans or program
13
provided by the Company and for which you may qualify, nor shall anything herein
limit or otherwise affect such rights as you may have under any such plans or
program. Except as expressly provided herein, amounts which are vested benefits
or which you are otherwise entitled to receive under any plans or program of the
Company at or subsequent to your Termination Date shall be payable in accordance
with such plans or program, unless you should expressly waive your rights
thereto in writing.
E. Governing Law; Validity; References to Law. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Pennsylvania. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision or provisions of this
Agreement, which shall remain in full force and effect. All references herein to
sections of the Act or the Code shall be deemed also to refer to any successor
provisions to such sections.
F. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
AIR PRODUCTS AND CHEMICALS, INC.
By:
--------------------------------
Title: Vice President - Human Resources
AGREED TO THIS DAY OF 2000
---- ------
- -------------------------------------
Enclosure
14
Exhibit (a)(10.2)
26 February 2001
Mr. Leonard Broese van Groenou
202 N. Broad Street
Allentown, PA 18104
Dear Leonard:
In view of your appointment to serve on the Corporate Executive
Committee effective 26 February 2001 and in accordance with the resolution of
the Board of Directors adopted on 15 September 1999, this is to confirm to you
that Air Products and Chemicals, Inc. ("Air Products") has amended that certain
severance agreement between you and Air Products dated 16 September 1999 (the
"Agreement") by amending and restating in their entirety effective as of 26
February 2001 the following paragraphs of Subsection 4B of the Agreement (the
revisions therein being portrayed in italics):
(i) Cash Payment. The Company will pay to you on or before the fifth
day following your Termination Date, a lump sum cash payment equal to the sum of
the following amounts:
(a) Your Base Salary through your Termination Date at the higher of
the rate in effect on the Termination Date or the rate in effect immediately
before any purported reduction in your Base Salary constituting Good Reason
(such amount to be reduced by the amount of any Base Salary payments previously
paid by the Company to you for the same period or any portion thereof under
Subsection 3D above or otherwise);
(b) The product of (I) the amount of the Target Annual Bonus for
which you would have been eligible if you had been employed by the Company on
the last day of the Fiscal Year or other bonus performance cycle that includes
your Termination Date, multiplied by (II) a fraction of which the numerator is
the number of days which have elapsed in such Fiscal Year through the
Termination Date and the denominator is 365.
(c) Three times your Base Salary at the rate required by
subparagraph (i)(a) above and;
Leonard Broese van Groenou
26 February 2001
Page 2
(d) Three times the Target Annual Bonus for the Fiscal Year or
other bonus performance cycle in which your Termination Date occurs; and
(e) A pension payment equal to the difference between the actuarial
present values as of the Termination Date of (i) the pension benefits you will
receive under the Pension Plan and (ii) the pension benefits you would receive
by adding up to two years of credited service to your credited service under the
Pension Plan as of your Termination Date (such credited service under this
Agreement and the Pension Plan not to exceed 40 years in the aggregate), or, if
you have attained or are entitled to 40 years of credited service under the
Pension Plan as of your Termination Date, by applying three annual increases to
your Base Salary each at a rate of increase, on a percentage basis, equal to the
average annual percentage increase in your Base Salary during the three full
Fiscal Years immediately preceding the beginning of the Contract Period. For
purposes of determining present values in calculating this pension payment, it
shall be assumed that your benefits will commence in the form of a straight life
annuity as of the later of the Termination Date or the date on which you could
retire and commence a benefit under the Pension Plan without reduction for
commencement before the normal retirement date under such Plan were you employed
by the Company on such date. The interest rate used for such purposes shall be
the average of the average monthly yields for municipal bonds published monthly
by Moodys Investors' Service Inc. for the three months immediately preceding
your Termination Date. For purposes of determining actuarial present values in
calculating the pension payment, life expectancy assumptions used by the Plans's
actuaries for other purposes shall be used. The calculation of the pension
payment described in this subparagraph shall be made by a nationally recognized
firm of enrolled actuaries acceptable to you and the Company. The Company shall
pay the reasonable fees and expenses of such actuarial firm. The calculation
made by such actuarial firm shall be binding on you and the Company.
(f) For purposes of subparagraphs (i)(c), (i)(d) and (i)(e) of this
Subsection 4B, in the event you have attained age 62 on or before your
Termination Date, the amounts payable shall be reduced to an amount which bears
the same proportion to the unreduced amount as the number of months preceding
your sixty-fifth birthday bears to thirty six.
(g) The amount of the payment described in (a)-(f) shall be reduced
to the extent of any severance or redundancy benefit or payment sponsored by the
Company and/or provided or required by applicable law or regulation, which is
received by you on account of your Termination of Employment.
(h) If the amount of the payment described in (a) - (g) above
cannot be finally determined on or before the fifth day following the
Termination Date, the Company will pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such payment
and will pay the remainder of such payment as soon as the amount thereof can be
determined but in no event later than the thirtieth day after your Termination
Date.
Leonard Broese van Groenou
26 February 2001
Page 3
(ii) Insurance and Welfare Benefit Plans. The Company will provide
for you and your dependents following your Termination Date until the
earlier of three years following your Termination Date or your death, benefits
equivalent to those provided by the Company under all life insurance, medical,
dental, health and accident, long term disability, long term care plans or
programs in which you were participating on your Termination Date or, in the
event of a reduction in such benefits constituting Good Reason, equivalent to
those provided immediately before such reduction; provided that, such benefits
will not be provided beyond the period of time during which they would have been
provided to you under such plans or programs, as in effect on your Termination
Date or immediately before a reduction constituting Good Cause, had you not been
Terminated other than for death, Retirement, Disability or Cause or Terminated
for Good Reason, and such benefits will be provided for at least the period
during which they would have been provided to you were this Agreement not in
effect. In the event of your death during such three-year period, benefits in
respect of you or to your beneficiaries will be provided in accordance with the
terms of such plans or programs applicable to active employees of the Company.
Any continuation of benefits pursuant to this subparagraph shall not run
concurrent with any continuation rights provided pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and for
purposes of applying COBRA with respect to your coverage under any group health
plans, the end of coverage under this subparagraph shall be deemed to be the
date of a qualifying event resulting from the termination of a covered employee.
The terms and provisions of the Agreement, as amended as set forth
above effective as of 26 February 2001, shall continue in full force and effect.
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
AIR PRODUCTS AND CHEMICALS, INC.
By:
----------------------------------
Title: Chairman, President, and
Chief Executive Officer
AGREED TO THIS DAY OF 2001
---- ----------
- -------------------------------------
Enclosure
Exhibit (a)(10.3)
AIR PRODUCTS LOGO
Air Products and Chemicals, Inc. J. P McAndrew
7201 Hamilton Boulevard Vice President
Allentown, PA 181?5-7501 Human Resources
Tel 610 481-7258
Fax 610 481-8951
19 April 2000
Leonard Broese van Groenou
23 Oatlands Close
Weybridge
Surrey, England KT13 9EE
Subject: Pension Arrangements
Dear Leonard:
This letter confirms and expands upon the commitments made to you in my
prior correspondence of 30 May 1997. Previously. I have informed you
that a decision has been made to allow you to participate in the Air
Products Europe Supplementary Pension Plan. Furthermore, the Company
and the U.K. Inland Revenue have approved a normal retirement age of 60
for you. Accordingly, the Company will target a pension of two-thirds
of your final pensionable salary (final base salary less the Lower
Earnings Limit. The LEL is set annually by the U.K. Government and for
the year 99/00 is PDS 3484.) Furthermore, in the event that the Company
requires you to take early retirement, the two-thirds pension will be
payable immediately and adjusted based upon your actual service and up
to five additional years of pensionable service (not to exceed 40 years
of pensionable service in the aggregate) and without abatement for
early payment. The ultimate pension will be comprised of the U.K.
pension plan and the Belgian pension plan together with an element of
unfunded pension provisions.
Leonard, you are awarded this valuable benefit in recognition of your
significant service to our Company, and I know that I can be confident
of your recognition of the need to respect its confidentiality.
Sincerely,
/s/ J. P. McAndrew
J. P. McAndrew
Vice President-Human Resources
A Responsible Care Company logo
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
Six
Months
Ended
Year Ended 30 September 31 Mar
--------------------------------------------------------------- ----------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- ----------
Earnings:
Income before extraordinary item and
the cumulative effect of accounting
changes: $416.4 $429.3 $546.8 $450.5 $124.2 $230.2
Add (deduct):
Provision for income taxes 195.5 203.4 280.9 209.5 (7.5) 101.7
Fixed charges, excluding capitalized
interest 184.0 233.0 202.8 194.4 232.6 113.5
Capitalized interest amortized during
the period 9.4 8.3 7.4 6.1 6.6 3.6
Undistributed earnings of less-than-
fifty-percent-owned affiliates (40.6) (31.1) (25.3) (44.5) (32.1) (13.6)
----- ----- ----- ----- ----- -----
Earnings, as adjusted $764.7 $842.9 $1,012.6 $816.0 $323.8 $435.4
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Fixed Charges:
Interest on indebtedness, including
capital lease obligations $171.7 $217.8 $186.7 $175.4 $210.3 $104.1
Capitalized interest 20.0 20.9 18.4 24.7 19.7 5.7
Amortization of debt discount premium
and expense 1.5 1.8 1.9 1.3 3.1 (0.4)
Portion of rents under operating leases
representative of the interest factor 10.8 13.4 14.2 17.7 19.3 9.8
------ ------ ------ ------ ------ ------
Fixed charges $204.0 $253.9 $221.2 $219.1 $252.4 $119.2
====== ====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges: 3.7 3.3 4.6 3.7 1.3 3.7
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