Airgas Reports Second Quarter EPS Growth of 27%; Outlook Remains Positive
Second quarter sales increased 19% to $714 million reflecting continued same-store sales growth and acquisitions. Total same-store sales were up 10% compared to the same quarter a year ago, with gas and rent up 8% and hardgoods up 11%, reflecting strength across customer segments and a supportive pricing environment.
"We delivered another strong performance, earning $0.40 per diluted share excluding the hurricane impact," said Airgas Chairman and Chief Executive Officer Peter McCausland. "We remained focused on our core strategy and managing product supply and pricing in a tight market impacted by extraordinary events. Excluding the charges noted above, operating margin expanded 40 basis points to 9.3%, reflecting solid execution across the board."
"Same-store sales of hardgoods were buoyed by general industrial demand and strong sales after the hurricanes in the Gulf Coast region," added McCausland. "Gas and rent sales maintained good momentum, driven by solid volumes and pricing. We continued to see great results in our strategic growth categories of medical, specialty and bulk gas as well as safety products."
Adjusted debt decreased $24 million in the quarter. Free cash flow for the six months ended September 30, 2005 was $26 million compared to $2 million for the period ended September 30, 2004. The definition of free cash flow, a reconciliation to the Consolidated Statement of Cash Flows, the definition of adjusted debt, a reconciliation to the Balance Sheet and a reconciliation of operating margin are included herein.
McCausland continued, "We are enjoying good momentum across our business. We expect to continue growing earnings nicely, with $0.37 to $0.39 per share in our third quarter, and we are affirming our full year EPS range of $1.50 to $1.56. The full year range includes the $0.02 per share impact from the hurricanes and both ranges contemplate the tight supply environment and recently announced price increases."
The Company will conduct an earnings teleconference on Thursday, October 27, 2005, beginning at 11:00 a.m. Eastern Time. Access the teleconference by calling (800) 811-8824. This press release, slides to be presented during the Company's teleconference and information about how to access a live and on-demand webcast of the teleconference are available in the 'Investor Info' section on the Company's Internet site www.airgas.com. The telephone replay will be accessible for one week starting October 27th at 1 p.m. Eastern Time by calling (888) 203-1112 and entering passcode 8346177.
About Airgas, Inc.
Airgas, Inc. (NYSE:ARG), through its subsidiaries, is the largest U.S. distributor of industrial, medical, and specialty gases, and related hardgoods, such as welding equipment and supplies. Airgas is also the third-largest U.S. distributor of safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid carbon dioxide producer in the Southeast, and a leading distributor of process chemicals, refrigerants and ammonia products. Its 10,000 employees work in about 900 locations including branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers. Airgas also distributes its products and services through eBusiness, catalog and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base. For more information, please visit www.airgas.com.
Forward-Looking Statements
This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. These statements include, but are not limited to, statements regarding: enjoying good momentum across our business; the expectation that earnings will continue to grow nicely; and earnings expectations for the third fiscal quarter and full fiscal year. The Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors and should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include: the success of the Company's ability to grow sales and market share; customer acceptance of price increases; the successful integration of acquisitions; an economic downturn; increased industry competition; adverse changes in customer buying patterns; future revisions to the estimated loss associated with hurricanes Katrina and Rita; significant fluctuations in interest rates; political and economic uncertainties associated with current world events; and other factors described in the Company's reports, including Form 10-K dated March 31, 2005 and Form 10-Q dated June 30, 2005 filed by the Company with the Securities and Exchange Commission.
Consolidated statements of earnings, consolidated condensed balance sheets, consolidated statements of cash flows, and a reconciliation of non-GAAP financial measures follow.
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 714,426 $ 599,783 $1,405,101 $1,143,800
----------- ----------- ----------- -----------
Costs and expenses:
Cost of products
sold (excl. deprec.) 355,533 293,081 698,397 559,302
Selling,
distribution and
administrative
expenses (c) 263,769 228,386 517,714 432,448
Depreciation 30,335 25,844 59,594 49,773
Amortization 1,308 1,520 2,607 2,953
----------- ----------- ----------- -----------
Total costs and
expenses 650,945 548,831 1,278,312 1,044,476
----------- ----------- ----------- -----------
Operating income 63,481 50,952 126,789 99,324
Interest expense, net (13,252) (12,668) (27,197) (24,523)
Discount on
securitization of
trade receivables (a) (2,247) (1,046) (4,095) (1,876)
Other income, net 582 (73) 1,493 349
----------- ----------- ----------- -----------
Earnings before income
tax expense and
minority interest 48,564 37,165 96,990 73,274
Income tax expense (18,230) (13,936) (36,487) (27,477)
Minority interest in
earnings of
consolidated
affiliate (712) (452) (1,234) (904)
----------- ----------- ----------- -----------
Net earnings $ 29,622 $ 22,777 $ 59,269 $ 44,893
=========== =========== =========== ===========
Basic earnings per
share $ 0.39 $ 0.30 $ 0.78 $ 0.60
Diluted earnings per
share $ 0.38 $ 0.30 $ 0.76 $ 0.59
Weighted average
shares outstanding:
Basic 76,600 74,700 76,400 74,400
Diluted 78,700 76,600 78,400 76,400
See attached notes.
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
September 30, March 31,
2005 2005
------------- ------------
ASSETS
Cash $ 33,029 $ 32,640
Trade accounts receivable, net (a) 160,202 148,834
Inventories, net 241,364 221,609
Deferred income tax asset, net 24,072 26,263
Prepaid expenses and other current assets 32,859 36,911
------------- ------------
TOTAL CURRENT ASSETS 491,526 466,257
Plant and equipment, net 1,334,060 1,269,342
Goodwill 543,736 511,196
Other intangible assets, net 15,455 16,507
Other non-current assets 25,310 28,561
------------- ------------
TOTAL ASSETS $ 2,410,087 $ 2,291,863
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, trade $ 129,681 $ 143,208
Accrued expenses and other current
liabilities 208,983 183,132
Current portion of long-term debt 112,128 6,948
------------- ------------
TOTAL CURRENT LIABILITIES 450,792 333,288
Long-term debt 691,609 801,635
Deferred income tax liability, net 300,977 282,186
Other non-current liabilities 23,453 24,391
Minority interest in affiliate (b) 57,191 36,191
Stockholders' equity 886,065 814,172
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,410,087 $ 2,291,863
============= ============
See attached notes.
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
September September
30, 2005 30, 2004
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 59,269 $ 44,893
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 59,594 49,773
Amortization 2,607 2,953
Deferred income taxes 22,200 16,000
Gain on divestiture - (360)
(Gain) loss on sales of plant and equipment (458) 13
Minority interest in earnings 1,234 904
Stock issued for employee stock purchase plan 5,040 4,712
Changes in assets and liabilities, excluding
effects of business acquisitions and
divestitures:
Securitization of trade receivables 19,700 37,400
Trade receivables, net (15,668) (22,651)
Inventories, net (14,723) (24,214)
Prepaid expenses and other current assets 4,796 (2,001)
Accounts payable, trade (14,081) (1,787)
Accrued expenses and other current liabilities 2,959 (6,521)
Other long-term assets 4,104 1,796
Other long-term liabilities 1,520 (535)
---------- ----------
Net cash provided by operating activities 138,093 100,375
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (105,881) (65,642)
Proceeds from sales of plant and equipment 2,646 2,200
Proceeds from divestitures - 828
Business acquisitions and holdback settlements (75,602) (180,398)
Other, net 319 5
---------- ----------
Net cash used in investing activities (178,518) (243,007)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 279,324 342,044
Repayment of debt (284,059) (213,663)
Minority interest in earnings (1,234) (904)
Minority stockholder note prepayment (b) 21,000 -
Exercise of stock options 11,210 11,387
Dividends paid to stockholders (9,290) (6,771)
Cash overdraft 23,863 16,032
---------- ----------
Net cash provided by financing activities 40,814 148,125
---------- ----------
Change in cash $ 389 $ 5,493
Cash - Beginning of period 32,640 25,062
---------- ----------
Cash - End of period $ 33,029 $ 30,555
========== ==========
See attached notes.
Notes:
(a) The Company participates in a securitization agreement with two
commercial banks to sell up to $225 million of qualified trade
receivables. Net proceeds from the securitization were used to
reduce borrowings under the Company's revolving credit facilities.
The amount of outstanding receivables under the agreement was
$209.6 million and $189.9 million at September 30, 2005 and March
31, 2005, respectively.
(b) On June 6, 2005, the Company's consolidated affiliate, National
Welders, entered into an agreement with its preferred stockholders
under which the preferred stockholders prepaid their $21 million
note payable to National Welders. National Welders used the
proceeds from the prepayment of the preferred stockholders' note
to pay-off its $21 million term loan, which had been
collateralized by the preferred stockholders' note. The preferred
stockholders' note payable to National Welders had been reflected
as a reduction of "Minority interest in affiliate" in the
consolidated financial statements of the Company. Consequently,
the prepayment of the preferred stockholders' note resulted in a
$21 million increase to the Company's "Minority interest in
affiliate." Additionally, the preferred stockholders and National
Welders agreed to modify the dates between which the preferred
stockholders have the option to redeem their preferred stock for
cash or Airgas common stock to commence in June 2005 (previously
June 2006) and expire in June 2009.
(c) Selling, distribution and administrative expenses in the three and
six months ended September 30, 2005 include an estimated loss
related to hurricanes Katrina and Rita of $2.8 million ($1.75
million after tax), or $0.02 per diluted share. The loss estimate
is comprised of property damage and an additional provision for
uncollectible trade receivables associated with customers in the
affected areas.
(d) Business segment information for the Company's Distribution and
All Other Operations segments is shown below:
(Unaudited)
Three Months Ended
September 30, 2005
---------------------------------------
All Other
(In thousands) Dist. Ops. Elim Combined
--------- --------- --------- ---------
Gas and rent $300,437 $113,520 $(12,979) $400,978
Hardgoods 296,505 18,565 (1,622) 313,448
--------- --------- --------- ---------
Total net sales 596,942 132,085 (14,601) 714,426
Cost of products sold,
excluding deprec. expense 304,847 65,287 (14,601) 355,533
Selling, distribution and
administrative expenses 220,552 43,217 263,769
Depreciation expense 23,669 6,666 30,335
Amortization expense 1,150 158 1,308
--------- --------- ---------
Operating income 46,724 16,757 63,481
--------- --------- ---------
(Unaudited)
Three Months Ended
September 30, 2004
---------------------------------------
All Other
(In thousands) Dist. Ops. Elim Combined
--------- --------- --------- ---------
Gas and rent $259,060 $ 84,002 $(12,036) $331,026
Hardgoods 253,281 16,371 (895) 268,757
--------- --------- --------- ---------
Total net sales 512,341 100,373 (12,931) 599,783
Cost of products sold,
excluding deprec. expense 261,002 45,010 (12,931) 293,081
Selling, distribution and
administrative expenses 192,267 36,119 228,386
Depreciation expense 19,800 6,044 25,844
Amortization expense 1,415 105 1,520
--------- --------- ---------
Operating income 37,857 13,095 50,952
--------- --------- ---------
(Unaudited)
Six Months Ended
September 30, 2005
-----------------------------------------
All Other
(In thousands) Dist. Ops. Elim Combined
---------- --------- --------- ----------
Gas and rent $ 600,294 $206,200 $(26,596) $ 779,898
Hardgoods 590,716 37,376 (2,889) 625,203
---------- --------- --------- ----------
Total net sales 1,191,010 243,576 (29,485) 1,405,101
Cost of products sold,
excluding deprec. expense 609,806 118,076 (29,485) 698,397
Selling, distribution and
administrative expenses 436,732 80,982 517,714
Depreciation expense 46,631 12,963 59,594
Amortization expense 2,311 296 2,607
---------- --------- ----------
Operating income 95,530 31,259 126,789
---------- --------- ----------
(Unaudited)
Six Months Ended
September 30, 2004
-----------------------------------------
All Other
(In thousands) Dist. Ops. Elim Combined
---------- --------- --------- ----------
Gas and rent $ 487,638 $161,171 $(22,474) $ 626,335
Hardgoods 487,090 32,165 (1,790) 517,465
---------- --------- --------- ----------
Total net sales 974,728 193,336 (24,264) 1,143,800
Cost of products sold,
excluding deprec. expense 497,098 86,468 (24,264) 559,302
Selling, distribution and
administrative expenses 363,367 69,081 432,448
Depreciation expense 37,797 11,976 49,773
Amortization expense 2,680 273 2,953
---------- --------- ----------
Operating income 73,786 25,538 99,324
---------- --------- ----------
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Free Cash Flow:
Reconciliation of net cash provided by operating activities per the
Consolidated Statement of Cash Flows to Free Cash Flow:
Six Months Ended Six Months Ended
(Amounts in thousands) September 30, 2005 September 30, 2004
------------------ ------------------
Net cash provided by operating
activities $ 138,093 $ 100,375
Less net cash provided by
operating activities of NWS (1) (8,761) (10,342)
Plus:
Management fees paid by NWS(1) 607 530
Operating lease buyouts 7,141 8,110
Proceeds from sale of PP&E 2,646 2,200
Less:
Cash provided by the
securitization of trade
receivables (19,700) (37,400)
Capital expenditures (105,881) (65,642)
Add back capital expenditures
of NWS (1) 12,128 4,429
------------------ ------------------
Free Cash Flow $ 26,273 $ 2,260
------------------ ------------------
Free Cash Flow provides investors meaningful insight into the
Company's ability to generate cash from operations, which can be used
at management's discretion for acquisitions, the prepayment of debt or
to support other investing and financing activities.
(1) National Welders Supply Co. ("NWS") is a consolidated corporate
joint venture meeting the definition of a variable interest entity
and for which the Company is the primary beneficiary as described
under FIN 46R. The liabilities of NWS are non-recourse to the
Company. Likewise, the cash flows in excess of a management fee
paid by NWS are not available to the Company. Accordingly, the
cash flows of NWS have been excluded from the Company's non-GAAP
liquidity measures.
Adjusted Debt:
Reconciliation of the change in debt per the Balance Sheet to the
increase in debt adjusted for the non-recourse debt of NWS,
off-balance sheet financing and non-cash interest rate hedging
("adjusted debt"):
Change in
September 30, June 30, Adjusted
(Amounts in thousands) 2005 2005 Debt
------------- ------------- -------------
Debt $ 803,737 $ 819,836 $ (16,099)
Adjustments to Debt:
Securitization of trade
receivables 209,600 214,600 (5,000)
National Welders - non-
recourse debt (1) (49,408) (45,764) (3,644)
Interest rate swap
agreements (3,126) (3,539) 413
------------- ------------- -------------
Adjusted Debt $ 960,803 $ 985,133 $ (24,330)
============= ============= =============
(1) In calculating the Adjusted Debt measure, the debt of the NWS
joint venture has been excluded because the debt is non-recourse
to Airgas.
The Company uses Adjusted Debt to provide investors with a more
meaningful measure of the change in the Company's obligation to repay
debt by adjusting for the non-recourse debt of NWS, non-cash interest
rate hedging and funds received (or repaid) under the trade
receivables securitization program.
Operating Margin:
Reconciliation of operating margin to operating margin exclusive of
the impact of hurricanes Katrina and Rita in the quarter ended
September 2005 and BOC integration costs in the quarter ended
September 2004:
Three months ended September 2005
---------------------------------
Per the Add back
Statement of impact of Exclusive of
(Amounts in thousands) Earnings Hurricanes Hurricanes
------------- ------------- -------------
Operating income $ 63,481 $ 2,800 $ 66,281
Net Sales 714,426 714,426
------------- -------------
Operating margin 8.9% 9.3%
Three months ended September 2004
---------------------------------
Exclusive
Per the Add back BOC of BOC
Statement of Integration Integration
(Amounts in thousands) Earnings Costs Costs
------------- ------------- -------------
Operating Income $ 50,952 $ 2,500 $ 53,452
Net Sales 599,783 599,783
------------- -------------
Operating margin 8.5% 8.9%
Management believes the quarterly operating margins, exclusive of the
impact of hurricanes Katrina and Rita and BOC integration costs,
reflect more meaningful trend information.
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