RADNOR, Pa. -- Airgas, Inc., (NYSE:ARG), the largest U.S. distributor of industrial, medical and specialty gases, welding, safety and related products, today reported strong growth in sales, operating income and net earnings for its fourth quarter ended March 31, 2005. Net earnings for the quarter grew 12% to $24.2 million, or $0.31 per diluted share, compared to $21.7 million, or $0.29 per diluted share, in the same period a year ago. The current quarter includes expenses of $0.02 per diluted share related to the integration of the U.S. packaged gas business acquired from The BOC Group and the separation package for the Company's former Chief Operating Officer.
Fourth quarter sales increased 26% to $656 million reflecting strong same-store sales and price gains, as well as acquisitions. Total same-store sales were up 11% compared to the same quarter a year ago, with gas and rent up 8% and hardgoods up 14%. These results reflect continued improvement in manufacturing and other industrial market segments.
"We are very encouraged by our sales momentum, especially the strength in gases, and by the continued trend into April," said Airgas Chairman and Chief Executive Officer Peter McCausland. "The price increases initiated in March are gaining traction and helping to offset cost pressures related to the purchase and delivery of our products."
Fiscal 2005 net sales increased 27% to $2.4 billion. Net earnings for the year ended March 31, 2005 were $1.20 per diluted share compared to prior year results of $1.07 per diluted share. The results for the year ended March 31, 2005 include expenses of $0.05 per diluted share related to the integration of the U.S. packaged gas business acquired from The BOC Group and the separation package for the Company's former Chief Operating Officer. The results for the year ended March 31, 2004 included a non-recurring after-tax gain of $1.7 million, or $0.02 per diluted share, at National Welders Supply Company, and an after-tax $480 thousand special charge recovery related to a revised estimate on prior years' restructuring charges. Also included in the year ended March 31, 2004 are 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.
"We grew fiscal 2005 earnings per share by 18%, excluding the non-recurring gains and charges noted herein, reflecting very good business trends," commented McCausland. "We are seeing strength across our business units and customer segments. Additionally, we surpassed our growth goals for our strategic platforms of bulk gas, safety products and strategic accounts, and also had good growth in medical and specialty gas. We expect continued strength in the year ahead."
Year to date, adjusted debt increased by $145 million as a result of acquisitions, primarily the BOC acquisition. Free cash flow for the year ended March 31, 2005 was $63 million, the majority of which was generated in the fourth quarter, compared to $115 million in the comparable prior year. The year over year decline is mainly attributed to increased inventories and accounts receivable in connection with overall sales growth and the BOC acquisition, as well as capital expenditures to support the growth in strategic products. After-tax cash flow for the comparable periods was $218 million versus $187 million. The definition of free cash flow, after-tax cash flow and adjusted debt, as well as a reconciliation of each to the Consolidated Financial Statements are attached. Additionally, a reconciliation between the growth in earnings per share and the non-GAAP growth in earnings per share excluding certain gains and charges is also included.
McCausland continued, "We expect earnings per diluted share of $1.43 to $1.50 in fiscal 2006, with $0.33 to $0.36 in the first quarter. We expect continued strong execution across the board, with improved operating margins and return on capital as we continue to drive our pricing initiative and complete the BOC integration."
The Company will conduct an earnings teleconference on Thursday, May 5, 2005, beginning at 11:00 a.m. Eastern Time. Access the teleconference by calling (888) 202-2422. 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 May 5 at 1 p.m. Eastern Time by calling (888) 203-1112 and entering passcode 7884986.
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 900 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: price increases gaining traction and helping to offset cost pressures related to the purchase and delivery of the Company's products; seeing strength across business units and customer segments; expecting continued strength in the year ahead; expecting earnings per diluted share of $1.43 to $1.50 in fiscal 2006 and $0.33 to $0.36 in the first quarter; expecting continued strong execution across the board, with improved operating margins and return on capital as the Company continues to drive its pricing initiatives and completes the BOC integration. 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 Company's inability to implement price increases; supply cost pressures; the Company's successful integration of its acquisitions, including the BOC acquisition; increased industry competition; an economic downturn; 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, 2004 and Forms 10-Q dated June 30, 2004, September 30, 2004, and December 31, 2004, filed by the Company with the Securities and Exchange Commission.
Consolidated statements of earnings, condensed consolidated 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) Three Months Ended Year Ended March 31, March 31, 2005 2004 (d) 2005 2004 (d) --------- --------- ----------- ----------- Net sales $656,069 $522,091 $2,411,409 $1,895,468 --------- --------- ----------- ----------- Costs and expenses: Cost of products sold (excl. deprec.) 323,640 253,587 1,179,045 908,681 Selling, distribution and administrative expenses 248,940 198,736 917,547 731,827 Depreciation 29,283 23,318 106,120 82,567 Amortization 1,319 1,154 5,464 5,389 Special charges (recoveries) (a) -- (776) -- (776) --------- --------- ----------- ----------- Total costs and expenses 603,182 476,019 2,208,176 1,727,688 --------- --------- ----------- ----------- Operating income 52,887 46,072 203,233 167,780 Interest expense, net (13,285) (11,367) (51,245) (42,357) Discount on securitization of trade receivables (b) (1,495) (797) (4,711) (3,264) Other income (expense), net 434 1,056 1,136 1,473 --------- --------- ----------- ----------- Earnings before income tax expense, minority interest & equity earnings 38,541 34,964 148,413 123,632 Income tax expense (13,933) (12,852) (54,583) (47,012) Minority interest in earnings of consolidated affiliate (c) (452) (452) (1,808) (452) Equity earnings of unconsolidated affiliate (c) -- -- -- 4,024 --------- --------- ----------- ----------- Net earnings $ 24,156 $ 21,660 $ 92,022 $ 80,192 ========= ========= =========== =========== Basic earnings per share $ 0.32 $ 0.29 $ 1.23 $ 1.10 Diluted earnings per share $ 0.31 $ 0.29 $ 1.20 $ 1.07 Weighted average shares outstanding: Basic 75,600 73,600 74,900 72,800 Diluted 77,600 75,700 77,000 74,700 See attached notes. AIRGAS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) March 31, March 31, 2005 2004(d) ----------- ----------- ASSETS Cash $ 32,640 $ 25,062 Trade accounts receivable, net (b) 148,834 107,013 Inventories, net 221,609 170,300 Deferred income tax asset, net 26,263 25,519 Prepaids and other current assets 36,911 28,463 ----------- ----------- TOTAL CURRENT ASSETS 466,257 356,357 Property, plant and equipment, net 1,269,342 1,033,926 Goodwill 511,196 504,207 Other intangible assets, net 16,507 19,733 Other non-current assets 28,561 46,383 ----------- ----------- TOTAL ASSETS $2,291,863 $1,960,606 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, trade $ 143,208 $ 114,303 Accrued expenses and other current liabilities 159,132 147,088 Current portion of long-term debt 6,948 6,140 ----------- ----------- TOTAL CURRENT LIABILITIES 309,288 267,531 Long-term debt 801,635 682,698 Deferred income taxes 282,186 253,529 Other non-current liabilities 48,391 28,756 Minority interest in subsidiary 36,191 36,191 Stockholders' equity 814,172 691,901 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,291,863 $1,960,606 =========== =========== See attached notes. AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended Year Ended March 31, March 31, 2005(c) 2004(c)(d) ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 92,022 $ 80,192 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 106,120 82,567 Amortization 5,464 5,389 Deferred income taxes 31,853 23,172 Equity in earnings of unconsolidated affiliate -- (4,024) Gain on divestiture (360) -- Gain on sales of plant and equipment (321) (837) Minority interest in earnings of consolidated affiliate 1,808 452 Stock issued for employee stock purchase plan 9,907 6,889 Changes in assets and liabilities, excluding effects of business acquisitions and divestitures: Securitization of trade receivables 27,300 3,700 Trade receivables, net (39,583) (15,901) Inventories, net (32,356) (5,586) Prepaid expenses and other current assets (8,149) 10,146 Accounts payable, trade 27,984 20,845 Accrued expenses and other current liabilities (574) 4,687 Other assets 3,387 1,413 Other liabilities (2,185) (2,425) ---------- ----------- Net cash provided by operating activities 222,317 210,679 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (167,977) (93,749) Proceeds from sales of plant and equipment 5,361 5,347 Proceeds from divestitures 828 -- Business acquisitions, holdbacks and other settlements of acquisition related liabilities (191,820) (34,907) Management fees from unconsolidated affiliate -- 724 Other, net 171 (1,369) ---------- ----------- Net cash used in investing activities (353,437) (123,954) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 621,450 414,297 Repayment of debt (494,684) (485,004) Financing costs (2,531) (2,737) Termination of interest rate hedge 3,948 -- Minority interest (1,808) (452) Exercise of stock options 20,374 13,130 Dividends paid to stockholders (13,643) (11,801) Cash overdraft 5,592 (10,516) ---------- ----------- Net cash provided by (used in) financing activities 138,698 (83,083) ---------- ----------- Change in cash $ 7,578 $ 3,642 Cash - Beginning of period 25,062 21,420 ---------- ----------- Cash - End of period $ 32,640 $ 25,062 ========== =========== See attached notes. Notes: (a) Special charge recoveries of $776 thousand ($480 thousand after tax) for the quarter and year ended March 31, 2004 consist of the reversal of the excess portion of prior years' restructuring charges. The special charge recoveries represent a change in estimate related to facility exit costs. (b) 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 $189.9 million and $162.6 million at March 31, 2005 and March 31, 2004, respectively. (c) Effective December 31, 2003, the Company elected to adopt Financial Accounting Standards Board Interpretation No. 46R, "Consolidation of Variable Interest Entities," ("FIN 46R"), as it applies to its joint venture with National Welders Supply Company, Inc. ("NWS"), a producer and distributor of industrial gases based in Charlotte, North Carolina. For the nine months ended December 31, 2003, NWS' operating results were reflected as "Equity in Earnings of Unconsolidated Affiliate." Beginning January 1, 2004 and for the year ended March 31, 2005, the operating results of NWS were reported broadly across the income statement in the "All Other Operations" business segment. NWS contributed sales and operating income in each period as follows: Quarter and Year Ended Year Ended March 31, 2005 March 31, 2004 ------------------ ------------------- Total Sales $167,473 $39,170 Total Operating Income 15,662 3,390 The cash flows of NWS, in excess of a management fee, are not available for the general use of the Company. Rather, these cash flows are used by NWS for operations, capital expenditures, acquisitions and to satisfy financial obligations, which are non-recourse to the Company. The consolidated cash flows for the following periods reflect the following sources and uses of cash associated with NWS: Year Ended Year Ended March 31, March 31, 2005 2004 ------------ ------------- Net cash provided by operating activities $19,612 $9,831 Net cash used in investing activities (29,240) (1,783) Net cash provided by (used in) financing activities 9,500 (8,039) Change in cash (128) 9 ------------ ------------- Management fee paid to the Company, which is eliminated in consolidation 1,089 249 (d) Certain reclassifications of prior period amounts have been made to conform with the current year presentation, including the presentation of depository cash, cash overdrafts, minority interest and equity in earnings of unconsolidated affiliates. In the current year presentation, the depository cash and cash overdrafts are presented on a gross basis. Previously, the amounts were presented net. Minority interest and equity earnings recognized in prior periods related to NWS were reclassified from pre-tax income and presented net of tax below income tax expense. (e) Business segment information for the Company's Distribution and All Other Operations segments is shown below: Three Months Ended March 31, 2005 -------------------------------------- All Other (In thousands) Dist. Ops. Elim Combined --------- -------- --------- --------- Gas and rent $292,538 $79,175 $(13,390) $358,323 Hardgoods 281,166 17,473 (893) 297,746 --------- -------- --------- --------- Total net sales 573,704 96,648 (14,283) 656,069 Cost of products sold, excl. deprec. expense 293,030 44,893 (14,283) 323,640 Selling, distribution and administrative expenses 212,747 36,193 248,940 Deprec. & amort. expense 24,016 6,586 30,602 Special charges (recoveries) -- -- -- --------- -------- --------- Operating income 43,911 8,976 52,887 --------- -------- --------- Three Months Ended March 31, 2004 -------------------------------------- All Other (In thousands) Dist. Ops. Elim Combined --------- -------- --------- --------- Gas and rent $226,515 $70,094 $(10,526) $286,083 Hardgoods 221,266 15,703 (961) 236,008 --------- -------- --------- --------- Total net sales 447,781 85,797 (11,487) 522,091 Cost of products sold, excl. deprec. expense 225,960 39,114 (11,487) 253,587 Selling, distribution and administrative expenses 165,602 33,134 198,736 Deprec. & amort. expense 18,856 5,616 24,472 Special charges (recoveries) (776) -- (776) --------- -------- --------- Operating income 38,139 7,933 46,072 --------- -------- --------- Year Ended March 31, 2005 ------------------------------------------- All Other (In thousands) Dist. Ops. Elim Combined ----------- --------- --------- ----------- Gas and rent $1,056,661 $318,748 $(49,300) $1,326,109 Hardgoods 1,022,078 66,863 (3,641) 1,085,300 ----------- --------- --------- ----------- Total net sales 2,078,739 385,611 (52,941) 2,411,409 Cost of products sold, excl. deprec. expense 1,057,547 174,439 (52,941) 1,179,045 Selling, distribution and administrative expenses 776,306 141,241 917,547 Deprec. & amort. expense 86,868 24,716 111,584 Special charges (recoveries) -- -- -- ----------- --------- ----------- Operating income 158,018 45,215 203,233 ----------- --------- ----------- Year Ended March 31, 2004 ------------------------------------------- All Other (In thousands) Dist. Ops. Elim Combined ----------- --------- --------- ----------- Gas and rent $882,585 $216,166 $(39,944) $1,058,807 Hardgoods 819,886 19,760 (2,985) 836,661 ----------- --------- --------- ----------- Total net sales 1,702,471 235,926 (42,929) 1,895,468 Cost of products sold, excl. deprec. expense 845,440 106,170 (42,929) 908,681 Selling, distribution and administrative expenses 648,919 82,908 731,827 Deprec. & amort. expense 72,439 15,517 87,956 Special charges (recoveries) (776) -- (776) ----------- --------- ----------- Operating income 136,449 31,331 167,780 ----------- --------- ----------- 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: Year Ended Year Ended (Amounts in thousands) March 31, 2005 March 31, 2004 -------------- -------------- Net cash provided by operating activities $222,317 $210,679 Less net cash provided by operating activities of NWS (1) (19,612) (9,831) Plus: Management fees paid by NWS (1) 1,089 249 Operating lease buyouts 24,130 4,011 Proceeds from sale of PP&E 5,361 5,347 Less: Cash provided by the securitization of trade receivables (27,300) (3,700) Capital expenditures (167,977) (93,749) Add back capital expenditures of NWS (1) 24,584 2,265 -------------- -------------- Free Cash Flow $62,592 $115,271 ============== ============== 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. After-Tax Cash Flow: -------------------- Reconciliation of net cash provided by operating activities per the Consolidated Statement of Cash Flows to After-Tax Cash Flow: Year Ended Year Ended (Amounts in thousands) March 31, 2005 March 31, 2004 -------------- -------------- Net cash provided by operating activities $222,317 $210,679 Less After-Tax Cash Flow of NWS (1) (17,056) (4,209) Add back: Cash used for (provided by) working capital components and other assets and liabilities 51,476 (13,179) Gain on divestiture 360 -- Gain on sales of plant and equipment 321 837 Equity in earnings of unconsolidated affiliates -- 4,024 Less: Cash provided by the securitization of trade receivables (27,300) (3,700) Stock issued for employee stock purchase plan (9,907) (6,889) Minority interest in earnings (1,808) (452) -------------- -------------- After-Tax Cash Flow $218,403 $187,111 ============== ============== After-Tax Cash Flow is defined as net earnings plus depreciation, amortization and deferred tax expense. After-Tax Cash Flow provides investors meaningful insight into the Company's ability to generate cash from operations to support working capital requirements, capital expenditures and financial obligations. (1) National Welders Supply Co. ("NWS") is a 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. NWS was consolidated effective December 31, 2003. Prior to January 1, 2004, the Company reported the results of NWS in "Equity in Earnings of Unconsolidated Affiliate." The liabilities of NWS are non-recourse to the Company. Likewise, the cash flows in excess of the 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"): March 31, March 31, Change in (Amounts in thousands) 2005 2004 Adjusted Debt --------- --------- ------------- Debt $808,583 $688,838 $119,745 Adjustments to Debt: Securitization of trade receivables 189,900 162,600 27,300 National Welders - non-recourse debt (2) (66,019) (53,823) (12,196) Interest rate swap agreements (3,948) (13,832) 9,884 --------- --------- ------------- Adjusted Debt $928,516 $783,783 $144,733 ========= ========= ============= (2) 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 accurate and 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. Growth In Fiscal Year Earnings: ------------------------------- Year Ended Year Ended March 31, 2005 March 31, 2004 Increase -------------- -------------- -------- Diluted earnings per share as reported $1.20 $1.07 12% BOC integration costs .04 -- COO separation agreement .01 -- Casualty insurance loss -- .02 NWS non-recurring gain -- (.02) Special charge recoveries -- (.01) -------------- -------------- Diluted earnings per share, excluding certain gains and charges $1.25 $1.06 18% ============== ============== ======== The Company believes that diluted earnings per share, excluding certain gains and charges noted above, are more indicative of the Company's on-going operations and provide investors meaningful trend information.
