<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 31 March 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------- to -----------
Commission file number 1-4534
------
Air Products and Chemicals, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1274455
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 Hamilton Boulevard
Allentown, Pennsylvania 18195-1501
---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
610-481-4911
------------
Registrant's telephone number, including area code
Indicate by check mark 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 9 May 1994
-------------------------- -------------------------
Common Stock, $1 par value 123,115,547
<PAGE> 2
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets -
31 March 1994 and 30 September 1993 ......................... 3
Consolidated Income -
Three Months and Six Months Ended 31 March 1994 and 1993 .... 4
Consolidated Cash Flows -
Six Months Ended 31 March 1994 and 1993 ..................... 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 ........ 13
Item 6. Exhibits and Reports on Form 8-K ........................... 13
Signatures .......................................................... 14
</TABLE>
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 1993.
Results of operations for any three or six month period are not
necessarily indicative of the results of operations for a full year.
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<PAGE> 3
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In millions, except per share)
31 March 30 September
ASSETS 1994 1993
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 127.6 $ 238.4
Trade receivables, less allowances for
doubtful accounts 555.8 514.5
Inventories 298.0 293.6
Contracts in progress, less progress billings 74.4 62.2
Other current assets 154.3 87.6
-------- --------
Total current assets 1,210.1 1,196.3
-------- --------
INVESTMENTS 603.5 608.5
-------- --------
PLANT AND EQUIPMENT, at cost 6,168.8 5,952.8
Less - Accumulated depreciation 3,368.1 3,247.2
-------- --------
Plant and equipment, net 2,800.7 2,705.6
-------- --------
GOODWILL 63.4 64.5
-------- --------
OTHER NONCURRENT ASSETS 188.6 186.6
-------- --------
$4,866.3 $4,761.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Payables, trade and other $ 409.0 $ 425.5
Accrued liabilities 273.9 196.1
Accrued income taxes 19.8 17.8
Short-term borrowings 173.9 145.4
Current portion of long-term debt 73.9 89.2
-------- --------
Total current liabilities 950.5 874.0
-------- --------
LONG-TERM DEBT 1,035.9 1,016.4
-------- --------
DEFERRED INCOME AND OTHER NONCURRENT
LIABILITIES 362.6 280.1
-------- --------
DEFERRED INCOME TAXES 437.0 489.1
======== ========
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 124.7 124.7
Capital in excess of par value 481.7 198.7
Retained earnings 2,045.4 1,994.7
Cumulative translation adjustments (43.9) (32.6)
Treasury stock, at cost (70.1) (183.6)
Shares in trust, at cost (457.5) --
-------- --------
Total shareholders' equity 2,080.3 2,101.9
-------- --------
$4,866.3 $4,761.5
======== ========
</TABLE>
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<PAGE> 4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(In millions, except per share)
Three Months Ended Six Months Ended
31 March 31 March
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $ 858.6 $ 833.9 $1,685.9 $1,647.4
Other income, net (0.8) 0.6 3.3 9.4
------- ------- -------- ---------
857.8 834.5 1,689.2 1,656.8
------- ------- -------- ---------
COSTS AND EXPENSES
Cost of sales 518.2 496.0 1,017.2 990.9
Selling, distribution and
administrative 193.4 182.5 382.7 363.0
Research and development 23.8 22.1 46.1 44.8
------- ------- -------- ---------
OPERATING INCOME 122.4 133.9 243.2 258.1
Income (loss) from equity
affiliates, net of related
expenses 5.6 3.4 11.9 3.0
Loss on leveraged interest rate
swaps 96.4 -- 96.4 --
Interest expense 17.9 21.6 37.7 43.1
------- ------- -------- ---------
INCOME BEFORE TAXES 13.7 115.7 121.0 218.0
Income taxes 0.2 40.4 32.4 73.7
------- ------- -------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 13.5 75.3 88.6 144.3
Cumulative effect of accounting
changes -- -- 14.3 --
------- ------- -------- ---------
NET INCOME $ 13.5 $ 75.3 $ 102.9 $ 144.3
======= ======= ======== =========
MONTHLY AVERAGE OF COMMON SHARES
OUTSTANDING 114.0 113.8
-------- ---------
EARNINGS PER COMMON SHARE
Income before cumulative effect of
accounting changes $.12 $.66 $ .78 $1.27
Cumulative effect of accounting
changes -- -- .12 --
------- ------- -------- ---------
Net Income $.12 $.66 $ .90 $1.27
======= ======= ======== =========
DIVIDENDS DECLARED PER COMMON
SHARE - Cash $.23 $.21 $.46 $.43
------- ------- -------- ---------
</TABLE>
- 4 -
<PAGE> 5
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(In millions)
Six Months Ended
31 March
----------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 102.9 $ 144.3
Adjustments to reconcile income to cash
provided by operating activities:
Depreciation 169.6 170.5
Loss on leveraged interest rate swaps 96.4 --
Deferred income taxes (11.6) 24.6
Cumulative effect of accounting changes (14.3) --
Other 26.3 3.3
Working capital changes that provided (used)
cash:
Trade receivables (44.9) (19.5)
Inventories and contracts in progress (17.2) (53.1)
Payables, trade and other (22.5) 4.0
Accrued liabilities (11.8) 6.9
Other (20.8) (12.1)
Other .8 (1.0)
------- -------
Cash Provided by Operating Activities 252.9 267.9
------- -------
INVESTING ACTIVITIES
Additions to plant and equipment* (265.1) (213.5)
Investment in and advances to unconsolidated
affiliates (11.6) (166.3)
Proceeds from sale of assets and investments 8.3 14.0
Other (1.2) 18.3
------- -------
Cash Used for Investing Activities (269.6) (347.5)
------- -------
FINANCING ACTIVITIES
Long-term debt proceeds 117.6 2.2
Payments on long-term debt (53.5) (34.0)
Net increase in commercial paper 22.0 95.9
Net increase (decrease) in other short-term
borrowings (53.3) 46.0
Issuance of Treasury Stock for stock options 6.5 10.3
Dividends paid to shareholders (52.3) (49.0)
Purchase of Treasury Stock (85.6) --
Other 7.5 12.7
------- -------
Cash Provided by (Used for) Financing
Activities (91.1) 84.1
------- -------
Effect of Exchange Rate Changes on Cash (3.0) (9.2)
------- -------
Increase (Decrease) in Cash and Cash Items (110.8) (4.7)
Cash and Cash Items - Beginning of Year 238.4 116.8
------- -------
Cash and Cash Items - End of Period $127.6 $112.1
======= =======
</TABLE>
*Excludes capital leases of $1.3 million and $1.8 million for the six
months ended 31 March 1994 and 1993, respectively.
- 5 -
<PAGE> 6
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective 1 October 1993, the company adopted Statement of Financial
Accounting Standard (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 109, $55.9 million gain;
and SFAS 112, $10.3 million charge. Prior-year financial statements have
not been restated to apply the provisions of these standards. The impact
of these accounting changes on income for the three months and six months
ended 31 March 1994, exclusive of the cumulative effect as of 1 October
1993, is not material.
During the first quarter of fiscal 1994, the company entered into certain
leveraged interest rate swap contracts as part of its debt management
program. An unrealized loss of $96.4 million ($59.6 million after tax, or
$.53 per share) relating to these contracts was recognized in the second
quarter arising from large unfavorable interest rate movements during the
second quarter. At the end of the first quarter, these contracts had an
unrealized loss of $1.3 million. These contracts are accounted for on a
mark-to-market basis. For a further discussion, see the Management's
Discussion and Analysis on pages 11-12.
The results for the six months ended 31 March 1994 include an after-tax
benefit of $2.3 million, or $.02 per share, from the favorable tax
treatment, net of expense, of the charitable contribution of the remaining
shares of a stock investment in an insurance company.
The results for the three months ended 31 March 1993 include a gain of $2.7
million ($1.7 million after tax, or $.01 per share) from the partial sale
of stock options in an insurance company. For the six months ended 31 March
1993, the results include a gain of $9.4 million ($5.9 million after tax,
or $.05 per share) from the sale of a business venture and the sale of
stock options in an insurance company.
In fiscal 1994, the company established a trust to fund a portion of future
payments to employees under the company's existing compensation and benefit
programs. The trust, which is administered by an independent trustee, was
funded with 10 million shares of treasury stock.
- 6 -
<PAGE> 7
AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER FISCAL 1994 VS. SECOND QUARTER FISCAL 1993
---------------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the second quarter of fiscal 1994 of $858.6 million were 3%
higher than in the same quarter of last year while operating income
declined $11.5 million, or 9%, to $122.4 million. Profits of equity
affiliates increased $2.2 million to $5.6 million for the three months
ended 31 March 1994. 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. Reflecting this
charge, net income was $13.5 million, or $.12 per share, in the second
quarter of fiscal 1994 compared to net income of $75.3 million, or
$.66 per share, in the year-ago quarter. Excluding the effect of this
charge, net income would have been $73.1 million, or $.65 per share.
The year-ago quarter included a gain of $2.7 million ($1.7 million
after tax, or $.01 per share) from the partial sale of stock options
in an insurance company.
Fiscal 1993 operating income of the industrial gases segment and
corporate and other have been restated to reflect the current year
presentation of Brazilian conversion gains related to U.S. dollar
denominated investments. For the three months ended 31 March 1993,
operating income of the industrial gases segment was reduced by $2.5
million with a corresponding increase in corporate and other.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $483.8 million in the second quarter of
fiscal 1994 increased 7% while operating income rose 2%, or $2.1
million, to $95.1 million. The results benefited from significantly
higher worldwide shipments of merchant and on-site gases. Selling
prices of merchant gases declined as pricing pressures continued in
both the United States and Europe. Additionally, profit growth was
constrained by higher operating and maintenance costs, in part because
of severe winter weather. Excluding European currency effects, sales
of the segment rose 9%.
Equity affiliates' income was a loss of $.4 million for the second
quarter of fiscal 1994 compared to income of $1.7 million last year.
The decrease in income is due to lower earnings of a Mexican
affiliate.
CHEMICALS - Sales in the second quarter of fiscal 1994 of $286.6
million increased 4%, with almost all major product lines experiencing
higher volumes. Operating income of $33.7 million decreased 13%, or
$5.0 million, because polyvinyl alcohol margins were substantially
lower as a result of excess world capacity and intense competition.
- 7 -
<PAGE> 8
ENVIRONMENTAL AND ENERGY - Sales decreased $5.3 million to $19.3
million in the second quarter of fiscal 1994 principally as a result
of an equipment sale associated with the construction of a
cogeneration facility for an unconsolidated affiliate in the year-ago
quarter. Operating income for the second quarter of 1994 was $3.5
million compared to $1.5 million in the year-ago quarter. Operating
services provided to cogeneration facilities contributed to this
favorable income variance.
Equity affiliates' income for the second quarter of fiscal 1994 was
$6.1 million compared to $1.6 million in the prior year. The improved
results reflect the stronger operations at cogeneration and
waste-to-energy facilities, including the recently acquired
waste-to-energy facility in New York.
EQUIPMENT AND TECHNOLOGY - Sales of $68.9 million decreased 16% from
the exceptionally high level of the year-ago quarter while operating
income was $1.9 million compared to $9.9 million. The results reflect
decreased levels of domestic manufacturing activity in the cryogenic
air separation and liquefied natural gas equipment businesses and
reduced profitability in Europe.
CORPORATE AND OTHER - The net expense was $11.8 million compared to
$9.2 million in the second quarter of the prior year. For the second
quarter of fiscal 1993, corporate and other includes a gain of
$2.7 million from the partial sale of stock options in an insurance
company. Exclusive of this item, current year net expense was
approximately equal to the prior year results.
INTEREST
Interest expense declined $3.7 million to $17.9 million in the second
quarter of fiscal 1994. The impact of lower rates combined with
higher capitalization of interest more than offset the increase in
expense due to the higher level of average debt outstanding.
INCOME TAXES
Excluding the charge for the unrealized loss on the interest rate swap
contracts, the effective tax rate on income was 33.6% for the quarter
ended 31 March 1994 compared with 34.9% for the same quarter in fiscal
1993. Higher investment and research and development tax credits were
partially offset by a higher federal statutory rate.
SIX MONTHS FISCAL 1994 VS. SIX MONTHS FISCAL 1993
-------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first six months of fiscal 1994 of $1,685.9 million were
2% higher than in the comparable period of the prior year while
operating income declined $14.9 million, or 6%, to $243.2 million.
Profits of equity affiliates increased $8.9 million to $11.9 million
for the six months ended 31 March 1994. 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. Reflecting this charge,
income before the cumulative effect of accounting changes was
$88.6 million, or $.78 per share, for the first half of fiscal 1994
compared to $144.3 million, or $1.27 per share, for the comparable
period last year. Excluding the effect of this charge, income before
the
- 8 -
<PAGE> 9
cumulative effect of accounting changes would have been
$148.2 million, or $1.31 per share. During fiscal year 1994, 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. The current period's results included an
after-tax benefit of $2.3 million, or $.02 per share, from the
favorable tax treatment, net of expense, of the charitable
contribution of the remaining shares of a stock investment in an
insurance company. The first half of the prior fiscal year included an
after-tax gain of $5.9 million, or $.05 per share, from the sale of a
business venture and the sale of stock options in an insurance
company.
Fiscal 1993 operating income of the industrial gases segment and
corporate and other have been restated to reflect the current year
presentation of Brazilian conversion gains related to U.S. dollar
denominated investments. For the six months ended 31 March 1993,
operating income of the industrial gases segment was reduced by $4.6
million with a corresponding increase in corporate and other.
SEGMENT ANALYSIS
INDUSTRIAL GASES - Sales of $955.6 million in the first half of fiscal
1994 increased 6% while operating income increased $4.0 million, or
2%, to $188.0 million. The results benefited from significantly
higher worldwide shipments of merchant and on-site gases. Pressure on
selling prices of merchant gases continued worldwide, especially in
Europe. Additionally, profit growth was constrained by higher
operating and maintenance costs, in part because of the severe winter
weather. The on-site gas business achieved solid results about equal
to the high levels of the prior year. Excluding European currency
effects, sales of the segment rose 8%.
Equity affiliates' income was $.6 million for the first half of fiscal
1994 compared to $.1 million last year. Improved results from the
Spanish joint venture was the principal factor for the higher
profitability.
CHEMICALS - Sales in the first six months of fiscal 1994 of $558.0
million increased 4% while operating income of $65.5 million declined
$3.1 million, or 5%. Volumes in most major product lines were higher.
Ammonia and methanol margins improved substantially as a result of
higher prices and lower natural gas costs. However, these gains were
offset principally by significantly lower polyvinyl alcohol margins
resulting from excess world capacity and intense competition.
ENVIRONMENTAL AND ENERGY - Sales decreased $14.7 million to $33.6
million in the first half of fiscal 1994 principally as a result of an
equipment sale associated with the construction of a cogeneration
facility for an unconsolidated affiliate which was included in last
year's results. Operating income for the first half of fiscal 1994
was $3.7 million compared to a loss of $.4 million in the prior year.
The improved profitability resulted principally from the operating
services provided to cogeneration facilities.
Equity affiliates' income for the first six months of fiscal 1994 was
$11.5 million compared to $2.8 million in the prior year. The improved
results reflect the stronger operations at cogeneration and
waste-to-energy facilities, including the recently acquired
waste-to-energy facility in New York.
EQUIPMENT AND TECHNOLOGY - Sales of $138.7 million in the first six
months of fiscal 1994 decreased $25.3 million from the exceptionally
high level of the prior year while operating income decreased $15.8
million to $9.1 million. Last year's results included a gain of $3.9
million from the sale of a
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<PAGE> 10
business venture. This year's results reflect decreased levels of
manufacturing activity in the cryogenic air separation and liquefied
natural gas equipment businesses.
CORPORATE AND OTHER - The net expense was $23.1 million compared to
$19.0 million in the first half of the prior year. The current year's
results include an expense of $2.3 million from the charitable
contribution of the remaining shares of a stock investment in an
insurance company. The results of the prior period included a gain of
$5.5 million from the sale of stock options in this insurance company.
Exclusive of these items, corporate expenses declined due principally
to lower foreign exchange losses.
INTEREST
Interest expense declined $5.4 million to $37.7 million in the first
half of fiscal 1994. The impact of lower rates combined with higher
capitalization of interest more than offset the increase in expense
due to the higher level of average debt outstanding.
INCOME TAXES
Excluding the charge for the unrealized loss on interest rate swap
contracts, the effective tax rate on income was 31.8% for the six
months ended 31 March 1994 compared to 33.8% for the comparable period
in fiscal 1993. This effective tax rate of 31.8% for the six months
ended 31 March 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. This effective tax rate of 33.6% approximates
last year's effective tax rate of 33.8%. The impact of a higher
federal statutory rate in fiscal 1994 was offset by higher investment
and research and development tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 1994
totaled $278.0 million compared to $381.6 million in the corresponding
period of the prior year. During fiscal 1993 the company increased
significantly its minority ownership position in a Mexican affiliate.
Additions to plant and equipment were $265.1 million during the first
half of fiscal 1994 versus $213.5 million in the corresponding prior
period. Capital expenditures for new plant and equipment and
investment in unconsolidated affiliates are expected to be in the
range of $600-700 million in fiscal 1994.
Cash provided by operating activities during the first six months of
fiscal 1994 ($252.9 million) combined with cash provided by long-term
debt and additional commercial paper ($117.6 million and $22.0
million, respectively) were used largely for capital expenditures
($278.0 million), the purchase of treasury stock ($85.6 million),
payments on long-term debt and other short-term borrowings
($53.5 million and $53.3 million, respectively), and cash dividends
($52.3 million). Cash and cash items decreased $110.8 million from
$238.4 million at the beginning of the fiscal year to $127.6 million
at 31 March 1994.
Total debt at 31 March 1994, expressed as a percentage of the sum of
total debt and shareholders' equity, was 38% as compared to 37% as of
30 September 1993. Total debt increased from $1,251.0 million at 30
September 1993 to $1,283.7 million at 31 March 1994.
- 10 -
<PAGE> 11
There was $157.0 million of commercial paper outstanding at 31 March
1994. Domestic lines of credit totaled $325.0 million. Additional
commitments totaling $111.0 million are maintained by the company's
foreign subsidiaries, of which $3.2 million was utilized at 31 March
1994.
At 31 March 1994, the Company had unutilized shelf registrations for
$250 million of long-term debt securities and $91 million of
medium-term notes.
DEBT MANAGEMENT PROGRAM
The Company's approach to debt management is first to ensure current and
future liquidity and then manage the resulting debt portfolio for cost and
risk. The specific objectives of our debt management program are to adjust
interest rate exposure for changing conditions, reduce the impact of
incremental funding and reduce the interest cost of debt, while maintaining an
acceptable level of risk.
The Company balances its debt pool with a mixture of floating-rate debt and
short-maturity fixed-rate debt with longer term fixed-rate debt. This
balancing is managed by measuring and evaluating effective interest rates,
mark-to-market values, duration and the ratio of floating- versus fixed-rate
debt in the portfolio. All of this is done within the context of our
expectations of the future interest rate environment.
To manage interest rate risks and costs consistent with the Company's view of
anticipated interest rate movement, a range of financial tools are used
including floating-rate and fixed-rate notes of various maturities, bond
redemptions and financial instruments. Of the instruments available, interest
rate swaps have been the ones used most often by the Company.
At 31 March 1994, the Company was party to 24 interest rate swaps. Most of
these change long-term fixed-rate debt to variable-rate debt. The notional
principal of fixed to variable interest rate swaps is $640 million and
variable to fixed rate is $90 million. For interest rate swaps, the notional
principal is the amount upon which interest and other payments in the
transaction are based. The notional principal typically does not change
hands. The total debt portfolio at 31 March 1994 is $1.3 billion. The
Company uses hedge/deferral accounting for its interest rate swaps except for
five swaps (notional amount $203 million at 31 March 1994) which contain
highly leveraged features and are accounted for on a mark-to-market basis.
The table below shows the unrealized gains or losses of interest rate swaps,
currency swaps and the long-term debt, including current portion, as of 31
March 1994 and 30 September 1993. The changes from 30 September 1993 result
from the significant increase in interest rates during the last half of the
second fiscal quarter, the expectations of future rates created by this
movement, and the effect of new agreements entered into in the first quarter.
As the table shows, the interest rate and currency swaps substantially offset
the change in the fair value of the debt portfolio.
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<PAGE> 12
<TABLE>
<CAPTION>
(In Millions) UNREALIZED GAINS/(LOSSES)
----------------------------------
31 March 1994 30 September 1993 Change
-------------- ----------------- -------------
<S> <C> <C> <C>
Interest Rate Swaps
Fixed rate to variable rate $(98.6)* $15.5 $(114.1)
Variable rate to fixed rate 4.2 (0.8) 5.0
-------------- ----------------- -------------
Total (94.4) 14.7 (109.1)
Currency Swaps 4.2 (9.2) 13.4
Debt (38.6) (117.5) 78.9
-------------- ----------------- -------------
Total $(128.8) $(112.0) $(16.8)
============== ================= =============
</TABLE>
*At 31 March 1994, $96.4 million was recognized in income on a mark-to-market
basis.
The mark-to-market adjustment recognized in income reflects the present value
of the future cash flows associated with the highly leveraged swap transactions
and is based on the interest rate environment at the end of the quarter.
Therefore, as interest rates change over time, the market values change and the
differences are recognized in the income statement. As of 16 May, actions have
been taken on all five agreements accounted for on a mark-to-market basis.
Three have been terminated, one closed and one capped. The mark-to-market
adjustment has increased by approximately $15 million since 31 March 1994,
including approximately $11 million relating to the three terminated
agreements. No further mark-to-market exposure exists for these three
agreements. The capped agreement, which is sensitive to Dutch Guilder interest
rates, could result in a further loss of $3 million with a 100 basis point
increase in interest rates or an $11 million gain with a 100 basis points
decline in interest rates. The market value of the closed agreement will not
vary materially with changes in interest rates.
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<PAGE> 13
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
27 January 1994.
(c) The following matters were voted on at the Annual Meeting:
(1) Election of Directors
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
NUMBER OF VOTES CAST
--------------------------------------------------------------------------------------
AGAINST
NAME OF DIRECTOR OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T. H. BARRETT 92,067,237 (97.70%) 2,165,015 (2.30%) 0 0
- - -------------------------------------------------------------------------------------------------------------------
L. P. BREMER, III 93,079,515 (98.78%) 1,152,737 (1.22%) 0 0
- - -------------------------------------------------------------------------------------------------------------------
J. RODIN 93,030,597 (98.73%) 1,201,655 (1.27%) 0 0
- - -------------------------------------------------------------------------------------------------------------------
H. A. WAGNER 93,159,475 (98.86%) 1,072,777 (1.14%) 0 0
- - -------------------------------------------------------------------------------------------------------------------
T. SHIINA 93,343,590 (99.06%) 888,662 ( .94%) 0 0
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 1994.
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
NUMBER OF VOTES CAST
- - -------------------------------------------------------------------------------------------------------------------
AGAINST
OR
FOR WITHHELD ABSTENTIONS BROKER NON-VOTES
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
93,451,505 (99.17%) 235,915 (.25%) 544,832 (.58%) 0
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
(b) A Current Report on Form 8-K dated 20 January 1994 was filed
by the registrant during the quarter ended 31 March 1994 in
which Item 5 of such form was reported.
- 13 -
<PAGE> 14
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 16, 1994 By: /s/ G. A. White
-----------------------------
G. A. White
Senior Vice President - Finance
(Chief Financial Officer)
- 14 -
<PAGE> 15
INDEX TO EXHIBITS
(a)(12) Computation of Ratios of Earnings to Fixed Charges.
<PAGE> 1
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Year Ended 30 September Six Months Ended 31 March
---------------------------------- -------------------------
1989 1990 1991 1992 1993 1994
EARNINGS: ---- ---- ---- ---- ---- ----
(Dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item
and the cumulative effect of
accounting changes: $222.1 $229.9 $248.9 $277.0 $200.9 $ 88.6
Add (deduct):
Provision for income taxes 99.7 107.7 113.9 130.8 103.0 35.1
Fixed charges, excluding capitalized
interest 87.3 112.2 121.8 133.4 127.3 60.7
Capitalized interest amortized during
the period 5.9 6.6 6.7 7.5 7.7 3.8
Undistributed earnings of less-than-fifty-
percent-owned affiliates (10.7) (12.0) (8.6) (12.5) (8.1) (7.0)
------ ------ ------ ------ ------ ------
Earnings, as adjusted $404.3 $444.4 $482.7 $536.2 $430.8 $181.2
====== ====== ====== ====== ====== ======
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $ 80.2 $104.5 $112.8 $125.1 $118.6 $ 56.2
Capitalized interest 25.9 26.6 28.7 4.1 6.3 3.7
Amortization of debt discount premium and
expense .8 1.3 2.1 .8 .7 .4
Portion of rents under operating leases
representative of the interest factor 6.3 6.4 6.9 7.5 8.0 4.1
------ ------ ------ ------ ------ ------
Fixed charges $113.2 $138.8 $150.5 $137.5 $133.6 $64.4
====== ====== ====== ====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES: 3.6 3.2 3.2 3.9 3.2 2.8
====== ====== ====== ====== ====== ======
</TABLE>
