-----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, BuqMZQBPbWW9Gspgj3wMjYSTqH34sLqiJoByhIEX3MqonjUasJJO1Jc75mkn1RJT 20Jnp0yGK2X6UkipmBeMUw== 0000804212-99-000011.txt : 19990615 0000804212-99-000011.hdr.sgml : 19990615 ACCESSION NUMBER: 0000804212-99-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990611 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-K SEC ACT: SEC FILE NUMBER: 001-09344 FILM NUMBER: 99645070 BUSINESS ADDRESS: STREET 1: 259 RADNOR-CHESETER ROAD STREET 2: SUITE 100 CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6106875253 MAIL ADDRESS: STREET 1: 259 RADNOR-CHESTER ROAD STREET 2: SUITE 100 CITY: RADNOR STATE: PA ZIP: 19087 10-K 1 FORM 10-K 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. 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 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). 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. 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 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. 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. 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. 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. 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. 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.
(In thousands, except per share amounts): Years Ended March 31, (4) 1999 (1) 1998 (2) 1997 (3) 1996 1995 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. 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.
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 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. 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.
(In thousands) 1999 1998 Increase 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
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. 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.
(In thousands) 1999 1998 Increase Distribution $637,616 $605,240 $ 32,376 Gas Operations 85,547 63,212 22,335 $723,163 $668,452 $ 54,711
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%. 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.
(In thousands) 1999 1998 Increase/(Decrease) 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)
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. 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. 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. 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.
(In thousands) 1998 1997 Increase 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
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 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.
(In thousands) 1998 1997 Increase Distribution $605,240 $522,758 $ 82,482 Gas Operations 63,212 24,753 38,459 $668,452 $547,511 $120,941
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. 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.
(In thousands) 1998 1997 Increase 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
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. 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. 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 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. 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 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. 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. 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.
Expected Fiscal Year of Maturity (In millions) Fair Fixed Rate Debt: 2000 2001 2002 2003 2004 Thereafter Total Value 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%
30
Expected Fiscal Year of Maturity (In millions) Fair Interest Rate Swaps: 2000 2001 2002 2003 2004 Thereafter Total Value 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.
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. 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. 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). 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). 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. 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) 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) 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 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 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 40
AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, (In thousands, except per share amounts) 1999 1998 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.
F-4 41
AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Years Ended March 31, (In thousands, except per share amounts) 1999 1998 1997 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.
F-5 42
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 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.
F-6 43
AIRGAS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, (In thousands) 1999 1998 1997 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.
F-7 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 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 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 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 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:
Years Ended March 31, (In thousands) 1999 1998 1997 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
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 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.
Years Ended March 31, (In thousands, except per share amounts) 1999 1998 Net sales. . . . . . . . . . . . . . . . $1,574,222 $1,593,274 Net earnings . . . . . . . . . . . . . . 51,827 37,555 Diluted earnings per share . . . . . . . .72 .52
(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:
Years Ended March 31, (In thousands) 1999 1998 1997 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
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 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 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.
Accrued Balances: March 31, March 31, (In thousands) 1998 Cash Noncash 1999 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
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 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:
Years Ended March 31, (In thousands) 1999 1998 1997 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
F-16 53 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (5) INVENTORIES Inventories consist of:
March 31, (In thousands) 1999 1998 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
(6) PLANT AND EQUIPMENT The major classes of plant and equipment, at cost, are as follows:
March 31, Depreciable (In thousands) Lives (Yrs) 1999 1998 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
F-17 54 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (7) OTHER NON-CURRENT ASSETS Other non-current assets include:
March 31, (In thousands) 1999 1998 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
(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities include:
March 31, (In thousands) 1999 1998 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
F-18 55 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (9) INDEBTEDNESS (a) Long-term Debt Long-term debt consists of:
March 31, (In thousands) 1999 1998 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
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 56 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (9) INDEBTEDNESS - (Continued) The aggregate maturities of long-term debt are as follows:
In thousands Years Ending March 31, Aggregate Maturity 2000 . . . . . . . . . . . . . $ 19,645 2001 . . . . . . . . . . . . . 14,632 2002 . . . . . . . . . . . . . 78,370 2003 . . . . . . . . . . . . . 556,550 2004 . . . . . . . . . . . . . 95,573 Thereafter . . . . . . . . . . 102,716 $ 867,486
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 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:
In thousands Notional Principal Amounts Years Ending March 31, Pay-Fixed Receive-Fixed 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
(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 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 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:
Years Ended March 31, (In thousands, except per share amounts) 1999 1998 1997 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
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 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 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:
Exercise Number Price Per of Shares Share 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
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 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:
Exercise Number Price Per of Shares Share 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
Options for 314,000, 306,000 and 286,000 shares were exercisable at March 31, 1999, 1998 and 1997, respectively. F-26 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:
Options Outstanding Exercise Weighted Average Number Price Remaining Life-Years Outstanding Per Share 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
Number of Options Weighted Average Exercisable Exercise Price Per Share 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
F-27 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 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:
March 31, (In thousands) 1999 1998 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
Years Ended March 31, (In thousands) 1999 1998 1997 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
F-29 66 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (13) INTEREST EXPENSE, NET Interest expense, net, consists of:
Years Ended March 31, (In thousands) 1999 1998 1997 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
(14) INCOME TAXES Pre-tax earnings (losses) were derived from the following sources:
Years Ended March 31, (In thousands) 1999 1998 1997 United States. . . . . . . . . . . . . $83,548 $71,810 $44,199 Foreign. . . . . . . . . . . . . . . . 2,813 (1,281) 147 $86,361 $70,529 $44,346
Income tax expense consists of:
Years Ended March 31, (In thousands) 1999 1998 1997 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
F-30 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:
Years Ended March 31, 1999 1998 1997 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%
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:
March 31, (In thousands) 1999 1998 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)
F-31 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:
March 31, (In thousands) 1999 1998 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)
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 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 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:
(In thousands) 2000 . . . . . . . . . . . . $ 28,630 2001 . . . . . . . . . . . . 23,100 2002 . . . . . . . . . . . . 18,650 2003 . . . . . . . . . . . . 15,619 2004 . . . . . . . . . . . . 9,924 Thereafter . . . . . . . . . 23,489 $119,412
(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 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 Cash paid for interest expense and income taxes was as follows:
Years Ended March 31, (In thousands) 1999 1998 1997 Interest $63,316 $51,910 $38,993 Income taxes (net of refunds) 10,452 15,099 13,254
Significant non-cash transactions were as follows:
Years Ended March 31, (In thousands) 1999 1998 1997 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
The Company capitalized interest in connection with the construction of two air separation plants during 1998 and 1997. F-35 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 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.
(In thousands) Distribution Gas Operations Combined 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.
F-37 74 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (21) SUMMARY BY BUSINESS SEGMENT - (Continued)
(In thousands) Distribution Gas Operations Combined 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.
F-38 75 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (21) SUMMARY BY BUSINESS SEGMENT - (Continued)
(In thousands) Distribution Gas Operations Combined 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.
F-39 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:
Years Ended March 31, (In thousands) 1999 1998 1997 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
(22) SUPPLEMENTARY INFORMATION (UNAUDITED) This table summarizes the unaudited results of operations for each quarter of 1999 and 1998:
(In thousands, except per share amounts) First Second Third Fourth 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.
F-41 78 SCHEDULE II AIRGAS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 1999, 1998 and 1997 (In thousands of dollars)
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 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.
F-42 EX-10.12 2 EMPLOYEE BENEFITS TRUST AGREEMENT AIRGAS, INC. EMPLOYEE BENEFITS TRUST AGREEMENT Effective as of March 30, 1999 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 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 10.10 Nonassignability of Trust Interests 10.11 Assignment of Trust 10.12 Merger 10.13 Gender and Plurals 10.14 Counterparts 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: 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. 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"). 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. 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. 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. 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. 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 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. 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. 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. 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. 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; VI.3.3 to borrow from the Company pursuant to the Loan to acquire Company Stock as authorized by this Agreement; 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 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. 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. 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. 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. 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. 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. 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. 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. 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. 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: 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 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. 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 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 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: 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. 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. 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 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. 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 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 EX-10.13 3 CHANGE OF CONTROL AGREEMENT BETWEEN AIRGAS, INC. AND WILLIAM A. RICE, JR. 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; 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: 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. 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. 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. 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. 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. 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 EX-10.14 4 2000 MANAGEMENT INCENTIVE PLAN FOR CORPORATE EMPLOYEES 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. 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%. 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. 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%. 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) 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% 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. 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%. - - 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. 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% 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% Exhibit III -- Fiscal Year 2000 Accountabilities Associate: Title:
A. Airgas Consolidated Financial Goals (55%) FY 2000 Target Goal Percentage Results Achieved Weighting 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:
Fiscal Year 2000 Accountabilities Associate: Title: C. Personal Accountabilities (35%). No accountability should be weighted less than 20%.
Accountabilities % % Results Achieved Weighting Achieved 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Signed: Dated: Approved:
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
Weighted AIRGAS FINANCIALS Achievement Weighting Achievement 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
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 EX-10.15 5 2000 MANAGEMENT INCENTIVE PLAN FOR BUSINESS UNIT EMPLOYEES 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. 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%. 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. 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%. 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) 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. 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. 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%. - - 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. 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% 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% Exhibit III -- Fiscal Year 2000 Accountabilities Associate: Title: A. Airgas Consolidated Financial Goals (40%) FY 2000 Target Goal Percentage Results Achieved Weighting 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:
Fiscal Year 2000 Accountabilities Associate: Title: D. Personal Accountabilities (25%). No accountability should be weighted less than 20%.
Accountabilities % % Results Achieved Weighting Achieved 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Signed: Dated: Approved:
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
Weighted AIRGAS FINANCIALS Achievement Weighting Achievement 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
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 EX-11 6 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11 AIRGAS, INC. AND SUBSIDIARIES EARNINGS PER SHARE CALCULATIONS For the Years Ended March 31, 1999, 1998 and 1997
Years Ended March 31, 1999 1998 1997 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
EX-21 7 SUBSIDIARIES OF THE REGISTRANT 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 EX-23 8 EX-23.1 - CONSENT OF INDEPENDENT AUDITORS 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 EX-27 9 ART. 5 FDS FOR 1999
5 1000 12-MOS MAR-31-1999 MAR-31-1999 0 0 201,800 6,092 154,424 378,842 993,496 275,637 1,698,472 213,426 847,841 720 0 0 470,225 1,698,472 1,561,218 1,561,218 838,055 1,448,222 0 0 60,298 86,361 34,437 51,924 0 0 0 51,924 .74 .72
EX-27 10 ART. 5 AMENDED FDS FOR FISCAL 1998
5 1000 12-MOS MAR-31-1998 MAR-31-1998 0 0 186,342 5,676 154,937 366,834 923,635 236,331 1,641,474 225,558 830,845 714 0 0 426,159 1,641,474 1,447,990 1,447,990 779,538 1,329,042 0 0 53,290 70,529 29,989 40,540 0 0 0 40,540 .59 .57
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