e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended March 31, 2009 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to ______
Commission File No. 1-9344
AIRGAS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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56-0732648 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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259 North Radnor-Chester Road, Suite 100 |
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Radnor, Pennsylvania
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19087-5283 |
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(Address of principal executive offices)
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(610) 687-5253
(Registrants telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
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Name of Each Exchange |
Title of Each Class
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on Which Registered |
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Common Stock, par value $0.01 per share
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New York Stock Exchange |
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
YES o NO þ
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files.)
YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the 73,787,315 shares of voting stock held by non-affiliates of
the registrant was approximately $3.7 billion computed by reference to the closing price of such
stock on the New York Stock Exchange as of the last day of the registrants most recently completed
second quarter, September 30, 2008. For purposes of this calculation, only executive officers and
directors were deemed to be affiliates.
The
number of shares of common stock outstanding as of May 28, 2009 was 81,663,285.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Companys Proxy Statement for the Annual Meeting of Stockholders to be held
August 18, 2009 have been incorporated by reference into Part III hereof.
AIRGAS, INC.
TABLE OF CONTENTS
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2
PART I
ITEM 1. BUSINESS.
GENERAL
Airgas, Inc. and subsidiaries (Airgas or the Company) became a publicly traded
company in 1986 and, through its subsidiaries, is the largest U.S. distributor of industrial,
medical, and specialty gases (delivered in packaged or cylinder form), and hardgoods, such
as welding equipment and supplies. Airgas is also one of the largest U.S. distributors of
safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid
carbon dioxide producer in the Southeast, the fifth largest producer of atmospheric merchant
gases in North America and a leading distributor of process chemicals, refrigerants, and
ammonia products. The Company markets these products to its diversified customer base
through multiple sales channels including branch-based sales representatives, retail stores,
strategic customer account programs, telesales, catalogs, eBusiness and independent
distributors. Products reach customers through an integrated network of more than 14,000
employees and over 1,100 locations including branches, retail stores, packaged gas fill
plants, cylinder testing facilities, specialty gas labs, production facilities and
distribution centers. The Companys national scale and strong local presence offer a
competitive edge to its diversified customer base.
The Companys consolidated sales were $4.35 billion, $4.02 billion and $3.21 billion in
the fiscal years ended March 31, 2009, 2008 and 2007, respectively. The Companys operations
are predominantly in the United States. However, the Company does conduct operations outside
of the United States, principally in Canada and, to a lesser extent, Mexico, Russia, Dubai
and Europe. Revenues derived from foreign countries are based on the point of sale and were
$86 million, $63 million and $51 million in the fiscal years ended March 31, 2009, 2008 and
2007, respectively. Long-lived assets attributable to the Companys foreign operations
represent less than 3.5% of the consolidated total long-lived assets of the Company and were
$116 million, $74 million and $56 million at March 31, 2009, 2008 and 2007, respectively.
Since its inception, the Company has made nearly 400 acquisitions. During fiscal 2009,
the Company acquired 14 businesses with aggregate historic annual sales in excess of $205
million. The largest of these businesses, acquired on July 31, 2008, was Refron, Inc., a New
York-based distributor of refrigerant gases with historical annual sales of $93 million.
Other acquisitions included Oilind Safety, an Arizona-based provider of industrial safety
services offering a full array of rental equipment, safety supplies and technical support and
training with historical annual sales of $23 million; A&N Plant, a European-based supplier of
positioning and welding equipment for sale and rent with historical annual sales of $20
million; and Gordon Woods Industrial Welding Supply, an industrial gas and welding supply
distributor with ten locations in the northern Los Angeles area with historical annual sales
of $25 million. A total of $274 million in cash was paid for the 14 businesses, including the
settlement of holdback liabilities related to prior year acquisitions. The Company acquired
the businesses to expand its geographic coverage and strengthen its national distribution
network, as well as to strengthen its refrigerant gas offerings, safety product offerings and
international presence. See Note 3 to the Companys Consolidated Financial Statements under
Item 8, Financial Statements and Supplementary Data for a description of current and prior
year acquisition activity.
The Company has two reporting segments, Distribution and All Other Operations. During
the fourth quarter of fiscal 2009, the Company changed the operating practices and
organization of its air separation production facilities and national specialty gas labs.
The new operating practices and organization reflect the evolution of these businesses and
their role to support the regional distribution companies. The regional distribution
companies market to and manage the end customer relationships, coordinating and cross-selling
the Companys multiple product and service offerings in a closely coordinated and integrated
manner. As a result of these changes, these businesses are now reflected in the Distribution
business segment. Also as a result of an organizational realignment, Airgas National
Welders is now part of the Distribution business segment. Segment information from fiscal
2008 and 2007 has been
3
restated to reflect these changes. The Distribution business segment engages in
the distribution of industrial, medical and specialty gases and hardgoods, and in the
production of gases primarily to supply the regional distribution companies. The All Other
Operations business segment consists of six business units which primarily manufacture and
distribute carbon dioxide, dry ice, nitrous oxide, ammonia and refrigerant gases. Financial
information by business segment can be found in Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations (MD&A), and in Note 23 to the Companys
Consolidated Financial Statements under Item 8, Financial Statements and Supplementary
Data. A more detailed description of the Companys business segments follows:
DISTRIBUTION BUSINESS SEGMENT
The Distribution business segment accounted for approximately 90% of consolidated sales
in each of the fiscal years 2009, 2008 and 2007.
Principal Products and Services
The Distribution business segments principal products include industrial, medical and
specialty gases sold in packaged and bulk quantities, as well as hardgoods. The Companys
air separation production facilities and national specialty gas labs primarily produce gases
that are sold by the Distribution segments business units. Business units in the Distribution
business segment also recognize rental revenue and distribute hardgoods. Gas sales include
nitrogen, oxygen, argon, helium, hydrogen, welding and fuel gases such as acetylene,
propylene and propane, carbon dioxide, nitrous oxide, ultra high purity grades, special
application blends and process chemicals. Rent is derived from gas cylinders, cryogenic
liquid containers, bulk storage tanks, tube trailers and through the rental of welding and
welding related equipment. Gas and rent represented 57%, 56% and 53% of the Distribution
business segments sales in each of the fiscal years 2009, 2008 and 2007, respectively.
Hardgoods consist of welding consumables and equipment, safety products, construction
supplies, and maintenance, repair and operating supplies. Hardgoods sales represented 43%,
44% and 47% of the Distribution business segments sales in each of the fiscal years 2009,
2008 and 2007, respectively.
Principal Markets and Methods of Distribution
The industry has three principal modes of gas distribution: on-site or pipeline supply,
bulk or merchant supply, and cylinder or packaged gas supply.
Airgas market focus has primarily been
on packaged gas distribution supplying customers with gases in cylinders and in less than
truck load bulk quantities. Generally, packaged gas distributors also sell welding
hardgoods. The Company believes the U.S. market for packaged gases and welding hardgoods to
be more than $13 billion in annual revenue. Packaged gases and welding hardgoods are
generally delivered to customers on Company-owned trucks, although third-party carriers are
also used in the delivery of welding and safety products and customers can purchase products
at retail branch stores and through catalogs and eBusiness.
Airgas is the largest distributor of packaged gases and welding hardgoods in the United
States, with approximately 25% market share. The Companys competitors in this market
include local and regional independent distributors that serve about half of the market, and
large independent distributors and vertically integrated gas producers such as Praxair, Inc.
(Praxair), Matheson Tri-Gas, Inc., and Liquid Air Corporation of America (Air Liquide),
which serve the remaining market. Packaged gas distribution is a regional business because
it is generally not economical to transport gas cylinders more than 50 to 100 miles. The
regionalized nature of the business makes these markets highly competitive. Competition is
generally based on reliable product delivery, product availability, technical support,
quality, and price. The Company also sells safety equipment. The Company believes the U.S.
market for safety equipment is greater than $7 billion annually, of which Airgas share is
almost 10%.
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Customer Base
The Companys operations are predominantly in the United States. The customer base is
diverse and sales are not dependent on a single or small group of customers. The Companys
largest customer accounts for approximately 0.5% of total net sales. The Company estimates the
following industry segments account for the indicated percentages of its total net sales:
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Repair & Maintenance (27%) |
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Industrial Manufacturing (25%) |
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Non-Residential Construction (13%) |
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Medical (9%) |
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Petrochemical (7%) |
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Food Products (6%) |
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Wholesale Trade (4%) |
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Analytical (2%) |
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Utilities and Mining (2%) |
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Transportation (2%) |
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Other (3%). |
Supply
The Companys internal production capacity includes 16 air separation plants that
produce oxygen, nitrogen and argon, making Airgas the fifth largest producer of atmospheric
gases in North America. In addition to the Companys internal production, Airgas purchases
industrial, medical and specialty gases pursuant to contracts with national and regional
producers of industrial gases. The Company is a party to a long-term take-or-pay supply
agreement, in effect through August 2017, under which Air Products and Chemicals, Inc. (Air
Products) will supply the Company with bulk nitrogen, oxygen and argon. Additionally, the
Company has commitments to purchase helium and hydrogen from Air Products under the terms of
the take-or-pay supply agreement. The Company is committed to purchase approximately $55
million annually in bulk gases under the Air Products supply agreement. The Company also has
long-term take-or-pay supply agreements with Linde AG to purchase oxygen, nitrogen, argon,
helium and acetylene. The agreements expire at various dates through July 2019 and represent
almost $50 million in annual bulk gas purchases. Additionally, the Company has long-term
take-or-pay supply agreements to purchase oxygen, nitrogen, argon and helium from other major
producers. Annual purchases under these contracts are approximately $20 million and they
expire at various dates through 2024. The annual purchase commitments above reflect
estimates based on fiscal 2009 purchases.
The supply agreements noted above contain periodic pricing adjustments based on certain
economic indices and market analyses. The Company believes the minimum product purchases
under the agreements are within the Companys normal product purchases. Actual purchases in
future periods under the supply agreements could differ materially from those presented above
due to fluctuations in demand requirements related to varying sales levels as well as changes
in economic conditions. The Company believes that if a long-term supply agreement with a
major supplier of gases or other raw materials was terminated, it would look to utilize
available internal production capacity and to locate alternative sources of supply to meet
customer requirements. The Company purchases hardgoods from major manufacturers and
suppliers. For certain products, the Company has negotiated national purchasing
arrangements. The Company believes that if an arrangement with any supplier of hardgoods was
terminated, it would be able to negotiate comparable alternative supply arrangements.
5
ALL OTHER OPERATIONS
The All Other Operations business segment consists of six business units. The primary
products manufactured and distributed are carbon dioxide, dry ice (solid form of carbon
dioxide), nitrous oxide,
ammonia and refrigerant gases. The business units reflected in the All Other Operations
business segment individually do not meet the thresholds to be reported as separate business
segments.
Carbon Dioxide & Dry Ice
Airgas is the second largest U.S. manufacturer and distributor of liquid carbon dioxide,
and the largest U.S. manufacturer and a leading distributor of dry ice. Customers for carbon
dioxide and dry ice include food processors, food service businesses, pharmaceutical and
biotech industries, and wholesale trade and grocery outlets, with food and beverage
applications accounting for approximately 70% of the market. Some seasonality is experienced
within this business, as the Company generally experiences a higher level of dry ice sales
during the warmer months. With 12 dry ice plants (converting liquid carbon dioxide into dry
ice), Airgas has the largest network of dry ice conversion plants in the United States.
Additionally, Airgas operates six carbon dioxide production facilities. The Companys carbon
dioxide production capacity is supplemented by long-term take-or-pay supply contracts.
Nitrous Oxide
Airgas is the largest manufacturer of nitrous oxide gas in North America, with four
nitrous oxide production facilities operated by the Company. Nitrous oxide is used as an
anesthetic in the medical and dental fields, as a propellant in the packaged food business
and in the manufacturing process of certain electronics industries. The raw materials
utilized in nitrous oxide production are purchased under contracts with major manufacturers
and suppliers.
Specialty Products
Airgas Specialty Products is a distributor of anhydrous and aqua ammonia. Industrial
ammonia applications primarily include the abatement of nitrogen oxide compounds in the
utilities industry (DeNOx), chemicals processing, commercial refrigeration, water treatment
and metal treatment. Airgas Specialty Products operates 24 distribution facilities across
the U.S. and purchases ammonia from suppliers under agreements.
Refrigerants
Refrigerants are used in a wide variety of commercial and consumer freezing and cooling
applications. Airgas purchases and distributes refrigerants and provides technical and
refrigerant reclamation services. The primary focus of the refrigerants business is on the
sale and distribution of refrigerants, with a varied customer base that includes small and
large HVAC contractors, facility owners, transportation companies, manufacturing facilities
and government agencies. The refrigerants business typically experiences some seasonality,
with higher sales levels during the warmer months as well as during the March and April
timeframe in preparation for the cooling season.
AIRGAS GROWTH STRATEGIES
The Companys primary objective is to maximize shareholder value by driving
market-leading sales growth through core and strategic product offerings that leverage the
Companys infrastructure and customer base, by pursuing acquisitions in the Companys core
business and in adjacent businesses, by providing outstanding customer service and by
improving operational efficiencies. To meet this objective, the Company is focusing on:
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markets with high potential growth or low cyclicality such as energy and
infrastructure construction, medical, environmental, research, life sciences and food products; |
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strategic product offerings with favorable growth profiles due to application
development, increasing environmental regulation, and strong cross-selling opportunities e.g., bulk
gases, specialty gases, medical products, |
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carbon dioxide and safety products; |
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a compelling value proposition for customers to reduce their total cost of
procurement through our broad product and service offerings and custom engineered
solutions; |
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improved training, tools and resources for all associates; |
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reducing costs associated with production, cylinder maintenance and distribution
logistics; and |
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acquisitions to complement and expand our business and to leverage our significant
national platform. |
REGULATORY AND ENVIRONMENTAL MATTERS
The Companys subsidiaries are subject to federal and state laws and regulations adopted
for the protection of the environment and the health and safety of employees and users of the
Companys products. The Company has programs for the operation and design of its facilities
to achieve compliance with applicable environmental regulations. The Company believes that
it is in compliance, in all material respects, with such laws and regulations. Expenditures
for environmental compliance purposes during fiscal 2009 were not material.
INSURANCE
The Company has established insurance programs to cover workers compensation, business
automobile and general liability claims. During fiscal 2009, 2008 and 2007, these programs
had self-insured retention of $1 million per occurrence. For fiscal 2010, the self-insured
retention will remain $1 million per occurrence. The Company accrues estimated losses using
actuarial methods and assumptions based on the Companys historical loss experience.
EMPLOYEES
On March 31, 2009, the Company employed more than 14,000 associates. Approximately 4%
of the Companys associates were covered by collective bargaining agreements. The Company
believes it has good relations with its employees and has not experienced a significant
strike or work stoppage in over ten years.
PATENTS, TRADEMARKS AND LICENSES
The Company holds the following registered trademarks: Airgas, Radnor, Gold Gas,
SteelMIX, StainMIX, AluMIX, Outlook, Ny-Trous+, Powersource, Red-D-Arc,
RED-D-ARC WELDERENTALS, Aspen, Gaspro, GAIN, Walk- O2-Bout, Airgas
Puritan Medical, Penguin Brand Dry Ice, Kangaroo Kart, National Farm and Shop,
National/HEF, UNAMIX, UNAMIG
Xtra, UNAMIG Six, and UNATIG.
The Company also holds trademarks for Airgas National Welders, Airgas National
Carbonation, Airgas National Cryogenics, AcuGrav, AIM, Freshblend, Aspen
Refrigerants, Mastercut, Reklaim, Safe-T-Cyl, When Youre Ready To Weld and Your
Total Ammonia Solution and a service mark for Youll find it with us.
The Company believes that its businesses as a whole are not materially dependent upon
any single patent, trademark or license.
7
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
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Peter McCausland
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Chairman of the Board, President and Chief Executive Officer |
Michael L. Molinini
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Executive Vice President and Chief Operating Officer |
Robert M. McLaughlin
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Senior Vice President and Chief Financial Officer |
Robert A. Dougherty
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Senior Vice President and Chief Information Officer |
Patrick M. Visintainer
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Senior Vice President Sales |
Dwight T. Wilson
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Senior Vice President Human Resources |
Leslie J. Graff
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Senior Vice President Corporate Development |
Robert H. Young, Jr.
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Senior Vice President and General Counsel |
Max D. Hooper
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Division President West |
B. Shaun Powers
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Division President East |
Andrew R. Cichocki
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Division President Gas Operations |
Thomas M. Smyth (1)
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Vice President and Controller |
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Mr. Smyth serves as the Companys Principal Accounting Officer, but he is not
an executive officer. |
Mr. McCausland has been Chairman of the Board and Chief Executive Officer of the Company
since May 1987. Mr. McCausland has also served as President from June 1986 to August 1988,
from April 1993 to November 1995, from April 1997 to January 1999, and from January 2005 to
present. Mr. McCausland serves as a director of the Fox Chase Cancer Center and the
Independence Seaport Museum, and also serves on the Board of Visitors of the College of Arts
and Sciences at the University of South Carolina and on the Board of Visitors at the Boston
University School of Law.
Mr. Molinini has been Executive Vice President and Chief Operating Officer since January
2005. Prior to that time, Mr. Molinini served as Senior Vice President Hardgoods
Operations from August 1999 to January 2005 and as Vice President Airgas Direct Industrial
from April 1997 to July 1999. Prior to joining Airgas, Mr. Molinini served as Vice President
of Marketing of National Welders Supply Company, Inc. from 1991.
Mr. McLaughlin has been Senior Vice President and Chief Financial Officer since October
2006 and served as Vice President and Controller since joining Airgas in June 2001 to
September 2006. Prior to joining Airgas, Mr. McLaughlin served as Vice President Finance for
Asbury Automotive Group from 1999 to 2001, and was a Vice President and held various senior
financial positions at Unisource Worldwide, Inc. from 1992 to 1999.
Mr. Dougherty has been Senior Vice President and Chief Information Officer since joining
Airgas in January 2001. Prior to joining Airgas, Mr. Dougherty served as Vice President and
Chief Information Officer from August 1998 to December 2000 and as Director of Information
Systems from November 1993 to July 1998 of Subaru of America, Inc.
Mr. Visintainer has been Senior Vice President Sales since January 1999. Prior to
that time, Mr. Visintainer served as Vice President Sales and Marketing from February 1998
to December 1998 and as President of one of the Companys subsidiaries from April 1996 to
January 1998. Until March 1996, he was employed by BOC Gases and served in various field
positions including National Sales Manager Industrial/Specialty Gases and National Accounts
Manager.
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Mr. Wilson was appointed Senior Vice President Human Resources in January 2004. Prior
to joining Airgas, Mr. Wilson served as Senior Vice President, Corporate Resources at
DecisionOne Corporation from October 1995 to December 2003.
Mr. Graff was appointed Senior Vice President Corporate Development in August 2006.
Prior to that, Mr. Graff held various positions since joining the Company in 1989, including
Director of Corporate Finance, Director of Corporate Development, Assistant Vice President -
Corporate Development, and Vice President Corporate Development. He has directed the
in-house acquisition department since 2001. Prior to joining Airgas, Mr. Graff served with
KPMG LLP from 1983 to 1989.
Mr. Young was appointed Senior Vice President and General Counsel in October 2007.
Prior to joining Airgas, Mr. Young was a shareholder of McCausland Keen & Buckman, which he
joined in 1985, and served as outside counsel for the Company on many acquisitions and other
corporate legal matters. At McCausland Keen & Buckman, Mr. Young focused his practice on
general corporate law for both public and private corporations, mergers and acquisitions, and
venture capital financing. Mr. Young first joined the law firm in 1985 after beginning his
legal career as an attorney at Drinker Biddle & Reath in Philadelphia.
Mr. Hooper was appointed Division President West in December 2005. Prior to this
role, Mr. Hooper had been President of Airgas West from 1996. Prior to joining Airgas, Mr.
Hooper served for three years as General Manager and President of an independent distributor,
Arizona Welding Equipment Company, in Phoenix, AZ and nine years with BOC Gases in various
sales and management roles. Mr. Hooper began his career with AG Pond Welding Supply in San
Jose, CA in 1983.
Mr. Powers has been Division President East since joining Airgas in April 2001. Prior
to joining Airgas, Mr. Powers served as Senior Vice President of Industrial Gases at AGA from
October 1995 to March 2001. Mr. Powers has more than 25 years of experience in the
industrial gas industry.
Mr. Cichocki has been Division President Gas Operations since July 2008. Prior to
that time, Mr. Cichocki served as President of Airgas National Welders and Airgas joint
venture, National Welders Supply Company, Inc. from 2003. Prior to that, Mr. Cichocki served
in key corporate roles for Airgas, including Senior Vice President of Human Resources, Senior
Vice President of Business Operations and Planning, and ten years as Vice President of
Corporate Development.
Mr. Smyth has been Vice President and Controller since November 2006. Prior to that,
Mr. Smyth served as Director of Internal Audit since joining Airgas in February 2001 and
became Vice President in August 2004. Prior to joining Airgas, Mr. Smyth served in internal
audit, controller and chief accounting roles at Philadelphia Gas Works from 1997 to 2001.
Prior to that, Mr. Smyth spent 12 years with Bell Atlantic, now Verizon, in a variety of
internal audit and general management roles and in similar positions during eight years at
Amtrak.
COMPANY INFORMATION
The Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and any amendments to those reports filed with or furnished to the
Securities and Exchange Commission (SEC) are available free of charge on the Companys
website (www.airgas.com) under the Investors section. The Company makes these documents
available as soon as reasonably practicable after they are filed with or furnished to the
SEC, but no later than the end of the day in which they are filed or furnished to the SEC.
9
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct applicable to its
employees, officers and directors. The Code of Ethics and Business Conduct is available on
the Companys website, under the web pages Company Information, About Airgas, Corporate
Governance. Amendments to and waivers from the Code of Ethics and Business Conduct will
also be disclosed promptly on the website. In addition, stockholders may request a printed
copy of the Code of Ethics and Business Conduct, free of charge, by contacting the Companys
Investor Relations department at:
Airgas, Inc.
Attention: Investor Relations
259 N. Radnor-Chester Rd.
Radnor, PA 19087-5283
Telephone: 610.902.6206
Corporate Governance Guidelines
The Company adopted Corporate Governance Guidelines as well as charters for its Audit
Committee and Governance & Compensation Committee. These documents are available on the
Companys website, noted above. Stockholders may also request a copy of these documents, free
of charge, by contacting the Companys Investor Relations department at the address and phone
number noted above.
Certifications
The certification of the Companys Chief Executive Officer required by Section
303A.12(a) of The New York Stock Exchange Listed Company Manual relating to the Companys
compliance with The New York Stock Exchanges Corporate Governance Listing Standards was
submitted to the New York Stock Exchange on August 29, 2008.
The Company has also filed certifications of its Chairman and Chief Executive Officer
and Senior Vice President and Chief Financial Officer pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 as exhibits to its annual report on Form 10-K for each of the
years ended March 31, 2009, 2008 and 2007.
10
ITEM 1A. RISK FACTORS.
In addition to risk factors discussed elsewhere in this report, the Company believes the
following, which have not been sequenced in any particular order, are the most significant
risks related to our business that could cause actual results to differ materially from those
contained in any forward-looking statements.
We face risks related to the current economic conditions, which may impact the demand for and
supply of our products and our results of operations.
Demand for our products depends in part on the general economic conditions affecting the
United States and, to a lesser extent, the rest of the world. Although our diverse product
offering and customer base help provide relative stability to our business in difficult
times, the current weak economic conditions in the United States are broad-based.
This general downturn has and may continue to negatively impact the demand for our products
and services, as well as, our customers ability to fulfill their obligations to
us. Falling demand may lead to lower sales volumes, lower pricing
and/or lower profit margins. A protracted period of lower product demand and profitability
may result in diminished values for both tangible and intangible assets, increasing the
possibility of future impairment charges. Further, suppliers may be impacted by the
economic downturn, which could impact their ability to fulfill their obligations to us. If
current economic conditions continue for significant future periods or deteriorate
significantly, our financial condition and cash flows could be
adversely affected. Additionally, our growth strategies to maximize shareholder value by
driving market-leading sales growth through core and strategic product offerings that
leverage our infrastructure may be delayed until current economic conditions improve.
We
operate in a highly competitive environment and such competition
could negatively impact us.
The
U.S. industrial gas industry operates in a highly competitive
environment. Competition is generally based on price, reliable product
delivery, product availability, technical support, quality and
service. If we are unable to compete effectively with our
competitors, we may suffer lower revenue and a loss of market share.
Increases in product and energy costs could reduce our profitability.
The
cost of industrial gases represents a significant percentage of our operating
costs. The production of industrial gases requires significant amounts of electric energy.
Therefore, industrial gas prices have historically increased as the cost of electric energy
increases. Price increases for oil and natural gas have historically resulted in electric
energy surcharges. In addition, a significant portion of our
distribution expenses consist
of diesel fuel costs. Although prices of oil, natural gas and diesel fuel are currently
lower than the peaks experienced during fiscal 2009, energy prices may rise again in the
future and as a result, increase the cost of industrial gases. While we have historically
been able to pass increases in the cost of our products and operating expenses on to our
customers, we cannot guarantee our ability to do so in the future, which could negatively
impact our operations, financial results or liquidity.
Our financial results may be adversely affected by gas supply disruptions/constraints.
We are the largest U.S. distributor of industrial, medical and specialty gases in
packaged form and have long-term supply contracts with the major gas producers.
Additionally, we operate 16 air separation plants, which provide us with substantial
production capacity. Both long-term supply contracts and our own production capacity
mitigate supply disruptions to various degrees. However, natural disasters, plant shut
downs, labor strikes and other supply disruptions may occur within our industry. Regional
supply disruptions may create shortages of certain products. Consequently, we may not be
able to obtain the products required to meet our customers demands or may incur significant
cost to ship product from other regions of the country to meet customer requirements. Such
additional costs may adversely impact
11
operating results until product sourcing can be restored. In the past, we successfully met
customer demand by arranging for alternative supplies and transporting product into an
affected region, but we cannot guarantee that we will be successful in arranging alternative
product supplies or passing the additional transportation or other costs on to customers in
the event of future supply disruptions, which could negatively impact our operations,
financial results or liquidity.
Recent turmoil in the U.S. credit markets may impact our ability to obtain financing or
increase the cost of future financing.
As of March 31, 2009, we had total consolidated debt of approximately $1.8 billion,
which includes $90 million under a term loan we intend to refinance under our credit facility and
$11 million of acquisition notes that mature within the next twelve months. We also
participate in a trade receivables securitization agreement with three commercial banks to
sell up to $345 million in qualified trade receivables. At March 31, 2009, the amount of
outstanding trade receivables sold under the program was $311 million and the agreement matures in
March 2010. See Managements Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7.
Although the current credit environment has not had a significant adverse impact on our
liquidity or cost of borrowing, the availability of funds has
tightened and credit spreads on corporate debt have increased. Therefore, obtaining
additional or replacement financing may be more difficult and the cost of issuing new debt
or replacing a credit facility would likely be at a higher cost than under our current
facilities. The higher cost of new debt may limit our ability to finance future acquisitions on
terms that are acceptable to us. Additionally, although we actively manage our interest rate
risk through derivative and diversified debt obligations, approximately 40% of our debt has a
variable interest rate. If interest rates increase, our interest expense could increase
significantly, affecting earnings and reducing cash flows available for working capital,
capital expenditures and acquisitions.
We may not be successful in integrating acquisitions and achieving intended benefits and
synergies.
We have successfully integrated approximately 400 acquisitions in our history and consider
the acquisition and integration of businesses to be a core competency. However, the process
of integrating acquired businesses into our operations may result in unexpected operating
difficulties and may require significant financial and other resources. Unexpected
difficulties may impair our ability to achieve targeted synergies or planned operating
results, which could diminish the value of acquired tangible and intangible assets resulting
in future impairment charges. Acquisitions involve numerous risks, including:
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acquired companies may not have an internal control structure appropriate for a larger
public company resulting in significant internal control remediations; |
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acquired operations, information systems and products may be difficult to assimilate; |
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acquired operations may not achieve targeted synergies; |
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we may not be able to retain key employees, customers and business relationships of
acquired companies; and |
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our management team may have their attention and resources diverted from ongoing
operations. |
12
We depend on our key personnel to manage our business effectively and they may be difficult
to replace.
Our performance substantially depends on the efforts and abilities of our senior
management team, including our Chairman and Chief Executive Officer, other executive officers
and key employees. Furthermore, much of our competitive advantage is based on the expertise,
experience and know-how of our key personnel regarding our distribution infrastructure,
systems and products. The loss of key employees could have a negative effect on our
business, revenues, results of operations and financial condition.
We are subject to litigation risk as a result of the nature of our business, which may have a
material adverse effect on our business.
From time to time, we are involved in lawsuits that arise from our business.
Litigation may, for example, relate to product liability claims, vehicle
accidents, contractual disputes, or employment matters. The defense and ultimate outcome of
lawsuits against us may result in higher operating expenses. Those higher operating expenses
could have a material adverse effect on our business, results of operations or financial
condition.
We have established insurance programs with significant deductibles and maximum coverage
limits which could result in the recognition of significant losses.
We maintain insurance coverage for workers compensation, auto and general liability
claims with significant per claim deductibles and, in some policy years, aggregate per claim
retentions above those deductibles. In the past, we have incurred significant workers
compensation, auto and general liability losses. Such losses could impact our profitability.
Additionally, claims in excess of our insurance limits could have a material adverse effect
on our financial condition, results of operations or liquidity.
Catastrophic events may disrupt our business and adversely affect our operating results.
Although our operations are widely distributed across the U.S., a catastrophic event
such as a fire or explosion at one of the Companys fill plants or natural disasters, such as
hurricanes, tornadoes and earthquakes, could result in significant property losses, employee
injuries and third-party damage claims. Additionally, such events may severely impact our
regional customer base and supply sources resulting in lost revenues, higher product costs,
and increased bad debts.
We are subject to environmental, health and safety regulations that generate ongoing
environmental costs and could subject us to liability.
We are subject to laws and regulations relating to the protection of the environment and
natural resources. These include, among other things, reporting on chemical inventories and
risk management plans, and management of hazardous substances and wastes, air emissions and
water discharges. Violations of existing laws and enactment of future legislation and
regulations could result in substantial penalties, temporary or permanent plant closures and
legal consequences. Moreover, the nature of our existing and historical operations exposes
us to the risk of liabilities to third parties. These potential claims include property
damage, personal injuries and cleanup obligations. See Item 1, Business Regulatory and
Environmental Matters above.
More recently, the issue of greenhouse gas emissions has been subject to increased
scrutiny, public awareness and evolving legislation, both internationally and in the U.S.
Increased regulation of greenhouse gas emissions could impose significant additional costs on
us. Until such time that federal legislation is passed in the United States, it will remain
unclear as to what industries would be impacted, the period of time within which compliance
would be required, the significance of the greenhouse gas emissions reductions and the costs
of compliance. At this time, we cannot predict the effect that climate change regulation may
have on our financial condition, results of operations or liquidity.
13
We face risks in connection with our current project to install a new enterprise information
system for our business.
We have initiated a phased implementation project of a new enterprise information system
for many aspects of our business. The implementation is a technically intensive process,
requiring testing, modifications and project coordination. Although our implementation
process includes at least twelve months of design and testing, which is intended to provide
minimal business disruption and to minimize conversion risks, we may experience disruptions
in our business operations relating to this implementation effort. Such disruptions could
result in material adverse consequences, including delays in the design and implementation of
the system, loss of information, damage to our ability to process transactions or harm to our
control environment, and unanticipated increases in costs.
Market conditions and other uncertainties may unfavorably impact our withdrawal liabilities
from multi-employer pension plans.
We participate in several multi-employer pension plans that provide defined benefits to
union employees under the provisions of collective bargaining agreements. The plans
generally provide retirement benefits to participants based on their service to contributing
employers. As we negotiate changes in collective bargaining agreements and cease making
contributions to certain multi-employer pension funds, estimates for withdrawal liabilities
must be recorded in our consolidated financial statements. However, the estimates are based
on numerous assumptions that continually change and information that is not always current,
and can take a number of years to settle. Furthermore, the investment assets in these plans
are subject to market fluctuations and may significantly increase potential withdrawal
liabilities during market downturns. As a result, increases in future withdrawal liabilities
from multi-employer pension plans could have a material adverse effect on our financial
condition, results of operations or liquidity.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
14
ITEM 2. PROPERTIES.
The Company operates in 48 states, Canada and to a lesser extent Mexico, Russia, Dubai
and Europe. The principal executive offices of the Company are located in leased space in
Radnor, Pennsylvania.
The Companys Distribution business segment operates a network of multiple use
facilities consisting of approximately 850 branches, 325 cylinder fill plants, 65 regional specialty gas laboratories, nine national specialty gas
laboratories, one research and development center, two specialty gas equipment centers, 19
acetylene plants and 16 air separation units, as well as six regional distribution centers,
various customer call centers, buying centers and administrative offices. The Distribution
business segment conducts business in 48 states and internationally in Canada, Mexico,
Russia, Dubai and Europe. The Company owns approximately 41% of these facilities. The
remaining facilities are primarily leased from third parties. A limited number of facilities
are leased from employees and are on terms consistent with commercial rental rates prevailing
in the surrounding rental market.
The Companys All Other Operations business segment consists of businesses, located
throughout the United States, which operate multiple use facilities consisting of
approximately 70 branch/distribution locations, seven liquid carbon
dioxide and 11 dry ice
production facilities, and four nitrous oxide production facilities. The Company owns
approximately 25% of these facilities. The remaining facilities are leased from third
parties.
During fiscal 2009, the Companys production facilities operated at approximately 79% of
capacity based on an average daily production period of 15 hours. If required, additional
shifts could be run to expand production capacity.
The Company believes that its facilities are adequate for its present needs and that its
properties are generally in good condition, well maintained and suitable for their intended
use.
ITEM 3. LEGAL PROCEEDINGS.
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 Companys consolidated financial condition, results of operations or
liquidity.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of the
fiscal year ended March 31, 2009.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The Companys common stock is listed on the New York Stock Exchange (ticker symbol:
ARG). The following table sets forth, for each quarter during the last two fiscal years, the
high and low closing price per share for the common stock as reported by the New York Stock
Exchange and cash dividends per share for the period from April 1, 2007 to March 31, 2009:
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Dividends |
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High |
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Low |
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Per Share |
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Fiscal 2009 |
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First Quarter |
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$ |
64.72 |
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$ |
45.98 |
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$ |
0.12 |
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Second Quarter |
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60.00 |
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44.35 |
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0.12 |
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Third Quarter |
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47.00 |
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27.45 |
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0.16 |
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Fourth Quarter |
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40.65 |
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27.09 |
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0.16 |
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Fiscal 2008 |
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First Quarter |
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$ |
48.23 |
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$ |
41.49 |
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$ |
0.09 |
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Second Quarter |
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52.05 |
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42.31 |
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0.09 |
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Third Quarter |
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55.27 |
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45.85 |
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0.09 |
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Fourth Quarter |
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51.01 |
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40.24 |
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0.12 |
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The closing sale price of the Companys common stock as reported by the New York Stock
Exchange on May 28, 2009, was $42.04 per share. As of May 28, 2009, there were approximately
458 stockholders of record.
On May 19, 2009, the Companys Board of Directors declared a regular quarterly cash
dividend of $0.18 per share, which is payable on June 30, 2009 to stockholders of record as
of June 15, 2009. Future dividend declarations and associated amounts paid will depend upon
the Companys earnings, financial condition, loan covenants, capital requirements and other
factors deemed relevant by management and the Companys Board of Directors.
16
Stockholder Return Performance Presentation
Below is a graph comparing the yearly change in the cumulative total stockholder return
on the Companys common stock against the cumulative total return of the S&P MidCap 400
Chemicals Index and the S&P MidCap 400 Index for the five-year period that began April 1,
2004 and ended March 31, 2009.
The Company believes the use of the S&P MidCap 400 Chemicals Index and S&P MidCap 400
Index for purposes of this performance comparison is appropriate because Airgas is a
component of the indices and they include companies of similar size as Airgas.
Airgas, Inc.
Comparison of Five Year Cumulative Total Return
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March 31 |
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2004 |
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2005 |
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2006 |
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2007 |
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2008 |
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2009 |
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u |
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Airgas |
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100.00 |
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112.98 |
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186.32 |
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202.36 |
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220.04 |
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165.81 |
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m |
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S&P MidCap 400 Chemicals |
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100.00 |
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127.67 |
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131.70 |
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160.70 |
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174.67 |
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116.10 |
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n |
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S&P MidCap 400 |
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100.00 |
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110.43 |
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134.31 |
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145.65 |
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135.50 |
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86.59 |
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The graph above assumes that $100 was invested on April 1, 2004 in Airgas, Inc. Common Stock,
the S&P MidCap 400 Chemicals Index, and the S&P MidCap 400 Index.
17
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the Company are presented in the table below and should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 and the Companys consolidated financial statements
and notes thereto included in Item 8 herein.
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Years Ended March 31, |
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(In thousands, except per share amounts): |
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2009 (1) |
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2008 (2) |
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2007 (3) |
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2006 (4) |
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2005 (5) |
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Operating Results: |
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Net sales |
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$ |
4,349,455 |
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$ |
4,017,024 |
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$ |
3,205,051 |
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$ |
2,829,610 |
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$ |
2,367,782 |
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Depreciation and amortization |
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220,795 |
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189,775 |
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147,343 |
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127,542 |
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111,078 |
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Operating income |
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524,868 |
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475,824 |
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341,497 |
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269,142 |
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202,454 |
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Interest expense, net |
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84,395 |
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89,485 |
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60,180 |
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54,145 |
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51,245 |
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Discount on securitization of trade receivables |
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10,738 |
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17,031 |
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13,630 |
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9,371 |
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4,711 |
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Loss on debt extinguishment |
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12,099 |
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Other income (expense), net |
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(382 |
) |
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1,454 |
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1,556 |
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2,411 |
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1,129 |
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Income taxes |
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168,265 |
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144,184 |
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99,883 |
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77,866 |
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54,261 |
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Minority interest in earnings of consolidated
affiliate |
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(3,230 |
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(2,845 |
) |
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(2,656 |
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(1,808 |
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Income from continuing operations before the
cumulative
effect of a change in accounting principle |
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261,088 |
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223,348 |
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154,416 |
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127,515 |
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91,558 |
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Income (loss) from discontinued operations,
net of tax |
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(1,424 |
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464 |
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Cumulative effect of a change in accounting
principle, net of tax |
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(2,540 |
) |
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Net earnings |
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$ |
261,088 |
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$ |
223,348 |
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$ |
154,416 |
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$ |
123,551 |
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$ |
92,022 |
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NET EARNINGS PER COMMON SHARE |
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BASIC |
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Earnings from continuing operations
before the
cumulative effect of a change in
accounting principle |
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$ |
3.19 |
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$ |
2.74 |
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$ |
1.98 |
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$ |
1.66 |
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$ |
1.22 |
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Earnings (loss) from discontinued
operations |
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(0.02 |
) |
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|
0.01 |
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Cumulative effect of a change in
accounting principle |
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(0.03 |
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Net earnings per share |
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$ |
3.19 |
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$ |
2.74 |
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$ |
1.98 |
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$ |
1.61 |
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$ |
1.23 |
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DILUTED |
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Earnings from continuing operations
before the
cumulative effect of a change
in accounting principle |
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$ |
3.12 |
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$ |
2.66 |
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$ |
1.92 |
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$ |
1.62 |
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$ |
1.19 |
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Earnings (loss) from discontinued
operations |
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(0.02 |
) |
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|
0.01 |
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Cumulative effect of a change in
accounting principle |
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(0.03 |
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Net earnings per share |
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$ |
3.12 |
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$ |
2.66 |
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$ |
1.92 |
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$ |
1.57 |
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$ |
1.20 |
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|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share declared and paid
(6) |
|
$ |
0.56 |
|
|
$ |
0.39 |
|
|
$ |
0.28 |
|
|
$ |
0.24 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet and Other Data at March 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
285,510 |
|
|
$ |
132,323 |
|
|
$ |
121,543 |
|
|
$ |
(17,138 |
) |
|
$ |
132,969 |
|
Total assets |
|
|
4,399,537 |
|
|
|
3,987,264 |
|
|
|
3,333,457 |
|
|
|
2,474,412 |
|
|
|
2,291,863 |
|
Current portion of long-term debt |
|
|
11,058 |
|
|
|
40,400 |
|
|
|
40,296 |
|
|
|
131,901 |
|
|
|
6,948 |
|
Long-term debt |
|
|
1,750,308 |
|
|
|
1,539,648 |
|
|
|
1,309,719 |
|
|
|
635,726 |
|
|
|
801,635 |
|
Deferred income tax liability, net |
|
|
565,783 |
|
|
|
439,782 |
|
|
|
373,246 |
|
|
|
327,818 |
|
|
|
282,186 |
|
Other non-current liabilities |
|
|
79,231 |
|
|
|
80,104 |
|
|
|
39,963 |
|
|
|
30,864 |
|
|
|
24,391 |
|
Minority interest in affiliate |
|
|
|
|
|
|
|
|
|
|
57,191 |
|
|
|
57,191 |
|
|
|
36,191 |
|
Stockholders equity |
|
|
1,571,755 |
|
|
|
1,413,336 |
|
|
|
1,125,382 |
|
|
|
947,159 |
|
|
|
814,172 |
|
Capital expenditures for years ended March 31, |
|
|
351,912 |
|
|
|
267,378 |
|
|
|
238,274 |
|
|
|
208,603 |
|
|
|
167,977 |
|
18
|
|
|
(1) |
|
Stock-based compensation expense in fiscal 2009 was $20.6 million ($14.1
million after tax), or $0.17 per diluted share. |
|
(2) |
|
As discussed in Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations and in the notes to the Companys Consolidated
Financial Statements included in Item 8, Financial Statements and Supplementary Data,
the results for fiscal 2008 include a one time, non-cash charge of $2.5 million, or
$0.03 per diluted share, related to the National Welders Exchange Transaction through
which the joint venture became a 100% owned subsidiary. Also included in the results
for fiscal 2008 is a tax benefit of $1.3 million, or $0.01 per diluted share, due to
additional guidance issued with respect to a prior year change in Texas state income tax
law. Fiscal 2008 acquisition integration costs, principally related to the Linde Bulk
Gas and Linde Package Gas acquisitions, were $10.1 million ($6.2 million after tax).
Stock-based compensation expense in fiscal 2008 was $16.6 million ($11.3 million after
tax), or $0.13 per diluted share. |
|
(3) |
|
As discussed in Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations and in the notes to the Companys Consolidated
Financial Statements included in Item 8, Financial Statements and Supplementary Data,
the results for fiscal 2007 include a charge of $12.1 million ($7.9 million after tax),
or approximately $0.10 per diluted share, for the early extinguishment of debt and a tax
benefit of $0.02 per diluted share related to a change in Texas state income tax law.
The Company also adopted Statement of Financial Accounting Standards No. 123R,
Share-Based Payment, utilizing the modified prospective method in fiscal 2007. Under
the modified prospective method, no stock-based compensation expense was reflected in
periods prior to fiscal 2007. Stock-based compensation expense in fiscal 2007 was $15.4
million ($10.9 million after tax), or $0.13 per diluted share. |
|
(4) |
|
The results for fiscal 2006 include an after-tax charge of $2.5 million as a
result of the adoption of Financial Accounting Standards Board Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB
Statement No. 143, which was recorded as a cumulative effect of a change in accounting
principle, an after-tax loss of $1.9 million on the divestiture of Rutland Tool, which
was reported as a discontinued operation, and an estimated loss of $2.2 million ($1.4
million after tax) related to hurricanes Katrina and Rita. Working capital decreased in
fiscal 2006 compared to 2005 primarily due to an increase in the current portion of
long-term debt. |
|
(5) |
|
The results for fiscal 2005 include integration costs related to the
acquisition of the U.S. packaged gas business of The BOC Group, Inc. and employee
separation costs of $6.4 million ($4.0 million after tax). Fiscal 2005 also reflected a
full year of National Welders as a consolidated affiliate. See Note 13 to the
Consolidated Financial Statements included under Item 8, Financial Statements and
Supplementary Data. |
|
(6) |
|
The Company paid its stockholders quarterly cash dividends of $0.12 per share
at the end of each of the first two quarters of fiscal 2009. In the third and fourth
quarters of fiscal 2009, the Company paid dividends of $0.16 per share. During fiscal
2008, the Company paid regular quarterly cash dividends of $0.09 per share during the
first three quarters and $0.12 per share during the fourth quarter. In fiscal 2007,
fiscal 2006, and fiscal 2005, the Company paid its stockholders regular quarterly cash
dividends of $0.07, $0.06, and $0.045 per share, respectively. On May 19, 2009, the
Companys Board of Directors declared a regular quarterly cash dividend of $0.18 per
share, which is payable on June 30, 2009 to stockholders of record as of June 15, 2009.
Future dividend declarations and associated amounts paid will depend upon the Companys
earnings, financial condition, loan covenants, capital requirements and other factors
deemed relevant by management and the Companys Board of Directors. |
19
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS: 2009 COMPARED TO 2008
OVERVIEW
Airgas, Inc. and its subsidiaries (Airgas or the Company) had net sales for the
fiscal year ended March 31, 2009 (fiscal 2009 or current year) of $4.3 billion compared
to $4.0 billion for the fiscal year ended March 31, 2008 (fiscal 2008 or prior year).
The fiscal 2009 net sales reflect a weak sales environment in the fiscal fourth quarter ended
March 31, 2009. Fourth quarter sales were $1.0 billion compared to $1.1 billion in the prior
year, a decline of 9%. Total same-store sales in the fourth quarter declined 13%, with
hardgoods sales down 20% and gas and rent down 8%. Acquisitions contributed 4% sales growth
in the quarter. Due to the current year's weak fourth quarter sales
environment, management has provided a separate discussion on fourth quarter fiscal 2009 versus fourth quarter
fiscal 2008 below.
For fiscal 2009, net sales increased by 8% driven by the impact of current and prior
year acquisitions and same-store sales growth. Acquisitions accounted for 7% of the overall
sales growth. Same-store sales growth contributed 1% to the increase in total sales, driven
by a 4% increase in pricing, offset by a 3% decrease in sales volumes. Price increases were
designed to offset rising product, operating and distribution costs. Lower sales volumes
reflect the effects of the slowing economy and the decreased demand experienced in the second
half of the fiscal year across all customer and geographic segments. The Companys strategic
products and related growth initiatives mitigated the impact of the economic slow down.
Operating leverage and the benefit of acquisition synergies resulted in a 30 basis point
expansion in the operating income margin to 12.1% in fiscal 2009 compared to 11.8% in the
prior year. Net earnings per diluted share grew 17% to $3.12 in fiscal 2009 versus $2.66 in
the prior year. The strong performance was driven by good sales growth in the first half of
the year and effective management of costs in response to the slowing economy in the second
half of the year. Fiscal 2008 included a one-time, non-cash charge of $0.03 per diluted
share related to the conversion of National Welders Supply Company, Inc. (National Welders)
from a joint venture to a 100% owned subsidiary, and $0.01 per diluted share tax benefit
related to a change in state tax law.
Acquisitions
In fiscal 2009 the Company acquired a total of 14 businesses with aggregate historical
annual revenues of more than $205 million. The largest of these acquisitions was Refron,
Inc. (Refron), a New York-based distributor of refrigerant gases with historical annual
sales of $93 million, acquired on July 31, 2008. With the acquisition of Refron, the Company
formed Airgas Refrigerants, Inc. and merged the newly acquired operations with its existing
refrigerant gas business. Airgas Refrigerants, Inc. is reflected in the All Other Operations
business segment. Other significant acquisitions included Oilind Safety, a Arizona-based
provider of industrial safety services including rental equipment, safety supplies, and
technical support and training, with historical annual sales of $23 million; A&N Plant, a
European-based supplier of positioning and welding equipment for sale and rent with
historical annual sales of $20 million; and Gordon Woods Welding Supply, an industrial gas
and welding supply distributor in the northern Los Angeles area with historical annual sales
of $25 million. These acquisitions were merged into the operations of the Distribution
business segment. The acquisitions expand the Companys coverage in key geographies,
strengthen its national distribution network and broaden its refrigerant gas and safety
product offerings. The acquisition of A&N Plant provides for increased international
presence and an expansion of the Red-D-Arc rental welder business into Europe.
20
Financing
On June 5, 2008, the Company issued $400 million of 7.125% senior subordinated notes at
par. The notes are due October 1, 2018 and contain a redemption provision that permits the
Company, at its option, to call the notes at scheduled dates and prices. The net proceeds
from the offering were used to reduce the outstanding balance under the Companys existing
revolving credit facility.
As of March 31, 2009, approximately $266 million remained unused under the Companys
revolving credit facility, which matures in July 2011. The Companys margins of compliance
with the financial covenants of the credit facility result in no restrictions on the
Companys ability to borrow on the unused portion of the credit facility.
Stock Repurchase Plan
In November 2005, the Companys Board of Directors approved a stock repurchase plan (the
Repurchase Plan) that provided the Company with the authorization to repurchase up to $150
million of its common stock. During the year ended March 31, 2009 the Company purchased 2.4
million shares for $115.6 million to complete the Repurchase Plan. As of March 31, 2009, the
Company has no authorization remaining for any additional treasury share purchases under the
plan.
Business Segments
The Company aggregates its operations, based on products and services, into two
reportable business segments, Distribution and All Other Operations. During the fourth
quarter of fiscal 2009, the Company changed the operating practices and organization of its
air separation production facilities and national specialty gas labs. The new operating
practices and organization reflect the evolution of these businesses and their role to support
the regional distribution companies. The regional distribution companies market to and manage
the end customer relationships, coordinating and cross-selling the Companys multiple product
and service offerings in a closely coordinated and integrated manner. As a result of these
changes, these businesses are now reflected in the Distribution business segment. Also as a
result of an organizational realignment, Airgas National Welders is now part of the
Distribution business segment. Segment information and the prior year income statement
commentary have been recast to reflect the realignment of the Companys business segments.
Enterprise Information System
The Company signed a license agreement with SAP AG (SAP) to implement the SAP
enterprise information system for many aspects of the Companys operations. The design and
configuration phase of the project will be completed in approximately 12 months. The
implementation phase, which will follow the design phase, is expected to last 24 to 36
months. Upon completion, the Company believes that the system will provide a platform for
highly efficient operations and consistent measurement of performance throughout the Company.
Looking Forward
Prevailing economic conditions offer limited visibility into future sales and earnings,
which should be taken into consideration when evaluating the Companys guidance. Looking
forward, the Company expects net earnings for the first quarter ending June 30, 2009 to range
from $0.62 to $0.67 per diluted share, a decline of 23% to 17% from the strong first quarter
results in fiscal 2009. For the full year 2010, the Company expects earnings per diluted
share of $2.60 to $2.90, a decline of 17% to 7% from fiscal 2009.
21
INCOME STATEMENT COMMENTARY Three Months Ended March 31, 2009 Compared to Three Months Ended
March 31, 2008
Net Sales
Net sales decreased 9% to $1.0 billion for the three months ended March 31, 2009
(current quarter) compared to the three months ended March 31, 2008 (prior year quarter),
driven by acquisition growth of 4% and same-store sales decline of 13%. Gas and rent
same-store sales declined 8% and hardgoods declined 20%. Volume declines were experienced in
both product lines. Strategic products account for about 40% of revenues and include safety
products, medical, specialty and bulk gases, as well as carbon dioxide and dry ice. The
Company has identified these products as strategic because it believes they have good
long-term growth profiles relative to the Companys core industrial gas and welding products due
to favorable end customer markets, application development,
increasing environmental regulation, strong cross-selling opportunities or a combination thereof. Many of the strategic products
are sold to customers whose growth profile tends to outperform GDP, including medical, life
sciences, food processing and environmental markets. The Company believes its focus on these
strategic products and markets will help to mitigate the impact of the current recessionary
environment. In the aggregate, these products declined 6% on a same-store sales basis in the
current quarter compared to the prior year quarter. Growth in medical was offset by slight
declines in bulk and specialty gas and by more significant slowing in
carbon dioxide and safety
products.
The Company estimates same-store sales growth based on a comparison of current period
sales to prior period sales, adjusted for acquisitions and divestitures. The pro forma
adjustments consist of adding acquired sales to, or subtracting sales of divested operations
from, sales reported in the prior period. The table below reflects actual sales and does
not include the pro forma adjustments used in calculating the same-store sales metric. The
intercompany eliminations represent sales from the All Other
Operations business segment to the Distribution
business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Net Sales |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase/ (Decrease) |
|
|
|
|
|
Distribution |
|
$ |
893,967 |
|
|
$ |
995,125 |
|
|
$ |
(101,158 |
) |
|
|
-10 |
% |
All Other Operations |
|
|
103,559 |
|
|
|
96,201 |
|
|
|
7,358 |
|
|
|
8 |
% |
Intercompany eliminations |
|
|
(5,426 |
) |
|
|
(4,729 |
) |
|
|
(697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
992,100 |
|
|
$ |
1,086,597 |
|
|
$ |
(94,497 |
) |
|
|
-9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Distribution business segments principal products include industrial, medical and
specialty gases, and process chemicals; cylinder and equipment rental; and hardgoods.
Industrial, medical and specialty gases are distributed in cylinders and bulk containers.
Equipment rental fees are generally charged on cylinders, cryogenic liquid containers, bulk
and micro-bulk tanks, tube trailers and welding equipment. Hardgoods consist of welding
consumables and equipment, safety products, construction supplies, and maintenance, repair
and operating (MRO) supplies.
Distribution business segment sales declined 10% compared to the prior year quarter
with incremental sales of 2% contributed by current and prior year acquisitions partially
offsetting a decline in same-store sales of 12%. The Distribution same-store sales results
reflect gas and rent same-store sales decline of 6% and a hardgoods same-store sales decline
of 20%. The same-store sales decline reflects volume declines in both gases and hardgoods,
partially offset by results of pricing actions
executed during the second fiscal quarter and prior year. Both gas and rent and hardgoods
volumes were negatively impacted by the slowdown in sales activity related to customers
extended plant shutdowns and inventory reductions.
22
Distribution gas and rent same-store sales declined 6% reflecting volume declines of
10% partially offset by a positive 4% pricing impact. Sales of strategic gas products sold
through the Distribution business segment in the current quarter declined 1%. Among strategic
products, bulk gas sales were down 2% due to the impact of production slowdowns in the metal
fabrication and steel segments, and reduced activity by oil field supply customers. Medical
gases were up 2% as hospital, specialty clinics and nursing homes segments continue to grow,
while the homecare segment was more of a challenge. Specialty gases were down 1% as plant
shutdowns caused general softening in demand. Sales of core industrial gases, which
experienced the sharpest volume declines, were down 13% for the quarter. Revenues from the
Companys rental welder business were flat for the quarter with acquisition growth of 16%,
offset by a 16% decline in same-store sales.
Distribution hardgoods same-store sales declined 20% with volumes down 23%, slightly
offset by pricing gains. The most significant volume declines were in equipment and welding
consumables. Safety product sales declined 14% in the quarter, attributed to extended plant
shutdowns during the quarter and inventory reductions. Our Radnor® private label
line was down 9% for the quarter, driven by the overall drop in hardgoods volumes.
The All Other Operations business segment consists of six business units. The primary
products manufactured and distributed are carbon dioxide, dry ice, nitrous oxide, ammonia and
refrigerant gases.
The All Other Operations business segment sales increased 8% compared to the prior year
quarter with a 17% decline in same-store sales offset by acquisitions. Overall, price
contributed 3%, while volume declined by 20%, driven largely by the delay in normal
pre-season buying patterns for refrigerants.
Gross Profits (Excluding Depreciation)
Gross profits (excluding depreciation) do not reflect deductions related to
depreciation expense and distribution costs. As disclosed in Note 1 to the Companys
Consolidated Financial Statements under Item 8, Financial Statement and Supplementary
Data, the Company reflects distribution costs as an element of selling, distribution and
administrative expenses and recognizes depreciation on all its property, plant and
equipment in the Consolidated Statement of Earnings line item, Depreciation. Other
companies may report certain or all of these costs as elements of their cost of products
sold and, as such, the Companys gross profits (excluding depreciation) discussed below may
not be comparable to those of other businesses.
Consolidated
gross profits (excluding depreciation) decreased 3% principally due
to a
same-store sales decline offset somewhat by acquisition growth. The consolidated gross
profit margin (excluding depreciation) in the current quarter increased 310 basis points to
54.9% compared to 51.8% in the prior year quarter. The increase in the gross profit margin
(excluding depreciation) was primarily driven by margin expansion in the Distribution
business segment resulting from a favorable product mix shift toward gases, which have a
higher gross margin than hardgoods, and price increases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Gross Profits (excluding depreciation) |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase/ (Decrease) |
|
|
|
|
|
Distribution |
|
$ |
498,358 |
|
|
$ |
520,956 |
|
|
$ |
(22,598 |
) |
|
|
-4 |
% |
All Other Operations |
|
|
46,013 |
|
|
|
41,926 |
|
|
|
4,087 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
544,371 |
|
|
$ |
562,882 |
|
|
$ |
(18,511 |
) |
|
|
-3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The Distribution business segments gross profits (excluding depreciation) decreased 4%
compared to the prior year quarter. The Distribution business segments gross profit margin
(excluding depreciation) was 55.7% versus 52.4% in the prior year quarter, an increase of
330 basis points. The improvement in the Distribution business
segments gross profit margin (excluding
depreciation) largely reflects a shift in sales mix toward gas and rent and from pricing
actions implemented in the second quarter of fiscal 2009. As a percentage of the Distribution
business segments sales, gas and rent increased to 59.8% in the current quarter as compared
to 55.7% in the prior year quarter.
The All Other Operations business segments gross profits (excluding depreciation)
increased 10% driven primarily by refrigerants, including the addition of Refron and strong
growth in ammonia. The All Other Operations business segments gross profit margin (excluding depreciation) increased 80
basis points to 44.4% in the current quarter from 43.6% in the prior year quarter. The
increase in the All Other Operations business segments gross profit margin (excluding depreciation) is driven
primarily by margin improvement on ammonia offset by a sales mix shift towards lower-margin
refrigerants (driven by the acquisition of Refron).
Operating Expenses
Selling, distribution and administrative (SD&A) expenses consist of labor and overhead
associated with the purchasing, marketing and distribution of the Companys products, as well
as costs associated with a variety of administrative functions such as legal, treasury,
accounting, tax and facility-related expenses.
SD&A
expenses declined $11 million, or 3%, in the current quarter as compared to the prior year quarter,
primarily driven by an estimated $28 million decline in operating costs offset by an
estimated $17 million of incremental operating costs associated with acquired businesses.
The $28 million decrease in SD&A expense attributable to factors other than acquisitions was
primarily due to a decrease in salaries and wages driven by cost-savings initiatives
implemented in response to the weak economic environment and lower
variable costs, including
distribution expenses which declined as a result of lower sales volumes and a decrease in
diesel fuel costs. As a percentage of net sales, SD&A expense increased 220 basis points to
37.5% compared to 35.3% in the prior year quarter driven by the overall decline in sales and
by the sales mix shift to gas, which carries higher operating expense and higher gross
margins. SD&A expense as a percent of gross margin was 68.4% in
the current quarter as compared to 68.1% in the prior
year quarter.
Depreciation
expense of $51 million increased $5 million, or 11%, in the current quarter as compared to the prior
year quarter. Acquired businesses contributed approximately $2 million of the increase.
The balance of the increase primarily reflects current and prior years capital investments
in revenue generating assets to support customer demand, primarily cylinders, bulk tanks and
rental welders, as well as the addition of new fill plants, the New Carlisle, Indiana air
separation unit, and branch stores. Amortization expense of
$6 million in the current quarter was $4 million
higher than the prior year quarter due to additional amortization expense related to the
Companys acquired customer lists.
Operating Income
Consolidated operating income decreased 13% in the current quarter driven primarily by
the significant slowing in sales partially offset by gross margin expansion, achievement of
acquisition
synergies, operating efficiencies and the impact of cost-reduction efforts. The operating
income margin decreased 60 basis points to 11.5% compared to 12.1% in the prior year quarter
and also sequentially from the third quarter of fiscal 2009 due to the significant decline in sales.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
Operating Income |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase/ (Decrease) |
|
|
|
|
|
Distribution |
|
$ |
105,295 |
|
|
$ |
120,656 |
|
|
$ |
(15,361 |
) |
|
|
-13 |
% |
All Other
Operations |
|
|
9,211 |
|
|
|
10,404 |
|
|
|
(1,193 |
) |
|
|
-11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
114,506 |
|
|
$ |
131,060 |
|
|
$ |
(16,554 |
) |
|
|
-13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income in the Distribution business segment decreased 13% in the current
quarter. The Distribution business segments operating income margin decreased 30 basis
points to 11.8% compared to 12.1% in the prior year quarter. Operating margin decline was
driven by the significant decline in sales partially offset by favorable mix-driven gross
profit margin (excluding depreciation) expansion, a continued focus on operating efficiency
programs, the attainment of acquisition synergies, and the impact of cost reduction efforts
that were implemented in response to slowing sales.
Operating income in the All Other Operations business segment decreased 11% compared to
the prior year quarter. The All Other Operations business segments operating income margin of 8.9% was 190 basis points
lower than the operating income margin of 10.8% in the prior year quarter. The decline in
operating margin resulted principally from a shift in sales mix towards refrigerants (driven
by the acquisition of Refron) and declining refrigerant operating margins due to volume
declines related to delays in customers normal pre-season buying patterns. Increases in
production costs related to our carbon dioxide and dry ice businesses also contributed to the overall
lower operating margin.
INCOME STATEMENT COMMENTARY Fiscal Year Ended March 31, 2009 compared to Fiscal Year Ended
March 31, 2008
Net Sales
Net sales increased 8% in fiscal 2009 compared to fiscal 2008 driven by acquisition
growth of 7% and same-store sales growth of 1%. Pricing contributed 4% to same stores sales
growth, which was largely offset by volume declines of 3%. The Company estimates same-store
sales based on a comparison of current period sales to prior period sales, adjusted for
acquisitions and divestitures. The pro forma adjustments consist of adding acquired sales
to, or subtracting sales of divested operations from, sales reported in the prior period.
The table below reflects actual sales and does not include the pro forma adjustments used in
calculating the same-store sales metric. The intercompany eliminations represent sales from
the All Other Operations business segment to the Distribution business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Net Sales |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
3,918,376 |
|
|
$ |
3,688,966 |
|
|
$ |
229,410 |
|
|
|
6 |
% |
All Other Operations |
|
|
457,329 |
|
|
|
343,246 |
|
|
|
114,083 |
|
|
|
33 |
% |
Intercompany eliminations |
|
|
(26,250 |
) |
|
|
(15,188 |
) |
|
|
(11,062 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,349,455 |
|
|
$ |
4,017,024 |
|
|
$ |
332,431 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution business segment sales increased 6% compared to the prior year driven by
sales contributed by both current and prior year acquisitions of $234 million (6%) and flat
same-store sales growth. Flat same-store sales reflects growth in gas and rent same-store
sales of $66 million (3%), offset by lower hardgoods sales of $70 million (-4%). Same-store
sales growth from gas and rent reflect strong strategic product growth which mitigated
same-store sales declines in the Companys industrial gas and welding hardgoods business.
The same-store sales declines in the Companys industrial gas and welding hardgoods business
reflects the impact of the economic downturn on manufacturing and the steep decline in demand
for equipment and welding consumables experienced in the second half of the fiscal year.
25
The Distribution business segments gas and rent same-store sales growth of 3% reflects both
price increases of 4% and a decline in volume of 1%. Sales of strategic gas products sold
through the Distribution business segment increased 8% driven by bulk, medical, and specialty gas
sales gains. Bulk gas sales were up 10% reflecting both price and volume increases. Volume
growth benefited from new production capabilities and the Companys ability to engineer
solutions for customer applications, leading to an increase in new bulk accounts during the
year. Medical gas sales grew 7% attributable to continued success with the hospital,
physician, and dental care markets. These markets continue to perform well and have good
future growth prospects. Strong specialty gas sales growth of 8% was driven by demand from
key customers in bio-tech, life sciences, research, and environmental monitoring markets.
Sales of core industrial gases were down 1%. Revenues from the Companys rental welder
business contributed growth of 21% with acquisition growth of 22%, offset by a 1% decline in
same-store sales.
The decline in hardgoods same-store sales of 4% reflects a combination of price gains
and volume declines, with pricing adding about 3%, offset by a 7% volume decline. The
Companys successful RADNOR® private label brand of products generated sales
growth of 21% in the current year, reaching a total of $192 million. Sales of safety
products increased 1% resulting from the success of the telemarketing operations (telesales)
and effective cross-selling of safety products to new and existing customers helping to
mitigate the significant decline in fourth quarter sales related to the economic downturn.
Fiscal 2009 sales of the All Other Operations business segment increased $114 million
(33%) compared to the prior year resulting from acquisitions and same-store sales growth.
Acquisitions contributed 23% to the segments sales growth, which was primarily driven by $55
million in sales contributed by Refron, now a part of Airgas Refrigerants, which was
acquired on July 31, 2008. Same-store sales growth of 10% was driven by sales gains of
anhydrous ammonia, and carbon dioxide products.
Gross Profits (Excluding Depreciation)
Gross profits (excluding depreciation) increased 10% principally from acquisitions and
gas and rent sales growth. The consolidated gross margin (excluding depreciation) in the
current year increased 100 basis points to 53% compared to 52% in the prior year, with the
increase driven primarily by a favorable shift in product mix towards higher-margin gas and
rent as well as the impact of pricing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Gross Profits (excluding depreciation) |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
2,105,251 |
|
|
$ |
1,918,966 |
|
|
$ |
186,285 |
|
|
|
10 |
% |
All Other Operations |
|
|
199,184 |
|
|
|
168,795 |
|
|
|
30,389 |
|
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,304,435 |
|
|
$ |
2,087,761 |
|
|
$ |
216,674 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Distribution business segments gross profits (excluding depreciation) increased 10%
compared to the prior year. The Distribution business segments
gross profit margin (excluding depreciation) was 53.7%
versus 52.0% in the prior year. The 170 basis point increase in the
gross profit margin (excluding depreciation) reflected
the favorable shift in product mix toward gas and rent as well as the impact of price
increases. Gas and rent as a percentage of the Distribution business segments sales was
57.2% in the current year as compared to 55.5% in the prior year.
The All Other Operations business segments gross profits (excluding depreciation)
increased 18% primarily from strong growth of anhydrous ammonia, refrigerant, and carbon
dioxide products. The segments gross margin decreased 560 basis points to 43.6% versus
49.2% in the prior year driven by additional refrigerants, which have
lower gross profit margins (excluding depreciation)
than the other businesses in the All Other Operations business segment.
26
Operating Expenses
As a percentage of net sales, SD&A expense increased 40 basis points to 35.8% compared
to 35.4% in the prior year reflecting the impact of the deteriorating business climate in the
second half of fiscal 2009. SD&A expenses increased $137 million (10%) primarily from
operating costs of acquired businesses. Acquisitions contributed estimated incremental SD&A
expenses of approximately $105 million in the current year. The increase in SD&A expense
attributable to factors other than acquisitions was approximately $32 million, or an increase
of 2%, primarily due to salaries and wages and distribution-related expenses primarily
related to the higher sales levels in the first half of fiscal 2009.
Depreciation expense of $198 million increased $22 million (13%) compared to the prior
year. Acquired businesses added approximately $10 million to depreciation expense. The
remainder of the increase primarily reflects the current and prior years capital investments
in revenue generating assets to support customer demand, primarily cylinders, bulk tanks and
rental welders, as well as the addition of new fill plants, the New Carlisle, Indiana air
separation unit in late fiscal 2009, and branch stores. Amortization expense of $23 million
was $9 million (63%) higher than the prior year driven by the amortization of customer lists
and non-compete agreements associated with acquisitions.
Operating Income
Operating income increased 10% in the current year driven by higher sales levels and
improvement of operating income margins. The operating income margin increased 30 basis
points to 12.1% compared to 11.8% in the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Operating Income |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
469,888 |
|
|
$ |
425,922 |
|
|
$ |
43,966 |
|
|
|
10 |
% |
All Other Operations |
|
|
54,980 |
|
|
|
49,902 |
|
|
|
5,078 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
524,868 |
|
|
$ |
475,824 |
|
|
$ |
49,044 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income in the Distribution business segment increased 10% in the current year.
The Distribution business segments operating income margin increased 50 basis points to
12.0% compared to 11.5% in the prior year. The operating margin improvement reflects lower
integration expenses which contributed 20 basis points, gross profit margin (excluding
depreciation) expansion resulting from pricing actions during the year and a shift in product
mix toward higher margin gas and rent and attainment of acquisition synergies and cost
savings from expense reduction and operating efficiency programs.
Operating income in the All Other Operations business segment increased 10% compared to
the prior year, principally driven by strong growth in ammonia. The segments operating
income margin of 12.0% was 250 basis points lower than 14.5% in the prior year. The margin
decline resulted from margin pressure on ammonia products in the first half of the year and
from a shift in sales mix toward refrigerants, which carry a lower margin than other products
in the segment. The shift in product mix toward refrigerants was driven by the acquisition
of Refron.
Interest Expense and Discount on Securitization of Trade Receivables
Interest expense, net, and the discount on securitization of trade receivables totaled
$95 million representing a decrease of 11% compared to the prior year. The decrease
primarily resulted from lower weighted-average interest rates related to the Companys
variable rate debt instruments, partially offset by higher average debt levels associated
with acquisitions and the Companys share repurchases.
27
The Company participates in a securitization agreement with three commercial banks to
sell up to $345 million of qualifying trade receivables ($360 million at March 31, 2008).
The amount of outstanding receivables under the agreement was $311 million at March 31, 2009
versus $360 million at March 31, 2008. Net proceeds from the sale of trade receivables were
used to reduce borrowings under the Companys 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 Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, the Company manages its exposure to interest rate
risk through participation in interest rate swap agreements. Including the effect of the
interest rate swap agreements and the trade receivables securitization, the Companys ratio
of fixed to variable rate debt at March 31, 2009 was 58% fixed to 42% variable. A majority
of the Companys variable rate debt is based on a spread over the London Interbank Offered
Rate (LIBOR). Based on the Companys fixed to variable
interest rate ratio, for every 25 basis point increase in LIBOR, the Company estimates that
its annual interest expense would increase approximately $2.2 million.
Income Tax Expense
The effective income tax rate in fiscal 2009 was 39.2% of pre-tax earnings in the
current year compared to 38.9% in the prior year. The prior year period includes a $0.01 per
diluted share tax benefit associated with a change in the Texas state income tax law, which
reduced the effective tax rate by 0.3%. The prior year tax benefit was based on additional
guidance issued by the state of Texas regarding a prior year change in law. These tax
benefits reflect the reduction of deferred tax liabilities previously established for
temporary differences under the prior state tax law.
Net Earnings
Net earnings were $261 million, or $3.12 per diluted share, compared to $223 million, or
$2.66 per diluted share, in the prior year. The prior year included $0.06 of integration
expense primarily associated with the June 30, 2007 acquisition of Lindes U.S. packaged gas
business, a one-time, non-cash charge of $0.03 per diluted share related to the conversion of
National Welders from a joint venture to a 100% owned subsidiary, and $0.01 per diluted share
tax benefit related to a change in Texas state income tax law.
28
RESULTS OF OPERATIONS: 2008 COMPARED TO 2007
OVERVIEW
Airgas had net sales for fiscal 2008 of $4.0
billion compared to $3.2 billion for the fiscal year ended March 31, 2007 (fiscal 2007).
Net sales increased by 25% in fiscal 2008 driven by the impact of acquisitions and strong
same-store sales growth. Acquisitions accounted for 18% of overall sales growth, primarily
driven by the two Linde AG acquisitions, described below. Same-store sales growth
contributed 7% to the increase in total sales, driven equally by pricing and higher sales
volumes. Sales growth related to pricing reflected price increases, which were designed to
offset rising product, operating and distribution costs. Higher sales volumes resulted from
continued strength in the following: energy and infrastructure construction, medical, food
products, environmental, analytical and life sciences customer segments, as well as modest
growth of other industrial markets served by the Company. The Companys strategic products
and related growth initiatives, described below, also contributed significantly to overall
sales growth in fiscal 2008.
Strong operating leverage on sales growth resulted in a 110 basis point expansion in the
operating income margin to 11.8% in fiscal 2008 compared to 10.7% in fiscal 2007. Net
earnings per diluted share grew 39% to $2.66 in fiscal 2008 versus $1.92 in fiscal 2007.
Fiscal 2008 included a one-time, non-cash charge of $0.03 per diluted share related to the
conversion of National Welders from a joint venture to a 100% owned subsidiary, and $0.01 per
diluted share tax benefit related to a change in state tax law. Fiscal 2007 included a
charge of approximately $0.10 per diluted share from the redemption of the Companys 9.125%
senior subordinated notes and a $0.02 per diluted share tax benefit from a change in state
income tax law.
Acquisitions
Fiscal 2008 was a landmark acquisition year for the Company with a total of 18
businesses acquired that generate aggregate historical annual revenues of more than $500
million. The largest of these acquisitions was the June 30, 2007 acquisition of the U.S.
packaged gas operations of Linde AG (Linde Packaged Gas) for $310 million in cash. The
acquisition of Linde Packaged Gas included 130 locations in 18 states, with more than 1,400
employees. The acquired business is involved in the distribution of packaged gases and
related hardgoods. Linde Packaged Gas generated $346 million in annual revenues during
calendar year 2006. The Linde Packaged Gas business was merged into the operations of the
Distribution business segment. In addition, during fiscal 2008, the Company acquired 17
other businesses and settled acquisition holdback liabilities for cash consideration of $170
million. These other acquired businesses generated aggregate historical annual revenues of
more than $160 million.
Fiscal 2008 financial results also reflect the impact of fiscal 2007 acquisitions. The
most significant of these was the March 9, 2007 acquisition of the divested U.S. bulk gas
assets of Linde AG (Linde Bulk Gas) for $495 million in cash. The Linde Bulk Gas
acquisition included eight air separation plants and related bulk gas business with about 300
employees. The acquired business produces and distributes oxygen, nitrogen and argon and
generated $176 million in annual revenues during calendar year 2006. The acquired business
was renamed Airgas Merchant Gases and is reflected in the Companys Distribution business
segment. Additionally, most of the acquired Linde Bulk Gas customers and related service
equipment were transferred to the regional distribution companies.
National Welders Exchange Transaction
On July 3, 2007, the preferred stockholders of National Welders exchanged their
preferred shares of National Welders for 2.471 million shares of Airgas common stock (the
National Welders Exchange
Transaction). Upon the exchange, National Welders, formerly a consolidated joint venture,
became a
29
100% owned subsidiary of Airgas and is reflected in the Companys Distribution
business segment. As part of the negotiated exchange, in addition to the shares of Airgas
common stock the preferred stockholders had the option to acquire, the Company issued an
additional 144 thousand Airgas shares (included in the 2.471 million shares) to the preferred
stockholders, which resulted in a one-time net after-tax charge of $2.5 million, or $0.03 per
diluted share. In connection with the National Welders Exchange Transaction, the Company
amended its senior credit facility to increase the size of its U.S. dollar revolving credit
line by $100 million to refinance National Welders debt assumed in the transaction. See
Note 13 to the Companys Consolidated Financial Statements under Item 8, Financial
Statements and Supplementary Data for a description of the National Welders Exchange
Transaction.
Supply Constraints
During fiscal 2008, the industrial gas industry was working through supply constraints
related to certain gases, such as helium, argon and carbon dioxide. Throughout fiscal 2008,
there was an industry-wide helium shortage resulting in a significant increase in helium
costs and reduced volumes available for sale. Toward the end of fiscal 2008, the Companys
helium supply constraints had been mitigated through new supply agreements and relaxed
allocations. The Companys position in argon was also constrained, but had improved toward
the end of fiscal 2008, as new sources had eased some of the supply issues and gas production
capacity is at its highest during the winter months due to lower ambient air temperatures.
In some areas of the country, carbon dioxide had also been under pressure, as old supply
sources had been depleted without being replaced. In October 2007, the Company announced an
agreement with Shell Oil to build a 450 ton-per-day plant in Deer Park, Texas, to better
serve the Houston and South Texas areas. The Deer Park plant began operating in March 2009.
Reinstated Stock Repurchase Plan
In November 2005, the Companys Board of Directors approved a stock repurchase plan (the
Repurchase Plan) that provided the Company with the authorization to repurchase up to $150
million of its common stock. The Repurchase Plan was suspended in July 2006 while the
Company consummated its acquisitions of Linde AGs U.S. bulk and packaged gas assets. In
March 2008, the Company reinstated its Repurchase Plan and repurchased 496 thousand shares
for $21.6 million.
30
INCOME STATEMENT COMMENTARY
Net Sales
Net sales increased 25% in fiscal 2008 compared to fiscal 2007 driven by acquisition
growth of 18% and strong same-store sales growth of 7%. Pricing and volume sales gains
contributed equally to same-store sales growth. The Company estimates same-store sales based
on a comparison of current period sales to prior period sales, adjusted for acquisitions and
divestitures. The pro forma adjustments consist of adding acquired sales to, or subtracting
sales of divested operations from, sales reported in the prior period. The table below
reflects actual sales and does not include the pro forma adjustments used in calculating the
same-store sales metric. The intercompany eliminations represent sales from the All Other
Operations business segment to the Distribution business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Net Sales |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
3,688,966 |
|
|
$ |
2,939,285 |
|
|
$ |
749,681 |
|
|
|
26 |
% |
All Other Operations |
|
|
343,246 |
|
|
|
277,729 |
|
|
|
65,517 |
|
|
|
24 |
% |
Intercompany eliminations |
|
|
(15,188 |
) |
|
|
(11,963 |
) |
|
|
(3,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,017,024 |
|
|
$ |
3,205,051 |
|
|
$ |
811,973 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution business segment sales increased 26% in fiscal 2008 compared to fiscal 2007
driven by sales contributed by both fiscal 2008 and fiscal 2007 acquisitions of $516 million
(19%) and same-store sales growth of $234 million (7%). Sales growth from acquired
businesses was principally attributable to the Linde Bulk Gas and Linde Packaged Gas
acquisitions. The increase in Distribution same-store sales resulted from gas and rent
same-store sales growth of $147 million (8%) and higher same-store hardgoods sales of $87
million (6%). Strong same-store sales growth in the Companys core gas and welding hardgoods
business reflected broad-based demand from industrial markets as well as strong demand in the
energy and infrastructure construction sectors, which include projects such as power plants,
refineries, pipelines, water treatment plants, bridges and airports. The Distribution
business segments sales were also driven by strong sales growth of strategic products,
including medical, bulk and specialty gases, as well as safety products.
The Distribution business segments gas and rent same-store sales growth of 8% reflects
both price increases and volume growth, which contributed equally to sales growth. Sales of
strategic gas products increased 12% driven by bulk, medical and specialty gas sales gains.
Bulk gas sales volumes were up 14% reflecting volume growth from enhanced production
capabilities and expanded geographic market coverage associated with the Linde Bulk Gas
acquisition. The Companys strong position as a bulk gas distributor also helped increase
the number of new bulk customer contracts signed during the year. Medical gas sales grew 9%
attributable to continued success with the hospital, physician and dental care markets. The
Walk-O2-Bout® medical cylinder program tailored for the respiratory
therapy market also contributed to medical gas sales. Strong specialty gas sales growth of
12% was driven by demand from key customers in bio-tech, life sciences, research and
environmental monitoring markets. Rental revenues benefited from the Companys rental welder
business that generated 24% same-store sales growth in fiscal 2008. The Companys rental
welder business was helped by its sales concentration in energy and infrastructure
construction.
Hardgoods same-store sales growth of 6% reflected both volume and price gains, which
contributed about equally to growth. The Companys successful RADNOR® private
label brand of products generated sales growth of 24% in fiscal 2008, reaching a total of
$159 million. Sales of Radnor brand products were helped by the stocking of these products
in the branch stores obtained from the Linde Packaged Gas acquisition. Same-store sales of
safety products increased 8% resulting from the success of
31
the telemarketing operations
(telesales) and effective cross-selling of safety products to new and existing customers.
Fiscal 2008 net sales of the All Other Operations business segment increased $66
million (24%) compared to fiscal 2007 resulting from acquisitions and same-store sales
growth. Acquisitions contributed 10% to the segments sales growth, including refrigerant
businesses which contributed $37 million to acquired sales. Same-store sales growth of 14%
was driven by sales gains of anhydrous ammonia, refrigerant and carbon dioxide products.
Sales volume gains of ammonia resulted from strong demand from customers in the chemical
production industry. Sales growth of refrigerants was driven by higher volumes, particularly
in the fourth quarter of fiscal 2008, as customers sourced product in advance of the warmer
summer months. Sales growth of carbon dioxide and dry ice reflected continued success in the
food processing, food and beverage service, pharmaceutical and biotech industries.
Gross Profits (Excluding Depreciation)
Gross profits (excluding depreciation) increased 27% principally from acquisitions and
sales growth. The gross profit margin (excluding depreciation) for fiscal 2008 increased 90 basis points to 52.0% compared
to 51.1% for fiscal 2007, with the increase driven primarily by a favorable shift in product
mix towards higher-margin gas as well as the impact of pricing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Gross Profits (excluding depreciation) |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
1,918,966 |
|
|
$ |
1,494,081 |
|
|
$ |
424,885 |
|
|
|
28 |
% |
All Other Operations |
|
|
168,795 |
|
|
|
143,738 |
|
|
|
25,057 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,087,761 |
|
|
$ |
1,637,819 |
|
|
$ |
449,942 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Distribution business segments gross profits (excluding depreciation) for fiscal
2008 increased 28% compared to fiscal 2007. The Distribution business
segments gross profit margin (excluding depreciation) was 52.0% for fiscal 2008 versus 50.8% for fiscal 2007. The 120 basis point increase in the
gross profit margin (excluding depreciation) reflected the favorable shift in product mix toward gas and rent as well as the
impact of price increases. Gas and rent as a percentage of the Distribution business
segments sales was 55.5% in fiscal 2008 as compared to 53.1% in fiscal 2007.
The All Other Operations business segments gross profits (excluding depreciation)
increased 17% for fiscal 2008 as compared to fiscal 2007. The increase in gross profits (excluding depreciation) was
primarily driven by acquisitions as well as strong sales growth of anhydrous ammonia,
refrigerant and carbon dioxide products. The segments gross
profit margin (excluding depreciation) decreased 260 basis
points to 49.2% in fiscal 2008 versus 51.8%
in fiscal 2007. The lower profit gross margin (excluding depreciation) was driven by a change in sales mix that included
higher refrigerants sales as a result of acquisitions. Refrigerant gases typically sell at
lower margins than other products in this business segment.
Operating Expenses
As a percentage of net sales, SD&A expense decreased 40 basis points to 35.4% in fiscal
2008 compared to 35.8% in fiscal 2007 reflecting improved cost leverage and effective cost
management. SD&A expenses increased $273 million (24%) primarily from operating costs of
acquired businesses and higher variable expenses associated with the growth in sales volumes.
Acquisitions contributed estimated incremental SD&A expenses of approximately $186 million
in fiscal 2008, including integration expenses of $10 million principally related to the
Linde Packaged Gas acquisition. The increase in SD&A expense attributable to factors other
than acquisitions was approximately $87 million, or an increase of 8%, primarily due to
salaries, wages and distribution-related expenses. The increase in salaries and wages
32
reflected increased operational headcounts, wage inflation, and overtime to fill cylinders,
deliver products and operate facilities to meet increased customer demand. The increase in
distribution expenses was attributable to higher fuel and vehicle repair and maintenance
costs. Higher fuel and vehicle maintenance costs were related to the increase in miles
driven to support sales growth. Average diesel fuel prices in fiscal 2008 were also higher
versus fiscal 2007.
Depreciation expense of $176 million increased $37 million (27%) for fiscal 2008
compared to fiscal 2007. Acquired businesses added approximately $28 million to depreciation
expense. The remainder of the increase primarily reflects capital investments in revenue
generating assets during both fiscal 2008 and fiscal 2007 to support customer demand,
primarily cylinders, bulk tanks and rental welders, as well as the addition of new fill
plants and branch stores. Amortization expense of $14 million in fiscal 2008 was $5 million
(64%) higher than fiscal 2007 driven by the amortization of customer lists and non-compete
agreements associated with acquisitions.
Operating Income
Operating income increased 39% for fiscal 2008 driven by higher sales levels and margin
improvement. Improved cost leverage on sales growth was the primary contributor to a 110
basis point increase in the operating income margin to 11.8% for fiscal 2008 compared to
10.7% for fiscal 2007. Acquisition integration costs, principally associated with the Linde
Packaged Gas acquisition, reduced the operating income margin by approximately 25 basis
points.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
Operating Income |
|
March 31, |
|
|
|
|
|
|
|
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
Increase |
|
|
|
|
|
Distribution |
|
$ |
425,922 |
|
|
$ |
298,565 |
|
|
$ |
127,357 |
|
|
|
43 |
% |
All Other Operations |
|
|
49,902 |
|
|
|
42,932 |
|
|
|
6,970 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
475,824 |
|
|
$ |
341,497 |
|
|
$ |
134,327 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income in the Distribution business segment increased 43% for fiscal 2008.
The Distribution business segments operating income margin increased 130 basis points to
11.5% in fiscal 2008 compared to 10.2% in fiscal 2007. The significant margin improvement
was driven by continued operating profit leverage on sales growth, effective management of
costs and pricing, and the Linde Bulk Gas acquisition. Acquisition integration costs,
primarily related to the Linde Packaged Gas acquisition, reduced the Distribution business
segments operating income margin by approximately 25 basis points.
Operating income in the All Other Operations business segment increased 16% for fiscal
2008 compared to fiscal 2007, principally driven by acquisitions. The segments operating
income margin of 14.5% in fiscal 2008 was 100 basis points lower than 15.5% in fiscal 2007.
The decline in the operating income margin reflected the lower gross margins attributable to
the shift in sale mix to lower-margin refrigerants gases.
Interest Expense and Discount on Securitization of Trade Receivables
Interest expense, net, and the discount on securitization of trade receivables totaled
$107 million in fiscal 2008 representing an increase of 44% compared to fiscal 2007. The
increase primarily resulted from higher average debt levels associated with acquisitions and
a larger securitization program, partially offset by lower weighted-average interest rates
related to the Companys variable rate debt instruments and the refinancing of the 9.125%
senior subordinated notes in fiscal 2007. See the discussion of the refinancing of the
senior subordinated notes under the section Loss on Debt Extinguishment, below.
The Company participated in a securitization agreement with three commercial banks to
sell up to $360 million at March 31, 2008 and up to $285 million at March 31, 2007 of
qualifying trade
33
receivables. The amount of outstanding receivables under the agreement was
$360 million at March 31, 2008 versus $264 million at March 31, 2007. Net proceeds from the
sale of trade receivables were used to reduce borrowings under the Companys 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 Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, the Company manages its exposure to interest rate
risk through participation in interest rate swap agreements. Including the effect of the
interest rate swap agreements and the trade receivables securitization, the Companys ratio
of fixed to variable rate debt at March 31, 2008 was 40% fixed to 60% variable. A majority
of the Companys variable rate debt was based on a spread over LIBOR.
Loss on Debt Extinguishment
On October 27, 2006, the Company redeemed its $225 million 9.125% senior subordinated
notes at a premium of 104.563% with borrowings under the Companys revolving credit facility.
In conjunction with the redemption, the Company recognized a charge on the early
extinguishment of debt of $12.1 million ($7.9 million after tax), or approximately $0.10 per
diluted share. The charge related to the redemption premium and the write-off of unamortized
debt issuance costs.
Income Tax Expense
The effective income tax rate was 38.9% of pre-tax earnings in fiscal 2008 compared to
38.8% in fiscal 2007. Both periods include tax benefits associated with a change in the
Texas state income tax
law, which reduced the effective tax rate by 0.3% and 0.7%, respectively. The tax benefit in
fiscal 2007 resulted from the initial change in the law and the fiscal 2008 tax benefit was
based on additional guidance issued by the state of Texas. These tax benefits reflect the
reduction of deferred tax liabilities previously established for temporary differences under
the prior state tax law. The fiscal 2007 tax rate also reflected the absence of state tax
benefits associated with the loss on the extinguishment of debt.
Net Earnings
Net earnings were $223 million, or $2.66 per diluted share, for fiscal 2008 compared to
$154 million, or $1.92 per diluted share, for fiscal 2007. The net earnings for fiscal 2008
included a one-time, non-cash charge of $0.03 per diluted share related to the conversion of
National Welders from a joint venture to a 100% owned subsidiary, and $0.01 per diluted share
tax benefit related to a change in Texas state income tax law. Fiscal 2007 net earnings
included a charge of approximately $0.10 per diluted share from the early extinguishment of
debt and a $0.02 per diluted share tax benefit from a change in Texas state income tax law.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 2009 Cash Flows
Net cash provided by operating activities was $583 million in fiscal 2009 compared to $550
million in fiscal 2008. The increase in cash provided by operating activities was driven by net
earnings and lower working capital requirements reflective of slower sales in the latter half of
fiscal 2009. Net earnings adjusted for non-cash and non-operating items provided cash of $605
million versus $508 million in the prior year. Exclusive of the cash used and provided by the
trade receivables securitization agreement, lower working capital requirements provided cash of
$27 million in the fiscal 2009 versus using cash of $51 million in the prior year. The trade
receivables securitization agreement used cash of $49 million in
34
fiscal 2009. The reduction in the amount of receivables sold under the agreement reflects
the slower sales environment in the latter half of the year. In the prior year, an amendment
expanded the size of the trade receivables securitization program and the Company increased
the amount of receivables sold under the program, which provided cash of $96 million.
Consolidated cash flows provided by operating activities were used to repay debt incurred
through the acquisition of businesses, as well as to fund investing activities such as
capital expenditures.
Net cash used in investing activities during fiscal 2009 totaled $610 million and
primarily consisted of cash used for capital expenditures and acquisitions. Cash used for
capital expenditures was $352 million in fiscal 2009 as compared to $267 million in fiscal
2008. The increase in capital spending principally reflected infrastructure projects, such
as two air separation units and two carbon dioxide plants. Construction of the air
separation unit in New Carlisle, Indiana and the carbon dioxide plant in Deer Park, Texas
was completed in December 2008 and March 2009, respectively. The completion of the air
separation unit in Carrollton, Kentucky and the carbon dioxide plant in Camilla, Georgia are
expected in fiscal 2010. Capital spending for fiscal 2010 is expected to be about 6% of net
sales, inclusive of the cost to complete these projects. Cash of $274 million was paid in
the current year to acquire 14 businesses, the largest of which was Refron, Inc., now Airgas
Refrigerants, Inc., and to settle acquisition holdback liabilities associated with prior
year acquisitions. During fiscal 2008, the Company paid $480 million to acquire 18
businesses, the largest of which was the Linde Packaged Gas acquisition, and to settle
acquisition holdback liabilities.
Net cash provided by financing activities totaled $31 million in fiscal 2009 as compared
to $207 million in fiscal 2008. On June 5, 2008, the Company issued $400 million of 7.125%
senior subordinated notes due in 2018 (the 2008 Notes) and used the net proceeds to pay
down approximately $400 million of its floating rate revolving credit line, which matures in
2011. The 2008 Notes increased the Companys ratio of fixed to floating rate debt and
extended the Companys debt maturities (see Financial Instruments discussion below). In
fiscal 2008, the Company amended its credit facility to increase the size of its U.S. dollar
revolving credit line by $100 million to refinance $87.5 million in debt assumed with the
National Welders Exchange Transaction. The Company also used cash of $120 million during
fiscal 2009 to repurchase common stock under its Repurchase Plan. The purchase of treasury
stock included approximately $5 million of stock purchases from the prior year period that
were settled in the current period and $116 million of current year stock purchases. A total
of 2.4 million shares were repurchased during fiscal 2009. As of March 31, 2009, the Company
has no authorization remaining for any additional treasury share purchases under the
Repurchase Plan.
Dividends
The Company paid its stockholders quarterly cash dividends of $0.12 per share at the end
of each of the first two quarters of fiscal 2009. In the third and fourth quarters of fiscal
2009, the Company paid dividends of $0.16 per share, representing a 33% increase in the
quarterly dividend payments. On May 19, 2009, the Companys Board of Directors declared a
regular quarterly cash dividend of $0.18 per share, which is payable on June 30, 2009 to
stockholders of record as of June 15, 2009. During fiscal 2008, the Company paid its
stockholders regular quarterly cash dividends of $0.09 per share at the end of each of the
first three quarters and $0.12 per share at the end of the fourth quarter. During fiscal
2007, the Company paid its stockholders regular quarterly cash dividends of $0.07. Future
dividend
declarations and associated amounts paid will depend upon the Companys earnings, financial
condition, loan covenants, capital requirements and other factors deemed relevant by
management and the Companys Board of Directors.
35
Financial Instruments
Senior Credit Facility
The Company maintains a senior credit facility (the Credit Facility) with a syndicate
of lenders. In July 2008, the Company amended its Credit Facility to, among other things,
create a multi-currency borrowing facility. Under this multi-currency revolver, the Company
and certain of the Companys foreign subsidiaries may borrow any foreign currency that is
readily available and freely transferable and convertible into U.S. dollars, including Euros,
pounds sterling and Mexican pesos. The Company may borrow up to $75 million (U.S. dollar
equivalent) in U.S. dollars or any permitted foreign currency or multiple currencies in the
aggregate. To accommodate the size of the multi-currency revolver, the Companys U.S. dollar
revolving credit line was reduced by $75 million so the total size of the Companys Credit
Facility was not changed.
At March 31, 2009, the Credit Facility permitted the Company to borrow up to $991
million under a U.S. dollar revolving credit line, up to $75 million (U.S. dollar equivalent)
under the multi-currency revolving credit line, and up to C$40 million (U.S. $32 million)
under a Canadian dollar revolving credit line. The Credit Facility also contains a term loan
provision through which the Company borrowed $600 million with scheduled repayment terms.
The term loans are repayable in quarterly installments of $22.5 million through June 30,
2010. The quarterly installments then increase to $71.2 million from September 30, 2010 to
June 30, 2011. Principal payments due over the next twelve months on the term loans are
classified as Long-term debt in the Companys Consolidated Balance Sheets based on the
Companys ability and intention to refinance the payments with borrowings under its long-term
revolving credit facilities. As principal amounts under the term loans are repaid, no
additional borrowing capacity is created under the term loan provision. The Credit Facility
will mature on July 25, 2011.
As of March 31, 2009, the Company had approximately $1.2 billion of borrowings under the
Credit Facility: $751 million under the U.S. dollar revolving credit line, $24 million (in
U.S. dollars) under the multi-currency revolver, C$18 million (U.S. $15 million) under the
Canadian dollar revolving credit line and $398 million under the term loans. The Company
also had outstanding letters of credit of $42 million issued under the Credit Facility. The
U.S. dollar borrowings and the term loans bear interest at LIBOR plus 62.5 basis points. The
multi-currency revolver bears interest based on a spread of 62.5 basis points over the Euro
currency rate applicable to each foreign currency borrowing. The Canadian dollar borrowings
bear interest at the Canadian Bankers Acceptance Rate plus 62.5 basis points. As of March
31, 2009, the average effective interest rates on the U.S. dollar revolver, the term loans,
the multi-currency revolver and the Canadian dollar revolver were 1.24%, 1.85%, 2.05% and
1.49%, respectively.
Total Borrowing Capacity
As
of March 31, 2009, approximately $266 million remained
unused under the Companys Credit Facility. Despite current disruptions to the capital
markets, the Company believes that it has sufficient liquidity from
cash from operations and under its revolving credit facilities to
meet its working capital, capital expenditure and other financial
commitments (including the scheduled maturity of the trade receivables
securitization agreement in March 2010). The debt covenants under the Companys revolving credit facility require the Company to
maintain a leverage ratio not higher than 4.0 times and an interest coverage ratio not lower
than 3.5 times. The leverage ratio is a contractually defined amount principally reflecting
debt and certain elements of the Companys off-balance sheet financing divided by a
contractually defined Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) for the trailing twelve-month period with pro forma adjustments for acquisitions.
The interest coverage ratio reflects the same contractually defined EBITDA divided by total
interest expense also with pro forma adjustments for acquisitions. Both ratios measure the
Companys ability to meet current and future obligations. At March 31, 2009, the Companys
leverage ratio was 2.7 times and its interest coverage ratio was 7.6 times. Based on the
leverage ratio at March 31, 2009, the Company could incur an additional $1 billion of debt and remain within its covenants.
However, the Companys borrowing capacity under the Credit Facility is limited to the size of
the facility. Therefore, the financial
covenants do not limit the Companys ability to borrow the unused portion of the Credit
Facility. The Credit Facility contains customary events of default, including nonpayment and
breach covenants. In the event of default, repayment of borrowings under the Credit Facility
may be accelerated. The Companys Credit Facility also contains cross default provisions
whereby a default under the Credit Facility would likely result in defaults under the senior
subordinated notes discussed below.
36
The Companys domestic subsidiaries, exclusive of the bankruptcy-remote special purpose
entity (the domestic subsidiaries), guarantee the U.S. dollar revolver, multi-currency
revolver, Canadian dollar revolver and term loans. The multi-currency revolver and Canadian
dollar revolver are also guaranteed by the Company and the Companys foreign subsidiaries.
The guarantees are full and unconditional and are made on a joint and several basis. The
Company has pledged 100% of the stock of its domestic subsidiaries and 65% of the stock of
its foreign subsidiaries as surety for its obligations under the Credit Facility. The Credit
Facility provides for the release of the guarantees and collateral if the Company attains an
investment grade credit rating and a similar release on certain other debt.
The Company continues to look for acquisition candidates. The financial covenant
calculations of the Credit Facility include the pro forma results of acquired businesses.
Therefore, total borrowing capacity is not reduced dollar-for-dollar with acquisition
financing.
The Company continually evaluates alternative financing and believes that it can obtain
financing on reasonable terms. The terms of any future financing arrangements depend on
market conditions and the Companys financial position at that time.
Money Market Loans
The Company has an agreement with a financial institution that provides access to
short-term advances not to exceed $30 million for a maximum term of three months. The
agreement expires on June 30, 2009, but may be extended subject to renewal provisions
contained in the agreement. The amount, term and interest rate of an advance are established
through mutual agreement with the financial institution when the Company requests such an
advance. At March 31, 2009, the Company had no outstanding advances under this agreement.
The Company also has an agreement with another financial institution that provides
access to short-term advances not to exceed $35 million. The agreement expires on December
1, 2009, but may be extended subject to renewal provisions contained in the agreement. The
advances are generally overnight or for up to seven days. The amount, term and interest rate
of an advance are established through mutual agreement with the financial institution when
the Company requests such an advance. At March 31, 2009, there were no advances outstanding
under this agreement.
Senior Subordinated Notes
At March 31, 2009, the Company had $150 million of senior subordinated notes (the 2004
Notes) outstanding with a maturity date of July 15, 2014. The 2004 Notes bear interest at a
fixed annual rate of 6.25%, payable semi-annually on January 15 and July 15 of each year.
The 2004 Notes have a redemption provision, which permits the Company, at its option, to call
the 2004 Notes at scheduled dates and prices. The first scheduled optional redemption date
is July 15, 2009 at a price of 103.125% of the principal amount.
On June 5, 2008, the Company issued $400 million of 2008 Notes at par with a maturity
date of October 1, 2018. The net proceeds from the sale of the 2008 Notes were used to
reduce borrowings under the Companys U.S. dollar revolving credit line under the Credit
Facility. The 2008 Notes bear interest at a fixed annual rate of 7.125%, payable
semi-annually on October 1 and April 1 of each year. The 2008 Notes have a redemption
provision, which permits the Company, at its option, to call the 2008 Notes at scheduled
dates and prices. The first scheduled optional redemption date is October 1, 2013 at a price
of 103.563% of the principal amount.
37
The 2004 and 2008 Notes contain covenants that could restrict the payment of dividends, the
repurchase of common stock, the issuance of preferred stock, and the incurrence of additional
indebtedness and liens. The 2004 and 2008 Notes are fully and unconditionally guaranteed
jointly and severally, on a subordinated basis, by each of the 100% owned domestic guarantors
under the Credit Facility.
Acquisition Notes and Other
The Companys long-term debt also includes acquisition and other notes, principally
consisting of notes issued to sellers of businesses acquired, which are repayable in periodic
installments. At March 31, 2009, acquisition and other notes totaled $24 million with an
average interest rate of approximately 6% and an average maturity of approximately two years.
Refinancing of National Welders Debt
Effective July 3, 2007, the Company amended its Credit Facility to increase the size of
its U.S. dollar revolving credit line by $100 million. As discussed in Note 13 to the
Companys Consolidated Financial Statements under Item 8, Financial Statements and
Supplementary Data, National Welders became a 100% owned subsidiary of the Company on July
3, 2007. Concurrently, National Welders debt of $87.5 million was refinanced by the Company
under the expanded U.S. dollar revolving credit line.
Trade Receivables Securitization
The Company participates in a securitization agreement (the Agreement) with three
commercial banks to which it sells qualifying trade receivables on a revolving basis. The
maximum amount of the facility is $345 million ($360 million at March 31, 2008). The size of
the facility was reduced in fiscal 2009 due to the elimination of a $15 million subordinated
funding tranche, which was previously part of the facility. The Agreement expires in March
2010. The Company expects continued availability under the Agreement until it expires in
March 2010 and under similar agreements thereafter. Given the contraction of the securitized
asset market in the current credit environment, the Company is evaluating the current
arrangement with the banks and will evaluate this and other financing alternatives in fiscal
2010. Based on the characteristics of its receivable pool, the Company believes that trade
receivable securitization will continue to be an attractive source of funds. In the event
such source of funding was unavailable or reduced, the Company believes that it would be able
to secure an alternative source of funds. During the year ended March 31, 2009, the Company
sold approximately $4.0 billion of trade receivables and remitted to bank conduits, pursuant
to a servicing agreement, approximately $4.0 billion in collections on those receivables.
The amount of receivables sold under the Agreement was $311 million at March 31, 2009 and
$360 million at March 31, 2008. The Agreement contains customary events of termination,
including standard cross default provisions with respect to outstanding debt.
The Company retains a subordinated interest in trade receivables sold under the
Agreement. The fair value of the retained interest, which was $148 million at March 31,
2009, is measured based on managements best estimate of the undiscounted expected future
cash collections on the receivables sold in which the Company has a retained interest.
Changes in the fair value are recognized as bad debt expense. Historically, bad debt
expense reflected in the Companys financial results has generally been in the range of 0.3%
to 0.5% of sales. As disclosed in Note 12 to the Consolidated Financial Statements, fair
values of the retained interest are classified as Level 3 inputs on the fair value hierarchy
because of the judgment required by management to determine the ultimate collectability of
receivables. The amounts ultimately collected on past due trade receivables are subject to
numerous factors including general economic conditions, the condition of the receivable
portfolio assumed in acquisitions, the financial condition of individual customers, and the
terms of reorganization for accounts exiting bankruptcy. The Company monitors the credit
risk associated with the aforementioned factors, as well as aging trends and historic
collections and records additional bad debt expense when appropriate. The
Company is exposed to the risk of loss for any uncollectable amounts associated with the
subordinated retained interest in trade receivables sold.
38
Interest Rate Swap Agreements
The Company manages its exposure to changes in market interest rates. The Companys
involvement with derivative instruments is limited to highly effective fixed interest rate
swap agreements used to manage well-defined interest rate risk exposures. The Company
monitors its positions and credit ratings of its counterparties and does not anticipate
non-performance by the counterparties. Interest rate swap agreements are not entered into
for trading purposes.
During fiscal 2009, the Company entered into three fixed interest rate swap agreements
for a notional amount of $125 million, and four fixed interest rate swap agreements with a
notional amount of $100 million matured. At March 31, 2009, the Company had 18 fixed
interest rate swap agreements outstanding with a notional amount of $627 million. These
swaps effectively convert $627 million of variable interest rate debt associated with the
Companys Credit Facility to fixed rate debt. At March 31, 2009, these swap agreements
required the Company to make fixed interest payments based on a weighted average effective
rate of 4.21% and receive variable interest payments from the counterparties based on a
weighted average variable rate of 1.70%. The remaining terms of these swap agreements range
from 1 to 21 months. For the year ended March 31, 2009, the fair value of the liability for
the fixed interest rate swap agreements decreased and the Company recorded a corresponding
adjustment to Accumulated Other Comprehensive Loss of $8.3 million, or $5.4 million after
tax. For the year ended March 31, 2008, the fair value of the liability for the fixed
interest rate swap agreements increased and the Company recorded a corresponding adjustment
to Accumulated Other Comprehensive Loss of $21.0 million, or $13.6 million after tax. For
the year ended March 31, 2007, the fair value of the net asset for the fixed interest rate
swap agreements decreased and the Company recorded a corresponding adjustment to Accumulated
Other Comprehensive Income of $0.9 million, or $0.6 million after tax.
The Company measures the fair value of its interest rate swaps using observable market
rates to calculate the forward yield curves used to determine expected cash flows for each
interest rate swap agreement. The discounted present values of the expected cash flows are
calculated using the same forward yield curve. The discount rate assumed in the fair value
calculations is adjusted for non-performance risk, dependent on the classification of the
interest rate swap as an asset or liability. If an interest rate swap is a liability, the
Company assesses the credit and non-performance risk of Airgas by determining an appropriate
credit spread for entities with similar credit characteristics as the Company. If, however,
an interest rate swap is in an asset position, a credit analysis of counterparties is
performed assessing the credit and non-performance risk based upon the pricing history of
counterparty specific credit default swaps or credit spreads for entities with similar credit
ratings to the counterparties. The Company does not believe it is at risk for
non-performance by its counterparties. However, if an interest rate swap is in an asset
position, the failure of one or more of its counterparties would result in an increase in
interest expense and a reduction of earnings. The Company compares its fair value
calculations to the fair values calculated by the counterparties for each swap agreement for
reasonableness.
As disclosed in Note 12 to the Consolidated Financial Statements, the fair value of the
Companys interest rate swaps is classified as a Level 2 input on the fair value hierarchy
because it is calculated using observable interest rates and yield curves adjusted for
non-performance risk. The Companys interest rate swaps are highly effective at offsetting
changes in cash flows on its revolving credit facility. Accordingly, additional cash
payments or cash receipts under an interest rate swap offset lower or higher interest rate
payments under the Companys revolving credit facility. Changes in the fair value of an
interest rate swap agreement are reported on the Consolidated Balance Sheet, net of deferred
tax benefits, in Accumulated Other Comprehensive Loss.
39
OTHER
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S.
generally accepted accounting principles requires management to make judgments, assumptions
and estimates that affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Note 1 to the Consolidated Financial Statements included under Item 8,
Financial Statements and Supplementary Data describes the significant accounting policies
and methods used in the preparation of the Consolidated Financial Statements. Estimates are
used for, but not limited to, determining the net carrying value of trade receivables,
inventories, goodwill, other intangible assets and business insurance reserves.
Uncertainties about future events make these estimates susceptible to change. Management
evaluates these estimates regularly and believes they are the best estimates, appropriately
made, given the known facts and circumstances. For the three years ended March 31, 2009,
there were no material changes in the valuation methods or assumptions used by management.
However, actual results could differ from these estimates under different assumptions and
circumstances. The Company believes the following accounting estimates are critical due to
the subjectivity and judgment necessary to account for these matters, their susceptibility to
change and the potential impact that different assumptions could have on operating
performance.
Trade Receivables/Subordinated Retained Interest
The Company maintains an allowance for doubtful accounts, which includes sales returns,
sales allowances, and bad debts. The allowance adjusts the carrying value of trade
receivables and the subordinated retained interest in trade receivables sold under the trade
receivables securitization agreement (collectively referred to as
trade receivables) to fair value based on estimates of accounts that will
not ultimately be collected. An allowance for doubtful accounts is generally established as
trade receivables age beyond their due date. As past due balances age, higher valuation
allowances are established lowering the net carrying value of receivables. The amount of
valuation allowance established for each past due period reflects the Companys historical
collections experience and current economic conditions and trends. The Company also
establishes valuation allowances for specific problem accounts and bankruptcies. The amounts
ultimately collected on past due trade receivables are subject
to numerous factors including general economic conditions, the condition of the receivable
portfolio assumed in acquisitions, the financial condition of individual customers, and the
terms of reorganization for accounts emerging from bankruptcy. Changes in these conditions
impact the Companys collection experience and may result in the recognition of higher or
lower valuation allowances. Management evaluates the allowance for doubtful accounts
monthly. The Company has a low concentration of credit risk due to its broad and diversified
customer base across multiple industries and geographic locations, and its relatively low
average order size. The Companys largest customer accounts for approximately 0.5% of total
net sales.
Inventories
The Companys inventories are stated at the lower of cost or market. The majority of
the products the Company carries in inventory have long shelf lives and are not subject to
technological obsolescence. The Company writes its inventory down to its estimated market
value when it believes the market value is below cost. The Company estimates its ability to
recover the costs of items in inventory by product type based on its age, the rate at which
that product line is turning in inventory, its physical condition as well as assumptions
about future demand and market conditions. The ability of the Company to recover its cost
for products in inventory can be affected by factors such as future customer demand, general
market conditions and the relationship with significant suppliers. Management evaluates the
recoverability of its inventory at least quarterly. In aggregate, inventory turns at
four-to-five times per year.
40
Goodwill and Other Intangible Assets
The Company accounts for goodwill and other intangible assets in accordance with
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets (SFAS 142). Under SFAS 142, goodwill and other intangible assets with indefinite
useful lives are not amortized, but are instead tested for impairment at least annually and
whenever events or circumstances indicate that it is more likely than not that goodwill may
be impaired. The Company has elected to perform its annual tests for indications of goodwill
impairment as of October 31 of each year or whenever indicators of impairment exist.
The goodwill impairment analysis is a two-step process. The first step used to identify
potential impairment involves comparing each reporting units estimated fair value to its
carrying value, including goodwill. The Company uses a discounted cash flow approach to
develop the estimated fair value of its reporting units. Management judgment is required in
developing the assumptions for the discounted cash flow model. These assumptions include
revenue growth rates, profit margins, future capital expenditures, working capital needs,
discount rates, perpetual growth rates, etc. If the estimated fair value of a reporting unit
exceeds its carrying value, goodwill is not impaired. If the carrying value exceeds
estimated fair value, there is an indication of potential impairment and the second step is
performed to measure the amount of impairment.
The second step of the process involves the calculation of an implied fair value of
goodwill for each reporting unit for which step one indicated potential impairment. The
implied fair value of goodwill is determined in a manner similar to how goodwill is
calculated in a business combination. That is, the estimated fair value of the reporting
unit, as calculated in step one, is allocated to the individual assets and liabilities as if
the reporting unit was being acquired in a business combination. If the implied fair value
of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is
no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the
implied fair value of the goodwill, an impairment charge is recorded to write down the
carrying value. An impairment loss cannot exceed the carrying value of goodwill assigned to
a reporting unit and the loss establishes a new basis in the goodwill. Subsequent reversal
of an impairment loss is not permitted.
The discount rate, sales growth and profitability assumptions and perpetual growth rate
are the material assumptions utilized in the discounted cash flow model used to estimate the
fair value of each reporting unit. The Companys discount rate reflects a weighted average
cost of capital (WACC) for a peer group of companies in the chemical manufacturing industry
with an equity size premium added, as applicable, for each reporting unit. The WACC is
calculated based on observable market data. Some of this data (such as the risk free or
treasury rate and the pretax cost of debt) are based on the market data at a point in time.
Other data (such as beta and the equity risk premium) are based upon market data over time.
The discounted cash flow analysis requires estimates, assumptions and judgments about
future events. The Companys analysis uses internally generated budgets and long-range
forecasts. The Companys discounted
cash flow analysis uses the assumptions in these budgets and forecasts about sales trends,
inflation, working capital needs, and forecasted capital expenditures along with an estimate
of the reporting units terminal value (the value of the reporting unit at the end of the
forecast period) to determine the implied fair value of each reporting unit. The Companys
assumptions about working capital needs and capital expenditures are based on historical
experience. The perpetual growth rate assumed in the discounted cash flow model was
consistent with the long-term rate of growth as measured by the U.S. Gross Domestic Product.
The Company believes the assumptions used in its discounted cash flow analysis are
appropriate and result in reasonable estimates of the implied fair value of each reporting
unit. However, the Company may not meet its sales growth and profitability targets, working
capital needs and capital expenditures may be
higher than forecast, changes in credit markets may result in changes to the Companys
discount
41
rate and general business conditions may result in changes to the Companys terminal
value assumptions for its reporting units. In order to evaluate the sensitivity of the fair
value calculations on the goodwill impairment test, the Company applied a hypothetical 10%
decrease to the fair value of each reporting unit. In most cases, the estimated fair value
of the reporting units exceeded the carrying value of the reporting units by a substantial
amount. However, this hypothetical 10% decrease in fair value would have triggered the need
to perform additional step 2 analyses for three of the Companys reporting units. The amount
of goodwill associated with these reporting units was $253 million at October 31, 2008.
Business Insurance Reserves
The Company has established insurance programs to cover workers compensation, business
automobile and general liability claims. During fiscal 2009, 2008 and 2007, these programs
had self-insured retention of $1 million per occurrence. For fiscal 2010, the self-insured
retention will remain $1 million per occurrence with no additional aggregate retention. The
Company reserves for its self-insured retention based on individual claim evaluations
establishing loss estimates for known claims based on the current facts and circumstances.
These known claims are then developed through actuarial computations, to reflect the
expected ultimate loss for the known claims, as well as incurred but not reported claims.
Actuarial computations use the Companys specific loss history, payment patterns and
insurance coverage, plus industry trends and other factors to estimate the required reserve
for all open claims by policy year and loss type. Reserves for the Companys self-insurance
retention are evaluated monthly. Semi-annually, the Company obtains a third-party actuarial
report to validate that the computations and assumptions used are consistent with actuarial
standards. Certain assumptions used in the actuarial computations are susceptible to change.
Loss development factors are influenced by items such as medical inflation, changes in
workers compensation laws, and changes in the Companys loss payment patterns, all of which
can have a significant influence on the estimated ultimate loss related to the Companys
self-insured retention. Accordingly, the ultimate resolution of open claims may be for
amounts more or less than the reserve balances. The Companys operations are spread across a
significant number of locations, which helps to mitigate the potential impact of any given
event that could give rise to an insurance-related loss. Over the last three years, business
insurance expense has generally been in the range of 0.6% to 0.8% of sales.
42
Contractual Obligations
The following table presents the Companys contractual obligations as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
More than 5 |
(In thousands) |
|
Total |
|
Year (a) |
|
1 to 3 Years (a) |
|
3 to 5 Years (a) |
|
Years (a) |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
$ |
1,761,366 |
|
|
$ |
11,058 |
|
|
$ |
1,198,338 |
|
|
$ |
1,229 |
|
|
$ |
550,741 |
|
Estimated interest payments on
long-term debt (2) |
|
|
359,942 |
|
|
|
56,438 |
|
|
|
96,538 |
|
|
|
75,912 |
|
|
|
131,054 |
|
Estimated payments on
interest rate swap agreements
(3) |
|
|
12,524 |
|
|
|
10,056 |
|
|
|
2,468 |
|
|
|
|
|
|
|
|
|
Non-compete agreements (4) |
|
|
21,607 |
|
|
|
4,744 |
|
|
|
7,364 |
|
|
|
5,257 |
|
|
|
4,242 |
|
Letters of credit (5) |
|
|
41,782 |
|
|
|
41,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (6) |
|
|
295,034 |
|
|
|
83,948 |
|
|
|
128,051 |
|
|
|
57,535 |
|
|
|
25,500 |
|
Purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquid bulk gas supply
agreements (7) |
|
|
885,842 |
|
|
|
125,577 |
|
|
|
215,526 |
|
|
|
201,596 |
|
|
|
343,143 |
|
Liquid carbon dioxide supply
agreements (8) |
|
|
201,193 |
|
|
|
18,324 |
|
|
|
28,238 |
|
|
|
26,062 |
|
|
|
128,569 |
|
Ammonia supply agreements (9) |
|
|
2,017 |
|
|
|
2,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase commitments (10) |
|
|
6,917 |
|
|
|
6,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction commitments (11) |
|
|
9,867 |
|
|
|
9,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
3,598,091 |
|
|
$ |
370,728 |
|
|
$ |
1,676,523 |
|
|
$ |
367,591 |
|
|
$ |
1,183,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Less than one Year column relates to obligations due in fiscal 2010.
The 1 to 3 Years column relates to obligations due in fiscal years ending March 31, 2011
and 2012. The 3 to 5 Years column relates to obligations due in fiscal years ending
March 31, 2013 and 2014. The More than 5 Years column relates to obligations due in
fiscal years ending March 31, 2015 and beyond. |
|
(1) |
|
Aggregate long-term debt instruments are reflected in the Consolidated Balance
Sheet as of March 31, 2009. Long-term debt includes capital lease obligations, which were
not material and, therefore, did not warrant separate disclosure. Principal payments on
the term loan under the Credit Facility are not reflected in the Less than 1 Year column
above due to the Companys ability and intention to refinance
the payments with borrowings under its long-term revolving credit line. See Note 10 to the
Consolidated Financial Statements for more information regarding long-term debt
instruments. |
|
(2) |
|
The future interest payments on the Companys long-term debt obligations were
estimated based on the current outstanding principal reduced by scheduled maturities in
each period presented and interest rates as of March 31, 2009. The actual interest
payments may differ materially from those presented above based on actual amounts of
long-term debt outstanding and actual interest rates in future periods. A majority of the
Companys variable rate debt is based on a spread over LIBOR. Based on the Companys
fixed to variable interest rate ratio at March 31, 2009, for every 25 basis point increase
in LIBOR, the Company estimates that its annual interest expense would increase
approximately by $2.2 million. |
43
|
|
|
(3) |
|
Payments or receipts under interest rate swap agreements result from changes
in market interest rates compared to contractual rates and payments to be exchanged
between the parties to the agreements. The estimated payments in future periods were
determined based on forward LIBOR rates as of March 31, 2009. Actual payments or receipts
may differ materially from those presented above based on actual interest rates in future
periods. |
|
(4) |
|
Non-compete agreements are obligations of the Company to make scheduled future
payments, generally to former owners of acquired businesses, contingent upon their
compliance with the covenants of the non-compete agreement. |
|
(5) |
|
Letters of credit are guarantees of payment to third parties. The Companys
letters of credit principally back obligations associated with the Companys self-insured
retention on workers compensation, business automobile and general liability claims. The
letters of credit are supported by the Companys Credit Facility. |
|
(6) |
|
The Companys operating leases at March 31, 2009 include approximately $179
million in fleet vehicles under long-term operating leases. The Company guarantees a
residual value of $29 million related to its leased vehicles. |
|
(7) |
|
In addition to the gas volumes supplied by Airgas Merchant Gases, the Company
purchases industrial, medical and specialty gases pursuant to requirements contracts from
national and regional producers of industrial gases. The Company has a long-term
take-or-pay supply agreement, in effect through August 31, 2017, with Air Products to
supply the Company with bulk liquid nitrogen, oxygen and argon. Additionally, the Company
purchases helium and hydrogen gases from Air Products under long-term supply agreements.
Based on the volume of fiscal 2009 purchases, the Air Products supply agreements represent
approximately $55 million annually in liquid bulk gas purchases. |
|
|
|
The Company also has long-term take-or-pay supply agreements with Linde AG to purchase
oxygen, nitrogen, argon, helium and acetylene. The agreements expire at various dates
through July 2019 and represent almost $50 million in annual bulk gas purchases.
Additionally, the Company has long-term take-or-pay supply agreements to purchase oxygen,
nitrogen, argon and helium from other major producers. Annual purchases under these contracts are
approximately $20 million and they expire at various dates through 2024. |
|
|
|
The purchase commitments for future periods contained in the table above reflect estimates
based on fiscal 2009 purchases. The supply agreements noted above contain periodic
adjustments based on certain economic indices and market analysis. The Company believes
the minimum product purchases under the agreements are within the Companys normal product
purchases. Actual purchases in future periods under the supply agreements could differ
materially from those presented in the table due to fluctuations
in demand requirements related to varying sales levels as well as changes in economic
conditions. |
|
(8) |
|
The Company is a party to long-term take-or-pay supply agreements for the
purchase of liquid carbon dioxide with approximately 15 suppliers that expire at various
dates through 2044. The purchase commitments for future periods contained in the table
above reflect estimates based on fiscal 2009 purchases. The Company believes the minimum
product purchases under the agreements are within the Companys normal product purchases.
Actual purchases in future periods under the carbon dioxide supply agreements could differ
materially from those presented in the table due to fluctuations in demand requirements
related to varying sales levels as well as changes in economic conditions. Certain of the
liquid carbon dioxide supply agreements contain market pricing subject to certain economic
indices. |
44
|
|
|
|
|
In June 2008, the Company signed a 15-year take-or-pay supply agreement with First
United Ethanol LLC, (FUEL) to supply the Company with feed stock of raw carbon dioxide.
The agreement is expected to commence in November 2009 after the Company completes its 450
tons per day liquification plant at FUELs new complex in Camilla, GA. Annual purchases
under this contract will be approximately $1.3 million annually. |
|
(9) |
|
The Company purchases ammonia from a variety of sources and is obligated to
purchase approximately $2 million annually under these contracts. |
|
(10) |
|
Other purchase commitments primarily include property, plant and equipment
expenditures. |
|
(11) |
|
Construction commitments represent outstanding commitments to customers
primarily to construct a raw liquid carbon dioxide plant in Camilla, GA. |
Off-Balance Sheet Arrangements
As disclosed in Note 4 to the Companys consolidated financial statements under Item 8,
Financial Statements and Supplementary Data, the Company participates in a securitization
agreement with three commercial banks to sell, on a revolving basis, up to $345 million of
qualifying trade receivables. The agreement expires in March 2010, but may be renewed
subject to provisions contained in the agreement. Under the securitization agreement, trade
receivables are sold on a monthly basis to three commercial banks through a bankruptcy-remote
special purpose entity. The Company retains a subordinated interest in the receivables sold,
which is included in Trade receivables on the accompanying Consolidated Balance Sheet. At
March 31, 2009, the amount of retained interest in the receivables sold was approximately
$148 million.
The securitization agreement is a form of off-balance sheet financing. The discount
taken by the commercial banks reduces the proceeds from the sale of trade receivables and is
generally at a lower cost than the Company can borrow under its Credit Facility. The table
below reflects the amount of trade receivables sold at March 31, 2009 and the amount of the
anticipated discount to be taken, based on market rates at March 31, 2009, on the sale of
that quantity of receivables each month through the expiration date of the securitization
agreement. The trade receivables securitization agreement expires in March 2010. The
Company expects continued availability under the Agreement until it expires in March 2010 and
under similar agreements thereafter. Given the contraction of the securitized asset market
in the current credit environment, the Company is evaluating the current arrangement with the
banks and will evaluate this and other financing alternatives in fiscal 2010. Based on the
characteristics of its receivable pool, the Company believes that trade receivable
securitization will continue to be an attractive source of funds. In the event such source
of funding was unavailable or reduced, the Company believes that it would be able to secure
an alternative source of funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
(In thousands) |
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
More than 5 |
Off-balance sheet obligations as
of March 31, 2009: |
|
Total |
|
Year |
|
1 to 3 Years |
|
3 to 5 Years |
|
Years |
|
Trade receivables
securitization |
|
$ |
311,400 |
|
|
$ |
311,400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Estimated discount on
securitization |
|
|
3,800 |
|
|
|
3,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total off-balance sheet obligations |
|
$ |
315,200 |
|
|
$ |
315,200 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Accounting Pronouncements Issued But Not Yet Adopted
Business Combinations
In December 2007, the FASB
issued SFAS No. 141R, Business Combinations (SFAS
141R), which replaces SFAS No. 141 of the same title
(SFAS 141).
This statement is effective for fiscal years beginning after December 15, 2008 and prohibits early adoption. SFAS 141R will significantly change
the way the Company accounts for business combinations. The Company has historically pursued new business opportunities through acquisitions and intends to maintain
this strategy for the foreseeable future. Accordingly, the Company expects the adoption of SFAS
141R to impact its operating results when significant acquisitions are completed and during the subsequent acquisition measurement
periods when the fair values for the individual assets and liabilities acquired are determined. The principles contained in SFAS 141R are,
in a number of ways, very different from those previously applied to business combinations. Upon adoption, the
impact of SFAS 141R on the consolidated financial statements for future acquisitions may be driven by, among other things, recognizing the direct
costs of acquisitions as period costs when incurred and recasting previously issued consolidated financial statements as
the provisional values assigned to the assets and liabilities acquired are trued-up to their acquisition date fair
values. The Company will adopt SFAS 141R for its fiscal year beginning April 1, 2009.
In April 2009, the FASB issued FASB Staff Position (FSP) No. FAS 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies(FSP 141R-1), which amends SFAS 141R regarding the initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. FSP 141R-1 carries forward the general
requirements of SFAS 141 for acquired contingencies in a business combination, yet encourages
greater use of fair value as defined in SFAS 157 when determinable. FSP 141R-1 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008 with early adoption prohibited. The Company will adopt FSP 141R-1 in
conjunction with SFAS 141R, and does not expect the adoption to have a material impact on the
consolidated financial statements.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3), which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142. FSP
142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008 with early adoption prohibited. The Company will adopt FSP
142-3 in conjunction with SFAS 141R to improve consistency between the useful life of
intangible assets under SFAS 142 and the period of expected cash flows used to measure fair
value at acquisition under SFAS 141R. The Company does not expect adoption of FSP 142-3 to
have a material impact on the consolidated financial statements.
In November 2008, the FASB ratified the consensus reached in Emerging Issues Task Force
(EITF) Issue No. 08-7, Accounting for Defensive
Intangible Assets (EITF 08-7). EITF 08-7
clarifies how to account for acquired defensive intangible assets subsequent to initial
measurement under SFAS 141R that an entity does not intend to actively use but does intend
to hold to prevent others from obtaining access to the asset. EITF 08-7 is effective for
fiscal years beginning after December 15, 2008, along with SFAS 141R. The Company will adopt
EITF 08-7 for fiscal 2010 and does not expect the adoption of EITF 08-7 to have a material
impact on its consolidated results of operations, financial position or cash flows.
Fair Value Measurements
In September 2006, the FASB issued SFAS 157 effective for financial statements issued
for fiscal years beginning after November 15, 2007. SFAS 157 did not require any new fair
value measurements, but rather replaces multiple existing definitions of fair value with a
single definition, establishes a consistent framework for measuring fair value and expands
financial statement disclosures regarding fair value measurements. In February 2008, the
FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the
effective date of SFAS 157 until fiscal years beginning after November 15, 2008 for
non-financial assets and liabilities that are not recognized or disclosed at fair value in
the financial statements on a recurring basis. The Company adopted SFAS 157 for financial
assets and liabilities on April 1, 2008 (see Note 12 to the Companys Consolidated Financial
Statements under Item 8, Financial Statements and Supplementary Data). The adoption of
SFAS 157 for financial assets and liabilities did not have a material impact on the Companys
financial position or results of operations. Additionally, the Company will adopt SFAS 157
for non-financial assets and liabilities that are not recognized or disclosed at fair value
in the financial statements on a recurring basis on April 1, 2009. The adoption of the
deferred portion of SFAS 157 is not expected to have a material impact on the consolidated
financial statements.
46
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments (FSP 107-1), which requires disclosures about the fair
value of financial instruments for interim reporting periods as well as in annual financial
statements. Currently, these
disclosures are only required in the Companys consolidated annual financial statements. FSP
107-1 is effective for interim reporting periods ending after June 15, 2009 with early
adoption permitted under
specified circumstances. The Company will adopt FSP 107-1 for the
interim reporting period ending June 30, 2009, and does not expect the adoption to have a
material impact on the consolidated financial statements.
Non-controlling Interests in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (SFAS 160), which amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements. SFAS 160 establishes accounting and reporting standards
that require (1) non-controlling interests held by non-parent parties be clearly identified
and presented in the consolidated statement of financial position within equity, separate
from the parents equity, and (2) the amount of consolidated net income attributable to the
parent and to the non-controlling interests be clearly presented on the face of the
consolidated statement of income. SFAS 160 also requires consistent reporting of any changes
to the parents ownership interest while retaining a controlling financial interest, as well
as specific guidelines over how to treat the deconsolidation of controlling interests and any
applicable gains or losses. SFAS 160 is effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008 and is to be applied
prospectively, except for the presentation and disclosure requirements of SFAS 160 which are
to be applied retrospectively for all periods presented. The Company is currently assessing
the impact of SFAS 160 on the consolidated financial statements. Although all of the
Companys subsidiaries are currently 100% owned subsidiaries, the retrospective presentation
and disclosure requirements will require previous non-controlling interests to be presented
and disclosed for prior periods in the consolidated financial statements under the
requirements of SFAS 160.
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 Companys expected net earnings for the first quarter
ending June 30, 2009 to range from $0.62 to $0.67 per diluted share, and expected net
earnings for the fiscal year ending March 31, 2010 to range from $2.60 to $2.90 per diluted
share; the
Companys belief that strategic products have good long-term growth profiles; the Companys
belief that its focus on marketing and selling strategic products will help to mitigate the
impact of the current recessionary environment; the Companys belief regarding the future
growth prospects of the medical care markets; the Companys belief regarding supplying its
customers and the availability of alternative supplies in the event of a termination of a
major supply agreement; the Companys expectation that the multi-year implementation process
of the SAP system will minimize business disruption and conversion risks and that the
implementation will be completed within four years; the Companys continued progress selling
specialty gases to the EPA Protocol market and sales of specialty gas equipment; the
Companys estimate that for every 25 basis point increase in LIBOR, annual interest expense
will increase approximately $2.2 million; the future declaration and payment of dividends;
the Companys ability and intention to refinance principal payments under the term loan with
borrowings under its long-term revolving credit line; the Companys expectation that the air
separation unit in Carrollton, Kentucky and the carbon dioxide plant in Camilla, Georgia are
expected to be completed in fiscal 2010 and that a carbon dioxide supply agreement will commence in November 2009
upon completion of its liquification plant in Camilla, Georgia; the Companys expectation that capital spending for
fiscal 2010 will be about 6% of net sales; the Companys belief that it could obtain future
financing at reasonable terms if required; the Companys belief that the trade receivable
securitization will continue to be an attractive source of funds; the ability of the Company
to manage its exposure to interest rate risk through participation in interest rate swap
agreements; the performance of counterparties under interest rate swap agreements; the
Companys estimate that $6.5 million of existing losses recorded in Accumulated Other
Comprehensive Loss at March 31, 2009, net of tax benefits of $3.5 million, will be
reclassified into
earnings within the next twelve months; the Companys belief that self-insured retention will
remain $1.0 million per occurrence for fiscal 2010; and the Companys estimates of purchase
commitments associated with
product supply agreements and the belief that the minimum product
purchases under the agreements are within the Companys normal product purchases.
47
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: the Companys inability to diversify against
economic cyclicality; higher than expected implementation costs of the SAP system; conversion
problems related to the SAP system that disrupt the Companys business and negatively impact
customer relationships; the Companys inability to complete the SAP implementation in the
expected timeframe, which could negatively impact the Companys operations and abilities to
operate efficiently and measure performance; continued weakening of the economy resulting in
weakening demand for the Companys products; weakening operating and financial performance of
the Companys customers, which can negatively impact the Companys sales and the Companys
ability to collect its accounts receivables; construction delays with regard to the
Carrollton, Kentucky air separation unit and the Camilla, Georgia carbon dioxide plant; the
inability to successfully identify, consummate and integrate acquisitions and to achieve
anticipated acquisition synergies; a downturn in the hospital, physician and dental care
markets and its effect on the Companys sales growth; the inability of the Company to raise
prices to keep pace with cost increases; higher than estimated interest expense resulting
from increases in LIBOR and/or changes in the Companys credit rating; the loss of customers,
acquisition integration problems and higher than expected expenses; continued economic
downturn (including adverse changes in the specific markets for the Companys products,
including strategic products); adverse customer response to the Companys products and/or the
inability to identify products that will grow at a faster rate than the overall economy; the
inability to obtain alternate supply sources of hardgoods products; the inability to obtain
alternative supply sources to adequately meet customer demand and the effect on sales and
customer relationships; the Companys inability to control operating expenses and the
potential impact of higher operating expenses in future periods; adverse changes in customer
buying patterns; a lack of available cash flow and financing necessary to pay future
dividends and/or refinance term loan principal payments; changes in the Companys debt
levels, which prevent the Company from arranging additional financing; the inability to
manage interest rate exposure; defaults by counterparties under interest rate swap
agreements; potential liabilities arising from withdrawals from the Companys assumed
multi-employer pension plans; the effects of competition from independent distributors and
vertically integrated gas producers on products, pricing and sales growth; future goodwill
impairment due to changes in assumptions used in the annual impairment analysis; changes in
actuarial assumptions and their impact on the ultimate loss related to the Companys
self-insured retention; changes in customer demand and the impact on the Companys ability to
meet minimum purchases under take-or-pay supply agreements; uncertainties regarding accidents
or litigation which may arise in the ordinary course of business; and the effects of, and
changes in, the economy, monetary and fiscal policies, laws and regulations, inflation and
monetary fluctuations and fluctuations in interest rates, both on a national and
international basis. The Company does not undertake to update any forward-looking statement
made herein or that may be made from time to time by or on behalf of the Company.
48
ITEM 7A. 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 Companys 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
established, and will not establish, any interest rate risk positions for purposes other than
managing the risk associated with its portfolio of funding sources. 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 Companys market risks associated with debt obligations,
interest rate swaps and the trade receivables securitization at March 31, 2009. For debt
obligations and the trade receivables securitization, the table presents cash flows related
to payments of principal, interest and the discount on the securitization program by fiscal
year of maturity. For interest rate swaps, 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) |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
Fixed Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition notes and other |
|
$ |
11 |
|
|
$ |
8 |
|
|
$ |
3 |
|
|
$ |
0.7 |
|
|
$ |
0.5 |
|
|
$ |
0.8 |
|
|
$ |
24 |
|
|
$ |
25 |
|
Interest expense |
|
|
1.1 |
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
2.2 |
|
|
|
|
|
Average interest rate |
|
|
6.13 |
% |
|
|
6.18 |
% |
|
|
6.25 |
% |
|
|
5.85 |
% |
|
|
6.18 |
% |
|
|
5.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated notes due 2014 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
150 |
|
|
$ |
150 |
|
|
$ |
140 |
|
Interest expense |
|
|
9.4 |
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
9.4 |
|
|
|
2.6 |
|
|
|
49.6 |
|
|
|
|
|
Interest rate |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated notes due 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
400 |
|
|
$ |
400 |
|
|
$ |
378 |
|
Interest expense |
|
|
28.5 |
|
|
|
28.5 |
|
|
|
28.5 |
|
|
|
28.5 |
|
|
|
28.5 |
|
|
|
128.3 |
|
|
|
270.8 |
|
|
|
|
|
Interest rate |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year of Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
Variable Rate Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit borrowings- US |
|
$ |
|
|
|
$ |
|
|
|
$ |
751 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
751 |
|
|
$ |
721 |
|
Interest expense |
|
|
9.3 |
|
|
|
9.3 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.6 |
|
|
|
|
|
Interest rate (a) |
|
|
1.24 |
% |
|
|
1.24 |
% |
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit borrowings- Canada |
|
$ |
|
|
|
$ |
|
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15 |
|
|
$ |
14 |
|
Interest expense |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
Interest rate (a) |
|
|
1.49 |
% |
|
|
1.49 |
% |
|
|
1.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit borrowings- Multi-currency |
|
$ |
|
|
|
$ |
|
|
|
$ |
24 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24 |
|
|
$ |
23 |
|
Interest expense |
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
Interest rate (a) |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans (c) |
|
$ |
|
|
|
$ |
236 |
|
|
$ |
162 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
398 |
|
|
$ |
382 |
|
Interest expense |
|
|
7.4 |
|
|
|
6.0 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.2 |
|
|
|
|
|
Interest rate (c) |
|
|
1.85 |
% |
|
|
1.85 |
% |
|
|
1.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year of Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
Thereafter |
|
Total |
|
Fair Value |
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 swaps receive variable/pay fixed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amounts |
|
$ |
377 |
|
|
$ |
250 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
627 |
|
|
$ |
12.5 |
|
Swap payments |
|
|
10.0 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5 |
|
|
|
|
|
$627 million notional amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable forward receive rate = 1.70% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average pay rate = 4.21% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Off-Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIBOR-based Agreement (b) : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables securitization |
|
$ |
311 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
311 |
|
|
$ |
311 |
|
Discount on securitization |
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
Variable discount rate at 3/31/2009 of
1.24% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The interest rate on the revolving credit facilities is the weighted average
of the variable interest rates on each of the U.S. dollar revolving credit line, the
multi-currency revolving credit line and the Canadian dollar credit line. The variable
interest rates on the U.S. dollar revolving credit line are based on a spread over LIBOR
applicable to each tranche under the U.S. credit line. The average of the variable
interest rates on the multi-currency portion of the Credit Facilities is based on a
spread over the Euro currency rate applicable to each foreign currency borrowing under
the multi-currency credit line. The average of the variable interest rates on the
Canadian dollar portion of the Credit Facility is based on a spread over the Canadian
Bankers Acceptance Rate applicable to each tranche under the Canadian credit line. |
|
(b) |
|
The trade receivables securitization agreement expires in March 2010. The
Company expects continued availability under the Agreement until it expires in March
2010 and under similar agreements thereafter. Given the contraction of the securitized
asset market in the current credit environment, the Company is evaluating the current
arrangement with the banks and will evaluate this and other financing alternatives in
fiscal 2010. Based on the characteristics of its receivable pool, the Company believes
that trade receivable securitization will continue to be an attractive source of funds.
In the event such source of funding was unavailable or reduced, the Company believes that
it would be able to secure an alternative source of funds. |
|
(c) |
|
The consolidated financial statements and related notes reflect the term
loans principal payments due through March 31, 2010 as long-term based on the Companys
ability and intention to refinance those principal payments with its revolving credit
line. Estimated interest payments on the term loans reflect the amortization of the
term loans principal for each period presented. |
Limitations of the Tabular Presentation
As the table incorporates only those interest rate risk exposures that exist as of March
31, 2009, 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 Companys credit rating.
Foreign Currency Rate Risk
Canadian subsidiaries and the European operations of the Company are funded 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.
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, supplementary information and financial statement
schedule of the Company are set forth at pages F-1 to F-57 of the report.
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. |
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation
of the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the Companys disclosure controls and procedures (as defined in the Securities Exchange Act
of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2009. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of such
date, the Companys disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed in the Companys Securities and
Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms, and (ii) is accumulated and
communicated to the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
(b) Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining an adequate
system of internal control over financial reporting, as defined in Exchange Act Rule
13a-15(f). The Companys
management conducted an assessment of the Companys internal control over financial reporting
based on the framework established by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control Integrated Framework. Based on this assessment,
management concluded that, as of March 31, 2009, the Companys internal control over
financial reporting was effective. See Managements Report on Internal Control Over
Financial Reporting preceding the Consolidated Financial Statements under Item 8, Financial
Statements and Supplementary Data, herein.
KPMG LLP, an independent registered public accounting firm, issued an audit report on
the effectiveness of the Companys internal control over financial reporting as of March 31,
2009, included under Item 8, Financial Statements and Supplementary Data, herein.
(c) Changes in Internal Control
There were no changes in the Companys internal control over financial reporting that
occurred during the quarter ended March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
None.
51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Certain information from the Companys 2009 Definitive Proxy Statement (Proxy
Statement) is incorporated herein by reference as specified by the Item number of Regulation
S-K below.
Item 401 Information
The biographical information for the directors including the names, ages, terms of
office, directorships in other companies and business experience is included in the Proxy
Statement section Election of Directors and is incorporated herein by reference. The
biographical information relating to the Companys executive officers set forth in Item 1 of
Part I of this Form 10-K report is incorporated herein by reference.
Item 405 Information
Disclosure of the failure by any director, officer, or beneficial owner of more than ten
percent of a class of the Companys equity securities to file Forms 3, 4, or 5 reporting
their ownership and changes in ownership in the Company is included in the Proxy Statement
section Section 16(a) Beneficial Ownership Reporting Compliance and is incorporated herein
by reference.
Item 406 Information
Disclosure of the Companys adoption of a code of ethics and the employees to which it
applies is included in the Proxy Statement section Governance of the Company under
subsection Charters and Code of Ethics and Business Conduct and is incorporated herein by
reference.
Item 407(c)(3) Information
The procedure followed to nominate persons to the Companys board of directors is
included in the Proxy Statement section Governance of the Company under subsection
Director Nomination Process and is incorporated herein by reference.
Item 407(d)(4) and 407(d)(5) Information
The identification of each audit committee member, their independence with regard to the
Company, and the Companys audit committee financial expert are contained in the Proxy
Statement section Election of Directors under subsection Audit Committee. The
information in this section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Items 402, 407(e)(4) and 407(e)(5) of Regulation S-K is
included in Proxy Statement sections Compensation Discussion and Analysis, Report of the
Governance and Compensation Committee, and Executive Compensation. The information in
these sections is incorporated herein by reference, provided that the Report of the
Governance and Compensation Committee will be deemed to be furnished and will not be deemed
incorporated by reference into any other filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934.
52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
Item 201(d) Information
The information required by Item 201(d) of Regulation S-K regarding the number of
securities issuable under equity compensation plans is presented below.
Equity Compensation Plan Information
The following table sets forth information as of March 31, 2009 with respect to the shares of the Companys common stock that may be issued upon the exercise of options, warrants and rights under the Companys equity compensation plans, which were approved by the stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available for |
|
|
|
Number of securities to be |
|
|
Weighted-average |
|
|
future issuance under equity |
|
|
|
issued upon exercise of |
|
|
exercise price of |
|
|
compensation plans |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
(excluding securities reflected |
|
Plan Category |
|
warrants and rights |
|
|
warrants and rights |
|
|
in column (a)) |
|
|
Equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
plans approved by |
|
|
132,752 |
|
|
$ |
29.30 |
|
|
834,243 ESPP shares (2) |
security holders |
|
|
6,640,369 |
|
|
$ |
30.71 |
|
|
2,367,551 stock option
shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
plans not approved |
|
|
|
|
|
|
|
|
|
|
|
|
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
6,773,121 |
|
|
$ |
30.68 |
|
|
|
3,201,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
At the Companys August 2006 Annual Meeting of Stockholders, the stockholders
approved the 2006 Equity Incentive Plan (the 2006 Equity Plan). The 2006 Equity Plan
replaced both the 1997 Stock Option Plan for Employees and the 1997 Directors Stock Option
Plan. Shares subject to outstanding stock options that terminate, expire or are canceled
without having been exercised and stock options available for grant under the prior stock
option plans were carried forward to the 2006 Equity Plan. Future grants of stock options
to employees and directors will be issued from the 2006 Equity Plan to the extent there are
options available for grant. As of March 31, 2009, only stock option awards have been
granted under the 2006 Equity Plan and predecessor stock option plans. |
|
(2) |
|
The Amended and Restated 2003 Employee Stock Purchase Plan (ESPP) was
approved by the Companys stockholders in August 2006. The ESPP encourages and assists
employees in acquiring an
equity interest in the Company by allowing eligible employees to purchase common stock at a
discount. |
Item 403 Information
The information required by Item 403 of Regulation S-K regarding the disclosure of the
amount of the Companys voting securities beneficially owned by each director individually,
by all directors and officers as a group, and by any owner of 5% or more of the securities is
set forth in the Proxy Statement section Security Ownership. The information is
incorporated herein by reference.
53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required by Item 404 of Regulation S-K regarding material transactions and
relationships between the Company and the Companys directors, executive officers, nominees
for election as directors, major shareholders, and business and professional entities
affiliated with them is included in the Proxy Statement sections Governance of the Company
and Certain Relationships and Related Transactions. These sections of the Proxy Statement
are incorporated herein by reference. The information required by Item 407(a) of Regulation
S-K regarding the disclosure of the independence of directors and committee members is also
included in Proxy Statement section Governance of the Company and is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item is set forth in the Proxy Statement under the
section Proposal to Ratify Independent Registered Public Accounting Firm and such
information is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) and (2):
The response to this portion of Item 15 is submitted as a separate section of this
report beginning on page F-1. All other schedules have been omitted as inapplicable, or are
not required, or because the required information is included in the Consolidated Financial
Statements or notes thereto.
(b) Index to Exhibits and Exhibits filed as a part of this report.
|
|
|
Exhibit No. |
|
Description |
|
3.1
|
|
Amended and Restated Certificate of Incorporation of
Airgas, Inc. dated as of August 7, 1995. (Incorporated by reference to Exhibit 3.1 to
the Companys September 30, 1995 Quarterly Report on Form 10-Q). |
|
|
|
3.2
|
|
Airgas, Inc. By-Laws Amended October 9, 2007. (Incorporated by reference to
Exhibit 3.1 to the Companys September 30, 2007 Quarterly Report on Form 10-Q). |
|
|
|
4.1
|
|
The Eleventh Amended and Restated Credit Agreement, dated as of January 14,
2005, among Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of America,
N.A., as U.S. Administrative Agent and The Bank of Nova Scotia as Canadian
Administrative Agent. (Incorporated by reference to Exhibit 4 to the Companys
December 31, 2004 Quarterly Report on Form 10-Q). |
54
|
|
|
Exhibit No. |
|
Description |
|
|
|
4.2
|
|
The Twelfth Amended and Restated Credit Agreement, dated as of July 25, 2006,
among Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of America, N.A., as
U.S. Administrative Agent and The Bank of Nova Scotia as Canadian Agent. (Incorporated
by reference to Exhibit 4 to the Companys September 30, 2006 Quarterly Report on Form
10-Q). |
|
|
|
4.3
|
|
The First Amendment to the Twelfth Amended and Restated Credit Agreement, dated
as of July 3, 2007, among Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of
America, N.A., as U.S. Administrative Agent and The Bank of Nova Scotia as Canadian
Administrative Agent. (Incorporated by reference to Exhibit 4.1 to the Companys June
30, 2007 Quarterly Report on Form 10-Q). |
|
|
|
4.4
|
|
Indenture dated as of August 1, 1996 of Airgas, Inc. to Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.5 to the Companys Registration
Statement on Form S-4 No. 333-23651 dated March 20, 1997). |
|
|
|
4.5
|
|
Form of Airgas, Inc. Medium-Term Note. (Incorporated by reference to Exhibit
4(f) to the Companys Registration Statement on Form S-4 No. 333-08113 dated July 15,
1996). |
|
|
|
4.6
|
|
Indenture, dated as of July 30, 2001, among Airgas, Inc., the subsidiary
guarantors of Airgas, Inc. and The Bank of New York, as Trustee, related to the 9.125%
Senior Subordinated Notes due 2011 (including exhibits). (Incorporated by reference to
Exhibit 4.7 to the Companys Registration Statement on Form S-4 No. 333-68722 dated
August 30, 2001 and as amended September 14, 2001). |
|
|
|
4.7
|
|
Exchange and Registration Rights Agreement, dated as of July 30, 2001, among
Airgas, Inc., the subsidiary guarantors of Airgas, Inc. and the initial purchasers of
the 9.125% Senior Subordinated Notes due 2011. (Incorporated by reference to Exhibit
4.8 to the Companys Registration Statement on Form S-4 No. 333-68722 dated August 30,
2001 and as amended September 14, 2001). |
|
|
|
4.8
|
|
Indenture, dated as of March 8, 2004, among Airgas, Inc., the subsidiary
guarantors of Airgas, Inc. and The Bank of New York, as Trustee, relating to the 6.25%
Senior Subordinated Notes due 2014. (Incorporated by reference to Exhibit 4.14 to the
Companys Registration Statement on Form S-4 No. 333-114499 dated April 15, 2004). |
|
|
|
4.9
|
|
Exchange and Registration Rights Agreement, dated as of March 8, 2004, among
Airgas, Inc., the subsidiary guarantors of Airgas, Inc. and the initial purchasers of
the 6.25% Senior Subordinated Notes due 2014. (Incorporated by reference to Exhibit
4.15 to the Companys Registration Statement on Form S-4 No. 333-114499 dated April 15,
2004). |
|
|
|
4.10
|
|
Rights Agreement, dated as of May 8, 2007, between Airgas, Inc. and The Bank of
New York, as Rights Agent, which includes as Exhibits thereto the Form of Certificate
of Designation, the Form of Right Certificate and the Summary of Rights attached
thereto as Exhibits A, B and C, respectively. (Incorporated by reference to Exhibit
4.1 to the Companys May 10, 2007 Current Report on Form 8-K). |
55
|
|
|
Exhibit No. |
|
Description |
|
|
|
4.11
|
|
Indenture, dated as of June 10, 2008, among Airgas, Inc., the subsidiary
guarantors of |
|
|
Airgas, Inc. and The Bank of New York, as Trustee, relating to the 7.125%
Senior Subordinated Notes due 2018. (Incorporated by reference to Exhibit 4.1 to the
Companys June 10, 2008 Current Report on Form 8-K). |
|
|
|
4.12
|
|
Exchange and Registration Rights Agreement, dated as of June 10, 2008, among
Airgas, Inc., the subsidiary guarantors of Airgas, Inc. and the initial purchasers of
the 7.125% Senior Subordinated Notes due 2014. (Incorporated by reference to Exhibit
4.2 to the Companys June 10, 2008 Current Report on Form 8-K). |
|
|
|
4.13
|
|
The Second Amendment to the Twelfth Amended and Restated
Credit Agreement, dated as of April 2, 2008, among Airgas, Inc., Airgas Canada, Inc.,
Red-D-Arc Limited, Bank of America, N.A., as U.S. Administrative Agent, and The Bank of
Nova Scotia, as Canadian Administrative Agent. (Incorporated by reference to Exhibit
4.1 to the Companys September 30, 2008 Quarterly Report on Form 10-Q). |
|
|
|
4.14
|
|
The Third Amendment to the Twelfth Amended and Restated
Credit Agreement, dated as of July 28, 2008, among Airgas, Inc., Airgas Canada, Inc.,
Red-D-Arc Limited, Bank of America, N.A., as U.S. Administrative Agent, and The Bank of
Nova Scotia, as Canadian Administrative Agent. (Incorporated by reference to Exhibit
4.2 to the Companys September 30, 2008 Quarterly Report on Form 10-Q). |
|
|
|
|
|
There are no other instruments with respect to long-term debt of the Company
that involve indebtedness or securities exceeding ten percent of the total
assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to file a copy of any instrument or agreement defining the
rights of holders of long-term debt of the Company upon request of the
Securities and Exchange Commission |
|
|
|
* 10.1
|
|
Amended and Restated 2003 Employee Stock Purchase Plan dated June 21,
2006, and approved by the Companys stockholders on August 9, 2006. (Incorporated by
reference to the Definitive Proxy Statement on Form DEF14A dated June 30, 2006). |
|
|
|
* 10.2
|
|
1997 Stock Option Plan, as amended through May 7, 2002, and approved by
the Companys stockholders on July 31, 2002. (Incorporated by reference to Exhibit
10.1 to the Companys June 30, 2002 Quarterly Report on Form 10-Q). |
|
|
|
* 10.3
|
|
1997 Directors Stock Option Plan as amended on May 25, 2004, and approved
by the Companys stockholders on August 4, 2004. (Incorporated by reference to the
Definitive Proxy Statement on Form DEF14A dated June 28, 2004). |
|
|
|
* 10.4
|
|
2006 Equity Incentive Plan dated June 21, 2006, and approved by the
Companys stockholders on August 9, 2006. (Incorporated by reference to Exhibit 10.1
to the Companys August 9, 2006 Current Report on Form 8-K). |
|
|
|
* 10.5
|
|
Airgas, Inc. Deferred Compensation Plan dated December 17, 2001.
(Incorporated by reference to Exhibit 4 to the Companys Registration Statement on Form
S-8 No. 333-75258 dated December 17, 2001). |
56
|
|
|
Exhibit No. |
|
Description |
|
|
|
* 10.6
|
|
Airgas, Inc. Deferred Comp Plan II dated May 23, 2006. (Incorporated by
reference to Exhibit 4 to the Companys Registration Statement on Form S-8 No.
333-136463 dated August 9, 2006). |
|
|
|
* 10.7
|
|
Airgas, Inc. Executive Bonus Plan. |
|
|
|
* 10.8
|
|
Bulk Gas Business Equity Purchase Agreement, dated November 22, 2006, by
and among Holox (USA) B.V., Holox Inc., Linde AG and Airgas, Inc. (Incorporated by
reference to Exhibit 10.1 to the Companys December 31, 2006 Quarterly Report on Form
10-Q). |
|
|
|
* 10.9
|
|
Packaged Gas Business Equity Purchase Agreement, dated March 29, 2007, by
and among Linde Gas Inc., Linde Aktiengesellschaft, and Airgas, Inc. (Incorporated by
reference to Exhibit 10.14 to the Companys March 31, 2007 Annual Report on Form 10-K). |
|
|
|
* 10.10
|
|
Amended and restated Change of Control Agreement between Airgas, Inc. and
Michael L. Molinini dated December 31, 2008. (Incorporated by reference to Exhibit
10.1 to the Companys January 7, 2009 Current Report on Form 8-K). Nine other
executive officers and one additional officer are parties to identical agreements. |
|
|
|
* 10.11
|
|
Amended and Restated Executive Severance Agreement between Airgas, Inc.
and Peter McCausland dated December 31, 2008. (Incorporated by reference to Exhibit
10.2 to the Companys January 7, 2009 Current Report on Form 8-K). |
|
|
|
* 10.12
|
|
Amended and Restated Executive Severance Agreement between Airgas, Inc.
and Peter McCausland dated May 29, 2009. |
|
|
|
12
|
|
Statement re: computation of the ratio of earnings to fixed charges. |
|
|
|
21
|
|
Subsidiaries of the Company. |
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
31.1
|
|
Certification of Peter McCausland as Chairman and Chief Executive Officer of
Airgas, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Robert M. McLaughlin as Senior Vice President and Chief
Financial Officer of Airgas, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
|
|
|
32.1
|
|
Certification of Peter McCausland as Chairman and Chief Executive Officer of
Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Robert M. McLaughlin as Senior Vice President and Chief
Financial Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
A management contract or compensatory plan required to be filed by Item 13 of this Report. |
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas, Inc.
(Registrant)
|
|
|
By: |
/s/ Peter McCausland
|
|
|
|
Peter McCausland |
|
|
|
Chairman, President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Peter McCausland
(Peter McCausland)
|
|
Director, Chairman of the Board,
President and Chief Executive Officer
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Controller
(Principal Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ W. Thacher Brown
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ James W. Hovey
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Richard C. Ill
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
58
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ David M. Stout
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Lee M. Thomas
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ John C. van Roden, Jr.
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ Ellen C. Wolf
|
|
Director
|
|
June 1, 2009 |
|
|
|
|
|
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas East, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Fred Manley
(Fred Manley)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ B. Shaun Powers
(B. Shaun Powers)
|
|
Director
|
|
June 1, 2009 |
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Great Lakes, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Kevin McBride
(Kevin McBride)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ B. Shaun Powers
(B. Shaun Powers)
|
|
Director
|
|
June 1, 2009 |
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Mid America, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ J. Robert Hilliard
(J. Robert Hilliard)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ B. Shaun Powers
(B. Shaun Powers)
|
|
Director
|
|
June 1, 2009 |
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas North Central, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Ronald Stark
(Ronald Stark)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ B. Shaun Powers
(B. Shaun Powers)
|
|
Director
|
|
June 1, 2009 |
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas South, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ L. Jay Sullivan
(L. Jay Sullivan)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ B. Shaun Powers
(B. Shaun Powers)
|
|
Director
|
|
June 1, 2009 |
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Mid South, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Terry Lodge
(Terry Lodge)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Intermountain, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Douglas L. Jones
(Douglas L. Jones)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/
(Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Nor Pac, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Daniel L. Tatro
(Daniel L. Tatro)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Northern California & Nevada, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Mike Chandler
(Mike Chandler)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Southwest, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ J. Brent Sparks
(J. Brent Sparks)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas West, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Sam Thompson
(Sam Thompson)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Max D. Hooper
(Max D. Hooper)
|
|
Director
|
|
June 1, 2009 |
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Safety, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Don Carlino
(Don Carlino)
|
|
President
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting
Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Michael L. Molinini
(Michael L. Molinini)
|
|
Director
|
|
June 1, 2009 |
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Carbonic, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Philip J. Filer
(Philip J. Filer)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Peter McCausland
(Peter McCausland)
|
|
Director
|
|
June 1, 2009 |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Specialty Gases, Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ William Russo
(William Russo)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Jim Muller
(Jim Muller)
|
|
Director
|
|
June 1, 2009 |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Nitrous Oxide Corp.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Martin Tupman
(Martin Tupman)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Andy Cichocki
(Andy Cichocki)
|
|
Director
|
|
June 1, 2009 |
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Red-D-Arc Inc.
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Mitch M. Imielinski
(Mitch M. Imielinski)
|
|
President and Director
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ John J. Appolonia
(John J. Appolonia)
|
|
Director
|
|
June 1, 2009 |
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 1, 2009
|
|
|
|
|
|
Airgas Data, LLC
(Registrant)
|
|
|
By: |
/s/ Thomas M. Smyth
|
|
|
|
Thomas M. Smyth |
|
|
|
Vice President and Director |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
/s/ Carey M. Verger
(Carey M. Verger)
|
|
Vice President
(Principal Executive Officer)
|
|
June 1, 2009 |
|
|
|
|
|
/s/ Thomas M. Smyth
(Thomas M. Smyth)
|
|
Vice President and Director
(Principal Financial Officer/Principal
Accounting Officer)
|
|
June 1, 2009 |
76
AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
Page |
|
|
Reference In |
|
|
Annual Report |
|
|
On Form 10-K |
Financial Statements: |
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
|
|
|
F-7 |
|
|
|
|
|
F-8 |
|
|
Notes to Consolidated Financial Statements |
|
|
F-9 |
|
|
Financial Statement Schedule: |
|
|
|
|
|
|
|
|
F-56 |
|
All other schedules for which provision is made in the applicable accounting
regulations promulgated by the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
F - 1
STATEMENT OF MANAGEMENTS FINANCIAL RESPONSIBILITY
Management of Airgas, Inc. and subsidiaries (the Company) prepared and is
responsible for the consolidated financial statements and related financial
information in this Annual Report on Form 10-K. The consolidated financial statements are
prepared in conformity with U.S. generally accepted accounting principles. The
consolidated financial statements reflect managements informed judgment and
estimation as to the effect of events and transactions that are accounted for or
disclosed.
Management maintains a system of internal control, which includes internal
control over financial reporting, at each business unit. The Companys system of
internal control is designed to provide reasonable assurance that records are
maintained in reasonable detail to properly reflect transactions and permit the
preparation of financial statements in accordance
with U.S. generally accepted accounting principles, that transactions are executed
in accordance with managements and the Board of Directors authorization, and that
unauthorized transactions are prevented or detected on a timely basis such that they
could not materially affect the financial statements. The Company also maintains a
staff of internal auditors who review and evaluate the system of internal control on
a continual basis. In determining the extent of the system of internal control,
management recognizes that the cost should not exceed the benefits derived. The
evaluation of these factors requires judgment by management.
Management evaluated the effectiveness of the Companys internal control over
financial reporting, as of March 31, 2009, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. KPMG LLP, an independent registered public accounting
firm, as stated in their report appearing herein, issued their opinion on the
effectiveness of the Companys internal control over financial reporting as of March
31, 2009 and an opinion on the fair presentation of the financial position of the
Company as of March 31, 2009 and 2008, and the results of the Companys operations
and cash flows for each of the years in the three-year period ended March 31, 2009.
The Audit Committee of the Board of Directors, consisting solely of independent
directors, meets regularly (jointly and separately) with the independent registered
public accounting firm, the internal auditors and management to satisfy itself that
they are properly discharging their responsibilities. The independent registered
public accounting firm has direct access to the Audit Committee.
Airgas, Inc.
|
|
|
/s/ Peter McCausland
|
|
/s/ Robert M. McLaughlin |
|
|
|
Peter McCausland
|
|
Robert M. McLaughlin |
Chairman, President and
|
|
Senior Vice President and |
Chief Executive Officer
|
|
Chief Financial Officer |
June 1, 2009
F - 2
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Airgas, Inc. and subsidiaries (the Company) is responsible for
establishing and maintaining an adequate system of internal control over financial
reporting. Under the supervision and with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, management conducted an assessment of
the Companys internal control over financial reporting based on the framework
established by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control Integrated Framework. Based on this assessment, management
concluded that, as of March 31, 2009, the Companys internal control over financial
reporting was effective. KPMG LLP, an independent registered public accounting
firm, as stated in their report, has issued their opinion on the effectiveness of
the Companys internal control over financial reporting as of March 31, 2009.
Airgas, Inc.
|
|
|
/s/ Peter McCausland
|
|
/s/ Robert M. McLaughlin |
|
|
|
Peter McCausland
|
|
Robert M. McLaughlin |
Chairman, President and
|
|
Senior Vice President and |
Chief Executive Officer
|
|
Chief Financial Officer |
June 1, 2009
F - 3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Airgas, Inc.:
We have audited the accompanying consolidated financial statements of Airgas, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. We also have
audited Airgas, Inc.s
internal control over financial reporting as of March 31, 2009, based on criteria
established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Airgas, Inc.s management is
responsible for these consolidated financial statements and financial statement schedule,
for maintaining effective internal control over financial reporting, and for its assessment
of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on these consolidated financial statements and financial statement
schedule and an opinion on the Companys internal control over financial reporting based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained
in all material respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Airgas, Inc. and subsidiaries as of March
31, 2009 and 2008, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 2009, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
Also in our opinion, Airgas, Inc. maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
As discussed in Note 6 to the consolidated financial statements, the Company adopted the
provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, effective April 1, 2007.
/s/ KPMG LLP
Philadelphia, Pennsylvania
June 1, 2009
F - 4
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
(In thousands, except per share amounts) |
|
2009 |
|
2008 |
|
2007 |
Net Sales |
|
$ |
4,349,455 |
|
|
$ |
4,017,024 |
|
|
$ |
3,205,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (excluding depreciation expense) |
|
|
2,045,020 |
|
|
|
1,929,263 |
|
|
|
1,567,232 |
|
Selling, distribution and administrative expenses |
|
|
1,558,772 |
|
|
|
1,422,162 |
|
|
|
1,148,979 |
|
Depreciation |
|
|
198,033 |
|
|
|
175,802 |
|
|
|
138,818 |
|
Amortization (Note 8) |
|
|
22,762 |
|
|
|
13,973 |
|
|
|
8,525 |
|
|
|
|
Total costs and expenses |
|
|
3,824,587 |
|
|
|
3,541,200 |
|
|
|
2,863,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
524,868 |
|
|
|
475,824 |
|
|
|
341,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net (Note 16) |
|
|
(84,395 |
) |
|
|
(89,485 |
) |
|
|
(60,180 |
) |
Discount on securitization of trade receivables (Note 4) |
|
|
(10,738 |
) |
|
|
(17,031 |
) |
|
|
(13,630 |
) |
Loss on the extinguishment of debt (Note 10) |
|
|
|
|
|
|
|
|
|
|
(12,099 |
) |
Other income (expense), net |
|
|
(382 |
) |
|
|
1,454 |
|
|
|
1,556 |
|
|
|
|
Earnings before income taxes and minority interest |
|
|
429,353 |
|
|
|
370,762 |
|
|
|
257,144 |
|
Income taxes (Note 6) |
|
|
(168,265 |
) |
|
|
(144,184 |
) |
|
|
(99,883 |
) |
Minority interest in earnings of consolidated affiliate (Note 13) |
|
|
|
|
|
|
(3,230 |
) |
|
|
(2,845 |
) |
|
|
|
Net Earnings |
|
$ |
261,088 |
|
|
$ |
223,348 |
|
|
$ |
154,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings per Common Share (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
3.19 |
|
|
$ |
2.74 |
|
|
$ |
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.12 |
|
|
$ |
2.66 |
|
|
$ |
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
81,926 |
|
|
|
81,402 |
|
|
|
78,025 |
|
|
|
|
Diluted |
|
|
83,816 |
|
|
|
84,235 |
|
|
|
82,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 5
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
47,188 |
|
|
$ |
43,048 |
|
Trade receivables, less allowances for doubtful accounts
of $27,572 in 2009 and $22,624 in 2008 (Note 4) |
|
|
184,739 |
|
|
|
183,569 |
|
Inventories, net (Note 5) |
|
|
390,445 |
|
|
|
330,732 |
|
Deferred income tax asset, net (Note 6) |
|
|
34,760 |
|
|
|
22,258 |
|
Prepaid expenses and other current assets |
|
|
60,838 |
|
|
|
67,110 |
|
|
|
|
|
|
|
|
Total current
assets |
|
|
717,970 |
|
|
|
646,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment at cost (Note 7) |
|
|
3,558,730 |
|
|
|
3,232,673 |
|
Less accumulated depreciation |
|
|
(1,192,204 |
) |
|
|
(1,037,803 |
) |
|
|
|
|
|
|
|
Plant and
equipment, net |
|
|
2,366,526 |
|
|
|
2,194,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (Note 8) |
|
|
1,063,370 |
|
|
|
969,059 |
|
Other intangible assets, net (Note 8) |
|
|
216,070 |
|
|
|
148,998 |
|
Other non-current assets |
|
|
35,601 |
|
|
|
27,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,399,537 |
|
|
$ |
3,987,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable, trade |
|
$ |
156,838 |
|
|
$ |
185,111 |
|
Accrued expenses and other current liabilities (Note 9) |
|
|
264,564 |
|
|
|
288,883 |
|
Current portion of long-term debt (Note 10) |
|
|
11,058 |
|
|
|
40,400 |
|
|
|
|
|
|
|
|
Total current
liabilities |
|
|
432,460 |
|
|
|
514,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion (Note 10) |
|
|
1,750,308 |
|
|
|
1,539,648 |
|
Deferred income tax liability, net (Note 6) |
|
|
565,783 |
|
|
|
439,782 |
|
Other non-current liabilities |
|
|
79,231 |
|
|
|
80,104 |
|
Commitments and contingencies (Note 19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Note 14) |
|
|
|
|
|
|
|
|
Preferred stock, 20,030 shares authorized, no shares issued or
outstanding in 2009 and 2008 |
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, 200,000 shares authorized,
85,542 and 84,076 shares issued in 2009 and 2008, respectively |
|
|
856 |
|
|
|
841 |
|
Capital in excess of par value |
|
|
533,030 |
|
|
|
468,302 |
|
Retained earnings |
|
|
1,198,985 |
|
|
|
983,663 |
|
Accumulated other comprehensive loss |
|
|
(10,753 |
) |
|
|
(4,713 |
) |
Treasury stock, 4,139 and 1,788 common shares at cost in 2009 and 2008, respectively |
|
|
(150,363 |
) |
|
|
(34,757 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,571,755 |
|
|
|
1,413,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
4,399,537 |
|
|
$ |
3,987,264 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 6
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, 2009, 2008 and 2007 |
|
|
|
Shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
Shares of |
|
|
|
|
|
|
Total |
|
|
|
Stock $0.01 |
|
|
Common |
|
|
Excess of |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Treasury |
|
|
Stockholders |
|
(In thousands) |
|
Par Value |
|
|
Stock |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Stock |
|
|
Equity |
|
Balance April 1, 2006 |
|
|
78,569 |
|
|
$ |
786 |
|
|
$ |
289,598 |
|
|
$ |
665,158 |
|
|
$ |
4,751 |
|
|
|
(1,292 |
) |
|
$ |
(13,134 |
) |
|
$ |
947,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustment to retained earnings for
adoption of SAB 108, net of tax (Note 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,161 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154,416 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Net change in fair value of interest rate swap
agreements (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(850 |
) |
|
|
|
|
|
|
|
|
|
|
(850 |
) |
Net tax benefit of other comprehensive income items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
153,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued with connection with stock options
exercised (Note 15) |
|
|
960 |
|
|
|
10 |
|
|
|
15,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,107 |
|
Dividends paid on common stock ($0.28) (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,980 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,980 |
) |
Tax benefit associated with the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
9,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,013 |
|
Shares issued in connection with the
Employee Stock Purchase Plan (Note 15) |
|
|
431 |
|
|
|
3 |
|
|
|
11,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,951 |
|
Expense related to stock-based compensation (Note 15) |
|
|
|
|
|
|
|
|
|
|
15,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,445 |
|
|
|
|
Balance March 31, 2007 |
|
|
79,960 |
|
|
$ |
799 |
|
|
$ |
341,101 |
|
|
$ |
792,433 |
|
|
$ |
4,183 |
|
|
|
(1,292 |
) |
|
$ |
(13,134 |
) |
|
$ |
1,125,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative adjustment to retained earnings for
adoption of FIN 48 (Note 6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
223,348 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,738 |
|
|
|
|
|
|
|
|
|
|
|
4,738 |
|
Net change in fair value of interest rate swap
agreements (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,956 |
) |
|
|
|
|
|
|
|
|
|
|
(20,956 |
) |
Net tax benefit of other comprehensive income items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,322 |
|
|
|
|
|
|
|
|
|
|
|
7,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
214,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued with connection with stock options
exercised (Note 15) |
|
|
1,238 |
|
|
|
13 |
|
|
|
20,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,381 |
|
Dividends paid on common stock ($0.39) (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,828 |
) |
Tax benefit associated with the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
13,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,327 |
|
Shares issued in connection with the
Employee Stock Purchase Plan (Note 15) |
|
|
407 |
|
|
|
4 |
|
|
|
14,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,091 |
|
Expense related to stock-based compensation (Note 15) |
|
|
|
|
|
|
|
|
|
|
15,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,587 |
|
National Welders exchange transaction (Note 13) |
|
|
2,471 |
|
|
|
25 |
|
|
|
63,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,857 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(496 |
) |
|
|
(21,623 |
) |
|
|
(21,623 |
) |
|
|
|
Balance March 31, 2008 |
|
|
84,076 |
|
|
$ |
841 |
|
|
$ |
468,302 |
|
|
$ |
983,663 |
|
|
$ |
(4,713 |
) |
|
|
(1,788 |
) |
|
$ |
(34,757 |
) |
|
$ |
1,413,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
261,088 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,451 |
) |
|
|
|
|
|
|
|
|
|
|
(11,451 |
) |
Net change in fair value of interest rate swap
agreements (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,325 |
|
|
|
|
|
|
|
|
|
|
|
8,325 |
|
Net tax expense of other comprehensive income items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,914 |
) |
|
|
|
|
|
|
|
|
|
|
(2,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
255,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued with connection with stock options
exercised (Note 15) |
|
|
1,027 |
|
|
|
10 |
|
|
|
16,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,188 |
|
Dividends paid on common stock ($0.56) (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,766 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,766 |
) |
Tax benefit associated with the exercise of stock options |
|
|
|
|
|
|
|
|
|
|
11,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,846 |
|
Shares issued in connection with the
Employee Stock Purchase Plan (Note 15) |
|
|
439 |
|
|
|
5 |
|
|
|
16,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,507 |
|
Expense related to stock-based compensation (Note 15) |
|
|
|
|
|
|
|
|
|
|
20,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,202 |
|
Purchase of treasury stock (Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,351 |
) |
|
|
(115,606 |
) |
|
|
(115,606 |
) |
|
|
|
Balance March 31, 2009 |
|
|
85,542 |
|
|
$ |
856 |
|
|
$ |
533,030 |
|
|
$ |
1,198,985 |
|
|
$ |
(10,753 |
) |
|
|
(4,139 |
) |
|
$ |
(150,363 |
) |
|
$ |
1,571,755 |
|
|
|
|
See accompanying notes to consolidated financial statements.
F - 7
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
(In thousands) |
|
2009 |
|
2008 |
|
2007 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
261,088 |
|
|
$ |
223,348 |
|
|
$ |
154,416 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
198,033 |
|
|
|
175,802 |
|
|
|
138,818 |
|
Amortization |
|
|
22,762 |
|
|
|
13,973 |
|
|
|
8,525 |
|
Deferred income taxes |
|
|
103,280 |
|
|
|
74,725 |
|
|
|
51,911 |
|
Loss (gain) on sales of plant and equipment |
|
|
(964 |
) |
|
|
714 |
|
|
|
39 |
|
Minority interest in earnings |
|
|
|
|
|
|
3,230 |
|
|
|
2,845 |
|
Stock-based compensation expense |
|
|
20,635 |
|
|
|
16,629 |
|
|
|
15,445 |
|
Loss on debt extinguishment |
|
|
|
|
|
|
|
|
|
|
12,099 |
|
Changes in assets and liabilities, excluding effects of business
acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Securitization of trade receivables |
|
|
(48,600 |
) |
|
|
95,600 |
|
|
|
20,200 |
|
Trade receivables, net |
|
|
77,209 |
|
|
|
(23,308 |
) |
|
|
(37,687 |
) |
Inventories, net |
|
|
441 |
|
|
|
(37,079 |
) |
|
|
(1,491 |
) |
Prepaid expenses and other current assets |
|
|
4,362 |
|
|
|
1,693 |
|
|
|
(23,326 |
) |
Accounts payable, trade |
|
|
(40,239 |
) |
|
|
8,053 |
|
|
|
(15,163 |
) |
Accrued expenses and other current liabilities |
|
|
(15,097 |
) |
|
|
(749 |
) |
|
|
266 |
|
Other non-current assets |
|
|
(673 |
) |
|
|
(81 |
) |
|
|
1,809 |
|
Other non-current liabilities |
|
|
530 |
|
|
|
(2,624 |
) |
|
|
(2,363 |
) |
|
|
|
Net cash provided by operating activities |
|
|
582,767 |
|
|
|
549,926 |
|
|
|
326,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(351,912 |
) |
|
|
(267,378 |
) |
|
|
(238,274 |
) |
Proceeds from sales of plant and equipment |
|
|
14,360 |
|
|
|
9,345 |
|
|
|
8,685 |
|
Business acquisitions and holdback settlements |
|
|
(273,750 |
) |
|
|
(480,096 |
) |
|
|
(687,892 |
) |
Other, net |
|
|
1,378 |
|
|
|
(1,316 |
) |
|
|
(474 |
) |
|
|
|
Net cash used in investing activities |
|
|
(609,924 |
) |
|
|
(739,445 |
) |
|
|
(917,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
1,364,423 |
|
|
|
1,162,452 |
|
|
|
1,577,967 |
|
Repayment of debt |
|
|
(1,188,675 |
) |
|
|
(953,749 |
) |
|
|
(1,008,186 |
) |
Financing costs |
|
|
(9,201 |
) |
|
|
|
|
|
|
(5,103 |
) |
Premium paid on call of senior subordinated notes |
|
|
|
|
|
|
|
|
|
|
(10,267 |
) |
Minority interest in earnings |
|
|
|
|
|
|
(711 |
) |
|
|
(2,845 |
) |
Purchase of treasury stock |
|
|
(120,219 |
) |
|
|
(17,010 |
) |
|
|
|
|
Proceeds from the exercise of stock options |
|
|
16,188 |
|
|
|
20,381 |
|
|
|
15,107 |
|
Stock issued for the Employee Stock Purchase Plan |
|
|
16,507 |
|
|
|
14,091 |
|
|
|
11,951 |
|
Tax benefit realized from the exercise of stock options |
|
|
11,846 |
|
|
|
13,327 |
|
|
|
9,013 |
|
Dividends paid to stockholders |
|
|
(45,766 |
) |
|
|
(31,828 |
) |
|
|
(21,980 |
) |
Change in cash overdraft |
|
|
(13,806 |
) |
|
|
(317 |
) |
|
|
16,901 |
|
|
|
|
Net cash provided by financing activities |
|
|
31,297 |
|
|
|
206,636 |
|
|
|
582,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH |
|
$ |
4,140 |
|
|
$ |
17,117 |
|
|
$ |
(9,054 |
) |
Cash Beginning of year |
|
|
43,048 |
|
|
|
25,931 |
|
|
|
34,985 |
|
|
|
|
Cash End of year |
|
$ |
47,188 |
|
|
$ |
43,048 |
|
|
$ |
25,931 |
|
|
|
|
For supplemental cash flow disclosures, see Note 22.
See accompanying notes to consolidated financial statements.
F - 8
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Business
Airgas, Inc. and subsidiaries (Airgas or the Company) became a publicly traded company on
the New York Stock Exchange in 1986. Since its inception, the Company has made nearly 400
acquisitions to become the largest U.S. distributor of industrial, medical, and specialty gases
(delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies.
Airgas is also one of the largest U.S. distributors of safety products, the largest U.S. producer
of nitrous oxide and dry ice, the largest liquid carbon dioxide producer in the Southeast, the
fifth largest producer of atmospheric merchant gases in North America, and a leading distributor of
process chemicals, refrigerants, and ammonia products. The Company markets its products to its
diversified customer base through multiple sales channels including branch-based sales
representatives, retail stores, strategic customer account programs, telesales, catalogs, eBusiness
and independent distributors. More than 14,000 employees work in over 1,100 locations including
branches, retail stores, packaged gas fill plants, cylinder testing facilities, specialty gas labs,
production facilities, and distribution centers.
(b) Basis of Presentation
The consolidated financial statements include the accounts of Airgas, Inc. and its
subsidiaries. Intercompany accounts and transactions are eliminated in consolidation.
The Company has made estimates and assumptions relating to the reporting of assets and
liabilities and disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with U.S. generally accepted accounting principles (GAAP). Estimates
are used for, but not limited to, determining the net carrying value of trade receivables,
inventories, plant and equipment, goodwill, other intangible assets, asset retirement obligations,
business and health insurance reserves, loss contingencies and deferred tax assets. Actual results
could differ from those estimates.
(c) Reclassifications and Prior Period Adjustments
The Consolidated Balance Sheet as of March 31, 2008 reflects adjustments that increased
insurance receivables, reflected in the line item Prepaid expenses and other current assets, by
$8 million and also increased business insurance reserves, reflected in the line item Accrued
expenses and other current liabilities, by a corresponding $8 million. The insurance receivable
and corresponding increase in the business insurance reserves at March 31, 2008 represent probable
claim losses in excess of the Companys self-insured retention for which the Company is fully
insured. The adjustments to the March 31, 2008 balances were also reflected in Note 9 Accrued
Expenses and Other Current Liabilities. The Company does not consider these adjustments to be
material to its financial position and the adjustments did not affect its results of operations or
liquidity.
Additionally, certain reclassifications were made to the Consolidated Statements of Earnings
for the years ended March 31, 2008 and 2007, as well as the related notes, to conform to the
current period presentation. These reclassifications principally resulted in increasing cost of
products sold (excluding depreciation) and reducing selling, distribution and
administrative expenses. Additionally, some revenue was reclassified between Gas and Rent and
Hardgoods. These reclassifications were the result of conforming the accounting policies of
National Welders (see Note 13) to the Companys accounting policies and were not material.
Consolidated net sales and net earnings for prior periods were not impacted by the
reclassifications.
As a result of an organizational realignment during the fourth quarter of fiscal 2009, the
March 31, 2008 and 2007 segment information as disclosed in Note 23 was restated to reflect the new
segment structure. The change in business segments had no effect on the Companys consolidated
financial position, results of operations or liquidity.
F - 9
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Cash and Cash Overdraft
On a daily basis, all available funds are swept from depository accounts into a concentration
account and used to repay debt under the Companys revolving credit facilities. Cash principally
represents the balance of customer checks that have not yet cleared through the banking system and
become available to be swept into the concentration account, and deposits made subsequent to the
daily cash sweep. The Company does not fund its disbursement accounts for checks it has written
until the checks are presented to the bank for payment. Cash overdrafts represent the balance of
outstanding checks and are classified with other current liabilities. There are no compensating
balance requirements or other restrictions on the transfer of cash associated with the Companys
depository accounts.
(e) Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts, which includes sales returns, sales
allowances, and bad debts. The allowance adjusts the carrying value of trade receivables and the
subordinated retained interest in trade receivables sold under the trade receivable securitization
agreement for the estimate of accounts that will ultimately not be collected. An allowance for
doubtful accounts is generally established as trade receivables age beyond their due date. As past
due balances age, higher valuation allowances are established lowering the net carrying value of
receivables. The amount of valuation allowance established for each past due period reflects the
Companys historical collections experience and current economic conditions and trends. The
Company also establishes valuation allowances for specific problem accounts and bankruptcies. The
amounts ultimately collected on past due trade receivables are subject to numerous factors
including general economic conditions, the condition of the receivable portfolio assumed in
acquisitions, the financial condition of individual customers, and the terms of reorganization for
accounts exiting bankruptcy. Changes in these conditions impact the Companys collection
experience and may result in the recognition of higher or lower valuation allowances.
(f) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method, average-cost method and last-in, first-out (LIFO) method for approximately
72%, 17% and 11%, respectively, of the inventories at March 31, 2009. Cost is determined using the
FIFO method, average-cost method and LIFO method for approximately 66%, 20% and 14%, respectively,
of the inventories at March 31, 2008.
(g) Plant and Equipment
Plant and equipment are initially stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the related assets. The carrying
values of long-lived assets, including plant and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the recorded value cannot be recovered from the
undiscounted future cash flows. When the book value of an asset exceeds the associated
undiscounted expected future cash flows, it is considered to be potentially impaired and is written
down to fair value, which is determined based on either discounted future cash flows or appraised
values. The Company also leases property, plant and equipment, principally under operating leases.
Rent expense for operating leases, which may have escalating rentals or rent holidays over the term of
the lease, is recorded on a straight-line basis over the lease term.
(h) Goodwill, Other Intangible Assets and Deferred Financing Costs
Goodwill represents the excess of the purchase price of an acquired entity over the amounts
assigned to the assets acquired and liabilities assumed. Goodwill and intangible assets with
indefinite useful lives are tested for
F - 10
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
impairment at least annually. The Company has elected to
perform its annual tests for indications of goodwill and other indefinite lived intangibles impairment as of October
31 of each year.
Other intangible assets primarily include non-competition agreements and customer lists
resulting from business acquisitions. Both non-competition agreements and customer lists are
recorded based on their acquisition date fair value. Non-competition agreements are amortized
using the straight-line method over the term of the agreement. Customer lists are amortized using
the straight-line method over their estimated useful lives, which range from 7 to 17 years. The
Company assesses the recoverability of other intangible assets by determining whether the carrying
value of the intangible asset can be recovered through projected undiscounted future cash flows of
the related business unit.
Financing costs related to the issuance of long-term debt and for the trade receivables
securitization agreement (see Note 4) are deferred and included in other long-term assets.
Deferred financing costs are amortized as interest expense over the term of the related debt
instrument for long-term debt, and are amortized as interest expense over the term of the agreement
for the trade receivables securitization.
(i) Asset Retirement Obligations
The fair value of a liability for an asset retirement obligation is recognized in the period
when the asset is placed in service. The fair value of the liability is estimated using projected
discounted cash flows. In subsequent periods, the retirement obligation is accreted to its future
value, which is the estimate of the obligation at the asset retirement date. When the asset is
placed in service, a corresponding retirement asset equal to the fair value of the retirement
obligation is also recorded as part of the carrying amount of the related long-lived asset and
depreciated over the assets useful life. The majority of the Companys asset retirement
obligations are related to the restoration costs associated with returning bulk tanks sites to
their original condition upon termination of long-term leases or supply agreements. The Companys
asset retirement obligations totaled $10.2 million and $9.3 million at March 31, 2009 and 2008,
respectively.
(j) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation and other
sources are recorded when it is probable that a liability has been incurred and the amount of the
claim, assessment or damages can be reasonably estimated.
The Company maintains business insurance programs with self-insured retention, which covers
workers compensation, business automobile and general liability claims. The Company accrues
estimated losses using actuarial models and assumptions based on historical loss experience. The
actuarial calculations used to estimate business insurance reserves are based on numerous
assumptions, some of which are subjective. The Company will adjust its business insurance
reserves, if necessary, in the event future loss experience differs from historical loss patterns.
The Company maintains a self-insured health benefits plan, which provides medical benefits to
employees electing coverage under the plan. The Company maintains a reserve for incurred but not
reported medical claims and claim development. The reserve is an estimate based on historical experience and other
assumptions, some of which are subjective. The Company will adjust its self-insured medical
benefits reserve as the Companys loss experience changes due to medical inflation, changes in the
number of plan participants and an aging employee base.
F - 11
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences and
operating loss carryforwards are expected to be recovered, settled or utilized. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
The Company recognizes the benefit of an income tax position only if it is more likely than
not (greater than 50%) that the tax position will be sustained upon tax examination, based solely
on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax
benefits recognized are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. Additionally, the Company accrues interest
and related penalties, if applicable, on all tax exposures for which reserves have been established
consistent with jurisdictional tax laws. Interest and penalties are classified as income tax
expense in the Consolidated Statements of Earnings.
(l) Foreign Currency Translation
The functional currency of the Companys foreign operations is the applicable local currency.
The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue and expense
accounts using average exchange rates during each reporting period. The gains or losses resulting
from such translations are included in stockholders equity as a component of Accumulated other
comprehensive income (loss). Gains and losses arising from foreign currency transactions are
reflected in the Consolidated Statements of Earnings as incurred.
(m) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of trade receivables. Concentrations of credit risk are limited due to the
Companys large number of customers and their dispersion across many industries primarily
throughout North America. Credit terms granted to customers are generally net 30 days.
(n) Financial Instruments
In managing interest rate risk exposure, the Company enters into interest rate swap
agreements. An interest rate swap is a contractual exchange of interest payments between two
parties. A standard interest rate swap involves the payment of a fixed rate times a notional
amount by one party in exchange for a floating rate times the same notional amount from the other
party. As interest rates change, the difference to be paid or received is accrued and recognized
as interest expense or income over the life of the agreement. These instruments are not entered
into for trading purposes. Counterparties to the Companys interest rate swap agreements are major
financial institutions. In accordance with Statement of Financial Accounting Standards (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended, (SFAS 133) the Company
recognizes interest rate swap agreements on the balance sheet at fair value. The interest rate
swap agreements are marked to market with changes in fair value recognized in either accumulated
other comprehensive income (loss) or in the carrying value of the hedged portions of fixed rate
debt, as applicable.
The
carrying value of cash, trade receivables exclusive of the subordinated retained interest,
other current receivables, trade payables and other current liabilities (e.g., deposit
liabilities, cash overdrafts, etc.) approximate fair value based
on the short-term maturity of these financial instruments.
F - 12
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(o) Revenue Recognition
Revenue from sales of gases and hardgoods products is recognized when the product is shipped,
a sales price is fixed or determinable and collectability is reasonably assured. Rental fees on
cylinders, cryogenic liquid containers, bulk gas storage tanks and other equipment are recognized
when earned. For contracts that contain multiple deliverables, principally product supply
agreements for gases and container rental, revenue is recognized for each deliverable based on its
objectively determinable fair value. For cylinder lease agreements in which rental fees are
collected in advance, revenues are deferred and recognized over the term of the lease agreement.
Amounts billed for sales tax, value added tax or other transactional taxes imposed on revenue
producing transactions are presented on a net basis and are not recognized as revenue.
(p) Cost of Products Sold (Excluding Depreciation)
Cost of products sold (excluding depreciation) for the Distribution business segment principally consists of direct
material costs, direct labor, manufacturing overhead and freight-in for bulk gas purchases and
hardgoods (welding supplies and equipment, safety products and supplies). Maintenance costs
associated with cylinders, cryogenic liquid containers and bulk tanks are also reflected in cost of
products sold.
Cost of products sold (excluding depreciation) for the All Other Operations business segment principally consists of direct
material costs, direct labor and freight-in for bulk gas purchases.
(q) Selling, Distribution and Administrative Expenses
Selling, distribution and administrative expenses consist of labor and overhead associated
with the purchasing, marketing and distribution of the Companys products, as well as costs
associated with a variety of administrative functions such as legal, treasury, accounting and tax,
and facility-related expenses.
(r) Depreciation
The Company determines depreciation expense using the straight-line method based on the
estimated useful lives of the assets. The Company uses accelerated depreciation methods for tax
purposes where appropriate. Depreciation expense is recognized on the Companys property, plant
and equipment in the Consolidated Statement of Earnings line item Depreciation.
(s) Shipping and Handling Fees and Distribution Costs
The Company recognizes delivery and freight charges to customers as elements of net sales.
Costs of third-party freight are recognized as cost of products sold (excluding depreciation). The majority of the costs
associated with the distribution of the Companys products, which include labor and overhead
associated with filling, warehousing and delivery by Company vehicles, are reflected in selling,
distribution and administrative expenses and were $712 million, $643 million and $497 million for
the fiscal years ended March 31, 2009, 2008 and 2007, respectively. The Company conducts multiple
operations out of the same facilities and does not allocate facility-related expenses to each
operational function. Accordingly, there is no facility-related expense in the distribution costs
disclosed above. Depreciation expense associated with the Companys delivery fleet of $18 million,
$15 million and $11 million was recognized in depreciation for the fiscal years ended March 31, 2009, 2008 and 2007,
respectively.
F - 13
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACCOUNTING AND DISCLOSURE CHANGES
(a) Recently adopted accounting pronouncements
SFAS 157
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair
Value Measurements (SFAS 157), effective for financial statements issued for fiscal years
beginning after November 15, 2007. SFAS 157 did not require any new fair value measurements, but
rather replaces multiple existing definitions of fair value with a single definition, establishes a
consistent framework for measuring fair value and expands financial statement disclosures regarding
fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS
157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 until
fiscal years beginning after November 15, 2008 for non-financial assets and liabilities that are
not recognized or disclosed at fair value in the financial statements on a recurring basis. The
Company adopted SFAS 157 for financial assets and liabilities on April 1, 2008 (see Note 12). The
adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the
Companys financial position or results of operations. Additionally, the Company will adopt SFAS
157 for non-financial assets and liabilities that are not recognized or disclosed at fair value in
the financial statements on a recurring basis on April 1, 2009. The adoption of the deferred
portion of SFAS 157 is not expected to have a material impact on the consolidated financial
statements.
SFAS 159
Effective April 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which provides companies with an option to report selected
financial assets and liabilities at fair value in an attempt to reduce both the complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. The Company did not elect to re-measure any existing financial
assets or liabilities under the provisions of this statement.
SFAS 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161), which enhances the requirements under SFAS 133. SFAS 161 requires
enhanced disclosures about an entitys derivative and hedging activities and how they affect an
entitys financial position, financial performance and cash flows. SFAS 161 is effective for
fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161
on January 1, 2009 see Note 11 for required disclosures. The adoption of SFAS 161 did not have
an impact on the Companys financial position, results of operations or liquidity.
SFAS 162
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements that
are presented in conformity with generally accepted accounting principles in the United States. The Company adopted SFAS 162 on November 15,
2008. The adoption of SFAS 162 did not have an impact on the Companys financial position, results
of operations or liquidity.
SAB 108
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should be considered in quantifying a
current year misstatement. Prior to SAB 108, either a balance sheet approach (iron curtain) or
an income statement approach (rollover) was
F - 14
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
utilized to quantify the materiality of
misstatements. Although either approach could result in a different conclusion about materiality,
both approaches were acceptable. Under SAB 108, both the balance sheet and the income statement
approach must be considered when evaluating the materiality of misstatements. The Company adopted SAB 108 as of March 31, 2007,
as required. The cumulative effect adjustment, net of tax, related to the adoption of SAB 108 was $5.2 million, and was
recorded to retained earnings as of April 1, 2006.
(b) Accounting pronouncements issued but not yet adopted
SFAS 141R
In December 2007,
the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R), which replaces SFAS No. 141
of the same title (SFAS 141). This statement is effective for fiscal years beginning after December 15, 2008 and prohibits early adoption. SFAS 141R will significantly
change the way the Company accounts for business combinations. The Company has historically pursued new business opportunities through acquisitions and intends to maintain this strategy for the foreseeable future. Accordingly, the Company expects the adoption
of SFAS 141R to impact its operating results when significant acquisitions are completed and during the subsequent acquisition measurement periods when the fair values for the individual assets and liabilities acquired are determined. The
principles contained in SFAS 141R are, in a number of ways, very different from those previously applied to business combinations.
Upon adoption, the impact of SFAS 141R on the consolidated financial statements for future acquisitions may be driven by, among other things, recognizing the direct costs of acquisitions as period costs when incurred and recasting previously issued consolidated financial
statements as the provisional values assigned to the assets and liabilities acquired are trued-up to their acquisition date fair values.
The Company will adopt SFAS 141R for its fiscal year beginning April 1, 2009.
F - 15
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SFAS 160
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (SFAS 160), which amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements. SFAS 160 establishes accounting and reporting standards that require (1)
non-controlling interests held by non-parent parties be clearly identified and presented in the
consolidated statement of financial position within equity, separate from the parents equity, and
(2) the amount of consolidated net income attributable to the parent and to the non-controlling
interests be clearly presented on the face of the consolidated statement of income. SFAS 160 also
requires consistent reporting of any changes to the parents ownership interest while retaining a
controlling financial interest, as well as specific guidelines over how to treat the
deconsolidation of controlling interests and any applicable gains or losses. SFAS 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008 and is to be applied prospectively, except for the presentation and disclosure requirements of
SFAS 160, which are to be applied retrospectively for all periods presented. The Company is
currently assessing the impact of SFAS 160 on the consolidated financial statements. Although all
of the Companys subsidiaries are currently 100% owned subsidiaries, the retrospective presentation
and disclosure requirements will require previous non-controlling interests to be presented and
disclosed for prior periods in the consolidated financial statements under the requirements of SFAS
160.
FSP 142-3
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3), which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP 142-3 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008 with early adoption prohibited. The Company will adopt FSP 142-3 in conjunction with SFAS
141R to improve consistency between the useful life of intangible assets under SFAS 142 and the
period of expected cash flows used to measure fair value at acquisition under SFAS 141R. The
Company does not expect adoption of FSP 142-3 to have a material impact on the consolidated
financial statements.
FSP 141R-1
In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141R-1), which
amends SFAS 141R regarding the initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies in a business
combination. FSP 141R-1 carries forward the general requirements of SFAS 141 for acquired
contingencies in a business combination, yet encourages greater use of fair value as defined in
SFAS 157 when determinable. FSP 141R-1 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 with early
adoption prohibited. The Company will adopt FSP 141R-1 in conjunction with SFAS 141R and does not
expect the adoption to have a material impact on the consolidated financial statements.
FSP 107-1 and APB 28-1
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (FSP 107-1), which requires disclosures about the fair value of
financial instruments for interim reporting periods as well as in annual financial
statements. Currently, these disclosures are only required in the Companys consolidated annual
financial statements. FSP 107-1 is effective for interim reporting periods ending after June 15,
2009, with early adoption permitted under specified circumstances. The Company will adopt FSP 107-1
for the interim reporting period ending June 30, 2009, and does not expect the adoption to have a
material impact on the consolidated financial statements.
F - 16
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EITF 08-7
In November 2008, the FASB ratified the consensus reached in Emerging Issues Task Force
(EITF) Issue No. 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7
clarifies how to account for acquired defensive intangible assets subsequent to initial measurement
under SFAS 141R that an entity does not intend to actively use but does intend to hold to prevent
others from obtaining access to the asset. EITF 08-7 is effective for fiscal years beginning after
December 15, 2008, along with SFAS 141R. The Company will adopt EITF 08-7 in conjunction with SFAS
141R and does not expect the adoption of EITF 08-7 to have a material impact on its consolidated
results of operations, financial position or cash flows.
(3) ACQUISITIONS
Acquisitions have been recorded using the purchase method of accounting and,
accordingly, results of the acquired companies operations have been included in the
Companys consolidated financial statements since the effective date of each respective
acquisition.
Fiscal 2009
During fiscal 2009, the Company purchased 14 businesses. The largest of these
businesses, acquired on July 31, 2008, was Refron, Inc., a New York-based distributor of
refrigerant gases with historical annual sales of $93 million. With the acquisition of
Refron, Inc., the Company formed Airgas Refrigerants, Inc. and merged the newly acquired
operations with its existing refrigerant gas business. Airgas Refrigerants, Inc. is
reflected in the All Other Operations business segment.
Other significant acquisitions included Oilind Safety, an Arizona-based provider of
industrial safety services offering a full array of rental equipment, safety supplies and
technical support and training with historical annual sales of $23 million; A&N Plant, a
European-based supplier of positioning and welding equipment for sale and rent with
historical annual sales of $20 million; and Gordon Woods Industrial Welding Supply, an
industrial gas and welding supply distributor with ten locations in the northern Los
Angeles area with historical annual sales of $25 million. These acquisitions were merged
into the operations of the Distribution business segment.
The 14 business acquired in fiscal 2009 had aggregate historical annual revenues of
approximately $205 million. A total of $274 million in cash was paid for these businesses,
including the settlement of acquisition-related holdbacks. The Company acquired the
businesses to expand its geographic coverage and strengthen its national network of
branch-store locations, as well as strengthen its refrigerant gas, safety product
offerings, and international presence.
In connection with certain acquisitions, the Company is required to make future
payments to sellers based on future earnings of the acquired business in excess of
predetermined amounts. Amounts payable under contingent payment terms continue through
2019 and are limited to $9.9 million, the majority of which, if required, will be
capitalized as additional costs of the acquisitions.
Purchase Price Allocation
The Company negotiated the respective purchase prices of the businesses based on the
expected cash flows to be derived from their operations after integration into the
Companys existing distribution network. The purchase price of each acquired business was
allocated to the assets acquired and liabilities assumed based on their estimated fair
values as of the date of each respective acquisition. Certain
purchase price allocations continue to be based on preliminary
estimates of fair value and are subject to revision as the Company finalizes appraisals and other analyses.
The table below summarizes the allocation of the purchase price of all fiscal 2009
acquisitions by business segment, as well as adjustments related to prior year
acquisitions. The credit of $46 thousand in the All Other Operations business segment is
attributable to a reduction of $1.43 million related to
F - 17
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plant and equipment adjustments to
fiscal 2008 acquisitions, net of $1.39 million of plant and equipment acquired in fiscal
2009 acquisitions. Of the total goodwill in the table below, $84 million is deductible
for income tax purposes. Additionally, approximately $85 million of the $91 million
allocated to other intangible assets represents value assigned to customer relationships,
with the remaining $6 million representing non-competition agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
Distribution |
|
|
Operations |
|
|
|
|
(In thousands) |
|
Business Segment |
|
|
Business Segment |
|
|
Total |
|
Current assets, net |
|
$ |
22,611 |
|
|
$ |
72,460 |
|
|
$ |
95,071 |
|
Property and equipment |
|
|
32,380 |
|
|
|
(46 |
) |
|
|
32,334 |
|
Goodwill |
|
|
34,138 |
|
|
|
65,228 |
|
|
|
99,366 |
|
Other intangible assets |
|
|
65,344 |
|
|
|
25,662 |
|
|
|
91,006 |
|
Current liabilities |
|
|
(15,984 |
) |
|
|
(7,660 |
) |
|
|
(23,644 |
) |
Long-term liabilities |
|
|
(17,159 |
) |
|
|
(3,224 |
) |
|
|
(20,383 |
) |
|
|
|
|
|
|
|
|
Total cash consideration |
|
$ |
121,330 |
|
|
$ |
152,420 |
|
|
$ |
273,750 |
|
|
|
|
|
|
|
|
|
Pro Forma Operating Results
The pro forma results are prepared from financial information obtained from the
sellers of the businesses as well as information obtained during the due diligence process
associated with the acquisitions. Pro forma adjustments to the historic financial
information of the businesses acquired are limited to those related to the Companys
stepped-up basis in acquired assets and adjustments to reflect the Companys borrowing and
tax rates. The pro forma operating results do not include benefits associated with
anticipated synergies related to combining the businesses or integration costs.
The following represents unaudited pro forma operating results as if the fiscal 2009
and 2008 acquisitions had occurred on April 1, 2007. The pro forma operating results were
prepared for comparative purposes only and do not purport to be indicative of what would
have occurred had the
acquisitions been made as of April 1, 2007 or of results that may occur in the future.
|
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
|
Years Ended March 31, |
|
(In thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
4,433,158 |
|
|
$ |
4,406,837 |
|
Net earnings |
|
|
261,725 |
|
|
|
222,442 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.12 |
|
|
$ |
2.65 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 |
|
|
|
|
|
|
|
|
During fiscal 2008, the Company purchased 18 businesses, including 15 associated with the
distribution of packaged gases and related hardgoods products. The largest of these acquisitions
was the June 30, 2007 acquisition of most of the U.S. packaged gas operations (Linde Packaged
Gas) of Linde AG (Linde) for $310 million in cash. The operations acquired included 130
locations in 18 states, with more than 1,400 employees, and generated approximately $346 million in
revenues for the year ended December 31, 2006. The Linde Packaged Gas business was merged into the
operations of the Distribution business segment. A total of
F - 18
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$162 million in cash was paid for the
14 other acquired packaged gas distributors and the settlement of holdback liabilities related to
prior year acquisitions. These packaged gas distributors had aggregate historical annual revenues
of approximately $150 million. The remaining three acquisitions were purchased for $8 million in
cash and had combined historical annual revenues of approximately $13 million. These acquisitions
are included in the All Other Operations business segment. The Company acquired the 18 businesses
to expand its geographic coverage and strengthen its national network of branch store locations.
Purchase Price Allocation
The aggregate cash paid for the fiscal 2008 acquisitions and the settlement of holdback
liabilities associated with certain prior year acquisitions was $480 million. The Company
negotiated the respective purchase prices of the businesses based on the expected cash flows to be
derived from their operations after integration into the Companys existing distribution network.
The purchase price of each acquired business was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the date of each respective acquisition.
The table below summarizes the allocation of the purchase price of all fiscal 2008
acquisitions by business segment as well as adjustments related to prior year acquisitions. Of the
total goodwill in the table below, $93 million is deductible for income tax purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linde Acquisitions |
|
|
Remaining Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
Distribution |
|
|
Distribution |
|
|
Operations |
|
|
|
|
(In thousands) |
|
Business Segment |
|
|
Business Segment |
|
|
Business Segment |
|
|
Total |
|
Current assets, net |
|
$ |
85,227 |
|
|
$ |
31,171 |
|
|
$ |
1,341 |
|
|
$ |
117,739 |
|
Property and equipment |
|
|
153,756 |
|
|
|
68,272 |
|
|
|
4,583 |
|
|
|
226,611 |
|
Goodwill |
|
|
54,714 |
|
|
|
77,909 |
|
|
|
1,584 |
|
|
|
134,207 |
|
Other intangible assets |
|
|
73,609 |
|
|
|
23,426 |
|
|
|
3,465 |
|
|
|
100,500 |
|
Current liabilities |
|
|
(47,313 |
) |
|
|
(15,490 |
) |
|
|
(2,306 |
) |
|
|
(65,109 |
) |
Long-term liabilities |
|
|
(10,003 |
) |
|
|
(22,903 |
) |
|
|
(946 |
) |
|
|
(33,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash consideration |
|
$ |
309,990 |
|
|
$ |
162,385 |
|
|
$ |
7,721 |
|
|
$ |
480,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the Companys plan to integrate the Linde Packaged Gas business into its
regional company structure, the Company recorded accruals primarily associated with
one-time severance benefits to acquired employees who were involuntarily terminated,
facility exit related costs associated with exiting certain acquired facilities that
overlap with the Companys existing operations and a multi-employer pension plan withdrawal
liability associated with exiting certain union contracts. Payments related to these
severance accruals will continue into early fiscal 2010. Of the $3.6 million remaining
facility exit accrual, $2.9 million relates to the former Linde corporate headquarters.
Other integration accruals of $4.6 million consist primarily of the multi-employer pension
accrual, which is expected to be paid during fiscal 2010 and 2011.
The table below summarizes the liabilities established through acquisition accounting,
adjustments to these liabilities based on revisions to the Companys integration plan and
the related payments made during fiscal 2008 and 2009.
F - 19
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Severance |
|
|
Facility Exit |
|
|
Integration |
|
|
Integration |
|
(In thousands) |
|
Accruals |
|
|
Accruals |
|
|
Accruals |
|
|
Accruals |
|
Amounts originally included in acquisition
accounting |
|
$ |
5,265 |
|
|
$ |
5,700 |
|
|
$ |
|
|
|
$ |
10,965 |
|
Payments |
|
|
(2,781 |
) |
|
|
(873 |
) |
|
|
(962 |
) |
|
|
(4,616 |
) |
Adjustments |
|
|
892 |
|
|
|
369 |
|
|
|
6,213 |
|
|
|
7,474 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
3,376 |
|
|
|
5,196 |
|
|
|
5,251 |
|
|
|
13,823 |
|
Payments |
|
|
(2,577 |
) |
|
|
(1,637 |
) |
|
|
(839 |
) |
|
|
(5,053 |
) |
Adjustments |
|
|
(640 |
) |
|
|
19 |
|
|
|
221 |
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
159 |
|
|
$ |
3,578 |
|
|
$ |
4,633 |
|
|
$ |
8,370 |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Operating Results
The following represents unaudited pro forma operating results as if the fiscal 2008
and 2007 acquisitions had occurred on April 1, 2006. The pro forma operating results were
prepared for
comparative purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made as of April 1, 2006 or of results that may occur in the
future.
|
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
Years Ended March 31, |
(In thousands, except per share amounts) |
|
2008 |
|
2007 |
Net sales |
|
$ |
4,205,464 |
|
|
$ |
3,950,425 |
|
Net earnings |
|
|
224,303 |
|
|
|
160,283 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.67 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
During fiscal 2007, the Company purchased 13 businesses. The largest of the
acquisitions was the U.S. bulk gas business of Linde (Linde Bulk Gas), purchased March
9, 2007. The acquisition included eight air separation units and related bulk gas
business with about 300 employees and approximate historical annual revenues of $176
million, net of sales to the Company. The acquired business was renamed Airgas Merchant
Gases and now manages production, distribution and administrative functions for the air
separation plants. In connection with the transaction, most of the acquired bulk gas
customers and related service equipment were transferred to existing Distribution business
units. Airgas Merchant Gases is reported in the Distribution business segment and
operates principally as an internal supplier to the other business units within the
Distribution business segment. Included in the All Other Operations business segment is
the refrigerant products and services business acquired from CFC Refimax, LLC, with
historical annual revenues of approximately $25 million. The acquisition was integrated
into the operations of Airgas Specialty Products and later transferred to the newly formed
Airgas Refrigerants. The remaining fiscal 2007 acquisitions, with historical annual
revenues of approximately $142 million, were assumed by regional operating companies in
the Distribution business segment. The Company acquired the businesses to expand its
geographic coverage and strengthen its national network of branch store locations.
F - 20
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Price Allocation
The aggregate cash paid for the fiscal 2007 acquisitions and the settlement of
holdback liabilities
associated with certain prior year acquisitions was $688 million.
The Company negotiated the respective purchase prices of the businesses based on the
expected cash flows to be derived from their operations after integration into the
Company. The purchase price of each acquired business was allocated to the assets
acquired and liabilities assumed based on their estimated fair values as of the dates of
each respective acquisition. The purchase price allocations were based on preliminary
estimates of fair value and were subject to revision as the Company finalized appraisals
and other analyses. Goodwill associated with the fiscal 2007 acquisitions is deductible
for income tax purposes. The table below summarizes the allocation of purchase price of
all fiscal 2007 acquisitions as well as
adjustments related to prior year acquisitions. Transaction costs of approximately $5
million associated with the Linde Bulk Gas acquisition are reflected in current
liabilities below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Acquisitions |
|
|
|
|
|
|
Linde Acquisition |
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
Distribution |
|
|
Distribution |
|
|
Operations |
|
|
|
|
(In thousands) |
|
Business Segment |
|
|
Business Segment |
|
|
Business Segment |
|
|
Total |
|
Current assets, net |
|
$ |
26,924 |
|
|
$ |
25,839 |
|
|
$ |
10,600 |
|
|
$ |
63,363 |
|
Property and equipment |
|
|
302,388 |
|
|
|
66,248 |
|
|
|
1,977 |
|
|
|
370,613 |
|
Goodwill |
|
|
166,920 |
|
|
|
73,784 |
|
|
|
19,890 |
|
|
|
260,594 |
|
Other intangible assets |
|
|
16,700 |
|
|
|
21,842 |
|
|
|
6,000 |
|
|
|
44,542 |
|
Current liabilities |
|
|
(16,254 |
) |
|
|
(19,484 |
) |
|
|
(3,555 |
) |
|
|
(39,293 |
) |
Long-term liabilities |
|
|
(1,868 |
) |
|
|
(7,978 |
) |
|
|
(2,081 |
) |
|
|
(11,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash consideration |
|
$ |
494,810 |
|
|
$ |
160,251 |
|
|
$ |
32,831 |
|
|
$ |
687,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) TRADE RECEIVABLES SECURITIZATION
The Company participates in a securitization agreement (the Agreement) with three commercial
banks to which it sells qualifying trade receivables on a revolving basis. The maximum amount of
the facility is $345 million ($360 million at March 31, 2008). The size of the facility was
reduced from $360 million to $345 million in March 2009, due to the elimination of a $15 million
subordinated funding tranche, which was previously part of the facility. The Agreement expires in
March 2010. The Company expects continued availability under the Agreement until it expires in
March 2010 and under similar agreements thereafter. Given the contraction of the securitized asset
market in the current credit environment, the Company is evaluating the current arrangement with
the banks and will evaluate this and other financing alternatives in fiscal 2010. Based on the
characteristics of its receivable pool, the Company believes that trade receivable securitization
will continue to be an attractive source of funds. In the event such source of funding was
unavailable or reduced, the Company believes that it would be able to secure an alternative source
of funds. During the year ended March 31, 2009, the Company sold approximately $4.0 billion of
trade receivables and remitted to bank conduits, pursuant to a servicing agreement, approximately
$4.0 billion in collections on those receivables. The amount of receivables sold under the
Agreement was $311 million at March 31, 2009 and $360 million at March 31, 2008. The Agreement
contains customary events of termination, including standard cross default provisions with respect
to outstanding debt.
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 Agreement, 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
F - 21
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and market
rates. The Company retains a subordinated interest in the receivables sold, which is recorded at
the receivables previous carrying value. Accordingly, the Company is exposed to credit risk
associated with its retained interest in the receivables. The Company is not exposed to interest rate risk due to the
short-term nature of the receivables and their general collectability.
Subordinated retained interests of approximately $148 million, net of an allowance for
doubtful accounts of $26.4 million, and $164 million, net of an allowance for doubtful accounts of
$21.9 million, are included in trade receivables in the accompanying Consolidated Balance
Sheets at March 31, 2009 and 2008, respectively. At March 31, 2009 and 2008, approximately 6.4%
and 9.2%, respectively, of the accounts included in the retained interest were delinquent, as
defined under the Agreement. Credit losses for the years ended March 31, 2009 and 2008 were $22
million and $14 million, respectively. On a monthly basis, management calculates the fair value of
the retained interest based on managements best estimate of the undiscounted expected future cash
collections on the receivables. Changes in the fair value are recognized as bad debt expense.
Actual cash collections may differ from these estimates and would directly affect the fair value of
the retained interest. In accordance with the servicing agreement, the Company continues 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. Accordingly, the
net servicing asset is immaterial. The Company does not provide any financial guarantees of the
bank conduits obligations.
(5) INVENTORIES, NET
Inventories, net, consist of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Hardgoods |
|
$ |
249,125 |
|
|
$ |
275,611 |
|
Gases |
|
|
141,320 |
|
|
|
55,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
390,445 |
|
|
$ |
330,732 |
|
|
|
|
|
|
|
|
Hardgoods inventories determined using the LIFO inventory method totaled $46 million at March
31, 2009 and $50 million at March 31, 2008. The balance of the hardgoods inventories is valued
using the FIFO and average-cost inventory methods. If the hardgoods inventories valued under the
LIFO method had been valued using the FIFO method, the carrying value of hardgoods inventories
would have been $10.4 million higher at March 31, 2009 and $8.5 million higher at March 31, 2008.
Substantially all of the inventories are finished goods. The increase in gas inventories was
primarily due to the acquisition of Refron, Inc. (see Note 3).
(6) INCOME TAXES
Earnings before income taxes and minority interest were derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
United States |
|
$ |
419,377 |
|
|
$ |
358,381 |
|
|
$ |
246,699 |
|
Foreign |
|
|
9,976 |
|
|
|
12,381 |
|
|
|
10,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
429,353 |
|
|
$ |
370,762 |
|
|
$ |
257,144 |
|
|
|
|
|
|
|
|
|
|
|
F - 22
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
52,562 |
|
|
$ |
60,221 |
|
|
$ |
41,760 |
|
Foreign |
|
|
2,658 |
|
|
|
3,718 |
|
|
|
2,725 |
|
State |
|
|
9,765 |
|
|
|
5,520 |
|
|
|
3,487 |
|
|
|
|
|
|
|
|
|
|
|
|
64,985 |
|
|
|
69,459 |
|
|
|
47,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
87,751 |
|
|
|
62,351 |
|
|
|
46,440 |
|
Foreign |
|
|
562 |
|
|
|
484 |
|
|
|
491 |
|
State |
|
|
14,967 |
|
|
|
11,890 |
|
|
|
4,980 |
|
|
|
|
|
|
|
|
|
|
|
|
103,280 |
|
|
|
74,725 |
|
|
|
51,911 |
|
|
|
|
|
|
|
|
|
|
|
$ |
168,265 |
|
|
$ |
144,184 |
|
|
$ |
99,883 |
|
|
|
|
|
|
|
|
|
Significant differences between taxes computed at the federal statutory rate and the provision for
income taxes were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Taxes at U.S. federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit |
|
|
3.6 |
% |
|
|
3.3 |
% |
|
|
2.9 |
% |
Stock-based compensation expense |
|
|
0.3 |
% |
|
|
0.3 |
% |
|
|
0.5 |
% |
Change in state tax law |
|
|
0.1 |
% |
|
|
(0.3 |
%) |
|
|
(0.8 |
%) |
Other, net |
|
|
0.2 |
% |
|
|
0.6 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.2 |
% |
|
|
38.9 |
% |
|
|
38.8 |
% |
|
|
|
|
|
|
|
|
F - 23
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of cumulative temporary differences and carryforwards that gave rise to the
significant portions of the deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
17,190 |
|
|
$ |
10,881 |
|
Accounts receivable
|
|
|
368 |
|
|
|
(1,379 |
) |
Deferred rental income |
|
|
17,198 |
|
|
|
14,480 |
|
Insurance reserves |
|
|
14,087 |
|
|
|
9,864 |
|
Litigation settlement and other reserves |
|
|
1,721 |
|
|
|
1,634 |
|
Asset retirement obligations |
|
|
3,766 |
|
|
|
3,513 |
|
Stock based compensation |
|
|
13,555 |
|
|
|
8,801 |
|
Other |
|
|
15,707 |
|
|
|
16,011 |
|
Net operating loss carryforwards |
|
|
20,240 |
|
|
|
20,424 |
|
Valuation allowance |
|
|
(6,211 |
) |
|
|
(5,098 |
) |
|
|
|
|
|
|
|
|
|
97,621 |
|
|
|
79,131 |
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Plant and equipment |
|
|
(517,225 |
) |
|
|
(414,961 |
) |
Intangible assets |
|
|
(94,123 |
) |
|
|
(66,211 |
) |
Other |
|
|
(17,296 |
) |
|
|
(15,483 |
) |
|
|
|
|
|
|
|
|
|
(628,644 |
) |
|
|
(496,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(531,023 |
) |
|
$ |
(417,524 |
) |
|
|
|
|
|
|
Current deferred tax assets and current deferred tax liabilities have been netted for
presentation purposes. Non-current deferred tax assets and non-current deferred tax liabilities
have also been netted. Deferred tax assets and liabilities are reflected in the Companys
consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Current deferred tax asset, net |
|
$ |
34,760 |
|
|
$ |
22,258 |
|
Non-current deferred tax liability, net |
|
|
(565,783 |
) |
|
|
(439,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(531,023 |
) |
|
$ |
(417,524 |
) |
|
|
|
|
|
|
|
The Company has recorded tax benefits amounting to $11.8 million, $13.3 million and $9.0
million in the years ended March 31, 2009, 2008 and 2007 respectively, resulting from the exercise
of stock options. This benefit has been recorded in capital in excess of par value.
The Company has recorded deferred tax assets related to the expected future tax benefits of
net operating losses of $20.2 million and $20.4 million as of March 31, 2009 and 2008,
respectively. All federal loss carryforwards recorded in fiscal 2005 and 2006 were utilized in
fiscal 2007. State loss carryforwards expire at various times through 2029.
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences and carryforward deferred tax assets
become deductible or utilized. Management considers the reversal of deferred tax liabilities and
projected future taxable income in making this assessment.
Based upon the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets reverse, at March 31, 2009, management believes it
is more likely than not that the
F - 24
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company will realize the benefits of these deductible differences,
net of the existing valuation allowances. Valuation allowances primarily relate to certain state
net operating loss carryforwards. In fiscal 2009, the Company revised its estimates of the
realizability of certain tax benefits associated with state net operating loss carryforwards.
Those revisions, along with changes due to the realization and expiration of net operating loss
carryforwards, resulted in a $1.1 million increase in the related valuation allowance at March 31,
2009.
U.S. income taxes have not been provided on approximately $57 million of undistributed
earnings of non-U.S. subsidiaries because it is the Companys intention to continue to reinvest
these earnings in those subsidiaries to support their growth. Due to the timing and circumstances
of repatriation of such earnings, if any, it is not practicable to determine the unrecognized
deferred tax liability relating to such amounts.
Effective
April 1, 2007, the Company adopted FASB Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which provides guidance on how a company should recognize,
measure and disclose in its financial statements uncertain income tax positions that a company has
taken or expects to take on a tax return. Unrecognized tax benefits represent income tax positions
taken on income tax returns that have not been recognized in the consolidated financial statements.
The adoption of FIN 48 in fiscal 2008 resulted in the Company recording a $290 thousand
incremental liability for unrecognized tax benefits and a corresponding reduction in retained
earnings.
As of March 31, 2009, the Company has unrecognized tax benefits of approximately $12 million,
which has been recorded as a non-current liability, and a related $4 million tax asset recorded in
other non-current assets. If recognized, all of the unrecognized tax benefits and related interest
and penalties would reduce tax expense. The Company does not anticipate significant changes in the
amount of unrecognized income tax benefits over the next year.
A reconciliation of the beginning and ending
amount of unrecognized income tax benefits, excluding potential interest and penalties associated with uncertain tax positions, is as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
Unrecognized income tax benefits as of April 1, 2008 |
|
$ |
6,963 |
|
Additions for tax positions of prior years |
|
|
518 |
|
Additions for current year tax positions |
|
|
1,196 |
|
Reductions for settlements with taxing authorities |
|
|
(175 |
) |
Reductions as a result of expiration of applicable statutes of limitations |
|
|
(93 |
) |
|
|
|
|
Unrecognized income tax benefits as of March 31, 2009 |
|
$ |
8,409 |
|
|
|
|
|
Interest and penalties of $800 thousand were recognized for the year ended March 31, 2009 and
were classified as income tax expense in the consolidated financial statements. Consistent with
past practice, the Company will continue to record interest and penalties associated with uncertain
tax positions in income tax expense.
The Company files income tax returns in the United States and various foreign jurisdictions.
The Company also files income tax returns in every state which imposes a corporate income tax. The
Company is not under examination by the IRS or in any significant foreign, state and local tax
jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state
and local or foreign income tax examinations by tax authorities for years before fiscal 2006.
F - 25
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) PLANT AND EQUIPMENT
The major classes of plant and equipment, at cost, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
Depreciable Lives (Yrs) |
|
|
2009 |
|
|
2008 |
|
Land and land improvements |
|
|
|
|
|
$ |
145,412 |
|
|
$ |
118,019 |
|
Buildings and leasehold improvements |
|
|
25 |
|
|
|
344,360 |
|
|
|
306,308 |
|
Cylinders |
|
|
30 |
|
|
|
1,251,919 |
|
|
|
1,218,959 |
|
Bulk tank stations |
|
|
10 to 30 (Average 19 |
) |
|
|
448,764 |
|
|
|
402,352 |
|
Rental equipment |
|
|
3 to 10 |
|
|
|
222,302 |
|
|
|
199,794 |
|
Machinery and equipment |
|
|
7 to 10 |
|
|
|
665,966 |
|
|
|
593,758 |
|
Computers, furniture and fixtures |
|
|
3 to 10 |
|
|
|
152,059 |
|
|
|
146,387 |
|
Transportation equipment |
|
|
3 to 15 |
|
|
|
230,435 |
|
|
|
200,892 |
|
Construction in progress |
|
|
|
|
|
|
97,513 |
|
|
|
46,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,558,730 |
|
|
$ |
3,232,673 |
|
|
|
|
|
|
|
|
|
|
|
|
(8) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets
acquired and liabilities assumed in a purchase business combination.
The valuations of goodwill and other
intangible assets from recent acquisitions are based on preliminary estimates of fair value and
are subject to revision as the Company finalizes appraisals and other analyses. As discussed in
Note 1 and Note 23, in the fourth quarter of fiscal 2009, the Company realigned its business
segments. The fiscal 2008 and 2007 disclosures by business segment below were restated to reflect
the realignment. Changes in the carrying amount of goodwill for fiscal 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
Distribution |
|
|
Operations |
|
|
|
|
(In thousands) |
|
Business Segment |
|
|
Business Segment |
|
|
Total |
|
Balance at March 31, 2007 |
|
$ |
714,600 |
|
|
$ |
117,562 |
|
|
$ |
832,162 |
|
Acquisitions |
|
|
132,623 |
|
|
|
1,584 |
|
|
|
134,207 |
|
Other adjustments |
|
|
2,539 |
|
|
|
151 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
849,762 |
|
|
|
119,297 |
|
|
|
969,059 |
|
Acquisitions |
|
|
34,138 |
|
|
|
65,228 |
|
|
|
99,366 |
|
Other adjustments |
|
|
(4,818 |
) |
|
|
(237 |
) |
|
|
(5,055 |
) |
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
879,082 |
|
|
$ |
184,288 |
|
|
$ |
1,063,370 |
|
|
|
|
|
|
|
|
|
Test for Goodwill Impairment
SFAS 142 requires the Company to perform an assessment of the carrying value of goodwill
associated with each of its reporting units at least annually and whenever events or circumstances
indicate that it is more likely than not that goodwill may be impaired. The Company has elected to
perform its annual assessment of the carrying value of goodwill as of October 31 of each year. As
of October 31, 2008, the Company had 17 reporting units in the Distribution business segment and
six reporting units in the All Other Operations business segment. The
F - 26
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company determined the estimated fair value of each of its reporting units as of October 31, 2008
using a discounted cash flow model and compared those values to the carrying value of each of the
respective reporting units. Significant assumptions used in the cash flow model include revenue
growth rates, profit margins, future capital expenditures, working capital needs, discount rates
and perpetual growth rates. At October 31, 2008, the discount rates used in the model were 10% for
the Distribution reporting units and 12% for the smaller reporting units in the All Other
Operations business segment. The perpetual growth rate assumed in the discounted cash flow model
was consistent with the long-term rate of growth as measured by the U.S. Gross Domestic Product.
The annual assessment of the carrying value of goodwill at October 31, 2008 indicated that the
Companys carrying value of goodwill was not impaired.
In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment
test, the Company applied a hypothetical 10% decrease to the fair value of each reporting unit. In
most cases, the estimated fair value of the reporting units exceeded the carrying value of the
reporting units by a substantial amount. However, this hypothetical 10% decrease in fair value
would have triggered the need to perform additional step 2 analyses for three of the Companys
reporting units. The amount of goodwill associated with these reporting units was $253 million at
October 31, 2008.
Other Intangible Assets
Other intangible assets that are not fully amortized amounted to $216 million and $149
million, net of accumulated amortization of $39 million and $28 million at March 31, 2009 and
2008, respectively. These intangible assets primarily consist of customer relationships, which
are amortized over the estimated benefit periods which range from 7 to 17 years, and non-competition
agreements, which are amortized over the term of the agreements. The determination of the
estimated benefit period associated with customer relationships is based on the analysis of
historical customer sales attrition information and other customer-related factors at the date of
acquisition. There are no expected residual values related to these intangible assets. The
Company evaluates the estimated benefit periods and recoverability of its intangible assets that
are subject to amortization when facts and circumstances indicate that the lives may not be
appropriate and/or the carrying value of the asset may not be recoverable. If the carrying value
is not recoverable, impairment is measured as the amount by which the carrying value exceeds its
estimated fair value. Fair value is generally estimated based on either appraised value or other
valuation techniques. Intangible assets also include trade names with indefinite useful lives
valued at $1.3 million. Estimated future amortization expense by fiscal year is as follows: 2010 -
$24.0 million; 2011 $23.4 million; 2012 $22.1 million; 2013 $21.3 million; 2014 $19.0
million; and $105.0 million thereafter.
(9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities include:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Accrued payroll and employee benefits |
|
$ |
80,630 |
|
|
$ |
86,490 |
|
Business insurance reserves |
|
|
44,986 |
|
|
|
37,433 |
|
Taxes other than income taxes |
|
|
17,098 |
|
|
|
22,628 |
|
Cash overdraft |
|
|
42,933 |
|
|
|
56,739 |
|
Deferred rental revenue |
|
|
25,611 |
|
|
|
22,641 |
|
Other accrued expenses and current liabilities |
|
|
53,306 |
|
|
|
62,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
264,564 |
|
|
$ |
288,883 |
|
|
|
|
|
|
|
|
With respect to the business insurance reserves above, the Company had corresponding insurance
receivables of $9.7 million at March 31, 2009 and $8.0 million at March 31, 2008. The insurance
receivables represent the balance of probable claim losses in excess of the Companys self-insured
retention for which the Company is fully insured.
F - 27
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) INDEBTEDNESS
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Revolving credit borrowings U.S. |
|
$ |
751,200 |
|
|
$ |
859,500 |
|
Revolving credit borrowings Multi-currency |
|
|
23,712 |
|
|
|
|
|
Revolving credit borrowings Canadian |
|
|
14,660 |
|
|
|
23,791 |
|
Term loans |
|
|
397,500 |
|
|
|
487,500 |
|
Money market loan |
|
|
|
|
|
|
30,000 |
|
Senior subordinated notes |
|
|
550,000 |
|
|
|
150,000 |
|
Acquisition notes and other |
|
|
24,294 |
|
|
|
29,257 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
1,761,366 |
|
|
|
1,580,048 |
|
Less current portion of long-term debt |
|
|
(11,058 |
) |
|
|
(40,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion |
|
$ |
1,750,308 |
|
|
$ |
1,539,648 |
|
|
|
|
|
|
|
|
Senior Credit Facility
The Company maintains a senior credit facility (the Credit Facility) with a syndicate of
lenders. In July 2008, the Company amended its Credit Facility to, among other things, create a
multi-currency borrowing facility. Under this multi-currency revolver, the Company and certain of
the Companys foreign subsidiaries may borrow any foreign currency that is readily available and
freely transferable and convertible into U.S. dollars, including Euros, pounds sterling and Mexican
pesos. The Company may borrow up to $75 million (U.S. dollar equivalent) in U.S. dollars or any
permitted foreign currency or multiple currencies in the aggregate. To accommodate the size of the
multi-currency revolver, the Companys U.S. dollar revolving credit line was reduced by $75 million
so that the total size of the Companys Credit Facility was not changed.
At March 31, 2009, the Credit Facility permitted the Company to borrow up to $991 million
under a U.S. dollar revolving credit line, up to $75 million (U.S. dollar equivalent) under the
multi-currency revolving credit line, and up to C$40 million (U.S. $32 million) under a Canadian
dollar revolving credit line. The Credit Facility also contains a term loan provision through
which the Company borrowed $600 million with scheduled repayment terms. The term loans are
repayable in quarterly installments of $22.5 million through June 30, 2010. The quarterly
installments then increase to $71.2 million from September 30, 2010 to June 30, 2011. Principal
payments due over the next twelve months on the term loans are classified as Long-term debt in
the Companys Consolidated Balance Sheets based on the Companys ability and intention to refinance
the payments with borrowings under its long-term revolving credit facilities. As principal amounts
under the term loans are repaid, no additional borrowing capacity is created under the term loan
provision. The Credit Facility will mature on July 25, 2011.
As of March 31, 2009, the Company had approximately $1.2 billion of borrowings under the
Credit Facility: $751 million under the U.S. dollar revolver, $24 million (in U.S. dollars) under
the multi-currency revolver, C$18 million (U.S. $15 million) under the Canadian dollar revolver and
$398 million under the term loans. The Company also had outstanding letters of credit of $42
million issued under the Credit Facility. The U.S. dollar borrowings and the term loans bear
interest at the London Interbank Offered Rate (LIBOR) plus 62.5 basis points. The multi-currency
revolver bears interest based on a spread of 62.5 basis points over the Euro currency rate
applicable to each foreign currency borrowing. The Canadian dollar borrowings bear interest at the
Canadian Bankers Acceptance Rate plus 62.5 basis points. As of March 31, 2009, the average
effective interest
F - 28
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rates on the U.S. dollar revolver, the term loans, the multi-currency revolver
and the Canadian dollar revolver were 1.24%, 1.85%, 2.05% and 1.49%, respectively.
As of March 31, 2009, approximately $266 million remained unused under the Companys
Credit Facility. The Companys margins of compliance with the
financial covenants of the Credit Facility result in no restrictions on the Companys ability to
borrow on the unused portion of the Credit Facility. The Credit Facility contains customary events
of default, including nonpayment and breach covenants. In the event of default, repayment of
borrowings under the Credit Facility may be accelerated.
The Companys domestic subsidiaries, exclusive of the bankruptcy-remote special purpose entity
(the domestic subsidiaries), guarantee the U.S. dollar revolver, multi-currency revolver,
Canadian dollar revolver and term loans. The multi-currency revolver and Canadian dollar revolver
are also guaranteed by the Company and the Companys foreign subsidiaries. The guarantees are full
and unconditional and are made on a joint and several basis. The Company has pledged 100% of the
stock of its domestic subsidiaries and 65% of the stock of its foreign subsidiaries as surety for
its obligations under the Credit Facility. The Credit Facility provides for the release of the
guarantees and collateral if the Company attains an investment grade credit rating and a similar
release on certain other debt.
Money Market Loans
The Company has an agreement with a financial institution that provides access to short-term
advances not to exceed $30 million for a maximum term of three months. The agreement expires on
June 30, 2009, but may be extended subject to renewal provisions contained in the agreement. The
amount, term and interest rate of an advance are established through mutual agreement with the
financial institution when the Company requests such an advance. At March 31, 2009, the Company
had no outstanding advances under the agreement.
The Company also has an agreement with another financial institution that provides access to
short-term advances not to exceed $35 million. The agreement expires on December 1, 2009, but may
be extended subject to renewal provisions contained in the agreement. The advances are generally
overnight or for up to seven days. The amount, term and interest rate of an advance are established
through mutual agreement with the financial institution when the Company requests such an advance.
At March 31, 2009, there were no advances outstanding under the agreement.
Senior Subordinated Notes
At March 31, 2009, the Company had $150 million of senior subordinated notes (the 2004
Notes) outstanding with a maturity date of July 15, 2014. The 2004 Notes bear interest at a fixed
annual rate of 6.25%, payable semi-annually on January 15 and July 15 of each year. The 2004 Notes
have a redemption provision, which permits the Company, at its option, to call the 2004 Notes at
scheduled dates and prices. The first scheduled optional redemption date is July 15, 2009 at a
price of 103.125% of the principal amount.
On June 5, 2008, the Company issued $400 million of senior subordinated notes (the 2008
Notes) at par with a maturity date of October 1, 2018. The net proceeds from the sale of the 2008
Notes were used to reduce borrowings under the Companys revolving credit line under the Credit
Facility. The 2008 Notes bear interest at a fixed annual rate of 7.125%, payable semi-annually on
October 1 and April 1 of each year, commencing October 1, 2008. The 2008 Notes have a redemption
provision, which permits the Company, at its
option, to call the 2008 Notes at scheduled dates and prices. The first scheduled optional
redemption date is October 1, 2013 at a price of 103.563% of the principal amount.
The 2004 and 2008 Notes contain covenants that could restrict the payment of dividends, the
repurchase of common stock, the issuance of preferred stock, and the incurrence of additional
indebtedness and liens. The
2004 and 2008 Notes are fully and unconditionally guaranteed jointly and severally, on a
subordinated basis, by each of the 100% owned domestic guarantors under the Credit Facility.
F - 29
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition Notes and Other
The Companys long-term debt also included acquisition and other notes, principally consisting
of notes issued to sellers of businesses acquired, which are repayable in periodic installments.
At March 31, 2009, acquisition and other notes totaled $24 million with an average interest rate of
approximately 6% and an average maturity of approximately two years.
Loss on Debt Extinguishment
On October 27, 2006, the Company redeemed its $225 million 9.125% senior subordinated notes in
full at a premium of 104.563% of the principal amount with proceeds from the Companys Credit
Facility. In conjunction with the redemption of the notes, the Company recognized a charge on the
early extinguishment of debt of approximately $12.1 million ($7.9 million after tax) in October
2006. The charge relates to the redemption premium and the write-off of unamortized debt issuance
costs.
Aggregate Long-term Debt Maturities
The aggregate maturities of long-term debt at March 31, 2009 are as follows:
|
|
|
|
|
(In thousands) |
|
Debt Maturities |
|
Years Ending March 31, (1) |
|
|
|
|
2010 |
|
$ |
11,058 |
|
2011 |
|
|
244,212 |
|
2012 |
|
|
954,126 |
|
2013 |
|
|
719 |
|
2014 |
|
|
511 |
|
Thereafter |
|
|
550,740 |
|
|
|
|
|
|
|
$ |
1,761,366 |
|
|
|
|
|
|
|
|
(1) |
|
The Company has the ability and intention of refinancing current maturities
related to the term loans under
its Credit Facility with its long-term revolving credit line. Therefore, principal payments due in
fiscal 2010 on the term loans have been reflected as long-term in the aggregate maturity schedule. |
(11) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company manages its exposure to changes in market interest rates. The Companys
involvement with derivative instruments is limited to highly effective fixed interest rate swap
agreements used to manage well-defined interest rate risk exposures. The Company monitors its
positions and credit ratings of its counterparties and does not anticipate non-performance by the
counterparties. Interest rate swap agreements are not entered into for trading purposes.
SFAS 133 requires companies to recognize certain derivative instruments as either assets or
liabilities at fair value in the statement of financial position. In accordance with SFAS 133,
the Company designates fixed interest rate swap agreements as cash flow hedges of interest
payments on variable-rate debt associated with the Companys Credit Facility. For derivative
instruments designated as cash flow hedges, the effective portion of the gain or loss on the
derivative is reported as a component of accumulated other comprehensive income (AOCI) and
reclassified into earnings in the same period or periods during which the hedge transaction
affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are
recognized in current earnings.
F - 30
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During fiscal 2009, the Company entered into three fixed interest rate swap agreements for a
notional
amount of $125 million, and four fixed interest rate swap agreements with a notional
amount of $100 million matured. At March 31, 2009, the Company had 18 fixed interest rate swap
agreements outstanding with a notional amount of $627 million. These swaps effectively convert
$627 million of variable interest rate debt associated with the Companys Credit Facility to fixed
rate debt. At March 31, 2009, these swap agreements required the Company to make fixed interest
payments based on a weighted average effective rate of 4.21% and receive variable interest
payments from the counterparties based on a weighted average variable rate of 1.70%. The remaining
terms of these swap agreements range from 1 to 21 months. For the year ended March 31, 2009, the
fair value of the liability for the fixed interest rate swap agreements decreased and the Company
recorded a corresponding adjustment to Accumulated Other Comprehensive Loss of $8.3 million, or
$5.4 million after tax. For the year ended March 31, 2008, the fair value of the liability for the
fixed interest rate swap agreements increased and the Company recorded a corresponding adjustment
to Accumulated Other Comprehensive Loss of $21.0 million, or $13.6 millions after tax. For the
year ended March 31, 2007, the fair value of the net asset for the fixed interest rate swap
agreements decreased and the Company recorded a corresponding adjustment to Accumulated Other
Comprehensive Income of $0.9 million, or $0.6 million after tax.
As denoted in the tables below, the Companys interest rate swap agreements were reflected in
the Consolidated Balance Sheets at March 31, 2009 and March 31, 2008 as liabilities at their fair
values of $12.5 million and $20.8 million, respectively, with corresponding deferred tax assets of
$4.4 million and $7.3 million and accumulated other comprehensive losses after tax of $8.1 million
and $13.5 million, respectively. The estimated net amount of existing losses recorded in
Accumulated Other Comprehensive Loss at March 31, 2009 that is expected to be reclassified into
earnings within the next twelve months is $6.5 million, net of estimated tax benefits of $3.5
million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Derivatives Designated as Hedging Instruments |
|
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
(In thousands) |
|
Location |
|
|
Value |
|
|
Location |
|
|
Value |
|
|
|
|
|
|
Other non-current |
|
|
|
|
|
Other non-current |
|
|
|
|
Interest rate swaps |
|
liabilities |
|
$ |
12,525 |
|
|
liabilities |
|
$ |
20,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Derivative Instruments on the Consolidated Statements of
Earnings |
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in |
|
|
|
|
|
|
Amount of Gain (Loss) Reclassified |
|
|
|
OCI on Derivative |
|
|
Location of Gain |
|
|
from AOCI into Income |
|
Derivatives in Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Reclassified |
|
|
|
|
|
|
|
Flow Hedging |
|
Years Ended March 31, |
|
from AOCI into |
|
|
Years Ended March 31, |
|
|
|
Relationships |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Income |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest rate swaps |
|
$ |
8,325 |
|
|
$ |
(20,956 |
) |
|
$ |
(850 |
) |
|
Interest expense, net |
|
$ |
(13,130 |
) |
|
$ |
63 |
|
|
$ |
1,375 |
|
Tax (expense) benefit |
|
|
(2,914 |
) |
|
|
7,322 |
|
|
|
280 |
|
|
Income taxes |
|
|
4,596 |
|
|
|
(22 |
) |
| |
(481 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect |
|
$ |
5,411 |
|
|
$ |
(13,634 |
) |
|
$ |
(570 |
) |
|
|
|
|
|
$ |
(8,534 |
) |
|
$ |
41 |
|
|
$ |
894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 31
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amount of gain or loss recognized in current earnings as a result of hedge ineffectiveness is
immaterial for the years ended March 31, 2009 and 2008.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective April 1, 2008, the Company adopted SFAS 157. SFAS 157 does not require any new fair
value measurements, but rather replaces multiple existing definitions of fair value with a single
definition, establishes a consistent framework for measuring fair value and expands financial
statement disclosures regarding fair value measurements.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
Assets and liabilities recorded at fair value in accordance with SFAS 157 are classified based
upon the level of judgment associated with the
inputs used to measure their fair value. The hierarchical levels related to the subjectivity of
the valuation inputs are defined by SFAS 157 as follows:
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities at the measurement date. |
|
|
|
|
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable, directly or indirectly through corroboration with observable market data at the
measurement date. |
|
|
|
|
Level 3 inputs are unobservable inputs that reflect managements best estimate of the
assumptions (including assumptions about risk) that market participants would use in
pricing the asset or liability at the measurement date. |
The carrying value of cash, trade receivables exclusive of the subordinated retained interest,
other current
receivables, trade payables, and other current liabilities (e.g., deposit liabilities, cash overdrafts,
etc.) approximate fair value and such items have not
been impacted by the adoption of SFAS 157.
Assets and liabilities measured at fair value on a recurring basis at March 31, 2009 are
categorized in the table below based on the lowest level of significant input to the valuation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in |
|
|
Significant other |
|
|
Significant |
|
|
|
Carrying value at |
|
|
active markets |
|
|
observable inputs |
|
|
unobservable inputs |
|
(In thousands) |
|
March 31, 2009 |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated retained interest in trade receivables
sold under the Companys trade receivable securitization |
|
$ |
147,853 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
147,853 |
|
Deferred compensation plan assets |
|
|
4,598 |
|
|
|
4,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a recurring basis |
|
$ |
152,451 |
|
|
$ |
4,598 |
|
|
$ |
|
|
|
$ |
147,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities |
|
$ |
4,598 |
|
|
$ |
4,598 |
|
|
$ |
|
|
|
$ |
|
|
Derivative liabilities interest rate swap agreements |
|
|
12,525 |
|
|
|
|
|
|
|
12,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value on a recurring basis |
|
$ |
17,123 |
|
|
$ |
4,598 |
|
|
$ |
12,525 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
F - 32
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a general description of the valuation methodologies used for financial
assets and liabilities measured at fair value:
Subordinated retained interest The Companys subordinated retained interest in trade receivables
sold under its trade receivable securitization agreement is classified as Trade receivables on
the Consolidated Balance
Sheets. The Company maintains an allowance for doubtful accounts of $26.4 million and $21.9
million at March 31, 2009 and 2008, respectively, related to the subordinated retained interests to
adjust the carrying value to fair value. The fair value of the subordinated retained interest
reflects managements best estimate of the undiscounted expected future cash flows adjusted for
unobservable inputs (Level 3), which management believes a market participant would use to assess
the risk of credit losses. Those inputs reflect the diversified customer base, the short-term
nature of the securitized asset, aging trends and historical collections experience. Adjustments to
the fair value of the Companys retained interest are recorded through the Consolidated Statement
of Earnings as bad debt expense. The Company believes that the fair value of the subordinated
retained interest in trade receivables reflects the amount expected to be realized when the
receivables are ultimately settled.
Deferred compensation plan assets and corresponding liabilities The Companys deferred
compensation plan assets consist of exchange traded open-ended mutual funds with quoted prices in
active markets (Level 1). The Companys deferred compensation plan liabilities are equal to the
plans assets. Gains or losses on the deferred compensation plan assets are recognized as other
income (expense), net, while gains or losses on the deferred compensation plan liabilities are
recognized as compensation expense in the Consolidated Statement of Earnings.
Derivative liabilities interest rate swap agreements The Companys interest rate swap
agreements are with highly rated counterparties and effectively convert variable rate debt to fixed
rate debt. The swap agreements are valued using pricing models that rely on observable market
inputs such as interest rate yield curves and treasury spreads (Level 2). Changes to the fair
value measurement of the Companys interest rate swap agreements are reported on the Consolidated
Balance Sheet through Accumulated other comprehensive loss.
The following table presents the changes in financial assets for which Level 3 inputs were
significant to their valuation for the year ended March 31, 2009:
|
|
|
|
|
|
|
Subordinated |
|
(In thousands) |
|
retained interest |
|
Balance at April 1, 2008 |
|
$ |
163,561 |
|
Net realized losses included in earnings (bad debt expense) |
|
|
(22,026 |
) |
Additional retained interest, net |
|
|
6,318 |
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
147,853 |
|
|
|
|
|
The carrying value of debt generally reflects the cash proceeds received upon its
issuance, net of subsequent repayments. The fair value of the Companys variable interest rate revolving credit borrowings and term loans disclosed
in the table below were estimated based on observable forward yield curves and unobservable credit spreads management believes a market participant would assume for these facilities under
market conditions as of the balance sheet date.
The fair value of the fixed rate notes disclosed below were determined based
on quoted prices from the broker/dealer market, observable market inputs for similarly
termed treasury notes adjusted for the Companys credit spread and unobservable inputs
management believes a market participant would use in determining imputed interest for obligations
without a stated interest rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at |
|
|
Fair Value at |
|
|
Carrying Value at |
|
|
Fair Value at |
|
(In thousands) |
|
March 31, 2009 |
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
March 31, 2008 |
|
Revolving credit borrowings |
|
$ |
789,572 |
|
|
$ |
757,989 |
|
|
$ |
883,291 |
|
|
$ |
883,291 |
|
Term loans |
|
|
397,500 |
|
|
|
381,600 |
|
|
|
487,500 |
|
|
|
487,500 |
|
Money market loans |
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
30,000 |
|
2004 Notes |
|
|
150,000 |
|
|
|
139,500 |
|
|
|
150,000 |
|
|
|
148,125 |
|
2008 Notes |
|
|
400,000 |
|
|
|
378,000 |
|
|
|
|
|
|
|
|
|
Acquisition and other notes |
|
|
24,294 |
|
|
|
24,294 |
|
|
|
29,257 |
|
|
|
29,662 |
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
1,761,366 |
|
|
$ |
1,681,383 |
|
|
$ |
1,580,048 |
|
|
$ |
1,578,578 |
|
|
|
|
|
|
|
|
|
|
|
F - 33
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) NATIONAL WELDERS EXCHANGE TRANSACTION
Since the December 2003 adoption of FIN 46R, Consolidation of Variable Interest Entities, the
Companys National Welders joint venture was consolidated with the operations of the Company. As
a consolidated entity, the assets and liabilities of the joint venture were included with the
Companys assets and liabilities and the preferred stockholders interest in those assets and
liabilities was reflected as Minority interest in affiliate on the Companys Consolidated
Balance Sheet. Likewise, the operating results of the joint venture were reflected broadly across
the Consolidated Statement of Earnings with the preferred stockholders proportionate share of the
joint ventures operating results reflected, net of tax, as Minority interest in earnings of
consolidated affiliate.
On July 3, 2007, the preferred stockholders of the National Welders joint venture exchanged
their preferred stock for common stock of Airgas (the NWS Exchange Transaction). The Company
issued 2.471 million shares of Airgas common stock to the preferred stockholders in exchange for
all 3.2 million preferred shares of National Welders. As part of the negotiated exchange, the
Company issued an additional 144 thousand shares (included in the 2.471 million shares) of Airgas
common stock to the preferred shareholders, which resulted in a one-time net after-tax charge of
$2.5 million, or $0.03 per diluted share. The net after-tax charge was reflected in the
Consolidated Statement of Earnings as Minority interest in earnings of consolidated affiliate
and consisted of $7 million related to the additional shares issued net of the reversal of a
deferred tax liability related to the undistributed earnings of the National Welders joint venture
of $4.5 million. Upon the exchange, National Welders became a 100% owned subsidiary of Airgas.
(14) STOCKHOLDERS EQUITY
(a) Common Stock
The Company is authorized to issue up to 200 million shares of common stock with a par value
of $0.01 per share. At March 31, 2009, the number of shares of common stock outstanding was 81.4
million, excluding 4.1 million shares of common stock held as treasury stock. At March 31, 2008,
the number of shares of common stock outstanding was 82.3 million, excluding 1.8 million shares of
common stock held as treasury stock.
(b) Preferred Stock and Redeemable Preferred Stock
The Company is authorized to issue up to 20 million shares of preferred stock. Of the 20
million shares authorized, 200 thousand shares have been designated as Series A Junior
Participating Preferred Stock, 200 thousand shares have been designated as Series B Junior
Participating Preferred Stock and 200 thousand shares have been designated as Series C Junior
Participating Preferred Stock (see Stockholder Rights Plan below). At March 31, 2009 and 2008, no
shares of the preferred stock were issued or outstanding. The preferred stock may be issued from
time to time by the Companys Board of Directors in one or more series. The Board of Directors is
authorized to fix the dividend rights and terms, conversion rights, voting rights, rights and terms
of redemption, liquidation preferences, and any other rights, preferences, privileges and
restrictions of any series of preferred stock, and the number of shares constituting such series
and designation thereof.
Additionally, the Company is authorized to issue 30 thousand shares of redeemable preferred
stock. At March 31, 2009 and 2008, no shares of redeemable preferred stock were issued or
outstanding.
F - 34
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Dividends
The Company paid its stockholders quarterly cash dividends of $0.12 per share at the end of
each of the first two quarters of fiscal 2009. In the third and fourth quarters of fiscal 2009,
the Company paid dividends of $0.16 per share, representing a 33% increase in the quarterly
dividend payments. During fiscal 2008, the Company paid its stockholders regular quarterly cash
dividends of $0.09 per share at the end of each of the first three quarters and $0.12 per share at
the end of the fourth quarter. During fiscal 2007, the Company paid its stockholders regular
quarterly cash dividends of $0.07. Future dividend declarations and associated amounts paid will
depend upon the Companys earnings, financial condition, loan covenants, capital requirements and
other factors deemed relevant by management and the Companys Board of Directors.
(d) Stockholder Rights Plan
Effective May 8, 2007, the Companys Board of Directors adopted a stockholder rights plan (the
2007 Rights Plan). Pursuant to the 2007 Rights Plan, the Board of Directors declared a dividend
distribution of one right for each share of common stock. Each right entitles the holder to
purchase from the Company one ten-thousandth of a share of Series C Junior Participating Preferred
Stock at an initial exercise price of $230 per share. The 2007 Rights Plan is intended to assure
that all of the Companys stockholders receive fair and equal
treatment in the event of any proposed takeover of the Company and to protect stockholders
interests in the event the Company is confronted with partial tender offers or other coercive or
unfair takeover tactics.
Rights become exercisable after ten days following the acquisition by a person or group of 15%
(or 20% in the case of Peter McCausland and certain of his affiliates) or more of the Companys
outstanding common stock, or ten business days (or later if determined by the Board of Directors in
accordance with the plan) after the announcement of a tender offer or exchange offer to acquire 15%
(or 20% in the case of Peter McCausland and certain of his affiliates) or more of the outstanding
common stock. If such a person or group acquires 15% or more (or 20% or more, as the case may be)
of the common stock, each right (other than such persons or groups rights, which will become
void) will entitle the holder to purchase, at the exercise price, common stock having a market
value equal to twice the exercise price. In certain circumstances, the rights may be redeemed by
the Company at an initial redemption price of $0.0001 per right. If not redeemed, the rights will
expire on May 8, 2017.
(e) Stock Repurchase Plan
In November 2005, the Companys Board of Directors approved a stock repurchase plan (the
Repurchase Plan) that provided the Company with the authorization to repurchase up to $150
million of its common stock. The Repurchase Plan was suspended in July 2006 while the Company
consummated its acquisitions of Linde AGs U.S. bulk and packaged gas assets. In March 2008, the
Company announced the reinstatement of its Repurchase Plan. During fiscal 2009 and 2008, 2.4
million and 496 thousand shares were repurchased for $115.6 million and $21.6 million,
respectively. Since inception, a total of 4.1 million shares have been repurchased under the plan
for $150 million satisfying the original $150 million authorized for common stock repurchase.
(f) Comprehensive Income
The Companys comprehensive income was $255 million, $214 million and $154 million for the
years ended March 31, 2009, 2008 and 2007, respectively. Comprehensive income consists of net
earnings, foreign currency translation adjustments, the net change in the fair value of interest
rate swaps and the net tax expense or benefit of other comprehensive income items. Net tax expense
or benefit of comprehensive income items pertains to the Companys interest rate swap agreements
only, as foreign currency translation adjustments relate to permanent investments in foreign
subsidiaries. The net change in the fair value of interest rate swaps reflects valuation
adjustments for changes in interest rates, as well as cash settlements with the counterparties.
F - 35
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) STOCK-BASED COMPENSATION
The
Company adopted SFAS No. 123R, Share-Based Payment (SFAS 123R), effective April 1, 2006
using the modified prospective method. Under the modified prospective method, stock-based
compensation recognized since the date of adoption includes: (a) any share-based payments granted
subsequent to the date of adoption, and (b) any portion of share-based payments granted prior to
the date of adoption that vests subsequent to the date of adoption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Stock-based compensation expense related to: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option plans |
|
$ |
14,863 |
|
|
$ |
12,660 |
|
|
$ |
12,164 |
|
Employee Stock Purchase Plan options to purchase stock |
|
|
5,772 |
|
|
|
3,969 |
|
|
|
3,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,635 |
|
|
|
16,629 |
|
|
|
15,445 |
|
Tax benefit |
|
|
(6,544 |
) |
|
|
(5,282 |
) |
|
|
(4,589 |
) |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net of tax |
|
$ |
14,091 |
|
|
$ |
11,347 |
|
|
$ |
10,856 |
|
|
|
|
|
|
|
|
|
|
|
2006 Equity Incentive Plan
The 2006 Equity Incentive Plan (the 2006 Equity Plan) was approved by the Companys
stockholders in August 2006. At March 31, 2009, a total of 11.8 million shares were authorized
under the 2006 Equity Plan for grants of stock options and restricted stock to employees and
directors of the Company, of which 2.4 million shares of common stock were available for issuance.
Stock options granted prior to fiscal 2007 vest 25% annually and have a maximum term of ten
years. Stock options granted subsequent to April 1, 2006 also vest 25% annually and have a maximum
term of eight years.
Fair Value
The Company utilizes the Black-Scholes option pricing model to determine the fair value of
stock options under SFAS 123R. The weighted-average grant date fair value of stock options granted
during the fiscal years ended March 31, 2009, 2008 and 2007 was $18.17, $15.27 and $13.75,
respectively. The following assumptions were used by the Company in valuing the stock option
grants issued in each fiscal year:
Stock Option Grant Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 |
|
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
Expected volatility |
|
|
29.6 |
% |
|
|
30.8 |
% |
|
|
36.2 |
% |
Expected dividend yield |
|
|
0.90 |
% |
|
|
0.82 |
% |
|
|
0.80 |
% |
Expected term |
|
5.6 years |
|
5.6 years |
|
5.4 years |
Risk-free interest rate |
|
|
3.2 |
% |
|
|
4.7 |
% |
|
|
5.0 |
% |
The expected volatility assumption used in valuing stock options was determined based on
anticipated changes in the underlying stock price over the expected term using historical daily
changes of the Companys closing stock price. The expected dividend yield was based on the
Companys history and expectation of future dividend payouts. The expected term represents the
period of time that the options are expected to be outstanding prior to exercise or forfeiture.
The expected term was determined based on historical exercise patterns. The risk-free interest
rate was based on U.S. Treasury rates in effect at the time of grant commensurate with the
expected term.
F - 36
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Stock Option Activity
The following table summarizes the stock option activity during the three years ended March 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise Price |
|
|
Intrinsic Value |
|
|
|
Stock Options |
|
|
Per Share |
|
|
(In thousands) |
|
Outstanding at March 31, 2006 |
|
|
6,993,818 |
|
|
$ |
16.37 |
|
|
|
|
|
Granted |
|
|
991,440 |
|
|
$ |
36.19 |
|
|
|
|
|
Exercised |
|
|
(967,590 |
) (1) |
|
$ |
15.91 |
|
|
|
|
|
Forfeited |
|
|
(134,694 |
) |
|
$ |
26.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
6,882,974 |
|
|
$ |
19.12 |
|
|
$ |
158,515 |
|
Granted |
|
|
1,082,550 |
|
|
$ |
43.94 |
|
|
|
|
|
Exercised |
|
|
(1,238,457 |
) |
|
$ |
16.46 |
|
|
|
|
|
Forfeited |
|
|
(94,364 |
) |
|
$ |
32.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
6,632,703 |
|
|
$ |
23.52 |
|
|
$ |
145,588 |
|
Granted |
|
|
1,120,273 |
|
|
$ |
59.67 |
|
|
|
|
|
Exercised |
|
|
(1,027,129 |
) |
|
$ |
15.76 |
|
|
|
|
|
Forfeited |
|
|
(85,478 |
) |
|
$ |
31.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
6,640,369 |
|
|
$ |
30.71 |
|
|
$ |
60,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of
March 31, 2009 |
|
|
6,109,139 |
|
|
$ |
30.71 |
|
|
$ |
59,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2009 |
|
|
3,458,387 |
|
|
$ |
21.21 |
|
|
$ |
58,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Actual shares issued associated with stock option exercises was 960 thousand due to
a net share issue exercise. |
The aggregate intrinsic value represents the difference between the Companys closing stock
price on the last trading day of each fiscal year and the exercise
price of in the money stock options
multiplied by the number of stock options outstanding or exercisable as of that date. The total
intrinsic value of stock options exercised during the years ended March 31, 2009, 2008 and 2007
was $33.1 million, $37.0 million and $22.7 million, respectively. The weighted-average remaining
contractual term of stock options outstanding as of March 31, 2009 was 4.94 years. Common stock to
be issued in conjunction with future stock option exercises will be obtained from either new
shares or shares from treasury stock.
As of March 31, 2009, $25.2 million of unrecognized compensation expense related to
non-vested stock options is expected to be recognized over a weighted-average vesting period of
1.7 years.
Employee Stock Purchase Plan
The Companys Employee Stock Purchase Plan (the ESPP) encourages and assists employees in
acquiring
an equity interest in the Company. The ESPP is authorized to issue up to 3.5 million shares of
Company common stock, of which 967 thousand shares were available for issuance at March 31, 2009.
During the years ended March 31, 2009 and 2008, the Company granted 463 thousand and 413 thousand
options to purchase common stock under the ESPP, respectively.
Under the terms of the ESPP, eligible employees may elect to have up to 15% of their annual
gross earnings withheld to purchase common stock at 85% of the market value. Employee purchases
are limited in any calendar year to an aggregate market value of $25,000. Market value under the
ESPP is defined as either the closing share price on the New York Stock Exchange as of an
employees enrollment date or the closing price on the first business day of a fiscal quarter when
the shares are purchased, whichever is lower. An employee may lock-in a purchase price for up to
12 months. The ESPP effectively resets at the beginning of each fiscal year at which time
employees are re-enrolled in the plan and a new 12-month purchase price is established. The ESPP
is designed to comply with the requirements of Sections 421 and 423 of the Internal Revenue Code.
F - 37
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation expense under SFAS 123R is measured based on the fair value of the employees
option to purchase shares of common stock at the grant date and is recognized over the future
periods in which the related employee service is rendered. The fair value per share of employee
options to purchase shares under the ESPP
was $12.46, $9.61and $8.30 for the years ended March 31, 2009, 2008 and 2007, respectively. The
fair value of the employees option to purchase shares of common stock was estimated using the
Black-Scholes model. The following assumptions were used by the Company in valuing the employees
option to purchase shares of common stock under the ESPP:
ESPP Purchase Option Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009 |
|
|
Fiscal 2008 |
|
|
Fiscal 2007 |
|
Expected volatility |
|
|
61.3 |
% |
|
|
23.6 |
% |
|
|
30.8 |
% |
Expected dividend yield |
|
|
1.07 |
% |
|
|
0.86 |
% |
|
|
0.73 |
% |
Expected term |
|
|
3 to 6 months |
|
|
3 to 12 months |
|
|
2 to 8 months |
Risk-free interest rate |
|
|
1.7 |
% |
|
|
5.0 |
% |
|
|
5.0% |
The following table summarizes the activity of the ESPP during the three years ended March 31,
2009:
ESPP Purchase Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise Price |
|
|
Intrinsic Value |
|
|
|
Purchase Options |
|
|
Per Share |
|
|
(In thousands) |
|
Outstanding at March 31, 2006 |
|
|
137,687 |
|
|
$ |
20.50 |
|
|
|
|
|
Granted |
|
|
395,587 |
|
|
$ |
31.10 |
|
|
|
|
|
Exercised |
|
|
(430,519 |
) |
|
$ |
27.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
102,755 |
|
|
$ |
30.86 |
|
|
$ |
1,160 |
|
Granted |
|
|
412,917 |
|
|
$ |
36.00 |
|
|
|
|
|
Exercised |
|
|
(407,038 |
) |
|
$ |
34.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
108,634 |
|
|
$ |
36.21 |
|
|
$ |
1,006 |
|
Granted |
|
|
463,443 |
|
|
$ |
35.52 |
|
|
|
|
|
Exercised |
|
|
(439,325 |
) |
|
$ |
37.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
132,752 |
|
|
$ |
29.30 |
|
|
$ |
599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
F - 38
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) INTEREST EXPENSE, NET
Interest expense, net, consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest expense |
|
$ |
87,142 |
|
|
$ |
92,210 |
|
|
$ |
62,095 |
|
Interest and finance charge (income) |
|
|
(2,747 |
) |
|
|
(2,725 |
) |
|
|
(1,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84,395 |
|
|
$ |
89,485 |
|
|
$ |
60,180 |
|
|
|
|
|
|
|
|
|
|
|
(17) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net earnings by the weighted average
number of shares of the Companys common stock outstanding during the period. Outstanding shares
consist of issued shares less treasury stock. 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 and the Companys ESPP. For periods
prior to the July 3, 2007 NWS Exchange Transaction, the calculation of diluted earnings per share
also assumed the conversion of National Welders preferred stock to Airgas common stock (see Note
1 to the table below).
Outstanding stock options that are anti-dilutive are excluded from the Companys diluted
earnings per share computation. There were approximately 1.9 million, 1.3 million, and 780
thousand outstanding stock options that were not dilutive for the years ended March 31, 2009,
2008, and 2007, respectively.
F - 39
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the computation of basic and diluted earnings per share for the years
ended March 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
Years Ended March 31, |
|
Basic Earnings per Share Computation |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
261,088 |
|
|
$ |
223,348 |
|
|
$ |
154,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding |
|
|
81,926 |
|
|
|
81,402 |
|
|
|
78,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
|
$ |
3.19 |
|
|
$ |
2.74 |
|
|
$ |
1.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
Diluted Earnings per Share Computation |
|
2009 |
|
|
2008 (2) |
|
|
2007 (1) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
261,088 |
|
|
$ |
223,348 |
|
|
$ |
154,416 |
|
Plus: Preferred stock dividends |
|
|
|
|
|
|
711 |
|
|
|
2,845 |
|
Plus: Income taxes on earnings of National Welders |
|
|
|
|
|
|
245 |
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
Net earnings assuming preferred stock conversion |
|
$ |
261,088 |
|
|
$ |
224,304 |
|
|
$ |
158,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding |
|
|
81,926 |
|
|
|
81,402 |
|
|
|
78,025 |
|
Incremental shares from assumed exercises and conversions: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and options under the Employee Stock Purchase Plan |
|
|
1,890 |
|
|
|
2,242 |
|
|
|
2,214 |
|
Preferred stock of National Welders |
|
|
|
|
|
|
591 |
|
|
|
2,327 |
|
|
|
|
|
|
|
|
|
Diluted shares outstanding |
|
|
83,816 |
|
|
|
84,235 |
|
|
|
82,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share |
|
$ |
3.12 |
|
|
$ |
2.66 |
|
|
$ |
1.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On July 3, 2007, the preferred stockholders of the National Welders joint venture
exchanged their preferred stock for common stock of Airgas (see Note 13). Prior to July 3,
2007, the preferred stockholders of National Welders had the option to exchange their 3.2
million preferred shares of National Welders either for cash at a price of $17.78 per share
or for approximately 2.3 million shares of Airgas common stock. If Airgas common stock had
a market value of $24.45 per share or greater, exchange of the preferred stock for Airgas
common stock was assumed because it provided greater value to the preferred stockholders.
Based on the assumed exchange of the preferred stock for Airgas common stock, the 2.3
million shares were included in the diluted shares outstanding. |
|
|
|
The National Welders preferred stockholders earned a 5% dividend, recognized as Minority
interest in
earnings of consolidated affiliate in the Consolidated Statement of Earnings. Upon the
exchange of the preferred stock for Airgas common stock, the dividend was no longer paid to
the preferred stockholders, resulting in additional net earnings for Airgas. For the
periods in which the exchange was assumed, the 5% preferred stock dividend was added back to
net earnings in the diluted earnings per share computation. |
|
|
|
For periods prior to the NWS Exchange Transaction, the earnings of National Welders for tax
purposes were treated as a deemed dividend to Airgas, net of an 80% dividend exclusion.
Upon the exchange of National Welders preferred stock for Airgas common stock, National
Welders became a 100% owned subsidiary of Airgas. As a 100% owned subsidiary, the net
earnings of National Welders are not subject to additional tax at the Airgas level. For the
period in which the exchange was assumed, the additional tax was added back to net earnings
in the diluted earnings per share computation. |
|
(2) |
|
The diluted earnings per share computation for the year ended March 31, 2008
includes the effect of the items described in (1) above, weighted to reflect the impact of
the NWS Exchange Transaction. |
F - 40
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) LEASES
The Company leases certain distribution facilities, fleet vehicles and equipment under
long-term operating leases with varying terms. Most leases contain renewal options and in some
instances, purchase options. Rentals under these operating leases for the years ended March 31,
2009, 2008, and 2007 totaled approximately $99 million, $96 million, and $79 million,
respectively. Certain operating facilities are leased at market rates from employees of the
Company who were previous owners of businesses acquired. Outstanding capital lease obligations and
the related capital assets are not material to the consolidated balance sheets at March 31, 2009
and 2008. In connection with the fleet vehicle operating leases, the Company guarantees a residual
value of $29 million, representing approximately 16% of the original cost.
At March 31, 2009, future minimum lease payments under non-cancelable operating leases were as
follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
Years Ending March 31, |
|
|
|
|
2010 |
|
$ |
83,948 |
|
2011 |
|
|
71,307 |
|
2012 |
|
|
56,744 |
|
2013 |
|
|
37,407 |
|
2014 |
|
|
20,128 |
|
Thereafter |
|
|
25,500 |
|
|
|
|
|
|
|
$ |
295,034 |
|
|
|
|
|
(19) COMMITMENTS AND CONTINGENCIES
(a) Legal
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 Companys financial position, results of operations or liquidity.
(b) Insurance Coverage
The Company has established insurance programs to cover workers compensation, business
automobile and general liability claims. During fiscal 2009, 2008 and 2007, these programs had
self-insured retention of $1 million per occurrence. For fiscal 2010, the self-insured retention
will remain $1 million per occurrence. The Company believes its insurance reserves are adequate.
The Company accrues estimated losses using actuarial models and assumptions based on historical
loss experience. The nature of the Companys business may subject it to product and general
liability lawsuits. To the extent that the Company is subject to claims that exceed its liability
insurance coverage, such suits could have a material adverse effect on the Companys financial
position, results of operations or liquidity.
The Company maintains a self-insured health benefits plan, which provides medical benefits to
employees electing coverage under the plan. The Company maintains a reserve for incurred but not
reported medical claims and claim development. The reserve is an estimate based on historical
experience and other assumptions, some of which are subjective. The Company will adjust its
self-insured medical benefits reserve as the Companys loss experience changes due to medical
inflation, changes in the number of plan participants and an aging employee base.
F - 41
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Supply Agreements
The Company purchases bulk quantities of industrial gases under long-term take-or-pay supply
agreements.
The Company is a party to a long-term take-or-pay supply agreement, in effect through August 2017,
under which Air Products and Chemicals, Inc. (Air Products) will supply the Company with bulk
nitrogen, oxygen and argon. Additionally, the Company has commitments to purchase helium and
hydrogen from Air Products under the terms of the take-or-pay supply agreement. The Company is
committed to purchase approximately $55 million annually in bulk gases under the Air Products
supply agreement. The Company also has long-term take-or-pay supply agreements with Linde AG to
purchase oxygen, nitrogen, argon, helium and acetylene. The agreements expire at various dates
through July 2019 and represent almost $50 million in annual bulk gas purchases. Additionally, the
Company has long-term take-or-pay supply agreements to purchase oxygen, nitrogen, argon and helium from
other major producers. Annual purchases under these contracts are approximately $20 million and
they expire at various dates through 2024. The annual purchase commitments above reflect estimates
based on fiscal 2009 purchases.
The Company also purchases liquid carbon dioxide and ammonia under take-or-pay supply
agreements. The Company is a party to long-term take-or-pay supply agreements for the purchase of
liquid carbon dioxide with approximately 15 suppliers that expire at various dates through 2044 and
represent approximately $18 million in annual purchases. The Company purchases ammonia from a
variety of sources and is obligated to purchase approximately $2 million annually under these
contracts. The annual purchase commitments reflect estimates based on fiscal 2009 purchases.
The supply agreements noted above contain periodic pricing adjustments based on certain
economic indices and market analyses. The Company believes the minimum product purchases under the
agreements are within the Companys normal product purchases. Actual purchases in future periods
under the supply agreements could differ materially from those presented above due to fluctuations
in demand requirements related to varying sales levels as well as changes in economic conditions.
The Company believes that if a long-term supply agreement with a major supplier of gases or other
raw materials was terminated, it would look to utilize excess internal production capacity and to
locate alternative sources of supply to meet customer requirements. The Company purchases
hardgoods from major manufacturers and suppliers. For certain products, the Company has negotiated
national purchasing arrangements. The Company believes that if an arrangement with any supplier of
hardgoods was terminated, it would be able to negotiate comparable alternative supply arrangements.
(d) Construction Commitments
At March 31, 2009, the Companys remaining construction commitments totaled approximately $10
million. Construction commitments represent outstanding commitments to customers primarily to
construct a raw liquid carbon dioxide plant in Camilla, GA. The Camilla, GA plant is expected to
be completed in mid-fiscal 2010.
(e) Letters of Credit
At March 31, 2009, the Company had outstanding letters of credit of approximately $42 million.
Letters of credit are guarantees of payment to third parties. The Companys letters of credit
principally back obligations associated with the Companys self-insured retention on workers
compensation, business automobile and general liability claims. The letters of credit are
supported by the Companys Credit Facility.
(20) BENEFIT PLANS
The Company has a defined contribution 401(k) plan (the 401(k) plan) covering substantially
all full-time employees. Under the terms of the 401(k) plan, the Company makes matching
contributions of up to two percent
of participants wages. Amounts expensed under the 401(k) plan for fiscal 2009, 2008 and 2007 were
$8.6 million, $6.9 million and $5.8 million, respectively.
F - 42
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company participates in several multi-employer pension plans providing defined benefits to
union employees under the provisions of collective bargaining agreements. Contributions are made
to the plans in accordance with negotiated collective bargaining agreements. The plans generally
provide retirement benefits to participants based on their service to contributing employers. The
Company contributed $753 thousand, $893 thousand and $1.2 million to these plans in fiscal
2009, 2008 and 2007, respectively.
During fiscal 2009 and 2008, in connection with negotiated changes in collective bargaining
agreements, the Company is no longer required to make contributions to certain pension funds. The
Company believes that it has triggered a partial withdrawal liability for certain plans and has
recorded estimated accruals totaling $6.2 million. If the Company elected to withdraw from all of
its multi-employer pension plans, the additional withdrawal liability at March 31, 2009 is
estimated to be $6 million. Though the latest information available to the Company from the plans
was used in computing this estimate, it is not current and does not reflect the market conditions
that impacted calendar 2008 and is calculated with numerous assumptions, including investment
returns, benefit levels and continued participation by other companies that are in the plans.
(21) RELATED PARTIES
The Company purchases and sells goods and services in the ordinary course of business with
certain corporations in which some of its directors are officers or directors. The Company also
leases certain operating facilities from employees who were previous owners of businesses acquired.
Payments made to related parties for fiscal 2009, 2008, and 2007 were $3.5 million, $1.1 million
and $843 thousand, respectively. Amounts paid to related parties represented values considered
fair and reasonable and reflective of arms length transactions.
(22) SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid for Interest and Taxes
Cash paid for interest and income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
(In thousands) |
|
2009 |
|
2008 |
|
2007 |
Interest paid |
|
$ |
75,630 |
|
|
$ |
93,076 |
|
|
$ |
71,965 |
|
Discount on securitization |
|
|
10,738 |
|
|
|
17,031 |
|
|
|
13,630 |
|
Income taxes (net of refunds) |
|
|
64,616 |
|
|
|
52,254 |
|
|
|
50,021 |
|
Significant Non-cash Investing and Financing Transactions
During the years ended March 31, 2009, 2008 and 2007, the Company purchased $7.3 million,
$13.7 million and $5.3 million, respectively of rental welders, which were financed directly by a
vendor. The vendor financing was reflected as long-term debt on the respective Consolidated
Balance Sheets. Future cash payments in settlement of the debt will be reflected in the
Consolidated Statement of Cash Flows when paid.
During the years ended March 31, 2009, 2008 and 2007, the Company recorded capitalized
interest for
construction in progress of $3.4 million, $1.6 million and $502 thousand, respectively.
In connection with the NWS Exchange Transaction (see Note 13), the Company issued 2.471
million shares of common stock valued at approximately $64 million in a non-cash transaction in
exchange for the preferred stock of National Welders.
In an acquisition consummated during fiscal 2008, a seller of a business provided direct
financing in the form of a $5 million note payable by the Company. Approximately $3 million was
outstanding on the note at
F - 43
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009. Payment of the note will be reflected in the
Consolidated Statement of Cash Flows when the cash is paid. In addition, the Company assumed
capital lease obligations of $1.8 million in connection with an acquisition.
In March 2008, the Company executed a $4.6 million purchase transaction of its common stock
under its Repurchase Plan (see Note 14(e)) that settled in April 2008. The purchase was a
non-cash financing transaction that was recognized in treasury stock and as an accrued liability
on the March 31, 2008 Consolidated Balance Sheet.
(23) SUMMARY BY BUSINESS SEGMENT
The Company aggregates its operations, based on products and services, into two reportable
business segments, Distribution and All Other Operations. During the fourth quarter of fiscal
2009, the Company changed the operating practices and organization of its air separation production
facilities and national specialty gas labs. The new operating practices and organization reflect
the evolution of these businesses and their role to support the regional distribution companies.
The regional distribution companies market to and manage the end customer relationships,
coordinating and cross-selling the Companys multiple product and service offerings in a closely
coordinated and integrated manner. As a result of these changes, these businesses are now
reflected in the Distribution business segment. Also as a result of an organizational realignment,
Airgas National Welders is now part of the Distribution business segment. Segment information from
fiscal 2008 and 2007 was restated to reflect these changes.
The Distribution business segments principal products include industrial, medical and
specialty gases sold in packaged and bulk quantities, as well as
hardgoods. The Companys air
separation production facilities and national specialty gas labs primarily produce these gases for
sale through the regional distribution companies. Business units in the Distribution business
segment also recognize rental revenue and distribute hardgoods. Gas sales include nitrogen,
oxygen, argon, helium, hydrogen, propylene, propane welding and fuel gases such as acetylene,
carbon dioxide, nitrous oxide, ultra high purity grades, special application blends and process
chemicals. Rent is derived from gas cylinders, cryogenic liquid containers, bulk storage tanks,
tube trailers and through the rental of welding and welding related equipment. Gas and rent
represented 57%, 56% and 53% of
the Distribution business segments sales in each of fiscal 2009, 2008 and 2007, respectively.
Hardgoods consist of welding consumables and equipment, safety products, construction supplies and
MRO supplies. In fiscal 2009, 2008 and 2007, hardgoods sales represented 43%, 44% and 47%,
respectively, of the Distribution business segments sales. During fiscal 2009, 2008 and 2007, the
Distribution business segment accounted for approximately 90% of consolidated sales.
F - 44
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The All Other Operations business segment consists of six business units. The primary
products manufactured and distributed are carbon dioxide, dry ice, nitrous oxide, ammonia and
refrigerant gases. The business units reflected in the All Other Operations business segment
individually do not meet the thresholds to be reported as separate business segments. Elimination
entries represent intercompany sales from the Companys All Other Operations business segment to
its Distribution business segment.
The Companys operations are predominantly in the United States. However, the Company does
conduct operations outside of the United States, principally in Canada and to a lesser extent
Mexico, Russia, Dubai and Europe. Revenues derived from foreign countries are based on the point
of sale and were $86 million, $63 million and $51 million in the fiscal years ended March 31, 2009,
2008 and 2007, respectively. Long-lived assets attributable to the Companys foreign operations
represent less than 3.5% of the consolidated total long-lived assets and were $116 million, $74
million and $56 million at March 31, 2009, 2008 and 2007, respectively. The Companys customer
base is diverse with its largest customer accounting for approximately 0.5% of total net sales.
The accounting policies of the segments are the same as those described in the Summary of
Significant Accounting Policies (Note 1). Additionally, corporate operating expenses are allocated
to each segment based on sales dollars. Corporate assets have been allocated to the Distribution
business segment, intercompany sales are recorded on the same basis as sales to third parties, and
intercompany transactions are eliminated in consolidation. See Note 3 for the impact of
acquisitions and divestitures on the operating results of each business segment.
Management utilizes more than one measurement and multiple views of data to measure segment
performance and to allocate resources to the segments. However, the dominant measurements are
consistent with the Companys consolidated financial statements and, accordingly, are reported on
the same basis below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
(In thousands) |
|
Distribution |
|
|
Operations |
|
|
Eliminations |
|
|
Combined |
|
Fiscal 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas and rent |
|
$ |
2,239,724 |
|
|
$ |
452,037 |
|
|
$ |
(26,236 |
) |
|
$ |
2,665,525 |
|
Hardgoods |
|
|
1,678,652 |
|
|
|
5,292 |
|
|
|
(14 |
) |
|
|
1,683,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
|
3,918,376 |
|
|
|
457,329 |
|
|
|
(26,250 |
) |
|
|
4,349,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
sold, excluding
deprec. expense |
|
|
1,813,125 |
|
|
|
258,145 |
|
|
|
(26,250 |
) |
|
|
2,045,020 |
|
Selling, distribution
and administrative
expenses |
|
|
1,432,105 |
|
|
|
126,667 |
|
|
|
|
|
|
|
1,558,772 |
|
Depreciation |
|
|
184,991 |
|
|
|
13,042 |
|
|
|
|
|
|
|
198,033 |
|
Amortization |
|
|
18,267 |
|
|
|
4,495 |
|
|
|
|
|
|
|
22,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
469,888 |
|
|
$ |
54,980 |
|
|
$ |
|
|
|
$ |
524,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
3,921,339 |
|
|
$ |
478,198 |
|
|
|
|
|
|
$ |
4,399,537 |
|
Capital expenditures |
|
$ |
319,256 |
|
|
$ |
32,656 |
|
|
|
|
|
|
$ |
351,912 |
|
F - 45
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
(In thousands) |
|
Distribution |
|
|
Operations |
|
|
Eliminations |
|
|
Combined |
|
Fiscal 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas and rent |
|
$ |
2,048,070 |
|
|
$ |
339,455 |
|
|
$ |
(15,003 |
) |
|
$ |
2,372,522 |
|
Hardgoods |
|
|
1,640,896 |
|
|
|
3,791 |
|
|
|
(185 |
) |
|
|
1,644,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
|
3,688,966 |
|
|
|
343,246 |
|
|
|
(15,188 |
) |
|
|
4,017,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products
sold, excluding
deprec. expense |
|
|
1,770,000 |
|
|
|
174,451 |
|
|
|
(15,188 |
) |
|
|
1,929,263 |
|
Selling, distribution
and administrative
expenses |
|
|
1,317,717 |
|
|
|
104,445 |
|
|
|
|
|
|
|
1,422,162 |
|
Depreciation |
|
|