1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 1995
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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.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 23-1274455
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(State of Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
7201 Hamilton Boulevard, Allentown, Pennsylvania 18195-1501
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 610-481-4911
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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 May 1995
- -------------------------- ------------------------------
Common Stock, $1 par value 121,851,951
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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Part I. Financial Information
Consolidated Balance Sheets -
31 March 1995 and 30 September 1994 ........................................................................ 3
Consolidated Income -
Three Months and Six Months Ended 31 March 1995 and 1994 ................................................... 4
Consolidated Cash Flows -
Six Months Ended 31 March 1995 and 1994 .................................................................... 5
Notes to Consolidated Financial Statements .................................................................... 6
Management's Discussion and Analysis .......................................................................... 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security-Holders .................................................. 14
Item 6. Exhibits and Reports on Form 8-K ..................................................................... 15
Signatures .................................................................................................... 15
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 and
report on Form 10-Q for the quarter ended 31 December 1994.
Results of operations for any three or six month periods are not necessarily
indicative of the results of operations for a full year.
3
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share)
31 MARCH 30 SEPTEMBER
ASSETS 1995 1994
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CURRENT ASSETS
Cash and cash items $ 93.8 $ 99.9
Trade receivables, less allowances for doubtful accounts 625.9 558.8
Inventories 303.4 292.4
Contracts in progress, less progress billings 108.4 103.2
Other current assets 127.2 123.4
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TOTAL CURRENT ASSETS 1,258.7 1,177.7
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INVESTMENTS 641.4 622.0
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PLANT AND EQUIPMENT, at cost 7,013.6 6,519.5
Less - Accumulated depreciation 3,755.2 3,526.9
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PLANT AND EQUIPMENT, net 3,258.4 2,992.6
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GOODWILL 67.5 67.2
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OTHER NONCURRENT ASSETS 187.0 176.7
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TOTAL ASSETS $5,413.0 $5,036.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other $ 503.2 $ 488.1
Accrued liabilities 240.7 229.3
Accrued income taxes 53.3 38.0
Short-term borrowings 210.7 175.2
Current portion of long-term debt 145.7 145.8
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TOTAL CURRENT LIABILITIES 1,153.6 1,076.4
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LONG-TERM DEBT 1,102.6 922.5
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DEFERRED INCOME AND OTHER NONCURRENT
LIABILITIES 432.9 407.4
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DEFERRED INCOME TAXES 442.7 423.5
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TOTAL LIABILITIES 3,131.8 2,829.8
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SHAREHOLDERS' EQUITY
Common Stock, par value $1 per share 124.7 124.7
Capital in excess of par value 471.5 477.6
Retained earnings 2,255.3 2,134.7
Unrealized gain on investments 39.5 --
Cumulative translation adjustments (19.3) (16.1)
Treasury Stock, at cost (133.0) (57.0)
Shares in trust (457.5) (457.5)
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TOTAL SHAREHOLDERS' EQUITY 2,281.2 2,206.4
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,413.0 $5,036.2
======== ========
4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(In millions, except per share)
Three Months Six Months
Ended 31 March Ended 31 March
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1995 1994 1995 1994
------ -------- -------- --------
SALES AND OTHER INCOME
Sales $982.9 $858.6 $1,903.7 $1,685.9
Other income (expense), net 0.4 (0.8) (0.4) 3.3
------ ------ -------- --------
983.3 857.8 1,903.3 1,689.2
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COSTS AND EXPENSES
Cost of sales 590.9 518.2 1,134.9 1,017.2
Selling, distribution, and 214.3 193.4 420.5 382.7
administrative
Research and development 26.3 23.8 50.2 46.1
------ ------ -------- --------
OPERATING INCOME 151.8 122.4 297.7 243.2
Income from equity affiliates, net of
related expenses 8.5 5.6 17.9 11.9
Loss on leveraged interest rate swaps -- 96.4 -- 96.4
Interest expense 26.1 17.9 50.0 37.7
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INCOME BEFORE TAXES 134.2 13.7 265.6 121.0
Income taxes 45.6 0.2 90.3 32.4
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INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES 88.6 13.5 175.3 88.6
Cumulative effect of accounting changes -- -- -- 14.3
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NET INCOME $ 88.6 $ 13.5 $ 175.3 $ 102.9
====== ====== ======== ========
MONTHLY AVERAGE OF COMMON
SHARES OUTSTANDING -- -- 112.4 114.0
------ ------ -------- --------
EARNINGS PER COMMON SHARE:
Income before cumulative effect of
accounting changes $ .79 $ .12 $ 1.56 $ .78
Cumulative effect of accounting
changes -- -- -- .12
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NET INCOME $ .79 $ .12 $ 1.56 $ .90
====== ====== ======== ========
DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .25 $ .23 $ .49 $ .46
------ ------ -------- --------
5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(In millions)
Six Months Ended
31 March
----------------------
1995 1994
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OPERATING ACTIVITIES
Net Income $ 175.3 $ 102.9
Adjustments to reconcile income to cash provided by
operating activities:
Depreciation 183.0 169.6
Loss on leveraged interest rate swaps -- 96.4
Deferred income taxes 27.4 (11.6)
Cumulative effect of accounting changes -- (14.3)
Other 11.8 26.3
Working capital changes that provided (used) cash:
Trade receivables (59.1) (44.9)
Inventories and contracts in progress (11.4) (17.2)
Payables, trade and other (15.3) (22.5)
Accrued liabilities 1.3 (11.8)
Other 12.2 (20.8)
Other (14.9) 0.8
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CASH PROVIDED BY OPERATING ACTIVITIES 310.3 252.9
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INVESTING ACTIVITIES
Additions to plant and equipment* (384.4) (265.1)
Investment in and advances to unconsolidated affiliates (22.4) (11.6)
Proceeds from sale of assets and investments 7.6 8.3
Other .6 (1.2)
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CASH USED FOR INVESTING ACTIVITIES (398.6) (269.6)
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FINANCING ACTIVITIES
Long-term debt proceeds 181.0 117.6
Payments on long-term debt (13.1) (53.5)
Net increase in commercial paper 16.0 22.0
Net increase (decrease) in other short-term borrowings 18.8 (53.3)
Issuance of Treasury Stock for stock options 7.3 6.5
Dividends paid to shareholders (54.7) (52.3)
Purchase of Treasury Stock (95.5) (85.6)
Other 19.2 7.5
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CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 79.0 (91.1)
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Effect of Exchange Rate Changes on Cash 3.2 (3.0)
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Decrease in Cash and Cash Items (6.1) (110.8)
Cash and Cash Items - Beginning of Year 99.9 238.4
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Cash and Cash Items - End of Period $ 93.8 $ 127.6
======= =======
*Excludes capital leases of $2.0 million and $1.3 million for the six months
ended 31 March 1995 and 1994, respectively.
6
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.
The second quarter of fiscal 1994 includes an unrealized loss of $96.4 million
($59.6 million after tax, or $.53 per share) relating to certain leveraged
interest rate swap contracts. This loss reflects the decline in market value of
these contracts due to higher interest rates. Subsequent to the second quarter
of fiscal 1994, all of these contracts were terminated or closed.
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 six months ended 31
March 1994. 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 impact of these accounting changes on income for
the six months ended 31 March 1994, exclusive of the cumulative effect as of 1
October 1993, is not material.
The results for the six months ended 31 March 1994 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 value of the investment, was $4.6 million.
7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER FISCAL 1995 VS. SECOND QUARTER FISCAL 1994
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RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the second quarter of fiscal 1995 of $982.9 million were 14% higher
than in the same quarter of last year while operating income increased $29.4
million, or 24%, to $151.8 million. Profits of equity affiliates increased $2.9
million to $8.5 million for the three months ended 31 March 1995. Net income was
$88.6 million, or $.79 per share, compared to net income of $13.5 million, or
$.12 per share, in the year-ago quarter. During the second quarter of fiscal
1994 the Company recognized an unrealized loss of $96.4 million ($59.6 million
after tax, or $.53 per share) for the decline in market value of certain
leveraged interest rate swap contracts. Excluding the effect of this charge, net
income would have been $73.1 million, or $.65 per share.
The gases and chemicals businesses achieved record results in the second quarter
of fiscal 1995. This strong performance reflects broad-based volume gains
largely due to improved economies around the world. These gains, however, were
offset slightly by lower results in the environmental and energy and equipment
and services segments.
In the fourth quarter of fiscal 1993, the Company announced a program to reduce
the workforce by 7% to 10% 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 pre-tax cost level will be approximately $15 million lower than
in fiscal 1994. Approximately 20% of this cost reduction was realized in the
second quarter of fiscal 1995.
The Company has an investment in an equity affiliate and two small consolidated
subsidiaries in Mexico. The devaluation of the peso did not have a material
impact on the consolidated results of operations.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $545.4 million in the second quarter of fiscal 1995
increased 13% while operating income rose 15% to $109.4 million. Strong volume
growth worldwide in both merchant and tonnage gases was the principal factor
contributing to the improved results. Merchant gas prices in the United States
were up from the prior year while in Europe merchant prices declined. Sales and
operating income were both up approximately 4% from the prior year due to
European currency effects.
8
Equity affiliates' income for the second quarter of fiscal 1995 was $1.7 million
compared to a loss of $.4 million in the prior year. The key factors
contributing to the higher profitability were the improved results of the
Spanish joint venture and the income contribution of an affiliate in South
Africa. These gains were partially offset by the lower results of a Mexican
affiliate, due principally to the devaluation of the peso.
CHEMICALS - Sales in the second quarter of fiscal 1995 of $351.3 million
increased 23% while operating income of $53.0 million increased 57% compared to
last year. Profits were driven by increased volumes across all major product
lines and higher prices in most businesses. Increased feedstock costs moderated
a portion of the gain. Last year polyvinyl alcohol margins were depressed due to
excess worldwide capacity and intense competition. Results also benefited from
higher methanol and ammonia prices on a year-to-year basis, though there was a
decline in methanol prices during the quarter.
A portion of the ammonia capacity, which contributed $4 million to the
second-quarter's operating income, was shut down in February and is being
converted to provide needed capacity for the Company's 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 $10.0 million in the second quarter of fiscal 1995.
ENVIRONMENTAL AND ENERGY - Sales of $17.3 million decreased $2.0 million from
the prior year while operating income was $.4 million compared to $3.5 million
in the year-ago quarter. The prior year results benefited from an equipment sale
associated with the construction of a cogeneration facility for an
unconsolidated affiliate. During the second quarter of fiscal 1995, income from
operating services provided to a cogeneration facility in California compared
unfavorably to the prior year due to weather-related power curtailments at the
facility.
Equity affiliates' income for the second quarter of fiscal 1995 was $6.8 million
compared to $6.1 million in the prior year. The results reflect stronger
operations at the waste-to-energy facilities partially offset by the unfavorable
impact of weather-related power curtailments at a cogeneration facility.
EQUIPMENT AND SERVICES - Sales of $68.9 million equaled the level of the prior
year while operating income was a loss of $2.8 million compared to income of
$1.9 million. The loss in operating income was due to a less profitable project
mix and higher project costs.
CORPORATE AND OTHER - The net expense was $8.2 million compared to $11.8 million
in the second quarter of the prior year. Corporate expenses decreased due
primarily to lower foreign exchange losses.
9
LOSS ON LEVERAGED INTEREST RATE SWAPS
The second quarter of fiscal 1994 includes an unrealized loss $96.4 million
($59.6 million after tax, or $.53 per share) relating to certain leveraged
interest rate swap contracts. This loss reflects the decline in market value of
these contracts due to higher interest rates. Subsequent to the second quarter
of fiscal 1994, all of these contracts were terminated or closed.
INTEREST
Interest expense was $26.1 million compared to $17.9 million in the second
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 quarter ended 31 March 1995.
Excluding the charge for the unrealized loss on the interest rate swap
contracts, the effective tax rate on income for the quarter ended 31 March 1994
was 33.6%. The increase in the effective tax rate from 33.6% to 34.0% was due
principally to lower investment and foreign tax credits.
SIX MONTHS FISCAL 1995 VS. SIX MONTHS FISCAL 1994
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RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first six months of fiscal 1995 of $1,903.7 million were 13% higher
than in the comparable period of the prior year while operating income increased
$54.5 million, or 22%, to $297.7 million. Profits of equity affiliates increased
$6.0 million to $17.9 million for the six months ended 31 March 1995. Net income
was $175.3 million, or $1.56 per share, for the first six months of fiscal 1995
compared to income before the cumulative effect of accounting changes of $88.6
million, or $.78 per share, for the comparable period last year. During the
second quarter of fiscal 1994 the Company recognized an unrealized loss of $96.4
million ($59.6 million after tax, or $.53 per share) associated with its
leveraged interest rate swap contracts. Last year's first half also 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. Excluding the effect of
these items, income before the cumulative effect of accounting changes would
have been $145.9 million, or $1.29 per share. 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 was
$102.9 million, or $.90 per share, in the prior year.
In the fourth quarter of fiscal 1993, the Company announced a program to reduce
the workforce by 7% to 10% 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
10
1995 pre-tax cost level will be approximately $15 million lower than in fiscal
1994. Approximately 60% of this cost reduction was realized in the first six
months of fiscal 1995.
The Company has an investment in an equity affiliate and two small consolidated
subsidiaries in Mexico. The devaluation of the peso did not have a material
impact on the consolidated results of operations.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $1,070.3 million in the first half of fiscal 1995
increased 12% while operating income rose 16% to $218.5 million. The higher
results were due to strong volume growth worldwide in both merchant and tonnage
gases. Average merchant gas pricing in the United States for the first half of
fiscal 1995 was comparable to the prior year while average pricing in Europe
declined in comparison to the prior year. Sales and operating income were both
up approximately 3% from the prior year due to European currency effects.
Equity affiliates' income was $4.2 million compared to $.6 million in the prior
year. The key factors contributing to the higher profitability were the improved
results of the Spanish and Asian joint ventures and the income contribution of
an affiliate in South Africa. These gains were partially offset by lower results
of a Mexican affiliate, due principally to the devaluation of the peso.
CHEMICALS - Sales in the first half of fiscal 1995 of $675.1 million increased
21% while operating income of $102.0 million increased 56% compared to last
year. The improved profitability was due to increased volumes across all major
product lines and higher prices in most businesses. Increased feedstock costs
moderated a portion of the gain. Results also benefited significantly from
higher methanol and ammonia prices on a year-to-year basis, though there was a
decline in methanol prices in the second quarter of fiscal 1995.
A portion of the ammonia capacity, which contributed $12 million to operating
income during the first half of fiscal 1995, was shut down in February and is
being 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 $24.5 million in the first half 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 of $31.0 million decreased $2.6 million from
the prior year while operating income was $.6 million compared to $3.7 million
for the first six months of fiscal 1994. The prior year results benefited from
an equipment sale associated with the construction of a cogeneration facility
for an unconsolidated affiliate. During the first half of fiscal 1995, income
from operating services provided to a cogeneration facility in California
compared unfavorably to the prior year due to weather-related power curtailments
at the facility.
11
Equity affiliates' income for the second half of fiscal 1995 was $13.6 million
compared to $11.5 million in the prior year. The results reflect stronger
operations at the waste-to-energy facilities partially offset by the unfavorable
impact of weather-related power curtailments at a cogeneration facility.
EQUIPMENT AND SERVICES - Sales of $127.3 million decreased $11.4 million from
the first half of the prior year while operating income was a loss of $4.1
million compared to income of $9.1 million. This year's results reflect
decreased levels of business activity, a less profitable project mix, and higher
project costs.
CORPORATE AND OTHER - The net expense was $19.3 million compared to $23.1
million in the first six months 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,
the net corporate expense declined in fiscal 1995 due primarily to lower foreign
exchange losses.
LOSS ON LEVERAGED INTEREST RATE SWAPS
The second half of fiscal 1994 includes an unrealized loss $96.4 million ($59.6
million after tax, or $.53 per share) relating to certain leveraged interest
rate swap contracts. This loss reflects the decline in market value of these
contracts due to higher interest rates. Subsequent to the second quarter of
fiscal 1994, all of these contracts were terminated or closed.
INTEREST
Interest expense was $50.0 million compared to $37.7 million in the first six
months 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 six months ended 31 March
1995. Excluding the charge for the unrealized loss on the interest rate swap
contracts, the effective tax rate on income for the six months ended 31 March
1994 was 31.8%. The effective tax rate of 31.8% for the first half of 1994
reflects the favorable tax treatment of 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 value of the investment, was
$4.6 million. This transaction reduced the effective tax rate, excluding the
loss on interest rate swap contracts, from 33.6% to 31.8% for the six months
ended 31 March 1994. The increase in the effective tax rate from 33.6% in fiscal
1994 to 34.0% in fiscal 1995 was due principally to lower foreign and investment
tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 1995 totaled $408.8
million compared to $278.0 million in the corresponding period of the prior
year. Additions to plant and equipment increased from $265.1 million during the
first half of 1994 to $384.4 million during the current period due in part to
increased expenditures on construction of new hydrogen facilities. Capital
expenditures for plant and equipment
12
and investment in unconsolidated affiliates for all of fiscal 1995 are expected
to be in the range of $800-900 million reflecting a higher level of spending on
plant and equipment in support of growth in the worldwide industrial gases
business.
Cash provided by operating activities during the first six months of fiscal 1995
($310.3 million) combined with cash provided by long-term debt, short-term
borrowings, and commercial paper ($181.0 million, $18.8 million, and $16.0
million, respectively) were used largely for capital expenditures ($408.8
million), the purchase of treasury stock ($95.5 million), and cash dividends
($54.7 million). Cash and cash items decreased $6.1 million from $99.9 million
at the beginning of the fiscal year to $93.8 million at 31 March 1995.
Total debt at 31 March 1995 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 $1,459.0
million at 31 March 1995.
There was $164.0 million of commercial paper outstanding at 31 March 1995.
Domestic lines of credit totaled $400 million. Additional commitments totaling
$101.3 million are maintained by the Company's foreign subsidiaries, of which
$1.8 million was utilized at 31 March 1995.
At 31 March 1995 the Company had an unutilized shelf registration for $150
million of long-term debt securities. Subsequent to 31 March 1995, this shelf
registration was utilized when the Company announced a public offering of $150
million of 7 3/8% Notes due 2005. On 27 April 1995 a shelf
registration became effective for $400 million of medium-term notes.
Interest rate swap agreements are used to reduce 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 swap agreements outstanding at 31 March 1995
is $535.9 million. The fair value of the agreements is a loss of $29.5 million.
As of 30 September 1994 interest rate swap agreements were outstanding with a
notional principal amount and fair value of $566.5 million and a loss of $39.5
million, respectively. The improvement in fair value of these interest rate swap
agreements is due primarily to the favorable movement in U.S. interest rates
between measurement dates.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 March 1995 is $1,270.3 million compared to a book value of
$1,248.3 million.
The cumulative translation adjustments balance at 31 March 1995 was a reduction
to shareholders' equity of $19.3 million compared to a reduction of $16.1
million at 30 September 1994. The cumulative translation adjustment balance
declined during the first six months of fiscal 1995 due primarily to the
devaluation of the Mexican peso with an offsetting increase in the balance due
to the impact of strengthening European currencies.
13
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company is required to adopt this statement no
later than fiscal 1997.
The statement requires that assets held for use be reviewed for impairment
whenever events or changes in circumstances indicate that the assets' carrying
amount may not be recoverable. The determination of recoverability is based on
an estimate of undiscounted future cash flows expected to be generated by the
use and eventual disposition of the assets. If the undiscounted cash flow
estimate is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of the impairment loss should be based on the fair value
of the assets. Fair value is based on quoted market prices in active markets, if
available. Otherwise, fair value is estimated considering the prices of similar
assets and the results of valuation techniques e.g., the present value of
expected future cash flows discounted at a rate commensurate with the risks
involved.
It is the Company's current policy to measure an impairment loss for assets held
for use based on expected undiscounted future cash flows. FASB Statement No. 121
will no longer allow this approach but instead requires measurement of the
impairment loss based on fair value (e.g., discounted cash flows). In comparison
to the Company's current policy, the impact of adopting this standard will
result in recognition of a larger loss in the year of impairment and lower
depreciation charges over the remaining life of the asset.
FASB Statement No. 121 requires that assets to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, except for assets that
are and will continue to be covered under Accounting Principles Board Opinion
No. 30. The impact of adopting this requirement of the standard is not expected
to materially affect the amounts that would otherwise be reported in the
consolidated financial statements.
The Company has not yet decided when it will adopt this standard. When adopted,
companies may not restate previously issued financial statements. Impairment
losses will be reported in the period in which the recognition criteria are
first applied and met. The initial application of the standard to assets that
are being held for disposal at the date of adoption is to be reported as the
cumulative effect of a change in accounting principle.
14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
(a) The Annual Meeting of Shareholders of the registrant was held
on 26 January 1995.
(c) The following matters were voted on at the Annual Meeting:
(1) Election of Directors
- -----------------------------------------------------------------------------------------------------------
NUMBER OF VOTES CAST
NAME OF DIRECTOR ---------------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
- -----------------------------------------------------------------------------------------------------------
D. F. BAKER 103,156,471 1,597,727 0 0
W. M. CALDWELL 103,647,475 1,106,723 0 0
T. SHIINA 102,816,305 1,937,893 0 0
L. D. THOMAS 103,626,503 1,127,695 0 0
- -----------------------------------------------------------------------------------------------------------
(2) Ratification of the appointment of Arthur Andersen &
Co. of Philadelphia, Pennsylvania, as independent
certified public accountants for the registrant for
the fiscal year ending 30 September 1995.
- -----------------------------------------------------------------------------------------------------------
NUMBER OF VOTES CAST
- -----------------------------------------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
- -----------------------------------------------------------------------------------------------------------
103,471,604 799,188 483,406 0
- -----------------------------------------------------------------------------------------------------------
15
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 the Securities and Exchange Commission for information
only, and not filed.
(b) A Current Report on Form 8-K dated 20 January 1995 was
filed by the registrant during the quarter ended 31 March
1995 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: May 15, 1995 By: /s/ G. A. White
--------------------------
G. A. White
Senior Vice President - Finance
(Chief Financial Officer)
16
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
EXHIBITS
To
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 31 March 1995
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
17
INDEX TO EXHIBITS
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(a)(27) Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only, and not filed.
1
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
Six Months Ended
Year Ended 30 September 31 March
-------------------------------------------------------------- ----------------
1990 1991 1992 1993 1994 1995
--------- ----------- ------------ ------------ ---------- ----------------
EARNINGS: (Dollar amounts in millions)
Income before extraordinary item
and the cumulative effect of accounting
changes: $229.9 $248.9 $277.0 $200.9 $233.5 $175.3
Add (deduct):
Provision for income taxes 107.7 113.9 130.8 103.0 95.2 91.0
Fixed charges, excluding capitalized
interest 112.2 121.8 133.4 127.3 127.1 74.4
Capitalized interest amortized during
the period 6.6 6.7 7.5 7.7 8.0 3.7
Undistributed earnings of less-than-
fifty-percent-owned affiliates (12.0) (8.6) (12.5) (8.1) (2.8) (6.8)
------ ------ ------ ------ ------ ------
Earnings, as adjusted $444.4 $482.7 $536.2 $430.8 $461.0 $337.6
====== ====== ====== ====== ====== ======
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $104.5 $112.8 $125.1 $118.6 $118.2 $ 69.2
Capitalized interest 26.6 28.7 4.1 6.3 9.7 6.2
Amortization of debt discount premium
and expense 1.3 2.1 .8 .7 .8 .5
Portion of rents under operating leases
representative of the interest factor 6.4 6.9 7.5 8.0 8.1 4.7
------ ------ ------ ------ ------ ------
Fixed charges $138.8 $150.5 $137.5 $133.6 $136.8 $ 80.6
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES: 3.2 3.2 3.9 3.2 3.4 4.2
====== ====== ====== ====== ====== ======
5
1,000,000
U.S. DOLLARS
6-MOS
SEP-30-1995
OCT-01-1994
MAR-31-1995
1
94
0
639
13
303
1,259
7,013
3,755
5,413
1,154
1,103
125
0
0
2,156
5,413
1,904
1,904
1,135
1,135
50
2
50
265
90
175
0
0
0
175
1.56
1.56
