This excerpt taken from the VLG 10-K filed Sep 28, 2006.
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
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.