-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F7XKO9tdi0zpWpH3OGS6l0zwGpPaabpR7Kb12qbdjU5etkyqB2ibgImHEF68rTpx zt+MynLC7oYoUvUM7K4ETQ== 0000804212-96-000013.txt : 19960813 0000804212-96-000013.hdr.sgml : 19960813 ACCESSION NUMBER: 0000804212-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRGAS INC CENTRAL INDEX KEY: 0000804212 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CHEMICALS & ALLIED PRODUCTS [5160] IRS NUMBER: 560732648 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09344 FILM NUMBER: 96608852 BUSINESS ADDRESS: STREET 1: 100 MATSONFORD RD STE 550 STREET 2: 5 RADNOR CORPORATE CENTER CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 2156875253 MAIL ADDRESS: STREET 1: 5 RADNOR CORPORATE CENTER, STE 550 STREET 2: 100 MATSONFORD ROAD CITY: RADNOR STATE: PA ZIP: 19087 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended: June 30, 1996 _____________________________ Commission file number: 1-9344 _____________________________ AIRGAS, INC. ______________________________________________________________________________ (Exact name of Registrant as specified in its charter) Delaware 56-0732648 _______________________________ __________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 Radnor Corporate Center, Suite 550 100 Matsonford Road Radnor, PA 19087-4579 _______________________________________ ________________ (Address of principal executive offices) (ZIP code) (610) 687-5253 __________________________________________________ (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ______ Common Stock outstanding at August 1, 1996: 64,475,912 shares 2 AIRGAS, INC. FORM 10-Q June 30, 1996 INDEX PART I - FINANCIAL INFORMATION ______________________________ Consolidated Balance Sheets as of June 30, 1996 and March 31, 1996....................................................3 Consolidated Statements of Earnings for the Three Months Ended June 30, 1996 and 1995.....................5 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1996 and 1995.....................6 Notes to Consolidated Financial Statements.................................7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................11 PART II - OTHER INFORMATION ___________________________ Exhibits and Reports on Form 8-K..........................................17 Signatures................................................................18 3 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. AIRGAS, INC. CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, March 31, 1996 1996 (Unaudited) _____________ ________ ASSETS Current Assets Trade receivables, less allowances for doubtful accounts of $3,819 at June 30, 1996 and $3,396 at March 31, 1996 $139,228 $120,811 Inventories 106,113 86,162 Prepaid expenses and other current assets 16,508 11,601 _________ _______ Total current assets 261,849 218,574 _________ _______ Plant and Equipment, at cost 617,211 586,328 Less accumulated depreciation and amortization (156,592) (147,451) _________ _______ Plant and equipment, net 460,619 438,877 Other Non-current Assets 117,598 60,948 Goodwill, net of accumulated amortization of $21,121 at June 30, 1996 and $19,552 at March 31, 1996 212,113 165,243 _________ _______ Total assets $1,052,179 $883,642 ========= ======= See accompanying notes to consolidated financial statements.
4 AIRGAS, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) (In thousands, except per share amounts)
June 30, March 31, 1996 1996 (Unaudited) ___________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY ____________________________________ Current Liabilities Current portion of long-term debt $ 17,644 $ 12,179 Accounts payable, trade 57,703 52,528 Accrued expenses and other current liabilities 76,149 72,279 _________ _______ Total current liabilities 151,496 136,986 _________ _______ Long-Term Debt 522,288 385,832 Deferred Income Taxes 90,233 88,400 Other Non-current Liabilities 36,044 34,490 Minority Interest in Subsidiaries 1,954 1,725 Stockholders' Equity Common stock $.01 par value, 200,000 shares authorized, 66,788 and 66,314 shares issued at June 30, 1996 and March 31, 1996, respectively 669 663 Capital in Excess of Par Value 94,296 91,512 Retained earnings 184,510 173,360 Cumulative Translation Adjustment (395) (410) Treasury Stock, 2,355 common shares at cost at June 30, 1996 and March 31, 1996, respectively (28,916) (28,916) _________ _______ Total stockholders' equity 250,164 236,209 _________ _______ Total liabilities and stockholders' equity $1,052,179 $ 883,642 ========= ======= See accompanying notes to consolidated financial statements.
5 AIRGAS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In thousands, except per share amounts)
Three Months Ended Three Months Ended June 30, 1996 June 30, 1995 __________________ __________________ Net sales: Gas Distribution $248,129 $185,634 Industrial Distribution 16,452 - Manufacturing 9,517 8,638 _______ _______ Total net sales 274,098 194,272 _______ _______ Costs and expenses: Cost of products sold (excluding depreciation and amortization) Gas Distribution 126,590 90,921 Industrial Distribution 13,432 - Manufacturing 6,330 5,736 Selling, distribution and administrative expenses 86,187 65,137 Depreciation and amortization 14,238 10,441 _______ _______ Total costs and expenses 246,777 172,235 _______ _______ Operating income: Gas Distribution 24,944 20,479 Industrial Distribution 544 - Manufacturing 1,833 1,558 _______ _______ 27,321 22,037 Interest expense, net (8,281) (5,588) Other income, net 281 211 Minority interest (229) (191) _______ _______ Earnings before income taxes 19,092 16,469 Income taxes 7,942 7,015 _______ _______ Net earnings $ 11,150 $ 9,454 ======= ======= Earnings per share $ .17 $ .15 ======= ======= Weighted average shares 67,095 65,152 ======= ======= See accompanying notes to consolidated financial statements.
6 AIRGAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Three Months Ended June 30, 1996 June 30, 1995 __________________ __________________ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 11,150 $ 9,454 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 14,238 10,441 Deferred income taxes 2,382 2,806 Equity in earnings of unconsolidated affiliates (315) (297) Gain on sale of plant and equipment 3 0 Minority interest in earnings 229 191 Stock issued for employee benefit plan 1,146 790 Changes in assets and liabilities, excluding effects of business acquisitions: Trade receivables, net (5,104) 1,534 Inventories (10,494) (1,773) Prepaid expenses and other current assets (3,190) (1,153) Accounts payable, trade 220 (5,919) Accrued expenses and other current liabilities 278 (1,363) Other assets and liabilities, net (5,513) 598 _______ _______ Net cash provided by operating activities 5,030 15,309 _______ _______ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (14,814) (8,592) Proceeds from sale of plant and equipment 947 379 Business acquisitions, net of cash acquired (78,877) (13,094) Investment in unconsolidated affiliates (27,917) 0 Other, net 403 213 _______ _______ Net cash used by investing activities (120,258) (21,094) _______ _______ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 239,589 81,336 Repayment of debt (123,832) (60,000) Repurchase of treasury stock 0 (15,540) Exercise of options and warrants 1,004 1,674 Net overdraft (1,533) (1,685) _______ _______ Net cash provided by financing activities 115,228 5,785 _______ _______ CHANGE IN CASH $ 0 $ 0 Cash - beginning of period 0 0 _______ _______ Cash - end of period $ 0 $ 0 ======= ======= See accompanying notes to consolidated financial statements. 7 AIRGAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION _____________________ The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (the "Company"). Unconsolidated affiliates are accounted for on the equity method and generally consist of 20 - 50% owned operations where control does not exist or is considered temporary. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial statements. These statements do not include all disclosures required for annual financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the Company's audited consolidated financial statements for the year ended March 31, 1996. The financial statements reflect, in the opinion of management, all adjustments (normal recurring adjustments) necessary to present fairly the Company's consolidated balance sheets at June 30, 1996 and March 31, 1996; the consolidated statements of earnings for the three months ended June 30, 1996 and 1995; and the consolidated statements of cash flows for the three months ended June 30, 1996 and 1995. The interim operating results are not necessarily indicative of the results to be expected for an entire year. (2) ACQUISITIONS ____________ From April 1, 1996 to June 30, 1996, the Company acquired nine businesses engaged in the distribution of industrial, medical and specialty gases and welding supplies and one distributor of safety and industrial supplies, with annual sales of approximately $107 million. The aggregate purchase price, including amounts related to non-competition and confidentiality agreements, amounted to approximately $99 million and includes cash and real estate acquired of $368 thousand and $2 million, respectively. Acquisitions have been recorded using the purchase method of accounting, and, accordingly, results of their operations have been included in the Company's consolidated financial statements since the effective dates of the respective acquisitions. Subsequent to June 30, 1996, the Company has acquired industrial gas distribution businesses with annual sales of approximately $9 million. In addition, on August 1, 1996, the Company announced that it signed a letter of intent to acquire Rutland Tool & Supply Co., Inc. ("Rutland"). In the proposed transaction, Rutland shareholders will receive approximately $65 million of Airgas common stock in exchange for all of their Rutland stock. The Rutland acquisition is expected to close by September 1, 1996. 8 AIRGAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) (3) INVENTORIES ___________ Inventories consist of: (In thousands)
June 30, March 31, 1996 1996 ________ ________ Finished goods $106,994 $ 85,626 Raw materials 525 1,879 _______ _______ 107,519 87,505 Less reduction to LIFO cost ( 1,406) (1,343) _______ _______ $106,113 $ 86,162 ======= =======
(4) PLANT AND EQUIPMENT ___________________ The major classes of plant and equipment are as follows: (In thousands)
June 30, March 31, 1996 1996 _____________ _________ Land and land improvements $ 21,292 $ 20,066 Building and leasehold improvements 59,041 58,153 Machinery and equipment, including cylinders 499,107 472,868 Transportation equipment 35,285 33,724 Construction in progress 2,486 1,517 _______ _______ $617,211 $586,328 ======= =======
9 AIRGAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) (5) OTHER NON-CURRENT ASSETS _______________________ Other non-current assets include: (In thousands)
June 30, March 31, 1996 1996 _____________ _________ Investment in unconsolidated affiliates $ 57,089 $ 9,332 Noncompete agreements and other intangible assets, at cost, net of accumulated amortization of $49.5 million at June 30, 1996 and $46.7 million at March 31, 1996 51,983 47,530 Other assets 8,526 4,086 _______ _______ $117,598 $ 60,948 ======= ======= Investment in unconsolidated affiliates at June 30, 1996 includes the Company's investment of approximately $47.6 million in cash and notes related to the June 28, 1996 purchase of 45% of the voting capital stock of National Welders Supply Company, Inc.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES ______________________________________________ Accrued expenses and other current liabilities include: (In thousands)
June 30, March 31, 1996 1996 _____________ _________ Cash overdraft $ 14,173 $ 15,706 Insurance payable and related reserves 5,888 5,297 Customer cylinder deposits 8,325 7,058 Other accrued expenses and current liabilities 47,763 44,218 _______ _______ $ 76,149 $ 72,279 ======= =======
10 AIRGAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) (7) EARNINGS PER SHARE __________________ Earnings per share amounts were determined using the treasury stock method. (8) COMMITMENTS AND CONTINGENCIES _____________________________ The Company is involved in various legal proceedings which have arisen in the ordinary course of its business and have not been finally adjudicated. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material adverse effect upon the Company's financial condition, results of operations or liquidity. On July 26, 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleges tortious interference with business or contractual relations with respect to Praxair's Right of First Refusal contract with National Welders Supply Company, Inc. ("National Welders") by the Company in connection with the Company's formation of a joint venture with the majority shareholders of National Welders. Praxair is seeking compensatory damages in excess of $100 million and punitive damages. The Company believes that Praxair's claims are without merit and intends to defend vigorously against such claims. 11 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL REVIEW ________________ OVERVIEW ________ The Company's financial results for the quarter ended June 30, 1996 reflect substantial growth compared with the first quarter last year. Net sales of $274.1 million, net earnings of $11.1 million and earnings per share of $.17 represent increases over the prior period of 41%, 18% and 13%, respectively. Net sales increased during the quarter ended June 30, 1996 over the same period in the prior year primarily due to an increase in same-store distribution sales and the acquisition of distribution companies. The increase in net earnings was primarily due to an increase in gross profits from higher same-store distribution sales, which were up approximately 4.5% quarter-over-quarter, and earnings and cash flow generated by the 50 distribution businesses acquired since April 1, 1995. The Company intends to strategically broaden its product line in order to increase sales to existing customers and to take advantage of its distribution network. Recent product line additions have included returnable containers, specialty gases (such as refrigerants and sterilizing gases) and additional hardgoods (such as industrial supplies, safety products and coatings). In April 1996, the Company acquired IPCO Safety Products Company (IPCO), a $55 million distributor of industrial safety equipment and supplies. IPCO represents the Company's first acquisition in its Industrial Distribution Division (IDD) segment. The Company's strategy is to acquire additional industrial distribution companies with a focus on increasing same-store sales of new industrial product lines through both the acquired businesses and its existing distribution customers. The Company continued its strategy with the announcement of its intent to acquire Rutland Tool & Supply Co., Inc., a $65 million distributor of metal working and industrial tools and supplies. The Rutland acquisition is expected to close September 1, 1996. The Company believes the selective addition of complementary product offerings will enable it to better serve its diverse, expanding customer base. After tax cash flow (net earnings plus depreciation, amortization and deferred income taxes) increased 22% to the record level of $27.8 million from $22.7 million in the 1995 quarter. After tax cash flow is an important measurement of the Company's ability to repay debt through operations and provides the Company with the ability to pursue investment alternatives such as acquisitions and the repurchase of Company stock. 12 RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995 __________________________ Net sales increased 41% during the quarter ended June 30, 1996 compared to the same quarter in the prior year: (in thousands)
1996 1995 Increase ____ ____ __________ Gas Distribution $248,129 $185,634 $ 62,495 Industrial Distribution 16,452 - 16,452 Manufacturing 9,517 8,638 879 _______ _______ _______ $274,098 $194,272 $ 79,826 ======= ======= =======
For the quarter ended June 30, 1996, Gas Distribution sales increased approximately $53 million resulting from the acquisition of 49 distributors since April 1, 1995 and approximately $9 million from same-store sales. The Company estimates that had all acquisitions during the quarter ended June 30, 1996 been consummated on April 1, 1996, Gas Distribution sales for 1996 would have been approximately $4 million higher. The increase in same-store sales of approximately 3.8% is partially attributable to an increased volume of lower margin hardgoods sales and refrigerant gases. The Company estimates same-store sales based on a comparison of current period sales to the prior period's sales, adjusted for acquisitions. Future same-store sales growth is dependent on the economy, and, to a lesser extent, the Company's ability to expand markets for new and existing products and to increase prices. Management believes the Company's broad customer base and geographic diversity help to reduce the adverse effects of an economic downturn on the Company. Also, management believes that the gas portion of its Gas Distribution business is somewhat resistant to an economic downturn. Management further believes that sales of certain lower margin non-consumable hardgoods equipment, such as welding machines, are more likely to be adversely impacted during a downturn in the economy and, conversely, are typically the fastest to rebound during an economic recovery. IDD's sales consist solely of hardgoods products. IDD's same store sales increased approximately 17% during the quarter ended June 30, 1996 compared to 1995. Sales for the Company's manufacturing operations increased 10% during the quarter ended June 30, 1996 primarily as a result of an increase in the demand for carbon products. 13 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The increase in Gas Distribution gross profit of $26.8 million over 1995 resulted from acquisitions which contributed $23.7 million and from same-store gross profit growth of $3.1 million. The same-store gross profit growth is attributable to increased sales of lower margin hardgoods and refrigerant gases, increased sales of gases related to the Company's small bulk program, and growth in rental income as a result of price increases and better utilization of the Company's cylinder population. Sales of lower margin hardgoods and refrigerant gases, combined with recent acquisitions which have a higher mix of lower margin hardgoods, contributed to the decrease in gross margin from 51% in 1995 to 49% in the current quarter. Selling, distribution and administrative expenses as a percentage of gross profit increased to 78.6% compared to 77.4% in 1995. Of such expenses, distribution expenses and selling, general and administrative expenses increased as a percent of gross margin over 1995. Offsetting these increases were decreases in salaries, occupancy costs and depreciation and amortization as a percent of gross margin. Operating income increased 24% in 1996 compared to 1995: (in thousands)
1996 1995 Increase ____ ____ __________ Gas Distribution $24,944 $20,479 $ 4,465 Industrial Distribution 544 - 544 Manufacturing 1,833 1,558 275 ______ ______ ______ $27,321 $22,037 $ 5,284 ====== ====== ======
Gas Distribution operating income as a percentage of Gas Distribution sales decreased to 10.1% compared to 11% in 1995. The lower operating income margin is primarily a result of Gas Distribution acquisitions completed in the last 12 to 24 months which have a greater mix of lower margin hardgoods, with an overall operating income margin of approximately 7 to 8%. Operating margins have also been impacted by the loss of certain acquisition sales and acquisition consolidation costs. 14 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) IDD operating income as a percent of sales was 3.3% during the quarter ended June 30, 1996. Operating margins were impacted by certain low margin sales and an increase in salaries and wages expenses. In connection with the expansion of IDD, the Company has increased the staffing for certain sales and management positions. Manufacturing operating income increased $275 thousand compared to 1995 due to strong demand for carbon products. Interest expense, net, increased $2.7 million compared to 1995 primarily as a result of the increase in average outstanding debt associated with the acquisition of distribution businesses acquired since April 1, 1995, offset by slightly lower interest rates. As discussed in "Liquidity and Capital Resources" below, the Company has hedged floating interest rates under certain borrowings with interest rate swap agreements. Income tax expense represented 41.6% of pre-tax earnings in 1996 compared to 42.6% in 1995. The decrease in the effective income tax rate was primarily a result of certain tax planning strategies implemented during fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES _______________________________ The Company has primarily financed its operations, capital expenditures, stock repurchases, and acquisitions with borrowings and funds provided by operating activities. Cash flows from operating activities totaled $5.0 million for the three months ended June 30, 1996. Depreciation and amortization represent $14.2 million of cash flow from operating activities. Deferred income taxes of $2.4 million principally resulted from temporary differences. Working capital components of cash flow increased $18.3 million as a result of an increase in accounts receivable associated with higher same store sales, an increase in inventory levels to meet increased hardgoods and refrigerant gas sales volumes and an increase in prepaid expenses and other current assets. The increase in other assets and liabilities, net, primarily relates to amounts paid in connection with securing a product supply agreement. Days-sales outstanding and days-supply of inventory levels are comparable to March 31, 1996 levels. Cash used by investing activities totaled $120.2 million which was primarily comprised of $14.8 million for capital expenditures, $78.9 million related to acquisitions and $27.9 million related to the Company's investment in National Welders Supply (see footnote 5 and Item 6, Exhibits and Reports on Form 8-K). The Company's use of cash for capital expenditures was partially attributable to the continued assimilation of certain acquisitions which has required the Company to make capital expenditures in areas such as combining cylinder fill plants, improving truck fleets and purchasing cylinders in order to return cylinders rented from third parties. Additionally, capital expenditures include the purchase of cylinders and bulk tanks necessary to facilitate gas sales growth. The Company estimates that its maintenance capital expenditures are approximately 2% of net sales. The Company considers the replacement of existing capital assets to be maintenance capital expenditures. 15 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In addition, the Company has recently undertaken initiatives to further develop its industrial gas customer base to selectively include customers which require large volume supplies of gases, such as nitrogen. For these customers, the Company will enter into a long-term supply contract and will construct an air separation plant near the customer's facility or facilities. The Company has entered into agreements with two customers and is constructing two air separation plants which will begin production during fiscal 1998. Upon completion, as lessee, the Company intends to lease the plants under long-term operating leases. Financing activities provided cash of $115.8 million with total debt outstanding increasing by $141.9 million from March 31, 1996. Debt incurred in connection with the acquisition of distribution businesses and the Company's investment in National Welders Supply, including seller notes and assumed notes, totalled $105 million. The Company's primary source of borrowing is a $375 million unsecured revolving credit facility with various commercial banks which matures on August 10, 2000. At June 30, 1996, the Company had approximately $216 million in borrowings under the facility and approximately $78 million committed under letters of credit, resulting in unused availability under the facility of approximately $81 million. On February 5, 1996, the Company entered into a $100 million unsecured revolving credit facility with a group of commercial banks which matures on July 1, 1997. The facility has provided additional availability to finance the Company's ongoing acquisition program. The terms and conditions of this facility are similar to the Company's existing $375 million facility. At June 30, 1996, the Company had $100 million outstanding under the facility. The Company intends to terminate its $100 million facility in conjunction with an anticipated increase in the Company's $375 million revolving credit facility in September 1996, which will have terms and conditions similar to its existing $375 million facility. On June 28, 1996, the Company entered into an additional $100 million unsecured revolving credit facility with a commercial bank which matures on July 1, 1997. The terms and conditions of this facility are also similar to the Company's existing $375 million facility. At June 30, 1996, the Company had $60 million outstanding under the facility. The Company intends to terminate its $100 million facility in conjunction with an anticipated increase in the Company's $375 million revolving credit facility in September 1996, which will have terms and conditions similar to its existing $375 million facility. On August 8, 1996, the Company commenced a medium term note program pursuant to a registration statement filed with the Securities and Exchange Commission on July 15, 1996, which provides for the issuance of its securities with an aggregate public offering price of up to $450 million. The Company intends to use the program to refinance bank debt and for general corporate purposes. The Company has a CDN $50 million Canadian credit facility ($37 million U.S.) with various commercial banks which matures on November 14, 1998. At June 30, 1996, the Company had approximately CDN $38 million ($28 million U.S.) in borrowings outstanding under the facility, resulting in unused availability under the facility of approximately CDN $12 million ($9 million U.S.). 16 Item 2. AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company also has unsecured line of credit agreements with various commercial banks. At June 30, 1996, these agreements totaled $60 million, under which the Company had aggregate outstanding borrowings of $27 million. At June 30, 1996, the effective interest rate related to outstanding borrowings under all credit lines was approximately 5.91%. The Company's loan agreements contain covenants which include the maintenance of a minimum equity level, maintenance of certain financial ratios, restrictions on additional borrowings and limitations on dividends. In managing interest rate exposure, principally under the Company's floating rate revolving credit facilities, the Company has entered into 18 interest rate swap agreements during the period from June 1992 through June 30, 1996. The swap agreements are with major financial institutions and aggregate $224 million in notional principal amount at June 30, 1996. Approximately $205 million of the notional principal amount of the swap agreements require fixed interest payments based on an average effective rate of 6.53% for remaining periods ranging between 1 and 8 years. Two swap agreements require floating rates ($19.5 million notional amount at 5.53% at June 30, 1996). Under the terms of seven of the swap agreements, the Company has elected to receive the discounted value of the counterparty's interest payments upfront. At June 30, 1996, approximately $23 million of such payments were included in other liabilities. The Company continually monitors its positions and the credit ratings of its counterparties, and does not anticipate nonperformance by the counterparties. The Company will continue to look for appropriate acquisitions and expects to fund such acquisitions, future capital expenditure requirements and commitments related to foreign investments primarily through the use of cash flow from operations, debt, common stock for certain acquisition candidates and other available sources. Subsequent to June 30, 1996, the Company has acquired distribution businesses with annual sales of approximately $9 million. In addition, on August 1, 1996, the Company announced that it signed a letter of intent to acquire Rutland Tool & Supply Co., Inc. The Company anticipates issuing $65 million of common stock in connection with this acquisition. The Company does not currently pay dividends. OTHER _____ New Accounting Pronouncements In the first quarter of fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires the recognition of an impairment loss for an asset held for use when the estimate of undiscounted future cash flows expected to be generated by the asset is less than its carrying amount. Measurement of the impairment loss is based on fair value of the asset. Management believes that the adoption of this statement will not have a material impact on earnings, financial condition or liquidity of the Company. The Company accounts for stock options according to the provisions of Accounting Principles Board Opinion 25 (APB 25), "Accounting for Stock Issued to Employees." In October 1995, the Financial Accounting Standards Board issued FASB Statement No. 123, "Accounting for Stock-Based Compensation." The new standard defines a fair value method of accounting for stock options and 17 AIRGAS, INC. similar equity instruments. Companies may elect to continue to use existing accounting rules or adopt the fair value method for expense recognition. Companies that elect to continue to use existing accounting rules are required to provide pro-forma disclosures of net income and earnings per share assuming the fair value method was adopted. The Company has elected to continue to use existing accounting rules. Accordingly, the Company will present the required pro-forma disclosure provisions for its fiscal year ending March 31, 1997. As the Company will continue to account for stock-based compensation using the intrinsic value method, this statement will not have a material impact on earnings, financial condition or liquidity of the Company. Forward-looking Statements This report contains forward-looking statements. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, there are certain important factors that could cause the Company's actual results to differ materially from those included in such forward- looking statements. Some of the important factors which could cause actual results to differ materially from those projected include, but are not limited to: the Company's ability to continue to identify and complete strategic acquisitions to enter new markets and expand existing business; continued availability of financing to provide additional sources of funding for future acquisitions; capital expenditure requirements and foreign investments; 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. PART II - OTHER INFORMATION Item 1. Legal Proceedings On July 26, 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleges tortious interference with business or contractual relations with respect to Praxair's Right of First Refusal contract with the majority shareholders of National Welders Supply Company, Inc. ("National Welders") by the Company in connection with the Company's formation of a joint venture with National Welders. Praxair is seeking compensatory damages in excess of $100 million and punitive damages. The Company believes that Praxair's claims are without merit and intends to defend vigorously against such claims. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits ________ 11. Calculation of earnings per share. 18 b. Reports on Form 8-K ___________________ On April 5, 1996, the Company filed a current report on Form 8-K, which provided under Item 5, audited financial statements and pro forma information for five individually insignificant businesses acquired through February 1, 1996, in accordance with Regulation S-X, Rule 3-05 (b)(l)(i). On May 7, 1996, the Company filed a current report on Form 8-K, which provided under Item 5, cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements made by or on behalf of the Company. This filing was made in connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. On June 28, 1996, the Company filed a current report on Form 8-K, providing under Item 2, the terms of a joint venture agreement by and among the Company, National Welders Supply Company, Inc. ("NWS"), J.A. Turner, Jr., Judith Carpenter, J.A. Turner, III and Linerieux B. Turner and certain other parties. The Company acquired approximately 45% of the voting capital stock of NWS for a payment in cash and notes totalling approximately $47.6 million. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 12, 1996 /s/ Britton H. Murdoch _______________ _______________________ Date Britton H. Murdoch Vice President and Chief Financial Officer EX-11 2 EXHIBIT 11 20 EXHIBIT 11 AIRGAS, INC. EARNINGS PER SHARE CALCULATIONS
Three Months Ended June 30, 1996 1995 ____ ____ Adjustment of Weighted Average Shares Outstanding: Shares of common stock outstanding - - weighted 64,239,000 61,890,000 Net common stock equivalents 2,856,000 3,262,000 __________ __________ Adjusted shares outstanding 67,095,000 65,152,000 ========== ========== Net earnings $11,150,000 $ 9,454,000 ========== ========== Primary and fully diluted Earnings Per Share $ .17 $ .15 ========== ==========
Earnings per share amounts were determined using the treasury stock method. This method assumes the exercise of all dilutive outstanding options and warrants and the use of the aggregate proceeds therefrom to acquire the Company's outstanding common stock. Net earnings were divided by the weighted average number of shares outstanding adjusted for the assumed exercise of the options and warrants outstanding and repurchase of common stock to calculate per share amounts. EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1000 3-MOS MAR-31-1997 JUN-30-1996 0 0 139,228 3,819 106,113 261,849 617,211 156,592 1,052,179 151,496 0 669 0 0 249,495 1,052,179 274,098 274,098 146,352 146,352 0 0 8,281 19,092 7,942 11,150 0 0 0 11,150 .17 .17
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