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Airgas Reports Strong Third Quarter Earnings

RADNOR, PA - January 21, 2011 -- Airgas, Inc. (NYSE: ARG), the largest U.S. distributor of industrial, medical, and specialty gases, and related supplies, today reported net earnings of $55.8 million, or $0.65 per diluted share, for its third quarter ended December 31, 2010.  Excluding legal and professional fees and other costs of $0.13 per diluted share** related to an unsolicited takeover attempt, and a one-time interest penalty of $0.02 per diluted share related to the late removal of a restrictive legend on the Company's 7.125% senior subordinated notes, adjusted earnings per diluted share* were $0.80, an increase of 23% from adjusted earnings per diluted share* of $0.65 in the prior year.  Prior year GAAP earnings per diluted share of $0.56 included debt extinguishment charges of $0.05 per diluted share and multi-employer pension plan withdrawal charges of $0.04 per diluted share.

Third quarter sales were $1.03 billion, an increase of 9.5% over the prior year.  Total same-store sales increased 9% in the quarter, with hardgoods up 11% and gas and rent up 7%. Sequentially, total sales declined 3% from the second quarter, driven by normal seasonality in the All Other Operations business segment and two fewer selling days in the third quarter. Sales per day increased 1% sequentially on a consolidated basis and 2% sequentially in the Distribution business segment.

"We are seeing improvement across the country, with robust results in our Great Lakes, Mid South, and Southwest regions," said Airgas Chief Executive Officer Peter McCausland. "Growth is now accelerating in our core business on strength in our manufacturing, utilities and petrochemical customer segments, as well as in repair and maintenance activity, particularly at our larger customers. Although we have yet to see meaningful recovery in energy and infrastructure construction, the outlook is improving and our rental welder business is poised to return to positive same-store sales growth in our fourth quarter."

Adjusted operating margin* for the quarter improved by 110 basis points year-over-year to 12.2% from 11.1%.

"We continue to manage costs while gaining production and distribution efficiencies as volumes recover," McCausland added. "Our national footprint and industry-leading platform also help boost operating leverage on sales growth."

Year-to-date free cash flow* was $255 million at the end of the third fiscal quarter, driven by adjusted cash from operations* of $419 million. Adjusted debt* at the end of the quarter was $1.6 billion, reflecting a reduction of $178 million year-to-date.

"Our acquisition pipeline is improving as the economy recovers. We recently acquired three businesses with annual revenues of $14 million, including Conley Gas, a supplier of pure gases to the specialty gas industry," McCausland said. "Since the beginning of our fiscal year in April, we have acquired seven businesses with $20 million in annual revenues, and we anticipate a more robust acquisition environment in the coming quarters."

Guidance Update

The Company expects adjusted earnings per diluted share* for the fourth quarter to increase 19% to 25% from $0.69 in the prior year to $0.82 to $0.86, which includes $0.04 per diluted share of incremental expense associated with its SAP implementation.

For the full fiscal year 2011, the Company expects adjusted earnings per diluted share* to increase 22% to 24% from $2.68 in the prior year to $3.28 to $3.32, which includes $0.10 per diluted share of incremental expense associated with its SAP implementation. The fourth quarter and fiscal 2011 guidance excludes debt extinguishment charges, multi-employer pension plan withdrawal charges, costs and charges related to the unsolicited takeover attempt, and the one-time interest penalty.

"Our updated fiscal 2011 adjusted EPS guidance now represents a year-over-year increase of 26% to 28% in underlying earnings before SAP costs," added McCausland. "Given our strong performance and expectations for steady growth, we are on track to outperform our calendar 2012 earnings goal of at least $4.20 per share."

The Company will conduct an earnings teleconference at 11:30 a.m. Eastern Time on Friday, January 21. The teleconference will be available by calling (888) 334-3034. 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 of the Company's website at www.airgas.com. A webcast of the teleconference will be available live and on demand through February 22 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through January 31. To listen, call (888) 203-1112 and enter passcode 8406321.

* See attached reconciliations and calculations of the non-GAAP adjusted earnings per diluted share, adjusted operating margin, adjusted cash from operations, free cash flow, and adjusted debt.

** The legal and professional fees and other costs incurred are in response to Air Products' unsolicited takeover attempt.

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 approximately 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.

This press release does not constitute an offer to buy or solicitation of an offer to sell any securities. In response to the tender offer commenced by Air Products Distribution, Inc., a wholly owned subsidiary of Air Products and Chemicals, Inc., Airgas has filed a solicitation/recommendation statement on Schedule 14D-9 with the U.S. Securities and Exchange Commission ("SEC"). INVESTORS AND SECURITY HOLDERS OF AIRGAS ARE URGED TO READ THESE AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION. Investors and security holders may obtain free copies of these documents and other documents filed with the SEC by Airgas through the web site maintained by the SEC at http://www.sec.gov. Also, materials related to Air Products' Unsolicited Proposals are available in the "Investor Information" section of the Company's website at www.airgas.com, or through the following web address: http://investor.shareholder.com/arg/airgascontent.cfm.

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: expectations for fourth quarter adjusted earnings per diluted share to be in the range of $0.82 to $0.86, which includes $0.04 per diluted share of incremental expense associated with the SAP implementation; expectations for adjusted earnings per diluted share for fiscal 2011 to be in the range of $3.28 to $3.32, which includes $0.10 per diluted share of incremental expense associated with the SAP implementation; fourth quarter and fiscal 2011 guidance excluding the impact of debt extinguishment charges, multi-employer pension plan withdrawal charges, costs and charges related to the unsolicited takeover attempt, and the one-time interest penalty; our anticipating a more robust acquisition environment in the coming quarters; the outlook for energy and infrastructure construction, and for our rental welder business to return to positive same-store sales growth in our fourth quarter; our expectations for steady growth; and our ability to outperform our calendar 2012 earnings goal of at least $4.20 per share. 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. The Company notes that forward-looking statements made in connection with a tender offer are not subject to the safe harbors created by the Private Securities Litigation Reform Act of 1995. The Company is not waiving any other defenses that may be available under applicable law. 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: adverse changes in customer buying patterns resulting from deterioration in current economic conditions; weakening in the 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 economic developments; 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 planned cost savings; higher than expected implementation costs of the SAP system; conversion problems related to the SAP system that disrupt our 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; continued 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 timing of economic recovery in the U.S. economy; the effect of catastrophic events; political and economic uncertainties associated with current world events; business disruptions associated with Air Products' unsolicited takeover attempt; and other factors described in the Company's reports, including its March 31, 2010 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 of non-GAAP financial measures follow below.

Notes:    
  a) On April 1, 2010, the Company adopted new accounting guidance which affected the presentation of its trade receivables securitization program. Under the new guidance, proceeds received under the securitization are treated as secured borrowings. Previously, they were treated as proceeds from the sale of trade receivables. The Company participates in a trade receivables securitization agreement with three commercial banks. Funding under the agreement was $295 million at both December 31, 2010 and March 31, 2010. Beginning on April 1, 2010, the Company recognized the trade receivables and the borrowings they collateralize on its balance sheet. Additionally, new borrowings under the trade receivables securitization agreement are classified as financing activities on the Company's statement of cash flows. Prior to April 1, 2010, they were treated as proceeds from the sale of trade receivables and reflected net of collections on the statement of cash flows as operating activities. With respect to the Company's statement of earnings, the amounts previously recorded within the line item "Discount on securitization of trade receivables," which represented the difference between the proceeds from the sale and the carrying value of the receivables under the securitization agreement, are now reflected within "Interest expense, net" consistent with the new accounting treatment.
  b) The Company maintains a senior credit facility (the "Credit Facility") with a syndicate of lenders, which replaced the Company's prior credit facility in September 2010. Approximately $562 million was available to the Company under the Credit Facility at December 31, 2010.
  c) During the year-to-date period ended December 31, 2010, the Company repurchased $30 million of its 7.125% senior subordinated notes that are due on October 1, 2018 (the "2018 Notes"). The Company recognized $4.2 million ($2.6 million after tax) of losses on the extinguishment of debt related to redemption premiums and the write-off of deferred financing costs associated with the repurchases of the 2018 Notes and the early termination of the prior credit facility.
  d) As collective bargaining agreements ("CBAs") came up for renewal, the Company actively negotiated the withdrawal from multi-employer defined benefit pension plans ("MEPP") replacing those retirement plans for CBA employees with defined contribution plans. As part of the withdrawal from a MEPP, the Company is required to fund its portion of the MEPP's unfunded pension obligation. The ultimate amount of the withdrawal liability assessed by the MEPP is impacted by a number of factors, including investment returns, benefit levels, and continued participation by other employers in the MEPP. The computation of the Company's portion of a plan's unfunded obligation may take up to 24 months for the pension plan administrators to prepare. As a result, the Company has recorded estimated liabilities for these withdrawals based on the latest information available to it from the plans. The year-to-date costs related to MEPP withdrawals are $4.6 million ($2.8 million after tax), essentially all of which were incurred prior to the third quarter. These charges are reflected in selling, distribution and administrative expenses. Through fiscal 2012, three remaining CBAs, covering approximately 30 employees who participate in MEPPs, will come up for renewal.
  e) In February 2010, Air Products & Chemicals, Inc. made an unsolicited public proposal to acquire the Company, and subsequently commenced a tender offer. Costs related to the unsolicited takeover attempt represent legal and professional fees and other costs incurred in response to this action.
  f) During the quarter ended December 31, 2010, the Company incurred a one-time interest penalty to holders of the 2018 Notes in the amount of $2.6 million ($1.7 million after tax), relating to the late removal of a restrictive legend on these notes. The Company has classified these charges as interest expense.
  g) Certain reclassifications were made to the Consolidated Statements of Earnings for the prior period to conform to the current period presentation. These reclassifications resulted in increasing revenue and selling, distribution and administrative expenses and reducing cost of products sold (excluding depreciation). These reclassifications were the result of conforming the Company's accounting policies in conjunction with its SAP implementation and were not material. Consolidated operating income and net earnings for the prior period were not impacted by the reclassifications.
  h) Business segment information for the Company's Distribution and All Other Operations business segments is presented below. Corporate operating expenses are generally allocated to each business segment based on sales dollars. However, the legal and professional fees and other costs incurred as a result of Air Products' unsolicited takeover attempt were not allocated to the Company's business segments, and are reflected in the Elimination and Other columns below:

Guidance for adjusted earnings per diluted share excludes debt extinguishment charges, multi-employer pension plan withdrawal charges, costs related to the unsolicited takeover attempt, and the one-time interest penalty. Adjustments to earnings per diluted share guidance for the year ending March 31, 2011, reflect charges and costs recognized through December 31, 2010.

The Company believes that adjusted earnings per diluted share provides investors meaningful insight into the Company's earnings performance without the impact of debt extinguishment charges, multi-employer pension plan withdrawal charges, costs related to Air Products' unsolicited takeover attempt, and the one-time interest penalty. 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.

The Company believes the above adjusted operating margin computations help investors assess the Company's operating performance without the impact of charges associated with the Company's withdrawal from multi-employer pension plans, and costs related to Air Products' unsolicited takeover attempt. 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 operating margin computations may be different from the adjusted operating margin computations provided by other companies.

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 strategies, including acquisitions, the prepayment of debt, the payment of dividends, 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.

The Company uses adjusted debt to provide investors with a more meaningful measure of the Company's debt obligations by adjusting for funds received under the trade receivables securitization program.

Media Contact:
Jay Worley (610) 902-6206
jay.worley@airgas.com

Joele Frank / Dan Katcher / Andrew Siegel
Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449

Investor Contact:
Barry Strzelec (610) 902-6256
barry.strzelec@airgas.com

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