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News ReleaseAir Products Reports Record Fourth Quarter Sales Up 18%, EPS Up 22% Excluding Previously Announced Charges

October 25, 2006 Lehigh Valley, Pa.

Air Products (NYSE:APD) today reported net income of $128 million or diluted earnings per share (EPS) of $0.57 for its fiscal fourth quarter ended September 30, 2006. This includes $0.13 of discontinued operations related to the sale of the company's amines business and $0.21 for corporate reorganization and streamlining initiatives, as previously announced. Also included is a $0.03 per share charge for the cumulative effect of an accounting change for asset retirement obligations. On a continuing operations basis excluding the impact of these items, net income was $210 million and EPS was $0.94, up 19 and 22 percent, respectively, compared with prior year results.*

The discussion of fourth quarter and full year results in this release is based on non-GAAP comparisons. It excludes the impacts of the above items and includes the proforma impact of stock option expensing on fiscal 2005 results. A reconciliation can be found at the end of this release.*

Fourth quarter revenues of $2,359 million were up 18 percent from the prior year on strong volume performance in the company's Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy segments. Record operating income of $305 million was up 25 percent versus prior year.

For fiscal 2006, sales of $8,850 million were up 14 percent and net income of $795 million was up 17 percent over the prior year due to higher volumes broadly across the Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy segments. Diluted EPS of $3.50 was up 19 percent.

John Jones, chairman and chief executive officer, said, "We had a strong fourth quarter and closed out another excellent year in 2006. For the third consecutive year, we achieved double-digit sales and earnings growth and a meaningful improvement in return on capital, which this year was up 130 basis points. In addition to our solid operating performance, we overcame the challenges presented by last year's hurricanes, sold our amines business, reorganized for growth and improved returns, and completed the first $500 million of our $1.5 billion share repurchase program."

Individual Business Segment Performance
As announced on October 2, 2006, Air Products now manages its operations, assesses performance and reports results by six global business segments. For the fiscal 2006 fourth quarter:

  • Merchant Gases sales of $722 million were up 17 percent and operating income of $128 million increased 41 percent over the prior year on broad-based volume growth, improved pricing and hurricane insurance recoveries.
  • Tonnage Gases sales of $614 million were up 34 percent and operating income of $104 million increased 71 percent over the prior year, driven by volume growth from new refinery hydrogen investments, improved plant loading and hurricane insurance recoveries.
  • Electronics and Performance Materials sales of $522 million were up 20 percent and operating income of $61 million was up 57 percent over the prior year, on strong volumes, partially offset by lower pricing, and the added benefit of the Tomah acquisition.
  • Equipment and Energy sales of $130 million were up 30 percent and operating income of $20 million increased 21 percent over the prior year, as liquefied natural gas heat exchanger and large air separation plant orders continued to drive growth.
  • Healthcare sales of $150 million were up 11 percent over the prior year, driven by recent contract wins in Europe. However, there was an operating loss of $17 million in the quarter, mainly due to a charge for a U.S. inventory adjustment, as well as higher costs.
  • Chemicals sales of $222 million were down 11 percent and operating income of $15 million declined 55 percent, primarily due to customer shutdowns and a divestiture in the polyurethane intermediates business. The current Chemicals segment consists of the company's polymer emulsions business, which is currently being marketed to potential buyers, and the polyurethane intermediates business, which is being restructured.

Outlook
Looking forward, Jones said, "We enter fiscal 2007 well positioned to drive continued strong top-line and earnings growth and focused on achieving our 12.5 percent return on capital goal. We expect to see strong volume growth from the full-year impact of the new hydrogen plants we brought on-stream in fiscal 2006, continued growth from new merchant and tonnage plants in Asia, and continuing strength in our Electronics and Performance Materials end markets. While we have challenges in Healthcare, we are confident that we are taking the right actions to meaningfully improve the business this year.

"Building off of the momentum we achieved in 2006, our people are generating real productivity across our businesses, using continuous improvement tools and SAP. All of the actions we are taking will make us a more focused, less cyclical, higher growth and higher return company."

The company currently anticipates fiscal year 2007 EPS in the range of $3.84 to $4.00 per share. On a continuing operations basis, this represents year-over-year earnings growth of 10 to 14 percent. For the first quarter of fiscal 2007 ending December 31, 2006, EPS is expected to be between $0.90 and $0.95.

Air Products (NYSE:APD) serves customers in industrial, energy, technology and healthcare markets worldwide with a unique portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services. Founded in 1940, Air Products has built leading positions in key growth markets such as semiconductor materials, refinery hydrogen, home healthcare services, natural gas liquefaction, and advanced coatings and adhesives. The company is recognized for its innovative culture, operational excellence and commitment to safety and the environment and is listed in the Dow Jones Sustainability and FTSE4Good Indices. The company has annual revenues of $9 billion, operations in over 30 countries, and over 20,000 employees around the globe. 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. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date of this release regarding important risk factors. Actual performance and financial results may differ materially from those expressed in the forward-looking statements because of many factors, including those specifically referenced as future events or outcomes that the company anticipates as well as, among other things, overall economic and business conditions different than those currently anticipated and demand for Air Products' goods and services during that time; 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; uninsured litigation judgments or settlements; changes in government regulations; consequences of acts of war or terrorism impacting the United States' and other markets; charges related to currently undetermined portfolio management and cost reduction actions; the success of implementing cost reduction programs; the timing, impact, ability to complete and other uncertainties of future acquisitions or divestitures or unanticipated contract terminations; 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 Air Products and its affiliates operate; the recovery of insurance proceeds; the impact of new financial accounting standards; and the timing and rate at which tax credits can be utilized. The company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this release 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.

*Reconciliation:
The presentation of these non-GAAP measures is intended to enhance the usefulness of financial information by providing measures which the company's management uses internally to evaluate the company's baseline performance.

Results for 2006 include a charge for a global cost reduction plan, a loss from discontinued operations associated with the Amines business which was sold in September 2006, and the cumulative effect of an accounting charge for asset retirement obligations. Refer to the Notes to the consolidated financial statements for additional information. Presented below is a reconciliation to non-GAAP measures found in this release.

(Millions of dollars)
  Q4
Operating
Income
Q4
Net
Income
Q4
Diluted
EPS
YTD
Operating
Income
YTD
Net
Income
YTD
Diluted
EPS
FY06 GAAP $232.9 $128.4 $.57 $1,060.9 $723.4 $3.18
FY05 GAAP $258.0 $179.0 $.79 $995.5 $711.7 $3.08
% Change GAAP (10%) (28%) (28%) 7% 2% 3%
FY06 Global Cost Reduction Plan $72.1 $46.8 $.21 $72.1 $46.8 $.21
FY06 Loss From Discontinued Operations -- 28.9 $.13 -- $18.7 $.08
Cumulative Effect of Accounting Change -- 6.2 $.03 -- $6.2 $.03
FY06 Non-GAAP Measure $305.0 $210.3 $.94 $1,133.0 $795.1 $3.50
FY05 Loss (Income) From Discontinued Operations -- $5.6 $.02 -- ($4.2) $(.02)
FY05 Pro forma Stock Option Expense ($14.9) ($8.6) ($.04) ($47.9) ($29.2) ($.13)
FY05 Non-GAAP Measure $243.1 $176.0 $.77 $947.6 $678.3 $2.93
% Change Non-GAAP 25% 19% 22% 20% 17% 19%
FY07 Forecast           $3.84-4.00
FY06 GAAP           $3.18
% Change GAAP           21%-26%
FY07 Forecast           $3.84-4.00
FY06 Non-GAAP Measure           $3.50
% Change Non-GAAP           10%-14%

Effective 1 October 2005, the company adopted SFAS No. 123R, which requires companies to expense the grant-date fair value of employee stock options. Prior year results have not been restated. Presented below is operating income of the business segments for 2005 adjusted to include the pro forma impact of expensing employee stock options based on previous footnote disclosures required by SFAS No. 123.

 

(Millions of dollars, except for share data)
  FY06
Q4
GAAP
FY05 Q4
GAAP
% Change FY05 Q4
Pro forma
Stock
Option
Expense
FY05 Q4
Non-GAAP
Measure
% Change
Non-GAAP
Measure
Operating Income
Merchant Gases $128.3 $95.9 34% $5.0 $90.9 41%
Tonnage Gases 104.0 62.7 66% 2.0 60.7 71%
Electronics and Performance Materials 61.1 43.3 41% 4.4 38.9 57%
Equipment and Energy 19.6 17.3 13% 1.1 16.2 21%
Healthcare (16.5) 16.8   .5 16.3  
Chemicals 14.8 34.6 (57%) 1.5 33.1 (55%)
Segment Totals 311.3 270.6 15% 14.5 256.1 22%
Other (6.3) (12.6)   .4 (13.0)  
Global Cost Reduction Plan (72.1) --   -- --  
Consolidated Totals $232.9 $258.0   $14.9 $243.1  

ORONA is calculated as Operating Income divided by five-quarter average of Identifiable Assets (i.e., total assets less investments in equity affiliates). Presented below is a reconciliation of GAAP to Non-GAAP ORONA calculations.

FY06 ORONA
Quarter Ended
Sept 2005 Dec 2005 March 2006 June 2006 Sept 2006
Identifiable Assets from Continuing Operations $9,510.9 $9,714.3 $10,083.3 $10,344.6 $10,440.1
5 QTR Average Identifiable Assets         $10,018.6
Operating Income GAAP         $1,060.9
FY06 ORONA GAAP         10.6%
Operating Income GAAP         $1,060.9
FY06 Global Cost Reduction Plan         72.1
Operating Income Non-GAAP         $1,133.0
FY06 ORONA Non-GAAP         11.3%
FY05 ORONA
Quarter Ended
Sept 2004 Dec 2004 March 2005 June 2005 Sept 2005
Identifiable Assets from Continuing Operations $9,134.1 $9,724.3 $9,783.4 $9,403.4 $9,510.9
5 QTR Average Identifiable Assets         $9,511.2
Operating Income GAAP         $995.5
FY05 ORONA GAAP         10.5%
Operating Income GAAP         $995.5
FY05 Pro forma Stock Option Expense         (47.9)
Operating Income Non-GAAP         $947.6
FY05 ORONA Non-GAAP         10.0%
Comparison
FY06 vs FY05 Basis Point Change
GAAP         +10
Non-GAAP Measures         +130

View entire earnings release, including all financial tables. (202 KB)

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