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Air Products & Chemicals, Inc. Annual Report, Year Ended Sep 30, 2003

Filing Date
Filed December 12, 2003
Period End
September 30, 2003
Security
APD
In the record · 2016–202610-K1010-Q338-K123

APD filed 10 annual reports (10-K), 33 quarterly reports (10-Q) and 123 current reports (8-K) between 2016 and 2026.

  1. Deal closed8-K · Jan ’17Jan ’17
  2. FY2018 annual report10-K · Nov ’18Nov ’18
  3. Leadership change8-K · Sep ’21Sep ’21
  4. Leadership change8-K · Aug ’25Aug ’25

01—Abstract

Summary

Summary of the 10-K filed December 12, 2003. Cited figures are marked; the original filing is the authoritative source.

Air Products & Chemicals' FY2003 10-K (fiscal year ended 30 September 2003) shows a year of higher sales but lower profits.

Sales rose 17% to $6.3 billiona, driven largely by acquisitions (Ashland's Electronic Chemicals business, U.S. homecare companies) and higher natural gas costs passed through to customers. However, operating income fell 22% to $604.5 million, and net income dropped 24% to $397.3 million ($1.78 diluted EPS vs. $2.36), mainly due to a $152.5 million global cost reduction plan charge, higher raw material and energy costs, higher pension expense, and weak electronics pricing. The effective tax rate fell to 26.9% from 31.4%, which cushioned the decline.

Balance sheet and cash flow were broadly stable. Operating cash flow was $1,036 millionb, roughly flat, while capital spending and acquisitions pushed investing outflows to $1,047 million. Total debt was about $2.5 billion, with a debt-to-capital ratio of 38.7%, improved from 39.6%.

Shareholder equity rose to $3.78 billionc. The company paid a quarterly dividend raised 10% to $0.23 per share in May 2003.

Management's 2004 outlook calls for early economic recovery, with domestic manufacturing growth of 2% to 6%, cost savings of about $38 milliond from the 2003 plan, and higher pension expense (about $133 million), while the company remains focused on portfolio management, growth in homecare and electronics, and capital discipline. Key risks to monitor include a strike at the Wilkes-Barre facility, dependence on a single VAM supplier, reliance on a sulfuric acid supplier that emerged from bankruptcy (with $45.1 million in loans outstanding), volatile natural gas and electricity costs, pension funding needs (about $200 million in cash contributions expected in 2004), and the planned sale of the European methylamines business.

02—Key points

Key Highlights

  1. Sales increased 17% to $6,297.3 million, driven by acquisitions (about 6% of growth), base business volume growth (5%), and pass-through of higher natural gas costs.
  2. Operating income fell 22% to $604.5 million, weighed down by a $152.5 million net global cost reduction plan charge, higher raw material and energy costs, and higher pension and SAP expenses.
  3. Net income declined 24% to $397.3 million; diluted EPS was $1.78, versus $2.36 in fiscal 2002. The 2003 plan cost $0.43 per share after tax.
  4. Effective tax rate fell to 26.9% from 31.4%, partly offsetting the lower operating income.
  5. Operating cash flow was steady at $1,036.0 million, while investing outflows rose to $1,046.6 million on $529.6 million of acquisitions, including Ashland Electronic Chemicals ($293.2 million).
  6. Debt-to-capital ratio improved to 38.7% from 39.6%; shareholders' equity rose to $3,782.5 million; quarterly dividend was raised 10% to $0.23 per share.
  7. The 2004 outlook anticipates economic recovery, $38 million in savings from the 2003 cost plan, higher pension expense (about $133 million), and capital expenditures of $650 to $750 million.

03—Questions

Frequently Asked Questions

  1. Why did profit fall even though sales grew 17%?

    Sales growth came largely from acquisitions and higher pass-through natural gas costs, not strong margins. Operating income fell $170.4 million because of the $152.5 million global cost reduction charge, higher raw material and energy costs, higher pension and SAP implementation costs, and lower electronics specialty material pricing. The lower tax rate offset part of the decline.

  2. What is the global cost reduction plan, and what will it save?

    The 2003 plan recorded about $152.7 million in charges, including severance, asset disposals, and facility closures in Gases and Chemicals. It eliminates 461 positions and is expected to finish by 30 June 2004. Cost savings are estimated at $38 million in 2004, rising to an annualized $59 million thereafter.

  3. What are the main risks to the business going forward?

    Key risks include a strike at the Wilkes-Barre facility that began in late November 2003, reliance on a single VAM supplier for the polymers business, and a sulfuric acid supplier emerging from bankruptcy (with $45.1 million in loans outstanding). Energy and raw material cost volatility, rising pension expense, and roughly $200 million in expected 2004 pension cash contributions also weigh on results. Environmental exposure is estimated at $9 to $21 million, with a $15 million accrual.

  4. Is the dividend safe, and how is the balance sheet positioned?

    The company raised its quarterly dividend 10% to $0.23 per share in May 2003, and management expects comparable dividends to continue. Total debt was about $2.5 billion at fiscal year-end, with a debt-to-capital ratio of 38.7%. The company holds A/A2 long-term ratings, and it plans to file an S-3 shelf of up to $1 billion in 2004 to refinance maturing debt.

04—Continue

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