##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION   Form 10-K
 [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2004
or
 [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______ to _______
 Commission File No. 1-9344 AIRGAS, INC.  Delaware
    
    56-0732648(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)259 North Radnor-Chester Road, Suite 100Radnor, Pennsylvania
    
    19087-5283(Address of principal executive offices)
    
    (Zip Code)
 (610) 687-5253   Securities Registered Pursuant to Section 12 (b) of the Act: Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredCommon Stock, par value $.01 per share
    
    New York Stock Exchange
 Securities registered pursuant to Section 12 (g) of the Act: None. 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 [X]  NO [   ] Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of
1934). YES [X]  NO [   ] The
aggregate market value of the 65,011,985 shares of voting stock held by
non-affiliates of the Registrant was approximately $1.5 billion computed by
reference to the closing price of such stock on the New York Stock
Exchange on
June 9, 2004. For purposes of this calculation, only executive
officers and directors were deemed to be affiliates. The
number of shares of common stock outstanding as of June 9, 2004 was
74,196,401. DOCUMENTS INCORPORATED BY REFERENCE The Companys Proxy Statement for the Annual Meeting of Stockholders to be
held August 4, 2004 is partially incorporated by reference into Part III.
Those portions of the Proxy Statement included in response to Item 402(k) and
Item 402(l) of Regulation S-K are not incorporated by reference into Part III.




---



AIRGAS, INC. TABLE OF CONTENTS ITEM NO.
    
    PAGEPART I1. Business
    
    
    3General
    
    
    3Distribution
    
    
    4All Other Operations
    
    
    5Airgas Growth Strategies
    
    
    7Regulatory and Environmental Matters
    
    
    7Insurance
    
    
    8Employees
    
    
    8Patents, Trademarks and Licenses
    
    
    8Executive Officers of the Company
    
    
    82. Properties
    
    
    103. Legal Proceedings
    
    
    114. Submission of Matters to a Vote of Security Holders
    
    
    11PART II5. Market for the Companys Common Stock and Related Stockholder Matters
    
    
    116. Selected Financial Data
    
    
    127. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    147A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    368. Financial Statements and Supplementary Data
    
    
    399. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    399A. Controls and Procedures
    
    
    39PART III10. Directors and Executive Officers of the Company
    
    
    3911. Executive Compensation
    
    
    3912. Security Ownership of Certain Beneficial Owners and Management
    
    
    3913. Certain Relationships and Related Transactions
    
    
    4014. Principal Accountant Fees and Services
    
    
    40PART IV15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    40Signatures
    
    
    45AIRGAS, INC. FISCAL YEAR 2005 EXECUTIVE BONUS PLANSTATEMENT RE: COMPUTATION OF EARNINGS PER SHARESTATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGESSUBSIDIARIES OF THE COMPANYCONSENT OF KPMG LLPCERTIFICATION OF PETER McCAUSLAND AS CHAIRMAN&CEOCERTIFICATION OF ROGER F. MILLAY AS SEN.V.P.& CFOCERTIFICATION OF PETER McCAUSLAND, SECTION 906CERTIFICATION OF ROGER F. MILLAY, SECTION 906
  2




---



##### Table of Contents



PART I 
 ITEM 1. BUSINESS. 
 GENERAL Airgas, Inc. and subsidiaries (Airgas or the Company) is the largest
U.S. distributor of industrial, medical and specialty gases (delivered in
packaged or cylinder form), and welding, safety and related products
(hardgoods). Airgas also produces dry ice, liquid carbon dioxide, nitrous
oxide, process chemicals and specialty gases for distribution throughout the
United States. Airgas integrated network of over 800 locations includes
branches, retail stores, packaged gas fill plants, specialty gas labs,
production facilities and distribution centers. Airgas also distributes its
products and services to its diversified customer base through e-Business,
catalog and telesales channels. Sales were $1.90 billion, $1.79 billion, and
$1.64 billion in fiscal years 2004, 2003, and 2002, respectively. At December 31, 2003, the Company elected to adopt Financial Accounting
Standards Board Interpretation No. 46R, Consolidation of Variable Interest
Entities,(FIN 46R) with respect to its joint venture, National Welders
Supply Company, Inc. (National Welders) and consolidated this formerly
unconsolidated affiliate. Since June 1996, the Company has participated in the
joint venture and has used the equity method of accounting to report the
Companys proportionate share of the joint ventures operating results.
Consequently, the consolidation of National Welders had no impact on the net
earnings of the Company. In addition, the consolidation did not change the
fact that the liabilities of the joint venture are non-recourse to the Company
and the cash flows, in excess of a management fee paid by National Welders, are
not available to the Company. Through the nine months ended December 31, 2003,
the Company recognized $4.4 million of Equity in Earnings of Unconsolidated
Affiliates related to National Welders. With the prospective adoption
permitted by FIN 46R (prior periods not restated), the fourth fiscal quarter
operating results of the joint venture were reflected broadly across the income
statement with minority interest expense reflecting the preferred stockholders
proportionate share of the joint ventures operating results. For the fourth
quarter of fiscal 2004, National Welders contributed $39.2 million to sales,
$3.4 million to operating income, $291 thousand of minority interest expense
and $1.2 million in net earnings. The Company has two operating segments, Distribution and All Other
Operations. For the purpose of disclosing operating results by business
segment, the Company renamed its Gas Operations segment as All Other
Operations and disclosed the operating results of National Welders with the
results of business units previously reported under that segment. These
business units produce and distribute dry ice, carbon dioxide, nitrous oxide
and specialty gases. The operating results of the Companys two air separation
plants and its six national specialty gas labs are also reported under this
segment. The National Welders joint venture structure, which limits the
Companys control over the National Welders operations and cash flows, is the
primary factor that led the Company to conclude that National Welders is most
appropriately reflected in the All Other Operations segment. The business
units reflected in the All Other Operations segment individually do not meet
the materiality thresholds to be reported as separate business segments. On April 2, 2004, the Company announced that it signed a definitive asset
purchase agreement to acquire most of the U.S. packaged gas business of The BOC
Group, Inc. (BOC) in a transaction valued up to $200 million. The
transaction is expected to close July 30, 2004 and includes approximately 120
locations in 21 states involved in the distribution of packaged industrial,
medical and specialty gases, as well as welding hardgoods. In fiscal 2003, the
packaged gas business of BOC, subject to the acquisition, generated
approximately $240 million in sales of which approximately 65% was gas and
rent. The acquired operations will be integrated with the existing business
units of the Companys Distribution segment. 3




---



##### Table of Contents



Financial information by business segment can be found in Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A), and in Note 24 to the Companys Consolidated Financial
Statements under Item 8, Financial Statements and Supplementary Data.
Descriptions of the operating segments are as follows: 
 DISTRIBUTION The Distribution segment accounts for approximately 90% of consolidated
sales and reflects the distribution of industrial, medical and specialty gases,
process chemicals and hardgoods. Principal Products and Services The Distribution segments principal products and services include
packaged and small bulk gases, gas cylinder and welding equipment rental,
process chemicals and hardgoods. Gas sales include industrial, medical and
specialty gases such as: nitrogen, oxygen, argon, helium, acetylene, carbon
dioxide, nitrous oxide, hydrogen, welding gases, ultra high purity grades and
special application blends. Rent is derived from gas cylinders, cryogenic
liquid containers, bulk storage tanks, tube trailers and through the rental of
welding equipment. Gas and rent represented approximately 52%, 53%, and 47% of
the Distribution segments sales in each of the fiscal years 2004, 2003 and
2002, respectively. Hardgoods consist of welding supplies and equipment,
safety products, and industrial tools and supplies. In each of the fiscal
years 2004, 2003, and 2002, hardgoods sales represented approximately 48%, 47%,
and 53% of the Distribution segments sales, respectively (see Note 24 of the
Companys Consolidated Financial Statements for additional information
regarding segment sales). Principal Markets and Methods of Distribution The Company believes that the market for industrial, medical and specialty
gases in the United States is approximately $9.4 billion annually. The
industry has three principal modes of distribution: on-site supply, bulk or
merchant supply, and cylinder  supply. In the U.S. market,
on-site supply accounts for approximately 25% of sales, bulk or merchant supply
accounts for approximately 35% of sales, and cylinder supply accounts for
the remaining 40% or $3.8 billion in sales. Airgas market focus has been on
the packaged gas segment of the market, which generally consists of customers who purchase gases in
cylinders and in less than truck load bulk quantities. Generally, packaged gas distributors also distribute
welding products. The Company believes the U.S. market for welding products to
be approximately $4.0 billion annually. Airgas is the largest distributor of packaged gases and welding products
in the United States, with approximately a 19% market share. The Companys
competitors in this market are approximately 900 independent distributors that
serve approximately 50% of the market through a fragmented distribution
network. Large distributors, including vertically integrated gas producers
such as Praxair, Inc. (Praxair), Liquid Air Corporation of America (Air
Liquide), and BOC, serve the remaining 31% of the packaged gas market. The
acquisition of the BOC packaged gas business described above will not affect
BOCs on-site and most of its bulk supply business in the U.S. The Company
also sells safety equipment. The United States market for safety equipment is
approximately $6 billion, of which Airgas share is approximately 4%. 4




---



##### Table of Contents



Customer Base The Companys customer base is broad and includes many major industries.
The Company estimates the following industry segments account for the indicated
percentages of the Companys total sales:  
    
    Industrial Manufacturing (26%);
    
    Repair & Maintenance (23%);
    
    Medical (11%);
    
    Construction (9%);
    
    Wholesale Trade (6%);
    
    Retail (5%);
    
    Food Products (5%);
    
    Transportation and Utilities (5%);
    
    Petrochemical (4%);
    
    All Other (6%). Suppliers The Company purchases industrial, medical and specialty gases pursuant to
requirements contracts from national and regional producers of industrial
gases. In February 2002, the Company entered into a 15-year take-or-pay supply
agreement under which Air Products and Chemicals, Inc. (Air Products)
supplies at least 35% of the Companys bulk liquid nitrogen, oxygen and argon
requirements, exclusive of the volumes purchased under the BOC supply agreement
noted below. Additionally, the Company purchases helium from Air Products
under the terms of the supply agreement. Effective December 1, 2002, the
Company entered into a 3-year take-or-pay supply agreement with BOC to purchase
liquid nitrogen, oxygen and argon. With the BOC acquisition, both the Company
and BOC will also sign new reciprocal long-term supply agreements. The Company
will become the supplier for a substantial portion of BOCs resale packaged gas
needs. BOC will supply the Company with approximately 85% of the liquid bulk
gases volumes transferred to the Company in the acquisition. Both the Air
Products and BOC supply agreements contain market pricing subject to certain
economic indices and market analysis. Furthermore, the Company believes the
minimum product purchases under the agreements are well within the Companys
normal product purchases. The Company also manufactures certain gases, including acetylene, nitrous
oxide, nitrogen, oxygen and argon. The Company believes that, if a contractual
arrangement with any supplier of gases or other raw materials was terminated,
it would be able to locate alternative sources of supply without disruption of
service. The Company purchases hardgoods from major manufacturers and
suppliers. For certain products, the Company has negotiated national
purchasing arrangements. The Company believes that if an arrangement with any
supplier of hardgoods were terminated, it would be able to arrange comparable
alternative supply arrangements. 
 ALL OTHER OPERATIONS The All Other Operations segment produces and distributes certain gas
products, principally dry ice, carbon dioxide, nitrous oxide and specialty
gases. The Company also operates five air separation plants that produce
oxygen, nitrogen and argon which are sold to on-site customers and to the
Distribution segment. A description of the businesses included in the All
Other Operations segment follows: 5




---



##### Table of Contents



Dry Ice The Company is a producer and distributor of dry ice. With 14 dry ice
plants (converting liquid carbon dioxide into dry ice), the Company has the
largest network of conversion plants in the United States. Customers include
food processors, food service, pharmaceutical and biotech industries, wholesale
trade and grocery and other retail outlets. The dry ice business generally
experiences a higher level of sales during the warmer months. The Companys
carbon dioxide requirements are purchased from the vertically integrated
producers of carbon dioxide and from internal production sources. Carbon Dioxide The Company is a producer and distributor of liquid carbon dioxide.
Carbon dioxide is a byproduct of other chemical processes, typically the
production of ammonia or ethanol. Carbon dioxide can also be extracted from
natural wells. The Companys requirements are met by nine Company-owned
production facilities including a newly constructed plant in Hopewell VA, a
50%-owned joint venture, and long-term supply contracts with vertically
integrated gas producers. The Company believes the United States bulk supply
market for liquid carbon dioxide is approximately $500 million annually. The
largest customer segments include chemical producers and manufacturers of foods
and beverages. The Companys market share is approximately 14%, making it the
third largest marketer of liquid carbon dioxide in the United States. However,
the Company is heavily concentrated in the southeastern United States and
maintains a 36% market share in that region. Specialty and Other Gases The Company operates six national specialty gas labs and a specialty gas
equipment center. The national specialty gas labs are full-scale testing and
blending facilities. They blend various special application gas mixtures,
ultra high purity grade gases, multi-component hydrocarbon blended EPA protocol
gases, and vehicle emission standard gases. Gas mixtures are used in process
control, final product qualification and emissions monitoring. Specialty gases
and specialty gas equipment produced by these facilities are primarily sold to
the Distribution segment (see Note 24 of the Companys Consolidated Financial
Statements for disclosure related to inter-segment sales). The third-party
customer base for these products consists primarily of governmental entities
and environmental-related businesses, manufacturers of electronics, petroleum
refiners, and pharmaceutical companies. These operations also provide quality
management and technical support to 45 regional labs, which are operated by the
Distribution segment and one lab operated by National Welders. The national
and regional labs perform testing and certification services for gas purity.
Nearly half of the Companys labs are certified to the ISO 9001:2000 standard
for quality management in the manufacture and sale of specialty gases. Nitrous Oxide The Company is a manufacturer of nitrous oxide gas. Nitrous oxide is used
as an anesthetic in the medical and dental fields, as a propellant in the
packaged food business and is utilized in the manufacturing process of certain
electronics industries. The Companys market focus includes bulk customers as
well as sales to the Distribution segment. The Company purchases the raw
materials utilized in its nitrous oxide production pursuant to contracts with
major manufacturers and suppliers. 6




---



##### Table of Contents



National Welders Supply Company, Inc. Effective December 31, 2003 as a result of adopting FIN 46R, the Company
consolidated National Welders, whose results through December 31, 2003 were
reflected as equity in the earnings of unconsolidated affiliates below
operating income. National Welders is a producer and distributor of industrial
gases based in Charlotte, North Carolina. The joint venture has significant
production capabilities with its three air separation plants, two acetylene
plants and a specialty gas lab. It also distributes packaged gases and welding
products through its 46 branch stores. The ownership interests in the joint
venture consist of voting common stock and voting, redeemable preferred stock.
The Company owns 100% of the joint ventures common stock, which represents a
50% voting interest. The Company does not hold a majority voting interest in
the joint venture and, therefore, historically used the equity method to
account for its interest in the joint venture. In fiscal 2005, the
consolidation of National Welders is expected to contribute approximately $100
million in additional revenue. However, the new presentation is not expected
to have a material impact on earnings. Suppliers The Company believes that if a contractual arrangement with any All Other
Operations segment supplier was terminated, it would not have a material
adverse effect on operations. However, two of the Companys 14 dry ice
production facilities are located on property owned by BOC. If the current
arrangements with BOC were terminated, the Companys dry ice production
capabilities may be reduced. 
 AIRGAS GROWTH STRATEGIES The Companys primary objective is to maximize shareholder value by
driving market-leading sales growth through leveraging its national
distribution infrastructure. To meet this objective, the Company is focusing
on:  
    
    Customer service strategies focused on growing our business
with small and medium-sized core customers;
    
    A new medical strategy with the formation of the Airgas Puritan Medical division within each regional distribution company
offering an integrated portfolio of bulk and cylinder gases, medical equipment and services to hospitals, home healthcare
providers and offices of medical professionals;
    
    Opportunities in niche markets including bulk, medical and specialty gases, as well as safety products;
    
    The expansion of sales to customers with multiple locations (i.e, Strategic Accounts);
    
    The promotion of programs to help customers manage their
supply chain for gases, equipment and safety products (i.e., Outlook Services); and
    
    Acquisitions in its core packaged gas business to complement and expand its distribution network of locations. These strategic objectives are primarily designed to create a strong and
stable platform to drive market-leading sales growth. 
 REGULATORY AND ENVIRONMENTAL MATTERS The Companys subsidiaries are subject to federal and state laws and
regulations adopted for the protection of the environment and the health and
safety of employees and users of the Companys products. The Company has
programs for the operation and design of its facilities to achieve compliance
with applicable environmental regulations. The Company believes that it is in
compliance, in all-material respects, with such laws and regulations.
Expenditures for environmental compliance purposes during fiscal 2004 were not
material. 7




---



##### Table of Contents



INSURANCE The Company has established insurance programs to cover workers
compensation, business automobile, general and product liability
claims. These
programs have self-insured retention of $500 thousand per occurrence and an
additional annual aggregate limit of $1.7 million of claims in excess of $500
thousand. The Company accrues estimated losses using actuarial models and
assumptions based on the Companys historical loss experience. National
Welders is also self-insured for workers compensation claims. Workers
compensation claims are self-insured up to $250 thousand per person annually
with an aggregate liability of $575 thousand. Provisions for expected future
claim payments are accrued based on estimates of the aggregate liability for
claims incurred plus an estimate for incurred but not reported claims using
historical experience. 
 EMPLOYEES On March 31, 2004, the Company employed approximately 9,700 employees
(including 800 employees employed by National Welders) of whom less than 5%
were covered by collective bargaining agreements. Through the fiscal 2005
acquisition of the U.S. packaged gas operations of BOC, the Company intends to
offer employment to more than 1,000 BOC employees aligned with those
operations. The Company believes it has good relations with its employees and
has not experienced a significant strike or work stoppage in over ten years. 
 PATENTS, TRADEMARKS AND LICENSES The Company holds the following registered trademarks: Airgas,
Red-D-Arc, RED-D-ARC WELDERENTAL, Gold Gas, SteelMIX, Outlook,
Ny-Trous+, Powersource, and RADNOR branded products. The Company also
holds trademarks for AluMIX, StainMIX, Freshblend, Walk-O2-Bout,
AcuGrav, SightSense, and SoundSense. The Company believes that its
businesses as a whole are not materially dependent upon any single patent,
trademark or license. 
 EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows: Name
    
    Age
    
    PositionPeter McCausland (1)
    
    
    54
    
    
    Chairman of the Board and Chief Executive OfficerGlenn M. Fischer
    
    
    53
    
    
    President and Chief Operating OfficerRoger F. Millay
    
    
    46
    
    
    Senior Vice President and Chief Financial OfficerRobert A. Dougherty
    
    
    46
    
    
    Senior Vice President and Chief Information OfficerGordon L. Keen, Jr.
    
    
    59
    
    
    Senior Vice President  Law and Corporate DevelopmentMichael L. Molinini
    
    
    53
    
    
    Senior Vice President  HardgoodsPatrick M. Visintainer
    
    
    40
    
    
    Senior Vice President  SalesDwight T. Wilson
    
    
    48
    
    
    Senior Vice President  Human ResourcesAlfred B. Crichton
    
    
    56
    
    
    Division President  WestB. Shaun Powers
    
    
    52
    
    
    Division President  EastTed R. Schulte
    
    
    53
    
    
    Division President  Gas OperationsDean A. Bertolino
    
    
    35
    
    
    Vice President, General Counsel and SecretaryRobert M. McLaughlin
    
    
    47
    
    
    Vice President and Controller
   (1)
    
    Member of the Board of Directors 8




---



##### Table of Contents



Mr. McCausland has been Chairman of the Board and Chief Executive Officer
of the Company since May 1987. Mr. McCausland has also served as President
from June 1986 to August 1988, from April 1993 to November 1995, and from April
1997 to January 1999. Mr. McCausland also serves as a director of the Fox
Chase Cancer Center, the Independence Seaport Museum, the International
Oxygen Manufacturers Association, Inc. and
the Eisenhower Exchange Fellowships, Inc. Mr. Fischer has been President and Chief Operating Officer since November
2000. Prior to joining Airgas, Mr. Fischer served as President of BOC Gases -
North America from 1997 to 2000 and as Executive Vice President of BOC Gases -
Americas from 1995 to 1997. Mr. Millay has been Senior Vice President and Chief Financial Officer
since November 1999. Prior to joining Airgas, Mr. Millay served as Senior Vice
President and Chief Financial Officer of Transport International Pool, a
division of General Electric Capital Corporation, from May 1995 to October
1999. Mr. Dougherty has been Senior Vice President and Chief Information Officer
since joining Airgas in January 2001. Prior to joining Airgas, Mr. Dougherty
served as Vice President and Chief Information Officer from August 1998 to
December 2000 and as Director of Information Systems from November 1993 to July
1998 of Subaru of America, Inc. Mr. Keen has been Senior Vice President  Law and Corporate Development
since April 1997. Prior to that time, Mr. Keen served as Vice President -
Corporate Development from January 1992 to March 1997. Mr. Molinini has been Senior Vice President  Hardgoods since August 2000.
Prior to that time, Mr. Molinini served as Vice President  Hardgoods
Operations from August 1999 to July 2000 and as Vice President  Airgas Direct
Industrial from April 1997 to July 1999. Prior to joining Airgas, Mr. Molinini
served as Vice President of Marketing of National Welders Supply Company, Inc.
since 1991. Mr. Visintainer has been Senior Vice President  Sales since January 1999.
Prior to that time, Mr. Visintainer served as Vice President  Sales and
Marketing from February 1998 to December 1998 and as President of one of the
Companys subsidiaries from April 1996 to January 1998. Until March 1996, he
was employed by BOC Gases and served in various field positions including
National Sales Manager  Industrial/Specialty Gases and National Accounts
Manager. Mr. Wilson was appointed Senior Vice President  Human Resources in
January 2004. Prior to joining Airgas, Mr. Wilson served as Senior Vice
President, Corporate Resources at DecisionOne Corporation from October 1995 to
December 2003. Mr. Crichton has been Division President  West since February 1993.
Prior to that time, Mr. Crichton served in various leadership positions since
joining the Company in 1988 and has more than 30 years of experience in the
industrial gas industry. Mr. Powers has been Division President  East since joining Airgas in
April 2001. Prior to joining Airgas, Mr. Powers served as Senior Vice
President of Industrial Gases at AGA from October 1995 to March 2001. Mr.
Powers has more than 25 years of experience in the industrial gas industry. 9




---



##### Table of Contents



Mr. Schulte has been Division President  Gas Operations since February
2003. Prior to that time, Mr. Schulte served as Senior Vice President  Gas
Operations from August 2000 to January 2003, as Vice President  Gas Operations
from November 1998 to July 2000 and as President of Airgas Carbonic from
November 1997 to October 1998. Prior to joining Airgas, Mr. Schulte served as
Senior Vice President of Energetic Solutions, the U.S. subsidiary of ICI
Explosives, from June 1997 to October 1997 and as Vice President Industrial Gas
Sales of Arcadian Corporation from 1992 through June 1997. Mr. Bertolino has been Vice President and General Counsel since December
2001, and Secretary since July 2002. Prior to joining Airgas, Mr. Bertolino
served as Assistant General Counsel of The BOC Group, Inc. from 1999 to 2001
and as an Associate with the law firm of Brown & Wood, LLP from 1994 to 1999. Mr. McLaughlin has been Vice President and Controller since joining Airgas
in June 2001. Prior to joining Airgas, Mr. McLaughlin served as Vice President
Finance for Asbury Automotive Group from 1999 to 2001, and was a Vice President
and held various senior financial positions at Unisource Worldwide,
Inc. from 1992 to 1999. COMPANY INFORMATION The Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to those reports filed with or
furnished to the Securities and Exchange Commission (SEC) are available free
of charge on the Companys website (www.airgas.com) under the Investors section. The
Company makes these documents available as soon as reasonably practicable after
they are filed with or furnished to the SEC, but no later than the end of the
day in which they are filed or furnished to the SEC. 
 ITEM 2. PROPERTIES. The principal executive offices of the Company are located in leased space
in Radnor, Pennsylvania. The Companys Distribution segment operates a network of multiple use
facilities consisting of approximately 600 branch stores, 45 regional gas
laboratories, 18 acetylene manufacturing facilities, 5 regional distribution
centers, 200 cylinder fill plants and various customer call centers. The
Distribution segment conducts business in 46 states. The Company owns
approximately 28% of these facilities. The remaining facilities are primarily
leased from third parties. A limited number of facilities are leased from
employees and are on terms consistent with commercial rental rates prevailing
in the surrounding rental market. The Companys All Other Operations segment consists of businesses, located
throughout the United States, which operate multiple use facilities consisting
of 86 branch locations, 11 liquid carbon dioxide and 14 dry ice production
facilities, 5 air separation plants, 6 national specialty gas laboratories, and 4 nitrous
oxide production facilities. The Company owns approximately 36% of these
facilities. The remaining facilities are leased from third parties. During fiscal 2004, the Companys production facilities operated at
approximately 79% of capacity based on an average daily production shift of 14
hours. If required, additional shifts could be run to expand production
capacity. The Company believes that its facilities are adequate for its present
needs and that its properties are generally in good condition, well maintained
and suitable for their intended use. 10




---



##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS. 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 condition, results of operations or liquidity. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2004. 
 PART II 
 ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Companys common stock (the common stock) is listed on the New York
Stock Exchange (ticker symbol: ARG). The following table sets forth, for each
quarter during the last two fiscal years, the high and low closing price per
share for the common stock as reported by the New York Stock Exchange: High
    
    LowFiscal 2004First Quarter
    
    $
    20.61
    
    
    $
    16.75Second Quarter
    
    
    19.44
    
    
    
    17.64Third Quarter
    
    
    21.55
    
    
    
    18.20Fourth Quarter
    
    
    24.35
    
    
    
    19.85Fiscal 2003First Quarter
    
    $
    19.68
    
    
    $
    15.72Second Quarter
    
    
    16.97
    
    
    
    12.68Third Quarter
    
    
    17.25
    
    
    
    11.87Fourth Quarter
    
    
    18.98
    
    
    
    15.50
 The closing sale price of the Companys common stock as reported by the
New York Stock Exchange on June 9, 2004, was $22.69 per share.
As of June 9,
2004, there were approximately 14,000 stockholders of record of the Companys
common stock. On May 13, 2003, the Companys Board of Directors declared the first
quarterly cash dividend in the Companys history of $.04 per share, which was
paid to stockholders on June 30, 2003.  At the end of each
quarter during fiscal 2004, the Company paid its stockholders regular quarterly
cash dividends of $0.04 per share. In addition, on May 25, 2004, the Companys
Board of Directors declared a regular quarterly cash dividend of $0.045 per
share payable June 30, 2004 to stockholders of record as of June 15, 2004.
Future dividend declarations and associated amounts paid will depend upon the
Companys earnings, financial condition, loan covenants, capital requirements
and other factors deemed relevant by management and the Companys Board of
Directors. 11




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA. Selected financial data for the Company are presented in the table below
and should be read in conjunction with Managements Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and the
Companys Consolidated Financial Statements and notes thereto included in Item
8 herein. (In thousands, except per share amounts): Years Ended March 31,2004 (1)
    
    2003 (2)
    
    2002 (3)
    
    2001 (4)
    
    2000 (5)Operating Results:Net sales
    
    $
    1,895,468
    
    
    $
    1,786,964
    
    
    $
    1,636,047
    
    
    $
    1,628,901
    
    
    $
    1,542,334Depreciation and amortization (6)
    
    
    87,956
    
    
    
    79,844
    
    
    
    72,945
    
    
    
    86,754
    
    
    
    89,308Special charges (recoveries), net
    
    
    (776
    )
    
    
    2,694
    
    
    
    
    
    
    
    3,643
    
    
    
    (2,829
    )Operating income
    
    
    167,780
    
    
    
    155,882
    
    
    
    125,033
    
    
    
    107,949
    
    
    
    106,731Interest expense, net
    
    
    42,357
    
    
    
    46,375
    
    
    
    47,013
    
    
    
    60,207
    
    
    
    57,560Discount on securitization of trade
receivables
    
    
    3,264
    
    
    
    3,326
    
    
    
    4,846
    
    
    
    1,303
    
    
    
    Other income (expense), net
    
    
    625
    
    
    
    (645
    )
    
    
    1,382
    
    
    
    242
    
    
    
    17,862Income taxes
    
    
    47,514
    
    
    
    41,199
    
    
    
    29,806
    
    
    
    20,718
    
    
    
    31,551Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    (59,000
    )
    
    
    
    
    
    
    (590
    )Net earnings (loss)
    
    
    80,192
    
    
    
    68,105
    
    
    
    (10,415
    )
    
    
    28,223
    
    
    
    38,283Basic earnings (loss) per share
    
    $
    1.10
    
    
    $
    0.97
    
    
    $
    (0.15
    )
    
    $
    0.43
    
    
    $
    0.55Diluted earnings (loss) per share
    
    $
    1.07
    
    
    $
    0.94
    
    
    $
    (0.15
    )
    
    $
    0.42
    
    
    $
    0.54Dividends per common share declared
and paid (7)
    
    $
    0.16
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Balance Sheet Data:Working capital
    
    $
    84,361
    
    
    $
    61,686
    
    
    $
    82,212
    
    
    $
    53,690
    
    
    $
    189,194Total assets
    
    
    1,931,079
    
    
    
    1,700,243
    
    
    
    1,717,057
    
    
    
    1,581,290
    
    
    
    1,739,331Current portion of long-term debt
    
    
    6,140
    
    
    
    2,229
    
    
    
    2,456
    
    
    
    72,945
    
    
    
    20,071Long-term debt
    
    
    682,698
    
    
    
    658,031
    
    
    
    764,124
    
    
    
    620,664
    
    
    
    857,422Deferred income tax liability, net
    
    
    257,031
    
    
    
    209,140
    
    
    
    198,173
    
    
    
    161,176
    
    
    
    160,808Other non-current liabilities
    
    
    20,789
    
    
    
    27,243
    
    
    
    30,343
    
    
    
    22,446
    
    
    
    28,998Stockholders equity
    
    
    691,901
    
    
    
    596,933
    
    
    
    503,086
    
    
    
    496,849
    
    
    
    472,507Capital expenditures
    
    
    93,749
    
    
    
    67,969
    
    
    
    58,297
    
    
    
    65,910
    
    
    
    65,211
   (1)
    
    As discussed in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and in the notes to the
Companys Consolidated Financial Statements included in Item 8, the
results for fiscal 2004 include a fourth quarter special charge recovery
of $776 thousand ($480 thousand after tax) reflecting lower estimates of
the ultimate cost of prior years restructuring activities. Fiscal 2004
results also include the fourth quarter consolidation of the National
Welders joint venture in accordance with FIN 46R. National Welders
contributed $39.2 million of sales and $3.4 million of operating income in
fiscal 2004. As of March 31, 2004, National Welders also contributed
current assets of $30 million, total assets of $140 million, current
liabilities of $21 million, and non-current liabilities of $119 million
(including a minority interest liability of $36 million). 12




---



##### Table of Contents



(2)
    
    As discussed in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and in the notes to the
Companys Consolidated Financial Statements included in Item 8, the
results for fiscal 2003 include special and other charges of $2.9 million
($2.2 million after tax) primarily consisting of a restructuring charge
($2.7 million) related to the integration of the business acquired from
Air Products and costs related to the consolidation of certain hardgoods
procurement functions.(3)
    
    As discussed in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and in the notes to the
Companys Consolidated Financial Statements included in Item 8, the
results for fiscal 2002 include: (a) a non-cash after-tax charge of $59
million representing the cumulative effect of a change in accounting
principle associated with the adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets,(b) a
litigation settlement charge of $8.5 million ($5.7 million after tax), and
(c) a net non-recurring gain of $1.9 million ($120 thousand after tax)
related to divestitures and a write-down of a business held for sale to
its net realizable value.(4)
    
    The results for fiscal 2001 include: (a) net special charges of $3.6
million ($2.3 million after tax), (b) litigation charges, net, of $5.8
million ($3.6 million after tax), and (c) asset impairments associated
with two equity affiliates of $700 thousand after-tax. Working capital in
fiscal 2001 decreased compared to fiscal 2000 partially attributable to a
trade receivables securitization program entered into during fiscal 2001
and the classification of $50 million of medium-term notes maturing
September 2001 as a component of Current Liabilities. Cash proceeds of
approximately $73.2 million from the securitization program were used to
reduce long-term debt.(5)
    
    The results for fiscal 2000 include: (a) special charge recoveries of
$2.8 million ($1.7 million after tax), (b) divestiture gains of $17.5
million ($8.6 million after tax), (c) a litigation charge of $7.5 million
($4.8 million after tax), (d) an inventory write-down of $3.8 million
($2.2 million after tax), and (e) an after-tax charge of $590 thousand
representing a change in accounting principle.(6)
    
    Fiscal 2004, 2003 and 2002 exclude the amortization of goodwill in
accordance with SFAS 142.(7)
    
    On May 13, 2003, the Companys Board of Directors declared the first
quarterly cash dividend in the Companys history of $.04 per share, which
was paid to stockholders on June 30, 2003. At the end of
each quarter during fiscal 2004, the Company paid its stockholders regular
quarterly cash dividends of $0.04 per share. In addition, on May 25,
2004, the Companys Board of Directors declared a regular quarterly cash
dividend of $0.045 per share payable June 30, 2004 to stockholders of
record as of June 15, 2004. Future dividend declarations and associated
amounts paid will depend upon the Companys earnings, financial condition,
loan covenants, capital requirements and other factors deemed relevant by
management and the Companys Board of Directors. 13




---



##### Table of Contents



AIRGAS, INC. AND
SUBSIDIARIES 
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Item 7. RESULTS OF OPERATIONS: 2004 COMPARED TO 2003 OVERVIEW The Companys net sales for the fiscal year ended March 31, 2004
(fiscal 2004) were $1.90 billion compared to $1.79 billion in the prior
year (fiscal 2003). Sales growth of $109 million was driven by
acquisitions, same-store sales growth and the December 31, 2003
consolidation of National Welders. During fiscal 2004, the Company
completed five acquisitions with combined annual sales of approximately
$59 million. Strategic product sales initiatives related to medical, bulk
and specialty gases, and strategic accounts, contributed to a 1% increase
in total same-store sales. Sales growth was achieved despite weakness in the
manufacturing and industrial markets during much of fiscal 2004. While
same-store sales were flat through the first nine months of fiscal 2004,
they began rebounding in the fourth quarter led by sales of hardgoods,
which increased significantly (9%) as the industrial marketplace began to
show signs of an economic recovery. Gas and rent sales also showed
improvement (2%) in the fiscal fourth quarter. Over the past several
years, the Company has embarked on several programs to strengthen its
infrastructure in anticipation of continued growth. As a result,
management believes that the Company is well positioned to take advantage
of a rebounding industrial economy. Fiscal 2004 net earnings were $80.2 million, or $1.07 per diluted share,
compared to $68.1 million, or $0.94 per diluted share, in fiscal 2003. As discussed in the Income Statement Commentary below, fiscal 2004
results were affected by the following:  
    
    insurance-related losses of $2.8 million ($1.7 million after tax), or
$0.02 per diluted share, representing the Companys self-insurance
retention associated with fire-related losses;
    
    a $1.7 million, or $0.02 per diluted share, non-recurring insurance gain
recognized by National Welders; and
    
    a special charge recovery of $776 thousand ($480 thousand after tax), or
$0.01 per diluted share, reflecting lower estimates of the ultimate cost
of prior years restructuring activities. Fiscal 2003 results were affected by the following:  
    
    special and other charges totaling $2.9 million ($2.2 million after-tax),
or $0.03 per diluted share, primarily consisting of a restructuring charge
($2.7 million) related to the integration of the business acquired from
Air Products and Chemicals, Inc. (Air Products) in fiscal 2002 and costs
related to the consolidation of certain hardgoods procurement functions. On April 2, 2004, the Company announced that it signed a definitive asset
purchase agreement to acquire most of the U.S. packaged gas business of The BOC
Group, Inc. (BOC) in a transaction valued up to $200 million. The
transaction is expected to close July 30, 2004 and includes approximately 120
locations in 21 states involved in the distribution of packaged industrial,
medical and specialty gases, as well as welding hardgoods. In fiscal 2003, the
packaged gas business of BOC, subject to the acquisition, generated
approximately $240 million in sales of which approximately 65% was gas and
rent. The acquired operations will be integrated with the existing business
units of the Companys Distribution segment. 14




---



##### Table of Contents



At December 31, 2003, the Company elected to adopt Financial Accounting
Standards Board Interpretation No. 46R, Consolidation of Variable Interest
Entities,(FIN 46R) with respect to its joint venture, National Welders
Supply Company, Inc. (National Welders) and consolidated this formerly
unconsolidated affiliate. Since June 1996, the Company has participated in the
joint venture and has used the equity method of accounting to report the
Companys proportionate share of the joint ventures operating results.
Consequently, the consolidation of National Welders had no impact on the net
earnings of the Company. In addition, the consolidation did not change the
fact that the liabilities of the joint venture are non-recourse to the Company
and the cash flows, in excess of a management fee paid by National Welders, are
not available to the Company. Through the nine months ended December 31, 2003,
the Company recognized $4.4 million of Equity in Earnings of Unconsolidated
Affiliates related to National Welders. With the prospective adoption
permitted by FIN 46R (prior periods not restated), the fourth fiscal quarter
operating results of the joint venture were reflected broadly across the income
statement with minority interest expense reflecting the preferred stockholders
proportionate share of the joint ventures operating results. For the fourth
quarter of fiscal 2004, National Welders contributed $39.2 million to sales,
$3.4 million to operating income, $291 thousand of minority interest expense
and $1.2 million in net earnings. The Company generated significant cash flow in fiscal 2004, which enabled
the Company to finance acquisitions and capital expenditures and to repay debt.
In addition, the Companys strong cash flow fundamentals enabled it to pay its
first quarterly cash dividend in the Companys history of $0.04 per share on
June 30, 2003. Subsequently, at the end of each quarter during fiscal 2004,
the Company paid its stockholders regular quarterly cash dividends of $0.04 per
share. In addition, on May 25, 2004, the Company announced that its Board of
Directors declared a regular quarterly cash dividend of $0.045 per share,
representing a 13% increase compared to the prior year quarterly dividend. The
dividend is payable June 30, 2004 to stockholders of record as of June 15,
2004. Looking forward, fiscal 2005 appears to hold significant opportunities for
the Company. The BOC acquisition will be the largest acquisition in the
Companys history. The process of integrating BOCs packaged gas business into
the Companys distribution network will provide both challenges and
opportunities. The Company anticipates that the economic recovery will continue
during fiscal 2005. Given these factors, the Company estimates that fiscal
2005 net earnings will be approximately $1.21 to $1.27 per diluted share, which
includes up to $0.02 per diluted share accretion from the BOC acquisition.
Additionally, in the first quarter of fiscal 2005, the Company estimates that
it will earn $0.27 to $0.31 per diluted share, which includes modest dilution
from pre-integration expenses associated with the BOC acquisition. The fiscal
2005 range of estimated net earnings anticipates a continued supportive sales
environment with gas and rent sales rising throughout the year. Actual fiscal
2005 net earnings may be impacted by a number of factors including the pace of
the economic recovery, the sales mix of gas and rent versus hardgoods, the
interest rate environment, and the costs to integrate the BOC acquisition. 15




---



##### Table of Contents



INCOME STATEMENT COMMENTARY Net Sales Net sales increased 6% in fiscal 2004 compared to fiscal 2003 driven
primarily by acquisitions, same-store sales growth of 1% and the consolidation
of National Welders. The Company estimates same-store sales based on a
comparison of current period sales to prior period sales, adjusted for
acquisitions and divestitures. The pro-forma adjustments consist of adding
acquired sales to, or subtracting sales of divested operations from, sales
reported in the prior period. These pro-forma adjustments used in calculating
the same-store sales metric are not reflected in the table below. The
intercompany eliminations represent sales from All Other Operations to the
Distribution segment. (In thousands)
    
    2004
    
    2003
    
    IncreaseDistribution
    
    $
    1,702,471
    
    
    $
    1,642,076
    
    
    $
    60,395
    
    
    4
    %All Other Operations
    
    
    235,926
    
    
    
    183,849
    
    
    
    52,077
    
    
    28
    %Intercompany
eliminations
    
    
    (42,929
    )
    
    
    (38,961
    )
    
    
    (3,968
    )$
    1,895,468
    
    
    $
    1,786,964
    
    
    $
    108,504
    

    
    6
    %
 The Distribution segments principal products include industrial, medical
and specialty gases; process chemicals; equipment rental and hardgoods.
Industrial, medical and specialty gases and process chemicals are distributed
in cylinders or bulk containers. Equipment rental fees are generally charged
on cylinders, cryogenic liquid containers, bulk and micro-bulk tanks, tube
trailers and welding equipment. Hardgoods consist of welding supplies and
equipment, safety products, and industrial tools and supplies. Distribution segment sales increased $60.4 million (4%) driven by
acquisitions and growth in same-store sales. The Company estimates that
business acquisitions contributed $39.3 million to sales in fiscal 2004.
Same-store sales growth of $21.1 million (1%) resulted from increases in
hardgoods sales of $12.9 million (1%) and gas and rent sales of $8.2 million
(1%). Through the first nine months of fiscal 2004, Distribution same-store
sales were negative, driven by lower sales of hardgoods reflecting weakness in
the industrial and manufacturing sectors of the economy. However, same-store
sales of hardgoods increased significantly (9%) in the fiscal fourth quarter as
the industrial marketplace began to show signs of an economic recovery. Gas
and rent sales also showed improvement (2%) in the fiscal fourth quarter.
Same-store sales of safety products increased a strong 6% during fiscal 2004 as
the Company continued its cross-selling strategy of marketing safety products
to its broad base of customers. In addition, safety sales were helped by a new
channel migration program that utilizes telemarketing to sell safety products
to several thousand low volume customers. The Company has followed a strategy of focusing on opportunities in niche
markets to facilitate sales growth. The strategy focuses on products and
markets that are expected to grow at a faster rate than the overall economy.
These growth initiatives relate to sales of strategic products, including
medical and specialty gases, gases sold in bulk and micro-bulk containers,
safety products, and sales to strategic account customers. During fiscal 2004,
these sales initiatives contributed to sales growth of gas and rent, which
helped mitigate weakness in the industrial economy. Medical gas and rent
revenues increased 8% to $146 million versus the prior year reflecting volume
gains. Sales growth of specialty gases fell short of expectations, driven by
pricing pressure and sluggish demand associated with economic conditions. Bulk
gas and rent revenues grew 8% to $107 million reflecting higher volumes as well
as the promotion of the Companys micro-bulk program. The micro-bulk program
is designed to service niche customers who require higher volumes of gases than
can be provided efficiently through the use of gases packaged in cylinders.
Sales to strategic account customers (sales to large customers with multiple
locations) increased 3% to $255 million in fiscal 2004. Rental revenue was
also favorably impacted by a 7% increase in welding equipment rentals and sales
associated with the Companys continued expansion of its rental welder fleet. 16




---



##### Table of Contents



The All Other Operations segment consists of producers and distributors of
gas products, principally of dry ice, carbon dioxide, nitrous oxide and
specialty gases. The segment also includes the Companys National Welders
joint venture, which was consolidated effective December 31, 2003. All Other
Operations sales, net of intercompany sales eliminations,
increased $48.1 million (33%), principally from the consolidation of National Welders,
same-store sales growth and an acquisition during fiscal 2004. National
Welders contributed sales of $39.2 million in the fourth quarter and fiscal
year. Had National Welders been consolidated for all of fiscal 2004, it would
have contributed sales of $147 million. Same-store sales growth of 5% was
principally the result of higher sales volumes of liquid carbon dioxide
reflecting the additional source of product from the Hopewell, Virginia plant
that began operations in January 2003. Same-store sales growth associated with
liquid carbon dioxide was partially offset by lower sales of dry ice. Sales of
dry ice were negatively impacted during fiscal 2004 by significant pricing
pressure related to additional competition in the market. The acquisition of a
dry ice business in April 2003 also contributed sales of $2.2 million in fiscal
2004. Gross Profits Gross profits do not reflect depreciation expense and distribution costs.
As disclosed in Note 1 to the Consolidated Financial Statements, the Company
reflects distribution costs as elements of Selling, Distribution and
Administrative Expenses and recognizes depreciation on all its property, plant
and equipment on the income statement line item Depreciation. Some companies
may report certain or all of these costs as elements of their Cost of Products
Sold. Consequently, gross profits discussed below may not be comparable to
those of other entities. Gross profits increased 5%, while the gross profit margin decreased 30
basis points to 52.1% in fiscal 2004 compared to 52.4% in fiscal 2003. (In thousands)
    
    2004
    
    2003
    
    IncreaseDistribution
    
    $
    857,031
    
    
    $
    835,756
    
    
    $
    21,275
    
    
    
    3
    %All Other Operations
    
    
    129,756
    
    
    
    100,892
    
    
    
    28,864
    
    
    
    29
    %$
    986,787
    
    
    $
    936,648
    
    
    $
    50,139
    
    
    
    5
    %
 The Distribution segments gross profits increased $21.3 million (3%)
compared to the prior year. Distributions gross profit margin of 50.3% in
fiscal 2004 decreased 60 basis points from 50.9% in fiscal 2003. The lower
gross profit margin primarily resulted from a shift in sales mix away from
higher margin gas and rent sales and towards lower margin sales of hardgoods.
Acquisitions of two distributors of safety products also contributed to the
shift in mix. The Distribution segments sales consisted of 51.8% gas and rent
compared to 52.6% in fiscal 2003. All Other Operations gross profits increased $28.9 million (29%) compared
to the prior year. Higher gross profits primarily reflect the consolidation of
National Welders, higher sales volumes of liquid carbon dioxide sourced from
the new Hopewell, Virginia plant and an acquisition. The consolidation of
National Welders contributed gross profits of $22 million. The gross profit
margin of 55% was flat compared to 54.9% in the prior year. The fourth quarter
consolidation of National Welders had an insignificant impact on the gross
profit margin. Had National Welders been consolidated for all of fiscal 2004,
the impact on the All Other Operations segments gross profit margin would also
not have been significant. 17




---



##### Table of Contents



Operating Expenses Selling, distribution and administrative expenses (SD&A) consist of
labor and overhead associated with the purchasing, marketing and distribution
of the Companys products, as well as costs associated with a variety of
administrative functions such as legal, treasury, accounting, tax and
facility-related expenses. SD&A expenses increased $33.6 million (5%) compared
to the prior year principally from the consolidation of National Welders,
higher distribution-related expenses, costs contributed by acquired businesses
and fire-related losses. The consolidation of National Welders contributed $16
million to the increase in SD&A expenses. The increase in distribution-related
expenses of approximately $5 million was primarily driven by higher fuel,
repair and maintenance costs. Higher fuel costs were directly related to the
increase in oil prices during fiscal 2004. Acquired businesses contributed
approximately $13 million to the increase in SD&A expenses. During fiscal
2004, the Company sustained fire-related losses at certain of its plants of
$2.8 million, which represented the Companys self-insurance retention. The
prior year included costs of $2.7 million associated with the integration of
the packaged gas business acquired from Air Products in February 2002.
Acquisition integration expenses were not significant during fiscal 2004. As a
percentage of net sales, SD&A expenses decreased 40 basis points to 38.7%
compared to 39.1% in the prior year. Depreciation expense of $82.6 million in fiscal 2004 increased $9.1
million (12%) compared to $73.5 million in fiscal 2003. The increase reflects
depreciation on the current and prior years capital investments in revenue
producing assets, including the Hopewell carbon dioxide plant, bulk and
micro-bulk tanks and medical cylinders. The fourth quarter consolidation of
National Welders also contributed $2.6 million to the increase in depreciation
expense. Amortization expense of $5.4 million in fiscal 2004 decreased $1 million
compared to $6.4 million in fiscal 2003. The decrease in amortization expense
was primarily attributable to the expiration of certain non-compete agreements. Special Charges (Recoveries) In fiscal 2004, a special charge recovery of $776 thousand consisted of
lower estimates of the ultimate cost of prior years restructuring charges.
The special charge recovery was included in the Distribution segment and
represented a change in estimate related to facility exit costs. In fiscal 2003, a special charge of $2.7 million incurred by the
Distribution segment consisted of a restructuring charge related to the
integration of the business acquired from Air Products and costs related to the
consolidation of certain hardgoods procurement functions. The special charge
included facility exit costs associated with the closure of certain facilities
and employee severance. The facilities exited and the affected employees were
part of the Companys existing operations prior to the acquisition of the Air
Products business. Operating Income Operating income increased 8% in fiscal 2004 compared to fiscal 2003. The
operating income margin increased 20 basis points to 8.9% from 8.7% in the
prior year. (In thousands)
    
    2004
    
    2003
    
    IncreaseDistribution
    
    $
    136,449
    
    
    $
    130,534
    
    
    $
    5,915
    
    
    
    5
    %All Other Operations
    
    
    31,331
    
    
    
    25,348
    
    
    
    5,983
    
    
    
    24
    %$
    167,780
    
    
    $
    155,882
    
    
    $
    11,898
    
    
    
    8
    %
 18




---



##### Table of Contents



The Distribution segments operating income margin of 8% in fiscal 2004
was consistent with 7.9% in fiscal 2003. The fiscal 2004 operating income
margin reflects the lower gross profit margin, described above, effectively
offset by lower operating expenses as a percentage of sales. The All Other Operations segments operating income margin decreased 50
basis points to 13.3% compared to 13.8% in fiscal 2003. The decrease in the
operating income margin primarily resulted from higher operating expenses as a
percentage of sales driven by the consolidation of National Welders. National
Welders has a higher cost structure compared to the other businesses included
in the segment. Had National Welders been consolidated for all of fiscal 2004,
the operating income margin would have been 11.5%. Interest Expense and Discount on Securitization of Trade Receivables Interest expense, net, and the discount on securitization of trade
receivables totaled $45.6 million representing a decrease of
$4.1 million
 (-8%)
compared to the prior fiscal year. The decrease in interest expense resulted
from lower average outstanding debt levels and lower weighted-average interest
rates associated with the Companys variable rate debt. The Companys interest
expense and average outstanding debt levels were lower despite the July 1, 2003
consolidation of a grantor trust associated with an operating lease and the
December 31, 2003 consolidation of National Welders. The Company participates in a securitization agreement with two commercial
banks to sell up to $175 million of qualifying trade receivables. The amount
of outstanding receivables under the agreement was $162.6 million and $158.9
million at March 31, 2004 and 2003, respectively. Net proceeds from the sale
of trade receivables were used to reduce borrowings under the Companys
revolving credit facilities. The discount on the securitization of trade
receivables represents the difference between the carrying value of the
receivables and the proceeds from their sale. The amount of the discount
varies on a monthly basis depending on the amount of receivables sold and
market rates. As discussed in Liquidity and Capital Resources and in Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, the Company
manages its exposure to interest rate risk through participation in interest
rate swap agreements. Including the effect of the interest rate swap
agreements, the Companys ratio of fixed to variable interest rates at March
31, 2004 was 57% fixed to 43% variable. A majority of the Companys variable
rate debt is based on a spread over the London Interbank Offered Rate
(LIBOR). Based on the Companys outstanding variable rate debt and credit
rating at March 31, 2004, for every 25 basis point increase in LIBOR, the
Company estimates its annual interest expense would increase approximately $900
thousand. Equity in Earnings of Unconsolidated Affiliates Equity in earnings of unconsolidated affiliates totaled $5.2 million in
fiscal 2004 compared to $3.8 million in the prior year. The results of
National Welders for the nine months ended December 31, 2003 (earnings of $4.4
million) were reported in the income statement as equity in earnings of
unconsolidated affiliates. Effective January 1, 2004, National Welders
results were reflected broadly across the income statement. The increase in
the equity in earnings of unconsolidated affiliates compared to the prior year
resulted primarily from a $1.7 million non-recurring life insurance policy gain
recognized by National Welders in December 2003. Prior to the date that the
Company entered into the joint venture agreement with National Welders, the
founders of National Welders had obtained life insurance policies on key
personnel in which National Welders was the named beneficiary. Minority Interest Expense Minority interest expense of $291 thousand in fiscal 2004 represents the
portion of National Welders operating results applicable to the preferred
stockholders of National Welders. 19




---



##### Table of Contents



Income
Tax Expense The effective income tax rate was 37.2% of pre-tax earnings in fiscal 2004 compared to 37.7% in fiscal 2003. Net
Earnings Net earnings in fiscal 2004 were $80.2 million, or $1.07 per diluted share, compared to $68.1 million, or $0.94 per diluted share, in fiscal 2003. The weighted average number of shares outstanding used in computing earnings per diluted share was 2.4 million shares higher in fiscal 2004 compared to fiscal 2003. The increase in the weighted average number of shares outstanding primarily resulted from stock option exercises and shares purchased by employees under the Companys Employee Stock Purchase Plans. The Company expects that the weighted average number of shares outstanding will increase 2% to 3% per year. 20




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: 2003 COMPARED TO 2002 OVERVIEW The Companys net sales for the fiscal year ended March 31, 2003 (fiscal
2003) were $1.79 billion compared to $1.64 billion in fiscal 2002. Sales
growth was driven by the fiscal 2002 fourth quarter acquisition of the majority
of Air Products U.S. packaged gas business. In addition, the Company
continued to pursue opportunistic acquisitions to complement its national
distribution network, completing four acquisitions in fiscal 2003. Although
there was significant acquisition-related sales growth, net sales were
adversely affected by the sluggish economic environment. The weak
manufacturing and industrial markets contributed to a same-store sales decline
of 2% compared to the prior year reflecting lower hardgoods sales mitigated by
higher gas and rent sales. Higher gas and rent sales reflect the Companys
focus on strategic sales initiatives related to medical and bulk gases and
strategic account customers. The Companys sales initiatives contributed to an
8% increase in medical gas sales, a 9% increase in bulk gas delivery sales, and
a 7% increase in sales to strategic account customers. With a focus on
controlling costs and improving operational effectiveness, the Company also
embarked on other strategic initiatives, including the centralization of
certain hardgoods procurement functions, rollout of an inventory management
system, and implementation of a sales force effectiveness program. Fiscal 2003 net earnings were $68.1 million, or $0.94 per diluted share,
compared to a net loss of $10.4 million, or a loss of $0.15 per diluted share,
in fiscal 2002. As discussed in the Income Statement Commentary below, fiscal 2003
results were affected by the following:  
    
    special and other charges totaling $2.9 million ($2.2 million after-tax), or $0.03 per diluted
share, primarily consisting of a restructuring charge ($2.7 million) related to the integration of
the business acquired from Air Products and costs related to the consolidation of certain hardgoods
procurement functions. Fiscal 2002 results were affected by the following:  
    
    a non-cash after-tax charge of $59 million, or $0.84 per diluted share, representing the cumulative
effect of a change in accounting principle associated with the adoption of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets; and
    
    a litigation settlement charge of $8.5 million ($5.7 million after-tax), or $0.08 per diluted share. During fiscal 2003, the Company successfully integrated the business
acquired from Air Products in the prior year. In addition, during fiscal 2003,
the Company completed the acquisition of four complementary packaged gas
distributors with combined annual sales of approximately $33 million. The
acquired businesses further expanded the Companys broad distribution network
and national market reach. Strong cash flow fundamentals have been characteristics of the Company
since its inception. The cash flow generated by the Company, excluding the
cash generated from the expanded trade receivables securitization program that
was used to pay down the Companys revolving credit facilities, enabled it to
repay debt of $93.5 million in fiscal 2003. Additionally, the Company was able
to reduce its off-balance sheet commitments by $2.5 million in fiscal 2003.
Lower interest rates during fiscal 2003 also reduced the Companys debt service
requirements and aided in the ability to repay debt, as well as favorably
impacted net earnings during the year. 21




---



##### Table of Contents



INCOME STATEMENT COMMENTARY Net Sales Net sales increased 9% in fiscal 2003 compared to fiscal 2002, driven
primarily by the prior year acquisition of Air Products packaged gas business,
while same-store sales declined 2%. The intercompany eliminations represent
sales from All Other Operations to the Distribution segment. (In thousands)
    
    2003
    
    2002
    
    IncreaseDistribution
    
    $
    1,642,076
    
    
    $
    1,494,267
    
    
    $
    147,809
    
    10
    %All Other Operations
    
    
    183,849
    
    
    
    173,594
    
    
    
    10,255
    
    6
    %Intercompany
eliminations
    
    
    (38,961
    )
    
    
    (31,814
    )
    
    
    (7,147
    )$
    1,786,964
    
    
    $
    1,636,047
    
    
    $
    150,917
    
    9
    %
 Distribution segment sales increased $148 million (10%) driven by
acquisitions, partially offset by a decline in same-store sales. The Company
estimates that net acquisition and divestiture activity contributed $181
million to sales in fiscal 2003. The net acquisition and divestiture activity
primarily reflects the impact of the February 28, 2002 acquisition
of Air Products. The Air Products operations contributed $17.6 million to the
Companys fiscal 2002 net sales. On a same-store basis, the Distribution
segments sales decreased $33 million (-2%) reflecting a decline in hardgoods
same-store sales of $42 million (-5%), partially offset by gas and rent sales
growth of $9 million (1%). The decline in hardgoods same-store sales resulted
from lower sales volumes of industrial tools and welding hardgoods, reflecting
the general weakness in the industrial and manufacturing sectors of the
economy. Although overall safety product sales were flat due to a decline in
branch-based sales, safety product sales through the telesales channel grew 4%. Distribution gas and rent same-store sales growth was driven by sales
initiatives related to medical and bulk gases, as well as strategic accounts.
The growth achieved through these initiatives was partially offset by volume
declines in industrial gases reflecting the general weakness in the industrial
and manufacturing sectors of the economy. Fiscal 2003 medical gas and rent
revenues grew 8% to $135 million versus the prior year reflecting volume gains.
Bulk gas and rent revenues increased to approximately $100 million,
representing a 9% increase over the prior year with pricing remaining
relatively stable. On a same-store basis, sales to strategic account customers
(sales to large customers with multiple locations) grew 7% to $247 million in
fiscal 2003 reflecting the Companys success in leveraging its broad
distribution network to service large customers. Although several major
strategic account customers purchased lower volumes of products, the addition
of nearly 80 new strategic account customers during fiscal 2003 generated sales
growth. Rental revenue was also favorably impacted by an 8% increase in
welding equipment rentals from the Companys expansion of its rental welder
fleet. The Company has followed a strategy of focusing on strategic sales
initiatives to drive sales growth and market penetration in the industries that
it serves. The strategic sales initiatives are designed to develop niches in
products and services that are expected to grow at a faster rate than the
overall economy and to position the Company for growth into the future. All Other Operations sales, net of intercompany sales eliminations,
increased $3.1 million (2%), principally from net acquisition and divestiture
activity and same-store sales growth. Acquired sales of high-end specialty
gases from the Air Products acquisition more than offset divested sales from
two nitrous oxide plants sold in the third quarter of fiscal 2002. Same-store
sales increased $1.5 million (1%) driven by specialty gas sales and higher
volumes of liquid carbon dioxide associated with the January 2003 completion of
a new carbon dioxide plant in Hopewell, Virginia. 22




---



##### Table of Contents



Gross Profits Gross profits increased 15% and the gross profit margin increased 240
basis points to 52.4% in fiscal 2003 compared to 50% in fiscal 2002. (In thousands)
    
    2003
    
    2002
    
    IncreaseDistribution
    
    $
    835,756
    
    
    $
    724,173
    
    
    $
    111,583
    
    
    
    15
    %All Other Operations
    
    
    100,892
    
    
    
    93,121
    
    
    
    7,771
    
    
    
    8
    %$
    936,648
    
    
    $
    817,294
    
    
    $
    119,354
    
    
    
    15
    %
 Distribution gross profits increased approximately $112 million (15%)
primarily from the Air Products acquisition. The Distribution segments gross
profit margin of 50.9% in fiscal 2003 increased 240 basis points from 48.5% in
fiscal 2002. The gross margin improvement resulted from a shift in sales mix
towards higher-margin gas and rent and reduced product discounting associated
with the Companys hardgoods discount management program. The shift in sales
mix was primarily attributable to the Air Products acquisition, which had a
sales mix of 76% gas and rent. On a same-store basis, lower volumes of
hardgoods also contributed to the shift in sales mix towards gas and rent.
Distribution segment sales consisted of 52.6% gas and rent compared to 47.3% in
the prior year. All Other Operations gross profits increased $7.8 million (8%) driven by
lower raw material and production costs of the dry ice operations, which
reduced the cost per ton produced, and net acquisition and divestiture
activity. Gross profits attributable to specialty gas business acquired from
Air Products more than compensated for the fiscal 2002 divestiture of two
nitrous oxide plants. Same-store sales growth of specialty gases also
contributed to the increase in All Other Operations gross profits. All Other
Operations gross profit margin of 54.9% increased 130 basis points from 53.6%
in the prior year. Operating Expenses SD&A expenses increased $78.9 million (13%) compared to fiscal 2002
principally from the addition of the Air Products operations. Although
salaries and benefits, fuel and acquisition integration costs increased in
fiscal 2003 compared to fiscal 2002, the increases were partially mitigated
by lower legal expenses and managements focus on expense control in other
areas. Legal expense in fiscal 2002 included a charge of $8.5 million
associated with the settlement of litigation brought by a competitor. There
were no similar charges in fiscal 2003. As a percentage of net sales, SD&A
expenses increased 120 basis points to 39.1% compared to 37.9% in the prior
year. The increase in operating expenses as a percentage of net sales reflects
the addition of the Air Products business, a majority of which is comprised of
the distribution of packaged gases. Packaged gas distribution typically
carries higher operating expenses than the hardgoods portion of the business
and correspondingly higher gross profit margins. Depreciation expense of $73.5 million in fiscal 2003 increased $8.7
million (13%) compared to $64.8 million in fiscal 2002. The increase was
primarily due to depreciation on the addition of the fixed assets from the Air
Products acquisition. Amortization expense of $6.4 million in fiscal 2003 decreased $1.8 million
compared to $8.2 million in fiscal 2002. The decrease in amortization expense
was primarily attributable to the expiration of certain non-compete agreements. 23




---



##### Table of Contents



Special Charge A special charge of $2.7 million incurred by the Distribution segment in
fiscal 2003 consisted of a restructuring charge related to the integration of
the business acquired from Air Products and costs related to the consolidation
of certain hardgoods procurement functions. The special charge included
facility exit costs associated with the closure of certain facilities and
employee severance. The facilities exited and the affected employees were part
of the Companys existing operations prior to the acquisition of the Air
Products business. Operating Income Operating income increased 25% in fiscal 2003 compared to fiscal 2002. (In thousands)
    
    2003
    
    2002
    
    IncreaseDistribution
    
    $
    130,534
    
    
    $
    103,430
    
    
    $
    27,104
    
    
    
    26
    %All Other Operations
    
    
    25,348
    
    
    
    21,603
    
    
    
    3,745
    
    
    
    17
    %$
    155,882
    
    
    $
    125,033
    
    
    $
    30,849
    
    
    
    25
    %
 The Distribution segments operating income margin of 7.9% in fiscal 2003
increased 100 basis points compared to 6.9% in fiscal 2002. The operating
income margin increase reflects the higher gross profit margin, described
above, partially offset by the special charge noted above and an increase in
operating expenses as a percentage of sales. All Other Operations operating income margin increased 140 basis points
to 13.8% compared to 12.4% in fiscal 2002. The improved operating income
margin reflects lower raw material and production costs of the Companys dry
ice operations, higher gross profits from higher specialty gas sales leveraging
fixed manufacturing costs, and a focus on cost control by management. Interest Expense and Discount on Securitization of Trade Receivables Interest expense, net, and the discount on securitization of trade
receivables totaled $49.7 million representing a decrease of
$2.2 million 
(-4%)
compared to the prior fiscal year. The decrease in interest expense resulted
from lower weighted-average interest rates associated with the Companys
variable rate debt, partially offset by higher average debt levels. Higher
average debt levels resulted from indebtedness associated with acquisition
activity, principally the Air Products acquisition. The Company participates in a securitization agreement with two commercial
banks to sell up to $175 million of qualifying trade receivables. The amount
of outstanding receivables under the agreement was $158.9 million and $134
million at March 31, 2003 and March 31, 2002, respectively. Net proceeds from
the sale of trade receivables were used to reduce borrowings under the
Companys revolving credit facilities. The discount on the securitization of
trade receivables represents the difference between the carrying value of the
receivables and the proceeds from their sale. The amount of the discount
varies on a monthly basis depending on the amount of receivables sold and
market rates. As discussed in Liquidity and Capital Resources and in Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, the Company
manages its exposure to interest rate risk through participation in interest
rate swap agreements. Including the effect of the interest rate swap
agreements, the Companys ratio of fixed to variable interest rates at March
31, 2003 was 41% fixed to 59% variable. 24




---



##### Table of Contents



Income Tax Expense The effective income tax rate was 37.7% of pre-tax earnings in fiscal 2003
compared to 38% in fiscal 2002. Pursuant to an accelerated depreciation provision of a fiscal 2002 change
in the tax law, the Company anticipated receiving a tax refund of approximately
$19 million during fiscal 2003 related to the assets acquired in the Air
Products acquisition. After further review, it was concluded that the Company
would not be eligible for the refund in fiscal 2003, but instead would receive
the cash benefit over the next four years. As a result, an adjustment was made
in the first quarter of fiscal 2003 that resulted in approximately a $19
million reclassification between current and deferred income taxes. The
adjustment did not impact net earnings or operating cash flows in either fiscal 2003 or  fiscal 2002. Earnings before the Cumulative Effect of a Change in Accounting Principle Earnings before the cumulative effect of a change in accounting principle
for fiscal 2003 were $68.1 million, or $0.94 per diluted share, compared to
$48.6 million, or $0.69 per diluted share, in fiscal 2002. Cumulative Effect of a Change in Accounting Principle In connection with the adoption of SFAS 142, Goodwill and Other Intangible
Assets,on April 1, 2001, the Company performed an evaluation of goodwill,
which indicated that goodwill of one reporting unit, its tool business, was
impaired. Fiscal 2002 included a $59 million, or $0.84 per diluted share,
non-cash charge as the cumulative effect of a change in accounting principle
for the write-down of goodwill to its fair value. The impaired goodwill was
not deductible for taxes, and consequently, no tax benefit was recorded in
relation to the charge. Net Earnings (Loss) Net earnings for fiscal 2003 were $68.1 million, or $0.94 per diluted
share, compared to a net loss in fiscal 2002 of $10.4 million, or a loss of
$0.15 per diluted share. 25




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES Fiscal 2004 Cash Flows Net cash provided by operating activities totaled $209.1 million in fiscal
2004 compared to $194.4 million in fiscal 2003. The increase in fiscal 2004
operating cash flows principally resulted from improvements in cash provided by
working capital, higher net earnings and the consolidation of National Welders,
partially offset by a lower source of cash from the trade receivables
securitization program. In fiscal 2003, deferred taxes and the change in other
current assets reflect an equal and opposite impact of the reversal of a $19
million tax refund related to a revised interpretation of a change in the tax
law. Comparing the fiscal 2004 changes in working capital to the fiscal 2003
changes in working capital adjusted for the non-cash deferred tax
reclassification, working capital provided cash of $12.9 million in 2004 versus
a use of cash of $11.2 million in 2003. Net earnings adjusted for non-cash
items provided cash of $192.4 million versus $180.7 million in fiscal 2003,
adjusted for the fiscal 2003 deferred tax reclassification. Fiscal 2004 cash
from operations also reflects $9.8 million associated with the fourth quarter
operating results of National Welders. The cash flows of National Welders, in
excess of a management fee paid by National Welders to the Company, are not
available to the Company. Prior to the fourth quarter consolidation of
National Welders, the management fee paid by National Welders to the Company
was reflected as an investing activity as fees from unconsolidated affiliates.
In fiscal 2004, the trade receivables securitization program was a lower source
of cash by $21.2 million compared to fiscal 2003. In fiscal 2003, the addition
of trade receivables associated with the Air Products acquisition in February
2002 contributed to an increase in receivables sold under the securitization
program. Cash provided by operating activities in fiscal 2004 were primarily
used to fund capital expenditures and acquisitions as well as for the repayment
of debt. Cash used in investing activities totaled $122.5 million and primarily
consisted of capital expenditures and acquisitions. Capital expenditures of
$93.7 million, including $2.2 million associated with National Welders, were
$25.8 million higher than fiscal 2003 principally due to spending for
cylinders, bulk and micro-bulk tanks, two fill plant upgrades and the purchase
of a corporate plane. Cylinder and bulk tank purchases were driven by
continued growth in medical and bulk gas sales. The Company estimates fiscal
2005 capital expenditures will be in the range of $115 million to $130 million.
The higher level of capital spending anticipated in fiscal 2005 is driven by a
real estate and tube trailer lease buyout program and expansion of the
Companys medical product distribution infrastructure. The acquisition of five
businesses during fiscal 2004 also used cash of $34.9 million. Financing activities used cash of $86.6 million primarily for the net
repayment of debt of $70.7 million, lower cash overdrafts of $14.2 million and
dividends paid to stockholders of $11.8 million. National Welders repayment
of $7.8 million of debt in the fourth quarter of fiscal 2004 contributed to the
cash used in financing activities. The cash overdraft represents the change in
the balance of outstanding checks. Financing activities also included proceeds
of $13.1 million received from the exercise of stock options. Cash on hand at the end of each fiscal year is zero. On a daily basis,
depository accounts are swept of all available funds. The funds are deposited
into a concentration account through which all cash on hand is used to repay
debt under the Companys revolving credit facilities. The Company will continue to look for appropriate acquisitions to
complement its existing businesses and improve its geographic coverage.
Capital expenditures, current debt maturities and any future acquisitions will
be funded through the use of cash flow from operations, revolving credit
facilities, and other financing alternatives. The Company believes that its
sources of financing are adequate for its anticipated needs and that it could
arrange additional sources of financing for unanticipated requirements. The
cost and terms of any future financing arrangement depend on the market
conditions and the Companys financial position at that time. 26




---



##### Table of Contents



Dividends On May 13, 2003, the Companys Board of Directors declared the first
quarterly cash dividend in the Companys history of $0.04 per share, which was
paid to stockholders on June 30, 2003. Subsequently, at the end of each
quarter during fiscal 2004, the Company paid its stockholders regular quarterly
cash dividends of $0.04 per share. In addition, on May 25, 2004, the Company
announced that its Board of Directors declared a regular quarterly cash
dividend of $0.045 per share, representing a 13% increase compared to the prior
year quarterly dividend. The dividend is payable June 30, 2004 to stockholders
of record as of June 15, 2004.
Future dividend declarations and associated amounts paid will depend upon the
Companys earnings, financial condition, loan covenants, capital requirements
and other factors deemed relevant by management and the Companys Board of
Directors. Financial Instruments The Companys Consolidated Balance Sheet at March 31, 2004 includes the
financial obligations of the National Welders joint venture in accordance with
the requirements of FIN 46R. National Welders financial debt instruments are
non-recourse to the Company, meaning that the creditors of National Welders do
not have a claim on the assets of Airgas, Inc. in settlement of the joint
ventures debt obligations. The financial instruments of National Welders are
discussed separately under the heading Financial Instruments of the National
Welders Joint Venture. Revolving Credit Facilities The Company has unsecured revolving credit facilities with a syndicate of
lenders totaling $367.5 million and $50 million Canadian (U.S. $38.2 million)
under a credit agreement with a maturity date of July 30, 2006. At March 31,
2004, the Company had borrowings under the credit agreement of approximately $8
million and $25 million Canadian (U.S. $19 million). The Company also had
commitments under letters of credit supported by the credit agreement of
approximately $33 million at March 31, 2004. The credit agreement contains
covenants that include the maintenance of certain leverage ratios, a fixed
charge ratio, and potential restrictions on certain additional borrowing, the
amount of dividends declared and paid, and the repurchase of common stock.
Based on restrictions related to certain leverage ratios, the Company had
additional borrowing capacity under the revolving credit facilities of
approximately $225 million at March 31, 2004. The variable interest rates of
the U.S. and Canadian revolving credit facilities are based on LIBOR and
Canadian Bankers Acceptance Rates, respectively. At March 31, 2004, the
effective interest rates on borrowings under the revolving credit facilities
were 3.13% on U.S. borrowings and 4.44% on Canadian borrowings. Borrowings under the revolving credit facilities are guaranteed by certain
of the Companys domestic subsidiaries and Canadian borrowings are guaranteed
by Canadian subsidiaries. The Company pledged 100% of the stock of its
domestic guarantor subsidiaries and 65% of the stock of its foreign guarantor
subsidiaries for the benefit of the syndicate of lenders. If the Companys
credit rating is reduced, the Company will be required to grant a security
interest in substantially all of the tangible and intangible assets of the
Company for the benefit of the syndicate of lenders. In May 2003, the Company obtained an amendment to its credit agreement
that allowed for the issuance of up to an additional $200 million of senior
public debt and for the expansion of its senior credit facilities by up to $150
million (see Senior Subordinated Notesbelow). Subject to existing financial
covenants, the amendment also provided the Company with additional flexibility
to pay dividends, repurchase Airgas common stock and invest in acquisitions. 27




---



##### Table of Contents



In anticipation of the acquisition of assets from BOC, the Company
obtained an amendment to its credit agreement in February 2004 that, among
other things, permits the Company to invest up to $275 million in acquisitions
during fiscal 2005. Term Loan At March 31, 2004, the Company had an outstanding term loan with a
principal balance of $70 million bearing an effective interest rate of 3.11%.
The term loan is due in quarterly installments with a final payment due July
30, 2006. The term loan is unsecured and bears a variable interest rate based
on LIBOR plus a spread related to the Companys credit rating. 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. Medium-Term Notes At March 31, 2004, the Company had $100 million of unsecured medium-term
notes due September 2006 bearing interest at a fixed rate of 7.75%. The
medium-term notes are guaranteed by each of the domestic guarantors under the
revolving credit facilities. Acquisition and Other Notes The Companys long-term debt also included acquisition and other notes
principally consisting of notes issued to sellers of businesses acquired and
are repayable in periodic installments. At March 31, 2004, acquisition and
other notes totaled approximately $8.5 million with interest rates ranging from
4% to 9%. Senior Subordinated Notes In March 2004, the Company issued $150 million of senior subordinated
notes (the 2004 Notes) 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. Proceeds from the issuance of the 2004 Notes were
used to redeem $75 million of medium-term notes due March 2004 and to pay down
borrowings on the Companys U.S. revolving credit facility. The 2004 Notes
were sold in accordance with the provisions of Rule 144A under the Securities
Act of 1933 (the Securities Act). During fiscal 2005, the Company will
exchange the 2004 Notes for substantially similar notes registered with the
Securities and Exchange Commission in accordance with the Securities Act. In addition to the 2004 Notes, at March 31, 2004, the Company had $225
million of senior subordinated notes (the 2001 Notes) outstanding with a
maturity date of October 1, 2011. The 2001 Notes bear interest at a fixed
annual rate of 9.125%, payable semi-annually on April 1 and October 1 of each
year. The 2004 Notes and 2001 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 Notes
and 2001 Notes are guaranteed on a subordinated basis by each of the domestic
guarantors under the revolving credit facilities. 28




---



##### Table of Contents



Financial Instruments of the National Welders Joint Venture In July 2002, National Welders entered into a credit agreement (the
Credit Agreement) to provide for available credit up to $100 million secured
by certain assets of National Welders. The Credit Agreement provides for a
Term Loan A of $26.2 million, a Term Loan B of $21 million, a Term Loan C of
$8.8 million, and a revolving credit line of $44 million. Term Loan A is
repayable in monthly amounts of $254 thousand through maturity in June 2007.
Term Loan B matures in July 2006. The revolving credit line
matures in June 2006. Interest rates on the Credit Agreement are variable and
range from LIBOR plus 150 to 225 basis points based on National Welders
leverage ratio. The Credit Agreement contains certain covenants which, among
other things, limit the ability of National Welders to incur and guarantee new
indebtedness, subject National Welders to minimum net worth requirements, and
limit its capital expenditures, ownership changes, merger and acquisition
activity, and the payment of dividends. In addition, the payment of dividends
on National Welders common stock is further limited by the joint venture
agreement. The payment of dividends on the common stock is subordinate to the
payment of the 5% dividend on the preferred stock. Additionally, the common
stock dividends must be declared by a vote of the joint ventures board of
directors. At March 31, 2004, National Welders had borrowings under its revolving
credit line of $5.5 million, under Term Loan A of $21.1 million and under Term
Loan B of $21 million. There were no amounts borrowed or
outstanding under Term Loan C at March 31, 2004. At March 31, 2004, the effective interest rate for the
debt instruments covered under the Credit Agreement was 3.09%. Based on
restrictions related to certain leverage ratios, National Welders had
additional borrowing capacity under its Credit Agreement of $47.3 million at
March 31, 2004. National Welders also had a note payable to a bank of $5.5
million that is secured by a production facility and bears a fixed interest
rate of 7%. National Welders long-term debt also included acquisition and
other notes totaling $652 thousand. Interest Rate Swap Agreements The Company manages its exposure to changes in market interest rates. At
March 31, 2004, the Company was party to a total of eight interest rate swap
agreements. The swap agreements are with major financial institutions and
aggregate $215 million in notional principal amount at March 31, 2004. Four
swap agreements with approximately $90 million in notional principal amount
require the Company to make fixed interest payments based on an average
effective rate of 4.55% and receive variable interest payments from its
counterparties based on three-month LIBOR (average rate of 1.12% at March 31,
2004). The remaining terms of these swap agreements range from between four
and nineteen months. Four swap agreements with approximately $125 million in
notional principal amount require the Company to make variable interest
payments based on six-month LIBOR (average effective rate of 3.16% at March 31,
2004) and receive fixed interest payments from its counterparties based on an
average effective rate of 8.36% at March 31, 2004. The remaining terms of
these swap agreements range from between two and seven years. The Company
monitors its positions and the credit ratings of its counterparties, and does
not anticipate non-performance by the counterparties. National Welders participates in one interest rate swap agreement with
a notional principal amount of $21 million on which it makes interest
payments based on a fixed rate of 6.72% and receives variable interest
payments from its counterparty based on a floating 30-day LIBOR rate of
1.09% at March 31, 2004. 29




---



##### Table of Contents



After considering the effect of interest rate swap agreements on the
Companys debt and off-balance sheet trade receivables securitization
agreement, the Companys ratio of fixed to variable interest rates was 57%
fixed to 43% variable at March 31, 2004. The ratio includes the effect of the
fixed to variable ratio of National Welders debt. A majority of the Companys
variable rate debt is based on a spread over LIBOR. Based on the Companys
outstanding variable rate debt and credit rating at March 31, 2004, for every
25 basis point increase in LIBOR, the Company estimates its annual interest
expense would increase approximately $900 thousand. Trade Receivables Securitization The Company participates in a securitization agreement with two commercial
banks to sell up to $175 million of qualifying trade receivables. The
agreement expires in December 2005, but may be renewed subject to renewal
provisions contained in the agreement. During fiscal 2004, the Company sold,
net of its retained interest, $1,696 million of trade receivables and remitted
to bank conduits, pursuant to a servicing agreement, $1,692 million in
collections on those receivables. The net proceeds were used to reduce
borrowings under the Companys revolving credit facilities. The amount of
outstanding receivables under the agreement was $162.6 million at March 31,
2004 and $158.9 million at March 31, 2003. The transaction has been accounted for as a sale under the provisions of
Statement of Financial Accounting Standards No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. Under
the securitization agreement, eligible trade receivables are sold to bank
conduits through a bankruptcy-remote special purpose entity, which is
consolidated for financial reporting purposes. The difference between the
proceeds from the sale and the carrying value of the receivables is recognized
as Discount on securitization of trade receivables in the accompanying
Consolidated Statements of Earnings and varies on a monthly basis depending on
the amount of receivables sold and market rates. The Company retains a
subordinated interest in the receivables sold, which is recorded at the
receivables previous carrying value. A subordinated retained interest of
approximately $44 million and $45 million is included in Trade receivables in
the accompanying Consolidated Balance Sheets at March 31, 2004 and 2003,
respectively. The Companys retained interest is generally collected within 60
days. On a monthly basis, management measures the fair value of the retained
interest at managements best estimate of the undiscounted expected future cash
collections on the transferred receivables. Changes in the fair value are
recognized as bad debt expense. Actual cash collections may differ from these
estimates and would directly affect the fair value of the retained interest.
In accordance with a servicing agreement, the Company continues to service,
administer and collect the trade receivables on behalf of the bank conduits.
The servicing fees charged to the bank conduits approximate the costs of
collections. Debt of Grantor Trust Since October 1999, the Company has leased certain real estate and
equipment from a grantor trust (the Trust) under a sale-leaseback
arrangement. The Trust incurred debt to purchase the properties and equipment
from the Company. The Company, in turn, paid rent to the Trust. The rental
payments to the Trust were based on LIBOR plus an applicable margin and matched
the debt service requirements for the debt held by the Trust. The Trust was
not consolidated for financial reporting purposes and the non-cancelable lease
obligation of the real estate and equipment leases totaled approximately $41
million at March 31, 2003. Effective July 1, 2003, the Company elected to early adopt FIN 46 with
respect to the Trust (see Note 2 to the Consolidated Financial Statements
included under Item 8). The Company determined the Trust to be a variable
interest entity as defined by FIN 46. In addition, the Company was
determined to be the primary beneficiary of the sale-leaseback arrangement.
FIN 46 required the Company to consolidate the Trust for financial reporting
purposes. Upon consolidation, the Company recorded on its balance sheet
approximately $29 million of real estate and equipment and debt of $42
million, while eliminating a deferred gain of $13 million. The consolidation
of the Trust resulted in the Company recognizing $1 million in interest
expense 30




---



##### Table of Contents



and $1 million in depreciation expense in the nine months ended March 31,
2004, which had previously been recognized as rent expense to the Trust. The
debt of the grantor trust matures in October 2004 and is classified as
long-term based upon the Companys ability and intention to refinance it with
borrowings under its long-term credit facilities. Employee Benefits Trust Since March 1999, the Company has maintained a trust (the Employee
Benefits Trust) to fund certain future obligations of the Companys employee
benefit and compensation plans. From inception through 2001, the Company,
pursuant to a Common Stock Purchase Agreement, sold approximately 7 million
shares of common stock, previously held as treasury stock, to the Employee
Benefits Trust. The Company holds promissory notes from the Employee Benefits
Trust in the amount of common stock purchased by the trust. Shares held by the
Employee Benefits Trust serve as collateral for the promissory notes and are
available to fund certain employee benefit plan obligations as the promissory
notes are repaid. The shares held by the Employee Benefits Trust are not
considered outstanding for earnings per share purposes until they are released
from serving as collateral for the promissory notes. Approximately 1.2 million
and 900 thousand shares were issued from the Employee Benefits Trust for
employee benefit programs during fiscal 2004 and 2003, respectively. As of
March 31, 2004, the Employee Benefits Trust held approximately 2.2 million
shares of Company common stock. An independent third-party financial
institution serves as the Trustee. The Trustee votes or tenders shares held by
the Employee Benefits Trust in accordance with instructions received from the
participants in the employee benefit and compensation plans funded by the
Employee Benefits Trust. Inflation While the U.S. inflation rate has been relatively modest for several
years, rising costs continue to affect the Companys business. The Company
strives to minimize the effects of inflation through cost containment and price
increases under highly competitive conditions. OTHER Critical Accounting Estimates The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make judgments, assumptions and estimates that affect
the amounts reported in the Consolidated Financial Statements and accompanying
notes. Note 1 to the Consolidated Financial Statements included under Item 8
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Estimates are used for,
but not limited to, determining the net carrying value of trade receivables,
inventories, goodwill and business insurance reserves. Actual results could
differ from these estimates. The following critical accounting policies are
impacted significantly by judgments, assumptions and estimates used in the
preparation of the Consolidated Financial Statements. Trade Receivables The Company must make estimates of the collectability of its trade
receivables. Management has established an allowance for doubtful accounts to
adjust the carrying value of trade receivables to fair value based on an
estimate of the amount of trade receivables that are uncollectible. The
allowance for doubtful accounts is determined based on historical experience,
economic trends, known bankruptcies and problem accounts. Management believes
that the allowances for doubtful accounts as of March 31, 2004 and 2003 are
adequate. 31




---



##### Table of Contents



Inventories The Companys inventories are stated at the lower of cost or market. The
Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon its physical condition as well as assumptions
about future demand and market conditions. If actual demand or market
conditions in the future are less favorable than those estimated, additional
inventory write-downs may be required. Goodwill The Company accounts for goodwill in accordance with SFAS 142, Goodwill
and Other Intangible Assets. Under SFAS 142, goodwill is not amortized, but is
instead tested for impairment at least annually. The Company has elected to
perform its annual tests for indications of goodwill impairment as of October
31 of each year. The annual impairment test used by the Company consists of a
discounted cash flow analysis. The discounted cash flow analysis requires
estimates, assumptions and judgments that could be materially different if
different estimates, assumptions and judgments were used. Business Insurance Reserves The Company has insurance programs to cover workers compensation,
business automobile, general and product liability claims. The insurance programs
have self-insured retention of $500 thousand per occurrence and an annual
aggregate limit of $1.7 million of claims in excess of $500 thousand. The
Company accrues estimated losses using actuarial models and assumptions based
on the Companys historical loss experience. National Welders is also
self-insured for workers compensation claims. Workers compensation claims
are self-insured up to $250 thousand per person annually with an aggregate
liability of $575 thousand. Provisions for expected future claim payments are
accrued based on estimates of the aggregate liability for claims incurred plus
an estimate for incurred but not reported claims using historical experience.
Although management believes that the insurance reserves are adequate, the
reserve estimates are based on historical experience, which may not be
indicative of current and future losses. In addition, the actuarial
calculations used to estimate insurance reserves are based on numerous
assumptions, some of which are subjective. Both the Company and National
Welders will adjust their insurance reserves, if necessary, in the event that
future loss experience differs from historical loss patterns. 32




---



##### Table of Contents



Contractual Obligations and Off-Balance Sheet Arrangements The following table presents the Companys contractual obligations and
off-balance sheet arrangements as of March 31, 2004: (In thousands)
    
    
    
    
    
    Payments Due by PeriodContractual and Off-Balance Sheet Obligations
    
    Total
    
    Less than 1 year
    
    1 to 3 years
    
    3 to 5 years
    
    More than 5 yearsObligations reflected on the March
31, 2004 Balance Sheet:Long-term debt (1)
    
    $
    688,838
    
    
    $
    6,140
    
    
    $
    288,106
    
    
    $
    12,157
    
    
    $
    382,435Off-balance sheet obligations as of
March 31, 2004:Operating leases (2)
    
    
    134,389
    
    
    
    39,329
    
    
    
    55,874
    
    
    
    28,194
    
    
    
    10,992Trade receivables securitization (3)
    
    
    162,600
    
    
    
    
    
    
    
    162,600
    
    
    
    
    
    
    
    Letters of credit (4)
    
    
    32,598
    
    
    
    32,598
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations:Liquid bulk gas supply agreements
(5)
    
    
    539,000
    
    
    
    52,000
    
    
    
    91,500
    
    
    
    84,000
    
    
    
    311,500Liquid carbon dioxide supply
agreements (6)
    
    
    124,470
    
    
    
    12,401
    
    
    
    18,548
    
    
    
    11,826
    
    
    
    81,695Other purchase commitments (7)
    
    
    5,104
    
    
    
    4,160
    
    
    
    683
    
    
    
    261
    
    
    
    Total
    
    $
    1,686,999
    
    
    $
    146,628
    
    
    $
    617,311
    
    
    $
    136,438
    
    
    $
    786,622
  (1)
    
    Aggregate long-term debt instruments are reflected in the
Consolidated Balance Sheet as of March 31, 2004. Long-term debt
includes capital lease obligations, which were not material and,
therefore, did not warrant separate disclosure. See Note 10 to the
Consolidated Financial Statements for more information regarding
long-term debt instruments.(2)
    
    The Companys operating leases include approximately $55 million in
fleet vehicles under long-term operating leases. The Company guarantees
a residual value of $13.8 million related to its leased vehicles.(3)
    
    The Company participates in a securitization agreement with two
commercial banks to sell up to $175 million of qualifying trade
receivables. The agreement expires in December 2005, but the term is
subject to renewal provisions contained in the agreement. Under the
securitization agreement, on a monthly basis, eligible trade receivables
are sold to two commercial banks through a bankruptcy-remote special
purpose entity. Proceeds received from the sale of receivables were
used by the Company to reduce its borrowings on its revolving credit
facilities. The securitization agreement is a form of off-balance sheet
financing. Also see Note 13 to the Consolidated Financial Statements.(4)
    
    Letters of credit are guarantees of payment to third parties. The
Companys letters of credit principally back obligations associated with
the Companys self-insured retention on workers compensation,
automobile and general liability claims and acquisition notes. The
letters of credit are supported by the Companys revolving credit
facility. 33




---



##### Table of Contents



(5)
    
    In connection with the Air Products acquisition, the Company entered
into a 15-year take-or-pay supply agreement, expiring September 1, 2017,
under which Air Products will supply at least 35% of the Companys bulk
liquid nitrogen, oxygen and argon requirements, exclusive of the volumes
purchased under the new BOC supply agreement noted below. Additionally,
the Company has commitments to purchase helium under the terms of the
supply agreement. Based on the volume of fiscal 2004 purchases, the Air
Products supply agreement represents approximately $42 million in annual
liquid bulk gas purchases. The purchase commitments for future periods
contained in the table above reflect estimates based on fiscal 2004
purchases.In December 2002, the Company entered into a 3-year take-or-pay supply
agreement with BOC to purchase liquid nitrogen, oxygen and argon. Under
the BOC supply agreement, BOC reserves specified production volumes at
certain plants and the Company has agreed to purchase at least 75% of
those volumes. Purchases under the existing BOC supply agreement are
anticipated to be approximately $10 million annually. The BOC supply
agreement will be replaced with a new BOC supply agreement upon closing of
the acquisition of the BOC packaged gas business.Both the Air Products and BOC supply agreements contain market pricing
subject to certain economic indices and market analysis. The Company
believes the minimum product purchases under the agreements are well
within the Companys normal product purchases. Actual purchases in future
periods under the supply agreements could differ materially from those
presented in the table due to fluctuations in demand requirements related
to varying sales levels as well as changes in economic conditions.(6)
    
    The Company is a party to long-term take-or-pay supply agreements for
the purchase of liquid carbon dioxide. The aggregate obligations under
the supply agreements represent approximately 20% of the Companys
annual carbon dioxide requirements. The purchase commitments for future
periods contained in the table above reflect estimates based on fiscal
2004 purchases. The Company believes the minimum product purchases
under the Agreements are within the Companys normal product purchases.
Actual purchases in future periods under the carbon dioxide supply
agreements could differ materially from those presented in the table due
to fluctuations in demand requirements related to varying sales levels
as well as changes in economic conditions. Certain of the liquid carbon
dioxide supply agreements contain market pricing subject to certain
economic indices.(7)
    
    Other purchase commitments primarily include property, plant and
equipment expenditures. New Accounting Pronouncements There were no new accounting pronouncements that have been issued and not
adopted as of the date of this Annual Report on Form 10-K. Forward-looking Statements This report contains statements that are forward looking within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to, statements regarding: managements
belief that the Company is well positioned to take advantage of a rebounding
industrial economy; the closing of the BOC acquisition on July 30, 2004; the
process of integrating the BOC acquisition providing both challenges and
opportunities; the components of the BOC business and the revenues to be
acquired; the Companys belief that the economic recovery will continue during
fiscal 2005; the Companys estimate of fiscal 2005 net earnings of $1.21 to
$1.27 per diluted share, including $0.02 per diluted share of 34




---



##### Table of Contents



accretion from the BOC acquisition; the Companys estimate that net earnings
in the fiscal 2005 first quarter will be $0.27 to $0.31 per diluted share; the
success of strategic sales initiatives as platforms for sales growth and market
penetration in the industries served by the Company; the ability to grow sales
through the strategy of focusing on opportunities in niche markets; the success
of focusing on products and markets that will grow at a faster rate than the
overall economy; the Companys belief that, if a contractual arrangement with
any supplier of gases, raw materials or hardgoods was terminated, it would be
able to locate alternative sources of supply without disruption of service; the Compnays
beleif that the minimum product purchases under its liquid bulk gas
and carbon dioxide supply agreements are well with in
the Companys normal product purchases; the
Companys estimate that for every 25 basis point increase in LIBOR, annual
interest expense will increase approximately $900 thousand; the Companys
expectation that the weighted average number of shares outstanding will
increase 2% to 3% per year; the Companys estimate that fiscal 2005 capital
spending will be in the range of $115 million to $130 million; the identification of acquisition
candidates; the funding of capital expenditures, current debt maturities and
any future acquisitions through the use of cash flow from operations, revolving
credit facilities and other financing alternatives; the ability of the Company
to arrange additional sources of financing for unanticipated requirements; the
future payment of dividends; the Companys ability to refinance the term loan
and grantor trust debt with borrowings under its long-term revolving credit
facilities; the ability to contain costs and/or pass-on cost increases to
customers in an inflationary environment; the Companys estimates of purchase
commitments associated with product supply agreements; the Companys belief
that the minimum product purchases under product supply agreements are well
within the Companys normal product purchases; and the performance of
counterparties under interest rate swap agreements. These forward-looking statements involve risks and uncertainties. Factors
that could cause actual results to differ materially from those predicted in
any forward-looking statement include, but are not limited to: adverse
customer response to the Companys strategic sales initiatives and resulting
inability to drive sales growth and market penetration; the Companys inability
to identify niche products and services that will grow at a faster rate than
the overall economy; the inability to obtain alternative supply sources to adequately meet customer demand; the inability to take delivery of minimum
product purchases under the liquid bulk gas and liquid carbon dioxide
supply agreements;
the Companys inability to control
operating expenses and the potential impact of higher operating expenses in
future periods; adverse changes in customer buying patterns; an economic
downturn (including adverse changes in the specific markets for the Companys
products); higher than estimated interest expense resulting from increases in
LIBOR and/or changes in the Companys credit rating; disruption to the
Companys business from integration problems associated with acquisitions; the
failure to close the BOC acquisition by July 30, 2004; higher or lower capital
spending in fiscal 2005 than that estimated by the Company; a lack of
available cash flow necessary to pay future dividends; higher levels of options
exercised or shares purchased under the employee stock purchase programs and
their effect on weighted average shares outstanding; actual earnings in the
first quarter of fiscal 2005 and/or in fiscal 2005 falling outside the
Companys range of estimates; the inability of the Company to increase sales despite a
rebound in the economy; the inability to generate sufficient cash flow from
operations or other sources to fund future acquisitions, capital expenditures,
current debt maturities and to reduce debt; the inability to identify and
successfully integrate acquisition candidates; defaults by counterparties under
interest rate swap agreements; changes in the Companys debt levels and/or
credit rating which prevent the Company from arranging additional financing;
the inability to manage interest rate exposure; the effects of competition from
independent distributors and vertically integrated gas producers on products,
pricing and sales growth; changes in product prices from gas producers and
name-brand manufacturers and suppliers of hardgoods; the inability to pass-on
cost increases to customers; uncertainties regarding accidents or litigation
which may arise in the ordinary course of business; and the effects of, and
changes in, the economy, monetary and fiscal policies, laws and regulations,
inflation and monetary fluctuations and fluctuations in interest rates, both on
a national and international basis. The Company does not undertake to update
any forward-looking statement made herein or that may be made from time to time
by or on behalf of the Company. 35




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company manages its exposure to changes in market interest rates. The
interest rate exposure arises primarily from the interest payment terms of the
Companys borrowing agreements. Interest rate swap agreements are used to
adjust the interest rate risk exposures that are inherent in its portfolio of
funding sources. The Company has not, and will not establish any interest risk
positions for purposes other than managing the risk associated with its
portfolio of funding sources. The Company maintains the ratio of fixed to
variable rate debt within parameters established by management under policies
approved by the Board of Directors. Including the effect of interest rate swap
agreements on the Companys debt and off-balance sheet financing agreements,
the Companys ratio of fixed to variable rate debt was 57% to 43% at March 31,
2004. The ratio includes the effect of the fixed to variable rate debt of
National Welders. Counterparties to interest rate swap agreements are major
financial institutions. The Company has established counterparty credit
guidelines and only enters into transactions with financial institutions with
long-term credit ratings of A or better. In addition, the Company monitors
its position and the credit ratings of its counterparties, thereby minimizing
the risk of non-performance by the counterparties. The table below summarizes the Companys market risks associated with
long-term debt obligations, interest rate swaps and LIBOR-based agreements as
of March 31, 2004. For long-term debt obligations, the table presents cash
flows related to payments of principal and interest by fiscal year of maturity.
For interest rate swaps and LIBOR-based agreements, the table presents the
notional amounts underlying the agreements by year of maturity. The notional
amounts are used to calculate contractual payments to be exchanged and are not
actually paid or received. Fair values were computed using market quotes, if
available, or based on discounted cash flows using market interest rates as of
the end of the period. Fiscal Year of MaturityFair(In millions)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    ValueFixed Rate Debt:Medium-term notes
    
    $
    
    
    
    $
    
    
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100
    
    
    $
    104Interest expense
    
    $
    8
    
    
    $
    8
    
    
    $
    4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    20Average interest rate
    
    
    7.75
    %
    
    
    7.75
    %
    
    
    7.75
    %Acquisition and other notes
    
    $
    
    
    
    $
    7
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    8Interest expense
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1Average interest rate
    
    
    7.70
    %
    
    
    7.90
    %
    
    
    7.65
    %Senior subordinated notes
due 2011
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    225
    
    
    $
    225
    
    
    $
    250Interest expense
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    53
    
    
    $
    158Interest rate
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %Senior subordinated notes
due 2014
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150
    
    
    $
    150
    
    
    $
    152Interest expense
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    49
    
    
    $
    94Interest rate
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %National Welders:Other notes
    
    $
    2
    
    
    $
    2
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    7Interest expense
    
    $
    .3
    
    
    $
    .2
    
    
    $
    .1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .6Average interest rate
    
    
    7.00
    %
    
    
    7.00
    %
    
    
    7.00
    %
 36




---



##### Table of Contents



Fiscal Year of MaturityFair(In millions)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    ValueVariable Rate Debt:Revolving credit facilities
    
    $
    
    
    
    $
    
    
    
    $
    27
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27
    
    
    $
    27Interest expense
    
    $
    1
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2Interest rate (a)
    
    
    4.06
    %
    
    
    4.06
    %
    
    
    4.06
    %Term Loan
    
    $
    22
    
    
    $
    30
    
    
    $
    18
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    70
    
    
    $
    70Interest expense
    
    $
    2
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3Interest rate (a)
    
    
    3.11
    %
    
    
    3.11
    %
    
    
    3.11
    %Debt of Grantor Trust (b)
    
    $
    41
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41
    
    
    $
    41Interest expense
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1Interest rate
    
    
    2.85
    %National Welders:Revolving credit facility
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6
    
    
    $
    6Interest expense
    
    $
    .2
    
    
    $
    .2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .4Interest rate (a)
    
    
    3.09
    %
    
    
    3.09
    %Term loan A
    
    $
    3
    
    
    $
    3
    
    
    $
    3
    
    
    $
    12
    
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    21Interest expense
    
    $
    .6
    
    
    $
    .5
    
    
    $
    .4
    
    
    $
    .1
    
    
    $
    
    
    
    $
    
    
    
    $
    1.6Interest rate (a)
    
    
    3.09
    %
    
    
    3.09
    %
    
    
    3.09
    %
    
    
    3.09
    %Term loan B
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    21Interest expense
    
    $
    .7
    
    
    $
    .6
    
    
    $
    .2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.5Interest rate (a)
    
    
    3.09
    %
    
    
    3.09
    %
    
    
    3.09
    %
 37




---



##### Table of Contents



Fiscal Year of MaturityFair(In millions)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    ValueInterest Rate Swaps:US $ denominated Swaps:4 Swaps Receive Variable/Pay FixedNotional amounts
    
    $
    40
    
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    90
    
    
    $
    2Swap payments/(receipts)
    
    $
    2
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3Variable Receive rate = 1.12%
(3-month LIBOR)Weighted average pay rate = 4.55%4 Swaps Receive Fixed/Pay VariableNotional amounts
    
    $
    
    
    
    $
    
    
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    75
    
    
    $
    125
    
    
    $
    (14
    )Swap payments/(receipts)
    
    $
    (7
    )
    
    $
    (7
    )
    
    $
    (5
    )
    
    $
    (4
    )
    
    $
    (4
    )
    
    $
    (10
    )
    
    $
    (37
    )Variable pay rate = 3.16%
(6-month LIBOR)Weighted average receive rate= 8.36%National Welders:Interest Rate Swap:1 Swap Receive Variable/Pay FixedNotional amount
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    3Swap payments/(receipts)
    
    $
    1.2
    
    
    $
    1.2
    
    
    $
    .3
    
    
    $
    
    

    
    $
    
    
    
    $
    
    
    
    $
    2.7Variable receive rate = 1.09%
(30-day LIBOR)Weighted average pay rate= 6.72%Other Off-Balance SheetLIBOR-based agreements:Trade receivable securitization (c)
    
    $
    
    
    
    $
    163
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    163
    
    
    $
    163Discount on securitization
    
    $
    3
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5
  (a)
    
    The variable rate of U.S. revolving credit facilities and term loan is
based on LIBOR as of March 31, 2004. The variable rate of the Canadian dollar
portion of the revolving credit facilities is the rate on Canadian Bankers
acceptances as of March 31, 2004.(b)
    
    The Grantor Trust debt will mature on October 8, 2004.
The Company intends to refinance the Grantor Trust debt with its
revolving credit facility.(c)
    
    The agreement expires in December 2005, but is subject to renewal
provisions contained in the agreement. Limitations of the tabular presentation As the table incorporates only those interest rate risk exposures that
exist as of March 31, 2004, it does not consider those exposures or positions
that could arise after that date. In addition, actual cash flows of financial
instruments in future periods may differ materially from prospective cash flows
presented in the table due to future fluctuations in variable interest rates,
debt levels and the Companys credit rating. Foreign Currency Rate Risk Canadian subsidiaries of the Company are funded with local currency debt.
The Company does not otherwise hedge its exposure to translation gains and
losses relating to foreign currency net asset exposures. The Company considers
its exposure to foreign currency exchange fluctuations to be immaterial to its
consolidated financial position and results of operations. 38




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements, supplementary information and
financial statement schedule of the Company are set forth at pages F-1 to F-54
of the report. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. None. 
 ITEM 9A. CONTROLS AND PROCEDURES.  (a)
    
    Evaluation of Disclosure Controls and Procedures The Company carried out an evaluation, under the supervision and with the
participation of the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Companys disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) as of March 31, 2004. Based on that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer have concluded that as of
such date, the Companys disclosure controls and procedures were effective to
ensure that information required to be disclosed by the Company in the reports
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported in the periods specified in the Securities
and Exchange Commissions rules and forms.  (b)
    
    Changes in Internal Controls There were no changes in the Companys internal control over financial
reporting that occurred during the fiscal quarter ended March 31, 2004 that
have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The biographical information of the Companys directors appearing in the
Proxy Statement relating to the Companys 2004 Annual Meeting of Stockholders
is incorporated herein by reference. Biographical information relating to the
Companys executive officers set forth in Item 1 of Part I of this Form 10-K
Report is incorporated herein by reference. 
 ITEM 11. EXECUTIVE COMPENSATION. The information under Board of Directors and Committees, Executive
Compensation and Certain Transactions appearing in the Proxy Statement
relating to the Companys 2004 Annual Meeting of Stockholders is incorporated
herein by reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is set forth in the sections headed
Security Ownership and Equity Compensation Plan Information under
Executive Compensation appearing in the Companys Proxy
Statement relating to the Companys 2004 Annual Meeting of Stockholders and
such information is incorporated herein by reference. 39




---



##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is set forth in the Proxy Statement
under the section Certain Relationships and Related Transactions and such
information is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES. The information required by this Item is set forth in the Proxy
Statement under the section Proposal to Ratify Accountants and such
information is incorporated herein by reference. 
 PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) and (2): The response to this portion of Item 15 is submitted as a separate section
of this report beginning on page F-1. All other schedules have been omitted as
inapplicable, or not required, or because the required information is included
in the Consolidated Financial Statements or notes thereto. (a)(3) Exhibits. The exhibits required to be filed as part of this annual report on Form
10-K are listed in the attached Index to Exhibits. (b) Reports on Form 8-K. During the fourth quarter ended March 31, 2004, the following Form 8-K
reports were filed or furnished by the Company: On January 27, 2004, the Company filed a current report on Form 8-K
pursuant to Items 5 and 7 announcing that it signed a non-binding letter of
intent to acquire most of the assets of the U.S. packaged gas business of The
BOC Group, Inc. in a transaction valued up to $200 million. On January 29, 2004, the Company furnished a current report on Form 8-K
dated January 28, 2004 pursuant to Items 7 and 12 reporting its earnings for
its third quarter and nine months ended December 31, 2003. On March 4, 2004, the Company filed a current report on Form 8-K dated
March 2, 2004 pursuant to Items 5 and 7 announcing its intent to commence an
offering of $150 million of a new series of senior subordinated notes due 2014. On March 4, 2004, the Company filed a current report on Form 8-K dated
March 3, 2004 pursuant to Items 5 and 7 announcing that it priced and will sell
$150 million of its 6.25% senior subordinated notes due 2014. 40




---



##### Table of Contents



(c) Index to Exhibits and Exhibits filed as a part of this report. Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Airgas, Inc.
dated as of August 7, 1995. (Incorporated by reference to Exhibit 3.1 to
the Companys September 30, 1995 Quarterly Report on Form 10-Q).3.2
    
    Airgas, Inc. By-Laws Amended and Restated through August 2, 1999.
(Incorporated by reference to Exhibit 3 to the Companys September 30,
1999 Quarterly Report on Form 10-Q).4.1
    
    Tenth Amended and Restated Credit Agreement dated as of July 30, 2001
among Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of
America, N.A. as U.S. Agent and Canadian Imperial Bank of Commerce as
Canadian Agent. (Incorporated by reference to Exhibit 4.1 to the
Companys June 30, 2001 Quarterly Report on Form 10-Q).4.2
    
    First Amendment, dated December 31, 2001, to the Tenth Amended and
Restated Credit Agreement dated as of July 30, 2001 among Airgas, Inc.,
Airgas Canada, Inc., Red-D-Arc Limited, Bank of America, N.A. as U.S.
Agent and Canadian Imperial Bank of Commerce as Canadian Agent.
(Incorporated by reference to Exhibit 4.1 to the Companys December 31,
2001 Quarterly Report on Form 10-Q).4.3
    
    Second Amendment, dated August 20, 2002, to the Tenth Amended and
Restated Credit Agreement dated as of July 30, 2001 among Airgas, Inc.,
Airgas Canada, Inc., Red-D-Arc Limited, Bank of America, N.A. as U.S.
Agent and Canadian Imperial Bank of Commerce as Canadian Agent.
(Incorporated by reference to Exhibit 4.3 to the Companys March 31,
2003 Report on Form 10-K).4.4
    
    Third Amendment, dated May 2, 2003, to the Tenth Amended and Restated
Credit Agreement dated as of July 30, 2001 among Airgas, Inc., Airgas
Canada, Inc., Red-D-Arc Limited, Bank of America, N.A. as U.S. Agent and
Canadian Imperial Bank of Commerce as Canadian Agent. (Incorporated by
reference to Exhibit 4.4 to the Companys March 31, 2003 Report on Form
10-K).4.5
    
    Fourth Amendment, dated February 6, 2004, to the Tenth Amended and
Restated Credit Agreement dated as of July 30, 2001 among Airgas, Inc.,
Airgas Canada, Inc., Red-D-Arc Limited, Bank of America, N.A. as U.S.
Agent and Canadian Imperial Bank of Commerce as Canadian Agent.
(Incorporated by reference to Exhibit 4 to the Companys December 31,
2003 Quarterly Report on Form 10-Q).4.6
    
    Indenture dated as of August 1, 1996 of Airgas, Inc. to Bank of New
York, Trustee. (Incorporated by reference to Exhibit 4.5 to the
Companys Registration Statement on Form S-4 No. 333-23651 dated March
20, 1997).4.7
    
    Form of Airgas, Inc. Medium-Term Note (Fixed Rate). (Incorporated by
reference to Exhibit 4.6 to the Companys Registration Statement on Form
S-4 No. 333-23651 dated March 20, 1997).4.8
    
    Form of Airgas, Inc. Medium-Term Note (Floating Rate). (Incorporated
by reference to Exhibit 4.7 to the Companys Registration Statement on
Form S-4 No. 333-23651 dated March 20, 1997).
 41




---



##### Table of Contents



Exhibit No.
    
    Description4.9
    
    Indenture, dated as of July 30, 2001, among Airgas, Inc., the
subsidiary guarantors of Airgas, Inc. and The Bank of New York, as
Trustee, related to the 9.125% Senior Subordinated Notes due 2011
(including exhibits). (Incorporated by reference to Exhibit 4.7 to the
Companys Registration Statement on Form S-4 No. 333-68722 dated August
30, 2001 and as amended September 14, 2001).4.10
    
    Exchange and Registration Rights Agreement, dated as of July 30,
2001, among Airgas, Inc., the subsidiary guarantors of Airgas, Inc. and
the initial purchasers of the 9.125% Senior Subordinated Notes due 2011.
(Incorporated by reference to Exhibit 4.8 to the Companys Registration
Statement on Form S-4 No. 333-68722 dated August 30, 2001 and as amended
September 14, 2001).4.11
    
    Indenture, dated as of March 8, 2004, among Airgas, Inc., the
subsidiary guarantors of Airgas, Inc. and The Bank of New York, as
Trustee, relating to the 6.25% Senior Subordinated Notes due 2014.
(Incorporated by reference to Exhibit 4.14 to the Companys Registration
Statementj on Form S-4 No. 333-114499 dated April 15, 2004).4.12
    
    Exchange and Registration Rights Agreement, dated as of March 8,
2004, among Airgas, Inc., the subsidiary guarantors of Airgas, Inc. and
the initial purchasers of the 6.25% Senior Subordinated Notes due 2014.
(Incorporated by reference to Exhibit 4.15 to the Companys Registration
Statement on Form S-4 No. 333-114499 dated April 15, 2004).There are no other instruments with respect to long-term debt of the
Company that involve indebtedness or securities authorized
thereunder exceeding 10 percent of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to
file a copy of any instrument or agreement defining the rights of
holders of long-term debt of the Company upon request of the
Securities and Exchange Commission.4.13
    
    Rights Agreement, dated as of April 1, 1997, between Airgas, Inc. and
The Bank of New York, N.A., as Rights Agent, which includes as Exhibit B
thereto the Form of Right Certificate. (Incorporated by reference to
Exhibit 1.1 to the Companys Form 8-A filed on April 28, 1997).4.14
    
    First Amendment, dated November 12, 1998, to the Rights Agreement
dated as of April 1, 1997, between Airgas, Inc. and The Bank of New
York. (Incorporated by reference to Exhibit 4 to the Companys December
31, 1998 Quarterly Report on Form 10-Q).*10.1
    
    Amended and Restated 1984 Stock Option Plan, as amended effective
May 22, 1995. (Incorporated by reference to Exhibit 10.1 to the Companys
September 30, 1995 Quarterly Report on Form 10-Q).*10.2
    
    1989 Non-Qualified Stock Option Plan for Directors (Non-Employees)
as amended through August 7, 1995. (Incorporated by reference to Exhibit
10.2 to the Companys September 30, 1995 Quarterly Report on Form 10-Q).*10.3
    
    2001 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 4 to the Companys Registration Statement on Form S-8 No.
333-69214 dated September 10, 2001).
 42




---



##### Table of Contents



Exhibit No.
    
    Description*10.4
    
    2003 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 4 to the Companys Registration Statement on Form S-8 No.
333-107872 dated August 12, 2003).*10.5
    
    Joint Venture Agreement dated June 28, 1996 between Airgas, Inc. and
National Welders Supply Company, Inc. and J.A. Turner, III, and Linerieux
B. Turner and Molo Limited Partnership, Turner (1996) Limited partnership,
Charitable Remainder Unitrust for James A. Turner, Jr. and Foundation for
the Carolinas (Incorporated by reference to Exhibit 2.1 to the Companys
June 28, 1996 Report on Form 8-K).*10.6
    
    Letter dated July 24, 1992 between Airgas, Inc. (on behalf of the
Nominating and Compensation Committee) and Peter McCausland regarding the
severance agreement between the Company and Peter McCausland.
(Incorporated by reference to Exhibit 10.9 to the Companys March 31, 1997
Report on Form 10-K).*10.7
    
    1997 Stock Option Plan, as amended through May 7, 2002, and approved
by the Companys stockholders on July 31, 2002. (Incorporated by
reference to Exhibit 10.1 to the Companys June 30, 2002 Quarterly Report
on Form 10-Q).*10.8
    
    1997 Directors Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to the Companys September 30, 1997 Quarterly Report on Form
10-Q).*10.9
    
    Employee Benefits Trust Agreement, dated March 30, 1999, between
Airgas, Inc. and First Union National Bank, as Trustee, which includes as
Exhibit 1 thereto the Common Stock Purchase Agreement, dated March 30,
1999, between Airgas, Inc. and First Union National Bank, as Trustee, and
Exhibit 2 thereto the Promissory Note, dated March 31, 1999, between
Airgas, Inc. and First Union National Bank, as Trustee. (Incorporated by
reference to Exhibit 10.12 to the Companys March 31, 1999 Report on Form
10-K).*10.10
    
    Employee Benefits Trust Amendment Letter, dated March 7, 2000,
between Airgas, Inc. and First Union National Bank, as Trustee.
(Incorporated by reference to Exhibit 10.13 to the Companys March
31, 2000 Report on Form 10-K).*10.11
    
    Airgas, Inc. Fiscal Year 2002 Executive Bonus Plan dated April 1,
2001. (Incorporated by reference to Exhibit 10.18 to the Companys
March 31, 2002 Report on Form 10-K).*10.12
    
    Airgas, Inc. Deferred Compensation Plan dated December 17, 2001.
(Incorporated by reference to Exhibit 4 to the Companys
Registration Statement on Form S-8 No. 333-75258 dated December 17,
2001).10.13
    
    Asset Purchase Agreement dated January 3, 2002, by and among Air
Products and Chemicals, Inc., Airgas, Inc. and National Welders Supply
Company, Inc. A Liquid Bulk Product Supply Agreement is included as
Exhibit E-1 to the Asset Purchase Agreement. (Incorporated by reference
to Exhibit 2.1 to Form 8-K dated February 28, 2002). Certain information
contained in sections 6.3 and 7.4 of the Liquid Bulk Product Supply
agreement was omitted pursuant to a request submitted to the Securities
and Exchange Commission for confidential treatment.
 43




---



##### Table of Contents



Exhibit No.
    
    Description*10.14
    
    Change of Control Agreement between Airgas, Inc. and Glenn Fischer dated October 10, 2000. Eleven other Executive
Officers, including Peter McCausland, are parties to substantially identical agreements. (Incorporated by
reference to Exhibit 10.15 to the Companys March 31, 2002 Report on Form 10-K).*10.15
    
    Airgas, Inc. Fiscal Year 2003 Executive Bonus Plan dated April 1, 2002. (Incorporated by reference to Exhibit
10.14 to the Companys March 31, 2002 Report on Form 10-K).*10.16
    
    Airgas, Inc. Fiscal Year 2004 Executive Bonus Plan dated April 1, 2003. (Incorporated by reference to Exhibit 10.1
to the Companys June 30, 2003 Report on Form 10-Q).*10.17
    
    Airgas, Inc. Fiscal Year 2005 Executive Bonus Plan dated April 1, 2004.11
    
    Statement re: computation of earnings per share.12
    
    Statement re: computation of the ratio of earnings to fixed charges.21
    
    Subsidiaries of the Company.23
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Peter McCausland as Chairman and Chief Executive Officer
of Airgas, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Roger F. Millay as Senior Vice President and Chief
Financial Officer of Airgas, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Peter McCausland as Chairman and Chief Executive Officer
of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Roger F. Millay as Senior Vice President and Chief
Financial Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    A management contract or compensatory plan required to be filed by Item 14(c)
of this Report. 44




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas, Inc.
(Registrant)By:
    /s/ Peter McCauslandPeter McCauslandChairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Peter McCausland
    
    Director, Chairman of the Board,
    
    June 10, 2004and Chief Executive Officer(Peter McCausland)/s/ Roger F. Millay
    
    Senior Vice President and
    
    June 10, 2004Chief Financial Officer(Roger F. Millay)
    
    (Principal Financial Officer)/s/ Robert M. McLaughlin
    
    Vice President and Controller
    
    June 10, 2004(Principal Accounting Officer)(Robert M. McLaughlin)/s/ William O. Albertini
    
    Director
    
    June 10, 2004(William O. Albertini)/s/ W. Thacher Brown
    
    Director
    
    June 10, 2004(W. Thacher Brown)/s/ Frank B. Foster, III
    
    Director
    
    June 10, 2004(Frank B. Foster, III)
 45




---



##### Table of Contents



Signature
    
    Title
    
    Date/s/ James W. Hovey
    
    Director
    
    June 10, 2004(James W. Hovey)/s/ Paula A. Sneed
    
    Director
    
    June 10, 2004(Paula A. Sneed)/s/ David M. Stout
    
    Director
    
    June 10, 2004(David M. Stout)/s/ Lee M. Thomas
    
    Director
    
    June 10, 2004(Lee M. Thomas)/s/ Robert L. Yohe
    
    Director
    
    June 10, 2004(Robert L. Yohe)
 46




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas East, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ James A. Muller
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(James A. Muller)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 47




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Great Lakes, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Michael Ziegler
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Michael Ziegler)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 48




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Mid America, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Robert Hilliard
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Robert Hilliard)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 49




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas North Central, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Ronald Stark
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Ronald Stark)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 50




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas South, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Michael Rohde
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Michael Rohde)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 51




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Gulf States, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Henry B. Coker, III
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Henry B. Coker, III)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 10, 2004(B. Shaun Powers)
 52




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Mid South, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Michael Duvall
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Michael Duvall)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 53




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Intermountain, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Daniel L. Tatro
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Daniel L. Tatro)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 54




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Nor Pac, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Mark Clemens
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Mark Clemens)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 55




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Northern California & Nevada, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ James D. McCarthy
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(James D. McCarthy)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 56




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Southwest, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Brent Sparks
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Brent Sparks)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 57




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas West, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Max D. Hooper
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Max D. Hooper)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 10, 2004(Alfred B. Crichton)
 58




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Safety, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/
Don Carlino
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Don Carlino)/s/ Glenn Fischer
    
    Director
    
    June 10, 2004(Glenn Fischer)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 10, 2004(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 59




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Rutland Tool & Supply Co., Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/
Glen Irving
    
    President and Director
    
    June 10, 2004(Principal Executive Officer)(Glen Irving)/s/ Glenn Fischer
(Glenn Fischer)
    
    Director
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President and Director
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004
 60




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Carbonic, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Philip J. Filer
(Philip J. Filer)
    
    President and Director
(Principal Executive Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President and Director
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004
 61




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Specialty Gases, Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ William Russo
(William Russo)
    
    President and Director
(Principal Executive Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President and Director
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004
 62




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Nitrous Oxide Corp.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Ted Schulte
(Ted Schulte)
    
    President and Director
(Principal Executive Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President and Director
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004/s/ B. Shaun Powers
(B. Shaun Powers)
    
    Director
    
    June 10, 2004
 63




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Red-D-Arc Inc.
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Mitch M. Imielinski
(Mitch M. Imielinski)
    
    President and Director
(Principal Executive Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President and Director
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004/s/ B. Shaun Powers
(B. Shaun Powers)
    
    Director
    
    June 10, 2004
 64




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 ATNL, Inc.
(Registrant)By:
    /s/ Melanie AndrewsMelanie AndrewsPresident Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Melanie Andrews
(Melanie Andrews)
    
    President
(Principal Executive Officer Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Director
    
    June 10, 2004/s/ Joseph C. Sullivan
(Joseph C. Sullivan)
    
    Director
    
    June 10, 2004/s/ Peter Campbell
(Peter Campbell)
    
    Director
    
    June 10, 2004/s/ Gordon W. Stewart
(Gordon W. Stewart)
    
    Director
    
    June 10, 2004
 65




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized. Dated: June 10, 2004 Airgas Data, LLC
(Registrant)By:
    /s/ Robert M. McLaughlinRobert M. McLaughlinVice President Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/ Carey M. Verger
(Carey M. Verger)
    
    President and Member
(Principal Executive Officer)
    
    June 10, 2004/s/ Robert M. McLaughlin
(Robert M. McLaughlin)
    
    Vice President
(Principal Financial Officer/
Principal Accounting Officer)
    
    June 10, 2004
 66




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES PageReference InReport OnForm 10-KFinancial Statements:Report of Independent Registered Public Accounting
Firm
    
    
    F-2Statement of Managements Financial
Responsibility
    
    
    F-3Consolidated Statements of Earnings for the Years Ended
March 31, 2004, 2003 and
2002
    
    
    F-4Consolidated Balance Sheets as of March 31, 2004 and
2003
    
    
    F-5Consolidated Statements of Stockholders Equity for the
Years Ended March 31, 2004, 2003 and
2002
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and
2002
    
    
    F-7Notes to Consolidated Financial
Statements
    
    
    F-8Financial Statement Schedule:Schedule II  Valuation and Qualifying
Accounts
    
    
    F-54
 All other schedules for which provision is made in the applicable
accounting regulations promulgated by the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and
therefore have been omitted. F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
Airgas, Inc.: We have audited the consolidated financial statements of Airgas, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Airgas, Inc. and
subsidiaries as of March 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2004, in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets and
derivative instruments and hedging activities effective April 1, 2001 and its
method of accounting for variable interest entities effective December 31,
2003. /s/KPMG LLP
Philadelphia, PA
May 3, 2004 F-2




---



##### Table of Contents



STATEMENT OF MANAGEMENTS FINANCIAL RESPONSIBILITY Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related financial
information in this Annual Report on Form 10-K. The statements are prepared in
conformity with accounting principles generally accepted in the United States
of America. The financial statements reflect managements informed judgment
and estimation as to the effect of events and transactions that are accounted
for or disclosed. Management maintains a system of internal control, which includes
disclosure controls and procedures, at each business unit. This system is
designed to provide reasonable assurance that assets are safeguarded, records
properly reflect transactions executed in accordance with managements
authorization, and material information related to the Company is made known to
management and disclosed in the Consolidated Financial Statements. Management
has evaluated the effectiveness of the Companys disclosure controls as of
March 31, 2004. Based on that evaluation, management has concluded that the
Companys disclosure controls and procedures are effective and ensure that
material information is recorded, processed, summarized and reported as
required by accounting principles generally accepted in the United States of
America. The Company also maintains a staff of internal auditors who review and
evaluate the system of internal control on a continual basis. In determining
the extent of the system of internal control, management recognizes that the
cost should not exceed the benefits derived. The evaluation of these factors
requires estimates and judgment by management. The Companys financial statements have been audited by KPMG LLP, an
Independent Registered Public Accounting Firm. Their Independent Registered
Public Accounting Firm Report, which is based on an audit made in accordance
with auditing standards generally accepted in the United States of America, is
presented on the previous page. In performing their audit, KPMG LLP considers
the Companys internal control structure to the extent they deem necessary in
order to plan their audit, determine the nature, timing and extent of tests to
be performed and issue their report on the consolidated financial statements. The Audit Committee of the Board of Directors, consisting solely of
independent Directors, meets regularly (jointly and separately) with the
independent auditors, the internal auditors and management to satisfy itself
that they are properly discharging their responsibilities. The auditors have
direct access to the Audit Committee. Airgas, Inc. /s/ Roger F. Millay
    
    /s/ Peter McCauslandRoger F. Millay
    
    Peter McCauslandSenior Vice President and
    
    Chairman andChief Financial Officer
    
    Chief Executive Officer
 May 3, 2004 F-3




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS Years Ended March 31,(In thousands, except per share amounts)
    
    2004
    
    2003
    
    2002Net
Sales
    
    $
    1,895,468
    
    
    $
    1,786,964
    
    
    $
    1,636,047Costs and ExpensesCost of products sold (excluding depreciation
expense)
    
    
    908,681
    
    
    
    850,316
    
    
    
    818,753Selling, distribution and administrative
expenses
    
    
    731,827
    
    
    
    698,228
    
    
    
    619,316Depreciation
    
    
    82,567
    
    
    
    73,482
    
    
    
    64,785Amortization (Note
8)
    
    
    5,389
    
    
    
    6,362
    
    
    
    8,160Special charges (recoveries), net (Note
4)
    
    
    (776
    )
    
    
    2,694
    
    
    
    Total costs and
expenses
    
    
    1,727,688
    
    
    
    1,631,082
    
    
    
    1,511,014Operating
Income
    
    
    167,780
    
    
    
    155,882
    
    
    
    125,033Interest expense, net (Note
17)
    
    
    (42,357
    )
    
    
    (46,375
    )
    
    
    (47,013
    )Discount on securitization of trade receivables (Note
13)
    
    
    (3,264
    )
    
    
    (3,326
    )
    
    
    (4,846
    )Other income (expense), net (Note
3)
    
    
    625
    
    
    
    (645
    )
    
    
    1,382Equity in earnings of unconsolidated affiliates (Note
16)
    
    
    5,213
    
    
    
    3,768
    
    
    
    3,835Minority interest (Note
16)
    
    
    (291
    )
    
    
    
    
    
    
    Earnings before income taxes and the cumulative effect of a
change in accounting
principle
    
    
    127,706
    
    
    
    109,304
    
    
    
    78,391Income taxes (Note
18)
    
    
    47,514
    
    
    
    41,199
    
    
    
    29,806Earnings before the cumulative effect of a change in
accounting
principle
    
    
    80,192
    
    
    
    68,105
    
    
    
    48,585Cumulative effect of a change in accounting principle (Note
2)
    
    
    
    
    
    
    
    
    
    
    (59,000
    )Net Earnings
(Loss)
    
    $
    80,192
    
    
    $
    68,105
    
    
    $
    (10,415
    )Basic earnings (loss) per share:Earnings per share before the cumulative effect of a change
in accounting
principle
    
    $
    1.10
    
    
    $
    .97
    
    
    $
    .71Cumulative effect per share of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (.86
    )Net earnings (loss) per
share
    
    $
    1.10
    
    
    $
    .97
    
    
    $
    (.15
    )Diluted earnings (loss) per share:Earnings per share before the cumulative effect of a change
in accounting
principle
    
    $
    1.07
    
    
    $
    .94
    
    
    $
    .69Cumulative effect per share of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    (.84
    )Net earnings (loss) per
share
    
    $
    1.07
    
    
    $
    .94
    
    
    $
    (.15
    )Weighted average shares outstanding:Basic (Note
5)
    
    
    72,800
    
    
    
    70,500
    
    
    
    68,100Diluted (Note
5)
    
    
    74,700
    
    
    
    72,300
    
    
    
    69,900Comprehensive income
(loss)
    
    $
    82,488
    
    
    $
    69,204
    
    
    $
    (13,663
    )
 See accompanying notes to consolidated financial statements. F-4




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS March 31,(In thousands)
    
    2004
    
    2003ASSETSCurrent AssetsTrade receivables, less allowances for doubtful accounts of $7,294 in 2004
and $8,514 in 2003 (Note13)
    
    $
    107,013
    
    
    $
    71,346Inventories, net (Note
6)
    
    
    170,300
    
    
    
    151,405Deferred income tax asset, net (Note
18)
    
    
    21,054
    
    
    
    17,688Prepaid expenses and other current
assets
    
    
    28,463
    
    
    
    30,143Total current
assets
    
    
    326,830
    
    
    
    270,582Plant and equipment at cost (Note
7)
    
    
    1,654,187
    
    
    
    1,345,783Less accumulated
depreciation
    
    
    (620,261
    )
    
    
    (476,291
    )Plant and equipment,
net
    
    
    1,033,926
    
    
    
    869,492Goodwill (Note
8)
    
    
    504,207
    
    
    
    437,709Other intangible assets, net (Note
8)
    
    
    19,733
    
    
    
    19,832Investments in unconsolidated affiliates (Note
16)
    
    
    6,292
    
    
    
    65,957Other non-current
assets
    
    
    40,091
    
    
    
    36,671Total
assets
    
    $
    1,931,079
    
    
    $
    1,700,243LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable,
trade
    
    $
    114,303
    
    
    $
    85,375Accrued expenses and other current liabilities (Note
9)
    
    
    122,026
    
    
    
    121,292Current portion of long-term debt (Note
10)
    
    
    6,140
    
    
    
    2,229Total current
liabilities
    
    
    242,469
    
    
    
    208,896Long-term debt, excluding current portion (Note
10)
    
    
    682,698
    
    
    
    658,031Deferred income tax liability, net (Note
18)
    
    
    257,031
    
    
    
    209,140Other non-current
liabilities
    
    
    20,789
    
    
    
    27,243Minority interest in subsidiary (Note
16)
    
    
    36,191
    
    
    
    Commitments and contingencies (Note
22)Stockholders Equity(Note 14)Preferred stock, no par value, 20,000 shares authorized, no shares issued or
outstanding in 2004 and
2003
    
    
    
    
    
    
    Common stock, par value $.01 per share, 200,000 shares authorized,
77,159 and 76,373 shares issued in 2004 and 2003,
respectively
    
    
    772
    
    
    
    764Capital in excess of par
value
    
    
    233,574
    
    
    
    216,275Retained
earnings
    
    
    481,677
    
    
    
    413,286Accumulated other comprehensive
loss
    
    
    (2,566
    )
    
    
    (3,302
    )Treasury stock, 1,470 and 547 common shares at cost in 2004
and 2003,
respectively
    
    
    (4,658
    )
    
    
    (4,289
    )Employee benefits trust, 2,241 and 3,421 common shares at cost in 2004
and 2003,
respectively
    
    
    (16,898
    )
    
    
    (25,801
    )Total stockholders
equity
    
    
    691,901
    
    
    
    596,933Total liabilities and stockholders
equity
    
    $
    1,931,079
    
    
    $
    1,700,243
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY Years Ended March 31, 2004, 2003 and 2002Shares of
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    Capital in
    
    
    
    
    
    Other
    
    
    
    
    
    Employee
    
    Compre-Stock $.01
    
    Common
    
    Excess of
    
    Retained
    
    Comprehensive
    
    Treasury
    
    Benefits
    
    hensive(In thousands)
    
    Par Value
    
    Stock
    
    Par Value
    
    Earnings
    
    Income (Loss)
    
    Stock
    
    Trust
    
    Income (Loss)Balance  March 31,
2001
    
    
    74,360.9
    
    
    $
    744
    
    
    $
    188,629
    
    
    $
    355,596
    
    
    $
    (1,153
    )
    
    $
    (3,982
    )
    
    $
    (42,985
    )Net
loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,415
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (10,415
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307
    )Shares issued in connection with
stock options exercised (Note
15)
    
    
    832.0
    
    
    
    8
    
    
    
    5,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,885Tax benefit associated with exercise
of stock options (Note
18)
    
    
    
    
    
    
    
    
    
    
    4,330Shares issued from Employee Benefits Trust
for Employee Stock Purchase Plan (Note 14)
    
    
    
    
    
    
    
    
    
    
    (1,074
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,443Issuance of warrants (Note
14)
    
    
    
    
    
    
    
    
    
    
    1,068Cumulative effect of a change in accounting
principle (Note
2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,664
    )
    
    
    
    
    
    
    
    
    
    
    (6,664
    )Net change in fair value of interest rate swap
agreements (Note
12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,740
    
    
    
    
    
    
    
    
    
    
    
    1,740Net tax benefit of comprehensive income items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,677
    
    
    
    
    
    
    
    
    
    
    
    1,677Balance  March 31,
2002
    
    
    75,192.9
    
    
    $
    752
    
    
    $
    198,500
    
    
    $
    345,181
    
    
    $
    (4,401
    )
    
    $
    (4,289
    )
    
    $
    (32,657
    )
    
    $
    (13,663
    )Net
earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,105Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715
    
    
    
    
    
    
    
    
    
    
    
    715Shares issued in connection with
stock options exercised (Note
15)
    
    
    1,180.1
    
    
    
    12
    
    
    
    9,081
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754Tax benefit associated with exercise
of stock options (Note
18)
    
    
    
    
    
    
    
    
    
    
    5,845Shares issued from Employee Benefits Trust
for Employee Stock Purchase Plan (Note 14)
    
    
    
    
    
    
    
    
    
    
    2,849
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,102Net change in fair value of interest rate swap
agreements (Note
12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565
    
    
    
    
    
    
    
    
    
    
    
    565Net tax expense of comprehensive income items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    (181
    )Balance  March 31,
2003
    
    
    76,373.0
    
    
    $
    764
    
    
    $
    216,275
    
    
    $
    413,286
    
    
    $
    (3,302
    )
    
    $
    (4,289
    )
    
    $
    (25,801
    )
    
    $
    69,204Net
earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,192Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,573
    
    
    
    
    
    
    
    
    
    
    
    1,573Shares
issued in connection with stock options exercised (Note
15)
    
    
    786.0
    
    
    
    8
    
    
    
    8,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,728Airgas common shares owned by
National Welders (Note
14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369
    )Dividends paid on common stock
($0.16 per share) (Note
14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,801
    )Tax benefit associated with exercise
of stock options (Note
18)
    
    
    
    
    
    
    
    
    
    
    6,190Shares issued from Employee Benefits Trust
for Employee Stock Purchase Plan (Note 14)
    
    
    
    
    
    
    
    
    
    
    2,714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,175Net change in fair value of interest rate swap
agreements (Note
12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,964
    
    
    
    
    
    
    
    
    
    
    
    1,964Consolidation of National Welders interest
rate
swap agreement, net of cumulative tax
benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,560
    )Net tax expense of comprehensive income items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,241
    )
    
    
    
    
    
    
    
    
    
    
    (1,241
    )Balance  March 31,
2004
    
    
    77,159.0
    
    
    $
    772
    
    
    $
    233,574
    
    
    $
    481,677
    
    
    $
    (2,566
    )
    
    $
    (4,658
    )
    
    $
    (16,898
    )
    
    $
    82,488
 See accompanying notes to consolidated financial statements. F-6




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
(loss)
    
    $
    80,192
    
    
    $
    68,105
    
    
    $
    (10,415
    )Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:Depreciation
    
    
    82,567
    
    
    
    73,482
    
    
    
    64,785Amortization
    
    
    5,389
    
    
    
    6,362
    
    
    
    8,160Deferred income
taxes
    
    
    23,172
    
    
    
    8,655
    
    
    
    34,578Equity in earnings of unconsolidated
affiliates
    
    
    (5,213
    )
    
    
    (3,768
    )
    
    
    (3,835
    )(Gain)/loss on
divestitures
    
    
    
    
    
    
    241
    
    
    
    (1,916
    )(Gain)/loss on sale of plant and
equipment
    
    
    (837
    )
    
    
    (257
    )
    
    
    405Minority interest in
earnings
    
    
    291
    
    
    
    
    
    
    
    Stock issued for employee stock purchase
plan
    
    
    6,889
    
    
    
    8,951
    
    
    
    7,369Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    59,000Other non-cash
charges
    
    
    
    
    
    
    
    
    
    
    1,068Changes in assets and liabilities, excluding effects of
business acquisitions and divestitures:Securitization of trade
receivables
    
    
    3,700
    
    
    
    24,900
    
    
    
    60,800Trade receivables,
net
    
    
    (15,901
    )
    
    
    (8,316
    )
    
    
    9,111Inventories,
net
    
    
    (5,586
    )
    
    
    4,675
    
    
    
    12,614Prepaid expenses and other current
assets
    
    
    10,146
    
    
    
    17,718
    
    
    
    (24,743
    )Accounts payable,
trade
    
    
    20,845
    
    
    
    2,884
    
    
    
    6,148Accrued expenses and other current
liabilities
    
    
    4,687
    
    
    
    (8,021
    )
    
    
    18,300Other long-term
assets
    
    
    1,179
    
    
    
    2,068
    
    
    
    5,081Other long-term
liabilities
    
    
    (2,425
    )
    
    
    (3,280
    )
    
    
    2,871Net cash provided by operating
activities
    
    
    209,095
    
    
    
    194,399
    
    
    
    249,381CASH FLOWS FROM INVESTING ACTIVITIESCapital
expenditures
    
    
    (93,749
    )
    
    
    (67,969
    )
    
    
    (58,297
    )Proceeds from sale of plant and
equipment
    
    
    5,347
    
    
    
    4,260
    
    
    
    3,216Proceeds from
divestitures
    
    
    
    
    
    
    3,167
    
    
    
    10,200Business acquisitions, holdbacks, and other settlements of
acquisition related
liabilities
    
    
    (34,907
    )
    
    
    (27,216
    )
    
    
    (257,556
    )Dividends and fees from unconsolidated
affiliates
    
    
    2,147
    
    
    
    2,507
    
    
    
    2,583Other,
net
    
    
    (1,369
    )
    
    
    (1,719
    )
    
    
    5,153Net cash used in investing
activities
    
    
    (122,531
    )
    
    
    (86,970
    )
    
    
    (294,701
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from
borrowings
    
    
    414,297
    
    
    
    248,961
    
    
    
    680,144Repayment of
debt
    
    
    (485,004
    )
    
    
    (367,356
    )
    
    
    (612,779
    )Financing
costs
    
    
    (2,737
    )
    
    
    
    
    
    
    (12,461
    )Minority
interest
    
    
    (291
    )
    
    
    
    
    
    
    Exercise of stock options
    
    
    13,130
    
    
    
    9,847
    
    
    
    7,442Dividends paid to
stockholders
    
    
    (11,801
    )
    
    
    
    
    
    
    Cash
overdraft
    
    
    (14,158
    )
    
    
    1,119
    
    
    
    (17,026
    )Net cash provided by (used in) financing
activities
    
    
    (86,564
    )
    
    
    (107,429
    )
    
    
    45,320CHANGE IN CASH$
    
    
    
    $
    
    
    
    $
    Cash  Beginning of
year
    
    
    
    
    
    
    
    
    
    
    Cash  End of
year
    
    $
    
    
    
    $
    
    
    
    $
    
 For supplemental cash flow disclosures see Note 23.
See accompanying notes to consolidated financial statements. F-7




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of the Business Airgas, Inc. and subsidiaries (the Company) is the largest U.S.
distributor of industrial, medical and specialty gases (delivered in packaged
or cylinder form), process chemicals, and welding, safety and related products
(hardgoods). The Company also produces dry ice, liquid carbon dioxide,
nitrous oxide and specialty gases for distribution throughout the United
States. The Company was founded in 1982 and became publicly traded on the New
York Stock Exchange in 1986. (b) Basis of Presentation The consolidated financial statements include the accounts of Airgas, Inc.
and subsidiaries, as well as the Companys consolidated affiliate, National
Welders (see notes 2 and 16). Unconsolidated affiliates are accounted for on
the equity method and generally consist of 50% owned operations. Intercompany
accounts and transactions, including those between the Company and National
Welders, are eliminated in consolidation. The Company has made estimates and assumptions relating to the reporting
of assets and liabilities and disclosure of contingent assets and liabilities
to prepare these statements in conformity with accounting principles generally
accepted in the United States of America. Estimates are used for, but not
limited to, determining the net carrying value of trade receivables,
inventories, plant and equipment, goodwill, other intangible assets and loss
contingencies. Actual results could differ from those estimates. (c) Inventories Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for approximately 85% and 90% of
the inventories at March 31, 2004 and 2003, respectively. Cost for the
remainder of inventories is determined using the last-in, first-out (LIFO)
method. (d) Plant and Equipment Plant and equipment are initially stated at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives of
the related assets. The carrying values of long-lived assets, including plant
and equipment, are reviewed for impairment whenever events or changes in
circumstances indicate that the recorded value cannot be recovered from
undiscounted future cash flows. When the book value of an asset exceeds
associated expected future cash flows, it is considered to be impaired and is
written down to fair value, which is determined based on either future cash
flows or appraised values. (e) Other Intangible Assets and Deferred Financing Costs Costs and payments pursuant to non-competition arrangements entered into
in connection with business acquisitions are amortized over the terms of the
arrangements, which are principally over five years. The Company assesses the
recoverability of non-competition arrangements by determining whether the
amortization of the asset balance can be recovered through projected
undiscounted future cash flows of the related business over its remaining life. Financing costs related to the issuance of long-term debt are deferred and
recognized in other long-term assets. Deferred financing costs are amortized as interest expense
over the term of the related debt. F-8




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (f) Commitments and Contingencies The Companys policy is to accrue estimated legal fees to defend the
Company through the resolution of the outstanding litigation when probable and
reasonably estimable. Liabilities for loss contingencies arising from claims,
assessments, litigation and other sources are recorded when it is probable that
a liability has been incurred and the amount of the claim, assessment or
damages can be reasonably estimated. The Company maintains business insurance programs with significant
self-insured retention, which covers workers compensation, business automobile
and general product liability claims. The Company accrues estimated losses
using actuarial models and assumptions based on historical loss experience.
The actuarial calculations used to estimate business insurance reserves are
based on numerous assumptions, some of which are subjective. The Company will
adjust its business insurance reserves, if necessary, in the event future loss
experience differs from historical loss patterns. The Company maintains a self-insured health benefits plan, which provides
medical benefits to employees electing coverage under the plan. The Company
maintains a reserve for incurred but not reported medical claims and claim
development. The reserve is an estimate based on historical experience and
other assumptions, some of which are subjective. The Company will adjust its
self-insured medical benefits reserve as the Companys loss experience changes
due to medical inflation, changes in the number of plan participants and an
aging employee base. (g) Income Taxes Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized. (h) Foreign Currency Translation The functional currency of the Companys foreign operations is the
applicable local currency. The translation of foreign currencies into U.S.
dollars is performed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using
average exchange rates during each reporting period. The gains or losses
resulting from such translations are included in stockholders equity as a
component of Accumulated other comprehensive loss. Gains and losses arising
from foreign currency transactions are reflected in the consolidated statements
of earnings as incurred. (i) Concentrations of Credit Risk Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk are limited due to the Companys large number of
customers and their dispersion across many industries throughout North America.
Credit terms granted to customers are generally net 30 days. F-9




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (j) Financial Instruments In managing interest rate risk exposure, the Company enters into interest
rate swap agreements. An interest rate swap is a contractual exchange of
interest payments between two parties. A standard interest rate swap involves
the payment of a fixed rate times a notional amount by one party in exchange
for a floating rate times the same notional amount from another party. As
interest rates change, the difference to be paid or received is accrued and
recognized as interest expense over the life of the agreement. These
instruments are not entered into for trading purposes and the Company has the
ability and intent to hold these instruments to maturity. Counterparties to
the Companys interest rate swap agreements are major financial institutions.
With the adoption of the Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities,as amended by SFAS No.
137 and 138, in fiscal 2002 (see Note (2)), the Company recognizes interest
rate swap agreements on the balance sheet at fair value. The interest rate
swap agreements are marked to market with changes in fair value recognized in
either other comprehensive income (loss) or in the carrying value of the hedged
portions of the medium-term and senior subordinated debt notes. The carrying amounts for trade receivables and accounts payable
approximate fair value based on the short-term maturity of these financial
instruments. (k) Employee Benefits Trust The Company established a trust (the Employee Benefits Trust) to fund
future obligations of the Companys employee benefit and compensation plans.
Shares are purchased by the Employee Benefits Trust from the Company at fair
market value and are reflected as a reduction of stockholders equity in the
Companys Consolidated Balance Sheets under the caption Employee benefits
trust. Shares are transferred from the Employee Benefits Trust to fund
compensation and employee benefit obligations based on the original cost of the
shares to the trust. The satisfaction of compensation and employee benefit
plan obligations is based on the fair value of shares transferred. Differences
between the original cost of the shares to the Employee Benefits Trust and the
fair market value of shares transferred is charged or credited to capital in
excess of par value. (l) Revenue Recognition Revenue from sales of gases and hardgoods products is recognized when
products are delivered to customers. Rental fees on cylinders, cryogenic liquid
containers, bulk gas storage tanks and other equipment are recognized when
earned. Under long-term lease agreements in which rental fees are collected in
advance, revenues are deferred and recognized over the terms of the lease
agreements. (m) Cost of Products Sold Cost of products sold for the Distribution segment principally consists of
direct material costs and freight-in for bulk gas purchases and hardgoods
(welding supplies and equipment, safety products and industrial tools and
supplies). Maintenance costs associated with cylinders, cryogenic liquid
containers and bulk tanks are also reflected in Cost of products sold. Cost of products sold for All Other Operations, which produce much of the
gas sold, consists of direct material costs, direct labor, manufacturing
overhead, freight-in and internal transfer costs associated with the production
of certain gas products, principally, dry ice, carbon dioxide, nitrous oxide,
specialty gases, as well as the oxygen, nitrogen and argon sold by the
Companys consolidated affiliate, National Welders. F-10




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (n) Selling, Distribution and Administrative Expenses Selling, distribution and administrative expenses consist of labor and
overhead associated with the purchasing, marketing and distribution of the
Companys products, as well as costs associated with a variety of
administrative functions such as legal, treasury, accounting and tax, and
facility-related expenses. (o) Depreciation The Company recognizes depreciation expense on all its property, plant and
equipment in the consolidated statement of earnings line item Depreciation. (p) Shipping and Handling Fees and Distribution Costs The Company recognizes delivery and freight charges to customers as
elements of net sales. Costs of third-party freight are recognized as cost of
products sold. The majority of the costs associated with the distribution of
the Companys products, which include direct labor and overhead associated with
filling, warehousing and delivery by Company vehicles, is reflected in selling,
distribution and administrative expenses and were $277 million, $258 million
and $217 million for the fiscal years ended March 31, 2004, 2003 and 2002,
respectively. The Company conducts multiple operations out of the same
facilities and does not allocate facility-related expenses to each operational
function. Accordingly, there is no facility-related expense in the
distribution costs disclosed above. Depreciation expense associated with the
Companys delivery fleet of $4.3 million, $4.5 million, and $4.9 million was
recognized in depreciation for the fiscal years ended March 31, 2004, 2003 and
2002, respectively. (2) ACCOUNTING AND DISCLOSURE CHANGES SFAS 132 (revised 2003) In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This revised
statement retains the disclosures required by the original SFAS No. 132, which
standardized employers disclosures about pensions and other postretirement
benefits, and requires additional disclosures concerning the economic resources
and obligations related to pension plans and other postretirement benefits.
This revised statement is effective for fiscal years ending after December 15,
2003. The Company adopted SFAS 132 in fiscal 2004, as required. Since the
Company does not have any defined benefit plans, the adoption of SFAS 132 did
not impact the Companys benefit plan disclosures. SFAS 133 On April 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities, as amended by SFAS No.
137 and 138, (SFAS 133) which requires all derivatives to be recorded on the
balance sheet at fair value. In accordance with the transition provisions of
SFAS 133, on April 1, 2001, the Company recorded the cumulative effect of this
accounting change as a liability and a deferred loss of $6.7 million in the
accumulated other comprehensive loss component of stockholders equity to
recognize, at fair value, interest rate swap agreements that are designated as
cash flow hedging instruments. Additionally, the Company recorded an asset and
adjusted the carrying value of the hedged portion of its fixed rate debt by $6
million to recognize, at fair value, interest rate swap agreements that are
designated as fair value hedging instruments. F-11




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACCOUNTING AND DISCLOSURE CHANGES  (Continued) SFAS 141 Effective July 1, 2001, the Company adopted SFAS No. 141, Business
Combinations. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. The adoption of
SFAS 141 did not have an impact on the historical results of operations,
financial position or liquidity of the Company. SFAS 142 In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. As permitted under the Statement, the Company adopted SFAS 142
effective April 1, 2001. SFAS 142 requires goodwill and intangible assets with
indefinite useful lives to no longer be amortized, but instead be tested for
impairment at least annually. Upon adoption of SFAS 142, the Company performed
an evaluation of goodwill, which indicated that goodwill recorded in the
Distribution segment associated with its industrial tool reporting unit was
impaired as of April 1, 2001. Accordingly, the Company recognized a $59
million non-cash charge, recorded as of April 1, 2001, as the cumulative effect
of a change in accounting principle for the write-down of goodwill to its fair
value. The impaired goodwill was not deductible for taxes, and as a result, no
tax benefit was recorded in relation to the charge. With the adoption of SFAS 142, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, no adjustments were
made to the amortization period or residual values of other intangible assets. SFAS 142 also requires goodwill to be tested annually and between annual
tests if events occur or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying amount. The
Company has elected to perform its annual tests for indications of goodwill
impairment as of October 31 of each year. As of October 31, 2003 and 2002, the
Companys annual assessment of each of its reporting units indicated that
goodwill was not impaired. SFAS 143 In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the recognition of a liability for
an asset retirement obligation in the period in which it is incurred. A
retirement obligation is defined as one in which a legal obligation exists in
the future resulting from existing laws, statutes or contracts. The Company
adopted SFAS 143 on April 1, 2003, as required. The adoption of SFAS 143 did
not have a material impact on its results of operations, financial position or
liquidity. SFAS 144 On April 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, as required. SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets, including discontinued operations. The adoption of SFAS 144 did not
have a material impact on the Companys consolidated financial position,
results of operations or liquidity. F-12




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACCOUNTING AND DISCLOSURE CHANGES  (Continued) SFAS 146 On January 1, 2003, the Company adopted SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, as required, which is effective
for exit or disposal activities initiated after December 31, 2002. SFAS 146
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring).SFAS 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities, including restructuring activities. The Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred as opposed to at the time
the Company commits to an exit plan as previously permitted under EITF 94-3.
The adoption of SFAS 146 did not have a material impact on the Companys
consolidated financial position, results of operations or liquidity. SFAS 148 In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Based on the Statements effective
date of fiscal years ending after December 31, 2002, the Company adopted the
provisions of SFAS 148 in fiscal 2003. SFAS 148 amends SFAS 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition for
an entity that voluntarily changes to the fair value basis of accounting for
stock-based employee compensation. The Statement also amends the disclosure
provisions of SFAS 123 to require prominent disclosure about the effects on
reported net income of an entitys accounting policy decisions with respect to
stock-based employee compensation. The Company has elected to continue to
account for its stock-based compensation plans using the intrinsic value method
of accounting as permitted by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, but has adopted the disclosure
requirements of SFAS 148 (see Note 15). SFAS 149 In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities under SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 requires, among other things, that contracts with
comparable characteristics be accounted for similarly and clarifies the
circumstances under which a contract with an initial net investment meets the
characteristic of a derivative and when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. The
Company adopted SFAS 149 on July 1, 2003, as required. The adoption of SFAS
149 did not have a material impact on its results of operations, financial
position or liquidity. SFAS 150 In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity in the statement of financial position. SFAS 150 requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). Many of those financial instruments were
previously classified as equity. The Company adopted SFAS 150 on July 1, 2003,
as required. The adoption of SFAS 150 did not have a material impact on its
results of operations, financial position or liquidity. F-13




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACCOUNTING AND DISCLOSURE CHANGES  (Continued) FASB Financial Interpretation No. 45 In November 2002, the FASB issued Financial Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, (FIN 45). FIN 45 elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. Based on a review of the Companys material contracts and finance
agreements, the only additional disclosure required by the interpretation
relates to the Companys residual value guarantee associated with certain
leased vehicles (see Note 21). FASB Financial Interpretation No. 46 In January 2003, the FASB issued Financial Interpretation No. 46,
Consolidation of Variable Interest Entities,(FIN 46). The interpretation was
initially effective for the first interim period beginning after June 15, 2003.
However, as a result of implementation issues, in December 2003, the FASB
issued FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities,(FIN 46R), which was effective as of the end of
the first reporting period ending after March 15, 2004, with early adoption
permitted. FIN 46 and FIN 46R addresses consolidation by a business enterprise of
variable interest entities. Variable interest entities are defined as
corporations, partnerships, trusts, or any other legal structure used for
business purposes, and by design, the holders of equity instruments in those
entities lack one of the characteristics of a financial controlling interest.
FIN 46 and FIN 46R changes previous accounting practice by introducing the
concept of a Primary Beneficiary and requires variable interest entities to
be consolidated by the party deemed to be the Primary Beneficiary (i.e., the
party that is subject to a majority of the risk of loss from the variable
interest entitys activities or entitled to receive a majority of the entitys
residual returns or both). Under previous accounting practice, entities
generally were not consolidated unless the entity was controlled through voting
interests. Since October 1999, the Company has leased certain real estate and
equipment from a grantor trust (the Trust) under a sale-leaseback
arrangement. The Trust incurred debt to purchase the properties and equipment
from the Company. The Company, in turn, paid rent to the Trust. The rental
payments to the Trust were based on LIBOR plus an applicable margin and matched
the debt service requirements for the debt held by the Trust. The Trust was
not consolidated for financial reporting purposes and the non-cancelable lease
obligation of the real estate and equipment leases totaled approximately $41
million at March 31, 2003. Effective July 1, 2003, the Company elected to early adopt FIN 46 with
respect to the Trust. The Company determined the Trust to be a variable
interest entity as defined by FIN 46. In addition, the Company was
determined to be the primary beneficiary of the sale-leaseback arrangement.
FIN 46 required the Company to consolidate the Trust for financial reporting
purposes. Upon consolidation, the Company recorded on its balance sheet
approximately $29 million of real estate and equipment and debt of $42
million, while eliminating a long-term deferred gain of $13 million. The
consolidation of the Trust resulted in the Company recognizing $1 million in
interest expense and $1 million in depreciation expense in the nine months
ended March 31, 2004, which had previously been recognized as rent expense to
the Trust. The debt of the grantor trust matures in October 2004 and is
classified as long-term based upon the Companys ability and intention to
refinance it with borrowings under its long-term credit facilities. F-14




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACCOUNTING AND DISCLOSURE CHANGES  (Continued) Since June 1996, the Company has participated in a joint venture with
National Welders Supply Company, Inc. (National Welders), a producer and
distributor of industrial gases based in Charlotte, North Carolina. The
Company determined that National Welders meets the definition of a Variable
Interest Entity under FIN 46R and that the Company is the Primary Beneficiary
of the joint venture. Therefore, effective December 31, 2003, the Company
elected to adopt FIN 46R, as it applies to the joint venture, and consolidated
National Welders. As permitted by FIN 46R, the Company applied the
interpretation prospectively from the date of adoption. Therefore, at December
31, 2003, the consolidation of National Welders only affected the balance
sheet. There was no cumulative effect adjustment or impact
on cash flows as a result of the consolidation. The consolidation had the
effect of eliminating the Companys $62 million
investment in National Welders and recording the joint ventures assets,
liabilities and a corresponding minority interest liability. The assets and
liabilities of National Welders included goodwill of $56 million and debt of
$62 million, which is non-recourse to the Company. Beginning January 1, 2004, National Welders operating results were no
longer reflected as Equity in Earnings of Unconsolidated Affiliates. Rather,
the operating results were reflected broadly across the income statement with
minority interest expense representing the quarterly dividend on the joint
ventures redeemable preferred stock, net of interest earned on a note
receivable from the preferred stockholders. The joint venture is structured
such that the Company earns the residual net income available to the common
stockholder, which is net of the minority interest expense. Since the
allocation of the joint ventures net earnings was unaffected by the adoption
of FIN 46R, the consolidation of National Welders did not impact the Companys
net earnings. See Note 16 for additional disclosures regarding National
Welders. (3) ACQUISITIONS AND DIVESTITURES (a) 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. The purchase price for business acquisitions was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. Such allocations were based
on preliminary estimates of fair value at the date of acquisition, which may be
revised at a later date. Fiscal 2004 During fiscal 2004, the Company purchased five businesses associated with
the distribution of packaged gases and related hardgoods products and dry ice.
The largest of these businesses and their effective dates of acquisition
included Delta Safety Supply, Inc. (May 1, 2003) and Interstate Welding Sales
Corporation (March 31, 2004). The aggregate purchase price of the fiscal 2004
acquisitions was $41 million, including assumed liabilities. Four of the
businesses had aggregate annual revenues of approximately $57 million and were
included in the Distribution segment. One acquired dry ice distribution
business generated annual revenues of approximately $2 million and was included
in All Other Operations. 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 Company acquired the businesses to expand its geographic coverage and
strengthen its national network of branch store locations. Total assets
contributed by fiscal 2004 acquisitions were approximately $41 million. The
excess of the purchase price of acquired businesses over the net assets
acquired (goodwill) related to fiscal 2004 acquisitions amounted to
approximately $10 million. Intangible assets, other than goodwill, totaled
approximately $5 million and primarily related to customer lists and
non-compete agreements obtained from the sellers of the businesses. F-15




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) ACQUISITIONS AND DIVESTITURES  (Continued) For the fiscal 2004 acquisitions, additional work related to the
performance of asset appraisals needs to be completed to finalize the
allocation of the purchase price to net assets, identified intangibles and
goodwill acquired. The entire purchase price ultimately assigned to goodwill
will be deductible for income taxes. The Company does not expect the final
allocation of the purchase price to differ materially from the amounts included
in the accompanying consolidated financial statements. Fiscal 2003 During fiscal 2003, the Company purchased four businesses that distribute
packaged gases and related equipment and hardgoods products with combined
annual revenues of $33 million. The largest of these businesses and their
effective dates of acquisition included Welding Metals, Inc. (November 27,
2002) and Union Industrial Gas and Supply, Inc. (March 31, 2003). The
aggregate purchase price of all four acquisitions was $23.8 million, including
assumed liabilities. The acquired businesses have been included in the
Distribution segment from their effective dates of acquisition. Goodwill
related to fiscal 2003 acquisitions totaled approximately $6.4 million and was
deductible for income taxes. Fiscal 2002 On February 28, 2002, the Company purchased the majority of Air Products
and Chemicals, Inc.s (Air Products) U.S. packaged gas business, excluding
its electronic gases and magnetic resonance imaging-related helium operations,
for cash of approximately $247 million, including transaction costs. The
transaction was financed entirely with senior bank debt. The acquisition
included 88 facilities in 30 states associated with the filling and
distribution of cylinders, liquid dewars, tube trailers, and other containers
of industrial gases and non-electronic specialty gases, and the selling of
welding hardgoods, including customer service centers, warehouses, and other
related assets. The Company acquired the business based on its strategic fit
with the Companys existing packaged gas distribution business and to
strengthen its national network by giving it a presence in important
geographies. Additionally, the acquisition strengthened the core competencies
of the Companys specialty gas operations, enabling it to enhance its
competitiveness. These operations historically generated annual revenues of
approximately $220 million and had 1,100 employees. Air Products also sold its
packaged gas operations in the Carolinas and southern Virginia to National
Welders. Goodwill related to the Air Products acquisition amounted to
approximately $48 million, of which $25.9 million was recognized in fiscal
2003. The fiscal 2003 increase in goodwill was the result of adjustments to
the March 31, 2002 preliminary purchase price allocation. The revised purchase
price allocation was based on estimates of fair values determined primarily
through third party appraisals. Third party appraisals and cylinder and other
fixed asset inventories related to the Air Products acquisition were finalized
during fiscal 2003. Additionally, in September 2001, the Company acquired six retail
distributor locations from Air Liquide America Corporation (Air Liquide).
The purchase price of $11 million resulted in goodwill of approximately $7
million. The goodwill associated with the Air Liquide transaction was entirely
deductible for income taxes. These operations added annual revenues of
approximately $10 million. F-16




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) ACQUISITIONS AND DIVESTITURES  (Continued) Pro Forma Operating Results The following presents unaudited pro forma operating results as if the
fiscal 2004, 2003 and 2002 acquisitions had occurred on April 1, 2001. The pro
forma results were prepared from financial information obtained during the due
diligence process associated with the acquisitions. Pro forma adjustments to
the historic financial information of 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 results have been
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, 2001 or
of results that may occur in the future. UnauditedYears Ended March 31,(In thousands, except per share amounts)
    
    2004
    
    2003
    
    2002Net sales
    
    $
    1,941,977
    
    
    $
    1,876,779
    
    
    $
    1,939,383Income before the cumulative effect
of a change in accounting principle
    
    
    80,195
    
    
    
    69,612
    
    
    
    53,916Net earnings (loss)
    
    
    80,195
    
    
    
    69,612
    
    
    
    (5,084
    )Diluted earnings (loss) per
share
    
    $
    1.07
    
    
    $
    0.96
    
    
    $
    (0.07
    )
 (b) Divestitures In fiscal 2002, the carrying values of the net assets of Kendeco, Inc.
(Kendeco), an industrial tool business in the Distribution operating segment,
were reduced by $3.6 million to their net realizable value based on the
estimated selling price less cost to sell. The loss, reflected in Other
income (expense), net, included the write-off of $3.1 million of non-tax
deductible goodwill. The Company completed the sale of Kendeco in May 2002
(fiscal 2003) and recognized a loss on the sale of $1.7 million. Kendeco
contributed sales of $17.7 million and operating income of $158 thousand in
fiscal 2002. Kendecos fiscal 2003 operating results were insignificant. In fiscal 2000, the Company divested its investment in a Polish gas
distributor. As part of the sale agreement, the Company made representations
and warranties about the business being sold. Subsequently, the acquirer
presented the Company with an indemnity claim as a breach of the
representations and warranties provided for under the sale agreement. In
fiscal 2002, the Company recorded a liability and related expense of $1.9
million associated with the indemnity claim. In fiscal 2003, the Company
favorably resolved the indemnity claim and reversed $1.5 million of expense,
net of legal fees paid, and the related liability. These items are reflected
in Other income (expense), net in the respective fiscal years. In October 2001, the Company sold two of its nitrous oxide production
facilities to Air Liquide. The Company retained its remaining four nitrous
oxide production facilities to meet its requirements as a major producer and
distributor of nitrous oxide. After-tax proceeds from the sale of
approximately $10 million were used to reduce borrowings under the Companys
revolving credit facilities. The Company recognized a gain on the transaction
of $7.4 million in Other income (expense), net in fiscal 2002. The nitrous
oxide facilities were reflected in the operating results of the All Other
Operations segment. The divested operations generated sales of $3.5 million
and operating income of $1.2 million in fiscal 2002. F-17




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) SPECIAL CHARGES (RECOVERIES), NET During the fourth quarter of fiscal 2004, the Company recorded a special
charge recovery of $776 thousand (the 2004 Special Recovery) consisting of
lower estimates of the ultimate cost of prior years restructuring charges.
The 2004 Special Recovery pertained to a change in estimate related to facility
exit costs. During fiscal 2003, the Company recorded a special charge of $2.7 million
(the 2003 Special Charge) consisting of a restructuring charge related to the
integration of the business acquired from Air Products during the fourth
quarter of fiscal 2002 and costs related to the consolidation of certain
hardgoods procurement functions. The special charge included facility exit
costs associated with the closure of certain facilities and severance. The
facilities exited and the affected employees were part of the Companys
existing operations prior to the acquisition of the Air Products business. During fiscal 2002, the Company announced the transition of certain
administrative functions to a financial shared services center. The Company
recorded a special charge of approximately $1 million (the 2002 Special
Charge) for severance costs and costs related to exiting one facility
associated with the fiscal 2003-2004 transition to the shared services center. At March 31, 2004, 2003, and 2002, accrued liabilities associated with the
special charges were as follows: Severance
    
    Facility exit(In thousands)
    
    costs
    
    costs
    
    TotalMarch 31, 2001 liability
    
    $
    2,727
    
    
    $
    2,430
    
    
    $
    5,1572002 Special Charge
    
    
    916
    
    
    
    41
    
    
    
    957Cash payments
    
    
    (2,162
    )
    
    
    (289
    )
    
    
    (2,451
    )Change in estimate
    
    
    (565
    )
    
    
    (392
    )
    
    
    (957
    )March 31, 2002 liability
    
    $
    916
    
    
    $
    1,790
    
    
    $
    2,7062003 Special Charge
    
    
    1,326
    
    
    
    1,368
    
    
    
    2,694Cash payments
    
    
    (1,269
    )
    
    
    (758
    )
    
    
    (2,027
    )March 31, 2003 liability
    
    $
    973
    
    
    $
    2,400
    
    
    $
    3,3732004 Special Recovery
    
    
    
    
    
    
    (776
    )
    
    
    (776
    )Cash payments
    
    
    (973
    )
    
    
    (621
    )
    
    
    (1,594
    )March 31, 2004 liability
    
    $
    
    
    
    $
    1,003
    
    
    $
    1,003
 During fiscal 2002, the Company reduced its estimate related to severance
and facility exit costs associated with a 2001 cost reduction plan by
approximately $1 million. The change in estimate was recorded as a recovery in
fiscal 2002 through the Special charges (recoveries), net line in the
Consolidated Statement of Earnings. The remaining liability for facility exit costs at March 31, 2004 relates
to non-cancelable lease obligations that will be reduced over future periods as
lease payments are made over the remaining terms of the leases. F-18




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is calculated by dividing net earnings
(loss) 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 and common stock held by the Employee Benefits Trust.
Diluted earnings (loss) per share is calculated by dividing net earnings (loss)
by the weighted average common shares outstanding adjusted for the dilutive
effect of common stock equivalents related to stock options and warrants. The table below reconciles basic weighted average common shares
outstanding to diluted weighted average common shares outstanding for the three
years ended March 31, 2004, 2003 and 2002: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Weighted average common shares outstanding:Basic
    
    
    72,800
    
    
    
    70,500
    
    
    
    68,100Stock options and warrants
    
    
    1,900
    
    
    
    1,800
    
    
    
    1,800Diluted
    
    
    74,700
    
    
    
    72,300
    
    
    
    69,900
 Pursuant to a joint venture agreement between the Company and the holders
of the preferred stock of National Welders, between June 30, 2006 and June 30,
2009, the preferred shareholders have the option to exchange their 3.2 million
preferred shares of National Welders either for cash at a price of $17.78 per
share or to tender them to the joint venture in exchange for approximately 2.3
million shares of Airgas common stock (see Note 16). If Airgas common stock
has a market value of $24.45 per share, the stock and cash redemption options
are equivalent. No contingently issuable shares are included in the diluted
weighted average common shares calculation (the diluted computation), as the
conversion of the National Welders preferred stock in exchange for the
Companys common stock is anti-dilutive. Outstanding stock options and warrants, with an exercise price above
market, are excluded from the Companys diluted computation as their effect
would be anti-dilutive. There were approximately 545 thousand, 2 million and
2.6 million outstanding stock options and warrants with an exercise price above
the average market price at March 31, 2004, 2003, and 2002, respectively. If
the average market value of the Companys common stock increases above the
respective exercise prices of the options and warrants, they will be included
in the diluted computation as common stock equivalents. F-19




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) INVENTORIES, NET Inventories, net, consist of: March 31,(In thousands)
    
    2004
    
    2003Hardgoods
    
    $
    154,038
    
    
    $
    136,347Gases
    
    
    16,262
    
    
    
    15,058$
    170,300
    
    
    $
    151,405
 Net inventories determined by the LIFO inventory method totaled $26.8
million and $15.7 million at March 31, 2004 and 2003, respectively. If the
FIFO inventory method had been used for these inventories, they would have been
$3 million and $1.4 million higher at March 31, 2004 and 2003, respectively.
Substantially all of the inventories are finished goods. The increase in net
inventories determined by the LIFO inventory method resulted from the
consolidation of National Welders (see Notes 2 and 16). (7) PLANT AND EQUIPMENT The major classes of plant and equipment, at cost, are as follows: March 31,Depreciable(In thousands)
    
    Lives (Yrs)
    
    2004
    
    2003Land and land improvements
    
    
    
    
    
    $
    61,072
    
    
    $
    35,929Buildings and leasehold improvements
    
    
    25
    
    
    
    167,217
    
    
    
    121,303Cylinders
    
    
    30
    
    
    
    696,624
    
    
    
    633,436Machinery and equipment, including
bulk tanks
    
    
    7 to 30
    
    
    
    516,704
    
    
    
    384,425Computers and furniture and
fixtures
    
    
    3 to 10
    
    
    
    116,259
    
    
    
    102,557Transportation equipment
    
    
    3 to 15
    
    
    
    92,092
    
    
    
    58,868Construction in progress
    
    
    
    
    
    
    4,219
    
    
    
    9,265$
    1,654,187
    
    
    $
    1,345,783
 F-20




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) GOODWILL AND OTHER INTANGIBLE ASSETS Changes in the carrying amount of goodwill for fiscal 2004 and 2003 were
as follows: All OtherDistribution
    
    Operations(In thousands)
    
    Segment
    
    Segment
    
    TotalBalance at March 31, 2002
    
    $
    332,325
    
    
    $
    74,223
    
    
    $
    406,548Acquisitions
    
    
    31,208
    
    
    
    1,096
    
    
    
    32,304Divestitures
    
    
    (1,560
    )
    
    
    
    
    
    
    (1,560
    )Other adjustments
    
    
    427
    
    
    
    (10
    )
    
    
    417Balance at March 31, 2003
    
    $
    362,400
    
    
    $
    75,309
    
    
    $
    437,709Acquisitions
    
    
    8,849
    
    
    
    1,096
    
    
    
    9,945Consolidation of National Welders
(see Notes 2 and 16)
    
    
    
    
    
    
    55,131
    
    
    
    55,131Other
adjustments
    
    
    1,314
    
    
    
    108
    
    
    
    1,422Balance at March 31, 2004
    
    $
    372,563
    
    
    $
    131,644
    
    
    $
    504,207
 Other intangible assets amounted to $19.7 million (net of accumulated
amortization of $33.2 million) and $19.8 million (net of accumulated
amortization of $27.8 million) at March 31, 2004 and 2003, respectively. These
intangible assets primarily consist of non-compete agreements entered into in
connection with business combinations and are amortized over the term of the
agreements, principally five years. There are no expected residual values
related to these intangible assets. Estimated future amortization expense by
fiscal year is as follows: 2005  $5.8 million; 2006  $4.4 million; 2007 -
$3.2 million; 2008  $2.4 million; 2009  $1.1 million and $2.8 million
thereafter. (9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities include: March 31,(In thousands)
    
    2004
    
    2003Accrued payroll and employee benefits
    
    $
    39,133
    
    
    $
    33,548Business insurance reserves
    
    
    19,824
    
    
    
    15,272Health insurance reserves
    
    
    9,627
    
    
    
    9,828Accrued interest expense
    
    
    12,724
    
    
    
    12,000Taxes other than income taxes
    
    
    12,828
    
    
    
    12,972Other accrued expenses and current liabilities
    
    
    27,890
    
    
    
    37,672$
    122,026
    
    
    $
    121,292
 F-21




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS Long-term debt consists of: March 31,(In thousands)
    
    2004
    
    2003Revolving credit borrowings
    
    $
    26,689
    
    
    $
    145,143Term loan
    
    
    70,000
    
    
    
    87,500Medium-term notes
    
    
    106,730
    
    
    
    185,202Senior subordinated notes
    
    
    382,102
    
    
    
    232,478Debt of
grantor trust
    
    
    41,030
    
    
    
    Acquisition and other notes
    
    
    8,464
    
    
    
    9,937National Welders debt
    
    
    53,823
    
    
    
    Total long-term debt
    
    
    688,838
    
    
    
    660,260Less current portion of long-term debt
    
    
    (6,140
    )
    
    
    (2,229
    )Long-term debt, excluding current portion
    
    $
    682,698
    
    
    $
    658,031
 Revolving Credit Facilities The Company has unsecured revolving credit facilities with a syndicate of
lenders totaling $367.5 million and $50 million Canadian (US $38.2 million).
The revolving credit facilities will mature on July 30, 2006. At March 31,
2004, the Company had borrowings under the revolving facilities of
approximately $8 million and $25 million Canadian (U.S. $19 million). The
Company also had commitments under letters of credit supported by the revolving
credit facilities of approximately $33 million at March 31, 2004. Based on
restrictions related to certain leverage ratios, the Company had additional
borrowing capacity under the revolving facilities of approximately $225 million
at March 31, 2004. The variable interest rates of the U.S. and Canadian
revolving credit facilities are based on the London Interbank Offered Rate
(LIBOR) and Canadian Bankers Acceptance Rates, respectively. At March 31,
2004, the effective interest rates on borrowings under the revolving facilities
were 3.13% on U.S. borrowings and 4.44% on Canadian borrowings. Borrowings under the revolving credit facilities are guaranteed by certain
of the Companys domestic subsidiaries and Canadian borrowings are guaranteed
by Canadian subsidiaries. The Company pledged 100% of the stock of its
domestic guarantor subsidiaries and 65% of the stock of its foreign guarantor
subsidiaries for the benefit of the syndicate of lenders. If the Companys
credit rating is reduced, the Company will be required to grant a security
interest in substantially all of the tangible and intangible assets of the
Company for the benefit of the syndicate of lenders. The revolving credit
facilities also contain covenants, which include the maintenance of certain
leverage ratios, a fixed charge ratio, and potential restrictions on certain
additional borrowing, the amount of dividends declared and paid, and the
repurchase of common stock. In May 2003, the Company obtained an amendment to its credit agreement
that allowed for the issuance of up to an additional $200 million of senior
public debt and for the expansion of its senior credit facilities by up to $150
million (see Senior Subordinated Notesbelow). Subject to existing financial
covenants, the amendment also provided the Company with additional flexibility
to pay dividends, repurchase Company common stock and to invest in
acquisitions. In anticipation of the acquisition of assets from The BOC Group, Inc.
(BOC) (see Note 26), the Company obtained an amendment to its credit
agreement in February 2004 that, among other things, permits the Company to
invest up to $275 million in acquisitions during fiscal 2005. F-22




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS  (Continued) Term Loan At March 31, 2004, the Company had an outstanding term loan with a
principal balance of $70 million bearing an effective interest rate of 3.11%.
The term loan is due in quarterly installments with a final payment due July
30, 2006. The term loan is unsecured and bears a variable interest rate based
on LIBOR plus a spread related to the Companys credit rating. 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. Medium-Term Notes At March 31, 2004, the Company had $100 million of unsecured medium-term
notes outstanding due September 2006 and bearing interest at a fixed rate of
7.75%. The medium-term notes are guaranteed by each of the domestic guarantors
under the revolving credit facilities. Acquisition and Other Notes Acquisition and other notes principally consist of notes issued to sellers
of businesses acquired and are repayable in periodic installments. At March
31, 2004, acquisition and other notes totaled $8.5 million with interest rates
ranging from 4% to 9%. Senior Subordinated Notes In March 2004, the Company issued $150 million of senior subordinated
notes (the 2004 Notes) 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. Proceeds from the issuance of the 2004 Notes were
used to redeem $75 million of medium-term notes due March 2004 and to pay down
borrowings on the Companys U.S. revolving credit facility. The 2004 Notes
were sold in accordance with the provisions of Rule 144A under the Securities
Act of 1933 (the Securities Act). During fiscal 2005, the Company will
exchange the 2004 Notes for substantially similar notes registered with the
Securities and Exchange Commission in accordance with the Securities Act. In addition to the 2004 Notes, at March 31, 2004, the Company had $225
million of senior subordinated notes (the 2001 Notes) outstanding with a
maturity date of October 1, 2011. The 2001 Notes bear interest at a fixed
annual rate of 9.125%, payable semi-annually on April 1 and October 1 of each
year. The 2004 and 2001 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 2001
Notes are guaranteed on a subordinated basis by each of the domestic guarantors
under the revolving credit facilities. F-23




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS  (Continued) Debt of Grantor Trust Since October 1999, the Company has leased certain real estate and
equipment from a grantor trust (the Trust) under a sale-leaseback
arrangement. The Trust incurred debt to purchase the properties and equipment
from the Company. The Company, in turn, paid rent to the Trust. The rental
payments to the Trust were based on LIBOR plus an applicable margin and matched
the debt service requirements for the debt held by the Trust. The Trust was
not consolidated for financial reporting purposes and the non-cancelable lease
obligation of the real estate and equipment leases totaled approximately $41
million at March 31, 2003. Effective July 1, 2003, the Company elected to early adopt FIN 46 with
respect to the Trust (see Note 2). The Company determined the Trust to be a
variable interest entity as defined by FIN 46. In addition, the Company was
determined to be the primary beneficiary of the sale-leaseback arrangement.
FIN 46 required the Company to consolidate the Trust for financial reporting
purposes. Upon consolidation, the Company recorded on its balance sheet
approximately $29 million of real estate and equipment and debt of $42
million, while eliminating a long-term deferred gain of $13 million. The
consolidation of the Trust resulted in the Company recognizing $1 million in
interest expense and $1 million in depreciation expense in the nine months
ended March 31, 2004, which had previously been recognized as rent expense to
the Trust. The debt of the grantor trust matures in October 2004 and is
classified as long-term based upon the Companys ability and intention to
refinance it with borrowings under its long-term credit facilities. Debt of the National Welders Joint Venture Effective December 31, 2003, the Company adopted FIN 46R and consolidated
its National Welders joint venture. In accordance with the requirements of FIN
46R, the Companys Consolidated Balance Sheet at March 31, 2004 includes the
financial obligations of the National Welders joint venture. National Welders
financial debt instruments are non-recourse to the Company, meaning that the
creditors of National Welders do not have a claim on the assets of Airgas, Inc.
in settlement of the joint ventures debt obligations. The debt of National
Welders consists of: March 31,(In thousands)
    
    2004Revolving credit borrowings
    
    $
    5,507Term loans
    
    
    42,142Acquisition and other notes
    
    
    6,174Total long-term debt
    
    
    53,823Less current portion of long-term debt
    
    
    (5,575
    )Long-term debt, excluding current portion
    
    $
    48,248
 In July 2002, National Welders entered into a Credit Agreement to provide
for available credit of $100 million secured by certain assets of National
Welders. The credit agreement provides for a Term Loan A of $26.2 million, a
Term Loan B of $21 million, a Term Loan C of $8.8 million, and a revolving
credit line of $44 million. Term Loan A is repayable in monthly amounts of
$254 thousand through maturity in June 2007. The Term Loan B matures in July
2006. Amounts outstanding at March 31, 2004 under Term Loans A and B were $21
million and $21 million, respectively. There were no amounts borrowed or
outstanding under Term Loan C at March 31, 2004. The revolving credit line
matures in June 2006. Interest rates on the Credit Agreement are variable and
range from LIBOR plus 150 to 225 basis points based on
National Welders leverage ratio. The Credit Agreement contains certain
covenants which, among other things, limit the F-24




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS  (Continued) ability of National Welders to incur and guarantee new indebtedness, subject
National Welders to minimum net worth requirements, and limit its capital
expenditures, ownership changes, merger and acquisition activity, and the
payment of dividends. In addition, the payment of dividends on National Welders common
stock is further limited by the joint venture agreement. The payment of
dividends on the common stock is subordinate to the payment of the 5% dividend
on the preferred stock. Additionally, the common stock dividends must be
declared by a vote of the joint ventures board of directors. At March 31, 2004, the effective interest rate for the debt instruments
covered under the Credit Agreement was 3.09%. Based on restrictions related to
certain leverage ratios, National Welders had additional borrowing capacity
under its Credit Agreement of $47.3 million at March 31, 2004. Acquisition and
other notes principally consisted of a note payable to a bank that is secured
by a production facility and bears a fixed interest rate of 7%. Aggregate Long-term Debt Maturities The aggregate maturities of long-term debt are as follows: Aggregate Maturity(In thousands)
    
    
    
    
    
    NationalYears Ending March 31,
    
    Airgas, Inc.
    
    Welders
    
    Total2005
    
    $
    565
    
    
    $
    5,575
    
    
    $
    6,1402006
    
    
    7,286
    
    
    
    5,000
    
    
    
    12,2862007
    
    
    244,640
    
    
    
    31,180
    
    
    
    275,8202008
    
    
    81
    
    
    
    11,992
    
    
    
    12,0732009
    
    
    84
    
    
    
    
    
    
    
    84Thereafter
    
    
    382,359
    
    
    
    76
    
    
    
    382,435$
    635,015
    
    
    $
    53,823
    
    
    $
    688,838
 (11) FAIR VALUE OF FINANCIAL INSTRUMENTS Summarized below are the carrying and fair values of the Companys
financial instruments at March 31, 2004 and 2003. The fair value of the Companys publicly traded financial instruments is
based on market pricing. The fair value of other non-publicly traded financial
instruments is based on estimates using standard pricing models that take into
account the present value of future cash flows as of the balance sheet date.
The computation of fair values of these instruments is generally performed by
the Company. The carrying amounts reported in the balance sheet for trade
receivables and payables, accrued liabilities, accrued income taxes, and
short-term borrowings approximate fair value due to the short-term nature of
these instruments. Accordingly, these items have been excluded from the table
below: F-25




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) FAIR VALUE OF FINANCIAL INSTRUMENTS  (Continued) 2004
    
    2004
    
    2003
    
    2003Carrying
    
    Fair
    
    Carrying
    
    Fair(In thousands)
    
    Value
    
    Value
    
    Value
    
    ValueFinancial Instruments:Revolving credit borrowings
    
    $
    26,689
    
    
    $
    26,689
    
    
    $
    145,143
    
    
    $
    145,143Senior subordinated notes
    
    
    382,102
    
    
    
    401,331
    
    
    
    232,478
    
    
    
    247,136Term loan
    
    
    70,000
    
    
    
    70,000
    
    
    
    87,500
    
    
    
    87,500Medium-term notes
    
    
    106,730
    
    
    
    103,980
    
    
    
    185,202
    
    
    
    186,024Debt of
grantor trust
    
    
    41,030
    
    
    
    41,030
    
    
    
    
    
    
    
    Acquisition and other notes
    
    
    8,464
    
    
    
    8,552
    
    
    
    9,937
    
    
    
    10,372Interest rate swap agreements:- Fair value
hedge - asset
    
    
    (13,832
    )
    
    
    (13,832
    )
    
    
    (17,681
    )
    
    
    (17,681
    )- Cash flow
hedge - liability
    
    
    2,380
    
    
    
    2,380
    
    
    
    4,452
    
    
    
    4,452
 The carrying and fair values of the National Welders joint ventures
financial instruments at March 31, 2004 are listed below: 2004
    
    2004Carrying
    
    Fair(In thousands)
    
    Value
    
    ValueNational
Welders Financial Instruments:Revolving credit borrowings
    
    $
    5,507
    
    
    $
    5,507Term loans
    
    
    42,142
    
    
    
    42,142Acquisition and other notes
    
    
    6,174
    
    
    
    6,588Interest rate swap agreement:- Cash flow
hedge - liability
    
    
    2,507
    
    
    
    2,507
 (12) 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 and floating interest rate swap agreements used to manage
well-defined interest rate risk exposures. Interest rate swap agreements are
not entered into for trading purposes. As described in Note 2, the Company
adopted SFAS 133 as of April 1, 2001. At March 31, 2004, the Company had four fixed interest rate swap
agreements with a notional amount of $90 million that effectively convert a
corresponding amount of variable interest rate
debt of a consolidated grantor trust (see Note 10) and trade receivables securitization
agreement (see Note 13). The swap agreements require the Company to make fixed
interest payments based on an average effective rate of 4.55% and receive
variable interest payments from its counterparties based on three-month LIBOR
(average rate of 1.12% at March 31, 2004). The remaining terms of these swap
agreements range from between four and nineteen months. In fiscal 2004 and
2003, the Company recorded a net change in the fair value of the fixed interest
rate swap agreements of $2 million and $565 thousand as accumulated other
comprehensive income, respectively. The net additional interest payments made
under these swap agreements during fiscal 2004 were recognized in interest
expense. Over the next 12 months, the Company expects to reclassify $1.9
million of the deferred loss from accumulated other comprehensive loss to
interest expense as the related interest payments that are being hedged are
recognized. F-26




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  (Continued) At March 31, 2004, the Company also had four variable interest rate swap
agreements with a notional amount of $125 million that effectively converts a
corresponding amount of fixed rate medium-term and senior subordinated notes to
variable rate debt. The swap agreements require the Company to make variable
interest payments based primarily on six-month LIBOR (average rate of 3.16% at
March 31, 2004) and receive fixed interest payments from its counterparties
based on an average effective rate of 8.36% at March 31, 2004. The remaining
terms of these swap agreements range from between two and seven years. The
fair value of these variable interest rate swap agreements and the increased
carrying value of the hedged portions of the medium-term and senior
subordinated notes at March 31, 2004 was $13.8 million. The changes in the
fair value of the swap agreements are offset by changes in the fair value of
the hedged portions of the medium-term and senior subordinated notes. The effect of these interest rate swap agreements was to adjust the
Companys ratio of fixed to variable interest rates to 57% fixed and 43%
variable and to reduce interest expense by approximately $4.7 million and $3.4
million in fiscal 2004 and 2003, respectively, and increase interest expense by
$2.9 million in fiscal 2002. National Welders Hedging Activities The Companys National Welders joint venture affiliate participates in one
interest rate swap with a notional principal amount of $21 million that
effectively converts a corresponding amount of variable interest rate debt
(Term Loan B  see Note 10) to a fixed rate debt instrument. The interest rate
swap requires National Welders to make interest payments based on a fixed rate
of 6.72% and receivable variable interest payments from its counterparty based
on a floating LIBOR rate of 1.09% at March 31, 2004. The interest rate swap
agreement was not entered into for trading purposes. The consolidation of
National Welders resulted in the addition of a cumulative unrealized loss on
the National Welders interest rate swap of $2.5 million and associated tax
benefit of $1 million in Accumulated Other Comprehensive Loss. Aggregate Maturities of Interest Rate Swap Agreements Including National Welders, the aggregate maturities of the Companys
interest rate swap agreements by type of swap for the five years ending March
31, 2009 and thereafter are as follows: (In thousands)
    
    Notional Principal AmountsYears Ending March 31,
    
    Pay-Fixed
    
    Pay-Variable2005
    
    $
    40,000
    
    
    $
    2006
    
    
    50,000
    
    
    
    2007
    
    
    21,000
    
    
    
    50,0002008
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    75,000$
    111,000
    
    
    $
    125,000
 F-27




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) TRADE RECEIVABLES SECURITIZATION The Company participates in a securitization agreement with two commercial
banks to sell up to $175 million of qualifying trade receivables. The
agreement will expire in December 2005, but may be renewed subject to renewal
provisions contained in the agreement. During fiscal 2004, the Company sold,
net of its retained interest, $1,696 million of trade receivables and remitted
to bank conduits, pursuant to a servicing agreement, $1,692 million in
collections on those receivables. The net proceeds were used to reduce
borrowings under the Companys revolving credit facilities. The amount of
outstanding receivables under the agreement was $162.6 million at March 31,
2004 and $158.9 million at March 31, 2003. The transaction has been accounted for as a sale under the provisions of
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Under the securitization agreement, eligible
trade receivables are sold to bank conduits through a bankruptcy-remote special
purpose entity, which is consolidated for financial reporting purposes. The
difference between the proceeds from the sale and the carrying value of the
receivables is recognized as Discount on securitization of trade receivables
in the accompanying Consolidated Statements of Earnings and varies on a monthly
basis depending on the amount of receivables sold and market rates. The
Company retains a subordinated interest in the receivables sold, which is
recorded at the receivables previous carrying value. A subordinated retained
interest of approximately $44 million and $45 million is included in Trade
receivables in the accompanying Consolidated Balance Sheets at March 31, 2004
and 2003, respectively. The Companys retained interest is generally collected
within 60 days. On a monthly basis, management measures the fair value of the
retained interest at managements best estimate of the undiscounted expected
future cash collections on the transferred receivables. Changes
in the fair value are recognized as bad debt expense. Actual cash collections
may differ from these estimates and would directly affect the fair value of the
retained interest. In accordance with a servicing agreement, the Company
continues to service, administer and collect the trade receivables on behalf of
the bank conduits. The servicing fees charged to the bank conduits approximate
the costs of collections. (14) STOCKHOLDERS EQUITY (a) Common Stock The Company is authorized to issue up to 200 million shares of common
stock with a par value of $0.01 per share. At March 31, 2004, the number of
shares of common stock outstanding was 73.4 million, excluding 1.5 million
shares of common stock held as treasury stock (923 thousand shares owned by
National Welders), and 2.2 million shares of common stock held in the Employee
Benefits Trust as described below. At March 31, 2003, the number of shares of
common stock outstanding was 72.4 million, excluding 547 thousand shares of
common stock held as treasury stock and 3.4 million shares of common stock held
by the Employee Benefits Trust. (b) Preferred Stock and Redeemable Preferred Stock The Company is authorized to issue up to 20 million shares of preferred
stock. Of the 20 million shares authorized, 200 thousand shares have been
designated as Series A Junior Participating Preferred Stock and 200 thousand
shares have been designated as Series B Junior Participating Preferred Stock
(see Stockholder Rights Planbelow). At March 31, 2004 and 2003, no shares of
the preferred stock were issued or outstanding. The preferred stock may be
issued from time to time by the Companys Board of Directors in one or more
series. The Board of Directors is authorized to fix the dividend rights and
terms, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences, and any other rights, preferences, privileges and
restrictions of any series of preferred stock, and the number of shares
constituting each such series and designation thereof. Additionally, the Company is authorized to issue 30 thousand shares of
redeemable preferred stock. At March 31, 2004 and 2003, no shares of
redeemable preferred stock were issued or outstanding. F-28




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) STOCKHOLDERS EQUITY  (Continued) (c) Dividends On May 13, 2003, the Companys Board of Directors declared the first
quarterly cash dividend in the Companys history of $0.04 per share, which was
paid to stockholders on June 30, 2003. Subsequently, at the end of each
quarter during fiscal 2004, the Company paid its stockholders regular quarterly
cash dividends of $0.04 per share. In addition, on May 25, 2004, the Company
announced that its Board of Directors declared a regular quarterly cash
dividend of $0.045 per share, representing a 13% increase compared to the prior
year quarterly dividend. The dividend is payable June 30, 2004 to stockholders
of record as of June 15, 2004. Future dividend declarations and associated
amounts paid will depend upon the Companys earnings, financial condition, loan
covenants, capital requirements and other factors deemed relevant by management
and the Companys Board of Directors. (d) Shares in Employee Benefits Trust In March 1999, the Company established a trust (the Employee Benefits
Trust) to fund certain future obligations of the Companys employee benefit
and compensation plans. From inception through fiscal 2001, the Company,
pursuant to a Common Stock Purchase Agreement, sold 7 million shares of common
stock to the Employee Benefits Trust. The Company holds promissory notes from
the Employee Benefits Trust in the amount of each purchase. Shares held by the
Employee Benefits Trust serve as collateral for the promissory notes and are
available to fund certain employee benefit plan obligations as the promissory
notes are repaid. The shares held by the Employee Benefits Trust are not
considered outstanding for earnings per share purposes until they are released
from serving as collateral for the promissory notes. An independent
third-party financial institution serves as the Trustee. The Trustee votes or
tenders shares held by the trust in accordance with instructions received from
the participants in the employee benefit and compensation plans funded by the
trust. Approximately 1.2 million and 909 thousand shares were issued from the
Employee Benefits Trust
for employee benefit programs during fiscal 2004 and 2003, respectively. As of
March 31, 2004, the Employee Benefits Trust held 2.2 million shares of the
Companys common stock. (e) Stockholder Rights Plan Effective April 1, 1997, the Companys Board of Directors adopted a
stockholder rights plan (the 1997 Rights Plan). Pursuant to the 1997 Rights
Plan, the Board of Directors declared a dividend distribution of one right for
each share of common stock. Each right entitles the holder to purchase from
the Company one one-thousandth of a share Series B Junior Participating
Preferred Stock at an initial exercise price of $100 per share. Rights become exercisable only following the acquisition by a person or
group of 15% (or 20% in the case of the Chairman and certain of his affiliates)
or more of the Companys common stock or after the announcement of a tender
offer or exchange offer to acquire 15% (or 20% in the case of the Chairman and
certain of his affiliates) or more of the outstanding common stock. If such a
person or group acquires 15% or more (or 20% or more, as the case may be) of
the common stock, each right (other than such persons or groups rights, which
will become void) will entitle the holder to purchase, at the exercise price,
common stock having a market value equal to twice the exercise price. In
certain circumstances, the rights may be redeemed by the Company. If not
redeemed, they will expire on April 1, 2007. (f) Warrants During fiscal 2002, the Company granted warrants to purchase 324,000
shares of the Companys common stock to an outside consulting firm for services
rendered. The warrants have a term of three years from the date of grant and
have exercise prices in excess of market value on the date of grant ranging
from $11.98 to $18.78 per share. The aggregate value of the warrants on the
dates of grant, as determined by the Black-Scholes model, was $1.1 million,
which the Company expensed during fiscal 2002. No additional warrants were granted
during fiscal years 2004 or 2003. F-29




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) STOCK-BASED COMPENSATION The Company has elected to continue to account for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, as permitted by SFAS No. 123,
Accounting for Stock-Based Compensation,as amended by SFAS No. 148.
Accordingly, no compensation expense has been recognized for its stock option
and employee stock purchase plans. The following table illustrates the effect
on net income and earnings per share for fiscal 2004, 2003 and 2002 as if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based compensation. Years Ended March 31,(In thousands, except per share amounts)
    
    2004
    
    2003
    
    2002Net earnings (loss), as reported
    
    $
    80,192
    
    
    $
    68,105
    
    
    $
    (10,415
    )Deduct: Total stock-based employee
compensation expense determined
under fair value based methods for
all awards, net of related tax
effects
    
    
    (5,469
    )
    
    
    (6,820
    )
    
    
    (6,670
    )Pro forma net earnings (loss)
    
    $
    74,723
    
    
    $
    61,285
    
    
    $
    (17,085
    )Earnings (loss) per share:Basic  as reported
    
    $
    1.10
    
    
    $
    0.97
    
    
    $
    (0.15
    )Basic  pro forma
    
    $
    1.03
    
    
    $
    0.87
    
    
    $
    (0.25
    )Diluted  as reported
    
    $
    1.07
    
    
    $
    0.94
    
    
    $
    (0.15
    )Diluted  pro forma
    
    $
    1.00
    
    
    $
    0.85
    
    
    $
    (0.24
    )
 The Companys stock-based compensation plans are described below: (a) Employee Stock Option Plans In May 1997, the Company adopted the 1997 Stock Option Plan (the 1997
Plan) under which officers and key employees may be granted options. The 1997
Plan replaced the previous 1984 Stock Option Plan. In May 2002, the Company
amended the 1997 Plan to increase the total number of shares of common stock
reserved for sale upon the exercise of stock options and restricted stock
granted under the 1997 Plan from 8 million to 11.2 million. The amendment was
approved by the Companys stockholders in July 2002. Options granted under the 1997 Plan vest 25% annually and have a maximum
term of ten years. Under the 1997 Plan, at March 31, 2004, 2003 and 2002, 3.8
million, 4.7 million and 2.6 million options, respectively, were available for
issuance. In fiscal 2004, 2003 and 2002, 1.1 million, 1.2 million and 1.5
million options, respectively, were granted with an exercise price equal to
market price at the date of grant. Options under the 1997 Plan are generally
granted in May of each year. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for fiscal 2004, 2003 and 2002 option grants,
respectively: expected volatility of 40.1%, 40.3% and 48.8%, risk-free
interest rate of 2.6%, 4.3% and 4.7%, expected life of 7.3, 7.5, and 7.2 years,
and a dividend yield of 0.83% (fiscal 2004). The weighted average fair value
per share of the options granted during fiscal 2004, 2003 and 2002 was $8.22,
$8.42 and $5.31, respectively. F-30




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) STOCK-BASED COMPENSATION  (Continued) The following table summarizes the activity of the employee stock option
plans during the three years ended March 31, 2004: Numberof Shares
    
    Exercise Price Per ShareMarch 31, 2002Outstanding, beginning of year
    
    
    8,305,961
    
    
    $
    1.83
    
    
    
    
    
    
    $
    23.25Granted
    
    
    1,525,120
    
    
    
    
    
    
    
    9.29Exercised
    
    
    (1,049,173
    )
    
    
    1.83
    
    
    
    
    
    
    
    19.00Expired
    
    
    (556,798
    )
    
    
    5.50
    
    
    
    
    
    
    
    22.00March 31, 2003Outstanding, beginning of year
    
    
    8,225,110
    
    
    
    3.30
    
    
    
    
    
    
    
    23.25Granted
    
    
    1,168,250
    
    
    
    
    
    
    
    16.52Exercised
    
    
    (1,098,851
    )
    
    
    3.30
    
    
    
    
    
    
    
    17.31Expired
    
    
    (109,353
    )
    
    
    5.50
    
    
    
    
    
    
    
    22.00March 31, 2004Outstanding, beginning of year
    
    
    8,185,156
    
    
    
    4.63
    
    
    
    
    
    
    
    23.25Granted
    
    
    1,104,800
    
    
    
    
    
    
    
    19.36Exercised
    
    
    (1,364,769
    )
    
    
    5.21
    
    
    
    
    
    
    
    19.00Expired
    
    
    (302,784
    )
    
    
    5.21
    
    
    
    
    
    
    
    22.00Outstanding, end of year
    
    
    7,622,403
    
    
    $
    4.63
    
    
    
    
    
    
    $
    23.25
 Options for 4.7 million, 5.1 million and 4.7 million shares were
exercisable at March 31, 2004, 2003 and 2002, respectively. (b) Board of Directors Stock Option Plans In May 1997, the Company adopted the 1997 Directors Stock Option Plan
(the 1997 Directors Plan) under which directors of the Company who are not
employees may be granted options. The 1997 Directors Plan replaced the
previous 1989 Stock Option Plan for Directors. The 1997 Directors Plan
reserved 500 thousand shares for issuance. In May 2004, the Company amended
the 1997 Directors Plan, subject to stockholder approval, to increase the
total number of shares of common stock reserved for issuance under the 1997
Directors Plan from 500 thousand to 800 thousand. Under the 1997 Directors Plan, at March 31, 2004, 49,500 options were
available for issuance. During fiscal 2004, 2003 and 2002, 60,000, 64,000 and
80,000 options, respectively, were granted with an exercise price equal to the
market price at the date of grant and have a maximum term of ten years. The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for fiscal 2004, 2003 and 2002 option grants,
respectively: expected volatility of 40.5%, 41.5% and 51.1%, risk-free interest
rate of 3.2%, 3.6% and 4.6%, expected life of 5.9, 5.9 and 5.7 years, and a
dividend yield of 0.84% (fiscal 2004). The weighted average fair value per
share of the stock options granted during fiscal 2004, 2003 and 2002 was $7.58,
$6.70 and $6.61, respectively. F-31




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) STOCK-BASED COMPENSATION  (Continued) The following table summarizes the activity of the Board of Directors
stock option plans during the three years ended March 31, 2004: Numberof Shares
    
    Exercise Price Per ShareMarch 31, 2002Outstanding and exercisable, beginning of year
    
    
    428,500
    
    
    $
    2.09
    
    
    
    
    
    
    $
    19.25Granted
    
    
    80,000
    
    
    
    
    
    
    
    12.40Exercised
    
    
    (32,000
    )
    
    
    2.09
    
    
    
    
    
    
    
    13.82March 31, 2003Outstanding and exercisable, beginning of year
    
    
    476,500
    
    
    
    4.16
    
    
    
    
    
    
    
    19.25Granted
    
    
    64,000
    
    
    
    
    
    
    
    14.85Exercised
    
    
    (48,000
    )
    
    
    4.16
    
    
    
    
    
    
    
    8.56March 31, 2004Outstanding and exercisable, beginning of year
    
    
    492,500
    
    
    
    5.25
    
    
    
    
    
    
    
    19.25Granted
    
    
    60,000
    
    
    
    
    
    
    
    18.97Exercised
    
    
    (48,500
    )
    
    
    18.01
    
    
    
    
    
    
    
    22.30Outstanding and exercisable, end of year
    
    
    504,000
    
    
    $
    5.25
    
    
    
    
    
    
    $
    19.25
 Options granted to the Board of Directors are exercisable in full as of
the date of grant. The following table summarizes information about options outstanding and
exercisable for the employee and Board of Directors stock option plans at March
31, 2004: Options
OutstandingExerciseWeighted Average
    
    Number
    
    PriceRemaining Life-Years
    
    Outstanding
    
    Per Share6.03
    
    
    
    1,391,886
    
    
    $
    4.63
    
    
    
    
    
    
    $
    8.506.13
    
    
    
    1,307,811
    
    
    
    8.54
    
    
    
    
    
    
    
    11.324.14
    
    
    
    1,123,246
    
    
    
    11.44
    
    
    
    
    
    
    
    14.003.58
    
    
    
    1,353,216
    
    
    
    14.60
    
    
    
    
    
    
    
    15.947.14
    
    
    
    1,240,618
    
    
    
    16.52
    
    
    
    
    
    
    
    17.318.71
    
    
    
    1,240,295
    
    
    
    17.38
    
    
    
    
    
    
    
    21.532.17
    
    
    
    469,331
    
    
    
    22.00
    
    
    
    
    
    
    
    23.255.73
    
    
    
    8,126,403
    
    
    $
    4.63
    
    
    
    
    
    
    $
    23.25
 Options ExercisableNumber of Options
    
    Weighted AverageExercisable
    
    Exercise Price Per Share1,052,486
    
    
    $
    6.42688,541
    
    
    
    9.621,112,496
    
    
    
    12.391,336,155
    
    
    
    15.60435,477
    
    
    
    16.75156,501
    
    
    
    18.97468,581
    
    
    
    22.055,250,237
    
    
    $
    13.06
 F-32




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) STOCK-BASED COMPENSATION  (Continued) (c) Employee Stock Purchase Plans In July 2003, the Companys stockholders approved the 2003 Employee Stock
Purchase Plan (the 2003 Plan) to encourage and assist employees in acquiring
an equity interest in the Company. The 2003 Plan replaced the Companys 2001
Employee Stock Purchase Plan (the 2001 Plan). During fiscal 2004,
substantially all of the authorized shares remaining under the 2001 Plan were
issued. During fiscal 2005, the 2001 Plan will be terminated and the remaining
authorized shares will be deregistered. The 2003 Plan is authorized to issue up to 1.5 million shares of common
stock. Eligible employees may elect to have up to 15% of their annual gross
earnings withheld to purchase common stock at 85% of the market value. Market
value under the 2003 Plan is defined as either the closing share price on the
New York Stock Exchange as of an employees enrollment date or the closing
price on the first business day of a fiscal quarter when the shares are
purchased, whichever is lower. An employee may lock-in a purchase price for up
to 12 months. The 2003 Plan is designed to comply with the requirements of
Sections 421 and 423 of the Internal Revenue Code. The terms of the Companys
previous 2001 Plan were substantially the same as the 2003 Plan, except that
under the 2001 Plan, employees could lock-in a purchase price for up to 27
months. During fiscal 2004 and 2003, the Company issued 554 thousand shares
and 809 thousand shares, provided from the Employee Benefits Trust, to fund
purchases made by employees under the 2003 and 2001 Plans. The average
purchase price per share in fiscal 2004 and 2003 was $12.44 and $11.06,
respectively. During fiscal 2002, the Company also issued 1.1 million shares,
provided from the Employee Benefits Trust, to fund purchases made by employees
at an average price of $6.58 per share. Compensation expense under SFAS 123 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 of the employees option to purchase shares of common
stock is estimated using the Black-Scholes model. The assumptions used to
estimate the fair value of the employees option to purchase shares of common
stock at grant dates in fiscal 2004 and 2002, respectively, were: average
expected volatility of 31.1% and 61%, average risk-free interest rate of 0.96%
and 2.6%, dividend yield of 0.87% (fiscal 2004), and expected option terms ranging
from 3 to 6 months for the 2003 Plan and 3 to 27 months for previous employee
stock purchase plans. Had the Company adopted SFAS 123, compensation expense
related to the Employee Stock Purchase Plans would have been $1.5 million, $3.6
million and $4.1 million in fiscal 2004, 2003 and 2002, respectively. Fiscal
2003 expense is related to the fiscal 2002 grant and represents the value of
the options as they vest over the employee service period. (16) CONSOLIDATED AND UNCONSOLIDATED AFFILIATES With the adoption of FIN 46R (Note 2), the Companys previously
unconsolidated joint venture affiliate, National Welders, became a
consolidated affiliate. The Companys other joint venture affiliates were
not impacted by FIN 46R. The Company has participated in a joint venture with
National Welders since June 1996. National Welders is a producer and
distributor of industrial gases based in Charlotte, North Carolina. National
Welders owns and operates 46 branch stores, two acetylene plants, a specialty
gas lab, and three air separation plants that produce all of the joint
ventures oxygen and nitrogen and over 50% of its argon requirements. The
joint venture also distributes medical and specialty gases, processed
chemicals and welding equipment and supplies. Ownership interests in National Welders consist of voting common stock
and voting redeemable preferred stock with a 5% annual dividend. The Company
owns 100% of the joint ventures common stock, which represents a 50% voting
interest. A family holds approximately 3.2 million shares of redeemable
preferred stock and controls the balance of the voting interest. Between
June 30, 2006 and June 30, 2009, the preferred stockholders have the option
to redeem their preferred shares for cash at a price of $17.78 per share or to
tender them to the joint venture in exchange F-33




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) CONSOLIDATED AND UNCONSOLIDATED AFFILIATES  (Continued) for approximately 2.3 million shares of Airgas common stock. If Airgas
common stock has a market value of $24.45 per share, the common stock and
cash redemption options are equivalent. If the preferred stockholders elect
to exchange their shares for Airgas common stock, the Company is obligated to
provide the necessary shares to the joint venture by capital contribution or
other means the Company reasonably deems appropriate. The Company may
purchase shares on the open market or may issue new or treasury shares to
meet its exchange obligation. The preferred stockholders may also elect to
retain their interest in the preferred stock beyond June 30, 2009. FIN 46R addresses the consolidation of variable interest entities.
Variable interest entities are defined as corporations, partnerships, trusts,
or any other legal structure used for business purposes, and by design, the
holders of equity instruments in those entities lack one of the
characteristics of a financial controlling interest. FIN 46R changes
previous accounting practice by introducing the concept of a Primary
Beneficiary and requiring variable interest entities to be consolidated by
the party deemed to be the Primary Beneficiary (i.e., the party that is
subject to a majority of the risk of loss from the variable interest entitys
activities or entitled to receive a majority of the entitys residual returns
or both). The Company determined that National Welders met the definition of a
Variable Interest Entity under FIN 46R. Additionally, the Company, as the
only common stockholder, was determined to be the Primary Beneficiary of the
joint venture. Therefore, effective December 31, 2003, the Company elected
to adopt FIN 46R, as it applies to the joint venture, and consolidated
National Welders. As permitted by FIN 46R, the Company applied the
interpretation prospectively from the date of adoption (prior periods not restated). Therefore, at
December 31, 2003, the consolidation of National Welders only affected the
balance sheet. There was no cumulative effect adjustment as a result of the
consolidation. The consolidation had the effect of eliminating the Companys
$62 million investment in National Welders and recording the joint ventures
assets, liabilities and a corresponding minority interest liability. The
minority interest liability represents the redemption value of the joint
ventures preferred stock ($57 million), net of a $21 million note
receivable, bearing interest at 8%, due from the preferred stockholders. At
March 31, 2004, National Welders impact on the consolidated balance sheet is
summarized below: (In thousands)
    
    Increase/(Decrease)Current
assets
    
    $
    29,922Non-current
assets
    
    
    109,750Total
assets
    
    $
    139,672Current
liabilities
    
    $
    21,217Non-current
liabilities
    
    
    82,929Minority
interest
    
    
    36,191Common stockholders equity
    
    
    (665
    )Total liabilities and stockholders
equity
    
    $
    139,672
 The assets and liabilities of National Welders at March 31, 2004
include $55.1 million of goodwill and $53.8 million of debt, which is
non-recourse to the Company. The Company recognized $4.4 million of Equity in Earnings of
Unconsolidated Affiliates related to National Welders through the
nine-months ended December 31, 2003. With the prospective adoption
permitted by FIN 46R, the Companys proportionate share of the joint
ventures operating results for the fourth fiscal quarter was not reflected
as Equity in Earnings of Unconsolidated Affiliates. Rather, the fourth
fiscal quarter operating results of the joint venture were reflected broadly
across the income statement with minority interest expense reflecting the
quarterly dividend on the joint ventures redeemable preferred stock, net of
interest earned on the note receivable from the preferred stockholders. For
both the fourth quarter and fiscal year 2004, National Welders contributed F-34




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) CONSOLIDATED AND UNCONSOLIDATED AFFILIATES  (Continued) $39.2 million to sales, $3.4 million to operating income, $291 thousand of
minority interest expense and $1.2 million in net earnings. The liabilities
of the joint venture are non-recourse to the Company. Likewise, the cash
flows in excess of a management fee paid by National Welders are not
available to the Company. For the fourth quarter and fiscal year 2004,
National Welders contributed net cash from operating activities of $9.8
million of which $249 thousand was paid to the Company. Summarized below are pro forma results of National Welders that would
have been reflected had the Company consolidated the joint venture as of
April 1, 2001. Since the Company had previously recorded its proportionate
share of the operating results of National Welders under the equity method
of accounting, the consolidation of National Welders did not impact the
Companys net earnings. Pro forma results of National Welders: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Net
sales
    
    $
    147,604
    
    
    $
    142,056
    
    
    $
    132,148Operating
income
    
    
    11,337
    
    
    
    11,151
    
    
    
    11,043Minority interest
expense
    
    
    1,170
    
    
    
    1,170
    
    
    
    1,170Net earnings available to common
stockholder
    
    $
    5,617
    
    
    $
    2,684
    
    
    $
    2,861
 In fiscal 2004, National Welders recognized a non-recurring, after-tax
insurance gain of $1.7 million. The Company accounts for investments in unconsolidated affiliates by the
equity method of accounting, as described in Note 1(b). The Companys
investment in its unconsolidated affiliates totaled approximately $6.3 million
and $66 million at March 31, 2004 and 2003, respectively. Unconsolidated
affiliates in Fiscal 2003 included a $59 million investment in National
Welders, which was consolidated in Fiscal 2004. Unconsolidated affiliates at
March 31, 2004 principally consist of a 50% joint venture interest in AC
Industries, which is a carbon dioxide production plant reported under All Other
Operations in Note 24. The Companys share of earnings from AC Industries was
$830 thousand; $1.1 million and $1.0 million for the years ended March 31,
2004, 2003, and 2002, respectively. (17) INTEREST EXPENSE, NET Interest expense, net, consists of: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Interest
expense
    
    $
    43,028
    
    
    $
    47,272
    
    
    $
    48,035Interest and finance charge
income
    
    
    (671
    )
    
    
    (897
    )
    
    
    (1,022
    )$
    42,357
    
    
    $
    46,375
    
    
    $
    47,013
 F-35




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) INCOME TAXES Earnings before income taxes and the cumulative effect of a change in
accounting principle were derived from the following sources: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002United
States
    
    $
    122,641
    
    
    $
    106,258
    
    
    $
    74,947Foreign
    
    
    5,065
    
    
    
    3,046
    
    
    
    3,444$
    127,706
    
    
    $
    109,304
    
    
    $
    78,391
 Income tax expense (benefit) consists of: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Current:Federal
    
    $
    21,784
    
    
    $
    30,552
    
    
    $
    (6,693
    )Foreign
    
    
    2,120
    
    
    
    1,509
    
    
    
    1,534State
    
    
    438
    
    
    
    483
    
    
    
    38724,342
    
    
    
    32,544
    
    
    
    (4,772
    )Deferred:Federal
    
    
    19,584
    
    
    
    6,312
    
    
    
    32,348Foreign
    
    
    198
    
    
    
    (640
    )
    
    
    329State
    
    
    3,390
    
    
    
    2,983
    
    
    
    1,90123,172
    
    
    
    8,655
    
    
    
    34,578$
    47,514
    
    
    $
    41,199
    
    
    $
    29,806
 Pursuant to an accelerated depreciation provision of a fiscal 2002 change
in the tax law, the Company anticipated receiving a tax refund of approximately
$19 million during fiscal 2003 related to the assets acquired in the Air
Products acquisition. After further review, it was concluded that the Company
would not be eligible for the refund in fiscal 2003, but instead would receive
the cash benefit over the next four years. As a result, an adjustment was made
in the first quarter of fiscal 2003 that resulted in approximately a $19
million reclassification between current and deferred income taxes. The
adjustment did not impact net earnings or operating cash flows. Significant differences between taxes computed at the federal statutory
rate and the provision for income taxes were: Years Ended March 31,2004
    
    2003
    
    2002Taxes at U.S. federal statutory
rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Increase in income taxes resulting from:State income taxes, net of federal
benefit
    
    
    2.2
    %
    
    
    2.1
    %
    
    
    1.5
    %Divestitures
    
    
    
    
    
    
    0.4
    %
    
    
    1.8
    %Equity accounting for unconsolidated
affiliates
    
    
    (0.9
    %)
    
    
    (0.6
    %)
    
    
    (1.2
    %)Other,
net
    
    
    0.9
    %
    
    
    0.8
    %
    
    
    0.9
    %37.2
    %
    
    
    37.7
    %
    
    
    38.0
    %
 F-36




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) INCOME TAXES  (Continued) The tax effects of cumulative temporary differences that gave rise to the
significant portions of the deferred tax assets and liabilities were as
follows: March 31,(In thousands)
    
    2004
    
    2003Deferred Tax Assets:Inventories
    
    $
    6,021
    
    
    $
    5,637Accounts
receivable
    
    
    (1,044
    )
    
    
    (589
    )Deferred rental
income
    
    
    2,125
    
    
    
    1,872Insurance
reserves
    
    
    10,008
    
    
    
    7,320Special charges (Note
4)
    
    
    912
    
    
    
    1,817Litigation settlement and other
reserves
    
    
    210
    
    
    
    1,913Net operating loss
carryforwards
    
    
    38,458
    
    
    
    31,228Other
    
    
    1,096
    
    
    
    1,390Valuation
allowance
    
    
    (9,922
    )
    
    
    (9,646
    )47,864
    
    
    
    40,942Deferred Tax Liabilities:Plant and
equipment
    
    
    (256,955
    )
    
    
    (204,645
    )Intangible
assets
    
    
    (19,647
    )
    
    
    (14,141
    )Other
    
    
    (7,239
    )
    
    
    (13,608
    )(283,841
    )
    
    
    (232,394
    )Net deferred tax
liability
    
    $
    (235,977
    )
    
    $
    (191,452
    )
 Current tax assets and current tax liabilities have been netted for
presentation purposes. Non-current tax assets and non-current tax liabilities
have also been netted. Deferred tax assets and liabilities are reflected in
the Companys consolidated balance sheets as follows: March 31,(In thousands)
    
    2004
    
    2003Current deferred tax asset,
net
    
    $
    21,054
    
    
    $
    17,688Non-current deferred tax liability,
net
    
    
    (257,031
    )
    
    
    (209,140
    )Net deferred tax
liability
    
    $
    (235,977
    )
    
    $
    (191,452
    )
 The Company has recorded tax benefits amounting to $6.2 million, $5.8
million, and $4.3 million in fiscal 2004, 2003 and 2002, respectively,
resulting from the exercise of stock options. This benefit has been recorded in
capital in excess of par value. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the reversal of deferred tax liabilities and projected future taxable
income in making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances, at March 31, 2004. Valuation
allowances primarily relate to certain state tax net operating loss
carryforwards. F-37




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) INCOME TAXES  (Continued) The Internal Revenue Service conducted an examination of the Companys
federal income tax return for the fiscal years ended March 31, 2003, 2002
and 2001. The results of this examination had no material effect on the
Companys net earnings, financial position or liquidity. (19) BENEFIT PLANS The Company has a defined contribution 401(k) plan (the 401(k) plan)
covering substantially all full-time employees. Under the terms of the 401(k)
plan, the Company makes matching contributions up to two percent of
participants wages. Amounts expensed under the 401(k) plan for fiscal 2004,
2003, and 2002 were $3.9 million, $5 million and $4.7 million, respectively. Certain subsidiaries of the Company participate in multi-employer pension
and post-retirement plans, which provide defined benefits to union employees.
Contributions are made to the plans in accordance with negotiated labor
contracts. If the Company elected to withdraw from these plans at March 31,
2004, the withdrawal liability would have been approximately $3.2 million.
Amounts expensed under the pension plans for fiscal 2004, 2003 and 2002 were
$686 thousand, $679 thousand and $642 thousand, respectively. Effective January 2002, the Company offered eligible employees the
opportunity to participate in a non-qualified deferred compensation plan (the
Plan). The Plan allows eligible employees to defer a portion of their
compensation until their retirement. The Company has elected to fund the plan
with Company owned life insurance policies taken out on the plan participants.
The costs associated with the Plan during fiscal 2004 and 2003 were $135
thousand and $64 thousand, respectively. At March 31, 2004, the Company had a
liability of $3 million related to compensation deferred under the Plan. At
March 31, 2004, the Company also had life insurance policies with a cash
surrender value of $3 million available to fund the plan liability. Subsequent
to March 31, 2004, the Companys Board of Directors elected to terminate the
Plan. (20) RELATED PARTIES Effective with the consolidation of National Welders on December 31, 2003,
National Welders has been reflected as part of the Companys consolidated
results and is no longer considered a related party. Transactions between the
Company and National Welders have been eliminated in consolidation. The
related party transactions between the Company and National Welders presented
below relate to historical periods prior to December 31, 2003. During the years ended March 31, 2003 and 2002, National Welders (see Note
16), an unconsolidated equity affiliate, paid $4.7 million and $3.8 million,
respectively, to the Company for gas products, hardgoods and services. In
addition, National Welders sold gas products and hardgoods to the Company in
the amounts of $1.1 million and $1.1 thousand in fiscal 2003 and 2002,
respectively. In connection with the Praxair litigation (see Note 22), the
Company reimbursed National Welders for legal fees of $482 thousand in fiscal
2002. The Company paid $9.8 million, $9 million and $7.7 million to AC
Industries (see Note 16), an unconsolidated equity affiliate, for the purchase
of liquid carbon dioxide during the years ended March 31, 2004, 2003 and 2002,
respectively. In addition, the Company had a net payable balance to AC
Industries totaling $1.0 million and $1.4 million at March 31,
2004 and 2003, respectively. The Company purchases and sells goods and services in the ordinary course
of business with certain corporations in which some of its directors are
officers. The amounts of the transactions were not material to the Company. F-38




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (21) LEASES The Company leases certain distribution facilities, fleet vehicles and
equipment under long-term operating leases with varying terms. Most leases
contain renewal options and in some instances, purchase options. Rentals under
these long-term leases for the years ended March 31, 2004, 2003, and 2002,
amounted to $56 million, $54.7 million, and $45.4 million, respectively.
Certain operating facilities are leased at market rates from employees of the
Company who were previous owners of businesses acquired. Outstanding capital
lease obligations and the related capital assets are not material to the
consolidated balance sheets at March 31, 2004 and 2003. Associated with the
fleet vehicle operating leases, the Company guarantees a residual value of
$13.8 million, representing approximately 25% of the original cost. At March 31, 2004, future minimum lease payments under non-cancelable
operating leases are as follows: (In thousands)Years Ended March 31,2005
    
    $
    39,3292006
    
    
    31,7672007
    
    
    24,1072008
    
    
    17,8152009
    
    
    10,378Thereafter
    
    
    10,992$
    134,388
 (22) COMMITMENTS AND CONTINGENCIES (a) Legal In the fourth quarter of fiscal 2002, the Company settled a lawsuit
brought in 1996 by Praxair, Inc. alleging tortious interference with a right of
first refusal in connection with the Companys joint venture investment in
National Welders (see Note 16). As a result of the settlement, Praxair agreed
to early termination of the right of first refusal, and in the fourth quarter
of fiscal 2002, the Company recorded a charge to earnings, net of previously
established reserves related to the litigation, of $8.5 million. 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 condition, results of operations or liquidity. (b) Insurance Coverage The Company has established insurance programs to cover workers
compensation, business automobile, general and product liability
claims. These
programs have self-insured retention of $500 thousand per occurrence and an
annual aggregate limit of $1.7 million for claims in excess of $500 thousand.
The Company believes its insurance reserves are adequate. The Company accrues
estimated losses using actuarial models and assumptions based on historical
loss experience. The nature of the Companys business may subject it to
product and general liability lawsuits. To the extent that the
Company is subject to claims that exceed its liability insurance coverage of
$200 million, such suits could have a material adverse effect on the Companys
financial position, results of operations or liquidity. F-39




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (22) COMMITMENTS AND CONTINGENCIES  (Continued) (c) Supply Agreements The Company purchases industrial, medical and specialty gases pursuant to
requirements contracts from national and regional producers of industrial
gases. In February 2002, the Company entered into a 15-year take-or-pay supply
agreement under which Air Products will supply at least 35% of the Companys
bulk liquid nitrogen, oxygen and argon requirements, exclusive of the volumes
purchased under the new BOC supply agreement noted below. Additionally, the
Company will purchase helium from Air Products under the terms of the supply
agreement. Based on the volume of fiscal 2004 purchases, the Air Products
supply agreement represents approximately $42 million in annual liquid bulk gas
purchases. Effective December 2002, the Company entered into a 3-year
take-or-pay supply agreement with BOC to purchase liquid nitrogen, oxygen and
argon. Under the BOC supply agreement, BOC reserves specified production
volumes at certain plants and the Company has agreed to purchase at least 75%
of those volumes. Purchases under the BOC supply agreement are anticipated to
be approximately $10 million annually. The BOC supply agreement will be
replaced with a new BOC supply agreement upon closing of the acquisition of the
BOC packaged gas business. In addition, the Company is a party to other
long-term take-or-pay supply agreements primarily for the purchase of liquid
carbon dioxide, representing approximately $14 million, or 20% of the Companys
annual carbon dioxide requirements. The Air Products, BOC and certain liquid
carbon dioxide supply agreements contain market pricing subject to certain
economic indices and market analysis. The Company believes the minimum product
purchases under the agreements are well within the Companys normal product
purchases. (d) Commitments and Contingencies of National Welders National Welders is involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of National Welders
management, the ultimate disposition of these matters will not have a material
or adverse effect on the entitys financial position, results of operations, or
liquidity. National Welders is self-insured for medical and workers compensation
claims in North Carolina and South Carolina. Medical claims are self-insured up
to a $100,000 limit per person annually with an aggregate liability of $4
million. Workers compensation claims are self-insured up to $250,000 per
person annually with an aggregate liability of $575,000. Provisions for
expected future payments for medical and workers compensation are accrued
based on estimates of the aggregate liability for claims incurred plus an
estimate for incurred but not reported claims using historical experience. (23) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense and income taxes was as follows: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Interest
    
    $
    46,115
    
    
    $
    55,853
    
    
    $
    42,165Income taxes (net of refunds)
    
    
    18,897
    
    
    
    5,344
    
    
    
    21,004
 Significant non-cash investing and financing transactions were as follows: Years Ended March 31,(In thousands)
    
    2004
    
    2003
    
    2002Acquisition liabilities assumed
    
    $
    7,620
    
    
    $
    2,606
    
    
    $
    9,917
 F-40




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (23) SUPPLEMENTAL CASH FLOW INFORMATION  (Continued) Cash flows, in excess of a management fee, associated with the Companys
consolidated affiliate, National Welders (see Note 16), are not available for
the general use of the Company. Rather these cash flows are used by National
Welders for operations, capital expenditures, and acquisitions and to satisfy
financial obligations, which are non-recourse to the Company. As a result of
the consolidation of National Welders effective December 31, 2003, the
Consolidated Statement of Cash Flows at March 31, 2004 reflects the following
fourth quarter sources and uses of cash associated with National Welders: Year Ended March 31,(In thousands)
    
    2004Net cash provided by operating activities
    
    $
    9,831Net cash used by investing activities
    
    
    (1,783
    )Net cash used by financing activities
    
    
    (8,048
    )Management fee paid to the Company,
which is eliminated in consolidation
    
    
    249
 (24) SUMMARY BY BUSINESS SEGMENT The Company aggregates its operations, based on products and services,
into two reportable segments, Distribution and All Other Operations. The
Distribution segments principal products are packaged and small bulk gases,
rent on gas cylinders and welding equipment, process chemicals and hardgoods.
Gas sales include industrial, medical and specialty gases such as: nitrogen,
oxygen, argon, helium, acetylene, carbon dioxide, nitrous oxide, hydrogen,
welding gases, ultra high purity grades and special application blends. Rent
is derived from gas cylinders, cryogenic liquid containers, bulk storage tanks,
tube trailers and through the rental of welding equipment. Hardgoods consist
of welding supplies and equipment, safety products, and industrial tools and
supplies. During fiscal year 2004, the Distribution segment accounted for
approximately 90% of consolidated sales. In the fourth quarter of fiscal 2004, the Company renamed its Gas
Operations segment as All Other Operations and disclosed the operating
results of National Welders with the results of business units previously
reported under the Gas Operations segment. These business units produce and
distribute dry ice, carbon dioxide, nitrous oxide and specialty gases. The
operating results of the Companys air separation plants and its six
national specialty gas labs are also reported under this segment. The National
Welders joint venture structure, which limits the Companys control over the
National Welders operations and cash flows, is the primary factor that led the
Company to conclude that National Welders is most appropriately reflected in
the All Other Operations segment. The business units reflected in the All
Other Operations segment individually are not material enough to meet the
thresholds to be reported as separate business segments. The elimination
entries represent intercompany sales from the Companys All Other Operations
segment to its Distribution segment. The Companys operations are predominantly in the United States. The
Companys customer base is diverse and sales are not dependent on a single or
small group of customers. The accounting policies of the segments are the same as those described in
the Summary of Significant Accounting Policies (Note 1). Additionally,
Corporate operating expenses are allocated to each segment based on sales
dollars. However, sales associated with National Welders are excluded from the
Corporate operating expense allocation to All Other Operations as National
Welders maintains its own corporate functions. Corporate assets have been
allocated to the Distribution segment, intercompany sales are recorded on the
same basis as sales to third parties, and intercompany transactions are
eliminated in consolidation. See Note 3 for the impact of acquisitions and
divestitures on the operating results of each segment. F-41




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (24) SUMMARY BY BUSINESS SEGMENT  (Continued) Management utilizes more than one measurement and multiple views of data
to measure segment performance and to allocate resources to the segments.
However, the dominant measurements are consistent with the Companys
consolidated financial statements and, accordingly, are reported on the same
basis herein. All Other(In thousands)
    
    Distribution
    
    Operations
    
    Eliminations
    
    CombinedFiscal 2004Gas and
rent
    
    $
    882,585
    
    
    $
    216,166
    
    
    $
    (39,944
    )
    
    $
    1,058,807Hardgoods
    
    
    819,886
    
    
    
    19,760
    
    
    
    (2,985
    )
    
    
    836,661Total net
sales
    
    
    1,702,471
    
    
    
    235,926
    
    
    
    (42,929
    )
    
    
    1,895,468Cost of products
sold, excluding
depreciation
expense
    
    
    845,440
    
    
    
    106,170
    
    
    
    (42,929
    )
    
    
    908,681Selling,
distribution, and
administrative
expenses
    
    
    648,919
    
    
    
    82,908
    
    
    
    
    
    
    
    731,827Depreciation
expense
    
    
    67,407
    
    
    
    15,160
    
    
    
    
    
    
    
    82,567Amortization
expense
    
    
    5,032
    
    
    
    357
    
    
    
    
    
    
    
    5,389Special
charges (recoveries)
    
    
    (776
    )
    
    
    
    
    
    
    
    
    
    
    (776
    )Operating
income
    
    
    136,449
    
    
    
    31,331
    
    
    
    
    
    
    
    167,780Equity in earnings
of unconsolidated
affiliates
    
    
    4,383
    
    
    
    830
    
    
    
    
    
    
    
    5,213Assets
    
    
    1,522,126
    
    
    
    408,953
    
    
    
    
    
    
    
    1,931,079Investment in
unconsolidated
affiliates
    
    
    1,178
    
    
    
    5,114
    
    
    
    
    
    
    
    6,292Capital
expenditures
    
    
    81,247
    
    
    
    12,502
    
    
    
    
    
    
    
    93,749
 F-42




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (24) SUMMARY BY BUSINESS SEGMENT  (Continued) All Other(In thousands)
    
    Distribution
    
    Operations
    
    Eliminations
    
    CombinedFiscal 2003Gas and
rent
    
    $
    863,975
    
    
    $
    178,622
    
    
    $
    (37,067
    )
    
    $
    1,005,530Hardgoods
    
    
    778,101
    
    
    
    5,227
    
    
    
    (1,894
    )
    
    
    781,434Total net
sales
    
    
    1,642,076
    
    
    
    183,849
    
    
    
    (38,961
    )
    
    
    1,786,964Cost of products
sold, excluding
depreciation
expense
    
    
    806,320
    
    
    
    82,957
    
    
    
    (38,961
    )
    
    
    850,316Selling,
distribution, and
administrative
expenses
    
    
    634,580
    
    
    
    63,648
    
    
    
    
    
    
    
    698,228Depreciation
expense
    
    
    62,071
    
    
    
    11,411
    
    
    
    
    
    
    
    73,482Amortization
expense
    
    
    5,877
    
    
    
    485
    
    
    
    
    
    
    
    6,362Special
charges
    
    
    2,694
    
    
    
    
    
    
    
    
    
    
    
    2,694Operating
income
    
    
    130,534
    
    
    
    25,348
    
    
    
    
    
    
    
    155,882Equity in earnings
of unconsolidated
affiliates
    
    
    2,682
    
    
    
    1,086
    
    
    
    
    
    
    
    3,768Assets
    
    
    1,494,363
    
    
    
    205,880
    
    
    
    
    
    
    
    1,700,243Investment in
unconsolidated
affiliates
    
    
    60,323
    
    
    
    5,634
    
    
    
    
    
    
    
    65,957Capital
expenditures
    
    
    51,751
    
    
    
    16,218
    
    
    
    
    
    
    
    67,969
 All Other(In thousands)
    
    Distribution
    
    Operations
    
    Eliminations
    
    CombinedFiscal 2002Gas and
rent
    
    $
    707,435
    
    
    $
    170,687
    
    
    $
    (31,163
    )
    
    $
    846,959Hardgoods
    
    
    786,832
    
    
    
    2,907
    
    
    
    (651
    )
    
    
    789,088Total net
sales
    
    
    1,494,267
    
    
    
    173,594
    
    
    
    (31,814
    )
    
    
    1,636,047Cost of products
sold, excluding
depreciation
expense
    
    
    770,094
    
    
    
    80,473
    
    
    
    (31,814
    )
    
    
    818,753Selling,
distribution, and
administrative
expenses
    
    
    559,468
    
    
    
    59,848
    
    
    
    
    
    
    
    619,316Depreciation
expense
    
    
    53,701
    
    
    
    11,084
    
    
    
    
    
    
    
    64,785Amortization
expense
    
    
    7,574
    
    
    
    586
    
    
    
    
    
    
    
    8,160Operating
income
    
    
    103,430
    
    
    
    21,603
    
    
    
    
    
    
    
    125,033Equity in earnings
of unconsolidated
affiliates
    
    
    2,878
    
    
    
    957
    
    
    
    
    
    
    
    3,835Assets
    
    
    1,520,492
    
    
    
    196,565
    
    
    
    
    
    
    
    1,717,057Investment in
unconsolidated
affiliates
    
    
    58,579
    
    
    
    6,047
    
    
    
    
    
    
    
    64,626Capital
expenditures
    
    
    52,414
    
    
    
    5,883
    
    
    
    
    
    
    
    58,297
 F-43




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (25) SUPPLEMENTARY INFORMATION (UNAUDITED) This table summarizes the unaudited results of operations for each quarter
of fiscal 2004 and 2003: (In thousands, except per share amounts)
    
    First
    
    Second
    
    Third
    
    Fourth2004Net sales (b)
    
    $
    461,056
    
    
    $
    460,452
    
    
    $
    451,869
    
    
    $
    522,091Operating income (b)
    
    
    40,660
    
    
    
    40,761
    
    
    
    40,287
    
    
    
    46,072Net earnings
(b),(c)
    
    
    18,528
    
    
    
    19,113
    
    
    
    20,891
    
    
    
    21,660Basic earnings per share (a),(b),(c)
    
    $
    .26
    
    
    $
    .26
    
    
    $
    .29
    
    
    $
    .29Diluted earnings per share (a),(b),(c)
    
    $
    .25
    
    
    $
    .26
    
    
    $
    .28
    
    
    $
    .292003Net
sales
    
    $
    457,668
    
    
    $
    451,053
    
    
    $
    435,339
    
    
    $
    442,904Operating income (d)
    
    
    36,210
    
    
    
    42,424
    
    
    
    38,090
    
    
    
    39,158Net earnings (d)
    
    
    14,044
    
    
    
    19,200
    
    
    
    16,696
    
    
    
    18,165Basic earnings per share (a),(d)
    
    $
    .20
    
    
    $
    .27
    
    
    $
    .24
    
    
    $
    .26Diluted earnings per share (a),(d)
    
    $
    .20
    
    
    $
    .27
    
    
    $
    .23
    
    
    $
    .25
  (a)
    
    Earnings per share calculations for each of the quarters are based on the
weighted average number of shares outstanding in each period. Therefore,
the sum of the quarters does not necessarily equal the full year earnings
per share.  (b)
    
    As discussed in the Notes to the Companys consolidated financial
statements, operating income and net earnings for fiscal 2004 include a
fourth quarter special charge recovery of $776 thousand ($480 thousand
after tax) reflecting lower estimates of the ultimate cost of prior
years restructuring activities and a second quarter insurance-related
loss of $2.8 million ($1.7 million after tax), representing the Companys
self-insurance retention associated with fire-related losses. Fiscal 2004
results also include the fourth quarter consolidation of the National
Welders joint venture in accordance with FIN 46R. National Welders
contributed $39.2 million of sales and $3.4 million of operating income in
fiscal 2004.  (c)
    
    As discussed in the Notes to the Companys consolidated financial
statements, net earnings for fiscal 2004 also include a third quarter $1.7
million non-recurring insurance gain recognized by National Welders.  (d)
    
    As discussed in the Notes to the Companys consolidated financial
statements, operating income and net earnings for fiscal 2003 include a
first quarter special charge of $2.7 million ($1.7 million after tax)
consisting of a restructuring charge related to the integration of the
business acquired from Air Products in fiscal 2002, and costs related to
the consolidation of certain of the Companys hardgoods procurement
functions. (26) SUBSEQUENT EVENT On April 2, 2004, the Company announced that it signed a definitive asset
purchase agreement to acquire most of the U.S. packaged gas business of BOC in
a transaction valued up to $200 million. The transaction is expected to close
July 30, 2004 and includes about 120 locations in 21 states involved in the
distribution of packaged industrial, medical and specialty gases, as well as
welding hardgoods. In fiscal 2003, the packaged gas business of BOC, subject
to the acquisition, generated approximately $240 million in sales of which
approximately 65% was gas and rent. The acquired operations will be integrated
with the existing business units of the Companys Distribution segment. F-44




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (27) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS The obligations of the Company under its senior subordinated notes (the
Notes) are guaranteed by the Companys domestic subsidiaries (the
Guarantors). The guarantees are made on a joint and several basis. The
Companys joint venture operations, foreign holdings and bankruptcy remote
special purpose entity (the Non-guarantors) are not guarantors of the Notes.
Effective December 31, 2003, the Company adopted FIN 46R with respect to its
National Welders joint venture (see Notes 2 and 16). As permitted by FIN 46R,
the Company applied the interpretation prospectively (prior periods not restated). Accordingly, the
Companys investment and equity in earnings of unconsolidated affiliates
associated with the National Welders joint venture will no longer be reported
under the Parent in the accompanying condensed consolidating financial
statements. At December 31, 2003, the Parent companys Investment in
Unconsolidated Affiliates associated with National Welders was reclassified to
Investment in Subsidiaries and the assets, liabilities, and minority interest
of the joint venture were reflected in the Condensed Consolidating Balance
Sheet with the Non-guarantors. For the quarter ended March 31, 2004, the
operating results of the joint venture and corresponding minority interest
expense were reflected in the Condensed Consolidating Statement of Earnings
with the Non-guarantors. The claims of creditors of Non-guarantor subsidiaries
have priority over the rights of the Company to receive dividends or
distributions from such subsidiaries. Presented below is supplementary
condensed consolidating financial information for the Company, the Guarantors
and the Non-guarantors as of March 31, 2004 and March 31, 2003 and for the
years ended March 31, 2004, 2003 and 2002. F-45




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheet
March 31, 2004 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedASSETSCurrent Assets:Trade receivables, net
    
    $
    
    
    
    $
    5,263
    
    
    $
    101,750
    
    
    $
    
    
    
    $
    107,013Intercompany
receivable/(payable)
    
    
    
    
    
    
    (7,471
    )
    
    
    7,471
    
    
    
    
    
    
    
    Inventories, net
    
    
    
    
    
    
    157,991
    
    
    
    12,309
    
    
    
    
    
    
    
    170,300Deferred income tax asset, net
    
    
    9,391
    
    
    
    10,679
    
    
    
    984
    
    
    
    
    
    
    
    21,054Prepaid expenses and other
current assets
    
    
    4,839
    
    
    
    18,422
    
    
    
    5,202
    
    
    
    
    
    
    
    28,463Total current assets
    
    
    14,230
    
    
    
    184,884
    
    
    
    127,716
    
    
    
    
    
    
    
    326,830Plant and equipment, net
    
    
    26,906
    
    
    
    868,400
    
    
    
    138,620
    
    
    
    
    
    
    
    1,033,926Goodwill
    
    
    
    
    
    
    436,505
    
    
    
    67,702
    
    
    
    
    
    
    
    504,207Other intangible assets, net
    
    
    304
    
    
    
    19,187
    
    
    
    242
    
    
    
    
    
    
    
    19,733Investments in unconsolidated
affiliates
    
    
    1,117
    
    
    
    5,175
    
    
    
    
    
    
    
    
    
    
    
    6,292Investments in subsidiaries
    
    
    1,481,948
    
    
    
    
    
    
    
    
    
    
    
    (1,481,948
    )
    
    
    Intercompany
receivable/(payable)
    
    
    (198,326
    )
    
    
    168,423
    
    
    
    29,903
    
    
    
    
    
    
    
    Other non-current assets
    
    
    30,634
    
    
    
    6,619
    
    
    
    2,838
    
    
    
    
    
    
    
    40,091Total assets
    
    $
    1,356,813
    
    
    $
    1,689,193
    
    
    $
    367,021
    
    
    $
    (1,481,948
    )
    
    $
    1,931,079LIABILITIES AND
STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable, trade
    
    $
    4,298
    
    
    $
    100,239
    
    
    $
    9,766
    
    
    $
    
    
    
    $
    114,303Accrued expenses and other
current liabilities
    
    
    49,870
    
    
    
    60,604
    
    
    
    11,552
    
    
    
    
    
    
    
    122,026Current portion of long-term debt
    
    
    
    
    
    
    467
    
    
    
    5,673
    
    
    
    
    
    
    
    6,140Total current liabilities
    
    
    54,168
    
    
    
    161,310
    
    
    
    26,991
    
    
    
    
    
    
    
    242,469Long-term debt, excluding
current portion
    
    
    607,832
    
    
    
    6,185
    
    
    
    68,681
    
    
    
    
    
    
    
    682,698Deferred income tax liability, net
    
    
    (4,115
    )
    
    
    223,409
    
    
    
    37,737
    
    
    
    
    
    
    
    257,031Other non-current liabilities
    
    
    5,687
    
    
    
    10,933
    
    
    
    4,169
    
    
    
    
    
    
    
    20,789Minority interest in subsidiaries
    
    
    
    
    
    
    
    
    
    
    36,191
    
    
    
    
    
    
    
    36,191Commitments and contingenciesStockholders Equity:Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, par value $.01
per share
    
    
    772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    772Capital in excess of par value
    
    
    233,574
    
    
    
    786,534
    
    
    
    71,956
    
    
    
    (858,490
    )
    
    
    233,574Retained earnings
    
    
    481,677
    
    
    
    500,822
    
    
    
    122,636
    
    
    
    (623,458
    )
    
    
    481,677Accumulated other
comprehensive loss
    
    
    (1,596
    )
    
    
    
    
    
    
    (970
    )
    
    
    
    
    
    
    (2,566
    )Treasury stock
    
    
    (4,288
    )
    
    
    
    
    
    
    (370
    )
    
    
    
    
    
    
    (4,658
    )Employee benefits trust
    
    
    (16,898
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,898
    )Total stockholders equity
    
    
    693,241
    
    
    
    1,287,356
    
    
    
    193,252
    
    
    
    (1,481,948
    )
    
    
    691,901Total liabilities and
stockholders equity
    
    $
    1,356,813
    
    
    $
    1,689,193
    
    
    $
    367,021
    
    
    $
    (1,481,948
    )
    
    $
    1,931,079
 F-46




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheet
March 31, 2003 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedASSETSCurrent Assets:Trade receivables, net
    
    $
    
    
    
    $
    4,543
    
    
    $
    66,803
    
    
    $
    
    
    
    $
    71,346Intercompany
receivable/(payable)
    
    
    
    
    
    
    (8,032
    )
    
    
    8,032
    
    
    
    
    
    
    
    Inventories, net
    
    
    
    
    
    
    148,088
    
    
    
    3,317
    
    
    
    
    
    
    
    151,405Deferred income tax asset, net
    
    
    7,242
    
    
    
    10,446
    
    
    
    
    
    
    
    
    
    
    
    17,688Prepaid expenses and other
current assets
    
    
    12,899
    
    
    
    16,240
    
    
    
    1,004
    
    
    
    
    
    
    
    30,143Total current assets
    
    
    20,141
    
    
    
    171,285
    
    
    
    79,156
    
    
    
    
    
    
    
    270,582Plant and equipment, net
    
    
    19,302
    
    
    
    828,323
    
    
    
    21,867
    
    
    
    
    
    
    
    869,492Goodwill
    
    
    
    
    
    
    426,474
    
    
    
    11,235
    
    
    
    
    
    
    
    437,709Other intangible assets, net
    
    
    545
    
    
    
    19,070
    
    
    
    217
    
    
    
    
    
    
    
    19,832Investments in unconsolidated
affiliates
    
    
    60,239
    
    
    
    5,718
    
    
    
    
    
    
    
    
    
    
    
    65,957Investments in subsidiaries
    
    
    1,347,897
    
    
    
    
    
    
    
    
    
    
    
    (1,347,897
    )
    
    
    Intercompany
receivable/(payable)
    
    
    (186,852
    )
    
    
    182,610
    
    
    
    4,242
    
    
    
    
    
    
    
    Other non-current assets
    
    
    30,549
    
    
    
    5,099
    
    
    
    1,023
    
    
    
    
    
    
    
    36,671Total assets
    
    $
    1,291,821
    
    
    $
    1,638,579
    
    
    $
    117,740
    
    
    $
    (1,347,897
    )
    
    $
    1,700,243LIABILITIES AND
STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable, trade
    
    $
    2,406
    
    
    $
    80,487
    
    
    $
    2,482
    
    
    $
    
    
    
    $
    85,375Accrued expenses and other
current liabilities
    
    
    54,737
    
    
    
    64,320
    
    
    
    2,235
    
    
    
    
    
    
    
    121,292Current portion of long-term debt
    
    
    
    
    
    
    2,141
    
    
    
    88
    
    
    
    
    
    
    
    2,229Total current liabilities
    
    
    57,143
    
    
    
    146,948
    
    
    
    4,805
    
    
    
    
    
    
    
    208,896Long-term debt, excluding
current portion
    
    
    629,934
    
    
    
    6,978
    
    
    
    21,119
    
    
    
    
    
    
    
    658,031Deferred income tax liability, net
    
    
    1,385
    
    
    
    202,556
    
    
    
    5,199
    
    
    
    
    
    
    
    209,140Other non-current liabilities
    
    
    6,426
    
    
    
    20,482
    
    
    
    335
    
    
    
    
    
    
    
    27,243Commitments and contingenciesStockholders Equity:Preferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, par value $.01
per share
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764Capital in excess of par value
    
    
    216,275
    
    
    
    838,340
    
    
    
    8,224
    
    
    
    (846,564
    )
    
    
    216,275Retained earnings
    
    
    413,286
    
    
    
    423,491
    
    
    
    78,280
    
    
    
    (501,771
    )
    
    
    413,286Accumulated other
comprehensive loss
    
    
    (3,302
    )
    
    
    (216
    )
    
    
    (222
    )
    
    
    438
    
    
    
    (3,302
    )Treasury stock
    
    
    (4,289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,289
    )Employee benefits trust
    
    
    (25,801
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,801
    )Total stockholders equity
    
    
    596,933
    
    
    
    1,261,615
    
    
    
    86,282
    
    
    
    (1,347,897
    )
    
    
    596,933Total liabilities and
stockholders equity
    
    $
    1,291,821
    
    
    $
    1,638,579
    
    
    $
    117,740
    
    
    $
    (1,347,897
    )
    
    $
    1,700,243
 F-47




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Earnings
Year Ended
March 31, 2004 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,831,006
    
    
    $
    64,462
    
    
    $
    
    
    
    $
    1,895,468Costs and Expenses:Costs of products sold
(excluding depreciation)
    
    
    
    
    
    
    885,137
    
    
    
    23,544
    
    
    
    
    
    
    
    908,681Selling, distribution and
administrative expenses
    
    
    53,345
    
    
    
    643,051
    
    
    
    35,431
    
    
    
    
    
    
    
    731,827Depreciation
    
    
    6,513
    
    
    
    71,122
    
    
    
    4,932
    
    
    
    
    
    
    
    82,567Amortization
    
    
    113
    
    
    
    5,261
    
    
    
    15
    
    
    
    
    
    
    
    5,389Special charges (recoveries)
    
    
    
    
    
    
    (776
    )
    
    
    
    
    
    
    
    
    
    
    (776
    )Operating Income (Loss)
    
    
    (59,971
    )
    
    
    227,211
    
    
    
    540
    
    
    
    
    
    
    
    167,780Interest (expense) income, net
    
    
    (58,414
    )
    
    
    17,932
    
    
    
    (1,875
    )
    
    
    
    
    
    
    (42,357
    )(Discount) gain on
securitization of trade
receivables
    
    
    
    
    
    
    (73,022
    )
    
    
    69,758
    
    
    
    
    
    
    
    (3,264
    )Other income (expense), net
    
    
    50,180
    
    
    
    (50,646
    )
    
    
    1,091
    
    
    
    
    
    
    
    625Equity in earnings of
unconsolidated affiliates
    
    
    4,365
    
    
    
    848
    
    
    
    
    
    
    
    
    
    
    
    5,213Minority interest (expense)
    
    
    
    
    
    
    
    
    
    
    (291
    )
    
    
    
    
    
    
    (291
    )Earnings (loss) before taxes
    
    
    (63,840
    )
    
    
    122,323
    
    
    
    69,223
    
    
    
    
    
    
    
    127,706Income tax benefit (expense)
    
    
    22,344
    
    
    
    (44,991
    )
    
    
    (24,867
    )
    
    
    
    
    
    
    (47,514
    )Equity in earnings of
subsidiaries
    
    
    121,688
    
    
    
    
    
    
    
    
    
    
    
    (121,688
    )
    
    
    Net Earnings
    
    $
    80,192
    
    
    $
    77,332
    
    
    $
    44,356
    
    
    $
    (121,688
    )
    
    $
    80,192
 F-48




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Earnings
Year Ended
March 31, 2003 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,767,274
    
    
    $
    19,690
    
    
    $
    
    
    
    $
    1,786,964Costs and Expenses:Costs of products sold
(excluding depreciation)
    
    
    
    
    
    
    845,571
    
    
    
    4,745
    
    
    
    
    
    
    
    850,316Selling, distribution and
administrative expenses
    
    
    47,808
    
    
    
    631,560
    
    
    
    18,860
    
    
    
    
    
    
    
    698,228Depreciation
    
    
    3,867
    
    
    
    67,486
    
    
    
    2,129
    
    
    
    
    
    
    
    73,482Amortization
    
    
    64
    
    
    
    6,298
    
    
    
    
    
    
    
    
    
    
    
    6,362Special charges
    
    
    145
    
    
    
    2,549
    
    
    
    
    
    
    
    
    
    
    
    2,694Operating Income (Loss)
    
    
    (51,884
    )
    
    
    213,810
    
    
    
    (6,044
    )
    
    
    
    
    
    
    155,882Interest (expense) income, net
    
    
    (53,499
    )
    
    
    8,211
    
    
    
    (1,087
    )
    
    
    
    
    
    
    (46,375
    )(Discount) gain on
securitization of trade
receivables
    
    
    
    
    
    
    (67,446
    )
    
    
    64,120
    
    
    
    
    
    
    
    (3,326
    )Other income (expense), net
    
    
    50,106
    
    
    
    (51,834
    )
    
    
    1,083
    
    
    
    
    
    
    
    (645
    )Equity in earnings of
unconsolidated affiliates
    
    
    2,668
    
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    3,768Earnings (loss) before taxes
    
    
    (52,609
    )
    
    
    103,841
    
    
    
    58,072
    
    
    
    
    
    
    
    109,304Income tax benefit (expense)
    
    
    18,413
    
    
    
    (39,783
    )
    
    
    (19,829
    )
    
    
    
    
    
    
    (41,199
    )Equity in earnings of
subsidiaries
    
    
    102,301
    
    
    
    
    
    
    
    
    
    
    
    (102,301
    )
    
    
    Net Earnings
    
    $
    68,105
    
    
    $
    64,058
    
    
    $
    38,243
    
    
    $
    (102,301
    )
    
    $
    68,105
 F-49




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Earnings
Year Ended
March 31, 2002 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    1,616,178
    
    
    $
    19,869
    
    
    $
    
    
    
    $
    1,636,047Costs and Expenses:Costs of products sold
(excluding depreciation)
    
    
    
    
    
    
    813,485
    
    
    
    5,268
    
    
    
    
    
    
    
    818,753Selling, distribution and
administrative expenses
    
    
    57,631
    
    
    
    541,201
    
    
    
    20,484
    
    
    
    
    
    
    
    619,316Depreciation
    
    
    3,419
    
    
    
    59,317
    
    
    
    2,049
    
    
    
    
    
    
    
    64,785Amortization
    
    
    161
    
    
    
    7,999
    
    
    
    
    
    
    
    
    
    
    
    8,160Operating Income (Loss)
    
    
    (61,211
    )
    
    
    194,176
    
    
    
    (7,932
    )
    
    
    
    
    
    
    125,033Interest (expense) income,
net
    
    
    (53,788
    )
    
    
    6,656
    
    
    
    119
    
    
    
    
    
    
    
    (47,013
    )(Discount) gain on
securitization of trade
receivables
    
    
    
    
    
    
    (59,840
    )
    
    
    54,994
    
    
    
    
    
    
    
    (4,846
    )Other income (expense), net
    
    
    54,099
    
    
    
    (54,621
    )
    
    
    1,904
    
    
    
    
    
    
    
    1,382Equity in earnings of
unconsolidated affiliates
    
    
    2,861
    
    
    
    974
    
    
    
    
    
    
    
    
    
    
    
    3,835Earnings (loss) before taxes and
a cumulative effect of a change
in accounting principle
    
    
    (58,039
    )
    
    
    87,345
    
    
    
    49,085
    
    
    
    
    
    
    
    78,391Income tax benefit (expense)
    
    
    20,313
    
    
    
    (32,363
    )
    
    
    (17,756
    )
    
    
    
    
    
    
    (29,806
    )Equity in earnings of
subsidiaries
    
    
    27,311
    
    
    
    
    
    
    
    
    
    
    
    (27,311
    )
    
    
    Cumulative effect of a change
in accounting principle
    
    
    
    
    
    
    (59,000
    )
    
    
    
    
    
    
    
    
    
    
    (59,000
    )Net Earnings (Loss)
    
    $
    (10,415
    )
    
    $
    (4,018
    )
    
    $
    31,329
    
    
    $
    (27,311
    )
    
    $
    (10,415
    )
 F-50




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows
Year Ended
March 31, 2004 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (29,023
    )
    
    $
    198,083
    
    
    $
    40,035
    
    
    $
    
    
    
    $
    209,095CASH FLOWS FROM
INVESTING ACTIVITIESCapital expenditures
    
    
    (15,087
    )
    
    
    (71,793
    )
    
    
    (6,869
    )
    
    
    
    
    
    
    (93,749
    )Proceeds from sale of plant
and equipment
    
    
    1,519
    
    
    
    3,436
    
    
    
    392
    
    
    
    
    
    
    
    5,347Business acquisitions, holdbacks
and other settlements of
acquisition related liabilities
    
    
    
    
    
    
    (34,907
    )
    
    
    
    
    
    
    
    
    
    
    (34,907
    )Dividends and fees from
unconsolidated affiliates
    
    
    756
    
    
    
    1,391
    
    
    
    
    
    
    
    
    
    
    
    2,147Other, net
    
    
    (1,461
    )
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    (1,369
    )Net cash used in investing
activities
    
    
    (14,273
    )
    
    
    (101,873
    )
    
    
    (6,385
    )
    
    
    
    
    
    
    (122,531
    )CASH FLOWS FROM
FINANCING ACTIVITIESProceeds from borrowings
    
    
    411,970
    
    
    
    
    
    
    
    2,327
    
    
    
    
    
    
    
    414,297Repayment of debt
    
    
    (471,785
    )
    
    
    (2,469
    )
    
    
    (10,750
    )
    
    
    
    
    
    
    (485,004
    )Financing costs
    
    
    (2,737
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,737
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (291
    )
    
    
    
    
    
    
    (291
    )Exercise of stock options
    
    
    13,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,130Dividends paid to stockholders
    
    
    (11,801
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,801
    )Cash overdraft
    
    
    (14,149
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (14,158
    )Inter-company
    
    
    118,668
    
    
    
    (93,741
    )
    
    
    (24,927
    )
    
    
    
    
    
    
    Net cash provided by (used
in) financing activities
    
    
    43,296
    
    
    
    (96,210
    )
    
    
    (33,650
    )
    
    
    
    
    
    
    (86,564
    )CHANGE IN CASH
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash  Beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash  End of year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 F-51




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows
Year Ended
March 31, 2003 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (21,608
    )
    
    $
    181,070
    
    
    $
    34,937
    
    
    $
    
    
    
    $
    194,399CASH FLOWS FROM
INVESTING ACTIVITIESCapital expenditures
    
    
    (7,211
    )
    
    
    (56,415
    )
    
    
    (4,343
    )
    
    
    
    
    
    
    (67,969
    )Proceeds from sale of plant
and equipment
    
    
    69
    
    
    
    4,191
    
    
    
    
    
    
    
    
    
    
    
    4,260Proceeds from divestiture
    
    
    
    
    
    
    3,167
    
    
    
    
    
    
    
    
    
    
    
    3,167Business acquisitions, holdbacks
and other settlements of
acquisition related liabilities
    
    
    
    
    
    
    (27,216
    )
    
    
    
    
    
    
    
    
    
    
    (27,216
    )Dividends and fees from
unconsolidated affiliates
    
    
    943
    
    
    
    1,564
    
    
    
    
    
    
    
    
    
    
    
    2,507Other, net
    
    
    5,666
    
    
    
    (8,051
    )
    
    
    666
    
    
    
    
    
    
    
    (1,719
    )Net cash used in investing
activities
    
    
    (533
    )
    
    
    (82,760
    )
    
    
    (3,677
    )
    
    
    
    
    
    
    (86,970
    )CASH FLOWS FROM
FINANCING ACTIVITIESProceeds from borrowings
    
    
    248,123
    
    
    
    
    
    
    
    838
    
    
    
    
    
    
    
    248,961Repayment of debt
    
    
    (350,732
    )
    
    
    (15,160
    )
    
    
    (1,464
    )
    
    
    
    
    
    
    (367,356
    )Exercise of stock options
    
    
    9,847
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,847Cash overdraft
    
    
    1,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,119Inter-company
    
    
    113,784
    
    
    
    (83,150
    )
    
    
    (30,634
    )
    
    
    
    
    
    
    Net cash provided by (used
in) financing activities
    
    
    22,141
    
    
    
    (98,310
    )
    
    
    (31,260
    )
    
    
    
    
    
    
    (107,429
    )CHANGE IN CASH
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash  Beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash  End of year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 F-52




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows
Year Ended
March 31, 2002 Non-
    
    Elimination(In thousands)
    
    Parent
    
    Guarantors
    
    Guarantors
    
    Entries
    
    ConsolidatedNet cash provided by (used
in) operating activities
    
    $
    (44,830
    )
    
    $
    282,515
    
    
    $
    11,696
    
    
    $
    
    
    
    $
    249,381CASH FLOWS FROM
INVESTING ACTIVITIESCapital expenditures
    
    
    (9,901
    )
    
    
    (46,554
    )
    
    
    (1,842
    )
    
    
    
    
    
    
    (58,297
    )Proceeds from sale of plant
and equipment
    
    
    
    
    
    
    3,216
    
    
    
    
    
    
    
    
    
    
    
    3,216Proceeds from divestiture
    
    
    
    
    
    
    10,200
    
    
    
    
    
    
    
    
    
    
    
    10,200Business acquisitions, holdbacks
and other settlements of
acquisition related liabilities
    
    
    
    
    
    
    (257,556
    )
    
    
    
    
    
    
    
    
    
    
    (257,556
    )Dividends and fees from
unconsolidated affiliates
    
    
    954
    
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    2,583Other, net
    
    
    16,329
    
    
    
    (11,098
    )
    
    
    (78
    )
    
    
    
    
    
    
    5,153Net cash provided by (used
in) investing activities
    
    
    7,382
    
    
    
    (300,163
    )
    
    
    (1,920
    )
    
    
    
    
    
    
    (294,701
    )CASH FLOWS FROM
FINANCING ACTIVITIESProceeds from borrowings
    
    
    677,605
    
    
    
    
    
    
    
    2,539
    
    
    
    
    
    
    
    680,144Repayment of debt
    
    
    (580,527
    )
    
    
    (26,619
    )
    
    
    (5,633
    )
    
    
    
    
    
    
    (612,779
    )Financing costs
    
    
    (12,461
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,461
    )Exercise of stock options
    
    
    7,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,442Cash overdraft
    
    
    
    
    
    
    (17,026
    )
    
    
    
    
    
    
    
    
    
    
    (17,026
    )Inter-company
    
    
    (54,611
    )
    
    
    61,293
    
    
    
    (6,682
    )
    
    
    
    
    
    
    Net cash provided by (used
in) financing activities
    
    
    37,448
    
    
    
    17,648
    
    
    
    (9,776
    )
    
    
    
    
    
    
    45,320CHANGE IN CASH
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash  Beginning of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash  End of year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 F-53




---



##### Table of Contents



SCHEDULE II AIRGAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS   Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EAdditionsBalance at
    
    Charged to
    
    Charged
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    to Other
    
    
    
    
    
    at End ofDescription
    
    of Period
    
    Expenses
    
    Accounts
    
    Deductions
    
    Period2004Accounts receivable  allowances
for doubtful
accounts
    
    $
    8,514
    
    
    $
    8,058
    
    
    
    299
    (1)
    
    $
    (9,577
    )(2)
    
    $
    7,294Insurance
reserves
    
    
    25,100
    
    
    
    59,787
    
    
    
    966
    (5)
    
    
    (57,562
    )(3)
    
    
    28,291Deferred tax asset valuation
allowance
    
    
    9,646
    
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    9,922Litigation
reserves
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    (336
    )(4)
    
    
    2003Accounts receivable  allowances
for doubtful
accounts
    
    $
    8,176
    
    
    $
    8,954
    
    
    $
    1,294
    (1)
    
    $
    (9,910
    )(2)
    
    $
    8,514Insurance
reserves
    
    
    20,894
    
    
    
    53,774
    
    
    
    
    
    
    
    (49,568
    )(3)
    
    
    25,100Deferred tax asset valuation
allowance
    
    
    5,976
    
    
    
    3,670
    
    
    
    
    
    
    
    
    
    
    
    9,646Litigation
reserve
    
    
    11,292
    
    
    
    
    
    
    
    
    
    
    
    (10,956
    )(4)
    
    
    3362002Accounts receivable  allowances
for doubtful
accounts
    
    $
    7,402
    
    
    $
    9,537
    
    
    $
    1,371
    (1)
    
    $
    (10,134
    )(2)
    
    $
    8,176Insurance
reserves
    
    
    15,596
    
    
    
    48,008
    
    
    
    
    
    
    
    (42,710
    )(3)
    
    
    20,894Deferred tax asset valuation
allowance
    
    
    4,263
    
    
    
    1,713
    
    
    
    
    
    
    
    
    
    
    
    5,976Litigation
reserve
    
    
    8,007
    
    
    
    8,697
    
    
    
    
    
    
    
    (5,412
    )(4)
    
    
    11,292
  (1)
    
    Includes collections on accounts previously written-off and allowances
for doubtful accounts of businesses acquired less the allowance for
doubtful accounts of businesses sold.  (2)
    
    Write-off of uncollectible accounts.  (3)
    
    Payments of insurance premiums and claims.  (4)
    
    Payment of litigation settlement and associated legal fees.  (5)
    
    Represents the addition of National Welders reserve for insurance claims
of $966 thousand. F-54