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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 December 2003
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 or 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)
610-481-4911
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark 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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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 6 February 2004
- -------------------------- ------------------------------
Common Stock, $1 par value 227,275,870
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
31 December 2003 and 30 September 2003.............................................................. 3
Consolidated Income Statements -
Three Months Ended 31 December 2003 and 2002........................................................ 4
Consolidated Comprehensive Income Statements -
Three Months Ended 31 December 2003 and 2002........................................................ 5
Consolidated Statements of Cash Flows -
Three Months Ended 31 December 2003 and 2002........................................................ 6
Summary by Business Segments -
Three Months Ended 31 December 2003 and 2002........................................................ 7
Summary by Geographic Regions -
Three Months Ended 31 December 2003 and 2002........................................................ 8
Notes to Consolidated Financial Statements............................................................ 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 24
Item 4. Controls and Procedures......................................................................... 24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 25
Signatures............................................................................................... 26
Exhibit Index............................................................................................ 27
BASIS OF PRESENTATION:
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 accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of the company, the accompanying statements reflect 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. Adjustments included herein are of a
normal, recurring nature unless otherwise disclosed in the notes to consolidated
financial statements. However, the interim results for the periods indicated
herein do not reflect certain adjustments, such as the valuation of inventories
on the LIFO cost basis, which can only be finally determined on an annual basis.
The consolidated condensed financial statements included herein should be read
in conjunction with the financial statements and notes thereto included in the
company's latest annual report on Form 10-K in order to fully understand the
basis of presentation.
Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year. Reference the 2004 Outlook included on
page 20 of Item 2 in Management's Discussion and Analysis of Financial Condition
and Results of Operations. Risk factors that could impact results are discussed
under Forward-Looking Statements on page 23.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except share and per share)
31 December 2003
(Unaudited) 30 September 2003
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash items $ 92.9 $ 76.2
Trade receivables, less allowances for doubtful accounts 1,260.4 1,188.5
Inventories 502.4 483.1
Contracts in progress, less progress billings 45.1 82.8
Other current assets 313.9 237.3
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,214.7 2,067.9
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN NET ASSETS OF AND ADVANCES TO EQUITY AFFILIATES 585.0 553.5
PLANT AND EQUIPMENT, at cost 12,045.3 11,723.2
Less accumulated depreciation 6,324.2 6,086.1
- -------------------------------------------------------------------------------------------------------------------
PLANT AND EQUIPMENT, net 5,721.1 5,637.1
- -------------------------------------------------------------------------------------------------------------------
GOODWILL 778.5 725.8
INTANGIBLE ASSETS, net 103.1 104.1
OTHER NONCURRENT ASSETS 384.2 343.5
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,786.6 $ 9,431.9
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Payables and accrued liabilities $ 1,146.2 $ 1,123.5
Accrued income taxes 96.5 115.6
Short-term borrowings 97.0 165.7
Current portion of long-term debt 101.7 176.4
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,441.4 1,581.2
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 2,373.7 2,168.6
DEFERRED INCOME & OTHER NONCURRENT LIABILITIES 1,079.4 1,005.9
DEFERRED INCOME TAXES 713.8 705.6
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,608.3 5,461.3
- -------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARY COMPANIES 195.8 188.1
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock (par value $1 per share, issued 2004 and 2003-249,455,584 shares) 249.4 249.4
Capital in excess of par value 520.8 493.9
Retained earnings 4,597.1 4,516.6
Accumulated other comprehensive income (loss) (511.8) (567.2)
Treasury stock, at cost (2004 - 22,179,714 shares; 2003 - 22,189,714 shares) (765.7) (766.1)
Shares in trust (2004 - 4,322,362 shares; 2003 - 5,842,391 shares) (107.3) (144.1)
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,982.5 3,782.5
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,786.6 $ 9,431.9
===================================================================================================================
The accompanying notes are an integral part of these statements.
3
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(Millions of dollars, except per share)
Three Months Ended
31 December
2003 2002
- -----------------------------------------------------------------------------------
SALES $ 1,684.9 $ 1,447.0
COSTS AND EXPENSES
Cost of sales 1,230.2 1,033.0
Selling and administrative 231.4 193.3
Research and development 30.0 30.0
Other (income) expense, net (5.5) (3.3)
- -----------------------------------------------------------------------------------
OPERATING INCOME 198.8 194.0
Equity affiliates' income 19.6 28.3
Interest expense 30.9 31.7
- -----------------------------------------------------------------------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 187.5 190.6
Income taxes 51.3 55.1
Minority interest (a) 4.4 6.8
- -----------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING 131.8 128.7
CHANGE
Cumulative effect of accounting change -- (2.9)
- -----------------------------------------------------------------------------------
NET INCOME $ 131.8 $ 125.8
===================================================================================
BASIC EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting $ .59 $ .59
change
Cumulative effect of accounting change -- (.02)
- -----------------------------------------------------------------------------------
Net Income $ .59 $ .57
- -----------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Income before cumulative effect of accounting $ .58 $ .58
change
Cumulative effect of accounting change -- (.02)
- -----------------------------------------------------------------------------------
Net Income $ .58 $ .56
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING (in 221.9 218.8
millions)
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 227.0 223.0
ASSUMING DILUTION (in millions)
- -----------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE - Cash $ .23 $ .21
- -----------------------------------------------------------------------------------
(a) Minority interest primarily includes before-tax amounts.
The accompanying notes are an integral part of these statements.
4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
(UNAUDITED)
(Millions of dollars)
Three Months Ended
31 December
2003 2002
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $131.8 $125.8
- -------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Unrealized (losses) gains on investments:
Unrealized holding (losses) gains arising during the period .1 1.4
Less reclassification adjustment for gains included in net income -- --
- -------------------------------------------------------------------------------------------------------------------
Net unrealized holding (losses) gains on investments .1 1.4
Net (loss) gain on derivatives (1.1) (.5)
Translation adjustments 56.4 41.8
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), net of tax 55.4 42.7
- -------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $187.2 $168.5
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Millions of dollars)
Three Months Ended
31 December
2003 2002
- -------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 131.8 $ 125.8
Adjustments to reconcile income to cash provided by operating activities:
Depreciation 170.4 156.0
Deferred income taxes 23.0 (4.8)
Undistributed earnings of unconsolidated affiliates (12.0) (2.3)
(Gain) Loss on sale of assets and investments (1.2) 2.1
Other 23.5 7.3
---------------------------
Subtotal 335.5 284.1
Working capital changes that provided (used) cash, excluding effects
of acquisitions and divestitures:
Trade receivables (32.8) 8.3
Inventories and contracts in progress (4.0) (11.8)
Payables and accrued liabilities (8.1) (68.5)
Other (84.9) 51.1
- -------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 205.7 263.2
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to plant and equipment (a) (152.3) (166.9)
Investment in and advances to unconsolidated affiliates (2.2) (1.4)
Acquisitions, less cash acquired (25.9) (182.2)
Proceeds from sale of assets and investments 7.6 9.2
Other .6 3.0
- -------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (172.2) (338.3)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term debt proceeds 146.7 44.2
Payments on long-term debt (97.5) (20.6)
Net decrease in commercial paper and other short-term borrowings (73.0) (67.4)
Dividends paid to shareholders (50.9) (45.9)
Issuance of stock for options and award plans 54.1 11.1
- -------------------------------------------------------------------------------------------------------------
CASH USED FOR FINANCING ACTIVITIES (20.6) (78.6)
- -------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 3.8 4.8
- -------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Items 16.7 (148.9)
Cash and Cash Items - Beginning of Year 76.2 253.7
- -------------------------------------------------------------------------------------------------------------
Cash and Cash Items - End of Period $ 92.9 $ 104.8
- -------------------------------------------------------------------------------------------------------------
(a) Excludes capital lease additions of $.7 and $.9 for the three months ended
31 December 2003 and 2002, respectively.
The accompanying notes are an integral part of these statements.
6
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY BUSINESS SEGMENTS
(UNAUDITED)
(Millions of dollars)
Three Months Ended
31 December
2003 2002
- -----------------------------------------------------------------------
Revenues from external customers
Gases $ 1,203.5 $ 1,025.8
Chemicals 410.1 353.8
Equipment 71.3 67.4
- -----------------------------------------------------------------------
Segment Totals 1,684.9 1,447.0
- -----------------------------------------------------------------------
Consolidated Totals $ 1,684.9 $ 1,447.0
- -----------------------------------------------------------------------
Operating income
Gases $ 182.3 $ 168.0
Chemicals 24.5 33.1
Equipment (.3) 4.1
- -----------------------------------------------------------------------
Segment Totals 206.5 205.2
- -----------------------------------------------------------------------
Corporate research and development and (7.7) (11.2)
other income (expense)
- -----------------------------------------------------------------------
Consolidated Totals $ 198.8 $ 194.0
- -----------------------------------------------------------------------
Equity affiliates' income
Gases $ 17.7 $ 17.2
Chemicals 1.9 2.5
Equipment -- .3
- -----------------------------------------------------------------------
Segment Totals 19.6 20.0
- -----------------------------------------------------------------------
Other -- 8.3
- -----------------------------------------------------------------------
Consolidated Totals $ 19.6 $ 28.3
- -----------------------------------------------------------------------
(Millions of dollars)
31 December
2003 2002
- -----------------------------------------------------
Identifiable assets (a)
Gases $ 7,362.6 $ 6,424.1
Chemicals 1,417.7 1,406.7
Equipment 166.7 169.1
- -----------------------------------------------------
Segment Totals 8,947.0 7,999.9
- -----------------------------------------------------
Corporate assets 254.6 176.3
- -----------------------------------------------------
Consolidated Totals $ 9,201.6 $ 8,176.2
- -----------------------------------------------------
(a) Identifiable assets are equal to total assets less investments in equity
affiliates.
7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
SUMMARY BY GEOGRAPHIC REGIONS
(UNAUDITED)
(Millions of dollars)
Three Months Ended
31 December
2003 2002
- --------------------------------------------------------------
Revenues from external customers
United States $ 943.2 $ 819.9
Canada 19.6 27.2
- --------------------------------------------------------------
Total North America 962.8 847.1
- --------------------------------------------------------------
United Kingdom 147.4 116.8
Spain 105.0 84.4
Other Europe 254.3 206.4
- --------------------------------------------------------------
Total Europe 506.7 407.6
- --------------------------------------------------------------
Asia 171.8 160.4
Latin America 43.6 31.8
All Other -- .1
- --------------------------------------------------------------
Total $ 1,684.9 $ 1,447.0
- --------------------------------------------------------------
Note: Geographic information is based on country of origin. The Other Europe
segment operates principally in Belgium, France, Germany, and the
Netherlands. The Asia segment operates principally in China, Japan,
Korea, and Taiwan.
8
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars, except per share)
MAJOR ACCOUNTING POLICIES
Refer to the company's 2003 annual report on Form 10-K for a description of
major accounting policies.
STOCK-BASED COMPENSATION
At 31 December 2003, the company had various stock-based compensation plans as
described in Note 14 to the consolidated financial statements in the company's
2003 annual report on Form 10-K. The company accounts for its stock option plans
under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
compensation expense has been recognized in net income for stock options, as
options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the company had applied the
fair value recognition provisions of Statement of Financial Accounting Standard
(SFAS) No. 123, "Accounting for Stock-Based Compensation," to its stock option
plans.
Three Months Ended
31 December
2003 2002
- ---------------------------------------------------------------------------
Net income, as reported $ 131.8 $ 125.8
Deduct total stock option employee (7.5) (9.4)
compensation expense determined under fair
value based method, net of related tax
effects
- --------------------------------------------------------------------------
Pro forma net income $ 124.3 $ 116.4
- --------------------------------------------------------------------------
Basic Earnings per Share
As reported $ .59 $ .57
Pro forma $ .56 $ .53
- --------------------------------------------------------------------------
Diluted Earnings per Share
As reported $ .58 $ .56
Pro forma $ .55 $ .52
- --------------------------------------------------------------------------
RECLASSIFICATION
The company changed its reporting to now include overhead expenses incurred by
the company related to equity affiliates in selling and administrative expense.
Previously, expenses related to equity affiliates were reported in the income
statement line item for equity affiliates' income, net of related expenses.
Equity affiliates' income now includes the company's proportionate share of
earnings of the affiliates and the gain or loss on the sale of investments in
equity affiliates.
This reclassification impacts the Gases segment. The income statements of the
prior periods were adjusted to reflect this reclassification. The impact on
consolidated equity affiliates' income and selling and administrative expense
for each of the last five years is summarized below.
9
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
EQUITY AFFILIATES' INCOME
As Reported $ 84.4 $ 76.2 $ 81.2 $ 87.6 $ 61.5
Expenses Related to Equity Affiliates 10.0 13.8 11.9 12.4 23.6
- ---------------------------------------------------------------------------------------------------
Reclassified $ 94.4 $ 90.0 $ 93.1 $ 100.0 $ 85.1
- ---------------------------------------------------------------------------------------------------
SELLING AND ADMINISTRATIVE
As Reported $ 832.6 $ 704.3 $ 698.7 $ 689.3 $ 672.8
Expenses Related to Equity Affiliates 10.0 13.8 11.9 12.4 23.6
- ---------------------------------------------------------------------------------------------------
Reclassified $ 842.6 $ 718.1 $ 710.6 $ 701.7 $ 696.4
- ---------------------------------------------------------------------------------------------------
This reclassification for each of the fiscal 2003 quarters is as follows: first
quarter - $2.5; second quarter - $2.7; third quarter - $2.7; and fourth quarter
- - $2.1.
NEW ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board (FASB) published a
revision to Interpretation No. 46, "Consolidation of Variable Interest
Entities," to clarify some of the provisions of Interpretation No. 46. The
revision to Interpretation No. 46 does not change the company's determination
that the company has no interests in a variable interest entity.
In December 2003, the FASB also issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which added
disclosure requirements for defined benefit plans. The annual disclosure
requirements are effective for the company's fiscal year ending 2004, and the
quarterly disclosure requirements are effective beginning the second quarter of
fiscal year 2004. The disclosures provided by the company in its 2003 annual
report on Form 10-K complied with most of the annual disclosure requirements of
the new Statement. In its 2004 annual report, the company will enhance its
disclosure of investment strategies and the basis for determining the long-term
rate of return on plan assets assumption. Also, the company will provide
information related to the amount and timing of expected future benefit
payments. Under SFAS No. 132, companies are also now required to report the
various elements of pension benefit costs on a quarterly basis. The company will
include the required interim disclosures beginning with the second quarter of
2004.
In January 2004, the FASB issued a FASB Staff Position (FSP) No. FAS 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (Act)." This new FSP permits
recognition or deferral of the effects of the prescription-drug provisions of
the Act in current financial statements. The specific authoritative guidance on
accounting for the federal subsidy provision of the Act is pending and the
issued guidance could require a change to previously reported information. The
impact of the Act on the company's postretirement medical benefits is not
material.
FINANCING ACTIVITIES
At 30 September 2003, the company's committed lines of credit totaled $600,
maturing in January 2005. During the first quarter of 2004, the company replaced
these commitments with a new $700 multicurrency revolving credit facility,
maturing in December 2008.
10
On 9 January 2004, the company filed a Form S-3 Registration Statement with the
U.S. Securities and Exchange Commission, which became effective on 26 January
2004. The shelf registration enables the company to issue up to $1 billion of
debt and equity securities. The primary use of the proceeds is expected to be to
refund long-term debt maturing in 2004 and 2005.
INCENTIVE COMPENSATION COSTS
Operating income for the three months ended 31 December 2002 included a
favorable adjustment of $8 for lower than anticipated payments of fiscal year
2002 incentive compensation costs.
EQUITY AFFILIATES' INCOME
Income from equity affiliates for the three months ended 31 December 2002
included $14 for adjustments related to divestitures recorded in prior periods.
$8 is included in Other equity affiliates and $6 is included in Gases equity
affiliates.
GLOBAL COST REDUCTION PLANS
The following table summarizes changes to the carrying amount of the accrual for
the 2003 global cost reduction plan for the three months ended 31 December 2003:
Severance Other (1) Total
- ---------------------------------------------------------------
Balance as of 30 September 2003 $ 38.6 $ 4.1 $ 42.7
Cash expenditures (6.6) (1.1) (7.7)
- ---------------------------------------------------------------
Balance as of 31 December 2003 $ 32.0 $ 3.0 $ 35.0
- ---------------------------------------------------------------
(1) Asset impairments and related expenses are included in the other category.
GOODWILL
Changes to the carrying amount of consolidated goodwill by segment for the three
months ended 31 December 2003, are as follows:
Gases Chemicals Equipment Total
- -------------------------------------------------------------------------------
Balance as of 30 September 2003 $ 619.2 $ 96.9 $ 9.7 $ 725.8
Acquisitions and adjustments 28.1 .5 -- 28.6
Currency translation 21.2 2.5 .4 24.1
- -------------------------------------------------------------------------------
Balance as of 31 December 2003 $ 668.5 $ 99.9 $ 10.1 $ 778.5
- -------------------------------------------------------------------------------
The increase in goodwill from acquisitions was principally due to the
acquisition of a small U.S. homecare business in November 2003.
11
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (EPS):
Three Months Ended
31 December
2003 2002
- --------------------------------------------------------------------------
NUMERATOR
Used in basic and diluted EPS
Income before cumulative effect of
accounting change $ 131.8 $ 128.7
Cumulative effect of accounting change -- (2.9)
- -------------------------------------------------------------------------
Net income $ 131.8 $ 125.8
- -------------------------------------------------------------------------
DENOMINATOR (in millions)
Weighted average number of common shares used
in basic EPS 221.9 218.8
Effect of dilutive securities
Employee stock options 4.5 3.7
Other award plans .6 .5
- -------------------------------------------------------------------------
5.1 4.2
- -------------------------------------------------------------------------
Weighted average number of common shares and
dilutive potential common shares used in
diluted EPS 227.0 223.0
- -------------------------------------------------------------------------
BASIC EPS
Income before cumulative effect of accounting
change $ .59 $ .59
Cumulative effect of accounting change -- (.02)
- -------------------------------------------------------------------------
Net income $ .59 $ .57
- -------------------------------------------------------------------------
DILUTED EPS
Income before cumulative effect of accounting
change $ .58 $ .58
Cumulative effect of accounting change -- (.02)
- -------------------------------------------------------------------------
Net income $ .58 $ .56
- -------------------------------------------------------------------------
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FIRST QUARTER FISCAL 2004 VS. FIRST QUARTER FISCAL 2003
(MILLIONS OF DOLLARS, EXCEPT PER SHARE)
All comparisons are to the corresponding period in the prior year unless
otherwise stated. All amounts presented are in accordance with accounting
principles generally accepted in the United States of America.
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 2004 OVERVIEW
First quarter sales of $1,685 were up 16% from the prior year due to higher
volumes in both Gases and Chemicals, acquisitions, and currency effects.
Operating income of $199 was up 2% from the prior year, in spite of higher costs
which negatively impacted earnings and operating margins. Pension expense is
higher in 2004 due to the lower discount rate and lower long-term asset return
assumptions. Higher raw material and energy costs not contractually passed
through to customers had a negative impact on Chemicals segment results. Also
impacting the comparison, favorable adjustments recognized in the prior year
related to incentive compensation costs and equity affiliate divestitures
recorded in prior periods. Results benefited from the acquisitions made in 2003
including Ashland Electronic Chemicals, U.S. homecare companies, and Sanwa
Chemical Industry Co., Ltd. (Sanwa). During the first quarter of 2004, the
company acquired an additional small homecare company.
In 2004, the company will continue to execute its targeted regional growth
strategy in the U.S. homecare market. A global cost reduction plan was announced
in the third quarter of fiscal 2003 and the company is on track to achieve
associated cost savings of $38 in 2004. Going forward, the company will continue
to focus on growth markets, capital discipline, improving operating leverage,
leading market positions and improving work processes.
An analysis of the first quarter results and an update to the company's outlook
for 2004 is provided below. The disclosures in this quarterly report are
complementary to those made in the company's 2003 annual report on Form 10-K.
13
CHANGES IN EARNINGS PER SHARE
INCREASE
2004 2003 (DECREASE)
- ----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE $.58 $.56 $ .02
- ---------------------------------------------------------------------------------------------
OPERATING INCOME (AFTER-TAX)
Acquisitions .03
Divestitures --
Currency .06
Underlying business
Volume .10
Price/mix --
Costs (excluding pension) (.08)
Pension expense (.06)
Prior year adjustment - incentive compensation (.03)
- ---------------------------------------------------------------------------------------------
OPERATING INCOME SUBTOTAL .02
OTHER (AFTER-TAX)
Equity affiliates' income .01
Prior year adjustment - divestitures of equity affiliates (.04)
Interest expense --
Effective tax rate .02
Cumulative effect of prior year accounting change .02
Average shares outstanding (.01)
- ---------------------------------------------------------------------------------------------
OTHER SUBTOTAL --
- ---------------------------------------------------------------------------------------------
TOTAL CHANGE IN EARNINGS PER SHARE $ .02
- ---------------------------------------------------------------------------------------------
CONSOLIDATED RESULTS
2004 2003 % CHANGE
- ----------------------------------------------------------------------------------------------
SALES $1,684.9 $1,447.0 16%
Cost of sales 1,230.2 1,033.0 19%
Selling and administrative 231.4 193.3 20%
Research and development 30.0 30.0 --
Other (income) expense, net (5.5) (3.3) 67%
OPERATING INCOME 198.8 194.0 2%
Equity affiliates' income 19.6 28.3 (31%)
Interest expense 30.9 31.7 (3%)
Effective tax rate 28.0% 30.0% (2.0%)
NET INCOME 131.8 125.8 5%
BASIC EARNINGS PER SHARE $ .59 $ .57 4%
DILUTED EARNINGS PER SHARE $ .58 $ .56 4%
- -------------------------------------------------------------------------------------------
14
DISCUSSION OF CONSOLIDATED RESULTS
SALES AND OPERATING INCOME
% CHANGE FROM PRIOR YEAR
- ----------------------------------------------------------------------
OPERATING
SALES INCOME
- ----------------------------------------------------------------------
Acquisitions 5% 4%
Divestitures (1%) (1%)
Currency 5% 10%
Natural gas cost pass-through 1% --
Underlying business
Volume 6% 16%
Price/mix -- (1%)
Costs -- (26%)
- -------------------------------------------------------------------
TOTAL CONSOLIDATED CHANGE 16% 2%
- -------------------------------------------------------------------
Sales of $1,684.9 increased 16%, or $237.9. Acquisitions, including U.S.
homecare companies, Sanwa, and Ashland Electronic Chemicals in 2003, accounted
for 5% of the increase. Favorable currency effects, driven by the strengthening
of the Euro, accounted for an additional 5% of the sales growth. Underlying base
business growth accounted for 6% of the increase, principally from improved
volumes in the Gases and Chemicals businesses as further discussed in the
Segment Analysis which follows.
Operating income of $198.8 increased 2%, or $4.8. Consistent with the
consolidated sales discussion above, favorable operating income variances
resulted from acquisitions for 4%, favorable currency effects for 10%, and
higher volumes for 16%. Operating income declined 26% from higher costs,
primarily higher pension expense and higher raw material and energy costs in the
Chemicals segment. In addition, the prior year included an adjustment for lower
than anticipated payments of fiscal year 2002 incentive compensation costs.
EQUITY AFFILIATES' INCOME
Income from equity affiliates of $19.6 decreased $8.7 from the prior year.
Current year results, including $2 from favorable currency effects and also
higher income from the Asian and Latin American affiliates, partially offset the
impact of $14 in favorable adjustments recorded in the first quarter of 2003
related to prior period divestitures.
SELLING AND ADMINISTRATIVE EXPENSE (S&A)
% CHANGE
FROM
PRIOR YEAR
- -----------------------------------------------------
Acquisitions 10%
Divestitures (1%)
Currency 4%
Other costs 7%
- -----------------------------------------------------
TOTAL S&A CHANGE 20%
- -----------------------------------------------------
15
S&A expense of $231.4 increased 20%, or $38.1. Acquisitions, including Ashland
Electronic Chemicals and the U.S. homecare companies, increased S&A by 10%.
Currency effects, driven by the strengthening of the Euro, increased S&A by 4%.
Underlying costs increased 7%, primarily due to higher pension expense, the
prior year adjustment for lower than anticipated payments of fiscal year 2002
incentive compensation costs, and inflation.
OTHER (INCOME) EXPENSE, NET
Other income of $5.5 was comparable to $3.3 in the prior year.
INTEREST EXPENSE
2004 2003 % CHANGE
- --------------------------------------------------------------------------------------
Interest incurred $32.5 $33.1 (2%)
Less: interest capitalized 1.6 1.4 14%
- --------------------------------------------------------------------------------------
Interest expense $30.9 $31.7 (3%)
- --------------------------------------------------------------------------------------
Interest expense of $30.9 was comparable to $31.7 in the prior year.
EFFECTIVE TAX RATE
The effective tax rate equals the income tax provision divided by income before
taxes less minority interest.
The effective tax rate was 28% compared to 30%. The lower rate is the result of
increased credits and adjustments from the company's ongoing tax planning
process, including such items as improved utilization of foreign tax credits,
foreign tax holidays, and certain donations that are eligible for tax
deductions. Additionally, changes in income mix reduced taxes.
NET INCOME
Net income was $131.8, or $.58 diluted earnings per share, compared to net
income of $125.8, or $.56 diluted earnings per share. Prior year net income
includes an after-tax transition charge of $2.9, or $.02 diluted earnings per
share, which was recorded as the cumulative effect of an accounting change. A
summary table of changes in earnings per share is presented on page 14.
SEGMENT ANALYSIS
GASES
2004 2003 % CHANGE
- --------------------------------------------------------------------------------------
Sales $1,203.5 $1,025.8 17%
Operating income 182.3 168.0 9%
Equity affiliates' income 17.7 17.2 3%
- --------------------------------------------------------------------------------------
16
GASES SALES AND OPERATING INCOME
% CHANGE FROM PRIOR YEAR
- ---------------------------------------------------------------------
OPERATING
SALES INCOME
- ---------------------------------------------------------------------
Acquisitions 6% 4%
Divestitures (1%) (1%)
Currency 5% 7%
Natural gas cost pass-through 1% --
Underlying business
Volume 6% 17%
Price/mix -- (3%)
Costs -- (15%)
- ---------------------------------------------------------------------
TOTAL GASES CHANGE 17% 9%
- ---------------------------------------------------------------------
Sales of $1,203.5 increased 17%, or $177.7. Acquisitions, including U.S.
homecare companies and Ashland Electronic Chemicals in 2003, accounted for 6% of
the increase. Favorable currency effects, driven primarily by the strengthening
of the Euro, accounted for an additional 5% sales increase. Underlying base
business sales growth of 6% resulted from improved volumes across the
Electronics, Energy and Process Industries (EPI), and Healthcare growth
businesses.
Volumes for electronic specialty materials increased, as electronics markets
continued to improve, including strong growth in the flat-panel display market.
On-site and pipeline volumes in EPI were up 7%, led by stronger oxygen, nitrogen
and hydrogen volumes. Hydrogen growth versus the prior year is tracking the
ongoing trend for refiners to meet lower sulfur specifications. Liquid bulk
volumes in North America declined 1%. The effects of lower food freezing
business activity, customer shutdowns and reductions, and conversion of
customers to on-site supply more than offset improved distributor sales and
general manufacturing improvement. Liquid bulk volumes in Europe declined 4%,
with stable liquid nitrogen (LIN) volumes more than offset by conversion of
liquid oxygen (LOX) customers to on-site supply and higher prior year argon
sales. Asian liquid bulk volumes were up 7%, led by strength in China.
Pricing for electronic specialty materials decreased, due to low industry
capacity utilization and customer mix effects. On average, prices for LOX/LIN in
North America increased 1%. Surcharge impacts year-on-year were minimal. LOX/LIN
pricing in Europe increased 7%, influenced by continued pricing actions as well
as the customer mix effect from LOX conversions.
Operating income of $182.3 increased 9%, or $14.3. Consistent with the sales
analysis provided above, favorable operating income variances resulted from
acquisitions for 4%, currency effects for 7%, and higher volumes for 17%. Higher
liquid bulk and packaged gas prices were more than offset by lower electronic
specialty materials average selling prices, resulting in a 3% operating income
decrease. Operating income declined 15% from higher costs, including higher
pension expense. Also impacting the comparison, the prior year included a
portion of the favorable adjustment for lower than anticipated payments of
fiscal year 2002 incentive compensation costs.
17
GASES EQUITY AFFILIATES' INCOME
Gases equity affiliates' income of $17.7 increased 3%, or $.5. Current year
results, including $2 from favorable currency effects and also higher income
from the Asian and Latin American affiliates, offset the impact of $6 in
favorable adjustments recorded in the prior year associated with two divested
cogeneration plant investments.
CHEMICALS
2004 2003 % CHANGE
- --------------------------------------------------------------------------------------
Sales $410.1 $353.8 16%
Operating income 24.5 33.1 (26%)
Equity affiliates' income 1.9 2.5 (24%)
- --------------------------------------------------------------------------------------
CHEMICALS SALES AND OPERATING INCOME
% CHANGE FROM PRIOR YEAR
- ----------------------------------------------------------------------
OPERATING
SALES INCOME
- ----------------------------------------------------------------------
Acquisitions 2% 3%
Divestitures -- --
Currency 4% 17%
Natural gas cost pass-through 1% --
Underlying business
Volume 6% 20%
Price/mix 3% 9%
Costs -- (75%)
- ----------------------------------------------------------------------
TOTAL CHEMICALS CHANGE 16% (26%)
- ----------------------------------------------------------------------
Sales of $410.1 increased 16%, or $56.3. Acquisitions, including Sanwa,
increased sales by 2%. Sales increased 4% from favorable currency effects,
driven primarily by the strengthening of the Euro. Underlying base business
sales increased 6% from higher volumes across most of the company's Chemical
Intermediates and Performance Materials businesses. Base business Performance
Materials volumes increased 7%, with improvements in most businesses and
regions. In Chemical Intermediates volumes increased 5%. Higher amines volumes
increased from a better herbicide market and methylamines volumes increased from
new contractual volumes. Partially offsetting these increases, polyurethane
intermediate (PUI) volumes declined due to customer outages. Pricing increased
sales by 3%, primarily from higher contractual cost pass-through of raw
materials, merchant price improvements, and favorable mix impacts from sales of
higher-priced product.
Operating income of $24.5 decreased 26%, or $8.6. Consistent with the sales
analysis provided above, favorable operating income variances resulted from
acquisitions for 3%, currency effects for 17%, higher volumes for 20%, and
merchant price improvements and mix impacts for 9%. Operating income decreased
75% from higher costs, primarily higher raw material and energy and pension
costs. In addition, plant spending was higher and the prior year results
included a portion of the favorable adjustment for lower than anticipated
payments of fiscal 2002 incentive compensation costs.
18
CHEMICALS EQUITY AFFILIATES' INCOME
Chemicals equity affiliates' income was $1.9 compared to $2.5 in the prior year.
Chemicals equity affiliates' income consists primarily of a global polymer joint
venture.
EQUIPMENT
2004 2003
- -------------------------------------------------------------------------
Sales $71.3 $67.4
Operating income (.3) 4.1
Equity affiliates' income -- .3
- -------------------------------------------------------------------------
EQUIPMENT SALES AND OPERATING INCOME
Sales of $71.3 increased 6%, or $3.9. The sales increase resulted primarily from
higher air separation plant sales, partially offset by lower LNG heat exchanger
sales. In addition, currency effects improved sales by 2%, due primarily to the
strengthening of the pound sterling. The operating loss of $.3 resulted from
reduced LNG activity and lower margins in other equipment product lines.
ALL OTHER
All other comprises corporate expenses and income not allocated to the segments,
primarily corporate research and development expense.
2004 2003
- --------------------------------------------------------------------------
Operating loss $(7.7) $(11.2)
Equity affiliates' income -- 8.3
- --------------------------------------------------------------------------
Operating loss of $7.7 declined $3.5 primarily due to lower corporate research
and development expense of $1.3 and higher foreign exchange gains of $1.1.
Other equity affiliates' income of $8.3 in 2003 represents a favorable
adjustment recorded in the prior year associated with a divested business not
associated with any of the company's current segments.
PENSION BENEFITS
For information on the company's pension benefits and associated accounting
policies, refer to the Pension Benefits section of Management's Discussion and
Analysis and Note 17 to the consolidated financial statements in the company's
2003 annual report on Form 10-K.
For the three months ended 31 December 2003 and 2002, the company contributed
$3.6 and $8.3, respectively, to the pension plans. Cash contributions are
estimated to be approximately $200 in 2004.
19
2004 OUTLOOK
MANUFACTURING ACTIVITY
Domestic manufacturing activity in the first quarter of 2004 improved, and was
up 1.8% from the prior year. Initial indications are that consumer demand
remains healthy, plans for new plant and equipment investment remain high, and
domestic manufacturing inventories continue to remain tight. We are optimistic
these three factors should contribute to sustained growth in manufacturing
output in the near term.
GASES
The Gases business has demonstrated improvement in both sales and operating
income growth. The priority in Gases will be to increase operating leverage by
driving productivity and loading assets. Electronics is expected to continue to
see volume growth; however, pricing pressures are expected to continue. Strong
growth is anticipated to continue in the Heathcare business, and the company
plans to spend about $50-75 on homecare acquisitions in fiscal year 2004.
CHEMICALS
In the Chemicals segment, volumes are expected to improve in the second quarter
due to seasonality, the ending of the customer outages experienced in the first
quarter, and the addition of several new customer contracts.
A long-term supplier of sulfuric acid, used in the production of dinitrotoluene
(DNT), emerged from Chapter 11 bankruptcy protection in June 2003. To facilitate
the supplier's ability to emerge from bankruptcy and to continue supplying
product to the company, the company agreed to participate in the supplier's
financing and has continued to supply additional financing. Total loans to the
supplier at 31 December 2003 totaled $45.6. If the supplier does not continue to
operate, the sales and profitability of the Chemicals segment could be
materially impacted on an annual basis because of the company's inability to
supply all of its customers' base requirements. The company does not expect a
material loss related to this supplier.
EQUIPMENT
In Equipment, a new LNG order was received at the end of the first quarter, one
of the 2-4 orders anticipated for the full year. The company expects the second
quarter to be about breakeven, with an increase in Equipment segment
profitability in the second half of the fiscal year, when the company
anticipates additional LNG orders. In Equipment, proposal activity is high,
however the exact timing of orders remains difficult to predict.
CAPITAL EXPENDITURES
Capital expenditures for new plant and equipment are expected to be between $650
and $750 in 2004. In addition, the company intends to continue to evaluate
acquisition opportunities and investments in affiliated entities. It is
anticipated these expenditures will be funded primarily with cash from
operations.
EFFECTIVE TAX RATE
The company expects an effective tax rate of 28% versus the previous estimate of
30%. The 28% rate is the result of increased credits and adjustments from the
company's ongoing tax planning process, including such items as improved
utilization of foreign tax credits, foreign tax holidays, and certain donations
that are eligible for tax deductions. Additionally, changes in income mix
reduced taxes.
20
CURRENCY
The translation of foreign earnings into U.S. dollars had a favorable impact on
the company's income as a result of the weaker dollar. The company has seen
evidence of the strong Euro impacting European economic activity and volumes and
therefore remains cautious about economic growth in Europe.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The narrative below refers to the Consolidated Statements of Cash Flows included
on page 6.
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $57.5, or 22%. Before
working capital changes, the contribution of net income adjusted for non-cash
items to cash provided by operating activities was up $51.4. Net income
increased by $6.0. Non-cash adjustments favorably contributing to the change in
cash provided by operating activities included depreciation expense, deferred
income taxes, and other operating changes. The increase in depreciation expense
of $14.4 was due principally to currency effects and acquisitions. The $27.8
increase in deferred income taxes resulted from higher temporary differences
associated with pension plan accruals and higher foreign tax credits in the
prior year. The increase in other operating changes of $16.2 was principally due
to an increase in noncurrent liabilities as a result of higher pension expense.
These favorable impacts were offset by an increase in cash used for working
capital of $108.9. The increase reflects higher sales and the timing of normal
payments and accruals.
INVESTING ACTIVITIES
Cash used for investing activities decreased $166.1, due primarily to
acquisitions. The company acquired a small U.S. homecare business in November
2003 for $25.9. Acquisitions in 2003, totaling $182.2, principally included the
purchase of American Homecare Supply, LLC.
Capital expenditures are detailed in the following table:
- ---------------------------------------------------------------------------
Three Months Ended
31 December
2003 2002
- ---------------------------------------------------------------------------
Additions to plant and equipment $152.3 $166.9
Investments in and advances to 2.2 1.4
unconsolidated affiliates
Acquisitions, less cash acquired 25.9 182.2
Capital leases .7 .9
- ---------------------------------------------------------------------------
$181.1 $351.4
- ---------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash used for financing activities declined $58.0. Short and long-term debt
repayments were primarily funded by long-term debt borrowings. The primary
long-term borrowing during the quarter was a $125.0 seven-year, fixed-rate
borrowing with a coupon rate of 4.125%. Cash provided by the issuance of stock
for options and award plans increased by $43.0 due to an increase in stock
option exercises.
Total debt at 31 December 2003 and 30 September 2003, expressed as a percentage
of the sum of total debt, shareholders' equity, and minority interest, was 38%
and 39%, respectively. Total debt increased
21
from $2,510.7 at 30 September 2003 to $2,572.4 at 31 December 2003, due
primarily to the impact of a weaker U.S. dollar on the translation of foreign
currency debt.
At 30 September 2003, the company's committed lines of credit totaled $600,
maturing in January 2005. During the first quarter of 2004, the company replaced
these commitments with a new $700 multicurrency revolving credit facility,
maturing in December 2008. No borrowings were outstanding under these
commitments. Additional commitments totaling $37.7 are maintained by the
company's foreign subsidiaries, of which $13.9 was utilized at 31 December 2003.
The estimated fair value of the company's long-term debt, including current
portion, as of 31 December 2003 is $2,599.4 compared to a book value of
$2,475.4.
On 9 January 2004, the company filed a Form S-3 Registration Statement with the
U.S. Securities and Exchange Commission, which became effective on 26 January
2004. The shelf registration enables the company to issue up to $1 billion of
debt and equity securities. The primary use of the proceeds is expected to be to
refund long-term debt maturing in 2004 and 2005.
CONTRACTUAL OBLIGATIONS
The company is obligated to make future payments under various contracts such as
debt agreements, lease agreements and unconditional purchase obligations. There
have been no material changes to contractual obligations as reflected in the
Management's Discussion and Analysis in the company's 2003 annual report on Form
10-K.
OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes to off-balance sheet arrangements as
reflected in the Management's Discussion and Analysis in the company's 2003
annual report on Form 10-K. The company's off-balance sheet arrangements are not
reasonably likely to have a material impact on financial condition, changes in
financial condition, results of operations, or liquidity.
RELATED PARTY TRANSACTIONS
The company's principal related parties are equity affiliates operating in
industrial gas and chemicals businesses. The company did not engage in any
material transactions involving related parties that included terms or other
aspects that differ from those which would be negotiated at arm's length with
clearly independent parties.
MARKET RISKS AND SENSITIVITY ANALYSIS
Information on the company's utilization of financial instruments and an
analysis of the sensitivity of these instruments to selected changes in market
rates and prices is included in the company's 2003 annual report on Form 10-K.
There was no material change to market risk sensitivity since 30 September 2003.
The net financial instrument position of the company increased from a liability
of $2,542.1 at 30 September 2003 to a liability of $2,705.6 at 31 December 2003
primarily due to the impact of a weaker U.S. dollar on the translation of
foreign currency debt and the market value of foreign exchange forward contracts
and the issuance of new long-term debt.
22
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of the company's financial condition and
results of operations is based on the consolidated financial statements and
accompanying notes that have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The significant accounting policies of the company are described in Note 1 to
the consolidated financial statements and the critical accounting policies and
estimates are described in the Management's Discussion and Analysis included in
the 2003 annual report on Form 10-K. Information concerning the company's
implementation and impact of new accounting standards issued by the Financial
Accounting Standards Board (FASB) is included in the notes to the consolidated
financial statements. There have been no other changes in accounting policy in
the current period that had a material impact on the company's financial
condition, change in financial condition, liquidity or results of operations.
NEW ACCOUNTING STANDARDS
In December 2003, the FASB published a revision to Interpretation No. 46,
"Consolidation of Variable Interest Entities," to clarify some of the provisions
of Interpretation No. 46. In December 2003, the FASB also issued a revised
Statement of Financial Accounting Standard (SFAS) No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which added
disclosure requirements for defined benefit plans. In January 2004, the FASB
issued a FASB Staff Position (FSP) No. FAS 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Act)." This new FSP permits recognition or deferral
of the effects of the prescription-drug provisions of the Act in current
financial statements. See the notes to the consolidated financial statements for
information concerning the company's implementation and impact of these new
standards.
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. Factors that might cause forward-looking
statements to differ materially from actual results include , among other
things, overall economic and business conditions different than those currently
anticipated and demand for the company's goods and services; competitive factors
in the industries in which it competes; interruption in ordinary sources of
supply; the ability to recover unanticipated increased energy and raw material
costs from customers; spikes in the pricing of natural gas; changes in
government regulations; consequences of acts of war or terrorism impacting the
United States and other markets; charges related to currently unplanned
portfolio management and cost reduction actions; the success of implementing
cost reduction programs; the timing, impact, and other uncertainties of future
acquisitions or divestitures; significant fluctuations in interest rates and
foreign currencies from that currently anticipated; the impact of tax and other
legislation and regulations in jurisdictions in which the company and its
affiliates operate; and the timing and rate at which tax credits can be
utilized.
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Market Risks and Sensitivity Analysis on page 22 of Item 2 on
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision of the Chief Executive Officer and Chief Financial
Officer, the company's management conducted an evaluation of the effectiveness
of the design and operation of the company's disclosure controls and procedures
as of 31 December 2003. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the design and operation of its
disclosure controls and procedures have been effective. There have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of such
evaluation.
24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K
10.1 Air Products and Chemicals, Inc. Retirement Savings
and Stock Ownership Plan as amended and restated
effective 1 October 1997 to reflect law and other
changes effective through 30 September 2002.
10.2 FY 2004 Awards Agreement under the Long Term
Incentive Plan of the Company.
10.3 Compensation Program for Directors of the Company,
effective 1 October 2003.
12. Computation of Ratios of Earnings to Fixed Charges.
31.1 Certification by the Principal Executive Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Principal Financial Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32. Certification by the Principal Executive Officer and
Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
During the quarter ended 31 December 2003, the registrant
reported its fiscal year 2003 fourth quarter earnings by
filing a Current Report on Form 8-K dated 28 October 2003, in
which Item 12 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: 12 February 2004 By: /s/ John R. Owings
------------------------------------------
John R. Owings
Vice President and Chief Financial Officer
26
EXHIBIT INDEX
10.1 Air Products and Chemicals, Inc. Retirement Savings and Stock Ownership
Plan as amended and restated effective 1 October 1997 to reflect law
and other changes effective through 30 September 2002.
10.2 FY 2004 Awards Agreement under the Long Term Incentive Plan of the
Company.
10.3 Compensation Program for Directors of the Company, effective 1 October
2003.
12. Computation of Ratios of Earnings to Fixed Charges.
31.1 Certification by the Principal Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Principal Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32. Certification by the Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
27