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This excerpt taken from the VLG 10-K filed Sep 28, 2006. Operations
We are a leading distributor of packaged industrial, medical and
specialty gases, and related hard goods including welding
equipment and supplies, with distribution facilities in
14 states in the eastern United States. We also have a
growing presence in the distribution of propane in our
geographic markets.
We generate revenue through the sale of packaged industrial
gases, which include industrial, medical and specialty gases
such as: nitrogen, oxygen, argon, helium, acetylene, carbon
dioxide, nitrous oxide, hydrogen, welding gases, ultra high
purity grades and special application blends and the rental and
delivery charges for the cylinders and tanks in which they are
delivered. We sell packaged industrial gases to customers for
manufacturing, industrial, metal production and fabrication,
construction, health care, mining, oil and chemicals and other
applications. Sale of our packaged gases is generally not
seasonal. Most of our packaged gas customers also rent cylinders
from us. We also sell hardgoods, which consist of welding
supplies and equipment, safety products, and MRO supplies. In
addition, we sell propane to the residential, commercial and
industrial markets. Typical residential and commercial uses
include conventional space heating, water heating and cooking.
Typical industrial uses include engine fuel for forklifts and
other vehicles, metal cutting, brazing and heat treating. The
distribution of propane is seasonal in nature and sensitive to
variations in weather, with consumption as a heating fuel
peaking sharply in winter months. In fiscal 2006, packaged gases
accounted for approximately 35% of our net sales, hardgoods
accounted for approximately 37% of our net sales, while propane
accounted for approximately 28% of our net sales.
Our cost of products sold includes the direct cost of
industrial, medical and specialty gases pursuant to supply
arrangements and open purchase orders with four of the five
major gas producers in the United States, the purchase of hard
goods from a number of vendors and the purchase of propane from
one of the three major propane suppliers. Although the cost of
the gases we sell is subject to formula pricing and variation
based on market prices for such gases, because packaging,
delivery and other services constitute a substantial portion of
the cost and the value of the
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packaged gases we provide our customers, we believe that we are
not significantly exposed to decreased margins because of those
variations.
Our operating, distribution and administrative expenses
primarily are composed of delivery expenses, salaries, benefits,
professional fees, transportation equipment operating costs,
facility lease expenses and general office expenses. We believe
that changes in these expenses as a percentage of sales should
be evaluated over the long term rather than on a
quarter-to-quarter
basis due to the moderate seasonality of sales mentioned above
and the generally fixed nature of these expenses. We also incur
depreciation expense related to our fixed assets, including
approximately 600,000 cylinders which are generally depreciated
over a period of 30 years. We also own approximately 250
delivery vehicles that we depreciate over a period of 3 to
7 years.
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