<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 1-9344
AIRGAS, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 56-0732648
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
259 North Radnor-Chester Road, Suite 100
Radnor, Pennsylvania 19087-5283
________________________________________ __________
(Address of principal executive offices) (Zip Code)
(610) 687-5253
____________________________________________________
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
___________________ _____________________
Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the 60,683,736 shares of voting stock
held by non-affiliates of the Registrant was approximately $683 million
computed by reference to the closing price of such stock on the New York
Stock Exchange on June 4, 1999. For purposes of this calculation, only
executive officers and directors were deemed to be affiliates.
The number of shares of Common Stock outstanding as of June 4, 1999
was 70,661,906.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for the Annual Meeting of Stockholders
to be held August 2, 1999 is partially incorporated by reference into Part
III. Those portions of the Proxy Statement included in response to Item
402(k) and Item 402(l) of Regulation S-K are not incorporated by reference
into Part III.
<PAGE> 2
AIRGAS, INC.
TABLE OF CONTENTS
PART I
ITEM NO.
PAGE
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gas Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Airgas Growth Strategies . . . . . . . . . . . . . . . . . . . . . 6
Regulatory and Environmental Matters . . . . . . . . . . . . . . . 6
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Patents, Trademarks and Licenses . . . . . . . . . . . . . . . . . 7
Executive Officers of the Company . . . . . . . . . . . . . . . . . 7
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Submission of Matters to a Vote of Security Holders . . . . . . . . .10
PART II
5. Market for the Company's Common Stock and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . .11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .13
7A. Quantitative and Qualitative Disclosures About Market Risk . . . . .29
8. Financial Statements and Supplementary Data . . . . . . . . . . . . .31
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .31
PART III
10. Directors and Executive Officers of the Company . . . . . . . . . .31
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .31
12. Security Ownership of Certain Beneficial Owners and Management . . .31
13. Certain Relationships and Related Transactions . . . . . . . . . . .31
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . .32
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
Airgas, Inc. ("Airgas" or the "Company") is the largest
distributor of industrial, medical and specialty gases (delivered in
packaged or cylinder form) and related welding supplies and
equipment, and the third largest distributor of safety products, in
the United States. Airgas also produces and distributes liquid
carbon dioxide and dry ice in the United States. Airgas' integrated
distribution network consists of approximately 700 locations in 44
states, including branch locations, distribution centers, catalog
operations, inbound call centers and outbound telemarketing
operations. Sales were $1.56 billion, $1.45 billion and $1.16
billion in fiscal years 1999, 1998 and 1997, respectively.
The Company has redefined its operating segments and is
reporting its results of operations based on the management structure
established under the "Repositioning Airgas For Growth" initiative
which commenced in fiscal year 1998. Comparative prior year
information has been reclassified to conform to the current
presentation. The new operating segments consist of Distribution and
Gas Operations. Financial information by business segment can be
found in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A"), "Financial Statements
and Supplementary Data", and Note 21 to the Company's consolidated
financial statements for the three years ended March 31, 1999 under
Item 8. Descriptions of the new operating segments are as follows:
DISTRIBUTION
The Distribution segment accounts for 90% of consolidated sales
and reflects the integration of the traditional industrial gas
distribution companies (formerly reported under the "Distribution
segment") and the safety products and industrial tool and supplies
distribution companies (formerly reported under the "Airgas Direct
Industrial segment"). These companies have been combined to reflect
management's approach to evaluating segment performance and
allocating resources in the future as the Company continues to
develop its centralized purchasing, shared distribution facilities
and multi-channel marketing initiatives begun under the
"Repositioning Airgas for Growth" initiative. The Distribution
segment also includes a 47% joint venture with National Welders
Supply Company, Inc., which is a producer and distributor of
industrial, medical and specialty gases and related welding supplies
and equipment.
Principal Products and Services
The Distribution segment's principal products and services
include packaged and small bulk gases, gas cylinder and welding
equipment rental and hardgoods. Gas sales include industrial,
medical and specialty gases such as: nitrogen, oxygen, argon, helium,
acetylene, carbon dioxide, nitrous oxide, hydrogen, welding gases,
ultra high purity grades and special application blends. Rent is
derived from gas cylinders, cryogenic liquid containers, bulk storage
tanks and through the rental of welding equipment. In fiscal year
1999, 1998 and 1997, gas and rent represent approximately 40%, 40%
and 45% of the Distribution segment's sales, respectively. Hardgoods
consist of welding supplies and equipment, safety products, and
industrial tools and supplies, which can be classified as
Maintenance, Repair and Operations ("MRO") products. In fiscal year
1999, 1998 and 1997, hardgoods sales represent approximately 60%, 60%
and 55% of the Distribution segment's sales, respectively (see Note
21 of the Company's Consolidated Financial Statements for disclosure
related to segment sales).
<PAGE> 4
Principal Markets and Methods of Distribution
The Company believes the North American market for industrial,
medical and specialty gases to be approximately $9.5 billion
annually. The industry has three principal modes of distribution: on-
site supply, bulk or merchant supply and cylinder ("packaged gas")
supply. On-site supply accounts for approximately 74% of the gas
volume delivered in North America. Bulk or merchant supply accounts
for 23% of the volume, and packaged gas supply accounts for 3% of the
volume delivered annually. However, the packaged gas supply mode
accounts for 34% of the value, or $3.2 billion, of gas sold in North
America. The bulk or merchant supply mode accounts for an additional
34% of the value of gas sales annually. Airgas' market focus has
been on the packaged gas segment of the market and on small bulk
customers.
Airgas is the largest distributor of packaged gases in North
America with approximately a 14% market share. The Company's primary
competitors in the packaged gases market are approximately 900
independent distributors that serve approximately 45% of the market
through a fragmented distribution network. Large distributors,
including vertically integrated gas producers such as Praxair, Inc.
("Praxair"), Air Products and Chemicals, Inc. ("Air Products"),
Liquid Air Corporation of America ("Air Liquide"), and BOC Gases
Group ("BOC Gases"), serve the remaining 41% of the packaged gas
market.
The Company estimates the United States market for hardgoods
products, including welding supplies and equipment, safety products,
and industrial tools and supplies to be approximately $55 billion
annually. The market for hardgoods products is highly fragmented and
is serviced through multiple distribution channels. Airgas offers
its lines of hardgoods products through branch stores, direct sales
representatives, telemarketing and catalogs. The Company believes
its share of the hardgoods market is less than 2%. Competition at
the local level consists primarily of small, branch-based
distribution companies. At the national level, Airgas competes with
large, branch-based and direct marketers, such as W.W. Grainger,
Inc., Vallen Corporation and MSC Industrial Direct, Inc., as well as
the large integrated gas producers.
Customer Base
The Company's customer base is broad and includes most major
industries. As a percentage of sales, the Company estimates that the
following industry segments account for approximately 75% of total
Distribution sales: metal fabrication (19%), medical and health
services (11%), metal processing (8%), construction (8%), defense
(8%), agriculture (7%), wholesale distributors (7%) and petro-
chemical (7%). This diverse customer base purchases a wide variety
of gases and hardgoods offered through the Company's distribution
network.
Suppliers
The Company purchases industrial, medical and specialty gases
pursuant to requirements contracts from national and regional
producers of industrial gases. The Company also manufacturers the
majority of the segment's acetylene gas and a portion of its nitrous
oxide, nitrogen, oxygen and argon volumes. The Company believes that
if a contractual arrangement with any supplier of gases or other raw
materials was terminated, it would be able to locate alternative
sources of supply without significant cost increases and without
disruption of service. The Company purchases hardgoods from major
manufacturers and suppliers. For certain products, the Company has
negotiated national purchasing arrangements.
<PAGE> 5
GAS OPERATIONS
The Gas Operations segment consists of domestic and foreign
operating companies which produce and distribute certain gas
products, principally dry ice, carbon dioxide, specialty gases and
nitrous oxide. Until a divestiture in December 1998, the segment
also included sales of calcium carbide and carbon products. The
Company also operates two air separation plants which produce oxygen,
nitrogen and argon which are sold to the Distribution segment. These
operating companies were formerly reported under the "Manufacturing
segment." A description of the businesses included in the Gas
Operations segment are as follows:
Dry Ice
The Company is a producer and distributor of dry ice in the
United States. Customers include food processors, transportation
companies and general retail customers. The dry ice business
generally experiences a higher level of sales in the second and third
quarters of the fiscal year due to weather related demand. The
Company's carbon dioxide requirements (dry ice is the solid form of
carbon dioxide) are purchased from internal sources and the major
producers of carbon dioxide. The Company believes that if a
contractual arrangement with any supplier was terminated, it would
not have a material adverse effect on the business.
Carbon Dioxide
The Company is a producer and distributor of liquid carbon
dioxide and produces more than 90% of the carbon dioxide sold by this
business. Carbon dioxide requirements are primarily obtained from
carbon dioxide reserves owned by the Company and through a 50% joint
venture. The joint venture also produces and sells liquid carbon
dioxide to other producers of industrial gases. The Company
operates carbon dioxide reserves and a related pipeline which are
located in Mississippi and Louisiana. The Company believes the
United States bulk supply market for liquid carbon dioxide is
approximately $400 million annually. The largest customer segments
include food and beverage producers and water treatment facilities.
The Company primarily competes with three major carbon dioxide
companies: Praxair, BOC Gases and Air Liquide. These three companies
produce over 80% of the United States merchant carbon dioxide
volumes.
Specialty and Other Gases
The Company operates six "A grade" labs which blend various
special application gas mixes, ultra high purity grade gases, pure
hydrocarbon mixtures, EPA protocol gases, and vehicle emission
standard gases. Gas mixtures are used in process control, final
product qualification and emissions monitoring. The Company believes
the United States specialty gas market is approximately $750 million
annually. Airgas believes its share of the market for specialty
gases is approximately 8%. Specialty gases produced are primarily
sold to the Distribution segment (see Note 21 of the Company's
Consolidated Financial Statements for disclosure related to segment
sales). The third-party customer base for these products
consists primarily of research facilities and biotechnology,
pharmaceutical, food processing and environmental companies. Gas
Operations also provides technical support to 30 "B grade" labs which
are operated by the Distribution segment. The "A grade" and "B
grade" labs perform testing and certification services for gas
purity. Certain of the specialty gas operations have been ISO 9002
certified.
Nitrous Oxide
The Company is a manufacturer of nitrous oxide gas. Nitrous
oxide is used as an anesthetic in the medical and dental fields, as a
propellant in the packaged food business and is utilized in the
manufacturing process of certain high technology electronics industries.
The Company's market focus includes bulk customers as well as sales to
the Distribution segment. Sales of nitrous oxide are not material to
total Distribution sales (see Note 21 of the Company's Consolidated
Financial Statements for disclosure related to segment sales). The Company
<PAGE> 6
purchases the raw materials utilized in its nitrous oxide production
pursuant to contracts with major manufacturers and suppliers. The
Company believes that if a contractual arrangement with any supplier
was terminated, it would not have a material adverse effect on
operations.
Calcium Carbide and Carbon Products
Until the divestiture of the Company's calcium carbide and
carbon products operations in December 1998, the Company manufactured
carbon electrode paste, carbon ramming paste and electrically
calcined anthracite ("ECA"), collectively referred to as carbon
products. Carbon electrode paste is used as a consumable electrode
in the production of special alloy nickel and other metals. ECA is
used as an ingredient in carbon mixes used in the aluminum industry
and as an additive in the production of certain metals. Prior to the
divestiture, the Company also operated a manufacturing facility which
produced calcium carbide for sale to a joint venture, whose
customers included some of the Company's Distribution operations.
Calcium carbide is a primary raw material for the production of
acetylene gas. In connection with the divestiture of the calcium
carbide and carbon products operations, the Company entered into a
calcium carbide supply agreement with the purchaser to supply raw
material for its acetylene production.
Foreign Operations
The Company's foreign operations are majority owned and equity
investments in industrial gas companies located in Poland, India,
and Thailand. In January 1999, Airgas announced the signing of a
letter of intent to sell its operations in Poland and Thailand.
The sale, which is subject to regulatory approval, completion of due
diligence and definitive documentation, is expected to close early
in the second quarter of fiscal year 2000. The Company is actively
marketing its remaining foreign operations in India.
AIRGAS GROWTH STRATEGIES
The Company's strategy is to focus on internal growth,
supplemented by distributor acquisitions. To enhance internal
growth, the Company intends to selectively add complementary product
offerings in order to leverage its distribution network.
From April 1, 1996 through March 31, 1999, the Company acquired
67 businesses with annual sales of approximately $550 million. The
industrial gas distribution industry continues to undergo a
consolidation, which Airgas believes will present opportunities to
acquire industrial gas distributors. The Company believes that its
principal competitive advantages in acquiring distributors are its
extensive distribution network, its well-organized acquisition
program, its flexibility in structuring acquisitions to meet sellers'
needs and its ability to offer sellers and their employees a
continuing role in the Company. In seeking to acquire gas
distributors, the Company competes with the large vertically
integrated gas producers and other independent distributors.
The Company has financed distributor acquisitions primarily with
debt and internally generated funds. The Company has been able to
obtain debt financing due, in part, to its ability to generate cash
flow from operating activities and to the long useful lives and
relatively stable market values of its fixed assets, principally
cylinders. The cost and terms of any future financing arrangement
depend on the market conditions and the Company's financial position
at that time.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's subsidiaries are subject to federal and state laws
and regulations adopted for the protection of the environment and the
health and safety of employees and users of the Company's products.
The Company has programs for the operation and design of its
facilities to achieve compliance with applicable environmental
regulations. The Company believes that it is in compliance, in all
material respects, with such laws and regulations. Expenditures for
environmental purposes during fiscal 1999 were not material.
<PAGE> 7
INSURANCE
The Company has established insurance programs to cover workers'
compensation, business automobile, general and product liability.
These programs have self-insured retentions of $500,000 per
occurrence. Losses are accrued based upon the Company's estimates,
developed with third party insurance adjusters, of the aggregate
liability for claims incurred, claims incurred but not reported and
on Company experience. The Company has established insurance
reserves that management believes are adequate.
The nature of the Company's business may subject it to product
and general liability lawsuits. To the extent that the Company is
subject to claims that exceed its liability insurance coverage of
$100 million, such suits could have a material adverse effect on the
Company's financial position, results of operations or liquidity.
EMPLOYEES
On March 31, 1999, the Company employed approximately 8,000
employees of whom approximately 5% were covered by collective
bargaining agreements. The Company believes it has good relations
with its employees and has not experienced a significant strike or
work stoppage in the past 12 years.
PATENTS, TRADEMARKS AND LICENSES
The Company holds trademark registrations for "Airgas,"
"Carbonic Reserves," "Red-D-Arc," "RED-D-ARC WELDERENTAL," "Dyna-
Switch," "Gold Gas," "Stainless Mix," "Steelmix" and "Alummix." The
Company holds patent registrations for "Fluid Bed Air Cooling
System," a method and apparatus for conveying dry ice. The Company
believes that its businesses as a whole are not materially dependent
upon any single patent, trademark or license.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position
Peter McCausland (1) 49 Chairman of the Board and Chief Executive
Officer
William A. Rice, Jr. 52 President and Chief Operating Officer
Scott M. Melman 42 Senior Vice President and Chief Financial
Officer
Ted R. Schulte 48 Vice President - Gas Operations
Michael L. Molinini 48 Vice President - Hardgoods Operations
Alfred B. Crichton 51 Division President - West
John Musselman 50 Division President - East
Gordon L. Keen, Jr. 54 Senior Vice President - Law and Corporate
Development
Rudi G. Endres 55 Vice President - International
Andrew R. Cichocki 36 Senior Vice President - Business Operations
and Planning
Samuel H. Goldstein 40 Senior Vice President - Information Services
Patrick M. Visintainer 35 Senior Vice President - Sales
__________________
(1) Member of the Board of Directors
Mr. McCausland has been a Director of the Company since June
1986, the Chairman of the Board and Chief Executive Officer of the
Company since May 1987 and President from June 1986 to August 1988,
from April 1993 to November 1995, and from April 1997 to December
1998. In May 1997, Mr. McCausland was elected to the board of
directors of Hercules Inc., a worldwide manufacturer of chemical
specialty products.
<PAGE> 8
Mr. Rice has been President and Chief Operating Officer since
January 1999. Prior to 1999, he served as Group President - Airgas
Direct Industrial from April 1997 to December 1998, Airgas' Division
President - Industrial Distribution and Purchasing from April 1995 to
March 1997 and served as Vice President - Purchasing from August 1993
to March 1995. Before August 1993, Mr. Rice was President of
Virginia Welding Supply, which was acquired by the Company in July
1992.
Mr. Melman has been Senior Vice President and Chief Financial
Officer since May 1998. Prior to that, Mr. Melman served as Vice
President - Administration from April 1995 to May 1998, Vice
President and Corporate Controller from August 1994 to March 1995 and
Corporate Controller from August 1986 to July 1994.
Mr. Schulte has been Vice President - Gas Operations since
November 1998. Prior to that, Mr. Schulte served as President of
Airgas Carbonic from November 1997 to October 1998. Before October
1997, Mr. Schulte served as Senior Vice President of Energetic
Solutions, the US subsidiary of ICI Explosives.
Mr. Molinini has been Vice President - Hardgoods Operations
since joining the Company in 1997. Prior to that, Mr. Molinini
served as Vice President of Marketing of National Welders Supply
Company since 1991.
Mr. Crichton has been Division President - West since February
1993. Prior to that, Mr. Crichton served as a Regional Vice President
from May 1991 to February 1993.
Mr. Musselman has been Division President - East since April
1997. Prior to that, Mr. Musselman served as President of Northeast
Airgas from January 1989 to March 1997.
Mr. Keen has been Senior Vice President - Law and Corporate
Development since April 1997. Prior to that, Mr. Keen served as Vice
President - Corporate Development from January 1992 to March 1997.
Mr. Endres has been Vice President - International since January
1993. Prior to that, Mr. Endres served in various positions since
joining Airgas in 1987.
Mr. Cichocki has been Senior Vice President - Business
Operations and Planning since January 1999. Prior to that, Mr.
Cichocki served as Vice President - Corporate Development from April
1997 to December 1998 and as Assistant Vice President - Corporate
Development from August 1992 to March 1997. Prior to that, he served
in various corporate development and finance positions from April
1988 to July 1992.
Mr. Goldstein has been Senior Vice President-Information
Services since January 1999. Prior to that, Mr. Goldstein served as
Vice President-Information Services from September 1996 to December
1998. He joined Airgas from KPMG LLP, where he served as a National
Service Leader for the Consulting Division from June 1991 to
September 1996.
Mr. Visintainer has been Senior Vice President - Sales since
January 1999. Prior to that, Mr. Visintainer served as Vice
President - Sales and Marketing from February 1998 to December 1998
and as President of one of the Company's subsidiaries from April 1996
to January 1998. Until March 1996, he was employed by BOC Gases and
served in various positions, including Branch Manager, Regional
Manager, National Accounts Manager and National Sales Manager -
Industrial/Special Gases.
<PAGE> 9
ITEM 2. PROPERTIES.
The Company's Distribution segment operates an integrated
network of approximately 650 branch stores, 29 "B grade" gas
laboratories, 18 acetylene manufacturing facilities, seven regional
distribution centers, cylinder fill plants and customer call centers.
The Distribution segment conducts business in 44 states. The Company
owns approximately 37% of these facilities. The remaining facilities
are primarily leased from third parties. Facilities leased from
employees are on terms consistent with commercial rental rates
prevailing in the surrounding rental market. The Company's fill
plants, acetylene production facilities and "B grade" gas
laboratories operated at an estimated average capacity of 70% during
fiscal 1999.
The Company's Gas Operations segment consists of companies,
located throughout the United States, which operate approximately 50
branch locations, several liquid carbon dioxide and dry ice
production facilities, six "A grade" gas laboratories, two nitrous
oxide production facilities and a carbon dioxide pipeline. The
Company owns 37% of the production facilities and "A grade" gas
laboratories. The remaining facilities are leased from third
parties. The Company owns one nitrous oxide production facility and
leases the other facility under a long-term lease. The Company owns
its two air separation plants. The estimated average production
capacities of the liquid carbon dioxide operations, dry ice
facilities, "A grade" gas laboratories and the nitrous oxide
production plants were approximately 70%, 85%, 60% and 85%,
respectively. The carbon dioxide reserves and pipeline average flow
rate was approximately 60% of capacity. The air separation plants
operated at an estimated average capacity of approximately 70%.
The principal executive offices of the Company are located in
leased space in Radnor, Pennsylvania. The Company believes that its
facilities are adequate for its present needs and that its properties
are generally in good condition, well maintained and suitable for
their intended use.
ITEM 3. LEGAL PROCEEDINGS.
In July 1996, Praxair, Inc. ("Praxair") filed suit against the
Company in the Circuit Court of Mobile County, Alabama. The
complaint alleged tortuous interference with business or contractual
relations with respect to Praxair's Right of First Refusal contract
with the majority shareholders of National Welders Supply Company,
Inc. ("National Welders") by the Company in connection with the
Company's formation of a joint venture with National Welders. In
June 1998, Praxair filed a motion to dismiss its own action in
Alabama and commenced another action in the Superior Court of
Mecklenburg County, North Carolina, alleging substantially the same
tortuous interference by the Company. The North Carolina action also
alleges breach of contract against National Welders and certain
shareholders of National Welders and unfair trade practices and
conspiracy against all the defendants. In the North Carolina action
Praxair seeks compensatory damages in excess of $10,000, punitive
damages and other unspecified relief. The Company believes that
Praxair's claims are without merit and intends to defend vigorously
against such claims.
On September 9, 1996, the Company filed suit against Praxair in
the Court of Common Pleas of Philadelphia County, Pennsylvania. The
complaint alleges breach of contract, fraud, conversion and
misappropriation of trade secrets with respect to an agreement
between Praxair and the Company, pursuant to which Praxair induced
the Company to provide Praxair valuable information and conclusions
developed by the Company concerning CBI Industries, Inc. ("CBI") in
exchange for Praxair's promise not to acquire CBI without the
Company's participation. The Company has alleged that it became
entitled, pursuant to such agreement, to acquire certain of CBI's
assets having a value in excess of $800 million. The Company is
seeking compensatory and punitive damages.
<PAGE> 10
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock (the "Common Stock") is listed on the
New York Stock Exchange (ticker symbol: ARG). The following table
sets forth, for each quarter during the last two fiscal years, the
high and low closing price per share for the Common Stock as reported
by the New York Stock Exchange:
High Low
Fiscal 1999
First Quarter $18.81 $13.94
Second Quarter 14.25 11.50
Third Quarter 12.56 8.50
Fourth Quarter 10.13 8.13
Fiscal 1998
First Quarter $20.88 $13.50
Second Quarter 20.44 16.75
Third Quarter 17.50 13.38
Fourth Quarter 18.19 13.88
________________
The closing sale price of the Company's Common Stock as reported
by the New York Stock Exchange on June 4, 1999, was $11.25 per share.
As of June 4, 1999, there were approximately 14,000 shareholders of
record of the Company's Common Stock.
The present policy of the Company is to retain earnings to
provide funds for the operation and expansion of its business and not
to pay cash dividends on its Common Stock. Any payment of future
dividends and the amounts thereof will depend upon the Company's
earnings, financial condition, loan covenants, capital requirements
and other factors deemed relevant by management and the Company's
Board of Directors.
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company are presented in the
table below and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 and the Company's consolidated
financial statements included in Item 8 herein.
<TABLE>
<CAPTION>
(In thousands, except per share amounts):
Years Ended March 31, (4)
1999 (1) 1998 (2) 1997 (3) 1996 1995
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $1,561,218 $1,447,990 $1,158,894 $838,144 $687,983
Depreciation & amortization 87,926 76,670 62,491 45,762 36,868
Operating income 112,996 118,948 82,285 92,985 72,600
Interest expense, net 60,298 53,290 39,752 24,862 17,625
Income taxes 34,437 29,989 21,080 28,522 23,894
Net earnings 51,924 40,540 23,266 39,720 31,479
Basic earnings per share (5) $ .74 $ .59 $ .35 $ .63 $ .51
Diluted earnings per share (5) $ .72 $ .57 $ .34 $ .60 $ .48
Balance Sheet Data:
Working capital $ 165,416 $ 141,276 $ 124,849 $ 81,588 $ 54,084
Total assets 1,698,472 1,641,474 1,291,031 883,642 645,637
Current portion of
long-term debt 19,645 12,150 25,158 12,179 11,780
Long-term debt 847,841 830,845 629,931 385,832 259,970
Other non-current liabilities 23,585 36,842 29,601 34,490 11,116
Stockholders' equity (6) $ 470,945 $ 426,873 $ 336,657 $ 236,209 $189,652
_______________
(1) As discussed in Notes 2 and 3 to the Company's consolidated financial
statements, the results for fiscal 1999 include: (a) a $25.5 million
($15 million after-tax or $.21 per diluted share) non-recurring gain
related to the divestiture of its calcium carbide and carbon products
operations, and (b) non-recurring gains of $2.8 million ($2.4 million
after-tax or $.03 per diluted share) related to other special items.
Excluding the effects of special charges and non-recurring gains, net
earnings were $34.5 million or $.48 per diluted share.
(2) As discussed in Notes 2 and 3 to the Company's consolidated
financial statements, the results for fiscal 1998 include: (a)
fourth quarter special charges which totaled $22.4 million ($14.3
million after-tax or $.20 per diluted share) which consisted of
severance, exit costs for the closure of duplicate facilities, the
impairment write-down of property, equipment and related goodwill and
a write-down related to the divestiture of several non-core
businesses, offset by a one-time net gain related to an acquisition
break-up fee of $3 million ($1.9 million after-tax or $.03 per
diluted share), (b) a non-recurring gain of $14.5 million ($9.4
million after-tax or $.13 per diluted share) from the partial
recovery of refrigerant losses, and (c) a non-recurring gain on the
sale of a non-core business. Excluding the effects of special
charges and non-recurring gains, net earnings were $42.6 million or
$.60 per diluted share.
<PAGE> 12
(3) As discussed in Notes 2 and 3 to the Company's consolidated financial
statements, the Company recorded special charges totaling $31.4
million ($20.2 million after-tax or $.30 per diluted share) related
to the fraudulent breach of contract by a third-party supplier of
refrigerant gas and an after-tax loss on the sale of a non-core
business. Excluding the effects of special charges and the loss, net
earnings were $44.3 million or $.65 per diluted share.
(4) During fiscal 1995 through 1999, the Company acquired a total of
135 businesses.
(5) The earnings per share presentation reflects a two-for-one stock
split which occurred on April 15, 1996.
(6) The Company has not paid any dividends on its Common Stock.
</TABLE>
<PAGE> 13
Item 7.
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: 1999 COMPARED TO 1998
The Company has redefined its operating segments and is reporting
its results of operations based on the management structure established
under the "Repositioning Airgas For Growth" initiative (the "Repositioning
Plan") which commenced in the fourth quarter of fiscal year 1998.
Effective with the fiscal year ended March 31, 1999, the Company implemented
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information," ("SFAS 131"). SFAS 131
requires the disclosure of segment information on the same basis used by
management for evaluating segment performance and allocating resources.
The Company's new operating segments consist of Distribution and
Gas Operations. The Distribution segment accounts for 90% of
consolidated sales and reflects the integration of the traditional
industrial gas distribution companies (formerly reported under the
"Distribution segment") and the safety products and industrial tool
and supplies distribution companies (formerly reported under the
"Airgas Direct Industrial segment"). These companies have been
combined to reflect management's approach to evaluating segment
performance and allocating resources in the future as the Company
continues to develop its centralized purchasing, shared distribution
facilities and multi-channel marketing initiatives begun under the
Repositioning Plan. The segment entitled Gas Operations consists of
domestic and foreign operating companies which produce and distribute
certain gas products, principally dry ice and carbon dioxide. These
companies were formerly reported under the "Manufacturing segment."
Comparative 1998 and 1997 information has been reclassified to
conform to the current presentation.
OVERVIEW
The Company's net sales for the fiscal year ended March 31, 1999
increased 8% to a record $1.56 billion, compared to $1.45 billion in
the prior year. Net earnings for fiscal 1999 were $51.9 million, or
$.72 per diluted share, compared to $40.5 million, or $.57 per
diluted share, in fiscal 1998. Net earnings were $34.5 million, or
$.48 per diluted share, compared to $42.6 million, or $.60 per
diluted share, in the prior year, excluding special charges and non-
recurring gains recognized in both periods. Net earnings in fiscal
1999 were impacted by a general slowing in the manufacturing and
industrial sectors and higher operating expenses, including expenses
associated with the Company's Repositioning initiative.
Non-recurring gains in 1999 consist of a $25.5 million ($15
million after-tax) non-recurring gain related to the divestiture of
the Company's calcium carbide and carbon products operations and non-
recurring gains of $2.8 million ($2.4 million after-tax) related to
other special items. Special charges and non-recurring gains in 1998
consist of special charges which totaled $22.4 million ($14.3 million
after-tax) which included severance, exit costs for the closure of
duplicate facilities, the impairment write-down of property,
equipment and related goodwill and a write-down related to the
divestiture of several non-core businesses, offset by non-recurring
gains related to an acquisition break-up fee of $3 million ($1.9
million after-tax), and a $14.5 million ($9.4 million after-tax)
partial recovery of refrigerant losses.
During fiscal year 1999, the Company made substantial progress
towards completing the goals and initiatives established in its
Repositioning Plan. The Repositioning Plan includes the
consolidation of subsidiaries into larger regional companies, the
standardizing of information systems, the implementation of a
<PAGE> 14
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
national information, procurement and logistics infrastructure and
communications system, the consolidation of certain warehouse
facilities into regional distribution centers and the divestiture of
several non-core businesses. In addition, the Repositioning Plan
included the sale, closure or downsizing of approximately 30
distribution locations and a reduction in the Company's workforce.
Fiscal year 1998 special charges totaled $22.4 million ($14.3 million
after-tax or $.20 per diluted share) which consisted of an impairment
write-down of property, equipment and goodwill of $11.4 million,
divestiture reserves of $6.9 million, facility exit costs of $2.6
million and severance of $1.6 million. During fiscal year 1999,
progress was made in the following areas:
- 34 businesses were merged into 15 regional companies;
- computer systems are being standardized and resulted in
approximately 40 computer conversions;
- the Company completed three of its planned divestitures and, in
January 1999, announced the signing of a letter of intent with Linde
AG, for the sale of the Company's operations in Poland and Thailand
for approximately $50 million (the transaction, which is subject to
regulatory approvals, completion of due diligence and definitive
documentation, is expected to close early in the second quarter of
fiscal 2000);
- certain branches and distribution centers were closed and/or
consolidated; and
- workforce reductions were made as planned.
In connection with changes in the business, primarily related to
a slowing in the industrial and manufacturing sectors, the Company
modified its plans related to exiting certain facilities and adjusted
facility exit reserves by $763 thousand. In addition, adjustments to
divestiture reserves were made to reflect differences between
previous estimates, amounts related to completed transactions and
pending divestitures. The income statement effect of the adjustments
to reserves for facility exit costs and divestitures was an increase
in earnings of $1 million ($570 thousand after-tax) which was
recorded in the quarter ended June 30, 1998.
During fiscal 1999, the Company incurred approximately $16.3
million of expenses associated with the Repositioning Plan, of which
approximately 60% are expected to be ongoing in future periods in
support of the established infrastructure. In response to a slowing
economy during 1999 and the increase in expenses associated with the
Repositioning Plan, the Company embarked on a cost improvement
program that it believes will yield approximately $12 - $15 million
in annual savings beginning in fiscal year 2000. The cost
improvements are expected to impact many areas of the Company's
expense structure. The savings are expected to result from
administrative cost reductions, consolidation of back offices, the
closure of certain branch locations and lower interest costs through
working capital improvements and reduced capital expenditures.
On December 31, 1998, the Company completed the divestiture of
its calcium carbide and carbon products operations to Elkem Metals
Company L.P. ("Elkem"), a subsidiary of Elkem ASA. In conjunction
with the sale, the Company and Elkem terminated the Elkem-American
Carbide Company joint venture which marketed calcium carbide
throughout the United States. The divestiture resulted in a non-
recurring gain of $25.5 million ($15 million after-tax). The calcium
carbide and carbon products operations generated annual sales of
approximately $30 million which are reflected in the Company's Gas
Operations segment.
During fiscal 1999, the Company acquired 11 distributors of
industrial gas and related equipment (Distribution segment) with
aggregate annual sales of approximately $31 million and four
manufacturers and distributors of dry ice (Gas Operations segment)
with annual sales of approximately $20 million.
<PAGE> 15
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
INCOME STATEMENT COMMENTARY
Net Sales
Net sales increased 8% in fiscal 1999 compared to 1998.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 Increase
<S> <C> <C> <C>
Distribution $1,406,184 $1,321,958 $ 84,226
Gas Operations 155,034 126,032 29,002
$1,561,218 $1,447,990 $ 113,228
</TABLE>
The Distribution segment's principal products and services
include: industrial gases, equipment rental and hardgoods.
Industrial gases and rent consist of packaged and small bulk gases
and rent on cylinders, cryogenic liquid containers, bulk tanks and
welding equipment. Hardgoods consist of welding supplies and
equipment, safety products, and industrial tools and supplies. For
fiscal 1999, Distribution sales increased approximately $88 million
as a result of 33 acquisitions since April 1, 1997 and approximately
$11.7 million from same-store sales growth. Offsetting the increase
in sales were the divestitures of three businesses in fiscal 1999.
Sales in fiscal 1999 and 1998 for these three businesses were
approximately $10.3 million and $25.8 million, respectively. The
increase in Distribution same-store sales of .8% resulted from growth
in gas and rent of $21.4 million (4%) and safety products of $11.2
million (6.9%), offset by same-store sales declines of welding
supplies and equipment of $12.4 million (-2.1%) and industrial tools
and supplies of $8.5 million (-9.1%). Gas and rent sales
growth was attributable to the Company's focus on national and
regional accounts, expansion of its rental welder fleet, gas sales
resulting from the Company's two air separation plants and higher
small bulk and medical gas sales. Growth in gas sales was primarily
attributable to increased volumes. Sales growth of safety products
was driven by growth in national and regional accounts business, an
expanded telemarketing sales force and selling initiatives that
leverage the Distribution segment's customer base. Sales of welding
supplies and equipment and industrial tools and supplies were
negatively impacted during fiscal 1999 by a general slowing in
certain manufacturing and industrial sectors including: metal
fabrication, petro-chemical, agriculture, pulp and paper, and mining.
The Gas Operations segment's sales primarily include dry ice
and carbon dioxide. In addition, the segment includes the Company's
foreign operations and businesses that produce and distribute
specialty gases and nitrous oxide. Until the divestiture in December
1998, the segment also included sales of calcium carbide and carbon
products. Sales increased $29 million as a result of $38.6 million
of carbon dioxide and dry ice acquisitions completed during fiscal
1998 and 1999, gas sales volume growth of $1.4 million and a decrease
of $11.0 million as a result of the divestiture of the Company's
calcium carbide and carbon products operations. Liquid carbon
dioxide sales volumes, including pipeline volumes, increased during
fiscal 1999; however, the increase was largely offset by lower prices
due to increased industry production which exceeded growth in demand.
Nitrous oxide sales declined approximately 4% in fiscal 1999 compared
to the prior year due to the general slowing in the manufacturing and
industrial sectors. Gas Operations sales to the Distribution segment
in 1999 and 1998 totaled approximately $14.7 million and $9.5 million,
respectively, and are eliminated in consolidation.
<PAGE> 16
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company estimates same-store sales based on a comparison of
current period sales to the prior period's sales, adjusted for
acquisitions and divestitures. Future same-store sales growth is
dependent on the economy, competition from other companies, the
Company's ability to implement price increases and the Company's
ability to sell additional products and services to existing
customers. The Company continues to focus on internal sales growth
through leveraging the Company's customer base, the addition of new
products and product-line extensions, including rental welders, tool
and safety hardgoods items, specialty gases, carbon dioxide and
refrigerant gases in returnable containers.
Gross Profits
Gross profits increased 8% in fiscal 1999 compared to 1998.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 Increase
<S> <C> <C> <C>
Distribution $637,616 $605,240 $ 32,376
Gas Operations 85,547 63,212 22,335
$723,163 $668,452 $ 54,711
</TABLE>
The increase in Distribution gross profits of approximately
$32.4 million resulted from acquisitions which contributed
approximately $35.1 million and same-store gross profit growth of
approximately $5.1 million (.8%), offset by the divestiture of three
businesses which contributed gross profits of approximately $7.8
million in the prior year. Same-store gross profit growth consisted
of increases in gas and rent of $13.3 million (3.3%) and safety
products of $4.4 million (12.5%), offset by same-store gross profit
declines in welding supplies and equipment of $7.7 million (-4.6%)
and industrial tools and supplies of $4.9 million (-14.5%). Same-
store gross profits of gases and rent increased as a result of higher
gas volumes, helped by the Company's two air separation plants and
increased rent associated with welding equipment, cylinders and bulk
tanks. Same-store gross profits for safety products increased
primarily due to sales volume growth. Same-store gross profit
declines in industrial tools and welding supplies and equipment
resulted primarily from a general slowing in the manufacturing and
industrial sectors during fiscal 1999 and from price reductions in
certain regions to retain market share. Overall, gross margins of
45.3% in fiscal 1999 declined 50 basis points from 45.8% in fiscal
1998 due primarily to pricing pressures of hardgoods products. Gas
margins were relatively consistent year-over-year. Acquisitions,
which had an average gross margin of approximately 41% partially
contributed to the gross margin decline.
The increase in Gas Operations gross profits of approximately
$22.3 million resulted primarily from acquisitions, partially offset
by the divestiture of the Company's calcium carbide and carbon
products operations. Gas Operations' gross margin increased to 55.2%
in fiscal 1999 compared to 50.2% in the prior year. The increase was
due to the divestiture of the lower margin calcium carbide and carbon
products operations and the acquisitions of higher margin carbon
dioxide and dry ice companies with an average gross margin of 62%.
<PAGE> 17
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Expenses
Selling, distribution and administrative expenses ("operating
expenses") consist of personnel and related costs, distribution and
warehouse costs, occupancy expenses and other selling and general
administrative expenses. Operating expenses increased approximately
$55 million compared to fiscal 1998 primarily as a result of
acquisitions and higher operating expenses which included direct
repositioning expenses. Repositioning expenses were estimated to
total $16.3 million in fiscal 1999 as a result of computer
conversions, relocation and other personnel expenses and facility-
related costs. Ongoing costs which are included in the Repositioning
expense amounts total $10.1 million and are primarily related to the
costs of operating a national computer center and communications
system, regional distribution centers and additional salary expense
related to new product line sales personnel. As a percentage of net
sales, operating expenses increased 120 basis points to 33.5% in
fiscal 1999 compared to the prior year.
Depreciation and amortization totaled $87.9 million in fiscal
1999 and increased approximately $11.3 million compared to the prior
year primarily due to business acquisitions and capital projects
completed during the previous 24 months. Consolidated depreciation
and amortization as a percentage of sales increased 30 basis points
as compared to fiscal 1998. For the Distribution and Gas Operations
segments, depreciation and amortization relative to sales was 5.3%
and 8.4%, respectively.
Operating Income
Operating income, excluding special charges, decreased 10% in
fiscal 1999 compared to 1998. The decrease in operating income was
primarily due to higher operating expenses, including repositioning-
related expenses and lower gross profits from a decline in hardgoods
sales.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 Increase/(Decrease)
<S> <C> <C> <C>
Distribution $ 98,447 $111,472 $ (13,025)
Gas Operations 13,549 12,426 1,123
Special Charges 1,000 (4,950) 5,950
$112,996 $118,948 $ (5,952)
</TABLE>
The Distribution segment's operating income margin decreased to
7% in fiscal 1999 compared to 8.4% in fiscal 1998. The decrease
resulted primarily from higher operating expenses, including expenses
associated with the Company's Repositioning Plan and higher selling
expenses related to expansion of safety products, specialty gases and
welder rentals. The Distribution segment was burdened by essentially
all of the aforementioned $16.3 million of Repositioning expenses.
The Gas Operations segment's operating margin decreased to 8.7%
in fiscal 1999 compared to 9.9% in the prior year primarily as a
result of carbon dioxide and dry ice acquisitions and related
integration expenses.
<PAGE> 18
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Interest Expense
Interest expense, net, totaled $60.3 million and increased $7
million compared to fiscal 1998. The increase in interest expense was
primarily attributable to increased debt associated with completing
43 acquisitions since April 1, 1997. Interest expense was also
impacted by capital expenditures, an increase in working capital and
the repurchase of Common Stock. As discussed in "Liquidity and
Capital Resources" below, the Company manages interest rate exposure
of certain borrowing instruments through participation in interest
rate swap agreements.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates of $7 million
increased $4.1 million compared to fiscal 1998 primarily as a result
of a non-recurring insurance gain of $1.8 million, an increase in
earnings from the Company's liquid carbon dioxide joint venture which
was included in the Company's results for a full year in fiscal 1999
and higher joint venture earnings of National Welders Supply.
Earnings were helped at the Company's liquid carbon dioxide joint
venture as a result of a plant expansion which came on-line in
September 1997. National Welders Supply reported higher earnings as
a result of increased spot sales of bulk liquid gases.
Income Tax Expense
Income tax expense represented 39.9% of pre-tax earnings for
fiscal 1999, compared to 42.5% in 1998. Income tax expense, before
special charges and non-recurring gains, represented 39.5% of pre-tax
earnings for fiscal 1999, compared to 42.6% in 1998. The decrease in
the effective income tax rate was primarily a result of an increase
in earnings of unconsolidated equity affiliates and from the
implementation of tax planning strategies.
Net Earnings
Net earnings for fiscal 1999 were $51.9 million, or $.72 per
diluted share, compared to $40.5 million, or $.57 per diluted share,
in fiscal 1998. Net earnings before special charges and non-
recurring gains were $34.5 million, or $.48 per diluted share, in
fiscal 1999 compared to $42.6 million, or $.60 per diluted share, in
fiscal 1998.
EBITDA
Operating income, excluding special charges, plus depreciation
and amortization ("EBITDA") was approximately $200 million in both
fiscal 1999 and 1998.
<PAGE> 19
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS: 1998 COMPARED TO 1997
OVERVIEW
During fiscal 1998, the Company continued to grow through
acquisitions and internal growth. During fiscal 1998, the Company
completed 28 acquisitions with aggregate annual sales of $265
million.
During the fourth quarter of fiscal 1998, the Company announced
its "Repositioning Airgas for Growth" restructuring plan (the
"Repositioning Plan"). The Repositioning Plan involves: consolidating
certain hubs into larger regional companies; consolidating certain
warehouse facilities into regional distribution centers; restructuring
the carbon dioxide businesses in the Gas Operations segment; standardizing
and integrating information systems; and building a national information,
procurement and logistics infrastructure to support expanded product lines
and distribution channels, and to strengthen national sales and marketing.
To focus on its core business, the Company announced its intent to divest
certain non-core businesses and to sell or seek joint venture partners for
several non-U.S. operations. The Company anticipated that the Repositioning
Plan would be substantially completed by June 30, 1999.
In connection with the Repositioning Plan, the Company recorded
special charges in the fourth quarter ("1998 Special Charges") totaling
$22.4 million ($14.3 million after-tax or $.20 per diluted share) which
consisted of the following:
(In thousands) 1998
Impairment write-down of property,
equipment and goodwill $11,423
Divestiture charges 6,851
Facility exit costs 2,577
Severance costs 1,578
Special charges 22,429
Refrigerant recovery (14,500)
Acquisition break-up fee, net (2,979)
Special charges, net $ 4,950
The Repositioning Plan required the sale, closure or downsizing
of approximately 30 distribution locations and a workforce reduction
of approximately 200 employees.
<PAGE> 20
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As a result, the Company wrote-down to fair value, less the cost
to dispose of, certain property, equipment and related goodwill by
$11.4 million. Fair value was based on the estimated future
undiscounted cash flows to be generated from the sale of these
assets. The write-down primarily related to: computer equipment as a
result of standardizing information systems; buildings and
improvements related to facilities to be closed; machinery and
equipment related to discontinued product lines; and the goodwill
associated with related business combinations.
The Company established reserves of approximately $6.9 million
for the divestiture of certain non-strategic businesses. The write-
down was based on an evaluation of the estimated fair value of these
assets which indicated that these assets were impaired. Fair value
was based on the estimated future undiscounted cash flows to be
generated from the sale of these assets. Sales associated with such
businesses totaled approximately $25 million.
Other costs including leased facility termination costs and
severance, totaled $2.6 million and $1.6 million, respectively.
The 1998 Special Charges were offset by a non-recurring gain of
$14.5 million ($9.4 million after-tax) from a partial recovery of
refrigerant losses related to the fiscal 1997 fraudulent breach of
contract by a third-party supplier and a net gain of $3 million ($1.9
million after-tax) related to an acquisition break-up fee.
Cash outflows related to the 1998 Special Charges, before the
acquisition break-up fee, were $600 thousand in fiscal 1998.
The Company recorded a non-recurring charge during the fourth
quarter of fiscal 1997 of $26.4 million ($17 million after-tax) for
product losses and costs associated with the fraudulent breach of
contract by a third-party supplier of refrigerant gas. In addition,
the Company recorded a non-cash charge of approximately $5 million
($3.2 million after-tax) primarily related to the write-down of
machinery, equipment, goodwill and other intangible assets of a non-
core business which was divested during fiscal 1998.
INCOME STATEMENT COMMENTARY
Net Sales
Net sales increased 25% in fiscal 1998 compared to 1997.
<TABLE>
<CAPTION>
(In thousands) 1998 1997 Increase
<S> <C> <C> <C>
Distribution $1,321,958 $1,098,771 $ 223,187
Gas Operations 126,032 60,123 65,909
$1,447,990 $1,158,894 $ 289,096
</TABLE>
The Distribution segment's principal products and services
include: industrial gases, equipment rental and hardgoods.
Industrial gases and rent consist of packaged and small bulk gases
and rent on cylinders, cryogenic liquid containers, bulk tanks and
welding equipment. Hardgoods consist of welding supplies and
equipment, safety products and industrial tools and supplies. For
fiscal 1998, Distribution sales increased approximately $151 million
resulting from 45 acquisitions since April 1, 1996 and approximately
$72 million from same-store
<PAGE> 21
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
sales growth. The overall increase in Distribution same-store sales
of 5.7% was heavily weighted towards hardgoods. Same-store sales
growth consisted of: gas and rent $16.1 million (3.1%); welding
supplies and equipment $28.6 million (5.3%); safety products $17.7
million (14.5%) and industrial tools and supplies $9.6 million
(12.7%). Sales gains were mostly a result of volume growth. As a
result of low inflation, price increases during 1998 were modest.
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.
The Gas Operations segment's sales primarily include dry ice,
carbon dioxide and calcium carbide and carbon products. In addition,
the segment includes the Company's foreign operations and businesses
that produce and distribute specialty gases and nitrous oxide. Sales
increased approximately $66 million primarily due to six carbon
dioxide and dry ice acquisitions completed during fiscal 1998. Same-
store sales related to nitrous oxide, calcium carbide and carbon
products increased $1.5 million (4%), offset by specialty gas sales
of refrigerants and sulfur hexafluoride which were down compared to
the prior year. Gas Operations sales to the Distribution segment in
fiscal 1998 and fiscal 1997 totaled approximately $9.5 million and
$6.5 million, respectively, and are eliminated in consolidation.
Gross Profits
Gross profits increased 22% in fiscal 1998 compared to 1997.
<TABLE>
<CAPTION>
(In thousands) 1998 1997 Increase
<S> <C> <C> <C>
Distribution $605,240 $522,758 $ 82,482
Gas Operations 63,212 24,753 38,459
$668,452 $547,511 $120,941
</TABLE>
The increase in Distribution gross profits of approximately $82
million resulted from acquisitions which contributed approximately
$51 million and from same-store gross profit growth of 5.7% or
approximately $31 million. Same-store gross profit growth consisted
of: gas and rent $14.9 million (4.0%); welding supplies and
equipment $7.7 million (5.2%); safety products $5 million (19.8%) and
industrial tools and supplies $3.4 million (12.3%). Distribution's
gross margin of 45.8% in 1998 declined 180 basis points due to a
change in sales mix weighted more heavily toward lower margin
hardgoods. Additionally, acquisitions which had an average gross
margin of approximately 34% contributed to the gross margin decline.
The increase in Gas Operations gross profits of approximately
$38 million was primarily due to acquisitions which had an average
gross margin of 56%. Gas Operations gross margin increased from
41.2% to 50.2%. Gross margins were also adversely impacted by about
100 basis points as a result of a $1.5 million fourth quarter 1998
inventory write-down of specialty gases.
<PAGE> 22
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Expenses
Selling, distribution and administrative expenses ("operating
expenses") consist primarily of personnel and related costs,
distribution and warehouse costs, occupancy expenses and other
selling and general administrative expenses. Operating expenses
increased approximately $97 million compared to 1997 primarily as a
result of acquisitions. Operating expenses also increased
approximately $3.8 million as a result of direct costs associated
with the Company's Repositioning Plan and from higher Corporate
operating costs. As a percentage of net sales, operating expenses
increased 30 basis points to 32.3%.
Depreciation and amortization increased approximately $14
million compared to 1997 primarily as a result of acquisitions and,
to a lesser extent, from higher capital expenditures. Consolidated
depreciation and amortization as a percentage of sales decreased 10
basis points as compared to 1997. For the Distribution and Gas
Operations segments, depreciation and amortization relative to sales
was 5.1% and 7.3%, respectively.
Operating Income
Operating income, excluding special charges, increased 9% in
fiscal 1998 compared to 1997. In connection with the Repositioning
Plan, fiscal 1998 operating income was negatively impacted by $5.7
million of direct repositioning costs for relocating employees and
other personnel expenses, exiting certain product lines and computer
conversion costs.
<TABLE>
<CAPTION>
(In thousands) 1998 1997 Increase
<S> <C> <C> <C>
Distribution $111,472 $103,376 $ 8,096
Gas Operations 12,426 10,334 2,092
Special Charges (4,950) (31,425) 26,475
$118,948 $ 82,285 $ 36,663
</TABLE>
The Distribution segment's operating income margin decreased 100
basis points to 8.4% compared to 1997. The decrease resulted
primarily from acquisitions, which had average estimated operating
margins of 4%, from higher operating costs and expenses associated
with the Company's Repositioning Plan and the integration of
acquisitions. The Repositioning related operating costs included non-
recurring moving costs associated with new hardgoods distribution
centers in Southern California and Georgia.
The Gas Operations segment's operating margin decreased from
17.2% to 9.9% primarily as a result of lower operating margins
associated with 1998 carbon dioxide and dry ice acquisitions. Direct
repositioning costs, combined with an inventory write-down, totaled
$1.6 million and adversely impacted margins.
Interest Expense
Interest expense, net, totaled $53.3 million and increased $13.5
million compared to 1997. The increase in interest cost was
attributable to debt associated with completing 52 acquisitions since
April 1, 1996, costs associated with the refrigerant fraud and the
repurchase of Common Stock.
<PAGE> 23
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates of $2.9 million
increased $2 million compared to 1997 primarily as a result of a full
year's earnings associated with the Company's joint venture with
National Welders Supply and earnings from a carbon dioxide joint
venture which was acquired in June 1997.
Income Tax Expense
Income tax expense represented 42.5% of pre-tax earnings for
fiscal 1998, compared to 47.5% in 1997. Income tax expense, before
special charges and divestitures represented 42.6% of pre-tax
earnings for 1998, compared to 41% in 1997. The increase in the
effective income tax rate was primarily a result of an increase in
non-deductible goodwill relative to pre-tax earnings.
Net Earnings
Net earnings for 1998 were $40.5 million, or $.57 per diluted
share. Net earnings before special charges and divestitures decreased
4% to $42.6 million, or $.60 per diluted share, from $44.3 million,
or $.65 per diluted share in 1997.
EBITDA
Operating income, excluding special charges, plus depreciation
and amortization ("EBITDA") in fiscal 1998, increased $24 million to
$200 million compared to 1997. The increase was primarily related to
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company has financed its operations, capital expenditures,
stock repurchases and acquisitions with borrowings, the issuance of
common stock and funds provided by operating activities.
Cash flows from operating activities for fiscal 1999 totaled
$102.1 million. Depreciation and amortization represented $87.9
million of cash flows from operating activities. Deferred income
taxes of $16 million resulted from temporary differences. Cash flows
from working capital components decreased $9.9 million as a result of
an increase in accounts receivable, inventory, and other assets and
liabilities, net, offset by an increase in accounts payable and
accrued expenses. Accounts receivable days' sales outstanding
increased from 44 to 47 days and hardgoods days' supply of inventory
levels also increased from 74 to 77 days compared to March 31, 1998
levels. Higher working capital levels resulted partially from the
increased demand on the Company's personnel as a result of
Repositioning-related changes in management, computer conversions and
other operational factors related to the Repositioning Plan which was
substantially completed during fiscal 1999.
After-tax cash flow (net earnings, excluding special charges and
non-recurring gains, plus depreciation, amortization and deferred
income taxes) increased 4% to $138.3 million compared to $132.8 million
in the prior year.
<PAGE> 24
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cash used by investing activities totaled $96.9 million in
fiscal 1999. Investing activities which used cash during the period
primarily included capital expenditures of $101.6 million and
acquisitions of $52.1 million. Proceeds from divestitures provided
cash of $53.7 million.
Capital expenditures associated with the purchase of cylinders,
bulk tanks, rental welders and machinery and equipment totaled
approximately $61 million and helped facilitate strategic product
sales growth. During fiscal 1999, the Company also incurred capital
expenditures totaling approximately $9.2 million related to purchases
of computer and related equipment in connection with standardizing
information systems.
Financing activities used cash of $5.2 million, with total debt
outstanding increasing by $24.5 million since March 31, 1998. The
cash overdraft, the float of the Company's outstanding checks,
decreased by $14.7 million since March 31, 1998. Funds used by
financing activities were primarily for acquisitions, capital
expenditures, working capital needs and the repurchase of Common
Stock.
The Company will continue to look for appropriate acquisitions
of distributors. Future acquisitions and capital expenditures are
expected to be funded through the use of cash flow from operations,
debt, common stock for certain acquisition candidates, funds from the
divestiture of certain businesses and other available sources. The
Company believes that its sources of financing are adequate for its
anticipated needs and that it could arrange additional sources of
financing for unanticipated requirements. The cost and terms of any
future financing arrangement depend on the market conditions and the
Company's financial position at that time.
The Company does not currently pay dividends.
Financial Instruments
The Company has unsecured revolving credit facilities totaling
$725 million and $100 million Canadian (US$67 million) under a credit
agreement with a final maturity date of December 5, 2002. The credit
agreement contains covenants which include the maintenance of certain
financial ratios, restrictions on additional borrowings and
limitations on dividends. At March 31, 1999, the Company had
borrowings under the agreement of approximately $528 million and $42
million Canadian (US$27 million). The Company also has commitments
under letters of credit supported by the agreement of approximately
$71 million. Availability under the credit facilities was approximately
$165 million at March 31, 1999. At March 31, 1999, the effective
interest rate on borrowings under the credit facilities was 5.44% on
U.S. borrowings and 5.11% on Canadian borrowings.
At March 31, 1999, the Company had the following long-term debt
outstanding under medium-term notes: $50 million of unsecured notes
due September 2001 bearing interest at a fixed rate of 7.15%; $75
million of unsecured notes due March 2004 at a fixed rate of 7.14%;
and $100 million of unsecured notes due September 2006 bearing
interest at a fixed rate of 7.75%. Additionally, at March 31, 1999,
long-term debt of the Company included acquisition notes and other
long-term debt instruments of approximately $87 million with interest
rates ranging from 6.00% to 9.00%. The Company also has a shelf
registration with a capacity of approximately $175 million for the
issuance of debt and other types of securities.
In managing interest rate exposure, principally under the
Company's floating rate revolving credit facilities, the Company
participates in 23 interest rate swap agreements. The swap
agreements are with major financial institutions and aggregate $475
million in notional principal amount at March 31, 1999. Sixteen swap
agreements with approximately $238 million in notional principal
amount require fixed interest payments based
<PAGE> 25
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
on an average effective rate of 6.79% for remaining periods ranging
between one and five years. Seven swap agreements with approximately
$237 million in notional principal amount require variable interest
payments based on an average rate of 5.04% at March 31, 1999. Under
the terms of five swap agreements, the Company has elected to receive
the discounted value of the counterparty's interest payments
up-front. At March 31, 1999, approximately $8.7 million of such
payments were included in other non-current liabilities. The Company
monitors its positions and the credit ratings of its counterparties,
and does not anticipate non-performance by the counterparties.
Subsequent to March 31, 1999 the Company entered into two swap
agreements with an aggregate notional principal amount of $100 million
requiring fixed rate interest payments at an effective rate of 5.48%
for two years.
Share Repurchase Programs
In March 1999, the Airgas Board of Directors authorized the
repurchase of up to seven million shares of the Company's outstanding
Common Stock (the "new program"). The shares may be repurchased in
the open market or in privately negotiated transactions depending on
market conditions and other factors. The Company has financed its
repurchase programs with borrowings and funds provided by operating
activities. During fiscal 1999, the Company repurchased
approximately 1.4 million shares at an average cost of $11.89 per
share. The effect of the fiscal 1999 share repurchases on earnings
per share was not material. Subsequent to March 31, 1999, the
Company repurchased approximately 630 thousand shares, including 175
thousand shares to complete the previous repurchase program, for
total consideration of approximately $7 million. At June 4, 1999,
approximately 6.5 million shares may be repurchased under the new
program.
Shares in Employee Benefits Trust
On March 30, 1999, the Company established a grantor trust (the
"Trust") to fund certain future obligations of the Company's employee
benefit and compensation plans. The Company, pursuant to a Common
Stock Purchase Agreement, will sell to the Trust shares of Common
Stock. Such Common Stock will consist of shares the Company has
purchased or will purchase on the open market or in private
transactions. The Common Stock may also consist of shares issued
directly to the trust. On March 31, 1999, the Trust purchased 826
thousand shares of Common Stock previously held as treasury stock,
from the Company, for approximately $7 million (based on the average
market closing price for the preceding five days). The Company holds
a promissory note from the Trust in the amount of the purchase.
Shares held by the Trust serve as collateral for the promissory note
and are available to fund certain employee benefit plan obligations
as the promissory note is repaid. The shares held by the Trust are
not considered outstanding for earnings per share purposes until they
are released from serving as collateral for the promissory note. An
independent third-party financial institution serves as the Trustee.
The Trustee will vote or tender shares held by the Trust in
accordance with instructions received from the participants in the
employee benefit and compensation plans funded by the Trust.
Subsequent to March 31, 1999, the Trust purchased 625 thousand
shares of Common Stock from the Company.
Inflation
The Company's inflation risks are managed on an entity-by-entity
basis through price increases, productivity increases and
cost-containment measures. Management does not believe that inflation
risk is material to the Company's business or its consolidated financial
position, results of operations or liquidity.
<PAGE> 26
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
YEAR 2000 READINESS DISCLOSURE
Year 2000 Issues
The Company is aware of the issues associated with the Year 2000
matter. The "Year 2000" matter 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.
Information Systems Hardware and Application Software
With respect to information systems hardware 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. Although vendors
for such software have advised the Company that their software is
Year 2000 compliant, the Company has completed time dimensional
testing for one critical system, with no instances of non-compliance
identified and expects to complete testing of the remaining critical
systems and software by June 30, 1999. Although execution of the
Repositioning Plan addresses certain significant Year 2000 issues, it
was not undertaken primarily as a remediation initiative. The Company
believes that standardized operating platforms will help provide for
an effective multi-channel distribution network. The Company
estimates expenditures related to the system conversion and
standardization project will total approximately $20-$25 million over
the duration of the project, of which approximately $15 million is
expected to be capitalized. On a project-to-date basis, the Company
has incurred approximately $16 million in costs and expenses to
standardize systems, of which approximately $11 million represents
new capital equipment and software. While the Company believes that
it is on target for completion of the project by August 31, 1999, if
such standardization is not completed prior to the Year 2000, the
Year 2000 matter 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.
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 are Year 2000 compliant.
Time dimensional testing of data center hardware has been completed
and no compliance exceptions were identified. In addition, the
Company has substantially completed testing of its desktop personal
computers with very few failures noted.
Embedded Chips
The Company's Year 2000 project team includes designated
subsidiary-company managers responsible for directing Year 2000
remediation efforts at the business unit level. These managers, in
cooperation with the Company's national information services
personnel, have completed the inventories and risk assessments of
<PAGE> 27
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
critical processes and equipment containing embedded chips. Testing
has been substantially completed with regard to certain critical
processes and equipment of the Company's Gas Operations segment. No
significant instances of non-compliance were identified. Additionally,
the Company has completed its assessment of its phone systems and
anticipates completing the necessary repairs and replacements by
September 1999. The Year 2000 project team is also in the process of
contacting suppliers to obtain Year 2000 readiness product information
for less significant equipment containing embedded chips. The Company
estimates expenditures for remediation of non-compliant embedded chip
equipment will total approximately $1.1 million. Of this total, the
Company expects approximately $1 million will be for capital upgrades
and replacements. Although the Company believes it is on target for
completing remediation efforts with regard to embedded chip equipment
and processes, if repair, replacement or contingency plans are not
completed before the Year 2000, the Year 2000 matter could have a
material impact on the business, results of operations and financial
condition of the Company.
Third Parties
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 is contacting significant suppliers,
customers and other critical business partners to determine if they
have effective Year 2000 plans in place. The Company anticipates
that this evaluation will be ongoing through calendar year 1999.
Responses from approximately 65% of suppliers have been received and
evaluated by the Company, with the majority indicating that they have
active Year 2000 compliance programs. In addition, audits of certain
key suppliers have been initiated to confirm Year 2000 readiness.
As a result of the supplier contact and audit programs, alternative
suppliers will be identified as deemed necessary. 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.
Contingency Plans
Certain contingency plans have been developed related to the
Year 2000 matter. These plans address potential disruptions of the
Company's business including administrative and supply chain
functions. Administrative contingency plans provide for back-up data
processing facilities and encompass the national data center,
critical business software and communications networks. Supply chain
contingency plans include identifying alternative suppliers and
arranging for back-up or alternative transportation for shipping the
Company's products. Contingency planning will continue through the
remainder of calendar year 1999, as deemed necessary, based upon the
Company's ongoing assessment of potential Year 2000 risks,
particularly those related to third parties.
Resources
The Company is funding the computer conversion and standardization
project as well as non-compliant equipment repairs and replacements
from cash flow generated by operations and other available financing
sources. Substantially all of the effort to accomplish the remediation
objectives with regard to the computer conversion and standardization
project, embedded chip equipment, and evaluating third party readiness
has been performed by internal Company personnel.
<PAGE> 28
AIRGAS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OTHER
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This statement standardizes the accounting
for derivative instruments by requiring that an entity recognize
those items as assets or liabilities in the statement of financial
position and measure them at fair value. The statement is scheduled
to be effective for fiscal years beginning after June 15, 1999,
however, the FASB recently proposed that the effective date of the
statement be delayed for one year. Management has evaluated the
impact of the new Standard in connection with the Company's use of
derivatives in managing interest rate risk. The Company's exposure
to derivatives is limited to interest rate swap agreements which are
highly effective in managing the Company's interest rate exposure. A
high correlation exists between the terms of the interest rate swaps
and the underlying debt obligations of the Company. As such,
fluctuations in the fair value of the swaps are offset by an equal
and opposite fluctuation in the carrying value of the underlying debt
obligations. Consequentially, the implementation of SFAS 133 is not
expected to have a material impact on the net earnings of the
Company. The recognition of the interest rate swap agreements and
corresponding debt obligations at fair value could reduce the
Company's availability under its revolving credit facility. The
reduction in availability could negatively effect liquidity of the
Company depending on market interest rates at the time of
implementation.
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, growth in same-store sales,
costs and potential disruptive effects of the Repositioning, the
success of the Repositioning Plan, the success of the Company's cost
improvement program, the Company's ability to reduce costs,
implementation and standardization of information systems projects,
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.
<PAGE> 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company's primary market risk exposure is from changes in
interest rates. The Company's policy is to manage interest rate risk
exposure through the use of a combination of fixed and floating rate
debt and interest rate swap agreements. Interest rate swap
agreements are used to adjust interest rate exposures. An interest
rate swap is a contractual exchange of interest payments between two
parties. A standard interest rate swap involves the payment of a
fixed rate times a notional amount by one party in exchange for a
floating rate times the same notional amount from another party. The
Company enters into interest rate swaps to manage the fixed/variable
interest rate mix of its debt portfolio. The Company maintains the
ratio of fixed to variable rate debt within parameters established by
management under policies approved by the Board of Directors.
Counterparties to interest rate swap agreements are major financial
institutions. The Company has established counterparty credit
guidelines and only enters into transactions with financial
institutions with long-term credit ratings of `A' or better. In
addition, the Company monitors its positions and the credit ratings
of its counterparties, thereby minimizing the risk of non-performance
by the counterparties. The Company does not enter into derivative
financial instruments for trading purposes.
The table below summarizes the Company's market risks associated
with long-term debt obligations and interest rate swaps as of March
31, 1999. For long-term debt obligations, the table presents cash
flows related to payments of principal and interest by expected
fiscal year of maturity. For interest rate swaps, the table presents
the notional amounts underlying the interest rate swaps by year of
maturity. The notional amounts are used to calculate contractual
payments to be exchanged and are not actually paid or received. Fair
values were computed using market quotes, if available, or based on
discounted cash flows using market interest rates as of the end of
the period.
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
(In millions) Fair
Fixed Rate Debt: 2000 2001 2002 2003 2004 Thereafter Total Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Medium-term notes $ -- $ -- $ 50 $ -- $ 75 $100 $225 $214
Interest expense $ 17 $ 17 $ 15 $ 13 $ 10 $ 15 $ 87
Average interest rate 7.41% 7.41% 7.45% 7.49% 7.49% 7.75%
Acquisition notes $ 15 $ 13 $ 21 $ 1 $ 20 $ 2 $ 72 $ 70
Interest expense $ 5 $ 4 $ 3 $ 2 $ 1 $ -- $ 15
Average interest rate 7.47% 7.47% 7.47% 7.47% 7.47% 7.47%
Other notes $ 4 $ 1 $ 1 $ 1 $ -- $ -- $ 7 $ 7
Average interest rate 6.90% 6.90% 6.90% 6.90%
Variable Rate Debt:
Revolving credit facilities $ -- $ -- $ -- $555 $ -- $ -- $555 $555
Interest expense $ 35 $ 35 $ 35 $ 35 $ -- $ -- $140
Interest rate (a) 5.44% 5.44% 5.44% 5.44%
Other notes $ -- $ 1 $ 7 $ -- $ -- $ -- $ 8 $ 8
Average interest rate 8.75% 8.75% 8.75%
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
Expected Fiscal Year of Maturity
(In millions)
Fair
Interest Rate Swaps: 2000 2001 2002 2003 2004 Thereafter Total Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US $ denominated Swaps:
13 Swaps Receive
Variable/Pay Fixed $ 15 $ 55 $ 20 $100 $ -- $ 40 $230 $(15.7)
Variable Receive rate
(3 month LIBOR) = 4.97%
Weighted average
pay rate = 6.78%
7 Swaps Receive
Fixed/Pay Variable $ 57 $ 50 $ 50 $ -- $ 30 $ 50 $237 $ 7.8
Weighted average
receive rate = 6.60 %
Variable pay rate
(6 month LIBOR) = 5.04%
Canadian $ denominated Swaps:
3 Swaps Receive
Variable/Pay Fixed $ 3.3 $ 3.3 $ 1.7 $ -- $ -- $ -- $ 8.3 $ (.3)
Variable Receive rate
(3 month CAD BA) = 5.14%
Weighted average
pay rate = 7.14%
Other LIBOR based agreements:
Operating leases with trust $14.7 $ -- $ -- $ -- $ -- $ -- $14.7 $14.7
Variable rate
(3 month LIBOR plus 110
basis points = 6.07%)
(a) The variable rate of long-term debt obligations is based on the
London Interbank Offered Rate ("LIBOR") as of March 31, 1999. For
future periods, the variable interest rate is assumed to remain at
5.44% with the principal balance of long-term debt obligations held
constant at $555 million. However, the variable rate and borrowing
levels of long-term debt may fluctuate materially from those presented
above.
</TABLE>
Limitations of the tabular presentation
As the table incorporates only those interest rate risk
exposures that exist as of March 31, 1999, it does not consider those
exposures or positions that could arise after that date including
interest rate swap agreements entered into in May 1999. In addition,
actual cash flows of financial instruments in future periods may
differ materially from prospective cash flows presented in the table
due to future fluctuations in variable interest rates and Company
debt levels.
<PAGE> 31
Foreign Currency Rate Risk
Certain subsidiaries of the Company are located in foreign
countries. The Company does not hedge its exposure to translation
gains and losses relating to foreign currency net asset exposures.
The Company considers its exposure to foreign currency exchange
fluctuations to be immaterial to its consolidated results of
operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, supplementary information
and financial statement schedule of the Company are set forth at
pages F-1 to F-42 of the report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The biographical information relating to the Company's directors
appearing in the Proxy Statement relating to the Company's 1999
Annual Meeting of Stockholders is incorporated herein by reference.
Biographical information relating to the Company's executive officers
set forth in Item 1 of Part I of this Form 10-K Report is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Board of Directors and Committees,"
"Executive Compensation" and "Certain Transactions" appearing in the
Proxy Statement relating to the Company's 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is set forth in the
section headed "Security Ownership" appearing in the Company's Proxy
Statement relating to the Company's 1999 Annual Meeting of
Stockholders and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Certain Transactions" appearing in the
Proxy Statement relating to the Company's 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2):
The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page F-1. All other
schedules have been omitted as inapplicable, or not required, or
because the required information is included in the Consolidated
Financial Statements or notes thereto.
(a)(3) Exhibits.
The exhibits required to be filed as part of this annual report
on Form 10-K are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K.
On January 29, 1999, the Company filed a current report on Form
8-K pursuant to Item 5, reporting its earnings for the third quarter
and nine months ended December 31, 1998.
On February 2, 1999, the Company filed a current report on Form
8-K pursuant to Item 5, announcing certain organizational changes and
management appointments of Company personnel.
On March 12, 1999, the Company filed a current report on Form 8-
K pursuant to Item 5, announcing that its Board of Directors
authorized the repurchase of up to seven million shares, or
approximately 10% of the Company's outstanding Common Stock.
(c) Index to Exhibits and Exhibits filed as a part of this report.
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of
Airgas, Inc. dated as of August 7, 1995 (Incorporated by
reference to Exhibit 3.1 to the Company's September 30, 1995
Quarterly Report on Form 10-Q).
3.2 Airgas, Inc. By-Laws Amended and Restated through November 12,
1998. (Incorporated by reference to Exhibit 3 to the Company's
September 30, 1998 Report on Form 10-Q).
4.1 Ninth Amended and Restated Credit Agreement dated as of
December 5, 1997 among Airgas, Inc., Airgas Canada, Inc.,
Red-D-Arc Limited and Airgas Ontario Inc., Nationsbank, N.A.
as U.S. Agent and Canadian Imperial Bank of Commerce as
Canadian Agent. (Incorporated by reference to Exhibit 4.1 to
the Company's December 31, 1997 Quarterly Report on Form 10-Q).
4.2 First Amendment, dated April 13, 1998, to the Ninth Amended
and Restated Credit Agreement dated as of December 5, 1997
among Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited and
Airgas Ontario Inc., Nationsbank, N.A. as U.S. Agent and
Canadian Imperial Bank of Commerce as Canadian Agent.
(Incorporated by reference to Exhibit 4.1 to the Company's
June 30, 1998 Quarterly Report on Form 10-Q).
<PAGE> 33
Exhibit No. Description
4.3 Indenture dated as of August 1, 1996 of Airgas, Inc. to Bank
of New York, Trustee. (Incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form
S-4 No. 333-23651 dated March 20, 1997).
4.4 Form of Airgas, Inc. Medium-Term Note (Fixed Rate).
(Incorporated by reference to Exhibit 4.6 to the Company's
Registration Statement on Form S-4 No. 333-23651 dated
March 20, 1997).
4.5 Form of Airgas, Inc. Medium-Term Note (Floating Rate).
(Incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-4 No. 333-23651 dated
March 20, 1997).
There are no other instruments with respect to long-term debt
of the Company that involve indebtedness or securities
authorized thereunder exceeding 10 percent of the total assets
of the Company and its subsidiaries on a consolidated basis.
The Company agrees to file a copy of any instrument or
agreement defining the rights of holders of long-term debt of
the Company upon request of the Securities and Exchange
Commission.
4.6 Rights Agreement, dated as of April 1, 1997, between Airgas,
Inc. and The Bank of New York, N.A., as Rights Agent, which
includes as Exhibit B thereto the Form of Right Certificate.
(Incorporated by reference to Exhibit 1.1 to the Company's
Form 8-A filed on April 28, 1997).
4.7 First Amendment, dated November 12, 1998, to the Rights
Agreement dated as of April 1, 1997, between Airgas, Inc.
and The Bank of New York. (Incorporated by reference to
Exhibit 4 to the Company's December 31, 1998 Quarterly Report
on Form 10-Q).
* 10.1 Agreement between the Company and Peter McCausland, dated
January 8, 1991, and form of Common Stock Purchase Warrant.
(Incorporated by reference to Exhibit 10.16 to the Company's
March 31, 1992 report on Form 10-K).
* 10.2 Amended and Restated 1984 Stock Option Plan, as amended
effective May 22, 1995. (Incorporated by reference to Exhibit
10.1 to the Company's September 30, 1995 Quarterly Report on
Form 10-Q).
* 10.3 1989 Non-Qualified Stock Option Plan for Directors
(Non-Employees), as amended. (Incorporated by reference to
Exhibit 10.7 to the Company's March 31, 1992 report on Form
10-K).
* 10.4 Amendment to the 1989 Non-Qualified Stock Option Plan for
Directors (Non-Employees) as amended through August 7, 1995
(Incorporated by reference to Exhibit 10.2 to the Company's
September 30, 1995 Quarterly Report on Form 10-Q).
* 10.5 1994 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 10.19 to the Company's March 31, 1993
report on Form 10-K).
* 10.6 1998 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 4 to the Company's Registration Statement
on Form S-8 No. 333-60999 dated August 7, 1998).
<PAGE> 34
Exhibit No. Description
* 10.7 Airgas, Inc. Management Incentive Plan (Incorporated by
reference to Exhibit 10.3 to the Company's September 30, 1995
Quarterly Report on Form 10-Q).
* 10.8 Joint Venture Agreement dated June 28, 1996 between Airgas,
Inc. and National Welders Supply Company, Inc. and J.A.
Turner, III, and Linerieux B. Turner and Molo Limited
Partnership, Turner (1996) Limited partnership, Charitable
Remainder Unitrust for James A. Turner, Jr. and Foundation
for the Carolinas (Incorporated by reference to Exhibit 2.1
to the Company's June 28, 1996 Report on Form 8-K).
* 10.9 Letter dated July 24, 1992 between Airgas, Inc. (on behalf
of the Nominating and Compensation Committee) and Peter
McCausland regarding the severance agreement between the
Company and Peter McCausland.
* 10.10 1997 Stock Option Plan (Incorporated by reference to Exhibit
10.1 to the Company's September 30, 1997 Quarterly Report on
Form 10-Q).
* 10.11 1997 Directors' Stock Option Plan (Incorporated by reference
to Exhibit 10.2 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q).
* 10.12 Employee Benefits Trust Agreement, dated March 30, 1999,
between Airgas, Inc. and First Union National Bank, as Trustee,
which includes as Exhibit 1 thereto the Common Stock Purchase
Agreement, dated March 30, 1999, between Airgas, Inc. and First
Union National Bank, as Trustee, and Exhibit 2 thereto the
Promissory Note, dated March 31, 1999, between Airgas, Inc.
and First Union National Bank, as Trustee.
*10.13 Change of Control Agreement between Airgas, Inc. and William
A. Rice, Jr. dated March 17, 1999. Nine other Executive
Officers, including Peter McCausland, are parties to
substantially identical agreements.
*10.14 2000 Management Incentive Plan for Corporate Employees dated
April 1, 1999.
*10.15 2000 Management Incentive Plan for Business Unit Employees
dated April 1, 1999.
(11) Statement re: computation of earnings per share.
(21) Subsidiaries of the Company.
(23.1) Consent of KPMG LLP.
(27) Financial data schedule - March 31, 1999
(27.1) Financial data schedule - March 31, 1998
_____________
* A management contract or compensatory plan required to be filed by
Item 14(c) of this Report.
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: June 11, 1999
Airgas, Inc.
(Registrant)
By: /s/ Peter McCausland
_________________________
Peter McCausland
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Peter McCausland Director, Chairman of the Board, June 11, 1999
__________________________ and Chief Executive Officer
(Peter McCausland)
/s/ Scott M. Melman Senior Vice President and Chief June 11, 1999
__________________________ Financial Officer (Principal
Financial Officer)
(Scott M. Melman)
/s/ Jeffrey P. Cornwell Vice President and Corporate June 11, 1999
__________________________ Controller (Principal Accounting
Officer)
(Jeffrey P. Cornwell)
/s/ W. Thacher Brown Director June 11, 1999
__________________________
(W. Thacher Brown)
/s/ Frank B. Foster, III Director June 11, 1999
__________________________
(Frank B. Foster, III)
/s/ Rajiv L. Gupta Director June 11, 1999
__________________________
(Rajiv L. Gupta)
/s/ Robert E. Naylor Director June 11, 1999
__________________________
(Robert E. Naylor)
<PAGE> 36
/s/ John A.H. Shober Director June 11, 1999
__________________________
(John A.H. Shober)
/s/ Lee M. Thomas Director June 11, 1999
__________________________
(Lee M. Thomas)
/s/ Robert L. Yohe Director June 11, 1999
__________________________
(Robert L. Yohe)
<PAGE> 37
AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Reference In
Report On
Form 10-K
Financial Statements:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-2
Statement of Management's Financial Responsibility . . . . . . . . . F-3
Consolidated Balance Sheets at March 31, 1999 and 1998 . . . . . . . F-4
Consolidated Statements of Earnings for the Years Ended
March 31, 1999, 1998 and 1997. . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 1999, 1998 and 1997. . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999, 1998 and 1997 . . . . . . . . . .. . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . F-42
All other schedules for which provision is made in the applicable
accounting regulations promulgated by the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
F-1
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Airgas, Inc.:
We have audited the consolidated financial statements of Airgas,
Inc. and subsidiaries listed in the accompanying index. In
connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule listed in the
accompanying index. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Airgas, Inc. and subsidiaries as of March 31, 1999 and
1998, and the results of their operations and their cash flows for
each of the years in the three-year period ended March 31, 1999, in
conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
May 12, 1999
F-2
<PAGE> 39
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related
financial information in this Annual Report. The statements are
prepared in conformity with generally accepted accounting principles.
The financial statements reflect management's informed judgment and
estimation as to the effect of events and transactions that are
accounted for or disclosed.
Management maintains a system of internal control at each
business unit. This system is designed to provide reasonable
assurance that assets are safeguarded and records properly reflect
transactions executed in accordance with management's authorization.
The Company also maintains a staff of internal auditors who review
and evaluate the system of internal control. In determining the
extent of the system of internal control, management recognizes that
the cost should not exceed the benefits derived. The evaluation of
these factors requires estimates and judgment by management.
The Company's financial statements have been audited by KPMG
LLP, independent auditors. Their Independent Auditors' Report, which
is based on an audit made in accordance with generally accepted
auditing standards is presented on the previous page. In performing
their audit, KPMG LLP considers the Company's internal control
structure to the extent they deem necessary in order to plan their
audit, determine the nature, timing and extent of tests to be
performed and issue their report on the consolidated financial
statements.
The Audit Committee of the Board of Directors meets with the
independent auditors, the internal auditors and management to satisfy
itself that they are properly discharging their responsibilities.
The auditors have direct access to the Audit Committee.
Airgas, Inc.
/s/ Scott M. Melman /s/ Peter McCausland
________________________ _______________________
Scott M. Melman Peter McCausland
Senior Vice President and Chairman and
Chief Financial Officer Chief Executive Officer
May 12, 1999
F-3
<PAGE> 40
<TABLE>
<CAPTION>
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
(In thousands, except per share amounts) 1999 1998
<S> <C> <C>
ASSETS
Current Assets
Trade receivables, less allowances for doubtful
accounts of $6,092 in 1999 and $5,676 in 1998 . . . . . .$ 195,708 $ 186,342
Inventories, net (Note 5). . . . . . . . . . . . . . . . . 154,424 154,937
Deferred income tax asset, net (Note 14) . . . . . . . . . 7,549 6,952
Prepaid expenses and other current assets . . . . . . . . 21,161 18,603
Total current assets . . . . . . . . . . . . . . . . . 378,842 366,834
Plant and equipment, at cost (Note 6). . . . . . . . . . . 993,496 923,635
Less accumulated depreciation. . . . . . . . . . . . . . . (275,637) (236,331)
Plant and equipment, net . . . . . . . . . . . . . . . 717,859 687,304
Goodwill, net of accumulated amortization of
$54,986 in 1999 and $42,147 in 1998 . . . . . . . . . . . 428,349 410,753
Other non-current assets (Note 7) . . . . . . . . . . . . 173,422 176,583
Total Assets $1,698,472 $1,641,474
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade . . . . . . . . . . . . . . . . .$ 85,486 $ 84,602
Accrued expenses and other current liabilities (Note 8). . 108,295 128,806
Current portion of long-term debt (Note 9) . . . . . . . . 19,645 12,150
Total current liabilities . . . . . . . . . . . . . . . 213,426 225,558
Long-term debt (Note 9) . . . . . . . . . . . . . . . . . 847,841 830,845
Deferred income tax liability, net (Note 14) . . . . . . . 142,675 121,356
Other non-current liabilities. . . . . . . . . . . . . . . 23,585 36,842
Commitments and contingencies (Notes 17 and 18) . . . . . -- --
Stockholders' Equity (Note 10)
Preferred stock, no par value, 20,000 shares authorized,
no shares issued or outstanding in 1999 and 1998. . . . . -- --
Common stock, par value $.01 per share, 200,000 shares
authorized, 72,024 and 71,357 shares issued in 1999
and 1998, respectively. . . . . . . . . . . . . . . . . . 720 714
Capital in excess of par value . . . . . . . . . . . . . . 190,175 192,358
Retained earnings . . . . . . . . . . . . . . . . . . . . 289,090 237,166
Accumulated other comprehensive loss . . . . . . . . . . . (910) (779)
Treasury stock, 130 and 176 common shares at cost in
1999 and 1998, respectively . . . . . . . . . . . . . . . (1,129) (2,586)
Shares in employee benefits trust, 826 common shares at
cost in 1999. . . . . . . . . . . . . . . . . . . . . . . (7,001) --
Total stockholders' equity. . . . . . . . . . . . . . . 470,945 426,873
Total liabilities and stockholders' equity $1,698,472 $1,641,474
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE> 41
<TABLE>
<CAPTION>
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended March 31,
(In thousands, except per share amounts) 1999 1998 1997
<S> <C> <C> <C>
Net Sales
Distribution . . . . . . . . . . . . . . . $1,406,184 $1,321,958 $1,098,771
Gas Operations . . . . . . . . . . . . . . 155,034 126,032 60,123
Total net sales . . . . . . . . . . . 1,561,218 1,447,990 1,158,894
Costs and Expenses
Cost of products sold (excluding
depreciation and amortization)
Distribution . . . . . . . . . . . . . . 768,568 716,718 576,013
Gas Operations. . . . . . . . . . . . . . 69,487 62,820 35,370
Selling, distribution and administrative
expenses . . . . . . . . . . . . . . . . 523,241 467,884 371,310
Depreciation and amortization. . . . . . . 87,926 76,670 62,491
Special charges, net (Note 3). . . . . . . (1,000) 4,950 31,425
Total costs and expenses . . . . . . . 1,448,222 1,329,042 1,076,609
Operating Income
Distribution. . . . . . . . . . . . . . . 98,447 111,472 103,376
Gas Operations . . . . . . . . . . . . . 13,549 12,426 10,334
Special charges, net (Note 3) . . . . . . 1,000 (4,950) (31,425)
Total operating income . . . . . . . . 112,996 118,948 82,285
Interest expense, net (Note 13). . . . . . (60,298) (53,290) (39,752)
Other income, net (Note 2) . . . . . . . . 26,714 2,813 1,672
Equity in earnings of unconsolidated
affiliates (Note 12) . . . . . . . . . . 7,042 2,931 958
Minority interest (Note 20). . . . . . . . (93) (873) (817)
Earnings before income taxes . . . . . 86,361 70,529 44,346
Income taxes (Note 14) . . . . . . . . . . 34,437 29,989 21,080
Net Earnings. . . . . . . . . . . . . . . $ 51,924 $ 40,540 $ 23,266
Basic earnings per share (Note 4) . . . . $ .74 $ .59 $ .35
Diluted earnings per share (Note 4) . . . $ .72 $ .57 $ .34
Weighted average shares outstanding:
Basic (Note 4) . . . . . . . . . . . . . 70,000 68,700 65,900
Diluted (Note 4) . . . . . . . . . . . . 71,700 70,800 68,600
Comprehensive income . . . . . . . . . . . $ 51,793 $ 40,229 $ 23,208
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE> 42
<TABLE>
<CAPTION>
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
Years Ended March 31, 1999, 1998 and 1997
Shares of Accumulated
Common Capital in Other Employee
Stock $.01 Common Excess of Retained Comprehensive Treasury Benefits
(In thousands) Par Value Stock Par Value Earnings Loss Stock Trust
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--March 31, 1996 . . . . . . 66,313.7 $663 $ 91,512 $173,360 $(410) $(28,916) $ --
Net earnings . . . . . . . . . . . 23,266
Foreign currency translation
adjustment . . . . . . . . . . . . (58)
Purchase of treasury stock (Note 10) (15,732)
Reissuance of treasury stock (Note 10) 28,916
Issuance of stock in connection
with acquisitions (Note 2) . . . . 1,102.9 11 49,556
Stock warrants and options
exercised (Note 11). . . . . . . . 872.6 9 3,370
Tax benefit associated with exercise
of stock options (Note 14) . . . . 4,229
Shares issued upon acquisition of
minority interests (Note 11). . . 76.5 1 1,724
Shares issued in connection with
Employee Stock Purchase
Plan (Note 11) . . . . . . . . . . 395.9 4 5,152
Balance--March 31, 1997.. . . . . . 68,761.6 $688 $155,543 $196,626 $(468) $(15,732) $ --
Net earnings . . . . . . . . . . . 40,540
Foreign currency translation
adjustment . . . . . . . . . . . . (311)
Purchase of treasury stock (Note 10) (33,120)
Reissuance of treasury stock (Note 10) 5,207 46,266
Issuance of stock in connection
with acquisitions (Note 2) . . . . 1,440.0 14 18,524
Stock options exercised (Note 11) . 704.5 7 3,329
Tax benefit associated with exercise
of stock options (Note 14) . . . . 3,807
Shares issued in connection with
Employee Stock Purchase
Plan (Note 11) . . . . . . . . . . 450.7 5 5,948
Balance--March 31, 1998 . . . . . . 71,356.8 $714 $192,358 $237,166 $(779) $ (2,586) $ --
Net earnings. . . . . . . . . . . . 51,924
Foreign currency translation
adjustment . . . . . . . . . . . . (131)
Purchase of treasury stock (Note 10) (16,579)
Issuance of stock in connection
with acquisitions (Note 2) . . . . 53.2 (425)
Reissuance of treasury stock for
stock options exercised (Note 10) (5,877) 7,798
Tax benefit associated with exercise
of stock options (Note 14) . . . . 1,648
Shares issued in connection with
Employee Stock Purchase
Plan (Note 11) . . . . . . . . . . 613.7 6 5,708
Shares of treasury stock sold to Employee
Benefits Trust (Note 10). . . . . (3,237) 10,238 (7,001)
Balance--March 31, 1999 . . . . . . 72,023.7 $ 720 $190,175 $289,090 $ (910) $ (1,129) $(7,001)
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE> 43
<TABLE>
<CAPTION>
AIRGAS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 51,924 $ 40,540 $ 23,266
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization,
including special charges. . . . . . . . . . . . . 87,926 88,092 66,421
Deferred income taxes . . . . . . . . . . . . . . . 16,045 10,649 (170)
Equity in earnings of unconsolidated affiliates . . (7,911) (4,409) (2,314)
Gains on divestitures . . . . . . . . . . . . . . . (25,468) (1,452) --
(Gain)/Loss on sale of plant and equipment . . . . (222) (504) 616
Minority interest in earnings . . . . . . . . . . . 93 873 817
Stock issued for employee stock purchase plan . . . 5,750 5,953 5,156
Changes in assets and liabilities, excluding effects of
business acquisitions and divestitures:
Trade receivables, net . . . . . . . . . . . . . . (10,477) (8,108) (6,661)
Inventories, net. . . . . . . . . . . . . . . . . . (3,829) (7,336) (12,090)
Prepaid expenses and other current assets . . . . . (2,236) 637 3,687
Accounts payable, trade . . . . . . . . . . . . . . 1,052 (7,072) 10,534
Accrued expenses and other current liabilities. . . 5,607 19,761 6,247
Other assets and liabilities, net . . . . . . . . . (16,191) (3,224) (14,262)
Net cash provided by operating activities . . . . 102,063 134,400 81,247
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures. . . . . . . . . . . . . . . . . (101,638) (124,725) (74,358)
Proceeds from sale of plant and equipment . . . . . . 3,279 3,534 3,551
Proceeds from divestitures. . . . . . . . . . . . . . 53,682 4,000 6,586
Business acquisitions, net of cash acquired . . . . . (47,246) (154,395) (168,666)
Business acquisitions, holdback settlements . . . . . (4,839) (6,750) (7,943)
Investment in unconsolidated affiliates . . . . . . . (3,180) (25,220) (33,995)
Dividends from unconsolidated affiliates. . . . . . . 4,533 4,165 1,729
Other, net. . . . . . . . . . . . . . . . . . . . . . (1,467) 3,957 (2,949)
Net cash used by investing activities . . . . . . (96,876) (295,434) (276,045)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings. . . . . . . . . . . . . . . 449,833 450,051 916,677
Repayment of debt . . . . . . . . . . . . . . . . . . (426,995) (275,450) (707,401)
Purchase of treasury stock. . . . . . . . . . . . . . (15,285) (34,433) (14,419)
Exercise of stock options and warrants . . . . . . . 1,943 4,360 3,162
Cash overdraft. . . . . . . . . . . . . . . . . . . . (14,662) 16,875 (960)
Other financing activities. . . . . . . . . . . . . . (21) (369) (2,261)
Net cash provided/(used) by financing activities. (5,187) 161,034 194,798
CASH INCREASE (DECREASE). . . . . . . . . . . . . . . $ -- $ -- $ --
Cash--Beginning of year . . . . . . . . . . . . . . . -- -- --
Cash--End of year . . . . . . . . . . . . . . . . . . $ -- $ -- $ --
For supplemental cash flow disclosures see Note 19.
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE> 44
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts
of Airgas, Inc. and subsidiaries (the "Company"). Unconsolidated
affiliates are accounted for on the equity method and generally
consist of 20-50% owned operations where control does not exist
or is considered temporary. The excess of the cost of these
affiliates over the Company's share of their net assets at the
acquisition date is being amortized over 40 years. Intercompany
accounts and transactions are eliminated in consolidation.
The Company has made estimates and assumptions relating to
the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these statements in
conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method for
approximately 85% and 88% of the inventories at March 31, 1999
and 1998, respectively. Cost for the remainder of inventories
was determined using the last-in, first-out (LIFO) method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation is
computed using the straight-line method based on the estimated
useful lives of the related assets.
(d) Goodwill
Goodwill represents costs in excess of net assets of
businesses acquired and is amortized on a straight-line basis
over the expected periods to be benefited, which is principally
40 years. The Company assesses the recoverability of goodwill in
accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of" ("SFAS 121"). The Company assesses the recoverability
of goodwill by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected
undiscounted future cash flows.
In making such determination with respect to goodwill, the
Company evaluates the performance of underlying businesses which
give rise to such assets. The assets acquired in connection with
these acquisitions continue to generate a significant portion of
the Company's net sales, total operating income and cash flow.
F-8
<PAGE> 45
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(e) Other Intangible Assets
Costs related to the issuance of long-term debt are deferred
and amortized over the term of the related debt. Costs and
payments pursuant to non-competition arrangements entered into in
connection with business acquisitions are amortized over the
terms of the arrangements which are principally over 5 years.
The Company assesses the recoverability of non-competition
arrangements by determining whether the amortization of the asset
balance can be recovered through projected undiscounted future
cash flows of the related business over its remaining life.
(f) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and
liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation
allowances are recorded to reduce deferred tax assets when it is
more likely than not that a tax benefit will not be realized.
(g) Foreign-Currency Translation
The functional currency of the Company's foreign operations
is the applicable local currency. The translation of foreign
currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using average
exchange rates during each reporting period. The gains or
losses, net of applicable deferred income taxes, resulting from
such translations are included in stockholders' equity as a
component of "Accumulated Other Comprehensive Income (Loss)."
Gains and losses arising from foreign currency transactions are
reflected in the consolidated statements of earnings as incurred.
(h) Concentrations of Credit Risk
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of trade
receivables. Concentrations of credit risk are limited due to
the Company's large number of customers and their dispersion
across many industries. Credit terms granted to customers are
generally net 30 days.
F-9
<PAGE> 46
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
(i) Financial Instruments
In managing interest rate risk exposure, the Company enters
into interest rate swap agreements. An interest rate swap is a
contractual exchange of interest payments between two parties. A
standard interest rate swap involves the payment of a fixed rate
times a notional amount by one party in exchange for a floating
rate times the same notional amount from another party. As
interest rates change, the difference to be paid or received is
accrued and recognized as interest expense over the life of the
agreement. These instruments are not entered into for trading
purposes and the Company has the ability and intent to hold these
instruments to maturity. The fair value of the interest rate swap
agreements is not recognized in the financial statements.
Counterparties to the Company's interest rate swap agreements are
major financial institutions.
The carrying amounts for accounts receivable and accounts
payable approximate fair value because of the short-term maturity
of these financial instruments.
(j) Shares in Employee Benefits Trust
The Company established a grantor trust (the "Trust") to
fund future obligations of the Company's employee benefit and
compensation plans. Shares are purchased by the Trust from the
Company at fair market value and are reflected as a reduction of
stockholders' equity in the Company's Consolidated Balance Sheets
under the caption "Shares in employee benefits trust." Shares
are transferred from the Trust to fund compensation and employee
benefit obligations based on the original cost of the shares to
the Trust. The satisfaction of compensation and employee benefit
plan obligations is based on the fair value of shares transferred.
Differences between the original cost of the shares to the Trust
and the fair market value of shares transferred is charged or
credited to capital in excess of par value.
(k) Revenue Recognition
Sales are recorded upon shipment to the customer.
(l) Accounting and Disclosure Changes
Effective April 1, 1998, the Company implemented Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This statement requires items recognized
under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with
the same prominence as other financial statements. Prior period
financial statements have been restated to conform to the current
presentation.
Effective with the year ended March 31, 1999, the Company
implemented Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement modifies the 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. Under the new standard,
operating segments are defined based on a "management approach"
rather than an on an "industry segment" basis. The Company has
combined the former Airgas Direct Industrial ("ADI") segment with
the former Distribution segment to
F-10
<PAGE> 47
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
reflect the centralized purchasing, shared distribution
facilities and multi-channel marketing initiatives begun under
the "Repositioning Airgas for Growth" initiative. In addition,
the Company's former Manufacturing segment has been renamed "Gas
Operations." Comparative fiscal 1998 and 1997 financial
information has been reclassified to conform to the current
presentation.
Effective with the year ended March 31, 1999, the Company
adopted Statement of Financial Accounting Standards No. 135,
"Rescission of FASB Statement No. 75 and Technical Corrections."
This statement rescinds the Financial Accounting Standards Board
Statement No. 75, "Deferral of the Effective Date of Certain
Accounting Requirements for Pension Plans of State and Local
Governmental Units," and amends other existing authoritative
literature to make various technical corrections, clarify
meanings or describe applicability under changed conditions.
The adoption of this standard did not impact earnings, financial
condition or liquidity.
(m) Reclassifications
Certain reclassifications have been made to previously
issued financial statements to conform to the current
presentation.
(2) ACQUISITIONS & DIVESTITURES
(a) Acquisitions
Acquisitions have been recorded using the purchase method of
accounting, and, accordingly, results of their operations have
been included in the Company's consolidated financial statements
since the effective dates of the respective acquisitions. Also,
as discussed in Note 20, the Company has accounted for the
acquisition of subsidiary minority interests in fiscal 1998 and
1997 using the purchase method of accounting.
1999 - During fiscal 1999, the Company purchased 15
businesses. The largest of these acquisitions and their
effective dates included Abel Carbonic Products, Inc. (May 1,
1998), Gas House Welding Supply, Inc. (July 1, 1998), Carbonic
Products, Inc. (September 1, 1998) and Pacific Dry Ice, Inc.
(September 1, 1998). The aggregate purchase price for these
acquisitions amounted to approximately $49 million. The purchase
price for the remaining 11 businesses amounted to approximately
$17 million.
1998 - During fiscal 1998, the Company purchased 28
businesses. The largest of these acquisitions and their
effective dates included Carbonic Industries Corporation (June 5,
1997), Lyons Safety, Inc. (July 1, 1997), Industrial Gas
Products & Supply, Inc. (October 1, 1997), Carbonic Reserves,
Inc. (October 14, 1997), JWS Technologies, Inc. (November 1,
1997) and The Hoprich Company (February 1, 1998). The
aggregate purchase price for these acquisitions amounted to
approximately $224 million. The purchase price for the
remaining 22 businesses amounted to approximately $59 million.
1997 - During fiscal 1997, the Company purchased 24
businesses. The largest of these acquisitions and their
effective dates included IPCO Safety Products Company (April 1,
1996), American Welding Supply (June 1, 1996), Rutland Tool &
Supply Co., Inc. (September 1, 1996), Findley Welding Supply,
F-11
<PAGE> 48
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS & DIVESTITURES - (Continued)
Inc. (October 1, 1996) and Northeast Jackson Dome (December 1,
1996). The aggregate purchase price for these acquisitions
amounted to approximately $233 million. The purchase price for
the remaining 19 businesses amounted to approximately $76 million.
In connection with the above acquisitions, the total
purchase price, fair value of assets acquired, cash paid and
liabilities assumed were as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Cash paid . . . . . . . . . . . . . . . $47,246 $154,395 $168,666
Issuance of Common Stock . . . . . . . -- 55,608 78,671
Notes issued to sellers . . . . . . . . 2,361 17,781 30,104
Notes payable and capital leases
assumed. . . . . . . . . . . . . . . . 553 5,947 2,103
Other liabilities assumed and accrued
acquisition costs . . . . . . . . . . 15,475 49,407 29,733
Total purchase price allocated to
assets acquired . . . . . . . . . . . $65,635 $283,138 $309,277
</TABLE>
Included in the fiscal 1998 aggregate purchase price is the
issuance of approximately 3.4 million shares of the Company's
Common Stock (including approximately 2 million shares which were
issued out of treasury stock), issued in connection with the
acquisitions of Carbonic Industries Corporation, Kendeco Supply
Company and Industrial Gas Products.
Included in the fiscal 1997 aggregate purchase price is the
issuance of approximately 3.4 million shares of the Company's
Common Stock (including approximately 2.4 million shares which
were issued out of treasury stock), issued in connection with the
acquisition of Rutland Tool and Supply Co.
In connection with a previous acquisition, the Company is
required to issue additional shares of Common Stock if the market
value on the settlement date in fiscal 2001 is less than $13.10
per share. At March 31, 1999, approximately 616 thousand shares
were contingently issuable. Common Stock subsequently issued in
connection with such a contingency reduces additional paid in
capital and increases Common Stock for the par value of the
additional shares issued. During 1999, the Company issued
approximately 53 thousand shares of Common Stock and paid $425
thousand in connection with the resolution of contingencies
related to previous acquisitions.
The purchase price for business acquisitions and minority
interests was allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of
acquisition. Such allocations have been based on preliminary
estimates of fair value at the date of acquisition, which may be
revised at a later date. Costs in excess of net assets acquired
(goodwill) for fiscal 1999, 1998 and 1997 amounted to $29.3
million, $130.6 million and $144.0 million, respectively.
F-12
<PAGE> 49
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) ACQUISITIONS & DIVESTITURES - (Continued)
The following presents unaudited estimated pro forma
operating results as if the fiscal 1999 and 1998 acquisitions had
been consummated on April 1, 1997. These pro forma results have
been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisitions
been made as of April 1, 1997 or of results which may occur in
the future.
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands, except per share amounts) 1999 1998
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . $1,574,222 $1,593,274
Net earnings . . . . . . . . . . . . . . 51,827 37,555
Diluted earnings per share . . . . . . . .72 .52
</TABLE>
(b) Divestitures
During fiscal 1999, the Company sold certain beverage
service operations, its eastern Canadian industrial gas
distribution business and its calcium carbide and carbon products
operations. After-tax proceeds from the sales amounted to
approximately $42 million. The beverage service and Canadian
operations were sold at a loss which was provided for in the 1998
Special Charges (Note 3). The Company's calcium carbide and
carbon products operations were sold, resulting in a pre-tax gain
of $25.5 million, included in "Other income, net." The following
table sets forth selected financial data related to the divested
operations:
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Sales . . . . . . . . . . . . $32,415 $57,622 $48,059
Gross profits . . . . . . . . 11,228 21,836 17,756
Depreciation and amortization 1,611 2,761 2,165
Operating income. . . . . . . 3,672 1,239 3,010
</TABLE>
In January 1999, the Company announced the signing of a
letter of intent with Linde AG related to the divestiture of the
Company's operations in Poland and Thailand for approximately $50
million. The transaction, which is subject to regulatory
approvals, completion of due diligence and definitive
documentation, is expected to close early in the second quarter
of fiscal 2000.
In September 1997, the Company recorded a gain, included in
"other income, net," of $1.5 million ($980 thousand after-tax)
related to the sale of a non-core business. During fiscal 1997,
the Company reported a net loss of $780 thousand related to the
sale of a non-core business.
F-13
<PAGE> 50
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) SPECIAL CHARGES
(a) 1998 Special Charges
During the fourth quarter of fiscal 1998, the Company
announced its "Repositioning Airgas for Growth" restructuring
plan (the "Repositioning Plan"). In connection with the
Repositioning Plan, the Company recorded special charges in 1998
totaling $22.4 million ($14.3 million after-tax). The
Repositioning Plan includes the consolidation of subsidiaries
into larger regional companies; consolidating certain warehouse
facilities into regional distribution centers; standardizing and
integrating information systems; building a national information,
procurement and logistics infrastructure to support expanded
product lines and distribution channels; and the divestiture of
several non-core businesses. The major components of the fiscal
1998 special charges were as follows:
(In thousands) 1998
Impairment write-down of property,
equipment and goodwill (1). . . . . . . $11,423
Divestiture charges (2) . . . . . . . . . 6,851
Facility exit costs (3) . . . . . . . . . 2,577
Severance costs (3) . . . . . . . . . . . 1,578
Special charges . . . . . . . . . . . 22,429
Refrigerant recovery. . . . . . . . . . . (14,500)
Acquisition break-up fee, net . . . . . . (2,979)
Special charges, net. . . . . . . . . $ 4,950
(1) Certain property, equipment and related goodwill were written
down to fair value, less the cost to dispose, by $11.4 million.
Fair value was based on the estimated future undiscounted cash
flows to be generated from the sale of such assets.
(2) Estimated reserves of $6.9 million were established in connection
with the planned divestiture of certain non-core businesses. The
write-down was based on an evaluation of the estimated fair value
of these assets which indicated that these assets were impaired.
Fair value was based on the estimated future undiscounted cash
flows to be generated from the sale of these assets.
(3) Reserves were established for facility exit costs of $2.6 million
and severance of $1.6 million. Estimated reserves were related
to the closure of facilities and a workforce reduction of
approximately 200 employees.
F-14
<PAGE> 51
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) SPECIAL CHARGES - (Continued)
During fiscal 1999, the Company made substantial progress
towards completing its Repositioning Plan. Progress was made in
the following areas:
- 34 businesses were merged into 15 regional companies;
- computer systems were standardized and resulted in
approximately 40 computer conversions;
- the Company completed three of its planned divestitures and
in January 1999, announced the signing of a letter of intent
with Linde AG, for the sale of the Company's operations in
Poland and Thailand for approximately $50 million (the
transaction, which is subject to regulatory approvals,
completion of due diligence and definitive documentation, is
expected to close early in the second quarter of fiscal 2000);
- certain branches and distribution centers were closed and/or
consolidated; and
- workforce reductions were made as planned.
<TABLE>
<CAPTION>
Accrued Balances: March 31, March 31,
(In thousands) 1998 Cash Noncash 1999
<S> <C> <C> <C> <C>
Divestiture charges. . . . . . $ 6,851 $ -- $(2,775) $4,076
Facility exit costs . . . . . 2,292 (590) (763) 939
Severance costs. . . . . . . . 1,286 (1,214) -- 72
$10,429 $(1,804) $(3,538) $5,087
</TABLE>
In connection with changes in the business, primarily
related to a slowing in the industrial and manufacturing sectors,
the Company modified its plans related to exiting certain
facilities and adjusted facility exit reserves by $763 thousand.
In addition, adjustments to divestiture reserves were made to
reflect differences between original estimates and completed or
pending divestitures. The income statement effect of the
adjustments to reserves for facility exit costs and divestitures
was an increase in pre-tax earning of $1 million ($570 thousand
after-tax) which was recorded in the quarter ended June 30, 1998.
The 1998 Special Charges were offset by a non-recurring gain
of $14.5 million ($9.4 million after-tax) from a partial recovery
of refrigerant losses related to the 1997 fraudulent breach of
contract by a third-party supplier and a net gain of $3 million
($1.9 million after-tax) related to an acquisition break-up fee.
F-15
<PAGE> 52
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) SPECIAL CHARGES - (Continued)
(b) 1997 Special Charges
The Company recorded a non-recurring charge during the
fourth quarter of fiscal 1997 of $26.4 million ($17 million
after-tax) for product losses and costs associated with the
fraudulent breach of contract by a third-party supplier of
refrigerant gas. In addition, the Company recorded a non-cash
charge of approximately $5 million ($3.2 million after-tax)
primarily related to the write-down of machinery, equipment,
goodwill and other intangible assets of a non-core business which
was divested during fiscal 1998. The write-down was based on an
evaluation of the estimated fair value of the assets associated
with the business which indicated that these assets were
impaired. Fair value was based on the estimated future
undiscounted cash flows to be generated from the sale of the
assets.
(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.
The table below reconciles basic weighted average common
shares outstanding to diluted weighted average common shares
outstanding for the three years ended March 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Weighted average common
shares outstanding:
Basic . . . . . . . . . . . . . . 70,000 68,700 65,900
Stock options . . . . . . . . . 1,400 2,100 2,700
Contingently issuable shares. . 300 -- --
Diluted . . . . . . . . . . . . . 71,700 70,800 68,600
</TABLE>
F-16
<PAGE> 53
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) INVENTORIES
<TABLE>
Inventories consist of:
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Finished goods FIFO. . . . . . . . . $135,708 $142,150
Finished goods LIFO. . . . . . . . . 25,652 20,207
Raw materials. . . . . . . . . . . . 853 2,380
LIFO reserve . . . . . . . . . . . . (1,582) (1,446)
Obsolescence reserve . . . . . . . . (6,207) (8,354)
$154,424 $154,937
</TABLE>
(6) PLANT AND EQUIPMENT
<TABLE>
The major classes of plant and equipment, at cost, are as follows:
<CAPTION>
March 31,
Depreciable
(In thousands) Lives (Yrs) 1999 1998
<S> <C> <C> <C>
Land and land improvements . . . . . -- $ 23,965 $ 26,050
Buildings and leasehold improvements 25 92,943 88,130
Cylinders. . . . . . . . . . . . . . 30 422,560 404,198
Machinery and equipment, including
bulk tanks. . . . . . . . . . . . . 7 to 30 329,619 300,599
Computers and furniture and fixtures 3 to 10 64,961 52,051
Transportation equipment . . . . . . 3 to 15 50,923 48,720
Construction in progress . . . . . . -- 8,525 3,887
$ 993,496 $ 923,635
</TABLE>
F-17
<PAGE> 54
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) OTHER NON-CURRENT ASSETS
<TABLE>
Other non-current assets include:
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Investments in unconsolidated affiliates (Note 12) $100,834 $ 98,522
Non-compete agreements and other intangible
assets, at cost, net of accumulated amortization
of $85.5 million in 1999 and $73.2 million
in 1998. . . . . . . . . . . . . . . . . . . . . 55,894 63,205
Other assets . . . . . . . . . . . . . . . . . . . 16,694 14,856
$173,422 $176,583
</TABLE>
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
Accrued expenses and other current liabilities include:
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Cash overdraft . . . . . . . . . . . . . . . . . . $ 16,959 $ 31,621
Restructuring reserves . . . . . . . . . . . . . . 5,087 10,429
Insurance payable and related reserves . . . . . . 9,584 7,248
Customer cylinder deposits . . . . . . . . . . . . 8,233 8,668
Accrued interest . . . . . . . . . . . . . . . . . 8,190 8,918
Other accrued expenses and current liabilities . . 60,242 61,922
$108,295 $128,806
</TABLE>
F-18
<PAGE> 55
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) INDEBTEDNESS
(a) Long-term Debt
<TABLE>
Long-term debt consists of:
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Revolving credit borrowings. . . . . . . . . . . . $554,954 $519,736
Medium-term notes. . . . . . . . . . . . . . . . . 225,000 225,000
Acquisition and investment notes . . . . . . . . . 72,577 79,521
All other notes, at various rates and maturities . 14,955 18,738
Total long-term debt . . . . . . . . . . . . . . . 867,486 842,995
Less current portion of long-term debt . . . . . . (19,645) (12,150)
Long-term debt, excluding current portion . . . . $847,841 $830,845
</TABLE>
The Company has unsecured revolving credit facilities
totaling $725 million and $100 million Canadian (US$67 million).
The Company may borrow under these facilities until the final
maturity date of December 5, 2002. The agreement contains
covenants which include the maintenance of a minimum equity
level, maintenance of certain financial ratios, restrictions on
additional borrowings and limitations on dividends. At March 31,
1999, the Company had borrowings under the agreement of $528
million and $42 million Canadian (US$27 million). The Company
also had commitments under letters of credit supported by the
agreement of approximately $71 million. Based on restrictions
related to cash flow to funded debt coverage, the Company had
additional borrowing capacity under the agreement of
approximately $165 million. At March 31, 1999, the effective
interest rates related to outstanding borrowings under the lines
were approximately 5.44% on U.S. borrowings and 5.11% on Canadian
borrowings.
At March 31, 1999, the Company had the following long-term
debt outstanding under medium-term notes: $50 million of
unsecured notes due September 2001 bearing interest at a fixed
rate of 7.15%; $75 million of unsecured notes due March 2004 at a
fixed rate of 7.14%; and, $100 million of unsecured notes due
September 2006 bearing interest at a fixed rate of 7.75%. The
Company also has a shelf registration with a capacity of
approximately $175 million for the issuance of debt and other
types of securities.
Acquisition notes represent notes issued to sellers of
businesses acquired and are repayable in periodic installments
including interest at an average rate of 7.47%. Some acquisition
notes require balloon payments which are included in the
aggregate maturity schedule.
F-19
<PAGE> 56
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) INDEBTEDNESS - (Continued)
<TABLE>
The aggregate maturities of long-term debt are as follows:
<CAPTION>
In thousands
Years Ending March 31, Aggregate Maturity
<S> <C>
2000 . . . . . . . . . . . . . $ 19,645
2001 . . . . . . . . . . . . . 14,632
2002 . . . . . . . . . . . . . 78,370
2003 . . . . . . . . . . . . . 556,550
2004 . . . . . . . . . . . . . 95,573
Thereafter . . . . . . . . . . 102,716
$ 867,486
</TABLE>
The fair value of long-term debt as of March 31, 1999 was
approximately $854 million based on current rates offered to the
Company by financial institutions for similar type instruments.
(b) Swap Agreements
In managing interest rate exposure, the Company participates
in 23 interest rate swap agreements with a total notional
principal amount of $475 million at March 31, 1999. Counterparties
to the interest rate swap agreements are major financial institutions.
The Company monitors its positions and the credit ratings of its
counterparties, and does not anticipate nonperformance by the
counterparties.
Sixteen swap agreements with approximately $238 million in
notional principal amount require fixed interest payments based
on an average effective rate of 6.79% for remaining periods
ranging between one and five years. Seven swap agreements with
approximately $237 million in notional principal amount require
variable interest payments based on an average rate of 5.04% at
March 31, 1999. Under the terms of five of the swap agreements,
the Company has elected to receive the discounted value of the
counterparty's interest payments up front. At March 31, 1999,
approximately $8.7 million of such payments were included in
other non-current liabilities. The market value of these other
non-current liabilities was $8.2 million at March 31, 1999. The
effect of the swap agreements was to increase interest expense
$1.1 million, $1.0 million and $1.4 million in 1999, 1998 and
1997, respectively. Subsequent to March 31, 1999 the Company
entered into two swap agreements with an aggregate notional
principal amount of $100 million requiring fixed rate interest
payments at an effective rate of 5.48% for two years.
F-20
<PAGE> 57
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9) INDEBTEDNESS - (Continued)
The aggregate maturities of the Company's interest rate
swaps by type of swap for the five years ending March 31, 2004
and thereafter are as follows:
<TABLE>
<CAPTION>
In thousands
Notional Principal Amounts
Years Ending March 31, Pay-Fixed Receive-Fixed
<S> <C> <C>
2000 . . . . . . . . . . . . $ 18,311 $ 57,000
2001 . . . . . . . . . . . . 58,311 50,000
2002 . . . . . . . . . . . . 21,656 50,000
2003 . . . . . . . . . . . . 100,000 --
2004 . . . . . . . . . . . . -- 30,000
Thereafter . . . . . . . . . 40,000 50,000
$238,278 $237,000
</TABLE>
(10) STOCKHOLDERS' EQUITY
(a) Common Stock
The Company is authorized to issue 200 million shares of
Common Stock with a par value of $.01 per share. At March 31,
1999, the number of shares of Common Stock outstanding was
71,067,666, excluding 130 thousand shares of common stock held as
treasury stock and 826 thousand shares of Common Stock held in a
grantor trust as described under Note 10(d).
(b) Preferred Stock and Redeemable Preferred Stock
The Company is authorized to issue 20 million shares of
preferred stock. Of the 20 million shares authorized, 200
thousand shares have been designated as Series A Junior
Participating Preferred Stock and 200 thousand shares have been
designated as Series B Junior Participating Preferred Stock (see
Note 10(e) for further discussion). At March 31, 1999 and 1998,
no shares of the preferred stock were outstanding. The preferred
stock may be issued from time to time by the Board of Directors
in one or more series. The Board of Directors is authorized to
fix the dividend rights and terms, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences,
and any other rights, preferences, privileges and restrictions of
any series of preferred stock, and the number of shares
constituting each such series and designation thereof.
Additionally, the Company is authorized to issue 30 thousand
shares of redeemable preferred stock. At March 31, 1999 and 1998,
no shares were outstanding.
F-21
<PAGE> 58
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) STOCKHOLDERS' EQUITY - (Continued)
(c) Treasury Stock
In March 1999, the Company's Board of Directors authorized
the repurchase of up to seven million shares, or approximately
10%, of the Company's outstanding Common Stock. The shares may
be repurchased in the open market or in privately negotiated
transactions depending on market conditions and other factors.
Under previous share repurchase programs, the Company acquired
1.4 million, 2.2 million and 800 thousand shares of Common Stock
in 1999, 1998 and 1997, respectively. In 1999, the Company
reissued 826 thousand shares of Common Stock to the Company's
Employee Benefits Trust (the "Trust"), as discussed in Note
10(d), and issued 598 thousand shares for stock option exercises.
In 1998, the Company reissued approximately 2 million shares in
connection with its acquisition program, 707 thousand shares
related to the purchase of subsidiary minority interests as
described in Note 20, and 209 thousand shares for stock option
exercises. As of March 31, 1999, the total remaining shares
authorized for repurchase under all programs totaled
approximately 7.2 million shares. When treasury shares are
reissued, the Company uses an average cost method and the excess
of the repurchase cost over the reissuance price is treated as a
charge to capital in excess of par value. Subsequent to March
31, 1999, the Company repurchased approximately 630 thousand
shares of Common Stock, including 175 thousand shares to complete
all previous repurchase programs, for total consideration of
approximately $7 million.
(d) Shares in Employee Benefits Trust
On March 30, 1999, the Company established a grantor trust
(the "Trust") to fund certain future obligations of the Company's
employee benefit and compensation plans. On March 31, 1999, the
Trust purchased 826 thousand shares of Common Stock from the
Company at a per share price of the average market close for the
preceding five days, which totaled approximately $7 million. The
Company holds a promissory note from the Trust in the amount of
the purchase. Shares held by the Trust serve as collateral for
the promissory note and are available to fund employee benefit
plan obligations as the promissory note is repaid. The shares
held by the Trust are not considered outstanding for earnings per
share purposes until they are released from serving as collateral
for the promissory note. An independent third-party financial
institution serves as the Trustee. The Trustee will vote or
tender shares held by the Trust in accordance with instructions
received from the participants in the employee benefit and
compensation plans to be funded by the Trust. Subsequent to
March 31, 1999, the Trust purchased 625 thousand shares of Common
Stock from the Company.
(e) Stockholder Rights Plan
Effective April 1, 1997, the Company's Board of Directors
adopted a new stockholder rights plan (the "1997 Rights Plan").
Pursuant to the 1997 Rights Plan, the Board of Directors declared
a dividend distribution of one right for each share of Common
Stock. Each right entitles the holder to purchase from the
Company one one-thousandth of a share Series B Junior
Participating Preferred Stock at an initial exercise price of
$100 per share.
Rights become exercisable only following the acquisition by
a person or group of 15 percent (or 20 percent in the case of the
Chairman and certain of his affiliates) or more of the Company's
common stock or after the announcement of a tender offer or
exchange offer to acquire 15 percent (or 20 percent in the
F-22
<PAGE> 59
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) STOCKHOLDERS' EQUITY - (Continued)
case of the Chairman and certain of his affiliates) or more of
the outstanding Common Stock. If such a person or group acquires
15 percent or more (or 20 percent or more, as the case may be) of
the Common Stock, each right (other than such person's or group's
rights, which will become void) will entitle the holder to
purchase, at the exercise price, Common Stock having a market
value equal to twice the exercise price. In certain circumstances,
the rights may be redeemed by the Company. If not redeemed, they
will expire on April 1, 2007.
On August 1, 1988, the Company's Board of Directors adopted
a preferred share purchase rights plan (the "1988 Rights Plan")
that entitled Company stockholders to purchase from the Company a
unit consisting of one-hundredth of a share of Series A Junior
Participating Preferred Shares, or a combination of securities
and assets of equivalent value, at a purchase price of $65.00 per
unit, subject to adjustment. The 1988 Rights Plan expired in
August 1998.
(11) STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock-
based compensation plans in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued," as permitted
by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
Accordingly, no compensation expense has been recognized for its
stock option plans and its stock purchase plan. However, pro
forma information regarding net income and earnings per share is
required. Had compensation expense for the Company's stock-based
compensation plans been determined based on the fair value at the
grant date, the Company's pro forma net earnings and earnings per
share for 1999, 1998 and 1997 would be as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands, except per share amounts) 1999 1998 1997
<S> <C> <C> <C>
Net earnings As reported $51,924 $40,540 $23,266
Pro forma $46,636 $36,240 $20,028
Diluted earnings per share As reported $ .72 $ .57 $ .34
Pro forma $ .65 $ .51 $ .29
</TABLE>
This pro forma impact only takes into account options
granted since April 1, 1995 and is likely to increase in future
years as additional options are granted and amortized ratably
over the vesting period.
F-23
<PAGE> 60
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
The Company's stock-based compensation plans are described below.
(a) Employee Stock Option Plans
The Company has a stock plan under which officers and key
employees may be granted options. In May 1997, the Company
adopted the 1997 Stock Option Plan (the "1997 Plan"). The 1997
Plan contains essentially the same terms and conditions as the
Company's previous 1984 Stock Option Plan (the "1984 Plan"). The
1984 Plan was terminated upon approval of the 1997 Plan by the
Company's stockholders. Under the 1984 Plan, 948,855 options
were granted in fiscal 1998 with an exercise price equal to the
market price at the date of grant. Options under the 1984 Plan
vest 25% annually and have a maximum term of ten years.
Under the 1997 Plan, at March 31, 1999 and 1998, 6,309,368
and 7,900,850 options, respectively, were available for issuance.
In fiscal 1999 and 1998, 1,665,007 and 99,150 options,
respectively, were granted with an exercise price equal to market
price at the date of grant. Options under the 1997 Plan are
generally granted in May each year, vest 25% annually and have a
maximum term of ten years.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for 1999, 1998 and
1997 option grants, respectively: expected volatility of 42.6%,
39.9% and 38.5%, risk-free interest rate of 5.54%, 6.48% and
6.42%, and expected life of 4.81, 4.47 and 4.37 years. The
weighted average fair value of the options granted during 1999,
1998 and 1997 was $5.82, $6.55 and $8.95, respectively.
In connection with the fiscal 1998 acquisition of Carbonic
Industries Corporation ("CIC"), the Company assumed the Carbonic
Industries Corporation 1994 Stock Option Plan (the "CIC Plan").
The CIC Plan provided grants to certain key officers and
employees of CIC. At the date of acquisition, 196,572 options
were exercisable to purchase Company Common Stock. The fair
value of these options was recorded at the date of acquisition.
F-24
<PAGE> 61
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the activity of the employee
stock option plans during the three years ended March 31, 1999:
<TABLE>
<CAPTION>
Exercise
Number Price Per
of Shares Share
<S> <C> <C>
March 31, 1997
Outstanding, beginning of year . . . 6,199,460 $ 1.83 - $17.31
Granted. . . . . . . . . . . . . . . 785,685 11.44 - 23.25
Exercised. . . . . . . . . . . . . . (530,390) 1.83 - 17.31
Expired. . . . . . . . . . . . . . . (173,080) 3.30 - 22.00
March 31, 1998
Outstanding, beginning of year . . . 6,281,675 1.83 - 23.25
Granted. . . . . . . . . . . . . . . 1,244,577 13.50 - 17.38
Exercised. . . . . . . . . . . . . . (897,358) 1.83 - 14.82
Expired. . . . . . . . . . . . . . . (269,787) 10.69 - 22.00
March 31, 1999
Outstanding, beginning of year . . . 6,359,107 1.83 - 23.25
Granted. . . . . . . . . . . . . . . 1,665,007 8.13 - 15.94
Exercised. . . . . . . . . . . . . . (557,647) 1.83 - 15.63
Expired. . . . . . . . . . . . . . . (256,947) 6.31 - 22.00
Outstanding, end of year . . . . . . 7,209,520 $ 1.83 - $23.25
</TABLE>
Options for 4,439,900, 4,266,095 and 4,077,069 shares were
exercisable at March 31, 1999, 1998 and 1997, respectively.
(b) Board of Directors Stock Option Plans
The Company also maintains stock option plans covering
directors who are not employees. In May 1997, the Company
adopted the 1997 Directors' Stock Option Plan (the "1997
Directors' Plan"). The 1997 Directors' Plan reserved 500
thousand shares for issuance. The 1997 Directors' Plan contains
essentially the same terms and conditions as the Company's
previous 1989 Board of Directors' Stock Option Plan (the "1989
Directors' Plan"). The 1989 Directors' Plan was terminated upon
approval of the 1997 Directors' Plan by the Company's
stockholders.
Under the 1997 Directors' Plan, at March 31, 1999, 416,000
options were available for issuance. During 1999 and 1998,
48,000 and 36,000 options, respectively, were granted with an
exercise price equal to the market price at the date of grant.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for 1999, 1998 and
1997 option grants, respectively: expected volatility of 42.2%,
39.5% and 37.8%, risk-free interest rate of 5.52%, 6.12% and
6.42%, and expected life of 5.48, 5.35 and 5.35 years. The
weighted average fair value of the stock options granted during
1999, 1998 and 1997 was $6.36, $8.68 and $8.68, respectively.
F-25
<PAGE> 62
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
The following table summarizes the activity of the Board of
Directors stock option plans during the three years ended March
31, 1999:
<TABLE>
<CAPTION>
Exercise
Number Price Per
of Shares Share
<S> <C> <C>
March 31, 1997
Outstanding, beginning of year . . . 352,000 $ 2.10 - $13.82
Granted. . . . . . . . . . . . . . . 32,000 19.25
Exercised. . . . . . . . . . . . . . (98,000) 2.09 - 13.82
March 31, 1998
Outstanding, beginning of year . . . 286,000 2.09 - 19.25
Granted. . . . . . . . . . . . . . . 36,000 19.00
Exercised. . . . . . . . . . . . . . (16,000) 2.09 - 2.14
March 31, 1999
Outstanding, beginning of year . . . 306,000 2.09 - 19.25
Granted. . . . . . . . . . . . . . . 48,000 13.50
Exercised. . . . . . . . . . . . . . (40,000) 2.09 - 4.16
Outstanding, end of year . . . . . . 314,000 $ 2.09 - $19.25
</TABLE>
Options for 314,000, 306,000 and 286,000 shares were
exercisable at March 31, 1999, 1998 and 1997, respectively.
F-26
<PAGE> 63
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) STOCK-BASED COMPENSATION - (Continued)
The following table summarizes information about options
outstanding and exercisable for the employee, CIC and Board of
Directors stock option plans at March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
Exercise
Weighted Average Number Price
Remaining Life-Years Outstanding Per Share
<S> <C> <C> <C>
1.90 797,920 $ 1.83 - $ 2.14
2.50 909,200 2.20 - 3.30
4.33 780,039 3.48 - 6.31
8.45 824,860 6.32 - 8.50
5.63 954,049 8.56 - 13.32
5.92 603,638 13.50 - 15.25
8.12 805,461 15.63 - 15.63
9.12 898,425 15.94 - 15.94
6.96 914,628 16.63 - 22.00
7.43 35,300 22.87 - 23.25
5.91 7,523,520 $ 1.83 - $23.25
</TABLE>
<TABLE>
<CAPTION>
Number of Options Weighted Average
Exercisable Exercise Price Per Share
<S> <C> <C>
797,920 $ 1.92
909,200 3.10
780,039 6.06
202,660 7.81
825,982 12.04
467,763 14.37
203,445 15.63
549,237 20.03
17,654 23.25
4,753,900 $ 8.82
</TABLE>
F-27
<PAGE> 64
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(c) Employee Stock Purchase Plans
In August 1998, the Company established the Airgas, Inc.
1998 Employee Stock Purchase Plan (the "1998 Plan") to encourage
and assist employees in acquiring an equity interest in the
Company. The 1998 Plan is authorized to issue up to 3 million
shares of Common Stock. Effective January 1, 1999, eligible
employees may elect to have up to 15% of their annual gross
earnings withheld to purchase Common Stock at 85% of the market
value. Market value under the 1998 Plan is defined as either the
closing share price on the New York Stock Exchange as of the
employees' enrollment date or the closing price on the last
business day of a fiscal quarter, whichever is lower. An
employee may lock-in a purchase price for up to 27 months. The
1998 Plan is designed to comply with the requirements of Sections
421 and 423 of the Internal Revenue Code. The 1998 Plan replaces
the previous 1994 Employee Stock Purchase Plan.
The Company established the 1994 Employee Stock Purchase
Plan (the "1994 Plan") to encourage and assist employees in
acquiring an equity interest in the Company. The 1994 Plan is
authorized to issue up to 2 million shares of Common Stock at
terms generally consistent with the 1998 Plan. The Company issued
614 thousand shares, 451 thousand shares and 396 thousand shares
under the 1994 Plan at an average purchase price of $9.30, $13.20
and $13.02 per share during 1999, 1998, and 1997, respectively.
During fiscal 2000, the Company intends to terminate the 1994
Plan.
Compensation expense under SFAS 123 is estimated for the
fair value of the employees' option to purchase shares of common
stock, which was estimated using the Black-Scholes model with the
following assumptions for 1999, 1998 and 1997, respectively:
expected volatility of 46%, 38% and 38% risk-free interest rate
of 4.8%, 5.8% and 6.2%, and expected term of 27 months for each
period. The weighted average fair value of the purchase options
granted in fiscal 1999, 1998 and 1997 was $4.79, $6.55 and $6.51,
respectively.
(12) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company's investments in unconsolidated affiliates
totaled approximately $101 million at March 31, 1999, and $99
million at March 31, 1998. The Company's investments include a
47% joint venture interest in the voting capital stock of
National Welders Supply Company, Inc. ("National Welders").
National Welders is a producer and distributor of industrial,
medical and specialty gases and related equipment based in
Charlotte, North Carolina. The investment in National Welders
totaled approximately $55 million and $52 million at March 31,
1999 and 1998, respectively. The Company's other investments in
unconsolidated affiliates totaled approximately $46 million and
$47 million at March 31, 1999 and 1998, respectively. The
Company's other investments primarily consist of a 25.5% interest
in Bhoruka Gases, Ltd. (India), a 51% interest in Superior Air
Products, Ltd. (India), a 50% partnership interest in AC
Industries (U.S.) (acquired in connection with the fiscal 1998
acquisition of CIC), and other investments.
On December 31, 1998, the Company completed the divestiture
of its calcium carbide and carbon products operations to Elkem
Metals Company L.P. ("Elkem"), a subsidiary of Elkem ASA. In
connection with the sale, the Company terminated its 55%
partnership interest in the Elkem-American Carbide Company joint
venture ("Elkem JV") which marketed calcium carbide throughout
the United States.
F-28
<PAGE> 65
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12) INVESTMENTS IN UNCONSOLIDATED AFFILIATES - (Continued)
The Company accounts for investments in unconsolidated
affiliates by the equity method of accounting. The Company's
share of earnings from all unconsolidated affiliates was $7.9
million, $4.4 million and $2.3 million for the years ended March
31, 1999, 1998 and 1997, respectively. Equity in earnings from
the Elkem JV of $.9 million, $1.5 million and $1.4 million in
1999, 1998, and 1997 are included in Gas Operations' net sales.
Taxes relating to the earnings of partnership interests included
in the equity earnings of unconsolidated affiliates are provided
for in consolidated income taxes. The investments in unconsolidated
affiliates include goodwill of approximately $30 million as of
March 31, 1999 which is being amortized to earnings over 40 years.
A summary of financial information for investments in
unconsolidated affiliates for the years ended March 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Current assets $ 47,221 $ 55,177
Non-current assets 138,344 147,281
Total assets $185,565 $202,458
Current liabilities $ 27,557 $ 32,036
Non-current liabilities 86,066 92,864
Mandatory redeemable preferred stock 57,577 57,577
Stockholders' equity 14,365 19,981
Total liabilities and
Stockholders' equity $185,565 $202,458
</TABLE>
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Net sales $200,017 $188,640 $134,972
Cost of sales 137,406 113,793 95,334
Gross profit 62,611 74,847 39,638
Operating income 16,995 20,243 7,742
Earnings before taxes 17,266 14,493 8,691
Net earnings 13,463 11,339 6,243
Preferred stock dividends
and equity adjustments (5,553) (6,937) (3,929)
Equity in earnings of Elkem JV (868) (1,471) (1,356)
Equity in earnings of
unconsoliated affiliates $ 7,042 $ 2,931 $ 958
</TABLE>
F-29
<PAGE> 66
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) INTEREST EXPENSE, NET
<TABLE>
Interest expense, net, consists of:
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Interest expense. . . . . . . . . . . $62,588 $55,403 $41,777
Interest and finance charge income. . (2,290) (2,113) (2,025)
$60,298 $53,290 $39,752
</TABLE>
(14) INCOME TAXES
<TABLE>
Pre-tax earnings (losses) were derived from the following sources:
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
United States. . . . . . . . . . . . . $83,548 $71,810 $44,199
Foreign. . . . . . . . . . . . . . . . 2,813 (1,281) 147
$86,361 $70,529 $44,346
</TABLE>
<TABLE>
Income tax expense consists of:
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . $15,220 $16,025 $17,337
Foreign. . . . . . . . . . . . . . 599 385 1,224
State. . . . . . . . . . . . . . . 2,573 2,930 2,689
18,392 19,340 21,250
Deferred:
Federal. . . . . . . . . . . . . . 13,870 10,748 (1,483)
Foreign. . . . . . . . . . . . . . 446 (260) 634
State. . . . . . . . . . . . . . . 1,729 161 679
16,045 10,649 (170)
$34,437 $29,989 $21,080
</TABLE>
F-30
<PAGE> 67
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) INCOME TAXES - (Continued)
Significant differences between taxes computed at the
federal statutory rate and the provision for income taxes were:
<TABLE>
<CAPTION>
Years Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Taxes at U.S. federal statutory rate. . . . . . . 35.0% 35.0% 35.0%
Increase in income taxes resulting from:
State income taxes, net of federal benefit. . . 2.3% 3.4% 3.2%
Amortization of non-deductible goodwill . . . . 4.6% 3.6% 2.6%
Special charges (Note 3). . . . . . . . . . . . -- 0.7% 3.7%
Divestitures. . . . . . . . . . . . . . . . . . 0.4% 0.6% 1.7%
Equity accounting for unconsolidated affiliates (3.1%) (1.6%) 0.7%
Other, net. . . . . . . . . . . . . . . . . . . 0.7% 0.8% 0.6%
39.9% 42.5% 47.5%
</TABLE>
The tax effects of cumulative temporary differences that
gave rise to the significant portions of the deferred tax asset
and deferred tax liability were as follows:
<TABLE>
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Deferred Tax Assets:
Inventories . . . . . . . . . . . . . . . $ 4,720 $ 2,455
Accounts receivable . . . . . . . . . . . 414 1,928
Deferred rental income. . . . . . . . . . 481 401
Insurance reserves. . . . . . . . . . . . 3,245 2,889
Special charges (Note 3). . . . . . . . . 3,790 3,933
Divestiture of non-core businesses. . . . 705 2,621
Other reserves. . . . . . . . . . . . . . 2,238 3,468
Intangible assets . . . . . . . . . . . . 1,382 842
Other . . . . . . . . . . . . . . . . . . 6,760 6,472
Valuation allowance . . . . . . . . . . . (1,672) (1,329)
22,063 23,680
Deferred Tax Liabilities:
Property and equipment. . . . . . . . . . (139,329) (129,009)
Other . . . . . . . . . . . . . . . . . . (17,860) (9,075)
(157,189) (138,084)
Net deferred tax liability. . . . . . . . . $(135,126) $(114,404)
</TABLE>
F-31
<PAGE> 68
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) INCOME TAXES - (Continued)
Current tax assets and current tax liabilities have been
netted for presentation purposes. Non-current tax assets and non-
current tax liabilities have also been netted. Deferred tax
assets and liabilities are reflected on the Company's
consolidated balance sheets at as follows:
<TABLE>
<CAPTION>
March 31,
(In thousands) 1999 1998
<S> <C> <C>
Current deferred tax assets, net. . . . $ 7,549 $ 6,952
Non-current deferred tax liability, net (142,675) (121,356)
Net deferred tax liability. . . . . . . $(135,126) $(114,404)
</TABLE>
The Company has recorded tax benefits amounting to $1.6
million, $3.8 million and $4.2 million in 1999, 1998 and 1997,
respectively, resulting from the exercise of stock options and
warrants. This benefit has been recorded in capital in excess of
par value.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in
which those temporary differences become deductible. Management
considers the reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Based upon the
level of historical taxable income and projections for future
taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible
differences, net of the existing valuation allowances, at March
31, 1999. Valuation allowances primarily relate to state tax net
operating loss carry-forwards.
The Internal Revenue Service is currently conducting an
examination of the Company's federal income tax return for the
fiscal years ended March 31, 1998, 1997 and 1996. Management
believes that the results of this examination will not have a
material effect on the Company's earnings, financial condition or
liquidity.
(15) BENEFIT PLANS
The Company has a defined contribution 401(k) plan covering
substantially all full-time employees. Under the terms of the
plan, the Company makes matching contributions up to two percent
of participants' wages plus additional discretionary profit
sharing contributions based upon the profitability of the
Company. Amounts expensed under the plan for fiscal 1999, 1998
and 1997 were $4.7 million, $6.4 million and $5.9 million,
respectively.
F-32
<PAGE> 69
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(15) BENEFIT PLANS - (Continued)
Certain subsidiaries of the Company participate in
multi-employer pension and post-retirement plans which provide
defined benefits to union employees. Contributions are made to
the plans in accordance with negotiated labor contracts. The
Company has not taken any action to terminate or withdraw from
these plans. Management believes that the Company's liability,
if any, for multi-employer plan withdrawal liability will not
have a material effect on the Company's financial condition,
results of operations or liquidity. Amounts expensed under the
pension plans for fiscal 1999, 1998 and 1997 were $611 thousand,
$660 thousand and $751 thousand, respectively.
(16) RELATED PARTIES
During the years ended March 31, 1999, 1998 and 1997,
National Welders, an unconsolidated affiliate, paid $818
thousand, $1.2 million and $1.1 million, respectively, to the
Elkem JV for the purchase of calcium carbide. National Welders
also paid $1.4 million, $1.7 million and $574 thousand to the
Company for other gas and hardgoods purchases in fiscal 1999,
1998 and 1997, respectively. In addition, National Welders had
gas and hardgoods sales to the Company of $552 thousand, $390
thousand and $121 thousand in fiscal 1999, 1998 and 1997,
respectively.
The Company paid $8.4 million and $5.9 million to AC
Industries, an unconsolidated affiliate, for the purchase of
liquid carbon dioxide during the years ended March 31, 1999 and
1998, respectively. In addition, the Company had a net payable
balance to AC Industries totaling $1.3 million and $1.2 million,
at March 31, 1999 and 1998, respectively.
(17) LEASES
The Company leases certain distribution facilities and
equipment under long-term operating leases with varying terms.
Most leases contain renewal options and in some instances,
purchase options. Rentals under these long-term leases for the
years ended March 31, 1999, 1998 and 1997, amounted to $35.4
million, $30.4 million and $24.0 million, respectively. Certain
operating facilities are leased at market rates from employees of
the Company who were previous owners of businesses acquired.
The Company has entered into certain operating leases for
real estate with a trust established by a commercial bank. The
trust holds title to the properties and leases the properties to
the Company. The rental payments are based on LIBOR plus an
applicable margin and the cost of the property acquired by the
trust. At the expiration of the leases in September 1999, the
Company has the option to purchase the real properties at fair
value, assist in the sale of the properties to a third party or
renew the leases. At March 31, 1999, the Company's residual
value guarantee was approximately $10.6 million related to the
leased facilities.
F-33
<PAGE> 70
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(17) LEASES - (Continued)
At March 31, 1999, future minimum lease payments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
2000 . . . . . . . . . . . . $ 28,630
2001 . . . . . . . . . . . . 23,100
2002 . . . . . . . . . . . . 18,650
2003 . . . . . . . . . . . . 15,619
2004 . . . . . . . . . . . . 9,924
Thereafter . . . . . . . . . 23,489
$119,412
</TABLE>
(18) COMMITMENTS AND CONTINGENCIES
(a) Legal
In July 1996, Praxair, Inc. ("Praxair") filed suit against
the Company in the Circuit Court of Mobile County, Alabama. The
complaint alleged tortuous interference with business or
contractual relations with respect to Praxair's Right of First
Refusal contract with the majority shareholders of National
Welders by the Company in connection with the Company's formation
of a joint venture with National Welders. In June 1998, Praxair
filed a motion to dismiss its own action in Alabama and commenced
another action in the Superior Court of Mecklenburg County, North
Carolina, alleging substantially the same tortuous interference
by the Company. The North Carolina action also alleges breach of
contract against National Welders and certain shareholders of
National Welders and unfair trade practices and conspiracy
against all the defendants. In the North Carolina action Praxair
seeks compensatory damages in excess of $10,000, punitive damages
and other unspecified relief. The Company believes that
Praxair's claims are without merit and intends to defend
vigorously against such claims.
On September 9, 1996, the Company filed suit against Praxair
in the Court of Common Pleas of Philadelphia County,
Pennsylvania. The complaint alleges breach of contract, fraud,
conversion and misappropriation of trade secrets with respect to
an agreement between Praxair and the Company, pursuant to which
Praxair induced the Company to provide Praxair valuable
information and conclusions developed by the Company concerning
CBI Industries, Inc. ("CBI") in exchange for Praxair's promise
not to acquire CBI without the Company's participation. The
Company has alleged that it became entitled, pursuant to such
agreement, to acquire certain of CBI's assets having a value in
excess of $800 million. The Company is seeking compensatory and
punitive damages.
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 condition, results of operations
or liquidity.
F-34
<PAGE> 71
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(18) COMMITMENTS AND CONTINGENCIES - (Continued)
(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
thousand per occurrence. Losses are accrued based upon the
Company's estimates, developed with third party insurance
adjusters, 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 are adequate.
(19) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
Cash paid for interest expense and income taxes was as follows:
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Interest $63,316 $51,910 $38,993
Income taxes (net of refunds) 10,452 15,099 13,254
</TABLE>
<TABLE>
Significant non-cash transactions were as follows:
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Acquisition related
transactions (also see Note 2):
Debt assumed $ 553 $ 5,486 $ 1,536
Liabilities assumed 15,475 49,407 29,733
Debt issued 2,361 17,781 30,104
Common stock issued -- 55,608 78,671
Capital lease additions -- 461 567
Capitalized interest 271 1,200 622
</TABLE>
The Company capitalized interest in connection with the
construction of two air separation plants during 1998 and 1997.
F-35
<PAGE> 72
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(20) MINORITY INTEREST IN SUBSIDIARIES
Minority interests in subsidiaries represent the minority
shareholders' proportionate share of the equity and the results
of operations of the domestic and foreign subsidiaries. The
Company sold minority interests in its domestic subsidiaries to
employees based on the estimated fair market value of the
subsidiary shares. These sales of subsidiary shares were
accounted for as capital transactions and, therefore, no gain or
loss was recorded.
In December 1997, the Board of Directors approved a Mandatory
Exchange in accordance with the exchange rights agreements
between the Company and the domestic minority shareholders. The
number of shares issued from treasury stock was determined based
upon the valuation of the minority interest and the price of the
Company's Common Stock as of February 28, 1998. The market price
on February 28, 1998, was $17.94 per share. The Mandatory
Exchange required that all domestic minority shareholders
exchange their minority interests for an aggregate of 707
thousand shares of Common Stock. The acquisition of these
minority interests under the Mandatory Exchange was recorded
using the purchase method of accounting.
On December 31, 1996, in connection with optional exchanges,
certain domestic minority shareholders elected to exchange their
minority interests for an aggregate of 77 thousand newly issued
shares of Common Stock. The acquisition of the minority
interests was recorded using the purchase method of accounting.
(21) SUMMARY BY BUSINESS SEGMENT
Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"), was adopted by the Company beginning
with this annual report. SFAS 131 requires the disclosure of
segment information on the same basis used by management for
evaluating segment performance and allocating resources. The
Company has redefined its operating segments based on the new
management structure established under the "Repositioning Airgas
For Growth" initiative. The Company has aggregated its
operations, based on products and services, into two reportable
segments, Distribution and Gas Operations. Comparative fiscal
1998 and 1997 information has been reclassified to conform to the
current presentation.
The Distribution segment accounts for 90% of consolidated
sales and reflects the integration of the traditional gas
distribution companies and the safety products and industrial
tool and supplies distribution companies. These companies have
been combined to reflect management's approach to evaluating
performance and allocating resources as the Company continues to
develop its centralized purchasing, shared distribution
facilities and multi-channel marketing initiatives begun under
the Repositioning Plan. The Distribution segment's principal
products and services are packaged gases, equipment rental and
hardgoods. Gas sales include industrial, medical and specialty
gases such as: nitrogen, oxygen, argon, helium, acetylene, carbon
dioxide, nitrous oxide, hydrogen, welding gases, ultra high
purity grades and special application blends. Rent is derived
from compressed gas cylinders, cryogenic liquid containers and
bulk storage tanks rented to customers and through welding
equipment rentals. Hardgoods consist of welding supplies,
equipment, safety products, and industrial tools and supplies.
The segment entitled Gas Operations consists of certain
domestic operating companies, principally dry ice and carbon
dioxide, and the Company's foreign operations. These companies,
which do not meet the criteria of SFAS 131, were formally
reported under the "Manufacturing segment." The products and
services of this segment consist of the production of dry ice and
liquid carbon dioxide, the operation of
F-36
<PAGE> 73
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) SUMMARY BY BUSINESS SEGMENT - (Continued)
specialty gas laboratories and the manufacture of nitrous oxide.
In addition, until the December 1998 divestiture, Gas Operations
also manufactured calcium carbide and carbon products.
The Company's operations are principally in North America.
The Company's customer base is diverse and sales are not
dependent on a single or small group of customers.
In general, the accounting policies of the segments are the
same as those described in the Summary of Significant Accounting
Policies (Note 1). Exceptions are as follows: Corporate
operating results are allocated to each segment pro rata based on
sales dollars; Corporate assets have been allocated to the
Distribution segment; intercompany sales are recorded on the same
basis as sales to third parties and intercompany transactions are
eliminated in consolidation; and special charges are not
allocated to the business segments.
<TABLE>
<CAPTION>
(In thousands) Distribution Gas Operations Combined
<S> <C> <C> <C>
1999
Gas and rent $ 569,406 $ 128,740 $ 698,146
Hardgoods 836,778 4,227 841,005
Other -- 22,067 22,067
Total net sales 1,406,184 155,034 1,561,218
Intersegment sales -- 14,656 14,656
Gross profit 637,616 85,547 723,163
Gross profit margin 45.3% 55.2% 46.3%
Depreciation and amortization expense 74,958 12,968 87,926
Operating income, excluding special charges 98,447 13,549 111,996
Interest expense 49,995 12,593 62,588
Interest income 1,339 951 2,290
Equity earnings of unconsolidated affiliates 4,525 2,517 7,042
Earnings before income taxes,
excluding special charges 53,455 31,906 85,361
EBITDA, excluding special charges (1) 173,405 26,517 199,922
EBITDA margin 12.3% 17.1% 12.8%
Assets 1,451,792 246,680 1,698,472
Investment in equity method investees 57,680 43,154 100,834
Capital expenditures, excluding acquisitions 86,114 15,524 101,638
Other significant non-cash transactions:
Acquisitions 6,762 11,627 18,389
Capitalized interest 271 -- 271
(1) EBITDA - Operating income, excluding special charges, plus
depreciation and amortization, is a measure of the Company's
ability to generate cash flow and should be considered in
addition to, but not as a substitute for, other measures of
financial performance reported in accordance with generally
accepted accounting principles.
</TABLE>
F-37
<PAGE> 74
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) SUMMARY BY BUSINESS SEGMENT - (Continued)
<TABLE>
<CAPTION>
(In thousands)
Distribution Gas Operations Combined
<S> <C> <C> <C>
1998
Gas and rent $ 531,166 $ 91,315 $ 622,481
Hardgoods 790,792 1,649 792,441
Other -- 33,068 33,068
Total net sales 1,321,958 126,032 1,447,990
Intersegment sales -- 9,494 9,494
Gross profit 605,240 63,212 668,452
Gross profit margin 45.8% 50.2% 46.2%
Depreciation and amortization expense 67,418 9,252 76,670
Operating income, excluding special charges 111,472 12,426 123,898
Interest expense 45,081 10,322 55,403
Interest income 1,460 653 2,113
Equity earnings of unconsolidated affiliates 1,581 1,350 2,931
Earnings before income taxes,
excluding special charges 69,525 5,954 75,479
EBITDA, excluding special charges (1) 178,890 21,678 200,568
EBITDA margin 13.5% 17.2% 13.9%
Assets 1,396,906 244,568 1,641,474
Investment in equity method investees 52,918 45,604 98,522
Capital expenditures, excluding acquisitions 79,741 44,984 124,725
Other significant non-cash transactions:
Acquisitions 78,137 50,606 128,743
Capitalized interest -- 1,200 1,200
(1) EBITDA - Operating income, excluding special charges, plus
depreciation and amortization, is a measure of the Company's
ability to generate cash flow and should be considered in
addition to, but not as a substitute for, other measures of
financial performance reported in accordance with generally
accepted accounting principles.
</TABLE>
F-38
<PAGE> 75
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) SUMMARY BY BUSINESS SEGMENT - (Continued)
<TABLE>
<CAPTION>
(In thousands) Distribution Gas Operations Combined
<S> <C> <C> <C>
1997
Gas and rent $ 492,337 $ 27,944 $ 520,281
Hardgoods 606,434 461 606,895
Other -- 31,718 31,718
Total net sales 1,098,771 60,123 1,158,894
Intersegment sales -- 6,528 6,528
Gross profit 522,758 24,753 547,511
Gross profit margin 47.6% 41.2% 47.2%
Depreciation and amortization expense 59,542 2,949 62,491
Operating income, excluding special charges 103,376 10,334 113,710
Interest expense 39,143 2,634 41,777
Interest income 1,640 385 2,025
Equity earnings of unconsolidated affiliates 935 23 958
Earnings before income taxes,
excluding special charges 66,349 9,422 75,771
EBITDA, excluding special charges (1) 163,213 12,988 176,201
EBITDA margin 14.9% 21.6% 15.2%
Assets 1,192,630 98,401 1,291,031
Investment in equity method investees 49,591 15,401 64,992
Capital expenditures, excluding acquisitions 69,356 5,002 74,358
Other significant non-cash transactions:
Acquisitions 140,485 126 140,611
Capitalized interest -- 622 622
(1) EBITDA - Operating income, excluding special charges, plus
depreciation and amortization, is a measure of the Company's
ability to generate cash flow and should be considered in
addition to, but not as a substitute for, other measures of
financial performance reported in accordance with generally
accepted accounting principles.
</TABLE>
F-39
<PAGE> 76
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21) SUMMARY BY BUSINESS SEGMENT - (Continued)
A reconciliation of the combined operating segments to the
applicable line items on the consolidated financial statements
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
(In thousands) 1999 1998 1997
<S> <C> <C> <C>
Segment operating income $ 111,996 $ 123,898 $ 113,710
Special charges 1,000 (4,950) (31,425)
Operating income $ 112,996 $ 118,948 $ 82,285
Segment earnings before
income taxes $ 85,361 $ 75,479 $ 75,771
Special charges 1,000 (4,950) (31,425)
Earnings before income taxes $ 86,361 $ 70,529 $ 44,346
</TABLE>
(22) SUPPLEMENTARY INFORMATION (UNAUDITED)
<TABLE>
This table summarizes the unaudited results of operations
for each quarter of 1999 and 1998:
<CAPTION>
(In thousands, except per share amounts) First Second Third Fourth
<S> <C> <C> <C> <C>
1999
Net sales. . . . . . . . . . . . . . $400,773 $396,592 $380,323 $383,530
Operating income . . . . . . . . . . 33,429 31,791 25,173 22,603
Net earnings . . . . . . . . . . . . 11,275 10,480 22,088 8,081
Basic earnings per share (a),(b) . . $ .16 $ .15 $ .32 $ .12
Diluted earnings per share (a),(b) . $ .16 $ .15 $ .31 $ .11
1998
Net sales. . . . . . . . . . . . . . $331,412 $360,356 $367,810 $388,412
Operating income . . . . . . . . . . 33,500 47,500 32,702 5,246
Net earnings (loss). . . . . . . . . 12,226 21,675 11,826 (5,187)
Basic earnings (loss)
per share (a),(c) . . . . . . . . . $ .18 $ .32 $ .17 $ (.07)
Diluted earnings (loss)
per share (a),(c) . . . . . . . . . $ .18 $ .31 $ .17 $ (.07)
(a) Earnings per share calculations for each of the quarters are
based on the weighted average number of shares outstanding in
each period. Therefore, the sum of the quarters do not
necessarily equal the full year earnings per share.
F-40
(b) As discussed in Notes 2 and 3 to the Company's consolidated
financial statements, the results for fiscal 1999 include: (1) a
$570 thousand after-tax adjustment related to the first quarter
divestiture of two non-core businesses, (2) a $14.1 million after-
tax non-recurring gain, or $.20 per diluted share, related to the
third quarter divestiture of its calcium carbide and carbon
products operations, (3) a fourth quarter $922 thousand after-tax
non-recurring gain, or $.01 per diluted share, from a settlement
of certain matters related to the December 1998 divestiture of
the Company's calcium carbide and carbon products operations, and
(4) a $1.8 million non-recurring gain, or $.03 per diluted share,
from insurance proceeds recorded by an equity affiliate in the
third quarter.
(c) As discussed in Notes 2 and 3 to the Company's consolidated
financial statements, the results for fiscal 1998 include:
(1) a second quarter after-tax non-recurring gain of $9.4
million, or $.13 per diluted share, from the partial recovery
of refrigerant losses, (2) a $980 thousand after-tax non-
recurring gain, or $.01 per diluted share, related to the
second quarter divestiture of a non-core business, and (3)
fourth quarter after-tax special charges of $12.4 million, or
$.17 per diluted share, related to the Company's Repositioning
Plan, offset by a net gain related to an acquisition break-up
fee.
</TABLE>
F-41
<PAGE> 78
<TABLE>
SCHEDULE II
AIRGAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 1999, 1998 and 1997
(In thousands of dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
------------------------
Charged
Balance at Charged to (Credited) Balance
Beginning Costs and to Other at End of
Description of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
1999
Accounts receivable -- allowance
for doubtful accounts. . . . . . $ 5,676 $ 5,850 $1,071 (1) $ (6,505) (2) $ 6,092
Inventory reserves. . . . . . . . 8,354 -- 14 (2,161) 6,207
Insurance reserves. . . . . . . . 7,248 36,155 245 (34,064) (3) 9,584
Restructuring reserves. . . . . . 10,429 -- -- (5,342) 5,087
Deferred tax valuation allowance 1,329 343 -- -- 1,672
1998
Accounts receivable -- allowance
for doubtful accounts. . . . . . $ 4,443 $ 5,311 $ 1,418 (1) $ (5,496) (2) $ 5,676
Inventory reserves. . . . . . . . 7,633 (188) 909 -- 8,354
Insurance reserves. . . . . . . . 5,224 33,217 (802) (30,391) (3) 7,248
Restructuring reserves. . . . . . -- 11,006 -- (577) 10,429
Deferred tax valuation allowance 491 838 -- -- 1,329
1997
Accounts receivable -- allowance
for doubtful accounts. . . . . . $ 3,396 $ 3,860 $ 1,081 (1) $ (3,894) (2) $ 4,443
Inventory reserves. . . . . . . . 4,874 298 2,461 -- 7,633
Insurance reserves. . . . . . . . 5,297 27,821 (1,750) (26,144) (3) 5,224
Deferred tax valuation allowance -- 491 -- -- 491
(1) Includes collections on accounts previously written-off and allowances
for doubtful accounts of businesses acquired less the allowance for doubtful
accounts of businesses sold.
(2) Write-off of uncollectible accounts.
(3) Payments of insurance premiums and claim settlements.
</TABLE>
F-42
<PAGE>
AIRGAS, INC.
EMPLOYEE BENEFITS TRUST AGREEMENT
Effective as of March 30, 1999
<PAGE>
TABLE OF CONTENTS
I. Trust, Trustee and Trust Fund
1.1 Trust
1.2 Trustee
1.3 Trust Fund
1.4 Trust Fund Subject to Claims of Creditors
1.5 Definitions
II. Funding of the Trust
2.1 Purchase of Company Stock
2.2 Contributions
2.3 Prepayments
2.4 Dividends
2.5 Adjustments.
III. Procedures for Purchase and Sale of Shares
3.1 Purchase and Sale
3.2 Closing.
3.3 Delivery of Shares
3.4 Company Records
IV. Release and Transfer of Company Stock
4.1 Company Stock Made Available for Transfer
from Trust
4.2 Transfer from Trust of Released Shares and
Cash Proceeds
V. Compensation, Expenses and Tax Withholding
5.1 Compensation and Expenses
5.2 Withholding of Taxes
<PAGE>
VI. Administration of Trust Fund
6.1 Management and Control of Trust Fund
6.2 Investment of Funds
6.3 Trustee's Administrative Powers
6.4 Rights Regarding Company Stock
6.5 Indemnification
6.6 General Duty to Communicate to Committee
VII. Duties of Trustee
7.1 Records and Accounts of Trustee
7.2 Reports of Trustee
7.3 Final Statement
VIII. Succession of Trustee
8.1 Resignation of Trustee
8.2 Removal of Trustee
8.3 Appointment of Successor Trustee
8.4 Succession to Trust Fund Assets
8.5 Continuation of Trust
8.6 Changes in Organization of Trustee
8.7 Continuance of Trustee's Powers in Event of
Termination of the Trust
IX. Amendment or Termination
9.1 Amendments
9.2 Termination
9.3 Effect of Termination
9.4 Form of Amendment or Termination.
X. Miscellaneous
10.1 Controlling Law
10.2 Committee Action
10.3 Notices
10.4 Severability
10.5 Protection of Persons Dealing with the Trust
10.6 Tax Status of Trust
10.7 ERISA Status of Trust.
10.8 Registration
10.9 No Third Party Rights; Plan Participants to
Have No Interest in the Company by Reason of
the Trust
<PAGE>
10.10 Nonassignability of Trust Interests
10.11 Assignment of Trust
10.12 Merger
10.13 Gender and Plurals
10.14 Counterparts
<PAGE>
AIRGAS, INC.
EMPLOYEE BENEFITS TRUST AGREEMENT
THIS TRUST AGREEMENT (the "Agreement"), is made
effective as of March 30, 1999, between Airgas, Inc., a
Delaware corporation (the "Company"), and First Union
National Bank, a national banking association, as Trustee.
W I T N E S S E T H :
WHEREAS, the Company desires to establish a trust
(the "Trust") in accordance with the laws of the State of
Delaware and for the purposes stated in this Agreement;
WHEREAS, the Trustee desires to act as trustee of
the Trust, and to hold legal title to the assets of the
Trust, in trust, for the purposes hereinafter stated and in
accordance with the terms hereof;
WHEREAS, the Company or its subsidiaries have
previously adopted the Plans (as herein defined);
WHEREAS, the Company desires to provide for the
availability of shares of its common stock to satisfy
certain of its obligations under the Plans and intends to
sell to the Trust such assets as shall be held therein,
subject to the claims of the Company's general creditors in
the event of the Company's Insolvency (as defined herein)
until made available to the Plans, in such manner and at
such times as specified herein;
WHEREAS, the Company desires that the assets to be
held in the Trust Fund (as herein defined) should be
principally or exclusively securities of the Company except
as where specifically otherwise provided and, therefore,
expressly waives any diversification of investments that
might otherwise be necessary, appropriate or required
pursuant to applicable provisions of law; and
WHEREAS, the Trustee has been appointed as trustee
and has accepted such appointment as of the date first set
forth above.
NOW, THEREFORE, the parties hereto hereby
establish the Trust and agree that the Trust will be
comprised, held and disposed of as follows:
<PAGE>
I
Trust, Trustee and Trust Fund
I.1 Trust. This Agreement and the Trust Fund
shall be known as the Airgas, Inc. Employee Benefits Trust.
The parties intend that the Trust will be an independent
legal entity with title to and power to convey all of its
assets in accordance with the terms of the Trust. The
parties hereto further intend that the Trust not be subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and that the assets held in the Trust
Fund shall not be "plan assets," as such term is described
in ERISA and Department of Labor regulations thereunder.
The Trust is not a part of any of the Plans and does not
provide pension, welfare or any other benefits to any Plan
Participant (as herein defined). The assets of the Trust
will be held, invested and disposed of by the Trustee, in
accordance with the terms of the Trust. The Trust shall be
irrevocable. No Plan Participant nor any Plan shall have
any preferred claim on, or any beneficial ownership interest
in, any assets of the Trust until made available to the
Plans or otherwise transferred out of the Trust.
I.2 Trustee. The trustee named above, and its
successor or successors, is hereby designated as the trustee
hereunder, to receive, hold, invest, administer and
distribute the Trust Fund in accordance with this Agreement,
the provisions of which shall govern the powers, duties and
responsibilities of the Trustee.
I.3 Trust Fund. The assets held at any time and
from time to time under the Trust collectively are herein
referred to as the "Trust Fund" and shall consist of
contributions received by the Trustee, proceeds of any
loans, investments and reinvestment thereof, the earnings
and income thereon, less disbursements therefrom. Except as
herein otherwise provided, title to the assets of the Trust
Fund shall at all times be vested in the Trustee and
securities that are part of the Trust Fund shall be held in
such manner that the Trustee's name and the fiduciary
capacity in which the securities are held are fully
disclosed, subject to the right of the Trustee to hold title
in bearer form or in the name of a nominee, and the
interests of others in the Trust Fund shall be only the
right to have such assets received, held, invested,
administered and distributed in accordance with the
provisions of the Trust.
I.4 Trust Fund Subject to Claims of Creditors.
Notwithstanding any provision of this Agreement to the
contrary, the Trust Fund shall at all times remain subject
to the claims of the Company's general creditors under
Federal and state law in the event of the Company's
Insolvency (as herein defined).
In addition, the Board of Directors and Chief
Executive Officer of the Company shall have the duty to
inform the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company alleges
in writing to the Trustee that the Company has become
Insolvent, the Trustee shall discontinue transfers of
Released Shares (as herein defined) pursuant to Article 4.
<PAGE>
Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a Company creditor
alleging that the Company is Insolvent, the Trustee shall
have no duty to inquire whether the Company is Insolvent.
The Trustee may in all events conclusively rely on a copy of
a Bankruptcy petition filed with a court.
If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
transfers of Released Shares pursuant to Article 4 and shall
hold the Trust Fund for the benefit of the Company's general
creditors. Nothing in this Agreement shall in any way
diminish any rights of employees as general creditors of the
Company with respect to benefits due under the Plans or
otherwise.
The Trustee shall resume transfers of Released
Shares pursuant to Article 4 only after it receives a copy
of the court order dismissing such Bankruptcy petition.
Notwithstanding anything herein to the contrary,
in the event that the Company is Insolvent, the Committee
may, in its discretion and to the extent permitted by
applicable law, direct the Trustee to apply the Trust Fund
to satisfy the claims of the Company's creditors.
I.5 Definitions. In addition to the terms
defined in the preceding portions of this Agreement, certain
capitalized terms have the meanings set forth below:
Board of Directors. "Board of Directors" means
the board of directors of the Company or a committee
comprised of members thereof.
Code. "Code" means the Internal Revenue Code of
1986, as amended.
Committee. "Committee" means the Nominating and
Compensation Committee of the Company.
Common Stock Purchase Agreement. "Common Stock
Purchase Agreement" means an agreement between the Company
and the Trustee, substantially in the form attached hereto
as Exhibit 1.
Company Stock. "Company Stock" means shares of
common stock, par value .01 per share, of the Company, or
any successor securities thereto.
Designated Plan Participant. "Designated Plan
Participant" means, as of the date of determination, each
active common-law employee of the Company or an affiliate,
except any member of the Board of Directors of the Company,
who (i) is a holder of unexercised options to purchase
Company Stock (whether or not vested) (an "Optionholder")
under the Airgas, Inc. 1984 and/or 1997 stock option plans
(the "Option Plans") as of the Relevant Date, (ii) is a
participant in the Airgas, Inc. 1998 Employee Stock Purchase
Plan (the "Stock Purchase Plan") and has Company Stock
credited to his or her account on the Purchase Date (as
defined in the Stock Purchase Plan) coincident with or
immediately preceding the Relevant Date (a "Stock Purchase
Plan Participant"); or (iii) is a participant in the Airgas,
Inc. 401(k) Plan and has Company Stock credited to his or
her account on the last day of the calendar quarter
coincident with or immediately preceding the Relevant Date
(a "401(k) Participant").
<PAGE>
Effective Date. "Effective Date" means March 30,
1999.
Extraordinary Dividend. "Extraordinary Dividend"
means any dividend or other distribution of cash or other
property (other than Company Stock) made with respect to
Company Stock, which the Board of Directors declares
generally to be other than an ordinary dividend.
Fair Market Value. "Fair Market Value" means as
of any date the closing price on such date (or if such date
is not a trading day, then on the most recent prior date
which is a trading day) of a share of Company Stock as
reported on the composite tape, or similar reporting system,
for issues listed on the New York Stock Exchange (or, if the
Company Stock is no longer traded on the New York Stock
Exchange, on such other national securities exchange on
which the Company Stock is listed or national securities or
central market system upon which transactions in Company
Stock are reported, as either shall be designated by the
Committee for the purposes hereof) or if sales of Company
Stock are not reported in any manner specified above, the
closing price on such date (or if such date is not a trading
day, then on the most recent prior date which is a trading
day) in the over-the-counter market as reported by the
National Association of Securities Dealers Automated
Quotation System or, if not so reported, by the National
Quotation Bureau, Incorporated or similar organization
selected by the Committee.
Insolvency or Insolvent. "Insolvency" or being
"Insolvent" means (i) inability of the Company to pay its
debts as they become due, or (ii) the Company being subject
to a pending proceeding as a debtor under the provisions of
Title 11 of the United States Code (Bankruptcy Code).
Loan. "Loan" means a loan and extension of credit
to the Trust from the Company evidenced by the Note and any
such other loans or increase(s) in principal of the Loan the
proceeds of which are used by the Trustee for additional
purchases of Company Stock.
New Shares. "New Shares" means authorized but
unissued shares of Company Stock, as defined in Section 3.1.
1933 Act. "1933 Act" means the Securities Act of
1933, as amended.
Non-Stock Plans. "Non-Stock Plans" means the
Plans identified as Non-Stock Plans on Schedule A hereto.
Note. "Note" means the Promissory Note for
payment of the purchase price of Company Stock purchased
pursuant to Section 2.1 in the form attached hereto as
Exhibit 2.
Plan Participant. "Plan Participant" means a
participant in any of the Plans.
Plans. "Plans" means the employee benefit plans,
programs, contracts and compensation structures listed on
Schedule A hereto. The list of Plans may be amended from
time to time by the Committee in accordance with Section
9.1.
Released Shares. "Released Shares" shall have the
meaning set forth in Section 4.1.
<PAGE>
Relevant Date. "Relevant Date" means with respect
to the exercise of voting rights, the "Record Date" and with
respect to a tender or exchange offer, the "Commencement
Date," each as defined in Section 6.4.
Repurchased Shares. "Repurchased Shares" shall
have the meaning set forth in Section 3.1.
Stock Plans. "Stock Plans" means the Plans
identified as Stock Plans on Schedule A hereto.
Trust Term. "Trust Term" means March 30, 1999
through March 31, 2006.
Trust Year. "Trust Year" or "Fiscal Year" means
each April 1 through March 31 during the Trust Term except
the first Trust Year which shall mean March 30, 1999 through
March 31, 2000.
Trustee. "Trustee" means First Union National
Bank, a national banking association, or any successor
trustee.
Voting Shares. "Voting Shares" means (i) with
respect to an Optionholder, the number of shares of Company
Stock subject to unexercised options held by the
Optionholder on the Record Date, (ii) with respect to a
Stock Purchase Plan Participant, the number of shares of
Company Stock credited to such participant's account under
the Stock Purchase Plan on the Purchase Date (as defined in
the Stock Purchase Plan) immediately preceding the Record
Date and (iii) with respect to a 401(k) Participant, the
number of Shares of Company Stock credited to his or her
account on the last day of the calendar quarter preceding
the Record Date.
<PAGE>
II
Funding of the Trust
II.1 Purchase of Company Stock. From time to time
on and after the date hereof, the Trust may purchase from
the Company in accordance with Section 3 hereof a number of
shares of Company Stock that represents up to an aggregate
of 5% of the outstanding shares of Company Stock on the
Effective Date, subject to adjustment as provided for in
Section 2.5, to be administered and disposed of by the
Trustee as provided in Article IV.
II.2 Contributions. For each Trust Year, the
Company shall contribute to the Trust in cash such amount
which, together with dividends, as provided in Section 2.3,
and any other earnings of the Trust, shall enable the
Trustee to make all payments of principal and interest under
the Loan as they come due. Unless otherwise expressly
provided herein, the Trustee shall apply all such
contributions, dividends and earnings to the payment or
prepayment of principal and interest due under the Loan or
to pay, in cash, the aggregate par value of any additional
New Shares purchased by the Trust. If, at the end of any
Trust Year, insufficient contributions have been made in
cash to pay all principal and interest of the loan due in
such Trust Year, such contributions shall be deemed to have
been made in the form of forgiveness of principal and
interest of the Loan to the extent of the Company's failure
to make contributions as required by this Section 2.1. Such
forgiveness shall be the sole and absolute remedy that the
Trust shall have against the Company for any failure of the
Company to make any contribution to the Trust. All
contributions made under the Trust shall be delivered to the
Trustee. The Trustee shall be accountable for all
contributions received by it, but shall have no duty to
require any contributions to be made to it.
The Company in its sole discretion may at any
time, or from time to time, make additional deposits or
contributions of cash or other property to be held under the
Trust by the Trustee to augment the principal to be held,
administered and disposed of by the Trustee as provided in
this Agreement. Neither the Trustee nor any Plan
administrator, Plan Participant or other third party shall
have any right to compel such additional deposits or
contributions.
II.3 Prepayments. The Company may, from time to
time, contribute cash to the Trust in amounts sufficient to
enable the Trustee to prepay, in whole or in part, principal
and interest of the Loan at any time or, in lieu of such
prepayment, the Committee may, from time to time, in
accordance with the terms of the Note direct that all or any
part of such principal and/or interest of the Loan shall be
forgiven and the payment so directed shall be forgiven. The
Trustee shall use all such cash to prepay principal and/or
interest on the Loan in accordance with the terms of the
Note.
<PAGE>
II.4 Dividends. Except as otherwise provided in
this paragraph, dividends paid in any Trust Year in cash on
Company Stock held by the Trust (including dividends paid on
Released Shares that have not been transferred out of the
Trust at the time of such dividend payment) shall be
applied, immediately upon receipt thereof by the Trustee,
(i) first to interest accrued and unpaid on the Loan as of
the date of any such payment and then, (ii) to the extent
that any such payment exceeds such accrued and unpaid
interest on the Loan, to prepay interest that accrues on the
Loan after such payment through the end of such Trust Year,
and then, (iii) to pay principal installments due on the
Loan within such Trust Year and then, (iv) to additional
installments of principal in the order of their scheduled
maturity. Extraordinary Dividends shall not be used to pay
interest on or principal of the Loan, but shall be invested
in additional Company Stock, as soon as practicable, except
as otherwise provided in this Trust Agreement. Dividends
which are not in cash or in Company Stock (including
Extraordinary Dividends, or portions thereof) shall be
reduced to cash by the Trustee and reinvested in Company
Stock as soon as practicable, except as otherwise provided
in this Trust Agreement. Company Stock purchased with the
proceeds of an Extraordinary Dividend or with the proceeds
of a non-cash dividend shall, for purposes of this Agreement
(including, without limitation, Section 4.1 hereof), be
deemed to have been acquired with the proceeds of the Loan;
and if, and to the extent, such Extraordinary Dividend or
non-cash dividend was paid with respect to a Released Share,
the Company Stock purchased with such proceeds shall be
deemed to be Released Shares.
If the Committee so determines, the Committee
shall direct the Trustee to make investments in Company
Stock through open-market purchases, private transactions or
purchases from the Company. The Committee shall also direct
the Trustee as to the timing and manner of such purchases in
order to comply with applicable law and to avoid, if
possible, adverse effects on the publicly traded market
price of Company Stock. The Trustee shall follow all such
directions.
II.5 Adjustments. In the event that the Committee
determines that any dividend or other distribution (whether
in the form of cash, shares, other securities, or other
property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of shares or
other securities of the Company, issuance of warrants or
other rights to purchase shares or other securities of the
Company, or other similar corporate transaction or event
affects the shares such that an adjustment is determined by
the Committee in its discretion to be appropriate, then the
Committee shall, in such manner as it may deem equitable,
make any adjustments to the maximum number of shares or
other securities of the Company (or number and kind of other
securities or property) which may be held in the Trust or
any other adjustments it deems appropriate. The Company
shall provide the Trustee with notice of any such
adjustments.
<PAGE>
III
Procedures for Purchase and Sale of Shares
III.1 Purchase and Sale. Subject to the terms
and conditions set forth in the Common Stock Purchase
Agreement and Section 2.1 hereof, the Company will issue or
sell to the Trust at such times as the Company may
determine, and the Trust will purchase from the Company,
Company Stock, pursuant to the procedures set forth in this
Article 3. The Company Stock may be (i) previously
authorized but unissued Company Stock (the "New Shares") or
(ii) Company Stock held in treasury which the Company had
theretofore purchased, from time to time, on the open market
or otherwise (the "Repurchased Shares").
III.1.1 New Shares. The consideration for
the New Shares shall be cash and a Note, as provided in
Section 3.2, in an aggregate amount equal to the average
Fair Market Value of the Company Stock for the five trading
days immediately preceding the date which is two business
days prior to the Closing (defined in Section 3.2), as
certified in writing to the Trustee by the Company (the
"Average Market Price").
III.1.2 Repurchased Shares. The
consideration for the Repurchased Shares shall be a Note in
an amount equal either (i) to the purchase price paid by the
Company to acquire such shares (excluding, however, all
fees, commissions, transfer taxes and other similar costs
incurred in connection with the Company's purchase of such
shares) if such Repurchased Shares were acquired by the
Company within two business days of the date of the Closing
for the purchase of such Repurchased Shares by the Trust, or
(ii) to the Average Market Price if such Repurchased Shares
were repurchased by the Company more than two business days
prior to the Closing (the "Repurchase Price").
III.2 Closing. From time to time, the Company may sell,
and the Trust shall purchase if so instructed by the
Company, at a closing (each closing being referred to herein
as a "Closing" and the first Closing being referred to as
"the Initial Closing"), Company Stock up to an aggregate
number of shares that represents 5% of the outstanding
shares of Company Stock on the Effective Date of the Trust.
Except with respect to the Initial Closing, the Company
shall give notice, as described below (the "Sale Notice"),
to the Trustee regarding each Closing no later than two (2)
business days prior to the date of such Closing, unless the
Trustee elects to waive such condition. The Sale Notice
shall set forth (i) the date of the Closing, (ii) the number
of Repurchased Shares and New Shares, if any, to be sold to,
and purchased by, the Trust and (iii) the aggregate
consideration to be paid by the Trust for such shares as
determined pursuant to Section 3.1 (the "Total
Consideration"). If the Total Consideration is not
determinable as of the date the Sale Notice is provided, the
Company will provide the Trustee with such information prior
to the Closing. The Trust shall pay such Total
Consideration by (i) paying to the Company at the Closing
the $.01 par value per New Share, if any, by wire transfer
of immediately available funds, and (ii) (a) with respect to
the Initial Closing, delivering the Note, or (b) with
respect to any Subsequent Closing, increasing such
<PAGE>
Note, in an amount equal to (I) the aggregate Average Market
Price of any New Shares purchased at such Closing minus the
amount paid pursuant to clause (i) of this sentence, and/or
(II) the aggregate Repurchase Price of any Repurchased
Shares purchased at such Closing, as applicable (the "Loan
Amount"). All Closings will be held at the corporate
offices of the Company, 259 Radnor-Chester Road, Suite 100,
Radnor, Pennsylvania 19087-8675, on the date identified in
the Sale Notice, or at such other time, date and place as
may be mutually agreed upon by the Company and the Trustee.
The Company may defer any proposed sale of Company Stock
pursuant to this Section 3.2 if the Company reasonably
determines that there are sufficient legal, financial or
accounting reasons for the Company to defer the timing of
such sale and notifies the Trustee in writing of such
deferral.
III.3 Delivery of Shares. At each Closing the
Company will deliver to the Trustee a certificate
representing the Company Stock sold at such Closing, which
certificate shall be registered in the name of the Trustee,
or the name of its nominee. The Company will pay all stamp
and other transfer taxes, if any, that may be payable in
respect of the sale and delivery of the Company Stock.
III.4 Company Records. The Company is hereby
authorized to record the price owed by the Trust from time
to time and all repayments of the principal of the Note on
the schedule attached to the Note.
<PAGE>
IV
Release and Transfer of Company Stock
IV.1 Company Stock Made Available for Transfer
from Trust. Immediately after each payment, prepayment or
forgiveness, if any, of principal of the Loan is made, a
number of shares of Company Stock shall be made available
for transfer from the Trust ("Released Shares") in the
manner set forth in Section 4.2. The number of such
Released Shares shall equal the number of shares of Company
Stock held in the Trust immediately prior to such payment,
prepayment or forgiveness that have not already been deemed
Released Shares pursuant to a previous payment, prepayment
or forgiveness of principal of the Loan, multiplied by a
fraction, the numerator of which shall be the amount of
principal paid or prepaid or deemed forgiven upon such
payment or prepayment date or date of forgiveness and the
denominator of which shall be the sum of the numerator plus
the principal amount of the Loan remaining after such
payment, prepayment or forgiveness. No fractional shares
shall be released. If the preceding computation results in
fractional shares, the number of Released Shares shall be
computed by rounding down to the next whole number. The
number of Released Shares, determined as aforesaid, shall be
certified to the Trustee by the Committee.
IV.2 Transfer from Trust of Released Shares and
Cash Proceeds. Released Shares or other assets held in the
Trust (other than unreleased shares or the proceeds thereof)
shall be treated as follows. First, Released Shares shall
be transferred in kind by the Trustee, as directed by the
Committee, directly to one or more of the Stock Plans or
directly to Plan Participants pursuant to the terms of one
or more of the Stock Plans, in satisfaction of the
obligations of the Stock Plans or the Company to pay
compensation, benefits or any form of remuneration
thereunder which obligations are current at the time the
Released Shares are made available for transfer from the
Trust pursuant to Section 4.1.
If, after satisfying all such current obligations
of the Stock Plans there remain Released Shares or other
assets (other than unreleased shares or the proceeds
thereof) held in the Trust, such Released Shares and other
assets shall be sold by the Trustee and the proceeds of such
sale transferred by the Trustee, as directed by the
Committee, directly to one or more of the Non-Stock Plans,
if any, or directly to Plan Participants pursuant to the
terms of one or more of such Non-Stock Plans, in
satisfaction of the obligations of such Non-Stock Plans or
of the Company to pay compensation, benefits or any form of
remuneration thereunder which obligations are current at the
time the Released Shares or other assets are made available
for transfer from the Trust pursuant to Section 4.1 and
which obligations have not been otherwise satisfied or
provided by the Company.
<PAGE>
If Released Shares or other assets (other than
unreleased shares or the proceeds thereof) remain in the
Trust after the transfers or sales described above, such
remaining Released Shares or assets shall, as the Committee
shall direct either (i) be transferred to, or used by the
Trustee to satisfy obligations under such other employee
benefit plans (or their participants and beneficiaries),
arrangements or obligations covering a broad cross-section
of employees of the Company or its subsidiaries as the
Committee shall direct (the "Other Arrangements") or (ii) be
retained in the Trust for allocation in subsequent years in
accordance with this Section 4.2, provided, however, that in
all events (but subject to Section 1.4 and 9.3) all Released
Shares or assets shall be transferred from the Trust to, or
for the benefit of, the Plans or Other Arrangements at or
prior to the end of the Trust Term.
The Committee will direct the Trustee as to the
timing and manner of any transfers or sales of Released
Shares pursuant to this Section 4.2 in order to comply with
applicable law and to avoid, if possible, adverse effects on
the publicly traded market price of Company Stock.
To facilitate sales of Released Shares pursuant to
this Section 4.2, if required, the Company shall register
under the 1933 Act, such number of Released Shares as the
Committee may direct.
Released Shares directed by the Committee to be
transferred to Plans with respect to which trusts have been
established shall be transferred to the trustee thereof; if
there is no trust established with respect to a Plan, the
shares allocated to such Plan shall be transferred to the
plan administrator of such Plan, to third party service
providers for such Plans or such other person as the
Committee shall direct.
The references to the Plans in this Agreement
shall not cause the Plans to become irrevocable and the
Company retains sole discretion to modify or amend any of
the provisions of the Plans or to terminate any or all of
them to the extent provided therein and/or as permitted by
applicable law.
<PAGE>
V
Compensation, Expenses and Tax Withholding
V.1 Compensation and Expenses. The Trustee shall
be entitled to such reasonable compensation for its services
and to be reimbursed for its reasonable legal, accounting
and appraisal fees, expenses and other charges reasonably
incurred in connection with the administration, management,
investment and distribution of the Trust Fund all as may be
agreed upon from time to time by the Company and the
Trustee. Such compensation shall be paid, and such
reimbursement shall be made, out of the Trust Fund,
including amounts relating to earnings of the Trust, unless
paid directly by the Company. The Company agrees to either
make such payments directly or make sufficient contributions
to the Trust to pay such amounts owing the Trustee in
addition to those contributions required by Section 2.2.
However, the Trustee shall not be entitled to use
contributions required by Section 2.2 in satisfaction of
amounts owing to the Trustee for the payments of its
compensation and expenses.
In the event the Company fails to make the
contributions necessary to pay compensation and expenses
owing to the Trustee, as contemplated by this Section 5.1,
the Trustee shall be entitled to seek payment of such
compensation and expenses directly from the Company.
V.2 Withholding of Taxes. The Trustee shall
report and withhold any Federal, state or local taxes that
it is required by law or is instructed by the Company to
withhold from any payments, transfer or distributions it
makes pursuant to this Agreement and shall pay over amounts
withheld to the appropriate taxing authorities.
<PAGE>
VI
Administration of Trust Fund
VI.1 Management and Control of Trust Fund.
Subject to the terms of this Agreement, the Trustee shall
have exclusive authority and responsibility to control the
assets of the Trust Fund.
VI.2 Investment of Funds. Except as otherwise
provided in Section 2.4 and in this Section 6.2, the Trustee
shall invest and reinvest the Trust Fund exclusively in
Company Stock, including any accretions thereto resulting
from the proceeds of a tender offer, recapitalization or
similar transaction which, if not in Company Stock, shall be
reduced to cash as soon as practicable. The Trustee shall
invest any portion of the Trust Fund temporarily pending
investment in Company Stock, distribution or payment of
expenses in (i) investments in United States Government
obligations with maturities of less than one year, (ii)
interest-bearing accounts including but not limited to
certificates of deposit, time deposits, saving accounts and
money market accounts with maturities of less than one year
in any bank, including the Trustee, with aggregate capital
at the time of such investment in excess of $1,000,000,000
and a Moody's Investors Service Rating at the time of such
investment of at least P1, or an equivalent rating from a
nationally recognized rating agency, which accounts are
insured by the Federal Deposit Insurance Corporation or
other similar federal agency, (iii) obligations issued or
guaranteed by any agency or instrumentality of the United
States of America with maturities of less than one year,
(iv) short-term discount obligations of the Federal National
Mortgage Association or (v) a common, collective, or pooled
trust fund or mutual fund maintained or advised by any
corporate Trustee hereunder (or affiliate thereof) whose
investments are limited to those described in (i), (ii),
(iii) and/or (iv) of this paragraph. In the absence of any
investment direction by the Committee, temporary investments
shall be made in any mutual fund described in clause (v) of
the preceding sentence.
VI.3 Trustee's Administrative Powers. Except as
otherwise provided herein, and subject to the Trustee's
duties hereunder, the Trustee shall have the following
powers and rights, in addition to those provided elsewhere
in this Agreement or by law:
VI.3.1 to retain any asset of the Trust
Fund for the purposes set forth herein;
VI.3.2 subject to the other provisions of
this Agreement, to sell, transfer, mortgage, pledge, lease
or otherwise dispose of, or grant options with respect to,
any Trust Fund assets at public or private sale, as
necessary to perform its obligations hereunder;
<PAGE>
VI.3.3 to borrow from the Company pursuant
to the Loan to acquire Company Stock as authorized by this
Agreement;
<PAGE>
VI.3.4 with the consent of the Committee,
to settle, submit to arbitration, compromise, contest,
prosecute or abandon claims and demands in favor of or
against the Trust Fund;
VI.3.5 to vote or to give any consent with
respect to any securities, including any Company Stock, held
by the Trust either in person or by proxy for any purpose,
provided that the Trustee shall vote, tender or exchange all
shares of Company Stock as provided in Section 6.4;
VI.3.6 to employ such accountants,
actuaries, attorneys, investment bankers, appraisers, other
advisors and agents as may be reasonably necessary in
collecting, managing, administering, investing, valuing,
distributing and protecting the Trust Fund or the assets
thereof or any borrowings of the Trustee made in accordance
with Section 6.3.3; and to pay their reasonable fees and
expenses, which shall be deemed to be expenses of the Trust
and for which the Trustee shall be reimbursed in accordance
with Section 5.1;
VI.3.7 to cause any asset of the Trust
Fund to be issued, held or registered in the Trustee's name
or in the name of its nominee, or in such form that title
will pass by delivery, provided that the records of the
Trustee shall indicate the true ownership of such asset;
VI.3.8 to utilize another entity as
custodian to hold, but not invest or otherwise manage or
control, some or all of the assets of the Trust Fund; and
VI.3.9 to consult with legal counsel (who
may also be counsel for the Trustee or the Company
generally) with respect to any of its duties or obligations
hereunder; and to pay the reasonable fees and expenses of
such counsel, which shall be deemed to be expenses of the
Trust and for which the Trustee shall be reimbursed in
accordance with Section 5.1.
Notwithstanding any power granted to the Trustee pursuant to
the foregoing or under applicable law, neither the Trust nor
the Trustee shall have any power to, and shall not, engage
in any trade or business (solely in its capacity as Trustee
of the Trust) and, in particular, the Trustee shall not have
any power that could give the Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Treas. Reg. 301.7701-2.
VI.4 Rights Regarding Company Stock.
VI.4.1 Voting Rights. The Trustee shall
follow the directions of the Designated Plan Participants
with respect to the manner of voting of Company Stock held
by the Trust. Prior to each annual or special shareholders'
meeting of the Company, or deadline for the return of action
by written consent of shareholders in lieu of a meeting, the
Trustee shall furnish to each person who is a Designated
Plan Participant as of the record date for such action (the
"Record Date,") at the expense of the Company, a copy of the
proxy solicitation material sent generally to shareholders,
together with a form requesting confidential instructions on
how such Designated Plan Participant directs the Trustee to
vote with respect to each matter pending before such meeting
or written consent of shareholders. The Committee and the
Trustee shall be deemed to have complied with the preceding
sentence with respect to any such Designated Plan
Participant if they timely mail such proxy solicitation
material and form to the Designated Plan Participant's last
known address on the records of the Company. The Trustee
shall collect the confidential instruction forms and shall
vote the shares of Company Stock held in the Trust in the
<PAGE>
same proportion as the directed votes, other than
abstentions, actually and timely received from such
Designated Plan Participants, with each Designated Plan
Participant being entitled to a number of directed votes
equal to the number of such Participant's Voting Shares.
For example, assuming the Designated Plan Participants hold
(or whose accounts are credited with) 30 Voting Shares -- if
Designated Plan Participants who hold (or whose accounts are
credited with) 15 Voting Shares instruct the Trustee to vote
"yes," Designated Plan Participants who hold (or whose
accounts are credited with) 5 Voting Shares instruct the
Trustee to vote "no" and Designated Plan Participants who
hold (or whose accounts are credited with) 10 Voting Shares
direct the Trustee to abstain or do not instruct the
Trustee, the Trustee shall vote 75% of the shares of Company
Stock held in the Trust "yes" and 25% of such shares "no."
VI.4.2 Tender or Exchange Offer. If a
tender or exchange offer is commenced for Company Stock, the
Trustee shall, at the expense of the Company, (i) notify
each person who is a Designated Plan Participant as of the
date of commencement of such tender or exchange offer (the
"Commencement Date") and (ii) utilize its best efforts to
distribute or cause to be distributed to each such
Designated Plan Participant, in a timely manner, all
information distributed to shareholders of the Company in
connection with such offer together with a form requesting
confidential instructions on how such Designated Plan
Participant directs the Trustee with respect to the tender
or exchange of shares. The Committee and the Trustee shall
be deemed to have complied with the preceding sentence with
respect to any such Designated Plan Participant if they
timely mail such information and form to the Designated Plan
Participant's last known address on the records of the
Company. The Trustee shall collect such confidential
instruction forms and shall tender or exchange that number
of shares of Company Stock held in the Trust equal to the
total number of shares of Company Stock held in the Trust
multiplied by a fraction, the numerator of which is the
number of Voting Shares held by Designated Plan Participants
who affirmatively direct the Trustee to tender or exchange,
and the denominator of which is the total number of Voting
Shares held by all Designated Plan Participants (including
Voting Shares with respect to which such Designated Plan
Participants provide no instructions). A failure to direct
the Trustee shall be deemed an instruction not to tender or
exchange. For example, assuming the Designated Plan
Participants hold (or accounts are credited with) 30 Voting
Shares -- if Designated Plan Participants hold (or whose
accounts are credited with) 15 Voting Shares direct the
Trustee to tender, Designated Plan Participants who hold (or
whose accounts are credited with) 5 Voting Shares direct the
Trustee not to tender and Designated Plan
Participants who hold (or whose accounts are credited with)
10 Voting Shares provide no instructions, the Trustee shall
tender 50% (15/30) of the shares of Company Stock held in
the Trust.
VI.4.3 Confidentiality. The instructions
of each individual Designated Plan Participant made to the
Trustee pursuant to the foregoing paragraphs 6.4.1 and 6.4.2
shall be held confidential by the Trustee and shall not be
divulged or released to any person, including officers and
employees of the Company and its affiliates, except as
otherwise required by law or pursuant to order of a court of
competent jurisdiction.
VI.4.4 Trustee Action. The Trustee shall
not make any recommendation regarding the manner of
exercising any rights under this Section 6.4, including
whether or not such rights should be exercised.
<PAGE>
VI.5 Indemnification. To the extent lawfully
allowable, the Company shall and hereby does indemnify and
hold harmless the Trustee from and against any claims,
demands, actions, administrative or other proceedings,
causes of action, liability, loss, costs, damage or expense
(including reasonable attorneys' fees), which may be
asserted against it, in any way arising out of or incurred
as a result of its action or failure to act in connection
with the operation and administration of the Trust; provided
that such indemnification shall not apply to the extent that
the Trustee has acted in willful or negligent violation of
applicable law or its duties under this Trust or in bad
faith. The Trustee shall be under no liability to any
person for any loss of any kind which may result (i) by
reason of any action taken by it in accordance with any
direction of the Committee or pursuant to Section 6.4, (ii)
by reason of its failure to exercise any power or authority
or to take any action hereunder because of the failure of
the Committee to give directions to the Trustee, as provided
for in this Agreement or (iii) by reason of any act or
omission of the Committee with respect to its duties under
this Trust. The Trustee shall be fully protected in acting
upon any instrument, certificate or paper delivered by the
Committee or the trustee or administrator of any Plan and
believed in good faith by the Trustee to be genuine and to
be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation
or inquiry as to any statement contained in any such
writing, but may accept the same as conclusive evidence of
the truth and accuracy of the statements therein contained.
This section shall survive termination of this Agreement and
any termination of service of the Trustee hereunder.
VI.6 General Duty to Communicate to Committee.
The Trustee shall promptly notify the Committee of all
communications with or from any governmental agency or with
respect to any legal proceeding with regard to the Trust or
with or from any Plan Participants concerning their alleged
entitlements under the Plans or the Trust.
<PAGE>
VII
Duties of Trustee
VII.1 Records and Accounts of Trustee. The
Trustee shall maintain accurate and detailed records and
accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection or audit by
any person designated by the Company and which shall be
retained.
VII.2 Reports of Trustee. Within thirty (30)
days following the close of each Fiscal Year and each
quarter of each Fiscal Year, the Trustee shall deliver to
the Committee a statement for the period ending on the last
day of such Fiscal Year and/or quarter of such Fiscal Year,
as the case may be, listing all securities and other
property acquired or disposed of and all receipts,
disbursements and other transactions effected by the Trust
during such period, and further listing all cash,
securities, and other property held by the Trust, together
with the fair market value thereof, as of the end of such
period. In addition to the foregoing, the report shall
contain such information regarding the Trust Fund's assets
and transactions as the Committee in its discretion may
reasonably request. The Trustee shall also deliver to the
Committee such statements for other periods as the Committee
may reasonably request. Except as otherwise provided in the
next sentence, regulatory filings other than tax returns, if
any, required by the Trust shall be prepared by the Trustee,
at the expense of the Company, and submitted to the
Committee for the Company's review at least thirty (30) days
before the due date (including any extension thereof) for
filing such tax return or other regulatory filing. The
Company may, upon written notice to the Trustee, assume the
responsibility for preparing any regulatory filing required
by the Trust. The Trustee shall, at the expense of the
Company, timely file all such regulatory filings, if any, as
shall be directed by the Company and shall promptly provide
copies of such filings to the Committee. The Company shall
be responsible for filing all tax returns required by the
Trust unless the Company, upon reasonable advance notice,
requests that the Trustee assume such responsibility. The
Trustee shall cooperate with the Company to the extent
necessary to provide it with any information it reasonably
deems necessary to prepare and file such returns.
VII.3 Final Statement. In the event of the
resignation or removal of a Trustee hereunder, the Committee
may request and the Trustee shall with reasonable promptness
submit, for the period ending on the effective date of such
resignation or removal, a statement similar in form and
purpose to that described in Section 7.2.
<PAGE>
VIII
Succession of Trustee
VIII.1 Resignation of Trustee. The Trustee or
any successor thereto may resign as Trustee hereunder at any
time upon delivering a written notice of such resignation,
to take effect 60 days after the delivery thereof to the
Committee, unless the Committee accepts shorter notice;
provided, however, that no such resignation shall be
effective until a successor Trustee has assumed the office
of Trustee hereunder.
VIII.2 Removal of Trustee. The Trustee or any
successor thereto may be removed by the Company by
delivering to the Trustee so removed an instrument executed
by the Committee. Such removal shall take effect at the
date specified in such instrument, which shall not be less
than 60 days after delivery of the instrument, unless the
Trustee accepts shorter notice; provided, however, that no
such removal shall be effective until a successor Trustee
has assumed the office of Trustee hereunder.
VIII.3 Appointment of Successor Trustee.
Whenever the Trustee or any successor thereto shall resign
or be removed or a vacancy in the position shall otherwise
occur, the Committee shall use its best efforts to appoint a
successor Trustee as soon as practicable after receipt by
the Committee of a notice described in Section 8.1, or the
delivery to the Trustee of a notice described in Section
8.2, as the case may be, but in no event more than 60 days
after receipt or delivery, as the case may be, of such
notice. A successor Trustee's appointment shall not become
effective until such successor shall accept such appointment
by delivering its acceptance in writing to the Company. If
a successor is not appointed within such 60 day period, the
Trustee, at the Company's expense, may petition a court of
competent jurisdiction for appointment of a successor. In
any event, only an entity with trust powers under applicable
law, which is not an affiliate of the Company, may be a
successor trustee hereunder.
VIII.4 Succession to Trust Fund Assets. The
title to all property held hereunder shall vest in any
successor Trustee acting pursuant to the provisions hereof
without the execution or filing of any further instrument,
but a resigning or removed Trustee shall, at the expense of
the Company, execute all instruments and do all acts
necessary to vest title in the successor Trustee. Each
successor Trustee shall have, exercise and enjoy all of the
powers, both discretionary and ministerial, herein conferred
upon its predecessors. A successor Trustee shall not be
obliged to examine or review the accounts, records, or acts
of, or property delivered by, any previous Trustee and shall
not be responsible for any action or any failure to act on
the part of any previous Trustee.
<PAGE>
VIII.5 Continuation of Trust. In no event
shall the legal disability, resignation or removal of a
Trustee terminate the Trust, but the Committee shall
forthwith appoint a successor Trustee in accordance with
Section 8.3 to carry out the terms of the Trust.
VIII.6 Changes in Organization of Trustee. In
the event that any corporate Trustee hereunder shall be
converted into, shall merge or consolidate with, or shall
sell or transfer substantially all of its assets and
business to another corporation, the corporation resulting
from such conversion, merger or consolidation, or the
corporation to which such sale or transfer shall be made,
shall thereafter become and be the Trustee under the Trust
with the same effect as though originally so named but only
if such corporation is qualified to be a successor trustee
hereunder.
VIII.7 Continuance of Trustee's Powers in Event
of Termination of the Trust. In the event of the
termination of the Trust, as provided herein, the Trustee
shall dispose of the Trust Fund in accordance with the
provisions hereof. Until the final distribution of the
Trust Fund, the Trustee shall continue to have all powers
provided hereunder as necessary or expedient for the orderly
liquidation and distribution of the Trust Fund.
<PAGE>
IX
Amendment or Termination
IX.1 Amendments. Except as otherwise provided
herein, the Company, by action of the Board of Directors or
the Committee, may amend the Trust at any time and from time
to time in any manner which it deems desirable, provided,
however:
IX.1.1 no amendment may be made that would
adversely affect the contingent rights of Plan Participants
under Sections 2.1, 2.2, 2.3, 2.4, 4.1, 4.2, 6.4, 9.1, 9.2
or 9.3, without the affirmative consent of a majority of all
Plan Participants;
IX.1.2 no amendment may change the duties
of the Trustee without the Trustee's consent, which consent
shall not be unreasonably withheld; and
IX.1.3 no amendment may alter the terms of
Section 1.1 to make the Trust revocable.
Notwithstanding the foregoing, the Company, acting
in good faith taking into account the best interests of a
broadly-based population of individuals employed by the
Company or broadly-based employee benefit plans in which
such persons participate, shall retain the power under all
circumstances to amend the Trust to increase the maximum
number (or percentage) of shares of Company Stock that may
be held by the Trust, to add employee benefit plans to, or
to delete Plans from, Schedule A and to clarify any
ambiguities or similar issues of interpretation in this
Agreement.
IX.2 Termination. The Trust shall terminate upon
the earlier of (i) the seventh anniversary of the Effective
Date (the "Termination Date") or (ii) the date on which the
Trust no longer holds any assets. The Board of Directors
may terminate the Trust at any time prior to the date the
Trust terminates pursuant to the preceding sentence;
provided, however, termination of the Trust shall not effect
a revocation of the terms hereof.
IX.3 Effect of Termination. Upon termination of
the Trust, the Trustee shall sell sufficient remaining
assets of the Trust (other than Released Shares or the
proceeds thereof) so that the proceeds of such sale,
together with any other available cash, can be applied to
pay in full the remaining principal of the Loan and any
accrued but unpaid interest thereon. The Committee may
direct the Trustee as to the timing and manner of such sale
in order to comply with applicable law and to avoid, if
possible, adverse effects on the publicly traded market
price of Company Stock. In the event the proceeds of the
sale shall be insufficient to discharge the Loan in its
entirety, the Company shall be deemed to have forgiven all
amounts which shall remain due and owing thereon. Any
assets or Company Stock remaining in the Trust after such
payment in full of the Loan shall be distributed as follows:
(i) first to satisfy current obligations under the Stock
Plans, (ii) second, to satisfy current obligations under the
Non Stock Plans to the extent not otherwise satisfied or
provided by the Company, and (iii) third, to or for the
benefit of any of the Other Arrangements, as the Committee
shall, in its sole discretion, determine.
IX.4 Form of Amendment or Termination. Any
amendment or termination of the Trust shall be evidenced by
an instrument in writing signed by an authorized officer of
the Company or a member of the Committee, certifying that
said amendment or termination has been authorized and
directed by the Board of Directors or the Committee, as
applicable.
<PAGE>
X
Miscellaneous
X.1 Controlling Law. The laws of Delaware shall
be the controlling law in all matters relating to the Trust,
without regard to conflicts of law.
X.2 Committee Action. Any action required or
permitted to be taken by the Committee may be taken on
behalf of the Committee by any individual so authorized.
The Company shall furnish to the Trustee the name and
specimen signature of each member of the Committee upon
whose statement of a decision or direction the Trustee is
authorized to conclusively rely. Until notified of a change
in the identity of such person or persons, the Trustee shall
act upon the assumption that there has been no change.
X.3 Notices. All notices, directions,
instructions, requests, or other communications required or
permitted to be delivered hereunder shall be in writing,
delivered by registered or certified mail, return receipt
requested, telecopier or hand delivery as follows:
To the Company:
Airgas, Inc.
Executive Offices
259 Radnor-Chester Rd.
P.O. Box 6675
Radnor, PA 19087-8675
Attention: Mr. Robert Bartos
To the Trustee:
First Union National Bank
123 South Broad Street
11th Floor, PA 1249
Philadelphia, PA 19109
Attn: Mr. George Rayzis
Any party hereto may from time to time, by written notice
given as aforesaid, designate any other address to which
notices, requests or other communications addressed to it
shall be sent.
X.4 Severability. If any provision of the Trust
shall be held illegal, invalid or unenforceable for any
reason, such provision shall not affect the remaining parts
hereof, but the Trust shall be construed and enforced as if
said provision had never been inserted herein.
<PAGE>
X.5 Protection of Persons Dealing with the Trust.
No person dealing with the Trustee shall be required or
entitled to monitor the application of any money paid or
property delivered to the Trustee, or determine whether or
not the Trustee is acting pursuant to authorities granted to
it hereunder or to authorizations or directions herein
required.
X.6 Tax Status of Trust. The Trust is intended
to be a grantor trust, of which the Company is the grantor,
within the meaning of subpart E, part 1, subchapter J,
chapter 1, subtitle A of the Code, and this Trust Agreement
shall be construed accordingly. Until advised otherwise,
the Trustee and the Company may presume that the Trust is so
characterized for Federal income tax purposes and the
Trustee shall make all filings of tax returns on that
presumption.
X.7 ERISA Status of Trust. Neither the Trust, nor
the assets held therein, are intended to be subject to the
Employee Retirement Income Security Act of 1974, as amended,
and this Agreement shall be construed accordingly.
X.8 Registration. The Company shall, to the
extent necessary for the Trustee to fulfill its obligations
hereunder and to facilitate the sale of Released Shares, if
so requested by the Trustee or if the Company otherwise
deems it necessary or desirable, prepare and file with the
Securities and Exchange Commission a registration statement
on Form S-3 or on any other appropriate form or such other
appropriate form of registration (such registration
statement, as it may be amended or supplemented from time to
time, being hereinafter referred to as the "Registration
Statement") in accordance with the Securities Act of 1933,
as amended, providing for the registration of the Company
Stock held by the Trust. The Company shall use its
reasonable efforts to cause such Registration Statement and
required filings under state securities laws to become
effective and to keep such Registration Statement and
required filings, or any subsequently filed Registration
Statement and required filings continuously effective until
the termination of the Trust. The Company shall take all
other action as is reasonably necessary to permit the
Trustee to sell shares as contemplated by this Agreement.
X.9 No Third Party Rights; Plan Participants to
Have No Interest in the Company by Reason of the Trust.
Except as specified in Section 6.4, neither this Agreement
nor the Trust shall confer upon any person other than the
parties hereto any rights, remedy or claim with respect to
the assets of the Trust or otherwise unless transferred out
of the Trust and until made available to such person.
Neither the creation of the Trust nor anything contained in
the Trust shall be construed as giving any person, including
any individual employed by the Company or any subsidiary of
the Company, any equity or interest in the assets, business
or affairs of the Company or any Plan Participant a right to
any benefit available under any of the Plans.
<PAGE>
X.10 Nonassignability of Trust Interests. No
right or interest, if any, of any person to receive
distributions from the Trust shall be assignable or
transferable, in whole or in part, either directly or by
operation of law or otherwise, including, but not by way of
limitation, by execution, levy, garnishment, attachment,
pledge, or bankruptcy, but excluding death or mental
incompetency, and, to the fullest extent permitted by
applicable law, no right or interest, if any, of any person
to receive distributions from the Trust shall be subject to
any obligation or liability of any such person, including
claims for alimony or the support of any spouse or child.
X.11 Assignment of Trust. The rights and
obligations of the Company with respect to the Trust may be
assigned by the Board of Directors to any successor of
substantially all the business or assets of the Company.
Following any such assignment, the term "Company" hereunder
shall refer to such assignee.
X.12 Merger. If the Company is merged into
another corporation or another corporation is merged into
the Company then (a) the surviving corporation shall become
the grantor of the Trust, (b) the assets of the Trust shall
be subject to the claims of the creditors of the surviving
corporation in accordance with Article 1, above, and (c) the
provisions of this Agreement which apply to Company Stock
(including without limitation the provisions of Article 4,
above) shall apply to the stock of the surviving corporation
held hereunder or transferred to the Trust.
X.13 Gender and Plurals. Whenever the context
requires or permits, the masculine gender shall include the
feminine gender and the singular form shall include the
plural form and shall be interchangeable.
X.14 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be
considered an original.
<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee
have caused this Agreement to be signed, and their seals
affixed hereto, by their authorized officers all as of the
day, month and year first above written.
AIRGAS, INC.
By: /s/Scott Melman
Name: Scott Melman
Title:Senior Vice President and
Chief Financial Officer
FIRST UNION NATIONAL BANK
By: /s/Alan G. Finn
Name: Alan G. Finn
Title:
<PAGE>
SCHEDULE A
Airgas, Inc.
Stock Plans and Non-Stock Plans - As of March 30, 1999
I. STOCK PLANS
Title Plan Type
Airgas, Inc. 1997 Stock Option Plan Stock Option Plan
Airgas, Inc. 1984 Stock Option Plan Stock Option Plan
Airgas, Inc. 1998 Stock Purchase Plan 423 Stock Purchase
Plan
Airgas, Inc. 401(k) Plan 401(k) Plan
II. NON-STOCK PLANS
Title Plan Type
<PAGE>
Exhibit 1
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made
this 30th day of March, 1999, between Airgas, Inc., a Delaware corporation
(the "Seller" or the "Company"), and First Union National Bank, a national
banking association, not in its individual or corporate capacity, but
solely in its capacity as trustee (the "Trustee") of the Airgas, Inc.
Employee Benefits Trust (the "Trust," which is hereinafter sometimes
referred to as the "Purchaser") under a trust agreement between the Seller
and the Trustee dated as of March 30, 1999 (the "Trust Agreement").
W I T N E S S E T H:
WHEREAS, as contemplated by the Trust Agreement, the Purchaser is
to purchase from the Seller, and the Seller is to sell to the Purchaser,
from time to time shares of the Seller's Common Stock, par value $.01 per
share (the "Common Shares") up to an aggregate number of Common Shares that
represents 5% of the outstanding Common Shares (as may be adjusted pursuant
to Section 2.5 of the Trust Agreement) on the Effective Date of the Trust,
all as more specifically provided herein.
Capitalized terms not defined herein shall have the meaning set
forth in the Trust Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
7.1 Purchase and Sale. Subject to the terms and conditions set
forth herein, the Seller will sell to the Purchaser, and the Purchaser will
purchase from the Seller, at the Initial Closing (as hereinafter defined),
826,055 Common Shares (the "Initial Shares"), and, in consideration for
the Initial Shares, the Purchaser will deliver to the Seller (i) an amount
equal to the aggregate par value per New Share, if any, by wire transfer of
immediately available funds and (ii) the note in the form of Exhibit 2 to
the Trust Agreement in the principal amount of $7,000,816 (the "Note").
From time to time, the Seller may sell to the Purchaser and the Purchaser
may purchase from the Seller at a Closing (as hereinafter defined)
additional Common Shares up to an aggregate number of shares (including the
Initial Shares) that represents 5% of the outstanding Common Shares (as may
be adjusted pursuant to Section 2.5 of the Trust Agreement) on the
Effective Date of the Trust, and in consideration therefor the Purchaser
will deliver to the Seller (i) an amount equal to the aggregate par value
per New Share, if any, by wire transfer of immediately available funds and
(ii) will increase the principal amount of the Note by the aggregate
purchase price of such Common Shares minus the amount paid pursuant to
clause (i), if any, in accordance with the provisions of the Trust
Agreement.
1.2 Closing. The initial closing (the "Initial Closing") of the
sale and purchase of the Common Shares hereunder will be held at the
offices of the Seller at 10:00 a.m. eastern standard time, on the date
following the date of execution and delivery of this Agreement by the
Seller and the Purchaser, or at such other time, date and place as may be
mutually agreed upon by the Seller and the Purchaser. Any subsequent
closings ("Closing") shall occur at the time and place set forth in the
Sale Notice in accordance with the Trust Agreement. The number of
additional Common Shares purchased at any subsequent Closing and the price
therefore shall be set forth on a schedule to this Agreement and made a
part hereof.
<PAGE>
7.1 Delivery and Payment. At the Initial Closing and each
subsequent Closing, the Seller will deliver to the Purchaser a certificate
representing the Common Shares, which certificate shall be registered in
the name of the Trustee, or the name of its nominee, against payment
therefor by the Purchaser to the Seller of the aggregate consideration set
forth in Section 1.1 hereof. The Seller will pay all stamp and other
transfer taxes, if any, that may be payable in respect of the sale and
delivery of the Common Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
2.1 Corporate Existence and Authority. The Seller (a) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (b) has all requisite corporate power to
execute, deliver and perform this Agreement and (c) has taken all necessary
corporate action to authorize the execution, delivery and performance of
this Agreement.
2.2 No Conflict. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will
not, violate, conflict with or constitute a default under (a) the Seller's
certificate of incorporation or bylaws, (b) any agreement, indenture or
other instrument to which the Seller is a party or by which the Seller or
its assets may be bound or (c) any law, regulation, order, arbitration,
award, amendment or decree applicable to the Seller.
2.3 Validity. This Agreement has been duly executed and
delivered by the Seller and is a valid and binding agreement of the Seller
enforceable against the Seller in accordance with its terms, except as the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other laws
affecting the enforcement of creditors' rights generally, and by general
principles of equity.
2.4 The Common Shares. The Common Shares have been duly
authorized and, when sold as contemplated hereby, will be validly issued,
fully-paid and non-assessable shares of the Seller. No stockholder of the
Seller has any preemptive or other subscription right to acquire any shares
of Common Stock. The Seller will convey to the Purchaser, on the date of
Closing, good and valid title to the Common Shares free and clear of any
liens, claims, security interests and encumbrances.
7.1 Litigation. There are no actions, suits, proceedings,
arbitrations or investigations pending or, to the Seller's best knowledge,
threatened in any court or before any governmental agency or
instrumentality or arbitration panel or otherwise against or by the Seller
which seek to or could restrain, prohibit, rescind or declare unlawful, or
result in substantial damages in respect of this Agreement or the
performance hereof by the Seller including, without limitation, the
delivery of the Common Shares).
7.1 Business and Financial Information. Seller has heretofore delivered
to the Purchaser copies of the most recent financial statements of the
Company. The Seller Financial Statements fairly present the consolidated
results of operations, changes in stockholders' equity and cash flows for
the periods set forth therein and the consolidated financial position as at
the dates thereof of Seller and its consolidated subsidiaries, in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as set forth in the notes
thereto and
<PAGE>
subject, in the case of unaudited financial statements, to the omission of
certain notes not ordinarily accompanying such unaudited financial
statements and to normal year-end audit adjustments which in each case will
not be material to Seller and its consolidated subsidiaries taken as a
whole. Seller has filed with the Securities and Exchange Commission all
material forms, reports and documents required pursuant to the Securities
Act of 1933, as amended (the "1933 Act") and the Securities Exchange Act of
1934, as amended (the "1934 Act"), to be filed by it to date (the
"Disclosure Documents"). At the time filed, all of the Disclosure
Documents complied as to form in all material respects with all applicable
requirements of such Acts. None of the Disclosure Documents, at the time
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
7.1 Authority; Validity. The Purchaser has full power and
authority under the Trust to execute and deliver this Agreement and the
Note and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Trustee
on behalf of the Trust and is a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, except as the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other laws
affecting the enforcement of creditors' rights generally, and by general
principles of equity. The Note has been duly authorized by the trustee on
behalf of the Trust and, upon execution and delivery by the Trustee on
behalf of the Trust, the Note will be a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, except as the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other laws
affecting the enforcement of creditors' rights generally, and by general
principles of equity.
7.1 No Conflict. The execution and delivery of this
Agreement do not, and the execution and delivery of the Note and the
consummation of the transactions contemplated hereby and thereby will not,
violate, conflict with or constitute a default under the terms of the Trust
or to the best of the Purchaser's knowledge, (a) any agreement, indenture
or other instrument to which the Trust is a party or by which the Trust or
its assets may be bound or subject or (b) any law, regulation, order,
arbitration award, judgment or decree applicable to the Trust.
ARTICLE IV
RESTRICTIONS ON DISPOSITION OF THE COMMON SHARES
7.1 Restricted Securities. The Purchaser acknowledges that the Purchaser
is acquiring the Common Shares pursuant to a transaction exempt from
registration under the 1933 Act. The Purchaser represents, warrants and
agrees that all Common Shares acquired by the Purchaser pursuant to this
Agreement are being acquired for investment without any intention of making
a distribution thereof, or of making any sale or other disposition thereof
which would be in violation of the 1933 Act or any applicable state
securities law, and that the Purchaser will not dispose of any of the
Common Shares, except that the Trustee will, from time to time, convey to
certain Plans (as defined in the Trust Agreement) or sell pursuant to an
effective registration statement under the 1933 Act or an exemption
therefrom, a portion of the Common Shares to satisfy the obligations of the
Company or affiliate of the Company under such Plans, and except upon
termination of the Trust to the extent that the Trust then holds any Common
Shares, all in compliance
<PAGE>
with all provisions of applicable federal and state law regulating the
issuance, sale and distribution of securities and then only in compliance
with the Trust Agreement.
7.1 Legend. Until such time as the Common Shares are registered
pursuant to the provisions of the 1933 Act or may be freely sold without
registration in accordance with Rule 144 under the 1933 Act, any
certificate or certificates representing the Common Shares delivered
pursuant to Section 1.1 will bear a legend in substantially the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold, transferred or otherwise disposed of unless they have first
been registered under such Act or unless an exemption from
registration is available."
The Seller may place stop transfer orders against the registration or
transfer of any shares evidenced by such a certificate or certificates
until such time as the requirements of the foregoing are satisfied.
ARTICLE V
COVENANTS OF SELLER
The Seller agrees that:
7.1 Compliance and Filings. The Seller will comply with all
federal, state, local and foreign laws, regulations or orders, and all the
rules of any stock exchange or similar entity which are applicable to it or
to the conduct of its business, and, without limiting the generality of the
foregoing, shall make such filings, distributions and disclosures as are
required by the 1933 Act, the 1934 Act or any of the regulations, rules or
orders promulgated thereunder. The Seller will maintain complete and
accurate books, records and accounts in accordance with the requirements of
Section 13(b)(2) under the 1934 Act.
7.1 Registration. The Seller will, after a written request by
the Committee (as such term is defined in the Trust Agreement) to register
under the 1933 Act such number of Common Shares as the Committee may from
time to time direct, prepare for filing at the Seller's expense a
registration statement with the Securities and Exchange Commission, and
take such other action, sufficient to permit the public offering of such
Common Shares in accordance with the terms of this Agreement, and the
Seller will use its best efforts in all matters necessary or advisable to
cause such registration statement to become effective as promptly as
practicable and to remain effective for a reasonable period, all to the
extent requisite to permit the sale or other disposition of such Common
Shares. The Seller shall also use its best efforts to register or qualify
the Common Shares so registered under the securities and blue sky laws of
such jurisdictions within the United States as the Trustee or the Committee
may reasonably request, provided, however that the Seller shall not be
required to consent to general service of process for all purposes anywhere
it is not then qualified.
ARTICLE VI
CONDITIONS TO CLOSING
7.1 Conditions to Obligations of Purchaser. The obligation of
the Purchaser to purchase the Common Shares is subject to the satisfaction
of the following conditions on the date of the Initial Closing and each
subsequent Closing:
<PAGE>
7.1.1.1.1.1 The representations and warranties of the
Seller set forth in Article II hereof shall be true and correct; and if the
Closing shall occur on a date other than the date of this Agreement, the
Purchaser shall have been furnished with a certificate, dated the date of
the Closing, to such effect, signed by an authorized officer of the Seller;
and
7.1.1.1.1.1 All permits, approvals, authorizations and
consents of third parties necessary for the consummation of the
transactions herein shall have been obtained, and no order of any court or
administrative agency shall be in effect which restrains or prohibits the
transactions contemplated by this Agreement, and no suit, action or other
proceeding by any governmental body or other person shall have been
instituted which questions the validity or legality of the transactions
contemplated by this Agreement.
7.1 Conditions to Obligations of the Seller. The obligation of
the Seller to issue, sell and deliver the Common Shares to the Purchaser is
subject to the satisfaction of the following conditions on the date of the
Initial Closing and each subsequent Closing:
7.1.1.1.1.1 The representations and warranties of the
Purchaser set forth in Article III hereof shall be true and correct; and if
the Closing shall occur on a date other than the date of this Agreement,
the Seller shall have been furnished with a certificate dated the date of
the Closing, to such effect, signed by an authorized officer of the
Trustee; and
(b) No order of any court or administrative agency shall be in effect
which restrains or prohibits the transactions contemplated by this
Agreement, and no suit, action or other proceeding by any governmental body
or other person shall have been instituted which questions the validity or
legality of the transactions contemplated by this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 Expenses. The Seller shall pay all of its expenses, and it
shall pay the Purchaser's expenses, in connection with the authorization,
preparation, execution and performance of this Agreement, including,
without limitation, the reasonable fees and expenses of the Trustee, its
agents, representatives, counsel, financial advisors and consultants.
7.1 Survival of Seller's Representations and Warranties. All
representations and warranties made by the Seller to the Purchaser in this
Agreement shall survive the Initial Closing.
<PAGE>
7.1 Notices. All notices, requests, or other communications
required or permitted to be delivered hereunder shall be in writing,
delivered by registered or certified mail, return receipt requested,
telecopier or hand delivery as follows:
(a) To the Seller:
Airgas, Inc.
259 Radnor-Chester Rd., Suite 100
P.O. Box 6675
Radnor, Pennsylvania 19087-8675
Attention: Mr. Robert Bartos
Telecopier: (610) 225-3271
(b) To the Purchaser:
First Union National Bank, as trustee of the Airgas,
Inc. Employee Benefits Trust
123 South Broad Street
11th Floor, PA 1249
Philadelphia, PA 19109
Attn: Mr. George Rayzis
Telecopier: 215-985-3428
Any party hereto may from time to time, by written notice given as
aforesaid, designate any other address to which notices, requests or other
communications addressed to it shall be sent.
7.1 Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for any breach of the provisions of
this Agreement and agree that the obligations of the parties hereunder
shall be specifically enforceable, and neither party will take any action
to impede the other from seeking to enforce such rights or specific
performance.
7.5 Successors and Assigns; Integration; Assignment. This
Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto and their respective legal representatives,
successors and assigns. This Agreement, (a) constitutes, together with the
Note, the Trust Agreement and any other written agreements between the
Purchaser and the Seller executed and delivered on the date hereof, the
entire agreement between the parties hereto and supersedes all other prior
agreements and understandings, both written and oral, among the parties,
with respect to the subject matter hereof, (b) shall not confer upon any
person other than the parties hereto any rights or remedies hereunder and
(c) shall not be assignable by operation of law or otherwise, except that
the Trustee may assign all its rights hereunder to any corporation or other
institution exercising trust powers in connection with any such institution
assuming the duties of a trustee under the Trust.
7.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
<PAGE>
7.7 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
7.8 Amendment and Waiver. No amendment or waiver of any
provision of this Agreement or consent to departure therefrom shall be
effective unless in writing and signed by the Purchaser and the Seller.
7.9 Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if the signatures thereto were upon
one instrument.
7.10 Certain Limitations. The execution, delivery and
performance by the Trustee of this Agreement have been, and will be,
effected by the Trustee solely in its capacity as Trustee under the terms
of the Trust and not in its individual or corporate capacity. Nothing in
this Agreement shall be interpreted to increase, decrease or modify in any
manner any liability of the Trustee to the Seller or to any trustee,
representative or other claimant by right of the Seller resulting from the
Trustee's performance of its duties under the constituent instruments of
the Trust, and no personal or corporate liability shall be asserted or
enforceable against the Trustee by reason of any of the covenants,
statements or representations contained in this Agreement.
7.11 Incorporation. The terms and conditions of the Trust
Agreement relating to the nature of the responsibilities of the Trustee and
the indemnification of the Trustee by the Seller are incorporated herein by
reference and made applicable to this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement on the date and year first above written.
AIRGAS, INC.
By: /s/Scott Melman
Name: Scott Melman
Title: Senior Vice President and
Chief Financial Officer
FIRST UNION NATIONAL BANK
By: /s/Alan G. Finn
Name: Alan G. Finn
Title: Vice President
<PAGE>
Exhibit 2
PROMISSORY NOTE
$7,000,816 March 31, 1999
FOR VALUE RECEIVED, the undersigned, First Union National Bank,
not in its individual or corporate capacity but solely in its capacity as
Trustee (the "Trustee") of the Airgas, Inc. Employee Benefits Trust (the
"Trust") hereby promises on behalf of the Trust to pay to the order of
Airgas, Inc., a Delaware corporation (the "Company"), at the corporate
offices of the Company in Radnor, Pennsylvania or at such other place as
the Company shall designate in writing, the aggregate principal amount of
$7,000,816 in consideration for the purchase of 826,055 shares of common
stock, par value $.01 (the "Shares") on the date hereof (the "Initial
Purchase Date") in accordance with the Common Stock Purchase Agreement
between the Trustee and the Company dated the date hereof (the "Purchase
Agreement"). The principal amount of this Note shall be increased from
time to time if and when additional Shares are purchased by the Trustee to
reflect subsequent loans (the "Loans") made to the Trustee by the Company
in connection with such subsequent purchases of Shares by the Trustee on
behalf of the Trust after the Initial Purchase Date in accordance with the
terms set forth in the Trust Agreement and the Purchase Agreement.
Principal shall be paid in accordance with the amortization
schedule attached as Exhibit A hereto; provided, however, that this Note
may be prepaid in whole or in part at any time without penalty in
accordance with Section 2.3 of the Trust Agreement creating the Trust (the
"Trust Agreement"); and provided further, in accordance with Section 2.2 of
the Trust Agreement, that all or any portion of the principal of this Note
outstanding at any time, together with any accrued but unpaid interest on
this Note, may be deemed forgiven. In the event that the Trust shall
terminate in accordance with Section 9.2 and 9.3 of the Trust Agreement,
then any remaining principal of this Note then outstanding, together with
any accrued but unpaid interest on this Note, shall be immediately due and
payable. The Trustee agrees to pay interest on the unpaid principal
balance hereof, which shall be paid at the rate of 4.83%% annually, in
arrears, on the date principal is payable on the amount so paid.
Payments received within any Trust Year (as defined in the Trust
Agreement) shall be applied (i) first to interest accrued and unpaid as of
the date of any such payment, and then, (ii) to the extent that any such
payment exceeds such accrued and unpaid interest, to prepay interest that
accrues after such payment through the end of such Trust Year, and then,
(iii) to pay principal installments due within such Trust Year, and then,
(iv) to additional installments of principal in the order of their
scheduled maturity. Whenever any payment falls due on a Saturday, Sunday
or public holiday, such payment shall be made on the next preceding
business day.
This Note shall be construed under the laws of the State of
Delaware.
The undersigned represents and warrants that the indebtedness
represented by this Note was incurred for the purpose of purchasing shares
of Common Stock, par value $.01 per share, of the Company.
<PAGE>
The Note may not be assigned by the Company, other than by
operation of law, without the prior express written consent of the
undersigned.
The Company shall have no recourse whatsoever to any assets of
the Trustee in its individual or corporate capacity for repayment. The
Trustee is entering into this Note not in its individual or corporate
capacity but solely as Trustee, and no personal or corporate liability or
personal or corporate responsibilities are assumed by, or shall at any time
be asserted or enforceable against, the Trustee in its individual or
corporate capacity under, or with respect to, this Note.
FIRST UNION NATIONAL BANK
By: /s/ Alan G. Finn
Name: Alan G. Finn
Title:
AIRGAS, INC.
By: /s/Scott Melman
Name: Scott Melman
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit A
PRINCIPAL PAYMENT DATES
Principal Payment Date Principal Payments
March 31, 2000 $1,000,117
March 31, 2001 $1,000,117
March 29, 2002 $1,000,117
March 31, 2003 $1,000,117
March 31, 2004 $1,000,117
March 31, 2005 $1,000,117
March 31, 2006 $1,000,114
<PAGE>
CHANGE OF CONTROL AGREEMENT
This is a CHANGE OF CONTROL AGREEMENT ("Agreement") dated March
17, 1999, between Airgas, Inc., a Delaware corporation (the "Company"), and
William A. Rice, Jr. (the "Executive").
BACKGROUND
Executive is the current President, COO of the Company. The
Board of Directors of the Company (the "Board") has determined it is in the
Company's best interest to assure that the Company will have the continued
dedication of Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control of the Company, as will be defined below.
To diminish the inevitable distraction to Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change
of Control, to encourage Executive's full attention and dedication to the
Company currently and in the event of any Change of Control, and to provide
Executive with compensation arrangements upon a Change of Control that
provide Executive financial security and that are competitive with peer
corporations of the Company, the Company and Executive desire to enter into
this Agreement that is in the best interests of the Company and Executive.
NOW, THEREFORE, intending to be legally bound, and in
consideration of the mutual promises and representations set forth in this
Agreement, the Company and Executive agree as follows:
ARTICLE I - TERM OF AGREEMENT
1.1 Term. The term of this Agreement shall commence as of the date
hereof, and shall terminate upon the earlier of (i) Executive's termination
of employment with the Company for any reason, or (ii) the later of (A)
date which is three years following the date on which a Change of Control,
as defined in Section 2.2, occurred; or (B) the date as of which funding is
required under 3.5.2 following a Standstill Agreement provided, however,
that the Agreement shall remain in effect until Executive (or Executive's
beneficiary if Executive is not alive) has received any and all amounts to
which Executive is entitled under Article III, if any.
ARTICLE II - TERMINATION OF EXECUTIVE'S EMPLOYMENT
2.1 Change of Control Required. No amounts or benefits shall be paid or
become payable to Executive under this Agreement unless a Change of
Control, as defined in Section 2.2, occurs.
2.2 Certain Definitions. For purposes of this Agreement:
2.2.1 A "Change of Control" shall mean any one or more of the
following:
2.2.1.1 As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, sale
or transfer of any asset or other transaction any person or group (as such
terms are used in and under Section 13(d) of the Securities Exchange Act of
1934 (the "Exchange Act")) other than the Company, any affiliate, or any
employee benefit plan of the Company or an affiliate, shall become the
beneficial owner (as defined in Rule 13-d under the Exchange Act) directly
or indirectly of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities;
providing, however, that this provision shall not apply to Peter McCausland
("McCausland"), unless and until McCausland, together with all affiliates
and associates, becomes the beneficial owner of 30% or more of the combined
voting power of the Company's then outstanding securities;
<PAGE>
2.2.1.2 Stockholders approve the consummation of any merger of the
Company or any sale or other disposition of all or substantially all of its
assets, if the Company's stockholders immediately before such transaction
own, immediately after consummation of such transaction, equity securities
(other than options and other rights to acquire equity securities)
possessing less than 50% of the voting power of the surviving or acquiring
corporation; or
2.2.1.3 A change in the majority of the individuals who constitute the
Board occurs during any period of two years for any reason without the
approval of at least a majority of directors in office at the beginning of
such period.
2.2.2 A "Potential Change of Control" shall be deemed to have occurred
if:
2.2.2.1 The Company enters into an agreement, the consummation of which
would result in the occurrence of a Change of Control of the Company;
2.2.2.2 Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a Change of Control of the Company;
2.2.2.3 Any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company, who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting
power of the Company's then outstanding securities, increases his
beneficial ownership of such securities by 5% or more of the combined
voting power of the Company's then outstanding securities on the effective
date of this Agreement; provided, that this Section 2.2.2.3 shall not apply
to an increase in ownership by McCausland; or
2.2.2.4 The Board adopts a resolution to the effect that, for purposes of
this Agreement, a "Potential Change of Control" has occurred.
2.2.3 A "Triggering Event" means a Potential Change of Control or a
Change of Control.
2.3 Termination of Executive's Employment Entitling Executive to Benefits.
A termination of Executive's employment In Connection With a Change of
Control (as hereinafter defined), for any reason set forth in this Section
2.3 shall entitle Executive to the amounts and benefits set forth in
Section 3.1. Such termination shall be considered "In Connection With a
Change of Control" if such termination occurs (i) within three years
following a Change of Control or (ii) following a Potential Change of
Control but before an actual Change of Control, provided the Potential
Change of Control results in a Change of Control within one year following
the Potential Change of Control.
2.3.1 Voluntary Termination for Good Reason. Executive may notify the
Company of Executive's intention to terminate employment with the Company
for Good Reason, as hereinafter defined, In Connection With a Change of
Control. The Company shall have 30 days to cure the defects stated in such
notice that would give rise to a termination for Good Reason. If the
Company has not cured all such defects at the end of that 30-day period,
Executive may terminate employment with the Company effective, for purposes
of this Agreement, as of the date that Executive provided notice to the
Company pursuant to the first sentence of this Section 2.3.1, and Executive
shall be entitled to the amounts and benefits set forth in Section 3.1.
For purposes of this Agreement, "Good Reason" shall mean any of the
following:
<PAGE>
2.3.1.1 Any change in Executive's total compensation and benefits package
from the Company that, in the aggregate, materially decreases Executive's
total compensation. Such changes include, but are not limited to, a
decrease in Executive's annual base salary, a decrease in any incentive
compensation opportunity, a decrease in any material benefit plan, program
or policy in which Executive is participating at the time of a Triggering
Event, or the taking of any action by the Company that would adversely
affect Executive's participation in or materially reduce Executive's
opportunity to receive benefits under any such benefit plan, program or
policy or that would deprive Executive of any material fringe benefit
enjoyed by Executive at the time of a Triggering Event; provided, however,
that no single decrease shall be determinative, but rather the aggregate of
all such decreases and any increases in compensation or benefits shall
determine whether there has been a material decrease in Executive's total
compensation and benefits package; or
2.3.1.2 Executive's relocation to any location more than 35 miles from
the location at which Executive performed his duties prior to a Triggering
Event, except for required travel by Executive on the Company's business to
an extent substantially consistent with Executive's business travel
obligations prior to a Triggering Event.
2.3.2 Involuntary Termination Other Than for Cause. If the Company
terminates Executive's employment other than for Cause, as defined in
Section 2.4, In Connection With a Change of Control, Executive shall be
entitled to the amounts and benefits set forth in Section 3.1.
2.4 Cause Defined. Executive's termination of employment with the Company
shall be for "Cause" if one or more of the following events occur:
2.4.1 Executive's willful misconduct or gross negligence in the
performance of Executive's duties;
2.4.2 Executive's commission of any act of fraud or embezzlement
against the Company or Executive's commission of a felony or any other
offense involving moral turpitude; or
2.4.3 Executive's unauthorized dissemination of confidential
information, observations, and data concerning the business plans,
financial data, customer lists, trade secrets and acquisitions strategies
of the Company and its subsidiaries which has a material adverse effect on
the Company or its subsidiaries.
2.5 No Other Amounts Payable. Except as provided in Section 2.3, no
amounts or benefits shall be paid or become payable to Executive under this
Agreement.
<PAGE>
ARTICLE III - BENEFITS
3.1 Benefits. If Executive's employment with the Company terminates in a
manner described in Section 2.3, the Company shall pay Executive the
following amounts and provide to Executive the following benefits, subject
to Sections 3.3:
3.1.1 Cash Payment. As soon as practicable, but not later than 60 days
following the later of (i) Executive's termination of employment, or (ii)
the Change of Control, the Company shall make a lump sum payment to
Executive equal to three times the sum of (x) and (y), as described
immediately hereafter. For this purpose, (x) equals the greater of
Executive's annual base salary as in effect (a) immediately prior to
Executive's termination, or (b) at the time a Triggering Event occurred,
and (y) equals the potential bonus amount determined for Executive under
the Company's bonus plan for the fiscal year of the Company in which a
Triggering Event occurred (or, if no such bonus amount has been determined
for any such fiscal year, the immediately preceding fiscal year of the
Company) as if 100% of plan established pursuant to such bonus plan were
achieved and the maximum level of the discretionary portion were achieved.
3.1.2 Health and Welfare Benefits. For a period of three years
following Executive's termination of employment, the Company shall continue
to provide Executive with medical, dental, prescription drug, life,
accidental death, and disability (short-term and long-term) insurance
benefits at the same level and cost to Executive as were in effect
immediately prior to Executive's termination. If the Executive's
employment terminates after a Potential Change of Control and no Change of
Control occurs within one year of the Potential Change of Control, such
benefits shall continue only until the expiration of such one-year period.
However, the above benefits shall terminate if Executive is entitled to
comparable coverage from a subsequent employer, to the extent permitted
under Code section 4980B. The Executive and his dependents shall continue
to receive or be eligible for benefits under the Company's Scholarship and
Tuition Reimbursement Programs as if the Executive remained employed by the
Company for the remainder of the relevant academic year(s) in which the
Executive's employment terminates.
3.1.3 Stock Options and Restricted Stock. All stock options and
restricted stock grants awarded to Executive under any stock option or
stock grant plans of the Company shall become fully vested upon a Change of
Control and, notwithstanding any provision of any such option plan to the
contrary, any stock option shall remain exercisable until that option's
expiration date, determined without regard to Executive's termination of
employment.
3.2 Reduction of Benefits.
3.2.1 Reduced Payment. If any payment or benefit provided to Executive
by the Company pursuant to this Agreement or otherwise (the "Payment")
shall be determined to be an "Excess Parachute Payment," (as defined in
Code section 280G(b)(1)), that would be subject to the excise tax imposed
by Code Section 4999, then the aggregate present value of amounts or
benefits payable to Executive pursuant to this Agreement (the "Agreement
Payments") shall be reduced (but not below zero) to the Reduced Amount.
The "Reduced Amount" shall be an amount expressed in present value that
maximizes the aggregate present value of Agreement Payments without causing
any payments or benefits hereunder to be an Excess Parachute Payment.
Anything to the contrary notwithstanding, if the Reduced Amount is zero and
it is determined further that any payment from the Company to Executive
that is not an Agreement Payment would nevertheless be an Excess Parachute
Payment, then the aggregate present value of Payments that are not
Agreement Payments shall also be reduced (but not below zero) to an amount,
if any, if the present value of such lesser amount maximizes the aggregate
present value of Payments to Executive on an after-tax basis, taking into
account income and excise taxes under section 1 and section 4999 of the
Code. For purposes of this Section 3.2 present value shall be determined
in accordance with section 280G(d)(4) of the Code.
<PAGE>
3.2.2 Determination of Agreement Payments. All determinations required
under this Section 3.2 shall be made by a national accounting firm retained
by the Company at its own expense. The accounting firm shall provide the
Company and the Executive with a report and supporting calculations within
15 business days of the date Executive's employment with the Company
terminates or such earlier time as is requested by the Company. In
addition, the accounting firm shall provide an opinion to Executive that
the Executive has substantial authority not to report any excise tax on
Executive's federal income tax return with respect to the Agreement
Payments. Any such determination by the accounting firm shall be binding
upon the Company and Executive. Executive shall determine which and how
much of the Agreement Payments or Payments, as the case may be, shall be
eliminated or reduced consistent with the requirements of this Section 3.2,
provided that, if Executive does not make such determination within 10
business days of the receipt of the calculations from the accounting firm,
the Company shall elect which and how much of the Agreement Payments or
Payments, as the case may be, shall be eliminated or reduced consistent
with the requirements of this Section 3.2 and shall notify Executive
promptly of such election. Within 10 business days thereafter, the Company
shall pay to or distribute to or for the benefit of Executive such amounts
are then due to Executive under this Agreement.
3.3 Deferral of Benefits. If the Company, based on written advice of
reputable counsel, a copy of which shall be provided to Executive,
determines that in the aggregate any benefit or payment under this
Agreement and under any other arrangement or agreement between the Company
and Executive would not be deductible for federal income taxes by the
Company solely as a result of the application of section 162(m) of the
Code, the payment of any amounts otherwise payable under this Agreement in
the then current year shall be reduced, but not below zero, by the amount
of any such non-deductible amounts. The Company shall pay the entire non-
deductible amount to Executive at the earliest possible time or times that
such amounts (or portions thereof) may be paid to Executive without such
amounts being non-deductible under Code section 162(m), along with interest
accrued on such amounts since the date they would have been payable but for
this Section 3.3 calculated at the applicable federal short-term rate. If
any other agreement between the Company and Executive provides for the
deferral of payments from the Company to Executive solely as a result of
the application of Code section 162(m), the deferral provisions in this
Agreement shall prevail and all deferrals shall be made from amounts
payable under Section 3.1 of this Agreement before any amounts may be
deferred under any other arrangements solely as a result of the application
of Code section 162(m).
3.4 Withholding Taxes. The Company shall withhold from any payments or
benefits made under this Agreement all applicable federal, state and local
income and employment taxes, as well as any other amounts required to be
withheld under any law.
3.5 Funding.
3.5.1 Required Funding. The Company shall not be required to fund in
advance the amounts and benefits payable under this Agreement until a
Triggering Event occurs. Upon the occurrence of a Triggering Event, the
Company shall immediately contribute an amount to an irrevocable grantor
trust, of which Executive is the beneficiary and a third-party is the
trustee (a "Trust"), equal to 120% of the amounts that could become payable
to Executive under this Agreement.
<PAGE>
3.5.2 Standstill Agreements. Notwithstanding Section 3.5.1, if a
transaction is approved by the Board, including one that would constitute a
Change of Control, and the transaction is accompanied by a Board approved
standstill agreement that provides for (i) no further acquisition of
Company securities by the shareholder(s) entering into the agreement and
(ii) management autonomy for the Company's management at the time the
agreement is executed (a "Standstill Agreement"), the Board shall determine
whether to contribute amounts to a Trust to fund benefits payable under
this Agreement at the time the Standstill Agreement is executed. The
Company shall fund such a Trust, however, if after such a transaction and
the execution of a Standstill Agreement (i) the terms of the Standstill
Agreement, including the management autonomy provision, are violated or
(ii) the Company terminates any of its executive officers without Cause, as
defined in Section 2.4. If a Trust is to be funded under this Section
3.5.2, the Company shall immediately contribute an amount to the Trust
equal to 120% of the amounts that could become payable to Executive under
this Agreement.
3.5.3 Payments from Trust and Reversions. To the extent any provision
of this Agreement provides for a payment from the Company to Executive, the
Company may direct the trustee of a Trust created pursuant to this Section
3.5 to make such payment to the extent that any remaining assets in the
Trust are reasonably expected to be sufficient for any additional amounts
or benefits that may be due Executive from the Company under this
Agreement. No amount in a Trust may revert to the Company until 90 days
after the expiration of the Term of this Agreement. Notwithstanding the
above, (i) if the Triggering Event causing a Trust to be funded under
Section 3.5.1 is a Potential Change of Control and no Change of Control
occurs within one year of the Potential Change of Control, amounts in the
Trust may revert to the Company at the expiration of such one-year period,
and (ii) if Executive has brought a lawsuit against the Company claiming
amounts or benefits under this Agreement, no amounts from the Trust shall
revert to the Company while such claim is pending.
3.6 Legal Expenses. If Executive determines in good faith to retain legal
counsel and/or to incur other reasonable costs or expenses in order to
enforce any or all of Executive's rights under this Agreement, the Company
shall pay all such attorneys' fees, costs and expenses incurred in
connection with non-frivolous applications to interpret or enforce
Executive's rights. In addition, during the pendency of any such
controversy or claim, the Company will continue to pay Executive, with the
customary frequency, the greater of Executive's base pay as in effect
immediately prior to the Triggering Event or immediately prior to
Executive's termination of employment, and, to the extent permitted under
law, to provide the Executive with the same benefits Executive was
receiving immediately prior to the Triggering Event until the controversy
or claim finally is resolved. These payments and the provision of benefits
hereunder shall be in addition to, and not in derogation or mitigation of
any other payment or benefit due Executive under this Agreement.
3.7 No Duty of Mitigation. The Executive shall have no duty to seek new
employment after his employment with the Company terminates or to take any
other actions which could reduce the amounts the Company is obligated to
pay or reduce the benefits the Company is required to provide under this
Agreement.
<PAGE>
ARTICLE IV - MISCELLANEOUS
4.1 Modification of This Agreement. Executive acknowledges and agrees
that no one employed by or representing the Company has any authority to
make oral statements which modify, waive or discharge, in any manner, any
provision of this Agreement. Executive further acknowledges and agrees
that no provision of this Agreement may be modified, waived or discharged
unless agreed to in writing, and signed and executed by Executive and the
Board, or its delegate. Executive acknowledges and agrees that in
executing this Agreement Executive has not relied upon any representation
or statement made by the Company or its representatives, other than those
specifically stated in this Agreement.
4.2 Notices. All notices required or permitted hereunder shall be made in
writing by hand-delivery, certified or registered first-class mail,
facsimile transmission or air courier guaranteeing overnight delivery to
the other party at the following addresses:
To Company: Airgas, Inc.
259 Radnor-Chester Road
Radnor, PA 19087-8675
Attention: Corporate Secretary
To Executive: William A. Rice, Jr.
1411 Connell Road
Charleston, WV 25314
or to such other address as either of such parties may designate in a
written notice served upon the other party in the manner provided herein.
All notices required or permitted hereunder shall be deemed duly given and
received when delivered by hand, if personally delivered; on the fifth day
next succeeding the date of mailing if sent by certified or registered
first-class mail, when received if sent by facsimile transmission, and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
4.3 Employment Status. Unless an agreement between the Company and the
Executive provides otherwise, the Company and Executive acknowledge that,
notwithstanding this Agreement, the employment of Executive by the Company
is "at will," and the Company may terminate Executive's employment with the
Company at any time, although certain terminations as specified in Article
II will entitle Executive to amounts and benefits from the Company.
4.4 Other Arrangements Not Affected. Except as otherwise provided herein,
this Agreement shall not have any effect on any other benefit plan,
arrangement or agreement under which Executive currently participates, has
in the past participated, or may in the future participate.
4.5 Applicable Law. The parties have agreed that this Agreement shall be
governed by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania without giving effect to conflict of law
principles.
<PAGE>
4.6 Headings. The headings used throughout this Agreement have been used
for convenience only and do not constitute matter to be considered in
interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the dates indicated below:
William A. Rice, Jr. AIRGAS, INC.
Signature: /s/William A. Rice, Jr. By: /s/Peter McCausland
William A. Rice, Jr. Peter McCausland
Date: March 17, 1999 Title: Chairman and CEO
Date: March 17, 1999
<PAGE>
To: Corporate Office Bonus Eligible Associates
From: Bill Rice
Date: April 1, 1999
Subject: Fiscal Year 2000 Bonus Plan
The Plan
How much can I earn? How does the plan actually work?
Based on your position, a bonus eligible associate has the opportunity to
earn a percentage of his or her annual base salary (called your "targeted
bonus opportunity"). This bonus is based upon the extent to which you and
Airgas achieve certain results by the end of the fiscal year. Depending on
the combined performance of these two, your bonus can be more or less than
your targeted bonus opportunity. Any bonus earned is paid annually and is
paid no later than 75 days following the end of the fiscal year.
The following sections explain the three bonus categories (Airgas
Consolidated Financials, "One Airgas," and Accountabilities). See Exhibit I
for additional administration information about the plan. If you have
questions after reading about the plan, please talk to your Manager.
<PAGE>
Airgas Consolidated Financials
Overall Weighting - 55% of Your Bonus Opportunity
The factors measured under this portion of the incentive plan and their
weightings are:
Factor Weighting
Profit Before Taxes (PBT) 50%
Debt Repayment 25%
Gross Profit Dollar Growth 25%
How do I calculate my bonus under this portion of the incentive plan?
Airgas' actual PBT is taken as a percentage of planned PBT as stated in the
Fiscal Year 2000 Business Plan. This percentage is then multiplied by its
weighting of 50%. This is repeated for Debt Repayment, except that the
percentage is multiplied by its weighting of 25%.
For Gross Profit Dollar Growth, we will be looking at gross profit dollar
growth (improvement in gross profit from Fiscal Year 1999 to Fiscal Year
2000) as compared to planned growth. To do this, actual Gross Profit
Dollar Growth is divided by planned Gross Profit Dollar Growth to determine
the percentage achievement of planned Gross Profit Dollar Growth for Fiscal
Year 2000. This percentage is then multiplied by its weighting of 25%.
<PAGE>
The following shows how the calculations are done:
For PBT, assume:
Actual FY '00 PBT = $84 million
Planned FY '00 PBT = $82 million
Actual PBT 84
- --------------------- = ------------- = 102% achievement
Planned PBT 82
102% achievement x 50% weighting = 51%
For Debt Repayment, assume:
Actual FY '00 Debt Repayment = $72 million
Planned FY '00 Debt Repayment = $75 million
Actual Debt Repayment 72
- ------------------------ = ------------ = 96% achievement
Planned Debt Repayment 75
96% achievement x 25% weighting = 24%
For Gross Profit (GP) Dollar Growth, assume:
Actual FY '99 Gross Profit = $719 million
Actual FY '00 Gross Profit = $745 million
Planned FY '00 Gross Profit = $750 million
Actual GP growth (745 - 719)
- --------------------- = -------------- = 84% achievement
Planned GP growth (750 - 719)
84% achievement x 25% weighting = 21%
<PAGE>
After doing the calculations, the result from each of the factors is added
together. This sum (Achievement Percentage) is then compared against the
Bonus Potential as shown on Exhibit II. The Bonus Potential (from Exhibit
II) that corresponds to the Achievement Percentage is multiplied by 40%
(weighting for this category) of your targeted bonus opportunity to
determine the bonus to be paid.
Continuing with our above example, assume the associate has a targeted
bonus opportunity of $5,000:
51% + 24% + 21% = 96% Achievement Percentage
87% = Bonus Potential as shown on Exhibit II
55% x $5,000 x 87% = $2,393 (Bonus payment for this factor)
Remember, however, that there will be no payment made under this portion of
the bonus plan unless Airgas' Fiscal Year 2000 EPS exceeds that of Fiscal
Year 1999.
"One Airgas"
Overall Weighting - 10% of Your Bonus Opportunity
The factors measured under this portion of the incentive plan and their
weightings are:
Factor Weighting
Cost improvement plan achievement 50%
Gas sales growth 50%
How do I calculate my bonus under this portion of the incentive plan?
The calculations are similar to what was done for Gross Profit Dollar
Growth. For cost improvements, Airgas' actual improvement (i.e.,
reduction) in Operating Expenses (excluding depreciation and amortization)
as a percentage of Gross Profit is divided by the planned improvement in
Operating Expenses (excluding depreciation and amortization) as a
percentage of Gross Profit. This ratio is then multiplied by its weighting
of 50%. A similar calculation is done for gas sales growth with the result
multiplied by its weighting of 50%.
<PAGE>
For cost improvement achievement plan assume:
Actual FY '99 Operating Expenses (OE) as a Percentage of Gross Profit = 72.63%
Actual FY'00 Operating Expenses as a Percentage of Gross Profit = 70.05%
Planned FY'00 Operating Expenses as a Percentage of Gross Profit = 70.00%
Actual OE improvement (72.63 - 70.05)
- ------------------------ = ----------------- = 98% achievement
Planned OE improvement (72.63 - 70.00)
98% achievement x 50% weighting = 49%
To calculate gas sales growth assume:
Actual Gas Sales FY '99 = $458 million
Actual Gas Sales FY '00 = $469 million
Planned Gas Sales FY '00 = $473 million
Actual Gas Sales growth (469 - 458)
- ------------------------- = -------------- = 73% achievement
Planned Gas Sales growth (473 - 458)
73% achievement x 50% weighting = 37%
After doing the calculations, the result from each of the factors is added
together. This sum (Achievement Percentage) is then compared against the
Bonus Potential as shown on Exhibit II. The Bonus Potential (from Exhibit
II) that corresponds to the Achievement Percentage is multiplied by 10%
(weighting for this category) of your targeted bonus opportunity to
determine the bonus to be paid.
Continuing with our above example, assume the associate has a targeted
bonus opportunity of $5,000:
49% + 37% = 86% Achievement Percentage
53% = Bonus Potential as shown on Exhibit II
10% x $5,000 x 53% = $265 (Bonus payment for this factor)
<PAGE>
Accountabilities
Overall Weighting - 35% of Your Bonus Opportunity
Your manager will meet with you to develop a list of measurable objectives
that you and he or she agree are important to your personal development
needs and/or support our goal of becoming "One Airgas."
When discussing your accountabilities with your manager, you and your
manager will agree upon a weighting for each accountability. No
accountability can be given a weighting of less than 20%. The total of the
weightings must equal 100%. All accountabilities should be clearly
measurable and should represent "stretch" goals that are attainable yet
challenging.
Included as Exhibit III is an Accountabilities template. The template
includes the worksheet used to document your Accountabilities.
How do I calculate my bonus under this portion of the incentive plan?
Your manager will determine the degree to which you accomplished each of
your Accountabilities based on the measurement criteria established with
you at the beginning of the fiscal year. The maximum achievement
percentage is 100%. The extent to which you achieved/completed your first
Accountability is then multiplied by its weighting. This is repeated for
the remaining Accountabilities. The product (results) from each
Accountability is added together. This sum is then multiplied by 35% of
the associate's target bonus opportunity to determine the bonus earned
under this portion of the plan.
For example, assume an associate has been assigned the following
Accountabilities:
Accountability I: Develop a procedural manual for month-end
consolidation. This should be completed by December 30, 1999.
Weighting: 40%
Accountability II: Become proficient in Hyperion by February, 2000.
Weighting: 30%
Accountability III: By January 1, 2000, implement changes to quarter-end
close procedures so that quarter-end close is completed in one less day
without adding additional staff, increasing overtime or reducing accuracy.
Weighting: 30%
<PAGE>
At the end of the year, assume the associate has achieved:
Accountability I = 100% x 40% (weighting) = 40%
Accountability II = 80% x 30% (weighting) = 24%
Accountability III = 100% x 30% (weighting) = 30%
40% + 24% + 30% = 94%
Assume, the associate has a target bonus opportunity of $5,000:
35% x $5,000 x 94% = $1,645 (Bonus payment for this factor)
How It All Works
To help you understand how the bonus payment will be calculated, the
examples shown above are summarized on Exhibit IV. If you have questions
after reviewing the examples, please talk to your Manager. He or she will
be happy to answer your questions.
<PAGE>
EXHIBIT I
Administration
- - An associate must be hired by December 31 of the current fiscal year
(i.e., December 31, 1999) to be eligible to participate in this plan for
the current fiscal year. A new hire's bonus opportunity will be pro-rated
to reflect the number of months he or she was an associate of Airgas during
the current fiscal year.
- - An associate must be an active employee on March 31 (i.e., March 31,
2000) to be eligible for a bonus.
- - If an associate transfers from one Airgas company to another, his or
her bonus calculation is based on the pro-rated time spent with each
company. All calculations are done using year-end financial data.
Accountabilities must be established by each company and performance
measured against each group of accountabilities separately.
- - If an associate is promoted during the fiscal year, new
Accountabilities must be established to reflect the new position.
- - If an associate is moved from a bonus eligible position to a non-bonus
eligible position (or vice versa), the bonus calculation is pro-rated to
represent the time worked by the associate as a bonus eligible employee.
All calculations are done using year-end financial data.
- - Bonus calculations are based on an associate's annual salary as of the
last day of the fiscal year. However, if the associate is promoted (or
demoted and the associate has had a reduction in salary) during the fiscal
year, the calculation is done to reflect the pro-rated time spent in each
position. All calculations are done using year-end financial data.
- - If an associate is on a leave of absence at the end of the fiscal
year, he or she will be eligible for a bonus provided that he or she
returns to work as an active employee for at least one month within 13
weeks of the end of the fiscal year. Any bonus paid will be pro-rated
based upon the length of time an associate was an active employee during
the fiscal year. The calculation will be made using year-end financial
data. The bonus payment will be made in the next regularly scheduled
payroll cycle at the end of the associate's first month of employment
following his or her leave of absence.
- - If an associate is on a leave of absence during the fiscal year and
returns to active status during the year, he or she will be eligible for a
bonus. Any bonus paid will be pro-rated based upon the length of time an
associate was an active employee during the fiscal year. The calculation
will be made using year-end financial data.
- - The Airgas Consolidated Financials, Region/Company Financials, and
"One Airgas" categories cannot have an achievement greater than 120%.
Accountabilities (individually or as a group) cannot have an achievement
greater than 100%.
<PAGE>
- - Eligibility for participation is determined by the function manager
(e.g., CFO; CIO; Senior Vice President, Legal and Corporate Development).
- - Participants may be given the opportunity to elect to receive their
bonus in stock, in lieu of cash. (If this option is made available at a
later date, participants will receive additional information.)
- - Nothing in this incentive plan changes an associate's at-will
employment status.
- - The Company reserves the right to modify or terminate this incentive
plan or any of its components at its discretion.
- - The Nominating and Compensation Committee, or its designate, is
responsible for the administration of this plan.
<PAGE>
EXHIBIT II
Bonus Payout Schedule
This chart is used for all calculations except for the Accountabilities
portion of this plan. The achievement percentage is the weighted
achievement of each of the factors included in the applicable portion of
the plan (i.e., Airgas Consolidated Financials, "One Airgas," and
Region/Company Financials). Please note that no payment for the Airgas
Consolidated Financials portion of the plan will be made unless Fiscal Year
2000 EPS exceeds that of Fiscal Year 1999.
Achievement Bonus
Percentage Potential
70% 0%
71% 3%
72% 7%
73% 10%
74% 13%
75% 17%
76% 20%
77% 23%
78% 27%
79% 30%
80% 33%
81% 37%
82% 40%
83% 43%
84% 47%
85% 50%
86% 53%
87% 57%
88% 60%
89% 63%
90% 67%
91% 70%
92% 73%
93% 77%
<PAGE>
Achievement Bonus
Percentage Potential
94% 80%
95% 83%
96% 87%
97% 90%
98% 93%
99% 97%
100% 100%
101% 103%
102% 105%
103% 108%
104% 110%
105% 113%
106% 116%
107% 118%
108% 121%
109% 123%
110% 126%
111% 129%
112% 131%
113% 134%
114% 136%
115% 139%
116% 142%
117% 144%
118% 147%
119% 149%
120% 152%
<PAGE>
<TABLE>
Exhibit III -- Fiscal Year 2000 Accountabilities
Associate: Title:
<CAPTION>
A. Airgas Consolidated Financial Goals (55%) FY 2000 Target Goal Percentage Results Achieved
Weighting
<S> <C> <C> <C>
Achieve Airgas consolidated financial results
consistent with the FY 2000 business plan.
1. Profit Before Taxes (PBT). 50%
2. Debt repayment. 25%
3. Gross profit dollars. 25%
100% Weighted Achievement: Actual Bonus %:
B. "One Airgas" Goals (10%) FY 2000 Target Goal Percentage Results Achieved
Weighting
Achieve Airgas consolidated goals consistent
with the FY 2000 business plan
1. Cost improvement. 50%
2. Gas sales growth. 50%
100% Weighted Achievement: Actual Bonus %:
Signed: Dated: Approved:
</TABLE>
<PAGE>
<TABLE>
Fiscal Year 2000 Accountabilities
Associate: Title:
C. Personal Accountabilities (35%). No accountability should be weighted less than 20%.
<CAPTION>
Accountabilities % % Results Achieved
Weighting Achieved
<S> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Signed: Dated: Approved:
</TABLE>
<PAGE>
Exhibit IV
Corporate
3 Factor Bonus Worksheet
Location Corp Corporate Division
Calculation Period 3/31/00
Participant Bill Smith
Annual Base Salary
(End of year) $50,000
Bonus Participation Accountabilities
percentage 10% 94% Achievement
Bonus Potential $5,000
<TABLE>
<CAPTION>
Weighted
AIRGAS FINANCIALS Achievement Weighting Achievement
<S> <C> <C> <C>
PBT_No_Royalty
Actual PBT dollars over
Planned PBT dollars
(Actual PBT/Plan PBT)
Actual '00 Plan `00
$84,000 $82,000 102% 50% 51%
Debt Repayment
Actual debt repayment versus
Planned debt repayment
(Actual debt repayment / Plan debt repayment)
Actual '00 Plan `00
$72,000 $75,000 96% 25% 24%
Gross Profits
The increase in actual gross profit
dollar growth over the planned increase
in gross profit dollar growth
(Actual Gross Profit minus Last Year Actual Gross Profit)
/ (Plan Gross Profit minus Last Year Actual Gross Profit)
Actual '99 Actual '00 Plan `00
$719,000 $745,000 $750,000
$ 26,000 $ 31,000 84% 25% 21%
100% 96% -->87%
Calculation which equals Payout table
"ONE AIRGAS" Actual '99 Actual '00 Plan `00
Oper Exp $ 522,210 $ 521,872 $ 525,000
Gross Profit $ 719,000 $ 745,000 $ 750,000
Oper Exp as Pct
of Gross Profits 72.63% 70.05% 70.00%
Improvement 2.6% 2.6% 98.1% 50% 49%
Actual '99 Actual '00 Plan '00
$ 458,000 $ 469,000 $ 473,000
Gas Sales Growth $ 11,000 $ 15,000 73% 50% 37%
50% 86% -->53%
Calculation which equals Payout table
Potential Base Bonus
TOTAL BONUS Bonus Split Potential Achievement Bonus Payout
Airgas Financials 55% $ 2,750 87% $ 2,393
One Airgas 10% 500 53% 265
Accountability Rating 35% 1,750 94% 1,645
100% $ 5,000 86% $ 4,303
</TABLE>
<PAGE>
ASSOCIATE ACKNOWLEDGMENT
I acknowledge that I have received a copy of the Fiscal Year 2000 Bonus
Plan. I further acknowledge that I understand that any Fiscal Year 2000
bonus I may be eligible for will be determined by the provisions of this
bonus plan.
________________________________ ______________________
Associate Printed Name Date
________________________________ _______________________
Associate Signature Airgas Company
<PAGE>
To: Bonus Eligible Associates
From: Bill Rice
Date: April 1, 1999
Subject: Fiscal Year 2000 Bonus Plan
The Plan
How much can I earn? How does the plan actually work?
Based on your position, a bonus eligible associate has the opportunity to
earn a percentage of his or her annual base salary (called your "targeted
bonus opportunity"). This bonus is based upon the extent to which Airgas,
your region/company, and you achieve certain results by the end of the
fiscal year. Depending on the combined performance of these three, your
bonus can be more or less than your targeted bonus opportunity. Any bonus
earned is paid annually and is paid no later than 75 days following the end
of the fiscal year.
<PAGE>
The following sections explain the four bonus categories (Airgas
Consolidated Financials, "One Airgas," Region/Company Financials, and
Accountabilities). See Exhibit I for additional administration information
about the plan. If you have questions after reading about the plan, please
talk to your Manager.
Airgas Consolidated Financials
Overall Weighting - 40% of Your Bonus Opportunity
The factors measured under this portion of the incentive plan and their
weightings are:
Factor Weighting
Profit Before Taxes (PBT) 50%
Debt Repayment 25%
Gross Profit Dollar Growth 25%
How do I calculate my bonus under this portion of the incentive plan?
Airgas' actual PBT is taken as a percentage of planned PBT as stated in the
Fiscal Year 2000 Business Plan. This percentage is then multiplied by its
weighting of 50%. This is repeated for Debt Repayment, except that the
percentage is multiplied by its weighting of 25%.
For Gross Profit Dollar Growth, we will be looking at gross profit dollar
growth (improvement in gross profit from Fiscal Year 1999 to Fiscal Year
2000) as compared to planned growth. To do this, actual Gross Profit
Dollar Growth is divided by planned Gross Profit Dollar Growth to determine
the percentage achievement of planned Gross Profit Dollar Growth for Fiscal
Year 2000. This percentage is then multiplied by its weighting of 25%.
<PAGE>
The following shows how the calculations are done:
For PBT, assume:
Actual FY '00 PBT = $84 million
Planned FY '00 PBT = $82 million
Actual PBT 84
- --------------------- = ------------- = 102% achievement
Planned PBT 82
102% achievement x 50% weighting = 51%
For Debt Repayment, assume:
Actual FY '00 Debt Repayment = $72 million
Planned FY '00 Debt Repayment = $75 million
Actual Debt Repayment 72
- ------------------------ = ------------ = 96% achievement
Planned Debt Repayment 75
96% achievement x 25% weighting = 24%
For Gross Profit (GP) Dollar Growth, assume:
Actual FY '99 Gross Profit = $719 million
Actual FY '00 Gross Profit = $745 million
Planned FY '00 Gross Profit = $750 million
Actual GP growth (745 - 719)
- --------------------- = -------------- = 84% achievement
Planned GP growth (750 - 719)
84% achievement x 25% weighting = 21%
After doing the calculations, the result from each of the factors is added
together. This sum (Achievement Percentage) is then compared against the
Bonus Potential as shown on Exhibit II. The Bonus Potential (from Exhibit
II) that corresponds to the Achievement Percentage is multiplied by 40%
(weighting for this category) of your targeted bonus opportunity to
determine the bonus to be paid.
<PAGE>
Continuing with our above example, assume the associate has a targeted
bonus opportunity of $5,000:
51% + 24% + 21% = 96% Achievement Percentage
87% = Bonus Potential as shown on Exhibit II
40% x $5,000 x 87% = $1,740 (Bonus payment for this factor)
Remember, however, that there will be no payment made under this portion of
the bonus plan unless Airgas' Fiscal Year 2000 EPS exceeds that of Fiscal
Year 1999.
"One Airgas"
Overall Weighting - 10% of Your Bonus Opportunity
The factors measured under this portion of the incentive plan and their
weightings are:
Factor Weighting
Cost improvement plan achievement 50%
Gas sales growth 50%
How do I calculate my bonus under this portion of the incentive plan?
The calculations are similar to what was done for Gross Profit Dollar
Growth. For cost improvements, Airgas' actual improvement (i.e.,
reduction) in Operating Expenses (excluding depreciation and amortization)
as a percentage of Gross Profit is divided by the planned improvement in
Operating Expenses (excluding depreciation and amortization) as a
percentage of Gross Profit. This ratio is then multiplied by its weighting
of 50%.
A similar calculation is done for gas sales growth with the result being
multiplied by its weighting of 50%.
<PAGE>
For cost improvement achievement plan assume:
Actual FY '99 Operating Expenses (OE) as a Percentage of Gross Profit =
72.63%
Actual FY'00 Operating Expenses as a Percentage of Gross Profit = 70.05%
Planned FY'00 Operating Expenses as a Percentage of Gross Profit = 70.00%
Actual OE improvement (72.63 - 70.05)
- ------------------------ = ----------------- = 98% achievement
Planned OE improvement (72.63 - 70.00)
98% achievement x 50% weighting = 49%
To calculate gas sales growth assume:
Actual Gas Sales FY '99 = $458 million
Actual Gas Sales FY '00 = $469 million
Planned Gas Sales FY '00 = $473 million
Actual Gas Sales growth (469 - 458)
- ------------------------- = -------------- = 73% achievement
Planned Gas Sales growth (473 - 458)
73% achievement x 50% weighting = 37%
After doing the calculations, the result from each of the factors is added
together. This sum (Achievement Percentage) is then compared against the
Bonus Potential as shown on Exhibit II. The Bonus Potential (from Exhibit
II) that corresponds to the Achievement Percentage is multiplied by 10%
(weighting for this category) of your targeted bonus opportunity to
determine the bonus to be paid.
Continuing with our above example, assume the associate has a targeted
bonus opportunity of $5,000:
49% + 37% = 86% Achievement Percentage
53% = Bonus Potential as shown on Exhibit II
10% x $5,000 x 53% = $265 (Bonus payment for this factor)
<PAGE>
Region/Company Financials
Overall Weighting - 25% of Your Bonus Opportunity
The factors measured and their weightings are the same as those used for
the Airgas Consolidated Financials section. They are:
Factor Weighting
Profit Before Taxes (PBT) 50%
Debt Repayment 25%
Gross Profit Dollar Growth 25%
How do I calculate my bonus under this portion of the incentive plan?
Refer to the explanation above for Airgas Consolidated Financials. The
only change to the calculation is that this category represents 25% of your
bonus opportunity rather than 40% and is based on the financial performance
of your region/company. Please note that in the unlikely event your
company's planned Fiscal Year 2000 Gross Profit is less than actual Fiscal
Year 1999 Gross Profit, you will be given a special calculation for this
factor.
Accountabilities
Overall Weighting - 25% of Your Bonus Opportunity
Your manager will meet with you to develop a list of measurable objectives
that you and he or she agree are important to your personal development
needs and/or support our goal of becoming "One Airgas."
In addition to personal development needs, there are recommended
operational measures that can be given to an associate. They are Central
Authority Implementation (the creation and implementation of operational
standards across our various companies), Lyons integration, and Radnor
brand product integration. If one of these accountabilities is chosen
(e.g., Radnor brand product integration) for a company president, then all
bonus eligible associates who have responsibility for accomplishing this
accountability (i.e., Purchasing and Sales) should also have it as one of
their accountabilities.
When discussing your accountabilities with your manager, you and your
manager will agree upon a weighting for each accountability. No
accountability can be given a weighting of less than 20%. The total of the
weightings must equal 100%. All accountabilities should be clearly
measurable and should represent "stretch" goals that are attainable yet
challenging.
Included as Exhibit III is an Accountabilities template. The template
includes the worksheet used to document your Accountabilities.
<PAGE>
How do I calculate my bonus under this portion of the incentive plan?
Your manager will determine the degree to which you accomplished each of
your Accountabilities based on the measurement criteria established with
you at the beginning of the fiscal year. The maximum achievement
percentage is 100%. The extent to which you achieved/completed your first
Accountability is then multiplied by its weighting. This is repeated for
the remaining Accountabilities. The product (results) from each
Accountability is added together. This sum is then multiplied by 25% of
the associate's target bonus opportunity to determine the bonus earned
under this portion of the plan.
For example, assume an associate has been assigned the following
Accountabilities:
Accountability I: All hardgood part numbers must be standardized in CU
and the company must be converted to Central Authority by March 31, 2000.
Weighting: 40%
Accountability II: Radnor brand products must be prominently displayed and
actively promoted in 80% of all stores. This will be evidenced by the
replacement of generic supplier (e.g., Lenco, Pro Fax, etc.) with Radnor
brand equivalents by December 30, 1999.
Weighting: 30%
Accountability III: Will prominently display and sell spools of Radnor
brand solid wire as the store brand. This will be evidenced by Radnor
brand solid wire sales accounting for at least 10% of total solid wire
sales by March 30, 2000.
Weighting: 30%
At the end of the year, assume the associate has achieved:
Accountability I = 100% x 40% (weighting) = 40%
Accountability II = 80% x 30% (weighting) = 24%
Accountability III = 100% x 30% (weighting) = 30%
40% + 24% + 30% = 94%
Assume, the associate has a target bonus opportunity of $5,000:
25% x $5,000 x 94% = $1,175 (Bonus payment for this factor)
How It All Works
To help you understand how the bonus payment will be calculated, the
examples shown above are summarized on Exhibit IV. If you have questions
after reviewing the examples, please talk to your Manager. He or she will
be happy to answer your questions.
<PAGE>
EXHIBIT I
Administration
- - An associate must be hired by December 31 of the current fiscal year
(i.e., December 31, 1999) to be eligible to participate in this plan for
the current fiscal year. A new hire's bonus opportunity will be pro-rated
to reflect the number of months he or she was an associate of Airgas during
the current fiscal year.
- - An associate must be an active employee on March 31 (i.e., March 31,
2000) to be eligible for a bonus.
- - If an associate transfers from one Airgas company to another, his or
her bonus calculation is based on the pro-rated time spent with each
company. All calculations are done using year-end financial data.
Accountabilities must be established by each company and performance
measured against each group of accountabilities separately.
- - If an associate is promoted during the fiscal year, new
Accountabilities must be established to reflect the new position.
- - If an associate is moved from a bonus eligible position to a non-bonus
eligible position (or vice versa), the bonus calculation is pro-rated to
represent the time worked by the associate as a bonus eligible employee.
All calculations are done using year-end financial data.
- - Bonus calculations are based on an associate's annual salary as of the
last day of the fiscal year. However, if the associate is promoted (or
demoted and the associate has had a reduction in salary) during the fiscal
year, the calculation is done to reflect the pro-rated time spent in each
position. All calculations are done using year-end financial data.
- - If an associate is on a leave of absence at the end of the fiscal
year, he or she will be eligible for a bonus provided that he or she
returns to work as an active employee for at least one month within 13
weeks of the end of the fiscal year. Any bonus paid will be pro-rated
based upon the length of time an associate was an active employee during
the fiscal year. The calculation will be made using year-end financial
data. The bonus payment will be made in the next regularly scheduled
payroll cycle at the end of the associate's first month of employment
following his or her leave of absence.
- - If an associate is on a leave of absence during the fiscal year and
returns to active status during the year, he or she will be eligible for a
bonus. Any bonus paid will be pro-rated based upon the length of time an
associate was an active employee during the fiscal year. The calculation
will be made using year-end financial data.
- - The Airgas Consolidated Financials, Region/Company Financials, and
"One Airgas" categories cannot have an achievement greater than 120%.
Accountabilities (individually or as a group) cannot have an achievement
greater than 100%.
<PAGE>
- - Those eligible for participation in this plan include those listed
below. However, for those below the level of Company President (or the
equivalent), actual participation is determined by the associate's Company
President; the Vice President, Gas Operations; the Vice President,
Hardgoods; or the Vice President, Direct Sales, as appropriate.
O Company Presidents and their direct reports;
O Those designated by their Company President for participation;
O The Vice President, Gas Operations and his direct reports;
O The direct reports of those reporting to the Vice President,
Gas Operations;
O President, Eastern and Western Divisions;
O Eastern and Western Division staff;
O Vice President, Hardgoods and his or her direct reports;
O Vice President, Direct Sales and his or her direct reports; and
O Those designated by the Vice President, Gas Operations; Vice
President, Hardgoods, and Vice President, Direct Sales for
participation.
- - Participants may be given the opportunity to elect to receive their
bonus in stock, in lieu of cash. (If this option is made available at a
later date, participants will receive additional information.)
- - Nothing in this incentive plan changes an associate's at-will
employment status.
- - The Company reserves the right to modify or terminate this incentive
plan or any of its components at its discretion.
- - The Nominating and Compensation Committee, or its designate, is
responsible for the administration of this plan.
<PAGE>
EXHIBIT II
Bonus Payout Schedule
This chart is used for all calculations except for the Accountabilities
portion of this plan. The achievement percentage is the weighted
achievement of each of the factors included in the applicable portion of
the plan (i.e., Airgas Consolidated Financials, "One Airgas," and
Region/Company Financials). Please note that no payment for the Airgas
Consolidated Financials portion of the plan will be made unless Fiscal Year
2000 EPS exceeds that of Fiscal Year 1999.
Achievement Bonus
Percentage Potential
70% 0%
71% 3%
72% 7%
73% 10%
74% 13%
75% 17%
76% 20%
77% 23%
78% 27%
79% 30%
80% 33%
81% 37%
82% 40%
83% 43%
84% 47%
85% 50%
86% 53%
87% 57%
88% 60%
89% 63%
90% 67%
91% 70%
92% 73%
93% 77%
<PAGE>
Achievement Bonus
Percentage Potential
94% 80%
95% 83%
96% 87%
97% 90%
98% 93%
99% 97%
100% 100%
101% 103%
102% 105%
103% 108%
104% 110%
105% 113%
106% 116%
107% 118%
108% 121%
109% 123%
110% 126%
111% 129%
112% 131%
113% 134%
114% 136%
115% 139%
116% 142%
117% 144%
118% 147%
119% 149%
120% 152%
<PAGE>
<TABLE>
Exhibit III -- Fiscal Year 2000 Accountabilities
Associate: Title:
A. Airgas Consolidated Financial Goals (40%) FY 2000 Target Goal Percentage Results Achieved
Weighting
<S> <C> <C> <C>
Achieve Airgas consolidated financial results
consistent with the FY 2000 business plan.
1. Profit Before Taxes (PBT). 50%
2. Debt repayment. 25%
3. Gross profit dollars. 25%
100% Weighted Achievement:
Actual Bonus %:
B. "One Airgas" Goals (10%) FY 2000 Target Goal Percentage Results Achieved
Weighting
Achieve Airgas consolidated goals consistent
with the FY 2000 business plan.
1. Cost improvement. 50%
2. Gas sales growth. 50%
100% Weighted Achievement:
Actual Bonus %:
C. Region/Company Financial Goals (25%) FY 2000 Target Goal Percentage Results Achieved
Weighting
Achieve region/company financial results
consistent with the FY 2000 business plan.
1. Profit Before Taxes (PBT). 50%
2. Debt repayment. 25%
3. Gross profit dollars. 25%
100% Weighted Achievement:
Actual Bonus %:
Signed: Dated: Approved:
</TABLE>
<PAGE>
<TABLE>
Fiscal Year 2000 Accountabilities
Associate: Title:
D. Personal Accountabilities (25%). No accountability should be weighted less than 20%.
<CAPTION>
Accountabilities % % Results Achieved
Weighting Achieved
<S> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Signed: Dated: Approved:
</TABLE>
<PAGE>
Exhibit IV
Regional Company
4 Factor Bonus Worksheet
Location Region Field Location
Calculation Period 3/31/00
Participant Bill Smith
Annual Base Salary
(End of year) $50,000
Bonus Participation Accountabilities
percentage 10% 94% Achievement
Bonus Potential $5,000
<TABLE>
<CAPTION>
Weighted
AIRGAS FINANCIALS Achievement Weighting Achievement
<S> <C> <C> <C>
PBT_No_Royalty
Actual PBT dollars over Planned PBT dollars
(Actual PBT/Plan PBT)
Actual '00 Plan `00
$84,000 $82,000 102% 50% 51%
Debt Repayment
Actual debt repayment versus Planned debt repayment
(Actual debt repayment / Plan debt repayment)
Actual '00 Plan `00
$72,000 $75,000 96% 25% 24%
Gross Profits
The increase in actual gross profit dollar growth
over the planned increase in gross profit dollar growth
(Actual Gross Profit minus Last Year Actual Gross Profit)
/ (Plan Gross Profit minus Last Year Actual Gross Profit)
Actual '99 Actual '00 Plan `00
$719,000 $745,000 $750,000
$ 26,000 $ 31,000 84% 25% 21%
100% 96% -->87%
Calculation which equals Payout table
Weighted
REGION FINANCIALS Achievement Weighting Achievement
PBT_No_Royalty
Actual PBT dollars over Planned PBT dollars
(Actual PBT/Plan PBT)
Actual '00 Plan `00
$4,200 $4,100 102% 50% 51%
Debt Repayment
Actual debt repayment versus Planned debt repayment
(Actual debt repayment / Plan debt repayment)
Actual '00 Plan `00
$3,600 $3,750 96% 25% 24%
Gross Profits
The increase in actual gross profit dollar growth
over the planned increase in gross profit dollar growth
(Actual Gross Profit minus Last Year Actual Gross Profit)
/ (Plan Gross Profit minus Last Year Actual Gross Profit)
Actual '99 Actual '00 Plan `00
$35,950 $37,250 $37,500
$ 1,300 $ 1,550 84% 25% 21%
100% 96% -->87%
Calculation which equals Payout table
"ONE AIRGAS" Actual '99 Actual '00 Plan `00
Oper Exp $522,210 $521,872 $525,000
Gross Profit $719,000 $745,000 $750,000
Oper Exp as Pct
of Gross Profits 72.63% 70.05% 70.00%
Improvement 2.6% 2.6% 98.1% 50% 49%
Actual '99 Actual '00 Plan '00
$458,000 $469,000 $473,000
Gas Sales Growth $ 11,000 $ 15,000 73% 50% 37%
50% 86% -->53%
Calculation which equals Payout table
Potential Base Bonus
TOTAL BONUS Bonus Split Potential Achievement Bonus Payout
Airgas Financials 40% $ 2,000 87% $ 1,740
Region Financials 25% $ 1,250 87% 1,088
One Airgas 10% 500 53% 265
Accountability Rating 25% 1,250 94% 1,175
100% $ 5,000 85% $ 4,268
</TABLE>
<PAGE>
ASSOCIATE ACKNOWLEDGMENT
I acknowledge that I have received a copy of the Fiscal Year 2000 Bonus
Plan. I further acknowledge that I understand that any Fiscal Year 2000
bonus I may be eligible for will be determined by the provisions of this
bonus plan.
________________________________ ______________________
Associate Printed Name Date
________________________________ _______________________
Associate Signature Airgas Company
<PAGE>
Exhibit 11
AIRGAS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
For the Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Years Ended March 31,
1999 1998 1997
<S> <C> <C> <C>
Weighted Average Shares Outstanding:
Basic shares outstanding 70,000,000 68,700,000 65,900,000
Net common stock equivalents 1,700,000 2,100,000 2,700,000
Diluted shares outstanding 71,700,000 70,800,000 68,600,000
Net earnings $51,924,000 $40,540,000 $23,266,000
Basic earnings per share $ .74 $ .59 $ .35
Diluted earnings per share $ .72 $ .57 $ .34
</TABLE>
<PAGE>
Exhibit 21
Airgas, Inc. and Subsidiaries
Corporation Name Domicile
Airgas- Gulf States, Inc. DE
Airgas- Intermountain, Inc. DE
Airgas- Michigan, Inc. DE
Airgas- Mid America, Inc. DE
Airgas- Mid Atlantic, Inc. DE
Airgas- Mid South, Inc. DE
Airgas- Mountain States, Inc. DE
Airgas- Nor Pac, Inc. DE
Airgas- North Central, Inc. DE
Airgas- Northeast, Inc. DE
Airgas- Northern California & Nevada, Inc. DE
Airgas- South, Inc. DE
Airgas- Southwest, Inc. DE
Airgas- West, Inc. CA
Airgas Canada, Inc. Canada
Airgas Carbonic Enterprises, Inc. DE
Airgas Carbonic, Inc. DE
Airgas Data,LLC. DE
Airgas Direct Industrial Vessel, LLC. DE
Airgas Direct Industrial, Inc. DE
Airgas International, Inc. VI
Airgas Lyons, Inc. DE
Airgas Management (Indian) Pvt. Ltd. India
Airgas New England Real Estate, Inc. DE
Airgas Polska Zo.o Poland
Airgas Realty, Inc. DE
Airgas Safety, Inc. DE
Airgas Specialty Gases, Inc. TX
AMI Equipment, LLC. PA
ATNL, Inc. DE
Cylinder Leasing Corp. DE
FORAIR, Inc. DE
Forgas, Inc. DE
JWS Airgas, Inc. NJ
Kamool Airgas, Ltd. Thailand
Mauritius Industrial Gases, Inc. Mauritius
NEJD Pipeline Co., Inc. DE
Nitrous Oxide Corp. DE
Poligaz-Gdansk Poland
Poligaz, SA. Poland
Red-D-Arc, Inc. NV
Red-D-Arc Limited Canada
RSCI,Inc. DE
Rutland Tool & Supply Co., Inc. CA
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Airgas, Inc.:
We consent to incorporation by reference in the Registration Statements
(Nos. 33-39433, 33-48388, 33-57893, 33-61301, 33-61899, 33-63201, 33-64633,
333-08113, 333-37863, 333-46739, 333-60995 and 333-61989) on Form S-3 and
(Nos. 33-21780, 33-25419, 33-33954, 33-64056, 33-64058, 33-64112, 33-64114,
333-28261, 333-42023 and 333-60999) on Form S-8 of Airgas, Inc. of our
report dated May 12, 1999, relating to the consolidated balance sheets of
Airgas, Inc. and subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1999,
and all related schedules, which report is included in the March 31, 1999,
Annual Report on Form 10-K of Airgas, Inc.
KPMG LLP
Philadelphia, PA
June 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 201,800
<ALLOWANCES> 6,092
<INVENTORY> 154,424
<CURRENT-ASSETS> 378,842
<PP&E> 993,496
<DEPRECIATION> 275,637
<TOTAL-ASSETS> 1,698,472
<CURRENT-LIABILITIES> 213,426
<BONDS> 847,841
<COMMON> 720
0
0
<OTHER-SE> 470,225
<TOTAL-LIABILITY-AND-EQUITY> 1,698,472
<SALES> 1,561,218
<TOTAL-REVENUES> 1,561,218
<CGS> 838,055
<TOTAL-COSTS> 1,448,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,298
<INCOME-PRETAX> 86,361
<INCOME-TAX> 34,437
<INCOME-CONTINUING> 51,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,924
<EPS-BASIC> .74
<EPS-DILUTED> .72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 186,342
<ALLOWANCES> 5,676
<INVENTORY> 154,937
<CURRENT-ASSETS> 366,834
<PP&E> 923,635
<DEPRECIATION> 236,331
<TOTAL-ASSETS> 1,641,474
<CURRENT-LIABILITIES> 225,558
<BONDS> 830,845
<COMMON> 714
0
0
<OTHER-SE> 426,159
<TOTAL-LIABILITY-AND-EQUITY> 1,641,474
<SALES> 1,447,990
<TOTAL-REVENUES> 1,447,990
<CGS> 779,538
<TOTAL-COSTS> 1,329,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,290
<INCOME-PRETAX> 70,529
<INCOME-TAX> 29,989
<INCOME-CONTINUING> 40,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,540
<EPS-BASIC> .59
<EPS-DILUTED> .57
</TABLE>
