UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 - 1004
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 11, 2001
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Airgas, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-9344 56-0732648
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) identification No.)
incorporation or
organization)
259 North Radnor-Chester Road, Suite 100, Radnor, Pennsylvania 19087-5283
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 687-5253
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None
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(Former name or former address if changed
since last report.)
Item 5. Other Events.
The press release attached hereto as Exhibit 99, issued by Airgas, Inc. on
July 11, 2001, is incorporated by reference herein.
Item 9. Regulation FD Disclosure.
As used herein, the terms "we" and "Airgas" refer to Airgas, Inc. and its
subsidiaries, unless otherwise indicated or the context otherwise requires. When
we refer to any of our historical fiscal years (including "fiscal 2001") herein,
we refer to the twelve-month period ended March 31 of such year.
In connection with the proposed private placement of securities discussed
in the attached press release (Exhibit 99), the following information will be
utilized:
Business Overview
We are the largest distributor of industrial, medical and specialty gases
(delivered in cylinder or "packaged" form) and related welding supplies and
equipment, and the third largest distributor of safety products in the U.S. We
are also a leading producer and distributor of dry ice, liquid carbon dioxide
and nitrous oxide in the U.S. Our products are used in many industries,
including fabricated metal products, agriculture and mining, construction,
medical and health services and food and beverage.
Our revenue derives principally from the sale of packaged gases, such as
nitrogen, oxygen, argon, helium, acetylene, carbon dioxide, nitrous oxide,
hydrogen and specialty gases; the rental of our gas cylinders, bulk storage
tanks and welding equipment; and the sale of hardgoods, such as welding supplies
and equipment, safety products and maintenance, repair and operations products.
Our total net sales and Adjusted EBITDA for the fiscal year ended March 31, 2001
were approximately $1.6 billion and $208 million, respectively.
We estimate the domestic market for packaged gas and welding equipment
sales in 2000 to have been approximately $8 billion. As of the fiscal year ended
March 31, 2001, we believe we had a market share of approximately 15%. We also
have a diversified base of over 700,000 customers, with our largest customer
representing approximately 1% of total net sales.
We operate the largest packaged gas distribution network in the U.S., with
approximately 700 locations in 44 states, consisting of five regional
distribution centers, 130 gas fill plants and testing facilities, approximately
600 branch stores and four customer call centers. We also operate two air
separation plants, 15 acetylene, 17 dry ice and eight liquid carbon dioxide
production facilities and six specialty gas laboratories.
Key Strengths
We believe that our key strengths are:
o Leading market positions in all our business segments. We are the
largest distributor of packaged industrial, medical and specialty
gases and related welding supplies and equipment in the U.S., with an
estimated market share of approximately 15%. We are also the third
largest distributor of safety products in the U.S., and a leading
producer and distributor of dry ice, liquid carbon dioxide and nitrous
oxide in the U.S.
o National distribution footprint. We believe we are better positioned
than our competitors to serve our customers with superior local
service and a national scope, with approximately 700 locations in 44
states. We believe that our customers find it convenient to do
business with us through our multiple distribution channels, including
our national footprint of retail locations, catalogs, telemarketing
and eBusiness. It would be difficult and expensive for a competitor to
replicate the national footprint we have assembled through more than
300 acquisitions over the last 18 years.
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o Broad product and service offerings. We offer our customers a broad
line of products and services, from gases to hardgoods and safety
products. We have increasingly become a one-stop shopping source for
our local and national customers, with our broad selection and
complementary sets of products and services, including the Radnor(TM)
private-label products. One-stop shopping has also contributed to the
success of our national strategic accounts program through which we
sign multi-year contracts to distribute our products to customers with
multiple locations across broad geographic regions.
o Diverse customer base. We believe that our diverse customer base
minimizes the impact of economic cyclicality. We have over 700,000
customers representing more than 33 industries, including noncyclical
businesses such as medical services and food and beverage. In
addition, we do not rely on any single industry or customer for our
sales. Our largest industry served and largest individual customer
accounted for approximately 15% and 1% of our fiscal 2001 total net
sales, respectively.
o Stable cash flows. As a result of our diverse customer base and
business mix, we have enjoyed stable operating cash flows. In
addition, our business requires relatively low levels of maintenance
capital expenditures, and we have already completed most of the
capital investments required in developing our five regional
distribution centers. Our available cash flows have enabled us to
reduce our indebtedness from time to time.
o Strong management team with extensive industry experience. Our Chief
Executive Officer and Chief Operating Officer have an average of 22
years of experience in the industrial gas and chemicals industries.
Our senior management team combines professionals with long-term
experience within our company and recent key hires who bring broad
talents and expertise from the industrial gas and other industries.
Moreover, our senior management team is supported by numerous senior
managers who have extensive experience in our industry and in their
respective regions.
Our Strategy
The key elements of our strategy are:
o Focus on internal growth supplemented by acquisitions in our core
businesses. One of our key objectives is to be the market leader with
respect to profitable sales growth. We believe that we can achieve
this goal by leveraging our leading market position, our national
distribution infrastructure, our multi-channel distribution network
and our broad product and service offerings. By implementing this
strategy, we increased same-store sales growth in fiscal 2001 by 3.1%
during a period of declining non-technology industrial production in
the U.S.
In addition, to supplement internal growth, we will continue to pursue
strategic acquisitions of complementary businesses. We are
continuously evaluating acquisition opportunities and consolidation
possibilities, and we are currently in various stages of due diligence
or preliminary discussions with respect to a number of potential
transactions. None of these potential transactions is subject to a
letter of intent (except for one immaterial acquisition that is
currently being evaluated) or otherwise so far advanced as to make the
transaction reasonably certain.
o Improve operating efficiencies to become the lowest-cost supplier in
the industry. We are highly focused on continuously improving our
operating efficiencies. Our efforts include improving internal
logistics and supply chain management, standardizing and centralizing
administrative and financial processes, consolidating our purchasing
activities, improving utilization of our gas cylinders and
implementing organization-wide
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best practices. In the fourth quarter of fiscal 2001, we launched a
program, which we refer to as Project One, that we believe will assist
us in achieving these objectives. Project One is expected to realize
short-term improvements from value-enhancing programs and build our
long-term scalable infrastructure that will sustain short-term
improvements and support future growth.
o Balance growth with continued discipline in paying down debt and
improving our credit profile. In fiscal 2001, we reduced our total
debt by $113 million, in addition to $73.2 million of debt repaid from
the proceeds of our accounts receivable securitization facility. We
expect to continue reducing debt and improving our credit ratios by
improving free cash flow through sales growth, implementing
initiatives that we expect will result in cost savings and working
capital improvements and divesting non-core businesses.
Recent Developments
In April 2001, we closed the second and final tranche of our $150 million
accounts receivable securitization facility, which resulted in net proceeds of
$64.3 million, which was subsequently reduced to $64.1 million to reflect
certain changes in our accounts receivable. These net proceeds were applied to
repay outstanding loans under our existing bank credit facilities. Currently,
there is $137.3 million funded under the facility.
Concurrently with this offering, we will obtain a new bank credit facility
from a group of financial institutions for which Bank of America, N.A. will be
the U.S. agent. We have received commitments of $400 million for the new bank
credit facility, which will be available in the form of revolving loans and
letters of credit. A portion of the commitments, which we expect to be the
United States dollar equivalent of CDN$50 million, will be made available in
Canadian dollars. Once the amount of the Canadian dollar commitment has been
determined, the amounts of the United States dollar commitment and the Canadian
dollar commitment will not fluctuate based upon changes in the exchange rate
between the United States dollar and the Canadian dollar. The new bank credit
facility will be guaranteed by certain of our domestic subsidiaries and our
borrowings in Canadian dollars will also be guaranteed by certain of our
Canadian subsidiaries.
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Summary Consolidated Financial Information
The following tables present summary financial information for fiscal 1999,
2000 and 2001 and at March 31, 1999, 2000 and 2001. These tables should be read
in conjunction with the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements included in our annual report on Form 10-K for the fiscal
year ended March 31, 2001.
The information below designated "as adjusted" gives effect to (1) our
accounts receivable securitization facility, the final phase of which was
completed in April 2001, and the repayment of loans under our existing bank
credit facilities with the net proceeds, (2) the initial borrowings under a new
bank credit facility contemporaneously with the closing of the sale of the notes
and the repayment of loans under our existing bank credit facilities with the
net proceeds and (3) the issuance and sale of the notes and the application of
the net proceeds therefrom to repay our outstanding loans under our existing
credit facilities which events we refer to herein collectively as the
"Refinancing Transactions." The "as adjusted" information is derived from data
contained in our historical financial statements which has been adjusted to give
pro forma effect to the Refinancing Transactions as if the Refinancing
Transactions had occurred as of April 1, 2000 in the case of the income
statement information or March 31, 2001 in the case of the balance sheet
information.
Fiscal
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1999(1) 2000(2) 2001(3)
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(in thousands)
Income Statement Data:
Distribution sales........................................... $1,406,184 $1,409,949 $1,487,422
Gas Operations sales......................................... 155,034 132,385 141,479
---------- ---------- ----------
Total net sales.................................... 1,561,218 1,542,334 1,628,901
Cost of products sold (excluding depreciation and
amortization):
Distribution............................................ 768,568 760,122 797,423
Gas Operations.......................................... 69,487 56,475 49,777
Selling, distribution and administrative expenses............ 523,241 532,527 583,355
Depreciation 61,901 63,635 62,938
Amortization 26,025 25,673 23,816
Special (charges) recoveries, net............................ 1,000 2,829 (3,643)
Total operating income....................................... 112,996 106,731 107,949
Interest expense, net........................................ 60,298 57,560 60,207
Earnings before income taxes and the cumulative effect of an
accounting change......................................... 86,361 70,424 48,941
Net earnings................................................. 51,924 38,283 28,223
Cash Flow Statement Data:
Capital expenditures......................................... $ 101,638 $ 65,211 $ 65,910
Net cash provided by operating activities.................... 102,063 100,092 199,005
Net cash used in investing activities........................ 96,876 65,461 10,852
Net cash used in financing activities........................ 5,187 34,631 188,153
Other Financial Data:
Interest expense............................................. $ 62,588 $ 58,712 $ 62,737
EBITDA(4).................................................... 205,455 200,012 198,371
Adjusted EBITDA(5)........................................... 202,655 208,483 208,014
Adjusted debt(6)............................................. 882,648 924,449 811,039
Ratio of earnings to fixed charges(7)........................ 2.48x 2.49x 2.41x
Ratio of Adjusted EBITDA to interest expense(5).............. 3.24x 3.55x 3.32x
Ratio of Adjusted debt to Adjusted EBITDA(5)(6).............. 4.36x 4.43x 3.90x
At March 31,
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2001,
1999 2000 2001 As Adjusted
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(in thousands)
Balance Sheet Data:
Plant and equipment, net.......................... $717,859 $753,768 $704,646 $704,646
Total assets(8)................................... 1,698,472 1,739,331 1,582,725 1,518,625
Current portion of long-term debt................. 19,645 20,071 72,945 72,945
Long-term debt, excluding current portion......... 847,841 857,422 620,664 571,989
Total long-term debt(8)...................... 867,486 877,493 693,609 639,134
Total stockholders' equity........................ 470,945 472,507 496,849 496,849
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Fiscal 2001
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As Adjusted Data:
Ratio of Adjusted EBITDA to interest expense
(as adjusted)(5)(9)............................ 2.94x
Ratio of Adjusted debt to Adjusted
EBITDA(5)(6)................................... 3.95x
(1) The results for fiscal 1999 include:
(a) special charge recoveries of $1.0 million ($575,000 after-tax),
(b) divestiture gains of $25.5 million ($15 million after-tax), and
(c) a $1.8 million after-tax nonrecurring gain relating to insurance
proceeds recorded by an equity affiliate.
(2) The results for fiscal 2000 include:
(a) special charge recoveries of $2.8 million ($1.7 million after-tax),
(b) divestiture gains of $17.5 million ($8.6 million after-tax),
(c) a litigation charge of $7.5 million ($4.8 million after-tax),
(d) an inventory write-down of $3.8 million ($2.2 million after-tax), and
(e) an after-tax charge of $590,000 representing a change in accounting
principle.
(3) The results for fiscal 2001 include:
(a) net special charges of $3.6 million ($2.3 million after-tax),
(b) litigation charges, net of $5.3 million ($3.4 million after-tax), and
(c) asset impairments associated with two equity affiliates of $700,000
after-tax.
(4) EBITDA represents total operating income plus depreciation, amortization
and cash dividends and fees from unconsolidated affiliates.
EBITDA is not a measure of operating income, operating performance or
liquidity under generally accepted accounting principles ("GAAP"). We
include EBITDA data because we understand such data are used by certain
investors to determine our historical ability to service our debt.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, as determined in accordance with GAAP, or
as a measure of liquidity. Additionally, it should be noted that companies
calculate EBITDA differently and therefore EBITDA as presented for Airgas
may not be comparable to EBITDA reported by other companies. EBITDA may not
be indicative of historical operating results, and we do not mean it to be
indicative of future results of operations or cash flows. You should also
see the statements of cash flows contained within our consolidated
financial statements, which are included elsewhere in this offering
circular.
(5) Adjusted EBITDA represents EBITDA plus one-time losses and special charges
minus one-time gains and special recoveries. Adjusted EBITDA was calculated
as follows:
Fiscal
-----------------------------------
1999 2000 2001
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(in thousands)
EBITDA............................. $205,455 $200,012 $198,371
One-time losses.................... -- 11,300 6,000
Special charges (recoveries)....... (1,000) (2,829) 3,643
One-time gains..................... (1,800) -- --
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Adjusted EBITDA.................... $202,655 $208,483 $208,014
======== ======== ========
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(6) Adjusted debt represents total long-term debt as presented on the balance
sheet plus synthetic lease obligations and amounts drawn under the accounts
receivable securitization facility. Adjusted debt was calculated as
follows:
At March 31,
---------------------------------------
2001, As
1999 2000 2001 Adjusted
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(in thousands)
Long-term debt................ $867,486 $877,493 $693,609 $639,134
Synthetic Lease obligations... 15,162 46,956 44,230 44,230
Accounts receivable
securitization facility....... -- -- 73,200 137,300
-------- -------- -------- -------
Adjusted debt................. $882,648 $924,449 $811,039 $820,664
======== ======== ======== ========
(7) Earnings consist of pre-tax income from continuing operations before equity
method earnings or losses plus fixed charges minus minority interest in
pre-tax income of entities that have not incurred fixed charges. Fixed
charges consist of interest expense on debt and amortization of deferred
debt issuance costs, and the portion of rental expense that we believe is
representative of the interest component of rental expense of approximately
$11.8 million, $12.8 million and $14.6 million in 1999, 2000 and 2001,
respectively.
(8) In April 2001, we closed the final tranche of our $150 million accounts
receivable securitization facility and used the net proceeds of $64.3
million to repay borrowings under our existing bank credit facilities.
Currently, there is $137.3 million funded under the facility.
(9) The following table sets forth a reconciliation of interest expense, which
includes gross interest expense and the discount on the securitization of
trade revenues of $61.4 million and $1.3 million respectively, to interest
expense (as adjusted):
Fiscal 2001
(in thousands)
--------------
Interest expense................................ $ 62,737
Net effect of the Refinancing Transactions on
interest expense............................... 7,910
---------
Interest expense (as adjusted).................. $ 70,647
=========
RISK FACTORS
In addition to the other information in this document, you should consider
the following factors in evaluating Airgas before purchasing the notes.
Risks Relating to Investment in the Notes
The notes will be contractually junior in right of payment to all of our senior
indebtedness and the subsidiary guarantees will be contractually junior in right
of payment to all senior indebtedness of the subsidiary guarantors.
As of March 31, 2001, after giving pro forma effect to the Refinancing
Transactions, we would have had approximately $439.1 million of senior
indebtedness, including letters of credit issued under the new credit facility
aggregating approximately $51.7 million, and our guarantors would have had
approximately $414.2 million of senior indebtedness, including guarantees of
senior debt of Airgas aggregating approximately $385.6 million. Although the
indenture with respect to the notes will contain limitations on our ability to
incur additional indebtedness, those limitations are subject to a number of
qualifications and exceptions that, depending on the circumstances at the time,
would allow us to incur a substantial amount of additional indebtedness, all of
which could be senior indebtedness.
We generally may not pay our obligations on the notes, or repurchase,
redeem or otherwise retire the notes if any senior indebtedness is not paid when
due or any default on
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senior indebtedness occurs and the maturity of the senior indebtedness is
accelerated in accordance with its terms, unless, in either case, the default
has been cured or waived, any acceleration has been rescinded or the senior
indebtedness has been repaid in full. In addition, if certain other defaults
regarding our senior indebtedness occur, we may not be permitted to pay any
obligations under the notes or any subsidiary guarantees for a designated period
of time. If we or any subsidiary guarantors are declared bankrupt or insolvent,
or if there is a payment default under, or an acceleration of, any senior
indebtedness, we are required to pay the lenders under the new bank credit
facility and any other creditors who are holders of senior indebtedness in full
before we apply any of our assets to pay you. Accordingly, we may not have
enough assets remaining after payments to holders of the senior indebtedness to
pay you. Also, if our credit ratings are reduced, loans under the new bank
credit facility will become secured by liens on substantially all of our
tangible and intangible assets. The notes are unsecured and therefore do not
have the benefit of any collateral. If any event of default occurs under the new
bank credit facility when the lenders thereunder are secured by those assets,
the lenders may foreclose upon their collateral. In that case, those assets
would first be used to repay in full all amounts outstanding under the new bank
credit facility and may not be available to repay our obligations on the notes.
We may not have sufficient funds to purchase notes upon a change of control.
If there is a change of control under the terms of the indenture governing
the notes, each holder of notes may require us to purchase all or a portion of
its notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest to the date of purchase. Our ability to purchase the notes
upon a change of control may be limited by the terms of our other debt
agreements at that time. In order to purchase any outstanding notes, we might
have to refinance our outstanding indebtedness, which we might not be able to
do. Even if we were able to refinance our other indebtedness, any financing
might be on terms unfavorable to us. In addition, the new bank credit facility
will prohibit us from purchasing any notes, including as a result of any offer
in connection with a change of control, and also provides that the occurrence of
certain kinds of change of control events will constitute a default under the
new bank credit facility. In the event of a certain kind of change of control,
we must offer to repay all borrowings under the new bank credit facility and
obtain the consent of our lenders under the new bank credit facility to purchase
the notes. If we do not obtain such a consent or repay such borrowings, we will
remain prohibited from purchasing notes. In such a case, our failure to purchase
tendered notes would constitute a default under the indenture governing the
notes, which would constitute a default under the new bank credit facility. We
cannot assure you that we will have the financial ability to purchase
outstanding notes upon the occurrence of a change of control.
Not all of our subsidiaries guarantee our obligations under the notes, and the
assets of the non-guarantor subsidiaries may not be available to make payments
on the notes.
Our present and future foreign subsidiaries and domestic unrestricted
subsidiaries will not be guarantors of the notes. Payments on the notes are only
required to be made by the subsidiary guarantors and us. As a result, no
payments are required to be made from the assets of subsidiaries that do not
guarantee the notes, unless those assets are transferred by dividend or
otherwise to us or a subsidiary guarantor. Our non-guarantor subsidiaries
generated 1.3% of our total net sales and 4.6% of our EBITDA in fiscal 2001.
In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their indebtedness, including their trade
creditors and other obligations, including any preferred stock, will be entitled
to payment of their claims from the assets of those subsidiaries before any
assets are made available for distribution to us. As a result, the notes are
effectively subordinated to all the liabilities of the non-guarantor
subsidiaries.
U.S. bankruptcy or fraudulent conveyance law may interfere with the payment of
the subsidiary guarantees.
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Our subsidiaries will not receive any of the proceeds from the notes. Under
U.S. federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be subordinated to all other indebtedness of
that subsidiary guarantor if, among other things, the subsidiary guarantor, at
the time it incurred the indebtedness evidenced by its guarantee:
o incurred the guarantee with the intent of hindering, delaying or
defrauding current or future creditors; or
o received less than reasonably equivalent value or fair consideration
for incurring the guarantee; and
o were insolvent or were rendered insolvent by reason of the incurrence;
o were engaged, or about to engage, in a business or transaction for
which the assets remaining with it constituted unreasonably small
capital to carry on our business;
o intended to incur, or believed that it would incur, debts beyond its
ability to pay as these debts matured; or
o were a defendant in an action for money damages, or had a judgment for
money damages entered against us if, in either case, after final
judgment the judgment was unsatisfied.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction that is being applied in any proceeding. Generally,
however, a debtor would be considered insolvent if, at the time the debtor
incurred the indebtedness, either:
o the sum of the debtor's debts and liabilities, including contingent
liabilities, is greater than the debtor's assets at fair valuation; or
o the present fair saleable value of the debtor's assets is less than the
amount required to pay the probable liability on the debtor's total
existing debts and liabilities, including contingent liabilities, as
they become absolute and matured.
If the subsidiary guarantees are not enforceable, the notes would be
effectively junior in ranking to all liabilities of the subsidiary guarantors,
including trade payables of the subsidiary guarantors, and to any other prior
claims, including claims by holders of any preferred stock. In addition, any
payment by such subsidiary guarantor pursuant to its guarantee could be voided
and required to be returned to such guarantor, or to a fund for the benefit of
the creditors of the subsidiary guarantor. As of March 31, 2001, on a pro forma
basis, after giving effect to the Refinancing Transactions our subsidiary
guarantors had total liabilities, excluding liabilities owed to us and
guarantees of our indebtedness, of approximately $363.1 million.
There are restrictions on transfers of the notes.
We are relying upon an exemption from registration under the Securities Act
and applicable state securities laws in offering the notes. The notes may be
transferred or resold only in transactions registered, or exempt from
registration, under the Securities Act and applicable state securities laws. We
intend to file a registration statement with the Commission and to cause that
registration statement to become effective with respect to notes to be issued in
exchange for the notes offered hereby. However, the registration statement may
not become or remain effective for a variety of reasons.
Investors may find it difficult to trade the notes.
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The notes are a new issue of securities, and there is currently no public
market for the notes. We do not intend to apply for listing of the notes on any
securities exchange. Although the initial purchasers have informed us that they
intend to make a market in the notes, they are under no obligation to do so and
may discontinue any market making activities at any time without notice. Any
such market making will be subject to the limitations imposed by the Securities
Act and the Exchange Act and may be limited during the exchange offer for the
notes. We expect that the notes will be eligible for trading in The PORTAL
Market of the National Association of Securities Dealers, Inc.
We also cannot assure you that you will be able to sell your notes or any
exchange notes at a particular time or that the prices that you receive when you
sell will be favorable. We also cannot assure you as to the level of liquidity
of the trading market for the notes or any exchange notes. Future trading prices
of the notes and any exchange notes will depend on many factors, including:
o our operating performance, prospects and financial condition or the
operating performance, prospects and financial condition of companies
in our industry generally;
o our ability to complete the offer to exchange the notes for the
exchange notes;
o the interest of securities dealers in making a market for the notes
and exchange notes; and
o the market for similar securities.
Historically, the market for non-investment-grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the notes and, if issued, the exchange notes will be subject to
disruptions. Any disruptions may have a negative effect on the holders of the
notes, regardless of our prospects and financial performance.
Risks Relating to Our Business
We have significant debt and our debt service obligations are substantial.
We have substantial amounts of outstanding indebtedness. As of March 31,
2001, after giving pro forma effect to the Refinancing Transactions, we would
have had total consolidated Adjusted debt of approximately $820.7 million, which
includes $639.2 million of long-term debt, $44.2 million of synthetic lease
obligations and $137.3 million of our accounts receivable securitization
facility.
Our substantial indebtedness could have significant negative consequences,
including:
o increasing our vulnerability to general adverse economic and industry
conditions;
o limiting our ability to obtain additional financing for working
capital, capital expenditures, acquisitions and other purposes;
o requiring the dedication of a significant portion of our expected cash
flow from operations to service our indebtedness, thereby reducing the
amount of our expected cash flow available for working capital,
capital expenditures, acquisitions and other purposes;
o making it more difficult to satisfy our obligations with respect to
the notes;
o limiting our flexibility in planning for, or reacting to, changes in
our business and industry;
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o placing us at a possible competitive disadvantage relative to less
leveraged competitors;
o increasing the amount of our interest expense, because some of our
borrowings are at variable rates of interest, which, if interest rates
increase, could result in higher interest expense; and
o limiting, through the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds, dispose of assets or make investments.
After giving pro forma effect to the Refinancing Transactions, our pro
forma interest expense for fiscal 2001 would have been $70.6 million (based on
assumed interest rates). This pro forma interest expense does not take into
account the costs of our synthetic leases. Our ability to meet our expenses and
debt obligations will depend on our future performance, which will be affected
by financial, business, economic and other factors. We will not be able to
control many of these factors, such as economic conditions, governmental
regulation and the availability of fuel supplies. We cannot be certain that our
earnings will be sufficient to allow us to pay the principal and interest on our
debt, including the notes, and meet our other obligations. If we do not have
enough money, we may be required to refinance all or part of our existing debt,
including the notes, sell assets, borrow more money or sell equity. We cannot
assure you that we will be able to accomplish any of these alternatives on terms
acceptable to us, if at all.
Despite currently expected levels of indebtedness, our subsidiaries and we will
be able to incur substantially more debt.
Our subsidiaries and we will be able to incur substantial additional
indebtedness in the future. Although the new bank credit facility and the
indenture governing the notes contain limitations on the incurrence of
additional indebtedness, those limitations are subject to a number of
qualifications and exceptions that, depending on the circumstances at the time,
would allow us to incur a substantial amount of additional indebtedness. As of
March 31, 2001, after giving pro forma effect to the Refinancing Transactions,
we would have had availability under our new bank credit facility of
approximately $105 million as a result of limitations imposed by its financial
covenants. In addition, the indenture with respect to the notes does not
restrict us from incurring obligations that do not constitute indebtedness or
preferred stock (as those terms are used in the indenture). To the extent new
debt and other obligations are added to our and our subsidiaries' currently
anticipated debt levels, the substantial risks described above would increase.
Many of our customers are in cyclical industries some of which are currently
experiencing downturns.
Demand for our products is affected by general economic conditions. A
decline in general economic or business conditions in the industries served by
our customers can have a material adverse effect on our business. In addition,
many of our customers are in businesses that are cyclical in nature, such as the
automotive and oil and gas industries. Downturns in these industries, even
during periods of strong general economic conditions, can adversely affect our
sales and our financial results.
We may not be successful in generating internal sales growth and in controlling
expenses.
Although one of our principal business strategies is to improve our
internal sales growth, the achievement of this objective may be adversely
affected by:
o competition from independent distributors and vertically integrated
gas producers on products and pricing;
o changes in supply prices from gas producers and manufacturers of
hardgoods; and
11
o general economic conditions in the industrial markets which we serve,
including metal fabrication, agriculture, mining, construction and
other markets.
In addition, we may not be able to adequately control expenses due to inflation
and potentially higher costs of our distribution infrastructure, including the
cost of developing new sales channels, such as eBusiness.
Increases in energy costs could reduce our profitability.
The cost of industrial gases represented a significant percentage of our
operating costs in fiscal 2001. Because the production of industrial gases
requires significant amounts of electric energy, industrial gas prices have
historically increased as the cost of electric energy increases. Recent
shortages of energy in various states may cause energy prices to continue to
rise and, as a result, increase the cost of industrial gases. In addition, a
significant portion of our distribution costs is comprised of diesel fuel costs,
which have been rising recently. While we have historically been able to pass
increases in the cost of our supplies on to our customers, we cannot assure you
that we will be able to continue to do so in the future. Increases in energy and
other costs that we are unable to pass on to our customers could significantly
reduce our profitability.
We may not be successful in making acquisitions.
We have historically expanded our business primarily through acquisitions.
A part of our business strategy is to continue to grow through the acquisition
of producers and distributors of industrial gases and related equipment. We are
continuously evaluating acquisition opportunities and consolidation
possibilities, and we are currently in various stages of due diligence or
preliminary discussions with respect to a number of potential transactions. None
of these potential transactions is subject to a letter of intent (except for one
immaterial acquisition that is currently being evaluated) or otherwise so far
advanced as to make the transaction reasonably certain. We cannot assure you
that we will continue to be able to identify acquisition candidates, or that we
will be able to make acquisitions on terms acceptable to us. In addition, there
is no assurance that we will be able to obtain financing on terms acceptable to
us for future acquisitions and, in any event, such financing may be restricted
by the terms of our new bank credit facility or the indenture relating to the
notes.
We may not be successful in integrating our past and future acquisitions and
achieving intended benefits and synergies.
The process of integrating acquired operations into our operations and
achieving targeted synergies may result in unexpected operating difficulties and
may require significant financial and other resources that would otherwise be
available for the ongoing development or expansion of the existing operations.
Acquisitions involve numerous risks, including:
o difficulty with the assimilation of acquired operations and products;
o failure to achieve targeted synergies;
o inability to retain key employees and business relationships of
acquired companies; and
o diversion of the attention and resources of our management team.
12
Acquisitions may have a material adverse effect on our business.
We may be required to incur additional debt in order to consummate
acquisitions in the future, which debt may be substantial. In addition,
acquisitions may result in the assumption of the outstanding indebtedness of the
acquired company, as well as the incurrence of contingent liabilities and other
expenses. All of the foregoing could materially adversely affect our financial
condition and operating results.
We cannot assure you that we will be able to successfully implement Project One,
our strategic initiative, or that this initiative will produce its anticipated
positive effects.
In the fourth quarter of fiscal 2001, we launched a program, which we refer
to as Project One, that we believe will assist us in achieving our strategic
objectives. Project One is expected to realize short-term improvements from
value-enhancing programs and build our long-term scalable infrastructure, which
will sustain our profitable growth, both organic growth and growth through
future acquisitions. During the implementation phase of Project One, we expect
our implementation costs to exceed realized savings. Moreover, we cannot assure
you that we will be able to successfully implement Project One as currently
contemplated, or at all, or that the anticipated cost savings will be realized
as a result of the implementation.
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, and
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.
Litigation may have a material adverse effect on our business.
From time to time, we are involved in lawsuits that arise from our business
transactions, including the Praxair litigation described under "Business--Legal
Proceedings", included in our annual report on Form 10-K for the fiscal year
ended March 31, 2001. 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 will have ongoing environmental costs.
We are subject to laws and regulations relating to the protection of the
environment and natural resources. These include, among other things, the
management of hazardous substances and wastes, air emissions and water
discharges. Violations of some of these laws can result in substantial
penalties, temporary or permanent plant closures and criminal convictions.
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.
We operate in a highly competitive environment.
The U.S. industrial gas industry is comprised of a small number of major
producers. Additionally, there are hundreds of smaller, local distributors, some
of whom operate on a low-cost basis, primarily in the cylinder segment. Some of
our competitors may have greater financial resources than we do. If we are
unable to compete effectively with our competitors, we will suffer lower revenue
and a loss of market share.
13
Although the current trend is for increasing prices, the industrial gas industry
has experienced periods of falling prices, and if such a trend were to return,
we could experience reduced revenues and/or cash flows.
Previously, our major competitors and we have had to reduce prices in order
to maintain our market share. Although prices are now increasing, in part due to
increased energy and raw materials prices, we cannot assure you that the prices
of our products will not fall in the future, which could adversely affect our
revenues and cash flows, or that we will be able to maintain current levels of
profitability.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
We present below our selected historical consolidated financial information
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements included in our annual report on Form 10-K for the fiscal year ended
March 31, 2001.
Fiscal
----------------------------------------------------------------------------
1997(1) 1998(2) 1999(3) 2000(4) 2001(5)
-------- -------- -------- -------- --------
(in thousands)
Income Statement Data:
Distribution sales.......... $ 1,098,771 $ 1,321,958 $ 1,406,184 $ 1,409,949 $ 1,487,422
Gas Operations sales........ 60,123 126,032 155,034 132,385 141,479
----------- ----------- ----------- ----------- -----------
Total net sales....... 1,158,894 1,447,990 1,561,218 1,542,334 1,628,901
Cost of products sold
(excluding depreciation
and amortization)
Distribution............. 576,013 716,718 768,568 760,122 797,423
Gas Operations........... 35,370 62,820 69,497 56,475 49,777
Selling, distribution and
administrative expenses.. 371,310 467,884 523,241 532,527 583,355
Depreciation................ 39,146 49,002 61,901 63,635 62,938
Amortization................ 23,345 27,668 26,025 25,673 23,816
Special (charges)
recoveries, net......... (31,425) (4,950) 1,000 2,829 (3,643)
Total operating income...... 82,285 118,948 112,996 106,731 107,949
Interest expense, net....... 39,752 53,290 60,298 57,560 60,207
Earnings before income
taxes and the cumulative
effect of an accounting
change................... 44,346 70,529 86,361 70,424 48,941
Net earnings................ 23,266 40,540 51,924 38,283 28,223
Cash Flow Statement Data:
Capital expenditures........ $ (74,358) $(124,725) $(101,638) $ (65,211) $ (65,910)
Net cash provided by
operating activities..... 81,247 134,400 102,063 100,092 199,005
Net cash used in investing
activities............... (276,045) (295,434) (96,876) (65,461) (10,852)
Net cash used in financing
activities.............. 194,798 161,034 (5,187) (34,631) (188,153)
Other Financial Data:
Interest expense........... $ 41,777 $ 55,403 $ 62,588 $ 58,712 $ 62,737
EBITDA(6).................. 146,505 199,783 205,455 200,012 198,371
Adjusted EBITDA(7)......... 177,905 204,683 202,655 208,483 208,014
14
At March 31,
----------------------------------------------------------------------------
1997(1) 1998(2) 1999(3) 2000(4) 2001(5)
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Total assets................ $ 1,291,031 $ 1,641,474 $ 1,698,472 $ 1,739,331 $ 1,582,725
Plant and equipment, net.... 552,161 687,304 717,859 753,768 704,646
Current portion of
long-term debt............. 25,158 12,150 19,645 20,071 72,945
Long-term debt, excluding
current portion............. 629,931 830,845 847,841 857,422 620,664
Total long-term debt 655,089 842,995 867,486 877,493 693,609
Total stockholders' equity.. 336,657 426,873 470,945 472,507 496,849
(1) In fiscal 1997, we recorded special charges totaling $31.4 million ($20.2
million after-tax) related to the fraudulent breach of contract by a
third-party supplier of refrigerant gas and an after-tax loss on the sale
of a non-core business.
(2) The results for fiscal 1998 include:
(a) fourth quarter special charges of $22.4 million ($14.3 million
after-tax) which consisted of severance, exit costs for the closure of
duplicate facilities, the impairment write-down of property, equipment
and related goodwill and a write-down related to the divestiture of
several non-core businesses, offset by a one-time net gain related to
an acquisition break-up fee of $3 million ($1.9 million after-tax),
(b) a nonrecurring gain of $14.5 million ($9.4 million after-tax) from the
partial recovery of refrigerant losses, and (c) a nonrecurring gain on
the sale of a non-core business.
(3) The results for fiscal 1999 include:
(a) special charge recoveries of $1.0 million ($575,000 after-tax),
(b) divestiture gains of $25.5 million ($15 million after-tax), and
(c) a $1.8 million after-tax nonrecurring gain relating to insurance
proceeds recorded by an equity affiliate.
(4) The results for fiscal 2000 include:
(a) special charge recoveries of $2.8 million ($1.7 million after-tax),
(b) divestiture gains of $17.5 million ($8.6 million after-tax),
(c) a litigation charge of $7.5 million ($4.8 million after-tax),
(d) an inventory write-down of $3.8 million ($2.2 million after-tax), and
(e) an after-tax charge of $590,000 representing a change in accounting
principle.
(5) The results for fiscal 2001 include:
(a) net special charges of $3.6 million ($2.3 million after-tax),
(b) litigation charges, net of $5.3 million ($3.4 million after-tax), and
(c) asset impairments associated with two equity affiliates of $700,000
after-tax.
(6) EBITDA represents total operating income plus depreciation, amortization
and cash dividends and fees from unconsolidated affiliates.
EBITDA is not a measure of operating income, operating performance or
liquidity under generally accepted accounting principles ("GAAP"). We
include EBITDA data because we understand such data are used by certain
investors to determine our historical ability to service our indebtedness.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, as determined in accordance with GAAP, or
as a measure of liquidity. Additionally, it should be noted that companies
calculate EBITDA differently and therefore EBITDA as presented for Airgas
may not be comparable to EBITDA reported by other companies. EBITDA may not
be indicative of historical operating results, and we do not mean it to be
indicative of future results of operations or cash flows. You
15
should also see the statements of cash flows contained within our
consolidated financial statements that are included elsewhere in this
offering circular.
(7) Adjusted EBITDA represents EBITDA plus one-time losses and special charges
minus one-time gains and special recoveries. Adjusted EBITDA was calculated
as follows:
Fiscal
-----------------------------
1997 1998 1999 2000 2001
------ ------ ------- ------- ------
(in thousands)
EBITDA, as defined............. $ 146,505 $ 199,783 $ 205,455 $ 200,012 $ 198,371
One-time losses................ -- -- -- 11,300 6,000
Special charges (recoveries)... 31,400 4,900 (1,000) (2,829) 3,643
One-time gains................. -- -- (1,800) -- --
--------- --------- -------- --------- ---------
Adjusted EBITDA................ $ 177,905 $ 204,683 $ 202,655 $ 208,483 $ 208,014
========= ========= ========= ========= =========
Same-store Sales Growth
In fiscal 2001, we generated strong same-store sales growth relative to
declining non-technology industrial production in the U.S. The same-store sales
growth analysis presented below is intended to demonstrate the percentage of the
change in net sales in a current period from a corresponding period in the prior
fiscal year that is attributable to internal growth, excluding the effects of
acquisitions and dispositions. We believe this information provides investors
with supplemental data with which to assess management's performance.
Same-Store Sales Growth Year Over Year(1)
-----------------------------------------
2000 2001
---- ----
Q1 Q2 Q3 Q4 2000 Q1 Q2 Q3 Q4 2001
----- ------ ---- ---- ---- ---- ---- ---- ---- ----
(in percentages)
Gas/Rent Distribution............... 1.5 0.4 1.6 3.5 1.9 3.3 5.5 4.3 7.0 5.1
Hardgoods Distribution.............. (7.5) (5.7) (3.3) (0.5) (4.2) 2.5 2.8 0.7 (2.1) 1.0
Total Distribution.................. (4.0) (3.2) (1.3) 1.2 (1.7) 2.8 4.0 2.3 1.8 2.7
Gas Operations...................... (6.4) 4.5 14.9 10.4 3.5 4.3 8.7 4.6 11.3 7.2
Total............................... (4.2) (2.5) (0.1) 1.8 (1.3) 2.9 4.4 2.5 2.5 3.1
Non-Tech U.S. Industrial
Production(2).................... 0.9 1.6 2.3 2.5 1.8 2.7 1.7 (0.5) (3.0) 0.2
Same-Store Sales Growth Year Over Year(1)
-----------------------------------------
1999 2000
---- ----
Q1 Q2 Q3 Q4 1999 Q1 Q2 Q3 Q4 2000
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
(in percentages)
Gas/Rent Distribution............... 3.1 6.0 4.2 3.3 4.0 1.5 0.4 1.6 3.5 1.9
Hardgoods Distribution.............. 2.9 (0.1) (4.6) (3.2) (1.1) (7.5) (5.7) (3.3) (0.5) (4.2)
Total Distribution.................. 2.9 2.2 (1.2) (0.7) 0.8 (4.0) (3.2) (1.3) 1.2 (1.7)
Gas Operations...................... (2.6) (1.8) (2.3) 2.9 0.2 (6.4) 4.5 14.9 10.4 3.5
Total............................... 2.4 1.8 (1.3) (0.4) 0.8 (4.2) (2.5) (0.1) 1.8 (1.3)
Non-Tech U.S. Industrial
Production(2).................... 4.0 2.5 1.2 0.9 2.1 0.9 1.6 2.3 2.5 1.8
(1) We estimate same-store sales growth by adjusting Airgas's net sales for the
prior period to give effect to acquisitions and dispositions that occurred
prior to the end of the current period, but subsequent to the prior period,
such that our net sales in the prior period and our net sales in the
current period would include the net sales of the acquired business or
exclude the net sales of the divested business for the same number of
billing days. In the case of acquisitions, these adjustments are based upon
estimates of the net sales of the acquired
16
business during such prior period based upon assumptions we believe are
reasonable. In the case of dispositions, these adjustments are based on our
historical financial information.
(2) Source: Federal Reserve Statistical Release (G.17 Release)--Industrial
Production and Capacity Utilization.
The Industrial Gas Industry
General
The industrial gas industry consists of the production, distribution and
sale of industrial gases and related hardware. We estimate the domestic market
for packaged gas and welding equipment sales in 2000 to be approximately $8
billion. As of the fiscal year ended March 31, 2001, we believe we had a market
share of approximately 15%.
Most industrial gases are produced by separating and purifying gases found
naturally in the atmosphere through physical and chemical processes or by mixing
various kinds of industrial gases. Most industrial gases are commodity gases
that can be produced at similar purity levels by a broad range of manufacturers.
Specialty gases are produced by a smaller number of manufacturers. The U.S.
industry's most important products by sales are oxygen, nitrogen, argon, carbon
dioxide, acetylene, specialty gases and hydrogen.
Industrial gases are distributed in one of three ways: (a) direct delivery
in gaseous form, either from on-site production facilities or through pipelines,
(b) bulk delivery, principally in liquid form in large volume tanks or (c)
returnable cylinders, principally in gaseous form. Although we predominantly
distribute packaged gases in returnable cylinders, we use each method of
distribution.
Market Structure and Competition
There are currently a small number of major industrial gas distributors in
the U.S.: Airgas, Inc., AGA Gas, Inc., Valley National Gas, Inc., Praxair,
Liquid Air Corporation of America, or Air Liquide, Air Products & Chemicals,
Inc., or Air Products, BOC Gases Group, or BOC Gases, Messer Griesheim Holding
AG, Trigas Inc. and Holox Ltd. Collectively, these ten distributors accounted
for approximately 50% of total U.S. sales of industrial gases in 2000. We are
the largest industrial gas distributor in the U.S., with an estimated market
share of approximately 15%. There are also approximately 900 smaller, local
companies that are primarily active in the cylinder segment. Despite the
significant presence of large companies, competition in our industry is largely
local rather than national due to relatively high distribution costs over long
distances and the limited scope for cost sharing across markets. Competition in
the local markets is based on price, reliability of supply, product quality,
technology and service to customers.
The nature of competition varies by distribution mode (on-site and
pipeline, bulk or cylinders) and by geographic area. On-site and pipeline
distribution operations generally face the lowest competitive risk because of
the relatively high barriers to entry, which include the need for high initial
capital investments in facilities or pipelines and the high cost to the customer
of switching suppliers. Bulk distribution operations also generally face low
competitive risk because of similar high barriers to entry. The cylinder supply
market for commodity gases, such as nitrogen, oxygen, carbon dioxide and
acetylene, is the most competitive. Because of lower entry costs, smaller, local
companies are able to penetrate this market. The specialty gas markets in which
we operate are highly capital-intensive, requiring specialized handling and
technological expertise, and are therefore largely restricted to the major
industrial gas producers.
17
Significant Industry Trends
The industrial gas industry is to some extent protected from cyclical
swings in demand because it supplies a broad range of industries. New
applications for industrial gases within faster-growing industry segments (for
instance, petrochemicals, refining, electronics, environmental and food) also
help compensate for slower demand growth and cyclicality from other more mature
segments.
Project One
In the fourth quarter of fiscal 2001, we launched a program, which we refer
to as Project One, that we believe will assist us in achieving our strategic
objectives. Project One is being implemented by a dedicated staff that includes
some of our most experienced employees.
Project One comprises value-enhancing programs that we expect to result in
short-term improvements, as well as infrastructure programs designed to build
our long-term scalable infrastructure, which we believe will sustain our
short-term improvements and support future growth. The value-enhancing programs
include initiatives to:
o improve our pricing, contract and customer data management for our
large and medium-sized customers;
o standardize pricing and discounting, management practices and branch
merchandizing processes in our branch operations;
o standardize finance processes;
o improve the utilization of our gas cylinders; and
o standardize payroll processes in human resources.
We believe that these value-enhancing programs will yield measurable
benefits to us during fiscal 2002.
The infrastructure programs include initiatives to:
o improve our sales capabilities and segment our customer base;
o design and implement a financial shared services environment;
o improve our hardgoods supply chain;
o improve our gas supply chain, including fast-fill plants, dynamic
routing and predictive replenishment; and
o develop a human resources information system and standardize other
human resources policies.
We believe that these infrastructure programs will sustain any improvements
we achieve in the short-term and assist us in becoming a market leader in
profitable sales growth.
18
New Bank Credit Facility
Concurrently with this offering, we will obtain a new bank credit facility
from a group of financial institutions for which Bank of America, N.A. will be
the U.S. agent. We have received commitments of $400 million for the new bank
credit facility, which will be available in the form of revolving loans and
letters of credit. A portion of the commitments, which we expect to be the
United States dollar equivalent of CDN$50 million, will be made available in
Canadian dollars. Once the amount of the Canadian dollar commitment has been
determined, the amounts of the United States dollar commitment and the Canadian
dollar commitment will not fluctuate based upon changes in the exchange rate
between the United States dollar and the Canadian dollar. The new credit
facility will mature on July 30, 2006.
Our domestic subsidiaries will guarantee the U.S. borrowings and our
domestic and foreign subsidiaries will guarantee the Canadian borrowings. If our
pricing level, which is based upon our long-term unsecured senior, non-credit
enhanced debt ratings, is reduced by one level, our subsidiaries and we will be
required to pledge 100% of the stock of our domestic subsidiaries, 65% of the
stock of our foreign subsidiaries and all intercompany debt owed to us from our
subsidiaries for the benefit of the syndicate of lenders. If our pricing level
is reduced by two or more levels, we will be required to grant a security
interest in substantially all our tangible and intangible assets for the benefit
of the syndicate lenders.
The interest rate on U.S. borrowings under the new bank credit facility
will accrue at our option at either (A) the Alternate Base Rate (which is the
greater of the Federal Funds Rate plus .50% or the Bank of America Prime Rate)
plus the applicable percentage, as defined in the new bank credit facility
agreement, or (B) LIBOR, as defined in the new bank credit facility agreement,
plus the applicable percentage. The interest rate on Canadian borrowings under
the new bank credit facility will accrue at the Canadian Base Rate, as defined
in the new bank credit facility agreement.
The new bank credit facility agreement contains certain customary
covenants, including:
o reporting and other affirmative covenants;
o financial covenants, including:
(1) maximum total leverage ratio,
(2) maximum senior leverage ratio and
(3) fixed charge coverage ratio;
o negative covenants, including:
(1) restrictions on the incurrence of other indebtedness, liens,
sales of material assets not in the ordinary course of business,
(2) payment of dividends or other distributions to our stockholders
and subsidiary dividends or other distributions,
(3) prepayments on other indebtedness,
(4) issuance and sale of subsidiary stock and
(5) further negative pledges.
19
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF
SUBSIDIARY GUARANTORS (UNAUDITED)
The obligations of the Company under the Senior Subordinated Notes
("the Notes") is guaranteed by the Company's domestic restricted subsidiaries
that guarantee the Company's new credit facility ("the Guarantors"). The
Company's joint venture operations, foreign holdings and bankruptcy remote
special purpose entity, Radnor Funding Corp., (the "Non-guarantors") are not
guarantors of the Notes. The guarantees are made on a joint and several basis.
The claims of creditors of Non-guarantor subsidiaries have priority over the
rights of the Company to receive dividends or distributions form such
subsidiaries. Presented below is condensed consolidating financial information
for the Company, the Guarantors and the Non-guarantors as of March 31, 2001
and 2000 and for each of the three years in the period ended March 31, 2001.
CONDENSED CONSOLIDATING BALANCE SHEET
SENIOR SUBORDINATED NOTES
March 31, 2001
(Unaudited )
Non- Elimination
Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------------------
(in thousands)
ASSETS
Current Assets
Trade receivables, net $ 98,048 $ 45,081 $ 143,129
Intercompany receivable/(payable) (907) 907 -
Inventories, net 151,402 3,622 155,024
Deferred income tax asset, net $ 6,298 3,845 - 10,143
Prepaid expenses and other current assets 10,162 13,906 1,481 25,549
------------------------------------------- -----------------
Total Current Assets 16,460 266,294 51,091 333,845
Plant and equipment, net 6,850 677,481 20,315 704,646
Goodwill, net - 422,710 10,115 432,825
Other intangible assets, net 1,120 37,011 203 38,334
Investments in unconsolidated affiliates 63,262 63,262
Investments in subsidiaries 1,136,065 $ (1,136,065) -
Intercompany receivable/(payable) (20,746) 37,569 (16,823) -
Other non-current assets 9,606 207 9,813
---------------------------------------------------------------------------
Total assets $ 1,149,355 $ 1,441,065 $ 128,370 $ (1,136,065) $ 1,582,725
===========================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable, trade $ 3,339 $ 71,045 $ 1,953 $ 76,337
Accrued expenses and other current liabilities 22,015 75,944 34,349 132,308
Current portion of long-term debt 50,000 22,863 82 72,945
------------------------------------------- -----------------
Total current liabilities 75,354 169,852 36,384 281,590
Long-term debt, excluding current portion 585,464 10,355 24,845 620,664
Deferred income tax liability, net 195 157,905 3,076 161,176
Other non-current liabilities (8,507) 24,972 5,981 22,446
Commitments and contingencies - - - -
Stockholders' Equity
Preferred stock, no par value - - - -
Common stock, par value $.01 per share 744 7 - $ (17) 744
Capital in excess of par value 188,629 690,030 33,211 (723,241) 188,629
Retained earnings 355,596 388,306 25,724 (414,030) 355,596
Accumulated other comprehensive loss (1,153) (302) (851) 1,153 (1,153)
Treasury stock (3,982) (60) - 60 (3,982)
Employee benefits trust (42,985) - - - (42,985)
---------------------------------------------------------------------------
Total stockholders' equity 496,849 1,077,981 58,084 (1,136,065) 496,849
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,149,355 $ 1,441,065 $ 128,370 $ (1,136,065) $ 1,582,725
===========================================================================
20
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
SENIOR SUBORDINATED NOTES
March 31, 2000
(Unaudited)
Non- Elimination
Parent Guarantors Guarantor Entries Consolidated
-----------------------------------------------------------------------
(in thousands)
ASSETS
Current Assets
Trade receivables, net $ 208,775 $ 3,214 $ 211,989
Intercompany receivable/(payable) (258) 258 -
Inventories, net 155,293 4,145 159,438
Deferred income tax asset, net $ 6,696 7,056 13,752
Prepaid expenses and other current assets 5,761 17,066 784 23,611
------------------------------------------- -------------
Total Current Assets 12,457 387,932 8,401 408,790
Plant and equipment, net 8,907 722,483 22,378 753,768
Goodwill, net 434,159 11,339 445,498
Other intangible assets, net 1,558 46,345 234 48,137
Investments in unconsolidated affiliates 72,958 72,958
Investments in subsidiaries 1,211,388 $ (1,211,388)
Intercompany receivable/(payable) 29,594 (4,454) (25,140)
Other non-current assets 17,190 (7,306) 296 10,180
-----------------------------------------------------------------------
Total assets $ 1,281,094 $ 1,579,159 $ 90,466 $ (1,211,388) $ 1,739,331
=======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 3,614 $ 72,295 $ 2,367 $ 78,276
Accrued expenses and other current liabilities 3,727 113,992 3,530 121,249
Current portion of long-term debt 19,982 89 20,071
------------------------------------------- -------------
Total current liabilities 7,341 206,269 5,986 219,596
Long-term debt, excluding current portion 799,466 28,277 29,679 857,422
Deferred income tax liability, net 195 155,756 4,857 160,808
Other non-current liabilities 1,585 19,976 7,437 28,998
Commitments and contingencies - - - -
Stockholders' Equity
Preferred stock, no par value - - - -
Common stock, par value $.01 per share 731 7 $ (7) 731
Capital in excess of par value 193,893 822,288 26,210 (848,498) 193,893
Retained earnings 327,373 346,825 16,714 (363,539) 327,373
Accumulated other comprehensive loss (596) (179) (417) 596 (596)
Treasury stock (8,435) (60) 60 (8,435)
Employee benefits trust (40,459) (40,459)
-----------------------------------------------------------------------
Total stockholders' equity 472,507 1,168,881 42,507 (1,211,388) 472,507
-----------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,281,094 $ 1,579,159 $ 90,466 $ (1,211,388) $ 1,739,331
=======================================================================
21
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
SENIOR SUBORDINATED NOTES
March 31, 2001
(Unaudited)
Non- Elimination
Parent Guarantors Guarantors Entries Consolidated
---------------------------------------------------------------------
(in thousands)
Net Sales $ 1,606,965 $ 21,936 $ 1,628,901
Costs and Expenses
Cost of products sold (excluding
depreciation and amortization) 841,403 5,797 847,200
Selling, distribution and
administrative expenses $40,099 534,507 8,749 583,355
Depreciation 2,637 58,222 2,079 62,938
Amortization 249 23,175 392 23,816
Special charges (recoveries), net (2,975) 6,618 3,643
--------------------------------------- ----------------
Operating Income (40,010) 143,040 4,919 107,949
Interest (expense) income, net (63,555) 2,070 1,278 (60,207)
(Discount) gain on securitization of
trade receivables (8,161) 6,858 (1,303)
Other income (expense), net 59,576 (59,366) 32 242
Equity in earnings of unconsolidated
affiliates 2,260 2,260
--------------------------------------- ----------------
Earnings before income taxes (43,989) 77,583 15,347 48,941
Income taxes (15,238) 30,039 5,917 20,718
Equity in earnings of subsidiaries 56,974 $ (56,974)
---------------------------------------------------------------------
Net Earnings $28,223 $ 47,544 $ 9,430 $ (56,974) $ 28,223
=====================================================================
22
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
SENIOR SUBORDINATED NOTES
March 31, 2000
(Unaudited)
Non- Elimination
Parent Guarantors Guarantors Entries Consolidated
--------------------------------------------------------------------
(in thousands)
Net Sales $ 1,508,119 $ 34,215 $ 1,542,334
Costs and Expenses
Cost of products sold (excluding
depreciation and amortization) 805,264 11,333 816,597
Selling, distribution and
administrative expenses $ 30,015 486,713 15,799 532,527
Depreciation 2,770 57,672 3,193 63,635
Amortization 362 24,598 713 25,673
Special charges (recoveries), net (2,829) (2,829)
--------------------------------------- ----------------
Operating Income (30,318) 133,872 3,177 106,731
Interest (expense) income, net (59,356) 2,152 (356) (57,560)
Other income (expense), net 57,838 (58,513) 18,537 17,862
Equity in earnings of unconsolidated
affiliates 3,391 3,391
Earnings before income taxes and the
cumulative effect of an accounting
change --------------------------------------- ----------------
(31,836) 77,511 24,749 70,424
Income taxes (9,228) 32,485 8,294 31,551
Equity in earnings of subsidiaries 60,891 $ (60,891)
Earnings before the cumulative effect
of an accounting change 38,283 45,026 16,455 (60,891) 38,873
Cumulative effect of an accounting
change, net of taxes (590) (590)
--------------------------------------------------------------------
Net Earnings $ 38,283 $ 44,436 $ 16,455 $ (60,891) $ 38,283
====================================================================
23
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
SENIOR SUBORDINATED NOTES
March 31, 1999
(Unaudited)
Parent Guarantors Non-Guarantors Elimination
(in thousands) Entries Consolidated
---------------------------------------------------------------------------------
Net Sales $ 1,516,744 $ 44,474 $ 1,561,218
Costs and Expenses
Cost of products sold (excluding
depreciation and amortization) 822,054 16,001 838,055
Selling, distribution and
administrative expenses $18,954 483,002 21,285 523,241
Depreciation 2,571 55,336 3,994 61,901
Amortization 548 25,042 435 26,025
Special charges (recoveries), net (1,000) (1,000)
-------------------------------------------------- --------------------
Operating Income (22,073) 132,310 2,759 112,996
Interest (expense) income, net (59,361) 774 (1,711) (60,298)
Other income (expense), net 79,554 (53,843) 910 26,621
Equity in earnings of unconsolidated
affiliates 7,042 7,042
-------------------------------------------------- --------------------
Earnings before income taxes (1,880) 79,241 9,000 86,361
Income taxes (486) 32,806 2,117 34,437
Equity in earnings of subsidiaries 53,318 $ (53,318)
---------------------------------------------------------------------------------
Net earnings $51,924 $ 46,435 $ 6,883 $ (53,318) $ 51,924
=================================================================================
24
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SENIOR SUBORDINATED NOTES
March 31, 2001
(Unaudited)
Parent Guarantors Non-Guarantors Elimination
(in thousands) Entries Consolidated
------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities $ (13,971) $ 215,589 $ (2,613) $ 199,005
-------------------------------------------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (484) (62,221) (3,205) (65,910)
Proceeds from sale of plant and
equipment 2,071 783 2,854
Proceeds from divestitures 42,123 7,506 49,629
Business acquisitions, net of cash -
acquired (1,006) (1,006)
Business acquisitions, holdback and -
other settlements (4,752) (4,752)
Dividends and fees from -
unconsolidated affiliates 1,408 2,260 3,668
Other, net 14,213 (10,973) 1,425 4,665
-------------------------------------------- ----------
Net cash (used in) provided by
investing activities 13,729 (33,350) 8,769 (10,852)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 157,238 157,238
Repayment of debt (321,238) (15,044) (4,840) (341,122)
Purchase of treasury stock (11,214) (11,214)
Exercise of stock options 1,460 1,460
Cash overdraft 5,485 5,485
Inter-company 173,996 (172,680) (1,316)
-------------------------------------------- ----------
Net cash used in financing
activities 242 (182,239) (6,156) (188,153)
-----------------------------------------------------------------------------
CHANGE IN CASH $ - $ - $ - $ - $ -
Cash--Beginning of year - - - - -
-----------------------------------------------------------------------------
Cash--End of year $ - $ - $ - $ - $ -
=============================================================================
25
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SENIOR SUBORDINATED NOTES
March 31, 2000
(Unaudited)
Non- Elimination
Parent Guarantors Guarantors Entries Consolidated
-----------------------------------------------------------------------------
(in thousands)
Net cash provided by (used in)
operating activities $ (12,975) $ 110,244 $ 2,823 $ 100,092
------------------------------------------ --------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (1,801) (59,304) (4,106) (65,211)
Proceeds from sale of plant and
equipment 37,454 - 37,454
Proceeds from divestitures 12,558 18,540 24,498 55,596
Business acquisitions, net of cash
acquired (99,204) (99,204)
Business acquisitions, holdback and -
other settlements (2,289) (2,289)
Investment in unconsolidated -
affiliates (30) (30)
Dividends and fees from -
unconsolidated affiliates 582 3,391 3,973
Other, net 10,679 (11,993) 5,564 4,250
------------------------------------------ --------------
Net cash (used in) provided by
investing activities 21,436 (116,244) 29,347 (65,461)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 168,569 168,569
Repayment of debt (139,289) (20,349) (159,638)
Purchase of treasury stock (47,125) (47,125)
Exercise of stock options 1,562 1,562
Cash overdraft 2,001 2,001
Inter-company 7,821 24,348 (32,170)
------------------------------------------ --------------
Net cash used in financing
activities (8,461) 6,000 (32,170) (34,631)
------------------------------------------ --------------
CHANGE IN CASH $ - $ - $ - $ - $ -
Cash--Beginning of year - - - - -
-----------------------------------------------------------------------------
Cash--End of year $ - $ - $ - $ - $ -
=============================================================================
26
AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SENIOR SUBORDINATED NOTES
March 31, 1999
(Unaudited)
Non- Elimination
Parent Guarantors Guarantors Entries Consolidated
----------------------------------------------------------------------------------
(in thousands)
Net cash provided by (used in)
operating activities $ (17,281) $ 117,536 $ 1,808 $ 102,063
--------------------------------------------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (413) (97,869) (3,356) (101,638)
Proceeds from sale of plant and
equipment 2,995 284 3,279
Proceeds from divestitures 53,682 53,682
Business acquisitions, net of cash
acquired (47,246) (47,246)
Business acquisitions, holdback and
other settlements (4,839) (4,839)
Investment in unconsolidated
affiliates (3,180) (3,180)
Dividends and fees from
unconsolidated affiliates (2,509) 7,042 4,533
Other, net (9,043) 26,754 (19,178) (1,467)
--------------------------------------------------- ------------
Net cash (used in) provided by
investing activities (9,456) (72,212) (15,208) (96,876)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 449,833 449,833
Repayment of debt (402,319) (23,975) (701) (426,995)
Purchase of treasury stock (14,376) (15,285)
Exercise of stock options 1,943 1,943
Cash overdraft (14,662) (14,662)
Inter-company (8,344) (6,666) 14,101
Other financing activities (21) (21)
--------------------------------------------------- ------------
Net cash used in financing
activities 26,737 (45,324) 13,400 (5,187)
--------------------------------------------------- ------------
CHANGE IN CASH $ - $ - $ - $ - $ -
Cash--Beginning of year - - - - -
----------------------------------------------------------------------------------
Cash--End of year $ - $ - $ - $ - $ -
==================================================================================
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Airgas, Inc.
(Registrant)
Date: July 12, 2001 / s / Joseph C. Sullivan
-------------------------------
Joseph C. Sullivan
Vice President and Treasurer
28