-----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, RhkeAtn7DvYdzUaU1Ry31+E/WOOJwyTRQggBFVQ+2gBBfF7CkMdfNbXCfiIMObwL g9m0npUrREENjVBbJQHeXw== 0000804212-99-000015.txt : 19990812 0000804212-99-000015.hdr.sgml : 19990812 ACCESSION NUMBER: 0000804212-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRGAS INC CENTRAL INDEX KEY: 0000804212 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CHEMICALS & ALLIED PRODUCTS [5160] IRS NUMBER: 560732648 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09344 FILM NUMBER: 99684591 BUSINESS ADDRESS: STREET 1: 259 RADNOR-CHESTER 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-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1999 Commission file number: 1-9344 AIRGAS, INC. (Exact name of registrant as specified in its charter) Delaware 56-0732648 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 259 North Radnor-Chester Road, Suite 100 Radnor, PA 19087-5283 (Address of principal executive offices) (ZIP code) (610) 687-5253 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Stock outstanding at August 4, 1999: 70,776,008 shares 2 AIRGAS, INC. FORM 10-Q June 30, 1999 INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Statements of Earnings for the Three Months Ended June 30, 1999 and 1998 (Unaudited)...........3 Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and March 31,1999.......................4 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1999 and 1998 (Unaudited)...........5 Notes to Consolidated Financial Statements (Unaudited)..................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................13 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........22 PART II - OTHER INFORMATION Item 1. Legal Proceedings..................................................25 Item 6. Exhibits and Reports on Form 8-K...................................26 SIGNATURES .................................................................27 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 Net sales Distribution $ 345,967 $ 360,553 Gas Operations 33,526 40,220 Total net sales 379,493 400,773 Costs and expenses Cost of products sold (excluding depreciation and amortization) Distribution 188,432 197,351 Gas Operations 12,835 19,752 Selling, distribution and administrative expenses 126,961 129,644 Depreciation and amortization 22,166 21,597 Special charge -- (1,000) Total costs and expenses 350,394 367,344 Operating income Distribution 26,260 28,540 Gas Operations 2,839 3,889 Special charge -- 1,000 Total operating income 29,099 33,429 Interest expense, net (13,783) (14,806) Other income, net 222 122 Equity in earnings of unconsolidated affiliates 1,000 754 Earnings before income taxes and the cumulative effect of an accounting change 16,538 19,499 Income tax expense 6,863 8,224 Earnings before the cumulative effect of an accounting change 9,675 11,275 Cumulative effect of an accounting change, net of taxes (590) -- Net earnings $ 9,085 $ 11,275 Basic earnings per share: Earnings per share before the cumulative effect of an accounting change $ .14 $ .16 Cumulative effect per share of an accounting change (.01) -- Net earnings per share $ .13 $ .16 Diluted earnings per share: Earnings per share before the cumulative effect of an accounting change $ .14 $ .16 Cumulative effect per share of an accounting change (.01) -- Net earnings per share $ .13 $ .16 Weighted average shares outstanding: Basic 69,800 70,300 Diluted 71,100 72,100 Comprehensive income $ 9,234 $ 11,290 See accompanying notes to consolidated financial statements.
4 AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)
(Unaudited) June 30, March 31, 1999 1999 ASSETS Current Assets Trade receivables, less allowances for doubtful accounts of $6,514 at June 30, 1999 and $6,092 at March 31, 1999 $ 195,825 $ 195,708 Inventories, net 155,561 154,424 Deferred income tax asset 7,767 7,549 Prepaid expenses and other current assets 19,508 21,161 Total current assets 378,661 378,842 Plant and equipment, at cost 1,006,356 993,496 Less accumulated depreciation (290,080) (275,637) Plant and equipment, net 716,276 717,859 Goodwill, net of accumulated amortization of $58,319 at June 30, 1999 and $54,986 at March 31, 1999 423,959 428,349 Other non-current assets 170,130 173,422 Total assets $ 1,689,026 $ 1,698,472 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable, trade $ 71,909 $ 85,486 Accrued expenses and other current liabilities 104,407 108,295 Current portion of long-term debt 20,602 19,645 Total current liabilities 196,918 213,426 Long-term debt 850,269 847,841 Deferred income taxes 144,571 142,675 Other non-current liabilities 21,921 23,585 Commitments and contingencies -- -- Stockholders' Equity Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding at June 30, 1999 and March 31, 1999, respectively -- -- Common stock, par value $.01 per share, 200,000 shares authorized, 72,383 and 72,024 shares issued at June 30, 1999 and March 31, 1999, respectively 724 720 Capital in excess of par value 193,074 190,175 Retained earnings 298,175 289,090 Accumulated other comprehensive loss (761) (910) Treasury stock, 136 and 130 common shares at cost at June 30, 1999 and March 31, 1999, respectively (1,531) (1,129) Employee benefits trust, 1,451 and 826 common shares at cost at June 30, 1999 and March 31, 1999, respectively (14,334) (7,001) Total stockholders' equity 475,347 470,945 Total liabilities and stockholders' equity $ 1,689,026 $ 1,698,472 See accompanying notes to consolidated financial statements. 5
AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 9,085 $ 11,275 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 22,166 21,597 Deferred income taxes 3,375 2,714 Equity in earnings of unconsolidated affiliates (1,000) (1,078) Gain on sales of plant and equipment (59) (45) Minority interest in earnings (65) 66 Stock issued for employee benefit plans 1,282 1,602 Other non-cash charges 1,027 (1,000) Changes in assets and liabilities, excluding effects of business acquisitions and divestitures: Trade receivables, net (117) (9,419) Inventories, net (1,137) (9,587) Prepaid expenses and other current assets 1,436 2,773 Accounts payable, trade (13,577) 1,195 Accrued expenses and other current liabilities 503 3,504 Other assets and liabilities, net (2,774) (2,904) Net cash provided by operating activities 20,145 20,693 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (14,421) (21,648) Proceeds from sale of plant and equipment 458 427 Proceeds from divestitures -- 10,463 Business acquisitions, net of cash acquired -- (17,644) Business acquisitions, holdback settlements (250) (86) Investment in unconsolidated affiliates (30) (59) Dividends from unconsolidated affiliates 880 1,003 Other, net 88 428 Net cash used by investing activities (13,275) (27,116) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 47,158 90,159 Repayment of debt (43,773) (70,239) Purchase of treasury stock (8,608) -- Exercise of stock options 665 278 Cash overdraft (2,312) (13,775) Net cash provided (used) by financing activities (6,870) 6,423 CASH INCREASE (DECREASE) $ -- $ -- Cash - beginning of period -- -- Cash - end of period $ -- $ -- Cash paid during the period for: Interest $ 10,847 $ 10,224 Income taxes (net of refunds) $ 633 $ -- See accompanying notes to consolidated financial statements.
6 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (the "Company"). Unconsolidated affiliates are accounted for on the equity method and generally consist of 20 - 50% owned operations where control does not exist or is considered temporary. The excess of the cost of these affiliates over the Company's share of their net assets at the acquisition date is being amortized over 20 to 40 years. Intercompany accounts and transactions are eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles. These statements do not include all disclosures required for annual financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the Company's audited consolidated financial statements for the fiscal year ended March 31, 1999. The financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature except for the impact of acquisitions, divestitures, special charges and the accounting change which are discussed in the notes to the accompanying financial statements. The interim operating results are not necessarily indicative of the results to be expected for an entire year. Certain reclassifications have been made to previously issued financial statements to conform to the current presentation. (2) ACCOUNTING CHANGE The Company adopted Statement of Position 98-5 "Reporting on the Costs of Start-up Activities" ("SOP 98-5"), as required, in the first quarter of fiscal year 2000 resulting in a charge to net earnings of $590 thousand, or $.01 per diluted share. In accordance with SOP 98-5, the charge has been reflected on a separate line entitled "Cumulative effect of an accounting change, net of taxes", on the consolidated statement of earnings. The charge primarily resulted from the write-off of start-up costs capitalized in connection with the Company's two air separation units constructed during fiscal 1998 and 1999. (3) ACQUISITIONS AND DIVESTITURES Subsequent to June 30, 1999, the Company acquired three distributors of industrial gas and related equipment with aggregate annual sales of approximately $24 million. On August 4, 1999, the Company completed the divestiture of its operations in Poland and Thailand to Linde AG. After-tax cash proceeds from the sale were approximately $38 million. The Company expects to record a net gain on the sale of approximately $7 million, or $.10 per diluted share, in the second quarter of fiscal 2000. The businesses had combined net sales of $5.6 million and $5.3 million and operating losses of $521 thousand and $277 thousand in the quarters ended June 30, 1999 and June 30, 1998, respectively. The Company divested two non-core businesses during the quarter ended June 30, 1998. The consideration for the sales of the businesses included the assumption of certain liabilities and cash proceeds of approximately 7 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) $10.5 million. The businesses had combined net sales in the quarter ended June 30, 1998 of $4.6 million. Divestiture reserves, which were established during the fourth quarter of fiscal 1998, were adjusted by $1 million ($570 thousand after-tax) to reflect differences between original estimates and the completed divestitures (see "Restructuring reserves" in the table in Note 7). (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 quarters ended June 30, 1999 and 1998: June 30, (In thousands) 1999 1998 Weighted average common shares outstanding: Basic......................................... 69,800 70,300 Stock options................................. 1,200 1,800 Contingently issuable shares.................. 100 -- Diluted....................................... 71,100 72,100 (5) INVENTORIES Inventories consist of: (In thousands)
June 30, March 31, 1999 1999 Finished goods FIFO $ 136,883 $ 135,708 Finished goods LIFO 26,010 25,652 Raw materials 865 853 LIFO reserve (1,521) (1,582) Obsolescence reserve (6,676) (6,207) $ 155,561 $ 154,424
8 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (6) OTHER NON-CURRENT ASSETS Other non-current assets include: (In thousands)
June 30, March 31, 1999 1999 Investment in unconsolidated affiliates $ 100,596 $ 100,834 Non-compete agreements and other intangible assets, at cost, net of accumulated amortization of $88.5 million at June 30, 1999 and $85.5 million at March 31, 1999 52,791 55,894 Other assets 16,743 16,694 $ 170,130 $ 173,422
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities include: (In thousands)
June 30, March 31, 1999 1999 Cash overdraft $ 14,647 $ 16,959 Restructuring reserves 5,048 5,087 Insurance payable and related reserves 10,073 9,584 Customer cylinder deposits 8,278 8,233 Accrued interest 11,618 8,190 Other accrued expenses and current liabilities 54,743 60,242 $ 104,407 $ 108,295 The cash overdraft is attributable to the float of the Company's outstanding checks.
9 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (8) STOCKHOLDERS' EQUITY Changes in stockholders' equity were as follows:
(In thousands of shares) Employee Shares of Common Treasury Benefits Stock $.01 Par Value Stock Trust Balance--April 1, 1999 72,024 130 826 Common stock issuance (a) 359 -- -- Purchase of treasury stock -- 679 -- Reissuance of treasury stock (b) -- (48) -- Sale of treasury stock to Trust (c) -- (625) 625 Balance--June 30, 1999 72,383 136 1,451
(In thousands of dollars) Accumulated Capital in Other Employee Compre- Common Excess of Retained Comprehensive Treasury Benefits hensive Stock Par Value Earnings Loss Stock Trust Income Balance--April 1, 1999 $720 $190,175 $289,090 $(910) $(1,129) $(7,001) $ -- Net earnings -- -- 9,085 -- -- -- 9,085 Common stock issuance (a) 4 1,808 -- -- -- -- -- Foreign currency translation adjustments -- -- -- 149 -- -- 149 Purchase of treasury stock -- -- -- -- (7,480) -- -- Reissuance of treasury stock (b) -- (247) -- -- 424 -- -- Sale of treasury stock to Trust (c) -- 679 -- -- 6,654 (7,333) -- Tax benefit from stock option exercises -- 659 -- -- -- -- -- Balance--June 30,1999 $724 $193,074 $298,175 $(761) $(1,531) $(14,334) $9,234 (a) Issuance of common stock for stock option exercises and for the Company's Employee Stock Purchase Plan. (b) Reissuance of common stock in connection with stock option exercises. (c) Sale of common stock from treasury to the Employee Benefits Trust.
10 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (9) COMMITMENTS AND CONTINGENCIES (a) Litigation In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleged tortious interference with business or contractual relations with respect to Praxair's Right of First Refusal contract with the majority shareholders of National Welders 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 tortious interference by the Company. The North Carolina action also alleges breach of contract against National Welders and certain shareholders of National Welders and unfair trade practices and conspiracy against all the defendants. In the North Carolina action Praxair seeks compensatory damages in excess of $10 thousand, punitive damages and other unspecified relief. The Company believes that Praxair's North Carolina 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 alleged 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. On July 1, 1999, after a two-week trial, a jury found in favor of the defendant. Neither side was awarded any monetary damages. The Company elected not to appeal the decision. The Company is involved in various legal and regulatory proceedings that 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. (b) Insurance Coverage 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. 11 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (10) SUMMARY BY BUSINESS SEGMENT Information related to the Company's operations by business segment for the quarters ended June 30, 1999 and 1998 are as follows:
(In thousands) Gas Distribution Operations Combined June 30, 1999 Gas and rent $ 142,780 $ 32,526 $ 175,306 Hardgoods 203,187 1,000 204,187 Total net sales 345,967 33,526 379,493 Intersegment sales -- 8,659 8,659 Gross profit 157,535 20,691 178,226 Gross profit margin 45.5% 61.7% 47.0% Operating income 26,260 2,839 29,099 Earnings before income taxes and cumulative effect of an accounting change 15,680 858 16,538 EBITDA (1) 45,102 6,163 51,265 EBITDA margin 13.0% 18.4% 13.5% Assets 1,443,901 245,125 1,689,026
12 AIRGAS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (10) SUMMARY BY BUSINESS SEGMENT - (Continued)
(In thousands) Gas Distribution Operations Combined June 30, 1998 Gas and rent $ 142,492 $ 32,802 $ 175,294 Hardgoods 218,061 306 218,367 Other -- 7,112 7,112 Total net sales 360,553 40,220 400,773 Intersegment sales -- 5,157 5,157 Gross profit 163,202 20,468 183,670 Gross profit margin 45.3% 50.9% 45.8% Operating income, excluding special charges 28,540 3,889 32,429 Earnings before income taxes, excluding special charges 16,654 1,845 18,499 EBITDA, excluding special charges (1) 47,094 6,932 54,026 EBITDA margin 13.1% 17.2% 13.5% Assets 1,412,392 251,974 1,664,366
A reconciliation of the combined operating segments to the applicable line items on the consolidated financial statements for the quarter ended June 30, 1998 follows: (In thousands) Quarter Ended June 30, 1998 Segment operating income $ 32,429 Special charge 1,000 Operating income $ 33,429 Segment earnings before income taxes $ 18,499 Special charge 1,000 Earnings before income taxes $ 19,499 (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. 13 Item 2. AIRGAS, INC. AND SUBSIDIARIES MANAGMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998 INCOME STATEMENT COMMENTARY Net Sales Net sales decreased 5% in the quarter ended June 30, 1999 ("current quarter") compared to the quarter ended June 30, 1998 ("prior year quarter").
Three Months Ended (In thousands) June 30, Net Sales 1999 1998 (Decrease) Distribution $345,967 $360,553 $(14,586) Gas Operations 33,526 40,220 (6,694) $379,493 $400,773 $(21,280)
The Distribution segment's principal products and services include: industrial gases, equipment rental and hardgoods. Industrial gases consist of packaged and small bulk gases. Rental fees are charged on cylinders, cryogenic liquid containers, bulk tanks and welding equipment. Hardgoods consist of welding supplies and equipment, safety products, and industrial tools and supplies. Distribution sales decreased $14.6 million (-4%) primarily as a result of a decline in same-store hardgoods sales. Sales of $6 million from the acquisition of eleven distributors since April 1, 1998 were offset by the divestiture of three businesses during fiscal 1999 which had sales of $6.3 million in the prior year quarter. The decrease in Distribution same-store sales of $14.3 million (-4%) resulted from lower sales of hardgoods of $16.5 million (-7.5%), offset by gas and rent sales growth of $2.2 million (1.5%). Hardgoods sales were negatively impacted in the current quarter by the continued slowness in certain manufacturing and industrial sectors including: metal fabrication, petro-chemical, agriculture, pulp and paper, mining and shipbuilding. Gas and rent sales growth were attributable to the Company's focus on national and regional accounts, expansion of its rental welder fleet, and strategic product sales, particularly sales related to refrigerants and medical gases. Gas Operations' sales primarily include dry ice and carbon dioxide which are primarily used for cooling and beverage applications. The demand for these products is greatest in the summer months. 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 ("calcium carbide and carbon operations"). Sales decreased $6.7 million in the current quarter as a result of the divestiture of the calcium carbide and carbon operations which had approximately $8 million in sales in the prior year quarter, $2.2 million of spot sales of specialty gases in the prior year quarter, partially offset by sales of $3.5 million resulting from four dry ice acquisitions completed since April 1, 1998. 14 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 and new customers. Gross Profits Gross profits decreased 3% during the current quarter compared to the prior year quarter.
Three Months Ended (In thousands) June 30, Increase Gross Profits 1999 1998 (Decrease) Distribution $157,535 $163,202 $ (5,667) Gas Operations 20,691 20,468 223 $178,226 $183,670 $ (5,444)
The decrease in Distribution gross profits of $5.7 million (-3.5%) resulted from the divestiture of three businesses during fiscal 1999 which had gross profits of $3.1 million in the prior year quarter and from a same- store gross profit decline of $5 million (-3.1%). Offsetting the gross profit declines were gross profits of $2.4 million from the acquisition of eleven distributors since April 1, 1998. Declines in same-store gross profits consisted of decreases in hardgoods of $6.1 million (-10.3%), partially offset by gas and rent gross profit growth of $1.1 million (1.1%). The decrease in hardgoods same-store gross profits resulted primarily from the continued slowness in certain manufacturing and industrial sectors and from price concessions in certain regions to retain customers in response to competition. The increase in gas and rental same- store gross profits resulted primarily from increased rental revenue from an expanded rental welder fleet and from increases in gas storage containers. Overall, the gross margin of 45.5% in the current quarter increased 20 basis points from 45.3% in the prior year quarter as a result of a shift in sales mix more heavily weighted towards higher margin gas and rental revenues. The increase in Gas Operations gross profits of $223 thousand resulted primarily from four dry ice acquisitions completed since April 1, 1998, offset by the divestiture of the calcium carbide and carbon operations in the prior year quarter. Gas Operations' gross margin increased to 62% in the current quarter compared to 51% in the prior year quarter as a result of the divestiture of the calcium carbide and carbon operations which had lower margins and from the acquisition of higher margin dry ice businesses. Gross margin in the prior year quarter, excluding calcium carbide and carbon operations, was 56%. In the current quarter, liquid carbon dioxide volume gains were essentially offset by lower pricing. 15 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 decreased $2.7 million (-2%) compared to the prior year quarter primarily resulting from the Company's cost reduction program initiated during the third and fourth quarters of fiscal 1999. In response to the slowing economy, the Company believes its cost improvement program has reduced operating expenses by approximately $12 - $15 million on an annual basis. The cost improvements have impacted many areas of the Company's expense structure, including headcount reductions, administrative cost reductions from the consolidation of back office functions and from the closure of certain branch locations. As a percentage of net sales, operating expenses increased 110 basis points to 33.5% compared to the prior year quarter. Depreciation and amortization totaled $22.2 million or 5.8% of net sales in the current quarter and increased $600 thousand compared to the prior year quarter primarily as a result of business acquisitions and capital projects completed since April 1, 1998. For the Distribution and Gas Operations segments, depreciation and amortization expense relative to sales was 5.4% and 9.9% for the current quarter, compared to 5.1% and 7.6% in the prior year quarter, respectively. The increase in the Gas Operations' percentage relative to sales resulted from the sale of the calcium carbide and carbon operations in the prior period which had a lower ratio of depreciation and amortization expense to sales. Operating Income Operating income, excluding special charges in the prior year, decreased 10% compared to the prior year quarter. The decrease in operating income was primarily due to lower gross profits from the decline in hardgoods sales, partially offset by a reduction in operating expenses resulting from cost improvements.
Three Months Ended (In thousands) June 30, Operating Income 1999 1998 (Decrease) Distribution $ 26,260 $ 28,540 $ (2,280) Gas Operations 2,839 3,889 (1,050) Special Charges -- 1,000 (1,000) $ 29,099 $ 33,429 $ (4,330)
The Distribution segment's operating income margin decreased 30 basis points to 7.6% in the current quarter compared to 7.9% in the prior year quarter. Gas Operations' operating income margin decreased to 8.5% in the current quarter from 9.7% in the prior year as a result of the divestiture of the calcium carbide and carbon operations. Operating margins for Gas Operations were essentially unchanged compared to the prior year quarter, excluding the calcium carbide and carbon operations. 16 AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest Expense Interest expense, net, totaled $13.8 million representing a decrease of $1 million compared to the prior year quarter. The net decrease in interest expense was primarily attributable to a decrease in the average effective interest rate during the current quarter compared to the prior year, partially offset by interest costs associated with acquisitions and the repurchase of Common Stock. As discussed in "Liquidity and Capital Resources" and in Item 3 "Quantitative and Qualitative Disclosures About Market Risk", 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 $1 million increased $246 thousand compared to the prior year quarter primarily resulting from higher joint venture earnings of National Welders Supply ("National Welders"). Earnings by National Welders were helped by higher sales to the construction and metal fabrication markets in the regions that they serve. Income Tax Expense Income tax expense represented 41.5% of pre-tax earnings for the current quarter compared to 42.2% in the prior year quarter. The decrease in the effective income tax rate was primarily a result of an increase in earnings of unconsolidated equity affiliates. Net Earnings Net earnings for the quarter ended June 30, 1999 were $9.1 million, or $.13 per diluted share, compared to $11.3 million, or $.16 per diluted share, in the same quarter in the prior year. Net earnings, before the cumulative effect of an accounting change and a special charge, were $9.7 million, or $.14 per diluted share, in the current quarter compared to $10.7 million, or $.15 per diluted share, in the prior year quarter. EBITDA Operating income, excluding special charges, plus depreciation and amortization ("EBITDA"), was approximately $51 million in the current quarter compared to $54 million in the prior year quarter. EBITDA as a percentage of sales was essentially unchanged at 13.5% compared to the prior year quarter. 17 AIRGAS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES Cash Flows Cash flows from operating activities in the current quarter totaled $20.1 million. Depreciation and amortization represented $22.2 million of cash flows from operating activities. Deferred income taxes of $3.4 million resulted from temporary differences. Cash flows from working capital components decreased $12.9 million as a result of a decrease in accounts payable related to the timing of payments to vendors, partially offset by a decrease in prepaid expenses and other current assets. Accounts receivable days' sales outstanding increased to 49 days from 47 days and hardgoods days' supply of inventory increased to 83 days from 77 days compared to March 31, 1999 levels. The increase in the level of accounts receivable resulted from the effects of computer conversions, changes in administrative personnel and from the slowing economy. The increase in hardgoods days' supply of inventory was primarily due to a build of safety products at certain distribution centers in connection with centralized distribution to the Company's business units. The Company will continue to focus on initiatives designed to improve working capital levels. After-tax cash flow (net earnings, excluding the cumulative effective of an accounting change and a special charge, plus depreciation, amortization and deferred income taxes) increased 1% to $35.2 million compared to $34.9 million in the prior year quarter. Cash used by investing activities totaled $13.3 million in the quarter ended June 30, 1999 and primarily related to capital expenditures, partially offset by dividends received from unconsolidated equity affiliates. Capital expenditures totaled $14.4 million and represented a 33% reduction in capital spending compared to the prior year quarter. Capital expenditures associated with the purchase of cylinders, bulk tanks, rental welders and machinery and equipment totaled approximately $8 million or 60% of total capital spending in the current quarter. Management continues to focus on improving asset utilization and believes fiscal 2000 capital spending may total less than $75 million. Financing activities used cash of $6.9 million primarily to repurchase the Company's Common Stock. Total debt outstanding increased $3.4 million since March 31, 1999. Cash overdraft, the float of the Company's outstanding checks, decreased by $2.3 million since March 31, 1999. The Company will continue to look for appropriate acquisitions of distributors. Future acquisitions and capital expenditures are expected to be funded through 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 will depend on the market conditions and the Company's financial position at that time. The Company does not currently pay dividends. 18 AIRGAS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Financial Instruments The Company has unsecured revolving credit facilities totaling $725 million and $100 million Canadian (US$68 million) under a credit agreement with a final maturity date of December 5, 2002. The credit agreement contains covenants that include the maintenance of certain financial ratios, restrictions on additional borrowings and limitations on dividends. At June 30, 1999, the Company had borrowings under the credit agreement of approximately $531 million and $42 million Canadian (US$28 million). The Company also had commitments under letters of credit supported by the credit agreement of approximately $70 million. Availability under the credit facilities was approximately $162 million at June 30, 1999. At June 30, 1999, the effective interest rate on borrowings under the credit facilities averaged 5.48% (5.52% on U.S. borrowings and 4.72% on Canadian borrowings). At June 30, 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 bearing interest 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 June 30, 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 statement which is currently effective under applicable federal securities laws and may be used to issue debt and other types of securities up to an aggregate of approximately $175 million. In managing interest rate exposure, principally under the Company's floating rate revolving credit facilities, the Company participates in 25 interest rate swap agreements, including two swap agreements entered into in May 1999. The swap agreements are with major financial institutions and aggregate $572 million in notional principal amount at June 30, 1999. Eighteen swap agreements with approximately $335 million in notional principal amount require fixed interest payments based on an average effective rate of 6.37% 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 5.03% at June 30, 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 June 30, 1999, approximately $7.6 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. Share Repurchase Program In March 1999, the Company's Board of Directors authorized the repurchase of up to seven million shares 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. The Company has financed its repurchase programs with borrowings and funds provided by operating activities. During the quarter ended June 30, 1999, the Company repurchased 679 thousand shares at an average cost of $11 per share, including 175 thousand shares to complete a previous repurchase program. The effect of the share repurchases on earnings per share for the current quarter was not material. At June 30, 1999, the remaining shares authorized for repurchase under the repurchase program totaled 6.5 million shares. 19 AIRGAS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Subsequent Acquisitions and Divestitures Subsequent to June 30, 1999, the Company acquired three distributors of industrial gas and related equipment with aggregate annual sales of approximately $24 million. In addition, on August 4, 1999, the Company completed the divestiture of its operations in Poland and Thailand to Linde AG. After-tax cash proceeds from the sale were approximately $38 million. The Company expects to record a net gain on the sale of approximately $7 million, or $.10 per diluted share, in the second quarter of fiscal 2000. 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. Implementation of standardized software and computer systems has been substantially completed 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 reviewed time dimensional testing performed by a third party on one critical system and intends to complete internal time dimensional testing for the other critical system by September 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 $21 million over the duration of the project, of which approximately $14 million is expected to be capitalized. On a project-to-date basis, the Company has incurred approximately $17 million in costs and expenses to standardize systems, of which approximately $12 million represents new capital equipment and software. The standardization project is substantially complete with one operating company remaining to be converted to the standard operating platform. This remaining operating company's current operating system is expected to be Year 2000 compliant by September 1999. Although it is considered unlikely by management that the Company's information systems hardware and application software will result in a Year 2000 problem, 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. 20 AIRGAS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In conjunction with the Repositioning Plan, the Company has established a national data center equipped with systems hardware and software that its vendors have indicated are Year 2000 compliant. Time dimensional testing of data center hardware has been completed with no significant compliance exceptions 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 operating company managers responsible for directing Year 2000 remediation efforts. These managers, in cooperation with the Company's national information services personnel, have completed the inventories and risk assessments of 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 December 1999. Contingency planning for the effected phone systems will be completed by September 1999. Management believes that sufficient contingency plans can be implemented such that operations will not be materially impacted if the effected phone system repairs and replacements are not completed by December 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 Year 2000 remediation, including the replacement 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. The Company believes it will complete the remediation of embedded chip equipment and processes prior to the year 2000. However, 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. A majority of the Company's key suppliers have indicated that they have active Year 2000 compliance programs. As a contingency plan, alternative suppliers will be identified as deemed necessary. In addition, audits of certain key suppliers to confirm Year 2000 readiness have been completed with no significant issues identified. 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 The Company believes that its most reasonably likely worst case scenario changes over time. The Company has developed certain contingency plans to address currently identified Year 2000 issues. These plans address 21 AIRGAS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) potential disruptions of the Company's business including administrative and supply chain functions. Administrative contingency plans provide for back-up data processing facilities, which have been tested and found to be Year 2000 compliant, 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 evaluation of third party readiness has been performed by internal Company personnel. 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 was scheduled to be effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delayed the effective date of SFAS 133 for one year, to fiscal years beginning after June 15, 2000. 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. 22 AIRGAS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Forward-looking Statements This report contains statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in rules, regulations and releases. The Company 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 the Company 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 and capital spending, implementation and standardization of information systems projects, any potential problems relating to Year 2000 matters (including without limitation, those relating to the Company's 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 the Company's ability to develop and implement contingency plans, if necessary), the success and timing of acquisitions and divestitures, the effects of competition from independent distributors and vertically integrated gas producers on products and pricing, growth and acceptance of new product lines through the Company's sales and marketing programs, changes in product prices from gas producers and name-brand manufacturers and suppliers of hardgoods, uncertainties regarding accidents or litigation which may arise in the ordinary course of business and the effects of, and changes in the economy, monetary and fiscal policies, laws and regulations, inflation and monetary fluctuations and fluctuations in interest rates, both on a national and international basis. The Company does not undertake to update any forward-looking statement made herein or that may be made from time to time by or on behalf of the Company. Item 3. 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 The Company maintains the ratio of fixed to variable rate debt within parameters established by management under policies approved by the Board of Directors. 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 June 30, 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 23 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 2005 Thereafter Total Value Medium-term notes $ -- $ -- $ 50 $ -- $ 75 $ -- $ 100 $ 225 $ 215 Interest expense $ 17 $ 17 $ 15 $ 13 $ 10 $ 8 $ 7 $ 87 Average interest rate 7.41% 7.41% 7.45% 7.49% 7.49% 7.75% 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% 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 $ -- $ -- $ -- $ 559 $ -- $ -- $ -- $ 559 $ 559 Interest expense $ 31 $ 31 $ 31 $ 31 $ -- $ -- $ -- $ 124 Interest rate (a) 5.48% 5.48% 5.48% 5.48% Other notes $ -- $ 1 $ 7 $ -- $ -- $ -- $ -- $ 8 $ 8 Average interest rate 8.75% 8.75% 8.75%
24
Expected Fiscal Year of Maturity (In millions) Fair Interest Rate Swaps: 2000 2001 2002 2003 2004 2005 Thereafter Total Value US $ denominated Swaps: 15 Swaps Receive Variable/Pay Fixed $ 15 $ 55 $ 120 $ 96 $ -- $ 40 $ -- $ 326 $ (11) Variable Receive rate (3 month LIBOR) = 5.02% Weighted average pay rate = 6.37% 7 Swaps Receive Fixed/Pay Variable $ 57 $ 50 $ 50 $ -- $ 30 $ -- $ 50 $ 237 $ 5 Weighted average receive rate = 6.60 % Variable pay rate (6 month LIBOR) = 5.03% Canadian $ denominated Swaps: 3 Swaps Receive Variable/Pay Fixed $ 3 $ 4 $ 2 $ -- $ -- $ -- $ -- $ 9 $ -- Variable Receive rate (3 month CAD BA) = 4.76% (b) Weighted average pay rate = 6.66% Other LIBOR based agreements: Operating leases with trust $ 13 $ -- $ -- $ -- $ -- $ -- $ -- $ 13 $ 13 Variable rate (3 month LIBOR plus 110 basis points = 6.12%) (a) The variable rate of long-term debt obligations is based on the London Interbank Offered Rate ("LIBOR") as of June 30, 1999. For future periods, the variable interest rate is assumed to remain at 5.48% with the principal balance of long-term debt obligations held constant at $559 million. However, the variable rate and borrowing levels of long-term debt may fluctuate materially from those presented above. (b) The variable receive rate for Canadian dollar denominated interest rate swaps is the rate on Canadian Bankers' acceptances ("CAD BA").
Limitations of the tabular presentation As the table incorporates only those interest rate risk exposures that exist as of June 30, 1999, it does not consider those exposures or positions that could arise after that date. 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. 25 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. PART II - OTHER INFORMATION Item 1. Legal Proceedings In July 1996, Praxair, Inc. ("Praxair") filed suit against the Company in the Circuit Court of Mobile County, Alabama. The complaint alleged tortious interference with business or contractual relations with respect to Praxair's Right of First Refusal contract with the majority shareholders of National Welders 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 tortious interference by the Company. The North Carolina action also alleges breach of contract against National Welders and certain shareholders of National Welders and unfair trade practices and conspiracy against all the defendants. In the North Carolina action Praxair seeks compensatory damages in excess of $10 thousand, punitive damages and other unspecified relief. The Company believes that Praxair's North Carolina 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 alleged 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. On July 1, 1999, after a two-week trial, a jury found in favor of the defendant. Neither side was awarded any monetary damages. The Company elected not to appeal the decision. The Company is involved in various legal and regulatory proceedings that 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. 26 Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The following exhibits are being filed as part of this Quarterly Report on Form 10-Q: Exhibit No. Description 11 Calculation of earnings per share 27 Financial Data Schedule as of June 30, 1999 and Amended Financial Data Schedule as of June 30, 1998 b. Reports on Form 8-K On May 17, 1999, the Company filed a Form 8-K pursuant to Item 5, reporting its earnings for the fourth quarter and fiscal year ended March 31, 1999. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Airgas, Inc. (Registrant) Date August 11, 1999 /s/ Scott M. Melman Scott M. Melman Senior Vice President and Chief Financial Officer EX-11 2 EXHIBIT 11 EXHIBIT 11 AIRGAS, INC. EARNINGS PER SHARE CALCULATIONS
Three Months Ended June 30, 1999 1998 Weighted Average Shares Outstanding: Basic shares outstanding 69,800,000 70,300,000 Stock options - incremental shares 1,200,000 1,800,000 Contingently issuable shares 100,000 -- Diluted shares outstanding 71,100,000 72,100,000 Net earnings $9,085,000 $11,275,000 Basic earnings per share $ .13 $ .16 Diluted earnings per share $ .13 $ .16
EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q ENDED JUNE 30, 1999
5 1000 3-MOS MAR-31-2000 JUN-30-1999 0 0 202,339 6,514 155,561 378,661 1,006,356 290,080 1,689,026 196,918 850,269 724 0 0 474,623 1,689,026 379,493 379,493 201,267 350,394 0 0 13,783 16,538 6,863 9,675 0 0 (590) 9,085 .13 .13
EX-27 4 ART. 5 AMENDED FDS FOR 1ST QUARTER ENDED JUNE 30, 1998
5 1000 3-MOS MAR-31-1999 JUN-30-1998 0 0 200,225 5,297 163,688 381,535 935,272 247,959 1,664,366 208,410 855,016 715 0 0 439,523 1,664,366 400,773 400,773 217,103 367,344 0 0 14,806 19,499 8,224 11,275 0 0 0 11,275 .16 .16
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