10-KPeriod: FY2010

Air Products & Chemicals, Inc. Annual Report, Year Ended Sep 30, 2010

Filed November 23, 2010For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported strong financial performance for the fiscal year ending September 29, 2010, driven by a significant recovery in its Electronics and Performance Materials segment and new investments in Tonnage Gases. Sales increased by 9%, with underlying business growth of 8%, reflecting improved economic conditions and increased volumes. Operating income saw a substantial increase of 64% (or 25% on a non-GAAP basis), signaling effective cost management and operational efficiencies following global cost reduction plans. The company also increased its quarterly dividend, marking the 28th consecutive year of dividend growth. A significant development during the year was the commencement of a tender offer to acquire Airgas, Inc., the largest U.S. distributor of industrial gases, valued at approximately $7.4 billion. While the acquisition was pending at the time of filing, the company had incurred acquisition-related costs and secured committed financing. The company's outlook for 2011 was positive, anticipating continued economic recovery and growth in global manufacturing, particularly in Asia, with projections for volume growth to be the primary driver of earnings improvement.

Financial Highlights

56 data points
Beta

Revenue

$8.62B

29.3% Gross Margin

Net Income

$1.03B

11.9% Net Margin

EPS (Diluted)

$4.74

Total Assets

$13.51B

Cash & Equivalents

$373.70M

Free Cash Flow

$533.70M

Financial Statements
Beta
Revenue$8.62B
Cost of Revenue$6.29B
Gross Profit$2.52B
R&D Expenses$114.70M
SG&A Expenses$886.60M
Operating Income$1.27B
Interest Expense$121.90M
Net Income$1.03B
EPS (Basic)$4.85
EPS (Diluted)$4.74
Shares Outstanding (Basic)212.20M
Shares Outstanding (Diluted)217.10M

Key Highlights

  • 1Sales increased by 9% to $9.03 billion, with underlying business growth of 8%, primarily driven by the Electronics and Performance Materials and Tonnage Gases segments.
  • 2Operating income surged by 64% to $1.39 billion (or 25% higher on a non-GAAP basis to $1.49 billion), reflecting improved volumes, cost reductions, and favorable currency movements.
  • 3Income from continuing operations increased by 61% to $1.03 billion, with diluted EPS from continuing operations rising 58% to $4.74 (or 24% higher on a non-GAAP basis to $5.02).
  • 4The company increased its quarterly dividend to $0.49 per share, marking its 28th consecutive year of dividend increases.
  • 5A tender offer was commenced in February 2010 to acquire Airgas, Inc. for approximately $7.4 billion, representing a major strategic initiative.
  • 6Capital expenditures totaled $1.13 billion on a GAAP basis, with projections for 2011 indicating increased investment, primarily in the Tonnage Gases segment.
  • 7The company ended the fiscal year with a solid financial position, a debt-to-equity ratio of 42.0%, and maintained consistent access to commercial paper markets.

Frequently Asked Questions

Air Products experienced a strong recovery in fiscal year 2010, with sales up 9% and operating income significantly improving by 64% (on a GAAP basis). This growth was driven by increased volumes across key segments like Electronics and Performance Materials and Tonnage Gases, benefiting from an improving economic environment. The company also executed well on cost reduction initiatives, leading to enhanced profitability.

In February 2010, Air Products launched a tender offer to acquire Airgas for approximately $7.4 billion. This represents a significant strategic move to enhance its U.S. packaged industrial gas distribution capabilities. The acquisition was pending at the time of filing, with the company having incurred acquisition-related costs and secured financing. If successful, the acquisition would increase debt levels and require integration efforts.

The Merchant Gases segment saw a modest 3% increase in revenue, with operating income up 10%. Tonnage Gases reported a 14% revenue increase and an 11% rise in operating income, driven by new plant start-ups and improved demand. The Electronics and Performance Materials segment showed a robust 20% revenue increase and more than doubled its operating income, indicating a strong recovery in the electronics sector. The Equipment and Energy segment experienced a slight revenue decline of 4%, but operating income increased significantly by 59% due to higher LNG activity and asset sales.

Key financial risks identified include the impact of overall economic conditions on demand, potential asset impairments due to market weakness, intense competition, fluctuations in raw material and energy costs (though often passed through), regulatory compliance, and currency fluctuations. The company is also exposed to interest rate risk and pension liabilities. The pending Airgas acquisition also introduces transaction costs, integration risks, and increased debt obligations.