UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended 31 March 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-1274455
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(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 610-481-4911
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Indicate by check |X| whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
--- --
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at 8 May 2000
---------------- ---------------------------
Common Stock, $1 par value 229,305,191
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -
31 March 2000 and 30 September 1999 ............................ 4
Consolidated Income -
Three Months and Six Months Ended 31 March 2000 and 1999 ....... 5
Consolidated Statement of Comprehensive Income
Three Months and Six Months Ended 31 March 2000 and 1999 ....... 6
Consolidated Cash Flows -
Six Months Ended 31 March 2000 and 1999 ........................ 7
Summary by Business Segments -
Three Months and Six Months Ended 31 March 2000 and 1999........ 8
Summary by Geographic Regions -
Three Months and Six Months Ended 31 March 2000 and 1999........ 11
Notes to Consolidated Financial Statements ........................ 12
Management's Discussion and Analysis .............................. 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders....... 24
Item 6. Exhibits and Reports on Form 8-K ......................... 25
Signatures ........................................................ 26
REMARKS:
The consolidated financial statements of Air Products and Chemicals, Inc. and
its subsidiaries (the "Company" or "Registrant") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company, the
accompanying statements reflect all adjustments necessary to present fairly the
financial position, results of operations and cash flows for those periods
indicated, and contain adequate disclosure to make the information presented not
misleading. Such adjustments are of a normal, recurring nature unless otherwise
disclosed in the notes to consolidated financial statements. However, the
results for the periods indicated herein reflect certain adjustments, such as
the valuation of inventories on the LIFO cost basis, which can only be finally
determined on an annual basis. It is suggested that these consolidated condensed
financial statements be read in
2
<PAGE>
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
Results of operations for any three month or six month period are not
necessarily indicative of the results of operations for a full year.
3
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Millions of dollars)
- ------------------------------------------------------------------------------------------------
31 March 30 September
ASSETS 2000 1999
(Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 92.6 $ 61.6
Trade receivables, less allowances for 923.1 894.7
doubtful accounts
Inventories 429.7 424.9
Contracts in progress, less progress billings 68.0 79.8
Other current assets 381.3 321.4
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,894.7 1,782.4
- ------------------------------------------------------------------------------------------------
INVESTMENTS IN NET ASSETS OF AND ADVANCES 505.9 521.4
TO EQUITY AFFILIATES
OTHER INVESTMENTS AND ADVANCES 46.3 38.4
- ------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT, at cost 10,491.3 10,187.9
Less - Accumulated depreciation 5,120.7 4,995.0
- ------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT, net 5,370.6 5,192.9
- ------------------------------------------------------------------------------------------------
GOODWILL 332.6 350.4
OTHER NONCURRENT ASSETS 420.2 350.0
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,570.3 $8,235.5
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 538.3 $ 505.8
Accrued liabilities 377.4 407.0
Unrealized loss on forward contracts related to BOC 188.7 --
transaction
Accrued income taxes 49.3 64.4
Short-term borrowings 440.6 407.6
Current portion of long-term debt 115.3 473.0
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,709.6 1,857.8
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,506.9 1,961.6
DEFERRED INCOME & OTHER NONCURRENT 566.8 596.1
LIABILITIES
DEFERRED INCOME TAXES 744.2 731.1
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,527.5 5,146.6
- ------------------------------------------------------------------------------------------------
MINORITY INTERESTS IN SUBSIDIARY COMPANIES 119.5 127.3
- ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.4 249.4
Capital in excess of par value 342.1 341.5
Retained earnings 3,723.2 3,701.8
Accumulated other comprehensive income (340.4) (274.4)
Treasury Stock, at cost (681.6) (681.6)
Shares in trust (369.4) (375.1)
- ------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,923.3 2,961.6
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,570.3 $8,235.5
================================================================================================
</TABLE>
4
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
- --------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $1,347.2 $1,253.3 $2,611.6 $2,527.9
Other income(expense),net 7.1 4.5 13.9 9.4
- --------------------------------------------------------------------------------------------------
1,354.3 1,257.8 2,625.5 2,537.3
- --------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 925.6 877.5 1,802.7 1,753.1
Selling and administrative 179.9 168.3 347.7 351.5
Research and development 29.9 29.3 60.0 61.0
- --------------------------------------------------------------------------------------------------
OPERATING INCOME 218.9 182.7 415.1 371.7
Income from equity affiliates, 21.3 14.1 41.6 23.9
net of related expenses
Net gain (loss) on formation of -- (.1) -- 31.1
polymer venture
Loss on currency hedges related 134.7 -- 247.9 --
to BOC transaction and expenses
Interest expense 46.8 40.4 88.1 80.8
- --------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND 58.7 156.3 120.7 345.9
MINORITY INTEREST
Income taxes 8.3 45.1 17.4 105.0
Minority interest(a) 2.8 4.3 5.1 7.6
- --------------------------------------------------------------------------------------------------
NET INCOME $47.6 $106.9 $98.2 $233.3
==================================================================================================
BASIC EARNINGS PER $.22 $.51 $.46 $1.10
COMMON SHARE
- --------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER $.22 $.50 $.46 $1.08
COMMON SHARE
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE 213.3 211.6 213.2 211.5
NUMBER OF COMMON
SHARES (in millions)
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE 215.4 215.1 215.5 215.3
NUMBER OF COMMON AND
COMMON EQUIVALENT
SHARES (in millions)(b)
- --------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER $.18 $.17 $.36 $.34
COMMON SHARE - Cash
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Minority interest primarily includes before-tax amounts.
(b) The dilution of earnings per common share is due mainly to the impact of
unexercised stock options.
5
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
- --------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME $47.6 $106.9 $98.2 $233.3
- --------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE
INCOME (LOSS), net of tax
Foreign currency translation (18.5) (80.6) (63.3) (56.3)
adjustments
Unrealized gains (losses) on
investments:
Unrealized holding gains (losses) 1.3 .2 (2.7) 4.1
arising during the period
Less: reclassification -- -- -- --
adjustment for gains
included in net income
- --------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) 1.3 .2 (2.7) 4.1
on investments
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER (17.2) (80.4) (66.0) (52.2)
COMPREHENSIVE INCOME
(LOSS)
- --------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $30.4 $26.5 $32.2 $181.1
========================================================================================================
</TABLE>
6
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
- -------------------------------------------------------------------------------------------------------------
Six Months Ended
31 March
2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $98.2 $233.3
Adjustments to reconcile income to cash provided by
operating activities:
Depreciation 276.3 261.3
Deferred income taxes 12.9 31.9
Gain on formation of polymer venture -- (31.1)
(Gain) loss on currency hedges related to BOC 201.3 --
transaction
Undistributed (earnings) of unconsolidated affiliates (25.5) (4.6)
(Gain) loss on sale of assets and investments (10.9) 1.6
Other 35.9 66.0
Working capital changes that provided (used) cash, net of
effects of acquisitions:
Trade receivables (41.5) (18.7)
Inventories and contracts in progress 6.8 (40.2)
Payables, trade and other 30.7 45.7
Other (82.6) 4.5
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 501.6 549.7
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to plant and equipment(a) (378.6) (450.9)
Acquisitions, less cash acquired(b) (168.7) (22.4)
Investment in and advances to unconsolidated affiliates (16.5) (66.0)
Proceeds from sale of assets and investments 30.0 31.3
Other (15.3) 19.8
- -----------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (549.1) (488.2)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term debt proceeds 507.5 51.5
Payments on long-term debt (369.6) (31.7)
Net increase (decrease) in commercial paper (25.0) 11.4
Net increase in other short-term borrowings 35.5 9.2
Dividends paid to shareholders (76.8) (71.9)
Purchase of Treasury Stock -- (24.6)
Other 1.8 19.6
- -----------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 73.4 (36.5)
- -----------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 5.1 (1.0)
- -----------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Items 31.0 24.0
Cash and Cash Items - Beginning of Year 61.6 61.5
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Items - End of Period $92.6 $85.5
===========================================================================================================
</TABLE>
(a) Excludes capital lease additions of $16.0 million and $2.0 million in
fiscal 2000 and 1999, respectively.
(b) Excludes $24.2 million of long-term debt assumed in an acquisition in
fiscal 2000.
7
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
<TABLE>
<CAPTION>
Business segment information is shown below:
(Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external
customers
Gases $842.1 $735.2 $1,622.7 $1,488.5
Equipment 53.8 101.2 104.4 220.7
Chemicals 451.3 416.9 884.5 818.7
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 1,347.2 1,253.3 2,611.6 2,527.9
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $1,347.2 $1,253.3 $2,611.6 $2,527.9
- ---------------------------------------------------------------------------------------------------------------
Operating income
Gases $171.0(a) $137.2 $324.3(a) $258.7(d)
Equipment 5.6 6.9 6.8 29.7(d)
Chemicals 50.0(b) 43.4(c) 101.6(b) 94.2(c)(d)
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 226.6 187.5 432.7 382.6
- ---------------------------------------------------------------------------------------------------------------
Corporate research and (7.7) (4.8) (17.6) (10.9)(d)
development and
other income/(expense)
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $218.9 $182.7 $415.1 $371.7
- ---------------------------------------------------------------------------------------------------------------
Operating income (excluding
special items)
Gases $164.7 $137.2 $318.0 $275.0
Equipment 5.6 6.9 6.8 31.6
Chemicals 58.7 53.7 110.3 106.1
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 229.0 197.8 435.1 412.7
- ---------------------------------------------------------------------------------------------------------------
Corporate research and (7.7) (4.8) (17.6) (10.4)
development and other
income/(expense)
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $221.3 $193.0 $417.5 $402.3
- ---------------------------------------------------------------------------------------------------------------
Equity affiliates' income
Gases $17.8 $10.5 $34.2 $17.2
Equipment .5 .2 .8 .7
Chemicals 3.1 3.4 6.7 5.5
Other (.1) -- (.1) .5
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 21.3 14.1 41.6 23.9
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $21.3 $14.1 $41.6 $23.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
31 March
(Millions of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets
Gases $6,243.1 $5,548.5
Equipment 217.2 296.3
Chemicals 1,712.7 1,749.3
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 8,173.0 7,594.1
- ---------------------------------------------------------------------------------------------------------------
Corporate assets 397.3 199.5
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $8,570.3 $7,793.6
- ---------------------------------------------------------------------------------------------------------------
Operating Return On Net Assets (ORONA)
Gases 10.8% 11.0%
Equipment 4.7% 22.6%
Chemicals 12.8% 14.9%
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 11.0% 12.4%
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals 10.1% 11.6%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The results for the three and six months ended 31 March 2000 include
a gain on the sale of packaged gas facilities of $6.3 million.
(b) The results for the three and six months ended 31 March 2000 include
the cost reduction charge of $8.7 million.
(c) The results for the three and six months ended 31 March 1999 include
a charge of $10.3 million primarily related to Chemicals facility closure
costs.
(d) The results for the six months ended 31 March 1999 include the cost
reduction charge in Gases ($16.3 million), Equipment ($1.9 million),
Chemicals ($1.6 million), and Corporate ($.5 million).
9
<PAGE>
A reconciliation of total segment operating income to consolidated income before
income taxes and minority interest is as follows:
<TABLE>
<CAPTION>
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total segment operating $226.6 $187.5 $432.7 $382.6
income
Corporate research and (7.7) (4.8) (17.6) (10.9)
development and other
income/(expense)
- ----------------------------------------------------------------------------------------------------
Consolidated operating income 218.9 182.7 415.1 371.7
- ----------------------------------------------------------------------------------------------------
Segment equity affiliates' 21.3 14.1 41.6 23.9
income
Net gain (loss) on formation of -- (.1) -- 31.1
polymer venture
Loss on currency hedges related 134.7 -- 247.9 --
to BOC transaction and expenses
Interest expense 46.8 40.4 88.1 80.8
- ----------------------------------------------------------------------------------------------------
Consolidated income before $58.7 $156.3 $120.7 $345.9
taxes and minority interest
====================================================================================================
</TABLE>
10
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external
customers
United States $879.3 $801.8 $1,718.5 $1,609.7
United Kingdom 124.4 152.9 245.5 323.9
Spain 78.9 80.5 155.7 164.9
Other Europe 149.1 155.2 289.9 299.1
- --------------------------------------------------------------------------------------------------------------------
Total Europe 352.4 388.6 691.1 787.9
- --------------------------------------------------------------------------------------------------------------------
Canada/Latin America 55.0 45.2 113.4 103.2
Asia 60.4 17.6 88.4 26.9
All Other .1 .1 .2 .2
- --------------------------------------------------------------------------------------------------------------------
Total $1,347.2 $1,253.3 $2,611.6 $2,527.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Geographic information is based on country of origin. The other Europe
segment operates principally in France, Germany, Netherlands, and Belgium.
11
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The following table sets forth the computation of basic and diluted earnings per
share:
(Millions, except per share)
- -----------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator for basic EPS
and diluted EPS-net income $47.6 $106.9 $98.2 $233.3
Denominator for basic EPS
- -weighted average shares 213.3 211.6 213.2 211.5
Effect of diluted securities:
Employee stock options 1.3 2.6 1.5 2.8
Other award plans .8 .9 .8 1.0
- -----------------------------------------------------------------------------------------------------
2.1 3.5 2.3 3.8
Denominator for diluted EPS
- -weighted average shares and
assumed conversions 215.4 215.1 215.5 215.3
=====================================================================================================
Basic EPS $.22 $.51 $.46 $1.10
=====================================================================================================
Diluted EPS $.22 $.50 $.46 $1.08
=====================================================================================================
</TABLE>
Options on 10.2 million and 8.4 million shares of common stock were not included
in computing diluted EPS for the second quarter of fiscal 2000 and 1999,
respectively because their effects were antidilutive.
On 10 May 2000, the Company announced that its joint pre-conditional offer with
Air Liquide to purchase The BOC Group would not be extended beyond the scheduled
expiration on 12 May 2000. See details of the subsequent event and estimated
additional charges described in the Management's Discussion and Analysis of this
filing.
The results for the six months ended 31 March 2000 include a charge of
$247.9 million ($154.7 million after-tax, or $.72 per share) for costs related
to the BOC transaction. Of this amount, $232.7 million ($145.2 million
after-tax, or $.67 per share) of accounting charges were recorded on purchased
currency option and forward exchange contracts entered into to hedge the
currency exposure of the BOC transaction. The remaining charge of $15.2 million
($9.5 million after-tax, or $.05 per share) consists of other expenses.
The results for the three and six months ended 31 March 2000 include a charge of
$8.7 million ($5.5 million after-tax, or $.03 per share) for a global cost
reduction plan in the chemicals segment. This plan was initiated in the fiscal
quarter ended 31 March 2000. The plan includes staff reductions of 103 employees
in the areas of manufacturing and overheads. The plan will be complete by
31 March 2001, with annualized cost savings of
12
<PAGE>
$9.3 million accumulating over the year. Notifications began in the quarter
ending 31 March 2000, with actual termination expenditures beginning in the
month of April, 2000. The charges to cost of sales, selling and administrative,
and research and development were $3.3 million, $4.4 million, and $1.0 million,
respectively.
The results for the three and six months ended 31 March 2000 include a gain of
$6.3 million ($4.0 million after-tax, or $.02 per share) related to the sale of
packaged gas facilities.
The current year-to-date consolidated effective tax rate is 15.0%, after
minority interest of $5.1 million. This compares to a rate of 31.0% in the prior
year. The fiscal 2000 rate is significantly impacted by a higher tax rate on the
BOC hedging transactions, the global cost reduction plan, and the sale of
packaged gas facilities. Excluding these tax impacts, the effective rate for the
six months is 30.5%. The effective rate in the prior year, excluding the tax
rate impact of the gain on the formation of the polymer ventures, a chemical
facility closure and the global cost reduction, was 31.5%.
The results for the three and six months ended 31 March 1999 include a charge of
$10.3 million ($6.4 million after-tax, or $.03 per share) primarily related to
Chemicals facility closure costs.
The results for the six months ended 31 March 1999 include a net gain of $31.1
million ($21.3 million after-tax, or $.10 per share) related to the formation of
Air Products Polymers (a 65% majority owned venture with Wacker-Chemie GmbH).
The gain was partially offset by costs related to an emulsions facility shutdown
not included in the joint venture and for costs related to indemnities provided
by Air Products to the venture.
The results for the six months ended 31 March 1999 include a charge of
$20.3 million ($12.9 million after-tax, or $.06 per share) related to a global
cost reduction plan ("the 1999 plan"). The Company began the 1999 plan in the
fiscal quarter ended 31 December 1998. The plan included staffing reductions of
206 employees in the areas of manufacturing, distribution, and overheads. The
charges to cost of sales, selling and administrative, and research and
development were $9.9 million, $9.3 million, and $1.1 million, respectively.
This plan was completed in December, 1999, essentially as expected.
13
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT-BOC TRANSACTION
On 13 July 1999, the Boards of Air Products and Chemicals, Inc., The BOC Group,
and Air Liquide announced that they had agreed to the terms of a recommended
offer for the share capital of BOC at UK(pound)14.60 per BOC share (the
"Offer"). The Offer, which was to be made jointly by Air Products and Air
Liquide, was subject to certain pre-conditions, one of which was the approval of
the U.S. Federal Trade Commission (FTC).
During 10 months of discussions with the FTC, Air Products and Air Liquide made
a number of comprehensive and practical proposals, including divestitures, which
responded to the requirements of the FTC. On 10 May 2000, Air Products and Air
Liquide announced it has recently become clear that the FTC will not approve the
Offer by 12 May 2000, the date on which the period for satisfying the
pre-conditions to the Offer will expire and the Offer will not be extended
beyond 12 May 2000.
Air Products and Air Liquide indicated in their announcement they are prepared
to continue to explore with the FTC whether its approval can be achieved and, if
so, to consider whether a new offer acceptable to BOC can be made. Any such new
offer would involve a different structure and price.
If the BOC acquisition does not occur, certain costs and financing fees which
have been deferred will be required to be expensed. The costs and financing
fees deferred and recorded in the 31 March 2000 unaudited balance sheet were
$55 million. In addition, the Company and Air Liquide are obligated to pay BOC
a fee of $50 million each if the Offer to acquire BOC is not made.
Additionally, the Company has entered into various purchased currency options
and forward exchange contracts to hedge the currency exposure related to the
proposed purchase of BOC shares at UK(pound)14.60 per share. Net losses
associated with the change in market value of these contracts have been recorded
in earnings and as of 31 March 2000, the cumulative pre-tax losses recorded in
earnings on the currency hedging instruments are approximately $220 million, or
$138 million after-tax. As of 10 May 2000, additional losses of approximately
$287 million have been incurred due to the continued decline in the value of the
British Pound. The Company has purchased British Pound put options subsequent to
31 March 2000 to cap the rate change exposure of the remaining forward exchange
contracts. The cost of these put instruments is $79 million.
The charge to earnings subsequent to 31 March 2000 for the deferred expenses,
the BOC fee, and the unrecognized currency losses and premiums as of 10 May 2000
would be approximately $300 million after-tax for a total charge as of 10 May
2000 related to the proposed BOC transaction of approximately $450 million
after-tax. On a cash flow basis, the remaining cash outlay before-tax benefits
for all of the above items is approximately $615 million and approximately $385
million after-tax. It is anticipated that these costs would be funded by
commercial paper backed by existing lines of credit. The earnings effects of the
forward contacts and purchased put options will continue to change based on the
movement of the British Pound versus the US Dollar but currency losses are
capped at the above amounts.
14
<PAGE>
SECOND QUARTER FISCAL 2000 VS. SECOND QUARTER FISCAL 1999
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales rose $93.9 million to $1,347.2 million, an increase of 7% over the same
quarter in the prior year. Record sales were achieved in spite of an unfavorable
currency impact of 2% and anticipated lower business activity in the equipment
segment. Operating income was $218.9 million, up $36.2 million, or 20%. Profits
from equity affiliates of $21.3 million were 51% above the prior year. Net
income of $47.6 million, or $.22 diluted earnings per share, compared with
$106.9 million, or $.50 per share in the year-ago quarter. The quarter results
included a significant special item, an after-tax charge of $84.1 million, or
$.39 per share related to the BOC transaction. A large majority of
this amount was due to charges recorded on purchased currency option and forward
exchange contracts entered into to hedge the currency exposure of the BOC
transaction. The quarter ended 31 March 2000 also included a charge of
$5.5 million after-tax, or $.03 per share for a workforce reduction program in
the chemicals segment and an after-tax gain of $4.0 million, or $.02 per share
related to the sale of some packaged gases facilities. In the prior year there
was an after-tax charge of $6.4 million, or $.03 per share, for chemicals
facility closure costs. Excluding these special items, current year net income
of $133.2 million compares to $113.3 million in the prior year, an increase of
18%. Diluted earnings per share were $.62, up 17% over the prior year's $.53,
excluding special items. The remaining discussion and analysis of the
consolidated results of operations excludes the impact of special items.
Consolidated sales were up more than 7% over the prior year, with about half of
the increase attributable to acquisitions. Excluding a 2% unfavorable foreign
currency impact, consolidated sales were up nearly 10%. Strong volume growth in
both gases and chemicals was partially offset by the expected decline in the
equipment segment.
Operating income was $28.3 million higher, or 15% over the prior year. Gases and
chemicals operating incomes increased 20% and 9%, respectively. Gases
performance was driven by continued strong electronics business growth and
improved performance in both Asia and Europe and acquisitions. Broad based
volume growth, cost controls and productivity enhanced year-to-year chemicals
operating income. Continued raw material cost pressure, particularly in the
polymers business moderated the chemicals operating income performance. As a
result of good project cost performance, equipment operating income was down
only slightly as overall activity declined. Selling and administrative overheads
were up about 4%, primarily due to the impact of the consolidated acquisitions.
Currency and exchange related impacts reduced year-to-year operating income
growth by about 4%.
Equity affiliates' income increased $7.2 million to $21.3 million, up 51%. The
improvement results from better business conditions in Asia and Mexico, as well
as favorable currency and exchange and tax impacts. The affiliate, Korea
Industrial Gases, was included in consolidated results for the quarter ended
31 March 2000 following the acquisition of the affiliate in December 1999.
Industrial Gases-Sales increased 15% to $842.1 million for the second quarter of
fiscal 2000 compared to the prior year. Consolidation of acquired affiliates in
Korea, China, and Malaysia contributed about 6 to 7% of the growth. Unfavorable
currency impacts reduced sales growth about 3%. Excluding the currency and
acquisition impacts, sales growth was 11%. Overall gases volumes were up about
9%, with continued momentum in the global electronics area and general
improvement in the European and Asian regions. Operating
15
<PAGE>
income grew 20% to $164.7 million, exclusive of a gain on the sale of some
packaged gases facilities in the current quarter.
Liquid oxygen and nitrogen (LOX/LIN) volumes in North America were up 6%
including non-cryo business. LOX/LIN pricing was down 2% compared to the same
quarter in the prior year, however pricing was flat compared to the preceding
quarter, reflecting a slowing in the price decline. Efforts to increase prices
have been initiated to reverse the decline and offset cost increases. Higher
demand in steel, metals processing, and electronics industries created a 12%
growth for argon. Packaged gases volumes grew 2% on a same store basis.
Government testing drove a 3% increase in hydrogen volume. On-site volumes grew
9% as a result of increased hydrogen/carbon monoxide (HYCO) demand, including
some short term spot sales to refineries.
European LOX/LIN volume including non-cryo grew 9%. Growth in Northern Europe
complimented continued strong performance in Southern Europe. LOX/LIN pricing
was down 2% year-to-year and flat sequentially as pricing increases begin to
mitigate the price decline. On-site volumes increased 10%, with strong demand
from both chemical process and steel industry customers. Cylinder volumes
increased 10%, partially due to the prior year acquisition of the AGA business
in the United Kingdom.
Asian results were robust, with strong growth in the base business combined with
the consolidated results of the acquired affiliates in Korea, China, and
Malaysia. Electronics business was up globally, with very strong demand for
specialty gases and chemicals.
Operating income grew 20% due to the overall performance of the electronics
business along with good growth in Asia and Europe. About a third of the growth
was the result of consolidating the acquired affiliates. The operating income
growth was restrained by higher costs of natural gas adversely impacting the
liquid hydrogen business. Additionally, higher diesel fuel costs and argon
supply dislocation issues contributed to higher costs.
The gases segment operating margin was 19.6%, up .9% from the prior year and
equal to the previous quarter. The margin benefited from dramatically better
electronics business in the current year and improvements in Asian and Northern
European regional business conditions.
Gases equity affiliates' income of $17.8 million exceeded the prior year by
$7.3 million, a 70% increase. Higher performance in Asia and Mexico combined
with favorable currency and exchange and tax impacts generated the increase.
Equipment-Sales were $53.8 million in the quarter ended 31 March 2000 compared
to $101.2 million in the prior year. Operating income of $5.6 million was down
slightly from $6.9 million in the prior year. Lower sales and operating income
reflected the anticipated decline in project activity. Strong project cost
performance in the quarter partially offset the activity decline. The
$155 million sales backlog at 31 March 2000 is up slightly from the backlog of
$134 million at 31 March 1999 and $144 million at 31 December 1999. The backlog
is down from $175 million at 30 September 1999.
Chemicals-Sales in the second quarter of fiscal 2000 of $451.3 million were up
$34.4 million, or 8%. Operating income of $50.0 million was up 15% over the
prior year. Excluding the impact of the cost reduction plan in the current
quarter and the facility closure cost in the prior year, operating income of
$58.7 million is up 9%, or $5.0 million. Unfavorable currency related impacts on
sales were about 1%, but almost 6% on operating income. The overall segment
volume growth was 10%. The emulsions portion of the polymers division had
16
<PAGE>
record demand in the European region. Polyvinyl alcohol (PVOH) had record
volumes. Total polymers grew 9%. Volumes in performance chemicals were up 11% in
total, with gains in all major product areas. The chemicals intermediates
business increased 11%, with volumes higher in both polyurethane intermediates
and higher amines.
The operating income growth of 9% reflected broad based volume gains, cost
controls and productivity benefits. Raw material cost increases, particularly in
the polymers business, coupled with lower prices in some products restrained
operating income growth. The operating margin, excluding special items, was
13.0% in the current year compared to 12.9% in the prior year. Price increase
action has been initiated to counter the raw material cost impact on margins.
INTEREST
Interest expense of $46.8 million was up $6.4 million, primarily due to higher
debt.
INCOME TAXES
The current year second quarter consolidated effective tax rate was 14.9%, after
minority interest of $2.8 million. This compares to a rate of 29.7% in the prior
year. The fiscal 2000 rate was significantly impacted by a higher tax rate on
the BOC hedging transactions, a gain on the sale of gases assets, and the global
cost reduction plan. Excluding this tax impact, the effective rate for the
current quarter was 31.0%. The effective rate in the prior year, excluding the
tax rate impact of a chemicals facility closure was 30.2%. The rate increase
from 30.2% to 31.0% was due to mix of before-tax and after-tax equity affiliate
income.
GLOBAL COST REDUCTION PLANS
Fiscal Year 1999 Plan
The Company began a global cost reduction plan ("the 1999 plan") in the fiscal
quarter ended 31 December 1998. The plan included staffing reductions of 206
employees in the areas of manufacturing, distribution, and overheads. An amount
of $20.3 million ($12.9 million after-tax, or $.06 per share) related to
employee termination expense was charged to expense in the quarter ended 31
December 1998. The plan was completed in December 1999, essentially as expected.
The Company expanded the plan in the quarter ended 30 June 1999, with an
additional staff reduction of 142 employees. There was a charge of $13.9 million
($9.0 million after-tax, or $.04 per share) for the plan expansion. The expected
total cost remains as planned and 71 of the reductions have been completed.
Expenses of $5.4 million have been charged to the accrual and the balance is in
accrued liabilities.
Fiscal Year 2000 Plan
A global cost reduction plan in the chemicals segment was initiated in the
quarter ended 31 March 2000. The plan includes staff reductions of 103 employees
in the areas of manufacturing and overheads. There was a total charge of $8.7
million ($5.5 million after-tax, or $.03 per share) for the fiscal quarter.
Employee termination expenses of $7.3 million were accrued as liabilities and
charged to expense. Additionally, expense of $1.4 million was incurred for
special pension and post-retirement medical benefits for eligible employees
accepting the benefits in the fiscal quarter. The plan will be complete by 31
March 2001, with annualized cost savings of $9.3 million accumulating over the
year. Notifications began
17
<PAGE>
in the quarter ending 31 March 2000, with actual termination expenditures
beginning in the month of April 2000.
NEW ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements," in December 1999. The
company does not expect any revenue recognition changes due to the issuance of
this SAB. Revenue is recognized upon shipment or delivery of products. Revenues
from equipment sale contracts are recorded primarily using the
percentage-of-completion method.
YEAR 2000 READINESS DISCLOSURE
During the rollover into the year 2000, none of the Company's information
technology systems, process control and embedded chip systems, or suppliers
experienced Year 2000 events which had a material adverse impact on the
Company's operations or financial condition. Contingency plans remain in place
as part of the Company's normal business procedures to address operational
issues that may arise from time to time, including those caused by Year 2000
type events.
18
<PAGE>
SIX MONTHS FISCAL 2000 VS. SIX MONTHS FISCAL 1999
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales for the first six months of fiscal 2000 of $2,611.6 million were 3% higher
than the $2,527.9 million reported in the prior fiscal year. Operating income
was $415.1 million, up $43.4 million, or 12%. Profits of equity affiliates
increased $17.7 million to $41.6 million for the six months ended 31 March 2000.
Net income was $98.2 million, or $.46 diluted earnings per share, compared to
$233.3 million, or $1.08 per share in the prior year. The current year includes
a significant special item, an after-tax charge of $154.7 million, or $.72 per
share related to the BOC transaction. A large majority of this amount is due to
the charges recorded on purchased currency option and forward exchange contracts
entered into to hedge the currency exposure of the BOC transaction. The six
months ended 31 March 2000 also included a charge of $5.5 million after-tax, or
$.03 per share for a workforce reduction program in the chemicals segment and an
after-tax gain of $4.0 million, or $.02 per share related to the sale of some
packaged gases facilities. In the first six months of fiscal year 1999 there
were three special items; an after-tax gain of $21.3 million, or $.10 per share
related to the formation of Air Products Polymers, and an after-tax charge of
$12.9 million, or $.06 per share related to a global cost reduction plan, and an
after-tax charge of $6.4 million, or $.03 per share primarily related to
Chemicals facility closure costs. Excluding the impact of all special items, net
income for the six months ended 31 March 2000 was $254.4 million compared to
$231.3 million in the prior year, an increase of 10%. Diluted earnings per share
of $1.18 is up 10% over $1.07 in the prior year. The remaining discussion and
analysis of the consolidated results of operations excludes the impact of
special items.
Consolidated sales grew 3% over the prior year. While revenue growth was 9% for
gases and 8% for chemicals, there was a decline of $116.3 million, or 53% in the
equipment segment. Unfavorable currency impacts reduced sales growth about 2%,
however the consolidation of acquired affiliates added about 2% to reported
sales. Gases results benefited from increased demand in several major markets,
particularly electronics and chemical process. Chemicals sales were up on broad
based volume growth.
Operating income increased $15.2 million to $417.5 million, up 4% over the prior
year. Gases results were up $43.0 million, or 16%, largely due to increased
demand in several key markets. Chemicals operating income was up $4.2 million,
or 4%, with higher volumes moderated by raw material cost pressure. The expected
decrease in equipment business activity resulted in a decline of $24.8 million
from the $31.6 million reported in the prior year.
Equity affiliates' income increased $17.7 million, mostly due to improved
business conditions in several gas affiliates. Additionally, about a third of
the improved results came from favorable currency and exchange impacts relative
to the prior year. The affiliate, Korea Industrial Gases, was included in
consolidated results for the quarter ended 31 March 2000 following the
acquisition of the affiliate in December 1999.
Industrial Gases-Sales of $1,622.7 million in the first six months of fiscal
2000 increased 9%, or $134.2 million higher than in fiscal 1999. Unfavorable
currency impacts compared to the prior year approximately offset the increased
sales due to consolidation of acquired affiliates. Operating income increased
$65.6 million to $324.3 million. Excluding the impact
19
<PAGE>
of the gain on the sale of the packaged gas facilities in this year and
the cost reduction charge last year, operating income was $318.0 million, up
16%.
LOX/LIN volumes in North America were up 4% including non-cryo. LOX/LIN pricing
was down 2% from the prior year, with a slowing in the decline as pricing
actions take effect. Tonnage gas volumes were higher in North America, led by
strong HYCO growth of 14%.
European LOX/LIN volumes were up about 8% including non-cryo. LOX/LIN pricing
was down about 1%. Southern Europe continued to have strong performance, with
some improvement in Northern European business. Overall European tonnage volumes
were higher, primarily due to increased demand for gaseous oxygen and nitrogen
from steel and process industry customers growing 17%. HYCO volumes were up in
the second quarter, following a customer outage at Rotterdam in the first
quarter.
Asian results were robust, with strong growth in the base business combined with
the consolidated results of the acquired affiliates in Korea, China, and
Malaysia. Electronics business was up globally, with very strong demand for
specialty gases and chemicals.
The operating income growth of 16% was the result of strong global demand in
electronics and improved Asian and European business conditions. Somewhat
offsetting the highly favorable volume growth was higher cost for natural gas
and diesel fuel, argon supply dislocation, and unfavorable currency impacts. The
gases segment operating margin was 19.6%, up 1.1% from 18.5% in the prior year.
The increase results from the electronics and Asian business improvement and
acquisitions.
Equity affiliates' income of $34.2 million approximately doubled the $17.2
million reported in the prior year. Higher performance in Asia and Mexico
combined with favorable currency and exchange and a small tax adjustment,
generated the increase.
Equipment-Sales decreased $116.3 million to $104.4 million compared to the prior
year. Operating income declined to $6.8 million from $29.7 million in the prior
year. Excluding the cost reduction charge in the prior year, operating income of
$6.8 million in fiscal 2000 compares to $31.6 million in fiscal 1999. The
reduced sales and operating income reflect a substantial decline in project
activity as customer capital spending plans are delayed.
Chemicals-Sales for the six months ended 31 March 2000 were $884.5 million
compared to $818.7 million in fiscal 1999, an increase of 8%. Operating income
of $101.6 million increased 8% from $94.2 million last year. Excluding the
impact of cost reduction charges in both years and a facility closure charge in
fiscal 1999, current year operating income was $110.3 million compared to
$106.1 million, up 4%. Unfavorable currency related impacts were less than
1% on sales, but almost 5% on operating income. Strong volume growth occurred
over both quarters of this fiscal year. Volume increases across all major
product areas generated an overall 11% increase over the prior year.
The operating income growth of 4%, excluding special items, reflects strong
volume growth and cost containment, offset by margin pressure. Raw material cost
increases, particularly in the polymers businesses, coupled with lower prices in
some products, restrained the operating income improvement. Operating margin in
fiscal 2000 was 12.5% compared to 13.0% in the prior year, primarily lower due
to raw material cost increases. Price increase action has been initiated to
counter the margin decline.
20
<PAGE>
INTEREST
Interest expense of $88.1 million is up $7.3 million, or 9%. The increase is
primarily due to higher debt.
INCOME TAXES
The current six months year-to-date consolidated effective tax rate is 15.0%,
after minority interest of $5.1 million. This compares to a rate of 31.0% in the
prior year. The fiscal 2000 rate is significantly impacted by a higher tax rate
on the BOC hedging transactions, a gain on the sale of some gases assets, and
the global cost reduction plan. Excluding this tax impact, the effective rate
for the current year is 30.5%. The effective rate in the prior year, excluding
the tax rate impact of the gain on the formation of the polymer ventures, a
chemical facility closure and the global cost reduction, was 31.5%. The rate
decrease from 31.5% to 30.5% is due to higher after-tax equity affiliates'
income.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 2000 totaled $604.0
million compared to $541.3 million in the corresponding period of the prior
year. Additions to plant and equipment decreased from $450.9 million during the
first six months of fiscal 1999 to $378.6 million during the current period. The
prior year additions included a new 500 million pound-per-year dinitrotoluene
(DNT) production facility in Geismar, Louisiana. Investments in unconsolidated
affiliates were $16.5 million during the first six months of fiscal 2000 versus
$66.0 million last year. The prior year results include a cash contribution of
$33.5 million related to the formation of the redispersible powders venture with
Wacker-Chemie GmbH. Expenditures for acquisitions increased from $22.4 million
during the first six months of fiscal 1999 to $168.7 million during the current
period. The current year amount includes the acquisition of the remaining 51.1
percent of the shares in Korea Industrial Gases Ltd. (KIG), the largest
industrial gas Company in Korea. Capital expenditures are expected to be
approximately $1.1 billion in fiscal 2000. The capital expenditures will be
funded with cash from operations supplemented with proceeds from financing
activities.
Cash provided by operating activities during the first six months of fiscal 2000
($501.6 million) combined with proceeds from the sale of assets and investments
($30.0 million), and long-term debt proceeds ($507.5 million) were used largely
for capital expenditures ($604.0 million), long-term debt repayments
($369.6 million) and cash dividends ($76.8 million). Cash and cash items
increased $31.0 million from $61.6 million at the beginning of the fiscal year
to $92.6 million at 31 March 2000. The net decrease in commercial paper was
$25.0 million.
Total debt at 31 March 2000 and 30 September 1999, expressed as a percentage of
the sum of total debt and shareholders' equity, was 51% and 49%, respectively.
Total debt increased from $2,842.2 million at 30 September 1999 to $3,062.8
million at 31 March 2000. During the second quarter of fiscal 2000, the Company
issued Euro 500 million in notes due in 2005 with a fixed coupon rate of 6.00%.
Also, during the second quarter, the Company repurchased a $100 million medium
term note, Series F, which was due in 2009 and a $100 million medium term note,
Series F, which was due in 2014.
There was $338.0 million of commercial paper outstanding at 31 March 2000. In
the first six months of fiscal 2000, the Company added an additional
$500 million revolving credit
21
<PAGE>
commitment. The Company's total revolving credit commitments amounted to $1.1
billion at 31 March 2000. No borrowings were outstanding under these
commitments. Additional commitments totaling $81.2 million are maintained by the
Company's foreign subsidiaries, of which $16.3 million was utilized at 31 March
2000.
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 interest rate swap contracts to effectively convert the
stated variable rates to interest rates based on LIBOR. The fair value gain
(loss) on the variable to variable swaps is equally offset by a fair value loss
(gain) on the related debt agreements.
The notional principal amounts outstanding and net unrealized gain of interest
rate swap agreements at 31 March 2000 and 30 September 1999 were as follows:
<TABLE>
<CAPTION>
(Millions of dollars)
31 March 2000 30 September 1999
------------------------------------- ----------------------------------------
Net Net
Notional Unrealized Notional Unrealized
Amount Gain Amount Gain
------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Fixed to Variable $181.0 $.2 $311.0 $5.6
Variable to Variable 60.0 137.8 60.0 121.1
------------------------------------- ----------------------------------------
Total $241.0 $138.0 $371.0 $126.7
===================================== ========================================
</TABLE>
During the first six months of fiscal 2000 two fixed to variable interest rate
swap agreements with a total notional amount of $100.0 million were terminated,
resulting in a deferred gain of $2.4 million.
In April 2000, a $50 million variable to variable interest rate swap agreement
matured along with the related $50 million of medium term notes. The net
unrealized gain on the remaining variable to variable interest rate swap was
$20.9 million at 31 March 2000. This swap effectively converted the stated
variable rate of the medium term note to an average interest rate slightly above
the three month US 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. The notional
principal of interest rate and currency swap agreements outstanding at 31 March
2000 was $145.7 million. The fair value of the agreements was a gain of
$1.6 million, of which a $2.0 million gain related to the currency component
was recognized in the financial statements. The remaining $.4 million loss was
related to the interest component and has not been recognized in the financial
statements. This loss reflects that current interest rates are generally lower
than the interest rates paid under the interest rate and currency swap
agreements. As of 30 September 1999 interest rate and currency swap agreements
were outstanding with a notional principal amount and fair value of
$270.8 million and a gain of $10.2 million, respectively. During the second
quarter of fiscal 2000 three interest rate and currency swap agreements with a
total notional amount of
22
<PAGE>
Spanish Peseta (ESP) 11.63 billion or $93.1 million were terminated, resulting
in a net deferred loss of $2.0 million.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 March 2000 is $2,820.0 million compared to a book value of
$2,622.2 million.
FINANCIAL INSTRUMENTS
Excluding the impact of the derivative instruments entered into to hedge the
currency exposure of the BOC transaction which are discussed in the `BOC
Transaction' section below, there has been no material change in the net
financial instrument position or sensitivity to market risk since the disclosure
in the annual report.
BOC TRANSACTION
The results for the six months ended 31 March 2000 include a charge of $247.9
million ($154.7 million after-tax, or $.72 per share) for costs related to the
BOC transaction. Of this amount, $232.7 million ($145.2 million after-tax, or
$.67 per share) of accounting charges were recorded on purchased currency option
and forward exchange contracts entered into to hedge the currency exposure of
the BOC transaction, reflecting an exchange rate of 1.5967 for the $/GBP as of
31 March 2000. Due to the required mark-to-market accounting, future accounting
results will include gains and losses based on changes in the $/GBP exchange
rate. The remaining charge of $15.2 million ($9.5 million after-tax, or $.05 per
share) consists of other expenses.
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this release are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. Factors that might cause forward-looking
statements to differ materially from actual results include, among other things,
overall economic and business conditions; demand for the goods and services of
Air Products; competitive factors in the industries in which it competes;
changes in government regulation; success of implementing cost reduction
programs; the timing, impact and other uncertainties of future acquisitions or
combinations within relevant industries; fluctuations in interest rates and
foreign currencies; the impact of tax and other legislation and regulations in
the jurisdictions in which Air Products and its affiliates operate; and the
timing and rate at which tax credits can be utilized.
23
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
a. The Annual Meeting of Shareholders of the Registrant was held on
27 January 2000.
b. The following directors were elected at the meeting: Harold A.
Wagner, Mario L. Baeza, L. Paul Bremer III, Edward E.
Hagenlocker, Terry R. Lautenbach. Directors whose term of
office continued after the meeting include: Tom H. Barrett,
James F. Hardymon, Lawrason D. Thomas, Robert Cizik, Ursula F.
Fairbairn, John P. Jones III, Joseph J. Kaminski, and Ruud F. M.
Lubbers.
c. The following matters were voted on at the Annual Meeting:
1. Election of Directors
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
NAME OF DIRECTOR NUMBER OF VOTES CAST
--------------------------------------------------------------------------------
AGAINST BROKER
OR NON-
FOR WITHHELD ABSTENTIONS VOTES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
H. A. WAGNER 194,745,531 3,150,471 0 0
--------------------------------------------------------------------------------
M. L. BAEZA 195,199,934 2,696,068 0 0
--------------------------------------------------------------------------------
L. P. BREMER III 195,291,249 2,604,753 0 0
--------------------------------------------------------------------------------
E. E. HAGENLOCKER 195,321,654 2,574,348 0 0
---------------------------------------------------------------------------------
T. R. LAUTENBACH 195,089,592 2,806,410 0 0
--------------------------------------------------------------------------------
</TABLE>
2. Ratification of the appointment of Arthur Andersen LLP of
Philadelphia, Pennsylvania, as independent certified
public accountants for the Registrant for the fiscal year
ending 30 September 2000.
-------------------------------------------------------------------
NUMBER OF VOTES CAST
-------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
-------------------------------------------------------------------
196,138,570 703,510 1,053,922 0
-------------------------------------------------------------------
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a)(10.1) Amended and Restated 1997 Annual Incentive Plan of the
Company effective 1 January 2000.
(a)(10.2) Resolutions approving amendments to the 1997 Annual
Incentive Plan and the Supplementary Savings Plan of the
Company effective 1 January 2000.
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only, and not filed.
(b) Current Reports on Form 8-K dated 21 January 2000 and
10 March 2000 were filed by the Registrant during the
quarter ended 31 March 2000 in which Item 5 of such forms was
reported.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Air Products and Chemicals, Inc.
--------------------------------
(Registrant)
Date: May 12, 2000 By: /s/L. J. Daley
-----------------------
L. J. Daley
Vice President - Finance
(Chief Financial Officer)
26
<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
EXHIBITS
To
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 31 March 2000
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
===============================================================================
<PAGE>
INDEX TO EXHIBITS
(a)(10.1) Amended and Restated 1997 Annual Incentive Plan of the Company
effective 1 January 2000.
(a)(10.2) Resolutions approving amendments to the 1997 Annual Incentive
Plan and the Supplementary Savings Plan of the Company effective
1 January 2000.
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only, and
not filed.
(a)(10.1)
AIR PRODUCTS AND CHEMICALS, INC.
1997 Annual Incentive Plan
As Amended and Restated Effective 1 January 2000
1. PURPOSES OF THE PLAN
The purposes of this Plan are to attract, motivate and retain high caliber
people and to provide meaningful individual and group incentives within Air
Products and Chemicals, Inc. (the "Company") and Participating Subsidiaries.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Management Development and
Compensation Committee (the "Committee") of the Company's Board of Directors or
such other committee thereof consisting of such members (not less than three) of
the Board of Directors as are appointed from time to time by the Board and who
are not eligible and have not been eligible within a period of one year prior to
the date of such appointment to receive any award under this Plan.
The Committee shall have all necessary powers to administer and interpret
the Plan, such powers to include exclusive authority (within the limitations
described in the Plan) to select the employees to whom awards will be granted
under the Plan and determine the amount of any award to be made to any employee.
In order to assist it in selecting employees and determining the amount of any
award to be given to each employee selected, as aforesaid, the Committee may
take into consideration recommendations from the appropriate officers of the
Company and of each Participating Subsidiary with respect to awards to be given
to eligible employees of the Company and of each such Participating Subsidiary,
respectively.
The Committee shall have full power and authority to adopt such rules,
regulations and instruments for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or advisable. The
Committee's interpretations of the Plan, and all action taken and determinations
made by the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
shareholders and any employee of the Company or any Subsidiary.
3. ELIGIBILITY FOR PARTICIPATION
Participants in the Plan shall be selected by the Committee from among key
employees of the Company and Participating Subsidiaries. The term "employee"
shall mean any person employed full-time by the Company or a Participating
Subsidiary on a salaried basis and the term "employment" shall mean full-time
salaried employment by the Company or a Subsidiary. Employees who participate in
other incentive or benefit plans of the Company or of any Participating
Subsidiary may also participate in this Plan.
-1-
<PAGE>
Awards under the Plan are for services rendered during a Fiscal Year, based
on the performance of the Company during that Fiscal Year. No employee shall be
eligible to receive an award under the Plan for a particular Fiscal Year unless
the employee is in the employment of the Company or a Participating Subsidiary
on the last day of that Fiscal Year, provided, however, that an employee whose
employment with the Company or a Participating Subsidiary terminates during but
before the end of a Fiscal Year on account of (i) Retirement, Disability or
death, (ii) in connection with a divestiture of facilities, assets or
businesses, elimination of positions, or a reorganization or reduction in the
work force of the Company or a Participating Subsidiary, (iii) because of the
commencement of part-time employment with or leave of absence from the Company
or a Subsidiary, or (iv) on or following a Change in Control, and who at the
time of such termination of employment was eligible to participate in the Plan,
shall be eligible to receive an award under the Plan for such Fiscal Year.
4. AWARDS
(a) Prior to the end of each Fiscal Year, the Committee shall determine
whether awards shall be made under the Plan for that Fiscal Year and, if so, fix
the classes of employees eligible to receive awards based upon job grade and
salary levels, the proportions of the awards to be paid in cash and in common
stock of the Company ("Common Stock"). The Committee shall establish a basis or
schedule for determining the total amount of awards and for determining a
minimum aggregate dollar amount of awards for employees of the Company and of
each domestic Participating Subsidiary designated by the Committee who have
elected not to defer such awards that might be granted to them and such other
procedures for the making of the awards as the Committee may deem desirable.
(b) The basis (schedule) established under subparagraph (a) for
determining the amount of awards may be based on variable factors established by
the Committee from time to time, provided that the variables used to determine
an amount for a particular Fiscal Year must be capable of being fixed and
ascertainable as of the last day of such Fiscal Year. The minimum amount
established under subparagraph (a) shall become an accrued liability of the
Company on the last day of the Fiscal Year. The amounts of awards to be granted
to particular employees of the Company and of the designated domestic
Participating Subsidiaries within the eligible classes may be determined after
the close of the Fiscal Year under procedures established by the Committee.
(c) The Committee shall, in approving the grant of awards to particular
employees for any Fiscal Year, take into consideration (i) the performance of
the Company and of each Participating Subsidiary for the Fiscal Year based upon
such measure or measures of performance as the Committee shall select and
(ii) as between Participants, the contribution of the Participant during the
Calendar Year to the success of the Company or the Participating Subsidiary by
which such person is employed, including his or her position and level of
responsibility, the achievements of his or her division, group, department or
other subdivision, and the recommendations of his or her superiors. No award or
awards may be granted to any
-2-
<PAGE>
Participant for the same Fiscal Year having an aggregate value in excess of 150%
of such Participant's annualized base salary rate at the end of, or at the time
of any earlier cessation of eligible employment during, the Fiscal Year.
(d) The Committee shall have complete discretion with respect to the
determination of the employees to whom awards shall be made.
(e) Upon final approval by the Committee of awards to particular
Participants, awards shall be payable in cash or Common Stock or both and in
such amounts and proportions with respect to any Participant as the Committee
shall, in its discretion, determine. Except as provided herein for deferred
payment awards, the number of shares of Common Stock to be delivered in payment
of awards or portions of awards determined to be payable in such form shall be
determined by dividing the amount of the award to be so paid by the value of a
share of Common Stock determined as provided in paragraph 8(f) as of the date
the Committee approves the grant of the award to the Participant.
(f) Notwithstanding any other provisions of this Plan to the contrary,
following or in connection with a Change in Control the Committee may, in its
sole discretion, determine to pay awards for the portion of the current Fiscal
Year preceding the Change in Control; provided, however, that no such award
shall have an aggregate value which exceeds 150% of that Participant's
annualized base salary rate immediately prior to the Change in Control. The
Committee shall determine in that connection the classes of employees eligible
to receive awards based upon job grade and salary levels, the amounts of awards
to be made with respect to particular employees within the eligible classes for
said partial Fiscal Year, and the proportions of the awards to be paid in cash
and in Common Stock and shall undertake such other procedures for the making of
the awards as the Committee may deem desirable. Such awards shall be due and
payable to Participants within thirty days following the Committee's
determination to pay said awards under this paragraph 4(f) or at such earlier
date as the Committee shall determine, but in no event earlier than the
occurrence of a Change in Control.
5. FORM AND PAYMENT OF AWARDS
(a) Subject to the provisions of this paragraph 5 relating to deferred
payment awards, awards for a particular Fiscal Year shall be distributed as soon
as feasible in cash or shares of Common Stock or both and, once announced by or
for the Committee to the Participant, shall not be subject to forfeiture for any
reason, whether or not payable immediately or as a deferred payment award;
provided, however, that any award for a Fiscal Year will be paid to the
Participant only if the Participant is employed by the Company or a
Participating Subsidiary on the last day of the Fiscal Year, except as otherwise
permitted by paragraph 3.
(b) At the discretion of the Committee, or the election of the Participant
as permitted by paragraph 5(c), payment of all or a portion of an award to any
Participant may be deferred until termination of the Participant's employment
with the Company or a Subsidiary, under such restrictions and terms as the
Committee may establish, including those set forth below in this
-3-
<PAGE>
paragraph 5. The deferred payment award will be payable in cash; provided that,
at the discretion of the Committee, or at the election of the Participant in
accordance with paragraph 5(d), a deferred award may be payable in Common Stock.
Deferred awards payable in Common Stock shall be credited on the books of the
Company as provided in paragraph 5(d) and entitled to Dividend Equivalents as
provided in paragraph 6. Deferred awards payable in cash shall be credited to an
account which shall accumulate interest at such rate and under such conditions
as the Committee shall determine ("Deferred Cash Account").
(c) Any U.S. employee eligible to participate in the Plan may elect prior
to the end of the second quarter of any Fiscal Year as to which an award may be
granted to such employee, that all or a part of an amount to be awarded to him
or her for such Fiscal Year shall be in the form of a deferred payment award.
Once an employee elects a deferred payment award for the Fiscal Year, this
election will be binding on both the employee and the Company with respect to
any award the employee is granted for the Fiscal Year, except that if the amount
that can be deferred as designated by the Committee under paragraph 4(a) is not
sufficient to fund all of the deferrals elected, a pro rata reduction shall be
made in each electing Participant's deferred award and any excess shall be paid
out currently.
(d) While he or she is employed by the Company, a U.S. Participant may
elect, at the times and in the manner determined by the appropriate officers of
the Company, to have all or a portion of his or her deferred payment awards
credited to an account deemed to be invested in Common Stock (the "Deferred
Company Stock Account"). The Company shall credit the Deferred Company Stock
Account with that number of whole units obtained by dividing the amount of such
deferred payment awards to be credited to the Account by the Fair Market Value
of a share of Common Stock on the date credited to the Deferred Company Stock
Account (with the units thus calculated herein referred to as "deferred company
stock units"). Any excess shall be credited to the Participant's Deferred Cash
Account. 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 closing sales price 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. Amounts credited to the Deferred
Company Stock Account may not be converted back to a Deferred Cash Account.
Dividend Equivalents accumulated on a Participant's Deferred Company Stock
Account shall be credited to his or her Deferred Cash Account as provided in
Section 6 and shall accumulate interest therein as provided in paragraph 5(b)
above.
(e) Distribution of a Participant's deferred payment award and earnings
thereon to the Participant shall, at the election of the Participant, be paid in
a single distribution or in substantially equal annual installments commencing
in such year following the Participant's termination of employment as is elected
by the Participant; provided, however, that no payment shall be made more than
ten (10) calendar years after such termination of employment. Amounts credited
to a Participant's Deferred Cash Account shall be distributed in cash. Amounts
credited to a Participant's Deferred Company Stock Account shall be distributed
in whole shares of Common Stock equal to the number of deferred company stock
units to be distributed.
-4-
<PAGE>
Installment distributions shall be comprised of amounts from a Participant's
Deferred Cash Account and Deferred Company Stock Account in the proportion that
the value of each such Account bears to the total value of the Participant's
deferred payment awards at the time of the distribution, rounded to eliminate
fractional shares. Distribution will be made or begin as soon as practicable
following the end of the calendar year during which the Participant's
termination of employment occurs or in January of any subsequent year, in
accordance with the Participant's election as to form and time of payout which
is effective as of the date of termination or which becomes effective under
paragraph 5(f) below prior to the first scheduled payment under the election
effective at the time of termination. Deferred payment awards will continue to
accumulate Dividend Equivalents or interest, as appropriate, until completely
distributed.
(f) A Participant shall make an election with respect to form and time of
payout of all of his or her deferred payment awards at the time of his or her
initial election to defer payment as described in paragraph 5(c) above which
shall be effective immediately. While he or she is employed by the Company or a
Subsidiary, a Participant may change his or her election in regard to the form
and time of commencement of distributions of his or her deferred payment awards,
provided that such election is made in a form and manner satisfactory to the
appropriate officers of the Company. Such a change in election will become
effective on the one-year anniversary of the date it is received by the Company,
provided that, in the event of termination prior to the date an election becomes
effective, the election shall not become effective if the first scheduled
payment under the election in effect at the time of termination is due prior to
such one-year anniversary. A change in election, when effective, shall supersede
all prior elections and shall apply to all of the Participant's deferred payment
awards, including all prior and future awards until a later election becomes
effective.
(g) Deferred payment awards shall be subject to the following further
conditions and restrictions:
(i) If a Participant dies prior to receiving his or her entire award,
the undelivered portion of any such award shall be paid to his or her Designated
Beneficiary or, if none, to his or her legal representative at such times and in
such manner as if such Participant were still living (or on such accelerated
basis as the Committee may determine).
(ii) The Committee may authorize an acceleration of the delivery date
of a portion or all of an undelivered award, related Dividend Equivalents and
interest, in the case of a hardship arising from causes beyond the Participant's
control; provided that the accelerated payment in such a case must be limited to
an amount necessary to meet such hardship. Upon a Change in Control, the
delivery date of all deferred payment awards shall be automatically accelerated
and said deferred payment awards and related Dividend Equivalents and interest
shall be due and payable to Participants immediately.
-5-
<PAGE>
6. DIVIDENDS
(a) Following the declaration of a cash dividend on the Common Stock, each
Participant who has a Deferred Company Stock Account shall be credited with an
amount equal to the cash dividends ("Dividend Equivalents") which would have
been paid if the deferred company stock units credited to such Account on the
record date for such dividend had been issued and outstanding shares of Common
Stock. Such Dividend Equivalents shall be credited to such Participant's
Deferred Cash Account effective no later than the last day of the fiscal quarter
in which the payment date for such dividend occurred.
(b) Following the declaration of a dividend payable in Common Stock, a
Participant's Deferred Company Stock Account shall be credited with additional
deferred company stock units equivalent to the number of shares of Common Stock
which would have been delivered if the deferred company stock units credited to
such Account on the record date for such dividend had been issued and
outstanding shares of Common Stock. Such additional deferred company stock units
shall be credited to each Participant's Deferred Company Stock Account effective
no later than the last day of the fiscal quarter in which the payment date for
such dividend occurred.
(c) No cash dividends shall be paid on awards payable immediately after
the Fiscal Year for which granted ("Current Awards") which are payable in shares
of Common Stock. However, when such shares of Common Stock are delivered to the
Participant, the Company shall pay to the Participant an amount in cash which
shall be equal to the cash dividends, if any, ("Dividend Equivalents") which
would have been paid if the shares of Common Stock had been issued and
outstanding since the grant of the award. No interest shall be paid on any such
Dividend Equivalent or any part thereof.
(d) In the event of a declaration of a dividend payable in Common Stock,
the record date for which occurs after the date of the grant of a Current Award
payable in Common Stock but prior to the date of delivery of shares of Common
Stock to the Participant, such Current Award shall be increased by such
additional number of shares which would have been delivered if the shares of
Common Stock had been issued and outstanding since the grant of the award.
7. DILUTION AND OTHER ADJUSTMENTS
Notwithstanding any other provision of the Plan, in the event of any change
in the outstanding shares of Common Stock of the Company by reason of any stock
dividend, split, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change including without
limitation in connection with a Change in Control, an equitable adjustment shall
be made, as determined by the Committee (but subject to the provisions of the
first subparagraph of paragraph 9), in (a) the kind of shares subject to the
Plan or the maximum number of shares which may be awarded to any one employee,
(b) any other aspect or aspects of the Plan or outstanding awards granted
thereunder as specified by the
-6-
<PAGE>
Committee or (c) any combination of the foregoing. Such adjustment shall be made
by the Committee and shall be conclusive and binding for all purposes of the
Plan.
8. MISCELLANEOUS PROVISIONS
(a) No recipient of an award shall have any rights as a Company
shareholder with respect thereto unless and until the date as of which
certificates for shares of Common Stock are issued in payment of such award.
(b) A Participant's rights and interests under the Plan may not be
assigned or transferred except, in the case of the Participant's death, to his
or her Designated Beneficiary or, in the absence of such designation, by will or
the laws of descent and distribution.
(c) No shares of Common Stock shall be issued or distributed under the
Plan unless and until all legal requirements applicable to the issuance or
transfer of such shares have been complied with to the satisfaction of the
Committee and the Company.
(d) The Company shall have the right to deduct from awards hereunder paid
in whole or in part in cash any federal, state, local or foreign taxes required
by law to be withheld with respect to such cash awards. In the case of awards to
be paid by the distribution of Common Stock, the Company shall have the right to
require, as a condition of such distribution, that the Participant or other
person receiving such Common Stock either (i) pay to the Company at the time of
distribution thereof the amount of any such taxes which the Company is required
to withhold with respect to such Common Stock or (ii) make such other
arrangements as the Company may authorize from time to time to provide for such
withholding including without limitation having the number of the shares of
Common Stock to be distributed reduced by an amount equal in value to the amount
of such taxes required to be withheld. The obligation of the Company to make
delivery of awards in cash or in Common Stock shall be subject to currency or
other restrictions imposed by any government.
(e) No full- or part-time employee of the Company or a Subsidiary or other
person shall have any claim or right to be granted an award under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any such employee any right to be retained in the employ of the Company or a
Subsidiary, it being understood that all Company and Subsidiary employees who
have or may receive awards under this Plan are employed at the will of the
Company or such Subsidiary and in accord with all statutory provisions.
(f) Distribution of shares of Common Stock in payment of awards under this
Plan may be made either from shares of authorized but unissued Common Stock
reserved for such purpose by the Board of Directors or from shares of authorized
and issued Common Stock reacquired by the Company and held in its treasury 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. Such shares shall be valued on any date set forth herein (or, if
such date is not expressly set forth herein, on such date or dates as may be
-7-
<PAGE>
determined by the Committee, but not earlier than five trading days prior to the
date for which the determination is being made) at the closing sales price on
the New York Stock Exchange, as reported on the composite transaction tape, or
on such other exchange as the Committee may determine.
(g) The costs and expenses of administering this Plan shall be borne by
the Company and not charged to any award nor to any employee or Participant
receiving an award. However, the Company may charge the cost of any awards made
to employees of Participating Subsidiaries, including administrative costs and
expenses related thereto, to the respective Participating Subsidiaries by which
such persons are employed.
(h) In addition to terms defined elsewhere herein, the following terms as
used in this Plan shall have the following meanings:
"Act" shall mean the Securities Exchange Act of 1934 as amended from
time to time.
"Change in Control" shall mean the first to occur of any one of the
events described below:
(i) Stock Acquisition. Any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Act), other than
the Company or a corporation, a majority of whose outstanding
stock entitled to vote is owned, directly or indirectly, by
the Company, or a trustee of an employee benefit plan
sponsored solely by the Company and/or such a corporation, is
or becomes, other than by purchase from the Company or such a
corporation, the "beneficial owner" (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding voting
securities. Such a Change in Control shall be deemed to have
occurred on the first to occur of the date securities are
first purchased by a tender or exchange offeror, the date on
which the Company first learns of acquisition of 20% of such
securities, or the later of the effective date of an agreement
for the merger, consolidation or other reorganization of the
Company or the date of approval thereof by a majority of the
Company's shareholders, as the case may be.
(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
-8-
<PAGE>
which the requisite majority of directors fails to be elected
by the shareholders of the Company.
(iii) Other Events. Any other event or series of events
which, not withstanding any other provision of this definition,
is determined, by a majority of the outside members of the Board
of Directors of the Company serving in office at the time such
event or events occur, to constitute a change in control of the
Company for purposes of this Plan. Such a Change in Control shall
be deemed to have occurred on the date of such determination or on
such other date as such majority of outside members of the Board
shall specify.
"Designated Beneficiary" shall mean the person or persons last
designated as such by the Participant on a form filed by him or her with the
Committee in accordance with such procedures as the Committee shall approve,
provided, however, that in the absence of the filing of such a form with the
Company the Designated Beneficiary shall be the person or persons who are the
Participant's beneficiary or beneficiaries of the Company's basic life
insurance.
"Disability" shall mean permanent and total disability of an
employee participating in the Plan as determined by the Committee in accordance
with uniform principles consistently applied, upon the basis of such evidence as
the Committee deems necessary and desirable.
"Fiscal Year" shall mean the twelve-month period used as the annual
accounting period by the Company.
"Participant" shall mean, as to any award granted under this Plan
and for so long as such award is outstanding, the employee to whom such
award has been granted.
"Participating Subsidiary" shall mean any Subsidiary designated
by the Committee to participate in this Plan which Subsidiary requests or
accepts, by action of its board of directors or other appropriate authority,
such designation.
"Retirement' shall mean separating from service with the Company
or a Subsidiary with the right to begin receiving immediate pension benefits
under the Company's Pension Plan for Salaried Employees or under another defined
benefit pension plan sponsored or otherwise maintained by a Subsidiary for its
employees, in either case as then in effect or, in the absence of the Pension
Plan or such other pension plan being applicable to any Participant, as
determined by the Committee in its sole discretion.
"Subsidiary" shall mean any domestic or foreign corporation,
partnership, association, joint stock company, trust or unincorporated
organization affiliated with the Company whether or not controlling, controlled
by or under common control with the Company.
-9-
<PAGE>
9. AMENDMENTS AND TERMINATION
The Committee may at any time terminate or from time to time amend or
suspend this Plan in whole or in part; provided, however, that no such amendment
shall, without the consent of the Participant to whom an award has already been
granted hereunder, operate to annul such award.
Unless approved by a vote of a majority of the shares present and entitled
to be voted at a meeting of shareholders, no amendment shall be effective to
increase the maximum amount which may be awarded to any individual for the same
Fiscal Year, except as otherwise provided in paragraph 7.
10. EFFECTIVE DATE, PAST AMENDMENTS AND TERM OF THE PLAN
This Plan, previously denominated the "Air Products and Chemicals, Inc.
1979 Incentive Compensation Plan", became effective for the Fiscal Year
commencing on October 1, 1978 for awards to be made for years to and including
Fiscal Year 1983, following approval by a majority of those present at the
January 19, 1978 annual meeting of shareholders of the Company and entitled to
vote thereon. The Plan was thereafter amended as permitted by its terms
effective October 1, 1982 by action of the Board of Directors.
The Plan, as amended effective October 1, 1983, was continued in effect
indefinitely until terminated, amended or suspended as permitted under paragraph
9 following approval by the holders of a majority of the outstanding shares of
Common Stock of the Company at the January 26, 1984 annual meeting of
shareholders of the Company. The Plan was thereafter amended as permitted by its
terms effective March 1, 1986, October 1, 1986, July 15, 1987 and October 1,
1989 by action of the Committee. The Plan was renamed the 1990 Annual Incentive
Plan and restated effective as of October 1, 1989. The Plan, as set forth
herein, was renamed the 1997 Annual Incentive Plan, amended and restated
effective as of October 1, 1996. The Plan was thereafter amended as permitted by
its terms effective as of April 1, 1998 and effective as of January 1, 2000 by
action of the Committee.
10
(a)(10.2)
RESOLUTIONS APPROVING AMENDMENTS
TO THE AIR PRODUCTS AND CHEMICALS, INC.
1997 ANNUAL INCENTIVE PLAN AND THE
AIR PRODUCTS AND CHEMICALS, INC.
SUPPLEMENTARY SAVINGS PLAN (COLLECTIVELY, THE "PLANS")
WHEREAS, the Air Products and Chemicals, Inc. 1997 Annual Incentive Plan
("Annual Incentive Plan") provides that, at the direction of the Committee,
deferred compensation under such Plan shall be paid in cash and earn interest
based on a rate determined by the Committee, or be paid in Air Products and
Chemicals, Inc. common stock ("Common Stock") and be credited with earnings
equal to dividends paid on such Common Stock during the deferral period
("Dividend Equivalents"); and
WHEREAS, the Air Products and Chemicals, Inc. Supplementary Savings Plan
("Supplementary Savings Plan") provides that deferred compensation under such
Plan shall be paid in cash and credited with interest at the rate applicable
under the Annual Incentive Plan; and
WHEREAS, it has been recommended to the Committee, by the Employee Benefit
Plans Committee with respect to the Supplementary Savings Plan and the
appropriate officers of the Company with respect to the Annual Incentive Plan,
that the Plans be amended to allow participants a choice of having amounts such
participants have elected to defer under the Plans either irrevocably credited
to a hypothetical account deemed to be invested in Common Stock which will be
credited with Dividend Equivalents and payable in Common Stock, or credited to a
hypothetical account earning interest at a rate determined by the Committee and
payable in cash;
NOW THEREFORE, BE IT RESOLVED, that the Plans shall be amended to provide
participants with the right to elect whether amounts elected to be deferred by
them under the Plans are credited to (a) a hypothetical account which shall earn
interest at a rate determined by the Committee and shall be payable to the
participant in cash at such times as provided under the Plans, or (b) a
hypothetical account deemed to be invested in Common Stock, which shall earn
Dividend Equivalents and be payable to the
<PAGE>
Participant in shares of Common Stock at such times as provided under the Plans;
provided that, amounts which a participant elects to have credited to the
- -------- ----
interest bearing account and earnings credited to such account may, at such
times as the Plan shall provide, be redirected to the account deemed to be
invested in Common Stock, but amounts credited to the account deemed to be
invested in Common Stock may not thereafter be redirected to the interest
bearing account; and it is
RESOLVED FURTHER, that the proper officers of the Company be, and they each
hereby are, authorized and empowered, in the name and on behalf of the Company,
to make, execute and deliver such instruments, documents and certificates and to
do and perform such other acts and things as may be necessary or appropriate to
accomplish the amendment of the 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, or restatement of, the Plans and
the texts thereof as may be required, in their discretion and upon advice of
counsel to the Company, to (a) effect the foregoing amendments, (b) facilitate
the engagement of an outside provider to perform recordkeeping services for the
Plans as amended and (c) for compliance with applicable law.
APCI MANAGEMENT DEVELOPMENT
AND COMPENSATION COMMITTEE
17 NOVEMBER 1999
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended
Year Ended 30 September 31 Mar
-------------------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before extraordinary item
and the cumulative effect of accounting
changes:
$368.2 $416.4 $429.3 $546.8 $450.5 $98.2
Add (deduct):
Provision for income taxes 186.2 195.5 203.4 280.9 209.5 20.8
Fixed charges, excluding capitalized
interest 148.8 184.0 233.0 202.8 194.4 107.4
Capitalized interest amortized during the
period 9.1 9.4 8.3 7.4 6.1 3.5
Undistributed earnings of less-than-
fifty-percent-owned affiliates (25.4) (40.6) (31.1) (25.3) (44.5) (16.9)
------ ------ ------ --------- ------- -------
Earnings, as adjusted $686.9 $764.7 $842.9 $1,012.6 $816.0 $213.0
======= ======= ======= ========= ======= =======
Fixed Charges:
Interest on indebtedness, including
capital lease obligations $139.4 $171.7 $217.8 $186.7 $175.4 $95.3
Capitalized interest 18.5 20.0 20.9 18.4 24.7 12.3
Amortization of debt discount premium
and expense .2 1.5 1.8 1.9 1.3 2.8
Portion of rents under operating leases
representative of the interest factor 9.2 10.8 13.4 14.2 17.7 9.3
------ ------ ------ ------- ------ ------
Fixed charges $167.3 $204.0 $253.9 $221.2 $219.1 $119.7
====== ====== ====== ======= ====== ======
Ratio of Earnings to Fixed Charges: 4.1 3.7 3.3 4.6 3.7 1.8
====== ====== ====== ====== ====== ======
</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-Q and is qualified in its entirety by reference
to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> US Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 937
<ALLOWANCES> 14
<INVENTORY> 430
<CURRENT-ASSETS> 1895
<PP&E> 10491
<DEPRECIATION> 5121
<TOTAL-ASSETS> 8570
<CURRENT-LIABILITIES> 1710
<BONDS> 2507
0
0
<COMMON> 249
<OTHER-SE> 2674
<TOTAL-LIABILITY-AND-EQUITY> 8570
<SALES> 2612
<TOTAL-REVENUES> 2612
<CGS> 1803
<TOTAL-COSTS> 1803
<OTHER-EXPENSES> 60
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 88
<INCOME-PRETAX> 121
<INCOME-TAX> 17
<INCOME-CONTINUING> 98
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.46
</TABLE>
