<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
Commission file number: 1-9344
AIRGAS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-0732648
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
259 North Radnor-Chester Road, Suite 100
Radnor, PA 19087-5283
(Address of principal executive offices) (ZIP code)
(610) 687-5253
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by 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
Common Stock outstanding at November 4, 1998: 70,443,564 shares
<PAGE> 2
AIRGAS, INC.
FORM 10-Q
September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and March 31, 1998......................................................3
Consolidated Statements of Earnings for the Three and
Six Months Ended September 30, 1998 and 1997 (Unaudited)................4
Consolidated Statements of Cash Flows
for the Six Months Ended September 30, 1998 and 1997 (Unaudited)........5
Notes to Consolidated Financial Statements (Unaudited)......................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................26
Item 4. Submission of Matters to a Vote of Security Holders................27
Item 5. Other Information..................................................27
Item 6. Exhibits and Reports on Form 8-K...................................29
SIGNATURES .................................................................30
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
AIRGAS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
September 30,
1998 March 31,
(Unaudited) 1998
<S> <C> <C>
ASSETS
Current Assets
Trade receivables, less allowances for
doubtful accounts of $5,886 at September 30,1998
and $5,676 at March 31, 1998 $ 204,833 $ 186,342
Inventories, net 165,863 154,937
Prepaid expenses and other current assets 25,042 25,555
Total current assets 395,738 366,834
Plant and equipment, at cost 977,317 923,635
Less accumulated depreciation, depletion and amortization (262,175) (236,331)
Plant and equipment, net 715,142 687,304
Goodwill, net of accumulated amortization of
$48,299 at September 30, 1998 and
$42,147 at March 31, 1998 431,460 410,753
Other non-current assets 177,691 176,583
Total assets $1,720,031 $1,641,474
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 14,064 $ 12,150
Accounts payable, trade 83,721 84,602
Accrued expenses and other current liabilities 113,304 128,806
Total current liabilities 211,089 225,558
Long-term debt 906,356 830,845
Deferred income taxes 129,266 121,356
Other non-current liabilities 35,139 36,842
Stockholders' Equity
Preferred stock, no par value, 20,000 shares authorized,
no shares issued or outstanding at September 30, 1998
and March 31, 1998, respectively -- --
Common stock, par value $.01 per share, 200,000 shares
authorized, 70,428 and 71,357 shares issued at
September 30, 1998 and March 31, 1998, respectively 717 714
Capital in excess of par value 194,942 192,358
Retained earnings 258,921 237,166
Accumulated other comprehensive loss (915) (779)
Treasury stock, 1,203 and 176 common shares at cost at
September 30, 1998 and March 31, 1998, respectively (15,484) (2,586)
Total stockholders' equity 438,181 426,873
Total liabilities and stockholders' equity $1,720,031 $1,641,474
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 4
<TABLE>
AIRGAS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales:
Distribution $288,997 $268,168 $580,959 $539,437
Direct Industrial 65,211 61,216 133,802 98,061
Manufacturing 42,384 30,972 82,604 54,270
Total net sales 396,592 360,356 797,365 691,768
Costs and expenses:
Cost of products sold (excluding depreciation,
depletion and amortization)
Distribution 144,725 135,011 291,402 272,474
Direct Industrial 48,064 44,966 98,738 70,971
Manufacturing 16,063 14,404 34,208 25,690
Selling, distribution and administrative
expenses 134,201 114,199 265,452 219,542
Depreciation, depletion and amortization 21,748 18,776 43,345 36,591
Special charges -- (14,500) (1,000) (14,500)
Total costs and expenses 364,801 312,856 732,145 610,768
Operating income:
Distribution 25,143 27,182 52,799 55,876
Direct Industrial 929 1,343 1,813 2,448
Manufacturing 5,719 4,475 9,608 8,176
Special charges -- 14,500 1,000 14,500
Total operating income 31,791 47,500 65,220 81,000
Interest expense, net (15,720) (13,670) (30,526) (25,778)
Other income, net 682 1,573 870 2,046
Equity in earnings of unconsolidated
affiliates 1,222 434 1,976 319
Minority interest 27 (309) (39) (618)
Earnings before income taxes 18,002 35,528 37,501 56,969
Income tax expense 7,522 13,853 15,746 23,068
Net earnings $ 10,480 $ 21,675 $ 21,755 $ 33,901
Basic earnings per share $ .15 $ .32 $ .31 $ .50
Diluted earnings per share $ .15 $ .31 $ .30 $ .48
Weighted average shares outstanding:
Basic 70,000 68,530 70,100 67,700
Diluted 71,700 70,950 71,800 70,100
Comprehensive income $ 10,329 $ 21,575 $ 21,619 $ 33,802
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
<TABLE>
AIRGAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(In thousands)
Six Months Ended Six Months Ended
September 30, 1998 September 30, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 21,755 $33,901
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization 43,345 36,591
Deferred income taxes 5,511 11,374
Equity in earnings of unconsolidated affiliates (2,563) (1,061)
Gain on sales of plant and equipment (292) (25)
Minority interest in earnings 39 618
Gain on divestiture of non-core business -- (1,452)
Stock issued for employee benefit plan expense 3,109 2,945
Changes in assets and liabilities, excluding effects
of business acquisitions and divestitures:
Trade receivables, net (16,308) (7,081)
Inventories (10,758) (3,626)
Prepaid expenses and other current assets 756 (5,400)
Accounts payable, trade (1,865) (14,266)
Accrued expenses and other current liabilities (1,986) 391
Other assets and liabilities, net (8,526) 1,488
Net cash provided by operating activities 32,217 54,397
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (56,528) (65,419)
Proceeds from sales of plant and equipment 1,152 1,245
Proceeds from divestitures 10,463 4,000
Business acquisitions, net of cash acquired (42,307) (67,599)
Business acquisitions, holdback settlements (1,564) (3,174)
Investment in unconsolidated affiliates (139) (9,147)
Dividends from unconsolidated affiliates 1,697 870
Other, net 4,831 364
Net cash used by investing activities (82,395) (138,860)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 258,505 224,593
Repayment of debt (182,733) (124,674)
Financing costs (18) (8)
Repurchase of treasury stock (13,982) (18,363)
Exercise of stock options 356 2,427
Cash overdraft (11,950) 488
Net cash provided by financing activities 50,178 84,463
CASH INCREASE (DECREASE) $ 0 $ 0
Cash - Beginning of period 0 0
Cash - End of period $ 0 $ 0
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 6 AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Airgas, Inc.
and its subsidiaries (the "Company"). Unconsolidated affiliates are
accounted for on the equity method and generally consist of 20% - 50% owned
operations where control does not exist or is considered temporary. The
excess of the cost of these affiliates 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 accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. These
statements do not include all disclosures required for annual financial
statements. These financial statements should be read in conjunction with
the more complete disclosures contained in the Company's audited
consolidated financial statements for the year ended March 31, 1998.
The Company adopted Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" in the quarter ended June 30, 1998, as
required. The financial statements as of September 30, 1997 have been
restated to conform to the current presentation.
The financial statements reflect, in the opinion of management, all
adjustments necessary to present fairly the Company's financial position,
results of operations and cash flows for the periods presented. Such
adjustments are of a normal, recurring nature except for the impact of
acquisitions, divestitures, and special charges which are discussed in the
notes to the accompanying financial statements. The interim operating
results are not necessarily indicative of the results to be expected for an
entire year.
(2) ACQUISITIONS AND DIVESTITURES
From April 1, 1998 to September 30, 1998, the Company acquired eight
distributors of industrial gas and related equipment (Distribution segment)
with aggregate annual sales of approximately $27 million and four
manufacturers and distributors of dry ice (Manufacturing segment) with
annual sales of approximately $20 million. The aggregate purchase price,
including amounts related to non-competition and confidentiality
agreements, amounted to approximately $58 million ($42 million cash and $16
million assumed liabilities). Acquisitions have been recorded using the
purchase method of accounting, and, accordingly, results of their
operations are included in the Company's consolidated financial statements
since the effective dates of the respective acquisitions.
Subsequent to September 30, 1998, the Company acquired three distributors
of industrial gases and related equipment with annual sales of
approximately $4 million for an aggregate purchase price of approximately
$3.7 million.
As also discussed in Note (3), the Company divested two non-core
businesses in the first quarter of 1999. The consideration for the sales
of the businesses included cash proceeds of approximately $10.5 million and
the assumption of certain liabilities. The businesses had combined annual
net sales in 1998 of approximately $17 million.
<PAGE> 7
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
On November 5, 1998, the Company announced that it had entered into a
definitive agreement to sell its calcium carbide and carbon products
manufacturing operations to Elkem Metals Company L.P. ("Elkem"), a
subsidiary of Elkem ASA. As part of the agreement, Elkem will enter into
a long-term contract to supply the Company's calcium carbide requirements
and the Company and Elkem will discontinue their Elkem-American Carbide
Company joint venture that currently markets calcium carbide throughout
the United States. The manufacturing facilities that are operated by the
Company's subsidiary, American Carbide and Carbon Corporation, are located
in Pryor, Oklahoma and Keokuk, Iowa and generate annual sales of approximately
$30 million. The operations are included in the Company's Manufacturing
segment. The Company expects to record a gain on the sale. Consummation
of the transaction is subject to regulatory approvals.
(3) SPECIAL CHARGES
During the fourth quarter of fiscal 1998, the Company announced its
"Repositioning Airgas for Growth" restructuring plan (the "Repositioning
Plan"). The Company established repositioning reserves of approximately
$11 million in the fourth quarter of 1998 related to the pending
divestiture of several non-core businesses, facility exit costs and
severance. As discussed in Note (2), the Company completed the divestiture
of two non-core businesses during the first quarter of 1999. As a result
of these divestitures, repositioning reserves were reduced by $2.8 million,
including $1 million ($570 thousand after-tax) which represented a reversal
of excess reserves. The Company estimated that facility exit costs and
severance would require a use of cash of $4.2 million. Through September
30, 1998, the Company has paid amounts totaling $1.9 million related to
facility exit costs and severance. At September 30, 1998, the Company
believes its remaining repositioning accruals of $6.3 million ($4 million
for divestitures and $2.3 million for facility exit costs and severance)
are adequate.
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 fiscal 1997 of
$26.4 million (after-tax $17 million) 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 gain of
$14.5 million (after-tax $9.4 million) during the second quarter ended
September 30, 1997.
During the second quarter ended September 30, 1997, the Company also
recorded a gain, included in other income, of $1.5 million (approximately
$980 thousand after-tax) related to the sale of a non-core business.
(4) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the
weighted average number of shares of the Company's Common Stock outstanding
during the period. Diluted earnings per share is calculated by adjusting
the weighted average common shares outstanding for the dilutive effect of
common stock equivalents related to stock options and contingently issuable
shares.
<PAGE> 8
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The table below reconciles basic weighted average common shares
outstanding to diluted weighted average common shares outstanding for the
three and six month periods ended September 30, 1998 and 1997:
<TABLE>
(In thousands)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding:
Basic.......................... 70,000 68,530 70,100 67,700
Stock Options.................. 1,570 2,420 1,630 2,400
Contingently issuable shares... 130 -- 70 --
Diluted........................ 71,700 70,950 71,800 70,100
</TABLE>
(5) INVENTORIES
Net inventories consist of:
<TABLE>
(In thousands)
<CAPTION>
(Unaudited)
September 30, March 31,
1998 1998
<S> <C> <C>
Finished goods $164,301 $154,003
Raw materials 3,139 2,380
167,440 156,383
Less reduction to LIFO cost (1,577) (1,446)
$165,863 $154,937
</TABLE>
<PAGE> 9
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(6) PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
<TABLE>
(In thousands)
<CAPTION>
(Unaudited)
September 30, March 31,
1998 1998
<S> <C> <C>
Land and land improvements $ 27,183 $ 26,050
Buildings and leasehold improvements 91,691 88,130
Cylinders 415,353 404,198
Machinery and equipment, including bulk tanks 323,511 300,599
Computers and furniture and fixtures 59,080 52,051
Transportation equipment 51,038 48,720
Construction in progress 9,461 3,887
$ 977,317 $ 923,635
</TABLE>
(7) OTHER NON-CURRENT ASSETS
Other non-current assets include:
<TABLE>
(In thousands)
<CAPTION>
(Unaudited)
September 30, March 31,
1998 1998
<S> <C> <C>
Investment in unconsolidated affiliates $ 99,843 $ 98,522
Non-compete agreements and other intangible
assets, at cost, net of accumulated
amortization of $79.8 million at
September 30, 1998 and $73.2 million at
March 31, 1998 60,250 63,205
Other assets 17,598 14,856
$177,691 $176,583
</TABLE>
<PAGE> 10
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities include:
<TABLE>
(In thousands)
<CAPTION>
(Unaudited)
September 30, March 31,
1998 1998
<S> <C> <C>
Cash overdraft $ 19,671 $ 31,621
Repositioning accruals 6,265 10,429
Accrued interest 9,380 8,918
Insurance and related reserves 8,835 7,248
Customer cylinder deposits 8,617 8,668
Other accrued expenses and current liabilities 60,536 61,922
$113,304 $128,806
The cash overdraft is attributable to the float of the Company's outstanding checks.
</TABLE>
(9) STOCKHOLDERS' EQUITY
Changes in stockholders' equity were as follows:
(In thousands of shares)
Shares of Common Treasury
Stock $.01 Par Value Stock
Balance--April 1, 1998 71,357 176
Common stock issuance (a) 274 --
Purchase of treasury stock -- 1,100
Reissuance of treasury stock -- (73)
Balance--September 30, 1998 71,631 1,203
<PAGE> 11
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
(In thousands of dollars)
Accumulated
Capital in Other
Common Excess of Retained Comprehensive Treasury Comprehensive
Stock Par Value Earnings Loss Stock Income
<S> <C> <C> <C> <C> <C> <C>
Balance--April 1, 1998 $714 $192,358 $237,166 $(779) $(2,586) $ --
Net earnings -- -- 21,755 -- -- 21,755
Common stock issuance (a) 3 3,106 -- -- -- --
Foreign currency translation
adjustments -- -- -- (136) -- (136)
Purchase of treasury stock -- -- -- -- (13,982) --
Reissuance of treasury stock -- (866) -- -- 1,084 --
Tax benefit from stock option
exercises -- 344 -- -- -- --
Balance--September 30,1998 $717 $194,942 $258,921 $(915) $(15,484) $21,619
(a) Related to the issuance of common stock for the Company's Employee Stock Purchase Plan.
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
(a) Litigation
In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in
the Circuit Court of Mobile County, Alabama. The complaint alleged
tortious interference with business or contractual relations with respect
to Praxair's Right of First Refusal contract with the majority shareholders
of National Welders by the Company in connection with the Company's
formation of a joint venture with National Welders. Praxair sought
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
Carolina action Praxair seeks compensatory damages in excess of $10,000,
punitive damages and other unspecified relief. The Company believes that all
of Praxair's claims are without merit and intends to defend vigorously
against such claims.
<PAGE> 12
AIRGAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
On September 9, 1996, the Company filed suit against Praxair in the
Court of Common Pleas of Philadelphia County, Pennsylvania. The complaint
alleges breach of contract, fraud, conversion and misappropriation of trade
secrets with respect to an agreement between Praxair and the Company,
pursuant to which Praxair induced the Company to provide Praxair valuable
information and conclusions developed by the Company concerning CBI
Industries, Inc. ("CBI") in exchange for Praxair's promise not to acquire
CBI without the Company's participation. The Company has alleged that it
became entitled, pursuant to such agreement, to acquire certain of CBI's
assets having a value in excess of $800 million. The Company is seeking
compensatory and punitive damages.
The Company is involved in 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.
(b) 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 has
established insurance reserves that management believes to be adequate.
<PAGE> 13
Item 2.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW
OVERVIEW
Net sales increased 10% to $397 million in the quarter ended September
30, 1998 ("current quarter"), from $360 million in the prior year. Net
earnings were $10.5 million or $.15 per diluted share, compared to $21.7
million, or $.31 per diluted share, a year ago. Excluding an after-tax
gain of $9.4 million related to a partial recovery of charges incurred in
fiscal 1997 and the after-tax gain on the sale of a non-core business of
$980 thousand, net earnings in the prior period were $11.3 million or $.16
per diluted share.
Net earnings in the current quarter were impacted by a general slowing
in the manufacturing and industrial economies and higher operating expenses
associated with the Company's "Repositioning Airgas for Growth" (the
"Repositioning Plan"). As more fully described in the Company's Form 10-K
for the year ended March 31, 1998, the Company initiated its Repositioning
Plan during the fourth quarter ended March 31, 1998. The Repositioning
Plan includes the consolidation of subsidiaries into larger regional
companies, the conversion of information systems to two legacy systems, the
implementation of a single national computer center and communications
system, the build-out of regional distribution centers and the divestiture
of several non-core businesses. The Company established repositioning
reserves of approximately $11 million in the fourth quarter of 1998 related
to the pending divestiture of several non-core businesses, facility exit
costs and severance. During the first quarter of 1999, the Company
completed the divestiture of two non-core businesses. As a result of these
divestitures, repositioning reserves were reduced by $2.8 million,
including $1 million ($570 thousand after-tax) which represented a reversal
of excess reserves. The Company estimated that facility exit costs and
severance would require a use of cash of $4.2 million. Through September
30, 1998, the Company has paid amounts totaling $1.9 million related to
facility exit costs and severance. At September 30, 1998, the Company
believes its remaining repositioning accruals of $6.3 million ($4 million
for divestitures and $2.3 million for facility exit costs and severance)
are adequate.
Repositioning Plan expenses were $4.6 million ($2.6 million after-tax
or $.04 per diluted share), in the current quarter, of which approximately
60% are estimated to represent recurring expenses. The repositioning costs
and expenses were primarily for computer conversions and upgrades, facility-
related costs and personnel expenses.
From April 1, 1998 through November 5, 1998, the Company acquired 11
distributors of industrial gas and related equipment (Distribution segment)
with aggregate annual sales of approximately $31 million and four
manufacturers and distributors of dry ice (Manufacturing segment) with
annual sales of approximately $20 million.
On November 5, 1998, the Company announced that it had entered into a
definitive agreement to sell its calcium carbide and carbon products
manufacturing operations to Elkem Metals Company L.P. ("Elkem"), a
subsidiary of Elkem ASA. As part of the agreement, Elkem will enter into a
long-term contract to supply the Company's calcium carbide requirements and
the Company and Elkem will discontinue their Elkem-American Carbide Company
joint venture that currently markets calcium carbide throughout the United
States. The manufacturing facilities that are operated by the Company's
subsidiary, American Carbide and Carbon Corporation, are located in Pryor,
Oklahoma and Keokuk, Iowa and generate annual sales of approximately $30
million. The operations are included in the Company's Manufacturing
segment. The Company expects to record a gain on the sale. Consummation
of the transaction is subject to regulatory approvals.
<PAGE> 14
AIRGAS, INC.
MANAGMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1997
INCOME STATEMENT COMMENTARY
Net sales increased 10% during the current quarter compared to the
same quarter in the prior year:
<TABLE>
(in thousands)
<CAPTION>
Three months Ended
September 30,
Net Sales: 1998 1997 Increase
<S> <C> <C> <C>
Distribution $288,997 $268,168 $20,829
Direct Industrial 65,211 61,216 3,995
Manufacturing 42,384 30,972 11,412
$396,592 $360,356 $36,236
</TABLE>
Distribution sales include three product groups: gases, hardgoods and
rent. Distribution sales increased $20.8 million as a result of
approximately $20.5 million from the acquisition of 21 distributors since
July 1, 1997 and approximately $5.2 million from same-store sales growth.
Offsetting the increase in sales were the divestitures of two businesses in
the first quarter of 1999 which had sales of approximately $4.9 million in
the prior period. Distribution same-store sales increased 2% as a result
of a 6% same-store increase in gas and rent, partially offset by a 2%
decline in hardgoods sales. The Company believes its hardgoods sales were
adversely affected in the current quarter by a general slowing in the
manufacturing and industrial economies. The increases in gas and rent
sales were helped by the Company's continued focus on strategic products,
including the expansion of its rental welder fleet and small bulk gases.
Sales in the current quarter were also negatively affected by weather
conditions that impacted operations bordering the Gulf of Mexico and in the
Southwest and Midwest regions. Low oil prices also slowed off-shore and
inland oil activity. The Company believes that these factors contributed
to the decline in its Distribution same-store sales growth rate from 5% in
the prior year quarter. Additionally, although difficult to quantify, the
Company believes that the indirect effects of the Repositioning have
impacted sales.
The Company estimates same-store sales based on a comparison of
current period sales to the prior period's sales, adjusted for acquisitions
and divestitures. Future same-store sales growth is dependent on the
economy, the Company's ability to sell additional products and services to
existing customers and to obtain price increases. The Company continues to
focus on internal sales growth through the addition of new products and
product-line extensions, including certain specialty gases, carbon dioxide,
refrigerant gases in returnable containers, the expansion of rental welders
and tool and safety hardgoods items.
<PAGE> 15
AIRGAS, INC.
MANAGMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Airgas Direct Industrial ("ADI") sales include safety products and
equipment, metalworking tools and supplies and other Maintenance, Repair
and Operations ("MRO") hardgoods items. ADI's sales increased $4 million
primarily from same-store sales growth. The same-store sales growth rate
for ADI during the current quarter was approximately 4% and resulted from a
9% increase in sales of safety-related products, partially offset by a 7%
decline in tool products. Sales increases of safety-related products were
driven by growth in national account business and by an expanded
telemarketing sales force. Sales of tool products were impacted by a
general slowing of the manufacturing and industrial economies.
The Manufacturing segment's sales primarily include six product
groups: liquid carbon dioxide, dry ice, specialty gases, nitrous oxide,
carbon products and calcium carbide. Sales increased $11.4 million
primarily from seven liquid carbon dioxide and dry ice acquisitions
completed since July 1, 1997. Volume gains in liquid carbon dioxide were
largely offset by lower pricing. Pricing was off as a result of increased
industry production exceeding growth in demand. Dry ice sales volumes
increased in the quarter, helped by unusually warm weather. Sales of
nitrous oxide and calcium carbide products decreased slightly due to lower
sales volume combined with some pricing pressures.
Gross profits increased 13% during the current quarter compared to the same
quarter in the prior year:
<TABLE>
(in thousands)
<CAPTION>
Three Months Ended
September 30,
Gross Profits: 1998 1997 Increase
<S> <C> <C> <C>
Distribution $144,272 $133,157 $11,115
Direct Industrial 17,147 16,250 897
Manufacturing 26,321 16,568 9,753
$187,740 $165,975 $21,765
</TABLE>
The increase in Distribution gross profits of $11.1 million resulted
from acquisitions which contributed approximately $10.1 million and from
same-store gross profit growth of approximately $3.5 million, or 2.6%.
Offsetting the increase in gross profits from acquisitions and same-store
sales growth were the divestitures of two businesses in the first quarter
of 1999 which had gross profits of approximately $2.5 million in the prior
period. As a result of higher gas volumes and increased rental business,
same-store gross profits for gas and rent increased 5% in the current
quarter. Partially offsetting gas and rent gains was a decrease in
hardgoods same-store gross profits of approximately 3%. As a result of a
slight shift in the sales mix towards higher margin gas
<PAGE> 16
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
and rent, Distribution gross margin of 50% was up 30 basis points compared
to the prior year. The Company implemented price increases late in the
second quarter which may help improve gross margins in future periods.
The increase in ADI gross profits of $897 thousand resulted primarily
from same-store gross profit growth of 4%. Same-store gross profit growth
resulted primarily from sales volume increases related to safety products
and supplies. Gross margins at 26.3% for the quarter were essentially flat
compared to the prior quarter.
The increase in Manufacturing gross profits of $9.8 million and
improved gross margins resulted primarily from acquisitions of carbon
dioxide and dry ice businesses.
Selling, distribution and administrative expenses consist primarily of
personnel and related costs, distribution and warehouse costs, occupancy
expenses and other selling and general administrative expenses. Selling,
distribution and administrative expenses increased approximately $20
million in the current quarter compared to the prior year primarily as a
result of acquisitions and higher costs and expenses associated with the
Company's Repositioning Plan. Repositioning-related expenses totaled
approximately $4.6 million in the current quarter. Repositioning costs
consist of expenses associated with computer conversions, relocation and
other personnel expenses and facility-related costs. As a percentage of
net sales, selling, distribution and administrative expenses increased to
33.8% in the current quarter compared to 31.7% in the prior year.
Depreciation, depletion and amortization totaled $21.7 million in the
current quarter and increased $3 million compared to the prior year
primarily as a result of acquisitions and capital projects completed during
the previous 12 months. Compared to the prior year, depreciation,
depletion and amortization as a percentage of sales increased 30 basis
points to 5.5%. For the Distribution, ADI and Manufacturing segments,
depreciation, depletion and amortization expense in the current quarter,
relative to net sales, was 5.7%, 2.8% and 7.8%, respectively.
Operating income decreased $1.2 million or 3.7% in the current quarter
compared to the prior year, excluding a gain of $14.5 million. The
decrease in operating income was primarily due to higher operating costs
resulting from the Repositioning Plan, of which approximately 60% are
estimated to represent recurring expenses. The Company believes that
operating margins will continue to be impacted by higher operating costs
resulting from the implementation of the Repositioning Plan.
<TABLE>
(in thousands)
<CAPTION>
Three Months Ended
September 30, Increase
Operating Income (excluding special charges): 1998 1997 (Decrease)
<S> <C> <C> <C>
Distribution $25,143 $27,182 $(2,039)
Direct Industrial 929 1,343 (414)
Manufacturing 5,719 4,475 1,244
$31,791 $33,000 $(1,209)
</TABLE>
<PAGE> 17
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Distribution segment's operating income margin decreased 140
basis points to 8.7% in the current quarter compared with the prior year.
The decrease resulted primarily from higher operating costs and expenses
associated with the Company's Repositioning Plan and from acquisitions
which had estimated operating margins ranging from 6% to 8%. In the
current quarter, the Distribution segment incurred $3.2 million of direct
repositioning expenses which were primarily related to computer conversions
and personnel-related costs.
The operating income margin for ADI decreased 80 basis points to 1.4%
in the current quarter compared to the prior year. Higher same-store sales
and gross profits were offset by repositioning expenses totaling $1.4
million. The repositioning expenses were associated with new distribution
facilities in Southern California and Georgia and computer conversion
expenses.
The Manufacturing segment's operating margin decreased 100 basis
points to 13.5% in the current quarter compared to the prior year primarily
as a result of acquisitions.
Interest expense, net, totaled $15.7 million in the current quarter
and increased $2.1 million compared to the prior year. The increase in
interest expense was primarily attributable to an increase in debt
associated with completing 28 acquisitions since July 1, 1997. Interest
costs were also impacted by capital expenditures, an increase in working
capital and the repurchase of the Company's Common Stock. As discussed in
"Liquidity and Capital Resources" below, the Company has hedged floating
interest rates under certain borrowings with interest rate swap agreements.
Equity in earnings of unconsolidated affiliates of $1.2 million
increased $788 thousand compared to the prior year as a result of an
increase in earnings from the Company's liquid carbon dioxide joint venture
and from higher joint venture earnings from National Welders Supply.
Earnings have been helped by the liquid carbon dioxide joint venture which
significantly expanded production capacity in September 1997.
Excluding the impact of special charges, the effective income tax rate
declined slightly compared to the prior year as a result of the
implementation of state tax planning strategies, slightly offset by the
increase of permanent differences relative to pre-tax earnings.
Net earnings in the current quarter were $10.5 million, or $.15 per
diluted share, compared to $11.3 million, or $.16 per diluted share
(excluding special charges) in the prior year.
<PAGE> 18
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS: SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE
SIX MONTHS ENDED SEPTEMBER 30, 1997
INCOME STATEMENT COMMENTARY
Net sales increased 15% during the six months ended September 30, 1998
("current period") compared to the same period in the prior year:
<TABLE>
(in thousands)
<CAPTION>
Six Months Ended
September 30,
Net Sales: 1998 1997 Increase
<S> <C> <C> <C>
Distribution $580,959 $539,437 $ 41,522
Direct Industrial 133,802 98,061 35,741
Manufacturing 82,604 54,270 28,334
$797,365 $691,768 $105,597
</TABLE>
Distribution sales increased $41.5 million as a result of
approximately $37.2 million from the acquisition of 27 distributors since
April 1, 1997 and approximately $11 million from same-store sales growth.
Offsetting the increase in sales were the divestitures of two businesses in
the first quarter of 1999 which had sales of $6.7 million in the prior
period. Distribution same-store sales increased 2% as a result of a 4.5%
same-store increase in gas and rent, partially offset by a slight decline
in hardgoods sales. The Company believes its hardgoods sales were
adversely affected by a general slowing in the manufacturing and industrial
economies, particularly in the quarter ended September 30, 1998. The
increases in gas and rent sales were helped by gas sales from the Company's
two air separation plants and by the expansion of its rental welder
business and other sales initiatives. Sales in the current period were
also negatively affected by weather conditions in certain regions of the
United States and low oil prices which slowed off-shore and inland oil
activity. The Company believes that these factors contributed to the
decline in its Distribution same-store sales growth rate from 4.7% in the
prior year. Additionally, although difficult to quantify, the Company
believes the indirect effects of the Repositioning have impacted sales.
ADI's sales increased $35.7 million primarily as a result of
approximately $28.4 million from the acquisition of two distributors since
April 1, 1997 and approximately $7.3 million from same-store sales growth.
The same-store sales growth rate for ADI during the current period was
approximately 7.4% and resulted from an 11% increase in sales of safety-
related products, partially offset by a 5% decline in tool products. Sales
of tool products were primarily impacted by a slowing in the economy.
<PAGE> 19
AIRGAS, INC.
MANAGMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Manufacturing segment's sales increased $28.3 million primarily
from nine liquid carbon dioxide and dry ice acquisitions completed since
April 1, 1997. The Company estimates that liquid carbon dioxide and dry
ice sales volumes increased during the current period, however, lower
pricing offset liquid volume growth. The Company believes that prices
declined as a result of increased industry production exceeding growth in
demand.
Gross profits increased approximately 16% in the current period compared to
the same period in the prior year:
<TABLE>
(in thousands)
<CAPTION>
Six Months Ended
September 30,
Gross Profit: 1998 1997 Increase
<S> <C> <C> <C>
Distribution $289,557 $266,963 $22,594
Direct Industrial 35,064 27,090 7,974
Manufacturing 48,396 28,580 19,816
$373,017 $322,633 $50,384
</TABLE>
The increase in Distribution gross profits of $22.6 million resulted
from acquisitions which contributed approximately $19 million and from
same-store gross profit growth of approximately $7.3 million, or 2.7%.
Offsetting the increase in gross profits was the divestiture of two
businesses in the first quarter of 1999 which had contributed gross profits
of $3.7 million in the prior year. Same-store gross profits were helped by
higher gas volumes and increased rental revenues of 4.5%, partially offset
by a 1.8% decrease in hardgoods same-store gross profits. As a result of a
shift in sales mix towards higher margin gas and rent, same-store gross
margin increased by 30 basis points to 49.8% compared to the prior period.
The increase in ADI gross profits of $8 million resulted from
acquisitions and same-store gross profit growth of approximately $1.7
million, or 6.2%. Same-store gross profit growth resulted primarily from
sales volume growth of safety-related products. ADI's gross margin of
26.2% for the current period was down 140 basis points compared to the
prior year due to acquisitions which had an average gross margin of
approximately 22%.
The increase in Manufacturing gross profits of $19.8 million resulted
primarily from acquisitions of liquid carbon dioxide and dry ice
businesses. The Manufacturing gross margin increased from 52.7% to 58.6%
as a result of higher margins at acquired companies.
<PAGE> 20
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Selling, distribution, and administrative expenses increased $45.9
million in the current period compared to the prior period primarily as a
result of acquisitions and higher costs associated with the Company's
Repositioning Plan. Repositioning-related expenses totaled approximately
$8.4 million in the current period. As a percentage of net sales, selling,
distribution and administrative expenses increased to 33.3% for the current
period compared to 31.7% in the prior year.
Depreciation, depletion and amortization totaled $43.3 million in the
current period and increased approximately $6.8 million compared to the
prior year primarily as a result of acquisitions and an increase in
property and equipment. Compared to the prior year, depreciation,
depletion and amortization as a percentage of sales increased 10 basis
points to 5.4%. For the Distribution, ADI and Manufacturing segments,
depreciation, depletion and amortization relative to net sales was 5.7%,
2.7% and 7.7%, respectively, for the current period.
Operating income decreased $2.3 million or 3.4% in the current period
compared to the prior period, excluding special charges in both periods.
The decrease in operating income was primarily due to higher operating
costs resulting from the Repositioning Plan, of which approximately 60% are
estimated to represent recurring expenses. The Company believes that
operating margins will continue to be impacted by higher operating costs
resulting from the Repositioning Plan.
<TABLE>
(in thousands)
<CAPTION>
Six Months Ended
September 30, Increase
Operating Income (excluding special charges): 1998 1997 (Decrease)
<S> <C> <C> <C>
Distribution $52,799 $55,876 $ (3,077)
Direct Industrial 1,813 2,448 (635)
Manufacturing 9,608 8,176 1,432
$64,220 $66,500 $ (2,280)
</TABLE>
The Distribution segment's operating income margin decreased 130
basis points to 9.1% for the current period compared to the prior year. The
decrease resulted primarily from higher operating expenses associated with
the Company's Repositioning Plan and from acquisitions which had lower
operating margins. The Distribution segment incurred $5.6 million of
direct repositioning expenses during the six months ended September 30,
1998, primarily related to computer conversion and personnel costs.
The operating income margin for ADI decreased 110 basis points to 1.4%
in the current period compared to the prior year. Higher same-store sales
and gross profits were offset by repositioning expenses totaling $2.8
million. ADI's repositioning expenses were associated with new
distribution facilities in Southern California and Georgia and computer
conversion expenses.
<PAGE> 21
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Manufacturing segment's operating margin decreased to 11.6% in the
current period from 15.1% in the prior year primarily as a result of
acquisitions. Operating margins were also impacted by higher expenses
related to the integration of acquisitions and new branch locations.
Interest expense, net, totaled $30.5 million in the current period and
increased $4.7 million compared to the prior year. The increase in interest
expense was primarily attributable to an increase in debt associated with
completing 38 acquisitions since April 1, 1997. Interest costs were also
impacted by capital expenditures, an increase in working capital and the
repurchase of the Company's Common Stock. As discussed in "Liquidity and
Capital Resources" below, the Company has hedged floating interest rates
under certain borrowings with interest rate swap agreements.
Equity in earnings of unconsolidated affiliates of $2 million in the
current period increased $1.7 million compared to the prior year as a
result of an increase in earnings from the Company's liquid carbon dioxide
joint venture which was acquired in connection with the June 1997
acquisition of Carbonic Industries Corporation and from higher joint
venture earnings of National Welders Supply. Earnings have been helped at
the Company's liquid carbon dioxide joint venture because of expanded
production capacity which came on-line in September 1997.
Excluding the impact of special charges, the effective income tax rate
declined slightly compared to the prior year as a result of the
implementation of state tax planning strategies, slightly offset by the
increase of permanent differences relative to pre-tax earnings.
Net earnings, excluding special charges, in the current period were
$21.2 million, or $.29 per diluted share, compared to $23.5 million, or
$.34 per diluted share, in the prior year.
<PAGE> 22
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its operations, capital
expenditures, stock repurchases and acquisitions with borrowings and funds
provided by operating activities.
Cash flows from operating activities totaled $32.2 million for the six
months ended September 30, 1998. Depreciation, depletion and amortization
represented $43.3 million of cash flows from operating activities. Cash
flows from working capital components decreased $30.1 million as a result
of an increase in accounts receivable, partially from higher same-store
sales; an increase in inventory levels in order to improve customer
fulfillment rates and meet increased sales volumes; and a decrease in
accounts payable, accrued expenses and other current liabilities. Accounts
receivable days' sales outstanding and days' supply of inventory levels
also increased compared to March 31, 1998 levels.
After-tax cash flow (net earnings plus depreciation, depletion and
amortization and deferred income taxes), increased 8% to $69.9 million in
the six-month period ended September 30, 1998, compared to $64.7 million in
the prior year (before special charges in both periods presented).
Cash used by investing activities totaled $82.4 million. Activities which
used cash during the period primarily included capital expenditures of
$56.5 million and acquisitions totaling $42.3 million. The divestiture of
two non-core businesses provided cash of $10.5 million.
Capital expenditures associated with the purchase of cylinders, bulk tanks
and machinery and equipment totaled $34.6 million and have helped
facilitate strategic product sales growth. Such purchases account for
approximately 60% of the total capital expenditures during the six-month
period ended September 30, 1998. Computer capital expenditures related to
the Company's Repositioning Plan totaled $5.1 million.
Financing activities provided cash of $50.2 million for the six months
ended September 30, 1998, with total debt increasing by $77.4 million
(including acquisition debt assumed of $1.6 million) since March 31, 1998.
Cash overdraft, the float of the Company's outstanding checks, has
decreased by $12 million since March 31, 1998. Funds provided by financing
activities were used primarily for acquisitions, capital expenditures,
working capital needs and the repurchase of the Company's Common Stock.
<PAGE> 23
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Company has unsecured revolving credit facilities totaling US$725
million and C$100 million (US$66 million) with a final maturity date of
December 5, 2002. The agreement contains covenants which include the
maintenance of certain financial ratios, restrictions on additional
borrowings and limitations on dividends. At September 30, 1998, the
Company had borrowings under the agreement of US$577 million, C$43 million
(US$28 million), had commitments under letters of credit supported by the
agreement of US$76 million, and, based on restrictions related to cash flow
to funded debt coverage, had total additional borrowing capacity under the
agreement of approximately US$55 million. The Company believes that its
borrowing capacity will increase beyond $100 million upon consummation of
the announced sale of American Carbide and Carbon Corporation and other
asset dispositions. At September 30, 1998, the effective interest rate on
borrowings under the credit line was approximately 6.07% (U.S. borrowings)
and 5.78% (Canadian borrowings).
In August 1998, the Company filed an amendment to its shelf
registration pursuant to Rule 462 (b) under the Securities Act of 1933, as
amended, which increased the remaining capacity under the shelf
registration to approximately $175 million. At September 30, 1998, the
Company had the following long-term debt outstanding under medium-term
notes issued under the shelf registration: $100 million of unsecured notes
due September 2006 bearing interest at a fixed price 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 participates in 25
interest rate swap agreements. The swap agreements are with major
financial institutions and aggregate $495 million in notional principal
amount at September 30, 1998. Seventeen swap agreements with approximately
$251 million in notional principal amount require fixed interest payments
based on an average effective rate of 6.75% for remaining periods ranging
between 1 and 8 years. Eight swap agreements require floating rates ($244
million notional amount at 5.71% at September 30, 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
September 30, 1998, approximately $11.3 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.
<PAGE> 24
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Subsequent to September 30, 1998, the Company acquired three distributors
of industrial gases and related equipment with annual sales of
approximately $4 million for an aggregate purchase price of approximately
$3.7 million.
The Board of Directors has authorized the repurchase of up to 4.6 million
shares of Company Common Stock from time-to-time to offset share issuances
for stock options, the Company's Employee Stock Purchase Plan and
acquisitions. During the current quarter, the Company purchased 1.1 million
shares of Airgas Common Stock at an average cost of $12.71 per share. The
impact of the repurchased shares on earnings per share was immaterial for
both the three and six month periods ended September 30, 1998. From
inception through September 30, 1998, the Company repurchased approximately
4.1 million shares under the repurchase plan at an average cost of $15.15
per share. The remaining shares authorized for repurchase under the
existing program total approximately 500 thousand shares.
The Company does not currently pay dividends.
YEAR 2000
The Company is aware of the issues associated with the Year 2000
problem. The "Year 2000" problem relates to whether computer hardware and
software and equipment will properly recognize date sensitive information
referring to the Year 2000. Potential computer system and equipment
failures arising from years beginning with "20" rather than "19" are a
known risk. The Company's exposure to Year 2000 issues rests primarily in
three main areas: information systems hardware and application software,
embedded chip technology which may be found in a wide variety of operating
equipment and third party Year 2000 readiness.
With respect to information systems and application software, the
Company's businesses generally do not utilize "home grown" programs or
systems that require programming to become Year 2000 compliant. The
Company typically uses "out of the box" or "shrink wrap" software for its
business needs. Standardized software and computer systems are being
implemented across the Company in connection with the Company's
Repositioning Plan. The vendors for such software have advised the Company
that their software is Year 2000 compliant. Although execution of the
Repositioning Plan addresses certain significant Year 2000 problems, it was
not initiated primarily as a remediation initiative. The Company believes
that standardized operating platforms will help provide for an effective
multi-channel distribution network. On a project-to-date basis, the
Company has incurred approximately $9 million in costs and expenses to
standardize systems, of which approximately $6.2 million represents new
capital equipment and software. Total capital spending with regard to the
project is estimated to be approximately $15 million. The Company
estimates that it is approximately half-way through its computer conversion
process. Additionally, in conjunction with the Repositioning Plan, the
Company has established a national data center equipped with systems
hardware and software which its vendors have indicated is Year 2000
compliant. The implementation of standardized information systems is
expected to be completed by June 1999. However, if such standardization is
not completed prior to the Year 2000, the Year 2000 problem could have a
material impact on the business, results of operations and financial
condition of the Company as well as on customers of the Company. The
Company has not determined the extent to which its business and customers
might be affected in that event.
<PAGE> 25
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The Company has designated subsidiary-company managers responsible for
directing Year 2000 remediation efforts at the business unit level. These
managers, in cooperation with the Company's information systems personnel,
are in the process of identifying equipment containing embedded chips and
interviewing suppliers of the equipment to determine if the equipment is
Year 2000 compliant. Once the non-compliant equipment is identified, the
equipment will be repaired, replaced or contingency plans will be put in
place prior to the Year 2000. However, if repair, replacement or
contingency plans are not completed in time for Year 2000 compliance, the
Year 2000 problem could have a material impact on the business, results of
operations and financial condition of the Company. The Company is in the
process of assessing the potential costs for remediation of non-compliant
embedded chip equipment, and an estimate of such costs has not been
determined. Moreover, the Company has not determined the extent to which
its business could be affected in the event that the repair, replacement or
contingency plans are not completed prior to the Year 2000.
The Company's Year 2000 issues relate not only to its own business
systems and equipment but also to those of its customers, vendors and
suppliers. To mitigate the risk to the Company arising from third parties,
the Company has initiated the process of identifying and contacting
significant suppliers and customers and other critical business partners to
determine if entities with which the Company transacts business have
effective Year 2000 plans in place. The Company anticipates that this
evaluation will be ongoing through the balance of calendar 1998 and through
calendar 1999. To further mitigate risk to the Company, alternative
suppliers will be identified with regard to certain business processes.
However, there can be no assurance that the Company's customers, vendors,
suppliers and other third parties will successfully resolve their own Year
2000 issues in a timely manner sufficient to prevent impact to the Company.
The Company is progressing with its remediation objectives. In
addition, contingency plans are being developed as part of the remediation
efforts and the Company expects such plans to be completed by September
30, 1999.
OTHER
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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
SFAS No. 131 in fiscal 1999, as required. Adoption of this accounting
standard will not impact earnings, financial condition or liquidity.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities." This
statement requires that costs of start-up activities, including
organization costs, be expensed as incurred. The statement is effective
for fiscal years beginning after December 15, 1998. The adoption of this
standard will not materially impact earnings, financial condition or
liquidity of the Company.
<PAGE> 26
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
In June 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, any potential problems relating to Year 2000 matters
(including without limitation, those relating to Airgas' ability to
identify and timely remediate Year 2000 problems, unanticipated remediation
costs, timely resolution of Year 2000 problems by significant vendors,
suppliers, customers and other similar third parties, and Airgas' ability
to develop and implement contingency plans, if necessary), 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding certain pending litigation, reference is made to
the Company's Form 10-Q for the quarter ended June 30, 1998, which is
incorporated herein by reference.
<PAGE> 27
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on August 3,
1998, where the following actions were taken:
(a) The stockholders voted to re-elect W. Thacher Brown, Frank B. Foster
III, and Peter McCausland to the Board of Directors. The votes cast for
each Director were as follows:
No. of Shares
For Withheld/Against
W. Thacher Brown 61,677,050 824,202
Frank B. Foster, III 61,676,656 824,596
Peter McCausland 61,670,128 831,124
In addition to the Board members elected at the Annual Meeting, the
following are directors whose terms in office as directors continued
after the meeting: Rajiv L. Gupta, Robert E. Naylor, John A. H.
Shober, Merril L. Stott, Lee M. Thomas, and Robert L. Yohe.
(b) The stockholders voted to adopt the 1998 Employee Stock Purchase Plan.
The votes cast in regard to the action were as follows:
No. of Shares
For Against Abstain
59,488,985 2,842,142 170,125
(c) The stockholders voted to ratify the selection of KPMG Peat Marwick
LLP as the Company's independent auditors. The votes cast in regard to the
action were as follows:
No. of Shares
For Against Abstain
62,084,159 353,001 64,092
Item 5. Other Information
Advance Notice By-Law Provision
In accordance with the Company's amended By-Laws, stockholders who
wish to submit a proposal for consideration, or who wish to submit director
nominations, at the Company's 1999 Annual Meeting of Stockholders, but who
do not wish to submit the proposal for inclusion in the Company's Proxy
Statement, are required to notify the Company at its principal executive
offices not earlier than the close of business on April 5, 1999 and not
later than the close of business on May 5, 1999, provided, however, that if
the date of the 1999 Annual Meeting is earlier than July 4, 1999 or later
than October 2, 1999, the stockholder notice must be delivered not earlier
than the close of business on the 120th day prior to such Annual Meeting
and not later than the close of business on the later of the 90th day prior
to such Annual Meeting or the 10th day following the day on which public
announcement of the date of such Annual Meeting is first made. The notice
must provide the information required in the By-Laws.
<PAGE> 28
PART II - OTHER INFORMATION (Continued)
With respect to nominations submitted by stockholders for a special
meeting of the stockholders, the notice must be received by the Company not
earlier than the close of business on the 120th day prior to such special
meeting and not later than the close of business on the later of the 90th
day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting.
The above requirements do not apply to the deadline for submitting
stockholder proposals for inclusion in the Proxy Statement for the 1999
Annual Meeting, which must be received by the Company no later than March
2, 1999.
Amendment to the 1997 Rights Agreement
On November 12, 1998, the Board of Directors of the Company
approved an amendment to the Rights Agreement (the "Rights
Agreement"), dated as of April 1, 1997, by and between the
Company and The Bank of New York, as Rights Agent, to, among
other things, delete the reference to "Continuing Directors" as
used throughout the Rights Agreement. Under the amended Rights
Agreement, the Rights can be redeemed by a majority of the Board
of Directors, not a majority of the Continuing Directors. A
Continuing Director was defined as a member of the Board of
Directors who was neither an acquiring person nor affiliated with
an acquiring person and was either a member of the Board prior to
the distribution of the Rights or subsequently became a member of
the Board through recommendation or approval by a majority of the
Continuing Directors.
The foregoing description of the approved amendment to the
Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the text of the form of such
amendment which is filed as an exhibit hereto and incorporated
herein by reference thereto.
Divestiture of Calcium Carbide and Carbon Products Manufacturing Operations
On November 5, 1998, the Company announced that it had entered into a
definitive agreement to sell its calcium carbide and carbon products
manufacturing operations to Elkem Metals Company L.P. ("Elkem"), a
subsidiary of Elkem ASA. As part of the agreement, Elkem will enter into a
long-term contract to supply the Company's calcium carbide requirements and
the Company and Elkem will discontinue their Elkem-American Carbide Company
joint venture that currently markets calcium carbide throughout the United
States. The manufacturing facilities that are operated by the Company's
subsidiary, American Carbide and Carbon Corporation, are located in Pryor,
Oklahoma and Keokuk, Iowa and generate annual sales of approximately $30
million. The operations are included in the Company's Manufacturing
segment. The Company expects to record a gain on the sale. Consummation
of the transaction is subject to regulatory approvals.
<PAGE> 29
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following exhibits are being filed as part of this Form 10-Q Report:
Exhibit No. Description
3 By-Laws (Amended and Restated November 12, 1998)
4 Form of First Amendment to the 1997 Rights Agreement
27 Financial Data Schedules as of September 30, 1998 and
September 30, 1997
b. Reports on Form 8-K
On July 31, 1998, the Company filed a Form 8-K pursuant to Item 5,
reporting its earnings for the first quarter ended June 30, 1998.
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Airgas, Inc.
(Registrant)
Date: November 16, 1998 /s/ Scott M. Melman
Scott M. Melman
Vice President and
Chief Financial Officer
<PAGE> EX-1
AIRGAS, INC.
BY-LAWS
(AMENDED AND RESTATED NOVEMBER 12, 1998)
______________________________
ARTICLE I
OFFICES
Section 1.
The registered office of the Corporation in the State
of Delaware shall be in the City of Wilmington, County of
New Castle, State of Delaware.
The Corporation shall have offices at such other places
as the Board of Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS
Section 1: Annual Meeting
The annual meeting of the stockholders for the election
of Directors and for the transaction of such other business
as may properly come before the meeting shall be held on
such date within five (5) months after the end of the fiscal
year of the Corporation as the Board of Directors shall
each year fix. Each such annual meeting shall be held at
such place, within or without the State of Delaware, and
hour as shall be determined by the Board of Directors. The
day, place and hour of each annual meeting shall be
specified in the notice of annual meeting.
The meeting may be adjourned from time to time and
place to place until its business is completed.
<PAGE> EX-2
At the annual meeting of the stockholders, only such
business shall be conducted as shall have been specified in
the notice of meeting. To be properly brought before an
annual meeting, business must (a) specified in the notice
of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely,
a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the
Corporation not earlier than the close of business on the
120th day prior to the first anniversary of the preceding
year's annual meeting and not later than the close of
business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more
than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business
on the 120th day prior to such annual meeting and not later
than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting
is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting,
(b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such
business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the
contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth
in this Section I. The presiding officer of an annual
meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before
the meeting and in accordance with the provisions of this
Section 1, and if he should so determine, he shall so
declare to the meeting that any such business not properly
brought before the meeting shall not be transacted.
Section 2. Special Meetings.
Except as otherwise required by law and subject to the
rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or on
liquidation, special meeting of the stockholders may be
called only by the Chairman of the Board, the President, the
Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors, or pursuant to
the request of
<PAGE> EX-3
holders of 33% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the
election of Directors, voting together as a single class.
Section 3. Stockholder Action.
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly
called annual or special meeting of such holders and may not
be effected by any consent in writing by such holders.
Section 4. Notice of Meeting.
Except as otherwise provided by statute, written or
printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, stating the
purpose or purposes for which the meeting is called, shall
be delivered not less than 10 nor more than 60 days before
the date of the meeting, either personally or by mail, by or
at the direction of the Secretary, to each stockholder of
record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the
United States mail in a sealed envelope addressed to the
stockholder at his last known post office address as it
appears on the stock record books of the corporation, with
postage thereon prepaid.
Attendance of a person at a meeting of stockholders, in
person or by proxy, constitutes a waiver of notice of the
meeting, except when the stockholder attends a meeting for
the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 5. Quorum.
Except as otherwise required by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of
the shares entitled to vote at any meeting of the
stockholders, present, in person or by proxy, shall
constitute a quorum and the act of the majority of such
quorum shall be deemed the act of the stockholders.
If a quorum shall fail to attend any meeting, the
chairman of the meeting may adjourn the meeting to another
place, date or time.
If a notice of any adjourned special meeting of
stockholders is sent to all stockholders entitled to vote
thereat, stating that it will be held with those present
constituting a quorum, then, except as otherwise required by
law, those present at such adjourned meeting shall
constitute a quorum and all matters shall be determined by a
majority of votes cast at such meeting.
<PAGE> EX-4
Section 6. Qualification of Voters.
The Board of Directors (hereinafter sometimes referred
to as the "Board") may fix a day and hour not more than
sixty nor less then ten days prior to the day of holding any
meeting of the stockholders at the time of which the
stockholders entitled to notice of and to vote at such
meeting shall be determined. Only those persons who were
holders of record of voting stock at such time shall be
entitled to notice of and to vote at such meeting.
Section 7. Procedure.
The order of business and all other matters of
procedure at every meeting of the stockholders may be
determined by the presiding officer.
Section 8. Voting Lists.
The officer or agent having charge of the transfer book
for shares of the Corporation shall prepare and make, at
least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at such
meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall be produced and
kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder
present. The original share or stock ledger or transfer
book or a duplicate thereof, shall be the only evidence as
to who are the stockholders entitled to examine such list or
share ledger or transfer book or to vote at any meeting of
stockholders.
Section 9. Voting and Proxies.
Each holder of Common Stock shall be entitled to one
vote per share held of record upon each matter on which
stockholders generally are entitled to vote.
At all meetings of stockholders, a stockholder entitled
to vote may vote in person or by proxy executed in writing
by the stockholder or by his duly authorized attorney-in-
fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. Unless
<PAGE> EX-5
otherwise provided by law, all questions touching the
validity or sufficiency of the proxies shall be decided by
the Secretary.
Directors shall be elected by a plurality of the votes
cast at an election.
All other action (unless a greater plurality is
required by law or by the Certificates of Incorporation or
by these By-Laws) shall be authorized by a majority of the
votes cast by the holders of shares entitled to vote
thereon, present in person or represented by proxy, and
where a separate vote by class is required, by a majority of
the votes cast by the stockholders of such class, present in
person or presented by proxy.
Section 10. Notification of Nomination of Directors.
Nominations for election to the Board of Directors of
the Corporation at a meeting of stockholders may be made by
the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors
at such meeting who complies with the notice procedures set
forth in this Section 10. Such nominations, other than
those made by or on behalf of the Board of Directors, may be
made only if notice in writing is personally delivered to,
or mailed by first class United States mail, postage
prepaid, and received by, the Secretary of the Corporation
(a) in the case of an annual meeting of the stockholders, in
accordance with the fourth sentence of the third paragraph
of Section 1 of these By-Laws and (b) in the case of a
special meeting of the stockholders, not earlier than the
close of business on the 120th day prior to such special
meeting and not later than the close of business on the
later of the 90th day prior to such special meeting or the
10th day following the day on which public announcement is
first made of the date of the special meeting. In no event
shall the public announcement of an adjournment of a special
meeting commence a new time period for the giving of a
stockholder's notice as described above. Such notice shall
set forth (a) as to each proposed nominee (i) the name, age,
business address and, if known, residence address of each
such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares, if any, of
stock of the Corporation that are beneficially owned by each
such nominee and (iv) any other information concerning the
nominee that must be disclosed in proxy solicitations
pursuant to the proxy rules of the Securities and Exchange
Commission if such person had been nominated, or intended to
be nominated, by the Board of Directors (including such
person's written consent to be named as a nominee and to
serve as a director if elected); and (b) as to the
stockholder giving the notice (i) the name and address, as
they appear on the Corporation's books, of such stockholder
(ii) a representation that such stockholder is a holder of
record of shares of stock of the Corporation entitled to
vote at the meeting and the class and number of shares of
the Corporation which are beneficially owned by such
stockholder, (iii) a representation that such stockholder
intends to appear in person
<PAGE> EX-6
or by proxy at the meeting to nominate the person or persons
specified in the notice and (iv) a description of all
arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder. The Corporation
also may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve
as a director of the Corporation. The presiding officer of the
meeting may, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with
the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination
shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. Number, Election and Terms.
Except as otherwise fixed pursuant to the provisions of
Article 4 of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under
specified circumstances, the number of Directors shall
consist of no less than seven and no more than thirteen
members, as shall be specifically determined from time to
time by resolution of the Board of Directors. The
Directors, other than those who may be elected by the
holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation,
shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal
in number as possible, one class to hold office initially
for a term expiring at the annual meeting of stockholders to
be held in 1987, another class to hold office initially for
a term expiring at the annual meeting of stockholders to be
held in 1988, and a third class to hold office initially for
a term expiring at the annual meeting of stockholders to be
held in 1989, with the members of each class to hold office
until their successors are elected and qualified. At each
annual meeting of stockholders, the successors or the class
of Directors whose term expires at the meeting shall be
elected to hold office for a term expiring at the annual
meeting of stockholders held in third year following the
year of their election.
The term "entire Board" as used in these By-Laws means
the total number of Directors which the Corporation would
have if there were no vacancies.
Subject to the rights of holders of any class or series
of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election
of Directors may be made by the
<PAGE> EX-7
Board of Directors or a committee appointed by the Board
of Directors or by any stockholder entitled to vote in the
election of Directors generally.
Section 2. Powers.
The business, property and affairs of the Corporation
shall be managed by or under the direction on its Board of
Directors, which shall have and may exercise all the powers
of the Corporation of Incorporation, or by these By-Laws,
directed or required to be exercised or done by the
stockholders.
Section 3. Vacancies.
Except as otherwise fixed pursuant to the provisions of
Article 4 of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or
upon liquidation to elect Directors under specified
circumstances, any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal
or other cause shall be fill solely by the affirmative vote
of a majority of the remaining Directors then in office,
even though less than a quorum of the Board of Directors.
Any director elected in accordance with the preceding
sentence shall hold office until the next annual meeting of
stockholders. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term
of any incumbent Director.
Section 4. Removal.
Subject to the rights of any class or series of stock
having a preference over the Common Stock as to dividends or
upon liquidation to elect Directors under specified
circumstances, any Director may be removed from office,
without cause only by the affirmative vote of the holders of
67% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election
of Directors, voting together as a single class.
Section 5. Regular Meetings.
Regular meetings of the Board shall be held at such
times and places as the Board may from time to time
determine.
Section 6. Special Meetings.
Special meetings of the Board may be called at any
time, at any place and for any purpose by the Chairman of
the Executive Committee, the Chairman of the Board, or the
President, or by any officer of the Corporation upon the
request of a majority of the entire Board.
<PAGE> EX-8
Section 7. Notice of Meeting.
Notice of regular meetings of the Board need not be
given.
Notice of every special meeting of the Board shall be
given to each Director at his usual place of business, or at
such other address as shall have been furnished by him for
the purpose. Such notice shall be given at least twenty-
four hours before the meeting by telephone or by being
personally delivered, mailed, or telegraphed. Such notice
need not include a statement of the business to be
transacted at, or the purpose of, any such meeting.
Section 8. Quorum.
Except as may be otherwise provided by law or in these
By-Laws, the presence of a majority of the entire Board
shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the Board, and
the act of a majority of such quorum shall be deemed the act
of the Board.
Section 9. Powers.
Members of the Board, or of any committee thereof, may
participate in a meeting of such Board or committee by means
of conference telephone or similar communications equipment
by means of which all persons participating in the meeting
can hear each other and such participation shall constitute
presence in person at such meeting.
Section 10. Action Without a Meeting.
Action required or permitted to be taken pursuant to
authorization voted at a meeting of the Board, or a
committee thereof, may be taken without a meeting if, before
or after the action, all members of the Board or of the
Committee consent thereto in writing. The written consents
shall be filed with the minutes of the proceedings of the
Board or Committee. The consent shall have the same effect
as a vote of the Board or Committee thereof for all
purposes.
Section 11. Compensation of Directors.
Directors shall receive such compensation for their
services as shall be determined by a majority of the entire
Board provided that Directors who are serving the
Corporation as officers or employees and who receive
compensation for their services as such officers or
employers shall not receive any salary or other compensation
for their services as Directors.
<PAGE> EX-9
ARTICLE IV
OFFICERS
Section 1. Number.
The officers of the Corporation shall be a Chairman of
the Board, a President, such number of vice presidents as
the Board may from time to time determine, a Secretary and a
Treasurer. The Chairman of the Board shall be the chief
executive officer unless the Board shall otherwise
determine. The Chairman of the Board or, in his absence, or
if such office be vacant the President, shall preside at all
meetings of the stockholders and of the Board. Any person
may hold two or more offices at the same time. The Chairman
of the Board and the President shall be members of the Board
of Directors, but the other officers need not be members of
the Board.
Section 2. Election and Term of Office.
The officers of the Corporation shall be elected
annually by the Board at this first meeting of the Board
held after the annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as the same can
conveniently be held. Each officer, except such officers
may be elected or appointed in accordance with the
provisions of Section 3 of Article IV, shall hold his office
until his successor shall have been duly elected and shall
have qualified or until his death, resignation or removal.
All officer, agents and employees of the Corporation
shall hold their respective offices or positions at the
pleasure of the Board of Directors and may be removed at any
time by the Board of Directors with or without cause.
Section 3. Duties.
The officers, agents and employees shall perform the
duties and exercise the powers actually incident to the
offices or positions held by them respectively, and/or such
other duties and powers as may be assigned to them from time
to time by the Board of Directors.
<PAGE> EX-10
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. Election.
At any meeting of the Board, an Executive Committee,
composed of the Chairman of the Board, the President, and
not less than two other members, may be elected by a
majority vote of the entire Board to serve until the Board
shall otherwise determine. Either the Chairman of the Board
or the President, whichever is the chief executive officer,
shall be the Chairman of the Executive Committee, and the
other shall be the Vice Chairman thereof, unless the Board
shall otherwise determine. Members of the Executive
Committee shall be members of the Board.
Section 2. Powers.
The Executive Committee shall have and may exercise all
of the powers of the Board of Directors when the board is
not in session, except that it shall have no power to (a)
elect directors or officers; (b) alter, amend or repeal
these By-Laws or any resolution or resolutions of the Board
of Directors relating to the Executive Committee; (c)
declare any dividend or make any other distribution to the
stockholders of the Corporation; (d) appoint any member of
the Executive Committee, (e) take any other action which
legally may be taken only by the Board or (f) approve the
acquisition of substantially all the assets or capital stock
of a corporation or business entity which has annual sales
in excess of twenty percent (20%) of the annual sales of the
Corporation as of the date of such approval.
Section 3. Vacancies.
Vacancies in the Executive Committee may be filled at
any time by a majority vote of the entire Board.
Section 4. Other Committees.
The Board may designate one or more other committees,
each consisting of one or more directors of the Corporation
as members and one or more directors as alternate members,
with such power and authority as prescribed in the By-Laws
or as provided in a resolution adopted by a majority of the
entire Board. Each Committee, and each member thereof,
shall serve at the pleasure of the Board.
<PAGE> EX-11
ARTICLE VI
LIABILITY OF DIRECTORS
A Director of the Corporation shall not be personally
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director, except
for liability (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the Director derived
any improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to authorize the
further elimination or limitation of the liability of a
Director, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest
extent permitted by the amended Delaware General Corporation
Law.
Any repeal or modification of the foregoing paragraph
by the stockholders of the Corporation shall not adversely
affect any right or protection of a Director of the
Corporation existing at the time of such repeal or
modification.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1.
The Corporation shall indemnify to the full extent
permitted by, and in the manner permissible under, the laws
of the State of Delaware any person made, or threatened to
be made, a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a
director or officer of the Corporation or any predecessor of
the Corporation, or served any other enterprise as a
director or officer at the request of the Corporation or any
predecessor of the Corporation.
Section 2. General.
The foregoing provisions of this Article VI shall be
deemed to be a contract between the Corporation and each
director and officer who serves in such capacity at any time
while this By-Law is in effect, and any repeal or
modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts
then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts.
<PAGE> EX-12
The foregoing rights of indemnification shall not be
deemed exclusive of any other rights to which any director
or officer may be entitled apart from the provisions of this
Article.
The Board of Directors in its discretion shall have the
power on behalf of the Corporation to indemnify any person,
other than a director or officer, made a party to any
action, suit or proceeding by reason of the fact that he,
his testator or intestate, is or was an employee of the
Corporation.
ARTICLE VIII
CAPITAL STOCK
Section 1. Certificates of Stock.
The certificates for shares of the capital stock of the
Corporation shall be in such form as shall be approved by
the Board. The certificates shall be signed by the Chairman
of the Board, the President, and also the Treasurer or the
Secretary, and may be sealed with the seal of the
Corporation, or a facsimile thereof.
The signatures of the aforesaid officers may be
facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the
Corporation or its employee. The validity of any stock
certificate of the Corporation signed and executed by or in
the name of duly qualified officers of the Corporation shall
not be affected by the subsequent death, resignation, or the
ceasing for any other reason of any such officer to hold
such office, whether before or after the date borne by or
the actual delivery of such certificate.
The name of the person owning the shares represented
thereby, with the number of such shares and the date of
issue, shall be entered on the Corporation's capital stock
records.
All certificates surrendered to the Corporation shall
be canceled, and no new certificates shall be issued until
the former certificate for the same number of shares shall
have been surrendered and canceled except in case of a lost
or destroyed certificate.
The Corporation may treat the holder of record or any
share or shares of stock as the holder in fact thereof, and
shall not be bound to recognize any equitable or other claim
to interest in any such share or shares on the part of any
other person, whether or not it shall express or other
notice thereof, save as expressly provided by law.
<PAGE> EX-13
Section 2. Lost, Stolen or Destroyed Certificates.
The Corporation may issue a new certificate for shares
in place of a certificate theretofore issued by it, alleged
to have been lost, stolen or destroyed, and the Board may
require the owner of the lost or destroyed certificate, or
his legal representative, to give the Corporation a bond in
form satisfactory to the Corporation sufficient to indemnify
the Corporation, its transfer agents and registrars against
any claim that may be made against them on account of the
alleged lost or destroyed certificate or the issuance of
such a new certificate.
Section 3. Transfer of Shares.
Shares of the capital stock of the Corporation shall be
transferable by the owner thereof in person or by duly
authorized attorney, upon surrender of the certificates
therefore properly endorsed. The Board, at its option, may
appoint a transfer agent and registrar, or one or more
transfer agents and one or more registrars, or either, for
the stock of the Corporation.
Section 4. Regulations.
The Board shall have power and authority to make all
such rules and regulations as they may deem expedient
concerning the issue, transfer and registration of
certificates for shares of the capital stock of the
Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments of By-Laws.
Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be altered, amended or
repealed at any regular meeting of the stockholders (or at
any special meeting thereof duly called for that purpose) by
a majority vote of the shares represented and entitled to
vote at such meeting; provided that in the notice of such
special meeting notice of such purpose shall be given.
Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these By-Laws, the Board of
Directors may by majority vote of those present at any
meeting at which a quorum is present amend these By-Laws, or
enact such other By-Laws as in their judgment may be
advisable for the regulation of the conduct of the affairs
of the Corporation.
<PAGE> EX-14
ARTICLE X
CORPORATE SEAL
The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the words
"Corporate Seal 1986-Delaware." Said seal may be used by
causing it or a facsimile or equivalent thereof to be
impressed or affixed or reproduced, and shall be in the
custody of the Secretary. If and when so directed by the
Board, a duplicate of the seal may be kept and used by the
Treasurer, or by any Assistant Treasurer or Assistant
Secretary.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 1. Dividends.
Dividends upon the outstanding shares of the
Corporation may be paid from any source permitted by law.
Dividends may be declared at any regular or special meeting
of the Board and may be paid in cash or other property or in
the form of a stock dividend.
Section 2. Fiscal Year.
The fiscal year of the Corporation shall end on the
31st day of March of each year, unless otherwise provided by
resolution of the Board.
Section 3. Stock in Other Corporation.
Any shares of stock in any other corporation which may
from time to time be held by the Corporation may be
represented and voted at any meeting of stockholders of such
corporation by the Chairman or the President of the
Corporation or by any other person or persons thereunto
authorized by the Board, or by any proxy designated by
written instrument of appointment executed in the name of
the Corporation either by the Chairman, the President, or a
Vice President, and attested by the Secretary or an
Assistant Secretary.
Shares of stock in any other corporation which shares
are owned by the Corporation need not stand in its name, but
may be held for its benefit in the individual name of the
Chairman or of any other nominee designated for the purpose
by the Board. Certificates for shares so held for the
benefit of the Corporation shall be endorsed in blank, or
have proper stock powers
<PAGE> EX-15
attached so that said certificates are at all times in due
form for transfer, and shall be held for safekeeping in such
manner as shall be determined from time to time by the Board.
Section 4. Election of Auditors.
The directors shall select independent auditors to
audit the books and records of the Corporation for the
current fiscal year, subject to the approval of the
stockholders at the annual meeting. Should the auditors so
elected resign, be removed for good cause shown, or
otherwise fail to serve during or with respect to said year,
a majority of the directors shall select a substitute firm
of auditors to serve with respect to said year.
FIRST AMENDMENT TO THE 1997 RIGHTS AGREEMENT
This First Amendment (this "Amendment") is made as of
November __, 1998 between Airgas, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking
corporation, as Rights Agent (the "Rights Agent").
The Company and the Rights Agent entered into a Rights
Agreement, dated as of April 1, 1997 (the "Rights Agreement").
Pursuant to Section 26 of the Rights Agreement, the
Board of Directors of the Company has authorized this amendment
to the Rights Agreement.
Accordingly, in consideration of the premises and
mutual agreements herein set forth, and intending to be legally
bound hereby, the parties hereby agree as follows:
<PAGE> EX-16
Section 1. Amendments to Rights Agreement. The Rights
Agreement shall be amended as follows:
(a) The first sentence of Section 3(a) of
the Rights Agreement is hereby amended by deleting the words
",provided that if such determination occurs on or after the date
of an Adverse Change in Control, then such date may be extended only
if there are Continuing Directors in office and such extension is
authorized by a majority of such Continuing Directors".
(b) Section 23(a) is hereby deleted in its
entirety and replaced with the following:
"The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) any
Person becoming an Acquiring Person or (ii) the Close
of Business on the Final Expiration Date, redeem all,
but not less than all, of the then outstanding Rights
at a redemption price of $.001 per Right, appropriately
adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as
the "Redemption Price"). Notwithstanding the
foregoing, in the event payment of the Redemption Price
to a holder of Rights would result in the payment of an
amount not equal to $.01 or an integral multiple of
$.01, the amount to be paid shall be rounded upward to
the next $.01. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based
on the current market price per share at the time of
redemption) or any other form of consideration deemed
appropriate by the Board of Directors.".
(c) The first and second sentences of Section
27 are hereby deleted in their entirety and replaced with the
following:
"Prior to the earliest of (i) the Distribution Date or
(ii) a Triggering Event, the Company may and the Rights
Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement (including
supplements or amendments that may be deemed to affect
the interests of the holders of Right Certificates
adversely) without the approval of any holders of
certificates representing shares of Common Stock and
associated Rights. From and after the earliest of (i)
the Distribution Date or (ii) a Triggering Event, the
Company may and the Rights Agent shall, if the Company
so directs, supplement or amend this Agreement without
the approval of any holders of Right Certificates (i)
to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or
inconsistent with any other provisions herein or (ii)
to make any other changes or provisions in regard to
matters or questions arising hereunder which the
Company may deem necessary or desirable; provided,
however, that no such supplement or amendment shall
adversely affect the interests of the holders of Rights
as such (other than an Acquiring Person or an Affiliate
or Associate of any such Acquiring Person), and no such
supplement or amendment may cause the Rights again to
become redeemable at such the as the Rights are not
then redeemable or cause this Agreement again to become
amendable other than in accordance with this sentence."
(d) The third sentence of Section 27 is
hereby amended by deleting the words "or, so long as any Person
is an Acquiring Person hereunder, the Continuing Directors".
<PAGE> EX-17
(e) Section 29 is hereby amended by (i)
deleting in each instance where they appear the words "(with,
where specifically provided for herein, the concurrence of the
Continuing Directors)", and (ii) deleting from the last sentence
thereof the words "or the Continuing Directors".
Section 2. One Agreement. Except as otherwise
expressly provided in this Amendment, all of the terms,
conditions and provisions of the Rights Agreement shall remain
the same, and the Rights Agreement, as amended hereby, shall
continue in full force and effect and this Amendment and the
Rights Agreement shall be read and construed as one instrument.
Section 3. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts to be made and
performed entirely within such State.
Section 4. Counterparts. This Amendment may be
executed in one or more counterparts, each of which when so
executed shall be deemed an original and all of which when taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the date and year first
written above.
AIRGAS, INC.
By:_______________________
Name:
Title:
THE BANK OF NEW YORK,
as Rights Agent
By:_______________________
Name:
Title:
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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