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Airgas Reports Fiscal Third Quarter Earnings

Consolidated statements of earnings, condensed consolidated balance sheets, consolidated statements of cash flows, and reconciliations and computations of non-GAAP financial measures follow below.

   
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,
2012   2011 2012   2011
 
Net sales $ 1,207,708   $ 1,153,751   $ 3,694,574   $ 3,505,134  
 
Costs and expenses:

Cost of products sold (excluding depreciation) (a)

527,452 520,409 1,648,503 1,603,282

Selling, distribution and administrative expenses (b)

462,288 433,050 1,380,720 1,279,933

Restructuring and other special charges (benefits), net (c)

(1,729 ) 2,431 6,426 18,261

Costs (benefits) related to unsolicited takeover attempt (d)

- (1,170 ) - (7,870 )
Depreciation 65,804 61,575 194,820 182,224
Amortization   6,614     6,437     19,950     18,841  
Total costs and expenses   1,060,429     1,022,732     3,250,419     3,094,671  
 
Operating income (a) 147,279 131,019 444,155 410,463
 
Interest expense, net (16,472 ) (15,741 ) (48,102 ) (49,815 )
Other income, net (e)   805     1,375     10,329     1,524  
 
Earnings before income taxes 131,612 116,653 406,382 362,172
 
Income taxes (a)   (48,697 )   (44,095 )   (151,649 )   (136,766 )
 
Net earnings (a) $ 82,915   $ 72,558   $ 254,733   $ 225,406  
 
Net earnings per common share:
 
Basic earnings per share (a) $ 1.07   $ 0.96   $ 3.30   $ 2.94  
 
Diluted earnings per share (a) $ 1.05   $ 0.93   $ 3.23   $ 2.88  
 
Weighted average shares outstanding:
Basic 77,417 75,940 77,123 76,632
Diluted 78,944 77,705 78,883 78,340
 
See attached Notes.
 

   
AIRGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
 
 
(Unaudited)
December 31, March 31,
2012 2012
 
ASSETS
Cash $ 66,606 $ 44,663
Trade receivables, net 645,174 652,439
Inventories, net 462,379 408,438
Deferred income tax asset, net 53,898 49,617
Prepaid expenses and other current assets   160,900   119,049
TOTAL CURRENT ASSETS 1,388,957 1,274,206
 
Plant and equipment, net 2,674,258 2,616,059
Goodwill 1,198,698 1,163,803
Other intangible assets, net 230,469 214,204
Other non-current assets   46,679   52,313
TOTAL ASSETS $ 5,539,061 $ 5,320,585
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable, trade $ 157,384 $ 174,868
Accrued expenses and other current liabilities 347,724 356,344
Short-term debt (f) 284,305 388,452
Current portion of long-term debt (g)   305,342   10,385
TOTAL CURRENT LIABILITIES 1,094,755 930,049
 
Long-term debt, excluding current portion (h) 1,706,926 1,761,902
Deferred income tax liability, net 811,547 793,957
Other non-current liabilities 88,087 84,419
 
Stockholders’ equity   1,837,746   1,750,258
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,539,061 $ 5,320,585
 
See attached Notes.
 

 
AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 
 
Nine Months Ended
December 31,
2012   2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (a) $ 254,733 $ 225,406

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation 194,820 182,224
Amortization 19,950 18,841
Impairment (c) 1,729 2,500
Deferred income taxes (a) 14,163 38,088
Gain on sales of plant and equipment (126 ) (65 )
Gain on sale of businesses (6,822 ) -
Stock-based compensation expense 22,744 21,352
 
Changes in assets and liabilities, excluding effects of business acquisitions and divestitures:
Trade receivables, net 15,579 (37,360 )
Inventories, net (a) (49,972 ) (27,954 )
Prepaid expenses and other current assets (37,410 ) (10,908 )
Accounts payable, trade (19,594 ) (9,801 )
Accrued expenses and other current liabilities (6,526 ) (62,329 )
Other non-current assets 2,626 2,059
Other non-current liabilities   (836 )   (1,002 )
Net cash provided by operating activities   405,058     341,051  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (244,052 ) (263,398 )
Proceeds from sales of plant, equipment and businesses 23,438 12,199
Business acquisitions and holdback settlements (94,630 ) (96,970 )
Other, net   (1,668 )   (1,473 )
Net cash used in investing activities   (316,912 )   (349,642 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in short-term debt (f) (104,181 ) 406,701
Proceeds from borrowings of long-term debt (h) 260,372 1,065,560
Repayment of long-term debt (18,115 ) (1,147,735 )
Financing costs (2,076 ) (4,567 )
Purchase of treasury stock (i) (222,163 ) (300,000 )
Proceeds from the exercise of stock options 78,091 22,890
Stock issued for the Employee Stock Purchase Plan 12,781 11,361
Tax benefit realized from the exercise of stock options 33,352 10,914
Dividends paid to stockholders (92,655 ) (70,819 )
Change in cash overdraft   (11,609 )   2,858  
Net cash used in financing activities   (66,203 )   (2,837 )
 
Change in cash $ 21,943 $ (11,428 )
Cash – Beginning of period   44,663     57,218  
Cash – End of period $ 66,606   $ 45,790  
 
See attached Notes.

 
Notes:
 
a)   As a result of the Company’s operating realignment into four divisions, the Company initiated a related change in its legal entity structure on January 1, 2012 whereby the majority of Airgas’ distribution businesses have merged or will merge into a single limited liability company (“LLC”) of which the Company is the sole member. The new legal structure necessitated conformance of certain of the Company’s accounting policies, including those around inventory valuation. As a result, effective January 1, 2012, the Company changed its method of accounting for the portion of its hardgoods inventory valued using the last-in, first-out (“LIFO”) method to the average-cost method. The Company applied this change in accounting principle through retrospective application to the prior year’s financial statements. The impact of the change led to increases in operating income of $407 thousand and $895 thousand for the three and nine months ended December 31, 2011, respectively, and a $0.01 increase in previously reported diluted earnings per share for the nine-month period ended December 31, 2011.
 
b) Included within selling, distribution and administrative expenses are costs related to the Company’s SAP implementation of $8.7 million and $9.8 million for the three months ended December 31, 2012 and 2011, respectively. SAP implementation costs of $27.3 million and $24.1 million were included in the consolidated results for the nine months ended December 31, 2012 and 2011, respectively. Also included within selling, distribution and administrative expenses are multi-employer defined benefit pension plan (“MEPP”) withdrawal charges of $3.4 million and $4.3 million for the three and nine months ended December 31, 2011, respectively. As collective bargaining agreements (“CBAs”) came up for renewal, the Company actively negotiated the withdrawal from MEPPs replacing those retirement plans for CBA employees with defined contribution plans. At December 31, 2012, the Company has successfully negotiated its withdrawal from all MEPPs in which it previously participated and has fully accrued for the related withdrawal assessments.
 
c) Restructuring and other special charges consist of a net benefit of $1.7 million for the three months ended December 31, 2012 and a net cost of $6.4 million for the nine months ended December 31, 2012. In May 2011, the Company announced its plan to realign its twelve regional distribution companies into four new divisions, and to consolidate its regional company accounting and certain administrative functions into four newly created Business Support Centers. As a result of the plan, the Company recorded a restructuring charge of $13.3 million during the three months ended June 30, 2011 for severance benefits expected to be paid under the Airgas, Inc. Severance Pay Plan to employees whose jobs were eliminated as a result of the realignment. During the three months ended December 31, 2012, the Company re-evaluated its remaining severance liability related to the realignment and, as a result of this analysis, reduced its severance liability by $3.7 million. The reduction in the severance liability was driven by fewer than expected individuals meeting the requirements to receive severance benefits. This reduction was due to both the retention of employees through relocation or acceptance of new positions, as well as former associates who chose not to remain with the Company through their designated separation dates. Offsetting the benefit from the reduction to the severance liability were additional restructuring and other related costs of $2.0 million and $8.4 million for the three and nine months ended December 31, 2012, respectively, primarily related to transition staffing, legal and other costs associated with the realignment and LLC formation. In addition to the restructuring and other related costs, in June 2012, the Company re-evaluated the economic viability of a small hospital piping construction business and, as a result of an impairment analysis performed on the assets at the associated reporting unit, the Company recorded a charge of $1.7 million related to certain of the intangible assets associated with this business for the three months ended June 30, 2012.
 
For the three and nine months ended December 31, 2011, restructuring and other special charges were $2.4 million and $18.3 million, respectively. During the three months ended December 31, 2011, the Company recorded restructuring and other related costs of $2.4 million primarily related to facility closure, transition staffing, legal and other costs associated with the realignment. Combined with the $13.3 million restructuring charge for severance benefits recorded during the three months ended June 30, 2011, total restructuring and other related costs were $15.7 million during the nine months ended December 31, 2011. In addition to the restructuring and other related costs, the Company recorded a special charge related to an impairment analysis. In August 2011, the Company received 24 months notice that a supplier’s hydrogen plant, which generates CO 2 as a by-product that serves as the feedstock for the Company’s co-located liquid CO 2 plant, will cease operations in calendar year 2013. The Company expects the hydrogen plant to continue to supply the feedstock for its liquid CO 2 plant during the remaining period. As a result of an impairment analysis performed on the assets at this location, the Company recorded a charge of $2.5 million during the three months ended September 30, 2011.
 
d) During the three and nine months ended December 31, 2011, the Company recognized $1.2 million and $7.9 million, respectively, of benefits from lower than previously estimated net costs related to the fiscal 2011 unsolicited takeover attempt by Air Products and Chemicals, Inc.
 
e) On June 1, 2012, the Company divested the assets and operations of five branch locations in western Canada. The Company realized a gain on the sale of $6.8 million ($5.5 million after tax) recorded in other income in its Consolidated Statement of Earnings. The operations were included in the Distribution business segment and contributed net sales that were not material to the Company’s Consolidated Statement of Earnings.
 
f) The Company participates in a $750 million commercial paper program supported by its Credit Facility. This program allows the Company to obtain favorable short-term borrowing rates with maturities that may vary, but will generally not exceed 90 days from the date of issue. The Company has used proceeds from the commercial paper program to pay down amounts outstanding under its Credit Facility and for general corporate purposes. At December 31, 2012, $284 million was outstanding under the commercial paper program.
 
g) On October 1, 2012, the Company’s $300 million 2.85% notes were reclassified to the “Current portion of long-term debt” line item of the Company’s Consolidated Balance Sheet. The notes mature on October 1, 2013.
 
h) The Company’s Credit Facility matures on July 19, 2016. Including the borrowings under the commercial paper program, approximately $376 million was available to the Company under the Credit Facility at December 31, 2012. On November 26, 2012, the Company issued $250 million of 2.90% senior notes maturing on November 15, 2022. The net proceeds from the offering were used for general corporate purposes, including to fund acquisitions, repay indebtedness under the Company’s commercial paper program, and repurchase shares pursuant to the Company’s stock repurchase program.
 
i) On October 23, 2012, the Company announced a $600 million share repurchase program. During the three months ended December 31, 2012, the Company repurchased 2.47 million shares on the open market at an average price of $89.93. At December 31, 2012, $378 million was available for additional share repurchases under the program. During the three months ended June 30, 2011, the Company completed a $300 million share repurchase program announced on May 5, 2011, repurchasing 4.46 million shares on the open market at an average price of $67.19.
 
j) Business segment information for the Company’s Distribution and All Other Operations business segments is presented below. Business segment operating results for the prior year quarter and prior year-to-date periods were adjusted for the retrospective application of the LIFO-to-average-cost change in accounting principle implemented during the three months ended March 31, 2012. Amounts in the “Eliminations and Other” column below reported for net sales and cost of products sold (excluding depreciation) represent the elimination of intercompany sales and associated gross profit on sales from the Company’s All Other Operations business segment to the Distribution business segment. Although corporate operating expenses are generally allocated to each business segment based on sales dollars, the Company reports expenses (excluding depreciation) related to the implementation of its SAP system and the Company’s withdrawal from various MEPPs under selling, distribution and administrative expenses in the “Eliminations and Other” column below. Additionally, the Company’s net restructuring and other special charges (benefits) and the legal, professional and other costs (benefits) incurred as a result of Air Products’ unsolicited takeover attempt are not allocated to the Company’s business segments. These costs (benefits) are also reflected in the “Eliminations and Other” column below.
 

                   
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
December 31, 2012 December 31, 2011
All All
Other Elim. Other Elim.

(In thousands)

Dist. Ops. & Other Total Dist. Ops. & Other Total
Gas and rent $ 642,884 $ 138,152 $ (8,062 ) $ 772,974 $ 611,005 $ 119,409 $ (8,959 ) $ 721,455
Hardgoods   433,218   1,518   (2 )   434,734     430,724   1,578   (6 )   432,296  
Total net sales 1,076,102 139,670 (8,064 ) 1,207,708 1,041,729 120,987 (8,965 ) 1,153,751
 

Cost of products sold (excluding depreciation)

461,917 73,599 (8,064 ) 527,452 467,592 61,782 (8,965 ) 520,409

Selling, distribution and administrative expenses

408,704 44,866 8,718 462,288 379,894 40,002 13,154 433,050

Restructuring and other special charges (benefits), net

- - (1,729 ) (1,729 ) - - 2,431 2,431

Costs (benefits) related to unsolicited takeover attempt

- - - - - - (1,170 ) (1,170 )
Depreciation 60,372 5,432 - 65,804 56,695 4,880 - 61,575
Amortization   5,384   1,230   -     6,614     5,171   1,266   -     6,437  
Operating income $ 139,725 $ 14,543 $ (6,989 ) $ 147,279   $ 132,377 $ 13,057 $ (14,415 ) $ 131,019  
 
 
(Unaudited) (Unaudited)
Nine Months Ended Nine Months Ended
December 31, 2012 December 31, 2011
All All
Other Elim. Other Elim.

(In thousands)

Dist. Ops. & Other Total Dist. Ops. & Other Total
Gas and rent $ 1,914,092 $ 444,371 $ (26,370 ) $ 2,332,093 $ 1,827,302 $ 404,554 $ (28,584 ) $ 2,203,272
Hardgoods   1,357,502   4,984   (5 )   1,362,481     1,297,343   4,533   (14 )   1,301,862  
Total net sales 3,271,594 449,355 (26,375 ) 3,694,574 3,124,645 409,087 (28,598 ) 3,505,134
 

Cost of products sold (excluding depreciation)

1,441,482 233,396 (26,375 ) 1,648,503 1,413,164 218,716 (28,598 ) 1,603,282

Selling, distribution and administrative expenses

1,222,697 130,749 27,274 1,380,720 1,131,263 120,258 28,412 1,279,933

Restructuring and other special charges (benefits), net

- - 6,426 6,426 - - 18,261 18,261

Costs (benefits) related to unsolicited takeover attempt

- - - - - - (7,870 ) (7,870 )
Depreciation 178,759 16,061 - 194,820 168,026 14,198 - 182,224
Amortization   16,171   3,779   -     19,950     15,075   3,766   -     18,841  
Operating income $ 412,485 $ 65,370 $ (33,700 ) $ 444,155   $ 397,117 $ 52,149 $ (38,803 ) $ 410,463  
 




Stock quotes in this article: ARG 

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