ITEM 1. BUSINESS.
GENERAL
Airgas, Inc. and subsidiaries ("Airgas" or the "Company") is the largest distributor of industrial, medical and specialty gases (delivered in "packaged" or cylinder form) and related welding supplies and equipment, and the third largest distributor of safety products in the United States. Airgas also produces and distributes dry ice and liquid carbon dioxide in the United States. Airgas' distribution network consists of approximately 700 locations in 44 states, including branch locations, distribution centers, catalog operations, inbound call centers and outbound telemarketing operations. Sales were $1.54 billion, $1.56 billion and $1.45 billion in fiscal years 2000, 1999 and 1998, respectively.
The Company's operating segments consist of Distribution and Gas Operations. Financial information by business segment can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A"), "Financial Statements and Supplementary Data", and Note 22 to the Company's consolidated financial statements under Item 8. Descriptions of the operating segments are as follows:
DISTRIBUTION
The Distribution segment accounts for approximately 90% of consolidated sales and reflects the distribution of industrial, medical and specialty gases, safety products, and industrial tools and supplies. The Distribution segment also includes the equity in earnings from a joint venture with National Welders Supply Company, Inc., which is a producer and distributor of industrial, medical and specialty gases and related welding supplies and equipment.
Principal Products and Services
The Distribution segment's principal products and services include packaged and small bulk gases, gas cylinder and welding equipment rental and hardgoods. Gas sales include industrial, medical and specialty gases such as: nitrogen, oxygen, argon, helium, acetylene, carbon dioxide, nitrous oxide, hydrogen, welding gases, ultra high purity grades and special application blends. Rent is derived from gas cylinders, cryogenic liquid containers, bulk storage tanks and through the rental of welding equipment. Gas and rent represent approximately 42%, 40% and 40% of the Distribution segment's sales in each of the fiscal years 2000, 1999 and 1998, respectively. Hardgoods consist of welding supplies and equipment, safety products, and industrial tools and supplies, certain of which are considered as maintenance, repair and operations ("MRO") products. In each of the fiscal years 2000, 1999 and 1998, hardgoods sales represent approximately 58%, 60% and 60% of the Distribution segment's sales, respectively (see Note 22 of the Company's Consolidated Financial Statements for additional information regarding segment sales).
Principal Markets and Methods of Distribution
The Company believes the North American market for industrial, medical and specialty gases to be approximately $9.5 billion annually. The industry has three principal modes of distribution: on-site supply, bulk or merchant supply and cylinder ("packaged gas") supply. On-site supply accounts for approximately 74% of the gas volume delivered in North America. Bulk or merchant supply accounts for 23% of the volume, and packaged gas supply accounts for 3% of the volume delivered annually. However, the packaged gas supply mode accounts for 34% of the value, or $3.2 billion, of the industrial, medical and specialty gases sold in North America. The bulk or merchant supply mode accounts for an additional 34% of the value of annual gas sales. Airgas' market focus has been on the packaged gas segment of the market and on small bulk customers.
Airgas is the largest distributor of packaged gases in the United States with approximately a 14% market share. The Company's competitors in the packaged gases market are approximately 900 independent distributors that serve approximately 45% of the market through a fragmented distribution network. Large distributors, including vertically integrated gas producers such as Praxair, Inc. ("Praxair"), Air Products and Chemicals, Inc. ("Air Products"), Liquid Air Corporation of America ("Air Liquide"), and BOC Gases Group ("BOC Gases"), serve the remaining 41% of the packaged gas market.
The Company estimates the United States market for hardgoods products, including welding supplies and equipment, safety products, and industrial tools and supplies, to be approximately $55 billion annually. The market for hardgoods products is highly fragmented and is serviced through multiple distribution channels. Airgas offers its lines of hardgoods products through branch stores, direct sales representatives, telemarketing, e-commerce and catalogs. The Company believes its share of the hardgoods market is less than 2%. Competition at the local level consists primarily of small, branch-based distribution companies. At the national level, Airgas competes with large, branch-based and direct marketers, such as W.W. Grainger, Inc., Vallen Corporation and MSC Industrial Direct, Inc., as well as the large integrated gas producers.
Customer Base
The Company's customer base is broad and includes many major industries. The Company estimates the following industry segments account for the indicated percentages of the Company's total sales:
- - Manufacturing (56%) - principally producers of fabricated metal products (16%), industrial and transportation equipment (9%), chemical products (8%), and primary metal products (6%); - - Service Sector (10%) - principally medical and health services (4%); - - Agriculture and Mining (8%); - - Construction (7%); - - Wholesale Trade (6%); and - - All Other (13%).
Suppliers
The Company purchases industrial, medical and specialty gases pursuant to requirements contracts from national and regional producers of industrial gases. The Company also manufactures certain gases, including acetylene, nitrous oxide, nitrogen, oxygen and argon. The Company believes that if a contractual arrangement with any supplier of gases or other raw materials was terminated, it would be able to locate alternative sources of supply without disruption of service. The Company purchases hardgoods from major manufacturers and suppliers. For certain products, the Company has negotiated national purchasing arrangements.
GAS OPERATIONS
The Gas Operations segment produces and distributes certain gas products, principally dry ice, carbon dioxide, specialty gases and nitrous oxide. The Company also operates two air separation plants that produce oxygen, nitrogen and argon which are sold to on-site customers and to the Distribution segment. A description of the businesses included in the Gas Operations segment is as follows:
Dry Ice
The Company is a producer and distributor of dry ice in the United States. Customers include food processors, wholesale trade and supermarkets. The dry ice business generally experiences a higher level of sales in the second and third quarters of the fiscal year due to weather- related demand. The Company's carbon dioxide requirements (dry ice is the solid form of carbon dioxide) come from internal sources with the balance purchased from the major producers of carbon dioxide.
Carbon Dioxide
The Company is a producer and distributor of liquid carbon dioxide. Carbon dioxide requirements are primarily obtained from carbon dioxide reserves owned by the Company and through a 50% joint venture. The joint venture also produces and sells liquid carbon dioxide to other producers of industrial gases. The Company operates carbon dioxide reserves and a related pipeline which are located in Mississippi and Louisiana. Carbon dioxide from the Company's reserves is also sold to competitors, including Praxair and BOC Gases. The Company believes the United States bulk supply market for liquid carbon dioxide is approximately $400 million annually. The largest customer segments include food and beverage producers, chemical producers and oil and gas extraction. The Company primarily competes with three major carbon dioxide companies, Praxair, BOC Gases and Air Liquide, which produce over 80% of the United States merchant carbon dioxide volumes.
Specialty and Other Gases
The Company operates six "A" labs, full scale testing and blending facilities, which blend various special application gas mixes, ultra high purity grade gases, pure hydrocarbon mixtures, EPA protocol gases, and vehicle emission standard gases. Gas mixtures are used in process control, final product qualification and emissions monitoring. Specialty gases produced are primarily sold to the Distribution segment (see Note 22 of the Company's Consolidated Financial Statements for disclosure related to segment sales). The third-party customer base for these products consists primarily of research facilities and biotechnology, pharmaceutical, food processing and environmental-related businesses. Gas Operations also provides technical support to 32 "B" labs, limited scale testing and blending facilities, which are operated by the Distribution segment. The "A" and "B" labs perform testing and certification services for gas purity.
Nitrous Oxide
The Company is a manufacturer of nitrous oxide gas. 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 electronics industries. The Company's market focus includes bulk customers as well as sales to the Distribution segment. The Company purchases the raw materials utilized in its nitrous oxide production pursuant to contracts with major manufacturers and suppliers.
The Company believes that if a contractual arrangement with any Gas Operations segment supplier was terminated, it would not have a material adverse effect on operations. However, two of the Company's 14 dry ice production facilities are located on property owned by BOC Gases. If the current arrangements with BOC Gases were terminated, the Company's dry ice production capabilities may be reduced.
AIRGAS GROWTH STRATEGIES
The Company's strategy is to focus on internal growth, supplemented by packaged gas distributor acquisitions. To enhance internal growth, the Company has selectively added complementary product offerings in order to leverage its distribution network.
The industrial gas distribution industry continues to undergo a consolidation, which Airgas believes will present opportunities to acquire industrial gas distributors. The Company believes that its competitive advantages in acquiring distributors are its extensive distribution network, its well-organized acquisition program, its flexibility in structuring acquisitions to meet sellers' needs and its ability to offer sellers and their employees a continuing role in the Company. In seeking to acquire gas distributors, the Company competes with the large vertically integrated gas producers and other independent distributors.
The Company has financed distributor acquisitions primarily with debt and internally generated funds. The Company has been able to obtain debt financing due to its ability to generate cash flow from operating activities. The cost and terms of any future financing arrangement depend on the market conditions and the Company's financial position at that time.
REGULATORY AND ENVIRONMENTAL MATTERS
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 regulations. The Company believes that it is in compliance, in all material respects, with such laws and regulations. Expenditures for environmental purposes during fiscal 2000 were not material.
INSURANCE
The Company has established insurance programs to cover workers' compensation, business automobile, general and product liability. These programs have self-insured retention of $500,000 per occurrence. Estimated losses are accrued based upon the Company's experience for the aggregate liability for claims incurred and claims incurred but not reported. The Company believes its insurance reserves are adequate.
EMPLOYEES
On March 31, 2000, the Company employed approximately 8,000 employees of whom approximately 5% were covered by collective bargaining agreements. The Company believes it has good relations with its employees and has not experienced a significant strike or work stoppage.
PATENTS, TRADEMARKS AND LICENSES
The Company holds trademark registrations for "Airgas," "Carbonic Reserves," "Red-D-Arc," "RED-D-ARC WELDERENTAL," "Dyna-Switch," "Gold Gas," "Stainless Mix," "Steelmix" and "Alummix." The Company holds a patent registration for "Fluid Bed Air Cooling System," a method and apparatus for conveying dry ice. 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 as follows:
Name Age Position
Peter McCausland (1) 50 Chairman of the Board and Chief Executive Officer William A. Rice, Jr. 53 President and Chief Operating Officer Roger F. Millay 42 Senior Vice President and Chief Financial Officer Alfred B. Crichton 52 Division President - West John Musselman 51 Division President - East Ted R. Schulte 49 Vice President - Gas Operations Andrew R. Cichocki 37 Senior Vice President - Business Operations and Planning Samuel H. Goldstein 41 Senior Vice President and Chief Information Officer Gordon L. Keen, Jr. 55 Senior Vice President - Law and Corporate Development Patrick M. Visintainer 36 Senior Vice President - Sales Michael L. Molinini 49 Vice President - Hardgoods Operations __________________ (1) Member of the Board of Directors
Mr. McCausland has been the Chairman of the Board and Chief Executive Officer of the Company since May 1987. Mr. McCausland has also served as President from June 1986 to August 1988, from April 1993 to November 1995, and from April 1997 to December 1998. In May 1997, Mr. McCausland was elected to the board of directors of Hercules Inc., a worldwide manufacturer of chemical specialty products. He also serves on the Board of Trustees of the Eisenhower Exchange Fellowships.
Mr. Rice has been President and Chief Operating Officer since January 1999. Prior to 1999, he served as Group President - Airgas Direct Industrial from April 1997 to December 1998 and Airgas' Division President - - Industrial Distribution and Purchasing from April 1995 to March 1997.
Mr. Millay has been Senior Vice President and Chief Financial Officer since November 1999. Prior to joining Airgas, Mr. Millay served as Senior Vice President and Chief Financial Officer of Transport International Pool, a division of General Electric Capital Corporation, from May 1995 to October 1999. Prior to that, Mr. Millay served in various positions since joining General Electric Capital Corporation in July 1987.
Mr. Crichton has been Division President - West since February 1993.
Mr. Musselman has been Division President - East since April 1997. Prior to that, Mr. Musselman served as President of Northeast Airgas from January 1989 to March 1997.
Mr. Schulte has been Vice President - Gas Operations since November 1998. Prior to that, Mr. Schulte served as President of Airgas Carbonic from November 1997 to October 1998. Before October 1997, Mr. Schulte served as Senior Vice President of Energetic Solutions, the US subsidiary of ICI Explosives.
Mr. Cichocki has been Senior Vice President - Business Operations and Planning since January 1999. Prior to that, Mr. Cichocki served as Vice President - Corporate Development from April 1997 to December 1998 and as Assistant Vice President - Corporate Development from August 1992 to March 1997.
Mr. Goldstein has been Senior Vice President and Chief Information Officer since January 1999. Prior to that, Mr. Goldstein served as Vice President and Chief Information Officer from September 1996 to December 1998. He joined Airgas from KPMG LLP, where he served as a National Service Leader for the Consulting Division from June 1991 to September 1996.
Mr. Keen has been Senior Vice President - Law and Corporate Development since April 1997. Prior to that, Mr. Keen served as Vice President - Corporate Development from January 1992 to March 1997.
Mr. Visintainer has been Senior Vice President - Sales since January 1999. Prior to that, Mr. Visintainer served as Vice President - Sales and Marketing from February 1998 to December 1998 and as President of one of the Company's subsidiaries from April 1996 to January 1998. Until March 1996, he was employed by BOC Gases and served in various field positions including National Sales Manager - Industrial/Special Gases and National Accounts Manager.
Mr. Molinini has been Vice President - Hardgoods Operations since joining the Company in April 1997. Prior to that, Mr. Molinini served as Vice President of Marketing of National Welders Supply Company since 1991.
ITEM 2.
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located in leased space in Radnor, Pennsylvania.
The Company's Distribution segment operates a network of approximately 560 branch stores, 32 "B grade" gas laboratories, 17 acetylene manufacturing facilities, five regional distribution centers, 100 cylinder fill plants and various customer call centers. The Distribution segment conducts business in 44 states. The Company owns approximately 25% of these facilities. The remaining facilities are primarily leased from third parties. Facilities leased from employees are on terms consistent with commercial rental rates prevailing in the surrounding rental market.
The Company's Gas Operations' segment consists of businesses, located throughout the United States, which operate approximately 60 branch locations, seven liquid carbon dioxide and 14 dry ice production facilities, five "A grade" gas laboratories, six nitrous oxide production facilities and a carbon dioxide pipeline. The Company owns approximately 50% of these facilities. The remaining facilities are leased from third parties.
During fiscal 2000, the Company's production facilities operated at approximately 75% of capacity.
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.
ITEM 3. LEGAL PROCEEDINGS.
In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleged 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") in connection with the Company's formation of a joint venture with National Welders. In June 1998, Praxair filed a motion to dismiss its own action in Alabama and commenced another action in the Superior Court of Mecklenburg County, North Carolina, alleging substantially the same tortious interference by the Company. The North Carolina action also alleges breach of contract against National Welders and certain shareholders of National Welders and unfair trade practices and conspiracy against all the defendants. In the North Carolina action Praxair seeks compensatory damages in excess of $10 thousand, punitive damages and other unspecified relief. The Company believes that Praxair's North Carolina claims are without merit and intends to defend vigorously against such claims.
The Company is involved in various legal and regulatory proceedings that have arisen in the ordinary course of its business and have not been fully 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 condition, results of operations or liquidity.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock (the "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 closing price per share for the common stock as reported by the New York Stock Exchange:
High Low Fiscal 2000
First Quarter $12.31 $ 8.31 Second Quarter 13.75 10.00 Third Quarter 11.50 8.44 Fourth Quarter 9.88 6.06
Fiscal 1999
First Quarter $18.81 $13.94 Second Quarter 14.25 11.50 Third Quarter 12.56 8.50 Fourth Quarter 10.13 8.13 ______________________
The closing sale price of the Company's common stock as reported by the New York Stock Exchange on June 2, 2000, was $5.38 per share. As of June 2, 2000, there were approximately 12,500 shareholders 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 management and the Company's Board of Directors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the Company are 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
Item 7.
RESULTS OF OPERATIONS: 1999 COMPARED TO 1998
OVERVIEW
The Company's net sales for the fiscal year ended March 31, 1999 increased 8% to a record $1.56 billion, compared to $1.45 billion in the prior year. Net earnings for fiscal 1999 were $51.9 million, or $.72 per diluted share, compared to $40.5 million, or $.57 per diluted share, in fiscal 1998. Net earnings were $34.5 million, or $.48 per diluted share, compared to $42.6 million, or $.60 per diluted share, in the prior year, excluding special charges and non-recurring gains recognized in both periods. Net earnings in fiscal 1999 were impacted by a general slowing in the manufacturing and industrial sectors and higher operating expenses, including expenses associated with the Company's Repositioning initiative.
Non-recurring gains in 1999 consist of a $25.5 million ($15.0 million after-tax) non-recurring gain related to the divestiture of the Company's calcium carbide and carbon products operations and non-recurring gains of $2.8 million ($2.4 million after-tax) related to other special items. Special charges and non-recurring gains in 1998 consist of special charges which totaled $22.4 million ($14.3 million after-tax) which included severance, exit costs for the closure of duplicate facilities, the impairment write-down of property, equipment and related goodwill and a write-down related to the divestiture of several non-core businesses, offset by non-recurring gains related to an acquisition break-up fee of $3 million ($1.9 million after-tax), and a $14.5 million ($9.4 million after- tax) partial recovery of refrigerant losses.
During the fourth quarter of fiscal 1998, the Company announced its "Repositioning Airgas for Growth" restructuring plan (the "Repositioning Plan"). During fiscal year 1999, the Company made substantial progress towards completing the goals and initiatives established in its Repositioning Plan. The Repositioning Plan included the consolidation of subsidiaries into larger regional companies, the standardizing of information systems, the implementation of a national information, procurement and logistics infrastructure and communications system, the consolidation of certain warehouse facilities into regional distribution centers and the divestiture of several non-core businesses. In addition, the Repositioning Plan included the sale, closure or downsizing of approximately 30 distribution locations and a reduction in the Company's workforce. Fiscal year 1998 special charges totaled $22.4 million ($14.3 million after-tax or $.20 per diluted share) which consisted of an impairment write-down of property, equipment and goodwill of $11.4 million, divestiture reserves of $6.9 million, facility exit costs of $2.6 million and severance of $1.6 million. During fiscal year 1999, progress was made in the following areas:
- 34 businesses were merged into 15 regional companies; - computer systems were standardized and resulted in approximately 40 computer conversions; - the Company completed three of its planned divestitures and, in January 1999, announced the signing of a letter of intent with Linde AG, for the sale of the Company's operations in Poland and Thailand. The transaction closed in the second quarter of fiscal 2000; - certain branches and distribution centers were closed and/or consolidated; and - workforce reductions were made as planned.
In connection with changes in the business, primarily related to a slowing in the industrial and manufacturing sectors, the Company modified its plans related to exiting certain facilities and adjusted facility exit reserves by $763 thousand. In addition, adjustments to divestiture reserves were made to reflect differences between previous estimates, amounts related to completed transactions and pending divestitures. The income statement effect of the adjustments to reserves for facility exit costs and divestitures was an increase in earnings of $1 million ($575 thousand after-tax) which was recorded in the quarter ended June 30, 1998.
During fiscal 1999, the Company incurred approximately $16.3 million of expenses associated with the Repositioning Plan, of which approximately 60% are expected to be ongoing in future periods in support of the established infrastructure. In response to a slowing economy during 1999 and the increase in expenses associated with the Repositioning Plan, the Company embarked on a cost improvement program to control and reduce operating expenses. The cost improvements are expected to impact many areas of the Company's expense structure, including administrative cost reductions, consolidation of back offices, the closure of certain branch locations and lower interest costs through working capital improvements and reduced capital expenditures.
In December 1998, the Company completed the divestiture of its calcium carbide and carbon products operations to Elkem Metals Company L.P. ("Elkem"), a subsidiary of Elkem ASA. In conjunction with the sale, the Company and Elkem terminated the Elkem-American Carbide Company joint venture which marketed calcium carbide throughout the United States. The divestiture resulted in a non-recurring gain of $25.5 million ($15 million after-tax). The calcium carbide and carbon products operations generated annual sales of approximately $30 million which are reflected in the Company's Gas Operations segment.
During fiscal 1999, the Company acquired 11 distributors of industrial gas and related equipment (Distribution segment) with aggregate annual sales of approximately $31 million and four manufacturers and distributors of dry ice (Gas Operations segment) with annual sales of approximately $20 million.
INCOME STATEMENT COMMENTARY
Net Sales
Net sales increased 8% in fiscal 1999 compared to 1998.
For fiscal 1999, Distribution sales increased approximately $88 million as a result of 33 acquisitions since April 1, 1997 and approximately $11.7 million from same-store sales growth. Offsetting the increase in sales were the divestitures of three businesses in fiscal 1999. Sales in fiscal 1999 and 1998 for these three businesses were approximately $10.3 million and $25.8 million, respectively. The increase in Distribution same-store sales of .8% resulted from growth in gas and rent of $21.4 million (4%) and safety products of $11.2 million (6.9%), offset by same-store sales declines of welding supplies and equipment of $12.4 million (-2.1%) and industrial tools and supplies of $8.5 million (-9.1%). Gas and rent sales growth was attributable to the Company's focus on national and regional accounts, expansion of its rental welder fleet, gas sales resulting from the Company's two air separation plants and higher small bulk and medical gas sales. Growth in gas sales was primarily attributable to increased volumes. Sales growth of safety products was driven by growth in national and regional accounts business, an expanded telemarketing sales force and selling initiatives that leverage the Distribution segment's customer base. Sales of welding supplies and equipment and industrial tools and supplies were negatively impacted during fiscal 1999 by a general slowing in certain manufacturing and industrial sectors including: metal fabrication, petro- chemical, agriculture, pulp and paper, and mining.
Gas Operations' sales increased $29 million as a result of $38.6 million of carbon dioxide and dry ice acquisitions completed during fiscal 1998 and 1999, gas sales volume growth of $1.4 million and a decrease of $11.0 million as a result of the divestiture of the Company's calcium carbide and carbon products operations. Liquid carbon dioxide sales volumes, including pipeline volumes, increased during fiscal 1999; however, the increase was largely offset by lower prices due to increased industry production which exceeded growth in demand. Nitrous oxide sales declined approximately 4% in fiscal 1999 compared to the prior year due to the general slowing in the manufacturing and industrial sectors.
Gross Profits
Gross profits increased 8% in fiscal 1999 compared to 1998.
The increase in Distribution gross profits of approximately $32.4 million resulted from acquisitions which contributed approximately $35.1 million and same-store gross profit growth of approximately $5.1 million (.8%), offset by the divestiture of three businesses which contributed gross profits of approximately $7.8 million in the prior year. Same-store gross profit growth consisted of increases in gas and rent of $13.3 million (3.3%) and safety products of $4.4 million (12.5%), offset by same-store gross profit declines in welding supplies and equipment of $7.7 million (- 4.6%) and industrial tools and supplies of $4.9 million (-14.5%). Same- store gross profits of gases and rent increased as a result of higher gas volumes, helped by the Company's two air separation plants and increased rent associated with welding equipment, cylinders and bulk tanks. Same- store gross profits for safety products increased primarily due to sales volume growth. Same-store gross profit declines in industrial tools and welding supplies and equipment resulted primarily from a general slowing in the manufacturing and industrial sectors during fiscal 1999 and from price reductions in certain regions to retain market share. Overall, gross margins of 45.3% in fiscal 1999 declined 50 basis points from 45.8% in fiscal 1998 due primarily to pricing pressures of hardgoods products. Gas margins were relatively consistent year-over-year. Acquisitions, which had an average gross margin of approximately 41% partially contributed to the gross margin decline.
The increase in Gas Operations gross profits of approximately $22.3 million resulted primarily from acquisitions, partially offset by the divestiture of the Company's calcium carbide and carbon products operations. Gas Operations' gross margin increased to 55.2% in fiscal 1999 compared to 50.2% in the prior year. The increase was due to the divestiture of the lower margin calcium carbide and carbon products operations and the acquisitions of higher margin carbon dioxide and dry ice companies with an average gross margin of 62%.
Operating Expenses
Operating expenses increased approximately $55 million compared to fiscal 1998 primarily as a result of acquisitions and higher operating expenses which included direct repositioning expenses. Repositioning expenses were estimated to total approximately $16 million in fiscal 1999 as a result of computer conversions, relocation and other personnel expenses and facility- related costs. Ongoing costs which are included in the repositioning expense amounts total approximately $10 million and are primarily related to the costs of operating a national computer center and communications system, regional distribution centers and additional salary expense related to new product line sales personnel. As a percentage of net sales, operating expenses increased 120 basis points to 33.5% in fiscal 1999 compared to the prior year.
Depreciation and amortization totaled $87.9 million in fiscal 1999 and increased approximately $11.3 million compared to the prior year primarily due to business acquisitions and capital projects completed during the previous 24 months. Consolidated depreciation and amortization as a percentage of sales increased 30 basis points as compared to fiscal 1998. For the Distribution and Gas Operations segments, depreciation and amortization relative to sales was 5.3% and 8.4%, respectively.
Operating Income
Operating income, excluding special charges, decreased 10% in fiscal 1999 compared to 1998. The decrease in operating income was primarily due to higher operating expenses, including repositioning-related expenses and lower gross profits from a decline in hardgoods sales.
The Distribution segment's operating income margin decreased to 7% in fiscal 1999 compared to 8.4% in fiscal 1998. The decrease resulted primarily from higher operating expenses, including expenses associated with the Company's Repositioning Plan and higher selling expenses related to expansion of safety products, specialty gases and welder rentals. The Repositioning expenses primarily impacted the Company's Distribution segment.
The Gas Operations segment's operating margin decreased to 8.7% in fiscal 1999 compared to 9.9% in the prior year primarily as a result of carbon dioxide and dry ice acquisitions and related integration expenses.
Special (charges) recoveries in fiscal 1999 include income of $1 million from adjustments to reflect differences between the original loss estimates and the actual losses related to the divestiture of two non-core businesses during fiscal 1999. Special charges in fiscal 1998 of $4.9 million primarily include charges related to the Repositioning Plan, partially offset by a recovery related to a fiscal 1997 loss and an acquisition break- up fee.
Interest Expense
Interest expense, net, totaled $60.3 million and increased $7 million compared to fiscal 1998. The increase in interest expense was primarily attributable to increased debt associated with completing 43 acquisitions since April 1, 1997. Interest expense was also impacted by capital expenditures, an increase in working capital and the repurchase of common stock.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates of $7 million increased $4.1 million compared to fiscal 1998 primarily as a result of a non-recurring insurance gain of $1.8 million, an increase in earnings from the Company's liquid carbon dioxide joint venture which was included in the Company's results for a full year in fiscal 1999 and higher joint venture earnings of National Welders Supply. Earnings were helped at the Company's liquid carbon dioxide joint venture as a result of a plant expansion which came on-line in September 1997. National Welders Supply reported higher earnings as a result of increased spot sales of bulk liquid gases.
Income Tax Expense
The effective income tax rate was 39.9% of pre-tax earnings for fiscal 1999, compared to 42.5% in 1998. Excluding the tax effect of special charges and non-recurring gains, the effective income tax rate was 39.5% of pre-tax earnings for fiscal 1999, compared to 42.6% in 1998. The decrease in the effective income tax rate was primarily a result of an increase in earnings of unconsolidated equity affiliates and from the implementation of tax planning strategies.
Net Earnings
Net earnings for fiscal 1999 were $51.9 million, or $.72 per diluted share, compared to $40.5 million, or $.57 per diluted share, in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company has primarily financed its operations, capital expenditures, stock repurchases and acquisitions with borrowings, proceeds from divestitures, and funds provided by operating activities.
Cash flows from operating activities for fiscal 2000 totaled $100.1 million compared to $102.1 million in fiscal 1999. For fiscal 2000, adjustments to reconcile net income to net cash provided by operating activities primarily included depreciation and amortization of $89.3 million and deferred taxes of $13.1 million from temporary differences, offset by gains from divestitures of $17.7 million. Additionally, working capital components used $17.6 million of cash primarily from an increase in trade receivables related to an acquisition and lower accounts payable related to the timing of payments to vendors. Accounts receivable days' sales outstanding increased to 48 from 47 days and hardgoods days' supply of inventory also increased to 80 from 77 days compared to March 31, 1999 levels. The increase in hardgoods days' supply of inventory is primarily due to an increase in safety and welding product inventories in connection with centralized purchasing and distribution initiatives. As the number of the Company's business units purchasing from centralized warehouses increases, the Company expects inventory levels will decline.
After-tax cash flow (net earnings, excluding special charges and non- recurring gains, plus depreciation, amortization and deferred income taxes) increased 2% to $141.7 million in fiscal 2000 compared to $138.3 million in the prior year.
Cash used by investing activities totaled $65.5 million in fiscal 2000. Capital expenditures of $65.2 million were 36% lower compared to fiscal 1999 resulting from an improvement in asset utilization and controlling capital spending. Capital expenditures in fiscal 2000 associated with the purchase of cylinders, bulk tanks, rental welders and machinery and equipment totaled approximately $44 million or 68% of total capital spending. The Company paid $99.2 million, net of cash acquired, for six distribution businesses, which had historical annual sales and EBITDA of $97 million and $20 million, respectively. Fixed asset sales provided cash of $37.5 million and primarily included equipment sold in connection with a sale-leaseback transaction consummated during fiscal 2000. Proceeds from divestitures of certain foreign and other operations provided cash of $55.6 million.
Financing activities used cash of $34.6 million primarily for the repurchase of the Company's common stock. Debt financing provided net cash of $8.9 million during fiscal 2000.
The Company will continue to look for appropriate acquisitions of distributors. Future acquisitions, capital expenditures and costs associated with e-commerce are expected to be funded through the use of cash flow from operations, debt, common stock for certain acquisition candidates, funds from the divestiture of certain businesses and other available sources. The Company believes that its sources of financing are adequate for its anticipated needs and should increase as the Company focuses on debt repayment in fiscal 2001. The Company also believes that it could arrange additional sources of financing for unanticipated requirements. The cost and terms of any future financing arrangement depend on the market conditions and the Company's financial position at that time.
The Company does not currently pay dividends.
Financial Instruments
The Company has unsecured revolving credit facilities totaling $725 million and $100 million Canadian (US$67 million) under a credit agreement with a maturity date of December 5, 2002. The credit agreement contains covenants which include the maintenance of certain financial ratios, restrictions on additional borrowings and limitations on dividends. At March 31, 2000, the Company had borrowings under the agreement of approximately $555 million and $44 million Canadian (US$29 million). The Company also had commitments under letters of credit supported by the agreement of approximately $54 million. Based on restrictions related to cash flow to funded debt coverage, the Company had additional borrowing capacity under the credit facilities of approximately $154 million at March 31, 2000. At March 31, 2000, the effective interest rate on borrowings under the credit facilities was 6.6% on U.S. borrowings and 5.5% on Canadian borrowings. In fiscal 2001, the Company anticipates that higher market interest rates will result in higher interest expense.
At March 31, 2000, the Company had the following long-term debt outstanding under medium-term notes: $50 million of unsecured notes due September 2001 bearing interest at a fixed rate of 7.15%; $75 million of unsecured notes due March 2004 at a fixed rate of 7.14%; and $100 million of unsecured notes due September 2006 bearing interest at a fixed rate of 7.75%. Additionally, at March 31, 2000, long-term debt of the Company included acquisition notes and other long-term debt instruments of approximately $69 million with interest rates ranging from 6.0% to 10.0%. The Company also has a shelf registration with a capacity of approximately $175 million for the issuance of debt and other types of securities.
The Company manages its exposure to changes in market interest rates. At March 31, 2000, the Company was party to 21 interest rate swap agreements. The swap agreements are with major financial institutions and aggregate to $543 million in notional principal amount at March 31, 2000. Sixteen swap agreements with approximately $363 million in notional principal amount require fixed interest payments based on an average effective rate of 6.3% for remaining periods ranging between one and five years. Five swap agreements with approximately $180 million in notional principal amount require variable interest payments based on an average effective rate of 6.2% at March 31, 2000. Under the terms of three swap agreements, the Company has elected to receive the discounted value of the counterparty's interest payments up-front. At March 31, 2000, approximately $4.5 million of such payments were included in other non- current liabilities. The Company monitors its positions and the credit ratings of its counterparties, and does not anticipate non-performance by the counterparties. At March 31, 2000, the ratio of fixed to variable rate debt was 49% to 51%.
Share Repurchase Programs
In March 1999, the Airgas Board of Directors authorized the repurchase of up to seven million shares of the Company's outstanding common stock. During fiscal 2000, the Company repurchased approximately 5.3 million shares at an average cost of $8.71 per share, including 175 thousand shares to complete a previous repurchase program. Subsequent to March 31, 2000, the Company substantially completed its stock repurchase program with the repurchase of approximately 1.4 million shares for total consideration of $11.2 million through June 2, 2000. At June 2, 2000, approximately 500 thousand shares may be repurchased under the current share repurchase authorization.
Employee Benefits Trust
In March 1999, the Company established a grantor trust (the "Trust") to fund certain future obligations of the Company's employee benefit and compensation plans. The Company, pursuant to a common stock Purchase Agreement, may sell shares of common stock to the Trust. Such common stock consists of shares the Company has purchased or will purchase on the open market or in private transactions. The common stock may also consist of shares issued directly to the Trust. During fiscal 2000, the Trust purchased 4.2 million shares of common stock, previously held as treasury stock, from the Company, for $35.4 million (based on the average market closing price for the five days preceding each transaction). The Company holds promissory notes from the Trust in the amount of each purchase. Shares held by the Trust serve as collateral for the promissory notes and are available to fund certain employee benefit plan obligations as the promissory notes are repaid. The shares held by the Trust are not considered outstanding for earnings per share purposes until they are released from serving as collateral for the promissory notes. Approximately 230 thousand shares were issued from the Trust during fiscal 2000 for employee benefit programs. An independent third-party financial institution serves as the Trustee. The Trustee votes or tenders shares held by the Trust in accordance with instructions received from the participants in the employee benefit and compensation plans funded by the Trust. Subsequent to March 31, 2000, the Trust purchased approximately 2 million shares of common stock, previously held as treasury stock, from the Company for approximately $11.3 million through June 2, 2000.
Inflation
While the U.S. inflation rate has been modest for several years, rising costs continue to affect the Company's business. The Company strives to minimize the effects of inflation through cost containment and price increases under highly competitive conditions.
THE YEAR 2000 MATTER
The "Year 2000" matter related to whether computer hardware and software and equipment would properly recognize date sensitive information referring to the Year 2000. Prior to December 31, 1999, the Company undertook various remediation measures to address its state of readiness with regard to the Year 2000 issue. Such measures included evaluating and testing computer systems and equipment for Year 2000 compliance, contacting significant suppliers, customers and other critical business partners to assess their readiness plans, and developing contingency plans for key administrative and supply chain functions. To date during calendar year 2000, the Company has not experienced any significant Year 2000 problems with its information systems hardware, application software, equipment or operating systems. The Company also has not experienced any significant Year 2000 complications related to any of its key suppliers, customers or other business partners. Since latent Year 2000 related problems may arise in the future, the Company will continue to monitor the Year 2000 compliance of its operating systems and equipment.
OTHER
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS 133, as amended by SFAS 137, is effective for fiscal years beginning after June 15, 2000. Management has evaluated the impact of SFAS 133 in connection with the Company's use of derivatives in managing interest rate risk. The Company's exposure to derivatives is limited to interest rate swap agreements which are highly effective in managing the Company's interest rate exposure. A high correlation exists between the terms of the interest rate swaps and the underlying debt obligations of the Company. As such, fluctuations in the fair value of the swaps are offset by an equal and opposite fluctuation in the carrying value of the underlying debt obligations. Consequentially, the implementation of SFAS 133 is not expected to have a material impact on the net earnings of the Company.
Forward-looking Statements
This report contains statements that are forward looking, as that term is defined by Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in rules, regulations and releases. These statements include, but are not limited to, statements regarding: same store-sales trends, gross profit trends, operating expense trends, completion of anticipated divestitures, lower inventory levels, future acquisitions, future debt repayment, future sources of financing, performance of counterparties under interest rate swap agreements, the level of competition and general economic conditions in the industrial markets served by the Company. Airgas intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors, and the making of such statements should not be regarded as a representation by Airgas or any other person that the results expressed therein will be achieved. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include, but are not limited to, underlying market conditions, growth and continued improvement in same-store sales, the Company's ability to reduce costs and control operating expenses, the potential impact of higher operating expenses in future periods, any potential problems relating to Year 2000 matters, the ability to manage interest rate exposure, the success of higher margin private label products, the success of centralized purchasing and distribution initiatives in reducing inventory levels and lowering product costs, the success and timing of intended divestitures, 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, the outcome and costs associated with the defense and settlement of lawsuits related to hazardous material fees, 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. 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company manages its exposure to changes in market interest rates. The interest rate exposure arises primarily from the interest payment terms of the Company's borrowing agreements. Interest rate swap agreements are used to adjust the interest rate risk exposures that are inherent in its portfolio of funding sources. The Company has not, and will not establish any interest risk positions for purposes other than managing the risk associated with its portfolio of funding sources. The Company maintains the ratio of fixed to variable rate debt within parameters established by management under policies approved by the Board of Directors. At March 31, 2000, the ratio of fixed to variable rate debt was 49% to 51%. Counterparties to interest rate swap agreements are major financial institutions. The Company has established counterparty credit guidelines and only enters into transactions with financial institutions with long- term credit ratings of `A' or better. In addition, the Company monitors its position and the credit ratings of its counterparties, thereby minimizing the risk of non-performance by the counterparties.
The table below summarizes the Company's market risks associated with long-term debt obligations and interest rate swaps as of March 31, 2000. For long-term debt obligations, the table presents cash flows related to payments of principal and interest by expected fiscal year of maturity. For interest rate swaps, the table presents the notional amounts underlying the interest rate swaps by year of maturity. The notional amounts are used to calculate contractual payments to be exchanged and are not actually paid or received. Fair values were computed using market quotes, if available, or based on discounted cash flows using market interest rates as of the end of the period.
Limitations of the tabular presentation
As the table incorporates only those interest rate risk exposures that exist as of March 31, 2000, it does not consider those exposures or positions that could arise after that date. In addition, actual cash flows of financial instruments in future periods may differ materially from prospective cash flows presented in the table due to future fluctuations in variable interest rates and Company debt levels.
Foreign Currency Rate Risk
Canadian subsidiaries of the Company are funded in part with local currency debt. The Company does not otherwise hedge its exposure to translation gains and losses relating to foreign currency net asset exposures. The Company considers its exposure to foreign currency exchange fluctuations to be immaterial to its consolidated results of operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, supplementary information and financial statement schedule of the Company are set forth at pages to of the report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
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 2000 Annual Meeting of Stockholders is incorporated herein by reference. Biographical information relating to the Company's executive officers set forth in Item 1 of Part I of this Form 10-K Report is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Board of Directors and Committees," "Executive Compensation" and "Certain Transactions" appearing in the Proxy Statement relating to the Company's 2000 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12.
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 2000 Annual Meeting of Stockholders and such information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Certain Transactions" appearing in the Proxy Statement relating to the Company's 2000 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14.
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. 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 January 28, 2000, the Company filed a current report on Form 8-K pursuant to Item 5, reporting its earnings for the third quarter and nine months ended December 31, 1999. The current report on Form 8-K also included an announcement of the completion of the Company's acquisition of Mallinckrodt, Inc.'s Puritan-Bennett medical gas business on January 21, 2000.
(c) Index to Exhibits and Exhibits filed as a part of this report.
Exhibit No. Description
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 through August 2, 1999. (Incorporated by reference to Exhibit 3 to the Company's September 30, 1999 Report on Form 10-Q).
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. (Incorporated by reference to Exhibit 4.1 to the Company's December 31, 1997 Quarterly Report on Form 10-Q).
4.2 First Amendment, dated April 13, 1998, to the 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. (Incorporated by reference to Exhibit 4.1 to the Company's June 30, 1998 Quarterly Report on Form 10-Q).
Exhibit No. Description
4.3 Indenture dated as of August 1, 1996 of Airgas, Inc. to Bank of New York, Trustee. (Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-4 No. 333-23651 dated March 20, 1997).
4.4 Form of Airgas, Inc. Medium-Term Note (Fixed Rate). (Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-4 No. 333-23651 dated March 20, 1997).
4.5 Form of Airgas, Inc. Medium-Term Note (Floating Rate). (Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-4 No. 333-23651 dated March 20, 1997).
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.
4.6 Rights Agreement, dated as of April 1, 1997, between Airgas, Inc. and The Bank of New York, N.A., as Rights Agent, which includes as Exhibit B thereto the Form of Right Certificate. (Incorporated by reference to Exhibit 1.1 to the Company's Form 8-A filed on April 28, 1997).
4.7 First Amendment, dated November 12, 1998, to the Rights Agreement dated as of April 1, 1997, between Airgas, Inc. and The Bank of New York. (Incorporated by reference to Exhibit 4 to the Company's December 31, 1998 Quarterly Report on Form 10-Q).
* 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 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).
* 10.3 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).
* 10.4 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 10-Q).
* 10.5 1994 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 10.19 to the Company's March 31, 1993 Report on Form 10-K).
* 10.6 1998 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 No. 333-60999 dated August 7, 1998).
Exhibit No. Description
* 10.7 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).
* 10.8 Joint Venture Agreement dated June 28, 1996 between Airgas, Inc. and National Welders Supply Company, Inc. and J.A. Turner, III, and Linerieux B. Turner and Molo Limited Partnership, Turner (1996) Limited partnership, Charitable Remainder Unitrust for James A. Turner, Jr. and Foundation for the Carolinas (Incorporated by reference to Exhibit 2.1 to the Company's June 28, 1996 Report on Form 8-K).
* 10.9 Letter dated July 24, 1992 between Airgas, Inc. (on behalf of the Nominating and Compensation Committee) and Peter McCausland regarding the severance agreement between the Company and Peter McCausland.
* 10.10 1997 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Company's September 30, 1997 Quarterly Report on Form 10-Q).
* 10.11 1997 Directors' Stock Option Plan (Incorporated by reference to Exhibit 10.2 to the Company's September 30, 1997 Quarterly Report on Form 10-Q).
* 10.12 Employee Benefits Trust Agreement, dated March 30, 1999, between Airgas, Inc. and First Union National Bank, as Trustee, which includes as Exhibit 1 thereto the Common Stock Purchase Agreement, dated March 30, 1999, between Airgas, Inc. and First Union National Bank, as Trustee, and Exhibit 2 thereto the Promissory Note, dated March 31, 1999, between Airgas, Inc. and First Union National Bank, as Trustee. (Incorporated by reference to Exhibit 10.12 to the Company's March 31, 1999 Report on Form 10-K).
*10.13 Employee Benefits Trust Amendment Letter, dated March 7, 2000, between Airgas, Inc. and First Union National Bank, as Trustee.
*10.14 Change of Control Agreement between Airgas, Inc. and William A. Rice, Jr. dated March 17, 1999. Nine other Executive Officers, including Peter McCausland, are parties to substantially identical agreements. (Incorporated by reference to Exhibit 10.13 to the Company's March 31, 1999 Report on Form 10-K).
*10.15 Change of Control Agreement between Airgas, Inc. and Roger F. Millay dated January 3, 2000.
*10.16 2000 Management Incentive Plan for Corporate Employees dated April 1, 1999. (Incorporated by reference to Exhibit 10.14 to the Company's March 31, 1999 Report on Form 10-K).
*10.17 2000 Management Incentive Plan for Business Unit Employees dated April 1, 1999. (Incorporated by reference to Exhibit 10.15 to the Company's March 31, 1999 Report on Form 10-K).
*10.18 2001 Management Incentive Plan for Business Unit Employees dated May 23, 2000.
*10.19 2001 Management Incentive Plan for Corporate Office Employees dated May 23, 2000.
(11) Statement re: computation of earnings per share. (21) Subsidiaries of the Company. (23.1) Consent of KPMG LLP. (27) Financial data schedule - March 31, 2000 _____________ * A management contract or compensatory plan required to be filed by Item 14(c) of this Report.
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 8, 2000
Airgas, Inc. (Registrant)
By: /s/ Peter McCausland _________________________ Peter McCausland Chairman 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 Board, June 8, 2000 ____________________________ and Chief Executive Officer (Peter McCausland)
/s/ Roger F. Millay Senior Vice President and Chief June 8, 2000 ____________________________ Financial Officer (Roger F. Millay) (Principal Financial Officer)
/s/ Jeffrey P. Cornwell Vice President and Corporate June 8, 2000 ____________________________ Controller (Jeffrey P. Cornwell) (Principal Accounting Officer)
/s/ W. Thacher Brown Director June 8, 2000 ____________________________ (W. Thacher Brown)
/s/ Frank B. Foster, III Director June 8, 2000 ____________________________ (Frank B. Foster, III)
/s/ James W. Hovey Director June 8, 2000 ____________________________ (James W. Hovey)
/s/ John A.H. Shober Director June 8, 2000 ____________________________ (John A.H. Shober)
/s/ Paula A. Sneed Director June 8, 2000 ____________________________ (Paula A. Sneed)
/s/ David M. Stout Director June 8, 2000 ____________________________ (David M. Stout)
/s/ Lee M. Thomas Director June 4, 2000 ____________________________ (Lee M. Thomas)
/s/ Robert L. Yohe Director June 8, 2000 ____________________________ (Robert L. Yohe)
AIRGAS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page Reference In Report On Form 10-K
Financial Statements:
Independent Auditors' Report..............................
Statement of Management's Financial Responsibility........
Consolidated Balance Sheets as of March 31, 2000 and 1999.
Consolidated Statements of Earnings for the Years Ended March 31, 2000, 1999 and 1998............................
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2000, 1999 and 1998................
Consolidated Statements of Cash Flows for the Years Ended March 31, 2000, 1999 and 1998............................
Notes to Consolidated Financial Statements................
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts...........
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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors Airgas, Inc.:
We have audited the consolidated financial statements of Airgas, Inc. and subsidiaries listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the accompanying index. These consolidated financial statements 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania May 9, 2000
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 on Form 10-K. The statements are prepared in conformity with accounting principles generally accepted in the United States of America. 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 is designed to provide reasonable assurance that assets are safeguarded and records properly reflect transactions executed in accordance with management's authorization. The Company also maintains a staff of internal auditors who review and evaluate the system of internal control. 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 LLP, independent auditors. Their Independent Auditors' Report, which is based on an audit made in accordance with auditing standards generally accepted in the United States of America, is presented on the previous page. In performing their audit, KPMG 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, the internal 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/ Roger F. Millay /s/ Peter McCausland ________________________ _______________________ Roger F. Millay Peter McCausland Senior Vice President and Chairman and Chief Financial Officer Chief Executive Officer
May 9, 2000
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 primarily over 40 years. Intercompany accounts and transactions are eliminated in consolidation.
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. Cost is determined using the first-in, first-out (FIFO) method for approximately 86% and 85% of the inventories at March 31, 2000 and 1999, respectively. Cost for the remainder of inventories is determined using the last-in, first-out (LIFO) method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets.
(d) 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 is principally 40 years. The Company assesses the recoverability of goodwill in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS 121"). The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through projected undiscounted future cash flows.
In making such determination with respect to goodwill, the Company evaluates the performance of underlying businesses which give rise to such assets. The assets acquired in connection with these acquisitions continue to generate a significant portion of the Company's net sales, total operating income and cash flow.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(e) Other Intangible Assets
Costs related to the issuance of long-term debt are deferred and amortized over the term of the related debt. Costs and payments pursuant to non-competition arrangements entered into in connection with business acquisitions are amortized over the terms of the arrangements which are principally over five years. The Company assesses the recoverability of non-competition arrangements by determining whether the amortization of the asset balance can be recovered through projected undiscounted future cash flows of the related business over its remaining life.
(f) Commitments and Contingencies
The Company's policy is to accrue legal fees associated with outstanding litigation. Liabilities for loss contingencies arising from claims, assessments, litigation, and other sources are recorded when it is probable that a liability has been incurred and the amount of the claim, assessment or damages can be reasonably estimated.
(g) 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 assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
(h) 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 as a component of "Accumulated other comprehensive income (loss)." Gains and losses arising from foreign currency transactions are reflected in the consolidated statements of earnings as incurred.
(i) 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 throughout North America. Credit terms granted to customers are generally net 30 days.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(j) Financial Instruments
In managing interest rate risk exposure, the Company enters into interest rate swap agreements. An interest rate swap is a contractual exchange of interest payments between two parties. A standard interest rate swap involves the payment of a fixed rate times a notional amount by one party in exchange for a floating rate times the same notional amount from another party. As interest rates change, the difference to be paid or received is accrued and recognized as interest expense over the life of the agreement. These instruments are not entered into for trading purposes and the Company has the ability and intent to hold these instruments to maturity. The fair value of the interest rate swap agreements is not recognized in the financial statements. Counterparties to the Company's interest rate swap agreements are major financial institutions.
The carrying amounts for accounts receivable and accounts payable approximate fair value because of the short-term maturity of these financial instruments.
(k) Employee Benefits Trust
The Company established a grantor trust (the "Trust") to fund future obligations of the Company's employee benefit and compensation plans. Shares are purchased by the Trust from the Company at fair market value and are reflected as a reduction of stockholders' equity in the Company's Consolidated Balance Sheets under the caption "Employee benefits trust." Shares are transferred from the Trust to fund compensation and employee benefit obligations based on the original cost of the shares to the Trust. The satisfaction of compensation and employee benefit plan obligations is based on the fair value of shares transferred. Differences between the original cost of the shares to the Trust and the fair market value of shares transferred is charged or credited to capital in excess of par value.
(l) Revenue Recognition
Revenue is recognized when product is shipped to customers. Rental fees on cylinders, bulk gas storage tanks and other equipment are recognized when earned.
(m) Accounting and Disclosure Changes
The Company adopted Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" ("SOP 98-5"), as required, in the first quarter of fiscal year 2000 resulting in a charge to net earnings of $590 thousand, or $.01 per diluted share. In accordance with SOP 98-5, the charge has been reflected on a separate line entitled "Cumulative effect of an accounting change, net of taxes", on the consolidated statement of earnings. The charge primarily resulted from the write-off of start-up costs capitalized in connection with the Company's two air separation units constructed during fiscal 1998 and 1999.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACQUISITIONS & DIVESTITURES
(a) Acquisitions
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. Also, as discussed in Note 21, the Company has accounted for the acquisition of subsidiary minority interests in fiscal 1998 using the purchase method of accounting.
2000 - During fiscal 2000, the Company purchased six businesses. The largest of these acquisitions and their effective dates included Brown Welding Supply, LLC. (July 1, 1999), Oxygen Sales & Service, Inc. (August 1, 1999) and Puritan- Bennett Corporation (January 21, 2000). The aggregate purchase price for these acquisitions amounted to approximately $105 million. The purchase price for the remaining 3 businesses amounted to approximately $4 million.
1999 - During fiscal 1999, the Company purchased 15 businesses. The largest of these acquisitions and their effective dates included Abel Carbonic Products, Inc. (May 1, 1998), Gas House Welding Supply, Inc. (July 1, 1998), Carbonic Products, Inc. (September 1, 1998) and Pacific Dry Ice, Inc. (September 1, 1998). The aggregate purchase price for these acquisitions amounted to approximately $49 million. The purchase price for the remaining 11 businesses amounted to approximately $17 million.
1998 - During fiscal 1998, the Company purchased 28 businesses. The largest of these acquisitions and their effective dates included Carbonic Industries Corporation (June 5, 1997), Lyons Safety, Inc. (July 1, 1997), Industrial Gas Products & Supply, Inc. (October 1, 1997), Carbonic Reserves, Inc. (October 14, 1997), JWS Technologies, Inc. (November 1, 1997) and The Hoprich Company (February 1, 1998). The aggregate purchase price for these acquisitions amounted to approximately $224 million. The purchase price for the remaining 22 businesses amounted to approximately $59 million.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACQUISITIONS & DIVESTITURES - (Continued)
In connection with the above acquisitions, the total purchase price, cash paid and liabilities assumed were as follows:
Included in the fiscal 1998 aggregate purchase price is the issuance of approximately 3.4 million shares of the Company's common stock (including approximately 2 million shares which were issued out of treasury stock), issued in connection with the acquisitions of Carbonic Industries Corporation, Kendeco Supply Company and Industrial Gas Products.
In connection with a previous acquisition, the Company is required to issue additional shares of common stock if the average market value of the Company's common stock for the ten business days ended October 1, 2000 is less than $13.10 per share. At March 31, 2000, approximately 800 thousand shares were contingently issuable. Common stock subsequently issued in connection with such a contingency reduces capital in excess of par value and increases common stock for the par value of the additional shares issued.
The purchase price for business acquisitions and minority interests was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Such allocations have been based on preliminary estimates of fair value at the date of acquisition, which may be revised at a later date. Costs in excess of net assets acquired (goodwill) for fiscal 2000, 1999 and 1998 amounted to $33 million, $29.3 million and $130.6 million, respectively.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACQUISITIONS & DIVESTITURES - (Continued)
The following presents unaudited estimated pro forma operating results as if the fiscal 2000 and 1999 acquisitions had been consummated on April 1, 1998. 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, 1998 or of results which may occur in the future.
(b) Divestitures
During fiscal 2000, the Company completed the sale of its operations in Poland and Thailand and sold a non-core medical equipment distribution business. Proceeds from the sales amounted to $55.6 million and resulted in a gain of $17.7 million which was recognized in "Other income, net".
During fiscal 1999, the Company sold certain beverage service operations, its eastern Canadian industrial gas distribution business and its calcium carbide and carbon products operations. Proceeds from the sales amounted to $53.7 million. The beverage service and Canadian operations were sold at a loss which was provided for in the 1998 Special Charges (Note 3). The Company's calcium carbide and carbon products operations were sold for a gain of $25.5 million included in "Other income, net". The following table sets forth selected financial data related to the fiscal 2000 and 1999 divested operations:
In April 2000, the Company agreed to sell its equity investment in Superior Air Products Limited, a regional industrial gas producer located in India. The agreement is subject to the approval of a public offering and certain other approvals by the Indian government. The transaction is expected to close in the first half of fiscal 2001. Additionally in May 2000, the Company completed the sale of its equity investment in Bhoruka Gases Ltd., also located in India.
During fiscal 1998, the Company recorded a gain, included in "Other income, net," of $1.5 million related to the sale of a non- core business.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) SPECIAL CHARGES
(a) 1998 Special Charges
During the fourth quarter of fiscal 1998, the Company announced its "Repositioning Airgas for Growth" restructuring plan (the "Repositioning Plan"). In connection with the Repositioning Plan, the Company recorded special charges in 1998 totaling $22.4 million ($14.3 million after-tax). The Repositioning Plan included the consolidation of subsidiaries into larger regional companies; the consolidation of certain warehouse facilities into regional distribution centers; the standardization and integration of information systems; the building of a national information, procurement and logistics infrastructure to support expanded product lines and distribution channels; and the divestiture of several non-core businesses. The major components of the fiscal 1998 Special Charges were as follows:
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in estimates to the divestiture reserve to reflect differences between the original loss estimate and the actual loss incurred totaled $74 thousand and $237 thousand in fiscal 2000 and 1999, respectively. The adjustments were reflected as recoveries in "Special charges (recoveries), net" on the Consolidated Statements of Earnings.
The remaining divestiture reserve at March 31, 2000 primarily relates to the divestiture of the Company's equity investments in India. As described in Note 2, the divestiture of these equity investments is expected to close during the first half of fiscal 2001.
Facility closure plans were modified in response to closure plans completed. Changes in estimates to the facility exit costs reserves of $503 thousand and $763 thousand in fiscal 2000 and 1999, respectively, were reflected as recoveries in "Special charges (recoveries), net" on the Consolidated Statements of Earnings. The remaining facility exit cost reserve at March 31, 2000 reflects a non-cancelable lease obligation.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the weighted average number of shares of the Company's common stock outstanding during the period. Diluted earnings per share is calculated by dividing net earnings by the weighted average common shares outstanding adjusted for the dilutive effect of common stock equivalents related to stock options and contingently issuable shares.
The table below reconciles basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three years ended March 31, 2000, 1999 and 1998:
(5) INVENTORIES
Net inventories determined by the LIFO inventory method totaled $22.6 million and $23.2 million at March 31, 2000 and March 31, 1999, respectively. If the FIFO inventory method had been used for these inventories, they would have been $1.4 million higher at March 31, 2000 and $1.6 million higher at March 31, 1999.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) PLANT AND EQUIPMENT
(7) OTHER NON-CURRENT ASSETS
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The cash overdraft is attributable to the float of the Company's outstanding checks.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INDEBTEDNESS
(a) Long-term Debt
The Company has unsecured revolving credit facilities totaling $725 million and $100 million Canadian (US$67 million). The Company may borrow under these facilities until the maturity date of December 5, 2002. The agreement contains covenants which include the maintenance of a minimum equity level, maintenance of certain financial ratios, restrictions on additional borrowings and limitations on dividends. At March 31, 2000, the Company had borrowings under the agreement of $555 million and $44 million Canadian (US$29 million). The Company also had commitments under letters of credit supported by the agreement of approximately $54 million. Based on restrictions related to cash flow to funded debt coverage, the Company had additional borrowing capacity under the agreement of approximately $154 million. At March 31, 2000, the effective interest rates related to outstanding borrowings under the lines were approximately 6.6% on U.S. borrowings and 5.5% on Canadian borrowings.
At March 31, 2000, the Company had the following long-term debt outstanding under medium-term notes: $50 million of unsecured notes due September 2001 bearing interest at a fixed rate of 7.15%; $75 million of unsecured notes due March 2004 at a fixed rate of 7.14%; and, $100 million of unsecured notes due September 2006 bearing interest at a fixed rate of 7.75%. The Company also has a shelf registration with a capacity of approximately $175 million for the issuance of debt and other types of securities.
Acquisition notes represent notes issued to sellers of businesses acquired and are repayable in periodic installments including interest at an average effective rate of 7.5%.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) INDEBTEDNESS - (Continued)
(b) Swap Agreements
In managing interest rate exposure, the Company participates in 21 interest rate swap agreements with a total notional principal amount of $543 million at March 31, 2000. Counterparties to the interest rate swap agreements are major financial institutions. The Company monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties.
Sixteen swap agreements with approximately $363 million in notional principal amount require fixed interest payments based on an average effective rate of 6.3% for remaining periods ranging between one and five years. Five swap agreements with approximately $180 million in notional principal amount require variable interest payments based on an average effective rate of 6.2% at March 31, 2000. Under the terms of three of the swap agreements, the Company has elected to receive the discounted value of the counterparty's interest payments up front. At March 31, 2000, approximately $4.5 million of such payments were included in other non- current liabilities. The effect of the swap agreements was to increase interest expense $3.2 million, $1.1 million and $1.0 million in 2000, 1999 and 1998, respectively.
The aggregate maturities of the Company's interest rate swaps by type of swap for the five years ending March 31, 2005 and thereafter are as follows:
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
Summarized below are the carrying and fair values of the Company's financial instruments at March 31, 2000 and 1999.
The fair value of the Company's debt and interest rate swap agreements is based on estimates using standard pricing models that take into account the present value of future cash flows as of the balance sheet date. The computation of fair values of these instruments is generally performed by the Company. The carrying amounts reported in the balance sheet for trade receivables and payables, accrued liabilities, accrued income taxes, and short-term borrowings approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the table below.
(11) STOCKHOLDERS' EQUITY
(a) Common Stock
The Company is authorized to issue up to 200 million shares of common stock with a par value of $.01 per share. At March 31, 2000, the number of shares of common stock outstanding was 67,196,376, excluding 1.1 million shares of common stock held as treasury stock and 4.8 million shares of common stock held in a grantor trust as described under Note 11(d).
(b) Preferred Stock and Redeemable Preferred Stock
The Company is authorized to issue up to 20 million shares of preferred stock. Of the 20 million shares authorized, 200 thousand shares have been designated as Series A Junior Participating Preferred Stock and 200 thousand shares have been designated as Series B Junior Participating Preferred Stock (see Note 11(e) for further discussion). At March 31, 2000 and 1999, no shares of the preferred stock were outstanding. The preferred stock may be issued from time to time by the Board of Directors in one or more series. 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.
Additionally, the Company is authorized to issue 30 thousand shares of redeemable preferred stock. At March 31, 2000 and 1999, no shares were outstanding.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Treasury Stock
In March 1999, the Company's Board of Directors authorized the repurchase of up to seven million shares, or approximately 10%, of the Company's outstanding common stock. The shares may be repurchased in the open market or in privately negotiated transactions depending on market conditions and other factors. In accordance with existing and previous share repurchase authorizations, the Company acquired 5.3 million, 1.4 million, and 2.2 million shares of common stock in fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, the Company reissued 4.2 million shares of common stock to the Company's Employee Benefits Trust (the "Trust"), as discussed in Note 11(d), and 48 thousand shares for stock option exercises. In fiscal 1999, the Company reissued 826 thousand shares of common stock to the Trust and 598 thousand shares for stock option exercises. In fiscal 1998, the Company reissued approximately 2 million shares in connection with its acquisition program, 707 thousand shares related to the purchase of subsidiary minority interests as described in Note 21, and 209 thousand shares for stock option exercises. As of March 31, 2000, the total remaining shares authorized for repurchase totaled approximately 1.9 million shares. When treasury shares are reissued, the Company uses an average cost method and the excess of the repurchase cost over the reissuance price is treated as a charge to capital in excess of par value. Subsequent to March 31, 2000, the Company repurchased approximately 1.4 million shares of common stock for total consideration of $11.2 million.
(d) Shares in Employee Benefits Trust
In March 1999, the Company established a grantor trust (the "Trust") to fund certain future obligations of the Company's employee benefit and compensation plans. The Company, pursuant to a common stock Purchase Agreement, may sell shares of common stock to the Trust. Such common stock consists of shares the Company has purchased or will purchase on the open market or in private transactions. The common stock may also consist of shares issued directly to the Trust. The Company holds promissory notes from the Trust in the amount of each purchase. Shares held by the Trust serve as collateral for the promissory notes and are available to fund employee benefit plan obligations as the promissory notes are repaid. The shares held by the Trust are not considered outstanding for earnings per share purposes until they are released from serving as collateral for the promissory notes. An independent third-party financial institution serves as the Trustee. The Trustee votes or tenders shares held by the Trust in accordance with instructions received from the participants in the employee benefit and compensation plans to be funded by the Trust. In fiscal 2000 and 1999, the Trust purchased 4.2 million and 826 thousand shares of common stock, previously held as treasury stock, from the Company, for approximately $35 million and $7 million, respectively. During 2000, approximately 230 thousand shares were issued from the Trust for employee benefit programs. Subsequent to March 31, 2000, the Trust purchased approximately 2 million shares of common stock, previously held as treasury stock, from the Company for approximately $11.3 million.
(e) Stockholder Rights Plan
Effective April 1, 1997, the Company's Board of Directors adopted a new stockholder rights plan (the "1997 Rights Plan"). Pursuant to the 1997 Rights Plan, the Board of Directors declared a dividend distribution of one right for each share of common stock. Each right entitles the holder to purchase from the Company one one-thousandth of a share Series B Junior Participating Preferred Stock at an initial exercise price of $100 per share.
Rights become exercisable only following the acquisition by a person or group of 15 percent (or 20 percent in the case of the Chairman and certain of his affiliates) or more of the Company's common stock or after the announcement of a tender offer or exchange offer to acquire 15 percent (or 20 percent in the case of the Chairman and certain of his affiliates) or more of the outstanding common stock. If such a person or group acquires 15 percent or more (or 20 percent or more, as the case may be) of the common stock, each right (other than such person's or group's rights, which will become void) will entitle the holder to purchase, at the exercise price, common stock having a market value equal to twice the exercise price. In certain circumstances, the rights may be redeemed by the Company. If not redeemed, they will expire on April 1, 2007.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued", as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, no compensation expense has been recognized for its stock option plans and its stock purchase plan. However, pro forma information regarding net earnings and earnings per share is required. Had compensation expense for the Company's stock-based compensation plans been determined based on the fair value at the grant date, the Company's pro forma net earnings and earnings per share for 2000, 1999 and 1998 would be as follows:
The pro forma impact only takes into account options granted since April 1, 1995 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period.
The Company's stock-based compensation plans are described below.
(a) Employee Stock Option Plans
The Company has a stock plan under which officers and key employees may be granted options. In May 1997, the Company adopted the 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan contains essentially the same terms and conditions as the Company's previous 1984 Stock Option Plan (the "1984 Plan"). The 1984 Plan was terminated upon approval of the 1997 Plan by the Company's stockholders. Under the 1984 Plan, 948,855 options were granted in fiscal 1998 with an exercise price equal to the market price at the date of grant. Options under the 1984 Plan vest 25% annually and have a maximum term of ten years.
Under the 1997 Plan, at March 31, 2000, 1999 and 1998, 5,369,499, 6,309,368 and 7,900,850 options, respectively, were available for issuance. In fiscal 2000, 1999 and 1998, 1,126,845, 1,665,007 and 99,150 options, respectively, were granted with an exercise price equal to market price at the date of grant. Options under the 1997 Plan are generally granted in May of each year, vest 25% annually and have a maximum term of ten years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for fiscal 2000, 1999 and 1998 option grants, respectively: expected volatility of 44.2%, 42.6% and 39.9%, risk-free interest rate of 5.56%, 5.54% and 6.48%, and expected life of 4.91, 4.81 and 4.47 years. The weighted average fair value of the options granted during fiscal 2000, 1999 and 1998 was $5.19, $5.82 and $6.55, respectively.
In connection with the fiscal 1998 acquisition of Carbonic Industries Corporation ("CIC"), the Company assumed the Carbonic Industries Corporation 1994 Stock Option Plan (the "CIC Plan"). The CIC Plan provided grants to certain key officers and employees of CIC. At the date of acquisition, 196,572 options were exercisable to purchase Company common stock. The fair value of these options was recorded at the date of acquisition.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options for 4,554,991, 4,439,900 and 4,266,095 shares were exercisable at March 31, 2000, 1999 and 1998, respectively.
(b) Board of Directors Stock Option Plans
The Company also maintains stock option plans covering directors who are not employees. In May 1997, the Company adopted the 1997 Directors' Stock Option Plan (the "1997 Directors' Plan"). The 1997 Directors' Plan reserved 500 thousand shares for issuance. Options under the 1997 Directors' Plan are exercisable in full on the date of grant.
Under the 1997 Directors' Plan, at March 31, 2000, 353,500 options were available for issuance. During fiscal 2000, 1999 and 1998, 62,500, 48,000 and 36,000 options, respectively, were granted with an exercise price equal to the market price at the date of grant and have a maximum term of ten years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for fiscal 2000, 1999 and 1998 option grants, respectively: expected volatility of 44.8%, 42.2% and 39.5%, risk-free interest rate of 5.79%, 5.52% and 6.12%, and expected life of 5.44, 5.48 and 5.35 years. The weighted average fair value of the stock options granted during fiscal 2000, 1999 and 1998 was $6.01, $6.36 and $8.68, respectively.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) STOCK-BASED COMPENSATION - (Continued)
Options for 360,500, 314,000 and 306,000 shares were exercisable at March 31, 2000, 1999 and 1998, respectively.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) STOCK-BASED COMPENSATION - (Continued)
The following table summarizes information about options outstanding and exercisable for the employee, CIC and Board of Directors stock option plans at March 31, 2000:
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Employee Stock Purchase Plans
In August 1998, the Company established the Airgas, Inc. 1998 Employee Stock Purchase Plan (the "1998 Plan") to encourage and assist employees in acquiring an equity interest in the Company. The 1998 Plan is authorized to issue up to 3 million shares of common stock. Effective January 1, 1999, eligible employees may elect to have up to 15% of their annual gross earnings withheld to purchase common stock at 85% of the market value. Market value under the 1998 Plan is defined as either the closing share price on the New York Stock Exchange as of the employees' enrollment date or the closing price on the last business day of a fiscal quarter, whichever is lower. An employee may lock-in a purchase price for up to 27 months. The 1998 Plan is designed to comply with the requirements of Sections 421 and 423 of the Internal Revenue Code. The 1998 Plan replaces the previous 1994 Employee Stock Purchase Plan. During fiscal 2000, the Company issued 806 thousand shares from the Employee Benefits Trust and treasury stock for the 1998 Plan at an average purchase price of $7.09 per share.
The Company established the 1994 Employee Stock Purchase Plan (the "1994 Plan") to encourage and assist employees in acquiring an equity interest in the Company. The 1994 Plan was authorized to issue up to 2 million shares of common stock at terms generally consistent with the 1998 Plan. The Company issued 614 thousand shares and 451 thousand shares under the 1994 Plan at an average purchase price of $9.30 and $13.20 per share during fiscal 1999 and 1998, respectively. During fiscal 2000, the Company terminated the 1994 Plan.
Compensation expense under SFAS 123 is estimated for the fair value of the employees' option to purchase shares of common stock, which was estimated using the Black-Scholes model with the following assumptions for fiscal 2000, 1999 and 1998, respectively: expected volatility of 51%, 46% and 38% risk-free interest rate of 6.0%, 4.8% and 5.8%, and expected term of 27 months for each period. The weighted average fair value of the purchase options granted in fiscal 2000, 1999 and 1998 was $3.94, $4.79 and $6.55, respectively.
(13) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's investments in unconsolidated affiliates totaled approximately $73 million at March 31, 2000, and $101 million at March 31, 1999. The Company's investments include a 47% joint venture interest in the voting capital stock of National Welders Supply Company, Inc. ("National Welders"). National Welders is a distributor of industrial, medical and specialty gases and related equipment based in Charlotte, North Carolina. The investment in National Welders totaled approximately $55 million at March 31, 2000 and 1999. The Company's other investments in unconsolidated affiliates totaled approximately $18 million at March 31, 2000 and $46 million at March 31, 1999. The decrease compared to March 31, 1999 primarily relates to the August 1999 divestiture of the Company's investments in Poland and Thailand.
The Company's other investments primarily consist of a 25.5% interest in Bhoruka Gases, Ltd. (India), a 51% interest in Superior Air Products, Ltd. (India), a 50% joint venture interest in AC Industries (U.S.) and other investments. As described in Note 2(b), the divestiture of the Indian investments is expected to be completed in the first half of fiscal 2001.
On December 31, 1998, the Company divested its calcium carbide and carbon products manufacturing operations to Elkem Metals Company L.P. ("Elkem"), a subsidiary of Elkem ASA. In conjunction with the sale, the Company terminated its 55% interest in a joint venture which marketed calcium carbide throughout the United States.
The Company accounts for investments in unconsolidated affiliates by the equity method of accounting. The Company's share of earnings from all unconsolidated affiliates was $3.4 million, $7.9 million and $4.4 million for the years ended March 31, 2000, 1999 and 1998, respectively. Equity in earnings from Elkem of $900 thousand and $1.5 million in 1999 and 1998 are included in Gas Operations net sales. The investments in unconsolidated affiliates include goodwill of approximately $29 million as of March 31, 2000, which is primarily being amortized to earnings over 40 years.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of unaudited financial information for investments in unconsolidated affiliates for the years ended March 31, 2000 and 1999 were as follows:
(14) INTEREST EXPENSE, NET
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) INCOME TAXES
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) INCOME TAXES - (Continued)
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) INCOME TAXES - (Continued)
Current tax assets and current tax liabilities have been netted for presentation purposes. Non-current tax assets and non-current tax liabilities have also been netted. Deferred tax assets and liabilities are reflected in the Company's consolidated balance sheets as follows:
The Company has recorded tax benefits amounting to $1.6 million, $1.6 million and $3.8 million in fiscal 2000, 1999 and 1998, respectively, resulting from the exercise of stock options and warrants. This benefit has been recorded in capital in excess of par value.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances, at March 31, 2000. Valuation allowances primarily relate to state tax net operating loss carry forwards.
(16) BENEFIT PLANS
The Company has a defined contribution 401(k) plan (the "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 fiscal 2000, 1999 and 1998 were $5.9 million, $4.7 million and $6.4 million, respectively.
Certain subsidiaries of the Company participate in multi-employer pension and post-retirement 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 condition, results of operations or liquidity. Amounts expensed under the pension plans for fiscal 2000, 1999 and 1998 were $526 thousand, $611 thousand and $660 thousand, respectively.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) RELATED PARTIES
During the years ended March 31, 2000, 1999 and 1998, National Welders, an unconsolidated equity affiliate, paid $3.5 million, $1.4 million and $1.7 million, respectively, to the Company for gas products, hardgoods and services. In addition, National Welders sold gas products and hardgoods to the Company in the amounts of $330 thousand, $552 thousand and $390 thousand in fiscal 2000, 1999 and 1998, respectively.
The Company paid $9.1million, $8.4 million and $5.9 million to AC Industries, an unconsolidated equity affiliate, for the purchase of liquid carbon dioxide during the years ended March 31, 2000, 1999 and 1998, respectively. In addition, the Company had a net payable balance to AC Industries totaling $695 thousand, $1.3 million and $1.2 million, at March 31, 2000, 1999 and 1998, respectively.
(18) 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 for the years ended March 31, 2000, 1999 and 1998, amounted to $38.5 million, $35.4 million and $30.4 million, respectively. Certain operating facilities are leased at market rates from employees of the Company who were previous owners of businesses acquired. The Company also has several capital leases assumed as part of prior acquisitions. Outstanding lease obligations and the related capital assets are not material to the consolidated balance sheets at March 31, 2000 and 1999.
In October 1999, the Company renewed a lease of real estate with a trust established by a commercial bank. The lease was amended to include the sale-leaseback of certain equipment. The trust holds title to the properties and equipment included in the leases. The rental payments are based on LIBOR plus an applicable margin and the cost of the property acquired by the trust. The appraised value of the real estate and equipment under the lease totaled approximately $46 million. The lease has a five-year term and has been accounted for as an operating lease. The Company has guaranteed a residual value of the real estate and the equipment at the end of the lease term of approximately $31 million. A gain of approximately $12 million on the equipment portion of the transaction has been deferred until the expiration of the Company's guarantee of the residual value. Cash proceeds received from the transaction were used to repay debt outstanding under the Company's revolving credit facility.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(19) COMMITMENTS AND CONTINGENCIES
(a) Legal
In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleged tortuous 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") in connection with the Company's formation of a joint venture with National Welders. In June 1998, Praxair filed a motion to dismiss its own action in Alabama and commenced another action in the Superior Court of Mecklenburg County, North Carolina, alleging substantially the same tortuous interference by the Company. The North Carolina action also alleges breach of contract against National Welders and certain shareholders of National Welders and unfair trade practices and conspiracy against all the defendants. In the North Carolina action Praxair seeks compensatory damages in excess of $10 thousand, punitive damages and other unspecified relief. The Company believes that Praxair's North Carolina claims are without merit and intends to defend vigorously against such claims.
Airgas is a defendant in related class-action lawsuits in four states in which the Company has been falsely accused of misleading customers into believing that its hazardous materials charges were required by governmental laws or regulations. The Company has denied the allegations and believes that the hazardous materials charges are lawful and have been properly disclosed. In one suit, an Oklahoma State court certified a nationwide class. In another, in California, the Company is in the midst of a trial. In view of the uncertainties of litigation, the costs to defend lawsuits in multiple jurisdictions and the Company's desire to focus on its business, the Company has preliminarily settled all of the lawsuits. The Company believes that the $7.5 million charge which was recorded in the fourth quarter of fiscal 2000 represents an estimate of the overall costs associated with the defense and settlement of these claims.
The Company is involved in various legal and regulatory proceedings that 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 condition, results or operations or liquidity.
(b) Insurance Coverage
The Company has established insurance programs to cover workers' compensation, business automobile, general and products liability. These programs have self-insured retention of $500 thousand per occurrence. Estimated losses are accrued based upon the Company's experience for the aggregate liability for claims incurred and claims incurred but not reported. The Company believes its insurance reserves are adequate.
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 that exceed its liability insurance coverage of $100 million, such suits could have a material adverse effect on the Company's financial position, results of operations or liquidity.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(20) SUPPLEMENTAL CASH FLOW INFORMATION
(21) MINORITY INTEREST IN SUBSIDIARIES
Minority interests in subsidiaries represent the minority shareholders' proportionate share of the equity and the results of operations of the domestic and foreign subsidiaries. The Company sold minority interests in its domestic 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.
In December 1997, the Board of Directors approved a Mandatory Exchange in accordance with the exchange rights agreements between the Company and the domestic minority shareholders. The number of shares issued from treasury stock was determined based upon the valuation of the minority interest and the price of the Company's common stock as of February 28, 1998. The market price on February 28, 1998, was $17.94 per share. The Mandatory Exchange required that all domestic minority shareholders exchange their minority interests for an aggregate of 707 thousand shares of common stock. The acquisition of these minority interests under the Mandatory Exchange was recorded using the purchase method of accounting.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(22) SUMMARY BY BUSINESS SEGMENT
The Company aggregates its operations, based on products and services, into two reportable segments, Distribution and Gas Operations. The Distribution segment accounts for approximately 90% of consolidated sales. The segment's principal products and services are packaged gases, equipment rental and hardgoods. Gas sales include industrial, medical and specialty gases such as: nitrogen, oxygen, argon, helium, acetylene, carbon dioxide, nitrous oxide, hydrogen, welding gases, ultra high purity grades and special application blends. Rent is derived primarily from compressed gas cylinders, cryogenic liquid containers and bulk storage tanks rented to customers and through welding equipment rentals. Hardgoods consist of welding supplies, equipment, safety products, and industrial tools and supplies.
The segment entitled Gas Operations consists of certain domestic operating companies, principally dry ice and carbon dioxide, and, until their divestiture in August 1999, the Company's operations in Poland and Thailand. The products and services of this segment consist of the production of dry ice and liquid carbon dioxide, the operation of specialty gas laboratories and the manufacture of nitrous oxide. Until the December 1998 divestiture, Gas Operations also manufactured calcium carbide and carbon products.
The Company's operations are principally in North America. The Company's customer base is diverse and sales are not dependent on a single or small group of customers.
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies (Note 1). Additionally, Corporate operating results are allocated to each segment pro rata based on sales dollars; Corporate assets have been allocated to the Distribution segment; intercompany sales are recorded on the same basis as sales to third parties; intercompany transactions are eliminated in consolidation; and special charges are not allocated to the business segments.
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(22) SUMMARY BY BUSINESS SEGMENT - (Continued)
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(22) SUMMARY BY BUSINESS SEGMENT - (Continued)
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(22) SUMMARY BY BUSINESS SEGMENT - (Continued)
AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(22) SUMMARY BY BUSINESS SEGMENT - (Continued)
A reconciliation of the combined operating segments to the applicable line items on the consolidated financial statements follows:
(23) SUPPLEMENTARY INFORMATION (UNAUDITED)