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 January 1999
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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 net income of $126 million, or diluted earnings per
share of 59 cents, for the first quarter ended December 31, 1998. This compares
to last year's $161 million, or 72 cents per share. Excluding disclosed special
items, net income was $118 million, or diluted earnings per share of 55 cents, a
per-share increase of 4% as compared to $118 million, or 53 cents per share in
the year ago quarter. Sales of $1.3 billion were up 3% versus $1.2 billion last
year. The following discussion excludes the disclosed special items.
In reviewing the quarter, Air Products Chairman H. A. Wagner said, "Our
performance reflects the challenging economic conditions around the world. In
this quarter, we have stepped up our efforts across the Company to aggressively
drive for cost reduction and productivity improvement. Based on their track
record, I'm confident our employees will meet these challenges."
Industrial gas sales increased 2% while operating income declined 6%.
Relative to last year, performance in the quarter was affected by softer
conditions in key markets such as chemical processing, electronics and metals.
In the U. S. and Europe, reduced tonnage volumes and continued pricing pressures
were partially offset by modest merchant gases volume growth, continued
productivity improvement and good performance from the Company's Spanish
business. The worldwide gases operating margin of 18.7% reflected these
conditions. Gas equity affiliate income was up significantly due to favorable
foreign exchange and currency effects.
Chemicals sales were up 5%, as volumes grew by 8%, due primarily to the
consolidation of a venture and recent acquisitions. Operating income declined
21%, impacted by softer market conditions, customer outages, investments in new
facilities and venture and acquisition integration costs. The operating margin
of 13.5% declined from a record level a year ago.
2
Equipment and Services' operating income of $30 million was up
significantly due to a favorable project mix and good project execution and
close-out.
Commenting on the quarter, Mr. Wagner said, "We entered 1999 knowing the
global economic environment would be challenging. The current outlook is for key
markets to be softer than we expected, resulting in only a modest growth in
earnings this year. As evidenced by the cost reduction charge taken in the
quarter, we will continue to aggressively manage those items within our control.
That means taking every opportunity for profitable top-line growth, sustained
cost control, productivity improvement and a relentless focus on asset
management."
NOTE: The forward-looking statements contained in this document are based on
current expectations regarding important risk factors. Actual 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; customer demand; other factors
resulting from fluctuations in interest rates and foreign currencies; the impact
of competitive products and pricing; success of cost control 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:
3
AIR PRODUCTS AND CHEMICALS, INC.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(Millions of dollars, except per share)
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Three Months Ended
31 December
1998 1997
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Sales $1,274.6 $1,234.8
Net Income $ 126.4(a) $ 160.5(b)
Basic Earnings Per Share $ .60(a) $ .74(b)(c)
Diluted Earnings Per Share $ .59(a) $ .72(b)(c)
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Operating Return on Net Assets(d) 12.0% 11.5%
Capital Expenditures(e) $ 245.4(f) $ 186.9
Depreciation $ 127.8 $ 117.6
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(a) Includes an after-tax gain of $21.4 million, or $.10 per share related to
the formation of Air Products Polymers and an after-tax charge of
$12.9 million or $.06 per share related to a global cost reduction plan.
Excluding the impact of these special items, net income was
$117.9 million, basic earnings per share was $.56 and diluted earnings per
share was $.55.
(b) 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 and a gain
of $7.6 million, or $.03 per share from a cogeneration project contract
settlement. Excluding the impact of these special items, net income was
$118.0 million, basic earnings per share was $.54 and diluted earnings per
share was $.53.
(c) 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.
(d) Operating return on net assets (ORONA) is calculated as the rolling four
quarter sum of operating income divided by the rolling five quarter average
of total assets less investments in equity affiliates. The ORONA
calculation for the three months ended 31 December 1998 excludes
$20.3 million in charges related to a global cost reduction plan.
(e) Capital expenditures include additions to plant and equipment, investments
in and advances to unconsolidated affiliates, acquisitions, and capital
lease additions.
(f) Excludes the Company's contribution of $121.4 million of assets to the Air
Products Polymers venture.
4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(Unaudited)
(Millions of dollars, except per share)
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Three Months Ended
31 December
1998 1997
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SALES AND OTHER INCOME
Sales $1,274.6 $1,234.8
Other income(expense),net 4.9 (4.9)(a)
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1,279.5 1,229.9
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COSTS AND EXPENSES
Cost of sales 911.0 863.3(b)
Selling and
administrative 147.8 127.3(b)
Research and development 31.7 26.3
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OPERATING INCOME 189.0 213.0
Income from equity affiliates,
net of related expenses 9.8 5.7
Gain on American Ref-Fuel Sale
and contract settlements -- 75.2
Net gain on formation of
polymer venture 31.2 --
Interest expense 40.4 40.2
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INCOME BEFORE TAXES
AND MINORITY INTEREST 189.6 253.7
Income taxes 59.9 92.8
Minority interest 3.3 .4 (a)
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NET INCOME $ 126.4 $ 160.5
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BASIC EARNINGS PER COMMON SHARE $.60 $.74
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DILUTED EARNINGS PER COMMON SHARE $.59 $.72
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 211.4 218.1
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WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES (in millions)(c) 215.4 222.6
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DIVIDENDS DECLARED PER
COMMON SHARE - Cash $.17 $.15
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(a) The results for the three months ended 31 December 1997 have been restated
to reflect the current year presentation of minority interest in a separate
line item between income taxes and net income.
(b) The results for the three months ended 31 December 1997 have been restated
to reflect the current year presentation of distribution expense in cost of
sales.
(c) The dilution of earnings per common share is due mainly to the impact of
unexercised stock options.
5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of dollars)
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31 December 31 December
ASSETS 1998 1997
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CURRENT ASSETS
Cash and cash items $ 57.8 $ 85.9
Trade receivables, less allowances for
doubtful accounts 886.1 860.8
Inventories 452.1 406.0
Contracts in progress, less progress billings 136.6 93.9
Other current assets 129.2 229.1
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TOTAL CURRENT ASSETS 1,661.8 1,675.7
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INVESTMENTS IN NET ASSETS OF AND ADVANCES TO
EQUITY AFFILIATES 440.8 311.3
OTHER INVESTMENTS AND ADVANCES 24.5 17.3
PLANT AND EQUIPMENT, at cost 9,687.2 8,847.7
Less - Accumulated depreciation 4,793.5 4,372.5
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PLANT AND EQUIPMENT, net 4,893.7 4,475.2
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GOODWILL 346.4 258.7
OTHER NONCURRENT ASSETS 351.7 336.3
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TOTAL ASSETS $7,718.9 $7,074.5
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 480.4 $ 612.9
Accrued liabilities 269.6 239.4
Accrued income taxes 54.3 195.4
Short-term borrowings 252.7 64.8
Current portion of long-term debt 310.1 47.8
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TOTAL CURRENT LIABILITIES 1,367.1 1,160.3
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LONG-TERM DEBT 2,123.2 2,234.7
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 605.2 450.5
DEFERRED INCOME TAXES 733.9 616.3
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TOTAL LIABILITIES 4,829.4 4,461.8
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MINORITY INTERESTS IN SUBSIDIARY COMPANIES 117.0 17.3
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.5 124.7
Capital in excess of par value 331.1 452.1
Retained earnings 3,490.5 3,118.3
Accumulated other comprehensive income (203.3) (214.4)
Treasury Stock, at cost (681.7) (442.0)
Shares in trust (413.6) (443.3)
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TOTAL SHAREHOLDERS' EQUITY 2,772.5 2,595.4
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,718.9 $7,074.5
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6
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(Millions of dollars)
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Three Months Ended
31 December
1998 1997
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NET INCOME $ 126.4 $ 160.5
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OTHER COMPREHENSIVE INCOME, net of tax
Foreign currency translation adjustments 24.3 (32.8)
Unrealized gains on investments:
Unrealized holding gains arising
during the period 3.9 (2.4)
Less: reclassification adjustment
for gains included in net income -- --
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Net unrealized gains on investments 3.9 (2.4)
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TOTAL OTHER COMPREHENSIVE INCOME 28.2 (35.2)
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COMPREHENSIVE INCOME $ 154.6 $ 125.3
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7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results for the three months ended 31 December 1998 include a net gain of
$31.2 million ($21.4 million after-tax or $.10 per share) related to the
formation of Air Products Polymers (a 65% majority owned venture with Wacker
Chemicals). The gain is a result of using fair value to value the assets
acquired to form the venture. The gain was partially offset by costs related to
an emulsions facility shutdown not included in the joint venture and for costs
related to indemnities provided by Air Products to the venture.
On 21 December 1998, the Company committed to a global cost reduction plan. The
plan results in a staffing reduction of approximately 200 employees in the areas
of manufacturing, distribution, and overhead. The plan will be completed by
31 December 1999. $20.3 million ($12.9 million after-tax or $.06 per share)
related to employee termination benefits was charged to expense in the fiscal
quarter of which $4.8 has been incurred and the balance is included in accrued
liabilities. The charges to cost of sales, selling and administrative and
research and development were $9.9 million, $9.3 million and $1.1 million
respectively.
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 three months ended 31 December 1997 includes a gain of
$62.6 million from this sale, ($35.1 million after-tax or $.16 per share).
The results for the three months ended 31 December 1997 also include a gain of
$12.6 million from a cogeneration project contract settlement($7.6 million
after-tax or $.03 per share).
8
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
(Millions of dollars)
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Three Months Ended
31 December
1998 1997
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Sales:
Industrial Gases $ 740.8 $ 727.0
Chemicals 401.8 380.9
Equipment/Services 132.0 126.9
Corporate/Other -- --
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CONSOLIDATED $1,274.6 $1,234.8
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Operating Income:
Industrial Gases $ 122.2 (a) $ 147.2
Chemicals 52.6 (a) 68.4
Equipment/Services 28.8 (a) 12.6
Corporate/Other (14.6)(a) (15.2)(b)
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CONSOLIDATED $ 189.0 $ 213.0
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Equity Affiliates' Income:
Industrial Gases $ 6.1 $ .4
Chemicals 2.1 --
Equipment/Services 1.1 4.4
Corporate/Other .5 .9
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CONSOLIDATED $ 9.8 $ 5.7
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Operating Return on Net Assets:
Industrial Gases 11.3% 11.4%
Chemicals 16.2 18.1
Equipment/Services 32.7 11.3
Corporate/Other N/A N/A
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CONSOLIDATED 12.0% 11.5%
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(a) The results for the three months ended 31 December 1998 include the cost
reduction charge in Industrial Gases ($16.3 million), Chemicals
($1.6 million), Equipment/Services ($1.9 million), and Corporate/Other
($.5 million).
(b) The results for the three months ended 31 December 1997 have been restated
to reflect the current year presentation of minority interest in a separate
line item between income taxes and net income.
9
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
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Three Months Ended
31 December
1998 1997
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Sales:
United States $ 807.9 $ 876.0
Europe 399.3 299.4
Canada/Latin America 58.0 51.3
Other 9.4 8.1
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CONSOLIDATED $1,274.6 $1,234.8
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Operating Income:
United States $ 143.3(a) $ 169.2 (b)
Europe 41.0(a) 41.2 (b)
Canada/Latin America 5.4 3.5
Other (.7) (.9)(b)
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CONSOLIDATED $ 189.0 $ 213.0
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Equity Affiliates' Income:
United States $ 1.9 $ 5.5
Europe 2.9 2.7
Canada/Latin America 4.5 2.9
Other .5 (5.4)
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CONSOLIDATED $ 9.8 $ 5.7
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(a) The results for the three months ended 31 December 1998 include the cost
reduction charge in the United States ($10.5 million) and Europe ($9.8
million).
(b) The results for the three months ended 31 December 1997 have been restated
to reflect the current year presentation of minority interest in a
separate line item between income taxes and net income.
10
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 January 1999 By: /s/ Leo J. Daley
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Leo J. Daley
Vice President - Finance
(Chief Financial Officer)
