L'Air Liquide S.A.

Joe Marczely - Manager, IR Peter McCausland - Executive Chairman Mike Molinini - President & CEO Bob McLaughlin - SVP & CFO

Vincent Andrews - Morgan Stanley David Begleiter - Deutsche Bank Chris Evans - Goldman Sachs Mike Harrison - Seaport Global Securities Laurence Alexander - Jefferies Mike Sison - KeyBanc Capital Markets Christopher Perrella - Bloomberg Intelligence David Silver - Morningstar

Thanks, Danny. Good morning and thank you for attending our second quarter earnings teleconference.

Joining me today are Executive Chairman, Peter McCausland; President and CEO, Mike Molinini; and Senior Vice President and CFO, Bob McLaughlin. Our earnings press release was made public this morning and is available on our website, as are the teleconference slides.

To follow along, please go to airgas.com, click the Investor Relations shortcut at the bottom of the screen and go to the earnings calls and events page. During the course of our presentation we will make reference to certain non-GAAP financial measures.

And unless otherwise noted, metrics referred to in today's discussion will be adjusted for the unusual items identified in our earnings materials. Reconciliation to the most comparable GAAP measures can be found in our earnings release and in the slide presentation.

This teleconference will contain forward-looking statements based on current expectations regarding important risk factors which are identified in the earnings release and in our slide presentation. Actual results may differ materially from these statements, so we ask that you please note our Safe Harbor language.

We will take questions after concluding our prepared remarks as time permits and we plan to end the teleconference by 11 a.m. Eastern Time.

I will now hand the call over to Peter to begin our review.

Thanks, Joe. Good morning and thank you all for joining us.

Let's start with slide 3. As anticipated, business conditions remained sluggish during our first fiscal quarter of 2016.

Our forecast was for low single-digit top-line growth and EPS in the range of $1.28 to $1.33 and that's what we delivered. The strength of the U.S.

dollar, low oil prices and relatively slower global demand continued to be headwinds for our customers. Consolidated organic sales were flat year-over-year, with weakness in our distribution segment counterbalanced by strength in all other operations.

Within our distribution segment, end markets of strength like construction were offset by weakness in markets like energy, manufacturing and metal fabrication. Today it is difficult to determine if we're at the bottom, nearing it or if there is more to come.

We're working hard to grow our top line, but we're frustrated with the decline of core customers offsetting hard-fought gains. While sales were lighter than I would have wanted, our focus on cost yielded the desired effect and earnings of $1.31 were directly in the middle of our range.

Excluding acquisitions, if you look at overall results, SG&A expenses were up less than 2% on a consolidated basis. And in the distribution segment we limited the increase in SG&A expenses to about 0.5%.

We continued to generally limit new hires and backfills to only those critical, customer-facing and safety-sensitive roles. We've also identified geographic and end-market areas with significant slowdowns and are currently reducing headcount in those areas.

In total, headcount will be reduced by a few hundred. We continued to look for opportunities to reduce expenses without sacrificing great customer service and/or operating in an unsafe manner -- in a safe manner.

As we've highlighted in the past, the company continues to work on a number of process improvements and operating efficiency initiatives to further leverage our industry-leading platform, expand our operating margins and further enhance our customer service offering. We have done and will continue to do what is right for shareholders and the company for the long-term.

We've accomplished lot, but we have more work ahead of us. And I'd like to thank all the Airgas associates for their continued hard work during these difficult economic times.

On the positive side is the great cash flow characteristic of this business. As we have historically, during the second quarter of 2016 we continued to generate strong cash flow.

Year-to-date free cash flow was $169 million, up 15% year-over-year. And adjusted cash flow from operations was $386 million, up 8% year-over-year.

Fiscal year to date we've acquired 12 businesses with aggregate annual sales of $80 million. In the second quarter we repurchased 2.8 million shares on the open market for $271 million, thus returning $315 million to shareholders through repurchases and dividends this quarter.

I'm a strong believer in the long-term development of the U.S. economy, driven by solid fundamentals and fantastic innovation.

Our recent investments to improve our platform, systems and our product and service offering have positioned Airgas for growth when the economy improves. Currently, the economy is challenging and Airgas is up for the challenge.

We'll continue to work hard to provide customers with outstanding service to grow our position in the marketplace to continue to closely manage expenses. Consistent with our demonstrated track record, we remain committed to delivering sustainable long-term value to our shareholders.

For the remainder of 2016, we expect modest business conditions, as described in our guidance. But I'm confident that growth will resume in the U.S.

economy and that Airgas will benefit more so because of our resilient focus on the long-term and the actions we continue to take to make your company stronger. Now I'll turn it over to Mike for a deeper dive.

Thank you, Peter. Please turn to slide 4.

We continue to invest in our sales and marketing strategy which is focused on tailoring our value proposition to the unique needs of each major customer segment. Looking at our strategic accounts, weakness persists in our manufacturing and metal fabrication, energy and chemical and primary metal segments as slowing global demand, low oil prices and a strong U.S.

dollar continue to be headwinds for our customers. But we have seen continued strength in nonresidential construction and our food and beverage and retail markets.

Overall, our strategic account sales were up 2% compared to prior year. In the second quarter sales of strategic products increased 2% over the prior year, with bulk gases and CO2 and dry ice showing strong gains, driven by both price and volume.

Specialty gas sales posted a 9% year-over-year gain due to large single-customer activity. Excluding this short-term activity, specialty gas sales were up 4% year-over-year.

Medical sales were flat, reflecting softness in the home care sector. Safety product sales were down 4% and our Radnor private-label hardgoods sales were down 5% year-over-year, both due to broad-based weakness in industrial activity.

Our expanded Airgas total access telesales business continues to perform very well, again outpacing company averages. This efficient sales channel enhances our customer touch in extending our reach to existing and potential customers historically underserved by traditional field sales coverage.

Our enhanced e-business platform continues to expand and add new capabilities. Digital sales in the quarter were up 42% over the prior-year period as sales on the new Airgas.com continued to set new records.

The majority of the growth is coming from our core field and strategic account customers as they use the platform to help drive efficiencies in their operation and gain better access to information. This platform has already helped Airgas win some significant new business, as customers see this as an advantage over other packaged gases distributors in the space.

Our new e-business capabilities are driving customer adoption at a rate of over 100,000 new locations annually. Sales in our distribution segment were challenged this quarter.

Strength in nonresidential construction for downstream chemical and power projects was offset by weakness in upstream energy as well as weakness in manufacturing and metal fabrication. In the upstream energy market, the sustained low price of oil and natural gas today continued to pressure our customers.

Continued investment in both downstream chemical and power projects gives us encouragement for the overall future of this end market. While we saw strength in the manufacturer of transportation equipment, the slowing global economy and strong dollar have challenged many of our manufacturing customers.

Companies who support oil and gas, mining and agricultural industries or those who depend on exports have been the hardest hit. On the positive side is nonresidential construction which was led by general contractor activity.

After a relatively slow calendar 2014, our March 2015 quarter saw year-over-year growth in nonresidential construction of 5%, the June quarter of 6% and this September quarter of 5%. Our new district manager structure is gaining momentum.

As a critical element of our strategy, our district managers are in place and establishing strong relationships with their customers. As you recall from Investor Day in December, the district manager role is essential to our future success and has the ideal span of control -- click and agile, close to the customer, branches and sales reps closely managed, with full P&L responsibility.

We're continuing to methodically pursue process improvements and operating efficiencies in a number of key areas of operating and administrative platforms. As we continue to mature in our new SAP environment, we have a long runway of opportunities to improve both productivity and customer service.

We're making steady progress on completing the investments in gases production assets I described earlier this year. Our new plant in Minooka, Illinois, is coming online this fall; and completion of all other announced production facilities are on time and on budget.

In spite of the weak economy, all of these areas are operating very well and delivering encouraging results -- and will serve us well in both the current environment and especially as the economy improves. Going forward, as always, we will continue to look hard at expenses we control without sacrificing customer service or safety.

As our guidance described, we have limited growth expectations for the remainder of the year. We continue to believe in the long-term growth prospects for the U.S.

and we remain committed to delivering long-term growth and value. Airgas associates have a clear, well-understood mission on growing our top line by leveraging our expensive suite of products, services and customer value creators.

As such Airgas is well positioned to deliver market-leading organic growth. Thank you.

And now I'll hand it off to Bob to review our financial results and guidance.

Thank you, Mike and good morning, everyone. Please turn to slide 5 for a review of our consolidated results in the second quarter.

Sales increased 1% year-over-year to $1.37 billion, reflecting a 1% contribution from acquisitions and flat organic sales, with gas and rent up 3% and hardgoods down 5%. In aggregate organic sales volumes were down 1% and pricing was up 1%.

Consistent with recent quarters, areas of strength some of which were highlighted earlier in this call and noted in our earnings release -- were offset by weaknesses in other areas. On a sequential basis second quarter sales were up 2% compared to the first quarter.

Gas and rent represented approximately 65% of our sales mix in the quarter, up from both the prior year and the first quarter. Gross margin for the quarter was 56.3%, an increase of 50 basis points from the prior year.

Selling, distribution and administrative expenses increased 3% over the prior year, with operating costs associated with acquired businesses representing approximately one-half of that increase. The remaining increase primarily related to the incremental costs that support strong sales growth in our all other operations segment.

Operating income for the quarter was $170 million, down 3% from last year's operating income; and operating margin was 12.4%, down 50 basis points from last year, reflecting margin compression in our distribution segment which was driven by a modest decline in organic sales and a modest increase in operating expenses excluding those costs associated with acquired businesses. While consolidated operating income for the quarter was down, EBITDA was up slightly.

Operating income reflected the impact of an 8% increase in depreciation expense, driven by recent and ongoing investments in revenue-generating assets which have not yet been fully leveraged. Sequentially, operating income was up 12% and operating margins were up 110 basis points, primarily driven by lower sequential stock-based compensation expense which is front-end loaded in our fiscal year due to the retiree eligible vesting provision and also benefited from normal seasonal uptick in our all other operations segment.

EPS of $1.31 was up 1% compared to the prior-year EPS of $1.30. There were approximately 74.6 million weighted average diluted shares outstanding for the quarter, a decrease of 1% year-over-year.

Return on capital which is a trailing four quarters calculation, was 11.6%, down 50 basis points from last year. Free cash flow for year to date was $169 million, up 15% over the prior year.

And adjusted cash from operations was $386 million, up 8% over the prior year. Total debt increased by approximately $323 million year-over-year of approximately $2.8 billion at September 30, primarily related to share repurchases.

Our fixed float debt ratio at the end of September was approximately 65% fixed and our debt-to-EBITDA ratio was 2.8, within our target ratio of 2 to 3. Turning now to slide 6, we will look at our segment results.

Sales in the distribution segment of $1.2 billion were flat in the current quarter compared to the prior year. Organic sales in the distribution segment were down 1%, with pricing up 1% and volumes down 2%.

Gas and rent organic sales were up 2%, with pricing up 2% and volume flat. Distribution hardgoods organic sales were down 5%, with pricing flat and volume down 5%.

My earlier comments related to consolidated sales and areas of strength being offset by weaknesses in other areas apply to the distribution segment as well. Gas and rent represented 60.5% of distribution sales in the second quarter, up 140 basis points compared to the prior year and up 50 basis points from the first quarter.

Distribution gross margin was 56.3%, flat compared to the prior year. The favorable mix towards higher-margin gas and rent and pricing gains were offset by margin pressure within gas and rent on higher helium costs, lower fuel surcharges and a sales mix shift to lower margin bulk.

These offsets, in aggregate, reduced gas margins by approximately 70 basis points. Distribution and administrative expenses, excluding the impact of operating costs associated with acquired business, was held to a 0.6% increase over the prior year as we continue to focus on tight expense management.

Operating income in the distribution segment declined by 9% year-over-year to $145 million and operating margin declined 110 basis points to 12%. These were driven by a modest decline in organic sales and a modest increase in operating expenses, excluding the cost associated with acquired businesses.

EBITDA was down by 3.5% for the distribution segment which is favorable when compared to the 9% decline in operating income, as operating income reflected the impact of the 7.5% increase in depreciation expense, driven by recent and ongoing investments in revenue-generating assets which have yet to be fully leveraged. On a sequential basis distribution operating margin increased by 100 basis points, primarily driven by lower sequential stock-based compensation expense which is front-end loaded in our fiscal year due to the retiree eligible vesting provision.

All other operations reflects our CO2, dry ice, refrigerants, ammonia and nitrous oxide business units. Sales for our all other operations were up 16% from the prior year due to strong organic growth which was up 8%, as well as the inclusion of the Priority nitrogen acquisition.

Sequentially, sales in all other operation segments increased by 7%, driven by the normal seasonality of the businesses that comprise the segment plus the acquisition addition. Gross margin for all other operations was 52.1%, an increase of 370 basis points from the prior year, primarily driven by higher ammonia and refrigerants margins plus the addition of the higher-margin priority nitrogen acquisition.

Operating income for all other operations was $25 million, an increase of $8 million compared to the prior year. And operating margin of 14.5% was up 310 basis points year-over-year, both driven primarily by margin improvement in refrigerants and ammonia.

Please turn to slide 7, capital expenditures. Year-to-date CapEx, excluding operating lease buyouts, was 8.3% of sales, reflecting continued investment in long-term revenue-generating assets, including the previously announced air separation units and our previously announced hydrogen production facility.

The significant operating lease buyouts this year were related to leased properties related to the acquired Encompass Gas Group. Excluding major projects and operating lease buyouts, CapEx as a percent of sales was approximately 5%.

Now I would like to discuss our guidance for the remaining of the fiscal year. Slide 8 walks through the primary elements of our third quarter, implied fourth quarter and full-year guidance.

The first column on this slide shows the year-over-year walk for the third quarter, using fiscal 2015 third quarter diluted EPS of $1.23 as the starting point. Helium net cost pressure is expected to be a headwind of $0.03 to $0.02.

Share repurchases completed in the first and second quarters are expected to contribute $0.03 and the base business is expected to be down $0.08 at the low end and down $0.04 at the high end of the range, reflecting the challenging industrial economy; the potential for extended holiday shutdowns at certain of our customer base; as well as a difficult comp to a strong quarter in the prior year, where distribution organic sales were up 5%. In aggregate we're estimating diluted EPS in our third quarter to be in the range of $1.15 to $1.20 or down 7% to 2% over the prior-year EPS of $1.23 and reflecting organic sales growth down 1% to flat.

The second column of this slide shows the year-over-year walk for our implied fourth quarter guidance using fiscal 2015 fourth quarter diluted EPS of $1.15 as the starting point. The variable compensation reset is expected to be a headwind of zero to $0.02.

An extra selling day is expected to contribute $0.03. Acquisitions are expected to contribute $0.01, net of acquisition and integration cost.

Helium net cost pressure is expected to be a headwind of $0.02 to $0.01. And share repurchase completed in the first and second quarters are expected to contribute $0.03.

And the base business is expected to contribute $0.08 to $0.14, in part driven by the prior year being negatively impacted by the widespread severe weather conditions as well as the beginning of the rapid and significant decline in oil prices. Our guidance assumes a sequential uptick as we generally have experienced historically, as well as normal winter weather and not the unusually severe winters we experienced the last two years.

In aggregate we're estimated diluted EPS for our fourth quarter to be in the range of $1.28 to $1.33 or up 11% to 16% over the prior-year diluted EPS of $1.15 and reflecting organic sales growth in the mid-single digits. The right-hand column of this slide reflects the year-over-year walk for our full fiscal 2016 diluted EPS guidance range.

Variable compensation reset is now expected to be flat to a $0.04 headwind. Acquisitions are expected to contribute $0.01.

Helium net cost pressure is expected to be a $0.09 to $0.07 headwind. Share repurchases completed in the first and second quarters are expected to be a $0.09 benefit and our base business growth is expected to contribute $0.04 to $0.16, representing 1% to 3% growth on organic sales in the low single digits.

In aggregate, we now expect diluted EPS for fiscal 2016 to be in the range of $4.90 to $5.00 which represents year-over-year growth of 1% to 3%. The challenging and volatile industrial economy makes it difficult to predict our near-term sales and we will closely monitor daily sales for any indication of further weakening of the economy that could inhibit our ability to deliver EPS within our guided range.

Third and full-year guidance does not include the impact of any additional share repurchases that may occur subsequent to September 30 under our current authorized share repurchase program. Our previous fiscal year 2016 guidance range for earnings per diluted shares was $4.90 to $5.05.

Thank you. And now I'll turn it back to Joe to begin our question-and-answer session.

Thank you, Bob. That concludes our prepared remarks.

As we begin the Q&A portion of the call, to allow as many participants as possible to ask questions, please limit yourself to one question and one brief follow-up. Then get back in the queue if you have further inquiries.

The operator will now give instructions for asking questions. Operator?

Could you just talk a little bit about the cadence of the quarter and what you were hearing from your customers? I know, Peter, you made some comments at the beginning saying it's hard to say whether we're at the bottom or if things are about to get worse.

And I'm just wondering how things progressed during the quarter, how they have started off this quarter -- just maybe if we could start there?

Well, the manufacturing customers are down big time and they are not predicting a turnaround anytime soon and especially the ones that manufacture equipment used in any commodity business. And the upstream gas business is soft which is an understatement.

You know, I think everybody is trying to bring down expectations, but with those manufacturing customers, sales are down so far it's hard to imagine it's going to get worse, but it could. So we're just preparing ourselves.

In the meantime nonresidential construction is helping us here. It's really strong.

And then in certain product lines we're doing pretty well. Spec gas, bulk gas -- and that's through new customer acquisition, new applications.

CO2 is another one where we're doing very well. And that's been in shortage.

So we've had not only volume gains, but some price there as well, because a lot of sources in the CO2 business aren't that reliable, we probably have the best reliability of any production network. So it's a mixed bag.

And it's really those great big manufacturing customers and metal fab customers that are hurting us. Mike, do you want to add?

Yes. To your question about the cadence as it relates to our manufacturing and metal fab customers, the decline in equipment sales to those customers has been pretty -- had continued through the quarter and -- but the September rate and the August rate were comparable.

Significant drops for the few months prior to that, but the last two months have been relatively flat with each other sequentially. So filler metals have been not merely the magnitude of the decline that we have seen in equipment.

And equipment is a capital item and when things get tough, companies cut back on capital first, filler metals reflect production and -- so anyway.

Peter, on the cost side you've taken out some headcount. Can you talk about where they are coming out of?

And at what point would you become more aggressive on the headcount if things don't improve on the volume side?

Most of these heads are coming out of unfilled positions and attrition. Except, as I mentioned in my comments, there are certain geographic areas and end-market areas where there is extreme softness, like oil patch places, where we're being a little more aggressive.

We have a lot of post-SAP efficiency programs underway. We have a new district manager structure and we're making great headway in both of those areas -- the latter being really focused on sales and sales management.

And if it gets worse, we'll do what we have to do. But this is a start.

And we've always been a company that's reluctant to cut to the bone. And when the economies come back, we've always been the company that shot ahead and did very well.

So we see no reason to abandon that philosophy right now, but if things get a lot worse, we'll reconsider.

And Peter, just quickly on the overall price environment, is it getting worse? Or is it about the same?

I would say it's about the same. We've had three strategic price increases post-SAP and we're getting what we thought we'd get out of them.

And there's been some shortages in the market which have resulted in some price elevation as well. But, you know, when business is slow, new opportunities are hard-fought.

But I would say for the most part, the industry is maintaining its discipline. It's not one-and-done in the industrial gas business.

You've got bulk tanks there. You've got assets -- you have a huge fixed investment in serving a customer on the gases side.

And so the gas pricing tends to hold up fairly well. And you see more competition on the hardgoods side.

But even there our margins are flat, I think; aren't they, Bob?

Yes, hardgoods.

They're flat in hardgoods. So I would say given the sluggishness, the pricing environment is pretty good.

This is Chris Evans on for Bob. When you talked about your guidance in fourth quarter, you highlighted the weak comp.

Maybe you could explain sort of underlying expectations in light of that?

For the fourth quarter we're looking for same-store sales or organic sales in the mid-single digits. And again, that's on the backdrop of a pretty significant step-down sequentially that we saw last year going from the third to the fourth quarter that was impacted by both severe, widespread winter conditions as well as -- there was a slowdown in economic activity as a result of the kind of rapid and significant decline in oil prices.

So that has been with us now for the last three-plus quarters. So we're not expecting kind of the year-over-year impact that we experienced last year, given the relative stability that now is in oil pricing.

And historically we've always seen kind of a sequential improvement going from third to the fourth quarter, with kind of the spring construction activity and some pickup in manufacturing.

Just a quick follow-up, you talked, I think, on the call about optimism, correct me if I'm wrong, in downstream chemical and power. Could you talk about maybe how much that might offset some of the weaker segments?

I think this quarter -- our non-res construction in this quarter was -- the last three quarters has been up 5% to 6%, in that range. And what's on the horizon would indicate more of the same.

Peter, I was hoping you could comment in a little more detail on the pricing momentum that you are seeing, particularly in gas rent, that number was up 2%. Where are you seeing dock stock levels right now?

Can you talk about the contributions related to any decline in fuel surcharges? And then also discuss what the helium component might be of that pricing number.

I think I'll let Mike handle that comprehensive question. Dock stock first.

First of all, I'm not sure exactly what you mean by dock stock.

Are we seeing cylinders lined up on the dock?

We're not. We're not.

Our gases business -- this is also related to the cost question. Our gases volumes and business has held up really nicely which is where a lot of our manpower is spent in servicing the gas business.

We have been able to continue to increase prices, because we're creating value for customers and are able to do that. The fuel surcharges, obviously, have come way down as the fuel prices has come down and will go back up as the fuel prices goes back up.

Helium -- we had been raising helium prices for a long time, knowing that helium costs were going to be increasing. And I would say our helium pricing actions were consistent with the other gas product pricing actions.

All right. And then was also hoping that -- get a little more detail on the all other segment.

Obviously a very nice quarter there and you mentioned the improvement in both the ammonia and refrigerants business. Was just curious how much of that ammonia improvement is temporary -- in other words, related to a lag or a movement in raw materials?

And then, also, on the CO2 side, are you seeing improvement in operations there? Or is it just seasonal pickup?

On ammonia, ammonia is relative -- the lag on the pricing and the cost. And that volatility right now, I would say, is relatively stable; and then most of our ammonia gains we expect to hold, hold.

On CO2 we have probably the most reliable supply network in the industry. And during these outages we've been able to make some significant inroads, both in volume and in price, because of that network.

And we expect to hold those gains as well. With respect to refrigerants, we spent two years talking about the decline of refrigerants and all of the issues related to why the decline and we're now back on the road to recovery.

Now, we're not anywhere near back to where we were three years ago at the peak. But at least now we're -- the path is clearer.

We're making inroads on price and on volume and the path forward looks good.

On M&A, when you acquire a small regional competitor, how quickly can you get them onto the Airgas systems, so SAP and the like and right-size the business to your standards? And are you seeing more consolidation on the $5 million to $10 million players which will make M&A in 2016/2017 larger than historically?

Usually it's 60 to 90 days so we can get the computer converted. In 60 days we have the players sorted out.

And we've done a lot of these, so we're pretty good at it. Regarding acquisitions, we have a lot in our pipeline in that size range.

But we're not in the business of predicting acquisitions or how many we might make, because there are so many different factors that impact that. But we're having a good year and we hope it continues.

And a follow-up, if I may. If sluggish demand continues into late 2016 and 2017, will you consider increasing your leverage ratios to the high end or above the range to support EPS growth?

You mean by buying back shares?

Yes.

Well, we have that range between 2 and 3 and we want to keep it. We've been buying back some shares.

We just reported some. And we're also generating a lot of cash.

So if we decide to buy back shares, we think that we'll have plenty of cash to do that and still stay within that range. And if we were to make a big acquisition or something, then we always favor that -- a good core business acquisition over share repurchases.

So that would take the place of some of the share repurchases.

Right. But we also get pro-forma credit in our debt ratios for acquisitions, so that's not a one-for-one reduction.

Right.

Peter, I'm just curious, I know it's difficult to determine whether lower oil or the stronger dollar has, you know, whether demand will worsen or bottom here. But what do you think needs to happen to get demand to go positive?

Do you need those factors to reverse? Or are there other areas longer term that key positives that demand can pick up over time?

I think one thing we look at is the U.S. share of fixed investment which has been in decline for 20 years.

And now it looks to be like it's turning up. And we view that is very positive.

And we think the growth in nonresidential construction is kind of pointing in that direction as well. We think abundant and inexpensive energy is ultimately going to be very good for the country.

The strong dollar -- I don't know how it can get much stronger. That's certainly -- perhaps that's run its course; perhaps that will reverse a little bit if the Fed doesn't raise rates.

But we have these currency wars going on around the country because the world economy in general is still pretty fragile and governments are trying to stimulate growth. I'm not an economist, but I do believe that the U.S.

share of fixed investment is going to be significantly higher in the next 20 years than it was in the last 20 years and that that will be partly driven by abundant and inexpensive energy and partly driven by the need for energy infrastructure which -- there remains a lot that needs to be built out in this country -- and partly driven by other types of infrastructure that have been long neglected. And the offshoring of manufacturing has run -- it appears to have run its course.

And new factories are being established in the United States now by both U.S. and foreign companies.

So we were in a period of de-industrialization and I think that is reversing itself as well. All that sounds great, but we've got to live day-to-day.

And I think what we're trying to do during these difficult times is strengthen our platform, improve in all areas and gain share, so that when we do get the economic tailwinds our earnings will go up to the next plateau. That's what's happened in the past.

You make your money during the hard times. You count it during the good times.

And then a quick follow-up in bulk gas, that's one area that has continued to do well for you. Can you keep that momentum going?

Maybe give us a little bit of color where the growth is coming from and why it could be sustainable going forward?

You know, as we have said for years and years and years, having a million-customer packaged gas business is a built-in lead-generation machine for bulk gas opportunities. And I would say that it's also a built-in lead generation for MicroBulk opportunities.

So the ability for us, using the tools we've got and the additional production capabilities we've added and our applications group and our 1500 field salespeople and specialists, I would not expect that to slow down.

Mike, have you seen any or how should we think about the returns on the district manager level that have been in place for about a year now? Is it more on the cost side, keeping that down at this point?

Retaining sales? What are the puts and takes on that return?

Well, actually, most of their time in the near-term -- at least currently, up until now -- has been all about leveraging the Airgas service offering, product and service offering, to drive organic growth. And I think history will tell whether this is true or not, but we believe that they are making significant inroads.

And we believe that the fact that our gases business is holding up as well as it is in part because of those efforts. Unfortunately, we can't prove it.

What we know is we know that, with clarity, the declines of some of our large core customers, the magnitude of the declines of some of our core customers. And we believe in large part the fact that particularly our gases side is not down as much -- even our hardgoods businesses is not down as much as many of the manufacturers -- is in part because of that.

Another thing that's helping us is during slow economic times, customers try to take costs out of their supply chain. And with the broadest product and service offering and the greatest local presence, with our platform all over the country, our strategic accounts business is making some significant gains because of our value proposition.

And there is a lot of big manufacturing customers in that base that are way, way down, but it's up and that's because the customer rolls are up and we're doing a good job communicating that value proposition.

And a quick follow up on the fourth quarter guidance. In terms of end-of-the-year shutdowns at your customers, do you have that up, I guess, versus what you've seen historically this year?

And how does that compare with last year, with end-of-the-year customer shutdowns and the declining orders last year?

Most of our third quarter which is the quarter ending December, is where we have that more factored into which is why you know, part contributing to the slightly negative to flat same-store sales and the challenge on the EPS line. So we're not contemplating that being a year-over-year headwind as it relates to our fourth quarter which ends in March of 2016.

I apologize, Bob, I didn't mean the third quarter. I am confusing my dates.

So year-over-year for the third quarter, are you seeing more customer or are you planning for more customer shutdowns?

Our range contemplates that there could be some incremental challenge related to that on the low end.

I wanted to ask you a question about, I guess, the medical line on your strategic products sales. So to me that's not an economically sensitive or industrial segment; yet if I look back five years or so, that's a line that has kind of trailed the overall strategic product sales group and, also, your overall gas and rent on a percentage growth basis.

And at least the first glance, I would think your distribution network might be an advantage there. But could you talk about maybe why maybe medical hasn't kept up with the overall business or the overall growth in that market, favored by demographics?

Thank you.

In this particular quarter, let me make it simple, pieces of our medical business. One is where we sell gases to users -- hospitals, surgery centers, doctors, dentists, people like that.

That's one portion. The other portion is we sell gases, primarily respiratory oxygen to home care companies, who then deliver it to the home.

That particular portion -- that's the portion of our medical business that is challenged. It's not the end users; it's not the hospital segments; it's not the surgery centers.

It's sales to the home care distributors. And it's challenged in two ways.

There is a lot of consolidation going on in that piece. Reimbursement rates for those companies are coming down.

Competitive bidding is going on and there's also an obsolescence that's in play, where liquid dewars and high-pressure cylinders are being replaced with mechanical concentrators. So the demand by the home care customers is also declining.

And at the same time there's a pretty significant consolidation going on within that segment. Linde Care is a big customer of ours or was a very big customer of ours -- is still a material customer of ours which was acquired by Linde.

And then they fill a lot of the same gases and they are migrating much of that supply to themselves rather than buy wholesale from us. So it's the offset of the home care segment is basically what caused it to be flat.

Well, thank you all for joining us today and we will be available all day for follow-up sessions. Thanks.