1
UNITED STATES
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 December 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
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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 checkmark 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 /checkmark/ 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 7 February 1996
-------------------------- ----------------------------------
Common Stock, $1 par value 121,832,100
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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 December 1995 and 30 September 1995 ........ 3
Consolidated Income -
Three Months Ended 31 December 1995 and 1994 .. 4
Consolidated Cash Flows -
Three Months Ended 31 December 1995 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 ...... 10
Signatures ..................................... 11
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)
ASSETS 31 December 30 September
------ 1995 1995
----------- ------------
CURRENT ASSETS
Cash and cash items $ 95 $ 87
Trade receivables, less allowances for doubtful accounts 628 625
Inventories 371 335
Contracts in progress, less progress billings 111 123
Other current assets 151 162
------ ------
TOTAL CURRENT ASSETS 1,356 1,332
------ ------
INVESTMENTS 783 657
------ ------
PLANT AND EQUIPMENT, at cost 7,501 7,350
Less - Accumulated depreciation 3,926 3,848
------ ------
PLANT AND EQUIPMENT, net 3,575 3,502
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GOODWILL 80 81
------ ------
OTHER NONCURRENT ASSETS 240 244
------ ------
TOTAL ASSETS $6,034 $5,816
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 487 $ 519
Accrued liabilities 223 249
Accrued income taxes 68 56
Short-term borrowings 387 314
Current portion of long-term debt 168 173
------ ------
TOTAL CURRENT LIABILITIES 1,333 1,311
------ ------
LONG-TERM DEBT 1,314 1,194
------ ------
DEFERRED INCOME AND OTHER NONCURRENT LIABILITIES 436 435
------ ------
DEFERRED INCOME TAXES 506 478
------ ------
TOTAL LIABILITIES 3,589 3,418
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SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 125 125
Capital in excess of par value 465 465
Retained earnings 2,450 2,388
Unrealized gain on investments 46 41
Cumulative translation adjustments (50) (24)
Treasury stock, at cost (133) (139)
Shares in trust (458) (458)
------ ------
TOTAL SHAREHOLDERS' EQUITY 2,445 2,398
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,034 $5,816
====== ======
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4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(In millions, except per share)
Three Months Ended
31 December
---------------------
1995 1994
---- ----
SALES AND OTHER INCOME
Sales $947 $921
Other income (expense), net 4 (1)
---- ----
951 920
---- ----
COSTS AND EXPENSES
Cost of sales 560 544
Selling, distribution and administrative 220 206
Research and development 27 24
---- ----
OPERATING INCOME 144 146
Income from equity affiliates, net of
related expenses 16 9
Interest expense 29 24
---- ----
INCOME BEFORE TAXES 131 131
Income taxes 42 44
---- ----
NET INCOME $ 89 $ 87
==== ====
MONTHLY AVERAGE OF COMMON SHARES OUTSTANDING 112 113
---- ----
EARNINGS PER COMMON SHARE $.80 $.77
==== ====
DIVIDENDS DECLARED PER COMMON SHARE --
Cash $.26 $.24
---- ----
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5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(In millions)
Three Months Ended
31 December
------------------
1995 1994
------ ------
OPERATING ACTIVITIES
Net Income $ 89 $ 87
Adjustments to reconcile income to cash provided by
operating activities:
Depreciation 99 90
Deferred income taxes 22 18
Other -- 9
Working capital changes that provided (used) cash:
Trade receivables (6) (20)
Inventories and contracts in progress (25) (8)
Payables, trade and other (33) (29)
Accrued liabilities (25) (12)
Other 4 16
Other 1 (15)
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CASH PROVIDED BY OPERATING ACTIVITIES 126 136
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INVESTING ACTIVITIES
Additions to plant and equipment* (184) (178)
Investment in and advances to unconsolidated affiliates (127) (20)
Proceeds from sale of assets and investments 24 --
Other -- 2
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CASH USED FOR INVESTING ACTIVITIES (287) (196)
----- -----
FINANCING ACTIVITIES
Long-term debt proceeds* 125 81
Payments on long-term debt (8) (3)
Net increase in commercial paper 64 83
Net increase in other short-term borrowings 9 9
Dividends paid to shareholders (29) (28)
Purchase of Treasury Stock -- (89)
Other 8 11
----- -----
CASH PROVIDED BY FINANCING ACTIVITIES 169 64
----- -----
Effect of Exchange Rate Changes on Cash -- --
----- -----
Increase in Cash and Cash Items 8 4
Cash Items - Beginning of Year 87 100
----- -----
Cash and Cash Items - End of Period $ 95 $ 104
===== =====
*Excludes capital leases of $1 million for the three months ended
31 December 1995 and 1994.
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6
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the second quarter of 1996, the Company reached a $67 million settlement
with Bankers Trust Company over $107 million in losses the Company reported in
fiscal 1994 associated with leveraged interest rate swap contracts. The
settlement included the termination of two previously closed contracts with
Bankers Trust. Prior to the settlement there was an outstanding liability of $62
million associated with these closed contracts. The after-tax gain related to
this settlement was $41 million.
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AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FIRST QUARTER FISCAL 1996 VS. FIRST QUARTER FISCAL 1995
-----------------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first quarter of fiscal 1996 of $947 million were 3% higher than in
the same quarter of last year while operating income was down $2 million, or 1%,
to $144 million. Profits of equity affiliates increased $7 million to $16
million for the three months ended 31 December 1995. Net income was $89 million,
or $.80 per share, compared to net income of $87 million, or $.77 per share, in
the year-ago quarter.
Industrial gases' operating income declined due primarily to lower margins. This
was offset by the strong performance of European and Asian equity affiliates.
Chemicals' operating income remained constant as broad-based margin improvement
was offset by lower ammonia and methanol results. The equipment and services
segment profits improved significantly.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $551 million in the first quarter of fiscal 1996
were up 5% due primarily to higher worldwide shipments of merchant and tonnage
gases. Favorable European currency effects contributed 2% to the 5% sales
increase. Worldwide volumes rose despite unexpected U.S. tonnage customer
outages. However, the rate of volume growth has slowed from previous quarters.
Merchant selling prices were up in the United States but declined in Europe from
a year-ago quarter.
Operating income of $103 million declined 5%. Favorable European currency
effects resulted in a 2% improvement in operating income versus a year ago. The
decline in operating income was due to lower margins resulting from higher
costs, including distribution costs, combined with lower U.S. liquid oxygen and
nitrogen volumes, contract changes and expirations, and a number of key tonnage
customer outages.
Equity affiliates' income for the first quarter of fiscal 1996 was $9 million
compared to $2 million in the prior year. Strong performances from joint
ventures in Spain, Italy and Asia contributed to these higher results. The prior
year results included a loss related to the peso devaluation in the Mexican
investment.
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CHEMICALS- Sales in the first quarter of 1996 of $310 million decreased $14
million while operating income was comparable to the prior year at $49 million.
A portion of the ammonia capacity was shut down in the second quarter of fiscal
1995 and converted to hydrogen production. This portion of ammonia capacity
contributed $15 million to trade sales and $8 million to operating income in the
first quarter of fiscal 1995. Excluding the prior year contribution from this
ammonia capacity, sales were comparable and operating income was up $8 million.
This increase in operating income is due principally to broad-based margin
improvement, especially in polymer chemicals. Margins improved due to higher
selling prices combined with lower raw material costs. Partially offsetting
these gains were lower volumes and lower methanol selling prices. The decline in
volumes was due to reduced export demand coupled with an extended customer
outage.
ENVIRONMENTAL AND ENERGY - Sales in the first quarter of 1996 of $14 million
were comparable to the prior year while operating income has declined slightly
to a loss of $1 million.
Equity affiliates' income for the first quarter of fiscal 1996 of $7 million was
comparable to the prior year.
EQUIPMENT AND SERVICES - Sales of $72 million increased $14 million from the
year-ago quarter while operating income was $4 million compared to a loss of $1
million. This year's results reflect a more profitable project mix and a higher
level of activity. Sales backlog for the equipment product line improved to $266
million at 31 December 1995 compared to $198 million at 30 September 1995, due
principally to new orders for natural gas liquefaction equipment.
CORPORATE AND OTHER - The net expense of $11 million is comparable to the prior
year.
INTEREST
Interest expense was $29 million compared to $24 million in the first quarter of
fiscal 1995. The increase in expense was due primarily to a higher level of
average debt outstanding.
INCOME TAXES
The effective tax rate on income was 32.3% for the quarter ended 31 December
1995 compared with 34.0% for the same quarter in fiscal 1995. The decrease in
the effective tax rate was due principally to higher gas equity affiliate
profits.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first three months of fiscal 1996 totaled $312
million compared to $199 million in the corresponding period of the prior year.
Additions to plant and equipment were $184 million during the first three months
of fiscal 1996 versus $178 million last year. Investments in unconsolidated
affiliates were $127 million during the first three months of fiscal 1996 versus
$20 million last year. During the first quarter of fiscal 1996, the Company
acquired an additional 21.5% of the outstanding shares of a Spanish affiliate at
a cost of $120 million. Capital expenditures for new plant and equipment and
investment in unconsolidated affiliates are expected to be approximately $1.2
billion in fiscal 1996.
Cash provided by operating activities during the first three months of fiscal
1996 ($126 million) combined with cash provided by long-term debt ($125
million), additional commercial paper ($64 million), and proceeds from the sale
of assets and investments ($24
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9
million) were used largely for capital expenditures ($312 million) and cash
dividends ($29 million). Cash and cash items increased $8 million from $87
million at the beginning of the fiscal year to $95 million at 31 December 1995.
Total debt at 31 December 1995 and 30 September 1995, expressed as a percentage
of the sum of total debt and shareholders' equity, was 43% and 41%,
respectively. Total debt increased from $1,681 million at 30 September 1995 to
$1,869 million at 31 December 1995. During the first quarter of fiscal 1996, the
Company issued $125 million of 6.6% medium-term notes due in fiscal 2008 to
finance the acquisition of additional shares in a Spanish affiliate.
There was $392 million of commercial paper outstanding at 31 December 1995.
Domestic lines of credit totaled $400 million. Additional commitments totaling
$50 million are maintained by the Company's foreign subsidiaries, of which $3
million was utilized at 31 December 1995. In January 1996, the Company entered
into a $600 million committed, multi-currency, syndicated credit facility to
replace the $400 million domestic lines of credit and $34 million of the $50
million of commitments maintained by the foreign subsidiaries.
At 31 December 1995, the Company had an unutilized shelf registration for $245
million of medium-term notes. Subsequent to 31 December 1995, the Company issued
$31 million of 6.25% medium-term notes due 2011 under this shelf registration.
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 December
1995 is $385 million. The fair value of the agreements is a gain of $15 million.
As of 30 September 1995 interest rate swap agreements were outstanding with a
notional principal amount and fair value of $488 million and a gain of $1
million, respectively.
The Company is also party to interest rate and currency swap contracts. These
contracts effectively convert the currency denomination of a debt instrument
into another currency in which the Company has a net equity position while
changing the interest rate characteristics of the instrument. The notional
principal of interest rate and currency swap agreements outstanding at 31
December 1995 is $206 million. The fair value of the agreements is a loss of $19
million, of which $10 million has not been recognized in the financial
statements. As of 30 September 1995 interest rate and currency swap agreements
were outstanding with a notional principal amount and fair value of $86 million
and a loss of $11 million, respectively. During the first quarter of fiscal
1996, the Company entered into interest rate and currency swap agreements to
effectively convert $120 million of the $125 million of 6.6% medium-term notes
into Spanish peseta liabilities with maturities of three to ten years.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 December 1995 is $1,617 million compared to a book value of
$1,482 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
the Securities and Exchange Commission for information only, and
not filed.
(b) Current Report on Form 8-K dated 24 October 1995 was filed by
the registrant during the quarter ended 31 December 1995 in
which Item 5 of such form was reported.
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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 14, 1996 By: /s/ A. H. Kaplan
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A. H. Kaplan
Vice President - Finance
(Chief Financial Officer)
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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)
Three Months Ended
Year Ended 30 September 31 December
-------------------------------- ------------------
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
EARNINGS: (Millions of dollars)
Income before extraordinary item and the
cumulative effect of accounting changes: $249 $277 $201 $234 $368 $ 89
Add (deduct):
Provision for income taxes 114 131 103 95 186 43
Fixed charges, excluding capitalized interest 122 133 127 127 148 41
Capitalized interest amortized during the
period 7 8 8 8 9 2
Undistributed earnings of less-than-
fifty-percent-owned affiliates (9) (13) (8) (3) (25) (10)
---- ---- ---- ---- ---- ----
Earnings, as adjusted $483 $536 $431 $461 $686 $165
==== ==== ==== ==== ==== ====
FIXED CHARGES:
Interest on indebtedness, including capital
lease obligations $113 $125 $118 $118 $139 $ 38
Capitalized interest 29 4 6 10 18 6
Amortization of debt discount premium and
expense 2 1 1 1 -- --
Portion of rents under operating leases
representative of the interest factor 7 7 8 8 9 3
---- ---- ---- ---- ---- ----
Fixed charges $151 $137 $133 $137 $166 $ 47
==== ==== ==== ==== ==== ====
RATIO OF EARNINGS TO FIXED CHARGES: 3.2 3.9 3.2 3.4 4.1 3.5
==== ==== ==== ==== ==== ====
5
1,000,000
U.S. DOLLARS
3-MOS
SEP-30-1996
OCT-01-1995
DEC-31-1995
1
95
0
642
14
371
1,356
7,501
3,926
6,034
1,333
1,314
0
0
125
2,320
6,034
947
947
560
560
27
1
29
131
42
89
0
0
0
89
.80
.80
