LEHIGH VALLEY, Pa., Oct. 21 /PRNewswire-FirstCall/ --
Access the Q4 earnings teleconference scheduled for 10:00 a.m. Eastern Daylight Savings Time on October 21 by calling (719) 325-4755 and entering passcode 2295468, or listen on the Web at www.airproducts.com/Invest/financialnews/Earnings_Releases/Teleconference.htm.
Highlights:
- Sales grew eight percent sequentially on volume growth in all businesses
- Signed three significant Tonnage contracts in the quarter
- Completed U.S. Healthcare business divestiture
- Fiscal 2010 outlook: 15 to 21 percent earnings growth on a continuing operations basis
Air Products APD today reported income from continuing operations of $246 million, or diluted earnings per share (EPS) of $1.14, for its fiscal 2009 fourth quarter versus $273 million and $1.26, respectively, for the fourth quarter of fiscal 2008.
Fourth quarter revenues of $2,129 million declined 22 percent versus prior year. Lower energy and raw material cost pass-throughs and unfavorable currency impacted sales by 12 percent and three percent, respectively. Underlying sales declined seven percent on lower volumes in the Merchant Gases, and Electronic and Performance Materials segments, and lower pricing in Electronics and Performance Materials. Sequentially, sales were up eight percent, seven percent on an underlying basis. Operating income of $328 million declined 12 percent on lower volumes and unfavorable currency, partially offset by cost reduction actions. Sequentially, operating income increased seven percent, primarily on improved volumes.
The following discussion of full year results and guidance in this release is based on non-GAAP comparisons. A reconciliation can be found at the end of this release.
For fiscal 2009, sales of $8,256 million declined 21 percent on lower volumes, lower energy and raw material cost pass-throughs and unfavorable currency. Underlying sales declined eight percent. Operating income of $1,185 million was down 22 percent, and diluted EPS of $4.06 declined 20 percent from the prior year.
John McGlade, chairman, president and chief executive officer, said, "The beginning of our fiscal 2009 coincided with the start of the global financial crisis, driving the recession that resulted in unprecedented declines in demand for our products worldwide. While this affected our fiscal year results, we were able to offset some of the decline with aggressive cost controls. Sequentially, we are seeing volume improvement in all our businesses, and our actions to move to a sustainable, low-cost structure have positioned us to capitalize on growth as our markets recover."
Fourth Quarter Segment Performance
- Merchant Gases sales of $932 million declined 15 percent from the prior year on weaker volumes across manufacturing end-markets globally and unfavorable currency, partially offset by favorable pricing. Sequentially, sales increased six percent on three percent higher volumes from improved demand in most geographies. Operating income of $166 million declined 16 percent from the prior year on lower volumes and unfavorable currency, partially offset by favorable pricing.
- Tonnage Gases sales of $640 million were down 32 percent from the prior year on lower energy and raw material cost pass-throughs. Sales and volumes were up 13 percent sequentially on stronger demand from chemical, refinery and steel customers. Operating income of $105 million decreased 22 percent from the prior year on lower operating efficiencies and unfavorable currency.
- Electronics and Performance Materials sales of $434 million declined 22 percent, primarily on lower volumes and Electronics pricing. Operating income of $49 million increased 17 percent from the prior year as favorable cost performance offset volume declines and lower Electronics pricing. While year-on-year Electronics sales were down 27 percent, sales increased three percent sequentially due to improved customer operating rates. Performance Materials volumes improved nine percent sequentially, reflecting seasonal improvement and stronger Asia sales, but declined 10 percent from the prior year on weaker demand from coatings, autos, housing and other end markets.
- Equipment and Energy sales of $123 million declined three percent from the prior year. Operating income of $6 million decreased from the prior year on lower sales and higher Energy development costs.
Outlook
Looking forward, McGlade said, "We have implemented the difficult but necessary actions to take advantage of our strong global market positions. Additionally, we see significant future opportunities in the evolving energy, environment and emerging market sectors. We also continue to drive to a low-cost structure to enable us to grow faster than our competition. While the pace of the recovery is unknown, our people remain committed to achieving our margin, return and growth goals."
The company today announced initial guidance for fiscal year 2010 EPS in the range of $4.65 to $4.90 per share, representing year-over-year earnings growth on a continuing operations basis of 15 to 21 percent. For the first quarter of fiscal 2010 ending December 31, 2009, EPS is expected to be between $1.07 and $1.15 per share.
The company also announced that it expects capital spending in fiscal 2010 to be between $1.3 and $1.5 billion, approximately equal to fiscal 2009.
Air Products 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. In fiscal 2009, Air Products had revenues of $8.3 billion, operations in over 40 countries, and 18,900 employees around the globe. For more information, visit www.airproducts.com.
NOTE: The information above contains "forward-looking statements," within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including earnings guidance. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date of this press release. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation, longer than anticipated delay in global economic recovery; renewed deterioration in economic and business conditions; weakening demand for the Company's products, future financial and operating performance of major customers and industries served by the Company; unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset impairments due to economic conditions or specific product or customer events; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; consequences of acts of war or terrorism impacting the United States' and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to current portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact, and other uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; 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; the impact of new or changed financial accounting standards; and the timing and rate at which tax credits can be utilized and other risk factors described in the Company's Form 10K for its fiscal year ended September 30, 2008 and Form 10-Q for the quarter ended December 31, 2008. 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.
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars)
1. GLOBAL COST REDUCTION PLAN
The 2009 results from continuing operations included a total charge of $298.2 ($200.3 after-tax, or $.94 per share) for the global cost reduction plan. In the first quarter 2009, the Company announced the global cost reduction plan designed to lower its cost structure and better align its businesses to reflect rapidly declining economic conditions around the world. The first quarter results included a charge of $174.2 ($116.1 after-tax, or $.55 per share). In the third quarter 2009, due to the continuing slow economic recovery, the Company committed to additional actions associated with its global cost reduction plan which resulted in a charge of $124.0 ($84.2 after-tax, or $.39 per share).
The total 2009 charge included $210.0 for severance and other benefits, including pension-related costs, associated with the elimination of approximately 2,550 positions from its global workforce. The reductions are targeted at reducing overhead and infrastructure costs, reducing and refocusing elements of the Company's technology and business development spending, lowering its plant operating costs, and the closure of certain manufacturing facilities. The remainder of this charge, $88.2, was for business exits and asset management actions. Assets held for sale were written down to net realizable value and an environmental liability of $16.0 was recognized. This environmental liability resulted from a decision to sell a production facility.
The planned actions associated with the global cost reduction plan are expected to be substantially completed within one year of when the related charges were recognized.
2. DISCONTINUED OPERATIONS
The U.S. Healthcare business, Polymer Emulsions business, and the High Purity 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.
For additional historical information on these discontinued operations, refer to the Company's 2008 annual report on Form 10-K.
U.S. Healthcare
In July 2008, the Board of Directors authorized management to pursue the sale of the U.S. Healthcare business. In 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 first quarter of 2009, based on additional facts, the Company recorded an impairment charge of $48.7 ($30.9 after-tax, or $.15 per share) reflecting a revision in the estimated net realizable value of the U.S. Healthcare business. Also, a tax benefit of $8.8, or $.04 per share, was recorded to revise the estimated tax benefit related to previously recognized impairment charges.
As a result of events which occurred during the second quarter of 2009, which increased the Company's ability to realize tax benefits associated with the impairment charges recorded in 2008, the Company recognized a one-time tax benefit of $16.7, or $.08 per share.
During the third quarter of 2009, the Company sold more than half of its remaining U.S. Healthcare business to OptionCare Enterprises, Inc., a subsidiary of Walgreen Co., and Landauer-Metropolitan, Inc. (LMI) for cash proceeds of $38.1. The Company recognized an after-tax gain of $.3 resulting from these sales combined with adjustments to the net realizable value of the remaining businesses.
During the fourth quarter of 2009, through a series of transactions with Rotech Healthcare, Inc. and with LMI, the Company sold its remaining U.S. Healthcare business for cash proceeds of $12.1. A net after-tax loss of $.7 was recognized. These transactions completed the disposal of the U.S. Healthcare business.
The operating results of the U.S. Healthcare business have been classified as discontinued operations and are summarized below:
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. The Company recognized a gain on the sale of $89.5 ($57.7 after-tax).
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. 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 sale of the Elkton and Piedmont facilities completed the disposal of the Company's Polymer Emulsions business.
The operating results of the Polymer Emulsions business have been classified as discontinued operations and are summarized below:
3. CUSTOMER BANKRUPTCY AND ASSET ACTIONS
As a result of events which occurred during the third quarter of 2009, the Company recognized a $22.2 charge primarily for the write-off of certain receivables due to a customer bankruptcy. This customer, who principally receives product from the Tonnage Gases segment, began operating under Chapter 11 bankruptcy protection on 6 January 2009. Sales and operating income associated with this customer are not material to the Tonnage Gases segment's results. At 30 September 2009, the Company had remaining outstanding receivables with the customer of $16.3. At the present time, the Company does not expect to recognize additional charges related to this customer.
Additionally, during the third quarter of 2009, the Company recorded a charge of $9.9 for other asset actions which consisted of the closure of certain manufacturing facilities. This charge was reflected in cost of sales on the consolidated income statement. The customer bankruptcy charge combined with this asset write-down resulted in a total charge of $32.1 ($21.0 after-tax, or $.10 per share).
4. PENSION SETTLEMENT
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. A settlement loss is recognized when the pension obligation is settled. Based on the timing of when cash payments were made, the Company recognized $2.7 and $10.7 ($6.7 after-tax, or $.03 per share) of settlement charges for the three and twelve months ended 30 September 2009, respectively. For the three and twelve months ended 30 September 2008, the Company recognized $1.6 and $30.3 ($18.9 after-tax, or $.09 per share) of settlement charges, respectively.
5. 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. 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.
During fiscal 2009, the Company received the expected insurance recoveries for property damage of $3.7. Additionally, the Company recorded other income of $4.9 ($3.1 after-tax, or $.01 per share) comprised of $2.3 for the receipt of additional proceeds from a business interruption claim and a $2.6 adjustment to the book value of the damaged property.
6. HURRICANES
During the fourth quarter of 2008, Hurricanes Gustav and Ike reduced short-term demand from the U.S. Gulf Coast customers and drove temporary decreases in operational costs. The net impact on fourth quarter diluted earnings per share was $.05.
7. SUMMARY BY BUSINESS SEGMENT
RECONCILIATION
NON-GAAP MEASURE
The Company utilizes a non-GAAP measure in the computation of capital expenditures and includes spending associated with facilities accounted for as capital leases. Certain facilities that are built to service a specific customer are required to be accounted for as capital leases 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.
Below is a reconciliation of capital expenditures on a GAAP basis to a non-GAAP measure.
SOURCE Air Products
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