Airgas, Inc. (NYSE: ARG), one of the nation’s leading suppliers of
industrial, medical, and specialty gases, and related products, today
reported sales and earnings results for its third quarter ended December
31, 2013, which reflected sluggish business conditions and the
realization of SAP-related benefits as planned. Results for the quarter
also reflected a previously announced loss on the early extinguishment
of debt.
“Consistent with our expectation for continued sluggish business
conditions during the quarter, our earnings results were at the midpoint
of our guidance range,” said Airgas President and Chief Executive
Officer Michael L. Molinini. “We are pleased to have achieved our
long-standing target of reaching a run-rate of more than $75 million in
SAP-enabled operating income benefits by the end of calendar year 2013.
Delivering on that commitment made to shareholders more than three years
ago is a remarkable achievement for which all Airgas associates are to
be commended. We look forward to continuing to leverage SAP’s
capabilities and the benefits of having a unified platform across our
distribution operations to improve the way we manage our business on
both the top and bottom lines for many years to come.”
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Third Quarter
|
|
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FY2014
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FY2013
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% Change
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Earnings per diluted share (GAAP)
|
|
$
|
1.10
|
|
$
|
1.05
|
|
|
5
|
%
|
Loss on the extinguishment of debt
|
|
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0.08
|
|
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-
|
|
|
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Restructuring and other special charges (benefits), net
|
|
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-
|
|
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(0.01
|
)
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|
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Adjusted earnings per diluted share (non-GAAP)
|
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$
|
1.18
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$
|
1.04
|
|
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13
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%
|
|
|
|
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Third quarter earnings per diluted share were $1.10, up 5% over prior
year, and adjusted earnings per diluted share* were $1.18, up 13% over
prior year. Results included SAP-related benefits, net of implementation
costs and depreciation expense, of $0.14 per diluted share in the
current year quarter compared to $0.03 of net expense in the prior year
quarter. Results also included a previously announced loss of $0.08 per
diluted share on the early extinguishment of the Company’s 7.125% senior
subordinated notes with an original maturity in October 2018, which were
redeemed in full on October 2, 2013.
“Our more than 15,000 associates are the best in the business. With most
of the distraction of the SAP implementation in the rearview mirror, we
are clearly focused on bringing the Airgas value proposition to new and
existing customers across the broad array of industries we serve,” said
Molinini. “There are bright spots within certain sectors, but overall
choppiness in the industrial economy continues to frustrate us. As
uncertainty persists, we will remain focused on the things that we can
control, including leveraging the SAP system, managing expenses,
expanding our telesales business, and enhancing our e-Business platform,
and are ready to capitalize when sustained growth in the industrial
economy resumes.”
Third quarter sales were $1.24 billion, an increase of 3% over the prior
year. Organic sales in the quarter were up 1% over prior year, with gas
and rent up 1% and hardgoods up 1%. Acquisitions contributed sales
growth of 2% in the quarter. Distribution segment organic sales in the
quarter were up 2% over prior year, with gas and rent up 3% and
hardgoods up 1%.
Selling, distribution, and administrative expenses increased 3% over the
prior year, with costs associated with acquired businesses representing
2% of the increase. The favorable impact of the reduction in SAP
implementation costs compared to the prior year was substantially offset
by expenses associated with the Company’s expansion of its telesales
business through Airgas Total Access, strategic pricing initiative, and
enhancement of its e-Business platform, as well as by rising healthcare
costs.
Operating margin was 12.5%, up 30 basis points over prior year operating
margin of 12.2% and up 40 basis points compared to prior year adjusted
operating margin* of 12.1%, which excluded a net benefit related to
lower than previously estimated restructuring charges in the prior year.
The combination of a reduction in SAP implementation costs and the
achievement of SAP-related benefits contributed favorably to the net
increase in operating margin this quarter compared to the prior year.
Low organic sales growth challenged the Company’s operating margin in
the third quarter, as did R-22 pricing in its refrigerants business
following the EPA’s unexpected ruling in late March 2013 to allow for an
increase in the production of R-22 during calendar 2013.
Year-to-date free cash flow* was $333 million, up 52% over the prior
year, and adjusted cash from operations* was $576 million, up 28% over
the prior year. The increase in cash flows was primarily driven by the
lower required investment in working capital in the current year
compared to the prior year.
Return on capital* was 12.4% for the twelve months ended December 31,
2013, flat compared to both the prior year and the twelve months ended
September 30, 2013.
Since the beginning of its fiscal year, the Company has acquired nine
businesses with aggregate annual sales of approximately $70 million,
including The Encompass Gas Group, Inc., headquartered in Rockford, IL.
With eleven locations and more than 130 employees in Illinois,
Wisconsin, and Iowa, Encompass was one of the largest privately-owned
suppliers of industrial, medical, and specialty gases and related
hardgoods in the U.S., generating approximately $55 million in annual
sales in 2012. The transaction closed on October 31, 2013.
Revised Fiscal 2014 Guidance
“While we still expect a sequential seasonal uptick in our fiscal fourth
quarter, our sales outlook has softened in light of weaker-than-expected
activity levels in January, in part due to the extremely cold weather in
large parts of the country,” said Airgas Executive Chairman Peter
McCausland. “Despite our tempered outlook for the fourth quarter, our
resulting revised fiscal year 2014 guidance represents 9% to 10% growth
in adjusted earnings per diluted share* and strong execution on
strategic initiatives in a challenging environment.”
“The U.S. industrial economy has not improved in the past year to the
extent that we and many others had expected when we introduced our
fiscal 2016 financial goals at our investor day in December 2012. As a
result, and combined with the slow pace of acquisitions, it will take
longer than expected to reach the goal of $6.5 billion in annual sales.
If the long-awaited resurgence in the U.S. industrial economy were to
gain real strength in the near-term, however, we could make up some of
the lost ground,” said McCausland. “At this time, we are optimistic that
the 15% low-end of our fiscal 2016 operating margin goal is still within
reach.”
For the fourth quarter of fiscal year 2014, the Company expects earnings
per diluted share in the range of $1.18 to $1.23, reflecting an increase
of 4% to 9% over prior year earnings per diluted share of $1.13 and an
increase of 4% to 8% over prior year adjusted earnings per diluted
share* of $1.14. Guidance for both earnings per diluted share and
adjusted earnings per diluted share* includes an estimated
year-over-year increase of approximately $0.12 related to the SAP
initiative, reflecting an estimated $0.16 of net benefit in the fiscal
2014 fourth quarter compared to $0.04 of net benefit in the fiscal 2013
fourth quarter. Guidance also reflects a year-over-year negative impact
to earnings per diluted share related to a challenging and unpredictable
refrigerants market, and year-over-year benefits to earnings per diluted
share related to the Company’s fiscal 2013 share repurchase program and
the incremental contribution from acquisitions closed to-date.
For the full fiscal year 2014, the Company expects earnings per diluted
share, including an $0.08 loss on the early extinguishment of debt and a
$0.02 benefit from a change in a state income tax law, in the range of
$4.69 to $4.74, reflecting an increase of 8% to 9% over the prior year.
The Company expects adjusted earnings per diluted share* of $4.75 to
$4.80, an increase of 9% to 10% over the prior year. Both earnings per
diluted share and adjusted earnings per diluted share* were $4.35 in the
prior year. Fiscal 2014 guidance for both earnings per diluted share and
adjusted earnings per diluted share* includes an estimated
year-over-year increase of approximately $0.65 related to the SAP
initiative, reflecting an estimated $0.47 of net benefit in fiscal 2014
compared to $0.18 of net expense in fiscal 2013. Guidance also reflects
a year-over-year negative impact to earnings per diluted share related
to a challenging and unpredictable refrigerants market, and
year-over-year benefits to earnings per diluted share related to the
Company’s fiscal 2013 share repurchase program and the incremental
contribution from acquisitions closed to-date.
The Company’s previous fiscal year 2014 guidance range, which the
Company provided on October 23, 2013, was for earnings per diluted share
of $4.79 to $4.94, an increase of 10% to 14% over the prior year, and
for adjusted earnings per diluted share* of $4.85 to $5.00, an increase
of 11% to 15% over the prior year. The guidance revision primarily
reflects a reduction in the Company’s year-over-year organic sales
growth rate assumptions.
The Company will conduct an earnings teleconference at 10:00 a.m.
Eastern Time on Thursday, January 30. The teleconference will be
available by calling (888) 389-5987 (U.S./Canada) or (719) 325-2108
(International). The presentation materials (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 Relations” section of the Company’s
website at www.airgas.com.
A webcast of the teleconference will be available live and on demand
through February 27 at http://investor.shareholder.com/arg/events.cfm.
A replay of the teleconference will be available through February 6. To
listen, call (888) 203-1112 (U.S./Canada) or (719) 457-0820
(International) and enter passcode 6835735.
* See attached reconciliations and computations of non-GAAP adjusted
earnings per diluted share, adjusted effective tax rate, adjusted
operating margin, adjusted cash from operations, free cash flow, and
return on capital.
About Airgas, Inc.
Airgas, Inc. (NYSE: ARG), through its subsidiaries, is one of the
nation’s leading suppliers of industrial, medical and specialty gases,
and hardgoods, such as welding equipment and related products. Airgas is
a leading U.S. producer of atmospheric gases with 16 air separation
plants, a leading producer of carbon dioxide, dry ice, and nitrous
oxide, one of the largest U.S. suppliers of safety products, and a
leading U.S. supplier of refrigerants, ammonia products, and process
chemicals. More than 15,000 employees work in approximately 1,100
locations, including branches, retail stores, gas fill plants, specialty
gas labs, production facilities and distribution centers. Airgas also
markets its products and services through e-Business, 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.
This press release contains statements that are forward looking, as that
term is defined by the Private Securities Litigation Reform Act of 1995
or by the SEC in its rules, regulations and releases. These statements
include, but are not limited to: the Company’s expectations regarding
its fiscal 2014 fourth quarter and full fiscal year 2014 earnings per
diluted share and adjusted earnings per diluted share*, as well as its
fiscal 2016 financial goals; and expectations regarding its ability to
leverage SAP and other strategic growth initiatives, expand its
telesales business, and manage expenses. Forward-looking statements also
include any statement that is not based on historical fact, including
statements containing the words "believes," "may," "plans," "will,"
"could," "should," "estimates," "continues," "anticipates," "intends,"
"expects," and similar expressions. We intend 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
us or any other person that the results expressed therein will be
achieved. Airgas assumes no obligation to revise or update any
forward-looking statements for any reason, except as required by law.
Important factors that could cause actual results to differ materially
from those contained in any forward-looking statement include: supply
shortages of certain gases including the continued or increased
disruption in our helium supply chain; impacts of the EPA ruling related
to the production of R-22; the pace and manner of U.S. compliance with
the Montreal Protocol; adverse changes in customer buying patterns
resulting from continuing adverse economic conditions; weakening in the
operating and financial performance of our customers, which could
negatively impact our sales and our ability to collect our accounts
receivable; postponement of projects due to economic developments;
customer acceptance of price increases; our ability to achieve
anticipated acquisition synergies; the impact of operating costs
associated with acquired businesses; higher than expected expenses
associated with the expansion of our telesales business, our strategic
pricing initiatives and other strategic growth initiatives; supply cost
pressures; increased industry competition; our ability to successfully
identify, consummate, and integrate acquisitions; our continued ability
to access credit markets on satisfactory terms; significant fluctuations
in interest rates; increases in energy costs and other operating
expenses at a faster rate than our ability to increase price eroding
planned cost savings; changes in customer demand resulting in the
inability to meet minimum product purchases under long-term supply
agreements and the inability to negotiate alternative supply
arrangements; higher than expected implementation costs of the SAP
system; conversion or implementation problems related to the SAP system
that disrupt our business and negatively impact customer relationships;
our ability to achieve anticipated benefits enabled by our conversion to
the SAP system; higher than expected costs related to our Business
Support Center transition; the impact of changes in credit market
conditions on our customers; the impact of changes in tax and fiscal
policies and laws; the potential for increased expenditures relating to
compliance with environmental regulatory initiatives; the impact of new
environmental, healthcare, tax, accounting, and other regulation; the
extent and duration of current economic trends in the U.S., including
the strength of the U.S. industrial economy; the economic recovery in
the U.S.; the effect of catastrophic events and/or severe weather
conditions; political and economic uncertainties associated with current
world events; and other factors described in the Company's reports,
including its March 31, 2013 Form 10-K, subsequent Forms 10-Q, and other
Forms filed by the Company with the SEC.
Consolidated statements of earnings, condensed consolidated balance
sheets, consolidated statements of cash flows, and reconciliations and
computations of non-GAAP financial measures follow below.
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AIRGAS, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF EARNINGS
|
(Amounts in thousands, except per share data)
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,242,846
|
|
|
$
|
1,207,708
|
|
|
$
|
3,804,707
|
|
|
$
|
3,694,574
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of products sold (excluding depreciation) (a)
|
|
|
537,670
|
|
|
|
530,565
|
|
|
|
1,676,225
|
|
|
|
1,660,447
|
|
Selling, distribution and administrative expenses (a) (b)
|
|
|
472,687
|
|
|
|
459,175
|
|
|
|
1,420,617
|
|
|
|
1,368,776
|
|
Restructuring and other special charges (benefits), net (c)
|
|
|
-
|
|
|
|
(1,729
|
)
|
|
|
-
|
|
|
|
6,426
|
|
Depreciation
|
|
|
69,905
|
|
|
|
65,804
|
|
|
|
205,422
|
|
|
|
194,820
|
|
Amortization
|
|
|
7,665
|
|
|
|
6,614
|
|
|
|
22,141
|
|
|
|
19,950
|
|
Total costs and expenses
|
|
|
1,087,927
|
|
|
|
1,060,429
|
|
|
|
3,324,405
|
|
|
|
3,250,419
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
154,919
|
|
|
|
147,279
|
|
|
|
480,302
|
|
|
|
444,155
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(16,216
|
)
|
|
|
(16,472
|
)
|
|
|
(57,675
|
)
|
|
|
(48,102
|
)
|
Loss on the extinguishment of debt (d)
|
|
|
(9,150
|
)
|
|
|
-
|
|
|
|
(9,150
|
)
|
|
|
-
|
|
Other income, net (e)
|
|
|
2,292
|
|
|
|
805
|
|
|
|
3,879
|
|
|
|
10,329
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
131,845
|
|
|
|
131,612
|
|
|
|
417,356
|
|
|
|
406,382
|
|
|
|
|
|
|
|
|
|
|
Income taxes (f)
|
|
|
(49,086
|
)
|
|
|
(48,697
|
)
|
|
|
(154,929
|
)
|
|
|
(151,649
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
82,759
|
|
|
$
|
82,915
|
|
|
$
|
262,427
|
|
|
$
|
254,733
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.12
|
|
|
$
|
1.07
|
|
|
$
|
3.57
|
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.10
|
|
|
$
|
1.05
|
|
|
$
|
3.51
|
|
|
$
|
3.23
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
|
73,767
|
|
|
|
77,417
|
|
|
|
73,505
|
|
|
|
77,123
|
|
Diluted
|
|
|
75,094
|
|
|
|
78,944
|
|
|
|
74,812
|
|
|
|
78,883
|
|
|
|
|
|
|
|
|
|
|
See attached Notes.
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|
|
|
|
|
|
|
|
|
|
|
|
|
AIRGAS, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(Amounts in thousands)
|
(Unaudited)
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
|
2013
|
|
2013
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Cash
|
|
$
|
62,225
|
|
$
|
86,386
|
Trade receivables, net
|
|
|
664,966
|
|
|
710,740
|
Inventories, net
|
|
|
489,379
|
|
|
474,821
|
Deferred income tax asset, net
|
|
|
58,242
|
|
|
53,562
|
Prepaid expenses and other current assets
|
|
|
127,561
|
|
|
138,321
|
TOTAL CURRENT ASSETS
|
|
|
1,402,373
|
|
|
1,463,830
|
|
|
|
|
|
Plant and equipment, net
|
|
|
2,769,120
|
|
|
2,686,305
|
Goodwill
|
|
|
1,277,266
|
|
|
1,195,613
|
Other intangible assets, net
|
|
|
262,486
|
|
|
226,824
|
Other non-current assets
|
|
|
44,014
|
|
|
45,653
|
TOTAL ASSETS
|
|
$
|
5,755,259
|
|
$
|
5,618,225
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Accounts payable, trade
|
|
$
|
159,033
|
|
$
|
183,258
|
Accrued expenses and other current liabilities
|
|
|
350,475
|
|
|
374,883
|
Short-term debt (g)
|
|
|
443,209
|
|
|
-
|
Current portion of long-term debt (h) (i)
|
|
|
400,376
|
|
|
303,573
|
TOTAL CURRENT LIABILITIES
|
|
|
1,353,093
|
|
|
861,714
|
|
|
|
|
|
Long-term debt, excluding current portion (i)
|
|
|
1,704,744
|
|
|
2,304,245
|
Deferred income tax liability, net
|
|
|
839,367
|
|
|
825,612
|
Other non-current liabilities
|
|
|
89,469
|
|
|
89,671
|
|
|
|
|
|
Stockholders’ equity
|
|
|
1,768,586
|
|
|
1,536,983
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
5,755,259
|
|
$
|
5,618,225
|
|
|
|
|
|
See attached Notes.
|
|
|
|
|
|
|
|
AIRGAS, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Amounts in thousands)
|
(Unaudited)
|
|
|
|
|
|
Nine Months Ended
|
|
|
December 31,
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net earnings
|
|
$
|
262,427
|
|
|
$
|
254,733
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
Depreciation
|
|
|
205,422
|
|
|
|
194,820
|
|
Amortization
|
|
|
22,141
|
|
|
|
19,950
|
|
Impairment (c)
|
|
|
-
|
|
|
|
1,729
|
|
Deferred income taxes
|
|
|
9,061
|
|
|
|
14,163
|
|
Gain on sales of plant and equipment
|
|
|
(1,268
|
)
|
|
|
(126
|
)
|
Gain on sale of businesses (e)
|
|
|
-
|
|
|
|
(6,822
|
)
|
Stock-based compensation expense
|
|
|
24,542
|
|
|
|
22,744
|
|
Loss on the extinguishment of debt (d)
|
|
|
9,150
|
|
|
|
-
|
|
|
|
|
|
|
Changes in assets and liabilities, excluding effects of business
acquisitions and divestitures:
|
|
|
|
|
Trade receivables, net
|
|
|
52,930
|
|
|
|
15,579
|
|
Inventories, net
|
|
|
(9,885
|
)
|
|
|
(49,972
|
)
|
Prepaid expenses and other current assets
|
|
|
8,023
|
|
|
|
(37,410
|
)
|
Accounts payable, trade
|
|
|
(26,663
|
)
|
|
|
(19,594
|
)
|
Accrued expenses and other current liabilities
|
|
|
(597
|
)
|
|
|
(6,526
|
)
|
Other, net
|
|
|
(1,421
|
)
|
|
|
1,790
|
|
Net cash provided by operating activities
|
|
|
553,862
|
|
|
|
405,058
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Capital expenditures
|
|
|
(257,476
|
)
|
|
|
(244,052
|
)
|
Proceeds from sales of plant, equipment and businesses
|
|
|
11,427
|
|
|
|
23,438
|
|
Business acquisitions and holdback settlements
|
|
|
(179,581
|
)
|
|
|
(94,630
|
)
|
Other, net
|
|
|
(957
|
)
|
|
|
(1,668
|
)
|
Net cash used in investing activities
|
|
|
(426,587
|
)
|
|
|
(316,912
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Net increase (decrease) in short-term debt (g)
|
|
|
442,948
|
|
|
|
(104,181
|
)
|
Proceeds from borrowings of long-term debt
|
|
|
132,525
|
|
|
|
260,372
|
|
Repayment of long-term debt (i)
|
|
|
(635,721
|
)
|
|
|
(18,115
|
)
|
Financing costs
|
|
|
-
|
|
|
|
(2,076
|
)
|
Premium paid on call of senior subordinated notes (d)
|
|
|
(7,676
|
)
|
|
|
-
|
|
Purchase of treasury stock (j)
|
|
|
(8,127
|
)
|
|
|
(222,163
|
)
|
Proceeds from the exercise of stock options
|
|
|
29,771
|
|
|
|
78,091
|
|
Stock issued for the Employee Stock Purchase Plan
|
|
|
12,974
|
|
|
|
12,781
|
|
Excess tax benefit realized from the exercise of stock options
|
|
|
9,426
|
|
|
|
33,352
|
|
Dividends paid to stockholders
|
|
|
(105,936
|
)
|
|
|
(92,655
|
)
|
Change in cash overdraft and other
|
|
|
(21,620
|
)
|
|
|
(11,609
|
)
|
Net cash used in financing activities
|
|
|
(151,436
|
)
|
|
|
(66,203
|
)
|
|
|
|
|
|
Change in cash
|
|
$
|
(24,161
|
)
|
|
$
|
21,943
|
|
Cash – Beginning of period
|
|
|
86,386
|
|
|
|
44,663
|
|
Cash – End of period
|
|
$
|
62,225
|
|
|
$
|
66,606
|
|
|
|
|
|
|
See attached Notes.
|
|
|
|
|
|
Notes:
|
|
|
|
a)
|
|
Certain reclassifications were made to the Consolidated Statements
of Earnings for the prior year periods, as well as the related
notes, to conform to the current year presentation. The Company
reclassified $3.1 million and $11.9 million out of selling,
distribution and administrative expenses into cost of products sold
(excluding depreciation) for the three and nine months ended
December 31, 2012, respectively. Consolidated operating income and
net earnings for the prior year periods were not impacted by the
reclassifications.
|
|
|
|
b)
|
|
Included within selling, distribution and administrative expenses
are costs related to the Company’s SAP implementation of $1.8
million and $8.7 million for the three months ended December 31,
2013 and 2012, respectively. SAP implementation costs of $6.2
million and $27.3 million were included in the consolidated results
for the nine months ended December 31, 2013 and 2012, respectively.
While the Company has successfully converted its Safety telesales
and hardgoods infrastructure businesses, as well as all of its
regional distribution businesses, to the SAP platform, the Company
continues to incur some post-conversion support and training
expenses related to the implementation of the new system.
|
|
|
|
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 the alignment of its then twelve
regional distribution companies into four new divisions, and the
consolidation of its regional company accounting and certain
administrative functions into four newly created Business Support
Centers. During the three and nine months ended December 31, 2012,
the Company recorded restructuring and other related costs of $2.0
million and $8.4 million, respectively, primarily related to
transition staffing, legal and other costs associated with the
realignment. These costs were offset by a $3.7 million reduction to
the severance liability associated with the realignment based on a
change in estimate recorded during the three months ended December
31, 2012. 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.
|
|
|
|
d)
|
|
On August 27, 2013, the Company announced its election to redeem all
$215 million of its outstanding 7.125% senior subordinated notes
originally due to mature in October 2018 (the “2018 Notes”). The
2018 Notes were redeemed in full on October 2, 2013 at a price of
103.563%. A loss on the early extinguishment of debt of $9.1 million
($5.6 million after tax, or $0.08 per diluted share) related to the
redemption premium and the write-off of unamortized debt issuance
costs on the 2018 Notes was recognized in the three months ended
December 31, 2013.
|
|
|
|
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, net, 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 Statements of Earnings.
|
|
|
|
f)
|
|
During the three months ended September 30, 2013, the Company
recognized a $1.5 million ($0.02 per diluted share) tax benefit
related to a change in a state income tax law, allowing the Company
to utilize additional net operating loss carryforwards. The
Company’s adjusted effective tax rate*, which excludes the impact of
the benefit to the Company’s income taxes, as well as the income tax
impact related to the loss on the early extinguishment of debt, was
37.5% for the nine months ended December 31, 2013.
|
|
|
|
g)
|
|
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 for
general corporate purposes, including the repayment of its 2018
Notes and the maturity of its $300 million 2.85% senior notes (the
“2013 Notes”) in October 2013. At December 31, 2013, $443 million
was outstanding under the commercial paper program.
|
|
|
|
h)
|
|
In September 2013, the Company’s $400 million 4.5% senior notes
maturing September 2014 were reclassified to the “Current portion of
long-term debt” line item of the Company’s Consolidated Balance
Sheet.
|
|
|
|
i)
|
|
In October 2013, the Company made its final payments on the 2013 and
2018 Notes and financed these requirements with the proceeds of
commercial paper issuances, excess cash and utilization under its
accounts receivable securitization facility. Including the
borrowings under the commercial paper program, approximately $203
million was available to the Company under the Credit Facility at
December 31, 2013. The Company’s Credit Facility matures on July 19,
2016.
|
|
|
|
j)
|
|
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.
|
|
|
|
k)
|
|
Business segment information for the Company’s Distribution and All
Other Operations business segments is presented below. 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 under selling,
distribution and administrative expenses in the “Eliminations and
Other” column below. Additionally, the Company’s restructuring and
other special charges (benefits), net, 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, 2013
|
|
December 31, 2012
|
|
|
|
|
All
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
Other
|
|
Elim.
|
|
|
|
|
|
Other
|
|
Elim.
|
|
|
(In thousands)
|
|
Dist.
|
|
Ops.
|
|
& Other
|
|
Total
|
|
Dist.
|
|
Ops.
|
|
& Other
|
|
Total
|
Gas and rent
|
|
$
|
674,465
|
|
$
|
123,768
|
|
$
|
(7,338
|
)
|
|
$
|
790,895
|
|
$
|
642,884
|
|
$
|
138,152
|
|
$
|
(8,062
|
)
|
|
$
|
772,974
|
|
Hardgoods
|
|
|
451,057
|
|
|
895
|
|
|
(1
|
)
|
|
|
451,951
|
|
|
433,218
|
|
|
1,518
|
|
|
(2
|
)
|
|
|
434,734
|
|
Total net sales
|
|
|
1,125,522
|
|
|
124,663
|
|
|
(7,339
|
)
|
|
|
1,242,846
|
|
|
1,076,102
|
|
|
139,670
|
|
|
(8,064
|
)
|
|
|
1,207,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (excluding depreciation)
|
|
|
484,083
|
|
|
60,926
|
|
|
(7,339
|
)
|
|
|
537,670
|
|
|
465,030
|
|
|
73,599
|
|
|
(8,064
|
)
|
|
|
530,565
|
|
Selling, distribution and administrative expenses
|
|
|
427,440
|
|
|
43,409
|
|
|
1,838
|
|
|
|
472,687
|
|
|
405,591
|
|
|
44,866
|
|
|
8,718
|
|
|
|
459,175
|
|
Restructuring and other special charges (benefits), net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,729
|
)
|
|
|
(1,729
|
)
|
Depreciation
|
|
|
63,968
|
|
|
5,937
|
|
|
-
|
|
|
|
69,905
|
|
|
60,372
|
|
|
5,432
|
|
|
-
|
|
|
|
65,804
|
|
Amortization
|
|
|
6,620
|
|
|
1,045
|
|
|
-
|
|
|
|
7,665
|
|
|
5,384
|
|
|
1,230
|
|
|
-
|
|
|
|
6,614
|
|
Operating income
|
|
$
|
143,411
|
|
$
|
13,346
|
|
$
|
(1,838
|
)
|
|
$
|
154,919
|
|
$
|
139,725
|
|
$
|
14,543
|
|
$
|
(6,989
|
)
|
|
$
|
147,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
|
|
All
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
Other
|
|
Elim.
|
|
|
|
|
|
Other
|
|
Elim.
|
|
|
(In thousands)
|
|
Dist.
|
|
Ops.
|
|
& Other
|
|
Total
|
|
Dist.
|
|
Ops.
|
|
& Other
|
|
Total
|
Gas and rent
|
|
$
|
2,028,340
|
|
$
|
418,948
|
|
$
|
(23,715
|
)
|
|
$
|
2,423,573
|
|
$
|
1,914,092
|
|
$
|
444,371
|
|
$
|
(26,370
|
)
|
|
$
|
2,332,093
|
|
Hardgoods
|
|
|
1,377,842
|
|
|
3,295
|
|
|
(3
|
)
|
|
|
1,381,134
|
|
|
1,357,502
|
|
|
4,984
|
|
|
(5
|
)
|
|
|
1,362,481
|
|
Total net sales
|
|
|
3,406,182
|
|
|
422,243
|
|
|
(23,718
|
)
|
|
|
3,804,707
|
|
|
3,271,594
|
|
|
449,355
|
|
|
(26,375
|
)
|
|
|
3,694,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold (excluding depreciation)
|
|
|
1,480,870
|
|
|
219,073
|
|
|
(23,718
|
)
|
|
|
1,676,225
|
|
|
1,453,426
|
|
|
233,396
|
|
|
(26,375
|
)
|
|
|
1,660,447
|
|
Selling, distribution and administrative expenses
|
|
|
1,282,022
|
|
|
132,361
|
|
|
6,234
|
|
|
|
1,420,617
|
|
|
1,210,753
|
|
|
130,749
|
|
|
27,274
|
|
|
|
1,368,776
|
|
Restructuring and other special charges (benefits), net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,426
|
|
|
|
6,426
|
|
Depreciation
|
|
|
188,497
|
|
|
16,925
|
|
|
-
|
|
|
|
205,422
|
|
|
178,759
|
|
|
16,061
|
|
|
-
|
|
|
|
194,820
|
|
Amortization
|
|
|
18,875
|
|
|
3,266
|
|
|
-
|
|
|
|
22,141
|
|
|
16,171
|
|
|
3,779
|
|
|
-
|
|
|
|
19,950
|
|
Operating income
|
|
$
|
435,918
|
|
$
|
50,618
|
|
$
|
(6,234
|
)
|
|
$
|
480,302
|
|
$
|
412,485
|
|
$
|
65,370
|
|
$
|
(33,700
|
)
|
|
$
|
444,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of Non-GAAP Financial Measures
(Unaudited)
Adjusted Earnings per Diluted Share and Earnings
Guidance
Reconciliations of adjusted earnings per diluted share and earnings
guidance:
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
|
|
2013
|
|
2012
|
Earnings per diluted share
|
|
$
|
1.10
|
|
$
|
1.05
|
|
Loss on the extinguishment of debt
|
|
|
0.08
|
|
|
-
|
|
Restructuring and other special charges (benefits), net
|
|
|
-
|
|
|
(0.01
|
)
|
Adjusted earnings per diluted share
|
|
$
|
1.18
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
(Guidance Range)
|
|
|
|
(Guidance Range)
|
|
|
Months
|
|
Three Months Ending
|
|
Year
|
|
Year Ending
|
|
|
Ended
|
|
March 31, 2014
|
|
Ended
|
|
March 31, 2014
|
|
|
Mar. 31,
|
|
|
|
|
|
Mar. 31,
|
|
|
|
|
|
|
2013
|
|
Low
|
|
High
|
|
2013
|
|
Low
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share
|
|
$
|
1.13
|
|
$
|
1.18
|
|
|
$
|
1.23
|
|
|
$
|
4.35
|
|
|
$
|
4.69
|
|
|
$
|
4.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to earnings per diluted share:
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other special charges (benefits), net
|
|
|
0.01
|
|
|
-
|
|
|
|
-
|
|
|
|
0.07
|
|
|
|
-
|
|
|
|
-
|
|
Gain on sale of businesses
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.07
|
)
|
|
|
-
|
|
|
|
-
|
|
State income tax benefit
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
Loss on the extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per diluted share
|
|
$
|
1.14
|
|
$
|
1.18
|
|
|
$
|
1.23
|
|
|
$
|
4.35
|
|
|
$
|
4.75
|
|
|
$
|
4.80
|
|
Year-over-year change
|
|
|
|
|
4
|
%
|
|
|
8
|
%
|
|
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes its adjusted earnings per diluted share financial
measure provides investors meaningful insight into its earnings
performance without the impact of net Business Support Center
restructuring and other special charges, the gain on the sale of
businesses, the benefit from the change in a state income tax law, and
the loss on the extinguishment of debt. Non-GAAP financial measures
should be read in conjunction with GAAP financial measures, as non-GAAP
financial measures are merely a supplement to, and not a replacement
for, GAAP financial measures. It should also be noted that the Company’s
adjusted earnings per diluted share financial measure may be different
from the adjusted earnings per diluted share financial measures provided
by other companies.
Adjusted Effective Tax Rate
Reconciliation of adjusted effective tax rate:
|
|
|
|
|
Nine Months Ended
|
|
|
December 31,
|
(In thousands)
|
|
|
2013
|
|
|
|
|
Income taxes
|
|
$
|
154,929
|
|
Adjustments to income taxes:
|
|
|
Change in state income tax law
|
|
|
1,493
|
|
Loss on the extinguishment of debt
|
|
|
3,504
|
|
Adjusted income taxes
|
|
$
|
159,926
|
|
|
|
|
Earnings before income taxes
|
|
$
|
417,356
|
|
Adjustments to earnings before income taxes:
|
|
|
Loss on the extinguishment of debt
|
|
|
9,150
|
|
Adjusted earnings before income taxes
|
|
$
|
426,506
|
|
|
|
|
Effective tax rate
|
|
|
37.1
|
%
|
|
|
|
Adjusted effective tax rate
|
|
|
37.5
|
%
|
|
|
|
The Company believes its adjusted effective tax rate financial measure
helps investors assess its effective tax rate without the impact of a
benefit related to a change in a state income tax law and the income tax
impact related to the loss on the extinguishment of debt. Non-GAAP
financial measures should be read in conjunction with GAAP financial
measures, as non-GAAP financial measures are merely a supplement to, and
not a replacement for, GAAP financial measures. It should also be noted
that the Company’s adjusted effective tax rate financial measure may be
different from the adjusted effective tax rate financial measures
provided by other companies.
Adjusted Operating Income and Adjusted Operating
Margin
Reconciliations of adjusted operating income and adjusted operating
margin:
|
|
|
|
|
Three Months Ended
|
|
|
December 31,
|
(In thousands)
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,242,846
|
|
|
$
|
1,207,708
|
|
|
|
|
|
|
Operating income
|
|
$
|
154,919
|
|
|
$
|
147,279
|
|
|
|
|
|
|
Operating margin
|
|
|
12.5
|
%
|
|
|
12.2
|
%
|
|
|
|
|
|
Adjustments to operating income:
|
|
|
|
|
Restructuring and other special charges (benefits), net
|
|
|
-
|
|
|
|
(1,729
|
)
|
Adjusted operating income
|
|
$
|
154,919
|
|
|
$
|
145,550
|
|
|
|
|
|
|
Adjusted operating margin
|
|
|
12.5
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
The Company believes its adjusted operating income and adjusted
operating margin financial measures help investors assess its operating
performance without the impact of net Business Support Center
restructuring and other special charges. Non-GAAP financial measures
should be read in conjunction with GAAP financial measures, as non-GAAP
financial measures are merely a supplement to, and not a replacement
for, GAAP financial measures. It should also be noted that the Company’s
adjusted operating income and adjusted operating margin financial
measures may be different from the adjusted operating income and
adjusted operating margin financial measures provided by other companies.
Return on Capital
Reconciliations and computations of return on capital:
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
(In thousands)
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
Operating income - trailing four quarters
|
|
$
|
632,564
|
|
|
$
|
589,913
|
|
|
$
|
624,924
|
|
Adjustments to operating income:
|
|
|
|
|
|
|
Restructuring and other special charges, net
|
|
|
1,663
|
|
|
|
12,613
|
|
|
|
-
|
|
Adjusted operating income - trailing four quarters
|
|
$
|
634,227
|
|
|
$
|
602,526
|
|
|
$
|
624,924
|
|
|
|
|
|
|
|
|
Average of total assets
|
|
$
|
5,625,376
|
|
|
$
|
5,362,288
|
|
|
$
|
5,556,120
|
|
Average of current liabilities (exclusive of debt)
|
|
|
(519,443
|
)
|
|
|
(519,787
|
)
|
|
|
(523,227
|
)
|
Average capital employed
|
|
$
|
5,105,933
|
|
|
$
|
4,842,501
|
|
|
$
|
5,032,893
|
|
|
|
|
|
|
|
|
Return on capital
|
|
|
12.4
|
%
|
|
|
12.4
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
The Company believes its return on capital financial measure helps
investors assess how effectively it uses the capital invested in its
operations. Non-GAAP financial measures should be read in conjunction
with GAAP financial measures, as non-GAAP financial measures are merely
a supplement to, and not a replacement for, GAAP financial measures. It
should be noted as well that the Company’s return on capital financial
measure may be different from the return on capital financial measures
provided by other companies.
Adjusted Cash from Operations, Adjusted Capital
Expenditures, and Free Cash Flow
Reconciliations and computations of adjusted cash from operations,
adjusted capital expenditures, and free cash flow:
|
|
|
|
|
Nine Months Ended
|
|
|
December 31,
|
(In thousands)
|
|
|
2013
|
|
|
|
2012
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
553,862
|
|
|
$
|
405,058
|
|
|
|
|
|
|
Adjustments to net cash provided by operating activities:
|
|
|
Stock issued for the Employee Stock Purchase Plan
|
|
|
12,974
|
|
|
|
12,781
|
|
Excess tax benefit realized from the exercise of stock options
|
|
|
9,426
|
|
|
|
33,352
|
|
Adjusted cash from operations
|
|
|
576,262
|
|
|
|
451,191
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(257,476
|
)
|
|
|
(244,052
|
)
|
|
|
|
|
|
Adjustments to capital expenditures:
|
|
|
|
|
Proceeds from sales of plant and equipment
|
|
|
11,427
|
|
|
|
7,718
|
|
Operating lease buyouts
|
|
|
2,997
|
|
|
|
3,946
|
|
Adjusted capital expenditures
|
|
|
(243,052
|
)
|
|
|
(232,388
|
)
|
|
|
|
|
|
Free cash flow
|
|
$
|
333,210
|
|
|
$
|
218,803
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(426,587
|
)
|
|
$
|
(316,912
|
)
|
Net cash used in financing activities
|
|
$
|
(151,436
|
)
|
|
$
|
(66,203
|
)
|
|
|
|
|
|
The Company believes its adjusted cash from operations, adjusted capital
expenditures, and free cash flow financial measures provide investors
meaningful insight into its ability to generate cash from operations,
which is available for servicing debt obligations and for the execution
of its business strategies, including acquisitions, the prepayment of
debt, the payment of dividends, or to support other investing and
financing activities. The Company’s free cash flow financial measure has
limitations and does not represent the residual cash flow available for
discretionary expenditures. Certain non-discretionary expenditures such
as payments on maturing debt obligations are excluded from the Company’s
computation of its free cash flow financial measure. Non-GAAP financial
measures should be read in conjunction with GAAP financial measures, as
non-GAAP financial measures are merely a supplement to, and not a
replacement for, GAAP financial measures. It should also be noted that
the Company’s adjusted cash from operations, adjusted capital
expenditures, and free cash flow financial measures may be different
from the adjusted cash from operations, adjusted capital expenditures,
and free cash flow financial measures provided by other companies.
Copyright Business Wire 2014