UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended: June 30, 2007

AIRGAS, INC.

(Exact name of registrant as specified in its charter)

Delaware		56-0732648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

259 North Radnor-Chester Road, Suite 100 Radnor, PA		19087-5283
(Address of principal executive offices)		(ZIP code)

(610) 687-5253
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 3 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ               Accelerated filer o               Non-accelerated filer o               

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ

Shares of common stock outstanding at August 3, 2007: 81,865,277 shares

 

 

AIRGAS, INC.

FORM 10-Q
June 30, 2007

INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three Months Ended June 30, 2007 and 2006 (Unaudited)			3
Consolidated Balance Sheets as of June 30, 2007 (Unaudited) and March 31, 2007			4
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2007 and 2006 (Unaudited)			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			45
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 6. Exhibit Listing			46
SIGNATURES			47
FIRST AMENDMENT TO CREDIT AGREEMENT
CERTIFICATION OF PETER MCCAUSLAND, PURSUANT TO SECTION 302
CERTIFICATION OF ROBERT M. MCLAUGHLIN, PURSUANT TO SECTION 302
CERTIFICATION OF PETER MCCAUSLAND, PURSUANT TO SECTION 906
CERTIFICATION OF ROBERT M. MCLAUGHLIN, PURSUANT TO SECTION 906

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)

		Three Months Ended
		June 30,
		2007				2006
Net Sales		$	915,099			$	773,036
Costs and Expenses:
Cost of products sold (excluding depreciation)			437,978				383,219
Selling, distribution and administrative expenses			321,412				275,977
Depreciation			41,565				33,162
Amortization			2,907				1,772
Total costs and expenses			803,862				694,130
Operating Income			111,237				78,906
Interest expense, net			(20,508	)			(13,676	)
Discount on securitization of trade receivables			(4,119	)			(3,336	)
Other income (expense), net			(84	)			213
Earnings before income taxes and minority interest			86,526				62,107
Income taxes			(34,095	)			(22,744	)
Minority interest in earnings of consolidated affiliate			(711	)			(711	)
Net Earnings		$	51,720			$	38,652
Net Earnings Per Common Share:
Basic earnings per share		$	0.65			$	0.50
Diluted earnings per share		$	0.63			$	0.48
Weighted average shares outstanding:
Basic			79,004				77,557
Diluted			83,630				82,436
Comprehensive income		$	55,266			$	40,218

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

		(Unaudited)
		June 30,				March 31,
		2007				2007
ASSETS
Current Assets
Cash		$	41,521			$	25,931
Trade receivables, less allowances for doubtful accounts of $17,250 at June 30, 2007 and $15,692 at March 31, 2007			235,327				193,664
Inventories, net			296,318				250,308
Deferred income tax asset, net			18,901				31,004
Prepaid expenses and other current assets			47,552				48,592
Total current assets			639,619				549,499
Plant and equipment at cost			3,036,975				2,755,747
Less accumulated depreciation			(927,124	)			(890,329	)
Plant and equipment, net			2,109,851				1,865,418
Goodwill			857,353				832,162
Other intangible assets, net			77,919				62,935
Other non-current assets			28,000				23,443
Total assets		$	3,712,742			$	3,333,457
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	162,894			$	146,385
Accrued expenses and other current liabilities			234,836				241,275
Current portion of long-term debt			41,773				40,296
Total current liabilities			439,503				427,956
Long-term debt, excluding current portion			1,598,004				1,309,719
Deferred income tax liability, net			378,266				373,246
Other non-current liabilities			45,850				39,963
Minority interest in affiliate			57,191				57,191
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding at June 30, 2007 and March 31, 2007			—				—
Common stock, par value $0.01 per share, 200,000 shares authorized, 80,518 and 79,960 shares issued at June 30, 2007 and March 31, 2007, respectively			805				799
Capital in excess of par value			361,766				341,101
Retained earnings			836,762				792,433
Accumulated other comprehensive income			7,729				4,183
Treasury stock, 1,292 common shares at cost at June 30, 2007 and March 31, 2007			(13,134	)			(13,134	)
Total stockholders’ equity			1,193,928				1,125,382
Total liabilities and stockholders’ equity		$	3,712,742			$	3,333,457

See accompanying notes to consolidated financial statements.

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

		Three Months				Three Months
		Ended				Ended
(In thousands)		June 30, 2007				June 30, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	51,720			$	38,652
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			41,565				33,162
Amortization			2,907				1,772
Deferred income taxes			15,297				14,574
Loss on sales of plant and equipment			749				128
Minority interest in earnings			711				711
Stock-based compensation expense			5,890				2,752
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables			20,600				(9,700	)
Trade receivables, net			(9,816	)			(16,222	)
Inventories, net			(10,142	)			(3,529	)
Prepaid expenses and other current assets			5,447				2,174
Accounts payable, trade			(13,700	)			(12,444	)
Accrued expenses and other current liabilities			(6,506	)			(14,177	)
Other non-current assets			(2,001	)			(1,314	)
Other non-current liabilities			(194	)			3,643
Net cash provided by operating activities			102,527				40,182
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(65,873	)			(62,704	)
Proceeds from sales of plant and equipment			2,006				1,263
Business acquisitions and holdback settlements			(317,451	)			(3,814	)
Other, net			(320	)			492
Net cash used in investing activities			(381,638	)			(64,763	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings			473,145				166,219
Repayment of debt			(183,383	)			(152,010	)
Minority interest in earnings			(711	)			(711	)
Proceeds from exercise of stock options			6,945				4,799
Tax benefit realized from the exercise of stock options			4,660				—
Stock issued for employee stock purchase plan			3,171				2,822
Dividends paid to stockholders			(7,102	)			(5,433	)
Change in cash overdraft			(2,024	)			7,028
Net cash provided by financing activities			294,701				22,714
Change in cash		$	15,590			$	(1,867	)
Cash — Beginning of period			25,931				34,985
Cash — End of period		$	41,521			$	33,118

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (the “Company”), as well as the Company’s consolidated affiliate, National Welders. Intercompany accounts and transactions, including those between the Company and National Welders, are eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These consolidated financial statements do not include all disclosures required for annual financial statements. These consolidated financial statements should be read in conjunction with the more complete disclosures contained in the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2007.

     The preparation of financial statements requires the use of estimates. The consolidated financial statements reflect, in the opinion of management, reasonable estimates and all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. The interim operating results are not necessarily indicative of the results to be expected for an entire year.

     A reclassification of stock issued for the employee stock purchase plan, previously reflected as net cash provided by operating activities, has been reclassified as a source of cash from financing activities in the prior period to conform to the current presentation.

(2) NEW ACCOUNTING PRONOUNCEMENTS

(a) Accounting pronouncements adopted this period

     In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140 (“SFAS 155”). SFAS 155 addresses the application of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to beneficial interests in securitized financial assets. The Company adopted SFAS 155 effective April 1, 2007, as required. The Company evaluated SFAS 155 and determined that there was no impact on its results of operations, financial position and liquidity.

     In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 requires that an entity recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a service contract under certain situations. The Company adopted SFAS 156 effective April 1, 2007, as required. The adoption of SFAS 156 did not have a material impact on the Company’s results of operations financial position and liquidity.

     In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”). FIN 48 is an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. This interpretation also provides guidance on the derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition of tax positions. The recognition threshold and measurement attribute is part of a two-step tax position evaluation process prescribed in FIN 48. The Company adopted FIN 48 on April 1, 2007, as required. See Note 7 for a further discussion of the impact of FIN 48 on the Company’s consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(b) Accounting pronouncements not yet adopted

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. This pronouncement applies to the fair value requirements as applicable in other accounting standards that require or permit fair value measurements. Accordingly, this statement does not require any new fair value measurement. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the requirements of SFAS 157 and has not yet determined the impact on the consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”) which provides companies with an option to report selected financial assets and liabilities at fair value in an attempt to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that election within the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157, Fair Value Measurements. The Company is currently evaluating the requirements of SFAS 159 and has not yet determined the impact on the consolidated financial statements.

(3) ACQUISITIONS

     Acquisitions have been recorded using the purchase method of accounting and, accordingly, results of their operations have been included in the Company’s consolidated financial statements since the effective date of each respective acquisition.

Fiscal 2008

     During the first quarter of fiscal 2008, the Company purchased four businesses, three associated with the distribution of packaged gases and related hardgoods products and one distributor of ammonia. The largest of these acquisitions was the June 30, 2007 acquisition of most of the U.S. packaged gas business of Linde AG (“Linde”), for $310 million in cash and certain assumed liabilities. The operations acquired include 130 locations in 18 states, with more than 1,400 employees, and generated $346 million in revenues for the year ended December 31, 2006. Due to the timing of the acquisition, no revenues or expenses of the acquired operations were reflected in the accompanying consolidated financial statements. The two other acquired packaged gas distributors had aggregate annual revenues of approximately $12 million. All three businesses were assumed by regional operating companies in the Distribution business segment. The remaining acquisition, with annual revenues of approximately $2 million, is involved in the distribution of aqua ammonia and was assumed by Airgas Specialty Products, which is included in the All Other Operations segment. The Company acquired the businesses to expand its geographic coverage and strengthen its national network of branch-store locations.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(3) ACQUISITIONS— (Continued)

Purchase Price Allocation

     The aggregate cash paid for the fiscal 2008 acquisitions and the settlement of holdback liabilities associated with certain prior year acquisitions was $317 million. The Company negotiated the respective purchase prices of the businesses based on the expected cash flows to be derived from their operations after integration into the Company’s existing distribution network. The purchase price of each acquired business was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the dates of each respective acquisition. The purchase price allocations were based on preliminary estimates of fair value and are subject to revision as the Company finalizes appraisals and other analyses.

     Based on the timing of the closing of the Linde packaged gas acquisition on June 30, 2007, the Company estimated the purchase price allocation based on historical data and other preliminary analyses and will update the allocation upon receipt of third-party appraisals and completion of the other analysis. In addition, the Linde packaged gas allocation is subject to change based on a net working capital purchase price adjustment. Goodwill associated with the Linde packaged gas acquisition is deductible for income taxes.

     The table below summarizes the allocation of the purchase price of all fiscal 2008 acquisitions as well as adjustments related to prior year acquisitions.

		Linde				Remaining
(In thousands)		Packaged Gas				Acquisitions				Total
Current assets, net		$	88,991			$	4,392			$	93,383
Property and equipment			227,198				(5,951	)			221,247
Goodwill			17,327				7,935				25,262
Other intangible assets			13,000				4,720				17,720
Current liabilities			(34,997	)			1,109				(33,888	)
Long-term liabilities			(1,519	)			(4,754	)			(6,273	)
Total cash consideration		$	310,000			$	7,451			$	317,451

Pro Forma Operating Results

     The following presents unaudited pro forma operating results as if the fiscal 2008 and 2007 acquisitions had occurred on April 1, 2006. The pro forma results were prepared from financial information obtained from the sellers of the business as well as information obtained during the due diligence process associated with the acquisitions. Pro forma adjustments to the historic financial information of the businesses acquired were limited to those related to the Company’s stepped-up basis in acquired assets and adjustments to reflect the Company’s borrowing and tax rates. The pro forma operating results do not include benefits associated with anticipated synergies related to combining the businesses as well as the integration costs. The pro forma operating results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of April 1, 2006 or of results that may occur in the future.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(3) ACQUISITIONS— (Continued)

		Three Months Ended
		June 30,
(In thousands, except per share amounts)		2007				2006
Net sales		$	1,005,804			$	945,750
Net earnings			53,406				42,457
Diluted earnings per share		$	0.65			$	0.53

(4) TRADE RECEIVABLES SECURITIZATION

     The Company participates in a securitization agreement with three commercial banks to sell up to $285 million of qualifying trade receivables. The agreement will expire in March 2010, but may be renewed subject to renewal provisions contained in the agreement. During the three months ended June 30, 2007, the Company sold, net of the subordinated interest held by the Company, $729 million of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, $708 million in collections on those receivables. The amount of outstanding receivables under the agreement was $285 million at June 30, 2007 and $264 million at March 31, 2007.

     The transaction has been accounted for as a sale under the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities as amended by SFAS No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140. Under the securitization agreement, eligible trade receivables are sold to bank conduits through a bankruptcy-remote special purpose entity, which is consolidated for financial reporting purposes. The difference between the proceeds from the sale and the carrying value of the receivables is recognized as “Discount on securitization of trade receivables” in the accompanying Consolidated Statements of Earnings and varies on a monthly basis depending on the amount of receivables sold and market rates. The Company retains a subordinated interest in the receivables sold, which is recorded at the receivables’ previous carrying value. Subordinated retained interests of approximately $73 million and $80 million are included in “Trade receivables” in the accompanying Consolidated Balance Sheets at June 30, 2007 and March 31, 2007, respectively. The Company’s retained interest is generally collected within 60 days. On a monthly basis, management measures the fair value of the retained interest based on management’s best estimate of the undiscounted expected future cash collections on the transferred receivables. Changes in the fair value are recognized as bad debt expense. Actual cash collections may differ from these estimates and would directly affect the fair value of the subordinated interest that continues to be held by the Company. In accordance with a servicing agreement, the Company continues to service, administer and collect the trade receivables on behalf of the bank conduits. The servicing fees charged to the bank conduits are designed to approximate the costs of collections. Accordingly, the net servicing asset is immaterial.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(5) INVENTORIES, NET

     Inventories, net, consist of:

		June 30,				March 31,
(In thousands)		2007				2007
Hardgoods		$	257,613			$	218,348
Gases			38,705				31,960
		$	296,318			$	250,308

     Net hardgoods inventories determined by the LIFO inventory method totaled $39 million at June 30, 2007 and $37 million at March 31, 2007. If the FIFO inventory method had been used for these inventories, the carrying value would have been $7.8 million higher at June 30, 2007 and $7.5 million higher at March 31, 2007. Substantially all of the inventories are finished goods.

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

     The valuations of other intangible assets and the resulting goodwill of recent acquisitions are based on preliminary estimates of fair value and are subject to revision as the Company finalizes appraisals and other analyses. Changes in the carrying amount of goodwill for the three months ended June 30, 2007 were as follows:

						All Other
		Distribution				Operations
(In thousands)		Segment				Segment				Total
Balance at March 31, 2007		$	564,675			$	267,487			$	832,162
Acquisitions			23,830				1,432				25,262
Other adjustments			(71	)			—				(71	)
Balance at June 30, 2007		$	588,434			$	268,919			$	857,353

     Other intangible assets amounted to $77.9 million and $62.9 million, net of accumulated amortization of $54.8 million and $51.9 million at June 30, 2007 and March 31, 2007, respectively. These intangible assets primarily consist of acquired customer lists which are amortized principally over 7 to 11 years and non-compete agreements entered into in connection with business combinations, which are amortized over the term of the agreements. There are no expected residual values related to these intangible assets. Intangible assets also include a trade name with an indefinite useful life valued at $1 million. Estimated remaining fiscal year amortization expense is as follows: remainder of 2008 — $11.1 million; 2009 — $13 million; 2010 — $10.3 million; 2011 — $10 million; 2012 — $9 million; and $23.5 million thereafter.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(7) INCOME TAXES

     In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109, Accounting for Income Taxes,” (“FIN 48”). FIN 48 provides guidance on how a company should recognize, measure and disclose in its financial statements uncertain income tax positions. Under FIN 48, a company should not recognize the financial statement benefit for an uncertain income tax position unless it is “more likely than not” that the position is sustainable.

     The adoption of FIN 48 on April 1, 2007 resulted in the Company recording a $289 thousand incremental liability for unrecognized tax benefits and a corresponding reduction in retained earnings. The Company’s $11 million liability for unrecognized tax benefits includes $2.2 million of accrued interest and penalties. The unrecognized tax benefit, net of the federal income tax benefit, totaled $7 million. The gross liability for unrecorded tax benefits was recorded as a non-current liability and the related deferred federal income tax benefit was recorded as a non-current asset.

     If recognized, all of the unrecognized tax benefits and related interest and penalties would be recorded as a benefit to income tax expense in the consolidated financial statements. Consistent with past practice, the Company will continue to record interest and penalties associated with uncertain tax positions in income tax expense.

     The Company files income tax returns in United States and foreign jurisdictions. The Company also files income tax returns in every state in which the Company does business. The Company is not currently under audit by the IRS and is not under examination in any significant foreign and state and local tax jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years before 2002.

(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities include:

		June 30,				March 31,
(In thousands)		2007				2007
Accrued payroll and employee benefits		$	50,765			$	71,685
Business insurance reserves			27,201				26,390
Health insurance reserves			8,729				8,446
Accrued interest expense			7,033				4,721
Taxes other than income taxes			19,088				14,771
Cash overdraft			55,032				57,056
Deferred cylinder lease income			23,902				23,067
Other accrued expenses and current liabilities			43,086				35,139
		$	234,836			$	241,275

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(9) INDEBTEDNESS

     Long-term debt consists of:

		June 30,				March 31,
(In thousands)		2007				2007
Revolving credit borrowings		$	796,729			$	489,398
Term loans			555,000				577,500
Money market loans			30,000				30,000
Senior subordinated notes			150,000				150,000
Acquisition and other notes			24,634				17,440
National Welders debt			83,414				85,677
Total long-term debt			1,639,777				1,350,015
Less current portion of long-term debt			(41,773	)			(40,296	)
Long-term debt, excluding current portion		$	1,598,004			$	1,309,719

     The aggregate maturities of long-term debt at June 30, 2007 are as follows:

(In thousands)		Debt Maturities
June 30, 2008		$	41,773
March 31, 2009			77,536
March 31, 2010			172,142
March 31, 2011			238,530
March 31, 2012			958,956
Thereafter			150,840
		$	1,639,777

Revolving Credit Borrowings and Term Loan

     As of June 30, 2007, the Company maintains a senior credit facility with a syndicate of lenders. The $1.6 billion senior unsecured credit facility (the “Credit Facility”) permits the Company to borrow up to $966 million under a U.S. dollar revolving credit line, up to C$40 million (U.S. $37 million) under a Canadian dollar revolving credit line and up to $600 million under two or more term loans. The Company used borrowings under the term loan provision of the Credit Facility to finance the $100 million maturity of its 7.75% medium-term notes on September 15, 2006. The remaining $500 million term loan was used to finance the Linde bulk gas acquisition that closed on March 9, 2007. The Credit Facility will mature on July 25, 2011.

     As of June 30, 2007, the Company had approximately $1,352 million of borrowings under the Credit Facility: $774 million under the U.S. dollar revolver, C$25 million (U.S. $23 million) under the Canadian dollar revolver and $555 million under the term loans. The term loans are repayable in quarterly installments of $22.5 million through June 30, 2010. The quarterly installments then increase to $71.2 million from September 30, 2010 to June 30, 2011. The Company also had outstanding letters of credit of $34 million issued under the Credit Facility. The U.S. dollar borrowings and the term loans bear interest at the London Interbank Offered Rate (“LIBOR”) plus 75 basis points and the Canadian dollar borrowings bear interest at the Canadian Bankers’ Acceptance Rate plus 75 basis points. As of June 30, 2007, the effective interest rates on the U.S. dollar borrowings, the term loans and Canadian dollar borrowings were 6.11%, 6.11%, and 5.22%, respectively.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(9) INDEBTEDNESS — (Continued)

     As of June 30, 2007, approximately $158 million remained unused under the U.S. dollar revolving credit line and approximately C$15 million (U.S. $14 million) remained unused under the Canadian dollar revolving credit line. As of June 30, 2007, the financial covenants of the Credit Facility do not limit the Company’s ability to borrow on the unused portion of the Credit Facility. The Credit Facility contains customary events of default, including nonpayment and breach of covenants. In the event of default, repayment of borrowings under the Credit Facility may be accelerated.

     The Company’s domestic subsidiaries, exclusive of a bankruptcy remote special purpose entity (the “domestic guarantors”), guarantee the U.S. and Canadian borrowings. The Canadian borrowings are also guaranteed by the Company’s foreign subsidiaries. The guarantees are full and unconditional and are made on a joint and several basis. The Company pledged 100% of the stock of its domestic subsidiaries and 65% of the stock of its foreign subsidiaries as surety for its obligations under the Credit Facility. The Credit Facility provides for the release of the guarantees and collateral if the Company attains an investment grade credit rating and a similar release on all other debt.

Money Market Loans

     The Company has an agreement with a financial institution that provides access to short-term advances not to exceed $30 million for a maximum term of three months. The agreement expires on November 30, 2007, but may be extended subject to renewal provisions contained in the agreement. The amount, term and interest rate of an advance are established through mutual agreement with the financial institution when the Company requests such an advance. At June 30, 2007, the Company had an outstanding advance under the agreement of $30 million for a term of 90 days bearing interest at 5.76%.

     The Company also entered into an agreement with another financial institution that provides access to short-term advances not to exceed $35 million. The advances are generally for overnight or up to seven days. The amount, term and interest rate of an advance are established through mutual agreement with the financial institution when the Company requests such an advance. At June 30, 2007, there were no short-term advances outstanding under this agreement.

Refinancing of National Welders Debt

     Effective July 3, 2007, the Company amended its Credit Facility to increase the size of its U.S. dollar revolving credit line by $100 million to $1,066 million. As discussed in Note 17, National Welders Supply Company (“National Welders”) became a wholly owned subsidiary of the Company on July 3, 2007. Concurrently, the debt of National Welders was refinanced by the Company under the expanded U.S. dollar revolving credit line.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     The Company manages its exposure to changes in market interest rates. The Company’s involvement with derivative instruments is limited to highly effective fixed interest rate swap agreements used to manage well-defined interest rate risk exposures. The Company monitors its positions and credit ratings of its counterparties and does not anticipate non-performance by the counterparties. Interest rate swap agreements are not entered into for trading purposes.

     At June 30, 2007, the Company had six fixed interest rate swap agreements with a notional amount of $150 million. These swaps effectively convert $150 million of variable interest rate debt associated with the Company’s Credit Facility to fixed rate debt. At June 30, 2007, two swap agreements with a total notional amount of $50 million required the Company to make fixed interest payments based on a weighted average effective rate of 4.15% and receive variable interest payments from its counterparties based on a weighted average variable rate of 5.32%. The four other swap agreements with a total notional amount of $100 million required the Company to make fixed interest payments based on a weighted average effective rate of 5.39% and receive variable interest payments from its counterparties based on a weighted average variable rate of 5.36%. The remaining terms of each of these swap agreements were between 12 months to 23 months.

     At June 30, 2007, National Welders was a party to one interest rate swap agreement with a notional principal amount of $27 million. The counterparty to the swap agreement is a major financial institution. National Welders is required to make fixed interest payments based on a rate of 5.36% and receive variable interest payments from its counterparty based on one-month LIBOR, which was 5.32% at June 30, 2007. The remaining term of the swap agreement was 23 months. As disclosed in Note 9, the debt of National Welders was refinanced by the Company under its expanded U.S. dollar revolving credit line. With the refinancing, National Welders’ interest rate swap agreement was redesignated as a hedge of a portion of the borrowings under the Company’s U.S. dollar revolving credit line.

     As of August 1, 2007, the Company entered into six additional fixed interest rate swap agreements with a combined notional amount of $200 million. These swaps effectively convert an additional $200 million of variable interest rate debt to fixed interest rate debt. A majority of the Company’s variable rate debt is based on a spread over LIBOR. Based on the Company’s fixed to variable interest rate ratio at August 1, 2007, for every 25 basis point increase in LIBOR, the Company estimates that its annual interest expense would increase approximately $3 million.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(11) STOCKHOLDERS’ EQUITY

     Changes in stockholders’ equity were as follows:

		Shares of
		Common
		Stock $0.01				Treasury
(In thousands of shares)		Par Value				Stock
Balance—March 31, 2007			79,960				1,292
Common stock issuance (a)			558				—
Balance—June 30, 2007			80,518				1,292

														Accumulated
						Capital in								Other
		Common				Excess of				Retained				Comprehensive				Treasury				Comprehensive
(In thousands)		Stock				Par Value				Earnings				Income				Stock				Income
Balance — March 31, 2007		$	799			$	341,101			$	792,433			$	4,183			$	(13,134	)
Cumulative effect adjustment to retained earnings for the adoption of FIN 48											(289	)
Net earnings											51,720												51,720
Common stock issuance (a)			6				10,115
Tax benefit from stock option exercises							4,660
Foreign currency translation adjustment															3,031								3,031
Dividends paid on common stock ($0.09 per share)											(7,102	)
Stock-based compensation (b)							5,890
Net change in fair value of interest rate swap agreements															809								809
Net tax expense of comprehensive income items															(294	)							(294	)
Balance — June 30, 2007		$	805			$	361,766			$	836,762			$	7,729			$	(13,134	)		$	55,266

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(12) STOCK-BASED COMPENSATION

     In accordance with SFAS 123R, Shared-Based Payment, (“SFAS 123R”) the Company recognizes stock-based compensation expense for its stock option plans and Employee Stock Purchase Plan. The Company recorded stock-based compensation of $5.9 million ($4 million after tax) in the three months ended June 30, 2007, compared to $2.7 million ($2 million after tax) in the three months ended June 30, 2006. The pre-tax compensation expense was included in Selling, distribution and administrative expenses in the Consolidated Statements of Earnings. The increase in stock-based compensation expense in the three months ended June 30, 2007 primarily reflected accelerated stock option expense related to retirement eligible employees.

     The Company utilizes the Black-Scholes option pricing model to determine the fair value of stock options under SFAS 123R. The weighted-average grant date fair value of stock options granted during the three months ended June 30, 2007 and 2006 was $15.18 and $13.74, respectively.

Summary of Stock Option Activity

     The following table summarizes the stock option activity during the three months ended June 30, 2007:

		Number of
		Stock Options				Weighted-Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			6,883			$	19.12
Granted			1,008			$	43.65
Exercised			(456	)		$	15.42
Forfeited			(25	)		$	25.13
Outstanding at June 30, 2007			7,410			$	22.67
Vested or expected to vest at June 30, 2007			6,669			$	22.67
Exercisable at June 30, 2007			5,029			$	16.61

     A total of 11.8 million shares of common stock were authorized under the 2006 Equity Incentive Plan and predecessor plans, of which 3.5 million shares were available for issuance at June 30, 2007.

     As of June 30, 2007, $26.4 million of total unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted-average vesting period of approximately 2 years.

Employee Stock Purchase Plan

     The Company has an Employee Stock Purchase Plan (the “ESPP”) to encourage and assist employees in acquiring an equity interest in the Company. The ESPP is authorized to issue up to 3.5 million shares of Company common stock, of which 1.7 million shares were available for issuance at June 30, 2007. During the three months ended June 30, 2007 and 2006, the Company granted 397 thousand and 94 thousand options to purchase common stock under the ESPP, respectively.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(12) STOCK-BASED COMPENSATION — (Continued)

     Compensation expense under SFAS 123R is measured based on the fair value of the employees’ option to purchase shares of common stock at the grant date and is recognized over the future periods in which the related employee service is rendered. The fair value per share of employee options to purchase shares under the ESPP was $9.57 and $8.36 for the three months ended June 30, 2007 and 2006, respectively. In the three months ended June 30, 2007 and 2006, the Company recognized stock-based compensation expense associated with the ESPP of $1 million and $785 thousand, respectively. The fair value of the employees’ option to purchase shares of common stock was estimated using the Black-Scholes model.

The following table summarizes the activity of the ESPP during the three months ended June 30, 2007.

		Number of
		Purchase Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			103			$	30.86
Granted			397			$	35.56
Exercised			(103	)		$	30.86
Outstanding at June 30, 2007			397			$	35.56

(13) EARNINGS PER SHARE

     Basic earnings per share is calculated by dividing net earnings by the weighted average number of shares of the Company’s common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock. Diluted earnings per share is calculated by dividing net earnings by the weighted average common shares outstanding adjusted for the dilutive effect of common stock equivalents related to stock options and the Company’s ESPP. The calculation of diluted earnings per share also assumes the conversion of National Welders’ preferred stock to Airgas common stock.

     The table below presents the computation of basic and diluted earnings per share for the three months ended June 30, 2007 and 2006:

		Three Months Ended
		June 30,
(In thousands, except per share amounts)		2007				2006
Basic Earnings per Share Computation
Numerator
Net earnings		$	51,720			$	38,652
Denominator
Basic shares outstanding			79,004				77,557
Basic earnings per share		$	0.65			$	0.50

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     (13) EARNINGS PER SHARE — (Continued)

		Three Months Ended
		June 30,
(In thousands, except per share amounts)		2007				2006
Diluted Earnings per Share Computation
Numerator
Net earnings		$	51,720			$	38,652
Plus: Preferred stock dividends (1)(2)			711				711
Plus: Income taxes on earnings of National Welders (3)			245				214
Net earnings assuming preferred stock conversion		$	52,676			$	39,577
Denominator
Basic shares outstanding			79,004				77,557
Incremental shares from assumed conversions:
Stock options and options under the Employee Stock Purchase plan			2,299				2,552
Preferred stock of National Welders (1)			2,327				2,327
Diluted shares outstanding			83,630				82,436
Diluted earnings per share		$	0.63			$	0.48

(1)		Pursuant to a joint venture agreement between the Company and the holders of the preferred stock of National Welders, the preferred stockholders had the option to exchange their 3.2 million preferred shares of National Welders either for cash at a price of $17.78 per share or to tender them to the joint venture in exchange for approximately 2.3 million shares of Airgas common stock. If Airgas common stock had a market value of $24.45 per share, the stock and cash redemption options are equivalent. Since the average market price of Airgas common stock for each of the periods presented above was in excess of $24.45 per share, the conversion of the preferred stock to Airgas common stock was assumed. On July 3, 2007, the preferred stockholders elected to exchange their preferred shares of National Welders for Airgas common stock (See Note 17).
(2)		Upon the exchange of the preferred stock for Airgas common stock, the 5% preferred stock dividend, recognized as “Minority interest in earnings of consolidated affiliate,” will no longer be paid to the preferred stockholders, resulting in additional net earnings for Airgas.
(3)		The earnings of National Welders for tax purposes were treated as a deemed dividend to Airgas, net of an 80% dividend exclusion. Upon the conversion of National Welders preferred stock to Airgas common stock, National Welders will become a wholly owned subsidiary of Airgas. As a wholly owned subsidiary, the net earnings of National Welders will not be subject to additional tax at the Airgas level.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(14) COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES

Litigation

     The Company is involved in various legal and regulatory proceedings that have arisen in the ordinary course of its business and have not been fully adjudicated. These actions, when ultimately concluded and determined, will not, in the opinion of management, have a material adverse effect upon the Company’s consolidated financial position, results of operations or liquidity.

(15) SUMMARY BY BUSINESS SEGMENT

     Information related to the Company’s continuing operations by business segment for the three months ended June 30, 2007 and 2006 is as follows:

		Three Months Ended																Three Months Ended
		June 30, 2007																June 30, 2006
(In thousands)		Dist.				All Other Ops.				Elim.				Total				Dist.				All Other Ops.				Elim.				Total
Gas and rent		$	411,281			$	164,013			$	(33,040	)		$	542,254			$	332,004			$	117,183			$	(14,486	)		$	434,701
Hardgoods			351,355				22,946				(1,456	)			372,845				317,249				22,602				(1,516	)			338,335
Total net sales			762,636				186,959				(34,496	)			915,099				649,253				139,785				(16,002	)			773,036
Cost of products sold, excluding deprec. expense			381,996				90,478				(34,496	)			437,978				331,595				67,626				(16,002	)			383,219
Selling, distribution and administrative expenses			258,822				62,590				—				321,412				229,883				46,094				—				275,977
Depreciation			30,344				11,221				—				41,565				25,825				7,337				—				33,162
Amortization			2,085				822				—				2,907				1,309				463				—				1,772
Operating income		$	89,389			$	21,848			$	—			$	111,237			$	60,641			$	18,265			$	—			$	78,906

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(16) SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest and income taxes was as follows:

		Three Months Ended
		June 30,
(In thousands)		2007				2006
Interest paid		$	14,615			$	15,687
Discount on securitization			4,119				3,336
Income taxes (net of refunds)			1,408				2,790

     Prior to the National Welders exchange transaction (See Note 17), cash flows, in excess of a management fee, associated with the Company’s consolidated affiliate, National Welders, were not available for the general use of the Company. Rather, these cash flows were used by National Welders for operations, capital expenditures, acquisitions, and to satisfy financial obligations, which were non-recourse to the Company. The following reflects the sources and uses of cash associated with National Welders for each period presented:

		Three Months Ended
		June 30,
(In thousands)		2007				2006
Net cash provided by operating activities		$	7,289			$	7,601
Net cash used in investing activities			(5,351	)			(2,722	)
Net cash used in financing activities			(1,977	)			(4,434	)
Change in cash			(39	)			445
Management fee paid to the Company, which is eliminated in consolidation		$	411			$	331

(17) SUBSEQUENT EVENTS

National Welders Exchange Transaction

     Pursuant to a definitive agreement reached by the Company with the preferred stockholders of the National Welders joint venture on July 3, 2007, the Company issued 2.471 million shares of Airgas common stock to the preferred stockholders in exchange for all 3.2 million preferred shares of National Welders. Upon the exchange, National Welders, a consolidated joint venture, became a wholly owned subsidiary of Airgas. Under the terms of the National Welders joint venture agreement, the preferred stockholders had the option through June 2009 to redeem their preferred shares for cash at a price of $17.78 per share or to exchange them for 2.327 million shares of Airgas common stock. The 2.471 million shares of Airgas common stock issued to the preferred stockholders included 144 thousand shares as additional consideration to induce the preferred stockholders to consummate the exchange transaction prior to June 2009. In the quarter ending September 30, 2007, the Company will recognize a one-time after-tax charge of $2.7 million, or $0.03 per diluted share, as a result of the transaction. The one-time, non-cash charge reflects the additional consideration paid to the preferred stockholders to consummate the exchange transaction, offset by a tax benefit recognized with the reversal of deferred tax liabilities associated with National Welders becoming a wholly owned subsidiary. The net after-tax charge will be reflected in the Consolidated Statement of Earnings as “minority interest in earnings of consolidated affiliate.”

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(17) SUBSEQUENT EVENTS — (Continued)

     Since 1996, the Company owned 100% of the National Welders joint venture’s common stock, which represented a 50% voting interest. The Turner family and other owners of National Welders preferred stock held the balance of the voting interest and received a 5% annual preferred dividend. The preferred dividend was recognized in the Consolidated Statement of Earnings as “minority interest in earnings of consolidated affiliate.” The preferred dividend will be discontinued as a result of the exchange transaction.

     In connection with the National Welders exchange transaction, the Company amended its Credit Facility to increase the size of its U.S. dollar revolving credit line by $100 million to $1,066 million. The amendment to the Credit Facility provided additional borrowing capacity to the Company to refinance National Welders’ debt of $87.5 million.

Interest Rate Swap Agreements

     As of August 1, 2007, the Company entered into six additional fixed interest rate swap agreements with a combined notional amount of $200 million. These swaps effectively convert an additional $200 million of variable interest rate debt to fixed interest rate debt. A majority of the Company’s variable rate debt is based on a spread over LIBOR. Based on the Company’s fixed to variable interest rate ratio at August 1, 2007, for every 25 basis point increase in LIBOR, the Company estimates that its annual interest expense would increase approximately $3 million.

Dividend Declaration

     On August 7, 2007, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.09 per share payable September 28, 2007 to stockholders of record as of September 14, 2007.

(18) SUPPLEMENTARY CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

     The obligations of the Company under its senior subordinated notes (the “Notes”) are guaranteed by the Company’s domestic subsidiaries (the “Guarantors”). The guarantees are made fully and unconditionally on a joint and several basis. The Company’s National Welders joint venture, foreign holdings and bankruptcy remote special purpose entity (the “Non-guarantors”) are not guarantors of the Notes. The claims of the creditors of the Non-guarantors have priority over the rights of the Company to receive dividends or distributions from the Non-guarantors. As disclosed in Note 17, National Welders became a wholly owned subsidiary of the Company on July 3, 2007. Effective August 3, 2007, National Welders became a guarantor of the Notes. As of June 30, 2007 and March 31, 2007, National Welders had total assets of $304 million and $303 million and generated cash from operations for the three months ended June 30, 2007 and 2006 of $7.3 million and $7.6 million, respectively.

     Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors as of June 30, 2007 and March 31, 2007 and for the three months ended June 30, 2007 and 2006.

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Condensed Consolidating Balance Sheet
June 30, 2007

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	35,010			$	6,511			$	—			$	41,521
Trade receivables, net			—				9,137				226,190				—				235,327
Intercompany receivable/(payable)			—				55,114				(55,114	)			—				—
Inventories, net			—				275,544				20,774				—				296,318
Deferred income tax asset, net			9,888				10,383				(1,370	)			—				18,901
Prepaid expenses and other current assets			6,963				33,626				6,963				—				47,552
Total current assets			16,851				418,814				203,954				—				639,619
Plant and equipment, net			16,104				1,879,520				214,227				—				2,109,851
Goodwill			—				767,420				89,933				—				857,353
Other intangible assets, net			—				72,666				5,253				—				77,919
Investments in subsidiaries			2,745,835				—				—				(2,745,835	)			—
Other non-current assets			18,493				6,586				2,921				—				28,000
Total assets		$	2,797,283			$	3,145,006			$	516,288			$	(2,745,835	)		$	3,712,742
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	1,064			$	146,648			$	15,182			$	—			$	162,894
Accrued expenses and other current liabilities			75,889				130,949				27,998				—				234,836
Current portion of long-term debt			30,000				6,985				4,788				—				41,773
Total current liabilities			106,953				284,582				47,968				—				439,503
Long-term debt, excluding current portion			1,478,900				14,916				104,188				—				1,598,004
Deferred income tax liability, net			(12,288	)			344,197				46,357				—				378,266
Intercompany (receivable)/payable			15,416				108,878				(124,294	)			—				—
Other non-current liabilities			14,374				24,369				7,107				—				45,850
Minority interest in affiliate			—				—				57,191				—				57,191
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value			—				—				—				—				—
Common stock, par value $0.01 per share			805				—				—				—				805
Capital in excess of par value			361,766				1,411,260				71,953				(1,483,213	)			361,766
Retained earnings			836,762				955,572				300,203				(1,255,775	)			836,762
Accumulated other comprehensive income			7,729				1,232				5,985				(7,217	)			7,729
Treasury stock			(13,134	)			—				(370	)			370				(13,134	)
Total stockholders’ equity			1,193,928				2,368,064				377,771				(2,745,835	)			1,193,928
Total liabilities and stockholders’ equity		$	2,797,283			$	3,145,006			$	516,288			$	(2,745,835	)		$	3,712,742

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet
March 31, 2007

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	24,652			$	1,279			$	—			$	25,931
Trade receivables, net			—				8,885				184,779				—				193,664
Intercompany receivable/(payable)			—				1,177				(1,177	)			—				—
Inventories, net			—				232,790				17,518				—				250,308
Deferred income tax asset, net			22,342				10,383				(1,721	)			—				31,004
Prepaid expenses and other current assets			17,878				27,156				3,558				—				48,592
Total current assets			40,220				305,043				204,236				—				549,499
Plant and equipment, net			15,990				1,642,278				207,150				—				1,865,418
Goodwill			—				742,114				90,048				—				832,162
Other intangible assets, net			—				58,037				4,898				—				62,935
Investments in subsidiaries			2,558,871				—				—				(2,558,871	)			—
Other non-current assets			8,408				12,176				2,859				—				23,443
Total assets		$	2,623,489			$	2,759,648			$	509,191			$	(2,558,871	)		$	3,333,457
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	849			$	129,179			$	16,357			$	—			$	146,385
Accrued expenses and other current liabilities			89,651				128,366				23,258				—				241,275
Current portion of long-term debt			30,000				5,915				4,381				—				40,296
Total current liabilities			120,500				263,460				43,996				—				427,956
Long-term debt, excluding current portion			1,198,400				9,910				101,409				—				1,309,719
Deferred income tax liability, net			(3,704	)			333,599				43,351				—				373,246
Intercompany (receivable)/payable			176,448				(70,778	)			(105,670	)			—				—
Other non-current liabilities			6,463				25,712				7,788				—				39,963
Minority interest in affiliate			—				—				57,191				—				57,191
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value			—				—				—				—				—
Common stock, par value $0.01 per share			799				—				—				—				799
Capital in excess of par value			341,101				1,294,816				71,952				(1,366,768	)			341,101
Retained earnings			792,433				902,320				286,138				(1,188,458	)			792,433
Accumulated other comprehensive income			4,183				609				3,406				(4,015	)			4,183
Treasury stock			(13,134	)			—				(370	)			370				(13,134	)
Total stockholders’ equity			1,125,382				2,197,745				361,126				(2,558,871	)			1,125,382
Total liabilities and stockholders’ equity		$	2,623,489			$	2,759,648			$	509,191			$	(2,558,871	)		$	3,333,457

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Consolidating Statement of Earnings
Three Months Ended
June 30, 2007

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
Net Sales		$	—			$	847,193			$	67,906			$	—			$	915,099
Costs and Expenses:
Cost of products sold (excluding depreciation)			—				410,089				27,889				—				437,978
Selling, distribution and administrative expenses			3,540				288,798				29,074				—				321,412
Depreciation			1,233				35,341				4,991				—				41,565
Amortization			15				2,706				186				—				2,907
Operating Income (Loss)			(4,788	)			110,259				5,766				—				111,237
Interest expense, net			(19,139	)			(12	)			(1,357	)			—				(20,508	)
(Discount) gain on securitization of trade receivables			—				(22,662	)			18,543				—				(4,119	)
Other income (expense), net			294				(482	)			104				—				(84	)
Earnings (loss) before income taxes and minority interest			(23,633	)			87,103				23,056				—				86,526
Income tax benefit (expense)			8,096				(33,853	)			(8,338	)			—				(34,095	)
Minority interest in earnings of consolidated affiliate			—				—				(711	)			—				(711	)
Equity in earnings of subsidiaries			67,257				—				—				(67,257	)			—
Net Earnings		$	51,720			$	53,250			$	14,007			$	(67,257	)		$	51,720