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Valley National Gases, Inc.

Valley National Gases, Inc.


200 West Beau Street, Suite 200
Washington, Pennsylvania 15301
U.S.A.
Telephone: (724) 228-3000
Toll Free: (800) 380-1300
Fax: (724) 225-8066
Web site: http://www.vngas.com

Public Company
Incorporated: 1958 as Valley Welding Co.
Employees: 750
Sales: $210.5 million (2006)
Stock Exchanges: American
Ticker Symbol: VLG
NAIC: 422690 Other Chemical and Allied Products Wholesalers; 422720 Petroleum and Petroleum Products Wholesalers (Except Bulk Stations and Terminals); 421830 Industrial Machinery and Equipment Merchant Wholesalers; 325120 Industrial Gas Manufacturing

Valley National Gases, Inc., with headquarters in Washington, Pennsylvania, is the second largest independent U.S. packager and distributor of industrial gases, medical and specialty gases, welding equipment and supplies, propane, and fire protection equipment. Valley serves more than 225,000 industrial, commercial, and residential customers through 75 locations and eight production and distribution centers in 14 eastern states. The company's main concentration, the welding supply and industrial gas distribution market, is complemented by its growing presence in the non-pipeline propane distribution industry.

ONE-STORE OPERATION IN 1958

Valley National Gases, Inc., traces its roots to Valley Welding Supply Co., a one-store operation founded in 1958 by Alton Dodge and Robert Butler in Wheeling, West Virginia. The two former Airco Distributor Gases' workers started the new business when their employer closed its Wheeling branch. The New Jersey-based Airco manufactured and marketed welding, medical, industrial, and special gases. Building on accounts inherited from Airco, Valley Welding had first year sales of $90,000, with 80 percent coming from just two customers, Wheeling-Pittsburgh Steel Corp. and Ormet Corp., an aluminum manufacturer just across the Ohio line. The new company also sold welding supplies and equipment, propane for home heating and gas grills, and medical oxygen.

Valley Welding had annual revenues over $700,000 by 1970, the year the company was bought by Gary E. West and two other investors. Dodge and Butler had established a solid local customer base in Wheeling and with the aluminum, steel, coal, and chemical industries in West Virginia's Northern Panhandle region. The 33-year-old West had always wanted to go into business for himself. He was working for Goodyear Tire and Rubber Co. at the time in a position that dealt with many of the same industries as Valley Welding. With West as president, sales grew to $850,000 in the first year and topped $1 million the following year. In 1973, with 15 employees in two locations, the company made its first acquisition when it bought N.C.G., an Airco-owned competitor.

The early 1980s brought an economic slowdown and downsizing in the industries crucial to Valley Welding's business so the company began an aggressive growth campaign to spread out into new geographic markets. Valley targeted independent industrial gas and welding supply distributors with annual sales between $1 million and $3 million. Valley added four branches and 38 employees in 1980, followed by more acquisitions and 15 more employees in 1982. The company further expanded in the late 1980s into Pennsylvania, southern Ohio, and North Carolina. In 1987, Valley was one of two companies honored by Airco for significantly increasing sales of welding, medical, industrial, and special gases.

MULTISTATE CORPORATION IN 1992

The company continued its strategy of aggressive growth through acquisitions into the early 1990s, and in 1992 changed its name to Valley National Gases, Inc., to better reflect its growing geographic base in the welding and natural gas industries. By 1994, the company's gas operations were its primary business and consisted of mixing and packaging gases such as oxygen, nitrogen, and argon in pressurized cylinders and then delivering them to customers from over 30 distribution and retail locations in five states: West Virginia, Ohio, Pennsylvania, Kentucky, and North Carolina. At the time, propane distribution to residential and industrial customers amounted to about 10 percent of sales.

By April 1995, Valley had expanded into two more states, added 50 more employees, and was preparing to move its senior management team and several departments into its new 12,000-square-foot Wheeling corporate headquarters. West became chairman of Valley National Gases, and Valley Welding CEO Lawrence E. Bandi was promoted to president and CEO of the corporation. At the time, Valley National Gases was the parent firm of Valley Welding Supply Co., Fire Safety Service Co., Valley Propane Co., and Ultra-Spec Rare and Specialty Gases. In July, Valley announced the acquisition of Evans Welding Supply Co. of Johnson City, Tennessee, and Cincinnati-based A L Compressed Gases. In October, the company added Wooten Industries, which had two operations in Maryland and one in Delaware.

In January 1996, Valley announced the completion of a 1,900-square-foot training facility near its Wheeling headquarters. The company said it planned to bring employees to the center from throughout its network of 40 locations in nine mid-Atlantic and Midwest states. In September, the company bought Weber Gas and Welding Supply Co., of Pittsburgh, and in October, Weldco Inc., with locations in Cincinnati and Dayton, Ohio, was added. A total of four independent industrial gas and welding supply distributors were acquired in 1996.

COMPANY PERSPECTIVES


Valley National Gases, Inc., is dedicated to providing the highest quality product available to customers at a competitive price. We find solutions to customers' technical and business needs quickly and economically.

Our philosophy places our customers first. Our employees are professional and we take great pride in offering customers the reliable service they've come to expect from us.

At VNG, we have a commitment to providing unparalleled service. We are the premier distributor of packaged gases and related products for commercial and residential customers.

1997 PUBLIC OFFERING, ONGOING BUYING SPREE

In documents filed in January 1997 for its proposed initial public offering, the company reported that it had net sales of $44.9 million in 1995 with a net income of $3.5 million, and net income of $2.5 million on sales of $53.6 million in 1996. On April 10, Valley offered two million shares of stock at a price of $8 per share trading on the NASDAQ under the symbol "VNGI." The company's growth-through-acquisition strategy continued full steam ahead with the purchase of New Jersey-based Flame Welding Supplies, Inc., on April 11, and the addition of Delaware-based Atlantic Fire & Safety Co., Inc., a week later. Ohio-based Toledo Oxygen and Equipment Company, and Doansco Inc., were bought in the summer. In August, Valley reported that net sales had increased by 37 percent to $73.9 million for the fiscal year that ended June 30, 1997. The company reported net income was up by 12 percent to $2.8 million. In September, Pennsylvania-based Goss Brothers Welding Supply, Inc., with seven locations, joined the Valley family. December brought the announcement of three more acquisitions, and the company closed the year operating in 51 locations in ten states, with seven production and distribution centers.

Valley continued to build its Fire Equipment Division with its January 1998 purchase of Liberty Fire Protection Company, Inc., located in Philadelphia, Pennsylvania. Propane supply distributor Miller's LP Gas, Inc., of Plain City, Ohio, was picked up by the company in May. In August, Valley reported that sales for fiscal 1998 had risen almost 30 percent to $95.0 million but net income was up only 5 percent to $3.0 million. September brought the purchase of Altoona Welding Supply Company, Inc., of Altoona, Pennsylvania.

Wisconsin became the 11th state to have a Valley outlet when the company bought Milwaukee's Dlouhy Welding Supply Inc. in January 1999. Valley added two locations in Maryland with the purchase of Keen Welding Supplies Inc. the same month and another Ohio location with the March acquisition of Holshoy Welding Supply, Inc., in Massillon. Company stock moved from the NASDAQ to the American Stock Exchange under the new symbol "VLG" on July 27, 1999. In August, Valley reported net income for fiscal 1999 had increased just shy of 10 percent to $3.2 million on sales of $102.3 million, up about 8 percent. With the October purchase of Ohio-based American Air Gases, Inc., and the December deals for Lee's Gas Supply Inc. and Independent Propane Inc., both headquartered in Virginia with operations in Pennsylvania and Maryland, the company ended the year doing business in 62 different locations.

Net sales for fiscal 2000 increased by 23 percent to $126.1 million. Net income was up more than 11 percent to $3.6 million. In September 2000, Valley purchased its lone acquisition for the calendar year, Titan Welding Supply, LTD, located in Willoughby, in northwest Ohio.

Burton French Inc., located in Mansfield, was added to Valley's 15 other Ohio locations in January 2001, and in April, the company purchased Dixie Gas & Oil, Inc., with its two propane operations located in Franklin and Moorefield, West Virginia. May 2001 brought Valley its largest acquisition to date when Air Liquide America agreed to sell eight industrial gas and welding distribution branches with annual sales of $11 million, all located in Florida. Two more Ohio companies, The Buckeye Corporation and Mansfield Oxygen Corporation, joined the Valley family in July. Sales for fiscal 2001 were up 12 percent to $141.3 million and net income again rose about 11 percent to $3.9 million. The December purchase of Gas Arc Supply, Inc., an industrial gases and welding supply distributor with five locations in Pennsylvania, Maryland, and Virginia, closed the year.

SLOWDOWN AND RETOOLING IN 2002

After 28 years of service, President and CEO Lawrence E. Bandi retired from the company in April 2002. In August, the company announced the pending acquisition of Gerber's Propane, Inc., located in Saint Marys, Pennsylvania. At the same time, the company reported net sales for fiscal 2002 ticked up by only 2 percent to $144.5 million while net income rose just 8 percent to $4.2 million. In September, industrial gas industry veteran Michael L. Tyler was elected as president and CEO, and would also serve on the board of directors.

KEY DATES


1958:
Alton Dodge and Robert Butler establish Valley Welding Co. in Wheeling, West Virginia.
1970:
Gary E. West and two investors buy Valley Welding.
1973:
Company makes the first of many acquisitions.
1992:
Valley Welding changes name to Valley National Gases, Inc.
1997:
Valley National Gases launches public offering, begins trading on the NASDAQ.
1999:
Stock begins trading on American Stock Exchange under the new symbol "VLG."
2006:
Reynolds Welding Supply Company, Inc., becomes Valley's largest acquisition to date; Valley agrees to buyout from Caxton-Iseman Capital, a New York-based private investment firm.

However, Tyler's tenure ended quickly with his resignation in June 2003. William A. Indelicato, vice-chairman of the board, was appointed CEO. James P. Hart, who had been a director on Valley's board since 1995, was named president. In August, the company released the dismal figures for fiscal 2003. Even though net sales had increased 10 percent to $152.1 million, net income fell to only $236,000. The company, which had made 69 acquisitions through August 2002, and had tripled annual sales revenues since going public in 1997, decided it needed a new direction and focus. With headquarters located in Washington, Pennsylvania, the company turned to an improvement strategy designed to enhance its operating efficiency and promote growth from within. Instead of focusing energy on new purchases, Valley launched marketing campaigns and devised technical programs aimed at improving existing customer relations and operating results.

The company's repositioning and strengthening program started reaping benefits almost immediately. In February 2004, even with sluggish sales, Valley announced record earnings for the quarter ending December 31, 2003, with cash flow from operations returning to a six-year high. Company stock started to rebound as well, trading at a five-year high of $10.30 on March 9, 2004, up 92 percent from the previous year. In August, the company reported that sales for fiscal 2004 were up only slightly to $154.5 million but net income was a record $7.7 million.

Valley added a 12th state to its base of operations in June 2005 when it bought Plymouth Wayne Welding, an industrial gases and welding supply distributor with $12 million in annual sales and four locations in southeast Michigan. The company's fiscal 2005 ended on June 30, 2005, with net sales climbing almost 9 percent to $167.7 million. The company's bottom line had dramatically improved, with net income up 61 percent to a new record of $12.4 million. After three years without making one acquisition and concentrating instead on internal growth, Valley in late August announced its largest purchase to date, and another expansion of its geographic marketplace, with the acquisition of Reynolds Welding Supply Company, Inc., and its subsidiaries, Welders Supply Company, Inc., and Twin City Oxygen Company, Inc. With five outlets in Minnesota and one in South Dakota, the three companies had annual aggregate sales of about $20 million. In December, the company bought Pennsylvania-based United Propane Services, LLC, a propane distributor with annual sales of about $2.2 million.

BUILDING ON MOMENTUM IN 2006

The company continued to build momentum in 2006. Belt-tightening and its latest acquisitions helped Valley maintain a growth trend through one of the warmest January-through-March periods on record. In August, the company reported a 26 percent increase in net sales to $210.5 million for fiscal 2006, the largest year-to-year increase since 1998. Net income was up 12 percent to $15.2 million. Valley's share price reflected the company's performance of setting 11 consecutive quarterly earnings records when it hit a six-year high on August 5 with heavier-than-normal volume. On August 16, Valley announced the acquisition of Industrial Air Products, Inc., a distributor with two Florida locations and annual sales near $3 million. Sales for the quarter broke $50 million for the first time and net income rose 60 percent compared to the same quarter in fiscal 2006.

On November 14, 2006, Valley announced that it had entered into an agreement to be acquired by Caxton-Iseman Capital, a New York-based private investment firm. The $312 million transaction was slated for closure in the first quarter of 2007 and included $249 million for all of the company's outstanding shares of stock and the assumption of $63 million in debt. Caxton-Iseman, with annual revenues of approximately $5 billion, agreed to pay Valley stockholders $27 per share in cash, the closing price on November 13. Gary E. West, chairman and owner of approximately 72 percent of Valley's outstanding shares, agreed to accept $24.52 per share. Caxton-Iseman said it would change Valley to a private company but maintain the company's Washington, Pennsylvania, headquarters with minimal personnel changes.

As 2007 began, the company that made an impact in its industry by gobbling up smaller fish was on the verge of being devoured by a giant whale with no experience in the industrial gas business. Having found a formula in the last few years that mixed measured growth from acquisitions with an attention to internal operations, Valley appeared well positioned to maintain its momentum and continue its rise as one of the country's top independent specialty gas distributors.

Ted Sylvester

PRINCIPAL COMPETITORS

Air Products and Chemicals, Inc.; Airgas, Inc.; National Welders Supply Company; Praxair, Inc.

FURTHER READING

Bailey, Jack, "Aggressive Acquisition Strategy Propels Growth at Valley National," State Journal, October 6, 1997, p. 3.

, "Who's Who in West Virginia Business: West Builds Valley Welding into Regional Supply Firm," State Journal, December 1, 1994, p. 26.

Blum, Michelle, "Valley Welding Expanding," Intelligencer, April 22, 1995, p. 13.

Elliott, Suzanne, "West Virginia Gas Company to Go Public," Tribune Review, March 26, 1997, p. B3.

Kerfoot, Kevin, "Valley National Gases Acquires Evans Welding Supply," Tennessee Manufacturer, July 1, 1995, p. 1.

Vargo, Sam, "Valley National Gases Becoming Multi-State Industry Leader," State Journal, July 7, 2000.

Whiteman, Lou, "Middle MarketPrivate EquityM and A Caxton-Iseman in Industrial Gases," TheDeal.com, November 15, 2006.

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