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:
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 criteria established in Internal
ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that, as of 30 September 2016, 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 2016 as stated in their report which appears herein.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except for share data)
1. MAJOR ACCOUNTING POLICIES
Basis of Presentation and Consolidation Principles
The accompanying
consolidated financial statements of Air Products and Chemicals, Inc. were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of Air Products and
Chemicals, Inc. and those of its controlled subsidiaries (we, our, us, the Company, Air Products, or registrant), which are generally majority owned. Intercompany transactions
and balances are eliminated in consolidation.
We consolidate all entities that we control. The general condition for control is ownership of a majority of the
voting interests of an entity. Control may also exist in arrangements where we are the primary beneficiary of a variable interest entity (VIE). An entity that has both the power to direct the activities that most significantly impact the economic
performance of a VIE and the obligation to absorb the losses or receive the benefits significant to the VIE is considered the primary beneficiary of that entity. We have determined that we are not a primary beneficiary in any material VIE.
Certain prior year information has been reclassified to conform to the 2016 presentation.
Estimates and Assumptions
The preparation of the financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized as risk and
title to the product transfer to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. Sales returns and allowances are not a business practice in the
industry.
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Revenue from equipment sale contracts is recorded primarily using the percentage-of-completion method. Under this method,
revenue from the sale of major equipment, such as liquefied natural gas (LNG) heat exchangers and large air separation units, is recognized based on labor hours or costs incurred to date compared with total estimated labor hours or costs to be
incurred. When adjustments in estimated total contract revenues or estimated total costs or labor hours are required, any changes in the estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of
such change. Changes in estimates on projects accounted for under the
percentage-of-completion
method favorably impacted operating income by approximately $20 in fiscal
year 2016, primarily during the fourth quarter. Our changes in estimates would not have significantly impacted amounts recorded in prior years. Changes in estimates during fiscal years 2015 and 2014 were not significant.
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. Allowances for credit losses associated with capital lease
receivables are recorded using the specific identification method. As of 30 September 2016 and 2015, the credit quality of capital lease receivables did not require an allowance for credit losses.
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.
Revenues are allocated to each deliverable based upon relative selling prices derived from company specific evidence.
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. We record a liability until remitted to the respective taxing authority.
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 Note 9, Plant and Equipment, net.
Selling and Administrative
The principal components of selling and
administrative expenses are compensation, advertising, and promotional costs.
Postemployment Benefits
We provide termination benefits to employees as part of ongoing benefit arrangements and record a liability 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. We do not provide one-time benefit arrangements of significance.
Fair Value Measurements
We are required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. For example, fair
value is used in the initial measurement of net assets acquired in a business combination; on a recurring basis in the measurement of derivative financial instruments; and on a nonrecurring basis when long-lived assets are written down to fair value
when held for sale or determined to be impaired. Refer to Note 14, Fair Value Measurements, for information on the methods and assumptions used in our fair value measurements.
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Financial Instruments
We
address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The types of derivative financial instruments permitted for such risk management programs are specified in
policies set by management. Refer to Note 13, Financial Instruments, for further detail on the types and use of derivative instruments into which we enter.
Major
financial institutions are counterparties to all of these derivative contracts. We have established counterparty credit guidelines and generally enter 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.
We recognize derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, we generally designate 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 (fair value hedge).
The following details the accounting treatment of our cash flow, fair
value, net investment, and non-designated hedges:
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Changes in the fair value of a derivative that is designated as and meets the cash flow hedge criteria are recorded in Accumulated other comprehensive loss (AOCL) to the extent effective and then recognized in earnings
when the hedged items affect earnings.
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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.
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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 AOCL.
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Changes in the fair value of a derivative that is not designated as a hedge are recorded immediately in earnings.
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We
formally document the relationships between hedging instruments and hedged items, as well as our 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. We also formally assess, at the inception of the hedge and on an ongoing basis, whether derivatives
are 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, we will discontinue hedge
accounting with respect to that derivative prospectively.
Foreign Currency
Since we do business in many foreign countries, fluctuations in currency exchange rates affect our financial position and results of operations.
In most of our foreign operations, the local currency is considered the functional currency. Foreign subsidiaries translate their assets and liabilities into U.S.
dollars at current exchange rates in effect at the end of the fiscal period. The gains or losses that result from this process are shown as translation adjustments in AOCI in the 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 prevail 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 other income (expense), net on our consolidated income statements 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
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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. We
expense environmental costs related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible. The amounts charged to income from continuing operations related to environmental
matters totaled $27.0 in fiscal 2016, $28.3 in 2015, and $35.1 in 2014.
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 we have 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, and the liability is adjusted to reflect additional technical and legal information that becomes available. Management has an 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.
Given inherent uncertainties in evaluating environmental exposures, actual costs to be incurred at identified sites in future periods
may vary from the estimates. Refer to Note 17, Commitments and Contingencies, 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.
Litigation
In the normal course of business, we are involved in legal proceedings. We accrue 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. Refer to Note 17, Commitments and Contingencies, for additional
information on our current legal proceedings.
Share-Based Compensation
We have various share-based compensation programs, which include deferred stock units, stock options, and restricted stock. We expense the grant-date fair value of these
awards 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. We utilize a Black
Scholes model to value stock option awards. The grant-date fair value of the deferred stock units tied to a market condition is estimated using a Monte Carlo simulation model.
Income Taxes
We account for income taxes under the asset and 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 in effect for the year in
which the differences are expected to be recovered or settled. 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. We recognize deferred tax assets net of existing valuation allowance to the extent
we believe that these assets are more likely than not to be realized considering all available evidence.
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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. For additional information regarding our income taxes, refer to Note 23, Income Taxes.
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.
Trade Receivables, net
Trade receivables comprise amounts owed to us through
our operating activities and are presented net of 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 allowance also includes 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. Allowance for doubtful accounts were $56.8 and $48.5 as of fiscal year end 30 September
2016 and 2015, respectively. Provisions to the allowance for doubtful accounts charged against income were $22.8, $26.3 and $16.4 in 2016, 2015, and 2014, respectively.
Inventories
Inventories are stated at the lower of cost or market. We write
down our inventories for estimated obsolescence or unmarketable inventory based upon assumptions about future demand and market conditions.
We utilize the last-in,
first-out (LIFO) method for determining the cost of inventories in the United States for the Industrial Gases and the Materials Technologies segments. 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 Industrial Gases Global and the Corporate and other segments 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 we exercise significant influence but do not have operating control, generally assumed to be 20% 50%
ownership. Under the equity method, original investments are recorded at cost and adjusted by our 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. Refer to Note 9, Plant and Equipment, net, for further detail.
Computer Software
We capitalize 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 our requirements, payroll and related costs
for employees directly
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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, net and
depreciated over the estimated useful life of the software, generally a period of three to ten years.
Capitalized Interest
As we build new plant and equipment, we include in the cost of these assets a portion of the interest payments we make during the year. The amount of capitalized
interest was $32.9, $49.1, and $33.0 in 2016, 2015, and 2014, respectively.
Impairment of Long-Lived Assets
Long-lived assets are grouped for impairment testing at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of
other assets and liabilities and are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We assess recoverability by comparing the carrying amount of the
asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset groups carrying
amount exceeds its fair value. Long-lived assets to be sold are reported at the lower of carrying amount or fair value less cost to sell.
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 fair value of the
liability is measured using discounted estimated cash flows 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. Our asset retirement obligations are primarily associated with Industrial Gases on-site long-term supply contracts, under which we have built a facility on land owned by the
customer and are obligated to remove the facility at the end of the contract term. Our asset retirement obligations totaled $119.9 and $109.4 at 30 September 2016 and 2015, respectively.
Goodwill
Business combinations are accounted for using the acquisition
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. Refer to Note 10, Goodwill, for further detail.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships, purchased patents and technology, and land use rights. 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. Indefinite-lived intangible assets consist of trade names and trademarks.
Indefinite-lived intangibles are subject to impairment testing at least annually. In addition, intangible assets are tested more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists.
Customer relationships are generally amortized over periods of five to twenty-five years. Purchased patents and technology and other are generally amortized over periods
of five to twenty years. Land use rights, which are included in other intangibles, are generally amortized over a period of fifty years. Amortizable lives are adjusted whenever there is a change in the estimated period of economic benefit. Refer to
Note 11, Intangible Assets, for further detail.
Retirement Benefits
The
cost of pension benefits is recognized over the employees service period. We are 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 16, Retirement Benefits, for disclosures
related to our pension and other postretirement benefits.
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2. NEW ACCOUNTING GUIDANCE
Accounting Guidance Implemented in 2016
Balance Sheet
Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board (FASB) issued guidance to simplify the presentation of deferred
income taxes by requiring that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. As of the first quarter of fiscal year 2016, we adopted this guidance on a retrospective basis. Accordingly, prior year amounts
have been reclassified to conform to the current year presentation. The guidance, which did not change the existing requirement to net deferred tax assets and liabilities within a jurisdiction, resulted in a reclassification adjustment that
increased noncurrent deferred tax assets by $13.7 and decreased noncurrent deferred tax liabilities by $99.9 as of 30 September 2015.
Discontinued
Operations
In April 2014, the FASB issued an update to change the criteria for determining which disposals qualify as a discontinued operation and to expand
related disclosure requirements. Under the new guidance, a disposal is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on operations and financial results. We
adopted this guidance prospectively for new disposals and new disposal groups classified as held for sale beginning in the first quarter of fiscal year 2016. This guidance had no impact on our consolidated financial statements upon adoption. As a
result of actions taken during the second quarter of 2016, our Energy-from-Waste segment has been reported as a discontinued operation. Refer to Note 4, Discontinued Operations, for additional information.
New Accounting Guidance to be Implemented
Revenue Recognition
In May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to
be entitled in exchange for the transfer of goods or services. As originally issued, this guidance was effective for us beginning in fiscal year 2018. In August 2015, the FASB deferred the effective date by one year while providing the option to
early adopt the standard on the original effective date. Accordingly, we will have the option to adopt the standard in either fiscal year 2018 or 2019. The guidance can be adopted either retrospectively or as a cumulative-effect adjustment as of the
date of adoption.
We are in the initial stages of evaluating the adoption alternatives allowed by the new standard and the impact the standard is expected to have
on our consolidated financial statements. As the new standard will supersede substantially all existing revenue guidance affecting us under U.S. GAAP, it could impact the timing of revenue and cost recognition across all of our business segments, in
addition to our business processes and our information technology systems. As a result, our evaluation of the effect of the new standard will extend over future periods.
Consolidation Analysis
In February 2015, the FASB issued an update to amend
current consolidation guidance. The guidance impacts the analysis an entity must perform in determining if it should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. The
guidance is effective beginning fiscal year 2017, with early adoption permitted. The guidance may be applied retrospectively or using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the
fiscal year of adoption. This guidance will not have a significant impact on our consolidated financial statements.
Debt Issuance Costs
In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of the debt instead of as a separate deferred asset. In August 2015, the FASB issued an update to incorporate the U.S. Securities and Exchange Commission (SEC) Staff guidance which allows debt issuance costs associated with
a line-of-credit arrangement to be presented as a deferred asset that is subsequently amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. This change in accounting principle will be adopted
retrospectively beginning in fiscal year 2017. This guidance will not have a significant impact on our consolidated financial statements.
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Leases
In February 2016, the
FASB issued guidance which requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and
qualitative disclosure requirements. The guidance is effective in fiscal year 2020, with early adoption permitted, and must be applied using a modified retrospective approach. We are currently evaluating the impact of adopting this new guidance on
the consolidated financial statements, and we have started the assessment process by evaluating the population of leases under the revised definition of what qualifies as a leased asset. The Company is the lessee under various agreements for real
estate, distribution equipment, aircraft, and vehicles that are currently accounted for as operating leases as discussed in Note 12, Leases. The new guidance requires the lessee to record operating leases on the balance sheet with a right-of-use
asset and corresponding liability for future payment obligations.
Share-Based Compensation
In March 2016, the FASB issued an update to simplify the accounting for employee share-based payments, including the income tax impacts, the classification on the
statement of cash flows, and forfeitures. The amendments are effective for fiscal year 2018, with early adoption permitted. We continue to evaluate the impact of this guidance on our consolidated financial statements and the timing of adoption. Upon
adoption, we currently anticipate a greater degree of volatility in the income tax provision and effective income tax rate as a result of the new guidance, which requires excess tax benefits and deficiencies to be recognized in the income statement
rather than in additional paid-in capital on the balance sheet.
Derivative Contract Novations
In March 2016, the FASB issued guidance to clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does
not, in and of itself, require re-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance is effective in fiscal year 2018, with early adoption permitted. We do not expect adoption
of this guidance to have a significant impact on our consolidated financial statements.
Credit Losses on Financial Instruments
In June 2016, the FASB issued an update on the measurement of credit losses, which requires measurement and recognition of expected credit losses for financial assets,
including trade receivables and capital lease receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The method to determine a loss is different from the existing
guidance, which requires a credit loss to be recognized when it is probable. The guidance is effective beginning fiscal year 2021, with early adoption permitted beginning fiscal year 2020. We are currently evaluating the impact this update will have
on our consolidated financial statements.
Cash Flow Statement Classification
In August 2016, the FASB issued guidance to reduce diversity in practice on how certain cash receipts and cash payments are classified in the statement of cash
flows. The guidance is effective beginning fiscal year 2019, with early adoption permitted, and should be applied retrospectively. We are currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
3. MATERIALS TECHNOLOGIES SEPARATION
On 16 September 2015, the Company announced plans to separate its Materials Technologies business, which contains two divisions, Electronic Materials (EMD) and
Performance Materials (PMD), into an independent publicly traded company and distribute to Air Products shareholders all of the shares of the new public company in a tax-free distribution (a spin-off). Versum Materials, Inc., or Versum,
was formed as the new company to hold the Materials Technologies business subject to spin-off. On 6 May 2016, the Company entered into an agreement to sell certain subsidiaries and assets comprising the PMD division to Evonik Industries AG for
$3.8 billion in cash and the assumption of certain liabilities. As a result, the Company moved forward with the planned spin-off of Versum containing only the EMD division.
As further discussed below, Air Products completed the separation of its EMD division through the spin-off of Versum on 1 October 2016. As a result, the historical
results of the EMD division will be presented as a
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discontinued operation beginning in fiscal year 2017. The historical results of the PMD division will be reflected as a discontinued operation when it becomes probable for the sale to occur and
actions required to meet the plan of sale indicate that it is unlikely that significant changes will occur. The PMD division is not classified as held for sale due to certain conditions of the sale, including regulatory and anti-trust requirements.
We continue to evaluate the progress of the sale of the PMD division to determine when it should be presented as a discontinued operation.
In fiscal year 2016, we
incurred separation costs of $52.2 ($48.3 after-tax, or $.22 per share), primarily related to legal, advisory, and indirect tax costs associated with these transactions. The costs are reflected on the consolidated income statements as Business
separation costs. A significant portion of these costs were not tax deductible because they were directly related to the plan for the
tax-free
spin-off
of Versum.
Our income tax provision includes additional tax expense related to the separation of $51.8 ($.24 per share), of which $45.7 resulted from a dividend declared during the third quarter of 2016 to repatriate $443.8 from a subsidiary in South Korea to
the U.S. due to the intended separation of the EMD division from the industrial gases business in South Korea. Previously, most of these foreign earnings were considered to be indefinitely reinvested.
On 30 September 2016, in anticipation of the spin-off, Versum entered into certain financing transactions to allow for a cash distribution of $550.0 and a distribution
in-kind of notes issued by Versum with an aggregate principal amount of $425.0 to Air Products. Air Products then exchanged these notes with certain financial institutions for $418.3 of Air Products outstanding commercial paper. The exchange
resulted in a loss of $6.9 ($4.3 after-tax, or $.02 per share) and has been reflected on the consolidated income statements as Loss on extinguishment of debt. This loss is deductible for tax purposes. This
non-cash
exchange was excluded from the consolidated statements of cash flows. Refer to Note 15, Debt, for additional information on the Versum financing.
Subsequent Event
On 1 October 2016 (the distribution date), Air Products
completed the spin-off of Versum into a separate and independent public company by way of a distribution to the Air Products stockholders of all of the then issued and outstanding shares of common stock of Versum on the basis of one share of
Versum common stock for every two shares of Air Products common stock held as of the close of business on 21 September 2016 (the record date for the distribution). Fractional shares of Versum common stock were not distributed to Air
Products common stockholders. Air Products stockholders received cash in lieu of fractional shares. As a result of the distribution, Versum Materials, Inc. is now an independent public company and its common stock is listed under the symbol
VSM on the New York Stock Exchange.
4. DISCONTINUED OPERATIONS
Energy-from-Waste (EfW)
On 29 March 2016, the Board of Directors
approved the Companys exit of its EfW business. As a result, efforts to start up and operate the two EfW projects located in Tees Valley, United Kingdom, have been discontinued. The decision to exit the business and stop development of the
projects was based on continued difficulties encountered and the Companys conclusion, based on testing and analysis completed during the second quarter of fiscal year 2016, that significant additional time and resources would be required to
make the projects operational. The EfW segment is presented as a discontinued operation. Prior year EfW business segment information has been reclassified to conform to current year presentation.
During the second quarter of fiscal year 2016, we recorded a loss of $945.7 ($846.6 after-tax) for the disposal of the business. Income tax benefits related only to one
of the projects, as the other did not qualify for a local tax deduction. This loss included $913.5 to write down plant assets, previously recorded as construction in progress, to their estimated net realizable value of $20.0 and $32.2 to record a
liability for plant disposition and other costs. We estimated the net realizable value of the projects as of 31 March 2016 assuming an orderly liquidation of assets capable of being marketed on a secondary equipment market based on market
quotes and our experience with selling similar equipment. An assets orderly liquidation value is the amount that could be realized from a liquidation sale, given a reasonable period of time to find a buyer, selling the asset in the existing
condition where it is located, and assuming the highest and best use of the asset by market participants. There have been no significant changes in the estimated net realizable value as of 30 September 2016. A valuation allowance of $58.0 and
unrecognized tax benefits of $7.9 were recorded relating to deferred tax assets on capital assets generated from the loss.
73
The following table summarizes the carrying amount of the accrual for our actions to dispose of the EfW business at
30 September 2016, which is included in current liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Impairment
|
|
|
Contract
Actions/Other
|
|
|
Total
|
|
Loss on disposal of business
|
|
|
$913.5
|
|
|
|
$32.2
|
|
|
|
$945.7
|
|
Noncash expenses
|
|
|
(913.5
|
)
|
|
|
|
|
|
|
(913.5)
|
|
Cash expenditures
|
|
|
|
|
|
|
(18.6
|
)
|
|
|
(18.6)
|
|
Currency translation adjustment
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(1.4)
|
|
30 September 2016
|
|
|
$
|
|
|
|
$12.2
|
|
|
|
$12.2
|
|
The results of EfW discontinued operations are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Loss before taxes
|
|
|
$(41.0
|
)
|
|
$
|
(9.2
|
)
|
|
$
|
(10.9)
|
|
Income tax provision
|
|
|
3.4
|
|
|
|
2.4
|
|
|
|
3.4
|
|
Loss from operations of discontinued operations
|
|
|
(37.6
|
)
|
|
|
(6.8
|
)
|
|
|
(7.5)
|
|
Loss on disposal, net of tax
|
|
|
(846.6
|
)
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operations, net of tax
|
|
$
|
(884.2
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
(7.5)
|
|
The loss from operations of EfW discontinued operations primarily relates to land lease costs, commercial and administrative costs, and
cost incurred for ongoing project exit activities.
Assets and liabilities of the EfW discontinued operations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
30 September
2016
|
|
|
30 September
2015
|
|
Plant and equipment
|
|
|
$18.2
|
|
|
|
$
|
|
Other current assets
|
|
|
1.2
|
|
|
|
1.8
|
|
Total Current Assets
|
|
|
$19.4
|
|
|
|
$1.8
|
|
|
|
|
Plant and equipment
|
|
|
$
|
|
|
|
$891.8
|
|
Total Noncurrent Assets
|
|
|
$
|
|
|
|
$891.8
|
|
|
|
|
Payables and accrued liabilities
|
|
|
$19.0
|
|
|
|
$17.0
|
|
Total Current Liabilities
|
|
|
$19.0
|
|
|
|
$17.0
|
|
|
|
|
Other noncurrent liabilities
|
|
|
$
|
|
|
|
$2.5
|
|
Total Noncurrent Liabilities
|
|
|
$
|
|
|
|
$2.5
|
|
Homecare
In 2012, the Board of
Directors authorized the sale of our Homecare business. We sold the majority of our Homecare business to The Linde Group in 2012. In 2014, a gain of $3.9 was recognized for the sale of the remaining Homecare business, which was primarily in the
United Kingdom and Ireland, and the settlement of contingencies related to the 2012 sale to The Linde Group.
The results of the Homecare discontinued operations are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Sales
|
|
|
$
|
|
|
|
$
|
|
|
|
$8.5
|
|
|
|
|
|
Income before taxes
|
|
|
$
|
|
|
|
$
|
|
|
|
$.7
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
.7
|
|
Gain on sale of business, net of tax
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
Income (Loss) from Discontinued Operations, net of
tax
|
|
|
$
|
|
|
|
$
|
|
|
|
$4.6
|
|
74
As of 30 September 2016 and 2015, there were no assets or liabilities classified as discontinued operations relating
to the Homecare business.
5. BUSINESS RESTRUCTURING AND COST REDUCTION ACTIONS
The charges we record for business restructuring and cost reduction actions have been excluded from segment operating income.
Cost Reduction Actions
In fiscal year 2016, we recognized an expense of $33.9
($24.0 after-tax, or $.11 per share) for severance and other benefits related to cost reduction actions which resulted in the elimination of approximately 700 positions. The expenses related primarily to the Industrial
Gases Americas and the Industrial Gases EMEA segments.
The following table summarizes the carrying amount of the accrual for cost
reduction actions at 30 September 2016:
|
|
|
|
|
|
|
Severance and
Other Benefits
|
|
2016 Charge
|
|
|
$33.9
|
|
Amount reflected in pension liability
|
|
|
(.9)
|
|
Cash expenditures
|
|
|
(20.4)
|
|
Currency translation adjustment
|
|
|
.3
|
|
30 September 2016
|
|
|
$12.9
|
|
Business Realignment and Reorganization
On
18 September 2014, we announced plans to reorganize the Company, including realignment of our businesses in new reporting segments and other organizational changes, effective as of 1 October 2014. As a result of this reorganization, we
incurred severance and other charges.
In fiscal year 2015, we recognized an expense of $207.7 ($153.2 after-tax, or $.71 per share). Severance and other benefits
totaled $151.9 and related to the elimination of approximately 2,000 positions. Asset and associated contract actions totaled $55.8 and related primarily to a plant shutdown in the Corporate and other segment and the exit of product lines within the
Industrial Gases Global and Materials Technologies segments. The 2015 charges related to the segments as follows: $31.7 in Industrial Gases Americas, $52.2 in Industrial Gases EMEA, $10.3 in
Industrial Gases Asia, $37.0 in Industrial Gases Global, $27.6 in Materials Technologies, and $48.9 in Corporate and other.
During
the fourth quarter of 2014, an expense of $12.7 ($8.2 after-tax, or $.04 per share) was incurred relating to the elimination of approximately 50 positions. The 2014 charge related to the segments as follows: $2.9 in Industrial
Gases Americas, $3.1 in Industrial Gases EMEA, $1.5 in Industrial Gases Asia, $1.5 in Industrial Gases Global, $1.6 in Materials Technologies, and $2.1 in Corporate and other.
75
The following table summarizes the carrying amount of the accrual for the business realignment and reorganization at
30 September 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
Other Benefits
|
|
|
Asset
Actions/Other
|
|
|
Total
|
|
2014 Charge
|
|
|
$12.7
|
|
|
|
$
|
|
|
|
$12.7
|
|
Cash expenditures
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
(2.2
|
)
|
30 September 2014
|
|
|
$10.5
|
|
|
|
$
|
|
|
|
$10.5
|
|
2015 Charge
|
|
|
151.9
|
|
|
|
55.8
|
|
|
|
207.7
|
|
Amount reflected in pension liability
|
|
|
(14.0
|
)
|
|
|
|
|
|
|
(14.0
|
)
|
Noncash expenses
|
|
|
|
|
|
|
(47.4
|
)
|
|
|
(47.4
|
)
|
Cash expenditures
|
|
|
(113.5
|
)
|
|
|
(1.2
|
)
|
|
|
(114.7
|
)
|
Currency translation adjustment
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(.4
|
)
|
30 September 2015
|
|
|
$34.5
|
|
|
|
$7.2
|
|
|
|
$41.7
|
|
Cash expenditures
|
|
|
(34.1
|
)
|
|
|
(3.8
|
)
|
|
|
(37.9
|
)
|
Currency translation adjustment
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(.4
|
)
|
30 September 2016
|
|
|
$
|
|
|
|
$3.4
|
|
|
|
$3.4
|
|
6. BUSINESS COMBINATION
On 30 December 2014, we acquired our partners equity ownership interest in a liquefied atmospheric industrial gases production joint venture in North America
for $22.6, which increased our ownership from 50% to 100%. The transaction was accounted for as a business combination, and subsequent to the acquisition, the results are consolidated within our Industrial Gases Americas segment.
The assets acquired, primarily plant and equipment, were recorded at their fair market values as of the acquisition date.
The acquisition date fair value of the
previously held equity interest was determined using a discounted cash flow analysis under the income approach. The twelve months ended 30 September 2015 include a gain of $17.9 ($11.2 after-tax, or $.05 per share) as a result of revaluing our
previously held equity interest to fair value as of the acquisition date. This gain is reflected on the consolidated income statements as Gain on previously held equity interest.
7. INVENTORIES
The components of
inventories are as follows:
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
Inventories at FIFO cost
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
$456.7
|
|
|
|
$494.9
|
|
Work in process
|
|
|
38.2
|
|
|
|
34.4
|
|
Raw materials, supplies and other
|
|
|
204.0
|
|
|
|
229.3
|
|
|
|
|
698.9
|
|
|
|
758.6
|
|
Less: Excess of FIFO cost over LIFO cost
|
|
|
(79.0
|
)
|
|
|
(100.8
|
)
|
Inventories
|
|
|
$619.9
|
|
|
|
$657.8
|
|
Inventories valued using the LIFO method comprised 34.9% and 35.8% of consolidated inventories before LIFO adjustment at
30 September 2016 and 2015, respectively. Liquidation of LIFO inventory layers in 2016, 2015, and 2014 did not materially affect the results of operations.
FIFO cost approximates replacement cost.
76
8. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The summarized financial information below is on a combined 100% basis and has been compiled based on financial statements of the companies accounted for by the equity
method. The amounts presented include the accounts of the following equity affiliates:
|
|
|
Abdullah Hashim Industrial Gases & Equipment Co., Ltd. (25%);
|
|
INOX Air Products Limited (50%);
|
Air Products South Africa (Proprietary) Limited (50%);
|
|
Jazan Gas Projects Company (25%);
|
Bangkok Cogeneration Company Limited (49%);
|
|
Kulim Industrial Gases Sdn. Bhd. (50%);
|
Bangkok Industrial Gases Co., Ltd. (49%);
|
|
Sapio Produzione Idrogeno Ossigeno S.r.l. (49%);
|
Chengdu Air & Gas Products Ltd. (50%);
|
|
Tecnologia en Nitrogeno S. de R.L. de C.V. (50%);
|
Helap S.A. (50%);
|
|
Tyczka Industrie-Gases GmbH (50%);
|
High-Tech Gases (Beijing) Co., Ltd. (50%);
|
|
WuXi Hi-Tech Gas Co., Ltd. (50%);
|
INFRA Group (40%);
|
|
and principally, other industrial gas producers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
|
|
|
2016
|
|
|
2015
|
|
Current assets
|
|
|
|
|
|
|
$1,449.8
|
|
|
|
$1,296.4
|
|
Noncurrent assets
|
|
|
|
|
|
|
3,063.9
|
|
|
|
2,607.4
|
|
Current liabilities
|
|
|
|
|
|
|
699.2
|
|
|
|
654.0
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
1,540.6
|
|
|
|
988.0
|
|
|
|
|
|
Year Ended 30 September
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net sales
|
|
|
$2,308.5
|
|
|
|
$2,604.3
|
|
|
|
$2,808.7
|
|
Sales less cost of sales
|
|
|
882.6
|
|
|
|
949.2
|
|
|
|
984.7
|
|
Operating income
|
|
|
487.8
|
|
|
|
524.0
|
|
|
|
542.9
|
|
Net income
|
|
|
338.0
|
|
|
|
351.0
|
|
|
|
359.5
|
|
On 19 April 2015, a joint venture between Air Products and ACWA Holding entered into a 20-year oxygen and nitrogen supply agreement
to supply Saudi Aramcos oil refinery and power plant being built in Jazan, Saudi Arabia. Air Products owns 25% of the joint venture and guarantees the repayment of its share of an equity bridge loan. ACWA also guarantees their share of the
loan. As of 30 September 2016 and 2015, other noncurrent liabilities included $94.4 and $67.5, respectively, for our obligation to make future equity contributions based on our proportionate share of the advances received by the joint venture
under the loan. During 2016 and 2015, we recorded noncash transactions which resulted in an increase of $26.9 and $67.5, respectively, to our investment in net assets of and advances to equity affiliates. These noncash transactions have been
excluded from the consolidated statements of cash flows. In total, we expect to invest approximately $100 in this joint venture. We determined that the joint venture is a variable interest entity, for which we are not the primary beneficiary. Air
Products has a long-term sale of equipment contract with the joint venture to engineer, procure, and construct the industrial gas facilities that will supply the gases to Saudi Aramco.
In December 2015, we sold our investment in Daido Air Products Electronics, Inc. for $15.9, which resulted in a gain of $.7. The carrying value at time of sale included
a $12.8 investment in net assets of and advances to equity affiliates and a $2.4 foreign currency translation loss that had been deferred in accumulated other comprehensive loss.
In January 2016, we sold our investment in SembCorp Air Products (HyCo) Pte. Ltd. The transaction did not have a material impact on the financial statements.
There have been no other significant changes to our investments in equity affiliates during fiscal year 2016.
Dividends received from equity affiliates were $96.8, $51.9, and $75.4 in 2016, 2015, and 2014, respectively.
The investment in net assets of and advances to equity affiliates as of 30 September 2016 and 2015 included investment in foreign affiliates of $1,286.0 and
$1,262.8, respectively.
As of 30 September 2016 and 2015, the amount of investment in companies accounted for by the equity method included goodwill in
the amount of $109.5 and $112.0, respectively.
77
9. PLANT AND EQUIPMENT, NET
The major classes of plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
Useful Life
in years
|
|
2016
|
|
|
2015
|
|
Land
|
|
|
|
|
$232.9
|
|
|
|
$226.2
|
|
Buildings
|
|
30
|
|
|
1,119.8
|
|
|
|
1,080.2
|
|
Production facilities
|
|
|
|
|
|
|
|
|
|
|
Industrial Gases Regional
(A)
|
|
10 to 20
|
|
|
12,372.1
|
|
|
|
11,873.8
|
|
Materials Technologies
|
|
10 to 15
|
|
|
859.2
|
|
|
|
902.7
|
|
Other
|
|
5 to 20
|
|
|
36.0
|
|
|
|
43.0
|
|
Total production facilities
|
|
|
|
|
13,267.3
|
|
|
|
12,819.5
|
|
Distribution and other machinery and
equipment
(B)
|
|
5 to 25
|
|
|
4,042.1
|
|
|
|
3,963.1
|
|
Construction in progress
|
|
|
|
|
1,528.0
|
|
|
|
1,373.8
|
|
Plant and equipment, at cost
|
|
|
|
|
20,190.1
|
|
|
|
19,462.8
|
|
Less: accumulated depreciation
|
|
|
|
|
11,337.4
|
|
|
|
10,717.7
|
|
Plant and equipment, net
|
|
|
|
|
$8,852.7
|
|
|
|
$8,745.1
|
|
(A)
|
Depreciable lives of production facilities related to long-term customer supply contracts 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; and 5 to 15
years for tractors and trailers.
|
Depreciation expense was $893.0, $900.4, and $914.8 in 2016, 2015, and 2014, respectively.
10. GOODWILL
Changes to the carrying
amount of consolidated goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Gases
Americas
|
|
|
Industrial
Gases
EMEA
|
|
|
Industrial
Gases
Asia
|
|
|
Industrial
Gases
Global
|
|
|
Materials
Technologies
|
|
|
Total
|
|
Goodwill, net at 30 September 2014
|
|
|
$327.2
|
|
|
|
$433.3
|
|
|
|
$140.0
|
|
|
|
$21.4
|
|
|
|
$315.4
|
|
|
|
$1,237.3
|
|
Acquisitions and adjustments
|
|
|
2.2
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
Currency translation and other
|
|
|
(31.8
|
)
|
|
|
(50.0
|
)
|
|
|
(6.9
|
)
|
|
|
(1.5
|
)
|
|
|
(21.2
|
)
|
|
|
(111.4
|
)
|
Goodwill, net at 30 September 2015
|
|
|
$297.6
|
|
|
|
$386.5
|
|
|
|
$133.1
|
|
|
|
$19.9
|
|
|
|
$294.2
|
|
|
|
$1,131.3
|
|
Currency translation and other
|
|
|
11.5
|
|
|
|
(5.9
|
)
|
|
|
2.1
|
|
|
|
.3
|
|
|
|
10.9
|
|
|
|
18.9
|
|
Goodwill, net at 30 September 2016
|
|
|
$309.1
|
|
|
|
$380.6
|
|
|
|
$135.2
|
|
|
|
$20.2
|
|
|
|
$305.1
|
|
|
|
$1,150.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Goodwill, gross
|
|
|
$1,408.8
|
|
|
|
$1,375.0
|
|
|
|
$1,522.1
|
|
Accumulated impairment losses
(A)
|
|
|
(258.6
|
)
|
|
|
(243.7
|
)
|
|
|
(284.8
|
)
|
Goodwill, net
|
|
|
$1,150.2
|
|
|
|
$1,131.3
|
|
|
|
$1,237.3
|
|
(A)
|
Amount is attributable to the Industrial Gases Americas segment and includes currency translation of $46.6, $61.5, and $20.4 as of 30 September 2016, 2015, and 2014, respectively.
|
We conduct goodwill impairment testing in the fourth quarter of each fiscal year and whenever events and changes in circumstances indicate that the
carrying value of goodwill might not be recoverable. Our goodwill impairment test involves a two-step process. In the first step, we estimate the fair value of each reporting unit and compare it to its carrying value. If the fair value of the
reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than its carrying value, we perform a second step to determine the amount of goodwill impairment
loss, if any. In the second step, the reporting units fair value is allocated to the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in an analysis that calculates the implied fair value of goodwill
in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of the reporting units goodwill is less than its carrying value, the difference is recorded as a goodwill impairment charge.
78
In the fourth quarter of 2014, we determined that the fair value of each reporting unit exceeded its carrying value, with
the exception of the Latin America reporting unit within the Industrial Gases Americas segment. The Latin America reporting unit is composed predominately of our Indura business with assets and goodwill associated with operations in
Chile and other Latin American countries. In 2014, economic conditions in Latin America, including the impact of tax legislation in Chile, became less favorable due to increasing inflation, a decline in Chilean manufacturing growth, and weaker
export demand for many commodities. As a result, our growth projections for this reporting unit were lowered and we determined that the associated goodwill was impaired. A noncash goodwill impairment charge of $305.2 was recorded to write down
goodwill to its implied fair value as of 1 July 2014. This impairment is reflected on our consolidated income statements within Goodwill and intangible assets impairment charge. As of 30 September 2016, accumulated impairment
losses were $258.6, due to the currency impacts since the loss was recorded on 1 July 2014.
During the fourth quarter of 2016, we conducted our annual goodwill
impairment test. We determined that the fair value of all our reporting units exceeded their carrying value. There were no indications of impairment.
11. INTANGIBLE ASSETS
The table below provides details of acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
Gross
|
|
|
Accumulated
Amortization/
Impairment
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization/
Impairment
|
|
|
Net
|
|
Customer relationships
|
|
|
$517.4
|
|
|
|
$(155.2)
|
|
|
|
$362.2
|
|
|
|
$507.4
|
|
|
|
$(129.6)
|
|
|
|
$377.8
|
|
Patents and technology
|
|
|
76.6
|
|
|
|
(57.9)
|
|
|
|
18.7
|
|
|
|
76.9
|
|
|
|
(53.3)
|
|
|
|
23.6
|
|
Other
|
|
|
81.7
|
|
|
|
(37.3)
|
|
|
|
44.4
|
|
|
|
81.8
|
|
|
|
(35.0)
|
|
|
|
46.8
|
|
Total finite-lived intangibles
|
|
|
675.7
|
|
|
|
(250.4)
|
|
|
|
425.3
|
|
|
|
666.1
|
|
|
|
(217.9)
|
|
|
|
448.2
|
|
Trade names and trademarks, indefinite-lived
|
|
|
66.2
|
|
|
|
(3.5)
|
|
|
|
62.7
|
|
|
|
63.4
|
|
|
|
(3.3)
|
|
|
|
60.1
|
|
Total Intangible Assets
|
|
|
$741.9
|
|
|
|
$(253.9)
|
|
|
|
$488.0
|
|
|
|
$729.5
|
|
|
|
$(221.2)
|
|
|
|
$508.3
|
|
The decrease in net intangible assets from 2015 to 2016 is primarily due to amortization. Amortization expense for intangible assets was
$32.9, $36.0, and $42.1 in 2016, 2015, and 2014, respectively. Refer to Note 1, Major Accounting Policies, for amortization periods associated with our intangible assets.
In the fourth quarter of 2016, we conducted our annual impairment test of indefinite-lived intangibles and found no indications of impairment.
In the fourth quarter of 2014, we conducted our annual impairment test of indefinite-lived intangibles utilizing the royalty savings method, a form of the income
approach. We determined that the carrying value of trade names and trademarks were in excess of their fair value, and as a result, we recorded an impairment charge of $4.9 to reduce these assets to their fair value. This impairment is reflected
within Goodwill and intangible asset impairment charge on our consolidated income statements. These trade names and trademarks are included in our Industrial Gases Americas segment.
Projected annual amortization expense for intangible assets as of 30 September 2016 is as follows:
|
|
|
|
|
2017
|
|
|
$31.2
|
|
2018
|
|
|
29.5
|
|
2019
|
|
|
27.9
|
|
2020
|
|
|
27.5
|
|
2021
|
|
|
26.1
|
|
Thereafter
|
|
|
283.1
|
|
Total
|
|
|
$425.3
|
|
79
12. LEASES
Lessee Accounting
Capital leases, primarily for the right to use machinery
and equipment, are included with owned plant and equipment on the consolidated balance sheet in the amount of $22.7 and $12.8 at 30 September 2016 and 2015, respectively. Related amounts of accumulated depreciation are $4.8 and $4.3,
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 $80.8 in 2016, $88.2 in 2015, and $97.9 in
2014.
At 30 September 2016, minimum payments due under leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2017
|
|
|
$2.0
|
|
|
|
$70.5
|
|
2018
|
|
|
1.8
|
|
|
|
62.5
|
|
2019
|
|
|
1.6
|
|
|
|
49.9
|
|
2020
|
|
|
1.6
|
|
|
|
38.4
|
|
2021
|
|
|
2.7
|
|
|
|
31.6
|
|
Thereafter
|
|
|
21.3
|
|
|
|
102.2
|
|
Total
|
|
|
$31.0
|
|
|
|
$355.1
|
|
The present value of the above future capital lease payments totaled $10.2. Refer to Note 15, Debt.
In addition to the operating lease payments disclosed above, future minimum payments due under leases related to discontinued operations (i.e., Tees Valley, United
Kingdom ) include approximately $2 in each of the next five years and $40 thereafter, for a total lease commitment of approximately $50.
Lessor Accounting
As discussed under Revenue Recognition in Note 1, Major Accounting Policies, 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, are primarily included in noncurrent capital lease receivables on our consolidated balance sheets, with the remaining balance in other receivables and current
assets.
The components of lease receivables were as follows:
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
Gross minimum lease payments receivable
|
|
|
$2,072.6
|
|
|
|
$2,322.5
|
|
Unearned interest income
|
|
|
(762.7)
|
|
|
|
(888.1)
|
|
Lease Receivables, net
|
|
|
$1,309.9
|
|
|
|
$1,434.4
|
|
Lease payments collected in 2016, 2015, and 2014 were $186.0, $148.1, and $134.4, respectively. These payments reduced the lease
receivable balance by $85.5, $69.3, and $72.7 in 2016, 2015, and 2014, respectively.
At 30 September 2016, minimum lease payments expected to be collected
are as follows:
|
|
|
|
|
2017
|
|
|
$182.7
|
|
2018
|
|
|
181.4
|
|
2019
|
|
|
175.9
|
|
2020
|
|
|
171.1
|
|
2021
|
|
|
165.1
|
|
Thereafter
|
|
|
1,196.4
|
|
Total
|
|
|
$2,072.6
|
|
80
13. FINANCIAL INSTRUMENTS
Currency Price Risk Management
Our 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 our policy to minimize our cash flow volatility from changes in currency exchange rates. This is
accomplished by identifying and evaluating the risk that our cash flows will change in value due to changes in exchange rates and by executing the appropriate strategies necessary to manage such exposures. Our objective is to maintain economically
balanced currency risk management strategies that provide adequate downside protection.
Forward Exchange Contracts
We enter 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. We also enter into forward exchange contracts to hedge the cash flow exposure on intercompany loans. This portfolio of forward exchange contracts consists primarily of Euros and U.S. dollars.
The maximum remaining term of any forward exchange contract currently outstanding and designated as a cash flow hedge at 30 September 2016 is 2.8 years.
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
we have a net equity position. The primary currency pairs in this portfolio of forward exchange contracts are Euros and U.S. dollars and British Pound Sterling and U.S. dollars.
In addition to the forward exchange contracts that are designated as hedges, we utilize forward exchange contracts that are not designated as hedges. These contracts are
used to economically hedge foreign currency-denominated monetary assets and liabilities, primarily working capital. The primary objective of these forward exchange 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. This portfolio of forward exchange contracts consists of many different foreign currency pairs, with a profile that changes
from time to time depending on business activity and sourcing decisions.
The table below summarizes our outstanding currency price risk management instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
US$
Notional
|
|
|
Years
Average
Maturity
|
|
|
US$
Notional
|
|
|
Years
Average
Maturity
|
|
Forward Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
$4,130.3
|
|
|
|
.5
|
|
|
|
$4,543.8
|
|
|
|
.5
|
|
Net investment hedges
|
|
|
968.2
|
|
|
|
2.7
|
|
|
|
491.3
|
|
|
|
4.0
|
|
Not designated
|
|
|
2,850.5
|
|
|
|
.4
|
|
|
|
863.3
|
|
|
|
.7
|
|
Total Forward Exchange Contracts
|
|
|
$7,949.0
|
|
|
|
.7
|
|
|
|
$5,898.4
|
|
|
|
.9
|
|
The notional value of forward exchange contracts not designated in the table above increased as a result of repayment of certain
outstanding intercompany loans prior to their original maturity dates in anticipation of the
spin-off
of Versum. The forward exchange contracts no longer qualified as cash flow hedges due to the early
repayment of the loans. We entered into additional forward exchange contracts to offset these outstanding positions to eliminate any future earnings impact.
In
addition to the above, we use foreign currency-denominated debt to hedge the foreign currency exposures of our net investment in certain foreign subsidiaries. The designated foreign currency denominated debt and related accrued interest included
920.7 million ($1,034.4) at 30 September 2016 and
687.7 million ($768.4) at 30 September 2015. The designated foreign
currency-denominated debt is located on the balance sheet in the long-term debt and current portion of long-term debt line items.
Debt Portfolio Management
It is our policy 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
81
program are managed with the objectives and intent to (1) reduce funding risk with respect to borrowings made by us to preserve our 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.
Interest Rate Management Contracts
We enter into interest rate swaps to
change the fixed/variable interest rate mix of our 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 manage
interest rate risks and costs inherent in our debt portfolio. Our interest rate management portfolio generally consists of fixed-to-floating interest rate swaps (which are designated as fair value hedges), pre-issuance interest rate swaps and
treasury locks (which hedge the interest rate risk associated with anticipated fixed-rate debt issuances and are designated as cash flow hedges), and floating-to-fixed interest rate swaps (which are designated as cash flow hedges). At
30 September 2016, the outstanding interest rate swaps were denominated in U.S. dollars. The notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. When interest rate swaps are used to
hedge variable-rate debt, the indices of the swaps and the debt to which they are designated are the same. It is our policy not to enter into any interest rate management contracts which lever a move in interest rates on a greater than one-to-one
basis.
Cross Currency Interest Rate Swap Contracts
We enter into cross
currency interest rate swap contracts when our risk management function deems necessary. 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 we have a net equity position while changing the interest
rate characteristics of the instrument. The contracts are used to hedge either certain net investments in foreign operations or nonfunctional currency cash flows related to intercompany loans. The current cross currency interest rate swap portfolio
consists of fixed-to-fixed swaps primarily between U.S. dollars and offshore Chinese Renminbi, U.S. dollars and Chilean Pesos, and U.S. dollars and British Pound Sterling.
The following table summarizes our outstanding interest rate management contracts and cross currency interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
US$
Notional
|
|
|
Pay %
|
|
|
Average
Receive
%
|
|
|
Years
Average
Maturity
|
|
|
US$
Notional
|
|
|
Pay %
|
|
|
Average
Receive
%
|
|
|
Years
Average
Maturity
|
|
Interest rate swaps (fair value hedge)
|
|
|
$600.0
|
|
|
|
LIBOR
|
|
|
|
2.28%
|
|
|
|
2.3
|
|
|
|
$600.0
|
|
|
|
LIBOR
|
|
|
|
2.77%
|
|
|
|
3.3
|
|
Cross currency interest rate swaps (net investment hedge)
|
|
|
$517.7
|
|
|
|
3.24%
|
|
|
|
2.43%
|
|
|
|
2.6
|
|
|
|
$609.9
|
|
|
|
4.06%
|
|
|
|
2.61%
|
|
|
|
3.2
|
|
Cross currency interest rate swaps (cash flow hedge)
|
|
|
$1,088.9
|
|
|
|
4.77%
|
|
|
|
2.72%
|
|
|
|
3.3
|
|
|
|
$1,055.2
|
|
|
|
4.29%
|
|
|
|
2.63%
|
|
|
|
3.9
|
|
Cross currency interest rate swaps (not designated)
|
|
|
$27.4
|
|
|
|
3.62%
|
|
|
|
.81%
|
|
|
|
1.8
|
|
|
|
$12.9
|
|
|
|
3.12%
|
|
|
|
3.08%
|
|
|
|
4.1
|
|
82
The table below summarizes the fair value and balance sheet location of our outstanding derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
30 September
|
|
|
Balance Sheet
|
|
|
30 September
|
|
|
|
Location
|
|
|
2016
|
|
|
2015
|
|
|
Location
|
|
|
2016
|
|
|
2015
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
Other receivables
|
|
|
|
$72.3
|
|
|
|
$52.1
|
|
|
|
Accrued liabilities
|
|
|
|
$44.0
|
|
|
|
$110.7
|
|
Interest rate management contracts
|
|
|
Other receivables
|
|
|
|
19.9
|
|
|
|
17.6
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
assets
|
|
|
|
44.4
|
|
|
|
68.5
|
|
|
|
liabilities
|
|
|
|
9.1
|
|
|
|
9.2
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
Interest rate management contracts
|
|
|
assets
|
|
|
|
160.0
|
|
|
|
153.4
|
|
|
|
liabilities
|
|
|
|
12.0
|
|
|
|
.8
|
|
Total Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
$296.6
|
|
|
|
$291.6
|
|
|
|
|
|
|
|
$65.1
|
|
|
|
$120.7
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
Other receivables
|
|
|
|
$78.7
|
|
|
|
$3.2
|
|
|
|
Accrued liabilities
|
|
|
|
$30.0
|
|
|
|
$3.9
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
assets
|
|
|
|
|
|
|
|
23.3
|
|
|
|
liabilities
|
|
|
|
|
|
|
|
.6
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent
|
|
|
|
|
|
|
|
|
|
Interest rate management contracts
|
|
|
assets
|
|
|
|
|
|
|
|
.8
|
|
|
|
liabilities
|
|
|
|
.7
|
|
|
|
|
|
Total Derivatives Not Designated as Hedging
Instruments
|
|
|
|
|
|
|
$78.7
|
|
|
|
$27.3
|
|
|
|
|
|
|
|
$30.7
|
|
|
|
$4.5
|
|
Total Derivatives
|
|
|
|
|
|
|
$375.3
|
|
|
|
$318.9
|
|
|
|
|
|
|
|
$95.8
|
|
|
|
$125.2
|
|
Refer to Note 14, Fair Value Measurements, which defines fair value, describes the method for measuring fair value, and provides
additional disclosures regarding fair value measurements.
The table below summarizes the gain or loss related to our cash flow hedges, fair value hedges, net
investment hedges, and derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 30 September
|
|
|
|
Forward
Exchange Contracts
|
|
|
Foreign
Currency
Debt
|
|
|
Other
(A)
|
|
|
Total
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cash Flow Hedges, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in OCI (effective portion)
|
|
|
$10.5
|
|
|
|
$(44.9
|
)
|
|
|
$
|
|
|
|
$
|
|
|
|
$3.2
|
|
|
|
$9.9
|
|
|
|
$13.7
|
|
|
|
$(35.0)
|
|
Net (gain) loss reclassified from OCI to sales/cost of sales (effective portion)
|
|
|
.2
|
|
|
|
.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
.6
|
|
Net (gain) loss reclassified from OCI to other income (expense), net (effective portion)
|
|
|
(25.7
|
)
|
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
(20.3
|
)
|
|
|
(20.2
|
)
|
|
|
(46.0
|
)
|
|
|
15.4
|
|
Net (gain) loss reclassified from OCI to interest expense (effective portion)
|
|
|
6.7
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
|
|
2.6
|
|
|
|
10.0
|
|
|
|
3.3
|
|
Net (gain) loss reclassified from OCI to other income (expense),
net (ineffective portion)
|
|
|
(.2
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
1.5
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in interest expense
(B)
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$(8.8
|
)
|
|
|
$9.9
|
|
|
|
$(8.8
|
)
|
|
|
$9.9
|
|
Net Investment Hedges, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in OCI
|
|
|
$17.4
|
|
|
|
$60.1
|
|
|
|
$(9.6
|
)
|
|
|
$91.4
|
|
|
|
$35.0
|
|
|
|
$49.5
|
|
|
|
$42.8
|
|
|
|
$201.0
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) recognized in other income (expense), net
(C)
|
|
|
$(.8
|
)
|
|
|
$(7.3
|
)
|
|
|
$
|
|
|
|
$
|
|
|
|
$(1.6
|
)
|
|
|
$.6
|
|
|
|
$(2.4
|
)
|
|
|
$(6.7)
|
|
(A)
|
Other includes the impact on other comprehensive income (OCI) and earnings primarily related to interest rate and cross currency interest rate swaps.
|
(B)
|
The impact of fair value hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in related interest rates on outstanding debt.
|
(C)
|
The impact of the non-designated hedges noted above was largely offset by recognized gains and losses resulting from the impact of changes in exchange rates on assets and liabilities denominated in nonfunctional
currencies.
|
83
The amount of cash flow hedges unrealized gains and losses at 30 September 2016 that are expected to be
reclassified to earnings in the next twelve months is not material.
The cash flows related to all derivative contracts are reported in the operating activities
section of the consolidated statements of cash flows.
Credit Risk-Related Contingent Features
Certain derivative instruments are executed under agreements that require us to maintain a minimum credit rating with both Standard & Poors and
Moodys. If our credit rating falls below this threshold, 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 $11.2 as of 30 September 2016 and $.2 as of 30 September 2015. Because our current credit rating is above the various pre-established thresholds, no collateral has been posted on
these liability positions.
Counterparty Credit Risk Management
We
execute financial derivative transactions with counterparties that are highly rated financial institutions, all of which are investment grade at this time. Some of our underlying derivative agreements give us the right to require the institution to
post collateral if its credit rating falls below the pre-established thresholds with Standard & Poors or Moodys. The collateral that the counterparties would be required to post was $267.6 as of 30 September 2016 and $226.9
as of 30
September 2015. No financial institution is required to post collateral at this time, as all have credit ratings at or above the threshold.
14. 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 fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels as follows:
|
|
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
Level 2
|
|
Inputs 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 3
|
|
Inputs that are unobservable for the asset or liability based on our own assumptions (about the assumptions market participants would use in pricing the asset or liability).
|
The methods and assumptions used to measure the fair value of financial instruments are as follows:
Derivatives
The fair value of our interest rate management contracts and
forward exchange contracts are quantified using the income approach and are based on estimates using standard pricing models. These models take into account the value of future cash flows as of the balance sheet date, discounted to a present value
using discount factors that match both the time to maturity and currency of the underlying instruments. 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. Therefore, the fair value of our derivatives is classified as a level 2 measurement. On an ongoing basis, we randomly
test a subset of our valuations against valuations received from the transactions counterparty to validate the accuracy of our standard pricing models. Counterparties to these derivative contracts are highly rated financial institutions.
Refer to Note 13, Financial Instruments, for a description of derivative instruments, including details on the balance sheet line classifications.
Long-term Debt
The fair value of our debt is based on estimates using
standard pricing models that take into account the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match
84
both the time to maturity and currency of the underlying instruments. These standard valuation models utilize observable market data such as interest rate yield curves and currency spot rates.
Therefore, the fair value of our debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these instruments.
The
carrying values and fair values of financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
$195.4
|
|
|
|
$195.4
|
|
|
|
$147.1
|
|
|
|
$147.1
|
|
Interest rate management contracts
|
|
|
179.9
|
|
|
|
179.9
|
|
|
|
171.8
|
|
|
|
171.8
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
$83.1
|
|
|
|
$83.1
|
|
|
|
$124.4
|
|
|
|
$124.4
|
|
Interest rate management contracts
|
|
|
12.7
|
|
|
|
12.7
|
|
|
|
.8
|
|
|
|
.8
|
|
Long-term debt, including current portion
|
|
|
5,289.4
|
|
|
|
5,467.2
|
|
|
|
4,384.7
|
|
|
|
4,645.7
|
|
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 following table summarizes assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
$195.4
|
|
|
|
$
|
|
|
|
$195.4
|
|
|
|
$
|
|
|
|
$147.1
|
|
|
|
$
|
|
|
|
$147.1
|
|
|
|
$
|
|
Interest rate management contracts
|
|
|
179.9
|
|
|
|
|
|
|
|
179.9
|
|
|
|
|
|
|
|
171.8
|
|
|
|
|
|
|
|
171.8
|
|
|
|
|
|
Total Assets at Fair Value
|
|
|
$375.3
|
|
|
|
$
|
|
|
|
$375.3
|
|
|
|
$
|
|
|
|
$318.9
|
|
|
|
$
|
|
|
|
$318.9
|
|
|
|
$
|
|
Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
$83.1
|
|
|
|
$
|
|
|
|
$83.1
|
|
|
|
$
|
|
|
|
$124.4
|
|
|
|
$
|
|
|
|
$124.4
|
|
|
|
$
|
|
Interest rate management contracts
|
|
|
12.7
|
|
|
|
|
|
|
|
12.7
|
|
|
|
|
|
|
|
.8
|
|
|
|
|
|
|
|
.8
|
|
|
|
|
|
Total Liabilities at Fair Value
|
|
|
$95.8
|
|
|
|
$
|
|
|
|
$95.8
|
|
|
|
$
|
|
|
|
$125.2
|
|
|
|
$
|
|
|
|
$125.2
|
|
|
|
$
|
|
The following is a tabular presentation of nonrecurring fair value measurements along with the level within the fair value hierarchy in
which the fair value measurement in its entirety falls:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 March 2016
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2016 Loss
|
|
Plant and Equipment Discontinued operations
(A)
|
|
|
$20.0
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$20.0
|
|
|
|
$913.5
|
|
(A)
|
As a result of our exit from the Energy-from-Waste business, we assessed the recoverability of assets capable of being marketed on a secondary equipment market using an orderly liquidation valuation resulting in an
impairment loss for the difference between the orderly liquidation value and net book value of the assets as of 31 March 2016. There have been no significant changes in the estimated net realizable value as of 30 September 2016. For
additional information, see Note 4, Discontinued Operations.
|
85
15. DEBT
The tables below summarize our outstanding debt at 30 September 2016 and 2015:
Total Debt
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
Short-term borrowings
|
|
|
$935.8
|
|
|
|
$1,494.3
|
|
Current portion of long-term debt
|
|
|
371.3
|
|
|
|
435.6
|
|
Long-term debt
|
|
|
4,918.1
|
|
|
|
3,949.1
|
|
Total Debt
|
|
|
$6,225.2
|
|
|
|
$5,879.0
|
|
|
|
|
Short-term Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
Bank obligations
|
|
|
$133.1
|
|
|
|
$234.3
|
|
Commercial paper
|
|
|
802.7
|
|
|
|
1,260.0
|
|
Total Short-term Borrowings
|
|
|
$935.8
|
|
|
|
$1,494.3
|
|
The weighted average interest rate of short-term borrowings outstanding at 30 September 2016 and 2015 was 1.1% and .8%,
respectively.
Cash paid for interest, net of amounts capitalized, was $121.1 in 2016, $97.5 in 2015, and $132.4 in 2014.
86
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
Fiscal Year
Maturities
|
|
|
2016
|
|
|
2015
|
|
Payable in U.S. Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
8.75%
|
|
|
2021
|
|
|
|
$18.4
|
|
|
|
$18.4
|
|
Medium-term Notes
(weighted average rate)
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D 7.3%
|
|
|
2016
|
|
|
|
|
|
|
|
32.1
|
|
Series E 7.6%
|
|
|
2026
|
|
|
|
17.2
|
|
|
|
17.2
|
|
Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 2.0%
|
|
|
2016
|
|
|
|
|
|
|
|
350.0
|
|
Note 1.2%
|
|
|
2018
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Note 4.375%
|
|
|
2019
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Note 3.0%
|
|
|
2022
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Note 2.75%
|
|
|
2023
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Note 3.35%
|
|
|
2024
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Versum Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Note 5.5%
|
|
|
2024
|
|
|
|
425.0
|
|
|
|
|
|
Term Loan B 3.346%
|
|
|
2023
|
|
|
|
575.0
|
|
|
|
|
|
Other
(weighted average rate)
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate industrial revenue bonds .68%
|
|
|
2035 to 2050
|
|
|
|
769.9
|
|
|
|
769.9
|
|
Other 1.3%
|
|
|
2018 to 2019
|
|
|
|
25.7
|
|
|
|
35.0
|
|
Payable in Other Currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobonds 4.625%
|
|
|
2017
|
|
|
|
337.0
|
|
|
|
335.2
|
|
Eurobonds 2.0%
|
|
|
2020
|
|
|
|
337.0
|
|
|
|
335.2
|
|
Eurobonds 1.0%
|
|
|
2025
|
|
|
|
337.0
|
|
|
|
335.2
|
|
Eurobonds .375%
|
|
|
2021
|
|
|
|
393.2
|
|
|
|
|
|
Other 4.4%
|
|
|
2016 to 2022
|
|
|
|
53.0
|
|
|
|
161.0
|
|
Capital Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
United States 5.0%
|
|
|
2018
|
|
|
|
.5
|
|
|
|
.7
|
|
Foreign 11.3%
|
|
|
2017 to 2036
|
|
|
|
9.7
|
|
|
|
1.1
|
|
Less: Unamortized Discount
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
(6.3
|
)
|
Total Long-term Debt
|
|
|
|
|
|
|
5,289.4
|
|
|
|
4,384.7
|
|
Less: Current portion of long-term debt
|
|
|
|
|
|
|
(371.3
|
)
|
|
|
(435.6
|
)
|
Long-term Debt
|
|
|
|
|
|
|
$4,918.1
|
|
|
|
$3,949.1
|
|
Maturities of long-term debt in each of the next five years and beyond are as follows:
|
|
|
|
|
2017
|
|
|
$371.3
|
|
2018
|
|
|
419.4
|
|
2019
|
|
|
406.6
|
|
2020
|
|
|
353.4
|
|
2021
|
|
|
416.9
|
|
Thereafter
|
|
|
3,321.8
|
|
Total
|
|
|
$5,289.4
|
|
Various debt agreements to which we are a party also include financial covenants and other restrictions, including restrictions
pertaining to the ability to create property liens and enter into certain sale and leaseback transactions. As of 30 September 2016, we are in compliance with all the financial and other covenants under our debt agreements.
We have entered into a five-year revolving credit agreement maturing 30 April 2018 with a syndicate of banks (the 2013 Credit Agreement), under which
senior unsecured debt is available to both the Company and certain of its subsidiaries. There have been subsequent amendments to the 2013 Credit Agreement, and as of 30 September 2016, the maximum borrowing capacity was $2,690.0. The 2013
Credit Agreement provides a source of liquidity
87
for the Company and supports its commercial paper program. The Companys only financial covenant is a maximum ratio of total debt to total capitalization no greater than 70%. No borrowings
were outstanding under the 2013 Credit Agreement as of 30 September 2016.
On 1 June 2016, we issued a .375% Eurobond for
350 million ($386.9) that matures on 1 June 2021. The proceeds were used to repay a 2.0% Senior Note of $350.0 that matured on 2 August 2016.
In September 2015, we made a payment of $146.6 to redeem 3,000,000 Unidades de Fomento (UF) Series E 6.30% Bonds due 22 January 2030 that had a carrying
value of $130.0 and resulted in a net loss of $16.6 ($14.2 after-tax, or $.07 per share). The loss is reflected on the consolidated income statements as Loss on extinguishment of debt.
Additional commitments totaling $51.3 are maintained by our foreign subsidiaries, all of which was borrowed and outstanding at 30 September 2016.
Versum Financing
On 30 September 2016, in connection with the spin-off,
Versum entered into certain financing transactions. Versum continued to maintain the financing, further described below, subsequent to the spin-off which occurred on 1 October 2016. Refer to Note 3, Materials Technologies Separation, for
additional information on the spin-off.
Versum issued $425.0 aggregate principal amount of senior unsecured notes (the Notes). The Notes bear
interest at a fixed interest rate of 5.50% per annum and will mature on September 30, 2024. In addition, Versum entered into a credit agreement providing for (i) a senior secured first lien term loan B facility in an aggregate principal
amount of $575.0 (the Term Facility) and (ii) a senior secured first lien revolving credit facility in an aggregate principal amount of $200.0 (the Revolving Facility). Borrowings under the Term Facility bear
interest at a rate per annum of, at Versums option, LIBOR, subject to a minimum floor of 0.75%, plus a margin of 2.50% or an alternate base rate, subject to a minimum floor of 1.75%, plus a margin of 1.50%. Borrowings under the Revolving
Facility bear interest initially at a rate per annum of, at Versums option, LIBOR plus a margin of 2.00% or an alternate base rate plus a margin of 1.00%. The Term Facility amortizes in equal quarterly installments in aggregate annual amounts
equal to 1.00% of the original principal amount of the Term Facility, with the balance payable on 30 September 2023. The Revolving Facility matures on 30 September 2021. Lenders under the Revolving Facility have a maximum first lien
net leverage ratio covenant (total debt net of cash on hand to total adjusted EBITDA) of 3.25:1.00 and certain other customary covenants. On 30 September 2016, the Term Facility was fully drawn and no borrowings were outstanding under the
Revolving Facility.
16. 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. We also provide other postretirement benefits consisting primarily of healthcare
benefits to U.S. retirees who meet age and service requirements.
88
Defined Benefit Pension Plans
Pension benefits earned are generally based on years of service and compensation during active employment. The cost of our defined benefit pension plans included the
following components:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Service cost
|
|
|
$36.5
|
|
|
|
$24.3
|
|
|
|
$42.2
|
|
|
|
$31.3
|
|
|
|
$42.6
|
|
|
|
$36.0
|
|
Interest cost
|
|
|
110.7
|
|
|
|
44.3
|
|
|
|
124.7
|
|
|
|
57.8
|
|
|
|
130.7
|
|
|
|
67.2
|
|
Expected return on plan assets
|
|
|
(202.0
|
)
|
|
|
(78.3
|
)
|
|
|
(202.0
|
)
|
|
|
(79.8
|
)
|
|
|
(187.8
|
)
|
|
|
(78.1
|
)
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
|
85.3
|
|
|
|
35.6
|
|
|
|
78.9
|
|
|
|
41.4
|
|
|
|
78.3
|
|
|
|
36.1
|
|
Prior service cost
|
|
|
2.8
|
|
|
|
(.2
|
)
|
|
|
2.8
|
|
|
|
|
|
|
|
2.9
|
|
|
|
.2
|
|
Settlements
|
|
|
5.1
|
|
|
|
1.3
|
|
|
|
18.9
|
|
|
|
2.3
|
|
|
|
4.8
|
|
|
|
.7
|
|
Curtailments
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits
|
|
|
2.0
|
|
|
|
|
|
|
|
7.2
|
|
|
|
1.5
|
|
|
|
.2
|
|
|
|
.1
|
|
Other
|
|
|
(.3
|
)
|
|
|
2.1
|
|
|
|
1.0
|
|
|
|
2.1
|
|
|
|
|
|
|
|
2.0
|
|
Net Periodic Benefit Cost
|
|
|
$40.1
|
|
|
|
$28.0
|
|
|
|
$79.0
|
|
|
|
$56.6
|
|
|
|
$71.7
|
|
|
|
$64.2
|
|
Net periodic benefit cost is primarily included in cost of sales, selling and administrative expense, and pension settlement loss on our
consolidated income statements. The amount of net periodic benefit cost capitalized in 2016, 2015, and 2014 was not material.
Certain of our pension plans provide
for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after their retirement date. A participants vested benefit is considered settled upon cash payment of the lump sum. We recognize pension
settlement losses when cash payments exceed the sum of the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. In 2016, 2015, and 2014, we recognized $6.4, $21.2 and $5.5 of settlement losses,
respectively, to accelerate recognition of a portion of actuarial losses deferred in accumulated other comprehensive loss primarily associated with the U.S. Supplementary Pension Plan. Special termination benefits for 2016, 2015, and 2014 are
primarily related to the business restructuring and cost reduction actions initiated in their respective years. In addition, curtailment gains of $1.1 and curtailment losses of $5.3 are also reflected in the business restructuring and cost reduction
actions charge in 2016 and 2015, respectively.
We calculate net periodic benefit 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 benefit cost:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Discount rate
(A)
|
|
|
4.3%
|
|
|
|
3.3%
|
|
|
|
4.3%
|
|
|
|
3.6%
|
|
|
|
4.8%
|
|
|
|
4.3%
|
|
Expected return on plan assets
|
|
|
8.0%
|
|
|
|
6.3%
|
|
|
|
8.3%
|
|
|
|
6.1%
|
|
|
|
8.3%
|
|
|
|
6.5%
|
|
Rate of compensation increase
|
|
|
3.5%
|
|
|
|
3.5%
|
|
|
|
3.5%
|
|
|
|
3.6%
|
|
|
|
4.0%
|
|
|
|
3.7%
|
|
(A)
|
Effective in 2016, the Company began to measure the service cost and interest cost components of pension expense by applying spot rates along the yield curve to the
relevant projected cash flows, as we believe this provides a better measurement of these costs. The 2016 discount rates used to measure the service cost and interest cost of our U.S. pension plans were 4.5% and 4.1%, respectively. The rates used to
measure the service cost and interest cost of our major International pension plans were 3.4% and 3.2%, respectively. The previous method would have used a single discount rate for both service and interest costs. The Company has accounted for this
as a change in accounting estimate and, accordingly has accounted for it on a prospective basis. This change does not affect the measurement of the total benefit obligation.
|
89
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Discount rate
|
|
|
3.5%
|
|
|
|
2.0%
|
|
|
|
4.4%
|
|
|
|
3.4%
|
|
Rate of compensation increase
|
|
|
3.5%
|
|
|
|
3.5%
|
|
|
|
3.5%
|
|
|
|
3.5%
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
|
|
$3,139.9
|
|
|
|
$1,647.9
|
|
|
|
$3,002.9
|
|
|
|
$1,735.7
|
|
Service cost
|
|
|
36.5
|
|
|
|
24.3
|
|
|
|
42.2
|
|
|
|
31.3
|
|
Interest cost
|
|
|
110.7
|
|
|
|
44.3
|
|
|
|
124.7
|
|
|
|
57.8
|
|
Amendments
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
(3.1
|
)
|
Actuarial loss
|
|
|
380.2
|
|
|
|
376.4
|
|
|
|
130.4
|
|
|
|
30.0
|
|
Curtailments
|
|
|
(.4
|
)
|
|
|
(1.2
|
)
|
|
|
5.3
|
|
|
|
(5.1
|
)
|
Settlement (gain) loss
|
|
|
5.4
|
|
|
|
(3.4
|
)
|
|
|
6.7
|
|
|
|
(8.6
|
)
|
Special termination benefits
|
|
|
2.0
|
|
|
|
|
|
|
|
7.2
|
|
|
|
1.5
|
|
Participant contributions
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
2.1
|
|
Benefits paid
|
|
|
(197.4
|
)
|
|
|
(46.6
|
)
|
|
|
(181.8
|
)
|
|
|
(50.3
|
)
|
Currency translation/other
|
|
|
(.4
|
)
|
|
|
(193.7
|
)
|
|
|
1.1
|
|
|
|
(143.4
|
)
|
Obligation at End of Year
|
|
|
$3,477.7
|
|
|
|
$1,849.6
|
|
|
|
$3,139.9
|
|
|
|
$1,647.9
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
|
$2,613.6
|
|
|
|
$1,302.8
|
|
|
|
$2,746.2
|
|
|
|
$1,368.4
|
|
Actual return on plan assets
|
|
|
275.2
|
|
|
|
273.2
|
|
|
|
(14.0
|
)
|
|
|
25.9
|
|
Company contributions
|
|
|
13.9
|
|
|
|
65.4
|
|
|
|
63.1
|
|
|
|
74.4
|
|
Participant contributions
|
|
|
|
|
|
|
1.6
|
|
|
|
|
|
|
|
2.1
|
|
Benefits paid
|
|
|
(197.4
|
)
|
|
|
(46.6
|
)
|
|
|
(181.8
|
)
|
|
|
(50.3
|
)
|
Settlements
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
(8.6
|
)
|
Currency translation/other
|
|
|
|
|
|
|
(181.9
|
)
|
|
|
.1
|
|
|
|
(109.1
|
)
|
Fair Value at End of Year
|
|
|
$2,705.3
|
|
|
|
$1,411.1
|
|
|
|
$2,613.6
|
|
|
|
$1,302.8
|
|
Funded Status at End of Year
|
|
|
$(772.4
|
)
|
|
|
$(438.5
|
)
|
|
|
$(526.3)
|
|
|
|
$(345.1
|
)
|
|
|
|
|
|
Amounts Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
$
|
|
|
|
$
|
|
|
|
$4.0
|
|
|
|
$.3
|
|
Accrued liabilities
|
|
|
(24.1
|
)
|
|
|
|
|
|
|
(15.7
|
)
|
|
|
|
|
Noncurrent liabilities
|
|
|
(748.3
|
)
|
|
|
(438.5
|
)
|
|
|
(514.6
|
)
|
|
|
(345.4
|
)
|
Net Amount Recognized
|
|
|
$(772.4
|
)
|
|
|
$(438.5
|
)
|
|
|
$(526.3
|
)
|
|
|
$(345.1
|
)
|
Certain U.S. plans offered terminated vested participants an election to receive their accrued pension benefit as a one-time lump sum
payment in 2016. Benefits paid in 2016 include $52.9 of lump sum cash payments in connection with this offering.
90
The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a pretax basis
during 2016 and 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Net actuarial loss arising during the period
|
|
|
$311.8
|
|
|
|
$172.1
|
|
|
|
$351.8
|
|
|
|
$79.4
|
|
Amortization of net actuarial loss
|
|
|
(90.4
|
)
|
|
|
(36.5
|
)
|
|
|
(97.8
|
)
|
|
|
(43.3
|
)
|
Prior service cost (credit) arising during the period
|
|
|
1.2
|
|
|
|
(.1
|
)
|
|
|
1.2
|
|
|
|
(3.1
|
)
|
Amortization of prior service cost
|
|
|
(2.8
|
)
|
|
|
.2
|
|
|
|
(2.8
|
)
|
|
|
|
|
Total
|
|
|
$219.8
|
|
|
|
$135.7
|
|
|
|
$252.4
|
|
|
|
$33.0
|
|
The net actuarial loss represents the actual changes in the estimated obligation and plan assets that have not yet been recognized in
the consolidated income statements and are included in accumulated other comprehensive loss. Actuarial losses arising during 2016 are primarily attributable to lower discount rates, partially offset by a higher than expected return on plan assets.
Accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining service period of participants, which was approximately 10 years as of 30 September 2016.
The components recognized in accumulated other comprehensive loss on a pretax basis at 30 September consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Net actuarial loss
|
|
|
$1,273.6
|
|
|
|
$769.6
|
|
|
|
$1,052.2
|
|
|
|
$634.0
|
|
Prior service cost
|
|
|
8.5
|
|
|
|
(1.9
|
)
|
|
|
10.1
|
|
|
|
(2.0
|
)
|
Net transition liability
|
|
|
|
|
|
|
.4
|
|
|
|
|
|
|
|
.4
|
|
Total
|
|
|
$1,282.1
|
|
|
|
$768.1
|
|
|
|
$1,062.3
|
|
|
|
$632.4
|
|
The amount of accumulated other comprehensive loss at 30 September 2016 that is expected to be recognized as a component of net
periodic pension cost during fiscal year 2017, excluding amounts that may be recognized through settlement losses, is as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
Net actuarial loss
|
|
|
$103.0
|
|
|
|
$58.3
|
|
Prior service cost
|
|
|
2.8
|
|
|
|
(.2
|
)
|
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 $4,954.9 and $4,444.8 as of 30 September 2016 and 2015, respectively.
The following table provides information on pension plans where the benefit liability exceeds the value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Pension Plans with PBO in Excess of Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO
|
|
|
$3,477.7
|
|
|
|
$1,849.6
|
|
|
|
$2,917.1
|
|
|
|
$1,644.5
|
|
Fair value of plan assets
|
|
|
2,705.3
|
|
|
|
1,411.1
|
|
|
|
2,386.7
|
|
|
|
1,299.1
|
|
Pension Plans with ABO in Excess of Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO
|
|
|
$3,242.5
|
|
|
|
$1,673.6
|
|
|
|
$2,689.2
|
|
|
|
$1,498.0
|
|
Fair value of plan assets
|
|
|
2,705.3
|
|
|
|
1,370.1
|
|
|
|
2,386.7
|
|
|
|
1,263.2
|
|
Included in the tables above are several pension arrangements that are not funded because of jurisdictional practice. The ABO and PBO
related to these plans for 2016 were $108.0 and $115.3, respectively.
91
Pension Plan Assets
Our pension
plan investment strategy is to invest in diversified portfolios to earn a long-term return consistent with acceptable risk in order to pay retirement benefits and meet regulatory funding requirements while minimizing company cash contributions over
time. The plans invest primarily in passive and actively managed equity and debt securities. Equity investments are diversified geographically and by investment style and market capitalization. Fixed income investments include sovereign, corporate
and asset-backed securities generally denominated in the currency of the plan.
Asset allocation targets are established based on the long-term return, volatility
and correlation characteristics of the asset classes, the profiles of the plans liabilities, and acceptable levels of risk. Actual allocations vary from target due to market changes and are reviewed regularly. Assets are routinely rebalanced
through contributions, benefit payments, and otherwise as deemed appropriate. The actual and target allocations at the measurement date are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Target Allocation
|
|
|
2016 Actual Allocation
|
|
|
2015 Actual Allocation
|
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
|
U.S.
|
|
|
International
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
6080%
|
|
|
|
5567%
|
|
|
|
65%
|
|
|
|
60%
|
|
|
|
68%
|
|
|
|
59%
|
|
Debt securities
|
|
|
2030%
|
|
|
|
3243%
|
|
|
|
28%
|
|
|
|
38%
|
|
|
|
25%
|
|
|
|
40%
|
|
Real estate/other
|
|
|
010%
|
|
|
|
02%
|
|
|
|
7%
|
|
|
|
1%
|
|
|
|
7%
|
|
|
|
0%
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
|
|
1%
|
|
|
|
0%
|
|
|
|
1%
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
The 8.0% expected return for U.S. plan assets is based on a weighted average of estimated long-term returns of major asset classes
and the historical performance of plan assets. The estimated long-term return for equity, debt securities, and real estate is 8.3%, 5.1%, and 6.9%, respectively. In determining asset class returns, we take into account historical long-term
returns and the value of active management, as well as other economic and market factors.
The 6.3% expected rate of return for international plan assets is based on
a weighted average return for plans outside the U.S., which vary significantly in size, asset structure and expected returns. The expected asset return for the U.K. plan, which represents over 80% of the assets of our International plans, is 6.6%
and was derived from expected equity and debt security returns of 7.3% and 3.5%, respectively.
92
The following table summarizes pension plan assets measured at fair value by asset class (see Note 14, Fair Value
Measurements, for definition of the levels):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2016
|
|
|
30 September 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. Qualified Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$12.7
|
|
|
|
$12.7
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$11.1
|
|
|
|
$11.1
|
|
|
|
$
|
|
|
|
$
|
|
Equity securities
|
|
|
637.0
|
|
|
|
637.0
|
|
|
|
|
|
|
|
|
|
|
|
681.7
|
|
|
|
681.7
|
|
|
|
|
|
|
|
|
|
Equity mutual funds
|
|
|
300.2
|
|
|
|
300.2
|
|
|
|
|
|
|
|
|
|
|
|
480.1
|
|
|
|
480.1
|
|
|
|
|
|
|
|
|
|
Equity pooled funds
|
|
|
815.5
|
|
|
|
|
|
|
|
815.5
|
|
|
|
|
|
|
|
615.1
|
|
|
|
|
|
|
|
615.1
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds (government
and corporate)
|
|
|
747.8
|
|
|
|
|
|
|
|
747.8
|
|
|
|
|
|
|
|
651.4
|
|
|
|
|
|
|
|
651.4
|
|
|
|
|
|
Real estate pooled funds
|
|
|
192.1
|
|
|
|
|
|
|
|
|
|
|
|
192.1
|
|
|
|
174.2
|
|
|
|
|
|
|
|
|
|
|
|
174.2
|
|
Total U.S. Qualified Pension Plans
|
|
|
$2,705.3
|
|
|
|
$949.9
|
|
|
|
$1,563.3
|
|
|
|
$192.1
|
|
|
|
$2,613.6
|
|
|
|
$1,172.9
|
|
|
|
$1,266.5
|
|
|
|
$174.2
|
|
|
|
|
|
|
|
|
|
|
International Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$6.6
|
|
|
|
$6.6
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$10.1
|
|
|
|
$10.1
|
|
|
|
$
|
|
|
|
$
|
|
Equity pooled funds
|
|
|
854.8
|
|
|
|
|
|
|
|
854.8
|
|
|
|
|
|
|
|
766.9
|
|
|
|
|
|
|
|
766.9
|
|
|
|
|
|
Fixed income pooled funds
|
|
|
486.9
|
|
|
|
|
|
|
|
486.9
|
|
|
|
|
|
|
|
465.6
|
|
|
|
|
|
|
|
465.6
|
|
|
|
|
|
Other pooled funds
|
|
|
17.0
|
|
|
|
|
|
|
|
9.7
|
|
|
|
7.3
|
|
|
|
14.9
|
|
|
|
|
|
|
|
8.3
|
|
|
|
6.6
|
|
Insurance contracts
|
|
|
45.8
|
|
|
|
|
|
|
|
|
|
|
|
45.8
|
|
|
|
45.3
|
|
|
|
|
|
|
|
|
|
|
|
45.3
|
|
Total International Pension Plans
|
|
|
$1,411.1
|
|
|
|
$6.6
|
|
|
|
$1,351.4
|
|
|
|
$53.1
|
|
|
|
$1,302.8
|
|
|
|
$10.1
|
|
|
|
$1,240.8
|
|
|
|
$51.9
|
|
The following table summarizes changes in fair value of the pension plan assets classified as Level 3, by asset class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
Pooled Funds
|
|
|
Other
Pooled Funds
|
|
|
Insurance
Contracts
|
|
|
Total
|
|
30 September 2014
|
|
|
$150.2
|
|
|
|
$9.3
|
|
|
|
$59.7
|
|
|
|
$219.2
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held at end of year
|
|
|
24.0
|
|
|
|
(.2
|
)
|
|
|
(11.1
|
)
|
|
|
12.7
|
|
Assets sold during the period
|
|
|
|
|
|
|
.5
|
|
|
|
|
|
|
|
.5
|
|
Purchases, sales, and settlements, net
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
(3.3
|
)
|
|
|
(6.3
|
)
|
30 September 2015
|
|
|
$174.2
|
|
|
|
$6.6
|
|
|
|
$45.3
|
|
|
|
$226.1
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held at end of year
|
|
|
17.9
|
|
|
|
.1
|
|
|
|
3.2
|
|
|
|
21.2
|
|
Assets sold during the period
|
|
|
|
|
|
|
.3
|
|
|
|
|
|
|
|
.3
|
|
Purchases, sales, and settlements, net
|
|
|
|
|
|
|
.3
|
|
|
|
(2.7
|
)
|
|
|
(2.4
|
)
|
30 September 2016
|
|
|
$192.1
|
|
|
|
$7.3
|
|
|
|
$45.8
|
|
|
|
$245.2
|
|
The descriptions and fair value methodologies for the U.S. and International pension plan assets are as follows:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents
approximate fair value due to the short-term maturity.
Equity Securities
Equity securities are valued at the closing market price reported on a U.S. or international exchange where the security is actively traded and are therefore classified
as Level 1 assets.
Mutual and Pooled Funds
Shares of mutual funds are
valued at the net asset value (NAV) of the fund and are classified as Level 1 assets. Units of pooled funds are valued at the per unit NAV determined by the fund manager and are classified as Level 2 assets. The investments are utilizing NAV as a
practical expedient for fair value.
93
Corporate and Government Bonds
Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date
or valued based upon comparable securities with similar yields and credit ratings.
Real Estate Pooled Funds
Real estate pooled funds are classified as Level 3 assets, as they are carried at the estimated fair value of the underlying properties. Estimated fair value is
calculated utilizing a combination of key inputs, such as revenue and expense growth rates, terminal capitalization rates, and discount rates. These key inputs are consistent with practices prevailing within the real estate investment management
industry.
Other Pooled Funds
Other pooled funds classified as Level 2
assets are valued at the NAV of the shares held at year end, which is based on the fair value of the underlying investments. Securities and interests classified as Level 3 are carried at the estimated fair value. The estimated fair value is based on
the fair value of the underlying investment values, which includes estimated bids from brokers or other third-party vendor sources that utilize expected cash flow streams and other uncorroborated data including counterparty credit quality, default
risk, discount rates, and the overall capital market liquidity.
Insurance Contracts
Insurance contracts are classified as Level 3 assets, as they are carried at contract value, which approximates the estimated fair value. The estimated fair value is
based on the fair value of the underlying investment of the insurance company.
Contributions and Projected Benefit Payments
Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2016 were $79.3. Contributions for funded plans resulted primarily from
contractual and regulatory requirements. Benefit payments to unfunded plans were due primarily to the timing of retirements and cost reduction actions. We anticipate contributing $65 to $85 to the defined benefit pension plans in 2017. These
contributions are anticipated to be driven primarily by contractual and regulatory requirements for funded plans and benefit payments for unfunded plans, which are dependent upon timing of retirements and actions to reorganize the business.
Projected benefit payments, which reflect expected future service, are as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
2017
|
|
|
$150.3
|
|
|
|
$45.7
|
|
2018
|
|
|
152.7
|
|
|
|
48.3
|
|
2019
|
|
|
157.2
|
|
|
|
50.2
|
|
2020
|
|
|
161.8
|
|
|
|
51.1
|
|
2021
|
|
|
166.7
|
|
|
|
54.3
|
|
20222026
|
|
|
909.6
|
|
|
|
306.9
|
|
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these
estimates.
Defined Contribution Plans
We maintain 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.
We treat dividends paid on ESOP shares as ordinary
dividends. Under existing tax law, we may deduct dividends which are paid with respect to shares held by the plan. Shares of the Companys common stock in the ESOP totaled 3,031,534 as of 30 September 2016.
Our contributions to the RSP include a Company core contribution for certain eligible employees who do not receive their primary retirement benefit from the defined
benefit pension plans, with the core contribution based
94
on a percentage of pay that is dependent on years of service. For the RSP, we also make matching contributions on overall employee contributions as a percentage of the employee contribution and
include an enhanced contribution for certain eligible employees that do not participate in the defined benefit pension plans. Worldwide contributions expensed to income in 2016, 2015, and 2014 were $43.2, $44.2, and $45.2, respectively.
Other Postretirement Benefits
We provide 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
contributions adjusted periodically. The retiree medical costs are capped at a specified dollar amount, with the retiree contributing the remainder.
The cost of our other postretirement benefit plans includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
|
$2.2
|
|
|
|
$2.8
|
|
|
|
$3.3
|
|
Interest cost
|
|
|
2.0
|
|
|
|
2.2
|
|
|
|
2.3
|
|
Amortization of net actuarial loss
|
|
|
.7
|
|
|
|
.8
|
|
|
|
1.7
|
|
Net Periodic Postretirement Cost
|
|
|
$4.9
|
|
|
|
$5.8
|
|
|
|
$7.3
|
|
We calculate 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 2016, 2015, and 2014 was 2.4%, 2.6%, and 2.4%, respectively.
We
measure the other postretirement benefits as of 30 September. The discount rate assumption used in the calculation of the accumulated postretirement benefit obligation was 1.9% and 2.4% for 2016 and 2015, respectively.
The following table reflects the change in the accumulated postretirement benefit obligation and the amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Obligation at beginning of year
|
|
|
$86.9
|
|
|
|
$93.5
|
|
Service cost
|
|
|
2.2
|
|
|
|
2.8
|
|
Interest cost
|
|
|
2.0
|
|
|
|
2.2
|
|
Actuarial loss (gain)
|
|
|
7.5
|
|
|
|
(2.3
|
)
|
Benefits paid
|
|
|
(12.3
|
)
|
|
|
(9.3
|
)
|
Obligation at End of Year
|
|
|
$86.3
|
|
|
|
$86.9
|
|
|
|
|
Amounts Recognized
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
$11.4
|
|
|
|
$10.4
|
|
Noncurrent liabilities
|
|
|
74.9
|
|
|
|
76.5
|
|
The changes in benefit obligation that have been recognized in other comprehensive income on a pretax basis during 2016 and 2015 for our
other postretirement benefit plans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net actuarial loss (gain) arising during the period
|
|
|
$7.5
|
|
|
$
|
(2.3
|
)
|
Amortization of net actuarial loss
|
|
|
(.7
|
)
|
|
|
(.8
|
)
|
Total
|
|
|
$6.8
|
|
|
$
|
(3.1
|
)
|
The net actuarial loss recognized in accumulated other comprehensive loss on a pretax basis was $18.7 at 30 September 2016 and
$11.9 at 30 September 2015. Of the 30 September 2016 net actuarial loss, it is estimated that $2.3 will be amortized into net periodic postretirement cost during fiscal year 2017.
The effect of a change in the healthcare trend rate is tempered by a cap on the average retiree medical cost. The expected per capita claims costs are currently assumed
to be greater than the annual cap, therefore the assumed healthcare cost trend rate, ultimate trend rate, and the year the ultimate trend rate is reached in 2016 does not
95
apply as it has no impact on plan obligations. For 2015, the healthcare trend rate was 7%, the ultimate trend rate was 5%, and the year the ultimate trend rate is reached was 2019.
Projected benefit payments are as follows:
|
|
|
|
|
|
|
|
|
2017
|
|
|
$11.5
|
|
2018
|
|
|
11.0
|
|
2019
|
|
|
10.7
|
|
2020
|
|
|
10.2
|
|
2021
|
|
|
9.7
|
|
20222026
|
|
|
35.3
|
|
These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these
estimates.
17. COMMITMENTS AND CONTINGENCIES
LITIGATION
We are involved in various legal proceedings, including
commercial, competition, environmental, health, safety, product liability, and insurance matters. In September 2010, the Brazilian Administrative Council for Economic Defense (CADE) issued a decision against our Brazilian subsidiary, Air Products
Brasil Ltda., and several other Brazilian industrial gas companies for alleged anticompetitive activities. CADE imposed a civil fine of R$179.2 million (approximately $55 at 30 September 2016) on Air Products Brasil Ltda. This fine was based on
a recommendation by a unit of the Brazilian Ministry of Justice, whose investigation began in 2003, alleging violation of competition laws with respect to the sale of industrial and medical gases. The fines are based on a percentage of our total
revenue in Brazil in 2003.
We have denied the allegations made by the authorities and filed an appeal in October 2010 with the Brazilian courts. On 6 May 2014,
our appeal was granted and the fine against Air Products Brasil Ltda. was dismissed. CADE has appealed that ruling and the matter remains pending. We, with advice of our outside legal counsel, have assessed the status of this matter and have
concluded that, although an adverse final judgment after exhausting all appeals is possible, such a judgment is not probable. As a result, no provision has been made in the consolidated financial statements. We estimate the maximum possible loss to
be the full amount of the fine of R$179.2 million (approximately $55 at 30 September 2016) plus interest accrued thereon until final disposition of the proceedings.
Other than this matter, we do not currently believe there are any legal proceedings, individually or in the aggregate, that are reasonably possible to have a material
impact on our financial condition, results of operations, or cash flows.
ENVIRONMENTAL
In the normal course of business, we are involved in legal proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA: the
federal Superfund law); Resource Conservation and Recovery Act (RCRA); and similar state and foreign environmental laws relating to the designation of certain sites for investigation or remediation. Presently, there are approximately 33 sites on
which a final settlement has not been reached where we, along with others, have been designated a potentially responsible party by the Environmental Protection Agency or are otherwise engaged in investigation or remediation, including cleanup
activity at certain of our current and former manufacturing sites. We continually monitor these sites for which we have 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. The consolidated balance sheets at 30 September 2016 and 2015 included an accrual of $81.4
and $80.6, respectively, primarily as part of other noncurrent liabilities. The environmental liabilities will be paid over a period of up to 30 years. We estimate the exposure for environmental loss contingencies to range from $81 to a
reasonably possible upper exposure of $95 as of 30 September 2016.
96
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 our proportionate
share occurs. We do not expect that any sum we 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 our financial position or results of operations in
any one year.
Pace
At 30 September 2016, $30.1 of the environmental
accrual was related to the Pace facility.
In 2006, we sold our Amines business, which included operations at Pace, Florida, and recognized a liability for retained
environmental obligations associated with remediation activities at Pace. We are required by the Florida Department of Environmental Protection (FDEP) and the United States Environmental Protection Agency (USEPA) to continue our
remediation efforts. We estimated that it would take 20 years to complete the groundwater remediation, and the costs through completion were estimated to range from $42 to $52. As no amount within the range was a better estimate than another,
we recognized a pretax expense in fiscal 2006 of $42 as a component of income from discontinued operations and recorded an environmental accrual of $42 in continuing operations on the consolidated balance sheets. There has been no change to the
estimated exposure range related to the Pace facility.
We have implemented many of the remedial corrective measures at the Pace 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. We 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, we completed a focused feasibility study that has identified alternative approaches that may more effectively
remove contaminants. We continue to review alternative remedial approaches with the FDEP. In the first quarter of 2015, we entered into a new Consent Order with the FDEP requiring us to continue our remediation efforts at the Pace facility. The
costs we are incurring under the new Consent Order are expected to be consistent with our previous estimates.
Piedmont
At 30 September 2016, $17.5 of the environmental accrual was related to the Piedmont site.
On 30 June 2008, we sold our 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, we 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. We are 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. We estimate that it will take until 2019 to complete source area remediation with groundwater recovery and treatment, continuing through 2029. Thereafter, we are expecting this site to go into
a state of monitored natural attenuation through 2047. We recognized a pretax expense in 2008 of $24 as a component of income from discontinued operations and recorded an environmental liability of $24 in continuing operations on the consolidated
balance sheets. There have been no significant changes to the estimated exposure.
Pasadena
At 30 September 2016, $10.4 of the environmental accrual was related to the Pasadena site.
During the fourth quarter of 2012, management committed to permanently shutting down our polyurethane intermediates (PUI) production facility in Pasadena, Texas. In
shutting down and dismantling the facility, we have undertaken certain obligations related to soil and groundwater contaminants. We have been pumping and treating groundwater to control
off-site
contaminant
migration in compliance with regulatory requirements and under the
97
approval of the Texas Commission on Environmental Quality (TCEQ). We estimate that the pump and treat system will continue to operate until 2042. We plan to perform additional work to
address other environmental obligations at the site. This additional work includes remediating, as required, impacted soils, investigating groundwater west of the former PUI facility, performing post closure care for two closed RCRA surface
impoundment units, and establishing engineering controls. In 2012, we estimated the total exposure at this site to be $13. There has been no change to the estimated exposure.
ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations are primarily
associated with Industrial Gases on-site long-term supply contracts, under which we have built a facility on land owned by the customer and are obligated to remove the facility at the end of the contract term. The retirement of assets includes the
contractually required removal of a long-lived asset from service, and encompasses the sale, removal, abandonment, recycling, or disposal of the assets as required at the end of the contract terms. The timing and/or method of settlement of these
obligations are conditional on a future event that may or may not be within our control.
Changes to the carrying amount of our
asset retirement obligations are as follows:
|
|
|
|
|
|
|
|
|
Balance at 30 September 2014
|
|
|
$94.0
|
|
Additional accruals
|
|
|
17.6
|
|
Liabilities settled
|
|
|
(3.6)
|
|
Accretion expense
|
|
|
4.7
|
|
Currency translation adjustment
|
|
|
(3.3)
|
|
Balance at 30 September 2015
|
|
|
$109.4
|
|
Additional accruals
|
|
|
10.4
|
|
Liabilities settled
|
|
|
(4.4)
|
|
Accretion expense
|
|
|
5.4
|
|
Currency translation adjustment
|
|
|
(.9)
|
|
Balance at 30 September 2016
|
|
|
$119.9
|
|
These obligations are primarily reflected in other noncurrent liabilities on the consolidated balance
sheets.
GUARANTEES AND WARRANTIES
In April 2015, we entered into joint
venture arrangements in Saudi Arabia. An equity bridge loan has been provided to the joint venture until 2020 to fund equity commitments, and we guaranteed the repayment of our 25% share of this loan. Our venture partner guaranteed repayment of
their share. Our maximum exposure under the guarantee is approximately $100. As of 30 September 2016, we recorded a noncurrent liability of $94.4 for our obligation to make future equity contributions based on the equity bridge loan.
Air Products has also entered into a sale of equipment contract with the joint venture to engineer, procure, and construct the industrial gas facilities that will supply
gases to Saudi Aramco. We have provided bank guarantees to the joint venture of up to $311 to support our performance under the contract. Exposures under the guarantees decline over time and will be completely extinguished after completion of the
project.
We are party to an equity support agreement and operations guarantee related to an air separation facility constructed in Trinidad for a venture in which
we own 50%. At 30 September 2016, maximum potential payments under joint and several guarantees were $29.0. Exposures under the guarantees decline over time and will be completely extinguished by 2024.
During the first quarter of 2014, we sold the remaining portion of our Homecare business and entered into an operations guarantee related to obligations under certain
homecare contracts assigned in connection with the transaction. Our maximum potential payment under the guarantee is £20 million (approximately $25 at 30 September 2016), and our exposure will be extinguished by 2020.
To date, no equity contributions or payments have been made since the inception of these guarantees. The fair value of the above guarantees is not material.
98
We, in the normal course of business operations, have issued product warranties related to equipment sales. 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.
We do not expect that any sum we may have to pay in connection with
guarantees and warranties will have a material adverse effect on our consolidated financial condition, liquidity, or results of operations.
UNCONDITIONAL
PURCHASE OBLIGATIONS
We are obligated to make future payments under unconditional purchase obligations as summarized below:
|
|
|
|
|
|
|
|
|
2017
|
|
|
$942
|
|
2018
|
|
|
525
|
|
2019
|
|
|
307
|
|
2020
|
|
|
298
|
|
2021
|
|
|
276
|
|
Thereafter
|
|
|
2,983
|
|
Total
|
|
|
$5,331
|
|
Approximately $4,000 of our unconditional purchase obligations relate to helium purchases, which include crude feedstock supply to
multiple helium refining plants in North America as well as refined helium purchases from sources around the world. As a rare byproduct of natural gas production in the energy sector, these helium sourcing agreements are
medium-
to
long-term
and contain take-or-pay provisions. The refined helium is distributed globally and sold as a merchant gas, primarily under
medium-term
requirements contracts. While contract terms in the energy sector are longer than those in merchant, helium is a rare gas used in applications with few or no substitutions because of its unique
physical and chemical properties.
Approximately $330 of our 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, we do not believe these purchase obligations would have a material effect on
our financial condition or results of operations.
The unconditional purchase obligations also include other product supply and purchase commitments and electric
power and natural gas supply purchase obligations, which are primarily pass-through contracts with our customers.
Purchase commitments to spend approximately $350
for additional plant and equipment are included in the unconditional purchase obligations in 2017. In addition, we have purchase commitments totaling approximately $500 in 2017 and 2018 relating to our long-term sale of equipment project for Saudi
Aramcos Jazan oil refinery.
18. CAPITAL STOCK
Common Stock
Authorized common stock consists of 300 million shares with
a par value of $1 per share. As of 30 September 2016, 249 million shares were issued, with 217 million outstanding.
On 15 September 2011, the Board of
Directors authorized the repurchase of up to $1,000 of our outstanding common stock. We repurchase shares pursuant to Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, through repurchase agreements established with
several brokers. We did not purchase any of our outstanding shares during fiscal year 2016. At 30 September 2016, $485.3 in share repurchase authorization remains.
99
The following table reflects the changes in common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 September
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Number of Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
215,359,113
|
|
|
|
213,538,144
|
|
|
|
211,179,257
|
|
Issuance of treasury shares for stock option and award
plans
|
|
|
1,991,712
|
|
|
|
1,820,969
|
|
|
|
2,358,887
|
|
Balance, end of year
|
|
|
217,350,825
|
|
|
|
215,359,113
|
|
|
|
213,538,144
|
|
Preferred Stock
Authorized preferred stock
consists of 25 million shares with a par value of $1 per share, of which 2.5 million were designated as Series A Junior Participating Preferred Stock. There were no shares issued or outstanding as of 30 September 2016 and 2015.
19. SHARE-BASED COMPENSATION
We have various share-based compensation programs, which include deferred stock units, stock options, and restricted stock. Under all programs, the terms of the awards
are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. As of 30 September 2016, there were 4,840,837 shares
available for future grant under our Long-Term Incentive Plan, which is shareholder approved.
Share-based compensation cost
recognized in the consolidated income statements is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Before-Tax Share-Based Compensation Cost
|
|
|
$37.6
|
|
|
|
$45.7
|
|
|
|
$44.0
|
|
Income tax benefit
|
|
|
(13.1
|
)
|
|
|
(16.0
|
)
|
|
|
(15.6
|
)
|
After-Tax Share-Based Compensation Cost
|
|
|
$24.5
|
|
|
|
$29.7
|
|
|
|
$28.4
|
|
Before-tax share-based compensation cost is primarily included in selling and administrative expense on our consolidated income
statements. The amount of share-based compensation cost capitalized in 2016, 2015, and 2014 was not material.
Total before-tax
share-based compensation cost by type of program was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Deferred stock units
|
|
|
$29.9
|
|
|
|
$28.8
|
|
|
|
$20.2
|
|
Stock options
|
|
|
4.2
|
|
|
|
12.6
|
|
|
|
21.6
|
|
Restricted stock
|
|
|
3.5
|
|
|
|
4.3
|
|
|
|
2.2
|
|
Before-Tax Share-Based Compensation
Cost
|
|
|
$37.6
|
|
|
|
$45.7
|
|
|
|
$44.0
|
|
Deferred Stock Units
We have 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, for employee recipients, on continued employment during
the deferral period and may be conditioned on achieving certain performance targets. We grant deferred stock unit awards with a two to five year deferral period that is subject to payout upon death, disability, or retirement. Deferred stock units
issued to outside 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). We generally expense the grant-date fair value of these awards on a straight-line
basis over the vesting period; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement.
In 2015, we granted 119,272 market-based deferred stock units. The market-based deferred stock units vest as long as the employee continues to be employed by the Company
and upon the achievement of the performance target. The performance target, which is approved by the Compensation Committee, is the Companys total shareholder return (share price appreciation and dividends paid) in relation to a defined peer
group over a three-year performance period.
100
In 2016, we granted 130,167 market-based deferred stock units. The market-based deferred stock units are earned out at the
end of a three-year performance period beginning 1 October 2015 and ending 30 September 2018.
The fair value of market-based deferred stock units was
estimated using a Monte Carlo simulation model as these equity awards are tied to a market condition. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and
calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight line basis over the vesting period. The calculation of the fair value of market-based deferred stock units used the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
20.5 %
|
|
|
|
19.6 %
|
|
Risk-free interest rate
|
|
|
1.2 %
|
|
|
|
.9 %
|
|
Expected dividend yield
|
|
|
2.2 %
|
|
|
|
2.5 %
|
|
The estimated grant-date fair value of market-based deferred stock units was $135.49 and $194.51 per unit in 2016 and 2015.
In addition, during 2016, we granted 153,792 time-based deferred stock units at a weighted average grant-date fair value of $137.12.
|
|
|
|
|
|
|
|
|
Deferred Stock Units
|
|
Shares (000)
|
|
|
Weighted Average
Grant-Date Fair Value
|
|
Outstanding at 30 September 2015
|
|
|
1,056
|
|
|
|
$102.01
|
|
Granted
|
|
|
284
|
|
|
|
136.37
|
|
Paid out
|
|
|
(299
|
)
|
|
|
77.81
|
|
Forfeited/adjustments
|
|
|
(40
|
)
|
|
|
90.83
|
|
Outstanding at 30 September 2016
|
|
|
1,001
|
|
|
|
$119.44
|
|
Cash payments made for deferred stock units were $2.9, $9.6, and $2.1 in 2016, 2015, and 2014, respectively. As of 30 September
2016, there was $41.4 of unrecognized compensation cost related to deferred stock units. The cost is expected to be recognized over a weighted average period of 2.2 years. The total fair value of deferred stock units paid out during 2016, 2015,
and 2014, including shares vested in prior periods, was $41.6, $35.5, and $31.8, respectively.
Stock Options
We have granted awards of options to purchase common stock to executives and selected employees. The exercise price of stock options equals the market price of our 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. In 2016, no stock options were awarded.
Fair values of stock options were estimated using a Black Scholes model that used the assumptions noted in the table below. Expected volatility and expected dividend
yield are based on actual historical experience of our stock and dividends over the historical period equal to the expected life. 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. Ranges are used when certain groups of employees exhibit different behavior, such as timing of exercise. 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.
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Expected volatility
|
|
|
30.3
|
%
|
|
|
29.8%31.1
|
%
|
Expected dividend yield
|
|
|
2.6
|
%
|
|
|
2.42.9
|
%
|
Expected life (in years)
|
|
|
7.5
|
|
|
|
6.58.4
|
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
|
2.0%2.7
|
%
|
The weighted average grant-date fair value of options granted during 2015 and 2014 was $37.19 and $29.10 per option, respectively.
101
A summary of stock option activity is presented below:
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares (000)
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at 30 September 2015
|
|
|
5,725
|
|
|
|
$87.35
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,783
|
)
|
|
|
80.66
|
|
Forfeited
|
|
|
(26
|
)
|
|
|
106.52
|
|
Outstanding at 30 September 2016
|
|
|
3,916
|
|
|
|
$90.28
|
|
Exercisable at 30 September 2016
|
|
|
3,537
|
|
|
|
$86.99
|
|
Stock Options
|
|
Weighted Average
Remaining Contractual
Terms (in years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at 30 September 2016
|
|
|
5.0
|
|
|
|
$235
|
|
Exercisable at 30 September 2016
|
|
|
4.7
|
|
|
|
$224
|
|
The aggregate intrinsic value represents the amount by which our closing stock price of $150.34 as of 30 September 2016 exceeds the
exercise price multiplied by the number of in-the-money options outstanding or exercisable.
The total intrinsic value of stock options exercised during 2016, 2015,
and 2014 was $115.3, $115.5, and $125.3, 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 2016, there was $1.1 of unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted average period of 0.9 years.
Cash received from option exercises during 2016 was $141.3. The total tax benefit realized from stock option exercises in 2016 was $39.8, of which $25.0 was the excess
tax benefit.
Restricted Stock
The grant-date fair value of 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.
We have issued shares of
restricted stock to certain officers. Participants are entitled to cash dividends and to vote their respective shares. Restrictions on shares lift in one to four years or upon the earlier of retirement, death, or disability. The shares are
nontransferable while subject to forfeiture.
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Shares (000)
|
|
|
Weighted Average
Grant-Date Fair Value
|
|
Outstanding at 30 September 2015
|
|
|
83
|
|
|
|
$121.17
|
|
Granted
|
|
|
33
|
|
|
|
138.00
|
|
Vested
|
|
|
(31
|
)
|
|
|
119.95
|
|
Outstanding at 30 September 2016
|
|
|
85
|
|
|
|
$128.16
|
|
As of 30 September 2016, there was $5.1 of unrecognized compensation cost related to restricted stock awards. The cost is
expected to be recognized over a weighted average period of 2.6 years. The total fair value of restricted stock vested during 2016, 2015, and 2014 was $4.3, $1.4, and $12.1, respectively.
102
20. ACCUMULATED OTHER COMPREHENSIVE LOSS
The table below summarizes changes in accumulated other comprehensive loss (AOCL), net of tax, attributable to Air Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on
derivatives
qualifying
as hedges
|
|
|
Foreign
currency
translation
adjustments
|
|
|
Pension and
postretirement
benefits
|
|
|
Total
|
|
Balance at 30 September 2013
|
|
|
$(4.1)
|
|
|
|
$(61.5)
|
|
|
|
$(955.0)
|
|
|
|
$(1,020.6)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(15.2)
|
|
|
|
(213.1)
|
|
|
|
(74.2)
|
|
|
|
(302.5)
|
|
Amounts reclassified from AOCL
|
|
|
(9.1)
|
|
|
|
|
|
|
|
84.7
|
|
|
|
75.6
|
|
Net current period other comprehensive income (loss)
|
|
|
$(24.3)
|
|
|
|
$(213.1)
|
|
|
|
$10.5
|
|
|
|
$(226.9)
|
|
Amount attributable to noncontrolling interest
|
|
|
.1
|
|
|
|
(5.9)
|
|
|
|
.2
|
|
|
|
(5.6)
|
|
Balance at 30 September 2014
|
|
|
$(28.5)
|
|
|
|
$(268.7)
|
|
|
|
$(944.7)
|
|
|
|
$(1,241.9)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(35.0)
|
|
|
|
(699.3)
|
|
|
|
(278.5)
|
|
|
|
(1,012.8)
|
|
Amounts reclassified from AOCL
|
|
|
20.8
|
|
|
|
|
|
|
|
97.0
|
|
|
|
117.8
|
|
Net current period other comprehensive income (loss)
|
|
|
$(14.2)
|
|
|
|
$(699.3)
|
|
|
|
$(181.5)
|
|
|
|
$(895.0)
|
|
Amount attributable to noncontrolling interest
|
|
|
.2
|
|
|
|
(11.5)
|
|
|
|
.3
|
|
|
|
(11.0)
|
|
Balance at 30 September 2015
|
|
|
$(42.9)
|
|
|
|
$(956.5)
|
|
|
|
$(1,126.5)
|
|
|
|
$(2,125.9)
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
13.7
|
|
|
|
9.9
|
|
|
|
(335.1)
|
|
|
|
(311.5)
|
|
Amounts reclassified from AOCL
|
|
|
(36.0)
|
|
|
|
2.7
|
|
|
|
87.2
|
|
|
|
53.9
|
|
Net current period other comprehensive income (loss)
|
|
|
$(22.3)
|
|
|
|
$12.6
|
|
|
|
$(247.9)
|
|
|
|
$(257.6)
|
|
Amount attributable to noncontrolling interest
|
|
|
(.2)
|
|
|
|
5.4
|
|
|
|
(.4)
|
|
|
|
4.8
|
|
Balance at 30 September 2016
|
|
|
$(65.0)
|
|
|
|
$(949.3)
|
|
|
|
$(1,374.0)
|
|
|
|
$(2,388.3)
|
|
The table below summarizes the reclassifications out of accumulated other comprehensive loss and the affected line item on the
consolidated income statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(Gain) Loss on Cash Flow Hedges, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales/Cost of sales
|
|
|
$.2
|
|
|
|
$.6
|
|
|
|
$.7
|
|
Other income (expense), net
|
|
|
(46.2
|
)
|
|
|
16.9
|
|
|
|
(8.7
|
)
|
Interest expense
|
|
|
10.0
|
|
|
|
3.3
|
|
|
|
(1.1
|
)
|
Total (Gain) Loss on Cash Flow Hedges, net of tax
|
|
|
$(36.0
|
)
|
|
|
$20.8
|
|
|
|
$(9.1
|
)
|
|
|
|
|
Currency Translation Adjustment
(A)
|
|
|
$2.7
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
Pension and Postretirement Benefits, net of tax
(B)
|
|
|
$87.2
|
|
|
|
$97.0
|
|
|
|
$84.7
|
|
(A)
|
The impact is reflected in Other income (expense), net and primarily relates to the sale of an equity affiliate in the first quarter of 2016. Refer to Note 8, Summarized Financial Information of Equity Affiliates.
|
(B)
|
The components include items such as prior service cost amortization, actuarial loss amortization, and settlements and are reflected in net periodic benefit cost. Refer to Note 16, Retirement Benefits.
|
21. NONCONTROLLING INTERESTS
INDURA S.A.
Redeemable Noncontrolling Interest
In 2012, we purchased a controlling equity interest in the outstanding shares of Indura S.A. As part of the purchase agreement, the largest minority shareholder in
Indura S.A. had the right to exercise a put option to require us to purchase up to a 30.5% equity interest during the two-year period beginning on 1 July 2015, at a
103
redemption value equal to the greater of fair market value or the acquisition date value escalated by an inflation factor (the floor value). The put option was not accounted for
separate from the minority interest shares that were subject to the put option. The redemption feature of the put option required classification of the minority shareholders interest in the consolidated balance sheet outside of equity under
the caption Redeemable Noncontrolling Interest.
In July 2015, we completed the purchase of the 30.5% equity interest in our Indura S.A. subsidiary from
the largest minority shareholder for $277.9 based on terms substantially consistent with the original purchase agreement. The purchase was funded by the issuance of commercial paper. We currently have a 97.8% controlling equity interest in Indura
S.A.
The following is a summary of the changes in redeemable noncontrolling interest for the year ended 30 September 2015:
|
|
|
|
|
Balance at 30 September 2014
|
|
|
$287.2
|
|
Net income
|
|
|
11.5
|
|
Dividends
|
|
|
(2.0
|
)
|
Purchase of noncontrolling interest
|
|
|
(277.9
|
)
|
Currency translation adjustment
|
|
|
(18.8
|
)
|
Balance at 30 September 2015
|
|
|
$
|
|
As redeemable noncontrolling interest is not part of total equity, the impacts above are excluded from our consolidated statements of
equity.
22. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$1,515.3
|
|
|
|
$1,284.7
|
|
|
|
$994.6
|
|
Income (Loss) from discontinued operations
|
|
|
(884.2
|
)
|
|
|
(6.8
|
)
|
|
|
(2.9
|
)
|
Net Income Attributable to Air Products
|
|
|
$631.1
|
|
|
|
$1,277.9
|
|
|
|
$991.7
|
|
|
|
|
|
Denominator
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares Basic
|
|
|
216.4
|
|
|
|
214.9
|
|
|
|
212.7
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock option and other award plans
|
|
|
1.9
|
|
|
|
2.4
|
|
|
|
2.5
|
|
Weighted average common shares Diluted
|
|
|
218.3
|
|
|
|
217.3
|
|
|
|
215.2
|
|
|
|
|
|
Basic EPS Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$7.00
|
|
|
|
$5.98
|
|
|
|
$4.68
|
|
Income (Loss) from discontinued operations
|
|
|
(4.08
|
)
|
|
|
(.03
|
)
|
|
|
(.02
|
)
|
Net Income Attributable to Air Products
|
|
|
$2.92
|
|
|
|
$5.95
|
|
|
|
$4.66
|
|
|
|
|
|
Diluted EPS Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
$6.94
|
|
|
|
$5.91
|
|
|
|
$4.62
|
|
Income (Loss) from discontinued operations
|
|
|
(4.05
|
)
|
|
|
(.03
|
)
|
|
|
(.01
|
)
|
Net Income Attributable to Air Products
|
|
|
$2.89
|
|
|
|
$5.88
|
|
|
|
$4.61
|
|
Diluted EPS attributable to Air Products 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. Outstanding
104
share-based
awards of .2 million shares, .2 million shares, and .6 million shares were antidilutive and therefore excluded from the computation
of diluted EPS for 2016, 2015, and 2014, respectively.
23. INCOME TAXES
The following table summarizes the income of U.S. and foreign operations before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income from Continuing Operations before Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
$897.5
|
|
|
|
$742.0
|
|
|
|
$562.2
|
|
Foreign
|
|
|
1,086.1
|
|
|
|
846.2
|
|
|
|
651.8
|
|
Income from equity affiliates
|
|
|
148.6
|
|
|
|
154.5
|
|
|
|
151.4
|
|
Total
|
|
|
$2,132.2
|
|
|
|
$1,742.7
|
|
|
|
$1,365.4
|
|
The following table shows the components of the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$237.9
|
|
|
|
$177.1
|
|
|
|
$19.3
|
|
State
|
|
|
29.1
|
|
|
|
16.9
|
|
|
|
13.0
|
|
Foreign
|
|
|
256.6
|
|
|
|
221.4
|
|
|
|
211.6
|
|
|
|
|
523.6
|
|
|
|
415.4
|
|
|
|
243.9
|
|
Deferred Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
42.2
|
|
|
|
(3.5
|
)
|
|
|
98.2
|
|
State
|
|
|
3.6
|
|
|
|
19.1
|
|
|
|
(2.7
|
)
|
Foreign
|
|
|
17.1
|
|
|
|
(12.7
|
)
|
|
|
30.0
|
|
|
|
|
62.9
|
|
|
|
2.9
|
|
|
|
125.5
|
|
Income Tax Provision
|
|
|
$586.5
|
|
|
|
$418.3
|
|
|
|
$369.4
|
|
A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Percent of income before taxes)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
.5
|
|
Income from equity affiliates
|
|
|
(2.4
|
)
|
|
|
(3.0
|
)
|
|
|
(3.9
|
)
|
Foreign tax differentials
|
|
|
(7.0
|
)
|
|
|
(6.6
|
)
|
|
|
(8.2
|
)
|
U.S. taxes on foreign earnings
|
|
|
(2.3
|
)
|
|
|
(1.6
|
)
|
|
|
(1.7
|
)
|
Domestic production activities
|
|
|
(.8
|
)
|
|
|
(.9
|
)
|
|
|
(.7
|
)
|
Non-deductible goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
Non-U.S. subsidiary tax election
|
|
|
|
|
|
|
|
|
|
|
(3.8
|
)
|
Business separation costs
|
|
|
3.1
|
|
|
|
.2
|
|
|
|
|
|
Other
(A)
|
|
|
.8
|
|
|
|
(.1
|
)
|
|
|
1.9
|
|
Effective Tax Rate
|
|
|
27.5
|
%
|
|
|
24.0
|
%
|
|
|
27.1
|
%
|
(A)
Other includes the impact of Chilean tax rate
changes of 1.5% in 2014.
Income tax payments, net of refunds, were $440.8 in 2016, $392.9 in 2015, and $160.6 in 2014.
Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates lower than the U.S. federal statutory tax rate of
35.0%. Foreign earnings are subject to local country tax rates that are generally below the 35.0% U.S. federal statutory rate and include tax holidays and incentives. As a result, our effective non-U.S. tax rate is typically lower than the U.S.
statutory rate. If foreign pre-tax earnings increase relative to U.S. pre-tax earnings, this rate difference could increase. The jurisdictions in which we earn pre-tax earnings subject to lower foreign taxes than the U.S. statutory rate include
South Korea, Taiwan, the United
105
Kingdom, China, Canada, Spain and Belgium. As more than 80% of the undistributed earnings are in countries with a statutory tax rate of 24% or higher, we do not generate a disproportionate amount
of taxable income in countries with very low tax rates. U.S. taxes on foreign earnings is a tax benefit primarily due to foreign tax credits on the repatriation of foreign earnings to the U.S.
In 2016, the effective tax rate was impacted by tax costs of $51.8 incurred in anticipation of the tax-free spin-off of Versum, primarily for a dividend declared during
the third quarter of 2016 to repatriate $443.8 from a subsidiary in South Korea to the U.S. Previously, most of these foreign earnings were considered to be indefinitely reinvested. In addition, a tax benefit was not available on a significant
portion of the business separation costs. Refer to Note 3, Materials Technologies Separation, for additional information.
In 2014, the effective tax rate was
impacted by losses from transactions and a tax election made with respect to a non-U.S. subsidiary resulting in an income tax benefit of $51.6. This benefit was partially offset by income tax expense of $20.6 related to the tax reform legislation
enacted in Chile. The effective tax rate was also impacted by the goodwill impairment charge of $305.2 that was not deductible for tax purposes. See Note 10, Goodwill, for additional information regarding the impairment charge.
The significant components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
30 September
|
|
2016
|
|
|
2015
|
|
Gross Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Retirement benefits and compensation accruals
|
|
|
$537.9
|
|
|
|
$468.7
|
|
Tax loss carryforwards
|
|
|
93.0
|
|
|
|
116.7
|
|
Tax credits and other tax carryforwards
|
|
|
56.0
|
|
|
|
43.8
|
|
Reserves and accruals
|
|
|
80.1
|
|
|
|
71.9
|
|
Partnership and other investments
|
|
|
4.8
|
|
|
|
6.2
|
|
Other
|
|
|
45.8
|
|
|
|
66.3
|
|
Valuation allowance
|
|
|
(155.2
|
)
|
|
|
(103.6
|
)
|
Deferred Tax Assets
|
|
|
662.4
|
|
|
|
670.0
|
|
Gross Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
1,034.8
|
|
|
|
1,124.6
|
|
Currency gains
|
|
|
46.4
|
|
|
|
65.7
|
|
Unremitted earnings of foreign entities
|
|
|
5.4
|
|
|
|
62.7
|
|
Intangible assets
|
|
|
134.1
|
|
|
|
135.6
|
|
Other
|
|
|
16.1
|
|
|
|
2.1
|
|
Deferred Tax Liabilities
|
|
|
1,236.8
|
|
|
|
1,390.7
|
|
Net Deferred Income Tax Liability
|
|
|
$574.4
|
|
|
|
$720.7
|
|
Deferred tax assets and liabilities are included within the consolidated financial statements as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
$192.7
|
|
|
|
$82.7
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
767.1
|
|
|
|
803.4
|
|
Net Deferred Income Tax Liability
|
|
|
$574.4
|
|
|
|
$720.7
|
|
Gross federal loss and tax credit carryforwards as of 30 September 2016 were $137.1 and $25.7, respectively. The federal loss
carryforward is primarily a capital loss due to a 2014 tax election related to a non-U.S. subsidiary that expires in 2019. The federal tax credit carryforwards expire in 2025 and 2026. Gross state loss and tax credit carryforwards as of
30 September 2016 were $123.2 and $3.3, respectively. The state tax carryforwards have expiration periods between 2018 and 2034. Gross foreign loss and tax credit carryforwards as of 30 September 2016 were $155.0 and $27.0, respectively.
Foreign tax carryforwards of $119.5 have expiration periods between 2017 and 2026; the remainder have unlimited carryforward periods.
106
The valuation allowance as of 30 September 2016 of $155.2 primarily related to the tax benefit on the federal capital
loss carryforward of $48.0, tax benefit of foreign loss carryforwards of $37.7, and capital assets of $58.0 that were generated from the loss recorded on the exit from the Energy-from-Waste business in 2016. If events warrant the reversal of the
valuation allowance, it would result in a reduction of tax expense. We believe it is more likely than not that future earnings and reversal of deferred tax liabilities will be sufficient to utilize our deferred tax assets, net of existing valuation
allowance, at 30 September 2016. The deferred tax liability associated with unremitted earnings of foreign entities decreased in part due to the dividend to repatriate cash from a foreign subsidiary in South Korea. This amount was also impacted
by ongoing activity including earnings, dividend payments, tax credit adjustments, and currency translation impacting the undistributed earnings of our foreign subsidiaries and corporate joint ventures which are not considered to be indefinitely
reinvested outside of the U.S.
We record U.S. income taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those
earnings are indefinitely reinvested outside of the U.S. These cumulative undistributed earnings that are considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures are included in retained earnings on the
consolidated balance sheets and amounted to $6,300.9 as of 30 September 2016. An estimated $1,467.8 in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes.
A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of year
|
|
|
$97.5
|
|
|
|
$108.7
|
|
|
|
$124.3
|
|
Additions for tax positions of the current year
|
|
|
15.0
|
|
|
|
6.9
|
|
|
|
8.1
|
|
Additions for tax positions of prior years
|
|
|
3.8
|
|
|
|
7.5
|
|
|
|
4.9
|
|
Reductions for tax positions of prior years
|
|
|
(.3
|
)
|
|
|
(7.9
|
)
|
|
|
(14.6
|
)
|
Settlements
|
|
|
(5.6
|
)
|
|
|
(.6
|
)
|
|
|
|
|
Statute of limitations expiration
|
|
|
(3.0
|
)
|
|
|
(11.2
|
)
|
|
|
(14.0
|
)
|
Foreign currency translation
|
|
|
(.5
|
)
|
|
|
(5.9
|
)
|
|
|
|
|
Balance at End of Year
|
|
|
$106.9
|
|
|
|
$97.5
|
|
|
|
$108.7
|
|
At 30 September 2016 and 2015, we had $106.9 and $97.5 of unrecognized tax benefits, excluding interest and penalties, of which
$64.5 and $62.5, respectively, would impact the effective tax rate if recognized.
Interest and penalties related to unrecognized tax benefits are recorded as a
component of income tax expense and totaled $2.3 in 2016, $(1.8) in 2015, and $1.2 in 2014. Our accrued balance for interest and penalties was $9.8 and $7.5 as of 30 September 2016 and 2015, respectively.
107
We are 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.
We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:
|
|
|
|
|
Major Tax Jurisdiction
|
|
Open Tax Years
|
|
North America
|
|
|
|
|
United States
|
|
|
20112016
|
|
Canada
|
|
|
20122016
|
|
Europe
|
|
|
|
|
France
|
|
|
20132016
|
|
Germany
|
|
|
20112016
|
|
Netherlands
|
|
|
20112016
|
|
Spain
|
|
|
20112016
|
|
United Kingdom
|
|
|
20132016
|
|
Asia
|
|
|
|
|
China
|
|
|
20102016
|
|
Singapore
|
|
|
20102016
|
|
South Korea
|
|
|
20102016
|
|
Taiwan
|
|
|
20112016
|
|
Latin America
|
|
|
|
|
Chile
|
|
|
20132016
|
|
24. SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
Other Receivables and Current Assets
30 September
|
|
2016
|
|
|
2015
|
|
Derivative instruments
|
|
|
$170.9
|
|
|
|
$72.9
|
|
Other receivables
|
|
|
197.5
|
|
|
|
167.6
|
|
Current capital lease receivables
|
|
|
88.2
|
|
|
|
84.2
|
|
Prepaid inventory
|
|
|
92.8
|
|
|
|
|
|
Other
|
|
|
6.2
|
|
|
|
18.8
|
|
|
|
|
$555.6
|
|
|
|
$343.5
|
|
|
|
|
|
|
|
|
|
|
Other Noncurrent Assets
30 September
|
|
2016
|
|
|
2015
|
|
Derivative instruments
|
|
|
$204.4
|
|
|
|
$246.0
|
|
Other long-term receivables
|
|
|
20.6
|
|
|
|
21.4
|
|
Deferred financing cost, net
|
|
|
29.6
|
|
|
|
20.2
|
|
Prepaid tax
|
|
|
53.5
|
|
|
|
31.3
|
|
Deferred tax assets
|
|
|
192.7
|
|
|
|
82.7
|
|
Deposits
|
|
|
36.5
|
|
|
|
40.1
|
|
Other
|
|
|
200.0
|
|
|
|
206.9
|
|
|
|
|
$737.3
|
|
|
|
$648.6
|
|
108
|
|
|
|
|
|
|
|
|
Payables and Accrued Liabilities
30 September
|
|
2016
|
|
|
2015
|
|
Trade creditors
|
|
|
$676.1
|
|
|
|
$621.9
|
|
Customer advances
|
|
|
376.1
|
|
|
|
195.3
|
|
Accrued payroll and employee benefits
|
|
|
262.6
|
|
|
|
272.9
|
|
Pension and postretirement benefits
|
|
|
35.5
|
|
|
|
26.1
|
|
Dividends payable
|
|
|
186.9
|
|
|
|
174.4
|
|
Outstanding payments in excess of certain cash balances
|
|
|
11.9
|
|
|
|
27.5
|
|
Accrued interest expense
|
|
|
47.9
|
|
|
|
52.9
|
|
Derivative instruments
|
|
|
74.0
|
|
|
|
114.6
|
|
Severance and other costs associated with business restructuring and cost reduction actions
|
|
|
16.3
|
|
|
|
41.7
|
|
Other
|
|
|
123.3
|
|
|
|
114.4
|
|
|
|
|
$1,810.6
|
|
|
|
$1,641.7
|
|
|
|
|
|
|
|
|
|
|
Other Noncurrent Liabilities
30 September
|
|
2016
|
|
|
2015
|
|
Pension benefits
|
|
|
$1,186.8
|
|
|
|
$860.0
|
|
Postretirement benefits
|
|
|
74.9
|
|
|
|
76.5
|
|
Other employee benefits
|
|
|
108.3
|
|
|
|
106.7
|
|
Contingencies related to uncertain tax positions
|
|
|
95.6
|
|
|
|
91.1
|
|
Advance payments
|
|
|
43.8
|
|
|
|
135.1
|
|
Environmental liabilities
|
|
|
70.3
|
|
|
|
71.6
|
|
Derivative instruments
|
|
|
21.8
|
|
|
|
10.6
|
|
Asset retirement obligations
|
|
|
116.1
|
|
|
|
106.5
|
|
Obligation for future contribution to an equity affiliate
|
|
|
94.4
|
|
|
|
67.5
|
|
Other
|
|
|
61.4
|
|
|
|
28.4
|
|
|
|
|
$1,873.4
|
|
|
|
$1,554.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), Net
30 September
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Technology and royalty income
|
|
|
$20.1
|
|
|
|
$25.0
|
|
|
|
$26.8
|
|
Interest income
|
|
|
6.2
|
|
|
|
4.6
|
|
|
|
9.4
|
|
Foreign exchange
|
|
|
(5.8
|
)
|
|
|
(22.3
|
)
|
|
|
(7.7
|
)
|
Sale of assets and investments
|
|
|
10.1
|
|
|
|
37.1
|
|
|
|
12.5
|
|
Contract settlements
|
|
|
12.6
|
|
|
|
|
|
|
|
2.8
|
|
Other
|
|
|
14.9
|
|
|
|
2.9
|
|
|
|
9.0
|
|
|
|
|
$58.1
|
|
|
|
$47.3
|
|
|
|
$52.8
|
|
Gain on Land Sales
During the fourth quarter
of 2015, we sold two parcels of land resulting in a gain of $33.6 ($28.3 after-tax, or $.13 per share). The gain is reflected in sale of assets and investments in the table above.
109
25. SUMMARY BY QUARTER (UNAUDITED)
These tables summarize the unaudited results of operations for each quarter of 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
Sales
|
|
|
|
|
|
|
$2,355.8
|
|
|
|
$2,271.2
|
|
|
|
$2,434.4
|
|
|
|
$2,463.0
|
|
|
|
$9,524.4
|
|
Gross profit
(A)
|
|
|
|
|
|
|
760.1
|
|
|
|
752.2
|
|
|
|
795.1
|
|
|
|
814.3
|
|
|
|
3,121.7
|
|
Business separation costs
(B)
|
|
|
|
|
|
|
12.0
|
|
|
|
7.4
|
|
|
|
9.5
|
|
|
|
23.3
|
|
|
|
52.2
|
|
Business restructuring and cost reduction
actions
(C)
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
|
|
14.2
|
|
|
|
11.1
|
|
|
|
33.9
|
|
Pension settlement loss
(D)
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
6.4
|
|
Operating income
(A)
|
|
|
|
|
|
|
510.6
|
|
|
|
513.3
|
|
|
|
535.1
|
|
|
|
547.0
|
|
|
|
2,106.0
|
|
Loss on extinguishment of debt
(E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9
|
|
|
|
6.9
|
|
Income tax provision
|
|
|
|
|
|
|
135.9
|
|
|
|
132.5
|
(F)
|
|
|
179.5
|
(F)
|
|
|
138.6
|
(F)
|
|
|
586.5
|
(F)
|
Net income (loss)
|
|
|
|
|
|
|
372.0
|
|
|
|
(465.5
|
)
|
|
|
354.1
|
|
|
|
400.9
|
|
|
|
661.5
|
|
Net income attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
377.8
|
|
|
|
379.8
|
|
|
|
355.7
|
|
|
|
402.0
|
|
|
|
1,515.3
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(14.2
|
)
|
|
|
(853.1
|
)
|
|
|
(8.9
|
)
|
|
|
(8.0
|
)
|
|
|
(884.2
|
)
|
Net income (loss) attributable to Air Products
|
|
|
|
|
|
|
363.6
|
|
|
|
(473.3
|
)
|
|
|
346.8
|
|
|
|
394.0
|
|
|
|
631.1
|
|
Basic Earnings Per Common Share Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
1.75
|
|
|
|
1.76
|
|
|
|
1.64
|
|
|
|
1.85
|
|
|
|
7.00
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(.07
|
)
|
|
|
(3.95
|
)
|
|
|
(.04
|
)
|
|
|
(.04
|
)
|
|
|
(4.08
|
)
|
Net income (loss) attributable to Air Products
|
|
|
|
|
|
|
1.68
|
|
|
|
(2.19
|
)
|
|
|
1.60
|
|
|
|
1.81
|
|
|
|
2.92
|
|
Diluted Earnings Per Common Share Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
1.73
|
|
|
|
1.74
|
|
|
|
1.63
|
|
|
|
1.84
|
|
|
|
6.94
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(.06
|
)
|
|
|
(3.91
|
)
|
|
|
(.04
|
)
|
|
|
(.04
|
)
|
|
|
(4.05
|
)
|
Net income (loss) attributable to Air Products
|
|
|
|
|
|
|
1.67
|
|
|
|
(2.17
|
)
|
|
|
1.59
|
|
|
|
1.80
|
|
|
|
2.89
|
|
Dividends declared per common share
|
|
|
|
|
|
|
.81
|
|
|
|
.86
|
|
|
|
.86
|
|
|
|
.86
|
|
|
|
3.39
|
|
Market price per common share:
|
|
|
High
|
|
|
|
143.83
|
|
|
|
147.16
|
|
|
|
152.16
|
|
|
|
157.84
|
|
|
|
|
|
|
|
|
Low
|
|
|
|
126.65
|
|
|
|
114.64
|
|
|
|
134.15
|
|
|
|
137.31
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
Sales
|
|
|
|
|
|
|
$2,560.8
|
|
|
|
$2,414.5
|
|
|
|
$2,470.2
|
|
|
|
$2,449.4
|
|
|
|
$9,894.9
|
|
Gross profit
|
|
|
|
|
|
|
731.1
|
|
|
|
716.3
|
|
|
|
755.0
|
|
|
|
753.5
|
|
|
|
2,955.9
|
|
Business separation costs
(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5
|
|
|
|
7.5
|
|
Business restructuring and cost reduction
actions
(C)
|
|
|
|
|
|
|
32.4
|
|
|
|
55.4
|
|
|
|
58.2
|
|
|
|
61.7
|
|
|
|
207.7
|
|
Pension settlement loss
(D)
|
|
|
|
|
|
|
|
|
|
|
12.6
|
|
|
|
1.6
|
|
|
|
7.0
|
|
|
|
21.2
|
|
Gain on previously held equity interest
(G)
|
|
|
|
|
|
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.9
|
|
Gain on land sales
(H)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33.6
|
|
|
|
33.6
|
|
Operating income
|
|
|
|
|
|
|
432.3
|
|
|
|
376.9
|
|
|
|
424.8
|
|
|
|
474.3
|
|
|
|
1,708.3
|
|
Loss on extinguishment of debt
(E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
|
|
|
16.6
|
|
Income tax provision
|
|
|
|
|
|
|
107.1
|
|
|
|
87.7
|
|
|
|
104.1
|
|
|
|
119.4
|
|
|
|
418.3
|
|
Net income
|
|
|
|
|
|
|
337.5
|
|
|
|
296.9
|
|
|
|
333.2
|
|
|
|
350.0
|
|
|
|
1,317.6
|
|
Net income attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
326.3
|
|
|
|
291.9
|
|
|
|
320.5
|
|
|
|
346.0
|
|
|
|
1,284.7
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
(1.9
|
)
|
|
|
(1.7
|
)
|
|
|
(1.5
|
)
|
|
|
(6.8
|
)
|
Net income attributable to Air Products
|
|
|
|
|
|
|
324.6
|
|
|
|
290.0
|
|
|
|
318.8
|
|
|
|
344.5
|
|
|
|
1,277.9
|
|
Basic Earnings Per Common Share Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
1.53
|
|
|
|
1.36
|
|
|
|
1.49
|
|
|
|
1.61
|
|
|
|
5.98
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.03
|
)
|
Net income attributable to Air Products
|
|
|
|
|
|
|
1.52
|
|
|
|
1.35
|
|
|
|
1.48
|
|
|
|
1.60
|
|
|
|
5.95
|
|
Diluted Earnings Per Common Share Attributable to Air Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
1.51
|
|
|
|
1.34
|
|
|
|
1.48
|
|
|
|
1.59
|
|
|
|
5.91
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
(.03
|
)
|
Net income attributable to Air Products
|
|
|
|
|
|
|
1.50
|
|
|
|
1.33
|
|
|
|
1.47
|
|
|
|
1.58
|
|
|
|
5.88
|
|
Dividends declared per common share
|
|
|
|
|
|
|
.77
|
|
|
|
.81
|
|
|
|
.81
|
|
|
|
.81
|
|
|
|
3.20
|
|
Market price per common share:
|
|
|
High
|
|
|
|
149.61
|
|
|
|
158.20
|
|
|
|
153.93
|
|
|
|
148.56
|
|
|
|
|
|
|
|
|
Low
|
|
|
|
118.20
|
|
|
|
137.07
|
|
|
|
136.69
|
|
|
|
123.66
|
|
|
|
|
|
(A)
|
Changes in estimates on projects accounted for under the percentage of completion method favorably impacted income by approximately $20 in fiscal year 2016, primarily during the fourth quarter. For additional
information, see Note 1, Major Accounting Policies (Revenue Recognition).
|
(B)
|
For additional information, see Note 3, Materials Technologies Separation.
|
(C)
|
For additional information, see Note 5, Business Restructuring and Cost Reduction Actions.
|
(D)
|
For additional information, see Note 16, Retirement Benefits.
|
(E)
|
For additional information, see Note 15, Debt.
|
(F)
|
Includes income tax expense for tax costs associated with business separation. For additional information, see Note 3, Materials Technologies Separation.
|
(G)
|
For additional information, see Note 6, Business Combination.
|
(H)
|
The gain is reflected on the consolidated income statements in Other income (expense), net. For additional information, see Note 24, Supplemental Information.
|
111
26. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Our reporting segments reflect the manner in which our chief operating decision maker reviews results and allocates resources. Except in the Corporate and other segment,
each reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments. Our liquefied natural gas (LNG) and helium storage and distribution sale of equipment businesses are aggregated
within the Corporate and other segment.
Our reporting segments are:
|
|
|
Industrial Gases Americas
|
|
|
|
Industrial Gases EMEA (Europe, Middle East, and Africa)
|
|
|
|
Industrial Gases Asia
|
|
|
|
Industrial Gases Global
|
Industrial Gases Regional
The regional Industrial Gases (Americas, EMEA, Asia) segments include the results of our regional industrial gas businesses, which produce and sell atmospheric gases
such as oxygen, nitrogen, and argon (primarily recovered by the cryogenic distillation of air) and process gases such as hydrogen, carbon monoxide, helium, syngas, and specialty gases. We supply gases to customers in many industries, including those
in metals, glass, chemical processing, energy production and refining, food processing, metallurgical industries, medical, and general manufacturing. We distribute gases to our customers through a variety of supply modes including liquid or gaseous
bulk supply delivered by tanker or tube trailer and, for smaller customers, packaged gases delivered in cylinders and dewars or small on-sites (cryogenic or non-cryogenic generators). For large-volume customers, we construct an on-site plant
adjacent to or near the customers facility or deliver product from one of our pipelines. We are the worlds largest provider of hydrogen, which is used by refiners to facilitate the conversion of heavy crude feedstock and lower the sulfur
content of gasoline and diesel fuels.
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. We mitigate energy and natural gas prices contractually through pricing formulas, surcharges, and cost pass-through arrangements. The regional Industrial Gases segments also include our
share of the results of several joint ventures accounted for by the equity method. The largest of these joint ventures operate in Mexico, Italy, South Africa, India, Saudi Arabia, and Thailand. Each of the regional Industrial Gases segments competes
against global industrial gas companies as well as regional competitors. Competition is based primarily on price, reliability of supply, and the development of industrial gas applications. We derive a competitive advantage in locations where we have
pipeline networks, which enable us to provide reliable and economic supply of products to larger customers.
Industrial Gases Global
The Industrial Gases Global segment includes cryogenic and gas processing equipment sales for air separation. The 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. The Industrial Gases Global segment also includes centralized
global costs associated with management of all the Industrial Gases segments. These costs include Industrial Gases global administrative costs, product development costs, and research and development costs. We compete with a large number of firms
for all the offerings included in the Industrial Gases Global segment. Competition in the equipment businesses is based primarily on technological performance, service, technical know-how, price, and performance guarantees.
Materials Technologies
The Materials Technologies segment, which contains two
divisions, Electronic Materials (EMD) and Performance Materials (PMD), employs applications technology to provide solutions to a broad range of global industries through chemical synthesis, analytical technology, process engineering, and surface
science. EMD provides specialty gases, specialty chemicals, services, and equipment to the electronics industry, primarily for the manufacture of silicon and compound semiconductors and thin film transistor liquid crystal (LCD) displays. PMD
112
provides performance chemical solutions for the coatings, inks, adhesives, construction and civil engineering, personal care, institutional and industrial cleaning, mining, oil refining, and
polyurethanes industries. We compete in the businesses included in the Materials Technologies segment 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.
During 2016, Air Products entered into an agreement to sell certain subsidiaries and assets comprising the PMD division. The sale is subject to regulatory and anti-trust
requirements. On 1 October 2016, Air Products completed the separation of its EMD division through the
spin-off
of Versum. Refer to Note 3, Materials Technologies Separation, for additional information.
Corporate and other
The Corporate and other segment includes two ongoing
global businesses (our LNG sale of equipment business and our liquid helium and liquid hydrogen transport and storage container businesses), the polyurethane intermediates (PUI) business that was exited in early fiscal year 2014, and corporate
support functions that benefit all the segments. Competition for the two sale of equipment businesses is based primarily on technological performance, service, technical know-how, price, and performance guarantees. Corporate and other also includes
income and expense that cannot be directly associated with the business segments, including foreign exchange gains and losses and stranded costs resulting from 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.
In addition to assets of the global businesses included in this
segment, other assets include cash, deferred tax assets, and financial instruments.
Customers
We do not have a homogeneous customer base or end market, and no single customer accounts for more than 10% of our consolidated revenues.
Accounting Policies
The accounting policies of the segments are the same as
those described in Note 1, Major Accounting Policies. We evaluate the performance of segments based upon reported segment operating income.
113
Business Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Gases
Americas
|
|
|
Industrial
Gases
EMEA
|
|
|
Industrial
Gases
Asia
|
|
|
Industrial
Gases
Global
|
|
|
Materials
Technologies
|
|
|
Corporate
and other
|
|
|
Segment
Total
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
$3,343.6
|
|
|
|
$1,700.3
|
|
|
|
$1,716.1
|
|
|
|
$498.8
|
|
|
|
$2,019.5
|
|
|
|
$246.1
|
|
|
|
$9,524.4
|
|
Operating income (loss)
|
|
|
895.2
|
|
|
|
382.8
|
|
|
|
449.1
|
|
|
|
(21.3
|
)
|
|
|
530.2
|
|
|
|
(37.5
|
)
|
|
|
2,198.5
|
|
Depreciation and amortization
|
|
|
442.5
|
|
|
|
185.7
|
|
|
|
197.1
|
|
|
|
7.9
|
|
|
|
77.4
|
|
|
|
15.3
|
|
|
|
925.9
|
|
Equity affiliates income (loss)
|
|
|
52.7
|
|
|
|
36.5
|
|
|
|
57.8
|
|
|
|
(.1
|
)
|
|
|
1.7
|
|
|
|
|
|
|
|
148.6
|
|
Expenditures for long-lived assets
|
|
|
406.6
|
|
|
|
159.5
|
|
|
|
313.3
|
|
|
|
6.0
|
|
|
|
147.9
|
|
|
|
22.5
|
|
|
|
1,055.8
|
|
Investments in net assets of and advances to equity affiliates
|
|
|
250.6
|
|
|
|
580.5
|
|
|
|
442.5
|
|
|
|
10.0
|
|
|
|
4.5
|
|
|
|
|
|
|
|
1,288.1
|
|
Total assets
|
|
|
5,889.2
|
|
|
|
3,178.6
|
|
|
|
4,232.7
|
|
|
|
367.6
|
|
|
|
1,787.0
|
|
|
|
2,580.8
|
|
|
|
18,035.9
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
$3,693.9
|
|
|
|
$1,864.9
|
|
|
|
$1,637.5
|
|
|
|
$286.8
|
|
|
|
$2,087.1
|
|
|
|
$324.7
|
|
|
|
$9,894.9
|
|
Operating income (loss)
|
|
|
808.4
|
|
|
|
330.7
|
|
|
|
380.5
|
|
|
|
(51.6
|
)
|
|
|
476.7
|
|
|
|
(51.5
|
)
|
|
|
1,893.2
|
|
Depreciation and amortization
|
|
|
416.9
|
|
|
|
194.3
|
|
|
|
202.9
|
|
|
|
16.5
|
|
|
|
92.8
|
|
|
|
13.0
|
|
|
|
936.4
|
|
Equity affiliates income (loss)
|
|
|
64.6
|
|
|
|
42.4
|
|
|
|
46.1
|
|
|
|
(.8
|
)
|
|
|
2.2
|
|
|
|
|
|
|
|
154.5
|
|
Expenditures for long-lived assets
|
|
|
414.5
|
|
|
|
215.6
|
|
|
|
402.5
|
|
|
|
94.8
|
|
|
|
102.5
|
|
|
|
35.7
|
|
|
|
1,265.6
|
|
Investments in net assets of and advances to equity affiliates
|
|
|
249.7
|
|
|
|
564.1
|
|
|
|
421.7
|
|
|
|
14.3
|
|
|
|
15.9
|
|
|
|
|
|
|
|
1,265.7
|
|
Total assets
|
|
|
5,774.9
|
|
|
|
3,323.9
|
|
|
|
4,154.0
|
|
|
|
370.5
|
|
|
|
1,741.9
|
|
|
|
1,075.7
|
|
|
|
16,440.9
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
|
|
$4,078.5
|
|
|
|
$2,150.7
|
|
|
|
$1,527.0
|
|
|
|
$296.0
|
|
|
|
$2,064.6
|
|
|
|
$322.2
|
|
|
|
$10,439.0
|
|
Operating income (loss)
|
|
|
762.6
|
|
|
|
351.2
|
|
|
|
310.4
|
|
|
|
(57.3
|
)
|
|
|
379.0
|
|
|
|
(78.5
|
)
|
|
|
1,667.4
|
|
Depreciation and amortization
|
|
|
414.4
|
|
|
|
220.2
|
|
|
|
205.3
|
|
|
|
7.1
|
|
|
|
99.1
|
|
|
|
10.8
|
|
|
|
956.9
|
|
Equity affiliates income
|
|
|
60.9
|
|
|
|
44.1
|
|
|
|
38.0
|
|
|
|
5.8
|
|
|
|
2.6
|
|
|
|
|
|
|
|
151.4
|
|
Expenditures for long-lived assets
|
|
|
484.2
|
|
|
|
239.1
|
|
|
|
430.3
|
|
|
|
77.7
|
|
|
|
64.2
|
|
|
|
67.2
|
|
|
|
1,362.7
|
|
Investments in net assets of and advances to equity affiliates
|
|
|
234.3
|
|
|
|
552.9
|
|
|
|
434.1
|
|
|
|
18.8
|
|
|
|
17.8
|
|
|
|
|
|
|
|
1,257.9
|
|
Total assets
|
|
|
6,240.7
|
|
|
|
3,521.0
|
|
|
|
4,045.6
|
|
|
|
389.4
|
|
|
|
1,835.7
|
|
|
|
1,044.5
|
|
|
|
17,076.9
|
|
Below is a reconciliation of segment total operating income to consolidated operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Segment total
|
|
|
$2,198.5
|
|
|
|
$1,893.2
|
|
|
|
$1,667.4
|
|
Business separation costs
|
|
|
(52.2
|
)
|
|
|
(7.5
|
)
|
|
|
|
|
Business restructuring and cost reduction actions
|
|
|
(33.9
|
)
|
|
|
(207.7
|
)
|
|
|
(12.7
|
)
|
Pension settlement loss
|
|
|
(6.4
|
)
|
|
|
(21.2
|
)
|
|
|
(5.5
|
)
|
Goodwill and intangible asset impairment charge
|
|
|
|
|
|
|
|
|
|
|
(310.1
|
)
|
Gain on previously held equity interest
|
|
|
|
|
|
|
17.9
|
|
|
|
|
|
Gain on land
sales
(A)
|
|
|
|
|
|
|
33.6
|
|
|
|
|
|
Consolidated Total
|
|
|
$2,106.0
|
|
|
|
$1,708.3
|
|
|
|
$1,339.1
|
|
(A)
|
Reflected on the consolidated income statements in Other income (expense), net.
|
Below is a reconciliation
of segment total assets to consolidated total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Segment total
|
|
|
$18,035.9
|
|
|
|
$16,440.9
|
|
|
|
$17,076.9
|
|
Discontinued operations
|
|
|
19.4
|
|
|
|
893.6
|
|
|
|
591.4
|
|
Consolidated Total
|
|
|
$18,055.3
|
|
|
|
$17,334.5
|
|
|
|
$17,668.3
|
|
The sales information noted above relates to external customers only. All intersegment sales are eliminated in consolidation. The
Industrial Gases Global segment had intersegment sales of $232.4 in 2016, $242.8 in 2015,
114
and $192.4 in 2014. These sales are generally transacted at market pricing. For all other segments, intersegment sales are not material for all periods presented. Equipment manufactured for our
regional industrial gases segments are generally transferred at cost and not reflected as an intersegment sale.
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to External Customers
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
|
$3,792.3
|
|
|
|
$4,280.1
|
|
|
|
$4,507.6
|
|
Canada
|
|
|
225.7
|
|
|
|
247.1
|
|
|
|
311.4
|
|
Europe
|
|
|
2,505.9
|
|
|
|
2,315.4
|
|
|
|
2,628.0
|
|
Asia, excluding China
|
|
|
1,382.7
|
|
|
|
1,395.2
|
|
|
|
1,389.4
|
|
China
|
|
|
1,176.2
|
|
|
|
1,129.1
|
|
|
|
981.0
|
|
Latin America
|
|
|
441.6
|
|
|
|
528.0
|
|
|
|
621.6
|
|
Total
|
|
|
$9,524.4
|
|
|
|
$9,894.9
|
|
|
|
$10,439.0
|
|
|
|
|
|
Long-Lived Assets
(A)
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
|
$3,780.2
|
|
|
|
$3,788.5
|
|
|
|
$3,754.2
|
|
Canada
|
|
|
639.0
|
|
|
|
577.4
|
|
|
|
518.0
|
|
Europe
|
|
|
1,306.1
|
|
|
|
1,395.0
|
|
|
|
1,656.7
|
|
Asia, excluding China
|
|
|
1,056.5
|
|
|
|
914.2
|
|
|
|
989.9
|
|
China
|
|
|
1,721.9
|
|
|
|
1,732.7
|
|
|
|
1,582.7
|
|
Latin America
|
|
|
349.0
|
|
|
|
337.3
|
|
|
|
440.1
|
|
Total
|
|
|
$8,852.7
|
|
|
|
$8,745.1
|
|
|
|
$8,941.6
|
|
(A)
|
Long-lived assets include plant and equipment, net.
|
Geographic information is based
on country of origin. Included in United States revenues are export sales to third-party customers of $307.7 in 2016, $398.8 in 2015, and $378.7 in 2014. The Europe region operates principally in France, Germany, the Netherlands, Poland, Saudi
Arabia, Spain, and the United Kingdom. The Asia region operates principally in China, Singapore, South Korea, and Taiwan. The Latin America region operates principally in Brazil and Chile.
115