Airgas Reports Fiscal 2010 Second Quarter Earnings

http://www.businesswire.com/news/home/20091029005116/en

* Adjusted diluted EPS* down 21% to $0.68, which excludes previously announced
debt extinguishment and pension charges of $0.03 per diluted share; diluted EPS
down 24% to $0.65
* Previously issued second quarter guidance of $0.64 to $0.69 did not include
the above $0.03 charges
* Sales down 17%; same-store sales down 19%
* Effective expense reductions mitigate impact of sales decline; operating
margin of 11.4%
* Issued $400 million 4.5% senior notes; retired $58 million 7.125% notes
(extinguishment charge $0.02)
* Strong year-to-date free cash flow* of $223 million, up 99%

RADNOR, Pa.--(Business Wire)--
Airgas, Inc. (NYSE:ARG), the largest U.S. distributor of industrial, medical,
and specialty gases, and related supplies, today reported net earnings of $54.5
million, or $0.65 per diluted share, for its second quarter ended September 30,
2009. Excluding a $0.02 per diluted share debt extinguishment charge and a $0.01
per diluted share multi-employer pension plan withdrawal charge, adjusted
earnings per diluted share* were $0.68, compared to $0.86 per diluted share in
the prior-year quarter. Cost reductions and operating efficiencies continued to
support the Company`s operating margin, which posted only a modest decline
year-over-year to 11.4% from 12.5% and improved sequentially from 11.0% in the
face of a challenging sales environment.

Second quarter sales were $962 million, a decline of 17% from the prior year.
Total same-store sales declined 19%, with hardgoods down 27% and gas and rent
down 14%. Acquisitions contributed 2% sales growth in the quarter.

"While sales finished stronger than they started, we are still in a very
challenging economy," said Airgas Chairman and Chief Executive Officer Peter
McCausland. "Difficult conditions were broad-based across our geographies and
customer segments. Consistent with recent quarters, our manufacturing customers
suffered the deepest declines while our medical business showed the most
resilience."

As previously announced, the Company fully implemented $45 million of annual
expense reductions between December 2008 and March 2009, the benefit of which is
fully reflected in first and second quarter results. An additional $12 million
of annual expense reductions were completed during the second quarter and are
expected to yield full run-rate benefits starting in the third quarter. These
$57 million of expense reductions were in addition to $10 million of expected
annual savings in fiscal 2010 from ongoing efficiency initiatives.

"We have managed our cost structure effectively during this downturn,"
McCausland continued, "reducing expenses to mitigate the impact of declining
sales on our earnings. Our efforts have yielded better operating margin and
earnings than the declining sales might otherwise imply, and we are still in a
good position to benefit when the economy starts to recover."

Year-to-date free cash flow* through the second quarter was $223 million
compared to $112 million last year, driven by adjusted cash from operations* of
$349 million, up from $287 million last year, and by a 29% reduction in capital
expenditures to $131 million this year. Return on capital* was 10.8% compared to
13.6% in the prior year.

"In spite of the challenging business climate, some notable highlights in the
quarter included credit rating upgrades by both rating agencies, our $400
million 4.5% senior notes offering that was significantly oversubscribed and
which was used to reduce revolver borrowings, and our addition to the S&P 500
index," added McCausland. "We continue to generate strong free cash flow, which
we used to reduce debt this quarter. Although we believe the worst same-store
sales declines are now behind us, we remain cautious in our near-term outlook
and focused on forward progress for the long run."

The Company expects adjusted earnings per diluted share of $0.67 to $0.70 for
the third quarter, which excludes the previously announced $0.05 per diluted
share loss on the early extinguishment of debt related to the October redemption
of its $150 million 6.25% notes. Including this charge, the Company expects
earnings per diluted share of $0.62 to $0.65. For fiscal 2010, the Company
expects adjusted earnings of $2.70 to $2.80 per diluted share, which excludes
$0.03 per diluted share of charges in the second quarter and the $0.05 per
diluted share charge in the third quarter. Including these charges, the Company
expects earnings per diluted share of $2.62 to $2.72. The previously announced
range of $2.65 to $2.85 per diluted share also excluded the aforementioned
second and third quarter charges. The third quarter and fiscal 2010 guidance
above does not incorporate the impact of future multi-employer pension plan
withdrawal charges. The Company will continue its efforts to withdraw from such
plans. Charges for withdrawal from plans under contracts that expire during the
remainder of fiscal 2010 could be up to $0.04 per diluted share.

Prevailing economic conditions offer limited visibility into future sales and
earnings, which should be taken into consideration when evaluating the Company`s
guidance.

The Company will conduct an earnings teleconference today at 2:00 p.m. Eastern
Time. The teleconference will be available by calling (877) 718-5092. 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
Information" section on the Company`s Internet site at www.airgas.com. A webcast
of the teleconference will be available live and on-demand through November 25
at http://investor.shareholder.com/arg/events.cfm. A replay of the
teleconference will be available through November 6. To listen, call (888)
203-1112 and enter passcode 8939514.

* See attached reconciliations and calculations of the non-GAAP adjusted
earnings per diluted share and earnings guidance, adjusted cash from operations,
free cash flow, and return on capital financial measures.

About Airgas, Inc.

Airgas, Inc. (NYSE:ARG), through its subsidiaries, is the largest U.S.
distributor of industrial, medical, and specialty gases, and hardgoods, such as
welding equipment and supplies. Airgas is also one of the largest U.S.
distributors of safety products, the largest U.S. producer of nitrous oxide and
dry ice, the largest liquid carbon dioxide producer in the Southeast, and a
leading distributor of process chemicals, refrigerants, and ammonia products.
More than 14,000 employees work in over 1,100 locations, including branches,
retail stores, gas fill plants, specialty gas labs, production facilities, and
distribution centers. Airgas also distributes its products and services through
eBusiness, 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.

Forward-Looking Statements

This press release may contain statements that are forward looking, as that term
is defined by the Private Securities Litigation Reform Act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and releases. These
statements include, but are not limited to: expectations for third quarter
diluted earnings per share to be in the range of $0.62 to $0.65, which includes
the previously announced $0.05 per diluted share loss on the early
extinguishment of its 6.25% notes; expectations for full year diluted earnings
per share for fiscal 2010 to be in the range of $2.62 to $2.72, which includes
$0.03 per diluted share of charges in the second quarter and the $0.05 per
diluted share charge in the third quarter; our expectations to yield full
run-rate benefits from announced expense reductions and efficiency initiatives;
our expectation regarding our ability to benefit when the economy starts to
recover; our continuing efforts to withdraw from multi-employer pension plans,
and our expectation that withdrawal from plans under contracts that expire
during the remainder of fiscal 2010 could be up to $0.04 per diluted share; our
belief that our worst same-store sales declines are now behind us; and our
cautious outlook for the near-term. 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. We assume 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:
adverse changes in customer buying patterns resulting from further deterioration
in current economic conditions; continued weakening operating and financial
performance of our customers, which can negatively impact our sales and our
ability to collect our accounts receivable; postponement of projects due to the
recession; customer acceptance of price increases; the success of implementing
and continuing our cost reduction programs; our ability to achieve anticipated
acquisition synergies; 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 eroding the planned cost savings; higher than expected
implementation costs of the SAP system; conversion problems related to the SAP
system that disrupt the Company`s business and negatively impact customer
relationships; the impact of tightened credit markets 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; potential liability under the Multiemployer Pension Plan
Amendments Act of 1980 with respect to our participation in or withdrawal from
multi-employer pension plans for our union employees; the extent and duration of
current recessionary trends in the U.S. economy; the effect of catastrophic
events; political and economic uncertainties associated with current world
events; and other factors described in the Company`s reports, including its
March 31, 2009 Form 10-K, subsequent Forms 10-Q, and other forms filed by the
Company with the Securities and Exchange Commission.

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

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except per share data)
(Unaudited)

Three Months Ended Six Months Ended
September 30, September 30,
2009 2008(d) 2009 2008(d)

Net sales $ 962,266 $ 1,161,908 $ 1,941,523 $ 2,278,622

Costs and expenses:
Cost of products sold (excluding depreciation) 426,433 558,020 866,269 1,096,485
Selling, distribution and administrative expenses 367,892 403,890 743,005 793,783
Depreciation 52,647 48,930 104,230 97,028
Amortization 5,477 6,080 10,293 11,486
Total costs and expenses 852,449 1,016,920 1,723,797 1,998,782

Operating income 109,817 144,988 217,726 279,840

Interest expense, net (16,343 ) (22,047 ) (34,710 ) (41,127 )
Discount on securitization of trade receivables (a) (1,485 ) (2,866 ) (3,100 ) (5,850 )
Loss on debt extinguishment (c) (2,011 ) - (2,011 ) -
Other income (expense), net (257 ) (185 ) 948 135

Earnings before income tax expense 89,721 119,890 178,853 232,998

Income tax expense (35,181 ) (47,069 ) (69,497 ) (91,294 )

Net earnings $ 54,540 $ 72,821 $ 109,356 $ 141,704

Net earnings per common share:

Basic earnings per share $ 0.67 $ 0.88 $ 1.34 $ 1.72

Diluted earnings per share $ 0.65 $ 0.86 $ 1.31 $ 1.67

Weighted average shares outstanding:
Basic 81,764 82,471 81,646 82,581
Diluted 83,476 84,706 83,258 84,848

See attached Notes.

AIRGAS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

(Unaudited)
September 30, March 31,
2009 2009

ASSETS
Cash $ 41,523 $ 47,188
Trade receivables, net (a) 195,643 184,739
Inventories, net 347,703 390,445
Deferred income tax asset, net 37,126 34,760
Prepaid expenses and other current assets 59,168 60,838
TOTAL CURRENT ASSETS 681,163 717,970

Plant and equipment, net 2,393,701 2,366,526
Goodwill 1,072,999 1,063,370
Other intangible assets, net 201,647 216,070
Other non-current assets 36,734 35,601
TOTAL ASSETS $ 4,386,244 $ 4,399,537

LIABILITIES AND STOCKHOLDERS` EQUITY
Accounts payable, trade $ 138,236 $ 156,838
Accrued expenses and other current liabilities 266,577 264,564
Current portion of long-term debt 10,821 11,058
TOTAL CURRENT LIABILITIES 415,634 432,460

Long-term debt, excluding current portion (b) 1,598,217 1,750,308
Deferred income tax liability, net 603,602 565,783
Other non-current liabilities 75,279 79,231

Stockholders` equity 1,693,512 1,571,755
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,386,244 $ 4,399,537

See attached Notes.

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

Six Months Ended
September 30,
2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 109,356 $ 141,704
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 104,230 97,028
Amortization 10,293 11,486
Deferred income taxes 30,641 45,304
(Gain) loss on sales of plant and equipment 1,890 (86 )
Stock-based compensation expense 14,819 12,751
Loss on debt extinguishment (c) 2,011 -
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables (a) (38,700 ) -
Trade receivables, net 27,618 (24,625 )
Inventories, net 42,830 (17,677 )
Prepaid expenses and other current assets 1,767 (4,286 )
Accounts payable, trade (16,120 ) 7,924
Accrued expenses and other current liabilities 9,753 (1,618 )
Other non-current assets 1,536 639
Other non-current liabilities (2,154 ) 1,698
Net cash provided by operating activities 299,770 270,242

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (131,365 ) (185,199 )
Proceeds from sales of plant and equipment 5,695 4,812
Business acquisitions and holdback settlements (3,993 ) (194,704 )
Other, net (2,307 ) (1,212 )
Net cash used in investing activities (131,970 ) (376,303 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 613,003 1,010,741
Repayment of debt (765,688 ) (800,830 )
Financing costs (2,588 ) (5,746 )
Premium paid on call of senior subordinated notes (c) (1,284 ) -
Purchase of treasury stock - (95,549 )
Proceeds from the exercise of stock options 4,698 11,619
Stock issued for the employee stock purchase plan 7,759 8,102
Tax benefit realized from the exercise of stock options 2,721 8,454
Dividends paid to stockholders (29,440 ) (19,766 )
Change in cash overdraft and other (2,646 ) (2,688 )
Net cash (used in) provided by financing activities (173,465 ) 114,337

Change in cash $ (5,665 ) $ 8,276
Cash - Beginning of period 47,188 43,048
Cash - End of period $ 41,523 $ 51,324

See attached Notes.

Notes:

(a) The Company participates in a securitization agreement with three commercial banks to sell up to $345 million of qualified trade receivables. The amount of outstanding
receivables sold under the agreement was $273 million and $311 million at September 30, 2009 and March 31, 2009, respectively. The "Discount on securitization of trade
receivables" in the accompanying Consolidated Statements of Earnings represents the difference between the proceeds from the sale of trade receivables and the carrying
value of those receivables.

(b) The Company maintains a senior credit facility with a syndicate of lenders. Approximately $716 million was available to the Company under this facility at September 30,
2009. In October, the Company used borrowings from its senior credit facility to redeem its $150 million 6.25% notes.

(c) During the fiscal second quarter, the Company repurchased $58 million of its 7.125% senior subordinated notes that are due on October 1, 2018. A loss on the
extinguishment of debt of approximately $2 million ($1.3 million after tax) was recognized related to the redemption premium and the write-off of deferred financing costs
associated with the issuance of the notes.

(d) Certain reclassifications have been made to the prior period consolidated statements of earnings to conform to the current presentation. These reclassifications
principally resulted in increasing cost of products sold (excluding depreciation) and reducing selling, distribution and administrative expenses. Additionally, some
revenue was reclassified between Gas and Rent and Hardgoods. These reclassifications were the result of conforming the accounting policies of National Welders to the
Company`s accounting policies and were not material. Consolidated net sales and net earnings for the prior period were not impacted by the reclassifications.

(e) During the fourth quarter of fiscal 2009, the Company changed the operating practices and organization of its air separation production facilities and national specialty
gas labs. The new operating practices and organization reflect the evolution of these businesses and their role to support the regional distribution companies. The
regional distribution companies market to and manage the end customer relationships, coordinating and cross-selling the Company`s multiple product and service offerings
in a closely coordinated and integrated manner. As a result of these changes, these businesses are now reflected in the Distribution business segment. Also as a result of
an organizational realignment, Airgas National Welders is now part of the Distribution business segment. Segment information from fiscal 2009 has been restated to reflect
these changes. Business segment information for the Company`s Distribution and All Other Operations business segments is shown below:

(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008

(In thousands) Distribution All Elim. Total Distribution All Elim. Total
Other Other
Ops. Ops.
Gas and rent $ 522,033 $ 110,134 $ (6,771 ) $ 625,396 $ 579,751 $ 132,765 $ (8,164 ) $ 704,352
Hardgoods 335,410 1,465 (5 ) 336,870 455,437 2,124 (5 ) 457,556
Total net sales 857,443 111,599 (6,776 ) 962,266 1,035,188 134,889 (8,169 ) 1,161,908

Cost of products sold (excluding depreciation) 376,551 56,658 (6,776 ) 426,433 488,361 77,828 (8,169 ) 558,020
Selling, distribution and administrative expenses 335,235 32,657 - 367,892 370,180 33,710 - 403,890
Depreciation 48,933 3,714 - 52,647 45,831 3,099 - 48,930
Amortization 4,336 1,141 - 5,477 5,017 1,063 - 6,080
Operating income $ 92,388 $ 17,429 $ - $ 109,817 $ 125,799 $ 19,189 $ - $ 144,988

(Unaudited) (Unaudited)
Six Months Ended Six Months Ended
September 30, 2009 September 30, 2008

(In thousands) Distribution All Elim. Total Distribution All Elim. Total
Other Other
Ops. Ops.
Gas and rent $ 1,053,240 $ 221,462 $ (12,391 ) $ 1,262,311 $ 1,140,992 $ 234,215 $ (13,981 ) $ 1,361,226
Hardgoods 676,060 3,161 (9 ) 679,212 914,493 2,910 (7 ) 917,396
Total net sales 1,729,300 224,623 (12,400 ) 1,941,523 2,055,485 237,125 (13,988 ) 2,278,622

Cost of products sold (excluding depreciation) 761,738 116,931 (12,400 ) 866,269 975,954 134,519 (13,988 ) 1,096,485
Selling, distribution and administrative expenses 679,987 63,018 - 743,005 731,450 62,333 - 793,783
Depreciation 96,860 7,370 - 104,230 90,748 6,280 - 97,028
Amortization 8,579 1,714 - 10,293 9,735 1,751 - 11,486
Operating income $ 182,136 $ 35,590 $ - $ 217,726 $ 247,598 $ 32,242 $ - $ 279,840

Reconciliations of Non-GAAP Financial Measures (Unaudited)

Adjusted Earnings Per Diluted Share and Earnings Guidance

Reconciliations and computations of adjusted earnings per diluted share and earnings guidance:

(Guidance Range) (Guidance Range)
Three Months Ended Three Months Ending Year Ending
September 30, December 31, 2009 March 31, 2010
2009 2008 YoY Low YoY High YoY Low YoY High YoY
Change Change Change Change Change

Earnings per diluted share $ 0.65 $ 0.86 (24 %) $ 0.62 (18 %) $ 0.65 (14 %) $ 2.62 (16 %) $ 2.72 (13 %)

Plus:
Debt extinguishment charge 0.02 - 0.05 0.05 0.07 0.07
Multi-employer pension plan withdrawal charge 0.01 - - - 0.01 0.01

Adjusted earnings per diluted share $ 0.68 $ 0.86 (21 %) $ 0.67 (12 %) $ 0.70 (8 %) $ 2.70 (13 %) $ 2.80 (10 %)

The third quarter and fiscal 2010 guidance above does not incorporate the impact
of future multi-employer pension plan withdrawal charges.

The Company believes that adjusted earnings per diluted share provides investors
meaningful insight into the Company's earnings performance without the impact of
special charges. Non-GAAP numbers should be read in conjunction with GAAP
financial measures, as non-GAAP metrics are merely a supplement to, and not a
replacement for, GAAP financial measures. It should be noted as well that our
adjusted earnings per diluted share metric may be different from adjusted
earnings per diluted share metrics provided by other companies.

Return on Capital

Reconciliations and computations of return on capital:

September 30,
(In thousands) 2009 2008

Operating Income - Trailing Four Quarters $ 462,756 $ 529,385

Five Quarter Average of Total Assets $ 4,379,965 $ 4,007,369
Five Quarter Average of Securitized Trade Receivables 319,920 345,000
Five Quarter Average of Current Liabilities (exclusive of debt) (433,785 ) (459,450 )
Five Quarter Average Capital Employed $ 4,266,100 $ 3,892,919

Return on Capital 10.8 % 13.6 %

The Company believes this return on capital computation helps investors assess
how effectively the Company uses the capital invested in its operations. Our
management uses return on capital as one of the metrics for determining employee
compensation. Non-GAAP numbers should be read in conjunction with GAAP financial
measures, as non-GAAP metrics are merely a supplement to, and not a replacement
for, GAAP financial measures. It should be noted as well that our return on
capital computation information may be different from the return on capital
computations provided by other companies.

Free Cash Flow and Adjusted Cash from Operations

Reconciliations and computations of free cash flow and adjusted cash from
operations:

Six Months Ended
September 30,
(Amounts in thousands) 2009 2008

Net cash provided by operating activities $ 299,770 $ 270,242

Adjustments to cash provided by operating activities:
Cash used by the securitization of trade receivables 38,700 -
Stock issued for the employee stock purchase plan 7,759 8,102
Tax benefit realized from the exercise of stock options 2,721 8,454
Adjusted cash from operations $ 348,950 $ 286,798

Capital expenditures $ (131,365 ) $ (185,199 )

Adjustments to capital expenditures:
Proceeds from sales of plant and equipment 5,695 4,812
Operating lease buyouts - 5,575
Adjusted capital expenditures $ (125,670 ) $ (174,812 )

Free Cash Flow $ 223,280 $ 111,986

The Company believes that free cash flow and adjusted cash from operations
provide investors meaningful insight into the Company's ability to generate cash
from operations, which is available for servicing debt obligations and for the
execution of its business strategy, including acquisitions, the prepayment of
debt, or to support other investing and financing activities. Non-GAAP numbers
should be read in conjunction with GAAP financial measures, as non-GAAP metrics
are merely a supplement to, and not a replacement for, GAAP financial measures.
It should be noted as well that our free cash flow and adjusted cash from
operations metrics may be different from free cash flow and adjusted cash from
operations metrics provided by other companies.

Airgas, Inc.
Media Contact:
Jay Worley, 610-902-6206
jay.worley@airgas.com
or
Investor Contact:
Barry Strzelec, 610-902-6256
barry.strzelec@airgas.com

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