UNITED STATES
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 31 March 2000
-------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
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
------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 610-481-4911
--------------
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 8 May 2000
---------------- ---------------------------
Common Stock, $1 par value 229,305,191
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -
31 March 2000 and 30 September 1999 ............................ 4
Consolidated Income -
Three Months and Six Months Ended 31 March 2000 and 1999 ....... 5
Consolidated Statement of Comprehensive Income
Three Months and Six Months Ended 31 March 2000 and 1999 ....... 6
Consolidated Cash Flows -
Six Months Ended 31 March 2000 and 1999 ........................ 7
Summary by Business Segments -
Three Months and Six Months Ended 31 March 2000 and 1999........ 8
Summary by Geographic Regions -
Three Months and Six Months Ended 31 March 2000 and 1999........ 11
Notes to Consolidated Financial Statements ........................ 12
Management's Discussion and Analysis .............................. 14
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders....... 24
Item 6. Exhibits and Reports on Form 8-K ......................... 25
Signatures ........................................................ 26
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
2
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 or six month period are not
necessarily indicative of the results of operations for a full year.
3
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
- ------------------------------------------------------------------------------------------------
31 March 30 September
ASSETS 2000 1999
(Unaudited)
- ------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash items $ 92.6 $ 61.6
Trade receivables, less allowances for 923.1 894.7
doubtful accounts
Inventories 429.7 424.9
Contracts in progress, less progress billings 68.0 79.8
Other current assets 381.3 321.4
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,894.7 1,782.4
- ------------------------------------------------------------------------------------------------
INVESTMENTS IN NET ASSETS OF AND ADVANCES 505.9 521.4
TO EQUITY AFFILIATES
OTHER INVESTMENTS AND ADVANCES 46.3 38.4
- ------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT, at cost 10,491.3 10,187.9
Less - Accumulated depreciation 5,120.7 4,995.0
- ------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT, net 5,370.6 5,192.9
- ------------------------------------------------------------------------------------------------
GOODWILL 332.6 350.4
OTHER NONCURRENT ASSETS 420.2 350.0
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,570.3 $8,235.5
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 538.3 $ 505.8
Accrued liabilities 377.4 407.0
Unrealized loss on forward contracts related to BOC 188.7 --
transaction
Accrued income taxes 49.3 64.4
Short-term borrowings 440.6 407.6
Current portion of long-term debt 115.3 473.0
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,709.6 1,857.8
- ------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,506.9 1,961.6
DEFERRED INCOME & OTHER NONCURRENT 566.8 596.1
LIABILITIES
DEFERRED INCOME TAXES 744.2 731.1
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,527.5 5,146.6
- ------------------------------------------------------------------------------------------------
MINORITY INTERESTS IN SUBSIDIARY COMPANIES 119.5 127.3
- ------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 249.4 249.4
Capital in excess of par value 342.1 341.5
Retained earnings 3,723.2 3,701.8
Accumulated other comprehensive income (340.4) (274.4)
Treasury Stock, at cost (681.6) (681.6)
Shares in trust (369.4) (375.1)
- ------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,923.3 2,961.6
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,570.3 $8,235.5
================================================================================================
4
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME
(Unaudited)
(Millions of dollars, except per share)
- --------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------
SALES AND OTHER INCOME
Sales $1,347.2 $1,253.3 $2,611.6 $2,527.9
Other income(expense),net 7.1 4.5 13.9 9.4
- --------------------------------------------------------------------------------------------------
1,354.3 1,257.8 2,625.5 2,537.3
- --------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 925.6 877.5 1,802.7 1,753.1
Selling and administrative 179.9 168.3 347.7 351.5
Research and development 29.9 29.3 60.0 61.0
- --------------------------------------------------------------------------------------------------
OPERATING INCOME 218.9 182.7 415.1 371.7
Income from equity affiliates, 21.3 14.1 41.6 23.9
net of related expenses
Net gain (loss) on formation of -- (.1) -- 31.1
polymer venture
Loss on currency hedges related 134.7 -- 247.9 --
to BOC transaction and expenses
Interest expense 46.8 40.4 88.1 80.8
- --------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND 58.7 156.3 120.7 345.9
MINORITY INTEREST
Income taxes 8.3 45.1 17.4 105.0
Minority interest(a) 2.8 4.3 5.1 7.6
- --------------------------------------------------------------------------------------------------
NET INCOME $47.6 $106.9 $98.2 $233.3
==================================================================================================
BASIC EARNINGS PER $.22 $.51 $.46 $1.10
COMMON SHARE
- --------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER $.22 $.50 $.46 $1.08
COMMON SHARE
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE 213.3 211.6 213.2 211.5
NUMBER OF COMMON
SHARES (in millions)
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE 215.4 215.1 215.5 215.3
NUMBER OF COMMON AND
COMMON EQUIVALENT
SHARES (in millions)(b)
- --------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER $.18 $.17 $.36 $.34
COMMON SHARE - Cash
- --------------------------------------------------------------------------------------------------
(a) Minority interest primarily includes before-tax amounts.
(b) The dilution of earnings per common share is due mainly to the impact of
unexercised stock options.
5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(Millions of dollars)
- --------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------
NET INCOME $47.6 $106.9 $98.2 $233.3
- --------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE
INCOME (LOSS), net of tax
Foreign currency translation (18.5) (80.6) (63.3) (56.3)
adjustments
Unrealized gains (losses) on
investments:
Unrealized holding gains (losses) 1.3 .2 (2.7) 4.1
arising during the period
Less: reclassification -- -- -- --
adjustment for gains
included in net income
- --------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) 1.3 .2 (2.7) 4.1
on investments
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER (17.2) (80.4) (66.0) (52.2)
COMPREHENSIVE INCOME
(LOSS)
- --------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $30.4 $26.5 $32.2 $181.1
========================================================================================================
6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
(Unaudited)
(Millions of dollars)
- -------------------------------------------------------------------------------------------------------------
Six Months Ended
31 March
2000 1999
- -------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $98.2 $233.3
Adjustments to reconcile income to cash provided by
operating activities:
Depreciation 276.3 261.3
Deferred income taxes 12.9 31.9
Gain on formation of polymer venture -- (31.1)
(Gain) loss on currency hedges related to BOC 201.3 --
transaction
Undistributed (earnings) of unconsolidated affiliates (25.5) (4.6)
(Gain) loss on sale of assets and investments (10.9) 1.6
Other 35.9 66.0
Working capital changes that provided (used) cash, net of
effects of acquisitions:
Trade receivables (41.5) (18.7)
Inventories and contracts in progress 6.8 (40.2)
Payables, trade and other 30.7 45.7
Other (82.6) 4.5
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 501.6 549.7
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to plant and equipment(a) (378.6) (450.9)
Acquisitions, less cash acquired(b) (168.7) (22.4)
Investment in and advances to unconsolidated affiliates (16.5) (66.0)
Proceeds from sale of assets and investments 30.0 31.3
Other (15.3) 19.8
- -----------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (549.1) (488.2)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term debt proceeds 507.5 51.5
Payments on long-term debt (369.6) (31.7)
Net increase (decrease) in commercial paper (25.0) 11.4
Net increase in other short-term borrowings 35.5 9.2
Dividends paid to shareholders (76.8) (71.9)
Purchase of Treasury Stock -- (24.6)
Other 1.8 19.6
- -----------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 73.4 (36.5)
- -----------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 5.1 (1.0)
- -----------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Items 31.0 24.0
Cash and Cash Items - Beginning of Year 61.6 61.5
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Items - End of Period $92.6 $85.5
===========================================================================================================
(a) Excludes capital lease additions of $16.0 million and $2.0 million in
fiscal 2000 and 1999, respectively.
(b) Excludes $24.2 million of long-term debt assumed in an acquisition in
fiscal 2000.
7
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
Business segment information is shown below:
(Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Revenues from external
customers
Gases $842.1 $735.2 $1,622.7 $1,488.5
Equipment 53.8 101.2 104.4 220.7
Chemicals 451.3 416.9 884.5 818.7
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 1,347.2 1,253.3 2,611.6 2,527.9
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $1,347.2 $1,253.3 $2,611.6 $2,527.9
- ---------------------------------------------------------------------------------------------------------------
Operating income
Gases $171.0(a) $137.2 $324.3(a) $258.7(d)
Equipment 5.6 6.9 6.8 29.7(d)
Chemicals 50.0(b) 43.4(c) 101.6(b) 94.2(c)(d)
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 226.6 187.5 432.7 382.6
- ---------------------------------------------------------------------------------------------------------------
Corporate research and (7.7) (4.8) (17.6) (10.9)(d)
development and
other income/(expense)
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $218.9 $182.7 $415.1 $371.7
- ---------------------------------------------------------------------------------------------------------------
Operating income (excluding
special items)
Gases $164.7 $137.2 $318.0 $275.0
Equipment 5.6 6.9 6.8 31.6
Chemicals 58.7 53.7 110.3 106.1
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 229.0 197.8 435.1 412.7
- ---------------------------------------------------------------------------------------------------------------
Corporate research and (7.7) (4.8) (17.6) (10.4)
development and other
income/(expense)
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $221.3 $193.0 $417.5 $402.3
- ---------------------------------------------------------------------------------------------------------------
Equity affiliates' income
Gases $17.8 $10.5 $34.2 $17.2
Equipment .5 .2 .8 .7
Chemicals 3.1 3.4 6.7 5.5
Other (.1) -- (.1) .5
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 21.3 14.1 41.6 23.9
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $21.3 $14.1 $41.6 $23.9
- ---------------------------------------------------------------------------------------------------------------
8
Six Months Ended
31 March
(Millions of dollars) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Total assets
Gases $6,243.1 $5,548.5
Equipment 217.2 296.3
Chemicals 1,712.7 1,749.3
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 8,173.0 7,594.1
- ---------------------------------------------------------------------------------------------------------------
Corporate assets 397.3 199.5
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals $8,570.3 $7,793.6
- ---------------------------------------------------------------------------------------------------------------
Operating Return On Net Assets (ORONA)
Gases 10.8% 11.0%
Equipment 4.7% 22.6%
Chemicals 12.8% 14.9%
- ---------------------------------------------------------------------------------------------------------------
Segment Totals 11.0% 12.4%
- ---------------------------------------------------------------------------------------------------------------
Consolidated Totals 10.1% 11.6%
- ---------------------------------------------------------------------------------------------------------------
(a) The results for the three and six months ended 31 March 2000 include
a gain on the sale of packaged gas facilities of $6.3 million.
(b) The results for the three and six months ended 31 March 2000 include
the cost reduction charge of $8.7 million.
(c) The results for the three and six months ended 31 March 1999 include
a charge of $10.3 million primarily related to Chemicals facility closure
costs.
(d) The results for the six months ended 31 March 1999 include the cost
reduction charge in Gases ($16.3 million), Equipment ($1.9 million),
Chemicals ($1.6 million), and Corporate ($.5 million).
9
A reconciliation of total segment operating income to consolidated income before
income taxes and minority interest is as follows:
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------
Total segment operating $226.6 $187.5 $432.7 $382.6
income
Corporate research and (7.7) (4.8) (17.6) (10.9)
development and other
income/(expense)
- ----------------------------------------------------------------------------------------------------
Consolidated operating income 218.9 182.7 415.1 371.7
- ----------------------------------------------------------------------------------------------------
Segment equity affiliates' 21.3 14.1 41.6 23.9
income
Net gain (loss) on formation of -- (.1) -- 31.1
polymer venture
Loss on currency hedges related 134.7 -- 247.9 --
to BOC transaction and expenses
Interest expense 46.8 40.4 88.1 80.8
- ----------------------------------------------------------------------------------------------------
Consolidated income before $58.7 $156.3 $120.7 $345.9
taxes and minority interest
====================================================================================================
10
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY GEOGRAPHIC REGIONS
(Unaudited)
(Millions of dollars)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
31 March 31 March
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Revenues from external
customers
United States $879.3 $801.8 $1,718.5 $1,609.7
United Kingdom 124.4 152.9 245.5 323.9
Spain 78.9 80.5 155.7 164.9
Other Europe 149.1 155.2 289.9 299.1
- --------------------------------------------------------------------------------------------------------------------
Total Europe 352.4 388.6 691.1 787.9
- --------------------------------------------------------------------------------------------------------------------
Canada/Latin America 55.0 45.2 113.4 103.2
Asia 60.4 17.6 88.4 26.9
All Other .1 .1 .2 .2
- --------------------------------------------------------------------------------------------------------------------
Total $1,347.2 $1,253.3 $2,611.6 $2,527.9
- --------------------------------------------------------------------------------------------------------------------
Note: Geographic information is based on country of origin. The other Europe
segment operates principally in France, Germany, Netherlands, and Belgium.
11
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 Six Months Ended
31 March 31 March
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------
Numerator for basic EPS
and diluted EPS-net income $47.6 $106.9 $98.2 $233.3
Denominator for basic EPS
- -weighted average shares 213.3 211.6 213.2 211.5
Effect of diluted securities:
Employee stock options 1.3 2.6 1.5 2.8
Other award plans .8 .9 .8 1.0
- -----------------------------------------------------------------------------------------------------
2.1 3.5 2.3 3.8
Denominator for diluted EPS
- -weighted average shares and
assumed conversions 215.4 215.1 215.5 215.3
=====================================================================================================
Basic EPS $.22 $.51 $.46 $1.10
=====================================================================================================
Diluted EPS $.22 $.50 $.46 $1.08
=====================================================================================================
Options on 10.2 million and 8.4 million shares of common stock were not included
in computing diluted EPS for the second quarter of fiscal 2000 and 1999,
respectively because their effects were antidilutive.
On 10 May 2000, the Company announced that its joint pre-conditional offer with
Air Liquide to purchase The BOC Group would not be extended beyond the scheduled
expiration on 12 May 2000. See details of the subsequent event and estimated
additional charges described in the Management's Discussion and Analysis of this
filing.
The results for the six months ended 31 March 2000 include a charge of
$247.9 million ($154.7 million after-tax, or $.72 per share) for costs related
to the BOC transaction. Of this amount, $232.7 million ($145.2 million
after-tax, or $.67 per share) of accounting charges were recorded on purchased
currency option and forward exchange contracts entered into to hedge the
currency exposure of the BOC transaction. The remaining charge of $15.2 million
($9.5 million after-tax, or $.05 per share) consists of other expenses.
The results for the three and six months ended 31 March 2000 include a charge of
$8.7 million ($5.5 million after-tax, or $.03 per share) for a global cost
reduction plan in the chemicals segment. This plan was initiated in the fiscal
quarter ended 31 March 2000. The plan includes staff reductions of 103 employees
in the areas of manufacturing and overheads. The plan will be complete by
31 March 2001, with annualized cost savings of
12
$9.3 million accumulating over the year. Notifications began in the quarter
ending 31 March 2000, with actual termination expenditures beginning in the
month of April, 2000. The charges to cost of sales, selling and administrative,
and research and development were $3.3 million, $4.4 million, and $1.0 million,
respectively.
The results for the three and six months ended 31 March 2000 include a gain of
$6.3 million ($4.0 million after-tax, or $.02 per share) related to the sale of
packaged gas facilities.
The current year-to-date consolidated effective tax rate is 15.0%, after
minority interest of $5.1 million. This compares to a rate of 31.0% in the prior
year. The fiscal 2000 rate is significantly impacted by a higher tax rate on the
BOC hedging transactions, the global cost reduction plan, and the sale of
packaged gas facilities. Excluding these tax impacts, the effective rate for the
six months is 30.5%. The effective rate in the prior year, excluding the tax
rate impact of the gain on the formation of the polymer ventures, a chemical
facility closure and the global cost reduction, was 31.5%.
The results for the three and six months ended 31 March 1999 include a charge of
$10.3 million ($6.4 million after-tax, or $.03 per share) primarily related to
Chemicals facility closure costs.
The results for the six months ended 31 March 1999 include a net gain of $31.1
million ($21.3 million after-tax, or $.10 per share) related to the formation of
Air Products Polymers (a 65% majority owned venture with Wacker-Chemie GmbH).
The gain was partially offset by costs related to an emulsions facility shutdown
not included in the joint venture and for costs related to indemnities provided
by Air Products to the venture.
The results for the six months ended 31 March 1999 include a charge of
$20.3 million ($12.9 million after-tax, or $.06 per share) related to a global
cost reduction plan ("the 1999 plan"). The Company began the 1999 plan in the
fiscal quarter ended 31 December 1998. The plan included staffing reductions of
206 employees in the areas of manufacturing, distribution, and overheads. The
charges to cost of sales, selling and administrative, and research and
development were $9.9 million, $9.3 million, and $1.1 million, respectively.
This plan was completed in December, 1999, essentially as expected.
13
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT-BOC TRANSACTION
On 13 July 1999, the Boards of Air Products and Chemicals, Inc., The BOC Group,
and Air Liquide announced that they had agreed to the terms of a recommended
offer for the share capital of BOC at UK(pound)14.60 per BOC share (the
"Offer"). The Offer, which was to be made jointly by Air Products and Air
Liquide, was subject to certain pre-conditions, one of which was the approval of
the U.S. Federal Trade Commission (FTC).
During 10 months of discussions with the FTC, Air Products and Air Liquide made
a number of comprehensive and practical proposals, including divestitures, which
responded to the requirements of the FTC. On 10 May 2000, Air Products and Air
Liquide announced it has recently become clear that the FTC will not approve the
Offer by 12 May 2000, the date on which the period for satisfying the
pre-conditions to the Offer will expire and the Offer will not be extended
beyond 12 May 2000.
Air Products and Air Liquide indicated in their announcement they are prepared
to continue to explore with the FTC whether its approval can be achieved and, if
so, to consider whether a new offer acceptable to BOC can be made. Any such new
offer would involve a different structure and price.
If the BOC acquisition does not occur, certain costs and financing fees which
have been deferred will be required to be expensed. The costs and financing
fees deferred and recorded in the 31 March 2000 unaudited balance sheet were
$55 million. In addition, the Company and Air Liquide are obligated to pay BOC
a fee of $50 million each if the Offer to acquire BOC is not made.
Additionally, the Company has entered into various purchased currency options
and forward exchange contracts to hedge the currency exposure related to the
proposed purchase of BOC shares at UK(pound)14.60 per share. Net losses
associated with the change in market value of these contracts have been recorded
in earnings and as of 31 March 2000, the cumulative pre-tax losses recorded in
earnings on the currency hedging instruments are approximately $220 million, or
$138 million after-tax. As of 10 May 2000, additional losses of approximately
$287 million have been incurred due to the continued decline in the value of the
British Pound. The Company has purchased British Pound put options subsequent to
31 March 2000 to cap the rate change exposure of the remaining forward exchange
contracts. The cost of these put instruments is $79 million.
The charge to earnings subsequent to 31 March 2000 for the deferred expenses,
the BOC fee, and the unrecognized currency losses and premiums as of 10 May 2000
would be approximately $300 million after-tax for a total charge as of 10 May
2000 related to the proposed BOC transaction of approximately $450 million
after-tax. On a cash flow basis, the remaining cash outlay before-tax benefits
for all of the above items is approximately $615 million and approximately $385
million after-tax. It is anticipated that these costs would be funded by
commercial paper backed by existing lines of credit. The earnings effects of the
forward contacts and purchased put options will continue to change based on the
movement of the British Pound versus the US Dollar but currency losses are
capped at the above amounts.
14
SECOND QUARTER FISCAL 2000 VS. SECOND QUARTER FISCAL 1999
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales rose $93.9 million to $1,347.2 million, an increase of 7% over the same
quarter in the prior year. Record sales were achieved in spite of an unfavorable
currency impact of 2% and anticipated lower business activity in the equipment
segment. Operating income was $218.9 million, up $36.2 million, or 20%. Profits
from equity affiliates of $21.3 million were 51% above the prior year. Net
income of $47.6 million, or $.22 diluted earnings per share, compared with
$106.9 million, or $.50 per share in the year-ago quarter. The quarter results
included a significant special item, an after-tax charge of $84.1 million, or
$.39 per share related to the BOC transaction. A large majority of
this amount was due to charges recorded on purchased currency option and forward
exchange contracts entered into to hedge the currency exposure of the BOC
transaction. The quarter ended 31 March 2000 also included a charge of
$5.5 million after-tax, or $.03 per share for a workforce reduction program in
the chemicals segment and an after-tax gain of $4.0 million, or $.02 per share
related to the sale of some packaged gases facilities. In the prior year there
was an after-tax charge of $6.4 million, or $.03 per share, for chemicals
facility closure costs. Excluding these special items, current year net income
of $133.2 million compares to $113.3 million in the prior year, an increase of
18%. Diluted earnings per share were $.62, up 17% over the prior year's $.53,
excluding special items. The remaining discussion and analysis of the
consolidated results of operations excludes the impact of special items.
Consolidated sales were up more than 7% over the prior year, with about half of
the increase attributable to acquisitions. Excluding a 2% unfavorable foreign
currency impact, consolidated sales were up nearly 10%. Strong volume growth in
both gases and chemicals was partially offset by the expected decline in the
equipment segment.
Operating income was $28.3 million higher, or 15% over the prior year. Gases and
chemicals operating incomes increased 20% and 9%, respectively. Gases
performance was driven by continued strong electronics business growth and
improved performance in both Asia and Europe and acquisitions. Broad based
volume growth, cost controls and productivity enhanced year-to-year chemicals
operating income. Continued raw material cost pressure, particularly in the
polymers business moderated the chemicals operating income performance. As a
result of good project cost performance, equipment operating income was down
only slightly as overall activity declined. Selling and administrative overheads
were up about 4%, primarily due to the impact of the consolidated acquisitions.
Currency and exchange related impacts reduced year-to-year operating income
growth by about 4%.
Equity affiliates' income increased $7.2 million to $21.3 million, up 51%. The
improvement results from better business conditions in Asia and Mexico, as well
as favorable currency and exchange and tax impacts. The affiliate, Korea
Industrial Gases, was included in consolidated results for the quarter ended
31 March 2000 following the acquisition of the affiliate in December 1999.
Industrial Gases-Sales increased 15% to $842.1 million for the second quarter of
fiscal 2000 compared to the prior year. Consolidation of acquired affiliates in
Korea, China, and Malaysia contributed about 6 to 7% of the growth. Unfavorable
currency impacts reduced sales growth about 3%. Excluding the currency and
acquisition impacts, sales growth was 11%. Overall gases volumes were up about
9%, with continued momentum in the global electronics area and general
improvement in the European and Asian regions. Operating
15
income grew 20% to $164.7 million, exclusive of a gain on the sale of some
packaged gases facilities in the current quarter.
Liquid oxygen and nitrogen (LOX/LIN) volumes in North America were up 6%
including non-cryo business. LOX/LIN pricing was down 2% compared to the same
quarter in the prior year, however pricing was flat compared to the preceding
quarter, reflecting a slowing in the price decline. Efforts to increase prices
have been initiated to reverse the decline and offset cost increases. Higher
demand in steel, metals processing, and electronics industries created a 12%
growth for argon. Packaged gases volumes grew 2% on a same store basis.
Government testing drove a 3% increase in hydrogen volume. On-site volumes grew
9% as a result of increased hydrogen/carbon monoxide (HYCO) demand, including
some short term spot sales to refineries.
European LOX/LIN volume including non-cryo grew 9%. Growth in Northern Europe
complimented continued strong performance in Southern Europe. LOX/LIN pricing
was down 2% year-to-year and flat sequentially as pricing increases begin to
mitigate the price decline. On-site volumes increased 10%, with strong demand
from both chemical process and steel industry customers. Cylinder volumes
increased 10%, partially due to the prior year acquisition of the AGA business
in the United Kingdom.
Asian results were robust, with strong growth in the base business combined with
the consolidated results of the acquired affiliates in Korea, China, and
Malaysia. Electronics business was up globally, with very strong demand for
specialty gases and chemicals.
Operating income grew 20% due to the overall performance of the electronics
business along with good growth in Asia and Europe. About a third of the growth
was the result of consolidating the acquired affiliates. The operating income
growth was restrained by higher costs of natural gas adversely impacting the
liquid hydrogen business. Additionally, higher diesel fuel costs and argon
supply dislocation issues contributed to higher costs.
The gases segment operating margin was 19.6%, up .9% from the prior year and
equal to the previous quarter. The margin benefited from dramatically better
electronics business in the current year and improvements in Asian and Northern
European regional business conditions.
Gases equity affiliates' income of $17.8 million exceeded the prior year by
$7.3 million, a 70% increase. Higher performance in Asia and Mexico combined
with favorable currency and exchange and tax impacts generated the increase.
Equipment-Sales were $53.8 million in the quarter ended 31 March 2000 compared
to $101.2 million in the prior year. Operating income of $5.6 million was down
slightly from $6.9 million in the prior year. Lower sales and operating income
reflected the anticipated decline in project activity. Strong project cost
performance in the quarter partially offset the activity decline. The
$155 million sales backlog at 31 March 2000 is up slightly from the backlog of
$134 million at 31 March 1999 and $144 million at 31 December 1999. The backlog
is down from $175 million at 30 September 1999.
Chemicals-Sales in the second quarter of fiscal 2000 of $451.3 million were up
$34.4 million, or 8%. Operating income of $50.0 million was up 15% over the
prior year. Excluding the impact of the cost reduction plan in the current
quarter and the facility closure cost in the prior year, operating income of
$58.7 million is up 9%, or $5.0 million. Unfavorable currency related impacts on
sales were about 1%, but almost 6% on operating income. The overall segment
volume growth was 10%. The emulsions portion of the polymers division had
16
record demand in the European region. Polyvinyl alcohol (PVOH) had record
volumes. Total polymers grew 9%. Volumes in performance chemicals were up 11% in
total, with gains in all major product areas. The chemicals intermediates
business increased 11%, with volumes higher in both polyurethane intermediates
and higher amines.
The operating income growth of 9% reflected broad based volume gains, cost
controls and productivity benefits. Raw material cost increases, particularly in
the polymers business, coupled with lower prices in some products restrained
operating income growth. The operating margin, excluding special items, was
13.0% in the current year compared to 12.9% in the prior year. Price increase
action has been initiated to counter the raw material cost impact on margins.
INTEREST
Interest expense of $46.8 million was up $6.4 million, primarily due to higher
debt.
INCOME TAXES
The current year second quarter consolidated effective tax rate was 14.9%, after
minority interest of $2.8 million. This compares to a rate of 29.7% in the prior
year. The fiscal 2000 rate was significantly impacted by a higher tax rate on
the BOC hedging transactions, a gain on the sale of gases assets, and the global
cost reduction plan. Excluding this tax impact, the effective rate for the
current quarter was 31.0%. The effective rate in the prior year, excluding the
tax rate impact of a chemicals facility closure was 30.2%. The rate increase
from 30.2% to 31.0% was due to mix of before-tax and after-tax equity affiliate
income.
GLOBAL COST REDUCTION PLANS
Fiscal Year 1999 Plan
The Company began a global cost reduction plan ("the 1999 plan") in the fiscal
quarter ended 31 December 1998. The plan included staffing reductions of 206
employees in the areas of manufacturing, distribution, and overheads. An amount
of $20.3 million ($12.9 million after-tax, or $.06 per share) related to
employee termination expense was charged to expense in the quarter ended 31
December 1998. The plan was completed in December 1999, essentially as expected.
The Company expanded the plan in the quarter ended 30 June 1999, with an
additional staff reduction of 142 employees. There was a charge of $13.9 million
($9.0 million after-tax, or $.04 per share) for the plan expansion. The expected
total cost remains as planned and 71 of the reductions have been completed.
Expenses of $5.4 million have been charged to the accrual and the balance is in
accrued liabilities.
Fiscal Year 2000 Plan
A global cost reduction plan in the chemicals segment was initiated in the
quarter ended 31 March 2000. The plan includes staff reductions of 103 employees
in the areas of manufacturing and overheads. There was a total charge of $8.7
million ($5.5 million after-tax, or $.03 per share) for the fiscal quarter.
Employee termination expenses of $7.3 million were accrued as liabilities and
charged to expense. Additionally, expense of $1.4 million was incurred for
special pension and post-retirement medical benefits for eligible employees
accepting the benefits in the fiscal quarter. The plan will be complete by 31
March 2001, with annualized cost savings of $9.3 million accumulating over the
year. Notifications began
17
in the quarter ending 31 March 2000, with actual termination expenditures
beginning in the month of April 2000.
NEW ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements," in December 1999. The
company does not expect any revenue recognition changes due to the issuance of
this SAB. Revenue is recognized upon shipment or delivery of products. Revenues
from equipment sale contracts are recorded primarily using the
percentage-of-completion method.
YEAR 2000 READINESS DISCLOSURE
During the rollover into the year 2000, none of the Company's information
technology systems, process control and embedded chip systems, or suppliers
experienced Year 2000 events which had a material adverse impact on the
Company's operations or financial condition. Contingency plans remain in place
as part of the Company's normal business procedures to address operational
issues that may arise from time to time, including those caused by Year 2000
type events.
18
SIX MONTHS FISCAL 2000 VS. SIX MONTHS FISCAL 1999
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Consolidated
Sales for the first six months of fiscal 2000 of $2,611.6 million were 3% higher
than the $2,527.9 million reported in the prior fiscal year. Operating income
was $415.1 million, up $43.4 million, or 12%. Profits of equity affiliates
increased $17.7 million to $41.6 million for the six months ended 31 March 2000.
Net income was $98.2 million, or $.46 diluted earnings per share, compared to
$233.3 million, or $1.08 per share in the prior year. The current year includes
a significant special item, an after-tax charge of $154.7 million, or $.72 per
share related to the BOC transaction. A large majority of this amount is due to
the charges recorded on purchased currency option and forward exchange contracts
entered into to hedge the currency exposure of the BOC transaction. The six
months ended 31 March 2000 also included a charge of $5.5 million after-tax, or
$.03 per share for a workforce reduction program in the chemicals segment and an
after-tax gain of $4.0 million, or $.02 per share related to the sale of some
packaged gases facilities. In the first six months of fiscal year 1999 there
were three special items; an after-tax gain of $21.3 million, or $.10 per share
related to the formation of Air Products Polymers, and an after-tax charge of
$12.9 million, or $.06 per share related to a global cost reduction plan, and an
after-tax charge of $6.4 million, or $.03 per share primarily related to
Chemicals facility closure costs. Excluding the impact of all special items, net
income for the six months ended 31 March 2000 was $254.4 million compared to
$231.3 million in the prior year, an increase of 10%. Diluted earnings per share
of $1.18 is up 10% over $1.07 in the prior year. The remaining discussion and
analysis of the consolidated results of operations excludes the impact of
special items.
Consolidated sales grew 3% over the prior year. While revenue growth was 9% for
gases and 8% for chemicals, there was a decline of $116.3 million, or 53% in the
equipment segment. Unfavorable currency impacts reduced sales growth about 2%,
however the consolidation of acquired affiliates added about 2% to reported
sales. Gases results benefited from increased demand in several major markets,
particularly electronics and chemical process. Chemicals sales were up on broad
based volume growth.
Operating income increased $15.2 million to $417.5 million, up 4% over the prior
year. Gases results were up $43.0 million, or 16%, largely due to increased
demand in several key markets. Chemicals operating income was up $4.2 million,
or 4%, with higher volumes moderated by raw material cost pressure. The expected
decrease in equipment business activity resulted in a decline of $24.8 million
from the $31.6 million reported in the prior year.
Equity affiliates' income increased $17.7 million, mostly due to improved
business conditions in several gas affiliates. Additionally, about a third of
the improved results came from favorable currency and exchange impacts relative
to the prior year. The affiliate, Korea Industrial Gases, was included in
consolidated results for the quarter ended 31 March 2000 following the
acquisition of the affiliate in December 1999.
Industrial Gases-Sales of $1,622.7 million in the first six months of fiscal
2000 increased 9%, or $134.2 million higher than in fiscal 1999. Unfavorable
currency impacts compared to the prior year approximately offset the increased
sales due to consolidation of acquired affiliates. Operating income increased
$65.6 million to $324.3 million. Excluding the impact
19
of the gain on the sale of the packaged gas facilities in this year and
the cost reduction charge last year, operating income was $318.0 million, up
16%.
LOX/LIN volumes in North America were up 4% including non-cryo. LOX/LIN pricing
was down 2% from the prior year, with a slowing in the decline as pricing
actions take effect. Tonnage gas volumes were higher in North America, led by
strong HYCO growth of 14%.
European LOX/LIN volumes were up about 8% including non-cryo. LOX/LIN pricing
was down about 1%. Southern Europe continued to have strong performance, with
some improvement in Northern European business. Overall European tonnage volumes
were higher, primarily due to increased demand for gaseous oxygen and nitrogen
from steel and process industry customers growing 17%. HYCO volumes were up in
the second quarter, following a customer outage at Rotterdam in the first
quarter.
Asian results were robust, with strong growth in the base business combined with
the consolidated results of the acquired affiliates in Korea, China, and
Malaysia. Electronics business was up globally, with very strong demand for
specialty gases and chemicals.
The operating income growth of 16% was the result of strong global demand in
electronics and improved Asian and European business conditions. Somewhat
offsetting the highly favorable volume growth was higher cost for natural gas
and diesel fuel, argon supply dislocation, and unfavorable currency impacts. The
gases segment operating margin was 19.6%, up 1.1% from 18.5% in the prior year.
The increase results from the electronics and Asian business improvement and
acquisitions.
Equity affiliates' income of $34.2 million approximately doubled the $17.2
million reported in the prior year. Higher performance in Asia and Mexico
combined with favorable currency and exchange and a small tax adjustment,
generated the increase.
Equipment-Sales decreased $116.3 million to $104.4 million compared to the prior
year. Operating income declined to $6.8 million from $29.7 million in the prior
year. Excluding the cost reduction charge in the prior year, operating income of
$6.8 million in fiscal 2000 compares to $31.6 million in fiscal 1999. The
reduced sales and operating income reflect a substantial decline in project
activity as customer capital spending plans are delayed.
Chemicals-Sales for the six months ended 31 March 2000 were $884.5 million
compared to $818.7 million in fiscal 1999, an increase of 8%. Operating income
of $101.6 million increased 8% from $94.2 million last year. Excluding the
impact of cost reduction charges in both years and a facility closure charge in
fiscal 1999, current year operating income was $110.3 million compared to
$106.1 million, up 4%. Unfavorable currency related impacts were less than
1% on sales, but almost 5% on operating income. Strong volume growth occurred
over both quarters of this fiscal year. Volume increases across all major
product areas generated an overall 11% increase over the prior year.
The operating income growth of 4%, excluding special items, reflects strong
volume growth and cost containment, offset by margin pressure. Raw material cost
increases, particularly in the polymers businesses, coupled with lower prices in
some products, restrained the operating income improvement. Operating margin in
fiscal 2000 was 12.5% compared to 13.0% in the prior year, primarily lower due
to raw material cost increases. Price increase action has been initiated to
counter the margin decline.
20
INTEREST
Interest expense of $88.1 million is up $7.3 million, or 9%. The increase is
primarily due to higher debt.
INCOME TAXES
The current six months year-to-date consolidated effective tax rate is 15.0%,
after minority interest of $5.1 million. This compares to a rate of 31.0% in the
prior year. The fiscal 2000 rate is significantly impacted by a higher tax rate
on the BOC hedging transactions, a gain on the sale of some gases assets, and
the global cost reduction plan. Excluding this tax impact, the effective rate
for the current year is 30.5%. The effective rate in the prior year, excluding
the tax rate impact of the gain on the formation of the polymer ventures, a
chemical facility closure and the global cost reduction, was 31.5%. The rate
decrease from 31.5% to 30.5% is due to higher after-tax equity affiliates'
income.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 2000 totaled $604.0
million compared to $541.3 million in the corresponding period of the prior
year. Additions to plant and equipment decreased from $450.9 million during the
first six months of fiscal 1999 to $378.6 million during the current period. The
prior year additions included a new 500 million pound-per-year dinitrotoluene
(DNT) production facility in Geismar, Louisiana. Investments in unconsolidated
affiliates were $16.5 million during the first six months of fiscal 2000 versus
$66.0 million last year. The prior year results include a cash contribution of
$33.5 million related to the formation of the redispersible powders venture with
Wacker-Chemie GmbH. Expenditures for acquisitions increased from $22.4 million
during the first six months of fiscal 1999 to $168.7 million during the current
period. The current year amount includes the acquisition of the remaining 51.1
percent of the shares in Korea Industrial Gases Ltd. (KIG), the largest
industrial gas Company in Korea. Capital expenditures are expected to be
approximately $1.1 billion in fiscal 2000. The capital expenditures will be
funded with cash from operations supplemented with proceeds from financing
activities.
Cash provided by operating activities during the first six months of fiscal 2000
($501.6 million) combined with proceeds from the sale of assets and investments
($30.0 million), and long-term debt proceeds ($507.5 million) were used largely
for capital expenditures ($604.0 million), long-term debt repayments
($369.6 million) and cash dividends ($76.8 million). Cash and cash items
increased $31.0 million from $61.6 million at the beginning of the fiscal year
to $92.6 million at 31 March 2000. The net decrease in commercial paper was
$25.0 million.
Total debt at 31 March 2000 and 30 September 1999, expressed as a percentage of
the sum of total debt and shareholders' equity, was 51% and 49%, respectively.
Total debt increased from $2,842.2 million at 30 September 1999 to $3,062.8
million at 31 March 2000. During the second quarter of fiscal 2000, the Company
issued Euro 500 million in notes due in 2005 with a fixed coupon rate of 6.00%.
Also, during the second quarter, the Company repurchased a $100 million medium
term note, Series F, which was due in 2009 and a $100 million medium term note,
Series F, which was due in 2014.
There was $338.0 million of commercial paper outstanding at 31 March 2000. In
the first six months of fiscal 2000, the Company added an additional
$500 million revolving credit
21
commitment. The Company's total revolving credit commitments amounted to $1.1
billion at 31 March 2000. No borrowings were outstanding under these
commitments. Additional commitments totaling $81.2 million are maintained by the
Company's foreign subsidiaries, of which $16.3 million was utilized at 31 March
2000.
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 amounts outstanding and net unrealized gain of interest
rate swap agreements at 31 March 2000 and 30 September 1999 were as follows:
(Millions of dollars)
31 March 2000 30 September 1999
------------------------------------- ----------------------------------------
Net Net
Notional Unrealized Notional Unrealized
Amount Gain Amount Gain
------------------------------------- ----------------------------------------
Fixed to Variable $181.0 $.2 $311.0 $5.6
Variable to Variable 60.0 137.8 60.0 121.1
------------------------------------- ----------------------------------------
Total $241.0 $138.0 $371.0 $126.7
===================================== ========================================
During the first six months of fiscal 2000 two fixed to variable interest rate
swap agreements with a total notional amount of $100.0 million were terminated,
resulting in a deferred gain of $2.4 million.
In April 2000, a $50 million variable to variable interest rate swap agreement
matured along with the related $50 million of medium term notes. The net
unrealized gain on the remaining variable to variable interest rate swap was
$20.9 million at 31 March 2000. This swap effectively converted the stated
variable rate of the medium term note to an average interest rate slightly above
the three month US Dollar LIBOR rate.
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 31 March
2000 was $145.7 million. The fair value of the agreements was a gain of
$1.6 million, of which a $2.0 million gain related to the currency component
was recognized in the financial statements. The remaining $.4 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 1999 interest rate and currency swap agreements
were outstanding with a notional principal amount and fair value of
$270.8 million and a gain of $10.2 million, respectively. During the second
quarter of fiscal 2000 three interest rate and currency swap agreements with a
total notional amount of
22
Spanish Peseta (ESP) 11.63 billion or $93.1 million were terminated, resulting
in a net deferred loss of $2.0 million.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 March 2000 is $2,820.0 million compared to a book value of
$2,622.2 million.
FINANCIAL INSTRUMENTS
Excluding the impact of the derivative instruments entered into to hedge the
currency exposure of the BOC transaction which are discussed in the `BOC
Transaction' section below, there has been no material change in the net
financial instrument position or sensitivity to market risk since the disclosure
in the annual report.
BOC TRANSACTION
The results for the six months ended 31 March 2000 include a charge of $247.9
million ($154.7 million after-tax, or $.72 per share) for costs related to the
BOC transaction. Of this amount, $232.7 million ($145.2 million after-tax, or
$.67 per share) of accounting charges were recorded on purchased currency option
and forward exchange contracts entered into to hedge the currency exposure of
the BOC transaction, reflecting an exchange rate of 1.5967 for the $/GBP as of
31 March 2000. Due to the required mark-to-market accounting, future accounting
results will include gains and losses based on changes in the $/GBP exchange
rate. The remaining charge of $15.2 million ($9.5 million after-tax, or $.05 per
share) consists of other expenses.
FORWARD-LOOKING STATEMENTS
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; demand for the goods and services of
Air Products; competitive factors in the industries in which it competes;
changes in government regulation; success of implementing cost reduction
programs; the timing, impact and other uncertainties of future acquisitions or
combinations within relevant industries; fluctuations in interest rates and
foreign currencies; the impact of tax and other legislation and regulations in
the jurisdictions in which Air Products and its affiliates operate; and the
timing and rate at which tax credits can be utilized.
23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
a. The Annual Meeting of Shareholders of the Registrant was held on
27 January 2000.
b. The following directors were elected at the meeting: Harold A.
Wagner, Mario L. Baeza, L. Paul Bremer III, Edward E.
Hagenlocker, Terry R. Lautenbach. Directors whose term of
office continued after the meeting include: Tom H. Barrett,
James F. Hardymon, Lawrason D. Thomas, Robert Cizik, Ursula F.
Fairbairn, John P. Jones III, Joseph J. Kaminski, and Ruud F. M.
Lubbers.
c. The following matters were voted on at the Annual Meeting:
1. Election of Directors
--------------------------------------------------------------------------------
NAME OF DIRECTOR NUMBER OF VOTES CAST
--------------------------------------------------------------------------------
AGAINST BROKER
OR NON-
FOR WITHHELD ABSTENTIONS VOTES
--------------------------------------------------------------------------------
H. A. WAGNER 194,745,531 3,150,471 0 0
--------------------------------------------------------------------------------
M. L. BAEZA 195,199,934 2,696,068 0 0
--------------------------------------------------------------------------------
L. P. BREMER III 195,291,249 2,604,753 0 0
--------------------------------------------------------------------------------
E. E. HAGENLOCKER 195,321,654 2,574,348 0 0
---------------------------------------------------------------------------------
T. R. LAUTENBACH 195,089,592 2,806,410 0 0
--------------------------------------------------------------------------------
2. Ratification of the appointment of Arthur Andersen LLP of
Philadelphia, Pennsylvania, as independent certified
public accountants for the Registrant for the fiscal year
ending 30 September 2000.
-------------------------------------------------------------------
NUMBER OF VOTES CAST
-------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
-------------------------------------------------------------------
196,138,570 703,510 1,053,922 0
-------------------------------------------------------------------
24
Item 6. Exhibits and Reports on Form 8-K.
(a)(10.1) Amended and Restated 1997 Annual Incentive Plan of the
Company effective 1 January 2000.
(a)(10.2) Resolutions approving amendments to the 1997 Annual
Incentive Plan and the Supplementary Savings Plan of the
Company effective 1 January 2000.
(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 Reports on Form 8-K dated 21 January 2000 and
10 March 2000 were filed by the Registrant during the
quarter ended 31 March 2000 in which Item 5 of such forms was
reported.
25
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: May 12, 2000 By: /s/L. J. Daley
-----------------------
L. J. Daley
Vice President - Finance
(Chief Financial Officer)
26
===============================================================================
UNITED STATES
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 31 March 2000
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
===============================================================================
INDEX TO EXHIBITS
(a)(10.1) Amended and Restated 1997 Annual Incentive Plan of the Company
effective 1 January 2000.
(a)(10.2) Resolutions approving amendments to the 1997 Annual Incentive
Plan and the Supplementary Savings Plan of the Company effective
1 January 2000.
(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.