UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) 22 October 1998
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Air Products and Chemicals, Inc.
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(Exact name of registrant as specified in charter)
Delaware 1-4534 23-1274455
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(State of other jurisdiction of incorporation) (Commission file number) (IRS Identification number)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 481-4911
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Item 5. Other Events.
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The Registrant reported record income from operations of
$128 million, or diluted earnings per share of 59 cents,
for the fourth quarter ended september 30, 1998. This compares
to last year's $107 million, or 48 cents per share, a
per-share increase of 23 percent. Sales of $1.3 Billion were
up 3 percent versus $1.2 Billion last year.
In reviewing the quarter, Air Products Chairman H. A.Wagner
said, "We are very pleased with our outstanding fourth quarter
performance, which caps our second strong year in a row. Each
of our business segments reported higher profits."
Industrial gas sales increased 5 percent while operating
income rose 11 percent. European merchant volume were solid,
while U.S. volume growth remained modest. Tonnage HYCO volumes
in the U.S. reflected reduced spot business and lower customer
takes. In Europe, tonnage volumes were higher from demand on
new facilities serving the chemical process industries.
The worldwide gases operating margin improved against prior
year and last quarter, as lower costs and productivity
gains in both the merchant and tonnage business more than
offset a decline in merchant gas pricing. Gas equity affiliate
income was higher due to tax benefits in Italy.
Air Products' chemicals business continued to perform well
in the quarter, overcoming the impact of weaker Asian export
markets. Sales were up modestly, while operating income increased
34 percent, driven by fewer plant turnarounds, volume gains, and
continued productivity.
Equipment and Services completed an outstanding year, with
operating income up due to favorable cost performance.
Corporate and Other segment results reflect the absence of
profits from the Company's divested American Ref-Fuel joint venture.
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For fiscal 1998, Air Products reported record income
from operations of $489 million, or $2.22 per share, versus
$429 million, or $1.91 per share, for the same period last
year, an increase of 16 percent. These results exclude
after-tax gains in the current year of $58 million, or 26
cents per share, on the sale of our 50 percent interest in
American Ref-Fuel Company, a related power restructuring, and
a contract settlement on a cogeneration project. Sales of $4.9
billion, also a record, were up 6 percent over the prior year.
Commenting on the year, Mr. Wagner said, "1998 was an
excellent year for Air Products. We set records in financial
measures that matter -- sales, net income, earnings per share,
return on equity, and cash flow. Excluding one-time gains, our
16 percent growth in earnings per share, and 18.6 percent
return on equity, exceeded our long-term goals of 12 percent
and 15 percent, respectively. Equally important, our operating
return on net assets improved from 11.1 percent to 12.3
percent for the year. Plans we set in motion over the last few
years are hitting their stride, and our results reflect it.
Wagner concluded, "We enter 1999 more resilient than
most to changes in the economic environment, but certainly not
immune. Though we expect continued profitable growth next
year, moderating growth in the U.S. economy, the situation in
Asia, and a slowing in our equipment business will make it
difficult to meet our trendline target of 12 percent earnings
growth. While we obviously cannot control changes in world
economies, we will take the necessary steps to make certain we
control those things we can. Through the right balance of
top-line growth, sustainable cost control, and asset
management activities, Air Products remains well positioned to
meet our long-term financial objectives."
NOTE: The forward-looking statements contained in this
document are based on current expectations regarding important
risk factors. Actual
3
results may differ materially from those expressed. Important
risk factors and uncertainties include the impact of worldwide
economic growth, pricing of both the Company's products and raw
materials such as electricity, and other factors resulting from
fluctuations in interest rates and foreign currencies, the impact
of competitive products and pricing, continued success of work
process programs, and the impact of tax and other legislation and
other regulations in the jurisdictions in which the Company and its
affiliates operate.
Financial tables follow:
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AIR PRODUCTS AND CHEMICALS, INC.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(In millions, except earnings per share)
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Three Months Ended Twelve Months Ended
30 September 30 September
1998 1997 1998 1997
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Sales $1,250.3 $1,213.5 $4,919.0 $4,637.8
Net Income $ 127.7 $ 107.4 $ 546.8(c) $ 429.3
Basic Earnings
Per Share (a)(b) $ .60 $ .49 $ 2.54(c) $ 1.95
Diluted Earnings
Per Share (a)(b) $ .59 $ .48 $ 2.48(c) $ 1.91
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(a) Effective 31 December 1997, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings Per Share."
(b) The earnings per share amounts for the prior year have been restated to
reflect a two-for-one stock split during the third quarter of fiscal 1998.
(c) Includes an after-tax gain of $35.1 million, or $.16 per share from the sale
of the Company's 50% interest in American Ref-Fuel Company, an after-tax
gain of $15.4 million, or $.07 per share from the settlement of a power
contract restructuring and a gain of $7.6 million, or $.03 per share from a
cogeneration project contract settlement.
5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(Unaudited)
(In millions, except per share)
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Three Months Ended Twelve Months Ended
30 September 30 September
1998 1997 1998 1997
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SALES AND OTHER INCOME
Sales $1,250.3 $1,213.5 $4,919.0 $4,637.8
Other income 5.6 3.7 14.8 24.2
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1,255.9 1,217.2 4,933.8 4,662.0
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COSTS AND EXPENSES
Cost of sales 725.2 729.2 2,856.5 2,771.6
Selling, distribution and
administrative 285.7 278.3 1,120.3 1,051.3
Research and development 30.0 30.6 112.0 113.7
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OPERATING INCOME 215.0 179.1 845.0 725.4
Income from equity affiliates,
net of related expenses 13.4 16.8 38.0 66.3
Gain on Ref-Fuel Sale
and Contract Settlements -- -- 103.5 --
Interest expense 41.6 39.5 162.8 161.3
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INCOME BEFORE TAXES 186.8 156.4 823.7 630.4
Income taxes 59.1 49.0 276.9 201.1
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NET INCOME $ 127.7 $ 107.4 $ 546.8 $ 429.3
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BASIC EARNINGS PER
COMMON SHARE $ .60 $ .49 $ 2.54 $ 1.95
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DILUTED EARNINGS PER
COMMON SHARE* $ .59 $ .48 $ 2.48 $ 1.91
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 212.7 219.8 215.5 220.0
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WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES (in millions) 216.6 225.1 220.1 224.9
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DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .17 $ .15 $ .64 $ .575
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* Diluted earnings per common share is due mainly to the impact of unexercised
stock options.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share)
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30 Sept. 30 Sept.
ASSETS 1998 1997
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CURRENT ASSETS
Cash and cash items $ 61.5 $ 52.5
Trade receivables, less allowances for
doubtful accounts 881.1 879.6
Inventories 428.6 386.5
Contracts in progress, less progress billings 94.0 121.3
Other current assets 176.5 184.4
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TOTAL CURRENT ASSETS 1,641.7 1,624.3
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INVESTMENTS 380.4 576.8
PLANT AND EQUIPMENT, at cost 9,489.5 8,727.3
Less - Accumulated depreciation 4,703.4 4,286.1
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PLANT AND EQUIPMENT, net 4,786.1 4,441.2
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GOODWILL 324.9 248.6
OTHER NONCURRENT ASSETS 364.1 353.2
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TOTAL ASSETS $7,497.2 $7,244.1
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 478.7 $ 616.6
Accrued liabilities 333.2 315.7
Accrued income taxes 30.9 15.9
Short-term borrowings 270.1 100.9
Current portion of long-term debt 128.1 75.5
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TOTAL CURRENT LIABILITIES 1,241.0 1,124.6
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LONG-TERM DEBT 2,299.3 2,291.7
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 563.7 449.7
DEFERRED INCOME TAXES 711.6 730.0
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TOTAL LIABILITIES 4,815.6 4,596.0
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.4 124.7
Capital in excess of par value 329.2 453.0
Retained earnings 3,400.0 2,990.2
Unrealized gain on investments 5.0 6.9
Cumulative translation adjustments (222.2) (186.1)
Treasury Stock, at cost (657.0) (297.3)
Shares in trust (422.8) (443.3)
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TOTAL SHAREHOLDERS' EQUITY 2,681.6 2,648.1
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,497.2 $7,244.1
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7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1997, the Company sold its 50% interest in American Ref-Fuel
Company, its former waste-to-energy joint venture with Browning-Ferris
Industries, Inc. (BFI), to Duke Energy Power Services and United American Energy
Corporation. This transaction provided for the sale of Air Products' interest in
American Ref-Fuel's five waste-to-energy facilities for $237 million, and the
assumption of various parental support agreements by Duke Energy Capital
Corporation, the parent company of Duke Energy Power Services. The income
statement for the twelve months ended 30 September 1998 includes a gain of $62.6
million from this sale, ($35.1 million after-tax or $.16 per share). Fiscal
1997 results included equity affiliates' income related to American Ref-Fuel of
$21.4 million before taxes of which $2.3, $.8, $9.6 and $8.7 million was
included in the first through fourth quarters respectively.
Air Products retained a limited partnership interest in an American Ref-Fuel
project that was undergoing a power contract restructuring. The restructuring
was completed in June 1998. The twelve months ending 30 September 1998 includes
a gain, net of transaction costs, of $28.3 million ($15.4 million after-tax or
$.07 per share).
The results for the twelve months ended 30 September 1998 also include a gain of
$12.6 million from a cogeneration project contract settlement ($7.6 million
after-tax or $.03 per share).
On 6 May 1998, the Company's Board of Directors approved a two-for-one stock
split. The additional shares were issued on 15 June 1998, to shareholders of
record on 15 May 1998. The earnings per share and shares outstanding amounts for
the prior year have been restated to reflect the stock split.
The Company completed the sale of the landfill gas recovery business, GSF Energy
Inc., during the three months ended 31 December 1996. A gain of $9.5 million
($5.9 million after-tax, or $.03 per share) was recorded.
During the three months ended 31 December 1996, an impairment loss of $9.3
million ($6.0 million after-tax, or $.03 per share) was recorded in the
chemicals segment. The write-down was related to production assets in the
performance chemicals division and the related goodwill.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
(In millions)
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Three Months Ended Twelve Months Ended
30 September 30 September
1998 1997 1998 1997
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Sales:
Industrial Gases $ 739.3 $ 703.6 $2,907.5 $2,673.9
Chemicals 386.3 377.1 1,539.2 1,448.1
Equipment/Services 124.7 132.8 472.3 514.6
Corporate/Other -- -- -- 1.2
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CONSOLIDATED $1,250.3 $1,213.5 $4,919.0 $4,637.8
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Operating Income:
Industrial Gases $ 145.5 $ 130.8 $ 573.1 $ 515.2
Chemicals 62.3 46.6 253.7 204.2 (b)
Equipment/Services 22.7 13.4 73.1 37.5
Corporate/Other (15.5) (11.7) (54.9) (31.5)(c)
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CONSOLIDATED $ 215.0 $ 179.1 $ 845.0 $ 725.4
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Equity Affiliates' Income:
Industrial Gases $ 9.0(a) $ 4.5 $ 17.3(a) $ 28.5
Chemicals 0.1 -- 0.6 0.4
Equipment/Services 4.5 3.7 17.7 13.9
Corporate/Other (0.2) 8.6 2.4 23.5 (d)
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CONSOLIDATED $ 13.4 $ 16.8 $ 38.0 $ 66.3
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(a) Equity affiliates' income for the three and twelve month periods ended
30 September 1998 includes $4.1 million in tax benefits in a European
venture.
(b) Operating income for the twelve month period ended 30 September 1997
includes a $9.3 million impairment loss.
(c) Operating income for the twelve month period ended 30 September 1997
includes a pre-tax gain of $9.5 million on the sale of the landfill gas
recovery business, and a pre-tax gain of $7.3 million on the sale of 19%
of a cost based investment.
(d) Equity affiliates' income for the twelve month period ended 30 September
1997 includes a pre-tax charge of $4.8 million from the refinancing of a
joint venture bond offering.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(In millions)
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Three Months Ended Twelve Months Ended
30 September 30 September
1998 1997 1998 1997
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Sales:
United States $ 836.7 $ 861.8 $3,381.5 $3,269.7
Europe 346.8 298.7 1,293.3 1,178.3
Canada/Latin America 57.6 48.1 216.6 171.7
Other 9.2 4.9 27.6 18.1
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CONSOLIDATED $1,250.3 $1,213.5 $4,919.0 $4,637.8
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Operating Income:
United States $ 149.5 $ 126.9 $ 635.4 $ 554.3(b)
Europe 57.2 46.0 192.8 150.8(c)
Canada/Latin America 8.7 6.4 19.9 20.9
Other (0.4) (0.2) (3.1) (0.6)
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CONSOLIDATED $ 215.0 $ 179.1 $ 845.0 $ 725.4
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Equity Affiliates' Income:
United States $ 3.8 $ 12.3 $ 19.0 $ 36.5
Europe 7.4(a) 2.6 15.0(a) 13.9
Canada/Latin America 2.6 3.3 11.2 11.2
Other (0.4) (1.4) (7.2) 4.7
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CONSOLIDATED $ 13.4 $ 16.8 $ 38.0 $ 66.3
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(a) For the three and twelve months ended 30 September 1998, equity affiliates'
income of Europe includes $4.1 million in tax benefits.
(b) For the twelve months ended 30 September 1997, operating income of the
United States includes a gain of $9.5 million from the sale of the landfill
gas recovery business.
(c) For the twelve months ended 30 September 1997, operating income of Europe
includes an impairment loss of $9.3 million.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Air Products and Chemicals, Inc.
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(Registrant)
Dated: 22 October 1998 By: /s/ Leo J. Daley
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Leo J. Daley
Vice President - Finance
(Chief Financial Officer)
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