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

Commission file number: 1-9344

AIRGAS, INC.

(Exact name of registrant as specified in its charter)

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

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o 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		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 5, 2009: 81,824,527 shares

 

 

AIRGAS, INC.

FORM 10-Q

June 30, 2009

INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three Months Ended June 30, 2009 and 2008 (Unaudited)			3
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and March 31, 2009			4
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2009 and 2008 (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			43
Item 4. Controls and Procedures			45
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 6. Exhibits			45
SIGNATURES			46
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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,
		2009				2008
Net Sales		$	979,257			$	1,116,714
Costs and Expenses:
Cost of products sold (excluding depreciation)			439,836				538,465
Selling, distribution and administrative expenses			375,113				389,893
Depreciation			51,583				48,098
Amortization			4,816				5,406
Total costs and expenses			871,348				981,862
Operating Income			107,909				134,852
Interest expense, net			(18,367	)			(19,080	)
Discount on securitization of trade receivables			(1,615	)			(2,984	)
Other income, net			1,205				320
Earnings before income taxes			89,132				113,108
Income taxes			(34,316	)			(44,225	)
Net Earnings		$	54,816			$	68,883
Net Earnings Per Common Share:
Basic earnings per share		$	0.67			$	0.83
Diluted earnings per share		$	0.66			$	0.81
Weighted Average Shares Outstanding:
Basic			81,618				82,687
Diluted			83,287				85,017

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,
		2009				2009
ASSETS
Current Assets
Cash		$	59,732			$	47,188
Trade receivables, less allowances for doubtful accounts of $30,919 and $27,572 at June 30, 2009 and March 31, 2009, respectively			183,423				184,739
Inventories, net			367,282				390,445
Deferred income tax asset, net			30,191				34,760
Prepaid expenses and other current assets			54,021				60,838
Total current assets			694,649				717,970
Plant and equipment at cost			3,620,254				3,558,730
Less accumulated depreciation			(1,233,448	)			(1,192,204	)
Plant and equipment, net			2,386,806				2,366,526
Goodwill			1,068,678				1,063,370
Other intangible assets, net			208,081				216,070
Other non-current assets			34,300				35,601
Total assets		$	4,392,514			$	4,399,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	146,914			$	156,838
Accrued expenses and other current liabilities			269,409				264,564
Current portion of long-term debt			11,033				11,058
Total current liabilities			427,356				432,460
Long-term debt, excluding current portion			1,675,194				1,750,308
Deferred income tax liability, net			579,665				565,783
Other non-current liabilities			74,195				79,231
Commitments and contingencies
Stockholders’ Equity
Preferred stock, 20,030 shares authorized, no shares issued or outstanding at June 30, 2009 and March 31, 2009			—				—
Common stock, par value $0.01 per share, 200,000 shares authorized, 85,814 and 85,542 shares issued at June 30, 2009 and March 31, 2009, respectively			858				856
Capital in excess of par value			550,225				533,030
Retained earnings			1,239,100				1,198,985
Accumulated other comprehensive income (loss)			(3,716	)			(10,753	)
Treasury stock, 4,139 common shares at cost at June 30, 2009 and March 31, 2009			(150,363	)			(150,363	)
Total stockholders’ equity			1,636,104				1,571,755
Total liabilities and stockholders’ equity		$	4,392,514			$	4,399,537

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three Months Ended				Three Months Ended
(In thousands)		June 30, 2009				June 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	54,816			$	68,883
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			51,583				48,098
Amortization			4,816				5,406
Deferred income taxes			15,641				23,455
(Gain) loss on sales of plant and equipment			252				(12	)
Stock-based compensation expense			9,914				7,973
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables			(15,900	)			—
Trade receivables, net			16,986				(6,526	)
Inventories, net			23,375				(9,874	)
Prepaid expenses and other current assets			5,603				2,563
Accounts payable, trade			(8,660	)			(7,451	)
Accrued expenses and other current liabilities			6,039				(3,613	)
Other non-current assets			1,190				(542	)
Other non-current liabilities			(3,396	)			259
Net cash provided by operating activities			162,259				128,619
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(67,312	)			(85,564	)
Proceeds from sales of plant and equipment			2,510				3,329
Business acquisitions and holdback settlements			(2,863	)			(21,680	)
Other, net			(1,433	)			(1,518	)
Net cash used in investing activities			(69,098	)			(105,433	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings			88,553				594,109
Repayment of debt			(163,977	)			(596,080	)
Purchase of treasury stock			—				(4,613	)
Financing costs			—				(5,000	)
Proceeds from the exercise of stock options			2,123				9,927
Stock issued for the employee stock purchase plan			3,888				3,934
Tax benefit realized from the exercise of stock options			1,334				7,280
Dividends paid to stockholders			(14,701	)			(10,040	)
Change in cash overdraft and other			2,163				(805	)
Net cash used in financing activities			(80,617	)			(1,288	)
Change in cash		$	12,544			$	21,898
Cash — Beginning of period			47,188				43,048
Cash — End of period		$	59,732			$	64,946

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, 2009.

The preparation of financial statements in accordance with GAAP 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 the entire year.

Prior Period Adjustments

Certain reclassifications were made to the prior period statement of earnings and related notes to conform to the current period presentation. These reclassifications principally resulted in increasing cost of products sold (excluding depreciation) and reducing selling, distribution and administrative expenses. Additionally, some revenue was reclassified between Gas and Rent and Hardgoods. These reclassifications were the result of conforming the accounting policies of National Welders (a former joint venture that is now a 100% owned subsidiary) to the Company’s accounting policies and were not material. Net earnings for the prior period were not impacted by the reclassifications.

During the fourth quarter of fiscal 2009, the Company changed the operating practices and organization of its air separation production facilities and national specialty gas labs. The new operating practices and organization reflect the evolution of these businesses and their role to support the regional distribution companies. The regional distribution companies market to and manage the end customer relationships, coordinating and cross-selling the Company’s multiple product and service offerings in a closely coordinated and integrated manner. As a result of these changes, the air separation production facilities and national specialty gas labs are now reflected in the Distribution business segment. Also as a result of an organizational realignment, National Welders is now part of the Distribution business segment. Segment information from fiscal 2009 as disclosed in Note 15 has been recast to reflect these changes. The change in business segments had no effect on the Company’s financial position, results of operation or liquidity.

(2) NEW ACCOUNTING PRONOUNCEMENTS

(a) Recently adopted accounting pronouncements

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 (“FSP 157-2”), which delayed the effective date of SFAS 157 until fiscal years beginning after November 15, 2008 for non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. In April 2009, the FASB also issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”), effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted FSP No. 157-2 and FSP No. 157-4 as required. The adoption of FSP 157-2 and FSP 157-4 did not have a material impact on the Company’s financial position, results of operations or liquidity.

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

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141R”), which replaces SFAS No. 141 of the same title (“SFAS 141”). SFAS 141R is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and prohibits early adoption. SFAS 141R will significantly change the way the Company accounts for business combinations. The Company has historically pursued new business opportunities through acquisitions and intends to maintain this strategy for the foreseeable future. Accordingly, the Company expects the adoption of SFAS 141R to impact its operating results when significant acquisitions are completed and during the subsequent acquisition measurement periods when the fair values for the individual assets and liabilities acquired are determined. The principles contained in SFAS 141R are, in a number of ways, very different from those previously applied to business combinations. The impact of SFAS 141R on the consolidated financial statements for future acquisitions may be driven by, among other things, recognizing the direct costs of acquisitions as period costs when incurred and recasting previously issued consolidated financial statements as the provisional values assigned to the assets and liabilities acquired are trued-up to their acquisition date fair values. The Company adopted SFAS 141R on April 1, 2009. The impact of the adoption of SFAS 141R on the consolidated financial statements for the interim period ended June 30, 2009 was not material, as the Company only completed one immaterial acquisition (see Note 3). However, should the Company enter into a material business combination, or a series of individually immaterial business combinations that are material collectively, the provisions of SFAS 141R may have a material impact on the Company’s 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 interests 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 losses. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and is to be applied prospectively, except for the presentation and disclosure requirements of SFAS 160, which are to be applied retrospectively for all periods presented. The Company adopted SFAS 160 on April 1, 2009 with no impact on the interim consolidated financial statements for the periods presented, as all of the Company’s subsidiaries are currently 100% owned subsidiaries. However, the requirements of SFAS 160 may impact future transactions entered into by the Company. Additionally, paragraph 5 of SFAS 160 requires retrospective application of the presentation and disclosure requirements, which, if material, will affect Airgas’ 2010 annual report on Form 10-K related to the presentation of National Welders as a non-controlling interest prior to the July 2007 exchange transaction (which made National Welders a 100% owned subsidiary).

In April 2008, the FASB issued 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 (“SFAS 142”). FSP 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 with early adoption prohibited. The guidance for determining the useful life of a recognized intangible asset under FSP 142-3 shall be applied prospectively to intangible assets acquired after the effective date; however, the disclosure requirements of FSP 142-3 shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The Company adopted FSP 142-3 in conjunction with SFAS 141R on April 1, 2009 to improve consistency between the useful life of intangible assets under SFAS 142 and the period of expected cash flows used to measure fair value at acquisition under SFAS 141R. The adoption of FSP 142-3 did not have an impact on the Company’s financial position, results of operations or liquidity, as the useful lives of the Company’s intangible assets are not impacted by renewal or extension provisions.

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

In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141R-1”), which amends SFAS 141R regarding the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141R-1 carries forward the general requirements of SFAS 141 for acquired contingencies in a business combination, yet encourages greater use of fair value as defined in SFAS 157 when determinable. FSP 141R-1 is effective for fiscal years beginning on or after December 15, 2008 with early adoption prohibited. The Company adopted FSP 141R-1 in conjunction with SFAS 141R on April 1, 2009. The adoption of FSP 141R-1 did not have an impact on the Company’s financial position, results of operations or liquidity.

In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”), which requires disclosures about the fair value of financial instruments for interim reporting periods as well as in annual financial statements. Previously, these disclosures were only required in the Company’s annual consolidated financial statements. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted under specified circumstances. The Company adopted FSP 107-1 for the interim reporting period ended June 30, 2009 — see Note 10 for the required disclosures. The adoption of FSP 107-1 did not have an impact on the Company’s financial position, results of operations or liquidity.

In November 2008, the FASB ratified the consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 08-7, Accounting for Defensive Intangible Assets (“EITF 08-7”). EITF 08-7 clarifies how to account for acquired defensive intangible assets subsequent to initial measurement under SFAS 141R that an entity does not intend to actively use but does intend to hold to prevent others from obtaining access to the assets. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, along with SFAS 141R. The Company adopted EITF 08-7 in conjunction with SFAS 141R on April 1, 2009, with no impact on the Company’s financial position, results of operations or liquidity.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 defines subsequent events as events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued, and establishes general standards of accounting for and disclosure of subsequent events. SFAS 165 also includes a required disclosure of the date through which an entity has evaluated subsequent events, which for public entities is the date upon which the financial statements are issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted SFAS 165 for the interim period ended June 30, 2009. The Company evaluated subsequent events through August 7, 2009, which is the date upon which the Company’s consolidated financial statements for the interim period ended June 30, 2009 were issued. The adoption of SFAS 165 did not have an impact on the Company’s financial position, results of operations or liquidity.

(b) Accounting pronouncements not yet adopted

In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (“SFAS 166”), which amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). SFAS 166 amends SFAS 140 to establish new standards that will change how companies account for transfers of financial assets. Significant changes include (1) elimination of the qualifying special purpose entity (“QSPE”) concept, (2) new requirements for determining whether transfers of portions of financial assets are eligible for sale accounting, (3) clarification of the derecognition criteria for a transfer to qualify as a sale, (4) changes in recognition of gains or losses on transfers accounted for as sales, and (5) extensive new disclosures. SFAS 166 is effective for transfers of financial assets occurring in fiscal years beginning after November 15, 2009, and in interim periods within those fiscal years, with early adoption prohibited. The disclosure provisions of SFAS 166 shall be applied to transfers that occur both before and after the effective date of SFAS 166. The Company is currently evaluating the effects that SFAS 166 may have on its consolidated financial statements. The Company currently participates in a securitization agreement (the “Agreement”), which expires in March 2010, with three commercial banks to which it sells qualifying trade receivables on a revolving basis (see Note 4). The transaction has been accounted for as a sale under the provisions of SFAS 140. Should the Company renew the Agreement or enter into a similar trade receivables securitization upon the expiration of the Agreement, the transaction will be evaluated under the provisions of SFAS 166. If applicable, this change in accounting treatment could significantly impact the Company’s consolidated balance sheet, as the trade receivables sold under the securitization agreement and the related short-term borrowings may be recognized.

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

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46R”) to establish new standards that will change the consolidation model for variable interest entities (“VIEs”). Significant changes as a result of SFAS 167 include (1) changes in considerations as to whether an entity is a VIE, (2) a qualitative rather than quantitative assessment to identify the primary beneficiary of a VIE, (3) an ongoing rather than event-driven assessment of the VIE’s primary beneficiary, and (4) the elimination of the QSPE scope exception. SFAS 167 is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2009 with early adoption prohibited. Upon adoption, if a VIE is required to be consolidated, an election must be made as to whether to retrospectively apply the guidance of SFAS 167 or record a cumulative-effect adjustment to retained earnings on the date of adoption. Additionally, if a VIE is deconsolidated upon the adoption of SFAS 167, a separate cumulative-effect adjustment to retained earnings will be recognized. The Company is currently evaluating the effects, if any, that SFAS 167 may have on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”), which replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, and provides the framework for selecting the principles used in the preparation of financial statements. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 will impact the current references to existing GAAP in the Company’s consolidated financial statements, but is not expected to change the application of GAAP to the Company’s consolidated financial statements.

(3) ACQUISITIONS

The acquisition occurring in fiscal year 2010 was recorded using the acquisition method of accounting in accordance with SFAS 141R, which the Company adopted on April 1, 2009. The results of acquired companies’ operations have been included in the Company’s consolidated financial statements since the effective date of each respective acquisition.

Purchase Price Allocation

During the first quarter of fiscal 2010, acquisition-related cash payments were $2.9 million and primarily related to the settlement of holdback liabilities associated with certain prior year acquisitions. The Company completed one acquisition during the first quarter of fiscal 2010 with historical annual sales of approximately $500 thousand. The Company allocates the purchase prices of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values as of the date of each respective acquisition. Certain prior year purchase price allocations continue to be based on preliminary estimates of fair value and are subject to revision as the Company finalizes appraisals and other analyses.

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

The table below summarizes adjustments made during the first quarter of fiscal 2010 that primarily relate to prior year acquisitions. The credit of $860 thousand in current assets within the Distribution business segment is attributable to a working capital adjustment from a prior year acquisition. The $3.8 million credit in other intangible assets relates to a reduction in the value assigned to customer relationships and non-compete valuations. The $2.3 million increase in current liabilities primarily relates to the recognition of holdback liabilities for prior year acquisitions.

		Distribution				All Other
		Business				Operations
(In thousands)		Segment				Business Segment				Total
Current assets, net		$	(860	)		$	183			$	(677	)
Property and equipment			1,510				66				1,576
Goodwill			3,547				(94	)			3,453
Other intangible assets			(3,895	)			135				(3,760	)
Current liabilities			2,384				(61	)			2,323
Long-term liabilities			—				(52	)			(52	)
Total cash consideration		$	2,686			$	177			$	2,863

Linde Purchase Accounting Integration Accruals

In connection with the June 2007 Linde Packaged Gas acquisition, the Company recorded accruals associated with one-time severance benefits to acquired employees who were involuntarily terminated, facility exit related costs associated with exiting certain acquired facilities that overlapped with the Company’s existing operations, and a multi-employer pension plan withdrawal liability associated with exiting certain union contracts. Of the $3.5 million remaining facility exit accrual, $2.9 million relates to a non-cancellable lease obligation through 2017 for the former Linde corporate headquarters. Other integration accruals of $4.2 million consist primarily of the multi-employer pension liability, which is expected to be paid during fiscal 2010 and 2011. The table below summarizes the liabilities established through purchase accounting and the related payments made from the acquisition date through March 31, 2009 and during the three months ended June 30, 2009:

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

														Total
		Severance				Facility Exit				Other Integration				Integration
(In thousands)		Accruals				Accruals				Accruals				Accruals
Amounts originally included in purchase accounting, including adjustments		$	5,517			$	6,088			$	6,434			$	18,039
Payments			(5,358	)			(2,510	)			(1,801	)			(9,669	)
Balance at March 31, 2009			159				3,578				4,633				8,370
Payments			(124	)			(118	)			(419	)			(661	)
Balance at June 30, 2009		$	35			$	3,460			$	4,214			$	7,709

Pro Forma Operating Results

The following represents unaudited pro forma operating results as if the fiscal 2010 and 2009 acquisitions had occurred on April 1, 2008. 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 historical 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, 2008 or of results that may occur in the future.

		Three Months Ended
		June 30,
(In thousands, except per share amounts)		2009				2008
Net sales		$	979,303			$	1,162,801
Net earnings			54,816				69,529
Diluted earnings per share		$	0.66			$	0.82

The Company participates in a securitization agreement (the “Agreement”) with three commercial banks to which it sells qualifying trade receivables on a revolving basis. The maximum amount of the facility is $345 million. The size of the facility was reduced from $360 million to $345 million in March 2009, due to the elimination of a $15 million subordinated funding tranche, which was previously part of the facility. The Agreement expires in March 2010. The Company expects continued availability under the Agreement until it expires in March 2010 and under similar agreements thereafter. Given the contraction of the securitized asset market in the current credit environment, the Company is evaluating the current arrangement with the banks and will evaluate this and other financing alternatives in fiscal 2010. Based on the characteristics of its receivable pool, the Company believes that trade receivable securitization will continue to be an attractive source of funds. In the event such source of funding was unavailable or reduced, the Company believes that it would be able to secure an alternative source of funds. During the three months ended June 30, 2009, the Company sold approximately $875 million of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, approximately $891 million in collections on those receivables. The amount of receivables sold under the Agreement was $295 million at June 30, 2009 and $311 million at March 31, 2009. The Agreement contains customary events of termination, including standard cross default provisions with respect to outstanding debt.

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

The transaction has been accounted for as a sale under the provisions of SFAS 140. Under the 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. Accordingly, the Company is exposed to credit risk associated with its retained interest in the receivables. The Company is not exposed to interest rate risk due to the short-term nature of the receivables and their general collectability.

Subordinated retained interests of approximately $145 million, net of an allowance for doubtful accounts of $30 million, and $148 million, net of an allowance for doubtful accounts of $26 million, are included in trade receivables in the accompanying Consolidated Balance Sheets at June 30, 2009 and March 31, 2009, respectively. At June 30, 2009 and March 31, 2009, approximately 8.7% and 6.4%, respectively, of the accounts included in the retained interest were delinquent, as defined under the Agreement. Credit losses for the three months ended June 30, 2009 and June 30, 2008 were $6.1 million and $4.2 million, respectively. On a monthly basis, management calculates the fair value of the retained interest based on management’s best estimate of the undiscounted expected future cash collections on the 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 the 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. The Company does not provide any financial guarantees of the bank conduits’ obligations.

(5) INVENTORIES, NET

Inventories, net, consist of:

		June 30,				March 31,
(In thousands)		2009				2009
Hardgoods		$	241,426			$	252,293
Gases			125,856				138,152
		$	367,282			$	390,445

Hardgoods inventories determined using the LIFO inventory method totaled $33 million at June 30, 2009 and $34 million at March 31, 2009. The balance of the hardgoods inventories is valued using the FIFO and average-cost inventory methods. If the FIFO method had been used for all of the Company’s hardgoods inventories, the carrying value of the inventory would have been $10.4 million higher at both June 30, 2009 and March 31, 2009. Substantially all of the inventories are finished goods.

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

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination. The valuations of goodwill and other intangible assets 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, 2009 were as follows:

						All Other
		Distribution				Operations
		Business				Business
(In thousands)		Segment				Segment				Total
Balance at March 31, 2009		$	879,082			$	184,288			$	1,063,370
Acquisitions			3,547				(94	)			3,453
Other adjustments, including foreign currency translation			804				1,051				1,855
Balance at June 30, 2009		$	883,433			$	185,245			$	1,068,678

Other intangible assets that are not fully amortized and indefinite lived intangibles amounted to $208 million and $216 million, net of accumulated amortization of $42 million and $39 million, at June 30, 2009 and March 31, 2009, respectively. These intangible assets primarily consist of acquired customer relationships, which are amortized over 7 to 17 years, and non-competition agreements, which are amortized over the term of the agreements. The determination of the estimated benefit period associated with customer relationships is based on the analysis of historical customer sales attrition information and other customer-related factors at the date of acquisition. There are no expected residual values related to these intangible assets. The Company evaluates the estimated benefit periods and recoverability of its intangible assets that are subject to amortization when facts and circumstances indicate that the lives may not be appropriate and/or the carrying value of the asset may not be recoverable. If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques. 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 2010 — $16.8 million; 2011 — $21.9 million; 2012 — $20.7 million; 2013 — $19.9 million; 2014 — $17.5 million and $110.0 million thereafter.

(7) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities include:

		June 30,				March 31,
(In thousands)		2009				2009
Accrued payroll and employee benefits		$	64,387			$	80,630
Business insurance reserves			44,872				44,986
Taxes other than income taxes			20,565				17,098
Cash overdraft			45,147				42,933
Deferred rental revenue			25,573				25,611
Other accrued expenses and current liabilities			68,865				53,306
		$	269,409			$	264,564

With respect to the business insurance reserves above, the Company had corresponding insurance receivables of $9.7 million at June 30, 2009 and March 31, 2009. 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)		2009				2009
Revolving credit borrowings — U.S.		$	696,100			$	751,200
Revolving credit borrowings — Multi-currency			30,588				23,712
Revolving credit borrowings — Canadian			12,895				14,660
Term loans			375,000				397,500
Senior subordinated notes			550,000				550,000
Acquisition and other notes			21,644				24,294
Total long-term debt			1,686,227				1,761,366
Less current portion of long-term debt			(11,033	)			(11,058	)
Long-term debt, excluding current portion		$	1,675,194			$	1,750,308

Senior Credit Facility

The Company maintains a senior credit facility (the “Credit Facility”) with a syndicate of lenders. At June 30, 2009, the Credit Facility permitted the Company to borrow up to $991 million under a U.S. dollar revolving credit line, up to $75 million (U.S. dollar equivalent) under a multi-currency revolving credit line, and up to C$40 million (U.S. $34.4 million) under a Canadian dollar revolving credit line. The Credit Facility also contains a term loan provision through which the Company borrowed $600 million with scheduled repayment terms. 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 over the next twelve months 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. As principal amounts under the term loans are repaid, no additional borrowing capacity is created under the term loan provision. The Credit Facility will mature on July 25, 2011.

As of June 30, 2009, the Company had approximately $1.1 billion of borrowings under the Credit Facility: $696 million under the U.S. dollar revolver, $375 million under the term loans, $31 million (in U.S. dollars) under the multi-currency revolver and C$15 million (U.S. $13 million) under the Canadian dollar revolver. The Company also had outstanding letters of credit of $42 million issued under the Credit Facility. The U.S. dollar revolver borrowings and the term loans bear interest at the London Interbank Offered Rate (“LIBOR”) plus 62.5 basis points. The multi-currency revolver bears interest based on a spread of 62.5 basis points over the Euro currency rate applicable to each foreign currency borrowing. The Canadian dollar borrowings bear interest at the Canadian Bankers’ Acceptance Rate plus 62.5 basis points. As of June 30, 2009, the average effective interest rates on the U.S. dollar revolver, the term loans, the multi-currency revolver and the Canadian dollar revolver were 1.04%, 1.22%, 1.41% and 1.12%, respectively. In July, the Company’s credit ratings were upgraded resulting in a lowering of the interest rate spreads on the borrowings above to 50 basis points effective July 31, 2009.

As of June 30, 2009, approximately $319 million remained unused under the Company’s Credit Facility. At June 30, 2009, the financial covenants of the Credit Facility do not restrict 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. The Company’s Credit Facility also contain cross-default provisions whereby a default under the Credit Facility would likely result in defaults under the senior subordinated notes discussed below.

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

The Company’s domestic subsidiaries, exclusive of the bankruptcy-remote special purpose entity (the “domestic subsidiaries”), guarantee the U.S. dollar revolver, term loans, multi-currency revolver and Canadian dollar revolver. The multi-currency revolver and Canadian dollar revolver are also guaranteed by the Company and 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 certain other debt.

Money Market Loans

The Company has an agreement with a financial institution that provides access to short-term advances not to exceed $35 million. The agreement expires on December 1, 2009, but may be extended subject to renewal provisions contained in the agreement. The advances are generally overnight or for 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, 2009, there were no advances outstanding under the agreement.

Senior Subordinated Notes

At June 30, 2009, the Company had $150 million of registered, 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 2004 Notes are callable at 103.125% of the principal amount between July 15, 2009 and July 14, 2010.

At June 30, 2009, the Company had $400 million of senior subordinated notes (the “2008 Notes”) outstanding with a maturity date of October 1, 2018. 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. 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 100% owned domestic guarantors under the Credit Facility.

Acquisition and Other Notes

The Company’s long-term debt also includes acquisition and other notes, principally consisting of notes issued to sellers of businesses acquired, which are repayable in periodic installments. At June 30, 2009, acquisition and other notes totaled $22 million with an average interest rate of approximately 6% and an average maturity of approximately two years.

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

Aggregate Long-term Debt Maturities

The aggregate maturities of long-term debt at June 30, 2009 are as follows:

(In thousands)		Debt Maturities
June 30, 2010 (1)		$	11,033
March 31, 2011			218,976
March 31, 2012			902,331
March 31, 2013			2,549
March 31, 2014			511
Thereafter			550,827
		$	1,686,227

(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.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS 133”), requires companies to recognize certain derivative instruments as either assets or liabilities at fair value in the statement of financial position. In accordance with SFAS 133, the Company designates fixed interest rate swap agreements as cash flow hedges of interest payments on variable-rate debt associated with the Company’s Credit Facility. For derivative instruments designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedge transaction affects earnings. Gains and losses on the derivative instruments representing hedge ineffectiveness are recognized in current earnings.

During the three months ended June 30, 2009, three fixed interest rate swap agreements with a notional amount of $77 million matured. At June 30, 2009, the Company had 15 fixed interest rate swap agreements outstanding with a notional amount of $550 million. These swaps effectively convert $550 million of variable interest rate debt associated with the Company’s Credit Facility to fixed-rate debt. At June 30, 2009, these swap agreements required the Company to make fixed interest payments based on a weighted average effective rate of 4.16% and receive variable interest payments from the counterparties based on a weighted average variable rate of 2.02%. The remaining terms of these swap agreements range from 1 to 18 months. For the three months ended June 30, 2009, the fair value of the liability for the fixed interest rate swap agreements decreased and the Company recorded a corresponding adjustment to “Accumulated other comprehensive income (loss)” of $4.5 million, or $2.9 million after tax. For the three months ended June 30, 2008, the fair value of the liability for the fixed interest rate swap agreements decreased and the Company recorded a corresponding adjustment to “Accumulated other comprehensive income (loss)” of $11.8 million, or $7.7 million after tax.

As denoted in the tables below, the Company’s interest rate swap agreements were reflected in the Consolidated Balance Sheets at June 30, 2009 and March 31, 2009 as liabilities at their fair values of $8.0 million and $12.5 million, respectively, with corresponding deferred tax assets of $2.7 million and $4.3 million and accumulated other comprehensive losses after tax of $5.3 million and $8.2 million, respectively. The estimated net amount of existing losses recorded in “Accumulated other comprehensive income (loss)” at June 30, 2009 that is expected to be reclassified into earnings within the next twelve months is $4.3 million, net of estimated tax benefits of $2.3 million.

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

Fair Value of Derivatives Designated as Hedging Instruments

June 30, 2009

March 31, 2009

Balance Sheet

Fair

Balance Sheet

Fair

(In thousands)

Location

Value

Location

Value

Interest rate swaps

Other non-current liabilities

$

8,036

Other non-current liabilities

$

12,525

Effect of Derivative Instruments on the Consolidated Statements of Earnings

		Amount of Gain (Loss) Recognized in
(In thousands)		OCI on Derivatives
Derivatives in Cash Flow		Three Months Ended June 30,
Hedging Relationships		2009				2008
Interest rate swaps		$	4,489			$	11,808
Tax (expense) benefit			(1,571	)			(4,132	)
Net effect		$	2,918			$	7,676

Location of (Gain) Loss		Amount of (Gain) Loss Reclassified
Reclassified from AOCI into Pre-tax		from AOCI into Pre-tax Income
Income for Derivatives in Cash		Three Months Ended June 30,
Flow Hedging Relationships		2009				2008
Interest expense, net		$	4,870			$	3,123

The amount of gain or loss recognized in current earnings as a result of hedge ineffectiveness is immaterial for the three months ended June 30, 2009 and 2008.

(10) FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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.

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

The carrying value of cash, trade receivables exclusive of the subordinated retained interest, other current receivables, trade payables and other current liabilities (e.g., deposit liabilities, cash overdrafts, etc.) approximate fair value and such items have not been impacted by SFAS 157.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2009 and March 31, 2009 are categorized in the tables below based on the lowest level of significant input to the valuation.

						Quoted prices in				Significant other				Significant
		Balance at				active markets				observable inputs				unobservable inputs
(In thousands)		June 30, 2009				Level 1				Level 2				Level 3
Assets:
Subordinated retained interest in trade receivables sold under the Company’s trade receivable securitization		$	145,267			$	—			$	—			$	145,267
Deferred compensation plan assets			5,988				5,988				—				—
Total assets measured at fair value on a recurring basis		$	151,255			$	5,988			$	—			$	145,267
Liabilities:
Deferred compensation plan liabilities		$	5,988			$	5,988			$	—			$	—
Derivative liabilities — interest rate swap agreements			8,036				—				8,036				—
Total liabilities measured at fair value on a recurring basis		$	14,024			$	5,988			$	8,036			$	—

						Quoted prices in				Significant other				Significant
		Balance at				active markets				observable inputs				unobservable inputs
(In thousands)		March 31, 2009				Level 1				Level 2				Level 3
Assets:
Subordinated retained interest in trade receivables sold under the Company’s trade receivable securitization		$	147,853			$	—			$	—			$	147,853
Deferred compensation plan assets			4,598				4,598				—				—
Total assets measured at fair value on a recurring basis		$	152,451			$	4,598			$	—			$	147,853
Liabilities:
Deferred compensation plan liabilities		$	4,598			$	4,598			$	—			$	—
Derivative liabilities — interest rate swap agreements			12,525				—				12,525				—
Total liabilities measured at fair value on a recurring basis		$	17,123			$	4,598			$	12,525			$	—

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 is classified as “Trade receivables” on the Consolidated Balance Sheets. The Company maintains an allowance for doubtful accounts of $29.6 million and $26.4 million at June 30, 2009 and March 31, 2009, respectively, related to the subordinated retained interests to adjust the carrying value to fair value. The fair value of the subordinated retained interest reflects management’s best estimate of the undiscounted 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 historical collections experience. Adjustments to the fair value of the Company’s retained interest are recorded through the Consolidated Statement of Earnings as bad debt expense. The Company believes that the fair value of the subordinated retained interest in trade receivables reflects the amount expected to be realized when the receivables are ultimately settled.

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

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. Gains or losses on the deferred compensation plan assets are recognized as other income (expense), net, while gains or losses on the deferred compensation plan liabilities are recognized as compensation expense in the Consolidated Statement of Earnings.

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). Changes to the fair value measurement of the Company’s interest rate swap agreements are reported on the Consolidated Balance Sheet through “Accumulated other comprehensive loss.”

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, 2009:

		Subordinated
(In thousands)		retained interest
Balance at April 1, 2009		$	147,853
Net realized losses included in earnings (bad debt expense)			(6,079	)
Additional retained interest, net			3,493
Balance at June 30, 2009		$	145,267

The carrying value of debt, which is reported in the Company’s Consolidated Balance Sheets, generally reflects the cash proceeds received upon its issuance, net of subsequent repayments. The fair value of the Company’s variable interest rate revolving credit borrowings and term loans disclosed in the table below were estimated based on observable forward yield curves and unobservable credit spreads management believes a market participant would assume for these facilities under market conditions as of the balance sheet date. The fair value of the fixed rate notes disclosed below were determined based on quoted prices from the broker/dealer market, observable market inputs for similarly termed treasury notes adjusted for the Company’s credit spread and unobservable inputs management believes a market participant would use in determining imputed interest for obligations without a stated interest rate.

		Carrying Value at				Fair Value at				Carrying Value at				Fair Value at
(In thousands)		June 30, 2009				June 30, 2009				March 31, 2009				March 31, 2009
Revolving credit borrowings		$	739,583			$	710,000			$	789,572			$	757,989
Term loans			375,000				360,000				397,500				381,600
2004 Notes			150,000				141,000				150,000				139,500
2008 Notes			400,000				381,000				400,000				378,000
Acquisition and other notes			21,644				21,243				24,294				24,928
Total debt		$	1,686,227			$	1,613,243			$	1,761,366			$	1,682,017

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

(11) STOCKHOLDERS’ EQUITY

Changes in stockholders’ equity were as follows:

		Shares of
		Common				Shares of
		Stock $0.01				Treasury
(In thousands of shares)		Par Value				Stock
Balance at March 31, 2009			85,542				4,139
Common stock issuance (a)			272				—
Balance at June 30, 2009			85,814				4,139

														Accumulated
						Capital in								Other								Total
		Common				Excess of				Retained				Comprehensive				Treasury				Stockholders’
(In thousands)		Stock				Par Value				Earnings				Income (Loss)				Stock				Equity
Balance at March 31, 2009		$	856			$	533,030			$	1,198,985			$	(10,753	)		$	(150,363	)		$	1,571,755
Comprehensive income:
Net earnings											54,816												54,816
Foreign currency translation adjustment															4,119								4,119
Net change in fair value of interest rate swap agreements															4,489								4,489
Net tax expense of comprehensive income items															(1,571	)							(1,571	)
Total comprehensive income																							61,853	(c)
Common stock issuance — employee benefit plans (a)			2				6,009																6,011
Tax benefit from stock option exercises							1,334																1,334
Dividends paid on common stock ($0.18 per share)											(14,701	)											(14,701	)
Stock-based compensation (b)							9,852																9,852
Balance at June 30, 2009		$	858			$	550,225			$	1,239,100			$	(3,716	)		$	(150,363	)		$	1,636,104

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

		Foreign Currency								Total Accumulated
		Translation				Interest Rate				Other Comprehensive
(In thousands)		Adjustment				Swap Agreements				Income(Loss)
Balance March 31, 2009		$	(2,530	)		$	(8,223	)		$	(10,753	)
Foreign currency translation adjustments			4,119								4,119
Change in fair value of interest rate swap agreements							9,359				9,359
Reclassification adjustments to income							(4,870	)			(4,870	)
Net change in fair value of interest rate swap agreements							4,489				4,489
Net tax expense of comprehensive income items							(1,571	)			(1,571	)
Net change after tax of comprehensive income items			4,119				2,918				7,037
Balance June 30, 2009		$	1,589			$	(5,305	)		$	(3,716	)

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, 2009 and 2008.

		Three Months Ended
		June 30,
(In thousands)		2009				2008
Stock-based compensation expense related to:
Stock option plans		$	8,333			$	6,663
Employee stock purchase plan — options to purchase stock			1,581				1,310
			9,914				7,973
Tax benefit			(3,274	)			(2,825	)
Stock-based compensation expense, net of tax		$	6,640			$	5,148

Fair Value

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, 2009 and 2008 was $14.41 and $18.51, respectively.

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

Summary of Stock Option Activity

The following table summarizes the stock option activity during the three months ended June 30, 2009:

		Number of
		Stock Options				Weighted-Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2009			6,640				30.71
Granted			1,319			$	43.04
Exercised			(139	)		$	15.37
Forfeited			(20	)		$	40.55
Outstanding at June 30, 2009			7,800			$	33.04
Vested or expected to vest at June 30, 2009			7,177			$	33.04
Exercisable at June 30, 2009			4,169			$	20.40

A total of 1.3 million shares of common stock were available for issuance, under the 2006 Equity Incentive Plan at June 30, 2009.

As of June 30, 2009, $37.6 million of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted-average vesting period of 2.0 years.

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 834 thousand shares were available for issuance at June 30, 2009.

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 $12.50 and $12.46 for the three months ended June 30, 2009 and 2008, 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, 2009:

		Number of
		Purchase Options				Weighted-Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2009			133			$	29.30
Granted			507			$	29.29
Exercised			(133	)		$	29.30
Outstanding at June 30, 2009			507			$	29.29

(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.

Outstanding stock options that are anti-dilutive are excluded from the Company’s diluted earnings per share computation. There were approximately 2.9 million and 1.2 million outstanding stock options that were anti-dilutive for the three months ended June 30, 2009 and 2008, respectively.

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

The table below presents the computation of basic and diluted earnings per share for the three months ended June 30, 2009 and 2008:

		Three Months Ended
		June 30,
(In thousands)		2009				2008
Weighted average common shares outstanding:
Basic			81,618				82,687
Incremental shares from assumed exercises of stock options and options under the employee stock purchase plan			1,669				2,330
Diluted			83,287				85,017

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 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, 2009 and 2008 is as follows:

		(Unaudited)																(Unaudited)
		Three Months Ended																Three Months Ended
		June 30, 2009																June 30, 2008
						All																All
						Other																Other
(In thousands)		Distribution				Ops.				Elim.				Total				Distribution				Ops.				Elim.				Total
Gas and rent		$	531,207			$	111,328			$	(5,620	)		$	636,915			$	561,241			$	101,450			$	(5,817	)		$	656,874
Hardgoods			340,650				1,696				(4	)			342,342				459,056				786				(2	)			459,840
Total net sales			871,857				113,024				(5,624	)			979,257				1,020,297				102,236				(5,819	)			1,116,714
Cost of products sold (excluding depreciation)			385,187				60,273				(5,624	)			439,836				487,593				56,691				(5,819	)			538,465
Selling, distribution and administrative expenses			344,752				30,361				—				375,113				361,270				28,623				—				389,893
Depreciation			47,927				3,656				—				51,583				44,917				3,181				—				48,098
Amortization			4,243				573				—				4,816				4,718				688				—				5,406
Operating income		$	89,748			$	18,161			$	—			$	107,909			$	121,799			$	13,053			$	—			$	134,852

Cash Paid for Interest and Taxes

Cash paid for interest and income taxes was as follows:

		Three Months Ended
		June 30,
(In thousands)		2009				2008
Interest paid		$	24,773			$	16,184
Discount on securitization			1,615				2,984
Income taxes (net of refunds) (a)			(6,635	)			1,965

Significant Non-cash Investing and Financing Transactions

During the three months ended June 30, 2009 and 2008, the Company purchased $0.9 million and $3 million, respectively of rental welders, which were financed directly by a vendor. The vendor financing was reflected as debt on the respective Consolidated Balance Sheets. Future cash payments in settlement of the debt will be reflected in the Consolidated Statement of Cash Flows when paid.

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

During the three months ended June 30, 2009 and 2008, the Company recorded capitalized interest for construction in progress of $671 thousand and $500 thousand, respectively.

(17) SUBSEQUENT EVENTS

In July, the Company’s credit ratings were upgraded by two of the major rating agencies. As a result, the interest rate spread on the Company’s Credit Facility was lowered from 62.5 to 50 basis points over LIBOR, the Euro currency rate applicable to each foreign currency borrowing and the Canadian Bankers’ Acceptance Rate, effective July 31, 2009. In accordance with SFAS 165, the Company completed a subsequent events review through August 7, 2009, which is the date upon which the Company’s consolidated financial statements for the interim period ended June 30, 2009 were issued. No other events that would have a material effect upon the Company’s financial position, results of operations or liquidity were noted.

(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 the 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, 2009 and March 31, 2009, and for the three months ended June 30, 2009 and 2008.

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

Condensed Consolidating Balance Sheet
June 30, 2009

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	45,729			$	14,003			$	—			$	59,732
Trade receivables, net			—				31,212				152,211				—				183,423
Intercompany receivable (payable)			—				(4,892	)			4,892				—				—
Inventories, net			—				353,241				14,041				—				367,282
Deferred income tax asset, net			19,330				12,997				(2,136	)			—				30,191
Prepaid expenses and other current assets			20,314				31,902				1,805				—				54,021
Total current assets			39,644				470,189				184,816				—				694,649
Plant and equipment, net			37,749				2,286,261				62,796				—				2,386,806
Goodwill			—				1,049,618				19,060				—				1,068,678
Other intangible assets, net			—				198,470				9,611				—				208,081
Investments in subsidiaries			3,237,127				—				—				(3,237,127	)			—
Other non-current assets			21,934				7,881				4,485				—				34,300
Total assets		$	3,336,454			$	4,012,419			$	280,768			$	(3,237,127	)		$	4,392,514
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	1,660			$	139,051			$	6,203			$	—			$	146,914
Accrued expenses and other current liabilities			94,765				154,798				19,846				—				269,409
Current portion of long-term debt			—				9,246				1,787				—				11,033
Total current liabilities			96,425				303,095				27,836				—				427,356
Long-term debt, excluding current portion			1,621,099				9,053				45,042				—				1,675,194
Deferred income tax liability, net			(43,382	)			610,692				12,355				—				579,665
Intercompany (receivable) payable			—				191,734				(191,734	)			—				—
Other non-current liabilities			26,208				42,954				5,033				—				74,195
Commitments and contingencies
Stockholders’ Equity
Preferred stock			—				—				—				—				—
Common stock, par value $0.01 per share			858				—				—				—				858
Capital in excess of par value			550,225				1,363,221				8,224				(1,371,445	)			550,225
Retained earnings			1,239,100				1,492,908				371,556				(1,864,464	)			1,239,100
Accumulated other comprehensive income (loss)			(3,716	)			(868	)			2,456				(1,588	)			(3,716	)
Treasury stock			(150,363	)			(370	)			—				370				(150,363	)
Total stockholders’ equity			1,636,104				2,854,891				382,236				(3,237,127	)			1,636,104
Total liabilities and stockholders’ equity		$	3,336,454			$	4,012,419			$	280,768			$	(3,237,127	)		$	4,392,514

AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidating Balance Sheet
March 31, 2009

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	40,492			$	6,696			$	—			$	47,188
Trade receivables, net			—				30,157				154,582				—				184,739
Intercompany receivable (payable)			—				(4,115	)			4,115				—				—
Inventories, net			—				379,448				10,997				—				390,445
Deferred income tax asset, net			23,901				12,995				(2,136	)			—				34,760
Prepaid expenses and other current assets			25,639				33,572				1,627				—				60,838
Total current assets			49,540				492,549				175,881				—				717,970
Plant and equipment, net			30,649				2,287,603				48,274				—				2,366,526
Goodwill			—				1,045,691				17,679				—				1,063,370
Other intangible assets, net			—				207,083				8,987				—				216,070
Investments in subsidiaries			3,244,303				—				—				(3,244,303	)			—
Other non-current assets			21,250				9,183				5,168				—				35,601
Total assets		$	3,345,742			$	4,042,109			$	255,989			$	(3,244,303	)		$	4,399,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	1,797			$	147,167			$	7,874			$	—			$	156,838
Accrued expenses and other current liabilities			85,534				176,338				2,692				—				264,564
Current portion of long-term debt			—				9,612				1,446				—				11,058
Total current liabilities			87,331				333,117				12,012				—				432,460
Long-term debt, excluding current portion			1,698,700				11,465				40,143				—				1,750,308
Deferred income tax liability, net			(41,992	)			595,431				12,344				—				565,783
Intercompany (receivable) payable			—				177,216				(177,216	)			—				—
Other non-current liabilities			29,948				44,071				5,212				—				79,231
Commitments and contingencies
Stockholders’ Equity
Preferred stock			—				—				—				—				—
Common stock, par value $0.01 per share			856				—				—				—				856
Capital in excess of par value			533,030				1,442,400				8,223				(1,450,623	)			533,030
Retained earnings			1,198,985				1,440,884				355,696				(1,796,580	)			1,198,985
Accumulated other comprehensive income (loss)			(10,753	)			(2,105	)			(425	)			2,530				(10,753	)
Treasury stock			(150,363	)			(370	)			—				370				(150,363	)
Total stockholders’ equity			1,571,755				2,880,809				363,494				(3,244,303	)			1,571,755
Total liabilities and stockholders’ equity		$	3,345,742			$	4,042,109			$	255,989			$	(3,244,303	)		$	4,399,537