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Air Products Reports Fiscal Q3 Financial Results
PR Newswire
Jul 24, 2012
LEHIGH VALLEY, Pa., July 24, 2012 /PRNewswire/ --
Third Quarter Summary
-- EPS up eight percent to $1.41* versus prior quarter on a non-GAAP
continuing operations basis
-- Operating margin of 17%* up 130 basis points* versus prior year on lower
costs
-- Acquired majority position in South America's largest independent
industrial gas company
-- New Tonnage Hydrogen win in the U.S. Gulf Coast and Electronics wins in
China
Air Products (NYSE:APD) today reported net income of $303 million* and diluted earnings per share (EPS) of $1.41* on a non-GAAP, continuing operations basis, for its fiscal third quarter ended June 30, 2012. This excludes a $.25 per share gain associated with acquiring the additional 50 percent equity interest in Air Products' existing DA NanoMaterials joint venture.
Results from discontinued operations of $.60 per share include a gain of $.70 per share associated with the sale of the Continental Europe Homecare business. These results also include a $.14 per share impairment associated with the planned disposal of the remaining Homecare business, primarily in the UK, and the income from the remaining Homecare business of $.04 per share.
On a GAAP basis, including discontinued operations, income and diluted EPS for the quarter were $485 million and $2.26 respectively.
The discussion of third quarter results and guidance in this release is based on non-GAAP continuing operations comparisons that exclude these items. A reconciliation can be found at the end of this release.*
Third Quarter Financial Results
Third quarter revenues of $2,340 million decreased five percent versus prior year, primarily on lower energy pass-through and a stronger dollar. Underlying sales were up one percent, largely due to higher pricing in the Merchant Gases segment. Operating income of $397 million was up two percent on improved cost performance, partially offset by a stronger dollar. Operating margin of 17 percent increased 130 basis points versus prior year.
Sequentially, while overall sales were unchanged, underlying sales grew one percent due to higher volumes. Better cost performance drove operating income up six percent and operating margin increased 100 basis points sequentially.
Commenting on the quarter, John McGlade, chairman, president and chief executive officer, said, "Economic growth this quarter was below what we expected in Asia, Europe and Electronics. Despite headwinds from the economy and a stronger dollar, we were able to deliver earnings within expectations due to excellent cost performance. In addition, we recently executed several key strategic activities, including the purchase of our majority position in Indura, taking full ownership of our DA NanoMaterials joint venture and the sale of our Continental Europe Homecare business."
Third Quarter Segment Performance
-- Merchant Gases sales of $874 million decreased five percent due to a
stronger dollar. Underlying sales were flat, with two percent positive
pricing offsetting the impact of lower volumes. Operating income of $165
million increased four percent versus prior year, as stronger pricing
and better cost performance in all regions improved results.
Sequentially, sales decreased one percent, due to a stronger dollar.
Sequential operating income increased eight percent and margins of 18.8%
were up 160 basis points on better cost performance.
-- Tonnage Gases sales of $767 million decreased 12 percent versus the
prior year on 12 percent lower energy pass-through. Underlying sales
rose two percent on higher volumes from new plants. Operating income of
$134 million was up 17 percent versus prior year on higher volumes and
lower operating and maintenance costs. Sequentially, sales decreased two
percent, with volumes from new plants offset by lower energy
pass-through and a stronger dollar. Operating income was up seven
percent from the prior quarter, largely due to higher volumes and lower
maintenance costs.
-- Electronics and Performance Materials sales of $604 million were
unchanged versus the prior year. Underlying sales were down two percent
on lower volumes and pricing. The DA NanoMaterials acquisition added
four percent and the stronger dollar reduced sales by two percent.
Operating income of $91 million was down 17 percent versus prior year,
due primarily to lower volumes and pricing. Operating margin was 15
percent, down 310 basis points versus prior year due to lower volumes
and pricing. Sequential sales were up six percent on higher volumes and
the acquisition and operating income increased six percent.
-- Equipment and Energy sales of $95 million and operating income of $10
million increased 19 percent and 14 percent respectively, with higher
large air separation unit sales offsetting lower LNG sales.
Sequentially, sales decreased 14 percent and operating income was
unchanged. The sales backlog is up 76 percent versus prior year and 39
percent versus prior quarter on recent LNG signings.
Outlook
Looking ahead, McGlade said, "The current economic uncertainty continues to impact our near-term volume growth. To offset this, we will continue to deliver productivity and cost reduction to the bottom line. In the longer-term, we remain confident in the growth prospects for industrial gases and Air Products. Our recent Indura and DA NanoMaterials acquisitions and Homecare portfolio actions demonstrate our emphasis on execution and position us well for future growth and profitability."
Air Products expects fourth quarter adjusted EPS from continuing operations to be between $1.42 and $1.47 per share. The company's adjusted guidance for continuing operations for fiscal 2012 is $5.40 to $5.45 per share.
Access the Q3 earnings teleconference scheduled for 10:00 a.m. Eastern Time on July 24 by calling 719-457-2677 and entering pass code 1110494, or listen on the Web at: http://phx.corporate-ir.net/staging/phoenix.zhtml?c=92444&p=Teleconference
Air Products (NYSE:APD) provides atmospheric, process and specialty gases; performance materials; equipment; and technology. For over 70 years, the company has enabled customers to become more productive, energy efficient and sustainable. More than 18,000 employees in over 40 countries supply innovative solutions to the energy, environment and emerging markets. These include semiconductor materials, refinery hydrogen, coal gasification, natural gas liquefaction, and advanced coatings and adhesives. In fiscal 2011, Air Products had sales of approximately $10 billion. For more information, visit www.airproducts.com.
Note: This release contains "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance, projections, targets and business outlook. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date of this release. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, deterioration in global or regional economic and business conditions; weakening demand for the Company's products and services; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; the success of commercial negotiations; asset impairments or losses due to a decline in profitability of or demand for certain of the Company's products or businesses, 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; successful development and market acceptance of new products and applications; the ability to attract, hire and retain qualified personnel in all regions of the world where the Company operates; the success of productivity programs; the success and impact of restructuring and cost reduction initiatives; 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 for all of the Company's foreign operations; the impact of 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 guidance; the impact on the effective tax rate of changes in the mix of earnings among our U.S. and international operations; and other risk factors described in the Company's Form 10K for its fiscal year ended September 30, 2011. 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 our management uses internally to evaluate our baseline performance on a comparable basis. Presented below are reconciliations of the reported GAAP results to the non-GAAP measures.
CONSOLIDATED RESULTS
Q3
---
Continuing Operations
---------------------
2012 Q3 vs. 2011 Q3 Operating Operating Income Diluted
Income Margin EPS
------ ------ ---
2012 GAAP $482.8 20.6% $357.2 $1.66
2011 GAAP 387.7 15.7% 297.0 1.37
--------- ----- ---- ----- ----
Change GAAP $95.1 490bp $60.2 $.29
----------- ----- ----- ----- ----
% Change GAAP 25% 20% 21%
============= === === ===
2012 GAAP $482.8 20.6% $357.2 $1.66
Gain on previously held equity interest (tax
impact $31.3) (A) (85.9) (3.6)% (54.6) (.25)
--------------------------------------------- ----- ----- ----- ----
2012 Non-GAAP Measure $396.9 17.0% $302.6 $1.41
===================== ====== ==== ====== =====
2011 GAAP $387.7 15.7% $297.0 $1.37
--------- ------ ---- ------ -----
2011 Non-GAAP Measure $387.7 15.7% $297.0 $1.37
===================== ====== ==== ====== =====
Change Non-GAAP Measure $9.2 130bp $5.6 $.04
----------------------- ---- ----- ---- ----
% Change Non-GAAP Measure 2% 2% 3%
========================= === === ===
Continuing Operations
---------------------
Operating Operating Diluted
2012 Q3 vs. 2012 Q2 Income Margin Income EPS
------------------- ------ ------ ------ ---
2012 Q3 GAAP $482.8 20.6% $357.2 $1.66
2012 Q2 GAAP 287.9 12.3% 279.0 1.30
------------ ----- ---- ----- ----
Change GAAP $194.9 830bp $78.2 $.36
----------- ------ ----- ----- ----
% Change GAAP 68% 28% 28%
============= === === ===
2012 Q3 GAAP $482.8 20.6% $357.2 $1.66
Gain on previously held equity interest (tax
impact $31.3) (A) (85.9) (3.6)% (54.6) (.25)
--------------------------------------------- ----- ----- ----- ----
2012 Q3 Non-GAAP Measure $396.9 17.0% $302.6 $1.41
======================== ====== ==== ====== =====
2012 Q2 GAAP $287.9 12.3% $279.0 $1.30
Cost reduction plan (tax impact $26.2) (B) 86.8 3.7% 60.6 .28
Q2 Spanish tax ruling - - (58.3) (.27)
--------------------- --- --- ----- ----
2012 Q2 Non-GAAP Measure $374.7 16.0% $281.3 $1.31
======================== ====== ==== ====== =====
Change Non-GAAP Measure $22.2 100bp $21.3 $.10
----------------------- ----- ----- ----- ----
% Change Non-GAAP Measure 6% 8% 8%
========================= === === ===
Q4 2012 2012 Forecast
------- -------------
2012 Guidance GAAP (C) $ 1.42 to
1.47 $ 5.36 to 5.41
Gain on previously held equity interest (tax
impact $31.3) (.25)
Q1 Spanish tax settlement .20
Cost reduction plan (tax impact $26.2) .28
Q2 Spanish tax ruling (.27)
2012 Guidance Non-GAAP Measure $ 1.42 to
1.47 $ 5.40 to 5.45
============================== === ======== === ============
(A) Based on average statutory tax rate of 36.44%.
(B) Based on average statutory tax rate of 30.17%.
(C) Guidance is on a continuing operations basis.
ELECTRONICS AND PERFORMANCE MATERIALS
2012 Q3 vs. 2011 Q3 Operating Operating
Income Margin
------ ------
2012 GAAP $176.7 29.3%
2011 GAAP 109.0 18.1%
--------- ----- ----
Change in GAAP $67.7 1,120bp
-------------- ----- -------
% Change GAAP 62%
============= ===
2012 GAAP $176.7 29.3%
Gain on previously held equity
interest (A) (85.9) (14.3)%
------------------------------- ----- ------
2012 Non-GAAP Measure $90.8 15.0%
===================== ===== ====
2011 GAAP $109.0 18.1%
--------- ------ ----
2011 Non-GAAP Measure $109.0 18.1%
===================== ====== ====
Change Non-GAAP Measure $(18.2) (310bp)
----------------------- ------ ------
% Change Non-GAAP Measure (17)%
========================= ====
2012 Q3 vs. 2012 Q2 Operating Operating
Income Margin
------ ------
2012 Q3 GAAP $176.7 29.3%
2012 Q2 GAAP 85.5 15.1%
------------ ---- ----
Change in GAAP $91.2 1,420bp
-------------- ----- -------
% Change GAAP 107%
============= ===
2012 Q3 GAAP $176.7 29.3%
Gain on previously held equity
interest (A) (85.9) (14.3)%
------------------------------- ----- ------
2012 Q3 Non-GAAP Measure $90.8 15.0%
======================== ===== ====
2012 Q2 GAAP $85.5 15.1%
------------ ----- ----
2012 Q2 Non-GAAP Measure $85.5 15.1%
======================== ===== ====
Change Non-GAAP Measure $5.3 (10bp)
----------------------- ---- -----
% Change Non-GAAP Measure 6%
========================= ===
Capital Expenditures
We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain facilities that are built to provide product to 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.
FY 2011
-------
Capital expenditures -GAAP
basis $1,408.3
Capital lease expenditures 173.5
-------------------------- -----
Capital expenditures - Non-
GAAP basis $1,581.8
2012
Forecast
---------
Capital expenditures -GAAP
Measure $2,650
Capital lease expenditures 250
-------------------------- ---
Capital expenditures - Non-
GAAP Measure $2,900
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three Months Ended Nine Months Ended
30 June 30 June
(Millions of
dollars, except
for share data) 2012 2011 2012 2011
---------------- ---- ---- ---- ----
Sales $2,340.1 $2,472.0 $7,005.9 $7,167.5
Cost of sales 1,690.8 1,825.7 5,128.9 5,243.5
Selling and
administrative 230.4 234.5 698.8 703.0
Research and
development 32.5 29.3 90.3 86.4
Cost reduction
plan - - 86.8 -
Gain on previously
held equity
interest 85.9 - 85.9 -
Net loss on Airgas
transaction - - - 48.5
Other income, net 10.5 5.2 37.5 26.6
----------------- ---- --- ---- ----
Operating Income 482.8 387.7 1,124.5 1,112.7
Equity affiliates'
income 41.7 39.7 114.3 99.2
Interest expense 26.0 26.5 84.8 86.9
---------------- ---- ---- ---- ----
Income from
Continuing
Operations before
Taxes 498.5 400.9 1,154.0 1,125.0
Income tax
provision 133.3 95.4 269.5 271.9
----------- ----- ---- ----- -----
Income from
Continuing
Operations 365.2 305.5 884.5 853.1
Income from
Discontinued
Operations, net
of tax 127.3 29.5 166.5 69.3
---------------- ----- ---- ----- ----
Net Income 492.5 335.0 1,051.0 922.4
Less: Net Income
Attributable to
Noncontrolling
Interests 8.0 8.5 22.4 23.0
----------------- --- --- ---- ----
Net Income
Attributable to
Air Products $484.5 $326.5 $1,028.6 $899.4
================ ====== ====== ======== ======
Net Income
Attributable to
Air Products
Income from
continuing
operations $357.2 $297.0 $862.1 $830.1
Income from
discontinued
operations 127.3 29.5 166.5 69.3
------------ ----- ---- ----- ----
Net Income
Attributable to
Air Products $484.5 $326.5 $1,028.6 $899.4
---------------- ------ ------ -------- ------
Basic Earnings Per
Common Share
Attributable to Air
Products
Income from
continuing
operations $1.69 $1.40 $4.08 $3.89
Income from
discontinued
operations .60 .14 .79 .32
------------ --- --- --- ---
Net Income
Attributable to
Air Products $2.29 $1.54 $4.87 $4.21
---------------- ----- ----- ----- -----
Diluted Earnings
Per Common Share
Attributable to
Air Products
Income from
continuing
operations $1.66 $1.37 $4.02 $3.80
Income from
discontinued
operations .60 .13 .77 .32
------------ --- --- --- ---
Net Income
Attributable to
Air Products $2.26 $1.50 $4.79 $4.12
---------------- ----- ----- ----- -----
Weighted Average
of Common Shares
Outstanding (in
millions) 211.5 212.5 211.0 213.5
----------------- ----- ----- ----- -----
Weighted Average
of Common Shares
Outstanding
Assuming Dilution (in
millions) 214.7 217.3 214.6 218.4
--------------------- ----- ----- ----- -----
Dividends Declared
Per Common Share
- Cash $.64 $.58 $1.86 $1.65
------------------ ---- ---- ----- -----
Other Data from
Continuing
Operations
Depreciation and
amortization $212.2 $212.3 $620.5 $627.6
Capital
expenditures on
a Non-GAAP
basis 797.1 404.3 1,661.9 1,136.5
(see page 12 for reconciliation)
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
30 June 30 September
(Millions of dollars) 2012 2011
-------------------- ---- ----
Assets
------
Current Assets
Cash and cash items $361.2 $421.4
Trade receivables, net 1,418.5 1,361.6
Inventories 699.5 670.2
Contracts in progress, less progress
billings 162.7 146.7
Prepaid expenses 75.0 77.5
Other receivables and current assets 300.3 269.2
Current assets of discontinued
operations 15.9 243.2
------------------------------- ---- -----
Total Current Assets 3,033.1 3,189.8
-------------------- ------- -------
Investment in net assets of and
advances to equity affiliates 1,135.0 1,011.6
Plant and equipment, at cost 17,592.4 16,858.8
Less: accumulated depreciation 9,884.3 9,636.1
------------------------------ ------- -------
Plant and equipment, net 7,708.1 7,222.7
------------------------ ------- -------
Goodwill 927.9 796.2
Intangible assets, net 356.8 260.5
Noncurrent capital lease receivables 1,250.1 1,042.8
Other noncurrent assets 444.2 478.2
Noncurrent assets of discontinued
operations 25.7 288.9
---------------------------------- ---- -----
Total Noncurrent Assets 11,847.8 11,100.9
----------------------- -------- --------
Total Assets $14,880.9 $14,290.7
============ ========= =========
Liabilities and Equity
----------------------
Current Liabilities
Payables and accrued liabilities $1,621.4 $1,599.7
Accrued income taxes 86.5 65.0
Short-term borrowings 370.7 561.8
Current portion of long-term debt 50.7 72.2
Current liabilities of discontinued
operations 6.1 43.3
------------------------------------ --- ----
Total Current Liabilities 2,135.4 2,342.0
------------------------- ------- -------
Long-term debt 3,795.5 3,927.5
Other noncurrent liabilities 1,627.2 1,500.0
Deferred income taxes 675.1 558.2
Noncurrent liabilities of discontinued
operations .3 24.3
-------------------------------------- --- ----
Total Noncurrent Liabilities 6,098.1 6,010.0
---------------------------- ------- -------
Total Liabilities 8,233.5 8,352.0
----------------- ------- -------
Total Air Products Shareholders'
Equity 6,513.6 5,795.8
Noncontrolling Interests 133.8 142.9
------------------------ ----- -----
Total Equity 6,647.4 5,938.7
------------ ------- -------
Total Liabilities and Equity $14,880.9 $14,290.7
============================ ========= =========
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
30 June
(Millions of
dollars) 2012 2011
------------- ---- ----
Operating
Activities
Net Income $1,051.0 $922.4
Less: Net income
attributable to
noncontrolling
interests 22.4 23.0
----------------- ---- ----
Net income
attributable to
Air Products 1,028.6 899.4
Income from
discontinued
operations (166.5) (69.3)
------------ ------ -----
Income from
continuing
operations
attributable to
Air Products 862.1 830.1
Adjustments to
reconcile income
to cash provided
by operating
activities:
Depreciation and amortization 620.5 627.6
Deferred income taxes 113.1 75.4
Benefit from Spanish tax ruling (58.3) -
Gain on previously held equity
interest (85.9) -
Undistributed earnings of
unconsolidated affiliates (42.8) (18.4)
Gain on sale of assets and
investments (5.8) (7.7)
Share-based compensation 36.2 33.1
Noncurrent capital lease
receivables (204.1) (155.7)
Net loss on Airgas transaction - 48.5
Payment of Airgas acquisition-
related costs - (156.2)
Other adjustments 48.6 66.3
Working capital
changes that
provided (used)
cash, excluding
effects of
acquisitions and
divestitures:
Trade receivables (71.9) (79.7)
Inventories (18.8) (48.2)
Contracts in progress, less
progress billings (16.7) 20.9
Other receivables 8.6 (5.8)
Payables and accrued liabilities 30.0 (161.4)
Other working capital 29.8 28.3
--------------------- ---- ----
Cash Provided by
Operating
Activities 1,244.6 1,097.1
----------------- ------- -------
Investing
Activities
Additions to plant
and equipment (1,166.5) (933.5)
Acquisitions, less
cash acquired (173.8) (9.9)
Investment in and
advances to
unconsolidated
affiliates (175.4) (46.0)
Proceeds from sale
of Airgas stock - 94.7
Proceeds from sale
of assets and
investments 13.5 62.3
Change in
restricted cash 60.9 13.0
---------------- ---- ----
Cash Used for
Investing
Activities (1,441.3) (819.4)
-------------- -------- ------
Financing
Activities
Long-term debt
proceeds 409.6 59.2
Payments on long-
term debt (477.6) (182.4)
Net (decrease)
increase in
commercial paper
and short-term
borrowings (171.5) 410.6
Dividends paid to
shareholders (379.4) (333.0)
Purchase of
treasury shares (53.1) (350.0)
Proceeds from
stock option
exercises 88.7 124.4
Excess tax benefit
from share-based
compensation 20.2 40.3
Payment for
subsidiary shares
from
noncontrolling
interests (58.4) -
Other financing
activities (16.1) (2.8)
---------------- ----- ----
Cash Used for
Financing
Activities (637.6) (233.7)
-------------- ------ ------
Discontinued
Operations
Cash provided by
operating
activities 32.1 31.6
Cash provided by
(used for)
investing
activities 766.4 (31.8)
Cash provided by
financing
activities - 1.3
----------------- --- ---
Cash Provided by
Discontinued
Operations 798.5 1.1
----------------- ----- ---
Effect of Exchange
Rate Changes on
Cash (25.5) 10.7
------------------ ----- ----
(Decrease)
Increase in Cash
and Cash Items (61.3) 55.8
Cash and Cash
Items - Beginning
of Year 422.5 374.3
------------------ ----- -----
Cash and Cash
Items - End of
Period 361.2 430.1
Less: Cash and
Cash Items -
Discontinued
Operations - 1.9
--------------- --- ---
Cash and Cash
Items -
Continuing
Operations $361.2 $428.2
============== ====== ======
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
Three Months Ended Nine Months Ended
30 June 30 June
(Millions of
dollars) 2012 2011 2012 2011
------------- ---- ---- ---- ----
Sales to External
Customers
Merchant Gases $874.1 $921.4 $2,645.4 $2,724.5
Tonnage Gases 767.4 868.7 2,360.7 2,433.9
Electronics and Performance Materials 603.8 602.4 1,706.0 1,704.3
Equipment and Energy 94.8 79.5 293.8 304.8
-------------------- ---- ---- ----- -----
Segment and
Consolidated
Totals $2,340.1 $2,472.0 $7,005.9 $7,167.5
------------ -------- -------- -------- --------
Operating Income
Merchant Gases $164.6 $158.7 $483.4 $500.1
Tonnage Gases 134.3 114.8 371.1 351.4
Electronics and Performance Materials
(A) 176.7 109.0 340.3 269.5
Equipment and Energy 9.8 8.6 26.9 51.3
-------------------- --- --- ---- ----
Segment Total $485.4 $391.1 $1,221.7 $1,172.3
Cost reduction plan (B) - - (86.8) -
Net loss on Airgas transaction - - - (48.5)
Other (C) (2.6) (3.4) (10.4) (11.1)
-------- ---- ---- ----- -----
Consolidated Total $482.8 $387.7 $1,124.5 $1,112.7
------------------ ------ ------ -------- --------
(A) Includes the gain on remeasuring our previously held equity interest in DA
NanoMaterials. For additional information, see Note 3, Business Combinations.
(B) Information about how this charge related to the businesses at the segment level
is discussed in Note 2, Cost Reduction Plan.
(C) Includes stranded costs resulting from discontinued operations.
30 June 30 September
(Millions of
dollars) 2012 2011
------------- ---- ----
Identifiable
Assets (D)
Merchant Gases $4,591.9 $4,579.6
Tonnage Gases 4,969.2 4,464.3
Electronics and Performance
Materials 2,940.2 2,488.9
Equipment and Energy 324.9 335.6
-------------------- ----- -----
Segment total $12,826.2 $11,868.4
Other 878.1 878.6
Discontinued operations 41.6 532.1
----------------------- ---- -----
Consolidated
Total $13,745.9 $13,279.1
------------- --------- ---------
(D) Identifiable assets are equal to total
assets less investment in net assets of and
advances to equity affiliates.
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, unless otherwise indicated)
1. DISCONTINUED OPERATIONS
In January 2012, the Board of Directors authorized the sale of our Homecare business, which had previously been reported as part of the Merchant Gases operating segment.
On 8 January 2012, we reached an agreement for The Linde Group to purchase our Homecare business in Belgium, Germany, France, Portugal and Spain. This business represented approximately 80% of our total Homecare business revenues.
The transaction with Linde closed on 30 April 2012. Total sale proceeds of EUR590 million ($777) were received in cash at closing. This amount included contingent proceeds of EUR110 million ($144) related to the outcome of certain retender arrangements. The gain related to the contingent proceeds is deferred in other noncurrent liabilities and will be recognized in the results of discontinued operations when the contingencies are resolved and the final proceeds are realized per the terms of the agreement. We will also be entitled to receive up to EUR32 million ($42) of additional cash proceeds based upon collection of accounts receivable. A gain of $207.4 ($150.3 after-tax, or $.70 per share) was recognized on the sale of this business in the third quarter of fiscal year 2012.
We are actively marketing the remaining portion of the Homecare business, which is primarily in the United Kingdom. We expect to close on the sale of this business before the end of calendar 2012. In the third quarter of 2012, we recorded an impairment charge of $33.5 ($29.5 after-tax, or $.14 per share) to write down the remaining business to its estimated net realizable value. Additional charges may be recorded in future periods dependent upon the timing and method of ultimate disposition.
The Homecare business is being accounted for as a discontinued operation. The results of operations and cash flows of this business have been removed from the results of continuing operations for all periods presented. The assets and liabilities of discontinued operations have been reclassified and are segregated in the consolidated balance sheets.
2. COST REDUCTION PLAN
During the second quarter ended 31 March 2012, we initiated a cost reduction plan. The results from continuing operations for the nine months ended 30 June 2012 include a charge of $86.8 ($60.6 after-tax, or $.28 per share) for this plan. This charge represents the ongoing actions we are taking to improve our cost structure, particularly in Europe. The plan includes removing the stranded costs resulting from our decision to exit the Homecare business, the reorganization of the Merchant business and the actions we are taking to right-size our European business cost structure in light of the challenging economic outlook.
This charge includes $80.8 for severance and other costs associated with the elimination of approximately 600 positions from our workforce. The remainder of the charge, $6.0, is related to the write-down of certain assets. The planned actions are expected to be completed by the end of the second quarter of fiscal year 2013. The charge for the cost reduction plan is excluded from segment operating profit. The charge relates to the businesses at the segment level as follows: $77.3 in Merchant Gases, $3.8 in Tonnage Gases, and $5.7 in Electronics and Performance Materials.
3. BUSINESS COMBINATIONS
DuPont Air Products NanoMaterials LLC
On 29 February 2012, we entered into a definitive agreement with E.I. DuPont de Nemours and Co., Inc. to acquire their 50% interest in our joint venture, DuPont Air Products NanoMaterials LLC (DA NanoMaterials). DA NanoMaterials' revenues for calendar year 2011 were approximately $90.
The acquisition closed on 2 April 2012 for $158 ($147 net of cash acquired of $11), subject to working capital adjustments, and was accounted for as a business combination. Beginning in the third quarter of 2012, the results of DA NanoMaterials were consolidated within our Electronics and Performance Materials business segment.
Prior to the acquisition date, we accounted for our 50% interest in DA NanoMaterials as an equity-method investment. The three and nine months ended 30 June 2012 include a gain of $85.9 ($54.6 after-tax, or $.25 per share) as a result of revaluing our previously held equity interest to fair market value as of the acquisition date. This gain is reflected on the consolidated income statements as "Gain on previously held equity interest."
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
SUBSEQUENT EVENT- Indura S.A.
On 1 July 2012, we acquired a 51.8% controlling equity interest in the outstanding shares of Indura S.A., from the majority shareholder. On 3 July 2012, we acquired an additional 13.0% equity interest from other shareholders. We paid cash consideration in Chilean pesos (CLP) of 345.9 billion ($699) and assumed debt of CLP97.0 billion ($196) for these interests. This preliminary purchase price is subject to working capital and debt adjustments which have not yet been completed. Under the purchase agreement, we have a commitment to purchase up to an additional 2.0% equity interest within the next twelve months. The agreement also provides the largest minority shareholder a right to exercise a put option to require Air Products to purchase up to a 30.5% equity interest during the two-year period beginning on 1 July 2015, at a redemption value equal to fair market value (subject to a minimum price per share linked to the original acquisition date value escalated by an inflation factor). Founded in 1948, Indura S.A. is the largest independent industrial gas company in South America. Indura S.A.'s integrated gas and retail business comprises packaged gases and hardgoods, liquid bulk, healthcare and on-sites. Indura S.A.'s revenues for calendar year 2011 were approximately $480.
4. INCOME TAXES
Q1 Spanish Tax Settlement
We were challenged by the Spanish tax authorities over income tax deductions taken by certain of our Spanish subsidiaries during fiscal years 2005-2011. Although we continue to believe that all positions taken were compliant with applicable laws, in November 2011 we reached a settlement with the Spanish tax authorities for EUR41.3 million ($56) in resolution of all tax issues under examination. Of this settlement, $43.8 ($.20 per share) increased our income tax expense and had a 3.8% impact on our effective tax rate for the nine months ended 30 June 2012. The cash payment for the settlement was principally paid in January 2012.
Q2 Spanish Tax Ruling
As of 30 September 2011, our unrecognized tax benefits included an amount related to certain transactions of a Spanish subsidiary for years 1991 and 1992, a period before we controlled this subsidiary. In March 2009, the Spanish appeals court (Audiencia Nacional) ruled in favor of our Spanish subsidiary. The Spanish government appealed this court decision to the Spanish Supreme Court, and as a result, we did not reverse the liability accrued for these unrecognized tax benefits. On 25 January 2012, the Spanish Supreme Court released its decision affirming the decision of the Audiencia Nacional in favor of our Spanish subsidiary. As a result, in the second quarter of 2012, we recorded a reduction in income tax expense of $58.3 ($.27 per share), including interest and penalties, and a reduction in unrecognized tax benefits. The reduction in income tax expense had a 5.1% impact on our effective tax rate for the nine months ended 30 June 2012.
RECONCILIATION
NON-GAAP MEASURE
We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases and purchases of noncontrolling interests. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities, if the arrangement qualifies as a capital lease. Additionally, the purchase of noncontrolling interests in a subsidiary is accounted for as an equity transaction and will be reflected as a financing activity in the statement of cash flows.
The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure which our management uses internally to evaluate and manage our expenditures.
Below is a reconciliation of capital expenditures on a GAAP basis to a non-GAAP measure.
Three Months Ended Nine Months Ended
30 June 30 June
(Millions of
dollars) 2012 2011 2012 2011
------------- ---- ---- ---- ----
Capital
expenditures
-GAAP basis $733.2 $373.2 $1,515.7 $989.4
Capital lease
expenditures 63.9 31.1 139.9 147.1
Purchase of
noncontrolling
interests - - 6.3 -
------------- --- --- --- ---
Capital
expenditures
- Non-GAAP
basis $797.1 $404.3 $1,661.9 $1,136.5
------------- ------ ------ -------- --------
SOURCE Air Products
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