Attached files
| file | filename |
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| 8-K - FORM 8-K - AIR PRODUCTS & CHEMICALS INC /DE/ | form8-kxasu2017x07pensionc.htm |
Exhibit 99.1
IMPACTS OF ADOPTION OF ASU 2017-07
Air Products and Chemicals, Inc. (the “Company”) is filing this exhibit ("the Exhibit") to update certain financial information to reflect the adoption of Accounting Standards Update (ASU) No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The Company elected to early adopt this guidance in the first quarter of fiscal year 2018 and has applied the income statement presentation requirements retrospectively to all periods presented. The Company applied the practical expedient to use the amounts disclosed in its retirement benefits note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.
Under the amended guidance, the service cost component of the net periodic benefit cost continues to be presented in the same line items as other compensation costs arising from services rendered by employees during the period. The other components of net periodic benefit cost (e.g., interest cost, expected return on plan assets, and amortization of actuarial gains or losses) have been removed from operating income and are now presented in the consolidated income statements in "Other non-operating income (expense), net."
This Exhibit includes the presentation of financial measures on a non-GAAP (“adjusted”) basis as well as a reconciliation to the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP.
The presentation of non-GAAP measures is intended to provide useful information to evaluate the performance of the business because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. In evaluating these financial measures, the reader should be aware that we may incur expenses similar to those eliminated in this presentation in the future. Investors should also consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.
We define adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, other non-operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by sales.
1
UNAUDITED SUMMARY OF FINANCIAL INFORMATION
(Millions of dollars unless otherwise indicated)
Consolidated
Adjusted for Adoption of ASU 2017-07
FY 2017 | FY2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
GAAP Basis | ||||||||||||||||||||||||
Operating income | $328.3 | $395.6 | $258.7 | $457.4 | $1,440.0 | $1,535.1 | ||||||||||||||||||
Operating margin | 17.4 | % | 20.0 | % | 12.2 | % | 20.8 | % | 17.6 | % | 20.5 | % | ||||||||||||
Other non-operating income (expense), net | ($.2 | ) | $5.3 | $3.7 | $7.8 | $16.6 | ($5.4 | ) | ||||||||||||||||
Non-GAAP Basis | ||||||||||||||||||||||||
Adjusted operating income | $410.8 | $405.9 | $463.5 | $493.6 | $1,773.8 | $1,620.2 | ||||||||||||||||||
Adjusted operating margin | 21.8 | % | 20.5 | % | 21.8 | % | 22.4 | % | 21.7 | % | 21.6 | % | ||||||||||||
Adjusted EBITDA | $654.9 | $651.9 | $723.0 | $769.4 | $2,799.2 | $2,621.8 | ||||||||||||||||||
Adjusted EBITDA margin | 34.8 | % | 32.9 | % | 34.1 | % | 34.9 | % | 34.2 | % | 34.9 | % | ||||||||||||
Adjusted other non-operating income (expense), net | ($2.5 | ) | $9.4 | $9.2 | $8.7 | $24.8 | ($.3 | ) | ||||||||||||||||
As Reported Before Adoption of ASU 2017-07
FY 2017 | FY2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
GAAP Basis | ||||||||||||||||||||||||
Operating income | $328.1 | $391.2 | $252.6 | $455.7 | $1,427.6 | $1,529.7 | ||||||||||||||||||
Operating margin | 17.4 | % | 19.8 | % | 11.9 | % | 20.7 | % | 17.4 | % | 20.4 | % | ||||||||||||
Other non-operating income (expense), net | $— | $9.7 | $9.8 | $9.5 | $29.0 | $— | ||||||||||||||||||
Non-GAAP Basis | ||||||||||||||||||||||||
Adjusted operating income | $408.3 | $405.6 | $462.9 | $492.8 | $1,769.6 | $1,619.9 | ||||||||||||||||||
Adjusted operating margin | 21.7 | % | 20.5 | % | 21.8 | % | 22.4 | % | 21.6 | % | 21.6 | % | ||||||||||||
Adjusted EBITDA | $652.4 | $651.6 | $722.4 | $768.6 | $2,795.0 | $2,621.5 | ||||||||||||||||||
Adjusted EBITDA margin | 34.7 | % | 32.9 | % | 34.0 | % | 34.9 | % | 34.1 | % | 34.9 | % | ||||||||||||
Adjusted other non-operating income (expense), net | $— | $9.7 | $9.8 | $9.5 | $29.0 | $— | ||||||||||||||||||
Changes Attributable to Adoption of ASU 2017-07 (Adjusted v. As Reported)
FY 2017 | FY2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
GAAP Basis | ||||||||||||||||||||||||
Operating income | $.2 | $4.4 | $6.1 | $1.7 | $12.4 | $5.4 | ||||||||||||||||||
Operating margin | — | 20 | bp | 30 | bp | 10 | bp | 20 | bp | 10 | bp | |||||||||||||
Other non-operating income (expense), net | ($.2 | ) | ($4.4 | ) | ($6.1 | ) | ($1.7 | ) | ($12.4 | ) | ($5.4 | ) | ||||||||||||
Non-GAAP Basis | ||||||||||||||||||||||||
Adjusted operating income | $2.5 | $.3 | $.6 | $.8 | $4.2 | $.3 | ||||||||||||||||||
Adjusted operating margin | 10 | bp | — | — | — | 10 | bp | — | ||||||||||||||||
Adjusted EBITDA | $2.5 | $.3 | $.6 | $.8 | $4.2 | $.3 | ||||||||||||||||||
Adjusted EBITDA margin | 10 | bp | — | 10 | bp | — | 10 | bp | — | |||||||||||||||
Adjusted other non-operating income (expense), net | ($2.5 | ) | ($.3 | ) | ($.6 | ) | ($.8 | ) | ($4.2 | ) | ($.3 | ) | ||||||||||||
2
Segments
Adjusted for Adoption of ASU 2017-07
FY 2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Operating Income | ||||||||||||||||||||||||
Industrial Gases – Americas | $223.3 | $223.2 | $234.9 | $264.7 | $946.1 | $891.3 | ||||||||||||||||||
Industrial Gases – EMEA | 90.0 | 88.6 | 96.2 | 120.7 | 395.5 | 387.0 | ||||||||||||||||||
Industrial Gases – Asia | 118.4 | 112.3 | 149.5 | 152.4 | 532.6 | 452.8 | ||||||||||||||||||
Industrial Gases – Global | 8.2 | 22.7 | 27.8 | 12.4 | 71.1 | (21.5 | ) | |||||||||||||||||
Corporate and other | (29.1 | ) | (40.9 | ) | (44.9 | ) | (56.6 | ) | (171.5 | ) | (89.4 | ) | ||||||||||||
Segment Total | $410.8 | $405.9 | $463.5 | $493.6 | $1,773.8 | $1,620.2 | ||||||||||||||||||
Operating Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | 25.8 | % | 25.1 | % | 25.3 | % | 27.8 | % | 26.0 | % | 26.7 | % | ||||||||||||
Industrial Gases – EMEA | 22.5 | % | 21.4 | % | 21.3 | % | 23.4 | % | 22.2 | % | 22.7 | % | ||||||||||||
Industrial Gases – Asia | 27.0 | % | 25.8 | % | 27.8 | % | 27.6 | % | 27.1 | % | 26.3 | % | ||||||||||||
Segment Total | 21.8 | % | 20.5 | % | 21.8 | % | 22.4 | % | 21.7 | % | 21.6 | % | ||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||
Industrial Gases – Americas | $349.8 | $352.2 | $366.0 | $400.6 | $1,468.6 | $1,387.6 | ||||||||||||||||||
Industrial Gases – EMEA | 141.7 | 138.5 | 157.0 | 182.5 | 619.7 | 609.2 | ||||||||||||||||||
Industrial Gases – Asia | 178.6 | 174.5 | 211.6 | 224.6 | 789.3 | 708.5 | ||||||||||||||||||
Industrial Gases – Global | 10.5 | 24.4 | 30.4 | 15.6 | 80.9 | (13.6 | ) | |||||||||||||||||
Corporate and other | (25.7 | ) | (37.7 | ) | (42.0 | ) | (53.9 | ) | (159.3 | ) | (69.9 | ) | ||||||||||||
Segment Total | $654.9 | $651.9 | $723.0 | $769.4 | $2,799.2 | $2,621.8 | ||||||||||||||||||
Adjusted EBITDA Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | 40.5 | % | 39.6 | % | 39.4 | % | 42.0 | % | 40.4 | % | 41.5 | % | ||||||||||||
Industrial Gases – EMEA | 35.5 | % | 33.4 | % | 34.8 | % | 35.5 | % | 34.8 | % | 35.7 | % | ||||||||||||
Industrial Gases – Asia | 40.7 | % | 40.0 | % | 39.3 | % | 40.7 | % | 40.2 | % | 41.2 | % | ||||||||||||
Segment Total | 34.8 | % | 32.9 | % | 34.1 | % | 34.9 | % | 34.2 | % | 34.9 | % | ||||||||||||
Below is a reconciliation of segment total operating income to consolidated operating income:
FY2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Segment total | $410.8 | $405.9 | $463.5 | $493.6 | $1,773.8 | $1,620.2 | ||||||||||||||||||
Business separation costs | (32.5 | ) | — | — | — | (32.5 | ) | (50.6 | ) | |||||||||||||||
Business restructuring and cost reduction actions | (50.0 | ) | (10.3 | ) | (42.7 | ) | (48.4 | ) | (151.4 | ) | (34.5 | ) | ||||||||||||
Goodwill and intangible asset impairment charge | — | — | (162.1 | ) | — | (162.1 | ) | — | ||||||||||||||||
Gain on land sales | — | — | — | 12.2 | 12.2 | — | ||||||||||||||||||
Consolidated Total | $328.3 | $395.6 | $258.7 | $457.4 | $1,440.0 | $1,535.1 | ||||||||||||||||||
3
As Reported Before Adoption of ASU 2017-07
FY 2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Operating Income | ||||||||||||||||||||||||
Industrial Gases – Americas | $223.8 | $224.5 | $236.2 | $266.1 | $950.6 | $893.2 | ||||||||||||||||||
Industrial Gases – EMEA | 88.0 | 86.5 | 94.1 | 118.5 | 387.1 | 384.6 | ||||||||||||||||||
Industrial Gases – Asia | 118.1 | 112.0 | 149.1 | 152.0 | 531.2 | 451.0 | ||||||||||||||||||
Industrial Gases – Global | 8.2 | 22.8 | 27.9 | 12.4 | 71.3 | (21.3 | ) | |||||||||||||||||
Corporate and other | (29.8 | ) | (40.2 | ) | (44.4 | ) | (56.2 | ) | (170.6 | ) | (87.6 | ) | ||||||||||||
Segment Total | $408.3 | $405.6 | $462.9 | $492.8 | $1,769.6 | $1,619.9 | ||||||||||||||||||
Operating Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | 25.9 | % | 25.2 | % | 25.4 | % | 27.9 | % | 26.1 | % | 26.7 | % | ||||||||||||
Industrial Gases – EMEA | 22.0 | % | 20.9 | % | 20.8 | % | 23.0 | % | 21.7 | % | 22.6 | % | ||||||||||||
Industrial Gases – Asia | 26.9 | % | 25.7 | % | 27.7 | % | 27.5 | % | 27.0 | % | 26.2 | % | ||||||||||||
Segment Total | 21.7 | % | 20.5 | % | 21.8 | % | 22.4 | % | 21.6 | % | 21.6 | % | ||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||
Industrial Gases – Americas | $350.3 | $353.5 | $367.3 | $402.0 | $1,473.1 | $1,389.5 | ||||||||||||||||||
Industrial Gases – EMEA | 139.7 | 136.4 | 154.9 | 180.3 | 611.3 | 606.8 | ||||||||||||||||||
Industrial Gases – Asia | 178.3 | 174.2 | 211.2 | 224.2 | 787.9 | 706.7 | ||||||||||||||||||
Industrial Gases – Global | 10.5 | 24.5 | 30.5 | 15.6 | 81.1 | (13.4 | ) | |||||||||||||||||
Corporate and other | (26.4 | ) | (37.0 | ) | (41.5 | ) | (53.5 | ) | (158.4 | ) | (68.1 | ) | ||||||||||||
Segment Total | $652.4 | $651.6 | $722.4 | $768.6 | $2,795.0 | $2,621.5 | ||||||||||||||||||
Adjusted EBITDA Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | 40.5 | % | 39.7 | % | 39.5 | % | 42.2 | % | 40.5 | % | 41.6 | % | ||||||||||||
Industrial Gases – EMEA | 35.0 | % | 32.9 | % | 34.3 | % | 35.0 | % | 34.3 | % | 35.6 | % | ||||||||||||
Industrial Gases – Asia | 40.7 | % | 40.0 | % | 39.2 | % | 40.6 | % | 40.1 | % | 41.1 | % | ||||||||||||
Segment Total | 34.7 | % | 32.9 | % | 34.0 | % | 34.9 | % | 34.1 | % | 34.9 | % | ||||||||||||
4
Changes Attributable to Adoption of ASU 2017-07 (Adjusted vs. As Reported)
FY 2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Operating Income | ||||||||||||||||||||||||
Industrial Gases – Americas | ($.5 | ) | ($1.3 | ) | ($1.3 | ) | ($1.4 | ) | ($4.5 | ) | ($1.9 | ) | ||||||||||||
Industrial Gases – EMEA | 2.0 | 2.1 | 2.1 | 2.2 | 8.4 | 2.4 | ||||||||||||||||||
Industrial Gases – Asia | .3 | .3 | .4 | .4 | 1.4 | 1.8 | ||||||||||||||||||
Industrial Gases – Global | — | (.1 | ) | (.1 | ) | — | (.2 | ) | (.2 | ) | ||||||||||||||
Corporate and other | .7 | (.7 | ) | (.5 | ) | (.4 | ) | (.9 | ) | (1.8 | ) | |||||||||||||
Segment Total | $2.5 | $.3 | $.6 | $.8 | $4.2 | $.3 | ||||||||||||||||||
Operating Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | (10 | ) bp | (10 | ) bp | (10 | ) bp | (10 | ) bp | (10 | ) bp | — | |||||||||||||
Industrial Gases – EMEA | 50 | bp | 50 | bp | 50 | bp | 40 | bp | 50 | bp | 10 | bp | ||||||||||||
Industrial Gases – Asia | 10 | bp | 10 | bp | 10 | bp | 10 | bp | 10 | bp | 10 | bp | ||||||||||||
Segment Total | 10 | bp | — | — | — | 10 | bp | — | ||||||||||||||||
Adjusted EBITDA | ||||||||||||||||||||||||
Industrial Gases – Americas | ($.5 | ) | ($1.3 | ) | ($1.3 | ) | ($1.4 | ) | ($4.5 | ) | ($1.9 | ) | ||||||||||||
Industrial Gases – EMEA | 2.0 | 2.1 | 2.1 | 2.2 | 8.4 | 2.4 | ||||||||||||||||||
Industrial Gases – Asia | .3 | .3 | .4 | .4 | 1.4 | 1.8 | ||||||||||||||||||
Industrial Gases – Global | — | (.1 | ) | (.1 | ) | — | (.2 | ) | (.2 | ) | ||||||||||||||
Corporate and other | .7 | (.7 | ) | (.5 | ) | (.4 | ) | (.9 | ) | (1.8 | ) | |||||||||||||
Segment Total | $2.5 | $.3 | $.6 | $.8 | $4.2 | $.3 | ||||||||||||||||||
Adjusted EBITDA Margin | ||||||||||||||||||||||||
Industrial Gases – Americas | — | (10 | ) bp | (10 | ) bp | (20 | ) bp | (10 | ) bp | (10 | ) bp | |||||||||||||
Industrial Gases – EMEA | 50 | bp | 50 | bp | 50 | bp | 50 | bp | 50 | bp | 10 | bp | ||||||||||||
Industrial Gases – Asia | — | — | 10 | bp | 10 | bp | 10 | bp | 10 | bp | ||||||||||||||
Segment Total | 10 | bp | — | 10 | bp | — | 10 | bp | — | |||||||||||||||
5
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Operating Income and Operating Margin
FY2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Operating income – GAAP | $328.3 | $395.6 | $258.7 | $457.4 | $1,440.0 | $1,535.1 | ||||||||||||||||||
Business separation costs | 32.5 | — | — | — | 32.5 | 50.6 | ||||||||||||||||||
Business restructuring and cost reduction actions | 50.0 | 10.3 | 42.7 | 48.4 | 151.4 | 34.5 | ||||||||||||||||||
Goodwill and intangible asset impairment charge | — | — | 162.1 | — | 162.1 | — | ||||||||||||||||||
Gain on previously held equity interest | — | — | — | — | — | — | ||||||||||||||||||
Gain on land sales | — | — | — | (12.2 | ) | (12.2 | ) | — | ||||||||||||||||
Operating income – Non-GAAP Measure | $410.8 | $405.9 | $463.5 | $493.6 | $1,773.8 | $1,620.2 | ||||||||||||||||||
FY2017 | FY 2017 | FY 2016 | ||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||
Operating margin – GAAP | 17.4 | % | 20.0 | % | 12.2 | % | 20.8 | % | 17.6 | % | 20.5 | % | ||||||
Business separation costs | 1.7 | % | — | % | — | % | — | % | .4 | % | .7 | % | ||||||
Business restructuring and cost reduction actions | 2.7 | % | .5 | % | 2.0 | % | 2.2 | % | 1.8 | % | .4 | % | ||||||
Goodwill and intangible asset impairment charge | — | % | — | % | 7.6 | % | — | % | 2.0 | % | — | % | ||||||
Gain on previously held equity interest | — | % | — | % | — | % | — | % | — | % | — | % | ||||||
Gain on land sales | — | % | — | % | — | % | (.6 | )% | (.1 | )% | — | % | ||||||
Operating margin – Non-GAAP Measure | 21.8 | % | 20.5 | % | 21.8 | % | 22.4 | % | 21.7 | % | 21.6 | % | ||||||
Other Non-Operating Income (Expense), Net
The following table reconciles "Other non-operating income (expense), net" for the impact of pension related non-GAAP adjustments that were presented in operating income prior to the adoption of the guidance:
FY2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Other non-operating income (expense), net – GAAP | ($.2 | ) | $5.3 | $3.7 | $7.8 | $16.6 | ($5.4 | ) | ||||||||||||||||
Business separation costs | (2.3 | ) | — | — | — | (2.3 | ) | — | ||||||||||||||||
Pension settlement loss | — | 4.1 | 5.5 | .9 | 10.5 | 5.1 | ||||||||||||||||||
Other non-operating income (expense), net – Non-GAAP Measure | ($2.5 | ) | $9.4 | $9.2 | $8.7 | $24.8 | ($.3 | ) | ||||||||||||||||
6
Adjusted EBITDA
FY2017 | FY 2017 | FY 2016 | ||||||||||||||||||||||
Q1 | Q2 | Q3 | Q4 | Total | Total | |||||||||||||||||||
Income from Continuing Operations(A) | $258.2 | $310.1 | $106.4 | $480.5 | $1,155.2 | $1,122.0 | ||||||||||||||||||
Add: Interest expense | 29.5 | 30.5 | 29.8 | 30.8 | 120.6 | 115.2 | ||||||||||||||||||
Less: Other non-operating income (expense), net | (.2 | ) | 5.3 | 3.7 | 7.8 | 16.6 | (5.4 | ) | ||||||||||||||||
Add: Income tax provision | 78.4 | 94.5 | 89.3 | (1.3 | ) | 260.9 | 432.6 | |||||||||||||||||
Add: Depreciation and amortization | 206.1 | 211.8 | 216.9 | 231.0 | 865.8 | 854.6 | ||||||||||||||||||
Add: Business separation costs | 32.5 | — | — | — | 32.5 | 50.6 | ||||||||||||||||||
Add: Business restructuring and cost reduction actions | 50.0 | 10.3 | 42.7 | 48.4 | 151.4 | 34.5 | ||||||||||||||||||
Add: Goodwill and intangible asset impairment charge | — | — | 162.1 | — | 162.1 | — | ||||||||||||||||||
Less: Gain on previously held equity interest | — | — | — | — | — | — | ||||||||||||||||||
Less: Gain on land sales | — | — | — | 12.2 | 12.2 | — | ||||||||||||||||||
Add: Equity method investment impairment charge | — | — | 79.5 | — | 79.5 | — | ||||||||||||||||||
Add: Loss on extinguishment of debt | — | — | — | — | — | 6.9 | ||||||||||||||||||
Adjusted EBITDA | $654.9 | $651.9 | $723.0 | $769.4 | $2,799.2 | $2,621.8 | ||||||||||||||||||
(A) Includes net income attributable to noncontrolling interests.
7