Airgas, Inc.
259 N. Radnor-Chester Road
Suite 100
Radnor, PA 19087-5283
www.airgas.com
AIRGAS
NEWS RELEASE
_____________________________________________________________________________
Investor Contact: Media Contact:
Melissa Nigro (610) 902-6206 James Ely (610) 902-6010
melissa.nigro@airgas.com jim.ely@airgas.com
For release: IMMEDIATELY
AIRGAS REPORTS THIRD QUARTER EPS OF $0.28
RADNOR, PA - January 28, 2004 -- Airgas, Inc., (NYSE: ARG) today reported
earnings for its third quarter ended December 31, 2003. Net earnings for
the quarter were $20.9 million, or $0.28 per diluted share, compared to
$16.7 million, or $0.23 per diluted share, in the same period a year ago.
The results for the recently completed quarter include a non-recurring
after-tax gain of $1.7 million, or $0.02 per diluted share, at National
Welders Supply Company, a joint venture affiliate.
Third quarter sales increased 3.8% to $451.9 million, and total same-
store sales were up 1% compared to the same quarter a year ago,
reflecting some improvement in manufacturing and other industrial
segments. Same-store sales in the Distribution segment were up 1%,
driven by a 3% gain in hardgoods and a slight gain in gas and rent. Same-
store sales for the Gas Operations segment increased 1%.
Net earnings for the nine months ended December 31, 2003 were $0.79 per
diluted share compared to prior year results of $0.69 per diluted share.
The nine months ended December 31, 2003 include insurance-related losses
of $2.8 million ($1.7 million after tax), or $0.02 per diluted share, for
previously announced incidents at two of the Company's facilities, offset
by the gain of $0.02 per diluted share mentioned above. The nine months
ended December 31, 2002 included charges of $2.9 million ($2.2 million
after tax), or $0.03 per diluted share, primarily related to a special
charge for the integration of the Air Products acquisition ($2.7
million).
"I was pleased to see the sales momentum in the third quarter," said
Airgas Chairman and Chief Executive Officer Peter McCausland. "We saw
clear evidence of industrial recovery with good growth in our hardgoods
business. The recovery is still in its early stages, so our outlook
remains cautiously optimistic. However, as the industrial economy
continues rebounding, we expect our higher margin gas business to respond
as well, contributing favorably to overall profitability. Fourth quarter
earnings are expected to range from $0.26 to $0.29 per diluted share."
Free Cash Flow for the nine months ended December 31, 2003 was $57
million compared to $71 million in the prior year. The year over year
decline is attributable to inventory build related to the economic
recovery and capital expenditures in growth areas including medical,
microbulk and bulk gases. The Company reduced adjusted debt by $51
million through the third quarter. The definition of free cash flow and
a reconciliation to the attached Consolidated Statement of Cash Flows, as
well as the definition of adjusted debt and a reconciliation to the
balance sheet are attached.
McCausland continued, "Earlier this week, we announced our intent to
acquire the majority of BOC's U.S. packaged gas business. This is a good
opportunity for Airgas, one which fills in some gaps in our national
network and which will bring additional specialty gas capabilities. This
proposed acquisition, which is expected to close in mid 2004, will build
on our strengths and will help us meet our commitment to build value over
the long term. We are positioned well financially to execute this
transaction."
The Company will conduct an earnings teleconference on Thursday, January
29, 2004, beginning at 11:00 a.m. Eastern Time. Access the
teleconference by calling (800) 395-0708. 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 January 29th at approximately 1 p.m. Eastern Time by calling
(888) 203-1112 and entering passcode 239767.
ABOUT AIRGAS, INC.
Airgas, Inc. is the largest U.S. distributor of industrial, medical and
specialty gases, welding, safety and related products. Its integrated
network of nearly 800 locations includes 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: remaining cautiously optimistic; the
expectation that the gas business will respond as the industrial economy
rebounds; the range of expected earnings per share for the fourth
quarter; the intent to purchase the majority of BOC's U.S. packaged gas
business; the expectation that the acquisition will close in mid 2004,
build on the Company's strengths and help meet a commitment to build
value over the long term. 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 execute on its strategic
initiatives of improving operational efficiency and growing sales and
market share; the Company's ability to acquire the majority of BOC's U.S.
packaged gas business; an economic downturn; increased industry
competition; adverse changes in customer buying patterns; 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, 2003 and Form 10-Q
dated September 30, 2003, 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 Nine Months Ended
December 31, December 31,
2003 2002 2003 2002
------ ------ ------ ------
Net sales $451,869 $435,339 $1,373,377 $1,344,060
--------- --------- ---------- ----------
Costs and expenses:
Cost of products sold (excl. deprec.) 213,600 204,207 655,094 640,560
Selling, distribution and
administrative expenses 176,455 172,403 533,091 523,439
Depreciation 20,134 19,080 59,249 55,708
Amortization 1,393 1,559 4,235 4,935
Special charges (a) -- -- -- 2,694
--------- --------- --------- ---------
Total costs and expenses 411,582 397,249 1,251,669 1,227,336
--------- --------- --------- ---------
Operating income 40,287 38,090 121,708 116,724
Interest expense, net (10,260) (10,965) (30,990) (36,126)
Discount on securitization of
trade receivables (798) (804) (2,467) (2,554)
Other income (expense), net 159 (339) (199) (591)
Equity in earnings of unconsolidated
affiliates (b) 2,934 731 4,981 3,027
--------- --------- --------- ---------
Earnings before income tax expense 32,322 26,713 93,033 80,480
Income tax expense 11,431 10,017 34,501 30,540
--------- --------- --------- ---------
Net earnings $ 20,891 $ 16,696 $ 58,532 $ 49,940
========= ========= ========== ==========
Basic earnings per share $ .29 $ .24 $ .81 $ .71
Diluted earnings per share $ .28 $ .23 $ .79 $ .69
Weighted average shares outstanding:
Basic 73,000 70,600 72,500 70,300
Diluted 74,900 72,300 74,400 72,100
See attached notes.
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
December 31, March 31,
2003 2003
---- ----
ASSETS
Trade accounts receivable, net (c) $ 86,562 $ 71,346
Inventories, net 170,516 151,405
Deferred income tax asset, net 21,364 17,688
Prepaids and other current assets 37,587 30,143
---------- ----------
TOTAL CURRENT ASSETS 316,029 270,582
Property, plant and equipment, net (d) 1,016,008 869,492
Goodwill 496,550 437,709
Other intangible assets, net 16,610 19,832
Investments in unconsolidated affiliates (e) 6,555 65,957
Other non-current assets 35,029 36,671
---------- ----------
TOTAL ASSETS $1,886,781 $1,700,243
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, trade $ 72,480 $ 85,375
Accrued expenses and other current liabilities 120,056 121,292
Current portion of long-term debt 6,331 2,229
---------- ----------
TOTAL CURRENT LIABILITIES 198,867 208,896
Long-term debt (c)(d) 705,907 658,031
Deferred income taxes 260,783 209,140
Other non-current liabilities (d) 18,675 27,243
Minority interest in subsidiary (e) 35,683 --
Stockholders' equity 666,866 596,933
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,886,781 $1,700,243
========== ==========
See attached notes.
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended Nine Months Ended
December 31, 2003 December 31, 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $58,532 $49,940
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 59,249 55,708
Amortization 4,235 4,935
Deferred income taxes 15,400 4,494
Equity in earnings of unconsolidated affiliates (4,981) (3,027)
Loss on divestitures -- 241
(Gain) loss on sales of plant and equipment 43 (105)
Stock issued for employee stock purchase plan 4,612 6,719
Changes in assets and liabilities, excluding effects of
business acquisitions, divestitures and the
consolidation of the National Welders joint venture:
Securitization of trade receivables (2,700) 17,100
Trade receivables, net 4,676 (2,158)
Inventories, net (9,198) 6,689
Prepaid expenses and other current assets 796 16,575
Accounts payable, trade (19,592) (4,719)
Accrued expenses and other current liabilities 1,394 (13,176)
Other assets 1,078 (12)
Other liabilities 444 (347)
--------------- --------------
Net cash provided by operating activities 113,988 138,857
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (61,116) (52,399)
Proceeds from sales of plant and equipment 3,913 5,788
Proceeds from divestitures -- 3,167
Business acquisitions, holdbacks and other settlements
of acquisition related liabilities (6,962) (9,947)
Dividends and fees from unconsolidated affiliates 1,652 2,118
Other, net (2,397) (1,518)
--------------- --------------
Net cash used in investing activities (64,910) (52,791)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 214,781 212,581
Repayment of debt (262,053) (296,257)
Dividends paid to stockholders (8,821) --
Exercise of stock options 10,084 6,037
Cash overdraft (3,069) (8,427)
--------------- --------------
Net cash used in financing activities (49,078) (86,066)
--------------- --------------
Change in cash
Cash - Beginning of period $ -- $ --
Cash - End of period -- --
---------------- --------------
$ -- $ --
================ ==============
See attached notes.
Notes:
(a) Special charges of $2.7 million ($1.7 million after tax) for the nine
months ended December 31, 2002 consist of a restructuring charge related
to the integration of the business acquired from Air Products in the
fourth quarter of fiscal 2002 and costs related to the consolidation of
the Company's procurement functions. The special charges include
facility exit costs associated with the closure of certain Airgas (the
"Company") facilities and severance for approximately 130 employees.
(b) Equity in the earnings of unconsolidated affiliates for the
quarter and nine months ended December 31, 2003 reflects a $1.7
million non-recurring after-tax gain.
(c) The Company participates in a securitization agreement with two
commercial banks to sell up to $175 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
$156.2 million and $158.9 million at December 31, 2003 and March
31, 2003, respectively.
(d) Since October 1999, the Company has leased certain real estate and
equipment from a grantor trust (the "Trust") established by a
commercial bank under a sale-leaseback arrangement. The Trust was
not consolidated for financial reporting purposes. Effective July
1, 2003, the Company elected to early adopt Financial Accounting
Standards Board Interpretation No. 46 ("FIN 46") with respect to
the Trust, which requires the consolidation of the Trust. The
consolidation of the Trust resulted in the Company recording
assets of $29 million and debt of $42 million, while eliminating a
deferred gain of $13 million that was previously carried on the
balance sheet as a long-term liability. Consolidation of the
Trust was a non-cash transaction.
(e) Since June 1996, the Company has participated in a joint venture with
National Welders Supply Company, Inc. ("NWS"), a producer and distributor
of industrial gases based in Charlotte, North Carolina. Ownership
interests in the joint venture consist of voting common stock and voting,
redeemable preferred stock. The Company owns 100% of the joint venture's
common stock, which represents a 50% voting interest. The Company does
not hold a majority voting interest in the joint venture and, therefore,
historically has used the equity method to account for its interest in
the joint venture.
(e) continued
The Company has determined that NWS meets the definition of a
"Variable Interest Entity" under FIN 46 and that the Company is
the primary beneficiary of the joint venture. Therefore,
effective December 31, 2003, the Company elected to adopt FIN 46,
as it applies to the joint venture, and consolidated NWS. At
December 31, 2003, the consolidation of NWS only affects the
balance sheet. There was no impact on net earnings or cash flows
as a result of the consolidation. The consolidation has the
effect of eliminating the Company's $62 million investment in NWS
and recording the joint venture's assets, liabilities and a
corresponding minority interest liability. The summarized impact
of the consolidation of NWS at December 31, 2003 is reflected in
the table below. Beginning January 1, 2004, NWS' operating
results will no longer be reflected as "Equity in Earnings of
Unconsolidated Affiliates." Rather, the operating results will be
reflected broadly across the income statement with minority
interest expense representing the after-tax portion of the
operating results applicable to the preferred stockholders.
Summarized Impact of the Consolidation of NWS at
December 31, 2003
Current Assets $ 34,137
Non-Current Assets 111,298
---------
Total Assets 145,435
=========
Current Liabilities 20,564
Non-Current Liabilities 91,118
Minority Interest 35,683
Common Stockholder's Equity (1,930)
---------
Total Liabilities and
Stockholder's Equity $145,435
=========
(f) Business segment information for the Company's Distribution and Gas
Operations segments is shown below:
Three Months Ended Three Months Ended
December 31, 2003 December 31, 2002
------------------ ------------------
(In thousands) Dist. Gas Ops. Elim Combined Dist. Gas Ops. Elim Combined
----- -------- ---- -------- ----- -------- ---- --------
Gas and rent $218,182 $45,846 $(9,794) $254,234 $215,314 $44,082 $(8,608) $250,788
Hardgoods 196,957 1,390 (712) 197,635 184,345 1,268 (1,062) 184,551
-------- ------- -------- -------- -------- ------- -------- --------
Total net sales 415,139 47,236 (10,506) 451,869 399,659 45,350 (9,670) 435,339
Cost of products
sold, excl.
deprec.expense 203,136 20,970 (10,506) 213,600 194,349 19,528 (9,670) 204,207
Selling,
distribution and
administrative
expenses 160,078 16,377 176,455 155,916 16,487 172,403
Depreciation
expense 16,971 3,163 20,134 16,186 2,894 19,080
Amortization
expense 1,251 142 1,393 1,427 132 1,559
-------- ------- -------- -------- ------- --------
Operating income 33,703 6,584 40,287 31,781 6,309 38,090
-------- ------- -------- -------- ------- --------
Nine Months Ended Nine Months Ended
December 31, 2003 December 31, 2002
----------------- -----------------
(In thousands) Dist. Gas Ops. Elim Combined Dist. Gas Ops. Elim Combined
----- -------- ----- -------- ----- -------- ---- --------
Gas and rent $ 656,070 $146,072 $(29,418) $ 772,724 $ 647,176 $137,450 $(27,266) $ 757,360
Hardgoods 598,620 4,057 (2,024) 600,653 584,867 3,909 (2,076) 586,700
--------- -------- --------- --------- --------- -------- --------- ---------
Total net sales 1,254,690 150,129 (31,442) 1,373,377 1,232,043 141,359 (29,342) 1,344,060
Cost of products
sold, excl.
deprec.expense 619,480 67,056 (31,442) 655,094 607,347 62,555 (29,342) 640,560
Selling,
distribution and
administrative
expenses 483,317 49,774 533,091 475,387 48,052 523,439
Depreciation
expense 49,786 9,463 59,249 47,187 8,521 55,708
Amortization
expense 3,797 438 4,235 4,562 373 4,935
Special charges -- -- -- 2,694 -- 2,694
--------- -------- --------- --------- -------- ---------
Operating income 98,310 23,398 121,708 94,866 21,858 116,724
--------- -------- --------- --------- -------- ---------
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:
Nine Months Nine Months
Ended Ended
December 31, December 31,
(Amounts in thousands) 2003 2002
---- ----
Net cash provided by operating activities $113,988 $138,857
PLUS:
Dividends and fees from equity affiliates 1,652 2,118
LESS:
Cash (provided) used by the securitization
of trade receivables 2,700 (17,100)
Capital expenditures (61,116) (52,399)
--------- ---------
Free Cash Flow $57,224 $71,476
========= =========
The Company believes 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 repayment of debt
or to support other investing and financing activities.
Reduction of Adjusted Debt:
---------------------------
Reconciliation of the change in debt per the Balance Sheet to the
decrease in debt adjusted for the non-recourse debt of the National
Welders joint venture, off-balance sheet financing and non-cash
items ("adjusted debt"):
Change in
December 31, March 31, Adjusted
(Amounts in thousands) 2003 2003 Debt
---- ---- ---------
Debt $712,238 $660,260 $ 51,978
Adjustments to Debt:
Securitization of Trade Receivables 156,200 158,900 (2,700)
Lease Obligation with a Trust(1) -- 42,097 (42,097)
Non-recourse debt of National Welders(2) (61,571) -- (61,571)
Interest Rate Swap Agreements (13,796) (17,681) 3,885
--------- --------- ---------
Adjusted Debt $793,071 $843,576 $(50,505)
========= ========= =========
(1) As a result of the consolidation of the Trust as disclosed in note (d),
the lease obligation with the Trust has been classified as debt at December
31, 2003.
(2) As a result of the December 31, 2003 consolidation of National Welders
as disclosed in note (e), debt associated with National Welders, which is
non-recourse to Airgas, has been excluded from adjusted debt.
The Company uses Adjusted Debt to provide investors with a more accurate and
meaningful measure of the change in the Company's obligation to repay debt
by adjusting for the non-recourse debt of the National Welders joint
venture, non-cash items and funds received (or repaid) under the trade
receivables securitization program.