1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: September 30, 1995
_____________________________
Commission file number: 1-9344
_____________________________
AIRGAS, INC.
______________________________________________________________________________
(Exact name of Registrant as specified in its charter)
Delaware 56-0732648
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Radnor Corporate Center, Suite 550
100 Matsonford Road
Radnor, PA 19087-4579
_______________________________________ ________________
(Address of principal executive offices) (ZIP code)
(610) 687-5253
__________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
______ ______
Common Stock outstanding at November 1, 1995: 31,506,000 shares
2
AIRGAS, INC.
FORM 10-Q
September 30, 1995
INDEX
PART I - FINANCIAL INFORMATION
______________________________
Consolidated Balance Sheets as of September 30, 1995
and March 31,1995.....................................................3
Consolidated Statements of Earnings
for the Three Months Ended September 30, 1995 and 1994................5
Consolidated Statements of Earnings
for the Six Months Ended September 30, 1995 and 1994..................6
Consolidated Statements of Cash Flows
for the Six Months Ended September 30, 1995 and 1994..................7
Notes to Consolidated Financial Statements.................................8
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................12
PART II - OTHER INFORMATION
___________________________
Submission of Matters to a Vote of Security Holders.......................19
Exhibits and Reports on Form 8-K..........................................20
Signatures................................................................21
3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
AIRGAS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, March 31,
1995 1995
(Unaudited)
_____________ ________
ASSETS
Current Assets
Trade receivables, less allowance for
doubtful accounts of $3,647 at September 30,
1995 and $4,161 at March 31, 1995 $103,412 $ 93,423
Inventories 74,837 65,947
Prepaid expenses and other current assets 15,143 10,467
_______ _______
Total current assets 193,392 169,837
_______ _______
Plant and equipment, at cost 516,497 464,983
Less accumulated depreciation and amortization (132,312) (118,715)
_______ _______
Plant and equipment, net 384,185 346,268
Other non-current assets 49,810 41,388
Goodwill, net of accumulated amortization of
$17,066 at September 30, 1995 and $15,094
at March 31, 1995 109,717 88,144
_______ _______
Total assets $737,104 $645,637
======= =======
<FN>
See accompanying notes to consolidated financial statements.
4
AIRGAS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share amounts)
September 30, March 31,
1995 1995
(Unaudited)
___________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Current Liabilities
Current portion of long-term debt $ 11,436 $ 11,780
Accounts payable, trade 39,530 43,782
Accrued expenses and other current liabilities 60,448 60,191
_______ _______
Total current liabilities 111,414 115,753
_______ _______
Long-term debt 327,397 259,970
Deferred income taxes 73,816 67,540
Other non-current liabilities 14,696 11,116
Minority interest in subsidiaries 1,427 1,606
Stockholders' equity
Common stock $.01 par value, 200,000 shares
authorized, 32,440 and 31,501
shares issued at September 30, 1995 and
March 31, 1995, respectively 324 315
Capital in excess of par value 77,411 62,135
Retained earnings 152,429 133,640
Cumulative translation adjustment (301) (469)
Treasury stock, 883 and 236 common shares
at cost at September 30, 1995 and
March 31, 1995, respectively (21,509) (5,969)
_______ _______
Total stockholders' equity 208,354 189,652
_______ _______
Total liabilities and stockholders' equity $737,104 $ 645,637
======= =======
<FN>
See accompanying notes to consolidated financial statements.
5
AIRGAS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Three Months Ended
September 30, 1995 September 30, 1994
__________________ __________________
Net sales:
Distribution $190,456 $156,925
Manufacturing 8,574 8,061
_______ _______
Total net sales 199,030 164,986
_______ _______
Costs and expenses:
Cost of products sold
(excluding depreciation and
amortization)
Distribution 93,424 77,151
Manufacturing 5,293 5,144
Selling, distribution and
administrative expenses 66,997 56,624
Depreciation and amortization 11,172 8,952
_______ _______
Total costs and expenses 176,886 147,871
_______ _______
Operating income:
Distribution 20,260 15,499
Manufacturing 1,884 1,616
_______ _______
22,144 17,115
Interest expense, net (5,867) (3,921)
Other income, net 155 90
Minority interest (174) (127)
_______ _______
Earnings before income taxes 16,258 13,157
Income taxes 6,923 5,697
_______ _______
Net earnings $ 9,335 $ 7,460
======= =======
Earnings per share $ .29 $ .23
======= =======
Weighted average shares 32,676 32,989
======= =======
<FN>
See accompanying notes to consolidated financial statements.
6
AIRGAS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended Six Months Ended
September 30, 1995 September 30, 1994
__________________ __________________
Net sales:
Distribution $376,090 $308,437
Manufacturing 17,212 16,011
_______ _______
Total net sales 393,302 324,448
_______ _______
Costs and expenses:
Cost of products sold
(excluding depreciation and
amortization)
Distribution 184,345 152,077
Manufacturing 11,029 10,268
Selling, distribution and
administrative expenses 132,134 111,766
Depreciation and amortization 21,613 17,521
_______ _______
Total costs and expenses 349,121 291,632
_______ _______
Operating income:
Distribution 40,739 29,766
Manufacturing 3,442 3,050
_______ _______
44,181 32,816
Interest expense, net (11,455) (7,652)
Other income, net 366 220
Minority interest (365) (253)
_______ _______
Earnings before income taxes 32,727 25,131
Income taxes 13,938 10,882
_______ _______
Net earnings $ 18,789 $ 14,249
======= =======
Earnings per share $ .58 $ .43
======= =======
Weighted average shares 32,606 32,922
======= =======
<FN>
See accompanying notes to consolidated financial statements.
7
AIRGAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended Six Months Ended
September 30, 1995 September 30, 1994
__________________ __________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 18,789 $ 14,249
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 21,613 17,521
Deferred income taxes 5,924 4,897
Equity in earnings of joint venture (683) (377)
Loss on sale of plant and equipment 13 48
Minority interest in earnings 365 253
Stock issued for employee benefit plan 1,603 1,230
Changes in assets and liabilities,
excluding effects of business acquisitions:
Trade receivables, net (1,777) (1,371)
Inventories (632) (2,350)
Prepaid expenses and other
current assets (3,876) (612)
Accounts payable, trade (8,943) (3,908)
Accrued expenses and other current
liabilities 1,403 (2,995)
Other assets and liabilities, net (766) (4,280)
_______ _______
Net cash provided by operating activities 33,033 22,305
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (19,414) (18,067)
Proceeds from sale of plant and equipment 1,501 1,195
Business acquisitions, net of cash acquired (35,163) (37,549)
Other, net (472) 201
_______ _______
Net cash used by investing activities (53,548) (54,220)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 303,305 138,131
Repayment of debt (268,857) (108,857)
Repurchase of treasury stock (15,540) 0
Exercise of options and warrants 2,991 818
Net overdraft (1,709) 1,270
Dividend from joint venture 293 550
_______ _______
Net cash provided by financing
activities 20,483 31,912
_______ _______
EFFECTS OF DISCONTINUED ACTIVITIES, NET 32 3
_______ _______
CHANGE IN CASH $ -0- $ -0-
Cash - beginning of period -0- -0-
_______ _______
Cash - end of period $ -0- $ -0-
======= =======
<FN>
See accompanying notes to consolidated financial statements.
8
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
_____________________
The consolidated financial statements include the accounts of Airgas,
Inc. and its subsidiaries (the "Company").
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
financial statements. These statements do not include all disclosures
required for annual financial statements. These financial statements should
be read in conjunction with the more complete disclosures contained in the
Company's audited consolidated financial statements for the year ended March
31, 1995.
The financial statements reflect, in the opinion of management, all
adjustments (normal recurring adjustments) necessary to present fairly the
Company's consolidated balance sheets at September 30, 1995 and March 31,
1995; the consolidated statements of earnings for the three and six months
ended September 30, 1995 and 1994; and the consolidated statements of cash
flows for the six months ended September 30, 1995 and 1994. The interim
operating results are not necessarily indicative of the results to be expected
for an entire year.
(2) ACQUISITIONS
____________
From April 1, 1995 to October 31, 1995, the Company has acquired twenty-
three businesses engaged in the distribution of industrial, medical and
specialty gases and welding supplies with annual sales of approximately $90
million. The aggregate purchase price, including amounts related to non-
competition and confidentiality agreements, amounted to approximately $99
million. Acquisitions have been recorded using the purchase method of
accounting, and, accordingly, results of their operations have been included
in the Company's consolidated financial statements since the effective dates
of the respective acquisitions.
9
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(3) INVENTORIES
___________
Inventories consist of:
(In thousands)
September 30, March 31,
1995 1995
________ ________
Finished goods $74,571 $ 65,693
Raw materials 1,387 1,315
_______ _______
75,958 67,008
Less reduction to LIFO cost ( 1,121) (1,061)
_______ _______
$74,837 $ 65,947
======= =======
(4) PLANT AND EQUIPMENT
___________________
The major classes of plant and equipment are as follows:
(In thousands)
September 30, March 31,
1995 1995
_____________ _________
Land and land improvements $ 18,597 $ 17,571
Building and leasehold improvements 47,627 43,714
Machinery and equipment, including
cylinders 418,000 376,284
Transportation equipment 29,585 25,944
Construction in progress 2,688 1,470
_______ _______
$516,497 $464,983
======= =======
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AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(5) OTHER NON-CURRENT ASSETS
_______________________
Other non-current assets include:
(In thousands)
September 30, March 31,
1995 1995
_____________ _________
Investment in a joint venture $ 1,987 $ 1,597
Noncompete agreements and other
intangible assets, at cost, net
of accumulated amortization of
$41.6 million at September 30, 1995
and $37.4 million at March 31, 1995 38,435 31,955
Other assets 9,388 7,836
_______ _______
$ 49,810 $ 41,388
======= =======
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
______________________________________________
Accrued expenses and other current liabilities include:
(In thousands)
September 30, March 31,
1995 1995
_____________ _________
Cash overdraft $ 9,929 $ 11,638
Insurance payable and related
reserves 6,250 6,304
Customer cylinder deposits 6,501 6,242
Other accrued expenses and current
liabilities 37,768 36,007
_______ _______
$ 60,448 $ 60,191
======= =======
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AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(7) EARNINGS PER SHARE
__________________
Earnings per share amounts were determined using the treasury
stock method.
(8) COMMITMENTS AND CONTINGENCIES
_____________________________
The Company is involved in various legal proceedings which have arisen in
the ordinary course of its business and have not been finally adjudicated.
These actions, when ultimately concluded and determined will not, in the
opinion of management, have a material adverse effect upon the Company's
financial condition, results of operations or liquidity.
12
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
________________
OVERVIEW
________
The Company's financial results for the second quarter ended September
30, 1995 reflect substantial growth compared with the same quarter in the
prior year. Net sales of $199.0 million, net earnings of $9.3 million and
earnings per share of $.29 represent increases over the prior period of 21%,
25% and 26%, respectively. Net sales increased during the second quarter
ended September 30, 1995 over the same period in the prior year primarily due
to the acquisition of industrial gas distribution companies and an increase in
same-store distribution sales. Same-store sales increased 2% compared to the
second quarter last year. July sales were weak due to a sluggish economy and
prolonged hot, dry weather throughout most of the country. Sales rebounded
during the latter half of August and September.
The increase in net earnings was primarily due to an increase in gross
profits from higher same-store distribution sales and an increase in gross
profit margins and earnings generated by industrial gas distribution
businesses acquired since July 1, 1994.
After tax cash flow (net earnings plus depreciation, amortization and
deferred income taxes) increased 25% to $23.6 million from $18.9 million in
the second quarter last year. After tax cash flow is an important measurement
of the Company's ability to repay debt through operations and provides the
Company with the ability to pursue investment alternatives such as
acquisitions and the repurchase of Company stock.
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1994
_____________________________________
Net sales increased 21% during the quarter ended September 30, 1995
compared to the same quarter in the prior year:
(in thousands)
1995 1994 Increase
____ ____ __________
Distribution $190,456 $156,925 $ 33,531
Manufacturing 8,574 8,061 513
_______ _______ _______
$199,030 $164,986 $ 34,044
======= ======= =======
For the quarter ended September 30, 1995, distribution sales increased
approximately $30.6 million resulting from the acquisition of 40 industrial
gas distributors since July 1, 1994 and approximately $2.9 million from
same-store sales. The Company estimates that had all acquisitions during the
quarter ended September 30, 1995 been consummated on July 1, 1995,
distribution sales for the second quarter ended September 30, 1995 would have
been approximately $3.3 million higher. The increase in same-store sales of
approximately 2% is primarily the result of increased volume of gas and rental
businesses. Hardgoods same-store sales were flat. The Company estimates
same-store sales based on a comparison of current period sales to the prior
13
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
period's sales, adjusted for acquisitions. Future same-store sales growth is
dependent on the economy and the Company's ability to expand markets for new
and existing products and to increase prices. The Company believes that sales
of lower margin hardgoods are adversely impacted during a recession, and
conversely, are typically the fastest to rebound during an economic recovery.
Sales for the Company's manufacturing operations increased 6.4% during
the quarter ended September 30, 1995 compared to the same quarter in the prior
year primarily as a result of an increase in the demand for carbon products
and nitrous oxide.
The increase in distribution gross profit of $17.3 million over 1994, is
attributable to increases associated with acquisitions of $14.7 million and
same-store gross profit growth of $2.6 million. The majority of the $2.6
million same-store gross profit growth came from volume growth in gas and rent
revenues. Gas and rent volumes have increased due to the success of gas
marketing programs, principally small bulk and specialty gases. On a
same-store basis, distribution gross margins increased an estimated 0.2%
compared to 1994. This increase is due to improved hardgoods gross margin
from the Company's national purchasing program as well as improved gas and
rent gross margins. Lower margin bulk gases have offset some margin
improvements.
Selling, distribution and administrative expenses as a percentage of
sales decreased to 33.7% compared to 34.3% in 1994. The decrease is a result
of acquisition consolidation efforts and from controlling certain operating
costs, such as business insurance costs through improved claims management and
reduced incident rates. Through improved management efforts, the Company has
also reduced its bad debt expense. Also, certain operating costs, such as
occupancy costs, are relatively fixed and did not increase proportionately
with the increase in same-store sales. Partially offsetting these
improvements were normal salary increases and slightly higher distribution
costs.
Operating income increased 29% during the quarter ended September 30,
1995 compared to the same quarter in the prior year:
(in thousands)
1995 1994 Increase
____ ____ __________
Distribution $20,260 $15,499 $ 4,761
Manufacturing 1,884 1,616 268
______ ______ ______
$22,144 $17,115 $ 5,029
====== ====== ======
Distribution operating income as a percentage of net distribution sales
increased to 10.6% during the second quarter ended September 30, 1995 compared
to 9.9% in the same quarter in the prior year. The improvement in
distribution operating income in 1995 was a result of the increase in gross
profits from higher same-store sales, improved gross profit margins and
operating income provided by acquisitions.
14
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Manufacturing operating income increased $268 thousand compared to 1994
due to strong demand for carbon products and nitrous oxide during the second
quarter ended September 30, 1995.
Interest expense, net, increased $1.9 million compared to 1994 primarily
as a result of the increase in average outstanding debt associated with the
acquisition of industrial gas distributors since July 1, 1994, interest costs
associated with the repurchase of treasury stock and slightly higher interest
rates. As discussed in "Liquidity and Capital Resources" below, the Company
has hedged floating interest rates under certain borrowings with interest rate
swap agreements.
Income tax expense represented 42.6% of pre-tax earnings in 1995 compared
to 43.3% in 1994. The decrease in the effective income tax rate is primarily
due to an increase in pre-tax earnings relative to non-deductible goodwill and
other basis differences.
15
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: SIX MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE SIX
MONTHS ENDED SEPTEMBER 30, 1994
__________________________
Net sales increased 21% during the six months ended September 30, 1995
compared to the same period in the prior year:
(in thousands)
1995 1994 Increase
____ ____ __________
Distribution $376,090 $308,437 $ 67,653
Manufacturing 17,212 16,011 1,201
_______ _______ _______
$393,302 $324,448 $ 68,854
======= ======= =======
For the six months ended September 30, 1995, distribution sales
increased approximately $59.2 million resulting from the acquisition of 45
industrial gas distributors since April 1, 1994 and approximately $8.4 million
from same-store sales. The Company estimates that had all acquisitions during
the six months ended September 30, 1995 been consummated on April 1, 1995,
distribution sales for the six months ended September 30, 1995 would have been
approximately $12.0 million higher. The increase in same-store sales of
approximately 2% is primarily the result of increased volume of
hardgoods sales and increases in gas and rental business. The Company
estimates same-store sales based on a comparison of current period sales to
the prior period's sales, adjusted for acquisitions. Future same-store sales
growth is dependent on the economy and the Company's ability to expand markets
for new and existing products and to increase prices. The Company believes
that sales of lower margin hardgoods are adversely impacted during a
recession, and conversely, are typically the fastest to rebound during an
economic recovery.
Sales for the Company's manufacturing operations increased 7.5%
compared to 1994 primarily as a result of an increase in the volume of lower
margin exports and increased demand for carbon products and nitrous oxide.
The increase in distribution gross profit of $35.4 million over 1994, is
attributable to increases associated with acquisitions of $28.6 million and
same-store gross profit growth of $6.8 million. The same-store gross profit
growth is attributable to increased hardgoods volumes combined with improved
gross margins resulting from the Company's national purchasing arrangements,
success of gas marketing programs and improved gas and rental gross margins
due to price increases to customers. On a same-store basis, distribution
gross margins increased an estimated 0.5% for the six months ended September
30, 1995 compared to the same period in the prior year.
16
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, distribution and administrative expenses as a percentage of
sales decreased to 33.6% compared to 34.4% in 1994. The decrease is a result
of acquisition consolidation efforts and from controlling certain operating
costs, such as business insurance costs through improved claims management and
reduced incident rates. Through improved management efforts, the Company has
also reduced its bad debt expense. Also, certain operating costs, such as
occupancy costs, are relatively fixed and did not increase proportionately
with the increase in same-store sales. Partially offsetting these
improvements were normal salary increases and slightly higher distribution
costs.
Operating income increased 35% during the six months ended September 30,
1995 compared to the same period in the prior year:
(in thousands)
1995 1994 Increase
____ ____ __________
Distribution $40,739 $29,766 $10,973
Manufacturing 3,442 3,050 392
______ ______ ______
$44,181 $32,816 $11,365
====== ====== ======
Distribution operating income as a percentage of net distribution sales
increased to 10.8% compared to 9.7% in 1994. The improvement in distribution
operating income in 1995 was a result of the increase in gross profits from
higher same-store sales, improved gross profit margins and operating income
provided by acquisitions.
Manufacturing operating income increased $392 thousand compared to 1994
due to increased demand for carbon products and nitrous oxide, lower
production and delivery costs related to the calcium carbide and nitrous oxide
business, partially offset by an increase in lower margin sales of carbon
products.
Interest expense, net, increased $3.8 million compared to 1994 primarily
as a result of the increase in average outstanding debt associated with the
acquisition of industrial gas distributors since April 1, 1994, interest costs
associated with the repurchase of treasury stock and slightly higher interest
rates. As discussed in "Liquidity and Capital Resources" below, the Company
has hedged floating interest rates under certain borrowings with interest rate
swap agreements.
Income tax expense represented 42.6% of pre-tax earnings in 1995 compared
to 43.3% in 1994. The decrease in the effective income tax rate is primarily
due to an increase in pre-tax earnings relative to non-deductible goodwill and
other basis differences.
17
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The Company has primarily financed its operations, capital expenditures,
stock repurchases, and acquisitions with borrowings and funds provided by
operating activities.
Cash flows from operating activities totaled $33.0 million for the six
months ended September 30, 1995. Depreciation and amortization represent
$21.6 million of cash flow from operating activities. Deferred income taxes
of $5.9 million principally resulted from temporary differences. Working
capital components of cash flow increased $13.8 million as a result of an
increase in accounts receivable, an increase in prepaid expenses and other
current assets and a decrease in trade accounts payable, offset by an increase
in accrued expenses and other current liabilities. Days-sales outstanding and
days-supply of inventory levels have increased slightly from March 31, 1995
levels, principally due to fiscal 1996 acquisitions. Accounts payable
decreased $8.9 million due to payments to vendors. Other current liabilities
increased due to accrued interest, income taxes and insurance.
Cash used by investing activities totaled $53.5 million for the six
months ended September 30, 1995 which was primarily comprised of $19.4 million
for capital expenditures and $35.1 million related to acquisitions.
The Company's use of cash for capital expenditures was partially
attributable to the continued assimilation of certain prior period
acquisitions which required the Company to make capital expenditures in areas
such as combining cylinder fill plants, improving truck fleets and purchasing
cylinders in order to return cylinders rented from third parties.
Additionally, capital expenditures include the purchase of cylinders and bulk
tanks necessary to facilitate gas sales growth. The Company estimates that
its maintenance capital expenditures are approximately 2% of net sales. The
Company considers the replacement of existing capital assets to be maintenance
capital expenditures.
Financing activities provided cash of $20.5 million for the six months
ended September 30, 1995 with total debt outstanding increasing by $67.1
million from March 31, 1995. Debt incurred in connection with the acquisition
of industrial gas distribution businesses, including seller notes and assumed
notes, totalled $67.8 million.
In January, 1995, the Company approved a one million share stock
repurchase program. Through October 25, 1995, the Company has purchased one
million shares at an aggregate cost of $24.3 million.
On October 27, 1995, the Company announced an additional one million
share stock repurchase program. Through November 3, 1995, the Company has
purchased 170,400 shares at an aggregate cost of $4.4 million shares under
this program. The purchase of shares is dependent on prevailing market
conditions.
The Company's primary source of borrowing is an unsecured
revolving credit facility with various commercial banks. On August 10, 1995,
the Company amended and increased this facility from $250 million to $375
million, and terminated a $100 million bank revolving credit facility which
was established in November 1994. At September 30, 1995, the bank facility
provided for borrowings up to $375 million, with sub-limits
18
Item 2. AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
for money market loans, bankers acceptances and the issuance of letters of
credit. At September 30, 1995, the Company had approximately $238 million in
borrowings under the facility and approximately $45 million committed under
letters of credit, resulting in availability under the facility of
approximately $92 million.
At September 30, 1995, the effective interest rate related to
outstanding borrowings under credit lines was approximately 6.29%.
The Company's loan agreements contain restrictive covenants which
include the maintenance of a minimum equity level, maintenance of certain
financial ratios and restrictions on additional borrowings and the level of
dividend payments.
In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into
thirteen interest rate swap agreements during the period from June 1992
through March 31, 1995. The swap agreements are with major financial
institutions and have a total notional principal amount of $146 million at
September 30, 1995. Approximately $126 million of the notional principal
amount of the swap agreements require fixed interest payments based on an
average effective rate of 6.97% for remaining periods ranging between 2 and 7
years. Two swap agreements require floating rates ($19.5 million notional
amount at 6.0% at September 30, 1995). The Company continually monitors its
positions and the credit ratings of its counterparties, and does not
anticipate nonperformance by the counterparties.
The Company will continue to look for appropriate acquisitions and
expects to fund such acquisitions, future capital expenditure requirements and
commitments related to foreign investments primarily through the use of cash
flow from operations, debt, common stock for certain stock acquisition
candidates and other available sources. Subsequent to September 30, 1995,
through October 31, 1995, the Company has acquired two industrial gas
distribution businesses with an aggregate purchase price of approximately $14
million.
The Company does not currently pay dividends.
OTHER
_____
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 121 - "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective for
fiscal years beginning after December 15, 1995. This statement provides
guidance for the recognition of impaiment losses related to long-lived assets
such as property, plant and equipment, and certain intangibles and related
goodwill for (1) assets to be held and used and (2) assets to be disposed of.
Management has not yet determined the impact of the adoption of this
statement.
The FASB has issued Statement of Financial Accounting Standards No. 123
- - "Accounting for Stock - Based Compensation," effective for fiscal years
beginning after December 15, 1995. This statement establishes a fair value
based method of accounting for stock-based compensation plans. This statement
also applies to all transactions in which an entity acquires goods or services
by issuing its equity instruments. Management has not yet determined the
impact of the adoption of this statement.
19
AIRGAS, INC.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 7, 1995, the Registrant held its Annual Meeting of
Stockholders. The stockholders voted to elect three members to the Board of
Directors, to approve an amendment to the Company's Certificate of
Incorporation to limit the potential liability of the directors for monetary
damages for certain acts or omissions, to approve an amendment to the
Company's Amended and Restated 1984 Stock Option Plan, to approve the
Company's Management Incentive Plan and to ratify the selection of KPMG Peat
Marwick LLP as the Company's independent auditors for the fiscal year ending
March 31, 1996.
Elected to the Board of Directors were W. Thacher Brown (27,223,602
shares voted for election and 18,614 shares were withheld), Frank B. Foster,
III (27,226,350 shares voted for election and 15,866 shares were withheld) and
Peter McCausland (27,080,188 shares voted for election and 162,028 shares were
withheld). In addition to the board members elected at the Annual Meeting,
the following are directors whose terms in office as directors continued after
the meeting; James M. Hoak, Jr., John A.H. Shober, Merril L. Stott, Erroll C.
Sult, Robert E. Naylor, Jr. and Robert L. Yohe.
Also at the Annual Meeting, 25,940,951 shares voted to approve the
amendment to the Company's Certificate of Incorporation, with 819,905 shares
voting against the amendment and 481,360 shares abstaining. Second,
21,631,072 shares voted to approve the amendment to the Company's Amended and
Restated 1984 Stock Option Plan, with 5,558,923 shares voting against the
amendment and 52,221 shares abstaining. Next, 22,633,240 shares voted to
approve the Airgas Management Incentive Plan, with 368,035 shares voting
against the proposal, 44,099 shares abstaining and 4,196,842 broker no votes.
Additionally, 27,210,522 shares voted to ratify the selection of KPMG Peat
Marwick LLP as independent auditors, with 17,153 shares voting against the
ratification and 14,541 shares abstaining.
20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
________
3.1 Amended and Restated Certificate of Incorporation of Airgas, Inc.
dated as of August 7, 1995.
4.1 Seventh Amended and Restated Loan Agreement dated August 10, 1995
between Airgas, Inc. certain banks and NationsBank of North
Carolina, N.A. ($375,000,000 credit facility).
10.1 Amended and Restated 1984 Stock Option Plan (as amended effective
May 22, 1995)
10.2 Amendment to the 1989 Non-Qualified Stock Option Plan for Directors
(Non-Employees) (As amended through August 7, 1995)
10.3 Airgas, Inc. Management Incentive Plan
11 Calculation of earnings per share
b. Reports on Form 8-K
___________________
None
21
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.
November 7, 1995 /s/Britton H. Murdoch
_________________ _______________________
Date Britton H. Murdoch
Vice President and
Chief Financial Officer