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Air Products Reports Fiscal 2010 Third Quarter Earnings

Jul 22, 2010

LEHIGH VALLEY, Pa., July 22, 2010 /PRNewswire via COMTEX/ --

Access the Q3 earnings teleconference scheduled for 10:00 a.m. Eastern Time on July 22 by calling 719-325-2432 and entering passcode 4716570, or listen on the Web at: www.airproducts.com/Invest/financialnews/Earnings_Releases/Teleconference.htm.

Highlights

  • Sales increased 14% versus prior year, underlying sales up 12%
  • Operating margin improved to 16.6%*
  • Earnings per share of $1.28, up 22%*
  • Fiscal 2010 EPS guidance of $4.94 to $5.00*
  • Recent project awards strengthen backlog

Air Products (NYSE: APD) today reported net income of $277 million, or diluted earnings per share (EPS) of $1.28, for its fiscal third quarter ended June 30, 2010. This result excludes an after-tax charge of $24 million, or $0.11 per share, for costs associated with the tender offer for the outstanding shares of Airgas, Inc.

The discussion of third quarter results and guidance in this release is based on non-GAAP comparisons. A reconciliation can be found at the end of this release.*

Third quarter revenues of $2,252 million increased 14 percent from the prior year, and operating income of $374 million rose 22 percent from the prior year on significantly improved volumes.

John McGlade, chairman, president and chief executive officer, said, "Our Tonnage, Merchant, and Electronics and Performance Materials businesses had significant increases in volume this quarter. Our continued improvements in margin, earnings growth and return on capital show that we remain focused on delivering the value our shareholders expect."

Third Quarter Segment Performance

  • Merchant Gases sales of $915 million increased 4 percent versus prior year on improved volumes across all regions. Operating income of $176 million improved 5 percent versus prior year on better volumes. Volumes were particularly strong in Asia and are improving in both the US and Europe liquid bulk businesses.
  • Tonnage Gases sales of $725 million were up 28 percent from the prior year, principally due to new projects coming onstream and improved volumes from existing steel and chemicals customers. Higher energy and raw material cost pass-through also contributed. Operating income of $120 million increased 37 percent on higher volumes.
  • Electronics and Performance Materials sales of $497 million improved 21 percent, and operating income of $62 million increased 60 percent over the prior year mainly on higher volumes, which have recovered to pre-recession levels. Electronics sales increased 18 percent versus prior year and 11 percent sequentially on improved volumes driven by higher customer utilization. The recent restructuring efforts in Electronics have been completed. Performance Materials volumes grew 26 percent versus prior year and improved 10 percent sequentially on strength in the underlying business supported by new product sales.
  • Equipment and Energy sales of $116 million were down slightly versus the prior year. Operating income of $21 million increased from the prior year on higher LNG activity.

Outlook

McGlade said, "As the global economy recovers, we are well positioned to serve our broad customer base. As seen by the recent announcements from our Tonnage and Electronics businesses, we continue to win new business and our project backlog remains strong. Successes in applications development have generated substantial new business signings in our Merchant segment. Our operating leverage across the company will continue to drive margin improvement. We expect earnings growth to exceed 20 percent for fiscal 2010 and are on track to hit our margin goal of 17 percent in 2011."

Air Products now expects fourth quarter EPS from continuing operations to be between $1.27 and $1.33 per share and full-year EPS from continuing operations to be between $4.94 and $5.00 per share.

Air Products (NYSE: APD) serves customers in industrial, energy, technology and healthcare markets worldwide with a unique portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services. Founded in 1940, Air Products has built leading positions in key growth markets such as semiconductor materials, refinery hydrogen, home healthcare services, natural gas liquefaction, and advanced coatings and adhesives. The company is recognized for its innovative culture, operational excellence and commitment to safety and the environment. In fiscal 2009, Air Products had revenues of $8.3 billion, operations in over 40 countries, and 18,900 employees around the globe. For more information, visit www.airproducts.com.

NOTE: The information above contains "forward-looking statements," within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including earnings guidance for the fourth quarter and full year. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date of this press release. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation, stalling of the global economic recovery; renewed deterioration in economic and business conditions; weakening demand for the Company's products, future financial and operating performance of major customers and industries served by the Company; unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset impairments due to economic conditions or specific product or customer events; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; consequences of acts of war or terrorism impacting the United States' and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to current portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact, and other uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the continued availability of capital funding sources in all of the Company's foreign operations; the impact of new or changed environmental, healthcare, tax or other legislation and regulations in jurisdictions in which the Company and its affiliates operate; the impact of new or changed financial accounting standards; and the timing and rate at which tax credits can be utilized and other risk factors described in the Company's Form 10-K for its fiscal year ended September 30, 2009. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company's assumptions, beliefs or expectations or any change in events, conditions or circumstances upon which any such forward-looking statements are based.

*The presentation of non-GAAP measures is intended to enhance the usefulness of financial information by providing measures which the Company's management uses internally to evaluate the Company's baseline performance. Presented below are reconciliations of reported GAAP results to non-GAAP measures.

       CONSOLIDATED RESULTS

                                       Continuing Operations
                                       ---------------------
                        Q3        Q3         Q3           Q4        YTD
                        ---       ---        ---          ---       ---
                    Operating     Net      Diluted     Diluted    Diluted
    Millions of
     dollars          Income    Income       EPS          EPS       EPS
    -----------       ------    ------       ---          ---       ---
    2010 GAAP           $336.4                $1.17
    2009 GAAP            143.8                  .54
    ---------            -----                  ---
    % Change GAAP          134%                 117%
    =============          ===                  ===

    2010 GAAP           $336.4   $253.2       $1.17
    Acquisition-
     related costs        37.9     23.7         .11
    (tax impact
     $14.2) (a)
    2010 Non-GAAP
     Measure            $374.3   $276.9       $1.28
    =============       ======   ======       =====

    2009 GAAP           $143.8   $114.6        $.54                    $3.00
    Global cost
     reduction plan      124.0     84.2         .39                      .94
    (Q3 tax impact
     $39.8) (b)
    Customer
     bankruptcy and
     asset actions        32.1     21.0         .10                      .10
    (Q3 tax impact
     $11.1) (c)
    Pension
     settlement            8.0      5.0         .02                      .02
    (Q3 tax impact
     $3.0) (a)             ---      ---         ---                      ---
    --------------
    2009 Non-GAAP
     Measure            $307.9   $224.8       $1.05                    $4.06
    =============       ======   ======       =====                    =====


    % Change Non-
     GAAP Measure           22%      23%         22%
    =============          ===      ===         ===

    2010 Guidance
     (d)                                             $1.27-$1.33 $4.94-$5.00
    2009 GAAP                                                          $3.00
    ---------                                                          -----
    % Change                                                         65%-67%
    ========                                                         =======


    % Change Non-
     GAAP Measure                                                    22%-23%
    =============                                                    =======

                                                          Q3
                                             Q3       Operating
                                            Sales       Income    Margin
                                            -----       ------    ------
    2010 GAAP                              $2,252.3       $336.4        14.9%
    2010 Non-GAAP
     Measure                                2,252.3        374.3        16.6%
    =============                           =======        =====        ====



    (a) Based on statutory tax rate of 37.4%
    (b)  Based on average statutory tax rate of 32.1%
    (c) Based on average statutory tax rate of 34.6%
    (d) Guidance excludes the impact of acquisition-related costs

                    AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
                             CONSOLIDATED INCOME STATEMENTS
                                       (Unaudited)

                                  Three Months Ended      Nine Months Ended
                                        30 June                30 June
    (Millions of dollars,
     except for share data)          2010       2009      2010       2009
    -----------------------          ----       ----      ----       ----
    Sales                        $2,252.3   $1,976.2  $6,674.8   $6,126.9
    Cost of sales                 1,611.0    1,427.5   4,808.3    4,497.1
    Selling and administrative      241.2      232.3     725.7      709.9
    Research and development         29.3       24.1      82.8       86.9
    Global cost reduction plan          -      124.0         -      298.2
    Acquisition-related costs        37.9          -      61.3          -
    Customer bankruptcy              (1.8)      22.2      (1.8)      22.2
    Pension settlement                6.3        8.0       6.3        8.0
    Other (income), net              (8.0)      (5.7)    (29.8)     (13.7)
    -------------------              ----       ----     -----      -----
    Operating Income                336.4      143.8   1,022.0      518.3
    Equity affiliates' income        32.5       28.5      91.6       80.0
    Interest expense                 30.0       27.5      91.1       94.0
    ----------------                 ----       ----      ----       ----
    Income from Continuing
     Operations before Taxes        338.9      144.8   1,022.5      504.3
    Income tax provision             77.6       25.4     246.0       99.0
    Income from Continuing
     Operations                     261.3      119.4     776.5      405.3
    Loss from Discontinued
     Operations, net of tax             -       (1.4)        -       (6.5)
    -----------------------           ---       ----       ---       ----
    Net Income                      261.3      118.0     776.5      398.8
    Less: Net Income
     Attributable to
     Noncontrolling Interests         8.1        4.8      19.5       11.4
    -------------------------         ---        ---      ----       ----
    Net Income Attributable to
     Air Products                  $253.2     $113.2    $757.0     $387.4
    ==========================     ======     ======    ======     ======

    Net Income Attributable to
     Air Products
    --------------------------
      Income from continuing
       operations                  $253.2     $114.6    $757.0     $393.9
      Loss from discontinued
       operations                       -       (1.4)        -       (6.5)
      ----------------------          ---       ----       ---       ----
      Net Income Attributable to
       Air Products                $253.2     $113.2    $757.0     $387.4
      ==========================   ======     ======    ======     ======

    Basic Earnings per Common
     Share Attributable to Air
     Products
      Income from continuing
       operations                   $1.19       $.55     $3.57      $1.88
      Loss from discontinued
       operations                       -       (.01)        -       (.03)
      ----------------------          ---       ----       ---       ----
      Net Income Attributable to
       Air Products                 $1.19       $.54     $3.57      $1.85
    Diluted Earnings per
     Common Share Attributable
     to Air Products
      Income from continuing
       operations                   $1.17       $.54     $3.49      $1.85
      Loss from discontinued
       operations                       -       (.01)        -       (.03)
      ----------------------          ---       ----       ---       ----
      Net Income Attributable to
       Air Products                 $1.17       $.53     $3.49      $1.82
      --------------------------    -----       ----     -----      -----
    Weighted Average of Common
     Shares Outstanding
    (in millions)                   212.3      209.8     212.0      209.6
    -------------                     ---        ---       ---        ---
    Weighted Average of Common
     Shares Outstanding
    Assuming Dilution (in
     millions)                      216.9      214.0     216.9      212.8
    ---------------------           -----      -----     -----      -----
    Dividends Declared per
     Common Share - Cash             $.49       $.45     $1.43      $1.34
    ----------------------           ----       ----     -----      -----
    Other Data from Continuing
     Operations:
      Depreciation and
       amortization                $214.4     $217.1    $648.8     $614.8
      Capital expenditures on a
       non-GAAP Basis               294.5      356.1     993.7    1,041.8
    (see reconciliation at end
     of announcement)



                AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                  30 June    30 September
                                                        2010          2009
    (Millions of dollars)                               ----          ----
    ---------------------
    Assets
    ------
    Current Assets
    Cash and cash items                               $405.3        $488.2
    Trade receivables, less allowances for
     doubtful accounts                               1,416.4       1,363.2
    Inventories                                        499.2         509.6
    Contracts in progress, less progress billings      120.6         132.3
    Prepaid expenses                                    72.8          99.7
    Other receivables and current assets               431.1         404.8
    ------------------------------------               -----         -----
    Total Current Assets                             2,945.4       2,997.8
    --------------------                             -------       -------
    Investment in Net Assets of and Advances to
     Equity Affiliates                                 856.9         868.1
    Plant and Equipment, at cost                    15,646.9      15,751.3
    Less: Accumulated depreciation                   8,876.1       8,891.7
    ------------------------------                   -------       -------
    Plant and Equipment, net                         6,770.8       6,859.6
    ------------------------                         -------       -------
    Goodwill                                           842.5         916.0
    Intangible Assets, net                             263.9         262.6
    Noncurrent Capital Lease Receivables               738.1         687.0
    Other Noncurrent Assets                            581.8         438.0
    Total Assets                                   $12,999.4     $13,029.1
    ============                                   =========     =========

    Liabilities and Equity
    ----------------------
    Current Liabilities
    Payables and accrued liabilities                $1,415.3      $1,674.8
    Accrued income taxes                                75.9          42.9
    Short-term borrowings                              341.2         333.8
    Current portion of long-term debt                  480.4         452.1
    ---------------------------------                  -----         -----
    Total Current Liabilities                        2,312.8       2,503.6
    -------------------------                        -------       -------
    Long-Term Debt                                   3,366.4       3,715.6
    Deferred Income and Other Noncurrent
     Liabilities                                     1,474.7       1,522.0
    Deferred Income Taxes                              473.6         357.9
    Total Liabilities                                7,627.5       8,099.1
    -----------------                                -------       -------
    Total Air Products Shareholders' Equity          5,231.4       4,791.9
    Noncontrolling Interests                           140.5         138.1
    ------------------------                           -----         -----
    Total Equity                                     5,371.9       4,930.0
    Total Liabilities and Equity                   $12,999.4     $13,029.1
    ============================                   =========     =========



                 AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)

                                                       Nine Months Ended
                                                            30 June
    (Millions of dollars)                                 2010        2009
    ---------------------                                 ----        ----
    Operating Activities
      Net Income                                        $776.5      $398.8
      Less: Net income attributable to noncontrolling
       interests                                          19.5        11.4
      -----------------------------------------------     ----        ----
      Net income attributable to Air Products           $757.0      $387.4
      Adjustments to reconcile income to cash
       provided by operating activities:
       Depreciation and amortization                     648.8       614.8
       Impairment of assets of continuing operations       3.8        67.7
       Impairment of assets of discontinued operations       -        48.7
       Deferred income taxes                              80.7       (41.6)
       Undistributed earnings of unconsolidated
        affiliates                                       (35.2)      (45.5)
       (Gain) loss on sale of assets and investments      (9.1)        7.0
       Share-based compensation                           36.6        45.1
       Noncurrent capital lease receivables              (72.7)      (74.9)
       Acquisition-related costs                          52.5           -
       Customer bankruptcy                                   -        22.2
       Other adjustments                                  35.5       (28.8)
      Working capital changes that provided (used)
       cash, excluding effects of
    acquisitions and divestitures:
       Trade receivables                                (151.3)      160.0
       Inventories                                        (9.5)      (10.8)
       Contracts in progress                               4.6        29.8
       Payables and accrued liabilities                 (315.9)     (313.2)
       Other working capital                               7.4        (2.9)
       ---------------------                               ---        ----
    Cash Provided by Operating Activities              1,033.2       865.0
    -------------------------------------              -------       -----
    Investing Activities
      Additions to plant and equipment                  (757.2)     (899.3)
      Acquisitions, less cash acquired                   (37.2)      (29.8)
      Investment in and advances to unconsolidated
       affiliates                                         (4.7)       (1.1)
      Investment in Airgas stock                         (69.6)          -
      Proceeds from sale of assets and investments        32.6        30.1
      Proceeds from sale of discontinued operations          -        39.0
      Change in restricted cash                           28.2        82.2
    Cash Used for Investing Activities                  (807.9)     (778.9)
    ----------------------------------                  ------      ------
    Financing Activities
      Long-term debt proceeds                            110.9       120.9
      Payments on long-term debt                        (109.8)      (70.0)
      Net (decrease) increase in commercial paper and
       short-term borrowings                             (50.0)       99.2
      Dividends paid to shareholders                    (294.6)     (278.8)
      Proceeds from stock option exercises                42.3        14.9
      Excess tax benefit from share-based
       compensation                                       11.1         4.1
      Other financing activities                          (9.9)       (7.8)
      --------------------------                          ----        ----
    Cash Used for Financing Activities                  (300.0)     (117.5)
    ----------------------------------                  ------      ------



               AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (Unaudited)

                                                  Nine Months Ended
                                                       30 June
    (Millions of dollars)                           2010          2009
    ---------------------                           ----          ----
    Effect of Exchange Rate Changes on Cash         (8.2)         (1.8)
    ---------------------------------------         ----          ----
    Decrease in Cash and Cash Items                (82.9)        (33.2)
    Cash and Cash Items - Beginning of Year        488.2         103.5
    ---------------------------------------        -----         -----
    Cash and Cash Items - End of Period           $405.3         $70.3
    ===================================           ======         =====

    Supplemental Cash Flow Information
      Pension plan contributions                  $348.2        $169.5
      Significant noncash transactions:
          Short-term borrowings associated with
           SAGA acquisition                         54.6             -
          Noncurrent liability related to the
           purchase of shares from noncontrolling   39.8             -
         interests




                 AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
                           SUMMARY BY BUSINESS SEGMENTS
                                    (Unaudited)

                                    Three Months Ended    Nine Months Ended
                                         30 June               30 June
    (Millions of dollars)               2010       2009      2010      2009
    ---------------------               ----       ----      ----      ----
    Revenues from External
     Customers
      Merchant Gases                  $915.0     $882.6  $2,770.3  $2,678.2
      Tonnage Gases                    724.5      565.0   2,179.1   1,933.6
      Electronics and Performance
       Materials                       496.9      409.2   1,381.5   1,148.0
      Equipment and Energy             115.9      119.4     343.9     367.1
      --------------------             -----      -----     -----     -----
    Segment and Consolidated
     Totals                         $2,252.3   $1,976.2  $6,674.8  $6,126.9
    ------------------------        --------   --------  --------  --------

    Operating Income
      Merchant Gases                  $176.4     $168.8    $544.1    $495.5
      Tonnage Gases                    119.8       87.6     327.2     294.4
      Electronics and Performance
       Materials                        62.4       39.0     167.8      52.5
      Equipment and Energy              21.1       13.1      47.1      36.4
      --------------------              ----       ----      ----      ----
    Segment Totals                    $379.7     $308.5  $1,086.2    $878.8
      Global cost reduction plan           -     (124.0)        -    (298.2)
      Acquisition-related costs        (37.9)         -     (61.3)        -
      Customer bankruptcy and asset
       actions                           1.8      (32.1)      1.8     (32.1)
      Pension settlement                (6.3)      (8.0)     (6.3)     (8.0)
      Other                              (.9)       (.6)      1.6     (22.2)
      -----                              ---        ---       ---     -----
    Consolidated Totals               $336.4     $143.8  $1,022.0    $518.3
    -------------------               ------     ------  --------    ------



                                       30 June    30 September
    (Millions of dollars)                   2010           2009
    ---------------------                   ----           ----
    Identifiable Assets (a)
      Merchant Gases                    $4,734.8       $4,917.0
      Tonnage Gases                      3,752.5        3,597.8
      Electronics and Performance
       Materials                         2,195.4        2,249.5
      Equipment and Energy                 311.1          303.3
      --------------------                 -----          -----
    Segment Totals                     $10,993.8      $11,067.6
      Other                              1,148.7        1,093.4
    Consolidated Totals                $12,142.5      $12,161.0



    (a) Identifiable assets are equal to total assets less investments in
    and advances to equity affiliates.


                   AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      (Unaudited)


(Millions of dollars, except for share data)

AIRGAS TRANSACTION

In February 2010, the Company commenced a tender offer to acquire all the outstanding common stock of Airgas, Inc. (Airgas), including the associated preferred stock purchase rights, for $60.00 per share in cash. Airgas, a Delaware company, is the largest U.S. distributor of industrial, medical, specialty gases and hardgoods. On 8 July 2010, the Company increased the value of its tender offer to $63.50 per share. The total value of the transaction approximates $7.3 billion, including $5.5 billion of equity and $1.8 billion of assumed debt. The offer and withdrawal rights are scheduled to expire on 13 August 2010, unless further extended.

Prior to the tender offer, the Company purchased approximately 1.5 million shares of Airgas stock for $69.6. This amount was recorded as an available-for-sale investment within other noncurrent assets on the consolidated balance sheet. For the nine months ended 30 June 2010, an after-tax unrealized holding gain of $15.4 was recorded in other comprehensive income within total equity on the consolidated balance sheet.

In connection with this tender offer, the Company has secured committed financing in the form of a $6.7 billion term loan credit facility. Fees incurred to secure this credit facility have been deferred and are being amortized over the term of the arrangement.

For the three and nine months ended 30 June 2010, $37.9 ($23.7 after-tax, or $.11 per share) and $61.3 ($38.3 after-tax, or $.18 per share), respectively, in expense was recognized related to this transaction and is included within acquisition-related costs on the consolidated income statement. This includes amortization of the fees related to the term loan credit facility and other acquisition-related costs.


                                    RECONCILIATION
                                   NON-GAAP MEASURE


The Company utilizes a non-GAAP measure in the computation of capital expenditures and includes spending associated with facilities accounted for as capital leases and purchases of noncontrolling interests. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities. Additionally, the purchase of noncontrolling interests in a subsidiary is accounted for as an equity transaction and will be reflected as a financing activity in the statement of cash flows.

The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure which the Company's management uses internally to evaluate and manage the Company's expenditures.

Below is a reconciliation of capital expenditures on a GAAP basis to a non-GAAP measure.



                                 Three Months Ended   Nine Months Ended
                                       30 June             30 June
    (Millions of dollars)           2010       2009   2010       2009
    ---------------------           ----       ----   ----       ----
    Capital expenditures - GAAP
     basis                        $236.8     $312.7 $853.7     $930.2
    Capital lease expenditures      17.9       43.4  100.2      111.6
    Noncurrent liability related
     to purchase of shares from     39.8          -   39.8          -
    noncontrolling interests        ----        ---   ----        ---
    ------------------------
    Capital expenditures - non-
     GAAP basis                   $294.5     $356.1 $993.7   $1,041.8
    ---------------------------   ------     ------ ------   --------



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