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Our financial position is strong. Cash flow from continuing operations hit $1.3 billion,
including pension contributions of $130 million. Our debt-to-debt plus equity ratio ended the
year at 35.8%, ahead of expectations and placing us solidly within the “A” credit rating range.
Capital spending for continuing operations, including acquisitions, came in at $1.4 billion,
with plant and equipment spending at $1.3 billion, including $297 million for the repurchase
of cryogenic vessel equipment. As in 2005, additions to plant and equipment in 2006 were largely in support of our Merchant Gases, Tonnage Gases, and Electronics and Performance Materials segments. We also made significant progress on our share repurchase, completing the first $500 million of our fiscal 2006 $1.5 billion program. In addition, we again increased our dividend, our 24th consecutive year of increases.
Achieving Our Highest Priority:
Improving Returns
Perhaps most importantly, we again improved return on capital (ORONA), increasing it
130 basis points to 11.3% for the year. This was significant progress over our 10% cost of
capital and progress toward our stated goal of 12.5% ORONA by the end of fiscal 2007.
We also continued to drive productivity, and we are now using SAP’s functionality in
approximately 80% of our operations, streamlining our global supply chain and making it
easier for customers to do business with us.
Our Commitment:
Deliver Again in Fiscal 2007
 We begin our fiscal year building off the strong momentum we experienced in our fourth
quarter. While we expect slower economic growth in 2007, we see healthy top-line growth
continuing to drive higher earnings and returns. We will continue to drive productivity
improvement as we focus on achieving our 2007 return on capital goal of 12.5% ORONA.
Our Merchant and Tonnage Gases segments should benefit from the new plants we’ve
brought onstream, as well as from operating leverage and increased productivity. Our
Electronics and Performance Materials segment should see improved results, driven by
end-market demand and new product innovations, as well as portfolio simplification.
Meanwhile, we expect our Healthcare business to begin to show significant improvement
from higher U.S. volumes and lower operating costs in Europe as well as the U.S.
In closing, over the past six years of Deliver the Difference, our more than 20,000
employees have made incredible changes in the company and have overcome many
challenges in pursuit of transforming Air Products into a higher growth and higher return
company. I am very proud of them for their hard work and unfailing focus. We are now
beginning to experience that transformation, and indeed, it is their passion, integrity and
understanding that tell our customers and the world, “We are Air Products.”
Very truly yours,
John P. Jones III
Chairman and Chief Executive Officer
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