UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) 22 January 2003
Air Products and Chemicals, Inc.
(Exact name of registrant as specified in charter)
Delaware 1-4534 23-1274455
(State of other jurisdiction (Commission file number) (IRS Identification
of incorporation) number)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 481-4911
Item 5. Other Events.
AIR PRODUCTS REPORTS FIRST QUARTER EARNINGS PER SHARE OF 56 CENTS
LEHIGH VALLEY, Pa. (January 22, 2003) - Air Products (NYSE:APD) today reported
net income of $126 million, or diluted earnings per share (EPS) of $.56, for its
first fiscal quarter ended December 31, 2002. Excluding the cumulative effect of
an accounting change for SFAS No. 143*, net income was $129 million, or diluted
EPS of $.58. Excluding this accounting change, EPS was up 12 percent over the
prior year.
Quarter revenues of $1.4 billion were up 10 percent from the prior year and up
four percent sequentially. Excluding acquisitions, divestitures, currency
effects, and the sales increase directly associated with higher natural gas
costs, underlying sales increased three percent from the prior year, principally
reflecting higher worldwide gases volumes, and were down one percent
sequentially, principally due to lower chemical volumes.
Operating income was $197 million, up seven percent over the prior year.
Positive impacts on operating income came from acquisitions, increased gas
volumes, lower than anticipated fiscal year 2002 incentive compensation costs,
and favorable currency. Higher raw material and energy, increased pension, and
SAP implementation costs partially offset these gains.
Commenting on the quarter, John P. Jones, Air Products' Chairman and Chief
Executive Officer, said, "Despite a weaker than expected economic climate, we
continued to execute our plans consistent with our strategy, focusing on the
elements of our business that we can control, including our portfolio management
efforts, process improvement activities and building our leadership positions in
growth markets."
Industrial gas sales of $1 billion increased 13 percent versus the prior year.
Operating income of $170 million was up 12 percent versus the prior year, led by
improved worldwide gases volumes, the company's acquisitions in Asia and U.S.
homecare, and the effect of the strengthening Euro.
Sequentially, gases revenues increased six percent and operating income was down
one percent, as acquisitions were more than offset by declines in electronics
and volume declines in CPI related to the Gulf Coast hurricanes and customer
outages.
Chemicals sales of $354 million increased one percent versus the prior year.
Operating income of $33 million declined 18 percent with stronger polyurethane
intermediate volumes more than offset by lower margins and weaker volumes in the
company's amines and performance polymers (emulsions) businesses.
Sequentially, chemicals revenues declined two percent. Operating income was down
21 percent due to higher raw material costs and weaker volumes across
performance materials,** partially offset by improved polyurethane intermediate
operating rates.
2
Air Products' equipment segment sales of $67 million were up six percent versus
the prior year. Operating income of $4 million was up $3 million versus the
prior year. The company secured a new liquefied natural gas heat exchanger order
during the first quarter.
Equity affiliate income of $26 million increased 40 percent over the prior year.
Adjustments related to divestitures recorded in prior periods more than
compensated for the transition of San Fu Chemical Co., Ltd. into the
consolidated results.
Regarding Air Products' outlook, Mr. Jones said, "Based on current economic
estimates, the range for U.S. manufacturing growth this fiscal year now appears
to be one to three percent. While we are seeing higher raw material costs and a
slower first-half recovery in the manufacturing sector, particularly in
electronics, our currency and tax outlook is now more favorable than it was in
October. On balance, we are maintaining our EPS guidance range of $2.40 to $2.60
for the year. We anticipate fiscal second quarter earnings results similar to
this quarter."
Air Products will hold its annual meeting of shareholders on Thursday, January
23, 2003, 2:00 p.m. EST, at Cedar Crest College in Allentown, Pa. The meeting
can be heard on the Web at: www.airproducts.com/fin/annualmeeting.asp.
***NOTE: The forward-looking statements contained in this release are based on
current expectations regarding important risk factors. Actual results may differ
materially from those expressed. Factors that might cause forward-looking
statements to differ materially from actual results include, among other things,
overall economic and business conditions different than those currently
anticipated and demand for Air Products' goods and services; competitive factors
in the industries in which it competes; interruption in ordinary sources of
supply; the ability to recover increased energy and raw material costs from
customers; spikes in the pricing of natural gas; changes in government
regulations; consequences of acts of war or terrorism impacting the United
States' and other markets; the success of implementing cost reduction programs;
the timing, impact and other uncertainties of future acquisitions or
divestitures; significant fluctuations in interest rates and foreign currencies;
the impact of tax and other legislation and regulations in jurisdictions in
which Air Products and its affiliates operate; and the timing and rate at which
tax credits can be utilized.
Please review the attached financial information:
3
AIR PRODUCTS AND CHEMICALS, INC.
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
(Millions of dollars, except per share)
Three Months Ended
31 December
2002 2001
--------- ---------
Sales $ 1,447.0 $ 1,316.5
--------- ---------
Income Before Cumulative $ 128.7 $ 113.7
Effect of Accounting Change
Cumulative Effect of (2.9) --
Accounting Change
--------- ---------
Net Income $ 125.8 $ 113.7
========= =========
Basic Earnings Per Share
Income Before Cumulative $ .59 $ .53
Effect of Accounting Change
Cumulative Effect of (.02) --
Accounting Change
--------- ---------
Net Income $ .57 $ .53
========= =========
Diluted Earnings Per Share
Income Before Cumulative $ .58 $ .52
Effect of Accounting Change
Cumulative Effect of (.02) --
Accounting Change
--------- ---------
Net Income $ .56 $ .52
========= =========
Capital Expenditures $ 351.4 $ 199.4
Depreciation $ 156.0 $ 139.3
--------- ---------
4
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
(Unaudited)
(Millions of dollars, except per share) Three Months Ended
31 December
2002 2001
--------- ---------
SALES $ 1,447.0 $ 1,316.5
COSTS AND EXPENSES
Cost of sales 1,033.0 937.1
Selling and administrative 190.8 169.3
Research and development 30.0 30.4
Other (income) expense, net (3.3) (4.5)
--------- ---------
OPERATING INCOME 196.5 184.2
Income from equity affiliates, net of
related expenses 25.8 18.4
Interest expense 31.7 35.1
--------- ---------
INCOME BEFORE TAXES AND 190.6 167.5
MINORITY INTEREST
Income taxes 55.1 48.8
Minority interest (a) 6.8 5.0
--------- ---------
INCOME BEFORE CUMULATIVE $ 128.7 $ 113.7
EFFECT OF ACCOUNTING CHANGE
Cumulative effect of accounting change (2.9) --
--------- ---------
NET INCOME $ 125.8 $ 113.7
========= =========
BASIC EARNINGS PER
COMMON SHARE
Income before cumulative effect of $ .59 $ .53
accounting change
Cumulative effect of (.02) --
accounting change
--------- ---------
Net Income $ .57 $ .53
--------- ---------
DILUTED EARNINGS PER
COMMON SHARE
Income before cumulative effect of $ .58 $ .52
accounting change
Cumulative effect of (.02) --
accounting change
--------- ---------
Net Income $ .56 $ .52
--------- ---------
WEIGHTED AVERAGE NUMBER 218.8 215.7
OF COMMON SHARES (in millions)
--------- ---------
WEIGHTED AVERAGE NUMBER 223.0 220.6
OF COMMON AND COMMON
EQUIVALENT SHARES (in millions)
--------- ---------
DIVIDENDS DECLARED PER $ .21 $ .20
COMMON SHARE - Cash
--------- ---------
(a)Minority interest primarily includes before-tax amounts.
5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of dollars)
31 December
2002 2001
--------- --------
ASSETS
CURRENT ASSETS
Cash and cash items $ 104.8 $ 68.3
Trade receivables, less allowances for 1,031.3 867.4
doubtful accounts
Inventories and contracts in progress 484.8 485.5
Other current assets 213.6 207.4
--------- ---------
TOTAL CURRENT ASSETS 1,834.5 1,628.6
--------- ---------
INVESTMENTS IN NET ASSETS OF AND ADVANCES TO EQUITY AFFILIATES 499.7 516.9
PLANT AND EQUIPMENT, at cost 11,160.1 10,324.9
Less - Accumulated depreciation 5,681.5 5,210.2
--------- ---------
PLANT AND EQUIPMENT, net 5,478.6 5,114.7
--------- ---------
GOODWILL 557.0 380.7
--------- ---------
OTHER NONCURRENT ASSETS 306.1 398.0
--------- ---------
TOTAL ASSETS $ 8,675.9 $ 8,038.9
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other $ 487.3 $ 463.6
Accrued liabilities 302.7 301.1
Accrued income taxes 116.7 67.6
Short-term borrowings 54.7 249.9
Current portion of long-term debt 320.8 165.2
--------- ---------
TOTAL CURRENT LIABILITIES 1,282.2 1,247.4
--------- ---------
LONG-TERM DEBT 2,027.3 1,989.5
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 866.3 714.8
DEFERRED INCOME TAXES 705.4 795.7
--------- ---------
TOTAL LIABILITIES 4,881.2 4,747.4
--------- ---------
MINORITY INTERESTS IN SUBSIDIARY COMPANIES 192.8 120.9
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 3,601.9 3,170.6
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,675.9 $ 8,038.9
========= =========
6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONDENSED CONSOLIDATED CASH FLOWS
(Unaudited)
(Millions of dollars)
Three Months Ended
31 December
2002 2001
------- -------
OPERATING ACTIVITIES
Net Income $ 125.8 $ 113.7
Adjustments to reconcile income to cash provided by operating activities:
Depreciation 156.0 139.3
Deferred income taxes (4.8) 13.1
Undistributed earnings of unconsolidated affiliates (2.3) (12.1)
Loss on sale of assets and investments 2.1 .2
Other 7.3 32.1
Working capital changes that provided (used) cash, excluding effects of
acquisitions and divestitures:
Trade receivables 8.3 36.6
Inventories and contracts in progress (11.8) (9.4)
Payables, trade and other (20.3) (45.2)
Other 2.9 5.5
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 263.2 273.8
------- -------
INVESTING ACTIVITIES
Additions to plant and equipment (a) (166.9) (178.0)
Investment in and advances to unconsolidated affiliates (1.4) (20.9)
Acquisitions, less cash acquired (182.2) --
Proceeds from sale of assets and investments 9.2 16.5
Other 3.0 (9.3)
------- -------
CASH USED FOR INVESTING ACTIVITIES (338.3) (191.7)
------- -------
FINANCING ACTIVITIES
Long-term debt proceeds 44.2 3.5
Payments on long-term debt (20.6) (47.3)
Net decrease in commercial paper and short-term borrowings (67.4) (3.4)
Dividends paid to shareholders (45.9) (43.1)
Issuance of stock for options and award plans 11.1 12.3
------- -------
CASH USED FOR FINANCING ACTIVITIES (78.6) (78.0)
------- -------
Effect of Exchange Rate Changes on Cash 4.8 (2.0)
------- -------
(Decrease) Increase in Cash and Cash Items (148.9) 2.1
Cash and Cash Items - Beginning of Year 253.7 66.2
------- -------
Cash and Cash Items - End of Period $ 104.8 $ 68.3
======= =======
(a) Excludes capital lease additions of $.9 and $.5 for the three months ended
31 December 2002 and 2001, respectively.
7
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, except per share)
Asset Retirement Obligations
The company adopted Statement of Financial Accounting Standards (SFAS) No. 143,
"Accounting for Asset Retirement Obligations," on 1 October 2002. The Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred. The liability is measured
at discounted fair value and is adjusted to its present value in subsequent
periods as accretion expense is recorded. The corresponding asset retirement
costs are capitalized as part of the carrying amount of the related long-lived
asset and depreciated over the asset's useful life. The company's asset
retirement obligations are primarily associated with Gases on-site long-term
supply contracts under which the company has built a facility on land leased
from the customer and is obligated to remove the facility at the end of the
contract term. At 1 October 2002, the company recognized transition amounts for
existing asset retirement obligation liabilities, associated capitalizable costs
and accumulated depreciation. An after-tax transition charge of $2.9 was
recorded as the cumulative effect of an accounting change. The ongoing expense
on an annual basis resulting from the initial adoption of SFAS No. 143 is
approximately $1.
Acquisitions
In October 2002, the company acquired American Homecare Supply, LLC (AHS), a
homecare market leader throughout the northeastern United States, for $166. In
November 2002, AHS acquired Home Health Services, Inc., a provider of homecare
services located in West Virginia. Prior to these acquisitions, the company and
its affiliates had a homecare position serving approximately 180,000 patients.
With these acquisitions, the company and its affiliates will provide home
medical services to more than 280,000 patients in 14 countries from more than
200 locations. With annual sales of more than $120 and more than 800 employees,
AHS is ranked among the ten largest U.S. homecare providers of respiratory
therapy and home medical equipment.
In July 2002, the company purchased an additional 22% of the outstanding shares
of San Fu Chemical Company, Ltd. (San Fu), increasing the company's ownership
interest from 48% to 70%. As of 30 June 2002, the company accounted for its
investment in San Fu using the equity method. With this acquisition, the company
obtained control and consolidated this investment.
The above acquisitions contributed $87 and $16 to sales and operating income for
the three months ended 31 December 2002.
Incentive Compensation Costs
Operating income for the three months ended 31 December 2002 included a
favorable adjustment of $8 for lower than anticipated payments of fiscal year
2002 incentive compensation costs.
Equity Affiliates' Income
Income from equity affiliates for the three months ended 31 December 2002
included $14 for adjustments related to divestitures recorded in prior periods.
Income from equity affiliates contributed $.09 and $.07 to diluted earnings per
share for the three months ended 31 December 2002 and 2001, respectively.
8
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
Business segment information is shown below:
(Millions of dollars) Three Months Ended
31 December
2002 2001
-------- --------
Revenues from external customers
Gases $1,025.8 $ 904.1
Chemicals 353.8 349.0
Equipment 67.4 63.4
-------- --------
Segment Totals 1,447.0 1,316.5
-------- --------
Consolidated Totals $1,447.0 $1,316.5
-------- --------
Operating income
Gases $ 170.5 $ 152.0
Chemicals 33.1 40.5
Equipment 4.1 .9
-------- --------
Segment Totals 207.7 193.4
-------- --------
Corporate research and (11.2) (9.2)
development and other
income (expense)
-------- --------
Consolidated Totals $ 196.5 $ 184.2
-------- --------
Equity affiliates' income
Gases $ 14.7 $ 15.8
Chemicals 2.5 2.3
Equipment .3 .3
-------- --------
Segment Totals 17.5 18.4
-------- --------
Other 8.3 --
-------- --------
Consolidated Totals $ 25.8 $ 18.4
-------- --------
(Millions of dollars)
31 December
2002 2001
-------- --------
Identifiable assets
Gases $6,424.1 $5,793.5
Chemicals 1,406.7 1,379.5
Equipment 169.1 197.9
-------- --------
Segment Totals 7,999.9 7,370.9
-------- --------
Corporate assets 176.3 151.1
-------- --------
Consolidated Totals $8,176.2 $7,522.0
-------- --------
9
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
Three Months Ended
31 December
2002 2001
-------- --------
Revenues from external customers
United States $ 819.9 $ 837.9
Canada 27.2 25.0
-------- --------
Total North America 847.1 862.9
-------- --------
United Kingdom 116.8 110.9
Spain 84.4 81.2
Other Europe 206.4 151.9
-------- --------
Total Europe 407.6 344.0
-------- --------
Asia 160.4 82.9
Latin America 31.8 26.6
All Other .1 .1
-------- --------
Total $1,447.0 $1,316.5
-------- --------
Note: Geographic information is based on country of origin. The other Europe
segment operates principally in Belgium, France, Germany and the
Netherlands.
# # #
MEDIA INQUIRIES:
Catherine E. McDonald, tel: (610) 481-3673; e-mail: mcdonace@apci.com
INVESTOR INQUIRIES:
Alexander W. Masetti, tel: (610) 481-7461; email: masettaw@apci.com
EDITOR'S NOTES:
*On October 1, 2002, Air Products adopted Statement of Financial Accounting
Standards (SFAS) No. 143, requiring that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred.
It applies to certain of Air Products' on-site agreements, for example, where
the company has an obligation to remove its equipment upon expiration of a
customer contract. An after-tax transition charge of $2.9 million was recorded
as the cumulative effect of the accounting change. The ongoing expense on an
annual basis resulting from the initial adoption of SFAS No. 143 is negligible
(approximately $1 million).
**On November 5, 2002, Air Products announced a reorganization of its chemicals
businesses into a new Performance Materials Division. More information is
available at: http://www.airproducts.com/corp/rel/03016.asp
10
Item 9. Regulation FD Disclosure
The Q1 earnings teleconference following the earnings release which started at
11:00 a.m. EST on January 22, 2003 can be accessed by listening on the Company's
web site at http://www.airproducts.com/fin/quarterly.htm. Recordings of the
earnings teleconference and copies of the slides used will continue to be
available at the above web address until 11:59 p.m. EST on January 31, 2003.
11
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: 22 January 2003 By: /s/ John R. Owings
------------------------------
John R. Owings
Vice President and
Chief Financial Officer
12