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: September 30, 2007

AIRGAS, INC.

Delaware		56-0732648
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
259 North Radnor-Chester Road, Suite 100
Radnor, PA		19087-5283
(Address of principal executive offices)		(ZIP code)

(610) 687-5253

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 November 5, 2007: 82,255,958 shares

 

 

AIRGAS, INC.

FORM 10-Q
September 30, 2007

INDEX

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three and Six Months Ended September 30, 2007 and 2006 (Unaudited)			3
Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and March 31, 2007			4
Consolidated Statements of Cash Flows for the Six Months Ended September 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			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			51
Item 4. Controls and Procedures			53
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			53
Item 1A. Risk Factors			53
Item 4. Submission of Matters to a Vote of Security Holders			53
Item 6. Exhibit Listing			54
SIGNATURES			55
Airgas, Inc. By-laws as amended through October 9, 2007
Separation Agreement
Certification of Peter McCausland
Certification of Robert M. McLaughlin
Certification of Peter McCausland, pursuant to Section 906
Certification of Robert M. McLaughlin, pursuant to Section 906

PART I. FINANCIAL INFORMATION

AIRGAS, INC. AND SUBSIDIARIES

(Unaudited)

(In thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Net Sales		$	1,007,283			$	790,747			$	1,922,382			$	1,563,783
Costs and Expenses:
Cost of products sold (excluding depreciation)			485,554				386,377				923,532				769,596
Selling, distribution and administrative expenses			357,742				283,924				679,154				559,901
Depreciation			44,767				34,152				86,332				67,314
Amortization			3,831				2,031				6,738				3,803
Total costs and expenses			891,894				706,484				1,695,756				1,400,614
Operating Income			115,389				84,263				226,626				163,169
Interest expense, net			(24,490	)			(14,654	)			(44,998	)			(28,330	)
Discount on securitization of trade receivables			(4,238	)			(3,546	)			(8,357	)			(6,882	)
Other income, net			723				551				639				764
Earnings before income taxes and minority interest			87,384				66,614				173,910				128,721
Income taxes			(34,256	)			(26,356	)			(68,351	)			(49,100	)
Minority interest in earnings of consolidated affiliate			(2,519	)			(711	)			(3,230	)			(1,422	)
Net Earnings		$	50,609			$	39,547			$	102,329			$	78,199
Net Earnings Per Common Share:
Basic earnings per share		$	0.62			$	0.51			$	1.27			$	1.01
Diluted earnings per share		$	0.60			$	0.49			$	1.23			$	0.97
Weighted average shares outstanding:
Basic			81,896				77,811				80,480				77,685
Diluted			84,209				82,629				83,955				82,553
Comprehensive income		$	51,076			$	38,626			$	106,342			$	78,844

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

(In thousands, except per share amounts)

		(Unaudited)
		September 30,				March 31,
		2007				2007
ASSETS
Current Assets
Cash		$	42,113			$	25,931
Trade receivables, less allowances for doubtful accounts of $19,207 at September 30, 2007 and $15,692 at March 31, 2007			233,053				193,664
Inventories, net			310,547				250,308
Deferred income tax asset, net			19,924				31,004
Prepaid expenses and other current assets			52,977				48,592
Total current assets			658,614				549,499
Plant and equipment at cost			3,109,199				2,755,747
Less accumulated depreciation			(966,283	)			(890,329	)
Plant and equipment, net			2,142,916				1,865,418
Goodwill			886,634				832,162
Other intangible assets, net			79,984				62,935
Other non-current assets			29,979				23,443
Total assets		$	3,798,127			$	3,333,457
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	160,391			$	146,385
Accrued expenses and other current liabilities			274,685				241,275
Current portion of long-term debt			40,157				40,296
Total current liabilities			475,233				427,956
Long-term debt, excluding current portion			1,559,812				1,309,719
Deferred income tax liability, net			386,934				373,246
Other non-current liabilities			59,618				39,963
Minority interest in affiliate			—				57,191
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding at September 30, 2007 and March 31, 2007			—				—
Common stock, par value $0.01 per share, 200,000 shares authorized, 83,364 and 79,960 shares issued at September 30, 2007 and March 31, 2007, respectively			834				799
Capital in excess of par value			440,636				341,101
Retained earnings			879,998				792,433
Accumulated other comprehensive income			8,196				4,183
Treasury stock, 1,292 common shares at cost at September 30, 2007 and March 31, 2007			(13,134	)			(13,134	)
Total stockholders’ equity			1,316,530				1,125,382
Total liabilities and stockholders’ equity		$	3,798,127			$	3,333,457

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)		Six Months Ended				Six Months Ended
		September 30, 2007				September 30, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	102,329			$	78,199
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			86,332				67,314
Amortization			6,738				3,803
Deferred income taxes			29,825				22,211
Loss (gain) on sales of plant and equipment			708				(213	)
Minority interest			3,230				1,422
Stock-based compensation expense			10,029				6,532
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables			20,600				2,900
Trade receivables, net			(8,940	)			(23,256	)
Inventories, net			(17,663	)			(7,703	)
Prepaid expenses and other current assets			(201	)			(4,031	)
Accounts payable, trade			(17,659	)			(13,359	)
Accrued expenses and other current liabilities			9,075				(14,971	)
Other non-current assets			(4,314	)			(1,184	)
Other non-current liabilities			3,179				4,740
Net cash provided by operating activities			223,268				122,404
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(128,611	)			(121,548	)
Proceeds from sales of plant and equipment			3,630				3,487
Business acquisitions and holdback settlements			(341,212	)			(99,166	)
Other, net			(1,228	)			157
Net cash used in investing activities			(467,421	)			(217,070	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings			676,694				525,650
Repayment of debt			(441,708	)			(438,517	)
Financing costs			—				(5,103	)
Minority interest in earnings			(711	)			(1,422	)
Tax benefit realized from the exercise of stock options			7,871				2,726
Stock issued for employee stock purchase plan			6,618				5,846
Proceeds from the exercise of stock options			12,175				6,517
Dividends paid to stockholders			(14,475	)			(10,884	)
Change in cash overdraft			13,871				6,647
Net cash provided by financing activities			260,335				91,460
Change in cash		$	16,182			$	(3,206	)
Cash – Beginning of period			25,931				34,985
Cash – End of period		$	42,113			$	31,779

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

(1) BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (the “Company”). On July 3, 2007, the Company’s previously consolidated affiliate, National Welders Supply Company (“National Welders”), became a wholly owned subsidiary of Airgas (see Note 11). Intercompany accounts and transactions 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 results of operations, financial position 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.

     Stock issued for the employee stock purchase plan, previously reflected as a component of 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 fiscal year

     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 No. 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)

(2) NEW ACCOUNTING PRONOUNCEMENTS- (Continued)

(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. 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 fiscal 2008, the Company purchased eight businesses, including six associated with the distribution of packaged gases and related hardgoods products. The largest of these acquisitions was the June 30, 2007 acquisition of most of the U.S. packaged gas business (“Linde Packaged Gas”) of Linde AG (“Linde”), for $310 million in cash. In addition, under the terms of the purchase agreement, the purchase price for Linde Packaged Gas is subject to change based on a net working capital adjustment. The operations acquired include 130 locations in 18 states, with more than 1,400 employees, and generated $342 million in revenues for the year ended December 31, 2006. Of the 130 locations acquired, 113 locations were merged into the operations of seven regional operating companies in the Distribution business segment while 17 branches were merged into the operations of National Welders. A total of $29 million in cash was paid for the five other acquired packaged gas distributors and the settlement of a holdback liability related to a prior year acquisition. These packaged gas distributors had aggregate annual revenues of approximately $42 million. The remaining two acquisitions were purchased for $2.2 million in cash, had combined annual revenues of approximately $4 million and are included in the All Other Operations business segment. The Company acquired the eight 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 $341 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.

     The purchase agreements related to Linde Packaged Gas and the March 2007 acquisition of certain operations of Linde’s U.S. bulk gas business (“Linde Bulk Gas”) provide that for federal income tax purposes, the Company and Linde agree on the purchase price allocation within a defined time period. With respect to Linde Bulk Gas, the Company has presented its allocation to Linde. Discussions are underway related to differences between Linde’s allocation and Airgas’ allocation. Therefore, the final purchase price allocation may differ from the amounts included in the accompanying consolidated financial statements. Goodwill associated with the acquisitions is deductible for income taxes.

     During the quarter ended September 30, 2007, the Company made substantial progress in finalizing its plan to incorporate Linde Packaged Gas into its operations. The costs expected to be incurred in connection with this plan consist of one-time severance benefits to acquired employees who are involuntarily terminated and facility exit costs associated with the closure of certain acquired facilities that overlap with the Company’s current operations. As part of the allocated purchase price, the Company recognized a liability of $5 million for severance related to employee terminations. The Company plans to substantially complete the headcount reductions by June 30, 2008. The Company also recognized a liability of approximately $6 million associated with the planned closure of former Linde facilities. The facility closure costs principally reflect non-cancelable lease termination obligations, the majority of which are associated with closing the former Linde corporate headquarters. The Company plans to exit these locations by December 31, 2008. As the Company continues to finalize its plan during the quarter ending December 31, 2007, additional liabilities related to facility closures and additional employee severance and benefits are expected to be recorded. Payments made in connection with these severance and facility exit obligations during the quarter ended September 30, 2007 were insignificant.

     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		$	83,840			$	16,325			$	100,165
Property and equipment			233,979				(6,898	)			227,081
Goodwill			27,357				24,087				51,444
Other intangible assets			13,985				9,420				23,405
Current liabilities			(42,993	)			(4,855	)			(47,848	)
Long-term liabilities			(6,168	)			(6,867	)			(13,035	)
Total cash consideration		$	310,000			$	31,212			$	341,212

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

(3) ACQUISITIONS– (Continued)

Pro Forma Operating Results

     The following represents unaudited pro forma operating results as if the fiscal 2008 and fiscal 2007 acquisitions had occurred on April 1, 2006. The pro forma results were prepared from financial information obtained from the sellers of the businesses 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 or 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.

		Six Months Ended
		September 30,
(In thousands, except per share amounts)		2007				2006
Net sales		$	2,022,827			$	1,915,203
Net earnings			103,747				84,181
Diluted earnings per share		$	1.25			$	1.04

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

(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 six months ended September 30, 2007, the Company sold, net of the subordinated interest held by the Company, $1,573 million of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, $1,552 million in collections on those receivables. The amount of outstanding receivables under the agreement was $285 million at September 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 156. 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 $72 million and $80 million are included in “Trade receivables” in the accompanying Consolidated Balance Sheets at September 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:

		September 30,				March 31,
(In thousands)		2007				2007
Hardgoods		$	268,180			$	218,348
Gases			42,367				31,960
		$	310,547			$	250,308

     Hardgoods inventories in the table above with a carrying value accounted for under the LIFO inventory method totaled $34 million at September 30, 2007 and $30 million at March 31, 2007. The balance of the hardgoods inventories is valued using the FIFO inventory method. If the FIFO inventory method had been used for all of the Company’s hardgoods inventories, the carrying value of the inventory would have been $8 million higher at September 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 six months ended September 30, 2007 were as follows:

						All Other
		Distribution				Operations
		Business				Business
(In thousands)		Segment				Segment				Total
Balance at March 31, 2007		$	564,675			$	267,487			$	832,162
Acquisitions			49,985				1,459				51,444
Other adjustments			2,844				184				3,028
Balance at September 30, 2007		$	617,504			$	269,130			$	886,634

     Other intangible assets amounted to $80 million and $62.9 million, net of accumulated amortization of $58.3 million and $51.9 million at September 30, 2007 and March 31, 2007, respectively. These intangible assets primarily consist of acquired customer lists 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 trade names with indefinite useful lives valued at $1.1 million. Estimated future amortization expense by fiscal year is as follows: remainder of 2008 — $6.1 million; 2009 — $11.6 million; 2010 — $11.0 million; 2011 — $10.7 million; 2012 — $10.2 million; and $29.3 million thereafter.

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

(7) INCOME TAXES

     In July 2006, the FASB issued FIN 48, which 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. Upon adoption, the Company’s $11 million liability for unrecognized tax benefits included $2 million of accrued interest and penalties. The liability for unrecognized tax benefits, net of a deferred federal income tax benefit, totaled $7 million and would impact the effective income tax rate if recognized. 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.

     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 the 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:

		September 30,				March 31,
(In thousands)		2007				2007
Accrued payroll and employee benefits		$	71,578			$	71,685
Business insurance reserves			26,421				26,390
Health insurance reserves			9,072				8,446
Accrued interest expense			5,492				4,721
Taxes other than income taxes			20,374				14,771
Cash overdraft			70,927				57,056
Deferred cylinder lease income			24,487				23,067
Other accrued expenses and current liabilities			46,334				35,139
		$	274,685			$	241,275

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

(9) INDEBTEDNESS

     Long-term debt consists of:

		September 30,				March 31,
(In thousands)		2007				2007
Revolving credit borrowings		$	857,494			$	489,398
Term loan			532,500				577,500
Money market loans			30,000				30,000
Senior subordinated notes			150,000				150,000
Acquisition and other notes			29,975				17,440
National Welders debt			—				85,677
Total long-term debt			1,599,969				1,350,015
Less current portion of long-term debt			(40,157	)			(40,296	)
Long-term debt, excluding current portion		$	1,559,812			$	1,309,719

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

(In thousands)		Debt Maturities
September 30, 2008		$	40,157
March 31, 2009			52,601
March 31, 2010			98,489
March 31, 2011			237,495
March 31, 2012			1,019,952
Thereafter			151,275
		$	1,599,969

Revolving Credit Borrowings and Term Loan

     As of September 30, 2007, the Company maintains a senior credit facility with a syndicate of lenders. The $1.7 billion senior unsecured credit facility (the “Credit Facility”) permits the Company to borrow up to $1,066 million under a U.S. dollar revolving credit line, up to C$40 million (U.S. $40 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.

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

(9) INDEBTEDNESS – (Continued)

     As of September 30, 2007, the Company had approximately $1,390 million of borrowings under the Credit Facility: $833 million under the U.S. dollar revolver, C$24 million (U.S. $24 million) under the Canadian dollar revolver and $533 million under the term loan. The term loan is 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. Principal payments on the term loan are classified as “Long-term debt” in the Company’s Consolidated Balance Sheets based on the Company’s ability and intention to refinance the payments with borrowings under its long-term revolving credit facilities. The Company also had outstanding letters of credit of $35 million issued under the Credit Facility. The U.S. dollar borrowings and the term loan 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 September 30, 2007, the average effective interest rates on the U.S. dollar borrowings, the rate on the term loan and average rate on the Canadian dollar borrowings were 6.15%, 5.95%, and 5.67%, respectively.

     As of September 30, 2007, approximately $197 million remained unused under the U.S. dollar revolving credit line and approximately C$16 million (U.S. $16 million) remained unused under the Canadian dollar revolving credit line. As of September 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 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 June 30, 2008, 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 September 30, 2007, the Company had an outstanding advance under the agreement of $30 million, and bears interest at 6.17%.

     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 September 30, 2007, there were no short-term advances outstanding under this agreement.

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

(9) INDEBTEDNESS – (Continued)

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 11, National Welders became a wholly owned subsidiary of the Company on July 3, 2007. Concurrently, National Welders debt of $87.5 million was refinanced by the Company under the expanded U.S. dollar revolving credit line.

(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 September 30, 2007, the Company had nineteen fixed interest rate swap agreements with a notional amount of $602 million. These swaps effectively convert $602 million of variable interest rate debt associated with the Company’s Credit Facility to fixed rate debt. At September 30, 2007, these swap agreements required the Company to make fixed interest payments based on a weighted average effective rate of 4.94% and receive variable interest payments from the counterparties based on a weighted average variable rate of 5.46%. The remaining terms of each of these swap agreements were between 8 months to 36 months. During fiscal 2008, the fair value of the fixed interest rate swap agreements declined, and the Company recorded a corresponding decrease to “Accumulated Other Comprehensive Income” of $3.1 million. A net loss related to the ineffectiveness of the hedging relationship was recognized as interest expense and was insignificant.

     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 September 30, 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) NATIONAL WELDERS EXCHANGE TRANSACTION

     Since the December 2003 adoption of Interpretation No. 46R, Consolidation of Variable Interest Entities, the Company’s National Welders joint venture has been consolidated with the operations of the Company. As a consolidated entity, the assets and liabilities of the joint venture were included with the Company’s assets and liabilities and the preferred stockholders interest in those assets and liabilities was reflected as “Minority Interest in Affiliate” on the Company’s Consolidated Balance Sheet. Likewise, the operating results of the joint venture were reflected broadly across the Consolidated Statement of Earnings with the preferred stockholders’ proportionate share of the joint venture’s operating results reflected, net of tax, as “Minority interest in earnings of consolidated affiliate.”

     On July 3, 2007, the preferred stockholders of the National Welders joint venture exchanged their preferred stock for common stock of Airgas (the “NWS Exchange Transaction”). 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. The preferred shares of National Welders were reflected on the Company’s Consolidated Balance Sheet as “Minority interest in affiliate.” As part of the negotiated exchange, the Company issued an additional 144 thousand shares (included in the 2.471 million shares) of Airgas common stock to the preferred shareholders which resulted in a one-time net after-tax charge of $2.5 million, or $0.03 per diluted share. The net after-tax charge was reflected in the Consolidated Statement of Earnings as “Minority interest in earnings of consolidated affiliate” and consisted of $7 million related to the additional shares issued net of the reversal of a deferred tax liability related to the undistributed earnings of the National Welders joint venture of $4.5 million. Upon the exchange, National Welders became a wholly owned subsidiary of Airgas.

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

(12) 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),(b)			3,404				—
Balance—September 30, 2007			83,364				1,292

														Accumulated
						Capital in								Other
		Common				Excess of				Retained				Comprehensive				Treasury				Comprehensive
(In thousands)		Stock				Par Value				Earnings				Income (Loss)				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											102,329												102,329
Common stock issuance — employee benefit plans (a)			10				18,786
Common stock issuance — NWS exchange transaction (b)			25				63,832
Tax benefit from stock option exercises							7,871
Foreign currency translation adjustment															6,029								6,029
Dividends paid on common stock ($0.18 per share)											(14,475	)
Stock-based compensation (c)							9,046
Net change in fair value of interest rate swap agreements															(3,083	)							(3,083	)
Net tax expense of comprehensive income items															1,067								1,067
Balance — September 30, 2007		$	834			$	440,636			$	879,998			$	8,196			$	(13,134	)		$	106,342

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

(13) STOCK-BASED COMPENSATION

     In accordance w ith SFAS No. 123R, Share-Based Payment, (“SFAS 123R”) the Company recognizes stock-based compensation expense for its stock option plans and employee stock purchase plan. The following table summarizes stock-based compensation expense recognized by the Company in the three and six-month periods ended September 30, 2007 and 2006:

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
(In thousands, except per share amounts)		September 30, 2007				September 30, 2006				September 30, 2007				September 30, 2006
Stock-based compensation expense related to:
Stock option plans		$	3,182			$	3,166			$	8,126			$	5,204
Employee stock purchase plan — options to purchase stock			956				613				1,903				1,328
			4,138				3,779				10,029				6,532
Tax benefit			(1,297	)			(1,191	)			(3,240	)			(1,961	)
Net stock-based compensation expense		$	2,841			$	2,588			$	6,789			$	4,571

     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 six months ended September 30, 2007 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 six months ended September 30, 2007 and 2006 was $15.23 and $13.74, respectively.

Summary of Stock Option Activity

     The following table summarizes the stock option activity during the six months ended September 30, 2007:

2006 Equity Incentive Plan — Stock Option Activity

		Number of
		Stock Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			6,883			$	19.12
Granted			1,060			$	43.79
Exercised			(733	)		$	16.60
Forfeited			(78	)		$	31.52
Outstanding at September 30, 2007			7,132			$	23.16
Vested or expected to vest at September 30, 2007			6,419			$	23.16
Exercisable at September 30, 2007			4,812			$	17.05

     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 September 30, 2007.

     As of September 30, 2007, $24.2 million of total unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted-average vesting period of 1.9 years.

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

(13) STOCK-BASED COMPENSATION - (Continued)

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 1.6 million shares were available for issuance at September 30, 2007. During the six months ended September 30, 2007 and 2006, the Company granted 396 thousand and 385 thousand options to purchase common stock under the ESPP, respectively.

     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 $8.31 for the six months ended September 30, 2007 and 2006, 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 six months ended September 30, 2007:

ESPP — Purchase Option Activity

		Number of
		Purchase Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			103			$	30.86
Granted			396			$	35.56
Exercised			(200	)		$	33.14
Outstanding at September 30, 2007			299			$	35.56

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

(14) 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 for periods prior to the July 3, 2007 NWS Exchange Transaction (see Note 11).

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
(In thousands, except per share amounts)		2007				2006				2007				2006
Basic Earnings per Share Computation
Numerator
Net earnings		$	50,609			$	39,547			$	102,329			$	78,199
Denominator
Basic shares outstanding			81,896				77,811				80,480				77,685
Basic earnings per share		$	0.62			$	0.51			$	1.27			$	1.01

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

(14) EARNINGS PER SHARE — (Continued)

		Three Months Ended								Six Months Ended
		September 30,								September 30,
(In thousands, except per share amounts)		2007 (b)				2006 (a)				2007 (b)				2006 (a)
Diluted Earnings per Share Computation
Numerator
Net earnings		$	50,609			$	39,547			$	102,329			$	78,199
Plus: Preferred stock dividends			—				711				711				1,422
Plus: Income taxes on earnings of National Welders			—				262				245				476
Net earnings assuming preferred stock conversion		$	50,609			$	40,520			$	103,285			$	80,097
Denominator
Basic shares outstanding			81,896				77,811				80,480				77,685
Incremental shares from assumed conversions:
Stock options and options under the employee stock purchase plan			2,313				2,491				2,293				2,541
Preferred stock of National Welders			—				2,327				1,182				2,327
Diluted shares outstanding			84,209				82,629				83,955				82,553
Diluted net earnings per share		$	0.60			$	0.49			$	1.23			$	0.97

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

(15) 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.

(16) SUMMARY BY BUSINESS SEGMENT

     Information related to the Company’s business segments for the three and six months ended September 30, 2007 and 2006 is as follows:

		Three Months Ended																Three Months Ended
		September 30, 2007																September 30, 2006
						All																All
						Other																Other
(In thousands)		Dist.				Ops.				Elim.				Combined				Dist.				Ops.				Elim.				Combined
Gas and rent		$	447,435			$	180,731			$	(37,928	)		$	590,238			$	342,976			$	124,586			$	(13,505	)		$	454,057
Hardgoods			387,331				31,291				(1,577	)			417,045				314,351				23,485				(1,146	)			336,690
Total net sales			834,766				212,022				(39,505	)			1,007,283				657,327				148,071				(14,651	)			790,747
Cost of products sold, excluding deprec. expense			419,530				105,529				(39,505	)			485,554				329,758				71,270				(14,651	)			386,377
Selling, distribution and administrative expenses			287,101				70,641				—				357,742				235,616				48,308				—				283,924
Depreciation			33,674				11,093				—				44,767				26,721				7,431				—				34,152
Amortization			3,035				796				—				3,831				1,569				462				—				2,031
Operating income		$	91,426			$	23,963			$	—			$	115,389			$	63,663			$	20,600			$	—			$	84,263

		Six Months Ended																Six Months Ended
		September 30, 2007																September 30, 2006
						All																All
						Other																Other
(In thousands)		Dist.				Ops.				Elim.				Combined				Dist.				Ops.				Elim.				Combined
Gas and rent		$	858,716			$	344,744			$	(70,968	)		$	1,132,492			$	674,980			$	241,769			$	(27,991	)		$	888,758
Hardgoods			738,686				54,237				(3,033	)			789,890				631,600				46,087				(2,662	)			675,025
Total net sales			1,597,402				398,981				(74,001	)			1,922,382				1,306,580				287,856				(30,653	)			1,563,783
Cost of products sold, excluding deprec. expense			801,526				196,007				(74,001	)			923,532				661,353				138,896				(30,653	)			769,596
Selling, distribution and administrative expenses			545,923				133,231				—				679,154				465,499				94,402				—				559,901
Depreciation			64,018				22,314				—				86,332				52,546				14,768				—				67,314
Amortization			5,120				1,618				—				6,738				2,878				925				—				3,803
Operating income		$	180,815			$	45,811			$	—			$	226,626			$	124,304			$	38,865			$	—			$	163,169

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

(17) SUPPLEMENTAL CASH FLOW INFORMATION

Cash Paid for Interest and Taxes

     Cash paid for interest and income taxes was as follows:

		Six Months Ended
		September 30,
(In thousands)		2007				2006
Interest paid		$	45,279			$	28,785
Discount on securitization			8,357				6,882
Income taxes (net of refunds)			22,246				12,953

Significant Non-cash Investing and Financing Transactions

     In connection with the NWS Exchange Transaction (see Note 11), the Company issued 2.471 million shares of common stock in a non-cash transaction in exchange for the preferred stock of National Welders.

     In an acquisition consummated during the six months ended September 30, 2007, a seller of a business provided direct financing in the form of a $5 million note payable by the Company. Payment of the note will be reflected in the Consolidated Statement of Cash Flows when the cash is paid. In addition, the Company assumed capital lease obligations of $1.8 million in connection with an acquisition.

     During the six months ended September 30, 2007, the Company purchased $6.7 million of rental welders, which were financed directly by a vendor. The vendor financing was reflected as debt on the Consolidated Balance Sheet. Future cash payments in settlement of the debt will be reflected in the Consolidated Statement of Cash Flows when paid.

(18) SUBSEQUENT EVENT

Dividend Declaration

     On October 9, 2007, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.09 per share payable December 31, 2007 to stockholders of record as of December 14, 2007.

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

(19) 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. National Welders, the Company’s foreign holdings and the 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 11, National Welders became a wholly owned subsidiary of the Company on July 3, 2007. As of September 30, 2007 and March 31, 2007, National Welders had total assets of $315 million and $303 million and generated cash from operations for the six months ended September 30, 2007 and 2006 of $12.6 million and $15.3 million, respectively, and National Welders is reflected in the following Condensed Consolidating Statements as a non-guarantor. On October 31, 2007, National Welders became a guarantor of the Notes.

     Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors as of September 30, 2007 and March 31, 2007 and for the six months ended September 30, 2007 and 2006. On the Condensed Consolidating Statement of Cash Flows for the six months ended September 30, 2006, 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.

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

Condensed Consolidating Balance Sheet
September 30, 2007

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	39,658			$	2,455			$	—			$	42,113
Trade receivables, net			—				49,395				183,658				—				233,053
Intercompany receivable/(payable)			—				6,440				(6,440	)			—				—
Inventories, net			—				285,244				25,303				—				310,547
Deferred income tax asset, net			10,909				10,385				(1,370	)			—				19,924
Prepaid expenses and other current assets			8,865				39,596				4,516				—				52,977
Total current assets			19,774				430,718				208,122				—				658,614
Plant and equipment, net			15,962				1,905,211				221,743				—				2,142,916
Goodwill			—				796,431				90,203				—				886,634
Other intangible assets, net			—				74,809				5,175				—				79,984
Investments in subsidiaries			2,944,160				—				—				(2,944,160	)			—
Other non-current assets			18,667				8,502				2,810				—				29,979
Total assets		$	2,998,563			$	3,215,671			$	528,053			$	(2,944,160	)		$	3,798,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	1,064			$	143,477			$	15,850			$	—			$	160,391
Accrued expenses and other current liabilities			104,152				148,013				22,520				—				274,685
Current portion of long-term debt			30,000				7,984				2,173				—				40,157
Total current liabilities			135,216				299,474				40,543				—				475,233
Long-term debt, excluding current portion			1,516,000				15,781				28,031				—				1,559,812
Deferred income tax liability, net			(17,776	)			355,488				49,222				—				386,934
Intercompany (receivable)/payable			30,390				(35,981	)			5,591				—				—
Other non-current liabilities			18,203				34,012				7,403				—				59,618
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value			—				—				—				—				—
Common stock, par value $0.01 per share			834				—				—				—				834
Capital in excess of par value			440,636				1,537,951				71,955				(1,609,906	)			440,636
Retained earnings			879,998				1,007,139				317,271				(1,324,410	)			879,998
Accumulated other comprehensive income			8,196				1,807				8,407				(10,214	)			8,196
Treasury stock			(13,134	)			—				(370	)			370				(13,134	)
Total stockholders’ equity			1,316,530				2,546,897				397,263				(2,944,160	)			1,316,530
Total liabilities and stockholders’ equity		$	2,998,563			$	3,215,671			$	528,053			$	(2,944,160	)		$	3,798,127

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