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) 23 July 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 from operations of $104 million, or
diluted earnings per share of 48 cents, for the third quarter ended June 30,
1999. This excludes a charge of $9 million, or 4 cents per share, related to
ongoing cost reduction programs. This compares to net income from operations of
$123 million, or 56 cents per share, in last year's third quarter. Sales of $1.2
billion were up 1 percent versus last year.
Despite softer global markets and a stronger dollar, Industrial Gas sales
were flat compared to last year's third quarter. Productivity and cost reduction
initiatives and improved Asian operations resulted in a 3 percent increase in
operating profit. Driven by ongoing cost reduction efforts, the worldwide gases
operating margin of 19.3% increased from the prior year.
Sales in the Chemicals segment were up 6 percent, mainly due to
acquisitions related to the globalization of the emulsions business. Operating
profit declined as several businesses experienced margin pressure. The
polyurethane intermediates and amines businesses, where substantial new
investment is now on line, were impacted by customer operating problems and
outages.
As expected, Equipment and Services reported lower sales and operating
income because of reduced business activity.
Commenting on the outlook for the coming quarter, Harold A. Wagner,
Chairman and Chief Executive Officer, said, "We fully expect next quarter's
results to improve sequentially. This year we weathered an expected decline in
our equipment business from record performance last year. We have endured
difficult times in key markets and operating problems and outages from some
large customers. Throughout this period, we remained focused on being ready to
serve our customers as their markets recovered and on reducing our cost of doing
business. As we enter the fourth quarter, we are encouraged by signs of recovery
and we will continue to focus on improving our cost structure."
2
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 outages and customer
demand; other factors resulting from fluctuations in interest rates and foreign
currencies; the impact of competitive products and pricing; the 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 Nine Months Ended
30 June 30 June
1999 1998 1999 1998
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Sales $1,237.8 $1,225.3 $3,765.7 $3,668.7
Net Income $ 94.6(a) $ 138.1(c) $ 327.9(b) $ 419.1(d)
Basic Earnings
Per Share $ .45(a) $ .64(c) $ 1.55(b) $ 1.94(d)
Diluted Earnings
Per Share $ .44(a) $ .63(c) $ 1.52(b) $ 1.89(d)
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Operating Return
on Net Assets(e) 11.0% 11.9%
Capital
Expenditures(f) $ 868.8(g) $ 725.1
Depreciation $ 128.2 $ 120.8 $ 386.8 $ 359.0
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(a) Includes an after-tax charge of $9.0 million, or $.04 per share for a
global cost reduction program. Excluding the impact of this special item,
net income was $103.6 million, basic earnings per share was $.49 and
diluted earnings per share was $.48.
(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
$21.9 million, or $.10 per share related to the global cost reduction
programs, 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 $334.9 million, basic
earnings per share was $1.58 and diluted earnings per share was $1.55.
(c) Includes an after-tax gain of $15.4 million, or $.07 per share from the
settlement of a power contract restructuring. Excluding the impact of this
special item, net income was $122.7 million, basic earnings per share was
$.57 and diluted earnings per share was $.56.
(d) 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 $7.6 million, or $.03 per share from a cogeneration
project contract settlement, and an after-tax gain of $15.4 million, or
.07 per share from the settlement of a power contract restructuring.
Excluding the impact of these special items, net income was $361.0 million,
basic earnings per share was $1.67 and diluted earnings per share was
$1.63.
4
(e) 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 $34.2 million in charges related to the global cost
reduction programs 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 Nine Months Ended
30 June 30 June
1999 1998 1999 1998
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SALES AND OTHER INCOME
Sales $1,237.8 $1,225.3 $3,765.7 $3,668.7
Other income 2.9 11.0(a) 12.3 10.1(a)
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1,240.7 1,236.3 3,778.0 3,678.8
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COSTS AND EXPENSES
Cost of sales 871.0 824.2(b) 2,624.1 2,471.3(b)
Selling and
administrative 172.6 171.9(b) 524.1 494.6(b)
Research and development 29.4 28.7 90.4 82.0
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OPERATING INCOME 167.7 211.5 539.4 630.9
Income from equity affiliates,
net of related expenses 15.2 11.0 39.1 24.6
Gain on American Ref-Fuel sale
and contract settlements -- 28.3 -- 103.5
Net gain on formation of
polymer venture -- -- 31.1 --
Interest expense 39.3 42.0 120.1 121.2
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INCOME BEFORE TAXES
AND MINORITY INTEREST 143.6 208.8 489.5 637.8
Income taxes 44.4 70.5 149.4 217.8
Minority interest(c) 4.6 .2(a) 12.2 .9(a)
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NET INCOME $ 94.6 $ 138.1 $ 327.9 $ 419.1
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BASIC EARNINGS PER
COMMON SHARE $ .45 $ .64 $ 1.55 $ 1.94
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DILUTED EARNINGS PER
COMMON SHARE $ .44 $ .63 $ 1.52 $ 1.89
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 212.5 214.9 211.9 216.4
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WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES (in millions) (d) 217.0 219.9 215.9 221.3
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DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .18 $ .17 $ .52 $ .47
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(a) The results for the three and nine months ended 30 June 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 nine months ended 30 June 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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30 June 30 June
ASSETS 1999 1998
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CURRENT ASSETS
Cash and cash items $ 80.3 $110.8
Trade receivables, less allowances for
doubtful accounts 922.3 852.2
Inventories 428.8 424.4
Contracts in progress, less progress billings 93.0 97.3
Other current assets 184.3 197.8
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TOTAL CURRENT ASSETS 1,708.7 1,682.5
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INVESTMENTS IN NET ASSETS OF AND ADVANCES TO
UNCONSOLIDATED AFFILIATES 479.3 339.4
OTHER INVESTMENTS AND ADVANCES 32.5 21.9
PLANT AND EQUIPMENT, at cost 9,975.2 9,189.1
Less - Accumulated depreciation 4,901.6 4,569.5
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PLANT AND EQUIPMENT, net 5,073.6 4,619.6
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GOODWILL 346.4 299.4
OTHER NONCURRENT ASSETS 371.6 385.5
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TOTAL ASSETS $8,012.1 $7,348.3
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 561.4 $ 530.3
Accrued liabilities 284.1 280.3
Accrued income taxes 18.8 74.5
Short-term borrowings 326.3 186.7
Current portion of long-term debt 258.7 130.8
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TOTAL CURRENT LIABILITIES 1,449.3 1,202.6
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LONG-TERM DEBT 2,249.7 2,305.0
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 603.1 512.2
DEFERRED INCOME TAXES 741.5 688.7
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TOTAL LIABILITIES 5,043.6 4,708.5
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MINORITY INTERESTS IN SUBSIDIARY COMPANIES 136.2 12.7
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.5 249.5
Capital in excess of par value 340.7 329.4
Retained earnings 3,617.6 3,308.3
Accumulated other comprehensive income (316.3) (257.4)
Treasury stock, at cost (681.6) (577.0)
Shares in trust (377.6) (425.7)
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TOTAL SHAREHOLDERS' EQUITY 2,832.3 2,627.1
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,012.1 $7,348.3
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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 Nine Months Ended
30 June 30 June
1999 1998 1999 1998
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NET INCOME $ 94.6 $ 138.1 $ 327.9 $ 419.1
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OTHER COMPREHENSIVE INCOME,
net of tax
Foreign currency
translation adjustments (37.6) 2.1 (93.9) (78.7)
Unrealized gains on
investments:
Unrealized holding gains
arising during the period 5.0 (1.3) 9.1 .5
Less: reclassification
adjustment for gains
included in net income -- -- -- --
Net unrealized gains on
investments 5.0 (1.3) 9.1 .5
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TOTAL OTHER COMPREHENSIVE
INCOME (32.6) .8 (84.8) (78.2)
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COMPREHENSIVE INCOME $ 62.0 $ 138.9 $ 243.1 $ 340.9
===============================================================================
8
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
(Unaudited)
(Millions of dollars)
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Nine Months Ended
30 June
1999 1998
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OPERATING ACTIVITIES
Net Income $327.9 $419.1
Adjustments to reconcile income to cash provided
by operating activities:
Depreciation 386.8 359.0
Deferred income taxes 39.8 48.4
Ref-Fuel divestiture deferred income taxes -- (80.4)
Gain on formation of polymer venture (31.1) --
Undistributed (earnings) of unconsolidated
affiliates (25.2) 6.9
Loss (gain) on sale of assets and investments 1.4 (85.4)
Other 88.1 103.1
Working capital changes that provided (used)
cash, net of effects of acquisitions:
Trade receivables (66.2) 22.7
Other receivables 25.1 30.9
Inventories and contracts in progress 13.4 (5.9)
Payables, trade and other 90.9 (86.6)
Accrued liabilities (54.4) (47.0)
Accrued income taxes (5.7) 82.0
Other (1.8) (23.9)
Cash (used for) discontinued operations 1.7 (3.8)
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CASH PROVIDED BY OPERATING ACTIVITIES 790.7 739.1
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INVESTING ACTIVITIES
Additions to plant and equipment (671.8) (507.2)
Acquisitions, less cash acquired (75.5) (185.7)
Investment in and advances to unconsolidated
affiliates (101.5) (18.5)
Proceeds from sale of assets and investments 50.4 283.8
Other 14.2 (26.2)
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CASH (USED FOR) INVESTING ACTIVITIES (784.2) (453.8)
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FINANCING ACTIVITIES
Long-term debt proceeds 78.1 102.0
Payments on long-term debt (31.8) (49.7)
Net increase in commercial paper 62.8 110.2
Net increase (decrease) in other short-term borrowings (4.7) (16.7)
Dividends paid to shareholders (107.9) (97.7)
Purchase of Treasury Stock (24.6) (285.0)
Other 44.2 11.9
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 16.1 (225.0)
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Effect of Exchange Rate Changes on Cash (3.8) (2.0)
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Increase in Cash and Cash Items 18.8 58.3
Cash and Cash Items - Beginning of Year 61.5 52.5
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Cash and Cash Items - End of Period $80.3 $110.8
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9
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The results for the three and nine months ended 30 June 1999 include a charge
of $13.9 million ($9.0 million after-tax, or $.04 per share) for a global cost
reduction program. This program results in a staffing reduction of 142
employees. Of the total amount charged to expense in the third fiscal quarter,
$1.3 million has been incurred, and the balance is included in accrued
liabilities. This program will be completed by 30 June 2000. The charges to
cost of sales and selling and administrative were $5.4 million and
$8.5 million, respectively.
The fiscal year 1999 global cost reduction programs began in the first fiscal
quarter. The first quarter program included a staff reduction plan of 206
employees and resulted in a charge to expense of $20.3 million ($12.9 million
after-tax, or $.06 per share). The results for the nine months ended 30 June
1999 include a charge of $34.2 million ($21.9 million after-tax, or $.10 per
share) for the global cost reduction programs. The charges to cost of sales,
selling and administrative, and research and development were $15.3 million,
$17.8 million, and $1.1 million, respectively, for the nine months ended
30 June 1999.
The results for the nine months ended 30 June 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 GmbH). 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.
The results for the nine months ended 30 June 1999 also include a charge of
$10.3 million ($6.4 million after-tax, or $.03 per share) primarily related to
Chemicals facility closure costs.
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 nine months ended 30 June 1998 includes
a gain of $62.6 million from this sale ($35.1 million after-tax, or
$.16 per share).
When the 50% interest in the American Ref-Fuel Company was sold, Air Products
retained a limited partnership interest in a project that was undergoing a
power contract restructuring. The restructuring was completed in June 1998. The
three and nine months ended 30 June 1998 include a gain, net of transaction
costs, of $28.3 million ($15.4 million after-tax, or $.07 per share).
The results for the nine months ended 30 June 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
SUBSEQUENT EVENT
On 13 July 1999, the Company announced that its board and the boards of L'Air
Liquide S.A. ("Air Liquide") of France and The BOC Group plc ("BOC") have agreed
to the terms of a recommended offer under which it and Air Liquide will acquire
BOC, the leading British industrial gases company, for UK(pound)14.60 per share
in cash, or a total of approximately $11.2 billion. Air Products has a
UK(pound)3,950,000,000 credit agreement to provide funding for its 50% share of
the offer price. The offer will formally commence in the United Kingdom upon
receipt of the necessary regulatory clearances, which are expected within six
months. Air Products has filed a Form 8-K with the United States Securities and
Exchange Commission which provides additional details of this transaction.
11
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
(Millions of dollars)
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Three Months Ended Nine Months Ended
30 June 30 June
1999 1998 1999 1998
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Sales:
Industrial Gases $ 725.8 $ 725.9 $2,193.6 $2,168.2
Chemicals 415.8 393.6 1,234.5 1,152.9
Equipment/Services 96.2 105.8 337.6 347.6
Corporate/Other -- -- -- --
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CONSOLIDATED $1,237.8 $1,225.3 $3,765.7 $3,668.7
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Operating Income:
Industrial Gases $ 129.1(a) $ 135.7 $ 393.9(b) $427.6
Chemicals 47.4(a) 65.4 144.2(b)(c) 191.4
Equipment/Services 2.3(a) 20.4 39.3(b) 50.4
Corporate/Other (11.1) (10.0)(d) (38.0)(b) (38.5)(d)
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CONSOLIDATED $ 167.7 $ 211.5 $ 539.4 $ 630.9
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Equity Affiliates' Income:
Industrial Gases $ 7.4 $ 5.1 $ 20.7 $ 8.3
Chemicals 3.4 .1 8.9 .5
Equipment/Services 4.3 4.9 9.0 13.2
Corporate/Other .1 .9 .5 2.6
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CONSOLIDATED $ 15.2 $ 11.0 $ 39.1 $ 24.6
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Operating Return on Net Assets:(e)
Industrial Gases 11.0% 11.6%
Chemicals 13.8 17.7
Equipment/Services 24.5 18.6
Corporate/Other N/A N/A
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CONSOLIDATED 11.0% 11.9%
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(a) The results for the three months ended 30 June 1999 include the charge for
the global cost reduction program in Industrial Gases ($10.7 million),
Chemicals ($2.4 million), and Equipment/Services ($.8 million).
(b) The results for the nine months ended 30 June 1999 include the cost
reduction charges in Industrial Gases ($27.0 million), Chemicals
($4.0 million), Equipment/Services ($2.7 million), and Corporate/Other
($.5 million).
(c) The results for the nine months ended 30 June 1999 also include a charge
of $10.3 million primarily related to Chemicals facility closure costs.
(d) The results for the three and nine months ended 30 June 1998 have been
restated to reflect the current year presentation of minority interest in
a separate line item between income taxes and net income.
(e) 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 $34.2 million in charges related to the global cost
reduction programs, and $10.3 million in charges primarily related to
Chemicals facility closure costs.
12
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
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Three Months Ended Nine Months Ended
30 June 30 June
1999 1998 1999 1998
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Sales:
United States $ 793.5 $ 832.1 $2,403.2 $2,544.8
Europe 369.6 331.4 1,157.5 946.5
Canada/Latin America 47.8 55.3 151.0 159.0
Other 26.9 6.5 54.0 18.4
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CONSOLIDATED $1,237.8 $1,225.3 $3,765.7 $3,668.7
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Operating Income:
United States $ 117.8(a)$ 157.7 (d) $ 380.5(b)(c)$ 485.7 (d)
Europe 41.7(a) 50.1 (d) 141.4(b) 137.0 (d)
Canada/Latin America 8.7 4.1 (d) 19.4 10.9 (d)
Other (.5) (0.4) (1.9) (2.7)
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CONSOLIDATED $ 167.7 $ 211.5 $ 539.4 $ 630.9
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Equity Affiliates' Income:
United States $ 5.2 $ 5.5 $ 12.1 $ 15.2
Europe 3.1 2.6 9.5 7.6
Canada/Latin America 5.2 3.0 14.1 8.6
Other 1.7 (0.1) 3.4 (6.8)
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CONSOLIDATED $ 15.2 $ 11.0 $ 39.1 $ 24.6
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(a) The results for the three months ended 30 June 1999 include the charge for
the global cost reduction program in the United States ($2.9 million) and
Europe ($11.0 million).
(b) The results for the nine months ended 30 June 1999 include the cost
reduction charges in the United States ($13.4 million) and Europe
($20.8 million).
(c) The results for the nine months ended 30 June 1999 also include a charge
of $10.3 million in the United States primarily related to Chemicals
facility closure costs.
(d) The results for the three and nine months ended 30 June 1998 have been
restated to reflect the current year presentation of minority interest in
a separate line item between income taxes and net income.
13
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.
--------------------------------
(registrant)
Dated: 23 July 1999 By: /s/ Leo J. Daley
------------------------------
Leo J. Daley
Vice President - Finance
(Chief Financial Officer)