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: December 31, 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 February 1, 1996: 31,785,427 shares 2 AIRGAS, INC. FORM 10-Q December 31, 1995 INDEX PART I - FINANCIAL INFORMATION ______________________________ Consolidated Balance Sheets as of December 31, 1995 and March 31,1995.....................................................3 Consolidated Statements of Earnings for the Three Months Ended December 31, 1995 and 1994................5 Consolidated Statements of Earnings for the Nine Months Ended December 31, 1995 and 1994..................6 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 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 ___________________________ Exhibits and Reports on Form 8-K..........................................19 Signatures................................................................20 3 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. AIRGAS, INC. CONSOLIDATED BALANCE SHEETS (In thousands) December 31, March 31, 1995 1995 (Unaudited) _____________ ________ ASSETS Current Assets Trade receivables, less allowance for doubtful accounts of $3,820 at December 31, 1995 and $4,161 at March 31, 1995 $105,737 $ 93,423 Inventories 79,796 65,947 Prepaid expenses and other current assets 15,094 10,467 _______ _______ Total current assets 200,627 169,837 _______ _______ Plant and equipment, at cost 540,330 464,983 Less accumulated depreciation and amortization (144,331) (118,715) _______ _______ Plant and equipment, net 395,999 346,268 Other non-current assets 52,068 41,388 Goodwill, net of accumulated amortization of $18,170 at December 31, 1995 and $15,094 at March 31, 1995 116,137 88,144 _______ _______ Total assets $764,831 $645,637 ======= ======= <FN> See accompanying notes to consolidated financial statements. 4 AIRGAS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except per share amounts) December 31, March 31, 1995 1995 (Unaudited) ___________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________ Current Liabilities Current portion of long-term debt $ 11,715 $ 11,780 Accounts payable, trade 40,737 43,782 Accrued expenses and other current liabilities 62,736 60,191 _______ _______ Total current liabilities 115,188 115,753 _______ _______ Long-term debt 334,176 259,970 Deferred income taxes 76,766 67,540 Other non-current liabilities 15,511 11,116 Minority interest in subsidiaries 1,554 1,606 Stockholders' equity Common stock $.01 par value, 200,000 shares authorized, 32,911 and 31,501 shares issued at December 31, 1995 and March 31, 1995, respectively 329 315 Capital in excess of par value 88,383 62,135 Retained earnings 162,246 133,640 Cumulative translation adjustment (406) (469) Treasury stock, 1,178 and 236 common shares at cost at December 31, 1995 and March 31, 1995, respectively (28,916) (5,969) _______ _______ Total stockholders' equity 221,636 189,652 _______ _______ Total liabilities and stockholders' equity $764,831 $ 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 December 31, 1995 December 31, 1994 __________________ __________________ Net sales: Distribution $199,066 $165,582 Manufacturing 9,483 8,530 _______ _______ Total net sales 208,549 174,112 _______ _______ Costs and expenses: Cost of products sold (excluding depreciation and amortization) Distribution 97,504 80,809 Manufacturing 6,343 5,716 Selling, distribution and administrative expenses 69,812 59,276 Depreciation and amortization 11,906 9,734 _______ _______ Total costs and expenses 185,565 155,535 _______ _______ Operating income: Distribution 21,303 17,101 Manufacturing 1,681 1,476 _______ _______ 22,984 18,577 Interest expense, net (6,305) (4,869) Other income, net 290 189 Minority interest (127) (159) _______ _______ Earnings before income taxes 16,842 13,738 Income taxes 7,025 5,948 _______ _______ Net earnings $ 9,817 $ 7,790 ======= ======= Earnings per share $ .30 $ .24 ======= ======= Weighted average shares 33,100 33,050 ======= ======= <FN> See accompanying notes to consolidated financial statements. 6 AIRGAS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share amounts) Nine Months Ended Nine Months Ended December 31, 1995 December 31, 1994 __________________ __________________ Net sales: Distribution $575,156 $474,019 Manufacturing 26,695 24,541 _______ _______ Total net sales 601,851 498,560 _______ _______ Costs and expenses: Cost of products sold (excluding depreciation and amortization) Distribution 281,849 232,886 Manufacturing 17,372 15,984 Selling, distribution and administrative expenses 201,946 171,042 Depreciation and amortization 33,519 27,255 _______ _______ Total costs and expenses 534,686 447,167 _______ _______ Operating income: Distribution 62,042 46,867 Manufacturing 5,123 4,526 _______ _______ 67,165 51,393 Interest expense, net (17,760) (12,521) Other income, net 656 409 Minority interest (492) (412) _______ _______ Earnings before income taxes 49,569 38,869 Income taxes 20,963 16,830 _______ _______ Net earnings $ 28,606 $ 22,039 ======= ======= Earnings per share $ .87 $ .67 ======= ======= Weighted average shares 32,900 32,990 ======= ======= <FN> See accompanying notes to consolidated financial statements. 7 AIRGAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended Nine Months Ended December 31, 1995 December 31, 1994 __________________ __________________ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 28,606 $ 22,039 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 33,519 27,255 Deferred income taxes 8,874 7,573 Equity in earnings of unconsolidated affiliates (1,036) (543) (Gain) Loss on sale of plant and equipment (202) 26 Minority interest in earnings 492 412 Stock issued for employee benefit plan 2,459 1,947 Changes in assets and liabilities, excluding effects of business acquisitions: Trade receivables, net (418) (1,772) Inventories (2,291) (3,068) Prepaid expenses and other current assets (3,710) (991) Accounts payable, trade (9,727) (4,366) Accrued expenses and other current liabilities 3,091 184 Other assets and liabilities, net (1,580) (3,453) _______ _______ Net cash provided by operating activities 58,077 45,243 _______ _______ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (28,680) (25,185) Proceeds from sale of plant and equipment 2,871 1,641 Business acquisitions, net of cash acquired (48,681) (76,975) Purchase of temporary investment 0 (16,904) Dividend from joint venture 652 550 Other, net (422) (250) _______ _______ Net cash used by investing activities (74,260) (117,123) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 443,106 308,869 Repayment of debt (406,857) (240,857) Repurchase of Airgas, Inc. common stock (22,947) 0 Exercise of options and warrants 3,490 922 Net overdraft (665) 2,948 _______ _______ Net cash provided by financing activities 16,127 71,882 _______ _______ EFFECTS OF DISCONTINUED ACTIVITIES, NET 56 (2) _______ _______ 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 December 31, 1995 and March 31, 1995; the consolidated statements of earnings for the three and nine months ended December 31, 1995 and 1994; and the consolidated statements of cash flows for the nine months ended December 31, 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 December 31, 1995, the Company acquired twenty- nine businesses engaged in the distribution of industrial, medical and specialty gases and welding supplies with annual sales of approximately $102 million. The aggregate purchase price, including amounts related to non- competition and confidentiality agreements, amounted to approximately $115 million and includes cash and real estate acquired of $1.5 million and $4.8 million, respectively. Subsequent to December 31, 1995, through February 1, 1996, the Company acquired six industrial gas distribution businesses with an aggregate purchase price of approximately $88 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) December 31, March 31, 1995 1995 ________ ________ Finished goods $79,553 $ 65,693 Raw materials 1,394 1,315 ______ ______ 80,947 67,008 Less reduction to LIFO cost ( 1,151) (1,061) _______ _______ $79,796 $ 65,947 ======= ======= (4) PLANT AND EQUIPMENT ___________________ The major classes of plant and equipment are as follows: (In thousands) December 31, March 31, 1995 1995 _____________ _________ Land and land improvements $ 18,731 $ 17,571 Building and leasehold improvements 50,336 43,714 Machinery and equipment, including cylinders 438,074 376,284 Transportation equipment 30,838 25,944 Construction in progress 2,351 1,470 _______ _______ $540,330 $464,983 ======= ======= 10 AIRGAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) (5) OTHER NON-CURRENT ASSETS _______________________ Other non-current assets include: (In thousands) December 31, March 31, 1995 1995 _____________ _________ Investment in unconsolidated affiliates $ 9,152 $ 5,473 Noncompete agreements and other intangible assets, at cost, net of accumulated amortization of $44.0 million at December 31, 1995 and $37.4 million at March 31, 1995 38,747 31,955 Other assets 4,169 3,960 _______ _______ $ 52,068 $ 41,388 ======= ======= (6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES ______________________________________________ Accrued expenses and other current liabilities include: (In thousands) December 31, March 31, 1995 1995 _____________ _________ Cash overdraft $ 10,973 $ 11,638 Insurance payable and related reserves 5,652 6,304 Customer cylinder deposits 6,547 6,242 Other accrued expenses and current liabilities 39,564 36,007 _______ _______ $ 62,736 $ 60,191 ======= ======= 11 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 third quarter ended December 31, 1995 reflect substantial growth compared with the same quarter in the prior year. Net sales of $208.5 million, net earnings of $9.8 million and earnings per share of $.30 represent increases over the prior period of 20%, 26% and 25%, respectively. Net sales increased during the third quarter ended December 31, 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 approximately 2% compared to the third quarter last year. Growth in October was followed by a slowdown in November and December. A soft economy, combined with inclement weather and the federal government shutdown have held down same-store sales growth. Continued softness in the economy, and other factors, including the continued federal government shutdown and the impact of January weather, may impact same-store sales growth and earnings in the fourth quarter. The increase in net earnings was primarily due to an increase in gross profit margins and earnings generated by industrial gas distribution businesses acquired since October 1, 1994 and an increase in gross profits from higher same-store distribution sales. After tax cash flow (net earnings plus depreciation, amortization and deferred income taxes) increased 22% to $24.7 million from $20.2 million in the third 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 December 31, 1995 COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 1994 _____________________________________ Net sales increased 20% during the quarter ended December 31, 1995 compared to the same quarter in the prior year: (in thousands) 1995 1994 Increase ____ ____ __________ Distribution $199,066 $165,582 $ 33,484 Manufacturing 9,483 8,530 953 _______ _______ _______ $208,549 $174,112 $ 34,437 ======= ======= ======= For the quarter ended December 31, 1995, distribution sales increased approximately $30.4 million resulting from the acquisition of 49 industrial gas distributors since October 1, 1994 and approximately $3.1 million from same-store sales. The Company estimates that had all acquisitions during the quarter ended December 31, 1995 been consummated on October 1, 1995, distribution sales for the third quarter ended December 31, 1995 would have 13 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) been approximately $2.0 million higher. The increase in same-store sales of approximately 2% was the result of slightly higher prices and 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 period's sales, adjusted for acquisitions. Future same-store sales growth is primarily dependent on the economy, and to a lesser extent, 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 11% during the quarter ended December 31, 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 $16.8 million over 1994 was attributable to increases associated with acquisitions of $14.2 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 higher prices and volume growth in gas and rent revenues. Higher gas and rent volumes were partially attributable to the success of gas marketing programs, principally small bulk and specialty gases. On a same-store basis, distribution gross margins increased an estimated 0.3% compared to 1994 primarily due to improved gas and rent gross margins. Lower margin bulk gases partially offset some margin improvements. Selling, distribution and administrative expenses as a percentage of sales decreased to 33.5% compared to 34.0% in 1994. The decrease was 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 do 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 24% during the quarter ended December 31, 1995 compared to the same quarter in the prior year: (in thousands) 1995 1994 Increase ____ ____ __________ Distribution $21,303 $17,101 $ 4,202 Manufacturing 1,681 1,476 205 ______ ______ ______ $22,984 $18,577 $ 4,407 ====== ====== ====== Distribution operating income as a percentage of net distribution sales increased to 10.7% during the third quarter ended December 31, 1995 compared to 10.3% in the same quarter in the prior year. The improvement in distribution operating income in 1995 was a result of the increase in gross 14 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) profits from higher same-store sales, improved gross profit margins and operating income provided by acquisitions. Manufacturing operating income increased $205 thousand compared to 1994 due to strong demand for carbon products and nitrous oxide during the third quarter ended December 31, 1995. Interest expense, net, increased $1.4 million compared to 1994 primarily as a result of the increase in average outstanding debt associated with the acquisition of industrial gas distributors since October 1, 1994, interest costs associated with the repurchase of Company common stock and slightly higher interest rates, offset by cash flow before acquisitions. 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 41.7% of pre-tax earnings in 1995 compared to 43.3% in 1994. The decrease in the effective income tax rate was primarily due to an increase in pre-tax earnings relative to non-deductible goodwill and other basis differences and as a result of the implementation of certain state tax planning strategies. 15 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS: NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1994 ____________________________________ Net sales increased 21% during the nine months ended December 31, 1995 compared to the same period in the prior year: (in thousands) 1995 1994 Increase ____ ____ __________ Distribution $575,156 $474,019 $101,137 Manufacturing 26,695 24,541 2,154 _______ _______ _______ $601,851 $498,560 $103,291 ======= ======= ======= For the nine months ended December 31, 1995, distribution sales increased approximately $89.6 million resulting from the acquisition of 56 industrial gas distributors since April 1, 1994 and approximately $11.5 million from same-store sales. The Company estimates that had all acquisitions during the nine months ended December 31, 1995 been consummated on April 1, 1995, distribution sales for the nine months ended December 31, 1995 would have been approximately $34.4 million higher. The increase in same-store sales of approximately 2% was primarily the result of increased volume of hardgoods sales and increases in gas and rents. 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 9% 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 $52.2 million over 1994, was attributable to increases associated with acquisitions of $42.8 million and same-store gross profit growth of $9.4 million. The same-store gross profit growth was 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. On a same-store basis, distribution gross margins increased an estimated 0.5% for the nine months ended December 31, 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 34.3% in 1994. The decrease was 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 31% during the nine months ended December 31, 1995 compared to the same period in the prior year: (in thousands) 1995 1994 Increase ____ ____ __________ Distribution $62,042 $46,867 $15,175 Manufacturing 5,123 4,526 597 ______ ______ ______ $67,165 $51,393 $15,772 ====== ====== ====== Distribution operating income as a percentage of net distribution sales increased to 10.8% compared to 9.9% 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 $597 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 $5.2 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 Company common stock and slightly higher interest rates, offset by cash flow before acquisitions. 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 42.3% of pre-tax earnings in 1995 compared to 43.3% in 1994. The decrease in the effective income tax rate was primarily due to an increase in pre-tax earnings relative to non-deductible goodwill and other basis differences and as a result of the implementation of certain state tax planning strategies. 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 $58.1 million for the nine months ended December 31, 1995. Depreciation and amortization represent $33.5 million of cash flow from operating activities. Deferred income taxes of $8.9 million principally resulted from temporary differences. Working capital components of cash flow increased $13.1 million as a result of an increase in accounts receivable, inventories, 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 $9.7 million due to payments to vendors. Other current liabilities have increased due to accrued interest, income taxes and real estate taxes. Cash used by investing activities totaled $74.3 million for the nine months ended December 31, 1995 which was primarily comprised of $28.7 million for capital expenditures and $48.7 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 $16.1 million for the nine months ended December 31, 1995 with total debt outstanding increasing by $74.1 million from March 31, 1995. Debt incurred in connection with the acquisition of industrial gas distribution businesses, including seller notes and assumed notes, totalled $86.3 million. In January 1995, the Company approved a one million share stock repurchase program. Through December 31, 1995, the Company 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 February 6, 1996, the Company has purchased 177,600 shares at an aggregate cost of $4.6 million under this program. The impact of the stock repurchases on earnings per share amounts was immaterial for the nine months ended December 31, 1995. The purchase of shares is dependent on prevailing market conditions. The Company's primary source of borrowing is a $375 million unsecured revolving credit facility with various commercial banks which matures on August 10, 2000. At December 31, 1995, the Company had approximately $210 18 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) million in borrowings under the facility and approximately $45 million committed under letters of credit, resulting in availability under the facility of approximately $120 million. The Company also has unsecured line of credit agreements with no fixed date maturity with various commercial banks. At December 31, 1995, these agreements totaled $60 million, under which the Company had aggregate outstanding borrowings of $31 million. At December 31, 1995, the effective interest rate related to outstanding borrowings under all credit lines was approximately 6.22%. On February 5, 1996, the Company entered into a new $100 million unsecured revolving credit facility with a group of commercial banks which matures on July 1, 1997. The facility is intended to provide additional availability for the Company's ongoing acquisition and investment programs. The terms and conditions of this facility are similar to the Company's existing $375 million facility. 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 December 31, 1995. The swap agreements are with major financial institutions and have a total notional principal amount of $146 million at December 31, 1995. Approximately $126 million of the notional principal amount of the swap agreements require fixed interest payments based on an average effective rate of 6.96% for remaining periods ranging between 2 and 7 years. Two swap agreements require floating rates ($19.5 million notional amount at 5.91% at December 31, 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 December 31, 1995, through February 1, 1996, the Company acquired four industrial gas distribution businesses with an aggregate purchase price of approximately $83 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 impairment 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. 19 AIRGAS, INC. Management believes that the adoption of this statement will not have a material impact on earnings, financial condition or liquidity of the Company. In October 1995, the FASB 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. Management has not yet determined the impact of the adoption of this statement. PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits ________ 11. Calculation of earnings per share b. Reports on Form 8-K ___________________ On November 28, 1995, the Company filed a current report on Form 8-K which provided, under Item 5, audited financial statements and pro forma information for three individually insignificant businesses acquired through October 1, 1995 in accordance with Regulation S-X, Rule 3-05 (b) (1) (i). On November 28, 1995, the Company filed a current report on Form 8-K under Item 5, which announced certain management promotions. 20 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. February 7, 1996 /s/Britton H. Murdoch _________________ _______________________ Date Britton H. Murdoch Vice President and Chief Financial Officer