[Air Products Logo]
Law Group
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
Telephone (610) 481-7351
Tax : Law (610) 481-8223
Patent (610) 481-7083
December 14, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-1004
RE: Air Products and Chemicals, Inc. (the "Company")
Annual Report on Form 10-K - File No. 1-4534
Ladies and Gentlemen:
Filed herewith, in electronic format, on behalf of Air Products and
Chemicals, Inc., is the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2001.
The financial statements in the Annual Report do not reflect any material
changes from the preceding year in accounting principles or practices or in the
method of applying such principles or practices.
Sincerely,
/s/ Robert F. Gerkens
Robert F. Gerkens
Assistant Corporate Secretary and
Assistant General Counsel
Enclosure
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
-------------------------------
Washington, D.C. 20549
FORM 10-K
(Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended September 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
--------- ---------
Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1274455
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7201 Hamilton Boulevard
Allentown, Pennsylvania 18195-1501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 481-4911
- -------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, par value $1.00 per share New York and Pacific
Preferred Stock Purchase Rights New York and Pacific
8 3/4% Debentures Due 2021 New York
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on November 1, 2001, was $8.63 billion. For purposes of the
foregoing calculation (i) all directors and/or executive officers have been
deemed to be affiliates, but the registrant disclaims that any such director
and/or executive officer is an affiliate and (ii) registrant's Flexible Employee
Benefit Trust, described under Item 12 of this Report, is deemed a
non-affiliate.
The number of shares of Common Stock outstanding as of November 30, 2001
was 227,200,340.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended September 30, 2001.
With the exception of those portions which are incorporated by reference into
Parts I, II, and IV of this Form 10-K, the Annual Report is not deemed to be
filed.
Proxy Statement for Annual Meeting of Shareholders to be held January 24,
2002 . . . Part III.
===============================================================================
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to important risk factors and
uncertainties referred to in the Management's Discussion and Analysis which is
included under Item 7 herein, other important risk factors and uncertainties
include overall economic and business conditions; demand and timing of the
placing of orders for the goods and services of Air Products, including the
success of recovery in the Air Products markets in the electronics industry;
competitive factors in the industries in which it competes; the ability to
recover increased energy and raw material costs from customers; spikes in the
pricing of natural gas; changes in government regulations; consequences of acts
of terrorism impacting the United States and other markets; the success of
implementing cost reduction programs; the timing, impact and other uncertainties
of future acquisitions or divestitures; significant fluctuations in interest
rates and foreign currencies; the impact of tax and other legislation and
regulations in jurisdictions in which Air Products and its affiliates operate;
and the timing and rate at which tax credits can be utilized.
ii
TABLE OF CONTENTS
Page
PART I.............................................................................................................1
ITEM 1. Business.............................................................................................1
GASES...................................................................................................1
Power Generation and Flue Gas Desulfurization..........................................................2
CHEMICALS...............................................................................................2
Performance Chemicals..................................................................................3
Chemical Intermediates.................................................................................3
EQUIPMENT...............................................................................................4
GENERAL.................................................................................................4
Foreign Operations.....................................................................................4
Technology Development.................................................................................5
Raw Materials and Energy...............................................................................6
Environmental Controls.................................................................................6
Competition............................................................................................7
Insurance..............................................................................................8
Employees..............................................................................................8
Executive Officers of the Company......................................................................9
ITEM 2. Properties..........................................................................................10
Gases.................................................................................................10
Chemicals.............................................................................................10
Equipment.............................................................................................11
ITEM 3. Legal Proceedings...................................................................................11
ITEM 4. Submission of Matters to a Vote of Security Holders.................................................11
PART II...........................................................................................................11
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................11
ITEM 6. Selected Financial Data.............................................................................12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............12
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk..........................................12
ITEM 8. Financial Statements................................................................................12
ITEM 9. Disagreements on Accounting and Financial Disclosure................................................12
PART III..........................................................................................................12
ITEM 10. Directors and Executive Officers of the Company.....................................................12
ITEM 11. Executive Compensation..............................................................................12
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................................12
ITEM 13. Certain Relationships and Related Transactions......................................................13
PART IV...........................................................................................................13
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................13
SIGNATURES............................................................................................17
iii
PART I
ITEM 1. Business.
Through internal development and by acquisitions, Air Products and
Chemicals, Inc. has established an internationally recognized industrial gas and
related industrial process equipment business and developed strong positions as
a producer of certain chemicals.
The gases business segment recovers and distributes industrial gases
such as oxygen, nitrogen, argon, and hydrogen and a variety of medical and
specialty gases. The chemicals business segment produces and markets performance
chemicals and chemical intermediates. The equipment business segment supplies
cryogenic and other process equipment and related engineering services.
Financial information concerning the Company's business segments
appears in Note 18 to the Consolidated Financial Statements included under Item
8 herein, which information is incorporated herein by reference, as are all
other specific references herein to information appearing in such 2001 Financial
Review Section of the Annual Report.
As used in this Report, the term "Air Products" or "Company" includes
subsidiaries and predecessors of the registrant or its subsidiaries, unless the
context indicates otherwise.
GASES
The principal industrial gases sold by the Company are oxygen,
nitrogen, argon (primarily recovered by the cryogenic distillation of air),
hydrogen, carbon monoxide, carbon dioxide (purchased, purified, or recovered
through the processing of natural gas or the by-product streams from process
plants), synthesis gas (combined streams of hydrogen and carbon monoxide), and
helium (purchased or refined from crude helium). Medical and specialty gases are
manufactured or blended by the Company or purchased for resale. The gases
segment also includes the Company's power generation and flue gas treatment
businesses.
The Company's gas business involves two principal modes of supply:
"Tonnage" or "on-site" supply--For large volume or "tonnage" users of
industrial gases, a plant is built adjacent to, on, or near the customer's
facility--hence the term "on-site". Alternatively, the gases are delivered
through a pipeline from nearby locations. Supply is generally made under
contracts having terms in excess of three years. In numerous areas--the Houston
(Texas) Ship Channel including the Port Arthur, Texas, area; "Silicon Valley",
California; Los Angeles, California; Phoenix, Arizona; Decatur, Alabama; Central
Louisiana; Rotterdam, the Netherlands; Korea; Singapore; Malaysia; and Bahia,
Brazil--Air Products' hydrogen, oxygen, carbon monoxide, or nitrogen gas
pipelines serve multiple customers from one or more centrally located plants.
Industrial gas companies in which the Company has less than controlling
interests have pipelines in Thailand, Taiwan, and South Africa.
Merchant supply--Smaller volumes of industrial gas products are
delivered to thousands of customers in liquid or gaseous form by tanker trucks
or tube trailers. These merchant customers use equipment designed and installed
by Air Products to store the product near the point of use, normally in liquid
state, and vaporize the product into gaseous state for their use as needed. Some
customers are also supplied by small on-site generators using noncryogenic
technology based on adsorption and membrane technology which, in certain
circumstances, the Company sells to its customers. Merchant customers' contract
terms normally are from three to five years. Merchant gases and various
specialty gases are also delivered in cylinders, dewars, and lecture bottle
sizes.
Oxygen, nitrogen, argon, and hydrogen sold to merchant customers are
usually recovered at large "stand-alone" facilities located near industrial
areas or high-tech centers, or at small noncryogenic generators, or are taken
from tonnage plants used primarily to supply tonnage users. Tonnage plants are
frequently designed to have more capacity than is required by their principal
customer to recover additional product that is liquefied for sale to a merchant
market. Air Products also designs and builds systems for recovering oxygen,
hydrogen, nitrogen, carbon monoxide, and low dew point gases using adsorption
technology.
1
Tonnage and merchant sales of atmospheric gases--oxygen, nitrogen, and
argon--constituted approximately 25% of Air Products' consolidated sales in
fiscal year 2001 and 26% in fiscal years 2000 and 1999. Tonnage and merchant
sales of industrial gases--principally oxygen, nitrogen, and hydrogen--to the
chemical process industry and the electronics industry, the largest consuming
industries, were approximately 21% and 14%, respectively, of Air Products'
consolidated sales in fiscal year 2001.
Other important consumers of Air Products' industrial and specialty
gases are the basic steel industry, the oil industry (which uses inert nitrogen
for oil well stimulation and field pressurization and hydrogen and oxygen for
refining), and the food industry (which uses liquid nitrogen for food freezing).
Air Products believes that it is the largest liquefier of hydrogen, which it
supplies to many customers, including the National Aeronautics and Space
Administration for its space shuttle program.
Helium is sold for use in magnetic resonance imaging equipment,
controlled atmospheres processes, and welding. Medical gases and equipment,
primarily for inhalation therapy, are supplied to hospitals and clinics, as well
as in Europe to the home care market.
Specialty gases include fluorine products, rare gases such as xenon,
krypton, and neon, and more common gases of high purity or gases which are
precisely blended as mixtures. Specialty chemicals for use by the electronics
industry include silane, arsine, silicon tetrafluoride, nitrogen trifluoride,
carbon tetrafluoride, hexafluoromethane, and tungsten hexafluoride. These gases
and chemicals are used in numerous industries and in electronic and laboratory
applications. In certain circumstances, the Company sells equipment related to
the use, handling, and storage of such specialty gases and specialty chemicals.
Sales of industrial gases to merchant customers and/or sales of
specialty products to the electronics industry are made principally through
field sales forces from 108 offices in 38 states in the United States and Puerto
Rico, and from 198 offices in 24 foreign countries. In addition, industrial gas
companies in which the Company has investments operate in more than 30 foreign
countries.
Electricity and hydrocarbons, including natural gas as a feedstock for
producing certain gases, are important to Air Products' gas business. See "Raw
Materials and Energy". The Company's large truck fleet, which delivers products
to merchant customers, requires a readily available supply of gasoline or diesel
fuel. Also, environmental and health laws and regulations will continue to
affect the Company's gas businesses. See "Environmental Controls".
Power Generation and Flue Gas Desulfurization
Air Products operates and has 50% interests in a 49-megawatt
fluidized-bed coal-fired power generation facility in Stockton, California and a
24-megawatt gas-fired combined cycle power generation facility near Rotterdam,
the Netherlands, and a 100% interest in a 25-megawatt gas-fired combined cycle
power generation facility principally supplying the Company's chemical complex
in Calvert City, Kentucky. A 112-megawatt gas-fueled power generation facility,
in which the Company has a 48.8% interest, operates in Thailand and supplies
electricity to a state-owned electricity generating authority and steam and
electricity to an Air Products industrial gases affiliate. In the fourth quarter
of fiscal year 2001, the Company sold its ownership and operating interests in
two cogeneration facilities: an 88-megawatt facility in western Pennsylvania and
a 115-megawatt facility in Orlando, Florida. The Company continues to assess the
possibility of divestiture of its interest in the flue gas desulfurization
facility in Porter County, Indiana.
Additional information with respect to the Company's power generation
and flue gas treatment businesses is included in Notes 3, 7 and 16 to the
Consolidated Financial Statements included under Item 8 herein.
CHEMICALS
The Company's chemicals businesses consist of performance chemicals
and chemical intermediates, where the Company is able to differentiate itself by
the performance of its products in the customer's application, the technical
service which the Company provides, and the scale of production and the
production technology employed by the Company.
2
Performance Chemicals
The principal businesses of performance chemicals are emulsions and
specialty, polyurethane, and epoxy additives. Total sales from the performance
chemicals business constituted approximately 16% of Air Products' consolidated
sales in fiscal year 2001, 21% in fiscal year 2000, and 22% in fiscal year 1999.
Additives
---------
Air Products' additives chemicals are differentiated from the
competition based on their performance when used in the customer's products and
the technical service which the Company provides.
Specialty Additives-These products are primarily acetylenic alcohols
and amines which are used as performance additives in coatings, lubricants,
electro-deposition processes, agricultural formulations, and corrosion
inhibitors.
Polyurethane Additives-These products include catalysts and
surfactants which are used as performance control additives and processing aids
in the production of both flexible and rigid polyurethane foam around the world.
The principal end markets for polyurethane foams include furniture cushioning,
insulation, carpet underlay, bedding, and automobile seating.
Epoxy Additives-These products include polyamides, aromatic amines,
cycloaliphatic amines, reactive diluents, and specialty epoxy resins which are
used as performance additives in epoxy formulations by epoxy manufacturers
worldwide. The end markets for epoxies are coatings, flooring, adhesives,
reinforced composites, and electrical laminates.
Emulsions
---------
Air Products' emulsions are water-based and water-soluble products
derived primarily from vinyl acetate monomer.
The Company's major emulsions products are vinyl acetate homopolymer
emulsions and AIRFLEX(R) vinyl acetate-ethylene copolymer emulsions. The Company
also produces emulsions which incorporate vinyl chloride and various acrylates
in the polymer. These products are used in adhesives, nonwoven fabric binders,
paper coatings, paints, inks, and carpet backing binder formulations.
Air Products owns 65% of a worldwide joint venture with Wacker-Chemie
GmbH that produces polymer emulsions and pressure-sensitive adhesives. The
Company also owns 20% of a worldwide joint venture with Wacker-Chemie that
produces redispersible powders made from polymer emulsions.
Pressure-sensitive adhesives are water-based acrylic emulsions which
are used for both permanent and removable pressure-sensitive adhesives primarily
for labels and tapes.
Chemical Intermediates
The chemical intermediates businesses use the Company's proprietary
technology and scale of production to differentiate themselves from the
competition. The principal intermediates sold by the Company include amines and
polyurethane intermediates. The Company also produces certain industrial
chemicals (ammonia, methanol, and nitric acid) as raw materials for its
differentiated products. Total third-party sales from the chemical intermediates
businesses constituted 11% of Air Products' consolidated sales in fiscal year
2001, 12% in fiscal year 2000, and 11% in fiscal year 1999.
Amines-The Company produces a broad range of amines using ammonia and
methanol, which are both manufactured by Air Products, and other alcohol
feedstocks purchased from various suppliers. Other, more specialized amines, are
produced by the hydrogenation of purchased intermediates. Substantial quantities
of these products are sold under long-term contracts to a small number of
customers. These products are used by the Company's customers as raw materials
in the manufacture of herbicides, pesticides, water treatment chemicals, animal
nutrients, polyurethane coatings, rubber chemicals, and pharmaceuticals. Ammonia
is produced as a feedstock for its alkylamines business, supplemented by
external purchases. Additional ammonia is purchased and converted to ammonium
nitrate prills and solutions which are primarily sold to customers as
fertilizers or for other chemical applications. Methanol is produced by Air
Products as a feedstock in methylamine production, and the excess over this
requirement is sold to a third party.
3
Polyurethane Intermediates-The Company produces dinitrotoluene ("DNT")
and toluene diamine ("TDA") for use as intermediates by the Company's customers
in the manufacture of a major precursor of flexible polyurethane foam. The
principal end markets for flexible polyurethane foams include furniture
cushioning, carpet underlay, bedding, and seating in automobiles. Virtually all
of the Company's production of DNT and TDA is sold under long-term contracts to
a small number of customers.
* * *
Chemical sales are supported from various locations in the United
States, England, Germany, Brazil, Mexico, the Netherlands, Japan, China,
Singapore, and South Africa, and through sales representatives or distributors
in most industrialized countries. Dry products are delivered in railcars,
trucks, drums, bags, and cartons. Liquid products are delivered by barge, rail
tank cars, tank-trailers, drums and pails, and, at one location, by pipeline.
The chemicals business depends on adequate energy sources, including
natural gas as a feedstock for the production of certain products (see "Raw
Materials and Energy") and will continue to be affected by various environmental
and health laws and regulations (see "Environmental Controls").
EQUIPMENT
The Company designs and manufactures equipment for cryogenic air
separation, gas processing, natural gas liquefaction, and hydrogen purification.
Air Products also designs and builds systems for recovering hydrogen, nitrogen,
carbon monoxide, carbon dioxide, and low dew point gases using membrane
technology. Additionally, a broad range of plant design, engineering,
procurement, and construction management services is provided for the above
areas. Equipment is manufactured for use by the gases segment and for sale in
industrial markets which include the Company's international industrial gas
affiliates.
The backlog of orders (including letters of intent) believed to be
firm from other companies and equity affiliates for equipment was approximately
$227 million on September 30, 2001, approximately 34% of which relates to
cryogenic air separation, as compared with a total backlog of approximately $149
million on September 30, 2000. It is expected that approximately $187 million of
the backlog on September 30, 2001, will be completed during fiscal year 2002.
GENERAL
Foreign Operations
Air Products, through subsidiaries and affiliates, conducts business
in numerous countries outside the United States. The structure of the Air
Products gas business in Europe mirrors the Company's United States operation.
Air Products' international business is subject to risks customarily encountered
in foreign operations, including fluctuations in foreign currency exchange rates
and controls, import and export controls, and other economic, political, and
regulatory policies of local governments.
Majority and wholly owned industrial gas subsidiaries operate in
Argentina, Brazil, Canada, and throughout Europe and Asia in 14 and nine
countries, respectively. There are 50% industrial gas joint ventures in Africa,
South Africa, Canada, seven countries in Europe, and five in Asia, and less than
controlling interests in Canada and Mexico, four countries in Europe, and six in
Asia. The Company has a 50% interest in a power generation facility in the
Netherlands and a 48.8% interest in one in Thailand.
4
The principal geographic markets for the Company's chemical products
are North America, Europe, Asia, Brazil, and Mexico. Majority and wholly owned
subsidiaries operate in Germany, Italy, the Netherlands, the United Kingdom,
Australia, Singapore, Japan, Korea, China, and Mexico. The Company also has 50%
joint ventures in Japan for distribution of POLYCAT(R) and manufacture and sale
of DABCO(R) amine catalysts and a 50% joint venture in the U.K which is
developing products relating to silicon wafer polishing, chemical mechanical
planarization processes, and hard disk polishing. The polymer emulsions and
pressure-sensitive adhesives joint venture with Wacker-Chemie GmbH has
headquarters in the United States and production facilities in the United
States, Germany, Mexico, and Korea, along with a technical service center in
Shanghai, China. Headquarters for the 20% investment in the redispersible powder
venture with Wacker-Chemie are in Germany with manufacturing facilities in
Germany and the United States. The Company also has less than controlling
interests in Japan and Ireland, which sell chemicals to the electronics
industry.
Financial information about Air Products' foreign operations and
investments is included in Notes 7, 14, and 18 to the Consolidated Financial
Statements included under Item 8 herein. Information about foreign currency
translation is included in Note 1 to the Consolidated Financial Statements
included under Item 8 herein, under "Foreign Currency", and information on
Company exposure to currency fluctuations is included in Note 5 to the
Consolidated Financial Statements included under Item 8 herein, under "Financial
Instruments". Export sales from operations in the United States to
unconsolidated customers amounted to $602 million, $558 million, and $528
million in 2001, 2000, and 1999, respectively.
Total export sales in fiscal year 2001 included $46 million in export sales to
affiliated customers. The sales to affiliated customers were primarily equipment
sales.
Technology Development
Air Products conducts research and development principally in its
laboratories located in Trexlertown, Pennsylvania, as well as in Basingstoke,
London, and Crewe in the U.K.; Burghausen, Germany; Utrecht, the Netherlands;
San Juan del Rio, Mexico; and Barcelona, Spain. The Company also funds and works
closely on research and development programs with a number of major universities
and conducts a sizable amount of research work funded by others, principally the
United States Government.
The Company's market-oriented approach to technology development
encompasses research and development and engineering, as well as commercial
development.
The amount expended by the Company on research and development during
fiscal year 2001 was $123 million, $124 million in fiscal year 2000, and $123
million in fiscal year 1999.
In the gases and equipment segments, technology development is
directed primarily to developing new and improved processes and equipment for
the production and delivery of industrial gases and cryogenic fluids, developing
new products, and developing new and improved applications for industrial gases.
It is through such applications and improvements that the Company has become a
major supplier to the electronics and chemical process industries including
gases from air separation, specialty gases and hydrogen. Additionally,
technology development for the equipment business is directed primarily to
reducing the capital and operating costs of its facilities and to
commercializing new technologies in gas production and separation.
In the chemicals segment, technology development is primarily
concerned with new products and applications to strengthen and extend our
present positions in polymer and performance chemicals. In addition, a major
continuing effort supports the development of new and improved process and
manufacturing technology for chemical intermediates and polymers.
A corporate research group supports the research efforts of the
Company's various businesses. This group includes the Company's Corporate
Science and Technology Center, which conducts research in areas important to the
long-term growth of the Company, with focus on performance materials.
As of November 14, 2001, Air Products owned 935 United States patents
and 1,630 foreign patents. The Company is also licensed to practice under
patents owned by others. While the patents and licenses are considered
important, Air Products does not consider its business as a whole to be
materially dependent upon any particular patent or patent license, or group of
patents or licenses.
5
Raw Materials and Energy
The Company manufactures hydrogen, carbon monoxide, synthesis gas,
carbon dioxide, and methanol principally from natural gas. Such products
accounted for approximately 13% of the Company's consolidated sales in fiscal
year 2001. The Company's principal raw material purchases are chemical
intermediates produced by others from basic petrochemical feedstocks such as
olefins and aromatic hydrocarbons. These feedstocks are generally derived from
various crude oil fractions or from liquids extracted from natural gas. The
Company purchases its chemical intermediates from many sources and generally is
not dependent on one supplier. However, with respect to vinyl acetate monomer
which supports the polymer business, the Company is heavily dependent on a
single supplier under a long-term contract which produces vinyl acetate monomer
from several facilities. The Company characterizes the availability of these
chemical intermediates as generally being readily available. The Company uses
such raw materials in the production of emulsions, amines, polyurethane
intermediates, specialty additives, polyurethane additives, and epoxy additives.
Such products accounted for approximately 28% of the Company's consolidated
sales in fiscal year 2001. Natural gas is an energy source at a number of the
Company's facilities. The Company also purchases ammonia under long-term
contracts as a feedstock for several of its chemicals facilities.
The Company's industrial gas facilities use substantial amounts of
electrical power. Any shortage of electrical power or interruption of its supply
or increase in its price which cannot be passed through to customers for
competitive reasons will adversely affect the merchant gas business of the
Company.
In addition, the Company purchases finished and semi-finished
materials and chemical intermediates from many suppliers. During fiscal year
2001 no significant difficulties were encountered in obtaining adequate supplies
of energy or raw materials.
Environmental Controls
The Company is subject to various environmental laws and regulations
in the United States and foreign countries where it has operations. Compliance
with these laws and regulations results in higher capital expenditures and
costs. Additionally, from time to time, the Company is involved in proceedings
under the Comprehensive Environmental Response, Compensation, and Liability Act
(the federal Superfund law), similar state laws, and the Resource Conservation
and Recovery Act (RCRA) relating to the designation of certain sites for
investigation and possible cleanup. Additional information with respect to these
proceedings is included under Item 3, Legal Proceedings, below. The Company's
accounting policies on environmental expenditures are discussed in Note 1 to the
Consolidated Financial Statements included under Item 8 herein.
The amounts charged to earnings on an after-tax basis related to
environmental protection totaled $21 million in 2001, $30 million in 2000, and
$27 million in 1999. These amounts represent an estimate of expenses for
compliance with environmental laws, as well as remedial activities, and costs
incurred to meet internal Company standards. Such costs are estimated to be
$24 million in 2002 and 2003.
Although precise amounts are difficult to define, the Company
estimates that in fiscal year 2001 it spent approximately $11 million on capital
projects to control pollution versus $3 million in 2000. Capital expenditures to
control pollution in future years are estimated at approximately $16 million in
2002 and $13 million in 2003.
To the extent long-term contracts have been entered into for supply of
product, such as for the industrial gas on-site business and for certain
chemical products, the cost of any environmental compliance generally is
contractually passed through to the customer.
It is the Company's policy to accrue environmental investigatory and
noncapital remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated.
The potential exposure for such costs is estimated to range from $9 million to a
reasonably possible upper exposure of $19 million. The balance sheet at
September 30, 2001, includes an accrual of $14 million. At September 30, 2000,
the balance sheet accrual was $17 million.
6
In addition to the environmental exposures discussed in the preceding
paragraph, there will be spending at a Company-owned manufacturing site where
the Company is undertaking RCRA remediation action. The Company estimates
capital costs to implement the anticipated remedial program should not exceed
$33 million. Spending was $28 million through fiscal year 2001 and is estimated
at $.3 million for fiscal year 2002 and $2 million for fiscal year 2003.
Operating and maintenance expenses associated with continuing the remedial
program were minimal in fiscal year 2001 and are estimated to be
approximately $1 million per year for an estimated period of up to 30 years. A
former owner and operator at the site has agreed to reimburse the Company
approximately 20% of the costs incurred in the remediation. Reimbursement of
$.3 million and $1.4 million was received in fiscal years 2001 and 2000,
respectively, and the reimbursement is estimated at $.2 million for fiscal year
2002. In fiscal year 1999, an insurance recovery related to this environmental
site was received in the amount of $7.7 million. The cost estimates have not
been reduced by the value of such reimbursements and insurance recovery.
Actual costs to be incurred in future periods may vary from the
estimates, given inherent uncertainties in evaluating environmental exposures.
Subject to the imprecision in estimating future environmental costs, the Company
does not expect that any sum it may have to pay in connection with environmental
matters in excess of the amounts recorded or disclosed above would have a
materially adverse effect on its financial condition or results of operations in
any one year.
Competition
The Company's businesses face strong competition from others, some of
which are larger and have greater resources than Air Products.
Air Products' gas business competes in the United States with three
major sellers and with several regional sellers. Competition in industrial gas
markets is based primarily on price, reliability of supply, and furnishing or
developing applications for use of such gases by customers, and in some cases
the provisions of other services or products such as power and steam generation.
A similar competitive situation exists in European industrial gas markets in
which the Company competes against one or more larger entrenched competitors in
most countries.
The number of the Company's principal competitors in the chemicals
business varies from product to product, and it is not practical to identify
such competitors because of the broad range of the Company's chemical products
and the markets served, although the Company believes it has a leading or strong
market position in most of its chemical products. For amines the competition is
principally from other large chemical companies that also have the ability to
provide competitive pricing, reliability of supply, technical service
assistance, and quality products and services. The possibility of back
integration by large customers is the major competitive factor for the sale of
polyurethane additives. In its other chemical products, the Company competes
with a large number of chemical companies, some of which are larger, possess
greater financial resources, and are more vertically integrated than the
Company. Competition in these products is principally on the basis of price,
quality, product performance, reliability of product supply, and technical
service assistance.
The Company's equipment business competes in all aspects with a great
number of firms, some of which have greater financial resources than Air
Products. Another important factor in certain export sales is financing provided
by governmental entities in the United States and the United Kingdom as compared
with financing offered by their counterparts in other countries.
Competition is based primarily on technological performance, service,
technical know-how, price, and performance guarantees. Air Products believes
that its comprehensive project development capability, operating experience,
engineering and financing capabilities, and construction management experience
will enable it to compete effectively.
7
Insurance
The Company's policy is to obtain public liability and property
insurance coverage that is currently available at what management determines to
be a fair and reasonable price. The Company, for itself and its power generation
and flue gas treatment joint venture affiliates for which it assumes operating
responsibility, maintains public liability and property insurance coverage at
amounts which management believes are sufficient, after retention, to meet the
Company's anticipated needs in light of historical experience to cover future
litigation and claims. There is no assurance, however, that the Company will not
incur losses beyond the limits of, or outside the coverage of, its insurance.
Employees
On September 30, 2001, the Company (including majority-owned subsidiaries) had
approximately 17,800 full-time employees, of whom approximately 7,700 were
located outside the United States. The Company has collective bargaining
agreements with unions at numerous locations which expire on various dates over
the next three to four years. The Company considers relations with its employees
to be satisfactory. The Company does not believe that any expiring collective
bargaining agreements will result in a material adverse impact on the Company.
Executive Officers of the Company
8
The Company's executive officers and their respective positions and
ages on December 15, 2001, follow. Except where indicated, each of the executive
officers listed below has been employed by the Company in the position indicated
during the past five fiscal years. Information with respect to offices held is
stated in fiscal years.
Name Age Office
---- --- ------
Leonard V. Broese van Groenou 54 Vice President - Human Resources (became Vice President-
(D) Human Resources in 2001; Vice President-Human Resources
and Procurement of Air Products Europe prior thereto)
W. Douglas Brown 55 Vice President, General Counsel, and Secretary
(D) (became Vice President, General Counsel, and Secretary in
1999; Vice President-Administration, Gases and Equipment in
1997; Senior Vice President-Law and Secretary of American
Ref-Fuel Company prior thereto)
Andrew E. Cummins 57 Group Vice President-Chemicals
(D) (became Group Vice President-Chemicals in 1999; Vice
President-North America Gases in 1999; Vice
President-General Industries Group in 1996)
Leo J. Daley 55 Vice President-Finance and Controller
(D) (became Controller in 2000; Vice President-Finance in 1998;
Vice President and Treasurer prior thereto)
Robert E. Gadomski 54 Executive Vice President-Gases and Equipment
(D) (became Executive Vice President-Gases and Equipment in
1999; Executive Vice President-Chemicals, Asia, and Latin
America in 1998; Executive Vice President-Chemicals in 1996)
John P. Jones III 51 Chairman, President, and Chief Executive Officer
(A)(B)(C)(D) (became Chairman and Chief Executive Officer in 2000;
President and Chief Operating Officer in 1998; Executive
Vice President-Gases and Equipment in 1996)
Ronaldo Sullam 60 President-Air Products Europe, Inc.
(D) (became President-Air Products Europe, Inc. in 1996)
- ----------
(A) Member, Board of Directors
(B) Member, Executive Committee of the Board of Directors
(C) Member, Finance Committee of the Board of Directors
(D) Member, Corporate Executive Committee
9
ITEM 2. Properties.
The principal executive offices of Air Products are located at its
headquarters in Trexlertown, near Allentown, Pennsylvania. Additional
administrative offices are located in owned facilities in Hersham, near London,
England; Brampton, near Toronto, Canada; and Hattingen, Germany. Administrative
offices are also located in leased facilities in the Allentown area,
Pennsylvania; Tokyo, Japan; Hong Kong, the People's Republic of China;
Singapore; Brussels, Belgium; Paris, France; Barcelona, Spain; and Sao Paulo,
Brazil. The management considers the Company's manufacturing facilities,
described in more detail below, to be adequate to support the business
efficiently. The following information with respect to properties is as of
September 30, 2001.
Gases
The gases segment has approximately 190 plant facilities in 38 states,
the majority of which recover nitrogen, oxygen, and argon. The Company has eight
facilities which produce specialty gases and 31 facilities which recover
hydrogen throughout the United States. Helium is recovered at two plants in
Kansas and Texas, and acetylene is manufactured at six plants in six states in
the United States. There are 110 sales offices and/or cylinder distribution
centers located in 38 states.
The property on which the above plants are located is owned by Air
Products at approximately one-fourth of the locations, and leased by Air
Products at the remaining locations. However, in virtually all cases, the plant
itself is owned and operated by Air Products. Air Products owns approximately
half of its sales offices and cylinder distribution centers, including related
real estate, and leases the other half.
Air Products' European plant facilities total 73 and include nine
plants which recover hydrogen, seven plants which manufacture dissolved
acetylene, and four which recover carbon monoxide. The majority of European
plants recover nitrogen, oxygen, and argon. In addition, there are four
specialty gas centers. There is a combined total of 163 sales offices and/or
cylinder distribution centers in Europe, and several additional facilities
located in Brazil, Canada, Japan, the People's Republic of China, Puerto Rico,
Singapore, Indonesia, Taiwan, Korea, Malaysia, and the Middle East.
Representative offices are located in Hong Kong, Taiwan, and in Beijing and
Shanghai in the People's Republic of China.
Chemicals
The chemicals segment manufactures amines, nitric acid, methanol,
anhydrous ammonia, and ammonia products at its Pace, Florida facility;
alkylamines at its St. Gabriel, Louisiana facility and its Camacari, Bahia,
Brazil facility; polyvinyl acetate emulsions at its South Brunswick, New Jersey
facility; styrene emulsions, styrene acrylics, polyvinyl acetate acrylics, and
polyvinyl acetate emulsions at its San Juan del Rio facility in Mexico;
polyvinyl acetate emulsions at its Cologne, Germany facility; nitric acid,
dinitrotoluene, and toluene diamine at its Pasadena, Texas facility; polyvinyl
acetate emulsions and acetylenic chemicals at its Calvert City, Kentucky
facility; specialty amines at its Wichita, Kansas facility; methylamines,
dimethyl formamide, choline chloride, and dimethyl amino ethanol at its
Teesside, England facility; and epoxy additives at its facilities in Manchester,
England, Los Angeles, California, and Cumberland, Rhode Island. The chemicals
segment manufactures polyurethane additives and polyurethane specialty products
(AIRTHANE(R)/VERSATHANE(R)) at its Paulsboro, New Jersey facility which is
leased in part and owned in part. The chemicals segment also manufactures
polyvinyl acetate emulsions at five smaller locations.
The chemicals segment has 15 plant facilities, two sales offices, and
one laboratory in the United States and operates three plants, nine
sales/representative offices, and three laboratories in Europe, two laboratories
in Brazil, Korea, China, and Japan, one plant in Mexico, two plants in Korea,
one plant in Brazil, and sales offices in Australia, Brazil, Mexico, Japan,
Korea, and Singapore, and representative offices in Beijing, Shanghai, and Hong
Kong in the People's Republic of China. Substantially all of the chemicals
segment's plants and real estate are owned. Approximately 75% of the offices are
leased by the Company and 25% are owned.
10
Equipment
The principal facilities utilized by the equipment segment include
five plants and two sales offices in the United States, two plants and one
office in Europe, one office in Japan, and one sales office in the People's
Republic of China. Air Products owns approximately 50% of the facilities and
real estate in this segment and leases the remaining 50%.
ITEM 3. Legal Proceedings.
In the normal course of business Air Products and its subsidiaries are
involved in legal proceedings including proceedings involving governmental
authorities under the Comprehensive Environmental Response, Compensation, and
Liability Act (the federal Superfund law), the Resource Conservation and
Recovery Act (RCRA), and similar state environmental laws relating to the
designation of certain sites for investigation or remediation. Presently there
are approximately 45 sites on which a final settlement has not been reached
where the Company, along with others, has been designated a Potentially
Responsible Party by the Environmental Protection Agency or is otherwise engaged
in investigation or remediation. The Company does not expect that any sums it
may have to pay in connection with these matters would have a materially adverse
effect on its consolidated financial position, nor is there any material
additional exposure expected in any one year in excess of the amounts the
Company currently has accrued. Additional information on the Company's
environmental exposure is included under "Environmental Controls".
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock, ticker symbol "APD", is listed on the New
York and Pacific Stock Exchanges. Quarterly stock prices, as reported on the New
York Stock Exchange composite tape of transactions, and dividend information for
the last two fiscal years appear below.
Quarterly Stock Information
---------------------------------------------------------
2001 High Low Close Dividend
---------------------------------------------------------
First $42.25 $30.50 $41.00 $.19
---------------------------------------------------------
Second 43.45 35.00 38.40 .19
---------------------------------------------------------
Third 48.70 37.98 45.75 .20
---------------------------------------------------------
Fourth 49.00 32.25 38.58 .20
---------------------------------------------------------
$.78
2000 High Low Close Dividend
---------------------------------------------------------
First $33.88 $25.69 $33.56 $.18
---------------------------------------------------------
Second 37.00 23.00 28.44 .18
---------------------------------------------------------
Third 39.06 27.56 30.81 .19
---------------------------------------------------------
Fourth 39.13 29.25 36.00 .19
---------------------------------------------------------
$.74
11
The Company has authority to issue 25,000,000 shares of preferred
stock in series. The Board of Directors is authorized to designate the series
and to fix the relative voting, dividend, conversion, liquidation, redemption
and other rights, preferences, and limitations as between series. When preferred
stock is issued, holders of Common Stock are subject to the dividend and
liquidation preferences and other prior rights of the preferred stock. There
currently is no preferred stock outstanding. The Company's Transfer Agent and
Registrar is American Stock Transfer and Trust Company, 59 Maiden Lane, New
York, New York, 10038, telephone (800) 937-5449, Internet website
www.amstock.com, and e-mail address info@amstock.com.
As of November 30, 2001 there were 11,621 record holders of
the Company's Common Stock.
ITEM 6. Selected Financial Data.
The tabular information appearing under "Eleven-Year Summary of
Selected Financial Data" on pages 48 and 49 of the 2001 Financial Review
Section of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The textual information appearing under "Management's Discussion and
Analysis" on pages 17 through 23 of the 2001 Financial Review Section of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk.
The textual information appearing under "Market Risks and Sensitivity
Analysis" on pages 22 and 23 of the 2001 Financial Review Section of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. Financial Statements.
The consolidated financial statements and the related notes thereto,
together with the report thereon of Arthur Andersen LLP dated 26 October 2001,
appearing on pages 24 through 49 of the 2001 Financial Review Section of the
Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Company.
The biographical information relating to the Company's directors
contained on pages 7 through 10 of the Proxy Statement relating to the
Company's 2002 Annual Meeting of Shareholders is incorporated herein by
reference. Biographical information relating to the Company's executive officers
is set forth in Item 1 of Part I of this Report.
ITEM 11. Executive Compensation.
The information under "Director Compensation", "Report of the
Management Development and Compensation Committee", "Executive Compensation
Tables", "Severance and Other Change In Control Arrangements", and "Stock
Performance Graph", appearing on pages 12 through 20 of the Proxy Statement
relating to the Company's 2002 Annual Meeting of Shareholders is incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required for this Item is set forth in the sections
headed "Persons Owning More than 5% of Air Products Stock" and "Air Products
Stock Beneficially Owned by Officers and Directors" contained on pages 21
through 22 of the Proxy Statement relating to the Company's 2002 Annual Meeting
of Shareholders and such information is incorporated herein by reference.
12
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
1. The 2001 Financial Review Section of the Company's 2001 Annual Report to
Shareholders. Information contained therein is not deemed filed except as it is
incorporated by reference into this Report. The following financial information
is incorporated herein by reference:
(Page references to 2001 Financial Review Section of the Annual Report)
Management's Discussion and Analysis......................................................... 17
Report of Independent Public Accountants..................................................... 24
Consolidated Income for the three years ended 30 September 2001.............................. 25
Consolidated Balance Sheets at 30 September 2001 and 2000.................................... 26
Consolidated Cash Flows for the three years ended 30 September 2001.......................... 27
Consolidated Shareholders' Equity for the three years ended 30 September 2001................ 28
Notes to Consolidated Financial Statements................................................... 29
Business Segment and Geographic Information.................................................. 45
Eleven-Year Summary of Selected Financial Data............................................... 48
2. The following additional information should be read in conjunction with
the financial statements in the Company's 2001 Financial Review Section of the
Annual Report to Shareholders:
(Page references to this report)
Report of Independent Public Accountants on Schedule........................................... 19
Consent of Independent Public Accountants...................................................... 19
Consolidated Schedule for the years ended 30 September 2001, 2000, and 1999
as follows:
Schedule
Number
------
VIII Valuation and Qualifying Accounts................................................... 20
All other schedules are omitted because the required matter or conditions
are not present or because the information required by the Schedules is
submitted as part of the consolidated financial statements and notes thereto.
3. Exhibits.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws.
3.1 By-Laws of the Company. (Filed as Exhibit 3.1 to the
Company's Form 8-K Report dated September 18, 1997.)*
3.2 Restated Certificate of Incorporation of the Company.
(Filed as Exhibit 3.2 to the Company's Form 10-K Report
or the fiscal year ended September 30, 1987.)*
3.3 Amendment to the Restated Certificate of Incorporation
of the Company dated January 25, 1996. (Filed as
Exhibit 3.3 to the Company's Form 10-K Report for the
fiscal year ended September 30, 1996.)*
(4) Instruments defining the rights of security holders,
including indentures. Upon request of the Securities and
Exchange Commission, the Company hereby undertakes to
furnish copies of the instruments with respect to its
long-term debt.
13
4.1 Rights Agreement, dated as of March 19, 1998, between
the Company and First Chicago Trust Company of New York.
(Filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated March 19, 1998, as amended
by Form 8-A/A dated July 16, 1998.)*
4.2 Amended and Restated Credit Agreement dated as of
September 16, 1999 among the Company, Additional Borrowers
parties thereto, Lenders parties thereto, and The Chase
Manhattan Bank (as amended). (Filed as Exhibit 4.2 to
the Company's Form 10-K Report for the fiscal year
ended September 30, 1999.)*
(10) Material Contracts.
10.1 1990 Deferred Stock Plan of the Company, as amended and
restated effective October 1, 1989. (Filed as
Exhibit 10.1 to the Company's Form 10-K Report for the
fiscal year ended September 30, 1989.)*
10.2 1997 Long-Term Incentive Plan of the Company effective
October 1, 1996. (Filed as Exhibit 10.2(c) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 1996.)*
10.2(a) Excerpt from resolutions approving amendments to the 1997
Long-Term Incentive Plan of the Company, effective
20 September 2000. (Filed as Exhibit 10.2(a) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 2000.)*
10.3 Amended and Restated 1997 Annual Incentive Plan of the
Company effective 1 January 2000. (Filed as
Exhibit 10.2 to the Company's Form 10-Q Report for the
period ending 31 March 2000.)*
10.3(a) Excerpt from resolutions amending the 1997 Annual
Incentive Plan of the Company, effective 20 September
2000. (Filed as Exhibit 10.3(a) to the Company's
Form 10-K Report for the fiscal year ended
September 30, 2000.)*
10.4 Supplementary Pension Plan of the Company, as amended
effective October 1, 1988. (Filed as Exhibit 10.4 to
the Company's Form 10-K Report for the fiscal year ended
September 30, 1989.)*
10.4(a) Amendment to the Pension Plan for Salaried Employees and
the Pension Plan for Hourly Rated Employees of the
Company, adopted September 20, 1995. (Filed as
Exhibit 10.4(d) to the Company's Form 10-K Report for the
fiscal year ended September 30, 1995.)*
10.4(b) Amendment to Supplementary Pension Plan of the Company,
adopted September 20, 1995. (Filed as Exhibit 10.4(e)
to the Company's Form 10-K Report for the fiscal year
ended September 30, 1995.)*
10.4(c) Amendment to Supplementary Pension Plan of the Company,
adopted November 2, 1995. (Filed as Exhibit 10.4(c) to
the Company's Form 10-K Report for the fiscal year ended
September 30, 1996.)*
10.4(d) Resolutions delegating certain authority to amend the
Supplementary Pension Plan of the Company, effective
January 26, 2000. (Filed as Exhibit 10.4(d) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 2000.)*
10.4(e) Resolutions approving amendments to the Supplementary
Pension Plan of the Company, effective September 20,
2000. (Filed as Exhibit 10.4(e) to the Company's
Form 10-K Report for the fiscal year ended
September 30, 2000.)*
10.5 Supplementary Savings Plan of the Company as amended
October 1, 1989. (Filed asExhibit 10.5 to the Company's
Form 10-K Report for the fiscal year ended September 30,
1989.)*
10.5(a) Amendment to Supplementary Savings Plan of the Company
effective April 1, 1998. (Filed as Exhibit 10.3(a) to the
Company's Form 10-K Report for the fisca year ended
September 30, 1998.)*
14
10.5(b) Resolutions approving amendments to the Supplementary
Savings Plan of the Company effective 1 January 2000.
(Filed as Exhibit 10.2 to the Company's Form 10-Q Report
for the period ending 31 March 2000.)*
10.6 Amended and Restated Deferred Compensation Plan for
Directors of the Company, effective May 19, 1998.
(Filed as Exhibit 10.6(a) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1998.)*
10.6(a) Resolutions approving amendments to the Compensation
Program For Directors of the Company effective 1 April
2000. (Filed as Exhibit 10.6(a) to the Company's Form 10-K
Report for the fiscal year ended September 30, 2000.)*
10.6(b) Resolutions approving an Amendment to the Deferred
Compensation Plan for Directors of the Company effective
20 September 2001.
10.7 Stock Option Plan for Directors of the Company, effective
January 27, 1994, as amended October 21, 1999. (Filed
as Exhibit 10.7 to the Company's Form 10-K Report for
the fiscal year ended September 30, 1999.)*
10.8 Letter dated July 1, 1997 concerning pension for an
executive officer. (Filed as Exhibit 10.7(b) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 1998.)*
10.9 Letter dated July 7, 1997 concerning pension for an
executive officer. (Filed as Exhibit 10.7(c) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 1998.)*
10.10 Letter dated July 1, 1997 concerning pension for an
executive officer. (Filed as Exhibit 10.10 to the
Company's Form 10-K Report for the fiscal year ended
September 30, 1999.)*
10.11 Air Products and Chemicals, Inc. Severance Plan effective
March 15, 1990. (Filed as Exhibit 10.8(a) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 1992.)*
10.12 Air Products and Chemicals, Inc. Change of Control
Severance Plan effective March 15, 1990. (Filed as
Exhibit 10.8(b) to the Company's Form 10-K Report for
the fiscal year ended September 30, 1992.)*
10.13 Amended and Restated Trust Agreement by and between the
Company and PNC Bank, N.A. relating to the Defined
Benefit Pension Plans dated as of August 1, 1999.
(Filed as Exhibit 10.13 to the Company's Form 10-K Report
for the fiscal year ended September 30, 1999.)*
10.13(a) Amendment No.1 to the Amended and Restated Trust Agreement
by and between the Company and PNC Bank, N.A. relating to
the Defined Benefit Pension Plan, adopted January 1, 2000.
(Filed as Exhibit 10.13(a) to the Company's Form 10-K
Report for the fiscal year ended September 30, 2000.)*
10.14 Amended and Restated Trust Agreement by and between the
Company and PNC Bank, N.A. relating to the Supplementary
Savings Plan dated as of August 1, 1999. (Filed as
Exhibit 10.14 to the Company's Form 10-K Report for the
fiscal year ended September 30, 1999.)*
10.14(a) Amendment No.1 to the Amended and Restated Trust
Agreement by and between the Company and PNC Bank, N.A.
relating to the Supplementary Savings Plan, adopted
January 1, 2000. (Filed as Exhibit 10.14(a) to the
Company's Form 10-K Report for the fiscal year ended
September 30, 2000.)*
10.15 Form of Split Employment Contracts for an executive
officer with the Company dated November 6, 1999 and with
an affiliate of the Company dated June 4, 1996, and
amended by letter dated November 6, 1999. (Filed as
Exhibit 10.15 to the Company's Form 10-K Report for the
fiscal year ended September 30, 1999.)*
15
10.16 Form of Severance Agreements which the Company has with
each of its U.S. Executive Officers and European Executive
Officer. (Filed as Exhibit 10.16 to the Company's
Form 10-K Report for the fiscal year ended September 30,
1999.)*
10.17 Resolutions authorizing modifications to the
Supplementary Pension Plan and Supplementary Savings Plan
of the Company, effective 15 September 1999. (Filed as
Exhibit 10.17 to the Company's Form 10-K Report for the
fiscal year ended September 30, 2000.)*
(11) Earnings per share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(13) 2001 Financial Review Section of the Annual Report to
Shareholders for the fiscal year ended September 30, 2001,
which is furnished to the Commission for information only,
and not filed except as expressly incorporated by
reference in this Report.
(21) Subsidiaries of the registrant.
(24) Power of Attorney.
(b) Reports on Form 8-K filed during the quarter ended September 30, 2001:
Current Reports on Form 8-K dated July 20, 2001, August 16, 2001, and
August 30, 2001, were filed in which Items 5 and 9 of such Form were reported.
- -------------------------------
*Previously filed as indicated and incorporated herein by reference.
Exhibits incorporated by reference are located in SEC File No. 1-4534.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 14, 2001
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
By: /s/ Leo. J. Daley
--------------------------------
Leo J. Daley, Vice President-
Finance and Controller
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John P. Jones Director, Chairman, President, and December 14, 2001
- -------------------------------------- Chief Executive Officer
(John P. Jones III) (Principal Executive Officer)
* Director December 14, 2001
- --------------------------------------
(Mario L. Baeza)
* Director December 14, 2001
- --------------------------------------
(L. Paul Bremer III)
* Director December 14, 2001
- --------------------------------------
(Robert Cizik)
* Director December 14, 2001
- --------------------------------------
(Michael J. Donahue)
* Director December 14, 2001
- --------------------------------------
(Ursula F. Fairbairn)
* Director December 14, 2001
- --------------------------------------
(Edward E. Hagenlocker)
* Director December 14, 2001
- --------------------------------------
(James F. Hardymon)
17
Signature Title Date
--------- ----- ----
* Director December 14, 2001
- --------------------------------------
(Terry R. Lautenbach)
* Director December 14, 2001
- --------------------------------------
(Charles H. Noski)
* Director December 14, 2001
- --------------------------------------
(Paula G. Rosput)
* Director December 14, 2001
- --------------------------------------
(Lawrason D. Thomas)
*W. Douglas Brown, Vice President, General Counsel, and Secretary, by
signing his name hereto, does sign this document on behalf of the
above noted individuals, pursuant to a power of attorney duly executed
by such individuals which is filed with the Securities and Exchange
Commission herewith.
/s/ W. Douglas Brown
--------------------------------------------
W. Douglas Brown
Attorney-in-Fact
18
Report of Independent Public Accountants on Schedule
To: Air Products and Chemicals, Inc.
We have audited, in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements included in
Air Products and Chemicals, Inc.'s Annual Report to Shareholders, incorporated
by reference in this Form 10-K, and have issued our report thereon dated
26 October 2001. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule referred to in Item 14(a)(2) in
this Form 10-K is the responsibility of the Company's management and is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
26 October 2001
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Air Products and Chemicals, Inc.
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this Form
10-K, into the Company's previously filed Registration Statements on Form S-8
and Form S-3 (File Nos. 333-33851, 333-02461, 33-2068, 33-65117, 333-21145,
333-45239, 333-18955, 333-21147, 333-60147, 333-71405, 333-73105, 333-95317,
333-31578, 333-90773, 333-54224, and 333-56292).
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
13 December 2001
19
SCHEDULE VIII
CONSOLIDATED
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended 30 September 2001, 2000, and 1999
Classification Other Changes
Additions Increase(Decrease)
------------------------- -------------------------
Balance at Charged Charged Cumulative Balance
Beginning to to other Translation at End of
of period Expense Accounts[1] Adjustment Other[2] Period
- --------------------------------------------------------------------------------------------------------------------
(in millions of dollars)
Year Ended 30 September 2001
Allowance for doubtful accounts $ 13 $ 10 $ 0 $ 0 $(13) $ 10
Year Ended 30 September 2000
Allowance for doubtful accounts $ 12 $ 8 $ 2 $[1] $ (8) $ 13
Year Ended 30 September 1999
Allowance for doubtful accounts $ 17 $ 6 $ 1 $[1] $(11) $ 12
Notes:
[1] Includes primarily collections on accounts previously written off.
[2] Primarily includes write-offs of uncollectible accounts.
20
Exhibit 10.6 (b)
RESOLUTIONS APPROVING AN AMENDMENT
TO THE AIR PRODUCTS AND CHEMICALS, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS (THE "PLAN")
WHEREAS, it has been recommended to the Board of Directors by the
Nominating and Corporate Governance Committee that the Plan be amended to permit
directors to transfer rights under the Plan to the payment of deferred
compensation and earnings thereon by gift to, or to trusts for the benefit of,
their family members;
NOW, THEREFORE, BE IT RESOLVED, that effective 20 September 2001, Plan
Section 11 shall be, and it hereby is, amended and restated in its entirety to
read as follows:
11. Nonassignability
The right of a participant to the payment of deferred compensation
and earnings thereon under the Plan shall not be assigned,
transferred, pledged or encumbered or be subject in any manner to
alienation or anticipation, except by gift to the director
participant's family member(s) or to trust(s) of which such family
member(s) are beneficiaries and subject to the administrative
procedures and conditions set forth in the "Administrative Procedures
Regarding Transfers of the Right to Payment of Deferred Compensation
dated 20 September 2001" attached as Exhibit A; to his or her
designated beneficiary; or by will or the laws of descent and
distribution.
RESOLVED FURTHER, that the proper officers of the Company be, and they each
hereby are, authorized and empowered, in the name and on behalf of the Company,
to make, execute, and deliver such instruments, documents, and certificates and
to do and perform such other acts and things as may be necessary or appropriate
to accomplish the amendment of the Plan as aforesaid, and to carry out the
intent and accomplish the purpose of these resolutions.
APCI BOARD OF DIRECTORS
20 September 2001
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
Year Ended 30 September
-------------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- ----------
(Millions of dollars)
Earnings:
Income before extraordinary item and
the cumulative effect of accounting
changes: $429.3 $ 546.8 $450.5 $124.2 $512.9
Add (deduct):
Provision for income taxes 203.4 280.9 209.5 (7.5) 224.8
Fixed charges, excluding capitalized
interest 233.0 202.8 194.4 232.6 217.4
Capitalized interest amortized during
the period 8.3 7.4 6.1 6.6 7.1
Undistributed earnings of less-than-
fifty-percent-owned affiliates (31.1) (25.3) (44.5) (32.1) (34.3)
------ -------- ------ ------ ------
Earnings, as adjusted $842.9 $1,012.6 $816.0 $323.8 $927.9
====== ======== ====== ====== ======
Fixed Charges:
Interest on indebtedness, including
capital lease obligations $217.8 $186.7 $175.4 $210.3 $201.6
Capitalized interest 20.9 18.4 24.7 19.7 8.8
Amortization of debt discount premium
and expense 1.8 1.9 1.3 3.1 (3.6)
Portion of rents under operating leases
representative of the interest factor 13.4 14.2 17.7 19.3 19.3
------ ------ ------ ------ ------
Fixed charges $253.9 $221.2 $219.1 $252.4 $226.1
====== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges: 3.3 4.6 3.7 1.3 4.1
====== ====== ====== ====== ======
Exhibit 13
Management's Discussion and Analysis
OVERVIEW OF 2001
Results for 2001 were affected by a slowing global economy and higher raw
material and energy costs. The company managed through a number of difficult
issues caused by the declining economy without losing sight of long-term
strategies. The company maintained its return on capital by focusing on raw
material cost recovery, controlling overhead and production costs, reducing
capital spending, and strengthening the balance sheet. Leadership positions and
the breadth of the business portfolio allowed the company to perform relatively
well during these difficult economic times. The company produced solid results,
implemented several strategic steps, and took some difficult but decisive
actions. Divesting its interest in two cogeneration facilities was consistent
with the commitment to focus resources on strategic growth businesses. The
company restructured other businesses, made targeted staff reductions, and wrote
down some underperforming assets. To take advantage of the lower interest rate
environment, the company also repurchased a portion of its debt.
RESULTS OF OPERATIONS
[millions of dollars, except per share]
- -------------------------------------------------------------------------------
Consolidated
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Sales $5,717.2 $5,467.1 $5,020.1
- -------------------------------------------------------------------------------
Operating income 745.4 830.8 724.7
- -------------------------------------------------------------------------------
Equity affiliates' income 81.2 87.6 61.5
- -------------------------------------------------------------------------------
Income before extraordinary item 512.9 124.2 450.5
- -------------------------------------------------------------------------------
Net income 465.6 124.2 450.5
- -------------------------------------------------------------------------------
Basic earnings per share 2.17 .58 2.12
- -------------------------------------------------------------------------------
Diluted earnings per share 2.12 .57 2.09
- -------------------------------------------------------------------------------
The results of years 2001, 2000, and 1999 included after-tax charges for special
items of $6.4, $408.4, and $.3, respectively. An extraordinary charge for the
early retirement of debt of $47.3 was also recorded in 2001. These should be
considered in the comparison of the annual results. See Note 3 to the
consolidated financial statements for details of the special items and Note 9
for details of the early retirement of debt.
The following table presents the results for years 2001, 2000, and 1999
exclusive of extraordinary and special items. The discussion of the consolidated
and segment results is based on income excluding extraordinary and special
items. Numbers presented in the discussion are in millions of dollars unless
otherwise stated. All comparisons in the discussion are to the corresponding
prior year unless otherwise stated.
- -------------------------------------------------------------------------
Exclusive of Extraordinary and Special Items
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------
Sales $5,717.2 $5,467.1 $5,020.1
- -------------------------------------------------------------------------
Operating income 860.6 879.9 769.2
- -------------------------------------------------------------------------
Equity affiliates' income 81.2 87.6 61.5
- -------------------------------------------------------------------------
Net income 519.3 532.6 450.8
- -------------------------------------------------------------------------
Basic earnings per share 2.42 2.50 2.12
- -------------------------------------------------------------------------
Diluted earnings per share 2.37 2.46 2.09
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Sales in 2001 increased $250.1, or 5%. Sales growth declined 3% due to the
divestiture of the polyvinyl alcohol business (PVOH) in 2000 and 2% due to
unfavorable currency impacts. Sales of industrial gases increased 14%,
benefiting from natural gas cost pass-through for the first nine months of the
year and from higher shipments to the electronics end market during the first
half of the year. Sales in the chemicals segment declined 4%, excluding the
impact of PVOH, due to lower volumes resulting from the slowing economy, market
share loss due to price increases, and from customer facility outages. Equipment
sales rose 9%.
Operating income in 2001 declined $19.3, or 2%. Currency and exchange-related
impacts reduced operating income growth about 4%. Gases operating income grew
4%, primarily due to higher volumes in key markets, improved pricing in North
America and Europe, and improved operating performance in chemicals and
processing industries (CPI). Chemicals segment operating income declined $56.8,
or 29%, due to lower volumes and higher raw material and energy costs. There was
no significant impact of the PVOH divestiture. An unfavorable project mix
resulted in a $4.8 decline in the equipment segment.
Operating income benefited from global cost reduction plans initiated in 2001,
2000, and 1999. The plans provided for the elimination of 1,468 positions and
asset write-downs, which resulted in a cumulative charge of $198.8. See Note 3
to the consolidated financial statements for details of the individual plans.
Benefits generated from the plans of $58 in 2001, $23 in 2000, and $5 in 1999
resulted primarily from reduced personnel costs. Benefits of $83 are expected in
2002, and total annual benefits will be approximately $100 after completion of
the 2001 plan in 2002.
17
Equity affiliates' income in 2001 declined $6.4, or 7%. Lower global volume and
margin pressure in the chemicals emulsions business accounted for most of the
decline.
Sales in 2000 grew 9%. While revenue growth was 16% for gases and 7% for
chemicals, there was a decline of $137.5, or 38%, in the equipment segment.
Unfavorable currency impacts reduced sales growth about 2%. Acquisitions
contributed about one-third of the reported sales increase. Demand for
industrial gases grew in several major markets, particularly electronics and
CPI. Sales in the chemicals segment increased on broad-based volume growth.
Operating income in 2000 increased $110.7, a 14% increase. Currency and
exchange-related impacts reduced year-to-year operating income growth about 3%.
Gases operating income increased $149.9, or 27%, primarily due to higher
shipments to the electronics and CPI markets. Chemicals segment operating income
decreased $10.3, or 5%, as volume growth, cost control, and productivity gains
were more than offset by increased raw material and energy costs. Lower
equipment project activity resulted in a $20.6, or 55%, decline in operating
income. Selling and administrative overheads were up about 2%, with the increase
due to acquisitions being substantially offset by constraints in overhead
spending.
Equity affiliates' income in 2000 increased $26.1, a 42% improvement, primarily
due to improved business conditions in Asia and Mexico. About one-third of the
increase was due to currency and exchange-related impacts as well as tax
benefits. The growth was achieved in spite of the consolidation of Korea
Industrial Gases (KIG) following the purchase of the remaining 51.1% of the
affiliate's shares in December 1999.
Segment Analysis
A description of the products, services, and markets for each of the business
segments is included in Note 18 to the consolidated financial statements.
- ----------------------------------------------------------------------------
Gases
- ----------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------
Sales $3,944.0 $3,465.5 $2,996.4
- ----------------------------------------------------------------------------
Operating income 654.9 673.1 521.9
- ----------------------------------------------------------------------------
Operating income--excluding
special items 724.0 698.8 548.9
- ----------------------------------------------------------------------------
Equity affiliates' income 71.7 73.6 46.8
- ----------------------------------------------------------------------------
Sales in 2001 grew $478.5, or 14%. Natural gas cost pass-through added 6% to
revenue, primarily occurring during the first nine months of the year.
Unfavorable currency impacts reduced sales growth about 3%. The balance of the
sales increase was principally due to higher shipments to the electronics
industry and of HyCO (hydrogen, carbon monoxide, and syngas--a mix of hydrogen
and carbon monoxide) products.
Electronics volume growth resulted from strong global demand for specialty gases
and chemicals during the first half of 2001, with a significant slowdown in the
second half. Favorable sales mix and slightly higher volumes led to increased
sales in CPI. HyCO growth resulted from both new investment and increased
loading on franchise pipeline systems. Gaseous oxygen/gaseous nitrogen (GOX/GAN)
was impacted by weak demand in the petrochemical market.
North American and European liquid bulk volumes declined due to the slowing
manufacturing activity. Price and surcharge initiatives in North America
resulted in an 8% increase in the liquid oxygen/liquid nitrogen (LOX/LIN) price
index, while the liquid bulk volume index declined 4%. The European LOX/LIN
price index increased 2%, while the liquid bulk volume index declined slightly.
Operating income in 2001 increased $25.2, or 4%, due to higher volumes in key
markets, improved pricing in North America and Europe, and improved operating
performance in CPI. The improved profitability also reflects cost containment
initiatives and increased facility loading in Asia. Unfavorable currency and
exchange-related effects reduced operating income growth about 3%. Excluding the
unfavorable margin impact of natural gas cost pass-through on revenues, the
operating margin in 2001 was 19.3%, down .9%. The margin was unfavorably
impacted by weakness in the electronics end markets in the second half of 2001,
resulting in lower volumes of specialty gases and chemicals.
Equity affiliates' income in 2001 declined slightly, primarily due to the
consolidation of KIG in December 1999. The company sold its interest in two
cogeneration facilities in September 2001.
Sales in 2000 grew $469.1, or 16%. The increase was primarily due to strong
demand in the electronics and CPI end markets as well as improved business
conditions in Asia. Contract pass-through of higher natural gas costs added
about 3% to sales growth. Approximately one-third of the increase was
attributable to acquisitions. The strong dollar relative to European currencies
had an adverse impact on sales of about 4%.
18
The electronics end markets rebounded in 2000, resulting in substantially
improved gases volumes. Growth for the company's specialty gases and chemicals
products to the electronics markets was particularly strong. Volumes increased
globally in the CPI end markets. HyCO volumes grew 18% and 3% in North America
and Europe, respectively. Sales volumes of GOX/GAN increased 5% in North America
and 8% in Europe.
LOX/LIN volumes were up 4% in North America, including non-cryo gases. LOX/LIN
prices in North America were up about 2%. Price increases and surcharges, based
on higher energy and diesel fuel costs, offset price declines in the prior year.
Liquid argon volumes rose 11% due to increased demand in the steel and metals
markets as well as construction growth in the electronics industry. Liquid
hydrogen volumes were up 8% due to increased government engine testing. European
volumes improved, although reported sales were adversely impacted by the strong
dollar. Southern Europe sustained growth and Northern Europe experienced modest
improvement in business conditions. LOX/LIN volumes in Europe were up 5%,
including non-cryo gases. LOX/LIN prices in Europe were essentially unchanged.
Asian sales increased substantially, reflecting acquisitions and improved
regional business conditions. The electronics markets in Asia were particularly
strong in 2000.
Operating income in 2000 increased 27%, or $149.9. Significant growth in key
markets and cost containment initiatives drove the operating income improvement.
Acquisitions contributed slightly less than one-third of the increase. The
operating margin increased to 20.2% from 18.3%. Price increases and surcharges
only partially offset higher energy and diesel fuel costs, moderating the margin
improvement.
Equity affiliates' income in 2000 grew $26.8, an increase of 57%. The growth was
achieved in spite of the consolidation of KIG following the purchase of the
remaining 51.1% of the affiliate's shares in December 1999. The growth in equity
affiliates' income was mostly in Asia, Mexico, and the energy-related ventures.
Approximately one-third of the increase was due to currency and exchange-related
impacts as well as tax benefits.
- -------------------------------------------------------------------------------
Chemicals
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Sales $1,522.8 $1,772.8 $1,657.4
- -------------------------------------------------------------------------------
Operating income 112.3 182.1 193.7
- -------------------------------------------------------------------------------
Operating income--excluding
special items 140.9 197.7 208.0
- -------------------------------------------------------------------------------
Equity affiliates' income 7.5 12.5 12.4
- -------------------------------------------------------------------------------
Sales in 2001 declined $250.0, or 14%. Excluding the impact of the divested PVOH
business, sales declined $65.9, or 4%. Sales growth was reduced 1% due to
unfavorable currency impacts. Total sales volume declined 8%, excluding the
impact of PVOH. Volumes declined in most major product lines resulting from the
slowing economy, lost market share due to price increases, and customer facility
outages.
Operating income in 2001 declined $56.8, or 29%. Lower volumes and higher raw
material and energy costs were significant factors in the reduction in operating
income. Cost control actions moderated this decline, and aggressive price
increases were partially successful in recovering the rapid rise in costs.
Unfavorable currency and exchange-related effects reduced operating income about
5%. The operating margin in 2001 was 9.3%, down from 11.2%.
Equity affiliates' income in 2001 declined $5.0, as the emulsions business
experienced higher global raw material costs. Equity affiliates' income consists
primarily of the redispersible powders venture with Wacker-Chemie GmbH.
Sales in 2000 were up 7%, or $115.4. Operating income declined $10.3, or 5%.
Broad-based volume gains, led by epoxy additives and polyurethane intermediates,
resulted in an overall segment volume growth of 8%. Emulsions volumes grew
slightly as aggressive pricing actions in response to raw material cost
increases impacted sales growth. PVOH volumes grew 11%. There was no significant
contribution to operating income from PVOH in 2000. The company completed the
sale of the PVOH business in September 2000. See Note 3 to the consolidated
financial statements for details on the PVOH business sale. Unfavorable currency
and exchange-related impacts reduced sales growth less than 1%, but had an
unfavorable impact of 5% on operating income growth. The operating margin was
11.2%, down from 12.5%. Strong volume growth, productivity gains, and effective
cost containment initiatives were more than offset by raw material and energy
cost pressures, as well as lower pricing in select businesses. Aggressive
pricing actions lagged the continued raw material and energy cost increases.
- -------------------------------------------------------------------------------
Equipment
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Sales $250.4 $228.8 $366.3
- -------------------------------------------------------------------------------
Operating income 10.0 9.9 34.7
- -------------------------------------------------------------------------------
Operating income--excluding
special items 12.0 16.8 37.4
- -------------------------------------------------------------------------------
Equity affiliates' income 2.0 2.0 1.6
- -------------------------------------------------------------------------------
19
Sales in 2001 rose $21.6 while operating income declined $4.8 due to an
unfavorable project mix. Sales backlog for the equipment segment improved to
$227 at 30 September 2001 compared to $149. The increase principally resulted
from the receipt of orders for liquid natural gas heat exchangers and a large
air separation plant. It is expected that $187 of the backlog will be completed
during 2002.
Sales in 2000 were down $137.5, or 38%. Operating income declined $20.6, or 55%.
Good project cost performance partially offset the impact of lower project
activity. Sales backlog for the equipment segment declined to $149 at 30
September 2000, compared to $175.
Interest Expense
- -----------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------
Interest incurred $197.2 $214.1 $181.2
Less: interest capitalized 6.0 17.4 22.1
- -----------------------------------------------------------------------------
Interest expense $191.2 $196.7 $159.1
- -----------------------------------------------------------------------------
Interest expense in 2001 declined $5.5. The decline resulted from lower average
debt and slightly lower interest rates largely offset by lower capitalized
interest. During the fourth quarter of 2001, the company repurchased $541.1 of
its outstanding debt. Interest expense in 2000 increased $37.6. The increase was
due to higher average debt, slightly higher interest rates, and lower
capitalized interest. The higher average debt resulted from The BOC Group plc
(BOC) transaction.
Income Taxes
- -----------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------
Effective tax rate 29.9% [12.4]% 31.1%
- -----------------------------------------------------------------------------
Effective tax rate--excluding
special items 30.0% 30.2% 31.3%
- -----------------------------------------------------------------------------
The effective tax rates exclude minority interest. The company had a net tax
benefit for 2000. The net benefit resulted from the loss on the BOC transaction
combined with tax credits and adjustments.
Excluding the impact of the special items, the effective tax rate in 2001 was
comparable to 2000. The effective tax rate in 2000 declined 1.1% due to higher
credits and adjustments.
ENVIRONMENTAL MATTERS
The company is subject to various environmental laws and regulations in the
United States and foreign countries where it has operations. Compliance with
these laws and regulations results in higher capital expenditures and costs.
Additionally, from time to time the company is involved in proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act (the
federal Superfund law), similar state laws, and the Resource Conservation and
Recovery Act (RCRA) relating to the designation of certain sites for
investigation and possible cleanup. The company's accounting policies for
environmental expenditures are discussed in Note 1 to the consolidated financial
statements.
The amounts charged to earnings on an after-tax basis related to environmental
protection totaled $21.1, $30.3, and $27.2 for 2001, 2000, and 1999,
respectively. These amounts represent an estimate of expenses for compliance
with environmental laws, as well as remedial activities, and costs incurred to
meet internal company standards. Such costs are estimated to be $24 in both 2002
and 2003.
Although precise amounts are difficult to define, the company estimates that in
2001 it spent approximately $10.7 on capital projects to control pollution
versus $3 in 2000. Capital expenditures to control pollution in future years are
estimated at $16 in 2002 and $13 in 2003.
It is the company's policy to accrue environmental investigatory and noncapital
remediation costs for identified sites when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. The potential
exposure for such costs is estimated to range from $9 to a reasonably possible
upper exposure of $19. The balance sheet at 30 September 2001 included an
accrual of $14.3. At 30 September 2000, the balance sheet accrual was $16.7.
In addition to the environmental exposures discussed in the preceding paragraph,
there is spending at a company-owned manufacturing site where the company is
undertaking RCRA corrective action remediation. The company estimates capital
costs to implement the anticipated remedial program should not exceed $33.
Spending was $27.6 through 2001 and is estimated at $.3 for 2002 and $2 for
2003. Operating and maintenance expenses associated with continuing the remedial
program were minimal in 2001 and are estimated at $1 million a year and will
continue for an estimated period of up to 30 years. A former owner and operator
at the site has agreed to reimburse the company 20% of the costs incurred in the
remediation. The cost estimates have not been reduced by such reimbursements of
$4.4 and an insurance recovery of $7.7 received in 1999.
20
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs,
the company does not expect that any sum it may have to pay in connection with
environmental matters in excess of the amounts recorded or disclosed above would
have a materially adverse effect on its financial condition or results of
operations in any one year.
LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL DATA
The company maintained a solid financial position throughout 2001. Cash from
operations, supplemented with proceeds from asset sales, provided funding for
the company's capital spending program, dividend payout, and share repurchase
program. Cash from operations and proceeds from financing will meet liquidity
needs for the foreseeable future. The company's long-term debt and commercial
paper continue to be rated A/A3 and A-1/P-2, respectively, by Standard & Poor's
and Moody's.
Capital Expenditures
Capital expenditures in 2001 totaled $806.3, down 17%. As in 2000, additions to
plant and equipment and acquisitions in 2001 were largely in support of
worldwide expansion of the gas business. Acquisitions in 2000 included the
purchase of the remaining 51.1% of KIG, the company's Korean affiliate, raising
its ownership to 100%. Investments in equity affiliates in 1999 included $52.0
in INOX, an Indian industrial gas company, and $53.0 in a joint venture with
Wacker-Chemie GmbH.
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Additions to plant and equipment $708.3 $767.7 $888.9
- -------------------------------------------------------------------------------
Investments in and advances to
unconsolidated affiliates 38.3 5.6 110.6
- -------------------------------------------------------------------------------
Acquisitions 59.2 194.8 90.4
- -------------------------------------------------------------------------------
Capital leases .5 4.9 18.5
- -------------------------------------------------------------------------------
$806.3 $973.0 $1,108.4
- -------------------------------------------------------------------------------
Capital expenditures for new plant and equipment in 2002 are expected to be
approximately $700. In addition, the company intends to continue to pursue
acquisition opportunities and investments in affiliated entities. It is
anticipated these expenditures will be funded with cash from operations and
proceeds from asset sales.
Financing and Capital Structure
Capital needs in 2001 were satisfied with cash from operations and proceeds from
asset sales. At the end of 2001, total debt outstanding was $2.5 billion
compared to $3.0 billion.
Long-term debt financings in 2001 totaled $121 and included $75 in U.S. dollar
debt and $46 equivalent in Korean Won debt. The dollar borrowings are
floating-rate, and the Won debt is fixed-rate. Terms range from three to
thirty-five years.
During 2001, the company repurchased $541.1 of its outstanding long-term
fixed-rate debt. The average remaining life of the repurchased debt was 18.5
years and the average coupon was 7.56%. The purchase was financed with available
cash and proceeds from the issuance of commercial paper.
During the year, the company sold and leased back certain U.S. cryogenic vessel
equipment. Proceeds of $301.9 from the sale were used to pay down commercial
paper. At year-end, $202.0 of commercial paper was outstanding compared to
$143.0.
Substantial credit facilities are maintained to provide backup funding for
commercial paper and to ensure availability of adequate sources of liquidity. At
30 September 2001, the company's committed lines of credit totaled $600. No
borrowings were outstanding under these commitments at the end of 2001. In
October 2000, $500 of commitments, added during 2000 to provide liquidity while
the BOC transaction was in progress, matured. Additional commitments of $72.7
are maintained by the company's foreign subsidiaries, of which $16.4 was
borrowed and outstanding at 30 September 2001.
During 2001, the company purchased 2.1 million of its outstanding shares at a
cost of $87.2. The share repurchase program was suspended in the fourth quarter
of 2001.
Working Capital
Working capital at 30 September 2001 (excluding cash and cash items, short-term
borrowings, and the current portion of long-term debt) was $716.4, or a decline
of $48.9. The decrease was largely due to a reduction in trade receivables.
Working capital at 30 September 2000 (excluding cash and cash items, short-term
borrowings, and the current portion of long-term debt) was $765.3, up $21.7.
Excluding the impact of currency options and deferred financing expenses
included in 30 September 1999 working capital related to the BOC transaction,
working capital increased $55.8. Working capital at 30 September 2000 was
slightly reduced
21
overall due to the sale of the PVOH business and the consolidation of KIG.
Excluding the BOC, PVOH, and KIG impacts on working capital, the 2000 increase
was primarily due to higher trade receivables.
Dividends
The Board of Directors in May 2001 increased the quarterly cash dividend 5%,
from 19.0 cents per share, to 20.0 cents per share. Dividends are declared by
the Board of Directors and, when declared, are usually paid during the sixth
week after the close of the fiscal quarter.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," SFAS
No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting
for Asset Retirement Obligations." In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." See Note 2 to
the consolidated financial statements for information concerning the company's
implementation and impact of these new standards.
Exchange Rate Fluctuations
Exchange rate fluctuations can be a significant variable for international
operations, especially fluctuations in local currencies where hedging
opportunities are unreasonably expensive or unavailable.
Inflation
The financial statements are presented in accordance with generally accepted
accounting principles and do not fully reflect the impact of prior years'
inflation. While the U.S. inflation rate has been modest for several years, the
company operates in many international areas with both inflation and currency
issues. The ability to pass on inflation costs is an uncertainty due to general
economic conditions and competitive situations. It is estimated that the cost of
replacing the company's plant and equipment today is greater than its historical
cost. Accordingly, depreciation expense would be greater if the expense were
stated on a current cost basis.
MARKET RISKS AND SENSITIVITY ANALYSIS
The company's earnings, cash flows, and financial position are exposed to market
risks relating to fluctuations in interest rates and foreign currency exchange
rates. It is the policy of the company to minimize its cash flow exposure to
adverse changes in currency and exchange rates and to reduce the financial risks
inherent in funding the company with debt capital.
The company addresses these financial exposures through a controlled program of
risk management that includes the use of derivative financial instruments.
Counterparties to all derivative contracts are major financial institutions,
thereby minimizing the risk of credit loss.
The analysis below presents the sensitivity of the market value of the company's
financial instruments to selected changes in market rates and prices. The range
of changes chosen reflects the company's view of changes which are reasonably
possible over a one-year period. Market values are the present value of
projected future cash flows based on the market rates and prices chosen. The
market values for interest rate risk and foreign currency risk are calculated by
the company, using a third-party software model which utilizes standard pricing
models to determine the present value of the instruments based on market
conditions (interest rates, spot and forward exchange rates, and implied
volatilities) as of the valuation date. All instruments are entered into for
other than trading purposes. The utilization of these instruments is described
more fully in Note 5 to the consolidated financial statements. The major
accounting policies for these instruments are described in Note 1 to the
consolidated financial statements.
The company's derivative and other financial instruments consist of long-term
debt (including current portion), interest rate swaps, interest rate and
currency swaps, foreign exchange-forward contracts, and foreign exchange-option
contracts. The net market value of these financial instruments combined is
referred to below as the net financial instrument position. The net financial
instrument position does not include other investments of $52.1 at 30 September
2001 and $34.7 at 30 September 2000 as disclosed in Note 5 to the consolidated
financial statements. These amounts principally represent an investment in a
publicly traded foreign company accounted for by the cost method. The company
assessed the materiality of the market risk exposure on these financial
instruments and determined this exposure to be immaterial.
22
At 30 September 2001 and 2000, the net financial instrument position was a
liability of $2,300.5 and $2,862.0, respectively. The decrease in the net
financial instrument position was due to lower long-term debt, including current
portion.
Interest Rate Risk
The company's debt portfolio, including interest rate swap agreements, as of 30
September 2001 was comprised primarily of debt denominated in U.S. dollars (44%)
and Euros (36%). The company has both fixed- and variable-rate debt. Changes in
interest rates have different impacts on the fixed- and variable-rate portions
of the company's debt portfolio. A change in interest rates on the fixed portion
of the debt portfolio impacts the net financial instrument position but has no
impact on interest incurred or cash flows. A change in interest rates on the
variable portion of the debt portfolio impacts the interest incurred and cash
flows but does not impact the net financial instrument position.
The sensitivity analysis related to the fixed portion of the company's debt
portfolio assumes an instantaneous 100 basis point move in interest rates from
their levels at 30 September 2001 and 2000, with all other variables (including
foreign exchange rates) held constant. A 100 basis point increase in market
interest rates would result in a decrease of $69 and $130 in the net liability
position of financial instruments at 30 September 2001 and 2000, respectively. A
100 basis point decrease in market interest rates would result in an increase of
$75 and $137 in the net liability position of financial instruments at 30
September 2001 and 2000, respectively.
Based on the variable-rate debt included in the company's debt portfolio,
including the interest rate swap agreements, as of 30 September 2001 and 2000, a
100 basis point increase in interest rates would result in an additional $7 in
interest incurred per year at both 30 September 2001 and 2000. A 100 basis point
decline would lower interest incurred by $7 per year at both 30 September 2001
and 2000.
Foreign Currency Exchange Rate Risk
The sensitivity analysis assumes an instantaneous 10% change in the foreign
currency exchange rates from their levels of 30 September 2001 and 2000, with
all other variables (including interest rates) held constant. A 10%
strengthening of the functional currency of the company versus all other
currencies would result in a decrease of $165 and $161 in the net liability
position of financial instruments at 30 September 2001 and 2000, respectively. A
10% weakening of the functional currency of the company versus all other
currencies would result in an increase of $163 and $161 in the net liability
position of financial instruments at 30 September 2001 and 2000, respectively.
The primary currencies for which the company has exchange rate exposure are the
U.S. dollar versus the Euro, the U.S. dollar versus the U.K. Pound Sterling, and
the Euro versus the Canadian Dollar. Foreign currency debt, interest rate and
currency swaps, and foreign exchange-forward contracts are used in countries
where it does business, thereby reducing the company's net asset exposure.
Foreign exchange-forward contracts are also used to hedge the company's firm and
highly anticipated foreign currency cash flows, along with foreign
exchange-option contracts. Thus, there is either an asset or cash flow exposure
related to all the financial instruments in the above sensitivity analysis for
which the impact of a movement in exchange rates would be in the opposite
direction and materially equal (or more favorable in the case of purchased
foreign exchange-option contracts) to the impact on the instruments in the
analysis.
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to important risk factors and
uncertainties referred to in the Management's Discussion and Analysis, other
important risk factors and uncertainties include overall economic and business
conditions; demand and timing of the placing of orders for the goods and
services of the company, including the success of recovery in the company's
markets in the electronics industry; competitive factors in the industries in
which it competes; the ability to recover increased energy and raw material
costs from customers; spikes in the pricing of natural gas; changes in
government regulations; consequences of acts of terrorism impacting the United
States and other markets; the success of implementing cost reduction programs;
the timing, impact, and other uncertainties of future acquisitions or
divestitures; significant fluctuations in interest rates and foreign currencies;
the impact of tax and other legislation and regulations in jurisdictions in
which the company and its affiliates operate; and the timing and rate at which
tax credits can be utilized.
23
Company Responsibility For Financial Statements
The accompanying consolidated financial statements have been prepared by the
company. They conform with accounting principles generally accepted in the
United States and reflect judgments and estimates as to the expected effects of
incomplete transactions and events being accounted for currently. The company
believes that the accounting systems and related controls that it maintains are
sufficient to provide reasonable assurance that assets are safeguarded,
transactions are appropriately authorized and recorded, and the financial
records are reliable for preparing such financial statements. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal accounting controls must be related to the benefits derived. The
company maintains an internal audit function which is responsible for evaluating
the adequacy and application of financial and operating controls and for testing
compliance with company policies and procedures.
The independent public accountants are engaged to perform an audit of the
consolidated financial statements in accordance with auditing standards
generally accepted in the United States. Their report follows.
The Audit Committee of the Board of Directors is comprised entirely of
individuals who are not employees of the company. This Committee meets
periodically with the independent public accountants, the internal auditors, and
management to consider audit results and to discuss significant internal
accounting control, auditing, and financial reporting matters. The Audit
Committee recommends the selection of the independent public accountants who are
then appointed by the Board of Directors, subject to ratification by the
shareholders.
/s/John P. Jones III /s/Leo J. Daley
John P. Jones III Leo J. Daley
Chairman, President, and Vice President-Finance
Chief Executive Officer and Controller
26 October 2001 26 October 2001
Report of Independent Public Accountants
To the Shareholders and Board of Directors, Air Products and Chemicals, Inc.:
We have audited the accompanying consolidated balance sheets of Air Products and
Chemicals, Inc. (a Delaware corporation) and subsidiaries as of 30 September
2001 and 2000, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended 30
September 2001. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Products and Chemicals,
Inc. and subsidiaries as of 30 September 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
30 September 2001, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
26 October 2001
24
The Financial Statements
CONSOLIDATED INCOME
[Air Products and Chemicals, Inc. and Subsidiaries]
- --------------------------------------------------------------------------------------------------------------------------
Year Ended 30 September [millions of dollars, except per share] 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Sales and Other Income
- --------------------------------------------------------------------------------------------------------------------------
Sales--Note 1 $5,717.2 $5,467.1 $5,020.1
- --------------------------------------------------------------------------------------------------------------------------
Other Income, Net--Note 17 5.5 28.4 19.7
- --------------------------------------------------------------------------------------------------------------------------
5,722.7 5,495.5 5,039.8
- --------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
- --------------------------------------------------------------------------------------------------------------------------
Cost of Sales 4,102.7 3,825.6 3,501.4
- --------------------------------------------------------------------------------------------------------------------------
Selling and Administrative 752.1 714.7 690.6
- --------------------------------------------------------------------------------------------------------------------------
Research and Development 122.5 124.4 123.1
- --------------------------------------------------------------------------------------------------------------------------
Operating Income 745.4 830.8 724.7
- --------------------------------------------------------------------------------------------------------------------------
Income from Equity Affiliates, Net of Related Expenses--Note 7 81.2 87.6 61.5
- --------------------------------------------------------------------------------------------------------------------------
Gain on Divestiture of Interest in Cogeneration Facilities--Note 3 101.6 -- --
- --------------------------------------------------------------------------------------------------------------------------
Gain on Sale of Polyvinyl Alcohol Business--Note 3 -- 126.8 --
- --------------------------------------------------------------------------------------------------------------------------
Gain [Loss] on Currency Hedges Related to BOC Transaction and Expenses--Note 3 -- [730.4] 7.0
- --------------------------------------------------------------------------------------------------------------------------
Net Gain on Formation of Polymer Venture--Note 3 -- -- 34.9
- --------------------------------------------------------------------------------------------------------------------------
Interest Expense--Note 1 191.2 196.7 159.1
- --------------------------------------------------------------------------------------------------------------------------
Income Before Taxes and Minority Interest 737.0 118.1 669.0
- --------------------------------------------------------------------------------------------------------------------------
Income Tax Provision [Benefit]--Notes 1 and 14 219.0 [13.7] 203.4
- --------------------------------------------------------------------------------------------------------------------------
Minority Interest in Earnings of Subsidiary Companies 5.1 7.6 15.1
- --------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item 512.9 124.2 450.5
- --------------------------------------------------------------------------------------------------------------------------
Extraordinary Item--Loss on Early Retirement of Debt, Net of Income
Tax Benefit of $28.5--Note 9 47.3 -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Income $ 465.6 $ 124.2 $ 450.5
- --------------------------------------------------------------------------------------------------------------------------
Monthly Average of Common Shares Outstanding [in millions]--Note 13 214.8 213.4 212.2
- --------------------------------------------------------------------------------------------------------------------------
Monthly Average of Common and Common Equivalent Shares
Outstanding [in millions]--Note 13 219.3 216.2 216.0
- --------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Common Share--Note 13
- --------------------------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item $2.39 $.58 $2.12
- --------------------------------------------------------------------------------------------------------------------------
Extraordinary Item [.22] -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Income $2.17 $.58 $2.12
- --------------------------------------------------------------------------------------------------------------------------
Diluted Earnings per Common Share--Note 13
- --------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item $2.33 $.57 $2.09
- --------------------------------------------------------------------------------------------------------------------------
Extraordinary Item [.21] -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Income $2.12 $.57 $2.09
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
25
The Financial Statements
CONSOLIDATED BALANCE SHEETS
[Air Products and Chemicals, Inc. and Subsidiaries]
- ------------------------------------------------------------------------------------------------------------------------------
30 September [millions of dollars, except per share] 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Current Assets
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Items--Note 1 $ 66.2 $ 94.1
- ------------------------------------------------------------------------------------------------------------------------------
Trade Receivables, Less Allowances for Doubtful Accounts of $10.2 in 2001 and $13.4 in 2000 913.4 982.7
- ------------------------------------------------------------------------------------------------------------------------------
Inventories--Notes 1 and 6 410.5 388.8
- ------------------------------------------------------------------------------------------------------------------------------
Contracts in Progress, Less Progress Billings 67.9 93.4
- ------------------------------------------------------------------------------------------------------------------------------
Other Current Assets 226.8 246.0
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,684.8 1,805.0
- ------------------------------------------------------------------------------------------------------------------------------
Investment in Net Assets of and Advances to Equity Affiliates--Notes 1 and 7 499.5 466.6
- ------------------------------------------------------------------------------------------------------------------------------
Plant and Equipment--Notes 1, 8, 9, and 10
- ------------------------------------------------------------------------------------------------------------------------------
Plant and Equipment, at Cost 10,226.5 10,310.9
- ------------------------------------------------------------------------------------------------------------------------------
Less--Accumulated Depreciation 5,108.0 5,054.2
- ------------------------------------------------------------------------------------------------------------------------------
Plant and Equipment, Net 5,118.5 5,256.7
- ------------------------------------------------------------------------------------------------------------------------------
Goodwill and Other Noncurrent Assets--Note 1 781.3 742.2
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 8,084.1 $8,270.5
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payables, Trade and Other--Note 17 $ 512.2 $ 578.4
- ------------------------------------------------------------------------------------------------------------------------------
Accrued Liabilities--Note 17 341.6 357.2
- ------------------------------------------------------------------------------------------------------------------------------
Accrued Income Taxes 48.4 10.0
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Borrowings--Note 17 255.7 249.7
- ------------------------------------------------------------------------------------------------------------------------------
Current Portion of Long-Term Debt--Note 9 194.5 179.5
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,352.4 1,374.8
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt--Notes 9 and 10 2,027.5 2,615.8
- ------------------------------------------------------------------------------------------------------------------------------
Deferred Income and Other Noncurrent Liabilities 702.0 561.3
- ------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes--Notes 1 and 14 778.4 781.8
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,860.3 5,333.7
- ------------------------------------------------------------------------------------------------------------------------------
Minority Interest in Subsidiary Companies 118.0 115.5
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity--Notes 1, 11, and 12
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock [par value $1 per share; issued 2001 and 2000--249,455,584 shares] 249.4 249.4
- ------------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value 384.9 342.2
- ------------------------------------------------------------------------------------------------------------------------------
Retained Earnings 3,965.9 3,667.9
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated Other Comprehensive Income [Loss]--Note 17 [452.5] [407.8]
- ------------------------------------------------------------------------------------------------------------------------------
Treasury Stock, at Cost [2001--22,269,244 shares; 2000--20,150,393 shares] [768.8] [681.6]
- ------------------------------------------------------------------------------------------------------------------------------
Shares in Trust [2001--11,723,720 shares; 2000--15,086,482 shares] [273.1] [348.8]
- ------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 3,105.8 2,821.3
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $8,084.1 $8,270.5
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
26
The Financial Statements
CONSOLIDATED CASH FLOWS
[Air Products and Chemicals, Inc. and Subsidiaries]
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended 30 September [millions of dollars] 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Activities
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 465.6 $ 124.2 $ 450.5
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Income to Cash Provided by Operating Activities:
- ---------------------------------------------------------------------------------------------------------------------------------
Depreciation--Note 1 573.0 575.7 527.2
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes--Note 14 39.0 [5.5] 58.8
- ---------------------------------------------------------------------------------------------------------------------------------
Extraordinary Loss on Early Retirement of Debt 47.3 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Loss [Gain] on BOC Transaction--Note 3 -- 706.1 [12.5]
- ---------------------------------------------------------------------------------------------------------------------------------
Undistributed Earnings of Unconsolidated Affiliates [46.2] [49.9] [46.3]
- ---------------------------------------------------------------------------------------------------------------------------------
[Gain] Loss on Sale of Assets and Investments [104.7] [138.6] 3.7
- ---------------------------------------------------------------------------------------------------------------------------------
Other 36.5 100.8 73.2
- ---------------------------------------------------------------------------------------------------------------------------------
Working Capital Changes, Excluding Effects of Acquisitions and Divestitures:
- ---------------------------------------------------------------------------------------------------------------------------------
Trade Receivables 63.9 [158.5] [26.3]
- ---------------------------------------------------------------------------------------------------------------------------------
Inventories and Contracts in Progress 2.6 [57.4] 37.0
- ---------------------------------------------------------------------------------------------------------------------------------
Payables, Trade and Other [75.6] 92.1 26.3
- ---------------------------------------------------------------------------------------------------------------------------------
Other 82.6 [15.0] [2.7]
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 1,084.0 1,174.0 1,088.9
- ---------------------------------------------------------------------------------------------------------------------------------
Investing Activities
- ---------------------------------------------------------------------------------------------------------------------------------
Additions to Plant and Equipment[a] [708.3] [767.7] [888.9]
- ---------------------------------------------------------------------------------------------------------------------------------
Acquisitions, Less Cash Acquired[b] [59.2] [170.4] [83.0]
- -------------------------------------------------------------------------------------------- ------------------------------------
Investment in and Advances to Unconsolidated Affiliates [38.3] [5.6] [110.6]
- ---------------------------------------------------------------------------------------------------------------------------------
BOC Transaction Costs -- [665.8] [27.7]
- ---------------------------------------------------------------------------------------------------------------------------------
Proceeds from Sale of Assets and Investments 497.0 381.8 45.6
- ---------------------------------------------------------------------------------------------------------------------------------
Other 31.1 .1 4.5
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Used for Investing Activities [277.7] [1,227.6] [1,060.1]
- ---------------------------------------------------------------------------------------------------------------------------------
Financing Activities
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt Proceeds[a][b] 121.0 820.9 119.5
- ---------------------------------------------------------------------------------------------------------------------------------
Payments on Long-Term Debt [796.6] [418.0] [82.9]
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase [Decrease] in Commercial Paper and Short-Term Borrowings 8.0 [182.1] 57.5
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends Paid to Shareholders [165.2] [155.7] [146.2]
- ---------------------------------------------------------------------------------------------------------------------------------
Purchase of Treasury Stock [87.2] -- [24.6]
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of Stock for Options and Award Plans 87.1 15.0 46.6
- ---------------------------------------------------------------------------------------------------------------------------------
Cash [Used for] Provided by Financing Activities [832.9] 80.1 [30.1]
- -------------------------------------------------------------------------------------------- ------------------------------------
Effect of Exchange Rate Changes on Cash [1.3] 6.0 1.4
- ---------------------------------------------------------------------------------------------------------------------------------
[Decrease] Increase in Cash and Cash Items [27.9] 32.5 .1
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Items--Beginning of Year 94.1 61.6 61.5
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Items--End of Year--Note 1 $ 66.2 $ 94.1 $ 61.6
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
[a] Excludes capital leases of $.5, $4.9, and $18.5 in 2001, 2000, and 1999,
respectively.
[b] Excludes $24.4 of long-term debt assumed in acquisitions in 2000 and $7.4
of former shareholder liability of a company acquired in 1999.
27
The Financial Statements
CONSOLIDATED SHAREHOLDERS' EQUITY
[Air Products and Chemicals, Inc. and Subsidiaries]
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Accumulated
Common Capital in Other
Shares Common Excess of Retained Comprehensive Treasury Shares
[millions of dollars, except per Outstanding Stock Par Value Earnings Income Stock in Trust Total
share]
- -----------------------------------------------------------------------------------------------------------------------------------
Balance 30 September 1998 211,469,768 $249.4 $329.2 $3,400.0 $[231.5] $[657.0] $[422.8] $2,667.3
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 450.5 450.5
- -----------------------------------------------------------------------------------------------------------------------------------
Translation Adjustments, Net of
Income Tax of $2.2 [61.3] [61.3]
- -----------------------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Holding
Gains, Net of Income Tax of $4.9 8.9 8.9
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Minimum Pension
Liability, Net of Income Tax of $5.7 9.5 9.5
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 407.6
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of Treasury Shares and
Shares in Trust for Stock Options
and Award Plans 2,194,464 [1.0] 47.7 46.7
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Benefit of Stock Option and
Award Plans 13.3 13.3
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends [$.70 per Share] [148.7] [148.7]
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of Treasury Shares [620,000] [24.6] [24.6]
- -----------------------------------------------------------------------------------------------------------------------------------
Balance 30 September 1999 213,044,232 $249.4 $341.5 $3,701.8 $[274.4] $[681.6] $[375.1] $2,961.6
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 124.2 124.2
- -----------------------------------------------------------------------------------------------------------------------------------
Translation Adjustments, Net of
Income Tax of $29.3 [137.3] [137.3]
- -----------------------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Holding
Gains, Net of Income Tax of $1.0 1.8 1.8
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Minimum Pension
Liability, Net of Income Tax of $1.3 2.1 2.1
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Loss [9.2]
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of Treasury Shares and
Shares in Trust for Stock Options
and Award Plans 1,174,477 [7.9] 26.3 18.4
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Benefit of Stock Option and
Award Plans 8.6 8.6
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends [$.74 per Share] [158.1] [158.1]
- -----------------------------------------------------------------------------------------------------------------------------------
Balance 30 September 2000 214,218,709 $249.4 $342.2 $3,667.9 $[407.8] $[681.6] $[348.8] $2,821.3
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 465.6 465.6
- -----------------------------------------------------------------------------------------------------------------------------------
Net Gain on Derivatives, Net of
Income Tax of $1.1 1.8 1.8
- -----------------------------------------------------------------------------------------------------------------------------------
Translation Adjustments, Net of
Income Tax of $14.1 [43.3] [43.3]
- -----------------------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Holding
Gains, Net of Income Tax of $3.8 6.3 6.3
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Minimum Pension
Liability, Net of Income Tax of $5.8 [9.5] [9.5]
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income 420.9
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of Shares in Trust for
Stock Options and Award Plans 3,362,762 25.0 75.7 100.7
- -----------------------------------------------------------------------------------------------------------------------------------
Tax Benefit of Stock Option and
Award Plans 17.7 17.7
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Dividends [$.78 per Share] [167.6] [167.6]
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase of Treasury Shares [2,118,851] [87.2] [87.2]
- -----------------------------------------------------------------------------------------------------------------------------------
Balance 30 September 2001 215,462,620 $249.4 $384.9 $3,965.9 $[452.5] $[768.8] $[273.1] $3,105.8
- -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
28
Notes to the Financial statements
[millions of dollars, except per share]
1 MAJOR ACCOUNTING POLICIES
Consolidation Principles
The consolidated financial statements include the accounts of Air Products and
Chemicals, Inc. and its majority-owned subsidiary companies (the company). The
equity method of accounting is used when the company has a 20% to 50% interest
in other companies. Under the equity method, original investments are recorded
at cost and adjusted by the company's share of undistributed earnings or losses
of these companies.
Revenue Recognition
Revenue from gases and chemicals sales is recognized as risk and title to the
product transfers to the customer, which usually occurs at the time shipment is
made. Revenues from equipment sale contracts are recorded primarily using the
percentage-of-completion method. Under this method, revenues for sale of major
equipment, such as Liquid Natural Gas and Air Separation units, are recognized
primarily based on labor hours incurred to date compared with total estimated
labor hours. Changes to total estimated labor hours and anticipated losses, if
any, are recognized in the period determined. Sales returns and allowances are
not a business practice in the industry.
Amounts billed for shipping and handling fees are classified as sales in the
consolidated income statement. Costs incurred for shipping and handling are
classified as cost of sales.
Depreciation
In the financial statements, the straight-line method of depreciation is used,
which deducts equal amounts of the cost of each asset from earnings every year
over its expected useful life.
The estimated useful lives primarily range from 5 to 45 years (principally 30
years) for buildings and components and from 14 to 20 years for gas generating
and chemical facilities, machinery and equipment.
Capitalized Interest
As the company builds new plant and equipment, it includes in the cost of these
assets a portion of the interest payments it makes during the year. In 2001, the
amount of capitalized interest was $6.0. In 2000, it was $17.4, and in 1999,
$22.1.
Financial Instruments
The company addresses certain financial exposures through a controlled program
of risk management that includes the use of derivative financial instruments.
The company enters into foreign exchange contracts, including forward, option
combination, and purchased option contracts, to reduce the effects of
fluctuating foreign currency exchange rates. The company enters into interest
rate swap contracts to reduce interest rate risks and to modify the interest
rate characteristics of its outstanding debt. The company is also party to
interest rate and currency swap agreements. Counterparties to these contracts
are major financial institutions. The company has established counterparty
credit guidelines and only enters into transactions with financial institutions
of investment grade or better. Management believes the risk of incurring losses
related to credit risk is remote, and any losses would be immaterial to
consolidated financial results.
The company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," an amendment of SFAS No. 133, on 1 October 2000. These Statements
establish accounting and reporting standards that require every derivative
instrument (including certain derivative instruments embedded in other
contracts) to be recorded on the balance sheet as either an asset or a liability
measured at its fair value. SFAS No. 133 requires the transition adjustment
resulting from adopting these Statements to be reported in net income or
accumulated other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle.
In accordance with the provisions of SFAS No. 133, as amended, the company
recognizes all derivatives on the balance sheet at fair value. On the date the
derivative instrument is entered into, the company generally designates the
derivative as either (1) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair value hedge), (2) a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability (cash flow hedge), or (3) a
hedge of a net investment in a foreign operation. Changes in the fair value of a
derivative that is designated as and meets all the required criteria for a fair
value hedge, along with the gain or loss on the hedged asset or liability that
is attributable to the hedged risk, are recorded in current period earnings.
Changes in the fair value of a derivative that is designated as and meets all
the required criteria for a cash flow hedge are recorded in accumulated other
comprehensive income and reclassified
29
into earnings as the underlying hedged item affects earnings. Changes in the
fair value of a derivative or nonderivative that is designated as and meets all
the required criteria for a hedge of a net investment are recorded in
accumulated other comprehensive income. Changes in the fair value of a
derivative that is not designated as a hedge are recorded immediately in
earnings.
The company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes relating all
derivatives that are designated as fair value or cash flow hedges to specific
assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The company also formally assesses, both at the
inception of the hedge and on an ongoing basis, whether each derivative is
highly effective in offsetting changes in fair values or cash flows of the
hedged item. If it is determined that a derivative is not highly effective as a
hedge, or if a derivative ceases to be a highly effective hedge, the company
will discontinue hedge accounting with respect to that derivative prospectively.
On 1 October 2000 the company recorded the fair value of all outstanding
derivative instruments as assets or liabilities on the balance sheet. The
transition adjustment was not material to earnings or to accumulated other
comprehensive income. Due to the immateriality of the transition amount to
earnings, this amount was included in other income.
Prior to 1 October 2000 the fair value of interest rate swap agreements was not
recognized in the financial statements. The net amount to be paid or received
was accrued as interest rates changed and recognized over the life of the
agreements as an adjustment of interest expense. Gains and losses on the
currency component of interest rate and currency swap contracts, which were
entered into to hedge lending transactions, were recognized in income and offset
the foreign exchange gains and losses of the related transaction. Gains and
losses on the currency component of interest rate and currency swap contracts,
which were entered into to hedge investments in certain foreign subsidiaries and
foreign equity affiliates, were not included in the income statement, but were
shown in accumulated other comprehensive income. The interest component of these
contracts was accounted for similarly to other interest rate swap agreements.
Gains and losses on terminated interest rate swap agreements were amortized into
income over the remaining life of the debt obligation or the remaining life of
the original swap, if shorter. The accounting for terminated interest rate swap
agreements did not change with the implementation of SFAS No. 133.
Prior to 1 October 2000 forward exchange and option combination contracts used
to hedge firm commitments and purchased foreign currency options used to hedge
firm commitments and certain highly anticipated cash flows were designated as,
and effective as, hedges. Gains and losses from these agreements were deferred
and reflected as adjustments of the related foreign currency transactions. Gains
and losses on terminated contracts, for which hedge criteria were met, were
deferred and recognized as adjustments of the related foreign currency
transactions. Gains and losses on forward exchange contracts used to hedge the
value of investments in subsidiaries and equity affiliates were included in
accumulated other comprehensive income. Contracts that were not designated as
hedges were marked to market, and the gains and losses from changes in market
value of these contracts were included in the income statement.
Foreign Currency
The value of the U.S. dollar rises and falls day to day on foreign currency
exchanges. Since the company does business in many foreign countries, these
fluctuations affect the company's financial position and results of operations.
Generally, foreign subsidiaries translate their assets and liabilities into U.S.
dollars at current exchange rates--that is, the rates in effect at the end of
the fiscal period. The gains or losses that result from this process are shown
in accumulated other comprehensive income in the shareholders' equity section of
the balance sheet.
The revenue and expense accounts of foreign subsidiaries are translated into
U.S. dollars at the average exchange rates that prevailed during the period.
Therefore, the U.S. dollar value of these items on the income statement
fluctuates from period to period, depending on the value of the dollar against
foreign currencies. Some transactions of the company and its subsidiaries are
made in currencies different from their own. Gains and losses from these foreign
currency transactions are generally included in income as they occur.
Environmental Expenditures
Accruals for investigatory and noncapital remediation costs are recorded when it
is probable that a liability has been incurred and the amount of loss can be
reasonably estimated. Remediation costs are capitalized if the costs improve the
company's property as compared with the condition of the property when
originally constructed or acquired or if the costs prevent environmental
contamination from future operations. Costs to operate and maintain the
capitalized facilities are expensed as incurred.
30
The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. These liabilities include
costs related to other potentially responsible parties to the extent that the
company has reason to believe such parties will not fully pay their
proportionate share. They also do not take into account any claims for
recoveries from insurance or third parties and are not discounted. As
assessments and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical and legal
information that becomes available. Actual costs to be incurred at identified
sites in future periods may vary from the estimates, given inherent
uncertainties in evaluating environmental exposures. The accruals for
environmental liabilities are reflected in the balance sheet primarily as part
of other noncurrent liabilities.
Income Taxes
The company accounts for income taxes under the liability method. Under this
method, deferred tax liabilities and assets are recognized for the tax effects
of temporary differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates. A principal temporary difference
results from the excess of tax depreciation over book depreciation because
accelerated methods of depreciation and shorter useful lives are used for income
tax purposes. The cumulative impact of a change in tax rates or regulations is
included in income tax expense in the period that includes the enactment date.
Cash and Cash Items
Cash and cash items include cash, time deposits, and certificates of deposit
acquired with an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. The cost of chemical
inventories and some gas and equipment inventories in the United States is
determined using the last-in, first-out (LIFO) method. The cost of other
inventories is principally determined using the first-in, first-out method
(FIFO).
Goodwill
When a company is acquired, the difference between the fair value of its net
assets and the purchase price is goodwill. Goodwill is recorded as an asset on
the balance sheet and is amortized into income over periods not exceeding 40
years. The company assesses the impairment of goodwill related to consolidated
subsidiaries in accordance with SFAS No. 121. This statement requires the
recognition of an impairment loss for an asset held for use when the estimate of
undiscounted future cash flows expected to be generated by the asset is less
than its carrying amount. Measurement of the impairment loss is based on the
fair value of the asset, which is determined using valuation techniques such as
the present value of expected future cash flows.
Shares in Trust
The company has established a trust, funded with Treasury Stock, to provide for
a portion of future payments to employees under the company's existing
compensation and benefit programs. Shares issued to the trust were valued at
market price on the date of contribution and reflected as a reduction of
shareholders' equity in the balance sheet. As shares are transferred from the
trust to fund compensation and benefit obligations, this equity account is
reduced based on the original cost of shares to the trust; the satisfaction of
liabilities is based on the fair value of shares transferred; and the difference
between the fair value of shares transferred and the original cost of shares to
the trust is charged or credited to capital in excess of par value.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2 NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS No. 141 requires all business combinations be
accounted for by the purchase method and adds disclosure requirements related to
business combination transactions. SFAS No. 141 also establishes criteria for
the recognition of intangible assets apart from goodwill. This Statement applies
to all business combinations for which the acquisition date was 1 July 2001 or
later. The company had no significant acquisitions during 2001. The company does
not believe this Statement will have a material effect on the company's
financial statements.
31
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. The Statement provides that goodwill and
some intangibles will no longer be amortized on a recurring basis. Goodwill and
intangible assets with an indefinite life will be subject to an initial
impairment test within six months of adoption of SFAS No. 142 and annually
thereafter. The Statement also requires disclosure of certain information about
goodwill and other intangible assets subsequent to their acquisition. The
company adopted SFAS No. 142 as of the beginning of 2002. During 2001, total
goodwill amortized was $16.6. The company is evaluating the impact of adopting
this Statement.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. The Statement requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred. The asset retirement obligations will be capitalized as
part of the carrying amount of the long-lived asset. The Statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development, and normal operation of
long-lived assets. The Statement is effective for years beginning after 15 June
2002, with earlier adoption permitted. The company is evaluating the impact of
adopting this Statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Statement also supersedes Accounting Principles Board
Opinion (APB) No. 30 provisions related to the accounting and reporting for the
disposal of a segment of a business. This Statement establishes a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale. The Statement retains most of the
requirements in SFAS No. 121 related to the recognition of impairment of
long-lived assets to be held and used. The Statement is effective for fiscal
years beginning after 15 December 2001, with earlier adoption encouraged. The
company is evaluating the impact of adopting SFAS No. 144.
3 SPECIAL ITEMS
- ------------------------------------------------------------------------------
Income/[Charges] 2001 2000 1999
- ------------------------------------------------------------------------------
Global cost reduction plans $[109.2] $[55.4] $[34.2]
- ------------------------------------------------------------------------------
Litigation settlement [6.0] -- --
- ------------------------------------------------------------------------------
Sale of interest in
Cogeneration facilities 101.6 -- --
- ------------------------------------------------------------------------------
Sale of Polyvinyl Alcohol
Business -- 126.8 --
- ------------------------------------------------------------------------------
Sale of Packaged Gas facilities -- 6.3 --
- ------------------------------------------------------------------------------
Formation of Polymer venture -- -- 34.9
- ------------------------------------------------------------------------------
BOC transaction -- [730.4] 7.0
- ------------------------------------------------------------------------------
Chemicals facility closure
costs -- -- [10.3]
- ------------------------------------------------------------------------------
Total--Before Tax $[13.6] $[652.7] $[2.6]
- ------------------------------------------------------------------------------
Total--After Tax $[6.4] $[408.4] $[.3]
- ------------------------------------------------------------------------------
Total--Diluted EPS $[.04] $[1.89] $--
- ------------------------------------------------------------------------------
Global Cost Reduction Plans
In 2001, the company recorded a charge of $109.2 for the global cost reduction
plan (2001 Plan). This charge includes $79.6 for severance benefits and pension
plan settlements, and $29.6 for asset impairments and related restructuring
charges. The company will eliminate 670 positions in the areas of manufacturing,
engineering, distribution, and overheads. As of 30 September 2001, 132 positions
have been eliminated, with completion of the 2001 Plan expected by 30 September
2002. The company decided to divest several small facilities, which required a
write-down of the net book value to the estimated net realizable value. The net
carrying value of the assets to be disposed of within one year is $11.1 and
$27.7 in the gases and chemicals segments, respectively. The total charge of
$109.2 was reflected in the income statement as follows: cost of sales ($26.9);
selling and administrative ($53.4); research and development ($.7); and other
expense ($28.2).
In 2000, the company recorded a charge of $55.4 for the global cost reduction
plan (2000 Plan). The 2000 Plan included 450 position eliminations in the areas
of manufacturing, engineering, distribution, and overheads, resulting in a
charge of $47.9 for severance benefits. The 2000 Plan was completed in 2001,
with 416 positions eliminated and total expenses of $45.7 incurred. A charge of
$7.5 was recognized for asset impairments related to the rationalization of
three small facilities in Europe. The total charge of $55.4 was reflected in the
income statement as follows: cost of sales ($20.6); selling and administrative
($25.4); research and development ($1.9); and other expense ($7.5).
32
In 1999, the company recorded a charge of $34.2 for the global cost reduction
plan (1999 Plan). The 1999 Plan consisted of the elimination of 348 positions
and was completed in 2000 essentially as planned. The charge of $34.2 was
reflected in the income statement as follows: cost of sales ($15.3); selling and
administrative ($17.8); and research and development ($1.1).
- ------------------------------------------------------------------------------------------------------
Accrual for cost reduction plans
Severance Pension Other[1] Total
- ------------------------------------------------------------------------------------------------------
Balance,
30 September 1998 $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------
Provision 34.2 -- -- 34.2
- ------------------------------------------------------------------------------------------------------
Cash expenditures [19.8] -- -- [19.8]
- ------------------------------------------------------------------------------------------------------
Balance,
30 September 1999 $ 14.4 $ -- $ -- $ 14.4
- ------------------------------------------------------------------------------------------------------
Provision 38.5 9.4 7.5 55.4
- ------------------------------------------------------------------------------------------------------
Cash expenditures [29.4] -- -- [29.4]
- ------------------------------------------------------------------------------------------------------
Noncash charges -- [9.4] [7.5] [16.9]
- ------------------------------------------------------------------------------------------------------
Balance,
30 September 2000 $23.5 $ -- $ -- $ 23.5
- ------------------------------------------------------------------------------------------------------
Provision 57.6 22.0 29.6 109.2
- ------------------------------------------------------------------------------------------------------
Cash expenditures [29.8] -- [4.3] [34.1]
- ------------------------------------------------------------------------------------------------------
Noncash charges -- [22.0] [23.8] [45.8]
- ------------------------------------------------------------------------------------------------------
Reverse 2000 Plan
Balance [2.2] -- -- [2.2]
- ------------------------------------------------------------------------------------------------------
Balance,
30 September 2001 $ 49.1 $ -- $ 1.5 $50.6
- ------------------------------------------------------------------------------------------------------
[1] Asset impairments and related expenses are included in the other category.
Sale of Interest in Cogeneration Facilities
In the fourth quarter of 2001, the company sold its 50% interest in two
cogeneration facilities located in Cambria County, Pennsylvania and Orlando,
Florida. The Cambria facility uses a coal by-product to generate electricity,
with power generation capability of 88 megawatts. The Orlando facility is a
natural gas-fired power plant with power generation capability of 115 megawatts.
These investments contributed approximately $11, $12, and $10 to net income in
2001, 2000, and 1999, respectively.
Sale of Polyvinyl Alcohol Business
In September 2000, the company completed the sale of its polyvinyl alcohol
business for $326.0. Included in the sale were working capital and production
facilities at Pasadena, Texas and Calvert City, Kentucky. The facilities produce
200 million pounds of polyvinyl alcohol per year and employ 200 people. Sales in
2000 were $194.2, with essentially no operating profit contribution.
Formation of Polymer Venture
In October 1998, the company and Wacker-Chemie GmbH formed two joint ventures to
consolidate their respective positions in polymer emulsions and redispersible
powder polymers businesses. The company has a 65% interest in the polymer
emulsions joint venture and a 20% interest in the redispersible powders venture.
The accounting for the polymer emulsions venture as a business combination
resulted in the partial sale of assets.
BOC Transaction
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 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. The charge of $730.4 included $594.6 for losses on purchased
currency option and forward exchange contracts entered into to hedge the
currency exposure of the transaction. The remaining charge of $135.8 consisted
of the BOC fee paid and transaction expenses.
4 ACQUISITIONS
Korea Industrial Gases Ltd.
Acquisitions in 2000, totaling $194.8, principally included the purchase in
December 1999 of the remaining 51.1% of the shares of Korea Industrial Gases
Ltd. (KIG). KIG is the largest industrial gas company in Korea. Since 1980, the
company had a joint venture arrangement with KIG. As a result of the purchase of
the remaining outstanding shares, KIG is a wholly owned subsidiary of Air
Products. KIG is a full-service industrial gas company with a broad product
portfolio supplying specialty gases, liquid/bulk gases, pipeline/on-site gases,
and noncryogenic units to the Korean marketplace. Consolidated sales in 2000
included $121.0 from KIG.
5 FINANCIAL INSTRUMENTS
Currency Risk Management
The company does business in many foreign countries; therefore, its earnings,
cash flows, and financial position are exposed to foreign currency risk from
foreign currency denominated transactions and net investments in foreign
operations. These items are denominated in various foreign currencies.
33
It is the policy of the company to minimize its cash flow exposure to adverse
changes in currency and exchange rates. This is accomplished by identifying and
evaluating the risk that the company's cash flows will decline in value due to
changes in exchange rates, and by determining the appropriate strategies
necessary to manage such exposures. The company's objective is to maintain
economically balanced currency risk management strategies that provide adequate
downside protection.
The company enters into a variety of foreign exchange contracts, including
forward, option combination, and purchased option contracts, to hedge its
exposure to fluctuations in foreign currency exchange rates. These agreements
generally involve the exchange of one currency for a second currency at some
future date.
The company enters into foreign exchange contracts, including forward, option
combination, and purchased option contracts to reduce the cash flow exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities, as well as highly anticipated cash flows and certain firm
commitments. Examples of such exposures are the purchase of plant and equipment
and export sales transactions. Forward exchange contracts are also used to hedge
the value of investments in certain foreign subsidiaries and affiliates by
creating a liability in a currency in which the company has a net equity
position. The company also uses foreign currency denominated debt to hedge
certain net investments in foreign operations.
Certain forward exchange contracts entered into by the company are not
designated as hedging instruments. Contracts used to hedge the exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities are not designated as hedging instruments, and changes in the fair
value of these items are recorded in earnings to offset the foreign exchange
gains and losses of the monetary assets and liabilities. Other forward exchange
contracts may be used to economically hedge foreign currency exposures which are
not designated as hedging instruments due to the immaterial amount of the
underlying hedged exposures. Changes in the fair value of these contracts are
also recorded in earnings.
Debt Portfolio Management
It is the policy of the company to identify on a continuing basis the need for
debt capital and evaluate the financial risks inherent in funding the company
with debt capital. Reflecting the result of this ongoing review, the debt
portfolio and hedging program of the company is managed with the objectives and
intent to (1) reduce funding risk with respect to borrowings made or to be made
by the company to preserve the company's access to debt capital and provide debt
capital as required for funding and liquidity purposes, and (2) reduce the
aggregate interest rate risk of the debt portfolio in accordance with certain
debt management parameters.
The company enters into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain the
percentage of fixed- and variable-rate debt within the parameters set by
management. In accordance with these parameters, the agreements are used to
reduce interest rate risks and costs inherent in the company's debt portfolio.
The notional amount of these agreements is equal to or less than the designated
debt instrument being hedged. The variable rate bases of the swap instruments
and the debt to which they are designated are the same. The company will not
enter into any interest rate swap contracts which lever a move in interest rates
on a greater than one-to-one basis. The company currently has one outstanding
agreement to effectively convert fixed-rate debt to variable-rate debt, which is
indexed to LIBOR.
The company is also party to interest rate and currency swap contracts. These
contracts entail both the exchange of fixed- and floating-rate interest payments
periodically over the life of the agreement and the exchange of one currency for
another currency at inception and at a specified future date. These contracts
effectively convert the currency denomination of a debt instrument into another
currency in which the company has a net equity position while changing the
interest rate characteristics of the instrument. The contracts are used to hedge
intercompany and third-party borrowing transactions.
Fair Value Hedges
For the year ended 30 September 2001, there was no gain or loss recognized in
earnings resulting from hedge ineffectiveness or from excluding a portion of
derivative instruments' gain or loss from the assessment of hedge effectiveness
related to derivatives designated as fair value hedges. Also, there was no gain
or loss recognized in earnings as a result of a hedged firm commitment no longer
qualifying as a fair value hedge.
Cash Flow Hedges
Sales for the year ended 30 September 2001 included $1.8 of net losses related
to the volatility value component of purchased foreign currency options used to
hedge certain highly anticipated export sales transactions. Other income for the
year ended 30 September 2001 included $.2 of net losses related to the
volatility value component of purchased foreign currency options used to hedge
inter-
34
company royalty income. Prior to 1 May 2001, the volatility value component of
these cash flow hedges was excluded from the assessment of hedge effectiveness.
There was no other hedge ineffectiveness related to cash flow hedges during the
period to be recognized in earnings.
Changes in the fair value of derivatives qualifying as cash flow hedges are
reported in accumulated other comprehensive income. The gains and losses are
reclassified into earnings as the underlying hedged item affects earnings, such
as when the hedged export sale occurs. It is expected that $.4 of net gains in
accumulated other comprehensive income will be reclassified into earnings within
the next twelve months. Of this amount, $.3 loss relates to forward and option
contracts and $.7 gain relates to interest rate and currency swaps. The amount
reclassified from accumulated other comprehensive income into earnings as a
result of the discontinuance of foreign currency cash flow hedges due to the
probability of the original forecasted transactions not occurring was not
material.
As of 30 September 2001, the maximum length of time over which the company is
hedging its exposure to the variability in future cash flows for forecasted
transactions is eighteen months.
Hedges of Net Investments in Foreign Operations
For the year ended 30 September 2001, $20.0 of net losses related to hedges of
net investments in foreign operations was included in accumulated other
comprehensive income.
Fair Value of Financial Instruments
Summarized below are the carrying values and fair values of the company's
financial instruments as of 30 September 2001 and 2000.
The fair value of the company's debt, interest rate swap agreements, forward
exchange contracts, option combination contracts, and purchased foreign currency
options is based on estimates using standard pricing models that take into
account the present value of future cash flows as of the balance sheet date. The
computation of fair values of these instruments is generally performed by the
company.
The fair value of other investments is based principally on quoted market
prices. The carrying amounts reported in the balance sheet for cash and cash
items, accrued liabilities, accrued income taxes, and short-term borrowings
approximate fair value due to the short-term nature of these instruments.
Accordingly, these items have been excluded from the following table:
- ------------------------------------------------------------------------------
2001 2001 2000 2000
Carrying Fair Carrying Fair
30 September Value Value Value Value
- ------------------------------------------------------------------------------
Assets
Other Investments $52.1 $52.1 $34.7 $34.7
- ------------------------------------------------------------------------------
Currency option
contracts 1.6 1.6 -- --
- ------------------------------------------------------------------------------
Interest rate swap
agreements 16.8 16.8 33.4 33.5
- ------------------------------------------------------------------------------
Forward exchange
contracts 25.5 25.5 47.2 29.7
- ------------------------------------------------------------------------------
Liabilities
Long-term debt,
Including
current portion $2,222.0 $2,344.4 $2,795.3 $2,925.2
- ------------------------------------------------------------------------------
6 INVENTORIES
The components of inventories are as follows:
- ----------------------------------------------------------------------------
30 September 2001 2000
- ----------------------------------------------------------------------------
Inventories at FIFO cost:
- ----------------------------------------------------------------------------
Finished goods $282.7 $244.5
- ----------------------------------------------------------------------------
Work in process 35.8 39.7
- ----------------------------------------------------------------------------
Raw materials and supplies 128.0 131.9
- ----------------------------------------------------------------------------
446.5 416.1
- ----------------------------------------------------------------------------
Less excess of FIFO cost over LIFO cost [36.0] [27.3]
- ----------------------------------------------------------------------------
$410.5 $388.8
- ----------------------------------------------------------------------------
Inventories valued using the LIFO method comprised 44.6% and 43.2% of
consolidated inventories before LIFO adjustment at 30 September 2001 and 2000,
respectively. Liquidation of prior years' LIFO inventory layers in 2001, 2000,
and 1999 did not materially affect cost of sales in any of these years.
7 SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The following table presents summarized financial information on a combined 100%
basis of the principal companies accounted for by the equity method. Amounts
presented include the accounts of the following equity affiliates: Stockton
CoGen Company (50%); Pure Air on the Lake, L.P. (50%); Bangkok Cogeneration
Company Limited (48.8%); Daido Air Products Electronics, Inc. (49%); Sapio
Produzione Idrogeno Ossigeno S.r.L. (49%); INFRA Group (40%); San Fu Chemicals
(48.1%); Air Products South Africa (50%); Bangkok Industrial Gases Company Ltd.
(50.6%); INOX Air Products Limited (48.9%); APP GmbH in WPS GmbH & CoKG (20%);
DuPont Air Products Nanomaterials, LLC (50%); Island Pipeline Gas (33%);
35
Tyczka Industrie-Gases GmbH (50%); and principally other industrial gas
producers. The company sold its 50% interest in Cambria CoGen Company and
Orlando CoGen Limited in the fourth quarter of 2001.
- ----------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------
Current assets $ 833.9 $ 739.3
- ----------------------------------------------------------------------------
Noncurrent assets 1,391.0 1,508.1
- ----------------------------------------------------------------------------
Current liabilities 605.1 506.9
- ----------------------------------------------------------------------------
Noncurrent liabilities 620.3 714.8
- ----------------------------------------------------------------------------
Net sales 1,690.2 1,681.1
- ----------------------------------------------------------------------------
Sales less cost of sales 611.5 565.6
- ----------------------------------------------------------------------------
Net income 219.4 245.7
- ----------------------------------------------------------------------------
The company's share of income of all equity affiliates for 2001, 2000, and 1999
was $91.1, $99.6, and $83.7, respectively. These amounts exclude $9.9, $12.0,
and $22.2 of related net expenses incurred by the company. Dividends received
from equity affiliates were $44.9, $49.7, and $36.1 in 2001, 2000, and 1999,
respectively.
The investment in net assets of and advances to equity affiliates at 30
September 2001 and 2000 included investment in foreign affiliates of $465.9 and
$442.4, respectively.
As of 30 September 2001 and 2000, the amount of investment in companies
accounted for by the equity method included goodwill in the amount of $77.2 and
$76.2, respectively. The goodwill is being amortized into income over periods
not exceeding 40 years.
8 PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
- ------------------------------------------------------------------------------
30 September 2001 2000
- ------------------------------------------------------------------------------
Land $ 130.0 $ 144.0
- ------------------------------------------------------------------------------
Buildings 682.4 668.8
- ------------------------------------------------------------------------------
Gas generating and chemical facilities,
machinery and equipment 8,996.6 9,031.0
- ------------------------------------------------------------------------------
Construction in progress 417.5 467.1
- ------------------------------------------------------------------------------
$10,226.5 $10,310.9
- ------------------------------------------------------------------------------
9 LONG-TERM DEBT
The following table shows the company's outstanding debt at the end of 2001 and
2000, excluding any portion of the debt required to be repaid within a year:
- ------------------------------------------------------------------------------
30 September Maturities 2001 2000
- ------------------------------------------------------------------------------
Payable in U.S. Dollars:
- ------------------------------------------------------------------------------
Debentures: [Effective Rate]
- ------------------------------------------------------------------------------
8.35% $ -- $ 100.0
- ------------------------------------------------------------------------------
8.50% [8.55%] 2006 100.0 100.0
- ------------------------------------------------------------------------------
8.75% [8.95%] 2021 18.4 100.0
- ------------------------------------------------------------------------------
Notes: [Effective Rate]
- ------------------------------------------------------------------------------
7.375% [7.54%] 2005 150.0 150.0
- ------------------------------------------------------------------------------
6.25% [6.30%] 2003 100.0 100.0
- ------------------------------------------------------------------------------
Medium-Term Notes:
- ------------------------------------------------------------------------------
Weighted Average Rate
- ------------------------------------------------------------------------------
Series D 6.8% 2003 to 2016 223.0 400.0
- ------------------------------------------------------------------------------
Series E 7.6% 2008 to 2026 17.4 250.0
- ------------------------------------------------------------------------------
Series F 6.5% 2007 to 2010 133.0 215.0
- ------------------------------------------------------------------------------
Other 3.0% 2003 to 2036 251.1 283.4
- ------------------------------------------------------------------------------
Less: Unamortized discount [3.5] [6.7]
- ------------------------------------------------------------------------------
Payable in other currencies:
- ------------------------------------------------------------------------------
Euro bonds 6.0% 2005 457.0 438.5
- ------------------------------------------------------------------------------
Euro bonds 6.5% 2007 274.2 263.1
- ------------------------------------------------------------------------------
Other 6.2% 2004 to 2007 270.7 183.2
- ------------------------------------------------------------------------------
Capital lease obligations:
- ------------------------------------------------------------------------------
United States 7.3% 2003 to 2006 5.5 6.2
- ------------------------------------------------------------------------------
Foreign 6.7% 2003 to 2006 30.7 33.1
- ------------------------------------------------------------------------------
$2,027.5 $2,615.8
- ------------------------------------------------------------------------------
Various debt agreements to which the company is a party include certain
financial covenants and other restrictions, including restrictions pertaining to
the ability to create property liens and enter into certain sale and leaseback
transactions. The company is in compliance with all financial debt covenants.
The company has obtained the commitment of a number of commercial banks to lend
money at market rates whenever needed by the company. These committed lines of
credit also are used to support the issuance of commercial paper. In January
2001, the company amended and restated its $600 committed, multicurrency,
syndicated credit facility, which matures in January 2004. No borrowings were
outstanding under these commitments at year end. At 30 September 2001, foreign
subsidiaries had additional committed credit lines of $72.7 million, $16.4 of
which was borrowed and outstanding.
36
Maturities of long-term debt in each of the next five years are as follows:
$194.5 in 2002, $204.8 in 2003, $78.0 in 2004, $682.9 in 2005, and $200.1 in
2006.
In August 2001, the company retired $459.6 principal amount of various
medium-term notes--series D, E, and F as well as $81.5 of the 8.75% debenture
for an aggregate principal retirement of $541.1. An extraordinary loss of $47.3
was incurred as a result of the early retirement of debt, consisting principally
of retirement premiums, net of a tax benefit of $28.5.
10 LEASES
Capital leases, primarily for machinery and equipment, are included with owned
plant and equipment on the balance sheet in the amount of $59.3 and $60.3 at the
end of 2001 and 2000, respectively. Related amounts of accumulated depreciation
are $32.2 and $27.6, respectively.
Operating leases, including month-to-month agreements, cost the company $91.0 in
2001, $89.7 in 2000, and $87.7 in 1999.
During 2001, the company sold and leased back certain U.S. cryogenic vessel
equipment for $301.9. This operating lease has a five-year term with purchase
and renewal options. The company recognized a deferred gain of $134.7 on this
sale leaseback. This amount was included in other noncurrent liabilities.
At 30 September 2001, minimum payments due under leases are as follows:
- ---------------------------------------------------------------
Capital Operating
Leases Leases
- ---------------------------------------------------------------
2002 $11.8 $ 46.2
- ---------------------------------------------------------------
2003 10.5 35.5
- ---------------------------------------------------------------
2004 8.1 30.8
- ---------------------------------------------------------------
2005 18.3 25.8
- ---------------------------------------------------------------
2006 4.3 23.7
- ---------------------------------------------------------------
2007 and thereafter -- 67.8
- ---------------------------------------------------------------
$53.0 $229.8
- ---------------------------------------------------------------
The present value of the above future capital lease payments is included in the
liabilty section of the balance sheet. At the end of 2001, $9.8 was classified
as current and $36.2 as long-term.
11 CAPITAL STOCK
The authorized Capital Stock consists of 25 million preferred shares with a par
value of $1 per share, none of which was outstanding at 30 September 2001, and
300 million shares of Common Stock with a par value of $1 per share.
The company established a trust to fund a portion of future payments to
employees under existing compensation and benefit programs. The trust, which is
administered by an independent trustee, was initially funded with 20 million
shares of Treasury Stock. It will not increase or alter the amount of benefits
or compensation that is paid under existing plans. The establishment of the
trust does not have an effect on earnings per share or return on average
shareholders' equity.
In 1998, the Board of Directors adopted a shareholder rights plan, under which
common stockholders receive an associated right to purchase one one-thousandth
(1/1,000) of a share of Series A Participating Cumulative Preferred Stock, par
value $1 per share. Such rights are exercisable at a price of $345 and only in
the event of certain changes or potential changes in the beneficial ownership of
the company's Common Stock, which could result in a person or group owning more
than 15% of the outstanding Common Stock ("Acquiring Person"). If such rights
become exercisable, the rights would entitle the stockholder (other than the
Acquiring Person) to purchase for the purchase price (i) that number of one
one-thousandths of a share of Series A Participating Cumulative Preferred Stock
or (ii) that number of shares of common stock of the surviving company (in the
event of a business combination with the Acquiring Person or asset purchase of
50% or more of the company's assets by the Acquiring Person), with a value equal
to two times the purchase price of the right. The rights will expire on 19 March
2008 unless earlier redeemed by the company.
37
12 STOCK OPTION AND AWARD PLANS
Stock Options
Under various plans, executives, employees, and outside directors receive awards
of options to purchase common stock. Under all awards, the terms are fixed at
the grant date. Generally, the exercise price equals the market price of the
company's stock on the date of the grant, and the option's maximum term is 10
years. In October 1998, the company granted 697,300 premium-priced stock options
in addition to the fair market value stock options. Options under the plans
generally vest from one to three years. Options issued to directors are
exercisable six months after the grant date.
The following table reflects activity under all stock option plans:
- ---------------------------------------------------------------------------
Number of Average
Shares Price
- ---------------------------------------------------------------------------
Outstanding at 30 September 1998 17,566,742 $28.61
- ---------------------------------------------------------------------------
Granted 2,664,400 32.27
- ---------------------------------------------------------------------------
Exercised [1,773,003] 19.30
- ---------------------------------------------------------------------------
Forfeited [264,433] 35.46
- ---------------------------------------------------------------------------
Outstanding at 30 September 1999 18,193,706 $29.95
- ---------------------------------------------------------------------------
Granted 4,264,600 28.79
- ---------------------------------------------------------------------------
Exercised [1,062,053] 14.56
- ---------------------------------------------------------------------------
Forfeited [250,788] 35.19
- ---------------------------------------------------------------------------
Outstanding at 30 September 2000 21,145,465 $30.43
- ---------------------------------------------------------------------------
Granted 4,608,250 35.83
- ---------------------------------------------------------------------------
Exercised [3,036,415] 24.93
- ---------------------------------------------------------------------------
Forfeited [288,148] 35.74
- ---------------------------------------------------------------------------
Outstanding at 30 September 2001 22,429,152 $32.03
- ---------------------------------------------------------------------------
Exercisable at end of year 13,786,187
- ---------------------------------------------------------------------------
Available for future grant at end of year 9,355,133
- ---------------------------------------------------------------------------
The following table summarizes information about options outstanding at 30
September 2001:
- -------------------------------------------------------------------------------
Options Outstanding
- -------------------------------------------------------------------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life [Years] Price
- -------------------------------------------------------------------------------
16.92-23.12 2,724,162 3.17 $21.67
- -------------------------------------------------------------------------------
26.03-29.47 9,756,100 7.37 28.28
- -------------------------------------------------------------------------------
30.01-41.69 9,948,890 8.45 38.55
- -------------------------------------------------------------------------------
Options Exercisable
- -------------------------------------------------------------------------------
Weighted
Range of Average
Exercise Number Exercise
Prices Outstanding Price
- -------------------------------------------------------------------------------
16.92-23.12 2,724,162 $21.67
- -------------------------------------------------------------------------------
26.03-29.47 5,707,769 27.85
- -------------------------------------------------------------------------------
30.01-41.69 5,354,256 40.85
- -------------------------------------------------------------------------------
Pro Forma Information
The company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. Therefore, no compensation expense has been recognized for the stock
option plans. SFAS No. 123 requires the company to disclose pro forma net income
and pro forma earnings per share amounts as if compensation expense were
recognized for options granted after 1995. Using this approach, net income and
earnings per share would have been reduced to the pro forma amounts indicated in
the table:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Net earnings
- -------------------------------------------------------------------------------
As reported $465.6 $124.2 $450.5
- -------------------------------------------------------------------------------
Pro forma 435.5 98.3 428.7
- -------------------------------------------------------------------------------
Basic earnings per share
- -------------------------------------------------------------------------------
As reported $2.17 $.58 $2.12
- -------------------------------------------------------------------------------
Pro forma 2.03 .46 2.02
- -------------------------------------------------------------------------------
Diluted earnings per share
- -------------------------------------------------------------------------------
As reported $2.12 $.57 $2.09
- -------------------------------------------------------------------------------
Pro forma 2.00 .45 1.98
- -------------------------------------------------------------------------------
For disclosure purposes, the fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average of assumptions:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Dividend yield 2.1% 2.0% 2.0%
- -------------------------------------------------------------------------------
Expected volatility 29.2% 28.4% 21.1%
- -------------------------------------------------------------------------------
Risk-free interest rate 5.9% 6.2% 4.4%
- -------------------------------------------------------------------------------
Expected life [years] 7.6 6.6 7.2
- -------------------------------------------------------------------------------
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of subjective
assumptions, including the expected stock price volatility. Because the
company's options have characteristics different from those of traded options,
in the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its options.
38
Other Awards
The company granted deferred stock units identified as performance shares to
executive officers and other key employees. These awards provide for the
issuance of Common Stock based on certain management objectives achieved by the
end of the performance period. The performance period is the one- or two-year
period following the grant date. The performance shares are payable either at
the end of the performance period or after retirement. The number of shares
outstanding for these awards was 493,249 and 360,585 share units as of 30
September 2001 and 2000, respectively. Compensation expense is recognized over
the vesting period.
Prior to the issuance of performance shares, the company granted deferred stock
units as career share awards in 1992 through 1997 to certain executive officers
and other key employees. Career shares are deferred stock units payable in
shares of stock after retirement. Career share awards equivalent to 698,555 and
777,482 shares of stock were outstanding at the end of 2001 and 2000,
respectively. Compensation expense is recognized over the vesting period.
Deferred stock units equivalent to 492,245 and 692,808 shares of stock were
outstanding at the end of 2001 and 2000, respectively. Compensation expense is
generally recognized over the four-year deferral period applicable to the
awards.
13 EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is as follows:
- ---------------------------------------------------------------------------------------------------------------------
30 September 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Numerator:
- ---------------------------------------------------------------------------------------------------------------------
Income available to common shareholders used in basic and diluted
earnings per share $465.6 $124.2 $450.5
- ---------------------------------------------------------------------------------------------------------------------
Denominator:
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares used in basic earnings per share [in millions] 214.8 213.4 212.2
- ---------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities [in millions]:
- ---------------------------------------------------------------------------------------------------------------------
Employee stock options 3.6 2.0 2.8
- ---------------------------------------------------------------------------------------------------------------------
Other award plans .9 .8 1.0
- ---------------------------------------------------------------------------------------------------------------------
4.5 2.8 3.8
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares and dilutive potential
common shares used in diluted earnings per share [in millions] 219.3 216.2 216.0
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings per share $2.17 $.58 $2.12
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $2.12 $.57 $2.09
- ---------------------------------------------------------------------------------------------------------------------
Options on 6.4 million and 6.7 million shares of Common Stock were not included
in computing diluted earnings per share for 2000 and 1999, respectively, because
their effects were antidilutive.
39
14 INCOME TAXES
The following table shows the components of the provision for income taxes
before extraordinary item:
- ----------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------
Federal:
- ----------------------------------------------------------------------
Current $123.7 $[31.3] $117.5
- ----------------------------------------------------------------------
Deferred 27.9 3.6 38.8
- ----------------------------------------------------------------------
151.6 [27.7] 156.3
- ----------------------------------------------------------------------
State:
- ----------------------------------------------------------------------
Current 2.4 3.0 6.3
- ----------------------------------------------------------------------
Deferred 14.9 [14.7] 1.6
- ----------------------------------------------------------------------
Impact of law/rate change -- -- [1.9]
- ----------------------------------------------------------------------
17.3 [11.7] 6.0
- ----------------------------------------------------------------------
Foreign:
- ----------------------------------------------------------------------
Current 53.9 20.1 20.8
- ----------------------------------------------------------------------
Deferred [3.8] 5.6 20.3
- ----------------------------------------------------------------------
50.1 25.7 41.1
- ----------------------------------------------------------------------
$219.0 $[13.7] $203.4
- ----------------------------------------------------------------------
The significant components of deferred tax assets and liabilities are as
follows:
- ---------------------------------------------------------------------------
30 September 2001 2000
- ----------------------------------------------------------------------------
Gross Deferred Tax Assets:
- ----------------------------------------------------------------------------
Pension and other compensation accruals $ 160.0 $142.0
- ----------------------------------------------------------------------------
Tax loss and investment tax credit
carryforwards 34.7 34.9
- ----------------------------------------------------------------------------
Reserves and accruals 14.3 18.9
- ----------------------------------------------------------------------------
Foreign currency translation adjustment 59.7 .1
- ----------------------------------------------------------------------------
Postretirement benefits 27.9 27.8
- ----------------------------------------------------------------------------
Inventory 16.0 18.4
- ----------------------------------------------------------------------------
Other 68.8 70.1
- ----------------------------------------------------------------------------
Valuation allowance [9.5] [6.2]
- ----------------------------------------------------------------------------
Deferred tax assets $ 371.9 $306.0
- ----------------------------------------------------------------------------
Gross Deferred Tax Liabilities:
- ---------------------------------------------------------------------------
Plant and equipment $ 787.1 $752.0
- ---------------------------------------------------------------------------
Investment in partnerships 96.4 84.6
- ---------------------------------------------------------------------------
Employee benefit plans 51.3 54.4
- ---------------------------------------------------------------------------
Currency gains 10.8 16.9
- ---------------------------------------------------------------------------
Construction contract accounting
methods 3.2 5.0
- ---------------------------------------------------------------------------
Unrealized gain on cost investment 12.1 8.7
- ---------------------------------------------------------------------------
Other 101.7 78.0
- ---------------------------------------------------------------------------
Deferred tax liabilities $1,062.6 $999.6
- ---------------------------------------------------------------------------
Net deferred income tax liability $ 690.7 $693.6
- ---------------------------------------------------------------------------
Net current deferred tax assets of $53.6 and net noncurrent deferred tax assets
of $34.1 are included in other current assets and other noncurrent assets at
30 September 2001, respectively. Net current deferred tax assets of $51.5 and
net noncurrent deferred tax assets of $36.7 are included in other current assets
and other noncurrent assets at 30 September 2000.
Foreign and state operating loss carryforwards as of 30 September 2001 were
$56.2 and $9.2, respectively. The foreign losses have an unlimited carryover
period. State operating loss carryforwards are available through 2020. Foreign
capital loss carryforwards were $10.1 on 30 September 2001 and have an unlimited
carryover period.
The valuation allowance as of 30 September 2001 primarily relates to the tax
loss carryforwards referenced above. If events warrant the reversal of the $9.5
valuation allowance, it would result in a reduction of tax expense.
Major differences between the federal statutory rate and the effective tax rate
are:
- ------------------------------------------------------------------------------
[Percent of Income Before Taxes] 2001 2000 1999
- ------------------------------------------------------------------------------
United States federal statutory
rate 35.0% 35.0% 35.0%
- ------------------------------------------------------------------------------
State taxes, net of federal tax
benefit 1.6 [3.5] 2.1
- ------------------------------------------------------------------------------
Income from equity affiliates [3.0] [22.1] [3.0]
- ------------------------------------------------------------------------------
Foreign tax credits and refunds
on dividends received from
foreign affiliates .2 [8.3] .6
- ------------------------------------------------------------------------------
Export tax benefits [.8] [4.7] [1.4]
- ------------------------------------------------------------------------------
Investment tax credits -- [.5] [.1]
- ------------------------------------------------------------------------------
Restructuring of operations [1.4] [6.7] --
- ------------------------------------------------------------------------------
Other [1.7] [1.6] [2.1]
- ------------------------------------------------------------------------------
Effective tax rate after
minority interest 29.9% [12.4%] 31.1%
- ------------------------------------------------------------------------------
Minority interest [.2] .8 [.7]
- ------------------------------------------------------------------------------
Effective tax rate 29.7% [11.6%] 30.4%
- ------------------------------------------------------------------------------
The following table summarizes the income of U.S. and foreign operations, before
taxes and minority interest:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Income From Consolidated Operations:
- -------------------------------------------------------------------------------
United States $491.8 $[145.2] $433.8
- -------------------------------------------------------------------------------
Foreign 154.1 163.7 151.5
- -------------------------------------------------------------------------------
Income from equity affiliates 91.1 99.6 83.7
- -------------------------------------------------------------------------------
$737.0 $ 118.1 $669.0
- -------------------------------------------------------------------------------
The company does not pay or record U.S. income taxes on the undistributed
earnings of its foreign subsidiaries as long as those earnings are permanently
reinvested in the companies that produced them. These cumulative undistributed
earnings are included in consolidated retained earnings on the balance sheet and
amounted to $915.5 at the end of 2001. An estimated $207.5 in U.S. income and
foreign withholding taxes would be due if these earnings were remitted as
dividends after payment of all deferred taxes.
40
15 PENSION AND OTHER POSTRETIREMENT BENEFITS
The following table shows reconciliations of the domestic pension plans and
other postretirement plan benefits as of 30 September 2001 and 2000. The foreign
pension plan information is as of 30 June 2001 and 2000:
- --------------------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Change in benefit obligation
- ----------------------------------------------------------------------------------------------------------------
Benefit obligation on 1 October $1,274.1 $1,250.4 $ 66.4 $ 62.0
- ----------------------------------------------------------------------------------------------------------------
Service cost 42.9 44.5 4.1 4.9
- ----------------------------------------------------------------------------------------------------------------
Interest cost 96.3 89.7 4.9 5.6
- ----------------------------------------------------------------------------------------------------------------
Amendments 3.7 5.1 -- --
- ----------------------------------------------------------------------------------------------------------------
Actuarial [gain]/loss 117.5 [29.7] [4.5] [1.3]
- ----------------------------------------------------------------------------------------------------------------
Special termination benefits and settlement [10.3] 10.7 .9 --
- ----------------------------------------------------------------------------------------------------------------
Plan participant contributions 5.0 3.2 -- --
- ----------------------------------------------------------------------------------------------------------------
Benefits paid [55.6] [52.0] [6.3] [4.8]
- ----------------------------------------------------------------------------------------------------------------
Currency translation/Other 2.1 [47.8] -- --
- ----------------------------------------------------------------------------------------------------------------
Benefit obligation on 30 September $1,475.7 $1,274.1 $ 65.5 $ 66.4
Change in plan assets
- ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets on 1 October $1,231.8 $1,183.6 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------
Actual return on plan assets [loss]/gain [123.0] 138.1 -- --
- ----------------------------------------------------------------------------------------------------------------
Company contributions 29.3 7.3 -- --
- ----------------------------------------------------------------------------------------------------------------
Plan participant contributions 5.0 3.2 -- --
- ----------------------------------------------------------------------------------------------------------------
Benefits paid [52.4] [45.1] -- --
- ----------------------------------------------------------------------------------------------------------------
Currency translation/Other .1 [55.3] -- --
- ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets on 30 September $1,090.8 $1,231.8 $ -- $ --
Funded Status of the Plans $ [384.9] $ [42.3] $[65.5] $[66.4]
- ----------------------------------------------------------------------------------------------------------------
Unrecognized actuarial [gain]/loss 219.0 [109.5] [14.8] [11.3]
- ----------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost 17.0 16.0 [.8] [1.0]
- ----------------------------------------------------------------------------------------------------------------
Unrecognized net transition asset [6.6] [10.7] -- --
- ----------------------------------------------------------------------------------------------------------------
Net amount recognized $ [155.5] $ [146.5] $[81.1] $[78.7]
Total recognized amounts in the balance sheet consist of:
- ----------------------------------------------------------------------------------------------------------------
Prepaid benefit cost $ 105.0 $ 98.7 $ -- $ --
- ----------------------------------------------------------------------------------------------------------------
Accrued benefit liability [292.6] [252.2] [81.1] [78.7]
- ----------------------------------------------------------------------------------------------------------------
Intangible asset 12.4 2.7 -- --
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity 19.7 4.3 -- --
- ----------------------------------------------------------------------------------------------------------------
Net amount recognized $[155.5] $[146.5] $[81.1] $[78.7]
Weighted average assumptions as of 30 September
- ----------------------------------------------------------------------------------------------------------------
Discount rate 7.1% 7.6% 7.5% 8.0%
- ----------------------------------------------------------------------------------------------------------------
Expected return on plan assets 9.5% 9.5% -- --
- ----------------------------------------------------------------------------------------------------------------
Rate of compensation increase 4.7% 4.7% 5.0% 5.0%
- ----------------------------------------------------------------------------------------------------------------
During 2001 and 2000, the company incurred charges for special termination
benefits as part of enhanced benefit programs offered under the global cost
reduction plans.
For measurement purposes, a 7.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2002. The rate was assumed to
decrease gradually to 5.5% for 2006 and thereafter.
41
- ---------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Other Benefits
- ---------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
- ---------------------------------------------------------------------------------------------------------------------------------
Service cost $ 42.9 $ 44.5 $ 49.2 $ 4.1 $ 4.9 $4.9
- ---------------------------------------------------------------------------------------------------------------------------------
Interest cost 96.3 89.7 84.7 4.9 5.6 4.3
- ---------------------------------------------------------------------------------------------------------------------------------
Expected return on plan assets [102.9] [95.8] [93.9] -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Prior service cost amortization 2.7 2.4 2.3 [.1] [.1] [.1]
- ---------------------------------------------------------------------------------------------------------------------------------
Actuarial [gain]/loss amortization 2.2 3.2 15.2 [1.2] -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Transition amount amortization [3.5] [3.5] [3.8] -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Settlement charge 9.5 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Special termination benefit 12.5 10.7 -- .9 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 59.7 $ 51.2 $ 53.7 $ 8.6 $10.4 $9.1
- ---------------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plans' assets were $1,120.9, $908.0, and $714.2, respectively, as of
30 September 2001, and $96.0, $72.3, and $1.5, respectively, as of 30 September
2000.
The company has two nonpension postretirement benefit plans. Health care
benefits are contributory, with contributions adjusted periodically; the life
insurance plan is noncontributory. The effect of a change in the health care
trend rate is slightly tempered by a cap on average retiree medical cost. A one
percentage point change in the assumed health care cost trend rate would have
the following effects:
- -----------------------------------------------------------------------------------------------
1 Percentage Point 1 Percentage Point
increase decrease
- -----------------------------------------------------------------------------------------------
Effect on total of service and interest cost $ .4 $ [.5]
- -----------------------------------------------------------------------------------------------
Effect on the postretirementbenefit obligation $3.0 $[3.3]
- -----------------------------------------------------------------------------------------------
In addition to the above plans, U.S. employees are eligible to contribute to a
401(k) plan. The company matches a portion of these contributions. Contributions
charged to income for this plan for 2001, 2000, and 1999 were $14.3, $14.1, and
$13.8, respectively.
16 OTHER COMMITMENTS AND CONTINGENCIES
Cogeneration projects in which the company, through equity affiliates,
beneficially owns 48.8% (Map Ta Phut, Thailand) and 50% (Rotterdam, the
Netherlands) burn natural gas to produce electricity and steam. Specific equity
support agreements related to the financings of the two projects obligate the
company to contribute equity up to a cumulative total for the two projects of
$15 under certain circumstances.
In addition, the company has guaranteed repayment of borrowings of certain
foreign equity affiliates. At 30 September 2001, these guarantees totaled
approximately $67.
In September 2001, the company entered into an operating lease of cryogenic
vessel equipment which included a residual value guarantee not to exceed $256.
The probability of incurring a material loss under this guarantee is remote.
The company has accrued for certain environmental investigatory and noncapital
remediation costs consistent with the policy set forth in Note 1. The potential
exposure for such costs is estimated to range from $9 to a reasonably possible
upper exposure of $19. The balance sheet at 30 September 2001 includes an
accrual of $14.3. The company does not expect that any sums it may have to pay
in connection with these environmental matters would have a materially adverse
effect on its consolidated financial position or results of operations in any
one year.
The company in the normal course of business has commitments, lawsuits,
contingent liabilities, and claims. However, the company does not expect that
any sum it may have to pay in connection with these matters will have a
materially adverse effect on its consolidated financial position or results of
operations.
At the end of 2001, the company had purchase commitments to spend approximately
$137 for additional plant and equipment.
42
17 SUPPLEMENTAL INFORMATION
Payables, Trade and Other
- --------------------------------------------------------------------------
30 September 2001 2000
- --------------------------------------------------------------------------
Accounts payable, trade $408.1 $464.5
- --------------------------------------------------------------------------
Outstanding checks payable in excess
of certain cash balances 37.2 48.1
- --------------------------------------------------------------------------
Customer advances 66.9 65.8
- --------------------------------------------------------------------------
$512.2 $578.4
- --------------------------------------------------------------------------
Accrued liabilities
- ---------------------------------------------------------------------------
30 September 2001 2000
- ---------------------------------------------------------------------------
Accrued payroll and employee benefits $111.7 $116.5
- ---------------------------------------------------------------------------
Accrued interest expense 42.2 77.3
- ---------------------------------------------------------------------------
Other accrued liabilities 187.7 163.4
- ---------------------------------------------------------------------------
$341.6 $357.2
- ---------------------------------------------------------------------------
Short-term Borrowings
- ---------------------------------------------------------------------------
30 September 2001 2000
- ---------------------------------------------------------------------------
Bank obligations $53.7 $104.5
- ---------------------------------------------------------------------------
Commercial paper 202.0 143.0
- ---------------------------------------------------------------------------
Notes payable--other -- 2.2
- ---------------------------------------------------------------------------
$255.7 $249.7
- ---------------------------------------------------------------------------
The weighted average interest rate of short-term commercial paper outstanding as
of 30 September 2001 and 2000 was 3.7% and 6.8%, respectively.
Accumulated Other Comprehensive Income [loss]
- -----------------------------------------------------------------------------
30 September 2001 2000
- -----------------------------------------------------------------------------
Gain on derivatives $ 1.8 $ --
- -----------------------------------------------------------------------------
Unrealized gain on investment 22.0 15.7
- -----------------------------------------------------------------------------
Minimum pension liability adjustment [12.2] [2.7]
- -----------------------------------------------------------------------------
Cumulative translation adjustments [464.1] [420.8]
- -----------------------------------------------------------------------------
$[452.5] $[407.8]
- -----------------------------------------------------------------------------
Other Income, Net
- -----------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------
Interest income $ 6.2 $ 4.1 $ 6.4
- -----------------------------------------------------------------------------
Foreign exchange -- 6.9 [3.0]
- -----------------------------------------------------------------------------
Gain [loss] on sale of assets and
investments .1 13.4 [3.7]
- -----------------------------------------------------------------------------
Amortization of intangibles [19.4] [17.9] [18.6]
- -----------------------------------------------------------------------------
Miscellaneous 18.6 21.9 38.6
- -----------------------------------------------------------------------------
$ 5.5 $28.4 $ 19.7
- -----------------------------------------------------------------------------
Additional Cash Flow Information
Cash paid for interest and taxes is as follows:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Interest [net of amounts capitalized] $226.7 $164.7 $156.0
- -------------------------------------------------------------------------------
Taxes [net of refunds] 62.6 92.7 148.3
- -------------------------------------------------------------------------------
Significant noncash transactions are as follows:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Capital lease additions $.5 $4.9 $18.5
- -------------------------------------------------------------------------------
Liabilities associated with acquisitions -- 24.4 7.4
- -------------------------------------------------------------------------------
Exchange of assets -- -- 19.5
- -------------------------------------------------------------------------------
43
Summary by Quarter
This table summarizes the unaudited results of operations for each quarter of
2001 and 2000:
- --------------------------------------------------------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------------------------------
Sales $1,441.3 $1,498.3 $1,415.9 $1,361.7
- --------------------------------------------------------------------------------------------------------
Operating income 227.5 164.2[a][b] 215.4 138.3[c]
- --------------------------------------------------------------------------------------------------------
Income before extraordinary item 135.6 94.6[a][b] 132.3 150.4[c][d]
- --------------------------------------------------------------------------------------------------------
Net income 135.6 94.6[a][b] 132.3 103.1[c][d][e]
- --------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income before extraordinary item .63 .44 .62 .70
Net Income .63 .44 .62 .48
- --------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income before extraordinary item .62 .43[a][b] .60 .68[c][d]
Net Income .62 .43[a][b] .60 .47[c][d][e]
- --------------------------------------------------------------------------------------------------------
Dividends per common share .19 .19 .20 .20
- --------------------------------------------------------------------------------------------------------
Price per common share: high 42.25 43.45 48.70 49.00
low 30.50 35.00 37.98 32.25
- --------------------------------------------------------------------------------------------------------
[a] Includes a charge of $30.9 [$20.0 after-tax, or $.09 per share] for
the global cost reduction plan.
[b] Includes a charge of $6.0 [$3.7 after-tax, or $.02 per share] for a
litigation settlement.
[c] Includes a charge of $78.3 [$47.3 after-tax, or $.21 per share] for
the global cost reduction plan.
[d] Includes a gain of $101.6 [$64.6 after-tax, or $.29 per share] related
to the sale of the fifty percent interest in two cogeneration
facilities.
[e] Includes an extraordinary charge of $47.3 [$.21 per share] for the
early retirement of debt.
- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------------------------------------------
Sales $1,264.4 $1,347.2 $1,406.4 $1,449.1
- -------------------------------------------------------------------------------------------------------------
Operating income 196.2 218.9[c][d] 186.4[f] 229.3
- -------------------------------------------------------------------------------------------------------------
Net income [loss] 50.6[a] 47.6[b][c][d] [192.5][e][f] 218.5[g]
- -------------------------------------------------------------------------------------------------------------
Basic earnings [loss] per common share .24 .22 [.90] 1.02
- -------------------------------------------------------------------------------------------------------------
Diluted earnings [loss] per common share .23[a] .22[b][c][d] [.90][e][f] 1.01[g]
- -------------------------------------------------------------------------------------------------------------
Dividends per common share .18 .18 .19 .19
- -------------------------------------------------------------------------------------------------------------
Price per common share: high 33.88 37.00 39.06 39.13
low 25.69 23.00 27.56 29.25
- -------------------------------------------------------------------------------------------------------------
[a] Includes an after-tax charge of $70.6, or $.33 per share, related
to the BOC transaction.
[b] Includes an after-tax charge of $84.1, or $.39 per share, related to
the BOC transaction.
[c] Includes a charge of $8.7 [$5.5 after-tax, or $.03 per share] for a
global cost reduction plan.
[d] Includes a gain of $6.3 [$4.0 after-tax, or $.02 per share] on the sale
of packaged gas facilities.
[e] Includes an after-tax charge of $301.8, or $1.39 per share, related to
the BOC transaction.
[f] Includes a charge of $46.7 [$29.5 after-tax, or $.14 per share] for a
global cost reduction plan.
[g] Includes an after-tax gain of $79.1, or $.37 per share, on the sale of
the PVOH business.
44
18 BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The company's segments are organized based on differences in products. The
company has three operating segments consisting of gases, chemicals, and
equipment.
The company's gases segment includes its industrial gases, power generation, and
flue gas treatment businesses. The company is a leading international supplier
of industrial and specialty gas products. Principal products of the industrial
gases business are oxygen, nitrogen, argon, hydrogen, carbon monoxide, synthesis
gas, and helium. The largest market segments are chemical processing, refining,
metal production, electronics, food processing, and medical gases. The company
has its strongest industrial gas market positions in the United States and
Europe. The company constructed, operates, and has a 50% interest in power
generation facilities in California, Rotterdam, and Thailand.
The company's chemicals segment consists of six principal businesses organized
around two divisions: performance chemicals and chemical intermediates.
Principal businesses of performance chemicals are emulsions, specialty
additives, polyurethane additives, and epoxy additives. Principal chemical
intermediates are amines and polyurethane intermediates. The company also
produces certain industrial chemicals. The end markets for the company's
chemical products are extensive, including adhesive, textile, paper, building
products, agriculture, and furniture. Principal geographic markets for the
company's chemical products are North America, Europe, Asia, Brazil, and Mexico.
The equipment segment designs and manufactures cryogenic and gas processing
equipment for air separation, gas processing, natural gas liquefaction, and
hydrogen purification. The segment also designs and builds systems for
recovering gases using membrane technology. Equipment is sold worldwide to
companies involved in chemical and petrochemical manufacturing, oil and gas
recovery and processing, power generation, and steel and primary metal
production. Equipment is also manufactured for the company's industrial gas
business. Another important market, particularly for air separation equipment,
is the company's international industrial gas joint ventures.
The accounting policies of the segments are the same as those described in Note
1. The company evaluates the performance of segments based upon reported segment
operating income. Operating income of the business segments includes general
corporate expenses. Corporate expenses not allocated to the segments, included
in all other, are primarily long-term research and development. Intersegment
sales are not material and are recorded at selling prices that approximate
market prices. Equipment manufactured for the company's industrial gas business
is generally transferred at cost and not reflected as an intersegment sale.
Corporate assets not allocated to the segments are included in all other. These
assets include cash and cash items, unallocated administrative facilities, and
certain deferred items. Long-lived assets include investment in net assets of
and advances to equity affiliates, net plant and equipment, and goodwill.
45
Business segment information is shown below:
- ------------------------------------------------------------------------------------------------------------------------------
Gases Chemicals Equipment Segment All Consolidated
Totals Other Totals
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
2001
- ------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $3,944.0 $1,522.8 $250.4 $5,717.2 $ -- $5,717.2
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 654.9 112.3 10.0 777.2 [31.8] 745.4
- ------------------------------------------------------------------------------------------------------------------------------
Operating income--excluding
special items 724.0 140.9 12.0 876.9 [16.3] 860.6
- ------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 463.2 120.3 5.5 589.0 3.4 592.4
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income 71.7 7.5 2.0 81.2 -- 81.2
- ------------------------------------------------------------------------------------------------------------------------------
Gain on divestiture of interest in
Cogeneration facilities 101.6 -- -- 101.6 -- 101.6
- ------------------------------------------------------------------------------------------------------------------------------
Segment assets:
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 5,886.6 1,386.0 185.4 7,458.0 126.6 7,584.6
- ------------------------------------------------------------------------------------------------------------------------------
Investment in and advances to equity
affiliates 446.0 50.2 3.3 499.5 -- 499.5
- ------------------------------------------------------------------------------------------------------------------------------
Total segment assets 6,332.6 1,436.2 188.7 7,957.5 126.6 8,084.1
- ------------------------------------------------------------------------------------------------------------------------------
Expenditures for long-lived assets 698.1 52.0 1.6 751.7 57.7 809.4
- ------------------------------------------------------------------------------------------------------------------------------
Operating return on net assets[a] 12.3% 9.8% 5.5% 11.6% -- 11.1%
- ------------------------------------------------------------------------------------------------------------------------------
2000
- ------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $3,465.5 $1,772.8 $228.8 $5,467.1 $ -- $5,467.1
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 673.1 182.1 9.9 865.1 [34.3] 830.8
- -----------------------------------------------------------------------------------------------------------------------------
Operating income--excluding
special items 698.8 197.7 16.8 913.3 [33.4] 879.9
- ------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 455.9 127.8 6.5 590.2 3.4 593.6
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income 73.6 12.5 2.0 88.1 [.5] 87.6
- ------------------------------------------------------------------------------------------------------------------------------
Gain on sale of polyvinyl alcohol
business -- 126.8 -- 126.8 -- 126.8
- ------------------------------------------------------------------------------------------------------------------------------
Loss on currency hedges related
to BOC transaction and expenses -- -- -- -- [730.4] [730.4]
- ------------------------------------------------------------------------------------------------------------------------------
Segment assets:
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 5,823.7 1,453.8 234.1 7,511.6 292.3 7,803.9
- ------------------------------------------------------------------------------------------------------------------------------
Investment in and advances to equity
affiliates 412.3 51.4 2.5 466.2 .4 466.6
- ------------------------------------------------------------------------------------------------------------------------------
Total segment assets 6,236.0 1,505.2 236.6 7,977.8 292.7 8,270.5
- ------------------------------------------------------------------------------------------------------------------------------
Expenditures for long-lived assets 711.3 93.6 .5 805.4 44.3 849.7
- ------------------------------------------------------------------------------------------------------------------------------
Operating return on net assets[a] 12.1% 12.3% 7.1% 12.1% -- 11.1%
- ------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------
Revenues from external customers $2,996.4 $1,657.4 $366.3 $5,020.1 $ -- $5,020.1
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 521.9 193.7 34.7 750.3 [25.6] 724.7
- ------------------------------------------------------------------------------------------------------------------------------
Operating income--excluding
special items 548.9 208.0 37.4 794.3 [25.1] 769.2
- ------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 403.1 128.8 9.4 541.3 4.5 545.8
- ------------------------------------------------------------------------------------------------------------------------------
Equity affiliates' income 46.8 12.4 1.6 60.8 .7 61.5
- ------------------------------------------------------------------------------------------------------------------------------
Net gain on formation of polymer venture -- 34.9 -- 34.9 -- 34.9
- ------------------------------------------------------------------------------------------------------------------------------
Segment assets:
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets 5,438.3 1,626.2 265.0 7,329.5 384.6 7,714.1
- ------------------------------------------------------------------------------------------------------------------------------
Investment in and advances to equity
affiliates 459.3 61.3 .8 521.4 -- 521.4
- ------------------------------------------------------------------------------------------------------------------------------
Total segment assets 5,897.6 1,687.5 265.8 7,850.9 384.6 8,235.5
- ------------------------------------------------------------------------------------------------------------------------------
Expenditures for long-lived assets 904.8 158.8 14.6 1,078.2 27.4 1,105.6
- ------------------------------------------------------------------------------------------------------------------------------
Operating return on net assets[a] 10.4% 12.9% 13.0% 11.1% -- 10.4
- ------------------------------------------------------------------------------------------------------------------------------
[a] 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 for 2001 excluded a
charge of $109.2 for a global cost reduction plan and a charge of
$6.0 for a litigation settlement. The ORONA calculation for 2000
excluded a charge of $55.4 for a global cost reduction plan and a
gain of $6.3 from the sale of packaged gas facilities. The ORONA
calculation for 1999 excluded expense of $34.2 related to a
global cost reduction plan and expense of $10.3 related to
chemical facility closure costs.
46
Geographic information is presented below:
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Revenues from External Customers
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
United States $3,824.7 $3,628.8 $3,226.9
- -------------------------------------------------------------------------------
United Kingdom 440.1 483.8 620.4
- -------------------------------------------------------------------------------
Spain 295.1 300.7 319.0
- -------------------------------------------------------------------------------
Other Europe 581.9 559.8 564.3
- -------------------------------------------------------------------------------
Total Europe 1,317.1 1,344.3 1,503.7
- -------------------------------------------------------------------------------
Canada/Latin America 243.5 240.6 202.4
- -------------------------------------------------------------------------------
Asia/other 331.9 253.4 87.1
- -------------------------------------------------------------------------------
Total $5,717.2 $5,467.1 $5,020.1
- -------------------------------------------------------------------------------
Long-Lived Assets
- -------------------------------------------------------------------------------
United States $3,356.9 $3,502.2 $3,482.1
- -------------------------------------------------------------------------------
United Kingdom 452.6 461.2 513.1
- -------------------------------------------------------------------------------
Spain 371.1 339.2 412.2
- -------------------------------------------------------------------------------
Other Europe 819.7 711.2 873.4
- -------------------------------------------------------------------------------
Total Europe 1,643.4 1,511.6 1,798.7
- -------------------------------------------------------------------------------
Canada/Latin America 298.7 325.4 327.0
- -------------------------------------------------------------------------------
Asia/Other 703.6 739.1 456.9
- -------------------------------------------------------------------------------
Total $6,002.6 $6,078.3 $6,064.7
- -------------------------------------------------------------------------------
Note: Geographic information is based on country of origin. Included in United
States revenues are export sales to unconsolidated customers of $602.3 in 2001,
$557.7 in 2000, and $528.4 in 1999. The other Europe segment operates
principally in France, Germany, Netherlands, and Belgium.
47
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
[Air Products and Chemicals, Inc. and Subsidiaries]
- ----------------------------------------------------------------------------------------------------------------------
[Millions Of Dollars, Except Per Share] 2001 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Operating Results
- ----------------------------------------------------------------------------- ----------- -------------- ------------
Sales $5,717 $5,467 $5,020 $4,919
- ----------------------------------------------------------------------------------------------------------------------
Cost of sales 4,103 3,826 3,501 3,317
- ----------------------------------------------------------------------------------------------------------------------
Selling and administrative 752 715 691 660
- ----------------------------------------------------------------------------------------------------------------------
Research and development 123 124 123 112
- ----------------------------------------------------------------------------------------------------------------------
Operating income 745 831 725 846
- ----------------------------------------------------------------------------------------------------------------------
Equity affiliates' income 81 88 62 38
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 191 197 159 163
- ----------------------------------------------------------------------------------------------------------------------
Income tax provision [benefit] 219 [14] 203 277
- ----------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 513 124 451 547
- ----------------------------------------------------------------------------------------------------------------------
Net income 466 124 451 547
- ----------------------------------------------------------------------------------------------------------------------
Basic earnings per common share [a]
- ----------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 2.39 .58 2.12 2.54
- ----------------------------------------------------------------------------------------------------------------------
Net income 2.17 .58 2.12 2.54
- ----------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share [a]
- ----------------------------------------------------------------------------------------------------------------------
Income before extraordinary items [b] 2.33 .57 2.09 2.48
- ----------------------------------------------------------------------------------------------------------------------
Net income [c] 2.12 .57 2.09 2.48
- ----------------------------------------------------------------------------------------------------------------------
Year-End Financial Position
- ----------------------------------------------------------------------------------------------------------------------
Plant and equipment, at cost $10,227 $10,311 $10,188 $9,490
- ----------------------------------------------------------------------------------------------------------------------
Total assets 8,084 8,271 8,236 7,490
- ----------------------------------------------------------------------------------------------------------------------
Working capital 332 430 [75] 376
- ----------------------------------------------------------------------------------------------------------------------
Total debt [e] 2,478 3,045 2,842 2,698
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 3,106 2,821 2,962 2,667
- ----------------------------------------------------------------------------------------------------------------------
Financial Ratios
- ----------------------------------------------------------------------------------------------------------------------
Return on sales [d] 9.0% 2.3% 9.0% 11.1%
- ----------------------------------------------------------------------------------------------------------------------
Return on average shareholders' equity [d] 17.4% 4.3% 16.1% 20.8%
- ----------------------------------------------------------------------------------------------------------------------
Total debt to sum of total debt and shareholders' equity [e] 44.4% 51.9% 49.0% 50.3%
- ----------------------------------------------------------------------------------------------------------------------
Cash provided by operations to average total debt [e] 37.6% 37.5% 39.5% 38.6%
- ----------------------------------------------------------------------------------------------------------------------
Interest coverage ratio 4.7 1.5 4.6 5.5
- ----------------------------------------------------------------------------------------------------------------------
Other Data
- ----------------------------------------------------------------------------------------------------------------------
For the year: Depreciation $573 $576 $527 $489
- ----------------------------------------------------------------------------------------------------------------------
Capital expenditures [g] 806 973 1,108 1,001
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends per common share [a] .78 .74 .70 .64
- ----------------------------------------------------------------------------------------------------------------------
Market price range per common share [a] 49-30 39-23 49-27 45-29
- ----------------------------------------------------------------------------------------------------------------------
Average common shares outstanding [in millions] 215 213 212 216
- ----------------------------------------------------------------------------------------------------------------------
Average common shares and common stock equivalent
shares outstanding [in millions] 219 216 216 220
- ----------------------------------------------------------------------------------------------------------------------
At year end: Book value per common share [a] 14.41 13.17 13.90 12.61
- ----------------------------------------------------------------------------------------------------------------------
Shareholders 11,200 11,400 11,900 11,500
- ----------------------------------------------------------------------------------------------------------------------
Employees 17,800 17,500 17,400 16,700
- ----------------------------------------------------------------------------------------------------------------------
[a] Data per common share are based on the average number of shares outstanding
during each year retroactively restated to reflect a two-for-one stock
split in 1998 and 1992, except for book value per common share, which is
based on the number of shares outstanding at the end of each year
retroactively restated.
[b] Diluted earnings per share for income before extraordinary item includes
the impact of special items. The impacts of special items were: 2001
[charge - $.04]; 2000 [charge - $1.89]; 1998 [gain - $.26]; 1996
[gain - $.18]; 1995 [gain - $.03]; 1994 [charge - $.26]; 1993
[charge - $.28]; 1992 [gain - $.04]; and 1991 [gain - $.06].
[c] Net income for 2001 and 1992 includes an extraordinary charge for the
early retirement of debt.
48
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
$4,638 $4,008 $3,865 $3,485 $3,328 $3,217 $2,931
- ---------------------------------------------------------------------------------------------------------------
3,195 2,780 2,678 2,455 2,340 2,233 2,030
- ---------------------------------------------------------------------------------------------------------------
628 548 508 446 434 428 411
- ---------------------------------------------------------------------------------------------------------------
114 114 103 97 92 85 80
- ---------------------------------------------------------------------------------------------------------------
726 591 602 486 369 481 435
- ---------------------------------------------------------------------------------------------------------------
66 80 51 28 12 7 1
- ---------------------------------------------------------------------------------------------------------------
161 129 100 81 81 90 86
- ---------------------------------------------------------------------------------------------------------------
201 193 185 92 100 130 113
- ---------------------------------------------------------------------------------------------------------------
429 416 368 234 201 277 249
- ---------------------------------------------------------------------------------------------------------------
429 416 368 248 201 271 249
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1.95 1.86 1.64 1.03 .88 1.23 1.11
- ---------------------------------------------------------------------------------------------------------------
1.95 1.86 1.64 1.09 .88 1.20 1.11
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
1.91 1.83 1.62 1.01 .87 1.20 1.09
- ---------------------------------------------------------------------------------------------------------------
1.91 1.83 1.62 1.07 .87 1.17 1.09
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
$8,727 $8,103 $7,350 $6,520 $5,953 $5,785 $5,332
- ---------------------------------------------------------------------------------------------------------------
7,244 6,522 5,816 5,036 4,761 4,492 4,228
- ---------------------------------------------------------------------------------------------------------------
500 111 21 101 322 279 117
- ---------------------------------------------------------------------------------------------------------------
2,468 2,195 1,681 1,244 1,251 1,077 1,135
- ---------------------------------------------------------------------------------------------------------------
2,648 2,574 2,398 2,206 2,102 2,098 1,841
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
9.3% 10.4% 9.5% 6.7% 6.0% 8.6% 8.5%
- ---------------------------------------------------------------------------------------------------------------
16.6% 16.6% 16.1% 10.9% 9.6% 14.0% 14.1%
- ---------------------------------------------------------------------------------------------------------------
48.2% 46.0% 41.2% 36.0% 37.3% 33.9% 38.1%
- ---------------------------------------------------------------------------------------------------------------
40.9% 38.5% 48.6% 59.5% 50.3% 52.7% 57.7%
- ---------------------------------------------------------------------------------------------------------------
4.4 5.1 5.5 4.5 4.4 5.4 4.2
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
$459 $412 $382 $353 $346[f] $340 $319
- ---------------------------------------------------------------------------------------------------------------
1,222 1,164 969 655 666 485 657
- ---------------------------------------------------------------------------------------------------------------
.58 .53 .51 .47 .45 .41 .38
- ---------------------------------------------------------------------------------------------------------------
44-29 30-24 29-21 25-19 25-18 25-15 18-10
- ---------------------------------------------------------------------------------------------------------------
220 223 224 227 228 226 224
- ---------------------------------------------------------------------------------------------------------------
225 227 228 231 232 231 228
- ---------------------------------------------------------------------------------------------------------------
12.05 11.65 10.74 9.73 9.21 9.25 8.20
- ---------------------------------------------------------------------------------------------------------------
11,200 11,700 11,800 11,900 11,800 11,100 10,900
- ---------------------------------------------------------------------------------------------------------------
16,400 15,200 14,800 14,100 15,300 14,500 14,600
- ---------------------------------------------------------------------------------------------------------------
[d] Financial ratios were calculated using income before extraordinary items.
[e] Total debt includes long-term debt, current portion of long-term debt,
and short-term borrowings as of the end of the year.
[f] Depreciation expense in 1993 excludes $56 associated with asset
write-downs.
[g] Capital expenditures include additions to plant and equipment, investment
in and advances to unconsolidated affiliates, acquisitions, and capital
lease additions.
49
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Millions of dollars, except per share)
Year Ended 30 September
--------------------------------------
2001 2000 1999
Earnings
Income before cumulative effect of accounting changes $466 $124 $451
Cumulative effect of accounting changes 0 0 0
-------- -------- --------
Net Income $466 $124 $451
======== ======== ========
Basic shares
Average common shares outstanding during the year 215 213 212
======== ======== ========
Basic earnings per share
Income before cumulative effect of accounting changes $2.17 $0.58 $2.12
Cumulative effect of accounting changes 0 0 0
-------- -------- --------
Net Income $2.17 $0.58 $2.12
======== ======== ========
Diluted shares
Average common shares outstanding during the year 215 213 212
Shares issuable from stock option and award plans 5 3 4
-------- -------- --------
Adjusted average common shares outstanding 220 216 216
======== ======== ========
Diluted earnings per share
Income before cumulative effect of accounting changes $2.12 $0.57 $2.09
Cumulative effect of accounting changes 0 0 0
-------- -------- --------
Net income $2.12 $0.57 $2.09
======== ======== ========
Exhibit 21
Subsidiaries of Air Products and Chemicals, Inc.
The following is a list of the Company's subsidiaries, all of which are wholly
owned as of 30 September 2001, except for certain subsidiaries of the Registrant
which do not in the aggregate constitute a significant subsidiary as that term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934.
UNITED STATES
All companies are incorporated in the State of Delaware with the exception of
Air Products World Trade, Inc. which is incorporated in the U.S. Virgin Islands.
Registrant -- Air Products and Chemicals, Inc.
Air Products Asia, Inc.
Air Products (Didcot), Inc.
Air Products Helium, Inc.
Air Products Hydrogen Company, Inc.
Air Products, L.P.
Air Products International Corporation
Air Products manufacturing Corporation
Air Products of Oklahoma, Inc.
Air Products Polymers Holdings, L.P.
Air Products Polymers, L.P.
Air Products Powders, Inc.
Air Products World Trade, Inc.
APCI (U.K.), Inc.
KIG Air Products, LLC
Middletown Oxygen Company, Inc.
Prodair Corporation
BELGIUM
Air Products S.A.
Air Products Management S.A.
BRAZIL
Air Products Gases Industriais Ltda. (The organization of this affiliate more
closely resembles a partnership with limited liability than a corporation.)
CANADA
Air Products Canada Ltd.
CHINA
Air Products and Chemicals (China) Investment Co., Ltd.
Air Products (Nanjing) Co., Ltd.
Chun Wang Industrial Gases, Limited
Eastern Air Products (Shanghai) Co., Ltd.
Northern Air Products (Tianjin) Limited
Southern Air Products (Guangzhou) Limited
FRANCE
Air Products Industrie
Air Products (Medical) S.a.r.l.
Air Products S.A.
Prodair et Cie S.C.S.
Prodair S.A.
GERMANY
Air Products GmbH
Air Products Polymers GmbH & Co KG
Air Products Powders GmbH
INDONESIA
PT Air Products Indonesia
IRELAND
Air Products Ireland Limited
ISRAEL
Prodair Israel Limited
JAPAN
Air Products Japan, Inc.
KOREA
Air Products Korea, Inc.
Korean Industrial Gases, Limited
MALAYSIA
Sitt Tatt Industrial Gases Sdn. Bhd.
THE NETHERLANDS
Air Products Holdings B.V. (formerly Air Products Nederland B.V.)
Air Products Leasing B.V.
Air Products (Pernis) B.V.
Air Products (Rozenburg), Inc.
NORWAY
Air Products A/S
SPAIN
Air Products Iberica, S.A.
Gases Industriais, S.A.
S.E. de Carburos Metalicos S.A.
SINGAPORE
Air Products Singapore Pte. Ltd.
UNITED KINGDOM
Air Products PLC
Air Products Group Limited
Air Products (BR) Limited
Air Products (Chemicals) PLC
Air Products (Chemicals) Teeside Limited
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints JOHN P. JONES III or LEO J. DALEY or W. DOUGLAS
BROWN, acting severally, his/her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him/her and in his/her
name, place and stead, in any and all capacities, to sign the Form 10-K Annual
Report for the fiscal year ended September 30, 2001 and all amendments thereto
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Mario L. Baeza Director November 15, 2001
- -----------------------------------
Mario L. Baeza
/s/ L. Paul Bremer III Director November 15, 2001
- -----------------------------------
L. Paul Bremer III
/s/ Robert Cizik Director November 15, 2001
- -----------------------------------
Robert Cizik
/s/ Michael J. Donahue Director November 15, 2001
- -----------------------------------
Michael J. Donahue
/s/ Ursula F. Fairbairn Director November 15, 2001
- -----------------------------------
Ursula F. Fairbairn
/s/ Edward E. Hagenlocker Director November 15, 2001
- -----------------------------------
Edward E. Hagenlocker
/s/ James F. Hardymon Director November 15, 2001
- -----------------------------------
James F. Hardymon
/s/ John P. Jones III Director November 15, 2001
- -----------------------------------
John P. Jones III
/s/ Terry R. Lautenbach Director November 15, 2001
- -----------------------------------
Terry R. Lautenbach
/s/ Charles H. Noski Director November 15, 2001
- -----------------------------------
Charles H. Noski
/s/ Paula G. Rosput Director November 15, 2001
- -----------------------------------
Paula G. Rosput
/s/ Lawrason D. Thomas Director November 15, 2001
- -----------------------------------
Lawrason D. Thomas