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: December 31, 2007

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 February 5, 2008: 82,484,654 shares

 

 

AIRGAS, INC.

FORM 10-Q
December 31, 2007

INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three and Nine Months Ended December 31, 2007 and 2006 (Unaudited)			3
Consolidated Balance Sheets as of December 31, 2007 (Unaudited) and March 31, 2007			4
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2007 and 2006 (Unaudited)			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			53
Item 4. Controls and Procedures			55
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			55
Item 6. Exhibit Listing			55
SIGNATURES			56
Certification of Peter McCausland
Certification of Robert M. McLaughlin
Certification of Peter McCausland, pursuant to Section 906
Certification of Robert M. McLaughlin, pursuant to Section 906

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AIRGAS, INC. AND SUBSIDIARIES

(Unaudited)

(In thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
		2007				2006				2007				2006
Net Sales		$	1,008,045			$	787,407			$	2,930,427			$	2,351,190
Costs and Expenses:
Cost of products sold (excluding depreciation)			479,817				378,152				1,403,349				1,147,748
Selling, distribution and administrative expenses			361,681				286,102				1,040,835				846,003
Depreciation			43,235				34,909				129,567				102,223
Amortization			4,837				2,914				11,575				6,717
Total costs and expenses			889,570				702,077				2,585,326				2,102,691
Operating Income			118,475				85,330				345,101				248,499
Interest expense, net			(23,172	)			(14,743	)			(68,170	)			(43,073	)
Discount on securitization of trade receivables			(4,379	)			(3,611	)			(12,736	)			(10,493	)
Loss on debt extinguishment			—				(12,099	)			—				(12,099	)
Other income, net			298				595				937				1,359
Earnings before income taxes and minority interest			91,222				55,472				265,132				184,193
Income taxes			(34,416	)			(22,278	)			(102,767	)			(71,378	)
Minority interest in earnings of consolidated affiliate			—				(711	)			(3,230	)			(2,134	)
Net Earnings		$	56,806			$	32,483			$	159,135			$	110,681
Net Earnings Per Common Share:
Basic earnings per share		$	0.69			$	0.42			$	1.96			$	1.42
Diluted earnings per share		$	0.67			$	0.40			$	1.90			$	1.37
Weighted average shares outstanding:
Basic			82,270				78,138				81,145				77,836
Diluted			84,605				83,063				84,209				82,734
Comprehensive income		$	51,974			$	31,213			$	158,316			$	110,057

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

(In thousands, except per share amounts)

		(Unaudited)
		December 31,				March 31,
		2007				2007
ASSETS
Current Assets
Cash		$	44,532			$	25,931
Trade receivables, less allowances for doubtful accounts of $20,267 at December 31, 2007 and $15,692 at March 31, 2007			138,762				193,664
Inventories, net			337,302				250,308
Deferred income tax asset, net			20,957				31,004
Prepaid expenses and other current assets			55,426				48,592
Total current assets			596,979				549,499
Plant and equipment at cost			3,119,137				2,755,747
Less accumulated depreciation			(1,001,077	)			(890,329	)
Plant and equipment, net			2,118,060				1,865,418
Goodwill			959,955				832,162
Other intangible assets, net			106,977				62,935
Other non-current assets			31,317				23,443
Total assets		$	3,813,288			$	3,333,457
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	170,086			$	146,385
Accrued expenses and other current liabilities			267,379				241,275
Current portion of long-term debt			40,554				40,296
Total current liabilities			478,019				427,956
Long-term debt, excluding current portion			1,493,901				1,309,719
Deferred income tax liability, net			402,065				373,246
Other non-current liabilities			66,875				39,963
Minority interest in affiliate			—				57,191
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding at December 31, 2007 and March 31, 2007			—				—
Common stock, par value $0.01 per share, 200,000 shares authorized, 83,610 and 79,960 shares issued at December 31, 2007 and March 31, 2007, respectively			836				799
Capital in excess of par value			451,964				341,101
Retained earnings			929,398				792,433
Accumulated other comprehensive income			3,364				4,183
Treasury stock, 1,292 common shares at cost at December 31, 2007 and March 31, 2007			(13,134	)			(13,134	)
Total stockholders’ equity			1,372,428				1,125,382
Total liabilities and stockholders’ equity		$	3,813,288			$	3,333,457

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

(Unaudited)

		Nine Months Ended				Nine Months Ended
(In thousands)		December 31, 2007				December 31, 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	159,135			$	110,681
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			129,567				102,223
Amortization			11,575				6,717
Deferred income taxes			46,162				33,750
Loss (gain) on sales of plant and equipment			615				(298	)
Minority interest			3,230				2,134
Stock-based compensation expense			13,165				9,932
Loss on debt extinguishment			—				12,099
Changes in assets and liabilities, excluding effects of business acquisitions:
Securitization of trade receivables			95,600				(3,200	)
Trade receivables, net			15,700				(6,649	)
Inventories, net			(47,145	)			(13,735	)
Prepaid expenses and other current assets			4,921				(11,938	)
Accounts payable, trade			(2,692	)			(26,945	)
Accrued expenses and other current liabilities			(6,399	)			(19,417	)
Other non-current assets			(1,037	)			(1,432	)
Other non-current liabilities			(140	)			(1,092	)
Net cash provided by operating activities			422,257				192,830
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures			(192,537	)			(181,792	)
Proceeds from sales of plant and equipment			6,387				5,273
Business acquisitions and holdback settlements			(394,199	)			(156,545	)
Other, net			(1,325	)			6
Net cash used in investing activities			(581,674	)			(333,058	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings			845,456				951,442
Repayment of debt			(683,328	)			(827,867	)
Financing costs			—				(5,103	)
Premium paid on call of senior subordinate notes			—				(10,267	)
Minority interest in earnings			(711	)			(2,134	)
Tax benefit realized from the exercise of stock options			10,079				7,053
Stock issued for the employee stock purchase plan			10,169				8,824
Proceeds from the exercise of stock options			14,461				12,163
Dividends paid to stockholders			(21,881	)			(16,379	)
Change in cash overdraft			3,773				17,394
Net cash provided by financing activities			178,018				135,126
Change in cash		$	18,601			$	(5,102	)
Cash — Beginning of period			25,931				34,985
Cash — End of period		$	44,532			$	29,883

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES

(1) BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (“Airgas” or the “Company”). On July 3, 2007, the Company’s previously consolidated affiliate, National Welders Supply Company (“National Welders”), became a 100% owned subsidiary of Airgas (see Note 11). Intercompany accounts and transactions are eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These consolidated financial statements do not include all disclosures required for annual financial statements. These consolidated financial statements should be read in conjunction with the more complete disclosures contained in the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2007.

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

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

(2) NEW ACCOUNTING PRONOUNCEMENTS

(a) Accounting pronouncements adopted this fiscal year

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

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

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

AIRGAS, INC. AND SUBSIDIARIES

(2) NEW ACCOUNTING PRONOUNCEMENTS- (Continued)

(b) Accounting pronouncements not yet adopted

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

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

     In December 2007, the FASB issued SFAS No. 141(revised), Business Combinations, (“SFAS 141(R)”). SFAS 141(R) significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, preacquisition contingencies, transaction costs, in-process research and development and restructuring costs. SFAS 141(R) is effective as of the beginning of the first fiscal year beginning after December 15, 2008 and early adoption is prohibited. The Company will adopt SFAS 141(R) beginning in the first quarter of fiscal 2010. The standard will change the Company’s accounting for business combinations on a prospective basis.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, (“SFAS 160”). SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity, rather than as a liability or in the mezzanine section between liabilities and equity. SFAS 160 is effective as of the beginning of the first fiscal year beginning after December 15, 2008 and early adoption is prohibited. The Company is currently evaluating the requirements of SFAS 160 and has not yet determined the impact on the consolidated financial statements.

(3) ACQUISITIONS

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

Fiscal 2008

     During the nine months ended December 31, 2007, the Company purchased 15 businesses, including 12 associated with the distribution of packaged gases and related hardgoods products. The largest of these acquisitions was the June 30, 2007 acquisition of most of the U.S. packaged gas operations (“Linde Packaged Gas”) of Linde AG (“Linde”) for $310 million in cash. The operations acquired included 130 locations

AIRGAS, INC. AND SUBSIDIARIES

(3) ACQUISITIONS- (Continued)

in 18 states, with more than 1,400 employees, and generated approximately $346 million in revenues for the year ended December 31, 2006. Of the 130 locations acquired, 113 locations were merged into the operations of seven regional operating companies in the Distribution business segment while 17 branches were merged into the operations of National Welders. A total of $77 million in cash was paid for the 11 other acquired packaged gas distributors and the settlement of holdback liabilities related to prior year acquisitions. These packaged gas distributors had aggregate annual revenues of approximately $88 million. The remaining three acquisitions were purchased for $7 million in cash and had combined annual revenues of approximately $13 million. These acquisitions are included in the All Other Operations business segment. The Company acquired the 15 businesses to expand its geographic coverage and strengthen its national network of branch-store locations.

Purchase Price Allocation

     The aggregate cash paid for the fiscal 2008 acquisitions and the settlement of holdback liabilities associated with certain prior year acquisitions was $394 million. The Company negotiated the respective purchase prices of the businesses based on the expected cash flows to be derived from their operations after integration into the Company’s existing distribution network. The purchase price of each acquired business was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of each respective acquisition. Certain 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.

     The purchase agreements related to Linde Packaged Gas and the March 2007 acquisition of certain operations of Linde’s U.S. bulk gas business (“Linde Bulk Gas”) provide that for federal income tax purposes, the Company and Linde must agree on the purchase price allocation within a defined time period. In the third quarter, in addition to other allocation adjustments, the Company lowered its fair value estimates with respect to the Linde Bulk Gas air separation plants and vehicles by $39 million. There was a corresponding increase in goodwill of $24 million and an increase in the value assigned to a customer list of $15 million. Airgas and Linde have agreed on the Linde Bulk Gas purchase price allocation and have mutually agreed to extend the time period to agree on the Linde Packaged Gas purchase price allocation. The Company does not expect a material difference in the Linde Packaged Gas allocation; however, the final purchase price allocation may differ from the amounts included in the accompanying consolidated financial statements. Goodwill associated with these acquisitions is deductible for income taxes.

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

										Remaining
		Linde Packaged				Linde Bulk				Acquisitions
(In thousands)		Gas				Gas				and Adjustments				Total
Current assets, net		$	82,295			$	4,983			$	21,013			$	108,291
Property and equipment			209,943				(51,100	)			20,835				179,678
Goodwill			53,244				25,500				46,195				124,939
Other intangible assets			17,829				20,585				17,571				55,985
Current liabilities			(44,785	)			713				(11,506	)			(55,578	)
Long-term liabilities			(8,526	)			(681	)			(9,909	)			(19,116	)
Total cash consideration		$	310,000			$	—			$	84,199			$	394,199

AIRGAS, INC. AND SUBSIDIARIES

(3) ACQUISITIONS- (Continued)

     The Company established and continues to finalize a plan to integrate Linde Packaged Gas into its regional company structure. The costs expected to be incurred in connection with this plan principally consist of 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 current operations. Unresolved matters related to the Company’s integration plan primarily relate to finalizing estimates associated with closing former Linde locations. 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:

														Total
		Severence								Other Integration				Integration
(In thousands)		Accruals				Facility Exit Accruals				Accruals				Accruals
Amounts orginally included in purchase accounting		$	5,265			$	5,700			$	—			$	10,965
Payments			(788	)			(319	)			(834	)			(1,941	)
Adjustments			1,458				(431	)			4,293				5,320
December 31, 2007 Balance		$	5,935			$	4,950			$	3,459			$	14,344

     The Company recognized liabilities of $6.7 million for severance related to employee terminations, $5.3 million for facility-related exit costs and $4.3 million for other integration obligations. The Company plans 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 closed, 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 10 years. Owned properties that are closed will be held for sale. Other integration obligations principally reflect an estimated $3 million multi-employer pension plan withdrawal liability associated with exiting a Linde location and the termination of a union contract.

Pro Forma Operating Results

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

AIRGAS, INC. AND SUBSIDIARIES

(3) ACQUISITIONS- (Continued)

		Nine Months Ended
		December 31,
(In thousands, except per share amounts)		2007				2006
Net sales		$	3,067,375			$	2,894,354
Net earnings			160,484				118,697
Diluted earnings per share		$	1.92			$	1.47

(4) TRADE RECEIVABLES SECURITIZATION

     The Company participates in a securitization agreement with three commercial banks to which it sells, on a revolving basis, qualifying trade receivables. In December 2007, the Company amended the agreement adding its 100% owned subsidiaries, National Welders and Airgas Merchant Gases, LLC, as originators of trade receivables and expanded the size of the facility to $360 million. The agreement will expire in March 2010, but may be renewed subject to renewal provisions contained in the agreement. During the nine months ended December 31, 2007, the Company sold $2,737 million of trade receivables and remitted to the bank conduits, pursuant to a servicing agreement, $2,641 million in collections on those receivables. The amount of receivables sold under the agreement was $360 million at December 31, 2007 and $264 million at March 31, 2007.

     The transaction has been accounted for as a sale under the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, as amended by SFAS 156. Under the securitization agreement, eligible trade receivables are sold to bank conduits through a bankruptcy-remote special purpose entity, which is consolidated for financial reporting purposes. The difference between the proceeds from the sale and the carrying value of the receivables is recognized as “Discount on securitization of trade receivables” in the accompanying Consolidated Statements of Earnings and varies on a monthly basis depending on the amount of receivables sold and market rates. The Company retains a subordinated interest in the receivables sold, which is recorded based on the receivables’ previous carrying value. Subordinated retained interests of approximately $121 million, net of an allowance for doubtful accounts of $19 million, and $141 million, net of an allowance for doubtful accounts of $14 million, are included in “Trade receivables” in the accompanying Consolidated Balance Sheets at December 31, 2007 and March 31, 2007, respectively. On a monthly basis, management measures the fair value of the retained interest based on management’s best estimate of the undiscounted expected future cash collections on the transferred receivables. Changes in the fair value are recognized as bad debt expense. Actual cash collections may differ from these estimates and would directly affect the fair value of the subordinated interest that continues to be held by the Company. In accordance with a servicing agreement, the Company continues to service, administer and collect the trade receivables on behalf of the bank conduits. The servicing fees charged to the bank conduits are designed to approximate the costs of collections. Accordingly, the net servicing asset is immaterial.

AIRGAS, INC. AND SUBSIDIARIES

(5) INVENTORIES, NET

     Inventories, net, consist of:

		December 31,				March 31,
(In thousands)		2007				2007
Hardgoods		$	279,410			$	218,348
Gases			57,892				31,960
		$	337,302			$	250,308

     Hardgoods inventories in the table above accounted for under the LIFO inventory method totaled $51 million at December 31, 2007 and $37 million at March 31, 2007. The balance of the hardgoods inventories is valued using the FIFO inventory method. If the FIFO inventory method had been used for all of the Company’s hardgoods inventories, the carrying value of the inventory would have been $8.4 million higher at December 31, 2007 and $7.5 million higher at March 31, 2007. Substantially all of the inventories are finished goods.

(6) GOODWILL AND OTHER INTANGIBLE ASSETS

     The valuations of other intangible assets and the resulting goodwill 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 nine months ended December 31, 2007 reflect recent acquisitions, revisions to preliminary estimates of fair values of assets and liabilities acquired and the allocation of purchase price associated with Linde Bulk Gas and Linde Packaged Gas to each business segment and were as follows:

						All Other
		Distribution				Operations
		Business				Business
(In thousands)		Segment				Segment				Total
Balance at March 31, 2007		$	564,675			$	267,487			$	832,162
Acquisitions			159,954				(35,015	)			124,939
Other adjustments			2,689				165				2,854
Balance at December 31, 2007		$	727,318			$	232,637			$	959,955

     Other intangible assets amounted to $107 million and $63 million, net of accumulated amortization of $63 million and $52 million at December 31, 2007 and March 31, 2007, respectively. These intangible assets primarily consist of acquired customer lists amortized principally over 7 to 11 years and non-compete agreements entered into in connection with business combinations, which are amortized over the term of the agreements. There are no expected residual values related to these intangible assets. Intangible assets also include trade names with indefinite useful lives valued at $1.3 million. Estimated future amortization expense by fiscal year is as follows: remainder of 2008 - $4.8 million; 2009 — $16.2 million; 2010 — $15.5 million; 2011 — $15.1 million; 2012 - $13.9 million; and $40.2 million thereafter.

AIRGAS, INC. AND SUBSIDIARIES

(6) GOODWILL AND OTHER INTANGIBLE ASSETS - (Continued)

     SFAS No. 142, Goodwill and Other Intangible Assets, requires the Company to perform an assessment at least annually of the carrying value of goodwill associated with each of its reporting units. The Company has elected to perform its annual assessment as of October 31 of each year. As of October 31, 2007, the Company determined the implied fair value of each of its reporting units using discounted cash flow analyses and compared such values to the carrying value of each of the respective reporting units. This annual assessment indicated that the Company’s carrying value of goodwill was not impaired.

(7) INCOME TAXES

     In July 2006, the FASB issued FIN 48, which provides guidance on how a company should recognize, measure and disclose in its financial statements uncertain income tax positions. Under FIN 48, a company should not recognize the financial statement benefit for an uncertain income tax position unless it is “more likely than not” that the position is sustainable.

     The adoption of FIN 48 on April 1, 2007 resulted in the Company recording a $289 thousand incremental liability for unrecognized tax benefits and a corresponding reduction in retained earnings. Upon adoption and as of December 31, 2007, the Company’s $11 million liability for unrecognized tax benefits included $2 million of accrued interest and penalties. The liability for unrecognized tax benefits, net of a deferred federal income tax benefit, totaled $7 million and would impact the effective income tax rate if recognized. The gross liability for unrecorded tax benefits was recorded as a non-current liability and the related deferred federal income tax benefit was recorded as a non-current asset.

     Consistent with past practice, the Company will continue to record interest and penalties associated with uncertain tax positions in income tax expense.

     The Company files income tax returns in the United States and foreign jurisdictions. The Company also files income tax returns in every state in which the Company does business. The Company is currently under audit by the IRS for the years ended March 31, 2006 and 2005 and is not under examination in any significant foreign, state, or local tax jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years before 2004 and with limited exceptions, the Company is no longer subject to state, local, or foreign income tax examinations by tax authorities for years before 2003.

     For the three months ended December 31, 2007, the effective income tax rate was 37.7% of pre-tax earnings as compared to 40.2% in the prior year quarter. The lower tax rate in the current quarter reflects a one-time tax benefit of $1.3 million associated with a change in the Texas state income tax law. The prior year quarter tax rate reflects the absence of state tax benefits associated with the loss on the extinguishment of debt. For both nine month periods ended December 31, 2007 and 2006, the effective tax rate was 38.8%.

AIRGAS, INC. AND SUBSIDIARIES

(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities include:

		December 31,				March 31,
(In thousands)		2007				2007
Accrued payroll and employee benefits		$	76,463			$	71,685
Business insurance reserves			25,882				26,390
Health insurance reserves			8,613				8,446
Taxes other than income taxes			17,385				14,771
Cash overdraft			60,829				57,056
Deferred cylinder lease income			20,629				19,797
Other accrued expenses and current liabilities			57,578				43,130
		$	267,379			$	241,275

(9) INDEBTEDNESS

     Long-term debt consists of:

		December 31,				March 31,
(In thousands)		2007				2007
Revolving credit borrowings		$	813,936			$	489,398
Term loan			510,000				577,500
Money market loans			30,000				30,000
Senior subordinated notes			150,000				150,000
Acquisition and other notes			30,519				17,440
National Welders debt			—				85,677
Total long-term debt			1,534,455				1,350,015
Less current portion of long-term debt			(40,554	)			(40,296	)
Long-term debt, excluding current portion		$	1,493,901			$	1,309,719

The aggregate maturities of long-term debt at December 31, 2007 are as follows:

(In thousands)		Debt Maturities
December 31, 2008		$	40,554
March 31, 2009			25,338
March 31, 2010			100,110
March 31, 2011			239,856
March 31, 2012			976,623
Thereafter			151,974
		$	1,534,455

AIRGAS, INC. AND SUBSIDIARIES

(9) INDEBTEDNESS — (Continued)

Revolving Credit Borrowings and Term Loan

     As of December 31, 2007, the Company maintains a senior credit facility with a syndicate of lenders. The $1.7 billion senior unsecured credit facility (the “Credit Facility”) permits the Company to borrow up to $1,066 million under a U.S. dollar revolving credit line, up to C$40 million (U.S. $40 million) under a Canadian dollar revolving credit line and up to $600 million under two or more term loans. The Company used borrowings under the term loan provision of the Credit Facility to finance the $100 million maturity of its 7.75% medium-term notes on September 15, 2006. The remaining $500 million term loan was used to finance the Linde Bulk Gas acquisition that closed on March 9, 2007. The Credit Facility will mature on July 25, 2011.

     As of December 31, 2007, the Company had approximately $1,324 million of borrowings under the Credit Facility: $788 million under the U.S. dollar revolver, C$26 million (U.S. $26 million) under the Canadian dollar revolver and $510 million under the term loan. The term loan is repayable in quarterly installments of $22.5 million through June 30, 2010. The quarterly installments then increase to $71.2 million from September 30, 2010 to June 30, 2011. Principal payments on the term loan are classified as “Long-term debt” in the Company’s Consolidated Balance Sheets based on the Company’s ability and intention to refinance the payments with borrowings under its long-term revolving credit facilities. The Company also had outstanding letters of credit of $35 million issued under the Credit Facility. The U.S. dollar borrowings and the term loan bear interest at the London Interbank Offered Rate (“LIBOR”) plus 75 basis points and the Canadian dollar borrowings bear interest at the Canadian Bankers’ Acceptance Rate plus 75 basis points. As of December 31, 2007, the average effective interest rates on the U.S. dollar borrowings, the rate on the term loan and the average rate on the Canadian dollar borrowings were 5.73%, 5.58%, and 5.61%, respectively.

     As of December 31, 2007, approximately $243 million remained available under the U.S. dollar revolving credit line and approximately C$14 million (U.S. $14 million) remained available under the Canadian dollar revolving credit line. As of December 31, 2007, the financial covenants of the Credit Facility do not limit the Company’s ability to borrow on the unused portion of the Credit Facility. The Credit Facility contains customary events of default, including nonpayment and breach of covenants. In the event of default, repayment of borrowings under the Credit Facility may be accelerated.

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

Money Market Loans

     The Company has an agreement with a financial institution that provides access to short-term advances not to exceed $30 million for a maximum term of three months. The agreement expires on June 30, 2008, but may be extended subject to renewal provisions contained in the agreement. The amount, term and interest rate of an advance are established through mutual agreement with the financial institution when the Company requests such an advance. At December 31, 2007, the Company had an outstanding advance under the agreement of $30 million, which bears interest at 5.55%.

AIRGAS, INC. AND SUBSIDIARIES

(9) INDEBTEDNESS — (Continued)

     The Company also entered into an agreement with another financial institution that provides access to short-term advances not to exceed $35 million. The advances are generally for overnight or up to seven days. The amount, term and interest rate of an advance are established through mutual agreement with the financial institution when the Company requests such an advance. At December 31, 2007, there were no short-term advances outstanding under this agreement.

Refinancing of National Welders Debt

     Effective July 3, 2007, the Company amended its Credit Facility to increase the size of its U.S. dollar revolving credit line by $100 million to $1,066 million. As discussed in Note 11, National Welders became a 100% owned subsidiary of the Company on July 3, 2007. Concurrently, National Welders’ debt of $87.5 million was refinanced by the Company under the expanded U.S. dollar revolving credit line.

(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

     At December 31, 2007, the Company had nineteen fixed interest rate swap agreements with a notional amount of $602 million. These swaps effectively convert $602 million of variable interest rate debt associated with the Company’s Credit Facility to fixed rate debt. At December 31, 2007, these swap agreements required the Company to make fixed interest payments based on a weighted average effective rate of 4.94% and receive variable interest payments from the counterparties based on a weighted average variable rate of 4.99%. The remaining terms of each of these swap agreements range from 5 to 33 months. During fiscal 2008, the fair value of the fixed interest rate swap agreements declined, and the Company recorded a corresponding decrease to “Accumulated Other Comprehensive Income” of $10.1 million. A net loss related to the ineffectiveness of the hedging relationship was recognized as interest expense and was insignificant.

     A majority of the Company’s variable rate debt is based on a spread over LIBOR. Based on the Company’s fixed to variable interest rate ratio at December 31, 2007, for every 25 basis point increase in LIBOR, the Company estimates that its annual interest expense would increase approximately $3 million.

AIRGAS, INC. AND SUBSIDIARIES

(11) NATIONAL WELDERS EXCHANGE TRANSACTION

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

     On July 3, 2007, the preferred stockholders of the National Welders joint venture exchanged their preferred stock for common stock of Airgas (the “NWS Exchange Transaction”). The Company issued 2.471 million shares of Airgas common stock to the preferred stockholders in exchange for all 3.2 million preferred shares of National Welders. As part of the negotiated exchange, in addition to the shares of Airgas common stock the preferred stockholders had the option to acquire, the Company issued an additional 144 thousand Airgas common shares (included in the 2.471 million shares) to the preferred stockholders, which resulted in a one-time net after-tax charge of $2.5 million, or $0.03 per diluted share. The net after-tax charge was reflected in the Consolidated Statement of Earnings as “Minority interest in earnings of consolidated affiliate” and consisted of $7 million related to the additional shares issued net of the reversal of a deferred tax liability related to the undistributed earnings of the National Welders joint venture of $4.5 million. Upon the exchange, National Welders became a 100% owned subsidiary of Airgas.

AIRGAS, INC. AND SUBSIDIARIES

(12) STOCKHOLDERS’ EQUITY

     Changes in stockholders’ equity were as follows:

		Shares of
		Common
		Stock $0.01				Treasury
(In thousands of shares)		Par Value				Stock
Balance—March 31, 2007			79,960				1,292
Common stock issuance (a),(b)			3,650				—
Balance—December 31, 2007			83,610				1,292

														Accumulated
						Capital in								Other
		Common				Excess of				Retained				Comprehensive				Treasury				Comprehensive
(In thousands)		Stock				Par Value				Earnings				Income (Loss)				Stock				Income
Balance — March 31, 2007		$	799			$	341,101			$	792,433			$	4,183			$	(13,134	)
Cumulative effect adjustment to retained earnings for the adoption of FIN 48											(289	)
Net earnings											159,135												159,135
Common stock issuance — employee benefit plans (a)			12				24,618
Common stock issuance — NWS exchange transaction (b)			25				63,832
Tax benefit from stock option exercises							10,079
Foreign currency translation adjustment															5,779								5,779
Dividends paid on common stock ($0.27 per share)											(21,881	)
Stock-based compensation (c)							12,334
Net change in fair value of interest rate swap agreements															(10,132	)							(10,132	)
Net tax benefit of comprehensive income items															3,534								3,534
Balance — December 31, 2007		$	836			$	451,964			$	929,398			$	3,364			$	(13,134	)		$	158,316

AIRGAS, INC. AND SUBSIDIARIES

(13) 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 and nine-month periods ended December 31, 2007 and 2006:

		Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
(In thousands)		December 31, 2007				December 31, 2006				December 31, 2007				December 31, 2006
Stock-based compensation expense related to:
Stock option plans		$	2,119			$	2,406			$	10,245			$	7,610
Employee stock purchase plan - options to purchase stock			1,017				994				2,920				2,322
			3,136				3,400				13,165				9,932
Tax benefit			(967	)			(920	)			(4,207	)			(2,881	)
Net stock-based compensation expense		$	2,169			$	2,480			$	8,958			$	7,051

     The pre-tax compensation expense was included in Selling, distribution and administrative expenses in the Consolidated Statements of Earnings.

     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 nine months ended December 31, 2007 and 2006 was $15.27 and $13.74, respectively.

Summary of Stock Option Activity

     The following table summarizes the stock option activity during the nine months ended December 31, 2007:

2006 Equity Incentive Plan — Stock Option Activity

		Number of
		Stock Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			6,883			$	19.12
Granted			1,083			$	43.94
Exercised			(880	)		$	16.44
Forfeited			(92	)		$	31.94
Outstanding at December 31, 2007			6,994			$	23.39
Vested or expected to vest at December 31, 2007			6,295			$	23.39
Exercisable at December 31, 2007			4,667			$	17.10

     A total of 11.8 million shares of common stock were authorized under the 2006 Equity Incentive Plan and predecessor plans, of which 3.5 million shares were available for issuance at December 31, 2007.

     As of December 31, 2007, $22.3 million of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average vesting period of 1.8 years.

AIRGAS, INC. AND SUBSIDIARIES

(13) 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 1.5 million shares were available for issuance at December 31, 2007. During the nine months ended December 31, 2007 and 2006, the Company granted 404 thousand and 396 thousand options to purchase common stock under the ESPP, respectively.

     Compensation expense under SFAS 123R is measured based on the fair value of the employees’ option to purchase shares of common stock at the grant date and is recognized over the future periods in which the related employee service is rendered. The fair value per share of employee options to purchase shares under the ESPP was $9.59 and $8.30 for the nine months ended December 31, 2007 and 2006, respectively. The fair value of the employees’ option to purchase shares of common stock was estimated using the Black-Scholes model.

The following table summarizes the activity of the ESPP during the nine months ended December 31, 2007:

ESPP — Purchase Option Activity

		Number of
		Purchase Options				Weighted Average
		(In thousands)				Exercise Price
Outstanding at March 31, 2007			103			$	30.86
Granted			404			$	35.56
Exercised			(299	)		$	34.05
Outstanding at December 31, 2007			208			$	35.56

AIRGAS, INC. AND SUBSIDIARIES

(14) EARNINGS PER SHARE

     Basic earnings per share is calculated by dividing net earnings by the weighted average number of shares of the Company’s common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock. Diluted earnings per share is calculated by dividing net earnings by the weighted average common shares outstanding adjusted for the dilutive effect of common stock equivalents related to stock options and the Company’s ESPP. The calculation of diluted earnings per share also assumes the conversion of National Welders’ preferred stock to Airgas common stock for periods prior to the July 3, 2007 NWS Exchange Transaction (see Note 11).

     The table below presents the computation of basic and diluted earnings per share for the three and nine months ended December 31, 2007 and 2006:

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
(In thousands, except per share amounts)		2007				2006				2007				2006
Basic Earnings per Share Computation
Numerator
Net earnings		$	56,806			$	32,483			$	159,135			$	110,681
Denominator
Basic shares outstanding			82,270				78,138				81,145				77,836
Basic earnings per share		$	0.69			$	0.42			$	1.96			$	1.42

		Three Months Ended								Nine Months Ended
		December 31,								December 31,
(In thousands, except per share amounts)		2007				2006 (a)				2007 (b)				2006 (a)
Diluted Earnings per Share Computation
Numerator
Net earnings		$	56,806			$	32,483			$	159,135			$	110,681
Plus: Preferred stock dividends			—				711				711				2,134
Plus: Income taxes on earnings of National Welders			—				252				245				729
Net earnings assuming preferred stock conversion		$	56,806			$	33,446			$	160,091			$	113,544
Denominator
Basic shares outstanding			82,270				78,138				81,145				77,836
Incremental shares from assumed conversions:
Stock options and options under the employee stock purchase plan			2,335				2,598				2,277				2,571
Preferred stock of National Welders			—				2,327				787				2,327
Diluted shares outstanding			84,605				83,063				84,209				82,734
Diluted earnings per share		$	0.67			$	0.40			$	1.90			$	1.37

AIRGAS, INC. AND SUBSIDIARIES

(14) EARNINGS PER SHARE — (Continued)

(a)		Prior to the July 3, 2007 NWS Exchange Transaction, 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.” Upon the exchange of the preferred stock for Airgas common stock, the dividend would no longer be 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 would become a 100% owned subsidiary of Airgas. As a 100% owned subsidiary, the net earnings of National Welders would not be subject to additional tax at the Airgas level. For the periods in which the exchange was assumed, the additional tax was added back to net earnings in the diluted earnings per share computation.
(b)		The diluted earnings per share computation for the nine month period ended December 31, 2007 includes the effect of the items described in (a) above, of which the exchange shares have been weighted to reflect the impact of the exchange transaction.

(15) COMMITMENTS, CONTINGENCIES AND UNCERTAINTIES

Litigation

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

AIRGAS, INC. AND SUBSIDIARIES

(16) SUMMARY BY BUSINESS SEGMENT

     Information related to the Company’s business segments for the three and nine months ended December 31, 2007 and 2006 is as follows:

						Three Months Ended																Three Months Ended
		December 31, 2007																December 31, 2006
						All																All
						Other																Other
(In thousands)		Dist.				Ops.				Elim.				Combined				Dist.				Ops.				Elim.				Combined
Gas and rent		$	458,082			$	179,213			$	(42,128	)		$	595,167			$	351,431			$	113,554			$	(14,194	)		$	450,791
Hardgoods			384,659				30,329				(2,110	)			412,878				314,371				23,499				(1,254	)			336,616
Total net sales			842,741				209,542				(44,238	)			1,008,045				665,802				137,053				(15,448	)			787,407
Cost of products sold, excluding deprec. expense			421,305				102,750				(44,238	)			479,817				329,951				63,649				(15,448	)			378,152
Selling, distribution and administrative expenses			288,419				73,262				—				361,681				238,728				47,374				—				286,102
Depreciation			34,431				8,804				—				43,235				28,198				6,711				—				34,909
Amortization			3,961				876				—				4,837				2,286				628				—				2,914
Operating income		$	94,625			$	23,850			$	—			$	118,475			$	66,639			$	18,691			$	—			$	85,330

						Nine Months Ended																Nine Months Ended
		December 31, 2007																December 31, 2006
						All																All
						Other																Other
(In thousands)		Dist.				Ops.				Elim.				Combined				Dist.				Ops.				Elim.				Combined
Gas and rent		$	1,316,798			$	523,957			$	(113,096	)		$	1,727,659			$	1,026,411			$	355,323			$	(42,185	)		$	1,339,549
Hardgoods			1,123,345				84,566				(5,143	)			1,202,768				945,971				69,586				(3,916	)			1,011,641
Total net sales			2,440,143				608,523				(118,239	)			2,930,427				1,972,382				424,909				(46,101	)			2,351,190
Cost of products sold, excluding deprec. expense			1,222,831				298,757				(118,239	)			1,403,349				991,304				202,545				(46,101	)			1,147,748
Selling, distribution and administrative expenses			834,342				206,493				—				1,040,835				704,227				141,776				—				846,003
Depreciation			98,449				31,118				—				129,567				80,744				21,479				—				102,223
Amortization			9,081				2,494				—				11,575				5,164				1,553				—				6,717
Operating income		$	275,440			$	69,661			$	—			$	345,101			$	190,943			$	57,556			$	—			$	248,499

		December 31, 2007																March 31, 2007
						All																All
						Other																Other
(In thousands)		Dist.				Ops.				Elim.				Combined				Dist.				Ops.				Elim.				Combined
Total Assets		$	2,873,312			$	939,976			$	—			$	3,813,288			$	2,401,500			$	931,957			$	—			$	3,333,457

AIRGAS, INC. AND SUBSIDIARIES

(17) SUPPLEMENTAL CASH FLOW INFORMATION

Cash Paid for Interest and Taxes

     Cash paid for interest and income taxes was as follows:

		Nine Months Ended
		December 31,
(In thousands)		2007				2006
Interest paid		$	68,318			$	51,193
Discount on securitization			12,736				10,493
Income taxes (net of refunds)			35,211				42,367

Significant Non-cash Investing and Financing Transactions

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

     In an acquisition consummated during the nine months ended December 31, 2007, a seller of a business provided direct financing in the form of a $5 million note payable by the Company. Payment of the note will be reflected in the Consolidated Statement of Cash Flows when the cash is paid. In addition, the Company assumed capital lease obligations of $1.8 million in connection with an acquisition.

     During the nine months ended December 31, 2007, the Company purchased $12 million of rental welders, which were financed directly by a vendor. The vendor financing was reflected as debt on the Consolidated Balance Sheet. Future cash payments in settlement of the debt will be reflected in the Consolidated Statement of Cash Flows when paid.

(18) SUBSEQUENT EVENT

Dividend Declaration

     On January 28, 2008, the Company’s Board of Directors declared a regular quarterly cash dividend of $0.12 per share, representing a 33% increase from the previous quarterly dividend rate per share of $0.09. The dividend will be payable March 31, 2008 to stockholders of record as of March 13, 2008.

Acquisition Agreements

     On January 3, 2008, the Company announced that it acquired Pima Welding Supply located in Tucson, AZ. Pima Welding Supply is an industrial gas and welding supply distributor which had sales of approximately $5 million for the twelve month period ended June 30, 2007. Effective January 1, 2008, the business was combined with Airgas West, one of the regional companies within Airgas.

     On February 4, 2008, the Company announced that it acquired Merriam-Graves Corporation with 25 locations in New York and New England. Merriam-Graves Corporation is an industrial, medical and specialty gas and related supply distributor which had approximately $47 million of annual revenues for 2007. Effective February 1, 2008, the business was combined with Airgas East, one of the regional companies within Airgas.

AIRGAS, INC. AND SUBSIDIARIES

(19) SUPPLEMENTARY CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

     The obligations of the Company under its senior subordinated notes (the “Notes”) are guaranteed by the Company’s 100% owned domestic subsidiaries (the “Guarantors”). The guarantees are made fully and unconditionally on a joint and several basis. The Company’s foreign holdings and the bankruptcy remote special purpose entity (the “Non-guarantors”) are not guarantors of the Notes. The claims of the creditors of the Non-guarantors have priority over the rights of the Company to receive dividends or distributions from the Non-guarantors.

     As disclosed in Note 11, National Welders, 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 Notes, National Welders became a guarantor. Accordingly, the December 31, 2007 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 has been restated to also reflect the balance sheet, statement of earnings and cash flows of National Welders as a Guarantor.

     Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors as of December 31, 2007 and March 31, 2007 and for the nine months ended December 31, 2007 and 2006. On the Condensed Consolidating Statement of Cash Flows for the nine months ended December 31, 2006, stock issued for the employee stock purchase plan, which previously was reflected as net cash provided by operating activities has been reclassified as a source of cash from financing activities.

AIRGAS, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheet

										Non-				Elimination
(In thousands)		Parent				Guarantors				Guarantors				Entries				Consolidated
ASSETS
Current Assets
Cash		$	—			$	41,544			$	2,988			$	—			$	44,532
Trade receivables, net			—				11,735				127,027				—				138,762
Intercompany receivable (payable)			—				(9,001	)			9,001				—				—
Inventories, net			—				328,006				9,296				—				337,302
Deferred income tax asset, net			11,942				12,974				(3,959	)			—				20,957
Prepaid expenses and other current assets			7,349				47,084				993				—				55,426
Total current assets			19,291				432,342				145,346				—				596,979
Plant and equipment, net			15,849				2,059,631				42,580				—				2,118,060
Goodwill			—				941,934				18,021				—				959,955
Other intangible assets, net			—				106,141				836				—				106,977
Investments in subsidiaries			3,007,119				—				—				(3,007,119	)			—
Other non-current assets			18,740				12,543				34				—				31,317
Total assets		$	3,060,999			$	3,552,591			$	206,817			$	(3,007,119	)		$	3,813,288
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	875			$	165,797			$	3,414			$	—			$	170,086
Accrued expenses and other current liabilities			100,546				162,672				4,161				—				267,379
Current portion of long-term debt			30,000				8,993				1,561				—				40,554
Total current liabilities			131,421				337,462				9,136				—				478,019
Long-term debt, excluding current portion			1,447,600				17,473				28,828				—				1,493,901
Deferred income tax liability, net			(18,277	)			410,600				9,742				—				402,065
Intercompany (receivable) payable			102,361				33,222				(135,583	)			—				—
Other non-current liabilities			25,466				38,766				2,643				—				66,875
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value			—				—				—				—				—
Common stock, par value $0.01 per share			836				—				—				—				836
Capital in excess of par value			451,964				1,592,919				8,224				(1,601,143	)			451,964
Retained earnings			929,398				1,120,725				275,659				(1,396,384	)			929,398
Accumulated other comprehensive income			3,364				1,794				8,168				(9,962	)			3,364
Treasury stock			(13,134	)			(370	)			—				370				(13,134	)
Total stockholders’ equity			1,372,428				2,715,068				292,051				(3,007,119	)			1,372,428
Total liabilities and stockholders’ equity		$	3,060,999			$	3,552,591			$	206,817			$	(3,007,119	)		$	3,813,288