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 30 June 1995
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 Identification No.)
Incorporation or Organization)
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 4 August 1995
-------------------------- ---------------------------------
Common Stock, $1 par value 121,755,530
2
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets -
30 June l995 and 30 September 1994..................................... 3
Consolidated Income -
Three Months and Nine Months Ended 30 June 1995 and 1994............... 4
Consolidated Cash Flows -
Nine Months Ended 30 June l995 and 1994................................ 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................................. 14
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 quarters ended 31 December
1994 and 31 March l995.
Results of operations for any three or nine 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)
30 June 30 September
ASSETS 1995 1994
------ ------- ------------
CURRENT ASSETS
Cash and cash items $ 122.1 $ 99.9
Trade receivables, less allowances for doubtful accounts 616.8 558.8
Inventories 311.2 292.4
Contracts in progress, less progress billings 120.2 103.2
Other current assets 145.6 123.4
-------- --------
TOTAL CURRENT ASSETS 1,315.9 1,177.7
-------- --------
INVESTMENTS 655.6 622.0
-------- --------
PLANT AND EQUIPMENT, at cost 7,236.2 6,519.5
Less - Accumulated depreciation 3,791.4 3,526.9
-------- --------
PLANT AND EQUIPMENT, net 3,444.8 2,992.6
-------- --------
GOODWILL 66.4 67.2
-------- --------
OTHER NONCURRENT ASSETS 237.5 176.7
-------- --------
TOTAL ASSETS $5,720.2 $5,036.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 580.4 $ 488.1
Accrued liabilities 242.7 229.3
Accrued income taxes 59.3 38.0
Short-term borrowings 238.3 175.2
Current portion of long-term debt 36.4 145.8
-------- --------
TOTAL CURRENT LIABILITIES 1,157.1 1,076.4
-------- --------
LONG-TERM DEBT 1,326.1 922.5
-------- --------
DEFERRED INCOME AND OTHER NONCURRENT LIABILITIES
420.8 407.4
-------- --------
DEFERRED INCOME TAXES 462.0 423.5
-------- --------
TOTAL LIABILITIES 3,366.0 2,829.8
-------- --------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 124.7 124.7
Capital in excess of par value 466.6 477.6
Retained earnings 2,326.4 2,134.7
Unrealized gain on investments 40.2 --
Cumulative translation adjustments (7.8) (16.1)
Treasury stock, at cost (138.4) (57.0)
Shares in trust (457.5) (457.5)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 2,354.2 2,206.4
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,720.2 $5,036.2
======== ========
4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(In millions, except per share)
Three Months Nine Months Ended
Ended 30 June 30 June
------------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
SALES AND OTHER INCOME
Sales $982.4 $868.4 $2,886.1 $2,554.3
Other income (expense), net 16.7 (10.5) 16.3 (7.2)
------ ------ -------- --------
999.1 857.9 2,902.4 2,547.1
------ ------ -------- --------
COSTS AND EXPENSES
Cost of sales 595.7 516.6 1,730.6 1,533.8
Selling, distribution, and 216.9 205.4 637.4 588.1
administrative
Research and development 25.8 24.4 76.0 70.5
------ ------ -------- --------
OPERATING INCOME 160.7 111.5 458.4 354.7
Income from equity affiliates, net of
related expenses 15.2 9.5 33.1 21.4
Loss on leveraged interest rate swaps -- 11.3 -- 107.7
Interest expense 24.2 21.7 74.2 59.4
------ ------ -------- --------
INCOME BEFORE TAXES 151.7 88.0 417.3 209.0
Income taxes 51.6 22.2 141.9 54.6
------ ------ -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING 100.1 65.8 275.4 154.4
CHANGES
Cumulative effect of accounting changes -- -- -- 14.3
------ ------ -------- --------
NET INCOME $100.1 $ 65.8 $ 275.4 $ 168.7
------ ------ -------- --------
MONTHLY AVERAGE OF COMMON
SHARES OUTSTANDING -- -- 112.2 113.7
------ ------ -------- --------
EARNINGS PER COMMON SHARE:
Income before cumulative effect of
accounting changes $ .89 $ .58 $ 2.45 $ 1.36
Cumulative effect of accounting changes -- -- -- .12
------ ------ -------- --------
NET INCOME $ .89 $ .58 $ 2.45 $ 1.48
------ ------ -------- --------
DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .26 $ .25 $ .75 $ .71
------ ------ -------- --------
5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(In millions)
Nine Months Ended
30 June
----------------------
1995 1994
------ ------
OPERATING ACTIVITIES
Net Income $275.4 $168.7
Adjustments to reconcile income to cash provided by
operating activities:
Depreciation 275.7 256.7
Loss on leveraged interest rate swaps -- 107.7
Deferred income taxes 41.7 17.0
Cumulative effect of accounting changes -- (14.3)
Other 5.3 14.5
Working capital changes that provided (used) cash:
Trade receivables (54.4) (17.2)
Inventories and contracts in progress (32.7) (30.1)
Payables, trade and other 56.6 (23.4)
Accrued liabilities .9 (3.4)
Other 3.3 (33.0)
Other (15.8) .5
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES 556.0 443.7
------ ------
INVESTING ACTIVITIES
Additions to plant and equipment* (679.0) (384.0)
Acquisitions (34.1) --
Investment in and advances to unconsolidated affiliates (25.8) (13.9)
Termination/Closure of leveraged interest rate swaps (3.9) (41.9)
Proceeds from sale of assets and investments 20.4 10.4
Other 3.4 (1.2)
------ ------
CASH USED FOR INVESTING ACTIVITIES (719.0) (430.6)
------ ------
FINANCING ACTIVITIES
Long-term debt proceeds 331.0 127.6
Payments on long-term debt (136.0) (86.7)
Net increase in commercial paper 142.0 20.0
Net increase (decrease) in other short-term borrowings 6.4 (46.1)
Issuance of Treasury Stock for stock options 14.7 7.3
Dividends paid to shareholders (83.7) (80.0)
Purchase of Treasury Stock (118.9) (85.6)
Other 26.0 (1.9)
------ ------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 181.5 (145.4)
------ ------
Effect of Exchange Rate Changes on Cash 3.7 1.1
------ ------
Increase (Decrease) in Cash and Cash Items 22.2 (131.2)
Cash and Cash Items - Beginning of Year 99.9 238.4
------ ------
Cash and Cash Items - End of Period $122.1 $107.2
====== ======
*Excludes capital leases of $3.4 million and $2.5 million for the nine months
ended 30 June 1995 and 1994, respectively.
6
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective 1 October l994, 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 three and nine months ended 30 June 1995 include a gain of $10.8 million
($6.6 million after tax, or $.06 per share) from the sale of an industrial gas
plant.
The third quarter of fiscal l994 includes a loss of $25.2 million ($15.5
million after tax, or $.13 per share) from certain derivative contract
settlements. For the nine months ended 30 June l994, the loss associated with
these contracts totaled $121.6 million ($75.1 million after tax, or $.66 per
share).
The three and nine months ended 30 June l994 include a charge of $10.7 million
($7.1 million after tax, or $.06 per share) for the outsourcing of the United
Kingdom's distribution function and a tax benefit of $5.4 million, or $.05 per
share, resulting from changes in certain state income tax regulations.
The nine months ended 30 June 1994 include an after-tax benefit of $2.3
million, or $.02 per share, from the favorable tax treatment of the charitable
contribution of the remaining shares of a stock investment in an insurance
company.
Effective 1 October l993, 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 l994 is included in net income of the nine months ended
30 June 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 nine months ended 30 June 1994, exclusive of the cumulative
effect as of 1 October 1993, is not material.
7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER FISCAL 1995 VS. THIRD QUARTER FISCAL 1994
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the third quarter of fiscal 1995 of $982.4 million were 13% higher
than in the same quarter of last year while operating income increased $49.2
million, or 44%, to $160.7 million. Profits of equity affiliates increased
$5.7 million to $15.2 million for the three months ended 30 June 1995. Net
income was $100.1 million, or $.89 per share, compared to net income of $65.8
million, or $.58 per share, in the year-ago quarter.
The earnings for the third quarter of fiscal 1995 and 1994 included special
items. In the third quarter of fiscal 1995, earnings per share included a gain
of $.06 per share from the sale of an industrial gas plant. Results in the
third quarter of fiscal 1994 were impacted by after-tax charges of $.13 per
share from derivative contract settlements and $.06 per share for costs
associated with outsourcing the merchant gas distribution function in the
United Kingdom. The quarter also included a tax benefit of $.05 per share from
changes in certain state income tax regulations. Results for the third quarter
of fiscal 1995 and 1994, both as reported and also excluding special items,
were:
(in millions, except per share)
Third Quarter Third Quarter
Fiscal 1995 Fiscal 1994
---------------------------------------------------------------------------------------------------------
Excluding Excluding
Reported Special Items Reported Special Items
-------- ------------- -------- -------------
Operating Income $160.7 $149.9 $111.5 $134.4
Net Income 100.1 93.5 65.8 83.0
Earnings Per Share .89 .83 .58 .72
Operating income and net income for the third quarter of fiscal 1995, excluding
special items, was up 12% and 13%, respectively. This improved profitability
in 1995 was due to the strong operating performances of the industrial gases
and chemicals businesses. A key factor for the improved operating performances
was higher worldwide shipments in most product lines.
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 third quarter of fiscal 1995.
8
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $542.7 million in the third quarter of fiscal 1995
were up 11% while operating income increased $29.0 million to $119.7 million.
The current period results include a gain of $10.8 million from a plant sale
while the prior period includes a charge of $10.7 million for the outsourcing
of the distribution function in the United Kingdom. Exclusive of these items,
operating income increased $7.5 million, or 7%. Strong volume growth
worldwide in both merchant and tonnage gases was a 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 up 4% and 5%, respectively, from the prior year due
to European currency effects.
Equity affiliates' income for the third quarter of fiscal 1995 was $8.3 million
compared to $2.0 million in the prior year. This improvement reflects higher
profits from affiliates in Spain and Asia and the income contribution from an
affiliate in South Africa.
CHEMICALS - Sales in the third quarter of fiscal 1995 of $351.9 million
increased 14% while operating income of $50.0 million increased $4.3 million,
or 9% compared to last year. Profits were driven by increased volumes across
all major product lines and higher prices in most businesses. These gains were
moderated by the conversion of merchant ammonia capacity to hydrogen
production. This portion of ammonia capacity contributed $9.7 million to trade
sales and $6.9 to operating income in the third quarter of fiscal 1994. Last
year polyvinyl alcohol margins were depressed due to excess worldwide capacity
and intense competition.
ENVIRONMENTAL AND ENERGY - Sales of $11.2 million decreased $5.9 million from
the third quarter of the prior year while operating income was a loss of $2.6
million compared to income of $.6 million in the year-ago quarter. The prior
year's results benefited from the receipt of a performance bonus associated
with an equipment sale. During the third quarter of fiscal 1995, sales of
operating services provided to a cogeneration facility in California compared
unfavorably to the prior year due to power curtailments and planned major
maintenance outage at the facility.
Equity affiliates' income for the third quarter of fiscal 1995 was $6.8 million
compared to $7.2 million in the prior year. The results reflect stronger
operations at the waste-to-energy facilities offset by the unfavorable impact
of power curtailments and a planned major maintenance outage at a cogeneration
facility.
EQUIPMENT AND SERVICES - Sales of $76.6 million were up $21.6 million from a
year-ago quarter while operating income was at breakeven compared to a loss of
$1.7 million. The current period results reflect a less profitable project
mix.
CORPORATE AND OTHER - The net expense was $6.4 million compared to $23.8
million in the third quarter of the prior year. The prior period results
include a charge of $12.2 million for a loss on the termination of two foreign
currency swap contracts. Excluding this item corporate expenses declined $5.2
million due primarily to lower foreign exchange losses.
LOSS ON LEVERAGED INTEREST RATE SWAPS
The third quarter of fiscal 1994 included a loss of $11.3 million relating to
certain leveraged interest rate swap contracts. This loss reflects the decline
in market value of these contracts due to higher interest rates. By 30 June
1994, all of these contracts were terminated or closed.
9
INTEREST
Interest expense was $24.2 million in the third quarter of fiscal 1995 compared
to $21.7 million last year. Interest expense of the prior year includes a
charge of $1.7 million for the termination of several interest rate swap
agreements. The increase in expense was due to higher rates combined with a
higher level of average debt outstanding. This increase was partially offset
by higher capitalization of interest.
INCOME TAXES
The effective tax rate on income was 34.0% for the quarter ended 30 June 1995.
Excluding the loss on derivative contracts settlements and the $5.4 million tax
benefit from changes in state income tax regulations, the effective tax rate on
income for the quarter ended 30 June 1994 was 33.0%. The increase in the
effective tax rate from 33.0% to 34.0% was due primarily to higher state taxes.
NINE MONTHS FISCAL 1995 VS. NINE MONTHS FISCAL 1994
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first nine months of fiscal 1995 of $2,886.1 million were 13%
higher than in the comparable period of the prior year while operating income
increased $103.7 million, or 29%, to $458.4 million. Profits of equity
affiliates increased $11.7 million to $33.1 million for the nine months ended
30 June 1995. Net income was $275.4 million, or $2.45 per share, for the first
nine months of fiscal 1995 compared to income before the cumulative effect of
accounting changes of $154.4 million, or $1.36 per share, for the comparable
period last year. 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 $168.7 million, or
$1.48 per share, in the prior year.
The earnings for the first nine months of fiscal 1995 and 1994 included special
items. In fiscal 1995, earnings per share included a gain of $.06 per share
from the sale of an industrial gas plant. Results in fiscal 1994 were impacted
by after-tax charges of $.66 per share from derivative contract settlements;
$.06 per share for costs associated with outsourcing the merchant gas
distribution function in the United Kingdom; a tax benefit of $.05 per share
from changes in certain state income tax regulations; and $.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. Results
for the nine months ended 30 June 1995 and 1994, both as reported and also
excluding special items, were:
10
(in millions, except per share)
Nine Months Ended Nine Months Ended
30 June 1995 30 June 1994
----------------------------- ----------------------------
Excluding Excluding
Reported Special Items Reported Special Items
-------- ------------- -------- -------------
Operating Income $458.4 $447.6 $354.7 $379.9
Income Before 275.4 268.8 154.4 228.9
Cumulative Effect of
Accounting Changes
Earnings Per Share 2.45 2.39 1.36 2.01
Operating income and income before the cumulative effect of accounting changes
for the first nine months of fiscal 1995, excluding special items, was up 18%
and 17%, respectively. This improved profitability in 1995 was due to the
strong operating performances of the industrial gases and chemicals businesses.
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 80% of this cost reduction
was realized in the first nine 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 $1,613.0 million in the first nine months of fiscal
1995 increased 12% while operating income was $338.2 million compared to $278.7
million. The current period results include a gain of $10.8 million from a
plant sale while the prior period includes a charge of $10.7 million for the
outsourcing of the distribution function in the United Kingdom. Exclusive of
these items, operating income increased $38.0 million, or 13%. The higher
results were due to strong volume growth worldwide in both merchant and tonnage
gases. Merchant gas prices in the United States for the first nine months of
fiscal 1995 were up from the prior year while merchant prices in Europe
declined. Sales and operating income were both up approximately 4% from the
prior year due to European currency effects.
Equity affiliates' income was $12.5 million compared to $2.6 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.
11
CHEMICALS - Sales in the first nine months of fiscal 1995 of $1,027.0 million
increased 19% while operating income of $152.0 million increased 37%, or $40.8
million, compared to last year. The improved profitability was due to
increased volumes across all major product lines and higher prices in most
businesses. Results also benefited significantly from higher methanol and
ammonia prices on a year-to-year basis, though the company is no longer in the
commodity ammonia business and methanol prices have recently declined. Last
year polyvinyl alcohol margins were depressed due to excess worldwide capacity
and intense competition.
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
converted to hydrogen production. This conversion took the Company out of the
commodity ammonia business and provided 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 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 $42.2 million during the first nine months
of fiscal 1995 decreased $8.5 million from the prior year while operating
income was a loss of $2.0 million compared to income of $4.3 million last year.
The prior year results benefited from an equipment sale associated with the
construction of a cogeneration facility for an unconsolidated affiliate and the
receipt of a performance bonus associated with an equipment sale. Current
period sales of operating services provided to a cogeneration facility in
California compared unfavorably to the prior year due to power curtailments and
planned major maintenance outage at the facility.
Equity affiliates' income for the nine months of fiscal 1995 was $20.4 million
compared to $18.7 million in the prior year. The results reflect stronger
operations at the waste-to-energy facilities partially offset by the
unfavorable impact of power curtailments and a planned major maintenance outage
at a cogeneration facility.
EQUIPMENT AND SERVICES - Sales of $203.9 million in the first nine months of
fiscal 1995 increased $10.2 million from the prior year while operating income
was a loss of $4.1 million compared to income of $7.4 million. The current
period results reflect a less profitable project mix and higher project costs.
CORPORATE AND OTHER - The net expense was $25.7 million for the first nine
months of fiscal 1995 compared to $46.9 million for the comparable period of
the prior year. Last year's results included a charge of $12.2 million from
the termination of two foreign currency swap contracts and an expense of $2.3
million for the charitable contribution of the remaining shares of a stock
investment in an insurance company. Exclusive of these items, the net
corporate expense declined $6.7 million in fiscal 1995 due primarily to lower
foreign exchange losses.
LOSS ON LEVERAGED INTEREST RATE SWAPS
The nine months ended 30 June 1994 included a loss of $107.7 million relating to
certain leveraged interest rate swap contracts. This loss reflects the decline
in market value of these contracts due to higher interest rates. As of 30 June
1994, all of these contracts were terminated or closed.
12
INTEREST
Interest expense was $74.2 million for the first nine months of fiscal 1995
compared to $59.4 million for the comparable period in the prior year. The
increase in expense was due to higher rates combined with a higher level of
average debt outstanding. The expense of the prior nine-month period included
a charge of $1.7 million for the termination of several small interest rate
swap agreements.
INCOME TAXES
The effective tax rate on income was 34.0% for the nine months ended 30 June
1995. Excluding the loss on the derivative swap contracts and the $5.4 million
tax benefit from changes in state income tax regulations, the effective tax
rate on income for the nine months ended 30 June 1994 was 32.2%. The effective
tax rate of 32.2% for the first nine months of 1994 includes 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 and the $5.4 million state tax benefit, from 33.4% to 32.2% for
the nine months ended 30 June 1994. The increase in the effective tax rate from
33.4% in fiscal 1994 to 34.0% in fiscal 1995 was due principally to higher
state taxes.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first nine months of fiscal 1995 totaled $742.3
million compared to $400.4 million in the corresponding period of the prior
year. Additions to plant and equipment increased from $384.0 million during
the first nine months of 1994 to $679.0 million during the current period due
in part to increased expenditures on construction of new hydrogen facilities.
During the third quarter of fiscal 1995 the company acquired assets related to
the epoxy additives business for $34.1 million. Capital expenditures for plant
and equipment and investment in unconsolidated affiliates for all of fiscal
1995 are expected to be in the range of $900-1,000 million reflecting a higher
level of spending on plant and equipment in support of growth in the worldwide
industrial gases business. It is anticipated that these expenditures will be
funded with cash from operations supplemented with proceeds from financing
activities.
Cash provided by operating activities during the first nine months of fiscal
1995 ($556.0 million) combined with cash provided by long-term debt, short-term
borrowings, and commercial paper ($331.0 million, $6.4 million, and $142.0
million, respectively) were used largely for capital expenditures ($742.3
million), payments on long-term debt ($136.0), purchase of treasury stock
($118.9 million), and cash dividends ($83.7 million). Cash and cash items
increased $22.2 million from $99.9 million at the beginning of the fiscal year
to $122.1 million at 30 June 1995.
Total debt at 30 June 1995 and 30 September 1994, expressed as a percentage of
the sum of total debt plus shareholders' equity, was 40% and 36%, respectively.
Total debt increased from $1,243.5 million at 30 September 1994 to $1,600.8
million at 30 June 1995. There was $290.0 million of commercial paper
outstanding at 30 June 1995. Domestic lines of credit totaled $400 million.
Additional commitments totaling $100.6 million are maintained by the Company's
foreign subsidiaries, of which $1.8 million was utilized at 30 June 1995.
During fiscal 1995 the company issued $150 million of 7 3/8% Notes due 2005,
$100 million of 8.35% Notes due 2002, and $81 million of medium-term due
through fiscal 2000. At 30 June 1995 the Company had an unutilized shelf
registration for $400 million of medium-term notes.
13
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 30 June 1995
is $534.9 million. The fair value of the agreements is a loss of $11.2
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 30 June 1995 is $1,446.5 million compared to a book value of
$1,362.5 million.
The cumulative translation adjustments balance at 30 June 1995 was a reduction
to shareholders' equity of $7.8 million compared to a reduction of $16.1
million at 30 September 1994. The improvement in the cumulative translation
adjustment balance during the first nine months of fiscal 1995 was due
primarily to the strengthening European currencies partially offset by the
devaluation of the Mexican peso.
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 has elected to adopt this
statement in fiscal 1995. Since adoption, no impairment losses have been
recognized in fiscal 1995.
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 was the Company's past 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 past practice, 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.
14
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 the Securities and Exchange Commission for information
only, and not filed.
(b) A Current Report on Form 8-K dated 25 April 1995 was filed
by the registrant during the quarter ended 30 June 1995 in
which Item 5 of such form was reported.
15
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: August 14, 1995 By: /s/ G. A. White
---------------------------------
G. A. White
Senior Vice President - Finance
(Chief Financial Officer)
16
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)
NINE MONTHS
YEAR ENDED 30 SEPTEMBER ENDED30 JUNE
----------------------------------------------------------- -------------
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 $275.4
Add (deduct):
Provision for income taxes 107.7 113.9 130.8 103.0 95.2 142.9
Fixed charges, excluding capitalized
interest 112.2 121.8 133.4 127.3 127.1 111.5
Capitalized Interest amortized during
the period 6.6 6.7 7.5 7.7 8.0 5.5
Undistributed earnings of less-than-
fifty-percent-owned affiliates (12.0) (8.6) (12.5) (8.1) (2.8) (12.4)
------ ------ ------ ------ ------ ------
Earnings, as adjusted $444.4 $482.7 $536.2 $430.8 $461.0 $522.9
====== ====== ====== ====== ====== ======
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $104.5 $112.8 $125.1 $118.6 $118.2 $103.2
Capitalized interest 26.6 28.7 4.1 6.3 9.7 12.2
Amortization of debt discount premium and
expense 1.3 2.1 .8 .7 .8 .7
Portion of rents under operating leases
representative of the interest factor 6.4 6.9 7.5 8.0 8.1 7.6
------ ------ ------ ------ ------ ------
Fixed charges $138.8 $150.5 $137.5 $133.6 $136.8 $123.7
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES: 3.2 3.2 3.9 3.2 3.4 4.2
====== ====== ====== ====== ====== ======
5
1,000,000
9-MOS
SEP-30-1995
OCT-01-1994
JUN-30-1995
122
0
631
14
311
1,316
7,236
3,791
5,720
1,157
1,326
125
0
0
2,229
5,720
2,886
2,886
1,731
1,731
76
5
74
417
142
275
0
0
0
275
2.45
2.45
