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 April 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 $107 million, or diluted earnings per
share of 50 cents, for the second quarter ended March 31, 1999. Excluding
disclosed items, net income was $113 million, or diluted earnings per share of
53 cents. This compares to last year's $121 million, or 55 cents per share.
Sales of $1.3 billion were up 4 percent versus $1.2 billion last year. The
following discussion excludes a disclosed item.
In reviewing the quarter, Air Products Chairman H. A. Wagner said, "We
continued our focus on productivity improvement and cost containment initiatives
this quarter. This enabled us to deliver results in line with expectations
despite a much slower manufacturing sector and a significant decline in our
equipment business. Additionally, we continue to take steps to rationalize our
cost structure."
Industrial gas sales increased 2 percent, primarily outside of North
America, while operating income declined 1 percent. Relative to last year,
performance continued to be impacted by soft conditions in key markets such as
electronics and metals. Consistent with productivity improvement and tight
control of overhead costs, the worldwide gases operating margin improved from
the prior quarter to 19.6%. Gas equity affiliate income was up significantly due
to improved performance at some equity affiliates combined with favorable
foreign exchange and currency effects.
Chemicals' revenues were up 10% compared to the quarter a year ago due to
the consolidation of Air Products Polymers, an emulsions joint venture with
Wacker-Chemie, and other acquisitions. Operating income declined by 5%. Solid
performance in a number of businesses was offset by volume and margin pressure
from Asian impacts and the effects of the significant capacity expansions
recently brought on-stream.
As expected, Equipment and Services' operating income of $8 million was
down compared to the quarter a year ago.
2
Mr. Wagner concluded, "In the first half of our fiscal year, we faced a
challenging global manufacturing environment. However, we are encouraged by some
signs of recovery in electronics, metals and chemicals processing, and our
employees are maintaining their focus on productivity, cost containment and
asset management. As a result, we are well-positioned to deliver top-line and
earnings growth as our key markets recover. On balance, we continue to expect
modest earnings growth in 1999."
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 Six Months Ended
31 March 31 March
1999 1998 1999 1998
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Sales $1,253.3 $1,208.6 $2,527.9 $2,443.4
Net Income $ 106.9(a) $ 120.5 $ 233.3(b) $ 281.0(c)
Basic Earnings
Per Share $ .51(a) $ .56(d) $ 1.10(b) $ 1.29(c)(d)
Diluted Earnings
Per Share $ .50(a) $ .55(d) $ 1.08(b) $ 1.27(c)(d)
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Operating Return
on Net Assets(e) 11.6% 11.8%
Capital
Expenditures(f) $ 541.3(g) $ 479.8
Depreciation $ 133.5 $ 120.6 $ 261.3 $ 238.2
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(a) Includes an after-tax charge of $6.4 million, or $.03 per share primarily
related to Chemicals facility closure costs. Excluding the impact of this
special item, net income was $113.3 million, basic earnings per share was
$.54 and diluted earnings per share was $.53.
(b) Includes an after-tax gain of $21.3 million, or $.10 per share related to
the formation of Air Products Polymers, an after-tax charge of $12.9
million, or $.06 per share related to a global cost reduction plan, and an
after-tax charge of $6.4 million, or $.03 per share primarily related to
Chemicals facility closure costs. Excluding the impact of these special
items, net income was $231.3 million, basic earnings per share was $1.09
and diluted earnings per share was $1.07.
(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 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
$238.3 million, basic earnings per share was $1.10 and diluted earnings
per share was $1.08.
(d) 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.
(e) Operating return on net assets (ORONA) is calculated as the rolling four
quarter sum of operating income divided by the rolling five
4
quarter average of total assets less investments in equity affiliates.
The ORONA calculation excludes $20.3 million in charges related to a
global cost reduction plan and $10.3 million in charges primarily related
to Chemicals facility closure costs.
(f) Capital expenditures include additions to plant and equipment, investments
in and advances to unconsolidated affiliates, acquisitions, and capital
lease additions.
(g) Excludes the Company's contribution of $121.7 million of assets to the
Air Products Polymers venture.
5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
(Unaudited)
(Millions of dollars, except per share)
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Three Months Ended Six Months Ended
31 March 31 March
1999 1998 1999 1998
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SALES AND OTHER INCOME
Sales $1,253.3 $1,208.6 $2,527.9 $2,443.4
Other income 4.5 4.0(a) 9.4 (.9)(a)
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1,257.8 1,212.6 2,537.3 2,442.5
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COSTS AND EXPENSES
Cost of sales 877.5 816.1(b) 1,753.1 1,647.1 (b)
Selling and
administrative 168.3 163.1(b) 351.5 322.7 (b)
Research and development 29.3 27.0 61.0 53.3
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OPERATING INCOME 182.7 206.4 371.7 419.4
Income from equity affiliates,
net of related expenses 14.1 7.9 23.9 13.6
Gain on American Ref-Fuel sale
and contract settlements -- -- -- 75.2
Net gain on formation of
polymer venture (.1) -- 31.1 --
Interest expense 40.4 39.0 80.8 79.2
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INCOME BEFORE TAXES
AND MINORITY INTEREST 156.3 175.3 345.9 429.0
Income taxes 45.1 54.5 105.0 147.3
Minority interest(c) 4.3 .3(a) 7.6 .7(a)
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NET INCOME $ 106.9 $ 120.5 $ 233.3 $ 281.0
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BASIC EARNINGS PER
COMMON SHARE $ .51 $ .56 $ 1.10 $ 1.29
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DILUTED EARNINGS PER
COMMON SHARE $ .50 $ .55 $ 1.08 $ 1.27
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 211.6 215.9 211.5 217.1
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WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES (in millions) (d) 215.1 220.9 215.3 221.8
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DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .17 $ .15 $ .34 $ .30
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(a) The results for the three and six months ended 31 March 1998 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 and six months ended 31 March 1998 have been
restated to reflect the current year presentation of distribution expense
in cost of sales.
(c) Minority interest primarily includes before-tax amounts.
(d) The dilution of earnings per common share is due mainly to the impact of
unexercised stock options.
6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of dollars, except per share)
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31 March 31 March
ASSETS 1999 1998
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CURRENT ASSETS
Cash and cash items $ 85.5 $ 85.0
Trade receivables, less allowances for
doubtful accounts 889.2 865.3
Inventories 432.9 407.5
Contracts in progress, less progress billings 143.0 86.1
Other current assets 164.8 166.2
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TOTAL CURRENT ASSETS 1,715.4 1,610.1
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INVESTMENTS IN NET ASSETS OF AND ADVANCES TO
UNCONSOLIDATED AFFILIATES 441.5 330.4
OTHER INVESTMENTS AND ADVANCES 24.7 23.9
PLANT AND EQUIPMENT, at cost 9,744.2 8,996.4
Less - Accumulated depreciation 4,833.1 4,460.9
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PLANT AND EQUIPMENT, net 4,911.1 4,535.5
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GOODWILL 343.0 277.2
OTHER NONCURRENT ASSETS 357.9 382.7
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TOTAL ASSETS $7,793.6 $7,159.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 513.6 $ 543.9
Accrued liabilities 306.5 278.5
Accrued income taxes 30.7 84.9
Short-term borrowings 288.3 88.5
Current portion of long-term debt 201.7 124.3
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TOTAL CURRENT LIABILITIES 1,340.8 1,120.1
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LONG-TERM DEBT 2,231.7 2,254.2
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 590.6 492.6
DEFERRED INCOME TAXES 730.2 674.4
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TOTAL LIABILITIES 4,893.3 4,541.3
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MINORITY INTERESTS IN SUBSIDIARY COMPANIES 124.3 17.8
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.5 124.7
Capital in excess of par value 335.2 453.4
Retained earnings 3,561.3 3,206.4
Accumulated other comprehensive income (283.7) (258.1)
Treasury stock, at cost (681.7) (492.0)
Shares in trust (404.6) (433.7)
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TOTAL SHAREHOLDERS' EQUITY 2,776.0 2,600.7
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,793.6 $7,159.8
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7
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(Millions of dollars)
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Three Months Ended Six Months Ended
31 March 31 March
1999 1998 1999 1998
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NET INCOME $ 106.9 $ 120.5 $ 233.3 $ 281.0
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OTHER COMPREHENSIVE INCOME,
net of tax
Foreign currency
translation adjustments (80.6) (47.9) (56.3) (80.7)
Unrealized gains on
investments:
Unrealized holding gains
arising during the period .2 4.1 4.1 1.7
Less: reclassification
adjustment for gains
included in net income -- -- -- --
Net unrealized gains on
investments .2 4.1 4.1 1.7
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TOTAL OTHER COMPREHENSIVE
INCOME (80.4) (43.8) (52.2) (79.0)
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COMPREHENSIVE INCOME $ 26.5 $ 76.7 $ 181.1 $ 202.0
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8
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
(Unaudited)
(Millions of dollars)
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Six Months Ended
31 March
1999 1998
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OPERATING ACTIVITIES
Net Income $233.3 $281.0
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation 261.3 238.2
Deferred income taxes 31.9 37.6
Ref-Fuel divestiture deferred income taxes -- (80.3)
Gain on formation of polymer venture (31.1) --
Undistributed (earnings) of unconsolidated
affiliates (4.6) 15.9
Loss (gain) on sale of assets and investments 1.6 (83.7)
Other 68.0 65.1
Working capital changes that provided (used)
cash, net of effects of
acquisitions:
Trade receivables (18.7) 9.7
Other receivables 43.2 34.0
Inventories and contracts in progress (40.2) 18.6
Payables, trade and other 45.7 (66.9)
Accrued liabilities (31.2) (48.8)
Accrued income taxes (2.4) 89.0
Other (5.1) (10.9)
Cash (used for) discontinued operations (2.0) (3.4)
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CASH PROVIDED BY OPERATING ACTIVITIES 549.7 495.1
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INVESTING ACTIVITIES
Additions to plant and equipment (450.9) (332.7)
Acquisitions, less cash acquired (22.4) (125.0)
Investment in and advances to unconsolidated
affiliates (66.0) (10.0)
Proceeds from sale of assets and investments 31.3 285.9
Other 19.8 (13.8)
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CASH (USED FOR) INVESTING ACTIVITIES (488.2) (195.6)
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FINANCING ACTIVITIES
Long-term debt proceeds 51.5 52.2
Payments on long-term debt (31.7) (54.0)
Net increase in commercial paper 11.4 10.2
Net increase (decrease) in other short-term borrowings 9.2 (15.1)
Dividends paid to shareholders (71.9) (65.4)
Purchase of Treasury Stock (24.6) (200.0)
Other 19.6 7.1
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CASH (USED FOR) FINANCING ACTIVITIES (36.5) (265.0)
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Effect of Exchange Rate Changes on Cash (1.0) (2.0)
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Increase in Cash and Cash Items 24.0 32.5
Cash and Cash Items - Beginning of Year 61.5 52.5
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Cash and Cash Items - End of Period $85.5 $85.0
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9
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results for the three and six months ended 31 March 1999 include a charge of
$10.3 million ($6.4 million after-tax or $.03 per share) primarily related to
Chemicals facility closure costs.
The results for the six months ended 31 March 1999 include a net gain of
$31.1 million ($21.3 million after-tax or $.10 per share) related to the
formation of Air Products Polymers (a 65% majority owned venture with
Wacker-Chemie). 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 206 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 first
fiscal quarter of which $10.3 million 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 six months ended 31 March 1998 includes a gain of
$62.6 million from this sale, ($35.1 million after-tax or $.16 per share).
The results for the six months ended 31 March 1998 also include a gain of
$12.6 million from a cogeneration project contract settlement($7.6 million
after-tax or $.03 per share).
10
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
(Millions of dollars)
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Three Months Ended Six Months Ended
31 March 31 March
1999 1998 1999 1998
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Sales:
Industrial Gases $ 727.0 $ 715.3 $1,467.8 $1,442.3
Chemicals 416.9 378.4 818.7 759.3
Equipment/Services 109.4 114.9 241.4 241.8
Corporate/Other -- -- -- --
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CONSOLIDATED $1,253.3 $1,208.6 $2,527.9 $2,443.4
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Operating Income:
Industrial Gases $ 142.6 $ 144.7 $ 264.8 (b)$ 291.9
Chemicals 44.2(a) 57.6 96.8(a)(b) 126.0
Equipment/Services 8.2 17.4 37.0 (b) 30.0
Corporate/Other (12.3) (13.3)(c) (26.9)(b) (28.5)(c)
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CONSOLIDATED $ 182.7 $ 206.4 $ 371.7 $ 419.4
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Equity Affiliates' Income:
Industrial Gases $ 7.2 $ 2.8 $ 13.3 $ 3.2
Chemicals 3.4 .4 5.5 .4
Equipment/Services 3.6 3.9 4.7 8.3
Corporate/Other (.1) .8 .4 1.7
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CONSOLIDATED $ 14.1 $ 7.9 $ 23.9 $ 13.6
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Operating Return on Net Assets:(d)
Industrial Gases 11.1% 11.8%
Chemicals 15.2 17.9
Equipment/Services 30.8 13.9
Corporate/Other N/A N/A
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CONSOLIDATED 11.6% 11.8%
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(a) The results for the three and six months ended 31 March 1999 include a
charge of $10.3 million primarily related to Chemicals facility closure
costs.
(b) The results for the six months ended 31 March 1999 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).
(c) The results for the three and six months ended 31 March 1998 have been
restated to reflect the current year presentation of minority interest in
a separate line item between income taxes and net income.
(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 excludes $20.3 million in charges related to a global cost
reduction plan and $10.3 million in charges primarily related to Chemicals
facility closure costs.
11
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
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Three Months Ended Six Months Ended
31 March 31 March
1999 1998 1999 1998
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Sales:
United States $ 801.8 $ 836.7 $1,609.7 $1,712.7
Europe 388.6 315.7 787.9 615.1
Canada/Latin America 45.2 52.4 103.2 103.7
Other 17.7 3.8 27.1 11.9
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CONSOLIDATED $1,253.3 $1,208.6 $2,527.9 $2,443.4
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Operating Income:
United States $ 126.7(a)$ 158.8 (c) $ 262.7(a)(b)$ 328.0 (c)
Europe 51.4 45.7 (c) 99.7 (b) 86.9 (c)
Canada/Latin America 5.3 3.3 (c) 10.7 6.8 (c)
Other (.7) (1.4)(c) (1.4) (2.3)(c)
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CONSOLIDATED $ 182.7 $ 206.4 $ 371.7 $ 419.4
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Equity Affiliates' Income:
United States $ 5.0 $ 4.2 $ 6.9 $ 9.7
Europe 3.5 2.3 6.4 5.0
Canada/Latin America 4.4 2.7 8.9 5.6
Other 1.2 (1.3) 1.7 (6.7)
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CONSOLIDATED $ 14.1 $ 7.9 $ 23.9 $ 13.6
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(a) The results for the three and six months ended 31 March 1999 include a
charge of $10.3 million primarily related to Chemicals facility closure
costs.
(b) The results for the six months ended 31 March 1999 include the cost
reduction charge in the United States ($10.5 million) and Europe
($9.8 million).
(c) The results for the three and six months ended 31 March 1998 have been
restated to reflect the current year presentation of minority interest in
a separate line item between income taxes and net income.
12
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 April 1999 By: /s/ Leo J. Daley
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Leo J. Daley
Vice President - Finance
(Chief Financial Officer)
13