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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 30 September 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-1274455
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 481-4911
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $1.00 per share New York and Pacific
Preferred Stock Purchase Rights New York and Pacific
8 3/4% Debentures Due 2021 New York
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES[X] NO[ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on 30 November 2002 was $9.9 billion. The aggregate market value
of the voting stock held by non-affiliates of the registrant on 31 March 2002
was $11.8 billion. For purposes of the foregoing calculations (i) all directors
and/or executive officers have been deemed to be affiliates, but the registrant
disclaims that any such director and/or executive officer is an affiliate and
(ii) registrants's grantor trust, described under Item 12 of this Report,
is deemed a non-affiliate.
The number of shares of Common Stock outstanding as of 30 November 2002 was
227,219,388.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the fiscal year ended 30 September 2002.
With the exception of those portions that are incorporated by reference into
Parts I, II, and IV of this Form 10-K, the Annual Report is not deemed to be
filed.
Proxy Statement for Annual Meeting of Shareholders to be held 23 January
2003 . . . Part III.
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FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document are based on current
expectations at the time the document was originally prepared regarding
important risk factors, and management does not anticipate publicly updating any
of its expectations except as part of the quarterly earnings announcement
process. Actual results may differ materially from those forward-looking
statements expressed. In addition to important risk factors and uncertainties
referred to in the Management's Discussion and Analysis, which is included under
Item 7 herein, factors that might cause forward-looking statements to differ
materially from actual results include those specifically referenced as future
events or outcomes that management anticipates, as well as, among other things,
overall economic and business conditions and demand for Air Products' goods and
services during that time; competitive factors in the industries in which it
competes; interruption in ordinary sources of supply; the ability to recover
increased energy and raw material costs from customers; spikes in the pricing of
natural gas; changes in government regulations; consequences of acts of
terrorism impacting the United States and other markets; the success of
implementing cost reduction programs; the timing, impact, and other
uncertainties of future acquisitions or divestitures; significant fluctuations
in interest rates and foreign currencies; the impact of tax and other
legislation and regulations in jurisdictions in which Air Products and its
affiliates operate; and the timing and rate at which tax credits can be
utilized.
ii
TABLE OF CONTENTS
Page
PART I.............................................................................................................1
ITEM 1. Business.............................................................................................1
GASES...............................................................................................1
CHEMICALS...........................................................................................2
Performance Materials..............................................................................2
Chemical Intermediates.............................................................................3
EQUIPMENT...........................................................................................4
GENERAL.............................................................................................4
Foreign Operations.................................................................................4
Technology Development.............................................................................5
Raw Materials and Energy...........................................................................5
Environmental Controls.............................................................................6
Competition........................................................................................6
Insurance..........................................................................................7
Employees..........................................................................................7
Available Information..............................................................................8
Executive Officers of the Company..................................................................9
ITEM 2. Properties..........................................................................................10
Gases.............................................................................................10
Chemicals.........................................................................................10
Equipment.........................................................................................11
ITEM 3. Legal Proceedings...................................................................................11
ITEM 4. Submission of Matters to a Vote of Security Holders.................................................11
PART II...........................................................................................................11
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................11
ITEM 6. Selected Financial Data.............................................................................12
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation................12
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk..........................................12
ITEM 8. Financial Statements and Supplementary Data.........................................................12
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................12
PART III..........................................................................................................13
ITEM 10. Directors and Executive Officers of the Registrant..................................................13
ITEM 11. Executive Compensation..............................................................................13
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters......13
ITEM 13. Certain Relationships and Related Transactions......................................................13
ITEM 14. Controls and Procedures.............................................................................13
PART IV...........................................................................................................13
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................13
Signatures.........................................................................................18
Certifications.....................................................................................20
iii
PART I
ITEM 1. Business.
Through internal development and by acquisitions, Air Products and
Chemicals, Inc. has established an internationally recognized industrial gas and
related industrial process equipment business and developed strong positions as
a producer of certain chemicals.
The gases business segment recovers and distributes industrial gases
such as oxygen, nitrogen, argon, and hydrogen, and a variety of medical and
specialty gases. The chemicals business segment produces and markets performance
materials and chemical intermediates. The equipment business segment supplies
cryogenic and other process equipment and related engineering services.
Financial information concerning the Company's business segments
appears in Note 20 to the Consolidated Financial Statements included under Item
8 herein, which information is incorporated herein by reference, as are all
other specific references herein to information appearing in such 2002 Financial
Review Section of the Annual Report.
As used in this Report, the term "Air Products" or "Company" includes
subsidiaries and predecessors of the registrant or its subsidiaries, unless the
context indicates otherwise.
GASES
The principal industrial gases sold by the Company are oxygen,
nitrogen, argon (primarily recovered by the cryogenic distillation of air),
hydrogen, carbon monoxide, carbon dioxide (purchased, purified, or recovered
through the processing of natural gas or the by-product streams from process
plants), synthesis gas (combined streams of hydrogen and carbon monoxide), and
helium (purchased or refined from crude helium). Medical and specialty gases are
manufactured or blended by the Company or purchased for resale. The gases
segment also includes the Company's global healthcare, power generation, and
flue gas treatment businesses.
The Company's gas business involves three principal modes of supply:
"On-site/pipeline" supply--For large volume or "tonnage" users of
industrial gases, a plant is built adjacent to, on, or near the customer's
facility--hence the term "on-site". Alternatively, the gases are delivered
through a pipeline from nearby locations. Supply is generally made under long-
term contracts. In numerous areas--the Houston (Texas) Ship Channel including
the Port Arthur, Texas, area; "Silicon Valley", California; Los Angeles,
California; Phoenix, Arizona; Decatur, Alabama; Central Louisiana; Rotterdam,
the Netherlands; Korea; Singapore; Taiwan; Malaysia; and Brazil--Air Products'
hydrogen, oxygen, carbon monoxide, or nitrogen gas pipelines serve multiple
customers from one or more centrally located plants. Industrial gas companies in
which the Company has less than controlling interests have pipelines in
Thailand, Singapore, and South Africa.
Liquid bulk supply--Smaller volumes of industrial gas products are
delivered to thousands of customers in liquid or gaseous form by tanker trucks
or tube trailers. These liquid bulk customers use equipment designed and
installed by Air Products to store the product near the point of use, normally
in liquid state, and vaporize the product into gaseous state for their use as
needed. Some customers are also supplied by small on-site generators using
noncryogenic technology based on adsorption and membrane technology which, in
certain circumstances, the Company sells to its customers. Liquid bulk
customers' contract terms normally are from three to five years.
Packaged gases supply--Industrial and various specialty and medical
gases are also delivered in cylinders, dewars, and lecture bottle sizes. During
fiscal year 2002, the Company divested its historic U.S. packaged gas business
except for electronics gases and helium used in magnetic resonance imaging. The
Company is pursuing a similar divestiture in Canada.
Oxygen, nitrogen, argon, and hydrogen sold to liquid bulk customers
are usually recovered or generated at large "stand-alone" facilities located
near industrial areas or high-tech centers, or at small noncryogenic generators,
or are taken from on-site plants used primarily to supply tonnage users. On-site
plants are frequently designed to have more capacity than is required by their
principal customer to recover additional product that is liquefied for sale to a
liquid bulk market. Air Products also designs and builds
1
systems for recovering oxygen, hydrogen, nitrogen, carbon monoxide, and low dew
point gases using adsorption technology.
Sales of atmospheric gases--oxygen, nitrogen, and argon--constituted
approximately 26% of Air Products' consolidated sales in fiscal year 2002, 24%
in fiscal year 2001, and 25% in fiscal year 2000. Sales of industrial
gases--principally oxygen, nitrogen, and hydrogen--to the chemical process
industry and the electronics industry, the largest consuming industries, were
approximately 20% and 14%, respectively, of Air Products' consolidated sales in
fiscal year 2002.
Other important consumers of Air Products' industrial and specialty
gases are the basic steel industry, the oil industry (which uses inert nitrogen
for oil well stimulation and field pressurization and hydrogen and oxygen for
refining), and the food industry (which uses liquid nitrogen for food freezing).
Air Products believes that it is the largest liquefier of hydrogen, which it
supplies to many customers, including the National Aeronautics and Space
Administration for its space shuttle program.
The global healthcare business of Air Products is directed at two main
markets: institutional and homecare. The institutional market uses medical gases
in hospitals, clinics, and nursing homes, as well as helium for use in magnetic
resonance imaging. The homecare business was principally in Europe before the
acquisition in October 2002 of American Homecare Supply, LLC, which serves the
Eastern United States. Homecare involves the delivery of respiratory therapy
services, infusion services, and home medical equipment to patients in their
homes.
Specialty gases include fluorine products, rare gases such as xenon,
krypton, and neon, and more common gases of high purity or gases that are
precisely blended as mixtures. Specialty chemicals for use by the electronics
industry include silane, arsine, silicon tetrafluoride, nitrogen trifluoride,
carbon tetrafluoride, hexafluoromethane, and tungsten hexafluoride. These gases
and chemicals are used in numerous industries and in electronic and laboratory
applications. In certain circumstances the Company sells equipment related to
the use, handling, and storage of such specialty gases and specialty chemicals.
Sales of industrial gases and sales of specialty products to the
electronics industry and others are made principally through regional offices in
the United States and other countries.
Electricity and hydrocarbons, including natural gas as a feedstock for
producing certain gases, are important to Air Products' gas business. See "Raw
Materials and Energy". The Company's large truck fleet that delivers products to
liquid bulk customers requires a readily available supply of gasoline or diesel
fuel. Also, environmental and health laws and regulations will continue to
affect the Company's gas businesses. See "Environmental Controls".
Air Products operates and has 50% interests in a 49-megawatt
fluidized-bed coal-fired power generation facility in Stockton, California and
in a 24-megawatt gas-fired combined cycle power generation facility near
Rotterdam, the Netherlands. A 112-megawatt gas-fueled power generation facility,
in which the Company has a 48.8% interest, operates in Thailand and supplies
electricity to a state-owned electricity generating authority and steam and
electricity to an Air Products industrial gases affiliate. Additional
information with respect to the Company's power generation and flue gas
treatment businesses is included in Notes 3, 8, and 18 to the Consolidated
Financial Statements included under Item 8 herein.
CHEMICALS
The Company's chemicals businesses consist of performance materials
and chemical intermediates, where the Company is able to differentiate itself by
the performance of its products in the customer's application, the technical
service that the Company provides, and the scale of production and the
production technology employed by the Company.
Performance Materials
The principal businesses of performance materials are Performance
Polymers, Performance Solutions, and Performance Products. Total sales from the
performance materials business constituted approximately 17% of Air Products'
consolidated sales in fiscal year 2002, 15% in fiscal year 2001, and 17%
(excluding PVOH) in fiscal year 2000. Air Products' performance materials are
differentiated from the competition based on their functionality when used in
the customer's products and applications, and by the technical service the
Company provides.
2
Performance Polymers--Air Products' polymers are water-based and
water-soluble emulsion products derived primarily from vinyl acetate monomer.
The Company's major emulsions products are vinyl acetate homopolymer emulsions
and AIRFLEX(R) vinyl acetate-ethylene copolymer emulsions. The Company also
produces emulsions that incorporate vinyl chloride and various acrylates in
the polymer. These products are used in adhesives, nonwoven fabric binders,
paper coatings, paints, inks, and carpet backing binder formulations.
Air Products owns 65% of a worldwide joint venture with Wacker-Chemie
GmbH that produces polymer emulsions and pressure-sensitive adhesives. The
Company also owns 20% of a worldwide joint venture with Wacker-Chemie GmbH that
produces redispersible powders made from polymer emulsions.
Performance Solutions--These products are primarily acetylenic alcohols
and amines that are used as performance additives in coatings, lubricants,
electro-deposition processes, agricultural formulations, and corrosion
inhibitors.
Performance Products--These products include polyurethane catalysts and
surfactants that are used as performance control additives and processing aids
in the production of both flexible and rigid polyurethane foam around the world.
The principal end markets for polyurethane foams include furniture cushioning,
insulation, carpet underlay, bedding, and automobile seating.
These products also include epoxy additives such as: polyamides,
aromatic amines, cycloaliphatic amines, reactive diluents, and specialty epoxy
resins that are used as performance additives in epoxy formulations by epoxy
manufacturers worldwide. The end markets for epoxies are coatings, flooring,
adhesives, reinforced composites, and electrical laminates.
Chemical Intermediates
The chemical intermediates businesses use the Company's proprietary
technology and scale of production to differentiate themselves from the
competition. The principal intermediates sold by the Company include amines and
polyurethane intermediates. The Company also produces certain industrial
chemicals (ammonia, methanol, and nitric acid) as raw materials for its
differentiated products. Total third-party sales from the chemical intermediates
businesses constituted 10% of Air Products' consolidated sales in fiscal year
2002, 10% in fiscal year 2001, and 12% in fiscal year 2000.
Amines--The Company produces a broad range of amines using ammonia and
methanol, both of which are manufactured by Air Products, and other alcohol
feedstocks purchased from various suppliers. Other, more specialized amines, are
produced by the hydrogenation of purchased intermediates. Substantial quantities
of these products are sold under long-term contracts to a small number of
customers. These products are used by the Company's customers as raw materials
in the manufacture of herbicides, pesticides, water treatment chemicals, animal
nutrients, polyurethane coatings, rubber chemicals, and pharmaceuticals. Ammonia
is produced as a feedstock for its alkylamines business, supplemented by
external purchases. Additional ammonia is purchased and converted to ammonium
nitrate prills and solutions that are primarily sold to customers as fertilizers
or for other chemical applications. Methanol is produced by Air Products as a
feedstock in methylamine production, and the excess over this requirement is
sold to a third party.
Polyurethane Intermediates--The Company produces dinitrotoluene ("DNT")
and toluene diamine ("TDA") for use as intermediates by the Company's customers
in the manufacture of a major precursor of flexible polyurethane foam. The
principal end markets for flexible polyurethane foams include furniture
cushioning, carpet underlay, bedding, and seating in automobiles. Virtually all
of the Company's production of DNT and TDA is sold under long-term contracts to
a small number of customers.
* * *
Chemical sales are supported from various locations in the United
States, England, Germany, Brazil, Mexico, the Netherlands, Japan, China,
Singapore, and South Africa, and through sales representatives or distributors
in most industrialized countries. Dry products are delivered in railcars,
trucks, drums, bags, and cartons. Liquid products are delivered by barge, rail
tank cars, tank trailers, drums and pails, and, at one location, by pipeline.
The chemicals business depends on adequate energy sources, including
natural gas as a feedstock for the production of certain products (see "Raw
Materials and Energy"), and will continue to be affected by various
environmental and health laws and regulations (see "Environmental Controls").
3
EQUIPMENT
The Company designs and manufactures equipment for cryogenic air
separation, gas processing, natural gas liquefaction, and hydrogen purification.
This segment also designs and builds cryogenic transportation containers for
liquid helium and hydrogen. Customers include companies involved in chemical and
petrochemical manufacturing, oil and gas recovery and processing, power
generation, and steel and primary metal productions. Air Products also designs
and builds systems for recovering hydrogen, nitrogen, carbon monoxide, carbon
dioxide, and low dew point gases using membrane technology. Additionally, a
broad range of plant design, engineering, procurement, and construction
management services is provided for the above areas. Equipment is manufactured
for use by the gases segment and for sale in industrial markets that include the
Company's international industrial gas joint ventures.
The backlog of orders (including letters of intent) believed to be firm
from other companies and equity affiliates for equipment was approximately $114
million on 30 September 2002, approximately 13% of which relates to cryogenic
air separation, as compared with a total backlog of approximately $227 million
on 30 September 2001. It is expected that approximately $106 million of the
backlog on 30 September 2002, will be completed during fiscal year 2003.
GENERAL
Foreign Operations
Air Products, through subsidiaries and affiliates, conducts business in
numerous countries outside the United States. The structure of the Air Products
gas business in Europe is comparable to the Company's United States operation,
except in Europe, where the Company is still engaged in the packaged gas
business. Air Products' international business is subject to risks customarily
encountered in foreign operations, including fluctuations in foreign currency
exchange rates and controls, import and export controls, and other economic,
political, and regulatory policies of local governments.
The Company's industrial gas segment, through investments ranging from
wholly owned subsidiaries to minority ownership interests, does business in
approximately 35 countries outside the United States. Majority and wholly owned
industrial gas subsidiaries operate in Argentina, Brazil, Canada, and Mexico,
and throughout Europe and Asia in 15 and ten countries, respectively. There are
50% industrial gas joint ventures in Canada and Trinidad and Tobago, seven
countries in Europe, five in Asia, and two in Africa, and less than controlling
interests in Africa, Canada, and Mexico, four countries in Europe, and three in
Asia. During the year, the Company acquired a controlling interest in the Taiwan
company, San Fu Gas Co. Ltd., bringing its interest to 70%. The Company also has
a 50% interest in a power generation facility in the Netherlands and a 48.8%
interest in one in Thailand.
The principal geographic markets for the Company's chemical products
are North America, Europe, Asia, Brazil, and Mexico. Majority and wholly owned
subsidiaries operate in Germany, Italy, the Netherlands, the United Kingdom,
Australia, Singapore, Japan, Korea, China, and Mexico. The Company also has a
50% joint venture in the U.K that is developing products relating to silicon
wafer polishing, chemical mechanical planarization processes, and hard disk
polishing. The polymer emulsions and pressure-sensitive adhesives joint venture
with Wacker-Chemie GmbH has headquarters in the United States and production
facilities in the United States, Germany, Mexico, and Korea, along with a
technical service center in Shanghai, China. Headquarters for the 20% investment
in the redispersible powder venture with Wacker-Chemie GmbH are in Germany with
manufacturing facilities in Germany and the United States. The Company also has
less than controlling interests in Japan and Ireland that sell chemicals to the
electronics industry.
Financial information about Air Products' foreign operations and
investments is included in Notes 8, 16, and 20 to the Consolidated Financial
Statements included under Item 8 herein. Information about foreign currency
translation is included in Note 1 to the Consolidated Financial Statements
included under Item 8 herein, under "Foreign Currency", and information on
Company exposure to currency fluctuations is included in Note 6 to the
Consolidated Financial Statements included under Item 8 herein. Export sales
from operations in the United States to unconsolidated customers amounted to
$533 million, $602 million, and $558 million in fiscal years 2002, 2001, and
2000, respectively. Total export sales in fiscal year 2002 included $95 million
in export sales to affiliated customers. The sales to affiliated customers were
primarily equipment sales.
4
Technology Development
Air Products conducts research and development principally in its
laboratories located in Trexlertown, Pennsylvania, as well as in Basingstoke,
London, and Crewe in the U.K.; Burghausen, Germany; Utrecht, the Netherlands;
San Juan del Rio, Mexico; and Barcelona, Spain. The Company also funds and works
closely on research and development programs with a number of major universities
and conducts a sizable amount of research work funded by others, principally the
United States Government.
The Company's market-oriented approach to technology development
encompasses research and development and engineering, as well as commercial
development.
The amount expended by the Company on research and development during
fiscal year 2002 was $121 million, $123 million in fiscal year 2001, and $124
million in fiscal year 2000. The amount expended by the Company on
customer-sponsored research activities during fiscal year 2002 was $18 million,
$19 million in fiscal year 2001, and $14 million in fiscal year 2000.
In the gases and equipment segments, technology development is directed
primarily to developing new and improved processes and equipment for the
production and delivery of industrial gases and cryogenic fluids, developing new
products, and developing new and improved applications for industrial gases. It
is through such applications and improvements that the Company has become a
major supplier to the electronics and chemical process industries including
gases from air separation, specialty gases, and hydrogen. Additionally,
technology development for the equipment business is directed primarily to
reducing the capital and operating costs of its facilities and to
commercializing new technologies in gas production and separation.
In the chemicals segment, technology development is primarily concerned
with new products and applications to strengthen and extend our present
positions in polymer and performance materials. In addition, a major continuing
effort supports the development of new and improved process and manufacturing
technology for chemical intermediates and polymers.
A corporate research group supports the research efforts of the
Company's various businesses. This group includes the Company's Corporate
Science and Technology Center, which conducts research in areas important to the
long-term growth of the Company with focus on performance materials.
As of 1 November 2002, Air Products owned 952 United States patents and
1,695 foreign patents. The Company is also licensed under certain patents owned
by others. While the patents and licenses are considered important, Air Products
does not consider its business as a whole to be materially dependent upon any
particular patent or patent license, or group of patents or licenses.
Raw Materials and Energy
The Company manufactures hydrogen, carbon monoxide, synthesis gas,
carbon dioxide, and methanol principally from natural gas. Such products
accounted for approximately 12% of the Company's consolidated sales in fiscal
year 2002. The Company's principal raw material purchases are chemical
intermediates produced by others from basic petrochemical feedstocks such as
olefins and aromatic hydrocarbons. These feedstocks are generally derived from
various crude oil fractions or from liquids extracted from natural gas. The
Company purchases its chemical intermediates from many sources and generally is
not dependent on one supplier. However, with respect to vinyl acetate monomer
that supports the polymer business, the Company is heavily dependent on a single
supplier under a long-term contract that produces vinyl acetate monomer from
several facilities. The Company characterizes the availability of these chemical
intermediates as generally being readily available. The Company uses such raw
materials in the production of emulsions, amines, polyurethane intermediates,
specialty additives, polyurethane additives, and epoxy additives. Such products
accounted for approximately 28% of the Company's consolidated sales in fiscal
year 2002. Natural gas is an energy source at a number of the Company's
facilities. The Company also purchases ammonia under long-term contracts as a
feedstock for several of its chemicals facilities.
A long-term supplier of sulfuric acid, used in the production of
dinitrotoluene (DNT), has been operating under Chapter 11 bankruptcy protection
since 8 May 2001. The Company's DNT operation in its polyurethane intermediates
business and supply to its customers have not been materially impacted. The
Company expects this supplier to be successful in its reorganization. If
reorganization is not successful, the sales and profitability of the chemicals
segment could be materially impacted on an annual basis due to the
5
supplier's shutdown and the Company's inability to supply all of its customers'
base requirements. The Company extended an $8.0 million line of credit to this
supplier, of which $7.5 million was drawn at 30 September 2002. The Company also
entered into a product prepayment agreement with this supplier. At 30 September
2002, the unamortized balance was $5.0 million. The Company expects to fully
recover these advances.
The Company's industrial gas facilities use substantial amounts of
electrical power. Electricity is the largest cost input for the production of
atmospheric gases. Any shortage of electrical power or interruption of its
supply or increase in its price that cannot be passed through to customers for
competitive reasons will adversely affect the liquid bulk gas business of the
Company.
In addition, the Company purchases finished and semi-finished materials
and chemical intermediates from many suppliers. During fiscal year 2002, no
significant difficulties were encountered in obtaining adequate supplies of
energy or raw materials.
Environmental Controls
The Company is subject to various environmental laws and regulations in
the United States and foreign countries where it has operations. Compliance with
these laws and regulations results in higher capital expenditures and costs.
Additionally, from time to time, the Company is involved in proceedings under
the Comprehensive Environmental Response, Compensation, and Liability Act (the
federal Superfund law), similar state laws, and the Resource Conservation and
Recovery Act (RCRA) relating to the designation of certain sites for
investigation and possible cleanup. Additional information with respect to these
proceedings is included under Item 3, Legal Proceedings, below. The Company's
accounting policies on environmental expenditures are discussed in Note 1 to the
Consolidated Financial Statements included under Item 8 herein.
The amounts charged to earnings on an after-tax basis related to
environmental matters totaled $24 million in 2002, $22 million in 2001, and $31
million in 2000. These amounts represent an estimate of expenses for compliance
with environmental laws, as well as remedial activities, and costs incurred to
meet internal Company standards. Such costs are estimated to be $25 million in
2003 and 2004.
Although precise amounts are difficult to define, the Company estimates
that in fiscal year 2002 it spent approximately $14 million on capital projects
to control pollution versus $13 million in 2001. Capital expenditures to control
pollution in future years are estimated at approximately $19 million in 2003 and
$16 million in 2004.
To the extent long-term contracts have been entered into for supply of
product, such as for the industrial gas on-site business and for certain
chemical products, the cost of any environmental compliance generally is
contractually passed through to the customer.
It is the Company's policy to accrue environmental investigatory and
noncapital remediation costs for identified sites when it is probable that a
liability has been incurred and the amount of loss can be reasonably estimated.
The potential exposure for such costs is estimated to range from $9 million to a
reasonably possible upper exposure of $20 million. The balance sheet at 30
September 2002 includes an accrual of $15 million. At 30 September 2001, the
balance sheet accrual was $14 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.
Competition
The Company's businesses face strong competition from others, some of
which are larger and have greater resources than Air Products.
Air Products' industrial gas business competes in the United States
with three major sellers and with several regional sellers. Competition in
industrial gas markets is based primarily on price, reliability of supply, and
furnishing or developing applications for use of such gases by customers, and in
some cases the provisions of other services or products such as power and steam
generation. Similar competitive situations exist in
6
European and Asian industrial gas markets in which the Company competes against
one or more larger entrenched competitors in most countries.
Competition in the institutional market of the global healthcare
business is principally from other large, established industrial gas companies
using business models (long-term product supply agreements) that are similar to
those the companies utilize for other industrial gas supply relationships.
Competition in this market is principally based on price, quality, service, and
reliability of supply. Homecare is served by national and local providers, and
in the U.S. there are over 2,000 regional and local providers. It is highly
competitive. In the United States reimbursement levels are established by fee
schedules regulated by Medicare and Medicaid, or by the levels determined by
insurance companies. Accordingly, in the United States, homecare companies
compete primarily on the basis of service. Homecare companies generally direct
their marketing efforts towards referral sources that usually have no financial
responsibility for the payment of client services. Maintaining competitiveness
requires efficient logistics, reimbursement, and accounts receivable systems.
Although the Company intends to acquire additional homecare companies, there is
no guarantee that suitable candidates can be acquired or that the necessary
managed care contracts will be on favorable terms.
The number of the Company's principal competitors in the chemicals
business varies from product to product, and it is not practical to identify
such competitors because of the broad range of the Company's chemical products
and the markets served, although the Company believes it has a leading or strong
market position in most of its chemical products. For amines the competition is
principally from other large chemical companies that also have the ability to
provide competitive pricing, reliability of supply, technical service
assistance, and quality products and services. The possibility of back
integration by large customers is the major competitive factor for the sale of
polyurethane additives. In its other chemical products, the Company competes
with a large number of chemical companies, some of which are larger, possess
greater financial resources, and are more vertically integrated than the
Company. Competition in these products is principally on the basis of price,
quality, product performance, reliability of product supply, and technical
service assistance.
The Company's equipment business competes in all aspects with a great
number of firms, some of which have greater financial resources than Air
Products. Another important factor in certain export sales is financing provided
by governmental entities in the United States and the United Kingdom as compared
with financing offered by their counterparts in other countries. Competition is
based primarily on technological performance, service, technical know-how,
price, and performance guarantees. Air Products believes that its comprehensive
project development capability, operating experience, engineering and financing
capabilities, and construction management experience will enable it to compete
effectively.
Insurance
The Company's policy is to obtain public liability and property
insurance coverage that is currently available at what management determines to
be a fair and reasonable price. The Company, for itself and its power generation
and flue gas treatment joint venture affiliates for which it assumes operating
responsibility, maintains public liability and property insurance coverage at
amounts that management believes are sufficient, after retention, to meet the
Company's anticipated needs in light of historical experience to cover future
litigation and claims. There is no assurance, however, that the Company will not
incur losses beyond the limits of, or outside the coverage of, its insurance.
Employees
On 30 September 2002, the Company (including majority-owned
subsidiaries) had approximately 17,200 full-time employees, of whom
approximately 8,700 were located outside the United States. The Company has
collective bargaining agreements with unions at numerous locations that expire
on various dates over the next three to four years. On 22 November 2002,
the agreement with the International Association of Machinists and Aerospace
Workers (I.A.M.A.W.) expired without ratification of a new agreement, although
employees continue to work. This collective bargaining arrangement covers
employees at the Company's Hometown, Pennsylvania facility, which produces
specialty gases and chemicals, and employees at two small equipment
manufacturing facilities. The Company considers relations with its employees to
be satisfactory. The Company does not believe that the impact of any expiring
or expired collective bargaining agreements will result in a material adverse
impact on the Company.
7
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 Company's 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,
are available free of charge through the Company's Internet website at
www.airproducts.com. Such documents are available as soon as reasonably
practicable after electronic filing of the material with the SEC.
The public may also read and copy any materials filed by the Company
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW,
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.
8
Executive Officers of the Company
The Company's executive officers and their respective positions and
ages on 15 December 2002 follow. Except where indicated, each of the executive
officers listed below has been employed by the Company in the position indicated
during the past five fiscal years. Information with respect to offices held is
stated in fiscal years.
Name Age Office
---- --- ------
Leonard V. Broese van Groenou 55 Vice President-Human Resources
(D) (became Vice President-Human Resources in 2001;
Vice President-Human Resources and Procurement
of Air Products Europe prior thereto)
W. Douglas Brown 56 Vice President, General Counsel, and Secretary
(D) (became Vice President, General Counsel, and Secretary
in 1999; Vice President-Administration, Gases and
Equipment prior thereto)
Andrew E. Cummins 58 Group Vice President-Chemicals
(D) (became Group Vice President-Chemicals in 1999;
Vice President-North America Gases in 1999;
Vice President-General Industries
Group prior thereto)
Robert E. Gadomski 55 Executive Vice President-Gases and Equipment
(D) (became Executive Vice President-Gases and Equipment
in 1999; Executive Vice President-Chemicals, Asia, and
Latin America in 1998)
Paul E. Huck 52 Vice President and Corporate Controller
(became Vice President and Corporate Controller in 2002;
Vice President-Project Management Office in 2000;
Vice President and Corporate Controller prior thereto)
John P. Jones III 52 Chairman, President, and Chief Executive Officer
(A)(B)(C)(D) (became Chairman and Chief Executive Officer in 2000;
President and Chief Operating Officer in 1998)
Arthur T. Katsaros 55 Group Vice President-Engineered Systems and Development
(D) (became Group Vice President-Engineered Systems and
Development in 2001; Group Vice President, Engineered
Systems and Operations Group prior thereto)
John R. Owings 53 Vice President and Chief Financial Officer
(D) (became Vice President and Chief Financial Officer in 2002;
Senior Vice President of Finance, Personal Communications
Segment ($10.5 billion in net sales), in 2000 for
Motorola, Inc., a global leader in providing integrated
communications solutions and embedded electronic solutions;
Senior Vice President, Director of Finance, Global Telecom
Solutions Segment ($6.5 billion in net sales), in 1998 for
Motorola, Inc.)
- ---------------
(A) Member, Board of Directors
(B) Member, Executive Committee of the Board of Directors
(C) Member, Finance Committee of the Board of Directors
(D) Member, Corporate Executive Committee
9
ITEM 2. Properties.
The principal executive offices of Air Products are located at its
headquarters in Trexlertown, near Allentown, Pennsylvania. Additional
administrative offices are located in owned facilities in Hersham, near London,
England; Brampton, near Toronto, Canada; and Hattingen, Germany. Administrative
offices are also located in leased facilities in the Allentown area,
Pennsylvania; Tokyo, Japan; Hong Kong, the People's Republic of China;
Singapore; Brussels, Belgium; Paris, France; Barcelona, Spain; and Sao Paulo,
Brazil. The management considers the Company's manufacturing facilities,
described in more detail below, to be adequate to support the business
efficiently. The following information with respect to properties is as of 30
September 2002.
Gases
The gases segment has approximately 180 plant facilities in 39 states,
the majority of which recover nitrogen, oxygen, and argon. The Company has three
facilities that produce specialty gases and 30 facilities that produce and/or
recover hydrogen throughout the United States. Helium is recovered at two plants
in Kansas and Texas. There are 33 sales offices and/or cylinder distribution
centers located in 21 states. Global healthcare has approximately 200 facilities
in the United States, Argentina, Brazil, Mexico, South Africa, and nine
countries in Europe.
The property on which the above plants are located is owned by Air
Products at approximately one-fourth of the locations, and leased by Air
Products at the remaining locations. However, in virtually all cases, the plant
itself is owned and operated by Air Products. Air Products owns approximately
half of its industrial gas sales offices and cylinder distribution centers,
including related real estate, and leases the other half. The majority of the
facilities for global healthcare are leased.
Air Products' European plant facilities total 61 and include three
plants that recover hydrogen, three plants that manufacture dissolved acetylene,
and three that recover carbon monoxide. The majority of European plants recover
nitrogen, oxygen, and argon. In addition, there are five specialty gas centers.
There are 119 sales offices and/or cylinder distribution centers in Europe, and
several additional facilities located in Brazil, Canada, Japan, the People's
Republic of China, Puerto Rico, Singapore, Indonesia, Taiwan, Korea, Malaysia,
and the Middle East. Representative offices are located in Taiwan and in Hong
Kong, Beijing, and Shanghai in the People's Republic of China.
Chemicals
The chemicals segment manufactures amines, nitric acid, methanol,
anhydrous ammonia, and ammonia products at its Pace, Florida facility;
alkylamines at its St. Gabriel, Louisiana facility and its Camacari, Bahia,
Brazil facility; polyvinyl acetate emulsions at its South Brunswick, New Jersey
facility; styrene emulsions, styrene acrylics, polyvinyl acetate acrylics, and
polyvinyl acetate emulsions at its San Juan del Rio facility in Mexico;
polyvinyl acetate emulsions at its Cologne, Germany facility; nitric acid,
dinitrotoluene, and toluene diamine at its Pasadena, Texas facility; polyvinyl
acetate emulsions and acetylenic chemicals at its Calvert City, Kentucky
facility; specialty amines at its Wichita, Kansas facility; methylamines,
dimethyl formamide, choline chloride, and dimethyl amino ethanol at its
Teesside, England facility; and epoxy additives at its facilities in Manchester,
England, and Los Angeles, California. The chemicals segment manufactures
polyurethane additives and polyurethane specialty products
(AIRTHANE(R)/VERSATHANE(R)) at its Paulsboro, New Jersey facility that is leased
in part and owned in part. The chemicals segment also manufactures polyvinyl
acetate emulsions at four smaller locations.
The chemicals segment has 13 plant facilities, one sales office, and
one laboratory in the United States, and operates three plants, four
sales/representative offices, and two laboratories in Europe, two laboratories
in Brazil and Japan, one laboratory in Korea and China, one plant in each of
Mexico, Korea, and Brazil, and sales offices in Australia, Brazil, Mexico,
Japan, Korea, and Singapore, and representative offices in Beijing, Shanghai,
and Hong Kong in the People's Republic of China. Substantially all of the
chemicals segment's plants and real estate are owned. The Company leases
approximately 75% of the offices and 25% are owned.
10
Equipment
The principal facilities utilized by the equipment segment include six
plants and two sales offices in the United States, two plants and one office in
Europe, one office in Japan, and one sales office in the People's Republic of
China. Air Products owns approximately 50% of the facilities and real estate in
this segment and leases the remaining 50%.
ITEM 3. Legal Proceedings.
In the normal course of business Air Products and its subsidiaries are
involved in legal proceedings including proceedings involving governmental
authorities under the Comprehensive Environmental Response, Compensation, and
Liability Act (the federal Superfund law); the Resource Conservation and
Recovery Act (RCRA); and similar state environmental laws relating to the
designation of certain sites for investigation or remediation. Presently there
are approximately 45 sites on which a final settlement has not been reached
where the Company, along with others, has been designated a Potentially
Responsible Party by the Environmental Protection Agency or is otherwise engaged
in investigation or remediation. Additionally, the Company has received several
notices between June 2001 and September 2002 of civil administrative penalties
from the New Jersey Department of Environmental Protection alleging various
exceedances and discrepancies relating to the air emissions from the thermal
oxidizer at the Company's Paulsboro, New Jersey chemical production facility.
While the aggregated, outstanding proposed penalties are $204,400, the Company
expects that the ultimate penalty amount to be incurred by it will be reduced.
The Company does not expect that any sums it may have to pay in
connection with these matters would have a materially adverse effect on its
consolidated financial position, nor is there any material additional exposure
expected in any one year in excess of the amounts the Company currently has
accrued. Additional information on the Company's environmental exposure is
included under "Environmental Controls".
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock, ticker symbol "APD", is listed on the New
York and Pacific Stock Exchanges. Quarterly stock prices, as reported on the New
York Stock Exchange composite tape of transactions, and dividend information for
the last two fiscal years appear below. Cash dividends on Air Products' common
stock are paid quarterly. The Company's objective is to pay dividends consistent
with the reinvestment of earnings necessary for long-term growth. It is the
Company's expectation that comparable cash dividends will continue to be paid in
the future.
Quarterly Stock Information
---------------------------------------------------------------
2002 High Low Close Dividend
---------------------------------------------------------------
First $48.09 $36.15 $46.91 $.20
---------------------------------------------------------------
Second 53.52 43.30 51.65 .20
---------------------------------------------------------------
Third 52.58 45.59 50.47 .21
---------------------------------------------------------------
Fourth 51.66 40.00 42.01 .21
---------------------------------------------------------------
$.82
2001 High Low Close Dividend
---------------------------------------------------------------
First $42.25 $30.50 $41.00 $.19
---------------------------------------------------------------
Second 43.45 35.00 38.40 .19
---------------------------------------------------------------
Third 48.70 37.98 45.75 .20
---------------------------------------------------------------
Fourth 49.00 32.25 38.58 .20
---------------------------------------------------------------
$.78
11
The Company has authority to issue 25,000,000 shares of preferred stock
in series. The Board of Directors is authorized to designate the series and to
fix the relative voting, dividend, conversion, liquidation, redemption and other
rights, preferences, and limitations as between series. When preferred stock is
issued, holders of Common Stock are subject to the dividend and liquidation
preferences and other prior rights of the preferred stock. There currently is no
preferred stock outstanding. The Company's Transfer Agent and Registrar is
American Stock Transfer and Trust Company, 59 Maiden Lane, New York, New York,
10038, telephone (800) 937-5449, Internet website www.amstock.com, and e-mail
address info@amstock.com.
As of 30 November 2002, there were 11,433 record holders of the
Company's Common Stock.
ITEM 6. Selected Financial Data.
The tabular information appearing under "Five-Year Summary of Selected
Financial Data" on page 46 of the 2002 Financial Review Section of the Annual
Report to Shareholders is incorporated herein by reference.
`
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The textual information appearing under "Management's Discussion and
Analysis" on pages 2 through 16 of the 2002 Financial Review Section of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk.
The textual information appearing under "Market Risks and Sensitivity
Analysis" on pages 11 and 12 of the 2002 Financial Review Section of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements and the related notes thereto,
together with the report thereon of KPMG LLP dated 28 October 2002, and the
previously issued Arthur Andersen LLP report dated 26 October 2001, appearing on
pages 18 through 46 of the 2002 Financial Review Section of the Annual Report to
Shareholders, are incorporated herein by reference.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On 10 May 2002, the Company terminated its engagement of Arthur
Andersen LLP of Philadelphia, Pennsylvania ("Andersen") as independent auditors
and determined to appoint KPMG LLP as its new independent auditors for the
fiscal year ending 30 September 2002. This determination followed the Company's
decision to seek proposals from independent public accounting firms to audit the
Company's financial statements and was approved by the Board of Directors upon
the recommendation of the Audit Committee.
Andersen's report on the Company's audited financial statements for
each of the years ended 30 September 2000 and 30 September 2001 did not contain
an adverse opinion or a disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope, or accounting principles.
During the years ended 30 September 2000 and 30 September 2001, and the
interim period between 30 September 2001 and 10 May 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
it to make reference to the subject matter in connection with its report on the
Company's financial statements for those years. Also, during those two years and
interim period, there were no reportable events as listed in Item 304(a)(1)(v)
of Regulation S-K.
Air Products provided Andersen with a copy of the foregoing disclosure.
Andersen's letter dated 10 May 2002, stating its agreement with such statements,
was filed as Exhibit 16 to the Company's Form 8-K filed 10 May 2002, which is
incorporated herein by reference.
12
During the years ended 30 September 2000 and 30 September 2001, and the
interim period between 30 September 2001 and 10 May 2002, the Company did not
consult with KPMG regarding application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements, or any
other matter or reportable event listed in Items 304(a)(2)(i) and (ii) of
Regulation S-K.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The biographical information relating to the Company's directors
appearing on pages 14 through 16 of the Proxy Statement relating to the
Company's 2003 Annual Meeting of Shareholders is incorporated herein by
reference. Biographical information relating to the Company's executive officers
is set forth in Item 1 of Part I of this Report.
ITEM 11. Executive Compensation.
The information under "Director Compensation", "Report of the
Management Development and Compensation Committee", "Executive Compensation
Tables", "Severance and Other Change In Control Arrangements", and "Stock
Performance Graph", appearing on pages 20 through 27 of the Proxy Statement
relating to the Company's 2003 Annual Meeting of Shareholders is incorporated
herein by reference.
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, 2002", "Air Products Stock
Beneficially Owned by Officers and Directors as of November 1, 2002", "Equity
Compensation Plan Information", and "Information About Stock Performance and
Ownership" appearing on pages 28 through 31 of the Proxy Statement relating to
the Company's 2003 Annual Meeting of Shareholders is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
ITEM 14. Controls and Procedures.
Under the supervision of the Chief Executive Officer and Chief
Financial Officer, the Company's management conducted an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures within 90 days of the filing date of this annual report. 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 have been no significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of such evaluation.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
1. The 2002 Financial Review Section of the Company's 2002 Annual
Report to Shareholders. Information contained therein is not deemed filed except
as it is incorporated by reference into this Report. The following financial
information is incorporated herein by reference:
(Page references to 2002 Financial Review Section of the Annual Report)
Management's Discussion and Analysis........................................................ 2
Reports of Independent Auditors............................................................ 18
Consolidated Income for the three years ended 30 September 2002............................ 20
13
Consolidated Balance Sheets at 30 September 2002 and 2001.................................. 21
Consolidated Cash Flows for the three years ended 30 September 2002........................ 22
Consolidated Shareholders' Equity for the three years ended 30 September 2002.............. 23
Notes to Consolidated Financial Statements................................................. 24
Business Segment and Geographic Information................................................ 43
Five-Year Summary of Selected Financial Data............................................ 46
2. The following additional information should be read in conjunction with
the financial statements in the Company's 2002 Financial Review Section of the
Annual Report to Shareholders:
(Page references to this report)
Report of Independent Auditors on Schedule (KPMG LLP)..................................... 22
Consent of Independent Auditors........................................................... 22
Report of Independent Public Accountants on Schedule (Arthur Andersen LLP)................ 23
Consolidated Schedule for the years ended 30 September 2002, 2001, and
2000 as follows:
Schedule
Number
------
VIII Valuation and Qualifying Accounts................................................... 24
All other schedules are omitted because the required matter or conditions
are not present or because the information required by the Schedules is
submitted as part of the consolidated financial statements and notes thereto.
3. Exhibits.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws.
3.1 By-Laws of the Company. (Filed as Exhibit 3.1 to the
Company's Form 8-K Report dated 18 September 1997.)*
3.2 Restated Certificate of Incorporation of the Company.
(Filed as Exhibit 3.2 to the Company's Form 10-K Report
for the fiscal year ended 30 September 1987.)*
3.3 Amendment to the Restated Certificate of Incorporation
of the Company dated 25 January 1996. (Filed as
Exhibit 3.3 to the Company's Form 10-K Report for the
fiscal year ended 30 September 1996.)*
(4) Instruments defining the rights of security holders,
including indentures. Upon request of the
Securities and Exchange Commission, the Company hereby
undertakes to furnish copies of the instruments with
respect to its long-term debt.
4.1 Rights Agreement, dated as of 19 March 1998, between
the Company and First Chicago Trust Company of New York.
(Filed as Exhibit 1 to the Company's Form 8-A
Registration Statement dated 19 March 1998, as amended
by Form 8-A/A dated 16 July 1998.)*
4.2 Amended and Restated Credit Agreementdated as of
16 September 1999 among the Company, Additional
Borrowers parties thereto, Lenders parties thereto,
and The Chase Manhattan Bank as amended). (Filed as
Exhibit 4.2 to the Company's Form 10-K Report or the
fiscal year ended 30 September 1999.)*
(10) Material Contracts.
10.1 1990 Deferred Stock Plan of the Company, as amended
and restated effective 1 October 1989. (Filed as
Exhibit 10.1 to the Company's Form 10-K Report for
the fiscal year ended 30 September 1989.)*
10.2 The Rules of the United Kingdom Savings-Related Share
Option Scheme of the Company as adopted on
24 October 1997, as amended on 1 October 1999 and
5 November 1999.
14
10.3 Amended and Restated Supplementary Savings Plan of the
Company effective 1 April 1998.
10.3(a) Resolutions authorizing modifications to the
Supplementary Pension Plan and Supplementary Savings
Plan of the Company, effective 15 September 1999.
(Filed as Exhibit 10.17 to the Company's Form 10-K
Report for the fiscal year ended 30 September 2000.)*
10.4 Supplementary Pension Plan of the Company, as amended
effective 1 October 1988. (Filed as Exhibit 10.4 to
the Company's Form 10-K Report for the fiscal year
ended 30 September 1989.)*
10.4(a) Amendment to the Pension Plan for Salaried Employees
and the Pension Plan for Hourly Rated Employees
of the Company, adopted 20 September 1995. (Filed as
Exhibit 10.4(d) to the Company's Form 10-K Report for
the fiscal year ended 30 September 1995.)*
10.4(b) Amendment to Supplementary Pension Plan of the
Company, adopted 20 September 1995. (Filed as Exhibit
10.4(e) to the Company's Form 10-K Report for the
fiscal year ended 30 September 1995.)*
10.4(c) Amendment to Supplementary Pension Plan of the
Company, adopted 2 November 1995. (Filed as Exhibit
10.4(c) to the Company's Form 10-K Report for the
fiscal year ended 30 September 1996.)*
10.4(d) Resolutions delegating certain authority to amend the
Supplementary Pension Plan of the Company,
effective 26 January 2000. (Filed as Exhibit 10.4(d) to
the Company's Form 10-K Report for the fiscal year
ended 30 September 2000.)*
10.4(e) Resolutions approving amendments to the Supplementary
Pension Plan of the Company, effective 20 September
2000. (Filed as Exhibit 10.4(e) to the Company's
Form 10-K Report for the fiscal year ended 30 September
2000.)*
10.5 Stock Option Plan for Directors of the Company,
effective 27 January 1994, as amended 21 October
1999. (Filed as Exhibit 10.7 to the Company's Form 10-K
Report for the fiscal year ended 30 September 1999.)*
10.6 Letter dated 7 July 1997 concerning pension for an
executive officer. (Filed as Exhibit 10.7(c) to the
Company's Form 10-K Report for the fiscal year ended
30 September 1998.)*
10.7 Air Products and Chemicals, Inc. Severance Plan
effective 15 March 1990. (Filed as Exhibit 10.8(a)
to the Company's Form 10-K Report for the fiscal year
ended 30 September 1992.)*
10.8 Air Products and Chemicals, Inc. Change of Control
Severance Plan effective 15 March 1990. (Filed as
Exhibit 10.8(b) to the Company's Form 10-K Report for
the fiscal year ended 30 September 1992.)*
10.9 Amended and Restated Trust Agreement by and between the
Company and PNC Bank, N.A. relating to the Defined
Benefit Pension Plans dated as of 1 August 1999.
(Filed as Exhibit 10.13 to the Company's Form 10-K
Report for the fiscal year ended 30 September 1999.)*
10.9(a) Amendment No. 1 to the Amended and Restated Trust
Agreement by and between the Company and PNC Bank,
N.A. relating to the Defined Benefit Pension Plan,
adopted 1 January 2000. (Filed as Exhibit 10.13(a) to
the Company's Form 10-K Report for the fiscal year
ended 30 September 2000.)*
10.10 Amended and Restated Trust Agreement by and between the
Company and PNC Bank, N.A. relating to the Supplementary
Savings Plan dated as of 1 August 1999. (Filed as
Exhibit 10.14 to the Company's Form 10-K Report for the
fiscal year ended 30 September 1999.)*
15
10.10(a) Amendment No. 1 to the Amended and Restated Trust
Agreement by and between the Company and PNC Bank,
N.A. relating to the Supplementary Savings Plan,
adopted 1 January 2000. (Filed as Exhibit 10.14(a) to
the Company's Form 10-K Report for the fiscal year
ended 30 September 2000.)*
10.11 Form of Severance Agreements that the Company has with
each of its U.S. Executive Officers. (Filed as
Exhibit 10.16 to the Company's Form 10-K Report for the
fiscal year ended 30 September 1999.)*
10.12 Form of Severance Agreement that the Company has with
one European Executive Officer dated 16 September 1999.
(Filed as Exhibit 10.1 to the Company's Form 10-Q
Report for the quarter ending 31 March 2001.)*
10.13 Amendment to form of Severance Agreement with one
European Executive Officer dated 26 February 2001.
(Filed as Exhibit 10.2 to the Company's Form 10-Q
Report for the quarter ending 31 March 2001.)*
10.14 Letter dated 19 April 2000, covering pension for a
European Executive Officer. (Filed as Exhibit 10.3
to the Company's Form 10-Q Report for the quarter
ending 31 March 2001.)*
10.15 Amended and Restated Long Term Incentive Plan of the
Company, effective 1 October 2001. (Filed as
Exhibit 10.1 to the Company's Form 10-Q Report
for the quarter ending 31 March 2002.)*
10.16 Amended and Restated Annual Incentive Plan of the
Company, effective 1 October 2001. Filed as
Exhibit 10.2 to the Company's Form 10-Q Report for the
quarter ending 31 March 2002.)*
10.17 Resolutions approving an Amendment to the Compensation
Program for Directors of the Company, effective
1 January 2002. (Filed as Exhibit 10.3 to the
Company's Form 10-Q Report for the quarter endind
31 March 2002.)*
10.18 Amended and Restated Deferred Compensation Plan for
Directors of the Company, effective 20 September
2001. (Filed as Exhibit 10.4 to the Company's Form 10-Q
Report for the quarter ending 31 March 2002.)*
10.19 Confidential Transition and Retirement Agreement and
General Release. (Filed as Exhibit 10.1 to the
Company's Form 10-Q Report for the quarter ending
30 June 2002.)*
10.20 Employment Agreement. (Filed as Exhibit 10.2 to the
Company's Form 10-Q Report or the quarter ending
30 June 2002.)*
10.21 Stock Incentive Program of the Company effective
1 October 1996.
10.22 Terms and Conditions of the Global Employee Stock
Option Awards of the Company effective 1 October
1995, 1997, and 1999.
(12) Computation of Ratios of Earnings to Fixed Charges.
(13) 2002 Financial Review Section of the Annual Report to
Shareholders for the fiscal year ended 30 September
2002, which is furnished to the Commission for
information only and not filed except as expressly
incorporated by reference in this Report.
(21) Subsidiaries of the registrant.
(23) Consents of Experts and Counsel.
23.1 Notice Regarding Consent of Arthur Andersen LLP.
(24) Power of Attorney.
(99) Additional Exhibits.
16
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K filed during the quarter ended 30 September
2002:
Current Reports on Form 8-K dated 25 July 2002 (Items 5 and 9) and
13 August 2002 (Item 9) were filed.
- --------------------------
*Previously filed as indicated and incorporated herein by reference. Exhibits
incorporated by reference are located in SEC File No. 1-4534.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: 13 December 2002
AIR PRODUCTS AND CHEMICALS, INC.
(Registrant)
By: /s/ John R. Owings
----------------------------------------
John R. Owings
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: 13 December 2002
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 P. Jones III 13 December 2002
- -----------------------------------------------
(John P. Jones III)
Director, Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
/s/ Paul E. Huck 13 December 2002
- -----------------------------------------------
(Paul E. Huck)
Vice President and Corporate Controller
(Principal Accounting Officer)
* 13 December 2002
--------------------------------------------
(Mario L. Baeza)
Director
* 13 December 2002
--------------------------------------------
(L. Paul Bremer III)
Director
* 13 December 2002
--------------------------------------------
(Michael J. Donahue)
Director
* 13 December 2002
--------------------------------------------
(Ursula F. Fairbairn)
Director
18
Signature and Title Date
------------------- ----
* 13 December 2002
--------------------------------------------
(Edward E. Hagenlocker)
Director
* 13 December 2002
--------------------------------------------
(James F. Hardymon)
Director
* 13 December 2002
--------------------------------------------
(Terry R. Lautenbach)
Director
* 13 December 2002
--------------------------------------------
(Terrence Murray)
Director
* 13 December 2002
--------------------------------------------
(Charles H. Noski)
Director
* 13 December 2002
--------------------------------------------
(Paula G. Rosput)
Director
* 13 December 2002
--------------------------------------------
(Lawrason D. Thomas)
Director
* W. Douglas Brown, Vice President, General Counsel, and Secretary, by signing
his name hereto, does sign this document on behalf of the above noted
individuals, pursuant to a power of attorney duly executed by such
individuals, which is filed with the Securities and Exchange Commission
herewith.
/s/ W. Douglas Brown
-----------------------------------------
W. Douglas Brown
Attorney-in-Fact
Date: 13 December 2002
19
CERTIFICATIONS
I, John P. Jones III certify that:
1. I have reviewed this annual report on Form 10-K of Air Products and
Chemicals, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 13 December 2002
/s/ John P. Jones III
-------------------------------------------
John P. Jones III
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)
20
I, John R. Owings certify that:
1. I have reviewed this annual report on Form 10-K of Air Products and
Chemicals, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: 13 December 2002
/s/ John R. Owings
--------------------------------------
John R. Owings
Vice President and Chief Financial Officer
(Principal Financial Officer)
21
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
To the Shareholders and Board of Directors of Air Products and Chemicals, Inc.:
Under date of 28 October 2002, we reported on the consolidated balance
sheet of Air Products and Chemicals, Inc. and subsidiaries as of 30 September
2002, and the related consolidated statements of income, cash flows, and
shareholders' equity for the year then ended as contained in the Annual Report
to Shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in this Form 10-K. In connection with our audit of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule referred to in Item 15(a)(2)
in this Form 10-K. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit.
In our opinion, such 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.
Our report contains an explanatory paragraph relating to the fact that
the financial statements of Air Products and Chemicals, Inc. and subsidiaries as
of 30 September 2001 and for each of the years in the two-year period then ended
were audited by other auditors who have ceased operations. As described in Note
1 to the financial statements, those financial statements have been revised. We
audited the adjustments described in Note 1 that were applied to revise the 2001
and 2000 financial statements. In addition, as described in Note 10, the
financial statements have been revised to include the transitional disclosures
required by Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets", which was adopted as of 1 October 2001. However, we
were not engaged to audit, review, or apply any procedures to the 2001 and 2000
financial statements of Air Products and Chemicals, Inc. and subsidiaries other
than with respect to such adjustments and disclosures, and, accordingly, we do
not express any opinion or any other form of assurance on the 2001 and 2000
financial statements taken as a whole.
KPMG LLP
Philadelphia, Pennsylvania
28 October 2002
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Air Products and Chemicals, Inc.:
We consent to the incorporation by reference in the Registration
Statements (File Nos. 33-2068, 33-65117, 333-21145, 333-45239, 333-71405,
333-18955, 333-73105, 333-54224, 333-81358, 333-56292, 333-21147, 333-60147,
333-95317, 333-31578, and 333-99497) on Form S-8 and in the Registration
Statements (333-02461 and 333-33851) on Form S-3 of Air Products and Chemicals,
Inc. and subsidiaries of our reports dated 28 October 2002, with respect to the
related consolidated balance sheet of Air Products and Chemicals, Inc. as of
30 September 2002 and the related consolidated statements of income, cash flows
and shareholders' equity for the year then ended, and the related financial
statement schedule, which reports appear in the 30 September 2002 annual report
on Form 10-K of Air Products and Chemicals, Inc.
Our report contains an explanatory paragraph relating to the fact that
the financial statements of Air Products and Chemicals, Inc. and subsidiaries as
of 30 September 2001 and for each of the years in the two-year period then ended
were audited by other auditors who have ceased operations. As described in
Note 1 to the financial statements, those financial statements have been
revised. We audited the adjustments described in Note 1 that were applied to
revise the 2001 and 2000 financial statements. In addition, as described in
Note 10, the financial statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", which was adopted as of 1 October 2001.
However, we were not engaged to audit, review, or apply any procedures to the
2001 and 2000 financial statements of Air Products and Chemicals, Inc. and
subsidiaries other than with respect to such adjustments and disclosures, and,
accordingly, we do not express any opinion or any other form of assurance on the
2001 and 2000 financial statements taken as a whole.
KPMG LLP
Philadelphia, Pennsylvania
13 December 2002
22
The following report is a copy of a previously issued Arthur Andersen LLP
("Andersen") report, and the report has not been reissued by Andersen. The
report of Andersen is included in this annual report on Form 10-K pursuant to
Rule 2-02(e) of Regulation S-X. After reasonable efforts the Company has not
been able to obtain a reissued report from Andersen. Andersen has not consented
to the inclusion of its report in this annual report on Form 10-K. Because
Andersen has not consented to the inclusion of its report in the annual report,
it may be difficult for shareholders to seek remedies against Andersen and
shareholders' ability to seek relief against Andersen may be impaired. See
Exhibit 23.1 for further discussion.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To: Air Products and Chemicals, Inc.
We have audited, in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements included in
Air Products and Chemicals, Inc.'s Annual Report to Shareholders, incorporated
by reference in this Form 10-K, and have issued our report thereon dated 26
October 2001. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule referred to in Item 14(a)(2) in this
Form 10-K is the responsibility of the Company's management and is presented for
the purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
26 October 2001
23
SCHEDULE VIII
CONSOLIDATED
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended 30 September 2002, 2001, and 2000
Other Changes
Additions Increase(Decrease)
--------------------------------------------------------
Balance at Charged Charged Cumulative Balance
Beginning to to other Translation at End of
Classification of period Expense Accounts(1) Adjustment Other(2) Period
- -----------------------------------------------------------------------------------------------------------------------------
(in millions of dollars)
Year Ended 30 September 2002
Allowance for doubtful accounts $ 10 $ 14 $ 1 $ 0 $ (13) $ 12
Year Ended 30 September 2001
Allowance for doubtful accounts $ 13 $ 10 $ 0 $ 0 $ (13) $ 10
Year Ended 30 September 2000
Allowance for doubtful accounts $ 12 $ 8 $ 2 $(1) $ (8) $ 13
Notes:
[1] Includes primarily collections on accounts previously written off.
[2] Primarily includes write-offs of uncollectible accounts.
24