<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 30 June 1997
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)
<TABLE>
<CAPTION>
Delaware 23-1274455
<S> <C>
(State of Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
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.
<TABLE>
<CAPTION>
Class Outstanding at 6 August 1997
-------------------------- -------------------------------
<S> <C>
Common Stock, $1 par value 119,598,701
</TABLE>
<PAGE> 2
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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Part I. Financial Information
<S> <C>
Consolidated Balance Sheets -
30 June 1997 and 30 September 1996 ......................................................................... 3
Consolidated Income -
Three Months and Nine Months Ended 30 June 1997 and 1996 ................................................... 4
Consolidated Cash Flows -
Nine Months Ended 30 June 1997 and 1996 .................................................................... 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
</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 quarters ended 31 December 1996 and 31 March 1997.
Results of operations for any three or nine month periods are not necessarily
indicative of the results of operations for a full year.
2
<PAGE> 3
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except per share)
<TABLE>
<CAPTION>
30 June 30 September
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 70.6 $ 78.7
Trade receivables, less allowances for doubtful 841.6 670.0
accounts
Inventories 401.4 371.1
Contracts in progress, less progress billings 142.2 115.2
Other current assets 196.7 139.7
---------- ----------
TOTAL CURRENT ASSETS 1,652.5 1,374.7
---------- ----------
INVESTMENTS 590.4 833.6
---------- ----------
PLANT AND EQUIPMENT, at cost 8,627.8 8,102.6
Less - Accumulated depreciation 4,243.1 4,144.1
---------- ----------
PLANT AND EQUIPMENT, net 4,384.7 3,958.5
---------- ----------
GOODWILL 253.6 83.5
---------- ----------
OTHER NONCURRENT ASSETS 344.9 272.1
---------- ----------
TOTAL ASSETS $ 7,226.1 $ 6,522.4
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other $ 631.9 $ 526.4
Accrued liabilities 265.1 241.1
Accrued income taxes 57.5 39.7
Short-term borrowings 325.0 423.2
Current portion of long-term debt 30.6 33.1
---------- ----------
TOTAL CURRENT LIABILITIES 1,310.1 1,263.5
---------- ----------
LONG-TERM DEBT 2,213.4 1,738.6
---------- ----------
DEFERRED INCOME AND OTHER NONCURRENT
LIABILITIES 421.2 363.5
---------- ----------
DEFERRED INCOME TAXES 671.5 582.2
---------- ----------
TOTAL LIABILITIES 4,616.2 3,947.8
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 124.7 124.7
Capital in excess of par value 453.3 461.2
Retained earnings 2,915.7 2,687.2
Unrealized gain on investments 15.6 40.4
Cumulative translation adjustments (162.5) (70.2)
Treasury stock, at cost (293.6) (211.2)
Shares in trust (443.3) (457.5)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 2,609.9 2,574.6
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,226.1 $ 6,522.4
========== ==========
</TABLE>
3
<PAGE> 4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
(Millions of dollars, except per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
30 June 30 June
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $ 1,150.3 $ 997.3 $ 3,424.3 $ 2,957.3
Other income, net .7 8.7 20.5 16.6
---------- ---------- ---------- ----------
1,151.0 1,006.0 3,444.8 2,973.9
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 663.4 594.5 2,042.4 1,763.6
Selling, distribution, and 266.8 228.0 773.0 678.9
administrative
Research and development 27.9 28.1 83.1 83.8
---------- ---------- ---------- ----------
OPERATING INCOME 192.9 155.4 546.3 447.6
Income from equity affiliates, net of
related expenses 17.3 20.4 49.5 54.2
Gain on settlement of leveraged
interest rate swaps -- -- -- 66.8
Interest expense 39.4 33.8 121.8 93.7
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 170.8 142.0 474.0 474.9
Income taxes 54.8 44.0 152.1 152.6
---------- ---------- ---------- ----------
NET INCOME $ 116.0 $ 98.0 $ 321.9 $ 322.3
========== ========== ========== ==========
MONTHLY AVERAGE OF COMMON
SHARES OUTSTANDING -- -- 110.1 111.9
---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE $ 1.05 $ .87 $ 2.92 $ 2.88
========== ========== ========== ==========
DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .30 $ .275 $ .85 $ .795
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE> 5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
30 June
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 321.9 $ 322.3
Adjustments to reconcile income to cash provided by operating activities:
Depreciation 339.4 303.2
Deferred income taxes 40.3 58.3
Impairment loss 9.3 --
Gain on sale of assets and investments (24.9) (.5)
Termination of liabilities for leveraged interest rate swaps -- (61.7)
Other 36.8 (38.0)
Working capital changes that provided (used) cash, net
of effects of acquisitions:
Trade receivables (107.1) (60.4)
Other receivables 50.7 (19.8)
Inventories and contracts in progress (45.9) (51.0)
Payables, trade and other 94.5 64.3
Accrued income taxes 32.5 12.0
Other (34.8) (4.7)
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 712.7 524.0
-------- --------
INVESTING ACTIVITIES
Additions to plant and equipment* (653.2) (706.5)
Acquisitions, less cash acquired** (300.0) (4.4)
Investment in and advances to unconsolidated affiliates (31.8) (186.7)
Proceeds from sale of assets and investments 89.9 31.8
Other 5.0 (4.2)
-------- --------
CASH USED FOR INVESTING ACTIVITIES (890.1) (870.0)
-------- --------
FINANCING ACTIVITIES
Long-term debt proceeds* 527.5 553.9
Payments on long-term debt (155.7) (56.0)
Net increase (decrease) in commercial paper .2 (66.1)
Net increase (decrease) in other short-term borrowings (12.2) 15.9
Dividends paid to shareholders (93.4) (88.9)
Purchase of Treasury Stock (125.0) (22.8)
Other 28.5 14.6
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 169.9 350.6
-------- --------
Effect of Exchange Rate Changes on Cash (.6) (1.3)
-------- --------
Increase (Decrease) in Cash and Cash Items (8.1) 3.3
Cash and Cash Items - Beginning of Year 78.7 87.5
-------- --------
Cash and Cash Items - End of Period $ 70.6 $ 90.8
======== ========
</TABLE>
*Excludes capital leases of $2.9 million and $4.1 million for the nine months
ended 30 June 1997 and 1996.
**Excludes debt of $1.1 million to former shareholders of company acquired in
fiscal 1997.
5
<PAGE> 6
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company completed the sale of the landfill gas recovery business, GSF Energy
Inc., during the first quarter of fiscal 1997. A gain of $9.5 million ($5.9
million after tax, or $.05 per share) was recorded. Sales of the landfill gas
business were $20.3 million in fiscal year 1996 with an operating loss of $3.0
million and net income of $4.0 million, including the net income benefit from
nonconventional fuel tax credits. The gain on sale is included in the other
income line of the income statement.
During the first quarter of fiscal 1997, an impairment loss of $9.3 million
($6.0 million after tax, or $.05 per share) was recorded in the chemicals
segment. The write-down was related to production assets and the related
goodwill in the polyurethane release agents product line. The impairment loss
was calculated based on an offer to purchase these assets and is included in the
other income line of the income statement. The sale of the impaired assets
occurred in February 1997.
On 22 October 1996, the Company obtained control of Carburos Metalicos S.A.
(Carburos). Carburos is a leading supplier of industrial gases in Spain. The
Company increased its ownership percentage in Carburos from 47.6% to 96.7% of
the outstanding shares in Carburos. This transaction was accounted for as a step
acquisition purchase and the results for the nine months ended 30 June 1997
included the consolidated operating results for Carburos since mid-November
1996. Previously, the Company accounted for its investment using the equity
method. The Company has recorded a total of $212.2 million as cumulative
goodwill, which will be amortized on a straight-line basis over forty years.
During the second quarter of fiscal 1996, the Company reached a $66.8 million
settlement with Bankers Trust Company over $107.7 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
$61.7 million associated with these closed contracts. The results for the nine
months ended 30 June 1996 included a gain of $66.8 million ($40.7 million after
tax, or $.36 per share) from the settlement.
6
<PAGE> 7
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER FISCAL 1997 VS. THIRD QUARTER FISCAL 1996
-----------------------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
The current quarter results included sales of $1,150.3 million, 15% higher than
in the same quarter of last fiscal year. Operating income grew $37.5 million or
24% to a record $192.9 million. Equity affiliates' income declined $3.1 million
in the current fiscal quarter compared to the third quarter of fiscal 1996. Net
income was $116.0 million, or $1.05 per share, a 21% increase over the $.87 per
share in fiscal 1996. These results included the consolidation of Carburos
Metalicos (Carburos) for the entire quarter. Carburos was included in the
results of equity affiliates in the prior year quarter.
Sales and operating income increased primarily due to higher volumes in most
businesses and the inclusion of Carburos in the industrial gases segment for the
entire quarter. Broad-based productivity gains also contributed to the operating
income growth. The decline in income from equity affiliates was due to the
movement of Carburos to consolidated results and lower income in Asia.
SEGMENT ANALYSIS
The segment results for fiscal 1996 have been restated. The business to be
divested (American Ref-Fuel) and the landfill gas recovery business sold in
November 1996 are included in the corporate and other segment, while the
continuing businesses from the former environmental and energy segment (power
generation and Pure Air(TM)) are now included in the equipment and services
segment.
INDUSTRIAL GASES - Sales increased 18% to $684.8 million in the third quarter of
fiscal 1997 on higher worldwide volumes in both merchant and tonnage businesses.
The overall merchant volume index was up 6% in the U.S. and 7% in Europe.
Merchant hydrogen volume was up 29% in the U. S., mainly due to additional NASA
business. Tonnage volumes were up 11% domestically and 7% in Europe, primarily
from continued loading of the HYCO investments. In addition to this volume
growth, lower production and distribution costs in merchant gases were a
significant contributor to the operating income increase of 38% to $140.6
million. Merchant pricing had little impact on the quarter results, while
currency effects reduced sales and operating income growth by approximately 2%.
The consolidation of Carburos contributed approximately two-thirds of the sales
growth and one-third of the operating income growth. Excluding the currency
impact and Carburos consolidation, sales growth was approximately 8%.
7
<PAGE> 8
Equity affiliates' income of $3.5 million was down $8.6 million with the absence
of the Carburos income now reported in consolidated results and lower income in
Asia due to a customer bankruptcy and higher infrastructure costs.
CHEMICALS - Third quarter sales for fiscal 1997 rose 4% to a record $366.3
million on higher volumes in most product lines and higher methanol pricing.
Overall volumes were up 3%. Polyurethane intermediates demonstrated lower
volumes due largely to customer outages. Record operating income of $59.7
million grew 8% on the higher volumes, methanol pricing, and productivity gains.
Currency effects reduced sales growth by 1% and operating income growth by
almost 6%.
EQUIPMENT AND SERVICES - Sales of $99.2 million increased $37.4 million from
higher broad-based project activity. Operating income was up 8% to $8.0 million.
Excluding the prior year impact of a project buyout in the power generation
business, operating income in the core equipment business was up significantly.
The backlog of high quality projects was up slightly from the prior year at
$353.1 million.
Equity affiliates' income for the third quarter of fiscal 1997 increased $1.4
million to $3.2 million due to improved operating performance at the power
generation facilities.
CORPORATE AND OTHER - Sales are zero compared to $5.1 million in the prior year
quarter following the sale of the landfill gas business in November 1996. Net
operating loss increased $6.0 million to $15.4 million due primarily to foreign
exchange losses recognized this year compared to gains in the prior year.
Equity affiliates' income from American Ref-Fuel was $10.4 million compared to
$6.3 million for the third quarter of fiscal 1996. This increase was due
primarily to higher revenues and lower plant maintenance and overhead costs.
INTEREST
Interest expense increased $5.6 million to $39.4 million for the third quarter
of fiscal 1997. The increase is due to a higher debt balance this year slightly
offset by lower interest rates and higher capitalized interest. The higher debt
balance is a result of the capital investment program, the Carburos acquisition,
and the ongoing share repurchase program.
INCOME TAXES
The effective tax rate for the third quarter of 1997 was 32.1% compared to 31.0%
for the prior year quarter. This 1.1% increase was due to favorable adjustments
in the prior year quarter, lower equity affiliates' income in the current
quarter, and the loss of non-conventional fuel credits following the sale of the
landfill gas business.
8
<PAGE> 9
ACCOUNTING CHANGES
During the third quarter of fiscal year 1997, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." These standards establish new disclosures for comprehensive income
and segments and will be effective for fiscal year 1999. New disclosures will
include a comprehensive income number, operating segments in accordance with
internal management structure and geographic sales by destination rather than
source.
The SEC issued a ruling on disclosure for derivative and other financial
instruments. The accounting policy disclosure enhancements were effective for
this quarter. We believe our accounting policy disclosure in the latest annual
report on Form 10-K is adequate. The quantitative and qualitative information
requirements are effective for fiscal year 1997 and will be included in the 1997
annual report on Form 10-K.
NINE MONTHS FISCAL 1997 VS. NINE MONTHS FISCAL 1996
---------------------------------------------------------------
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first nine months of fiscal 1997 of $3,424.3 million were 16%
higher than the $2,957.3 million reported in the prior year. Operating income
grew $98.7 million or 22% to $546.3 million. Equity affiliates' income of $49.5
million declined $4.7 million from the prior year. During the second quarter of
fiscal 1997, there was a $4.8 million cost recognized in equity affiliates'
income related to the American Ref-Fuel debt refinancing of the Hempstead
facility. Excluding this transaction, equity affiliates' income was comparable
with the prior year. Net income declined $.4 million from the prior year to
$321.9 million. During the second quarter of fiscal 1996, the Company
recognized an after-tax gain of $40.7 million, or $.36 per share, from the
settlement with Bankers Trust Company of certain derivative-related claims.
Excluding the settlement with Bankers Trust, net income increased $40.3
million, or 14% over the prior year.
In October 1996, the Company increased ownership in Carburos Metalicos from
47.6% to 96.7%. As a result of this increase in ownership, Carburos has been
included in the consolidated results for six weeks of the first quarter and the
entire second and third quarters of fiscal 1997. Carburos was previously
included in equity affiliates' income.
Sales and operating income increased primarily due to higher volumes in most
businesses and the inclusion of Carburos in the industrial gas segment for most
of the nine month period. Broad-based productivity gains also contributed to the
operating income growth. Equity affiliates' income demonstrated strong operating
results in power generation which were offset by the movement of Carburos to
consolidated results.
9
<PAGE> 10
SEGMENT ANALYSIS
The segment results for fiscal 1996 have been restated. The business to be
divested (American Ref-Fuel) and the landfill gas recovery business sold in
November 1996 are included in the corporate and other segment, while the
continuing businesses from the environmental and energy segment (power
generation and Pure Air(TM)) are now included in the equipment and services
segment.
INDUSTRIAL GASES - Sales of $1,970.3 million in the first nine months of fiscal
1997 increased 15%, or $250 million over the $1,720.3 million reported in fiscal
1996. Carburos was fully consolidated during the middle of the first quarter and
had a significant impact on the sales increase. Domestic tonnage gases led the
sales growth with a 12% volume increase over the prior year. This a direct
result of the continued loading of recent investments, particularly the HYCO
facilities. European tonnage gases volumes continued the growth pattern started
in the second quarter with a total nine months' growth rate of 5% over fiscal
1996. Merchant volumes in both the domestic and European regions are above the
prior year as a result of the strong volume growth demonstrated in the third
quarter. Operating income of $384.4 million was up $78.9 million or 26% over the
first nine months of fiscal 1996. Productivity gains in the domestic gases
business combined with the strong volume growth were the major factors for the
current year results. Consolidation of Carburos was responsible for
approximately half of the year to year increase in operating income. Currency
effects reduced sales and operating income growth by less than 2%.
Merchant pricing is flat compared to the prior year.
Equity affiliates' income of $24.0 million decreased $7.2 million from fiscal
1996 results of $31.2 million. Carburos was excluded from the equity affiliates'
results for the current nine month period.
CHEMICALS - Sales in the first nine months of fiscal 1997 increased $68.8
million to $1,071.0 million, while operating income increased $1.6 million to
$157.6 million. Excluding the $9.3 million asset impairment loss in the release
agents business, operating income rose 7% to $166.9 million. Broad based volume
gains in most businesses and higher methanol pricing in the third quarter were
the major reasons for the year to year increase in sales and operating income.
Productivity gains also favorably impacted the current year results. Currency
effects reduced sales growth by less than 1% and operating income growth by
approximately 4% for the current nine month period.
EQUIPMENT AND SERVICES - Sales of $381.8 million increased $161.8 million over
the prior year. Sales of equipment to Eastman Chemical in Rotterdam and to Asian
joint ventures were responsible for much of the increase. Operating income rose
$5.1 million to $24.1 million. Prior year results were favorably impacted by a
project buyout in the power generation business. Equity affiliates' income of
$10.2 million grew $4.1 million over the prior year, driven by operating
productivity gains in the power generation business. The backlog of high quality
projects was up slightly from the prior year at $353.1 million. The backlog is
up $47.4 million from 30 September 1996.
10
<PAGE> 11
CORPORATE AND OTHER - Sales were down $13.6 million due to the sale of the
landfill gas recovery business in November 1996. Net operating loss for the nine
months ending 30 June 1997 was $19.8 million, down $13.1 million from the prior
year. Current year results included a gain of $9.5 million on the landfill gas
business sale and a gain of $7.3 million on the partial sale of the cost basis
Daido Hoxan investment. The prior year also included operating losses in the
landfill gas business. The sale of the business in November 1996 resulted in a
$4.2 million nine months' increase in operating income for the segment.
Excluding these non-recurring items, operating expenses were up $7.9 million due
primarily to foreign exchange losses.
Equity affiliates' income of $14.9 million is down $1.9 million from the prior
fiscal year. In the second quarter of fiscal 1997, American Ref-Fuel refinanced
the debt of the Hempstead facility which resulted in a $4.8 million reduction in
equity affiliates' income. Excluding the refinancing cost, the equity
affiliates' income for fiscal 1997 is up $2.9 million.
INTEREST
Interest expense was $121.8 million, up $28.1 million compared to the prior year
period. The increase was due to a higher debt balance driven by the capital
investment program, the Carburos acquisition, and the ongoing share repurchase
program.
INCOME TAXES
The effective tax rate was 32.1% for the first nine months of both 1997 and
1996. Excluding the impact of the Bankers Trust settlement, the 1996 rate was
31.0%. Higher foreign taxes, lower joint venture income, and the elimination of
the non-conventional fuel credits generated by the divested landfill gas
recovery business are the primary reasons for the effective rate increase in
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first nine months of fiscal 1997 totaled $989.0
million compared to $901.7 million in the corresponding period of the prior
year. Additions to plant and equipment decreased from $706.5 million during the
first nine months of 1996 to $653.2 million during the current period.
Investments in unconsolidated affiliates were $31.8 million during the first
nine months of fiscal 1997 versus $186.7 million last year. Prior year numbers
included the acquisition of an additional 21.5% of the outstanding shares of
Carburos at a cost of $120.0 million and $38.2 million in support of the
environmental and energy segment. On 22 October 1996, the Company obtained
control of Carburos through the acquisition of an additional 49.1% shares at a
cost of $288.4 million. Including this acquisition, capital expenditures are
expected to be approximately $1.3 billion in fiscal 1997. It is anticipated that
these expenditures will be funded with cash from operations supplemented with
proceeds from financing activities.
11
<PAGE> 12
Cash provided by operating activities during the first nine months of fiscal
1997 ($712.7 million) combined with cash provided by debt financing ($527.5
million), and proceeds from the sale of assets and investments ($89.9 million)
were used largely for capital expenditures ($989.0 million), purchase of the
Company's common stock for treasury ($125.0 million), payments on long-term debt
($155.7 million), and cash dividends ($93.4 million). Cash and cash items
decreased $8.1 million from $78.7 million at the beginning of the fiscal year to
$70.6 million at 30 June 1997.
During the second quarter of fiscal 1997, American Ref-Fuel of Hempstead (50%
owned partnership) refinanced its debt to lower the effective interest rate.
This transaction resulted in a charge of $4.8 million ($2.8 million after-tax,
or $.03 per share).
Total debt at 30 June 1997 and 30 September 1996, expressed as a percentage of
the sum of total debt and shareholders' equity, was 50% and 46%, respectively.
Total debt increased from $2,194.9 million at 30 September 1996 to $2,569.0
million at 30 June 1997. During the first quarter of fiscal 1997, the Company
issued $231.0 million in debt securities with maturities ranging from three to
seven years and fixed coupon rates of 6.01% to 6.86% or variable rates tied to
LIBOR. Additionally, $53.0 million of 7.03%, nine year U.S. dollar debt was
issued by a foreign subsidiary. The Carburos acquisition, during the first
quarter of fiscal 1997, was financed primarily through the issuance of U.S.
dollar debt effectively converted to Spanish Peseta liabilities through the use
of interest rate and currency swap contracts and foreign exchange contracts.
During the second quarter of fiscal 1997, the Company issued $100.0 million in
notes due in 2009, with a one-time put option exercisable by the investor after
two years. The coupon rate on this note is indexed to LIBOR for the first two
years. During the second quarter, the Company also issued $100.0 million in
notes due in 2014, with a one-time put option exercisable by the investor after
two and a half years. The coupon rate on this note is indexed to LIBOR for the
first two and a half years.
There was $370.2 million of commercial paper outstanding at 30 June 1997. The
Company's revolving credit commitments amounted to $600.0 million at 30 June
1997 with funding available in 13 currencies. No borrowings were outstanding
under these commitments. Additional commitments totaling $94.5 million are
maintained by the Company's foreign subsidiaries, of which $4.1 million was
utilized at 30 June 1997.
At 30 June 1997, the Company had unutilized shelf registration capacity for
$208.0 million of debt securities. Subsequent to 30 June 1997, the Company
issued $83.0 million in notes due in 2007 at a coupon rate of 6.65%.
The Company enters into interest rate swap agreements to change the
fixed/variable interest rate mix of the debt portfolio in order to maintain the
percentage of fixed and variable debt within certain parameters set by
management. In accordance with these parameters, the agreements are used to
reduce interest rate risks and costs inherent in the Company's debt portfolio.
Accordingly, the Company enters into agreements to both effectively convert
variable-rate debt to fixed-rate debt and to effectively convert fixed-rate debt
to variable-rate debt which is indexed principally to LIBOR rates. The Company
has also entered into interest rate swap contracts to effectively convert the
stated variable rates to interest rates based on LIBOR. The fair value gain
(loss) on the variable to variable swaps is equally offset by a fair value loss
(gain) on the related debt agreements.
12
<PAGE> 13
The notional principal and fair value of interest rate swap agreements at 30
June 1997 and 30 September 1996 were as follows:
(Millions of dollars)
<TABLE>
<CAPTION>
30 June 1997 30 September 1996
---------------------------------------- ---------------------------------------
Notional Fair Value Notional Fair Value
Amount Gain Amount Gain (Loss)
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Fixed to Variable $361.0 $ 5.2 $243.5 $ 1.3
Variable to Fixed 15.0 -- 54.0 (.5)
Variable to Variable 60.0 58.4 60.0 27.9
---------------------------------------- ---------------------------------------
Total $436.0 $63.6 $357.5 $28.7
======================================== =======================================
</TABLE>
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 30 June
1997 was $354.1 million. The fair value of the agreements was a gain of $3.4
million, of which a $33.0 million gain related to the currency component has
been recognized in the financial statements, primarily as a component of
cumulative translation adjustments on the balance sheet. The remaining $29.6
million loss is related to the interest component (reflecting that current
interest rates are generally lower than the interest rates paid under the
interest rate and currency swap agreements) and has not been recognized in the
financial statements. As of 30 September 1996, interest rate and currency swap
agreements were outstanding with a notional principal amount and fair value of
$273.6 million and a loss of $15.5 million, respectively.
The estimated fair value of the Company's long-term debt, including current
portion, as of 30 June 1997 is $2,351.9 million compared to a book value of
$2,244.0 million.
During the first nine months of fiscal 1997, 1.8 million shares of the Company's
outstanding common stock were repurchased at a cost of $125.0 million. The
remainder of the program will be paced by the disposition of American Ref-Fuel
and ongoing capital investment requirements.
13
<PAGE> 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) Current Report on Form 8-K dated 11 April 1997 was filed
by the registrant during the quarter ended 30 June 1997 in
which Item 5 of such form was reported.
14
<PAGE> 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 12, 1997 By: /s/ A. H. Kaplan
---------------------
A. H. Kaplan
Senior Vice President - Finance
(Chief Financial Officer)
15
<PAGE> 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 30 June 1997
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
<PAGE> 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.
<PAGE> 1
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Nine
Months
Ended
Year Ended 30 September 30 June
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
EARNINGS: (Millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item and
the cumulative effect of accounting
changes: $ 277.0 $ 200.9 $ 233.5 $ 368.2 $ 416.4 $ 321.9
Add (deduct):
Provision for income taxes 130.8 103.0 95.2 186.2 195.5 153.7
Fixed charges, excluding capitalized
interest 133.4 127.3 127.1 148.8 184.0 177.5
Capitalized interest amortized during
the period 7.5 7.7 8.0 9.1 9.4 6.0
Undistributed earnings of less-than-
fifty-percent-owned affiliates (12.5) (8.1) (2.8) (25.4) (40.6) (22.7)
-------- -------- -------- -------- -------- --------
Earnings, as adjusted $ 536.2 $ 430.8 $ 461.0 $ 686.9 $ 764.7 $ 636.4
======== ======== ======== ======== ======== ========
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $ 125.1 $ 118.6 $ 118.2 $ 139.4 $ 171.7 $ 165.6
Capitalized interest 4.1 6.3 9.7 18.5 20.0 15.9
Amortization of debt discount
premium and expense .8 .7 .8 .2 1.5 1.3
Portion of rents under operating leases
representative of the interest factor 7.5 8.0 8.1 9.2 10.8 10.6
-------- -------- -------- -------- -------- --------
Fixed charges $ 137.5 $ 133.6 $ 136.8 $ 167.3 $ 204.0 $ 193.4
======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES: 3.9 3.2 3.4 4.1 3.7 3.3
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 858
<ALLOWANCES> 16
<INVENTORY> 401
<CURRENT-ASSETS> 1,653
<PP&E> 8,628
<DEPRECIATION> 4,243
<TOTAL-ASSETS> 4,385
<CURRENT-LIABILITIES> 1,310
<BONDS> 2,213
0
0
<COMMON> 125
<OTHER-SE> 2,485
<TOTAL-LIABILITY-AND-EQUITY> 7,226
<SALES> 3,424
<TOTAL-REVENUES> 3,424
<CGS> 2,042
<TOTAL-COSTS> 2,042
<OTHER-EXPENSES> 83
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 474
<INCOME-TAX> 152
<INCOME-CONTINUING> 322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 322
<EPS-PRIMARY> 2.92
<EPS-DILUTED> 2.92
</TABLE>
