1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 31 December 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 1-4534
AIR PRODUCTS AND CHEMICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 23-1274455
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7201 HAMILTON BOULEVARD, ALLENTOWN, PENNSYLVANIA 18195-1501
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 610-481-4911
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at 1 February 1995
-------------------------- ------------------------------
Common Stock, $1 par value 121,636,267
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -
31 December 1994 and 30 September 1994..................... 3
Consolidated Income -
Three Months Ended 31 December 1994 and 1993............... 4
Consolidated Cash Flows -
Three Months Ended 31 December 1994 and 1993............... 5
Notes to Consolidated Financial Statements.................... 6
Management's Discussion and Analysis.......................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................... 10
Signatures.................................................... 10
REMARKS:
The consolidated financial statements of Air Products and Chemicals, Inc. and
its subsidiaries (the "Company" or "Registrant") included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company, the
accompanying statements reflect all adjustments necessary to present fairly the
financial position, results of operations and cash flows for those periods
indicated, and contain adequate disclosure to make the information presented not
misleading. Such adjustments are of a normal, recurring nature unless otherwise
disclosed in the notes to consolidated financial statements. However, the
results for the periods indicated herein reflect certain adjustments, such as
the valuation of inventories on the LIFO cost basis, which can only be finally
determined on an annual basis. It is suggested that these consolidated
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report on
Form 10-K.
Results of operations for any three month period are not necessarily indicative
of the results of operations for a full year.
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3
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share)
31 December 30 September
1994 1994
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash items $ 103.9 $ 99.9
Trade receivables, less allowances for doubtful accounts 578.0 558.8
Inventories 304.9 292.4
Contracts in progress, less progress billings 98.6 103.2
Other current assets 127.6 123.4
-------- --------
TOTAL CURRENT ASSETS 1,213.0 1,177.7
-------- --------
INVESTMENTS 655.8 622.0
-------- --------
PLANT AND EQUIPMENT, at cost 6,680.8 6,519.5
Less - Accumulated depreciation 3,605.5 3,526.9
-------- --------
PLANT AND EQUIPMENT, net 3,075.3 2,992.6
-------- --------
GOODWILL 66.3 67.2
-------- --------
OTHER NONCURRENT ASSETS 175.6 176.7
-------- --------
TOTAL ASSETS $5,186.0 $5,036.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other $ 467.7 $ 488.1
Accrued liabilities 216.2 229.3
Accrued income taxes 59.6 38.0
Short-term borrowings 267.7 175.2
Current portion of long-term debt 145.7 145.8
-------- --------
TOTAL CURRENT LIABILITIES 1,156.9 1,076.4
-------- --------
LONG-TERM DEBT 997.9 922.5
-------- --------
DEFERRED INCOME AND OTHER NONCURRENT LIABILITIES 408.0 407.4
-------- --------
DEFERRED INCOME TAXES 436.0 423.5
-------- --------
TOTAL LIABILITIES 2,998.8 2,829.8
-------- --------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 124.7 124.7
Capital in excess of par value 474.8 477.6
Retained earnings 2,193.7 2,134.7
Unrealized gain on investments 41.5 --
Cumulative translation adjustments (50.4) (16.1)
Treasury stock, at cost (139.6) (57.0)
Shares in trust (457.5) (457.5)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 2,187.2 2,206.4
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,186.0 $5,036.2
======== ========
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4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(In millions, except per share)
Three Months Ended
31 December
---------------------
1994 1993
------- ------
SALES AND OTHER INCOME
Sales $ 920.8 $827.3
Other income (expense), net (0.8) 4.1
------- ------
920.0 831.4
------- ------
COSTS AND EXPENSES
Cost of sales 544.0 499.0
Selling, distribution and administrative 206.2 189.3
Research and development 23.9 22.3
------- ------
OPERATING INCOME 145.9 120.8
Income from equity affiliates, net of related expenses 9.4 6.3
Interest expense 23.9 19.8
------- ------
INCOME BEFORE TAXES 131.4 107.3
Income taxes 44.7 32.2
------- ------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 86.7 75.1
Cumulative effect of accounting changes -- 14.3
------- ------
NET INCOME $ 86.7 $ 89.4
======= ======
MONTHLY AVERAGE OF COMMON SHARES OUTSTANDING 113.0 114.2
------- ------
EARNINGS PER COMMON SHARE:
Income before cumulative effect of accounting changes $ .77 $ .66
Cumulative effect of accounting changes -- .12
------- ------
NET INCOME $ .77 $ .78
======= ======
DIVIDENDS DECLARED PER COMMON SHARE - Cash $ .24 $ .23
------- ------
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(In millions)
Three Months Ended
31 December
--------------------
1994 1993
------ ------
OPERATING ACTIVITIES
Net Income $86.7 $89.4
Adjustments to reconcile income to cash provided by operating
activities:
Depreciation 90.1 85.0
Deferred income taxes 18.2 17.8
Cumulative effect of accounting changes -- (14.3)
Other 8.5 4.0
Working capital changes that provided (used) cash:
Trade receivables (20.0) (1.7)
Inventories and contracts in progress (8.5) (5.5)
Payables, trade and other (29.4) (25.0)
Accrued liabilities (11.7) (21.7)
Other 16.4 (15.8)
Other (14.7) (0.5)
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES 135.6 111.7
------ ------
INVESTING ACTIVITIES
Additions to plant and equipment* (178.0) (128.8)
Investment in and advances to unconsolidated affiliates (19.5) (10.7)
Termination/Closure of leveraged interest rate swaps (0.9) --
Proceeds from sale of assets and investments .4 14.3
Other 2.4 5.0
------ ------
CASH USED FOR INVESTING ACTIVITIES (195.6) (120.2)
------ ------
FINANCING ACTIVITIES
Long-term debt proceeds* 81.0 32.5
Payments on long-term debt (3.0) (35.1)
Net increase in commercial paper 83.0 24.5
Net increase (decrease) in other short-term borrowings 9.6 (16.7)
Issuance of Treasury Stock for stock options 1.1 2.8
Dividends paid to shareholders (27.8) (26.2)
Purchase of Treasury Stock (89.5) (22.6)
Other 9.7 (10.4)
------ ------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 64.1 (51.2)
------ ------
Effect of Exchange Rate Changes on Cash (0.1) (5.8)
------ ------
Increase (Decrease) in Cash and Cash Items 4.0 (65.5)
Cash and Cash Items - Beginning of Year 99.9 238.4
------ ------
Cash and Cash Items - End of Period $103.9 $172.9
====== ======
*Excludes capital leases of $.9 million and $.5 million for the three months
ended 31 December 1994 and 1993, respectively.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective 1 October 1994, the company adopted Statement of Financial Accounting
Standard (SFAS) No.115, "Accounting for Certain Investments in Debt and Equity
Securities." Certain investments are reported at fair value with unrealized
gains and losses on an after-tax basis recorded in a separate component of
shareholders' equity. Prior year's amounts were not restated.
Effective 1 October 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS No. 109,
"Accounting for Income Taxes," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative effect of these accounting changes on
years prior to fiscal 1994 is included in net income of the three months ended
31 December 1993. The cumulative effect of each of these standards is as
follows: SFAS No. 106, $31.3 million charge; SFAS No. 109, $55.9 million gain;
and SFAS No. 112, $10.3 million charge.
The results for the three months ended 31 December 1993 include an expense of
$2.3 million for the charitable contribution of the remaining shares of a stock
investment in an insurance company. The tax benefit associated with this
contribution, based on fair values of the investment, was $4.6 million. This
transaction reduced the effective tax rate from 33.6% to 30.0% for the three
months ended 31 December 1993.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER FISCAL 1995 VS. FIRST QUARTER FISCAL 1994
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first quarter of fiscal 1995 of $920.8 million were 11% higher
than in the same quarter of last year while operating income was up $25.1
million, or 21%, to $145.9 million. Profits of equity affiliates increased
$3.1 million to $9.4 million for the three months ended 31 December 1994. Net
income was $86.7 million, or $.77 per share, compared to income before the
cumulative effect of accounting changes of $75.1 million, or $.66 per share, in
the year-ago quarter. Last year the company recognized the cumulative effect of
accounting changes of $14.3 million, or $.12 per share, from the required
adoption of three new accounting standards. Net income in the first quarter of
fiscal 1994 was $89.4 million, or $.78 per share. The first quarter of the
prior year included an after-tax gain of $2.3 million, or $.02 per share, from
the favorable tax treatment, net of expense, of the charitable contribution of
the remaining shares of a stock investment in an insurance company.
The improved profitability in first quarter of fiscal 1995 was due to the
strong operating performances of the three major business segments and from
reduced costs resulting from the 1993 workforce reduction program and asset
write-downs. This strong performance during the quarter reflects, in part,
improvements in manufacturing production, especially in the United States and
the recovering economies of Europe. This factor helped drive strong,
broad-based volume gains and record profits in the gases and chemicals
businesses.
In the fourth quarter of fiscal 1993, the company announced a program to reduce
the workforce by 7 to 10 percent over a two-year period and the write-down of
selected assets to net realizable value. As a result of these actions the
company expects the fiscal 1995 cost level will be approximately $15 million
($9 million after tax, or $.08 per share) lower than in fiscal 1994.
Approximately 40% of this cost reduction was realized in the first quarter of
fiscal 1995.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $524.9 million in the first quarter of fiscal 1995
increased 11% while operating income rose 17% to $109.1 million. The higher
results were due to strong volume growth worldwide, reduced cost levels, and
favorable currency effects. These benefits were moderated by slightly lower
merchant gas prices in the United States and Europe compared to a year ago.
Excluding European currency effects, sales of the segment rose 9%.
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Equity affiliates' income for the first quarter of fiscal 1995 was $2.5 million
compared to $1.0 million in the prior year. Income increased from the prior
year as a result of higher earnings of the Spanish and Asian joint ventures.
These gains were partially offset by lower earnings of a Mexican affiliate, due
principally to the devaluation of the peso.
CHEMICALS - Sales in the first quarter of fiscal 1995 of $323.8 million
increased 19% while operating income of $49.0 million increased 54% compared to
last year. Approximately half of the profit gain was in the major chemical
businesses, including polyvinyl alcohol, where volume-driven profits were
moderated somewhat by higher feedstock costs. The balance of the profit growth
resulted from higher methanol and ammonia prices compared to last year.
A portion of the ammonia capacity, which contributed $8 million to the current
quarter's operating income is scheduled to be shut down in the middle of the
second quarter and converted to hydrogen production. This conversion will take
the company out of the commodity ammonia business and provide needed capacity
for the strategic hydrogen program. Ammonia is both sold to third party
customers and is used as a feedstock for alkylamines and polyurethane
intermediates. Third party sales of ammonia were $14.5 million in the first
quarter of fiscal 1995. This portion of ammonia capacity contributed $35.7
million to trade sales and $18.2 million to operating income in fiscal 1994.
ENVIRONMENTAL AND ENERGY - Sales in the first quarter of 1995 of $13.7 million
and operating income of $.2 million were comparable to the prior year.
Equity affiliates' income for the first quarter of fiscal 1995 was $6.8 million
compared to $5.4 million in the prior year. The improved results reflect the
stronger operations at the waste-to-energy facilities.
EQUIPMENT AND TECHNOLOGY - Sales of $58.4 million decreased $11.4 million from
the year-ago quarter while operating income was a loss of $1.3 million
compared to income of $7.2 million. This year's results reflect decreased
levels of business activity.
CORPORATE AND OTHER - The net expense was $11.1 million compared to $11.3
million in the first quarter of the prior year. Last year's results included
an expense of $2.3 million for the charitable contribution of the remaining
shares of a stock investment in an insurance company. Exclusive of this item
corporate expenses increased due primarily to higher foreign exchange losses.
INTEREST
Interest expense was $23.9 million compared to $19.8 million in the first
quarter of fiscal 1994. The increase in expense was due to higher rates
combined with a higher level of average debt outstanding.
INCOME TAXES
The effective tax rate on income was 34.0% for the three months ended 31
December 1994 compared with 30.0% for the same quarter of the previous year.
The effective tax rate for the three months ended 31 December 1993 reflects
the favorable tax treatment of the
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charitable contribution of the remaining shares of a stock investment in an
insurance company. This transaction reduced the effective tax rate from 33.6%
to 30.0% for the three months ended 31 December 1993. The increase in the
effective tax rate from 33.6% to 34.0% was due principally to lower foreign tax
credits.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first three months of fiscal 1995 totaled
$198.4 million compared to $140.0 million in the corresponding period of the
prior year. Additions to plant and equipment were $178.0 million during the
first three months of fiscal 1995 versus $128.8 million last year. Capital
expenditures for new plant and equipment and investment in unconsolidated
affiliates are expected to be in the range of $700-800 million in fiscal 1995.
Cash provided by operating activities during the first three months of fiscal
1995 ($135.6 million) combined with cash provided by long-term debt and
additional commercial paper ($81.0 million and $83.0 million, respectively)
were used largely for capital expenditures ($198.4 million), the purchase of
treasury stock ($89.5 million), and cash dividends ($27.8 million). Cash and
cash items increased $4.0 million from $99.9 million at the beginning of the
fiscal year to $103.9 million at 31 December 1994.
Total debt at 31 December 1994 and 30 September 1994, expressed as a percentage
of the sum of total debt and shareholders' equity, was 39% and 36%,
respectively. Total debt increased from $1,243.5 million at 30 September 1994
to $1,411.3 million at 31 December 1994.
There was $231.0 million of commercial paper outstanding at 31 December 1994.
Domestic lines of credit totaled $400.0 million. Additional commitments
totaling $95.7 million are maintained by the Company's foreign subsidiaries, of
which $.6 million was utilized at 31 December 1994.
At 31 December 1994, the Company had an unutilized shelf registration for $250
million of long-term debt securities. In January 1995, $100 million of 8.35%
Notes due 2002 were issued under this shelf registration.
Interest rate hedge agreements are entered into with the intent of reducing
interest rate risks and costs inherent in the company's debt portfolio. The
company enters into these agreements to change the fixed/variable interest rate
mix of the debt portfolio to reduce the company's aggregate risk to movements
in interest rates. Most of these agreements change long-term fixed-rate debt
to variable-rate debt. The notional principal of interest rate hedge
agreements outstanding at 31 December 1994 is $516.1 million. The fair value
of the agreements is a loss of $42.4 million. As of 30 September 1994, interest
rate hedge agreements were outstanding with a notional principal amount and
fair value of $566.5 million and a loss of $39.5 million, respectively. The
decline in fair value of these interest rate hedge agreements was due to rising
interest rates.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 December 1994 is $1,131.4 million compared to a book value of
$1,143.6 million.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule which is submitted electronically
to Securities and Exchange Commission, for information only
and not filed.
(b) Current Reports on Form 8-K dated 21 October 1994 and 26
October 1994 were filed by the registrant during the
quarter ended 31 December 1994 in which Item 5 of such form
was reported.
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 thereunto duly authorized.
Air Products and Chemicals, Inc.
----------------------------------
(Registrant)
Date: February 10, 1995 By: /s/ G. A. White
----------------------------------
G. A. White
Senior Vice President - Finance
(Chief Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ---------- ----------------
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
1
EXHIBIT (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
Three Months Ended
Year Ended 30 September 31 December
---------------------------------------------------------
1990 1991 1992 1993 1994 1994
------ ------ ------ ------ ------ ------------------
(Dolllar amounts in millions)
EARNINGS:
Income before extraordinary item and the
cumulative effect of accounting changes: $229.9 $248.9 $277.0 $200.9 $233.5 $ 86.7
Add (deduct):
Provision for income taxes 107.7 113.9 130.8 103.0 95.2 44.8
Fixed charges, excluding capitalized
interest 112.2 121.8 133.4 127.3 127.1 35.8
Capitalized interest amortized
during the period 6.6 6.7 7.5 7.7 8.0 1.8
Undistributed earnings of less-than
fifty-percent-owned affiliates (12.0) (8.6) (12.5) (8.1) (2.8) (1.9)
------ ------ ------ ------ ------ ------
Earnings, as adjusted $444.4 $482.7 $536.2 $430.8 $461.0 $167.2
====== ====== ====== ====== ====== ======
FIXED CHARGES:
Interest on indebtedness, including capital
lease obligations $104.5 $112.8 $125.1 $118.6 $118.2 $ 33.7
Capitalized interest 26.6 28.7 4.1 6.3 9.7 2.5
Amortization of debt discount premium
and expense 1.3 2.1 .8 .7 .8 .2
Portion of rents under operating leases
representative of the interest factor 6.4 6.9 7.5 8.0 8.1 1.9
------ ------ ------ ------ ------ ------
Fixed charges $138.8 $150.5 $137.5 $133.6 $136.8 $ 38.3
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES 3.2 3.2 3.9 3.2 3.4 4.4
====== ====== ====== ====== ====== ======
5
1,000,000
3-MOS
SEP-30-1995
OCT-01-1994
DEC-31-1994
104
0
592
14
305
1213
6681
3606
5186
1157
998
125
0
0
2062
5186
921
921
544
544
24
0
24
131
45
87
0
0
0
87
.77
.77
