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, 2008

Commission file number: 1-9344

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company 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 11, 2008: 82,469,990 shares

 

 

AIRGAS, INC.

FORM 10-Q
June 30, 2008

INDEX

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three Months Ended June 30, 2008 and 2007 (Unaudited)			3
Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and March 31, 2008			4
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2008 and 2007 (Unaudited)			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			48
Item 4. Controls and Procedures			50
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			50
Item 6. Exhibit Listing			51
SIGNATURES			52
Certification of Peter McCausland as Chairman and Chief Executive Officer of Airgas, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Robert M. McLaughlin as Senior Vice President and Chief Financial Officer of Airgas, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Peter McCausland as Chairman and Chief Executive Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Robert M. McLaughlin as Senior Vice President and Chief Financial Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley

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,
		2008				2007
Net Sales		$	1,116,701			$	915,099
Costs and Expenses:
Cost of products sold (excluding depreciation)			537,695				437,978
Selling, distribution and administrative expenses			390,645				321,412
Depreciation			48,097				41,565
Amortization			5,405				2,907
Total costs and expenses			981,842				803,862
Operating Income			134,859				111,237
Interest expense, net			(19,084	)			(20,508	)
Discount on securitization of trade receivables			(2,984	)			(4,119	)
Other income (expense), net			317				(84	)
Earnings before income taxes and minority interest			113,108				86,526
Income taxes			(44,225	)			(34,095	)
Minority interest in earnings of consolidated affiliate			—				(711	)
Net Earnings		$	68,883			$	51,720
Net Earnings Per Common Share:
Basic earnings per share		$	0.83			$	0.65
Diluted earnings per share		$	0.81			$	0.63
Weighted Average Shares Outstanding:
Basic			82,687				79,004
Diluted			85,017				83,630
Comprehensive income		$	76,974			$	55,266

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,
		2008				2008
ASSETS
Current Assets
Cash		$	64,946			$	43,048
Trade receivables, net			194,456				183,569
Inventories, net			340,939				330,732
Deferred income tax asset, net			23,475				22,258
Prepaid expenses and other current assets			58,235				67,110
Total current assets			682,051				646,717
Plant and equipment at cost			3,309,307				3,232,673
Less accumulated depreciation			(1,074,051	)			(1,037,803	)
Plant and equipment, net			2,235,256				2,194,870
Goodwill			977,985				969,059
Other intangible assets, net			160,828				148,998
Other non-current assets			34,384				27,620
Total assets		$	4,090,504			$	3,987,264
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	180,129			$	185,111
Accrued expenses and other current liabilities			279,084				288,883
Current portion of long-term debt			43,458				40,400
Total current liabilities			502,671				514,394
Long-term debt, excluding current portion			1,537,696				1,539,648
Deferred income tax liability, net			472,180				439,782
Other non-current liabilities			68,746				80,104
Commitments and contingencies
Stockholders’ Equity
Preferred stock, 20,030 shares authorized, no shares issued or outstanding at June 30, 2008 and March 31, 2008			—				—
Common stock, par value $0.01 per share, 200,000 shares authorized, 84,733 and 84,076 shares issued at June 30, 2008 and March 31, 2008, respectively			847				841
Capital in excess of par value			497,237				468,302
Retained earnings			1,042,506				983,663
Accumulated other comprehensive income (loss)			3,378				(4,713	)
Treasury stock, 1,788 common shares at cost at June 30, 2008 and March 31, 2008			(34,757	)			(34,757	)
Total stockholders’ equity			1,509,211				1,413,336
Total liabilities and stockholders’ equity		$	4,090,504			$	3,987,264

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, 2008				June 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	68,883			$	51,720
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			48,097				41,565
Amortization			5,405				2,907
Deferred income taxes			23,455				15,297
(Gain) loss on sales of plant and equipment			(12	)			749
Minority interest			—				711
Stock-based compensation expense			7,973				5,890
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables			—				20,600
Trade receivables, net			(6,526	)			(9,816	)
Inventories, net			(9,874	)			(10,142	)
Prepaid expenses and other current assets			2,563				5,447
Accounts payable, trade			(7,451	)			(13,700	)
Accrued expenses and other current liabilities			(3,613	)			(5,501	)
Other non-current assets			(542	)			2,551
Other non-current liabilities			261				2,338
Net cash provided by operating activities			128,619				110,616
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(85,564	)			(62,238	)
Proceeds from sales of plant and equipment			3,329				2,006
Business acquisitions and holdback settlements			(21,680	)			(317,451	)
Other, net			(1,518	)			(320	)
Net cash used in investing activities			(105,433	)			(378,003	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings			594,109				461,421
Repayment of debt			(596,080	)			(183,383	)
Purchase of treasury stock			(4,613	)			—
Financing costs			(5,000	)			—
Minority interest in earnings			—				(711	)
Proceeds from the exercise of stock options			9,927				6,945
Stock issued for the employee stock purchase plan			3,934				3,171
Tax benefit realized from the exercise of stock options			7,280				4,660
Dividends paid to stockholders			(10,040	)			(7,102	)
Change in cash overdraft			(805	)			(2,024	)
Net cash (used in) provided by financing activities			(1,288	)			282,977
Change in cash		$	21,898			$	15,590
Cash — Beginning of period			43,048				25,931
Cash — End of period		$	64,946			$	41,521

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 (“Airgas” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). 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, 2008.

     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.

Prior Period Adjustments

     The Consolidated Balance Sheet as of March 31, 2008 reflects adjustments that increase insurance receivables, reflected in the line item “Prepaid expenses and other current assets,” by $8 million and also increase business insurance reserves, reflected in the line item “Accrued expenses and other current liabilities,” by a corresponding $8 million. The insurance receivable and corresponding increase in the business insurance reserves at March 31, 2008 represents probable claim losses in excess of the Company’s self insured retention for which the Company is fully insured. The adjustments to the March 31, 2008 balances were also reflected in Note 7 — Accrued Expenses and Other Current Liabilities. The Company does not consider these adjustments to be material to its financial position and the adjustments did not affect its results of operations or liquidity.

     Adjustments were made to the Consolidated Statement of Cash Flows for the three months ended June 30, 2007 to reflect the purchase of welding equipment through a vendor sponsored financing program as a non-cash investing and financing activity, and to reclassify certain purchase accounting adjustments that were previously reflected as uses of cash from operating activities and sources of cash from financing activities. The impact on the three month period ended June 30, 2007 was an increase in cash from operating activities of $8.1 million, a reduction in capital expenditures of $3.6 million and a corresponding reduction in proceeds from borrowings of $11.7 million. These adjustments to the June 30, 2007 Consolidated Statement of Cash Flows represent items that were identified and reclassified by the Company in the second quarter of the prior year. The Company does not consider these adjustments to be material to its Consolidated Statement of Cash Flows and the adjustments did not affect its financial position or results of operations.

(2) NEW ACCOUNTING PRONOUNCEMENTS

(a) Accounting pronouncements adopted this fiscal year

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, (“SFAS 157”), effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS 157 did not require any new fair value measurements, but rather replaces multiple existing definitions of fair value with a single definition, establishes a consistent framework for measuring fair value and expands financial statement disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 until fiscal years beginning after November 15, 2008 for

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

(2) NEW ACCOUNTING PRONOUNCEMENTS – (Continued)

non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company adopted SFAS 157 for financial assets and liabilities on April 1, 2008. The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the Company’s financial position or results of operations. The Company is currently assessing the impact of SFAS 157, related to non-financial assets and liabilities, on the consolidated financial statements.

     Effective April 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, 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. The Company did not elect to re-measure any existing financial assets or liabilities under the provisions of this statement.

(b) Accounting pronouncements not yet adopted

     In December 2007, the FASB issued SFAS No. 141R, Business Combinations, (“SFAS 141R”), which replaces SFAS No. 141 of the same title. SFAS 141R will significantly change the way the Company accounts for business combinations. The more significant changes under SFAS 141R include the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. The standard requires more assets acquired and liabilities assumed to be measured at fair value as of the acquisition date. Contingent consideration is also measured at fair value as of the acquisition date and is subsequently re-measured as new information is obtained regarding the possible outcomes of the contingencies. The Company will be required to adopt SFAS 141R for acquisitions completed after April 1, 2009 and is currently assessing the impact of SFAS 141R on the consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, (“SFAS 160”), which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS 160 establishes accounting and reporting standards that require (1) non-controlling interests held by non-parent parties be clearly identified and presented in the consolidated statement of financial position within equity, separate from the parent’s equity and (2) the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly presented on the face of the consolidated statement of income. SFAS 160 also requires consistent reporting of any changes to the parent’s ownership interest while retaining a controlling financial interest, as well as specific guidelines over how to treat the deconsolidation of controlling interests and any applicable gains or loses. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited. The Company is currently assessing the impact of SFAS 160 on the consolidated financial statements.

     In March 2008, the FASB issued the SFAS No. 161, Disclosures about Derivatives and Hedging Activities, (“SFAS 161”), which enhances the requirements under SFAS No. 133, Accounting for Derivatives and Hedging Activities. SFAS 161 requires enhanced disclosures about an entity’s derivatives and hedging activities and how they affect an entity’s financial position, financial performance and cash flows. This Statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the impact of SFAS 161 on the consolidated financial statements.

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

(2) NEW ACCOUNTING PRONOUNCEMENTS – (Continued)

     In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This Statement is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board’s related amendments to remove the GAAP hierarchy from the auditing standards, where it has resided. The adoption of SFAS 162 will have no impact on the Company’s financial position, results of operations or liquidity.

     In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets,(“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 with earlier adoption prohibited.  The Company is currently assessing the impact of FSP 142-3 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 2009

     During the three months ended June 30, 2008, the Company purchased A&N Plant, a European-based supplier of positioning and welding equipment for sale and rent. A&N Plant operates in Europe, Asia and the Middle East, serving oil and gas, petrochemical, industrial plant and other industries. In addition, the Company purchased two businesses associated with the distribution of packaged gases and related hardgoods. A total of $22 million in cash was paid for the businesses, including the settlement of holdback liabilities related to prior year acquisitions. These businesses had aggregate annual revenues of approximately $21 million. The Company acquired the businesses to expand its geographic coverage and strengthen its national network of branch-store locations.

Fiscal 2008

     On June 30, 2007, the Company purchased most of the U.S. packaged gas business (“Packaged Gas business”) of Linde AG (“Linde”), for $310 million in cash and certain assumed liabilities. The operations acquired included 130 locations in 18 states, with more than 1,400 employees, and generated $346 million in revenues for the year ended December 31, 2006.

     Pursuant to the Company’s plan to integrate the Linde Packaged Gas business into its regional company structure, the Company recorded accruals associated with one-time severance benefits to acquired employees who are involuntarily terminated and facility exit related costs associated with exiting certain acquired facilities that overlap with the Company’s existing operations. The table below summarizes the liabilities established through purchase accounting, adjustments to these liabilities based on revisions to the Company’s integration plan and the related payments made during fiscal 2008 and during the three months ended June 30, 2008:

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

(3) ACQUISITIONS – (Continued)

														Total
		Severence				Facility Exit				Other Integration				Integration
(In thousands)		Accruals				Accruals				Accruals				Accruals
Amounts orginally included in purchase accounting		$	5,265			$	5,700			$	—			$	10,965
Payments			(2,781	)			(873	)			(962	)			(4,616	)
Adjustments			892				369				6,213				7,474
Balance at March 31, 2008		$	3,376			$	5,196			$	5,251			$	13,823
Payments			(1,116	)			(507	)			(273	)			(1,896	)
Adjustments			(64	)			70				21				27
Balance at June 30, 2008		$	2,196			$	4,759			$	4,999			$	11,954

     The Company recognized liabilities of $6.2 million for severance related to employee terminations, $6.1 million for facility-related exit costs and $6.2 million for other integration obligations. Through June 30, 2008, the Company has made substantial progress related to its integration plan and expects to complete the headcount reductions and the exiting of former Linde facilities by December 31, 2008. The facility-related costs principally reflect accruals associated with non-cancelable lease obligations, the majority of which are associated with the former Linde corporate headquarters. In connection with leased locations that are exited, the Company will generally pursue a negotiated early termination of the lease or sublease the vacated locations through the remaining lease term. Non-cancelable lease obligations extend up to nine years. Owned properties that are exited are held for sale. Other integration costs principally reflect an estimated $4.1 million multi-employer pension plan withdrawal liability associated with the exiting of union contracts.

Pro Forma Operating Results

     The following represents unaudited pro forma operating results as if the fiscal 2009 and 2008 acquisitions had occurred on April 1, 2007. 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 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, 2007 or of results that may occur in the future.

		June 30,
(In thousands, except per share amounts)		2008				2007
Net sales		$	1,116,746			$	1,047,078
Net earnings			68,882				53,886
Diluted earnings per share		$	0.81			$	0.66

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 which it sells qualifying trade receivables on a revolving basis. The maximum amount of the facility is $360 million. The agreement will expire in March 2010, but may be renewed subject to renewal provisions contained in the agreement. During the three month period ended June 30, 2008, the Company sold $1 billion of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, $1 billion in collections on those receivables. The amount of receivables sold under the agreement was $360 million at June 30, 2008 and March 31, 2008.

     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. Under the securitization agreement, 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 $169 million and $164 million are included in “Trade receivables, net” in the accompanying Consolidated Balance Sheets at June 30, 2008 and March 31, 2008, respectively. On a monthly basis, management measures the fair value of the retained interest at 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 retained interest. 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 approximate the costs of collections. Accordingly, the net servicing asset is immaterial.

(5) INVENTORIES, NET

     Inventories, net, consist of:

		June 30,				March 31,
(In thousands)		2008				2008
Hardgoods		$	283,421			$	275,611
Gases			57,518				55,121
		$	340,939			$	330,732

     Hardgoods inventories determined by the LIFO inventory method totaled $52 million at June 30, 2008 and $50 million at March 31, 2008. 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 $8.8 million higher at June 30, 2008 and $8.5 million higher at March 31, 2008. Substantially all of the inventories are finished goods.

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

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

     The valuations of other intangible assets and the resulting goodwill from 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, 2008 were as follows:

						All Other
		Distribution				Operations
		Business				Business
(In thousands)		Segment				Segment				Total
Balance at March 31, 2008		$	738,551			$	230,508			$	969,059
Acquisitions			8,868				(341	)			8,527
Other adjustments			239				160				399
Balance at June 30, 2008		$	747,658			$	230,327			$	977,985

     Other intangible assets amounted to $161 million and $149 million, net of accumulated amortization of $33 million and $28 million at June 30, 2008 and March 31, 2008, respectively. These intangible assets primarily consist of acquired customer lists amortized principally over 7 to 17 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 $1.3 million. Estimated future amortization expense by fiscal year is as follows: remainder of 2009 — $13.8 million; 2010 — $17.9 million; 2011 — $17.4 million; 2012 - $16.2 million; 2013 — $15.5 million; and $78.7 million thereafter.

(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities include:

		June 30,				March 31,
(In thousands)		2008				2008
Accrued payroll and employee benefits		$	58,887			$	86,490
Business insurance reserves			42,007				37,433
Taxes other than income taxes			22,908				22,628
Cash overdraft			55,934				56,739
Deferred rental revenue			22,695				22,641
Other accrued expenses and current liabilities			76,653				62,952
		$	279,084			$	288,883

     With respect to the business insurance reserves above, the Company maintained corresponding insurance receivables of $9.2 million at June 30, 2008 and $8 million at March 31, 2008. The insurance receivables represent the balance of probable claim losses in excess of the Company’s self insured retention for which the Company is fully insured.

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

(8) INDEBTEDNESS

     Long-term debt consists of:

		June 30,				March 31,
(In thousands)		2008				2008
Revolving credit borrowings- U.S. and Canadian		$	482,957			$	883,291
Revolving credit borrowings- Other			22,478				—
Term loans			465,000				487,500
Money market loan			30,000				30,000
Senior subordinated notes			550,000				150,000
Acquisition and other notes			30,719				29,257
Total long-term debt			1,581,154				1,580,048
Less current portion of long-term debt			(43,458	)			(40,400	)
Long-term debt, excluding current portion		$	1,537,696			$	1,539,648

Senior Credit Facility

     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. $39 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, 2008, the Company had approximately $948 million of borrowings under the Credit Facility: $459 million under the U.S. dollar revolver, C$24 million (U.S. $24 million) under the Canadian dollar revolver and $465 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. Principal payments due in fiscal 2009 on the term loans 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 loans bear interest at the London Interbank Offered Rate (“LIBOR”) plus 62.5 basis points and the Canadian dollar borrowings bear interest at the Canadian Bankers’ Acceptance Rate plus 62.5 basis points. As of June 30, 2008, the average effective interest rates on the U.S. dollar borrowings, the term loans and the Canadian dollar borrowings were 3.20%, 3.43% and 3.93%, respectively.

     As of June 30, 2008, approximately $572 million remained unused under the U.S. dollar revolving credit line and approximately C$16 million (U.S. $15million) remained unused under the Canadian dollar revolving credit line. As of June 30, 2008, 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 covenants. In the event of default, repayment of borrowings under the Credit Facility may be accelerated.

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

(8) INDEBTEDNESS – (Continued)

     The Company’s domestic subsidiaries, exclusive of a bankruptcy remote special purpose entity (the “domestic subsidiaries”), 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 has 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.

Other Revolving Credit Borrowings

     On April 4, 2008, the Company entered into LIBOR and Eurodollar revolving loan agreements with two commercial banks to finance and provide working capital related to the acquisition of A&N Plant in local currency. These revolving loan agreements are independent of the Credit Facility. To fund the acquisition, the Company initially borrowed 8 million euro and 5.7 million pound sterling. The total U.S. dollar equivalent of these initial borrowings was approximately $24 million. As of June 30, 2008, the amounts outstanding under these facilities were 8 million euro and 4.9 million pound sterling (approximately U.S. $22 million in total). As of June 30, 2008, the average effective interest rates on the euro and pound sterling borrowings were 5.99% and 7.11%, respectively. In July 2008, the Company amended its Credit Facility to, among other things, create a Multi-Currency Borrowing Facility. In August 2008, the Company repaid and terminated the independent LIBOR and Eurodollar revolving loan agreements with borrowings from the Multi-Currency Borrowing Facility under the Credit Facility.

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, 2009, 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, 2008, the Company had outstanding advances under the agreement of $30 million, which bears interest at 3.27%.

     The Company also has an agreement with another financial institution that provides access to short-term advances not to exceed $35 million. The agreement expires on October 1, 2008, but may be extended subject to renewal provision contained in the agreement. 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, 2008, there were no short-term advances outstanding under this agreement.

Senior Subordinated Notes

     At June 30, 2008, the Company had $150 million of senior subordinated notes (the “2004 Notes”) outstanding with a maturity date of July 15, 2014. The 2004 Notes bear interest at a fixed annual rate of 6.25%, payable semi-annually on January 15 and July 15 of each year. The 2004 Notes have an optional redemption provision, which permits the Company, at its option, to call the 2004 Notes at scheduled dates and prices. The first scheduled optional redemption date is July 15, 2009 at a price of 103.125% of the principal amount.

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

(8) INDEBTEDNESS – (Continued)

     On June 5, 2008, the Company issued $400 million of 7.125% senior subordinated notes (the “2008 Notes”) at par with a maturity date of October 1, 2018. The net proceeds from the sale of the 2008 Notes were used to reduce borrowings under the Company’s revolving credit line under the Credit Facility.  The 2008 Notes bear interest at a fixed annual rate of 7.125%, payable semi-annually on October 1 and April 1 of each year, commencing October 1, 2008. The 2008 Notes have an optional redemption provision, which permits the Company, at its option, to call the 2008 Notes at scheduled dates and prices. The first scheduled optional redemption date is October 1, 2013 at a price of 103.563% of the principal amount.

     The 2004 and 2008 Notes contain covenants that could restrict the payment of dividends, the repurchase of common stock, the issuance of preferred stock, and the incurrence of additional indebtedness and liens. The 2004 and 2008 Notes are fully and unconditionally guaranteed jointly and severally, on a subordinated basis, by each of the wholly owned domestic guarantors under the Credit Facility.

Acquisition and Other Notes

     The Company’s long-term debt also included acquisition and other notes principally consisting of notes issued to sellers of businesses acquired and are repayable in periodic installments. At June 30, 2008, acquisition and other notes totaled $31 million with an average interest rate of approximately 6% and an average maturity of approximately 2 years.

Aggregate Long-term Debt Maturities

     The aggregate maturities of long-term debt at June 30, 2008 are as follows:

(In thousands)		Debt Maturities
June 30, 2009 (1)		$	43,458
March 31, 2010			75,049
March 31, 2011			240,724
March 31, 2012			669,952
March 31, 2013			718
Thereafter			551,253
		$	1,581,154

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

(9) 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, 2008, the Company had 15 fixed interest rate swap agreements with a notional amount of $502 million. These swaps effectively convert $502 million of variable interest rate debt associated with the Company’s Credit Facility to fixed rate debt. At June 30, 2008, these swap agreements required the Company to make fixed interest payments based on a weighted average effective rate of 4.85% and receive variable interest payments from the counterparties based on a weighted average variable rate of 3.52%. The remaining terms of each of these swap agreements range from 11 to 27 months. During the three months ended June 30, 2008, the fair value of the fixed interest rate swap agreements increased, and the Company recorded a corresponding increase to “Accumulated Other Comprehensive Income (loss)” of $11.8 million. A net gain related to the ineffectiveness of the hedging relationship was recognized as a reduction in interest expense and was insignificant.

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

(10) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

     Effective April 1, 2008, the Company adopted SFAS 157. This Statement does not require any new fair value measurements, but rather replaces multiple existing definitions of fair value with a single definition, establishes a consistent framework for measuring fair value and expands financial statement disclosures regarding fair value measurements.

     SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in accordance with SFAS 157 are classified based upon the level of judgment associated with the inputs used to measure their fair value. The hierarchical levels related to the subjectivity of the valuation inputs are defined by SFAS 157 as follows:

	•		Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
	•		Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable, directly or indirectly through corroboration with observable market data at the measurement date.
	•		Level 3 inputs are unobservable inputs that reflect management’s best estimate of the assumptions (including assumptions about risk) that market participants would use in pricing the asset or liability at the measurement date.

     The carrying value of cash, trade receivables exclusive of the subordinated retained interest, other current receivables, trade payables, other current liabilities (e.g., deposit liabilities, cash overdrafts, etc.), short-term borrowings and variable rate debt approximate fair value and have been excluded from the tables below.

     Assets and liabilities measured at fair value on a recurring basis at June 30, 2008 are categorized in the table below based on the lowest level of significant input to the valuation:

														Significant
						Quoted prices in active				Significant other				unobservable
						markets				observable inputs				inputs
(In thousands)		June 30, 2008				Level 1				Level 2				Level 3
Assets:
Subordinated retained interest in trade receivables sold under the Company’s trade receivable securitization		$	169,409			$	—			$	—			$	169,409
Deferred compensation plan assets			5,787				5,787
Total assets measured at fair value on a recurring basis		$	175,196			$	5,787			$	—			$	169,409
Liabilities:
Deferred compensation plan liabilities		$	5,787			$	5,787
Derivative liabilities – interest rate swap agreements		$	9,042				—			$	9,042			$	—
Total liabilities measured at fair value on a recurring basis		$	14,829			$	5,787			$	9,042			$	—

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

(10) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES – (Continued)

     The following is a general description of the valuation methodologies used for financial assets and liabilities measured at fair value:

Subordinated retained interest – the Company’s subordinated retained interest in trade receivables sold under its trade receivable securitization agreement are classified as trade receivables on the consolidated balance sheets. The fair value of the subordinated retained interest reflects expected future cash flows adjusted for unobservable inputs (Level 3), which management believes a market participant would use to assess the risk of credit losses. Those inputs reflect the diversified customer base, the short-term nature of the securitized asset, aging trends and historic collections experience.

Deferred compensation plan assets and corresponding liabilities– The Company’s deferred compensation plan assets consist of exchange traded open ended mutual funds with quoted prices in active markets (Level 1). The Company’s deferred compensation plan liabilities are equal to the plan’s assets.

Derivative liabilities – interest rate swap agreements – The Company’s interest rate swap agreements are with highly rated counterparties and effectively convert variable rate debt to fixed rate debt. The swap agreements are valued using pricing models that rely on observable market inputs such as interest rate yield curves and treasury spreads (Level 2).

     The following table presents the changes in financial assets for which Level 3 inputs were significant to their valuation for the three months ended June 30, 2008:

		Subordinated
(In thousands)		retained interest
Balance at April 1, 2008		$	163,561
Net realized losses included in earnings (bad debt expense)			(4,216	)
Net purchases, issuances and settlements			10,064
Balance at June 30, 2008		$	169,409

     The carrying value of fixed rate debt generally reflects the cash proceeds received upon its issuance. The fair value of the fixed rate instruments disclosed below have been determined based on quoted prices from the broker/dealer market (Level 1), observable market inputs for similarly termed treasury notes adjusted for the Company’s credit spread (Level 2) and unobservable inputs management believes a market participant would use in determining imputed interest for obligations without a stated interest rate (Level 3).

						Level 1				Level 2				Level 3
		Carrying Value at				Fair Value at				Fair Value at				Fair Value at
(In thousands)		June 30, 2008				June 30, 2008				June 30, 2008				June 30, 2008
2004 Notes		$	150,000			$	149,250
2008 Notes		$	400,000			$	404,332
Acquisition and other notes		$	30,719							$	10,747			$	20,132

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 at March 31, 2008			84,076				1,788
Common stock issuance (a)			657			—
Balance at June 30, 2008			84,733				1,788

														Accumulated
						Capital in								Other
		Common				Excess of				Retained				Comprehensive				Treasury				Comprehensive
(In thousands)		Stock				Par Value				Earnings				Income (Loss)				Stock				Income
Balance at March 31, 2008		$	841			$	468,302			$	983,663			$	(4,713	)		$	(34,757	)
Net earnings											68,883											$	68,883
Common stock issuance — employee benefit plans (a)			6				13,855
Tax benefit from stock option exercises							7,280
Foreign currency translation adjustment															415								415
Dividends paid on common stock ($0.12 per share)											(10,040	)
Stock-based compensation (b)							7,800
Net change in fair value of interest rate swap agreements															11,808								11,808
Net tax benefit of comprehensive income items															(4,132	)							(4,132	)
Balance at June 30, 2008		$	847			$	497,237			$	1,042,506			$	3,378			$	(34,757	)		$	76,974

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

(12) STOCK-BASED COMPENSATION

     In accordance with 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 months ended June 30, 2008 and 2007:

		Three Months Ended				Three Months Ended
(In thousands)		June 30, 2008				June 30, 2007
Stock-based compensation expense related to:
Stock option plans		$	6,663			$	4,943
Employee stock purchase plan — options to purchase stock			1,310				947
			7,973				5,890
Tax benefit			(2,825	)			(1,943	)
Stock-based compensation expense, net of tax		$	5,148			$	3,947

     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, 2008 and 2007 was $18.51 and $15.18, respectively.

Summary of Stock Option Activity

     The following table summarizes the stock option activity during the three months ended June 30, 2008:

		Number of
		Stock Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2008			6,633			$	23.52
Granted			1,015			$	60.85
Exercised			(548	)		$	18.12
Forfeited			(29	)		$	31.15
Outstanding at June 30, 2008			7,071			$	29.27
Vested or expected to vest at June 30, 2008			6,462			$	29.27
Exercisable at June 30, 2008			4,650			$	19.94

     A total of 11.8 million shares of common stock were authorized under the 2006 Equity Incentive Plan and predecessor plans, of which 2.5 million shares were available for issuance at June 30, 2008.

     As of June 30, 2008, $32.8 million of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average vesting period of 2 years.

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

(12) STOCK-BASED COMPENSATION - (Continued)

Employee Stock Purchase Plan

     The Company’s Employee Stock Purchase Plan (the “ESPP”) encourages and assists 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 1.3 million shares were available for issuance at June 30, 2008. During the three months ended June 30, 2008 and 2007, the Company granted 434 thousand and 413 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 $12.12 and $9.61 for the three months ended June 30, 2008 and 2007, 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, 2008:

		Number of
		Purchase Options				Weighted-Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2008			109			$	36.21
Granted			434			$	40.24
Exercised			(109	)		$	36.21
Outstanding at June 30, 2008			434			$	40.24

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

(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. For the three months ended June 30, 2007, the calculation of diluted earnings per share assumed the conversion of National Welders’ preferred stock to Airgas common stock (see Note (a) to the table below).

     The table below presents the computation of basic and diluted earnings per share for the three months ended June 30, 2008 and 2007:

		Three Months Ended
		June 30,
(In thousands, except per share amounts)		2008				2007
Basic Earnings per Share Computation
Numerator
Net earnings		$	68,883			$	51,720
Denominator
Basic shares outstanding			82,687				79,004
Basic earnings per share		$	0.83			$	0.65

Diluted Earnings per Share Computation

Numerator
Net earnings		$	68,883			$	51,720
Plus: Preferred stock dividends (a)			—				711
Plus: Income taxes on earnings of National Welders (a)			—				245
Net earnings assuming preferred stock conversion		$	68,883			$	52,676
Denominator
Basic shares outstanding			82,687				79,004
Incremental shares from assumed conversions:
Stock options and options under the employee stock purchase plan			2,330				2,299
Preferred stock of National Welders (a)			—				2,327
Diluted shares outstanding			85,017				83,630
Diluted earnings per share		$	0.81			$	0.63

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

(13) EARNINGS PER SHARE – (Continued)

(a)		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”). Prior to July 3, 2007, the preferred stockholders of National Welders 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 for approximately 2.3 million shares of Airgas common stock. If Airgas common stock had a market value of $24.45 per share or greater, exchange of the preferred stock was assumed because it provided greater value to the preferred stockholders. Based on the assumed exchange of the preferred stock for Airgas common stock, the 2.3 million shares were included in the diluted shares outstanding.
		The National Welders preferred stockholders earned a 5% dividend, recognized as “Minority interest in earnings of consolidated affiliate” on the consolidated statement of earnings. Upon the exchange of the preferred stock for Airgas common stock, the dividend was no longer paid to the preferred stockholders, resulting in additional net earnings for Airgas. For the periods in which the exchange was assumed, the 5% preferred stock dividend was added back to net earnings in the diluted earnings per share computation.
		For periods prior to the NWS Exchange Transaction, the earnings of National Welders for tax purposes were treated as a deemed dividend to Airgas, net of an 80% dividend exclusion. Upon the exchange of National Welders preferred stock for Airgas common stock, National Welders became a 100% owned subsidiary of Airgas. As a 100% owned subsidiary, the net earnings of National Welders are not subject to additional tax at the Airgas level. For the period in which the exchange was assumed, the additional tax was added back to net earnings in the diluted earnings per share computation.

(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.

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

(15) SUMMARY BY BUSINESS SEGMENT

     Information related to the Company’s business segments for the three months ended June 30, 2008 and 2007 is as follows:

		Three Months Ended																Three Months Ended
		June 30, 2008																June 30, 2007
						All																All
						Other																Other
(In thousands)		Distribution				Ops.				Elimination				Combined				Distribution				Ops.				Elimination				Combined
Gas and rent		$	497,404			$	208,747			$	(49,241	)		$	656,910			$	411,281			$	164,013			$	(33,040	)		$	542,254
Hardgoods			429,813				32,306				(2,328	)			459,791				351,355				22,946				(1,456	)			372,845
Total net sales			927,217				241,053				(51,569	)			1,116,701				762,636				186,959				(34,496	)			915,099
Cost of products sold, excluding deprec. expense			463,072				126,192				(51,569	)			537,695				381,996				90,478				(34,496	)			437,978
Selling, distribution and administrative expenses			310,260				80,385				—				390,645				258,822				62,590				—				321,412
Depreciation			36,790				11,307				—				48,097				30,344				11,221				—				41,565
Amortization			4,281				1,124				—				5,405				2,085				822				—				2,907
Operating income		$	112,814			$	22,045			$	—			$	134,859			$	89,389			$	21,848			$	—			$	111,237

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

(16) SUPPLEMENTAL CASH FLOW INFORMATION

Cash Paid for Interest and Taxes

     Cash paid for interest and income taxes was as follows:

		Three Months Ended
		June 30,
(In thousands)		2008				2007
Interest paid		$	16,184			$	18,733
Discount on securitization			2,984				4,119
Income taxes (net of refunds)			1,965				1,408

Significant Non-cash Investing and Financing Transactions

     During the three months ended June 30, 2008 and 2007, the Company purchased $3 million and $3.6 million, respectively 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.

     During the three months ended June 30, 2008, the Company recorded capitalized interest for construction in progress of $500 thousand. There was no interest capitalized in the three months ended June 30, 2007.

     During the three months ended June 30, 2007, a seller of a business provided direct financing in the form of a $5 million note payable by the Company and a non-compete agreement in the amount of $1.3 million. Payments of the note and non-compete agreement 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.

(17) SUBSEQUENT EVENTS

Dividend Declaration

     On August 5, 2008, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.12 per share payable September 30, 2008 to stockholders of record as of September 15, 2008.

Acquisition Agreements

     On July 1, 2008, the Company announced that it acquired Energy Safety Services, Inc., doing business as Oilind Safety, located in Phoenix, AZ. Oilind Safety is a leading U.S. provider of rental safety equipment and safety services, which had sales of approximately $21 million for the twelve month period ended December 31, 2007.

     On August 1, 2008, the Company announced that it acquired Refron, Inc. located in Long Island City, NY. Refron, Inc. is a national distributor of refrigerant gases and refrigerant reclamation services, which had sales of approximately $93 million for the twelve month period ended December 31, 2007.

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

(18)		SUPPLEMENTARY CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

     The obligations of the Company under its registered securities, the 2004 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 foreign holdings and bankruptcy remote special purpose entity (the “Non-guarantors”) are not guarantors of the 2004 Notes. The claims of creditors of Non-guarantor subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries.

     Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors as of June 30, 2008 and March 31, 2008, and for each of the three months ended June 30, 2008 and 2007. National Welders, which was previously classified as a Non-guarantor in the condensed consolidating financial information, became a 100% owned subsidiary of the Company and, with the October 31, 2007 execution of a supplemental indenture to the 2004 Notes, National Welders became a guarantor. Accordingly, the June 30, 2008 balance sheet, statement of earnings and cash flows of National Welders are reflected with the Guarantors in the condensed consolidating financial information below. Additionally, the condensed consolidating information for periods prior to October 31, 2007 was restated to also reflect the balance sheet, statement of earnings and cash flows of National Welders as a Guarantor. In addition to the adjustments to the June 30, 2007 Consolidated Statement of Cash Flows described in Note 1 Basis of Presentation, the presentation of intercompany cash flows was adjusted in the Condensed Consolidating Statement of Cash Flows for the three months ended June 30, 2007. The adjustment was to classify “Advances to subsidiaries, net” as cash (used in) provided by investing activities rather than cash (used in) provided by financing activities. The adjustments above had no impact on the liquidity available to support the 2004 Notes.

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

Condensed Consolidating Balance Sheet
June 30, 2008

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	47,106			$	17,840			$	—			$	64,946
Trade receivables, net			—				10,330				184,126				—				194,456
Intercompany receivable (payable)			—				1,321				(1,321	)			—				—
Inventories, net			—				331,996				8,943				—				340,939
Deferred income tax asset, net			12,616				12,995				(2,136	)			—				23,475
Prepaid expenses and other current assets			20,511				36,004				1,720				—				58,235
Total current assets			33,127				439,752				209,172				—				682,051
Plant and equipment, net			14,698				2,165,201				55,357				—				2,235,256
Goodwill			—				954,909				23,076				—				977,985
Other intangible assets, net			—				155,641				5,187				—				160,828
Investments in subsidiaries			3,076,324				—				—				(3,076,324	)			—
Other non-current assets			22,640				9,094				2,650				—				34,384
Total assets		$	3,146,789			$	3,724,597			$	295,442			$	(3,076,324	)		$	4,090,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	755			$	170,720			$	8,654			$	—			$	180,129
Accrued expenses and other current liabilities			95,168				169,736				14,180				—				279,084
Current portion of long-term debt			30,000				12,515				943				—				43,458
Total current liabilities			125,923				352,971				23,777				—				502,671
Long-term debt, excluding current portion			1,474,100				15,586				48,010				—				1,537,696
Deferred income tax liability, net			(28,208	)			489,442				10,946				—				472,180
Intercompany (receivable) payable			40,640				76,716				(117,356	)			—				—
Other non-current liabilities			25,123				38,106				5,517				—				68,746
Commitments and contingencies
Stockholders’ Equity
Preferred stock			—				—				—				—				—
Common stock, par value $0.01 per share			847				—				—				—				847
Capital in excess of par value			497,237				1,503,631				8,224				(1,511,855	)			497,237
Retained earnings			1,042,506				1,246,454				309,049				(1,555,503	)			1,042,506
Accumulated other comprehensive income			3,378				2,061				7,275				(9,336	)			3,378
Treasury stock			(34,757	)			(370	)			—				370				(34,757	)
Total stockholders’ equity			1,509,211				2,751,776				324,548				(3,076,324	)			1,509,211
Total liabilities and stockholders’ equity		$	3,146,789			$	3,724,597			$	295,442			$	(3,076,324	)		$	4,090,504

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet
March 31, 2008

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	40,397			$	2,651			$	—			$	43,048
Trade receivables, net			—				11,405				172,164				—				183,569
Intercompany receivable (payable)			—				(2,385	)			2,385				—				—
Inventories, net			—				322,090				8,642				—				330,732
Deferred income tax asset, net			11,399				12,995				(2,136	)			—				22,258
Prepaid expenses and other current assets			25,095				40,408				1,607				—				67,110
Total current assets			36,494				424,910				185,313				—				646,717
Plant and equipment, net			15,213				2,135,949				43,708				—				2,194,870
Goodwill			—				951,650				17,409				—				969,059
Other intangible assets, net			—				148,105				893				—				148,998
Investments in subsidiaries			2,992,576				—				—				(2,992,576	)			—
Other non-current assets			16,121				9,181				2,318				—				27,620
Total assets		$	3,060,404			$	3,669,795			$	249,641			$	(2,992,576	)		$	3,987,264
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	5,740			$	174,498			$	4,873			$	—			$	185,111
Accrued expenses and other current liabilities			111,536				174,813				2,534				—				288,883
Current portion of long-term debt			30,000				9,162				1,238				—				40,400
Total current liabilities			147,276				358,473				8,645				—				514,394
Long-term debt, excluding current portion			1,497,000				16,953				25,695				—				1,539,648
Deferred income tax liability, net			(33,481	)			462,857				10,406				—				439,782
Intercompany (receivable) payable			450				106,971				(107,421	)			—				—
Other non-current liabilities			35,823				39,400				4,881				—				80,104
Commitments and contingencies
Stockholders’ Equity
Preferred stock			—				—				—				—				—
Common stock, par value $0.01 per share			841				—				—				—				841
Capital in excess of par value			468,302				1,502,919				8,224				(1,511,143	)			468,302
Retained earnings			983,663				1,180,816				292,065				(1,472,881	)			983,663
Accumulated other comprehensive income (loss)			(4,713	)			1,776				7,146				(8,922	)			(4,713	)
Treasury stock			(34,757	)			(370	)			—				370				(34,757	)
Total stockholders’ equity			1,413,336				2,685,141				307,435				(2,992,576	)			1,413,336
Total liabilities and stockholders’ equity		$	3,060,404			$	3,669,795			$	249,641			$	(2,992,576	)		$	3,987,264