1 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
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 No. 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, Pennsylvania 19087-4579
(Address of principal executive offices) (Zip Code)
(610) 687-5253
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
______________________________________ _____________________
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
_________ ________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the 54,109,515 shares of voting stock held
by non-affiliates of the registrant on May 31, 1996 was $1,129.5 million. For
purposes of this calculation, only executive officers and directors were
deemed to be affiliates.
The number of shares of Common Stock outstanding as of May 31, 1996 was
64,297,662.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for the Annual Meeting of Stockholders to
be held August 5, 1996 is partially incorporated by reference into Part III.
Those portions of the Proxy Statement included in response to Item 402(k) and
Item 402(l) of Regulation S-K are not incorporated by reference into Part III.
2
AIRGAS, INC.
TABLE OF CONTENTS
PART I
ITEM PAGE NO.
_____ ________
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . .12
PART II
5. Market for the Company's Common Stock and Related Stockholder Matters . 13
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 13
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . 25
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART III
10. Directors and Executive Officers of the Company . . . . . . . . . . . . 25
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 25
12. Security Ownership of Certain Beneficial Owners and Management. . . . . 25
13. Certain Relationships and Related Transactions. . . . . . . . . . . . . 25
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K . . . . 25
3 PART I
ITEM 1. BUSINESS.
GENERAL
Airgas, Inc. ("Airgas" or the "Company") classifies its operations in two
business segments: distribution and manufacturing. Sales for Airgas were $838,
$688 and $519 million in 1996, 1995, and 1994, respectively. Distribution
sales represented 96% of total sales and 93% of the Company's operating income
in 1996. Financial information by business segment can be found in note 20 to
the Company's consolidated financial statements under Item 8. Financial
Statements and Supplemental Data.
The distribution business is conducted through approximately 520
locations in 38 states, Canada and Mexico. Principal products distributed
include: industrial, medical and specialty gases and a wide selection of
name-brand welding equipment, accessories and industrial protective equipment
("hardgoods"), including electrode holders, welding wire, cable lugs and
connectors, hard hats, welding helmets, hearing protectors, goggles, face
shields, safety glasses, welding machines and electrodes. In connection with
the distribution of gases, the Company rents industrial gas cylinders and bulk
storage tanks to its customers. Additionally, acetylene gas is manufactured
and sold as part of the Company's distribution business. Since its formation,
the Company's strategy has been to expand through the acquisition of
independent distributors. The Company believes that it is the largest
distributor of industrial, medical and specialty gases and related equipment
in North America.
Manufacturing operations include the production of carbon products,
calcium carbide and nitrous oxide.
THE DISTRIBUTION BUSINESS
Industry Background
The industrial gas distribution market is broad and includes customers
from most major industries. The Company sells nitrogen, oxygen, argon, helium,
acetylene, carbon dioxide, nitrous oxide, hydrogen and welding gases and a
variety of medical and specialty gases to a diverse customer base. Gases are
distributed and stored in industrial gas cylinders and bulk storage tanks.
Hardgoods sold through its distribution network include: protective equipment,
such as hard hats, welding helmets, goggles, face shields and protective
glasses; welding machines and welding consumables; and accessories, such as
electrodes, electrode holders and cable connectors.
The United States market for industrial gases is approximately $6.5
billion annually. Sales to major users of industrial gases that have the
capacity to accept large bulk shipments or pipeline deliveries are generally
serviced directly by industrial gas producers and account for approximately
$3.5 billion of such market. Historically, industrial gas producers have
focused on this segment of the market, which is capital intensive. The
remaining $3.0 billion of annual industrial gas sales are made to small bulk
users and cylinder gas customers. These small bulk users and cylinder gas
customers are also believed to purchase approximately $3.5 billion of
hardgoods annually. Small bulk users and cylinder gas customers are served by
a fragmented distribution system of approximately 1,000 distributors, the
majority of which are independently owned. The Company concentrates on the
small bulk, cylinder gas, welding and protective equipment segment of the
4
market. This segment is less capital intensive, in part, because of the long
useful lives of the fixed assets , principally cylinders.
Company Strategy
Acquisition Program
Since May 1986, the Company has acquired over 210 distributors of
industrial gas and related equipment. These distributors are organized into
five operating divisions with approximately 520 locations in 38 states,
Canada and Mexico. The five operating divisions provide the Company with a
national distribution network that is unique to the industry.
The Company's principal business strategy is to continue to expand its
distribution network through a program of acquiring independent distributors.
The industrial gas distribution industry continues to undergo a consolidation
process which the Company believes will continue to present it with
opportunities to acquire industrial gas distributors. In April 1996, the
Company acquired IPCO Safety Products Company, a $55 million distributor of
industrial safety equipment and supplies, to form the basis for its Industrial
Distribution Division ("IDD"). IPCO utilizes a system of regional warehouses
and telemarketing centers. The Company's strategy is to acquire additional
industrial distribution companies with a focus on increasing same-store sales
of new industrial product lines through both the acquired businesses and its
existing distribution network.
The Company believes that its principal competitive advantages in
acquiring distributors are its extensive distribution network, its
well-organized acquisition program, flexibility in structuring acquisitions to
meet sellers' needs and ability to offer sellers and their employees a
continuing management role in a decentralized entrepreneurial environment.
In seeking to acquire distributors, the Company competes with industrial gas
producers and other independent distributors.
The Company has made investments in industrial gas operations in Poland
and India. At March 31, 1996, the total investment in these foreign
operations was less than 1% of total assets. The Company will continue to
evaluate foreign industrial gas opportunities, although its principal focus
remains on North American expansion.
The Company has financed distributor acquisitions primarily with
internally generated funds and debt. The Company has been able to obtain debt
financing due, in part, to its ability to generate cash flow from operating
activities and the long useful lives and relatively stable market values of
the fixed assets, principally cylinders.
Operating Policies
The Company believes that its operations are best managed at the local
level by entrepreneurial, incentive-driven executives with backgrounds
principally in the industrial gas industry. The president of each distribution
subsidiary is typically a former owner or key employee of the acquired
business or an experienced executive recruited by management. The continuity
afforded by retaining the key employees of an acquired business combined with
local management is essential because the Company's distribution business is
local in nature and is dependent upon satisfied repeat customers.
5
Customer Base
The majority of the Company's gases are generally stored in bulk tanks at
the Company's cylinder fill plants and are pumped into cylinders for
distribution to customers or, in the case of bulk customers, in tanker trucks
or tube trailers for delivery into bulk tanks at the customer's business
location. The Company emphasizes sales to cylinder and small bulk gas
customers.
The distribution of industrial gases historically has been to customers
engaged in the business of welding and metal fabrication. In order to better
serve these customers, industrial gas distributors have traditionally sold
hardgood items through their distribution branch locations. As certain sectors
of the economy have grown, such as the electronics and chemicals industries,
and as new applications for gases have developed, the customer base of the gas
distribution business has broadened significantly to include businesses in
almost every major industry, from medical and high technology to consumer and
basic industries. For example, the food and beverage industry uses carbon
dioxide and nitrogen; the electronics industry uses oxygen, nitrogen, argon,
and hydrogen; the healthcare industry uses oxygen, nitrogen, and nitrous
oxide; and the chemical and fiber industries use nitrogen.
Specialty gases, which are used in numerous industries and in electronic
and laboratory applications, include rare gases, high- purity gases, and
blended multi-component gas mixtures. The Company helps service its specialty
gas customers through its 22 specialty gas mini-labs which operate in 17
states. The Company anticipates continuing growth in this product area. The
principal drivers for market growth include: (1) environmental regulations,
such as the Clean Air Act, water testing and pollution remediation and testing
and monitoring; (2) quality control services using in-line chromatography and
spectrography to analyze samples; and (3) the growth of environmental,
research and clinical laboratories.
The Company has also concentrated its efforts in the small bulk gas
market. The primary gases that the Company sells in bulk are liquid oxygen,
nitrogen, argon, and carbon dioxide, and gaseous hydrogen, helium and
nitrogen. The Company charges customers rent for the use of bulk tanks and
tube trailers which are placed on the customer's property The Company
believes there are growth opportunities in marketing to these small bulk
customers, which it can serve more effectively than industrial gas producers.
The Company has recently undertaken initiatives to further develop its
industrial gas customer base to selectively include customers which require
large volume supplies of gases, such as nitrogen. For these customers, the
Company will enter into a long-term supply contract and will construct an air
separation plant near the customer's facility or facilities. The Company has
entered into agreements with two customers and is constructing two air
separation plants which will begin production during fiscal 1998. In
addition, terms related to the agreements provide for additional sales of
cylinder gases and supplies.
The Company's same-store sales, a comparison of current period sales to
the prior period's sales, adjusted for acquisitions, has historically followed
the real gross domestic product annual growth rate as published by the
Commerce Department. Management believes the Company's broad customer base and
geographic diversity help to reduce the adverse effects of an economic
downturn on the Company. Also, management believes that the gas portion of
its distribution business is somewhat resistant to economic downturns due to
6
the following factors: 1) gases frequently represent a fixed cost of
operations that do not necessarily decline with production levels; 2) gases
are required for maintenance and renovation activities which tend to increase
during an economic downturn; 3) industries less subject to the effects of an
economic downturn, such as the medical field, are major purchasers of gases;
and 4) gas purchases often represent a small portion of a typical user's
overall cost of operation and, therefore, do not typically represent a large
cost-cutting item. Management further believes that sales of certain lower
margin non-consumable hardgoods equipment, such as welding machines, are more
adversely impacted during a downturn in the economy and are typically the
fastest to rebound during an economic recovery.
Products
Gases distributed by the Company include oxygen, nitrogen, hydrogen,
argon, helium, acetylene, carbon dioxide, nitrous oxide and specialty gases.
In addition to gases, the Company distributes a wide selection of name-brand
hardgoods, including electrode holders, welding wire, cable lugs and
connectors, hard hats, welding helmets, hearing protectors, goggles, face
shields, safety glasses, welding machines and electrodes. Of the Company's
fiscal 1996 sales from distribution, approximately 51% represent sales of
gases and rentals of cylinders and bulk tanks, and 49% represent hardgood
sales.
The Company intends to strategically broaden its product line in order to
increase sales in existing locations and to take advantage of its distribution
network. Recent product line additions have included returnable containers,
specialty gases (such as refrigerants and sterilizing gases) and additional
hardgoods (such as industrial safety products and coatings). As discussed
above, the Company acquired IPCO in April 1996. The Company believes the
selective addition of complementary product offerings through its distribution
network and IDD will enable it to better serve its diverse, expanding customer
base.
Suppliers
The Company purchases industrial, medical and specialty gases pursuant to
requirements contracts from all four of the major producers of industrial
gases in the United States and three regional producers. The Company believes
that if a contractual arrangement with any supplier of gases were terminated,
it would be able to locate alternative sources of supply without significant
cost increases and with no disruption of service.
The Company purchases hardgoods from name-brand manufacturers and
suppliers. For certain products, the Company has negotiated favorable pricing
based on national purchasing arrangements and is reducing its investment in
hardgood inventories by consolidating vendors.
MANUFACTURING AND RELATED BUSINESSES
Nitrous Oxide
The Company produces nitrous oxide which is used in various medical and
commercial applications. Nitrous oxide is used as an anesthetic in the medical
and dental fields, as a propellant in the packaged food business and is
utilized in the manufacturing process of certain high technology electronic
industries. The Company's nitrous oxide manufacturing facilities are located
in Yazoo City, Mississippi and Donora, Pennsylvania.
7
Carbon Products
The Company manufactures carbon electrode paste, carbon ramming paste
and electrically calcined anthracite ("ECA") at its manufacturing facility
located in Keokuk, Iowa. The Company is the nation's primary manufacturer of
carbon electrode paste which is used as a consumable electrode in the
production of special alloy steel, nickel and other metals. ECA is used as an
ingredient in carbon mixes used in the aluminum industry and as an additive in
the production of certain metals. Sales of electrode paste and ECA are
conducted through a marketing organization which owns more than five percent
of the Company's outstanding common stock (see Item 13. Certain Relationships
and Related Transactions).
Calcium Carbide
The Company is a partner with Elkem Metals Company ("Elkem") in a joint
venture (Elkem-American Carbide Company) which primarily sells calcium carbide
which is used in the production of acetylene gas. The Company and Elkem
receive certain fees, based on net sales, for acting as agents for the joint
venture. Additionally, as general manager of the joint venture, Elkem receives
a management fee based on net sales. The Company operates a manufacturing
facility in Pryor, Oklahoma which sells calcium carbide to the joint venture.
COMPETITION
Each of the major business areas in which the Company participates is
highly competitive. Some competitors are larger than the Company and have
greater resources.
The Company's industrial gas distribution operations compete with
independent distributors and vertically integrated gas producers such as Air
Products and Chemicals, Inc., Praxair, Inc., Liquid Air Corporation of
America, BOC Gases Group and others, all of which have distribution
operations. The Company also purchases industrial gases pursuant to
requirements contracts from all four of the above major producers of
industrial gases.
Competition in the distribution market is based on customer service,
prompt delivery, price, consistent product quality, attention to safety
procedures, and employee and customer training in the uses of gases and
hardgoods. The Company believes its decentralized system allows competitive
decisions to be made on the local level which results in reduced costs and/or
improved service. In addition, the Company's size allows it to realize
economies of scale in purchasing, training, marketing and information systems.
REGULATORY AND ENVIRONMENTAL MATTERS
The businesses of the Company's subsidiaries are subject to federal and
state laws and regulations adopted for the protection of the environment and
the health and safety of employees and users of the Company's products. The
Company has programs for the operation and design of its facilities to
achieve compliance with applicable environmental rules and regulations. The
Company believes that it is in compliance in all material respects with such
laws and regulations. Expenditures for environmental purposes during 1996
were not material.
8
INSURANCE
The Company's policy is to obtain liability and property insurance
coverage that is currently available at what management determines to be a
fair and reasonable price. As of March 31, 1996, the Company had a liability
insurance limit of $51 million. The liability insurance is subject to per-
occurrence deductible amounts of $1 million for product liability, general
liability and workers' compensation claims, and approximately $500 thousand
for motor vehicle liability.
The nature of the Company's business may subject it to product and
general liability lawsuits. To the extent that the Company is subject to
claims which exceed its liability insurance coverages, such suits could have a
material adverse effect on the Company's financial position, results of
operations or liquidity. No such material lawsuits are pending against the
Company or any of its subsidiaries (see Item 3. Legal Proceedings).
EMPLOYEES
On March 31, 1996, the Company employed approximately 5,200 people of
whom approximately 7% were covered by collective bargaining agreements. The
Company believes it has good relations with its employees and has not
experienced a strike or work stoppage in the past nine years.
PATENTS, TRADEMARKS AND LICENSES
The Company holds trademark registrations for "Airgas", "Dyna-Switch" and
"Va-Weld", and a patent registration for the purification of acetonitrile.
The Company believes that its businesses as a whole are not materially
dependent upon any single patent, trademark or license.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below:
Name Age Position
____ ___ ________
Peter McCausland (1) 46 Chairman of the Board and Chief
Executive Officer
Hermann Knieling 58 President and Chief Operating Officer
E. Pat Baker 56 Division President - Eastern Division
Alfred B. Crichton 48 Division President - Western Division
Kenneth A. Keeley 55 Division President - Northern Division
Ronald B. Rush 52 Division President - Southern Division
William A. Rice, Jr. 49 Division President -Industrial Distribution
and Purchasing
Britton H. Murdoch 38 Vice President - Finance and Chief
Financial Officer
Gordon L. Keen, Jr. 51 Vice President - Corporate Development
William E. Sanford 36 Executive Vice President - Sales and
Marketing
Thomas Mason 62 Senior Vice President
Scott M. Melman 39 Vice President - Chief Administrative Officer
Rudi G. Endres 52 Vice President - International
_____________
(1) Member of the Board of Directors
9
Mr. McCausland has been a Director of the Company since June 1986, the
Chairman of the Board and Chief Executive Officer of the Company since May
1987, President from June 1986 to August 1988, and from April 1, 1993 to
November 30, 1995, and Chairman and Chief Executive Officer of US Airgas since
its organization in February 1982. From January 1982 until June 1990, Mr.
McCausland was a partner in the law firm of McCausland, Keen & Buckman,
Radnor, Pennsylvania, which provides legal services to the Company.
Mr. Knieling has been the President and Chief Operating Officer of the
Company since December 1, 1995. Mr. Knieling served as Division President -
Southern Division from April 1, 1995 to November 30, 1995 and as Division
President - Eastern Division from February 3, 1993 to March 1995. Mr.
Knieling served as a Regional Vice President from June 1990 to February 1993
and as President of Gulf States Airgas from June 1989 to February 1993. Mr.
Knieling owned and operated an industrial gas distributor which was sold to
the Company in 1989. Also, Mr. Knieling served in various capacities for
Hoechst AG during a period of 18 years, and, prior to his leaving Hoechst in
1982 was President and Chief Executive Officer of its subsidiary, MG Burdett
Gas Products Company.
Mr. Baker has been the Company's Division President - Eastern Division
since April 1, 1995. Mr. Baker served as a Regional Vice President from May
1991 to February 1993 and President of Southwest Airgas since the acquisition
of Southwest Airgas (formerly West Texas Welders Supply), in October 1988, to
March 1995. Prior to joining Airgas, Mr. Baker was President and owner of
West Texas Welders Supply from August 1981 to October 1988.
Mr. Crichton has been the Company's Division President - Western Division
since February 3, 1993. Mr. Crichton served as a Regional Vice President from
May 1991 to February 1993 and as President of Sierra Airgas since the
acquisition of Sierra Airgas (formerly Moore Bros.) in January 1987. Mr.
Crichton was employed by Union Carbide Industrial Gases (UCIG) from 1969
through 1986, and prior to joining Moore Bros., was President of a subsidiary
of UCIG.
Mr. Keeley has been the Company's Division President - Northern Division
since December 1, 1995. Mr. Keeley served as the Division President - Central
Division from February 3, 1993 to November 30, 1995, as a Regional Vice
President from April 1989 to February 1993 and as President of Michigan Airgas
from March 1984 to March 1989. Prior to 1984, Mr. Keeley owned and operated an
industrial gas distributor which was sold to the Company.
Mr. Rush has been the Company's Division President - Southern Division
since December 1, 1995. Mr. Rush served as President of Sooner Airgas from
June 1, 1991 to November 30, 1995 and as Vice President of Sales for Southwest
Airgas from September 1990 to May 31, 1991.
Mr. Rice has been the Company's Division President - Industrial
Distribution and Purchasing since April 1, 1995 and served as Vice President -
Purchasing from August 1, 1993 to March 1995. Until August 1993, Mr. Rice was
President of Virginia Welding Supply, which was acquired by the Company in
July 1992. Mr. Rice has over 20 years of industry experience and serves on
the boards of various companies.
Mr. Murdoch has been the Vice President - Finance and Chief Financial
Officer of the Company since June 1, 1990 and served as Vice President -
Corporate Development from September 1987 until May 1990. Mr. Murdoch served
as a Vice President of Philadelphia National Bank from 1983 to September 1987.
10
Mr. Keen has been the Vice President - Corporate Development since
January 1, 1992. From January 1982 until December 1991, Mr. Keen was a partner
in the law firm of McCausland, Keen & Buckman, Radnor, Pennsylvania, which
provides legal services to the Company.
Mr. Sanford has been the Company's Executive Vice President since
December 1, 1995 and Vice President - Sales and Marketing since February
3, 1993. Mr. Sanford served as President of Cascade Airgas from March 1989
to February 1993. From May 1984 to February 1989 Mr. Sanford served as Vice
President -- Sales and Marketing for Midwest Carbide.
Mr. Mason has been Senior Vice President since December 1, 1995. Mr.
Mason served as Assistant to the Chairman from January 1993 to November 1995.
Prior to that, Mr. Mason served as Executive Vice President of the Company
from March 1990 until January 1993 and served as President from August 1988
until February 1990.
Mr. Melman has been Vice President - Chief Administrative Officer since
April 1, 1995. Mr. Melman served as Vice President - Corporate Controller
from August 1994 to March 1995 and Corporate Controller from August 1986 to
July 1994. Prior to joining Airgas, Mr. Melman was the Controller for
Integrated Circuit Systems, Inc. from November 1983 to July 1986, and prior to
joining Integrated Circuit Systems, Inc., was a Tax Manager for KPMG Peat
Marwick LLP.
Mr. Endres has been Vice President - International since January
1993. Mr. Endres served as Vice President - Marketing from July 1991 until
December 1992. From February 1987, Mr. Endres served as General Manager and
Vice President for the western region of Airgas. Prior to joining Airgas, Mr.
Endres served for 18 years in various positions nationally and internationally
for Messer Griesheim, a major producer of industrial gases headquartered in
Germany. His last position was Vice President for Specialty Gases and
Chemicals at MG Industries in Valley Forge, PA.
OTHER OFFICERS OF THE COMPANY OR ITS SUBSIDIARIES
Other officers of the Company are listed below, and include the following:
Ronald W. Beebe - Division Vice President - Eastern and Northern Division
Richard S. Brennan - Division Vice President - Western Division
Donald S. Carlino - Division Vice President - Manufacturing and Industrial
Distribution Division
Lee C. Cherry - Division Vice President - Southern Division
L. James Johnston - Division Vice President - Eastern Division
L. Jay Sullivan - Division Vice President - Southern Division
Todd R. Craun - General Counsel & Secretary
Jeffrey P. Cornwell - Assistant Vice President and Corporate Controller
Andrew R. Cichocki - Assistant Vice President, Corporate Development
Leslie J. Graff - Assistant Vice President, Corporate Development
James N. Borum - Assistant Treasurer and Director of Finance
Carey M. Verger - Assistant Vice President, Corporate Taxes
11
Subsidiary Presidents
NAME SUBSIDIARY
_____ __________
Wendy D. Swift Airgas Canada
Geoffrey C. Pulford Airgas Ontario
Robert J. Finch Airgas Houston/Specialty Products
Robert B. Beasley Airgas Safety
David P. Engel Airgas Texas
Frank L. Middleton Bay Airgas
Dan L. Tatro Cascade Airgas
Jeff Allen Central States Airgas
Barry W. Himes Cryodyne Technologies
Richard W. Johnson Delta Airgas
Isaac C. Fortenberry Florida Airgas
Patrick M. Visintainer Gateway Airgas
Doug Olsen Great Lakes Airgas
Dale E. Hess Great Western Airgas
Henry B. Coker Gulf States Airgas
Michael J. Grebe IPCO Safety Products Company
David M. Duvall Jimmie Jones/Sooner Airgas
Edward A. Lewis, Jr. Keystone Airgas
Steven L. Clark Michigan Airgas
J. Robert Hilliard Mid America Airgas
John W. Smith Mid States Airgas
Ronald H. Scott Midwest Carbide Corp.
James B. Sparks Mountain Airgas
John Musselman Northeast (includes Connecticut Airgas, Empire
Airgas and Northeast Airgas)
Theodore D. Erkenbrack Northern Gases
Patricia E. Paddock Pacific Airgas
Ronald W. Savage Parsons Airgas
Zenon Kazmierczak Poligaz
Frank B. Sartain Post Airgas
Charles Leggett Potomac Airgas
Joseph P. Featherstone Red-D-Arc Limited
James McCarthy Sierra Airgas
John T. Winn, III Southeast Airgas
Mark A. Straka Southern California Airgas
Charles R. Atkerson Southwest Airgas
Noel E. Breedlove, Jr. Trinity Airgas
Richard B. Graw TriStates Airgas
David J. Bauer Virginia Welding
ITEM 2. PROPERTIES.
The Company has offices, manufacturing and distribution facilities in 38
states, Canada and Mexico. The principal executive offices of Airgas are
located in leased space in Radnor, Pennsylvania.
The Company's manufacturing segment produces carbon products at its
Keokuk, Iowa, facility; calcium carbide at its Pryor, Oklahoma, facility; and
nitrous oxide at its Donora, Pennsylvania and Yazoo City, Mississippi
facilities. Manufacturing facility utilization during 1996, based on market
demand, has ranged from 65% to 100% .
12
The Keokuk and Pryor facilities are owned by the Company. The Donora
plant is located on property leased through the year 2006. The Yazoo City
property is owned by the Company; however, it will revert to the local
municipality if the plant terminates operations. The Keokuk, Pryor and Donora
facilities are pledged as collateral under Industrial Development Board
revenue bonds (see note 8 to the Company's consolidated financial statements
under Item 8).
The Company's distribution segment conducts business from its 520
locations in 38 states, Canada and Mexico. These locations are either owned
or are leased from third parties or from employees of the Company who were
previous owners of businesses acquired on terms consistent with commercial
rental rates prevailing in the surrounding rental market. Eighteen
distribution locations in 12 states have acetylene manufacturing plants. The
Company's acetylene plants operated at approximately 60 percent of capacity
during 1996.
The Company believes that its facilities are adequate for its present
needs and that its properties are generally in good condition, well maintained
and suitable for their intended use.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are parties to pending legal proceedings
arising out of their business operations. The proceedings involve claims for
personal injuries, breach of contract, product warranty and product design,
and claims involving employee relations and certain administrative
proceedings. Management does not believe that the eventual outcome of any
litigation to which the Company or its subsidiaries are parties would have a
material adverse effect on the consolidated financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange
(ticker symbol: ARG). The following table sets forth, for each quarter during
the last two fiscal years, the high and low sales prices as reported by the
New York Stock Exchange.
High Low
---- ---
1996 Fiscal (1)
First Quarter $13.88 $12.50
Second Quarter 15.00 13.31
Third Quarter 16.63 15.69
Fourth Quarter 20.06 19.81
1995 Fiscal (1)
First Quarter $13.82 $10.32
Second Quarter 14.25 11.75
Third Quarter 14.94 10.25
Fourth Quarter 13.25 9.82
________________
(1) Adjusted to reflect a two-for-one stock split effective on April 15, 1996
(See note 9 to the Company's consolidated financial statements under
Item 8).
On May 31, 1996, there were approximately 11,000 holders of record of the
Company's Common Stock.
The present policy of the Company is to retain earnings to provide funds
for the operation and expansion of its business and not to pay cash
dividends on its Common Stock. Any payment of future dividends and the amounts
thereof will depend upon the Company's earnings, financial condition, loan
covenants, capital requirements and other factors deemed relevant by the Board
of Directors (see note 8 to the Company's consolidated financial statements).
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is presented in the table below
and should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and the
Company's consolidated financial statements included in Item 8 herein.
14
(amounts in thousands except per share data):
Years Ended March 31, (5)
___________________________________________
1996 1995 1994 1993 1992
____ ____ ____ ____ ____
Operating Results:
Net sales $838,144 $687,983 $519,349 $410,771 $351,491
Depreciation & amortization(2) 45,762 36,868 30,571 28,045 23,670
Operating income 92,985 72,600 48,667 34,367 26,316
Interest expense, net 24,862 17,625 12,486 11,403 12,838
Income taxes(1) 28,522 23,894 16,027 10,811 7,718
Net earnings 39,720 31,479 20,290 12,469 7,292
Earnings Per Share(3):
Primary:
Net earnings $ .60 $ .48 $ .31 $ .20 $ .14
Fully Diluted:
Net earnings $ .60 $ .48 $ .31 $ .19 $ .13
Balance Sheet Data:
Working capital $ 81,588 $ 54,084 $ 47,071 $ 40,253 $ 39,425
Total assets 883,642 645,637 514,897 399,477 338,218
Current portion of long-term
debt 12,179 11,780 10,304 9,923 10,026
Long-term debt 385,832 259,970 205,311 158,629 151,098
Other non-current liabilities 34,490 11,116 6,635 762 675
Stockholders' equity(4) 236,209 189,652 156,867 127,571 104,931
_______________
(1) The Company retroactively adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" as of April 1, 1992.
(2) Effective April 1, 1993, the Company changed its estimate of the useful
lives of its acetylene and high pressure cylinders from 20 to 30 years.
This change was made to better reflect the estimated periods during which
these assets will remain in service. The change had the effect of
reducing depreciation expense in 1994 by approximately $3.1 million and
increasing net earnings by $1.9 million or $.03 per share.
(3) See notes 3 and 9 to the Company's consolidated financial statements for
information regarding earnings per share calculations and adjustment for
the stock split effective April 15, 1996.
(4) The Company has not paid any dividends on its common stock.
(5) During the fiscal years 1992 through 1996, the Company acquired
121 distributors.
15
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7.
FINANCIAL REVIEW
OVERVIEW
The Company's financial results for the year ended March 31, 1996 reflect
substantial growth compared to 1995. Net sales of $838 million, net earnings
of $39.7 million and earnings per share of $.60 represent increases over 1995
of 22%, 26% and 25%, respectively. The Company also finished 1996 with a
record year for acquisitions by completing the acquisition of 42 distributors
with aggregate annual sales of approximately $186 million and forming six new
hubs. This follows 25 acquisitions in 1995 with aggregate annual sales of
approximately $108 million.
The Company intends to continue to actively participate in the
consolidation taking place in the fragmented industrial gas distribution
market by acquiring independent gas distributors. In seeking to acquire
distributors, the Company anticipates competition from industrial gas
producers and from certain other independent distributors. The Company
believes that it is well positioned to acquire distributors because of its
extensive distribution network, its well-organized acquisition program,
flexibility in structuring acquisitions to meet Sellers' needs and its ability
to offer sellers and their employees a continuing management role in a
decentralized entrepreneurial environment.
During 1996, same-store sales, a comparison of current period sales to
the prior period's sales, adjusted for acquisitions, increased 2% compared to
the prior year. The Company's same-store sales growth rate has historically
followed the real gross domestic product annual growth rate as published by
the U.S. Department of Commerce. Weaker economic conditions compared to the
prior year, combined with inclement weather, held down same-store sales growth
in 1996. Management believes its same-store sales growth is slightly
understated since it does not reflect the Company's decision to cease
unprofitable sales to certain customers and other sales lost during the
consolidation and integration of 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. Management believes the Company's
broad customer base and geographic diversity help to reduce the adverse
effects of an economic downturn on the Company. Also, management believes
that the gas portion of its distribution business is somewhat resistant to an
economic downturn since: 1) gases frequently represent a fixed cost of
operations that do not necessarily decline with production levels; 2) gases
are required for maintenance and renovation activities which tend to increase
during an economic downturn; 3) industries less subject to the effects of an
economic downturn are major purchasers of gases; and 4) gas purchases often
represent a small portion of typical user's overall cost of operation and,
therefore, do not typically represent a large cost-cutting item. Management
further believes that sales of certain lower margin non-consumable hardgoods
equipment, such as welding machines, are more likely to be adversely impacted
during a downturn in the economy and, conversely, are typically the fastest to
rebound during an economic recovery. The Company is cautiously optimistic
that the economy will improve during fiscal 1997.
16
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Sales in 1996 related to gases and rent represent 51% or $408.7 million
of total distribution net sales. Bulk and specialty gas sales have increased
due to the success of gas marketing programs. In order to support and grow
its specialty gas business, the Company has established 22 specialty gas
mini-labs which benefit customers by providing them with certain specialty gas
products in their local market. In connection with its hardgoods business,
which accounted for 49% or $392.8 million of total distribution net sales, the
Company is focused on improving profitability by reducing its investment in
inventories through the consolidation of vendors, and the negotiation of
favorable pricing based on national purchasing arrangements.
The Company intends to strategically broaden its product line in order to
increase sales in existing locations and to take advantage of its distribution
network. Recent product line additions have included returnable containers,
specialty gases (such as refrigerants and sterilizing gases) and additional
hardgoods (such as industrial safety products and coatings). In April 1996,
the Company acquired IPCO Safety Products Company, a $55 million distributor
of industrial safety equipment and supplies which utilizes a system of
regional warehouses and telemarketing centers. The Company's strategy is to
acquire additional industrial distribution companies with a focus on
increasing same-store sales of new industrial product lines through both the
acquired businesses and its existing distribution network. The Company
believes the selective addition of complementary product offerings will enable
it to better serve its diverse, expanding customer base. Management believes
the acquisition of certain businesses during fiscal 1996 which have a higher
mix of lower margin hardgoods sales, as well as IPCO, will lower the Company's
distribution operating margins slightly during fiscal 1997, although
management anticipates that these acquisitions will be additive to earnings.
Excluding lower margin hardgoods businesses, management believes distribution
margins should improve during fiscal 1997.
The Company has recently undertaken initiatives to further develop its
industrial gas customer base to selectively include customers which require
large volume supplies of gases, such as nitrogen. For these customers, the
Company will enter into a long-term supply contract and will construct an air
separation plant near the customer's facility or facilities. The Company has
entered into agreements with two customers and is constructing two air
separation plants which will begin production during fiscal 1998. In
addition, terms related to the agreements provide for additional sales of
cylinder gases and supplies.
Airgas remains focused on cash flow growth. Historically, operations have
generated sufficient cash flow to finance the Company's operating requirements
while borrowings have been incurred largely to finance acquisitions. Over the
past three years, cash flow from operations has totaled approximately $230
million. This strong cash flow has helped fund the Company's investment in
acquisitions, excluding debt assumed, and capital expenditures which, for the
past three years totaled $333.3 million and $99.3 million, respectively.
At March 31, 1996, The Company had unused availability of $205.0 million
unsecured lines of credit. The Company's debt-to-equity ratio of 1.69 at
March 31, 1996 increased compared to the prior year's ratio of 1.43 primarily
as a result of acquisitions completed during 1996 combined with the purchase
of treasury stock.
17
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: 1996 COMPARED TO 1995
____________________________________________
Net sales increased 22% in 1996 compared to 1995:
(in thousands)
1996 1995 Increase
____ ____ __________
Distribution $801,552 $654,381 $147,171
Manufacturing 36,592 33,602 2,990
_______ _______ _______
$838,144 $687,983 $150,161
======= ======= =======
For the year ended March 31, 1996, distribution sales increased
approximately $133 million resulting from the acquisition of 66 distributors
of industrial, medical and specialty gases and related equipment since April
1, 1994 and approximately $14 million from same-store sales growth. The
Company estimates that had all acquisitions during the year ended March 31,
1996 been consummated on April 1, 1995, distribution sales for the year ended
March 31, 1996 would have increased by an additional $100 million. The
increase in same-store sales of approximately 2% was the result of slightly
higher prices based on selected price increases to certain customers and
increased volume within its gas, rental and hardgoods businesses. During 1996,
the Company's same-store sales increased 3% in the first quarter, 2% in the
second and third quarters and 1% in the fourth quarter. Excluding the impact
of the inclement weather, the Company estimates same-store sales growth during
the fourth quarter would have been approximately 2%. The Company estimates
same-store sales based on a comparison of current period sales to the prior
period's sales, adjusted for acquisitions.
Sales for the Company's manufacturing operations increased 9% during the
year ended March 31, 1996 compared to the prior year, 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 $72.6 million over 1995 was
attributable to increases associated with acquisitions of $62.7 million and
same-store gross profit growth of $9.9 million. The majority of the $9.9
million same-store gross profit growth was derived from volume growth in gas
and increases in cylinder rent. Higher gas 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 1995 primarily due to improved rent
gross margins combined with slightly higher margins in gases and hardgoods.
Increased volumes of lower margin bulk gases partially offset the gas margin
improvements.
18
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, distribution and administrative expenses decreased as a
percentage of sales to 33.4% in 1996 compared to 34.3% in 1995. The decrease
was a result of acquisition consolidation efforts and lower operating costs,
such as a reduction in business insurance costs through improved claims
management and reduced incident rates. In addition, 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 28% in 1996 compared to 1995:
(in thousands)
1996 1995 Increase
____ ____ __________
Distribution $86,130 $66,521 $19,609
Manufacturing 6,855 6,079 776
______ ______ ______
$92,985 $72,600 $20,385
====== ====== ======
Distribution operating income as a percentage of net distribution sales
increased to 10.7% for the year ended March 31, 1996 compared to 10.2% in
1995. The increase in distribution operating income in 1996 was the 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 $776 thousand in 1996 compared
to 1995 due to strong demand for carbon products and nitrous oxide, and lower
production and delivery costs related to calcium carbide and nitrous oxide
business, partially offset by an increase in lower margin sales of carbon
products.
Interest expense, net, increased $7.2 million in 1996 compared to 1995
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, partially offset by an increase in positive
cash flow. 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 41.8% of pre-tax earnings in 1996 compared
to 43.2% in 1995. The decrease in the effective income tax rate was primarily
due to an increase in pre-tax earnings relative to permanent differences and
as a result of the implementation of certain tax planning strategies.
19
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Net earnings increased 26% to $39.7 million or $.60 per share in 1996
from $31.5 million or $.48 per share in 1995. After tax cash flow (net
earnings plus depreciation, amortization and deferred income taxes) increased
21% to $96.4 million from $79.9 million in 1995. 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, joint ventures and the repurchase of
Company stock.
RESULTS OF OPERATIONS: 1995 COMPARED TO 1994
Net sales increased 32% in 1995 compared to 1994:
(in thousands)
1995 1994 Increase
____ ____ __________
Distribution $654,381 $486,836 $167,545
Manufacturing 33,602 32,513 1,089
_______ _______ _______
$687,983 $519,349 $168,634
======= ======= =======
In 1995, distribution sales increased approximately $136 million
resulting from the acquisition of 40 industrial gas distributors since April
1, 1993 and approximately $32 million from same-store sales. Based on
unaudited historical pro forma data, the Company estimates that had all 1995
acquisitions been consummated on April 1, 1994, distribution sales for 1995
would have been approximately $49 million higher. The increase in same-store
sales of approximately 5% is primarily the result of increased volume of
hardgoods sales and increases in gas and rental businesses. The Company
estimates same-store sales based on a comparison of current period sales to
the prior period's sales, adjusted for acquisitions. Hardgoods and gas
volumes have primarily increased as a result of the general improvement in the
economy and certain gas marketing programs. Same-store sales have also
increased slightly as a result of price increases initiated during
1995 and 1994 The Company believes that sales of 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 slightly
compared to 1994 primarily as a result of an increase in the volume of lower
margin products.
Compared to 1994, distribution gross profit increases associated with
acquisitions totaled an estimated $69 million. Gross profits associated with
distribution same-store sales growth are estimated to total $16 million. The
same-store gross profit growth is attributable to increased hardgoods volumes
combined with improved gross margins resulting from the Company's national
20
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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, considering the impact of the change in the Company's sales mix
slightly towards lower margin hardgoods sales, distribution gross margins
increased an estimated .6% compared to 1994.
Selling, distribution and administrative expenses as a percentage of
sales decreased to 34.3% compared to 34.8% in 1994. The decrease is a result
of acquisition consolidation efforts and from controlling
certain operating costs, such as business insurance through improved claims
management and reduced incident rates. Through improved billing and
collection efforts, the Company has also reduced its bad debt expense and
lowered its accounts receivable days sales outstanding to 44 days compared to
49 days at March 31, 1994. In addition, certain operating costs, such as
occupancy costs, are relatively fixed even though the Company's same-store
sales increased over 1994. Partially offsetting these improvements were
normal salary increases.
Operating income increased 49% in 1995 compared to 1994:
(in thousands)
1995 1994 Increase
(Decrease)
____ ____ __________
Distribution $66,521 $42,399 $24,122
Manufacturing 6,079 6,268 (189)
______ ______ ______
$72,600 $48,667 $23,933
====== ====== ======
Distribution operating income as a percentage of net distribution sales
increased to 10.2% compared to 8.7% in 1994. The increase in distribution
operating income in 1995 was a result of the increase in gross profits from
higher same-store sales, operating income provided by acquisitions and
improved gross profit margins.
Manufacturing operating income decreased $189 thousand compared to the
prior year due to a product shift towards lower margin export sales of carbon
products, slightly lower profits from the sale of calcium carbide combined
with higher raw material costs, principally ammonium nitrate, for the
Company's nitrous oxide plants.
Interest expense, net, increased $5.1 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, 1993 combined with
slightly higher interest rates. As discussed in "Liquidity and Capital
21
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Resources" below, the Company has hedged floating interest rates under certain
borrowings with interest rate swap agreements.
Income tax expense represented 43.2% of pre-tax earnings in 1995 compared
to 44.1% in 1994. The decrease in the effective income tax rate is primarily
due to an increase in pre-tax earnings relative to permanent differences.
Net earnings increased 55% to $31.5 million or $.48 per share in 1995
from $20.3 million or $.31 per share in 1994. After tax cash flow (net
earnings plus depreciation, amortization and deferred income taxes) increased
35% to $79.9 million from $59.1 million in 1994. 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.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The Company has primarily financed its operations, capital expenditures,
stock repurchases and acquisitions with borrowings, funds provided by
operating activities and the issuance of common stock.
Cash flows from operating activities totaled $92 million in 1996.
Depreciation and amortization represent $45.8 million of cash flow from
operating activities. Deferred income taxes of $10.9 million principally
resulted from temporary differences originating from property and equipment.
Working capital components of cash flow increased $5.7 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 $1.5 million due to payments to vendors. Other current liabilities
have increased due to increases in accrued interest, income taxes and real
estate taxes.
Cash used by investing activities totaled $190 million in 1996, which was
primarily comprised of $41.2 million for capital expenditures and $153.6
million related to acquisitions.
The Company's use of cash for capital expenditures was partially
attributable to the continued assimilation of 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. In addition, during 1996, the Company
entered into operating leases for certain transportation equipment, cylinders
and bulk tanks. Had the Company acquired such equipment, capital expenditures
would have been increased by $8.3 million.
22
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Financing activities provided cash of $97.9 million in 1996 with total
debt outstanding increasing by $126.3 million from March 31, 1995. Debt
incurred in connection with the acquisition of distribution businesses,
including seller notes and assumed notes, totaled $182.4 million.
The Company's Board has approved a four million share common stock
repurchase program. Through March 31, 1996, the Company purchased 2.4 million
shares of the Company's common stock at an aggregate cost of $28.9 million.
The impact of the stock repurchases on earnings per share was immaterial for
1996. The future purchase of common stock 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 March 31, 1996, the Company had approximately $171
million in borrowings under the facility and approximately $52 million
committed under letters of credit, resulting in unused availability under the
facility of approximately $152 million.
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 to finance the Company's ongoing acquisition program. The terms
and conditions of this facility are similar to the Company's existing $375
million facility. At March 31, 1996, the Company had $100 million outstanding
under the facility. The Company intends to terminate its $100 million
facility in conjunction with an anticipated increase in the Company's $375
million revolving credit facility in September 1996, which will have terms and
conditions similar to its existing $375 million facility.
The Company has a CDN $50 million Canadian credit facility ($37 million
U.S.) with various commercial banks which matures on November 14, 1998. At
March 31, 1996, the Company had approximately CDN $33 million ($24 million
U.S.) in borrowings outstanding under the facility, resulting in unused
availability under the facility of approximately CDN $17 million ($13 million
U.S.).
The Company also has unsecured line of credit agreements with various
commercial banks. At March 31, 1996, these agreements totaled $60 million,
under which the Company had aggregate outstanding borrowings of $19 million.
At March 31, 1996, the effective interest rate related to outstanding
borrowings under all credit lines was approximately 5.79%. The Company's loan
agreements contain covenants which include the maintenance of a minimum equity
level, maintenance of certain financial ratios, restrictions on additional
borrowings and limitations on dividends.
In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into
18 interest rate swap agreements during the period from June 1992
through March 31, 1996. The swap agreements are with major financial
institutions and aggregate $224 million in notional principal amount at
March 31, 1996. Approximately $205 million of the notional principal
23
amount of the swap agreements require fixed interest payments based on an
average effective rate of 6.53% for remaining periods ranging between 1 and 8
years. Two swap agreements require floating rates ($19.5 million notional
amount at 5.53% at March 31, 1996). Under the terms of seven of the swap
agreements, the Company has elected to receive the discounted value of the
counterparty's interest payments upfront. At March 31, 1996, approximately
$23 million of such payments were included in other liabilities. 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. Other funding sources evaluated by
the Company from time-to-time include: leasing and the sale of public debt,
preferred stock and common stock. Subsequent to March 31, 1996 and through
June 5, 1996, the Company has acquired ten distribution businesses with annual
sales of approximately $105 million for an aggregate purchase price of
approximately $96 million.
The Company does not currently pay dividends on its common stock.
OTHER
Environmental
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations. In conducting due
diligence for prospective acquisitions, the Company completes Phase I
environmental studies. Expenditures for environmental purposes during 1996
were not material.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk are limited due to the Company's large number of
customers and their dispersion across many industries. Credit terms granted
to customers are generally net 30 days.
Effects of Inflation
Historically, the Company has been able to increase the sales price of
products in response to market demand, cost of products, competitive factors
and other industry trends. Consequently, the impacts of inflation have not
had a materially adverse impact on the Company's financial position, results
of operations, or liquidity.
New Accounting Pronouncements
In the first quarter of fiscal 1997, the Company will adopt SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The statement requires the recognition of an impairment
loss for an asset held for use when the estimate of undiscounted future cash
flows expected to be generated by the asset is less than its carrying amount.
Measurement of the impairment loss is based on fair value of the asset.
24
Management believes that the adoption of this statement will not have a
material impact on earnings, financial condition or liquidity of the Company.
The Company accounts for stock options according to the provisions of
Accounting Principles Board Opinion 25 (APB 25), "Accounting for Stock Issued
to Employees." In October 1995, the Financial Accounting Standards Board
issued FASB Statement No. 123, "Accounting for Stock-Based Compensation." The
new standard defines a fair value method of accounting for stock options and
similar equity instruments. Companies may elect to continue to use existing
accounting rules or adopt the fair value method for expense recognition.
Companies that elect to continue to use existing accounting rules will be
required to provide pro-forma disclosures of net income and earnings per share
assuming the fair value method was adopted. The Company will elect to
continue to use existing accounting rules. The new statement is effective for
fiscal years beginning after December 15, 1995. Accordingly, the Company will
adopt the provisions in the first quarter of fiscal 1997 and present the
required pro-forma disclosure provisions for its fiscal year ending March 31,
1997. As the Company will continue to account for stock-based compensation
using the intrinsic value method, this statement will not have a material
impact on earnings, financial condition or liquidity of the Company.
Forward-Looking Statements
This report contains forward-looking statements. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, there are certain important factors that could cause the Company's
actual results to differ materially from those included in such forward-
looking statements. Some of the important factors which could cause actual
results to differ materially from those projected include, but are not limited
to: the Company's ability to continue to identify and complete strategic
acquisitions to enter new markets and expand existing business; continued
availability of financing to provide additional sources of funding for future
acquisitions, capital expenditure requirements and foreign investments; the
effects of competition from independent distributors and vertically integrated
gas producers on products and pricing, growth and acceptance of new product
lines through the Company's sales and marketing programs; changes in product
prices from gas producers and name-brand manufacturers and suppliers of
hardgoods; uncertainties regarding accidents or litigation which may arise in
the ordinary course of business; and the effects of, and changes in the
economy, monetary and fiscal policies, laws and regulations, inflation and
monetary fluctuations and fluctuations in interest rates, both on a national
and international basis.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and financial statement schedule of
the Company are set forth at pages F-1 to F-29 of the report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The biographical information relating to the Company's directors
appearing in the Proxy Statement relating to the Company's 1996 Annual Meeting
of Stockholders is incorporated herein by reference. Biographical information
relating to the Company's executive officers is set forth in Item 1 of Part I
of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Board of Directors and Committees" and "Certain
Transactions" appearing in the Proxy Statement relating to the Company's 1996
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the section headed
"Security Ownership" appearing in the Company's Proxy Statement relating to
the Company's 1996 Annual Meeting of Stockholders and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Certain Transactions" appearing in the Proxy
Statement relating to the Company's 1996 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2):
The response to this portion of Item 14 is submitted as a separate section of
this report beginning on page F-1. All other schedules have been omitted as
inapplicable, or not required, or because the required information is included
in the Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits. The exhibits required to be filed as part of this annual
report on Form 10-K are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K.
On March 27, 1996, the Company filed a current report on Form 8-K to
announce, under Item 5, that its Board of Directors approved a two-for-
one split of its common stock, issuable on April 15, 1996, to
stockholders of record on April 1, 1996.
26
(c) Index to Exhibits and Exhibits filed as a part of this report.
3.1 Amended and Restated Certificate of Incorporation of Airgas, Inc. dated
as of August 7, 1995 (Incorporated by reference to Exhibit 3.1 to the
Company's September 30, 1995 Quarterly Report on Form 10-Q).
3.2 Airgas, Inc. By-Laws Amended and Restated November 29, 1994.
4.1 Seventh Amended and Restated Loan Agreement dated August 10, 1995 between
Airgas, Inc. and certain banks and NationsBank of North Carolina, N.A.
($375,000,000 credit facility). (Incorporated by reference to Exhibit
4.1 to the Company's September 30, 1995 Quarterly Report on Form 10-Q).
4.3 Loan Agreement dated February 5, 1996 between Airgas, Inc. and certain
banks and Nationsbank of North Carolina, N.A. ($100,000,000 credit
facility).
There are no other instruments with respect to long-term debt of the
Company that involve indebtedness or securities authorized thereunder
exceeding 10 percent of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to file a copy
of any instrument or agreement defining the rights of holders of long-
term debt of the Company upon request of the Securities and Exchange
Commission.
* 10.1 Agreement between the Company and Peter McCausland, dated January 8,
1991, and form of Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 10.16 to the Company's March 31, 1992 report on
Form 10-K).
* 10.2 Common Stock Purchase Warrant held by Britton H. Murdoch and certain
other employees and other persons (Pursuant to Instruction 2 to Item
601 of Regulation S-K, the Common Stock Purchase Warrants, which are
substantially identical in all material respects except as to the
parties thereto, held by certain employees, including the following
Executive Officers and a Director, and other persons are not being
filed: Hermann Knieling, Kenneth A. Keeley, Alfred B. Crichton, Gordon
L. Keen, Jr., William Sanford, Scott Melman and Ronald Beebe and a
Director, Merril Stott). (Incorporated by reference to Exhibit 10.17
to the Company's March 31, 1993 report on Form 10-K).
* 10.3 Amended and Restated 1984 Stock Option Plan, as amended effective May
22, 1995 (Incorporated by reference to Exhibit 10.1 to the Company's
September 30, 1995 Quarterly Report on Form 10-Q).
* 10.4 1989 Non-Qualified Stock Option Plan for Directors (Non-Employees), as
amended. (Incorporated by reference to Exhibit 10.7 to the Company's
March 31, 1992 report on Form 10-K).
* 10.5 Amendment to the 1989 Non-Qualified Stock Option Plan for Directors
(Non-Employees) as amended through August 7, 1995 (Incorporated by
reference to Exhibit 10.2 to the Company's September 30, 1995
Quarterly Report on Form 10Q.
* 10.6 1994 Employee Stock Purchase Plan. (Incorporated by reference to
exhibit 10.19 to the Company's March 31, 1993 report on Form 10-K).
27
10.7 Amended and Restated Joint Venture Agreement dated March 31, 1992
between American Carbide and Carbon Corporation and Elkem Metals
Company. (Incorporated by reference to Exhibit 10.5 to the Company's
March 31, 1992 report on Form 10-K).
* 10.8 Airgas, Inc. Management Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Company's September 30, 1995 Quarterly Report on
Form 10-Q).
(11) Statement re: computation of earnings per share.
(21) Subsidiaries of the Company.
(23.1) Consent of KPMG Peat Marwick LLP.
(23.2) Consent of KPMG Peat Marwick LLP (to be filed by amendment)
(23.3) Consent of KPMG Peat Marwick LLP (to be filed by amendment)
(27) Financial data schedule
(99.1) Form 11-K for the Registrant's 401(K) Plan (to be filed by amendment)
(99.2) Form 11-K for the Registrant's Employee Stock Purchase Plan (to be
filed by amendment)
_____________
* A management contract or compensatory plan required to be filed by Item
14(c) of this Report.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 12, 1996
Airgas, Inc.
By: /s/ Peter McCausland
_________________________
Peter McCausland
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
_________ _____ ____
/s/ Peter McCausland Director, Chairman of the June 12, 1996
____________________________ Board and Chief Executive Officer
(Peter McCausland)
/s/ Hermann Knieling President and Chief Operating June 12, 1996
________________________ Officer
(Hermann Knieling)
/s/ Britton H. Murdoch Vice President/Finance and June 12, 1996
____________________________ Chief Financial Officer
(Britton H. Murdoch)
/s/ Jeffrey P. Cornwell Assistant Vice President and
____________________________ Corporate Controller June 12, 1996
(Jeffrey P. Cornwell)
/s/ W. Thacher Brown Director June 12, 1996
____________________________
(W. Thacher Brown)
/s/ Frank B. Foster, III Director June 12, 1996
____________________________
(Frank B. Foster, III)
/s/ Dr. Robert E. Naylor Director June 12, 1996
____________________________
(Dr. Robert E. Naylor)
29
/s/ James M. Hoak, Jr. Director June 12, 1996
____________________________
(James M. Hoak, Jr.)
/s/ Robert L. Yohe Director June 12, 1996
____________________________
(Robert L. Yohe)
/s/ John A.H. Shober Director June 12, 1996
____________________________
(John A.H. Shober)
/s/ Merril L. Stott Director June 12, 1996
____________________________
(Merril L. Stott)
/s/ Erroll C. Sult Director June 12, 1996
____________________________
(Erroll Sult)
30
AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Reference In
Report on
Form 10-K
_________
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-2
Statement of Management's Financial Responsibility . . . . . . . F-3
Consolidated Balance Sheets at March 31, 1996 and 1995 . . . . . F-4
Consolidated Statements of Earnings for the Years Ended
March 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1996, 1995 and 1994. . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1996, 1995 and 1994. . . . . . . . . .. . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . F-8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts . . . . . . F-29
All other schedules for which provision is made in the applicable accounting
regulations promulgated by the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
F-1
31
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Airgas, Inc.:
We have audited the consolidated financial statements of Airgas, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Airgas,
Inc. and subsidiaries as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth thereon.
Philadelphia, Pennsylvania KPMG PEAT MARWICK LLP
May 9, 1996
F-2
32
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related financial
information in this Annual Report. The statements are prepared in conformity
with generally accepted accounting principles. The financial statements
reflect management's informed judgment and estimation as to the effect of
events and transactions that are accounted for or disclosed.
Management maintains a system of internal control at each business unit.
This system, which undergoes periodic evaluation, is designed to provide
reasonable assurance that assets are safeguarded and records are adequate for
the preparation of reliable financial data. In determining the extent of the
system of internal control, management recognizes that the cost should not
exceed the benefits derived. The evaluation of these factors requires
estimates and judgment by management.
The Company's financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. Their Independent Auditors' Report, which is based
on an audit made in accordance with generally accepted auditing standards is
presented on the previous page. In performing their audit, KPMG Peat Marwick
LLP considers the Company's internal control structure to the extent they deem
necessary in order to plan their audit, determine the nature, timing and
extent of tests to be performed and issue their report on the consolidated
financial statements.
The Audit Committee of the Board of Directors meets with the independent
auditors and management to satisfy itself that they are properly discharging
their responsibilities. The auditors have direct access to the Audit
Committee.
Airgas, Inc.
/s/ Britton H. Murdoch /s/ Hermann Knieling /s/ Peter McCausland
________________________ ____________________ _______________________
Britton H. Murdoch President and Chief Peter McCausland
Vice President and Operating Officer Chairman and
Chief Financial Officer Chief Executive Officer
F-3
33
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 31,
________________
(In thousands, except per share amounts) 1996 1995
________________________________________ ____ ____
ASSETS (Note 8)
Current Assets
Trade receivables, less allowances for doubtful
accounts of $3,396 in 1996 and $4,161 in 1995 . . . . . .$120,811 $ 93,423
Inventories (Note 4) . . . . . . . . . . . . . . . . . . . 86,162 65,947
Prepaid expenses and other current assets. . . . . . . . . 11,601 10,467
_______ _______
Total current assets. . . . . . . . . . . . . . . . . 218,574 169,837
_______ _______
Plant and Equipment, at cost (Note 5). . . . . . . . . . . 586,328 464,983
Less accumulated depreciation. . . . . . . . . . . . . . (147,451) (118,715)
_______ _______
Plant and equipment, net . . . . . . . . . . . . . . . . 438,877 346,268
_______ _______
Other Non-current Assets (Note 6) . . . . . . . . . . . . . 60,948 41,388
Goodwill, net of accumulated amortization
of $19,552 in 1996 and $15,094 in 1995. . . . . . . . . . 165,243 88,144
_______ _______
$883,642 $645,637
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt (Note 8) . . . . . . . .$ 12,179 $ 11,780
Accounts payable, trade. . . . . . . . . . . . . . . . . . 52,528 43,782
Accrued expenses and other current liabilities (Note 7). . 72,279 60,191
_______ ______
Total current liabilities . . . . . . . . . . . . . . 136,986 115,753
_______ _______
Long-Term Debt (Note 8). . . . . . . . . . . . . . . . . . 385,832 259,970
Deferred Income Taxes (Note 13). . . . . . . . . . . . . . 88,400 67,540
Other Non-current Liabilities. . . . . . . . . . . . . . . 34,490 11,116
Minority Interest in Subsidiaries (Note 19). . . . . . . . 1,725 1,606
Commitments and Contingencies (Note 17)
Stockholders' Equity (Note 9)
Common Stock, par value $.01 per share, 200,000 shares
authorized, 66,314 and 63,002 shares issued in
1996 and 1995, respectively . . . . . . . . . . . . . . . 663 630
Capital in Excess of Par Value . . . . . . . . . . . . . . 91,512 61,820
Retained Earnings. . . . . . . . . . . . . . . . . . . . . 173,360 133,640
Cumulative Translation Adjustments . . . . . . . . . . . . (410) (469)
Treasury Stock, 2,355 and 472 common shares at cost
in 1996 and 1995, respectively. . . . . . . . . . . . . . (28,916) (5,969)
_______ _______
Total stockholders' equity. . . . . . . . . . . . . . 236,209 189,652
_______ _______
$883,642 $645,637
======= =======
See accompanying notes to consolidated financial statements.
F-4
34
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended March 31,
(In thousands, except per share amounts) ______________________________
_______________________________________ 1996 1995 1994
____ ____ ____
Net Sales
Distribution . . . . . . . . . . . . . . . . $801,552 $654,381 $486,836
Manufacturing . . . . . . . . . . . . . . . 36,592 33,602 32,513
_______ _______ _______
Total net sales . . . . . . . . . . . . 838,144 687,983 519,349
_______ _______ _______
Costs and Expenses
Cost of products sold (excluding depreciation
and amortization)
Distribution . . . . . . . . . . . . . . . 395,370 320,800 238,429
Manufacturing. . . . . . . . . . . . . . . 24,121 22,076 20,741
Selling, distribution and administrative
expenses . . . . . . . . . . . . . . . . . 279,906 235,639 180,941
Depreciation and amortization. . . . . . . . 45,762 36,868 30,571
_______ _______ _______
Total costs and expenses. . . . . . . . 745,159 615,383 470,682
_______ _______ _______
Operating Income
Distribution . . . . . . . . . . . . . . . . 86,130 66,521 42,399
Manufacturing. . . . . . . . . . . . . . . . 6,855 6,079 6,268
_______ _______ _______
Total operating income . . . . . . . . . 92,985 72,600 48,667
Interest expense, net (Note 11). . . . . . . (24,862) (17,625) (12,486)
Other income, net (Note 12). . . . . . . . . 782 1,067 453
Minority interest (Note 19). . . . . . . . . (663) (669) (317)
_______ _______ _______
Earnings before income taxes. . . . . . 68,242 55,373 36,317
Income taxes (Note 13) . . . . . . . . . . . . 28,522 23,894 16,027
_______ _______ _______
Net earnings. . . . . . . . . . . . . $ 39,720 $ 31,479 $ 20,290
======= ======= =======
Earnings Per Share (Notes 3 and 9) . . . . . $ .60 $ .48 $ .31
_______ _______ _______
Weighted average shares. . . . . . . . . . . 66,215 65,525 64,780
See accompanying notes to consolidated financial statements.
F-5
35
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Years Ended March 31, 1996, 1995 and 1994
_________________________________________
Shares of Capital in
Common Stock Common Excess of
(In thousands) $.01 Par Value Stock Par Value
______________ ______________ _____ __________
Balance--April 1, 1993 . . . . . . . . . 31,999.6 $320 $46,966
Two-for-one stock split (Note 9) . . . . 31,999.6 320 (320)
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Stock warrants and options exercised . . 1,568.8 16 3,477
Tax benefit associated with exercise
of stock options and warrants (Note 13) 3,590
Shares issued upon acquisition of
minority interests (Note 19). . . . . . 166.7 1 1,739
Shares issued in connection with
Employee Stock Purchase Plan (Note 14). 59.5 1 549
________ ___ ______
Balance--March 31, 1994. . . . . . . . . 65,794.2 $658 $56,001
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Retirement of treasury stock . . . . . . (3,754.4) (37) (1,445)
Purchase of treasury stock (Note 9). . .
Issuance of stock in connection
with acquisitions . . . . . . . . . . . 123.2 1 1,436
Stock warrants and options exercised . . 538.9 5 1,265
Tax benefit associated with exercise
of stock options and warrants (Note 13) 1,859
Shares issued in connection with
Employee Stock Purchase Plan (Note 14). 300.2 3 2,704
________ ___ ______
Balance--March 31, 1995. . . . . . . . . 63,002.1 $630 $61,820
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Purchase of treasury stock (Note 9). . .
Issuance of stock in connection
with acquisitions . . . . . . . . . . . 843.7 9 11,435
Stock warrants and options exercised . . 1,841.6 17 3,705
Tax benefit associated with exercise
of stock options and warrants (Note 13) 7,613
Shares issued upon acquisition of minority
interests (Note 19) 258.1 3 3,547
Shares issued in connection with
Employee Stock Purchase Plan (Note 14). 368.2 4 3,392
________ ___ ______
Balance--March 31, 1996. . . . . . . . . 66,313.7 $663 $91,512
======== === ======
COLUMNS CONTINUED ON NEXT PAGE
F-6
36 AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY - (Continued)
Years Ended March 31, 1996, 1995 and 1994
_________________________________________
Cumulative
Retained Translation Treasury
(In thousands) Earnings Adjustments Stock
______________ _________ ___________ ________
Balance--April 1, 1993 . . . . . . . . . $81,871 $(104) $(1,482)
Two-for-one stock split (Note 9)
Net earnings. . . . . . . . . . . . . . . 20,290
Foreign currency translation adjustment . (367)
Stock warrants and options exercised. . .
Tax benefit associated with exercise
of stock options and warrants (Note 13).
Shares issued upon acquisition of
minority interests (Note 19) . . . . . .
Shares issued in connection with
Employee Stock Purchase Plan (Note 14) .
_______ ____ _____
Balance--March 31, 1994 . . . . . . . . .$102,161 $(471) $(1,482)
Net earnings. . . . . . . . . . . . . . . 31,479
Foreign currency translation adjustment . 2
Retirement of treasury stock. . . . . . . 1,482
Purchase of treasury stock (Note 9) . . . (5,969)
Issuance of stock in connection
with acquisitions. . . . . . . . . . . .
Stock warrants and options exercised. . .
Tax benefit associated with exercise
of stock options and warrants (Note 13).
Shares issued in connection with
Employee Stock Purchase Plan (Note 14) .
_______ ____ ______
Balance--March 31, 1995 . . . . . . . . .$133,640 $(469) $(5,969)
Net earnings. . . . . . . . . . . . . . . 39,720
Foreign currency translation adjustment . 59
Purchase of treasury stock (Note 9) . . . (22,947)
Issuance of stock in connection
with acquisitions. . . . . . . . . . . .
Stock warrants and options exercised. . .
Tax benefit associated with exercise
of stock options and warrants (Note 13).
Shares issued upon acquisition of minority
interests (Note 19). . . . . . . . . . .
Shares issued in connection with
Employee Stock Purchase Plan (Note 14) .
_______ ____ ______
Balance--March 31, 1996 . . . . . . . . .$173,360 $(410) $(28,916)
======= === ======
See accompanying notes to consolidated financial statements.
F-6, Continued
37 AIRGAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended March 31,
1996 1995 1994
____ ____ ____
Cash Flows From Operating Activities
Net earnings . . . . . . . . . . . . . . . . . . $39,720 $31,479 $20,290
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . 45,762 36,868 30,571
Deferred income taxes . . . . . . . . . . . . 10,868 11,549 8,189
Equity in earnings of unconsolidated affiliates (1,428) (840) (1,258)
Gain on sale of investment in CBI
Industries, Inc. . . . . . . . . . . . . . -- (560) --
(Gain)/Loss on sale of plant and equipment. . (12) 110 (63)
Minority interest in earnings . . . . . . . . 663 669 317
Stock issued for employee benefit plan expense 3,396 2,707 550
Changes in assets and liabilities, excluding
effects of business acquisitions:
Trade receivables, net. . . . . . . . . . . (5,300) (1,179) (5,444)
Inventories . . . . . . . . . . . . . . . . (2,509) (1,874) 1,626
Prepaid expenses and other current assets . (960) 198 (546)
Accounts payable, trade. . . . . . . . . . (1,461) 2,934 3,799
Accrued expenses and other current
liabilities. . . . . . . . . . . . . . . . 4,485 1,332 4,548
Other assets and liabilities, net . . . . . (1,202) (3,441) (4,804)
______ ______ ______
Net cash provided by operating activities. 92,022 79,952 57,775
Cash Flows From Investing Activities ______ ______ _______
Capital expenditures . . . . . . . . . . . . . . (41,236) (36,712) (21,318)
Proceeds from sale of plant and equipment. . . . 3,968 2,563 1,914
Business acquisitions, net of cash acquired. . .(153,605) (86,342) (93,375)
Purchase of investment in CBI Industries, Inc. . -- (17,026) --
Proceeds from sale of investment in CBI
Industries, Inc. . . . . . . . . . . . . . . . -- 17,892 --
Other, net . . . . . . . . . . . . . . . . . . . 860 116 (287)
_______ ______ ______
Net cash used by investing activities. . . .(190,013) (119,509) (113,066)
Cash Flows From Financing Activities _______ _______ ______
Proceeds from borrowings . . . . . . . . . . . . 692,414 394,193 195,292
Repayment of debt. . . . . . . . . . . . . . . .(594,931) (359,253) (150,844)
Financing costs. . . . . . . . . . . . . . . . . (136) (230) (6)
Repurchase of treasury stock . . . . . . . . . . (22,947) (5,969) --
Exercise of options and warrants . . . . . . . . 3,722 1,270 3,493
Net overdraft. . . . . . . . . . . . . . . . . . 4,068 4,591 2,459
Other financing activities . . . . . . . . . . . 15,745 4,960 5,120
_______ ______ ______
Net cash provided by financing activities. . 97,935 39,562 55,514
_______ ______ ______
Effects of discontinued activities, net. . . . . 56 (5) (223)
_______ ______ ______
Cash Increase (Decrease) . . . . . . . . . . . . -- -- --
Cash--beginning of year. . . . . . . . . . . . . -- -- --
______ ______ ______
Cash--End of Year. . . . . . . . . . . . . . . . $ -- $ -- $ --
====== ====== ======
For supplemental cash flow disclosures see Note 18.
See accompanying notes to consolidated financial statements.
F-7
38
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Airgas, Inc. and
subsidiaries (the "Company"). Unconsolidated affiliates are accounted for on
the equity method and generally consist of 20-50% owned operations where
control does not exist or is considered temporary. The excess of the cost of
these affiliates over the Company's share of their net assets at the
acquisition date is being amortized over 20 to 40 years. Significant
intercompany accounts and transactions are eliminated.
The Company has made estimates and assumptions relating to the reporting
of assets and liabilities and disclosure of contingent assets and liabilities
to prepare these statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market with cost for
approximately 81% and 77% percent of the inventories at March 31, 1996 and
1995, respectively, determined by the first-in, first-out (FIFO) method. Cost
for the remainder of inventories was determined using the last-in, first-out
(LIFO) method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful lives of the related assets.
Effective April 1, 1993, the Company changed its estimate of the useful
lives of its acetylene and high pressure cylinders from 20 to 30 years. This
change was made to better reflect the estimated periods during which these
assets will remain in service. The change had the effect of reducing
depreciation expense in 1994 by approximately $3.1 million and increasing net
earnings by $1.9 million or $.03 per share.
The Company changed the estimated useful life of cylinders as a result of
thorough studies and analyses. The studies considered technological advances
in cylinders, empirical data obtained from cylinder manufacturers and other
industry experts and experience gained from the Company's maintenance of a
cylinder population of approximately two million cylinders.
In the first quarter of fiscal 1997, the Company will adopt SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The statement requires the recognition of an impairment
loss for an asset held for use when the estimate of undiscounted future cash
flows expected to be generated by the asset is less than its carrying amount.
Measurement of the impairment loss is based on fair value of the asset.
Management believes that the adoption of this statement will not have a
material impact on earnings, financial condition or liquidity of the Company.
F-8
39
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(d) Other Assets
Costs related to the acquisition of long-term debt are deferred and
amortized over the term of the related debt. Costs and payments pursuant to
noncompetition arrangements entered into in connection with business
acquisitions are amortized over the terms of the arrangements which are
principally over 5 years. On an ongoing basis, management reviews the
valuation and amortization of intangible assets.
(e) Goodwill
Goodwill represents costs in excess of net assets of businesses acquired
and is amortized on a straight-line basis over the expected periods to be
benefited, which currently ranges from 20 to 40 years. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted future cash flows.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
(g) Foreign Currency Translation
The functional currency of the Company's foreign operations is the
applicable local currency. The translation of foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates
in effect at the balance sheet date and for revenue and expense accounts using
average exchange rates during each reporting period. The gains or losses, net
of applicable deferred income taxes, resulting from such translations are
included in stockholders' equity. Gains and losses arising from foreign
currency transactions are reflected in the consolidated statements of earnings
as incurred.
(h) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk are limited due to the Company's large number of
customers and their dispersion across many industries. Credit terms granted to
customers are generally net 30 days.
F-9
40
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(i) Revenue Recognition
Sales are recorded upon shipment to the customer.
(j) Financial Instruments
In hedging interest rate exposure, the Company enters into interest rate
swap agreements. These instruments are not entered into for trading purposes
and the Company has the ability and intent to hold these instruments to
maturity. The Company only uses non-leveraged instruments. When interest
rates change, the difference to be paid or received is accrued and recognized
as interest expense over the life of the agreement. The fair values of the
Company's financial instruments are estimated based on quoted market prices
for the same or similar issues.
The carrying amounts for accounts receivable, accounts payable and
current portion of long-term debt approximate fair value because of the
short-term maturity of these financial instruments.
(k) Reclassification
Certain reclassifications have been made in previously issued financial
statements to conform to the current presentation.
(2) ACQUISITIONS
The Company has acquired businesses primarily engaged in the distribution
of industrial, medical and specialty gases and related equipment .
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.
1996 - During 1996, the Company purchased 42 businesses. The largest of
these acquisitions and their effective dates included Tech-Weld, Inc. (April
3, 1995), Trinity Welding Supply, Inc. (May 1, 1995), Red-D-Arc, Limited (June
29, 1995), Capital Welding Supply, Inc. (August 1, 1996), Langdon Oxygen
Company (October 5, 1995), Acetylene Gas Company (January 1, 1996), Iatech
Sales Co. (January 1, 1996), Welders Equipment Company (February 1, 1996) and
Braun Welding Supply, Inc. (March 1, 1996). The aggregate purchase price for
these acquisitions amounted to approximately $164 million. The purchase price
for the remaining 33 businesses amounted to approximately $73 million.
1995--During 1995, the Company purchased 25 businesses. The
largest of these acquisitions and their effective dates included The Jimmie
Jones Company (August 1, 1994) and Post Welding Supply (November 1, 1994).
The aggregate purchase price for these acquisitions amounted to approximately
$83 million. The purchase price for the remaining 23 businesses
amounted to approximately $44 million.
F-10
41
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS - (Continued)
1994--During 1994, the Company purchased 18 businesses. The
largest of these acquisitions and their effective dates included General
Welding Supply Co. (July 1, 1993), PDI Western Distributing Group, Inc. (July
1, 1993), Phoenix Northeast Distributors Group, Inc. (September 1, 1993) and
certain operations of The BOC Group, Inc. (February 1, 1994). The aggregate
purchase price for these acquisitions amounted to approximately $90 million.
The purchase price for the remaining 14 businesses amounted to
approximately $31 million.
In connection with the above business acquisitions, the total purchase
price, fair value of assets acquired, cash paid and liabilities assumed were
as follows:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
Cash paid . . . . . . . . . . . . . . . . . . $141,916 $ 82,258 $ 89,782
Issuance of Airgas common stock . . . . . . . 11,443 775 --
Notes issued to sellers . . . . . . . . . . . 27,820 11,340 5,808
Notes payable assumed and capital leases. . . 4,073 9,067 4,276
Other liabilities assumed and accrued
acquisition costs. . . . . . . . . . . . . . 51,505 23,376 20,806
______ ______ ______
Total purchase price allocated to assets
acquired. . . . . . . . . . . . . . . . . . $236,757 $126,816 $120,672
======= ======= =======
Also, as discussed in note 19, the Company has accounted for the
acquisition of subsidiary minority interests in 1996, 1995 and 1994 using the
purchase method of accounting.
In connection with certain acquisitions, the Company is required to make
future payments to sellers based on future earnings of the acquired business
in excess of predetermined amounts. Such payments, if any, are capitalized as
an additional cost of the acquisition. Amounts payable under contingent
payment terms continue through 1997 and are limited to $2.1 million. To-date,
the Company has made aggregate payments of $1.1 million under these contingent
terms. In addition, certain other acquisitions require the issuance of Airgas
common stock if the Airgas common stock price at certain dates during 1999 is
less than a previously established price.
The purchase price for business acquisitions and minority interests were
allocated to the assets acquired and liabilities assumed based on their
estimated fair values. Costs in excess of net assets acquired (goodwill) for
1996, 1995 and 1994 amounted to $81.3 million, $40.8 million and $9.9 million,
respectively.
F-11
42
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS - (Continued)
The following presents unaudited estimated pro forma operating results as
if the 1996 and 1995 acquisitions had been consummated on April 1, 1994. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made as of April 1, 1994 or of results which may occur in the future.
Years Ended March 31,
_____________________
(In thousands except per share amounts) 1996 1995
_______________________________________ ____ ____
Net sales . . . . . . . . . . . . . . . . . . . $938,877 $911,818
Net earnings. . . . . . . . . . . . . . . . . . 36,229 25,700
Earnings per share: . . . . . . . . . . . . . . .54 .39
Subsequent to March 31, 1996, the Company has acquired ten distribution
businesses with annual sales of approximately $105 million for an aggregate
purchase price of approximately $96 million.
(3) EARNINGS PER SHARE
Primary and fully diluted earnings per share amounts were determined
using the Treasury Stock method.
(4) INVENTORIES
Inventories consist of: March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Finished goods. . . . . . . . . . . . . . . . . . . $85,626 $65,693
Raw materials . . . . . . . . . . . . . . . . . . . 1,879 1,315
______ ______
87,505 67,008
Less reduction to LIFO cost . . . . . . . . . . . . (1,343) (1,061)
______ ______
$86,162 $65,947
====== ======
F-12
43 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Land and land improvements . . . . . . . . . . . . $ 20,066 $ 17,571
Buildings and leasehold improvements . . . . . . . 58,153 43,714
Machinery and equipment, including cylinders . . . 472,868 376,284
Transportation equipment . . . . . . . . . . . . . 33,724 25,944
Construction in progress . . . . . . . . . . . . . 1,517 1,470
_______ _______
$586,328 $464,983
======= =======
Depreciation and amortization of plant and equipment charged to operations
amounted to $32.0 million, $26.3 million and $21.1 million in 1996, 1995 and
1994, respectively.
(6) OTHER NONCURRENT ASSETS
Other noncurrent assets include:
March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Investment in unconsolidated affiliates (Note 10). $ 9,332 $ 5,473
Noncompete agreements and other intangible
assets, at cost, net of accumulated
amortization of $46.7 million in 1996
and $37.4 million in 1995 . . . . . . . . . . . . 47,530 31,955
Other assets. . . . . . . . . . . . . . . . . . . . 4,086 3,960
______ ______
$60,948 $41,388
====== ======
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities include:
March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Cash overdraft. . . . . . . . . . . . . . . . . . . $15,706 $11,638
Insurance payable and related reserves. . . . . . . 5,297 6,304
Customer cylinder deposits. . . . . . . . . . . . . 7,058 6,242
Other accrued expenses and current liabilities. . . 44,218 36,007
______ ______
$72,279 $60,191
====== ======
The cash overdraft is attributable to the float of the Company's outstanding
checks.
F-13
44 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(8) INDEBTEDNESS
(a) Long-term debt consists of the following:
March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Revolving credit borrowings . . . . . . . . . . . . $314,804 $202,585
Senior subordinated notes . . . . . . . . . . . . . 20,000 27,857
Acquisition notes . . . . . . . . . . . . . . . . . 50,392 26,532
Industrial Development Board revenue bonds. . . . . 2,491 3,450
All other notes, at various rates and maturities. . 10,324 11,326
_______ _______
Total long-term debt. . . . . . . . . . . . . . . . 398,011 271,750
Less current installments . . . . . . . . . . . . . (12,179) (11,780)
_______ _______
Long-term debt, excluding current installments. . . $385,832 $259,970
======= =======
During 1996, the Company amended and increased its unsecured revolving
credit facility with various commercial banks from $250 million to $375
million , and converted the facility to a five-year revolver maturing on
August 10, 2000. The revolving credit facility also provides for the issuance
of letters of credit up to $150 million. Under the terms of the revolving
credit facility, interest is payable quarterly. At March 31, 1996, $66
million of money market based borrowings were outstanding under the revolving
credit facility with effective rates of 5.57%. At March 31, 1996, $105
million of Libor based borrowings were outstanding under the revolving credit
facility with effective rates of 5.98%. At the Company's option, borrowings
under the revolving credit facility may be prime based, Libor based or
Certificate of Deposit based in each case plus an applicable margin.
The Company has an additional $100 million unsecured line of credit with
a group of commercial banks which matures in July 1997 and provides for
borrowings at the Libor rate plus an applicable margin ($100 million
outstanding at 5.76% as of March 31, 1996). The Company intends to terminate
its $100 million facility in conjunction with an anticipated increase in the
Company's $375 million revolving credit facility in September 1996, which will
have terms and conditions similar to its existing $375 million facility.
The Company has a CDN $50 million Canadian credit facility ($37 million
U.S.) with various commercial banks which matures on November 14, 1998. At
March 31, 1996, the Company had approximately CDN $33 million ($24 million
U.S.) in borrowings outstanding under the facility, resulting in unused
availability under the facility of approximately CDN $17 million ($13 million
U.S.).
The Company also has unsecured line of credit agreements with various
commercial banks. At March 31, 1996, these agreements totaled $60 million,
under which the Company had aggregate outstanding borrowings of $19 million,
at 5.61%.
F-14
45
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(8) INDEBTEDNESS - (Continued)
Senior subordinated notes with an original face value aggregating $55
million require semi-annual interest payments at 11.375%. Equal annual
principal payments of $4.3 million for $12.8 million of the senior
subordinated notes continue through August 1998 and equal annual principal
payments of $3.6 million for $7.2 million of the senior subordinated notes
continue through July 1997.
Acquisition notes represent notes issued to sellers of businesses
acquired and are repayable in periodic installments including interest at an
average rate of 7.5%. Some acquisition notes require balloon payments which
are included in the aggregate maturity schedule.
Industrial development revenue bonds have variable interest rates ranging
from 60% to 75% of the prime rate. The bonds mature at various dates between
1996 and 2006. Certain bonds are redeemable at the option of the issuer. The
bonds are secured by mortgages on certain plant and equipment.
Certain of the Company's credit facility agreements contain restrictive
covenants which include the maintenance of a minimum equity level, maintenance
of certain financial ratios and restrictions on additional borrowings and
dividend payments.
The aggregate maturities of long-term debt for the five years ending
March 31, 2002 and thereafter are as follows (in thousands):
Years Ending March 31, Aggregate Maturity
______________________ __________________
1997 . . . . . . . . . . . . . . . . . . . $ 12,179
1998 . . . . . . . . . . . . . . . . . . . 126,121
1999 . . . . . . . . . . . . . . . . . . . 37,204
2000 . . . . . . . . . . . . . . . . . . . 12,017
2001 . . . . . . . . . . . . . . . . . . . 200,754
2002 and thereafter. . . . . . . . . . . . 9,736
_______
$398,011
=======
The fair value of long term debt as of March 31, 1996 was approximately $400
million based on current rates offered to the Company by financial
institutions for similar type instruments.
(b) Swap Agreements
In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into
18 interest rate swap agreements during the period from June 1992 through
March 31, 1996, including two forward starting swaps. The interest rate swap
agreements are with major financial institutions having a total notional
principal amount of $224 million at March 31, 1996.
F-15
46
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(8) INDEBTEDNESS - (Continued)
Approximately $205 million of the swap agreements require fixed interest
payments based on an average effective rate of 6.53% for remaining periods
ranging between 1 and 8 years. The remaining $19 million of swap agreements
require floating rates (5.53% at March 31, 1996). The effect of the swap
agreements was to increase interest expense $1.3 million and $1.2 million in
1996 and 1995, respectively. Under the terms of seven of the swap
agreements, the Company has elected to receive the discounted value of the
counterparty's interest payments upfront. At March 31, 1996, approximately
$23 million of such payments were included in other liabilities.
The Company continually monitors its positions and the credit ratings of
its counterparties, and does not anticipate nonperformance by the
counterparties. The fair market value of these swaps was $2.9 million below
their carry value at March 31, 1996.
The aggregate maturities of the Company's interest rate swaps by type of
swap for the five years ending March 31, 2001 and thereafter are as follows
(in thousands):
Notional Principal Amounts
__________________________
Years Ending March 31, Pay-Fixed Receive-Fixed
______________________ _________ _____________
1997 . . . . . . . . . . . . . $ 0 $ 0
1998 . . . . . . . . . . . . . 30,000 0
1999 . . . . . . . . . . . . . 12,500 7,500
2000 . . . . . . . . . . . . . 26,179 12,000
2001 . . . . . . . . . . . . . 66,178 0
2002 and thereafter. . . . . . 70,000 0
_______ ______
$204,857 $19,500
======= ======
(9) STOCKHOLDERS' EQUITY
(a) Common Stock
On March 22, 1996, the Company's Board of Directors declared a two-for-
one stock split to stockholders of record on April 1, 1996, payable on April
15, 1996. Stock options and other rights to acquire the Company's common
stock reflect the split. The Statements of Stockholders' Equity have been
restated to account for the stock split as if it had occurred on April 1,
1993. All references to the number of shares, except shares authorized,
reflect the stock split.
(b) Preferred Stock and Redeemable Preferred Stock
The Company is authorized to issue 20 million shares of preferred stock.
At March 31, 1996 and 1995, no shares were outstanding. The preferred stock
may be issued from time to time by the Board of Directors in one or more
series, and the Board of Directors is authorized to fix the dividend rights
and terms, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences, and any other rights, preferences, privileges and
restrictions of any series of Preferred Stock, and the number of shares
constituting each such series and designation thereof.
F-16
47
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) STOCKHOLDERS' EQUITY - (Continued)
Additionally, the Company is authorized to issue 30,000 shares of
redeemable preferred stock. At March 31, 1996 and 1995, no shares were
outstanding.
(c) Treasury Stock
The Company's Board has approved a four million share common stock
repurchase program. Through March 31, 1996, the Company purchased 2.4 million
shares of the Company's common stock at an aggregate cost of $28.9 million.
The impact of the stock repurchases on earnings per share amounts was
immaterial for 1996. The future purchase of common stock is dependent on
prevailing market conditions.
(d) Stock Options
The Company has a stock option plan for officers and key employees and
has reserved 14,080,000 shares under this plan. Options are granted on terms
and conditions determined by a committee of the Board of Directors. At March
31, 1996, 3,774,546 options were available for issuance.
The following table summarizes the activity of the plan during the three
years ended March 31, 1996: Number Price Per
of Shares Share
__________ _________
March 31, 1994
Outstanding, beginning of year . . . . . . . . 5,033,292 $1.46 - $3.49
Granted. . . . . . . . . . . . . . . . . . . . 1,339,320 6.32 - 8.57
Exercised. . . . . . . . . . . . . . . . . . . (1,055,408) 1.46 - 3.49
Expired. . . . . . . . . . . . . . . . . . . . (66,304) 1.83 - 6.32
March 31, 1995
Outstanding, beginning of year . . . . . . . . 5,250,900 1.46 - 8.57
Granted. . . . . . . . . . . . . . . . . . . . 1,004,600 11.32 - 14.71
Exercised. . . . . . . . . . . . . . . . . . . (424,060) 1.46 - 7.89
Expired. . . . . . . . . . . . . . . . . . . . (2,500) 3.30 - 6.32
March 31, 1996
Outstanding, beginning of year . . . . . . . . 5,828,940 1.83 - 14.71
Granted. . . . . . . . . . . . . . . . . . . . 974,020 11.44 - 17.31
Exercised. . . . . . . . . . . . . . . . . . . (589,010) 1.83 - 11.32
Expired. . . . . . . . . . . . . . . . . . . . (14,490) 3.30 - 13.32
Outstanding, end of year . . . . . . . . . . . 6,199,460 $ 1.83 -$17.31
The Company maintains a stock option plan covering Directors who are not
employees which has 800,000 shares reserved. At March 31, 1996, 400,000
options were available for issuance.
F-17
48
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) STOCKHOLDERS' EQUITY - (Continued)
The following table summarizes the activity of the plan during the three
years ended March 31, 1996:
Number Price Per
of Shares Share
__________ _________
March 31, 1994
Outstanding, beginning of year . . . . . . . . 248,000 $2.10 - $4.16
Granted. . . . . . . . . . . . . . . . . . . . 56,000 8.57
Exercised. . . . . . . . . . . . . . . . . . . (32,000) 2.10 - 2.21
March 31, 1995
Outstanding, beginning of year . . . . . . . . 272,000 2.10 - 8.57
Granted. . . . . . . . . . . . . . . . . . . . 40,000 13.82
March 31, 1996
Outstanding, beginning of year . . . . . . . . 312,000 2.10 - 13.82
Granted. . . . . . . . . . . . . . . . . . . . 40,000 13.50
Outstanding, end of year . . . . . . . . . . . 352,000 $2.10 - $13.82
(e) Stock Purchase Warrants
The Company and the Chairman of the Company were parties to a Stock and
Warrant Issuance Agreement, as amended (the "Warrant Agreement"), which was
entered into in connection with the Company's acquisition of US Airgas, Inc.,
of which the Chairman was the majority shareholder, in May 1986. Pursuant to
the Warrant Agreement, the Chairman received warrants to purchase a total of
14,127,432 shares of the Company's common stock. Subsequent to the grant
dates, the Chairman transferred warrants to purchase 2,976,800 shares of
common stock to employees of the Company and to certain other individuals.
As of May 1, 1996, all warrants had been exercised or had expired.
F-18
49
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) STOCKHOLDERS' EQUITY - (Continued)
The following table summarizes the activity of the stock purchase
warrants during the three years ended March 31, 1996.
Number Price Per
of Shares Share
__________ _________
March 31, 1994
Outstanding, beginning of year . . . . . . . . 2,105,680 $1.68 - $2.19
Exercised. . . . . . . . . . . . . . . . . . . (481,400) 1.76 - 2.19
March 31, 1995
Outstanding, beginning of year . . . . . . . . 1,624,280 1.68 - 2.19
Exercised. . . . . . . . . . . . . . . . . . . (114,800) 1.76 - 2.19
March 31, 1996
Outstanding, beginning of year . . . . . . . . 1,509,480 1.76 - 2.19
Exercised. . . . . . . . . . . . . . . . . . . (1,252,568) 1.76 - 2.19
Cancelled. . . . . . . . . . . . . . . . . . . (12,712)
Outstanding, end of year . . . . . . . . . . . 244,200 $1.76 - $2.19
(f) Shareholder Rights Plan
Under the terms of a Shareholder Rights Plan, preferred share purchase
rights were distributed during 1988 as a dividend at the rate of one right for
each common share. The number of rights outstanding is subject to adjustment
under certain circumstances and all rights expire on August 1, 1998. The
rights are not exercisable until a person or entity acquires twenty percent of
the Company's common stock. Each right will entitle the holder to buy $16.25
worth of the Company's common stock at an exercise price of $8.13.
(g) Stock-Based Compensation
The Company accounts for stock options according to the provisions of
Accounting Principles Board Opinion 25 (APB 25), "Accounting for Stock Issued
to Employees." In October 1995, the Financial Accounting Standards Board
issued FASB Statement No. 123, "Accounting for Stock-Based Compensation." The
new standard defines a fair value method of accounting for stock options and
similar equity instruments. Companies may elect to continue to use existing
accounting rules or adopt the fair value method for expense recognition.
Companies that elect to continue to use existing accounting rules will be
required to provide pro-forma disclosures of net income and earnings per share
assuming the fair value method was adopted. The Company will elect to
continue to use existing accounting rules. The new statement is effective for
fiscal years beginning after December 15, 1995. Accordingly, the Company will
adopt the provisions in the first quarter of fiscal 1997 and present the
required pro-forma disclosure provisions for its fiscal year ending March 31,
1997. As the Company will continue to account for stock-based compensation
using the intrinsic value method, this statement will not have a material
impact on earnings, financial condition or liquidity of the Company.
F-19
50
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) INVESTMENT IN UNCONSOLIDATED AFFILIATES
At March 31, 1996, the Company's investment in unconsolidated affiliates
totaled $9.3 million and includes Elkem-American Carbide Company (U.S.),
Poligaz SA (Poland) and Bhoruka Gases, Ltd. (India). The Company's share of
earnings from unconsolidated affiliates was $1.4 million, $840 thousand and
$1.3 million for the years ended March 31, 1996, 1995 and 1994, respectively.
(11) INTEREST EXPENSE, NET
Interest expense, net, consists of:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
Interest expense. . . . . . . . . . . . . . . $25,854 $18,476 $13,189
Interest and finance charge income. . . . . . (992) (851) (703)
______ ______ ______
$24,862 $17,625 $12,486
====== ====== ======
(12) OTHER INCOME, NET
Other income, net, consists of:
Years Ended March 31,
___________________________
(In thousands) 1995 1994 1993
______________ ____ ____ ____
Gain on sale of investment in CBI
Industries, Inc. . . . . . . . . . . . . . . $ -- $ 560 $ --
Other income,net . . . . . . . . . . . . . . 782 507 453
_____ _____ ___
$ 782 $1,067 $453
===== ===== ===
(13) INCOME TAXES
Pre-tax earnings were derived from the following sources:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
United States . . . . . . . . . . . . . . . . $66,810 $54,239 $35,621
Foreign . . . . . . . . . . . . . . . . . . . 1,432 1,134 696
______ ______ ______
$68,242 $55,373 $36,317
====== ====== ======
F-20
51
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) INCOME TAXES - (Continued)
Income tax expense consisted of:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
Current:
Federal . . . . . . . . . . . . . . . . . $14,657 $ 9,997 $ 6,515
Foreign . . . . . . . . . . . . . . . . . 699 573 326
State . . . . . . . . . . . . . . . . . . 2,298 1,775 997
______ ______ ______
17,654 12,345 7,838
______ ______ ______
Deferred:
Federal . . . . . . . . . . . . . . . . . . 9,660 9,829 6,827
Foreign . . . . . . . . . . . . . . . . . . 34 47 61
State . . . . . . . . . . . . . . . . . . . 1,174 1,673 1,301
______ ______ ______
10,868 11,549 8,189
______ ______ ______
$28,522 $23,894 $16,027
====== ====== ======
Significant differences between taxes computed at the federal statutory
rate and the provision for income taxes were:
Years Ended March 31,
___________________________
1996 1995 1994
____ ____ ____
Taxes at U.S. federal statutory rate . . . . . . 35.0% 35.0% 35.0%
Increase in income taxes resulting from:
State income taxes, net of federal benefit . . . 3.3 4.0 4.1
Increase in statutory rate on deferred tax items -- -- 4.5
Amortization of non-deductible goodwill. . . . . 1.8 1.8 2.3
Adjustment of federal and state accruals . . . . -- -- (4.5)
Other, net . . . . . . . . . . . . . . . . . . . 1.7 2.4 2.7
____ ____ ____
41.8% 43.2% 44.1%
==== ==== ====
F-21
52
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) INCOME TAXES - (Continued)
The significant components of deferred income tax expense attributable to
earnings for the years ended March 31, 1996, 1995 and 1994 are as follows:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
Deferred tax expense (exclusive of the
effects of other components listed below). . $10,868 $11,549 $ 8,189
Adjustments to deferred tax assets and
liabilities for enacted changes in tax laws
and rates. . . . . . . . . . . . . . . . . . -- -- 663
Adjustment of federal and state accruals. . . -- -- (663)
______ _____ _____
$10,868 11,549 $ 8,189
====== ====== =====
The tax effects of cumulative temporary differences that gave rise to the
significant portions of the deferred tax liability and deferred tax asset were
as follows:
March 31,
_______________________
(In thousands) 1996 1995
______________ ____ ____
Deferred Tax Assets:
____________________
Inventories . . . . . . . . . . . . . . . . . . $ 1,396 $ 1,368
Accounts Receivable . . . . . . . . . . . . . . 553 885
Deferred Rental Income. . . . . . . . . . . . . 809 880
Insurance Reserves. . . . . . . . . . . . . . . 1,339 1,791
Other Reserves. . . . . . . . . . . . . . . . . 2,487 2,296
AMT Credit Carryforwards. . . . . . . . . . . . 2,184 3,079
Other . . . . . . . . . . . . . . . . . . . . . 1,151 1,185
______ ______
9,919 11,484
______ ______
Deferred Tax Liabilities:
_________________________
Property and equipment. . . . . . . . . . . . . (91,371) (70,787)
Intangible Assets . . . . . . . . . . . . . . . (605) (2,734)
Other . . . . . . . . . . . . . . . . . . . . . (3,412) (286)
______ ______
(95,388) (73,807)
______ ______
Net Deferred Tax Liability . . . . . . . . . . . $(85,469) $(62,323)
====== ======
The Company has recorded tax benefits amounting to $7.6 million, $1.9
million and $3.6 million in 1996, 1995 and 1994, respectively, resulting from
the exercise of stock options and warrants. This benefit has been recorded in
capital in excess of par value.
F-22
53
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) INCOME TAXES - (Continued)
The Internal Revenue Service is currently conducting an examination of
the Company's federal income tax returns for the years ended March 31, 1993
and 1994. Management believes that the results of this examination will not
have a material effect on the Company's earnings, financial condition, or
liquidity.
(14) BENEFIT PLANS
(a) Pension and Profit Sharing Plans
The Company has a defined contribution 401(k) plan covering substantially
all full-time employees. Under the terms of the plan, the Company makes
matching contributions up to two percent of participants' wages plus
additional discretionary profit sharing contributions based upon the
profitability of the Company. Amounts expensed under the plan for 1996, 1995
and 1994 were $5.1 million, $4.7 million and $3.3 million, respectively.
During 1993, the Company authorized termination of two defined benefit
pension plans effective December 31, 1992. At December 31, 1995, the plans'
projected benefit obligations approximate the plans' net assets available for
benefits. The settlement of the vested benefit obligations by the purchase of
nonparticipating annuity contracts or lump-sum payments for covered employees
is not expected to result in a significant gain or loss.
Certain subsidiaries of the Company participate in multi-employer
pension plans which provide defined benefits to union employees. Contributions
are made to the plans in accordance with negotiated labor contracts. The
Company has not taken any action to terminate or withdraw from these plans.
Management believes that the Company's liability, if any, for multi-employer
plan withdrawal liability will not have a material effect on the Company's
financial position, results of operations, or liquidity. Amounts expensed
under these plans for 1996, 1995 and 1994 were $482 thousand, $418 thousand
and $227 thousand, respectively.
(b) Employee Stock Purchase Plan
, The Company has established an employee stock purchase plan (the
"Plan") to encourage and assist employees to acquire an equity interest in the
Company. The Plan is authorized to issue 2 million shares of common stock.
Generally, employees may elect to have 1 to 15 percent of their gross pay
withheld to buy Airgas, Inc. common stock at 85 to 95 percent of the market
value depending upon base salary levels. Market value under the Plan is
either the employees' enrollment date market value or the quarterly purchase
date market value, whichever is lower. An employee may lock-in a purchase
price for up to 27 months. The Plan is designed to comply with the
requirements of section 423 of the Internal Revenue Code.
F-23
54
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) BENEFIT PLANS - (Continued)
Under the Plan, 368,194, 300,204 and 59,470 shares were issued at an
average purchase price of $9.22, $9.02 and $9.00 per share during 1996, 1995
and 1994, respectively.
(c) Other Employee Benefits
The Company sponsors a multi-employer postretirement medical benefit plan
for certain employees of one subsidiary under a collective bargaining
agreement. In accordance with SFAS 106 "Employers Accounting for
Postretirement Benefits Other Than Pensions" and APB Opinion No. 16 "Business
Combinations", the postretirement benefit obligation was recorded at the
acquisition date.
The net postretirement benefit expense was $98 thousand and $88 thousand
for the years ended March 31, 1996 and 1995 , respectively. The Company's
unfunded accumulated postretirement benefit obligation was $896 thousand and
$837 thousand at March 31, 1996, and 1995, respectively.
In determining the accumulated postretirement benefit obligation, the
discount rate used to estimate the actuarial present value of other
postretirement benefits was 7.50% and 8.25% at March 31, 1996 and 1995,
respectively. The assumed rate of increase in the health care cost trend rate
for employees less than age 65 was 8.25% and 9.75% for March 31, 1996 and
1995, declining gradually to 5.25% and 6.0%, respectively, over the next four
years. For employees 65 and older, the assumed rate of increase was 6.16% and
6.62% for March 31, 1996 and 1995, declining gradually to 5.25% and 5.5%,
respectively, over the next four years. A 1% increase in the healthcare cost
trend rate would have increased net postretirement benefit expense
approximately $18 thousand and the APBO approximately $139 thousand at March
31, 1996.
(15) RELATED PARTIES
The Chairman and Vice President -- Corporate Development, were partners
in the law firm which provides legal services to the Company. During the years
ended March 31, 1996, 1995 and 1994, fees paid to the law firm totaled $754
thousand, $525 thousand, and $551 thousand, respectively.
The Company is a party to a sales agency agreement for the sale of
carbon products with a company which is a greater than five percent
stockholder and a director of that company is also a former director of the
Company. The sales agency agreement expires in October 2003. During the years
ended March 31, 1996, 1995 and 1994, the Company paid $685 thousand, $543
thousand and $515 thousand, respectively, under this agreement.
F-24
55
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(15) RELATED PARTIES - (Continued)
A member of the Company's board of directors is the president of a
regional producer and distributor of industrial gases and related equipment
in the Southeastern United States. During the years ended March 31, 1996,
1995 and 1994, this company paid $987 thousand, $914 thousand and $1.1
million, respectively, to a joint venture of the Company for the purchase of
calcium carbide. In addition, this company paid $604 thousand and $546
thousand to the Company for other gas purchases in 1996 and 1995,
respectively.
(16) LEASES
The Company leases certain distribution facilities and equipment under
long-term operating leases with varying terms. Most leases contain renewal
options and in some instances, purchase options. Rentals under these long-term
leases (exclusive of real estate taxes, insurance, and other expenses payable
under the terms of the leases) for the years ended March 31, 1996, 1995 and
1994, amounted to $17.8 million, $14.5 million and $9.7 million, respectively.
Additionally, the Company leases certain operating facilities from employees
of the Company who were previous owners of businesses acquired at market
rates.
The Company entered into certain operating leases for real estate with a
trust established by a commercial bank. The trust is committed to purchase
real estate properties up to an aggregate amount of $25 million. The trust
holds title to the properties and leases the properties to the Company. The
rental payments are based on Libor plus an applicable margin and the cost of
the property acquired by the trust. The Company has entered into interest
rate swap agreements in a notional principal amount of $10 million to hedge
the effects of fluctuations in the Libor based rental rate. At the expiration
of the leases in 1999, the Company has the option to purchase the real
properties at fair value or assist in the sale of the properties to a third
party. The Company has guaranteed a portion of the debt outstanding against
these properties in the event the proceeds of a sale are not sufficient to
cover the trust's investment in the properties. At March 31, 1996, the
Company had a contingent guarantee of approximately $7.6 million related to
leased facilities.
The Company has also entered into certain operating leases for cylinders
and bulk tanks. At the expiration of the leases in 1998, the Company has the
option to purchase equipment at a fixed price, assist in the sale of the
equipment to third parties, or renew the lease for a period of one year. The
Company has guaranteed a portion of the cost of the equipment in the event the
proceeds of a sale are not sufficient to cover the lessor's investment in the
equipment. At March 31, 1996, the Company had a contingent guarantee of $2.8
million related to equipment under such leases.
F-25
56
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At March 31, 1996, future minimum lease payments under noncancellable
operating leases are as follows: (in thousands)
____________
1997 . . . . . . . . . . . . . . . . . . $17,248
1998 . . . . . . . . . . . . . . . . . . 15,264
1999 . . . . . . . . . . . . . . . . . . 12,845
2000 . . . . . . . . . . . . . . . . . . 10,319
2001 . . . . . . . . . . . . . . . . . . 7,424
2002 and thereafter. . . . . . . . . . . 16,435
______
$79,535
======
(17) COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal and regulatory 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 consolidated financial position, results of operations or liquidity.
(18) CASH FLOWS
Cash paid for interest expense and income taxes was as follows:
Years Ended March 31,
___________________________
(In thousands) 1996 1995 1994
______________ ____ ____ ____
Interest . . . . . . . . . . . . . . . . . . . $25,107 $19,011 $13,502
Income taxes (net of refunds). . . . . . . . . 10,325 11,411 5,333
====== ====== ======
The total purchase price, fair value of assets acquired, cash paid and
liabilities assumed for business acquisitions is described in note 2.
During 1996 and 1995, the Company entered into capital lease obligations
for approximately $912 thousand and $3.7 million, respectively.
During 1995, the Company retired 3.8 million shares of treasury stock.
(19) MINORITY INTEREST IN SUBSIDIARIES
Minority interests in subsidiaries represent the minority shareholders'
proportionate share of the equity and the results of operations of certain
subsidiaries. Under the terms of exchange rights agreements between the
Company and minority shareholders, the Company, under certain circumstances,
may require or permit exchange of the minority interests of a subsidiary
for common stock of the Company. The agreements provide the minority
shareholders with the right to exchange their subsidiary shares for common
stock of the Company at certain exchange dates designated by the Board of
Directors. Each exchange will be based on the fair value of the subsidiary's
shares and the market price of the Company's common stock as of a valuation
date designated by the Board of Directors.
On August 31, 1995 and February 28, 1994 , in connection with optional
exchanges, certain minority shareholders elected to exchange
F-26
57
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
their minority interests for an aggregate of 258,116 and 166,732 shares of
common stock, respectively. The market price of the Company's common stock on
August 31, 1995 and February 28, 1994 was $13.75 and $10.438 per share,
respectively . The acquisition of the minority interests has been recorded
using the purchase method of accounting.
During 1996, 1995 and 1994, the Company sold minority interests in
certain of its subsidiaries to employees based on the estimated fair market
value of the subsidiary shares. These sales of subsidiary shares were
accounted for as capital transactions and, therefore, no gain or loss was
recorded.
(20) SUMMARY BY BUSINESS SEGMENT
The Company, through its subsidiaries, is principally engaged in two
related businesses: 1) the distribution of industrial, medical and specialty
gases, and related equipment and 2) the manufacture of products for the
industrial gas and metals industries.
Industrial, medical and specialty gases are distributed through the
Company's subsidiaries which operate in five divisions with locations in 38
states, Canada and Mexico. The industrial gas distribution market is broad and
includes most major industries.
Products manufactured by the Company include nitrous oxide, a gas with
applications in the medical, food packaging and certain high technology
electronic industries and calcium carbide and carbon products for the
production of acetylene gas and for the non-ferrous metal industry.
(In thousands) Distribution Manufacturing Total
______________ ____________ _____________ _____
1996
Net sales . . . . . . . . . . . . . . . $801,552 $ 36,592 $838,144
Operating income . . . . . . . . . . . . 86,130 6,855 92,985
Assets . . . . . . . . . . . . . . . . . 846,129 37,513 883,642
Depreciation and amortization. . . . . . 44,386 1,376 45,762
Additions to plant and equipment
excluding business acquisitions. . . . . 39,755 1,481 41,236
1995
Net sales. . . . . . . . . . . . . . . . 654,381 33,602 687,983
Operating income . . . . . . . . . . . . 66,521 6,079 72,600
Assets . . . . . . . . . . . . . . . . . 613,320 32,317 645,637
Depreciation and amortization. . . . . . 35,548 1,320 36,868
Additions to plant and equipment
excluding business acquisitions. . . . . 35,961 751 36,712
1994
Net sales . . . . . . . . . . . . . . . 486,836 32,513 519,349
Operating income . . . . . . . . . . . . 42,399 6,268 48,667
Assets . . . . . . . . . . . . . . . . . 487,701 27,196 514,897
Depreciation and amortization. . . . . . 29,101 1,470 30,571
Additions to plant and equipment
excluding business acquisitions. . . . . 20,515 803 21,318
F-27
58
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(20) SUMMARY BY BUSINESS SEGMENT - (continued)
Corporate operating expenses are allocated between the Company's
distribution and manufacturing business segments based on relative sales
dollars.
(21) SUPPLEMENTARY INFORMATION (UNAUDITED)
Summary By Quarter
This table summarizes the unaudited results of operations for each
quarter of 1996 and 1995:
(In thousands, except per share data) First Second Third Fourth
_____________________________________ _____ ______ _____ ______
1996
Net sales . . . . . . . . . . . . . . . $194,272 $199,030 $208,549 $236,293
Operating income. . . . . . . . . . . . 22,037 22,144 22,984 25,820
Net earnings. . . . . . . . . . . . . . 9,454 9,335 9,817 11,114
Net earnings per share (1), (2):. . . . $ .15 $ .14 $ .15 $ .17
1995
Net sales . . . . . . . . . . . . . . . $159,462 $164,986 $174,112 $189,423
Operating income. . . . . . . . . . . . 15,701 17,115 18,577 21,207
Net earnings. . . . . . . . . . . . . . 6,789 7,460 7,790 9,440
Net earnings per share (1), (2):. . . . $ .10 $ .11 $ .12 $ .14
__________________
(1) Earnings per share calculations for each of the quarters are based on the
weighted average number of shares outstanding in each period. Therefore,
the sum of the quarters do not necessarily equal the full year earnings
per share.
(2) See notes 3 and 9 to the Company's consolidated financial statements for
information regarding earnings per share calculations and adjustment for
the stock split effective April 15, 1996.
F-28
59
SCHEDULE II
CONSOLIDATED
AIRGAS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1996, 1995 and 1994
(In thousands of dollars)
Column A Column B Column C
________ ________ ________
Additions
_________
Charged
Balance at Charged to (Credited)
Beginning Cost and to Other
Description of Period Expense Accounts
____________ _________ __________ ____________
1996 Accounts Receivable --
Allowance for doubtful accounts . . $ 4,161 $ 2,719 $ 1,313 (1)
LIFO cost reserve . . . . . . . . . 1,061 282 --
Insurance reserves. . . . . . . . . 6,304 19,510 262
1995 Accounts Receivable --
Allowance for doubtful accounts . . $ 4,207 $ 3,102 $ 1,033 (1)
LIFO cost reserve . . . . . . . . . 659 402 --
Insurance reserves. . . . . . . . . 5,341 17,038 132
1994 Accounts Receivable --
Allowance for doubtful accounts . . $ 3,392 $ 2,884 $ 1,155 (1)
LIFO cost reserve . . . . . . . . . 465 194 --
Insurance reserves. . . . . . . . . 7,046 13,031 165
(COLUMNS CONTINUED ON NEXT PAGE)
F-29
60
SCHEDULE II
CONSOLIDATED
AIRGAS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1996, 1995 and 1994
(In thousands of dollars)
(Columns Continued)
Column A Column D Column E
________ ________ ________
Balance
at End of
Description Deductions Period
____________ ______________ ________
1996 Accounts Receivable --
Allowance for doubtful accounts . . . $ (4,797) (2) $ 3,396
LIFO cost reserve . . . . . . . . . . -- 1,343
Insurance reserves. . . . . . . . . . (20,779) 5,297
1995 Accounts Receivable --
Allowance for doubtful accounts . . . $ (4,181) (2) $ 4,161
LIFO cost reserve . . . . . . . . . . -- 1,061
Insurance reserves. . . . . . . . . . (16,207) 6,304
1994 Accounts Receivable --
Allowance for doubtful accounts . . . $ (3,224) (2) $ 4,207
LIFO cost reserve . . . . . . . . . . -- 659
Insurance reserves. . . . . . . . . . (14,901) 5,341
________
(1) Includes collections on accounts previously written-off and allowances for
doubtful accounts of businesses acquired less the allowance for doubtful
accounts of businesses sold.
(2) Write-off of uncollectible accounts.
F-29, Continued