<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 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)
Delaware 23-1274455
(State or 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.
<TABLE>
<CAPTION>
Class Outstanding at 7 May 1997
- -------------------------- ---------------------------
<S> <C>
Common Stock, $1 par value 119,680,708
</TABLE>
<PAGE> 2
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information
Consolidated Balance Sheets -
31 March 1997 and 30 September 1996 ........................................................................ 3
Consolidated Income -
Three Months and Six Months Ended 31 March 1997 and 1996 ................................................... 4
Consolidated Cash Flows -
Six Months Ended 31 March 1997 and 1996 .................................................................... 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 .................................................. 15
Item 6. Exhibits and Reports on Form 8-K ..................................................................... 16
Signatures .................................................................................................... 17
</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 1996.
Results of operations for any three or six 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
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
31 March 30 September
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash items $ 111.8 $ 78.7
Trade receivables, less allowances for doubtful
accounts 814.0 670.0
Inventories 398.0 371.1
Contracts in progress, less progress billings 167.5 115.2
Other current assets 173.1 139.7
-------- --------
TOTAL CURRENT ASSETS 1,664.4 1,374.7
-------- --------
INVESTMENTS 596.8 833.6
-------- --------
PLANT AND EQUIPMENT, at cost 8,537.3 8,102.6
Less - Accumulated depreciation 4,167.8 4,144.1
-------- --------
PLANT AND EQUIPMENT, net 4,369.5 3,958.5
-------- --------
GOODWILL 265.8 83.5
-------- --------
OTHER NONCURRENT ASSETS 317.9 272.1
-------- --------
TOTAL ASSETS $7,214.4 $6,522.4
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Payables, trade and other $ 607.4 $ 526.4
Accrued liabilities 275.4 241.1
Accrued income taxes 50.7 39.7
Short-term borrowings 395.5 423.2
Current portion of long-term debt 57.3 33.1
-------- --------
TOTAL CURRENT LIABILITIES 1,386.3 1,263.5
-------- --------
LONG-TERM DEBT 2,211.6 1,738.6
-------- --------
DEFERRED INCOME AND OTHER NONCURRENT
LIABILITIES 403.7 363.5
-------- --------
DEFERRED INCOME TAXES 655.2 582.2
-------- --------
TOTAL LIABILITIES 4,656.8 3,947.8
-------- --------
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share 124.7 124.7
Capital in excess of par value 454.6 461.2
Retained earnings 2,832.5 2,687.2
Unrealized gain on investments 15.6 40.4
Cumulative translation adjustments (142.3) (70.2)
Treasury stock, at cost (275.4) (211.2)
Shares in trust (452.1) (457.5)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 2,557.6 2,574.6
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,214.4 $6,522.4
======== ========
</TABLE>
3
<PAGE> 4
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME
<TABLE>
<CAPTION>
(Millions of dollars, except per share)
Three Months Ended Six Months Ended
31 March 31 March
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES AND OTHER INCOME
Sales $ 1,153.1 $ 1,012.5 $ 2,274.0 $ 1,960.0
Other income, net 10.4 4.1 19.8 7.9
---------- ---------- ---------- ----------
1,163.5 1,016.6 2,293.8 1,967.9
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of sales 686.3 609.7 1,379.0 1,169.1
Selling, distribution, and
administrative 264.7 230.8 506.2 450.9
Research and development 28.5 28.1 55.2 55.7
---------- ---------- ---------- ----------
OPERATING INCOME 184.0 148.0 353.4 292.2
Income from equity affiliates, net of
related expenses 13.5 18.0 32.2 33.8
Gain on settlement of leveraged
interest rate swaps -- 66.8 -- 66.8
Interest expense 42.5 31.2 82.4 59.9
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 155.0 201.6 303.2 332.9
Income taxes 49.0 66.3 97.3 108.6
---------- ---------- ---------- ----------
NET INCOME $ 106.0 $ 135.3 $ 205.9 $ 224.3
========== ========== ========== ==========
MONTHLY AVERAGE OF COMMON
SHARES OUTSTANDING -- -- 110.2 111.8
---------- ---------- ---------- ----------
EARNINGS PER COMMON SHARE $ .96 $ 1.21 $ 1.87 $ 2.01
========== ========== ========== ==========
DIVIDENDS DECLARED PER
COMMON SHARE - Cash $ .275 $ .26 $ .55 $ .52
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE> 5
AIR PRODUCTS AND CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(Millions of dollars)
Six Months Ended
31 March
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $205.9 $224.3
Adjustments to reconcile income to cash provided by operating activities:
Depreciation 223.5 199.7
Deferred income taxes 31.3 33.8
Impairment loss 9.3 --
Gain on sale of assets and investments (22.5) (.8)
Termination of liabilities for leveraged interest rate swaps -- (61.7)
Other (5.8) --
Working capital changes that provided (used) cash, net
of effects of acquisitions:
Trade receivables (71.1) (30.3)
Other receivables 72.7 (11.2)
Inventories and contracts in progress (69.8) (41.5)
Payables, trade and other 65.6 (25.6)
Accrued income taxes 21.0 41.2
Other (19.9) (.7)
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES 440.2 327.2
------ ------
INVESTING ACTIVITIES
Additions to plant and equipment* (488.9) (444.3)
Acquisitions, less cash acquired** (292.2) (4.4)
Investment in and advances to unconsolidated affiliates (24.3) (134.2)
Proceeds from sale of assets and investments 82.7 38.3
Other 4.1 (6.3)
------ ------
CASH USED FOR INVESTING ACTIVITIES (718.6) (550.9)
------ ------
FINANCING ACTIVITIES
Long-term debt proceeds* 527.5 159.6
Payments on long-term debt (52.1) (54.2)
Net (decrease) increase in commercial paper (31.0) 133.9
Net increase in other short-term borrowings 8.5 28.3
Dividends paid to shareholders (60.6) (58.2)
Purchase of Treasury Stock (100.0) --
Other 19.8 9.8
------ ------
CASH PROVIDED BY FINANCING ACTIVITIES 312.1 219.2
------ ------
Effect of Exchange Rate Changes on Cash (.6) (.8)
------ ------
Increase (Decrease) in Cash and Cash Items 33.1 (5.3)
Cash and Cash Items - Beginning of Year 78.7 87.5
------ ------
Cash and Cash Items - End of Period $111.8 $ 82.2
====== ======
</TABLE>
* Excludes capital leases of $1.9 million and $2.7 million for the six
months ended 31 March 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 now owns 96.7% of the outstanding shares in Carburos. This transaction
was accounted for as a step acquisition purchase and the results for the six
months ended 31 March 1997 include 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 three
and six months ended 31 March 1996 include 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
SECOND QUARTER FISCAL 1997 VS. SECOND QUARTER FISCAL 1996
RESULTS OF OPERATIONS
CONSOLIDATED
The current quarter results included record sales of $1,153.1 million, 14%
higher than in the same quarter of last fiscal year. Operating income grew $36.0
million or 24% to $184.0 million. Equity affiliates' income declined $4.5
million in the current fiscal quarter compared to the second quarter of fiscal
1996. Net income was $106.0 million for the second fiscal quarter compared to
$135.3 million in the prior year. During the prior year quarter, there was an
after-tax gain of $40.7 million, or $.36 per share, from the settlement with
Bankers Trust Company of certain derivative-related claims. Net income was
$106.0 million, or $.96 per share, a 13% increase over the $.85 per share in
fiscal 1996, excluding the Bankers Trust settlement. The quarter results include
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 increased primarily due to the consolidation of the increased ownership of
Carburos, broad-based volume growth in the chemicals segment, and continued
growth in the equipment and services segment. Operating income growth was driven
by broad-based productivity gains in the domestic gases business, robust
equipment and services segment business, continued increased loading on tonnage
hydrogen facilities and the additional ownership in Carburos. Income from equity
affiliates was suppressed by the movement of the Carburos results out of equity
affiliates' income to operating income and the cost of refinancing debt of the
American Ref-Fuel (50% owned partnership) Hempstead facility. There was a $7.3
million gain on the partial sale of the cost basis equity investment in Daido
Hoxan of Japan.
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 services segment (power
generation and Pure Air(TM)) are now included in the equipment and services
segment.
INDUSTRIAL GASES - Sales of $671.0 million in the second quarter of fiscal 1997
were up 13% while operating income increased 26% to $125.5 million. The fully
consolidated results of Carburos were included for the entire quarter. Carburos
was accounted for as an equity affiliate in the prior year quarter. Consolidated
Carburos sales were a significant factor in the segment's sales growth. Domestic
tonnage volumes grew 6%, driven by continued loading on recent investments,
particularly in
7
<PAGE> 8
the HYCO pipeline business. Overall, domestic merchant volumes were 2% lower
than the prior year quarter. A 2% growth in liquid oxygen and nitrogen,
including non-cryo, were more than offset by declines in argon and merchant
hydrogen. Pricing in the domestic merchant business was down marginally. In
Europe, tonnage volumes grew 8% over last year and rebounded from last quarter's
customer turnaround shortfalls. European merchant volumes were down 1%, while
pricing was essentially flat as a result of economic softness and related
competitive pressures. The consolidation of Carburos accounted for more than
half of the operating income growth. Additionally, operating income was
increased by domestic productivity gains and loading increases in the tonnage
hydrogen business. The operating income margin increased 1.9% over the prior
year quarter due to lower domestic production costs, higher merchant capacity
utilization, and the impact of the consolidation of Carburos.
Equity affiliates' income of $8.5 million was down $1.4 million in the absence
of the Carburos income now reported in consolidated results. Overall gases joint
ventures' income was strong, with solid growth in Asia.
CHEMICALS - Second quarter sales for fiscal 1997 were up 5% to $358.5 million.
Operating income of $53.4 million grew 1%, resulting in a slightly lower margin.
Overall volumes were up 4% with growth in most businesses. Operating income was
increased by the volume gains and operating productivity gains.
EQUIPMENT AND SERVICES - Sales of $123.6 million increased $47.3 million from
the year-ago-quarter, while operating income was up $3.5 million to $10.5
million. The Eastman Chemical co-generation project in Rotterdam and several
Asian projects contributed to the growth. The backlog of high quality projects
remained strong at $392 million. The backlog is up $34 million from 31 March
1996 and up $86 million from 30 September 1996.
Equity affiliates' income for the second quarter of fiscal 1997 increased $1.2
million to $3.5 million on the strength of improved operating performance at the
power generation facilities.
CORPORATE AND OTHER - Sales are zero compared to $4.7 million in the prior year
quarter following the sale of the landfill gas business in November 1996. Net
operating expense was $5.4 million, down from the prior year expense of $11.3
million. During the quarter ended 31 March 1997, a partial sale of the cost
basis investment in Daido Hoxan resulted in a $7.3 million gain. Excluding this
gain, operating expense was $12.7 million, $1.4 million higher than the prior
year quarter, primarily due to foreign exchange losses.
Total equity affiliates' income was $1.4 million compared to $5.7 million for
the second fiscal quarter of 1996. During the quarter ended 31 March 1997,
American Ref-Fuel (50% owned partnership) refinanced the Hempstead facility
debt. The cost of the transaction resulted in a charge of $4.8 million to equity
affiliates' income. Excluding this transaction, equity affiliates' income was
$6.2 million, up $.5 million from the prior year second quarter.
8
<PAGE> 9
INTEREST
Interest expense was $42.5 million, up $11.3 million compared to the second
quarter of fiscal 1996. The increase is due to a higher debt balance this year,
the result of the capital investment program, including the Carburos
acquisition, and the ongoing share repurchase program.
INCOME TAXES
The effective tax rate for the second fiscal quarter of 1997 was 31.6% compared
to 29.8% for the prior year quarter, excluding the impact of the settlement with
Bankers Trust Company. This 1.8% increase is due to favorable adjustments in the
prior year quarter and the loss of non-conventional fuel credits following the
sale of the landfill gas business. The effective tax rate in the second quarter
of fiscal 1996 was 32.9%, including the effect of the settlement.
ACCOUNTING CHANGES
During the second quarter of fiscal year 1997, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This
standard establishes new accounting and disclosure for earnings per share (EPS).
The standard will be effective for the first quarter of fiscal 1998 with earlier
application not permitted. The EPS as currently reported is the same as the
Basic EPS required by the standard. The newly required Diluted EPS is not
expected to be materially different than the Basic EPS.
Also in March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This standard did not change the currently reported
disclosures.
9
<PAGE> 10
SIX MONTHS FISCAL 1997 VS. SIX MONTHS FISCAL 1996
RESULTS OF OPERATIONS
CONSOLIDATED
Sales in the first six months of fiscal 1997 of $2,274.0 million were 16% higher
than the $1,960.0 million reported in the prior year. Operating income grew
$61.2 million or 21% to $353.4 million. Equity affiliates' income of $32.2
million declined slightly from $33.8 million. In October 1996, the Company
increased ownership in Carburos Metalicos to 96.7% from 47.6%. As a result of
this increase in ownership, Carburos has been included in the consolidated
results for the second quarter and six weeks of the first quarter of fiscal
1997. Carburos was previously included in equity affiliates' income. During the
second quarter of fiscal 1996, the Company recognized a gain of $40.7 million,
or $.36 per share, from the settlement with Bankers Trust Company of certain
derivative-related claims. Net income was $205.9 million, or $1.87 per share, up
13% over the $1.65 per share for fiscal 1996, excluding the settlement with
Bankers Trust.
Operating income was favorably impacted by the consolidation of the Carburos
results, or about half of the year to year increase. The operating income
increase was enhanced by two quarters of productivity gains in the domestic gas
business as well as higher loading on recent tonnage gas investments. Excluding
the impact of an asset impairment loss, the chemicals segment operating income
was up 6%, driven by higher volumes. 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 of $37.0 million rose $3.2 million over
fiscal 1996. Strong gases joint ventures' results more than offset the move of
the Carburos results out of equity affiliates' income.
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 services segment (power
generation and Pure Air(TM)) are now included in the equipment and services
segment.
INDUSTRIAL GASES - Sales of $1,285.5 million in the first six months of fiscal
1997 increased 13%, or $143.1 million over the $1,142.4 million reported in
fiscal 1996. Carburos was fully consolidated since the middle of the first
quarter and had a significant impact on the sales increase. Domestic tonnage gas
volumes grew 6%, driven by continued growth in the loading of recent
investments, particularly in HYCO facilities. European tonnage gases growth for
the second quarter rebounded from first quarter shortfalls caused by customer
plant turnarounds, with a total six months' growth of 3% over fiscal 1996.
Merchant volumes in both the domestic and European regions are approximately the
same as the prior year. Pricing is essentially unchanged compared to the prior
year.
Operating income of $243.8 million was up $40.5 million or 20% over the first
half of fiscal 1996. Productivity gains in the domestic gases business were a
favorable factor while
10
<PAGE> 11
continued softness in the European economy was an unfavorable influence on the
six months' results. Consolidation of Carburos was responsible for more than
half of the year to year increase in operating income.
Equity affiliates' income of $20.5 million grew 7% over the fiscal 1996 six
months' results of $19.1 million. Carburos was excluded from the equity
affiliates' results for most of fiscal 1997 year to date.
CHEMICALS - Sales in the first six months of fiscal 1997 increased $55.0 million
to $704.7 million, while operating income declined $2.9 million to $97.9
million. Excluding an asset impairment loss in the release agents business,
operating income rose 6% to $107.2 million. Broad based volume gains in most
businesses were the major cause for the year to year increase in sales and
operating income.
EQUIPMENT AND SERVICES - Sales of $282.6 million increased 79% over the $158.2
million reported in the prior fiscal year. Sales of equipment to Eastman
Chemical in Rotterdam and to Asia joint ventures were responsible for much of
the increase. Operating income rose $4.5 million to $16.1 million. Equity
affiliates' income of $7.0 million grew $2.7 million or 63% over the prior year
first six months, driven by operating productivity gains in the power generation
business. The high quality backlog of $392 million was up $34 million over 31
March 1996 and was up $86 million over 30 September 1996.
CORPORATE AND OTHER - Sales were down $8.5 million due to the sale of the
landfill gas recovery business in November 1996. Operating expense for the six
months ending 31 March 1997 was $4.4 million, down $19.1 million from the prior
year. 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 were
the major reasons for the decline in net corporate expense from fiscal 1996. The
prior fiscal period included operating losses in the landfill gas business. The
sale of the business in November 1996 resulted in a $2.2 million six months'
increase in operating income for the segment.
Equity affiliates' income of $4.5 million is down $6.0 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 down $1.2 million.
INTEREST
Interest expense was $82.4 million, up $22.5 million compared to the prior year
period. The increase was due to a higher debt balance driven by the capital
investment programs, the Carburos acquisition, and the ongoing share repurchase
program.
INCOME TAXES
The effective tax rate for the first six months of fiscal 1997 was 32.1%
compared to 31.0% in the prior year, excluding the impact of the Bankers Trust
settlement. The 1996 rate including the settlement is 32.6%. Higher foreign
taxes and the elimination of the non-conventional fuel credits generated by the
divested landfill gas recovery business are the cause of the effective rate
increase.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the first six months of fiscal 1997 totaled $808.4
million compared to $585.6 million in the corresponding period of the prior
year. Additions to plant and equipment increased from $444.3 million during the
first six months of 1996 to $488.9 million during the current period primarily
in support of growth in the worldwide industrial gas business. Investments in
unconsolidated affiliates were $24.3 million during the first six months of
fiscal 1997 versus $134.2 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. 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.
Cash provided by operating activities during the first six months of fiscal 1997
($440.2 million) combined with cash provided by debt financing ($536.0 million),
and proceeds from the sale of assets and investments ($82.7 million) were used
largely for capital expenditures ($808.4 million), purchase of the Company's
common stock for treasury ($100.0 million), payments on long-term debt ($52.1
million), and cash dividends ($60.6 million). Cash and cash items increased
$33.1 million from $78.7 million at the beginning of the fiscal year to $111.8
million at 31 March 1997. The net decrease in commercial paper outstanding was
$31.0 million.
During the second quarter of fiscal 1997, American Ref-Fuel (50% owned
partnership) refinanced its Hempstead 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 31 March 1997 and 30 September 1996, expressed as a percentage of
the sum of total debt and shareholders' equity, was 51% and 46%, respectively.
Total debt increased from $2,194.9 million at 30 September 1996 to $2,664.4
million at 31 March 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 $339.0 million of commercial paper outstanding at 31 March 1997. The
Company's revolving credit commitments amounted to $600.0 million at 31 March
1997 with funding available in 13 currencies. No borrowings were outstanding
under these commitments. Additional commitments totaling $14.8 million are
maintained by the Company's foreign subsidiaries, of which $2.7 million was
utilized at 31 March 1997.
12
<PAGE> 13
At 31 March 1997, the Company had unutilized shelf registration capacity for
$208.0 million of debt securities.
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 agreement.
The notional principal and fair value of interest rate swap agreements at 31
March 1997 and 30 September 1996 were as follows:
(Millions of dollars)
<TABLE>
<CAPTION>
31 March 1997 30 September 1996
-------------------------------- ----------------------------
Notional Fair Value Notional Fair Value
Amount Gain (Loss) Amount Gain (Loss)
-------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Fixed to Variable $276.1 $ (1.8) $243.5 $ 1.3
Variable to Fixed 55.7 (.1) 54.0 (.5)
Variable to Variable 60.0 40.8 60.0 27.9
-------------------------------- ---------------------------
Total $391.8 $ 38.9 $357.5 $ 28.7
================================ ===========================
</TABLE>
Subsequent to 31 March 1997, the Company entered into fixed to variable interest
rate swap agreements with a notional principal of $150.0 million with maturities
of five to eight years.
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 March
1997 was $313.6 million. The fair value of the agreements was a gain of $2.4
million, of which a $29.5 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 $27.1
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.
During the second quarter of fiscal 1997, the Company entered into a forward
starting interest rate and currency swap agreement which will, in May 1997,
effectively convert $40.0 million of U.S. dollar liabilities into U.K. Pound
Sterling liabilities and will mature in 2001.
The estimated fair value of the Company's long-term debt, including current
portion, as of 31 March 1997 is $2,321.9 million compared to a book value of
$2,268.9 million.
13
<PAGE> 14
During the first six months of fiscal 1997, 1.5 million shares of the Company's
outstanding common stock were repurchased at a cost of $100.0 million. The
remainder of the program will be paced by the disposition of American Ref-Fuel
and ongoing capital investment requirements.
14
<PAGE> 15
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 23 January 1997.
(c) The following matters were voted on at the Annual Meeting:
(1) Election of Directors
<TABLE>
<CAPTION>
NUMBER OF VOTES CAST
--------------------
NAME OF DIRECTOR
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
T. H. BARRETT 105,173,627 923,778 0 0
- ---------------------------------------------------------------------------------------------------------------------------
L. P. BREMER III 105,050,989 1,046,416 0 0
- ---------------------------------------------------------------------------------------------------------------------------
E. E. HAGENLOCKER 104,726,580 1,370,825 0 0
- ---------------------------------------------------------------------------------------------------------------------------
J. J. KAMINSKI 103,669,668 2,427,737 0 0
- ---------------------------------------------------------------------------------------------------------------------------
T. R. LAUTENBACH 105,104,891 992,514 0 0
- ---------------------------------------------------------------------------------------------------------------------------
H. A. WAGNER 104,676,126 1,421,279 0 0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Ratification of the appointment of Arthur Andersen
LLP of Philadelphia, Pennsylvania, as independent
certified public accountants for the registrant for
the fiscal year ending 30 September 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
NUMBER OF VOTES CAST
- ----------------------------------------------------------------------------------------------------------
AGAINST
OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
105,181,946 267,092 648,367 0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
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 24 January 1997 was
filed by the registrant during the quarter ended 31 March
1997 in which Item 5 of such form was reported.
16
<PAGE> 17
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 13, 1997 By: /s/ A. H. Kaplan
-------------------------------
A. H. Kaplan
Senior Vice President - Finance
(Chief Financial Officer)
17
<PAGE> 18
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
EXHIBITS
To
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended 31 March 1997
Commission File No. 1-4534
-------------------
AIR PRODUCTS AND CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
<PAGE> 19
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
Exhibit (a)(12)
AIR PRODUCTS AND CHEMICALS, INC., AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended
31
Year Ended 30 September March
------------------------------------------------------ -----
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
(Millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income before extraordinary item
and the cumulative effect of
accounting changes: $277.0 $200.9 $233.5 $368.2 $416.4 $205.9
Add (deduct):
Provision for income taxes 130.8 103.0 95.2 186.2 195.5 98.7
Fixed charges, excluding
capitalized interest 133.4 127.3 127.1 148.8 184.0 118.6
Capitalized interest amortized
during the period 7.5 7.7 8.0 9.1 9.4 4.0
Undistributed earnings of less-
than-fifty-percent-owned
affiliates (12.5) (8.1) (2.8) (25.4) (40.6) (20.6)
---- ---- ---- ----- ----- -----
Earnings, as adjusted $536.2 $430.8 $461.0 $686.9 $764.7 $406.6
===== ===== ===== ======= ======== =======
FIXED CHARGES:
Interest on indebtedness, including
capital lease obligations $125.1 $118.6 $118.2 $139.4 $171.7 $111.4
Capitalized interest 4.1 6.3 9.7 18.5 20.0 10.7
Amortization of debt discount
premium and expense .8 .7 .8 .2 1.5 .9
Portion of rents under operating
leases representative of the
interest factor 7.5 8.0 8.1 9.2 10.8 6.3
---- ---- ---- ----- ----- -----
Fixed charges $137.5 $133.6 $136.8 $167.3 $204.0 $129.3
===== ===== ===== ======= ======== =======
RATIO OF EARNINGS TO FIXED CHARGES: 3.9 3.2 3.4 4.1 3.7 3.1
===== ===== ===== ======= ======== =======
</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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 829
<ALLOWANCES> 15
<INVENTORY> 398
<CURRENT-ASSETS> 1,664
<PP&E> 8,537
<DEPRECIATION> 4,168
<TOTAL-ASSETS> 4,369
<CURRENT-LIABILITIES> 1,386
<BONDS> 2,212
0
0
<COMMON> 125
<OTHER-SE> 2,433
<TOTAL-LIABILITY-AND-EQUITY> 7,214
<SALES> 2,274
<TOTAL-REVENUES> 2,274
<CGS> 1,379
<TOTAL-COSTS> 1,379
<OTHER-EXPENSES> 55
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 303
<INCOME-TAX> 97
<INCOME-CONTINUING> 206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
