Access the Q4 earnings teleconference scheduled for 10:00 a.m.
Eastern Time on October 22 by calling (719) 325-4747 and entering
passcode 1462434, or listen on the Web at:
www.airproducts.com/Invest/financialnews/Earnings_Releases/Teleconference.htm
LEHIGH VALLEY, Pa., Oct. 22 /PRNewswire-FirstCall/ -- Highlights:
-- Fiscal 2008 fourth quarter sales increased 14 percent over the
prior year to $2.7 billion. -- Fiscal 2008 fourth quarter earnings
per share (EPS) from continuing operations grew 10 percent on an
adjusted basis. -- Fiscal 2008 marked the fifth consecutive year of
double-digit growth. -- The company has announced two long-term
supply contracts with ExxonMobil to supply hydrogen for their Baton
Rouge, Louisiana and Baytown, Texas refineries. Air Products
(NYSE:APD) today reported net income of $262 million, or diluted
earnings per share (EPS) of $1.21, for its fiscal 2008 fourth
quarter versus $293 million and $1.31, respectively, for the fourth
quarter of fiscal 2007. Fiscal 2007 fourth quarter results included
a gain on a polyurethane intermediates contract settlement of $.11
per share, a tax benefit on the charitable donation and gain on
sale of an investment of $.09 per share, a charge for a
supplemental pension plan of $.03 per share, a charge for a global
cost reduction plan of $.04 per share, and a tax benefit from audit
settlements and adjustments of $.05 per share. With these items
excluded, income and EPS from continuing operations were $256
million and $1.15, respectively. Excluding these five items from
income from continuing operations in 2007, 2008 fiscal fourth
quarter income from continuing operations of $273 million increased
seven percent, and diluted EPS of $1.26 increased 10 percent. The
following discussion of fourth quarter and full year results in
this release is based on non-GAAP comparisons. A reconciliation can
be found at the end of this release. Fourth quarter revenues of
$2,715 million were up 14 percent from the prior year on higher
volumes and better pricing in Merchant Gases and Performance
Materials, favorable currency, and higher natural gas and raw
material cost pass-through. Operating income of $373 million was up
three percent. Included in operating income was a $.05 per share
loss related to a fire at the company's nitrogen trifluoride (NF3)
facility in Korea, and a $.05 per share unfavorable impact from the
recent Gulf Coast hurricanes. For fiscal 2008, sales of $10,415
million were up 14 percent, and income from continuing operations
of $1,107 million was up 16 percent over the prior year. Operating
income of $1,522 was up 12 percent, and diluted EPS of $5.05 was up
18 percent over the prior year. John McGlade, chairman, president
and chief executive officer, said, "Overall, 2008 represented
another year of strong performance for the company, with 14 percent
sales growth, 18 percent EPS growth, and a 50 basis point
improvement in ROCE to 13 percent, while continuing to drive
improvements in our portfolio. However, weaker demand in
Electronics and softer-than-expected volumes in Europe impacted our
fourth quarter results." Fourth Quarter Segment Performance --
Merchant Gases sales of $1,095 million were up 15 percent, and
operating income of $196 million increased 12 percent over the
prior year on strong pricing, favorable currency and improved
volumes. -- Tonnage Gases sales of $940 million were up 21 percent
on higher natural gas cost pass-through. Hurricane impacts reduced
sales by six percent in the quarter. Operating income of $135
million increased 14 percent over the prior year on lower
maintenance and better operating efficiency. -- Electronics and
Performance Materials sales of $553 million were up six percent.
Operating income of $42 million declined 31 percent over the prior
year. Electronics sales were impacted by the global slowdown in
both semiconductor foundry and liquid crystal display (LCD)
manufacturing and the fire sustained at the company's NF3 plant in
Korea. Performance Materials sales increased due to growth in Asia
and higher prices. -- Equipment and Energy sales of $126 million
were up two percent as higher air separation unit sales were offset
by declines in liquefied natural gas (LNG) heat exchanger sales.
Operating income of $16 million decreased 12 percent over the prior
year on lower LNG heat exchanger activity. Outlook Looking forward,
McGlade said, "Despite the unprecedented volatility in the global
economy, we remain committed to our long-term goals to improve our
margins and returns, and capture the substantial growth
opportunities that exist in our markets. We currently project our
capital spending to be $1.6 to $1.8 billion in 2009, up from $1.4
billion in 2008. Our project backlog is at an all-time high, and we
announced this week two new agreements to supply hydrogen to
ExxonMobil at their Baton Rouge and Baytown refineries. Our strong,
predictable cash flow, coupled with our solid, well-managed balance
sheet, allows us to finance the growth next year and continue to
grow our capital spending in the future." McGlade went on to say,
"In the short term, we are very focused on controlling costs and
are taking many actions to minimize discretionary spending. We also
are pursuing cost reductions by capitalizing on our SAP investment
to continue driving down SG&A and transaction costs. We are
increasing the energy efficiency at our plants, lowering
maintenance costs, and reducing distribution expense per unit of
product delivered. Although we are likely to see a much weaker
global economy in 2009, we remain committed to delivering
consistent, strong earnings growth along with improved margins and
returns throughout the economic cycle." The company today announced
initial guidance for fiscal year 2009 EPS in the range of $5.10 to
$5.35 per share, representing year-over-year earnings growth on a
continuing operations basis of one to six percent. For the first
quarter of fiscal 2009 ending December 31, 2008, EPS is expected to
be between $1.15 and $1.21 per share. Air Products (NYSE:APD)
serves customers in industrial, energy, technology and healthcare
markets worldwide with a unique portfolio of atmospheric gases,
process and specialty gases, performance materials, and equipment
and services. Founded in 1940, Air Products has built leading
positions in key growth markets such as semiconductor materials,
refinery hydrogen, home healthcare services, natural gas
liquefaction, and advanced coatings and adhesives. The company is
recognized for its innovative culture, operational excellence and
commitment to safety and the environment. Air Products has annual
revenues of $10 billion, operations in over 40 countries, and
22,000 employees around the globe. For more information, visit
http://www.airproducts.com/. NOTE: The information above contains
"forward-looking statements" based on management's reasonable
expectations and assumptions as of the date of this document.
Events or results described in forward-looking statements may be
influenced by many factors not anticipated by management, including
without limitation, deterioration in economic and business
conditions; future financial and operating performance of major
customers and industries served by the Company; unanticipated
contract terminations or customer cancellation or postponement of
projects or sales; the impact of competitive products and pricing;
interruption in ordinary sources of supply of raw materials; the
ability to attract, hire and retain qualified personnel in all
regions of the world where the Company operates; significant
fluctuations in interest rates and foreign currencies; the
continued availability of capital funding sources in all of the
Company's foreign operations; the impact of new or changed
environmental, healthcare, tax or other legislation and regulations
in jurisdictions in which the Company and its affiliates operate;
and other risk factors described in the Company's Quarterly Report
on Form 10Q for the quarter ended December 31, 2007. The Company
disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statements contained in this
document to reflect any change in the Company's assumptions,
beliefs or expectations or any change in events, conditions or
circumstances upon which any such forward-looking statements are
based. The presentation of non-GAAP measures is intended to enhance
the usefulness of financial information by providing measures which
the Company's management uses internally to evaluate the Company's
baseline performance. Presented below are reconciliations of
reported GAAP results to non-GAAP measures. CONSOLIDATED RESULTS Q4
YTD Continuing Continuing Operations Operations Operating Income
Diluted Operating Income Diluted Millions of Dollars Income EPS
Income EPS 2008 GAAP $373.1 $273.4 $1.26 $1,495.8 $1,090.5 $4.97
2007 GAAP 380.4 295.6 1.32 1,375.6 1,019.6 4.57 % Change GAAP (2%)
(8%) (5%) 9% 7% 9% 2008 GAAP $373.1 $273.4 $1.26 $1,495.8 $1,090.5
$4.97 Pension settlement -- -- -- 26.3 16.5 .08 2008 Non-GAAP
Measure $373.1 $273.4 $1.26 $1,522.1 $1,107.0 $5.05 2007 GAAP
$380.4 $295.6 $1.32 $1,375.6 $1,019.6 $4.57 Gain on contract
settlement (36.8) (23.6) (.11) (36.8) (23.6) (.11) Global cost
reduction plan 13.7 8.8 .04 13.7 8.8 .04 Pension settlement 10.3
6.4 .03 10.3 6.4 .03 Donation/sale of cost investment (5.0) (19.8)
(.09) (5.0) (19.8) (.09) Tax audit settlements/ adjustments --
(11.3) (.05) -- (38.8) (.17) 2007 Non-GAAP Measure $362.6 $256.1
$1.15 $1,357.8 $952.6 $4.27 % Change Non-GAAP Measure 3% 7% 10% 12%
16% 18% 2009 Forecast $5.10-$5.35 2008 GAAP $4.97 % Change GAAP
3%-8% 2009 Forecast $5.10-$5.35 2008 Non-GAAP Measure $5.05 %
Change Non-GAAP 1%-6% MERCHANT GASES 2008 GAAP $196.2 2007 GAAP
179.6 % Change GAAP 9% 2007 GAAP $179.6 Donation/sale of cost
investment (5.0) 2007 Non-GAAP Measure $174.6 % Change Non-GAAP 12%
TONNAGE GASES 2008 GAAP $134.9 2007 GAAP 155.0 % Change GAAP (13%)
2007 GAAP $155.0 Gain on contract settlement (36.8) 2007 Non-GAAP
Measure $118.2 % Change Non-GAAP 14% Return on Capital Employed
(ROCE) ROCE is calculated as earnings after tax divided by
five-quarter average total capital. Earnings after tax is defined
as operating income and equity affiliates' income, after tax at the
Company's effective tax rate. On a non- GAAP basis, operating
income and taxes have been adjusted for the disclosed items
detailed in the consolidated results table above. Total capital
consists of total debt, shareholders' equity, and minority
interest. Millions of Dollars FY07 FY08 Non- Non- GAAP GAAP GAAP
GAAP Q1 $256.1 $256.1 $296.6 $296.6 Q2 250.7 250.7 292.1 308.4 Q3
320.9 289.4 330.2 330.2 Q4 335.0 292.2 309.8 309.8 Earnings After
Tax $1,162.7 $1,088.4 $1,228.7 $1,245.0 Five-Quarter Average Total
Capital $8,690.5 $8,690.5 $9,560.4 $9,560.4 ROCE 13.4% 12.5% 12.9%
13.0% Basis Point Change FY08 vs. FY07 GAAP -50 Non-GAAP +50
Capital Expenditures The Company utilizes a non-GAAP measure in the
computation of capital expenditures when adjusting for spending
associated with facilities accounted for as capital leases. Certain
facilities which are built to service a specific customer are
accounted for as capital leases in accordance with EITF No. 01-08,
"Determining Whether an Arrangement Contains a Lease," and such
spending is reflected as a use of cash within cash provided by
operating activities. Billions of Dollars YTD YTD 2008 2009 Actual
Forecast Capital Expenditures - GAAP basis $1.2 $1.3 to $1.5
Capital lease expenditures under EITF No. 01-08 .2 .3 Capital
Expenditures - Non-GAAP basis $1.4 $1.6 to $1.8 AIR PRODUCTS AND
CHEMICALS, INC. and Subsidiaries CONSOLIDATED INCOME STATEMENTS
(Unaudited) (Millions of dollars, except for share data) Three
Months Ended Twelve Months Ended 30 September 30 September 2008
2007 2008 2007 SALES $2,714.7 $2,371.3 $10,414.5 $9,148.2 Cost of
sales 2,026.8 1,730.2 7,693.1 6,698.9 Selling and administrative
275.4 257.5 1,090.4 999.8 Research and development Pension
settlement 1.6 10.3 30.3 10.3 Customer contract settlement --
(36.8) -- (36.8) Global cost reduction plan -- 13.7 -- 13.7 Other
(income) expense, net 4.8 (15.6) (25.8) (42.3) OPERATING INCOME
373.1 380.4 1,495.8 1,375.6 Equity affiliates' income 30.8 30.1
145.0 114.4 Interest expense 42.8 42.1 162.0 162.4 INCOME FROM
CONTINUING OPERATIONS BEFORE TAXES AND MINORITY INTEREST 361.1
368.4 1,478.8 1,327.6 Income tax provision 82.9 66.6 365.3 287.2
Minority interest in earnings of subsidiary companies 4.8 6.2 23.0
20.8 INCOME FROM CONTINUING OPERATIONS 273.4 295.6 1,090.5 1,019.6
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax (11.8) (2.8)
(180.8) 16.0 NET INCOME $261.6 $292.8 $909.7 $1,035.6 BASIC
EARNINGS PER COMMON SHARE Income from continuing operations $1.30
$1.37 $5.14 $4.72 Income (loss) from discontinued operations (.06)
(.01) (.85) .07 Net Income $1.24 $1.36 $4.29 $4.79 DILUTED EARNINGS
PER COMMON SHARE Income from continuing operations $1.26 $1.32
$4.97 $4.57 Income (loss) from discontinued operations (.05) (.01)
(.82) .07 Net Income $1.21 $1.31 $4.15 $4.64 WEIGHTED AVERAGE OF
COMMON SHARES OUTSTANDING (in millions) 210.6 215.6 212.2 216.2
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING ASSUMING DILUTION (in
millions) 216.9 223.1 219.2 223.2 DIVIDENDS DECLARED PER COMMON
SHARE - Cash $.44 $.38 $1.70 $1.48 Other Data from Continuing
Operations: Depreciation and Amortization $225.2 $208.4 $869.0
$789.8 Capital Expenditures on a Non-GAAP Basis (a) 405.6 313.7
1,355.0 1,635.3 (a) See Reconciliation table. AIR PRODUCTS AND
CHEMICALS, INC. and Subsidiaries CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) (Millions of dollars) 30 September 30 September
2008 2007 ASSETS CURRENT ASSETS Cash and cash items $103.5 $40.5
Trade receivables, less allowances for doubtful accounts 1,575.2
1,512.8 Inventories and contracts in progress 655.7 736.3 Prepaid
expenses 78.2 105.7 Other receivables and current assets 297.3
238.9 Current assets of discontinued operations 56.6 224.2 TOTAL
CURRENT ASSETS 2,766.5 2,858.4 INVESTMENT IN NET ASSETS OF AND
ADVANCES TO EQUITY AFFILIATES 822.6 778.1 PLANT AND EQUIPMENT, at
cost 14,988.6 14,438.6 Less accumulated depreciation 8,373.8
7,909.8 PLANT AND EQUIPMENT, net 6,614.8 6,528.8 GOODWILL 928.1
906.8 INTANGIBLE ASSETS, net 289.6 260.5 OTHER NONCURRENT ASSETS
1,009.4 637.9 NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 58.7
689.0 TOTAL ASSETS $12,489.7 $12,659.5 LIABILITIES AND
SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables and accrued
liabilities $1,585.6 $1,543.2 Accrued income taxes 65.0 108.6
Short-term borrowings and current portion of long-term debt 451.4
693.1 Current liabilities of discontinued operations 8.0 77.8 TOTAL
CURRENT LIABILITIES 2,110.0 2,422.7 LONG-TERM DEBT 3,515.4 2,974.7
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 1,097.0 872.0
DEFERRED INCOME TAXES 599.2 705.6 NONCURRENT LIABILITIES OF
DISCONTINUED OPERATIONS 1.2 11.6 TOTAL LIABILITIES 7,322.8 6,986.6
Minority interest in subsidiary companies 136.2 92.9 Minority
interest of discontinued operations -- 84.4 TOTAL MINORITY INTEREST
136.2 177.3 TOTAL SHAREHOLDERS' EQUITY 5,030.7 5,495.6 TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY $12,489.7 $12,659.5 AIR
PRODUCTS AND CHEMICALS, INC. and Subsidiaries CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) (Millions of dollars) Twelve
Months Ended 30 September 2008 2007 OPERATING ACTIVITIES Net income
$909.7 $1,035.6 Adjustments to reconcile income to cash provided by
operating activities: Depreciation and amortization 869.0 789.8
Impairment of long-lived assets of discontinued operations 314.8 --
(Gain) loss on sale of discontinued operations (105.9) 15.3
Deferred income taxes (4.0) 14.0 Undistributed (earnings) of
unconsolidated affiliates (77.8) (59.5) Loss (gain) on sale of
assets and investments .3 (27.6) Share-based compensation 61.4 70.9
Noncurrent capital lease receivables (192.6) (70.8) Pension and
other postretirement costs 139.0 150.0 Other (40.6) (60.6) Working
capital changes that provided (used) cash, excluding effects of
acquisitions and divestitures: Trade receivables (97.4) (.2)
Inventories (34.9) (6.0) Contracts in progress 95.2 (61.3) Other
receivables (110.1) (43.1) Payables and accrued liabilities (14.7)
(219.5) Other (31.8) (27.1) CASH PROVIDED BY OPERATING ACTIVITIES
(a) 1,679.6 1,499.9 INVESTING ACTIVITIES Additions to plant and
equipment (1,085.1) (1,013.2) Acquisitions, less cash acquired
(72.0) (539.1) Investment in and advances to unconsolidated
affiliates (2.2) (.2) Proceeds from sale of assets and investments
19.6 97.2 Proceeds from sale of discontinued operations 423.0 --
Proceeds from insurance settlements -- 14.9 Change in restricted
cash (183.6) -- Other (19.5) (42.7) CASH USED FOR INVESTING
ACTIVITIES (919.8) (1,483.1) FINANCING ACTIVITIES Long-term debt
proceeds 580.1 855.9 Payments on long-term debt (95.7) (429.4) Net
(decrease) increase in commercial paper and short-term borrowings
(178.9) 178.5 Dividends paid to shareholders (349.3) (312.0)
Purchase of Treasury Stock (793.4) (575.2) Proceeds from stock
option exercises 87.4 202.8 Excess tax benefit from share-based
compensation/other 51.3 64.5 CASH USED FOR FINANCING ACTIVITIES
(698.5) (14.9) Effect of Exchange Rate Changes on Cash 1.7 7.6
Increase in Cash and Cash Items 63.0 9.5 Cash and Cash Items -
Beginning of Year 40.5 31.0 Cash and Cash Items - End of Period
$103.5 $40.5 (a) Pension plan contributions were $233.5 $290.0 AIR
PRODUCTS AND CHEMICALS, INC. and Subsidiaries NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Millions of dollars) 1.
HURRICANES In the fourth quarter of 2008, Hurricanes Gustav and Ike
reduced short- term demand from U.S. Gulf Coast customers and drove
temporary increases in operational costs. The estimated impact on
fourth quarter diluted earnings per share was $.05. 2. LOSS FROM
PROPERTY DAMAGE In the fourth quarter of 2008, a fire at the
Company's Ulsan, Korea nitrogen trifluoride (NF3) production
facility required the plant to be shut down. The Company has been
able to continue supplying NF3 to its customers. The Company
anticipates bringing the Ulsan plant back online beginning in
January 2009. Other income (expense) for the three and twelve
months ended 30 September 2008 included a net loss of $14.7 ($10.7
after-tax, or $.05 per share) related to property damage. The net
book value of the damaged property was written off and a receivable
was recorded for expected property damage insurance recoveries. 3.
DISCONTINUED OPERATIONS Process Chemicals (HPPC) business have been
accounted for as discontinued operations. The results of operations
of these businesses have been removed from the results of
continuing operations for all periods presented. The balance sheet
items of discontinued operations have been reclassified and are
segregated in the consolidated balance sheets. U.S. Healthcare In
July 2008, the Board of Directors authorized management to pursue
the sale of the U.S. Healthcare business. Accordingly, beginning in
the fourth quarter of 2008, the U.S. Healthcare business is
accounted for as discontinued operations. For the fiscal year 2008,
the Company recorded a total charge of $329.2 ($246.2 after-tax, or
$1.12 per share) related to the impairment/write-down of the net
carrying value of the U.S. Healthcare business. -- In the fourth
quarter of 2008, the Company recorded an additional charge of $14.4
($9.2 after-tax, or $.04 per share) reflecting an estimate of net
realizable value. -- In the third quarter of 2008, the Company had
performed an impairment analysis and recorded a charge of $314.8
($237.0 after-tax, or $1.09 per share), primarily related to the
impairment of goodwill and intangible assets, reducing the carrying
amount of these items to zero. In 2007, the Company implemented
several changes to improve performance, including management
changes, product and service offering simplification, and other
measures. However, market and competitive conditions were more
challenging than anticipated and financial results did not meet
expectations. In response to the disappointing financial results,
during the third quarter 2008 management conducted an evaluation of
the strategic alternatives for the business. In accordance with
FASB Statement No. 142, "Goodwill and Other Intangible Assets"
(SFAS No. 142), and FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), the
Company determined an interim test for impairment was required for
its U.S. Healthcare reporting unit during the third quarter of
2008, based on the combination of events described above. The
Company reforecast its cash flows and utilized the expected present
value of the future cash flows to calculate fair value of the U.S.
Healthcare reporting unit in completing its SFAS No. 142 and 144
impairment tests. The operating results of the U.S. Healthcare
business have been classified as discontinued operations and are
summarized below: Three Months Ended Twelve Months Ended 30
September 30 September 2008 2007 2008 2007 Sales $52.7 $65.9 $239.8
$271.1 Income (loss) before taxes $(5.3) $(7.3) $(350.6) $(24.4)
Income tax provision (2.0) (2.8) (91.2) (9.2) Income (loss) from
operations of discontinued operations $(3.3) $(4.5) $(259.4)
$(15.2) Income (loss) on sale of businesses and write-down to
estimated net realizable value, net of tax (8.7) -- (8.7) -- Income
(loss) from discontinued operations, net of tax $(12.0) $(4.5)
$(268.1) $(15.2) Polymer Emulsions Business On 30 June 2008, the
Company sold its Elkton, Md., and Piedmont, S.C. production
facilities and the related North American atmospheric emulsions and
global pressure sensitive adhesives businesses to Ashland Inc. for
$92.0. The Company recorded a gain of $30.5 ($18.5 after-tax) in
connection with the sale, which included the recording of a
retained environmental obligation associated with the Piedmont
site. The expense to record the environmental obligation was $24.0
($14.5 after-tax). The Piedmont site is under active remediation
for contamination caused by an insolvent prior owner. Before the
sale, which triggered expense recognition, remediation costs had
been capitalized since they improved the property as compared to
its condition when originally acquired. The sale of the Elkton and
Piedmont facilities completed the disposal of the Company's Polymer
Emulsions business. On 31 January 2008, the Company closed on the
sale of its interest in its vinyl acetate ethylene (VAE) polymers
joint ventures to Wacker Chemie AG, its long-time joint venture
partner. As part of that agreement, the Company received Wacker
Chemie AG's interest in the Elkton, Md., and Piedmont, S.C.,
production facilities and their related businesses plus cash
proceeds of $258.2. The Company recognized a gain of $89.5 ($57.7
after-tax) in the second quarter of 2008 for this sale which
consisted of the global VAE polymers operations including
production facilities located in Calvert City, Ky.; South
Brunswick, N.J.; Cologne, Germany; and Ulsan, Korea; and commercial
and research capabilities in Allentown, Pa., and Burghausen,
Germany. The business produces VAE for use in adhesives, paints and
coatings, paper, and carpet applications. The operating results of
the Polymer Emulsions business have been classified as discontinued
operations and are summarized below: Three Months Ended Twelve
Months Ended 30 September 30 September 2008 2007 2008 2007 Sales
$-- $165.9 $261.4 $618.6 Income before taxes $.2 $17.0 $17.7 $61.4
Income tax provision .1 6.4 6.4 23.1 Income from operations of
discontinued operations $.1 $10.6 $11.3 $38.3 Gain on sale of
business, net of tax -- -- 76.2 -- Income from discontinued
operations, net of tax $.1 $10.6 $87.5 $38.3 HPPC Business In
September 2007, the Company's Board of Directors approved the sale
of its HPPC business, which had previously been reported as part of
the Electronics and Performance Materials operating segment. The
Company's HPPC business consisted of the development, manufacture,
and supply of high-purity process chemicals used in the fabrication
of integrated circuits in the United States and Europe. The Company
wrote down the assets of the HPPC business to net realizable value
as of 30 September 2007, resulting in a loss of $15.3 ($9.3
after-tax) in the fourth quarter of 2007. In October 2007, the
Company executed an agreement of sale with KMG Chemicals, Inc. The
sale closed on 31 December 2007 for cash proceeds of $69.3 and
included manufacturing facilities in the United States and Europe.
Subsequent to the sale, certain receivables and inventories were
sold to KMG Chemicals, Inc. In the first quarter of 2008, this
business generated sales of $22.9 and income, net of tax, of $.2.
Also, the Company recorded an additional loss of $.5 ($.3
after-tax) on the sale of the business. In 2007, the HPPC business
generated sales of $20.9 and $87.2 and income, net of tax, of $.4
and $2.2 in the three and twelve months ended 30 September 2007,
respectively. 4. PENSION SETTLEMENT A number of corporate officers
and others who were eligible for supplemental pension plan benefits
retired in fiscal years 2007 and 2008. The Company's supplemental
pension plan provides for a lump sum benefit payment option at the
time of retirement, or for corporate officers six months after the
participant's retirement date. The Company recognizes pension
settlements when payments exceed the sum of service and interest
cost components of net periodic pension cost of the plan for the
fiscal year. However, a settlement loss may not be recognized until
the time the pension obligation is settled. Based on cash payments
made, the Company recognized $10.3 for settlement losses in the
fourth quarter of 2007 and an additional $1.6 and $30.3 in the
three and twelve months ended 30 September 2008, respectively. 5.
SHARE REPURCHASE PROGRAM On 20 September 2007, the Board of
Directors authorized the repurchase of up to $1,000 of the
Company's outstanding common stock. This action was in addition to
an existing $1,500 share repurchase authorization which was
announced in March 2006. As of 30 September 2007, the Company had
purchased 15.0 million of its outstanding shares at a cost of
$1,063.4. During fiscal year 2008, the Company purchased 8.7
million of its outstanding shares at a cost of $787.4. The Company
has completed the 2006 authorization and will continue to purchase
shares under the 2007 authorization at its discretion while
maintaining sufficient funds for investing in its businesses and
growth opportunities. 6. NEW ACCOUNTING STANDARD The Company
adopted FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109," (FIN No.
48) on 1 October 2007. Upon adoption, the Company recognized a
$25.1 increase to its liability for uncertain tax positions. This
increase was recorded as an adjustment to beginning retained
earnings for $13.3 and goodwill for $11.8. 7. CUSTOMER CONTRACT
SETTLEMENT By agreement dated 1 June 2007, the Company entered into
a settlement with a customer to resolve a dispute related to a
dinitrotoluene (DNT) supply agreement. As part of the settlement
agreement, the DNT supply agreement was terminated, and certain
other agreements between the companies were amended. Selected
amendments to the agreements were subject to the approval of the
customer's Board of Directors, which approval was obtained on 12
July 2007. As a result, the Company recognized a before-tax gain of
$36.8 ($23.6 after- tax, or $.11 per share) in the fourth quarter
of 2007. 8. GLOBAL COST REDUCTION PLAN The results from continuing
operations for the three and twelve months ended 30 September 2007
included a charge of $13.7 ($8.8 after-tax, or $.04 per share) for
the global cost reduction plan. The charge included $6.5 for
severance and pension-related costs for the elimination of
approximately 125 positions and $7.2 for the write-down of certain
investments. Approximately one-half of the position eliminations
related to the continuation of European initiatives to streamline
certain activities. The remaining position eliminations related to
the continued cost reduction and productivity efforts of the
Company. As of 30 September 2008, the actions associated with the
2007 charge were complete. 9. DONATION/SALE OF COST INVESTMENT The
Company has a cost-basis investment in a publicly traded foreign
company which has been classified as an available-for-sale
investment, with holding gains and losses recorded to other
comprehensive income, net of income tax. On 19 September 2007, the
Company donated 65% of its investment to a tax-exempt charitable
organization and sold 15% of its investment for cash. The Company
deducted the fair value of the donation in its fiscal 2007 income
tax returns. As a result of the donation, the Company recognized a
tax benefit of $18.3 in the fourth quarter of 2007 and a pre-tax
expense of $4.7 for the carrying value of the investment. As a
result of the sale, the Company recognized a pre-tax gain of $9.7.
In combination, the donation and sale had a favorable net impact of
$5.0 on operating income, $19.8 on net income, and $.09 on earnings
per share. 10. INCOME TAX AUDIT SETTLEMENTS & ADJUSTMENTS In
the fourth quarter of 2007, the Company recorded a tax benefit of
$11.3 ($.05 per share) primarily from tax audit settlements and
adjustments and related interest income. In June 2007, the Company
settled tax audits through fiscal year 2004 with the Internal
Revenue Service. This audit settlement resulted in a tax benefit of
$27.5 ($.12 per share) in the third quarter of 2007. For the twelve
months ended 30 September 2007, tax audit settlements and
adjustments and related interest income totaled $38.8 ($.17 per
share). 11. BOC GAZY ACQUISITION On 30 April 2007, the Company
acquired 98.1% of the Polish industrial gas business of BOC Gazy Sp
z.o.o. (BOC Gazy) from The Linde Group for 370 million Euros or
$506.8. The results of operations for BOC Gazy were included in the
Company's consolidated income statement after the acquisition date.
During the fourth quarter of 2007, the Company increased its
ownership percentage to 99.9%. The total acquisition cost, less
cash acquired, was 380 million Euros or $518.4. 12. BUSINESS
SEGMENTS Previously, the Company reported results for a Healthcare
segment and a Chemicals segment (which consisted of the Polymer
Emulsions business and the Polyurethane Intermediates (PUI)
business). Beginning with the fourth quarter of 2008, the U.S.
Healthcare business was accounted for as discontinued operations
and the European Healthcare business was reported as part of the
Merchant Gases segment. Beginning with the first quarter of 2008,
the Polymer Emulsions business was accounted for as discontinued
operations and the PUI business was reported as part of the Tonnage
Gases segment. Prior period information has been restated. Refer to
Note 3 for information on discontinued operations. AIR PRODUCTS AND
CHEMICALS, INC. and Subsidiaries SUMMARY BY BUSINESS SEGMENTS
(Unaudited) (Millions of dollars) Three Months Ended Twelve Months
Ended 30 September 30 September 2008 2007 2008 2007 Revenues from
external customers Merchant Gases $1,095.0 $948.9 $4,192.7 $3,556.9
Tonnage Gases 940.3 775.7 3,574.4 2,936.7 Electronics and
Performance Materials 553.2 522.5 2,209.3 2,068.7 Equipment and
Energy 126.2 124.2 438.1 585.9 Segment and Consolidated Totals
$2,714.7 $2,371.3 $10,414.5 $9,148.2 Operating income Merchant
Gases $196.2 $179.6 $789.5 $656.4 Tonnage Gases 134.9 155.0 482.6
463.2 Electronics and Performance Materials 41.9 60.8 245.9 229.2
Equipment and Energy 15.6 17.8 38.9 76.8 Segment Totals 388.6 413.2
1,556.9 1,425.6 Pension settlement (1.6) (10.3) (30.3) (10.3)
Global cost reduction plan -- (13.7) -- (13.7) Other (13.9) (8.8)
(30.8) (26.0) Consolidated Totals $373.1 $380.4 $1,495.8 $1,375.6
(Millions of dollars) 30 Sept. 30 Sept. 2008 2007 Identifiable
assets (a) Merchant Gases $4,881.6 $4,439.4 Tonnage Gases 3,335.4
3,328.4 Electronics and Performance Materials 2,341.0 2,435.3
Equipment and Energy 300.2 362.6 Segment Totals 10,858.2 10,565.7
Other 693.6 402.5 Discontinued operations 115.3 845.3 Consolidated
Totals $11,667.1 $11,813.5 (a) Identifiable assets are equal to
total assets less investments in and advances to equity affiliates.
RECONCILIATION NON-GAAP MEASURE The Company utilizes a non-GAAP
measure in the computation of capital expenditures when adjusting
for spending associated with facilities accounted for as capital
leases. Certain facilities which are built to service a specific
customer are accounted for as capital leases in accordance with
EITF No. 01-08, "Determining Whether an Arrangement Contains a
Lease," and such spending is reflected as a use of cash within cash
provided by operating activities. The presentation of this non-GAAP
measure is intended to enhance the usefulness of information by
providing a measure which the Company's management uses internally
to evaluate and manage the Company's capital expenditures.
Presented below is a reconciliation of capital expenditures on a
GAAP basis to a Non-GAAP measure. Three Months Ended Twelve Months
Ended 30 September 30 September 2008 2007 2008 2007 Capital
Expenditures - GAAP basis $363.0 $288.9 $1,159.3 $1,552.5 Capital
lease expenditures under EITF No. 01-08 42.6 24.8 195.7 82.8
Capital Expenditures - Non-GAAP basis $405.6 $313.7 $1,355.0
$1,635.3 DATASOURCE: Air Products CONTACT: Media, Katie McDonald,
+1-610-481-3673, ; Investors, Nelson Squires, +1-610-481-7461, ,
both of Air Products Web site: http://www.airproducts.com/
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