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On April
22, 2010, Paul Huck, Senior Vice President and Chief Financial Officer of Air
Products and Chemicals, Inc. (“Air Products”) and Nelson Squires, Director of
Investor Relations of Air Products, gave a presentation in connection with Air
Products’ fiscal 2010 second quarter earnings release. A transcript
of the presentation is included herein as Appendix A. A copy of the
slides used in the presentation is also included herein as Appendix
B.
APPENDIX A
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FINAL
TRANSCRIPT
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APD -
Q2 2010 Air Products and Chemicals Inc Earnings Conference
Call
Event
Date/Time: Apr. 22. 2010 / 2:00PM GMT
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F
I N A L T R A N S C R I P T
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Apr.
22. 2010 / 2:00PM, APD - Q2 2010 Air Products and Chemicals Inc Earnings
Conference Call
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C
O R P O R A T E P A R T I C I P A N T S
Nelson
Squires
Air
Products and Chemicals, Inc. - Director of IR
Paul
Huck
Air
Products and Chemicals, Inc. - SVP and CFO
C
O N F E R E N C E C A L L P A R T I C I P A N T S
Kevin
McCarthy
BofA
Merrill Lynch - Analyst
Mike
Sison
KeyBanc
Capital Markets - Analyst
Jeff
Zekauskas
JPMorgan
- Analyst
Sergey
Vasnetsov
Barclays
Capital - Analyst
Don
Carson
UBS
- Analyst
David
Begleiter
Deutsche
Bank - Analyst
P.J.
Juvekar
Citigroup
- Analyst
Mike
Harrison
First
Analysis Securities - Analyst
Bob
Koort
Goldman
Sachs - Analyst
Laurence
Alexander
Jefferies
& Company - Analyst
Paul
Mann
Morgan
Stanley - Analyst
David
Manthey
Robert
W. Baird & Company, Inc. - Analyst
Edward
Yang
Oppenheimer
& Co. - Analyst
John
Roberts
Buckingham
Research - Analyst
Peter
Butler
Glen
Hill Investment Research - Analyst
P
R E S E N T A T I O N
Operator
Good
morning, and welcome to Air Products and Chemicals' second quarter earnings
release conference call. Just a reminder that you will be in a listen-only mode
until the question-and-answer segment of today's call. In order to accommodate
everyone, we ask that each person limit themselves to two questions plus one
follow-up question. Also, this telephone conference presentation and the
comments made on behalf of Air Products are subject to copyright by Air Products
and all rights are reserved.
1
Air
Products will be recording this teleconference and may publish all or a portion
of the teleconference. No other recording or redistribution of this telephone
conference by any other party are permitted without the express written
permission of Air Products. Your participation indicates your
agreement.
Beginning
today's call is Mr. Nelson Squires, Director of Investor Relations. Mr. Squires,
you may begin.
Nelson Squires - Air Products and Chemicals, Inc. -
Director of IR
Thank
you, Terika. Good morning and welcome to Air Products' second quarter earnings
teleconference. This is Nelson Squires.
Today,
our CFO, Paul Huck and I will review our fiscal Q2 results and provide some
thoughts about the next -- about the rest of the year. We issued our earnings
release this morning and it is available on our website, along with the slides
for this teleconference. Please go to airproducts.com and click on the scrolling
red banner to access the materials. Instructions for accessing the replay of
this call beginning at 2 p.m. Eastern time are also available on the
website.
Please
turn to slides two and three. As always, Tuesday's teleconference will contain
forward-looking statements based on current expectations regarding important
risk factors. Please review the Safe Harbor language on these slides and at the
end of today's earnings release.
Now I'll
turn the call over to Paul.
Thanks,
Nelson. With half of our fiscal year 2010 behind us, we are well on our way to
delivering on our financial targets. Please turn to slide number
four.
This
slide highlights some of the key financial metrics and the progress that we have
made coming out of the recession. Just a bit of history.
If you
take a look at the left side of this slide, you'll see the improvements that we
have made as an organization over the five-year period before the recession. We
have moved our margin up a couple hundred basis points and we improved our
return on capital by just short of 400 basis points.
The other
thing you can see on the right side of this slide is the impact of the global
recession on the first half of our fiscal 2009. During that time, we took a
number of significant actions to position us appropriately coming out of the
recession. Our results show the progress we have made since then, and the impact
of those actions on our first half results and the sequential improvement that
we're continuing to make as an organization.
Sales
continue to improve as our underlying sales growth, which turned positive last
quarter, continue to recover. Year-to-date, underlying sales growth is up 6%.
Our operating margin in the first half has improved to 16% and we remain on
track to deliver on our 70% goal in fiscal 2011.
Earnings
growth remains strong and, as you've already seen in our press release this
morning, we raised our full year earnings per share guidance again this quarter.
We now expect earning per share growth to exceed 20% this fiscal year. And most
importantly, we continue to drive return on capital employed higher, striving to
keep our return on capital three to five points above our costs of capital
across the cycle. This lower cost structure makes us even more competitive and
well-positioned to grow faster with higher returns.
2
Please
turn to slide number five for a quick look at the current quarter.
Sales
increased 15% versus prior-year. Underlying sales increased 9% year-on-year due
to higher volumes in our Electronics and Performance Materials segment, and our
Tonnage segment. Volume performance in our Merchant segment continued to be
mixed, with strength in Asia being offset by slower recovery in both the US and
Europe.
Higher
natural gas prices, which raised our contractual pass-through of energy-related
costs, increased sales by 2%. Additionally, favorable currency translation from
a weaker dollar increased sales by 4%. Sequentially, sales increased 3%, with
underlying sales up 3% on volume growth across all business segments versus the
prior quarter.
Operating
income of $364 million increased 40% from prior-year, primarily due to higher
volumes and better cost performance. As a result, our operating margin of 16.2%
improved by 290 basis points versus last year. This improvement in margin can be
sustained and should contribute to improve as -- should continue to improve as
volumes recover.
Looking
forward, we still have significant operating leverage available. For the
quarter, net income increased 41% and diluted earnings per share increased by
38% versus -- each versus prior-year. Return on capital employed improved 70
basis points sequentially to 11.6%; on an instantaneous or run rate basis, we've
improved return on capital employed to 12.1%.
Turning
to slide six for a review of the factors that affected the quarter's performance
in terms of earnings per share. Our adjusted continuing operations earnings per
share increased by $0.34. Higher volumes in Electronics and Performance
Materials, and Tonnage helped to increase earnings per share by $0.29
year-on-year.
Pricing,
energy and raw materials all together were unfavorable, subtracting $0.09. Costs
were $0.12 favorable, reflecting our significant cost improvement efforts. The
favorable impact to operating income from currency translation and foreign
exchange was $0.05. Equity affiliate income was up $0.02; non-controlling
interest was up, lowering EPS by $0.02; and higher shares outstanding subtracted
about $0.03.
In
summary, we generated solid financial results again this quarter. We are
delivering on the improvements we told you about from our new investments and
our cost reduction efforts.
Now I'll
turn the call over to Nelson to review our business segment results.
Nelson?
Thanks,
Paul. Please turn to slide seven, Merchant Gases.
Merchant
Gases posted sales of $922 million, up 6% versus prior-year. Underlying sales
were flat with volumes up 1% and pricing down 1%. Currency increased sales by
6%. Versus prior-quarter, underlying sales were up modestly due to strong
performance in Asia, and were negatively impacted by currency. Merchant Gases
operating income of $178 million was up 14% versus prior-year and down 6%
sequentially.
Segment
operating margin of 19.3% was up 140 basis points versus prior-year and down 100
basis points sequentially. Year-on-year income and margins benefited from higher
volumes and improved cost performance. Sequential operating income and margins
were impacted by poor weather conditions in Europe in January, as well as Lunar
New Year in Asia. Signings at the midyear point are on track to meet our
full-year targets in all regions.
3
Let me
now provide a few additional comments by region. Please turn to slide
eight.
In North
America, sales improved 2% versus prior-year. Volumes, led by stronger liquid
argon and liquid hydrogen sales, were up 5% versus prior-year. Pricing continued
to be impacted by lower surcharge activity and lower liquid hydrogen pricing as
a result of cost pass-through of lower natural gas costs. LOX/LIN Loading
remained in the mid-70s.
In
Europe, sales increased 6% versus prior-year. Underlying sales declined 2%, with
volumes down 2% and pricing flat. Currency increased sales by 8%. Sales were
impacted by the weak manufacturing environment in southern Europe, but were held
by increased healthcare volumes. LOX/LIN Loadings also remained in the
mid-70s.
In Asia,
merchant sales were up 24% versus last year. Our underlying sales increased 18%
with volumes up 22% and pricing down 4%. Currency increased sales by 6%. Volumes
continued to rebound significantly across the region, driven by steel,
electronics and bulk hydrogen customers. March was the best month in our history
in the region and our volumes this quarter surpassed our 2008 peak.
The price
decline is primarily tied to lower liquid argon pricing, as supply has rebounded
quicker than demand, as new piggyback sources have been brought onstream. Please
turn to slide nine, Tonnage Gases.
Sales of
$757 million increased 21% compared to last year. Volumes were up 11%. Energy
and raw material pass-through increased sales by 6% and currency increased sales
by 4%. The higher volumes reflect the continuing improvement in steel and
chemical end markets as well as new plant onstreams. Sequentially, sales were up
8% due to energy and raw material pass-through. Operating income of $107 million
was up 9% versus prior-year and 7% sequentially, primarily due to higher base
volumes and new plant startups.
Operating
margin of 14.2% decrease versus prior-year, due to higher energy and raw
material pass-through. Refinery hydrogen, excluding new onstreams, was flat
versus prior-year. We expect volumes to improve in the second half of the year
as the new facilities achieve higher operating rates and spot demand increases.
Bidding on new projects remains active and we expect additional awards for new
business this year. This segment will also see the benefit of several major
startups in quarters three and four. Paul will have more to say about this in
his outlook.
Please
turn to slide 10, Electronics and Performance Materials.
Segment
sales of $451 million were up 36% compared to last year. Volumes increased 38%.
Pricing reduced sales by 4% and currency was 2% higher. Each division saw
sequential volume gains. Electronic sales were up 28% compared to last year and
4% sequentially. Sales in the quarter were up significantly versus the low point
a year ago, and were better-than-expected sequentially.
Electronics
specialty materials sales increased 56% versus prior-year and 1% sequentially.
Tonnage sales were 10% higher versus prior-year. In addition, we are seeing the
expected pickup in orders for our equipment business as new fab Capex is growing
once again. Performance materials sales increased 45% versus last year and 4%
sequentially, reflecting stronger volumes. The volume recovery in this segment
was initially led by Asia, where we are now seeing improvement in both North
America and Europe.
Segment
operating income of $57 million was up essentially versus prior-year, which
resulted in the significant improvement in margins. Sequential margins improved
140 basis points, reflecting stronger volumes and solid cost
control.
Progress
on the electronics restructuring efforts continued during the quarter. We will
see a larger impact to margins in our third quarter as we incur costs to
complete these efforts. We now expect millions of square inches of silicon to
grow by approximately 30% in our fiscal year.
4
Please
turn to slide 11, Equipment and Energy.
Sales of
$119 million decreased 7% versus last year on lower air separation unit sales.
Operating income of $18 million increased versus prior-year, due to higher LNG
activity. Our backlog is rising due to the previously announced Gorgon LNG
order; and we will soon be formally announcing another major LNG order with
Exxon Mobil for their Papua, New Guinea project, which was received during the
quarter.
Now, I'll
turn the call back over to Paul.
Thanks,
Nelson. Now if you'll please turn to slide 12, I'd like to share our thoughts on
our outlook. Our guidance for quarter three is for earnings per share of $1.25
to $1.29 based on the following factors.
On the
positive side, we expect to see increased earnings sequentially from the
following areas. We expect the manufacturing economy globally to continue its
gradual recovery. This, along with some seasonal boost, should result in higher
sequential volumes in the Merchant Gases, and the Electronics and Performance
Materials segments. New plant onstreams and supply contracts, including the full
quarter impact of our new hydrogen plant in Corpus Christi, Texas, and our
increased supply at Exxon Mobil at Baytown, Texas, will contribute to next
quarter's tonnage results.
Partially
offsetting these sequential improvements will be, in electronics, we expect
demand to continue to remain strong. As we've discussed with you in the past, we
plan to finalize our restructuring efforts in quarter three, which will result
in higher costs next quarter. While margins will dip in quarter three, we expect
them to rebound in quarter four and be on track to meet our 2011 goal of
15%.
In
Equipment and Energy, we're forecasting higher energy development spending next
quarter and planned maintenance outages at a number of plants.
Looking
at fiscal 2010 with half of the fiscal year behind us, we are raising our
earnings per share guidance for the year. We were at $4.75 to $4.95, and are
increasing our guidance to $4.90 to $5.00, anticipating earnings per share
growth of 21% to 23% versus prior-year. Overall, our 2010 economic assumptions
haven't changed much. We expect that global manufacturing will still grow about
2% in our fiscal 2010.
Regionally,
Europe remains the weakest, and we still expect a 1% decline in our fiscal 2010.
North America should be up about 1% and Asia continues to be the strongest, and
we are now forecasting growth of about 10% in our fiscal 2010.
Demand in
the electronics market has been strong, so we're modestly increasing our
estimate for silicon growth to about 30%. Our capital spending guidance remains
unchanged, as well as most of our other assumptions. Despite the gradual nature
of the recovery, we remain optimistic about our prospects for the
future.
Turning
to other growth initiatives. As you all know, we announced our offer for Airgas
earlier this quarter. Let me give you a brief update on where that
stands.
We remain
convinced of the strong industrial logic and strong strategic rationale that
underpin this deal. We also believe that we are the best company to do this
deal, as our businesses are highly complementary. Air Products has no existing
US packaged gas business, which is 90% of Airgas.
5
We remain
confident in our ability to produce the substantial cost synergies we've
identified, primarily relating to reductions in corporate overhead and Company
costs; supply chain inefficiencies -- supply chain efficiencies; and better
utilization of infrastructure. Coupled with the enhanced growth opportunities we
see, this deal creates significant value for our shareholders.
Despite
the highly attractive nature of our all-cash, 38% premium offer and our repeated
attempts to engage the Airgas Board in discussions, they have refused to engage
with us. Therefore, we took the next step and commenced a tender offer, taking
our offer directly to the Airgas shareholders.
Our next
step will be the submission of our shareholder proposals for consideration at
Airgas's 2010 annual meeting. These will include our alternative slate of
Directors and other proposals designed to allow Airgas's shareholders to decide
for themselves about our offer.
We have
also been in discussions with the Federal Trade Commission. We are working
cooperatively with the FTC to answer their questions and to provide information.
Our regulatory approval strategy and shareholder actions are designed to ensure
that Airgas shareholders have the opportunity to send a clear and unambiguous
message to their Board at the 2010 annual meeting, which Airgas has disclosed in
recent SEC filings will be held no later than September 17.
We
believe that our offer represents excellent value to the Airgas shareholders,
well above the $43.53 price Airgas shares were trading at on the day before the
offer. I want to be clear that we will not overpay for Airgas. We are
disciplined and we will remain disciplined as we bring this deal to a
conclusion. We will not sacrifice the excellent growth prospects we have in our
existing businesses. We will continue to fully fund and resource these many
opportunities. Our cash-generating capabilities and reinvestment opportunities
remain very strong.
Acquiring
Airgas would not impact our growth, margin improvement, and earnings goals. It
provides upside. In short, Air Products shareholders understand that we have a
very bright future with or without Airgas. At the right price, this is one of
our many excellent growth opportunities.
Now let
me wrap up. We continue to make solid progress towards our goal of improving
operating margins and returns, and we remain focused on these goals. We believe
that our goal to become a low-cost supplier versus our competitors enables us to
deliver greater growth and higher returns, resulting in significant increases in
shareholder value. We are pursuing numerous growth opportunities around the
world.
As the
economy recovers, we have significant operating leverage in our businesses.
Regardless of the outcome of the Airgas offer, we are well-positioned to
continue to create shareholder value. The whole team in Air Products is excited
and energized by the many opportunities we have.
Thank
you, and now I'll turn the call over to Terika to take your
questions.
Q
U E S T I O N S A N D A N S W E R S
Operator
(Operator
Instructions). Kevin McCarthy, Bank of America Merrill Lynch.
6
Kevin McCarthy - BofA Merrill Lynch -
Analyst
You've
had a long-standing operating margin goal of 17%; with the 290 basis point
increase year-over-year, you're sneaking up on that now at 16.2%. When would you
imagine achieving the 17% level at this point, given the recovery scenario? And
with natural gas near $4, do you see any upside to that level as you look into
fiscal '11 and beyond?
Yes,
Kevin. Our goal is to have the operating margin for all of 2011 be at a 17%
level, if gas is a little lower, and it will help that margin a little bit for
us.
Okay. And
then a couple of follow-up questions on the merchant business, if I may. First,
on the volume side, I was wondering if you could comment on what you're seeing
in the month of April.
And then
on pricing, it sounds like liquid argon is down. Would you comment on how much
that's off and if we adjust for that and other elements? What is LOX/LIN pricing
doing on an underlying basis, please? Thanks very much.
Nelson?
Yes,
Kevin, this is Nelson. Volumes continue strong in the month of April, pretty
much across the board. So we're seeing -- March was a particularly strong month
for the business; it typically is one of the two strongest months in the fiscal
year, and so that played out as expected. So volumes continue the momentum into
April.
From a
cost standpoint, our costs were -- I mean, excuse me, from a pricing standpoint,
we're essentially flat quarter-on-quarter. We had -- the argon was really just
the impact of bringing some new capacity onstream that basically took pricing
down a little bit. But if I looked at LOX/LIN, in pretty much every region, it's
flat to slightly up.
We
continue to get some pricing in China where we're trying to recover against
energy increases. And so we're seeing the most impact, again, from the liquid
argon in Asia; from liquid hydrogen in North America, because natural gas prices
are lower, and that's a little bit of a lag effect on the price. But the
underlying pricing story is still holding together pretty well.
Okay,
thank you very much.
And
Kevin, just to add to the comment which Nelson had, we did have the $0.09 down
in pricing, which people saw, which is a quarter to prior-year impact,
sequentially, our pricing impact was about flat on earnings.
7
Kevin McCarthy - BofA Merrill Lynch -
Analyst
Understood.
Thank you.
Operator
Mike
Sison, KeyBanc.
Mike Sison - KeyBanc Capital Markets -
Analyst
Nice
quarter. In terms of the tonnage, I was curious, in terms of the growth in
volume there, plus 11 year-over-year, how much was that -- how much of that was
from new plants coming onstream? And I was trying to get a better gauge of how
base demand is in the tonnage business in total.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes. If
you look at it on base demand, and the base demand is about flat for us in the
Tonnage business, if you look at that overall. The bulk of the increase here is
going to come from the growth of the projects coming onstream,
Mike.
Mike Sison - KeyBanc Capital Markets -
Analyst
Okay,
great. And then what about bidding on new projects to fill the pipeline out to
'11, '12, and '13? Has business there picked up?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Sure. In
bid activity, it still is strong. Award activity, as we've talked about, has not
been as strong. However, we're starting to see some things come to conclusion
and we would expect to see award activity pick up in the second half of the
year.
Mike Sison - KeyBanc Capital Markets - Analyst
Great.
And last question -- to what degree you can offer some help, in terms of your
comments on Airgas and the focus on not overpaying and, like, value, what are
you looking at in terms of that? Is it about a return of capital basis? Cash
flow? A little bit -- just wanted to get a little feel for your outlook on
that.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes, well
-- and return on capital and cash flow are actually the same, because you put
cash out and you get cash back with those things. So it is driven by the return
in which we're looking and by the investment in Airgas, we think we create a
significant amount of value by buying them, but we're not going to share every
dollar of that. We certainly are willing to share our portion of that with the
Airgas shareholders.
But for
right now, we are focused really on the offer that we have out there and moving
that foreword, thinking that that represents a very good value to -- and to the
Airgas shareholders.
8
Mike Sison - KeyBanc Capital Markets -
Analyst
Great.
Thanks, Paul.
Operator
Jeff
Zekauskas, JPMorgan.
Jeff Zekauskas - JPMorgan - Analyst
In your
comments, Paul, you said that you hoped to reach a 15% electronics margin in
2011. Did you mean that you would touch 15% or that might be your average margin
for the year in '11?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
You know
-- and the thing which we're trying to do, is we're trying to get it to the
average margin for the year.
Jeff Zekauskas - JPMorgan - Analyst
So how
fast would you have to grow in electronics in 2011 to reach that? Or because of
your restructuring efforts, could you reach that even if there were very little
growth?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
There
would still need to be growth occur, Jeff, on the loading of the plant, on the
investment which we have out there. So, yes, I do need growth. But it's within
what -- it's kind of within what we expect.
Jeff Zekauskas - JPMorgan - Analyst
Okay. And
then just lastly, in your various restructuring costs that are passing through
the income statement in 2010, which presumably won't be there in '11, how much
were they in the aggregate, roughly?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
The total
restructuring costs in this quarter were about $2 million. We expect them to
grow fairly substantially.
Jeff Zekauskas - JPMorgan - Analyst
Okay.
Thanks very much.
Operator
Sergey
Vasnetsov, Barclays Capital.
9
Sergey Vasnetsov - Barclays Capital -
Analyst
Your
Capex for the second quarter was roughly 50% down from year-over-year and yet
overall guidance for the year was 19. Can you talk about what's playing here and
do you expect to really catch it up in the second part of the year?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
As far as
the Capex was concerned, if you look at our total Capex, which is disclosed, we
are on track. We're about 700 -- 699 in the press release this morning. So if
you would take that and double it, it would take you to $1.4 billion, which is
in the middle of our range, Sergey.
Sergey Vasnetsov - Barclays Capital -
Analyst
Okay. And
I just want to follow-up on the previous question and answer on (inaudible)
improvement [of 11%]. Did I hear you right, that you expect the bulk of it to
come from new projects?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes, and
the bulk of it comes from new projects. There is some obvious growth. I mean,
you have to be careful about the impact of volumes and the impact on profits.
The impact on profits is going to be larger from a new plant. Some of the volume
growth, which we see when you go to -- and you go on the volumes, you're going
to see for like, a steel plant, if I'm under the mins, I'm going to have the
growth in volume but I'm not going to impact profits by that.
Sergey Vasnetsov - Barclays Capital -
Analyst
Okay,
thank you.
Operator
Don
Carson, UBS.
Don Carson - UBS - Analyst
First,
just a housekeeping item. The gain on the sale of the Airgas shares, did that
flow through the income statement?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
We did
not sell the Airgas shares (multiple speakers) and the gain for holding them,
Don -- the gain for us in holding those shares, it showed other comprehensive
income. It's not in the P&L.
Don Carson - UBS - Analyst
Okay. And
then on your incremental merchant operating leverage, I mean, it seems that
operating rates haven't moved up all that much. When would you expect to see
more volume leverage there? Because your manufacturing outlook seems rather
tepid for the balance of the year.
10
Nelson Squires - Air Products and Chemicals, Inc. -
Director of IR
Yes, Don.
This is Nelson. As you look into the rest of the year, certainly, we see a
decent pickup in LOX/LIN volumes in North America in the second half of the
year, something probably in the neighborhood of 3% or so. We think the trend
will begin to improve in Europe, although, as we said previously, we think it
still remains pretty weak.
We
continue to see pretty solid growth in Asia. We are bringing new capacity
onstream throughout Asia, which, of course, is planned and is in the sequence of
doing that. But we should see a volume pickup in the second half of the year,
certainly in North America, continuing in Asia; and if anything, flat to
slightly up in Europe, as we go forward.
Don Carson - UBS - Analyst
And a
question on North American pricing. It was down year-over-year; you blamed most
of that on absence of surcharges. How was that pricing sequentially? And how was
the pricing on the new business signing versus the existing book?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Sequentially,
pricing is probably flat to slightly up. And I'm really referring to LOX/LIN
when I say that, because, obviously, hydrogen, liquid hydrogen was impacted by
lower nat gas costs. Quality in new signings is stable; it's rebounded off of
the bottom that we saw somewhere around four or five quarters ago. And so we're
happy with the quality of signings.
Operator
David
Begleiter, Deutsche Bank.
David Begleiter - Deutsche Bank -
Analyst
Paul,
just on the merchant pricing in North America, shouldn't the October 1 price
increase have given you a little more boost to sequential pricing in that
business?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
I think a
lot of what that -- what it did is it held the impact on the surcharges, which
have continued to roll off, David.
David Begleiter - Deutsche Bank -
Analyst
And just
on Asia merchant, is that entire decline due to liquid argon? And you mentioned
China pricing being better. I was under the impression that China merchant is
still under some pressure from a local Chinese competitor, amongst
others.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes, as
far as China pricing is concerned, our pricing in China still looks pretty good
and it's really -- it is pretty argon.
David Begleiter - Deutsche Bank -
Analyst
And
lastly, just on the backlog, on the awards new project, is pricing getting any
more competitive? Or is it about the same as it was before the
downturn?
11
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes. As
far as we look at the pricing on most on the jobs in which we are bidding have
stayed the same. We did see an award in India recently, where the pricing was
amazingly low on that to a steel company -- well, well below what we would have
been willing to take as a price in all of our competitors.
David Begleiter - Deutsche Bank -
Analyst
Why do
you think that was the case?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
You'll
have to ask the person who won that, why they bid that so low.
David Begleiter - Deutsche Bank -
Analyst
Thank
you.
Operator
P.J.
Juvekar, Citi.
P.J. Juvekar - Citigroup - Analyst
A
question on tonnage. Your volumes were up 11%, but earnings were up only 9%, and
margins were actually down. So the question is, why aren't you seeing more
leverage on operating income line?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
We --
yes. P.J., we still had a lot of costs in the maintenance area in this year; a
lot of customer turnarounds for us. And so that's something which we're seeing,
which pulls our earnings down. Now, the maintenance costs are going to come off
in quarter three and quarter four. And you'll see improvements
there.
P.J. Juvekar - Citigroup - Analyst
If you
took a step back and look at your on-site business and look at the last 18
months, how many of the new projects got delayed?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
How many
got delayed? If you take a look at that, we have had probably three or four of
them which have pushed back from what their original timing was for us. As far
as the projects which we're bringing onstream this year, we have not seen
delays, pretty much. The delays have more occurred for projects which have
already been put into our outlook and stuff like that for things which were
coming on beyond 2010.
12
P.J. Juvekar - Citigroup -
Analyst
Okay. So,
I guess let me ask you the same question in another way. Are you adding projects
to the backlog at the same rate as you finish them?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Are we
bringing in capital spending at the same rate? It is pretty close to that right
now. Award activity probably has run down that -- the backlog a little bit for
us right now because award activity has been slow. However, as we look towards
jobs which we would expect to sign contracts on in the last half of the year, we
would expect that we would replace or exceed a little bit the projects which
actually come off this year.
P.J. Juvekar - Citigroup - Analyst
So you
will exceed by end of the year?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes.
P.J. Juvekar - Citigroup - Analyst
Okay.
Thank you.
Operator
Mike
Harrison, First Analysis Securities.
Mike Harrison - First Analysis Securities -
Analyst
Was
wondering what portion of your tonnage customers right now are still taking
volumes below the take or pay minimum?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
I don't
think we have -- I might have one or two, but I think I'm pretty much out of
that area right now.
Mike Harrison - First Analysis Securities -
Analyst
All
right. Was also hoping that you could comment on the big improvement in the
Equipment and Energy margin. That margin number looks like about the highest
you've shown in the last four or five years. Was wondering -- I know there's
choppiness in that business, but wondering if you could comment on that and what
should we be expecting going forward?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes,
Mike, and the explanation is pretty easy. If you look at sales in 2009, quarter
two, we had a lot more in the air separation side and a lot less on the LNG
side. This time, we have more on the LNG side and less on the air separation
side.
13
The LNG
profitability is higher because I have a complete value-adding component to
that, where I passed through a lot of compression equipment and stuff like that,
which I purchased on the air separation side. So that's -- so it's really a mix
between the air separation and the LNG, and more LNG this quarter.
Mike Harrison - First Analysis Securities -
Analyst
All
right. I had a question on merchant pricing in Asia. You've shown kind of three
straight quarters here with negative year-over-year pricing. How big of a margin
impact have you seen due to that pricing decline over that time? And should we
expect to see pricing and margin improvement, given the strong demand that
you've seen in Asia?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well,
with the pricing coming down, it's obviously been a small impact to the margins
in the merchant area. But as you can see, overall, our margins in that area are
up and will continue to go up. And we would expect them to return to like a Q1
level in quarter three; but overall for the year, we're going to have a good
margin in that area. And so that's going to also be helped as we lap the -- some
of the declines in LAR and merchant pricing.
Mike Harrison - First Analysis Securities -
Analyst
All
right. Thanks very much.
Operator
Bob
Koort, Goldman Sachs.
Bob Koort - Goldman Sachs -
Analyst
I'm
wondering on tonnage, you guys talked a little bit about the new projects
providing the growth year-on-year sequentially, a little bit of pickup. But
given the base of your business, when you put in a project like the one you
recently signed for Malaysia -- you know, 1.5 million standard cubic feet a day,
how much will that add to your base tonnage business?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
That is a
small project -- that is a very small project, Bob. It's not going to add a
lot.
Bob Koort - Goldman Sachs -
Analyst
So
rounding here. How about something that would be bigger and more -- something
you might put in the Gulf Coast, then?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes. So,
if you take a plant which goes into the Gulf Coast, that could probably -- a
world-class size plant could probably add 3% or so in sales growth, when you
look at (multiple speakers) --
14
Bob Koort - Goldman Sachs -
Analyst
To the
entire tonnage base?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
The
entire segment, yes.
Bob Koort - Goldman Sachs -
Analyst
Wow,
okay. And then secondly, can you give me some sense on Electronics and
Performance? How long do you expect these very strong sequential numbers to
continue? And maybe talk a little bit about the seasonality there.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes,
well, you know, as far as the -- on the Electronics and Performance Materials,
there is a sequential uptick from quarter two to quarter three. And we would
expect to see that. What -- and so I would expect to see a good quarter three
and a good Q4. And then we'll probably see a start of the sequential down in
quarter one.
You
realize that that business here took the highest hit from the recession. And so
it's going to have the strongest bounce back also coming through
here.
Nelson Squires - Air Products and Chemicals, Inc. -
Director of IR
One add,
Bob -- this is Nelson -- is that, certainly, the improved automobile production
is helping the Performance Materials business. And as I said during the call, or
during the prepared remarks, one of the things that was very encouraging that we
did take a little bit of a volume hit during Lunar New Year, but we were up
sequentially. So, customer operating rates have continued to improve, and key
customer rates are over 80% now. So, that number, we think, as Paul said,
continues to track upward the next two quarters.
Bob Koort - Goldman Sachs -
Analyst
Great.
Thank you.
Operator
Laurence
Alexander, Jefferies.
Laurence Alexander - Jefferies & Company -
Analyst
I guess,
first of all, could you give an update on how you're thinking about the hydrogen
market, both in terms of any large projects coming, which might be up for bid
over the next four to six quarters? And also what you think the longer term CAGR
for demand might be -- the addressable CAGR for Air Products?
15
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes. If
we take a look on the hydrogen area, we do see a move outside the US into places
like Asia and the Middle East for us. We currently are actively involved in
projects out there. And so we think that the growth for hydrogen is still going
to be somewhere around the 8% to 10% range things, but the shift is going to be,
for the bulk of the market, to be outside the US as far as growth is concerned,
and less growth within North America in the near-term. There's still the oil
sands, which could produce more growth if that gets developed.
Laurence Alexander - Jefferies & Company -
Analyst
And do
you expect the pace of outsourcing activity to be the same in Asia as in the
US?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
I think
that -- on the outsourcing in Asia, we think on the majors, we think it's going
to be doable. I think you're going to see some JVs in China to make these things
happen also.
Laurence Alexander - Jefferies & Company -
Analyst
And
separately, could you sort of give a little bit more detail on trends -- on
demand trends in Europe, particular end markets that might be stronger or
recovering earlier? And are there any areas where you're surprised by how weak
it is?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well, I
mean, for us, in the European business, the place which we have seen the largest
declines in volumes now is packaged gas. Packaged gas is a late cycle as far as
the business is concerned. And so our bulk market, in our bulk volumes have been
doing pretty well in coming back. A lot of business in the food area; things has
been performing well for us.
If you
look at the geography of it, the East and the North are probably better than the
South in Europe. The South is still pretty much in a pretty tough recession at
this point in time.
Operator
Paul
Mann, Morgan Stanley.
Paul Mann - Morgan Stanley -
Analyst
You
mentioned that very few plants operating below the take or pay minimum in the
quarter. Did that ratio change at all from the first quarter to the second
quarter? So, did you grow volumes in a lot of the plants after the take or pay
minimum? What I'm trying to get is whether or not, as you go forward, if we see
a better incremental margin coming from in tonnage, because you've got more
plants now operating above the take or pay minimum, if that makes
sense.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes, but
-- and Paul, for -- and for the plants -- for the people operating above the
take or pays, we probably have some of that. The place which is going to impact
us and the most for Air Products is still on the hydrogen area for us. That's
the bulk of our business in this tonnage area. And so we really didn't see our
customers go to the mins in that area. Our customers have -- still continued
difficult to operate. Our volumes year-over-year in that area are about flat
with those things, if I take out the new plants, when you look at
it.
16
We have
seen on the steel on sites, we have seen increases in the volumes. Realize that
for a lot of our customers in steel, it is a take or pay contract, is a BFC-type
contract, and I get paid for the plants and then he pays for a product charge. I
typically make all of my money on the payment for the plant and not on the
product charge; I pass through the energy there, so I don't have a lot of
volatility in the business introduced by the steel aspect of it.
Paul Mann - Morgan Stanley -
Analyst
Okay, but
what I was trying to understand is if you've grown your volumes from Q1 into Q2
only to bring them up to the take or pay minimum, you're not really going to see
a revenue and margin impact. And if you start to grow volumes going into Q3, I'm
assuming we'll start to see a better revenue and margin impact.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
What
happens, Paul, is actually -- when a person operates at the mins, he doesn't pay
the product charge, which is just a pass-through. And so actually, on the sales
dollars come down, the profits tend not to come down, right? And therefore, what
happens is that the margins as they build -- as the loading starts to occur
above the take -- up to the take or pay and above it, is margins tend to decline
a little bit with that.
The bulk
of the profit in this business is earned by installing a plant, having the plant
ready to operate for the customer. And that's where we operate at.
Paul Mann - Morgan Stanley -
Analyst
Okay. And
just a second question, just looking forward to 2011, based on your backlog at
the moment and the orders you're bidding for, would you expect Capex to increase
in 2011 or decrease, or stay roughly the same?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Right now
I would expect that my Capex probably would be the same up to -- up in 2011. A
lot of that is going to depend upon award activity here in the last six
months.
Operator
David
Manthey, Robert W. Baird.
David Manthey - Robert W. Baird & Company,
Inc. - Analyst
I'm
wondering if you can or will estimate the volume impact from new tonnage
contracts in the third quarter?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
If we
take a look at the contracts which have come onstream in quarter two and quarter
three, we basically have our -- the Exxon job and the Corpus Christi plant
coming onstream. And they will have a small growth here; probably they add $0.01
or so to earnings.
17
David Manthey - Robert W. Baird & Company,
Inc. - Analyst
Okay. And
in terms of volume, just a couple percent or --?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes.
Right. (multiple speakers) [A couple percent volume.]
David Manthey - Robert W. Baird & Company,
Inc. - Analyst
Okay. And
then second, in terms of your cost reduction efforts, could you talk about where
you stand today maybe sort of on a run rate versus what's left over the next 12
months or so?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes. On
those efforts, we will be taking those efforts and wrapping them up at the end
of quarter three. So we are pretty well done. The bulk of the efforts really
occurred in the last half of 2009. We've had some continued efforts, especially
in Europe, as we've been restricted as to how many people we can let go, going
forward here. So we're probably about 90% complete or so right now.
David Manthey - Robert W. Baird & Company,
Inc. - Analyst
Okay, but
maybe a little bit more than that in terms of the inertia (multiple speakers)
[through second]?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Yes, and
that's true, David. I think one of the things which you should understand is
we're going to continue on this cost effort going forward, so we have the
program but we always have an effort on cost.
So cost
in this drive for us to be low-cost is going to continue. We measure ourselves
against our competitors and our competitors are good. They're working on the
same things we are. We intend to beat them on this thing and be the best
industrial gas company with regard to cost in the position which we have. And so
we are very serious about that and we will continue to take actions on costs
throughout our future.
Operator
Edward
Yang, Oppenheimer.
Edward Yang - Oppenheimer & Co. -
Analyst
Just
would like to understand your thinking on acquisitions in general. I saw that
you made a small French acquisition, and what was the rationale for that? And
are you evaluating other transactions outside of Airgas?
18
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well, the
-- and the opportunity in which we had there, Ed, was -- it was an opportunity
in France. It fit extremely well with our current business in the area. So it's
a great opportunity. It's something which we have done in the past in the
business in Europe. It's helped our business in Europe grow and increase the
profitability and scale of the business. So that was the design of that. If
those opportunities come up again in the future, we will continue to pursue
them.
Right now
as far as acquisition activity, we continue to evaluate some. There is nothing
really hot beyond Airgas on buying a company. The other thing which you should
know is we continue to look at on buying plants, which we have sold or other
people have sold in the past, and bringing them in as sale of gas from a sale of
equipment of our captive job. And we continue to make progress in
that.
The type
of projects which we look for in that area are ones which are going to lead to
growth in the future. We bought the Corpus Christi plant and the hydrogen in
Texas. The reason why is we were able to get a good deal on the plant, but then
we also see more product being required in the future, so an opportunity to
invest and build a franchise there.
On the
Xingtai Steel, we bought some plants but we also got an order for that to build
a franchise in that area for us. And so it's those types of opportunities which
we look at. We probably have two or three around the world in which we're
pursuing right now, which are looking good for us in the future.
Edward Yang - Oppenheimer & Co. -
Analyst
Okay. But
staying within the US in terms of packaged gas, half of the market in the US is
still 50% owned by independents. If you do decide to go in another direction
from Airgas -- it seems like you're very committed to Airgas -- would you look
to replicate an Airgas type of acquisition strategy? Would you be interested in
buying independent packaged gas distributors with the knowledge in mind that it
would take a considerable amount of time to get scale in that
market?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
We
certainly -- if the Airgas transaction does not go forward, we will continue to
work to make sure that we serve the distribution segment of the market. Whether
we did that via acquisitions or we did that via contracts with those people, or
did something else, would be something which we would disclose at that point in
time.
Edward Yang - Oppenheimer & Co. -
Analyst
Okay. And
finally, what's your FX assumption for -- in your 2010 guidance? And if you look
forward to 2011, what kind of euro exchange rate would you be
using?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well, I
don't try to go out and predict the exchange rates. At the close of the quarter,
we were looking at, for quarter three and quarter four, for the euro to be
around $1.35 or so. When you get that for the year, that probably takes us close
to $1.40 or so.
Edward Yang - Oppenheimer & Co. -
Analyst
Okay,
thank you, Paul.
19
Operator
John
Roberts, Buckingham Research.
John Roberts - Buckingham Research -
Analyst
The
European packaged gas weak volumes -- is that a leading business or a lagging
business relative to the economy? And I ask that because at least in North
America, I think, it used to be a leading business for Airgas and it's kind of
lagging this cycle because of the credit issues for small customers and so
forth. So, what can we tell from your European packaged gas
business?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
John,
packaged gas has always been a lag -- it has never been a lead in any of the
areas. And the reason why is about one-quarter of the volumes go into investment
type of activities, construction type markets. Construction always lags coming
out of the recession. And so you always see that happening.
Plus the
other thing what's happened, if you charge demurrage on the cylinders, the
customers return them late. They bring them back and your demurrage revenues
drop towards the end of the recession, as the customers -- and then it takes
awhile for those revenues to come back up and build back up. But packaged gas as
a market has always been a lag business, and it lags in the European economy
also.
Operator
Peter
Butler, Glen Hill Investments.
Peter Butler - Glen Hill Investment Research -
Analyst
You guys
have me a bit confused here. I thought the goal with acquisitions is to -- and
with the stock in general, is to increase the earnings per share, boost the ROC,
and return more cash to the owners. And this Airgas transaction looks like it
does none of these things.
And I was
around when you guys unloaded this business, the packaged gas business, and you
said good riddance and you had a lot of good reasons to say goodbye that still
look valid. I'm wondering, what's going on? Airgas shareholders get the cash and
Air Products shareholders get shafted here with the stock down.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well,
okay, Peter, I will tell you that the Air Products shareholders are not going to
get shafted by this deal. You know, there's a lot of concern over how much Air
Products is going to pay and the uncertainty of the transaction. And that's what
has temporarily taken our stock price down.
We have a
very good plan to go out and achieve the cost savings which we have put out
there. We also have a good understanding of the business and how it has improved
since the time at which we sold it. We think there are a lot of good
opportunities for us going forward here. We didn't think the packaged gases was
a bad business; the business which we sold did not have scale.
This deal
creates value. We are going to be disciplined on price. You'll continue to see
that. And we will make this pay off for the Air Products
shareholders.
20
Peter Butler - Glen Hill Investment Research -
Analyst
Well,
when you sold it, you said good bye with good riddance to a mature North
American-centric business with slow growth; and it was recognized as being a
low-quality business that would command a low-quality price to earnings ratio.
And all that looks still valid. I'm wondering, what the hell do we need this
thing for?
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Well,
Peter, if you took a look at the dynamics of the business at that point in time,
it was largely unconsolidated at that point in time. Since that time period,
there has been a lot of consolidation by Airgas and a lot of consolidation by
Products Air in that. And the business has improved substantially.
We see
the opportunity here to improve the margins within the business, and maintain
those margins and continue to grow. We also see the opportunity to take that
model and go -- and take it into the Asia market; and with the Airgas
transaction, that will help us do that.
Peter Butler - Glen Hill Investment Research -
Analyst
Okay,
well, you're -- I'm still scratching my head, sorry.
Paul Huck - Air Products and Chemicals, Inc. -
SVP and CFO
Okay.
Operator
And that
concludes today's question-and-answer session. Mr. Squires, I'd like to turn the
conference back to you for closing remarks.
Nelson Squires - Air Products and Chemicals, Inc. -
Director of IR
Thanks,
Terika. Please go to our website to access a replay of this call beginning at 2
p.m. today. Thanks for joining us and have a nice day.
Operator
That
concludes today's conference call. We thank you for your
participation.
21
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22
APPENDIX B
Q2 FY’10
Earnings Conference Call
April 22,
2010
Q2 FY’10
Earnings
Forward
Looking Statement
2
This
presentation contains “forward-looking statements” within the safe harbor
provisions of the Private
Securities Litigation Reform Act of 1995, including earnings guidance and comments regarding the
Company’s proposed acquisition of Airgas, Inc. These forward-looking statements are based on
management’s reasonable expectations and assumptions as of the date this presentation is made regarding
important risk factors. Actual performance and financial results may differ materially from projections and
estimates expressed in the forward-looking statements because of many factors not anticipated by
management, including, without limitation, longer than anticipated delay in global economic recovery;
renewed deterioration in economic and business conditions; poor demand for the Company's products;
future financial and operating performance of major customers and industries served by the Company;
inability to collect receivables from or recovery of payments made by customers in bankruptcy proceedings;
unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset
impairments due to economic conditions or specific product or customer events; unexpected costs
associated with the Company’s cash tender offer for Airgas, Inc.; costs of future restructuring actions which
are not currently planned or anticipated; the impact of competitive products and pricing; interruption in
ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw
material costs from customers; costs and outcomes of litigation or regulatory activities; charges related to
current portfolio management and cost reduction actions; the success of implementing cost reduction
programs; failure to consummate the tender offer for Airgas, Inc. or inability to achieve anticipated
acquisition synergies or unanticipated integration costs; the timing, impact, and other uncertainties of future
acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently
anticipated; the continued availability of capital funding sources in all of the Company's foreign operations;
the impact of new or changed environmental, healthcare, tax or other legislation and regulations in
jurisdictions in which the Company and its affiliates operate; the impact of new or changed financial
accounting guidance; the timing and rate at which tax credits can be utilized and other risk factors
described in the Company’s Form 10K for its fiscal year ended September 30, 2009. The Company disclaims
any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements
contained in this document to reflect any change in the Company’s assumptions, beliefs or expectations or
any change in events, conditions, or circumstances upon which any such forward-looking statements are
based.
Securities Litigation Reform Act of 1995, including earnings guidance and comments regarding the
Company’s proposed acquisition of Airgas, Inc. These forward-looking statements are based on
management’s reasonable expectations and assumptions as of the date this presentation is made regarding
important risk factors. Actual performance and financial results may differ materially from projections and
estimates expressed in the forward-looking statements because of many factors not anticipated by
management, including, without limitation, longer than anticipated delay in global economic recovery;
renewed deterioration in economic and business conditions; poor demand for the Company's products;
future financial and operating performance of major customers and industries served by the Company;
inability to collect receivables from or recovery of payments made by customers in bankruptcy proceedings;
unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset
impairments due to economic conditions or specific product or customer events; unexpected costs
associated with the Company’s cash tender offer for Airgas, Inc.; costs of future restructuring actions which
are not currently planned or anticipated; the impact of competitive products and pricing; interruption in
ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw
material costs from customers; costs and outcomes of litigation or regulatory activities; charges related to
current portfolio management and cost reduction actions; the success of implementing cost reduction
programs; failure to consummate the tender offer for Airgas, Inc. or inability to achieve anticipated
acquisition synergies or unanticipated integration costs; the timing, impact, and other uncertainties of future
acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently
anticipated; the continued availability of capital funding sources in all of the Company's foreign operations;
the impact of new or changed environmental, healthcare, tax or other legislation and regulations in
jurisdictions in which the Company and its affiliates operate; the impact of new or changed financial
accounting guidance; the timing and rate at which tax credits can be utilized and other risk factors
described in the Company’s Form 10K for its fiscal year ended September 30, 2009. The Company disclaims
any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements
contained in this document to reflect any change in the Company’s assumptions, beliefs or expectations or
any change in events, conditions, or circumstances upon which any such forward-looking statements are
based.
Q2 FY’10
Earnings
3
ADDITIONAL
INFORMATION
On February 11, 2010, Air Products Distribution, Inc., a wholly owned subsidiary of Air Products and Chemicals, Inc. ("Air Products"), commenced a
cash tender offer for all the outstanding shares of common stock of Airgas, Inc. ("Airgas") not already owned by Air Products, subject to the terms and
conditions set forth in the Offer to Purchase dated as of February 11, 2010 (the "Offer to Purchase"). The purchase price to be paid upon the
successful closing of the cash tender offer is $60.00 per share in cash, without interest and less any required withholding tax, subject to the terms and
conditions set forth in the Offer to Purchase, as amended. The offer is scheduled to expire at midnight, New York City time, on Friday, June 4, 2010,
unless further extended in the manner set forth in the Offer to Purchase.
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. The tender offer is being made pursuant to a
tender offer statement on Schedule TO (including the Offer to Purchase, a related letter of transmittal and other offer materials) filed by Air Products
with the U.S. Securities and Exchange Commission ("SEC") on February 11, 2010. INVESTORS AND SECURITY HOLDERS OF AIRGAS ARE URGED TO
READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE PROPOSED TRANSACTION. Investors and security holders can obtain free copies of these documents and other documents filed with the
SEC by Air Products through the web site maintained by the SEC at http://www.sec.gov. The Offer to Purchase and related materials may also be
obtained for free by contacting the Information Agent for the tender offer, MacKenzie Partners, Inc., at 212-929-5500 or toll-free at 800-322-2885.
In connection with the proposed transaction, Air Products may file a proxy statement with the SEC. Any definitive proxy statement will be mailed to
stockholders of Airgas. INVESTORS AND SECURITY HOLDERS OF AIRGAS ARE URGED TO READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC
CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of these documents (if and when available) and other
documents filed with the SEC by Air Products through the web site maintained by the SEC at http://www.sec.gov.
CERTAIN INFORMATION REGARDING PARTICIPANTS
Air Products and certain of its respective directors and executive officers may be deemed to be participants in the proposed transaction under the
rules of the SEC. Security holders may obtain information regarding the names, affiliations and interests of Air Products' directors and executive
officers in Air Products' Annual Report on Form 10-K for the year ended September 30, 2009, which was filed with the SEC on November 25, 2009,
and its proxy statement for the 2010 Annual Meeting, which was filed with the SEC on December 10, 2009. These documents can be obtained free of
charge from the sources indicated above. Additional information regarding the interests of these participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or otherwise, will also be included in any proxy statement and other relevant
materials to be filed with the SEC when they become available.
On February 11, 2010, Air Products Distribution, Inc., a wholly owned subsidiary of Air Products and Chemicals, Inc. ("Air Products"), commenced a
cash tender offer for all the outstanding shares of common stock of Airgas, Inc. ("Airgas") not already owned by Air Products, subject to the terms and
conditions set forth in the Offer to Purchase dated as of February 11, 2010 (the "Offer to Purchase"). The purchase price to be paid upon the
successful closing of the cash tender offer is $60.00 per share in cash, without interest and less any required withholding tax, subject to the terms and
conditions set forth in the Offer to Purchase, as amended. The offer is scheduled to expire at midnight, New York City time, on Friday, June 4, 2010,
unless further extended in the manner set forth in the Offer to Purchase.
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. The tender offer is being made pursuant to a
tender offer statement on Schedule TO (including the Offer to Purchase, a related letter of transmittal and other offer materials) filed by Air Products
with the U.S. Securities and Exchange Commission ("SEC") on February 11, 2010. INVESTORS AND SECURITY HOLDERS OF AIRGAS ARE URGED TO
READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE PROPOSED TRANSACTION. Investors and security holders can obtain free copies of these documents and other documents filed with the
SEC by Air Products through the web site maintained by the SEC at http://www.sec.gov. The Offer to Purchase and related materials may also be
obtained for free by contacting the Information Agent for the tender offer, MacKenzie Partners, Inc., at 212-929-5500 or toll-free at 800-322-2885.
In connection with the proposed transaction, Air Products may file a proxy statement with the SEC. Any definitive proxy statement will be mailed to
stockholders of Airgas. INVESTORS AND SECURITY HOLDERS OF AIRGAS ARE URGED TO READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC
CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
PROPOSED TRANSACTION. Investors and security holders will be able to obtain free copies of these documents (if and when available) and other
documents filed with the SEC by Air Products through the web site maintained by the SEC at http://www.sec.gov.
CERTAIN INFORMATION REGARDING PARTICIPANTS
Air Products and certain of its respective directors and executive officers may be deemed to be participants in the proposed transaction under the
rules of the SEC. Security holders may obtain information regarding the names, affiliations and interests of Air Products' directors and executive
officers in Air Products' Annual Report on Form 10-K for the year ended September 30, 2009, which was filed with the SEC on November 25, 2009,
and its proxy statement for the 2010 Annual Meeting, which was filed with the SEC on December 10, 2009. These documents can be obtained free of
charge from the sources indicated above. Additional information regarding the interests of these participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or otherwise, will also be included in any proxy statement and other relevant
materials to be filed with the SEC when they become available.
Q2 FY’10
Earnings
Financial
Performance*
* non-GAAP,
see appendix for reconciliation
4
|
|
FY04
|
thru
|
FY08
|
H109
|
H209
|
H110
|
|
Sales
(
CAGR| % chg vs PY )
|
|
14%
|
|
(16%)
|
(25%)
|
7%
|
|
Operating
Margin
|
12.8%
|
+1.8%
|
14.6%
|
13.2%
|
15.5%
|
16.0%
|
|
Adj’d
Cont Ops EPS
( CAGR| % chg vs PY ) |
|
21%
|
|
(24%)
|
(16%)
|
28%
|
|
ROCE
(4
quarter trailing)
|
9.6%
|
+3.4%
|
13.0%
|
|
|
|
|
ROCE
(instantaneous)
|
|
|
|
10%
|
11%
|
12%
|
Q2 FY’10
Earnings
Q2
Financials*
5
($millions,
Continuing Operations)
Fav/(Unfav)
vs.
Q2
FY10 Q2
FY09 Q1
FY10
*Non-GAAP. See
appendix for reconciliation.
Sales $2,249 15% 3%
-
Underlying business 9% 3%
-
Energy/RM pass-thru 2% 2%
-
Currency 4% (2%)
Operating
Income $364 40% 6%
Operating
Margin (%) 16.2% 290bp 30bp
Net
Income $267 41% 6%
Diluted
EPS ($/share) $1.23 38% 6%
ROCE
(%) 11.6% (10bp) 70bp
|
|
Q2
FY10
|
Q2
FY09
|
Change
|
|
As-reported
diluted EPS
|
$1.16
|
$0.97
|
|
|
-
discontinued ops inc
|
-
|
0.08
|
|
|
-
acquisition-related exp
|
(0.07)
|
-
|
|
|
Adjusted
cont ops EPS
|
$1.23
|
$0.89
|
$0.34
|
|
Volume
|
|
|
$0.29
|
|
Price
/ raw materials
|
|
|
(0.09)
|
|
Cost
|
|
|
0.12
|
|
Currency
|
|
|
0.05
|
|
Equity
affiliates income
|
|
|
0.02
|
|
Noncontrolling
interests
|
|
|
(0.02)
|
|
Higher
shares outstanding
|
|
|
(0.03)
|
|
Increase
|
|
|
$0.34
|
6
$0.32
Q2 EPS
Analysis
Q2 FY’10
Earnings
Sales $922 6% (1%)
-
Volume 1% 1%
-
Price (1%) 1%
-
Currency 6% (3%)
Operating
Income $178 14% (6%)
Operating
Margin 19.3% 140bp (100bp)
7
Merchant
Gases
Q2
FY10 Q2
FY09 Q1
FY10
Fav/(Unfav)
vs.
Volume
improvement led by Asia
Prices
weaker on lower surcharges, LH2 (nat’l gas)
Q2 FY’10
Earnings
8
Sales %
change 2% 6% 24%
-
Volume 5% (2%) 22%
-
Price (3%) -% (4%)
-
Currency - 8% 6%
Merchant
Gases:
Q2 Sales Analysis vs PY
Q2 Sales Analysis vs PY
America
North
Europe
Asia
North
America driven by LAR & LH2
Europe
package gas volumes weak
Asia strong
recovery continues
Q2 FY’10
Earnings
Note: The
above excludes Latin America and small on-sites sale of equipment
businesses.
Q2 FY’10
Earnings
Sales $757
21% 8%
-
Volume 11% 1%
-
Energy/RM pass thru 6% 8%
-
Currency 4% (1%)
Operating
Income $107 9% 7%
Operating
Margin 14.2% (150bp) (20bp)
9
Tonnage
Gases
Q2
FY10 Q2
FY09 Q1
FY10
Fav/(Unfav)
vs.
Improvement
in chemical & steel markets
Volumes up
on new plant on-streams
Q2 FY’10
Earnings
10
Electronics
& Performance Materials
Q2
FY10 Q2
FY09 Q1
FY10
Fav/(Unfav)
vs.
Electronics
sales 28% 4%
Performance
Materials sales 45% 4%
Sales $451
36% 4%
-
Volume 38% 5%
-
Price (4%) -%
-
Currency 2% (1%)
Operating
Income $57 18%
Operating
Margin 12.6% 140bp
Q2 FY’10
Earnings
11
Sales
$119 (7%) 10%
Operating
Income $18 12% 133%
Sales
Backlog
$343 22% 5%
Equipment
& Energy
Q2
FY10 Q2
FY09 Q1
FY10
Fav/(Unfav)
vs.
Improving
business mix
Favorable
project performance
Backlog
increases on PNG LNG order
Q2 FY’10
Earnings
Outlook
Q3
FY’10 EPS $1.25-$1.29
Improving
economy, seasonality
New
plants on-stream
Higher
Electronics restructuring costs
Higher
Energy development spending/outages
FY’10
EPS $4.90-$5.00
WW
manufacturing growth up ~2%
CapEx
forecast unchanged, ~$1.3B-$1.5B
Tax
rate unchanged, about 25%-26%
12
Q2 FY’10
Earnings
Q2 FY’10
Earnings
Appendix
Slides
Q2 FY’10
Earnings
14
Change
versus Q2
FY09 Q1
FY10
Total
Consolidated 15% 3%
Comprised
of:
Base
business growth
9% 3%
– Volume 10% 3%
– Price (1%) -%
Energy/RM
pass thru
2%
2%
Currency
4% (2%)
Appendix: Q2
Sales Analysis
Q2 FY’10
Earnings
15
Appendix: Q210
Results and FY10 Guidance
($
Millions, except per share data)
Non
GAAP
Adjustment
$
%
$
%
Q210
vs. Q209 - Total Co.
Q210
Q209
Change
Change
Q210
(1)
Q210
Q209
Change
Change
Sales
2,249.0
1,955.4
293.6
15%
2,249.0
1,955.4
293.6
15%
Operating
Income
340.6
260.4
80.2
31%
23.4
364.0
260.4
103.6
40%
Operating
Margin
15.1%
13.3%
180bp
16.2%
13.3%
290bp
Income
From Continuing Ops
252.0
189.3
62.7
33%
14.6
266.6
189.3
77.3
41%
Diluted
EPS - Continuing Ops
$1.16
$0.89
$0.27
30%
$0.07
$1.23
$0.89
$0.34
38%
$
%
$
%
Q210
vs. Q110 - Total Co.
Q210
Q110
Change
Change
Q210
(1)
Q210
Q110
Change
Change
Sales
2,249.0
2,173.5
75.5
3%
2,249.0
2,173.5
75.5
3%
Operating
Income
340.6
345.0
(4.4)
(1%)
23.4
364.0
345.0
19.0
6%
Operating
Margin
15.1%
15.9%
(80bp)
16.2%
15.9%
30bp
Income
From Continuing Ops
252.0
251.8
0.2
0%
14.6
266.6
251.8
14.8
6%
Diluted
EPS - Continuing Ops
$1.16
$1.16
$0.00
0%
$0.07
$1.23
$1.16
$0.07
6%
(1) Acquisition
- related costs
FY10
Guidance vs. FY09
Diluted
EPS
Continuing
Ops
FY09
GAAP
FY09
Global Cost Reduction Plan
$0.94
FY09
Pension Settlement
$0.02
FY09
Customer Bankruptcy and Asset Actions
$0.10
FY09
Non GAAP
$4.06
FY10
Guidance (1)
$4.90-$5.00
FY09
GAAP
$3.00
%
Change GAAP
63%-67%
FY10
Guidance (1)
$4.90-$5.00
FY09
Non GAAP
$4.06
%
Change Non GAAP
21%-23%
(1)
Excludes acquisition - related costs
GAAP
Measure
Non
GAAP Measure
Q2 FY’10
Earnings
16
Appendix: ROCE
$
Millions
Quarter
Ended
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Numerator
Operating
Income Reported
348.6
393.7
373.1
114.1
260.4
143.8
328.0
345.0
340.6
Equity
Affiliate Income
42.4
46.5
30.8
24.5
27.0
28.5
32.2
26.9
32.2
Earnings
before tax as reported
391.0
440.2
403.9
138.6
287.4
172.3
360.2
371.9
372.8
Global
Cost Reduction Plan
0.0
0.0
0.0
174.2
0.0
124.0
0.0
0.0
0.0
Pension
Settlement Charge
26.3
0.0
0.0
0.0
0.0
8.0
0.0
0.0
0.0
Customer
Bankruptcy and Asset Actions
0.0
0.0
0.0
0.0
0.0
32.1
0.0
0.0
0.0
Acquisition
- Related Costs
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
23.4
Earnings
before tax ex items
417.3
440.2
403.9
312.8
287.4
336.4
360.2
371.9
396.2
Effective
tax rate as reported
25.3%
25.0%
23.3%
7.3%
26.0%
18.1%
26.0%
24.9%
25.2%
Earnings
after tax as reported
292.1
330.2
309.8
128.5
212.7
141.1
266.5
279.3
278.9
Effective
tax rate ex items
26.1%
25.0%
23.3%
24.0%
26.0%
26.1%
26.0%
24.9%
26.0%
Earnings
after tax ex items
308.4
330.2
309.8
237.7
212.7
248.6
266.5
279.3
293.2
4
Qtr trailing AT earnings (numerator) - as reported
1,060.6
981.2
792.1
748.8
899.6
965.8
4
Qtr trailing AT Earnings (numerator) - ex items
1,186.1
1,090.4
1,008.8
965.5
1,007.1
1,087.6
Denominator
Total
Debt
3,972.5
4,383.9
4,027.3
3,966.8
4,169.2
4,102.4
4,145.2
4,501.5
4,418.7
4,343.4
Air
Products Shareholders' Equity
5,603.0
5,524.3
5,568.7
5,030.7
4,726.1
4,638.1
4,928.3
4,791.9
5,033.9
5,265.6
Noncontrolling
Interest
99.3
117.4
115.5
136.2
137.9
126.7
134.6
138.1
150.2
152.7
Total
Capital
9,674.8
10,025.6
9,711.5
9,133.7
9,033.2
8,867.2
9,208.1
9,431.5
9,602.8
9,761.7
5
Qtr Average Capital (denominator)
9,515.8
9,354.2
9,190.7
9,134.7
9,228.6
9,374.3
ROCE
as rptd (4 Qtr trail AT earnings / 5 pt avg capital)
11.1%
10.5%
8.6%
8.2%
9.7%
10.3%
ROCE
ex items (4 Qtr trail AT earnings/ 5 pt avg capital)
12.5%
11.7%
11.0%
10.6%
10.9%
11.6%
Half
year ROCE ex items (half year earnings AT x 2) / 3 pt avg capital)
10%
11%
12%
Q2 FY’10
Earnings
17
Appendix: ROCE
Tax Rate
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Reported
Income
from Cont. Ops. Bef. Tax
352.1
400.7
361.1
102.1
257.4
144.8
332.3
340.3
343.3
Noncontrolling
Interest
(4.5)
(7.6)
(4.8)
(5.0)
(1.6)
(4.8)
-
(5.0)
(6.4)
Income
from Cont. Ops. Before Tax, after
Noncontrolling
Interest
347.6
393.1
356.3
97.1
255.8
140.0
332.3
335.3
336.9
Tax
Expense
87.8
98.1
82.9
7.1
66.5
25.4
86.3
83.5
84.9
Tax
Rate Reported
25.3%
25.0%
23.3%
7.3%
26.0%
18.1%
26.0%
24.9%
25.2%
ITEMS
Operating
Income
Global
Cost Reduction Plan
174.2
124.0
Pension
Settlement Charge
26.3
8.0
Customer
Bankruptcy and Asset Actions
32.1
Acquisition - related
costs
23.4
Tax
Exp
Global
Cost Reduction Plan
58.1
39.8
Supp.
Pension Plan Charge
9.8
3.0
Tax
adjustments
Customer
Bankruptcy and Asset Actions
11.1
Acquisition - related
costs
8.8
Ex
Items
Income
from Cont. Ops. Before Tax
373.9
393.1
356.3
271.3
255.8
304.1
332.3
335.3
360.3
Tax
Expense
97.6
98.1
82.9
65.2
66.5
79.3
86.3
83.5
93.7
Tax
Rate ex Items
26.1%
25.0%
23.3%
24.0%
26.0%
26.1%
26.0%
24.9%
26.0%
Q2 FY’10
Earnings
Non GAAP
Appendix: Year
over Year Deltas
18
($
Millions, except per share data)
BP
FY04
and FY08 - Total Co.
FY04
FY08
FY04
(1)
FY08
(2)
FY04
FY08
CAGR
Change
Sales
6,163.2
10,414.5
6,163.2
10,414.5
14%
Operating
Income
836.9
1,495.8
(49.0)
26.3
787.9
1,522.1
Operating
Margin
13.6%
14.4%
12.8%
14.6%
180bp
Diluted
EPS - Continuing Ops
$2.51
$4.97
($0.13)
$0.08
$2.38
$5.05
21%
(1)
Proforma Stock Option Expense
(2)
Q208 Pension Settlement
Non
GAAP Ajusts.
GAAP
Measure
Non
GAAP Measure
Q2 FY’10
Earnings
Non GAAP
Appendix: Half
Year Deltas
19
($
Millions, except per share data)
6
months
6
months
6
months
GAAP
Measure
Q109
Q209
to
date
Q309
Q409
to
date
Q110
Q210
to
date
Sales
2,195.3
1,955.4
4,150.7
1,976.2
2,129.3
4,105.5
2,173.5
2,249.0
4,422.5
Operating
Income
114.1
260.4
374.5
143.8
328.0
471.8
345.0
340.6
685.6
Operating
Margin
5.2%
13.3%
9.0%
7.3%
15.4%
11.5%
15.9%
15.1%
15.5%
Non
GAAP Op Income Adjustments
Global
Cost Reduction Plan
174.2
174.2
124.0
124.0
Pension
Settlement
8.0
8.0
Customer
Bankruptcy and Asset Actions
32.1
32.1
Acquisition - Related
Costs
23.4
23.4
Non-GAAP
Measure
Operating
Income
288.3
260.4
548.7
307.9
328.0
635.9
345.0
364.0
709.0
Operating
Margin
13.1%
13.3%
13.2%
15.6%
15.4%
15.5%
15.9%
16.2%
16.0%
Year
over Year Deltas
6
months
6
months
Q108
Q208
to
date
Q308
Q408
to
date
Sales
2,407.4
2,542.7
4,950.1
2,749.7
2,714.7
5,464.4
GAAP
Measure - EPS
$1.18
$1.18
$2.36
$1.35
$1.26
$2.61
Pension
Settlement
$0.08
$0.08
Non GAAP
Measure - EPS
$1.18
$1.26
$2.44
$1.35
$1.26
$2.61
6
months
6
months
6
months
Q109
Q209
to
date
Q309
Q409
to
date
Q110
Q210
to
date
Sales
2,195.3
1,955.4
4,150.7
1,976.2
2,129.3
4,105.5
2,173.5
2,249.0
4,422.5
GAAP
Measure - EPS
$0.42
$0.89
$1.31
$0.54
$1.14
$1.68
$1.16
$1.16
$2.32
Global
Cost Reduction Plan
$0.55
$0.55
$0.39
$0.39
Pension
Settlement
$0.02
$0.02
Customer
Bankruptcy and Asset Actions
$0.10
$0.10
Acquisition - Related
Costs
$0.07
$0.07
Non GAAP
Measure - EPS
$0.97
$0.89
$1.86
$1.05
$1.14
$2.19
$1.16
$1.23
$2.39
Sales
FY09 vs FY08
-16%
-25%
Non GAAP
EPS FY09 vs. FY08
-24%
-16%
Sales
FY10 vs FY09
7%
Non GAAP
EPS FY10 vs. FY09
28%
First
Half FY10
First
Half FY10
First
Half FY09
Second
Half FY09
First
Half FY09
Second
Half FY09
First
Half FY08
Second
Half FY08
Q2 FY’10
Earnings
Non GAAP
Appendix: ROCE
FY04 and FY08
20
$
Millions
Quarter
Ended
Q403
Q104
Q204
Q304
Q404
Q407
Q108
Q208
Q308
Q408
Numerator
Operating
Income Reported
181.7
200.2
231.3
223.7
380.4
348.6
393.7
373.1
Equity
Affiliate Income
17.8
19.2
19.8
21.8
25.3
42.4
46.5
30.8
Earnings
before tax as reported
199.5
219.4
251.1
245.5
405.7
391.0
440.2
403.9
Pension
Settlement Charge
0.0
0.0
0.0
0.0
0.0
26.3
0.0
0.0
Proforma
Stock Option Expense
(12.0)
(12.1)
(12.7)
(12.2)
0.0
0.0
0.0
0.0
Earnings
before tax ex items
187.5
207.3
238.4
233.3
405.7
417.3
440.2
403.9
Effective tax rate as
reported
26.3%
27.7%
27.6%
25.2%
26.9%
25.3%
25.0%
23.3%
Earnings
after tax as reported
147.0
158.6
181.8
183.6
296.6
292.1
330.2
309.8
Effective tax rate ex
items
25.4%
27.0%
27.0%
24.5%
26.9%
26.1%
25.0%
23.3%
Earnings
after tax ex items
139.9
151.3
174.0
176.1
296.6
308.4
330.2
309.8
4 Qtr
trailing AT earnings (numerator) - as reported
671.0
1,228.7
4 Qtr
trailing AT Earnings (numerator) - ex items
641.3
1,245.0
Denominator
Total
Debt
2,503.0
2,547.4
2,624.4
2,428.8
2,384.5
3,667.8
3,972.5
4,383.9
4,027.3
3,966.8
Air
Products Shareholders' Equity
3,759.3
3,982.5
4,141.0
4,245.6
4,420.0
5,495.6
5,603.0
5,524.3
5,568.7
5,030.7
Noncontrolling
Interest
105.2
107.3
99.3
85.1
88.8
92.9
99.3
117.4
115.5
136.2
Total
Capital
6,367.5
6,637.2
6,864.7
6,759.5
6,893.3
9,256.3
9,674.8
10,025.6
9,711.5
9,133.7
5 Qtr
Average Capital (denominator)
6,704.4
9,560.4
ROCE as
rptd (4 Qtr trail AT earnings / 5 pt avg capital)
10.0%
12.9%
ROCE
ex items (4 Qtr trail AT earnings/ 5 pt avg capital)
9.6%
13.0%
FY04
FY08
Q2 FY’10
Earnings
Non GAAP
Appendix:
ROCE Tax Rate FY04 and FY08
ROCE Tax Rate FY04 and FY08
21
Q104
Q204
Q304
Q404
Q108
Q208
Q308
Q408
Reported
Income
from Cont. Ops. Bef. Tax
169.0
187.6
221.8
217.6
364.9
352.1
400.7
361.1
Noncontrolling
Interest
(1.9)
(4.1)
(3.3)
(2.5)
(6.1)
(4.5)
(7.6)
(4.8)
Income
from Cont. Ops. Before Tax, after
Noncontrolling
Interest
167.1
183.5
218.5
215.1
358.8
347.6
393.1
356.3
Tax
Expense
43.9
50.8
60.4
54.3
96.5
87.8
98.1
82.9
Tax Rate
Reported
26.3%
27.7%
27.6%
25.2%
26.9%
25.3%
25.0%
23.3%
ITEMS
Operating
Income
Proforma
Option Expense
(12.0)
(12.1)
(12.7)
(12.2)
Pension
Settlement Charge
26.3
Tax
Exp
Proforma
Option Expense
(4.5)
(4.5)
(4.8)
(4.6)
Pension
Settlement Charge
9.8
Ex
Items
Income
from Cont. Ops. Before Tax
155.1
171.4
205.8
202.9
358.8
373.9
393.1
356.3
Tax
Expense
39.4
46.3
55.6
49.7
96.5
97.6
98.1
82.9
Tax Rate
ex Items
25.4%
27.0%
27.0%
24.5%
26.9%
26.1%
25.0%
23.3%
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you
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