<PAGE>
<PAGE> 1 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 1-9344
AIRGAS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-0732648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
259 North Radnor-Chester Road, Suite 100
Radnor, Pennsylvania 19087-5283
(Address of principal executive offices) (Zip Code)
(610) 687-5253
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
______________________________________ _____________________
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
_____ ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the 62,147,322 shares of voting stock held
by non-affiliates of the registrant on June 15, 1998 was approximately $878
million. For purposes of this calculation, only executive officers and
directors were deemed to be affiliates.
The number of shares of Common Stock outstanding as of June 15, 1998 was
71,207,867.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for the Annual Meeting of Stockholders to be
held August 3, 1998 is partially incorporated by reference into Part III.
Those portions of the Proxy Statement included in response to Item 402(k) and
Item 402(l) of Regulation S-K are not incorporated by reference into Part III.
<PAGE> 2
AIRGAS, INC.
TABLE OF CONTENTS
PART I
ITEM PAGE NO.
_____ ________
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . .13
PART II
5. Market for the Company's Common Stock and Related Stockholder Matters . 14
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 15
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . 31
8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . 31
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 31
PART III
10. Directors and Executive Officers of the Company . . . . . . . . . . . . 31
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 32
12. Security Ownership of Certain Beneficial Owners and Management. . . . . 32
13. Certain Relationships and Related Transactions. . . . . . . . . . . . . 32
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K . . . . 32
<PAGE>
<PAGE> 3 PART I
ITEM 1. BUSINESS.
GENERAL
Airgas, Inc. ("Airgas" or the "Company") classifies its operations into
three business segments: Distribution, Airgas Direct Industrial ("ADI") and
Manufacturing. Sales for Airgas were $1.45 billion in fiscal 1998, and $1.16
billion and $838 million in fiscal 1997, and 1996, respectively. Distribution
sales represented 76% of total sales and 85% of Airgas' operating income
(excluding special charges) in fiscal 1998. 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 21 to the Company's consolidated financial
statements for the three years ended March 31, 1998 under Item 8.
During the fourth quarter of fiscal 1998, the Company announced its
restructuring plan, called "Repositioning Airgas for Growth" (the Repositioning
Plan). The Repositioning Plan involves the consolidation of the Distribution
segment by combining 34 hubs into 16 larger regional companies; consolidating
certain of ADI's warehouse facilities into five regional distribution
facilities; restructuring the carbon dioxide business in the Manufacturing
segment; standardizing and integrating information systems utilizing two legacy
systems; and building a national information, procurement and logistics
infrastructure to support expanded product lines and distribution channels, and
to strengthen national sales and marketing. The Repositioning Plan is the
cornerstone to the Company's vision of becoming a multi-channel, multi-billion
dollar, world-class distribution company with increased potential for internal
growth, offering customers a broader line of products and services, and
continued growth by acquisition.
The Distribution business is conducted in over 700 locations in 44 states,
Canada and Mexico. Principal products distributed include: industrial, medical
and specialty gases and a wide selection of name-brand welding equipment,
accessories and industrial protective equipment ("hardgoods"). In connection
with the distribution of gases, Airgas rents industrial gas cylinders and bulk
storage tanks to its customers. The Company believes that it is the largest
distributor of industrial, medical and specialty gases and related equipment in
the U.S.
ADI sells an expansive line of metalworking, safety and other Maintenance,
Repair and Operations ("MRO") products. The Company believes ADI helps enable
it to compete as a low cost supplier and will help increase sales by offering
customers additional distribution channels.
Manufacturing operations include the production of atmospheric gases at
two air separation plants, the production of carbon dioxide, dry ice, specialty
gases, carbon products, calcium carbide and nitrous oxide. Included in the
carbon dioxide business are the Northeast Jackson Dome carbon dioxide reserves
and related 183-mile pipeline, Airgas Carbonic Industries (formerly Carbonic
Industries Corporation), and related carbon dioxide and dry ice distributors
and producers.
<PAGE>
<PAGE> 4
THE DISTRIBUTION BUSINESS
Industry Background
The industrial gas distribution market is broad and includes customers
from most major industries. Airgas sells nitrogen, oxygen, argon, helium,
acetylene, carbon dioxide, nitrous oxide, hydrogen and welding gases and a
variety of medical and specialty gases to a diverse customer base. Gases are
distributed and stored in industrial gas cylinders and bulk storage tanks.
Hardgoods sold through its distribution network include: protective and safety
equipment, such as hard hats, welding helmets, goggles, face shields and
glasses; welding machines and welding consumables; metalworking tools and
related consumables and accessories, such as electrodes, electrode holders and
cable connectors.
The Company believes the United States market for industrial gases is
approximately $8 billion annually. Sales to major users of industrial gases
that have the capacity to accept large bulk shipments or pipeline deliveries
are generally serviced directly by industrial gas producers and account for
approximately $4 billion of such market. The remaining $4 billion of annual
industrial gas sales are made to small bulk users and cylinder gas customers.
These small bulk users and cylinder gas customers are also believed to purchase
approximately $3.5 billion of hardgoods annually. Small bulk users and
cylinder gas customers are primarily served by a fragmented distribution system
of approximately 950 distributors, the majority of which are independently
owned. The Company concentrates on the small bulk, cylinder gas, welding and
protective equipment segment of the market. This segment is less capital
intensive, in part, because of the long useful lives of the fixed assets,
principally cylinders.
Growth Strategy
The Company's strategy is to focus on internal growth supplemented by the
continued acquisition of industrial gas distributors. The Company also intends
to strategically broaden its product line in order to increase sales in
existing locations and to leverage its distribution network. The Company
believes the selective addition of complementary product offerings through its
distribution network and its direct channels will enable it to better serve its
diverse, expanding customer base.
From 1994 to 1998, the Company acquired 124 distributors of industrial
gases and related equipment, with annual sales of nearly $600 million. The
industrial gas distribution industry continues to undergo a consolidation
process which Airgas believes will continue to present it with opportunities to
acquire industrial gas distributors. The Company believes that its principal
competitive advantages in acquiring distributors are its extensive distribution
network, its well-organized acquisition program, flexibility in structuring
acquisitions to meet sellers' needs and the ability to offer sellers and their
employees a continuing role in a decentralized entrepreneurial environment. In
seeking to acquire distributors, the Company competes with industrial gas
producers and other independent distributors.
The Company has financed distributor acquisitions primarily with
internally generated funds, debt and common stock. The Company has been able
to obtain debt financing due, in part, to its ability to generate cash flow
from operating activities and the long useful lives and relatively stable
market values of the fixed assets, principally cylinders.
<PAGE> 5
Operating Policies
The Company believes that its operations are best managed at the local
level by entrepreneurial, incentive-driven executives with backgrounds
principally in the industrial gas industry. The continuity afforded by
retaining the key employees of an acquired business combined with local
management is essential because the Company's distribution business is local in
nature and is dependent upon satisfied repeat customers.
Customer Base
The majority of the Company's gases are generally stored in bulk tanks at
the Company's cylinder fill plants and are pumped into cylinders for
distribution to customers or, in the case of bulk customers, in tanker trucks
or tube trailers for delivery into bulk tanks at the customer's business
location. The Company emphasizes sales to cylinder and small bulk (less than
truckload quantities) gas customers.
The distribution of industrial gases historically has been to customers
engaged in the business of welding and metal fabrication. In order to better
serve these customers, industrial gas distributors have traditionally sold
hardgood items through their distribution branch locations. As certain sectors
of the economy have grown, such as the electronics and chemicals industries,
and as new applications for gases have developed, the customer base of the gas
distribution business has broadened significantly to include businesses in
almost every major industry, from medical and high technology to consumer and
basic industries. For example, the food and beverage industry uses carbon
dioxide and nitrogen; the electronics industry uses oxygen, nitrogen, argon,
and hydrogen; the healthcare industry uses oxygen, nitrogen, and nitrous oxide;
and the chemical and fiber industries use nitrogen.
The Company continues to concentrate its efforts in the small bulk gas
market. The primary gases that Airgas sells in bulk are liquid oxygen,
nitrogen, argon, and carbon dioxide, and gaseous hydrogen, helium and nitrogen.
The Company charges customers rent for the use of bulk tanks and tube trailers
which are placed on the customer's property. The Company believes there are
growth opportunities in marketing to these small bulk customers, which it can
serve more effectively than industrial gas producers.
Specialty gases are used in various industries, including the electronic,
healthcare, biotechnology and high technology industries, and in laboratory
applications, include rare gases, high-purity gases, and blended
multi-component gas mixtures. Certain specialty gases are produced by Airgas
Specialty Gases ("ASG"), a Manufacturing segment subsidiary, and sold to
customers through the Distribution segment.
<PAGE> 6
The Company's same-store sales, a comparison of current period sales to
the prior period's sales, adjusted for acquisitions, has historically followed
the real gross domestic product annual growth rate as published by the Commerce
Department. Management believes the Company's broad customer base and
geographic diversity help to reduce the adverse effects of an economic downturn
on the Company. Management also believes that the gas portion of its
distribution business is somewhat resistant to an economic downturn due to the
following factors: 1) gases frequently represent a fixed cost of operations
that do not necessarily decline with production levels; 2) gases are required
for maintenance and renovation activities which tend to increase during an
economic downturn; 3) industries less subject to the effects of an economic
downturn, such as the medical field, are major purchasers of gases; and 4) gas
purchases often represent a small portion of a typical user's overall cost of
operations and, therefore, do not typically represent a large cost-cutting
item. Management further believes that sales of certain lower margin
nonconsumable hard-goods equipment, such as welding machines, are more
adversely impacted during a downturn in the economy and are typically the
fastest to rebound during an economic recovery.
Products
Gases distributed by Airgas include oxygen, nitrogen, hydrogen, argon,
helium, acetylene, carbon dioxide, nitrous oxide and specialty gases. In
addition to gases, the Company distributes a wide selection of name-brand
hardgoods, including electrode holders, welding wire, cable lugs and
connectors, hard hats, welding helmets, hearing protectors, goggles, face
shields, safety glasses, welding machines and electrodes. Of Airgas' fiscal
1998 sales from the Distribution segment, approximately 48% represent sales
related to gases and the rental of cylinders and bulk tanks and 52% represent
hardgoods sales.
Suppliers
The Company purchases industrial, medical and specialty gases pursuant to
requirements contracts from the major producers of industrial gases in the
United States and regional producers. The Company believes that if a
contractual arrangement with any supplier of gases were terminated, it would be
able to locate alternative sources of supply without significant cost increases
and with no disruption of service.
The Company purchases hardgoods from name-brand manufacturers and
suppliers. For certain products, the Company has negotiated national
purchasing arrangements and is reducing its investment in Distribution hardgood
inventories by consolidating vendors.
<PAGE> 7
AIRGAS DIRECT INDUSTRIAL BUSINESS
ADI sells welding, metal working, safety and other MRO hardgoods. ADI's
principal thrust is to sell directly to customers, through outbound
telemarketing and catalogs, and to build on Airgas' existing base of more than
700,000 customers and its strong customer relationships. ADI targets the same
metal fabrication market that accounts for a large part of Airgas' current
Distribution gas and hardgoods sales. The Company believes that the safety and
metalworking tools market represents approximately $55 billion in annual
revenues. The Company believes that ADI's direct channel of delivery and
distribution infrastructure will lower the costs to all Airgas customers by
leveraging the Company's purchasing power, taking advantage of economies of
scale and reducing the number of times an order is handled before the products
reach the customer. The Company believes ADI will also provide improved
customer services, such as next-day delivery, and will enhance the Company's
branch-based network's ability to obtain and service national accounts.
To better serve its customers, ADI is consolidating certain of its
warehouses into five regional distribution facilities located in California,
Georgia, Wisconsin, Texas and Pennsylvania. The first consolidated
distribution facility opened near Los Angeles, California in February 1998, and
the second distribution facility, outside of Atlanta, Georgia, is scheduled to
become fully operational in June 1998.
The Company anticipates that all five distribution facilities will be
operational by mid-1999. The five distribution facilities will use a common
purchasing system combined with a common management system, which will also
serve as the hardgoods procurement and logistics infrastructure for the
Distribution segment.
Products
ADI's products include safety, industrial and environmental supplies,
along with industrial tools, MRO supplies and welding and safety equipment. In
fiscal 1998, ADI completed two acquisitions to expand product lines and
geographic coverage, and enhance marketing and service capabilities.
Suppliers
The Company purchases safety, industrial and environmental supplies from
name-brand manufacturers and suppliers. For certain products, the Company has
negotiated national purchasing contracts. The Company believes that if a
contractual arrangement with any manufacturer or supplier were terminated, it
would be able to locate alternative sources of supply without significant cost
increases and with no disruption of service.
MANUFACTURING AND RELATED BUSINESS
Carbon Dioxide
Among the initiatives which have helped the Company to expand its carbon
dioxide business were the 1997 acquisitions of the Northeast Jackson Dome
carbon dioxide reserves and the related 183-mile pipeline which is located in
the Southeastern United States. In addition, the Company acquired Carbonic
Industries Corporation, a carbon dioxide producer, during fiscal 1998. These
acquisitions, combined with the acquisition of additional carbon dioxide and
dry ice production and distribution operations, complement the Distribution
segment industrial gas business. Carbon dioxide is used in refrigeration, food
processing, beverage carbonation, chemical processing, crude oil recovery,
metal fabrication and agricultural fumigation industries. The primary uses for
<PAGE> 8
dry ice include food processing, chilling and freezing and bacteria
retardation.
Air Separation Units
In further developing its industrial gas customer base to include
customers which require large-volume supplies of gases, such as nitrogen, the
Company has entered into long-term supply agreements with two customers which
supported the construction of two air separation plants. The plants began
production in fiscal 1998. The air separation plants also produce liquid
oxygen and argon which is sold to Airgas' Distribution customers.
ASG
ASG operates five "A" laboratories, which produce complicated specialty
gas mixtures, and oversees the Company's thirty Distribution "B" laboratories,
which produce simple, pure gases and certain common mixtures. The specialty
gas laboratories are owned by subsidiaries of the Company. ASG also assists in
growing the Company's specialty gas business and improving the responsiveness
and quality of specialty gas operations. The principal drivers for market
growth include: (1) environmental regulations, such as the Clean Air Act, water
testing and pollution remediation, testing and monitoring; (2) quality control
services using in-line chromatography and spectrography to analyze samples; and
(3) the growth of environmental, research and clinical laboratories.
Nitrous Oxide
Nitrous oxide is used as an anesthetic in the medical and dental fields,
as a propellant in the packaged food business and is utilized in the
manufacturing process of certain high technology electronic industries.
Carbon Products
The Company manufactures carbon electrode paste, carbon ramming paste and
electrically calcined anthracite ("ECA"). The Company believes that it is the
nation's primary manufacturer of carbon electrode paste which is used as a
consumable electrode in the production of special alloy steel, nickel and other
metals in the metals industry. ECA is used as an ingredient in carbon mixes
used in the aluminum industry and as an additive in the production of certain
metals.
Calcium Carbide
The Company is a partner with Elkem Metals Company in a joint venture
(Elkem-American Carbide Company) which primarily sells calcium carbide for use
in the production of acetylene gas. The Company operates a manufacturing
facility which produces calcium carbide for sale to the joint venture. Calcium
carbide is a primary raw material for the production of acetylene gas, which is
sold in the industrial gas distribution market.
Suppliers
The Company purchases the raw materials utilized in its nitrous oxide,
carbon products and calcium carbide division of its manufacturing segment
pursuant to contracts from name-brand manufacturers and suppliers. The
Company's carbon dioxide requirements are obtained from the carbon dioxide
reserves owned by the Company and purchased from the major producers of carbon
dioxide in the United States. The Company believes that if a contractual
arrangement with any supplier were terminated, it would not have a material
adverse effect on the operation of the Company's Manufacturing business.
<PAGE> 9
COMPETITION
Each of the major business areas in which the Company participates is
highly competitive. Some competitors are larger than the Company and have
greater resources.
The Company's industrial gas distribution operations compete with
independent distributors and vertically integrated gas producers such as Air
Products and Chemicals, Inc. ("Air Products"), Praxair, Inc. ("Praxair"),
Liquid Air Corporation of America ("Air Liquide"), BOC Gases Group ("BOC
Gases") and others, all of which have distribution operations. The Company
also purchases industrial gases pursuant to requirements contracts from the
above major producers of industrial gases.
Competition in the distribution market is based on customer service,
prompt delivery, price, consistent product quality, attention to safety
procedures, and employee and customer training in the uses of gases and
hardgoods. The Company believes its decentralized structure allows competitive
decisions to be made on the local level which results in reduced costs and/or
improved service to the customer.
The ADI segment competes with small branch-based industrial distribution
companies at the local level and nationally with large, branch-based and direct
marketers, which include W.W. Grainger, Inc. and MSC Industrial Direct, Inc.,
which sell through catalogs and stores, and Vallen Corporation, a safety
equipment distributor. Competitive factors in the distribution of safety and
MRO products include: efficient service, quality and availability of products,
technical knowledge, and price.
The Company's carbon dioxide business competes with suppliers of carbon
dioxide and three major carbon dioxide companies: Praxair, BOC Gases and Air
Liquide. These three companies produce over 80% of the United States merchant
carbon dioxide, develop most of the new applications and handle much of the
distribution.
REGULATORY AND ENVIRONMENTAL MATTERS
The businesses of the Company's subsidiaries are subject to federal and
state laws and regulations adopted for the protection of the environment and
the health and safety of employees and users of the Company's products. The
Company has programs for the operation and design of its facilities to achieve
compliance with applicable environmental rules and regulations. The Company
believes that it is in compliance in all material respects with such laws and
regulations. Expenditures for environmental purposes during fiscal 1998 were
not material.
INSURANCE
The Company has established insurance programs to cover workers'
compensation, business automobile, general and products liability. These
programs have self-insured retentions of $500,000 per occurrence for workers'
compensation, general and products liability, and business automobile
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred, claims incurred but not reported and
based on Company experience. The Company does not deem its self-insured
retention exposure to be material.
<PAGE> 10
The nature of the Company's business may subject it to product and general
liability lawsuits. To the extent that the Company is subject to claims which
exceed its liability insurance coverage of $100,000,000, such suits could have
a material adverse effect on the Company's financial position, results of
operations or liquidity.
EMPLOYEES
On March 31, 1998, the Company employed approximately 8,100 people of whom
approximately 4% 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 in the past 11 years.
PATENTS, TRADEMARKS AND LICENSES
The Company holds trademark registrations for "Airgas", "Dyna-Switch,"
"Gold Gas," "Stainless Mix," "Steelmix" and "Alummix." The Company holds
patent registrations for the purification of acetonitrile and 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) 48 Chairman of the Board, President
and Chief Executive Officer
E. Pat Baker 58 Group President - Industrial Gas
Distribution
William A. Rice, Jr. 51 Group President - Airgas Direct
Industrial
Hermann Knieling 60 Executive Vice President and Group
President - Manufacturing,
International and Business
Engineering
Alfred B. Crichton 50 Division President - West
John Musselman 49 Division President - East
Gordon L. Keen, Jr. 53 Senior Vice President - Law and
Corporate Development
Scott M. Melman 41 Vice President - Chief Financial
Officer
Rudi G. Endres 54 Vice President - International
Andrew R. Cichocki 35 Vice President - Corporate
Development
Samuel H. Goldstein 39 Vice President - Information
Services
__________________
(1) Member of the Board of Directors
<PAGE> 11
Mr. McCausland has been a Director of the Company since June 1986, the
Chairman of the Board and Chief Executive Officer of the Company since May 1987
and President from June 1986 to August 1988, from April 1993 to November 1995,
and since April 1997. In May 1997, Mr. McCausland was elected to the board of
directors of Hercules Inc., a worldwide manufacturer of chemical specialty
products.
Mr. Knieling has been Executive Vice President and Group President -
Manufacturing, International and Business Engineering since April 1997. Prior
to that, Mr. Knieling served as the President and Chief Operating Officer of
Airgas from December 1995 to March 1997. Mr. Knieling served as Division
President - Southern Division from April 1995 to November 1995 and as Division
President - Eastern Division from February 1993 to March 1995. Prior to that,
Mr. Knieling has served in various positions with Airgas since 1989.
Mr. Baker has been Group President - Industrial Gas Distribution since
April 1997. Prior to that, Mr. Baker served as the Company's Division
President - Eastern Division from April 1995 to March 1997; Regional Vice
President from May 1991 to February 1993, and President of Southwest Airgas
from October 1988 to April 1991. Prior to that, Mr. Baker has served in
various positions with Airgas since 1988.
Mr. Rice has been Group President - Airgas Direct Industrial since April
1997. Prior to that he served as Airgas' Division President - Industrial
Distribution and Purchasing from April 1995 to March 1997 and served as Vice
President - Purchasing from August 1993 to March 1995. Until August 1993, Mr.
Rice was President of Virginia Welding Supply, which was acquired by
the Company in July 1992.
Mr. Crichton has been the Company's Division President - West since
February 1993. Prior to that, Mr. Crichton served as a Regional Vice President
from May 1991 to 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. 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. Melman has been Vice President and Chief Financial Officer since May
1998. Prior to that, Mr. Melman served as Vice President - Administration from
April 1995 to May 1998, Vice President - Corporate Controller from August 1994
to March 1995 and Corporate Controller from August 1986 to July 1994.
Mr. Endres has been Vice President - International since January 1993.
Prior to that, Mr. Endres has served in various positions since joining Airgas
in 1987.
Mr. Goldstein has been the Vice President-Information Services of Airgas
since September 1996. He joined Airgas from KPMG Peat Marwick LLP where he
served as a National Service Leader for their Consulting Division since June
1991.
Mr. Cichocki has been Vice President - Corporate Development of Airgas
since April 1997. Mr. Cichocki served as Assistant Vice President - Corporate
Development from August 1992 to March 1997. Prior to that, he served in
various corporate development and finance positions from April 1988 to July
1992.
<PAGE> 12
ITEM 2. PROPERTIES.
The Company's Distribution segment conducts business from approximately
700 locations in 44 states, Canada and Mexico. These locations are either
owned or are leased from third parties or from employees of the Company who
were previous owners of businesses acquired on terms consistent with commercial
rental rates prevailing in the surrounding rental market. Eighteen
distribution locations in fourteen states have acetylene manufacturing plants.
The Company's acetylene plants operate at an average production capacity of
approximately 70%.
The Company's ADI segment conducts its business from locations
strategically located throughout the United States. ADI's principal offices
are located in Bristol, Pennsylvania, and Whittier, California, with additional
warehouse locations in Texas, Georgia, Wisconsin, Arizona, Illinois, Ohio, New
York, Colorado, Washington, North Carolina and Minnesota.
The Company's Manufacturing segment operates several carbon dioxide
facilities throughout the United States. CIC operates nine production
facilities, primarily in the eastern United States and is also a partner in a
joint venture which operates a production facility in Augusta, Georgia. The
carbon dioxide business also operates the Jackson Dome production facility
located in Jackson, Mississippi. The average production capacity of these
plants, based on market demand has ranged from 85% to 100%.
The air separation units produce industrial gases located at owned
facilities in Mulberry, Arkansas and Lawton, Oklahoma. The average production
capacity of these plants ranges from 60% to 75%.
Carbon products are produced in Keokuk, Iowa; calcium carbide in Pryor,
Oklahoma; nitrous oxide in Donora, Pennsylvania and Yazoo City, Mississippi.
Manufacturing facility utilization, based on market demand, has ranged from 65%
to 100%. The Keokuk and Pryor facilities are owned by the Company. The Donora
plant is located on property leased through the year 2006. The Yazoo City
property is owned by the Company; however, it will revert to the local
municipality if the plant terminates operations. The Keokuk, Pryor and Donora
facilities are pledged as collateral under industrial development board revenue
bonds.
The principal executive offices of the Company are located in leased space
in Radnor, Pennsylvania.
The Company believes that its facilities are adequate for its present
needs and that its properties are generally in good condition, well maintained
and suitable for their intended use.
ITEM 3. LEGAL PROCEEDINGS.
In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in
the Circuit Court of Mobile County, Alabama. The complaint alleges tortious
interference with business or contractual relations with respect to Praxair's
Right of First Refusal contract with the majority shareholders of National
Welders Supply Company, Inc. ("National Welders") by the Company in connection
with the Company's formation of the joint venture with National Welders.
Praxair is seeking compensatory damages in excess of $100 million and punitive
damages. 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
<PAGE> 13
Carolina action Praxair seeks compensatory damages in excess of $10,000,
punitive damages and other unspecified relief. The Company believes that
Praxair's North Carolina claims are also without merit and intends to defend
vigorously against such claims.
On September 9, 1996, the Company filed suit against Praxair in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The complaint alleges
breach of contract, fraud, conversion and misappropriation of trade secrets
with respect to an agreement between Praxair and the Company, pursuant to which
Praxair induced the Company to provide Praxair valuable information and
conclusions developed by the Company concerning CBI Industries, Inc. ("CBI") in
exchange for Praxair's promise not to acquire CBI without the Company's
participation. The Company has alleged that it became entitled, pursuant to
such agreement, to acquire certain of CBI's assets having a value in excess of
$800 million. The Company is seeking compensatory and punitive damages.
The Company and its subsidiaries are parties to pending legal proceedings
arising out of their business operations. The proceedings involve claims for
personal injuries, breach of contract, product warranty and product design,
and claims involving employee relations and certain administrative
proceedings. Management does not believe that the eventual outcome of any
litigation to which the Company or its subsidiaries are parties would have a
material adverse effect on the consolidated financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange
(ticker symbol: ARG). The following table sets forth, for each quarter during
the last two fiscal years, the high and low sales prices as reported by the
New York Stock Exchange.
High Low
---- ---
1998 Fiscal
First Quarter $20.88 $13.50
Second Quarter 20.44 16.75
Third Quarter 17.50 13.38
Fourth Quarter 18.19 13.88
1997 Fiscal (1)
First Quarter $22.38 $18.75
Second Quarter 25.50 17.38
Third Quarter 27.13 21.13
Fourth Quarter 24.50 16.50
________________
(1) Adjusted to reflect a two-for-on stock split effective on April 15, 1996
(See Note 10 to the Company's consolidated financial statements under Item
8). On May 30, 1998, there were approximately 15,000 holders of
record of the Company's Common Stock.
The present policy of the Company is to retain earnings to provide funds
for the operation and expansion of its business and not to pay cash dividends
on its Common Stock. Any payment of future dividends and the amounts thereof
will depend upon the Company's earnings, financial condition, loan covenants,
capital requirements and other factors deemed relevant by the Board of
Directors (See Note 9 to the Company's consolidated financial statements).
<PAGE>
<PAGE> 15
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 and the
Company's consolidated financial statements included in Item 8 herein.
(in thousands except per share amounts):
Years Ended March 31, (3)
___________________________________________
1998 1997 1996 1995 1994
(1) (2)
____ ____ ____ ____ ____
Operating Results:
Net sales $1,447,990 $1,158,894 $838,144 $687,983 $519,349
Depreciation, depletion &
amortization 76,670 62,491 45,762 36,868 30,571
Operating income 118,948 82,285 92,985 72,600 48,667
Interest expense, net 53,290 39,752 24,862 17,625 12,486
Income taxes 29,989 21,080 28,522 23,894 16,027
Net earnings 40,540 23,266 39,720 31,479 20,290
Basic earnings per share(4) $ .59 $ .35 $ .63 $ .51 $ .33
Diluted earnings
per share(4) $ .57 $ .34 $ .60 $ .48 $ .31
Balance Sheet Data:
Working capital $ 141,276 $ 124,849 $ 81,588 $ 54,084 $ 47,071
Total assets 1,641,474 1,291,031 883,642 645,637 514,897
Current portion of long-term
debt 12,150 25,158 12,179 11,780 10,304
Long-term debt 830,845 629,931 385,832 259,970 205,311
Other non-current liabilities 36,842 29,601 34,490 11,116 6,635
Stockholders' equity(5) $ 426,873 $ 336,657 $236,209 $189,652 $156,867
_______________
(1) As discussed in Note 3 to the Company's consolidated financial statements,
the results for 1998 include: (a) fourth quarter special charges which
totaled $19.5 million ($12.4 million after-tax) which consisted of
severance, exit costs for the closure of duplicate facilities, the
impairment write-down of property, plant and equipment and related
goodwill and a write-down related to the impending divestiture of several
non-strategic businesses, offset by a one-time net gain related to an
acquisition break-up fee, and (b) a second quarter non-recurring gain of
$14.5 million ($9.4 million after-tax) from the partial recovery of
refrigerant losses and $1.5 million ($980 thousand after-tax) from the
sale of a non-core business. Excluding the effects of the special charges
and non-recurring gains, net earnings were $42.6 million or $.60 per
diluted share.
(2) As discussed in Note 3 to the Company's consolidated financial statements,
during the fourth quarter of 1997, the Company recorded special charges
totaling $31.4 million ($20.2 million after-tax) and incurred a net loss
of $780 thousand related to the sale of a non-core business. Excluding
the effects of the special charges and the loss, net earnings were $44.3
million or $.65 per diluted share.
(3) During 1994 through 1998, the Company acquired 137 distributor businesses.
(4) See Notes 4 and 10 to the Company's consolidated financial statements for
information regarding earnings per share calculations and adjustment for
a stock split, effective April 15, 1996.
(5) The Company has not paid any dividends on its Common Stock.
<PAGE> 16
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7.
RESULTS OF OPERATIONS: 1998 COMPARED TO 1997
____________________________________________
OVERVIEW
During 1998, the Company made considerable progress toward its vision
of becoming a multi-channel, multi-billion dollar, world-class distribution
company supplying industrial, medical and specialty gases and
related products and services on a national basis.
The Company continues to expand through acquisitions. During fiscal 1998,
the Company completed 28 acquisitions with combined annual sales of $265
million. In the past five years, the Company has added nearly $1 billion of
sales through 137 acquisitions. The Company believes that with approximately
950 independent industrial gas distributors remaining, there will be continued
opportunity for growth through distributor acquisitions.
During the fourth quarter of 1998, the Company announced its
"Repositioning Airgas for Growth" restructuring plan (the "Repositioning
Plan"). The Repositioning Plan involves: consolidating the Distribution
segment by combining 34 hubs into 16 larger regional companies; consolidating
certain of Airgas Direct Industrial's ("ADI") warehouse facilities into five
large regional distribution facilities; restructuring the carbon dioxide
businesses in the Manufacturing segment; standardizing and integrating
information systems utilizing two legacy systems; and building a national
information, procurement and logistics infrastructure to support expanded
product lines and distribution channels, and to strengthen national sales and
marketing. To focus on its core business, the Company intends to divest certain
non-strategic businesses and to
sell or seek joint venture partners for several non-U.S. operations. The
Company anticipates that the Repositioning Plan will be substantially completed
by June 30, 1999.
In connection with the Repositioning Plan, the Company recorded special
charges in the fourth quarter ("1998 Special Charges") totaling $19.5 million
($12.4 million after-tax or $.18 per diluted share) which consisted of the
following:
(in thousands)
_______________
Impairment write-down of property, plant,
equipment and goodwill $11,423
Divestiture charges 6,851
Facility exit costs 2,577
Severance costs 1,578
Acquisition break-up fee, net (2,979)
______
Special Charges 19,450
Refrigerant recovery (14,500)
______
Special charges, net $ 4,950
======
<PAGE> 17 AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Repositioning Plan requires the sale, closure or downsizing of
approximately 30 distribution locations and a workforce reduction
of approximately 200 employees. The Company believes these actions
will result in the consolidation of distribution facilities into
fewer, larger and more efficient facilities.
As a result, the Company has written-down to fair value, less the cost to
dispose of, certain property, plant and equipment and related goodwill by $11.4
million. Fair value was based on the estimated future undiscounted cash flows
to be generated from the sale of these assets. The write-down primarily
relates to: computer equipment which is obsolete as a result of standardizing
information systems; buildings and improvements related to facilities which are
being closed; machinery and equipment related to discontinued product lines;
and the goodwill associated with related business combinations.
In connection with the impending divestiture of certain non-strategic
businesses, the Company has established reserves of approximately $6.9 million.
The write-down was based on an evaluation of the estimated fair value of these
assets which indicated that these assets were impaired. Fair value was based
on the estimated future undiscounted cash flows to be generated from the sale
of these assets. Sales associated with such businesses total approximately $25
million.
Other costs including leased facility termination costs and severance,
totaled $2.6 million and $1.6 million, respectively.
The break-up fee was received during the fourth quarter in connection with
a proposed acquisition of an industrial gas distributor and is net of
acquisition costs of $2.5 million.
The 1998 Special Charges impacted the Company's three business
segments as follows:
Special Refrigerant
(in thousands) Charges Recovery Total
______________ ________ ___________ ______
Distribution $11,875 $ - $11,875
ADI 4,009 - 4,009
Manufacturing 3,566 (14,500) (10,934)
______ ______ ______
$19,450 $(14,500) $ 4,950
====== ====== ======
The Company believes the estimated impact on 1999 operating expenses
resulting from the write-down of property, plant, equipment and goodwill is
approximately $1.3 million. This benefit will largely be offset by higher costs
associated with expanding the Company's workforce in such areas as sales and
marketing and technical specialists, the expansion of existing and new
facilities and improved information systems. During 1999, in connection with
the standardization of information systems and the build-out of ADI warehouses,
the Company expects non-recurring expenses and capital expenditures of
approximately $7 million and $17 million, respectively. Until such time as the
information systems are converted and warehouse and administrative functions
are consolidated, the Company expects to incur higher operating costs and
expenses.
Cash outflows related to the 1998 Special Charges, before the acquisition
break-up fee, are estimated to total $4.2 million. Approximately $600 thousand
was paid at March 31, 1998. The Company expects the balance to be paid during
fiscal 1999.
<PAGE> 18
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
On July 28, 1997, the Company reported that it had negotiated a
comprehensive settlement with all defendants in litigation related to the
fraudulent breach of contract by a third-party supplier of refrigerant gas
which was reported by the Company in December 1996. The Company recorded a
non-recurring pre-tax charge during the fourth quarter of 1997 of $26.4 million
($17 million after-tax or $.25 per diluted share) for product losses and costs
associated with the Company's investigation into the fraud and recovery of
damages. As a result of the settlement, the Company recorded a non-recurring
gain in the second quarter of 1998 of $14.5 million ($9.4 million after-tax or
$.13 per diluted share). The Company is seeking recovery of the balance of the
fraud losses from its insurers.
Additional information concerning the Repositioning Plan and 1998 Special
Charges are contained in Note 3 to the consolidated financial statements and
the effect on cash flow is discussed under "Liquidity and Capital Resources."
INCOME STATEMENT COMMENTARY
Net sales increased 25% in 1998 compared to 1997. Certain
reclassifications have been made to 1997 financial statements to conform to the
current presentation. Four businesses with annual sales of approximately $40
million which were previously reported with the Distribution segment are now
reported with the Manufacturing segment.
<TABLE>
(in thousands)
<CAPTION> 1998 1997 Increase
____ ____ __________
<S> <C> <C> <C>
Distribution $1,098,588 $ 999,555 $ 99,033
ADI 223,370 99,216 124,154
Manufacturing 126,032 60,123 65,909
_________ _________ _______
$1,447,990 $1,158,894 $289,096
========= ========= =======
</TABLE>
Distribution sales include three primary product groups: gases, hardgoods
and rent. For 1998, Distribution sales increased approximately $44 million
resulting from the acquisition of 41 distributors since April 1, 1996 and
approximately $45 million from same-store sales growth. Pro forma Distribution
sales, assuming 1998 acquisitions had been completed on April 1, 1997, would
have been approximately $1.14 billion. The increase in Distribution same-store
sales of 4.2% was more heavily weighted towards hardgoods with growth primarily
attributable to higher sales volumes in all three product groups. Although
selective price increases have been successful, overall, as a result of low
inflation, price increases during 1998 were modest. The Company believes its
same-store sales growth is slightly understated since it does not reflect the
Company's decision to cease unprofitable sales to certain customers and other
sales lost during acquisition consolidation and integration activity.
<PAGE> 19
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company estimates same-store sales based on a comparison of current
period sales to the prior period's sales, adjusted for acquisitions. Future
same-store sales growth is dependent on the economy and the Company's ability
to expand markets for new and existing products and to increase prices. The
Company continues to focus on internal sales growth through the addition of new
gas products and product-line extensions, including specialty gases, small bulk
gases, carbon dioxide, the expansion of rental welders and tool and safety
hardgoods items.
In June 1998, management approved a plan which will result in a
reclassification of a portion of ADI's operations to the Distribution segment.
Beginning in the first quarter of fiscal 1999, certain ADI operations will be
transferred to the Distribution segment. The operations are from a company
acquired in July 1997 which better matches the operational structure of the
Distribution subsidiaries which have field-based sales personnel. For 1998,
sales, gross profits and operating income related to such operations amounted
to approximately $62 million, $14 million and $1.2 million, respectively.
ADI's sales include welding, metalworking, safety and other Maintenance,
Repair and Operations ("MRO") hardgoods items. ADI's sales increased
approximately $97 million resulting from the acquisition of four distributors
since April 1, 1996 and approximately $27 million from same-store sales. The
internal sales growth rate for ADI during 1998 was approximately 14% and
resulted primarily from increased volume. Pro forma sales for ADI, assuming
1998 acquisitions had been completed on April 1, 1997, would have been
approximately $248.5 million. Sales to the Distribution segment in 1998 and
1997, totaled approximately $3.2 million and $967 thousand, respectively.
The Manufacturing segment's sales primarily include six product
groups: carbon dioxide, dry ice, specialty gases, nitrous oxide, carbon
products and calcium carbide. Sales increased approximately $66 million
primarily from carbon dioxide and dry ice acquisitions which were completed
during 1998. Pro forma sales for Manufacturing, assuming 1998 acquisitions had
been completed on April 1, 1997, would have been approximately $148.9 million.
Sales related to nitrous oxide, carbide and carbon products increased $1.5
million or 4%. Specialty gas sales related to refrigerants and sulfur
hexafluoride were down compared to the prior year. Manufacturing sales to the
Distribution segment in 1998 and 1997 totaled approximately $9.5 million and
$6.5 million, respectively.
Gross profits increased 22% in 1998, compared to 1997:
<TABLE>
(in thousands)
<CAPTION> 1998 1997 Increase
____ ____ __________
<S> <C> <C> <C>
Distribution $543,196 $496,085 $ 47,111
ADI 62,044 26,673 35,371
Manufacturing 63,893 24,753 39,140
_______ _______ _______
$669,133 $547,511 $121,622
======= ======= =======
</TABLE>
<PAGE> 20
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The increase in Distribution gross profits of approximately $47
million resulted from acquisitions which contributed approximately $24
million and from same-store gross profit growth of 4.3% or approximately $23
million. Pro forma Distribution gross profits, assuming 1998 acquisitions had
been completed on April 1, 1997, would have been approximately $584.2 million.
Same-store gross profit growth resulted primarily from sales volume
growth in all three product groups. Overall, same-store gross margins were
essentially flat as a result of improvements in pricing resulting from
selective price increases to customers and leveraging the Company's purchasing
power through national purchasing programs, offset by the mix of product sales
which were more heavily weighted towards lower margin hardgoods. Compared to
1997, the Distribution gross margin of 49.4% in 1998 was down 20 basis points
due to acquisitions which have had an average gross margin of approximately
45%. During 1998, acquisitions had a higher sales mix of hardgoods versus
gas and rent compared to the Company's historical sales mix.
The increase in ADI gross profits of approximately $35 million
resulted from acquisitions which contributed approximately $27
million and from same-store gross profit growth of 16%, or approximately $8
million. Same-store gross profit growth resulted primarily from sales volume
growth. Same-store gross margins increased slightly as a result of
leveraging the Company's purchasing power through national purchasing programs.
Compared to 1997, the ADI gross margin of 27.8% in 1998 was up 90 basis
points due to the favorable impact of national purchasing programs, higher
selling prices and acquisitions. Pro forma gross profits for ADI, assuming
1998 acquisitions had been completed on April 1, 1997, would have been
approximately $67.7 million.
The increase in Manufacturing gross profits of approximately
$39 million resulted primarily from acquisitions, with the gross margin
increasing from 41.2% to 50.7%. Gross margins related to carbon
dioxide and dry ice acquisitions averaged 56%. Gross margins were adversely
impacted by about 100 basis points as a result of a $1.5 million
fourth quarter 1998 inventory write-down of specialty gases. During 1998, gross
margins related to sales of nitrous oxide, carbide and carbon products
increased slightly as compared to 1997, with gross profit growth principally
from higher carbide volume. Pro forma gross profits for Manufacturing,
assuming 1998 acquisitions had been completed on April 1, 1997, would have been
approximately $78.4 million.
Selling, distribution and administrative expenses ("operating expenses")
consist primarily of personnel and related costs, distribution and warehouse
costs, occupancy expenses and other selling and general administrative
expenses. Operating expenses increased approximately $97 million compared to
1997 primarily as a result of acquisitions. Operating expenses also increased
approximately $3.8 million as a result of direct costs associated with the
Company's Repositioning Plan and from higher Corporate operating costs. As a
percentage of net sales, operating expenses increased 40 basis points to 32.4%.
Depreciation, depletion and amortization ("depreciation and
amortization") totaled approximately $77 million and increased approximately
$14 million compared to 1997 primarily as a result of acquisitions and also
from higher capital expenditures. Depreciation and amortization as a percentage
of sales decreased 10 basis points as compared to 1997 as a result of ADI which
has a lower ratio of depreciation and amortization to sales of 2.7%. For the
Distribution and Manufacturing segments, depreciation and amortization relative
to sales was 5.6% and 7.3%, respectively.
<PAGE> 21
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating income, excluding special charges, increased 9% in 1998 compared
to 1997. In connection with the Repositioning Plan, 1998 operating income was
negatively impacted by $5.7 million of direct repositioning costs for
relocating employees and other personnel expenses, exiting certain product
lines and computer conversion costs. Excluding these direct repositioning
costs, operating income increased 14%:
<TABLE>
(in thousands)
<CAPTION> 1998 1997 Increase
____ ____ __________
<S> <C> <C> <C>
Distribution $105,371 $100,300 $ 5,071
ADI 6,101 3,076 3,025
Manufacturing 12,426 10,334 2,092
_______ _______ _______
$123,898 $113,710 $ 10,188
======= ======= =======
</TABLE>
The Distribution segment's operating income margin decreased
40 basis points to 9.6% compared to 1997. The decrease resulted primarily
from acquisitions which had estimated operating margins ranging from 6% to 8%
and from higher operating costs and expenses associated with the Company's
Repositioning Plan and the integration of acquisitions. The Company
anticipates that margins during 1999 will be impacted by higher operating costs
resulting from the Repositioning Plan and the continued integration of
acquisitions.
The operating income margin for ADI decreased 40 basis points
to 2.7% compared to 1997. Improvements resulting from higher same-store
sales and gross profits were partially offset by higher expenses which
included non-recurring moving costs associated with new distribution
facilities. Such moving costs, which were associated with new distribution
facilities in Southern California and Georgia, impacted operating margins by
approximately 50 basis points. The Company believes that ADI's operating margin
will continue to be impacted during 1999 and early 2000 by Repositioning Plan
costs related to new distribution facilities and information systems.
The Manufacturing segment's operating margin decreased from
17.2% to 9.9% primarily as a result of lower margins associated with 1998
carbon dioxide and dry ice acquisitions. Direct repositioning costs combined
with an inventory write-down totaled $1.6 million and adversely impacted
margins.
Interest expense, net, totaled $53.3 million and increased $13.5 million
compared to 1997. The increase in interest cost was attributable to debt
associated with completing 41 acquisitions since April 1, 1996, costs
associated with the refrigerant fraud and the repurchase of Airgas Common
Stock. As discussed in "Liquidity and Capital Resources" below, the Company has
hedged floating interest rates under certain borrowings with interest rate swap
agreements.
Equity in earnings of unconsolidated affiliates of $2.9 million increased
$2 million compared to 1997 primarily as a result of a full year's earnings
associated with the Company's joint venture with National Welders and earnings
from a carbon dioxide joint venture acquired in June 1997.
<PAGE> 22
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Income tax expense represented 42.5% of pre-tax earnings for 1998,
compared to 47.5% in 1997. Income tax expense, before special charges and
divestitures represented 42.6% of pre-tax earnings for 1998, compared to 41% in
1997. The increase in the effective income tax rate was primarily a result of
an increase in non-deductible goodwill relative to pre-tax earnings.
Net earnings for 1998 were $40.5 million, or $.57 per diluted share. Net
earnings before special charges and divestitures decreased 4% to $42.6 million,
or $.60 per diluted share, from $44.3 million, or $.65 per diluted share in
1997.
Net earnings for 1998, excluding special charges, the divestiture of
businesses, and direct repositioning costs, were $46.0 million, or $.65 per
diluted share.
<PAGE> 23
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: 1997 COMPARED TO 1996
____________________________________________
OVERVIEW
The Company's sales for 1997 increased 38% to a record $1.16
billion, compared to $838.1 million in the prior year. Net earnings for the
year, before fourth-quarter special charges and a loss related to the
sale of a medical business, increased by 11% to $44.3 million, or $.65 per
share, compared to $39.7 million or $.60 per share in the prior year. Net
earnings were $23.3 million or $.34 per share, after including the
special charges and loss. Cash flow, excluding the special charges and the
loss, also increased to record levels. After-tax cash flow (net earnings
plus depreciation, amortization and deferred income taxes) for the year,
before special charges and the loss, increased 22% to $117.3 million
compared to $96.4 million in the prior year. These increases were attributable
to the continued success of the Company's acquisition growth strategies
combined with internal sales growth and continuous improvement in other
areas. Offsetting this growth was lower-than-expected performances at
certain Distribution subsidiaries caused by difficult consolidations, costs
associated with an accelerated rate of new branch start-ups and planned
expenses related to the expansion of ADI. Since April 1, 1995, the Company has
completed 65 acquisitions with a combined annual revenue base of approximately
$420 million. During 1997, the Company completed 24 acquisitions with annual
sales of $230 million.
Growth in the Company's industrial gas distribution business
during 1997 was helped by the acquisition of 21 businesses with annual
sales of $102 million. Internal development and expansion of existing
product lines resulted in same-store sales growth of 3.4% and same-store gross
profit growth of 3.9%.
Among the Company's other initiatives which are helping to
build its industrial gas business include the acquisition of Shell Land &
Energy Company's Jackson Dome carbon dioxide reserves and 183-mile pipeline
in the Southeastern United States. Additionally, in June 1997, the Company
closed the Carbonic Industries Corporation acquisition, the fourth largest
producer of carbon dioxide in the United States. These two key
acquisitions, combined with related acquisitions of liquid carbon
dioxide distributors and carbon dioxide beverage companies, complement the
Company's existing industrial gas business and provide opportunities
for future growth.
In addition, the Company entered into a 47% joint venture with
National Welders Supply Company, a premier independent distributor
with annual sales of $125 million.
During 1997, the Company entered a new business segment and
formed the ADI Segment with the acquisitions of IPCO Safety Products
("IPCO", effective April 1, 1996) and Rutland Tool & Supply Co., Inc.
("Rutland", effective September 1, 1996). These two ADI companies offer a
multi-channel, direct mail, national distribution infrastructure
which broadens the line of hardgoods and positions the Company for entry
into the $55 billion safety and metalworking industrial segment of the
MRO market. The MRO market encompasses the same metal fabrication market
that also accounts for approximately 28% of Airgas' current gas and
hardgoods equipment sales. The Company believes that ADI's direct channel of
<PAGE> 24
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
delivery will lower the costs to customers by leveraging the Company's
purchasing power, taking advantage of economies of scale and reducing the
number of times an order is handled before products reach the customer.
ADI's focus is to build on the Company's existing base of
650,000 local customers and strong customer relationships by selling more
products to existing customers. The Company believes ADI will also provide
improved customer services, such as next-day delivery, and will enhance the
Company's branch-based network's ability to obtain and service
national accounts.
During the fourth quarter of fiscal 1997, the Company recorded
special charges totaling $31.4 million and a net loss of $780 thousand
related to the sale of a medical home-care business. The special charges
consist of a non-recurring charge of $26.4 million ($17 million after tax) for
product losses and costs associated with the Company's investigation into
the fraudulent breach of contract by a third-party supplier of
refrigerant gas and a $5 million ($3.2 million after tax)non-cash charge
related to the impairment write-down of certain machinery and equipment,
goodwill and other intangible assets of two non-core product-line businesses.
INCOME STATEMENT COMMENTARY
Net sales increased 38% in 1997, compared to 1996:
<TABLE>
(in thousands)
<CAPTION> 1997 1996 Increase
____ ____ __________
<S> <C> <C> <C>
Distribution $ 999,555 $801,552 $198,003
ADI 99,216 -- 99,216
Manufacturing 60,123 36,592 23,531
_________ _______ _______
$1,158,894 $838,144 $320,750
========= ======= =======
</TABLE>
For 1997, Distribution sales increased approximately $162
million resulting from the acquisition of 62 distributors since April 1,
1995 and approximately $36 million from same-store sales growth. The Company
estimates that had all acquisitions during the year ended March 31,
1997 been consummated on April 1, 1996, sales for 1997 would have been
approximately $1.030 billion. The increase in same-store Distribution
sales of 3.4% was a result of growth in all three product groups:
gases, hardgoods and rent. The internal growth was attributable to higher
sales volume and from improved pricing. The Company continues to focus on
internal sales growth through the development of new gas products and
product-line extensions, including specialty gases, small bulk gases,
carbon dioxide, replacement refrigerants in returnable containers,
expansion of rental welder fleets and increased hardgoods business
through ADI. The Company believes its same-store sales growth is slightly
understated since it does not reflect the Company's decision to cease
unprofitable sales to certain customers and other sales lost during
acquisition consolidation and integration activity. Airgas subsidiaries
<PAGE> 25
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
without significant acquisition activity averaged approximately 5% same-store
sales growth. The Company estimates same-store sales based on a comparison of
current period sales to the prior period's sales, adjusted for acquisitions.
Future same-store sales growth is dependent on the economy and the Company's
ability to expand markets for new and existing products and to increase prices.
ADI's sales include welding, metalworking, safety and other MRO hardgoods.
The internal sales growth rate for ADI was approximately 12% during fiscal
1997. Pro forma unaudited sales for ADI, assuming that the Rutland acquisition
had been completed on April 1, 1996, would have been approximately $120
million. Sales to the Distribution segment totaled approximately $1 million.
The Manufacturing segment's sales increased 64% during fiscal
1997 primarily as a result of an increase in the Company's investment in
foreign operations and the December 1, 1996 acquisition of the Jackson Dome
carbon dioxide business. Sales related to carbide, carbon products and nitrous
oxide were essentially flat. Sales to the Distribution segment totaled
approximately $1.5 million.
The increase in Distribution gross profits of approximately $90 million
compared to the prior year resulted from acquisitions which contributed
approximately $71 million and from same-store gross profit growth of 3.9% or
approximately $19 million. Same-store gross profit growth resulted from margin
improvement of $2 million and sales volume growth of $17 million. On a
same-store basis, the Distribution gross margin was 50.9% which represented an
improvement of .2% compared to the prior year. Same-store gross margins
improved as a result of selective price increases to customers, leveraging the
Company's purchasing power through national purchasing programs and
improvements in rent margins. Compared to the prior year, the Distribution
gross margin of 49.6% is down 140 basis points due primarily to acquisitions
which have an average gross margin of approximately 45%. Acquisitions have had
an average sales mix of 53% hardgoods/47% gas and rent compared to the
Company's sales mix for fiscal 1996 of 49% hardgoods/51% gas and rent.
The gross profit margin of 26.9% for ADI does not reflect a full year of
Rutland's operations which has historically had gross margins of approximately
40%. Gross margins for the fourth quarter of fiscal 1997 for ADI were 29.5%,
reflecting Rutland's operations for the full period.
Selling, distribution and administrative expenses ("SG&A") increased
$91.4 million compared to the prior year primarily due to acquisitions. As
a percentage of net sales, SG&A expenses decreased 140 basis points to 32%
compared to the prior year. Excluding ADI which has a lower SG&A
expense-to-sales ratio, SG&A expenses as a percentage of net sales decreased
30 basis points compared to the prior year. The improvement in the SG&A
expenses relative to sales was somewhat offset by higher operating expenses
associated with the consolidation and integration of certain Distribution
acquisitions, costs associated with the start-up of new Distribution branches
and expenses related to the expansion of ADI. As the Company continues to
integrate such acquisitions and complete such start-up and expansion
activities, SG&A expenses relative to net sales should improve, although such
increased expenses could recur as a result of future acquisitions and expansion
activities.
<PAGE> 26
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Depreciation and amortization increased $16.7 million compared
to the prior year primarily due to acquisitions and from increased capital
expenditures. Of the $33.1 million increase in capital expenditures,
approximately 60% of the increase resulted from purchases of cylinders,
bulk tanks and machinery and equipment which are necessary to facilitate
gas sales growth and the integration of acquisitions. Depreciation,
depletion and amortization as a percentage of sales decreased 10
basis points as a result of ADI which has depreciation and amortization
relative to sales of 2.9% compared to the Distribution segment of 5.7%.
Excluding special charges of $31.4 million, operating income
increased 22% in 1997 compared to 1996:
<TABLE>
(in thousands)
<CAPTION> 1997 1996 Increase
____ ____ __________
<S> <C> <C> <C>
Distribution $100,300 $ 86,130 $ 14,170
ADI 3,076 -- 3,076
Manufacturing 10,334 6,855 3,479
_______ _______ _______
$113,710 $ 92,985 $ 20,725
======= ======= =======
</TABLE>
The Distribution segment's operating income margin decreased 70 basis
points to 10.0% compared to the prior year. The decrease was primarily the
result of recent industrial gas distribution acquisitions which have operating
margins averaging around 8% and from an increase in operating costs associated
with the integration and consolidation of certain acquisitions and new branch
start-ups. Excluding three subsidiaries undergoing difficult consolidations, a
product-line company which was written down during the Company's fourth quarter
and the new branch start-ups, the Distribution operating income margin
reflected a slight improvement compared to the prior year. Subject to the
effects of future acquisitions and the Company's ability to increase sales and
expand margins, the Company believes that its Distribution operating income
margin should improve.
The operating income margin for ADI was 3.1%. The Company believes that
ADI's operating income margin will continue to be impacted in the foreseeable
future by expansion costs related to information systems, logistics and
facility enhancements.
The Manufacturing segment's operating income increased $3.5 million
compared to the prior year primarily as a result of the Jackson Dome
acquisition and investments in foreign operations. Higher operating margins
related to the Jackson Dome acquisition also accounted for the 155 basis point
increase in operating margins compared to the prior year.
Interest expense, net, increased $14.9 million compared to the prior year
primarily as a result of the increase in average outstanding debt associated
with the acquisition of businesses acquired since April 1, 1995, the joint
venture investment in National Welders Supply Company, costs associated with
the fraudulent breach of contract by a third-party refrigerant gas supplier and
the repurchase of Airgas common stock. As discussed in "Liquidity and Capital
<PAGE> 27
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Resources" below, the Company has hedged floating interest rates under certain
borrowings with interest rate swap agreements.
Equity in earnings of unconsolidated affiliates of $958 thousand is
primarily attributable to the Company's 45% interest in National Welders
Supply Company.
Income tax expense, excluding the special charges and the loss
related to the sale of a medical home-care business represented 41% of
pre-tax earnings for the year ended March 31, 1997 compared to 41.8% in the
prior year. The decrease in the effective income tax rate is primarily
a result of equity affiliate income which is recorded net-of-tax.
Net earnings for the year ended March 31, 1997, before fourth
quarter special charges and the loss on the sale of a medical home-care
business, increased 11% to $44.3 million, or $.65 per share, from $39.7
million, or $.60 per share in 1996. Net earnings for the year, after the
special charges and the loss, were $23.3 million, or $.34 per share.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The Company has primarily financed its operations, capital expenditures,
stock repurchases, and acquisitions with borrowings, the issuance of common
stock and funds provided by operating activities.
Cash flows from operating activities for 1998 totaled $134.4 million.
Depreciation, depletion and amortization represented $88.1 million of cash
flows from operating activities. Deferred income taxes of $10.6 million
resulted from temporary differences. Cash flows from working capital components
decreased $2.1 million as a result of an increase in accounts receivable
associated with higher same-store sales and an increase in inventory levels to
meet increased hardgoods and gas sales volumes, a decrease in accounts payable
offset by an increase in accrued expenses and other current liabilities. Days'
sales outstanding and distribution hardgoods days' supply of inventory improved
slightly compared to March 31, 1997 levels.
Cash flow, before special charges and divestitures increased to record
levels. After-tax cash flow (net earnings plus depreciation, depletion and
amortization and deferred income taxes) increased 13.3% to $132.9 million
compared to $117.3 million in the prior year. The increase was attributable to
the continued success of the Company's acquisition growth strategies combined
with internal sales growth and continuous improvement in other areas.
Cash used by investing activities totaled $295.4 million in 1998, which
was primarily comprised of capital expenditures of $124.7 million and
acquisitions and equity investments totaling $186.4 million. Proceeds from the
sale of a business, the sale of property and equipment and dividends from joint
ventures provided cash of $11.7 million.
The Company's use of cash for capital expenditures was attributable to the
construction of two air separation plants, the continued assimilation of
acquisitions which require expenditures for combining cylinder fill plants, the
improvement of truck fleets, the purchase of cylinders in order to return
cylinders rented from third parties and the purchase of cylinders and bulk
tanks necessary to facilitate gas sales growth. During 1998, the Company
incurred capital expenditures totaling $34 million related to two air
<PAGE> 28
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
separation plants which became operational in January 1998. Excluding the air
separation plants, purchases of growth assets related to cylinders, bulk tanks
and machinery and equipment represented approximately 60% of 1998 capital
expenditures.
During 1999 and 2000, in connection with the standardization of
information systems and the build-out of ADI warehouses, the Company expects
capital expenditures of approximately $17 million and $4 million, respectively.
Financing activities provided cash of $161 million, with total debt
outstanding increasing by $187.9 million from March 31, 1997. Funds from
financing activities were used primarily for distribution acquisitions, equity
investments, capital expenditures and the repurchase of Airgas Common Stock.
In December 1997, the Company combined its $500 million credit agreement
maturing September 1, 2001, its $125 million credit agreement maturing November
1, 1998 and two C$50 million credit agreements into a single credit agreement.
The amended credit agreement provides the Company with unsecured revolving
credit facilities totaling US$725 million and C$100 million (US$71 million).
The Company may borrow under these facilities until the final 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. In April
1998, the credit agreement was amended to provide for the special charges
related to the Company's Repositioning Plan. At March 31, 1998, the Company
had borrowings under the agreement of US$480 million, C$58 million (US$40
million), had commitments under letters of credit supported by the agreement of
US$77 million, and, based on restrictions related to cash flow to funded debt
coverage, had total additional borrowing capacity under the agreement of
approximately US$113 million. At March 31, 1998, the effective interest rate
related to outstanding borrowings under the credit line was approximately 6.12%
on US borrowings and 5.36% on Canadian borrowings.
The Company has a medium-term note program which provides for the issuance
of its securities with an aggregate public offering price of up to $450
million. At March 31, 1998, the Company had the following long-term debt
outstanding under the medium-term note program: $100 million of unsecured
notes due September 2006 bearing interest at a fixed rate of 7.75%; $50 million
of unsecured notes due September 2001 bearing interest at a fixed rate of
7.15%; and $75 million of unsecured notes due March 2004 at a fixed rate of
7.14%. The proceeds from the medium-term note issuances were used to repay bank
debt.
In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into 25
interest rate swap agreements during the period from June 1992 through March
31, 1998, including two forward starting swaps. The swap agreements are with
major financial institutions and aggregate $498 million in notional principal
amount at March 31, 1998. Approximately $253 million of the notional principal
amount of the swap agreements require fixed interest payments based on an
average effective rate of 6.63% for remaining periods ranging between 1 and 8
years. Eight swap agreements require floating rates ($244.5 million notional
amount at 5.60% at March 31, 1998). Under the terms of seven of the swap
agreements, the Company has elected to receive the discounted value of the
counter-party's interest payments up-front. At March 31, 1998, approximately
<PAGE> 29
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
$13.9 million of such payments were included in other non-current liabilities.
The Company continually monitors its positions and the credit ratings of its
counter-parties, and does not anticipate non-performance by the
counter-parties.
The Company will continue to look for appropriate acquisitions and expects
to fund such acquisitions, future capital expenditure requirements and costs
related to its Repositioning Plan primarily 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 that it could arrange additional sources of financing for any unanticipated
requirement. The cost and terms of any future financing arrangement depend on
the market conditions and the Company's financial position at that time.
Subsequent to March 31, 1998, the Company acquired five distribution
businesses with annual sales of $22 million for an aggregate purchase price of
approximately $20 million. In addition, the Company has signed letters of
intent for four companies with aggregate annual sales of $16 million for an
aggregate purchase price of approximately $19 million.
In October 1997, the Airgas Board of Directors approved the repurchase of
up to an additional 2,000,000 shares of Common Stock from time-to-time to
offset share issuances for stock options, the Employee Stock Purchase Plan and
acquisitions. Together with previously granted authority, this increased the
total repurchase program to a potential 4.6 million shares. The remaining
shares authorized for repurchase under the existing program totals
approximately 1.6 million shares. The Company has primarily financed its
repurchase program with borrowings and funds provided by operating activities.
During 1998, the Company repurchased 2,248,000 shares for a total consideration
of approximately $33 million. The effect of the 1998 share repurchases on
earnings per share was immaterial.
Approximately 2 million shares were reissued in connection with the 1998
acquisitions of Carbonic Industries Corporation and Industrial Gas Products &
Supply, Inc. An additional 709,000 shares were reissued in connection with the
fourth quarter 1998 purchase of certain subsidiary minority interests.
The Company has initiated a project to integrate and standardize its
financial general ledger information systems prior to the Year 2000. As a
result of this information system standardization, the Company expects these
systems to be Year 2000 compliant. The Company currently believes that, with
modifications currently underway to existing software and the completion of
converting to additional new software, the Year 2000 problem relating to
financial systems will not pose significant problems for the Company's
information and operations systems so modified and converted. However, if such
modifications and conversions are not completed timely, the Year 2000 problem
may have a material impact on the operations of the Company. The Company is
also conducting a comprehensive review of its other information and operations
systems to identify the systems that may not function properly in the Year
2000 and thereafter, and is developing an implementation plan to take
appropriate corrective action if necessary.
<PAGE> 30
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's inflation risks are managed on an entity-by-entity basis
through selective price increases, productivity increases and cost-containment
measures. Management does not believe that inflation risk is material to the
Company's business or its consolidated financial position, results of
operations or cash flows.
The Company does not currently pay dividends.
Other
New Accounting Pronouncements
During 1998, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which was issued March 4, 1998. SOP 98-1 requires that certain
costs incurred during the application and development stage or purchases from
third parties of internal-use software be capitalized and amortized over the
estimated useful life of the software. In 1998, the Company capitalized and
expensed certain costs related to a project to integrate and standardize its
financial general ledger systems in accordance with SOP 98-1. The adoption of
this statement in 1998 did not have a material impact on earnings, financial
condition or liquidity of the Company.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 establishes new standards for computing and presenting
earnings per share, effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company adopted
SFAS No. 128 in 1998. For the Company, diluted earnings per share is the same
as previously reported earnings per share amounts. All prior periods have been
restated to conform to the new rules.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company plans to adopt this accounting
standard in the first quarter of 1999, as required. The adoption of this
standard will not impact earnings, financial condition, or liquidity, but will
require the Company to classify items of other comprehensive income in a
financial statement and display the accumulated balance of other comprehensive
income separately in the equity section of the balance sheet.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt this accounting standard in 1999,
as required. The adoption of this standard will not impact earnings, financial
condition or liquidity of the Company.
<PAGE> 31
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
On June 1, 1998, the FASB unanimously approved for issuance SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
standardizes the accounting for derivative instruments, including derivative
instruments embedded in other contracts, by requiring that an entity recognize
those items as assets or liabilities in the statement of financial position and
measure them at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. Management has not yet determined the impact
that the adoption of this statement may have on earnings, financial condition
or liquidity 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. 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, continued growth in same-store sales, costs and potential
disruptive effects of the repositioning, the success of the Repositioning
Plan, implementation and standardization of information systems, including Year
2000 matters, 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,
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. QUANTITATIVE AND QUALITATIVE DISCLOSURES - NOT APPLICABLE
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and financial statement schedule of
the Company are set forth at pages F-1 to F-33 of the report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The biographical information relating to the Company's directors appearing
in the Proxy Statement relating to the Company's 1998 Annual Meeting of
Stockholders is incorporated herein by reference. Biographical information
relating to the Company's executive officers is set forth in Item 1 of Part I
of this Report.
<PAGE> 32
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 1998 Annual Meeting of Stockholders is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the section headed
"Security Ownership" appearing in the Company's Proxy Statement relating to the
Company's 1998 Annual Meeting of Stockholders and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Certain Transactions" appearing in the Proxy
Statement relating to the Company's 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2):
The response to this portion of Item 14 is submitted as a separate section of
this report beginning on page F-1. All other schedules have been omitted as
inapplicable, or not required, or because the required information is included
in the Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits. The exhibits required to be filed as part of this annual
report on Form 10-K are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K.
On February 2, 1998, the Company filed a current report on Form 8-K to
announce, under Item 5, its earnings for the third quarter ended December 31,
1997.
(c) Index to Exhibits and Exhibits filed as a part of this report.
3.1 Amended and Restated Certificate of Incorporation of Airgas, Inc. dated as
of August 7, 1995 (Incorporated by reference to Exhibit 3.1 to the
Company's September 30, 1995 Quarterly Report on Form 10-Q).
3.2 Airgas, Inc. By-Laws Amended and Restated November 29, 1994. (Incorporated
by reference to Exhibit 3.2 to the Company's March 31, 1996 report on Form
10-K).
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 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).
<PAGE> 33
4.3 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).
4.4 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.
4.5 Form of Rights Agreement, dated as of August 1, 1988, between Airgas,
Inc. and The Philadelphia National Bank, which includes as Exhibit a
thereto the Form of Rights Certificate: (Incorporated by reference to
Exhibit (1) (2) to the Company's Form 8-A dated August 11, 1988.)
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 to the Rights Agreement Dated as of August 1, 1988,
dated as of April 1, 1997, between Airgas, Inc. and The Bank of New
York. (Incorporated by reference to Exhibit 1.2 to the Company's Form
8-A filed on April 28, 1997.)
* 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 Amended and Restated Joint Venture Agreement dated March 31, 1992
between American Carbide and Carbon Corporation and Elkem Metals
Company. (Incorporated by reference to Exhibit 10.5 to the Company's
March 31, 1992 report on Form 10-K).
<PAGE> 34
* 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).
<PAGE>
<PAGE> 35
(11) Statement re: computation of earnings per share.
(21) Subsidiaries of the Company.
(23.1) Consent of KPMG Peat Marwick LLP.
(27) Financial data schedule - March 31, 1998
(27.1) Financial data schedule - March 31, 1997
_____________
* A management contract or compensatory plan required to be filed by Item
14(c) of this Report.
<PAGE>
<PAGE> 36
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 22, 1998
Airgas, Inc.
By: /s/ Peter McCausland
_________________________
Peter McCausland
Director, Chairman of the Board,
President 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 22, 1998
____________________________ President and Chief Executive Officer
(Peter McCausland)
/s/ Scott M. Melman Vice President and Chief June 22, 1998
____________________________ Financial Officer
(Scott M. Melman) (Principal Financial Officer)
/s/ Jeffrey P. Cornwell Assistant Vice President and
____________________________ Corporate Controller June 22, 1998
(Jeffrey P. Cornwell) (Principal Accounting Officer)
/s/ W. Thacher Brown Director June 22, 1998
____________________________
(W. Thacher Brown)
/s/ Frank B. Foster, III Director June 22, 1998
____________________________
(Frank B. Foster, III)
/s/ Robert E. Naylor Director June 22, 1998
____________________________
(Robert E. Naylor)
<PAGE>
<PAGE> 37
/s/ Robert L. Yohe Director June 22, 1998
____________________________
(Robert L. Yohe)
/s/ John A.H. Shober Director June 22, 1998
____________________________
(John A.H. Shober)
/s/ Merril L. Stott Director June 22, 1998
____________________________
(Merril L. Stott)
/s/ Rajiv L. Gupta Director June 22, 1998
____________________________
(Rajiv L. Gupta)
Director June __, 1998
____________________________
(Argeris N. Karabelas)
<PAGE>
<PAGE> 38
AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Reference In
Report on
Form 10-K
_________
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-2
Statement of Management's Financial Responsibility . . . . . . . F-3
Consolidated Balance Sheets at March 31, 1998 and 1997 . . . . . F-4
Consolidated Statements of Earnings for the Years Ended
March 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1998, 1997 and 1996. . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996. . . . . . . . . .. . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . F-8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts . . . . . . F-33
All other schedules for which provision is made in the applicable accounting
regulations promulgated by the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
F-1
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Airgas, Inc.:
We have audited the consolidated financial statements of Airgas, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Airgas,
Inc. and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
Philadelphia, Pennsylvania KPMG PEAT MARWICK LLP
May 13, 1998
F-2
<PAGE> 40
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related financial
information in this Annual Report. The statements are prepared in conformity
with generally accepted accounting principles. The financial statements
reflect management's informed judgment and estimation as to the effect of
events and transactions that are accounted for or disclosed.
Management maintains a system of internal control at each business unit.
This system, which undergoes periodic evaluation, is designed to provide
reasonable assurance that assets are safeguarded and records are adequate for
the preparation of reliable financial data. In determining the extent of the
system of internal control, management recognizes that the cost should not
exceed the benefits derived. The evaluation of these factors requires
estimates and judgment by management.
The Company's financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. Their Independent Auditors' Report, which is based
on an audit made in accordance with generally accepted auditing standards is
presented on the previous page. In performing their audit, KPMG Peat Marwick
LLP considers the Company's internal control structure to the extent they deem
necessary in order to plan their audit, determine the nature, timing and extent
of tests to be performed and issue their report on the consolidated financial
statements.
The Audit Committee of the Board of Directors meets with the independent
auditors and management to satisfy itself that they are properly discharging
their responsibilities. The auditors have direct access to the Audit
Committee.
Airgas, Inc.
/s/ Scott M. Melman /s/ Peter McCausland
________________________ _______________________
Scott M. Melman Peter McCausland
Vice President and Chairman, President and
Chief Financial Officer Chief Executive Officer
May 13, 1998
F-3
<PAGE>
<PAGE> 41
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 31,
________________
(In thousands, except per share amounts) 1998 1997
________________________________________ ____ ____
ASSETS
Current Assets
Trade receivables, less allowances for doubtful
accounts of $5,676 in 1998 and $4,443 in 1997 . . . . .$ 186,342 $ 151,053
Inventories (Note 5) . . . . . . . . . . . . . . . . . . 154,937 129,372
Prepaid expenses and other current assets. . . . . . . . 25,555 31,574
_________ _________
Total current assets. . . . . . . . . . . . . . . . 366,834 311,999
_________ _________
Plant and equipment, at cost (Note 6). . . . . . . . . . 923,635 736,083
Less accumulated depreciation. . . . . . . . . . . . . . (236,331) (183,922)
_________ _________
Plant and equipment, net . . . . . . . . . . . . . . . 687,304 552,161
_________ _________
Goodwill, net of accumulated amortization
of $42,147 in 1998 and $29,503 in 1997. . . . . . . . . 410,753 294,614
Other non-current assets (Note 7) . . . . . . . . . . . 176,583 132,257
_________ _________
$1,641,474 $1,291,031
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt (Note 9) . . . . . . .$ 12,150 $ 25,158
Accounts payable, trade. . . . . . . . . . . . . . . . . 84,602 74,329
Accrued expenses and other current liabilities (Note 8). 128,806 87,663
_________ _________
Total current liabilities . . . . . . . . . . . . . 225,558 187,150
_________ _________
Long-term debt (Note 9). . . . . . . . . . . . . . . . . 830,845 629,931
Deferred income taxes (Note 14). . . . . . . . . . . . . 121,356 104,266
Other non-current liabilities (Note 9) . . . . . . . . . 36,842 29,601
Minority interest in subsidiaries (Note 20). . . . . . . - 3,426
Commitments and contingencies (Notes 17 and 18). . . . .
Stockholders' Equity (Note 10)
Preferred stock, no par value, 20,000 shares authorized,
no shares issued or outstanding in 1998 and 1997 - -
Common stock, par value $.01 per share, 200,000 shares
authorized, 71,357 and 68,762 shares issued in
1998 and 1997, respectively . . . . . . . . . . . . . . 714 688
Capital in excess of par value . . . . . . . . . . . . . 192,358 155,543
Retained earnings. . . . . . . . . . . . . . . . . . . . 237,166 196,626
Cumulative translation adjustments . . . . . . . . . . . (779) (468)
Treasury stock, 176 and 800 common shares at cost
in 1998 and 1997, respectively. . . . . . . . . . . . . (2,586) (15,732)
_________ _________
Total stockholders' equity. . . . . . . . . . . . . 426,873 336,657
_________ _________
$1,641,474 $1,291,031
========= =========
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended March 31,
(In thousands, except per share amounts) ______________________________
_______________________________________ 1998 1997 1996
____ ____ ____
Net Sales
Distribution . . . . . . . . . . . . . . . .$1,098,588 $ 999,555 $801,552
Direct Industrial. . . . . . . . . . . . . . 223,370 99,216 --
Manufacturing . . . . . . . . . . . . . . . 126,032 60,123 36,592
_________ _________ _______
Total net sales . . . . . . . . . . . . 1,447,990 1,158,894 838,144
_________ _________ _______
Costs and Expenses
Cost of products sold (excluding depreciation,
depletion and amortization)
Distribution . . . . . . . . . . . . . . . 555,392 503,470 395,370
Direct Industrial. . . . . . . . . . . . . 161,326 72,543 --
Manufacturing. . . . . . . . . . . . . . . 62,139 35,370 24,121
Selling, distribution and administrative
expenses . . . . . . . . . . . . . . . . . 468,565 371,310 279,906
Depreciation, depletion and amortization . . 76,670 62,491 45,762
Special charges, net (Note 3). . . . . . . . 4,950 31,425 --
_________ _________ _______
Total costs and expenses. . . . . . . . 1,329,042 1,076,609 745,159
_________ _________ _______
Operating Income
Distribution. . . . . . . . . . . . . . . . 105,371 100,300 86,130
Direct Industrial . . . . . . . . . . . . . 6,101 3,076 --
Manufacturing . . . . . . . . . . . . . . . 12,426 10,334 6,855
Special charges, net (Note 3) . . . . . . . (4,950) (31,425) --
_________ ________ _______
Total operating income . . . . . . . . 118,948 82,285 92,985
Interest expense, net (Note 13). . . . . . . (53,290) (39,752) (24,862)
Other income, net. . . . . . . . . . . . . . 2,813 1,672 782
Equity in earnings of unconsolidated
affiliates (Note 12) . . . . . . . . . . . 2,931 958 --
Minority interest (Note 20). . . . . . . . . (873) (817) (663)
_________ _________ _______
Earnings before income taxes. . . . . 70,529 44,346 68,242
Income taxes (Note 14) . . . . . . . . . . . 29,989 21,080 28,522
_________ _________ _______
Net earnings. . . . . . . . . . . . .$ 40,540 $ 23,266 $ 39,720
========= ========= =======
Basic Earnings Per Share (Notes 4 and 10). .$ .59 $ .35 $ .63
========= ========= =======
Diluted Earnings Per Share (Notes 4 and 10).$ .57 $ .34 $ .60
========= ========= =======
Weighted Average Shares Outstanding:
Basic. . . . . . . . . . . . . . . . . . . 68,660 65,875 62,820
========= ========= =======
Diluted. . . . . . . . . . . . . . . . . . 70,800 68,640 65,840
========= ========= =======
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 43
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Years Ended March 31, 1998, 1997 and 1996
_________________________________________
Shares of Capital in
Common Stock Common Excess of
(In thousands) $.01 Par Value Stock Par Value
______________ ______________ ______ __________
Balance--April 1, 1995. . . . . . . . . 63,002.1 $630 $61,820
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Purchase of treasury stock (Note 10) . .
Issuance of stock in connection
with acquisitions (Note 2). . . . . . . 843.7 9 11,435
Stock warrants and options exercised
(Notes 10 and 11) . . . . . . . . . . . 1,841.6 17 3,705
Tax benefit associated with exercise
of stock options and warrants (Note 14) 7,613
Shares issued upon acquisition of minority
interests (Note 20) 258.1 3 3,547
Shares issued in connection with
Employee Stock Purchase Plan (Note 11). 368.2 4 3,392
________ ___ ______
Balance--March 31, 1996. . . . . . . . . 66,313.7 $663 $91,512
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Purchase of treasury stock (Note 10) . .
Reissuance of treasury stock . . . . . .
Issuance of stock in connection
with acquisitions (Note 2). . . . . . . 1,102.9 11 49,556
Stock warrants and options exercised
(Notes 10 and 11) . . . . . . . . . . . 872.6 9 3,370
Tax benefit associated with exercise
of stock options and warrants (Note 14) 4,229
Shares issued upon acquisition of minority
interests (Note 20). . . . . . . . . . 76.5 1 1,724
Shares issued in connection with
Employee Stock Purchase Plan (Note 11). 395.9 4 5,152
________ ___ ______
Balance--March 31, 1997 . . . . . . . . 68,761.6 $688 $155,543
Net earnings . . . . . . . . . . . . . .
Foreign currency translation adjustment.
Purchase of treasury stock (Note 10) . .
Reissuance of treasury stock (Note 10) . 5,207
Issuance of stock in connection
with acquisitions (Note 2). . . . . . . 1,440.0 14 18,524
Stock options exercised (Note 11). . . . 704.5 7 3,329
Tax benefit associated with exercise
of stock options and warrants (Note 14) 3,807
Shares issued in connection with
Employee Stock Purchase Plan (Note 11). 450.7 5 5,948
________ ___ _______
Balance--March 31, 1998 . . . . . . . . 71,356.8 $714 $192,358
======== === =======
COLUMNS CONTINUED ON NEXT PAGE
F-6
<PAGE> 44 AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY - (Continued)
Years Ended March 31, 1998, 1997 and 1996
_________________________________________
Cumulative
Retained Translation Treasury
(In thousands) Earnings Adjustments Stock
______________ _________ ___________ ________
Balance--April 1, 1995 . . . . . . . . . $133,640 $(469) $(5,969)
Net earnings. . . . . . . . . . . . . . . 39,720
Foreign currency translation adjustment . 59
Purchase of treasury stock (Note 10). . . (22,947)
Issuance of stock in connection
with acquisitions (Note 2) . . . . . . .
Stock warrants and options exercised
(Notes 10 and 11). . . . . . . . . . . .
Tax benefit associated with exercise
of stock options and warrants (Note 14).
Shares issued upon acquisition of minority
interests (Note 20). . . . . . . . . . .
Shares issued in connection with
Employee Stock Purchase Plan (Note 11) .
________ ____ ______
Balance--March 31, 1996 . . . . . . . . .$173,360 $(410) $(28,916)
Net earnings. . . . . . . . . . . . . . . 23,266
Foreign currency translation adjustment . (58)
Purchase of treasury stock (Note 10). . . (15,732)
Reissuance of treasury stock. . . . . . . 28,916
Issuance of stock in connection
with acquisitions (Note 2) . . . . . . .
Stock warrants and options exercised
(Notes 10 and 11). . . . . . . . . . . .
Tax benefit associated with exercise
of stock options and warrants (Note 14).
Shares issued upon acquisition of minority
interests (Note 20). . . . . . . . . . .
Shares issued in connection with
Employee Stock Purchase Plan (Note 11) .
________ ____ _______
Balance--March 31, 1997 . . . . . . . . $196,626 $(468) $(15,732)
Net earnings. . . . . . . . . . . . . . . 40,540
Foreign currency translation adjustment . (311)
Purchase of treasury stock (Note 10). . . (33,120)
Reissuance of treasury stock (Note 10). . 46,266
Issuance of stock in connection
with acquisitions (Note 2) . . . . . . .
Stock options exercised (Note 11) . . . .
Tax benefit associated with exercise
of stock options and warrants (Note 14).
Shares issued upon acquisition of minority
interests (Note 20). . . . . . . . . . .
Shares issued in connection with
Employee Stock Purchase Plan (Note 11) .
_______ ____ _______
Balance--March 31, 1998 . . . . . . . . $237,166 $(779) $ (2,586)
======= ==== =======
See accompanying notes to consolidated financial statements.
F-6, Continued
<PAGE> 45 AIRGAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended March 31,
1998 1997 1996
____ ____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . $ 40,540 $ 23,266 $ 39,720
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, depletion and amortization,
including special charges . . . . . . . . . 88,092 66,421 45,762
Deferred income taxes. . . . . . . . . . . . . 10,649 (170) 10,868
Equity in earnings of unconsolidated
affiliates. . . . . . . . . . . . . . . . . . (4,409) (2,314) (1,428)
(Gain)/Loss on sale of assets. . . . . . . . . (1,956) 616 (12)
Minority interest in earnings . . . . . . . . . 873 817 663
Stock issued for employee benefit plan expense 5,953 5,156 3,396
Changes in assets and liabilities, excluding
effects of business acquisitions and divestitures:
Trade receivables, net. . . . . . . . . . . . (8,108) (6,661) (5,300)
Inventories, net. . . . . . . . . . . . . . . (7,336) (12,090) (2,509)
Prepaid expenses and other current assets . . 637 3,687 (960)
Accounts payable, trade . . . . . . . . . . . (7,072) 10,534 (1,461)
Accrued expenses and other current
liabilities. . . . . . . . . . . . . . . . . 19,761 6,247 4,485
Other assets and liabilities, net . . . . . . (3,224) (14,262) (1,202)
_______ _______ ______
Net cash provided by operating activities. 134,400 81,247 92,022
_______ _______ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . (124,725) (74,358) (41,236)
Proceeds from sale of assets . . . . . . . . . 7,534 10,137 3,968
Business acquisitions, net of cash acquired. . (154,395) (168,666) (142,776)
Business acquisitions, holdback settlements. . (6,750) (7,943) (7,381)
Investment in unconsolidated affiliates. . . . (25,220) (33,995) (3,448)
Dividends from unconsolidated affiliates . . . 4,165 1,729 1,037
Other, net . . . . . . . . . . . . . . . . . . 3,957 (2,949) (121)
_______ ________ ______
Net cash used by investing activities. . . (295,434) (276,045) (189,957)
CASH FLOWS FROM FINANCING ACTIVITIES _______ ________ _______
Proceeds from borrowings . . . . . . . . . . . 450,051 916,677 692,414
Repayment of debt. . . . . . . . . . . . . . . (275,450) (707,401) (594,931)
Financing costs. . . . . . . . . . . . . . . . (369) (2,261) (136)
Repurchase of treasury stock . . . . . . . . . (34,433) (14,419) (22,947)
Exercise of options and warrants . . . . . . . 4,360 3,162 3,722
Net overdraft. . . . . . . . . . . . . . . . . 16,875 (960) 4,068
Other financing activities . . . . . . . . . . -- -- 15,745
_______ ________ ______
Net cash provided by financing activities. 161,034 194,798 97,935
_______ ________ ______
CASH INCREASE (DECREASE) . . . . . . . . . . . -- -- --
Cash--Beginning of year. . . . . . . . . . . . -- -- --
_______ _______ ______
Cash--End of year. . . . . . . . . . . . . . . $ -- $ -- $ --
======= ======= ======
For supplemental cash flow disclosures see Note 19.
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 46
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Airgas, Inc.
and subsidiaries (the "Company"). Unconsolidated affiliates are accounted for
on the equity method and generally consist of 20-50% owned operations where
control does not exist or is considered temporary. The excess of the cost of
these affiliates over the Company's share of their net assets at the
acquisition date is being amortized over 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 with cost for
approximately 88% and 87% of the inventories at March 31, 1998 and 1997,
respectively, determined by the first-in, first-out (FIFO) method. Cost for
the remainder of inventories was determined using the last-in, first-out (LIFO)
method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful lives of the related assets.
Depletion of the cost of carbon dioxide production facilities, well equipment
and leases are computed on the unit-of-production method.
During 1998, the Company adopted Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use"
("SOP 98-1"). SOP 98-1 requires that certain costs related to the development
or purchase of internal-use software be capitalized and amortized on a
straight-line basis over the estimated useful life of the software. The
adoption of this statement in 1998 did not have a material impact on earnings,
financial condition or liquidity of the Company.
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The statement requires the
recognition of an impairment loss for an asset held for use when the estimate
of undiscounted future cash flows expected to be generated by the asset is less
than its carrying amount. Measurement of the impairment loss is based on fair
value of the asset. As discussed in Note 3, the Company recorded a write-down
related to certain property, plant, equipment, goodwill and other intangible
assets in 1998 and 1997, respectively. Assets to be disposed of are not
depreciated while held for disposal.
F-8
<PAGE> 47 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(d) Other Assets
Costs related to the acquisition of long-term debt are deferred and
amortized over the term of the related debt. Costs and payments pursuant to
noncompetition arrangements entered into in connection with business
acquisitions are amortized over the terms of the arrangements which are
principally over 5 years. The Company assesses the recoverability of
noncompetition arrangements by determining whether the amortization of the
asset balance can be recovered through projected undiscounted future cash flows
over its remaining life.
(e) Goodwill
Goodwill represents costs in excess of net assets of businesses acquired
and is amortized on a straight-line basis over the expected periods to be
benefited, which currently ranges from 20 to 40 years. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through projected undiscounted future cash flows.
In making such determination with respect to goodwill, the Company
evaluates performance of the underlying business which give rise to such
amounts. Approximately 95% of the Company's goodwill is assigned a useful life
of 40 years. The assets acquired in connection with these acquisitions
continue to contribute a significant portion of the Company's net sales, total
operating income and cash flow. The primary asset acquired in connection with
the acquisition of industrial gas distributors are cylinders, which management
believes have a useful life in excess of 40 years.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit 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.
(g) Foreign-Currency Translation
The functional currency of the Company's foreign operations is the
applicable local currency. The translation of foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using
average exchange rates during each reporting period. The gains or losses, net
of applicable deferred income taxes, resulting from such translations are
included in stockholders' equity. Gains and losses arising from foreign
currency transactions are reflected in the consolidated statements of earnings
as incurred.
F-9
<PAGE> 48 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(h) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk are limited due to the Company's large number of
customers and their dispersion across many industries. Credit terms granted to
customers are generally net 30 days.
(i) Revenue Recognition
Sales are recorded upon shipment to the customer.
(j) Financial Instruments
In hedging interest rate exposure, the Company enters into interest rate
swap agreements. These instruments are not entered into for trading purposes
and the Company has the ability and intent to hold these instruments to
maturity. When interest rates change, the difference to be paid or received is
accrued and recognized as interest expense over the life of the agreement. The
fair values of the Company's financial instruments are estimated based on
quoted market prices for the same or similar issues.
The carrying amounts for accounts receivable and accounts payable
approximate fair value because of the short-term maturity of these financial
instruments.
(k) Reclassifications
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation.
(2) 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 20, the Company has
accounted for the acquisition of subsidiary minority interests in 1998, 1997
and 1996 using the purchase method of accounting.
1998 - During 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.
1997 - During 1997, the Company purchased 24 businesses. The largest of
these acquisitions and their effective dates included IPCO Safety Products
Company (April 1, 1996), American Welding Supply (June 1, 1996), Rutland Tool &
Supply Co., Inc. (September 1, 1996), Findley Welding Supply, Inc. (October 1,
1996), and Northeast Jackson Dome (December 1, 1996). The aggregate purchase
price for these acquisitions amounted to approximately $233 million. The
purchase price for the remaining 19 businesses amounted to approximately $76
million.
F-10
<PAGE> 49 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS - (Continued)
1996 - During 1996, the Company purchased 42 businesses. The largest of
these acquisitions and their effective dates included Tech-Weld, Inc. (April 3,
1995), Trinity Welding Supply, Inc. (May 1, 1995), Red-D-Arc, Limited (June 29,
1995), Capital Welding Supply, Inc. (August 1, 1996), Langdon Oxygen Company
(October 5, 1995), Acetylene Gas Company (January 1, 1996), Iatech Sales Co.
(January 1, 1996), Welders Equipment Company (February 1, 1996) and Braun
Welding Supply, Inc. (March 1, 1996). The aggregate purchase price for
these acquisitions amounted to approximately $164 million. The purchase price
for the remaining 33 businesses amounted to approximately $73 million.
In connection with the above acquisitions, the total purchase price, fair
value of assets acquired, cash paid and liabilities assumed were as follows:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
Cash paid . . . . . . . . . . . . . . . . . . $154,395 $168,666 $142,776
Issuance of Airgas Common Stock . . . . . . . 55,608 78,671 11,443
Notes issued to sellers . . . . . . . . . . . 20,996 30,104 24,242
Notes payable and capital leases assumed. . . 5,947 2,103 4,073
Other liabilities assumed and accrued
acquisition costs. . . . . . . . . . . . . . 46,192 29,733 54,223
_______ ______ ______
Total purchase price allocated to assets
acquired. . . . . . . . . . . . . . . . . . $283,138 $309,277 $236,757
======= ======= =======
Included in the 1998 aggregate purchase price is the issuance of
approximately 3.4 million shares of the Company's Common Stock (which included
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.
Included in the 1997 aggregate purchase price is the issuance of
approximately 3.4 million shares of the Company's Common Stock (which included
approximately 2.4 million shares which were issued out of treasury stock),
issued in connection with the acquisition of Rutland Tool and Supply Co.
In connection with four acquisitions, the Company is required to issue
shares of Airgas Common Stock if the Airgas Common Stock price at certain dates
during 1999 and 2001 is less than a previously established price. Shares
become issuable if the Airgas Common Stock price falls below a range of
$12.96 - 14.13 per share. At March 31, 1998, based on the Airgas Common Stock
price, no shares were contingently issuable. Subsequently issued Common Stock
will reduce additional paid in capital and increase Common Stock for the par
value of the additional number of shares of Common Stock.
The purchase price for business acquisitions and minority interests were
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 1998, 1997 and 1996 amounted to $130.6 million, $144.0 million
and $81.3 million respectively.
F-11
<PAGE> 50 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS - (Continued)
The following presents unaudited estimated pro forma operating results as
if the 1998 and 1997 acquisitions had been consummated on April 1, 1996. 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, 1996 or of results which may occur in the future.
Years Ended March 31,
_____________________
(In thousands except per share amounts) 1998 1997
_______________________________________ ____ ____
Net sales . . . . . . . . . . . . . . . . . . . $1,541,692 $1,468,911
Net earnings. . . . . . . . . . . . . . . . . . 39,273 19,884
Diluted earnings per share: . . . . . . . . . . .55 .27
Subsequent to March 31, 1998, the Company has acquired five distribution
businesses, with aggregate annual sales of approximately $22 million for an
aggregate purchase price of approximately $20 million. In addition, the
Company has signed letters of intent for four companies with aggregate annual
sales of $16 million for an aggregate purchase price of approximately $19
million.
(3) SPECIAL CHARGES
During the fourth quarter of 1998, the Company announced its
"Repositioning Airgas for Growth" restructuring plan (the "Repositioning
Plan"). The Repositioning Plan involves: consolidating the Distribution
segment by combining 34 hubs into 16 larger regional companies; consolidating
certain of Airgas Direct Industrial's ("ADI") warehouse facilities into five
large regional distribution facilities; restructuring the carbon dioxide
businesses in the Manufacturing segment; standardizing and integrating
information systems utilizing two legacy systems; and building a national
information, procurement and logistics infrastructure to support expanded
product lines and distribution channels, and to strengthen national sales and
marketing. To focus on its core business, the Company intends to divest certain
non-strategic businesses and to sell or seek joint venture partners for several
non-U.S. operations. The Company anticipates that the Repositioning Plan will
be substantially completed by June 30, 1999.
In connection with the Repositioning Plan, the Company recorded special
charges in the fourth quarter ("1998 Special Charges") totaling $19.5 million
($12.4 million after tax or $.18 per diluted share) which consisted of the
following:
(in thousands)
______________
Impairment write-down of property, plant,
equipment and goodwill $11,423
Divestiture charges 6,851
Facility exit costs 2,577
Severance costs 1,578
Acquisition break-up fee, net (2,979)
______
Special Charges 19,450
Refrigerant recovery (14,500)
______
Special charges, net $ 4,950
======
F-12
<PAGE> 51 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) SPECIAL CHARGES - (Continued)
The Repositioning Plan requires the sale, closure or downsizing of
approximately 30 distribution locations and a workforce reduction of
approximately 200 employees. The Company believes these actions will result in
the consolidation of distribution facilities into fewer, larger and more
efficient facilities.
As a result, the Company has written-down to fair value, less the cost to
dispose of, certain property, plant and equipment and related goodwill by $11.4
million. Fair value was based on the estimated future undiscounted cash flows
to be generated from the sale of these assets. The write-down primarily
relates to: computer equipment which is obsolete as a result of standardizing
information systems; buildings and improvements related to facilities which are
being closed; machinery and equipment related to discontinued product lines;
and the goodwill associated with related business combinations.
In connection with the impending divestiture of certain non-strategic
businesses, the Company has established reserves of approximately $6.9 million.
The write-down was based on an evaluation of the estimated fair value of these
assets which indicated that these assets were impaired. Fair value was based
on the estimated future undiscounted cash flows to be generated from the sale
of these assets. Sales associated with such businesses total approximately $25
million.
Other costs including leased facility termination costs and severance
totaled $2.6 million and $1.6 million, respectively.
The break-up fee was received during the fourth quarter in connection with
a proposed acquisition of an industrial gas distributor and is net of
acquisition costs of $2.5 million.
The 1998 Special Charges impacted the Company's three business
segments as follows:
Special Refrigerant
(in thousands) Charges Recovery Total
______________ ________ ___________ _____
Distribution $11,875 $ - $11,875
ADI 4,009 - 4,009
Manufacturing 3,566 (14,500) (10,934)
______ ______ ______
$19,450 $(14,500) $ 4,950
====== ====== ======
The Company believes the estimated impact on 1999 operating expenses
resulting from the write-down of property, plant, equipment and goodwill is
approximately $1.3 million. This benefit will largely be offset by higher costs
associated with expanding the Company's workforce in such areas as sales and
marketing and technical specialists, the expansion of existing and new
facilities and improved information systems. During 1999, in connection with
the standardization of information systems and the build-out of ADI warehouses,
the Company expects non-recurring expenses and capital expenditures of
approximately $7 million and $17 million, respectively. Until such time as the
information systems are converted and warehouse and administrative functions
are consolidated, the Company expects to incur higher operating costs and
expenses.
F-13
<PAGE> 52
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) SPECIAL CHARGES - (Continued)
Cash outflows related to the 1998 Special Charges, before the acquisition
break-up fee, are estimated to total $4.2 million. Approximately $600 thousand
was paid at March 31, 1998. The Company expects the balance to be paid during
fiscal 1999.
On July 28, 1997, the Company reported that it had negotiated a
comprehensive settlement with all defendants in litigation related to the
fraudulent breach of contract by a third-party supplier of refrigerant gas
which was reported by the Company in December 1996. The Company recorded a
non-recurring pre-tax charge during the fourth quarter of 1997 of $26.4 million
(after-tax $17 million or $.25 per share) for product losses and costs
associated with the Company's investigation into the fraud and recovery of
damages. As a result of the settlement, the Company recorded a non-recurring
gain in the second quarter of 1998 of $14.5 million (after-tax $9.4 million or
$.13 per share). The Company is seeking recovery of the balance of the fraud
losses from its insurers.
In 1997, the Company decided to divest its ownership of a breathing air
services subsidiary and to restructure its welding machine rental operations.
The Company recorded a pre-tax, non-cash charge of approximately $5
million(approximately $3.2 million after tax) during the fourth quarter of 1997
related to the write-down of certain machinery, equipment, goodwill and other
intangible assets of these two distribution product-line businesses. The
write-down was based on an evaluation of the estimated fair value of the assets
associated with these two businesses which indicated that these assets were
impaired. Fair value was based on the estimated future undiscounted cash flows
to be generated from the sale of these assets.
(4) EARNINGS PER SHARE
In 1998, the Company adopted SFAS No. 128, "Earnings per Share." SFAS No.
128 requires the disclosure of Basic and Diluted EPS, on the face of the
statement of earnings. All prior periods have been restated to conform to the
new requirements.
Basic earnings per share is calculated by dividing net earnings by the
average number of shares of the Company's Common Stock outstanding during the
period. Diluted earnings per share is calculated by adjusting the average
common shares outstanding 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, 1998, 1997 and 1996:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . 68,660 65,875 62,820
Stock options and warrants. . . . . . . . . . 2,140 2,765 3,020
______ ______ ______
Diluted . . . . . . . . . . . . . . . . . . . 70,800 68,640 65,840
====== ====== ======
F-14
<PAGE> 53
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) INVENTORIES
Inventories consist of: March 31,
_______________________
(In thousands) 1998 1997
______________ ____ ____
Finished goods. . . . . . . . . . . . . . . . . . . $154,003 $129,218
Raw materials . . . . . . . . . . . . . . . . . . . 2,380 1,526
_______ _______
156,383 130,744
Less reduction to LIFO cost . . . . . . . . . . . . (1,446) (1,372)
_______ _______
$154,937 $129,372
======= =======
(6) PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
March 31,
____________________
Depreciable
(In thousands) Lives (Yrs) 1998 1997
______________ ___________ ____ ____
Land and land improvements . . . . . . . . . . - $ 26,050 $ 21,676
Buildings and leasehold improvements . . . . . 25 88,130 66,659
Cylinders. . . . . . . . . . . . . . . . . . . 30 404,198 365,253
Machinery and equipment, including bulk tanks. 7 to 30 300,599 202,002
Computers and furniture and fixtures . . . . . 3 to 10 52,051 39,273
Transportation equipment . . . . . . . . . . . 3 to 15 48,720 39,264
Construction in progress . . . . . . . . . . . - 3,887 1,956
_______ _______
$ 923,635 $736,083
======= =======
Depreciation, depletion and amortization of plant and equipment (excluding
special charges) charged to operations amounted to $52.2 million, $39.1 million
and $32.0 million in 1998, 1997 and 1996, respectively.
(7) OTHER NON-CURRENT ASSETS
Other non-current assets include:
March 31,
_______________________
(In thousands) 1998 1997
______________ ____ ____
Investment in unconsolidated affiliates (Note 12). $ 98,522 $64,992
Noncompete agreements and other intangible
assets, at cost, net of accumulated
amortization of $73.2 million in 1998
and $59.8 million in 1997 . . . . . . . . . . . . 63,205 54,794
Other assets. . . . . . . . . . . . . . . . . . . . 14,856 12,471
_______ _______
$176,583 $132,257
======= =======
F-15
<PAGE> 54
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities include:
March 31,
_______________________
(In thousands) 1998 1997
______________ ____ ____
Cash overdraft. . . . . . . . . . . . . . . . . . . $ 31,621 $ 14,746
Restructuring reserves . . . . . . . . . . . . . . 12,764 -
Insurance payable and related reserves. . . . . . . 7,248 5,224
Customer cylinder deposits. . . . . . . . . . . . . 8,668 8,185
Accrued interest . . . . . . . . . . . . . . . . . 8,918 5,425
Other accrued expenses and current liabilities. . . 59,587 54,083
_______ _______
$128,806 $ 87,663
======= =======
(9) INDEBTEDNESS
(a) Long-term debt consists of the following:
March 31,
_______________________
(In thousands) 1998 1997
______________ ____ ____
Revolving credit borrowings . . . . . . . . . . . . $519,736 $311,877
Medium-term notes . . . . . . . . . . . . . . . . . 225,000 225,000
Acquisition and investment notes. . . . . . . . . . 79,521 87,426
All other notes, at various rates and maturities. . 18,738 30,786
_______ _______
Total long-term debt. . . . . . . . . . . . . . . . 842,995 655,089
Less current installments . . . . . . . . . . . . . (12,150) (25,158)
_______ _______
Long-term debt, excluding current installments. . . $830,845 $629,931
======= =======
The Company has unsecured revolving credit facilities totaling US$725
million and C$100 million (US$71 million). The Company may borrow under these
facilities until the final maturity date of December 5, 2002. There were no
other significant changes in the terms, conditions or covenants of the amended
credit agreement compared to the previous credit agreements. 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. In April 1998, the credit agreement was amended
to provide for the special charges related to the Company's Repositioning Plan.
At March 31, 1998, the Company had borrowings under the agreement of US$480
million, C$58 million (US$40 million), had commitments under letters of credit
supported by the agreement of US$77 million, and based on restrictions related
to cash flow to funded debt coverage, had total additional borrowing capacity
under the agreement of approximately US$113 million. At March 31, 1998, the
effective interest rate related to outstanding borrowings under the lines was
approximately 6.12% on total U.S. borrowings and 5.36% on Canadian borrowings.
F-16
<PAGE> 55 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) INDEBTEDNESS - (Continued)
In 1997, the Company commenced a medium-term note program which provides
for the issuance of its securities with an aggregate public offering price of
up to $450 million. At March 31, 1998, the Company has the following long-term
debt outstanding under the medium-term note program: $100 million of unsecured
notes due September 2006 bearing interest at a fixed rate of 7.75%; $50 million
of unsecured notes due September 2001 bearing interest at a fixed rate of
7.15%, and $75 million of unsecured notes due March 2004 at a fixed rate of
7.14%. The proceeds from the medium-term note issuances were used to repay
bank debt.
Acquisition notes represent notes issued to sellers of businesses acquired
and are repayable in periodic installments including interest at an average
rate of 7.3%. Some acquisition notes require balloon payments which are
included in the aggregate maturity schedule.
The aggregate maturities of long-term debt for the five years ending
March 31, 2004 and thereafter are as follows (in thousands):
Years Ending March 31, Aggregate Maturity
______________________ __________________
1999 . . . . . . . . . . . . . . . . . . . $ 12,150
2000 . . . . . . . . . . . . . . . . . . . 14,279
2001 . . . . . . . . . . . . . . . . . . . 17,941
2002 . . . . . . . . . . . . . . . . . . . 71,622
2003 . . . . . . . . . . . . . . . . . . . 527,051
2004 and thereafter. . . . . . . . . . . . 199,952
_________
$ 842,995
=========
The fair value of long-term debt as of March 31, 1998 was approximately $855
million based on current rates offered to the Company by financial institutions
for similar type instruments.
(b) Swap Agreements
In managing interest rate exposure, principally under the Company's
floating rate revolving credit facilities, the Company has entered into 25
interest rate swap agreements during the period from June 1992 through
March 31, 1998. The interest rate swap agreements are with major financial
institutions having a total notional principal amount of $498 million at March
31, 1998.
Approximately $253 million of the swap agreements require fixed interest
payments based on an average effective rate of 6.63% for remaining periods
ranging between 1 and 8 years. Eight swap agreements require floating rates
($244.5 million notional amount at 5.60% at March 31, 1998). The effect of the
swap agreements was to increase interest expense $1 million, $1.4 million and
$1.3 million in 1998, 1997 and 1996, respectively. Under the terms of seven of
the swap agreements, the Company has elected to receive the discounted value
of the counterparty's interest payments upfront. At March 31, 1998,
approximately $13.9 million of such payments were included in other non-current
liabilities.
F-17
<PAGE> 56 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) INDEBTEDNESS - (Continued)
The Company continually monitors its positions and the credit ratings of
its counterparties, and does not anticipate nonperformance by the
counterparties. The fair market value of the swap agreements was $481 thousand
below their carrying value at March 31, 1998.
The aggregate maturities of the Company's interest rate swaps by type of
swap for the five years ending March 31, 2004 and thereafter are as follows (in
thousands):
Notional Principal Amounts
__________________________
Years Ending March 31, Pay-Fixed Receive-Fixed
______________________ _________ _____________
1999 . . . . . . . . . . . . . $ 12,500 $ 7,500
2000 . . . . . . . . . . . . . 26,019 12,000
2001 . . . . . . . . . . . . . 66,018 0
2002 . . . . . . . . . . . . . 27,369 50,000
2003 . . . . . . . . . . . . . 81,150 0
2004 and thereafter. . . . . . 40,000 175,000
_______ _______
$253,056 $244,500
======= ======
(10) STOCKHOLDERS' EQUITY
(a) Common Stock
On March 22, 1996, the Company's Board of Directors declared a two-for-one
stock split to stockholders of record on April 1, 1996, payable on April 15,
1996. All earnings per share data reflects this two-for-one stock split.
(b) Preferred Stock and Redeemable Preferred Stock
The Company is authorized to issue 20 million shares of preferred stock.
Of the 20 million shares authorized, 200,000 shares have been designated as
Series A Junior Participating Preferred Stock and 200,000 shares have been
designated as Series B Junior Participating Preferred Stock (see Note 10(e) for
further discussion). At March 31, 1998 and 1997, 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, and the Board of Directors is
authorized to fix the dividend rights and terms, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences, and any other
rights, preferences, privileges and restrictions of any series of Preferred
Stock, and the number of shares constituting each such series and designation
thereof.
Additionally, the Company is authorized to issue 30,000 shares of
redeemable preferred stock. At March 31, 1998 and 1997, no shares were
outstanding.
F-18
<PAGE> 57 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) STOCKHOLDERS' EQUITY - (Continued)
(c) Treasury Stock
The Company's Board of Directors has authorized the repurchase of up to a
total of 4,600,000 shares of Airgas common stock. Through March 31, 1998, the
Company has repurchased 3,048,000 shares and reissued 2,871,927 shares. During
1998, the Company acquired 2,248,000 shares. In 1998, the Company reissued
1,954,000 shares in connection with its acquisition program, 708,796 shares
related to the purchase of subsidiary minority interests as described in Note
21, and 209,131 shares for stock option exercises. 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 additional-
paid-in-capital. The Company's treasury shares will continue to be used to
fund acquisitions and employee benefit programs and will be acquired in open
market transactions, from time-to-time, depending on market conditions.
(d) Stock Purchase Warrants
The Company and the Chairman of the Company were parties to a Stock and
Warrant Issuance Agreement, as amended (the "Warrant Agreement"), which was
entered into in connection with the Company's acquisition of US Airgas, Inc.,
of which the Chairman was the majority shareholder, in May 1986. Pursuant to
the Warrant Agreement, the Chairman received warrants to purchase a total of
14,127,432 shares of the Company's common stock. As of May 1996, all warrants
had been exercised or had expired.
(e) Shareholder Rights Plan
Effective April 1, 1997, the Board of Directors adopted a new stockholder
rights plan (the "1997 Plan"). Pursuant to the 1997 Plan, the Board declared a
dividend distribution of one right for each share of common stock outstanding
on April 29, 1997. 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.
On August 1, 1988, the Company Board of Directors adopted a preferred
share purchase rights plan (the "1988 Plan") that entitled Company stockholders
to purchase from the Company a unit consisting of one-hundredth of a share of
Series A Junior Participating Preferred Shares, or a combination of securities
and assets of equivalent value, at a purchase price of $65.00 per unit, subject
to adjustment. The 1988 Plan will expire in August 1998. In view of, among
other things, the impending expiration of the 1988 Plan, the Board adopted the
1997 Plan. Pending its expiration in 1998, the Board amended the 1988 Plan to
provide that it will not take effect if the 1997 Plan is triggered.
F-19
<PAGE> 58
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) 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 SFAS 123 "Accounting for
Stock-Based Compensation." Accordingly, no compensation expense has been
recognized for its stock option plans and its stock purchase plan. However,
pro forma information regarding net income 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 income and earnings per share for 1998, 1997 and 1996 would be as follows:
(in thousands, except per share amounts): Years Ended March 31,
________________________________________ _____________________
1998 1997 1996
_______ ________ ________
Net earnings As reported $40,540 $23,266 $39,720
Pro forma $36,240 $20,028 $37,925
Diluted earnings per share As reported $ .57 $ .34 $ .60
Pro forma $ .51 $ .29 $ .57
This 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 1998 with
an exercise price equal to 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, 1998, 7,900,850 options were available
for issuance and 99,150 options were granted in 1998 with an exercise price
equal to market price at the date of grant. Options under the 1997 Plan are
generally granted in May 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 1998, 1997 and 1996 option grants, respectively:
expected volatility of 39.9%, 38.5% and 38.5%, risk-free interest rate of
6.48%, 6.42% and 6.46%, and expected life of 4.47, 4.37 and 4.37 years. The
weighted average fair value of the options granted during 1998, 1997 and 1996
was $6.55, $8.95 and $5.11, respectively.
F-20
<PAGE> 59 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
In connection with the 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 under the CIC Plan. The fair
value of these options was recorded at the date of acquisition.
The following table summarizes the activity of the employee stock option
plans during the three years ended March 31, 1998:
Number Price Per
of Shares Share
__________ _________
March 31, 1996
Outstanding, beginning of year . . . . . . . . 5,828,940 $ 1.83 -$14.71
Granted. . . . . . . . . . . . . . . . . . . . 974,020 11.44 - 17.31
Exercised. . . . . . . . . . . . . . . . . . . (589,010) 1.83 - 11.32
Expired. . . . . . . . . . . . . . . . . . . . (14,490) 3.30 - 13.32
March 31, 1997
Outstanding, beginning of year . . . . . . . . 6,199,460 1.83 - 17.31
Granted. . . . . . . . . . . . . . . . . . . . 785,685 11.44 - 23.25
Exercised. . . . . . . . . . . . . . . . . . . (530,390) 1.83 - 17.31
Expired. . . . . . . . . . . . . . . . . . . . (173,080) 3.30 - 22.00
March 31, 1998
Outstanding, beginning of year . . . . . . . . 6,281,675 1.83 - 23.25
Granted. . . . . . . . . . . . . . . . . . . . 1,244,577 13.50 - 17.38
Exercised. . . . . . . . . . . . . . . . . . . (897,358) 1.83 - 14.82
Expired. . . . . . . . . . . . . . . . . . . . (269,787) 10.69 - 22.00
Outstanding, end of year . . . . . . . . . . . 6,359,107 $ 1.83 -$23.25
Options for 4,266,095, 4,077,069 and 3,497,340 shares were exercisable at March
31, 1998, 1997 and 1996, 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
500,000 shares for issuance. The 1997 Directors' Plan contains essentially the
same terms and conditions as the Company's previous 1989 Board of Directors'
Stock Option Plan (the "1989 Directors' Plan"). The 1989 Plan was terminated
upon approval of the 1987 Directors' Plan by the Company's stockholders.
Under the 1997 Directors' plan, at March 31, 1998, 464,000 options were
available for issuance and 36,000 options were granted in 1998 with an exercise
price equal to market price at the date of grant.
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 1998, 1997 and 1996 option grants, respectively:
expected volatility of 39.5%, 37.8% and 37.8%, risk-free interest rate of
6.12%, 6.42% and 6.46%, and expected life of 5.35 years for each period. The
weighted average fair value of the stock options granted during 1998, 1997 and
1996 was $8.68, $8.68 and $6.10, respectively.
F-21
<PAGE> 60 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
The following table summarizes the activity of the Board of Directors
stock option plans during the three years ended March 31, 1998:
Number Price Per
of Shares Share
__________ ____________
March 31, 1996
Outstanding, beginning of year . . . . . . . . 312,000 $ 2.10 -$13.82
Granted. . . . . . . . . . . . . . . . . . . . 40,000 13.50
March 31, 1997
Outstanding, beginning of year . . . . . . . . 352,000 2.10 - 13.82
Granted. . . . . . . . . . . . . . . . . . . . 32,000 19.25
Exercised . . . . . . . . . . . . . . . . . . (98,000) 2.09 - 13.82
March 31, 1998
Outstanding, beginning of year . . . . . . . . 286,000 2.09 - 19.25
Granted. . . . . . . . . . . . . . . . . . . . 36,000 19.00
Exercised. . . . . . . . . . . . . . . . . . . (16,000) 2.09 - 2.14
Outstanding, end of year . . . . . . . . . . . 306,000 $ 2.09 - $19.25
Options for 306,000, 286,000 and 352,000 shares were exercisable at March
31, 1998, 1997 and 1996, respectively.
The following table summarizes information about options outstanding and
exercisable for the employee, CIC and Board of Directors stock option plans at
March 31, 1998:
Options Outstanding
____________________________________
Range of
Weighted Average Number Exercise
Remaining Life Outstanding Prices
________________ ___________ _________
3.10 679,020 $ 1.83 - $ 2.09
1.61 671,900 2.14 - 3.00
4.12 830,950 3.30 - 3.30
6.20 148,247 3.48 - 5.21
5.12 714,812 6.31 - 6.31
5.73 717,015 6.32 - 11.32
7.42 694,155 11.44 - 13.82
5.22 344,700 13.94 - 15.00
9.12 884,295 15.63 - 15.63
7.99 980,013 16.63 - 23.25
____ _________ _________________
5.72 6,665,107 $1.83 - $23.25
==== ========= =================
F-22
<PAGE> 61
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
Number of Options Weighted Average
Exercisable Exercise Price
__________________ __________________
679,020 $ 1.85
671,900 2.31
830,950 3.30
148,247 4.87
714,812 6.31
597,805 9.73
333,597 13.38
242,150 14.71
353,614 19.85
_________ _____
4,572,095 $ 6.92
========= =====
(c) 1994 Employee Stock Purchase Plan
The Company established the 1994 Employee Stock Purchase Plan (the "ESPP
Plan") to encourage and assist employees in acquiring an equity interest in the
Company. The ESPP Plan is authorized to issue up to 2,000,000 shares of
Airgas, Inc. Common Stock. Generally, employees may elect to have up to 15% of
their annual gross earnings withheld to purchase Airgas, Inc. Common Stock at
85 to 95 percent of the market price of the Common Stock, depending on base
salary levels. Market value under the ESPP Plan is either the employees'
enrollment date market value or the quarterly purchase date market value,
whichever is lower. An employee may lock-in a purchase price for up to 27
months. The ESPP Plan is designed to comply with the requirements of Section
423 of the Internal Revenue Code. The Company issued 450,737, 395,889, and
368,194 shares under the ESPP Plan at an average purchase price of $13.20,
$13.02 and $9.22 per share during 1998, 1997, and 1996, respectively. In 1999,
the Company intends to modify the ESPP Plan in accordance with new generally
accepted accounting principles.
Compensation cost under SFAS No. 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 1998, 1997 and
1996, respectively: expected volatility of 38% for each period, risk-free
interest rate of 5.8%, 6.2% and 5.7%, and expected term of 27 months for each
period. The weighted average fair value of the purchase options granted in
fiscal 1998, 1997 and 1996 was $6.55, $6.51 and $4.57, respectively.
(12) INVESTMENT IN UNCONSOLIDATED AFFILIATES
The Company's investment in unconsolidated affiliates includes 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.
F-23
<PAGE> 62
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's investment in all other unconsolidated affiliates totaled
approximately $47 million at March 31, 1998 and $15 million at March 31, 1997.
The Company's investment at March 31, 1998 primarily consists of a 55% interest
in Elkem-American Carbide Company ("Elkem") (U.S.), a 25.5% interest in Bhoruka
Gases, Ltd. (India), a 51% interest in Superior Air Products, Ltd. (India) a
50% interest in AC Industries (U.S.), (acquired in connection with the 1998
acquisition of CIC), and other investments. The Company accounted for these
investments by the equity method of accounting. The Company's share of
earnings from all unconsolidated affiliates was $4.4 million, $2.3 million and
$1.4 million for the years ended March 31, 1998, 1997 and 1996, respectively.
Equity in earnings from Elkem of $1.5 million, $1.4 million and $1.2 million in
1998, 1997, and 1996 are included in Manufacturing net sales. The investment
in unconsolidated affiliates includes goodwill of approximately $31 million as
of March 31, 1998 which is being amortized to earnings over 40 years.
A summary of financial information for investments in unconsolidated
affiliates for the years ended March 31, 1998 and 1997 were as follows:
March 31,
(In thousands) 1998 1997
______________ ______ ______
Current Assets $ 55,177 $ 45,936
Non-Current Assets 147,281 132,240
_______ _______
Total Assets 202,458 178,176
======= =======
Current Liabilities 32,036 27,543
Non-Current Liabilities 92,864 92,598
Mandatory Redeemable Preferred Stock 57,577 57,577
Stockholders' Equity 19,981 458
_______ _______
Total Liabilities and Stockholders' Equity $202,458 $178,176
======= =======
Years ended March 31,
1998 1997
______ ______
Net Sales $188,640 $134,972
Cost of Sales 113,793 95,334
_______ _______
Gross Profit 74,847 39,638
_______ _______
Operating Income 20,253 7,742
_______ _______
Earnings before taxes 14,493 8,691
_______ _______
Net earnings 11,339 6,243
Preferred stock dividends and equity
adjustments (6,937) (3,929)
_______ _______
Company share of net earnings $ 4,402 $ 2,314
======= =======
F-24
<PAGE> 63 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) INTEREST EXPENSE, NET
Interest expense, net, consists of:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
Interest expense. . . . . . . . . . . . . . . $55,403 $41,777 $25,854
Interest and finance charge income. . . . . . (2,113) (2,025) (992)
______ ______ ______
$53,290 $39,752 $24,862
====== ====== ======
(14) INCOME TAXES
Pre-tax earnings (losses) were derived from the following sources:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
United States . . . . . . . . . . . . . . . . $71,810 $44,199 $66,810
Foreign . . . . . . . . . . . . . . . . . . . (1,281) 147 1,432
______ ______ ______
$70,529 $44,346 $68,242
====== ====== ======
Income tax expense consists of:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
Current:
Federal . . . . . . . . . . . . . . . . . $16,025 $17,337 $14,657
Foreign . . . . . . . . . . . . . . . . . 385 1,224 699
State . . . . . . . . . . . . . . . . . . 2,930 2,689 2,298
______ ______ ______
19,340 21,250 17,654
______ ______ ______
Deferred:
Federal . . . . . . . . . . . . . . . . . . 10,748 (1,483) 9,660
Foreign . . . . . . . . . . . . . . . . . . (260) 634 34
State . . . . . . . . . . . . . . . . . . . 161 679 1,174
______ ______ ______
10,649 (170) 10,868
______ ______ ______
$29,989 $21,080 $28,522
====== ====== ======
F-25
<PAGE> 64
(14) INCOME TAXES - (Continued)
Significant differences between taxes computed at the federal statutory
rate and the provision for income taxes were:
Years Ended March 31,
___________________________
1998 1997 1996
____ ____ ____
Taxes at U.S. federal statutory rate . . . . . . 35.0% 35.0% 35.0%
Increase in income taxes resulting from:
State income taxes, net of federal benefit . . . 3.4% 3.2% 3.3
Amortization of non-deductible goodwill. . . . . 3.6% 2.6% 1.8
Special charges (Note 3) . . . . . . . . . . . . 1.3% 3.7% --
Sale of medical home-care business . . . . . . . -- 1.7% --
Other, net . . . . . . . . . . . . . . . . . . . (0.8%) 1.3% 1.7
____ ____ ____
42.5% 47.5% 41.8%
==== ==== ====
The tax effects of cumulative temporary differences that gave rise to the
significant portions of the deferred tax liability and deferred tax asset were
as follows:
March 31,
_______________________
(In thousands) 1998 1997
______________ ____ ____
Deferred Tax Assets:
____________________
Inventories . . . . . . . . . . . . . . . . . . $ 2,455 $ 2,666
Accounts receivable . . . . . . . . . . . . . . 1,928 1,123
Deferred rental income. . . . . . . . . . . . . 401 581
Insurance reserves. . . . . . . . . . . . . . . 1,949 1,793
Special charges (Note 3). . . . . . . . . . . . 10,270 9,586
Other reserves. . . . . . . . . . . . . . . . . 3,468 3,028
Intangible assets . . . . . . . . . . . . . . . 842 1,207
Other . . . . . . . . . . . . . . . . . . . . . 2,739 1,874
______ ______
24,052 21,858
______ ______
Deferred Tax Liabilities:
_________________________
Property and equipment. . . . . . . . . . . . . (132,725) (106,331)
Other. . . . . . . . . . . . . . . . . . . . . (5,731) (5,385)
_______ _______
(138,456) (111,716)
_______ ______
Net deferred tax liability . . . . . . . . . . . $(114,404) $ (89,858)
======= =======
The Company has recorded tax benefits amounting to $3.8 million, $4.2
million, and $7.6 million in 1998, 1997 and 1996, 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
F-26
<PAGE> 65
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) INCOME TAXES - (Continued)
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled 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 the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances, at March 31, 1998.
The Internal Revenue Service ("IRS") has completed an examination of the
Company's consolidated federal income tax return for the year ended March 31,
1993. The results of the completed examination did not have a material effect
on the Company's financial position, results of operations or liquidity.
The IRS is also currently conducting an examination of the Company's
federal income tax return for the year ended March 31, 1996. Management
believes that the results of this examination will not have a material effect
on the Company's earnings, financial condition, or liquidity.
(15) BENEFIT PLANS
(a) Pension and Profit Sharing Plans
The Company has a defined contribution 401(k) plan covering substantially
all full-time employees. Under the terms of the plan, the Company makes
matching contributions up to two percent of participants' wages plus additional
discretionary profit sharing contributions based upon the profitability of the
Company. Amounts expensed under the plan for 1998, 1997 and 1996 were $6.4
million, $5.9 million and $5.1 million, respectively.
During 1993, the Company authorized termination of two defined benefit
pension plans effective December 31, 1992. At December 31, 1997, the plans'
projected benefit obligations approximate the plans' net assets available for
benefits. The settlement of the vested benefit obligations by the purchase of
nonparticipating annuity contracts or lump-sum payments for covered employees
is not expected to result in a significant gain or loss.
Certain subsidiaries of the Company participate in multi-employer pension
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 position, results of operations, or liquidity. Amounts
expensed under the pension plans for 1998, 1997 and 1996 were $660 thousand,
$751 thousand and $482 thousand respectively. Amounts expensed under post-
retirement plans for 1998, 1997 and 1996 were $105 thousand, $106 thousand and
$98 thousand, respectively.
(16) RELATED PARTIES
A former member of the Company's Board of Directors is the President and
CEO of National Welders (See Note 12). During the years ended March 31, 1998,
1997 and 1996, National Welders paid $1.2 million, $1.1 million and $987
F-27
<PAGE> 66 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(16) RELATED PARTIES - (Continued)
thousand, respectively, to Elkem for the purchase of calcium carbide. National
Welders also paid $1.5 million, $574 thousand and $604 thousand to the Company
for other gas purchases in 1998, 1997 and 1996, respectively and $185 thousand
to the Company for hardgood purchases in 1998. In addition, National had gas
and hardgoods sales to Airgas of $390 thousand and $121 thousand in 1998 and
1997, respectively.
(17) 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, 1998, 1997 and 1996, amounted to $30.4
million, $24.0 million and $17.8 million, respectively. At March 31, 1998, the
Company had a contingent guarantee of $3.8 million related to equipment under
certain such leases. Additionally, the Company leases certain operating
facilities at market rates from employees of the Company who were previous
owners of businesses acquired.
The Company has entered into certain operating leases for real estate
with a trust established by a commercial bank. The trust is committed to
purchase real estate properties up to an aggregate amount of $25 million. The
trust holds title to the properties and leases the properties to the Company.
The rental payments are based on LIBOR plus an applicable margin and the cost
of the property acquired by the trust. At the expiration of the leases in
1999, the Company has the option to purchase the real properties at fair value
or assist in the sale of the properties to a third party. At March 31, 1998,
the Company's residual value guarantee was approximately $10.6 million related
to these leased facilities.
At March 31, 1998, future minimum lease payments under noncancelable
operating leases are as follows:
(in thousands)
______________
1999 . . . . . . . . . . . . . . . . . . $ 26,907
2000 . . . . . . . . . . . . . . . . . . 22,601
2001 . . . . . . . . . . . . . . . . . . 17,743
2002 . . . . . . . . . . . . . . . . . . 13,407
2003 . . . . . . . . . . . . . . . . . . 9,867
2004 and thereafter. . . . . . . . . . . 18,500
_______
$109,025
=======
(18) COMMITMENTS AND CONTINGENCIES
Inc July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in
the Circuit Court of Mobile County, Alabama. The complaint alleges tortious
interference with business or contractual relations with respect to Praxair's
Right of First Refusal contract with the majority shareholders of National
Welders by the Company in connection with the Company's formation of a joint
venture with National Welders. Praxair is seeking compensatory damages in
excess of $100 million and punitive damages. 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
F-28
<PAGE> 67 AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(18) COMMITMENTS AND CONTINGENCIES - (Continued)
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 $10,000, punitive damages and other unspecified relief. The Company
believes that Praxair's North Carolina claims are also without merit and
intends to defend vigorously against such claims.
On September 9, 1996, the Company filed suit against Praxair in the Court
of Common Pleas of Philadelphia County, Pennsylvania. The complaint alleges
breach of contract, fraud, conversion and misappropriation of trade secrets
with respect to an agreement between Praxair and the Company, pursuant to which
Praxair induced the Company to provide Praxair valuable information and
conclusions developed by the Company concerning CBI Industries, Inc. ("CBI") in
exchange for Praxair's promise not to acquire CBI without the Company's
participation. The Company has alleged that it became entitled, pursuant to
such agreement, to acquire certain of CBI's assets having a value in excess of
$800 million. The Company is seeking compensatory and punitive damages.
The Company is involved in various legal and regulatory proceedings which
have arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded and determined, will
not, in the opinion of management, have a material adverse effect upon the
Company's consolidated financial position, results of operations or liquidity.
Insurance Coverage
The Company has established insurance programs to cover workers'
compensation, business automobile, general and products liability. These
programs have self-insured retentions of $500,000 per occurrence for workers'
compensation, general and products liability, and business automobile
liability. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred, claims incurred but not reported and
based on Company experience. The Company does not deem its self-insured
retention exposure to be material.
(19) CASH FLOWS
Cash paid for interest expense and income taxes were as follows:
Years Ended March 31,
___________________________
(In thousands) 1998 1997 1996
______________ ____ ____ ____
Interest . . . . . . . . . . . . . . . . . . . $51,910 $38,993 $25,107
====== ====== ======
Income taxes (net of refunds). . . . . . . . . 15,099 13,254 10,325
====== ====== ======
The total purchase price, fair value of assets acquired, cash paid and
liabilities assumed for business acquisitions is presented in Note 2.
During 1998 and 1997, the Company entered into capital lease obligations
for approximately $461 thousand and $567 thousand, respectively.
During 1998 and 1997, the Company capitalized interest in connection with
the construction of air separation plants of approximately $1.2 million and
$622 thousand, respectively.
F-29
<PAGE> 68
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(20) MINORITY INTEREST IN SUBSIDIARIES
Minority interests in subsidiaries represent the minority shareholders'
proportionate share of the equity and the results of operations of certain
subsidiaries. The Company sold minority interests in certain of its
subsidiaries to employees based on the estimated fair market value of the
subsidiary shares. These sales of subsidiary shares were accounted for as
capital transactions and, therefore, no gain or loss was recorded.
In December 1997, the Board of Directors approved a Mandatory Exchange in
accordance with the exchange rights agreements between the Company and the
minority shareholders. The number of shares issued were 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 requires that all minority
shareholders exchange their minority interests for an aggregate of 708,796
shares of Company Common Stock. The acquisition of these minority interests
under the Mandatory Exchange has been recorded using the purchase method of
accounting. In connection with the Mandatory Exchange, the Company intends to
file a registration statement with the Securities and Exchange Commission
during the second quarter of 1999.
On December 31, 1996 and August 31, 1995, in connection with optional
exchanges, certain minority shareholders elected to exchange their minority
interests for an aggregate of 76,556 and 258,116 shares of Airgas Common Stock,
respectively. The market price of the Company's Common Stock on December 31,
1996 and August 31, 1995 was $22.00 and $13.75 per share, respectively. The
acquisition of the minority interests has been recorded using the purchase
method of accounting.
(21) SUMMARY BY BUSINESS SEGMENT
The Company's operations are conducted principally in North America
through three related business segments: 1) the distribution of industrial,
medical and specialty gases, and related equipment (the "Distribution"
segment); 2) the distribution of industrial, safety and environmental supplies
and metal working and industrial tools and supplies (the "ADI" segment); and 3)
the manufacture of products for the industrial gas and metals industries (the
"Manufacturing" segment). The Distribution segment operates through the
Company's subsidiaries which have locations in 44 states, Canada and Mexico.
ADI distributes products to its customers utilizing outbound telemarketing,
direct mail and catalogs. The Manufacturing segment's products include carbon
dioxide, which is used in refrigeration, food processing, beverage carbonation,
chemical processing, crude oil recovery, metal fabrication and agricultural
fumigations, nitrous oxide, a gas with applications in the medical, food
packaging and certain high technology electronic industries, calcium carbide,
and other carbon products for the production of acetylene gas and the
non-ferrous metal industry.
F-30
<PAGE> 69
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) SUMMARY BY BUSINESS SEGMENT - (continued)
Total export sales amounted to approximately $5.5 million, $7.5 million
and $4.3 million in 1998, 1997 and 1996, respectively.
(In thousands) Distribution (c) ADI Manufacturing (c) Total
______________ _______________ ____ ________________ _____
1998
Net sales (b). . . . . . . . . . .$1,098,588 $ 223,370 $126,032 $1,447,990
Intersegment sales . . . . . . . . -- 3,239 9,494 12,733
Operating income, excluding
special charges (a), (b). . . . . 105,371 6,101 12,426 123,898
Assets . . . . . . . . . . . . . . 1,202,877 194,029 244,568 1,641,474
Depreciation and amortization,
excluding special charges . . . . 61,359 6,059 9,252 76,670
Additions to plant and equipment
excluding business acquisitions. . 72,253 7,488 44,984 124,725
1997
Net sales (b). . . . . . . . . . .$ 999,555 $ 99,216 $ 60,123 $1,158,894
Intersegment Sales . . . . . . . . -- 967 6,528 7,495
Operating income, excluding
special charges (a), (b). . . . . 100,300 3,076 10,334 113,710
Assets . . . . . . . . . . . . . . 1,054,571 138,059 98,401 1,291,031
Depreciation and amortization,
excluding special charges . . . . 56,555 2,987 2,949 62,491
Additions to plant and equipment
excluding business acquisitions . 68,687 669 5,002 74,358
1996
Net sales (b). . . . . . . . . . .$ 801,552 $ -- $ 36,592 $ 838,144
Intersegment Sales . . . . . . . . -- -- 997 997
Operating income (a), (b). . . . . 86,130 -- 6,855 92,985
Assets . . . . . . . . . . . . . . 846,129 -- 37,513 883,642
Depreciation and amortization. . . 44,386 -- 1,376 45,762
Additions to plant and equipment
excluding business acquisitions. . 39,755 -- 1,481 41,236
(a) Corporate operating results are allocated to each of the respective
segments pro rata based on sales dollars.
(b) Intercompany transactions are eliminated in consolidation. Intersegment
sales are billed at actual cost plus delivery charges.
(c) Reflects the reclassification of certain subsidiaries from the Distribution
segment to the Manufacturing segment.
F-31
<PAGE> 70
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(22) SUPPLEMENTARY INFORMATION (UNAUDITED)
This table summarizes the unaudited results of operations for each quarter
of 1998 and 1997:
(In thousands, except per share data) First Second Third Fourth
_____________________________________ _____ ______ _____ _______
1998
Net sales . . . . . . . . . . . . . . . $331,412 $360,356 $367,810 $388,412
Operating income. . . . . . . . . . . . 33,500 47,500 32,702 5,246
Net earnings (loss) . . . . . . . . . . 12,226 21,675 11,826 (5,187)
Basic earnings (loss) per share
(a),(b). . . . . . . . . . . . . . . . $ .18 $ .32 $ .17 $ (.07)
Diluted earnings (loss) per share
(a),(b). . . . . . . . . . . . . . . . $ .18 $ .31 $ .17 $ (.07)
1997
Net sales . . . . . . . . . . . . . . . $274,098 $278,712 $297,203 $308,881
Operating income (loss) . . . . . . . . 27,321 29,008 29,379 (3,423)
Net earnings (loss) . . . . . . . . . . 11,150 11,310 10,960 (10,154)
Basic earnings (loss) per share (a),(b) $ .17 $ .18 $ .16 $ (.15)
Diluted earnings (loss) per share
(a),(b) . . . . . . . . . . . . . . . $ .17 $ .17 $ .16 $ (.15)
__________________
(a) Earnings per share calculations for each of the quarters are based on the
weighted average number of shares outstanding in each period. Therefore,
the sum of the quarters do not necessarily equal the full year earnings per
share.
(b) See Note 3 to the Company's consolidated financial statements for
information regarding a non-recurring gain of approximately $14.5 million
recorded in the second quarter of 1998; a special charge of approximately
$19.5 million recorded in the fourth quarter of 1998; and a special charge
of approximately $31.4 million recorded in the fourth quarter of 1997.
F-32
<PAGE> 71
SCHEDULE II
CONSOLIDATED
AIRGAS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1998, 1997 and 1996
(In thousands of dollars)
Column A Column B Column C
________ ________ ________
Additions
_________
Charged
Balance at Charged to (Credited)
Beginning Cost and to Other
Description of Period Expense Accounts
____________ _________ __________ ____________
1998
Accounts Receivable -- Allowance
for doubtful accounts. . . . . . . $ 4,443 $ 5,311 $ 1,418 (1)
Inventory reserves. . . . . . . . . 9,005 (188) 983
Insurance reserves. . . . . . . . . 5,224 33,054 (802)
1997
Accounts Receivable -- Allowance
for doubtful accounts. . . . . . . $ 3,396 $ 3,860 $ 1,081 (1)
Inventory reserves. . . . . . . . . 6,217 298 2,490
Insurance reserves. . . . . . . . . 5,297 27,821 (1,750)
1996
Accounts Receivable -- Allowance
for doubtful accounts. . . . . . . $ 4,161 $ 2,719 $ 1,313 (1)
Inventory reserves. . . . . . . . . 5,490 (241) 968
Insurance reserves. . . . . . . . . 6,304 19,510 262
(COLUMNS CONTINUED ON NEXT PAGE)
F-33
<PAGE> 72
SCHEDULE II
CONSOLIDATED
AIRGAS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1998, 1997 and 1996
(In thousands of dollars)
(Columns Continued)
Column A Column D Column E
________ ________ ________
Balance
at End of
Description Deductions Period
____________ ______________ ________
1998
Accounts Receivable -- Allowance
for doubtful accounts. . . . . . . . $ (5,496)(2) $ 5,676
Inventory reserves. . . . . . . . . . -- 9,800
Insurance reserves. . . . . . . . . . (30,391) 7,085
1997
Accounts Receivable -- Allowance
for doubtful accounts. . . . . . . . $ (3,894) (2) $ 4,443
Inventory reserves. . . . . . . . . . -- 9,005
Insurance reserves. . . . . . . . . . (26,144) 5,224
1996
Accounts Receivable --Allowance
for doubtful accounts. . . . . . . . $ (4,797) (2) $ 3,396
Inventory reserves. . . . . . . . . . -- 6,217
Insurance reserves. . . . . . . . . . (20,779) 5,297
________
(1) Includes collections on accounts previously written-off and allowances for
doubtful accounts of businesses acquired less the allowance for doubtful
accounts of businesses sold.
(2) Write-off of uncollectible accounts.
F-33, Continued
<PAGE>
<PAGE> EX-1
Exhibit 11
AIRGAS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
For the Years Ended March 31, 1998, 1997 and 1996
Years Ended March 31,
____________________________________________
1998 1997 1996
_______ _______ _______
Weighted Average Shares Outstanding:
___________________________________
Basic shares outstanding 68,660,000 65,875,000 62,820,000
Net common stock equivalents 2,140,000 2,765,000 3,020,000
__________ __________ __________
Diluted shares outstanding 70,800,000 68,640,000 65,840,000
========== ========== ==========
Net earnings $40,540,000 $23,266,000 $39,720,000
========== ========== ==========
Basic earnings per share $ .59 $ .35 $ .63
========== ========== ==========
Diluted earnings per share $ .57 $ .34 $ .60
========== ========== ==========
<PAGE>
<PAGE>
<PAGE> EX-2
Exhibit 21
Airgas, Inc. and Subsidiaries
Corporation Name Domicile
__________________________ ________
Airgas- Gulf States, Inc. DE
Airgas- Intermountain, Inc. DE
Airgas- Michigan, Inc. DE
Airgas- Mid America, Inc. DE
Airgas- Mid Atlantic, Inc. DE
Airgas- Mid South, Inc. DE
Airgas- Mountain States, Inc. DE
Airgas- Nor Pac, Inc. DE
Airgas- North Central, Inc. DE
Airgas- Northeast, Inc. DE
Airgas- Northern California & Nevada, Inc. DE
Airgas- South, Inc. DE
Airgas- Southwest, Inc. DE
Airgas- West, Inc. CA
Airgas Canada, Inc. Canada
Airgas Carbonic Enterprises, Inc. DE
Airgas Carbonic, Inc. DE
Airgas Data,LLC. DE
Airgas Direct Industrial Vessel, LLC. DE
Airgas Direct Industrial, Inc. DE
Airgas International, Inc. VI
Airgas Lyons, Inc. DE
Airgas Management (Indian) Pvt. Ltd. India
Airgas New England Real Estate, Inc. DE
Airgas Ontario, Inc. Canada
Airgas Polska Zo.o Poland
Airgas Realty, Inc. DE
Airgas Safety, Inc. DE
Airgas Specialty Gases, Inc. TX
American Carbide and Carbon Corporation DE
AMI Equipment, LLC. PA
ATNL, Inc. DE
Cylinder Leasing Corp. DE
FORAIR, Inc. DE
JWS Airgas, Inc. NJ
Kamool Airgas, Ltd. Thailand
Mauritius Industrial Gases, Inc. Mauritius
NEJD Pipeline Co., Inc. DE
Nitrous Oxide Corp. DE
Poligaz-Gdansk Poland
Poligaz, SA. Poland
Red-D-Arc, Inc. NV
Red-D-Arc Limited Canada
RSCI,Inc. DE
Rutland Tool & Supply Co., Inc. CA
<PAGE>
<PAGE>
<PAGE> EX-3
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Airgas, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-39433, 33-48388, 33-57893, 33-61301, 33-61899, 33-63201, 33-64633, 333-
08113, 333-37863 and 333-46739) on Form S-3 and (Nos. 33-21780, 33-25419,
33-33954, 33-64056, 33-64058, 33-64112, 33-64114, 333-28261 and 333-42023) on
Form S-8 of Airgas, Inc. of our report dated May 13, 1998, relating to the
consolidated balance sheets of Airgas, Inc. and subsidiaries as of March 31,
1997 and 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 1998, and all related schedules, which report is
included in the March 31, 1998, Annual Report on Form 10-K of Airgas, Inc.
KPMG Peat Marwick LLP
Philadelphia, PA
June 18, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 186,342
<ALLOWANCES> 5,676
<INVENTORY> 154,937
<CURRENT-ASSETS> 366,834
<PP&E> 923,635
<DEPRECIATION> 236,331
<TOTAL-ASSETS> 1,641,474
<CURRENT-LIABILITIES> 225,558
<BONDS> 830,845
<COMMON> 714
0
0
<OTHER-SE> 426,159
<TOTAL-LIABILITY-AND-EQUITY> 1,641,474
<SALES> 1,447,990
<TOTAL-REVENUES> 1,447,990
<CGS> 778,857
<TOTAL-COSTS> 1,329,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,290
<INCOME-PRETAX> 70,529
<INCOME-TAX> 29,989
<INCOME-CONTINUING> 40,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,540
<EPS-PRIMARY> .59
<EPS-DILUTED> .57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 151,053
<ALLOWANCES> 4,443
<INVENTORY> 129,372
<CURRENT-ASSETS> 311,999
<PP&E> 736,083
<DEPRECIATION> 183,922
<TOTAL-ASSETS> 1,291,031
<CURRENT-LIABILITIES> 187,150
<BONDS> 629,931
<COMMON> 688
0
0
<OTHER-SE> 335,969
<TOTAL-LIABILITY-AND-EQUITY> 1,291,031
<SALES> 1,158,894
<TOTAL-REVENUES> 1,158,894
<CGS> 611,383
<TOTAL-COSTS> 1,076,609
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,752
<INCOME-PRETAX> 44,346
<INCOME-TAX> 21,080
<INCOME-CONTINUING> 23,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,266
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
<PAGE>
</TABLE>
