1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: December 31, 1997
_____________________________
Commission file number: 1-9344
_____________________________
AIRGAS, INC.
______________________________________________________________________________
(Exact name of Registrant as specified in its charter)
Delaware 56-0732648
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
259 Radnor-Chester Road, Suite 100
Radnor, PA 19087-5240
_______________________________________ ________________
(Address of principal executive offices) (ZIP code)
(610) 687-5253
__________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
______ ______
Common Stock outstanding at January 30, 1998: 70,394,728 shares
2
AIRGAS, INC.
FORM 10-Q
December 31, 1997
INDEX
PART I - FINANCIAL INFORMATION
______________________________
Consolidated Balance Sheets as of December 31, 1997
and March 31, 1997....................................................3
Consolidated Statements of Earnings
for the Three Months Ended December 31, 1997 and 1996.................5
Consolidated Statements of Earnings
for the Nine Months Ended December 31, 1997 and 1996..................6
Consolidated Statements of Cash Flows
for the Nine Months Ended December 31, 1997 and 1996..................7
Notes to Consolidated Financial Statements.................................8
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................14
PART II - OTHER INFORMATION
___________________________
Legal Proceedings.........................................................26
Exhibits and Reports on Form 8-K..........................................27
Signatures................................................................28
3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
AIRGAS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
1997 1997
(Unaudited)
_____________ ________
ASSETS
____________________________________________
Current Assets
Trade receivables, less allowances for
doubtful accounts of $5,780 at December 31,
1997 and $4,443 at March 31, 1997 $172,077 $151,053
Inventories 158,689 129,372
Prepaid expenses and other current assets 36,641 31,574
_________ _________
Total current assets 367,407 311,999
_________ _________
Plant and Equipment, at cost 901,032 736,083
Less accumulated depreciation and amortization (217,117) (183,922)
_________ _________
Plant and equipment, net 683,915 552,161
Other Non-current Assets, net 166,437 132,257
Goodwill, net of accumulated amortization of
$37,320 at December 31, 1997 and $29,503
at March 31, 1997 379,429 294,614
_________ _________
Total assets $1,597,188 $1,291,031
========= =========
See accompanying notes to consolidated financial statements.
4
AIRGAS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except per share amounts)
December 31, March 31,
1997 1997
(Unaudited)
___________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Current Liabilities
Current portion of long-term debt $ 18,433 $ 25,158
Accounts payable, trade 69,403 74,329
Accrued expenses and other current liabilities 107,090 87,663
_________ _________
Total current liabilities 194,926 187,150
_________ _________
Long-Term Debt 808,808 629,931
Deferred Income Taxes 134,267 104,266
Other Non-current Liabilities 36,888 29,565
Minority Interest in Subsidiaries 4,299 3,462
Stockholders' Equity
Common stock $.01 par value, 200,000 shares
authorized, 71,238 and 68,762
shares issued at December 31, 1997 and
March 31, 1997, respectively 713 688
Capital in excess of par value 189,228 155,543
Retained earnings 242,353 196,626
Cumulative translation adjustment (752) (468)
Treasury stock, 931 and 800 common shares at
cost at December 31, 1997 and March 31, 1997 (13,542) (15,732)
_________ _________
Total stockholders' equity 418,000 336,657
_________ _________
Total liabilities and stockholders' equity $1,597,188 $1,291,031
========= =========
See accompanying notes to consolidated financial statements.
5 AIRGAS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended Three Months Ended
December 31, 1997 December 31, 1996
__________________ __________________
Net sales:
Distribution $272,958 $251,582
Direct Industrial 61,372 29,556
Manufacturing 33,480 16,065
_______ _______
Total net sales 367,810 297,203
_______ _______
Costs and expenses:
Cost of products sold
(excluding depreciation,
depletion and amortization)
Distribution 136,309 126,363
Direct Industrial 43,795 20,481
Manufacturing 15,847 9,449
Selling, distribution and
administrative expenses 118,939 94,991
Depreciation, depletion and
amortization 20,218 16,540
_______ _______
Total costs and expenses 335,108 267,824
_______ _______
Operating income:
Distribution 26,902 25,668
Direct Industrial 2,463 990
Manufacturing 3,337 2,721
_______ _______
32,702 29,379
Interest expense, net (13,456) (10,385)
Other income, net 442 213
Equity in earnings (loss) of
unconsolidated affiliates 943 (106)
Minority interest (219) (177)
_______ _______
Earnings before income taxes 20,412 18,924
Income tax expense 8,586 7,964
_______ _______
Net earnings $ 11,826 $ 10,960
======= =======
Net earnings per common and common
equivalent share
Basic $ .17 $ .16
======= =======
Diluted $ .17 $ .16
======= =======
Common and common equivalent shares
outstanding
Basic 69,580 67,350
======= =======
Diluted 71,500 70,200
======= =======
See accompanying notes to consolidated financial statements.
6 AIRGAS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended Nine Months Ended
December 31, 1997 December 31, 1996
__________________ __________________
Net sales:
Distribution $ 812,395 $ 741,309
Direct Industrial 159,433 66,445
Manufacturing 87,750 42,259
_________ _______
Total net sales 1,059,578 850,013
_________ _______
Costs and expenses:
Cost of products sold
(excluding depreciation,
depletion and amortization)
Distribution 408,783 372,811
Direct Industrial 114,766 49,450
Manufacturing 41,537 25,521
Selling, distribution and
administrative expenses 338,481 270,722
Depreciation, depletion and amortization 56,809 45,801
Recovery of refrigerant losses (14,500) -
_________ _______
Total costs and expenses 945,876 764,305
_________ _______
Operating income:
Distribution 82,778 76,396
Direct Industrial 4,911 2,172
Manufacturing 11,513 7,140
Recovery of refrigerant losses 14,500 -
_______ _______
113,702 85,708
Interest expense, net (39,234) (28,419)
Other income, net 2,488 564
Equity in earnings of unconsolidated
affiliates 1,262 8
Minority interest (837) (558)
_______ _______
Earnings before income taxes 77,381 57,303
Income taxes 31,654 23,883
_______ _______
Net earnings $ 45,727 $ 33,420
======= =======
Net earnings per common and common
equivalent share
Basic $ .67 $ .51
======= =======
Diluted $ .65 $ .49
======= =======
Common and common equivalent shares
outstanding
Basic 68,240 65,400
======= =======
Diluted 70,500 68,200
======= =======
See accompanying notes to consolidated financial statements.
7 AIRGAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Nine Months Ended Nine Months Ended
December 31, 1997 December 31, 1996
__________________ __________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 45,727 $ 33,420
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation, depletion and amortization 56,809 45,801
Deferred income taxes 13,778 7,165
Equity in earnings of unconsolidated
affiliates (2,372) (988)
(Gain) loss on sale of plant and equipment (398) 214
Gain on divestiture of non-core business (1,452) -
Minority interest in earnings 837 558
Stock issued for employee benefit plan
expense 4,483 3,720
Changes in assets and liabilities,
excluding effects of business
acquisitions and divestiture:
Trade receivables, net 3,287 (854)
Inventories (12,693) (15,877)
Prepaid expenses and other
current assets (2,098) (29,567)
Accounts payable, trade (21,218) (5,805)
Accrued expenses and other current
liabilities 4,583 10,872
Other assets and liabilities, net (1,248) (10,196)
_______ _______
Net cash provided by operating activities 88,025 38,463
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (93,579) (48,080)
Proceeds from sale of plant and
equipment 2,056 1,585
Proceeds from divestiture of a business 4,000 -
Business acquisitions, net of cash acquired (101,210) (162,268)
Business acquisitions-hold back settlements (4,130) (6,828)
Investment in unconsolidated affiliates (16,086) (34,196)
Dividends from unconsolidated affiliates 1,984 1,055
Other, net 2,732 (2,085)
_______ _______
Net cash used by investing activities (204,233) (250,817)
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 309,949 801,048
Repayment of debt (172,011) (588,333)
Financing costs (362) (1,793)
Repurchase of treasury stock (31,905) (316)
Exercise of options and warrants 3,217 2,846
Net overdraft 7,320 (1,098)
_______ _______
Net cash provided by financing activities 116,208 212,354
_______ _______
CHANGE IN CASH $ 0 $ 0
Cash - beginning of period 0 0
_______ _______
Cash - end of period $ 0 $ 0
======= =======
See accompanying notes to consolidated financial statements.
8
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
_____________________
The consolidated financial statements include the accounts of Airgas,
Inc. and its subsidiaries (the "Company"). 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 is being amortized over 40 years.
Intercompany accounts and transactions are eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
financial statements. These statements do not include all disclosures
required for annual financial statements. These financial statements should
be read in conjunction with the more complete disclosures contained in the
Company's audited consolidated financial statements for the year ended March
31, 1997.
The financial statements reflect, in the opinion of management, all
adjustments (normal recurring adjustments) necessary to present fairly the
Company's consolidated balance sheets at December 31, 1997 and March 31, 1997;
the consolidated statements of earnings for the three and nine months ended
December 31, 1997 and 1996; and the consolidated statements of cash flows for
the nine months ended December 31, 1997 and 1996. The interim operating
results are not necessarily indicative of the results to be expected for an
entire year.
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation. Four businesses with
annual sales of approximately $40 million which were previously reported with
the Distribution segment are now reported with the Manufacturing segment.
(2) ACQUISITIONS
____________
From April 1, 1997 to December 31, 1997, the Company acquired seventeen
industrial gas distributors with aggregate annual sales of approximately $60
million, including two large regional distributors, Industrial Gas Products
("IGP") and JWS Technologies, Inc. The Company has also acquired two
industrial products distributors with combined annual sales of approximately
$106 million and four carbon dioxide distributors with combined annual sales
of approximately $74 million. The aggregate purchase price, which includes
amounts related to non-competition and confidentiality agreements, amounted to
approximately $249 million and includes real estate acquired of approximately
$14 million. Included in the aggregate purchase price is the issuance of
approximately 1.8 million treasury shares which were reissued in connection
with the acquisition of Carbonic Industries Corporation ("CIC"). In addition,
the Company issued approximately 1.2 million shares in connection with the
acquisition of IGP. 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.
Subsequent to December 31, 1997, the Company acquired four industrial
gas distributors with annual sales of approximately $17 million, and one
carbon dioxide distributor with annual sales of approximately $5 million.
9
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(3) NON-RECURRING GAINS
___________________
On December 23, 1996, the Company announced it was the victim of a
fraudulent breach of contract by a third-party supplier of refrigerant gas.
In connection with the fraud, the Company recorded a non-recurring pre-tax
charge during the fourth quarter of fiscal 1997 of $26.4 million
(approximately $17 million after-tax) for product losses and costs associated
with the Company's investigation into the fraud. The Distribution subsidiary
which reported the special charge in fiscal 1997 is reported with the
Manufacturing segment in fiscal 1998. On July 28, 1997, the Company reported
that it had negotiated a comprehensive settlement with all the defendants in
litigation brought by the Company to recover such losses. As a result of the
recovery, the Company recorded a non-recurring pre-tax gain during the second
quarter of $14.5 million (approximately $9.4 million after- tax). Aggregate
recoveries to date of $20.1 million represent cash received, offset by
additional costs and expenses incurred year-to-date, estimated future out-of-
pocket costs and other reserves which total $5.6 million. The Company
continues to pursue additional recoveries including proceeds from insurance
policies.
The Company also recorded a pre-tax gain, included in other income, in
the second quarter of approximately $1.5 million (approximately $980 after-
tax) related to the sale of a non-core business.
(4) EARNINGS PER SHARE
__________________
Basic earnings per share amounts were determined using the weighted
average number of shares outstanding. Diluted earnings per share amounts were
determined using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 establishes new
standards for computing and presenting earnings per share ("EPS") and requires
the disclosure of Basic and Diluted EPS, effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Effective with its third quarter ended December 31, 1997, the Company
implemented SFAS No. 128. For the Company, Diluted EPS is the same as
previously reported EPS amounts. All prior periods have been restated to
conform to the new rules. The difference between the Basic and Diluted common
equivalent shares outstanding is a result of common share equivalents related
to stock options.
10
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(5) INVENTORIES
___________
Inventories consist of:
(In thousands)
December 31, March 31,
1997 1997
___________ ________
Finished goods $157,991 $127,765
Raw materials 2,194 2,979
_______ _______
160,185 130,744
Less reduction to LIFO cost ( 1,496) (1,372)
_______ _______
$158,689 $129,372
======= =======
(6) PLANT AND EQUIPMENT
___________________
The major classes of plant and equipment are as follows:
(In thousands)
December 31, March 31,
1997 1997
_____________ _________
Land and land improvements $ 25,775 $ 21,676
Building and leasehold improvements 85,480 66,659
Cylinders 397,788 365,253
Machinery and equipment, including
bulk tanks 310,536 241,275
Transportation equipment 46,882 39,264
Construction in progress 34,571 1,956
_______ _______
$901,032 $736,083
======= =======
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AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(7) OTHER NON-CURRENT ASSETS
_______________________
Other non-current assets include:
(In thousands)
December 31, March 31,
1997 1997
_____________ _________
Investment in unconsolidated
affiliates $ 91,422 $ 64,992
Noncompete agreements and other
intangible assets, at cost, net
of accumulated amortization of
$69.8 million at December 31, 1997
and $59.8 million at March 31, 1997 64,744 54,794
Other assets 10,271 12,471
_______ _______
$166,437 $132,257
======= =======
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
______________________________________________
Accrued expenses and other current liabilities include:
(In thousands)
December 31, March 31,
1997 1997
_____________ _________
Cash overdraft $ 22,066 $ 14,746
Accrued interest 11,778 5,425
Insurance payable and related
reserves 7,293 5,224
Customer cylinder deposits 8,706 8,185
Other accrued expenses and current
liabilities 57,247 54,083
_______ _______
$107,090 $ 87,663
======= =======
12
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(9) STOCKHOLDERS' EQUITY
____________________
Changes in stockholders' equity were as follows:
(In thousands of shares)
Shares of Common Treasury
Stock $.01 Par Value Stock
____________________ _________
Balance--April 1, 1997 68,762 800
Common stock issuance (a) 2,476
Purchase of treasury stock -- 2,085
Reissuance of treasury stock (b) -- (1,954)
______ ______
Balance--December 31, 1997 71,238 931
====== ======
(In thousands of dollars)
Capital in Cumulative
Common Excess of Retained Translation Treasury
Stock Par Value Earnings Adjustment Stock
______ ___________ _________ ___________ ________
Balance--April 1, 1997 $688 $155,543 $196,626 $(468) $(15,732)
Net earnings -- -- 45,727 -- --
Common stock issuance (a) 25 13,081 -- -- --
Translation adjustments -- -- -- (284) --
Purchase of treasury
stock -- -- -- -- (30,592)
Reissuance of treasury
stock (b) -- 18,209 -- -- 32,782
Tax benefit from stock
option exercises -- 2,395 -- -- --
____ _______ _______ ____ ______
Balance--December 31,1997 $713 $189,228 $242,353 $(752) $(13,542)
==== ======= ======= ==== ======
(a) Related to the issuance of common stock for stock option exercises,
(704 thousand shares) acquisitions (1,440 thousand shares) and the
Company's Employee Stock Purchase Plan (332 thousand shares).
(b) Reissued in connection with the acquisitions of CIC and IGP.
(10) COMMITMENTS AND CONTINGENCIES
_____________________________
On July 26, 1996, Praxair, Inc. ("Praxair") filed suit against the
Company in the Circuit Court of Mobile County, Alabama. The complaint alleges
tortious interference with business or contractual relations with respect to
Praxair's Right of First Refusal contract with National Welders by the Company
in connection with the Company's formation of a joint venture with the
majority shareholders of National Welders. Praxair is seeking compensatory
damages in excess of $100 million and punitive damages. The Company believes
that Praxair's claims are without merit and intends to defend vigorously
against such claims.
13
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
On September 9, 1996, the Company filed suit against Praxair in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The complaint alleges
breach of contract, fraud, conversion and misappropriation of trade secrets
with respect to an agreement between Praxair and the Company, pursuant to
which Praxair induced the Company to provide Praxair valuable information and
conclusions developed by the Company concerning CBI Industries, Inc. ("CBI")
in exchange for Praxair's promise not to acquire CBI without the Company's
participation. The Company has alleged that it became entitled, pursuant to
such agreement, to acquire certain of CBI's assets having a value in excess of
$800 million. The Company is seeking compensatory and punitive damages.
The Company is involved in other various legal proceedings which have
arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded and determined, will
not, in the opinion of management, have a material adverse effect upon the
Company's financial condition, results of operations or liquidity.
14
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
________________
OVERVIEW
________
The Company's financial results for the third quarter ended December 31,
1997 reflect continued growth compared with the third quarter last year. Net
sales increased 24% to $367.8 million from $297.2 million in the third quarter
last year. After-tax cash flow (net earnings plus depreciation, depletion,
amortization and deferred taxes) increased by 15% to a record $34.4 million,
compared to $29.7 million for the same quarter last year. Net earnings were
$11.8 million, or $.17 per share, compared to $11.0 million, or $.16 per share
a year ago.
Growth in the industrial gas distribution business continued with the
acquisition of seventeen industrial gas distributors from April 1, 1997 to
December 31, 1997, with annual sales of approximately $60 million, including
two large regional distributors, Industrial Gas Products and JWS Technologies,
Inc. Internal growth and expansion of existing product lines resulted in
same-store sales growth of 3% and same-store gross profit growth of 3.6%
compared to the same period in the prior year.
Since April 1, 1997, Airgas Direct Industrial ("ADI") has acquired two
strategic industrial products distributors: (1) Kendeco Industrial Supply, an
"engineered-systems integrator" for the cutting tools and abrasives market
with annual sales of approximately $16 million, and (2) Lyons Safety, Inc., a
national marketer of safety and personal protection systems with annual sales
of approximately $90 million. These two acquisitions strengthen ADI's
position through the expansion of product lines (safety products and
metalworking tools) in the largest geographical market for industrial
supplies, and through additional marketing and service capabilities to larger
customers. In addition, ADI realized same-store sales growth of 16%, and
same-store gross profit growth of approximately 19%, compared to the same
period in the prior year.
The Manufacturing segment's expansion into carbon dioxide continued,
with the acquisition of four carbon dioxide distributors since April 1, 1997,
with aggregate annual sales of approximately $74 million. With these
acquisitions, the Company's combined annual sales of carbon dioxide and dry
ice products total in excess of $100 million. These acquisitions, combined
with other businesses acquired in fiscal 1997, enhance the Company's ability
to supply carbon dioxide and dry ice products through its distribution
network.
15
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The fraudulent breach of contract by a third-party supplier of
refrigerant gas was reported by the Company on December 23, 1996. In
connection with the fraud, the Company recorded a non-recurring pre-tax charge
during the fourth quarter of fiscal 1997 of $26.4 million (approximately $17
million after-tax) for product losses and costs associated with the Company's
investigation into the fraud. On July 28, 1997, the Company reported that it
had negotiated a comprehensive settlement with all defendants in the
litigation described above. As a result of the recovery, the Company recorded
a non-recurring gain in the second quarter of $14.5 million (approximately
$9.4 million after-tax). The Company continues to pursue additional
recoveries including proceeds from insurance policies.
16
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 1996
_____________________________________
Net sales increased 24% during the quarter ended December 31, 1997
compared to the same quarter in the prior year:
(in thousands)
1997 1996 Increase
____ ____ __________
Distribution $272,958 $251,582 $ 21,376
Direct Industrial 61,372 29,556 31,816
Manufacturing 33,480 16,065 17,415
_______ _______ _______
$367,810 $297,203 $ 70,607
======= ======= =======
For the quarter ended December 31, 1997, Distribution sales increased
approximately $13 million from the acquisition of 30 distributors since
October 1, 1996 and approximately $8 million from same-store sales. The
increase in same-store Distribution sales of 3% was more heavily weighted
towards lower margin hardgoods with internal growth primarily attributable to
higher sales volumes. The prior period included the benefit of approximately
$3 million in non-recurring large sales of refrigerants and sulfur
hexafluoride. Excluding these sales, the Company realized same-store sales
growth of approximately 4.3%. The Company continues to focus on internal
sales growth through the development of new gas products and product-line
extensions, including specialty gases, small bulk gases, carbon dioxide,
replacement refrigerants in returnable containers, expansion of rental welder
fleets and increased hardgoods business through ADI product lines.
The Company 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 acquisition consolidation and
integration activity. The Company estimates same-store sales based on a
comparison of current period sales to the prior period's sales, adjusted for
acquisitions. Future same-store sales growth is dependent on the economy and
the Company's ability to expand markets for new and existing products and to
increase prices.
ADI's sales include welding, metalworking, safety and other Maintenance,
Repair and Operations ("MRO") hardgoods. The internal sales growth rate for
ADI was approximately 16% during the third quarter of fiscal 1998. In
addition, ADI has completed two acquisitions in fiscal 1998 to expand product
lines, geographic coverage and enhance marketing and service capabilities.
Sales to the Distribution segment totaled approximately $700 thousand for the
quarter ended December 31, 1997 compared to approximately $244 thousand in the
same quarter in the prior year, and are eliminated in consolidation.
17
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Manufacturing segment's sales increased $17.4 million during the
third quarter primarily as a result of recent acquisitions. Strong sales of
calcium carbide and nitrous oxide were offset slightly by lower shipments of
certain carbon products. Four businesses with annual sales of approximately
$40 million which were previously reported with the Distribution segment are
now reported with the Manufacturing segment. Sales to the Distribution
segment totaled approximately $3 million for the quarter ended December 31,
1997 compared to approximately $2.3 million in the same quarter in the prior
year, and are eliminated in consolidation.
The increase in Distribution gross profits of approximately $11.4
million over the same quarter in the prior year resulted from acquisitions
which contributed approximately $6.6 million and from same-store gross profit
growth of 3.6% or approximately $4.8 million. Same-store gross profit growth
resulted primarily from sales volume growth. On a same-store basis, the
Distribution gross margin increased 30 basis points compared to the same
period in the prior year primarily as a result of higher gas margins.
Hardgoods and rent margins also improved slightly compared to the prior
period. Hardgoods accounted for 51.1% of total sales compared to 49.9% in the
same period last year. Finally, bulk tank rent related to small bulk
installations, and an increased base of rental welding equipment and the
return of third-party rented cylinders continued to help same-store gross
profit growth.
For the quarter, ADI's gross margin of 28.6% was down 210 basis points
compared to the same quarter last year as a result of fiscal 1998
acquisitions. Same-store gross profit growth of approximately $2.7 million
resulted primarily from sales volume growth.
For the quarter, the Manufacturing gross margin of 52.7% compared
favorably to the same quarter last year as a result of acquisitions completed
since October 1, 1997.
Selling, distribution, and administrative expenses ("SG&A") increased
$23.9 million compared to the same quarter last year primarily due to
acquisitions. SG&A expenses as a percentage of sales increased 30 basis
points to 32.3% compared to the same period in the prior quarter. As a
percentage of sales, increases in operating expenses were offset by ADI
acquisitions which have a lower expense-to-sales ratio than the Distribution
and Manufacturing segments. The Company anticipates additional operating
costs resulting from the consolidation of operating companies and from the
integration and standardization of information systems during fiscal years
1998, 1999 and 2000.
Depreciation, depletion and amortization increased $3.7 million compared
to the same period in the prior quarter due to acquisitions and from increased
capital expenditures.
18
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating income increased 11% during the quarter ended December 31,
1997 compared to the same quarter in the prior year:
(in thousands)
1997 1996 Increase
____ ____ __________
Distribution $ 26,902 $25,668 $ 1,234
Direct Industrial 2,463 990 1,473
Manufacturing 3,337 2,721 616
______ ______ ______
$ 32,702 $29,379 $ 3,323
====== ====== ======
The Distribution segment's operating margin decreased 30 basis points to
9.9% compared with the same period in the prior year. The decrease resulted
primarily from slightly higher operating costs and expenses, recent new hub
acquisitions which have lower operating margins and lower same-store gross
profit growth. Subject to the effects of future acquisitions and the
Company's ability to increase sales and expand gross margins, the Company
continues to focus on improving its operating margin by implementing selective
price increases, reducing costs by leveraging its national purchasing power
and continuing to integrate acquisitions.
The operating income margin for ADI increased 70 basis points to 4%
compared with the same quarter last year. The increase resulted partially
from higher same-store gross profits. The Company believes that ADI's
operating income margin will continue to be impacted by expansion costs
related to information systems, infrastructure and facility enhancements. ADI
is establishing new distribution centers in Southern California and near
Atlanta, Georgia, which will consolidate other ADI warehouses. Non-recurring
moving costs associated with the new distribution centers will impact ADI's
performance during the fourth quarter by approximately one-half penny per
share. The Company expects the distribution center in California to be
operational by March 31, 1998 and the distribution center in Georgia to be
operational by the summer of 1998.
The Manufacturing segment's operating income increased $616 thousand
compared to the same quarter last year primarily as a result of acquisitions.
Operating margin decreased to 10% compared to 17% in the same period in the
prior year as a result of recent acquisitions which have a lower operating
income margin.
Interest expense, net, increased $3.1 million compared to the same
quarter last year primarily as a result of the increase in average outstanding
debt associated with the acquisition of businesses acquired since October 1,
1996, interest costs on debt associated with the refrigerant fraud and the
repurchase of the Company's common stock.
Income tax expense represented 42.1% of pre-tax earnings in 1998 and
1997.
19
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE
NINE MONTHS ENDED DECEMBER 31, 1996
________________________________
Net sales increased 25% during the nine months ended December 31, 1997
compared to the prior year:
(in thousands)
1997 1996 Increase
____ ____ __________
Distribution $ 812,395 $ 741,309 $ 71,086
Direct Industrial 159,433 66,445 92,988
Manufacturing 87,750 42,259 45,491
_________ ________ ________
$1,059,578 $ 850,013 $ 209,565
========= ======== ========
For the nine months ended December 31, 1997, Distribution sales
increased approximately $39 million resulting from the acquisition of 37
distributors since April 1, 1996 and approximately $32 million from same-store
sales growth. The increase in same-store Distribution sales of approximately
4% was a result of sales volume growth in all three product groups: gases,
hardgoods and rent. The Company continues to focus on internal sales growth
through the development of new gas products and product-line extensions,
including specialty gases, small bulk gases, carbon dioxide, replacement
refrigerants in returnable containers, expansion of rental welder fleets and
increased hardgoods business through ADI product lines. The Company 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 acquisition consolidation and integration activity.
The Company estimates same-store sales based on a comparison of current period
sales to the prior period's sales, adjusted for acquisitions. Future
same-store sales growth is dependent on the economy and the Company's ability
to expand markets for new and existing products and to increase prices.
ADI's sales include welding, metalworking, safety and other MRO
hardgoods. The internal sales growth rate for ADI was approximately 15% for
the nine months ended December 31, 1997. Sales to the Distribution segment
totaled approximately $1.6 million for the nine months ended December 31, 1997
compared to approximately $322 thousand in the prior year, and are eliminated
in consolidation.
The Manufacturing segment's sales increased approximately $45 million
during the nine months ended December 31, 1997, primarily as a result of
acquisitions. Strong sales of calcium carbide and nitrous oxide were offset
slightly by lower sales of certain carbon products. Four businesses with
annual sales of approximately $40 million which were previously reported with
the Distribution segment are now reported with the Manufacturing segment.
Sales to the Distribution segment totaled approximately $6.7 million for the
nine months ended December 31, 1997 compared to approximately $5.2 million in
the prior year, and are eliminated in consolidation.
20
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The increase in Distribution gross profits of approximately $35 million
compared to the prior period resulted from acquisitions which contributed
approximately $17 million and from same-store gross profit growth of 4.6% or
approximately $18 million. Same-store gross profit growth resulted primarily
from sales volume growth with same-store margins increasing slightly. On a
same-store basis, the Distribution gross margin increased 20 basis points
compared to the same period in the prior year, primarily as a result of higher
gas margins. Hardgoods margins also improved slightly compared to the prior
period. Hardgoods accounted for 51.6% of total sales compared to 50.7% in the
prior period. The improvement in gas margins is attributable to non-recurring
lower margin refrigerant and sulfur hexafluoride sales in the prior period and
from selective price increases.
For the nine months ended December 31, 1997, ADI's gross margin of 28%
compared favorably to the prior year as a result of the September 1, 1996
acquisition of Rutland, which has a historical gross margin of approximately
40%. Same-store gross profit growth of approximately $6 million resulted
primarily from sales volume growth.
For the nine months ended December 31, 1997, the Manufacturing gross
margin of 52.7% compared favorably to the prior period as a result of
acquisitions.
Selling, distribution, and administrative expenses ("SG&A") increased
$67.8 million compared to the same period last year primarily due to
acquisitions. SG&A expenses as a percentage of sales of 31.9% were
essentially flat compared to the same period in the prior year. Subject to
future acquisitions, the Company believes that as it continues to integrate
acquisitions and complete start-up and expansion activities, SG&A expenses
relative to net sales should improve. The Company anticipates additional
operating costs resulting from the consolidation of operating companies and
from the integration and standardization of information systems during fiscal
years 1998, 1999 and 2000.
Depreciation, depletion and amortization increased $11 million compared
to the same period in the prior year due to acquisitions and from increased
capital expenditures.
21
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Excluding a non-recurring gain of $14.5 million, operating income
increased 15.7% in 1997 compared to 1996:
(in thousands)
1997 1996 Increase
____ ____ __________
Distribution $82,778 $76,396 $ 6,382
Direct Industrial 4,911 2,172 2,739
Manufacturing 11,513 7,140 4,373
______ ______ ______
$99,202 $85,708 $13,494
====== ====== ======
The Distribution segment's operating margin was essentially flat at 10.2%
compared with last year. Subject to the effects of future acquisitions and
the Company's ability to increase sales and expand margins, the Company
continues to focus on improving its operating margin by implementing selective
price increases, reducing costs by leveraging its national purchasing power
and continuing to integrate acquisitions.
For the nine months ended December 31, 1997, the operating income margin
for ADI decreased 20 basis points to 3.1% compared with last year. The
Company believes that ADI's operating income margin will continue to be
impacted by expansion costs related to information systems, infrastructure and
facility enhancements. ADI is establishing new distribution centers in
Southern California and near Atlanta, Georgia which will consolidate other ADI
warehouses. Non-recurring moving costs associated with the new distribution
centers will impact ADI's performance during the fourth quarter by
approximately one-half penny per share. The Company expects the distribution
center in California to be operational by March 31, 1998 and the distribution
center in Georgia to be operational by the summer of 1998.
The Manufacturing segment's operating income increased $4.4 million
compared to last year primarily as a result of acquisitions. Operating margin
decreased to 13% compared to 17% in the prior year as a result of recent
acquisitions which have a lower operating income margin.
During the second quarter ended of fiscal 1998, the Company recorded a
non-recurring pre-tax gain of approximately $14.5 million (approximately $9.4
million after-tax). See Note 3 to the Company's consolidated financial
statements for further discussion of the non-recurring gain.
Interest expense, net, increased $10.8 million compared to the prior
year primarily as a result of the increase in average outstanding debt
associated with the acquisition of distribution businesses acquired since
April 1, 1996, the joint venture investment in National Welders, interest
costs and debt associated with the refrigerant fraud, and the repurchase of
the Company's common stock. 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, excluding non-recurring gains, represented 42.5% of
pre-tax earnings in the nine months ended December 31, 1997 compared to 41.7%
in the prior year. The increase in the effective income tax rate was primarily
a result of non-deductible goodwill from recent acquisitions.
22
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The Company has financed its operations, capital expenditures, stock
repurchases, and acquisitions with borrowings, the issuance of common stock
and funds provided by operating activities.
Cash flows from operating activities totaled $88 million ($73.5 million
excluding the non-recurring gain from partial recovery of refrigerant losses)
for the nine months ended December 31, 1997. Depreciation, depletion and
amortization represent $56.8 million of cash flows from operating activities.
Deferred income taxes of $13.8 million resulted from temporary differences.
Cash flows from working capital components decreased $28.1 million as a result
of a decrease in accounts payable due to the timing of invoice payments, an
increase in inventory levels to meet increased sales volumes, offset by an
increase in accounts receivable associated with higher same-store sales. Days
sales outstanding improved slightly compared to the March 31, 1997 levels and
distribution hardgoods days' supply of inventory has improved approximately 8%
since March 31, 1997.
Cash used by investing activities totaled $204.2 million which was
primarily comprised of $93.6 million for capital expenditures, and $121.4
million related to acquisitions and investments in unconsolidated affiliates.
The Company's use of cash for capital expenditures was attributable to
the construction of two air separation plants, the continued assimilation of
acquisitions which require expenditures for combining cylinder fill plants,
the improvement of truck fleets, the purchase of cylinders in order to return
cylinders rented from third parties and the purchase of cylinders and bulk
tanks necessary to facilitate gas sales growth. Through December 31, 1997,
the Company incurred capital expenditures of approximately $30.1 million
related to air separation plant construction and expects additional capital
expenditures of approximately $5 million to complete the construction of the
plants. Both plants became operational in January 1998. For the nine months
ended December 31, 1997, approximately $29 million of capital expenditures
were for the purchase of cylinders, bulk tanks and machinery and equipment.
The Company estimates that its Distribution maintenance capital expenditures
are approximately 1 to 2% of net sales. The Company considers the replacement
of existing capital assets to be maintenance capital expenditures.
Financing activities provided cash of $116.2 million with total debt
outstanding increasing by $172 million from March 31, 1997. Funds from
financing activities were used primarily for acquisitions, capital
expenditures and the repurchase of Airgas common stock.
Effective December 5, 1997, the Company entered into an amended credit
facility which replaced and combined four previous bank credit facilities.
This amended facility consists of a US$725 million and a C$100 million
unsecured revolving credit facility with various commercial banks which
matures on December 5, 2002. At December 31, 1997, the Company had
approximately US$438 million in borrowings and approximately C$56 million
(US$39 million) borrowings under the facility and approximately US$99 million
committed under letters of credit, resulting in aggregate unused availability
under the facility of approximately US$221 million. There were no other
significant changes in the terms, conditions or covenants of the amended
facility compared to the previous credit facilities.
23
Item 2. AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
In fiscal 1997, the Company commenced a medium-term note program which
provides for the issuance of its securities with an aggregate public offering
price of up to $450 million. During fiscal 1997, the Company issued the
following long-term debt under the medium-term note program: $100 million of
unsecured notes due September 2006 bearing interest at a fixed rate of 7.75%;
$50 million of unsecured notes due September 2001 bearing interest at a fixed
rate of 7.15%; and $75 million of unsecured notes due March 2004 at a fixed
rate of 7.14%. The proceeds from the medium-term note issuances were used to
repay bank debt.
At December 31, 1997, the effective interest rate related to outstanding
borrowings under all credit lines was approximately 6.38%. 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
25 interest rate swap agreements during the period from June 1992
through December 31, 1997. The swap agreements are with major financial
institutions and aggregate $403 million in notional principal amount at
December 31, 1997. Approximately $253 million of the notional principal
amount of the swap agreements require fixed interest payments based on an
average effective rate of 6.63% for remaining periods ranging between 1 and 8
years. Six swap agreements require floating rates ($149.5 million notional
amount at 5.72% at December 31, 1997). 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 December 31, 1997, approximately
$15.2 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 acquisition candidates
and other available sources. Subsequent to December 31, 1997, the Company
acquired four industrial gas distributors with annual sales of approximately
$17 million, and one carbon dioxide distributor with annual sales of
approximately $5 million.
As the Company integrates and standardizes certain information systems
during fiscal 1998, 1999 and 2000, the Company expects to enter into
obligations and purchase certain capital equipment aggregating an estimated
$18 to $24 million.
In October 1997, the Airgas Board of Directors approved the repurchase
of up to an additional 2,000,000 shares of common stock from time-to-time to
offset share issuances for stock options, the Employee Stock Purchase Plan,
and acquisitions. Together with previously granted authority, this increases
the total repurchase program to a potential 4.6 million shares. Through the
nine months ended December 31, 1997, the Company has repurchased 2,885,200
shares under previous repurchase programs. Approximately 3 million shares
were reissued in connection with the acquisition of Carbonic Industries
Corporation and Industrial Gas Products.
24
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has initiated a project to integrate and standardize its
financial general ledger information systems prior to the Year 2000. As a
result of this information system standardization, the Company expects these
systems to be Year 2000 compliant. The Company is also conducting a
comprehensive review of its other information and operations systems to
identify the systems that may not function properly in the Year 2000 and
thereafter, and is developing an implementation plan to take appropriate
corrective action if necessary. The Company has not yet assessed its Year
2000 compliance expense. The Company currently believes that, with
modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for the Company's
information and operations systems so modified and converted. However, if
such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the operations of the Company.
The Company does not currently pay dividends.
OTHER
_____
New Accounting Pronouncements
In the first quarter of fiscal 1998, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial-
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
This statement is effective for transfer and servicing of financial assets and
extinguishments of liabilities for fiscal years beginning after December 15,
1996 and is to be applied prospectively. The adoption of this statement had
no material impact on earnings, financial condition or liquidity of the
Company.
In the first quarter of fiscal 1998, the Company adopted Statement of
Position 96-1 (SOP), which prescribes generally accepted accounting principles
for environmental remediation liabilities. This SOP more specifically
identifies future, long-term monitoring and administration expenditures as
remediation liabilities that need to be accrued on the balance sheet as an
existing obligation. This SOP is effective for fiscal years beginning after
December 15, 1996. The adoption of this statement did not have a material
impact on earnings, financial condition or liquidity of the Company.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128
establishes new standards for computing and presenting earnings per share,
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Effective with its third quarter ended
December 31, 1997, the Company implemented SFAS No. 128. For the Company,
Diluted earnings per share is the same as previously reported earnings per
share amounts. All prior periods have been restated to conform to the new
rules.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
25
Item 2. AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company plans to adopt this accounting
standard in the first quarter of fiscal 1999, as required. The adoption of
this standard will not impact earnings, financial condition, or liquidity, but
will require the Company to classify items of other comprehensive income in a
financial statement and display the accumulated balance of other comprehensive
income separately in the equity section of the balance sheet.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will adopt this accounting
standard in the first quarter of fiscal 1999, as required. The adoption of
this standard will not impact 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, complete and integrate
strategic acquisitions to enter new markets and expand existing business; the
ability to develop new products and product-line extensions; continued
availability of financing to provide additional sources of funding for future
acquisitions; capital expenditure requirements and foreign investments;
expenses associated with the Company's new ADI Division; the effects of
competition from independent distributors and vertically integrated gas
producers on products and pricing and 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; the Company's ability to pursue claims and
recoveries in connection with the fraudulent breach of contract related to
refrigerant R-12 purchases; the expenses associated with Year 2000 compliance;
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. The Company does
not undertake to update any forward-looking statement made herein or that may
be made from time to time by or on behalf of the Company.
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On July 26, 1996, Praxair, Inc. ("Praxair") filed suit against the
Company in the Circuit Court of Mobile County, Alabama. The complaint
alleges tortious interference with business or contractual relations with
respect to Praxair's Right of First Refusal contract with the majority
shareholders of National Welders Supply Company, Inc. ("National
Welders") by the Company in connection with the Company's formation of a
joint venture with National Welders. Praxair is seeking compensatory
damages in excess of $100 million and punitive damages. On February 24,
1997, the court entered an order denying the Company's motion to dismiss
for forum non conveniens. The Company believes that Praxair's claims are
without merit and intends to defend vigorously against such claims.
On September 9, 1996, the Company filed suit against Praxair in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The complaint
alleges breach of contract, fraud, conversion and misappropriation of
trade secrets with respect to an agreement between Praxair and the
Company, pursuant to which Praxair induced the Company to provide
Praxair valuable information and conclusions developed by the Company
concerning CBI Industries, Inc. ("CBI") in exchange for Praxair's
promise not to acquire CBI without the Company's participation. The
Company has alleged that it became entitled, pursuant to such agreement,
to acquire certain of CBI's assets having a value in excess of $800
million. The Company is seeking compensatory and punitive damages. On
January 2, 1997, the court entered an order overruling Praxair's
preliminary objections to the Company's complaint and ordering Praxair
to file an answer to the complaint. Praxair has since filed an answer
and asserted various defenses. Thereafter, Praxair filed a motion for
judgement on the pleadings. On July 31, 1997, the Court entered an order
denying that motion.
The fraudulent breach of contract by a third-party supplier of
refrigerant gas was reported by the Company on December 23, 1996. The
Company continues to pursue additional recoveries including proceeds
from insurance policies.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
________
4.1. Ninth Amended and Restated Credit Agreement dated as of
December 5, 1997 among Airgas, Inc., Airgas Canada Inc., Red-D-Arc
Limited and Airgas Ontario Inc., Nationsbank, N.A. as U.S. Agent
and Canadian Imperial Bank of Commerce, as Canadian Agent.
11. Calculation of earnings per share.
27. Financial Data schedule
27
b. Reports on Form 8-K
___________________
On October 9, 1997, the Company filed a Form 8-K pursuant to Item 5,
commenting on its earnings estimates for the second quarter ended
September 30, 1997.
On October 24, 1997, the Company filed a Form 8-K pursuant to Item 5,
reporting its earnings for the second quarter ended September 30, 1997.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 12, 1998 /s/ Thomas C. Deas, Jr.
_________________ _______________________
Date Thomas C. Deas, Jr.
Vice President &
Chief Financial Officer