<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-K
(Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
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, 1996 was $7.6 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 29, 1996
was 120,403,539.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended September 30,
1996. 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 23,
1997 . . . Part III.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ITEM 1. Business ........................................................................................... 1
Industrial Gases.................................................................................. 1
Chemicals......................................................................................... 2
Polymer Chemicals............................................................................. 2
Performance Chemicals......................................................................... 3
Chemical Intermediates........................................................................ 4
Equipment and Services............................................................................ 4
Equipment.................................................................................... 4
Power Generation............................................................................. 4
Pure Air..................................................................................... 4
General........................................................................................... 4
American Ref-Fuel............................................................................ 5
Foreign Operations........................................................................... 5
Technology Development....................................................................... 5
Raw Materials and Energy..................................................................... 6
Environmental Controls....................................................................... 6
Competition.................................................................................. 7
Insurance.................................................................................... 8
Employees.................................................................................... 8
Executive Officers of the Company............................................................ 8
ITEM 2. Properties ......................................................................................... 9
Industrial Gases.................................................................................. 9
Chemicals......................................................................................... 10
Equipment and Services............................................................................ 10
ITEM 3. Legal Proceedings .................................................................................. 10
ITEM 4. Submission of Matters to a Vote of Security Holders ................................................ 11
PART II
ITEM 5. Market for the Company's Common Stock and Related Stockholders Matters ............................. 11
ITEM 6. Selected Financial Data ............................................................................ 11
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................................................. 11
ITEM 8. Financial Statements ............................................................................... 11
ITEM 9. Disagreements on Accounting and Financial Disclosure ............................................... 11
PART III
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 ..................................................... 12
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................... 12
</TABLE>
ii
<PAGE> 3
PART I
ITEM 1. BUSINESS.
Through internal development and by acquisitions, Air Products and
Chemicals, Inc. has established an internationally recognized industrial gas and
related industrial process equipment business, and developed strong positions as
a producer of certain chemicals.
The industrial gases business segment recovers and distributes industrial
gases such as oxygen, nitrogen, argon and hydrogen and a variety of medical and
specialty gases. The chemicals business segment produces and markets polymer
chemicals, performance chemicals and chemical intermediates. The equipment and
services business segment supplies cryogenic and other process equipment and
related engineering services and includes the Company's power generation
business and flue gas treatment business.
Financial information concerning the Company's business segments appears
in Note 19 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 1996 Financial
Review Section of the Annual Report.
As used in this Report, the term "Air Products" or "Company" includes
subsidiaries and predecessors of the registrant or its subsidiaries, unless the
context indicates otherwise.
INDUSTRIAL GASES
The principal industrial gases sold by the Company are oxygen, nitrogen,
argon (primarily recovered by the cryogenic distillation of air), hydrogen,
carbon monoxide, carbon dioxide (purchased, purified or recovered through the
processing of natural gas or the by-product streams from process plants),
synthesis gas (combined streams of hydrogen and carbon monoxide) and helium
(purchased or refined from crude helium). Medical and specialty gases are
manufactured or blended by the Company or purchased for resale.
The Company's industrial gas business involves two principal modes of
supply:
"Tonnage" or "on-site" supply -- For large volume or "tonnage" users of
industrial gases, a plant is built adjacent to or near the customer's facility
- -- hence the term "on-site". Alternatively, the gases are delivered through a
pipeline from nearby locations. Supply is generally made under contracts having
terms in excess of three years. In at least six areas -- the Houston (Texas)
Ship Channel including the Port Arthur, Texas, area; "Silicon Valley",
California; Phoenix, Arizona; Central Louisiana; Rotterdam, the Netherlands; and
Corpus Christi, Texas -- Air Products' hydrogen, oxygen, carbon monoxide or
nitrogen gas pipelines serve multiple customers from one or more centrally
located plants. Affiliates have pipelines in Korea, Thailand and Malaysia.
Merchant supply -- Smaller volumes of industrial gas products are
delivered to thousands of customers in liquid or gaseous form by tanker trucks
or tube trailers. These merchant customers use equipment designed and installed
by Air Products to store the product near the point of use, normally in liquid
state, and vaporize the product into gaseous state for their use as needed.
Increasingly, some customers are being supplied by small on-site generators
using noncryogenic technology based on adsorption and membrane technology.
Merchant customers' contract terms normally are from three to five years.
Merchant gases and various specialty gases are also delivered in cylinders,
dewars and lecture bottle sizes.
Oxygen, nitrogen, argon and hydrogen sold to merchant customers are
usually recovered at large "stand-alone" facilities located near industrial
areas or high-tech centers, or at small noncryogenic generators, or are taken
from tonnage plants used primarily to supply tonnage users. Tonnage plants are
frequently designed to have more capacity than is required by their principal
customer to recover additional product that is liquefied for sale to a merchant
market. Air Products also designs and builds systems for recovering oxygen,
hydrogen, nitrogen, carbon monoxide and low dew point gases using adsorption
technology.
1
<PAGE> 4
Tonnage and merchant sales of atmospheric gases -- oxygen, nitrogen and
argon -- constituted approximately 28% of Air Products' consolidated sales in
fiscal 1996 and were approximately 29% and 31% in fiscal years 1995 and 1994,
respectively. Tonnage and merchant sales of industrial gases -- principally
oxygen, nitrogen and hydrogen -- to the chemical process industry, the
electronics industry and the basic steel industry, the largest consuming
industries, were approximately 14%, 11% and 6%, respectively, of Air Products'
consolidated sales in fiscal 1996.
Other important consumers of Air Products' industrial and specialty gases
are the oil industry (which uses inert nitrogen for oil well stimulation and
field pressurization and hydrogen and oxygen for refining) and the food industry
(which uses liquid nitrogen for food freezing). Air Products believes that it is
the largest liquefier of hydrogen, which it supplies to many customers including
the National Aeronautics and Space Administration for its space shuttle program.
Helium is sold for use in magnetic resonance imaging equipment, controlled
atmospheres processes and welding. Medical gases are sold in the merchant market
to hospitals and clinics, primarily for inhalation therapy.
Specialty gases include fluorine products, rare gases such as xenon,
krypton and neon and more common gases of high-purity or gases which are
precisely blended as mixtures. These gases are used in numerous industries and
in electronic and laboratory applications.
Sales of industrial gases to merchant customers and/or sales of specialty
products to the electronics industry are made principally through field sales
forces from 105 offices in 37 states in the United States and Puerto Rico, and
from 133 offices in 20 foreign countries. In addition, industrial gas companies
in which the Company has investments operate in 28 foreign countries. See
"Foreign Operations" on page 5 of this report.
Electricity and hydrocarbons, including natural gas as a feedstock for
producing certain gases, are important to Air Products' industrial gas business.
See "Raw Materials and Energy". The Company's large truck fleet, which delivers
products to merchant customers, requires a readily available supply of gasoline
or diesel fuel. Also, environmental and health laws and regulations will
continue to affect the Company's industrial gas businesses. See "Environmental
Controls".
CHEMICALS
The Company's chemicals businesses consist of polymer chemicals,
performance chemicals, and chemical intermediates where the Company is able to
differentiate itself by the performance of its products in the customer's
application, the technical service which the Company provides, and the scale of
production and the production technology employed by the Company.
POLYMER CHEMICALS
Air Products' polymer chemicals are water-based and water-soluble
products derived primarily from vinyl acetate monomer. The principal products of
these businesses are polymer emulsions, pressure sensitive adhesives, and
polyvinyl alcohol. Total sales from these businesses constituted approximately
13% of Air Products' consolidated sales in fiscal year 1996, 14% in fiscal year
1995 and 12% in fiscal year 1994, respectively.
Polymer Emulsions - The Company's major emulsion products are vinyl
acetate homopolymer emulsions and Airflex(R) vinyl acetate-ethylene copolymer
emulsions. The Company also produces emulsions which incorporate vinyl chloride
and various acrylates in the polymer. These products are used in adhesives,
nonwoven fabric binders, paper coatings, paints, inks and carpet backing binder
formulations.
Pressure Sensitive Adhesives - These products are water-based acrylic
emulsions which are used for both permanent and removable pressure sensitive
adhesives primarily for labels and tapes.
Polyvinyl Alcohol - These polymer products are water-soluble synthetic
resins which are used in textile warp sizes, surface sizes for paper, adhesives,
safety glass laminates and as emulsifying agents in polymerization. As a
coproduct of polyvinyl alcohol, acetic acid is a merchant product sold to a
variety of markets including textiles, pharmaceuticals and electronics.
2
<PAGE> 5
PERFORMANCE CHEMICALS
Air Products' performance chemicals are differentiated from the
competition based on their performance when used in the customer's products and
the technical service which the Company provides. The principal products of
these businesses are specialty additives, polyurethane additives and epoxy
additives. Total sales from these businesses constituted approximately 10% of
Air Products' consolidated sales in fiscal year 1996 and 9% in fiscal years 1995
and 1994.
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, surfactants
and release agents which are used as performance control additives and
processing aids in the production of both flexible and rigid polyurethane foam
around the world. The principal end markets for polyurethane foams include
furniture cushioning, insulation, carpet underlay, bedding and automobile
seating.
Epoxy Additives - These products include polyamides, aromatic amines,
cycloaliphatic amines, reactive diluents and specialty epoxy resins which are
used as performance additives in epoxy formulations by epoxy manufacturers
worldwide. The end markets for epoxies are coatings, flooring, adhesives,
reinforced composites and electrical laminates.
CHEMICAL INTERMEDIATES
The chemical intermediates businesses use the Company's proprietary
technology and scale of production to differentiate themselves from the
competition. The principal intermediates sold by the Company include amines and
polyurethane intermediates. The Company also produces certain industrial
chemicals (ammonia, methanol and nitric acid) as raw materials for its
differentiated products. Total third-party sales from the chemical intermediates
businesses constituted 11% of Air Products' consolidated sales in fiscal year
1996, 12% in fiscal year 1995 and 13% in fiscal year 1994.
Amines - The Company produces a broad range of amines using ammonia and
methanol, which are both manufactured by Air Products, and other alcohol
feedstocks purchased from various suppliers. Other, more specialized amines are
produced by the hydrogenation of purchased intermediates. Substantial quantities
of these products are sold under long-term contracts to a small number of
customers. These products are used by the Company's customers as raw materials
in the manufacture of herbicides, pesticides, water treatment chemicals, animal
nutrients, polyurethane coatings, artificial sweeteners, rubber chemicals and
pharmaceuticals. Ammonia is a feedstock for its alkylamines and the excess over
this requirement is marketed as ammonium nitrate prills and solutions, which are
primarily used by customers as fertilizers or in other agricultural
applications. Methanol is principally used by Air Products as a feedstock in
methylamine production and the excess over this requirement is marketed to the
methanol market.
Polyurethane Intermediates - The Company produces dinitrotoluene
("DNT") and toluene diamine ("TDA") for use as intermediates by the Company's
customers in the manufacture of a major precursor of flexible polyurethane foam.
The principal end markets for flexible polyurethane foams include furniture
cushioning, carpet underlay, bedding and seating in automobiles. Virtually all
of the Company's production of DNT and TDA is sold under long-term contracts to
a small number of customers.
* * *
Chemical sales are supported from various locations in the United
States, England, Germany, Hong Kong, 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").
3
<PAGE> 6
EQUIPMENT AND SERVICES
The equipment business of Air Products designs, manufactures and supplies
cryogenic and other process equipment, and includes the Company's power
generation business, and its flue gas treatment business. Prior to October 1,
1996, the Company's power generation business, Pure Air(TM) flue gas treatment
business, and the landfill gas business were reported under the environmental
and energy business segment. The Company divested its landfill gas business in
early fiscal 1997.
EQUIPMENT
Specifically, equipment is manufactured for cryogenic air separation, gas
processing, natural gas liquefaction, hydrogen purification, and nitrogen
rejection. Air Products also designs and builds systems for recovering hydrogen,
nitrogen, carbon monoxide, carbon dioxide and low dew point gases using membrane
technology. Additionally, a broad range of plant design, engineering,
procurement, and construction management services is provided for the above
areas. Equipment is manufactured for use by the industrial gases segment and
for sale in industrial markets which include the Company's international
industrial gas affiliates.
The backlog of orders (including letters of intent) believed to be firm
from other companies and equity affiliates for equipment was approximately $306
million on September 30, 1996, approximately 26% of which relates to natural gas
liquefaction, as compared with a total backlog of approximately $198 million on
September 30, 1995. It is expected that approximately $213 million of the
backlog on September 30, 1996, will be completed during fiscal 1997. Subsequent
to September 30, 1996, backlog related to natural gas liquefaction has increased
by approximately $109 million, of which $13 million is expected to be completed
during fiscal 1997.
POWER GENERATION
Air Products constructed, operates and has a 50% interest in a 49-megawatt
fluidized-bed coal-fired power generation facility in Stockton, California; an
85-megawatt coal waste burning power generation facility in western
Pennsylvania; and a 120-megawatt gas-fired combined cycle power generation
facility in Orlando, Florida. A 112-megawatt gas-fueled power generation
facility, in which the Company has a 48.9% interest, is being constructed in
Thailand that will supply electricity to a state-owned electricity generating
authority and steam and electricity to an Air Products industrial gases
affiliate.
PURE AIR
Pure Air markets, develops, designs and builds flue gas treatment systems.
Air Products operates and owns a 50% interest in a facility utilizing Mitsubishi
Heavy Industries, Ltd. flue gas desulfurization (FGD) technology systems for
removing sulfur dioxide from the flue gas of a coal-fired power generation plant
in Indiana. Pure Air is working with a Florida utility company to develop a
facility utilizing this FGD technology and other air pollution control
technologies for treating the flue gas of a power generation plant to be powered
by Orimulsion(R) fuel.
Additional information with respect to the Company's power generation
business is included in Notes 9 and 16 to the Consolidated Financial Statements
included under Item 8 herein.
GENERAL
AMERICAN REF-FUEL
The Company's partnerships with Browning-Ferris Industries, Inc., one of
the world's largest waste services firms, principally design, construct, own and
operate plants to combust solid waste, generate steam and sell the steam or
convert the steam to electricity. American Ref-Fuel partnerships, owned equally
by subsidiaries of Air Products and Browning-Ferris, own and operate
waste-to-energy facilities in Hempstead (Long Island), New York; near Niagara
Falls, New York; Essex County, New Jersey; and Southeastern Massachusetts each
of which combusts approximately 800,000 to 1,000,000 tons per year of solid
waste and generates electricity. A smaller waste-to-energy facility which
combusts approximately 250,000 tons per year of solid waste is located in
Preston, Connecticut. The Company announced, during fiscal 1996, its intent to
divest its interest in American Ref-Fuel.
4
<PAGE> 7
Additional information with respect to the Company's interest in American
Ref-Fuel is included in Notes 9 and 16 to the Consolidated Financial Statements
included under Item 8 herein.
FOREIGN OPERATIONS
Air Products through subsidiaries and affiliates conducts business in
numerous countries outside the United States. The structure of the Air Products
industrial gas business in Europe mirrors the Company's United States operation.
Air Products' international business is subject to risks customarily encountered
in foreign operations, including fluctuations in foreign currency exchange rates
and controls, import and export controls, and other economic, political and
regulatory policies of local governments.
Wholly owned subsidiaries operate in Australia, Brazil, Canada and
Mexico and in 12 countries in Europe and 6 countries in Asia. The Company also
has less than controlling interests in industrial gas companies in Mexico and in
5 countries in Europe and 7 countries in Asia. Air Products also has a 70% owned
subsidiary engaged in the specialty gas and helium business as well as a 62.5%
owned subsidiary engaged in the gas membrane business in China, a 58% owned
subsidiary engaged principally in cryogenic equipment manufacturing in the Czech
Republic, a 51% owned subsidiary engaged in the manufacture and sale of polymer
emulsions in Mexico and 50% owned companies in France and South Africa
(industrial gases). The Company and a French industrial gas company each have a
25% interest in an Algerian company that owns and operates a helium
purification and liquefaction plant which provides helium to Air Products and
the French industrial gas company.
As of November 1, 1996 the Company owned 96.7% of the outstanding shares
of the Sociedad Espanola de Carburos Metalicos, S.A., a major industrial gas
company in Spain. See Note 17 to the Consolidated Financial Statements included
under Item 8 herein.
Financial information about Air Products' foreign operations and
investments is included in Notes 9, 11 and 19 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 6 to the
Consolidated Financial Statements included under Item 8 herein, under "Foreign
Exchange Contracts". Export sales from operations in the United States to
unconsolidated customers amounted to $497 million, $436 million and $376 million
in 1996, 1995 and 1994, respectively. Less than 5% of the total export sales are
to affiliated customers.
TECHNOLOGY DEVELOPMENT
Air Products conducts research and development principally in its
laboratories located in Trexlertown, Pennsylvania, as well as in Manchester and
Basingstoke, England; Utrecht, Netherlands and Norderstedt, near Hamburg,
Germany. The Company also 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 1996 was $114 million compared with $103 million and $97 million during
fiscal 1995 and 1994, respectively. In addition, the Company estimates
approximately $9 million was spent in each of fiscal years 1996, 1995 and 1994
on customer-sponsored research activities relating to the development or
improvement of products, services or techniques.
In the industrial gases and equipment and services segments, technology
development is directed primarily to developing new and improved processes and
equipment for the production and delivery of industrial gases and cryogenic
fluids, developing new products, and developing new and improved applications
for industrial gases. It is through such applications and improvements that the
Company has become a major supplier to the electronics, polymer, petroleum,
rubber, plastics, food processing and paper industries. Through fundamental
research into sieve and polymer materials, advanced process engineering and
integrated manufacturing methods, the Company discovers, develops and improves
the economics of noncryogenic gas separation technologies. Additionally,
technology development for the equipment and
5
<PAGE> 8
services businesses is directed primarily to reducing the capital and operating
costs of its facilities and to commercializing new technologies in power
production, air pollution control and nonhazardous waste disposal systems.
In the chemicals segment, technology development is primarily concerned
with new products and applications to strengthen and extend our present
positions in polymer and performance chemicals. In addition, a major continuing
effort supports the development of new and improved manufacturing technology for
chemical intermediates and various types of polymers.
A corporate research group supports the research efforts of the Company's
various businesses. This group includes the Company's Corporate Science and
Technology Center, which conducts exploratory research in areas important to the
long-term growth of the Company's core businesses, e.g., gas and fluid
separations, polymer science, organic synthesis, and fluorine chemicals.
As of November 1, 1996, Air Products owned 1,051 United States patents and
1,978 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.
RAW MATERIALS AND ENERGY
The Company manufactures anhydrous ammonia, hydrogen, carbon monoxide,
carbon dioxide and methanol principally from natural gas. Such products
accounted for approximately 7% of the Company's consolidated sales in fiscal
1996. The Company's principal raw material purchases are chemical intermediates
produced by others from basic petrochemical feedstocks such as olefins and
aromatic hydrocarbons. These feedstocks are generally derived from various
crude oil fractions or from liquids extracted from natural gas. The Company
purchases its chemical intermediates from many sources and generally is not
dependent on one supplier. However, with respect to vinyl acetate monomer, which
supports the polymer business, the Company is heavily dependent on a single
supplier, under a long-term contract, which produces vinyl acetate monomer from
several facilities. The Company characterizes the availability of these chemical
intermediates as generally being readily available. The Company uses such raw
materials in the production of emulsions, polyvinyl alcohol, amines,
polyurethane intermediates, specialty additives, polyurethane additives and
epoxy additives. Such products accounted for approximately 35% of the Company's
consolidated sales in fiscal 1996. Natural gas is an energy source at a number
of the Company's facilities.
The Company's industrial gas facilities use substantial amounts of
electrical power. Any shortage of electrical power or interruption of its supply
or increase in its price which cannot be passed through to customers for
competitive reasons will adversely affect the merchant industrial gas business
of the Company.
In addition, the Company purchases finished and semifinished materials and
chemical intermediates from many suppliers. During fiscal 1996, 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 $27 million both in 1996 and 1995, and $28
million for 1994. These amounts represent an estimate of expenses for compliance
with environmental laws, as well as remedial activities, and costs incurred to
meet internal Company standards. Such costs are estimated to be approximately
$28 million in 1997 and $30 million in 1998.
6
<PAGE> 9
Although precise amounts are difficult to define, the Company estimates
that in fiscal 1996 it spent approximately $11 million on capital projects to
control pollution (including expenditures associated with new plants) versus $13
million in 1995. Capital expenditures to control pollution in future years are
estimated at $15 million in 1997 and $17 million in 1998. In addition, the
Company's joint ventures in power generation and American Ref-Fuel include in
the capital costs of their projects the costs of equipment and systems to
control pollution. For example, it is estimated that in fiscal 1996 the ventures
of the Company in Ref-Fuel and power generation projects spent approximately $73
million on equipment and systems within their existing facilities to control
pollution. Additional information with respect to these ventures is included on
page 4 of this report.
The exact amount to be expended by the Company and its Ref-Fuel and power
generation business joint ventures on equipment to control pollution will depend
upon the timing of the capital projects and timing and content of regulations
promulgated by environmental regulatory bodies during the life of any capital
investment. Efforts are made to pass these costs through to customers. For
example, with respect to most Ref-Fuel ventures, to the extent subsequent law
changes require additional environmental equipment to control pollution, the
costs generally are passed through to the municipality under long-term waste
disposal contracts. 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 $18 million to
a reasonably possible upper exposure of $45 million. The balance sheet at 30
September 1996 includes an accrual of $32 million and a receivable balance of $1
million relating to third party recoveries. At 30 September 1995, the balance
sheet accrual was $35 million, and the receivable balance was $1 million.
In addition to the environmental exposures discussed in the preceding
paragraph, there will be spending at a Company-owned manufacturing site where
the Company is undertaking RCRA corrective action remediation. The Company
estimates costs to implement the anticipated remedial program will range from
$26-$33 million. Spending was minimal in fiscal 1996 and is estimated at $5
million for both fiscal 1997 and 1998. Operating and maintenance expenses
associated with continuing the remedial program are estimated to be $1 million
per year beginning in fiscal 1997 and continuing for an estimated period of up
to 30 years. A former owner and operator at the site has agreed to reimburse the
Company approximately 20% of the costs incurred in the remediation. The cost
estimates have not been reduced by the value of such reimbursement, which the
Company believes is probable of realization.
Actual costs to be incurred in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental exposures and factors
beyond the Company's control such as: lack of knowledge or scarcity of reliable
data pertaining to identified sites; method and extent of remediation ultimately
required; years of remedial activity required; number of parties involved; final
determination of the Company's liability in proportion to that of other parties;
identification of new sites; evolving environmental laws and regulations and
their application; and advances in technology.
The Company's domestic competitors face similar requirements, which are
not shared by most foreign competitors.
COMPETITION
The Company's businesses face strong competition from others, some of
which are larger and have greater resources than Air Products.
Air Products' industrial gas business competes in the United States with
three major sellers and with several regional sellers. Competition in industrial
gas markets is based primarily on price, reliability of supply, and furnishing
or developing applications for use of such gases by customers. A similar
competitive situation exists in European industrial gas markets in which the
Company competes against one or more larger entrenched competitors in most
countries.
7
<PAGE> 10
The number of the Company's principal competitors in the chemicals
business varies from product to product, and it is not practical to identify
such competitors because of the broad range of the Company's chemical products
and the markets served, although the Company believes it has a leading or strong
market position in most of its chemical products. For amines, the competition is
principally from other large chemical companies that also have the ability to
provide competitive pricing, reliability of supply, technical service assistance
and quality products and services. The possibility of back integration by large
customers is the major competitive factor for the sale of polyurethane
intermediates. In its other chemical products, the Company competes with a large
number of chemical companies, some of which are larger, possess greater
financial resources, and are more vertically integrated than the Company.
Competition in these products is principally on the basis of price, quality,
product performance, reliability of product supply and technical service
assistance.
The Company's equipment and services businesses including power generation
compete in all aspects with a great number of firms, some of which have greater
financial resources than Air Products. Another important factor in certain
export sales is financing provided by governmental entities in the United States
and the United Kingdom as compared with financing offered by their counterparts
in other countries.
Competition is based primarily on technological performance, service,
technical know-how, price and performance guarantees. Air Products believes that
its comprehensive project development capability, operating experience,
engineering and financing capabilities and construction management experience
will enable it to compete effectively.
INSURANCE
The Company's policy is to obtain public liability and property insurance
coverage that is currently available at what management determines to be a fair
and reasonable price. The Company, for itself and its power generation and flue
gas treatment joint venture affiliates for which it assumes turnkey construction
or operating responsibility, maintains public liability and property insurance
coverage at amounts which management believes are sufficient, after retention,
to meet the Company's anticipated needs in light of historical experience to
cover future litigation and claims. There is no assurance, however, that the
Company will not incur losses beyond the limits of, or outside the coverage of,
its insurance.
EMPLOYEES
On September 30, 1996, the Company (including majority-owned subsidiaries)
had approximately 15,200 full-time employees of whom approximately 4,600 were
located outside the United States. The Company has collective bargaining
agreements with unions at numerous locations, which expire on various dates over
the next three years, including an agreement for a facility which manufactures
helium and hydrogen containers in Pennsylvania that expires in fiscal 1997.
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
The Company's executive officers, their respective positions and their
respective ages on December 15, 1996 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.
8
<PAGE> 11
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
James H. Agger 60 Vice President, General Counsel and Secretary
(D)(E)
Robert E. Gadomski 49 Executive Vice President--Chemicals
(D)(E) (became Executive Vice President--Chemicals in 1996; Group
Vice President--Chemicals Group 1992-1996; Group Vice President--
Process Systems Group prior thereto)
John P. Jones 46 Executive Vice President--Gases and Equipment
(D)(E) (became Executive Vice President--Gases and Equipment in 1996;
President --Air Products Europe, Inc. 1993-1996; Group Vice
President--Process Systems Group 1992-1993; Vice President and
General Manager--Environmental/Energy Division prior thereto)
Joseph J. Kaminski 57 Corporate Executive Vice President
(A)(D)(E) (became Corporate Executive Vice President in 1996; Executive Vice
President--Gases and Equipment 1993-1996; President --Air Products
Europe, Inc. prior thereto)
Arnold H. Kaplan 57 Vice President--Finance
(D)(E) (became Vice President--Finance in 1996; Vice President--Energy
and Materials prior thereto)
Harold A. Wagner 61 Chairman of the Board, President and Chief Executive Officer
(A)(B)(C)(D)(E) (became Chairman of the Board and Chief Executive Officer in 1992;
President in 1991)
</TABLE>
- ---------------------
(A) Member, Board of Directors.
(B) Member, Executive Committee of the Board of Directors.
(C) Member, Finance Committee of the Board of Directors.
(D) Member, Management Committee.
(E) Member, Corporate Executive Committee.
ITEM 2. PROPERTIES.
The principal executive offices of Air Products are located at its
headquarters in Trexlertown, near Allentown, Pennsylvania. Additional
administrative offices are located in owned facilities in Hersham, near London,
England, and Brampton, near Toronto, Canada, and in leased facilities in the
Allentown area, Pennsylvania; Tokyo, Japan; Hong Kong; Singapore and Sao Paulo,
Brazil. The management considers the Company's facilities, described in more
detail below, to be adequate to support the business efficiently. The following
information with respect to properties is as of September 30, 1996.
INDUSTRIAL GASES
The industrial gases segment has approximately 163 plant facilities in 38
states, the majority of which recover nitrogen, oxygen and argon. The Company
has six facilities which produce specialty gases and 26 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 112 sales offices and/or cylinder distribution
centers located in 39 states.
The land 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 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 42, and include six plants
which recover hydrogen, three plants which manufacture dissolved acetylene, and
one which recovers carbon monoxide. The majority of European plants recover
nitrogen, oxygen and argon. In addition, there are three specialty gas centers.
There is a combined total of 87 sales offices and/or cylinder distribution
centers in Europe, and several
9
<PAGE> 12
additional facilities located in Brazil, Canada, Japan, the People's Republic of
China, Puerto Rico, Singapore, Taiwan and the Middle East. Representative
offices are located in Beijing and Shanghai in the People's Republic of China.
CHEMICALS
The chemicals segment manufactures amines, nitric acid, methanol,
anhydrous ammonia and ammonia products at its Pace, Florida, facility;
alkylamines at its St. Gabriel, Louisiana, facility; polyvinyl acetate emulsions
at its South Brunswick, New Jersey, facility; styrene emulsions, styrene
acrylics, polyvinyl acetate acrylics, and polyvinyl acetate emulsions at its San
Juan del Rio facility in Mexico; nitric acid, dinitrotoluene, toluene diamine,
polyvinyl alcohol and acetic acid at its Pasadena, Texas, facility; and
polyvinyl acetate emulsions, polyvinyl alcohol, acetic acid and acetylenic
chemicals at its Calvert City, Kentucky, facility; specialty amines at its
Wichita, Kansas, facility; polyurethane additives release agents at its Hamburg,
Germany, facility; and epoxy additives at its facilities in Manchester, England;
Los Angeles, California and Cumberland, Rhode Island. The chemicals segment
manufactures polyurethane additives at its Paulsboro, New Jersey, facility which
is leased in part and owned in part. The chemicals segment also manufactures
polyvinyl acetate emulsions at five smaller locations.
The chemicals segment has 16 plant facilities, six sales offices and one
laboratory in the United States and operates two plants, seven
sales/representative offices and two laboratories in Europe, laboratories in
Brazil, Hong Kong, and Korea, one plant in Mexico, one plant in Korea, and sales
offices in Australia, Brazil, Mexico, Japan, Korea, Singapore and South Africa
and sales/representative offices in Hong Kong, and representative offices in
Beijing and Shanghai in the People's Republic of China. Substantially all of the
chemicals segment's plants and real estate thereunder are owned. Approximately
75% of the offices are leased by the Company and 25% are owned.
EQUIPMENT AND SERVICES
The principal facilities utilized by the equipment and services segment
include five plants and three offices in the United States, three plants and
three offices in Europe and one office in Japan. Air Products owns approximately
50% of the facilities and real estate in this segment and leases the remaining
50%.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business Air Products and its subsidiaries are
involved in legal proceedings including proceedings involving governmental
authorities. The Company does not expect that any sums it may have to pay in
connection with these matters would have a materially adverse effect on its
consolidated financial position nor is there any material additional exposure
expected in any one year in excess of the amounts the Company currently has
accrued. Included in these claims and actions are the following:
(i) proceedings under the Comprehensive Environmental Response,
Compensation, and Liability Act (the federal Superfund law), the
Resource Conservation and Recovery Act (RCRA) and similar state
environmental laws relating to the designation of certain sites for
investigation or remediation. There are presently approximately 55
sites on which a final settlement has not been reached where the
Company, along with others, has been designated a Potentially
Responsible Party by the Environmental Protection Agency or is
otherwise engaged in investigation or remediation. While monetary
sanctions have not yet been determined, they may exceed $100,000. On
October 16, 1996, the Company and the Kentucky Department for
Environmental Protection entered into an Agreed Order to resolve
miscellaneous alleged violations of Kentucky's air pollution control
regulations including new source review and other permitting,
record-keeping and leak detection requirements alleged in a July 14,
1995 Notice of Violation which had been previously disclosed in the
Company's 1995 Form 10-K. The Company agreed to pay a civil penalty of
$84,000 and perform a supplemental environmental project. Additional
information on the Company's environmental exposure is included under
Environmental Controls on pages 6 and 7 of this report.
10
<PAGE> 13
(ii) On May 2, 1995, and April 1, 1996, two related actions were
initiated in the Federal District Court in the Western District of
Pennsylvania by the Company and its project companies, Washington Power
(I), Inc. and Washington Power Company, L.P., against Allegheny Power
Systems, Inc. and its affiliates, Allegheny Power Service Corporation
and West Penn Power Company [Washington Power (I), Inc., et al. vs.
Allegheny Power Systems, Inc., et al., C.A. No. 95-0658 and Air
Products and Chemicals, Inc., et al. vs. Allegheny Power Systems, Inc.,
et al., C.A. No. 96-0598.] The consolidated lawsuits seek recovery of
lost profits, including treble and punitive damages arising out of
defendants' repudiation of a long-term contract to buy electricity from
Washington Power. Defendants' actions are alleged to have been improper
exercises of monopoly power in violation of the Sherman Act justifying
an award of treble damages, together with restraint of trade,
intentional interference with contract, and wrongful use of civil
proceedings justifying an award of punitive damages. The parties are
engaged in ongoing discovery, with no firm trial date having been set
by the Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Market and dividend information for the Company's Common Stock appears
under "Eleven-Year Summary of Selected Financial Data" on pages 32 and 33 of the
1996 Financial Review Section of the Annual Report to Shareholders which is
incorporated herein by reference. In addition, the Company has authority to
issue 25,000,000 shares of preferred stock in series. The Board of Directors is
authorized to designate the series and to fix the relative voting, dividend,
conversion, liquidation, redemption and other rights, preferences and
limitations as between series. When preferred stock is issued, holders of Common
Stock are subject to the dividend and liquidation preferences and other prior
rights of the preferred stock. There currently is no preferred stock
outstanding.
As of November 29, 1996, there were 11,302 record holders of the Company's
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The tabular information appearing under "Eleven-Year Summary of Selected
Financial Data" on pages 32 and 33 of the 1996 Financial Review Section of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The textual information appearing under "Management's Discussion and
Analysis" on pages 2 through 8 of the 1996 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 1 November 1996,
appearing on pages 9 through 31 of the 1996 Financial Review Section of the
Annual Report to Shareholders, are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
11
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The biographical information relating to the Company's directors contained
on pages 2 through 6 of the Proxy Statement relating to the Company's 1997
Annual Meeting of Shareholders is incorporated herein by reference. Biographical
information relating to the Company's executive officers is set forth in Item 1
of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Other Relationships and Transactions",
"Remuneration of Directors", "Report of the Management Development and
Compensation Committee", "Compensation and Option Tables", "Stock Performance
Information", "Pension Plans", and "Certain Agreements with Executive Officers"
appearing on pages 7 through 18 of the Proxy Statement relating to the Company's
1997 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 section headed
"Security Ownership of Certain Beneficial Owners and Management" contained on
pages 19 through 22 of the Proxy Statement relating to the Company's 1997 Annual
Meeting of Shareholders and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Other Relationships and Transactions" appearing on
page 7 of the Proxy Statement relating to the Company's 1997 Annual Meeting of
Shareholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. The 1996 Financial Review Section of the Company's 1996 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 1996 FINANCIAL REVIEW SECTION OF THE ANNUAL REPORT)
<TABLE>
<S> <C>
Management's Discussion and Analysis..................................................................... 2
Report of Independent Public Accountants................................................................. 9
Consolidated Income for the three years ended 30 September 1996.......................................... 10
Consolidated Balance Sheets at 30 September 1996 and 1995................................................ 11
Consolidated Cash Flows for the three years ended 30 September 1996...................................... 12
Consolidated Shareholders' Equity for the three years ended 30 September 1996............................ 13
Notes to Consolidated Financial Statements............................................................... 14
Business Segment and Geographic Information.............................................................. 29
Eleven-Year Summary of Selected Financial Data........................................................... 32
</TABLE>
2. The following additional information should be read in
conjunction with the financial statements in the Company's 1996 Financial
Review Section of the Annual Report to Shareholders:
(PAGE REFERENCES TO THIS REPORT)
<TABLE>
<S> <C>
Report of Independent Public Accountants on Schedule..................................................... 17
Consent of Independent Public Accountants................................................................ 17
</TABLE>
12
<PAGE> 15
Consolidated Schedules for the years ended 30 September 1996, 1995
and 1994 as follows:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER
------
<S> <C>
VIII Valuation and Qualifying Accounts............................................................. 18
</TABLE>
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
<TABLE>
<S> <C>
(3) Articles of Incorporation and By-Laws.
3.1 By-Laws of the Company. (Filed as Exhibit 3.1 to the Company's Form 10-K Report for the fiscal year
ended September 30, 1993.)*
3.2 Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2 to the Company's Form 10-K
Report for the fiscal year ended September 30, 1987.)*
3.3 Amendment to the Restated Certificate of Incorporation of the Company dated January 25, 1996.
(4) Instruments defining the rights of security holders, including indentures. Upon request of the
Securities and Exchange Commission, the Company hereby undertakes to furnish copies of the instruments
with respect to its long-term debt.
4.1 Rights Agreement, dated as of March 23, 1988, between the Company and The Chase Manhattan Bank, N.A.
(Filed as Exhibit 1, 2 to the Company's Form 8-A Registration Statement dated March 28, 1988.)*
(10) Material Contracts.
10.1 1990 Deferred Stock Plan of the Company, as amended and restated effective October 1, 1989. (Filed as
Exhibit 10.1 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.2(a) Long-term Incentive Plan of the Company, as amended. (Filed as Exhibit 10.2 to the Company's Form 10-K
Reports for each of the fiscal years ended September 30, 1986, September 30, 1987 and September 30,
1988.)*
10.2(b) 1990 Long-Term Incentive Plan of the Company. (Filed as Exhibit 10.2(b) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1989.)*
10.2(b)(1) Amendment to 1990 Long-Term Incentive Plan of the Company, effective July 16, 1992. (Filed as Exhibit
10.2(b)(1) to the Company's Form 10-K Report for the fiscal year ended September 30, 1993.)*
10.2(c) 1997 Long-Term Incentive Plan of the Company effective October 1, 1996.
10.3 1990 Annual Incentive Plan of the Company, as amended and restated effective October 1, 1989. (Filed
as Exhibit 10.3 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.4 Supplementary Pension Plan of the Company, as amended effective October 1, 1988. (Filed as Exhibit
10.4 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.4(a) Amendment to Supplementary Pension Plan of the Company, adopted September 20, 1995. (Filed as Exhibit
10.4(d) to the Company's Form 10-K Report for the fiscal year ended September 30, 1995.)*
10.4(b) Amendment to Supplementary Pension Plan of the Company, adopted September 20, 1995. (Filed as Exhibit
10.4(e) to the Company's Form 10-K Report for the fiscal year ended September 30, 1995.)*
10.4(c) Amendment to Supplementary Pension Plan of the Company, adopted November 2, 1995.
</TABLE>
13
<PAGE> 16
EXHIBIT NO. DESCRIPTION
<TABLE>
<S> <C>
10.4(d) Amended and Restated Trust Agreement by and between the Company and Provident National Bank dated as
of October 31, 1989. (Filed as Exhibit 10.4(a) to the Company's Form 10-K Report for the fiscal year
ended September 30, 1989.)*
10.4(e) Amendment to the Amended and Restated Trust Agreement by and between the Company and PNC Bank, N.A.
dated May 1, 1995. (Filed as Exhibit 10.4(g) to the Company's Form 10-K Report for the fiscal year
ended September 30, 1995.)*
10.5 Supplementary Savings Plan of the Company as amended October 1, 1989. (Filed as Exhibit 10.5 to the
Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.5(a) Trust Agreement by and between the Company and Provident National Bank dated as of October 31, 1989.
(Filed as Exhibit 10.5(a) to the Company's Form 10-K Report for the fiscal year ended September 30,
1989.)*
10.5(b) Amendment to the Trust Agreement by and between the Company and PNC Bank, N.A. (previously Provident
National Bank) relating to the Supplementary Pension Plan and Supplementary Savings Plan dated May 1,
1995. (Filed as Exhibit 10.5(b) to the Company's Form 10-K Report for the fiscal year ended September
30, 1995.)*
10.6(a) Amended and Restated Deferred Compensation Plan for Directors of the Company, effective November 21,
1996.
10.6(b) Amended and Restated Pension Plan for Directors of the Company, effective January 1, 1983, as amended
effective January 1, 1990 and January 1, 1994. (Filed as Exhibit 10.6(b) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1993.)*
10.7 Agreements with executives.
10.7(a) Form of Employment Agreement dated July 30, 1987, which the Company has with each of its executive
officers. (Filed as Exhibit 10.7(a) to the Company's Form 10-K Report for the fiscal year ended
September 30, 1987.)*
10.8 Employee Severance Plans.
10.8(a) Air Products and Chemicals, Inc. Severance Plan effective March 15, 1990. (Filed as Exhibit 10.8(a) to
the Company's Form 10-K Report for the fiscal year ended September 30, 1992.)*
10.8(b) Air Products and Chemicals, Inc. Change of Control Severance Plan effective March 15, 1990. (Filed as
Exhibit 10.8(b) to the Company's Form 10-K Report for the fiscal year ended September 30, 1992.)*
(11) Earnings per share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(13) 1996 Financial Review Section of the Annual Report to Shareholders for the fiscal year ended September
30, 1996, which is furnished to the Commission for information only, and not filed except as expressly
incorporated by reference in this Report.
(21) Subsidiaries of the registrant.
(24) Power of Attorney.
(27) Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission
for information only, and not filed.
(27)(b) Reports on Form 8-K filed during the quarter ended September 30, 1996.
Current Reports on Form 8-K dated July 23, 1996, October 23, 1996, and October 25, 1996,
were filed in which Item 5 of such Form was reported.
</TABLE>
*Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference should be located in SEC File No. 1-4534.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 12, 1996
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
By: /s/ Arnold H. Kaplan
----------------------------
Arnold H. Kaplan,
Vice President -- Finance
Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Harold A. Wagner Director, Chairman of the Board and December 12, 1996
- ----------------------- President (Principal Executive Officer)
(Harold A. Wagner)
/s/ Paul E. Huck Vice President and Corporate Controller December 12, 1996
- ----------------------- (Principal Accounting Officer)
(Paul E. Huck)
* Director December 12, 1996
- -----------------------
(Dexter F. Baker)
* Director December 12, 1996
- -----------------------
(Tom H. Barrett)
* Director December 12, 1996
- -----------------------
(L. Paul Bremer)
* Director December 12, 1996
- -----------------------
(Robert Cizik)
* Director December 12, 1996
- -----------------------
(Ruth M. Davis)
* Director December 12, 1996
- -------------------------
(Joseph J. Kaminski)
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December 12, 1996
- -------------------------
(Terry R. Lautenbach)
* Director December 12, 1996
- -------------------------
(Rudolphus F. M. Lubbers)
* Director December 12, 1996
- -------------------------
(Judith Rodin)
* Director December 12, 1996
- -------------------------
(Takeo Shiina)
* Director December 12, 1996
- -------------------------
(Lawrason D. Thomas)
</TABLE>
*James H. Agger, Vice President, General Counsel and Secretary, by signing his
name hereto, does sign this document on behalf of the above noted individuals,
pursuant to a power of attorney duly executed by such individuals which is
filed with the Securities and Exchange Commission herewith.
/s/ James H. Agger
------------------------
James H. Agger
Attorney-in-Fact
16
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Air Products and Chemicals, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Air Products and Chemicals,
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated 1 November 1996. 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
1 November 1996
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. 333-02461, 33-2068, 33-57017, 33-57023 and 33-65117).
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
9 December 1996
17
<PAGE> 20
SCHEDULE VIII
CONSOLIDATED
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED 30 SEPTEMBER 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------
OTHER CHANGES
ADDITIONS INCREASE (DECREASE)
------------------------ ------------------------
BALANCE AT CHARGED CUMULATIVE BALANCE
BEGINNING CHARGED TO TO OTHER TRANSLATION AT END OF
CLASSIFICATION OF PERIOD EXPENSE ACCOUNTS(1) ADJUSTMENTS OTHER(2) PERIOD
- ----------------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Amounts deducted in the consoli-
dated balance sheet from the
asset to which it applies:
YEAR ENDED 30 SEPTEMBER 1996
Allowance for doubtful accounts $ 14 $ 5 $ 1 $ -- $ (7) $ 13
==== === ==== ====== ===== ====
YEAR ENDED 30 SEPTEMBER 1995
Allowance for doubtful accounts $ 13 $ 8 $ (1) $ -- $ (6) $ 14
==== === ==== ====== ===== ====
YEAR ENDED 30 SEPTEMBER 1994
Allowance for doubtful accounts $ 12 $ 7 $ -- $ -- $ (6) $ 13
==== === ==== ====== ===== ====
</TABLE>
NOTES:
(1) Includes collections on accounts previously written off and
additions applicable to businesses acquired.
(2) Primarily includes write-offs of uncollectible accounts.
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
<TABLE>
<S> <C>
(3) Articles of Incorporation and By-Laws.
3.1 By-Laws of the Company. (Filed as Exhibit 3.1 to the Company's Form 10-K Report for the fiscal year
ended September 30, 1993.)*
3.2 Restated Certificate of Incorporation of the Company. (Filed as Exhibit 3.2 to the Company's Form 10-K
Report for the fiscal year ended September 30, 1987.)*
3.3 Amendment to the Restated Certificate of Incorporation of the Company dated January 25, 1996.
(4) Instruments defining the rights of security holders, including indentures. Upon request of the
Securities and Exchange Commission, the Company hereby undertakes to furnish copies of the instruments
with respect to its long-term debt.
4.1 Rights Agreement, dated as of March 23, 1988, between the Company and The Chase Manhattan Bank, N.A.
(Filed as Exhibit 1, 2 to the Company's Form 8-A Registration Statement dated March 28, 1988.)*
(10) Material Contracts.
10.1 1990 Deferred Stock Plan of the Company, as amended and restated effective October 1, 1989. (Filed as
Exhibit 10.1 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.2(a) Long-term Incentive Plan of the Company, as amended. (Filed as Exhibit 10.2 to the Company's Form 10-K
Reports for each of the fiscal years ended September 30, 1986, September 30, 1987 and September 30,
1988.)*
10.2(b) 1990 Long-Term Incentive Plan of the Company. (Filed as Exhibit 10.2(b) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1989.)*
10.2(b)(1) Amendment to 1990 Long-Term Incentive Plan of the Company, effective July 16, 1992. (Filed as Exhibit
10.2(b)(1) to the Company's Form 10-K Report for the fiscal year ended September 30, 1993.)*
10.2(c) 1997 Long-Term Incentive Plan of the Company effective October 1, 1996.
10.3 1990 Annual Incentive Plan of the Company, as amended and restated effective October 1, 1989. (Filed
as Exhibit 10.3 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.4 Supplementary Pension Plan of the Company, as amended effective October 1, 1988. (Filed as Exhibit
10.4 to the Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
10.4(a) Amendment to Supplementary Pension Plan of the Company, adopted September 20, 1995. (Filed as Exhibit
10.4(d) to the Company's Form 10-K Report for the fiscal year ended September 30, 1995.)*
10.4(b) Amendment to Supplementary Pension Plan of the Company, adopted September 20, 1995. (Filed as Exhibit
10.4(e) to the Company's Form 10-K Report for the fiscal year ended September 30, 1995.)*
10.4(c) Amendment to Supplementary Pension Plan of the Company, adopted November 2, 1995.
10.4(d) Amended and Restated Trust Agreement by and between the Company and Provident National Bank dated as
of October 31, 1989. (Filed as Exhibit 10.4(a) to the Company's Form 10-K Report for the fiscal year
ended September 30, 1989.)*
10.4(e) Amendment to the Amended and Restated Trust Agreement by and between the Company and PNC Bank, N.A.
dated May 1, 1995. (Filed as Exhibit 10.4(g) to the Company's Form 10-K Report for the fiscal year
ended September 30, 1995.)*
10.5 Supplementary Savings Plan of the Company as amended October 1, 1989. (Filed as Exhibit 10.5 to the
Company's Form 10-K Report for the fiscal year ended September 30, 1989.)*
</TABLE>
<PAGE> 22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
<TABLE>
<S> <C>
10.5(a) Trust Agreement by and between the Company and Provident National Bank dated as of October 31, 1989.
(Filed as Exhibit 10.5(a) to the Company's Form 10-K Report for the fiscal year ended September 30,
1989.)*
10.5(b) Amendment to the Trust Agreement by and between the Company and PNC Bank, N.A. (previously Provident
National Bank) relating to the Supplementary Pension Plan and Supplementary Savings Plan dated May 1,
1995. (Filed as Exhibit 10.5(b) to the Company's Form 10-K Report for the fiscal year ended September
30, 1995.)*
10.6(a) Amended and Restated Deferred Compensation Plan for Directors of the Company, effective November 21,
1996.
10.6(b) Amended and Restated Pension Plan for Directors of the Company, effective January 1, 1983, as amended
effective January 1, 1990 and January 1, 1994. (Filed as Exhibit 10.6(b) to the Company's Form 10-K
Report for the fiscal year ended September 30, 1993.)*
10.7 Agreements with executives.
10.7(a) Form of Employment Agreement dated July 30, 1987, which the Company has with each of its executive
officers. (Filed as Exhibit 10.7(a) to the Company's Form 10-K Report for the fiscal year ended
September 30, 1987.)*
10.8 Employee Severance Plans.
10.8(a) Air Products and Chemicals, Inc. Severance Plan effective March 15, 1990. (Filed as Exhibit 10.8(a) to
the Company's Form 10-K Report for the fiscal year ended September 30, 1992.)*
10.8(b) Air Products and Chemicals, Inc. Change of Control Severance Plan effective March 15, 1990. (Filed as
Exhibit 10.8(b) to the Company's Form 10-K Report for the fiscal year ended September 30, 1992.)*
(11) Earnings per share.
(12) Computation of Ratios of Earnings to Fixed Charges.
(13) 1996 Financial Review Section of the Annual Report to Shareholders for the fiscal year ended September
30, 1996, which is furnished to the Commission for information only, and not filed except as expressly
incorporated by reference in this Report.
(21) Subsidiaries of the registrant.
(24) Power of Attorney.
(27) Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission
for information only, and not filed.
(27)(b) Reports on Form 8-K filed during the quarter ended September 30, 1996.
Current Reports on Form 8-K dated July 23, 1996, October 23, 1996, and October 25, 1996,
were filed in which Item 5 of such Form was reported.
</TABLE>
*Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference should be located in SEC File No. 1-4534.
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
* * * * *
Air Products and Chemicals, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Air Products and
Chemicals, Inc. resolutions were duly adopted setting forth a proposed amendment
to the Restated Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Board of Directors of this Corporation proposes and
recommends and hereby declares it to be advisable that the Restated
Certificate of Incorporation of this Corporation be amended by changing
the first paragraph of Article FOURTH thereof to read as follows:
"FOURTH: THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION
SHALL HAVE THE AUTHORITY TO ISSUE IS THREE HUNDRED TWENTY-FIVE MILLION
(325,000,000) SHARES, CONSISTING OF THREE HUNDRED MILLION (300,000,000)
SHARES OF COMMON STOCK HAVING A PAR VALUE OF $1 PER SHARE AND
TWENTY-FIVE MILLION (25,000,000) SHARES OF PREFERRED STOCK HAVING A PAR
VALUE OF $1 PER SHARE."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held,
1
<PAGE> 2
upon notice in accordance with section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Air Products and Chemicals, Inc. has caused
this certificate to be signed by H. A. Wagner, its Chairman of the Board,
President, and Chief Executive Officer, and attested by Lynn German Long, its
Assistant Corporate Secretary, this 25th day of January, 1996.
Air Products and Chemicals, Inc.
By /s/ H. A. Wagner
-----------------------------------------
Chairman of the Board, President, and Chief
Executive Officer
ATTEST:
By /s/ Lynn German Long
------------------------------------
Assistant Corporate Secretary
2
<PAGE> 1
Exhibit 10.2(c)
AIR PRODUCTS AND CHEMICALS, INC.
1997 LONG-TERM INCENTIVE PLAN
AS AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996
1. PURPOSES OF THE PLAN
The purposes of this Plan are: (i) to provide long-term incentives and
rewards to those executives or other key employees who are in a position to
contribute to the long-term success and growth of Air Products and Chemicals,
Inc. (the "Company") and Participating Subsidiaries, (ii) to assist the Company
and Participating Subsidiaries in attracting and retaining executives and other
key employees with experience and ability and (iii) to associate more closely
the interests of such executives and other key employees with those of the
Company's shareholders.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Management Development and
Compensation Committee (the "Committee") of the Company's Board of Directors
(the "Board") or such other committee thereof consisting of such members (not
less than three) of the Board as are appointed from time to time by the Board
and who, during the one year period prior to serving as a member of the
Committee and during such service, have not been and are not granted equity
securities of the Company under the Plan or under any other Company plan or
program (other than one which will not jeopardize the "disinterested" status of
such person within the meaning of Rule 16b-3(c)(2)(i) under the Act or any
predecessor or successor rule relating to exemption from Section 16(b) of the
Act) and who further constitute "outside directors" for purposes of Section
162(m) of the Internal Revenue Code.
The Committee shall have all necessary powers to administer and
interpret the Plan, such powers to include exclusive authority (within the
limitations described and except as otherwise provided in the Plan) to select
the employees or determine classes of employees to be granted awards under the
Plan, to determine the aggregate amount, type, size, and terms of the awards to
be made, to determine the time when awards will be granted and to establish and
determine whether performance objectives required for earning the right to
payment in respect of performance units have been attained. The Committee may
take into consideration recommendations from the appropriate officers of the
Company and of each Participating Subsidiary with respect to making the
foregoing determinations as to Plan awards, administration, and interpretation.
The Committee shall have full power and authority to adopt such rules,
regulations, agreements and instruments for the administration of the Plan and
for the conduct of its business as the Committee deems necessary or advisable.
The Committee's interpretations of the Plan and all action taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all parties concerned, including
the Company, its shareholders and any employee of the Company or any Subsidiary.
Notwithstanding any other provision of the Plan to the contrary, the Committee
may delegate to appropriate Company
<PAGE> 2
officers its authority to take all final action with respect to granting and
administering Plan awards granted to executives and key employees who are at the
time of such action not members of the Board or "officers" within the meaning of
Rule 16a-1(f) of the Act, including without limitation selecting the executives
and key employees to whom such awards will be granted and determining the amount
of any such awards to be made to such executives and key employees, determining
the terms and conditions of such awards and administering, interpreting, and
taking all action on behalf of the Company with respect to administering,
vesting, and paying such awards; provided, however, that (i) all such awards
shall be granted within the limitations and subject to the terms and conditions
required by the Plan and by the Committee's determinations and interpretations
thereof and thereunder; (ii) the aggregate of such awards granted under the Plan
for or with respect to a given Fiscal Year shall not, when added to the awards
approved by the Committee for granting to individuals who are members of the
Board of Directors or are "officers" within the meaning of Rule 16a-1(f) of the
Act for or with respect to the same Fiscal Year, exceed the total amount of
awards approved by the Committee for or with respect to such Fiscal Year; and
(iii) excepting any action with respect to such awards taken because of or in
connection with a Change in Control of the Company or as contemplated by Section
11. With respect to matters so delegated, the term "Committee" as used herein
shall mean the delegate.
3. ELIGIBILITY FOR PARTICIPATION
Participation in the Plan shall be limited to executives or other key
employees (including officers and directors who are also employees) of the
Company and its Participating Subsidiaries who are determined by the Committee
to have a substantial opportunity to influence the long-term growth of the
Company or Participating Subsidiaries. Employees who participate in other
incentive or benefit plans of the Company or any Participating Subsidiary may
also participate in this Plan. As used herein, the term "employee" shall mean
any person employed full-time by the Company or a Participating Subsidiary on a
salaried basis, and the term "employment" shall mean full-time salaried
employment by the Company or a Subsidiary.
4. SHARES OF STOCK SUBJECT TO THE PLAN
The shares that may be delivered upon exercise, in payment or in
respect of stock options, stock appreciation rights, performance units, and
deferred stock units granted under the Plan for, during, or in respect of Fiscal
Year 1997 and later years, shall not exceed in the aggregate 6,000,000 shares of
common stock of the Company ("Common Stock"), subject to adjustment as provided
in Section 11. Any share subject to a Plan award which for any reason expires,
is forfeited, or terminates unexercised may again be subject to an award
subsequently granted under the Plan, but shares subject to an award which are
not issued or delivered as a result of the exercise or payment of a related
award shall not again be available for issuance under the Plan regardless of the
form in which such award was paid.
5. AWARDS
Awards under the Plan may be of the following types: (i) stock options,
(ii) stock appreciation rights, (iii) performance units, and/or (iv) deferred
stock units. Stock options
2
<PAGE> 3
("Stock Options" or "Options") may be either nonstatutory stock options
("Nonstatutory Stock Options") or incentive stock options ("Incentive Stock
Options"), both as described below. The Committee shall designate each Stock
Option grant as being either a Nonstatutory Stock Option or an Incentive Stock
Option. If the same individual receives both Nonstatutory Stock Options and
Incentive Stock Options, each type shall be clearly identified and separately
granted.
Stock Options, whether Nonstatutory Stock Options or Incentive Stock
Options, are rights to purchase Common Stock from the Company. Stock
appreciation rights ("Stock Appreciation Rights") are rights to receive cash
and/or Common Stock equivalent in value to the "spread" between (a) the
aggregate fair market value of the number of shares with respect to which the
Participant has elected to exercise Stock Appreciation Rights and (b) the
aggregate purchase price of such shares based on the Fair Market Value of a
share of Common Stock on the date the Stock Appreciation Rights were granted.
Performance units ("Performance Units") are awards having a unit dollar value
determined by the Committee and constitute rights to receive cash and/or Common
Stock equivalent in value to the value of the Performance Units, provided
specified performance objectives are met. Deferred stock units ("Deferred Stock
Units") are rights to receive at the end of a deferral period cash and/or Common
Stock equivalent in value to one share of Common Stock for each unit.
Nonstatutory Stock Options, Stock Appreciation Rights, Performance
Units, and Deferred Stock Units may be granted to the same person as separate
awards at or for the same period of time under terms whereby the issuance of
shares or payment under one award has no effect on any other award. Stock
Appreciation Rights and Performance Units may be granted to a Participant in
relation to (i.e., in "tandem" with) a previously or concurrently granted
Nonstatutory Stock Option under terms whereby the issuance of shares or payment
under one award reduces directly the number of shares, units, and/or rights
remaining available under the related award(s). Performance Units cannot be
granted in conjunction with, or in any way related to, Incentive Stock Options.
6. STOCK OPTIONS
(a) Nonstatutory Stock Options. A Stock Option designated by the
Committee as a Nonstatutory Stock Option is one which is not eligible for
preferential tax treatment under Section 421(a) of the Internal Revenue Code.
The Committee may grant Nonstatutory Stock Options either alone or in
conjunction with and related to Stock Appreciation Rights and/or Performance
Units. All Nonstatutory Stock Options granted under the Plan shall be on the
following terms and conditions (and such other terms and conditions that the
Committee may establish which are consistent with the Plan and applicable law):
(i) Price. The purchase price per share of Common Stock
covered by each Nonstatutory Stock Option shall not be less than 100%
of the Fair Market Value of a share of Common Stock on the date of
grant of such Option.
3
<PAGE> 4
(ii) Number of Shares. The Committee will determine,
absolutely or by formula related to the Fair Market Value of a share of
Common Stock, the number of shares of Common Stock to be subject to
each Nonstatutory Stock Option. The number of shares subject to an
outstanding Nonstatutory Stock Option will be reduced on a one-for-one
basis to the extent that (A) shares under such Nonstatutory Stock
Option are used to calculate the cash and/or shares received upon
exercise of related Stock Appreciation Rights and (B) any related
Performance Units are paid. In no event shall the number of shares
subject to nonstatutory stock options granted to any Participant in any
Fiscal Year exceed 500,000.
(iii) Term and Exercise Dates. The Committee shall fix the
term during which each Nonstatutory Stock Option may be exercised, but
no Nonstatutory Stock Option shall be exercisable after the first day
following the tenth anniversary of its date of grant. No Nonstatutory
Stock Option shall be exercisable prior to one year from its date of
grant, except as otherwise provided in Section 10. Unless otherwise
determined by the Committee and except as otherwise provided in Section
10, each Nonstatutory Stock Option shall become exercisable in
installments as follows:
1. One-third of the shares subject to such
Nonstatutory Stock Option may be purchased commencing one year
after the date of grant; and
2. An additional one-third of such shares subject to
such Nonstatutory Stock Option may be purchased commencing on
each of the second and third yearly anniversaries of the date
of grant.
In the event a Participant ceases to be an employee of the
Company or a Subsidiary by reason of Retirement, Disability or death
after the first anniversary of the date of grant to such person of a
Nonstatutory Stock Option but before the Option has become exercisable
in full, a pro rata portion of the shares that would have become
exercisable on the next anniversary of the date of grant had the
Participant remained employed shall become exercisable commencing on
such next anniversary, based upon the proportion which the number of
full calendar months in such Fiscal Year prior to such termination of
employment bears to the 12 calendar months in the Fiscal Year.
Notwithstanding the foregoing or any other provision of the Plan, the
Committee may determine, in its discretion, that any unexercisable
Nonstatutory Stock Option or portion thereof shall not terminate or
have terminated on the date of the Participant's Retirement, Disability
or death, but shall continue or have continued on such terms and
subject to such conditions as the Committee shall specify.
Notwithstanding any other provision of the Plan, the Committee
may determine that the date on which any outstanding Nonstatutory Stock
Option or any portion thereof is exercisable shall be or shall have
been advanced to an earlier date or dates designated by the Committee
in accordance with such terms and subject to such conditions, if any,
as the Committee shall specify; provided, however, that any such
earlier date shall not be
4
<PAGE> 5
prior to one year from the date of grant of such Nonstatutory
Stock Option, except as otherwise provided in Section 10.
(iv) Exercise. A Participant wishing to exercise his or her
Nonstatutory Stock Option in whole or in part shall give written notice
of such exercise to the Company, accompanied by full payment of the
purchase price. The date of receipt of such notice (including by
facsimile transmission) and payment shall be the "Exercise Date" for
such Nonstatutory Stock Option or portion thereof; provided, however,
that if the Participant engages in a simultaneous Option exercise and
sale of shares of Common Stock, the Exercise Date shall be the date of
sale of the shares purchased by exercising such Option. No partial
exercise of a Nonstatutory Stock Option may be for less than 100 shares
of Common Stock.
(b) Incentive Stock Options. A Stock Option designated by the Committee
as an Incentive Stock Option is one which is intended to comply with the
requirements in Subsection (b) of Section 422 of the Internal Revenue Code so as
to be eligible for preferential income tax treatment and shall satisfy the
following terms and conditions (and such other terms and conditions that the
Committee may establish which are consistent with the Plan and applicable law):
(i) Price. The purchase price per share of Common Stock
covered by each Incentive Stock Option shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date of grant
of such Option. If an Incentive Stock Option is granted to an employee
who, on the date of grant, owns stock possessing more than 10% of the
total combined voting power of all outstanding classes of stock of the
Company or any affiliate, the purchase price per share under such
Incentive Stock Option shall be at least 110% of the Fair Market Value
of a share of Common Stock on the date of grant of such Option and such
Incentive Stock Option shall not be exercisable after the expiration of
five years from its date of grant.
(ii) Number of Shares. The Committee will determine,
absolutely or by formula related to the Fair Market Value of a share of
Common Stock, the number of shares of Common Stock to be subject to
each Incentive Stock Option. The number of shares subject to an
outstanding Incentive Stock Option will be reduced on a one-for-one
basis to the extent that shares under such Incentive Stock Option are
used to calculate the cash and/or shares received upon exercise of a
related Stock Appreciation Right.
(iii) Term and Exercise Dates. No Incentive Stock Option shall
be granted under this Plan more than 10 years after the date this Plan
is adopted or approved by the shareholders of the Company, whichever is
earlier. The Committee shall fix the term during which each Incentive
Stock Option may be exercised, but no Incentive Stock Option shall be
exercisable after ten years from its date of grant. No Incentive Stock
Option shall be exercisable prior to one year from its date of grant,
except as otherwise provided in Section 10. Unless otherwise determined
by the Committee and except as
5
<PAGE> 6
otherwise provided in Section 10, each Incentive Stock Option shall be
exercisable in full one year after its date of grant.
In the event a Participant ceases to be an employee of the
Company or a Subsidiary by reason of Retirement, Disability or death
after the first anniversary of the date of grant to such person of an
Incentive Stock Option but before the Option has become exercisable in
full, a pro rata portion of the shares shall become exercisable
commencing on the next anniversary of the date of grant of such award,
based upon the proportion which the number of full calendar months in
such Fiscal Year prior to such termination of employment bears to the
12 calendar months in the Fiscal Year. Notwithstanding the foregoing or
any other provision of the Plan, the Committee may determine, in its
discretion, that any unexercisable Incentive Stock Option or portion
thereof shall not terminate or have terminated on the date of the
Participant's Retirement, Disability or death, but shall continue or
have continued on such terms and subject to such conditions as the
Committee shall specify.
Notwithstanding any other provision of the Plan, the Committee
may determine that the date on which any outstanding Incentive Stock
Option or any portion thereof is exercisable shall be or shall have
been advanced to an earlier date or dates designated by the Committee
in accordance with such terms and subject to such conditions, if any,
as the Committee shall specify, provided, however, that any such
earlier date shall not be prior to one year from the date of grant of
such Incentive Stock Option, except as otherwise provided in Section
10.
(iv) Exercise. A Participant wishing to exercise his or her
Incentive Stock Option in whole or in part shall give written notice of
such exercise to the Company, accompanied by full payment of the
purchase price. The date of receipt of such notice (including by
facsimile transmission) and payment shall be deemed to be the "Exercise
Date" for such Incentive Stock Option or portion thereof; provided,
however, that if the Participant engages in a broker-financed Option
exercise, the Exercise date shall be the date of sale of the shares
purchased by exercising such Option. No partial exercise of an
Incentive Stock Option may be for less than 100 shares of Common Stock.
(v) Annual Limit. The aggregate Fair Market Value, determined
on the date of grant, of stock with respect to which Incentive Stock
Options are exercisable for the first time by such Participant during
any calendar year (under this Plan and all such other plans of the
Company and any predecessor, parent, subsidiary or affiliate) shall not
exceed $100,000.
(c) Payment. The purchase price of shares purchased upon exercise of
any Option shall be paid in full in cash at the time of exercise of the Option,
except that the Committee, in its sole discretion, and on such terms and
conditions as it may specify, may approve payment by the exchange of shares of
Common Stock having a Fair Market Value on the Exercise Date equal to the
purchase price of such shares or by a combination of cash and Common Stock
having a Fair Market Value on the Exercise Date equal to the portion of such
purchase price not paid in cash;
6
<PAGE> 7
provided, however, that except as the Committee shall otherwise determine, any
such shares submitted in the exchange must have been beneficially owned by the
Participant for a certain period prior to the Exercise Date, the duration of
such period to be determined from time to time by the Committee but in no event
to be less than six months. Subject to any administrative rules from time to
time adopted by the Committee for administering Option exercises, payment of the
exercise price of the Option will be permitted through the delivery (including
by facsimile transmission) of an irrevocable exercise notice coupled with
irrevocable instructions to a designated broker to simultaneously sell the
underlying shares of Common Stock and deliver to the Company on the settlement
date the portion of the proceeds representing the exercise price (and any taxes
to be withheld).
(d) Termination of Employment or Death.
(i) In the event that a Participant ceases to be an employee
of the Company or a Subsidiary by reason of Retirement, Disability or
death, any portion of his or her Stock Option that is not, or will not
by its terms following such Retirement, Disability or death become,
exercisable shall terminate on the date of such Retirement, Disability
or death. The date of any such Disability shall be determined by the
Committee. The Participant whose employment is terminated by Retirement
or Disability, and, in the case of the Participant's death before or
after Retirement or Disability, the Participant's Designated
Beneficiary or, if none, his or her legal representative, shall
continue to have the same rights to exercise any unexercised portion of
the Participant's Stock Option which is exercisable at the time of, or
will by its terms become exercisable after such termination or death,
as the Participant would have had if he or she had continued to be an
active or retired employee of the Company or a Subsidiary, as the case
may be.
(ii) Except as provided in clause (i) of this Section 6(d), if
prior to the expiration or cancellation of any Stock Option, the
Participant ceases to be employed by the Company or a Subsidiary for
any reason, any unexercised portion of his or her outstanding Option
shall automatically terminate unless the Committee, in its sole
discretion, shall determine otherwise, and except that when the
Participant's employment has ceased due to part-time employment or a
leave of absence, such Participant's Stock Option shall be treated in
accordance with guidelines for such situations established by the
Committee.
(iii) No provision of this Section 6(d) shall be deemed to
permit the exercise of any Stock Option after the expiration of the
normal stated term of such Option.
7. STOCK APPRECIATION RIGHTS
The Committee may grant Stock Appreciation Rights either alone or in
conjunction with and related to previously or concurrently granted Stock Options
and/or Performance Units. All Stock Appreciation Rights shall be granted on the
following terms and conditions (and such other
7
<PAGE> 8
terms and conditions that the Committee may establish which are consistent with
the Plan and applicable law):
(a) Number of Rights. The Committee shall determine, absolutely or by
formula related to the Fair Market Value of a share of Common Stock, the number
of Stock Appreciation Rights which shall be granted. As to any Stock
Appreciation Rights granted in tandem with another Plan award, such number shall
not be greater than the number of shares which are then subject to any Stock
Options related to such Stock Appreciation Rights, and the number of such Stock
Appreciation Rights will be reduced on a one-for-one basis to the extent that
(A) shares under any related Stock Option are purchased and (B) any Performance
Units related to any such Nonstatutory Stock Options are paid. In no event shall
the number of Stock Appreciation Rights granted to any Participant in any Fiscal
Year exceed 500,000.
(b) Exercise. Stock Appreciation Rights shall entitle the Participant,
to the extent he or she so elects from time to time, to receive, without any
payment to the Company, an amount of cash and/or a number of shares determined
and payable as provided in Section 7(c). Stock Appreciation Rights shall
generally be exercisable to the extent and upon the same conditions that Stock
Options are exercisable under clause (iii) of Sections 6(a) or 6(b), as the case
may be; provided, however, that, unless otherwise determined by the Committee,
Stock Appreciation Rights (i) may not be exercised when the Fair Market Value of
a share of Common Stock is more than three times the Fair Market Value of a
share of Common Stock on the date of grant of the Stock Appreciation Rights
(except as otherwise provided in Section 10), (ii) may not be exercised prior to
six months following the date of their grant, and (iii) if related to a Stock
Option, shall automatically terminate six months after the optionee ceases for
any reason to be employed by the Company or a Subsidiary and has ceased to be a
member of the Company's Board.
A Participant wishing to exercise Stock Appreciation Rights shall give
written notice of such exercise to the Company. The date of receipt of such
notice shall be the "Exercise Date" for such Stock Appreciation Rights. Promptly
after the Exercise Date or the end of the Exercise Period described below, if
later, the Company shall pay and/or deliver to the Participant the cash and/or
shares to which he or she is entitled. Unless otherwise determined by the
Committee and except as otherwise provided in Section 10, the Exercise Date
shall be limited to that period beginning on the third business day following
the date of release for publication of the Company's quarterly and annual
summary statements of sales and earnings and ending on the twelfth business day
following such date of release (the "Exercise Period").
(c) Amount of Cash and/or Number of Shares. Except as otherwise
provided in Section 10, the amount of the payment to be made upon exercise of
Stock Appreciation Rights shall be determined by multiplying (i) that portion,
as elected by the Participant, of the total number of shares as to which the
Participant is entitled to exercise the Stock Appreciation Rights award as of
the Stock Appreciation Right Exercise Date, by (ii) 100% of the amount by which
the average of the Fair Market Values of a share of Common Stock on each trading
day during the Exercise Period exceeds the Fair Market Value of a share of
Common Stock on the date the Stock Appreciation Rights were granted. The
Committee may make payment in cash or partly in
8
<PAGE> 9
cash and partly in Common Stock, all as determined by the Committee in its sole
discretion. To the extent that payment is made in Common Stock, the number of
shares shall be determined by dividing the amount of such payment by the
foregoing average of the Fair Market Values of a share of Common Stock on each
trading day during the Exercise Period. No fractional shares shall be issued,
but instead the Participant shall be entitled to receive a cash adjustment equal
to the same fraction of the foregoing average of Fair Market Values.
(d) Termination of Employment or Death. In the event that a recipient
of Stock Appreciation Rights ceases to be employed by the Company or a
Subsidiary by reason of Retirement, Disability or death after the first
anniversary of the date of the grant to such person of such Stock Appreciation
Rights, his or her Stock Appreciation Rights shall continue to be exercisable
following such termination of employment and termination of directorship, if
any, to the extent and upon the same conditions that a Stock Option is or
becomes exercisable under clause (iii) of Section 6(a) or 6(b), as the case may
be, (but subject to the conditions set forth in clauses (i) and (ii) of Section
7(b)). Any such Stock Appreciation Rights related to Stock Options shall
automatically terminate six months after such termination of employment and
termination of directorship, if any. In the event a recipient of Stock
Appreciation Rights ceases to be employed by the Company or a Subsidiary for a
reason other than Retirement, Disability or death, his or her Stock Appreciation
Rights shall automatically terminate unless and to the extent the Committee, in
its sole discretion, shall determine otherwise.
(e) Stock Appreciation Rights Granted in Relation to Incentive Stock
Options. In order to assure that any Incentive Stock Option with respect to
which a Stock Appreciation Right is granted shall continue to comply with the
requirements in Subsection (b) of Section 422 of the Internal Revenue Code so as
to be eligible for preferential tax treatment, notwithstanding any other
provision of the Plan, any such Stock Appreciation Right granted under the Plan
shall entitle the Participant to payment of no more than 100% of the difference
between the purchase price of a share of Common Stock under the related
Incentive Stock Option and the Fair Market Value of such a share on the Stock
Appreciation Right Exercise Date and may be exercisable only when the Fair
Market Value of a share of Common Stock on the Stock Appreciation Right Exercise
Date exceeds the purchase price of a share of such Common Stock under the terms
of the related Incentive Stock Option. In addition, Stock Appreciation Rights
will expire no later than the expiration of any related Incentive Stock Option,
will be transferable only when, and under the same conditions, as the related
Incentive Stock Option is transferable and may be exercisable only when the
related Incentive Stock Option is exercisable. The Committee may, in its
discretion, from time to time impose such additional or different restrictions
on Stock Appreciation Rights relating to Incentive Stock Options as may be
necessary to maintain the eligibility of such Options for preferential tax
treatment.
8. PERFORMANCE UNITS
All Performance Units awarded under the Plan shall be granted on the
following terms and conditions (and such other terms and conditions that the
Committee may establish which are consistent with the Plan and applicable law):
9
<PAGE> 10
(a) Number and Value of Units. The Committee shall determine the number
of Performance Units to be granted to each employee selected for an award and
the maximum dollar value of each Performance Unit so granted. In the case of any
Performance Units granted in relation to a Nonstatutory Stock Option, the
initial number of Performance Units shall be no greater than the number of
shares which are then subject to the related Nonstatutory Stock Option. In no
event shall the maximum dollar value of Performance Units granted to any
Participant in any Fiscal Year exceed the lesser of $2,000,000 or 150% of the
annualized Participant's base salary as of the date of grant.
In the case of any Performance Units granted in relation to a
Nonstatutory Stock Option, the number of such Performance Units shall be
cancelled on a one-for-one basis to the extent that (i) either before or after
such Performance Units have been earned and credited to Participants, shares are
purchased upon exercise under the related Nonstatutory Stock Option or shares
under such Nonstatutory Stock Option are used to calculate the cash and/or
shares received pursuant to related Stock Appreciation Rights, or (ii) before
such Performance Units have been earned and credited to Participants, the
related Nonstatutory Stock Option terminates in whole or in part as provided in
clauses (i) or (ii) of Section 6(d).
(b) Performance Objectives. Except as otherwise determined by the
Committee and as permitted by Section 10, the award period (the "Award Period")
in respect of any Performance Units shall be a four-year period commencing as of
the beginning of the Fiscal Year in or for which such Performance Units are
granted. At the time each grant of Performance Units is made, the Committee
shall establish and communicate to recipients of Performance Unit awards
performance objectives ("Performance Objectives") to be attained within the
Award Period as a condition to any right to receive payment in respect of such
Performance Units. The Committee may, in its discretion, establish different
Performance Objectives and/or Award Periods for Participants employed by or
responsible for matters relating to different Participating Subsidiaries or
different divisions, groups, departments or other subdivisions of the Company or
Participating Subsidiaries and make, in its discretion, any equitable
adjustments in Performance Objectives for Performance Units granted later than
similar Performance Units awarded for the same Award Period. The Performance
Objectives shall be determined by the Committee using such measure or measures
of the performance of the Company and/or its Subsidiaries over the Award Period
as the Committee shall select other than the market value of Common Stock of the
Company.
(c) Crediting and Payment. At the end of each Award Period, the
Committee shall determine the extent to which the Performance Objectives for the
Award Period have been attained and the dollar value of each Performance Unit
granted for such Award Period. Thereupon, each Participant will be credited with
an earned Performance Unit valued at such dollar value for each Performance Unit
granted to him or her for such Award Period which remains outstanding as of the
date of the Committee's determination. Interest will accrue on the dollar value
of each earned Performance Unit from the date of credit at such rate as the
Committee may from time to time determine to be reasonable. Any interest earned
on or in
10
<PAGE> 11
respect of an earned Performance Unit that is subsequently cancelled other than
by payment in respect thereof shall be forfeited by the Participant.
A Participant whose earned Performance Units were granted in relation
to a Nonstatutory Stock Option may elect to receive payment of the dollar value,
including accrued interest thereon, of all or part of such earned Performance
Units at any time prior to the cancellation of those Performance Units in
accordance with Section 8(a), and shall be paid in respect of any such earned
Performance Units which remain outstanding promptly following the expiration or
termination unexercised of such Nonstatutory Stock Option (other than by reason
of the exercise of related Stock Appreciation Rights). Payment in respect of
earned Performance Units granted alone and not in relation to a Nonstatutory
Stock Option shall be made by the Company promptly following the crediting of
those Performance Units.
Payment in respect of Performance Units shall be made in cash, shares
of Common Stock or partly in cash and partly in shares of Common Stock, all as
determined by the Committee in its sole discretion. To the extent that payment
is made in Common Stock, the number of shares shall be determined by dividing
the amount of the payment to be made by the Fair Market Value of a share of
Common Stock on the date of (i) receipt of written notice of the Participant's
election to receive payment or expiration or termination of the related
Nonstatutory Stock Option or (ii) crediting of Performance Units granted alone
and not in relation to any Nonstatutory Stock Option. Upon payment in respect of
an earned Performance Unit, such Unit shall be cancelled.
(d) Termination of Employment or Death. In the event that a recipient
of a grant of Performance Units ceases to be an employee of the Company or a
Subsidiary prior to the end of the Award Period applicable to such Units by
reason of Retirement, Disability or death, any of his or her outstanding
Performance Units granted in relation to Nonstatutory Stock Options (after
reduction on a one-for- one basis to the extent that related Nonstatutory Stock
Options terminate as provided in clause (iii) of Section 6(a) and clause (i) of
Section 6(d)) and which are eventually earned in accordance with Section 8(c),
shall be credited to such Participant or, in the case of such Participant's
death, his or her Designated Beneficiary or, if none, his or her legal
representative, and shall be payable at such times and in the manner provided in
Section 8(c). Any of his or her Performance Units not granted in relation to
Nonstatutory Stock Options and eventually earned in accordance with Section 8(c)
shall become payable as provided in Section 8(c), but in proportion to the
service of the Participant during the Award Period excluding any such service
following the last full calendar month of the Award Period preceding his or her
Retirement, Disability or death, unless the Committee determines, in its
discretion, that such Participant or his or her Designated Beneficiary or legal
representative should be eligible for eventual payment in full in respect of
such Performance Units as if the Participant had continued in service through
the end of the Award Period.
9. DEFERRED STOCK UNITS
The Committee may grant Deferred Stock Units to Participants on the
following terms and conditions (and such other terms and conditions that the
Committee may establish which are consistent with the Plan and applicable law):
11
<PAGE> 12
(a) Number, Value and Manner of Payment of Deferred Stock Units. Each
Deferred Stock Unit shall be equivalent in value to one share of Common Stock
and shall entitle the Participant to receive from the Company at the end of the
deferral period (the "Deferral Period") applicable to such Unit, without payment
of cash or other consideration to the Company but in consideration of services
performed for or for the benefit of the Company or a Participating Subsidiary by
such Participant, the value at such time of each Unit. Payment of the value of
such awards may be made in shares of Common Stock, cash or both as determined by
the Committee during, or as soon as practicable after the end of the Deferral
Period. If paid in Common Stock, the Participant shall receive a number of
shares of Common Stock equal to the number of matured or earned Deferred Stock
Units, and if paid in cash, the Participant shall receive for each matured
Deferred Stock Unit an amount equal to the Fair Market Value of a share of
Common Stock on the last day of the applicable Deferral Period (except as
otherwise provided in Section 10). Upon payment in respect of a Deferred Stock
Unit, such Unit shall be canceled. In no event shall the number of Deferred
Stock Units granted to any Participant in any Fiscal Year exceed 50,000.
(b) Deferral Period. Except as otherwise provided in Section 9(c),
payments in respect of Deferred Stock Units shall be made only at the end of the
Deferral Period applicable to such Units, the duration of which Deferral Period
shall be fixed by the Committee at the time of grant of such Deferred Stock
Units. Deferral Periods shall be no less than two years.
(c) Termination of Employment or Death.
(i) If during a Deferral Period a Participant's full-time
employment with the Company or a Subsidiary is terminated for any
reason other than Retirement, Disability or death, such Participant
shall forfeit his or her Deferred Stock Units which would have matured
or been earned at the end of such Deferral Period, unless the Committee
determines in its discretion that such Deferred Stock Units should be
paid at the end of such Deferral Period or, notwithstanding any other
provision of the Plan, on some accelerated basis.
(ii) Unless otherwise specified by the Committee in the
applicable Deferred Stock Units agreement, a Participant whose
full-time employment with the Company or a Subsidiary terminates during
a Deferral Period due to Retirement or Disability or, in the case of
his or her death before or after Retirement or Disability, such
Participant's Designated Beneficiary or, if none, his or her legal
representative, shall receive payment in respect of such Participant's
Deferred Stock Units which would have matured or been earned at the end
of such Deferral Period, at such time and in such manner as if the
Participant were still employed (and living) at the end of the Deferral
Period or, notwithstanding any other provision of the Plan, on such
accelerated basis as the Committee may determine.
(d) Dividends. No cash dividends or equivalent amounts shall be paid on
outstanding Deferred Stock Units. However, when payment of the value of an award
is made to the Participant, the Company shall pay to the Participant an
additional amount in cash which shall be
12
<PAGE> 13
equal to the cash dividends, if any ("Dividend Equivalent") which would have
been paid during the period since the award was granted with respect to issued
and outstanding shares of Common Stock equal in number to the number of Deferred
Stock Units being paid. No interest shall be paid on any such Dividend
Equivalent or any part thereof.
10. CHANGE IN CONTROL
Following or in connection with the occurrence of a Change in Control,
the following shall or may occur as specified below, notwithstanding any other
provisions of this Plan to the contrary:
(a) Acceleration and Exercisability of Stock Options and Stock
Appreciation Rights; Amount of Cash and/or Number of Shares for Stock
Appreciation Rights. All Stock Options and Stock Appreciation Rights shall
become immediately exercisable in full for the period of their remaining terms
automatically and without any action by the Committee, provided, however, that
the acceleration of the exercisability of any Stock Option or Stock Appreciation
Right that has not been outstanding for a period of at least six months from its
respective date of grant shall occur on the first day next following the end of
such six-month period. In addition to the normal Exercise Period for Stock
Appreciation Rights provided for in Section 7(b), Stock Appreciation Rights
shall be exercisable during the thirty-day period immediately following the
later of (i) the Change in Control or (ii) the date of acceleration of their
exercisability, that is, upon the first date more than six months from their
date of grant following the Change in Control. The amount of the payment to be
made upon the exercise of a Stock Appreciation Right following a Change in
Control shall be determined, without regard to the limitation contained in
clause (i) of Section 7(b), by multiplying (i) that portion, as elected by the
Participant, of the total number of shares as to which the Participant is
entitled to exercise the Stock Appreciation Rights as of the Exercise Date for
the Stock Appreciation Rights, by (ii) 100% of the amount by which
(A) the greater of (1) the highest tender or exchange offer
price paid or to be paid for Common Stock pursuant to the offer
associated with the Change in Control (such price to be determined by
the Committee from such source or sources of information as the
Committee shall determine including, without limitation, the Schedule
13D or an amendment thereto filed by the offeror pursuant to Rule 13d-1
under the Act), or the price paid or to be paid for Common Stock under
an agreement associated with the Change in Control, as the case may be,
and (2) the highest Fair Market Value of a share of Common Stock on any
day during the sixty-day period immediately preceding the Exercise Date
of the Stock Appreciation Rights, exceeds
(B) the Fair Market Value of a share of Common Stock on the
date of grant of the Stock Appreciation Rights.
For purposes of determining the price paid or to be paid for Common
Stock under clause (1) of paragraph (A) of the preceding formula, consideration
other than cash forming part or all of the consideration for Common Stock paid
or to be paid pursuant to the exchange offer or agreement associated with the
Change in Control shall be valued at the higher of the valuation
13
<PAGE> 14
placed thereon by the Board of Directors or by the person making the offer or
entering into the agreement with the Company.
(b) Cash Surrender of Stock Options. All or certain outstanding Stock
Options may, at the discretion of the Committee, be required to be surrendered
by the holder thereof for cancellation in exchange for a cash payment for each
such Stock Option. In the absence of Committee action requiring the surrender of
Stock Options, each holder of Stock Options may elect to surrender all or
certain of his or her outstanding Options which are then exercisable for
cancellation in exchange for a cash payment for each such Stock Option. In any
case, the cash payment received for each share subject to the Stock Option shall
be 100% of the amount by which the amount described in paragraph (A) of Section
10(a) exceeds the Fair Market Value of a share of Common Stock on the date of
grant of the Option. Such payments shall be due and payable immediately upon
surrender to the Committee for cancellation of appropriate award agreements or
other evidence in writing of the Participant's relinquishment of his or her
rights to such award or at such earlier date as the Committee shall determine
(but in no event earlier than the occurrence of a Change in Control) and shall
be valued as if the Exercise Date were the date of receipt of said materials or
such earlier date as the Committee shall determine.
(c) Accelerated Payment of Pro Rata Performance Units. The Committee
may in its sole discretion determine to credit Participants with a prorated
number of and/or dollar value as to any or all outstanding Performance Units to
the extent of the elapsed time of the Award Period, but only to the extent
Performance Objectives, equitably adjusted (pursuant to Section 11(a)) and
otherwise adjusted to reflect the shorter award period, have been achieved, as
determined by the Committee, as of the date of such determination. Participants
shall have the right to elect to receive payment of amounts in respect of such
earned Performance Units beginning no later than thirty days following the
Committee's determination to credit said Units under this Section 10(c) or at
such earlier date as the Committee shall determine, but in no event earlier than
the occurrence of a Change in Control.
(d) Reduction in Accordance with Plan. The number of shares covered by
Stock Options and Stock Appreciation Rights and the number of Performance Units
granted in relation to Nonstatutory Stock Options will be reduced on a
one-for-one basis to the extent related Stock Options or Stock Appreciation
Rights are exercised, or surrendered for cancellation in exchange for a cash
payment, or related Performance Units are paid, as the case may be, under this
Section 10.
(e) Accelerated Payment of Deferred Stock Units. The Committee may, in
its sole discretion, determine to pay in full any or all outstanding Deferred
Stock Units together with any Dividend Equivalents for the period for which such
Units have been outstanding, notwithstanding that the Deferral Periods as to
such Deferred Stock Units have not been completed. Such payment may be in cash
or in Common Stock, or a combination thereof, as determined by the Committee,
and shall be due and payable to Participants no later than thirty days following
the Committee's determination to pay said Deferred Stock Units under this
Section 10(e) or at such earlier date as the Committee shall determine, but in
no event earlier than the occurrence of a Change in Control. If paid in cash,
each Participant shall receive
14
<PAGE> 15
payment of an amount in respect of each Deferred Stock Unit equal to the greater
of (i) the highest tender or exchange offer price paid or to be paid for Common
Stock pursuant to the offer associated with the Change in Control (such price to
be determined by the Committee from such source or sources of information as the
Committee shall determine including, without limitation, the Schedule 13D or an
amendment thereto filed by the offeror pursuant to Rule 13d-l under the Act) or
the price paid or to be paid for Common Stock under an agreement associated with
the Change in Control, as the case may be, and (ii) the highest Fair Market
Value of a share of Common Stock on any day during the sixty-day period
immediately preceding the Change in Control. For purposes of determining the
price paid or to be paid for Common Stock under clause (i) of the preceding
sentence, consideration other than cash forming part or all of the consideration
for Common Stock paid or to be paid pursuant to the exchange offer or agreement
associated with the Change in Control shall be valued at the higher of the
valuation placed thereon by the Board of Directors or by the person making the
offer or entering into the agreement with the Company.
11. DILUTION AND OTHER ADJUSTMENTS
(a) Notwithstanding any other provision of the Plan, in the event of
any change in the outstanding shares of Common Stock by reason of any stock
dividend or split, recapitalization, merger, consolidation, combination or
exchange of shares, a rights offering to purchase Common Stock at a price
substantially below fair market value, or other similar corporate change,
including without limitation in connection with a Change in Control, an
equitable adjustment shall be made, as determined by the Committee, so as to
preserve, without increasing or decreasing, the value of Plan awards and
authorizations (but subject to the last paragraph of Section 13), in (i) the
maximum number or kind of shares issuable or awards which may be granted under
the Plan, (ii) the amount payable upon exercise of Stock Appreciation Rights,
(iii) the maximum value payable in respect of Performance Units, (iv) the number
or kind of shares or purchase price per share subject to outstanding Stock
Options, (v) the number or value, or kind of shares which may be issued in
payment of outstanding Stock Appreciation Rights, (vi) the number or value of,
or the Performance Objectives or length of the Award Period for, outstanding
Performance Units, (vii) the value and attributes of Deferred Stock Units,
(viii) the maximum number, kind or value of any Plan awards which may be awarded
or paid to any one employee, (ix) any other aspect or aspects of the Plan or
outstanding awards made thereunder as specified by the Committee, or (x) any
combination of the foregoing. Such adjustments shall be made by the Committee
and shall be conclusive and binding for all purposes of the Plan.
(b) The Committee may, from time to time during an Award Period, in its
sole discretion (but subject to the last paragraph of Section 13), determine to
equitably adjust the Performance Objectives previously established by the
Committee for that Award Period as a condition of earning the right to receive
payment in respect of Performance Units or to equitably adjust Company
performance for all or any portion of the Award Period where such action is
warranted by any occurrence, condition, action, change or development by or
affecting the performance of the Company or any of its Subsidiaries, such as an
acquisition, disposition or divestiture of a business or assets; a change in
accounting principles or practices or the method of their application; the
occurrence of an extraordinary item for purposes of generally accepted
15
<PAGE> 16
accounting principles; a change in the value or valuation of property or assets;
a change in any tax or other law or regulation; or a change in business or
corporate strategy, structure or organization. The Committee may also, in its
discretion, eliminate the effect of foreign currency conversion gains or losses
or translation adjustments from the reported consolidated earnings per share of
the Company if used in determining the attainment of any Performance Objectives
previously established.
12. MISCELLANEOUS PROVISIONS
(a) The holder of a Stock Option, Stock Appreciation Right, Performance
Unit, or Deferred Stock Unit shall have no rights as a Company shareholder with
respect thereto unless, and until the date as of which, certificates for shares
of Common Stock are issued upon exercise or payment in respect of such award.
(b) Except as the Committee shall otherwise determine in connection
with determining the terms of awards to be granted or shall thereafter permit,
no Stock Option, Stock Appreciation Right, Performance Unit, or Deferred Stock
Unit or any rights or interests therein of the recipient thereof shall be
assignable or transferable by such recipient except to his or her Designated
Beneficiary or by will or the laws of descent and distribution, and, except as
aforesaid, during the lifetime of the recipient, the Stock Option, Stock
Appreciation Right, Performance Unit, or Deferred Stock Unit shall be
exercisable only by, or payable only to, as the case may be, such recipient or
his or her guardian or legal representative.
(c) All Stock Options, Stock Appreciation Rights, Performance Units,
and Deferred Stock Units granted under the Plan shall be evidenced by agreements
in such form and containing such terms and conditions (not inconsistent with the
Plan and applicable domestic and foreign law) in addition to those provided for
herein as the Committee shall approve. Notwithstanding any other provision of
the Plan to the contrary, the Committee shall be empowered to grant Performance
Units in respect of which the recipient will have no immediate right to receive
payment upon the Committee's determination that the applicable Performance
Objectives have been achieved, to any Participant who does not or will not
reside or be domiciled in the United States if, as a result of any law
applicable to such Participant or such award or the potential effect of foreign
currency conversions or translations on such award, such award will, in the sole
discretion of the Committee, best serve the purposes of the Company to be
promoted by this Plan.
(d) No shares of Common Stock shall be issued or transferred upon
exercise of any Stock Options or Stock Appreciation Rights or in payment of any
Performance Units or Deferred Stock Units granted hereunder unless and until all
legal requirements applicable to the issuance or transfer of such shares have
been complied with to the satisfaction of the Committee and the Company. The
Committee and the Company shall have the right to condition any issuance of
shares of Common Stock made to any Participant hereunder on such Participant's
undertaking in writing to comply with such restrictions on his or her subsequent
disposition of such shares as the Committee and/or the Company shall deem
necessary or advisable as a result of any applicable
16
<PAGE> 17
law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
(e) The Company shall have the right to deduct from all awards
hereunder paid in cash any federal, state, local or foreign taxes required by
law to be withheld with respect to such cash awards. In the case of awards to be
distributed in Common Stock, the Company shall have the right to require, as a
condition of such distribution, that the Participant or other person receiving
such Common Stock either (i) pay to the Company at the time of distribution
thereof the amount of any such taxes which the Company is required to withhold
with respect to such Common Stock or (ii) make such other arrangements as the
Company may authorize from time to time to provide for such withholding
including without limitation having the number of the units of the award
cancelled or the number of the shares of Common Stock to be distributed reduced
by an amount with a value equal to the value of such taxes required to be
withheld. The obligation of the Company to make delivery of awards in cash or
Common Stock shall be subject to currency or other restrictions imposed by any
government.
(f) No employee of the Company or a Subsidiary or other person shall
have any claim or right to be granted an award under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any employee
any right to be retained in the employ of the Company or a Subsidiary, it being
understood that all Company and Subsidiary employees who have or may receive
awards under this Plan are employed at the will of the Company or such
Subsidiary and in accord with all statutory provisions.
(g) Distributions of shares of Common Stock upon exercise, in payment
or in respect of awards made under this Plan may be made either from shares of
authorized but unissued Common Stock reserved for such purpose by the Board of
Directors or from shares of authorized and issued Common Stock reacquired by the
Company and held in its treasury or held under the Company's Flexible Employee
Benefits Trust, as from time to time determined by the Committee, the Board, or
pursuant to delegations of authority from either.
(h) The costs and expenses of administering this Plan shall be borne by
the Company and not charged to any award nor to any employee or Participant
receiving an award. However, the Company may charge the cost of any awards made
to employees of Participating Subsidiaries, including administrative costs and
expenses related thereto, to the respective Participating Subsidiaries by which
such persons are employed.
(i) This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any award under this Plan and payment of awards
shall be subordinate to the claims of the Company's general creditors.
(j) In addition to the terms defined elsewhere herein, the following
terms as used in this Plan shall have the following meanings:
17
<PAGE> 18
"Act" shall mean the Securities Exchange Act of 1934 as amended from
time to time.
"Change in Control" shall mean the first to occur of any one of the
events described below:
(i) Stock Acquisition. Any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Act), other than the Company or a
corporation, a majority of whose outstanding stock entitled to vote is
owned, directly or indirectly, by the Company, or a trustee of an
employee benefit plan or trust sponsored solely by the Company and/or
such a corporation, is or becomes, other than by purchase from the
Company or such a corporation, the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding voting securities. Such
a Change in Control shall be deemed to have occurred on the first to
occur of the date securities are first purchased by a tender or
exchange offeror, the date on which the Company first learns of
acquisition of 20% of such securities, or the later of the effective
date of an agreement for the merger, consolidation or other
reorganization of the Company or the date of approval thereof by a
majority of the Company shareholders, as the case may be.
(ii) Change in Board. During any period of two consecutive
years, individuals who at the beginning of such period were members of
the Board of Directors cease for any reason to constitute at least a
majority of the Board of Directors, unless the election or nomination
for election by the Company's shareholders of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period. Such a
Change in Control shall be deemed to have occurred on the date upon
which the requisite majority of directors fails to be elected by the
shareholders of the Company.
(iii) Other Events. Any other event or series of events which,
notwithstanding any other provision of this definition, is determined,
by a majority of the outside members of the Board of Directors of the
Company serving in office at the time such event or events occur, to
constitute a change in control of the Company for purposes of this
Plan. Such a Change in Control shall be deemed to have occurred on the
date of such determination or on such other date as such majority of
outside members of the Board shall specify.
"Designated Beneficiary" shall mean the person or persons last
designated as such by the Participant on a form filed by him or her with the
Company in accordance with such procedures as the Committee shall approve,
provided, however, that in the absence of the filing of such a form with the
Company the Designated Beneficiary shall be the person or persons who are the
Participant's beneficiary or beneficiaries of the Company's basic life
insurance.
18
<PAGE> 19
"Disability" shall mean permanent and total disability of an employee
participating in the Plan as determined by the Committee in accordance with
uniform principles consistently applied, upon the basis of such evidence as the
Committee deems necessary and desirable.
"Fair Market Value" of a share of Common Stock of the Company on any
date set forth herein (or, if such date is not expressly set forth herein, on
such date or dates as may be determined by the Committee, but not earlier than
five trading days prior to the transaction for which the determination is being
made), shall mean an amount equal to the mean of the high and low sale prices on
the New York Stock Exchange, as reported on the composite transaction tape, or
on such other exchange as the Committee may determine.
"Fiscal Year" shall mean the twelve-month period used as the annual
accounting period by the Company and shall be designated according to the
calendar year in which such period ends.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986 as
amended from time to time.
"Participant" shall mean, as to any award granted under this Plan and
for so long as such award is outstanding, the employee to whom such award has
been granted.
"Participating Subsidiary" shall mean any Subsidiary designated by the
Committee to participate in this Plan which Subsidiary requests or accepts, by
action of its board of directors or other appropriate authority, such
designation.
"Retirement" shall mean separating from service with the Company or a
Subsidiary with the right to begin receiving immediate pension benefits under
the Company's Pension Plan for Salaried Employees or under another defined
benefit pension plan sponsored or otherwise maintained by a Subsidiary for its
employees, in either case as then in effect or, in the absence of such Pension
Plan or such other pension plan being applicable to any Participant, as
determined by the Committee in its sole discretion.
"Subsidiary" shall mean any domestic or foreign corporation,
partnership, association, joint stock company, trust or unincorporated
organization "affiliated" with the Company, that is, directly or indirectly,
through one or more intermediaries, "controlling", "controlled by" or "under
common control with", the Company. "Control" for this purpose means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such person, whether through the ownership of
voting securities, contract or otherwise.
13. AMENDMENTS AND TERMINATION
The Committee may at any time terminate or from time to time amend or
suspend the Plan in whole or in part in such respects as the Committee may deem
advisable in order that awards granted thereunder shall conform to any change in
the law, or in any other respect which the Committee may deem to be in the best
interests of the Company; provided, however, that no
19
<PAGE> 20
amendment of the Plan shall be made without shareholder approval if (a)
shareholder approval of the amendment is at the time required for awards under
the Plan to qualify for the exemption from Section 16(b) of the Act provided by
Rule 16b-3 thereunder, or by the rules of the New York Stock Exchange or any
stock exchange on which Common Stock may be listed, or (b) the amendment would
make changes in the class of employees eligible to receive Incentive Stock
Options under the Plan or would increase the number of shares with respect to
which Incentive Stock Options may be granted under the Plan. With the consent of
the Participant affected, the Committee may amend outstanding agreements
evidencing Stock Options, Stock Appreciation Rights, Performance Units, or
Deferred Stock Units in a manner not inconsistent with the terms of the Plan.
The Committee shall have the power to amend the Plan in any manner
contemplated by Section 11 or deemed necessary or advisable for awards granted
under the Plan to qualify for the exemption provided by Rule 16b-3 (or any
successor rule relating to exemption from Section 16(b) of the Act) or to
qualify as "performance-based" compensation under Section 162(m) of the Internal
Revenue Code, and any such amendment shall, to the extent deemed necessary or
advisable by the Committee, be applicable to any outstanding awards theretofore
granted under the Plan notwithstanding any contrary provisions contained in any
award agreement. In the event of any such amendment to the Plan, the holder of
any award outstanding under the Plan shall, upon request of the Committee and as
a condition to the exercisability thereof, execute a conforming amendment in the
form prescribed by the Committee to any award agreement relating thereto within
such reasonable time as the Committee shall specify in such request.
Notwithstanding anything contained in this Section 13 or in any other
provision of the Plan, unless required by law, no action contemplated or
permitted by this Section 13 shall adversely affect any rights of Participants
or obligations of the Company to Participants with respect to any award
theretofore made under the Plan without the consent of the affected Participant.
14. EFFECTIVE DATE, AMENDMENT AND RESTATEMENT, AND TERM OF THE PLAN
This Plan, previously denominated the "Air Products and Chemicals, Inc.
1990 Long-Term Incentive Plan," became effective for the Fiscal Year commencing
October 1, 1989 for awards to be made for the Fiscal Year commencing October 1,
1989 and for Fiscal Years thereafter and was continued in effect indefinitely
until terminated, amended, or suspended as permitted by its terms, following
approval by a majority of those present at the January 26, 1989 annual meeting
of shareholders of the Company and entitled to vote thereon. Following approval
by the holders of a majority of the shares of Common Stock of the Company
present and entitled to vote at a meeting of shareholders, the Plan, as amended
and restated herein, will continue in effect indefinitely for awards to be made
for the Fiscal Year commencing October 1, 1996 and for Fiscal Years thereafter,
until terminated, amended, or suspended as permitted under Section 13.
20
<PAGE> 1
Exhibit 10.4(c)
RESOLUTIONS APPROVING AMENDMENTS TO AIR PRODUCTS AND
CHEMICALS, INC. PENSION PLAN FOR SALARIED EMPLOYEES
("QUALIFIED PLAN") AND THE SUPPLEMENTARY PENSION PLAN OF
AIR PRODUCTS AND CHEMICALS ("NONQUALIFIED PLAN")
(COLLECTIVELY "THE PLANS")
WHEREAS, the Plans provide a disability benefit to participants who
become permanently and totally disabled while in the employ of the Company or
its subsidiaries participating in the Plans (hereinafter, collectively, "the
Company"); and
WHEREAS, it has been recommended to the Committee by the Employee
Benefit Plans Committee that the Plans be amended to discontinue the disability
benefit;
NOW, THEREFORE, BE IT RESOLVED, that, effective for participants who
are actively performing services on or after January 1, 1996, not including
participants who are receiving short term salary continuation benefits under the
Company's Salary Continuation Plan, Section 3.3 of the Qualified Plan shall be
amended to as follows:
DISABILITY RETIREMENT BENEFITS. A Participant who Separated from
Service before January 1, 1996 or who was receiving salary
continuation benefits under the Company's Salary Continuation Plan
on January 1, 1996, provided that such salary continuation
benefits relate to a disability suffered by the Participant which
prevents the Participant from returning to active employment with
the Employer or an Affiliated Employer at anytime after January 1,
1996, shall be entitled to receive a monthly retirement benefit
commencing at his Disability Retirement Date in the
<PAGE> 2
amount of his Accrued Benefit unreduced for early payment.
Disability Retirement Benefits which commenced after August 12,
1988 shall cease upon the earlier of the Participant's Normal
Retirement Date, his election of the commencement of a benefit
under Section 3.2 or Section 3.4, or cessation of his Disability.
Disability Retirement benefits which commenced prior to August 22,
1988 are payable in accordance with the terms of the Plan at the
time of commencement.
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 amendments of the Plans as aforesaid,
and to carry out the intent and accomplish the purpose of these resolutions,
including, without limitation, making such amendments and other revisions in the
respective Plans and the text thereof as may be required, in their discretion
and upon advice of counsel to the Company, to effect the foregoing amendments
and for compliance with applicable law or as required by the Internal Revenue
Service for the continuing qualification of the Qualified Plan and the trust
fund established therefor.
APCI MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
2 November 1995
<PAGE> 1
Exhibit 10.6(a)
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
As Amended and Restated
Effective 21 November 1996
1. Name and Purpose
The name of this plan is the Air Products and Chemicals, Inc. Deferred
Compensation Plan for Directors (the "Plan"), the purpose of which is to
provide
(a) a vehicle for Air Products and Chemicals, Inc. (the "Company")
to compensate persons serving as Directors in the form of
Company equity securities to align the interests of a Directors
with those of the Company's shareholders ("Mandatory
Deferrals"); and
(b) the opportunity for Directors who so choose to defer
compensation earned as a Director or otherwise in connection
with his or her services in connection with the business of the
Company and its subsidiaries ("Elective Deferrals").
2. Term
The Plan was adopted effective as of 1 January 1980. Section 9 was
revised effective as of 25 January 1990. Section 8 and Section 9 were
revised effective as of 15 October 1992. Sections 4, 6, 8, and 9 were
revised effective as of 19 October 1995. Sections 1, 4, 5, 7, 8 and 9
were amended effective 21 November 1996.
3. Participants
Any Director of the Company who is not an employee of the Company or of a
subsidiary of the Company is eligible to participate in the Plan.
4. Mandatory Deferrals
There shall be established for each Director who has never been employed
by the Company (a "Nonemployee Director"), an account under the Air
Products Stock Account described under section 5(b) below to which shall
be credited all compensation which is to be paid by the Company in the
form of deferred stock units credited under the Air Products Stock
Account in accordance with the Compensation Program for Directors
applicable for calendar year 1997 and
1
<PAGE> 2
later periods (the "Program"); and for each such Nonemployee Director who
had not served as a Director for at least six years as of January 1,
1997, the actuarial present value of his or her prorated accrued pension
(the "Pension Amount") under the Pension Plan for Directors (the "Pension
Plan") in connection with the termination of said Pension Plan.
Dollar amounts to be so credited shall be converted into deferred stock
units in the manner described under Section 5(b) below on the quarterly
or other specified crediting date for such 1997 and later compensation,
and on 21 November 1996, as to the Pension Amount; and using such date(s)
as the valuation date(s) for determining Fair Market Value.
5. Elective Deferrals
Directors may elect to defer receipt of all or a specified portion of the
compensation (exclusive of expense reimbursements) otherwise payable to
him or her in cash for serving on the Board of Directors of the Company,
attending meetings or committee meetings thereof or performing other
services in connection with the business of the Company and its
subsidiaries. Such compensation will be credited on the date the
compensation is otherwise payable, to one or both of the following
hypothetical investment accounts as directed by the Director:
(a) an account deemed to earn interest at rates established on the
first business day of each calendar quarter based upon the
published average long term yields of corporate bonds of "A" rated
Industrial Companies appearing in Moody's Bond Survey or an
equivalent Bond Rating Service on such day (the "Interest
Account"); and
(b) an account (the "Air Products Stock Account") deemed to be
invested in Air Products and Chemicals, Inc. common stock, par
value $1.00 ("common stock"). The Company shall credit the Air
Products Stock Account with that number of units (including
fractions) obtained by dividing the amount of such deferred
compensation by the Fair Market Value of a share of common stock
on the date credited to the Air Products Stock Account (with the
units thus calculated herein referred to as "deferred stock
units"). For purposes of the Plan, Fair Market Value of a share of
common stock on any date (the "valuation date") shall be equal to
the mean of the high and low sale prices on the New York Stock
Exchange, as reported on the composite transaction tape, for such
date, or, if no sales were quoted on such date, on the most recent
preceding date on which sales were quoted.
Nonemployee Directors who had served for six years or more within the
meaning of the Pension Plan as of January 1, 1997, may elect to have the
2
<PAGE> 3
actuarial present value of his or her accrued pension benefit under the
Pension Plan credited to the Air Products Stock Account on or before
December 31, 1996. Such Pension Amount shall be credited and converted to
deferred stock units in the manner described in Section 5(b) above, as of
the business day the Company's Corporate Secretary's Office receives an
Election Form therefor (by mail or fax); and using such date as the
valuation date for determining Fair Market Value.
6. Earnings on Plan Accounts
Each participant's Plan account will be credited with interest on
deferred compensation credited to the Interest Account, and with dividend
equivalents on deferred compensation credited to the Air Products Stock
Account, as provided below, until the date of payment to the Director
(which shall be deemed to be December 31 of the year preceding payment
unless payment is made because of death or a Change in Control, in which
event the date of payment shall be deemed the date of death or the date
of termination of service as a Director following the Change in Control,
respectively).
(a) Earnings on Interest Account. Interest shall be compounded
quarterly and earned from the date compensation is credited to the
account to the date of payment to the Director.
(b) Earnings on Air Products Stock Account. Earnings shall be credited
quarterly in an amount equal to the dividends payable during the
quarter just ended with respect to that number of shares of Air
Products Stock equal to the number of deferred stock units
credited to the Air Products Stock Account during such quarter.
The amount so credited shall then be converted into deferred stock
units in the manner described under Section 4(b) above using the
quarterly crediting date as the valuation date for determining
Fair Market Value.
7. Time and Manner of Making Elective Deferrals
An election to defer compensation must be made by a Director prior to the
time such compensation is earned. An election shall continue in effect
until the end of the participant's service to the Company as a Director
and otherwise in connection with its business or until the Company is
notified in writing of the revocation or modification of the election as
to future compensation, whichever shall occur first.
A participant may elect, modify or revoke a prior election to defer
compensation by giving written notice to the Company in a form
substantially similar to the Election Form attached hereto as Exhibit A
(the "Election Form"). Such Election Form shall specify:
3
<PAGE> 4
(a) the amount or percentage of compensation to be deferred beginning
on a future date specified in the notice until such notice is
revoked or modified as to future compensation (the "Elective
Deferred Compensation Amount");
(b) timing of payment, i.e., either a lump-sum payment or a specified
number of consecutive annual installment payments (not to exceed
ten) of the Elective Deferred Compensation Amount, and the year in
which the lump-sum payment is to be received or the first annual
installment payment is to commence; and
(c) the percentage of the Elective Deferred Compensation Amount to be
credited to the Interest Account and the percentage to be credited
to the Air Products Stock Account.
All payments from Plan accounts must be completed by the tenth year after
the year in which service as a Director terminates. Any modification or
revocation of a prior election shall relate only to future compensation,
and shall not apply to any amounts previously credited to the
participant's Plan account.
8. Timing of Payment of Mandatory Deferrals
The amount of each Mandatory Deferral (the "Mandatory Deferred
Compensation Amount") will be paid as a lump sum in the year following
cessation of Board service unless (i) the Director has an Elective
Deferral in effect at the time of crediting the Mandatory Deferral, in
which case the Director's election as to time of payment of the Elective
Deferral will also govern the time of payment of the Mandatory Deferral;
or (ii) unless the Director has filed an Election Form with the Company
specifying a different timing of payment of Mandatory Deferrals prior to
earning the compensation represented by the Mandatory Deferral.
All payments from Plan accounts must be completed by the tenth year after
the year in which service as a Director terminates. Any modification or
revocation of a prior election shall relate only to future compensation,
and shall not apply to any amounts previously credited to the
participant's Plan account.
9. Payment of Deferred Compensation
No payment may be made from the participant's Plan account in respect of
Elective Deferred Compensation Amounts or Mandatory Deferred
4
<PAGE> 5
Compensation Amounts (together, "Deferred Compensation Amounts") except
as provided below.
(a) Payment following Termination of Service as a Director. The value
of each Deferred Compensation Amount credited to the Interest
Account of a participant's Plan account is payable in cash, and
the value of each Deferred Compensation Amount credited to the Air
Products Stock Account is payable by delivery of a share of common
stock for each deferred stock unit credited to the participant's
Plan account, in either case in a lump sum or in annual
installments, in accordance with the participant's election.
All payments will be made in January of the applicable year or as
soon thereafter as reasonably possible. If annual installments are
to be paid, the amount of the first payment shall be a fraction of
the value of the participant's Plan account attributable to the
particular Deferred Compensation Amount as of the December 31
preceding payment, the numerator of which is one and the
denominator of which is the total number of such installments
elected. The amount of each subsequent payment shall be a fraction
of the value as of the December 31 preceding each subsequent
payment, the numerator of which is one and the denominator of
which is the total number of installments elected minus the number
of installments previously paid as to such Deferred Compensation
Amount. The number of shares of common stock to be delivered in
payment from the Air Products Stock Account shall be equal to the
number of deferred stock units represented by the payment owed,
calculated as aforesaid, rounded up to the next whole share of
common stock.
(b) Accelerated Payment. Notwithstanding the deferral period and form
of payment determined in accordance with Section 9(a) above, the
participant's Plan account shall be paid on an accelerated basis
as follows under the circumstances described below (including,
under the circumstances described in Section 9(b)(i) or (iii)
below, any deferred stock units which may not yet have vested as
provided by the applicable Program).
(i) Payment on Death. In the event of a participant's death,
the value of his or her Plan account (including interest
and dividend equivalents) determined as of the date of
death shall be paid in a single cash lump sum to the
participant's estate or designated beneficiary on the
earlier of the January 15 or July 15 following such date or
as soon thereafter as reasonably possible. The amount of
any cash payment in respect of deferred stock units in the
Air Products Stock Account shall be determined by
multiplying the number of such units,
5
<PAGE> 6
including fractional units, by the Fair Market Value of a
share of common stock as of the date of death.
(ii) Change in Legal Circumstances. In the event of a Change in
Legal Circumstance, the Nominating and Corporate Governance
Committee of the Board of Directors may, in its sole
discretion, authorize the immediate distribution of the
Plan account or appropriate modification to the terms of
deferral of a participant domiciled outside of the United
States. A Change in Legal Circumstances shall be deemed to
occur when, due to a change in the laws or regulations of
the United States or the country of domicile, the terms of
deferral operate as a disincentive to service on the Board
or otherwise become inconsistent with the purpose of the
Plan.
(iii) Change in Control. In the event of a "Change in Control"
of the Company followed by a participant's termination of
service as a Director of the Company, the value of his or
her Plan account (including interest and dividend
equivalents) determined as of the date of termination of
service as a Director following or in connection with the
Change in Control, shall be immediately due and payable to
the participant in a single cash lump sum. The amount of
any cash payment in respect of deferred stock units in the
Air Products Stock Account shall be determined by
multiplying the number of such units, including fractional
units, by the Fair Market Value of a share of common stock
as of such date of termination of service.
The term "Change in Control" shall mean the first to occur
of any one of the events described below:
(x) Stock Acquisition. Any "person" (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934 (the "Act")), other than the
Company or a corporation, a majority of whose
outstanding stock entitled to vote is owned, directly
or indirectly, by the Company, or a trustee of an
employee benefit plan sponsored solely by the Company
and/or such a corporation, is or becomes, other than
by purchase from the Company or such a corporation,
the "beneficial owner" (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of
the combined voting power of the Company's then
outstanding voting securities. Such a Change in
Control shall be deemed to have occurred on the first
to occur of the date securities are first purchased
by a tender or exchange offeror,
6
<PAGE> 7
the date on which the Company first learns of
acquisition of 20% of such securities, or the later
of the effective date of any agreement for the
merger, consolidation or other reorganization of the
Company or the date of approval thereof by a majority
of the Company shareholders, as the case may be.
(y) Change in Board. During any period of two consecutive
years, individuals who at the beginning of such
period were members of the Board of Directors cease
for any reason to constitute at least a majority of
the Board of Directors, unless the election or
nomination for election by the Company's shareholders
of each new director was approved by a vote of at
least two-thirds of the directors then still in
office who were directors at the beginning of the
period. Such a Change in Control shall be deemed to
have occurred on the date upon which the requisite
majority of directors fails to be elected by the
shareholders of the Company.
(z) Other Events. Any other event or series of events
which, notwithstanding any other provision of this
definition, is determined, by a majority of the
outside members of the Board of Directors of the
Company serving in office at the time such event or
events occur, to constitute a change in control of
the Company for purposes of this Plan. Such a Change
in Control shall be deemed to have occurred on the
date of such determination or on such other date as
such majority of outside members of the Board shall
specify.
(c) Miscellaneous Provisions.
(i) Withholding of Taxes. The rights of a participant to
payments under this Plan shall be subject to the Company's
obligations at any time to withhold income or other taxes
from such payments including, without limitation, by
reducing the number of shares of common stock to be
distributed in payment of deferred stock units by the
number of shares equal in value to the amount of such taxes
required to be withheld, using the date prior to the date
of issuance of the shares as the valuation date for
determining Fair Market Value.
(ii) Rights as to Common Stock. No participant with deferred
compensation credited to the Air Products Stock Account
shall have rights as a Company shareholder with respect
thereto unless, and until the date as of which,
certificates for shares of common stock are issued upon
payment of such deferred compensation. No shares
7
<PAGE> 8
of common stock shall be issued and delivered hereunder
unless and until all legal requirements applicable to the
issuance, delivery or transfer of such shares have been
complied with including, without limitation, compliance
with the provisions of the Act and of the Securities Act of
1993, as amended, and the applicable requirements of the
exchanges on which the Company's common stock may, at the
time, be listed. Distributions of shares of common stock in
payment under this Plan may be made either from shares of
authorized but unissued common stock reserved for such
purpose by the Board of Directors or from shares of
authorized and issued common stock reacquired by the
Company and held in its treasury, as from time to time
determined by, or pursuant to delegations from, the Board
of Directors.
(iii) Adjustments to Avoid Dilution. In the event of any change
in the common stock of the Company by reason of any stock
dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares, or a rights offering to
purchase common stock at a price substantially below fair
market value, or other similar corporate change, including
without limitation in connection with a Change in Control
of the Company, the value and attributes of each deferred
stock unit shall be appropriately adjusted consistent with
such change to the same extent as if such deferred stock
units were issued and outstanding shares of common stock of
the Company, so as to preserve, without increasing, the
value of Plan deferred compensation credited to the Air
Products Stock Account. Such adjustments shall be made by
the Board of Directors and shall be conclusive and binding
for all purposes of the Plan.
10. Participant's Rights Unsecured
The right of any participant to the payment of deferred compensation and
earnings thereon under the Plan shall be an unsecured and unfunded claim
against the general assets of the Company.
8
<PAGE> 9
11. Non-assignability
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.
12. Statement of Account
Statements will be sent to participants during February as to the value
of their Plan accounts as of the end of December of the previous year.
13. Administration
The Administrator of this Plan shall be the Corporate Secretary of the
Company. The Administrator shall have authority to adopt rules and
regulations for carrying out the Plan and to interpret, construe and
implement the provisions thereof.
14. Business Days
If any date specified herein falls on a Saturday, Sunday or legal
holiday, such date shall be deemed to refer to the next business day
thereafter.
15. Amendment and Termination
This Plan may at any time be amended, modified or terminated by the Board
of Directors of the Company. No amendment, modification or termination
shall, without the consent of a participant, adversely affect such
participant's rights with respect to amounts theretofore accrued in his
or her deferred compensation account.
16. Notices
All notices to the Company under this Plan shall be in writing and shall
be given as follows:
Corporate Secretary
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
9
<PAGE> 10
17. Governing Law
This Plan shall be governed by the laws of the Commonwealth of
Pennsylvania and shall be construed for all purposes in accordance with
the laws of said state.
10
<PAGE> 11
EXHIBIT A
AIR PRODUCTS AND CHEMICALS, INC. (THE "COMPANY")
DEFERRED COMPENSATION PLAN FOR DIRECTORS (THE "PLAN")
ELECTION FORM
To: Corporate Secretary
Air Products and Chemicals, Inc.
I. ELECTIVE DEFERRED COMPENSATION AMOUNT
In accordance with the provisions of the Plan, I hereby (check one):
/ / Elect (or modify my prior election) to defer receipt of
compensation otherwise payable to me in cash for services as a
Director of the Company in the manner described below (fill in
one):
$____________________ (amount per quarter)
or
____________________ (percentage per quarter)
/ / Revoke my election to defer.
This election, modification, or revocation shall take effect beginning on
__________________________ to affect only compensation earned on and after such
date. (Must be a date after the date this Election Form is received by the
Company.)
II. TIMING OF PAYMENT OF DEFERRED COMPENSATION AMOUNTS (ELECTIVE AND
MANDATORY) EARNED AFTER THE DATE THIS ELECTION FORM IS RECEIVED BY THE
COMPANY
COMPLETE A OR B, BUT NOT BOTH
A. Lump Sum Election
Mandatory Deferred Compensation Amounts and the Elective Deferred
Compensation Amount (if any) are to be paid to me in a lump sum
(check one):
/ / In the year my service as a Director ends.
/ / In the ____ year after the year in which my service as a
Director ends (not to exceed tenth).
B. Installment Election
Mandatory Deferred Compensation Amounts and the Elective Deferred
Compensation Amount (if any) are to be paid to me in _________
(up to 10) consecutive annual installments, the first of which is
to be paid in (check one):
/ / The year in which my service ends.
/ / _________ year(s) after the year in which my service ends
(the last installment must be paid no later than 10 years
after the year in which service ends).
11
<PAGE> 12
EXHIBIT A
AIR PRODUCTS AND CHEMICALS, INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS (THE "PLAN")
ELECTION FORM
(continued)
III. INVESTMENT ACCOUNT AND FORM OF PAYMENT OF ELECTIVE DEFERRED
COMPENSATION AMOUNT.
The Elective Deferred Compensation Amount is to be invested in the
following Plan account(s) (enter a whole percentage from 1% to 100% in
each blank, with the two percentages totaling 100%):
_____% in the Interest Account to be paid out in the form of cash.
_____% in the Air Products Stock Account to be distributed in the form of
Air Products and Chemicals Inc. Common Stock. NOTES CONCERNING
COMPLIANCE WITH THE FEDERAL SECURITIES LAW:
(1) AN ELECTION TO INVEST IN THE AIR PRODUCTS STOCK ACCOUNT WILL
ONLY BE EFFECTIVE IF RECEIVED BY THE COMPANY DURING A 30-DAY
WINDOW PERIOD DURING WHICH THERE IS NO MATERIAL NON-PUBLIC
INFORMATION. Such window periods generally occur during the
30-day period commencing one week after the annual report has
been mailed to the shareholders, which usually occurs during
the first or second week in December, and the 30-day periods
starting on the second trading day after the day when
quarterly or annual earnings releases have been issued with
commentary, which usually occur in the third or fourth weeks
of January, April, July, and October. The Corporate Secretary
can advise you as to the precise timing of window periods.
(2) Under current federal securities law, it is necessary to
report to the Securities and Exchange Commission the number of
units credited to the Air Products Stock Account at the end of
each fiscal year, on a Form 5 Report for the year.
IV. BENEFICIARY DESIGNATION
If I die before receiving all the deferred payments due me under the
Plan, I understand the value of my Mandatory and Elective Deferred
Compensation Amounts will be paid to my estate or designated
beneficiary, in a single lump sum cash payment on the earlier of the
January 15 or July 15 following the date of my death or as soon
thereafter as reasonably possible. (A beneficiary may be designated by
delivering written notice of designation to the Corporate Secretary of
the Company.)
This Election is subject to the terms of Air Products and Chemicals,
Inc. Deferred Compensation Plan for Directors, as amended from time to time.
Received on the day of -----------------------------
on behalf of the Company. Signature of Director
By Date
----------------------------- --------------------------
(Assistant) Corporate Secretary
12
<PAGE> 1
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Millions of dollars, except per share)
<TABLE>
<CAPTION>
Year Ended 30 September
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Earnings
Income before cumulative effect of accounting
changes $ 416 $ 368 $ 234
Cumulative effect of accounting changes -- -- 14
------- ------- -------
Net income $ 416 $ 368 $ 248
======= ======= =======
Primary shares
Average common shares outstanding during the year 112 112 114
Common stock equivalents from stock option
and award plans 2 2 2
------- ------- -------
Adjusted average common shares outstanding 114 114 116
======= ======= =======
Primary earnings per share
Income before cumulative effect of accounting changes $ 3.67 $ 3.23 $ 2.02
Cumulative effect of accounting changes -- -- 0.12
------- ------- -------
Net income $ 3.67 $ 3.23 $ 2.14
======= ======= =======
Fully diluted shares
Average common shares outstanding during the year 112 112 114
Shares issuable from stock option and award plans 2 2 2
------- ------- -------
Adjusted average common shares outstanding 114 114 116
------- ------- -------
Fully diluted earnings per share
Income before cumulative effect of accounting changes $ 3.67 $ 3.23 $ 2.02
Cumulative effect of accounting changes -- -- 0.12
------- ------- --------
Net income $ 3.67 $ 3.23 $ 2.14
======= ======= ========
</TABLE>
Note: The above calculations are submitted in accordance with Regulation
S-K Item 601(b)(11) although not required by Footnote 2 to Paragraph
14 of APB Opinion No. 15 because the dilution of earnings per share
is less than 3%.
<PAGE> 1
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Year Ended 30 September
---------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
EARNINGS: (Millions of dollars)
<S> <C> <C> <C> <C> <C>
Income before extraordinary item and
the cumulative effect of accounting
changes: $277 $201 $234 $368 $416
Add (deduct):
Provision for income taxes 131 103 95 186 196
Fixed charges, excluding capitalized interest 133 127 127 148 184
Capitalized interest amortized during
the period 8 8 8 9 9
Undistributed earnings of
less-than-fifty-percent-owned affiliates (13) (8) (3) (25) (41)
---- ---- ---- ---- ----
Earnings, as adjusted $536 $431 $461 $686 $764
==== ==== ==== ==== ====
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $125 $118 $118 $139 $172
Capitalized interest 4 6 10 18 20
Amortization of debt discount premium and expense 1 1 1 -- 1
Portion of rents under operating leases
representative of the interest factor 7 8 8 9 11
---- ---- ---- ---- ----
Fixed charges $137 $133 $137 $166 $204
==== ==== ==== ==== ====
RATIO OF EARNINGS TO FIXED CHARGES: 3.9 3.2 3.4 4.1 3.7
==== ==== ==== ==== ====
</TABLE>
<PAGE> 1
1996 FINANCIAL REVIEW
2 Management's Discussion and Analysis
9 Company Responsibility for Financial Statements
9 Report of Independent Public Accountants
10 Consolidated Income
11 Consolidated Balance Sheets
12 Consolidated Cash Flows
13 Consolidated Shareholders' Equity
14 Notes to Consolidated Financial Statements
32 Eleven-Year Summary of Selected Financial Data
MAJOR FACTORS AFFECTING EARNINGS*
Major factors affecting comparison of earnings per share between 1996 and 1995
were:
- - Higher international gas equity affiliates' income
- - Unusual clustering of gases contract terminations and changes
- - Improved equipment segment performance
- - Higher chemicals margins
- - Lower profits following 1995 exit of ammonia business
- - Improved environmental and energy results
- - Higher interest expense
- - Favorable settlement of 1994 derivative loss ($.36 per share)
CHANGES IN EARNINGS PER SHARE*
<TABLE>
<CAPTION>
1996 1995 Increase
----- ----- ----
<S> <C> <C> <C>
Earnings per share................... $3.73 $3.29 $.44
Less: Special items.................. .36 .06 .30
----- ----- ----
$3.37 $3.23 $.14
===== ===== ====
</TABLE>
OPERATIONS
<TABLE>
<S> <C>
Industrial Gases and Chemicals
Volume ............................................ $.48
Selling price and mix ............................. .30
Costs excluding depreciation ...................... (.66)
Depreciation ...................................... (.21)
Currency effects .................................. (.03)
Environmental and Energy ................................... .07
Equipment and Services ..................................... .14
Corporate and Other ........................................ (.09)
----
Subtotal .......................................... --
OTHER
Equity affiliates' income .................................. .25
Interest expense ........................................... (.16)
Tax items .................................................. .04
Lower average shares outstanding ........................... .01
----
Total ............................................. $.14
====
</TABLE>
*SEE MANAGEMENT'S DISCUSSION AND ANALYSIS FOR FURTHER INFORMATION.
ONE
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
CONSOLIDATED
<TABLE>
<CAPTION>
(Millions of dollars, except per share) 1996 1995 1994
- ------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Sales .................................... $4,008 $3,865 $3,485
Operating income ......................... 591 602 486
Equity affiliates' income ................ 80 51 28
Income before cumulative effect of
accounting changes .............. 416 368 234
Net income ............................... 416 368 248
Earnings per share:
Income before cumulative effect
of accounting changes .......... 3.73 3.29 2.06
Net income ...................... 3.73 3.29 2.18
====== ====== ======
</TABLE>
The results of 1996, 1995, and 1994 included the effects of special items,
including the impact of accounting changes. These items should be considered in
the comparison of the annual results.
Fiscal 1996 results included a $67 million ($41 million after tax, or $.36 per
share) settlement with Bankers Trust Company over losses reported in fiscal 1994
associated with leveraged interest rate swap contracts. The settlement included
the termination of two previously closed contracts with Bankers Trust. Prior to
the settlement, there was an outstanding liability of $62 million associated
with these closed contracts.
Fiscal 1995 results included a gain of $11 million ($6 million after tax, or
$.06 per share) from the sale of an industrial gas plant.
The 1994 results were reduced by a net after-tax charge of $60 million, or $.53
per share, for special items. The components of special items on a before- and
after-tax basis were as follows: a charge of $121 million ($75 million after
tax, or $.66 per share) for the termination of leveraged interest rate swap
contracts; a charge of $11 million ($7 million after tax, or $.06 per share) for
the outsourcing of the merchant gas distribution function in the United Kingdom;
a net tax benefit of $6 million, or $.05 per share, resulting from changes in
certain state income tax regulations; an after-tax benefit of $2 million, or
$.02 per share, from the favorable tax treatment, net of expense, of the
charitable contribution of the remaining shares of a stock investment in an
insurance company; and a net after-tax benefit of $14 million, or $.12 per
share, from the adoption of three new accounting standards.
The following table presents the results for 1996, 1995, and 1994 exclusive of
special items. The discussion of the consolidated and segments results is based
on income excluding special items. A description of the products and services
and markets for each of the four business segments is included in Note 19 to the
consolidated financial statements.
EXCLUSIVE OF SPECIAL ITEMS
<TABLE>
<CAPTION>
(Millions of dollars, except per share) 1996 1995 1994
- --------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Sales .......................... $4,008 $3,865 $3,485
Operating income ............... 591 591 511
Equity affiliates' income ...... 80 51 28
Net income ..................... 375 362 308
Earnings per share ............. 3.37 3.23 2.71
====== ====== ======
</TABLE>
The company achieved record sales, exceeding $4 billion for fiscal 1996. Total
sales of $4,008 million were 4% greater than the 1995 level of $3,865 million.
Year-to-year operating income was unchanged at $591 million. Equity affiliates'
income rose $29 million to $80 million. The net income increase of $13 million,
or $.14 per share, resulted in a total net income of $3.37 per share, up 4%.
While equity affiliates' income doubled in the gases segment, operating income
declined. In chemicals, higher margins more than offset the operating income
decline from the exited ammonia business. Improved performance in the equipment
segment increased operating income. Equity affiliates' income and operating
income improved in the environmental and energy segment.
In 1995, total sales of the corporation grew 11% while operating income was up
16%, or $80 million. Equity affiliates' income rose $23 million to $51 million.
Net income increased $54 million, or $.52 per share, to $362 million, or $3.23
per share.
The attainment of the 1995 results was due principally to the improved
performances of the industrial gases and chemicals segments and significantly
higher results from the international gas equity affiliates.
SEGMENT ANALYSIS
INDUSTRIAL GASES
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ---------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Sales .................................. $2,310 $2,177 $1,968
Operating income excluding
special items.......................... 406 434 391
Operating income as reported ........... 406 445 380
Equity affiliates' income .............. 44 22 4
====== ====== ======
</TABLE>
Sales during fiscal 1996 advanced 6% to $2,310 million. The sales increase over
the prior year is attributed to 3% higher worldwide merchant gas volumes and a
10% tonnage gases volume increase in the United States, due principally to
increases in hydrogen and carbon monoxide. Worldwide merchant gas prices were up
approximately 2%. There was no material impact from European currency changes.
TWO
<PAGE> 3
Total operating income declined $28 million, to $406 million, in fiscal 1996.
Margins in the gases segment declined to 17.6% from 20.0% in 1995. Both margins
and operating income were adversely affected by an unusual clustering of major
contract terminations and revisions in the United States. Lower prices and
higher costs in northern Europe also contributed to lower margins. The company
brought significant new investments onstream in 1996, particularly in the
expanding hydrogen and carbon monoxide businesses. Margins were unfavorably
impacted as these facilities began to load. Currency effects on operating income
were immaterial.
Equity affiliates' income for 1996 was $44 million compared to $22 million in
the prior year. Strong operating performances from joint ventures in Spain,
Asia, and Mexico contributed to these higher results. Current year results
reflect an increased ownership position in the Spanish affiliate, increasing
from 26.1% to 47.6% ownership in October 1995. The equity affiliate's income
increased $6 million due to the increase in ownership. In October 1996, the
company again increased ownership in Carburos Metalicos S.A. (Carburos) from
47.6% to 96.7%. See Note 17 to the consolidated financial statements.
Sales in 1995 were up 11% from 1994 due principally to higher worldwide
shipments of merchant and on-site gases. Worldwide volumes of merchant gases
increased 6% as shipments in most major product lines reached record levels.
Selling prices of merchant gases increased in the United States but declined in
Europe. Worldwide tonnage gas sales, excluding currency effects, were up 10%,
reflecting higher shipments. Favorable European currency effects contributed 3%
to the 11% sales increase.
Operating income in 1995 increased 11%, or $43 million. The improved
profitability was driven by the tonnage gas business, higher merchant gas
volumes, and stronger European currencies. The improved tonnage gas business
results were due principally to higher shipments, particularly to the metals and
refining industries. Favorable European currency effects contributed 3% to the
11% increase in operating income.
Special items consisted of income of $11 million from the sale of an industrial
gas plant in 1995 and an $11 million charge for the outsourcing of the merchant
gas distribution function in the United Kingdom in 1994.
Equity affiliates' income in 1995 increased $18 million. The key factors
contributing to the higher profitability were the significantly improved results
of the Spanish and Asian affiliates and the income contribution of an affiliate
in South Africa. The results were somewhat tempered by additional costs incurred
supporting the growth of the Asian ventures.
CHEMICALS
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- -------------------------------- ------ ------ ------
<S> <C> <C> <C>
Sales .......................... $1,362 $1,359 $1,182
Operating income ............... 199 193 148
Equity affiliates' income ...... -- 1 --
====== ====== ======
</TABLE>
Sales in 1996 of $1,362 million were essentially equal to 1995 while operating
income of $199 million increased $6 million. In the second quarter of fiscal
1995, a portion of the ammonia capacity was shut down and converted to hydrogen
production. The 1995 sales of ammonia were $25 million and the operating income
was $12 million. Excluding the ammonia business, total chemical sales are up 2%
in 1996, or $28 million, and operating income is up 10%, or $18 million.
The sales increase in 1996 is due primarily to the full year impact of 1995
price increases. Overall volumes are down slightly.
Broad-based margin improvements were the major reason for the $18 million
increase in operating income, excluding the ammonia business. Partially
offsetting the impact of margin improvements were increased selling and general
and administrative costs. Currency changes did not have a material impact on
operating income.
Sales in 1995 increased 15% over 1994 as volumes rose 10%. All major product
lines experienced higher shipments in both domestic and export markets. Selling
prices for most products improved in 1995. On average, there was a favorable 4%
average price/mix variance. Currency effects contributed 1% of the 15% sales
increase.
Operating income in 1995 was up substantially with a 30% increase, $45 million,
from 1994. This increase was generated by a combination of strong volume growth,
higher margins, and favorable currency effects. Margins improved as most
products experienced higher prices, while raw material costs stabilized. The
1995 results benefited from higher ammonia and methanol prices. In midyear,
there was a plant conversion that exited the company from the commodity ammonia
business. Methanol pricing declined in the second half of 1995 and continued at
lower rates in 1996. Operating income in 1995 also increased over 1994 due to
planned polyvinyl alcohol facility shutdowns in 1994, driven by market
conditions. Favorable currency effects accounted for 6% of the 30% increase in
operating income.
THREE
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ENVIRONMENTAL AND ENERGY
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ------------------------------------ ---- ---- ---
<S> <C> <C> <C>
Sales .............................. $60 $ 58 $67
Operating income (loss) ............ 8 (5) 6
Equity affiliates' income .......... 36 28 24
=== ==== ===
</TABLE>
Sales grew $2 million to $60 million. Operating income in 1996 improved $13
million to $8 million. Increased profitability is attributed to improved
operations and project buyouts.
Equity affiliates' income rose $8 million to $36 million. Improved operating
performance of power generation facilities, the settlement of a power contract
dispute, and weather-related power curtailments and a planned maintenance outage
in the prior year were the key factors responsible for the improved results.
In April 1996, the company announced the intention to sell its 50% interest in
American Ref-Fuel, the waste-to-energy joint venture with Browning-Ferris
Industries, Inc. This joint venture contributed $27 million after interest and
before tax to equity affiliates' income in 1996.
The company also completed the sale of the landfill gas recovery business, GSF
Energy Inc., in early fiscal 1997. Sales of the landfill gas business were $20
million in 1996 with an operating loss of $3 million, excluding the net income
benefit of $6 million from nonconventional fuel tax credits.
Sales in 1995 decreased $9 million from 1994 while operating income was a loss
of $5 million compared to income of $6 million in 1994. The 1994 results
benefited from the completion of the final portion of an equipment sale
associated with the construction of a cogeneration facility for an
unconsolidated affiliate and the receipt of a performance bonus associated with
this sale. Sales of operating services provided to a cogeneration facility in
California compared unfavorably to the prior year due to weather-related power
curtailments and a planned major maintenance outage at the facility.
Additionally, the results of the landfill gas business were down due to lower
selling prices combined with higher costs. Nonconventional fuel tax credits were
$6 million and $5 million in 1995 and 1994, respectively.
Equity affiliates' income in 1995 reflected stronger operations at the
waste-to-energy facilities, partially offset by the unfavorable impact of
weather-related power curtailments and a planned major maintenance outage at a
cogeneration facility.
EQUIPMENT AND SERVICES
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- --------------------------------- ---- ----- ----
<S> <C> <C> <C>
Sales ........................... $276 $ 271 $268
Operating income (loss) ......... 23 (2) 11
==== ===== ====
</TABLE>
Sales of $276 million increased $5 million over the prior year while income
increased $25 million to $23 million. The 1996 results reflected a more
profitable project mix and improved project performance. Sales backlog for the
equipment product line improved to $306 million at 30 September 1996 compared
with $198 million at 30 September 1995. The high quality order backlog increased
primarily due to new orders for natural gas liquefaction equipment and gas
separation equipment. In early fiscal 1997, the backlog related to natural gas
liquefaction equipment increased by $109 million, of which $13 million is
expected to be completed during fiscal 1997.
The 1995 operating loss of $2 million declined $13 million on essentially flat
sales compared to 1994 due to unfavorable project mix and performance. Also
included in 1994 was a gain on a contract settlement payment.
CORPORATE AND OTHER This area includes unallocated corporate expenses and income
and foreign exchange gains and losses.
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ----------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Operating loss excluding
special items .......................... $(45) $(29) $(45)
Operating loss as reported .............. (45) (29) (59)
==== ==== ====
</TABLE>
The operating loss in 1996 increased $16 million from the prior year primarily
due to a foreign exchange gain in 1995 and higher net corporate general and
administrative costs. The 1995 operating loss of $29 million declined $16
million from the prior year primarily due to a foreign exchange gain and lower
reengineering study costs.
The 1994 special items included a charge of $12 million from the termination of
two contracts which hedged currency risk and an expense of $2 million from the
charitable contribution of the remaining shares of a stock investment in an
insurance company.
SETTLEMENT ON LEVERAGED INTEREST RATE SWAPS
In January 1996, the company reached a settlement with Bankers Trust Company
over the $107 million of losses reported in 1994 associated with leveraged
interest rate swap contracts. The $67 million settlement gain ($41 million after
tax, or $.36 per share) was affected, in part, by the termination of obligations
stemming from two previously closed contracts. Prior to the settlement, there
was an outstanding liability of $62 million associated with the closed
contracts.
FOUR
<PAGE> 5
The company entered into five highly leveraged interest rate swap contracts with
a notional value of $203 million during the first quarter of 1994. By 30 June
1994, the company terminated three of these contracts and closed the other two.
These contracts were accounted for on a mark-to-market basis. In 1994, the
company recognized a loss of $107 million on these derivative contracts. This
loss reflected the cost to terminate or close these contracts. The termination
and closure of these derivative contracts eliminated any further earnings impact
from these contracts due to changes in interest rates. For further information,
see Note 5 to the consolidated financial statements.
INTEREST EXPENSE
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- --------------------------------------- ---- ---- ---
<S> <C> <C> <C>
Interest incurred ..................... $144 $118 $90
Less: Interest capitalized .......... 15 18 10
Brazilian currency
adjustments ................. -- -- 1
Add: Termination of
derivatives .................. -- -- 2
---- ---- ---
Interest expense ...................... $129 $100 $81
==== ==== ===
</TABLE>
Interest expense in 1996 increased $29 million to $129 million. Higher debt
outstanding was driven by additions to plant and equipment and investments in
and advances to unconsolidated equity affiliates. This increase was partially
offset by lower interest rates. Interest expense in 1996, related to the
Carburos investment increase, is approximately $12 million.
Interest expense in 1995 was $19 million higher than in 1994. Interest incurred
in 1995 increased $28 million due to higher rates combined with a higher level
of average debt outstanding. Interest expense in 1994 included a charge of $2
million from the termination of certain small interest rate hedge agreements.
INCOME TAXES
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Effective tax rate.............. 31.7% 33.4% 28.2%
==== ==== ====
</TABLE>
The lower 1996 effective tax rate reflects higher after-tax equity affiliates'
income. The effective tax rate for 1996 exclusive of the Bankers Trust
settlement was 30.8%.
The 1994 effective tax rate reflects lower state taxes due principally to
changes in state income tax regulations. The cumulative impact of these changes
resulted in a net tax benefit of $6 million. The 1994 effective tax rate also
reflects the favorable tax treatment of the charitable contribution, before-tax
expense of $2 million, of the remaining shares of a stock investment in an
insurance company. The tax benefit associated with this contribution, based on
fair value of the investment, was $4 million. The effective tax rate for 1994,
excluding these items and the derivative losses, was 33.0%.
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 $27 million both in 1996 and 1995 and $28 million for 1994.
These amounts represent an estimate of expenses for compliance with
environmental laws, as well as remedial activities, and costs incurred to meet
internal company standards. Such costs are estimated to be approximately $28
million in 1997 and $30 million in 1998.
Although precise amounts are difficult to define, the company estimates that in
fiscal 1996 it spent approximately $11 million on capital projects to control
pollution (including expenditures associated with new plants) versus $13 million
in 1995. Capital expenditures to control pollution in future years are estimated
at $15 million in 1997 and $17 million in 1998.
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 $18 million to a reasonably
possible upper exposure of $45 million. The balance sheet at 30 September 1996
included an accrual of $32 million and a receivable balance of $1 million
related to third-party recoveries. At 30 September 1995, the balance sheet
accrual was $35 million and the receivable balance was $1 million.
In addition to the environmental exposures discussed in the preceding paragraph,
there will be spending at a company-owned manufacturing site where the company
is undertaking RCRA corrective action remediation. During 1995, the company
signed consent orders for corrective action with state and federal regulatory
agencies. The company estimates capital costs to implement the anticipated
remedial program will range from $26-$33 million. Spending was minimal in fiscal
1996 and is estimated at $5 million for both fiscal 1997 and 1998. Operating and
maintenance expenses associated with continuing the remedial program are
estimated to be $1 million per year beginning fiscal 1997 and continuing for an
estimated period of up to 30 years. A former owner and operator at the site has
agreed to reimburse the company 20% of the costs incurred in the remediation.
The cost estimates have not been reduced by the value of such reimbursement,
which the company believes is probable of realization.
FIVE
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs,
the company does not expect that any sum it may have to pay in connection with
environmental matters in excess of the amounts recorded or disclosed above would
have a materially adverse effect on its financial condition or results of
operations in any one year.
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities." The company
is required to adopt this standard no later than fiscal 1998. Presently, the
company accounts for environmental remediation liabilities under the provisions
of Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for
Contingencies." The company does not expect the impact of this new statement to
be material to the financial statements.
LIQUIDITY, CAPITAL RESOURCES, AND OTHER FINANCIAL DATA
Air Products maintained a sound financial condition throughout 1996. In April
1996, the company announced a plan to utilize a modestly higher proportion of
debt in the capital structure and thereby reduce cost of capital. The
restructuring is being implemented through a share repurchase program financed
with proceeds from the sale of the company's investment in American Ref-Fuel and
increased borrowings. Following the announcement as expected, the company's
senior debt rating was lowered from A+/A1 to A/A2; the A-1/P-1 commercial paper
rating was unaffected.
CAPITAL EXPENDITURES Capital expenditures of $1,164 million in 1996 were 20%
above the 1995 level, with additions to plant and equipment, largely in support
of the worldwide expansion of industrial gases, increasing by 9%. Investments in
and advances to unconsolidated affiliates are primarily equity investments in
international gas affiliates and environmental energy systems projects. Included
in 1996 was an additional equity investment of $120 million in Carburos.
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- --------------------------------------- ------ ---- ----
<S> <C> <C> <C>
Additions to plant and equipment ...... $ 951 $870 $611
Investment in and advances to
unconsolidated affiliates .... 197 29 41
Acquisitions .......................... 11 65 --
Capital leases ........................ 5 5 3
------ ---- ----
Total ................................. $1,164 $969 $655
====== ==== ====
</TABLE>
Capital expenditures for new plant and equipment and investment in
unconsolidated affiliates, including a significant additional investment in
Carburos, are expected to be approximately $1.3 billion in 1997. It is
anticipated that these expenditures will be funded with cash from operations
supplemented with proceeds from financing activities.
In November 1994, the company published a tender offer to acquire 74.2% of the
outstanding shares of Carburos, representing all of the shares not owned by the
company. The company made second and third tender offers in September 1995 and
September 1996, respectively. These tenders resulted in the acquisition of 21.5%
of the outstanding shares at a cost of $120 million in October 1995 and an
additional 49.1% at a cost of $288 million in October 1996, bringing the
company's ownership to 96.7%.
FINANCING AND CAPITAL STRUCTURE Capital needs in 1996 were satisfied with cash
from operations supplemented with additional debt. Total debt increased $514
million to $2,195 million at 30 September 1996. At year end, total debt as a
percentage of total debt plus equity was 46% as compared to 41% at the end of
1995.
In October 1995, the company issued $125 million of 6.6% notes due in fiscal
2008 to fund the acquisition of shares of Carburos. Additionally, the company
entered into interest rate and currency swap agreements to effectively convert
$120 million of the notes into a Spanish Peseta liability with an average
interest rate of 10.66% and maturities ranging from three to ten years. Other
financings during fiscal 1996, principally in the United States, included the
public issuance of $406 million of debt securities with maturities ranging from
twelve to thirty years and coupons from 6.25% to 7.82%. Additionally, $70
million equivalent Dutch Guilder financing was provided by the European
Investment Bank for a 10-year term (amortizing) and a coupon of 5.97%. See Note
4 to the consolidated financial statements for additional details.
In October 1996, the company issued $171 million of medium-term notes, $89
million of which were fixed-rate notes with a seven-year term and an average
coupon rate of 6.85%. The remaining $82 million were floating-rate notes with
maturities of three to five years. The proceeds of $95 million for these notes,
along with commercial paper proceeds of $193 million, were utilized to fund the
acquisition of additional shares of Carburos. The proceeds of $288 million were
effectively converted to Spanish Peseta liabilities with maturities ranging from
three months to seven years via the use of interest rate and currency swaps and
foreign exchange contracts. The average interest rate on these Spanish Peseta
liabilities is 7.54%.
SIX
<PAGE> 7
At year end, $370 million of commercial paper was outstanding compared to $328
million at the end of 1995. Of the $370 million, $255 million funded foreign
currency lending to subsidiaries.
Substantial credit facilities are maintained to provide backup funding for
commercial paper and to ensure availability of adequate resources for corporate
liquidity. At 30 September 1996, the company's revolving credit commitments
amounted to $600 million with funding available in 13 currencies. No borrowings
were outstanding under these commitments at the end of 1996. Additional
commitments totaling $16 million are maintained by the company's foreign
subsidiaries, of which $3 million was utilized at year end.
At 30 September 1996, the company had unutilized shelf registrations for $639
million of debt securities.
During 1996, 1.8 million shares of the company's outstanding common stock were
repurchased at a cost of $100 million. There were 2.7 million shares repurchased
during 1995 for $124 million.
FINANCIAL INSTRUMENTS The company enters into contractual agreements in the
ordinary course of business to hedge its exposure to interest rate and foreign
currency risks. Counterparties to these agreements are major financial
institutions. Management believes the risk of incurring losses related to credit
risk is remote and any losses would be immaterial.
Interest rate swap agreements are used to reduce interest rate risks and costs
inherent in the company's debt portfolio. The company enters into these
agreements to change the fixed/variable interest rate mix of the debt portfolio
in order to maintain the percentage of fixed and variable debt within certain
parameters set by management. Accordingly, the company enters into agreements to
both effectively convert variable-rate debt to fixed-rate debt and to
effectively convert its fixed-rate debt into variable-rate debt which is
principally indexed to LIBOR rates. The company has also entered into interest
rate swap contracts to effectively convert the stated variable rates to interest
rates based on LIBOR. The company is also party to interest rate and currency
swap contracts. These contracts entail both the exchange of fixed- and
floating-rate interest payments periodically over the life of the agreement and
the exchange of one currency for another at inception and a specified future
date. These contracts effectively convert the currency denomination of a debt
instrument into another currency in which the company has a net equity position
while changing the interest rate characteristics of the instrument. The
contracts are used to hedge intercompany lending activities and the value of
investments in certain foreign subsidiaries and affiliates.
The company, in management of its exposure to fluctuations in foreign currency
exchange rates, has entered into a variety of foreign exchange contracts,
including forward, option combination and purchased option contracts. These
agreements generally involve the exchange of one currency for a second currency
at some future date. The company enters into forward exchange and option
combination contracts to reduce the exposure to foreign currency fluctuations
associated with certain monetary assets and liabilities, as well as certain firm
commitments and highly anticipated cash flows. The company is also party to
purchased option contracts which, if exercised, involve the sale or purchase of
foreign currency at a fixed exchange rate for a specified period of time. These
contracts are used to hedge firm commitments and certain highly anticipated cash
flows, including export sales transactions.
Additional details on these and other financial instruments are set forth in
Notes 3, 5, and 6 to the consolidated financial statements.
WORKING CAPITAL Working capital (excluding cash and cash items, short term
borrowings, and current portion of long-term debt) was $489 million, up $68
million over the $421 million at the end of 1995. Trade receivables increased 7%
on an overall sales increase of 4%. Inventories and contracts in progress grew
6%. Current liabilities decreased due to a reduction of $16 million in accrued
taxes. This resulted in the $68 million working capital increase.
Working capital was $421 million at the end of 1995 versus $322 million at the
end of 1994. Inventories and trade receivables increased due to higher sales
activity. Months-on-hand of inventories was comparable to the prior year. Other
current assets at the end of fiscal 1995 included a $20 million receivable,
which was collected in October 1995, from the termination of an EES project.
DIVIDENDS In May 1996, the Board of Directors increased the quarterly cash
dividend to 27.5 cents per share, an increase of 6%. Dividends are declared by
the Board of Directors and, when declared, usually will be paid during the sixth
week after the close of the fiscal quarter.
STOCK-BASED COMPENSATION In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." The
company is required to adopt this standard no later than fiscal 1997. Presently,
the company does not recognize expense relative to stock options. This statement
permits the continuation of this approach but encourages companies to recognize
expense for stock options at an estimated fair value based on an option pricing
model. The company has elected not to adopt the expense recognition. Disclosure
of the expense is required as of fiscal 1997. The option pricing model for
implementing the disclosure requirements has not been determined and therefore
no estimate has been made of the disclosure to be made in fiscal 1997.
SEVEN
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
PENSION PLAN FUNDING The funding policy for pension plans is to accumulate plan
assets that, over the long run, will approximate the present value of projected
benefits payable. In fiscal 1996, the company contributed $52 million to these
plans and expects to make contributions of approximately $6 to $10 million in
fiscal 1997.
INFLATION The financial statements are presented on a historical cost basis and
do not fully reflect the impact of prior years' inflation. It is estimated that
the cost of replacing the company's plant and equipment today is greater than
its historical cost. Accordingly, depreciation expense would be greater if the
expense were stated on a current cost basis.
YEAR 2000 The company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
company has established processes for evaluating and managing the risks and
costs associated with this problem. The computing portfolio was identified and
an initial assessment has been completed. The cost of achieving Year 2000
compliance is estimated to be approximately $10 million over the cost of normal
software upgrades and replacements and will be incurred through fiscal 1999.
EIGHT
<PAGE> 9
COMPANY RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
company. They conform with generally accepted accounting principles and reflect
judgments and estimates as to the expected effects of incomplete transactions
and events being accounted for currently. The company believes that the
accounting systems and related controls that it maintains are sufficient to
provide reasonable assurance that assets are safeguarded, transactions are
appropriately authorized and recorded, and the financial records are reliable
for preparing such financial statements. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal accounting
controls must be related to the benefits derived. The company maintains an
internal audit function which is responsible for evaluating the adequacy and
application of financial and operating controls and for testing compliance with
company policies and procedures.
The independent public accountants are engaged to perform an audit of the
consolidated financial statements in accordance with generally accepted auditing
standards. Their report follows.
The Audit Committee of the Board of Directors is comprised entirely of
individuals who are not employees of the company. This Committee meets
periodically with the independent public accountants, the internal auditors, and
management to consider audit results and to discuss significant internal
accounting control, auditing, and financial reporting matters. The Audit
Committee recommends the selection of the independent public accountants who are
then appointed by the Board of Directors subject to ratification by the
shareholders.
/s/ Harold A. Wagner /s/ Arnold H. Kaplan
- -------------------------------- ----------------------------
Harold A. Wagner Arnold H. Kaplan
Chairman, President, Vice President-Finance
and Chief Executive Officer and Chief Financial Officer
1 November 1996
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
1996 and 1995, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended 30
September 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air Products and Chemicals,
Inc. and subsidiaries as of 30 September 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
30 September 1996, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective 1
October 1994, Air Products and Chemicals, Inc. changed its method of accounting
for certain investments in debt and equity securities. Also, as discussed in
Note 2, effective 1 October 1993, Air Products and Chemicals, Inc. changed its
methods of accounting for postretirement benefits other than pensions,
postemployment benefits, and income taxes.
/s/Arthur Andersen LLP
- ------------------------
Arthur Andersen LLP
Philadelphia, Pennsylvania
1 November 1996
NINE
<PAGE> 10
CONSOLIDATED INCOME
Air Products and Chemicals, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
YEAR ENDED 30 SEPTEMBER 1996 1995 1994
- -------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
SALES AND OTHER INCOME
Sales (Note 1) ............................................... $ 4,008 $3,865 $ 3,485
Other income (expense), net (Note 18) ........................ 25 26 (1)
------- ------ -------
4,033 3,891 3,484
------- ------ -------
COSTS AND EXPENSES
Cost of sales ................................................ 2,408 2,317 2,112
Selling, distribution, and administrative .................... 920 869 789
Research and development ..................................... 114 103 97
------- ------ -------
OPERATING INCOME ............................................. 591 602 486
Income from equity affiliates net of related expenses
(Note 9) ..................................................... 80 51 28
(Settlement)/Loss on leveraged interest rate transactions
(Note 5) ..................................................... (67) -- 107
Interest expense (Note 1) .................................... 129 100 81
------- ------ -------
INCOME BEFORE TAXES .......................................... 609 553 326
Income taxes (Notes 1 and 11) ................................ 193 185 92
------- ------ -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES ........ 416 368 234
Cumulative Effect of Accounting Changes (Note 2) ............. -- -- 14
------- ------ -------
NET INCOME ................................................... $ 416 $ 368 $ 248
======= ====== =======
MONTHLY AVERAGE OF COMMON SHARES OUTSTANDING (in millions) ... 112 112 114
------- ------ -------
EARNINGS PER COMMON SHARE
Income before Cumulative Effect of Accounting
Changes .......................................... $ 3.73 $ 3.29 $ 2.06
Cumulative Effect of Accounting
Changes (Note 2) .................................... -- -- .12
------- ------ -------
NET INCOME ................................................... $ 3.73 $ 3.29 $ 2.18
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
TEN
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
Air Products and Chemicals, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
30 SEPTEMBER 1996 1995
- ----------------------------------------------------------------------- ------ ------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash items (Note 1) .......................................... $ 79 $ 87
Trade receivables, less allowances for doubtful accounts of $13 in 1996
and $14 in 1995 .............................................. 670 625
Inventories (Notes 1 and 8) ........................................... 371 335
Contracts in progress, less progress billings ......................... 115 123
Other current assets .................................................. 140 162
------- -------
TOTAL CURRENT ASSETS ........................................ 1,375 1,332
------- -------
INVESTMENTS (Notes 1, 3, and 9)
Investment in net assets of and advances to equity affiliates ......... 759 581
Other investments and advances ........................................ 74 76
------- -------
TOTAL INVESTMENTS ........................................... 833 657
------- -------
PLANT AND EQUIPMENT, at cost (Notes 1, 4, 7, and 15) .................. 8,103 7,350
Less -- Accumulated depreciation ............................. 4,144 3,848
------- -------
PLANT AND EQUIPMENT, net .................................... 3,959 3,502
------- -------
GOODWILL (Note 1) ..................................................... 84 81
OTHER NONCURRENT ASSETS ............................................... 271 244
------- -------
TOTAL ASSETS .......................................................... $ 6,522 $ 5,816
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other (Note 18) ................................... $ 526 $ 519
Accrued liabilities (Note 18) ......................................... 241 249
Accrued income taxes .................................................. 40 56
Short-term borrowings (Note 18) ....................................... 423 314
Current portion of long-term debt (Note 4) ............................ 33 173
------- -------
TOTAL CURRENT LIABILITIES ................................... 1,263 1,311
------- -------
LONG-TERM DEBT (Notes 4 and 15) ....................................... 1,739 1,194
DEFERRED INCOME AND OTHER NONCURRENT LIABILITIES ...................... 364 435
DEFERRED INCOME TAXES (Notes 1 and 11) ................................ 582 478
------- -------
TOTAL LIABILITIES ........................................... 3,948 3,418
------- -------
SHAREHOLDERS' EQUITY (Notes 1, 10, and 12)
Common Stock (par value $1 per share; issued 1996 and 1995 -
124,727,792 shares) .......................................... 125 125
Capital in excess of par value ........................................ 461 465
Retained earnings ..................................................... 2,687 2,388
Unrealized gain on investments (Note 2) ............................... 40 41
Cumulative translation adjustments .................................... (70) (24)
Treasury Stock, at cost (1996 - 4,212,761 shares; 1995 -
3,044,469 shares) ............................................ (211) (139)
Shares in trust (1996 and 1995 - 10,000,000 shares) .................. (458) (458)
------- -------
TOTAL SHAREHOLDERS' EQUITY .................................. 2,574 2,398
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 6,522 $ 5,816
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
ELEVEN
<PAGE> 12
CONSOLIDATED CASH FLOWS
Air Products and Chemicals, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of dollars)
YEAR ENDED 30 SEPTEMBER 1996 1995 1994
- --------------------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................ $ 416 $ 368 $ 248
Adjustments to reconcile income to cash provided by operating activities:
Depreciation (Note 1) ............................................ 412 382 353
Termination of liabilities for leveraged interest rate swaps
(Note 5) ......................................................... (62) -- --
Loss on leveraged interest rate swaps (Note 5) ................... -- -- 107
Deferred income taxes (Note 11) .................................. 87 66 9
Cumulative effect of accounting changes (Note 2) ................. -- -- (14)
Other ............................................................ (50) (19) 50
Working capital changes that provided
(used) cash, net of effects of acquisitions:
Trade receivables ............................................... (53) (64) (41)
Inventories and contracts in progress ........................... (28) (58) (35)
Payables, trade and other ....................................... 3 20 62
Accrued liabilities ............................................. 21 13 4
Other ........................................................... 10 10 8
------- ----- -----
CASH PROVIDED BY OPERATING ACTIVITIES ........................... 756 718 751
------- ----- -----
INVESTING ACTIVITIES
Additions to plant and equipment(a) ....................................... (951) (870) (611)
Acquisitions, less cash acquired(b) ....................................... (6) (47) --
Investment in and advances to unconsolidated affiliates ................... (197) (29) (41)
Termination/closure of leveraged interest rate swaps (Note 5) ............. -- (6) (42)
Proceeds from sale of assets and investments .............................. 63 34 18
Other ..................................................................... 12 2 1
------- ----- -----
CASH USED FOR INVESTING ACTIVITIES .............................. (1,079) (916) (675)
------- ----- -----
FINANCING ACTIVITIES
Long-term debt proceeds(a) ................................................ 627 361 128
Payments on long-term debt ................................................ (168) (152) (124)
Net increase in commercial paper .......................................... 42 180 13
Net increase (decrease) in other short-term
borrowings ................................................................ 11 15 (44)
Dividends paid to shareholders ............................................ (117) (115) (108)
Purchase of Treasury Stock (Note 10) ...................................... (100) (124) (85)
Other ..................................................................... 21 17 4
------- ----- -----
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ................ 316 182 (216)
------- ----- -----
Effect of Exchange Rate Changes on Cash ................................... (1) 3 2
------- ----- -----
Decrease in Cash and Cash Items ........................................... (8) (13) (138)
Cash and Cash Items -- Beginning of Year .................................. 87 100 238
------- ----- -----
Cash and Cash Items -- End of Year (Note 1) ............................... $ 79 $ 87 $ 100
======= ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
(a) Excludes capital leases of $5 million, $5 million, and $3 million in 1996,
1995, and 1994, respectively.
(b) Excludes debt of $5 million and $18 million to former shareholders of
companies acquired in 1996 and 1995, respectively.
TWELVE
<PAGE> 13
CONSOLIDATED SHAREHOLDERS' EQUITY
Air Products and Chemicals, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
YEAR ENDED 30 SEPTEMBER 1996 1995 1994
- ------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
COMMON STOCK
Balance, Beginning and End of Year .......................... $ 125 $ 125 $ 125
------- ------- -------
CAPITAL IN EXCESS OF PAR VALUE
Balance, Beginning of Year .................................. 465 477 199
Issuance of Treasury Shares for benefit and stock option and
award plans, 625,308 shares in 1996, 961,794 shares in 1995,
and 1,100,286 shares in 1994 .............................. (13) (22) (2)
Issuance of 10,000,000 Treasury Shares to trust ............. -- -- 271
Tax benefit of stock option and award plans ................. 9 10 9
------- ------- -------
Balance, End of Year ........................................ 461 465 477
------- ------- -------
RETAINED EARNINGS
Balance, Beginning of Year .................................. 2,388 2,135 1,995
Net income .................................................. 416 368 248
Cash dividends -- Common Stock, $1.07 per share in 1996,
$1.01 per share in 1995, and $.95 per share in 1994 ....... (117) (115) (108)
------- ------- -------
Balance, End of Year ........................................ 2,687 2,388 2,135
------- ------- -------
UNREALIZED GAIN ON INVESTMENTS (Note 2)
Balance, Beginning of Year .................................. 41 -- --
Adjustment to 1995 beginning balance for change in accounting
method, net of income taxes of $23 ........................ -- 42 --
Change in unrealized gain, net of income taxes .............. (1) (1) --
------- ------- -------
Balance, End of Year ........................................ 40 41 --
------- ------- -------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, Beginning of Year .................................. (24) (16) (33)
Translation adjustments, net of income tax benefits of $2 in
1996, $28 in 1995, and $1 in 1994 ......................... (46) (8) 17
------- ------- -------
Balance, End of Year ........................................ (70) (24) (16)
------- ------- -------
TREASURY STOCK
Balance, Beginning of Year .................................. (139) (57) (184)
Issuance of Treasury Shares for benefit and stock option and
award plans, 625,308 shares in 1996, 961,794 shares in 1995,
and 1,100,286 shares in 1994 .............................. 28 42 26
Issuance of 10,000,000 Treasury Shares to trust ............. -- -- 186
Purchase of Treasury Shares, 1,793,600 in 1996, 2,687,300 in
1995, and 1,843,300 in 1994 (Note 10) ..................... (100) (124) (85)
------- ------- -------
Balance, End of Year ........................................ (211) (139) (57)
------- ------- -------
SHARES IN TRUST (Note 1)
Balance, Beginning of Year .................................. (458) (458) --
Contribution of 10,000,000 Treasury Shares .................. -- -- (458)
------- ------- -------
Balance, End of Year ........................................ (458) (458) (458)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY .................................. $ 2,574 $ 2,398 $ 2,206
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
THIRTEEN
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Air Products and Chemicals, Inc. and Subsidiaries
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.
LONG-TERM EQUIPMENT AND CONSTRUCTION REVENUE Revenues from equipment sale
contracts are recorded primarily using the percentage-of-completion method.
Under this method, the equipment and services segment recognizes revenues based
primarily on labor costs incurred to date compared with total estimated labor
costs. The environmental and energy segment recognizes revenues based primarily
on contract costs incurred to date compared with total estimated contract costs.
Changes to total estimated labor or contract costs and anticipated losses, if
any, are recognized in the period determined.
DEPRECIATION In the financial statements, the straight-line method of
depreciation is used which deducts equal amounts of the cost of each asset from
earnings every year over its expected useful life. The following table shows the
estimated useful lives of different types of assets:
Classification Expected Useful Lives
- --------------------------- ----------------------------
Buildings and components 5 to 45 years
(principally 30 years)
Gas generating and chemical
facilities, machinery and 3 to 25 years
equipment (principally 11 to 15 years)
============================ ============================
CAPITALIZED INTEREST As the company builds new plant and equipment or invests in
unconsolidated affiliates in the development stage, it includes in the cost of
these assets a portion of the interest payments it makes during the year. In
1996, the amount of capitalized interest was $15 million. In 1995, it was $18
million, and in 1994, $10 million.
INTEREST RATE SWAP AGREEMENTS The company enters into interest rate swap
agreements to reduce interest rate risks and to modify the interest rate
characteristics of its outstanding debt. These agreements involve the exchange
of fixed- and floating-rate interest payments periodically over the life of the
agreement without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and
recognized over the life of the agreements as an adjustment to interest expense.
The fair value of these swap agreements is not recognized in the financial
statements.
The company is also party to interest rate and currency swap contracts. These
contracts entail both the exchange of fixed- and floating-rate interest payments
periodically over the life of the agreement and the exchange of one currency for
another currency at inception and a specified future date. The contracts are
used to hedge intercompany lending transactions and the value of investments in
certain foreign subsidiaries and affiliates. Gains and losses on the currency
component of these contracts, which hedge intercompany lending transactions, are
recognized in income and offset the foreign exchange gains and losses of the
related transaction. Gains and losses on the currency component of these
contracts which hedge investments in certain foreign subsidiaries and foreign
equity affiliates are not included in the income statement but are shown in the
cumulative translation adjustments account. The interest component of these
contracts is accounted for similarly to other interest rate swap agreements.
Gains and losses on terminated interest rate swap agreements are amortized into
income over the remaining life of the underlying debt obligation or the
remaining life of original swap, if shorter.
FOREIGN CURRENCY The value of the U.S. dollar rises and falls day to day on
foreign currency exchanges. Since the company does business in many foreign
countries, these fluctuations affect the company's financial position and
results of operations.
Generally, foreign subsidiaries translate their assets and liabilities into U.S.
dollars at current exchange rates -- that is, the rates in effect at the end of
the fiscal period. The gains or losses that result from this process are shown
in the cumulative translation adjustments account in the shareholders' equity
section of the balance sheet.
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. The company enters
into forward exchange and option combination contracts to manage the exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities denominated in a foreign currency as well as certain highly
anticipated cash flows. Gains and losses on these contracts are recognized in
income and offset the foreign exchange gains and losses of the related
transaction.
FOURTEEN
<PAGE> 15
Forward exchange and option combination contracts are sometimes used to hedge
firm commitments, such as the purchase of plant and equipment, and purchased
foreign currency options are sometimes used to hedge firm commitments and
certain highly anticipated cash flows, including export sales transactions.
Gains and losses resulting from these agreements are deferred and reflected as
adjustments of the related foreign currency transactions.
ENVIRONMENTAL EXPENDITURES Accruals for investigatory and noncapital remediation
costs are recorded when it is probable that a liability has been incurred and
the amount of loss can be reasonably estimated. Remediation costs are
capitalized if the costs improve the company's property as compared with the
condition of the property when originally constructed or acquired or if the
costs prevent environmental contamination from future operations. Costs to
operate and maintain the capitalized facilities are expensed as incurred.
The measurement of environmental liabilities is based on an evaluation of
currently available facts with respect to each individual site and considers
factors such as existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. While the current law
potentially imposes joint and several liability upon each party at any Superfund
site, the company's contribution to clean up these sites is expected to be
limited, given the number of other companies which have also been named as
potentially responsible parties and the volumes of waste involved. A reasonable
basis for apportionment of costs among responsible parties is determined and the
likelihood of contribution by other parties is established. If it is considered
probable that the company will only have to pay its expected share of the total
site cleanup, the liability reflects the company's expected share. In
determining the probability of contribution, the company considers the solvency
of the parties, whether responsibility is being disputed, the terms of any
existing agreements, and experience to date regarding similar matters. These
liabilities do not take into account any claims for recoveries from insurance or
third parties and are not discounted. As assessments and remediation progress at
individual sites, these liabilities are reviewed periodically and adjusted to
reflect additional technical and legal information which becomes available.
Actual costs to be incurred at identified sites in future periods may vary from
the estimates, given inherent uncertainties in evaluating environmental
exposures. The accruals for environmental liabilities are reflected in the
balance sheet primarily as part of other noncurrent liabilities.
INCOME TAXES The company accounts for income taxes under the liability method.
Under this method, deferred tax liabilities and assets are recognized for the
tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities using enacted tax rates. A principal temporary
difference results from the excess of tax depreciation over book depreciation
because accelerated methods of depreciation and shorter useful lives are used
for income tax purposes. The cumulative impact of a change in tax rates or
regulations is included in income tax expense in the period that includes the
enactment date.
CASH AND CASH ITEMS Cash and cash items include cash, time deposits, and
certificates of deposit acquired with an original maturity of three months or
less.
INVENTORIES To determine the cost of chemical inventories and some gas and
equipment inventories in the United States, the company uses the last-in,
first-out (LIFO) method. This method assumes the most recent cost is closer to
the cost of replacing an item that has been sold. During periods of rising
prices, LIFO maximizes the cost of goods sold and minimizes the profit reported
on the company's income statement.
All other inventory values are determined using the first-in, first-out (FIFO)
method. Cost of an item sold is based on the first item produced or on the
current market value, whichever is lower.
GOODWILL When a company is acquired, the difference between the fair value of
its net assets and the purchase price is goodwill. Goodwill is recorded as an
asset on the balance sheet and is amortized into income over periods not
exceeding 40 years. The company assesses the impairment of goodwill related to
consolidated subsidiaries in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121. (See Note 2.) The measurement of an impairment loss of
goodwill related to equity affiliates is based on expected undiscounted future
cash flows, as the investment in equity affiliates is excluded from the scope of
SFAS No. 121.
SHARES IN TRUST The company has established a trust, funded with Treasury Stock,
to provide for a portion of future payments to employees under the company's
existing compensation and benefit programs. Shares issued to the trust are
valued at market price on the date of contribution and reflected as a reduction
of shareholders' equity in the balance sheet. As shares are transferred from the
trust to fund compensation and benefit obligations, this equity account is
reduced based on the original cost of shares to the trust; the satisfaction of
liabilities is based on the fair value of shares transferred; and the difference
between the fair value of shares transferred and the original cost of shares to
the trust is charged or credited to capital in excess of par value.
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.
FIFTEEN
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING CHANGES
Effective 1 October 1994, the company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." A certain investment in
marketable equity securities is reported at fair value with the unrealized gain
on an after-tax basis recorded in a separate component of shareholders' equity.
The aggregate fair value of this equity security was $74 million and $75 million
at 30 September 1996 and 1995, and the gross unrealized holding gain was $63
million and $64 million, respectively. Fiscal 1994 amounts were not restated.
In fiscal 1995, the company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The 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 fair value of the asset. Generally, fair value will be determined using
valuation techniques such as the present value of expected future cash flows. It
was the company's past policy to measure an impairment loss for assets held for
use based on expected undiscounted future cash flows. Adoption of this statement
will result in recognition of a larger loss, based on discounted future cash
flows, in the year of impairment and lower depreciation charges over the
remaining life of the asset. Since adoption, no material impairment losses have
been recognized.
Effective 1 October 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS No. 109,
"Accounting for Income Taxes," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative effect of these accounting changes on
years prior to fiscal 1994 is included in net income of fiscal 1994. The
cumulative effect of each of these standards is as follows:
<TABLE>
<CAPTION>
Earnings (Loss)
Income per Common
(Millions of dollars, except per share) (Loss) Share
- -------------------------------------------------- ------ -----
<S> <C> <C>
Postretirement benefits other than pensions,
net of an income tax benefit of $19 ............. $(31) $(.28)
Income taxes ..................................... 55 .49
Postemployment benefits, net of an income
tax benefit of $6 ............................... (10) (.09)
---- -----
$ 14 $ .12
==== =====
</TABLE>
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Summarized below are the carrying values and fair values of the company's
financial instruments as of 30 September 1996 and 1995.
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, excluding the interest accrual,
as of the balance sheet date. The computation of fair values of these
instruments is generally performed by the company. The fair value of other
investments is based principally on quoted market prices. The carrying amounts
reported in the balance sheet for cash and cash items, accrued liabilities,
accrued income taxes, and short-term borrowings approximate fair value due to
the short-term nature of these instruments. Accordingly, these items have been
excluded from the table below.
<TABLE>
<CAPTION>
1996 1995
(Millions of dollars) Carrying Fair Carrying Fair
30 SEPTEMBER Value Value Value Value
- ----------------------------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Other investments ....................... $ 74 $ 74 $ 76 $ 76
Currency option contracts (Note 6) ...... 7 3 11 3
Interest rate swap agreements (Note 5) .. 7 13 (11) (10)
Forward exchange contracts (Note 6) ..... 2 3 (7) (12)
------ ------ ------- -------
LIABILITIES
Long-term debt, including current portion
(Note 4) ................................ $1,772 $1,840 $ 1,367 $ 1,454
====== ====== ======= =======
</TABLE>
SIXTEEN
<PAGE> 17
4. LONG-TERM DEBT
The following table shows the company's outstanding debt at the end of fiscal
1996 and 1995, excluding any portion of the debt required to be repaid within a
year:
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- ---------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Payable in U.S. dollars:
8 7/8% Notes, due 2001 ................................................... $ 100 $ 100
8.35% Debentures, due 2002, effective interest rate 8.4% ................. 100 100
6 1/4% Notes, due 2003 ................................................... 100 100
Medium-term Notes, Series B, due through 2003, weighted average
interest rate 6.3% ................................................. 51 51
Medium-term Notes, Series C, due through 2003, weighted average
interest rate 6.0% ................................................. 166 166
7 3/8% Notes, due 2005, effective interest rate 7.5% ..................... 150 150
8 1/2% Debentures, due 2006, effective interest rate 8.6% ................ 100 100
Medium-term Notes, Series D, due through 2016, weighted average
interest rate 6.8% ................................................. 311 30
Medium-term Notes, Series E, due through 2026, weighted average
interest rate 7.6% ................................................. 250 --
8 3/4% Debentures, due 2021, effective interest rate 9.0% ................ 100 100
Commercial paper, weighted average interest rate 5.5% .................... -- 56
Other, due 2002 to 2023, weighted average interest rate 6.5% ............. 54 34
Payable in foreign currency:
9 1/2% British Pound Notes, due 1997 ..................................... 71 72
8.27% British Pound loan, due 1999 ....................................... 34 35
10.8% French Franc loan, due through 2002 ................................ -- 4
9.2% Deutsche Mark loan, due through 2002 ................................ 11 9
5.97% Dutch Guilder loan, due through 2006 ............................... 70 --
Belgian Franc loans, due through 2006, weighted average interest
rate 5.5% .............................................................. 37 47
Other, due through 2004, weighted average interest rate 4.5% ............. 11 14
Less: Unamortized discount .................................................. (5) (4)
------- -------
1,711 1,164
------- -------
Capital lease obligations:
United States, due through 2002, weighted average interest rate 6.1% ........ 6 6
Foreign, due through 2004, weighted average interest rate 10.0% ............. 22 24
------- -------
28 30
------- -------
$ 1,739 $ 1,194
======= =======
</TABLE>
Various debt agreements to which the company is a party include restrictions
pertaining to the ability to create property liens and enter into certain sale
and leaseback transactions.
The company has obtained the commitment of a number of commercial banks to lend
money at market rates whenever needed by the company. These committed lines of
credit also are used to support the issuance of commercial paper. In January
1996, the company entered into a $600 million committed, multi-currency,
syndicated credit facility which matures in January 2001. No borrowings were
outstanding under this facility at 30 September 1996. At 30 September 1996,
foreign subsidiaries had additional committed credit lines of $16 million, $3
million of which was borrowed and outstanding.
Maturities of long-term debt in each of the next five years are as follows: $33
million in 1997; $71 million in 1998; $83 million in 1999; $114 million in 2000;
and $132 million in 2001.
Included in the Medium-term Notes, Series E, is a $100 million note, due in
2026, with a one-time put option exercisable by the investor after twelve years.
The 9 1/2% British Pound Notes and a portion of the Medium-term Notes, Series B
are classified as long-term debt because of the availability of long-term
financing under the commitments from various banks and the company's intention
to refinance these notes on a long-term basis.
SEVENTEEN
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTEREST RATE SWAP AGREEMENTS
The company enters into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain the
percentage of fixed and variable rate debt within certain parameters set by
management. In accordance with these parameters, the agreements are used to
reduce interest rate risks and costs inherent in the company's debt portfolio.
Accordingly, the company enters into agreements to both effectively convert
variable-rate debt to fixed-rate debt and to effectively convert fixed-rate debt
to variable-rate debt, which is principally indexed to LIBOR rates. The company
has also entered into variable to variable interest rate swap contracts to
effectively convert the stated variable interest rates on $60 million of the
medium-term notes, series C, to an average interest rate slightly above the
three-month U.S. dollar LIBOR rate.
The company is also party to interest rate and currency swap contracts. These
contracts effectively convert the currency denomination of a debt instrument
into another currency in which the company has a net equity position while
changing the interest rate characteristics of the instrument.
Counterparties to interest rate swap agreements are major financial
institutions. The company has established counterparty credit guidelines and
only enters into transactions with financial institutions of investment grade or
better. Minimum credit standards become more stringent as the duration of the
swap agreement increases. If the credit rating of a counterparty to an existing
transaction was downgraded to below investment grade, the company has provisions
to require collateral for transactions with maturities in excess of five years.
Management believes the risk of incurring losses related to credit risk is
remote.
The table below illustrates the contract or notional (face) amounts outstanding,
maturity dates, weighted average receive and pay rates as of the end of the
fiscal year, and the net unrealized gain (loss) of interest rate swap agreements
by type at 30 September 1996 and 1995. The notional amounts are used to
calculate contractual payments to be exchanged and are not generally actually
paid or received, except for the currency swap component of the contracts. The
notional amount of these agreements is equal to or less than the designated debt
instrument being hedged. The net unrealized gain (loss) on these agreements,
which equals their fair value, is based on the relevant yield curve at the end
of the fiscal year.
<TABLE>
<CAPTION>
Weighted Weighted Unrealized Unrealized Net
Notional Average Rate Average Rate Gross Gross Unrealized
(Millions of dollars) Amount Maturities Receive Pay Gain (Loss) Gain (Loss)
- ------------------------- ------ ---------- ------- --- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
30 SEPTEMBER 1996
Fixed to Variable ....... $243 1997 - 2005 7.1% 5.7% $ 2 $ (1) $ 1
Variable to Fixed ....... 54 1997 6.0% 7.3% -- (1) (1)
Variable to Variable .... 60 2000 - 2001 8.2% 5.7% 28 -- 28
Interest Rate/Currency .. 274 1998 - 2005 6.3% 9.3% -- (15) (15)
---- --- ---- ----
$631 $30 $(17) $ 13
==== === ==== ====
30 SEPTEMBER 1995
Fixed to Variable ....... $313 1996 - 2003 8.6% 8.2% $ 2 $ (8) $ (6)
Variable to Fixed ....... 105 1997 - 2003 6.3% 7.5% -- (4) (4)
Variable to Variable .... 70 1996 - 2001 3.8% 6.0% 11 -- 11
Interest Rate/Currency .. 86 1996 5.9% 4.7% -- (11) (11)
---- --- ---- ----
$574 $13 $(23) $(10)
==== === ==== ====
</TABLE>
EIGHTEEN
<PAGE> 19
Of the net unrealized gain (loss) as of 30 September 1996 and 1995, a net gain
of $6 million and $1 million, respectively, has not been recognized in the
financial statements. A deferred loss of $10 million at the end of fiscal 1996
and a deferred gain of $1 million at the end of fiscal 1995 resulted from
terminated contracts.
During the second quarter of fiscal 1996, the company reached a $67 million
settlement with Bankers Trust Company over $107 million in losses in fiscal 1994
associated with leveraged interest rate swap contracts. The settlement included
the termination of two previously closed contracts with Bankers Trust. Prior to
the settlement, there was an outstanding liability of $62 million associated
with these closed contracts. The after-tax gain related to this settlement was
$41 million.
The company entered into five highly leveraged interest rate swap contracts with
a notional value of $203 million during the first quarter of fiscal 1994. By 30
June 1994, the company terminated three of these contracts and closed the other
two. These contracts had been accounted for on a mark-to-market basis. The
company will not enter into any future interest rate swap contracts which lever
a move in interest rates on a greater than one-to-one basis. Additionally, the
company terminated in 1994 a number of smaller interest rate swap agreements and
an interest rate and currency swap contract and recognized a loss of $14
million. This loss was recognized in the consolidated income statement as $12
million foreign exchange loss included in other income and $2 million interest
expense.
After the effects of interest rate swap agreements, the company's total debt,
including current portion, is composed of 69% fixed-rate debt and 31%
variable-rate debt as of 30 September 1996.
The fair value of long-term debt and interest rate swap agreements is affected
by fluctuations in market interest rates. A 100 basis point increase in market
interest rates would result in a $108 million decline (favorable) in the fair
value of long-term debt while the fair value of interest rate swap agreements
would decline $3 million (unfavorable). A 100 basis point decline in market
interest rates would result in a $114 million increase (unfavorable) in the fair
value of long-term debt while the fair value of interest rate swap agreements
would increase $4 million (favorable). Based on the composition of the company's
debt portfolio, including interest rate swap agreements, as of 30 September
1996, a 100 basis point increase in market interest rates would result in an
additional $7 million in interest incurred per year. A 100 basis point decline
would lower interest incurred by $7 million per year.
6. FOREIGN EXCHANGE CONTRACTS
The company, in management of its exposure to fluctuations in foreign currency
exchange rates, has entered into a variety of foreign exchange contracts,
including forward, option combination, and purchased option contracts. These
agreements generally involve the exchange of one currency for a second currency
at some future date. Counterparties to these agreements are major international
financial institutions. The company's counterparty credit guidelines and
management's position regarding possible exposure to losses related to credit
risk is comparable to that for interest rate swap agreements as discussed in
Note 5.
The company enters into forward exchange and option combination contracts to
reduce the exposure to foreign currency fluctuations associated with certain
monetary assets and liabilities, as well as certain firm commitments and highly
anticipated cash flows. The company is also party to purchased option contracts
which, if exercised, involve the sale or purchase of foreign currency at a fixed
exchange rate for a specified period of time. These contracts are used to hedge
firm commitments and certain highly anticipated cash flows, including export
sales transactions, through fiscal 1999.
The table on the following page illustrates the U.S. dollar equivalent,
including offsetting positions, of foreign exchange contracts at 30 September
1996 and 1995 along with maturity dates, net unrealized gain (loss), and net
unrealized gain (loss) deferred. At the end of fiscal 1996, all material cash
flow exposures to foreign currency fluctuations resulting from monetary assets
or liabilities, firm commitments, or highly anticipated cash flows being
denominated in a currency other than an entity's functional currency are hedged
by forward exchange, option combination, or purchased option contracts.
NINETEEN
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Latest Unrealized Unrealized Net Net Unrealized
Contract Amount Maturity Gross Gross Unrealized Gain (Loss)
(Millions of dollars) ($U.S. Equivalent) Date Gain (Loss) Gain (Loss) Deferred
- ----------------------------------- ------------------ ---- ---- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
30 SEPTEMBER 1996
Forward exchange contracts:
$U.S./Netherland DG ................ $138 1997 $ 2 $ -- $ 2 $ --
$U.S./U.K. Pound Sterling .......... 108 1997 -- (1) (1) (1)
$U.S./$ Canadian ................... 59 1997 -- -- -- --
Netherland DG/U.K. Pound Sterling... 51 1998 3 -- 3 3
Other .............................. 112 1998 1 (2) (1) (1)
---- ---- ---- ---- ----
468 6 (3) 3 1
---- ---- ---- ---- ----
Option contracts:
$U.S./German DM .................... 79 1999 2 (5) (3) (3)
$U.S./Japanese Yen ................. 18 1998 1 (1) -- --
Other .............................. 21 1997 -- (1) (1) (1)
---- ---- ---- ---- ----
118 3 (7) (4) (4)
---- ---- ---- ---- ----
$586 $ 9 $(10) $ (1) $ (3)
==== ==== ==== ==== ====
30 SEPTEMBER 1995
Forward exchange contracts:
$U.S./Netherland DG ................ $ 94 1996 $ -- $ (1) $ (1) $ (1)
$U.S./U.K. Pound Sterling .......... 65 1997 1 (1) -- --
$U.S./$ Canadian ................... 67 2004 1 (2) (1) --
Netherland DG/U.K. Pound Sterling... 128 1996 1 (5) (4) (4)
Other .............................. 106 1996 -- (6) (6) --
---- ---- ---- ---- ----
460 3 (15) (12) (5)
---- ---- ---- ---- ----
Option contracts:
$U.S./German DM .................... 122 1999 3 (9) (6) (6)
$U.S./Japanese Yen ................. 32 1998 1 (2) (1) (1)
Other .............................. 39 1997 1 (2) (1) (1)
---- ---- ---- ---- ----
193 5 (13) (8) (8)
---- ---- ---- ---- ----
$653 $ 8 $(28) $(20) $(13)
==== ==== ==== ==== ====
</TABLE>
The company's net equity position in its principal foreign subsidiaries at 30
September 1996 was $636 million. These subsidiaries have operations in the
United Kingdom, Germany, France, Netherlands, Belgium, Brazil, Japan, and
Canada. In addition to its foreign subsidiaries, the company has an equity
position in foreign equity affiliates as disclosed in Note 9. Generally, it is
the company's policy to hedge only exposures to foreign currency fluctuations
which represent actual cash flow exposures.
7. PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- ------------------------------------------------ ------ ------
<S> <C> <C>
Land ........................................... $ 85 $ 83
Buildings ...................................... 526 485
Gas generating and chemical facilities,
machinery and equipment ....................... 6,836 6,177
Construction in progress ....................... 656 605
------ ------
$8,103 $7,350
====== ======
</TABLE>
TWENTY
<PAGE> 21
8. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- --------------------------------------------- ----- -----
<S> <C> <C>
Inventories at FIFO cost:
Finished goods ...................... $ 256 $ 249
Work in process ..................... 16 12
Raw materials and supplies .......... 138 113
----- -----
410 374
Less excess of FIFO cost over
LIFO ................................ (39) (39)
----- -----
$ 371 $ 335
===== =====
</TABLE>
Inventories valued using the LIFO method comprised 53.4% and 56.7% of
consolidated inventories before LIFO adjustment at 30 September 1996 and 1995,
respectively. Liquidation of prior years' LIFO inventory layers in 1996, 1995,
and 1994 did not materially affect cost of sales in any of these years.
9. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The following table presents summarized financial information on a combined 100%
basis of the principal companies accounted for by the equity method. Amounts
presented include the accounts of the following equity affiliates: American
Ref-Fuel of Hempstead (50%); American Ref-Fuel of Essex County (50%); American
Ref-Fuel of Niagara (50%); American Ref-Fuel of Southeastern Connecticut (50%);
American Ref-Fuel of SEMASS (50%); Cambria CoGen Company (50%); Stockton CoGen
Company (50%); Orlando CoGen Limited, L.P. (50%); Carburos Metalicos S.A.
(47.63%); Sapio Produzione Idrogeno Ossigeno S.r.L. (49%); INFRA Group (40%);
San Fu Chemicals (45%); ProCal (50%); Korea Industrial Gases (48.90%); Air
Products South Africa (50%); and principally other industrial gas producers.
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995
- --------------------------------------- ------ ------
<S> <C> <C>
Current assets ......................... $ 751 $ 650
Noncurrent assets ...................... 3,164 2,287
Current liabilities .................... 560 452
Noncurrent liabilities ................. 2,129 1,468
Net sales .............................. 1,465 1,366
Sales less cost of sales ............... 685 628
Net income ............................. 226 173
====== ======
</TABLE>
The company's share of income of all equity affiliates for 1996, 1995, and 1994
was $101 million, $68 million, and $48 million, respectively. These amounts
exclude $21 million, $17 million, and $20 million of related net expenses
incurred by the company. Dividends received from equity affiliates were $64
million, $45 million, and $45 million in 1996, 1995, and 1994, respectively.
The investment in net assets of and advances to equity affiliates at 30
September 1996 and 1995 included investment in foreign affiliates of $509
million and $371 million, respectively.
As of 30 September 1996 and 1995, the amount of investment in companies
accounted for by the equity method included goodwill in the amount of $122
million and $70 million, respectively. The goodwill is being amortized into
income over periods not exceeding 40 years.
In April 1996, the company announced its plan to divest its joint venture
interest in American Ref-Fuel Company's waste-to-energy business. The investment
in net assets of and advances to this waste-to-energy business was $213 million
at 30 September 1996.
10. 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 1996, and
300 million shares of Common Stock with a par value of $1 per share. At 30
September 1996, the number of shares of Common Stock outstanding was
110,515,031.
In April 1996, the company announced its plan to commence a share repurchase
program designed to acquire approximately 10 percent of its 112 million average
common shares outstanding. During fiscal 1996 and 1995, 1.8 million and 2.7
million treasury shares were purchased at a cost of $100 million and $124
million, respectively.
TWENTY-ONE
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 funded with 10 million shares of
Treasury Stock. It will not increase or alter the amount of benefits or
compensation which will be paid under existing plans. The establishment of the
trust will not have an effect on earnings per share or return on average
shareholders' equity.
The Board of Directors adopted a Shareholder Rights Plan in 1988 and declared a
dividend of one Preferred Stock Purchase Right for each outstanding share of
Common Stock. Such rights only become exercisable, or transferable apart from
the Common Stock, ten business days after a person or group (Acquiring Person)
acquires beneficial ownership of, or commences a tender or exchange offer for,
20% or more of the company's Common Stock. Each right then may be exercised to
acquire one one-hundredth of a share of a newly created Series A Junior
Participating Preferred Stock at an exercise price of $200, subject to
adjustment. Alternatively, upon the occurrence of certain events (for example,
if the company is the surviving corporation in a merger with an Acquiring
Person), the rights entitle holders other than the Acquiring Person to acquire
Common Stock having a value of twice the exercise price of the rights, or, upon
the occurrence of certain other events (for example, if the company is acquired
in a merger or other business combination transaction in which the company is
not the surviving corporation), to acquire common stock of the Acquiring Person
having a value twice the exercise price of the rights. The rights may be
redeemed by the company at $.01 per right at any time until the tenth day
following public announcement that a 20% position has been acquired. The rights
will expire on 16 March 1998.
11. INCOME TAXES
The following table shows the components of the provision for income taxes:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- --------------------------------------- ----- ----- ----
<S> <C> <C> <C>
Federal:
Current ...................... $ 76 $ 81 $ 52
Deferred ..................... 70 52 19
----- ----- ----
146 133 71
----- ----- ----
State:
Current ...................... 7 10 6
Deferred ..................... 11 11 1
Impact of law/rate change .... (1) (1) (9)
----- ----- ----
17 20 (2)
----- ----- ----
Foreign:
Current ...................... 23 28 25
Deferred ..................... 7 4 (2)
----- ----- ----
30 32 23
----- ----- ----
$ 193 $ 185 $ 92
===== ===== ====
</TABLE>
The significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- --------------------------------------------------- ----- -----
<S> <C> <C>
Gross deferred tax assets:
Pension and other compensation accruals ... $ 73 $ 64
Alternative minimum tax ................... 36 61
Tax loss carryforwards .................... 40 48
Foreign currency translation adjustment ... 32 28
Reserves and accruals ..................... 29 24
Postretirement benefits ................... 23 23
Plant and equipment ....................... 10 10
Inventory ................................. 18 9
Other ..................................... 39 25
Valuation allowance ....................... (33) (34)
----- -----
Deferred tax assets ................................ 267 258
----- -----
Gross deferred tax liabilities:
Plant and equipment ....................... 537 475
Investment in partnerships ................ 181 164
Unrealized gain on investments ............ 23 23
Employee benefit plans .................... 25 23
Other ..................................... 54 28
----- -----
Deferred tax liabilities ........................... 820 713
----- -----
Net deferred income tax liability .................. $ 553 $ 455
===== =====
</TABLE>
Net current deferred tax assets of $29 million and $23 million are included in
other current assets at 30 September 1996 and 1995, respectively.
TWENTY-TWO
<PAGE> 23
The company's domestic operations were subject to taxes under the Alternative
Minimum Tax (AMT) for income tax purposes. The AMT limits the utilization of tax
benefits in the current year. The unused tax benefits are carried forward for
use in future years. These tax benefits were partially used in fiscal 1996.
Foreign and state operating loss carryforwards on 30 September 1996 were $62
million and $195 million, respectively. Foreign losses of $14 million are
available to offset future foreign income through 2005. The balance of these
losses has an unlimited carryover period. State operating loss carryforwards are
available through 2010. Foreign capital loss carryforwards were $6 million on 30
September 1996 and have an unlimited carryover period.
The valuation allowance as of 30 September 1996 primarily relates to the tax
loss carryforwards referenced above. If events warrant the reversal of the $33
million valuation allowance, it would reduce intangible assets by $8 million and
reduce tax expense by $25 million.
Major differences between the federal statutory rate and the effective tax rate
are:
<TABLE>
<CAPTION>
(Percent of income before taxes) 1996 1995 1994
- ----------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
United States federal statutory rate .......... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit ....... 2.3 2.4 2.2
Equity in earnings of foreign affiliates ...... (3.6) (2.6) (2.1)
Foreign tax credits and refunds on dividends
received from foreign affiliates ............. .1 (.4) (.8)
Nonconventional fuel credits .................. (1.0) (1.0) (1.5)
Export tax benefits ........................... (.6) (.6) (1.3)
Investment tax credits ........................ (.4) (.2) (.6)
Charitable contribution of stock investment ... -- -- (1.2)
Impact of state law/rate change ............... (.1) (.2) (1.7)
Other ......................................... -- 1.0 .2
---- ---- ----
Effective tax rate ............................ 31.7% 33.4% 28.2%
==== ==== ====
</TABLE>
The following table summarizes the income of U.S. and foreign operations, before
taxes:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ----------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Income from consolidated operations:
United States .................. $416 $398 $223
Foreign ........................ 92 87 55
Income from equity affiliates ........... 101 68 48
---- ---- ----
$609 $553 $326
==== ==== ====
</TABLE>
Income before taxes presented above is distributed geographically according to
where the income is taxed. This differs from the geographic segment operating
income presented in Note 19 in which items of income and expense are allocated
to the region where revenues are generated.
The company does not pay or record U.S. income taxes on the undistributed
earnings of its foreign subsidiaries and its 20% to 50% owned corporate joint
ventures as long as those earnings are permanently reinvested in the companies
that produced them. These cumulative undistributed earnings are included in
consolidated retained earnings on the balance sheet and amounted to $563 million
at the end of fiscal 1996. An estimated $132 million in U.S. income and foreign
withholding taxes would be due if these earnings were remitted as dividends,
after payment of all deferred taxes.
12. STOCK OPTION AND AWARD PLANS
The Long-Term Incentive Plan (the Plan) provides for the granting of stock
options with or without related performance units to executives and key
employees. Options generally become exercisable in cumulative installments of
33 1/3% one year after the date of grant and annually thereafter, and must be
exercised no later than ten years and one day from that date. Option prices are
100% of fair market value on the date of grant. Performance units have a dollar
value determined by the Management Development and Compensation Committee and
constitute rights to receive the value of the unit, provided performance
objectives are met. Payment of a performance unit may be in cash and/or shares
of Common Stock, as determined by the Committee. Performance units have been
issued in tandem with stock options, so that the exercise of either of them will
reduce, on a one-for-one basis, the tandem options or performance units. The
company has not granted performance units since 1991. Following a change in
control of the company as defined in the Plan, options and related performance
units can be cancelled upon, or surrendered for, payment of 100% of the spread
on the options.
Expense is not recorded relative to stock options. The difference between the
proceeds and the average cost of Treasury Stock issued to satisfy the options is
recorded in capital in excess of par value net of related tax benefits.
TWENTY-THREE
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain information for 1996 and 1995 relative to stock options is summarized as
follows:
<TABLE>
<CAPTION>
(Number of shares) 1996 1995
- --------------------------------------------- --------- ---------
<S> <C> <C>
Outstanding at beginning of year ............ 5,125,754 5,194,293
Granted ..................................... 794,990 751,670
Exercised(a) ................................ (572,953) (806,295)
Expired or cancelled ........................ (9,019) (13,914)
--------- ---------
Outstanding at end of year(b) ............... 5,338,772 5,125,754
--------- ---------
Exercisable at end of year .................. 3,794,363 3,691,975
Participants at end of year ................. 480 395
Available for future grant at end of year.... 6,000,000 1,741,075
========= =========
</TABLE>
(a) Options were exercised at prices ranging from $13.14 to $46.25 per share
during 1996 and $13.14 to $39.13 per share during 1995.
(b) For outstanding shares under option at 30 September 1996, option prices
ranged from $17.60 to $52.06 (and averaged $35.44) per share. The expiration
dates for these options range from 18 November 1997 to 3 October 2005. For
outstanding shares under option at 30 September 1995, option prices ranged from
$13.14 to $46.25 (and averaged $31.43) per share.
In addition to the Long-Term Incentive Plan, there is a plan granting stock
options to directors. Options are exercisable six months after grant date and
must be exercised no later than ten years and one day from that date. Under this
plan, there were 28,000 and 19,000 options outstanding and exercisable at the
end of fiscal 1996 and 1995, respectively. Option prices were $50.81 and $45.38
per share for options issued in 1996 and 1995, respectively. As of 30 September
1996, no stock options have been exercised under this plan.
At 30 September 1996, there were 1,349,471 performance units with maximum payout
values ranging from $0.61 to $10.19 outstanding. In addition, deferred stock and
similar awards equal to 875,717 shares of Air Products Common Stock were
outstanding at 30 September 1996.
On 2 October 1995, the company awarded 100 stock options with an exercise price
of $52.06 per share to virtually all employees. These options have a ten year
term and may not be exercised until 2 October 1998. As of 30 September 1996,
1,340,500 options were outstanding.
13. PENSION PLANS
The company has various pension plans which cover almost all regular employees.
The plan benefits are based primarily on years of service and employees'
compensation near retirement. The funding policy is to accumulate plan assets
that, over the long run, will approximate the present value of projected
benefits payable. Plan assets consist primarily of listed stocks, corporate
bonds, and government obligations. In fiscal 1996, the company contributed $52
million to these plans and expects to make contributions of approximately $6 to
$10 million in fiscal 1997.
The actuarially computed pension cost (income) includes the following
components:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period.. $ 33 $ 26 $ 30
Interest cost on projected benefit obligation ... 63 56 51
Return on plan assets:
Actual ......................................... (97) (91) (26)
Deferred ....................................... 33 35 (30)
---- ---- ----
Recognized return ............................. (64) (56) (56)
Net amortization ................................ 3 (2) 3
---- ---- ----
Pension cost .................................... $ 35 $ 24 $ 28
==== ==== ====
</TABLE>
TWENTY-FOUR
<PAGE> 25
The following table shows the combined funded status of the U.S. plans at 30
September 1996 and 1995, foreign plans at 30 June 1996 and 1995, and amounts
recognized in the company's consolidated balance sheets at 30 September 1996 and
1995:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995
- ------------------------------------------------------- -------------------------------- ------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Accumulated Benefit
Benefit Obligation Benefit Obligation
Obligation Exceeds Assets Obligation Exceeds Assets
---------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested ............................................... $ 530 $ 94 $ 149 $ 454
Nonvested ............................................ 37 10 -- 58
----- ----- ----- -----
Accumulated benefit obligation ......................... 567 104 149 512
----- ----- ----- -----
Actuarial present value of
projected benefit obligation .......................... 714 123 179 655
Plan assets at fair value .............................. 737 50 240 436
----- ----- ----- -----
Projected benefit obligation
(in excess of) less than plan assets ................... 23 (73) 61 (219)
Unamortized net transition (asset) obligation .......... (28) 3 (10) (18)
Unrecognized net loss .................................. 6 11 -- 89
Unamortized prior service (income) cost ................ (1) 14 12 18
Adjustment required to recognize minimum liability ..... -- (17) -- (20)
----- ----- ----- -----
Net pension (liability) asset .......................... $ -- $ (62) $ 63 $(150)
===== ===== ===== =====
</TABLE>
The projected benefit obligation was determined using the following assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate ............. 8 1/5% 7 4/5%
Weighted average long-term rate of
compensation increase ..................... 5% 5%
==== ====
</TABLE>
These rates are used in the determination of pension cost in the succeeding
year. The weighted average expected long-term return on plan assets used to
determine pension cost was 10% in 1996, 10% in 1995, and 10 3/5% in 1994.
14. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company provides health care and life insurance benefits for certain retired
domestic employees until the age of 65, and provides health care coverage only
for their covered dependents. The company's various health care programs include
different cost-sharing features such as participant contributions, deductibles
and copayments, and limits on the company's annual cost. The company accrues the
estimated cost of providing postretirement benefits during the employees'
applicable years of service.
The postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- -------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the period ... $4 $3 $4
Interest cost on accumulated post retirement
benefit obligation .............................. 4 5 4
-- -- --
Postretirement benefit cost ...................... $8 $8 $8
== == ==
</TABLE>
At 30 September 1996 and 1995, the actuarial and recorded liabilities for
postretirement benefits, none of which have been funded, are as follows:
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- ------------------------------------------------------ ---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees .................................... $22 $25
Fully eligible active plan participants ..... 13 13
Other active plan participants .............. 23 19
--- ---
Accumulated postretirement benefit obligation ........ 58 57
Unrecognized net gain ................................ 4 1
--- ---
Accrued postretirement benefit liability ............. $62 $58
=== ===
</TABLE>
TWENTY-FIVE
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The accumulated postretirement benefit obligation was determined using a
discount rate of 8% in 1996 and 7 1/2% in 1995. The weighted average assumed
health care cost trend rate is 7 3/5% for fiscal 1997 (6 1/2% and 10 1/2% were
assumed in 1996 and 1995, respectively). The weighted average health care cost
trend rate is assumed to decrease gradually to 5 1/2% by the year 2005 and
remain at that level thereafter. Increasing the health care cost trend rate
by one percentage point would increase both the accumulated postretirement
benefit obligation at 30 September 1996 and the postretirement benefit cost
for fiscal 1996 by approximately 3%.
15. LEASES
Capital leases, primarily for machinery and equipment, are included with owned
plant and equipment on the balance sheet in the amount of $46 million and $49
million at the end of fiscal 1996 and 1995, respectively. Related amounts of
accumulated depreciation are $24 million and $23 million, respectively.
Operating leases, including month-to-month agreements, cost the company $50
million in 1996, $43 million in 1995, and $37 million in 1994.
At 30 September 1996, minimum payments due under leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
(Millions of dollars) Leases Leases
- -------------------------------------- ------ ------
<S> <C> <C>
1997 ................................. $ 7 $ 24
1998 ................................. 7 18
1999 ................................. 6 13
2000 ................................. 5 8
2001 ................................. 5 5
2002 and thereafter .................. 15 43
--- ----
$45 $111
=== ====
</TABLE>
The present value of the above future capital lease payments is included in the
liability section of the balance sheet. At the end of fiscal 1996, $5 million
was classified as current and $28 million as long-term.
16. OTHER COMMITMENTS AND CONTINGENCIES
Subsidiaries of Air Products and Browning-Ferris Industries, Inc. (BFI), have
formed American Ref-Fuel partnerships which construct, own, and operate
facilities to incinerate municipal solid waste and generate electricity. Five
facilities--Hempstead, New York; Essex County, New Jersey; Preston, Connecticut;
Niagara Falls, New York; and SEMASS in Rochester, Massachusetts are in
commercial operation. Financing arrangements for these projects include
agreements with Air Products and BFI to each fund one-half of certain
partnership cash deficiencies resulting from the partnership's failure to
perform. In all cases except Niagara Falls and SEMASS, (i) the sponsoring
municipality is obligated to make minimum payments which are at least sufficient
to support the project debt of the partnership in the event of failure to
deliver waste or most changes in law, and (ii) the municipality is obligated at
least to satisfy most of the outstanding project debt if the incineration
service is terminated for reasons other than default by the Ref-Fuel
partnership. If a partnership default results in termination, Air Products may
limit its financial obligation by partnership as follows:
HEMPSTEAD: Periodic debt service on 50% of the unamortized project debt. Total
unamortized debt was $215 million as of 30 September 1996. Average annual debt
service on 50% of the debt over the next five years is $11 million.
ESSEX COUNTY: One-half of any partnership cash deficiency, including debt
service, but which is limited to $50 million related to the debt and up to an
additional $50 million if certain environmental events occur. Average annual
debt service on 50% of the debt over the next five years is $10 million.
PRESTON: Periodic debt service on 50% of the unamortized debt. Total unamortized
project debt was $86 million as of 30 September 1996, and $45 million of
additional partnership debt of which $22 million is guaranteed by Air Products.
Average annual debt service on 50% of the debt over the next five years is $6
million.
The financial support at SEMASS and Niagara is discussed below:
At Niagara Falls, Air Products and BFI entered into guarantees to each fund
one-half of any partnership cash deficiency, relating to variable rate debt
service. Total unamortized project debt was $165 million as of 30 September
1996. Average annual debt service on 50% of the debt over the next five years is
estimated to be $3 million.
TWENTY-SIX
<PAGE> 27
SEMASS: Air Products and BFI entered into support agreements and guarantees (50%
each) which provide obligations to (i) lend up to $5 million to the SEMASS
Partnership in certain circumstances, (ii) defer up to $7 million of operating
cost reimbursement, and (iii) fund up to $5 million in operating damages. These
obligations have been assigned to the lenders. The SEMASS Partnership's debt of
approximately $341 million as of 30 September 1996 is not supported or
guaranteed by either Air Products or BFI.
General partnerships, in which subsidiaries of Air Products have a 50% interest,
own facilities in Stockton, California and Cambria County, Pennsylvania which
burn coal and coal waste, respectively, and produce electricity and steam. Air
Products is also operator of these projects. Specific performance guarantees
obligate Air Products to pay damages up to the following amounts under certain
circumstances and if the general partnership is unable to service its debt:
STOCKTON: Periodic debt service on the outstanding project debt ($34 million as
of 30 September 1996). Average annual debt service over the next five years is
$7 million.
CAMBRIA: Under certain circumstances, if the facility fails to operate as a
result of not having fuel available, the outstanding project debt ($147 million
as of 30 September 1996). Otherwise, $1 million (escalates from October 1989)
annually up to a cumulative total of $17 million.
Additionally, Air Products and a subsidiary have a 50% interest in a limited
partnership which owns a natural gas-fired cogeneration facility in Orlando,
Florida. Under agreements with the partnership, Air Products provides financial
support relating to the facility's natural gas supply. In the event the
partnership's municipal utility district customer (one of the project's two
power purchasers) terminates its contract due to a partnership default, Air
Products will make available up to $15 million (escalates from February 1992) to
compensate the utility district for the higher cost of power procured from other
sources over a period of up to 5 years.
In connection with financing of the cogeneration projects, Air Products has
contracted to provide financial support in the event of a title problem at the
plant site.
Air Products and an equity affiliate effectively own 48.9% of Bangkok
Cogeneration Company. Bangkok Cogeneration Company is constructing a
cogeneration facility in Thailand. This affiliate is currently working on
financings aggregating approximately $95 million. The failure of the affiliate
to achieve certain milestones allows the lenders recourse against the company in
proportion to its ownership interest to the extent that the equity investors
have continued to draw down on loans. Such milestones include obtaining
government approvals, permits, and land rights by certain dates or by the time
project costs reach certain levels. Construction is expected to be completed in
September 1998.
In addition, the company has guaranteed repayment of borrowings of certain
domestic and foreign equity affiliates. At year end, these guarantees totaled
approximately $62 million.
The company has accrued for certain environmental investigatory and noncapital
remediation costs consistent with the policy set forth in Note 1. The potential
exposure for such costs is estimated to range from $18 million to a reasonably
possible upper exposure of $45 million. The balance sheet at 30 September 1996
includes an accrual of $32 million. The company does not expect that any sums it
may have to pay in connection with these environmental matters would have a
materially adverse effect on its consolidated financial position, or results of
operations in any one year.
The company in the normal course of business has commitments, lawsuits,
contingent liabilities, and claims. However, the company does not expect that
any sum it may have to pay in connection with these matters will have a
materially adverse effect on its consolidated financial position or results of
operations.
At the end of fiscal 1996, the company had purchase commitments to spend
approximately $195 million for additional plant and equipment.
17. ACQUISITION OF CARBUROS METALICOS S.A.
In November 1994, the company published a tender offer to acquire 74.2% of the
outstanding shares (9.7 million) of Carburos Metalicos S.A. (Carburos),
representing all of the shares in Carburos not owned by the company. The company
made a second tender offer in September 1995 and a third tender offer in
September 1996.
The company acquired less than 1% of the outstanding shares in the initial
tender offer while the second tender offer resulted in the acquisition of an
additional 21.5% (2.8 million) of the outstanding shares at a cost of $120
million. After the second tender offer, the company owned 47.6% of the
outstanding shares of Carburos. The acquisition of the additional 21.5% of the
outstanding shares was funded through the issuance of U.S. dollar medium-term
notes. In October 1996, the company acquired an additional 49.1% (6.4 million)
of the outstanding shares at a cost of $288 million. After the third tender
offer, the company owns 96.7% of the outstanding shares in Carburos. The company
funded the acquisition of these shares through the issuance of $95 million in
medium-term notes and $193 million of commercial paper. The U.S. dollar debt
proceeds for the second and third tender offers were effectively converted to
Spanish Peseta liabilities through the use of interest rate and currency swap
contracts and foreign exchange contracts. The acquisition will be accounted for
as a purchase.
Carburos is the leading supplier of industrial gases in Spain. For the year
ended 30 September 1996, Carburos had unaudited revenues of $312 million.
TWENTY-SEVEN
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTARY INFORMATION
PAYABLES, TRADE AND OTHER
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995
- ------------------------------------------------ ---- ----
<S> <C> <C>
Accounts payable, trade ........................ $396 $454
Outstanding checks payable in excess
of certain cash balances .............. 50 39
Customer advances .............................. 80 26
---- ----
$526 $519
==== ====
ACCRUED LIABILITIES
(Millions of dollars)
30 SEPTEMBER 1996 1995
- ------------------------------------------------ ---- ----
<S> <C> <C>
Accrued payroll and employee benefits .......... $ 77 $ 77
Accrued interest expense ....................... 44 32
Other accrued liabilities ...................... 120 140
---- ----
$241 $249
==== ====
</TABLE>
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
(Millions of dollars)
30 SEPTEMBER 1996 1995 1994
- ---------------------------------- ---- ---- ----
<S> <C> <C> <C>
Bank obligations .................. $ 31 $ 21 $ 10
Commercial paper .................. 370 272 148
Notes payable -- other ............ 22 21 17
---- ---- ----
$423 $314 $175
==== ==== ====
</TABLE>
The weighted average interest rate of short-term commercial paper outstanding as
of 30 September 1996, 1995, and 1994 was 5.5%, 5.9%, and 5.0%, respectively.
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Interest income ................................ $ 7 $ 8 $ 18
Foreign exchange ............................... -- 6 (17)
Gain (loss) on sale of assets and investments... -- 11 (1)
Royalty and technology income .................. 1 2 3
Amortization of intangibles .................... (11) (8) (7)
Technical aid fees ............................. 13 10 11
Miscellaneous .................................. 15 (3) (8)
---- ---- ----
$ 25 $ 26 $ (1)
==== ==== ====
</TABLE>
Foreign exchange in 1994 excludes a foreign currency gain on Brazilian debt of
$1 million and a gain on Brazilian tax liabilities of $3 million which have been
reported in interest expense and income taxes, respectively.
ADDITIONAL INCOME STATEMENT INFORMATION Fiscal 1995 results included a gain of
$11 million ($6 million after tax, or $.06 per share) from the sale of an
industrial gas plant.
Fiscal 1994 results included a loss of $11 million ($7 million after tax, or
$.06 per share) for the outsourcing of the United Kingdom's distribution
function. Also included in the 1994 results is an after-tax benefit of $2
million, or $.02 per share, from the favorable tax treatment, net of expense, of
the charitable contribution of the remaining shares of a stock investment in an
insurance company.
ADDITIONAL CASH FLOW INFORMATION Cash paid for interest and taxes is as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Interest (net of amounts capitalized) ..... $117 $99 $80
Taxes (net of refunds) .................... 99 88 67
==== ==== ====
</TABLE>
Significant noncash transactions are as follows:
<TABLE>
<CAPTION>
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Capital lease additions ...................... $5 $ 5 $3
Receivable from terminated environmental
and energy project .......................... -- 20 --
Debt associated with acquisition ............. 5 18 --
== === ===
</TABLE>
TWENTY-EIGHT
<PAGE> 29
SUMMARY BY QUARTER
This table summarizes the unaudited results of operations for each quarter of
1996 and 1995:
<TABLE>
<CAPTION>
(Millions of dollars, except per share) First Second Third Fourth
- --------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
Sales ...................... $ 947 $1,013 $ 997 $1,051
Operating income ........... 144 148 156 143
Net income ................. 89 135 98 94
Earnings per common share .. .80 1.21 .87 .85
Dividends per common share . .26 .26 .275 .275
Price per common share:
High .............. 58 3/4 58 60 7/8 58 3/4
Low ............... 49 3/4 50 3/8 54 3/8 51 3/4
------ ------ ------ ------
1995
Sales ...................... $ 921 $ 983 $ 982 $ 979
Operating income ........... 146 152 161 143
Net income ................. 87 88 100 93
Earnings per common share .. .77 .79 .89 .84
Dividends per common share . .245 .245 .26 .26
Price per common share:
High .............. 48 1/8 52 1/4 56 3/8 59 5/8
Low ............... 43 1/8 43 7/8 49 5/8 51 1/2
====== ====== ====== ======
</TABLE>
As discussed in Note 5, the $67 million gain ($41 million after tax, or $.36 per
share) from the settlement with Bankers Trust Company was recorded in the second
quarter of 1996.
The gain of $11 million ($6 million after tax, or $.06 per share) in 1995,
discussed in additional income statement information, was recorded in the third
quarter of 1995.
19. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The company has four business segments that manufacture products or provide
services to many different markets.
The company is a leading international supplier of industrial and specialty gas
products. Principal products of the industrial gases segment are oxygen,
nitrogen, argon, hydrogen, carbon monoxide, carbon dioxide, synthesis gas, and
helium. The largest market segments are chemical processing, refining, metal
production, electronics, food processing, and medical gases. The company has its
strongest market positions in the United States and Europe.
The chemical businesses consist of polymer chemicals, performance chemicals, and
chemical intermediates. Polymer chemicals include polymer emulsions,
pressure-sensitive adhesives, and polyvinyl alcohol. Principal products of
performance chemicals are specialty additives, polyurethane additives, and epoxy
additives. Principal chemical intermediates are amines and polyurethane
intermediates. The company also produces certain industrial chemicals. The end
markets for the company's chemical products are extensive, including adhesive,
textile, paper, building products, agriculture, and furniture. Principal
geographic markets for the company's chemical products are North America,
Europe, and Asia.
The environmental and energy business includes the company's interest in
American Ref-Fuel Company's waste-to-energy business; fluidized-bed coal and
coal waste burning and natural gas -- fired power generation facilities; and the
Pure Air(TM) flue gas treatment facilities. Construction, management and
operating services, and equipment sales by the company to the power
generation and Pure Air project companies are included in the environmental
and energy segment. The segment also recovers and processes methane gas
generated by landfills. The principal end markets for these businesses are
solid waste disposal, electrical power generation, and air pollution
reduction. The United States is the principal geographic market. The company
plans to divest the American Ref-Fuel Company's waste-to-energy business.
The landfill gas recovery business, GSF Energy Inc., was sold in November 1996.
TWENTY-NINE
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The equipment and services segment designs and manufactures cryogenic and gas
processing equipment for air separation, gas processing, natural gas
liquefaction, hydrogen purification, and nitrogen rejection. The segment also
designs and builds systems for recovering gases using membrane technology. The
equipment is sold along with a broad range of plant design, engineering, and
operating services. Equipment is sold worldwide to companies involved in
chemical and petrochemical manufacturing, oil and gas recovery and processing,
power generation, and steel and primary metal production. Equipment is also
manufactured for the company's industrial gas business. Another important
market, particularly for air separation equipment, is the company's
international industrial gas joint ventures.
Business segment information is shown below:
<TABLE>
<CAPTION>
Industrial Environmental Equipment Corporate
(Millions of dollars) Gases Chemicals and Energy and Services and Other Total
- ----------------------------- ----- --------- ---------- ------------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
1996
Sales ........................ $2,310 $1,362 $ 60 $ 276 $ -- $4,008
------ ------ ----- ----- ----- ------
Operating income ............. 406 199 8 23 (45) 591
------ ------ ----- ----- ----- ------
Equity affiliates' income .... 44 -- 36 -- -- 80
------ ------ ----- ----- ----- ------
Identifiable assets .......... 3,924 1,225 84 290 240 5,763
Investment in and advances
to equity affiliates ........ 524 3 232 -- -- 759
Depreciation ................. 298 98 1 6 9 412
Additions to plant and
equipment ................... 746 172 16 6 11 951
====== ====== ===== ===== ===== ======
1995
Sales ........................ $2,177 $1,359 $ 58 $ 271 $ -- $3,865
------ ------ ----- ----- ----- ------
Operating income ............. 445 193 (5) (2) (29) 602
------ ------ ----- ----- ----- ------
Equity affiliates' income .... 22 1 28 -- -- 51
------ ------ ----- ----- ----- ------
Identifiable assets .......... 3,564 1,145 79 263 184 5,235
Investment in and advances
to equity affiliates ........ 385 6 190 -- -- 581
Depreciation ................. 268 91 5 8 10 382
Additions to plant and
equipment ................... 678 133 24 25 10 870
====== ====== ===== ===== ===== ======
1994
Sales ........................ $1,968 $1,182 $ 67 $ 268 $ -- $3,485
------ ------ ----- ----- ----- ------
Operating income ............. 380 148 6 11 (59) 486
------ ------ ----- ----- ----- ------
Equity affiliates' income .... 4 -- 24 -- -- 28
------ ------ ----- ----- ----- ------
Identifiable assets .......... 2,979 1,032 54 202 161 4,428
Investment in and advances
to equity affiliates ........ 401 6 201 -- -- 608
Depreciation ................. 253 83 3 8 6 353
Additions to plant and
equipment ................... 473 116 6 6 10 611
====== ====== ===== ===== ===== ======
</TABLE>
Notes: Corporate and other operating income principally includes unallocated
corporate expenses and income and foreign exchange gains and losses. Corporate
and other identifiable assets include cash and cash items, unallocated
administrative facilities, and certain deferred items.
Identifiable assets exclude the investment in and advances to equity affiliates.
Sales are to unconsolidated customers. Sales between segments, excluding
transfers of products at cost, are not material. Products transferred at cost
consist primarily of air separation plants and distribution equipment
manufactured by the equipment and services segment for use by the industrial
gases segment. These transfers amounted to $637 million, $507 million, and $285
million in 1996, 1995, and 1994, respectively.
THIRTY
<PAGE> 31
Geographic information is presented below:
<TABLE>
<CAPTION>
United Canada and
(Millions of dollars) States Europe Latin America Other Total
- --------------------------------- ------ ------ ------------- ----- -----
<S> <C> <C> <C> <C> <C>
1996
Sales
Industrial Gases ............. $1,477 $ 698 $133 $ 2 $2,310
Chemicals .................... 1,282 56 10 14 1,362
Environmental and Energy ..... 60 -- -- -- 60
Equipment and Services ....... 198 78 -- -- 276
------ ------ ---- ----- ------
Total ...................... 3,017 832 143 16 4,008
------ ------ ---- ----- ------
Operating income ................ 461 116 14 -- 591
------ ------ ---- ----- ------
Equity affiliates' income ....... 35 24 8 13 80
------ ------ ---- ----- ------
Identifiable assets ............. 3,993 1,412 224 134 5,763
Investment in and advances
to equity affiliates ... 250 324 71 114 759
====== ====== ==== ===== ======
1995
Sales
Industrial Gases ............. $1,357 $ 691 $129 $ -- $2,177
Chemicals .................... 1,310 45 1 3 1,359
Environmental and Energy ..... 58 -- -- -- 58
Equipment and Services ....... 170 101 -- -- 271
------ ------ ---- ----- ------
Total ...................... 2,895 837 130 3 3,865
------ ------ ---- ----- ------
Operating income ................ 457 119 26 -- 602
------ ------ ---- ----- ------
Equity affiliates' income ....... 27 16 4 4 51
------ ------ ---- ----- ------
Identifiable assets ............. 3,570 1,395 156 114 5,235
Investment in and advances
to equity affiliates ....... 210 195 82 94 581
====== ====== ==== ===== ======
1994
Sales
Industrial Gases .............. $1,265 $ 584 $119 $ -- $1,968
Chemicals ..................... 1,142 40 -- -- 1,182
Environmental and Energy ...... 67 -- -- -- 67
Equipment and Services ........ 158 110 -- -- 268
------ ------ ---- ----- ------
Total ....................... 2,632 734 119 -- 3,485
------ ------ ---- ----- ------
Operating income ................ 381 88 17 -- 486
------ ------ ---- ----- ------
Equity affiliates' income ....... 24 5 3 (4) 28
------ ------ ---- ----- ------
Identifiable assets ............. 2,978 1,257 142 51 4,428
Investment in and advances
to equity affiliates ... 222 162 147 77 608
====== ====== ==== ===== ======
</TABLE>
Notes: Included in United States sales are export sales to unconsolidated
customers of $497 million in 1996, $436 million in 1995, and $376 million in
1994. These sales were principally to customers in Europe and Asia. The Europe
segment operates principally in the United Kingdom, France, Germany,
Netherlands, and Belgium. Equity affiliates' income and investment in and
advances to equity affiliates included under Other relates to the company's
equity affiliates in Asia and South Africa. Prior years' identifiable assets
have been restated to conform to current year presentation.
THIRTY-ONE
<PAGE> 32
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Air Products and Chemicals, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Millions of dollars, except per share) 1996 1995 1994 1993
- ---------------------------------------------------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Sales ..................................................... $ 4,008 $ 3,865 $ 3,485 $ 3,328
Cost of sales ............................................. 2,408 2,317 2,112 2,030
Selling, distribution, and administrative ................. 920 869 789 744
Research and development .................................. 114 103 97 92
Workforce reduction and asset write-downs ................. -- -- -- 120
Operating income .......................................... 591 602 486 369
Equity affiliates' income(b) .............................. 80 51 28 13
(Settlement)/Loss on leveraged interest rate swaps ........ (67) -- 107 --
Interest expense .......................................... 129 100 81 81
Income taxes .............................................. 193 185 92 100
Income from continuing operations ......................... 416(c) 368 234(d) 201(e)
Net income ................................................ 416(c) 368 248(f) 201(e)
Earnings per common share:(h)
Continuing operations ................................ 3.73(c) 3.29 2.06(d) 1.76(e)
Net income ........................................... 3.73(c) 3.29 2.18(f) 1.76(e)
-------- ------- ------- -------
YEAR-END FINANCIAL POSITION
Plant and equipment, at cost .............................. $ 8,103 $ 7,350 $ 6,520 $ 5,953
Total assets .............................................. 6,522 5,816 5,036 4,761
Working capital ........................................... 112 21 101 322
Long-term debt and other financings ....................... 1,739 1,194 923 1,016
Shareholders' equity ...................................... 2,574 2,398 2,206 2,102
-------- ------- ------- -------
FINANCIAL RATIOS
Return on sales(i) ........................................ 10.4% 9.5% 6.7% 6.0%
Return on average shareholders' equity(i) ................. 16.6% 16.1% 10.9% 9.6%
Total debt to sum of total debt and
shareholders' equity(j) ................................ 46.0% 41.2% 36.0% 37.3%
Cash provided by operations to average total debt(j) ...... 38.5% 48.6% 59.5% 50.3%
Interest coverage ratio ................................... 5.1 5.5 4.5 4.4
-------- ------- ------- -------
OTHER DATA
For the year:
Cash provided by operations .......................... $ 756 $ 718 $ 751 $ 584
Depreciation ......................................... 412 382 353 346(k)
Capital expenditures(l) .............................. 1,164 969 655 666
Cash dividends per common share(h) ................... 1.07 1.01 .95 .89
Market price range per common share(h) ............... 60-49 59-43 51-38 50-37
Average common shares outstanding (millions) ......... 112 112 114 114
At year end:
Book value per common share(h) ....................... 23.30 21.48 19.46 18.41
Shareholders ......................................... 11,700 11,800 11,900 11,800
Employees ............................................ 15,200 14,800 14,100 15,300
======== ======= ======= =======
</TABLE>
(a) Special items reduced operating income in 1986 by $46 million.
(b) Includes related expenses and gain on sale of investment in equity
affiliates.
(c) Includes an after-tax gain of $41 million, or $.36 per share, from a
settlement associated with leveraged interest rate swap contracts.
(d) Includes a charge of $75 million, or $.66 per share, for a loss on certain
derivative contracts.
(e) Includes a charge of $76 million, or $.67 per share, for workforce reduction
and asset write-downs.
(f) Includes a charge of $75 million, or $.66 per share, for a loss on certain
derivative contracts and a net gain of $14 million, or $.12 per share, for the
cumulative effect of accounting changes.
(g) Net income for fiscal 1992 and 1987 includes an extraordinary charge of $6
million, or $.05 per share, and $4 million, or $.04 per share, respectively, for
the early retirement of debt.
THIRTY-TWO
<PAGE> 33
<TABLE>
<CAPTION>
(Millions of dollars, except per share) 1992 1991 1990
- ---------------------------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
OPERATING RESULTS
Sales .......................................................... $ 3,217 $ 2,931 $ 2,895
Cost of sales .................................................. 1,937 1,755 1,775
Selling, distribution, and administrative ...................... 724 686 659
Research and development ....................................... 85 80 72
Workforce reduction and asset write-downs ...................... -- -- --
Operating income ............................................... 481 435 399
Equity affiliates' income(b) ................................... 16 13 17
(Settlement)/Loss on leveraged interest rate swaps ............. -- -- --
Interest expense ............................................... 90 86 83
Income taxes ................................................... 130 113 103
Income from continuing operations .............................. 277 249 230
Net income ..................................................... 271(g) 249 230
Earnings per common share:(h)
Continuing operations ..................................... 2.45 2.22 2.07
Net income ................................................ 2.40(g) 2.22 2.07
------- ------- -------
YEAR-END FINANCIAL POSITION
Plant and equipment, at cost ................................... $ 5,785 $ 5,332 $ 5,010
Total assets ................................................... 4,492 4,228 3,900
Working capital ................................................ 279 117 214
Long-term debt and other financings ............................ 956 945 954
Shareholders' equity ........................................... 2,098 1,841 1,688
------- ------- -------
FINANCIAL RATIOS
Return on sales(i) ............................................. 8.6% 8.5% 7.9%
Return on average shareholders' equity(i) ...................... 14.0% 14.1% 14.7%
Total debt to sum of total debt and shareholders' equity(j)..... 33.9% 38.1% 38.5%
Cash provided by operations to average total debt(j) ........... 52.7% 57.7% 52.7%
Interest coverage ratio ........................................ 5.4 4.2 4.2
------- ------- -------
OTHER DATA
For the year:
Cash provided by operations ............................... $ 599 $ 619 $ 528
Depreciation .............................................. 340 319 303
Capital expenditures(l) ................................... 485 657 621
Cash dividends per common share(h) ........................ .83 .75 .69
Market price range per common share(h) .................... 50-31 37-21 31-22
Average common shares outstanding (millions) .............. 113 112 111
At year end:
Book value per common share(h) ............................ 18.50 16.40 15.17
Shareholders .............................................. 11,100 10,900 11,100
Employees ................................................. 14,500 14,600 14,000
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(Millions of dollars, except per share) 1989 1988 1987 1986
- ---------------------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Sales .......................................................... $ 2,642 $ 2,432 $ 2,132 $ 1,941
Cost of sales .................................................. 1,601 1,452 1,279 1,146
Selling, distribution, and administrative ...................... 610 545 489 466
Research and development ....................................... 71 72 57 61
Workforce reduction and asset write-downs ...................... -- -- -- --
Operating income ............................................... 382 374 327 240(a)
Equity affiliates' income(b) ................................... 9 (8) (9) (14)
(Settlement)/Loss on leveraged interest rate swaps ............. -- -- -- --
Interest expense ............................................... 73 65 77 74
Income taxes ................................................... 96 87 81 45
Income from continuing operations .............................. 222 214 160 107
Net income ..................................................... 222 214 156(g) 5
Earnings per common share:(h)
Continuing operations ..................................... 2.02 1.95 1.42 .91
Net income ................................................ 2.02 1.95 1.38(g) .04
------- -------- -------- --------
YEAR-END FINANCIAL POSITION
Plant and equipment, at cost ................................... $ 4,442 $ 4,085 $ 3,714 $ 3,397
Total assets ................................................... 3,366 3,000 2,705 2,661
Working capital ................................................ 262 110 145 180
Long-term debt and other financings ............................ 854 668 616 707
Shareholders' equity ........................................... 1,445 1,272 1,147 1,100
------- -------- -------- --------
FINANCIAL RATIOS
Return on sales(i) ............................................. 8.4% 8.8% 7.5% 5.5%
Return on average shareholders' equity(i) ...................... 16.4% 17.6% 14.2% 9.2%
Total debt to sum of total debt and shareholders' equity(j)..... 38.4% 37.6% 36.8% 40.2%
Cash provided by operations to average total debt(j) ........... 53.7% 65.4% 64.7% 64.6%
Interest coverage ratio ........................................ 4.6 4.9 3.9 2.8
------- -------- -------- --------
OTHER DATA
For the year:
Cash provided by operations ............................... $ 447 $ 469 $ 471 $ 437
Depreciation .............................................. 281 258 243 219
Capital expenditures(l) ................................... 562 556 368 407
Cash dividends per common share(h) ........................ .63 .55 .45 .38
Market price range per common share(h) .................... 25-18 27-14 27-16 21-13
Average common shares outstanding (millions) .............. 110 110 113 117
At year end:
Book value per common share(h) ............................ 13.11 11.60 10.33 9.60
Shareholders .............................................. 11,400 11,900 12,000 11,600
Employees ................................................. 14,100 13,300 12,100 12,700
======= ======== ======== ========
</TABLE>
(h) Data per common share are based on the average number of shares
outstanding during each year retroactively restated to reflect a
two-for-one stock split in 1992 and 1986, except for book value per
common share, which is based on the number of shares outstanding at the
end of each year retroactively restated.
(i) Financial ratios were calculated using income from continuing
operations.
(j) Total debt includes long-term debt, other financings, current portion
of long-term debt and other financings, and short-term borrowings as of
the end of the year.
(k) Depreciation expense in 1993 excludes $56 million associated with asset
write-downs.
(l) Capital expenditures include additions to plant and equipment,
investment in and advances to unconsolidated affiliates, acquisitions,
and capital lease additions.
THIRTY-THREE
<PAGE> 1
EXHIBIT 22
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 1996, except for certain subsidiaries of the Registrant
which do not in the aggregate constitute a significant subsidiary as that term
is defined in Rule 12b-2 under the Securities Exchange Act of 1934.
UNITED STATES
All companies are incorporated in the State of Delaware with the exception of
Air Products Ref-Fuel of Essex County, Inc. which is incorporated in the State
of New Jersey.
Registrant -- Air Products and Chemicals, Inc.
Air Products Helium, Inc.
Air Products Hydrogen Company, Inc.
Air Products, Incorporated
Air Products International Corporation
Air Products Manufacturing Corporation
Air Products Ref-Fuel of Essex County, Inc.
Air Products Ref-Fuel of Hempstead, Inc.
APCI (U.K.), Inc.
GSF Energy, Inc.
Middletown Oxygen Company, Inc.
Permea, Inc.
Prodair Corporation
BELGIUM
Air Products S.A.
Air Products Management S.A.
BRAZIL
Air Products Gases Industriais Ltda. (The organization of this affiliate more
closely resembles a partnership with limited liability than a corporation.)
CANADA
Air Products Canada Ltd.
FRANCE
Prodair S.A.
GERMANY
Air Products GmbH
THE NETHERLANDS
Air Products Nederland B.V.
Air Products (Pernis) B.V.
SPAIN
Air Products Iberica, S.A.
UNITED KINGDOM
Air Products PLC
Air Products (GB) Limited
Air Products (UK) Limited
Air Products (BR) Limited
Anchor Chemical Group PLC
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints HAROLD A. WAGNER or ARNOLD H. KAPLAN or
JAMES H. AGGER, acting severally, his/her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him/her and in
his/her name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report for the fiscal year ended September 30, 1996 and all amendments
thereto and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of
1934, this Power of Attorney has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Harold A. Wagner Director and Chairman of the November 21, 1996
___________________________ Board (Principal Executive Officer)
Harold A. Wagner
/s/ Dexter F. Baker Director November 21, 1996
___________________________
Dexter F. Baker
/s/ Tom H. Barrett Director November 21, 1996
___________________________
Tom H. Barrett
/s/ L. Paul Bremer, III Director November 21, 1996
___________________________
L. Paul Bremer, III
/s/ Robert Cizik Director November 21, 1996
___________________________
Robert Cizik
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
/s/ Ruth M. Davis Director November 21, 1996
___________________________
Ruth M. Davis
/s/ Joseph J. Kaminski Director November 21, 1996
___________________________
Joseph J. Kaminski
/s/ Terry R. Lautenbach Director November 21, 1996
___________________________
Terry R. Lautenbach
/s/ Rudolphus F. M. Lubbers Director November 21, 1996
________________________________
Rudolphus F. M. Lubbers
/s/ Judith Rodin Director November 21, 1996
___________________________
Judith Rodin
/s/ Takeo Shiina Director November 21, 1996
___________________________
Takeo Shiina
/s/ Lawrason D. Thomas Director November 21, 1996
__________________________
Lawrason D. Thomas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 683
<ALLOWANCES> 13
<INVENTORY> 371
<CURRENT-ASSETS> 1,375
<PP&E> 8,103
<DEPRECIATION> 4,144
<TOTAL-ASSETS> 6,522
<CURRENT-LIABILITIES> 1,263
<BONDS> 1,739
0
0
<COMMON> 125
<OTHER-SE> 2,449
<TOTAL-LIABILITY-AND-EQUITY> 6,522
<SALES> 4,008
<TOTAL-REVENUES> 4,008
<CGS> 2,408
<TOTAL-COSTS> 2,408
<OTHER-EXPENSES> 114
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 609
<INCOME-TAX> 193
<INCOME-CONTINUING> 416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416
<EPS-PRIMARY> 3.73
<EPS-DILUTED> 3.73
</TABLE>
