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: December 31, 2001
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 February 12, 2002: 69,765,715 shares
1
AIRGAS, INC.
FORM 10-Q
December 31, 2001
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
for the Three and Nine Months Ended December 31, 2001 and 2000(Unaudited).. 3
Consolidated Balance Sheets
as of December 31, 2001 (Unaudited) and March 31, 2001..................... 4
Consolidated Statements of Cash Flows
for the Nine Months Ended December 31, 2001 and 2000(Unaudited)............ 5
Notes to Consolidated Financial Statements (Unaudited)..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................24
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................39
Item 2. Changes in Securities and Use of Proceeds..........................39
Item 6. Exhibits and Reports on Form 8-K...................................39
SIGNATURES..................................................................40
2
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 Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
------------------ --------------------
Net sales
Distribution $ 357,769 $ 359,721 $1,108,428 $1,105,519
Gas Operations 34,664 35,249 111,662 108,546
-------- -------- --------- ---------
Total net sales 392,433 394,970 1,220,090 1,214,065
-------- -------- --------- ---------
Costs and expenses
Cost of products sold
(excluding depreciation)
Distribution 181,824 190,319 574,577 591,718
Gas Operations 11,966 12,458 39,496 39,342
Selling, distribution and
administrative expenses 149,529 145,112 453,483 426,780
Depreciation 16,051 15,686 47,497 48,000
Amortization 1,869 5,153 6,220 17,894
-------- -------- --------- ---------
Total costs and expenses 361,239 368,728 1,121,273 1,123,734
-------- -------- --------- ---------
Operating income
Distribution 25,711 22,038 80,069 74,761
Gas Operations 5,483 4,204 18,748 15,570
-------- -------- --------- ---------
Total operating income 31,194 26,242 98,817 90,331
-------- -------- --------- ---------
Interest expense, net (12,448) (15,597) (35,211) (47,668)
Discount on securitization of
trade receivables (1,063) (137) (4,047) (137)
Other income, net 1,971 352 1,793 809
Equity in earnings of unconsolidated
affiliates 645 455 2,875 2,306
-------- -------- --------- ---------
Earnings before income taxes and the
cumulative effect of a change in
accounting principle 20,299 11,315 64,227 45,641
Income taxes 8,454 4,639 24,378 18,746
-------- -------- --------- ---------
Earnings before the cumulative effect
of a change in accounting principle 11,845 6,676 39,849 26,895
Cumulative effect of a change in
accounting principle -- -- (59,000) --
-------- -------- --------- ---------
Net earnings (loss) $ 11,845 $ 6,676 $ (19,151) $ 26,895
======== ======== ========= =========
Basic earnings per share:
Earnings per share before the
cumulative effect of a change in
accounting principle $ .17 $ .10 $ .59 $ .41
Cumulative effect per share of a
change in accounting principle -- -- (.87) --
-------- -------- --------- ---------
Net earnings (loss) per share $ .17 $ .10 $ (.28) $ .41
======== ======== ========= =========
Diluted earnings per share:
Earnings per share before the
cumulative effect of a change in
accounting principle $ .17 $ .10 $ .57 $ .40
Cumulative effect per share of a
change in accounting principle -- -- (.85) --
-------- -------- --------- ---------
Net earnings (loss) per share $ .17 $ .10 $ (.28) $ .40
======== ======== ========= =========
Weighted average shares outstanding:
Basic 68,300 66,500 67,900 65,700
======== ======== ========= =========
Diluted 70,300 67,200 69,400 67,000
======== ======== ========= =========
Comprehensive income $ 12,579 $ 6,700 $ (23,654) $ 26,732
======== ======== ========= =========
See accompanying notes to consolidated financial statements, including Note 2 containing
pro forma amounts assuming the retroactive application of the change in accounting principle.
3
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
December 31, March 31,
2001 2001
----------- --------
ASSETS
Current Assets
Trade receivables, less allowances for doubtful
accounts of $8,917 at December 31, 2001 and
$7,402 at March 31, 2001 $ 62,818 $ 143,129
Inventories, net 154,534 155,024
Deferred income tax asset, net 10,394 10,143
Prepaid expenses and other current assets 23,572 25,549
--------- ---------
Total current assets 251,318 333,845
--------- ---------
Plant and equipment, at cost 1,102,109 1,073,252
Less accumulated depreciation (404,722) (368,606)
--------- ---------
Plant and equipment, net 697,387 704,646
Goodwill 384,099 440,057
Other intangible assets, net 23,771 29,668
Investments in unconsolidated affiliates 64,028 63,262
Other non-current assets 25,421 9,812
--------- ---------
Total assets $1,446,024 $1,581,290
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 60,560 $ 76,337
Accrued expenses and other current liabilities 122,558 130,873
Current portion of long-term debt 7,793 72,945
--------- ---------
Total current liabilities 190,911 280,155
--------- ---------
Long-term debt, excluding current portion 572,116 620,664
Deferred income taxes, net 169,029 161,176
Other non-current liabilities 30,210 22,446
Commitments and contingencies -- --
Stockholders' Equity
Preferred stock, no par value, 20,000 shares
authorized, no shares issued or outstanding at
December 31, 2001 and March 31, 2001 -- --
Common stock, par value $.01 per share,
200,000 shares authorized, 74,868 and 74,361
shares issued at December 31, 2001 and
March 31, 2001, respectively 749 744
Capital in excess of par value 192,369 188,629
Retained earnings 336,445 355,596
Accumulated other comprehensive loss (5,656) (1,153)
Treasury stock, 547 and 516 common shares at
cost at December 31, 2001 and March 31, 2001,
respectively (4,289) (3,982)
Employee benefits trust, 4,756 and 5,701 common
shares at cost at December 31, 2001 and March 31,
2001, respectively (35,860) (42,985)
--------- ---------
Total stockholders' equity 483,758 496,849
--------- ---------
Total liabilities and stockholders' equity $1,446,024 $1,581,290
========= =========
See accompanying notes to consolidated financial statements.
4
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended Nine Months Ended
December 31, 2001 December 31, 2000
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (19,151) $ 26,895
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 53,717 65,894
Deferred income taxes 9,574 11,550
Equity in earnings of unconsolidated affiliates (2,875) (2,306)
Net gain on divestitures (1,916) (751)
(Gains) losses on sales of plant and equipment 278 (158)
Stock issued for employee stock purchase plan 5,463 4,194
Cumulative effect of a change in
accounting principle 59,000 --
Other non-cash charges 1,068 --
Changes in assets and liabilities, excluding
effects of business acquisitions and divestitures:
Securitization of trade receivables 65,400 71,659
Trade receivables, net 14,229 1,615
Inventories, net 1,270 (3,458)
Prepaid expenses and other current assets 1,719 4,024
Accounts payable, trade (15,777) (19,836)
Accrued expenses and other current liabilities 4,378 4,717
Other assets and liabilities, net 240 (4,420)
-------- --------
Net cash provided by operating activities 176,617 159,619
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (41,340) (47,878)
Proceeds from sales of plant and equipment 2,909 2,227
Proceeds from divestitures 10,200 7,506
Business acquisitions, net of cash acquired (11,268) (2,139)
Business acquisitions, holdback settlements -- (2,284)
Dividends and fees from unconsolidated affiliates 2,217 2,713
Other, net 886 2,257
-------- --------
Net cash used in investing activities (36,396) (37,598)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 420,005 111,000
Repayment of debt (540,151) (219,207)
Purchase of treasury stock -- (11,214)
Financing costs (8,753) --
Proceeds from exercise of stock options 2,517 1,003
Cash overdraft (13,839) (3,603)
-------- --------
Net cash used in financing activities (140,221) (122,021)
-------- --------
Change in Cash $ -- $ --
Cash - beginning of period -- --
-------- --------
Cash - end of period $ -- $ --
======== ========
Cash paid during the period for:
Interest $ 31,114 $ 45,048
Income taxes, net of refunds $ 18,329 $ 2,679
See accompanying notes to consolidated financial statements.
5
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 consist of 20 - 50% owned
operations where control does not exist or is considered temporary.
Prior to the adoption of Statement of Financial Accounting Standards
No. 142 as of April 1, 2001 (see Note 2), the excess of the cost of
these affiliates over the Company's share of their net assets at the
acquisition date was being amortized over 40 years. Intercompany
accounts and transactions are eliminated in consolidation.
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America. 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, 2001.
The consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to present fairly the Company's
financial position, results of operations and cash flows for the
periods presented. Such adjustments are of a normal, recurring nature
except for the impact of acquisitions, divestitures and the accounting
changes, 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 CHANGES
------------------
SFAS 133
On April 1, 2001, the Company adopted the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Certain
Hedging Activities, as amended by SFAS No. 137 and 138. SFAS 133
requires all derivatives to be recorded on the balance sheet at fair
value. In accordance with the transition provisions of SFAS 133, on
April 1, 2001, the Company recorded the cumulative effect of this
accounting change as a liability and a deferred loss of $6.7 million in
the accumulated other comprehensive income (loss) component of
stockholder's equity to recognize, at fair value, interest rate swap
agreements that are designated as cash flow hedging instruments.
Additionally, the Company recorded an asset and adjusted the carrying
value of the hedged portion of its fixed rate debt by $6 million to
recognize, at fair value, interest rate swap agreements that are
designated as fair value hedging instruments.
SFAS 141
Effective July 1, 2001, the Company adopted SFAS No. 141, Business
Combinations. SFAS 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001.
The adoption of SFAS 141 did not have an impact on the results of
operations, financial position or liquidity of the Company.
6
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) ACCOUNTING CHANGES - (Continued)
------------------
Cumulative Effect of a Change in Accounting Principle
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. As allowed under the Standard, the Company has
adopted SFAS 142 retroactively to April 1, 2001. SFAS 142 requires
goodwill and intangible assets with indefinite useful lives to no
longer be amortized, but instead be tested for impairment at least
annually.
With the adoption of SFAS 142, the Company reassessed the useful
lives and residual values of all acquired intangible assets to make any
necessary amortization period adjustments. Based on that assessment,
no adjustments were made to the amortization period or residual values
of other intangible assets. Additionally, certain reclassifications
were made to previously issued financial statements to conform to the
presentation required by SFAS 142 (see Note 10).
SFAS 142 provides a six-month transitional period from the
effective date of adoption for the Company to perform an assessment of
whether there is an indication that goodwill is impaired. To the
extent that an indication of impairment exists, the Company must
perform a second test to measure the amount of the impairment. The
Company determined the implied fair value of each of its reporting
units using a discounted cash flow analysis and compared such values to
the respective reporting units' carrying amounts. This evaluation
indicated that goodwill recorded in the Distribution segment associated
with its industrial tool reporting unit was impaired as of April 1,
2001. Conditions that contributed to the goodwill impairment included
the deterioration of the industrial and machine tool markets since the
acquisition of the businesses in this reporting unit and difficulty in
achieving expected cross-selling synergies. The resulting business
performance made it difficult to justify further investment to achieve
the growth originally forecast for the business. Accordingly, the
Company recognized a $59 million non-cash charge, recorded as of April
1, 2001, as the cumulative effect of a change in accounting principle
for the write-down of goodwill to its fair value. The impaired
goodwill was not deductible for taxes, and as a result, no tax benefit
was recorded in relation to the charge.
SFAS 142 also requires goodwill to be tested annually and between
annual tests if events occur or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its
carrying amount. The Company has elected to perform its annual tests
for indications of goodwill impairment as of October 31 of each year.
As of October 31, 2001, the Company's annual assessment of each of its
reporting units indicated that goodwill was not impaired. In
connection with the pending disposition of Kendeco, Inc., a business
included in the industrial tool reporting unit (see Note 3), the
Company performed an interim test for impairment of the reporting
unit's remaining goodwill at December 31, 2001. The test indicated
that the total reporting unit's remaining goodwill was not impaired.
Below represents the pro forma amounts, excluding the cumulative
effect of a change in accounting principle of $59 million, assuming
that the application of the change in accounting principle was applied
retroactively to April 1, 2000 (see Note 10):
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
------------------ -----------------
Net earnings $ 11,845 $ 9,926 $ 39,849 $ 37,249
======= ======= ======= =======
Basic earnings per share $ .17 $ .15 $ .59 $ .57
======= ======= ======= =======
Diluted earnings per share $ .17 $ .15 $ .57 $ .56
======= ======= ======= =======
7
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) ACQUISITIONS AND DIVESTITURES
-----------------------------
In September 2001, the Company acquired six retail distributor
locations from Air Liquide America Corporation ("Air Liquide"). The
acquisition added to the Company's national distribution network and
strengthened the Company's presence in the southwestern United States.
The purchase price of $11 million was within a range of forecasted cash
flow multiples that the Company has typically paid for similar gas
distribution businesses and resulted in goodwill of approximately $7
million. The operations have annual sales of approximately $10
million. Pro forma results are not considered to be materially
different from the reported results. The acquired operations have been
included in the Distribution segment since the date of acquisition.
In October 2001, in a separate transaction, the Company sold two
of its nitrous oxide production facilities to Air Liquide. Proceeds
from the sale of approximately $10 million were used to reduce
borrowings under the Company's revolving credit facilities. The
Company recognized a gain on the transaction of $7.4 million, $4.7
million after-tax, in the "Other income, net" line of the consolidated
statement of earnings. The nitrous oxide facilities generated
approximately $7 million in annual sales and were included in the Gas
Operations segment. The Company has retained its remaining four
nitrous oxide production facilities to meet its requirements as a major
producer and distributor of nitrous oxide.
During the quarter ended December 31, 2001, the Company recorded a
loss of $1.9 million in "Other income, net" for an indemnity claim
related to a prior period divestiture. The Company is also in the
process of negotiating an agreement to sell Kendeco, Inc, an industrial
tool business in its Distribution segment. In December 2001, the
carrying values of the net assets of Kendeco were reduced by $3.6
million to their net realizable value of $3.5 million based on the
estimated selling price less cost to sell. This charge is reflected in
the "Other income, net" line of the consolidated statement of earnings.
Due to a difference in the book and tax basis of the net assets, only a
minimal tax benefit was recognized in relation to the charge. Kendeco,
Inc. generated sales of approximately $21 million in fiscal years 2001
and 2000.
Subsequent Acquisition
On January 3, 2002, the Company announced an agreement to purchase
the majority of Air Products and Chemicals, Inc.'s ("Air Products")
U.S. packaged gas business for cash of $236 million. The transaction
is expected to close during the fourth quarter of fiscal 2002. The
acquisition would include approximately 100 facilities in 30 states
associated with the filling and distribution of cylinders, liquid
dewars, tube trailers, and other containers of industrial gases and
non-electronic specialty gases, and the retail selling of welding
hardgoods, including customer service centers, warehouses, and other
related assets. For the twelve months ended September 30, 2001, the
assets to be acquired generated approximately $223 million in revenues,
and employed nearly 1,100 people. Approximately 76% of the revenues
were from gas sales and cylinder rent, with the remainder from welding
hardgoods and supplies. The transaction will be financed entirely with
senior bank debt (see Note 8).
Separately, Air Products agreed to sell its packaged gas
operations in the Carolinas and southern Virginia to National Welders
Supply Company, Inc., a joint venture of the Company. These Air
Products operations include 9 sites, which generated $17 million in
revenues in fiscal 2001 and employ about 100 people.
8
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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. Outstanding shares consist of issued
shares less treasury stock and common stock held by the Employee
Benefits Trust. Diluted earnings per share is calculated by dividing
net earnings by the weighted average common shares outstanding adjusted
for the dilutive effect of common stock equivalents related to stock
options, warrants and contingently issuable shares.
The table below reconciles basic weighted average common shares
outstanding to diluted weighted average common shares outstanding for
the three and nine months ended December 31, 2001 and 2000:
Three Months Ended Nine Months Ended
December 31, December 31,
(In thousands) 2001 2000 2001 2000
------------------ -----------------
Weighted average common shares
outstanding:
Basic 68,300 66,500 67,900 65,700
Stock options and warrants 2,000 700 1,500 500
Contingently issuable shares -- -- -- 800
------ ------ ------ ------
Diluted 70,300 67,200 69,400 67,000
====== ====== ====== ======
Contingently issuable shares represented the issuance of Company
common stock in connection with a prior year acquisition.
(5) TRADE RECEIVABLES SECURITIZATION
--------------------------------
The Company participates in a securitization agreement with two
commercial banks to sell up to $150 million of certain qualifying trade
receivables. As collections reduce the previously sold interests, new
receivables may be sold up to $150 million. During the nine months
ended December 31, 2001, the Company sold, net of its retained
interest, $1.32 billion of trade receivables and remitted to the bank
conduits, pursuant to a servicing agreement, $1.18 billion in
collections on those receivables. The net proceeds were used to reduce
borrowings under the Company's revolving credit facilities. The amount
of outstanding receivables under the agreement was approximately $139
million at December 31, 2001 and $73 million at March 31, 2001.
The transaction has been accounted for as a sale under the
provisions of SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Under the
securitization agreement, eligible trade receivables are sold to bank
conduits through a bankruptcy-remote special purpose entity, which is
consolidated for financial reporting purposes. The difference between
the proceeds from the sale and the carrying value of the receivables is
recognized as "Discount on securitization of trade receivables" in the
accompanying Consolidated Statements of Earnings and varies on a
monthly basis depending on the amount of receivables sold and market
interest rates. The Company retains a subordinated interest in the
receivables sold. The subordinated retained interest of approximately
$43 million and $26 million at December 31, 2001 and March 31, 2001,
respectively, is recorded at the receivables' previous carrying value
in "Trade receivables" on the accompanying Consolidated Balance Sheets.
In accordance with a servicing agreement, the Company will continue to
service, administer and collect the trade receivables on behalf of the
bank conduits. The servicing fees charged to the bank conduits
approximate the costs of collections.
9
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) INVENTORIES
-----------
Inventories consist of:
(Unaudited)
December 31, March 31,
(In thousands) 2001 2001
----------- --------
Finished goods $154,349 $154,385
Raw materials 185 639
------- -------
$154,534 $155,024
======= =======
Net inventories determined by the LIFO inventory method totaled
$16.1 million and $19.1 million at December 31, 2001 and March 31, 2001,
respectively. If the FIFO inventory method had been used for these
inventories, they would have been $1.5 million higher at both December 31,
2001 and March 31, 2001.
(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
Accrued expenses and other current liabilities include:
(Unaudited)
December 31, March 31,
(In thousands) 2001 2001
----------- --------
Cash overdraft $ 10,606 $ 24,445
Accrued payroll and employee benefits 28,559 24,989
Insurance reserves 19,937 15,596
Accrued interest expense 15,456 6,539
Restructuring reserves 3,562 5,157
Other accrued expenses and current
liabilities 44,438 54,147
------- -------
$122,558 $130,873
======= =======
The cash overdraft is attributable to the float of the Company's
outstanding checks. The increase in accrued interest expense relates
to the Company's 9.125% senior subordinated notes (the "Notes") issued
in July 2001. The first interest payment on the Notes is due in April
2002. The restructuring reserves were established in conjunction with
the cost reduction plan initiated in the fourth quarter of fiscal 2001.
The decrease in the restructuring reserves is due to cash payments
related to severance paid to employees and the exiting of facilities.
10
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) DEBT REFINANCING, NOTE ISSUANCE AND ACQUISITION FINANCING
---------------------------------------------------------
Debt Refinancing
On July 30, 2001, the Company refinanced its existing revolving
credit facilities due December 5, 2002 with new bank credit facilities
(the "new credit facilities") under a credit agreement with a syndicate
of lenders. The new credit facilities consist of revolving credit
facilities totaling $367.5 million and $50 million Canadian (US $32
million), including letters of credit. The new credit facilities will
mature on July 30, 2006. At December 31, 2001, the Company had
borrowings under the new credit facilities of approximately $112
million and $37 million Canadian (US $24 million). The Company also
had commitments under letters of credit supported by the new credit
facilities of approximately $44 million. Based on restrictions related
to certain leverage ratios, the Company had additional borrowing
capacity under the new credit facilities of approximately $193 million
at December 31, 2001. The variable interest rates of the U.S. and
Canadian revolving credit facilities are based on LIBOR and Canadian
Bankers' acceptance rates, respectively. At December 31, 2001, the
effective interest rates on borrowings under the new credit facilities
were 3.66% on U.S. borrowings and 2.51% on Canadian borrowings.
Certain of the Company's domestic subsidiaries guarantee borrowings
under the new credit facilities and Canadian subsidiaries also
guarantee Canadian borrowings. Should the Company's long-term senior
unsecured debt ratings be reduced by one level, the Company will be
required to pledge 100% of the stock of the domestic guarantors and 65%
of the stock of the Canadian guarantors for the benefit of the
syndicate of lenders. If the Company's long-term senior unsecured debt
ratings are reduced by two or more levels, the Company will be required
to grant a security interest in substantially all of the tangible and
intangible assets of the Company for the benefit of the syndicate of
lenders. The new credit facilities also contain covenants, which
include the maintenance of certain leverage ratios, a fixed charge
ratio, and potential restrictions on certain additional borrowings, the
payment of dividends and the repurchase of common stock.
Note Issuance
On July 30, 2001, concurrent with the refinancing of its revolving
credit facilities, the Company issued $225 million of senior
subordinated notes (the "Notes") with a maturity date of October 1,
2011. The Notes bear interest at a fixed annual rate of 9.125%,
payable semi-annually on April 1 and October 1 of each year with the
first interest payment due on April 1, 2002. The Notes were sold in
accordance with the provisions of Rule 144A of the Securities Act of
1933 (the "Securities Act"). In October 2001, the Company exchanged
the Notes for substantially similar notes that are registered with the
Securities and Exchange Commission in accordance with the Securities
Act. No gain or loss was recognized as a result of the exchange. The
notes contain covenants that could restrict the payment of dividends,
the issuance of preferred stock, and the incurrence of additional
indebtedness and liens. The notes are guaranteed on a subordinated
basis by each of the domestic guarantors under the new credit
facilities (see Note 14).
Acquisition Financing
On January 3, 2002, the Company announced an agreement to purchase
the majority of Air Products and Chemicals, Inc.'s U.S. packaged gas
business for cash of $236 million. The transaction is expected to
close during the fourth quarter of fiscal 2002. In anticipation of the
transaction, the Company amended its revolving credit facilities to
permit the acquisition and extend the period for compliance under current
leverage ratios to September 30, 2002. In addition, the Company obtained
commitments from a syndicate of lenders for an additional $100 million term
loan with a maturity date of July 30, 2006. The term loan bears a variable
interest rate based on LIBOR plus a spread, which is related to the Company's
credit rating. The additional term loan along with the Company's existing
revolving credit facilities will enable Company to finance the entire
transaction with senior bank debt. The Company expects that the
closing of the acquisition may result in a reduction of its credit
rating, which will increase the cost of borrowing on its revolving
credit facilities by 25 basis points.
11
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
---------------------------------------------
The Company's involvement with derivative instruments is limited
to highly effective fixed and floating interest rate swap agreements
used to manage well-defined interest rate risk exposures. Interest
rate swap agreements are not entered into for trading purposes.
At December 31, 2001, the Company had a notional amount of $180
million in fixed interest rate swap agreements that effectively convert
a corresponding amount of variable interest rate borrowings under the
revolving credit facilities and operating leases to fixed interest rate
instruments. The scheduled maturities of these cash flow hedging
instruments at December 31, 2001 are fiscal 2002, $12 million; fiscal
2003, $128 million; and fiscal 2005, $40 million. Through the nine
months ended December 31, 2001, the Company recorded a net change in
the fair value of the fixed interest rate swap agreements of $112
thousand to accumulated other comprehensive income (loss). The net
additional interest payments made under these swap agreements during
the quarter were recognized in interest expense. Over the next 12
months, the Company expects to reclassify approximately $4.1 million of
the deferred loss from accumulated other comprehensive income (loss) to
interest expense as swap agreements mature.
At December 31, 2001, the Company also had a notional amount of
$155 million in variable interest rate swap agreements that effectively
converts a corresponding amount of fixed rate medium-term and senior
subordinated notes to variable rate debt. The fair value of these
variable interest rate swap agreements and the increased carrying value
of the hedged portions of the medium-term and senior subordinated notes
at December 31, 2001 was $6.5 million. There is no ineffectiveness
associated with the Company's variable interest rate swap agreements,
and therefore, changes in the fair value of the swap agreements are
completely offset by changes in the fair value of the hedged portions
of the medium-term and senior subordinated notes.
12
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(10) GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------
As described in Note 2, the Company adopted SFAS 142 as of April
1, 2001. The following table reconciles the prior year's reported
operating income, equity in earnings of unconsolidated affiliates,
earnings before the cumulative effect of a change in accounting
principle and net income to their respective pro forma balances
adjusted to exclude goodwill amortization expense, which is no longer
amortized under the provisions of SFAS 142. Current period results,
adjusted for a cumulative effect of a change in accounting principle,
are presented for comparative purposes.
Three Months Ended Nine Months Ended
December 31, December 31,
(In thousands, except per share amounts) 2001 2000 2001 2000
------------------ -----------------
Operating income:
Distribution segment $25,711 $22,038 $ 80,069 $ 74,761
Gas Operations segment 5,483 4,204 18,748 15,570
------ ------ ------ ------
Total reported operating income 31,194 26,242 98,817 90,331
------ ------ ------ ------
Add back: Distribution goodwill amortization -- 3,110 -- 9,227
Add back: Gas Operations goodwill amortization -- 538 -- 1,605
------ ------ ------ ------
Add back: Total goodwill amortization -- 3,648 -- 10,832
------ ------ ------ ------
Adjusted Distribution operating income 25,711 25,148 80,069 83,988
Adjusted Gas Operations operating income 5,483 4,742 18,748 17,175
------ ------ ------ -------
Adjusted total operating income $31,194 $29,890 $ 98,817 $101,163
====== ====== ====== =======
Equity in earnings of unconsolidated affiliates:
Reported equity in earnings of unconsolidated
affiliates $ 645 $ 455 $ 2,875 $ 2,306
Add back: equity method goodwill amortization -- 426 -- 1,278
------ ------ ------ -------
Adjusted equity in earnings of unconsolidated
affiliates $ 645 $ 881 $ 2,875 $ 3,584
====== ====== ====== =======
Earnings before the cumulative effect of a change
in accounting principle:
Reported earnings before the cumulative effect
of a change in accounting principle $11,845 $ 6,676 $ 39,849 $ 26,895
Add back: goodwill amortization after tax -- 3,250 -- 10,354
------ ------ ------ -------
Adjusted earnings before the cumulative effect
of a change in accounting principle $11,845 $ 9,926 $ 39,849 $ 37,249
====== ====== ====== =======
Net income:
Reported net income (loss) $11,845 $ 6,676 $(19,151) $ 26,895
Add back: goodwill amortization after tax -- 3,250 -- 10,354
Cumulative effect of a change in accounting
principle -- -- 59,000 --
------ ------ ------ -------
Adjusted net income $11,845 $ 9,926 $ 39,849 $ 37,249
====== ====== ====== =======
Basic earnings per share:
Reported net income (loss) $ .17 $ .10 $ (.28) $ .41
Goodwill amortization after tax -- .05 -- .16
Cumulative effect of a change in accounting
principle -- -- .87 --
------ ------ ------ -------
Adjusted net income $ .17 $ .15 $ .59 $ .57
====== ====== ====== =======
Diluted earnings per share:
Reported net income (loss) $ .17 $ .10 $ (.28) $ .40
Goodwill amortization after tax -- .05 -- .16
Cumulative effect of a change in accounting
principle -- -- .85 --
------ ------ ------ -------
Adjusted net income $ .17 $ .15 $ .57 $ .56
====== ====== ====== =======
13
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(10) GOODWILL AND OTHER INTANGIBLE ASSETS - (Continued)
------------------------------------
Changes in the carrying amount of goodwill for the nine months
ended December 31, 2001, were as follows:
(In thousands) Distribution Gas Operations
Segment Segment Total
------------ -------------- -----
Balance at March 31, 2001 $364,943 $75,114 $440,057
Acquisitions 7,153 -- 7,153
Divestitures (3,144) (801) (3,945)
Cumulative effect of a change in
accounting principle (59,000) -- (59,000)
Foreign currency translation and
other adjustments (136) (30) (166)
------- ------ -------
Balance at December 31, 2001 $309,816 $74,283 $384,099
======= ====== =======
Other intangible assets amounted to $23.8 million (net of
accumulated amortization of $75.7 million) and $29.7 million (net of
accumulated amortization of $73.1 million) at December 31, 2001 and
March 31, 2001, respectively. These intangible assets primarily
consist of non-compete agreements entered into in connection with
business combinations and are amortized over the term of the
agreements, principally five years. There are no expected residual
values related to these intangible assets. Estimated future
amortization expense by fiscal year is as follows ($ in millions):
2002 - $1.7; 2003 - $5.6; 2004 - $4.8; 2005 - $3.3; 2006 - $2.2 and
$6.2 thereafter.
(11) STOCKHOLDERS' EQUITY
--------------------
Changes in stockholders' equity were as follows:
Employee
Shares of Common Treasury Benefits
(In thousands of shares) Stock $.01 Par Value Stock Trust
-------------------- -------- --------
Balance-March 31, 2001 74,361 516 5,701
Common stock issuance (a) 507 -- --
Purchase of treasury stock -- 31 --
Reissuance of stock from Trust (c) -- -- (945)
------ --- -----
Balance-December 31, 2001 74,868 547 4,756
====== === =====
(a) Issuance of common stock for stock option exercises.
(c) Reissuance of common stock from the Employee Benefits Trust for
employee benefit programs.
14
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(11) STOCKHOLDERS' EQUITY - (Continued)
--------------------
Accumulated
Capital in Other Employee Compre-
Common Excess of Retained Comprehensive Treasury Benefits hensive
(In thousands of dollars) Stock Par Value Earning Loss Stock Trust Income
------ ---------- -------- ------------- -------- -------- -------
Balance-March 31, 2001 $744 $188,629 $355,596 $(1,153) $(3,982) $(42,985) $ --
Net earnings (loss) -- -- (19,151) -- -- -- (19,151)
Common stock issuance (a) 5 2,512 -- -- -- -- --
Foreign currency
translation adjustments -- -- -- (75) -- -- (75)
Purchase of treasury stock -- -- -- -- (307) -- --
Cumulative effect of a change
in accounting principle (b) -- -- -- (6,664) -- -- (6,664)
Net change in fair value of
interest rate swap agreements -- -- -- (112) -- -- (112)
Reissuance of common stock
from Trust (c) -- (1,663) -- -- -- 7,125 --
Issuance of warrants (d) -- 1,068 -- -- -- -- --
Net tax benefit of
comprehensive income items -- -- -- 2,348 -- -- 2,348
Tax benefit from stock
option exercises -- 1,823 -- -- -- -- --
---- ------- ------- ------ ------ ------- -------
Balance-December 31, 2001 $749 $192,369 $336,445 $(5,656) $(4,289) $(35,860) $(23,654)
==== ======= ======= ====== ====== ======= =======
(a) Issuance of common stock for stock option exercises.
(b) Recognition of the cumulative effect of a change in accounting
principle related to the adoption of SFAS 133 in the period (see Notes 2 and 9).
(c) Reissuance of common stock from the Employee Benefits Trust for employee benefit programs.
(d) The Company granted warrants to purchase 324,000 shares of the Company's common stock to
an outside consulting firm for services rendered during the nine months ended December 31,
2001. The warrants have a term of three years from the date of grant and have exercise
prices in excess of market value on the date of grant ranging from $11.98 to $18.78 per
share. The aggregate value of the warrants on the dates of grant, as determined by the
Black-Scholes pricing model, was $1.1 million, which the Company expensed during the nine
months ended December 31, 2001.
2001 Employee Stock Purchase Plan
On August 2, 2001, the Company's stockholders approved the 2001
Employee Stock Purchase Plan (the "2001 Plan"). The 2001 Plan is
authorized to issue up to 1.5 million shares of Company common stock
and contains essentially the same terms and conditions as the Company's
previous 1998 Employee Stock Purchase Plan.
15
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(12) COMMITMENTS AND CONTINGENCIES
-----------------------------
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") 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 anticipates that additional discovery and pretrial motions will
be completed by the end of May 2002, and that a trial on the merits
will begin in July 2002. The Company believes that Praxair's North
Carolina claims are without merit and intends to defend vigorously
against such claims.
The Company is involved in various legal and regulatory
proceedings that have arisen in the ordinary course of its business and
have not been fully 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.
(13) SUMMARY BY BUSINESS SEGMENT
---------------------------
Information related to the Company's operations by business segment
for the three months ended December 31, 2001 and 2000 follows:
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
(In thousands) Gas Gas
Distribution Operations Combined Distribution Operations Combined
------------ ---------- -------- ------------ ---------- --------
Gas and rent $ 172,196 $ 34,031 $ 206,227 $ 158,888 $ 33,874 $ 192,762
Hardgoods 185,573 633 186,206 200,833 1,375 202,208
--------- -------- --------- --------- -------- ---------
Total net sales 357,769 34,664 392,433 359,721 35,249 394,970
Intersegment sales -- 7,421 7,421 -- 7,661 7,661
Gross profit, excluding
depreciation 175,945 22,698 198,643 169,402 22,791 192,193
Gross profit margin 49.2% 65.5% 50.6% 47.1% 64.7% 48.7%
Operating income 25,711 5,483 31,194 22,038 4,204 26,242
Earnings before income taxes 17,467 2,832 20,299 9,733 1,582 11,315
Assets 1,253,293 192,731 1,446,024 1,416,950 219,128 1,636,078
16
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(13) SUMMARY BY BUSINESS SEGMENT - (Continued)
---------------------------
Information related to the Company's operations by business segment
for the nine months ended December 31, 2001 and 2000 follows:
Nine Months Ended Nine Months Ended
December 31, 2001 December 31, 2000
(In thousands) Gas Gas
Distribution Operations Combined Distribution Operations Combined
------------ ---------- -------- ------------ ---------- --------
Gas and rent $ 517,488 $ 109,813 $ 627,301 $ 477,792 $ 105,588 $ 583,380
Hardgoods 590,940 1,849 592,789 627,727 2,958 630,685
--------- -------- --------- --------- -------- ---------
Total net sales 1,108,428 111,662 1,220,090 1,105,519 108,546 1,214,065
Intersegment sales -- 24,671 24,671 -- 23,973 23,973
Gross profit, excluding
depreciation 533,851 72,166 606,017 513,801 69,204 583,005
Gross profit margin 48.2% 64.6% 49.7% 46.5% 63.8% 48.0%
Operating income 80,069 18,748 98,817 74,761 15,570 90,331
Earnings before income taxes
and cumulative effect of an
accounting change 53,819 10,408 64,227 37,618 8,023 45,641
Assets 1,253,293 192,731 1,446,024 1,416,950 219,128 1,636,078
As a result of adopting SFAS 142 effective April 1, 2001, the financial
results for the three and nine month periods ended December 31, 2001 do
not reflect goodwill amortization expense (see Note 2). See Note 10
for a reconciliation of prior period financial results as reported to
financial results adjusted to exclude goodwill amortization expense.
(14) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS
----------------------------------------------------------------------
As described in Note 8, on July 30, 2001, the Company refinanced
its revolving credit facilities and issued $225 million of Notes. The
obligations of the Company under the Notes are guaranteed by the
Company's domestic subsidiaries that guarantee the Company's new credit
facilities (the "Guarantors"). The guarantees are made on a joint and
several basis. The Company's joint venture operations, Canadian
holdings and bankruptcy remote special purpose entity (the "Non-
guarantors") are not guarantors of the Notes. The claims of creditors
of Non-guarantor subsidiaries have priority over the rights of the
Company to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for
the Company, the Guarantors and the Non-guarantors as of December 31,
2001 and March 31, 2001 and for the nine months ended December 31, 2001
and 2000. On August 31, 2001, two Non-guarantor entities were merged
into the parent. These entities were holding companies through which
the Company managed its operations in Poland and Thailand. The
operations in Poland and Thailand were divested in fiscal 2000. The
net assets of the two Non-guarantor entities in the amount of $42.7
million were transferred to the parent.
17
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Balance Sheet
December 31, 2001
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
ASSETS
Current Assets
Trade receivables, net $ -- $ 4,703 $ 58,115 $ -- $ 62,818
Intercompany receivable/(payable) 170 (22,189) 22,019 -- --
Inventories, net -- 151,155 3,379 -- 154,534
Deferred income tax asset, net 6,298 4,096 -- -- 10,394
Prepaid expenses and other
current assets 1,074 19,073 3,425 -- 23,572
--------- --------- --------- -------- ---------
Total current assets 7,542 156,838 86,938 -- 251,318
Plant and equipment, net 12,313 665,275 19,799 -- 697,387
Goodwill -- 374,087 10,012 -- 384,099
Other intangible assets, net 905 22,866 -- -- 23,771
Investments in unconsolidated
affiliates 58,058 5,970 -- -- 64,028
Investments in subsidiaries 1,125,741 -- -- (1,125,741) --
Intercompany receivable/(payable) (134,038) 178,523 (44,485) -- --
Other non-current assets 21,733 2,653 1,035 -- 25,421
--------- --------- --------- ---------- ---------
Total assets $1,092,254 $1,406,212 $ 73,299 $(1,125,741) $1,446,024
========= ========= ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 169 $ 59,045 $ 1,346 $ -- $ 60,560
Accrued expenses and other
current liabilities 62,832 58,588 1,138 -- 122,558
Current portion of long-term debt -- 7,712 81 -- 7,793
--------- --------- --------- ---------- ---------
Total current liabilities 63,001 125,345 2,565 -- 190,911
Long-term debt, excluding current
portion 539,108 9,327 23,681 -- 572,116
Deferred income tax
liability, net 194 161,324 7,511 -- 169,029
Other non-current liabilities 6,193 24,017 -- -- 30,210
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Preferred stock, no par value -- -- -- -- --
Common stock, par value $.01
per share 749 -- -- -- 749
Capital in excess of par value 192,369 725,451 8,224 (733,675) 192,369
Retained earnings 336,445 361,053 32,241 (393,294) 336,445
Accumulated other
comprehensive loss (5,656) (305) (923) 1,228 (5,656)
Treasury stock (4,289) -- -- -- (4,289)
Employee benefits trust (35,860) -- -- -- (35,860)
--------- --------- --------- ---------- ---------
Total stockholders' equity 483,758 1,086,199 39,542 (1,125,741) 483,758
Total liabilities and
stockholders' equity $1,092,254 $1,406,212 $ 73,299 $(1,125,741) $1,446,024
========= ========= ========= ========== =========
18
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Balance Sheet
March 31, 2001
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
ASSETS
Current Assets
Trade receivables, net $ -- $ 111,081 $ 32,048 $ -- $ 143,129
Intercompany receivable/(payable) 170 (14,183) 14,013 -- --
Inventories, net -- 151,402 3,622 -- 155,024
Deferred income tax asset, net 6,297 3,846 -- -- 10,143
Prepaid expenses and other
current assets 10,167 13,901 1,481 -- 25,549
--------- --------- --------- ---------- ---------
Total current assets 16,634 266,047 51,164 -- 333,845
Plant and equipment, net 6,851 677,480 20,315 -- 704,646
Goodwill -- 429,942 10,115 -- 440,057
Other intangible assets, net 1,120 28,345 203 -- 29,668
Investments in unconsolidated
affiliates 56,656 6,591 15 -- 63,262
Investments in subsidiaries 1,197,952 -- -- (1,197,952) --
Intercompany receivable/(payable) (107,248) 99,842 7,406 -- --
Other non-current assets 5,294 4,311 207 -- 9,812
--------- --------- --------- ---------- ---------
Total assets $1,177,259 $1,512,558 $ 89,425 $(1,197,952) $1,581,290
========= ========= ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 3,339 $ 71,045 $ 1,953 $ -- $ 76,337
Accrued expenses and other
current liabilities 41,291 88,253 1,329 -- 130,873
Current portion of long-term debt 50,000 22,863 82 -- 72,945
--------- --------- --------- ---------- ---------
Total current liabilities 94,630 182,161 3,364 -- 280,155
Long-term debt, excluding current
portion 585,465 10,354 24,845 -- 620,664
Deferred income tax
liability, net 194 157,906 3,076 -- 161,176
Other non-current liabilities 121 22,935 (610) -- 22,446
Commitments and contingencies -- -- -- -- --
Stockholders' Equity
Preferred stock, no par value -- -- -- -- --
Common stock, par value $.01
per share 744 7 -- (7) 744
Capital in excess of par value 188,629 754,926 31,783 (786,709) 188,629
Retained earnings 355,596 384,631 27,818 (412,449) 355,596
Accumulated other
comprehensive loss (1,153) (302) (851) 1,153 (1,153)
Treasury stock (3,982) (60) -- 60 (3,982)
Employee benefits trust (42,985) -- -- -- (42,985)
--------- --------- --------- ---------- ---------
Total stockholders' equity 496,849 1,139,202 58,750 (1,197,952) 496,849
Total liabilities and
stockholders' equity $1,177,259 $1,512,558 $ 89,425 $(1,197,952) $1,581,290
========= ========= ========= ========== =========
19
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Statement of Earnings
Nine Months Ended
December 31, 2001
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
Net sales $ -- $1,204,804 $ 15,286 $ -- $1,220,090
Costs and Expenses
Costs of products sold (excluding
depreciation) -- 610,239 3,834 -- 614,073
Selling, distribution and
administrative expenses 37,797 400,448 15,238 -- 453,483
Depreciation 2,570 43,343 1,584 -- 47,497
Amortization 159 6,061 -- -- 6,220
------- --------- ------- ------ ---------
Operating Income (Loss) (40,526) 144,713 (5,370) -- 98,817
Interest (expense) income, net (40,474) 4,892 371 -- (35,211)
(Discount) gain on securitization
of trade receivables -- (45,992) 41,945 -- (4,047)
Other income (expense), net 49,485 (47,623) (69) -- 1,793
Equity in earnings of
unconsolidated affiliates 2,125 750 -- -- 2,875
------- --------- ------- ------ ---------
Earnings (loss) before income
taxes and a cumulative effect
of a change in accounting
principle (29,390) 56,740 36,877 -- 64,227
Income tax benefit (expense) 10,286 (21,319) (13,345) -- (24,378)
Equity in earnings of
subsidiaries (47) -- -- 47 --
Cumulative effect of a change in
accounting principle -- (59,000) -- -- (59,000)
------- --------- ------- ------ ---------
Net Earnings (Loss) $(19,151) $ (23,579) $ 23,532 $ 47 $ (19,151)
======== ========= ======= ====== =========
20
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Statement of Earnings
Nine Months Ended
December 31, 2000
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
Net sales $ -- $1,197,091 $ 16,974 $ -- $1,214,065
Costs and Expenses
Costs of products sold (excluding
depreciation) -- 626,847 4,213 -- 631,060
Selling, distribution and
administrative expenses 21,976 398,270 6,534 -- 426,780
Depreciation 1,974 44,311 1,715 -- 48,000
Amortization 169 17,430 295 -- 17,894
------- --------- ------- ------ ---------
Operating Income (Loss) (24,119) 110,233 4,217 -- 90,331
Interest (expense) income, net (49,755) 1,120 967 -- (47,668)
Discount on securitization
of trade receivables -- (137) -- -- (137)
Other income (expense), net 51,420 (49,914) (697) -- 809
Equity in earnings of
unconsolidated affiliates 836 1,683 (213) -- 2,306
------- --------- ------- ------ ---------
Earnings before income taxes (21,618) 62,985 4,274 -- 45,641
Income tax benefit (expense) 6,365 (23,147) (1,964) -- (18,746)
Equity in earnings of
subsidiaries 42,146 -- -- (42,146) --
------- --------- ------- ------ ---------
Net Earnings $ 26,893 $ 39,838 $ 2,310 $(42,146) $ 26,895
======= ========= ======= ====== =========
21
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
December 31, 2001
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
Net cash provided by (used in)
operating activities $ 496 $ 187,516 $(11,395) $ -- $ 176,617
-------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (5,442) (34,998) (900) -- (41,340)
Proceeds from sales of plant and
equipment -- 2,909 -- -- 2,909
Proceeds from divestitures -- 10,200 -- -- 10,200
Business acquisitions, net of
cash acquired -- (11,268) -- -- (11,268)
Dividends and fees from
unconsolidated affiliates 2,125 92 -- -- 2,217
Other, net 6,459 (7,814) 2,241 -- 886
-------- -------- ------- ------- --------
Net cash provided by (used in)
investing activities 3,142 (40,879) 1,341 -- (36,396)
-------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 417,466 -- 2,539 -- 420,005
Repayment of debt (513,822) (22,625) (3,704) -- (540,151)
Financing costs (8,753) -- -- -- (8,753)
Exercise of stock options 2,517 -- -- -- 2,517
Cash overdraft -- (13,839) -- -- (13,839)
Inter-company 98,954 (110,173) 11,219 -- --
-------- -------- ------- ------- --------
Net cash provided by (used in)
financing activities (3,638) (146,637) 10,054 -- (140,221)
-------- -------- ------- ------- --------
CHANGE IN CASH $ -- $ -- $ -- $ -- $ --
Cash - Beginning of year -- -- -- -- --
-------- -------- ------- ------- --------
Cash - End of year $ -- $ -- $ -- $ -- $ --
======== ======== ======= ======= ========
22
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended
December 31, 2000
Non- Elimination
(In thousands) Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------
Net cash provided by (used in)
operating activities $ (4,767) $ 201,419 $(37,033) $ -- $ 159,619
-------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (102) (45,097) (2,679) -- (47,878)
Proceeds from sales of plant and
equipment 107 255 1,865 -- 2,227
Proceeds from divestitures -- -- 7,506 -- 7,506
Business acquisitions, net of
cash acquired -- (2,139) -- -- (2,139)
Business acquisitions,
holdback settlements -- (2,284) -- -- (2,284)
Dividends and fees from
unconsolidated affiliates 836 1,877 -- -- 2,713
Other, net (820) 1,957 1,120 -- 2,257
-------- -------- ------- ------- --------
Net cash provided by (used in)
investing activities 21 (45,431) 7,812 -- (37,598)
-------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 111,000 -- -- -- 111,000
Repayment of debt (203,000) (11,150) (5,057) -- (219,207)
Purchase of treasury stock (11,214) -- -- -- (11,214)
Exercise of stock options 1,003 -- -- -- 1,003
Cash overdraft -- (3,603) -- -- (3,603)
Inter-company 106,957 (141,235) 34,278 -- --
-------- -------- ------- ------- --------
Net cash provided by (used in)
financing activities 4,746 (155,988) 29,221 -- (122,021)
-------- -------- ------- ------- --------
CHANGE IN CASH $ -- $ -- $ -- $ -- $ --
Cash - Beginning of year -- -- -- -- --
-------- -------- ------- ------- --------
Cash - End of year $ -- $ -- $ -- $ -- $ --
======== ======== ======= ======= ========
23
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS: THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THE
THREE MONTHS ENDED DECEMBER 31, 2000
INCOME STATEMENT COMMENTARY
Net Sales
Net sales decreased 0.6% in the quarter ended December 31, 2001
("current quarter") compared to the quarter ended December 31, 2000
("prior year quarter"). Total Company same-store sales increased 0.3%
in the current quarter versus the prior year quarter. The Company
estimates same-store sales based on a comparison of current period
sales to prior period sales, adjusted for acquisitions and
divestitures.
Three Months Ended
(In thousands) December 31,
Net Sales 2001 2000 Decrease
--------- ------------------- -----------------
Distribution $357,769 $359,721 $(1,952) (0.5%)
Gas Operations 34,664 35,249 (585) (1.7%)
------- ------- ------
$392,433 $394,970 $(2,537) (0.6%)
======= ======= ======
The Distribution segment's principal products and services include
industrial, medical and specialty gases; equipment rental; and
hardgoods. Gases consist of packaged and small bulk gases. Equipment
rental fees are generally 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 $2.0 million (-0.5%)
resulting from a decline in hardgoods same-store sales of $16.6 million
(-7.5%), partially offset by gas and rent same-store sales growth of
$12.0 million (8.6%). Sales of $2.6 million from an acquisition
consummated during the current quarter also helped offset the decline
in hardgoods sales. The decline in hardgoods same-store sales
continued to track the decline in non-tech industrial production. The
hardgoods sales decline was driven by lower volumes of industrial tools
and welding products reflecting the continued weak industrial
environment, particularly with regard to metal fabrication and heavy
manufacturing such as automotive, aluminum and aircraft. Partially
offsetting the decline in tools and welding hardgoods, safety product
sales grew 4% to $62 million reflecting continued success of cross-
selling initiatives as well as growth through the Company's
telemarketing sales channel. Gas and rent sales growth was driven
primarily by price increases and growth from strategic sales
initiatives. Strategic account sales (sales to large customers with
multiple locations) were $40 million in the current quarter,
representing an 8% increase over the prior year quarter. The Company
is on track with its fiscal 2002 forecast of strategic account sales of
$160 million. Strategic gas sales growth was driven by both higher
volumes of medical, bulk and specialty gases, as well as price
increases. Rental revenue was also favorably impacted by a 15.2%
increase in welder equipment rentals.
Gas Operations' sales primarily include dry ice and carbon
dioxide that are used for cooling and the production of food, beverages
and chemical products. In addition, the segment includes businesses
that produce and distribute specialty gases and nitrous oxide. Gas
Operations' sales decreased $585 thousand compared to the prior year
quarter as a result of divestiture activity, partially offset by same-
store sales growth. Divestiture activity, consisting of the
divestiture of two nitrous oxide plants during the current quarter and
the fourth quarter fiscal 2001 divestiture of the Jackson Dome carbon
dioxide reserves and associated pipeline (the "Jackson Dome pipeline"),
accounted for a $2.7 million decrease in sales from the comparable
period. On a same-store basis, Gas Operations' increased sales by $2.1
million (7.4%) primarily from price increases and higher volumes of
liquid carbon dioxide and dry ice.
24
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross Profits
Gross profits, excluding depreciation expense, increased 3.4% and
the gross profit margin increased 190 basis points to 50.6% during the
current quarter compared to 48.7% in the prior year quarter.
Three Months Ended
(In thousands) December 31,
Gross Profits 2001 2000 Increase(Decrease)
------------- ------------------ ------------------
Distribution $175,945 $169,402 $6,543 3.9%
Gas Operations 22,698 22,791 (93) (0.4%)
------- ------- -----
$198,643 $192,193 $6,450 3.4%
======= ======= =====
The increase in Distribution gross profits of $6.5 million
primarily resulted from gas and rent same-store gross profit growth of
$9.9 million (9.6%), partially offset by a decline in hardgoods gross
profits of $4.7 million
(-7.3%) reflecting weak industrial market conditions. Acquisitions
consummated during the current quarter also contributed $1.3 million to
the increase in gross profits. The Distribution segment's gross profit
margin of 49.2% in the current quarter increased 210 basis points from
47.1% in the prior year quarter as a result of a shift in sales mix
towards higher margin gas and rent sales and price increases. Gas and
rent sales comprised 48.1% of sales compared to 44.2% in the prior year
quarter.
Gas Operations' gross profits were relatively flat as a reduction in
gross profits associated with divestiture activity was offset by same-
store gross profit growth. Same-store gross profit growth resulted
from higher volumes of liquid carbon dioxide and dry ice and price
increases. Gas Operations' gross profit margin of 65.5% increased 80
basis points from 64.7% in the prior year quarter, reflecting volume
gains leveraging fixed manufacturing costs.
Operating Expenses
Selling, distribution and administrative expenses ("operating
expenses") consist of personnel and related costs, distribution and
warehouse costs, occupancy expenses and other selling, general and
administrative expenses. Operating expenses increased $4.4 million
(3.0%) compared to the prior year quarter primarily from higher
personnel costs and health and workers' compensation insurance,
partially offset by a decrease in distribution expense principally from
lower fuel costs. Additionally, expenses net of realized benefits
related to the Company's "Project One" initiative were not material to
the current quarter. The Company's Project One initiative is focused
on improving certain operational and administrative processes. As a
percentage of net sales, operating expenses increased 140 basis points
to 38.1% compared to 36.7% in the prior year quarter.
Amortization expense was $1.9 million in the current quarter
compared to $5.2 million in the prior year quarter. On April 1, 2001,
the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill
and Other Intangible Assets. The decrease in amortization expense was
due to the adoption of SFAS 142, which resulted in the Company no
longer amortizing goodwill.
25
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Income
Operating income increased 4.4% during the current quarter
compared to the prior year quarter, adjusted to exclude the
amortization of goodwill. The Company's overall operating income
margin increased 30 basis points to 7.9% from 7.6% in the prior year
quarter, as adjusted.
Three Months Ended
December 31,
(In thousands) Adjusted As reported
Operating Income 2001 2000 (a) Increase 2000
---------------- ------------------ ---------------- -----------
Distribution $25,711 $25,148 $ 563 2.2% $22,038
Gas Operations 5,483 4,742 741 15.6% 4,204
------ ------ ----- ------
$31,194 $29,890 $1,304 4.4% $26,242
====== ====== ===== ======
(a) Operating income for the quarter ended December 31, 2000 has been
adjusted for comparative purposes to exclude the amortization of
goodwill (see Note 10 to the Consolidated Financial Statements).
The Distribution segment's operating income margin increased 20
basis points to 7.2% in the current quarter compared to 7.0% in the
prior year quarter, as adjusted. The operating income margin increase
was driven by higher gross profits, partially offset by higher
operating expenses.
Gas Operations' operating income margin increased 230 basis points to
15.8% in the current quarter compared to 13.5% in the prior year
quarter, as adjusted. The operating margin improvement resulted from
higher selling prices and volume gains that leverage fixed operating
costs. Lower fuel costs also contributed to the improvement in the
operating income margin.
Interest Expense and Discount on Securitization of Trade Receivables
Interest expense, net, and the discount on securitization of trade
receivables totaled $13.5 million representing a decrease of $2.2
million (-14.1%) compared to the prior year quarter. The decrease
primarily resulted from lower average debt levels. The decrease in
average debt levels was attributable to cash flow provided from
operations and proceeds from the divestiture of the Jackson Dome
pipeline in the fourth quarter of fiscal 2001. Weighted-average
interest rates were relatively flat in the current quarter compared to
the prior year quarter as higher rates of fixed cost debt associated
with the July 2001 refinancing, discussed below, were offset by lower
prevailing market rates affecting the Company's variable rate debt.
The Company participates in a securitization agreement with two
commercial banks to sell up to $150 million of qualifying trade
receivables. The amount of outstanding receivables under the agreement
was $139 million at December 31, 2001. Net proceeds were used to
reduce borrowings under the Company's revolving credit facilities. The
discount on the securitization of trade receivables represents the
difference between the carrying value of the receivables and the
proceeds from their sale. The amount of the discount varies on a
monthly basis depending on the amount of receivables sold and market
rates.
As discussed in "Liquidity and Capital Resources" and in Note 8 to
the Financial Statements, on July 30, 2001, the Company refinanced its
variable rate revolving credit facilities and concurrently issued fixed
rate senior subordinated notes. The Company's refinancing strategy
also included the securitization of trade receivables, which helped
diversify its funding sources. The Company refinanced its debt
facilities prior to their maturity in December 2002 to take advantage
of current favorable market conditions.
26
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other income, net
Other income, net, in the current quarter includes a net gain of
$1.9 million ($120 thousand after tax). The net gain consisted of a
$7.4 million gain from the divestiture of two nitrous oxide plants,
partially offset by a $3.6 million write-down of a business unit held
for sale to its net realizable value and a $1.9 million loss resulting
from an indemnity claim related to a prior period divestiture.
Income Tax Expense
The effective income tax rate was 41.6% of pre-tax earnings in the
current quarter compared to 35.5% in the prior year quarter, adjusted
for comparative purposes for the impact of SFAS 142. The increase in
the effective income tax rate in the current quarter was primarily due
to the $3.6 million write-down of a business unit held for sale to its
net realizable value, which was not deductible for income taxes. The
effective income tax rate as reported in the prior year quarter was
41.0%.
Net Earnings
Net earnings for the quarter ended December 31, 2001 were $11.8
million, or $.17 per diluted share, compared to $6.7 million, or $.10
per diluted share, in the prior year quarter. As adjusted for
comparative purposes for the impact of SFAS 142, net earnings were $.15
per diluted share in the prior year quarter.
27
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THE
NINE MONTHS ENDED DECEMBER 31, 2000
INCOME STATEMENT COMMENTARY
Net Sales
Net sales increased slightly in the nine months ended December 31,
2001 ("current period") compared to the nine months ended December 31,
2000 ("prior year period"). Total Company same-store sales increased
1% in the current period versus the prior year period.
Nine Months Ended
(In thousands) December 31,
Net Sales 2001 2000 Increase
--------- ---------------------- ----------------
Distribution $1,108,428 $1,105,519 $2,909 0.3%
Gas Operations 111,662 108,546 3,116 2.9%
--------- --------- -----
$1,220,090 $1,214,065 $6,025 0.5%
========= ========= =====
Distribution sales increased $2.9 million primarily resulting from
$2.6 million in sales contributed by an acquisition consummated in the
third quarter of fiscal 2002 and $300 thousand from same-store sales
growth. Distribution same-store sales growth of $300 thousand resulted
from gas and rent sales growth of $38.6 million (8.3%), offset by a
decline in hardgoods sales of $38.3 million (-5.8%). Gas and rent same-
store sales growth was primarily driven by price increases. The price
increases were levied in response to rising costs. Sales initiatives
such as strategic accounts (sales to large customers with multiple
locations) also contributed to same-store sales growth. Strategic
account sales reached approximately $120 million, an increase of 10%
over the prior year period, which is in line with the Company's fiscal
2002 forecast of $160 million. Gas and rent sales were also driven by
higher volumes of medical, bulk and specialty gases, and welder
equipment rentals. The decline in hardgoods sales was driven by lower
sales volumes of tools and welding products reflecting the continued
weak industrial environment. Partially offsetting the decline in tool
and welding hardgoods sales, safety product sales grew 6% to
approximately $195 million reflecting continued success of cross-
selling initiatives through the Company's distribution network.
Gas Operations' sales increased $3.1 million resulting from same-
store sales growth, partially offset by divestiture activity. Gas
Operations' same-store sales increased $8.5 million (8.6%) primarily
from price increases and higher volumes of liquid carbon dioxide and
dry ice. Sales were reduced by $5.4 million as a result of the
divestiture of two nitrous oxide plants during the third quarter of
fiscal 2002 and the divestiture of the Jackson Dome pipeline in the
fourth quarter of fiscal 2001.
28
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross Profits
Gross profits, excluding depreciation expense, increased 3.9% and
the gross profit margin increased 170 basis points to 49.7% in the
current period compared to 48.0% in the prior year period.
Nine Months Ended
(In thousands) December 31,
Gross Profits 2001 2000 Increase
------------- ----------------- ----------------
Distribution $533,851 $513,801 $20,050 3.9%
Gas Operations 72,166 69,204 2,962 4.3%
------- ------- ------
$606,017 $583,005 $23,012 3.9%
======= ======= ======
The increase in Distribution gross profits of $20.1 million
primarily resulted from gas and rent same-store gross profit growth of
$28.9 million (8.6%), partially offset by a decline in hardgoods gross
profits of $10.1 million (-5.6%). A fiscal 2002 acquisition also
contributed $1.3 million to the increase in gross profits. The
Distribution segment's gross profit margin of 48.2% in the current
period increased 170 basis points from 46.5% in the prior year period
primarily due to a shift in sales mix towards higher margin gas and
rent sales and price increases. Gas and rent sales comprised 46.7% of
sales compared to 43.2% in the prior year period.
The increase in Gas Operations' gross profits of $3.0 million
resulted from same-store gross profit growth, partially offset by
divestiture activity. Same-store gross profit growth of $7 million
(11.1%) was primarily due to improved gross margins from price
increases and higher volumes of dry ice and liquid carbon dioxide. Gas
Operations' gross profit margin of 64.6% increased 80 basis points from
63.8% in the prior year period, reflecting volume gains leveraging
fixed manufacturing costs.
Operating Expenses
Operating expenses increased $26.7 million (6.3%) compared to the
prior year period primarily from higher costs associated with the
Company's "Project One" initiative, personnel costs, and health and
workers' compensation insurance. The Company's "Project One"
initiative added incremental costs, net of realized benefits, of $8.7
million during the current period. As a percentage of net sales,
operating expenses increased 200 basis points to 37.2% compared to
35.2% in the prior year period. Project One costs contributed 70 basis
points to the rise in operating expenses as a percentage of net sales.
Amortization expense was $6.2 million in the current period
compared to $17.9 million in the prior year period. The decrease in
amortization expense was due to the adoption of SFAS 142, which
resulted in the Company discontinuing the amortization of goodwill.
29
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Income
Operating income decreased 2.3% in the current period compared to
the prior year period, adjusted to exclude the amortization of
goodwill. The Company's overall operating income margin decreased 20
basis points to 8.1% from 8.3% in the prior year quarter, as adjusted.
Nine Months Ended
(In thousands) December 31,
Adjusted As reported
Operating Income 2001 2000 (a) Increase(Decrease) 2000
---------------- ------------------ ------------------ -----------
Distribution $80,069 $ 83,988 $(3,919) (4.7%) $74,761
Gas Operations 18,748 17,175 1,573 9.2% 15,570
------ ------- ------- ------
$98,817 $101,163 $(2,346) (2.3%) $90,331
====== ======= ======= ======
(a) Operating income for the nine months ended December 31, 2000 has
been adjusted for comparative purposes to exclude the amortization of
goodwill (see Note 10 to the Consolidated Financial Statements).
The Distribution segment's operating income margin decreased 40
basis points to 7.2% in the current period compared to 7.6% in the
prior year period, as adjusted. The operating income margin decrease
was primarily attributable to Project One costs and increases in other
operating expenses, as discussed above, partially offset by higher
gross profits. The majority of Project One costs are allocated to the
Distribution segment.
Gas Operations' operating income margin increased 100 basis points to
16.8% in the current period compared to 15.8% in the prior year period,
as adjusted, primarily from higher gross profits from volume and price
increases related to liquid carbon dioxide and dry ice.
Interest Expense and Discount on Securitization of Trade Receivables
Interest expense, net, and the discount on securitization of trade
receivables totaled $39.3 million representing a decrease of $8.5
million (-17.9%) compared to the prior year period. The decrease
resulted primarily from lower average debt levels. The decrease in
average debt levels was attributable to cash flow provided from
operations and proceeds from the divestiture of the Jackson Dome
pipeline in the fourth quarter of fiscal 2001. Weighted-average
interest rates were relatively flat in the current period compared to
the prior year period as higher rates of fixed cost debt associated
with the July 2001 refinancing, discussed below, were offset by lower
prevailing market rates related to the Company's variable rate debt.
The Company participates in a securitization agreement with two
commercial banks to sell up to $150 million of qualifying trade
receivables. The amount of outstanding receivables under the agreement
was $139 million and $73 million at December 31, 2001 and March 31,
2001, respectively. Net proceeds from the sale of trade receivables
were used to reduce borrowings under the Company's revolving credit
facilities. The discount on the securitization of trade receivables
represents the difference between the carrying value of the receivables
and the proceeds from their sale. The amount of the discount varies on
a monthly basis depending on the amount of receivables sold and market
rates.
As discussed in "Liquidity and Capital Resources" and in Note 8 to
the Financial Statements, on July 30, 2001, the Company refinanced its
variable rate revolving credit facilities and concurrently issued fixed
rate senior subordinated notes. The Company's refinancing strategy
also included the securitization of trade receivables, which helped
diversify its funding sources. The Company refinanced its debt
facilities prior to their maturity in December 2002 to take advantage
of current favorable market conditions.
30
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other income, net
Other income, net, in the current period includes a net gain of
$1.9 million ($120 thousand after tax). The net gain consisted of a
$7.4 million gain from the divestiture of two nitrous oxide plants,
partially offset by a $3.6 million write-down of a business unit held
for sale to its net realizable value and a $1.9 million loss resulting
from an indemnity claim related to a prior period divestiture.
Income Tax Expense
The effective income tax rate was 38.0% of pre-tax earnings in the
current period compared to 35.5% in the prior year period, adjusted for
comparative purposes for the impact of SFAS 142. The increase in the
effective income tax rate in the current period was primarily due the
$3.6 million write-down of a business unit to its net realizable value,
which was not deductible for income taxes. The effective income tax
rate as reported in the prior year period was 41.1%.
Cumulative Effect of a Change in Accounting Principle
In connection with the adoption of SFAS 142, the Company performed
an evaluation of goodwill as of April 1, 2001. The results of the
evaluation indicated that goodwill related to one reporting unit, the
Company's tool business, was impaired. The Company measured the amount
of impairment based on a comparison of the fair value of the reporting
unit to its carrying value. Accordingly, the Company recognized a $59
million non-cash charge, recorded as of April 1, 2001, as a cumulative
effect of a change in accounting principle for the write-down of
goodwill of the tool business reporting unit to its fair value. The
impaired goodwill was not deductible for taxes, and as a result, no tax
benefit was recorded in relation to the charge.
Net Earnings (Loss)
The net loss for the nine month period ended December 31, 2001 was
$19.2 million, or a loss of $.28 per diluted share, compared to net
earnings of $26.9 million, or $.40 per diluted share, in the prior year
period. Net earnings for the nine month period ended December 31,
2001, excluding the cumulative effect of a change in accounting
principle, were $.57 per diluted share compared to $.56 per diluted
share in the prior year period, adjusted for comparative purposes for
the impact of SFAS 142.
31
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash provided by operating activities totaled $176.6 million
for the nine months ended December 31, 2001 compared to $159.6 million
in the prior year period. Net earnings, adjusted for non-cash items,
including the cumulative effect of a change in accounting principle,
were $105.1 million in the current period compared to $105.3 million in
the prior year period. The sale of trade receivables under the trade
receivables securitization program, described below, provided cash of
$65.4 million in the current period compared to $71.7 million in the
prior year period. Working capital and other assets and liabilities,
net, provided cash of $6.1 million in the current period compared to a
use of cash of $17.4 million in the prior year period. The improvement
in working capital components in the current period was primarily
driven by a lower level of trade receivables outstanding reflecting a
slight improvement in days sales outstanding to 54 days from 55 days at
December 31, 2001 and 2000, respectively. Additionally, Project One
initiatives significantly improved accounts payable days outstanding to
43 days from 36 days at December 31, 2001 and 2000, respectively. Cash
flow provided by operating activities was primarily used to reduce
borrowings under the Company's revolving credit facilities and to fund
capital expenditures.
Cash used in investing activities totaled $36.4 million during the
current period and primarily consisted of capital expenditures and
acquisition and divestiture activity. The Company anticipates capital
spending within a range of $55 to $60 million during fiscal 2002,
including costs associated with the Project One initiatives. Cash used
for the acquisition of six gas distributor locations from Air Liquide
America Corporation was largely offset by cash provided by the
divestiture of two nitrous oxide plants during the current period.
Financing activities used cash of $140.2 million primarily for the
net repayment of $120.1 million of debt. The reduction in debt was
principally the result of cash from operations, which includes the sale
of receivables under the Company's securitization program. The
remainder of cash used by financing activities included the reduction
of the cash overdraft, representing the balance of outstanding checks,
and financing costs related to the July 2001 refinancing, discussed
below.
Cash on hand at the end of each period presented was zero. On a
daily basis depository accounts are swept of all available funds. The
funds are deposited into a concentration account through which all cash
on hand is used to repay debt under the Company's revolving credit
facilities.
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
On July 30, 2001, the Company refinanced its revolving credit
facilities due December 5, 2002 with new bank credit facilities under a
credit agreement with a syndicate of lenders. The new credit
facilities consist of unsecured revolving credit facilities totaling
$367.5 million and $50 million Canadian (US $32 million) under a credit
agreement with a maturity date of July 30, 2006. At December 31, 2001,
the Company had borrowings under the credit agreement of approximately
$112 million and $37 million Canadian (US $24 million). The Company
also had commitments under letters of credit supported by the credit
agreement of approximately $44 million at December 31, 2001.
32
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The credit agreement contains covenants that include the maintenance of
certain leverage ratios, a fixed charge ratio, and potential
restrictions on certain additional borrowing, the payment of dividends
and the repurchase of common stock. Based on restrictions related to
certain leverage ratios, the Company had additional borrowing capacity
under the new credit facilities of approximately $193 million at
December 31, 2001. The variable interest rates of the U.S. and
Canadian revolving credit facilities are based on LIBOR and Canadian
Bankers' acceptance rates, respectively. At December 31, 2001, the
effective interest rates on borrowings under the new credit facilities
were 3.66% on U.S. borrowings and 2.51% on Canadian borrowings.
Borrowings under the new revolving credit facilities are
guaranteed by certain of the Company's domestic subsidiaries and
Canadian borrowings are guaranteed by Canadian subsidiaries. Should
the Company's long-term senior unsecured debt ratings be reduced by one
level, the Company will be required to pledge 100% of the stock of the
domestic guarantors and 65% of the stock of the Canadian guarantors for
the benefit of the syndicate of lenders. If the Company's long-term
senior unsecured debt ratings are reduced by two or more levels, the
Company will be required to grant a security interest in substantially
all of the tangible and intangible assets of the Company for the
benefit of the syndicate of lenders.
On July 30, 2001, concurrent with the refinancing of the new
revolving credit facilities, the Company issued $225 million of senior
subordinated notes (the "Notes") with a maturity date of October 1,
2011. The Notes bear interest at a fixed annual rate of 9.125%,
payable semi-annually on April 1 and October 1 of each year with the
first interest payment due April 1, 2002. The Notes were sold in
accordance with the provisions of Rule 144A of the Securities Act of
1933 (the "Securities Act"). In October 2001, the Company exchanged
the Notes for substantially similar notes that are registered with the
Securities and Exchange Commission in accordance with the Securities
Act. The notes contain covenants that could restrict the payment of
dividends, the issuance of preferred stock, and the incurrence of
additional indebtedness and liens. The notes are guaranteed on a
subordinated basis by each of the domestic guarantors under the new
credit facilities.
In addition to the senior subordinated notes, the Company had the
following medium-term notes outstanding at December 31, 2001: $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%. At December 31, 2001, the
Company's long-term debt also included acquisition notes and other long-
term debt instruments of approximately $37 million with interest rates
ranging from 6.0% to 9.0%.
The Company manages its exposure to changes in market interest
rates. At December 31, 2001, the Company was party to a total of 14
interest rate swap agreements. The swap agreements are with major
financial institutions and aggregate $334 million in notional principal
amount at December 31, 2001. Nine swap agreements with approximately
$180 million in notional principal amount require fixed interest
payments based on an average effective rate of 6.70% and mature over
periods ranging between one and three years. Five swap agreements with
$155 million in notional principal amount require variable interest
payments based on an average rate of 5.29% at December 31, 2001 and
mature over periods ranging between two and ten years. The Company
monitors its positions and the credit ratings of its counterparties,
and does not anticipate non-performance by the counterparties. After
considering the effect of interest rate swap agreements, the Company's
ratio of fixed to variable interest rates was 61% to 39% at December
31, 2001.
Trade Receivables Securitization
The Company participates in a securitization agreement with two
commercial banks to sell up to $150 million of qualifying trade
receivables. During the nine months ended December 31, 2001, the
Company sold, net of its retained interest, $1.32 billion of trade
receivables and remitted to the bank conduits, pursuant to a servicing
agreement, $1.18 billion in collections on those receivables. The net
proceeds were used to reduce borrowings under the Company's revolving
credit facilities. The amount of outstanding receivables under the
agreement was approximately $139 million at December 31, 2001 and $73
million at March 31, 2001.
33
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pending Acquisition and Related Financing
On January 3, 2002, the Company announced an agreement to purchase
the majority of Air Products and Chemicals, Inc.'s U.S. packaged gas
business for cash of $236 million. The transaction is expected to
close during the fourth quarter of fiscal 2002. In anticipation of the
transaction, the Company amended its revolving credit facilities to
permit the acquisition and extend the period for compliance under current
leverage ratios to September 30, 2002. In addition, the Company obtained
commitments from a syndicate of lenders for an additional $100 million term
loan with a maturity date of July 30, 2006. The term loan bears a variable
interest rate based on LIBOR plus a spread, which is related to the Company's
credit rating. The additional term loan along with the Company's existing
revolving credit facilities will enable the Company to finance the
entire transaction with senior bank debt. The Company expects that the
closing of the acquisition may result in a reduction of its credit
rating, which will increase the cost of borrowing on its revolving
credit facilities by 25 basis points.
OTHER
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143,
Accounting for Asset Retirement Obligations. SFAS 143 requires the
recognition of a liability for an asset retirement obligation in the
period in which it is incurred. A retirement obligation is defined as
one in which a legal obligation exists in the future resulting from
existing laws, statutes or contracts. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. The Company is evaluating the
impact of SFAS 143 on its results of operations, financial position and
liquidity.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 establishes one
accounting model to be used for long-lived assets to be disposed of by
sale and broadens the presentation of discontinued operations to
include more disposal transactions. The Statement supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a business segment. SFAS 144 also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to
consolidation for a subsidiary for which control is likely to be
temporary. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The Company is evaluating the impact of SFAS 144 on
its results of operations, financial position and liquidity.
34
AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
This report contains statements that are forward looking within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to, statements regarding: the
success of the Company's sales initiatives, including strategic
products and accounts, in continuing sales growth; the achievement of
strategic account sales of $160 million in fiscal 2002; the effect of
price increases on sales growth; the correlation of hardgoods sales
with non-tech industrial production; the timing, scope and success of
the Company's "Project One" initiatives designed to improve certain
operational and administrative processes; the Company's expectation
that capital spending will be in the range of $55 to $60 million in
fiscal 2002; the expected closing of the purchase of the majority of
Air Products' U.S. packaged gas business and the ability to finance the
purchase entirely with senior bank debt; the Company's expectation that
the closing of the pending acquisition from Air Products may result in
a reduction of the Company's credit rating and increase the cost of
borrowing by 25 basis points; the Company's belief that its sources of
financing are adequate for its anticipated needs and that it could
arrange additional sources of financing for unanticipated requirements;
the effect on the Company of higher interest rates and/or changes in
the Company's credit rating; and performance of counterparties under
interest rate swap agreements. These forward-looking statements
involve risks and uncertainties. Factors that could cause actual
results to differ materially from those predicted in any
forward-looking statement include, but are not limited to: underlying
market conditions; growth and continued improvement in same-store
sales; the success of marketing initiatives on sales of strategic
products and accounts; the Company's inability to control operating
expenses and the potential impact of higher operating expenses in
future periods; the lack of correlation of hardgoods sales trends with
non-tech industrial production; the inability of the Company's "Project
One" initiatives to improve operational and administrative processes;
higher than estimated expenses related to Project One; adverse changes
in customer buying patterns; market acceptance of price increases; the
inability of price increases and sales growth to offset any increases
in product costs and operating expenses; the impact of higher than
anticipated consulting expenses on future results; an economic downturn
(including adverse changes in the specific markets for the Company's
products); the inability to consummate the transaction with Air
Products; the lack of availability of senior bank credit facilities to
finance the transaction with Air Products; higher interest rates in
future periods and/or downgrades of the Company's credit rating and the
impact on interest expense; a higher or lower than expected level of
capital spending in fiscal 2002; the inability to manage interest rate
exposure; the effects of competition from independent distributors and
vertically integrated gas producers on products, pricing and sales
growth; changes in product prices from gas producers and name-brand
manufacturers and suppliers of hardgoods; higher than estimated legal
fees related to the Praxair, Inc. lawsuit; an unfavorable outcome of
the Praxair, Inc. lawsuit; uncertainties regarding accidents or
litigation which may arise in the ordinary course of business; 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; political and economic uncertainties associated with current
world events; and other factors described in the Company's reports,
including Form 10-K dated March 31, 2001 and Forms 10-Q dated June 30,
2001 and September 30, 2001 filed by the Company with the Securities
and Exchange Commission. 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.
35
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company manages its exposure to changes in market interest rates.
The interest rate exposure arises primarily from the interest payment
terms of the Company's borrowing agreements. Interest rate swap
agreements are used to adjust the interest rate risk exposures that are
inherent in its portfolio of funding sources. The Company has not, and
will not establish any interest rate risk positions for purposes other
than managing the risk associated with its portfolio of funding sources.
The Company maintains the ratio of fixed to variable rate debt within
parameters established by management under policies approved by the Board
of Directors. After the effect of interest rate swap agreements, the
ratio of fixed to variable rate debt was 61% to 39% at December 31, 2001.
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 position and the credit ratings of its counterparties, thereby
minimizing the risk of non-performance by the counterparties.
The table below summarizes the Company's market risks associated with
long-term debt obligations, interest rate swaps and LIBOR-based agreements
as of December 31, 2001. For long-term debt obligations, the table
presents cash flows related to payments of principal and interest by
fiscal year of maturity. For interest rate swaps and LIBOR-based
agreements, the table presents the notional amounts underlying the
agreements 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.
Fiscal Year of Maturity
_______________________________________________________________________
(In millions) Fair
2002 (a) 2003 2004 2005 2006 2007 Thereafter Total Value
_______________________________________________________________________
Fixed Rate Debt:
---------------
Medium-term notes $ -- $ -- $ 75 $ -- $ -- $100 $ -- $175 $179
Interest expense $ 3 $ 13 $ 13 $ 8 $ 8 $ 4 $ -- $ 49
Average interest rate 7.49% 7.49% 7.49% 7.75% 7.75% 7.75%
Acquisition and
other notes $ 6 $ 1 $ 22 $ 1 $ 6 $ 1 $ -- $ 37 $ 38
Interest expense $ 1 $ 2 $ 2 $ 1 $ 1 $ -- $ -- $ 7
Average interest rate 7.56% 7.55% 7.58% 7.75% 7.96% 8.50%
Senior subordinated notes $ -- $ -- $ -- $ -- $ -- $ -- $225 $225 $237
Interest expense $ 5 $ 21 $ 21 $ 21 $ 21 $ 21 $ 92 $202
Interest rate 9.125% 9.125% 9.125% 9.125% 9.125% 9.125% 9.125%
Variable Rate Debt:
------------------
Revolving credit
facilities $ -- $ -- $ -- $ -- $ -- $136 $ -- $136 $136
Interest expense $ 1 $ 5 $ 5 $ 5 $ 5 $ 2 $ -- $ 23
Interest rate (b) 3.46% 3.46% 3.46% 3.46% 3.46% 3.46%
Other notes $ -- $ -- $ -- $ 1 $ -- $ -- $ -- $ 1 $ 1
Average interest rate 5.75%
36
Fiscal Year of Maturity
______________________________________________________________________
(In millions) Fair
2002 (a) 2003 2004 2005 2006 2007 Thereafter Total Value
______________________________________________________________________
Interest Rate Swaps:
-------------------
US $ denominated Swaps:
8 Swaps Receive Variable/Pay Fixed
Notional amounts $ 10 $128 $ -- $ 40 $ -- $ -- $ -- $178 $ 8
Swap payments/(receipts) $ 2 $ 4 $ 2 $ 1 $ -- $ -- $ -- $ 9
Variable receive rate = 2.35%
(3 month LIBOR)
Weighted average pay rate = 6.71%
5 Swaps Receive Fixed/Pay Variable
Notional amounts $ -- $ -- $ 30 $ -- $ -- $ 50 $ 75 $155 $ (6)
Swap payments/(receipts) $ (2) $ (4) $ (4) $ (3) $ (3) $ (3) $ (8) $(27)
Weighted average receive
rate = 8.05%
Variable pay rate = 5.29%
(6 month LIBOR)
Canadian $ denominated Swaps:
1 Swap Receive Variable/Pay Fixed
Notional amounts $ 1 $ -- $ -- $ -- $ -- $ -- $ -- $ 1 $ --
Variable receive rate = 4.39%
(3 month CAD BA (c))
Weighted average pay rate = 5.98%
Other Off-Balance Sheet
LIBOR-based agreements:
-----------------------
Operating leases with trust (d) $ -- $ 1 $ 1 $ 41 $ -- $ -- $ -- $ 43 $ 43
Interest portion of lease expense $ -- $ 2 $ 2 $ 2 $ -- $ -- $ -- $ 6
Trade receivables securitization (e) $ -- $ -- $139 $ -- $ -- $ -- $ -- $139 $139
Discount on securitization $ 1 $ 4 $ 3 $ -- $ -- $ -- $ -- $ 8
(a) Fiscal 2002 financial instrument maturities and interest expense
relate to the period January 1, 2002 through March 31, 2002.
(b) The variable rate of U.S. revolving credit facilities is based on the
London Interbank Offered Rate ("LIBOR") as of December 31, 2001. The
variable rate of the Canadian dollar portion of the revolving credit
facilities is the rate on Canadian Bankers' acceptances as of December 31,
2001.
(c) The variable receive rate for Canadian dollar denominated interest
rate swaps is the rate on Canadian Bankers' acceptances ("CAD BA").
(d) The operating lease terminates October 8, 2004, but may be renewed
subject to provisions of the lease agreement.
(e) The three-year agreement expires on December 19, 2003, but the
initial term is subject to renewal provisions of the receivables purchase
agreement.
37
Limitations of the tabular presentation
As the table incorporates only those interest rate risk exposures
that exist as of December 31, 2001, 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, debt levels and
the Company's credit rating.
Foreign Currency Rate Risk
Canadian subsidiaries of the Company are funded in part with
local currency debt. The Company does not otherwise 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
financial position and results of operations.
38
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") 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
anticipates that additional discovery and pretrial motions will be
completed by the end of May 2002, and that a trial on the merits will begin
in July 2002. The Company believes that Praxair's North Carolina claims
are without merit and intends to defend vigorously against such claims.
The Company is involved in various legal and regulatory proceedings
that have arisen in the ordinary course of its business and have not been
fully 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.
Item 2. Changes in Securities and Use of Proceeds
During the nine months ended December 31, 2001, in connection with
services rendered by an outside consulting firm, the Company granted
warrants to the consulting firm to purchase 324,000 shares of the Company's
common stock at exercise prices ranging from $11.98 to $18.78 per share.
The warrants have a term of three years from the date of grant. No
underwriter was involved in the foregoing grant of warrants. The grants
were made by the Company in reliance upon an exemption from the
registration provisions of the Securities Act of 1933 set forth in Section
4 (2) thereof as a transaction by an issuer not involving a public
offering. The warrants were acquired for investment and not for
distribution by an accredited investor which had access to information
respecting the Company and its business.
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
----------- -----------
4.1 First Amendment, dated December 31, 2001, to the Tenth Amended
and Restated Credit Agreement dated as of July 30, 2001 among
Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of
America, N. A. as U.S. Agent and Canadian Imperial Bank of
Commerce as Canadian Agent.
11 Calculation of earnings per share
b. Reports on Form 8-K
-------------------
On October 25, 2001, the Company filed a Form 8-K pursuant to Item 5,
reporting its earnings for its second quarter and six months ended
September 30, 2001.
39
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant and Co-Registrants have duly caused this report to
be signed on its behalf by the undersigned hereunto duly authorized.
AIRGAS, INC. AIRGAS EAST, INC.
(Registrant) AIRGAS GREAT LAKES, INC.
AIRGAS MID AMERICA, INC.
AIRGAS NORTH CENTRAL, INC.
BY:/s/ Robert M. McLaughlin AIRGAS SOUTH, INC.
Robert M. McLaughlin AIRGAS GULF STATES, INC.
Vice President & Controller AIRGAS MID SOUTH, INC.
(Principal Accounting Officer) AIRGAS INTERMOUNTAIN, INC.
AIRGAS NORPAC, INC.
AIRGAS NORTHERN CALIFORNIA & NEVADA, INC.
AIRGAS SOUTHWEST, INC.
AIRGAS WEST, INC.
AIRGAS SAFETY, INC.
RUTLAND TOOL & SUPPLY CO., INC.
AIRGAS CARBONIC, INC.
AIRGAS SPECIALTY GASES, INC.
NITROUS OXIDE CORP.
PURITAN MEDICAL PRODUCTS, INC.
RED-D-ARC, INC.
AIRGAS REALTY, INC.
ATNL, INC.
AIRGAS DATA, LLC
________________________________________
(Co-Registrants)
BY:/s/ Robert M. McLaughlin
Robert M. McLaughlin
Vice President
(Principal Accounting Officer)
DATED: February 13, 2002
40