0000002969-18-000024.txt : 20180426 0000002969-18-000024.hdr.sgml : 20180426 20180426075114 ACCESSION NUMBER: 0000002969-18-000024 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20180426 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180426 DATE AS OF CHANGE: 20180426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR PRODUCTS & CHEMICALS INC /DE/ CENTRAL INDEX KEY: 0000002969 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 231274455 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04534 FILM NUMBER: 18776199 BUSINESS ADDRESS: STREET 1: 7201 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18195-1501 BUSINESS PHONE: 6104814911 MAIL ADDRESS: STREET 1: 7201 HAMILTON BLVD CITY: ALLENTOWN STATE: PA ZIP: 18195-1501 8-K 1 form8-k31mar2018.htm FORM 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) 26 April 2018
 
Air Products and Chemicals, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Delaware
 
001-04534
 
23-1274455
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
7201 Hamilton Boulevard, Allentown, Pennsylvania
 
18195-1501
(Address of Principal Executive Offices)
 
(Zip Code)
(610) 481-4911
Registrant’s telephone number, including area code
not applicable
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):
¨
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨







Item 2.02.  Results of Operations and Financial Condition.
On 26 April 2018, the Company issued a press release announcing its earnings for the second quarter of fiscal year 2018. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K. The press release, including all financial statements, is furnished and is not deemed to be filed.
Item 9.01.  Financial Statements and Exhibits.
(d)
Exhibits
99.1
Press Release dated 26 April 2018.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Air Products and Chemicals, Inc.
 
(Registrant)
 
 
 
Date: 26 April 2018
By:
/s/    M. Scott Crocco        
 
 
M. Scott Crocco
 
 
Executive Vice President and Chief Financial Officer





Exhibit Index
 
Exhibit No.
  
Description
  
Press Release dated 26 April 2018.


EX-99.1 2 exhibit99131mar2018.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

News Release
airproductslogopms347a02.jpg
 
 
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195-1501
www.airproducts.com



Air Products Reports Strong Fiscal 2018 Second Quarter Results;
GAAP EPS Up 36 Percent and Adjusted EPS Up 20 Percent over Prior Year

Q2 FY18 (all from continuing operations):
GAAP EPS of $1.89, up 36 percent from the prior year; GAAP net income of $416 million
Adjusted EPS of $1.71*, up 20 percent versus prior year
Adjusted EBITDA margin of 34.3 percent*, up 140 basis points versus prior year

Highlights
Expect to close on $1.3 billion Lu'An syngas supply joint venture in fiscal 2018 third quarter, onstream in phases
Awarded industrial gases supply to Samsung Electronics' second 3D V-NAND Fab in Western China
Signed agreement to purchase largest carbon dioxide business in Continental Europe, ACP Europe SA

Guidance
Increased fiscal 2018 adjusted EPS guidance to $7.25 to $7.40 per share, now up 15 to 17 percent over prior year. This increase is due in part to the expected contribution from the Lu'An project. Fiscal 2018 third quarter adjusted EPS guidance of $1.80 to $1.85 per share, up nine to 12 percent over fiscal 2017 third quarter.
Including the Lu'An project, expected fiscal year 2018 capital spending of $1.8 to $2.0 billion

*The results and guidance in this release, including in the highlights above, include references to non-GAAP continuing operations measures. These exclude discontinued operations and are identified by the word “adjusted” preceding the measure. A reconciliation of GAAP to non-GAAP results can be found below.

LEHIGH VALLEY, Pa. (April 26, 2018) – Air Products (NYSE: APD) today reported GAAP net income from continuing operations of $416 million and GAAP diluted earnings per share (EPS) from continuing operations of $1.89, up 37 and 36 percent, respectively from the prior year, for its fiscal second quarter ended March 31, 2018. These results include an income tax benefit of $0.18 EPS due to the restructuring of select foreign subsidiaries.
For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $378 million and diluted adjusted EPS from continuing operations of $1.71 both increased 20 percent over prior year.
Second quarter sales of $2.2 billion increased nine percent from the prior year on four percent higher volumes and five percent favorable currency. Volumes were higher in all three Industrial Gas regions, partially offset by lower activity from the Jazan project in Saudi Arabia. Pricing increased one percent, driven primarily by the China merchant business.
For the quarter, adjusted EBITDA of $739 million increased 13 percent over the prior year, driven by the higher volumes, positive pricing and favorable currency. Adjusted EBITDA margin of 34.3 percent increased 140 basis points over the prior year, primarily on the higher volumes.
Commenting on the results, Seifi Ghasemi, chairman, president and chief executive officer, said, “Our talented and committed Air Products team delivered another strong quarter, further improving safety performance and financial

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Page 2 of 18

results. Adjusted EPS of $1.71 increased 20 percent over prior year, our 16th consecutive quarter of year-on-year adjusted EPS growth. We also continued to generate a significant amount of investable cash. Adjusted EBITDA margin of 34.3 percent shows our people are continuing to focus on delivering strong operating performance while successfully winning new growth opportunities," he said.

Second Quarter Results by Business Segment
Industrial Gases – Americas sales of $913 million increased three percent over prior year, driven by higher hydrogen and merchant gases volumes. Adjusted EBITDA of $362 million increased three percent over the prior year, primarily driven by the higher volumes.
Industrial Gases – EMEA sales of $562 million increased 36 percent over prior year, driven by 20 percent higher volumes, 15 percent favorable currency and one percent favorable pricing. The higher volumes were primarily from the new hydrogen plant in India; merchant volumes also contributed positively. Adjusted EBITDA of $179 million increased 29 percent over the prior year on the higher volumes, pricing and currency. Adjusted EBITDA margin of 31.8 percent decreased 160 basis points from the prior year; excluding the India plant, which has comparatively high natural gas costs, adjusted EBITDA margin was up slightly compared to prior year.
Industrial Gases – Asia sales of $558 million increased 28 percent over prior year, driven by 17 percent higher volumes from new plants and base business growth, eight percent favorable currency, and three percent higher pricing. Adjusted EBITDA of $227 million increased 30 percent on the strong volumes, favorable currency and higher pricing.

Outlook
Ghasemi said, “Our team's performance continues to have us operating from a position of great strength. Air Products people around the world are working hard, every day, to drive our safety, productivity and operational performance higher. In addition, our very strong balance sheet and cash flow position mean we have the capability to invest at least $13 billion over the next five years in many growth opportunities we see, including acquisitions, asset buybacks and large projects. Our absolute focus on these two areas -- delivering operational excellence and strategically deploying capital for growth -- are our playbook for continuing to create value for our customers and shareholders."
Increasing guidance for fiscal 2018, Air Products now expects full-year adjusted EPS of $7.25 to $7.40 per share, up 15 to 17 percent over prior year. For the fiscal 2018 third quarter, Air Products expects adjusted EPS of $1.80 to $1.85 per share, up nine to 12 percent over the fiscal 2017 third quarter.
Including the Lu'An project, the capital expenditure forecast for fiscal year 2018 now is expected to be in the range of $1.8 to $2.0 billion on a GAAP and non-GAAP basis.

Management has provided adjusted EPS and adjusted tax rate guidance on a continuing operations basis. While Air Products might have additional impacts from the U.S. Tax Cuts and Jobs Act adopted in late 2017, or incur additional costs for items such as cost reduction actions and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact future GAAP EPS or the effective tax rate. Management does not believe these items to be representative of underlying business performance. Accordingly, management is unable to reconcile, without unreasonable effort, the Company’s forecasted range of adjusted EPS or the impact of the adjusted tax rate to a comparable GAAP range.


Earnings Teleconference
Access the Q2 earnings teleconference scheduled for 10:00 a.m. Eastern Time on April 26 by calling (323) 794-2551 and entering passcode 6702758, or access the Event Details page on Air Products’ Investor Relations web site.

About Air Products
Air Products (NYSE:APD) is a world-leading Industrial Gases company in operation for over 75 years. The Company’s core industrial gases business provides atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. Air Products is also the world’s leading supplier of liquefied natural gas process technology and equipment.

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Page 3 of 18

The Company had fiscal 2017 sales of $8.2 billion from continuing operations in 50 countries and has a current market capitalization of about $35 billion. Approximately 15,000 passionate, talented and committed employees from a diversity of backgrounds are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability and address the challenges facing customers, communities, and the world. 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, including statements about earnings guidance, business outlook and investment opportunities. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date this release is furnished. 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, global or regional economic conditions and supply and demand dynamics in market segments into which the Company sells; political risks, including the risks of unanticipated government actions; acts of war or terrorism; significant fluctuations in interest rates and foreign currencies from that currently anticipated; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; our ability to execute the projects in our backlog; asset impairments due to economic conditions or specific events; the impact of price fluctuations in natural gas and disruptions in markets and the economy due to oil price volatility; costs and outcomes of litigation or regulatory investigations; the success of productivity and operational improvement programs; the timing, impact, and other uncertainties of future acquisitions or divestitures, including reputational impacts; the Company’s ability to implement and operate with new technologies; the impact of changes in environmental, tax or other legislation, economic sanctions and regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described in the Company’s Form 10-K for its fiscal year ended September 30, 2017. 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.


#                    #                     #

Media Inquiries:
Katie McDonald, tel: (610) 481-3673; email: mcdonace@airproducts.com
Investor Inquiries:
Simon Moore, tel: (610) 481-7461; email: mooresr@airproducts.com


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Page 4 of 18

* Presented below are reconciliations of the reported GAAP results to the non-GAAP measures.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Millions of dollars unless otherwise indicated, except for per share data)
The Company has presented certain financial measures on a non-GAAP (“adjusted”) basis and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. The Company believes these non-GAAP measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.
In many cases, our non-GAAP measures are determined by adjusting the most directly comparable GAAP financial measure to exclude certain disclosed items (“non-GAAP adjustments”) that we believe are not representative of the underlying business performance. For example, Air Products restructured the Company to focus on its core Industrial Gases business. This had resulted in significant cost reduction and asset actions that we believe were important for investors to understand separately from the performance of the underlying business. The reader should be aware that we may incur similar expenses in the future. The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. Investors should also consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.
During the first quarter of fiscal year 2018, we adopted accounting guidance on the presentation of net periodic pension and postretirement benefit cost. Certain prior year information has been reclassified to conform to the fiscal year 2018 presentation. Refer to Note 2, New Accounting Guidance, to the consolidated financial statements for additional information.

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Page 5 of 18

CONSOLIDATED RESULTS
 
Continuing Operations
 
Three Months Ended 31 March
Q2 2018 vs. Q2 2017
Operating
Income
Operating
Margin
(A)
Equity Affiliates' Income
Income Tax
Provision
Net
Income
Diluted
EPS
2018 GAAP

$455.4

21.1
%

$43.7


$56.2


$416.4


$1.89

2017 GAAP
395.6

20.0
%
34.2

94.5

304.4

1.39

Change GAAP

$59.8

110
bp

$9.5


($38.3
)

$112.0


$.50

% Change GAAP
15
%
 
28
%
(41
)%
37
%
36
%
2018 GAAP

$455.4

21.1
%

$43.7


$56.2


$416.4


$1.89

Tax restructuring benefit

%

38.8

(38.8
)
(.18
)
2018 Non-GAAP Measure

$455.4

21.1
%

$43.7


$95.0


$377.6


$1.71

2017 GAAP

$395.6

20.0
%

$34.2


$94.5


$304.4


$1.39

Cost reduction and asset actions
10.3

.5
%

3.1

7.2

.03

Pension settlement loss

%

1.5

2.6

.01

2017 Non-GAAP Measure

$405.9

20.5
%

$34.2


$99.1


$314.2


$1.43

Change Non-GAAP Measure

$49.5

60
bp

$9.5


($4.1
)

$63.4


$.28

% Change Non-GAAP Measure
12
%
 
28
%
(4
)%
20
%
20
%
 
 
 
 
 
 
 
 
Continuing Operations
 
Six Months Ended 31 March
2018 vs. 2017
Operating
Income
Operating
Margin(A)
Equity Affiliates' Income
Income Tax
Provision
Net
Income
Diluted
EPS
2018 GAAP

$916.1

21.0
%

$57.5


$348.0


$572.0


$2.59

2017 GAAP
723.9

18.7
%
72.2

172.9

556.0

2.53

Change GAAP

$192.2

230
bp

($14.7
)

$175.1


$16.0


$.06

% Change GAAP
27
%
 
(20
)%
101
 %
3
%
2
%
2018 GAAP

$916.1

21.0
%

$57.5


$348.0


$572.0


$2.59

Tax reform repatriation

%
32.5

(420.5
)
453.0

2.06

Tax reform rate change and other

%

214.0

(214.0
)
(.97
)
Tax restructuring benefit

%

38.8

(38.8
)
(.18
)
2018 Non-GAAP Measure

$916.1

21.0
%

$90.0


$180.3


$772.2


$3.50

2017 GAAP

$723.9

18.7
%

$72.2


$172.9


$556.0


$2.53

Business separation costs
32.5

.8
%

3.7

26.5

.12

Tax costs associated with business separation

%

(2.7
)
2.7

.01

Cost reduction and asset actions
60.3

1.6
%

11.9

48.4

.23

Pension settlement loss

%

1.5

2.6

.01

2017 Non-GAAP Measure

$816.7

21.1
%

$72.2


$187.3


$636.2


$2.90

Change Non-GAAP Measure

$99.4

(10
)bp

$17.8


($7.0
)

$136.0


$.60

% Change Non-GAAP Measure
12
%
 
25
 %
(4
)%
21
%
21
%
(A) 
Operating margin is calculated by dividing operating income by sales.


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Page 6 of 18

ADJUSTED EBITDA
We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, other non‑operating income (expense), net, income tax provision (benefit), and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.
Below is a reconciliation of Income from Continuing Operations on a GAAP basis to Adjusted EBITDA:
2018
 
Q1
 
Q2
 
Q3
 
Q4
 
Q2 YTD Total
Income from Continuing Operations(A)
 

$162.7

 

$423.6

 


 


 

$586.3

Add: Interest expense
 
29.8

 
30.4

 


 


 
60.2

Less: Other non-operating income (expense), net
 
9.8

 
11.1

 


 


 
20.9

Add: Income tax provision
 
291.8

 
56.2

 


 


 
348.0

Add: Depreciation and amortization
 
227.9

 
240.0

 


 


 
467.9

Add: Tax reform repatriation - equity method investment
 
32.5

 

 


 


 
32.5

Adjusted EBITDA
 

$734.9

 

$739.1

 


 


 

$1,474.0

2017
 
Q1
 
Q2
 
Q3
 
Q4
 
Q2 YTD Total
Income from Continuing Operations(A)
 

$258.2

 

$310.1

 

$106.4

 

$480.5

 

$568.3

Add: Interest expense
 
29.5

 
30.5

 
29.8

 
30.8

 
60.0

Less: Other non-operating income (expense), net
 
(.2
)
 
5.3

 
3.7

 
7.8

 
5.1

Add: Income tax provision (benefit)
 
78.4

 
94.5

 
89.3

 
(1.3
)
 
172.9

Add: Depreciation and amortization
 
206.1

 
211.8

 
216.9

 
231.0

 
417.9

Add: Business separation costs
 
32.5

 

 

 

 
32.5

Add: Cost reduction and asset actions
 
50.0

 
10.3

 
42.7

 
48.4

 
60.3

Add: Goodwill and intangible asset impairment charge
 

 

 
162.1

 

 

Less: Gain on land sale
 

 

 

 
12.2

 

Add: Equity method investment impairment charge
 

 

 
79.5

 

 

Adjusted EBITDA
 

$654.9

 

$651.9

 

$723.0

 

$769.4

 

$1,306.8

 
(A) 
Includes net income attributable to noncontrolling interests.  

2018 vs. 2017
 
Q1
 
Q2
 
 
 
 
 
Q2 YTD Total
Change GAAP
 
 
 
 
 
 
 
 
 
 
Income from continuing operations change
 

($95.5
)
 

$113.5

 
 
 
 
 

$18.0

Income from continuing operations % change
 
(37
)%
 
37
%
 
 
 
 
 
3
%
Change Non-GAAP
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA change
 

$80.0

 

$87.2

 
 
 
 
 

$167.2

Adjusted EBITDA % change
 
12
 %
 
13
%
 
 
 
 
 
13
%
 

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Page 7 of 18

Below is a reconciliation of segment operating income to Adjusted EBITDA:
  
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Segment
Total
GAAP MEASURE
 
 
 
 
 
 
Three Months Ended 31 March 2018
 
 
 
 
 
 
Operating income (loss)

$222.3


$116.7


$148.7


$12.1


($44.4
)

$455.4

Operating margin
24.3
%
20.8
%
26.7
%
 
 
21.1
%
Three Months Ended 31 March 2017
 
 
 
 
 
 
Operating income (loss)

$223.2


$88.6


$112.3


$22.7


($40.9
)

$405.9

Operating margin
25.1
%
21.4
%
25.8
%
 
 
20.5
%
Operating income (loss) change

($.9
)

$28.1


$36.4


($10.6
)

($3.5
)

$49.5

Operating income (loss) % change
%
32
%
32
%
(47
)%
(9
)%
12
%
Operating margin change
(80
) bp
(60
) bp
90
 bp
 
 
60
 bp
NON-GAAP MEASURE
 
 
 
 
 
 
Three Months Ended 31 March 2018
 
 
 
 
 
 
Operating income (loss)

$222.3


$116.7


$148.7


$12.1


($44.4
)

$455.4

Add: Depreciation and amortization
122.3

50.7

62.6

1.9

2.5

240.0

Add: Equity affiliates' income
16.9

11.1

15.4

.3


43.7

Adjusted EBITDA

$361.5


$178.5


$226.7


$14.3


($41.9
)

$739.1

Adjusted EBITDA margin
39.6
%
31.8
%
40.7
%
 
 
34.3
%
Three Months Ended 31 March 2017
 
 
 
 
 
 
Operating income (loss)

$223.2


$88.6


$112.3


$22.7


($40.9
)

$405.9

Add: Depreciation and amortization
116.0

41.6

49.3

1.7

3.2

211.8

Add: Equity affiliates' income
13.0

8.3

12.9



34.2

Adjusted EBITDA

$352.2


$138.5


$174.5


$24.4


($37.7
)

$651.9

Adjusted EBITDA margin
39.6
%
33.4
%
40.0
%
 
 
32.9
%
Adjusted EBITDA change

$9.3


$40.0


$52.2


($10.1
)

($4.2
)

$87.2

Adjusted EBITDA % change
3
%
29
%
30
%
(41
)%
(11
)%
13
%
Adjusted EBITDA margin change

(160
) bp
70
 bp
 
 
140
 bp

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Page 8 of 18

 
 
 
 
 
 
 
  
Industrial
Gases–
Americas
Industrial
Gases–
EMEA
Industrial
Gases–
Asia
Industrial
Gases–
Global
Corporate
and other
Segment
Total
GAAP MEASURE
 
 
 
 
 
 
Six Months Ended 31 March 2018
 
 
 
 
 
 
Operating income (loss)

$439.5


$221.2


$324.2


$21.6


($90.4
)

$916.1

Operating margin
24.1
 %
20.5
%
27.0
%
 
 
21.0
%
Six Months Ended 31 March 2017
 
 
 
 
 
 
Operating income (loss)

$446.5


$178.6


$230.7


$30.9


($70.0
)

$816.7

Operating margin
25.5
 %
21.9
%
26.4
%
 
 
21.1
%
Operating income (loss) change

($7.0
)

$42.6


$93.5


($9.3
)

($20.4
)

$99.4

Operating income (loss) % change
(2
)%
24
%
41
%
(30
)%
(29
)%
12
%
Operating margin change
(140
) bp
(140
) bp
60
 bp
 
 
(10
) bp
NON-GAAP MEASURE
 
 
 
 
 
 
Six Months Ended 31 March 2018
 
 
 
 
 
 
Operating income (loss)

$439.5


$221.2


$324.2


$21.6


($90.4
)

$916.1

Add: Depreciation and amortization
240.1

99.8

119.4

3.5

5.1

467.9

Add: Equity affiliates' income
35.5

24.2

29.6

.7


90.0

Adjusted EBITDA

$715.1


$345.2


$473.2


$25.8


($85.3
)

$1,474.0

Adjusted EBITDA margin
39.2
 %
32.0
%
39.4
%
 
 
33.7
%
Six Months Ended 31 March 2017
 
 
 
 
 
 
Operating income (loss)

$446.5


$178.6


$230.7


$30.9


($70.0
)

$816.7

Add: Depreciation and amortization
227.8

83.8

96.0

3.7

6.6

417.9

Add: Equity affiliates' income
27.7

17.8

26.4

.3


72.2

Adjusted EBITDA

$702.0


$280.2


$353.1


$34.9


($63.4
)

$1,306.8

Adjusted EBITDA margin
40.0
 %
34.4
%
40.4
%
 
 
33.8
%
Adjusted EBITDA change

$13.1


$65.0


$120.1


($9.1
)

($21.9
)

$167.2

Adjusted EBITDA % change
2
 %
23
%
34
%
(26
)%
(35
)%
13
%
Adjusted EBITDA margin change
(80
) bp
(240
) bp
(100
) bp
 
 
(10
) bp
Below is a reconciliation of segment total operating income to consolidated operating income:
 
Three Months Ended
Six Months Ended
 
31 March
31 March
Operating Income
2018
2017
2018
2017
Segment total

$455.4


$405.9


$916.1


$816.7

Business separation costs



(32.5
)
Cost reduction and asset actions

(10.3
)

(60.3
)
Consolidated Total

$455.4


$395.6


$916.1


$723.9





-more-



Page 9 of 18

Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:
 
Three Months Ended
Six Months Ended
 
31 March
31 March
Equity Affiliates' Income
2018
2017
2018
2017
Segment total

$43.7


$34.2


$90.0


$72.2

Tax reform repatriation - equity method investment


(32.5
)

Consolidated Total

$43.7


$34.2


$57.5


$72.2


INCOME TAXES
The tax impact on our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. For additional discussion on the fiscal year 2018 non-GAAP tax adjustments, including the impact of the U.S. Tax Cuts and Jobs Act, refer to Note 1, Income Taxes, to the consolidated financial statements.
 
Effective Tax Rate

Three Months Ended
31 March
 
Six Months Ended
31 March
  
2018
2017
 
2018
2017
Income Tax Provision—GAAP

$56.2


$94.5

 

$348.0


$172.9

Income From Continuing Operations Before Taxes—GAAP

$479.8


$404.6

 

$934.3


$741.2

Effective Tax Rate—GAAP
11.7
%
23.4
%
 
37.2
%
23.3
%
Income Tax Provision—GAAP

$56.2


$94.5

 

$348.0


$172.9

Business separation costs


 

3.7

Tax costs associated with business separation


 

(2.7
)
Cost reduction and asset actions

3.1

 

11.9

Pension settlement loss

1.5

 

1.5

Tax reform repatriation


 
(420.5
)

Tax reform rate change and other


 
214.0


Tax restructuring benefit
38.8


 
38.8


Income Tax Provision—Non-GAAP Measure

$95.0


$99.1

 

$180.3


$187.3

Income From Continuing Operations Before Taxes—GAAP

$479.8


$404.6

 

$934.3


$741.2

Business separation costs


 

30.2

Cost reduction and asset actions

10.3

 

60.3

Pension settlement loss

4.1

 

4.1

Tax reform repatriation - equity method investment


 
32.5


Income From Continuing Operations Before Taxes—Non-GAAP Measure

$479.8


$419.0

 

$966.8


$835.8

Effective Tax Rate—Non-GAAP Measure
19.8
%
23.7
%
 
18.6
%
22.4
%


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Page 10 of 18

CAPITAL EXPENDITURES
We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash in the consolidated statements of cash flows within "Cash Provided by Operating Activities" if the arrangement qualifies as a capital lease.
Below is a reconciliation of capital expenditures on a GAAP basis to a non-GAAP measure: 
 
Three Months Ended
31 March
Six Months Ended
31 March
  
2018
2017
2018
2017
Capital expenditures for continuing operations—GAAP basis

$350.2


$293.1


$843.9


$541.1

Capital lease expenditures
5.9

1.8

12.3

5.8

Capital expenditures—Non-GAAP basis

$356.1


$294.9


$856.2


$546.9

We expect capital expenditures for fiscal year 2018 to be approximately $1,800 to $2,000 on a GAAP and non-GAAP basis.


-more-



Page 11 of 18

RETURN ON CAPITAL EMPLOYED (ROCE)
Return on capital employed (ROCE) is calculated on a continuing operations basis as earnings after-tax divided by five-quarter average total capital. Earnings after-tax is calculated based on trailing four quarters and is defined as the sum of net income from continuing operations attributable to Air Products, interest expense, after-tax, at our effective quarterly tax rate, and net income attributable to noncontrolling interests. This non-GAAP measure has been adjusted for the impact of the disclosed items detailed below. Total capital consists of total debt and total equity less noncontrolling interests and total assets of discontinued operations.
 
2018
 
2017
 
2016
 
Q2
Q1
 
Q4
Q3
Q2
Q1
 
Q4
Q3
Q2
Net income from continuing operations attributable to Air Products
$
416.4

$
155.6

 
$
474.2

$
104.2

$
304.4

$
251.6

 
$
289.4

$
250.3



Interest expense
30.4

29.8

 
30.8

29.8

30.5

29.5

 
32.2

35.1



Interest expense tax impact
(3.6
)
(19.1
)
 
.1

(13.6
)
(7.1
)
(6.9
)
 
(8.0
)
(12.7
)


     Interest expense, after-tax
26.8

10.7

 
30.9

16.2

23.4

22.6

 
24.2

22.4



Net income attributable to noncontrolling interests of continuing operations
7.2

7.1

 
6.3

2.2

5.7

6.6

 
5.0

5.4



Earnings After-Tax—GAAP
$
450.4

$
173.4

 
$
511.4

$
122.6

$
333.5

$
280.8

 
$
318.6

$
278.1



 
 
 
 
 
 
 
 
 
 
 
 
Disclosed items, after-tax
 
 
 
 
 
 
 
 
 
 
 
Business separation costs
$

$

 
$

$

$

$
26.5

 
$
19.3

$
6.5



Tax (benefit) costs associated with business separation


 

(8.2
)

2.7

 
4.1

47.7


Cost reduction and asset actions


 
30.9

30.0

7.2

41.2

 
7.2

8.7



Pension settlement loss


 
.6

3.4

2.6


 
1.4

.6



Goodwill and intangible asset impairment charge


 

154.1



 




Gain on land sale


 
(7.6
)



 




Equity method investment impairment charge


 

79.5



 




Loss on extinguishment of debt


 




 
4.3




Tax election benefit


 
(111.4
)



 




Tax reform repatriation

453.0

 




 




Tax reform rate change and other

(214.0
)
 




 




Tax restructuring benefit
(38.8
)

 




 


 
Earnings After-Tax—Non‑GAAP
$
411.6

$
412.4

 
$
423.9

$
381.4

$
343.3

$
351.2

 
$
354.9

$
341.6


 
 
 
 
 
 
 
 
 
 
 
 
Total Capital
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
112.5

$
87.1

 
$
144.0

$
143.4

$
122.3

$
156.1

 
$
935.8

$
1,043.0

$
1,478.5

Current portion of long-term debt
11.6

11.3

 
416.4

416.0

420.5

873.3

 
365.4

714.9

763.6

Long-term debt
3,442.4

3,414.9

 
3,402.4

3,366.6

3,300.4

3,289.0

 
3,909.7

3,908.1

3,556.9

     Total Debt
3,566.5

3,513.3

 
3,962.8

3,926.0

3,843.2

4,318.4

 
5,210.9

5,666.0

5,799.0

Total Equity
10,693.2

10,321.2

 
10,185.5

9,509.9

9,420.2

7,261.1

 
7,213.4

7,180.2

7,053.1

Noncontrolling interests of discontinued operations


 




 
(33.9
)
(32.9
)
(33.0
)
Assets of discontinued operations

(10.2
)
 
(10.2
)
(9.8
)
(9.8
)
(860.2
)
 
(1,968.5
)
(1,762.0
)
(1,707.1
)
Total Capital
$
14,259.7

$
13,824.3

 
$
14,138.1

$
13,426.1

$
13,253.6

$
10,719.3

 
$
10,421.9

$
11,051.3

$
11,112.0

 
 
 
 
 
 
 
 
 
 
 
 
Earnings After Tax—GAAP
$
1,257.8



 



$
1,211.0



 
 
 
 
Five-quarter average total capital
13,780.4



 



11,311.6



 
 
 
 
ROCE—GAAP items
9.1
%


 



10.7
%


 
 
 
 
Change GAAP-based Measure
(160
)bp


 
 






 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings After Tax—Non-GAAP
$
1,629.3



 



$
1,391.0



 
 
 
 
Five-quarter average total capital
13,780.4



 



11,311.6



 
 
 
 
ROCE—Non-GAAP items
11.8
%


 



12.3
%


 
 
 
 
Change Non-GAAP-based Measure
(50
)bp


 
 
 
 
 
 
 
 
 

-more-



Page 12 of 18

OUTLOOK
Guidance provided is on a non-GAAP continuing operations basis, which excludes the impact of certain items that we believe are not representative of our underlying business performance. While we might incur additional costs for items such as cost reduction actions and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact future GAAP EPS. Accordingly, management is unable to reconcile, without unreasonable effort, the Company’s forecasted range of adjusted EPS on a continuing operations basis to a comparable GAAP range.
 
 
Diluted EPS
 
 
Q3
 
Full Year
2017 GAAP
 

$.47

 

$5.16

Business separation costs
 

 
.12

Tax benefit associated with business separation
 
(.04
)
 
(.02
)
Cost reduction and asset actions
 
.14

 
.49

Pension settlement loss
 
.02

 
.03

Goodwill and intangible asset impairment charge
 
.70

 
.70

Gain on land sale
 

 
(.03
)
Equity method investment impairment charge
 
.36

 
.36

Tax election benefit
 

 
(.50
)
2017 Non-GAAP Measure
 

$1.65

 

$6.31

2018 Non-GAAP Outlook
 
1.80–1.85

 
7.25–7.40

Change Non-GAAP
 
.15–.20

 
.94–1.09

% Change Non-GAAP
 
9%–12%

 
15%–17%




-more-



Page 13 of 18

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
 
Three Months Ended
Six Months Ended
 
31 March
31 March
(Millions of dollars, except for share and per share data)
2018
2017
2018
2017
Sales

$2,155.7


$1,980.1


$4,372.3


$3,862.6

Cost of sales
1,506.5

1,403.8

3,078.3

2,720.5

Selling and administrative
194.6

177.6

386.2

342.3

Research and development
14.5

14.8

29.1

29.8

Business separation costs



32.5

Cost reduction and asset actions

10.3


60.3

Other income (expense), net
15.3

22.0

37.4

46.7

Operating Income
455.4

395.6

916.1

723.9

Equity affiliates' income
43.7

34.2

57.5

72.2

Interest expense
30.4

30.5

60.2

60.0

Other non-operating income (expense), net
11.1

5.3

20.9

5.1

Income From Continuing Operations Before Taxes
479.8

404.6

934.3

741.2

Income tax provision
56.2

94.5

348.0

172.9

Income From Continuing Operations
423.6

310.1

586.3

568.3

Income (Loss) From Discontinued Operations, net of tax

1,825.6

(1.0
)
1,873.8

Net Income
423.6

2,135.7

585.3

2,442.1

Net Income Attributable to Noncontrolling Interests of Continuing Operations
7.2

5.7

14.3

12.3

Net Income Attributable to Air Products

$416.4


$2,130.0


$571.0


$2,429.8

Net Income Attributable to Air Products
 
 
 
 
Income from continuing operations

$416.4


$304.4


$572.0


$556.0

Income (Loss) from discontinued operations

1,825.6

(1.0
)
1,873.8

Net Income Attributable to Air Products

$416.4


$2,130.0


$571.0


$2,429.8

Basic Earnings Per Common Share Attributable to Air Products
 
 
 
 
Income from continuing operations

$1.90


$1.40


$2.61


$2.55

Income from discontinued operations

8.38


8.61

Net Income Attributable to Air Products

$1.90


$9.78


$2.61


$11.16

Diluted Earnings Per Common Share Attributable to Air Products
 
 
 
 
Income from continuing operations

$1.89


$1.39


$2.59


$2.53

Income from discontinued operations

8.31


8.53

Net Income Attributable to Air Products

$1.89


$9.70


$2.59


$11.06

Weighted Average Common Shares – Basic (in millions)
219.4

217.9

219.2

217.8

Weighted Average Common Shares – Diluted (in millions)
220.8

219.7

220.7

219.6

Dividends Declared Per Common Share – Cash

$1.10


$.95


$2.05


$1.81

Other Data from Continuing Operations
 
 
 
 
Depreciation and amortization

$240.0


$211.8


$467.9


$417.9

Capital expenditures – Refer to page 10

$356.1


$294.9


$856.2


$546.9


-more-



Page 14 of 18

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
31 March
30 September
(Millions of dollars)
2018
2017
Assets
 
 
Current Assets
 
 
Cash and cash items

$3,066.9


$3,273.6

Short-term investments
137.0

404.0

Trade receivables, net
1,252.3

1,174.0

Inventories
339.9

335.4

Contracts in progress, less progress billings
98.5

84.8

Prepaid expenses
131.2

191.4

Other receivables and current assets
370.5

403.3

Current assets of discontinued operations

10.2

Total Current Assets
5,396.3

5,876.7

Investment in net assets of and advances to equity affiliates
1,305.6

1,286.9

Plant and equipment, at cost
20,522.5

19,547.8

Less: accumulated depreciation
11,704.8

11,107.6

Plant and equipment, net
8,817.7

8,440.2

Goodwill, net
815.0

721.5

Intangible assets, net
444.4

368.3

Noncurrent capital lease receivables
1,128.5

1,131.8

Other noncurrent assets
603.6

641.8

Total Noncurrent Assets
13,114.8

12,590.5

Total Assets

$18,511.1


$18,467.2

Liabilities and Equity
 
 
Current Liabilities
 
 
Payables and accrued liabilities

$1,551.6


$1,814.3

Accrued income taxes
76.6

98.6

Short-term borrowings
112.5

144.0

Current portion of long-term debt
11.6

416.4

Current liabilities of discontinued operations

15.7

Total Current Liabilities
1,752.3

2,489.0

Long-term debt
3,442.4

3,402.4

Other noncurrent liabilities
1,923.5

1,611.9

Deferred income taxes
699.7

778.4

Total Noncurrent Liabilities
6,065.6

5,792.7

Total Liabilities
7,817.9

8,281.7

Air Products Shareholders’ Equity
10,580.8

10,086.2

Noncontrolling Interests
112.4

99.3

Total Equity
10,693.2

10,185.5

Total Liabilities and Equity

$18,511.1


$18,467.2


-more-



Page 15 of 18

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 
31 March
(Millions of dollars)
2018
2017
Operating Activities
 
 
Net income

$585.3


$2,442.1

Less: Net income attributable to noncontrolling interests of continuing operations
14.3

12.3

Net income attributable to Air Products
571.0

2,429.8

(Income) Loss from discontinued operations
1.0

(1,873.8
)
Income from continuing operations attributable to Air Products
572.0

556.0

Adjustments to reconcile income to cash provided by operating activities:
 
 
Depreciation and amortization
467.9

417.9

Deferred income taxes
(94.4
)
(68.6
)
Tax reform repatriation
310.3


Undistributed earnings of unconsolidated affiliates
3.1

(31.5
)
Gain on sale of assets and investments
(2.4
)
(6.5
)
Share-based compensation
22.5

18.5

Noncurrent capital lease receivables
47.2

45.4

Write-down of long-lived assets associated with cost reduction actions

45.7

Other adjustments
44.7

34.0

Working capital changes that provided (used) cash, excluding effects of acquisitions and divestitures:
 
 
Trade receivables
(30.2
)
(53.8
)
Inventories
5.5

20.7

Contracts in progress, less progress billings
(12.2
)
(5.0
)
Other receivables
23.2

118.4

Payables and accrued liabilities
(260.4
)
(178.6
)
Other working capital
13.3

(51.4
)
Cash Provided by Operating Activities
1,110.1

861.2

Investing Activities
 
 
Additions to plant and equipment
(572.5
)
(532.2
)
Acquisitions, less cash acquired
(271.4
)

Investment in and advances to unconsolidated affiliates

(8.9
)
Proceeds from sale of assets and investments
34.4

13.5

Purchases of investments
(345.7
)
(1,823.2
)
Proceeds from investments
612.9

400.0

Other investing activities
(2.6
)
(1.6
)
Cash Used for Investing Activities
(544.9
)
(1,952.4
)
Financing Activities
 
 
Long-term debt proceeds
.5

1.3

Payments on long-term debt
(409.2
)
(469.7
)
Net decrease in commercial paper and short-term borrowings
(22.4
)
(816.6
)
Dividends paid to shareholders
(415.5
)
(374.0
)
Proceeds from stock option exercises
52.7

19.9

Other financing activities
(21.7
)
(22.7
)
Cash Used for Financing Activities
(815.6
)
(1,661.8
)
Discontinued Operations
 
 
Cash used for operating activities
(3.1
)
(520.8
)
Cash provided by investing activities
18.6

3,750.6

Cash provided by financing activities

69.5

Cash Provided by Discontinued Operations
15.5

3,299.3

Effect of Exchange Rate Changes on Cash
28.2

(7.8
)
(Decrease) Increase in Cash and Cash Items
(206.7
)
538.5

Cash and Cash items - Beginning of Year
3,273.6

1,330.8

Cash and Cash items - End of Period

$3,066.9


$1,869.3

Supplemental Cash Flow Information
 
 
Cash paid for taxes (net of refunds) - Continuing operations

$153.7


$275.0


-more-



Page 16 of 18

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
SUMMARY BY BUSINESS SEGMENTS
(Unaudited)
 
(Millions of dollars)
Industrial
Gases –
Americas
Industrial
Gases –
EMEA
Industrial
Gases –
Asia
Industrial
Gases –
Global
Corporate
and other
Segment
Total
Three Months Ended 31 March 2018
 
 
 
 
 
 
Sales

$913.2


$561.6


$557.6


$101.7


$21.6


$2,155.7

Operating income (loss)
222.3

116.7

148.7

12.1

(44.4
)
455.4

Depreciation and amortization
122.3

50.7

62.6

1.9

2.5

240.0

Equity affiliates' income
16.9

11.1

15.4

.3


43.7

Three Months Ended 31 March 2017
 
 
 
 
 
 
Sales

$890.1


$414.2


$435.9


$216.5


$23.4


$1,980.1

Operating income (loss)
223.2

88.6

112.3

22.7

(40.9
)
405.9

Depreciation and amortization
116.0

41.6

49.3

1.7

3.2

211.8

Equity affiliates' income
13.0

8.3

12.9



34.2

 
 
 
 
 
 
 
 
Industrial
Gases –
Americas
Industrial
Gases –
EMEA
Industrial
Gases –
Asia
Industrial
Gases –
Global
Corporate
and other
Segment
Total
Six Months Ended 31 March 2018
 
 
 
 
 
 
Sales

$1,823.0


$1,077.5


$1,201.2


$234.7


$35.9


$4,372.3

Operating income (loss)
439.5

221.2

324.2

21.6

(90.4
)
916.1

Depreciation and amortization
240.1

99.8

119.4

3.5

5.1

467.9

Equity affiliates' income
35.5

24.2

29.6

.7


90.0

Six Months Ended 31 March 2017
 
 
 
 
 
 
Sales

$1,754.0


$813.9


$874.2


$364.4


$56.1


$3,862.6

Operating income (loss)
446.5

178.6

230.7

30.9

(70.0
)
816.7

Depreciation and amortization
227.8

83.8

96.0

3.7

6.6

417.9

Equity affiliates' income
27.7

17.8

26.4

.3


72.2

Total Assets
 
 
 
 
 
 
31 March 2018

$5,915.0


$3,475.5


$4,779.1


$252.5


$4,089.0


$18,511.1

30 September 2017
5,840.8

3,276.1

4,412.1

279.6

4,648.4

18,457.0

Below is a reconciliation of segment total operating income to consolidated operating income:
 
Three Months Ended
Six Months Ended
 
31 March
31 March
Operating Income
2018
2017
2018
2017
Segment total

$455.4


$405.9


$916.1


$816.7

Business separation costs



(32.5
)
Cost reduction and asset actions

(10.3
)

(60.3
)
Consolidated Total

$455.4


$395.6


$916.1


$723.9


-more-



Page 17 of 18

Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:
 
Three Months Ended
Six Months Ended
 
31 March
31 March
Equity Affiliates' Income
2018
2017
2018
2017
Segment total

$43.7


$34.2


$90.0


$72.2

Tax reform repatriation - equity method investment


(32.5
)

Consolidated Total

$43.7


$34.2


$57.5


$72.2

Below is a reconciliation of segment total assets to consolidated total assets:
 
31 March
30 September
Total Assets
2018
2017
Segment total

$18,511.1


$18,457.0

Discontinued operations

10.2

Consolidated Total

$18,511.1


$18,467.2


-more-



Page 18 of 18

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Millions of dollars, unless otherwise indicated)
1. INCOME TAXES
Tax Restructuring Benefit
In the second quarter of 2018, we recognized a $38.8 tax benefit and a decrease in net deferred tax liabilities resulting from the restructuring of foreign subsidiaries.
U.S. Tax Cuts and Jobs Act
On 22 December 2017, the United States enacted the U.S. Tax Cuts and Jobs Act (“the Tax Act”) which significantly changed existing U.S. tax laws, including a reduction in the federal corporate income tax rate from 35% to 21%, a deemed repatriation tax on unremitted foreign earnings, as well as other changes. As a result of the Tax Act, our consolidated income statements for the six months ended 31 March 2018 reflect a net expense of $239.0 for the impacts recorded during the first quarter of fiscal year 2018. This includes an expense of $453.0 for the cost of the deemed repatriation tax and adjustments to the future cost of repatriation from foreign investments. This expense impacted our income tax provision by $420.5 and equity affiliate income by $32.5 for future costs of repatriation that will be borne by an equity affiliate. In addition, the income tax provision was benefited by $214.0 primarily from the re-measurement of our net U.S. deferred tax liabilities at the lower corporate tax rate.
We are reporting the impacts of the Tax Act provisionally based upon reasonable estimates. The impacts are not yet finalized as they are dependent on factors and analysis not yet known or fully completed, including but not limited to, the final cash balances for fiscal year 2018, further book to U.S. tax adjustments for the earnings of foreign entities, the issuance of additional guidance, as well as our ongoing analysis of the Tax Act. 
As a fiscal year-end taxpayer, certain provisions of the Tax Act become effective in our fiscal year 2018 while other provisions do not become effective until fiscal year 2019. The corporate tax rate reduction is effective as of 1 January 2018 and, accordingly, reduces our 2018 fiscal year U.S. federal statutory rate to a blended rate of approximately 24.5%.
2. NEW ACCOUNTING GUIDANCE
Presentation of Net Periodic Pension and Postretirement Benefit Cost
During the first quarter of fiscal year 2018, we adopted accounting guidance on the presentation of net periodic pension and postretirement benefit cost. Prior to adoption, all net periodic benefit costs were presented within operating costs, primarily within "Cost of sales" and "Selling and administrative." As a result of adoption, non-service costs (e.g., interest cost, expected return on plan assets, amortization of actuarial gains/losses, settlements) are now presented in our consolidated income statements outside of operating income in "Other non-operating income (expense), net." Prior period information has been reclassified to conform to the fiscal year 2018 presentation. The line item classification changes required by the new guidance did not impact the Company's pre-tax earnings or net income; however, "Operating income" and "Other non-operating income (expense), net" changed by immaterial offsetting amounts.

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