SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 30 June 1999
-------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-1274455
------------------------------- ------------------------------------
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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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Indicate by check |X| whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
--- --
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at _ August 1999
-------------------------- ----------------------------
Common Stock, $1 par value 229,304,812
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets -
30 June 1999 and 30 September 1998 ........................... 3
Consolidated Income -
Three Months and Nine Months Ended 30 June 1999 and 1998 ..... 4
Consolidated Statement of Comprehensive Income -
Three Months and Nine Months Ended 30 June 1999 and 1998...... 5
Consolidated Cash Flows -
Nine Months Ended 30 June 1999 and 1998 ...................... 6
Summary by Business Segments -
Three Months and Nine Months Ended 30 June 1999 and 1998...... 7
Summary by Geographic Regions -
Three Months and Nine Months Ended 30 June 1999 and 1998...... 8
Notes to Consolidated Financial Statements ...................... 9
Management's Discussion and Analysis ............................ 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................... 22
Signatures ...................................................... 23
</TABLE>
REMARKS:
The consolidated financial statements of Air Products and Chemicals, Inc. and
its subsidiaries (the "Company" or "Registrant") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company, the
accompanying statements reflect all adjustments necessary to present fairly the
financial position, results of operations and cash flows for those periods
indicated, and contain adequate disclosure to make the information presented not
misleading. Such adjustments are of a normal, recurring nature unless otherwise
disclosed in the notes to consolidated financial statements. However, the
results for the periods indicated herein reflect certain adjustments, such as
the valuation of inventories on the LIFO cost basis, which can only be finally
determined on an annual basis. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's latest annual report on Form 10-K.
Results of operations for any three month period are not necessarily indicative
of the results of operations for a full year.
2
<PAGE>
<TABLE>
<CAPTION>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except per share)
30 June
ASSETS 1999 30 September
------ (Unaudited) 1998
--------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 80.3 $ 61.5
Trade receivables, less allowances for doubtful accounts 922.3 881.1
Inventories 428.8 428.6
Contracts in progress, less progress billings 93.0 94.1
Other current assets 184.3 176.4
------- -------
TOTAL CURRENT ASSETS 1,708.7 1,641.7
------- -------
INVESTMENT IN NET ASSETS OF AND ADVANCES TO
UNCONSOLIDATED AFFILIATES 479.3 362.0
------- -------
OTHER INVESTMENTS AND ADVANCES 32.5 18.4
------- -------
PLANT AND EQUIPMENT, at cost 9,975.2 9,489.5
Less - Accumulated depreciation 4,901.6 4,703.4
------- -------
PLANT AND EQUIPMENT, net 5,073.6 4,786.1
------- -------
GOODWILL 346.4 324.9
------- -------
OTHER NONCURRENT ASSETS 371.6 356.5
------- -------
TOTAL ASSETS $8,012.1 $7,489.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 561.4 $ 478.7
Accrued liabilities 284.1 332.8
Accrued income taxes 18.8 30.9
Short-term borrowings 326.3 270.1
Current portion of long-term debt 258.7 153.1
------- -------
TOTAL CURRENT LIABILITIES 1,449.3 1,265.6
------- -------
LONG-TERM DEBT 2,249.7 2,274.3
------- -------
DEFERRED INCOME AND OTHER NONCURRENT
LIABILITIES 603.1 570.9
------- -------
DEFERRED INCOME TAXES 741.5 703.0
------- -------
TOTAL LIABILITIES 5,043.6 4,813.8
------- -------
MINORITY INTERESTS IN SUBSIDIARY COMPANIES 136.2 8.5
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.4 249.4
Capital in excess of par value 340.8 329.2
Retained earnings 3,617.6 3,400.0
Accumulated other comprehensive income (316.3) (231.5)
Treasury stock, at cost (681.6) (657.0)
Shares in trust (377.6) (422.8)
------- -------
TOTAL SHAREHOLDERS' EQUITY 2,832.3 2,667.3
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,012.1 $7,489.6
======== ========
</TABLE>
3
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
Three Months Ended Nine Months Ended
30 June 30 June
------------------- -----------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $1,237.8 $1,225.3 $3,765.7 $3,668.7
Other income, net 2.9 11.0(a) 12.3 10.1(a)
-------- -------- -------- --------
1,240.7 1,236.3 3,778.0 3,678.8
-------- -------- -------- --------
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
-------- -------- -------- --------
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
-------- -------- -------- --------
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)
-------- -------- -------- --------
NET INCOME $94.6 $138.1 $ 327.9 $ 419.1
======== ======== ========= =======
BASIC EARNINGS PER COMMON SHARE $.45 $.64 $1.55 $1.94
-------- -------- -------- -------
DILUTED EARNINGS PER COMMON
SHARE $.44 $.63 $1.52 $1.89
-------- -------- -------- --------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (in millions) 212.5 214.9 211.9 216.4
-------- -------- -------- -------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT 217.0 219.9 215.9 221.3
SHARES (in millions) -------- -------- -------- -------
DIVIDENDS DECLARED PER COMMON
SHARE - Cash $.18 $.17 $.52 $.47
-------- -------- -------- -------
</TABLE>
(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.
4
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
Three Months Ended Nine Months Ended
30 June 30 June
-------------------- -------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME $94.6 $138.1 $327.9 $419.1
----- ------ ------ ------
OTHER COMPREHENSIVE INCOME
(LOSS), net of tax
Foreign currency translation
adjustments (37.6) 2.1 (93.9) (78.7)
Unrealized gains (losses) on
investments:
Unrealized holding gains (losses)
arising during the period 5.0 (1.3) 9.1 .5
Less: reclassification adjustment for
gains (losses) included in net income -- -- -- --
----- ------ ------ ------
Net unrealized gains (losses) on
investments 5.0 (1.3) 9.1 .5
----- ------ ------ ------
TOTAL OTHER COMPREHENSIVE
INCOME (LOSS) (32.6) .8 (84.8) (78.2)
----- ------ ----- ------
COMPREHENSIVE INCOME $62.0 $138.9 $243.1 $340.9
===== ====== ====== ======
</TABLE>
5
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
Nine Months Ended
30 June
-----------------
1999 1998
-------- -------
<S> <C> <C>
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) losses 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
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 23.3 7.0
Cash provided by (used for) discontinued operations 1.7 (3.8)
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 790.7 739.1
------- -------
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)
------- -------
CASH USED FOR INVESTING ACTIVITIES (784.2) (453.8)
------- -------
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 (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
------- -------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 16.1 (225.0)
------- -------
Effect of Exchange Rate Changes on Cash (3.8) (2.0)
------- -------
Increase in Cash and Cash Items 18.8 58.3
Cash and Cash Items - Beginning of Year 61.5 52.5
------- -------
Cash and Cash Items - End of Period $80.3 $110.8
======= =======
</TABLE>
6
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
Three Months Ended Nine Months Ended
30 June 30 June
---------------------- -------------------
1999 1998 1999 1998
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
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 -- -- -- --
- -------------------------- --------- --------- --------- ---------
CONSOLIDATED $1,237.8 $1,225.3 $3,765.7 $3,668.7
- -------------------------- --------- --------- --------- ---------
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)
- -------------------------- --------- --------- --------- --------
CONSOLIDATED $167.7 $211.5 $539.4 $630.9
- -------------------------- --------- --------- --------- --------
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
- -------------------------- -------- -------- --------- --------
CONSOLIDATED $15.2 $11.0 $39.1 $24.6
- -------------------------- -------- -------- --------- --------
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
- -------------------------- --------- --------
CONSOLIDATED 11.0% 11.9%
- -------------------------- --------- --------
</TABLE>
(a) The results for the three months ended 30 June 1999 include the charge for
the global cost reduction plan 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 global cost
reduction plan 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.
7
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY GEOGRAPHIC REGION
(Unaudited)
<TABLE>
<CAPTION>
(Millions of dollars)
Three Months Ended Nine Months Ended
30 June 30 June
----------------------- ------------------------
1999 1998 1999 1998
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
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
- ----------------------- -------- -------- -------- --------
CONSOLIDATED $1,237.8 $1,225.3 $3,765.7 $3,668.7
- ----------------------- -------- -------- -------- --------
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) (.4) (1.9) (2.7)
- ----------------------- ------- -------- -------- --------
CONSOLIDATED $167.7 $211.5 $539.4 $630.9
- ----------------------- -------- -------- -------- --------
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 (.1) 3.4 (6.8)
- ----------------------- -------- ------- --------- --------
CONSOLIDATED $15.2 $11.0 $39.1 $24.6
- ----------------------- -------- ------- --------- --------
</TABLE>
(a) The results for the three months ended 30 June 1999 include the charge for
the global cost reduction plan 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 global cost
reduction plan 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.
8
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted earnings per
share:
(Millions, except per share) Three Months Ended Nine Months Ended
30 June 30 June
--------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------
Numerator for basic EPS
and diluted EPS-net income $94.6 $138.1 $327.9 $419.1
Denominator for basic EPS
- -weighted average shares 212.5 214.9 211.9 216.4
Effect of diluted securities:
Employee stock options 3.5 4.0 3.0 3.9
Other award plans 1.0 1.0 1.0 1.0
------------------------------------------------
4.5 5.0 4.0 4.9
Denominator for diluted EPS
- -weighted average shares and
assumed conversions 217.0 219.9 215.9 221.3
================================================
Basic EPS $.45 $.64 $1.55 $1.94
================================================
Diluted EPS $.44 $.63 $1.52 $1.89
================================================
The results for the three months ended 30 June 1999 include a charge of
$13.9 million ($9.0 million after-tax, or $.04 per share) for an expansion of
the global cost reduction plan. This expanded plan results in an additional
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 plan will be completed by 30 June 2000.
The charges to cost of sales and to selling and administrative were
$5.4 million and $8.5 million, respectively.
The fiscal year 1999 global cost reduction plan began in the first fiscal
quarter. The first quarter included a staff reduction 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
combined global cost reduction plan. 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
partial sale of assets 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
9
<PAGE>
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
<PAGE>
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER FISCAL 1999 VS. THIRD QUARTER FISCAL 1998
---------------------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the third quarter of fiscal 1999 were $1,237.8 million, 1% higher than
in the same quarter of the prior year while operating income was down
$43.8 million, or 21%, to $167.7 million. Profits of equity affiliates
increased $4.2 million to $15.2 million for the three months ended 30 June 1999.
Net income was $94.6 million, or $.44 diluted earnings per share, compared to
net income of $138.1 million, or $.63 diluted earnings per share, in the
year-ago quarter. The current year included a charge of $13.9 million ($9.0
million after-tax, or $.04 per share) for a global cost reduction plan. The
prior year included a charge of $28.3 million ($15.4 million after-tax, or $.07
per share) from the settlement of a power contract restructuring. Excluding the
impact of these special items, operating income for the third quarter of fiscal
1999 of $181.6 million declined $29.9 million from the prior year, net income
for the quarter of $103.6 million decreased $19.1 million, and diluted earnings
per share of $.48 is down 14%. The remaining discussion and analysis of the
consolidated results of operations excludes the impact of the special items.
Consolidated sales were up 1% driven by growth in Chemicals offset by lower
Equipment/Services sales and unfavorable currency effects. Industrial Gases
sales were flat as higher sales in Asia were offset by weakness in key markets
and unfavorable currency effects. Volume gains in Chemicals were largely due to
the new emulsions venture with Wacker-Chemie GmbH and prior year acquisitions.
Operating income declined primarily due to slowing activity in the
Equipment/Services segment as expected, and lower Chemicals results. The
Chemicals results were impacted by several customer outages and operating issues
which resulted in lower than anticipated volumes in the intermediates business
areas. Also, several Chemicals businesses experienced margin pressure. Growth in
the Industrial Gases segment continues to be impacted by softer end-market
conditions in the steel and electronics businesses. Favorable cost performance,
particularly in distribution and overheads, continued in the quarter.
Equity affiliates' income increased principally due to the addition of the
redispersible powders venture formed with Wacker-Chemie GmbH and better
performance at several affiliates.
The Company expects the fourth quarter results to improve sequentially based on
improving markets, continuing productivity initiatives and cost reduction
efforts, and the avoidance of several one-time issues that impacted the third
quarter results. Also, for the year, the Company expects earnings per share to
be 5-7% below that of the prior fiscal year.
INDUSTRIAL GASES - Sales remained flat at $725.8 million in the third quarter of
fiscal 1999 while operating income declined 5% to $129.1 million. Excluding the
charge for the global cost reduction plan in the current quarter, operating
income increased $4.1 million or 3%.
LOX/LIN volumes in the United States grew 5% including non-cryo. Growth in
foods, glass and new enrichment accounts offset continued weakness in the
electronics market. LOX/LIN pricing
11
<PAGE>
was down 3% from the prior year due to product mix effects and an aggressive
pricing environment for new business. A new price increase program was initiated
and will begin to take effect 1 July 1999. Cylinder volumes were up 7% over the
prior year mainly as a result of increased focus and productivity initiatives in
that business. Tonnage gases volumes in the United States declined 1% due to
production cutbacks at several large steel accounts. HYCO volumes were slightly
higher than the prior year.
European LOX/LIN volumes including non-cryo were up 6% reflecting continued
strong non-cryo growth. Carburos Metalicos also continues to provide strong
growth. European LOX/LIN prices were down 2% from the prior year. Cylinder
volumes were up modestly due to the AGA UK cylinder business acquisition in the
current quarter. Tonnage volumes increased 6% mainly due to continued loading in
Rotterdam.
Total gases margin excluding special items of 19.3% was up from 18.7% in the
prior year. This increase is a result of asset management initiatives and cost
reduction efforts more than offsetting lower volumes to steel customers and
continued pressure in several electronics product areas.
Equity affiliates' income for the third quarter of fiscal 1999 increased to $7.4
million compared to $5.1 million in the prior year. This increase was due
primarily to improved performance at several affiliates.
CHEMICALS- Sales in the third quarter of fiscal 1999 of $415.8 million increased
6%, or $22.2 million. Operating income decreased $18.0 million to $47.4 million.
Excluding the charge for the global cost reduction plan included in the current
year results, operating income was $49.8 million, a decline of $15.6 million.
Overall volumes increased 10%. Excluding the impact of the emulsions venture and
prior year acquisitions, the current quarter volumes increased 2%. The current
year operating margin of 12% excluding special items declined approximately 4.5%
from the strong performance in the prior year. This decline was mainly a result
of outages and operating difficulties at several key customers in the
polyurethane intermediates and amines businesses this quarter combined with
higher costs associated with new facilities brought on-stream in both of these
areas. A number of maintenance turns taken this quarter will result in improved
efficiencies and lower costs going forward.
In the polymers division, excluding the impact of the new emulsions joint
venture, volumes increased 5% over the prior year as a result of strong demand
from the adhesives and paper markets. PVOH volumes were consistent with the
prior year. A price increase has been announced in the emulsions business
effective 1 July 1999 to offset higher raw material costs.
In the performance chemicals division, overall volumes were up 3% from the prior
year. This increase is due to volume gains in the epoxy and polyurethane
additives businesses offset partially by lower specialty additives volumes due
to a customer operating problem.
Equity affiliates' income for the third quarter of fiscal 1999 was $3.4 million.
This amount mainly reflects the Company's 20% interest in the redispersible
powders venture formed with Wacker-Chemie GmbH.
EQUIPMENT AND SERVICES - Sales decreased 9% from $105.8 million in the prior
year to $96.2 million. Operating income decreased from $20.4 million to $2.3
million. Excluding the cost reduction plan charge in the current quarter,
operating income declined $17.3 million. As expected, the decline in operating
income was a result of less project activity in all areas. Sales backlog for the
equipment product line declined to $103 million at 30 June 1999. This backlog
compares to $302 million at 30 September 1998 and $358 million at 30 June 1998.
12
<PAGE>
Equity affiliates' income for the third quarter of fiscal 1999 decreased
slightly from $4.9 million in the prior year to $4.3 million.
CORPORATE AND OTHER - Operating loss increased $1.1 million to $11.1 million.
The operating loss increase is mainly due to an unfavorable foreign exchange
impact in the current year.
INTEREST
Interest expense of $39.3 million declined $2.7 million from the prior fiscal
year third quarter. This decline was a result of lower rates and higher
capitalized interest offset somewhat by increased interest incurred on a higher
average debt balance.
INCOME TAXES
The consolidated effective tax rate on income was 31.9%. Excluding the tax rate
impact of the global cost reduction plan charges, the effective tax rate is
32.2%. This rate is slightly higher than the prior year rate of 31.9%. The
effective tax rate calculation includes before-tax minority interest.
ACCOUNTING CHANGES
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement
No. 133." This Statement defers the effective date of FASB Statement No. 133
for one year. The Company is now required to adopt FASB Statement No. 133 no
later than the first quarter of fiscal year 2001. The Company has not yet
determined the timing of the adoption of Statement No. 133. Also, the Company
is continuing to evaluate the impacts of adopting the Statement on the financial
statements and the risk management processes.
As of April 1999, the Company began applying highly inflationary accounting to
operations in Indonesia. The financial statements of the Company's operations in
Indonesia are remeasured as if the functional currency were the US dollar. No
material effects on the financial statements resulted from this change.
Beginning with the fiscal quarter ended 31 December 1998, the Company changed
the income statement presentation of distribution expense. Distribution expense
is now included as part of "Cost of sales" and was previously reported as part
of "Selling, distribution and administrative." This change reflects a more
common industry classification of expenses. Results of the three and nine months
ended 30 June 1998 were restated for comparability.
COST REDUCTION PLAN
The Company committed to an expansion of the global cost reduction plan in the
quarter ended 30 June 1999. The expanded plan results in an additional staffing
reduction of 142 employees in the areas of manufacturing, distribution and
overhead. This plan has been communicated to all employees and will be completed
by 30 June 2000. $13.9 million ($9.0 million after-tax, or $.04 per share)
related to employee termination benefits was charged to expense in the fiscal
quarter ended 30 June 1999. Expenses of $1.3 million have been incurred and
charged to the accrual with the balance remaining in accrued liabilities. The
charges to cost of sales and to selling and administrative were $5.4 million and
$8.5 million, respectively. The charges to segments were to Industrial Gases
($10.7 million), Chemicals ($2.4 million) and Equipment/Services ($.8 million).
Benefits of the cost reduction plan will begin in the fourth quarter of the
current fiscal year and will reach an annualized savings of approximately $14.0
million in late fiscal year 2000.
13
<PAGE>
YEAR 2000 READINESS DISCLOSURE
YEAR 2000 PREPARATION
During the fiscal quarter ended 30 June 1999, the Company continued to achieve
the critical milestones in the Year 2000 readiness program. Progress and
exposure are essentially as planned and disclosed in the fiscal year 1998 Annual
Report issued in December 1998. Through June 1999, the Company has expended
approximately $30 million on its year 2000 program. The Company continues to
believe that the previously disclosed $40 million cost estimate remains
sufficient to cover the cost of the Company's Year 2000 program, and includes
funds budgeted to absorb program contingencies as they may arise. Year 2000
contingency planning is in progress and is expected to be ready to address Year
2000 issues as they arise. Details of these plans are described by area below.
INFORMATION TECHNOLOGY
All of the mission-critical Information Technology infrastructure and
applications portfolio have been tested and certified as Year 2000 ready. An
organization has been created and is in place to support Information Technology
contingency planning. Normal operating plans have been reviewed against
potential Year 2000 risks. Year 2000 contingency plans are currently being
developed to address these risks. These contingency plans include controls to
limit changes to Information Technology infrastructure and applications over
Year 2000 critical dates and the implementation of a change management process
to assure that newly purchased or modified Information Technology software and
hardware is Year 2000 ready before introduction into our computing environment.
The Company continues to believe that the combination of readiness certification
and contingency planning will result in no material adverse impact on the
Company's operations or financial condition due to Information Technology
Systems.
PROCESS CONTROL AND EMBEDDED CHIP SYSTEMS
Essentially all of the Company-owned or operated Non-Information Technology
systems have been inventoried and risk assessment is complete. Year 2000
certification efforts continue as planned with 97% of the mission critical
systems certified as Year 2000 ready as of June 1999. Year 2000 completions have
been scheduled beyond June 1999 to coincide with previously scheduled plant
turn-around's and the availability of vendor software upgrades. Complete
certification is planned for September 1999. The Company has already prepared
Year 2000 contingency plan templates for each of its types of operations.
Existing individual plant site contingency plans are currently being reviewed
against these templates. Final contingency plans are expected to be in place by
September 1999.
THIRD PARTIES
Assessment of the Company's 1,300 key suppliers for Year 2000 readiness has been
completed as planned. Approximately 96% of these suppliers are demonstrating
acceptable readiness programs and have met the Company's Year 2000 readiness
expectations. The Company is conducting more thorough evaluations of the
remaining key suppliers based on the assessment results. Contingency plans are
being developed for some key suppliers and for those not meeting the Company's
expectations. Final contingency plans are expected to be in place by September
1999.
BUSINESS CONTINGENCY PLANNING
A cross-functional management team has been created and is in place to
coordinate the Company's various Year 2000 contingency planning efforts, guide
the Company's Year 2000 business contingency planning, and address customers'
Year 2000 issues and concerns. Existing operating contingency plans are being
updated specifically for Year 2000 issues, centralized Year 2000 crisis centers
are being created in conjunction with existing customer service centers, and
product
14
<PAGE>
deployment plans are being developed to address product demands. Final
contingency plans are expected to be in place by September 1999. Illustrative
Year 2000 contingency measures include:
o increasing on-site and standby staffing
o implementing additional methods of communication
o testing emergency responsiveness
o testing raw material and product back-up systems
o providing back-up fuel supplies for existing back-up generators
o enhancing utility supply contingency plans
o topping-off fuel tanks in tractors and product in Company
distribution trailers
o printing and distributing hard-copies of critical
schedules, shipping documents and emergency contact lists
o understanding customers' operating and contingency plans that
impact the Company
o enhancing crisis training and communication
o deploying Year 2000-specific senior crisis coordinators and
business managers
EURO IMPACT
The Euro became legal currency as of 1 January 1999. The Company has
administrative operations in 9 of the 11 countries which have adopted the Euro
and is well positioned to comply with the legislation applicable to its
introduction.
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 backup for commercial paper
or direct 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 expects the
transaction will enhance its earnings before goodwill amortization, transaction
fees and special charges from the first full year following completion of the
offer and will be accretive to earnings per share (earnings post goodwill
amortization) two years after the acquisition. Air Products has filed a Form 8-K
on 13 July 1999 with the United States Securities and Exchange Commission which
provides additional details of this transaction.
15
<PAGE>
NINE MONTHS FISCAL 1999 VS. NINE MONTHS FISCAL 1998
---------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first nine months of fiscal 1999 of $3,765.7 million were 3% higher
than the $3,668.7 million reported in the prior fiscal year. Operating income
declined $91.5 million, or 14%, to $539.4 million. Profits of equity affiliates
increased $14.5 million to $39.1 million for the nine months ended 30 June 1999.
Net income was $327.9 million, or $1.52 diluted earnings per share, compared to
net income of $419.1 million, or $1.89 diluted earnings per share in the prior
year. In the first nine months of 1999 there were several special items; a gain
of $31.1 million ($21.3 million after-tax, or $.10 per share) related to the
formation of Air Products Polymers, a charge of $34.2 million ($21.9 million
after-tax, or $.10 per share) related to a global cost reduction plan, and a
charge of $10.3 million ($6.4 million after-tax, or $.03 per share) primarily
related to Chemicals facility closure costs. Excluding these special items,
operating income for the year is $583.9 million and net income is $334.9
million, or $1.55 diluted earnings per share. Additionally, in the first nine
months of 1998 there were several special items; a gain of $62.6 million ($35.1
million after-tax, or $.16 per share) from the sale of the Company's 50%
interest in American Ref-Fuel Company, a gain of $12.6 million ($7.6 million
after-tax, or $.03 per share) from a cogeneration project contract settlement,
and a gain of $28.3 million ($15.4 million after-tax, or $.07 per share) from
the settlement of a power contract restructuring. Excluding these special items,
operating income for the nine months ended 30 June 1998 is $630.9 million and
net income is $361.0 million, or $1.63 diluted earnings per share. Excluding the
impact of all special items, operating income for the first nine months of
fiscal 1999 of $583.9 million declined $47.0 million from the prior year, net
income of $334.9 million decreased $26.1 million, and diluted earnings per share
of $1.55 is down $.08. The remaining discussion and analysis of the consolidated
results of operations excludes the impact of special items.
Consolidated sales grew 3% primarily as a result of growth in Chemicals and
Industrial Gases outside North America. Sales growth in Asia was offset by
decreased North American sales across several end markets in the Industrial
Gases segment. Chemicals businesses experienced volume gains as a result of the
new emulsions venture with Wacker-Chemie GmbH and prior year acquisitions. The
Equipment/Services segment sales were lower than the strong prior year sales as
expected.
Operating income excluding special items decreased $47.0 million, or 7% from the
prior year. This decline is primarily due to margin impacts on some Chemicals
product lines resulting from customer outages and operating issues, higher costs
associated with new facilities brought on stream, and the secondary effects of
the Asian market. Weakened Industrial Gases sales in the electronics and metals
markets, and less project activity in the Equipment/Services segment also
contributed to the decline in operating income.
Equity affiliates' income increased due to unfavorable foreign exchange impacts
in the prior year, improved performance at several affiliates, and the addition
of the redispersible powders venture formed with Wacker-Chemie GmbH.
INDUSTRIAL GASES - Sales of $2,193.6 million in the first nine months of fiscal
1999 increased 1%, or $25.4 million over the $2,168.2 million reported in fiscal
1998. LOX/LIN volumes including non-cryo are up approximately 2% in North
America and 8% in Europe. In the United States, soft conditions in the metals
and electronics markets offset growth in several other end use markets.
16
<PAGE>
In Europe, the volume increase reflects strong non-cryo growth during the year.
Pricing in the LOX/LIN component of merchant gases is down approximately 2% in
North America and 3% in Europe, with average pricing impacted primarily by
continuing competitive pressure. Tonnage gases volumes declined 2% in North
America while Europe tonnage volumes increased 2%. The decline in North America
is driven by weaker steel demand while the increase in Europe is a result of
loading at Rotterdam.
Operating income decreased $33.7 million to $393.9 million from the prior year.
The current year results include a cost reduction plan charge of $27.0 million.
Excluding this charge, operating income declined 2%. Operating margin for the
nine months excluding special items was 19.2% down slightly from 19.7% in the
prior year. The operating margin decline is mainly due to geographic mix, lower
volumes to steel customers and a weak electronics market offset by asset
management initiatives and cost reduction efforts in the current year.
Equity affiliates' income increased $12.4 million to $20.7 million from $8.3
million in the prior year. This increase is due to unfavorable foreign exchange
effects in the prior year and improved performance at several affiliates in the
current year.
CHEMICALS - Sales in the first nine months of fiscal 1999 of $1,234.5 million
increased $81.6 million, or 7%. Operating income declined $47.2 million to
$144.2 million. The current year results include a charge of $10.3 million
primarily due to facility closure costs, and cost reduction plan charges of $4.0
million. Excluding these special items, fiscal 1999 operating income declined
$32.9 million, or 17%. The overall volume for the segment grew 10% for the first
nine months of the fiscal year. The majority of this growth was due to the
emulsions venture and prior year acquisitions. Methylamine, higher amine and
PVOH volumes were down from the strong levels in the prior year. The operating
income decline was due to increased fixed costs of new capacity additions,
integration costs of the emulsions venture, customer outages and operating
difficulties, and the impacts of the Asian economy.
Equity affiliates' income increased $8.4 million to $8.9 million from $.5
million in the prior year. This increase reflects the Company's 20% interest in
the redispersible powders venture formed with Wacker-Chemie GmbH in the current
year.
EQUIPMENT AND SERVICES - Sales declined $10.0 million to $337.6 million from
$347.6 million in the prior year. Operating income decreased $11.1 million to
$39.3 million from the prior year. Excluding the cost reduction plan charges
included in the current year results, operating income was $42.0 million, a
decrease of 17%. The decrease in sales and operating income was the result of
less project activity in all areas in the current year. Sales backlog for the
equipment product line declined to $103 million at 30 June 1999. This backlog
compares to $302 million at 30 September 1998 and $358 million at 30 June 1998.
Equity affiliates' income for the first nine months of fiscal 1999 decreased
$4.2 million to $9.0 million from the prior year. The decrease is mainly due to
lower energy pricing in the power generation business.
CORPORATE AND OTHER - Operating expense declined slightly to $38.0 million from
$38.5 million in the prior year. The current year results include cost reduction
plan charges of $.5 million. Excluding this charge, operating expense declined
$1.0 million due primarily to a litigation settlement received in the current
year.
Equity affiliates' income declined $2.1 million to $.5 million in the current
year. This decline is mainly due a favorable power contract settlement in the
prior year.
17
<PAGE>
INTEREST
Interest expense of $120.1 million decreased $1.1 million from the prior year.
Lower interest rates and higher capitalized interest were partially offset by
higher average debt.
INCOME TAXES
The consolidated effective tax rate on income was 31.3%. Excluding the tax rate
impact on the gain on formation of the emulsions venture, the Chemicals facility
closure costs, and the cost reduction plan charges, the effective tax rate is
31.7%. This rate is down from 32.3% excluding special items in the prior year
primarily due to tax strategies and initiatives. The effective tax rate
calculation includes before-tax minority interest.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first nine months of fiscal 1999 totaled $868.8
million compared to $725.1 million in the corresponding period of the prior
year. Additions to plant and equipment increased from $507.2 million during the
first nine months of fiscal 1998 to $671.8 million during the current period.
The current year additions include a new 500 million pound-per-year
dinitrotoluene (DNT) production facility in Geismar, Louisiana. Investments in
unconsolidated affiliates were $101.5 million during the first nine months of
fiscal 1999 versus $18.5 million last year. The current year results include a
cash contribution of $50.1 million to acquire a 50% interest in Industrial
Oxygen Company Limited ("INOX"), India's second largest industrial gas company.
The current year results also include a cash contribution of $33.5 million
related to the formation of the redispersible powders venture with Wacker-Chemie
GmbH. Capital expenditures are expected to be approximately $1.2 billion in
fiscal 1999. This is up from the prior quarter estimates due to a number of
acquisition opportunities the company has completed or plans to complete in this
fiscal year. It is anticipated that these expenditures will be funded with cash
from operations supplemented with proceeds from financing activities.
Cash provided by operating activities during the first nine months of fiscal
1999 ($790.7 million) combined with proceeds from the sale of assets and
investments ($50.4 million), cash provided by debt financing ($140.9 million)
and cash provided by the issuance of shares in trust for stock options ($44.3
million) were used largely for capital expenditures ($868.8 million), purchase
of common stock for treasury ($24.6 million), debt repayments ($36.5 million)
and cash dividends ($107.9 million). Cash and cash items increased $18.8 million
from $61.5 million at the beginning of the fiscal year to $80.3 million at 30
June 1999. The net increase in commercial paper was $62.8 million.
Total debt expressed as a percentage of the sum of total debt and shareholders'
equity, was 50% at 30 June 1999 and 30 September 1998. Total debt increased from
$2,697.5 million at 30 September 1998 to $2,834.7 million at 30 June 1999.
There was $383.5 million of commercial paper outstanding at 30 June 1999. The
Company's revolving credit commitments amounted to $600.0 million at 30 June
1999 with funding available in 13 currencies. No borrowings were outstanding
under these commitments. Additional commitments totaling $91.2 million are
maintained by the Company's foreign subsidiaries, of which $21.4 million was
utilized at 30 June 1999.
At 30 June 1999, the Company had unutilized shelf registrations for $325.0
million of debt securities.
18
<PAGE>
The Company enters into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain the
percentage of fixed and variable rate debt within certain parameters set by
management. In accordance with these parameters, the agreements are used to
reduce interest rate risks and costs inherent in the Company's debt portfolio.
Accordingly, the Company enters into agreements to both effectively convert
variable-rate debt to fixed-rate debt and to effectively convert fixed-rate debt
to variable-rate debt, which is principally indexed to LIBOR rates. The Company
has also entered into interest rate swap contracts to effectively convert the
stated variable rates to interest rates based on LIBOR. The fair value gain
(loss) on the variable to variable swaps is equally offset by a fair value loss
(gain) on the related debt agreements.
The notional principal and fair value of interest rate swap agreements at
30 June 1999 and 30 September 1998 were as follows:
(Millions of dollars)
30 June 1999 30 September 1998
--------------------------- -------------------------
Notional Fair Value Notional Fair Value
Amount Gain (Loss) Amount Gain (Loss)
---------------------------- ----------- -------------
Fixed to Variable $311.0 $11.2 $461.0 $37.6
Variable to Variable 60.0 125.6 60.0 86.4
---------------------------- ---------- --------------
Total $371.0 $136.8 $521.0 $124.0
============================ ========== ==============
During the first nine months of fiscal 1999 three fixed to variable interest
rate swap agreements with a total notional amount of $150.0 million were
terminated, resulting in a deferred gain of $10.5 million.
A $65.6 million asset has been recognized in the financial statements related to
the above variable to variable interest rate swap agreements. Additionally, a
$65.6 million liability has been recognized in the financial statements related
to the corresponding debt agreements.
The Company is also party to interest rate and currency swap contracts. These
contracts effectively convert the currency denomination of a debt instrument
into another currency in which the Company has a net equity position while
changing the interest rate characteristics of the instrument. The notional
principal of interest rate and currency swap agreements outstanding at 30 June
1999 was $270.8 million. The fair value of the agreements was a gain of $15.2
million, of which a $32.1 million gain related to the currency component was
recognized in the financial statements. The remaining $16.9 million loss was
related to the interest component and has not been recognized in the financial
statements. This loss reflects that current interest rates are generally lower
than the interest rates paid under the interest rate and currency swap
agreements. As of 30 September 1998 interest rate and currency swap agreements
were outstanding with a notional principal amount and fair value of $419.3
million and a gain of $1.8 million, respectively. In the quarter ended 31 March
1999, three interest rate and currency swap agreements with a total notional
amount of $118.5 million were terminated, resulting in a deferred loss of $2.2
million.
The estimated fair value of the Company's long-term debt, including current
portion, as of 30 June 1999 is $2,753.5 million compared to a book value of
$2,508.4 million.
Refer to the subsequent event disclosure in the current quarter Management's
Discussion and Analysis section for information related to the financing of the
recommended offer under which the Company and L'Air Liquide S.A. will acquire
The BOC Group plc.
19
<PAGE>
During the first nine months of fiscal 1999, .6 million shares of the Company's
outstanding common stock were repurchased at a cost of $24.6 million.
FINANCIAL INSTRUMENTS
There has been no material change in the net financial instrument position or
sensitivity to market risk since the disclosure in the annual report.
COST REDUCTION PLAN
The Company began a global cost reduction plan ("1999 Plan") in the fiscal
quarter ending 31 December 1998. The 1999 Plan results in a staffing reduction
of 206 employees in the areas of manufacturing, distribution and overhead. The
plan has been communicated to all employees and as of this filing, approximately
two thirds of the plan has been implemented. The 1999 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 ended 31 December 1998. As of this filing, $12.0 million has been
charged to the accrual and $8.3 million remains in accrued liabilities.
Annualized benefits of approximately $15.0 million will occur from this plan
which will be completed by 31 December 1999.
The Company expanded the 1999 Plan in the quarter ended 30 June 1999. The plan
expansion in the third quarter results in an additional staffing reduction of
142 employees and resulted in a charge to expense of $13.9 million ($9.0 million
after-tax, or $.04 per share).
For the nine months ended 30 June 1999, the combined cost reduction plan had
resulted in a charge to expense of $34.2 million ($21.9 million after-tax, or
$.10 per share). 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. The charges to segments were to Industrial Gases ($27.0 million),
Chemicals ($4.0 million), Equipment/Services ($2.7 million) and Corporate/Other
($.5 million).
FORWARD-LOOKING STATEMENTS
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. In addition to important risk factors and
uncertainties referred to in the Management's Discussion and Analysis such as
those relating to the Year 2000, other 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, and 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.
Factors that might cause forward looking statements related to the BOC
acquisition to differ materially from actual results include, among other
things, requirements or delays imposed by regulatory authorities to permit the
transaction to be consummated, unanticipated tax and other costs in separating
the ownership of BOC's businesses and assets, ability to amortize goodwill over
40 years, overall economic and business conditions, demand for the goods and
services of Air Products or BOC or their respective affiliates, competitive
factors in the industries in which each of them competes, changes in government
regulation, success of implementing synergies and other cost reduction programs,
the timing, impact, and other uncertainties of future acquisitions or
combinations within relevant industries, fluctuations in interest rates and
foreign currencies, and
20
<PAGE>
the price at which Air Products would issue additional equity, as well as the
impact of tax and other legislation and other regulations in the jurisdictions
in which Air Products and BOC and their respective affiliates operate.
21
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule which is submitted electronically
to the Securities and Exchange Commission for information
only, and not filed.
(b) Current Report on Form 8-K dated 22 April 1999 was filed by
the Registrant during the quarter ended 30 June 1999 in
which Item 5 of such form was reported.
22
<PAGE>
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)
Date: August 12, 1999 By: /s/ Leo J. Daley
-------------------------------
Leo J. Daley
Vice President - Finance
(Chief Financial Officer)
23
<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
EXHIBITS
To
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 30 June 1999
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
===============================================================================
<PAGE>
INDEX TO EXHIBITS
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only, and not filed.
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Nine
Months
Ended
Year Ended 30 September 30 June
------------------------------------ -------
1994 1995 1996 1997 1998 1999
------- ------ ------ ------ ------ -------
(Millions of dollars)
EARNINGS:
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary
item and the cumulative
effect of accounting changes $233.5 $368.2 $416.4 $429.3 $546.8 $327.9
Add (deduct):
Provision for income taxes 95.2 186.2 195.5 203.4 280.9 152.5
Fixed charges, excluding
capitalized interest 127.1 148.8 184.0 233.0 202.8 142.3
Capitalized interest
amortized during the period 8.0 9.1 9.4 8.3 7.4 4.6
Undistributed earnings of
less-than-fifty-percent-
owned affiliates (2.8) (25.4) (40.6) (31.1) (25.3) (31.0)
------ ----- ----- ------ ------- -----
Earnings, as adjusted $461.0 $686.9 $764.7 $842.9 $1,012.6 $596.3
====== ======= ======= ======= ======== ======
FIXED CHARGES:
Interest on indebtedness,
including capital lease
obligations $118.2 $139.4 $171.7 $217.8 $186.7 $130.2
Capitalized interest 9.7 18.5 20.0 20.9 18.4 16.5
Amortization of debt
discount premium and expense .8 .2 1.5 1.8 1.9 1.2
Portion of rents under
operating leases
representative of the
interest factor 8.1 9.2 10.8 13.4 14.2 10.9
------ ----- ----- ------ ------ ------
Fixed charges $136.8 $167.3 $204.0 $253.9 $165.6 $158.8
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO
FIXED CHARGES: 3.4 4.1 3.7 3.3 4.6 3.8
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information
extracted from the consolidated balance sheet and the
consolidated statement of income filed as part of
Form 10-Q and is qualified in its entirety by reference
to such Form 10-Q .
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U S Dollar
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 80
<SECURITIES> 0
<RECEIVABLES> 929
<ALLOWANCES> 7
<INVENTORY> 429
<CURRENT-ASSETS> 1709
<PP&E> 9975
<DEPRECIATION> 4901
<TOTAL-ASSETS> 8012
<CURRENT-LIABILITIES> 1449
<BONDS> 2250
0
0
<COMMON> 249
<OTHER-SE> 2583
<TOTAL-LIABILITY-AND-EQUITY> 8012
<SALES> 3766
<TOTAL-REVENUES> 3766
<CGS> 2624
<TOTAL-COSTS> 2624
<OTHER-EXPENSES> 90
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 490
<INCOME-TAX> 149
<INCOME-CONTINUING> 328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328
<EPS-BASIC> 1.55
<EPS-DILUTED> 1.52
</TABLE>
