25 Years of Airgas

Actually, I cannot believe it has been 25 years since the first acquisition of Connecticut Oxygen Corporation in February 1982. It seems like only yesterday that we finished our first fiscal year with $3.2 million in sales. And now, we are approaching $4 billion in sales annually. It has been non-stop excitement since 1982.

Airgas is known for our nearly 360 acquisitions over the years. The Air Products and BOC packaged gas businesses, and Linde’s divested U.S. bulk gas business are three of our largest acquisitions. We have also made product line acquisitions in medical, safety products, welder rentals, process chemicals and carbon dioxide, and many acquisitions of independent industrial gas and welding supply distributors.

Many of our best people and best practices have come from the companies we have acquired. Everyone at Airgas has an acquisition story to tell. Thankfully, most of the stories are good ones, because we have been disciplined on price and have resisted assuming liabilities. We have always welcomed employees from acquisitions and have been open to new ideas. Airgas has earned its reputation for successfully acquiring and integrating companies.

We have also become a strong operating company with a lot of hard work and discipline through the years. In 1998, we embarked on the Repositioning for Growth strategy to strengthen our operating culture and build an infrastructure that would support growth. Looking back at the 1998-2002 period, that was the most challenging chapter in our history, made even more difficult by a weak U.S. industrial economy and the dot.com lunacy on Wall Street. While we took the long view by pursuing a consistent strategy and building the infrastructure we needed to grow, we watched our stock price drop from the $20s to below $5. We even attracted an “activist” investor, who filed a shareholder proposal challenging our strategic direction.

When the dust settled, Airgas had outperformed almost every chemical and distribution company during that period. Moreover, the Airgas strategies to pursue above-market growth to non-cyclical customers and to be the low-cost supplier turned out to be exactly what Airgas needed. We have proven that it pays to take the long view by developing long-term strategies and sticking to them until we win.

There are many examples of forward-looking strategies that have rewarded us, including core and product-line acquisition strategies. Our Airgas Direct Industrial (ADI) strategy included work to rationalize our product offerings through a brand strategy for hardgoods and safety products, including our Radnor^® private-label program; a network of large regional distribution centers; purchasing centers; and demand-planning software to manage the hardgoods supply chain. Other winning strategies included a Strategic Accounts approach to large, multi-site customers, adding product specialists for our strategic growth products, and our Core Strategy to reinvigorate our focus on small- to medium-sized customers served by our branches.

We have learned a lot over these 25 years.

• Operating strategies must change as conditions in the economy, the customer base, technology and competition change. But having a consistent organizational structure, compensation philosophy and financial analysis methodology is very important because it provides the framework within which to develop and execute new operating strategies.
• Alignment of operating strategies, metrics, and compensation from the bottom to the top of the organization is very important and requires constant attention.
• Doing the right thing and the best thing for the long haul are usually the same thing. Sticking to these guiding principles has served our associates, our customers and our shareholders very well.
• Winning in the distribution business is about getting on base, not hitting home runs. Our people win with walks, broken-bat singles, doubles down the line. We have folks who will even lean over the plate and get hit by a pitch, if that is what it takes. We have watched a lot of companies in our industry, some with far greater resources than Airgas, swing for the fences and strike out.
• A healthy organization is one that empowers its associates, giving them autonomy and responsibility. Our associates don’t mind being held accountable for results because they know they can make it happen.
• Front-line associates in sales and operations generally know what’s best because they are closest to the customer. We actively seek their ideas.
• Most people want to grow personally and professionally. It is management’s job to create an environment where that can happen — one in which everyone feels respected, supported, and free to speak their minds.

Letter Continued…