e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended 30 September 2009
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
|
|
|
7201 Hamilton Boulevard
|
|
State of incorporation: Delaware |
Allentown, Pennsylvania, 18195-1501
|
|
I.R.S. identification number: 23-1274455 |
Tel. (610) 481-4911 |
|
|
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each Class:
|
|
Registered on: |
|
|
|
Common Stock, par value $1.00 per share
|
|
New York |
Preferred Stock Purchase Rights
|
|
New York |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. YES þ
NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. YES
o
NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405) is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer, and smaller reporting
company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ
The aggregate market value of the voting stock held by non-affiliates of the registrant on 31
March 2009 was approximately $11.8 billion. For purposes of the foregoing calculations all
directors and/or executive officers have been deemed to be affiliates, but the registrant
disclaims that any such director and/or executive officer is an affiliate.
The number of shares of common stock outstanding as of 20 November 2009 was 211,705,911.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders are incorporated by reference into Part III.
AIR PRODUCTS AND CHEMICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended 30 September 2009
TABLE OF CONTENTS
2
PART I
ITEM 1. BUSINESS
General Description of Business and Fiscal Year 2009 Developments
Air Products and Chemicals, Inc. (the Company), a Delaware corporation originally founded in 1940,
serves technology, energy, industrial, and healthcare customers globally with a unique portfolio of
products, services, and solutions that include atmospheric gases, process and specialty gases,
performance materials, equipment, and services. The Company is the worlds largest supplier of
hydrogen and helium and has built leading positions in growth markets such as semiconductor
materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives. As
used in this report, unless the context indicates otherwise, the term Company includes
subsidiaries and predecessors of the registrant and its subsidiaries.
As of September 2009, the Company completed the sale of its U.S. Healthcare business.
The Company manages its operations, assesses performance, and reports earnings under four business
segments: Merchant Gases; Tonnage Gases; Electronics and Performance Materials; and Equipment and
Energy.
Financial Information about Segments
Financial information concerning the Companys four business segments appears in Note 23 to the
Consolidated Financial Statements included under Item 8 herein.
Narrative Description of Business by Segments
Merchant Gases
Merchant Gases sells atmospheric gases such as oxygen, nitrogen, and argon (primarily recovered by
the cryogenic distillation of air); process gases such as hydrogen and helium (purchased or refined
from crude helium); and medical and specialty gases, along with certain services and equipment,
throughout the world to customers in many industries, including those in metals, glass, chemical
processing, food processing, healthcare, steel, general manufacturing, and petroleum and natural
gas industries.
Merchant Gases includes the following types of products:
Liquid bulkProduct is delivered in bulk (in liquid or gaseous form) by tanker or tube trailer
and stored, usually in its liquid state, in equipment designed and installed by the Company at
the customers site for vaporizing into a gaseous state as needed. Liquid bulk sales are
typically governed by three- to five-year contracts.
Packaged gasesSmall quantities of product are delivered in either cylinders or dewars. The
Company operates packaged gas businesses in Europe, Asia, and Brazil. In the United States, the
Companys packaged gas business sells products only for the electronics and magnetic resonance
imaging (principally helium) industries.
Small on-site plantsCustomers receive product through small on-sites (cryogenic or
noncryogenic generators) either by a sale of gas contract or the sale of the equipment to the
customer.
Healthcare productsCustomers receive respiratory therapies, home medical equipment, and
infusion services. These products and services are provided to patients in their homes,
primarily in Europe. The Company has leading market positions in Spain, Portugal, and the United
Kingdom, and in Mexico through its equity affiliate.
Electric power is the largest cost component in the production of atmospheric gasesoxygen,
nitrogen, and argon. Natural gas is also an energy source at a number of the Companys Merchant
Gases facilities. The Company mitigates energy and natural gas price increases through pricing
formulas and surcharges. A shortage or interruption of electricity or natural gas supply, or a
price increase that cannot be passed through to customers, possibly for competitive reasons, may
adversely affect the operations or results of Merchant Gases. During fiscal year 2009, no
significant difficulties were encountered in obtaining adequate supplies of energy or raw
materials.
Merchant Gases competes worldwide against three global industrial gas companies: LAir Liquide
S.A., Linde AG, and Praxair, Inc., and several regional sellers (including Airgas, Inc.).
Competition in industrial gases is based primarily on price, reliability of supply, and the
development of industrial gas applications. Competition in the healthcare business involves price,
quality, service, and reliability of supply. In Europe, primary healthcare competitors include the
same three global industrial gas companies mentioned previously, as well as smaller regional
service providers. In some countries such as Spain, Portugal, and the United Kingdom, the Company
tenders for significant
3
parts of
the healthcare business with government agencies and is expecting to
participate in tenders in some countries over the coming fiscal year.
Merchant Gases sales constituted 44% of the Companys consolidated sales in fiscal year 2009, 40%
in fiscal year 2008, and 39% in fiscal year 2007. Sales of atmospheric gases (oxygen, nitrogen, and
argon) constituted approximately 21% of the Companys consolidated sales in fiscal year 2009, 18%
in fiscal year 2008, and 19% in fiscal year 2007.
Tonnage Gases
Tonnage Gases provides hydrogen, carbon monoxide, nitrogen, oxygen, and syngas principally to the
energy production and refining, chemical, and metallurgical industries worldwide. Gases are
produced at large facilities located adjacent to customers facilities or by pipeline systems from
centrally located production facilities and are generally governed by contracts with 15 to 20 year
terms. The Company is the worlds largest provider of hydrogen, which is used by oil refiners to
facilitate the conversion of heavy crude feedstock and lower the sulfur content of gasoline and
diesel fuels to reduce smog and ozone depletion. The energy production industry uses nitrogen
injection for enhanced recovery of oil and natural gas and oxygen for gasification. The
metallurgical industry uses nitrogen for inerting and oxygen for the manufacture of steel and
certain nonferrous metals. The chemical industry uses hydrogen, oxygen, nitrogen, carbon monoxide,
and synthesis gas (a hydrogen-carbon monoxide mixture) as feedstocks in the production of many
basic chemicals. The Company delivers product through pipelines from centrally located facilities
in or near the Texas Gulf Coast; Louisiana; Los Angeles, California; Alberta, Canada; Rotterdam,
the Netherlands; Southern England, U.K.; Northern England, U.K.; Western Belgium; Ulsan, Korea;
Nanjing, China; Tangshan, China; Kuan Yin, Taiwan; Singapore; and Camaçari, Brazil. The Company
also owns less than controlling interests in pipelines located in Thailand and South Africa.
Tonnage Gases also includes a Polyurethane Intermediates (PUI) business. At its Pasadena, Texas
facility, the Company produces dinitrotoluene (DNT) which is converted to toluene diamine (TDA) and
sold for use as an intermediate in the manufacture of a major precursor of flexible polyurethane
foam used in furniture cushioning, carpet underlay, bedding, and seating in automobiles. Most of
the Companys TDA is sold under long-term contracts with raw material cost and currency
pass-through to a small number of customers. The Company employs proprietary technology and scale
of production to differentiate its polyurethane intermediates from those of its competitors.
Natural gas is the principal raw material for hydrogen, carbon monoxide, and synthesis gas
production. Electric power is the largest cost component in the production of atmospheric gases.
The Company mitigates energy and natural gas price increases through long-term cost pass-through
contracts. Toluene, ammonia, and hydrogen are the principal raw materials for the PUI business and
are purchased from various suppliers under multiyear contracts. During fiscal year 2009, no
significant difficulties were encountered in obtaining adequate supplies of energy or raw
materials.
Tonnage Gases competes in the United States and Canada against three global industrial gas
companies: LAir Liquide S.A., Linde AG, Praxair, Inc., and several regional competitors.
Competition is based primarily on price, reliability of supply, the development of applications
that use industrial gases, and, in some cases, provision of other services or products such as
power and steam generation. The Company also derives a competitive advantage from its pipeline
networks, which enable it to provide a reliable and economic supply of products to customers.
Similar competitive situations exist in the European and Asian industrial gas markets where the
Company competes against the three global companies as well as regional competitors. Global
competitors for the PUI business are primarily BASF Corporation and Bayer AG.
Tonnage Gases sales constituted approximately 31% of the Companys consolidated sales in fiscal
year 2009, 34% in fiscal year 2008, and 32% in fiscal year 2007. Tonnage Gases hydrogen sales
constituted approximately 15% of the Companys consolidated sales in fiscal year 2009, 17% in
fiscal year 2008, and 17% in fiscal year 2007.
Electronics and Performance Materials
Electronics and Performance Materials employs applications technology to provide solutions to a
broad range of global industries through chemical synthesis, analytical technology, process
engineering, and surface science. This segment provides the electronics industry with specialty
gases (such as nitrogen trifluoride, silane, arsine, phosphine, white ammonia, silicon
tetrafluoride, carbon tetrafluoride, hexafluoromethane, critical etch gases, and tungsten
hexafluoride) as well as tonnage gases (primarily nitrogen), specialty chemicals, services, and
equipment for the manufacture of silicon and compound semiconductors, thin film transistor liquid
crystal displays, and photovoltaic devices. These products are delivered through various supply
chain methods, including bulk delivery systems or
4
distribution by pipelines such as those located in Californias Silicon Valley; Phoenix, Arizona;
Tainan, Taiwan; Gumi and Giheung, Korea; and Tianjin and Shanghai, China.
Electronics and Performance Materials also provides performance materials for a wide range of
products, including coatings, inks, adhesives, civil engineering, personal care, institutional and
industrial cleaning, mining, oil refining, and polyurethanes, and focuses on the development of new
materials aimed at providing unique functionality to emerging markets. Principal performance
materials include polyurethane catalysts and other additives for polyurethane foam, epoxy amine
curing agents, and auxiliary products for epoxy systems and specialty surfactants for formulated
systems.
The Electronics and Performance Materials segment uses a wide variety of raw materials, including
alcohols, ethyleneamines, cyclohexylamine, acrylonitriles, and glycols. During fiscal year 2009, no
significant difficulties were encountered in obtaining adequate supplies of energy or raw
materials.
The Electronics and Performance Materials segment faces competition on a product-by-product basis
against competitors ranging from niche suppliers with a single product to larger and more
vertically integrated companies. Competition is principally conducted on the basis of price,
quality, product performance, reliability of product supply, technical innovation, service, and
global infrastructure.
Total sales from Electronics and Performance Materials constituted approximately 19% of the
Companys consolidated sales in fiscal year 2009, 21% in fiscal year 2008, and 23% in fiscal year
2007.
Equipment and Energy
Equipment and Energy designs and manufactures cryogenic and gas processing equipment for air
separation (utilizing membrane technology and adsorption technology), hydrocarbon recovery and
purification, natural gas liquefaction (LNG), and helium distribution (cryogenic transportation
containers), and serves energy markets in a variety of ways.
Equipment is sold globally to customers in the chemical and petrochemical manufacturing, oil and
gas recovery and processing, and steel and primary metals processing industries. The segment also
provides a broad range of plant design, engineering, procurement, and construction management
services to its customers.
Energy markets are served through the Companys operation and partial ownership of cogeneration and
flue gas desulfurization facilities, its development of hydrogen as an energy carrier, and
oxygen-based technologies to serve energy markets in the future. The Company owns and operates a
cogeneration facility in Calvert City, Kentucky; operates and owns 50% interests in a 49-megawatt
fluidized-bed coal-fired power generation facility in Stockton, California and a 24-megawatt
gas-fired combined-cycle power generation facility near Rotterdam, the Netherlands; and operates
and owns a 47.9% interest in a 112-megawatt gas-fueled power generation facility in Thailand. The
Company also operates and owns a 50% interest in a flue gas desulphurization facility in Indiana.
Steel, aluminum, and capital equipment subcomponents (compressors, etc.) are the principal raw
materials in the equipment portion of this segment. Adequate raw materials for individual projects
are acquired under firm purchase agreements. Coal, petroleum coke, and natural gas are the largest
cost components in the production of energy. The Company mitigates these cost components, in part,
through long-term cost pass-through contracts. During fiscal year 2009, no significant difficulties
were encountered in obtaining adequate supplies of raw materials.
Equipment and Energy competes with a great number of firms for all of its offerings except LNG heat
exchangers, for which there are fewer competitors due to the limited market size and proprietary
technologies. Competition is based primarily on technological performance, service, technical
know-how, price, and performance guarantees.
The backlog of equipment orders (including letters of intent believed to be firm) from third-party
customers (including equity affiliates) was approximately $239 million on 30 September 2009,
approximately 75% of which is for cryogenic equipment and 13% of which is for LNG heat exchangers,
as compared with a total backlog of approximately $399 million on 30 September 2008. The Company
expects that approximately $203 million of the backlog on 30 September 2009 will be completed
during fiscal year 2010.
5
Narrative Description of the Companys Business Generally
Foreign Operations
The Company, through subsidiaries, affiliates, and minority-owned ventures, conducts business in
over 40 countries outside the United States. Its international businesses are subject to risks
customarily encountered in foreign operations, including fluctuations in foreign currency exchange
rates and controls, import and export controls, and other economic, political, and regulatory
policies of local governments.
The Company has majority or wholly owned foreign subsidiaries that operate in Canada, 17 European
countries (including the United Kingdom and Spain), 10 Asian countries (including China, Korea,
Singapore, and Taiwan), and four Latin American countries (including Mexico and Brazil). The
Company also owns less-than-controlling interests in entities operating in Europe, Asia, Africa,
the Middle East, and Latin America (including Italy, Germany, China, Korea, India, Singapore,
Thailand, South Africa, and Mexico).
Financial information about the Companys foreign operations and investments is included in Notes
7, 20, and 23 to the Consolidated Financial Statements included under Item 8 herein. Information
about foreign currency translation is included under Foreign Currency in Note 1, and information
on the Companys exposure to currency fluctuations is included in Note 12 to the Consolidated
Financial Statements included under Item 8 below and in Foreign Currency Exchange Rate Risk
included under Item 7A below. Export sales from operations in the United States to unconsolidated
customers amounted to $510 million, $629 million, and $677 million in fiscal years 2009, 2008, and
2007, respectively. Total export sales in fiscal year 2009 included $453 million in export sales to
affiliated customers. The sales to affiliated customers were primarily equipment sales within the
Equipment and Energy segment and Electronic and Performance Materials sales.
Technology Development
The Company pursues a market-oriented approach to technology development through research and
development, engineering, and commercial development processes. It conducts research and
development principally in its laboratories located in the United States (Trexlertown,
Pennsylvania; Carlsbad, California; Milton, Wisconsin; and Phoenix, Arizona); the United Kingdom
(Basingstoke, London, and Carrington); Germany (Hamburg); the Netherlands (Utrecht); Spain
(Barcelona); and Asia (Tokyo, Japan; Shanghai, China; Giheung, Korea; and Hsinchu, Taiwan). The
Company also funds and cooperates in research and development programs conducted by a number of
major universities and undertakes research work funded by othersprincipally the United States
Government.
The Companys corporate research groups, which include science and process technology centers,
support the research efforts of various businesses throughout the Company. Technology development
efforts for use within Merchant Gases, Tonnage Gases, and Equipment and Energy focus primarily on
new and improved processes and equipment for the production and delivery of industrial gases and
new or improved applications for all such products. Research and technology development for
Electronics and Performance Materials supports development of new products and applications to
strengthen and extend the Companys present positions. Work is also performed in Electronics and
Performance Materials to lower processing costs and develop new processes for the new products.
Research and development expenditures were $116 million during fiscal year 2009, $131 million in
fiscal year 2008, and $129 million in fiscal year 2007, and the Company expended $30 million on
customer-sponsored research activities during fiscal year 2009, $25 million in fiscal year 2008,
and $19 million in fiscal year 2007.
As of 1 November 2009, the Company owns 993 United States patents, 2,728 foreign patents, and is a
licensee under certain patents owned by others. While the patents and licenses are considered
important, the Company does not consider its business as a whole to be materially dependent upon
any particular patent, patent license, or group of patents or licenses.
Environmental Controls
The Company is subject to various environmental laws and regulations in the countries in which it
has operations. Compliance with these laws and regulations results in higher capital expenditures
and costs. From time to time, the Company is involved in proceedings under the Comprehensive
Environmental Response, Compensation, and Liability Act (the federal Superfund law), similar state
laws, and the Resource Conservation and Recovery Act (RCRA) relating to the designation of certain
sites for investigation and possible cleanup. Additional information with respect to these
proceedings is included under Item 3, Legal Proceedings, below. The Companys accounting policy for
environmental expenditures is discussed in Note 1, and environmental loss contingencies are
discussed in Note 16 to the Consolidated Financial Statements included under Item 8, below.
6
The amounts charged to income from continuing operations on an after-tax basis related to
environmental matters totaled $33 million in fiscal 2009, $31 million in 2008, and $25 million in
2007. These amounts represent an estimate of expenses for compliance with environmental laws,
remedial activities, and activities undertaken to meet internal Company standards. Future costs are
not expected to be materially different from these amounts.
Although precise amounts are difficult to determine, the Company estimates that in fiscal year 2009
it spent approximately $6 million on capital projects to control pollution versus $7 million in
2008. Capital expenditures to control pollution in future years are estimated at approximately $7
million in 2010 and $7 million in 2011. The cost of any environmental compliance generally is
contractually passed through to the customer.
The Company accrues environmental investigatory and remediation costs for identified sites when it
is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
The potential exposure for such costs is estimated to range from $95 million to a reasonably
possible upper exposure of $109 million. The accrual on the balance sheet for 30 September 2009 was
$95.0 million and for 30 September 2008 was $82.9 million. Actual costs to be incurred in future
periods may vary from the estimates, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs, the Company does
not expect that any sum it may have to pay in connection with environmental matters in excess of
the amounts recorded or disclosed above would have a materially adverse effect on its financial
condition or results of operations in any one year.
Employees
On 30 September 2009, the Company (including majority-owned subsidiaries) had approximately 18,900
employees, of whom approximately 18,400 were full-time employees and of whom approximately 11,400
were located outside the United States. The Company has collective bargaining agreements with
unions at various locations that expire on various dates over the next four years. The Company
considers relations with its employees to be satisfactory and does not believe that the impact of
any expiring or expired collective bargaining agreements will result in a material adverse impact
on the Company.
Available Information
All periodic and current reports, registration statements, and other filings that the Company is
required to file with the Securities and Exchange Commission (SEC), including the Companys annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) of the Exchange Act (the 1934 Act
Reports), are available free of charge through the Companys Internet website at
www.airproducts.com. Such documents are available as soon as reasonably practicable after
electronic filing of the material with the SEC. All 1934 Act Reports filed during the period
covered by this report were available on the Companys website on the same day as filing.
The public may also read and copy any materials filed by the Company with the SEC at the SECs
Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy, and information statements, and other
information regarding issuers that file electronically with the SEC. The address of that site is
www.sec.gov.
Seasonality
Although none of the four business segments are subject to seasonal fluctuations to any material
extent, the Electronics and Performance Materials segment is susceptible to the cyclical nature of
the electronics industry and to seasonal fluctuations in underlying end-use performance materials
markets.
Working Capital
The Company maintains inventory where required to facilitate the supply of products to customers on
a reasonable delivery schedule. Merchant Gases inventory consists primarily of industrial, medical,
specialty gas, and crude helium inventories supplied to customers through liquid bulk and packaged
gases supply modes. Merchant Gases inventory also includes home medical equipment to serve
healthcare patients. Electronics inventories consist primarily of bulk and packaged specialty gases
and chemicals and also include inventories to support sales of equipment and services. Performance
Materials inventories consist primarily of bulk and packaged performance chemical solutions. The
Tonnage Gases inventory is primarily Polyurethane Intermediates raw materials and finished goods;
the remaining on-site plants and pipeline complexes have limited inventory. Equipment and Energy
has limited inventory.
7
Customers
The Company does not have a homogeneous customer base or end market, and no single customer
accounts for more than 10% of the Companys consolidated revenues. The Company and the Tonnage and
Electronics and Performance Materials segments do have concentrations of customers in specific
industries, primarily refining, chemicals, and electronics. Within each of these industries, the
Company has several large-volume customers with long-term contracts. A negative trend affecting one
of these industries, or the loss of one of these major customers, although not material to the
Companys consolidated revenues, could have an adverse impact on the affected segment.
Governmental Contracts
No segments business is subject to a government entitys renegotiation of profits or termination
of contracts that would be material to the Companys business as a whole.
Executive Officers of the Company
The Companys executive officers and their respective positions and ages on 15 November 2009
follow. Information with respect to offices held is stated in fiscal years.
|
|
|
|
|
|
|
Name |
|
Age |
|
Office |
M. Scott Crocco
|
|
|
45 |
|
|
Vice President and Corporate Controller
(became Vice President in 2008; Corporate Controller in 2007; and Director of Corporate Decision
Support in 2003) |
|
|
|
|
|
|
|
Robert D. Dixon
(A)
|
|
|
50 |
|
|
Senior Vice President and General Manager Merchant Gases
(became Senior Vice President in 2008; Vice President and General Manager
Merchant Gases in 2007; President
Air Products Asia in 2003; and Vice President Air
Products Asia in 2003) |
|
|
|
|
|
|
|
Michael F. Hilton
(A)
|
|
|
55 |
|
|
Senior Vice President and General Manager Electronics and
Performance Materials
(became Senior Vice President in 2008; Vice President
and General Manager Electronics and Performance
Materials in 2007; and Vice President Electronics
Businesses in 2003) |
|
|
|
|
|
|
|
Paul E. Huck
(A)
|
|
|
59 |
|
|
Senior Vice President and Chief Financial Officer
(became Senior Vice President in 2008; Vice President and Chief Financial
Officer in 2004) |
|
|
|
|
|
|
|
Stephen J. Jones
(A)
|
|
|
48 |
|
|
Senior Vice President and General Manager, Tonnage Gases,
Equipment and Energy
(became Senior Vice President and General Manager,
Tonnage Gases, Equipment and Energy in 2009; Senior Vice
President, General Counsel and Secretary in 2008; Vice
President and Associate General Counsel in 2007; and
Vice President and General Manager Industrial
Chemicals Division in 2003) |
|
|
|
|
|
|
|
John E. McGlade
(A)(B)(C)
|
|
|
55 |
|
|
Chairman, President, and Chief Executive Officer
(became Chairman and Chief Executive Officer in 2008; President and Chief
Operating Officer in 2006; Group Vice President Chemicals in 2003) |
|
|
|
|
|
|
|
Lynn C. Minella
(A)
|
|
|
51 |
|
|
Senior Vice President Human Resources and Communications
(became Senior Vice President Human Resources and Communications in 2008;
Vice President Human Resources in 2004) |
8
|
|
|
|
|
|
|
Name |
|
Age |
|
Office |
Scott A. Sherman
(A)
|
|
|
58 |
|
|
Senior Vice President Strategic Development and Execution
(became Senior Vice President Strategic Development and Execution in 2009;
Senior Vice President in 2008; Vice President and General Manager Tonnage Gases,
Equipment and Energy in 2007; and Vice President and General Manager Energy and
Process Industries in 2001) |
|
|
|
|
|
|
|
John D. Stanley
(A)
|
|
|
51 |
|
|
Senior Vice President and General Counsel
(became Senior Vice President and General Counsel in 2009; Assistant General
Counsel, Americas and Europe in 2007; Assistant General Counsel, Corporate and
Commercial in 2004) |
|
|
|
(A) |
|
Member, Corporate Executive Committee |
|
(B) |
|
Member, Board of Directors |
|
(C) |
|
Member, Executive Committee of the Board of Directors |
ITEM 1A. RISK FACTORS
The Company operates in over 40 countries around the world and faces a variety of risks and
uncertainties that could materially affect its future operations and financial performance. Many of
these risks and uncertainties are not within the Companys control. Risks that may significantly
impact the Company include the following:
Overall Economic ConditionsWeak general economic conditions in markets in which the Company does
business may decrease the demand for its goods and services and adversely impact its revenues,
operating results, and cash flow.
Demand for the Companys products and services depends in part on the general economic conditions
affecting the countries and industries in which the Company does business. Currently, weak economic
conditions in the U.S. and other countries and in industries served by the Company have impacted
and may continue to impact demand for the Companys products and services, in turn negatively
impacting the Companys revenues and earnings. Excess capacity in the Companys or its competitors
manufacturing facilities could decrease the Companys ability to generate profits. Unanticipated
contract terminations or project delays by current customers can also negatively impact financial
results. In addition, the length and severity of the economic downturn have increased the risk of
potential bankruptcy of customers and potential losses from accounts receivable.
Asset ImpairmentsThe Company may be required to record impairment on its long-lived assets.
Weak
demand may cause underutilization of the Companys manufacturing capacity or elimination of product
lines; contract terminations or customer shutdowns may force sale or abandonment of facilities and
equipment; contractual provisions may allow customer buyout of facilities or equipment; or other
events associated with weak economic conditions or specific product or customer events may require
the Company to record an impairment on tangible assets, such as facilities and equipment, as well
as intangible assets, such as intellectual property or goodwill, which would have a negative impact
on its financial results.
CompetitionInability to compete effectively in a segment could adversely impact sales and
financial performance.
The Company faces strong competition from several large, global competitors and many smaller
regional ones in all of its business segments. Introduction by competitors of new technologies,
competing products, or additional capacity could weaken demand for or impact pricing of the
Companys products, negatively impacting financial results. In addition, competitors pricing
policies could materially affect the Companys profitability or its market share.
9
Raw Material and Energy Cost and AvailabilityInterruption in ordinary sources of supply or an
inability to recover increases in energy and raw material costs from customers could result in lost
sales or reduced profitability.
Energy, including electricity, natural gas, and diesel fuel for delivery trucks, is the largest
cost component of the Companys business. Because the Companys industrial gas facilities use
substantial amounts of electricity, energy price fluctuations could materially impact the Companys
revenues and earnings. Hydrocarbons, including natural gas, are the primary feedstock for the
production of hydrogen, carbon monoxide, and synthesis gas. The Electronics and Performance
Materials segment uses a wide variety of raw materials, including alcohols, ethyleneamines,
cyclohexamine, acrylonitriles, and glycols. Shortages or price escalation in these materials could
negatively impact financial results. A disruption in the supply of energy and raw materials,
whether due to market conditions, natural events, or other disruption, could prevent the Company
from meeting its contractual commitments, harming its business and financial results.
The Company typically contracts to pass through cost increases in energy and raw materials to its
customers, but cost variability can still have a negative impact on its results. The Company may
not be able to raise prices as quickly as costs rise, or competitive pressures may prevent full
recovery. Increases in energy or raw material costs that cannot be passed on to customers for
competitive or other reasons would negatively impact the Companys revenues and earnings. Even
where costs are passed through, price increases can cause lower sales volume.
Regulatory ComplianceThe Company is subject to extensive government regulation in jurisdictions
around the globe in which it does business. Changes in regulations addressing, among other things,
environmental compliance, import/export restrictions, and taxes, can negatively impact the
Companys operations and financial results.
The Company is subject to government regulation in the United States and foreign jurisdictions in
which it conducts its business. The application of laws and regulations to the Companys business
is sometimes unclear. Compliance with laws and regulations may involve significant costs or require
changes in business practice that could result in reduced profitability. Determination of
noncompliance can result in penalties or sanctions that could also impact financial results.
Compliance with changes in laws or regulations can require additional capital expenditures or
increase operating costs. Export controls or other regulatory
restrictions could prevent the Company from
shipping its products to and from some markets or increase the cost of doing so. Changes in tax
laws and regulations and international tax treaties could affect the financial results of the
Companys businesses.
Greenhouse GasesLegislative and regulatory responses to global climate change create financial
risk.
Some of the Companys operations are within jurisdictions that have, or are developing, regulatory
regimes governing emissions of greenhouse gases (GHG). These include existing and expanding
coverage under the European Union Emissions Trading Scheme; mandatory reporting and reductions at
manufacturing facilities in Alberta, Canada; and mandatory reporting and anticipated constraints on
GHG emissions in California and Ontario. In addition, increased public awareness and concern may
result in more international, U.S. federal, and/or regional requirements to reduce or mitigate the
effects of GHG. Although uncertain, these developments could increase the Companys costs related
to consumption of electric power, hydrogen production, and fluorinated gases production. The
Company believes it will be able to mitigate some of the potential increased cost through its
contractual terms, but the lack of definitive legislation or regulatory requirements prevents
accurate estimate of the long-term impact on the Company. Any legislation that limits or taxes GHG
emissions could impact the Companys growth, increase its operating costs, or reduce demand for
certain of its products.
Environmental ComplianceCosts and expenses resulting from compliance with environmental
regulations may negatively impact the Companys operations and financial results.
The Company is subject to extensive federal, state, local, and foreign environmental and safety
laws and regulations concerning, among other things, emissions in the air, discharges to land and
water, and the generation, handling, treatment, and disposal of hazardous waste and other
materials. The Company takes its environmental responsibilities very seriously, but there is a risk
of environmental impact inherent in its manufacturing operations. Future developments and more
stringent environmental regulations may require the Company to make additional unforeseen
environmental expenditures. In addition, laws and regulations may require significant expenditures
for environmental protection equipment, compliance, and remediation. These additional costs may
adversely affect
10
financial results. For a more detailed description of these matters, see Narrative Description of
the Companys Business GenerallyEnvironmental Controls, above.
Foreign Operations, Political, and Legal RisksThe Companys foreign operations can be adversely
impacted by nationalization or expropriation of property, undeveloped property rights, and legal
systems or political instability.
The Companys operations in certain foreign jurisdictions are subject to nationalization and
expropriation risk, and some of its contractual relationships within these jurisdictions are
subject to cancellation without full compensation for loss. Economic and political conditions
within foreign jurisdictions, social unrest or strained relations between countries can cause
fluctuations in demand, price volatility, supply disruptions, or loss of property. The occurrence
of any of these risks could have a material, adverse impact on the Companys operations and
financial results.
Interest Rate IncreasesThe Companys earnings, cash flow, and financial position can be impacted
by interest rate increases.
At 30 September 2009, the Company had total consolidated debt of approximately $4,501.5 million, of
which approximately $785.9 million will mature in the next twelve months. The Company expects to
continue to incur indebtedness to fund new projects and replace maturing debt. Although the Company
actively manages its interest rate risk through the use of derivatives and diversified debt
obligations, not all borrowings at variable rates are hedged, and new debt will be priced at market
rates. If interest rates increase, the Companys interest expense could increase significantly,
affecting earnings and reducing cash flow available for working capital, capital expenditures,
acquisitions, and other purposes. In addition, changes by any rating agency to the Companys
outlook or credit ratings could increase the Companys cost of borrowing.
Currency FluctuationsChanges in foreign currencies may adversely affect the Companys financial
results.
A
substantial amount of the Companys sales are derived from
outside the United States and denominated in foreign currencies. The Company also has
significant production facilities which are located outside of the United States. Financial results
therefore will be affected by changes in foreign currency rates. The Company uses certain financial
instruments to mitigate these effects, but it is not cost-effective to hedge foreign currency
exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates
on earnings, cash flows, and fair values of assets and liabilities. Accordingly, reported sales,
net earnings, cash flows, and fair values have been and in the future will be affected by changes
in foreign exchange rates. For a more detailed discussion of currency exposure, see Item 7A, below.
Pension LiabilitiesThe Companys results of operations and financial condition could be
negatively impacted by its U.S. and non-U.S. pension plans.
Adverse equity market conditions and volatility in the credit markets have had and may continue to
have an unfavorable impact on the value of the Companys pension trust assets and its future
estimated pension liabilities. As a result, the Companys financial results in any period could be
negatively impacted. In addition, in a period of an extended financial market downturn, the Company
could be required to provide increased pension plan funding, which could negatively impact the
Companys financial flexibility. For information about potential impacts from pension funding and
the use of certain assumptions regarding pension matters, see the discussion in Note 15 to the
Consolidated Financial Statements included in Item 8, below.
Catastrophic EventsCatastrophic events could disrupt the Companys operations or the operations
of its suppliers or customers, having a negative impact on the Companys business, financial
results, and cash flow.
The Companys operations could be impacted by catastrophic events outside the Companys control,
including severe weather conditions such as hurricanes, floods, earthquakes, and storms; health
epidemics and pandemics; or acts of war and terrorism. Any such event could cause a serious
business disruption that could affect the Companys ability to produce and distribute its products
and possibly expose it to third-party liability claims. Additionally, such events could impact the
Companys suppliers, in which event energy and raw materials may be unavailable to the Company, or
its customers may be unable to purchase or accept the Companys products and services. Any such
occurrence could have a negative impact on the Companys operations and financial results.
11
Operational RisksOperational and execution risks may adversely affect the Companys operations or
financial results.
The Companys operation of its facilities, pipelines, and delivery systems inherently entails
hazards that require continuous oversight and control, such as pipeline leaks and ruptures, fire,
explosions, toxic releases, mechanical failures, or vehicle accidents. If operational risks
materialize, they could result in loss of life, damage to the environment, or loss of production,
all of which could negatively impact the Companys ongoing operations, financial results, and cash
flow. In addition, the Companys operating results are dependent on the continued operation of its
production facilities and its ability to meet customer requirements. Insufficient capacity may
expose the Company to liabilities related to contract commitments. Operating results are also
dependent on the Companys ability to complete new construction projects on time, on budget, and in
accordance with performance requirements. Failure to do so may expose
the Company to loss of
revenue, potential litigation, and loss of business reputation.
Information SecurityThe security of the Companys Information Technology systems could be
compromised, which could adversely affect its ability to operate.
The Company utilizes a global enterprise resource planning (ERP) system and other technologies for
the distribution of information both within the Company and to customers and suppliers. The ERP
system and other technologies are potentially vulnerable to interruption from viruses, hackers, or
system breakdown. To mitigate these risks, the Company has implemented a variety of security
measures, including virus protection, redundancy procedures, and recovery processes. A significant
system interruption, however, could materially affect the Companys operations, business
reputation, and financial results.
Litigation and Regulatory ProceedingsThe Companys financial results may be affected by various
legal and regulatory proceedings, including those involving antitrust, environmental, or other
matters.
The Company is subject to litigation and regulatory proceedings in the normal course of business
and could become subject to additional claims in the future, some of which could be material. The
outcome of existing legal proceedings may differ from the Companys expectations because the
outcomes of litigation, including regulatory matters, are often difficult to reliably predict.
Various factors or developments can lead the Company to change current estimates of liabilities and
related insurance receivables where applicable, or make such estimates for matters previously not
susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a
significant settlement, significant regulatory developments, or changes in applicable law. A future
adverse ruling, settlement, or unfavorable development could result in charges that could have a
material adverse effect on the Companys results of operations in any particular period. For a more
detailed discussion of the legal proceedings involving the Company,
see Item 3, below.
Recruiting and Retaining EmployeesInability to attract, retain, or develop skilled employees
could adversely impact the Companys business.
Sustaining and growing the Companys business depends on the recruitment, development, and
retention of qualified employees. Demographic trends and changes in the geographic concentration of
global businesses have created more competition for talent. The inability to attract, develop, or
retain quality employees could negatively impact the Companys ability to take on new projects and
sustain its operations, which might adversely affect the Companys operations or its ability to
grow.
Portfolio ManagementThe success of portfolio management activities is not predictable.
The Company continuously reviews and manages its portfolio of assets in order to maximize value for
its shareholders. Portfolio management involves many variables, including future acquisitions and
divestitures, restructurings and resegmentations, and cost-cutting and productivity initiatives.
The timing, impact, and ability to complete such undertakings, the costs and financial charges
associated with such activities, and the ultimate financial impact of such undertakings are
uncertain and can have a negative short- or long-term impact on the Companys operations and
financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has not received any written comments from the Commission staff that remain unresolved.
12
ITEM 2. PROPERTIES
The Company owns its principal executive offices, which are located at its headquarters in
Trexlertown, Pennsylvania, and also owns additional administrative offices in Hersham, England and
in Hattingen, Germany. Its regional Asian administrative offices, which are leased, are located in
Hong Kong; Shanghai, China; Taipei, Taiwan; Petaling Jaya, Malaysia; and Singapore. Additional
administrative offices are leased in Ontario, Canada; Kawasaki, Japan; Seoul, Korea; Brussels,
Belgium; Paris, France; Barcelona, Spain; Rotterdam, the Netherlands; and São Paulo, Brazil.
Management believes the Companys manufacturing facilities, described in more detail below, are
adequate to support its businesses.
Following is a description of the properties used by the Companys four business segments:
Merchant Gases
Merchant Gases currently operates over 170 facilities across the United States and in Canada
(approximately 38 of which sites are owned); over 110 sites in Europe, including healthcare
(approximately half of which sites are owned); and over 75 facilities in seven countries within
Asia and in Brazil. Helium is recovered at sites in Kansas and Texas and distributed from several
transfill sites in the United States, Europe, and Asia. Sales support offices are located at its
Trexlertown headquarters, and in leased properties in three states, at all administrative sites in
Europe, and at 15 sites in Asia. Research and development (R&D) activities for this segment are
conducted in Trexlertown, Pennsylvania.
Tonnage Gases
Tonnage Gases operates 50 plants in the United States and Canada that produce over 300 standard
tons per day of product. Over 30 of these facilities produce or recover hydrogen, many of which
support the four major pipeline systems located along the Gulf Coast of Texas; on the Mississippi
River corridor in Louisiana; in Los Angeles, California; and Alberta, Canada. The Tonnage Gases
segment includes a facility in Pasadena, Texas that produces Polyurethane Intermediate products.
The segment also operates over 30 tonnage plants in Europe and 17 tonnage plants within Asia, the
majority of which are on leasehold type long-term structured agreements. Sales support offices are
located at the Companys headquarters in Trexlertown, Pennsylvania and leased offices in Texas,
Louisiana, California, and Calgary, Alberta in North America, as well as in Hersham, England;
Rotterdam, the Netherlands; Shanghai, China; Singapore; and Doha, Qatar in the Middle East.
Electronics and Performance Materials
The electronics business within the Electronics and Performance Materials segment produces,
packages, and stores nitrogen, specialty gases, and electronic chemicals at over 45 sites in the
United States (the majority of which are leased), nine facilities (including sales offices) in
Europe, and over 45 facilities in Asia (approximately half of which are located on customer sites).
The performance materials portion of this segment operates facilities in Los Angeles, California;
Calvert City, Kentucky; Wichita, Kansas; Milton, Wisconsin; Reserve, Louisiana; Clayton, England;
Singapore; Isehara, Japan; and Changzhou, China. In April 2009, S.I.Q. Beteiligungs GmbH, a
German epoxy additives firm located in Marl, Germany, became an integral part of the Companys
epoxy additives business. A specialty amines facility operates in Nanjing, China. Substantially all
of the Performance Materials properties are owned.
This segment has six field sales offices in the United States as well as sales offices in Europe,
Taiwan, Korea, Singapore, and China, the majority of which are leased. The segment conducts R&D
related activities at five locations worldwide, including Hsinchu, Taiwan and Giheung, South Korea.
Equipment and Energy
Equipment and Energy operates seven manufacturing plants and two sales offices in the U.S. The
Company manufactures a significant portion of the worlds supply of LNG equipment at its
Wilkes-Barre, Pennsylvania site. Air separation columns and cold boxes for Company-owned facilities
and third-party sales are produced by operations in Acrefair in the United Kingdom; Istres, France;
Caojing, China; as well as in the Wilkes-Barre facility when capacity is available. Cryogenic
transportation containers for liquid helium are manufactured and reconstructed at facilities in
eastern Pennsylvania and Liberal, Kansas. Offices in Hersham, England, and Shanghai, China house
Equipment commercial team members.
Electric power is produced at various facilities, including Stockton, California; Calvert City,
Kentucky; and Rotterdam, the Netherlands. Flue gas desulfurization operations are conducted at the
Pure Air facility in Chesterton, Indiana.
13
Additionally, the Company owns a 47.9% interest in a
gas-fueled power generation facility in Thailand. The Company or its affiliates own approximately
50% of the real estate in this segment and lease the remaining 50%.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are involved in various legal
proceedings, including contract, product liability, intellectual property, and insurance matters.
Although litigation with respect to these matters is routine and incidental to the conduct of the
Companys business, such litigation could result in large monetary awards, especially if a civil
jury is allowed to determine compensatory and/or punitive damages. However, the Company believes
that litigation currently pending to which it is a party will be resolved without any material
adverse effect on its financial position, earnings, or cash flows.
The Company is also from time to time involved in certain competition, environmental, health, and
safety proceedings involving governmental authorities. The Company is a party to proceedings under
the Comprehensive Environmental Response, Compensation, and Liability Act (the federal Superfund
law); the Resource Conservation and Recovery Act (RCRA); and similar state environmental laws
relating to the designation of certain sites for investigation or remediation. Presently there are
approximately 28 sites on which a final settlement has not been reached where the Company, along
with others, has been designated a Potentially Responsible Party by the Environmental Protection
Agency or is otherwise engaged in investigation or remediation, including cleanup activity at
certain of its manufacturing sites. The Company does not expect that any sums it may have to pay
in connection with these matters would have a materially adverse effect on its consolidated
financial position. Additional information on the Companys environmental exposure is included
under Narrative Description of the Companys Business GenerallyEnvironmental Controls.
On 13 March 2008, the Company was notified that the U.S. Environmental Protection Agency had made
a referral to the U.S. Department of Justice concerning alleged violations of the Resource
Conservation and Recovery Act (RCRA) related to sulfuric acid exchange at the Companys Pasadena,
Texas facility. The Department of Justice has proposed a fine related to the alleged violations.
The Company has contested the allegations and the basis for the fine, but is in settlement
discussions with the Department of Justice and expects to settle the matter on terms that would
not be material. Any sums it may have to pay in connection with this matter would not have a
materially adverse effect on its consolidated financial position or net cash flows.
During the third quarter of 2008, a unit of the Brazilian Ministry of Justice issued a report
(previously issued in January 2007 and then withdrawn) on its investigation of the Companys
Brazilian subsidiary, Air Products Brasil Ltda., and several other Brazilian industrial gas
companies. The report recommended that the Brazilian Administrative Council for Economic Defense
impose sanctions on Air Products Brasil Ltda. and the other industrial gas companies for alleged
anticompetitive activities. The Company is actively defending this action and cannot, at this time,
reasonably predict the ultimate outcome of the proceedings or sanctions, if any, that will be
imposed. While the Company does not expect that any sums it may have to pay in connection with this
or any other legal proceeding would have a materially adverse effect on its consolidated financial
position or net cash flows, a future charge for regulatory fines or damage awards could have a
significant impact on the Companys net income in the period in which it is recorded.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
The Companys common stock (ticker symbol APD) is listed on the New York Stock Exchange. Quarterly
stock prices, as reported on the New York Stock Exchange composite tape of transactions, and
dividend information for the last two fiscal years appear below. Cash dividends on the Companys
common stock are paid quarterly. The
14
Companys objective is to pay dividends consistent with the reinvestment of earnings necessary for
long-term growth. It is the Companys expectation that comparable cash dividends will continue to
be paid in the future.
Quarterly Stock Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
High |
|
|
Low |
|
|
Close |
|
|
Dividend |
|
|
First |
|
$ |
68.51 |
|
|
$ |
41.46 |
|
|
$ |
50.27 |
|
|
$ |
.44 |
|
|
Second |
|
|
60.20 |
|
|
|
43.44 |
|
|
|
56.25 |
|
|
|
.45 |
|
|
Third |
|
|
69.93 |
|
|
|
54.73 |
|
|
|
64.59 |
|
|
|
.45 |
|
|
Fourth |
|
|
80.60 |
|
|
|
60.52 |
|
|
|
77.58 |
|
|
|
.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
High |
|
|
Low |
|
|
Close |
|
|
Dividend |
|
|
First |
|
$ |
105.02 |
|
|
$ |
92.05 |
|
|
$ |
98.63 |
|
|
$ |
.38 |
|
|
Second |
|
|
98.80 |
|
|
|
80.73 |
|
|
|
92.00 |
|
|
|
.44 |
|
|
Third |
|
|
106.06 |
|
|
|
92.20 |
|
|
|
98.86 |
|
|
|
.44 |
|
|
Fourth |
|
|
100.14 |
|
|
|
65.05 |
|
|
|
68.49 |
|
|
|
.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.70 |
|
The Company has authority to issue 25,000,000 shares of preferred stock in series. The Board
of Directors is authorized to designate the series and to fix the relative voting, dividend,
conversion, liquidation, redemption, and other rights, preferences, and limitations. When
preferred stock is issued, holders of Common Stock are subject to the dividend and liquidation
preferences and other prior rights of the preferred stock. There currently is no preferred stock
outstanding. The Companys Transfer Agent and Registrar is American Stock Transfer & Trust
Company, 59 Maiden Lane, Plaza Level, New York, New York 10038, telephone (800) 937-5449 (U.S. and
Canada) or (718) 921-8124 (all other locations), Internet website www.amstock.com, and e-mail
address info@amstock.com. As of 31 October 2009, there were 8,614 record holders of the Companys
common stock.
Purchases of Equity Securities by the Issuer
On 20 September 2007, the Companys Board of Directors authorized the repurchase of $1.0 billion of
common stock. The program does not have a stated expiration date. As of 30 September 2009, the
Company had purchased four million of its outstanding shares under this authorization at a cost of
$350.8 million. There were no purchases of stock during fiscal year 2009. Additional purchases will
be completed at the Companys discretion while maintaining sufficient funds for investing in its
businesses and growth opportunities.
Performance Graph
The performance graph below compares the five-year cumulative returns of the Companys common stock
with those of the Standard & Poors 500 and Dow Jones Chemicals Composite Indices. The figures
assume an initial investment of $100 and the reinvestment of all dividends.
15
ITEM 6. SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars, except per share) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Operating Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
8,256 |
|
|
$ |
10,415 |
|
|
$ |
9,148 |
|
|
$ |
7,885 |
|
|
$ |
6,822 |
|
Cost of sales |
|
|
6,042 |
|
|
|
7,693 |
|
|
|
6,699 |
|
|
|
5,817 |
|
|
|
4,974 |
|
Selling and administrative |
|
|
943 |
|
|
|
1,090 |
|
|
|
1,000 |
|
|
|
892 |
|
|
|
841 |
|
Research and development |
|
|
116 |
|
|
|
131 |
|
|
|
129 |
|
|
|
140 |
|
|
|
121 |
|
Global cost reduction plan |
|
|
298 |
|
|
|
|
|
|
|
14 |
|
|
|
71 |
|
|
|
|
|
Customer contract settlement |
|
|
|
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
Customer bankruptcy |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement |
|
|
11 |
|
|
|
30 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Operating income |
|
|
846 |
|
|
|
1,496 |
|
|
|
1,376 |
|
|
|
1,042 |
|
|
|
922 |
|
Equity affiliates income |
|
|
112 |
|
|
|
145 |
|
|
|
114 |
|
|
|
92 |
|
|
|
91 |
|
Interest expense |
|
|
122 |
|
|
|
162 |
|
|
|
162 |
|
|
|
118 |
|
|
|
109 |
|
Income tax provision |
|
|
185 |
|
|
|
365 |
|
|
|
287 |
|
|
|
262 |
|
|
|
231 |
|
Income from continuing operations |
|
|
640 |
|
|
|
1,091 |
|
|
|
1,020 |
|
|
|
734 |
|
|
|
659 |
|
Net income |
|
|
631 |
|
|
|
910 |
|
|
|
1,036 |
|
|
|
723 |
|
|
|
712 |
|
Basic earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3.05 |
|
|
|
5.14 |
|
|
|
4.72 |
|
|
|
3.31 |
|
|
|
2.92 |
|
Net income |
|
|
3.01 |
|
|
|
4.29 |
|
|
|
4.79 |
|
|
|
3.26 |
|
|
|
3.15 |
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3.00 |
|
|
|
4.97 |
|
|
|
4.57 |
|
|
|
3.23 |
|
|
|
2.85 |
|
Net income |
|
|
2.96 |
|
|
|
4.15 |
|
|
|
4.64 |
|
|
|
3.18 |
|
|
|
3.08 |
|
|
Year-End Financial Position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, at cost |
|
$ |
15,751 |
|
|
$ |
14,989 |
|
|
$ |
14,439 |
|
|
$ |
12,910 |
|
|
$ |
11,915 |
|
Total assets |
|
|
13,029 |
|
|
|
12,571 |
|
|
|
12,660 |
|
|
|
11,181 |
|
|
|
10,409 |
|
Working capital |
|
|
494 |
|
|
|
636 |
|
|
|
436 |
|
|
|
289 |
|
|
|
471 |
|
Total debt (A) |
|
|
4,502 |
|
|
|
3,967 |
|
|
|
3,668 |
|
|
|
2,846 |
|
|
|
2,490 |
|
Shareholders equity |
|
|
4,792 |
|
|
|
5,031 |
|
|
|
5,496 |
|
|
|
4,924 |
|
|
|
4,546 |
|
|
Financial Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average shareholders equity (B) |
|
|
13.3 |
% |
|
|
20.1 |
% |
|
|
19.5 |
% |
|
|
15.1 |
% |
|
|
14.2 |
% |
Operating margin |
|
|
10.3 |
% |
|
|
14.4 |
% |
|
|
15.0 |
% |
|
|
13.2 |
% |
|
|
13.5 |
% |
Selling and administrative as a percentage of sales |
|
|
11.4 |
% |
|
|
10.5 |
% |
|
|
10.9 |
% |
|
|
11.3 |
% |
|
|
12.3 |
% |
Total debt to sum of total debt, shareholders equity and
minority interest (A) |
|
|
47.7 |
% |
|
|
43.4 |
% |
|
|
39.8 |
% |
|
|
36.3 |
% |
|
|
34.8 |
% |
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
840 |
|
|
$ |
869 |
|
|
$ |
790 |
|
|
$ |
705 |
|
|
$ |
656 |
|
Capital expenditures on a GAAP basis (C) |
|
|
1,236 |
|
|
|
1,159 |
|
|
|
1,553 |
|
|
|
1,358 |
|
|
|
928 |
|
Capital expenditures on a non-GAAP basis (C) |
|
|
1,475 |
|
|
|
1,355 |
|
|
|
1,635 |
|
|
|
1,487 |
|
|
|
984 |
|
Cash provided by operating activities |
|
|
1,323 |
|
|
|
1,680 |
|
|
|
1,500 |
|
|
|
1,348 |
|
|
|
1,304 |
|
Dividends declared per common share |
|
|
1.79 |
|
|
|
1.70 |
|
|
|
1.48 |
|
|
|
1.34 |
|
|
|
1.25 |
|
Market price range per common share |
|
|
8141 |
|
|
|
10665 |
|
|
|
9966 |
|
|
|
7053 |
|
|
|
6652 |
|
|
Weighted
average common shares outstanding (in millions) |
|
|
210 |
|
|
|
212 |
|
|
|
216 |
|
|
|
222 |
|
|
|
226 |
|
Weighted average common shares outstanding assuming
dilution (in millions) |
|
|
214 |
|
|
|
219 |
|
|
|
223 |
|
|
|
228 |
|
|
|
231 |
|
|
Book value per common share at year-end |
|
$ |
22.68 |
|
|
$ |
24.03 |
|
|
$ |
25.52 |
|
|
$ |
22.67 |
|
|
$ |
20.49 |
|
Shareholders at year-end |
|
|
8,600 |
|
|
|
8,900 |
|
|
|
9,300 |
|
|
|
9,900 |
|
|
|
10,300 |
|
Employees at year-end (D) |
|
|
18,900 |
|
|
|
21,100 |
|
|
|
22,100 |
|
|
|
20,700 |
|
|
|
20,200 |
|
|
|
|
|
(A) |
|
Total debt includes long-term debt, current portion of long-term debt, and
short-term borrowings as of the end of the year. Calculation based on continuing operations. |
|
(B) |
|
Calculated using income and five-quarter average equity from continuing operations. |
|
(C) |
|
Capital expenditures on a GAAP basis include additions to plant and equipment,
investment in and advances to unconsolidated affiliates, and acquisitions (including long-term
debt assumed in acquisitions). The Company utilizes a non-GAAP measure in the computation of
capital expenditures and includes spending associated with facilities accounted for as capital
leases. Certain contracts associated with facilities that are built to provide product to a
specific customer are required to be accounted for as leases, and such spending is reflected
as a use of cash within cash provided by operating activities. The presentation of this
non-GAAP measure is intended to enhance the usefulness of information by providing a measure
which the Companys management uses internally to evaluate and manage its capital
expenditures. Refer to page 31 for a reconciliation of the GAAP to non-GAAP measure for
2009, 2008, and 2007. For 2006 and 2005, the GAAP measure was adjusted by $129 and $56,
respectively, for spending associated with facilities accounted for as capital leases. |
|
(D) |
|
Includes full- and part-time employees from continuing and discontinued
operations. |
16
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
17 |
|
|
|
|
17 |
|
|
|
|
19 |
|
|
|
|
19 |
|
|
|
|
28 |
|
|
|
|
29 |
|
|
|
|
30 |
|
|
|
|
33 |
|
|
|
|
34 |
|
|
|
|
34 |
|
The following discussion should be read in conjunction with the consolidated financial statements
and the accompanying notes contained in this report. All comparisons in the discussion are to the
corresponding prior year unless otherwise stated. All amounts presented are in accordance with U.S.
generally accepted accounting principles, except as noted. All amounts are presented in millions of
dollars, except for share data, unless otherwise indicated.
BUSINESS OVERVIEW
Air Products and Chemicals, Inc. and its subsidiaries (the Company) serve customers in industrial,
energy, technology, and healthcare markets. The Company offers a broad portfolio of atmospheric
gases, process and specialty gases, performance materials, and equipment and services.
Geographically diverse, with operations in over 40 countries, the Company has sales of $8.3
billion, assets of $13.0 billion, and a worldwide workforce of approximately 18,900 employees.
The Company organizes its operations into four reportable business segments: Merchant Gases,
Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy.
2009 IN SUMMARY
The beginning of fiscal 2009 coincided with the start of the global financial crisis, driving the
recession that led to unprecedented declines in demand for the Companys products worldwide. The
downturn in the economy affected customers operating rates across most of our end markets.
Globally, manufacturing declined 11%, and in Electronics, silicon processed decreased by about 35%.
In response to these rapidly declining economic conditions around the world and to drive to a
sustainable, low-cost structure, the Company implemented a global cost reduction plan. Impacted by
these factors, the Companys sales and operating income declined 21% and 43%, respectively.
Additionally, unfavorable currency impacts, due to a stronger U.S. dollar contributed to the
decline.
The 2009 global cost reduction plan included the elimination of about 12% of the global workforce
along with business exits and asset management actions. These initiatives lowered the Companys
cost structure, especially in the second half of the year. The planned actions are expected to be
completed in fiscal 2010. Also, the Company implemented price increases and executed its
initiatives for cost improvement by lowering discretionary spending. Sales were sequentially higher
in the fourth quarter, and there was a greater than 200 basis point increase in the Companys
operating margin in the second half of the year compared to the first half. Overall, fiscal 2009
was a challenging year due to the impact of the global recession, but the actions taken by the
Company helped to mitigate the adverse impact.
17
Highlights for 2009
|
|
The Company implemented a global cost reduction plan designed to lower its cost structure
and better align its businesses with the contracting global economy. Results from continuing
operations included a total charge of $298.2 ($200.3 after-tax, or $.94 per share) for this
plan. |
|
|
|
The Company completed the divestiture of the U.S. Healthcare business. |
|
|
|
The Company maintained a solid financial position throughout 2009. The current credit
environment did not have a significant adverse impact on the Companys liquidity. |
|
|
|
Sales of $8,256.2 declined 21%. Underlying business declined 8% from lower volumes. Lower
energy and raw material cost pass-through to customers and unfavorable currency negatively
impacted sales by 7% and 6%, respectively. |
|
|
|
Operating income of $846.3 declined $649.5, principally from lower volumes, the global cost
reduction plan charge, and unfavorable currency impacts. |
|
|
|
Income from continuing operations was $639.9 as compared to $1,090.5. Diluted earnings per
share from continuing operations was $3.00 as compared to $4.97. A summary table of changes in
diluted earnings per share is presented below. |
|
|
|
Loss from discontinued operations was $8.6 as compared to $180.8. The prior year included
an after-tax impairment charge of $246.2 related to the U.S. Healthcare business and an
after-tax gain of $76.2 from the sale of the Polymer Emulsions business. |
For a discussion of the challenges, risks, and opportunities on which management is focused, refer
to the Companys 2010 Outlook discussions provided throughout the Managements Discussion and
Analysis that follows.
Changes in Diluted Earnings per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
Diluted Earnings per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.96 |
|
|
$ |
4.15 |
|
|
$ |
(1.19 |
) |
Discontinued operations |
|
|
(.04 |
) |
|
|
(.82 |
) |
|
|
.78 |
|
|
Continuing operations |
|
$ |
3.00 |
|
|
$ |
4.97 |
|
|
$ |
(1.97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (after-tax) |
|
|
|
|
|
|
|
|
|
|
|
|
Underlying business |
|
|
|
|
|
|
|
|
|
|
|
|
Volume |
|
|
|
|
|
|
|
|
|
$ |
(1.66 |
) |
Price/raw materials |
|
|
|
|
|
|
|
|
|
|
.27 |
|
Costs |
|
|
|
|
|
|
|
|
|
|
.53 |
|
Currency |
|
|
|
|
|
|
|
|
|
|
(.39 |
) |
2009 global cost reduction plan |
|
|
|
|
|
|
|
|
|
|
(.94 |
) |
2009 customer bankruptcy and asset actions |
|
|
|
|
|
|
|
|
|
|
(.10 |
) |
Pension settlement |
|
|
|
|
|
|
|
|
|
|
.06 |
|
Plant fire and hurricanes |
|
|
|
|
|
|
|
|
|
|
.10 |
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
(2.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (after-tax) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity affiliates income |
|
|
|
|
|
|
|
|
|
|
(.11 |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
.14 |
|
Income tax rate |
|
|
|
|
|
|
|
|
|
|
(.01 |
) |
Minority interest |
|
|
|
|
|
|
|
|
|
|
.04 |
|
Average shares outstanding |
|
|
|
|
|
|
|
|
|
|
.10 |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
.16 |
|
|
Total Change in Diluted Earnings per Share from Continuing Operations |
|
|
|
|
|
|
|
|
|
$ |
(1.97 |
) |
|
18
2010 OUTLOOK
The Company projects a continued gradual and modest recovery in the economic environment as
spending growth in the private sector is expected to remain weak. The Company anticipates global
manufacturing growth of 1%2% in 2010. In the U.S., growth is expected to be flat to slightly
positive by 1%. Europe is expected to be flat. Asia, led by China, is expected to be the strongest
region, growing at a projected 6%7%.
Looking forward, the Company will continue to focus on improving its operating margin and return on
capital through volume growth, effective cost management, and implementation of price increases.
Capacity utilization rates in 2010 should improve as the economy recovers and through expansion of
technology applications. Earnings should benefit from new plant startups in 2009 and 2010 along
with a full-year impact of the 2009 global cost reduction plan. The Company will also remain
diligent on discretionary spending, new programs, and staffing. However, pension expense will be
higher next year as a result of a decline in the discount rates used to determine the 2010 expense.
Outlook by Segment
|
|
The Company is projecting Merchant Gases results to be higher based on a modest recovery in
global manufacturing. Margins should improve based on higher volumes and cost reduction
efforts. In 2009, the segment took steps to restructure the organization and to reduce costs
in order to drive productivity and growth. |
|
|
|
Tonnage Gases is expected to benefit from new contracts and plants coming on-stream, and
increased capacity utilization as chemical and steel markets continue to recover. |
|
|
|
In Electronics, the Company projects silicon growth of 10%15%, higher demand from flat
panel producers, and accelerated growth in thin film photovoltaic. The business repositioning
efforts should result in additional ongoing restructuring costs, while price pressure for
certain electronics materials is expected to remain until capacity utilization improves.
Growth is anticipated in Performance Materials as the Company should continue to benefit from
new market and application successes, regional investment, and new product introductions. |
|
|
|
Equipment and Energy results are expected to be comparable to 2009 levels. Two to three LNG
orders are expected to be signed in fiscal 2010. |
RESULTS OF OPERATIONS
Discussion of Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
8,256.2 |
|
|
$ |
10,414.5 |
|
|
$ |
9,148.2 |
|
Operating income |
|
|
846.3 |
|
|
|
1,495.8 |
|
|
|
1,375.6 |
|
Equity affiliates income |
|
|
112.2 |
|
|
|
145.0 |
|
|
|
114.4 |
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
% Change from Prior Year |
|
|
|
2009 |
|
|
2008 |
|
|
Underlying business |
|
|
|
|
|
|
|
|
Volume |
|
|
(9 |
)% |
|
|
2 |
% |
Price |
|
|
1 |
% |
|
|
2 |
% |
Acquisitions/divestitures |
|
|
|
|
|
|
1 |
% |
Currency |
|
|
(6 |
)% |
|
|
4 |
% |
Energy and raw material cost pass-through |
|
|
(7 |
)% |
|
|
5 |
% |
|
Total Consolidated Sales Change |
|
|
(21 |
)% |
|
|
14 |
% |
|
2009 vs. 2008
Sales of $8,256.2 decreased 21%, or $2,158.3. Underlying business declined 8%, due to lower volumes
primarily in Electronics and Performance Materials, Merchant Gases, and Tonnage Gases. Volumes were
impacted by the severity of the worldwide manufacturing downturn and a significant decline in
silicon processed. Currency unfavorably impacted sales by 6%, due primarily to the strengthening of
the U.S. dollar against key European and Asian currencies. Lower energy and raw material
contractual cost pass-through to customers reduced sales by 7%.
19
2008 vs. 2007
Sales of $10,414.5 increased 14%, or $1,266.3. Underlying base business growth accounted for 4% of
the increase. Sales increased 2% as higher volumes in Electronics and Performance Materials,
Merchant Gases, and Tonnage Gases were partially offset by lower Equipment and Energy activity.
Improved pricing, principally in Merchant Gases, increased sales by 2%. Sales improved 4% from
favorable currency effects, primarily the weakening of the U.S. dollar against the Euro. Higher
energy and raw material contractual cost pass-through to customers increased sales by 5%.
Operating Income
2009 vs. 2008
Operating income of $846.3 decreased 43%, or $649.5.
|
|
The global cost reduction plan charge reduced operating income by $298. |
|
|
|
Underlying business declined $254, due primarily to lower volumes in the Merchant Gases,
Electronics and Performance Materials, and Tonnage Gases segments. The volume declines of $490
were partially offset by favorable cost performance of $157 and improved pricing of $79. |
|
|
|
Unfavorable currency impacts lowered operating income by $113, reflecting the strengthening
of the U.S. dollar against key European and Asian currencies. |
|
|
|
The write-off of certain receivables due to a customer bankruptcy and asset actions reduced
operating income by $32. |
|
|
|
Lower pension settlement charges favorably impacted operating income by $20. |
|
|
|
Prior year operating income included unfavorable impacts of $28 due to hurricanes and a
fire at a production facility. |
2008 vs. 2007
Operating income of $1,495.8 increased 9%, or $120.2.
|
|
Higher volumes in the Merchant Gases, Tonnage Gases, and Electronics and Performance
Materials segments, partially offset by a decrease in Equipment and Energy activity, increased
operating income by $82. |
|
|
|
Improved pricing, net of variable costs, increased operating income by $21, as pricing
increases in Merchant Gases were partially offset by lower pricing in electronics specialty
materials. |
|
|
|
Favorable currency effects, primarily the weakening of the U.S. dollar against the Euro,
increased operating income by $80. |
|
|
|
2007 included a gain of $37 from a settlement of a supply contract termination. |
|
|
|
Higher pension settlement charges negatively impacted operating income by $20. |
|
|
|
Unfavorable impacts caused by Hurricanes Gustav and Ike, and the fire at an Electronics
production facility in Korea, decreased operating income by $28. |
Equity Affiliates Income
2009 vs. 2008
Income from equity affiliates of $112.2 decreased $32.8, or 23%, primarily as a result of lower
overall volumes and unfavorable currency. Additionally, prior year results included favorable
adjustments made to certain affiliates in Asia and the reversal of an antitrust fine.
2008 vs. 2007
Income from equity affiliates of $145.0 increased $30.6, or 27%. This increase resulted from solid
underlying growth, increased nitrogen injection volumes in Mexico, the benefit of adjustments to
certain affiliates, and the reversal of an antitrust fine.
20
Selling and Administrative Expense (S&A)
2009 vs. 2008
S&A expense of $943.4 decreased $147.0, or 13%. Underlying costs decreased 8%, primarily due to
improved productivity as well as the impact of the global cost reduction plan, lower incentive
compensation costs, and lower discretionary spending. This decrease was partially offset by
inflation and higher bad debt expense. Favorable currency impacts, primarily the strengthening of
the dollar against the Euro and Pound Sterling, decreased S&A by 6%. The acquisition of CryoService
Limited in the third quarter of 2008 increased S&A by 1%. S&A as a percent of sales, increased to
11.4% from 10.5%, due principally to the impact of lower energy and raw material cost pass-through
on sales.
2008 vs. 2007
S&A expense of $1,090.4 increased 9%, or $90.6. S&A increased 2% from the acquisition of the Polish
industrial gas business of BOC Gazy Sp z o.o. (BOC Gazy) in the third quarter of 2007. Currency
effects, driven by the weakening of the U.S. dollar against the Euro, increased S&A by 4%.
Underlying costs increased S&A by 3%, as productivity gains were more than offset by inflation and
higher costs to support growth. S&A as a percent of sales declined to 10.5% from 10.9%.
2010 Outlook
S&A expense for 2010 will reflect higher pension expense and modest cost inflation. These increases
should be offset by cost savings arising from the benefits of the global cost reduction plan
initiated in 2009 and ongoing productivity initiatives.
Research and Development (R&D)
2009 vs. 2008
R&D expense of $116.3 decreased $14.4, primarily due to the impact of cost reduction actions. R&D
increased as a percent of sales to 1.4% from 1.3%.
2008 vs. 2007
R&D expense of $130.7 increased $1.7. R&D decreased as a percent of sales to 1.3% from 1.4%.
2010 Outlook
R&D expense is expected to be moderately higher in 2010.
Global Cost Reduction Plan
2009
The 2009 results from continuing operations included a total charge of $298.2 ($200.3 after-tax, or
$.94 per share) for the global cost reduction plan. In the first quarter of 2009, the Company
announced the global cost reduction plan, designed to lower its cost structure and better align its
businesses to reflect rapidly declining economic conditions around the world. In the third quarter
of 2009, due to the continuing slow economic recovery, the Company committed to additional actions
associated with its global cost reduction plan. The 2009 charge included $210.0 for severance and
other benefits, including pension-related costs, associated with the elimination of approximately
2,550 positions from the Companys global workforce. The remainder of this charge, $88.2, was for
business exits and asset management actions.
Cost savings of approximately $50 were realized in 2009, and cost savings of approximately $155 are
expected for 2010. Beyond 2010, the Company expects annualized savings of approximately $180, of
which the majority is related to personnel costs.
2007
The 2007 results from continuing operations included a charge of $13.7 ($8.8 after-tax, or $.04 per
share) for a global cost reduction plan. The charge included $6.5 for severance and pension-related
costs for the elimination of approximately 125 positions and $7.2 for the write-down of certain
investments. As of 30 September 2008, the actions associated with the 2007 charge were complete.
Refer to Note 3 to the Consolidated Financial Statements for additional information on these
charges.
21
2007 Customer Contract Settlement
In 2007, the Company entered into a settlement with a customer to resolve a dispute related to a
dinitrotoluene (DNT) supply agreement. As part of the settlement agreement, the DNT supply
agreement was terminated, and certain other agreements between the companies were amended. As a
result, the Company recognized a before-tax gain of $36.8 ($23.6 after-tax, or $.11 per share).
2009 Customer Bankruptcy and Asset Actions
In 2009, the Company recognized charges totaling $32.1 ($21.0 after-tax, or $.10 per share) related
to a customer bankruptcy and asset actions for the closure of certain manufacturing facilities.
Refer to Note 21 to the Consolidated Financial Statements for additional information.
Pension Settlement
The Companys supplemental pension plan provides for a lump sum benefit payment option at the time
of retirement, or for corporate officers, six months after the participants retirement date. A
settlement loss is recognized when the pension obligation is settled. Based on the timing of when
cash payments were made, the Company recognized $10.7, $30.3, and $10.3 of settlement charges in
2009, 2008, and 2007, respectively. Refer to Note 15 to the Consolidated Financial Statements for
additional information.
Other Income, Net
Items recorded to other income arise from transactions and events not directly related to the
principal income earning activities of the Company. The detail of other income is presented in Note
21 to the Consolidated Financial Statements.
2009 vs. 2008
Other income of $23.0 decreased by $2.8. Other income declined due to losses from asset sales in
the current year and unfavorable foreign exchange. Other income in 2008 included a loss related to
fire damage at a production facility. No other items were individually significant in comparison to
the prior year.
2008 vs. 2007
Other income of $25.8 decreased by $16.5. Other income in 2008 included a loss of $14.7 related to
fire damage at an Electronics production facility in Korea, partially offset by favorable foreign
exchange of $8.1. Other income in 2007 included a gain of $23.7 on the sale of assets. No other
items were individually significant in comparison to the prior year.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Interest incurred |
|
$ |
143.8 |
|
|
$ |
184.1 |
|
|
$ |
175.3 |
|
Less: Capitalized interest |
|
|
21.9 |
|
|
|
22.1 |
|
|
|
12.9 |
|
|
Interest Expense |
|
$ |
121.9 |
|
|
$ |
162.0 |
|
|
$ |
162.4 |
|
|
2009 vs. 2008
Interest incurred decreased by $40.3. This decrease was primarily driven by lower average interest
rates on variable rate debt. The impact of a stronger dollar on the translation of foreign currency
interest was offset by a higher average debt balance. Capitalized interest was comparable to the
prior year due to slightly higher project levels offset by lower average interest rates.
2008 vs. 2007
Interest incurred increased by $8.8. The increase resulted from a higher average debt balance,
excluding currency effects, and the impact of a weaker U.S. dollar on the translation of foreign
currency interest, partially offset by lower average interest rates. Capitalized interest increased
by $9.2, primarily due to increased project levels in the Tonnage Gases segment.
2010 Outlook
The Company expects interest incurred to be modestly higher. This increase is expected to result
from a higher average debt balance and higher expected average interest rates.
22
Effective Tax Rate
The effective tax rate equals the income tax provision divided by income from continuing operations
before taxes, less minority interest. Refer to Note 20 to the Consolidated Financial Statements for
details on factors affecting the effective tax rate.
2009 vs. 2008
The effective tax rate was 22.5% and 25.1% in 2009 and 2008, respectively. The effective tax rate
declined, as tax credits had a higher relative impact due to lower book taxable income.
2008 vs. 2007
The effective tax rate was 25.1% and 22.0% in 2008 and 2007, respectively. A tax benefit associated
with foreign operations and other higher credits and adjustments from the Companys ongoing tax
planning process were included in the 2008 effective rate. The 2007 tax rate included the
settlement of tax audits and related interest income, combined with the donation of a portion of a
cost-based investment. The net impact was a 3.1% higher tax rate in 2008.
2010 Outlook
The Company expects the effective tax rate in 2010 to be approximately 25.5% to 26.0%.
Discontinued Operations
The U.S. Healthcare business, Polymer Emulsions business, and High Purity Process Chemicals (HPPC)
business have been accounted for as discontinued operations. The results of operations of these
businesses have been removed from the results of continuing operations for all periods presented.
Refer to Note 4 to the Consolidated Financial Statements for additional details.
U.S. Healthcare
In July 2008, the Board of Directors authorized management to pursue the sale of the U.S.
Healthcare business. In 2008, the Company recorded a total charge of $329.2 ($246.2 after-tax, or
$1.12 per share) related to the impairment/write-down of the net carrying value of the U.S.
Healthcare business.
In the first half of 2009, based on additional facts, the Company recorded an impairment charge of
$48.7 ($30.9 after-tax, or $.15 per share), reflecting a revision in the estimated net realizable
value of the business. Also, tax benefits of $25.5, or $.12 per share, were recorded to revise the
estimated tax benefit associated with the total impairment charges recorded.
During the third quarter of 2009, the Company sold more than half of its remaining U.S. Healthcare
business to OptionCare Enterprises, Inc., a subsidiary of Walgreen Co., and Landauer-Metropolitan,
Inc. (LMI) for combined cash proceeds of $38.1. The Company recognized an after-tax gain of $.3
resulting from these sales combined with adjustments to the net realizable value of the remaining
businesses.
During the fourth quarter of 2009, through a series of transactions with Rotech Healthcare, Inc.
and with LMI, the Company sold its remaining U.S. Healthcare business for cash proceeds of $12.1. A
net after-tax loss of $.7 was recognized. These transactions completed the disposal of the U.S.
Healthcare business.
The U.S. Healthcare business generated sales of $125.2, $239.8, and $271.1, and a loss from
operations, net of tax, of $3.4, $259.4, and $15.2 in 2009, 2008, and 2007, respectively. The loss
from operations in 2008 included an after-tax impairment charge of $237.0.
Polymer Emulsions Business
On 31 January 2008, the Company closed on the sale of its interest in its vinyl acetate ethylene
(VAE) polymers joint ventures to Wacker Chemie AG, its long-time joint venture partner. As part of
that agreement, the Company received Wacker Chemie AGs interest in the Elkton, Md. and Piedmont,
S.C. production facilities. The Company recognized a gain on the sale of $89.5 ($57.7 after-tax, or
$.26 per share).
On 30 June 2008, the Company sold its Elkton, Md. and Piedmont, S.C. production facilities and the
related North American atmospheric emulsions and global pressure sensitive adhesives businesses to
Ashland, Inc. The Company recorded a gain of $30.5 ($18.5 after-tax, or $.08 per share) in
connection with the sale, which included the recording of a retained environmental obligation
associated with the Piedmont site. The sale of the Elkton and Piedmont facilities completed the
disposal of the Companys Polymer Emulsions business.
23
The Polymer Emulsion business generated sales of $261.4 and $618.6, and income from operations, net
of tax, of $11.3 and $38.3 in 2008 and 2007, respectively.
HPPC Business
In 2008, the Company sold its HPPC business to KMG Chemicals, Inc. The Company wrote down the
assets of the business to net realizable value as of 30 September 2007, resulting in a loss of
$15.3 ($9.3 after-tax, or $.04 per share). The sale closed on 31 December 2007, and an additional
loss on the sale was recorded of $.5 ($.3 after-tax) in 2008.
The HPPC business generated sales of $22.9 and $87.2 and income from operations, net of tax, of $.1
and $2.2 in 2008 and 2007, respectively.
Net Income
2009 vs. 2008
Net income was $631.3, compared to $909.7 in 2008. Diluted earnings per share was $2.96 compared to
$4.15 in 2008. A summary table of changes in diluted earnings per share is presented on page 18.
2008 vs. 2007
Net income was $909.7, compared to $1,035.6 in 2007. Diluted earnings per share was $4.15, compared
to $4.64 in 2007.
Segment Analysis
Merchant Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
3,610.6 |
|
|
$ |
4,192.7 |
|
|
$ |
3,556.9 |
|
Operating income |
|
|
661.2 |
|
|
|
789.5 |
|
|
|
656.4 |
|
Equity affiliates income |
|
|
98.3 |
|
|
|
131.8 |
|
|
|
97.8 |
|
|
Merchant Gases Sales
|
|
|
|
|
|
|
|
|
|
|
% Change from Prior Year |
|
|
|
2009 |
|
|
2008 |
|
|
Underlying business |
|
|
|
|
|
|
|
|
Volume |
|
|
(9 |
)% |
|
|
4 |
% |
Price |
|
|
4 |
% |
|
|
4 |
% |
Acquisitions/divestitures |
|
|
|
|
|
|
3 |
% |
Currency |
|
|
(9 |
)% |
|
|
7 |
% |
|
Total Merchant Gases Sales Change |
|
|
(14 |
)% |
|
|
18 |
% |
|
2009 vs. 2008
Merchant Gases Sales
Sales of $3,610.6 decreased by 14%, or $582.1. Sales decreased 9% from unfavorable currency
effects, driven primarily by the strengthening of the U.S. dollar against key European and Asian
currencies. Underlying sales declined 5%, with volumes down 9% and pricing up 4%. Volumes were weak
across manufacturing end markets globally. Price increases implemented early in the year were
effective, partially offsetting the decline in volume.
The global recession significantly impacted manufacturing-related demand for Merchant industrial
gases in every region. In North America, sales decreased 10%, with volumes down 14%. Higher pricing
of 4% partially offset the decline in volumes. In Europe, sales decreased 17%, primarily due to
unfavorable currency impacts of 13%. Underlying sales declined 4%, with volumes down 8% and pricing
adding 4%. Stronger healthcare volumes partially offset the total volume decline. In Asia, sales
declined 13%. Underlying sales were lower by 6%, with volumes declining 8% and pricing adding 2%.
Currency unfavorably impacted sales by 7%.
24
Merchant Gases Operating Income
Operating income of $661.2 decreased 16%, or $128.3. The decline was due to reduced volumes of $234
and unfavorable currency impacts of $74. These declines were partially offset by improved pricing,
net of variable costs, of $102 and improved cost performance of $78, primarily due to cost
reduction efforts.
Merchant Gases Equity Affiliates Income
Merchant Gases equity affiliates income of $98.3 decreased 25%, or $33.5. The decline was a result
of lower overall volumes and unfavorable currency. Additionally, prior year results included
favorable adjustments made to certain affiliates in Asia and the reversal of an antitrust fine.
2008 vs. 2007
Merchant Gases Sales
Sales of $4,192.7 increased 18%, or $635.8. Higher volumes across all regions increased sales by
4%. Volumes increased in North America due to record new signings in 2008 and continued strong
demand for liquid oxygen (LOX) and liquid nitrogen (LIN). Volume gains in Europe were primarily due
to a higher number of Healthcare patients served. In Asia, volumes were higher in generated gases,
liquid argon, and liquid helium.
Higher prices increased sales by 4% as a result of actions taken to recover higher power,
distribution, and other manufacturing costs in North America and Europe.
Sales increased by 3% from the full-year impact of the acquisition of BOC Gazy in 2007. In
addition, sales increased 7% due to favorable currency impacts, primarily the weakening of the U.S.
dollar against the Euro.
Merchant Gases Operating Income
Operating income of $789.5 increased by 20%, or $133.1. Favorable operating income variances
resulted from improved pricing of $75, higher volumes of $60, and currency effects of $51.
Operating income declined by $49 from higher distribution costs and inflation.
Merchant Gases Equity Affiliates Income
Equity affiliates income of $131.8 increased 35%, or $34.0, reflecting higher income in all
regions. The increases were due to solid underlying growth, increased nitrogen injection volumes in
Mexico, and the benefit of adjustments to certain affiliates in Asia and the reversal of an
antitrust fine.
Tonnage Gases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
2,573.6 |
|
|
$ |
3,574.4 |
|
|
$ |
2,936.7 |
|
Operating income |
|
|
399.6 |
|
|
|
482.6 |
|
|
|
426.4 |
|
|
Tonnage Gases Sales
|
|
|
|
|
|
|
|
|
|
|
% Change from Prior Year |
|
|
|
2009 |
|
|
2008 |
|
|
Underlying business |
|
|
|
|
|
|
|
|
Volume |
|
|
(5 |
)% |
|
|
2 |
% |
Acquisitions/divestitures |
|
|
|
|
|
|
1 |
% |
Currency |
|
|
(4 |
)% |
|
|
3 |
% |
Energy and raw material cost pass-through |
|
|
(19 |
)% |
|
|
16 |
% |
|
Total Tonnage Gases Sales Change |
|
|
(28 |
)% |
|
|
22 |
% |
|
2009 vs. 2008
Tonnage Gases Sales
Sales of $2,573.6 decreased 28%, or $1,000.8. Lower energy and raw material contractual cost
pass-through to customers reduced sales by 19%. Volumes were down 5%. While refinery hydrogen
volumes were higher, overall volumes declined from reduced demand from steel and chemical
customers. Currency unfavorably impacted sales by 4%.
25
Tonnage Gases Operating Income
Operating income of $399.6 decreased 17%, or $83.0. Underlying business declined $70, primarily
from decreased volumes and lower operating efficiencies. Currency unfavorably impacted operating
income by $24. Prior year included unfavorable hurricane related impacts of $11.
2008 vs. 2007
Tonnage Gases Sales
Sales of $3,574.4 increased 22%, or $637.7. Higher energy and raw material cost pass-through
accounted for 16% of sales growth in 2008. Volume growth in the underlying business increased sales
by 4%, primarily due to new plant start-ups in Asia and Canada, offset by a decline of 2% due to
the impacts from hurricane-related business interruption. The acquisition of BOC Gazy in the third
quarter of 2007 improved sales by 1%. Sales increased 3% from favorable currency effects, primarily
the weakening of the U.S. dollar against the Euro.
Tonnage Gases Operating Income
Operating income of $482.6 increased 13%, or $56.2. Operating income increased by $20 from higher
volumes, $9 from favorable currency effects, and $30 from lower operating costs. Operating income
decreased by $11 as a result of hurricane-related impacts.
Electronics and Performance Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
1,582.2 |
|
|
$ |
2,209.3 |
|
|
$ |
2,068.7 |
|
Operating income |
|
|
101.6 |
|
|
|
245.9 |
|
|
|
229.2 |
|
|
Electronics and Performance Materials Sales
|
|
|
|
|
|
|
|
|
|
|
% Change from Prior Year |
|
|
|
2009 |
|
|
2008 |
|
|
Underlying business |
|
|
|
|
|
|
|
|
Volume |
|
|
(25 |
)% |
|
|
5 |
% |
Price |
|
|
(2 |
)% |
|
|
|
|
Acquisition/divestiture |
|
|
1 |
% |
|
|
|
|
Currency |
|
|
(2 |
)% |
|
|
2 |
% |
|
Total Electronics and Performance Materials Sales Change |
|
|
(28 |
)% |
|
|
7 |
% |
|
2009 vs. 2008
Electronics and Performance Materials Sales
Sales of $1,582.2 declined 28%, or $627.1, as volumes declined 25%. Sales volumes declined
significantly in the first half of 2009 and recovered sequentially in the second half. In
Electronics, sales were down 35%, reflecting a significant global downturn in semiconductor and
flat panel capacity utilization and capital investment. In Performance Materials, sales were down
19% due to weaker demand across all end markets, partially offset by improved pricing.
Electronics and Performance Materials Operating Income
Operating income of $101.6 declined by 59%, or $144.3. Operating income declined from lower volumes
of $202 as well as unfavorable pricing of $37. Lower pricing in Electronics was partially offset by
higher pricing in Performance Materials. Favorable cost performance added $82, primarily due to
cost reduction efforts. Results in 2008 included $15 of unfavorable impacts associated with a fire
at a production facility.
2008 vs. 2007
Electronics and Performance Materials Sales
Sales of $2,209.3 increased 7%, or $140.6. Underlying base business growth increased sales by 5%.
In Electronics, higher volumes in specialty materials and tonnage gases were partially offset by
lower equipment sales and softer volumes due to product rationalization. Higher volumes across Asia
and in some key market segments in North America increased sales in Performance Materials. Pricing
was flat, as improvements in Performance Materials were offset by lower pricing in electronic
specialty materials. Favorable currency effects, primarily the weakening of the U.S. dollar against
key European and Asian currencies, improved sales by 2%.
26
Electronics and Performance Materials Operating Income
Operating income of $245.9 increased 7%, or $16.7. Operating income increased $48 from higher
volumes, $19 from lower operating costs, and $18 from favorable currency effects, partially offset
by property damage of $15 caused by a fire at an Electronics production facility in Korea.
Operating income also declined by $51 from lower electronic specialty materials pricing, net of
variable costs.
Equipment and Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
489.8 |
|
|
$ |
438.1 |
|
|
$ |
585.9 |
|
Operating income |
|
|
42.2 |
|
|
|
38.9 |
|
|
|
76.8 |
|
|
2009 vs. 2008
Sales of $489.8 increased by 12%, or $51.7, due to higher air separation unit (ASU) activity.
Operating income improved $3.3 from favorable cost performance and higher ASU sales, partially
offset by lower liquefied natural gas (LNG) heat exchanger activity and unfavorable currency.
The sales backlog for the Equipment business at 30 September 2009 was $239, compared to $399 at 30
September 2008. It is expected that approximately $203 of the backlog will be completed during
2010.
2008 vs. 2007
Sales of $438.1 decreased by 25%, or $147.8, primarily from lower LNG activity and a one-time
energy-related equipment sale that occurred in 2007. Operating income of $38.9 decreased by $37.9,
primarily from lower LNG heat exchanger activity.
The sales backlog for the Equipment business at 30 September 2008 was $399, compared to $258 at 30
September 2007.
Other
Other operating income (loss) includes expense and income that cannot be directly associated with
the business segments, including foreign exchange gains and losses, interest income, and costs
previously allocated to businesses now reported as discontinued operations. Also included are LIFO
inventory adjustments, as the business segments
use FIFO and the LIFO pool adjustments are not allocated to the business segments. Corporate
general and administrative costs and research and development costs are fully allocated to the
business segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Operating (loss) |
|
$ |
(17.3 |
) |
|
$ |
(30.8 |
) |
|
$ |
(26.0 |
) |
|
2009 vs. 2008
Operating loss of $17.3 decreased by $13.5. The decrease is primarily due to favorable LIFO
inventory adjustments versus the prior year. Unfavorable currency partially offset this decline. No
other items were individually significant in comparison to the prior year.
2008 vs. 2007
Operating loss of $30.8 increased by $4.8. No items were individually significant in comparison to
the prior year.
27
PENSION BENEFITS
The Company and certain of its subsidiaries sponsor defined benefit pension plans that cover a
substantial portion of its worldwide employees. The principal defined benefit pension plansthe
U.S. Salaried Pension Plan and the U.K. Pension Planwere closed to new participants in 2005 and
were replaced with defined contribution plans. The move to defined contribution plans has not had a
material impact on retirement program cost levels or funding. Over the long run, however, the new
defined contribution plans are expected to reduce volatility of both expense and contributions.
For 2009, the fair market value of pension plan assets for the Companys defined benefit plans as
of the measurement date increased to $2,251.0 from $2,218.2 in 2008. The projected benefit
obligation for these plans as of the measurement date was $3,386.0 and $2,731.7 in 2009 and 2008,
respectively. The increase in the obligation was due principally to a decrease in the weighted
average discount rate used to measure future benefit obligations to 5.6% from 7.1%. Refer to Note
15 to the Consolidated Financial Statements for comprehensive and detailed disclosures on the
Companys postretirement benefits.
Pension Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Pension expense |
|
$ |
110.0 |
|
|
$ |
127.0 |
|
|
$ |
138.5 |
|
Special terminations, settlements, and curtailments (included above) |
|
|
43.8 |
|
|
|
31.5 |
|
|
|
12.3 |
|
Weighted average discount rate |
|
|
7.1 |
% |
|
|
6.1 |
% |
|
|
5.7 |
% |
Weighted average expected rate of return on plan assets |
|
|
8.3 |
% |
|
|
8.8 |
% |
|
|
8.8 |
% |
Weighted average expected rate of compensation increase |
|
|
4.3 |
% |
|
|
4.2 |
% |
|
|
4.1 |
% |
|
2009 vs. 2008
The decrease in pension expense was primarily attributable to the 100 basis point increase in the
weighted average discount rate. Expense in 2009 included $43.8 of special termination, settlement,
and curtailment charges, of which $32.3 was related to the global cost reduction plan.
2008 vs. 2007
The decrease in pension expense was primarily attributable to the 40 basis point increase in the
weighted average discount rate. Expense included $31.5 in 2008 and $12.3 in 2007 for special
termination, settlement, and curtailment charges.
2010 Outlook
Pension expense is estimated to be approximately $125 in 2010, an increase of $15. Expense in 2009
included $43.8 of special termination, settlement, and curtailment charges. In 2010, pension
expense will include approximately $64 for amortization of actuarial losses versus $17 in 2009.
Actuarial losses of $739.2 were incurred in 2009, resulting primarily from a lower discount rate
used to determine the 2010 expense and actual asset returns below expected returns. Actuarial gains/losses, in excess of certain
thresholds, are amortized into pension expense over the average remaining service lives of the
employees to the extent they are not offset by future gains or losses. Future changes in the
discount rate and actual returns on plan assets, different from expected returns, would impact the
actuarial gains/losses and resulting amortization in years beyond 2010.
Pension Funding
Pension funding includes both contributions to funded plans and benefit payments under unfunded
plans. With respect to funded plans, the Companys funding policy is that contributions, combined
with appreciation and earnings, will be sufficient to pay benefits without creating unnecessary
surpluses.
In addition, the Company makes contributions to satisfy all legal funding requirements while
managing its capacity to benefit from tax deductions attributable to plan contributions. The
Company analyzes the liabilities and demographics of each plan, which help guide the level of
contributions. During 2009 and 2008, the Companys cash contributions to funded plans and benefit
payments under unfunded plans were $184.8 and $234.0, respectively. The majority of the cash
contributions were voluntary.
Cash contributions and benefit payments for defined benefit plans are estimated to be approximately
$360 in 2010. Of this amount, $200 has been contributed in October 2009. Actual future
contributions will depend on future funding legislation, discount rates, investment performance,
plan design, and various other factors. Refer to the Contractual Obligations discussion on page 33
for a projection of future contributions.
28
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the countries in which it
has operations. Compliance with these laws and regulations results in higher capital expenditures
and costs. From time to time, the Company is involved in proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act (the federal Superfund law), similar state
laws, and the Resource Conservation and Recovery Act (RCRA) relating to the designation of certain
sites for investigation and possible cleanup. The Companys accounting policy for environmental
expenditures is discussed in Note 1 to the Consolidated Financial Statements, and environmental
loss contingencies are discussed in Note 16 to the Consolidated Financial Statements.
The amounts charged to income from continuing operations on an after-tax basis related to
environmental matters totaled $32.6, $31.0, and $25.1 in 2009, 2008, and 2007, respectively. These
amounts represent an estimate of expenses for compliance with environmental laws, remedial
activities, and activities undertaken to meet internal Company standards. Future costs are not
expected to be materially different from these amounts.
Although precise amounts are difficult to determine, the Company estimates that in 2009, it spent
approximately $6 on capital projects to control pollution versus $7 in 2008. Capital expenditures
to control pollution in future years are estimated to be approximately $7 in both 2010 and 2011.
The Company accrues environmental investigatory and remediation costs for identified sites when it
is probable that a liability has been incurred and the amount of loss can be reasonably estimated.
The potential exposure for such costs is estimated to range from $95 to a reasonably possible upper
exposure of $109. The balance sheet at 30 September 2009 and 2008 included an accrual of $95.0 and
$82.9, respectively. The accrual for the environmental obligations relating to the Pace, Florida;
Piedmont, South Carolina; and the Paulsboro, New Jersey facilities is included in these amounts.
Refer to Note 16 to the Consolidated Financial Statements for further details on these facilities.
Actual costs to be incurred at identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental exposures. Subject to the imprecision in
estimating future environmental costs, the Company does not expect that any sum it may have to pay
in connection with environmental matters in excess of the amounts recorded or disclosed above would
have a material adverse impact on its financial position or results of operations in any one year.
Some of the Companys operations are within jurisdictions that have, or are developing, regulations
governing emissions of greenhouse gases (GHGs). These include existing and expanding coverage under
the European Union Emissions Trading Scheme; mandatory reporting and reductions at manufacturing
facilities in Alberta, Canada; and mandatory reporting and anticipated constraints on GHG emissions
in California and Ontario. In the U.S., regional initiatives have been implemented that will
regulate GHG emissions from fossil fuel-driven power plants, and some federal legislative proposals
also focus on such power plants. As a large consumer of electric power, the Company could be
impacted by increased costs that may arise from such regulatory controls. In addition, federal
legislation has been introduced in the U.S. that would regulate greenhouse gas emissions from the
Companys hydrogen facilities and other operations, such as production of fluorinated gases
manufactured by the Company. Increased public awareness and concern may result in more
international, U.S. federal, and/or regional requirements to reduce or mitigate the effects of
GHGs.
The Company may incur costs related to GHG emissions from its hydrogen facilities and other
operations such as fluorinated gases production. The Company believes it will be able to mitigate
some of the potential costs through its contractual terms, but the lack of definitive legislation
or regulatory requirements prevents accurate prediction of the long-term impact on the Company. Any
legislation that limits or taxes GHG emissions from Company facilities could impact the Companys
growth by increasing its operating costs or reducing demand for certain of its products.
Regulation of GHGs may also produce new opportunities for the Company. The Company continues to
develop technologies to help its facilities and its customers lower energy consumption, improve
efficiency, and lower emissions. The Company is also developing a portfolio of technologies that
capture carbon dioxide from power and chemical plants before it reaches the atmosphere, enable
cleaner transportation fuels, and facilitate alternate fuel source development. In addition, the
potential demand for clean coal and the Companys carbon capture solutions could increase demand
for oxygen, one of the Companys main products, and the Companys proprietary technology for
delivering low-cost oxygen.
29
LIQUIDITY AND CAPITAL RESOURCES
The Company maintained a solid financial position throughout 2009. Cash flow from operations,
supplemented with proceeds from borrowings, provided funding for the Companys capital spending and
dividend payments. The Company continues to maintain debt ratings of A/A2 (long-term) and A-1/P-1
(short-term), by Standard & Poors/Moodys and retained consistent access to commercial paper
markets throughout the year.
The Companys cash flows from operating, investing, and financing activities, as reflected in the
Consolidated Statements of Cash Flows, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Cash provided by (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
1,322.9 |
|
|
$ |
1,679.6 |
|
|
$ |
1,499.9 |
|
Investing activities |
|
|
(1,040.4 |
) |
|
|
(919.8 |
) |
|
|
(1,483.1 |
) |
Financing activities |
|
|
101.5 |
|
|
|
(698.5 |
) |
|
|
(14.9 |
) |
|
Operating Activities
2009 vs. 2008
Net cash provided by operating activities decreased $356.7, or 21%. The decrease resulted from the
reduction in net income of $278.4 combined with the unfavorable impact of noncash adjustments to
income of $170.7, partially offset by favorable changes in working capital of $92.4. Noncash
adjustments include depreciation and amortization, impairment charges, and share-based compensation
cost. These adjustments also include changes in operating assets, such as noncurrent capital lease
receivables, and liabilities which reflect timing differences between the receipt or disbursement
of cash and their recognition in earnings. Net income in 2009 included noncash impairment charges
of $118.7 related to the global cost reduction plan and the discontinued U.S. Healthcare business.
In 2008, U.S. Healthcare noncash impairment charges totaling $314.8 were partially offset by gains
of $105.9 on the sale of discontinued operations. Proceeds from the sale of assets and businesses
are reflected as an investing activity.
Changes in working capital decreased cash used (positive cash flow variance) by $92.4 and included:
|
|
A $256.4 positive cash flow variance due to lower trade receivables as a result of lower
sales. |
|
|
|
A $108.7 positive cash flow variance from other receivables due primarily to the
recognition of a deferred tax asset in 2008 related to the U.S. Healthcare impairment charge.
The recognition of this asset represented a use of cash in 2008. |
|
|
|
A $319.0 negative cash flow variance due to a higher use of cash for payables and accrued
liabilities. This variance was due to a lower level of activity and the timing of payments. |
2008 vs. 2007
Net cash provided by operating activities increased $179.7, or 12%. The increase resulted
principally from a decrease in the use of cash for working capital of $218.1. The decline in net
income of $125.9 was offset by the favorable impact of noncash adjustments to income of $87.5. Net
income in 2008 included a noncash impairment charge of $314.8 related to the U.S. Healthcare
business. Net income in 2008 also included a gain of $105.9 related to the sale of discontinued
operations, and adjustments to income included an increase in noncurrent capital lease receivables
of $121.8.
Changes in working capital decreased cash used (positive cash flow variance) by $218.1 and
included:
|
|
A $255.7 positive cash flow variance for payables and accrued liabilities due mainly to an
increase in customer advances related to equipment sales, lower pension plan contributions,
and the timing of payments. |
|
|
|
A $156.5 positive cash flow variance due to a reduction in contracts in progress resulting
from lower equipment activity. |
|
|
|
A $97.2 negative cash flow variance from higher trade receivables due primarily to higher
sales, offset partially by increased collections. |
|
|
|
A $77.5 negative cash flow variance from other receivables resulting from the recognition
of a deferred tax asset related to the U.S. Healthcare impairment charge. |
30
Investing Activities
2009 vs. 2008
Cash used for investing increased $120.6, primarily from lower proceeds from the sale of
discontinued operations of $372.0, partially offset by changes in restricted cash of $270.6.
|
|
During 2009, the Company completed the sale of its U.S. Healthcare business, which
generated proceeds of $51.0. Prior year proceeds of $423.0 included the sales of the Polymer
Emulsions and HPPC businesses. |
|
|
|
Decreases in the restricted cash balances, caused by project spending exceeding new bond
proceeds, resulted in a source of cash of $87.0 in 2009. Prior year activity resulted in a use
of cash of $183.6. The proceeds from the issuance of certain Industrial Revenue Bonds must be
held in escrow until related project spending occurs and are classified as noncurrent assets
in the balance sheet. |
2008 vs. 2007
Cash used for investing decreased $563.3, principally from lower acquisitions of $467.1 and
proceeds from the sale of discontinued operations of $423.0, partially offset by changes in
restricted cash of $183.6. Additionally, the proceeds from asset sales declined $77.6.
|
|
In 2007, the Company acquired BOC Gazy from The Linde Group for 380 million, or $518.4. |
|
|
|
During 2008, the Company sold its Polymer Emulsions and HPPC businesses. |
|
|
|
Additions to restricted cash, from the proceeds of bonds held in escrow, resulted in a use
of cash of $183.6. |
Capital Expenditures
Capital expenditures are detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Additions to plant and equipment |
|
$ |
1,179.1 |
|
|
$ |
1,085.1 |
|
|
$ |
1,013.2 |
|
Acquisitions, less cash acquired |
|
|
32.7 |
|
|
|
72.0 |
|
|
|
539.1 |
|
Investments in and advances to unconsolidated affiliates |
|
|
24.5 |
|
|
|
2.2 |
|
|
|
.2 |
|
|
Capital expenditures on a GAAP basis |
|
$ |
1,236.3 |
|
|
$ |
1,159.3 |
|
|
$ |
1,552.5 |
|
Capital lease expenditures (A) |
|
|
238.6 |
|
|
|
195.7 |
|
|
|
82.8 |
|
|
Capital expenditures on a non-GAAP basis |
|
$ |
1,474.9 |
|
|
$ |
1,355.0 |
|
|
$ |
1,635.3 |
|
|
|
|
|
(A) |
|
The Company utilizes a non-GAAP measure in the computation of capital
expenditures and includes spending associated with facilities accounted for as capital leases.
Certain contracts associated with facilities that are built to provide product to a specific
customer are required to be accounted for as leases, and such spending is reflected as a use
of cash within cash provided by operating activities. The presentation of this non-GAAP
measure is intended to enhance the usefulness of information by providing a measure which the
Companys management uses internally to evaluate and manage the Companys expenditures. |
Capital expenditures on a GAAP basis in 2009 totaled $1,236.3, compared to $1,159.3 in 2008.
Additions to plant and equipment in 2009 increased by $94.0 compared to 2008. Additions to plant
and equipment were largely in support of the Merchant Gases and Tonnage Gases businesses during
both 2009 and 2008. Additions to plant and equipment also included support capital of a routine,
ongoing nature, including expenditures for distribution equipment and facility improvements.
Capital expenditures on a non-GAAP basis in 2009 totaled $1,474.9, compared to $1,355.0 in 2008.
Capital lease expenditures of $238.6 increased by $42.9, reflecting increased expenditures
primarily in North America Tonnage Gases. In 2008, capital lease expenditures of $195.7 increased
$112.9 from 2007, reflecting higher project spending, primarily in Europe and Asia.
2010 Outlook
Capital expenditures for new plant and equipment in 2010 on a GAAP basis are expected to be between
$1,000 and $1,200, and on a non-GAAP basis are expected to be between $1,300 and $1,500. The
majority of spending is expected in the Tonnage Gases segment, with approximately $1,000 associated
with new plants. It is anticipated that capital expenditures will be funded principally with cash
from continuing operations. In addition, the Company intends to continue to evaluate acquisition
opportunities and investments in equity affiliates.
31
Financing Activities
2009 vs. 2008
Cash provided by financing activities increased $800.0, primarily as a result of share repurchases
of $793.4 in 2008. In 2009, the Company did not purchase any of its outstanding shares.
2008 vs. 2007
Cash used for financing activities increased $683.6, primarily due to:
|
|
A net decrease in borrowings of $299.5. Company borrowings (short- and long-term proceeds,
net of repayments) totaled $305.5 as compared to $605.0. |
|
|
|
An increase in cash used for the purchase of treasury stock of $218.2. |
|
|
|
Lower proceeds of $115.4 from stock option exercises. |
Financing and Capital Structure
Capital needs in 2009 were satisfied primarily with cash from operations. At the end of 2009, total
debt outstanding was $4.5 billion compared to $4.0 billion, and cash and cash items were $.5
billion compared to $.1 billion. Total debt at 30 September 2009 and 2008, expressed as a
percentage of the sum of total debt, shareholders equity, and minority interest, was 47.7% and
43.4%, respectively.
Long-term debt proceeds of $610.5 included $400.0 from the issuance of a fixed-rate 4.375% 10-year
senior note and $158.8 from Industrial Revenue Bonds. Refer to Note 14 to the Consolidated
Financial Statements for additional information.
In September 2008, the Company increased the size of its multicurrency committed revolving credit
facility, maturing May 2011, from $1,200 to $1,450. Fifteen major global banks provide commitments
under this facility, and the Company is confident that funding would be available from these banks
if it were necessary to draw on the facility. As of 30 September 2009, no borrowings were
outstanding under this facility. Additional commitments of $396.6 are maintained by the Companys
foreign subsidiaries, of which $294.8 was borrowed and outstanding at 30 September 2009. There was
no commercial paper outstanding at 30 September 2009.
On 20 September 2007, the Board of Directors authorized the repurchase of up to $1.0 billion of the
Companys outstanding common stock. During 2009, the Company did not purchase any shares under this
authorization. At 30 September 2009, $649.2 in share repurchase authorization remained.
2010 Outlook
The Company projects a limited need to access the long-term debt markets in 2010 due to its
projected operating cash flows and its available cash balance at the end of 2009. The Company
expects that it will continue to be able to access the commercial paper and other short-term debt
markets.
Dividends
On 19 March 2009, the Board of Directors increased the quarterly cash dividend from $.44 per share
to $.45 per share. Dividends are declared by the Board of Directors and are usually paid during the
sixth week after the close of the fiscal quarter.
32
CONTRACTUAL OBLIGATIONS
The Company is obligated to make future payments under various contracts, such as debt agreements,
lease agreements, unconditional purchase obligations, and other long-term obligations. The
following table summarizes these obligations of the Company as of 30 September 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
Total |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Long-term debt obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt maturities |
|
$ |
4,159 |
|
|
$ |
452 |
|
|
$ |
193 |
|
|
$ |
455 |
|
|
$ |
310 |
|
|
$ |
469 |
|
|
$ |
2,280 |
|
Contractual interest |
|
|
765 |
|
|
|
128 |
|
|
|
122 |
|
|
|
108 |
|
|
|
88 |
|
|
|
69 |
|
|
|
250 |
|
Capital leases |
|
|
11 |
|
|
|
3 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
Operating leases |
|
|
227 |
|
|
|
58 |
|
|
|
45 |
|
|
|
32 |
|
|
|
26 |
|
|
|
22 |
|
|
|
44 |
|
Pension obligations |
|
|
1,144 |
|
|
|
360 |
|
|
|
145 |
|
|
|
75 |
|
|
|
80 |
|
|
|
150 |
|
|
|
334 |
|
Unconditional purchase obligations |
|
|
1,785 |
|
|
|
611 |
|
|
|
120 |
|
|
|
112 |
|
|
|
115 |
|
|
|
120 |
|
|
|
707 |
|
|
Total Contractual Obligations |
|
$ |
8,091 |
|
|
$ |
1,612 |
|
|
$ |
627 |
|
|
$ |
783 |
|
|
$ |
620 |
|
|
$ |
831 |
|
|
$ |
3,618 |
|
|
Long-Term Debt Obligations
The long-term debt obligations include the maturity payments of long-term debt, including current
portion, and the related contractual interest obligations. Refer to Note 14 to the Consolidated
Financial Statements for additional information on long-term debt.
Contractual interest is the interest the Company is contracted to pay on the long-term debt
obligations without taking into account the interest impact of interest rate swaps related to any
of this debt, which at current interest rates would slightly decrease contractual interest. The
Company had $1,413 of long-term debt subject to variable interest rates at 30 September 2009,
excluding fixed-rate debt that has been swapped to variable-rate debt. The rate assumed for the
variable interest component of the contractual interest obligation was the rate in effect at 30
September 2009. Variable interest rates are primarily determined by interbank offer rates and by
U.S. short-term tax-exempt interest rates.
Leases
Refer to Note 11 to the Consolidated Financial Statements for additional information on capital and
operating leases.
Pension Obligations
The amounts in the table above represent the current estimated cash payments to be made by the
Company that in total equal the recognized pension liabilities. Refer to Note 15 to the
Consolidated Financial Statements. These payments are based upon the current valuation assumptions
and regulatory environment.
The total accrued liability for pension benefits is impacted by interest rates, plan demographics,
actual return on plan assets, continuation or modification of benefits, and other factors. Such
factors can significantly impact the amount of the liability and related contributions.
Unconditional Purchase Obligations
Most of the Companys long-term unconditional purchase obligations relate to feedstock supply for
numerous HyCO (hydrogen, carbon monoxide, and syngas) facilities. The price of feedstock supply is
principally related to the price of natural gas. However, long-term take-or-pay sales contracts to
HyCO customers are generally matched to the term of the feedstock supply obligations and provide
recovery of price increases in the feedstock supply. Due to the matching of most long-term
feedstock supply obligations to customer sales contracts, the Company does not believe these
purchase obligations would have a material effect on its financial condition or results of
operations.
The above unconditional purchase obligations include other product supply commitments and also
electric power and natural gas supply purchase obligations. In addition, purchase commitments to
spend approximately $369 for additional plant and equipment are included in the unconditional
purchase obligations in 2010.
The Company also purchases materials, energy, capital equipment, supplies, and services as part of
the ordinary course of business under arrangements that are not unconditional purchase obligations.
The majority of such purchases are for raw materials and energy, which are obtained under
requirements-type contracts at market prices. In total, purchases by the Company approximate $6.4
billion annually, including the unconditional purchase obligations in the table above.
33
Income Tax Liabilities
Noncurrent deferred income tax liabilities as of 30 September 2009 were $357.9. Refer to Note 20 to
the Consolidated Financial Statements. Tax liabilities related to uncertain tax positions as of 30
September 2009 were $194.9. These tax liabilities were not included in the Contractual Obligations
table, as it is impractical to determine a cash impact by year.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has entered into certain guarantee agreements as discussed in Note 16 to the
Consolidated Financial Statements. The Company is not a primary beneficiary in any material
variable interest entity. The Company does not have any derivative instruments indexed to its own
stock. The Companys off-balance sheet arrangements are not reasonably likely to have a material
impact on financial condition, changes in financial condition, results of operations, or liquidity.
RELATED PARTY TRANSACTIONS
The Companys principal related parties are equity affiliates operating primarily in the industrial
gas business. The Company did not engage in any material transactions involving related parties
that included terms or other aspects that differ from those which would be negotiated at arms
length with clearly independent parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys earnings, cash flows, and financial position are exposed to market risks relating to
fluctuations in interest rates and foreign currency exchange rates. It is the Companys policy to
minimize its cash flow exposure to adverse changes in currency exchange rates and to manage the
financial risks inherent in funding with debt capital.
The Company mitigates adverse energy price impacts through its cost pass-through contracts with
customers, as well as price increases. The Company has entered into a limited number of commodity
swap contracts in order to reduce the cash flow exposure to changes in the price of natural gas
relative to certain oil-based feedstocks.
The Company addresses these financial exposures through a controlled program of risk management
that includes the use of derivative financial instruments. Counterparties to all derivative
contracts are major financial institutions, thereby minimizing the risk of credit loss. All
instruments are entered into for other than trading purposes. For details on the types and use of
these derivative instruments and the major accounting policies, see Notes 1 and 12 to the
Consolidated Financial Statements.
The Companys derivative and other financial instruments consist of long-term debt (including
current portion), interest rate swaps, cross currency interest rate swaps, foreign exchange-forward
contracts, foreign exchange-option contracts, and commodity swaps. The net market value of these
financial instruments combined is referred to below as the net financial instrument position. The
net financial instrument position does not include other investments of $19.4 at 30 September 2009
and $15.6 at
30 September 2008 as disclosed in Note 13 to the Consolidated Financial Statements.
At 30 September 2009 and 2008, the net financial instrument position was a liability of $4,510 and
$3,629, respectively. The increase in the net financial instrument position was due primarily to
the issuance of new long-term debt and the impact of lower interest rates on the market value of
long-term debt.
The analysis below presents the sensitivity of the market value of the Companys financial
instruments to selected changes in market rates and prices. The range of changes chosen reflects
the Companys view of changes that are reasonably possible over a one-year period. Market values
are the present value of projected future cash flows based on the market rates and prices chosen.
The market values for interest rate risk and foreign currency risk are calculated by the Company
using a third-party software model that utilizes standard pricing models to determine the present
value of the instruments based on market conditions (interest rates, spot and forward exchange
rates, and implied volatilities) as of the valuation date.
34
Interest Rate Risk
The Companys debt portfolio, including swap agreements, as of 30 September 2009 primarily
comprised debt denominated in Euros (49%) and U.S. dollars (37%), including the effect of currency
swaps. This debt portfolio is composed of 55% fixed-rate debt and 45% variable-rate debt. Changes
in interest rates have different impacts on the fixed- and variable-rate portions of the Companys
debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the
net financial instrument position but has no impact on interest incurred or cash flows. A change in
interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash
flows but does not impact the net financial instrument position.
The sensitivity analysis related to the fixed portion of the Companys debt portfolio assumes an
instantaneous 100 basis point move in interest rates from the level at 30 September 2009, with all
other variables held constant. A 100 basis point increase or decrease in market interest rates
would result in a decrease or increase, respectively, of $92 in the net liability position of
financial instruments at 30 September 2009.
Based on the variable-rate debt included in the Companys debt portfolio, including the interest
rate swap agreements, as of 30 September 2009, a 100 basis point increase or decline in interest
rates would result in an additional $20 of interest incurred or lower interest incurred by $20,
respectively.
Foreign Currency Exchange Rate Risk
The sensitivity analysis assumes an instantaneous 10% change in the foreign currency exchange rates
from their levels at 30 September 2009, with all other variables held constant. A 10% strengthening
or weakening of the functional currency of an entity versus all other currencies would result in a
decrease or increase, respectively, of $369 in the net liability position of financial instruments.
The primary currencies for which the Company has exchange rate exposure are the U.S. dollar versus
the Euro and the U.S. dollar versus the Pound Sterling. Foreign currency debt, cross currency
interest rate swaps, and foreign exchange-forward contracts are used in countries where the Company
does business, thereby reducing its net asset exposure. Foreign exchange-forward contracts are also
used to hedge the Companys firm and highly anticipated foreign currency cash flows, along with
foreign exchange-option contracts. Thus, there is either an asset/liability or cash flow exposure
related to all of the financial instruments in the above sensitivity analysis for which the impact
of a movement in exchange rates would be in the opposite direction and materially equal (or more
favorable in the case of purchased foreign exchange-option contracts) to the impact on the
instruments in the analysis.
Commodity Price Risk
The sensitivity analysis assumes an instantaneous 50% change in the price of natural gas and
oil-based feedstocks, at 30 September 2009, with all other variables held constant. The impact of a
50% change in these prices would not have a significant impact on the net liability position of
financial instruments at 30 September 2009.
INFLATION
The financial statements are presented in accordance with U.S. generally accepted accounting
principles and do not fully reflect the impact of prior years inflation. While the U.S. inflation
rate has been modest for several years, the Company operates in many countries with both inflation
and currency issues. The ability to pass on inflationary cost increases is an uncertainty due to
general economic conditions and competitive situations. It is estimated that the cost of replacing
the Companys plant and equipment today is greater than its historical cost. Accordingly,
depreciation expense would be greater if the expense were stated on a current cost basis.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1 to the Consolidated Financial Statements describes the Companys major accounting policies.
Judgments and estimates of uncertainties are required in applying the Companys accounting policies
in many areas. However, application of the critical accounting policies discussed below requires
managements significant judgments, often as the result of the need to make estimates of matters
that are inherently uncertain. If actual results were to differ materially from the estimates made,
the reported results could be materially affected. The Companys management has reviewed these
critical accounting policies and estimates and related disclosures with its audit committee.
35
Depreciable Lives of Plant and Equipment
Net plant and equipment at 30 September 2009 totaled $6,859.6, and depreciation expense totaled
$815.9 during 2009. Plant and equipment is recorded at cost and depreciated using the straight-line
method, which deducts equal amounts of the cost of each asset from earnings every year over its
estimated economic useful life.
Economic useful life is the duration of time an asset is expected to be productively employed by
the Company, which may be less than its physical life. Assumptions on the following factors, among
others, affect the determination of estimated economic useful life: wear and tear, obsolescence,
technical standards, contract life, market demand, competitive position, raw material availability,
and geographic location.
The estimated economic useful life of an asset is monitored to determine its appropriateness,
especially in light of changed business circumstances. For example, changes in technology, changes
in the estimated future demand for products, or excessive wear and tear may result in a shorter
estimated useful life than originally anticipated. In these cases, the Company would depreciate the
remaining net book value over the new estimated remaining life, thereby increasing depreciation
expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the
adjustment to the useful life decreases depreciation expense per year on a prospective basis.
The Company has numerous long-term customer supply contracts, particularly in the gases on-site
business within the Tonnage Gases segment. These contracts principally have initial contract terms
of 15 to 20 years. There are also long-term customer supply contracts associated with the tonnage
gases business within the Electronics and Performance Materials segment. These contracts
principally have initial terms of 10 to 15 years. Depreciable lives of the production assets
related to long-term contracts are matched to the contract lives. Extensions to the contract term
of supply frequently occur prior to the expiration of the initial term. As contract terms are
extended, the depreciable life of the remaining net book value of the production assets is adjusted
to match the new contract term.
The depreciable lives of production facilities within the Merchant Gases segment are principally 15
years. Customer contracts associated with products produced at these types of facilities typically
have a much shorter term. The depreciable lives of production facilities within the Electronics and
Performance Materials segment, where there is not an associated long-term supply agreement, range
from 10 to 15 years. These depreciable lives have been determined based on historical experience
combined with judgment on future assumptions such as technological advances, potential
obsolescence, competitors actions, etc. Management monitors its assumptions and may potentially
need to adjust depreciable life as circumstances change.
A change in the depreciable life by one year for production facilities within the Merchant Gases
and Electronics and Performance Materials segments for which there is not an associated long-term
customer supply agreement would impact annual depreciation expense as summarized below:
|
|
|
|
|
|
|
|
|
|
|
Decrease Life |
|
|
Increase Life |
|
|
|
By 1 Year |
|
|
By 1 Year |
|
|
Merchant Gases |
|
$ |
20 |
|
|
$ |
(16 |
) |
Electronics and Performance Materials |
|
$ |
15 |
|
|
$ |
(13 |
) |
|
Impairment of Long-Lived Assets
Plant and Equipment
Net plant and equipment at 30 September 2009 totaled $6,859.6. Plant and equipment held for use is
grouped for impairment testing at the lowest level for which there is identifiable cash flows.
Impairment testing of the asset group occurs whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. Such circumstances would include a
significant decrease in the market value of a long-lived asset grouping, a significant adverse
change in the manner in which the asset grouping is being used or in its physical condition, a
history of operating or cash flow losses associated with the use of the asset grouping, or changes
in the expected useful life of the long-lived assets.
If such circumstances are determined to exist, an estimate of undiscounted future cash flows
produced by that asset group is compared to the carrying value to determine whether impairment
exists. If an asset group is determined to be impaired, the loss is measured based on the
difference between the asset groups fair value and its carrying value. An estimate of the asset
groups fair value is based on the discounted value of its estimated cash flows. Assets to be
disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell.
36
The assumptions underlying cash flow projections represent managements best estimates at the time
of the impairment review. Factors that management must estimate include industry and market
conditions, sales volume and prices, costs to produce, inflation, etc. Changes in key assumptions
or actual conditions that differ from estimates could result in an impairment charge. The Company
uses reasonable and supportable assumptions when performing impairment reviews and cannot predict
the occurrence of future events and circumstances that could result in impairment charges.
Goodwill
The purchase method of accounting for business combinations currently requires the Company to make
use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair
value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the
aggregate purchase price over the fair value of net assets of an acquired entity. Goodwill,
including goodwill associated with equity affiliates of $56.1, was $972.1 as of 30 September 2009.
The majority of the Companys goodwill is assigned to reporting units within the Merchant Gases and
Electronics and Performance Materials segments. Disclosures related to goodwill are included in
Note 9 to the Consolidated Financial Statements.
The Company performs an impairment test annually in the fourth quarter of the fiscal year. In
addition, goodwill would be tested more frequently if changes in circumstances or the occurrence of
events indicated that potential impairment exists. The impairment test requires the Company to
compare the fair value of business reporting units to carrying value, including assigned goodwill.
The Company has designated its reporting units for goodwill impairment testing as one level below
the operating segment for which discrete financial information is available and whose operating
results are reviewed by segment managers regularly. Currently, the Company has four business
segments and fifteen reporting units. Reporting units are primarily based on products and
geographic locations within each business segment.
In the fourth quarter of 2009, the Company conducted the required annual test of goodwill for
impairment. There were no indications of impairment.
The Company primarily uses an income approach valuation model, representing the present value of
future cash flows, to determine fair value of a reporting unit. The Companys valuation model uses
a five-year growth period for the business and an estimated exit trading multiple. Management has
determined the income approach valuation model represents the most appropriate valuation
methodology due to the capital intensive nature of the business, long-term contractual nature of
the business, relatively consistent cash flows generated by the Companys reporting units, and
limited comparables within the industry. The principal assumptions utilized in the Companys income
approach valuation model include revenue growth rate, operating profit margins, discount rate, and
exit multiple. Revenue growth rate and operating profit assumptions are consistent with those
utilized in the Companys operating plan and long-term financial planning process. The discount
rate assumption is calculated based upon an estimated weighted average cost of capital which
includes factors such as the risk free rate of return, cost of debt, and expected equity premiums.
The exit multiple is determined from comparable industry transactions. Also, the expected cash
flows consider the customer attrition rate assumption, which is based on historical experience and
current and future expected market conditions. Management judgment is required in the determination
of each assumption utilized in the valuation model, and actual results could differ from the
estimates.
Intangible Assets
Intangible assets at 30 September 2009 totaled $262.6 and consisted primarily of customer
relationships that were acquired as part of business combinations. The Company has no acquired
intangible assets with indefinite lives. Intangible assets are tested for impairment as part of the
long-lived asset grouping impairment tests. Impairment testing of the asset group occurs whenever
events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. See impairment discussion above under Plant and Equipment for a description of how
impairment losses are determined.
Equity Investments
Investments in and advances to equity affiliates totaled $868.1 at 30 September 2009. The majority
of the Companys investments are non-publicly traded ventures with other companies in the
industrial gas business. Summarized financial information of equity affiliates is included in Note
7 to the Consolidated Financial Statements. Equity investments are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the investment may not be
recoverable.
37
In the event that a decline in fair value of an investment occurs, and the decline in value is
considered to be other than temporary, an impairment loss would be recognized. Managements
estimate of fair value of an investment is based on estimated discounted future cash flows expected
to be generated by the investee. Changes in key assumptions about the financial condition of an
investee or actual conditions that differ from estimates could result in an impairment charge.
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax
assets and liabilities are recognized for the tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities measured using the enacted tax rate. At
30 September 2009, accrued income taxes and deferred tax liabilities amounted to $42.9 and $357.9,
respectively. Tax liabilities related to uncertain tax positions as of 30 September 2009 were
$194.9. Current and noncurrent deferred tax assets equaled $278.1 at 30 September 2009. Income tax
expense was $185.3 for the year ended 30 September 2009. Management judgment is required in
determining income tax expense and the related balance sheet amounts. Judgments are required
concerning the ultimate outcome of tax contingencies and the realization of deferred tax assets.
Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual
results of operations, and the final audit of tax returns by taxing authorities. Tax assessments
may arise several years after tax returns have been filed. The Company believes that its recorded
tax liabilities adequately provide for the probable outcome of these assessments.
Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when
there are not sufficient sources of future taxable income to realize the benefit of the operating
losses or tax credit carryforwards, these deferred tax assets are reduced by a valuation allowance.
A valuation allowance is recognized if, based on the weight of available evidence, it is considered
more likely than not that some portion or all of the deferred tax asset will not be realized. The
factors used to assess the likelihood of realization include forecasted future taxable income and
available tax planning strategies that could be implemented to realize or renew net deferred tax
assets in order to avoid the potential loss of future tax benefits. The effect of a change in the
valuation allowance is reported in the current period tax expense.
A 1% point increase/decrease in the Companys effective tax rate would have decreased/increased net
income by approximately $8.
Pension Benefits
The amounts recognized in the consolidated financial statements for pension benefits under the
defined benefit plans are determined on an actuarial basis utilizing numerous assumptions. The
discussion that follows provides information on the significant assumptions and expense associated
with the defined benefit plans.
Actuarial models are used in calculating the pension expense and liability related to the various
defined benefit plans. These models have an underlying assumption that the employees render service
over their service lives on a relatively consistent basis; therefore, the expense of benefits
earned should follow a similar pattern.
Several assumptions and statistical variables are used in the models to calculate the expense and
liability related to the plans. The Company determines assumptions about the discount rate, the
expected rate of return on plan assets, and the rate of compensation increase. Note 15 to the
Consolidated Financial Statements includes disclosure of these rates on a weighted average basis
for both the domestic and international plans. The actuarial models also use assumptions on
demographic factors such as retirement age, mortality, and turnover rates. The Company believes the
actuarial assumptions are reasonable. However, actual results could vary materially from these
actuarial assumptions due to economic events and different rates of retirement, mortality, and
turnover.
One of the critical assumptions used in the actuarial models is the discount rate. This rate
reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities
corresponding to the expected duration of the benefit obligations on the annual measurement date
for each of the various plans. The rate is used to discount the future cash flows of benefit
obligations back to the measurement date. For the U.S. Plans, the timing and amount of expected
benefit cash flows are matched with an interest rate curve applicable to the returns of high
quality corporate bonds over the expected benefit payment period to determine an overall effective
discount rate. In making this determination, the Company considers the yields on the Citigroup
Pension Discount Curve and the Citigroup Above Median Pension Discount Curve, the general movement
of interest rates, and the changes in those rates from one period to the next. This rate can change
from year-to-year based on market conditions that affect corporate bond
38
yields. A higher discount rate decreases the present value of the benefit obligations and results
in lower pension expense. A 50 basis point increase/decrease in the discount rate
decreases/increases pension expense by approximately $20 per year.
The expected rate of return on plan assets represents the average rate of return to be earned by
plan assets over the period that the benefits included in the benefit obligation are to be paid.
The expected return on plan assets assumption is based on an estimated weighted average of
long-term returns of major asset classes. In determining asset class returns, the Company takes
into account long-term returns of major asset classes, historical performance of plan assets, and
related value-added of active management, as well as the current interest rate environment. Asset
allocation is determined by an asset/ liability study that takes into account plan demographics,
asset returns, and acceptable levels of risk. Lower returns on the plan assets result in higher
pension expense. A 50 basis point increase/decrease in the estimated rate of return on plan assets
decreases/increases pension expense by approximately $12 per year.
The Company uses a market-related valuation method for recognizing investment gains or losses.
Investment gains or losses are the difference between the expected and actual return based on the
market-related value of assets. This method recognizes investment gains or losses over a five-year
period from the year in which they occur, which reduces year-to-year volatility. Expense in future
periods will be impacted as gains or losses are recognized in the market-related value of assets
over the five-year period.
The expected rate of compensation increase is another key assumption. The Company determines this
rate based on review of the underlying long-term salary increase trend characteristic of labor
markets and historical experience, as well as comparison to peer companies. A 50 basis point
increase/decrease in the expected rate of compensation increases/decreases pension expense by
approximately $12 per year.
Loss Contingencies
In the normal course of business the Company encounters contingencies, i.e., situations involving
varying degrees of uncertainty as to the outcome and effect on the Company. The Company accrues a
liability for loss contingencies when it is considered probable that a liability has been incurred
and the amount of loss can be reasonably estimated. When only a range of possible loss can be
established, the most probable amount in the range is accrued. If no amount within this range is a
better estimate than any other amount within the range, the minimum amount in the range is accrued.
Contingencies include those associated with litigation and environmental matters for which the
Companys accounting policy is discussed in Note 1 to the Consolidated Financial Statements, and
particulars are provided in Note 16 to the Consolidated Financial Statements. Significant judgment
is required in both determining probability and whether the amount of loss associated with a
contingency can be reasonably estimated. These determinations are made based on the best available
information at the time. As additional information becomes available, the Company reassesses
probability and estimates of loss contingencies. Revisions in the estimates associated with loss
contingencies could have a significant impact on the Companys results of operations in the period
in which an accrual for loss contingencies is recorded or adjusted. For example, due to the
inherent uncertainties related to environmental exposures, a significant increase to environmental
liabilities could occur if a new site is designated, the scope of remediation is increased, or the
Companys proportionate share is increased. Similarly, a future charge for regulatory fines or
damage awards associated with litigation could have a significant impact on the Companys net
income in the period in which it is recorded.
NEW ACCOUNTING GUIDANCE
See Note 2 to the Consolidated Financial Statements for information concerning the Companys
implementation and impact of new accounting guidance.
39
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on
managements reasonable expectations and assumptions as of the date this report is filed regarding
important risk factors. Actual performance and financial results may differ materially from
projections and estimates expressed in the forward-looking statements because of many factors not
anticipated by management, including, without limitation, longer than anticipated delay in global
economic recovery; renewed deterioration in economic and business conditions; weakening demand for
the Companys products; future financial and operating performance of major customers and
industries served by the Company; inability to collect receivables from or recovery of payments
made by customers in bankruptcy proceedings; unanticipated contract terminations or customer
cancellations or postponement of projects and sales; asset impairments due to economic conditions
or specific product or customer events; costs associated with future restructuring actions which
are not currently planned or anticipated; the impact of competitive products and pricing;
interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated
increased energy and raw material costs from customers; costs and outcomes of litigation or
regulatory activities; consequences of acts of war or terrorism impacting the United States and
other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to
current portfolio management and cost reduction actions; the success of implementing cost reduction
programs and achieving anticipated acquisition synergies; the timing, impact, and other
uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates
and foreign currencies from that currently anticipated; the continued availability of capital
funding sources in all of the Companys foreign operations; the impact of new or changed
environmental, healthcare, tax or other legislation and regulations in jurisdictions in which the
Company and its affiliates operate; the impact of new or changed
financial accounting guidance; and the
timing and rate at which tax credits can be utilized. The Company disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking statements contained in
this document to reflect any change in the Companys assumptions, beliefs, or expectations or any
change in events, conditions, or circumstances upon which any such forward-looking statements are
based.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Air Products management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control over financial reporting, which is defined in the
following sentences, is a process designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles and includes those
policies and procedures that:
(i) |
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; |
|
(ii) |
|
provide reasonable assurance that the transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and |
|
(iii) |
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect on
the financial statements. |
Because of inherent limitations, internal control over financial reporting can only provide
reasonable assurance and may not prevent or detect misstatements. Further, because of changes in
conditions, the effectiveness of our internal control over financial reporting may vary over time.
Our processes contain self-monitoring mechanisms, and actions are taken to correct deficiencies as
they are identified.
Management has evaluated the effectiveness of its internal control over financial reporting based
on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded
that, as of 30 September 2009, the Companys internal control over financial reporting was
effective.
KPMG LLP, an independent registered public accounting firm, has issued their opinion on the
Companys internal control over financial reporting as of 30 September 2009 as stated in their
report which appears herein.
|
|
|
|
|
|
|
/s/ John E. McGlade
|
|
|
|
/s/ Paul E. Huck |
|
|
|
|
|
|
Paul E. Huck
|
|
|
Chairman, President, and
|
|
|
|
Senior Vice President and |
|
|
Chief Executive Officer
|
|
|
|
Chief Financial Officer |
|
|
25 November 2009
|
|
|
|
25 November 2009 |
|
|
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Air Products and Chemicals, Inc.:
We have audited the accompanying consolidated balance sheets of Air Products and Chemicals, Inc.
and Subsidiaries (the Company) as of 30 September 2009 and 2008, and the related consolidated
income statements
and consolidated statements of shareholders equity and cash flows for each of the years in the
three-year period ended 30 September 2009. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule referred to in item
15(a)(2) in this Form 10-K. We also have audited the Companys internal control over financial
reporting as of 30 September 2009, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Companys management is responsible for these consolidated financial statements and financial
statement schedule, for maintaining effective internal control over financial reporting, and for
its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these consolidated financial statements
and
financial statement schedule and an opinion on the Companys
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Air Products and Chemicals, Inc. and Subsidiaries as
of 30 September 2009 and 2008, and the results of their operations and their cash flows for each of
the years in the three-year period ended 30 September 2009, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. Also in our opinion, Air
Products and Chemicals, Inc. and Subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of 30 September 2009, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
effective 1 October 2007 (incorporated into Accounting Standards Codification (ASC) Topic 740,
Income Taxes) and Statement of Financial Accounting Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, as of 30 September 2007 (incorporated into
ASC Topic 715, CompensationRetirement Plans).
|
|
|
/s/ KPMG LLP |
|
|
Philadelphia, Pennsylvania |
|
|
25 November 2009 |
|
|
42
The Consolidated Financial Statements
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 September (Millions of dollars, except for share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
8,256.2 |
|
|
$ |
10,414.5 |
|
|
$ |
9,148.2 |
|
|
Cost of sales |
|
|
6,042.1 |
|
|
|
7,693.1 |
|
|
|
6,698.9 |
|
Selling and administrative |
|
|
943.4 |
|
|
|
1,090.4 |
|
|
|
999.8 |
|
Research and development |
|
|
116.3 |
|
|
|
130.7 |
|
|
|
129.0 |
|
Global cost reduction plan |
|
|
298.2 |
|
|
|
|
|
|
|
13.7 |
|
Customer contract settlement |
|
|
|
|
|
|
|
|
|
|
(36.8 |
) |
Customer bankruptcy |
|
|
22.2 |
|
|
|
|
|
|
|
|
|
Pension settlement |
|
|
10.7 |
|
|
|
30.3 |
|
|
|
10.3 |
|
Other income, net |
|
|
23.0 |
|
|
|
25.8 |
|
|
|
42.3 |
|
|
Operating Income |
|
|
846.3 |
|
|
|
1,495.8 |
|
|
|
1,375.6 |
|
Equity affiliates income |
|
|
112.2 |
|
|
|
145.0 |
|
|
|
114.4 |
|
Interest expense |
|
|
121.9 |
|
|
|
162.0 |
|
|
|
162.4 |
|
|
Income from Continuing Operations before Taxes and Minority Interest |
|
|
836.6 |
|
|
|
1,478.8 |
|
|
|
1,327.6 |
|
Income tax provision |
|
|
185.3 |
|
|
|
365.3 |
|
|
|
287.2 |
|
Minority interest in earnings of subsidiary companies |
|
|
11.4 |
|
|
|
23.0 |
|
|
|
20.8 |
|
|
Income from Continuing Operations |
|
|
639.9 |
|
|
|
1,090.5 |
|
|
|
1,019.6 |
|
Income (Loss) from Discontinued Operations, net of tax |
|
|
(8.6 |
) |
|
|
(180.8 |
) |
|
|
16.0 |
|
|
Net Income |
|
$ |
631.3 |
|
|
$ |
909.7 |
|
|
$ |
1,035.6 |
|
|
Weighted Average of Common Shares Outstanding (in millions) |
|
|
209.9 |
|
|
|
212.2 |
|
|
|
216.2 |
|
Weighted Average of Common Shares Outstanding Assuming
Dilution (in millions) |
|
|
213.5 |
|
|
|
219.2 |
|
|
|
223.2 |
|
|
Basic Earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.05 |
|
|
$ |
5.14 |
|
|
$ |
4.72 |
|
Income (loss) from discontinued operations |
|
|
(.04 |
) |
|
|
(.85 |
) |
|
|
.07 |
|
|
Net Income |
|
$ |
3.01 |
|
|
$ |
4.29 |
|
|
$ |
4.79 |
|
|
Diluted Earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.00 |
|
|
$ |
4.97 |
|
|
$ |
4.57 |
|
Income (loss) from discontinued operations |
|
|
(.04 |
) |
|
|
(.82 |
) |
|
|
.07 |
|
|
Net Income |
|
$ |
2.96 |
|
|
$ |
4.15 |
|
|
$ |
4.64 |
|
|
The accompanying notes are an integral part of these statements.
43
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
30 September (Millions of dollars, except for share data) |
|
2009 |
|
|
2008 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash items |
|
$ |
488.2 |
|
|
$ |
103.5 |
|
Trade receivables, less allowances for doubtful accounts
of $65.0 in 2009 and $36.1 in 2008 |
|
|
1,363.2 |
|
|
|
1,575.2 |
|
Inventories |
|
|
509.6 |
|
|
|
503.7 |
|
Contracts in progress, less progress billings |
|
|
132.3 |
|
|
|
152.0 |
|
Prepaid expenses |
|
|
99.7 |
|
|
|
107.7 |
|
Other receivables and current assets |
|
|
399.8 |
|
|
|
349.4 |
|
Current assets of discontinued operations |
|
|
5.0 |
|
|
|
56.6 |
|
|
Total Current Assets |
|
|
2,997.8 |
|
|
|
2,848.1 |
|
|
Investment in Net Assets of and Advances to Equity Affiliates |
|
|
868.1 |
|
|
|
822.6 |
|
Plant and Equipment, at cost |
|
|
15,751.3 |
|
|
|
14,988.6 |
|
Less: Accumulated depreciation |
|
|
8,891.7 |
|
|
|
8,373.8 |
|
|
Plant and Equipment, net |
|
|
6,859.6 |
|
|
|
6,614.8 |
|
|
Goodwill |
|
|
916.0 |
|
|
|
928.1 |
|
Intangible Assets, net |
|
|
262.6 |
|
|
|
289.6 |
|
Noncurrent Capital Lease Receivables |
|
|
687.0 |
|
|
|
505.3 |
|
Other Noncurrent Assets |
|
|
438.0 |
|
|
|
504.1 |
|
Noncurrent Assets of Discontinued Operations |
|
|
|
|
|
|
58.7 |
|
|
Total Noncurrent Assets |
|
|
10,031.3 |
|
|
|
9,723.2 |
|
|
Total Assets |
|
$ |
13,029.1 |
|
|
$ |
12,571.3 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Payables and accrued liabilities |
|
$ |
1,660.4 |
|
|
$ |
1,665.6 |
|
Accrued income taxes |
|
|
42.9 |
|
|
|
87.0 |
|
Short-term borrowings |
|
|
333.8 |
|
|
|
419.3 |
|
Current portion of long-term debt |
|
|
452.1 |
|
|
|
32.1 |
|
Current liabilities of discontinued operations |
|
|
14.4 |
|
|
|
8.0 |
|
|
Total Current Liabilities |
|
|
2,503.6 |
|
|
|
2,212.0 |
|
|
Long-Term Debt |
|
|
3,715.6 |
|
|
|
3,515.4 |
|
Deferred Income and Other Noncurrent Liabilities |
|
|
1,522.0 |
|
|
|
1,049.2 |
|
Deferred Income Taxes |
|
|
357.9 |
|
|
|
626.6 |
|
Noncurrent Liabilities of Discontinued Operations |
|
|
|
|
|
|
1.2 |
|
|
Total Noncurrent Liabilities |
|
|
5,595.5 |
|
|
|
5,192.4 |
|
|
Total Liabilities |
|
|
8,099.1 |
|
|
|
7,404.4 |
|
|
Minority Interest in Subsidiary Companies |
|
|
138.1 |
|
|
|
136.2 |
|
Commitments and ContingenciesSee Note 16 |
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
|
|
|
|
|
|
Common stock (par value $1 per share; issued 2009 and 2008249,455,584 shares) |
|
|
249.4 |
|
|
|
249.4 |
|
Capital in excess of par value |
|
|
822.9 |
|
|
|
811.7 |
|
Retained earnings |
|
|
7,234.6 |
|
|
|
6,990.2 |
|
Accumulated other comprehensive income (loss) |
|
|
(1,161.8 |
) |
|
|
(549.3 |
) |
Treasury stock, at cost (200938,195,320 shares; 200840,120,957 shares) |
|
|
(2,353.2 |
) |
|
|
(2,471.3 |
) |
|
Total Shareholders Equity |
|
|
4,791.9 |
|
|
|
5,030.7 |
|
|
Total Liabilities and Shareholders Equity |
|
$ |
13,029.1 |
|
|
$ |
12,571.3 |
|
|
The accompanying notes are an integral part of these statements.
44
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 September (Millions of dollars) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
631.3 |
|
|
$ |
909.7 |
|
|
$ |
1,035.6 |
|
Adjustments to reconcile income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
840.3 |
|
|
|
869.0 |
|
|
|
789.8 |
|
Impairment of assets of continuing operations |
|
|
69.2 |
|
|
|
|
|
|
|
|
|
Impairment of assets of discontinued operations |
|
|
49.5 |
|
|
|
314.8 |
|
|
|
|
|
(Gain) loss on sale of discontinued operations |
|
|
(2.1 |
) |
|
|
(105.9 |
) |
|
|
15.3 |
|
Deferred income taxes |
|
|
(52.3 |
) |
|
|
36.9 |
|
|
|
13.7 |
|
Customer bankruptcy |
|
|
22.2 |
|
|
|
|
|
|
|
|
|
Undistributed earnings of unconsolidated affiliates |
|
|
(58.0 |
) |
|
|
(77.8 |
) |
|
|
(59.5 |
) |
Loss (gain) on sale of assets and investments |
|
|
3.6 |
|
|
|
.3 |
|
|
|
(27.6 |
) |
Share-based compensation |
|
|
60.4 |
|
|
|
61.4 |
|
|
|
70.9 |
|
Noncurrent capital lease receivables |
|
|
(186.7 |
) |
|
|
(192.6 |
) |
|
|
(70.8 |
) |
Other adjustments |
|
|
(7.8 |
) |
|
|
2.9 |
|
|
|
89.7 |
|
Working capital changes that provided (used) cash, excluding effects of
acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
159.0 |
|
|
|
(97.4 |
) |
|
|
(.2 |
) |
Inventories |
|
|
(17.7 |
) |
|
|
(34.9 |
) |
|
|
(6.0 |
) |
Contracts in progress |
|
|
12.5 |
|
|
|
95.2 |
|
|
|
(61.3 |
) |
Other receivables |
|
|
(11.9 |
) |
|
|
(120.6 |
) |
|
|
(43.1 |
) |
Payables and accrued liabilities |
|
|
(282.8 |
) |
|
|
36.2 |
|
|
|
(219.5 |
) |
Other working capital |
|
|
94.2 |
|
|
|
(17.6 |
) |
|
|
(27.1 |
) |
|
Cash Provided by Operating Activities |
|
|
1,322.9 |
|
|
|
1,679.6 |
|
|
|
1,499.9 |
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment |
|
|
(1,179.1 |
) |
|
|
(1,085.1 |
) |
|
|
(1,013.2 |
) |
Acquisitions, less cash acquired |
|
|
(32.7 |
) |
|
|
(72.0 |
) |
|
|
(539.1 |
) |
Investment in and advances to unconsolidated affiliates |
|
|
(24.5 |
) |
|
|
(2.2 |
) |
|
|
(.2 |
) |
Proceeds from sale of assets and investments |
|
|
57.9 |
|
|
|
19.6 |
|
|
|
97.2 |
|
Proceeds from sale of discontinued operations |
|
|
51.0 |
|
|
|
423.0 |
|
|
|
|
|
Proceeds from insurance settlements |
|
|
|
|
|
|
|
|
|
|
14.9 |
|
Change in restricted cash |
|
|
87.0 |
|
|
|
(183.6 |
) |
|
|
|
|
Other investing activities |
|
|
|
|
|
|
(19.5 |
) |
|
|
(42.7 |
) |
|
Cash Used for Investing Activities |
|
|
(1,040.4 |
) |
|
|
(919.8 |
) |
|
|
(1,483.1 |
) |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt proceeds |
|
|
610.5 |
|
|
|
580.1 |
|
|
|
855.9 |
|
Payments on long-term debt |
|
|
(82.9 |
) |
|
|
(95.7 |
) |
|
|
(429.4 |
) |
Net (decrease) increase in commercial paper and short-term borrowings |
|
|
(122.7 |
) |
|
|
(178.9 |
) |
|
|
178.5 |
|
Dividends paid to shareholders |
|
|
(373.3 |
) |
|
|
(349.3 |
) |
|
|
(312.0 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
(793.4 |
) |
|
|
(575.2 |
) |
Proceeds from stock option exercises |
|
|
54.4 |
|
|
|
87.4 |
|
|
|
202.8 |
|
Excess tax benefit from share-based compensation/other |
|
|
15.5 |
|
|
|
51.3 |
|
|
|
64.5 |
|
|
Cash Provided by (Used for) Financing Activities |
|
|
101.5 |
|
|
|
(698.5 |
) |
|
|
(14.9 |
) |
|
Effect of Exchange Rate Changes on Cash |
|
|
.7 |
|
|
|
1.7 |
|
|
|
7.6 |
|
|
Increase in Cash and Cash Items |
|
|
384.7 |
|
|
|
63.0 |
|
|
|
9.5 |
|
|
Cash and Cash ItemsBeginning of Year |
|
|
103.5 |
|
|
|
40.5 |
|
|
|
31.0 |
|
|
Cash and Cash ItemsEnd of Year |
|
$ |
488.2 |
|
|
$ |
103.5 |
|
|
$ |
40.5 |
|
|
The accompanying notes are an integral part of these statements.
45
Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 September |
|
|
|
|
|
|
|
|
|
(Millions of dollars, except for share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Number of Common Shares Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
209,334,627 |
|
|
|
215,355,685 |
|
|
|
217,250,572 |
|
Purchase of treasury shares |
|
|
|
|
|
|
(8,676,029 |
) |
|
|
(7,328,482 |
) |
Issuance of treasury shares for stock option and award plans |
|
|
1,925,637 |
|
|
|
2,654,971 |
|
|
|
5,433,595 |
|
|
Balance, end of year |
|
|
211,260,264 |
|
|
|
209,334,627 |
|
|
|
215,355,685 |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning and end of year |
|
$ |
249.4 |
|
|
$ |
249.4 |
|
|
$ |
249.4 |
|
|
Capital in Excess of Par Value |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
811.7 |
|
|
$ |
759.5 |
|
|
$ |
682.5 |
|
Share-based compensation expense |
|
|
59.3 |
|
|
|
62.5 |
|
|
|
66.6 |
|
Issuance of treasury shares for stock option and award plans |
|
|
(71.9 |
) |
|
|
(74.2 |
) |
|
|
(70.3 |
) |
Tax benefit of stock option and award plans |
|
|
23.8 |
|
|
|
63.9 |
|
|
|
80.7 |
|
|
Balance, end of year |
|
$ |
822.9 |
|
|
$ |
811.7 |
|
|
$ |
759.5 |
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
6,990.2 |
|
|
$ |
6,458.5 |
|
|
$ |
5,743.5 |
|
Defined benefit plans measurement date change |
|
|
(8.1 |
) |
|
|
|
|
|
|
|
|
Initial recording of accounting for uncertain tax positions |
|
|
|
|
|
|
(13.3 |
) |
|
|
|
|
|
|
|
Adjusted balance, beginning of year |
|
$ |
6,982.1 |
|
|
$ |
6,445.2 |
|
|
$ |
5,743.5 |
|
Net income |
|
|
631.3 |
|
|
|
909.7 |
|
|
|
1,035.6 |
|
Dividends on common stock (per share $1.79, $1.70, and $1.48) |
|
|
(376.3 |
) |
|
|
(359.6 |
) |
|
|
(319.8 |
) |
Other |
|
|
(2.5 |
) |
|
|
(5.1 |
) |
|
|
(.8 |
) |
|
Balance, end of year |
|
$ |
7,234.6 |
|
|
$ |
6,990.2 |
|
|
$ |
6,458.5 |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
(549.3 |
) |
|
$ |
(142.9 |
) |
|
$ |
(221.7 |
) |
Defined benefit plans measurement date change, net of tax of $14.0 |
|
|
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance, beginning of year |
|
$ |
(513.5 |
) |
|
$ |
(142.9 |
) |
|
$ |
(221.7 |
) |
|
Translation adjustments, net of tax (benefit) of $(35.2), $7.9,
and $(45.8) |
|
|
(148.3 |
) |
|
|
(186.3 |
) |
|
|
272.8 |
|
Net (loss) on derivatives, net of tax (benefit) of $(1.8),
$(30.2), and $(3.3) |
|
|
(4.5 |
) |
|
|
(74.4 |
) |
|
|
(7.7 |
) |
Unrealized holding gain (loss) on available-for-sale securities,
net of tax (benefit) of $1.4, $(2.4), and $4.2 |
|
|
2.4 |
|
|
|
(4.5 |
) |
|
|
8.1 |
|
Pension and postretirement benefits,
net of tax (benefit) of $(287.4) and $(92.0) |
|
|
(518.3 |
) |
|
|
(185.5 |
) |
|
|
|
|
Minimum pension liability adjustment, net of tax of $83.4 |
|
|
|
|
|
|
|
|
|
|
159.3 |
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
(3.2 |
) |
|
|
(53.7 |
) |
|
|
|
|
Derivatives, net of tax (benefit) of $(.8), $19.2, and $7.0 |
|
|
(.7 |
) |
|
|
50.7 |
|
|
|
15.9 |
|
Realized holding gains, net of tax of $20.1 |
|
|
|
|
|
|
|
|
|
|
(36.6 |
) |
Pension and postretirement benefits, net of tax of $9.8 and $24.5 |
|
|
24.3 |
|
|
|
47.3 |
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
(648.3 |
) |
|
$ |
(406.4 |
) |
|
$ |
411.8 |
|
Adjustment for initial recognition of funded status of benefit
plans, net of tax (benefit) of $(169.6) |
|
|
|
|
|
|
|
|
|
|
(333.0 |
) |
|
Balance, end of year |
|
$ |
(1,161.8 |
) |
|
$ |
(549.3 |
) |
|
$ |
(142.9 |
) |
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
(2,471.3 |
) |
|
$ |
(1,828.9 |
) |
|
$ |
(1,529.7 |
) |
Purchase of treasury shares |
|
|
|
|
|
|
(787.4 |
) |
|
|
(567.3 |
) |
Issuance of treasury shares for stock option and award plans |
|
|
118.1 |
|
|
|
145.0 |
|
|
|
268.1 |
|
|
Balance, end of year |
|
$ |
(2,353.2 |
) |
|
$ |
(2,471.3 |
) |
|
$ |
(1,828.9 |
) |
|
Total Shareholders Equity |
|
$ |
4,791.9 |
|
|
$ |
5,030.7 |
|
|
$ |
5,495.6 |
|
|
Total Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
631.3 |
|
|
$ |
909.7 |
|
|
$ |
1,035.6 |
|
Other comprehensive income (loss) |
|
|
(648.3 |
) |
|
|
(406.4 |
) |
|
|
411.8 |
|
|
Total Comprehensive Income (Loss) |
|
$ |
(17.0 |
) |
|
$ |
503.3 |
|
|
$ |
1,447.4 |
|
|
The accompanying notes are an integral part of these statements.
46
Notes to the Consolidated Financial Statements
(Millions of dollars, except for share data)
|
|
|
|
|
|
|
|
47 |
|
|
|
|
52 |
|
|
|
|
55 |
|
|
|
|
56 |
|
|
|
|
59 |
|
|
|
|
59 |
|
|
|
|
60 |
|
|
|
|
60 |
|
|
|
|
61 |
|
|
|
|
61 |
|
|
|
|
62 |
|
|
|
|
63 |
|
|
|
|
66 |
|
|
|
|
67 |
|
|
|
|
69 |
|
|
|
|
74 |
|
|
|
|
77 |
|
|
|
|
77 |
|
|
|
|
80 |
|
|
|
|
80 |
|
|
|
|
83 |
|
|
|
|
86 |
|
|
|
|
87 |
|
1. Major Accounting Policies
Consolidation Principles
The consolidated financial statements include the accounts of Air Products and Chemicals, Inc. and
those of its controlled subsidiaries (the Company), which are generally majority owned.
Intercompany transactions and balances are eliminated in consolidation.
The Company consolidates all entities that it controls. The general condition for control is
ownership of a majority of the voting interests of an entity. Control may also exist in
arrangements where the Company is the primary beneficiary of a variable interest entity. An entity
that will absorb the majority of a variable interest entitys expected losses or expected residual
returns is considered a primary beneficiary of that entity. The Company has determined that it is
not a primary beneficiary in any material variable interest entity.
Estimates and Assumptions
The preparation of the financial statements in accordance with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized as risk and title to the product transfers to the customer
(which generally occurs at the time shipment is made), the sales price is fixed or determinable,
and collectibility is reasonably assured. Sales returns and allowances are not a business practice
in the industry.
Revenues from equipment sale contracts are recorded primarily using the percentage-of-completion
method. Under this method, revenues from the sale of major equipment, such as liquefied natural gas
(LNG) heat exchangers and large air separation units, are recognized primarily based on labor hours
incurred to date compared with total estimated labor hours. Changes to total estimated labor hours
and anticipated losses, if any, are recognized in the period determined.
47
Amounts billed for shipping and handling fees are classified as sales in the Consolidated Income
Statements.
Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific
transactional taxes imposed on revenue-producing transactions are presented on a net basis and
excluded from sales in the Consolidated Income Statements. The Company records a liability until
remitted to the respective taxing authority.
Certain contracts associated with facilities that are built to provide product to a specific
customer are required to be accounted for as leases. In cases where operating lease treatment is
necessary, there is no difference in revenue recognition over the life of the contract as compared
to accounting for the contract as product sales. In cases where capital lease treatment is
necessary, the timing of revenue and expense recognition is impacted. Revenue and expense are
recognized up front for the sale of equipment component of the contract as compared to revenue
recognition over the life of the arrangement under contracts not qualifying as capital leases.
Additionally, a portion of the revenue representing interest income from the financing component of
the lease receivable is reflected as sales over the life of the contract.
If an arrangement involves multiple deliverables, the delivered items are considered separate units
of accounting if the items have value on a stand-alone basis and there is objective and reliable
evidence of their fair values. Revenues from the arrangement are allocated to the separate units of
accounting based on their relative fair values.
Cost of Sales
Cost of sales predominantly represents the cost of tangible products sold. These costs include
labor, raw materials, plant engineering, power, depreciation, production supplies and materials
packaging costs, and maintenance costs. Costs incurred for shipping and handling are also included
in cost of sales.
Depreciation
Depreciation is recorded using the straight-line method, which deducts equal amounts of the cost of
each asset from earnings every year over its expected economic useful life. The principal lives for
major classes of plant and equipment are summarized in the table below:
|
|
|
|
|
|
|
Principal Estimated Useful Lives |
|
|
Buildings |
|
30 years |
Production facilities (A) |
|
|
|
|
Merchant Gases |
|
15 years |
Tonnage Gases |
|
15 to 20 years |
Electronics and Performance Materials |
|
10 to 15 years |
Distribution equipment (B) |
|
5 to 25 years |
Other machinery and equipment |
|
10 to 25 years |
|
|
|
|
(A) |
|
Depreciable lives of production facilities related to long-term customer supply
contracts associated with the gases tonnage business are matched to the contract lives. |
|
(B) |
|
The depreciable lives for various types of distribution equipment are 10 to 25 years
for cylinders, depending on the nature and properties of the product; 20 years for tanks;
7.5 years for customer stations; 5 to 15 years for tractors and trailers. |
Selling and Administrative
The principal components of selling and administrative expenses are salaries, advertising, and
promotional costs.
Postemployment Benefits
The Company has substantive ongoing severance arrangements. Termination benefits provided to
employees as part of the global cost reduction plan (discussed in Note 3) are consistent with
termination benefits in previous, similar arrangements. Because the Companys plan met the
definition of an ongoing benefit arrangement, a liability was recognized for termination benefits
when probable and estimable. These criteria are met when management, with the appropriate level of
authority, approves and commits to its plan of action for termination; the plan identifies the
employees to be terminated and their related benefits; and the plan is to be completed within one
year. During periods of operations where terminations are made on an as-needed basis, absent a
detailed committed plan, terminations are accounted for on an individual basis and a liability is
recognized when probable and estimable.
Financial Instruments
The Company addresses certain financial exposures through a controlled program of risk management
that includes the use of derivative financial instruments. Refer to Note 12 for further detail on
the types and use of derivative
instruments that the Company enters into. The types of derivative financial instruments permitted
for such risk management programs are specified in policies set by management.
48
Major financial institutions are counterparties to all of these derivative contracts. The Company
has established counterparty credit guidelines and only enters into transactions with financial
institutions of investment grade or better. Management believes the risk of incurring losses
related to credit risk is remote, and any losses would be immaterial to the consolidated financial
results, financial condition, or liquidity.
The Company recognizes these derivatives on the balance sheet at fair value. On the date the
derivative instrument is entered into, the Company generally designates the derivative as either
(1) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability (cash flow hedge), (2) a hedge of a net investment in a
foreign operation (net investment hedge), or (3) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair value hedge).
The following details the accounting treatment of the Companys cash flow, fair value, net
investment, and non-designated hedges:
|
|
Changes in the fair value of a derivative that is designated as and meets all the required
criteria for a cash flow hedge are recorded in Accumulated Other Comprehensive Income (AOCI)
and then recognized in earnings when the hedged items affect earnings. |
|
|
|
Changes in the fair value of a derivative that is designated as and meets all the required
criteria for a fair value hedge, along with the gain or loss on the hedged asset or liability
that is attributable to the hedged risk, are recorded in current period earnings. |
|
|
|
Changes in the fair value of a derivative and foreign currency debt that are designated as
and meet all the required criteria for a hedge of a net investment are recorded as translation
adjustments in AOCI. |
|
|
|
Changes in the fair value of a derivative that is not designated as a hedge are recorded
immediately in earnings. |
The Company formally documents the relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedge transactions. This
process includes relating derivatives that are designated as fair value or cash flow hedges to
specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted
transactions. The Company also formally assesses, at the inception of the hedge and on an ongoing
basis, whether each derivative is highly effective in offsetting changes in fair values or cash
flows of the hedged item. If it is determined that a derivative is not highly effective as a hedge,
or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge
accounting with respect to that derivative prospectively.
Foreign Currency
Since the Company does business in many foreign countries, fluctuations in currency exchange rates
affect the Companys financial position and results of operations.
In most of the Companys foreign operations, local currency is considered the functional currency.
Generally, foreign subsidiaries translate their assets and liabilities into U.S. dollars at current
exchange ratesthat is, the rates in effect at the end of the fiscal period. The gains or losses
that result from this process are shown in AOCI in the shareholders equity section of the balance
sheet.
The revenue and expense accounts of foreign subsidiaries are translated into U.S. dollars at the
average exchange rates that prevailed during the period. Therefore, the U.S. dollar value of these
items on the income statement fluctuates from period to period, depending on the value of the
dollar against foreign currencies. Some transactions are made in currencies different from an
entitys functional currency. Gains and losses from these foreign currency transactions are
generally included in earnings as they occur.
Environmental Expenditures
Accruals for environmental loss contingencies are recorded when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated. Remediation costs are capitalized
if the costs improve the Companys property as compared with the condition of the property when
originally constructed or acquired, or if the costs prevent environmental contamination from future
operations. The Company expenses environmental costs related to existing conditions resulting from
past or current operations and from which no current or future benefit is discernible.
49
The measurement of environmental liabilities is based on an evaluation of currently available
information with respect to each individual site and considers factors such as existing technology,
presently enacted laws and regulations, and prior experience in remediation of contaminated sites.
An environmental liability related to cleanup of a contaminated site might include, for example, a
provision for one or more of the following types of costs: site investigation and testing costs,
cleanup costs, costs related to soil and water contamination resulting from tank ruptures,
post-remediation monitoring costs, and outside legal fees. These liabilities include costs related
to other potentially responsible parties to the extent that the Company has reason to believe such
parties will not fully pay their proportionate share. They do not take into account any claims for
recoveries from insurance or other parties and are not discounted.
As assessments and remediation progress at individual sites, the amount of projected cost is
reviewed periodically, and the liability is adjusted to reflect additional technical and legal
information that becomes available. Management has a well-established process in place to identify
and monitor the Companys environmental exposures. An environmental accrual analysis is prepared
and maintained that lists all environmental loss contingencies, even where an accrual has not been
established. This analysis assists in monitoring the Companys overall environmental exposure and
serves as a tool to facilitate ongoing communication among the Companys technical experts,
environmental managers, environmental lawyers, and financial management to ensure that required
accruals are recorded and potential exposures disclosed.
Actual costs to be incurred at identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental exposures. Refer to Note 16 for additional
information on the Companys environmental loss contingencies.
The accruals for environmental liabilities are reflected in the Consolidated Balance Sheets,
primarily as part of other noncurrent liabilities, and will be paid over a period of up to 30
years.
Litigation
In the normal course of business, the Company is involved in legal proceedings. The Company accrues
a liability for such matters when it is probable that a liability has been incurred and the amount
can be reasonably estimated. When only a range of possible loss can be established, the most
probable amount in the range is accrued. If no amount within this range is a better estimate than
any other amount within the range, the minimum amount in the range is accrued. The accrual for a
litigation loss contingency includes estimates of potential damages and other directly related
costs expected to be incurred.
Share-Based Compensation
The Company has various share-based compensation programs, which include stock options, deferred
stock units, and restricted stock. Refer to Note 18. The Company expenses the grant-date fair value
of these awards over the vesting period during which employees perform related services.
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax
assets and liabilities are recognized for the tax effects of temporary differences between the
financial reporting and tax bases of assets and liabilities using enacted tax rates. A principal
temporary difference results from the excess of tax depreciation over book depreciation because
accelerated methods of depreciation and shorter useful lives are used for income tax purposes. The
cumulative impact of a change in tax rates or regulations is included in income tax expense in the
period that includes the enactment date.
Effective 1 October 2007, the Company adopted the guidance on the accounting for uncertainty in
income taxes. Based on this guidance, a tax benefit for an uncertain tax position is recognized
when it is more likely than not that the position will be sustained upon examination based on its
technical merits. This position is measured as the largest amount of tax benefit that is greater
than 50% likely of being realized. Interest and penalties related to unrecognized tax benefits are
recognized as a component of income tax expense.
Cash and Cash Items
Cash and cash items include cash, time deposits, and certificates of deposit acquired with an
original maturity of three months or less.
50
Allowances for Doubtful Accounts
The allowances for doubtful accounts represent estimated uncollectible receivables associated with
potential customer defaults on contractual obligations. A provision for customer defaults is made
on a general formula basis when it is determined that the risk of some default is probable and
estimable but cannot yet be associated with specific customers. The assessment of the likelihood of
customer defaults is based on various factors, including the length of time the receivables are
past due, historical experience, and existing economic conditions. The allowances also include
amounts for certain customers where a risk of default has been specifically identified considering
factors such as the financial condition of the customer and customer disputes over contractual
terms and conditions. Provisions to the allowances for doubtful accounts charged against income
were $37.8, $14.4, and $11.0 in 2009, 2008, and 2007, respectively.
Inventories
Inventories are stated at the lower of cost or market. The Company writes down its inventories for
estimated obsolescence or unmarketable inventory based upon assumptions about future demand and
market conditions.
The Company utilizes the last-in, first-out (LIFO) method for determining the cost of inventories
in the Merchant Gases, Tonnage Gases, and Electronics and Performance Materials segments in the
United States. Inventories for these segments outside of the United States are accounted for on the
first-in, first-out (FIFO) method, as the LIFO method is not generally permitted in the foreign
jurisdictions where these segments operate. The inventories of the Equipment and Energy segment on
a worldwide basis, as well as all other inventories, are accounted for on the FIFO basis.
At the business segment level, inventories are recorded at FIFO and the LIFO pool adjustments are
not allocated to the business segments.
Equity Investments
The equity method of accounting is used when the Company has a 20% or greater interest in other
companies and exercises significant influence but does not have operating control. Under the equity
method, original investments are recorded at cost and adjusted by the Companys share of
undistributed earnings or losses of these companies. Equity investments are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of the investment may
not be recoverable.
Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation. Construction costs, labor, and
applicable overhead related to installations are capitalized. Expenditures for additions and
improvements that extend the lives or increase the capacity of plant assets are capitalized. The
costs of maintenance and repairs of plant and equipment are charged to expense as incurred.
Fully depreciated assets are retained in the gross plant and equipment and accumulated depreciation
accounts until they are removed from service. In the case of disposals, assets and related
depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are
included in income.
Capitalized Interest
As the Company builds new plant and equipment, it includes in the cost of these assets a portion of
the interest payments it makes during the year. The amount of capitalized interest was $21.9,
$22.1, and $12.9 in 2009, 2008, and 2007, respectively.
Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation is recognized in the period in
which it is incurred. The liability is measured at discounted fair value and is adjusted to its
present value in subsequent periods as accretion expense is recorded. The corresponding asset
retirement costs are capitalized as part of the carrying amount of the related long-lived asset and
depreciated over the assets useful life. The Companys asset retirement obligations are primarily
associated with Tonnage Gases on-site long-term supply contracts, under which the Company has built
a facility on land leased from the customer and is obligated to remove the facility at the end of
the contract term. The Companys asset retirement obligations totaled $43.5 and $41.3 at 30
September 2009 and 2008, respectively.
Computer Software
The Company capitalizes costs incurred to purchase or develop software for internal use.
Capitalized costs include purchased computer software packages, payments to vendors/consultants for
development and implementation or
modification to a purchased package to meet Company requirements, payroll and related costs for
employees directly
51
involved in development, and interest incurred while software is being
developed. Capitalized computer software costs are included in the balance sheet classification
plant and equipment and depreciated over the estimated useful life of the software, generally a
period of three to ten years. The Companys SAP system is being depreciated over a ten-year life.
Impairment of Long-Lived Assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company assesses recoverability by
comparing the carrying amount of the asset to estimated undiscounted future cash flows expected to
be generated by the asset. If an asset is considered impaired, the impairment loss to be recognized
is measured as the amount by which the assets carrying amount exceeds its fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair value less cost to
sell.
Goodwill
Acquisitions are accounted for using the purchase method. The purchase price is allocated to the
assets acquired and liabilities assumed based on their estimated fair market values. Any excess
purchase price over the fair market value of the net assets acquired, including identified
intangibles, is recorded as goodwill. Preliminary purchase price allocations are made at the date
of acquisition and finalized when information needed to affirm underlying estimates is obtained,
within a maximum allocation period of one year.
Goodwill is subject to impairment testing at least annually. In addition, goodwill is tested more
frequently if a change in circumstances or the occurrence of events indicates that potential
impairment exists.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, purchased
patents, and technology. The Company has no acquired intangible assets with indefinite lives. The
cost of intangible assets with determinable lives is amortized on a straight-line basis over the
estimated period of economic benefit. No residual value is estimated for these intangible assets.
Customer relationships are generally amortized over periods of five to twenty-five years. Purchased
patents and technology and other intangibles are amortized based on contractual terms, ranging
generally from five to twenty years. Amortizable lives are adjusted whenever there is a change in
the estimated period of economic benefit.
Retirement Benefits
The cost of retiree benefits is recognized over the employees service period. The Company is
required to use actuarial methods and assumptions in the valuation of defined benefit obligations
and the determination of expense. Differences between actual and expected results or changes in the
value of obligations and plan assets are not recognized in earnings as they occur but, rather,
systematically and gradually over subsequent periods. Refer to Note 15 for disclosures related to
the Companys pension and other postretirement benefits.
2. New Accounting Guidance
New Accounting Guidance to Be Implemented
Consolidation of Variable Interest Entities
In June 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance that
amends previous guidance for determining whether an entity is a variable interest entity (VIE). It
requires an enterprise to perform an analysis to determine whether the Companys variable interests
give it a controlling financial interest in a VIE. A company would be required to assess whether it
has an implicit financial responsibility to ensure that a VIE operates as designed when determining
whether it has the power to direct the activities of the VIE that most significantly impact the
entitys economic performance. In addition, ongoing reassessments of whether an enterprise is the
primary beneficiary of a VIE are required. This guidance is effective for the Company for fiscal
year 2011. The Company is currently evaluating the impact of this guidance.
Business Combinations
In December 2007, the FASB issued authoritative guidance to affirm that the acquisition method of
accounting (previously referred to as the purchase method) be used for all business combinations
and for an acquirer to be identified for each business combination. This guidance defines the
acquirer as the entity that obtains control of one or more businesses in the business combination
and establishes the acquisition date as the date that the acquirer
achieves control. Among other requirements, the guidance requires the acquiring entity in a
business combination to
52
recognize at full fair value all the assets acquired and liabilities
assumed in the transaction. If a business combination is achieved in stages, the previously-held
ownership interest is adjusted to fair value at the acquisition date, and any resulting gain or
loss is recognized in earnings. Contingent consideration is recognized at fair value at the
acquisition date, and restructuring and acquisition-related costs are expensed as incurred. The
fair value of assets and liabilities acquired, including uncertain tax positions, can be adjusted
during the measurement period. Any adjustments after the measurement period, which cannot exceed
one year, will be recognized in earnings. This guidance is effective for the Company in fiscal year
2010 and will be applied prospectively to any business combinations on or after 1 October 2009.
Noncontrolling Interests
In December 2007, the FASB issued authoritative guidance that establishes the accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. It requires entities to report noncontrolling interests in subsidiaries separately
within equity in the consolidated financial statements. It also requires disclosure, on the face of
the consolidated statement of income, of the amounts of consolidated net income attributable to the
parent and noncontrolling interests. Changes in a parents ownership interests while the parent
retains control are treated as equity transactions. If a parent loses control of a subsidiary, any
retained noncontrolling interest would be measured at fair value with any gain or loss recognized
in earnings. This guidance is effective for the Company in fiscal year 2010 and will be applied
prospectively, except for the presentation and disclosure requirements related to noncontrolling
interests, which are applied retrospectively for all periods presented. The Companys financial
statements issued after 1 October 2009 will reflect the new presentation.
Employers Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued authoritative guidance to require employers to provide additional
disclosures about plan assets of a defined benefit or other postretirement plan. Disclosures
include information about investment policies and strategies, major categories of plan assets, the
inputs and valuation techniques used to measure the fair value of plan assets, and significant
concentrations of risk. This guidance is effective for the Company beginning with its fiscal
year-end 2010. Upon initial application, this guidance is not required to be applied to earlier
periods that are presented for comparative purposes. This guidance only requires additional
disclosure and will not have an impact on the Companys consolidated financial statements upon
adoption.
Accounting Guidance Implemented
The FASB Accounting Standards Codification
In
June 2009, the FASB issued authoritative guidance that establishes the Accounting Standards
Codification (Codification) as the source of authoritative U.S. generally accepted accounting
principles (GAAP). The Codification is effective for financial statements issued for interim and
annual periods ending after 15 September 2009. The Codification does not change current U.S. GAAP
but reorganizes all authoritative literature in one place. On 1 July 2009, the Company adopted the
Codification and changed the way it references U.S. GAAP. Accordingly, the Companys Notes to the
Consolidated Financial Statements will explain accounting concepts rather than cite the topics of
specific U.S. GAAP. There was no impact on the consolidated financial statements.
Disclosures about Subsequent Events
In May 2009, the FASB established the authoritative guidance on accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued. Entities
are also required to disclose the date through which subsequent events have been evaluated. The
Company adopted this guidance beginning in the third quarter of 2009. Adoption of this guidance did
not have a material impact on the Companys consolidated financial statements. Refer to Note 21,
Supplemental Information, for the required disclosure.
Disclosures about Derivative Instruments and Hedging Activities
In
March 2008, the FASB issued authoritative guidance that expands the disclosure requirements for
derivative instruments and hedging activities including: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted for; and how they
affect an entitys financial position, financial performance, and cash flows. This guidance, which
became effective for the Company as of 1 January 2009, only requires additional disclosure and did
not have an impact on the Companys consolidated financial statements upon adoption. Refer to Note
12, Financial Instruments, for the required disclosures.
53
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued authoritative guidance that permits companies to elect to measure
certain financial instruments at fair value on an instrument-by-instrument basis, with changes in
fair value recognized in earnings each reporting period. It also establishes financial statement
presentation and disclosure requirements for assets and liabilities reported at fair value under
the election. The Company adopted this guidance as of 1 October 2008 and elected not to fair value
any items under this guidance.
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006, the FASB issued authoritative guidance surrounding employers accounting for
defined benefit pension and other postretirement plans. Among other requirements, the guidance
requires recognition of the funded status of benefit plans in the balance sheet, with changes in
the funded status recognized in comprehensive income within shareholders equity in the year in
which the changes occur and requires plan assets and obligations to be measured as of the balance
sheet date. The requirement to recognize the funded status of benefit plans and the related
disclosure requirements were effective for the Company as of 30 September 2007. The requirement to
measure plan assets and benefit obligations as of fiscal year end is effective for fiscal years
ending after
15 December 2008. Accordingly, as of 1 October 2008, the Company adopted the measurement date
change for its U.K. and Belgium pension plans and changed the measurement date for these plans from
30 June to 30 September. As a result of this change, pension expense and actuarial gains/losses for
the three-month period ended 30 September 2008 were recognized as adjustments to the beginning
balances of retained earnings and AOCI, respectively. The after-tax charge to retained earnings was
$8.1. AOCI was credited $35.8 for net actuarial gains on an after-tax basis. These adjustments only
affected the balance sheet.
Fair Value Measurements
In
September 2006, the FASB issued authoritative guidance that defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements.
Effective 1 October 2008, the Company adopted this guidance for financial assets and liabilities
and any other assets and liabilities that are recognized and disclosed at fair value on a recurring
basis. The adoption of this guidance did not impact the Companys consolidated financial
statements. Refer to Note 13, Fair Value Measurements, for the required disclosure.
The requirement for other nonfinancial assets and liabilities was effective on 1 October 2009 for
the Company. The Company does not expect the adoption of this guidance to have a material impact on
the consolidated financial statements.
Uncertainty in Income Taxes
In June 2006, the FASB issued authoritative guidance that clarifies the accounting for uncertainty
in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. This guidance also provides requirements for derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition.
The Company adopted this guidance on 1 October 2007. Upon adoption, the Company recognized a $25.1
increase to its liability for uncertain tax positions. This increase was recorded as an adjustment
to beginning retained earnings for $13.3 and goodwill for $11.8.
54
3. Global Cost Reduction Plan
2009
The 2009 results from continuing operations included a total charge of $298.2 ($200.3 after-tax, or
$.94 per share) for the global cost reduction plan. In the first quarter of 2009, the Company
announced the global cost reduction plan designed to lower its cost structure and better align its
businesses to reflect rapidly declining economic conditions around the world. The first-quarter
results included a charge of $174.2 ($116.1 after-tax, or $.55 per share). In the third quarter
2009, due to the continuing slow economic recovery, the Company committed to additional actions
associated with its global cost reduction plan that resulted in a charge of $124.0 ($84.2
after-tax, or $.39 per share).
The total 2009 charge included $210.0 for severance and other benefits, including pension-related
costs, associated with the elimination of approximately 2,550 positions from the Companys global
workforce. The reductions are targeted at reducing overhead and infrastructure costs, reducing and
refocusing elements of the Companys technology and business development spending, lowering its
plant operating costs, and the closure of certain manufacturing facilities. The remainder of this
charge, $88.2, was for business exits and asset management actions. Assets held for sale were
written down to net realizable value, and an environmental liability of $16.0 was recognized. This
environmental liability resulted from a decision to sell a production facility.
The planned actions associated with the global cost reduction plan are expected to be substantially
completed within one year of when the related charges were recognized.
Business Segments
The charge recorded in 2009 was excluded from segment operating profit. The table below displays
how this charge related to the businesses at the segment level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
Severance and |
|
Impairments/ |
|
|
|
|
Other Benefits |
|
Other Costs |
|
Total |
|
Merchant Gases |
|
$ |
127.5 |
|
|
$ |
7.2 |
|
|
$ |
134.7 |
|
Tonnage Gases |
|
|
14.2 |
|
|
|
|
|
|
|
14.2 |
|
Electronics and Performance Materials |
|
|
30.6 |
|
|
|
58.9 |
|
|
|
89.5 |
|
Equipment and Energy |
|
|
37.7 |
|
|
|
22.1 |
|
|
|
59.8 |
|
|
2009 Charge |
|
$ |
210.0 |
|
|
$ |
88.2 |
|
|
$ |
298.2 |
|
|
Accrual Balance
The following table summarizes changes to the carrying amount of the accrual for the global cost
reduction plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset |
|
|
|
|
Severance and |
|
Impairments/ |
|
|
|
|
Other Benefits |
|
Other Costs |
|
Total |
|
First quarter 2009 charge |
|
$ |
120.0 |
|
|
$ |
54.2 |
|
|
$ |
174.2 |
|
Third quarter 2009 charge |
|
|
90.0 |
|
|
|
34.0 |
|
|
|
124.0 |
|
Environmental charge (A) |
|
|
|
|
|
|
(16.0 |
) |
|
|
(16.0 |
) |
Noncash expenses |
|
|
(33.8 |
) (B) |
|
|
(66.1 |
) |
|
|
(99.9 |
) |
Cash expenditures |
|
|
(75.3 |
) |
|
|
(.9 |
) |
|
|
(76.2 |
) |
Currency translation adjustment |
|
|
4.3 |
|
|
|
|
|
|
|
4.3 |
|
|
30 September 2009 |
|
$ |
105.2 |
|
|
$ |
5.2 |
|
|
$ |
110.4 |
|
|
|
|
|
(A) |
|
Reflected in accrual for environmental obligations. See Note 16. |
|
(B) |
|
Primarily pension-related costs which are reflected in the accrual for pension
benefits. |
2007
The 2007 results from continuing operations included a charge of $13.7 ($8.8 after-tax, or $.04 per
share) for a global cost reduction plan. The charge included $6.5 for severance and pension-related
costs for the elimination of approximately 125 positions and $7.2 for the write-down of certain
investments. Approximately one-half of the position eliminations related to continuation of
European initiatives to streamline certain activities. The remaining position
eliminations related to the continued cost reduction and productivity efforts of the Company. As of
30 September 2008, the actions associated with the 2007 charge were complete.
55
Business Segments
The charge recorded in 2007 was excluded from segment operating profit. The table below displays
how this charge related to the businesses at the segment level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and |
|
Asset |
|
|
|
|
Other Benefits |
|
Impairments |
|
Total |
|
Merchant Gases |
|
$ |
3.6 |
|
|
$ |
.4 |
|
|
$ |
4.0 |
|
Tonnage Gases |
|
|
.4 |
|
|
|
|
|
|
|
.4 |
|
Electronics and Performance Materials |
|
|
2.3 |
|
|
|
3.8 |
|
|
|
6.1 |
|
Equipment and Energy |
|
|
.2 |
|
|
|
.3 |
|
|
|
.5 |
|
Other |
|
|
|
|
|
|
2.7 |
|
|
|
2.7 |
|
|
2007 Charge |
|
$ |
6.5 |
|
|
$ |
7.2 |
|
|
$ |
13.7 |
|
|
4. Discontinued Operations
The U.S. Healthcare business, Polymer Emulsions business, and High Purity Process Chemicals (HPPC)
business have been accounted for as discontinued operations. The results of operations of these
businesses have been removed from the results of continuing operations for all periods presented.
The assets and liabilities of discontinued operations have been reclassified and are segregated in
the Consolidated Balance Sheets.
U.S. Healthcare
In 2007, the Company implemented several changes to improve performance in its U.S. Healthcare
business, including management changes, product and service offering simplification, and other
measures. However, market and competitive conditions were more challenging than anticipated and
financial results did not meet expectations. In response to the disappointing financial results,
during the third quarter of 2008, management conducted an evaluation of the strategic alternatives
for the business. In July 2008, the Board of Directors authorized management to pursue the sale of
this business. Accordingly, beginning in the fourth quarter of 2008, the U.S. Healthcare business
was accounted for as discontinued operations.
In 2008, the Company recorded a total charge of $329.2 ($246.2 after-tax, or $1.12 per share)
related to the impairment/write-down of the net carrying value of this business as follows:
|
|
In the third quarter of 2008, the Company determined that an interim test for goodwill
impairment and other long-lived assets was required for its U.S. Healthcare reporting unit.
The Company reforecast its cash flows and utilized the expected present value of the future
cash flows to calculate fair value of the U.S. Healthcare reporting unit in completing its
impairment test. A charge of $314.8 ($237.0 after-tax, or $1.09 per share) consisted of the
impairment of goodwill for $294.3, intangible assets for $11.7, plant and equipment for $7.8,
and other assets for $1.0. The impairment reduced the carrying amount of the U.S. Healthcare
reporting unit goodwill and intangible assets to zero. |
|
|
In the fourth quarter of 2008, the Company recorded a charge of $14.4 ($9.2 after-tax, or
$.04 per share), reflecting an estimate of net realizable value. |
In the first quarter of 2009, based on additional facts, the Company recorded an impairment charge
of $48.7 ($30.9 after-tax, or $.15 per share), reflecting a revision in the estimated net
realizable value of the U.S. Healthcare business. Also, a tax benefit of $8.8, or $.04 per share,
was recorded to revise the estimated tax benefit related to previously recognized impairment
charges.
As a result of events that occurred during the second quarter of 2009, which increased the
Companys ability to realize tax benefits associated with the impairment charges recorded in 2008,
the Company recognized a one-time tax benefit of $16.7, or $.08 per share.
During the third quarter of 2009, the Company sold more than half of its remaining U.S. Healthcare
business to OptionCare Enterprises, Inc., a subsidiary of Walgreen Co., and Landauer-Metropolitan,
Inc. (LMI) for combined cash proceeds of $38.1. The Company recognized an after-tax gain of $.3
resulting from these sales combined with adjustments to the net realizable value of the remaining
businesses.
During the fourth quarter of 2009, through a series of transactions with Rotech Healthcare, Inc.
and with LMI, the Company sold its remaining U.S. Healthcare business for cash proceeds of $12.1. A
net after-tax loss of $.7 was recognized. These transactions completed the disposal of the U.S.
Healthcare business.
56
The operating results of the U.S. Healthcare business classified as discontinued operations are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
125.2 |
|
|
$ |
239.8 |
|
|
$ |
271.1 |
|
|
Loss before taxes |
|
$ |
(5.5 |
) |
|
$ |
(350.6 |
) |
|
$ |
(24.4 |
) |
Income tax benefit |
|
|
(2.1 |
) |
|
|
(91.2 |
) |
|
|
(9.2 |
) |
|
Loss from operations of discontinued operations |
|
|
(3.4 |
) |
|
|
(259.4 |
) |
|
|
(15.2 |
) |
Loss on sale of businesses and impairment/write-down to
estimated net realizable value, net of tax |
|
|
(5.5 |
) |
|
|
(8.7 |
) |
|
|
|
|
|
Loss from Discontinued Operations, net of tax |
|
$ |
(8.9 |
) |
|
$ |
(268.1 |
) |
|
$ |
(15.2 |
) |
|
Details of balance sheet items for the U.S. Healthcare business are summarized below:
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Trade receivables, less allowances |
|
$ |
.5 |
|
|
$ |
47.7 |
|
Inventories |
|
|
|
|
|
|
7.2 |
|
Prepaid expenses |
|
|
|
|
|
|
1.4 |
|
Other receivables |
|
|
4.5 |
|
|
|
.2 |
|
|
Total Current Assets |
|
$ |
5.0 |
|
|
$ |
56.5 |
|
|
|
Plant and equipment, net |
|
|
|
|
|
$ |
58.7 |
|
|
Total Noncurrent Assets |
|
$ |
|
|
|
$ |
58.7 |
|
|
|
Payables and accrued liabilities |
|
$ |
14.4 |
|
|
$ |
6.8 |
|
Current portion long-term debt |
|
|
|
|
|
|
1.0 |
|
|
Total Current Liabilities |
|
$ |
14.4 |
|
|
$ |
7.8 |
|
|
|
Long-term debt |
|
$ |
|
|
|
$ |
1.2 |
|
|
Total Noncurrent Liabilities |
|
$ |
|
|
|
$ |
1.2 |
|
|
Polymer Emulsions Business
On 31 January 2008, the Company closed on the sale of its interest in its vinyl acetate ethylene
(VAE) polymers joint ventures to Wacker Chemie AG, its long-time joint venture partner. As part of
that agreement, the Company received Wacker Chemie AGs interest in the Elkton, Md. and Piedmont,
S.C. production facilities and their related businesses plus cash proceeds of $258.2. The Company
recognized a gain of $89.5 ($57.7 after-tax, or $.26 per share) in the second quarter of 2008 for
this sale, which consisted of the global VAE polymers operations, including production facilities
located in Calvert City, Ky.; South Brunswick, N.J.; Cologne, Germany; and Ulsan, Korea, and
commercial and research capabilities in Allentown, Pa. and Burghausen, Germany. The business
produces VAE for use in adhesives, paints and coatings, paper, and carpet applications.
On 30 June 2008, the Company sold its Elkton, Md. and Piedmont, S.C. production facilities and the
related North American atmospheric emulsions and global pressure sensitive adhesives businesses to
Ashland, Inc. for $92.0. The Company recorded a gain of $30.5 ($18.5 after-tax, or $.08 per share)
in connection with the sale, which included the recording of a retained environmental obligation
associated with the Piedmont site. The expense to record the environmental obligation was $24.0
($14.5 after-tax, or $.07 per share). The Piedmont site is under active remediation for
contamination caused by an insolvent prior owner. Before the sale, which triggered expense
recognition, remediation costs had been capitalized since they improved the property as compared to
its condition when originally acquired. The sale of the Elkton and Piedmont facilities completed
the disposal of the Companys Polymer Emulsions business.
57
The operating results of the Polymer Emulsions business classified as discontinued operations are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
|
|
|
$ |
261.4 |
|
|
$ |
618.6 |
|
|
Income before taxes |
|
$ |
|
|
|
$ |
17.7 |
|
|
$ |
61.4 |
|
Income tax provision |
|
|
|
|
|
|
6.4 |
|
|
|
23.1 |
|
|
Income from operations of discontinued operations |
|
|
|
|
|
|
11.3 |
|
|
|
38.3 |
|
Gain on sale of business, net of tax |
|
|
.3 |
|
|
|
76.2 |
|
|
|
|
|
|
Income from Discontinued Operations, net of tax |
|
$ |
.3 |
|
|
$ |
87.5 |
|
|
$ |
38.3 |
|
|
There were no assets and liabilities classified as discontinued operations for the Polymer
Emulsions business at 30 September 2009 and 2008.
HPPC Business
In September 2007, the Companys Board of Directors approved the sale of its HPPC business, which
had previously been reported as part of the Electronics and Performance Materials operating
segment. The Companys HPPC business consisted of the development, manufacture, and supply of
high-purity process chemicals used in the fabrication of integrated circuits in the United States
and Europe. The Company wrote down the assets of the HPPC business to net realizable value as of
30 September 2007, resulting in a loss of $15.3 ($9.3 after-tax, or $.04 per share) in the fourth
quarter of 2007.
In October 2007, the Company executed an agreement of sale with KMG Chemicals, Inc. The sale closed
on 31 December 2007 for cash proceeds of $69.3 and included manufacturing facilities in the United
States and Europe.
The operating results of the HPPC business classified as discontinued operations are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
|
|
|
$ |
22.9 |
|
|
$ |
87.2 |
|
|
Income before taxes |
|
$ |
|
|
|
$ |
.1 |
|
|
$ |
3.7 |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
Income from operations of discontinued operations |
|
|
|
|
|
|
.1 |
|
|
|
2.2 |
|
Loss on sale of business, net of tax |
|
|
|
|
|
|
(.3 |
) |
|
|
(9.3 |
) |
|
Loss from Discontinued Operations, net of tax |
|
$ |
|
|
|
$ |
(.2 |
) |
|
$ |
(7.1 |
) |
|
There were no assets and liabilities classified as discontinued operations for the HPPC business at
30 September 2009. Assets and liabilities were not material at 30 September 2008.
Total Discontinued Operations
The operating results on a combined basis of the U.S. Healthcare, Polymers Emulsions, and HPPC
businesses classified as discontinued operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Sales |
|
$ |
125.2 |
|
|
$ |
524.1 |
|
|
$ |
976.9 |
|
|
Income (loss) before taxes |
|
$ |
(5.5 |
) |
|
$ |
(332.8 |
) |
|
$ |
40.7 |
|
Income tax (benefit) provision |
|
|
(2.1 |
) |
|
|
(84.8 |
) |
|
|
15.4 |
|
|
Income (loss) from operations of discontinued operations |
|
|
(3.4 |
) |
|
|
(248.0 |
) |
|
|
25.3 |
|
Gain (loss) on sale of businesses and impairment/write-down to
estimated net realizable value, net of tax |
|
|
(5.2 |
) |
|
|
67.2 |
|
|
|
(9.3 |
) |
|
Income (Loss) from Discontinued Operations, net of tax |
|
$ |
(8.6 |
) |
|
$ |
(180.8 |
) |
|
$ |
16.0 |
|
|
58
5. Acquisitions
Acquisitions in 2009, totaling $32.7, included principally the acquisition of S.I.Q. Beteiligungs
GmbH, a manufacturer of epoxy additives. In 2008, acquisitions totaled $72.0 and included the
purchase of an additional interest in CryoService Limited, a cryogenic and specialty gases company
in the U.K. See Note 16 for a discussion on a related put option agreement. Acquisitions in 2007,
totaling $539.1, included principally BOC Gazy Sp z o.o. (BOC Gazy) as discussed below.
BOC Gazy in 2007
On 30 April 2007, a Spanish affiliate of the Company acquired 98.1% of the Polish industrial gas
business of BOC Gazy from The Linde Group. During the fourth quarter of 2007, this affiliate
increased its ownership percentage to 99.9%. The total acquisition cost, less cash acquired, was
380 million or $518.4. The results of operations for BOC Gazy were included in the Companys
Consolidated Income Statement after the acquisition date. BOC Gazy had sales of $82.5 for the five
months ended 30 September 2007. The purchase price allocation, including the recognition of
deferred taxes, was completed in 2008 with assigned values for plant and equipment equal to $170.0,
identified intangibles of $176.9, and goodwill of $190.7 (which is tax-deductible for Spanish tax
reporting purposes).
With this acquisition, the Company obtained a significant market position in Central Europes
industrial gases market. The business had approximately 750 employees, five major industrial gas
plants, and six cylinder transfills serving customers across a diverse range of industries,
including chemicals, steel, and base metals, among others.
6. Inventories
The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Inventories at FIFO cost |
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
405.5 |
|
|
$ |
365.1 |
|
Work in process |
|
|
20.9 |
|
|
|
22.4 |
|
Raw materials and supplies |
|
|
151.1 |
|
|
|
183.5 |
|
|
|
|
|
577.5 |
|
|
|
571.0 |
|
Less: Excess of FIFO cost over LIFO cost |
|
|
(67.9 |
) |
|
|
(67.3 |
) |
|
|
|
$ |
509.6 |
|
|
$ |
503.7 |
|
|
Inventories valued using the LIFO method comprised 40.5% and 35.8% of consolidated inventories
before LIFO adjustment at 30 September 2009 and 2008, respectively. During fiscal year 2009, there
was no liquidation of prior years LIFO inventory layers. Liquidation of LIFO inventory layers in
2008 and 2007 did not materially affect results of operations in either of these years.
FIFO cost approximates replacement cost. The Companys inventories have a high turnover, and as a
result, there is little difference between the original cost of an item and its current replacement
cost.
59
7. Summarized Financial Information of Equity Affiliates
The following table presents summarized financial information on a combined 100% basis of the
principal companies accounted for by the equity method. Amounts presented include the accounts of
the following equity affiliates:
Air Products South Africa (50%);
Bangkok Cogeneration Company Limited (49%);
Bangkok Industrial Gases Company Ltd. (49%);
Chengdu Air & Gas Products Ltd. (50%);
Daido Air Products Electronics, Inc. (20%);
DuPont Air Products Nanomaterials, LLC (50%);
Europoort Utility Partners V.O.F. (50%);
Helap S.A. (50%);
High-Tech Gases (Beijing) Co., Ltd. (50%);
INFRA Group (40%);
INOX Air Products Limited (INOX) (49%);
Kulim Industrial Gases Sdn. Bhd (50%);
Sapio Produzione Idrogeno Ossigeno S.r.l. (49%);
SembCorp Air Products (HyCO) Pte. Ltd. (40%);
Tecnologia en Nitrogeno S. de R.L. de C.V. (50%);
Tyczka Industrie-Gases GmbH (50%);
WuXi Hi-Tech Gas Co., Ltd. (50%);
and principally, other industrial gas producers.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Current assets |
|
$ |
1,185.2 |
|
|
$ |
1,133.6 |
|
Noncurrent assets |
|
|
1,916.9 |
|
|
|
1,877.9 |
|
Current liabilities |
|
|
714.5 |
|
|
|
598.3 |
|
Noncurrent liabilities |
|
|
677.3 |
|
|
|
694.3 |
|
Net sales |
|
|
2,129.7 |
|
|
|
2,316.1 |
|
Sales less cost of sales |
|
|
874.4 |
|
|
|
962.9 |
|
Net income |
|
|
257.7 |
|
|
|
315.9 |
|
|
Dividends received from equity affiliates were $52.9, $65.3, and $54.8 in 2009, 2008, and 2007,
respectively.
The investment in net assets of and advances to equity affiliates as of 30 September 2009 and 2008
included investment in foreign affiliates of $834.7 and $785.8, respectively.
As of 30 September 2009 and 2008, the amount of investment in companies accounted for by the equity
method included goodwill in the amount of $56.1 and $63.4, respectively.
8. Plant and Equipment
The major classes of plant and equipment, at cost, are as follows:
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Land |
|
$ |
169.4 |
|
|
$ |
170.0 |
|
Buildings |
|
|
875.5 |
|
|
|
873.4 |
|
Production facilities |
|
|
|
|
|
|
|
|
Merchant Gases |
|
|
3,071.0 |
|
|
|
2,994.1 |
|
Tonnage Gases |
|
|
5,441.7 |
|
|
|
5,192.5 |
|
Electronics and Performance Materials |
|
|
1,907.6 |
|
|
|
2,005.2 |
|
Equipment and Energy |
|
|
286.8 |
|
|
|
237.8 |
|
|
Total production facilities |
|
|
10,707.1 |
|
|
|
10,429.6 |
|
Distribution equipment |
|
|
2,802.5 |
|
|
|
2,622.4 |
|
Other machinery and equipment |
|
|
273.1 |
|
|
|
283.9 |
|
Construction in progress |
|
|
923.7 |
|
|
|
609.3 |
|
|
|
|
$ |
15,751.3 |
|
|
$ |
14,988.6 |
|
|
Depreciation expense was $815.9, $848.0, and $770.1, in 2009, 2008, and 2007, respectively.
60
9. Goodwill
Changes to the carrying amount of consolidated goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
and |
|
|
Translation |
|
|
|
|
30 September |
|
2008 |
|
|
Adjustments |
|
|
and Other |
|
|
2009 |
|
|
Merchant Gases |
|
$ |
626.5 |
|
|
$ |
1.9 |
|
|
$ |
(27.1 |
) |
|
$ |
601.3 |
|
Tonnage Gases |
|
|
18.0 |
|
|
|
|
|
|
|
(1.7 |
) |
|
|
16.3 |
|
Electronics and Performance Materials |
|
|
283.6 |
|
|
|
10.0 |
|
|
|
4.8 |
|
|
|
298.4 |
|
|
|
|
$ |
928.1 |
|
|
$ |
11.9 |
|
|
$ |
(24.0 |
) |
|
$ |
916.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
and |
|
|
Translation |
|
|
|
|
30 September |
|
2007 |
|
|
Adjustments |
|
|
and Other |
|
|
2008 |
|
|
Merchant Gases |
|
$ |
577.6 |
|
|
$ |
45.0 |
|
|
$ |
3.9 |
|
|
$ |
626.5 |
|
Tonnage Gases |
|
|
21.1 |
|
|
|
|
|
|
|
(3.1 |
) |
|
|
18.0 |
|
Electronics and Performance Materials |
|
|
308.1 |
|
|
|
.5 |
|
|
|
(25.0 |
) |
|
|
283.6 |
|
|
|
|
$ |
906.8 |
|
|
$ |
45.5 |
|
|
$ |
(24.2 |
) |
|
$ |
928.1 |
|
|
The 2008 increase in goodwill in the Merchant Gases segment was related to the adoption of the
guidance on accounting for uncertain tax positions and the acquisition of CryoService Limited.
In the fourth quarter of 2009, the Company conducted the required annual test of goodwill for
impairment. There were no indications of impairment.
10. Intangible Assets
The table below provides details of acquired intangible assets at 30 September 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2009 |
|
|
30 September 2008 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Gross |
|
|
Amortization |
|
|
Net |
|
|
Customer relationships |
|
$ |
250.0 |
|
|
$ |
(51.4 |
) |
|
$ |
198.6 |
|
|
$ |
258.5 |
|
|
$ |
(39.6 |
) |
|
$ |
218.9 |
|
Patents and technology |
|
|
107.3 |
|
|
|
(69.0 |
) |
|
|
38.3 |
|
|
|
106.9 |
|
|
|
(69.1 |
) |
|
|
37.8 |
|
Other |
|
|
49.5 |
|
|
|
(23.8 |
) |
|
|
25.7 |
|
|
|
48.0 |
|
|
|
(15.1 |
) |
|
|
32.9 |
|
|
|
|
$ |
406.8 |
|
|
$ |
(144.2 |
) |
|
$ |
262.6 |
|
|
$ |
413.4 |
|
|
$ |
(123.8 |
) |
|
$ |
289.6 |
|
|
Amortization expense for intangible assets was $24.4, $21.0, and $19.7 in 2009, 2008, and 2007,
respectively.
Projected annual amortization expense for intangible assets as of 30 September 2009 is as follows:
|
|
|
|
|
2010 |
|
$ |
27.8 |
|
2011 |
|
|
23.1 |
|
2012 |
|
|
20.7 |
|
2013 |
|
|
20.2 |
|
2014 |
|
|
19.5 |
|
Thereafter |
|
|
151.3 |
|
|
|
|
$ |
262.6 |
|
|
61
11. Leases
Lessee Accounting
Capital leases, primarily for the right to use machinery and equipment, are included with owned
plant and equipment on the balance sheet in the amount of $27.3 and $29.2 at 30 September 2009 and
2008, respectively. Related amounts of accumulated depreciation are $17.5 and $17.1, respectively.
Operating leases principally relate to real estate and also include aircraft, distribution
equipment, and vehicles. Certain leases include escalation clauses, renewal, and/or purchase
options. Rent expense is recognized on a straight-line basis over the minimum lease term. Rent
expense under operating leases, including month-to-month agreements, was $89.9 in 2009, $97.2 in
2008, and $110.2 in 2007.
At 30 September 2009, minimum payments due under leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital Leases |
|
|
Operating Leases |
|
|
2010 |
|
$ |
3.2 |
|
|
$ |
58.4 |
|
2011 |
|
|
1.7 |
|
|
|
44.8 |
|
2012 |
|
|
1.0 |
|
|
|
32.3 |
|
2013 |
|
|
1.0 |
|
|
|
25.5 |
|
2014 |
|
|
.9 |
|
|
|
21.6 |
|
Thereafter |
|
|
3.1 |
|
|
|
44.0 |
|
|
|
|
$ |
10.9 |
|
|
$ |
226.6 |
|
|
The present value of the above future capital lease payments is included in the liability section
of the balance sheet. At 30 September 2009, $2.7 was classified as current and $6.2 as long-term.
Lessor Accounting
As discussed under Revenue Recognition in Note 1, certain contracts associated with facilities that
are built to provide product to a specific customer are required to be accounted for as leases.
Lease receivables, net, were included principally in noncurrent capital lease receivables on the
Companys Consolidated Balance Sheets. The components of lease receivables were as follows:
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Gross minimum lease payments receivable |
|
$ |
1,068.9 |
|
|
$ |
753.4 |
|
Unearned interest income |
|
|
(349.3 |
) |
|
|
(222.9 |
) |
|
Net Lease Receivable |
|
$ |
719.6 |
|
|
$ |
530.5 |
|
|
Lease payments collected in 2009, 2008, and 2007 were $53.6, $33.7, and $25.6, respectively.
At 30 September 2009, minimum lease payments to be collected are as follows:
|
|
|
|
|
2010 |
|
$ |
74.2 |
|
2011 |
|
|
84.0 |
|
2012 |
|
|
84.0 |
|
2013 |
|
|
81.7 |
|
2014 |
|
|
80.2 |
|
Thereafter |
|
|
664.8 |
|
|
|
|
$ |
1,068.9 |
|
|
62
12. Financial Instruments
Currency Price Risk Management
The Companys earnings, cash flows, and financial position are exposed to foreign currency risk
from foreign currency denominated transactions and net investments in foreign operations. It is the
policy of the Company to minimize its cash flow volatility to changes in currency exchange rates.
This is accomplished by identifying and evaluating the risk that the Companys cash flows will
change in value due to changes in exchange rates and by determining the appropriate strategies
necessary to manage such exposures. The Companys objective is to maintain economically balanced
currency risk management strategies that provide adequate downside protection.
Forward Exchange Contracts
The Company enters into forward exchange contracts to reduce the cash flow exposure to foreign
currency fluctuations associated with highly anticipated cash flows and certain firm commitments
such as the purchase of plant and equipment. Forward exchange contracts are also used to hedge the
value of investments in certain foreign subsidiaries and affiliates by creating a liability in a
currency in which the Company has a net equity position.
In addition to the foreign exchange contracts that are designated as hedges, the Company also
hedges foreign currency exposures utilizing forward exchange contracts that are not designated as
hedges. These contracts are used to hedge foreign currency-denominated monetary assets and
liabilities, primarily working capital. The primary objective of these forward contracts is to
protect the value of foreign currency-denominated monetary assets and liabilities from the effects
of volatility in foreign exchange rates that might occur prior to their receipt or settlement.
Option Contracts
In certain limited situations, the Company enters into option contracts to manage cash flow
exposures to foreign currency fluctuations. Similar to forward contracts, these instruments are
evaluated for hedge accounting treatment and are recognized on the balance sheet at fair value.
The table below summarizes the Companys outstanding currency price risk management instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Years |
|
|
|
|
|
|
Years |
|
|
|
US$ |
|
|
Average |
|
|
US$ |
|
|
Average |
|
30 September |
|
Notional |
|
|
Maturity |
|
|
Notional |
|
|
Maturity |
|
|
Forward exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
1,799.3 |
|
|
|
.8 |
|
|
$ |
1,839.9 |
|
|
|
.5 |
|
Net investment hedges |
|
|
873.6 |
|
|
|
3.5 |
|
|
|
749.5 |
|
|
|
4.0 |
|
Fair value hedges |
|
|
2.7 |
|
|
|
.4 |
|
|
|
10.3 |
|
|
|
.3 |
|
Hedges not designated |
|
|
330.3 |
|
|
|
.6 |
|
|
|
267.4 |
|
|
|
.1 |
|
|
Total
Forward Exchange Contracts |
|
$ |
3,005.9 |
|
|
|
1.6 |
|
|
$ |
2,867.1 |
|
|
|
1.3 |
|
|
Options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
$ |
|
|
|
|
|
|
|
$ |
26.0 |
|
|
|
.3 |
|
|
Total
Options |
|
$ |
|
|
|
|
|
|
|
$ |
26.0 |
|
|
|
.3 |
|
|
In addition to the above, the Company uses foreign currency denominated debt and qualifying
intercompany loans to hedge the foreign currency exposures of the Companys net investment in
certain foreign affiliates. The designated foreign currency denominated debt includes 1,013.0 at
30 September 2009 and 1,450.0 at 30 September 2008. The designated intercompany loans include
437.0 at 30 September 2009. There were no designated intercompany loans as of 30 September 2008.
Debt Portfolio Management
It is the policy of the Company to identify on a continuing basis the need for debt capital and
evaluate the financial risks inherent in funding the Company with debt capital. Reflecting the
result of this ongoing review, the debt portfolio and hedging program of the Company are managed
with the objectives and intent to (1) reduce funding risk with respect to borrowings made by the
Company to preserve the Companys access to debt capital and provide debt capital as required for
funding and liquidity purposes, and (2) manage the aggregate interest rate risk and the debt
portfolio in accordance with certain debt management parameters.
63
Interest Rate Swap Contracts
The Company enters into interest rate swap contracts to change the fixed/variable interest rate mix
of its debt portfolio in order to maintain the percentage of fixed- and variable-rate debt within
the parameters set by management. In accordance with these parameters, the agreements are used to
optimize interest rate risks and costs inherent in the Companys debt portfolio. In addition, the
Company also uses interest rate swap agreements to hedge the interest rate on anticipated
fixed-rate debt issuance. The notional amount of the interest rate swap agreements are equal to or
less than the designated debt instrument being hedged. When variable-rate debt is hedged, the
variable-rate indices of the swap instruments and the debt to which they are designated are the
same. It is the Companys policy not to enter into any interest rate swap contracts which lever a
move in interest rates on a greater than one-to-one basis.
Cross Currency Interest Rate Swap Contracts
The Company also enters into cross currency interest rate swap contracts. These contracts may
entail both the exchange of fixed- and floating-rate interest payments periodically over the life
of the agreement and the exchange of one currency for another currency at inception and at a
specified future date. These contracts effectively convert the currency denomination of a debt
instrument into another currency in which the Company has a net equity position while changing the
interest rate characteristics of the instrument. The contracts are used to hedge intercompany and
third-party borrowing transactions and certain net investments in foreign operations.
The following table summarizes the Companys outstanding interest rate swaps and cross currency
interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
US$ |
|
|
|
|
|
|
Average |
|
|
US$ |
|
|
|
|
|
|
Average |
|
30 September |
|
Notional |
|
|
Pay % |
|
|
Receive % |
|
|
Notional |
|
|
Pay % |
|
|
Receive % |
|
|
Interest rate swaps (fair value hedge) |
|
$ |
327.2 |
|
|
6 month LIBOR |
|
|
4.47 |
% |
|
$ |
321.9 |
|
|
6 month LIBOR |
|
|
4.49 |
% |
|
Cross currency interest rate swaps
(net investment hedge) |
|
$ |
32.2 |
|
|
|
5.54 |
% |
|
|
5.48 |
% |
|
$ |
40.3 |
|
|
|
5.55 |
% |
|
|
3.89 |
% |
|
Commodity Price Risk Management
The Company has entered into a limited number of commodity swap contracts in order to reduce the
cash flow exposure to changes in the price of natural gas relative to certain oil-based feedstocks.
The Company has also entered into forward contracts, hedging the cash flow exposure of changes in
the market price of certain metals which are raw materials used in the fabrication of certain
industrial gas equipment, with the overall intent of locking in or minimizing its price exposure to
these base metals. As of 30 September 2009, there were no outstanding contracts hedging the changes
in the market price of metals.
The table below summarizes the Companys outstanding commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Years |
|
|
|
|
|
|
Years |
|
|
|
US$ |
|
|
Average |
|
|
US$ |
|
|
Average |
|
30 September |
|
Notional |
|
|
Maturity |
|
|
Notional |
|
|
Maturity |
|
|
Energy |
|
$ |
18.5 |
|
|
|
.2 |
|
|
$ |
72.6 |
|
|
|
.8 |
|
Metals |
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
|
.2 |
|
|
Total Commodity Contracts |
|
$ |
18.5 |
|
|
|
.2 |
|
|
$ |
76.8 |
|
|
|
.8 |
|
|
64
The table below summarizes the fair value and balance sheet location of the Companys outstanding
derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
Balance Sheet |
|
|
Fair |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
|
Fair |
|
30 September |
|
Location |
|
|
Value |
|
|
Value |
|
|
Location |
|
|
Value |
|
|
Value |
|
|
Derivatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Other receivables |
|
$ |
48.8 |
|
|
$ |
34.1 |
|
|
Accrued liabilities |
|
$ |
55.1 |
|
|
$ |
78.5 |
|
Interest rate swap contracts |
|
Other receivables |
|
|
|
|
|
|
1.2 |
|
|
Accrued liabilities |
|
|
.4 |
|
|
|
|
|
Commodity swap contracts |
|
Other receivables |
|
|
4.3 |
|
|
|
5.9 |
|
|
Accrued liabilities |
|
|
2.4 |
|
|
|
2.5 |
|
Foreign exchange contracts |
|
Other noncurrent assets |
|
|
10.0 |
|
|
|
19.6 |
|
|
Other noncurrent liabilities |
|
|
45.4 |
|
|
|
29.8 |
|
Interest rate swap contracts |
|
Other noncurrent assets |
|
|
15.1 |
|
|
|
4.4 |
|
|
Other noncurrent liabilities |
|
|
3.0 |
|
|
|
3.5 |
|
Commodity swap contracts |
|
Other noncurrent assets |
|
|
|
|
|
|
1.8 |
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
.4 |
|
|
Total Derivatives Designated as Hedging Instruments |
|
$ |
78.2 |
|
|
$ |
67.0 |
|
|
|
|
|
|
$ |
106.3 |
|
|
$ |
114.7 |
|
|
Derivatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Other receivables |
|
$ |
1.0 |
|
|
$ |
1.2 |
|
|
Accrued liabilities |
|
$ |
3.4 |
|
|
$ |
.9 |
|
|
Total Derivatives |
|
|
|
|
|
$ |
79.2 |
|
|
$ |
68.2 |
|
|
|
|
|
|
$ |
109.7 |
|
|
$ |
115.6 |
|
|
Refer to Note 13, Fair Value Measurements, which defines fair value, describes the method for
measuring fair value, provides additional disclosures regarding fair value measurements, and
discusses the Companys counterparty risk.
The table below summarizes the gain or loss related to the Companys cash flow, net investment, and
non-designated hedges. The amounts of gain or loss associated with the outstanding fair value
hedges are not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 September |
|
|
Forward |
|
Foreign |
|
|
|
|
|
|
Exchange Contract |
|
Currency Debt |
|
Other (A) |
|
Total |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss recognized in
OCI (effective portion) |
|
$ |
7.2 |
|
|
$ |
74.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2.7 |
) |
|
$ |
.4 |
|
|
$ |
4.5 |
|
|
$ |
74.4 |
|
Net gain (loss) reclassified
from OCI to sales/cost of sales
(effective portion) |
|
|
(4.1 |
) |
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
5.3 |
|
|
|
(1.1 |
) |
|
|
1.2 |
|
|
|
3.5 |
|
Net gain (loss) reclassified
from OCI to other (income)
expense (effective portion) |
|
|
(1.0 |
) |
|
|
(53.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
(53.5 |
) |
Net gain (loss) reclassified
from OCI to other (income)
expense (ineffective portion) |
|
|
.5 |
|
|
|
(.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.5 |
|
|
|
(.7 |
) |
|
Net Investment Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss recognized in OCI |
|
$ |
27.1 |
|
|
$ |
(15.4 |
) |
|
$ |
31.3 |
|
|
$ |
(5.1 |
) |
|
$ |
(2.4 |
) |
|
$ |
(3.5 |
) |
|
$ |
56.0 |
|
|
$ |
(24.0 |
) |
|
Derivatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss recognized in other
(income) expense (B) |
|
$ |
14.5 |
|
|
$ |
19.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14.5 |
|
|
$ |
19.0 |
|
|
|
|
|
(A) |
|
Other includes the impact on Other Comprehensive Income (OCI) and earnings related
to commodity swap contracts, interest rate swaps, and currency option contracts. |
|
(B) |
|
The impact of the non-designated hedges noted above was largely offset by gains and
losses, respectively, resulting from the impact of changes in exchange rates on recognized
assets and liabilities denominated in nonfunctional currencies. |
Credit Risk-Related Contingent Features
Certain derivative instruments are executed under agreements that require the Company to maintain a
credit rating of at least A- from Standard & Poors and A3 from Moodys. If the Companys credit
rating falls below these levels, the counterparty to the derivative instruments has the right to
request full collateralization on the derivatives net liability
position. The net liability position of derivatives with credit risk-related contingent features
was $35.0 and $21.5 as of
65
30 September 2009 and 2008, respectively. Because of the Companys
current credit rating of A from Standard & Poors and A2 from Moodys, no collateral has been
posted on these liability positions.
Counterparty Credit Risk Management
The Company executes all derivative transactions with counterparties that are highly rated
financial institutions and
all of which are investment grade at this time. Some of the Companys underlying derivative
agreements give the Company the right to require the institution to post collateral if its credit
rating falls below A- from Standard & Poors or A3 from Moodys. These are the same agreements
referenced in Credit Risk-Related Contingent Features above. The collateral that the counterparties
would be required to post is $14.7 as of 30 September 2009 and $14.1 as of 30 September 2008. No
financial institution is required to post collateral at this time, as all have credit ratings at or
above the threshold.
13. Fair Value Measurements
Fair value is defined as an exit price (i.e., the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date). The methods and assumptions used to measure the fair value of financial
instruments are as follows:
Derivatives
The fair value of the Companys interest rate swap agreements and foreign exchange contracts are
based on estimates using standard pricing models that take into account the present value of future
cash flows as of the balance sheet date. The computation of the fair values of these instruments is
generally performed by the Company. These standard pricing models utilize inputs which are derived
from or corroborated by observable market data such as interest rate yield curves and currency spot
and forward rates. In addition, on an ongoing basis, the Company randomly tests a subset of its
valuations against valuations received from the counterparty to the transaction to validate the
accuracy of its standard pricing models. The fair value of commodity swaps is based on current
market price as provided by the financial institutions with which the commodity swaps have been
executed. Counterparties to these derivative contracts are highly rated financial institutions.
Other Investments
The fair value of other investments is based on quoted market prices in publicly traded companies
from the New York and Tokyo Stock Exchanges. Other investments are reported within other noncurrent
assets on the balance sheet.
Long-term Debt
The fair value of the Companys debt is based on estimates using standard pricing models that take
into account the present value of future cash flows as of the balance sheet date, and these
standard valuation models utilize observable market data such as interest rate yield curves and
currency spot rates. The computation of the fair value of these instruments is generally performed
by the Company.
The carrying values and fair values of financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
59.8 |
|
|
$ |
59.8 |
|
|
$ |
54.9 |
|
|
$ |
54.9 |
|
Interest rate swap contracts |
|
|
15.1 |
|
|
|
15.1 |
|
|
|
5.6 |
|
|
|
5.6 |
|
Commodity swap contracts |
|
|
4.3 |
|
|
|
4.3 |
|
|
|
7.7 |
|
|
|
7.7 |
|
Other investments |
|
|
19.4 |
|
|
|
19.4 |
|
|
|
15.6 |
|
|
|
15.6 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
103.9 |
|
|
$ |
103.9 |
|
|
$ |
109.2 |
|
|
$ |
109.2 |
|
Interest rate swap contracts |
|
|
3.4 |
|
|
|
3.4 |
|
|
|
3.5 |
|
|
|
3.5 |
|
Commodity swap contracts |
|
|
2.4 |
|
|
|
2.4 |
|
|
|
2.9 |
|
|
|
2.9 |
|
Long-term debt, including current portion |
|
|
4,167.7 |
|
|
|
4,479.5 |
|
|
|
3,547.5 |
|
|
|
3,581.5 |
|
|
66
The carrying amounts reported in the balance sheet for cash and cash items, trade receivables,
payables and accrued liabilities, accrued income taxes, and short-term borrowings approximate fair
value due to the short-term nature of these instruments. Accordingly, these items have been
excluded from the above table.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels as follows:
Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2Inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the asset or liability.
Level 3Inputs that are unobservable for the asset or liability based on the Companys own
assumptions (about the assumptions market participants would use in pricing the asset or
liability).
The following table summarizes assets and liabilities measured at fair value on a recurring basis
in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2009 |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
59.8 |
|
|
$ |
|
|
|
$ |
59.8 |
|
|
$ |
|
|
Interest rate swap contracts |
|
|
15.1 |
|
|
|
|
|
|
|
15.1 |
|
|
|
|
|
Commodity swap contracts |
|
|
4.3 |
|
|
|
|
|
|
|
4.3 |
|
|
|
|
|
Other investments |
|
|
19.4 |
|
|
|
19.4 |
|
|
|
|
|
|
|
|
|
|
Total
Assets at Fair Value |
|
$ |
98.6 |
|
|
$ |
19.4 |
|
|
$ |
79.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
103.9 |
|
|
$ |
|
|
|
$ |
103.9 |
|
|
$ |
|
|
Interest rate swap contracts |
|
|
3.4 |
|
|
|
|
|
|
|
3.4 |
|
|
|
|
|
Commodity swap contracts |
|
|
2.4 |
|
|
|
|
|
|
|
2.4 |
|
|
|
|
|
|
Total
Liabilities at Fair Value |
|
$ |
109.7 |
|
|
$ |
|
|
|
$ |
109.7 |
|
|
$ |
|
|
|
14. Debt
The tables below summarize the Companys outstanding debt at 30 September 2009 and 2008:
Total Debt
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Short-term borrowings |
|
$ |
333.8 |
|
|
$ |
419.3 |
|
Current portion of long-term debt |
|
|
452.1 |
|
|
|
32.1 |
|
Long-term debt |
|
|
3,715.6 |
|
|
|
3,515.4 |
|
|
Total Debt |
|
$ |
4,501.5 |
|
|
$ |
3,966.8 |
|
|
Short-term Borrowings
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Bank obligations |
|
$ |
333.8 |
|
|
$ |
322.1 |
|
Commercial paper |
|
|
|
|
|
|
97.2 |
|
|
Total
Short-term Borrowings |
|
$ |
333.8 |
|
|
$ |
419.3 |
|
|
The weighted average interest rate of short-term borrowings outstanding at 30 September 2009 and
2008 was 3.9% and 4.7%, respectively.
67
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September |
|
Maturities |
|
|
2009 |
|
|
2008 |
|
|
Payable in U.S. Dollars: |
|
|
|
|
|
|
|
|
|
|
|
|
Debentures: |
|
|
|
|
|
|
|
|
|
|
|
|
8.75% |
|
|
2021 |
|
|
$ |
18.4 |
|
|
$ |
18.4 |
|
Medium-term Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate |
|
|
|
|
|
|
|
|
|
|
|
|
Series D 6.8% |
|
|
2011 to 2016 |
|
|
|
63.1 |
|
|
|
63.1 |
|
Series E 7.6% |
|
|
2026 |
|
|
|
17.2 |
|
|
|
17.2 |
|
Series F 6.2% |
|
|
2010 |
|
|
|
50.0 |
|
|
|
50.0 |
|
Series G 4.1% |
|
|
2011 |
|
|
|
125.0 |
|
|
|
125.0 |
|
Senior Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.15% |
|
|
2013 |
|
|
|
300.0 |
|
|
|
300.0 |
|
Note 4.375% |
|
|
2019 |
|
|
|
400.0 |
|
|
|
|
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate |
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate industrial revenue bonds 0.3% |
|
|
2016 to 2049 |
|
|
|
902.1 |
|
|
|
743.3 |
|
Other 1.6% |
|
|
2010 to 2015 |
|
|
|
70.7 |
|
|
|
65.7 |
|
Less: Unamortized discount |
|
|
|
|
|
|
(12.7 |
) |
|
|
(16.0 |
) |
Payable in Other Currencies: |
|
|
|
|
|
|
|
|
|
|
|
|
Eurobonds 1.2% (floating rate) |
|
|
2010 |
|
|
|
365.5 |
|
|
|
352.0 |
|
Eurobonds 4.25% |
|
|
2012 |
|
|
|
438.5 |
|
|
|
422.5 |
|
Eurobonds 3.75% |
|
|
2014 |
|
|
|
438.5 |
|
|
|
422.5 |
|
Eurobonds 3.875% |
|
|
2015 |
|
|
|
438.5 |
|
|
|
422.5 |
|
Eurobonds 4.625% |
|
|
2017 |
|
|
|
438.5 |
|
|
|
422.5 |
|
Other 4.4% |
|
|
2011 to 2016 |
|
|
|
105.5 |
|
|
|
125.7 |
|
Capital Lease Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
United States 5.1% |
|
|
2010 to 2018 |
|
|
|
6.1 |
|
|
|
7.0 |
|
Foreign 6.0% |
|
|
2018 |
|
|
|
2.8 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
4,167.7 |
|
|
|
3,547.5 |
|
Less: Current Portion |
|
|
|
|
|
|
(452.1 |
) |
|
|
(32.1 |
) |
|
|
|
|
|
|
|
$ |
3,715.6 |
|
|
$ |
3,515.4 |
|
|
Maturities of long-term debt in each of the next five years are as follows: $452.1 in 2010, $195.4
in 2011, $455.5 in 2012, $311.3 in 2013, and $470.0 in 2014.
During fiscal 2009, the Company issued Industrial Revenue Bonds totaling $158.8, the proceeds of
which must be held in escrow until related project spending occurs. As of 30 September 2009,
proceeds of $90.6 were held in escrow and classified as a noncurrent asset.
On
21 August 2009, the Company issued a $400.0 senior
fixed-rate 4.375% note that matures on
21 August 2019.
Various debt agreements to which the Company is a party include certain financial covenants and
other restrictions, including restrictions pertaining to the ability to create property liens and
enter into certain sale and leaseback transactions. The Company is in compliance with its financial
debt covenants.
The Company has obtained the commitment of a number of commercial banks to lend money at market
rates whenever needed. This committed line of credit provides a source of liquidity and is used to
support the issuance of commercial paper. The Companys total multicurrency revolving facility,
maturing in May 2011, amounted to $1,450.0 at 30 September 2009. No borrowings were outstanding
under this commitment at the end of 2009. Additional commitments totaling $396.6 are maintained by
the Companys foreign subsidiaries, of which $294.8 was borrowed and outstanding at 30
September 2009.
68
15. Retirement Benefits
The Company and certain of its subsidiaries sponsor defined benefit pension plans and defined
contribution plans that cover a substantial portion of its worldwide employees. The principal
defined benefit pension plans are the U.S. Salaried Pension Plan and the U.K. Pension Plan. These
plans were closed to new participants in 2005 and were replaced with defined contribution plans.
The principal defined contribution plan is the Retirement Savings Plan, in which a substantial
portion of the U.S. employees participate; a similar plan is offered to U.K. employees. The Company
also provides other postretirement benefits consisting primarily of healthcare benefits to U.S.
retirees who meet age and service requirements.
Defined Benefit Pension Plans
Pension benefits earned are generally based on years of service and compensation during active
employment. The cost of the Companys defined benefit pension plans included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Service cost |
|
$ |
33.9 |
|
|
$ |
26.6 |
|
|
$ |
42.3 |
|
|
$ |
35.4 |
|
|
$ |
45.8 |
|
|
$ |
35.8 |
|
Interest cost |
|
|
124.0 |
|
|
|
60.9 |
|
|
|
117.6 |
|
|
|
63.3 |
|
|
|
112.0 |
|
|
|
56.3 |
|
Expected return on plan assets |
|
|
(146.5 |
) |
|
|
(55.3 |
) |
|
|
(143.2 |
) |
|
|
(63.6 |
) |
|
|
(131.2 |
) |
|
|
(56.9 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
2.6 |
|
|
|
1.3 |
|
|
|
1.9 |
|
|
|
1.3 |
|
|
|
2.2 |
|
|
|
2.0 |
|
Transition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.1 |
|
|
|
|
|
|
|
.1 |
|
Actuarial loss |
|
|
6.2 |
|
|
|
10.8 |
|
|
|
19.6 |
|
|
|
18.3 |
|
|
|
33.6 |
|
|
|
23.9 |
|
Settlements and curtailments |
|
|
9.7 |
|
|
|
4.8 |
|
|
|
29.9 |
|
|
|
.4 |
|
|
|
10.3 |
|
|
|
|
|
Special termination benefits |
|
|
7.2 |
|
|
|
22.1 |
|
|
|
.1 |
|
|
|
1.1 |
|
|
|
.7 |
|
|
|
1.3 |
|
Other |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
2.6 |
|
|
Net Periodic Pension Cost |
|
$ |
37.1 |
|
|
$ |
72.9 |
|
|
$ |
68.2 |
|
|
$ |
58.8 |
|
|
$ |
73.4 |
|
|
$ |
65.1 |
|
|
The Company calculated net periodic pension cost for a given fiscal year based on assumptions
developed at the end of the previous fiscal year. The following table sets forth the weighted
average assumptions used in the calculation of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Discount rate |
|
|
7.6 |
% |
|
|
6.5 |
% |
|
|
6.4 |
% |
|
|
5.7 |
% |
|
|
6.0 |
% |
|
|
5.1 |
% |
Expected return on plan assets |
|
|
8.8 |
% |
|
|
7.4 |
% |
|
|
9.5 |
% |
|
|
7.5 |
% |
|
|
9.5 |
% |
|
|
7.4 |
% |
Rate of compensation increase |
|
|
4.3 |
% |
|
|
4.4 |
% |
|
|
4.5 |
% |
|
|
3.8 |
% |
|
|
4.5 |
% |
|
|
3.6 |
% |
|
The Companys supplemental pension plan provides for a lump sum benefit payment option at the time
of retirement, or for corporate officers, six months after the participants retirement date. The
Company recognizes pension settlements when payments exceed the sum of service and interest cost
components of net periodic pension cost of the plan for the fiscal year. A settlement loss is
recognized when the pension obligation is settled. Based on the timing of when cash payments were
made, the Company recognized $10.7, $30.3, and $10.3 of settlement charges in 2009, 2008, and 2007,
respectively.
Special termination benefits for fiscal year 2009 included $28.5 for the global cost reduction
plan. The global cost reduction charge also included $3.8 for curtailment losses related to the
U.K. pension plans.
69
The projected benefit obligation (PBO) is the actuarial present value of benefits attributable to
employee service rendered to date, including the effects of estimated future salary increases. The
following table sets forth the weighted average assumptions used in the calculation of the PBO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Discount rate |
|
|
5.7 |
% |
|
|
5.5 |
% |
|
|
7.6 |
% |
|
|
6.5 |
% |
Rate of compensation increase |
|
|
4.3 |
% |
|
|
3.7 |
% |
|
|
4.3 |
% |
|
|
4.4 |
% |
|
The following table reflects the change in the PBO and the change in the fair value of plan assets
based on the plan year measurement date, as well as the amounts recognized in the Consolidated
Balance Sheets. In 2009, the Company used a measurement date of 30 September for all plans. In
2008, the U.K. and Belgium plans were measured as of 30 June.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Change in Pension Benefit Obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at beginning of year |
|
$ |
1,638.7 |
|
|
$ |
1,093.0 |
|
|
$ |
1,894.9 |
|
|
$ |
1,138.2 |
|
Measurement date change |
|
|
|
|
|
|
(78.5 |
) |
|
|
|
|
|
|
|
|
Service cost |
|
|
33.9 |
|
|
|
26.6 |
|
|
|
42.3 |
|
|
|
35.4 |
|
Interest cost |
|
|
124.0 |
|
|
|
60.9 |
|
|
|
117.6 |
|
|
|
63.3 |
|
Amendments |
|
|
.9 |
|
|
|
.6 |
|
|
|
1.1 |
|
|
|
.2 |
|
Actuarial loss (gain) |
|
|
498.0 |
|
|
|
173.4 |
|
|
|
(291.8 |
) |
|
|
16.0 |
|
Special termination benefits,
settlements, and curtailments |
|
|
12.8 |
|
|
|
23.5 |
|
|
|
13.8 |
|
|
|
1.7 |
|
Participant contributions |
|
|
|
|
|
|
4.6 |
|
|
|
|
|
|
|
4.6 |
|
Benefits paid |
|
|
(97.8 |
) |
|
|
(60.9 |
) |
|
|
(132.7 |
) |
|
|
(42.1 |
) |
Currency translation/other |
|
|
|
|
|
|
(67.7 |
) |
|
|
(6.5 |
) |
|
|
(124.3 |
) |
|
Obligation at End of Year |
|
$ |
2,210.5 |
|
|
$ |
1,175.5 |
|
|
$ |
1,638.7 |
|
|
$ |
1,093.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year |
|
$ |
1,424.7 |
|
|
$ |
793.5 |
|
|
$ |
1,673.8 |
|
|
$ |
926.3 |
|
Actual return on plan assets |
|
|
9.4 |
|
|
|
41.6 |
|
|
|
(279.8 |
) |
|
|
(53.2 |
) |
Company contributions |
|
|
121.4 |
|
|
|
63.4 |
|
|
|
168.9 |
|
|
|
62.5 |
|
Participant contributions |
|
|
|
|
|
|
4.6 |
|
|
|
|
|
|
|
4.6 |
|
Benefits paid |
|
|
(97.8 |
) |
|
|
(60.9 |
) |
|
|
(132.7 |
) |
|
|
(42.1 |
) |
Currency translation/other |
|
|
|
|
|
|
(48.9 |
) |
|
|
(5.5 |
) |
|
|
(104.6 |
) |
|
Fair Value at End of Year |
|
$ |
1,457.7 |
|
|
$ |
793.3 |
|
|
$ |
1,424.7 |
|
|
$ |
793.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at End of Year |
|
$ |
(752.8 |
) |
|
$ |
(382.2 |
) |
|
$ |
(214.0 |
) |
|
$ |
(299.5 |
) |
Employer contributions for
U.K. and Belgium after the
measurement date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.6 |
|
|
Net Amount Recognized |
|
$ |
(752.8 |
) |
|
$ |
(382.2 |
) |
|
$ |
(214.0 |
) |
|
$ |
(296.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets |
|
$ |
|
|
|
$ |
8.4 |
|
|
$ |
|
|
|
$ |
26.6 |
|
Accrued liabilities |
|
|
(210.5 |
) |
|
|
(137.4 |
) |
|
|
(90.9 |
) |
|
|
(32.6 |
) |
Noncurrent liabilities |
|
|
(542.3 |
) |
|
|
(253.2 |
) |
|
|
(123.1 |
) |
|
|
(290.9 |
) |
|
Net Amount Recognized |
|
$ |
(752.8 |
) |
|
$ |
(382.2 |
) |
|
$ |
(214.0 |
) |
|
$ |
(296.9 |
) |
|
70
The changes in plan assets and benefit obligation that have been recognized in AOCI on a pretax
basis during 2009 and 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Net actuarial loss arising during the period |
|
$ |
640.8 |
|
|
$ |
148.2 |
|
|
$ |
145.4 |
|
|
$ |
131.8 |
|
Measurement date change |
|
|
|
|
|
|
(49.8 |
) |
|
|
|
|
|
|
|
|
Amortization of net actuarial loss |
|
|
(15.9 |
) |
|
|
(15.6 |
) |
|
|
(49.5 |
) |
|
|
(18.7 |
) |
Prior service cost arising during the period |
|
|
.8 |
|
|
|
.6 |
|
|
|
.9 |
|
|
|
.2 |
|
Amortization of prior service cost |
|
|
(2.6 |
) |
|
|
(1.3 |
) |
|
|
(1.9 |
) |
|
|
(1.3 |
) |
Amortization of net transition liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1 |
) |
|
Total Recognized in AOCI |
|
$ |
623.1 |
|
|
$ |
82.1 |
|
|
$ |
94.9 |
|
|
$ |
111.9 |
|
|
The net actuarial loss represents the actual changes in the estimated obligation and plan assets
that have not yet been recognized in the income statement and are included in AOCI. Actuarial
losses arising during 2009 are primarily attributable to lower discount rates and actual asset
returns below expected returns. Actuarial gains and losses are not recognized immediately, but
instead are accumulated as a part of the unrecognized net loss balance and amortized into net
periodic pension cost over the average remaining service period of participating employees as
certain thresholds are met.
The components recognized in AOCI on a pretax basis at 30 September consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Net actuarial loss |
|
$ |
976.9 |
|
|
$ |
450.9 |
|
|
$ |
352.0 |
|
|
$ |
368.1 |
|
Prior service cost |
|
|
18.3 |
|
|
|
6.8 |
|
|
|
20.1 |
|
|
|
7.5 |
|
Net transition liability |
|
|
|
|
|
|
.4 |
|
|
|
|
|
|
|
.4 |
|
|
Total Recognized in AOCI |
|
$ |
995.2 |
|
|
$ |
458.1 |
|
|
$ |
372.1 |
|
|
$ |
376.0 |
|
|
The amount of AOCI at 30 September 2009 that is expected to be recognized as a component of net
periodic pension cost during fiscal year 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
International |
|
|
Net actuarial loss |
|
$ |
46.4 |
|
|
$ |
17.7 |
|
Prior service cost |
|
|
2.6 |
|
|
|
.7 |
|
|
The assets of the Companys defined benefit pension plans consist primarily of equity and
fixed-income securities. Except where the Companys equity is a component of an index fund, the
defined benefit plans are prohibited by Company policy from holding shares of Company stock.
Asset allocation targets are established based on the long-term return and volatility
characteristics of the investment classes and recognize the benefit of diversification and the
profiles of the plans liabilities. The actual and target allocations at the measurement date are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Target Allocation |
|
|
2009 Actual Allocation |
|
|
2008 Actual Allocation |
|
Asset Category |
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
Equity securities |
|
|
6080 |
% |
|
|
5060 |
% |
|
|
68 |
% |
|
|
56 |
% |
|
|
65 |
% |
|
|
61 |
% |
Debt securities |
|
|
2030 |
% |
|
|
3447 |
% |
|
|
26 |
% |
|
|
39 |
% |
|
|
26 |
% |
|
|
34 |
% |
Real estate/other |
|
|
0-10 |
% |
|
|
2-4 |
% |
|
|
5 |
% |
|
|
3 |
% |
|
|
8 |
% |
|
|
2 |
% |
Cash |
|
|
|
|
|
|
|
|
|
|
1 |
% |
|
|
2 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
Total |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
The Company employs a mix of active and passive investment strategies. Over a full market cycle,
the total return on plan assets is expected to exceed that of a passive strategy tracking index
returns in each asset category.
The expected return on plan assets assumption is based on an estimated weighted average of
long-term returns of major asset classes. In determining asset class returns, the Company takes
into account long-term returns of major asset classes, historical performance of plan assets, and
related value of active management, as well as the current interest rate environment.
71
The Company anticipates contributing approximately $360 to the defined benefit pension plans in
2010.
Projected benefit payments, which reflect expected future service, are as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
International |
|
|
2010 |
|
$ |
89.0 |
|
|
$ |
41.5 |
|
2011 |
|
|
94.8 |
|
|
|
42.5 |
|
2012 |
|
|
102.0 |
|
|
|
46.0 |
|
2013 |
|
|
110.9 |
|
|
|
46.6 |
|
2014 |
|
|
118.4 |
|
|
|
48.4 |
|
20152019 |
|
|
724.4 |
|
|
|
267.2 |
|
|
These estimated benefit payments are based on assumptions about future events. Actual benefit
payments may vary significantly from these estimates.
The accumulated benefit obligation (ABO) is the actuarial present value of benefits attributed to
employee service rendered to a particular date, based on current salaries. The ABO for all defined
benefit pension plans was $2,970.8 and $2,268.3 at the end of 2009 and 2008, respectively.
The following table provides information on pension plans where the ABO exceeds the value of plan
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
U.S. |
|
|
International |
|
|
U.S. |
|
|
International |
|
|
PBO |
|
$ |
2,210.5 |
|
|
$ |
1,008.0 |
|
|
$ |
244.2 |
|
|
$ |
941.8 |
|
ABO |
|
|
1,885.0 |
|
|
|
955.5 |
|
|
|
204.1 |
|
|
|
776.2 |
|
Plan assets |
|
|
1,457.7 |
|
|
|
620.2 |
|
|
|
106.8 |
|
|
|
625.0 |
|
|
Included in the table above are several pension arrangements that are not funded because of
jurisdictional practice. The ABO and PBO related to these plans for 2009 were $130.5 and $176.3,
respectively.
Defined Contribution Plans
The Company maintains a nonleveraged employee stock ownership plan (ESOP) which forms part of the
Air Products and Chemicals, Inc. Retirement Savings Plan (RSP). The ESOP was established in May of
2002.
The balance of the RSP is a qualified defined contribution plan including a 401(k) elective
deferral component.
A substantial portion of U.S. employees are eligible and participate.
Dividends paid on ESOP shares are treated as ordinary dividends by the Company. Under existing tax
law, the Company may deduct dividends which are paid with respect to shares held by the plan.
Shares of the Companys common stock in the ESOP totaled 5,601,191 as of 30 September 2009.
The Company matches a portion of the participants contributions to the RSP and other various
worldwide defined contribution plans. The Companys contributions to the RSP include a Company core
contribution for eligible employees (not participating in the defined benefit pension plans), with
the core contribution based on a percentage of pay, and the percentage is based on years of
service. For the RSP, the Company also makes matching contributions on overall employee
contributions as a percentage of the employee contribution and includes an enhanced contribution
for eligible employees (not participating in the defined benefit pension plans). Worldwide
contributions expensed to income in 2009, 2008, and 2007 were $30.6, $30.1, and $28.6,
respectively.
72
Other Postretirement Benefits
The Company provides other postretirement benefits consisting primarily of healthcare benefits to
certain U.S. retirees who meet age and service requirements. The healthcare benefit is a continued
medical benefit until the retiree reaches age 65. Healthcare benefits are contributory, with
contribution percentages adjusted periodically. The retiree medical costs are capped at a specified
dollar amount, with the retiree contributing the remainder.
The cost of the Companys other postretirement benefit plans included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Service cost |
|
$ |
4.0 |
|
|
$ |
5.9 |
|
|
$ |
5.9 |
|
Interest cost |
|
|
6.5 |
|
|
|
5.8 |
|
|
|
5.4 |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit |
|
|
(1.4 |
) |
|
|
(1.4 |
) |
|
|
(1.8 |
) |
Actuarial loss |
|
|
.1 |
|
|
|
1.7 |
|
|
|
2.3 |
|
|
Net Periodic Postretirement Cost |
|
$ |
9.2 |
|
|
$ |
12.0 |
|
|
$ |
11.8 |
|
|
The Company calculates net periodic postretirement cost for a given fiscal year based on
assumptions developed at the end of the previous fiscal year. The discount rate assumption used in
the calculation of net periodic postretirement cost for 2009, 2008, and 2007 was 7.4%, 5.7%, and
5.3%, respectively.
The Company measures the other postretirement benefits as of 30 September. The discount rate
assumption used in the calculation of the accumulated postretirement benefit obligation was 4.2%
and 7.4% for 2009 and 2008, respectively.
The following table reflects the change in the accumulated postretirement benefit obligation and
the amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Obligation at Beginning of Year |
|
$ |
98.8 |
|
|
$ |
107.2 |
|
Service cost |
|
|
4.0 |
|
|
|
5.9 |
|
Interest cost |
|
|
6.5 |
|
|
|
5.8 |
|
Actuarial loss (gain) |
|
|
18.7 |
|
|
|
(10.1 |
) |
Benefits paid |
|
|
(12.0 |
) |
|
|
(10.0 |
) |
|
Obligation at End of Year |
|
$ |
116.0 |
|
|
$ |
98.8 |
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
13.5 |
|
|
$ |
11.3 |
|
Noncurrent liabilities |
|
|
102.5 |
|
|
|
87.5 |
|
|
The changes in benefit obligation that have been recognized in AOCI on a pre-tax basis during 2009
and 2008 for the Companys other postretirement benefit plans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Net actuarial loss (gain) arising during the period |
|
$ |
18.7 |
|
|
$ |
(10.1 |
) |
Amortization of net actuarial loss |
|
|
(.1 |
) |
|
|
(1.7 |
) |
Amortization of prior service credit |
|
|
1.4 |
|
|
|
1.4 |
|
|
Total Recognized in AOCI |
|
$ |
20.0 |
|
|
$ |
(10.4 |
) |
|
The components recognized in AOCI on a pretax basis at 30 September consisted of:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Net actuarial loss |
|
$ |
30.6 |
|
|
$ |
12.0 |
|
Prior service credit |
|
|
(.1 |
) |
|
|
(1.5 |
) |
|
Amount Recognized in AOCI |
|
$ |
30.5 |
|
|
$ |
10.5 |
|
|
Of the 30 September 2009 actuarial loss and prior service credit, it is estimated that $2.7 and
$(.2), respectively, will be amortized into net periodic postretirement cost over fiscal year 2010.
73
The assumed healthcare trend rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Healthcare trend rate |
|
|
9.5 |
% |
|
|
10.0 |
% |
Ultimate trend rate |
|
|
5.0 |
% |
|
|
5.0 |
% |
Year the ultimate trend rate is reached |
|
|
2014 |
|
|
|
2013 |
|
|
The effect of a change in the healthcare trend rate is slightly tempered by a cap on the average
retiree medical cost. The impact of a one percentage point change in the assumed healthcare cost
trend rate on net periodic postretirement cost and the obligation is not material.
Projected benefit payments are as follows:
|
|
|
|
|
2010 |
|
$ |
13.8 |
|
2011 |
|
|
13.9 |
|
2012 |
|
|
13.6 |
|
2013 |
|
|
13.1 |
|
2014 |
|
|
12.8 |
|
20152019 |
|
|
58.5 |
|
|
These estimated benefit payments are based on assumptions about future events. Actual benefit
payments may vary significantly from these estimates.
16. Commitments and Contingencies
Litigation
The Company is involved in various legal proceedings, including competition, environmental, health,
safety, product liability, and insurance matters. During the third quarter of 2008, a unit of the
Brazilian Ministry of Justice issued a report (previously issued in January 2007, and then
withdrawn) on its investigation of the Companys Brazilian subsidiary, Air Products Brazil Ltda.,
and several other Brazilian industrial gas companies. The report recommended that the Brazilian
Administrative Council for Economic Defense impose sanctions on Air Products Brazil Ltda. and the
other industrial gas companies for alleged anticompetitive activities. The Company is actively
defending this action and cannot, at this time, reasonably predict the ultimate outcome of the
proceedings or sanctions, if any, that will be imposed. While the Company does not expect that any
sums it may have to pay in connection with this or any other legal proceeding would have a
materially adverse effect on its consolidated financial position or net cash flows, a future charge
for regulatory fines or damage awards could have a significant impact on the Companys net income
in the period in which it is recorded.
Environmental
In the normal course of business, the Company is involved in legal proceedings under the federal
Superfund law, similar state environmental laws, and RCRA relating to the designation of certain
sites for investigation or remediation. Presently, there are approximately 28 sites on which a
final settlement has not been reached where the Company, along with others, has been designated a
potentially responsible party by the Environmental Protection Agency or is otherwise engaged in
investigation or remediation. In addition, the Company is also involved in cleanup activities at
certain of its manufacturing sites. The Company continually monitors these sites for which it has
environmental exposure.
Accruals for environmental loss contingencies are recorded when it is probable that a liability has
been incurred and the amount of loss can be reasonably estimated consistent with the policy set
forth in Note 1. The Consolidated Balance Sheets at 30 September 2009 and 2008 included an accrual
of $95.0 and $82.9, respectively, primarily as part of other noncurrent liabilities. The
environmental liabilities will be paid over a period of up to 30 years. The Company estimates the
exposure for environmental loss contingencies to range from $95 to a reasonably possible upper
exposure of $109 as of 30 September 2009.
Actual costs to be incurred at identified sites in future periods may vary from the estimates,
given inherent uncertainties in evaluating environmental exposures. Using reasonably possible
alternative assumptions of the exposure level could result in an increase to the environmental
accrual. Due to the inherent uncertainties related to environmental exposures, a significant
increase to the reasonably possible upper exposure level could occur if a new site is designated,
the scope of remediation is increased, a different remediation alternative is identified, or a
significant increase in the Companys proportionate share occurs. While the Company does not expect
that any sums
74
it may have to pay in connection with environmental exposures would have a materially adverse
effect on its consolidated financial position or net cash flows, a future charge for any damage
award could have a significant impact on the Companys net income in the period in which it is
recorded.
Pace
At 30 September 2009, $38.3 of the environmental accrual was related to the Pace facility.
In 2006, the Company sold its Amines business, which included operations at Pace, Florida and
recognized a liability for retained environmental obligations associated with remediation
activities at Pace. The Company is required by the Florida Department of Environmental Protection
(FDEP) and the United States Environmental Protection Agency (USEPA) to continue its remediation
efforts. The Company estimated that it would take about 20 years to complete the groundwater
remediation, and the costs through completion were estimated to range from $42 to $50. As no amount
within the range was a better estimate than another, the Company recognized a pretax expense of
$42.0 as a component of income from discontinued operations and recorded an environmental accrual
of $42.0 in continuing operations on the Consolidated Balance Sheets. There has been no change to
the estimated exposure range related to the Pace facility.
The Company has implemented many of the remedial corrective measures at the Pace, Florida facility
required under 1995 Consent Orders issued by the FDEP and the USEPA. Contaminated soils have been
bioremediated, and the treated soils have been secured in a lined on-site disposal cell. Several
groundwater recovery systems have been installed to contain and remove contamination from
groundwater. The Company completed an extensive assessment of the site to determine how well
existing measures are working, what additional corrective measures may be needed, and whether newer
remediation technologies that were not available in the 1990s might be suitable to more quickly
and effectively remove groundwater contaminants. Based on assessment results, the Company completed
a focused feasibility study to identify new approaches to more effectively remove contaminants and
is seeking the necessary approvals from the FDEP to implement those new approaches.
Piedmont
At 30 September 2009, $22.4 of the environmental accrual was related to the Piedmont site.
On 30 June 2008, the Company sold its Elkton, Maryland and Piedmont, South Carolina production
facilities and the related North American atmospheric emulsions and global pressure sensitive
adhesives businesses. In connection with the sale, the Company recognized a liability for retained
environmental obligations associated with remediation activities at the Piedmont site. This site is
under active remediation for contamination caused by an insolvent prior owner. Before the sale,
which triggered expense recognition, remediation costs had been capitalized since they improved the
property as compared to its condition when originally acquired. The Company is required by the
South Carolina Department of Health and Environmental Control to address both contaminated soil and
groundwater. Numerous areas of soil contamination have been addressed, and contaminated groundwater
is being recovered and treated. The Company estimated that it would take until 2015 to complete
source area remediation and another 15 years thereafter to complete groundwater recovery, with
costs through completion estimated to be $24.0. The Company recognized a pretax expense in 2008 of
$24.0 as a component of income from discontinued operations and recorded an environmental liability
of $24.0 in continuing operations on the Consolidated Balance Sheets. There has been no change to
the estimated exposure.
Paulsboro
At 30 September 2009, $16.0 of the environmental accrual was related to the Paulsboro site.
During the first quarter of 2009, management committed to a plan to sell the production facility in
Paulsboro, New Jersey and recognized a $16.0 environmental liability associated with this site. The
Company is required by the New Jersey state law to investigate and, if contaminated, remediate a
site upon its sale. The Company estimates that it will take at least several years to complete the
investigation/remediation efforts at this site.
75
Guarantees and Warranties
The Company is a party to certain guarantee agreements, including debt guarantees of equity
affiliates and equity support agreements. These guarantees are contingent commitments that are
related to activities of the Companys primary businesses.
The Company has guaranteed repayment of some additional borrowings of certain unconsolidated equity
affiliates. At 30 September 2009, these guarantees have terms in the range of one to nine years,
with maximum potential payments of $34.3.
The Company has entered into an equity support agreement and operations guarantee related to an air
separation facility constructed in Trinidad for a venture in which the Company owns 50%. At
30 September 2009, maximum potential payments under joint and several guarantees were $73.0.
Exposures under the guarantee decline over time and are completely extinguished by 2024.
To date, no equity contributions or payments have been required since the inception of these
guarantees. The fair value of the above guarantees is not material.
The Company, in the normal course of business operations, has issued product warranties in its
Equipment business. Also, contracts often contain standard terms and conditions which typically
include a warranty and indemnification to the buyer that the goods and services purchased do not
infringe on third-party intellectual property rights. The provision for estimated future costs
relating to warranties is not material to the consolidated financial statements.
The Company does not expect that any sum it may have to pay in connection with guarantees and
warranties will have a materially adverse effect on its consolidated financial condition,
liquidity, or results of operations.
Put Option Agreements
The Company has entered into put option agreements with certain affiliated companies as discussed
below. The Company accounts for the put options as contingent liabilities to purchase an asset.
Since the inception of these agreements and through 30 September 2009, the Company determined that
it was not certain that these options would be exercised by the other shareholders.
In 2008, the Company entered into a put option agreement as part of the purchase of an additional
interest in CryoService Limited, a cryogenic and specialty gases company in the U.K. The Company
increased its ownership from 25% to 72%. Put options were issued which gave the other shareholders
the right to require the Company to purchase their shares of CryoService Limited. The options are
effective beginning January 2010 and are exercisable only within a 20-day option period each year.
The option price is based on a multiple of earnings formula. The estimated U.S. dollar price of
purchasing the remaining stock based on the exchange rate at 30 September 2009 would be
approximately $41.
In 1999, the Company made an investment in INOX, an Indian industrial gases company. As part of
that transaction, put options were issued which gave the other (joint 50%) shareholders the right
to require the Company to purchase their shares (approximately 5.1 million) of INOX (renamed
INOXAP) at a predefined price. The other shareholders may give notice to exercise the put option
between October and December 2010. The option, if exercised, would be effective on 31 July 2011.
The option may also be exercised within six months of the death or permanent incapacity of the
current Managing Director of INOXAP. The option price is based on a multiple of earnings formula,
but not less than 630 Rupees per share. The U.S. dollar price of purchasing all 5.1 million shares
based on the multiple of earnings formula at the 30 September 2009 exchange rate would be
approximately $115.
In 2002, the Company entered into a put option agreement as part of the purchase of an additional
interest in San Fu Gas Company, Ltd., renamed Air Products San Fu Company, Ltd. (San Fu), an
industrial gas company in Taiwan. Currently, the Company has an ownership interest of 74% in San
Fu. Put options were issued which give other shareholders the right to sell San Fu stock to the
Company at market price when exercised. The options are effective through January 2015 and allow
for the sale of all stock owned by other shareholders to the Company. The estimated U.S. dollar
price of purchasing the stock owned by other shareholders based on the exchange rate at
30 September 2009 would be approximately $215.
76
Purchase Obligations
The Company is obligated to make future payments under unconditional purchase obligations as
summarized below:
|
|
|
|
|
2010 |
|
$ |
611.2 |
|
2011 |
|
|
119.5 |
|
2012 |
|
|
112.3 |
|
2013 |
|
|
114.8 |
|
2014 |
|
|
120.2 |
|
Thereafter |
|
|
707.2 |
|
|
Total |
|
$ |
1,785.2 |
|
|
Most of the Companys long-term unconditional purchase obligations relate to feedstock supply for
numerous HyCO (hydrogen, carbon monoxide, and syngas) facilities. The price of feedstock supply is
principally related to the price of natural gas. However, long-term take-or-pay sales contracts to
HyCO customers are generally matched to the term of the feedstock supply obligations and provide
recovery of price increases in the feedstock supply. Due to the matching of most feedstock supply
obligations to customer sales contracts, the Company does not believe these purchase obligations
would have a material effect on its financial condition or results of operations.
The above unconditional purchase obligations include other product supply commitments and also
electric power and natural gas supply purchase obligations. In addition, purchase commitments to
spend approximately $369 for additional plant and equipment are included in the unconditional
purchase obligations in 2010.
17. Capital Stock
Authorized capital stock consists of 25 million preferred shares with a par value of $1 per share,
none of which was outstanding at 30 September 2009, and 300 million shares of common stock with a
par value of $1 per share.
On 20 September 2007, the Board of Directors authorized the repurchase of up to $1,000 of the
Companys outstanding common stock. The Company repurchases shares pursuant to Rules 10b5-1 and
10b-18 under the Securities Exchange Act of 1934, as amended, through a 10b5-1 written repurchase
plan established with several brokers. An additional $649.2 in share repurchase authorization
remained at 30 September 2009.
18. Share-Based Compensation
The Company has various share-based compensation programs, which include stock options, deferred
stock units, and restricted stock. Under all programs, the terms of the awards are fixed at the
grant date. The Company issues shares from treasury stock upon the exercise of stock options, the
payout of deferred stock units, and the issuance of restricted stock awards. At 30 September 2009,
there were 3,629,186 shares available for future grant under the Companys Long-Term Incentive
Plan, which is shareholder approved.
Share-based compensation cost recognized in the income statement is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Cost of sales |
|
$ |
7.9 |
|
|
$ |
8.7 |
|
|
$ |
9.5 |
|
Selling and administrative |
|
|
46.9 |
|
|
|
47.0 |
|
|
|
57.0 |
|
Research and development |
|
|
4.1 |
|
|
|
5.7 |
|
|
|
4.4 |
|
Global cost reduction plan |
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
Before-Tax Share-Based Compensation Cost |
|
|
60.4 |
|
|
|
61.4 |
|
|
|
70.9 |
|
Income tax benefit |
|
|
(23.3 |
) |
|
|
(23.6 |
) |
|
|
(27.3 |
) |
|
After-Tax Share-Based Compensation Cost |
|
$ |
37.1 |
|
|
$ |
37.8 |
|
|
$ |
43.6 |
|
|
The amount of share-based compensation cost capitalized in 2009, 2008, and 2007 was not material.
Total before-tax share-based compensation cost by type of program was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Stock options |
|
$ |
38.3 |
|
|
$ |
36.5 |
|
|
$ |
36.0 |
|
Deferred stock units |
|
|
19.2 |
|
|
|
22.6 |
|
|
|
30.2 |
|
Restricted stock |
|
|
2.9 |
|
|
|
2.3 |
|
|
|
4.7 |
|
|
Before-Tax Share-Based Compensation Cost |
|
$ |
60.4 |
|
|
$ |
61.4 |
|
|
$ |
70.9 |
|
|
77
Stock Options
The Company has granted awards of options to purchase common stock to executives, selected
employees, and outside directors. The exercise price of stock options equals the market price of
the Companys stock on the date of the grant. Options generally vest incrementally over three
years, and remain exercisable for ten years from the date of grant. Options have not been issued to
directors since 2005. Options outstanding with directors are exercisable six months after the grant
date.
The fair value of options granted was estimated using a lattice-based option valuation model that
used the assumptions noted in the table below. Expected volatility and expected dividend yield are
based on actual historical experience of the Companys stock and dividends over the historical
period equal to the option term. The expected life represents the period of time that options
granted are expected to be outstanding based on an analysis of Company-specific historical exercise
data. The range given below results from certain groups of employees exhibiting different behavior.
Separate groups of employees that have similar historical exercise behavior were considered
separately for valuation purposes. The risk-free rate is based on the U.S. Treasury Strips with
terms equal to the expected time of exercise as of the grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Expected volatility |
|
|
31.2 |
% |
|
|
30.4 |
% |
|
|
30.6 |
% |
Expected dividend yield |
|
|
2.1 |
% |
|
|
2.1 |
% |
|
|
2.1 |
% |
Expected life (in years) |
|
|
6.8-8.0 |
|
|
|
6.8-8.0 |
|
|
|
7.0-9.0 |
|
Risk-free interest rate |
|
|
3.5%-3.9 |
% |
|
|
4.5%-4.6 |
% |
|
|
4.5%-4.7 |
% |
|
The
weighted average grant-date fair value of options granted during 2009, 2008, and 2007 was
$20.86, $31.84, and $22.45 per option, respectively.
A summary of stock option activity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Stock Options |
|
Shares (000) |
|
Exercise Price |
|
Outstanding at 30 September 2008 |
|
|
17,537 |
|
|
$ |
49.48 |
|
Granted |
|
|
2,029 |
|
|
|
66.90 |
|
Exercised |
|
|
(1,672 |
) |
|
|
32.95 |
|
Forfeited |
|
|
(147 |
) |
|
|
77.66 |
|
|
Outstanding at 30 September 2009 |
|
|
17,747 |
|
|
$ |
52.79 |
|
|
Exercisable at 30 September 2009 |
|
|
14,567 |
|
|
$ |
48.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
Remaining Contractual |
|
Aggregate Intrinsic |
Stock Options |
|
Terms (in years) |
|
Value |
|
Outstanding at 30 September 2009 |
|
|
4.6 |
|
|
$ |
465 |
|
|
Exercisable at 30 September 2009 |
|
|
3.8 |
|
|
$ |
439 |
|
|
The aggregate intrinsic value represents the amount by which the Companys closing stock price of
$77.58 as of 30 September 2009 exceeds the exercise price multiplied by the number of in-the-money
options outstanding or exercisable as of that date.
The total intrinsic value of stock options exercised during 2009, 2008, and 2007 was $62.1, $138.0,
and $218.8, respectively.
Compensation cost is generally recognized over the stated vesting period consistent with the terms
of the arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition
is accelerated for retirement-eligible individuals who would meet the requirements for vesting of
awards upon their retirement. As of 30 September 2009, there was $10.5 of unrecognized compensation
cost related to nonvested stock options, which is expected to be
recognized over a weighted average
period of 1.2 years.
Cash received from option exercises during 2009 was $54.4, generating a total tax benefit of $21.9.
The excess tax benefit was $13.9 in 2009.
78
Deferred Stock Units and Restricted Stock
The grant-date fair value of deferred stock units and restricted stock is estimated on the date of
grant based on the market price of the stock, and compensation cost is generally amortized to
expense on a straight-line basis over the vesting period during which employees perform related
services. Expense recognition is accelerated for retirement-eligible individuals who would meet the
requirements for vesting of awards upon their retirement.
Deferred Stock Units
The Company has granted deferred stock units to executives, selected employees, and outside
directors. These deferred stock units entitle the recipient to one share of common stock upon
vesting, which is conditioned on continued employment during the deferral period and may also be
conditioned on earn-out against certain performance targets. The deferral period for some units
ends after death, disability, or retirement. However, for a portion of the performance-based
deferred stock units, the deferral period ends at the end of the performance period (one to three
years) or up to two years thereafter. Certain of the performance-based deferred stock units provide
for one-half of the earned shares to be paid in cash at the end of the performance period.
Additionally, the Company has granted deferred stock units, subject to a three- or four-year
deferral period, to selected employees. Deferred stock units issued to directors are paid after
service on the Board of Directors ends at the time elected by the director (not to exceed 10 years
after service ends).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Deferred Stock Units |
|
Shares (000) |
|
|
Grant-Date Fair Value |
|
|
Outstanding at 30 September 2008 |
|
|
1,717 |
|
|
$ |
58.94 |
|
Granted |
|
|
378 |
|
|
|
53.07 |
|
Paid out |
|
|
(381 |
) |
|
|
51.28 |
|
Forfeited/adjustments |
|
|
(112 |
) |
|
|
76.56 |
|
|
Outstanding at 30 September 2009 |
|
|
1,602 |
|
|
$ |
58.13 |
|
|
Cash payments made for performance-based deferred stock units were $5.2 in 2009. As of 30 September
2009, there was $23.2 of unrecognized compensation cost related to deferred stock units. The cost
is expected to be recognized over a weighted average period of 2.3 years. The total fair value of
deferred stock units paid out during 2009, 2008, and 2007, including shares vested in prior
periods, was $22.1, $51.5, and $9.0, respectively.
Restricted Stock
The Company has issued shares of restricted stock to certain officers. Participants are entitled to
cash dividends and to vote their respective shares. Shares granted prior to 2007 are subject to
forfeiture if employment is terminated other than due to death, disability, or retirement. Shares
granted since 2007 vest in four years or upon earlier retirement, death, or disability. The shares
are nontransferable while subject to forfeiture.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Restricted Stock |
|
Shares (000) |
|
|
Grant-Date Fair Value |
|
|
Outstanding at 30 September 2008 |
|
|
85 |
|
|
$ |
70.12 |
|
Granted |
|
|
40 |
|
|
|
64.01 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at 30 September 2009 |
|
|
125 |
|
|
$ |
68.16 |
|
|
As of 30 September 2009, there was $1.5 of unrecognized compensation cost related to restricted
stock awards. The cost is expected to be recognized over a weighted average period of 4.4 years.
During 2009, no restricted stock vested. The total fair value of restricted stock vested during
2008 and 2007 was $10.8 and $2.7, respectively.
79
19. Earnings per Share
The calculation of basic and diluted earnings per share (EPS) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Used in basic and diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
639.9 |
|
|
$ |
1,090.5 |
|
|
$ |
1,019.6 |
|
Income (loss) from discontinued operations, net of tax |
|
|
(8.6 |
) |
|
|
(180.8 |
) |
|
|
16.0 |
|
|
Net Income |
|
$ |
631.3 |
|
|
$ |
909.7 |
|
|
$ |
1,035.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS |
|
|
209.9 |
|
|
|
212.2 |
|
|
|
216.2 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
2.6 |
|
|
|
5.9 |
|
|
|
5.8 |
|
Other award plans |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
|
|
3.6 |
|
|
|
7.0 |
|
|
|
7.0 |
|
|
Weighted average number of common shares and dilutive
potential common shares used in diluted EPS |
|
|
213.5 |
|
|
|
219.2 |
|
|
|
223.2 |
|
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.05 |
|
|
$ |
5.14 |
|
|
$ |
4.72 |
|
Income (loss) from discontinued operations |
|
|
(.04 |
) |
|
|
(.85 |
) |
|
|
.07 |
|
|
Net Income |
|
$ |
3.01 |
|
|
$ |
4.29 |
|
|
$ |
4.79 |
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.00 |
|
|
$ |
4.97 |
|
|
$ |
4.57 |
|
Income (loss) from discontinued operations |
|
|
(.04 |
) |
|
|
(.82 |
) |
|
|
.07 |
|
|
Net Income |
|
$ |
2.96 |
|
|
$ |
4.15 |
|
|
$ |
4.64 |
|
|
Diluted EPS reflects the potential dilution that could occur if stock options or other share-based
awards were exercised or converted into common stock. The dilutive effect is computed using the
treasury stock method, which assumes all share-based awards are exercised and the hypothetical
proceeds from exercise are used by the Company to purchase common stock at the average market price
during the period. The incremental shares (difference between shares assumed to be issued versus
purchased), to the extent they would have been dilutive, are included in the denominator of the
diluted EPS calculation. Options on 5.8 million shares, 1.2 million shares, and .8 million shares
were antidilutive and therefore excluded from the computation of diluted earnings per share for
2009, 2008, and 2007, respectively.
20. Income Taxes
The following table shows the components of the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
88.1 |
|
|
$ |
131.7 |
|
|
$ |
94.0 |
|
Deferred |
|
|
18.1 |
|
|
|
3.1 |
|
|
|
(19.0 |
) |
|
|
|
|
106.2 |
|
|
|
134.8 |
|
|
|
75.0 |
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
35.8 |
|
|
|
2.8 |
|
|
|
10.5 |
|
Deferred |
|
|
(20.9 |
) |
|
|
11.0 |
|
|
|
7.2 |
|
|
|
|
|
14.9 |
|
|
|
13.8 |
|
|
|
17.7 |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
113.7 |
|
|
|
193.9 |
|
|
|
169.0 |
|
Deferred |
|
|
(49.5 |
) |
|
|
22.8 |
|
|
|
25.5 |
|
|
|
|
|
64.2 |
|
|
|
216.7 |
|
|
|
194.5 |
|
|
|
|
$ |
185.3 |
|
|
$ |
365.3 |
|
|
$ |
287.2 |
|
|
80
The significant components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Gross Deferred Tax Assets |
|
|
|
|
|
|
|
|
Pension and other compensation accruals |
|
$ |
614.9 |
|
|
$ |
383.2 |
|
Tax loss carryforwards |
|
|
78.7 |
|
|
|
91.1 |
|
Tax credits |
|
|
74.5 |
|
|
|
65.2 |
|
Reserves and accruals |
|
|
66.6 |
|
|
|
30.0 |
|
Unremitted earnings of foreign entities |
|
|
|
|
|
|
6.9 |
|
Asset impairment |
|
|
26.9 |
|
|
|
69.0 |
|
Currency losses |
|
|
80.4 |
|
|
|
83.0 |
|
Other |
|
|
167.1 |
|
|
|
110.6 |
|
Valuation allowance |
|
|
(31.9 |
) |
|
|
(60.7 |
) |
|
Deferred Tax Assets |
|
|
1,077.2 |
|
|
|
778.3 |
|
|
Gross Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Plant and equipment |
|
|
896.2 |
|
|
|
887.0 |
|
Employee benefit plans |
|
|
106.0 |
|
|
|
89.2 |
|
Investment in partnerships |
|
|
10.5 |
|
|
|
9.4 |
|
Unrealized gain on cost investment |
|
|
5.8 |
|
|
|
4.6 |
|
Unremitted earnings of foreign entities |
|
|
2.6 |
|
|
|
|
|
Intangible assets |
|
|
26.1 |
|
|
|
30.0 |
|
Other |
|
|
111.3 |
|
|
|
120.3 |
|
|
Deferred Tax Liabilities |
|
|
1,158.5 |
|
|
|
1,140.5 |
|
|
Net Deferred Income Tax Liability |
|
$ |
81.3 |
|
|
$ |
362.2 |
|
|
Net current deferred tax assets of $206.6 and net noncurrent deferred tax assets of $71.5 were
included in other receivables and current assets and other noncurrent assets at 30 September 2009,
respectively. Net current deferred tax assets of $193.3 and net noncurrent deferred tax assets of
$71.1 were included in other receivables and current assets and other noncurrent assets at
30 September 2008, respectively.
Foreign and state loss carryforwards as of 30 September 2009 were $230.1 and $235.5, respectively.
The foreign losses have expiration periods beginning in 2010. State operating loss carryforwards
have expiration periods that range between 2010 and 2029.
The valuation allowance as of 30 September 2009 primarily relates to the tax loss carryforwards
referenced above. If events warrant the reversal of the $31.9 valuation allowance, it would result
in a reduction of tax expense. The Company believes it is more likely than not that future earnings
will be sufficient to utilize the Companys deferred tax asset, net of existing valuation
allowance, at 30 September 2009.
Major differences between the United States federal statutory tax rate and the effective tax rate
are:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Percent of income before taxes) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
U.S. federal statutory tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes, net of federal benefit |
|
|
1.1 |
|
|
|
.8 |
|
|
|
1.2 |
|
Income from equity affiliates |
|
|
(4.7 |
) |
|
|
(3.4 |
) |
|
|
(2.8 |
) |
Foreign taxes and credits |
|
|
(7.5 |
) |
|
|
(6.3 |
) |
|
|
(4.4 |
) |
Export tax benefit and domestic production |
|
|
(1.1 |
) |
|
|
(.6 |
) |
|
|
(.8 |
) |
Tax audit settlements and adjustments |
|
|
(.8 |
) |
|
|
|
|
|
|
(2.6 |
) |
Donation of investments |
|
|
|
|
|
|
|
|
|
|
(1.2 |
) |
Other |
|
|
.5 |
|
|
|
(.4 |
) |
|
|
(2.4 |
) |
|
Effective Tax Rate after Minority Interest |
|
|
22.5 |
% |
|
|
25.1 |
% |
|
|
22.0 |
% |
Minority interest |
|
|
(.4 |
) |
|
|
(.4 |
) |
|
|
(.4 |
) |
|
Effective Tax Rate |
|
|
22.1 |
% |
|
|
24.7 |
% |
|
|
21.6 |
% |
|
81
In the fourth quarter of 2007, the Company recorded a tax benefit of $11.3, primarily from tax
audit settlements and adjustments and related interest income. In June 2007, the Company settled
tax audits through fiscal year 2004 with the Internal Revenue Service. This audit settlement
resulted in a tax benefit of $27.5 in the third quarter of 2007. For 2007, tax audit settlements
and adjustments totaled $38.8.
In the fourth quarter of 2007, a charge related to the Companys annual reconciliation and analysis
of its current and deferred tax assets and liabilities was recorded and is included in tax audit
settlements and adjustments in the above table.
The following table summarizes the income of U.S. and foreign operations, before taxes and minority
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Income from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
374.3 |
|
|
$ |
479.5 |
|
|
$ |
583.1 |
|
Foreign |
|
|
350.1 |
|
|
|
854.3 |
|
|
|
630.1 |
|
Income from equity affiliates |
|
|
112.2 |
|
|
|
145.0 |
|
|
|
114.4 |
|
|
|
|
$ |
836.6 |
|
|
$ |
1,478.8 |
|
|
$ |
1,327.6 |
|
|
The Company does not pay or record U.S. income taxes on the undistributed earnings of its foreign
subsidiaries and corporate joint ventures as long as those earnings are permanently reinvested in
the companies that produced them. These cumulative undistributed earnings are included in retained
earnings on the Consolidated Balance Sheets and amounted to $2,991.0 at the end of 2009. An
estimated $697.3 in U.S. income and foreign withholding taxes would be due if these earnings were
remitted as dividends after payment of all deferred taxes.
At 30 September 2009, the Company had $194.9 of unrecognized tax benefits, including $31.8 for the
payment of interest and penalties. Interest and penalties of $2.5 were recognized in 2009. The
Company classifies interest and penalties related to unrecognized tax benefits as a component of
income tax expense. At 30 September 2009, $101.6 of the liability for unrecognized tax benefits, if
recognized, would impact the effective tax rate.
The Company is currently under examination in a number of tax jurisdictions, some of which may be
resolved in the next twelve months. As a result, it is reasonably possible that a change in the
unrecognized tax benefits may occur during the next twelve months. However, quantification of an
estimated range cannot be made at this time. A reconciliation of the beginning and ending amount of
the unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits |
|
2009 |
|
|
2008 |
|
|
Balance, Beginning of Year |
|
$ |
184.1 |
|
|
$ |
116.5 |
|
Additions for tax positions of the current year |
|
|
25.6 |
|
|
|
58.3 |
|
Additions for tax positions of prior years |
|
|
39.0 |
|
|
|
20.1 |
|
Reductions for tax positions of prior years |
|
|
(45.2 |
) |
|
|
(5.2 |
) |
Settlements |
|
|
(5.4 |
) |
|
|
(4.6 |
) |
Statute of limitations expiration |
|
|
(5.4 |
) |
|
|
(3.4 |
) |
Foreign currency translation |
|
|
2.2 |
|
|
|
2.4 |
|
|
Balance, End of Year |
|
$ |
194.9 |
|
|
$ |
184.1 |
|
|
82
The Company remains subject to examination in the following major tax jurisdictions for the years
indicated below.
|
|
|
|
|
Major Tax Jurisdiction |
|
Open Tax Fiscal Years |
|
|
North America |
|
|
|
|
United States |
|
|
20072009 |
|
Canada |
|
|
20062009 |
|
Europe |
|
|
|
|
United Kingdom |
|
|
20062009 |
|
Germany |
|
|
20062009 |
|
Netherlands |
|
|
20052009 |
|
Poland |
|
|
20032009 |
|
Spain |
|
|
20052009 |
|
Asia |
|
|
|
|
Taiwan |
|
|
20042009 |
|
Korea |
|
|
20042009 |
|
|
21. Supplemental Information
|
|
|
|
|
|
|
|
|
Other Receivables and Current Assets |
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Deferred tax assets |
|
$ |
206.6 |
|
|
$ |
193.3 |
|
Derivative instruments |
|
|
54.1 |
|
|
|
42.4 |
|
Other receivables |
|
|
89.9 |
|
|
|
89.3 |
|
Current capital lease receivables |
|
|
32.6 |
|
|
|
24.2 |
|
Other |
|
|
16.6 |
|
|
|
.2 |
|
|
|
|
$ |
399.8 |
|
|
$ |
349.4 |
|
|
|
|
|
|
|
|
|
|
|
Other Noncurrent Assets |
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Restricted cash |
|
$ |
129.0 |
|
|
$ |
214.1 |
|
Derivative instruments |
|
|
25.1 |
|
|
|
25.8 |
|
Other long-term receivables |
|
|
72.6 |
|
|
|
10.8 |
|
Cost investments |
|
|
19.4 |
|
|
|
15.6 |
|
Deferred tax assets |
|
|
71.5 |
|
|
|
71.1 |
|
Prepaid pension benefit cost |
|
|
8.4 |
|
|
|
26.6 |
|
Other deferred charges |
|
|
112.0 |
|
|
|
140.1 |
|
|
|
|
$ |
438.0 |
|
|
$ |
504.1 |
|
|
|
|
|
|
|
|
|
|
|
Payables and Accrued Liabilities |
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Trade creditors |
|
$ |
620.3 |
|
|
$ |
755.2 |
|
Customer advances |
|
|
72.6 |
|
|
|
122.0 |
|
Accrued payroll and employee benefits |
|
|
137.9 |
|
|
|
203.7 |
|
Pension benefits |
|
|
347.9 |
|
|
|
123.5 |
|
Dividends payable |
|
|
95.1 |
|
|
|
92.1 |
|
Outstanding payments in excess of certain cash balances |
|
|
25.2 |
|
|
|
56.1 |
|
Accrued interest expense |
|
|
59.2 |
|
|
|
64.9 |
|
Derivative instruments |
|
|
61.3 |
|
|
|
81.9 |
|
Global cost reduction plan accrual |
|
|
110.4 |
|
|
|
|
|
Miscellaneous |
|
|
130.5 |
|
|
|
166.2 |
|
|
|
|
$ |
1,660.4 |
|
|
$ |
1,665.6 |
|
|
83
|
|
|
|
|
|
|
|
|
Deferred Income and Other Noncurrent Liabilities |
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Pension benefits |
|
$ |
795.5 |
|
|
$ |
414.0 |
|
Postretirement benefits |
|
|
102.5 |
|
|
|
87.5 |
|
Other employee benefits |
|
|
105.1 |
|
|
|
91.9 |
|
Contingencies related to uncertain tax positions |
|
|
193.5 |
|
|
|
152.8 |
|
Advance payments |
|
|
90.5 |
|
|
|
99.0 |
|
Environmental liabilities |
|
|
93.4 |
|
|
|
81.0 |
|
Derivative instruments |
|
|
48.4 |
|
|
|
33.7 |
|
Miscellaneous |
|
|
93.1 |
|
|
|
89.3 |
|
|
|
|
$ |
1,522.0 |
|
|
$ |
1,049.2 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
30 September |
|
2009 |
|
|
2008 |
|
|
Net unrealized holding gain on investments |
|
$ |
10.5 |
|
|
$ |
8.1 |
|
Net unrecognized (loss) on derivatives qualifying as hedges |
|
|
(25.1 |
) |
|
|
(19.9 |
) |
Foreign currency translation adjustments |
|
|
(179.8 |
) |
|
|
(28.3 |
) |
Pension and postretirement benefits |
|
|
(967.4 |
) |
|
|
(509.2 |
) |
|
|
|
$ |
(1,161.8 |
) |
|
$ |
(549.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), Net |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Technology and royalty income |
|
$ |
19.5 |
|
|
$ |
18.6 |
|
|
$ |
15.9 |
|
Interest income |
|
|
7.4 |
|
|
|
8.2 |
|
|
|
8.2 |
|
Foreign exchange |
|
|
(3.8 |
) |
|
|
3.6 |
|
|
|
(4.5 |
) |
Sale of assets and investments |
|
|
(10.8 |
) |
|
|
6.5 |
|
|
|
23.7 |
|
Amortization of intangibles |
|
|
(10.1 |
) |
|
|
(9.8 |
) |
|
|
(11.2 |
) |
Property damage and related expenses, net of insurance recoveries |
|
|
4.9 |
|
|
|
(13.5 |
) |
|
|
.4 |
|
Miscellaneous |
|
|
15.9 |
|
|
|
12.2 |
|
|
|
9.8 |
|
|
|
|
$ |
23.0 |
|
|
$ |
25.8 |
|
|
$ |
42.3 |
|
|
Loss from Property Damage
In the fourth quarter of 2008, a fire at the Companys Ulsan, Korea nitrogen trifluoride
(NF3) production facility required the plant to be shut down. Other income (expense) for
fiscal 2008 included a net loss of $14.7 ($10.7 after-tax, or $.05 per share) related to property
damage. The net book value of the damaged property was written off and a receivable was recorded
for expected property damage insurance recoveries.
During fiscal 2009, the Company received the expected insurance recoveries for property damage of
$3.7. Additionally, the Company recorded other income of $4.9 ($3.1 after-tax, or $.01 per share),
comprising $2.3 for the receipt of additional proceeds from a business interruption claim and a
$2.6 adjustment to the book value of the damaged property.
Additional Income Statement Information
2009 Customer Bankruptcy and Asset Actions
As a result of events which occurred during the third quarter of 2009, the Company recognized a
$22.2 charge primarily for the write-off of certain receivables due to a customer bankruptcy. This
customer, who principally receives product from the Tonnage Gases segment, began operating under
Chapter 11 bankruptcy protection on 6 January 2009. Sales and operating income associated with this
customer are not material to the Tonnage Gases segments results. At 30 September 2009, the Company
had remaining outstanding receivables with the customer of $16.3. At the present time, the Company
does not expect to recognize additional charges related to this customer.
Additionally, during the third quarter of 2009, the Company recorded a charge of $9.9 for other
asset actions which consisted of the closure of certain manufacturing facilities. This charge was
reflected in cost of sales on the Consolidated Income Statements. The customer bankruptcy charge
combined with this asset write-down resulted in a total charge of $32.1 ($21.0 after-tax, or $.10
per share).
84
2007 Customer Contract Settlement
In 2007, the Company entered into a settlement with a customer to resolve a dispute related to a
dinitrotoluene (DNT) supply agreement. As part of the settlement agreement, the DNT supply
agreement was terminated, and certain other agreements between the companies were amended. As a
result, the Company recognized a before-tax gain of $36.8 ($23.6 after-tax, or $.11 per share) in
2007.
2007 Donation/Sale of Cost Investment
The Company has a cost-basis investment in a publicly traded foreign company which has been
classified as an available-for-sale investment, with holding gains and losses recorded to other
comprehensive income, net of income tax. On 19 September 2007, the Company donated 65% of its
investment to a tax-exempt charitable organization and sold 15% of its investment for cash. The
Company deducted the fair value of the donation in its fiscal 2007 income tax returns. As a result
of the donation, the Company recognized a tax benefit of $18.3 in the fourth quarter of 2007 and
pretax expense of $4.7 for the carrying value of the investment. As a result of the sale, the
Company recognized a pretax gain of $9.7. In combination, the donation and sale had a favorable net
impact of $5.0 on operating income, $19.8 on net income, and $.09 on earnings per share.
Additional Cash Flow Information
Cash paid for interest and taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Interest (net of amounts capitalized) |
|
$ |
127.6 |
|
|
$ |
159.5 |
|
|
$ |
141.3 |
|
Taxes (net of refunds) |
|
|
124.5 |
|
|
|
237.2 |
|
|
|
248.7 |
|
|
Subsequent Events
The Company has evaluated subsequent events for potential recognition and/or disclosure through
25 November 2009, the date the consolidated financial statements included in this Annual Report on
Form 10-K were issued. There were no subsequent events required to be recognized or disclosed in
the financial statements.
85
22. Summary by Quarter (Unaudited)
These tables summarize the unaudited results of operations for each quarter of 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Total |
|
|
Sales |
|
$ |
2,195.3 |
|
|
$ |
1,955.4 |
|
|
$ |
1,976.2 |
|
|
$ |
2,129.3 |
|
|
$ |
8,256.2 |
|
Global cost reduction plan (A) |
|
|
174.2 |
|
|
|
|
|
|
|
124.0 |
|
|
|
|
|
|
|
298.2 |
|
Customer bankruptcy (B) |
|
|
|
|
|
|
|
|
|
|
22.2 |
|
|
|
|
|
|
|
22.2 |
|
Pension settlement (C) |
|
|
|
|
|
|
|
|
|
|
8.0 |
|
|
|
2.7 |
|
|
|
10.7 |
|
Operating income (A)(B)(C)(D) |
|
|
114.1 |
|
|
|
260.4 |
|
|
|
143.8 |
|
|
|
328.0 |
|
|
|
846.3 |
|
Income from continuing operations (A)(B)(C)(D) |
|
|
90.0 |
|
|
|
189.3 |
|
|
|
114.6 |
|
|
|
246.0 |
|
|
|
639.9 |
|
Income (loss) from discontinued operations (E) |
|
|
(21.4 |
) |
|
|
16.3 |
|
|
|
(1.4 |
) |
|
|
(2.1 |
) |
|
|
(8.6 |
) |
Net income
(A)(B)(C)(D)(E) |
|
|
68.6 |
|
|
|
205.6 |
|
|
|
113.2 |
|
|
|
243.9 |
|
|
|
631.3 |
|
Basic earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
.43 |
|
|
|
.90 |
|
|
|
.55 |
|
|
|
1.17 |
|
|
|
3.05 |
|
Income (loss) from discontinued operations |
|
|
(.10 |
) |
|
|
.08 |
|
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
(.04 |
) |
|
Net income |
|
|
.33 |
|
|
|
.98 |
|
|
|
.54 |
|
|
|
1.16 |
|
|
|
3.01 |
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations (A)(B)(C)(D) |
|
|
.42 |
|
|
|
.89 |
|
|
|
.54 |
|
|
|
1.14 |
|
|
|
3.00 |
|
Income (loss) from discontinued operations (E) |
|
|
(.10 |
) |
|
|
.08 |
|
|
|
(.01 |
) |
|
|
(.01 |
) |
|
|
(.04 |
) |
|
Net income (A)(B)(C)(D)(E) |
|
|
.32 |
|
|
|
.97 |
|
|
|
.53 |
|
|
|
1.13 |
|
|
|
2.96 |
|
Dividends declared per common share |
|
|
.44 |
|
|
|
.45 |
|
|
|
.45 |
|
|
|
.45 |
|
|
|
1.79 |
|
Market price per common share: High |
|
|
68.51 |
|
|
|
60.20 |
|
|
|
69.93 |
|
|
|
80.60 |
|
|
|
|
|
Low |
|
|
41.46 |
|
|
|
43.44 |
|
|
|
54.73 |
|
|
|
60.52 |
|
|
|
|
|
|
|
|
|
(A) |
|
First quarter after-tax impact of $116.1, or $.55 per share, third quarter
after-tax impact of $84.2, or $.39 per share. |
|
(B) |
|
After-tax impact of $14.5, or $.07 per share. |
|
(C) |
|
Third quarter after-tax impact of $5.0, or $.02 per share. |
|
(D) |
|
Third quarter included a charge of $9.9 ($6.5 after-tax, or $.03 per share) for
other asset actions, which consisted of the closure of certain manufacturing facilities. |
|
(E) |
|
First quarter included an impairment charge of $48.7 ($30.9 after-tax, or $.15 per
share), reflecting a revision in the estimated net realizable value of the U.S. Healthcare
business. Also, a tax benefit of $8.8, or $.04 per share, was recorded to revise the estimated
tax benefit related to previously recognized impairment charges. |
|
|
|
Second quarter included an additional tax benefit of $16.7, or $.08 per share, associated with
previously recognized impairment charges. |
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
Total |
|
|
Sales |
|
$ |
2,407.4 |
|
|
$ |
2,542.7 |
|
|
$ |
2,749.7 |
|
|
$ |
2,714.7 |
|
|
$ |
10,414.5 |
|
Pension settlement (A) |
|
|
1.4 |
|
|
|
26.3 |
|
|
|
1.0 |
|
|
|
1.6 |
|
|
|
30.3 |
|
Operating income (A)(B) |
|
|
380.4 |
|
|
|
348.6 |
|
|
|
393.7 |
|
|
|
373.1 |
|
|
|
1,495.8 |
|
Income from continuing operations (A)(B) |
|
|
262.3 |
|
|
|
259.8 |
|
|
|
295.0 |
|
|
|
273.4 |
|
|
|
1,090.5 |
|
Income (loss) from discontinued operations (C) |
|
|
1.4 |
|
|
|
54.5 |
|
|
|
(224.9 |
) |
|
|
(11.8 |
) |
|
|
(180.8 |
) |
Net income (A)(B)(C) |
|
|
263.7 |
|
|
|
314.3 |
|
|
|
70.1 |
|
|
|
261.6 |
|
|
|
909.7 |
|
Basic earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
1.22 |
|
|
|
1.22 |
|
|
|
1.40 |
|
|
|
1.30 |
|
|
|
5.14 |
|
Income (loss) from discontinued operations |
|
|
.01 |
|
|
|
.26 |
|
|
|
(1.07 |
) |
|
|
(.06 |
) |
|
|
(.85 |
) |
|
Net income |
|
|
1.23 |
|
|
|
1.48 |
|
|
|
.33 |
|
|
|
1.24 |
|
|
|
4.29 |
|
Diluted earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations (A)(B) |
|
|
1.18 |
|
|
|
1.18 |
|
|
|
1.35 |
|
|
|
1.26 |
|
|
|
4.97 |
|
Income (loss) from discontinued operations (C) |
|
|
.01 |
|
|
|
.25 |
|
|
|
(1.03 |
) |
|
|
(.05 |
) |
|
|
(.82 |
) |
|
Net income (A)(B)(C) |
|
|
1.19 |
|
|
|
1.43 |
|
|
|
.32 |
|
|
|
1.21 |
|
|
|
4.15 |
|
Dividends declared per common share |
|
|
.38 |
|
|
|
.44 |
|
|
|
.44 |
|
|
|
.44 |
|
|
|
1.70 |
|
Market price per common share: High |
|
|
105.02 |
|
|
|
98.80 |
|
|
|
106.06 |
|
|
|
100.14 |
|
|
|
|
|
Low |
|
|
92.05 |
|
|
|
80.73 |
|
|
|
92.20 |
|
|
|
65.05 |
|
|
|
|
|
|
|
|
|
(A) |
|
Second quarter after-tax impact of $16.5, or $.08 per share. |
|
(B) |
|
Fourth quarter included a net loss of $14.7 ($10.7 after-tax, or $.05 per share)
related to property damage at an NF3 production facility in Korea. |
|
(C) |
|
Second quarter included a gain of $89.5 ($57.7 after-tax, or $.26 per share) for the
sale of the Companys interest in its VAE polymers joint ventures to Wacker Chemie AG. |
|
|
|
Third quarter included an impairment charge of $314.8 ($237.0 after-tax, or $1.09 per share)
related to the U.S. Healthcare business, and a gain of $30.5 ($18.5 after-tax, or $.08 per
share) in connection with the sale of the Elkton and Piedmont facilities which completed the
disposal of the Companys Polymer Emulsions business. |
|
|
|
Fourth quarter included a charge of $14.4 ($9.2 after-tax, or $.04 per share) for the write-down
of the U.S. Healthcare business to net realizable value. |
23. Business Segment and Geographic Information
The Companys segments are organized based on differences in product and/or type of customer. The
Company has four business segments consisting of Merchant Gases, Tonnage Gases, Electronics and
Performance Materials, and Equipment and Energy.
Merchant Gases
The Merchant Gases segment sells atmospheric gases such as oxygen, nitrogen, and argon (primarily
recovered by the cryogenic distillation of air), process gases such as hydrogen and helium
(purchased or refined from crude helium), and medical and specialty gases, along with certain
services and equipment, throughout the world to customers in many industries, including those in
metals, glass, chemical processing, food processing, healthcare, steel, general manufacturing, and
petroleum and natural gas industries. There are four principal types of products: liquid bulk,
packaged gases, small on-site plants, and healthcare products. Most merchant product is delivered
via bulk supply, in liquid or gaseous form, by tanker or tube trailer. Smaller quantities of
industrial, specialty, and medical gases are delivered in cylinders and dewars as packaged gases,
or through small on-sites (cryogenic or noncryogenic generators). Through its healthcare business,
the Company offers respiratory therapies, home medical equipment, and infusion services, primarily
in Europe. Electricity is the largest cost component in the production of atmospheric gases.
Natural gas is also an energy source at a number of the Companys Merchant Gases facilities. The
Company mitigates energy and natural gas prices through pricing formulas and surcharges. Merchant
Gases competes worldwide against global industrial gas companies and several regional sellers.
Competition in industrial gases is based primarily on price, reliability of supply, and the
development of industrial gas applications. Competition in the healthcare business involves price,
quality, service, and reliability of supply.
87
Tonnage Gases
Tonnage Gases provides hydrogen, carbon monoxide, nitrogen, oxygen, and syngas principally to the
energy production and refining, chemical, and metallurgical industries worldwide. The Tonnage Gases
segment also includes the Companys Polyurethane Intermediates (PUI) business. The PUI business
markets toluene diamine to customers under long-term contracts. For large-volume, or tonnage
industrial gas users, the Company either constructs a gas plant adjacent to or near the customers
facilityhence the term on-siteor delivers product through a pipeline from a nearby location.
The Company is the worlds largest provider of hydrogen, which is used by refiners to lower the
sulfur content of gasoline and diesel fuels to reduce smog and ozone depletion. Electricity is the
largest cost component in the production of atmospheric gases, and natural gas is the principal raw
material for hydrogen, carbon monoxide, and syngas production. The Company mitigates energy and
natural gas price changes through its long-term cost pass-through type contracts. Tonnage Gases
competes against global industrial gas companies, as well as regional competitors. Competition is
based primarily on price, reliability of supply, the development of applications that use
industrial gases and, in some cases, provision of other services or products such as power and
steam generation. The Company also derives a competitive advantage from its pipeline networks which
enable it to provide reliable and economic supply of products to customers.
Electronics and Performance Materials
The Electronics and Performance Materials segment employs applications technology to provide
solutions to a broad range of global industries through expertise in chemical synthesis, analytical
technology, process engineering, and surface science. This segment provides specialty and tonnage
gases, specialty chemicals, services, and equipment to the electronics industry for the manufacture
of silicon and compound semiconductors, LCD and other displays, and photovoltaic devices. The
segment also provides performance chemical solutions for the coatings, inks, adhesives, civil
engineering, personal care, institutional and industrial cleaning, mining, oil field, polyurethane,
and other industries. The Electronics and Performance Materials segment faces competition on a
product-by-product basis against competitors ranging from niche suppliers with a single product to
larger and more vertically integrated companies. Competition is principally conducted on the basis
of price, quality, product performance, reliability of product supply, technical innovation,
service, and global infrastructure.
Equipment and Energy
The Equipment and Energy segment designs and manufactures cryogenic and gas processing equipment
for air separation, hydrocarbon recovery and purification, natural gas liquefaction (LNG), and
helium distribution, and serves energy markets in a variety of ways. Equipment is sold worldwide to
customers in a variety of industries, including chemical and petrochemical manufacturing, oil and
gas recovery and processing, and steel and primary metals processing. Energy markets are served
through the Companys operation and partial ownership of cogeneration and flue gas desulphurization
facilities, its development of hydrogen as an energy carrier, and oxygen-based technologies to
serve energy markets in the future. Equipment and Energy competes with a great number of firms for
all of its offerings except LNG heat exchangers, for which there are fewer competitors due to the
limited market size and proprietary technologies. Competition is based primarily on technological
performance, service, technical know-how, price, and performance guarantees.
Other
Other operating income includes other expense and income which cannot be directly associated with
the business segments, including foreign exchange gains and losses, interest income, and costs
previously allocated to businesses now reported as discontinued operations. Also included are LIFO
inventory adjustments, as the business segments use FIFO and the LIFO pool adjustments are not
allocated to the business segments. Corporate general and administrative costs and research and
development costs are fully allocated to the business segments.
Other assets include cash, restricted cash, deferred tax assets, pension assets, financial
instruments, and corporate assets previously allocated to businesses now reported as discontinued
operations.
Customers
The Company has a large number of customers, and no single customer accounts for a significant
portion of annual sales.
88
Accounting Policies
The accounting policies of the segments are the same as those described in Note 1. The Company
evaluates the performance of segments based upon reported segment operating income. Operating
income of the business segments includes general corporate expenses. Intersegment sales are not
material and are recorded at selling prices that approximate market prices. Equipment manufactured
for the Companys industrial gas business is generally transferred at cost and not reflected as an
intersegment sale. Long-lived assets include investment in net assets of and advances to equity
affiliates, net plant and equipment, goodwill, and net intangible assets.
Business Segments
Business segment information is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from External Customers |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
3,610.6 |
|
|
$ |
4,192.7 |
|
|
$ |
3,556.9 |
|
Tonnage Gases |
|
|
2,573.6 |
|
|
|
3,574.4 |
|
|
|
2,936.7 |
|
Electronics and Performance Materials |
|
|
1,582.2 |
|
|
|
2,209.3 |
|
|
|
2,068.7 |
|
Equipment and Energy |
|
|
489.8 |
|
|
|
438.1 |
|
|
|
585.9 |
|
|
Segment and Consolidated Totals |
|
$ |
8,256.2 |
|
|
$ |
10,414.5 |
|
|
$ |
9,148.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
661.2 |
|
|
$ |
789.5 |
|
|
$ |
656.4 |
|
Tonnage Gases |
|
|
399.6 |
|
|
|
482.6 |
|
|
|
426.4 |
|
Electronics and Performance Materials |
|
|
101.6 |
|
|
|
245.9 |
|
|
|
229.2 |
|
Equipment and Energy |
|
|
42.2 |
|
|
|
38.9 |
|
|
|
76.8 |
|
|
Segment Total |
|
$ |
1,204.6 |
|
|
$ |
1,556.9 |
|
|
$ |
1,388.8 |
|
Global cost reduction plan (A) |
|
|
(298.2 |
) |
|
|
|
|
|
|
(13.7 |
) |
Customer bankruptcy and asset actions |
|
|
(32.1 |
) |
|
|
|
|
|
|
|
|
Customer contract settlement |
|
|
|
|
|
|
|
|
|
|
36.8 |
|
Pension settlement |
|
|
(10.7 |
) |
|
|
(30.3 |
) |
|
|
(10.3 |
) |
Other |
|
|
(17.3 |
) |
|
|
(30.8 |
) |
|
|
(26.0 |
) |
|
Consolidated Total |
|
$ |
846.3 |
|
|
$ |
1,495.8 |
|
|
$ |
1,375.6 |
|
|
|
|
|
(A) |
|
Information about how this charge related to the businesses at the segment
level is discussed in Note 3. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
372.3 |
|
|
$ |
370.2 |
|
|
$ |
332.0 |
|
Tonnage Gases |
|
|
272.2 |
|
|
|
278.9 |
|
|
|
271.0 |
|
Electronics and Performance Materials |
|
|
178.2 |
|
|
|
208.0 |
|
|
|
171.7 |
|
Equipment and Energy |
|
|
15.9 |
|
|
|
11.8 |
|
|
|
14.1 |
|
|
Segment Total |
|
$ |
838.6 |
|
|
$ |
868.9 |
|
|
$ |
788.8 |
|
Other |
|
|
1.7 |
|
|
|
.1 |
|
|
|
1.0 |
|
|
Consolidated Total |
|
$ |
840.3 |
|
|
$ |
869.0 |
|
|
$ |
789.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Affiliates Income |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
98.3 |
|
|
$ |
131.8 |
|
|
$ |
97.8 |
|
Other segments |
|
|
13.9 |
|
|
|
13.2 |
|
|
|
16.6 |
|
|
Segment and Consolidated Totals |
|
$ |
112.2 |
|
|
$ |
145.0 |
|
|
$ |
114.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
5,630.8 |
|
|
$ |
5,565.9 |
|
|
$ |
5,081.7 |
|
Tonnage Gases |
|
|
3,672.0 |
|
|
|
3,397.8 |
|
|
|
3,387.7 |
|
Electronics and Performance Materials |
|
|
2,299.1 |
|
|
|
2,388.8 |
|
|
|
2,481.2 |
|
Equipment and Energy |
|
|
333.8 |
|
|
|
328.3 |
|
|
|
393.2 |
|
|
Segment Total |
|
$ |
11,935.7 |
|
|
$ |
11,680.8 |
|
|
$ |
11,343.8 |
|
Other |
|
|
1,088.4 |
|
|
|
775.2 |
|
|
|
402.5 |
|
Discontinued operations |
|
|
5.0 |
|
|
|
115.3 |
|
|
|
913.2 |
|
|
Consolidated Total |
|
$ |
13,029.1 |
|
|
$ |
12,571.3 |
|
|
$ |
12,659.5 |
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in and Advances to Equity Affiliates |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
713.8 |
|
|
$ |
684.3 |
|
|
$ |
642.3 |
|
Other segments |
|
|
154.3 |
|
|
|
138.3 |
|
|
|
135.8 |
|
|
Segment and Consolidated Totals |
|
$ |
868.1 |
|
|
$ |
822.6 |
|
|
$ |
778.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable Assets |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
4,917.0 |
|
|
$ |
4,881.6 |
|
|
$ |
4,439.4 |
|
Tonnage Gases |
|
|
3,597.8 |
|
|
|
3,335.4 |
|
|
|
3,328.4 |
|
Electronics and Performance Materials |
|
|
2,249.5 |
|
|
|
2,341.0 |
|
|
|
2,435.3 |
|
Equipment and Energy |
|
|
303.3 |
|
|
|
300.2 |
|
|
|
362.6 |
|
|
Segment Total |
|
$ |
11,067.6 |
|
|
$ |
10,858.2 |
|
|
$ |
10,565.7 |
|
Other |
|
|
1,088.4 |
|
|
|
775.2 |
|
|
|
402.5 |
|
Discontinued operations |
|
|
5.0 |
|
|
|
115.3 |
|
|
|
845.3 |
|
|
Consolidated Total |
|
$ |
12,161.0 |
|
|
$ |
11,748.7 |
|
|
$ |
11,813.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for Long-Lived Assets |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Merchant Gases |
|
$ |
515.4 |
|
|
$ |
593.0 |
|
|
$ |
888.6 |
|
Tonnage Gases |
|
|
556.5 |
|
|
|
387.9 |
|
|
|
435.9 |
|
Electronics and Performance Materials |
|
|
165.2 |
|
|
|
198.8 |
|
|
|
210.5 |
|
Equipment and Energy |
|
|
9.8 |
|
|
|
2.3 |
|
|
|
9.9 |
|
|
Segment Total |
|
$ |
1,246.9 |
|
|
$ |
1,182.0 |
|
|
$ |
1,544.9 |
|
Other |
|
|
1.1 |
|
|
|
1.7 |
|
|
|
1.6 |
|
|
Consolidated Total |
|
$ |
1,248.0 |
|
|
$ |
1,183.7 |
|
|
$ |
1,546.5 |
|
|
Geographic Information
Geographic information is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from External Customers |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
United States |
|
$ |
3,779.8 |
|
|
$ |
4,845.1 |
|
|
$ |
4,487.6 |
|
Canada |
|
|
238.6 |
|
|
|
241.2 |
|
|
|
185.1 |
|
Europe |
|
|
2,765.1 |
|
|
|
3,448.0 |
|
|
|
2,873.5 |
|
Asia |
|
|
1,294.2 |
|
|
|
1,661.3 |
|
|
|
1,436.9 |
|
Latin America |
|
|
178.5 |
|
|
|
218.9 |
|
|
|
165.1 |
|
|
|
|
$ |
8,256.2 |
|
|
$ |
10,414.5 |
|
|
$ |
9,148.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
United States |
|
$ |
3,180.7 |
|
|
$ |
3,017.0 |
|
|
$ |
3,007.4 |
|
Canada |
|
|
535.2 |
|
|
|
441.9 |
|
|
|
442.5 |
|
Europe |
|
|
2,873.3 |
|
|
|
3,048.6 |
|
|
|
2,949.5 |
|
Asia |
|
|
1,973.0 |
|
|
|
1,815.3 |
|
|
|
1,769.7 |
|
Latin America |
|
|
261.1 |
|
|
|
255.0 |
|
|
|
224.1 |
|
All other |
|
|
83.0 |
|
|
|
77.3 |
|
|
|
81.0 |
|
|
|
|
$ |
8,906.3 |
|
|
$ |
8,655.1 |
|
|
$ |
8,474.2 |
|
|
Geographic information is based on country of origin. Included in United States revenues are export
sales to unconsolidated customers of $510.2 in 2009, $629.1 in 2008, and $677.3 in 2007. The Europe
segment operates principally in Belgium, France, Germany, the Netherlands, Poland, the U.K., and
Spain. The Asia segment operates principally in China, Japan, Korea, and Taiwan.
90
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Companys
management conducted an evaluation of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as of 30 September 2009. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the design and operation of its
disclosure controls and procedures have been effective. There has been no change in the Companys
internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) which have occurred during the quarter ended 30 September 2009 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Managements Report on Internal Control Over Financial Reporting is provided under Item 8 appearing
above. The report of KPMG LLP, the Companys independent registered public accounting firm,
regarding the Companys internal control over financial reporting, is also provided under Item 8
appearing above.
ITEM 9B. OTHER INFORMATION
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The biographical information relating to the Companys directors, appearing in the Proxy Statement
relating to the Companys 2010 Annual Meeting of Shareholders (the 2010 Proxy Statement) under the
section The Board of Directors, is incorporated herein by reference. Biographical information
relating to the Companys executive officers is set forth in Item 1 of Part I of this Report.
Information on Section 16(a) Beneficial Ownership Reporting Compliance, appearing in the 2010 Proxy
Statement under the section Air Products Stock Beneficially Owned by Officers and Directors, is
incorporated herein by reference.
The Company has adopted a Code of Conduct that applies to all employees, including the Chief
Executive Officer, the Chief Financial Officer, and the Controller. The Code of Conduct can be
found at the Companys Internet website at
www.airproducts.com/Responsibility/Governance/Code_of_Conduct/EmployeeCodeofConduct/message.htm.
Information on the Companys procedures regarding its consideration of candidates recommended by
shareholders and a procedure for submission of such candidates, appearing in the 2010 Proxy
Statement under the section Selection of Directors, is incorporated by reference. Information on
the Companys Audit Committee and its Audit Committee Financial Expert, appearing in the 2010 Proxy
Statement under the section Audit Committee, is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under Compensation of Executive Officers which includes Report of the Management
Development and Compensation Committee, Compensation Discussion and Analysis, Executive
Compensation Tables, Potential Payments Upon Termination or Change in Control, and Information
About Stock Ownership, appearing in the 2010 Proxy Statement, is incorporated herein by reference.
91
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth in the sections headed Persons Owning More than 5% of Air Products Stock
as of September 30, 2009, Air Products Stock Beneficially Owned by Officers and Directors as of
November 1, 2009, and Equity Compensation Plan Information, appearing in the Proxy Statement
relating to the Companys 2010 Annual Meeting of Shareholders, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing in the 2010 Proxy Statement under the sections Director Independence
and Transactions with Related Persons is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing in the 2010 Proxy Statement under the section Fees of Independent
Registered Public Accountant, is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a) |
|
The following documents are filed as a part of this report: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
The Companys 2009 consolidated financial statements and the Report of the
Independent Registered Public Accounting Firm are included in Part II, Item 8. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
Financial Statement Schedulesthe following additional information should be
read in conjunction with the consolidated financial statements in the Companys 2009
consolidated financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts for the three fiscal years ended
30 September 2009
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other schedules are omitted because the required matter or conditions are not present
or because the information required by the Schedules is submitted as part of the
consolidated financial statements and notes thereto. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
ExhibitsThe exhibits filed as a part of this Annual Report on Form 10-K are
listed in the Index to Exhibits located on page 96 of this Report. |
|
|
|
|
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
|
|
|
By: |
/s/ Paul E. Huck
|
|
|
|
Paul E. Huck |
|
|
|
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer) |
|
Date: 25 November 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
Signature and Title |
|
Date |
|
|
|
/s/ John E. McGlade
(John E. McGlade)
|
|
25 November 2009 |
Director, Chairman, President, and |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ M. Scott Crocco
(M. Scott Crocco)
|
|
25 November 2009 |
Vice President and Corporate Controller |
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
*
(William L. Davis, III)
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
*
(Edward E. Hagenlocker)
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
93
|
|
|
Signature and Title |
|
Date |
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
|
|
25 November 2009 |
Director |
|
|
|
|
|
* |
|
Mary T. Afflerbach, Corporate Secretary and Chief Governance Officer, by signing her name
hereto, does sign this document on behalf of the above noted individuals, pursuant to a power
of attorney duly executed by such individuals, which is filed with the Securities and Exchange
Commission herewith. |
|
|
|
|
|
|
|
|
|
/s/ Mary T. Afflerbach
|
|
|
Mary T. Afflerbach |
|
|
Attorney-in-Fact |
|
|
Date: 25 November 2009
94
Schedule Of Valuation and Qualifying Accounts Disclosure
SCHEDULE II
CONSOLIDATED
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
For the Years Ended 30 September 2009, 2008, and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Changes |
|
|
|
|
|
|
|
|
Additions |
|
Increase (Decrease) |
|
|
|
|
Balance at |
|
|
|
|
|
Charged |
|
Cumulative |
|
|
|
|
|
Balance |
|
|
Beginning |
|
Charged to |
|
to Other |
|
Translation |
|
|
|
|
|
at End of |
Description |
|
of Period |
|
Expense |
|
Accounts |
|
Adjustment |
|
Other (A) |
|
Period |
(in millions of dollars) |
Year Ended 30 September 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
36 |
|
|
$ |
24 |
|
|
$ |
14 |
|
|
$ |
1 |
|
|
$ |
(10 |
) |
|
$ |
65 |
|
Allowance for deferred tax assets |
|
|
61 |
|
|
|
(30 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 September 2008 |
|
|
|
|