UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 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 (Commission file (IRS Identification
of incorporation) number) 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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<PAGE>
Item 5. Other Events.
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The Registrant reported record income from operations of $123 million, or
diluted earnings per share of 56 cents, for the third quarter ended June 30,
1998. This compares to $116 million, or 52 cents per share in the year ago
quarter, a per-share increase of 8 percent. These results exclude an after-tax
gain of $15 million, or 7 cents per share, from a power contract restructuring
related to the American Ref-Fuel divestiture. Sales of $1.2 billion were up
7 percent versus last year.
In summarizing the quarter's results, Air Products Chairman H. A. Wagner
said, "Our third quarter profits remain on-track to deliver solid year-on-year
performance in 1998. Gases quarterly results were negatively impacted by
customer outages and higher temporary costs for electricity and related product
dislocation. Our chemicals and equipment businesses continue to deliver
excellent results."
Industrial gas sales for the quarter rose 6 percent, and operating income
declined 3 percent, as worldwide volume growth slowed from recent quarters. In
North America and Europe, merchant volumes were up modestly and prices declined
slightly. Merchant results in the U.S. were also impacted by regional power
shortages that affected both energy costs and product availability. In the
tonnage business, strong gains were recorded in Europe, but North American
volumes were down from prior period.
Finally, costs associated with integrating new acquisitions and European
work process changes also lowered overall results for gases in the quarter.
The Chemicals segment reported a 10 percent increase in operating income,
on a 7 percent sales gain, overcoming the negative impact from the Asian crisis.
Volumes were strong across most
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businesses, led by record sales of amines, emulsions, and specialty
additives and margins improved modestly, due to ongoing productivity
program benefits.
The Equipment and Services segment again posted significantly higher
profits, benefiting from a favorable product mix and improved cost performance.
1998 will be a record profit year for the segment.
The Corporate/Other segment reflects the absence of American Ref-Fuel in
equity affiliates, worth 3 cents per share, and a modest gain in foreign
exchange versus a prior year loss in operating income.
The Company continued its previously announced share repurchase program,
acquiring $85 million of its shares in the quarter. Since the program was
initiated in April 1996, a total of 14.5 million shares, on a post-split basis,
have been acquired, for a total investment of approximately $520 million. The
Company expects to complete this $600 million program by fiscal year-end.
For the first nine months of fiscal 1998, the Registrant reported income
from operations of $361 million, or $1.63 per share, versus $322 million, or
$1.43 per share, up 14 percent on a diluted basis. These results include the
impact of currency translation effects, which reduced earnings per share growth
by 11 cents in the fiscal year to-date, but exclude one-time after-tax gains
recorded in fiscal 1998 from the sale of the Company's 50 percent interest in
American Ref-Fuel Company, a related power contract restructuring, and a
cogeneration project contract settlement. Sales rose 7 percent to $3.7 billion.
Commenting on year-to-date results, Mr. Wagner said, "Despite signs of
slower economic growth in the United States, and the residual impact of
difficulties in Asia, we are confident we'll continue to meet our financial
objectives into the future. We are expanding our successful work process efforts
across the Company, and our level of capital
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investment has been reduced in response to changing business conditions.
We will continue our drive for consistent, profitable growth and improved
returns on capital, by aggressively managing our cost structure and
investment program."
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 (including the
impact and duration of the General Motors' strike), 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)
<TABLE>
<CAPTION>
(In millions, except earnings per share)
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Three Months Ended Nine Months Ended
30 June 30 June
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales $1,225.3 $1,150.3 $3,668.7 $3,424.3
Net Income $ 138.1(d) $ 116.0 $ 419.1(c)(d) $ 321.9
Basic Earnings
Per Share (a)(b) $ .64(d) $ .53 $ 1.94(c)(d) $ 1.46
Diluted Earnings
Per Share (a)(b) $ .63(d) $ .52 $ 1.89(c)(d) $ 1.43
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</TABLE>
(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 and for the first two
quarters of fiscal 1998 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 and a gain of
$7.6 million, or $.03 per share from a cogeneration project contract
settlement.
(d)Includes an after-tax gain of $15.4 million, or $.07 per share from the
settlement of a power contract restructuring.
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AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(In millions, except per share)
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Three Months Ended Nine Months Ended
30 June 30 June
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $1,225.3 $1,150.3 $3,668.7 $3,424.3
Other income 10.8 .7 9.2 20.5
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1,236.1 1,151.0 3,677.9 3,444.8
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COSTS AND EXPENSES
Cost of sales 708.7 663.4 2,131.3 2,042.4
Selling, distribution and
administrative 287.4 266.8 834.6 773.0
Research and development 28.7 27.9 82.0 83.1
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OPERATING INCOME 211.3 192.9 630.0 546.3
Income from equity affiliates,
net of related expenses 11.0 17.3 24.6 49.5
Gain on Ref Fuel Sale
and Contract Settlements 28.3 -- 103.5 --
Interest expense 42.0 39.4 121.2 121.8
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INCOME BEFORE TAXES 208.6 170.8 636.9 474.0
Income taxes 70.5 54.8 217.8 152.1
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NET INCOME $ 138.1 $ 116.0 $ 419.1 $ 321.9
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BASIC EARNINGS PER
COMMON SHARE $ .64 $ .53 $ 1.94 $ 1.46
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DILUTED EARNINGS PER
COMMON SHARE* $ .63 $ .52 $ 1.89 $ 1.43
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 214.9 219.8 216.4 220.2
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WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES (in millions) 219.9 224.6 221.3 224.9
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DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .17 $ .15 $ .47 $ .425
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</TABLE>
* 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
<TABLE>
<CAPTION>
(In millions, except per share)
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30 June 30 June
ASSETS 1998 1997
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<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 110.8 $ 70.6
Trade receivables, less allowances for
doubtful accounts 852.2 841.6
Inventories 424.4 401.4
Contracts in progress, less progress billings 97.3 142.2
Other current assets 197.8 196.7
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TOTAL CURRENT ASSETS 1,682.5 1,652.5
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INVESTMENTS 361.3 590.4
PLANT AND EQUIPMENT, at cost 9,189.1 8,627.8
Less - Accumulated depreciation 4,569.5 4,243.1
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PLANT AND EQUIPMENT, net 4,619.6 4,384.7
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GOODWILL 299.4 253.6
OTHER NONCURRENT ASSETS 385.5 344.9
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TOTAL ASSETS $7,348.3 $7,226.1
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Payables, trade and other $ 530.3 $ 631.9
Accrued liabilities 280.3 265.1
Accrued income taxes 74.5 57.5
Short-term borrowings 186.7 325.0
Current portion of long-term debt 130.8 30.6
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TOTAL CURRENT LIABILITIES 1,202.6 1,310.1
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LONG-TERM DEBT 2,305.0 2,213.4
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 524.9 421.2
DEFERRED INCOME TAXES 688.7 671.5
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TOTAL LIABILITIES 4,721.2 4,616.2
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.5 124.7
Capital in excess of par value 329.4 453.3
Retained earnings 3,308.3 2,915.7
Unrealized gain on investments 7.4 15.6
Cumulative translation adjustments (264.8) (162.5)
Treasury Stock, at cost (577.0) (293.6)
Shares in trust (425.7) (443.3)
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TOTAL SHAREHOLDERS' EQUITY 2,627.1 2,609.9
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,348.3 $7,226.1
===============================================================================
</TABLE>
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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 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.) 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 three months ending 30 June 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 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.)
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 and for the prior two quarters of fiscal 1998 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
<TABLE>
<CAPTION>
(In millions)
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Three Months Ended Nine Months Ended
30 June 30 June
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales:
Industrial Gases $ 725.9 $ 684.8 $2,168.2 $1,970.3
Chemicals 393.6 366.3 1,152.9 1,071.0
Equipment/Services 105.8 99.2 347.6 381.8
Corporate/Other -- -- -- 1.2
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CONSOLIDATED $1,225.3 $1,150.3 $3,668.7 $3,424.3
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Operating Income:
Industrial Gases $ 135.7 $ 140.6 $ 427.6 $ 384.4
Chemicals 65.4 59.7 191.4 157.6 (a)
Equipment/Services 20.4 8.0 50.4 24.1
Corporate/Other (10.2) (15.4) (39.4) (19.8)(b)
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CONSOLIDATED $ 211.3 $ 192.9 $ 630.0 $ 546.3
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Equity Affiliates' Income:
Industrial Gases $ 5.1 $ 3.5 $ 8.3 $ 24.0
Chemicals 0.1 0.2 0.5 0.4
Equipment/Services 4.9 3.2 13.2 10.2
Corporate/Other 0.9 10.4 2.6 14.9 (c)
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CONSOLIDATED $ 11.0 $ 17.3 $ 24.6 $ 49.5
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</TABLE>
(a) Operating income for the nine month period ended 30 June 1997 includes a
$9.3 million impairment loss.
(b) Operating income for the nine month period ended 30 June 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.
(c) Equity affiliates' income for the nine month period ended 30 June 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
<TABLE>
<CAPTION>
(In millions)
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Three Months Ended Nine Months Ended
30 June 30 June
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales:
United States $ 832.1 $ 809.4 $2,544.8 $2,407.9
Europe 331.4 288.7 946.5 879.6
Canada/Latin America 55.3 45.4 159.0 123.6
Other 6.5 6.8 18.4 13.2
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CONSOLIDATED $1,225.3 $1,150.3 $3,668.7 $3,424.3
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Operating Income:
United States $ 157.7 $ 142.8 $ 485.9 $ 427.4
Europe 49.8 45.2 135.6 104.8
Canada/Latin America 4.2 4.9 11.2 14.5
Other (0.4) -- (2.7) (0.4)
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CONSOLIDATED $ 211.3 $ 192.9 $ 630.0 $ 546.3
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Equity Affiliates' Income:
United States $ 5.5 $ 13.2 $ 15.2 $ 24.2
Europe 2.6 2.3 7.6 11.3
Canada/Latin America 3.0 2.5 8.6 7.9
Other (0.1) (0.7) (6.8) 6.1
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CONSOLIDATED $ 11.0 $ 17.3 $ 24.6 $ 49.5
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</TABLE>
For the nine months ended 30 June 1997, operating income of the United States
includes a gain of $9.5 million from the sale of the landfill gas recovery
business and 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: 23 July 1998 By: /s/ Leo J. Daley
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Leo J. Daley
Vice President - Finance and
Treasurer
(Chief Financial Officer)
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