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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  Form 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2005 or
 o
    
    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
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 259 North Radnor-Chester Road, Suite 100
Radnor, Pennsylvania
    
    19087-5283(Address of principal executive offices)
    
    (Zip Code)
 (610) 687-5253
(Registrants telephone number, including area code) Securities Registered Pursuant to Section 12 (b) of the Act: Title of Each Class
    
    Name of Each Exchange
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 þ NO o 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. o 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 þ NO o The aggregate market value of the 65,407,077 shares of voting stock held by non-affiliates of
the Registrant was approximately $1.6 billion computed by reference to the closing price of such
stock on the New York Stock Exchange as of the last day of the registrants most recently completed
second quarter, September 30, 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 8, 2005 was 76,103,833. DOCUMENTS INCORPORATED BY REFERENCE The Companys Proxy Statement for the Annual Meeting of Stockholders to be held August 9, 2005
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.




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##### Table of Contents



AIRGAS, INC. TABLE OF CONTENTS ITEM NO
    
    PAGEPART I1. Business
    
    
    3General
    
    
    3Distribution
    
    
    4All Other Operations
    
    
    5Airgas Growth Strategies
    
    
    7Regulatory and Environmental Matters
    
    
    7Insurance
    
    
    7Employees
    
    
    7Patents, Trademarks and Licenses
    
    
    7Executive Officers of the Company
    
    
    82. Properties
    
    
    103. Legal Proceedings
    
    
    104. 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
    
    
    137. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    167A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    418. Financial Statements and Supplementary Data
    
    
    449. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    449A. Controls and Procedures
    
    
    449B. Other Information
    
    
    45PART III10. Directors and Executive Officers of the Company
    
    
    4511. Executive Compensation
    
    
    4512. Security Ownership of Certain Beneficial Owners and Management
    
    
    4513. Certain Relationships and Related Transactions
    
    
    4514. Principal Accountant Fees and Services
    
    
    45PART IV15. Exhibits and Financial Statement Schedules
    
    
    46Signatures
    
    
    50Change of Control AgreementAirgas, Inc. 2004 Executive Bonus PlanStatement re: Computation of earnings per shareStatement re: computation of the ratio of earnings to fixed chargesSubsidiaries of the CompanyConsent of Independent Registered Public Accounting FirmCertification of Chief Executive Officer pursuant to Section 302Certification of Chief Financial Officer pursuant to Section 302Certification of Chief Executive Officer pursuant to Section 906Certification of Chief Financial Officer pursuant to Section 906
 2




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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 is the largest producer of nitrous oxide in the
United States, a producer and leading supplier of dry ice and the largest supplier of liquid carbon
dioxide in the southeastern United States. The Company markets these products to its diversified
customer base through multiple sales channels including branch-based sales representatives, retail
stores, strategic customer account programs, telesales, catalogs, e-business and independent
distributors. Products reach customers through an integrated network of over 900 locations
including production facilities, packaged gas fill plants, specialty gas labs, distribution
centers, branches, and retail stores. Sales were $2.41 billion, $1.90 billion, and $1.79 billion
in fiscal years 2005, 2004, and 2003, respectively. The Company has two operating segments, Distribution and All Other Operations. The
Distribution segment primarily engages in the distribution of packaged gases and hardgoods. All
Other Operations consists of business units that principally produce and distribute carbon dioxide,
dry ice, nitrous oxide and specialty gases. The Companys joint venture, National Welders, is also
reported in the All Other Operations segment. See note 16 to the Companys Consolidated Financial
Statements under Item 8, Financial Statements and Supplementary Data for a description of
National Welders and its consolidation upon the Companys adoption of Financial Accounting
Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities,(FIN 46R) in
December 2003. On July 30, 2004, the Company completed its acquisition of the U.S. packaged gas business of
The BOC Group, Inc. (BOC) for approximately $175 million in cash, plus up to $25 million in
contingent consideration to be paid in November 2005. The amount of contingent consideration
ultimately paid will be determined based on a cash flow formula defined in the asset purchase
agreement. National Welders also participated in the acquisition by contributing approximately $7
million of the purchase price for two branch locations in southern Virginia. The BOC business has
a strong strategic fit with the Companys existing packaged gas distribution business and
strengthens our national network by giving us a presence in important new regional markets. The
acquisition included more than 120 retail stores, warehouses, fill plants and other operations in
21 states. At BOCs fiscal year ended September 30, 2003, the acquired business generated
approximately $240 million in revenue, of which approximately 65% was gas and rent. The acquired
operations, exclusive of the two branches acquired by National Welders, were integrated with the
existing business units of the Companys Distribution segment. 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. More detailed descriptions of the operating segments are as follows: 3




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DISTRIBUTION The Distribution segment accounts for over 85% of consolidated sales in fiscal 2005 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, 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 and welding related equipment. Gas and rent represented
approximately 51%, 52%, and 53% of the Distribution segments sales in each of the fiscal years
2005, 2004 and 2003, respectively. Hardgoods consist of welding supplies and equipment, safety
products, and industrial tools and supplies. In each of the fiscal years 2005, 2004, and 2003,
hardgoods sales represented approximately 49%, 48%, and 47% 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 industry has three principal modes of distribution: on-site supply, bulk or merchant
supply, and cylinder or packaged gas supply. 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 truckload bulk quantities. The Company believes the U.S. packaged gas market to be
approximately $4.5 billion annually. Generally, packaged gas distributors also sell welding
hardgoods. The Company believes the U.S. market for welding hardgoods to be approximately $4.5
billion annually. Packaged gases and welding hardgoods are generally delivered to customers on
Company owned trucks, although third party carriers are also used in the delivery of some welding
and safety products. Airgas is the largest distributor of packaged gases and welding hardgoods in the United
States, with approximately a 20% market share. The Companys competitors in this market include
independent distributors that serve approximately 57% of the market through a fragmented
distribution network and large distributors, including vertically integrated gas producers such as
Praxair, Inc. (Praxair), Liquid Air Corporation of America (Air Liquide), and Linde, which
serve the remaining 23% of the market. The Company also sells safety equipment. The Company
believes the U.S. market for safety equipment is approximately $5.6 billion, of which Airgas share
is approximately 5%. 4




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Customer Base The Companys operations are predominantly in the United States. The customer base is diverse
and sales are not dependent on a single or small group of customers and include many major
industries. The Company estimates the following industry segments account for the indicated
percentages of its total sales:  
    Industrial Manufacturing (24%);
    Repair & Maintenance (21%);
    Wholesale Trade (12%);
    Medical (9%);
    Construction (8%);
    Food Products (6%);
    Utilities and Mining (4%);
    Petrochemical (4%);
    Analytical (4%);
    Transportation (2%)
    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 nitrogen, oxygen and argon
requirements, exclusive of the volumes purchased under the BOC supply agreement noted below.
Additionally, the Company has commitments to purchase helium from Air Products under the terms of
the supply agreement. The Company is committed to purchase approximately $45 million in annual
bulk gases under the terms of the Air Products supply agreements. With the BOC acquisition in July
2004, the Company and BOC entered into 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, under a 15-year take-or-pay supply agreement, with bulk nitrogen, oxygen, argon and
helium. The BOC agreement represents approximately 85% of the liquid bulk gas volumes transferred
to the Company in the acquisition or roughly $16 million in annual bulk gas purchases. 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 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 was terminated, it would be able to
arrange comparable alternative supply arrangements. 
 ALL OTHER OPERATIONS The All Other Operations segment consists of the Companys Gas Operations Division and its
National Welders joint venture. The Gas Operations Division produces and distributes certain gas
products, principally carbon dioxide, dry ice, nitrous oxide and specialty gases. National Welders
Supply Company, Inc. (National Welders) is a producer and distributor of industrial, medical and
specialty gases based in Charlotte, North Carolina. 5




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##### Table of Contents



Gas Operations Division The Gas Operations Division produces and distributes carbon dioxide and dry ice (solid form of
carbon dioxide). Customers include food processors, food services, pharmaceutical and biotech
industries, wholesale trade and grocery outlets. Food and beverage applications account for
approximately 70% of the market. The dry ice business generally experiences a higher level of
sales during the warmer months. The Gas Operations Division also operates 7 national specialty gas
labs and a specialty gas equipment center. These labs generally provide quality management and
technical support to approximately 50 regional labs operated by the Distribution segment.
Specialty gas mixtures are predominantly used in research, which accounts for 40% of the market.
Food, laser and environmental applications are also major uses of specialty gases. The Gas
Operations Division is the largest manufacturer of nitrous oxide gas in North America. 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 estimates that United States market for carbon dioxide, specialty gases and nitrous oxide
total more than $1 billion annually. National Welders Supply Company, Inc. National Welders product requirements are principally met through its significant production
capabilities consisting of three air separation plants, two acetylene plants and a specialty gas
lab. The joint venture employs over 800 associates and primarily delivers its products to
customers on over 280 company owned trucks. It also distributes packaged gases and welding
products through its 44 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 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. Suppliers The companies in the All Other Operations segment have significant production capacity.
Together, the Gas Operations Division and National Welders operate five air separation plants that
produce oxygen, nitrogen and argon which are sold to on-site customers and to the Distribution
segment. The Gas Operations Division also operates 8 carbon dioxide production facilities. With 12 dry ice
plants (converting liquid carbon dioxide into dry ice), the Gas Operations Division has the largest
network of dry ice conversion plants in the United States. These internal sources of carbon
dioxide are supplemented by long-term take-or-pay supply contracts. The 4 nitrous oxide production
facilities operated by the Gas Operations Division supply both the Gas Operations Division and the
Distribution segment. The raw materials utilized in nitrous oxide production are purchased under
contracts with major manufacturers and suppliers. 6




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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 for growing our business with small and medium-sized core customers;
    Strategic growth platforms for Bulk Gases, Specialty Gases, Medical Gases and Services, Safety Products,
Equipment Rental and Strategic Accounts;
    Improved training, tools and resources for front line associates;
    Scratch starts and branch up grades;
    Continued account penetration; and
    Acquisitions to complement and expand the distribution network. 
 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 2005 were not material. 
 INSURANCE The Company has established insurance programs to cover workers compensation, business
automobile, general and product liability claims. During fiscal year 2005, these programs had
self-insured retention of $500 thousand per occurrence and an additional annual aggregate retention
for the next $1.7 million of claims in excess of $500 thousand. For fiscal year 2006, the
additional annual aggregate retention has been increased to $2.2 million. The Company accrues
estimated losses using actuarial methods 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 $300 thousand per person annually. Provisions for expected future claim payments are accrued based on estimates of the
aggregate retention for claims incurred plus an estimate for incurred but not reported claims using
historical experience. 
 EMPLOYEES On March 31, 2005, the Company employed approximately 11,000 employees (including over 800
employees of National Welders) of whom approximately 5% were covered by collective bargaining
agreements. 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, RADNOR, Gold Gas,
SteelMIX, StainMIX, AluMIX, Outlook, Ny-Trous+, Powersource, Red-D-Arc, and
RED-D-ARC WELDERENTALS branded products. The Company also holds trademarks for SightSense,
SoundSense, Walk-O2-Bout, AcuGrav, Airgas Puritan Medical, Freshblend, Precisionblend
and a service mark for Youll find it with us. The Company believes that its businesses as a
whole are not materially dependent upon any single patent, trademark or license. 7




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EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows: Name
    
    Age
    
    PositionPeter McCausland (1)
    
    
    55
    
    
    Chairman of the Board, President and Chief Executive OfficerMichael L. Molinini
    
    
    54
    
    
    Executive Vice President and Chief Operating OfficerRoger F. Millay
    
    
    47
    
    
    Senior Vice President and Chief Financial OfficerRobert A. Dougherty
    
    
    47
    
    
    Senior Vice President and Chief Information OfficerGordon L. Keen, Jr.
    
    
    60
    
    
    Senior Vice President  Law and Corporate DevelopmentPatrick M. Visintainer
    
    
    41
    
    
    Senior Vice President  SalesDwight T. Wilson
    
    
    49
    
    
    Senior Vice President  Human ResourcesAlfred B. Crichton
    
    
    57
    
    
    Division President  WestB. Shaun Powers
    
    
    53
    
    
    Division President  EastTed R. Schulte
    
    
    54
    
    
    Division President  Gas OperationsDean A. Bertolino
    
    
    36
    
    
    Vice President, General Counsel and SecretaryRobert M. McLaughlin
    
    
    48
    
    
    Vice President and Controller
   (1)
    
    Member of the Board of Directors 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, from April 1997 to January 1999, and from January 2005 to present. 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. Molinini has been Executive Vice President and Chief Operating Officer since January 2005.
Prior to that time, Mr. Molinini served as Senior Vice President  Hardgoods Operations from
August 1999 to January 2005 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. 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. 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. 8




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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. 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. Code of Ethics The Company has adopted a code of ethics applicable to its employees, officers and directors,
known as the Code of Ethics. The Code of Ethics is available on the Companys website, noted
above. Amendments to and waivers from the Code of Ethics will also be disclosed promptly on the
website. In addition, stockholders may request a print copy of the Code of Ethics, free of charge,
by contacting the Companys Investor Relations department at: Airgas, Inc.
Attention: Investor Relations
259 N. Radnor-Chester Rd.
Radnor, PA 19087-5283
Telephone: 610.902.6205 9




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Corporate Governance Guidelines The Company has adopted Corporate Governance Guidelines as well as charters for its Audit
Committee and Governance & Compensation Committee. These documents are available on the Companys
website, noted above. Stockholders may also request a copy of these documents, free of charge, by
contacting the Companys Investor Relations department at the address and phone number noted above. Certifications The Certification of the Companys Chief Executive Officer required by Section 303A.12(a) of
The New York Stock Exchange Listed Company Manual relating to the Companys compliance with The New
York Stock Exchanges Corporate Governance Listing Standards was submitted to The New York Stock
Exchange on September 1, 2004. The Company also filed certifications of its Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to its annual report
on Form 10-K for each of the years ended March 31, 2005 and 2004. 
 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 branches, 300 cylinder fill plants, including
nearly 50 regional gas laboratories
and 20 acetylene manufacturing facilities, as well as, 5 regional distribution centers, various
customer call centers, buying centers and administrative offices. The Distribution segment
conducts business in 48 states. The Company owns approximately 29% 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 approximately 70 branch
locations, 8 liquid carbon dioxide and 12 dry ice production facilities, 5 air separation plants, 7
national specialty gas laboratories, and 4 nitrous oxide production facilities. The Company owns
55% of these facilities. The remaining facilities are leased from third parties. During fiscal 2005, the Companys production facilities operated at approximately 80% 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. 
 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. 10




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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, 2005. 
 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 2005First Quarter
    
    $
    23.91
    
    
    $
    20.83Second Quarter
    
    
    24.20
    
    
    
    21.10Third Quarter
    
    
    27.05
    
    
    
    23.61Fourth Quarter
    
    
    26.96
    
    
    
    23.28Fiscal 2004First Quarter
    
    $
    20.61
    
    
    $
    16.75Second Quarter
    
    
    19.44
    
    
    
    17.64Third Quarter
    
    
    21.55
    
    
    
    18.20Fourth Quarter
    
    
    24.35
    
    
    
    19.85
 The closing sale price of the Companys common stock as reported by the New York Stock
Exchange on June 8, 2005, was $24.04 per share. As of June 8, 2005, there were approximately
17,000 stockholders of record of the Companys common stock. At the end of each quarter during fiscal 2005 and fiscal 2004, the Company paid its
stockholders regular quarterly cash dividends of $0.045 and $0.040 per share, respectively. In
addition, on May 24, 2005, the Company announced that its Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, representing a 33% increase compared to the prior year
quarterly dividend. The dividend is payable June 30, 2005 to stockholders of record as of June 15,
2005. 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




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Equity Compensation Plan Information The following table sets forth information as of March 31, 2005 with respect to the shares of
the Companys Common Stock that may be issued upon the exercise of options, warrants and rights
under the 1997 Stock Option Plan, the 1997 Directors Stock Option Plan (the Directors Plan),
the Amended and Restated 1984 Stock Option Plan, the 1989 Non-Qualified Stock Option Plan for
Directors and the 2003 Employee Stock Purchase Plan (ESSP), which were approved by the
stockholders. (a)
    
    
    (b)
    
    
    (c)Number ofsecurities to beissued uponexercise of
    
    
    Weighted-average
    
    
    Number of securities remainingoutstanding
    
    
    exercise price of
    
    
    available for future issuance underoptions, warrants
    
    
    outstanding options,
    
    
    equity compensation plans (excludingPlan Category
    
    and rights
    
    
    warrants and rights
    
    
    securities reflected in column (a))Equity compensation
plans approved by security holders(1)(2)
    
    
    7,363,301
    
    
    $
    14.95
    
    
    3,267,214
    Stock Option Plans775,790
    ESPPsharesEquity compensation
plans not approved
by security holders
    
    

-0-
    
    
    
    
    
    

    -0-Total
    
    
    7,363,301
    
    
    $
    14.95
    
    

    4,043,004
   (1)
    
    The Directors Plan, designed to provide equity compensation to directors of
the Company who are not employees of the Company, authorizes the granting of stock
options and restricted stock awards. As of March 31, 2005, no restricted stock awards
have been granted under the Directors Plan. Restricted stock awards under the
Directors Plan cannot exceed 100,000 shares in the aggregate, and restricted stock
awards under the 1997 Stock Option Plan and the Directors Plan in any calendar year may
not exceed, in the aggregate, 0.5% of shares of Common Stock of the Companys issued and
outstanding shares on any date of grant.(2)
    
    The 1997 Stock Option Plan (the 1997 Plan), designed to provide equity
compensation to certain employees and independent contractors of the Company, authorizes
the granting of stock options and restricted stock awards. As of March 31, 2005, no
restricted stock awards had been granted under the 1997 Plan. Restricted stock awards
granted under the 1997 Plan cannot exceed 1,000,000 shares in the aggregate, and
restricted stock awards under the 1997 Plan and the Directors Plan in any calendar year
may not exceed, in the aggregate, 0.5% of shares of Common Stock of the Companys issued
and outstanding shares on any date of grant. 12




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##### 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 31,2005 (1)
    
    
    2004 (2)(7)
    
    
    2003 (3)(7)
    
    
    2002 (4)(7)
    
    
    2001 (5)(7)Operating Results:Net sales
    
    $
    2,411,409
    
    
    $
    1,895,468
    
    
    $
    1,786,964
    
    
    $
    1,636,047
    
    
    $
    1,628,901Depreciation and amortization
    
    
    111,584
    
    
    
    87,956
    
    
    
    79,844
    
    
    
    72,945
    
    
    
    86,754Special charges (recoveries), net
    
    
    
    
    
    
    (776
    )
    
    
    2,694
    
    
    
    
    
    
    
    3,643Operating income
    
    
    203,233
    
    
    
    167,780
    
    
    
    155,882
    
    
    
    125,033
    
    
    
    107,949Interest expense, net
    
    
    51,245
    
    
    
    42,357
    
    
    
    46,375
    
    
    
    47,013
    
    
    
    60,207Discount on securitization of trade
receivables
    
    
    4,711
    
    
    
    3,264
    
    
    
    3,326

    
    
    
    4,846
    
    
    
    1,303Other income (expense), net
    
    
    1,136
    
    
    
    1,473
    
    
    
    439
    
    
    
    2,356
    
    
    
    1,324Income taxes
    
    
    54,583
    
    
    
    47,353
    
    
    
    41,199
    
    
    
    29,806
    
    
    
    20,718Minority interest in earnings of
consolidated affiliate
    
    
    (1,808
    )
    
    
    (452
    )
    
    
    
    
    
    
    
    
    
    
    Equity in earnings of unconsolidated
affiliate
    
    
    
    
    
    
    4,365
    
    
    
    2,684
    
    
    
    2,861
    
    
    
    1,178Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,000
    )
    
    
    Net earnings (loss)
    
    
    92,022
    
    
    
    80,192
    
    
    
    68,105
    
    
    
    (10,415
    )
    
    
    28,223Basic earnings (loss) per share
    
    $
    1.23
    
    
    $
    1.10
    
    
    $
    0.97
    
    
    $
    (0.15
    )
    
    $
    0.43Diluted earnings (loss) per share
    
    $
    1.20
    
    
    $
    1.07
    
    
    $
    0.94
    
    
    $
    (0.15
    )
    
    $
    0.42Dividends per common share declared
and paid (6)
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    
    
    
    $
    
    
    
    $
    Balance Sheet Data:Working capital
    
    $
    132,969
    
    
    $
    88,826
    
    
    $
    66,027
    
    
    $
    84,645
    
    
    $
    53,690Total assets
    
    
    2,291,863
    
    
    
    1,960,606
    
    
    
    1,726,004
    
    
    
    1,743,984
    
    
    
    1,596,897Current portion of long-term debt
    
    
    6,948
    
    
    
    6,140
    
    
    
    2,229
    
    
    
    2,456
    
    
    
    72,945Long-term debt
    
    
    801,635
    
    
    
    682,698
    
    
    
    658,031
    
    
    
    764,124
    
    
    
    620,664Deferred income tax liability, net
    
    
    282,186
    
    
    
    253,529
    
    
    
    207,069
    
    
    
    193,556
    
    
    
    154,128Other non-current liabilities
    
    
    24,391
    
    
    
    28,756
    
    
    
    33,657
    
    
    
    37,395
    
    
    
    29,494Minority interest in affiliate
    
    
    36,191
    
    
    
    36,191
    
    
    
    
    
    
    
    
    
    
    
    Stockholders equity
    
    
    814,172
    
    
    
    691,901
    
    
    
    596,933
    
    
    
    503,086
    
    
    
    496,849Capital expenditures
    
    
    167,977
    
    
    
    93,749
    
    
    
    67,969
    
    
    
    58,297
    
    
    
    65,910
   (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 2005 include integration costs of $4.8 million ($3
million after tax) related to the acquisition of the U.S. packaged gas business of The BOC
Group, Inc., and costs of $1.6 million ($1 million after tax) related to a separation package
for the Companys former President & Chief 13




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##### Table of Contents



Operating Officer. In addition, National Welders contributed a full year of operating
results in fiscal 2005 resulting in incremental sales of $128 million and operating income
of $13 million versus fiscal 2004. Working capital increased in fiscal 2005 compared to
fiscal 2004 reflecting higher levels of hardgoods inventory and trade receivables in
connection with overall sales growth.(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 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. Prior
to the adoption of FIN 46R, the Company used the Equity Method of Accounting for its
investment in National Welders. Accordingly, the consolidation of National Welders under FIN
46R did not have an impact on the Companys net earnings. National Welders contributed $39
million of sales and $3 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).(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 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.(4)
    
    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 (SFAS 142), (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.(5)
    
    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.
Depreciation and amortization in fiscal 2001 reflects amortization of goodwill. Effective
April 1, 2001, the Company adopted SFAS 142 and for years subsequent to fiscal 2001, goodwill
was no longer amortized, rather it was tested for impairment.(6)
    
    At the end of each quarter during fiscal 2005 and 2004, the Company paid its stockholders
regular quarterly cash dividends of $0.045 and $0.04 per share, respectively. In addition, on
May 24, 2005, the Companys Board of Directors declared a regular quarterly cash dividend of
$0.06 per share payable June 30, 2005 to stockholders of record as of June 15, 2005. 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. 14




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##### Table of Contents



(7)
    
    Certain reclassifications have been made to prior period financial statements to
conform to the current presentation. The reclassifications include the presentation of
depository cash, cash overdrafts, minority interest and equity in earnings of unconsolidated
affiliates. The Company has changed from a net cash presentation on the balance sheet to a
gross presentation. Previously, the Company did not show cash balances as all depository cash
and cash overdrafts were combined and the net overdraft was recorded in other current
liabilities. In the current presentation, depository cash and cash overdrafts are presented
on a gross basis. Accordingly, the Statement of Cash Flows for each year presented also
reflects the change in presentation and reconciles to the change in cash on the balance sheet.
The Company has adopted the current presentation as it is consistent with practice among most
companies and is more transparent. Minority interest and equity earnings recognized in prior
periods related to the Companys joint venture affiliate,
National Welders, were reclassified
from elements of earnings before income taxes to be presented net of tax below income tax
expense. 15




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 Item 7. RESULTS OF OPERATIONS: 2005 COMPARED TO 2004 OVERVIEW The Companys net sales for the fiscal year ended March 31, 2005 (fiscal 2005) were
$2.41 billion compared to $1.90 billion in the prior year (fiscal 2004). Sales growth of
$516 million was driven by acquisitions, same-store sales growth and the consolidation of
National Welders, a joint venture affiliate of the Company. The Company estimates that
acquisitions contributed sales of approximately $197 million during fiscal 2005, the largest
of which was the acquisition of the U.S. packaged gas business of The BOC Group, Inc.
(BOC). Same-store sales growth of 9% contributed sales of approximately $191 million
reflecting the rebounding economy and strength in industrial markets served by the Company.
The consolidation of National Welders, effective December 31, 2003 (fiscal 2004),
contributed incremental sales of $128 million in fiscal 2005. Fiscal 2005 net earnings were $92 million, or $1.20 per diluted share, compared to $80
million, or $1.07 per diluted share, in fiscal 2004. As discussed in the Income Statement
Commentary below, fiscal 2005 results were affected by the following:  §
    integration costs of $4.8 million ($3 million after tax), or $0.04 per diluted share,
related to the BOC acquisition; and§
    a separation package for the Companys former President & Chief Operating Officer of $1.6
million ($1 million after tax), or $0.01 per diluted share.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 after-tax, 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. During fiscal 2005, the Company completed 16 acquisitions (including two businesses
acquired by National Welders) with combined annual sales of approximately $260 million. The
largest of the acquisitions was that of the U.S. packaged gas business of BOC, which closed
on July 30, 2004. The Company acquired the BOC assets for approximately $175 million cash,
plus up to $25 million to be paid on or about November 15, 2005. The $25 million contingent
portion of the purchase price is based on the Company achieving certain financial targets.
The transaction was financed through borrowings on the Companys U.S. revolving credit
facility. The acquired business generated approximately $240 million in revenue in its
fiscal year ended September 30, 2003. The acquired operations have been predominately
included in the Distribution segment. The Company had strong same-store sales and earnings growth in fiscal 2005. The
Company believes that it is in the middle of a traditional economic recovery cycle in which
gas supply has tightened and cylinder gas volumes are growing. Fiscal 2005 same-store sales
growth benefited from continued success of the Companys strategic product sales initiatives
related to medical, bulk, specialty gases and 16




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##### Table of Contents



safety products. Sales of hardgoods were especially strong during the year with significant
gains related to safety products and traditional welding products, such as welding wire,
rods, torches and other welding accessories. During the third fiscal quarter and into the
fourth quarter, the Company experienced pressure on gross profit margins and rising
operating expenses. These cost pressures factored into the Companys decision to raise
prices on a number of its product lines in the fourth quarter of fiscal 2005. Effective December 31, 2003, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 46R, Consolidation of Variable Interest Entities,with respect to its joint
venture with National Welders and consolidated this formerly unconsolidated affiliate. Beginning
January 1, 2004 and for the year ended March 31, 2005, National Welders operating results were
reflected broadly across the income statement in the All Other Operations business segment with
minority interest expense representing the preferred stockholders proportionate share of the joint
ventures operating results. For the nine months ended December 31, 2003, the Companys portion of
National Welders net earnings were reflected as Equity in Earnings of Unconsolidated Affiliate.
For the fourth quarter of fiscal 2004, National Welders contributed $39 million to sales, $3
million to operating income, and $452 thousand of minority interest expense. In fiscal 2005,
National Welders was consolidated for the full 12-month period and contributed $167 million to
sales, $16 million to operating income, and $1.8 million of minority interest expense. Net
earnings were not impacted by the consolidation of National Welders. During fiscal 2005, the Company also completed its assessment of the effectiveness of its
internal controls over financial reporting as required by section 404 of the Sarbanes-Oxley Act
(the Act). Compliance with the Act and the preparation for the newly required assessment of the
effectiveness of the Companys internal controls over financial reporting by the Companys
independent registered public accounting firm, required the allocation of a significant level of
internal resources. However, compliance with the Act did not have a material impact on the
Companys results of operations. The Companys report on internal control and the associated
report of the Companys independent registered public accounting firm are included in Item 8,
Financial Statements and Supplementary Data. Looking forward, the Company anticipates that fiscal 2006 will be another productive year with
new challenges and opportunities. The Company anticipates further expansion of the industrial
economy during fiscal 2006 and estimates that fiscal 2006 net earnings will be approximately $1.43
to $1.50 per diluted share. Additionally, in the first quarter of fiscal 2006, the Company
estimates that it will earn $0.33 to $0.36 per diluted share. The estimate of fiscal 2006 net
earnings anticipates a supportive sales environment and continued success of pricing actions
designed to offset rising costs. Actual fiscal 2006 net earnings may be impacted by a number of
factors including continued improvement in the industrial economy, customer acceptance of price
increases, the sales mix of gas and rent versus hardgoods, and the interest rate environment, among
other factors. Acquisitions in fiscal 2006 could also continue to be an important component of the
Companys growth. During the first quarter of fiscal 2006, the Company completed the acquisitions
of the Industrial Products Division of LaRoche Industries, a leading distributor of anhydrous
ammonia in the U.S. with annual sales of approximately $65 million, and Kanox, Inc., a Kansas-based
distributor of packaged gases and related hardgoods with annual sales of approximately $23 million.
The Company also remains focused on integrating BOCs packaged gas business into the Companys
distribution network, which is expected to be completed in the first half of fiscal 2006. In
addition, the Company set certain long-term financial goals for fiscal 2008, including achieving
annual sales of $3 billion and operating margins of 10%-11% of sales. 17




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##### Table of Contents



INCOME STATEMENT COMMENTARY Net Sales Net sales increased 27% in fiscal 2005 compared to fiscal 2004 driven primarily by
acquisitions, strong same-store sales growth of 9% 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. The table below reflects actual sales and does not include the pro-forma adjustments used
in calculating the same-store sales metric. The intercompany eliminations represent sales from All
Other Operations to the Distribution segment. (In thousands)
    
    2005
    
    
    2004
    
    
    IncreaseDistribution
    
    $
    2,078,739
    
    
    $
    1,702,471
    
    
    $
    376,268
    
    
    
    22
    %All Other Operations
    
    
    385,611
    
    
    
    235,926
    
    
    
    149,685
    
    
    
    63
    %Intercompany eliminations
    
    
    (52,941
    )
    
    
    (42,929
    )
    
    
    (10,012
    )$
    2,411,409
    
    
    $
    1,895,468
    
    
    $
    515,941
    
    
    
    27
    %
 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 and 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 $376 million (22%) compared to the prior year driven by
acquisitions (principally the BOC acquisition) and growth in same-store sales. The BOC acquisition
and other smaller acquisitions contributed estimated incremental sales of $192 million in fiscal
2005. Distribution same-store sales growth of $184 million (10%) resulted from hardgoods sales
gains of $125 million (14%) and gas and rent sales growth of $59 million (6%). Hardgoods sales
growth resulted from price and volume gains consistent with the solid industrial recovery across
many of the markets served by the Company. For example, same-store sales of welding wire and
welding accessories (e.g. welding machines, torches) increased by approximately $40 million and $25
million, respectively. The costs of welding wire and accessories were significantly impacted by
rising steel prices in fiscal 2005. The Company successfully passed through the higher costs to
its customers. Same-store sales of safety products increased approximately $40 million and were
positively impacted by the Companys strategy of cross-selling safety products to its broad base of
customers. Radnor private label sales growth of 36% was also indicative of the success of the
Companys branch store core stocking program. The Companys core stocking program ensures that
each branch store is stocked with the most commonly demanded hardgoods products. The Company follows a strategy that focuses on products and markets that are expected to grow
at a faster rate than the overall economy. These products include medical and specialty gases,
gases sold in bulk and micro-bulk containers, safety products, and sales to strategic account
customers (large customers with multiple locations). Fiscal 2005 gas and rent same-store sales
growth was driven by these products as well as the strengthened industrial economy. Medical gas
and rent sales grew 5% to $169 million in fiscal 2005 driven by the strength of the Airgas Puritan
Medical business model, which includes a far reaching network of locations, superior customer
service and innovative programs, such as the Walk-O2-Bout medical cylinder program utilized by
hospitals and the home healthcare market. Same-store sales of specialty gases increased 4% to $157
million in fiscal 2005. Bulk gas and rent revenues grew 10% to over $120 million reflecting higher
volumes. Sales to strategic account customers also contributed to the growth in gas, rent and
hardgoods same-store sales. Growth in industrial gases (e.g. acetylene, helium, argon) were also
solid contributors. Rental revenue was also favorably impacted by a 7% increase in welding
equipment rentals and sales associated with the Companys rental welder fleet. 18




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##### 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 $140
million, principally from the consolidation of National Welders and same-store sales growth.
National Welders contributed sales of $167 million in fiscal 2005 versus $39 million in the prior
year (fourth quarter only). Had National Welders been consolidated for all of fiscal 2004, it
would have contributed sales of $147 million. Same-store sales growth was principally the result
of higher sales volumes of liquid carbon dioxide and dry ice and industrial gas volume gains at
National Welders. Dry ice sales volume gains were dampened by pricing pressure in this competitive
market. 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 25% resulting from higher sales volumes generated by acquisitions,
same-store sales growth and the consolidation of National Welders. Although the gross profit
dollars were higher, the gross profit margin decreased 100 basis points to 51.1% in fiscal 2005
compared to 52.1% in fiscal 2004. The decline in the gross profit margin was partially due to
lower gas margins experienced during the second half of fiscal 2005 resulting from lower margins of
the acquired BOC business and higher sales of lower margin bulk gases. The pressure on margins
factored into the Companys decision to raise prices on a number of its product lines in the fourth
quarter of fiscal 2005. Related to hardgoods products, the entire industry has been impacted by
the rapidly rising price of steel, a primary component of welding wire and rods. However, the
gross profit margin on hardgoods was relatively consistent with the prior year as the product cost
increases were effectively passed through to customers. (In thousands)
    
    2005
    
    
    2004
    
    
    IncreaseDistribution
    
    $
    1,021,192
    
    
    $
    857,031
    
    
    $
    164,161
    
    
    
    19
    %All Other Operations
    
    
    211,172
    
    
    
    129,756
    
    
    
    81,416
    
    
    
    63
    %$
    1,232,364
    
    
    $
    986,787
    
    
    $
    245,577
    
    
    
    25
    %
 The Distribution segments gross profits increased $164 million (19%) compared to the prior
year driven by acquisitions and same-store sales growth. The Distribution segments gross profit
margin of 49.1% in fiscal 2005 decreased 120 basis points from 50.3% in fiscal 2004. The lower
gross profit margin resulted from the higher same-store sales growth rates for hardgoods versus gas
and rent sales. Hardgoods carry a lower gross profit margin versus gas and rent sales and helped
drive the decline in the gross profit margin. The Distribution segments sales consisted of 50.8%
gas and rent compared to 51.8% in fiscal 2004. The gross profit margin was also impacted by lower
margins from the acquired BOC business and higher sales of lower margin bulk gases. Higher
cylinder maintenance and freight-in costs associated with sales growth also contributed to the
lower gross profit margin. The Company anticipates that the gross profit margin will rise in
fiscal 2006 reflecting the full impact of the price increases as well as continued gas volume
growth. All Other Operations gross profits increased $81 million (63%) compared to the prior year
primarily reflecting the consolidation of National Welders. National Welders contributed $70
million to the increase in gross profits. The remainder of the increase in gross profits reflects
higher sales volumes of liquid carbon dioxide and dry ice. The All Other Operations gross profit
margin was relatively consistent compared to the prior year. 19




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##### 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 $186 million (25%) compared to the
prior year principally from the consolidation of National Welders and costs contributed by
acquisitions. A full year of expenses related to National Welders contributed $65 million in SD&A
expenses versus $16 million for the fourth quarter in the prior year. Acquisitions contributed an
estimated $86 million in SD&A expenses. The remainder of the increase resulted from higher labor,
utility and distribution-related expenses. Labor and utility expense increases reflected costs to
fill cylinders and operate facilities to meet increased demand for products. The increase in
distribution-related expenses of approximately $8 million was primarily driven by higher fuel,
repair and maintenance costs. The increase in fuel costs was directly related to higher oil prices
during fiscal 2005. Fiscal 2005 also included costs of $4.8 million associated with the
integration of the BOC business into the Companys operations and $1.6 million for a separation
package for the former Chief Operating Officer. Acquisition integration expenses were not
significant during fiscal 2004. During fiscal 2004, the Company sustained fire-related losses of
$2.8 million at certain of its plants. As a percentage of sales, SD&A expenses decreased 50 basis
points to 38.1% versus 38.6% in the prior year driven by higher sales volumes and improving cost
leverage. Depreciation expense of $106 million in fiscal 2005 increased $23 million (28%) compared to
$83 million in fiscal 2004. National Welders contributed $9 million in additional depreciation
expense and acquisitions contributed approximately $8 million. The remainder of the increase
primarily reflects the current and prior years capital investments in revenue producing assets,
including medical cylinders and bulk tanks. The Companys lease buyout program to purchase
long-lived assets subject to high cost leases also contributed to the increase in depreciation
expense in fiscal 2005. Amortization expense in fiscal 2005 of $5.5 million was consistent with
the prior year. Operating Income Operating income increased 21% in fiscal 2005 compared to fiscal 2004 driven by higher sales
and the consolidation of National Welders. The operating income margin decreased 50 basis points
to 8.4% from 8.9% in the prior year. (In thousands)
    
    2005
    
    
    2004
    
    
    IncreaseDistribution
    
    $
    158,018
    
    
    $
    136,449
    
    
    $
    21,569
    
    
    
    16
    %All Other Operations
    
    
    45,215
    
    
    
    31,331
    
    
    
    13,884
    
    
    
    44
    %$
    203,233
    
    
    $
    167,780
    
    
    $
    35,453
    
    
    
    21
    %
 The Distribution segments operating income margin of 7.6% in fiscal 2005 decreased 40 basis
points compared to 8.0% in the prior year. BOC integration costs and the separation package for
the Companys former Chief Operating Officer contributed 30 basis points to the decline in the
operating income margin. The decrease in the operating income margin also reflected the lower
gross profit margin, described above. The All Other Operations segments operating income margin decreased 160 basis points to 11.7%
from 13.3% in fiscal 2004. The decrease in the operating income margin primarily resulted from the
consolidation of National Welders, which carries a lower operating income margin compared to the
other businesses in the All Other Operations segment. Had National Welders been consolidated for
all of fiscal 2004, the comparable operating income margin would have been 11.5%. 20




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Interest Expense and Discount on Securitization of Trade Receivables Interest expense, net, and the discount on securitization of trade receivables totaled $56
million representing an increase of $10 million (22%) compared to the prior fiscal year. The
increase in interest expense primarily resulted from higher debt levels associated with
acquisitions, principally the BOC acquisition. The increase in interest expense was also driven by
higher weighted-average interest rates. The consolidation of National Welders contributed $2
million to the increase in interest expense. The Company participates in a securitization agreement with two commercial banks to sell up to
$225 million of qualifying trade receivables. The amount of outstanding receivables under the
agreement was $190 million and $163 million at March 31, 2005 and 2004, 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 and the trade receivables securitization, the Companys ratio of fixed to variable
interest rates at March 31, 2005 was 61% fixed to 39% 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, 2005, for every 25
basis point increase in LIBOR, the Company estimates its annual interest expense would increase
approximately $1 million. Income Tax Expense The effective income tax rate was 36.8% of pre-tax earnings in fiscal 2005 compared to 38.3%
in fiscal 2004. The lower tax rate in fiscal 2005 resulted from changes in valuation allowances
associated with state tax net operating loss carryforwards and the realization of federal and state
tax credits. Minority Interest and Equity Earnings of Unconsolidated Affiliate In fiscal 2005, the Company modified its presentation of minority interest and equity in
earnings of unconsolidated affiliates to improve the presentation of the relationship between
earnings before taxes and income tax expense. The new presentation reflects both the minority
interest related to National Welders and the equity income recognized in prior periods related
to National Welders, net of tax, below income tax expense. The Company also reclassified
earnings of its partnership interest in AC Industries from equity in earnings of unconsolidated
affiliates to other income (expense). The reclassifications have been reflected in all prior
periods to conform with the new presentation. Minority interest expense represents the portion of National Welders earnings applicable to
the preferred stockholders of National Welders. Minority interest expense in fiscal 2005
represents a full year of expense versus one quarter in fiscal 2004, reflecting the December 31,
2003 consolidation of National Welders. Equity in earnings of unconsolidated affiliate in fiscal 2004 of $4.4 million represents the
Companys portion of National Welders net earnings through the date of consolidation. National
Welders earnings included a $1.7 million after-tax life insurance gain in which National Welders
was the named beneficiary. 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. 21




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Net Earnings Net earnings in fiscal 2005 were $92 million, or $1.20 per diluted share, compared to $80
million, or $1.07 per diluted share, in fiscal 2004. The weighted average number of shares outstanding used in computing earnings per
diluted share increased by 2.3 million shares in fiscal 2005. The increase in the weighted
average number of shares outstanding primarily related to 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 continue to increase by
2% to 3% per year. 22




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Fiscal 2004 net earnings were $80 million, or $1.07 per diluted share, compared to $68
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 after-tax, 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. At December 31, 2003, the Company elected to adopt FIN 46R with respect to its joint venture
with 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 Affiliate 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 million to sales, $3 million to operating income, $452
thousand of minority interest expense and $1 million in net earnings. 23




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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 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
    %
 Distribution segment sales increased $60 million (4%) driven by acquisitions and growth in
same-store sales. The Company estimates that business acquisitions contributed $39 million to
sales in fiscal 2004. Same-store sales growth of $21 million (1%) resulted from increases in
hardgoods sales of $13 million (1%) and gas and rent sales of $8 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. During fiscal 2004, strategic product 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. All Other Operations sales, net of intercompany sales eliminations, increased $48 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 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 million in fiscal 2004. 24




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##### Table of Contents



Gross Profits 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 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 $29 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. Operating Expenses SD&A expenses increased $34 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 50 basis points to 38.6% compared to 39.1% in the prior year. Depreciation expense of $83 million in fiscal 2004 increased $9 million (12%) compared to $74
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 approximately $3 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. 25




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##### Table of Contents



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, the Company recognized a special charge of $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. 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
    %
 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
approximately $46 million representing a decrease of $4 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
qualifying trade receivables. The amount of outstanding receivables under the agreement was $163
million and $159 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. 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 and the trade receivables securitization, the Companys ratio of fixed to variable
interest rates at March 31, 2004 was 57% fixed to 43% variable. 26




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##### Table of Contents



Minority Interest and Equity in Earnings of Unconsolidated Affiliate Minority interest expense represents the portion of National Welders earnings applicable to
the preferred stockholders of National Welders. Minority interest expense in fiscal 2004
represents one quarter of expense as a result of the December 31, 2003 consolidation. Equity in earnings of unconsolidated affiliate in fiscal 2004 of $4.4 million represents the
Companys portion of National Welders net earnings through the date of consolidation. The
increase in fiscal 2004 equity earnings compared to fiscal 2003 resulted primarily from a $1.7
million after-tax life insurance gain in which National Welders was the named beneficiary. Income Tax Expense The effective income tax rate was 38.3% of pre-tax earnings in fiscal 2004 compared to 38.6%
in fiscal 2003. Net Earnings Net earnings in fiscal 2004 were $80 million, or $1.07 per diluted share, compared to $68
million, or $0.94 per diluted share, in fiscal 2003. 27




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES Fiscal 2005 Cash Flows Net cash provided by operating activities totaled $222 million in fiscal 2005 compared to $211
million in fiscal 2004. The increase in fiscal 2005 operating cash flows resulted from higher net
earnings adjusted for non-cash items and cash provided by the trade receivables securitization,
partially offset by an increase in cash used by working capital. Net earnings adjusted for
non-cash items provided cash of $246 million versus $194 million in fiscal 2004. Working capital
used cash of $52 million in 2005 versus providing cash of $13 million in 2004. Working capital
components used cash in fiscal 2005 reflecting higher levels of hardgoods inventory and trade
receivables in connection with overall sales growth. The Company increased the level of
receivables sold under its trade receivables securitization program generating incremental cash
compared to 2004 of $24 million. Cash provided by operating activities in fiscal 2005 were
primarily used to fund capital expenditures and acquisitions. Cash from operations in fiscal 2005 includes $20 million of cash provided by National Welders
compared to $10 million associated with the fourth quarter of fiscal 2004. 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 2004 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. Cash used in investing activities totaled $353 million and primarily consisted of cash used
for acquisitions of $192 million and capital expenditures of $168 million. Acquisitions in fiscal
2005 primarily consisted of $175 million paid for the BOC acquisition. Capital expenditures were
$74 million higher than in fiscal 2004 driven by spending for cylinders and bulk tanks reflecting
continued investment to support the Companys strategic sales initiatives, such as those related to
medical and bulk gases. In addition, fiscal 2005 capital expenditures included $35 million ($11
million at National Welders) of real estate and tube trailer lease buyouts under a program to
purchase long-lived assets that were subject to high cost operating leases. For fiscal 2006, the
Company estimates that capital spending will approximate 5% of sales. Financing activities provided cash of $139 million primarily from borrowings, which were
raised to fund the BOC acquisition. Financing activities also included proceeds of $20 million
received from the exercise of stock options. Dividends paid to stockholders during fiscal 2005
used cash of $14 million. Beginning with this annual report on Form 10-K, the Company has changed from a net cash
presentation on the balance sheet to a gross presentation. Previously, the Company did not show
cash balances as all depository cash and cash overdrafts were combined and the net overdraft was
recorded in other current liabilities. In the current presentation, depository cash and cash
overdrafts are presented on a gross basis. The Company has adopted the current presentation as it
is consistent with the practice among most companies and is also more transparent. Prior periods
have been reclassified to conform to the current presentation. The Company will continue to look for 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. 28




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##### Table of Contents



Dividends At the end of each quarter during fiscal 2005 and fiscal 2004, the Company paid its
stockholders regular quarterly cash dividends of $0.045 and $0.040 per share, respectively. In
addition, on May 24, 2005, the Company announced that its Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, representing a 33% increase compared to the prior year
quarterly dividend. The dividend is payable June 30, 2005 to stockholders of record as of June 15,
2005. 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 Senior Credit Agreement On January 14, 2005, the Company amended and restated its senior credit agreement (the
Credit Agreement) to extend the maturity date from July 30, 2006 to January 14, 2010 and
to provide the Company with more flexibility to invest in growth and/or return cash to
stockholders. Accordingly, the Credit Agreement significantly reduces the limitations on
acquisitions, restricted payments and debt incurrence. The Credit Agreement also allows for
the expansion of the Companys trade receivables securitization up to a maximum of $300
million in trade receivables. The Credit Agreement continues to require that the Company
maintain certain leverage and coverage ratios. As provided for in the Credit Agreement, the
computations of the restrictive covenants include pro forma results of acquired businesses.
As such, the amount borrowed to finance an acquisition does not reduce the Companys
borrowing capacity by a similar amount. Under the Credit Agreement, the Company has unsecured senior credit facilities that
provide revolving credit lines of $308 million and Canadian $50 million and a term loan. As
of March 31, 2005, the Company had revolving credit borrowings of approximately $136
million, Canadian $27 million (U.S. $22 million), and term loan borrowings of $96 million.
The Company also had commitments under letters of credit of $33 million supported by the
Credit Agreement at March 31, 2005. After considering the covenant limitations, as of March
31, 2005, the effective additional borrowing capacity under the Credit Agreement was
approximately U.S. $159 million. The U.S. dollar borrowings bear interest of LIBOR plus 95
basis points and the Canadian dollar borrowings bear interest at the Canadian Bankers
Acceptance Rate plus 95 basis points. As of March 31, 2005, the effective interest rate on
the U.S. dollar revolving credit lines, the Canadian dollar credit lines and the U.S. dollar
term loan were 3.74%, 4.67% and 4.04%, respectively. Under the Credit Agreement, the Companys domestic subsidiaries guarantee the U.S.
borrowings and Canadian borrowings, and the Companys foreign subsidiaries also guarantee
the Canadian borrowings. The guarantees are full and unconditional and are made on a joint
and several basis. The Company has pledged 100% of the stock of its domestic subsidiaries
and 65% of the stock of its foreign subsidiaries as surety for its obligations under the
agreement. The Credit Agreement provides for the release of the guarantees and collateral
if the Company attains an investment grade credit rating and maintains such rating for two
consecutive quarters. 29




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##### Table of Contents



Medium-Term Notes At March 31, 2005, the Company had $100 million of medium-term notes due September 2006
bearing interest at a fixed rate of 7.75%. The medium-term notes are fully and
unconditionally guaranteed on a joint and several basis by each of the wholly owned domestic
guarantors under the revolving credit facilities. The Company has pledged the stock of its
domestic guarantors for the benefit of the note holders. 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, 2005, acquisition and other notes totaled approximately $10
million with interest rates ranging from 4% to 9%. Senior Subordinated Notes At March 31, 2005, the Company had $150 million of senior subordinated notes (the 2004
Notes) outstanding with a maturity date of July 15, 2014. The 2004 Notes bear interest at
a fixed annual rate of 6.25%, payable semi-annually on January 15 and July 15 of each year.
The 2004 notes have an optional redemption provision, which permits the Company, at its
option, to call the 2004 Notes at scheduled dates and prices. The first scheduled optional
redemption date is July 15, 2009 at a price of 103.1% of the principal amount. In addition to the 2004 Notes, at March 31, 2005, 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 2001 notes also have an optional redemption
provision, which permits the Company, at its option, to call the 2001 Notes at scheduled
dates and prices. The first scheduled optional redemption date is October 1, 2006 at a
price of 104.6% of the principal amount. 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 fully
and unconditionally guaranteed jointly and severally, on a subordinated basis, by each of
the wholly owned domestic guarantors under the revolving credit facilities. The stock of
the Companys domestic subsidiaries is also pledged to the note holders on a subordinated
basis. Financial Instruments of the National Welders Joint Venture Pursuant to the requirements of FIN 46R, the Companys Consolidated Balance Sheets at
March 31, 2005 and 2004 include the financial obligations of National Welders. National
Welders financial obligations are non-recourse to the Company, meaning that the creditors
of National Welders do not have a claim on the assets of Airgas, Inc. National Welders has a credit agreement (the NWS Credit Agreement) that provides for
available credit up to $100 million secured by certain assets. The NWS Credit Agreement
provides for a Term Loan A of $26 million, a Term Loan B of $21 million, a Term Loan C of $9
million, and a revolving credit line of $44 million. Term Loan A is repayable in monthly
amounts of $254 thousand with a lump-sum payment of the outstanding balance at maturity in
June 2007. Term Loan B (See subsequent events Note 26 to the Consolidated Financial
Statements) matures in July 2006 and Term Loan C matures in 30




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##### Table of Contents



September 2006. The revolving credit line matures in June 2007. The NWS 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. At March 31, 2005, National Welders had borrowings under its revolving credit line of
$22 million, under Term Loan A of $18 million, under Term Loan B of $21 million, and under
Term C of $3.5 million. Interest rates on Term Loans A, B and the revolving credit line are
variable and range from LIBOR plus 150 to 225 basis points based on National Welders
leverage ratio. At March 31, 2005, the effective interest rate for Term Loans A, B and the
revolving credit line was 4.85%. Term Loan C bears a fixed interest rate of 7%. Based on
restrictions related to certain leverage ratios, National Welders had additional borrowing
capacity under its NWS Credit Agreement of approximately $22 million at March 31, 2005. As of March 31, 2005, Term Loan A and the revolving credit line are secured by certain
current assets, principally trade receivables and inventory, totaling $30 million,
non-current assets, principally equipment, totaling $71 million,
and Airgas common stock with a market value of $22 million classified as treasury stock and carried at cost of $370
thousand. Term Loan B is secured by a $21 million note receivable from the preferred
stockholders of National Welders (See Subsequent events Note 26 to
the Consolidated Financial Statements). In consolidation, the note receivable is presented as a
reduction to the minority interest liability. Term Loan C is secured by a production
facility, which had a net book value of approximately $14 million at March 31, 2005. Interest Rate Swap Agreements The Company and National Welders manage exposure to changes in market interest rates.
At March 31, 2005, the Company was party to a total of four interest rate swap agreements.
The swap agreements are with major financial institutions and aggregate $100 million in
notional principal amount. These swap agreements require the Company to make fixed interest
payments based on an average effective rate of 3.59% and receive variable interest payments
from its counterparties based on one-month and three-month LIBOR (average rate of 2.73% at
March 31, 2005). The remaining terms of these swap agreements range from between seven
months and four years. The Company monitors its positions and the credit ratings of its
counterparties and does not anticipate non-performance by the counterparties. On March 30, 2005, the Company terminated four variable interest rate swap agreements
with a notional principal amount of $125 million. The interest rate swap agreements
previously converted a corresponding amount of fixed rate medium-term notes and the senior
subordinated notes due 2011 to variable rate debt. As a result of swap termination, the
Company received $3.9 million in cash. The corresponding gain on the termination has been
deferred and is being amortized as a reduction of interest expense over the remaining terms
of the notes. 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 2.85% at March 31, 2005 (See subsequent events Note 26 to the
Consolidated Financial Statements). Including the effect of the interest rate swap agreements and the trade receivables
securitization, the Companys ratio of fixed to variable interest rates was approximately 61%
fixed to 39% variable at March 31, 2005. A majority of the Companys variable rate debt is
based on a spread over the LIBOR. Based on the Companys fixed to variable interest rate ratio
at March 31, 2005, for every 25 basis point increase in LIBOR, the Company estimates that its
annual interest expense would increase approximately $1 million. 31




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Trade Receivables Securitization The Company participates in a securitization agreement with two commercial banks to sell up to
$225 million of qualifying trade receivables. The agreement expires in February 2008, but may be
renewed subject to provisions contained in the agreement. During fiscal 2005, the Company sold,
net of its retained interest, $2,204 million of trade receivables and remitted to bank conduits,
pursuant to a servicing agreement, $2,177 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 $190 million at March 31, 2005 and $163
million at March 31, 2004. 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 $57 million and $44 million is included in Trade
receivables in the accompanying Consolidated Balance Sheets at March 31, 2005 and 2004,
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 In October 2004, the Company used funds from its revolving credit facilities to refinance its
$41 million debt obligation under a sale-leaseback arrangement with a grantor trust. Since the
Company had previously consolidated the grantor trust in July 2003 in accordance with the adoption
of FIN 46, there was no net change in the Companys outstanding debt as a result of the maturity of
the sale-leaseback arrangement. Employee Benefits Trust Since March 1999, the Company has maintained an Employee Benefits Trust (the 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 Trust.
The Company holds promissory notes from the Trust in the amount of common stock purchased by the
trust. Shares held by the 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 1.9 million
and 1.2 million shares were issued from the Employee Benefits Trust for employee benefit programs
during fiscal 2005 and 2004, respectively. As of March 31, 2005, the Employee Benefits Trust held
338 thousand shares of Company common stock. The remaining shares were issued from the Trust
during the first quarter of fiscal 2006 for employee stock option exercises. 32




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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.
Financial Statements and Supplementary Data 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,
other intangible assets and business insurance reserves. Uncertainties about future events make
these estimates susceptible to change. Management evaluates these estimates regularly and believes
they are the best estimates, appropriately made, given the known facts and circumstances. For the
three years ended March 31, 2005, there were no material adjustments to the items below as a result
of changes in the valuation methods or assumptions used by management. However, actual results
could differ from these estimates under different assumptions and circumstances. The Company
believes the following accounting estimates are critical due to the subjectivity and judgment
necessary to account for these matters, their susceptibility to change and the potential impact
that different assumptions could have on operating performance. Trade Receivables The Company maintains an allowance for doubtful accounts to adjust the carrying value of trade
receivables to fair value based on estimates of accounts that will not ultimately be collected. An
allowance for doubtful accounts is generally established as trade receivables age beyond their due
date. As past due balances age, higher valuation allowances are established lowering the net
carrying value of receivables. The amount of valuation allowance established for each past due
period reflects the Companys historical collections experience and current economic conditions and
trends. The Company also establishes valuation allowances for specific problem accounts and
bankruptcies. The amounts ultimately collected on past due trade receivables are subject to
numerous factors including general economic conditions, the condition of the receivable portfolio
assumed in acquisitions, the financial condition of individual customers, and the terms of
reorganization for accounts exiting bankruptcy. Changes in these conditions impact the Companys
collection experience and may result in the recognition of higher or lower valuation allowances.
Management evaluates the allowance for doubtful accounts at least monthly. The Company has a low
concentration of credit risk due to its broad and diversified customer base across multiple
industries and geographic locations, and its relatively low average order size. No individual
customer accounts for more than 0.5% of the Companys annual sales. Historically, the Companys
accounts receivable write-offs have generally been in the range of 0.3% to 0.6% of sales. Inventories The Companys inventories are stated at the lower of cost or market. The majority of the
products the Company carries in inventory has long shelf lives and is not subject to technological
obsolescence. The Company writes its inventory down to its estimated market value when it believes
the market value is below cost. The Company estimates its ability to recover the costs of items in
inventory by product type based on its age, the rate at which that product line is turning in
inventory, its physical condition as well as assumptions 33




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about future demand and market conditions. The ability of the Company to recover its cost for
products in inventory can be affected by factors such as future customer demand, general market
conditions and the relationship with significant suppliers. Management evaluates the
recoverability of its inventory at least quarterly. In aggregate, inventory turns approximately
four times per year. Goodwill and Other Intangible Assets The Company accounts for goodwill and other intangible assets in accordance with SFAS 142,
Goodwill and Other Intangible Assets. Under SFAS 142, goodwill and other intangible assets with
indefinite useful lives are not amortized, but are 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 or whenever indicators of impairment exist. Goodwill impairment is
recognized when the carrying value of a reporting unit exceeds its implied fair value. Implied
fair value is estimated based on a discounted cash flow analysis for each reporting unit. The
discounted cash flow analysis requires estimates, assumptions and judgments about future events.
The Companys analysis uses internally generated budgets and long-range forecasts, which are the
same budgets and forecasts used for managing operations, awarding management bonuses and seeking
alternative or additional financing. The Companys discounted cash flow analysis uses the
assumptions in these budgets and forecasts about sales trends, inflation, working capital needs,
and forecasted capital expenditures along with an estimate of the reporting units terminal value
(the value of the reporting unit at the end of the forecast period) to determine the implied fair
value of each reporting unit. The Companys assumptions about working capital needs and capital
expenditures are based on historical experience. Terminal values reflect an assumed perpetual
growth rate consistent with long-term expectations for inflation. The discount rate used to
determine the present value of the estimated future cash flows is a risk adjusted rate consistent
with the Companys borrowing cost for a term equal to the forecast period. The Company believes the assumptions used in its discounted cash flow analysis are appropriate and
result in reasonable estimates of the implied fair value of each reporting unit. However, the
Company may not meet its sales growth and profitability targets, working capital needs and capital
expenditures may be higher than forecast, changes in credit markets may result in changes to the
Companys discount rate and general business conditions may result in changes to the Companys
terminal value assumptions for its reporting units. Based on the Companys October 31, 2004
assessment, it is unlikely that such changes would result in the recognition of goodwill impairment
in the Companys reporting units. Business Insurance Reserves The Company has insurance programs to cover workers compensation, business automobile,
general and products liability. The insurance programs have self-insured retention of $500
thousand per occurrence and an annual aggregate limit of $1.7 million ($2.2 million in fiscal 2006)
of claims in excess of $500 thousand. The Company reserves for its self-insured retention based on
individual claim evaluations performed by a qualified third party administrator. The third party
administrator establishes loss estimates for known claims based on the current facts and
circumstances. These known claims are then developed, through actuarial computations, to reflect
the expected ultimate loss for the known claims, as well as incurred but not reported claims.
Actuarial computations use the Companys specific loss history, payment patterns, insurance
coverage, plus industry trends and other factors to estimate the required reserve for all open
claims by policy year and loss type. Reserves for the Companys self-insurance retention are
evaluated monthly. Semi-annually, the Company obtains a third party actuarial report to validate
that the computations and assumptions used are consistent with actuarial standards. Certain
assumptions used in the actuarial computations are susceptible to change. Loss development factors
are influenced by items such as medical inflation, changes in workers compensation laws, and
changes in the Companys loss payment patterns, all of which can have a significant influence on
the estimated ultimate loss related to the Companys self-insured retention. Accordingly, the
ultimate resolution of open claims may be for amounts more or less than the reserve balances. The
Companys operations are spread across a significant number of locations, which helps to mitigate
the potential impact of any given event that 34




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could give rise to an insurance-related loss. Historically, business insurance expense has
generally been in the range of 0.8% to 1.2% of sales. 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, 2005: (In thousands)
    
    
    
    
    
    
    
    Payments Due by PeriodContractual and Off-Balance
    
    
    
    
    
    
    
    Less than
    
    
    
    1 to 3
    
    
    
    3 to 5
    
    
    
    More thanSheet Obligations
    
    
    Total
    
    
    
    1 year
    
    
    
    years
    
    
    
    years
    
    
    
    5 yearsObligations reflected on the
March 31, 2005 Balance Sheet:Long-term debt (1)
    
    
    $
    808,583
    
    
    
    $
    6,948
    
    
    
    $
    163,473
    
    
    
    $
    261,129
    
    
    
    $
    377,033Estimated interest payments on
long-term debt (2)
    
    
    
    281,700
    
    
    
    
    51,700
    
    
    
    
    84,300
    
    
    
    
    74,700
    
    
    
    
    71,000Estimated payments on interest
rate swap agreements (3)
    
    
    
    3,000
    
    
    
    
    1,500
    
    
    
    
    1,000
    
    
    
    
    500
    
    
    
    
    Contingent
consideration (4)
    
    
    
    25,000
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Off-balance sheet obligations
as of March 31, 2005:Operating leases (5)
    
    
    
    170,533
    
    
    
    
    50,118
    
    
    
    
    70,181
    
    
    
    
    35,710
    
    
    
    
    14,524Trade receivables
securitization (6)
    
    
    
    189,900
    
    
    
    
    
    
    
    
    
    189,900
    
    
    
    
    
    
    
    
    
    Estimated discount on
securitization (7)
    
    
    
    17,800
    
    
    
    
    6,100
    
    
    
    
    11,700
    
    
    
    
    
    
    
    
    
    Letters
of credit (8)
    
    
    
    32,752
    
    
    
    
    32,752
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations:Liquid
bulk gas supply agreements (9)


    
    
    728,958

    
    
    

    61,000
    
    
    
    

    122,000
    
    
    
    

    122,000
    
    
    
    

    423,958Liquid
carbon dioxide supply agreements (10)


    
    

    134,642
    
    
    
    

    15,183
    
    
    
    

    21,722
    
    
    
    

    15,372
    

    
    
    

    82,365Other
purchase commitments (11)


    
    

    9,261
    
    
    
    

    7,578
    
    
    
    

    1,511
    
    
    
    

    172
    
    
    
    

    Total
    
    
    $

2,402,129
    
    
    
    $
    257,879
    
    
    
    $
    665,787
    
    
    
    $
    509,583
    
    
    
    $
    968,880
   (1)
    
    Aggregate long-term debt instruments are reflected in the Consolidated Balance Sheet as
of March 31, 2005. 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 future interest payments on the Companys long-term debt obligations were estimated
based on the expected outstanding principal in each period presented and interest rates as
of March 31, 2005. The estimated interest payments may differ materially from those
presented above based on actual amounts of long-term debt outstanding and actual interest
rates in future periods.(3)
    
    Payments or receipts under interest rate swap agreements result from changes in market
interest rates compared to contractual payments to be exchanged between the parties to the
agreements. The estimated receipts in future periods were determined based on interest
rates as of March 31, 2005. Actual receipts or payments may differ materially from those
presented above based on actual interest 35




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rates in future periods.(4)
    
    The purchase price for the BOC acquisition included contingent consideration of $25
million. The contingent portion of the purchase price is based on the Company achieving
certain financial targets and is due to be paid on or about November 15, 2005.(5)
    
    The Companys operating leases include approximately $85 million in fleet vehicles
under long-term operating leases. The Company guarantees a residual value of $11 million
related to its leased vehicles.(6)
    
    The Company participates in a securitization agreement with two commercial banks to
sell up to $225 million of qualifying trade receivables. The agreement expires in February
2008, but may be renewed subject to 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.(7)
    
    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 interest rates. The estimated discount in future periods is based on receivables
sold and interest rates as of March 31, 2005. The actual discount recognized in future
periods may differ materially from those presented above based on actual amounts of
receivables sold and market rates.(8)
    
    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.(9)
    
    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 2005 purchases, the Air Products supply agreement
represents approximately $45 million in annual liquid bulk gas purchases. The purchase
commitments for future periods contained in the table above reflect estimates based on
fiscal 2005 purchases.In July 2004, the Company entered into a 15-year take-or-pay supply agreement with BOC to
purchase nitrogen, argon and helium. The agreement was entered into in conjunction with the
July 2004 acquisition of BOCs U.S. packaged gas business. The agreement will expire in
July 2019. The new BOC agreement represents approximately $16 million in annual bulk gas
purchases.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. 36




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##### Table of Contents



(10)
    
    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 2005 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.(11)
    
    Other purchase commitments primarily include property, plant and equipment expenditures. 37




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New Accounting Pronouncements In December 2004, the FASB issued SFAS 123R, Share Based Payment,as an amendment to
SFAS 123, Accounting for Stock-Based Compensation. SFAS 123R requires that grants of
employee stock options, including shares expected to be purchased under employee stock
purchase plans, to be recognized as compensation expense based on their fair values. SFAS
123R is effective for all annual periods beginning after December 15, 2005. Therefore, SFAS
123R will be effective for the Company as of April 1, 2006. The Company is currently
evaluating the impact of SFAS 123R on its results of operations, financial position, and
liquidity. The Company has not yet determined which fair-value method and transitional
provision it will adopt. See Note 15 to the Consolidated Financial Statements for the
pro-forma effect on net earnings and earnings per share for each of the years in the three
year period ended March 31, 2005, as if the Company had applied the fair value recognition
provisions of SFAS 123R to stock-based compensation. In November 2004, the FASB issued SFAS 151, Inventory Costs, as an amendment to the
guidance provided on Inventory Pricingin FASB Accounting Research Bulletin 43. SFAS 151,
which the Company is required to adopt as of April 1, 2006, clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted material. This
concept requires that if the costs associated with the actual level of spoilage or production
defects are greater than the normal range of spoilage or defects, the excess costs should be
charged to current period expense. Since the Company performs limited manufacturing, the
Company does not believe that the adoption of SFAS 151 will have a material impact on its
results of operations, financial position or liquidity. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets,as an
amendment to APB Opinion 29, Accounting for Nonmonetary Transactions. SFAS 153 requires
nonmonetary exchanges to be accounted for at fair value, recognizing any gains or losses, if
the fair value is determinable within reasonable limits and the transaction has commercial
substance. The Company is required to adopt SFAS 153 as of April 1, 2006. The Company is
currently evaluating the impact, if any, that the adoption of SFAS 153 will have on its
consolidated results of operations and financial condition. On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed into law. In
December 2004 responding to the AJCA, the FASB issued Staff Position 109-1, Tax Deduction on
Qualified Production Activities Provided by the AJCA,(FSP 109-1) and FASB Staff Position 109-2,
Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision with in the
AJCA,(FSP 109-2). FSP 109-1 clarifies that the manufacturers deduction provided for under the
AJCA should be accounted for as a special deduction in accordance with SFAS 109, Accounting for
IncomeTaxes, and not as a tax rate reduction. FSP 109-1 is effective for the Company beginning in
fiscal 2006 and will have a minimal effect on the Companys results of operations, financial
position or liquidity. FSP 109-2 provides guidance on accounting for a special one-time deduction
of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The AJCA provided
an election to apply this provision and repatriate qualifying earnings in either fiscal 2005 or
fiscal 2006. The Company has evaluated the effects of the repatriation provision and has concluded
that it will not repatriate foreign earnings under the AJCA. On June 1, 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections,which
requires retrospective application to prior periods financial statements of every voluntary change
in accounting principle unless it is impracticable. The statement is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 15, 2005. 38




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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: the anticipation of further expansion of the industrial economy in fiscal
2006; the Companys estimate of fiscal 2006 net earnings of $1.43 to $1.50 per diluted share; the
Companys estimate that net earnings in the fiscal 2006 first quarter will be $0.33 to $0.36 per
diluted share; the Companys belief that fiscal 2006 will be another productive year with new
challenges and opportunities; the identification of acquisition candidates; the completion of
acquisitions during fiscal 2006 and their contribution to sales growth; the Companys belief that
it is in the middle of a traditional economic recovery cycle; the successful completion of the
integration of the BOC acquisition in the first half of fiscal 2006; the attainment by fiscal 2008
of certain long-term financial goals, including achieving annual sales of $3 billion and operating
margins of 10% to 11% of sales; the focus on products and markets that will grow at a faster rate
than the overall economy; the Companys expectation that the gross profit margin will rise in
fiscal 2006 reflecting the full impact of the price increases as well as continued gas volume
growth; 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 Companys belief that the minimum product purchases under its
liquid bulk gas and carbon dioxide supply agreements are well within 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 $1 million; 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
2006 capital spending will approximate 5% of sales; 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 Companys belief that its sources of
financing are adequate for its anticipated needs and that it could arrange additional sources of
financing for unanticipated requirements; the future payment of dividends; the ability to contain
costs and/or pass-on cost increases to customers in an inflationary environment; the Companys
belief that future goodwill impairment would be unlikely despite changes in the assumptions
utilized in the annual impairment analysis; the Companys estimates of purchase commitments
associated with product supply agreements; 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/or price increases; the Companys inability to identify products and markets that will grow at
a faster rate than the overall economy; the Companys inability to control the sales mix of gas and
rent versus hardgoods; 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; rising product costs and the inability to pass
those costs on to customers and the impact on gross profit margin; 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; capital spending in fiscal 2006
that is higher or lower than 5% of sales; a lack of available cash flow necessary to pay future
dividends; higher numbers of shares issued under employee benefit programs and their effect on
weighted average shares outstanding; actual earnings in the first quarter of fiscal 2006 and/or in
fiscal 2006 falling outside the Companys range of estimates; the inability to generate sufficient
cash flow from operations or other sources to fund future acquisitions, capital expenditures and
current debt maturities; the inability to identify acquisition candidates; the inability of the Company to attain its long-term
financial goals by fiscal 2008; 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 39




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competition from independent distributors and vertically integrated gas producers on products,
pricing and sales growth; future goodwill impairment due to changes in assumptions used in the
annual impairment analysis; 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. 40




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##### 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 61% to 39% at March 31, 2005. 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, 2005. 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)
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    ValueFixed Rate Debt:Medium-term notes
    
    $
    
    
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100
    
    
    $
    104Interest expense
    
    $
    8
    
    
    $
    4
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $

    12Average interest rate
    
    
    7.75
    %
    
    
    7.75
    %Acquisition and other notes
    
    $
    1
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    7
    
    
    $
    1
    
    
    $
    10
    
    
    $
    10Interest expense
    
    $
    .7
    
    
    $
    .5
    
    
    $
    .4
    
    
    $
    .4
    
    
    $
    .3
    
    
    $
    
    
    
    $
    2.3Average interest rate
    
    
    7.76
    %
    
    
    5.60
    %
    
    
    5.62
    %
    
    
    5.64
    %
    
    
    5.94
    %
    
    
    8.50
    %Senior subordinated
notes due 2011
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    225
    
    
    $
    225
    
    
    $
    245Interest expense
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    21
    
    
    $
    31
    
    
    $
    136Interest rate
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %
    
    
    9.125
    %Senior subordinated
notes due 2014
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150
    
    
    $
    150
    
    
    $
    150Interest expense
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    9
    
    
    $
    40
    
    
    $
    85Interest rate
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %
    
    
    6.25
    %National Welders:Term loan C
    
    $
    2
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4
    
    
    $
    4Interest expense
    
    $
    .2
    
    
    $
    .1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .3Interest rate
    
    
    7.00
    %
    
    
    7.00
    %
 41




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##### Table of Contents



Fiscal Year of MaturityFair(In millions)
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    ValueVariable Rate Debt:Revolving credit facilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    158
    
    
    $
    
    
    
    $
    158
    
    
    $
    158Interest expense
    
    $
    6
    
    
    $
    6
    
    
    $
    6
    
    
    $
    6
    
    
    $
    5
    
    
    $
    
    
    
    $
    29Interest rate (a)
    
    
    3.87
    %
    
    
    3.87
    %
    
    
    3.87
    %
    
    
    3.87
    %
    
    
    3.87
    %Term Loan
    
    $
    15
    
    
    $
    15
    
    
    $
    15
    
    
    $
    21
    
    
    $
    30
    
    
    $
    
    
    
    $
    96
    
    
    $
    96Interest expense
    
    $
    4
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2
    
    
    $
    1
    
    
    $
    
    
    
    $
    12Interest rate (a)
    
    
    4.04
    %
    
    
    4.04
    %
    
    
    4.04
    %
    
    
    4.04
    %
    
    
    4.04
    %National Welders:Revolving credit facility
    
    $
    
    
    
    $
    
    
    
    $
    22
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22
    
    
    $
    22Interest expense
    
    $
    1
    
    
    $
    1
    
    
    $
    .2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2.2Interest rate (a)
    
    
    4.85
    %
    
    
    4.85
    %
    
    
    4.85
    %Term loan A
    
    $
    3
    
    
    $
    3
    
    
    $
    12
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18
    
    
    $
    18Interest expense
    
    $
    .8
    
    
    $
    .7
    
    
    $
    .1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.6Interest rate (a)
    
    
    4.85
    %
    
    
    4.85
    %
    
    
    4.85
    %Term loan B
    
    $
    
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    21Interest expense
    
    $
    1
    
    
    $
    .3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.3Interest rate (a)
    
    
    4.85
    %
    
    
    4.85
    %
 42




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##### Table of Contents



Fiscal Year of MaturityFair(In millions)
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    ValueInterest Rate Swaps :US $ denominated Swaps:4 Swaps Receive Variable/Pay FixedNotional amounts
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50
    
    
    $
    
    
    
    $
    100
    
    
    $
    (1
    )Swap payments/(receipts)
    
    $
    .7
    
    
    $
    .4
    
    
    $
    .4
    
    
    $
    .4
    
    
    $
    .1
    
    
    $
    
    
    
    $
    2Variable Receive rate = 2.73%
(3-month LIBOR)Weighted average pay rate = 3.59%National Welders:Interest Rate Swap:1 Swap Receive Variable/Pay FixedNotional amount
    
    $
    
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21
    
    
    $
    1Swap payments/(receipts)
    
    $
    .8
    
    
    $
    .2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1Variable receive rate = 2.85% (30-day LIBOR)Weighted average pay rate= 6.72%Other Off-Balance Sheet LIBOR-based agreements:Trade receivable securitization (b)
    
    $
    
    
    
    $
    
    
    
    $
    190
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    190
    
    
    $
    190Discount on securitization
    
    $
    6
    
    
    $
    6
    
    
    $
    6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18
 (a) The variable rate of U.S. revolving credit facilities and term loan is based on LIBOR as of
March 31, 2005. The variable rate of the Canadian dollar portion of the revolving credit
facilities is the rate on Canadian Bankers acceptances as of March 31, 2005. (b) The agreement expires in February 2008, 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,
2005, 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. 43




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##### 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-55 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 assessment, 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, 2005. 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 and is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclose. (b) Managements Report on Internal Control over Financial Reporting The Companys management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). The
management conducted an assessment of the Companys internal control over financial reporting based
on the framework established by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control  Integrated Framework.Based on this assessment, management
concluded that, as of March 31, 2005, the Companys internal controls over financial reporting were
effective. (See Managements Report on Internal Control Over Financial Reporting preceding the
Consolidated Financial Statements under Item 8, herein). Managements assessment, however, does
not extend to the Companys consolidated affiliate, National Welders Supply Company, Inc.
(National Welders), which contributed approximately 7% of consolidated net sales and 10% of
consolidated assets. The system of internal control over financial reporting of National Welders,
which has been consolidated by the Company since the December 31, 2003 adoption of FIN 46,
Consolidation of Variable Interest Entities, is the responsibility of National Welders management.
Although the Company does receive audited financial statements for National Welders, the joint
venture agreement does not permit the Company to dictate, modify or assess the effectiveness of the
internal controls of National Welders. Accordingly, managements assessment of internal control
has been limited to the system of internal control of Airgas, Inc. and its subsidiaries.
Managements assessment of the effectiveness of the Companys internal controls over financial
reporting, as of March 31, 2005, has been audited by KPMG LLP, an Independent Registered Public
Accounting Firm, as stated in their report, which is included herein. (c) Changes in Internal Control There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended March 31, 2005 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting. 44




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##### Table of Contents



ITEM 9B. OTHER INFORMATION. On May 19, 2005, the Governance and Compensation Committee of the Board of Directors of the
Company established the performance criteria, performance targets and specific target awards for
each of the participants (expressed as a percentage of his or her base salary) for fiscal 2006 for
the Companys executive officers under the 2004 Executive Bonus Plan (the Bonus Plan). The
Committee determined that, except with respect to the Division Presidents, 50% of the awards will
be based on the Companys attainment of specified targets relating to the Companys earnings before
interest, taxes, depreciation and amortization (EBITDA), 15% will be payable based on the
Companys attainment of specified targets relating to the Companys gross profit and 15% will be
payable based on the Companys attainment of specified targets relating to return on capital. With
respect to the Division Presidents awards, 10% will be based on the Companys attainment of
overall EBITDA, 50% will be based on the attainment of EBITDA by the Division Presidents operating
companies, 15% will be based on the attainment of gross profits by the Division Presidents
operating companies and 15% will be based on the attainment of return on average capital employed
by the Division Presidents operating companies. In addition to the bonuses paid under the Bonus
Plan, 20% of the executives bonus (10% with respect to the Division Presidents) will be based on
individual performance. The Bonus Plan was previously attached as Appendix C to the Companys 2003
proxy statement and is filed as Exhibit 10.14 hereto. 
 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 2005 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 2005 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 section headed Security Ownership
appearing in the Companys Proxy Statement relating to the Companys 2005 Annual Meeting of
Stockholders and such information is incorporated herein by reference. 
 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. 45




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (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. (b) 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).
 46




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##### Table of Contents



Exhibit No.
    
    Description4.6
    
    The Eleventh Amended and Restated Credit Agreement dated as of January 14, 2005 among
Airgas, Inc., Airgas Canada, Inc., Red-D-Arc Limited, Bank of America, N.A. as U.S.
Administration Agent and The Bank of Nova Scotia as Canadian Agent. (Incorporated by
reference to Exhibit 4.1 to the Companys December 31, 2004 Quarterly Report on Form 10-Q).4.7
    
    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).4.8
    
    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).4.9
    
    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).4.10
    
    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).4.11
    
    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).4.12
    
    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).4.13
    
    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.4.14
    
    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).
 47




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##### Table of Contents



Exhibit No.
    
    Description4.15
    
    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).*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 as amended on May 25, 2004, and approved by the
Companys stockholders on August 4, 2004. (Incorporated by reference to the Definitive Proxy
statement on Form DEF14A dated June 28, 2004.)*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).
 48




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##### Table of Contents



Exhibit No.
    
    Description*10.11
    
    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).*10.12
    
    Change of Control Agreement between Airgas, Inc. and Peter McCausland dated March 17, 1999. Nine other Executive
Officers are parties to substantially identical agreements.*10.13
    
    Separation Agreement and General Release of All Claims between Airgas, Inc. and Glenn M. Fischer effective as of
January 14, 2005. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated
January 13, 2005).*10.14
    
    Airgas, Inc. 2004 Executive Bonus Plan.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. 49




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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 13, 2005 Airgas, Inc.
(Registrant)By:
    /s/ Peter McCauslandPeter McCauslandChairman, President 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 13, 2005President and Chief Executive Officer(Peter McCausland)/s/ Roger F. Millay
    
    Senior Vice President and
    
    June 13, 2005Chief Financial Officer(Roger F. Millay)
    
    (Principal Financial Officer)/s/ Robert M. McLaughlin
    
    Vice President and Controller
    
    June 13, 2005(Principal Accounting Officer)(Robert M. McLaughlin)/s/ William O. Albertini
    
    Director
    
    June 13, 2005(William O. Albertini)/s/ W. Thacher Brown
    
    Director
    
    June 13, 2005(W. Thacher Brown)/s/ James W. Hovey
    
    Director
    
    June 13, 2005(James W. Hovey)
 50




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Signature
    
    Title
    
    Date/s/ Richard C. Ill
    
    Director
    
    June 13, 2005(Richard C. Ill)/s/ Paula A. Sneed
    
    Director
    
    June 13, 2005(Paula A. Sneed)/s/ David M. Stout
    
    Director
    
    June 13, 2005(David M. Stout)/s/ Lee M. Thomas
    
    Director
    
    June 13, 2005(Lee M. Thomas)/s/ Robert L. Yohe
    
    Director
    
    June 13, 2005(Robert L. Yohe)
 51




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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 13, 2005 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 13, 2005(Principal Executive Officer)(James A. Muller)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 52




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Michael Ziegler)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 53




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Robert Hilliard)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/PrincipalAccounting Officer)(Robert M. McLaughlin)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 54




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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 13, 2005 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 13, 2005(Principal Executive Officer)Ronald Stark)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/Principal
Accounting Officer)(Robert M. McLaughlin)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 55




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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 13, 2005 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/ Jay Sullivan
    
    President and Director
    
    June 13, 2005(Principal Executive Officer)(Jay Sullivan)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 56




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Henry B. Coker, III)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 57




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Michael Duvall)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 58




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Daniel L. Tatro)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 59




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Mark Clemens)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 60




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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 13, 2005 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 13, 2005(Principal Executive Officer)(James D. McCarthy)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 61




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Brent Sparks)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 62




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Max D. Hooper)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ Alfred B. Crichton
    
    Director
    
    June 13, 2005(Alfred B. Crichton)
 63




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Don Carlino)/s/ Michael L. Molinini
    
    Director
    
    June 13, 2005(Michael L. Molinini)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 64




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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 13, 2005 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 13, 2005(Principal Executive Officer)(Glen Irving)/s/ Michael L. Molinini
    
    Director
    
    June 13, 2005(Michael L. Molinini)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 65




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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 13, 2005 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
    
    President and Director
    
    June 13, 2005(Principal Executive Officer)(Philip J. Filer)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 66




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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 13, 2005 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
    
    President and Director
    
    June 13, 2005(Principal Executive Officer)(William Russo)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 67




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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 13, 2005 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
    
    President and Director
    
    June 13, 2005(Principal Executive Officer)(Ted Schulte)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 68




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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 13, 2005 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
    
    President and Director
    
    June 13, 2005(Principal Executive Officer)(Mitch M. Imielinski)/s/ Robert M. McLaughlin
    
    Vice President and Director
    
    June 13, 2005(Principal Financial Officer/Principal
Accounting Officer)(Robert M. McLaughlin)/s/ B. Shaun Powers
    
    Director
    
    June 13, 2005(B. Shaun Powers)
 69




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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 13, 2005 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
    
    President
    
    June 13, 2005(Principal Executive Officer/(Melanie Andrews)
    
    Principal Financial Officer/Principal
Accounting Officer)/s/ Robert M. McLaughlin
    
    Director
    
    June 13, 2005(Robert M. McLaughlin)/s/ Joseph C. Sullivan
    
    Director
    
    June 13, 2005(Joseph C. Sullivan)/s/ Peter Campbell
    
    Director
    
    June 13, 2005(Peter Campbell)Director(Gordon W. Stewart)
 70




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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 13, 2005 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
    
    President and Member
    
    June 13, 2005(Principal Executive Officer)(Carey M. Verger)/s/ Robert M. McLaughlin
    
    Vice President
    
    June 13, 2005(Principal Financial Officer/(Robert M. McLaughlin)
    
    Principal Accounting Officer)
 71




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AIRGAS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES PageReference InReport OnForm 10-KFinancial Statements:Statement of Managements Financial Responsibility
    
    F-2Managements Report on Internal Control Over Financial Reporting
    
    F-3Report of Independent Registered Public Accounting Firm  Consolidated Financial
Statements
    
    F-4Report of Independent Registered Public Accounting Firm  Internal Control Over
Financial Reporting
    
    F-5Consolidated Statements of Earnings for the Years Ended
March 31, 2005, 2004 and 2003
    
    F-7Consolidated Balance Sheets as of March 31, 2005 and 2004
    
    F-8Consolidated Statements of Stockholders Equity for the
Years Ended March 31, 2005, 2004 and 2003
    
    F-9Consolidated Statements of Cash Flows for the Years Ended
March 31, 2005, 2004 and 2003
    
    F-10Notes to Consolidated Financial Statements
    
    F-11Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    F-55
 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




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STATEMENT OF MANAGEMENTS FINANCIAL RESPONSIBILITY Management of Airgas, Inc. and subsidiaries (the Company) has prepared and is responsible
for the consolidated financial statements and related financial information in this Annual Report
on Form 10-K. The statements are prepared in conformity with U.S. generally accepted accounting
principles. 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 internal control over
financial reporting, at each business unit. However, this system of internal control does not
extend to the Companys consolidated affiliate, National Welders Supply Company, Inc (National
Welders). As disclosed in Note 16 to the accompanying financial statements, National Welders is a
joint venture formed in 1996 that has been consolidated since the
Company adopted FIN 46R,
Consolidation of Variable Interest Entities,on December 31, 2003. Although the Company does
receive audited financial statements for National Welders, the joint venture agreement does not
permit the Company to dictate, modify or assess the effectiveness of
the internal controls of
National Welders. The Companys system of internal control is designed to provide reasonable
assurance that records are maintained in reasonable detail to properly reflect transactions and
permit the preparation of financial statements in accordance with U.S. generally accepted
accounting principles, that transactions are executed in accordance with managements and the Board
of Directors authorization, and that unauthorized transactions are prevented or detected on a
timely basis such that they could not materially affect the financial statements. 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. Management has evaluated the effectiveness of the Companys internal control over financial
reporting, as of March 31, 2005, based on criteria established in Internal Control  Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Managements Report on Internal Control Over Financial Reporting, which does not extend to the
internal control of National Welders, is included herein. KPMG LLP, an Independent Registered
Public Accounting Firm, has also audited managements assessment of the effectiveness of the
Companys internal control over financial reporting, as well as the Companys financial statements.
The Reports of Independent Registered Public Accounting Firm, which expresses opinions on both
managements assessment of the Companys internal control over financial reporting and the fair
presentation of the Companys financial position at March 31, 2005 and 2004 and the results of
operations and cash flows for the three-year period ended March 31, 2005, appear herein. The Audit Committee of the Board of Directors, consisting solely of independent Directors,
meets regularly (jointly and separately) with the Independent Registered Public Accounting Firm,
the internal auditors and management to satisfy itself that they are properly discharging their
responsibilities. The Independent Registered Public Accounting Firm has direct access to the Audit
Committee. Airgas, Inc./s/ Peter McCausland
    
    /s/ Roger F. MillayPeter McCausland
    
    Roger F. MillayChairman,
President and
Chief Executive Officer
    
    Senior Vice President and
Chief Financial Officer
 June 13, 2005 F-2




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Airgas, Inc. and subsidiaries (the Company) is responsible for
establishing and maintaining an adequate system of internal control over financial reporting.
This responsibility, however, does not extend to the Companys consolidated affiliate, National
Welders Supply Company, Inc. (National Welders), which represented approximately 7% of net
sales and 10% of assets. The system of internal control over financial reporting of National
Welders, which has been consolidated by the Company since the December 31, 2003 adoption of FIN
46R, Consolidation of Variable Interest Entities, is the
responsibility of National Welders
management. Although the Company does receive audited financial statements for National
Welders, the joint venture agreement does not permit the Company to dictate, modify or assess
the effectiveness of the internal controls of National Welders and the Company does not, in
practice, have the ability to assess those controls. Accordingly, managements assessment of
internal control has been limited to the system of internal control of Airgas, Inc. and its
subsidiaries. Management, under the supervision and with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, conducted an assessment of the Companys
internal control over financial reporting based on the framework established by the Committee
of Sponsoring Organizations of the Treadway Commission in Internal Control  Integrated
Framework. Based on this assessment, management concluded that, as of March 31, 2005, the
Companys internal control over financial reporting was effective. KPMG LLP, an Independent
Registered Public Accounting Firm, as stated in their report, has audited managements
assessment of the effectiveness of the Companys internal control over financial reporting as
of March 31, 2005. Airgas, Inc./s/ Peter McCausland
    
    /s/ Roger F. MillayPeter McCausland
    
    Roger F. MillayChairman,
President and
Chief Executive Officer
    
    Senior Vice President and
Chief Financial Officer
  June 13, 2005 F-3




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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 (the
Company) 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 the financial statement schedule
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements and the 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, 2005 and
2004, and the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 2005, 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. We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of March 31, 2005, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated June 13, 2005 expressed an unqualified opinion on managements assessment of,
and the effective operation of, internal control over financial reporting. As discussed in Note 2 to the consolidated financial statements, the Company changed its
method of accounting for variable interest entities effective December 31, 2003. /s/ KPMG LLP
Philadelphia, Pennsylvania
June 13, 2005 F-4




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
Airgas, Inc.: We have audited managements assessment, included in the accompanying Managements
Report on Internal Control over Financial Reporting appearing herein, that Airgas, Inc. and
subsidiaries (the Company) maintained effective internal control over financial reporting as of
March 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion. A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control
over financial reporting as of March 31, 2005, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of March 31, 2005,
based on criteria established in Internal Control-Integrated Framework issued by Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Managements assessment
did not extend to the Companys consolidated affiliate, National
Welders Supply Company, Inc. (National Welders), which has been
consolidated by the Company in accordance with FIN 46R,
Consolidation of Variable Interest Entities. National
Welders total net sales and assets represent 7% and 10%
respectively of the related consolidated amounts as of and for the
year ended March 31, 2005. Although the Company does receive audited
financial statements for National Welders, the joint venture
agreement does not permit the Company to dictate, modify or assess
the effectiveness of the internal controls of National Welders and
the Company does not have the ability in practice to assess those
controls. Our audit of internal
control over financial reporting of Airgas, Inc. and subsidiaries
also excluded an evaluation of the internal control over financial
reporting of National Welders. F-5




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##### Table of Contents



We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Airgas, Inc. and subsidiaries
as of March 31, 2005 and 2004, and the related consolidated statements of earnings, cash
flows, and changes in stockholders equity for each of the years in the three-year period ended
March 31, 2005, and the related financial statement schedule, and our report dated June 13, 2005,
expressed an unqualified opinion on those consolidated financial statements and the related
financial statement schedule. /s/ KPMG LLP
Philadelphia, Pennsylvania
June 13, 2005 F-6




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF EARNINGS
 Years Ended March 31,(In thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Net Sales
    
    $
    2,411,409
    
    
    $
    1,895,468
    
    
    $
    1,786,964Costs and ExpensesCost of products sold (excluding
depreciation expense)
    
    
    1,179,045
    
    
    
    908,681
    
    
    
    850,316Selling, distribution and
administrative
expenses
    
    
    917,547
    
    
    
    731,827
    
    
    
    698,228Depreciation
    
    
    106,120
    
    
    
    82,567
    
    
    
    73,482Amortization (Note
8)
    
    
    5,464
    
    
    
    5,389
    
    
    
    6,362Special charges (recoveries), net
(Note 4)
    
    
    
    
    
    
    (776
    )
    
    
    2,694Total costs and
expenses

    
    
    2,208,176
    
    
    
    1,727,688
    
    
    
    1,631,082Operating
Income
    
    
    203,233
    
    
    
    167,780
    
    
    
    155,882Interest expense, net (Note
17)
    
    
    (51,245
    )
    
    
    (42,357
    )
    
    
    (46,375
    )Discount on securitization of trade
receivables (Note 13)
    
    
    (4,711
    )
    
    
    (3,264
    )
    
    
    (3,326
    )Other income (expense), net
    
    
    1,136
    
    
    
    1,473
    
    
    
    439Earnings before income taxes,
minority interest and equity
earnings
    
    
    148,413
    
    
    
    123,632
    
    
    
    106,620Income taxes (Note
18)
    
    
    (54,583
    )
    
    
    (47,353
    )
    
    
    (41,199
    )Minority interest in earnings of
consolidated
affiliate
    
    
    (1,808
    )
    
    
    (452
    )
    
    
    Equity in earnings of
unconsolidated
affiliate
    
    
    
    
    
    
    4,365
    
    
    
    2,684Net Earnings
    
    $
    92,022
    
    
    $
    80,192
    
    
    $
    68,105Basic earnings per
share
    
    $
    1.23
    
    
    $
    1.10
    
    
    $
    0.97Diluted earnings per
share
    
    $
    1.20
    
    
    $
    1.07
    
    
    $
    0.94Weighted average shares outstanding:Basic (Note
5)
    
    
    74,900
    
    
    
    72,800
    
    
    
    70,500Diluted (Note
5)
    
    
    77,000
    
    
    
    74,700
    
    
    
    72,300Comprehensive
income
    
    $
    97,197
    
    
    $
    82,488
    
    
    $
    69,204
 See accompanying notes to consolidated financial statements. F-7




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 March 31,(In thousands)
    
    2005
    
    
    2004ASSETSCurrent AssetsCash
    
    $
    32,640
    
    
    $
    25,062Trade receivables, less allowances for doubtful accounts of $11,108 in 2005
and $7,294 in 2004 (Note 13)
    
    
    148,834
    
    
    
    107,013Inventories, net (Note 6)
    
    
    221,609
    
    
    
    170,300Deferred income tax asset, net (Note 18)
    
    
    26,263
    
    
    
    25,519Prepaid expenses and other current assets
    
    
    36,911
    
    
    
    28,463Total current assets
    
    
    466,257
    
    
    
    356,357Plant and equipment at cost (Note 7)
    
    
    1,971,218
    
    
    
    1,654,187Less accumulated depreciation
    
    
    (701,876
    )
    
    
    (620,261
    )Plant and equipment, net
    
    
    1,269,342
    
    
    
    1,033,926Goodwill (Note 8)
    
    
    511,196
    
    
    
    504,207Other intangible assets, net (Note 8)
    
    
    16,507
    
    
    
    19,733Other non-current assets
    
    
    28,561
    
    
    
    46,383Total assets
    
    $
    2,291,863
    
    
    $
    1,960,606LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable, trade
    
    $
    143,208
    
    
    $
    114,303Accrued expenses and other current liabilities (Note 9)
    
    
    183,132
    
    
    
    147,088Current portion of long-term debt (Note 10)
    
    
    6,948
    
    
    
    6,140Total current liabilities
    
    
    333,288
    
    
    
    267,531Long-term debt, excluding current portion (Note 10)
    
    
    801,635
    
    
    
    682,698Deferred income tax liability, net (Note 18)
    
    
    282,186
    
    
    
    253,529Other non-current liabilities
    
    
    24,391
    
    
    
    28,756Minority interest in affiliate (Note 16)
    
    
    36,191
    
    
    
    36,191Commitments and contingencies (Note 22)Stockholders Equity(Note 14)Preferred stock, no par value, 20,000 shares authorized, no shares issued or
outstanding in 2005 and 2004
    
    
    
    
    
    
    Common stock, par value $0 01 per share, 200,000 shares authorized,
77,467 and 77,159 shares issued in 2005 and 2004, respectively
    
    
    775
    
    
    
    772Capital in excess of par value
    
    
    257,042
    
    
    
    233,574Retained earnings
    
    
    560,056
    
    
    
    481,677Accumulated other comprehensive income (loss)
    
    
    2,609
    
    
    
    (2,566
    )Treasury stock, 1,356 and 1,470 common shares at cost in 2005
and 2004, respectively
    
    
    (3,765
    )
    
    
    (4,658
    )Employee benefits trust, 338 and 2,241 common shares at cost in 2005
and 2004, respectively
    
    
    (2,545
    )
    
    
    (16,898
    )Total stockholders equity
    
    
    814,172
    
    
    
    691,901Total liabilities and stockholders equity
    
    $
    2,291,863
    
    
    $
    1,960,606
 See accompanying notes to consolidated financial statements.
F-8




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
 Years Ended March 31, 2005, 2004 and 2003Shares of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedCommon
    
    
    
    
    
    
    Capital in
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Employee
    
    
    Compre-Stock $0.01
    
    
    Common
    
    
    Excess of
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Benefits
    
    
    hensive(In thousands)
    
    Par Value
    
    
    Stock
    
    
    Par Value
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Trust
    
    
    IncomeBalance  March 31, 2002
    
    
    75,192.9
    
    
    $
    752
    
    
    $
    198,500
    
    
    $
    345,181
    
    
    $
    (4,401
    )
    
    $
    (4,289
    )
    
    $
    (32,657
    )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
    
    
    
    
    
    
    
    
    
    
    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 benefit 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,728Tax benefit associated with exercise
of stock options
    
    
    
    
    
    
    
    
    
    
    6,190Airgas common stock owned by
National Welders (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369
    )Dividends paid on common stock
($0.16 per share) (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,801
    )Shares 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
    )
    
    $
    82,488Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,022Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,314
    
    
    
    
    
    
    
    
    
    
    
    2,314Shares issued in connection with
stock options exercised (Note 15)
    
    
    308.0
    
    
    
    3
    
    
    
    10,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,095Shares issued from treasury stock associated
with warrants exercised
    
    
    
    
    
    
    
    
    
    
    (893
    )
    
    
    
    
    
    
    
    
    
    
    893Dividends paid on common stock
($0.18 per share) (Note 14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,643
    )Tax benefit associated with exercise
of stock options and warrants
    
    
    
    
    
    
    
    
    
    
    8,435Shares issued from Employee Benefits Trust
for Employee Stock Purchase Plan (Note 14)
    
    
    
    
    
    
    
    
    
    
    5,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,258Net change in fair value of interest rate swap
agreements (Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,894
    
    
    
    
    
    
    
    
    
    
    
    2,894Net change in fair value of National Welders
interest rate swap agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,583
    
    
    
    
    
    
    
    
    
    
    
    1,583Net tax expense of comprehensive income items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,616
    )
    
    
    
    
    
    
    
    
    
    
    (1,616
    )Balance  March 31, 2005
    
    
    77,467.0
    
    
    $
    775
    
    
    $
    257,042
    
    
    $
    560,056
    
    
    $
    2,609
    
    
    $
    (3,765
    )
    
    $
    (2,545
    )
    
    $
    97,197
 See accompanying notes to consolidated financial statements. F-9




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    $
    92,022
    
    
    $
    80,192
    
    
    $
    68,105Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    106,120
    
    
    
    82,567
    
    
    
    73,482Amortization
    
    
    5,464
    
    
    
    5,389
    
    
    
    6,362Deferred income taxes
    
    
    31,853
    
    
    
    23,172
    
    
    
    8,655Equity in earnings of unconsolidated affiliates
    
    
    
    
    
    
    (4,365
    )
    
    
    (2,684
    )(Gain)/loss on divestitures
    
    
    (360
    )
    
    
    
    
    
    
    241Gain on sales of plant and equipment
    
    
    (321
    )
    
    
    (837
    )
    
    
    (257
    )Minority interest in earnings
    
    
    1,808
    
    
    
    452
    
    
    
    Stock issued for employee stock purchase
plan
    
    
    9,907
    
    
    
    6,889
    
    
    
    8,951Changes in assets and liabilities, excluding effects of
business acquisitions and divestitures:Securitization of trade receivables
    
    
    27,300
    
    
    
    3,700
    
    
    
    24,900Trade receivables, net
    
    
    (39,583
    )
    
    
    (15,901
    )
    
    
    (8,316
    )Inventories, net
    
    
    (32,356
    )
    
    
    (5,586
    )
    
    
    4,675Prepaid expenses and other current assets
    
    
    (8,149
    )
    
    
    10,146
    
    
    
    17,718Accounts payable, trade
    
    
    27,984
    
    
    
    20,845
    
    
    
    2,884Accrued expenses and other current
liabilities
    
    
    (574
    )
    
    
    4,687
    
    
    
    (8,021
    )Other long-term assets
    
    
    3,387
    
    
    
    1,754
    
    
    
    2,548Other long-term liabilities
    
    
    (2,185
    )
    
    
    (2,425
    )
    
    
    (3,280
    )Net cash provided by operating activities
    
    
    222,317
    
    
    
    210,679
    
    
    
    195,963CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (167,977
    )
    
    
    (93,749
    )
    
    
    (67,969
    )Proceeds from sale of plant and equipment
    
    
    5,361
    
    
    
    5,347
    
    
    
    4,260Proceeds from divestitures
    
    
    828
    
    
    
    
    
    
    
    3,167Business acquisitions, holdbacks, and other settlements of
acquisition related liabilities
    
    
    (191,820
    )
    
    
    (34,907
    )
    
    
    (27,216
    )Management fees from unconsolidated affiliate
    
    
    
    
    
    
    724
    
    
    
    943Other, net
    
    
    171
    
    
    
    (1,369
    )
    
    
    (1,719
    )Net cash used in investing activities
    
    
    (353,437
    )
    
    
    (123,954
    )
    
    
    (88,534
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings
    
    
    621,450
    
    
    
    414,297
    
    
    
    248,961Repayment of debt
    
    
    (494,684
    )
    
    
    (485,004
    )
    
    
    (367,356
    )Financing costs
    
    
    (2,531
    )
    
    
    (2,737
    )
    
    
    Termination of interest rate hedge
    
    
    3,948
    
    
    
    
    
    
    
    Minority interest
    
    
    (1,808
    )
    
    
    (452
    )
    
    
    Exercise of stock options
    
    
    20,374
    
    
    
    13,130
    
    
    
    9,847Dividends paid to stockholders
    
    
    (13,643
    )
    
    
    (11,801
    )
    
    
    Cash overdraft
    
    
    5,592
    
    
    
    (10,516
    )
    
    
    (1,955
    )Net cash provided by (used in) financing activities
    
    
    138,698
    
    
    
    (83,083
    )
    
    
    (110,503
    )CHANGE IN CASH
    
    $
    7,578
    
    
    $
    3,642
    
    
    $
    (3,074
    )Cash  Beginning of year
    
    
    25,062
    
    
    
    21,420
    
    
    
    24,494Cash  End of year
    
    $
    32,640
    
    
    $
    25,062
    
    
    $
    21,420
 For supplemental cash flow disclosures see Note 23.
See accompanying notes to consolidated financial statements. F-10




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##### 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 Supply Company, Inc. (National
Welders) (see Notes 2 and 16). 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 U.S. generally accepted accounting principles. Estimates are used for, but not
limited to, determining the net carrying value of trade receivables, inventories, plant and
equipment, goodwill, other intangible assets, business insurance reserves and loss contingencies.
Actual results could differ from those estimates. (c) Reclassifications Certain reclassifications have been made to prior period financial statements to conform to
the current presentation. The reclassifications include the presentation of depository cash, cash
overdrafts, minority interest and equity in earnings of unconsolidated affiliates. The Company has
changed from a net cash presentation on the balance sheet to a gross presentation. Previously, the
Company did not show cash balances as all depository cash and cash overdrafts were combined and the
net overdraft was recorded in other current liabilities. In the current presentation, depository
cash and cash overdrafts are presented on a gross basis. Accordingly, the Statement of Cash Flows
for each year presented also reflects the change in presentation and reconciles to the change in
cash on the balance sheet. The Company adopted the current presentation as it is the practice
among most companies and is more transparent. Minority interest and equity earnings recognized in prior periods related to the Companys
joint venture affiliate National Welders were reclassified from elements of earnings before income
taxes to be presented net of tax below income tax expense. (d) Cash and Cash Overdraft On a daily basis, all available funds are swept from depository accounts into a concentration
account and used to repay debt under the Companys revolving credit facilities. Cash principally
represents the balance of customer checks that have not yet cleared through the banking system and
become available to be swept into the concentration account, and deposits made subsequent to the
daily cash sweep. The Company does not fund its disbursement accounts for checks it has written
until the checks are presented to the bank for payment. Cash overdrafts represent the balance of
outstanding checks and are classified with other current liabilities. There are no compensating
balance requirements or other restrictions on the transfer of cash associated with the Companys
depository accounts. F-11




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (e) Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method for approximately 86% and 85% of the inventories at March 31, 2005 and
2004, respectively. Cost for the remainder of inventories is determined using the last-in,
first-out (LIFO) method. (f) 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. (g) Goodwill, Other Intangible Assets and Deferred Financing Costs Goodwill represents the excess of the purchase price of an acquired entity over the amounts
assigned to the assets acquired and liabilities assumed. Goodwill and intangible assets with
indefinite useful lives are 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. As
of October 31, 2004 and 2003, the Companys annual assessment of each of its reporting units
indicated that goodwill was not impaired. Other intangible assets primarily include non-competition agreements and customer lists
resulting from business acquisitions. Both non-competition agreements and customer lists are
valued using third-party appraisals and are amortized using the straight-line method over their
estimated useful lives, which range from 2 to 11 years. The Company assesses the recoverability of
other intangible assets 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 instrument. (h) Commitments and Contingencies The Companys policy is to accrue estimated legal fees to defend the Company through the
resolution of 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 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. F-12




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) 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. (i) 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. (j) 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 income (loss). Gains and losses arising from foreign currency transactions are
reflected in the consolidated statements of earnings as incurred. (k) 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. (l) 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 or income over the life of the agreement. These instruments are not entered
into for trading purposes. Counterparties to the Companys interest rate swap agreements are major
financial institutions. In accordance with SFAS 133, Accounting for Derivative Instruments and
Certain Hedging Activities,as amended by SFAS No. 137 and 138, 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 fixed rate debt, as applicable. The carrying amounts for trade receivables and accounts payable approximate fair value based
on the short-term maturity of these financial instruments. F-13




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (m) Employee Benefits Trust The Company maintains an 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 are charged or credited to capital in excess of par value. (n) 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. (o) 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. (p) 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. (q) Depreciation The Company recognizes depreciation expense on all its property, plant and equipment in the
consolidated statement of earnings line item Depreciation. F-14




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) (r) 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 $341 million, $277 million and $258 million for
the fiscal years ended March 31, 2005, 2004 and 2003, 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 $6.6
million, $4.3 million and $4.5 million was recognized in depreciation for the fiscal years ended
March 31, 2005, 2004 and 2003, respectively. (2) ACCOUNTING AND DISCLOSURE CHANGES SFAS 123 (revised 2004) In December 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment,
(SFAS 123R), as an amendment to SFAS 123, Accounting for Stock-Based Compensation,and supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS 123R requires that grants of employee stock options, including options to purchase
shares under employee stock purchase plans, be recognized as compensation expense based on their
fair values. SFAS 123R is effective for annual periods beginning after December 15, 2005.
Accordingly, SFAS 123R is effective for the Company as of April 1, 2006. The Company is currently
evaluating the impact of SFAS 123R on its results of operations, financial position and liquidity
and has not yet determined which fair-value method and transitional provision it will adopt. Prior
to adoption of SFAS 123R, as permitted by existing accounting standards, the Company has elected to
continue to apply the intrinsic-value-based method of accounting under APB 25. See Note 15 for the
pro forma effect on net earnings and earnings per share as if the Company had applied the fair
value recognition provisions of SFAS 123R to stock-based compensation. 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 address 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 change previous accounting practice by introducing the concept of a Primary Beneficiary
and require 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. F-15




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) ACCOUNTING AND DISCLOSURE CHANGES  (Continued) 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.
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 maturity
of the sale-leaseback arrangement in October 2004, the Company used funds from its revolving
credit facilities to refinance its $41 million debt obligation to the Trust. Since June 1996, the Company has participated in a joint venture with 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. 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 DIVESTITURE (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. Fiscal 2005 During fiscal 2005, the Company purchased sixteen businesses (including two businesses
acquired by National Welders) associated with the distribution of packaged gases and related
hardgoods products and dry ice. The largest of the acquisitions was that of the U.S. packaged gas
business of The BOC Group, Inc. (BOC) on July 30, 2004. The aggregate purchase price of the
fiscal 2005 acquisitions was $227 million, including assumed liabilities. Thirteen of the
businesses had aggregate annual revenues of approximately $257 million and were included in the
Distribution segment. Three acquired businesses generated aggregate annual revenues of
approximately $3 million and were included in All Other Operations segment. 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. F-16




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) ACQUISITIONS AND DIVESTITURES  (Continued) Purchase Price Allocation The purchase price of each acquired business was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as of the dates of each respective
acquisition. The purchase price allocations were based on preliminary estimates of fair value and
are subject to revision as the Company finalizes appraisals and other analyses. The Company does
not expect the final allocation of the purchase price to differ materially from the amounts
included in the accompanying consolidated financial statements. The entire purchase price
ultimately assigned to goodwill will be deductible for income taxes. Since the aggregate fair
value of the assets acquired in the BOC acquisition exceeded the purchase price, the Company has
proportionately reduced non-current assets by approximately $13 million. In addition, in
accordance with SFAS 141, Business Combinations, the Company recorded the contingent consideration
of $25 million as a liability. The table below summarizes the allocation of the BOC purchase price
as well as the combined consideration of the fifteen other acquisitions, settlements and
adjustments related to prior year acquisitions. OtherAcquisitionsand Holdback(In thousands)
    
    BOC
    
    
    Settlements
    
    
    TotalCurrent assets, net
    
    $
    47,394
    
    
    $
    1,437
    
    
    $
    48,831Property and equipment
    
    
    159,080
    
    
    
    12,627
    
    
    
    171,707Goodwill
    
    
    
    
    
    
    6,494
    
    
    
    6,494Other intangible assets
    
    
    1,105
    
    
    
    1,119
    
    
    
    2,224Current liabilities
    
    
    (7,154
    )
    
    
    (616
    )
    
    
    (7,770
    )Contingent consideration
    
    
    (25,000
    )
    
    
    
    
    
    
    (25,000
    )Long-term liabilities
    
    
    (1,225
    )
    
    
    (3,441
    )
    
    
    (4,666
    )Total cash consideration
    
    $
    174,200
    
    
    $
    17,620
    
    
    $
    191,820
 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 the All Other Operations segment. 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. Total assets
contributed by fiscal 2004 acquisitions were approximately $41 million. Goodwill related to fiscal
2004 acquisitions amounted to approximately $10 million and was deductible for income taxes.
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. 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 approximately $24 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 million and was deductible for income taxes. F-17




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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 2005, 2004 and
2003 acquisitions had occurred on April 1, 2002. 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, 2002 or of results that may occur in the future. UnauditedYears Ended March 31,(In thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Net sales
    
    $
    2,505,562
    
    
    $
    2,204,489
    
    
    $
    2,139,291Net earnings
    
    
    92,932
    
    
    
    82,727
    
    
    
    72,135Diluted earnings per
share
    
    $
    1.21
    
    
    $
    1.11
    
    
    $
    1.00
 (b) Divestiture In May 2004, the Company divested a janitorial products distribution business for cash
proceeds of $828 thousand and recognized a gain of $360 thousand. Proceeds from the divestiture
were used to reduce borrowings under the Companys revolving credit facilities. The business was
included in the Distribution segment and generated annual sales of approximately $5 million. (4) SPECIAL CHARGES (RECOVERIES), NET In fiscal 2004, the Company recorded a special charge recovery of $776 thousand consisting of
lower estimates of the ultimate cost of prior years restructuring charges. The special charge

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 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. At March 31, 2005, the remaining liability associated with prior years restructuring charges
was approximately $400 thousand. The liability relates to non-cancelable lease obligations that
will be reduced as lease payments are made over the remaining terms of the leases. F-18




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) EARNINGS PER SHARE Basic earnings per share is calculated by dividing net earnings by the weighted average number
of shares of the Companys common stock outstanding during the period. Outstanding shares consist
of issued shares less treasury stock and common stock held by the Employee Benefits Trust. Diluted
earnings per share is calculated by dividing net earnings by the weighted average common shares
outstanding adjusted for the dilutive effect of common stock equivalents related to stock options
and 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, 2005, 2004 and 2003: Years Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003Weighted average common shares outstanding:Basic
    
    
    74,900
    
    
    
    72,800
    
    
    
    70,500Stock options and warrants
    
    
    2,100
    
    
    
    1,900
    
    
    
    1,800Diluted
    
    
    77,000
    
    
    
    74,700
    
    
    
    72,300
 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 (see subsequent events Note 26), the preferred shareholders have
the option to exchange their 3.2 million shares of National Welders voting redeemable preferred
stock with a 5% annual dividend 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
2 thousand, 545 thousand and 2 million outstanding stock options and warrants with an exercise price above the average market
price at March 31, 2005, 2004, and 2003, 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. (6) INVENTORIES, NET Inventories, net, consist of: March 31,(In thousands)
    
    2005
    
    
    2004Hardgoods
    
    $
    200,069
    
    
    $
    154,038Gases
    
    
    21,540
    
    
    
    16,262$
    221,609
    
    
    $
    170,300
 Net inventories determined by the LIFO inventory method totaled $32 million and $27 million at
March 31, 2005 and 2004, respectively. If the FIFO inventory method had been used for these
inventories, they would have been $5 million and $3 million higher at March 31, 2005 and 2004, respectively. Substantially all of
the inventories are finished goods. F-19




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) PLANT AND EQUIPMENT The major classes of plant and equipment, at cost, are as follows: Depreciable
    
    
    March 31,(In thousands)
    
    Lives (Yrs)
    
    
    2005
    
    
    2004Land and land
improvements
    
    
    
    
    
    $
    65,265
    
    
    $
    61,072Buildings and leasehold
improvements
    
    
    25
    
    
    
    193,293
    
    
    
    167,217Cylinders
    
    
    30
    
    
    
    835,170
    
    
    
    696,624Machinery and equipment,
including bulk tanks
    
    
    7 to 30
    
    
    
    620,902
    
    
    
    516,704Computers and furniture
and fixtures
    
    
    3 to 10
    
    
    
    128,111
    
    
    
    116,259Transportation
equipment
    
    
    3 to 15
    
    
    
    122,601
    
    
    
    92,092Construction in
progress
    
    
    
    
    
    
    5,876
    
    
    
    4,219$
    1,971,218
    
    
    $
    1,654,187
 (8) GOODWILL AND OTHER INTANGIBLE ASSETS Changes in the carrying amount of goodwill for fiscal 2005 and 2004 were as follows: Distribution
    
    
    All Other Operations(In thousands)
    
    Segment
    
    
    Segment
    
    
    TotalBalance 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
    
    
    $
    504,207Acquisitions
    
    
    5,320
    
    
    
    1,174
    
    
    
    6,494Transfers
    
    
    2,172
    
    
    
    (2,172
    )
    
    
    Other adjustments
    
    
    413
    
    
    
    82
    
    
    
    495Balance at March 31, 2005
    
    $
    380,468
    
    
    $
    130,728
    
    
    $
    511,196
 Other intangible assets amounted to $16.5 million (net of accumulated amortization of $38.7
million) and $19.7 million (net of accumulated amortization of $33.2 million) at March 31, 2005 and
2004, 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: 2006  $6.8 million; 2007 -
$3.8 million; 2008  $2.4 million; 2009  $1.2 million and $2.3 million thereafter. F-20




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities include: March 31,(In thousands)
    
    2005
    
    
    2004Accrued payroll and employee benefits
    
    $
    51,159
    
    
    $
    39,133Business insurance reserves
    
    
    19,809
    
    
    
    19,824Health insurance reserves
    
    
    11,115
    
    
    
    9,627Accrued interest expense
    
    
    15,532
    
    
    
    12,724Taxes other than income taxes
    
    
    9,211
    
    
    
    12,828Cash overdraft
    
    
    23,970
    
    
    
    18,378Contingent consideration  BOC acquisition
    
    
    25,000
    
    
    
    Other accrued expenses and current
liabilities
    
    
    27,336
    
    
    
    34,574$
    183,132
    
    
    $
    147,088
 (10) INDEBTEDNESS Long-term debt consists of: March 31,(In thousands)
    
    2005
    
    
    2004Revolving credit borrowings
    
    $
    157,832
    
    
    $
    26,689Term loan
    
    
    96,250
    
    
    
    70,000Medium-term notes
    
    
    102,207
    
    
    
    106,730Senior subordinated notes
    
    
    376,741
    
    
    
    382,102Debt of grantor trust
    
    
    
    
    
    
    41,030Acquisition and other notes
    
    
    9,534
    
    
    
    8,464National Welders debt
    
    
    66,019
    
    
    
    53,823Total long-term debt
    
    
    808,583
    
    
    
    688,838Less current portion of long-term debt
    
    
    (6,948
    )
    
    
    (6,140
    )Long-term debt, excluding current portion
    
    $
    801,635
    
    
    $
    682,698
 F-21




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS  (Continued) Senior Credit Agreement On January 14, 2005, the Company amended and restated its senior credit agreement (the
Credit Agreement) to extend the maturity date from July 30, 2006 to January 14, 2010 and to
provide the Company with more flexibility to invest in growth and/or return cash to
stockholders. Accordingly, the Credit Agreement significantly reduces the limitations on
acquisitions, restricted payments and debt incurrence. The Credit Agreement also allows for
the expansion of the Companys trade receivables securitization up to a maximum of $300
million in trade receivables. The Credit Agreement continues to require that the Company
maintain certain leverage and coverage ratios. As provided for in the Credit Agreement, the
computations of the restrictive covenants include pro forma results of acquired businesses.
As such, the amount borrowed to finance an acquisition does not reduce the Companys
borrowing capacity by a similar amount. Under the Credit Agreement, the Company has unsecured senior credit facilities that
provide revolving credit lines of $308 million and Canadian $50 million and a term loan. As
of March 31, 2005, the Company had revolving credit borrowings of approximately $136 million,
Canadian $27 million (U.S. $22 million), and term loan borrowings of $96 million. The
Company also had commitments under letters of credit of $33 million supported by the Credit
Agreement at March 31, 2005. After considering the covenant limitations, as of March 31,
2005, the effective additional borrowing capacity under the Credit Agreement was
approximately U.S. $159 million. The U.S. dollar borrowings bear interest of LIBOR plus 95
basis points and the Canadian dollar borrowings bear interest at the Canadian Bankers
Acceptance Rate plus 95 basis points. As of March 31, 2005, the effective interest rate on
the U.S. dollar revolving credit lines, the Canadian dollar credit lines and the U.S. dollar
term loan were 3.74%, 4.67% and 4.04%, respectively. Under the Credit Agreement, the Companys domestic subsidiaries guarantee the U.S.
borrowings and Canadian borrowings, and the Companys foreign subsidiaries also guarantee the
Canadian borrowings. The guarantees are full and unconditional and are made on a joint and
several basis. The Company has pledged 100% of the stock of its domestic subsidiaries and
65% of the stock of its foreign subsidiaries as surety for its obligations under the
agreement. The Credit Agreement provides for the release of the guarantees and collateral if
the Company attains an investment grade credit rating and maintains such rating for two
consecutive quarters. Medium-Term Notes At March 31, 2005, the Company had $100 million of medium-term notes due September 2006
bearing interest at a fixed rate of 7.75%. The medium-term notes are fully and
unconditionally guaranteed on a joint and several basis by each of the wholly owned domestic
guarantors under the revolving credit facilities. The Company has pledged the stock of its
domestic guarantors for the benefit of the note holders. 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, 2005, acquisition and other notes totaled approximately $10
million with interest rates ranging from 4% to 9%. Senior Subordinated Notes At March 31, 2005, the Company had $150 million of senior subordinated notes (the 2004
Notes) outstanding with a maturity date of July 15, 2014. The 2004 Notes bear interest at a
fixed annual rate of 6.25%, payable semi-annually on January 15 and July 15 of each year.
The 2004 notes have an optional redemption provision, which permits the Company, at its
option, to call the 2004 Notes at scheduled dates and prices. The first scheduled optional
redemption date is July 15, 2009 at a price of 103.1% of the principal amount. F-22




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS (continued) In addition to the 2004 Notes, at March 31, 2005, 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 2001 notes also have an optional redemption provision,
which permits the Company, at its option, to call the 2001 Notes at scheduled dates and
prices. The first scheduled optional redemption date is October 1, 2006 at a price of 104.6%
of the principal amount. 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 fully and
unconditionally guaranteed jointly and severally, on a subordinated basis, by each of the
wholly owned domestic guarantors under the revolving credit facilities. The stock of the
Companys domestic subsidiaries is also pledged to the note holders on a subordinated basis. Debt of Grantor Trust The Company leased certain real estate and equipment from a grantor trust (the Trust) under
a sale-leaseback arrangement. Effective July 1, 2003, the Company elected to early adopt FIN 46
with respect to the Trust (see Note 2) resulting in the consolidation of the Trust for financial
reporting purposes. In October 2004, the Company used funds from its revolving credit facilities
to refinance its $41 million debt obligation under the sale-leaseback arrangement. Since the
Company had previously consolidated the Trust, there was no net change in the Companys outstanding
debt as a result of the maturity of the sale-leaseback arrangement. Debt of the National Welders Joint Venture Pursuant to the requirements of FIN 46R, the Companys Consolidated Balance Sheets at March
31, 2005 and 2004 include the financial obligations of National Welders. National Welders
financial obligations 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
financial obligations. The debt of National Welders consists of: March 31,(In thousands)
    
    2005
    
    
    2004Revolving credit borrowings
    
    $
    22,189
    
    
    $
    5,507Term loan A
    
    
    18,092
    
    
    
    21,142Term loan B
    
    
    21,000
    
    
    
    21,000Term loan C
    
    
    3,572
    
    
    
    5,522Acquisition notes and other debt obligations
    
    
    1,166
    
    
    
    652Total long-term debt
    
    
    66,019
    
    
    
    53,823Less current portion of long-term debt
    
    
    (6,076
    )
    
    
    (5,575
    )Long-term debt, excluding current portion
    
    $
    59,943
    
    
    $
    48,248
 F-23




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (10) INDEBTEDNESS  (Continued) In July 2002, National Welders entered into a credit agreement (the NWS Credit
Agreement) that provides for available credit up to $100 million secured by certain assets.
The NWS Credit Agreement provides for a Term Loan A of $26 million, a Term Loan B of $21
million, a Term Loan C of $9 million, and a revolving credit line of $44 million. Term Loan
A is repayable in monthly amounts of $254 thousand with a lump-sum payment of the outstanding
balance at maturity in June 2007. Term Loan B (See subsequent
events Note 26) matures in July 2006 and Term Loan C matures
in September 2006. The revolving credit line matures in June 2007. The NWS 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. Interest rates on Term Loans A, B and the revolving credit line are variable and range
from LIBOR plus 150 to 225 basis points based on National Welders leverage ratio. At March
31, 2005 and 2004, the effective interest rate for Terms Loans A, B and the revolving credit
line was 4.85% and 3.09%, respectively. Term Loan C bears a fixed interest rate of 7%.
Based on restrictions related to certain leverage ratios, National Welders had additional
borrowing capacity under its Credit Agreement of approximately $22 million at March 31, 2005. As of March 31, 2005, Term Loan A and the revolving credit line are secured by certain
current assets, principally trade receivables and inventory, totaling $30 million,
non-current assets, principally equipment, totaling $71 million,
and Airgas common stock with a
market value of $22 million classified as treasury stock and carried at cost of $370
thousand. Term Loan B is secured by a $21 million note receivable from the preferred
stockholders of National Welders (See subsequent events Note 26). In consolidation, the note
receivable is presented as a reduction to the minority interest liability. Term Loan C is
secured by a production facility, which had a net book value of approximately $14 million at
March 31, 2005. Aggregate Long-term Debt Maturities The aggregate maturities of long-term debt are as follows: (In thousands) Aggregate MaturityNationalYears Ending March 31,
    
    Airgas, Inc.(1)
    
    
    Welders
    
    
    Total2006
    
    $
    872
    
    
    $
    6,076
    
    
    $
    6,9482007
    
    
    102,592
    
    
    
    25,686
    
    
    
    128,2782008
    
    
    1,014
    
    
    
    34,181
    
    
    
    35,1952009
    
    
    84
    
    
    
    
    
    
    
    842010
    
    
    261,045
    
    
    
    
    
    
    
    261,045Thereafter
    
    
    376,957
    
    
    
    76
    
    
    
    377,033$
    742,564
    
    
    $
    66,019
    
    
    $
    808,583
   (1)
    
    The Company has the ability and intention of refinancing current maturities related
to the term loan under its senior credit agreement with its long-term revolving credit
facility. Therefore, the term loan has been reflected as long term in the aggregate
maturity schedule. F-24




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (11) FAIR VALUE OF FINANCIAL INSTRUMENTS Summarized below are the carrying and fair values of the Companys financial instruments at
March 31, 2005 and 2004. 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: 2005
    
    
    2005
    
    
    2004
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(In thousands)
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueFinancial Instruments:Revolving credit
borrowings
    
    $
    157,832
    
    
    $
    157,832
    
    
    $
    26,689
    
    
    $
    26,6892001 senior subordinated
notes
    
    
    226,741
    
    
    
    244,688
    
    
    
    232,102
    
    
    
    249,6472004 senior subordinated
notes
    
    
    150,000
    
    
    
    150,375
    
    
    
    150,000
    
    
    
    151,684Term loan
    
    
    96,250
    
    
    
    96,250
    
    
    
    70,000
    
    
    
    70,000Medium-term notes
    
    
    102,207
    
    
    
    103,625
    
    
    
    106,730
    
    
    
    103,980Debt of grantor
trust
    
    
    
    
    
    
    
    
    
    
    41,030
    
    
    
    41,030Acquisition and other
notes
    
    
    9,534
    
    
    
    9,534
    
    
    
    8,464
    
    
    
    8,552Interest rate swap agreements:- Fair value hedge 
(asset)
    
    
    
    
    
    
    
    
    
    
    (13,832
    )
    
    
    (13,832
    )- Cash flow hedge  (asset)
liability
    
    
    (514
    )
    
    
    (514
    )
    
    
    2,380
    
    
    
    2,380
 The carrying and fair values of the National Welders joint ventures financial instruments at
March 31, 2005 and 2004 are listed below: 2005
    
    
    2005
    
    
    2004
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(In thousands)
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueNational Welders Financial Instruments:Revolving credit borrowings
    
    $
    22,189
    
    
    $
    22,189
    
    
    $
    5,507
    
    
    $
    5,507Term loan A
    
    
    18,092
    
    
    
    18,092
    
    
    
    21,142
    
    
    
    21,142Term loan B
    
    
    21,000
    
    
    
    21,000
    
    
    
    21,000
    
    
    
    21,000Term loan C
    
    
    3,572
    
    
    
    3,624
    
    
    
    5,522
    
    
    
    5,640Acquisition notes and other debt
obligations
    
    
    1,166
    
    
    
    1,166
    
    
    
    652
    
    
    
    652Interest rate swap agreement:- Cash flow hedge  liability
    
    
    924
    
    
    
    924
    
    
    
    2,507
    
    
    
    2,507
 F-25




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company and National Welders manage exposure to changes in market interest rates. The
Company and National Welders 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. The Company and National Welders monitor its positions and the credit ratings
of its counterparties and does not anticipate non-performance by the counterparties. Interest rate
swap agreements are not entered into for trading purposes. At March 31, 2005, the Company was party to a total of four interest rate swap
agreements. The swap agreements are with major financial institutions and aggregate $100
million in notional principal amount. These swap agreements effectively convert $100 million
of variable interest rate debt of the credit facilities to fixed rate debt. The swap
agreements require the Company to make fixed interest payments based on an average effective
rate of 3.59% and receive variable interest payments from its counterparties based on
one-month and three-month LIBOR (average rate of 2.73% at March 31, 2005). The remaining
terms of these swap agreements range from between seven months and four years. In fiscal
2005 and 2004, the Company recorded a net change in the fair value of the fixed interest rate
swap agreements of $2.9 million and $2 million, respectively, as other comprehensive income.
The net additional interest payments made under these swap agreements were recognized in
interest expense. Over the next 12 months, the Company expects to reclassify $188 thousand
of deferred gain from accumulated other comprehensive income to interest expense as related
interest payments that are being hedged are recognized. On March 30, 2005, the Company terminated four variable interest rate swap agreements
with a notional principal amount of $125 million. The interest rate swap agreements
previously converted a corresponding amount of fixed rate medium-term notes and the senior
subordinated notes due 2011 to variable rate debt. As a result of swap termination, the
Company received $3.9 million in cash. The corresponding gain on the termination has been
deferred and is being amortized as a reduction of interest expense over the remaining terms
of the notes. In fiscal 2006, the Company anticipates that interest expense will be reduced
by $1.7 million as the deferred gain on the swap termination is amortized using the interest
method. Including the effect of the interest rate swap agreements and the trade receivables
securitization, the Companys ratio of fixed to variable interest rates was approximately 61%
fixed to 39% variable at March 31, 2005. The financial impact of the swap agreements was to
reduce interest expense by approximately $3.6 million, $4.7 million and $3.4 million in
fiscal 2005, 2004 and 2003, respectively. 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 and subsequent events Note 26) 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 30-day LIBOR rate of 2.85% at March 31, 2005. The interest rate swap agreement
was not entered into for trading purposes. The December 31, 2003 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.
In fiscal 2005, the Company recognized a net change in the fair value of the National Welders
fixed interest rate swap agreement of $1.6 million as other comprehensive income. The net
additional interest payments made under this swap agreement were recognized in interest expense.
Over the next 12 months, the Company expects to reclassify $626 thousand of deferred loss from
accumulated other comprehensive income to interest expense as related interest payments that are
being hedged are recognized. F-26




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES  (Continued) 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, 2010 and thereafter are as follows: (In thousands)
    
    Notional Principal AmountsYears Ending March 31,
    
    Pay-Fixed2006
    
    $
    50,0002007
    
    
    21,0002008
    
    
    2009
    
    
    2010
    
    
    50,000Thereafter
    
    
    $
    121,000
 (13) TRADE RECEIVABLES SECURITIZATION The Company participates in a securitization agreement with two commercial banks to sell up to
$225 million of qualifying trade receivables. The agreement will expire in February 2008, but may
be renewed subject to renewal provisions contained in the agreement. During fiscal 2004, the
Company sold, net of its retained interest, $2,204 million of trade receivables and remitted to
bank conduits, pursuant to a servicing agreement, $2,177 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 $190 million at March
31, 2005 and $163 million at March 31, 2004. 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 $57 million and $44 million is included in Trade receivables in the accompanying
Consolidated Balance Sheets at March 31, 2005 and 2004, 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. F-27




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 2005, the number of shares of common stock outstanding was 75.8
million, excluding 1.4 million shares (923 thousand of shares owned by National Welders) of common stock held as treasury stock, and 338
thousand shares of common stock held in the Employee Benefits Trust as described below. At March
31, 2004, the number of shares of common stock outstanding was 73.4 million, excluding 1.5 million
shares (923 thousand of shares owned by National Welders) of common stock held as treasury stock
and 2.2 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, 2005 and 2004, 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, 2005 and 2004, no shares of redeemable preferred stock were issued or
outstanding. (c) Dividends At the end of each quarter during fiscal 2005 and fiscal 2004, the Company paid its
stockholders regular quarterly cash dividends of $0.045 and $0.040 per share, respectively. In
addition, on May 24, 2005, the Company announced that its Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, representing a 33% increase compared to the prior year
quarterly dividend. The dividend is payable June 30, 2005 to stockholders of record as of June 15,
2005. 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 Since March 1999, the Company has maintained an Employee Benefits Trust (the 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 Trust.
The Company holds promissory notes from the Trust in the amount of common stock purchased by the
Trust. Shares held by the 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 1.9 million and 1.2 million shares were
issued from the Employee Benefits Trust for employee benefit programs during fiscal 2005 and 2004,
respectively. As of March 31, 2005, the Employee Benefits Trust held 338 thousand shares of
Company common stock. The remaining shares were issued from the Trust during the first quarter of
fiscal 2006 for employee stock option exercises. F-28




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (14) STOCKHOLDERS EQUITY  (Continued) (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 had a term of three
years and exercise prices in excess of market value of the Companys stock on the date of grant.
The exercise prices ranged 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. During fiscal 2005, all 324,000 warrants were exercised at prices
ranging from $21.54 to $26.47 per share. The holder of the warrants elected a net issue exercise
provision under the warrant agreement. The net issue exercise provision allowed the holder,
without the payment of additional consideration, to receive shares of the Companys common stock,
equal to the value of the warrants. As a result, the Company issued 114 thousand treasury shares
to redeem the warrants. At March 31, 2005, there were no outstanding warrants. F-29




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) STOCK-BASED COMPENSATION SFAS 123 (revised 2004), Share-Based Payment, an amendment of SFAS 123, Accounting for
Stock-Based Compensation,established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation plans. As permitted by
SFAS 123, the Company has elected to continue to account for its stock-based compensation plans in
accordance with the intrinsic-value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. Under APB 25, compensation expense
is recorded on the date of grant only if the current market price of the underlying stock exceeds
the exercise price. Accordingly, the Company has not recognized compensation expense associated
with its stock option and employee stock purchase plans. The following table illustrates the
effect on net income and earnings per share for fiscal 2005, 2004 and 2003 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)
    
    2005
    
    
    2004
    
    
    2003Net earnings, as reported
    
    $
    92,022
    
    
    $
    80,192
    
    
    $
    68,105Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all
awards, net of related tax effects
    
    
    (6,868
    )
    
    
    (5,469
    )
    
    
    (6,820
    )Pro forma net earnings
    
    $
    85,154
    
    
    $
    74,723
    
    
    $
    61,285Earnings per share:Basic  as reported
    
    $
    1.23
    
    
    $
    1.10
    
    
    $
    0.97Basic  pro forma
    
    $
    1.14
    
    
    $
    1.03
    
    
    $
    0.87Diluted  as reported
    
    $
    1.20
    
    
    $
    1.07
    
    
    $
    0.94Diluted  pro forma
    
    $
    1.11
    
    
    $
    1.00
    
    
    $
    0.85
 The Companys stock-based compensation plans are described below: (a) Employee Stock Option Plan In May 1997, the Company adopted the 1997 Stock Option Plan (the 1997 Plan) under which
officers and key employees may be granted options. Under the 1997 Plan, a total of 11.2 million
shares of common stock are reserved for sale upon the exercise of stock options and restricted
stock. Options granted under the 1997 Plan vest 25% annually and have a maximum term of ten years.
Under the 1997 Plan, at March 31, 2005, 2004 and 2003, 3 million, 3.8 million and 4.7 million
options, respectively, were available for issuance. In fiscal 2005, 2004 and 2003, 1 million, 1.1
million and 1.2 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 2005, 2004 and
2003 option grants, respectively: expected volatility of 38.9%, 40.1% and 40.3%, risk-free
interest rate of 3.9%, 2.6% and 4.3%, expected life of 7.3, 7.3 and 7.5 years, and a dividend yield
of 0.85% in fiscal 2005 and 0.83% in fiscal 2004. The Company did not issue dividends in fiscal
2003. The weighted average fair value per share of the options granted during fiscal 2005, 2004
and 2003 was $9.28, $8.22 and $8.42, respectively. F-30




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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 plan during the three
years ended March 31, 2005: Numberof Shares
    
    
    Exercise Price Per ShareMarch 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
    
    
    
    
    
    
    
    22.00March 31, 2005Outstanding, beginning of
year
    
    
    7,622,403
    
    
    
    4.63
    
    
    
    
    
    
    
    23.25Granted
    
    
    1,007,500
    
    
    
    
    
    
    
    21.15Exercised
    
    
    (1,605,868
    )
    
    
    5.50
    
    
    
    
    
    
    
    22.87Expired
    
    
    (182,234
    )
    
    
    5.50
    
    
    
    
    
    
    
    22.00Outstanding, end of
year
    
    
    6,841,801
    
    
    $
    4.63
    
    
    
    
    
    
    $
    23.25
 Options for 4.3 million, 4.7 million and 5.1 million shares were exercisable at March 31,
2005, 2004 and 2003, 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. In May
2004, the Company amended the 1997 Directors Plan to increase the total number of shares of common
stock reserved for issuance from 500 thousand to 800 thousand. The amendment was approved by the
Companys stockholders in August 2004. Under the 1997 Directors Plan, at March 31, 2005, 278,500 options were available for
issuance. During fiscal 2005, 2004 and 2003, 60,000, 60,000 and 64,000 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 2005, 2004 and
2003 option grants, respectively: expected volatility of 40.3%, 40.5% and 41.5%, risk-free interest
rate of 3.6%, 3.2% and 3.6%, expected life of 5.8, 5.9 and 5.9 years, and a dividend yield of 0.82%
in fiscal 2005 and 0.84% in fiscal 2004. The Company did not issue dividends in fiscal 2003. The
weighted average fair value per share of the stock options granted during fiscal 2005, 2004 and
2003 was $8.97, $7.58 and $6.70, respectively. F-31




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##### 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, 2005: Numberof Shares
    
    
    Exercise Price Per ShareMarch 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
    
    
    
    
    
    
    
    18.98Exercised
    
    
    (48,500
    )
    
    
    5.25
    
    
    
    
    
    
    
    13.82March 31, 2005Outstanding and exercisable, beginning of
year
    
    
    504,000
    
    
    
    5.25
    
    
    
    
    
    
    
    19.25Granted
    
    
    60,000
    
    
    
    
    
    
    
    21.51Exercised
    
    
    (42,500
    )
    
    
    13.50
    
    
    
    
    
    
    
    19.25Outstanding and exercisable, end of year
    
    
    521,500
    
    
    $
    5.25
    
    
    
    
    
    
    $
    21.51
 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 under
both the employee and Board of Directors stock option plans at March 31, 2005: Options OutstandingExerciseWeighted Average
    
    Number
    
    
    
    
    
    
    PriceRemaining Life-Years
    
    Outstanding
    
    
    Per Share5.00
    
    
    1,005,941
    
    
    $
    4.63
    
    
    
    
    
    
    $
    8.506.10
    
    
    888,880
    
    
    
    8.54
    
    
    
    
    
    
    
    8.993.65
    
    
    821,288
    
    
    
    9.29
    
    
    
    
    
    
    
    13.323.05
    
    
    1,026,235
    
    
    
    13.41
    
    
    
    
    
    
    
    15.946.36
    
    
    1,175,733
    
    
    
    16.52
    
    
    
    
    
    
    
    19.007.93
    
    
    950,326
    
    
    
    19.22
    
    
    
    
    
    
    
    21.036.90
    
    
    1,494,898
    
    
    
    21.15
    
    
    
    
    
    
    
    23.255.69
    
    
    7,363,301
    
    
    $
    4.63
    
    
    
    
    
    
    $
    23.25
 Options ExercisableNumber ofOptions
    
    Weighted AverageExercisable
    
    Exercise Price Per Share1,005,941
    
    $
    6.13610,168
    
    
    8.98809,163
    
    
    12.011,014,738
    
    
    15.53662,124
    
    
    17.06248,941
    
    
    19.24497,012
    
    
    21.964,848,087
    
    $
    13.23
 F-32




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##### 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 was terminated and the remaining authorized shares were
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 2005, 2004 and 2003, the Company issued 565 thousand, 554 thousand 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 2005, 2004 and 2003 was $17.54, $12.44
and $11.06, respectively. 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 2005 and 2004, respectively, were: average expected volatility of 29.7% and
31.1%, average risk-free interest rate of 1.1% and 1.0%, dividend yield of 0.83% and 0.87%, and
expected option terms ranging from 3 to 12 months for the 2003 Plan and 3 to 27 months for the 2001
Plan. There was no grant date in fiscal 2003. Had the Company adopted SFAS 123, compensation
expense related to the Employee Stock Purchase Plans would have been $2.8 million, $1.5 million and
$3.6 million in fiscal 2005, 2004 and 2003, respectively. Fiscal 2003 expense is related to the
fiscal 2002 grant and represents the value of the options to purchase shares of common stock under
the plan as they vest over the employee service period. (16) CONSOLIDATED AFFILIATE AND MINORITY INTEREST In fiscal 2004, the Company determined that its joint venture with National Welders met
the definition of a Variable Interest Entity under FIN 46R (Note 2). 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 this previously unconsolidated affiliate. National Welders is a producer and distributor of industrial gases based in Charlotte,
North Carolina. The joint venture owns and operates 44 branch stores, two acetylene plants, a
specialty gas lab, and three air separation plants that produce all of its oxygen and nitrogen
and over 50% of its argon requirements. The joint venture also distributes medical and
specialty gases, process 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. The payment of dividends on the common stock is subordinate to the payment
of a 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. A family holds approximately 3.2
million shares of redeemable preferred stock and controls the balance of the voting interest. F-33




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (16) CONSOLIDATED AFFILIATE AND MINORITY INTEREST  (Continued) Between June 30, 2006 and June 30, 2009 (See subsequent events Note 26), 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 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. The Company has participated in the joint venture with National Welders since June 1996 and
prior to the adoption of FIN 46R, the Company used the equity method of accounting to report
its interest in the joint venture. Under the equity method of accounting, the Company
recognized its proportionate share of the joint ventures net assets and liabilities as an
Investment in Unconsolidated Affiliate and its proportionate share of the operating results as
Equity in the Earnings of Unconsolidated Affiliate. As permitted by FIN 46R, the Company applied the interpretation prospectively from the date
of adoption (prior periods not restated). 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 (See subsequent events Note 26). Prior to the adoption of FIN 46R, the Company recognized its proportionate share of the
joint ventures operating results of $4.4 million and $2.7 million as Equity in Earnings of
Unconsolidated Affiliates for the nine-months ended December 31, 2003 and for the fiscal year
ended March 31, 2003, respectively. Subsequent to the adoption of FIN 46R, the Companys
proportionate share of the joint ventures operating results 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 and income taxes. For fiscal 2005 and the fourth quarter of fiscal
2004, National Welders contributed $167 million and $39 million to sales, $16 million and $3
million to operating income, $1.8 million and $452 thousand of minority interest expense,
respectively. Assets of the joint venture totaled $231 million and $204 million at March 31,
2005 and 2004, respectively. The liabilities of the joint venture, which are non-recourse to
the Company, totaled $132 million and $119 million at March 31, 2005 and 2004, respectively.
The joint ventures liabilities include a revolving credit facility, term loans and other notes
payable totaling $66 million and $54 million at March 31, 2005 and 2004. The debt of National
Welders is secured by certain assets of the joint venture (see Note 10). Cash flows in excess
of a management fee paid by National Welders are not available to the Company. For fiscal 2005
and the fourth quarter of fiscal year 2004, National Welders contributed net cash from
operating activities of $20 million and $10 million of which a management fee of $1.1 million
and $249 thousand was paid to the Company. F-34




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (17) INTEREST EXPENSE, NET Interest expense, net, consists of: Years Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003Interest expense
    
    $
    52,836
    
    
    $
    43,028
    
    
    $
    47,272Interest and finance charge income
    
    
    (1,591
    )
    
    
    (671
    )
    
    
    (897
    )$
    51,245
    
    
    $
    42,357
    
    
    $
    46,375
 (18) INCOME TAXES Earnings before income taxes, minority interest and equity earnings were derived from the
following sources: Years Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003United States
    
    $
    141,448
    
    
    $
    118,566
    
    
    $
    103,573Foreign
    
    
    6,965
    
    
    
    5,066
    
    
    
    3,047$
    148,413
    
    
    $
    123,632
    
    
    $
    106,620
 Income tax expense (benefit) consists of: Years Ended March 31,(In thousands)
    
    2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    19,750
    
    
    $
    21,624
    
    
    $
    30,552Foreign
    
    
    2,027
    
    
    
    2,120
    
    
    
    1,509State
    
    
    953
    
    
    
    437
    
    
    
    48322,730
    
    
    
    24,181
    
    
    
    32,544Deferred:Federal
    
    
    29,493
    
    
    
    19,584
    
    
    
    6,312Foreign
    
    
    303
    
    
    
    198
    
    
    
    (640
    )State
    
    
    2,057
    
    
    
    3,390
    
    
    
    2,98331,853
    
    
    
    23,172
    
    
    
    8,655$
    54,583
    
    
    $
    47,353
    
    
    $
    41,199
 F-35




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) INCOME TAXES  (Continued) Significant differences between taxes computed at the federal statutory rate and the provision
for income taxes were: Years Ended March 31,2005
    
    
    2004
    
    
    2003Taxes 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
    
    
    1.3
    %
    
    
    2.2
    %
    
    
    2.1
    %Divestitures
    
    
    
    
    
    
    
    
    
    
    0.4
    %Other, net
    
    
    0.5
    %
    
    
    1.1
    %
    
    
    1.1
    %36.8
    %
    
    
    38.3
    %
    
    
    38.6
    %
 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)
    
    2005
    
    
    2004Deferred Tax Assets:Inventories
    
    $
    8,257
    
    
    $
    6,021Deferred rental income
    
    
    3,072
    
    
    
    2,125Insurance reserves
    
    
    9,497
    
    
    
    10,008Special charges (Note 4)
    
    
    
    
    
    
    912Litigation settlement and other
reserves
    
    
    1,117
    
    
    
    210Net operating loss
carryforwards
    
    
    56,256
    
    
    
    38,458Other
    
    
    4,662
    
    
    
    1,096Valuation allowance
    
    
    (8,437
    )
    
    
    (9,922
    )74,424
    
    
    
    48,908Deferred Tax Liabilities:Accounts receivable
    
    
    (3,530
    )
    
    
    (1,044
    )Plant and equipment
    
    
    (287,033
    )
    
    
    (256,955
    )Intangible assets
    
    
    (29,205
    )
    
    
    (19,647
    )Other
    
    
    (10,579
    )
    
    
    728(330,347
    )
    
    
    (276,918
    )Net deferred tax liability
    
    $
    (255,923
    )
    
    $
    (228,010
    )
 F-36




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (18) INCOME TAXES  (Continued) Current deferred tax assets and current deferred tax liabilities have been netted for
presentation purposes. Non-current deferred tax assets and non-current deferred 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)
    
    2005
    
    
    2004Current deferred tax asset, net
    
    $
    26,263
    
    
    $
    25,519Non-current deferred tax liability,
net
    
    
    (282,186
    )
    
    
    (253,529
    )Net deferred tax liability
    
    $
    (255,923
    )
    
    $
    (228,010
    )
 The Company has recorded tax benefits amounting to $8.4 million, $6.2 million, and $5.8
million in fiscal 2005, 2004 and 2003, 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, 2005. Valuation allowances
primarily relate to certain state tax net operating loss carryforwards. In fiscal 2005, the
Company revised its estimates of the realizability of certain tax benefits associated with state
tax net operating loss carryforwards. Those revisions resulted in a $1 million reduction in the
related valuation allowances. On October 22, 2004, the American Jobs Creation Act (the AJCA) was signed into law. In
December 2004 responding to the AJCA, the FASB issued Staff Position 109-2, Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision with in the AJCA,(FSP
109-2). FSP 109-2 provides guidance on accounting for a special one-time deduction of 85% of
certain foreign earnings that are repatriated, as defined in the AJCA. The AJCA provided an
election to apply this provision and repatriate qualifying earnings in either fiscal 2005 or fiscal
2006. The Company has evaluated the effects of the repatriation provision and has concluded that
it will not repatriate foreign earnings under the AJCA. F-37




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 2005, 2004, and 2003 were $4.6 million, $3.9 million and $5 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, 2005, the withdrawal liability would have been approximately $3.4 million. Amounts
expensed under the pension plans for fiscal 2005, 2004 and 2003 were $858 thousand, $686 thousand
and $679 thousand, respectively. (20) RELATED PARTIES Separation Agreement Effective January 14, 2005, the Company and Glenn M. Fischer, the Companys President and
Chief Operating Officer, entered into a Separation Agreement (the Agreement). The Agreement
terminated Mr. Fischers employment agreement and provided for the terms of his resignation. Under
the Agreement, Mr. Fischer received a separation payment of $1.4 million and accelerated vesting of
15,000 stock options previously granted to Mr. Fischer. In the fourth quarter of fiscal 2005,
total consideration paid under terms of the Agreement was $1.6 million. Asset Purchase Transaction by National Welders Effective November 1, 2004, the Companys consolidated affiliate, National Welders, purchased
the assets of National Realty Sales Corporation for $11.4 million. Members of the Turner family,
who have a 50% voting interest in National Welders, also owned National Realty Sales Corporation.
The assets purchased included 22 properties previously leased from National Realty Sales
Corporation. The purchase price of National Realty Sales Corporation was established through an
independent, third party appraisal. National Welders Board of Directors, through which the
Company holds a 50% voting interest, approved the transaction. Other transactions 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




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##### 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,
2005, 2004, and 2003, amounted to approximately $62 million, $56 million, and $55 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, 2005
and 2004. Associated with the fleet vehicle operating leases, the Company guarantees a residual
value of $11 million, representing approximately 13% of the original cost. At March 31, 2005, future minimum lease payments under non-cancelable operating leases were as
follows: (In thousands)
    
    
    
    
    
    NationalYears Ended March 31,
    
    Airgas, Inc.
    
    
    Welders
    
    
    Total2006
    
    $
    49,310
    
    
    $
    956
    
    
    $
    50,2662007
    
    
    39,796
    
    
    
    869
    
    
    
    40,6652008
    
    
    29,440
    
    
    
    959
    
    
    
    30,3992009
    
    
    22,086
    
    
    
    304
    
    
    
    22,3902010
    
    
    13,112
    
    
    
    210
    
    
    
    13,322Thereafter
    
    
    13,457
    
    
    
    1,175
    
    
    
    14,632$
    167,201
    
    
    $
    4,473
    
    
    $
    171,674
 (22) COMMITMENTS AND CONTINGENCIES (a) Legal 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 additional annual aggregate retention for the next $1.7 million
($2.2 million in fiscal 2006) 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




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (22) COMMITMENTS AND CONTINGENCIES  (Continued) 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. (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 $45 million in annual
liquid bulk gas purchases. In July 2004, the Company entered into a 15-year take-or-pay supply
agreement with BOC to purchase nitrogen, argon and helium. The agreement was entered into in
conjunction with the July 2004 acquisition of BOCs U.S. packaged gas business. The agreement will
expire in July 2019. The new BOC agreement represents approximately $16 million in annual bulk gas
purchases. 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 annual purchases of approximately
$15 million. 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. Workers compensation claims are self-insured
up to $300,000 per person annually. 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. F-40




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (23) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense and income taxes was as follows: Years Ended March 31,(In thousands)
    
    2005
    
    2004
    
    2003Interest
    
    $
    49,480
    
    
    $
    42,851
    
    
    $
    52,527Income taxes (net of refunds)
    
    
    30,104
    
    
    
    18,897
    
    
    
    5,344
 Significant non-cash investing and financing transactions were as follows: Years Ended March 31,(In thousands)
    
    2005
    
    2004
    
    2003Acquisition liabilities assumed
    
    $
    37,436
    
    
    $
    7,620
    
    
    $
    2,606
 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. The
Consolidated Statement of Cash Flows at March 31, 2005 and 2004 reflect the following sources and
uses of cash associated with National Welders: Year Ended March 31,(In thousands)
    
    2005
    
    
    2004Net cash provided by operating activities
    
    $
    19,612
    
    
    $
    9,831Net cash used in investing activities
    
    
    (29,240
    )
    
    
    (1,783
    )Net cash provided by (used in)
financing activities
    
    
    9,500
    
    
    
    (8,039
    )Change in cash
    
    $
    (128
    )
    
    $
    9Management fee paid to the Company,
which is eliminated in consolidation
    
    $
    1,089
    
    
    $
    249
 F-41




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 2005, the Distribution segment accounted for over 85% of consolidated
sales. The business units in the All Other Operations segment produce and distribute dry ice, carbon
dioxide, nitrous oxide and specialty gases. The operating results of the Companys air separation
plants and its 7 national specialty gas labs are also reported under this segment. The All Other
Operations Segment also reflects the results of the National Welders joint venture. 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-42




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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 2005Gas and rent
    
    $
    1,056,661
    
    
    $
    318,748
    
    
    $
    (49,300
    )
    
    $
    1,326,109Hardgoods
    
    
    1,022,078
    
    
    
    66,863
    
    
    
    (3,641
    )
    
    
    1,085,300Total net sales
    
    
    2,078,739
    
    
    
    385,611
    
    
    
    (52,941
    )
    
    
    2,411,409Cost of products
sold, excluding
depreciation
expense
    
    
    1,057,547
    
    
    
    174,439
    
    
    
    (52,941
    )
    
    
    1,179,045Selling,
distribution, and
administrative
expenses
    
    
    776,306
    
    
    
    141,241
    
    
    
    
    
    
    
    917,547Depreciation
expense
    
    
    81,925
    
    
    
    24,195
    
    
    
    
    
    
    
    106,120Amortization
expense
    
    
    4,943
    
    
    
    521
    
    
    
    
    
    
    
    5,464Operating income
    
    
    158,018
    
    
    
    45,215
    
    
    
    
    
    
    
    203,233Assets
    
    
    1,872,213
    
    
    
    419,650
    
    
    
    
    
    
    
    2,291,863Capital
expenditures
    
    
    133,310
    
    
    
    34,667
    
    
    
    
    
    
    
    167,977
 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
    
    
    
    
    
    
    
    167,780Assets
    
    
    1,551,653
    
    
    
    408,953
    
    
    
    
    
    
    
    1,960,606Capital
expenditures
    
    
    81,247
    
    
    
    12,502
    
    
    
    
    
    
    
    93,749
 F-43




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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
    
    
    
    
    
    
    
    155,882Assets
    
    
    1,520,124
    
    
    
    205,880
    
    
    
    
    
    
    
    1,726,004Capital
expenditures
    
    
    51,751
    
    
    
    16,218
    
    
    
    
    
    
    
    67,969
 F-44




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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 2005 and
2004: (In thousands, except per share amounts)
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth2005Net sales
(b)
    
    $
    544,017
    
    
    $
    559,783
    
    
    $
    611,540
    
    
    $
    656,069Operating income
(b)(c)
    
    
    48,372
    
    
    
    50,952
    
    
    
    51,022
    
    
    
    52,887Net earnings
(c)
    
    
    22,116
    
    
    
    22,777
    
    
    
    22,973
    
    
    
    24,156Basic earnings per
share (a),(c)
    
    $
    0.30
    
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.32Diluted earnings
per share
(a),(c)
    
    $
    0.29
    
    
    $
    0.30
    
    
    $
    0.30
    
    
    $
    0.312004Net sales
(b)
    
    $
    461,056
    
    
    $
    460,452
    
    
    $
    451,869
    
    
    $
    522,091Operating income
(b)(d)
    
    
    40,660
    
    
    
    40,761
    
    
    
    40,287
    
    
    
    46,072Net earnings
(d)
    
    
    18,528
    
    
    
    19,113
    
    
    
    20,891
    
    
    
    21,660Basic earnings per
share
(a),(d)
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.29
    
    
    $
    0.29Diluted earnings
per share
(a),(d)
    
    $
    0.25
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.29
   (a)
    
    Earnings per share calculations for each of the quarters are based on the weighted average
number of shares outstanding in each quarter. Therefore, the sum of the quarterly earnings
per share does not necessarily equal the full year earnings per share disclosed on the
Consolidated Statement of Earnings.(b)
    
    The Company adopted FIN 46R with respect to its joint venture with National Welders effective
December 31, 2003 (Note 16). Accordingly, fiscal 2005 and the fourth quarter of fiscal 2004
reflect National Welders results broadly across the Consolidated Statement of Earnings. The
impact of the adoption of FIN 46R on the quarters during fiscal 2005 and fiscal 2004 is as
follows: (In thousands)
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth2005Net sales
    
    $
    39,644
    
    
    $
    40,430
    
    
    $
    42,741
    
    
    $
    44,658Operating income
    
    
    3,851
    
    
    
    3,209
    
    
    
    4,061
    
    
    
    4,5402004Net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    39,170Operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,390
  The consolidation of National Welders resulting from the adoption of FIN 46R had no impact on
the consolidated earnings of the Company.(c)
    As discussed in the Notes to the Companys consolidated financial statements, operating
income and net earnings for fiscal 2005 include: second quarter expense of $2.9 million ($1.8
million after tax), or $0.02 per diluted share, reflecting integration costs related to the
BOC acquisition; third quarter expense of $1.4 million ($906 thousand after tax), or $0.01 per
diluted share, also for integration costs related to the BOC acquisition; and fourth quarter
expenses of $2.1 million ($1.3 million after tax), or $0.02 per diluted share, related to a
separation package for the Companys former President & Chief Operating Officer and
integration costs related to the BOC acquisition. F-45




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AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (25) SUPPLEMENTARY INFORMATION (UNAUDITED)  (Continued)  (d)
    The Companys consolidated financial results for fiscal 2004 include: second quarter
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; third
quarter non-recurring insurance-related after-tax gain at National Welders of $1.7 million, or
$0.02 per diluted share; and a fourth quarter 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. (26) SUBSEQUENT EVENTS On May 24, 2005, the Company announced that its Board of Directors declared a regular
quarterly cash dividend of $0.06 per share, representing a 33% increase compared to the prior year
quarterly dividend. The dividend is payable June 30, 2005 to stockholders of record as of June 15,
2005. In
the first quarter of fiscal 2006 (through June 13, 2005), the Company completed four
acquisitions with combined annual sales of approximately $100 million. The aggregate purchase
price paid for the four acquisitions was approximately $72 million. The largest of these
acquisitions included the Industrial Products Division of LaRoche Industries, a leading distributor
of anhydrous ammonia in the U.S. with annual sales of approximately $65 million, and Kanox, Inc., a
Kansas-based distributor of packaged gases and related hardgoods products with annual sales of
approximately $23 million. On June 6, 2005, National Welders entered into an agreement with its preferred stockholders
under which the preferred stockholders prepaid their $21 million note payable to National Welders.
Additionally, the parties agreed to modify the dates between which the preferred stockholders have
the option to redeem their preferred stock for cash or Airgas common stock (Note 16) to commence in
June 2005 and expire in June 2009. As disclosed in Note 10, the preferred stockholders note
collateralized National Welders $21 million Term Loan B. Additionally, as disclosed in Note 12,
Term Loan B was the object of an interest rate swap agreement. National Welders used the proceeds
from the prepayment of the preferred stockholders note to pay-off Term Loan B and unwind the
related interest rate swap agreement. The cost to unwind the interest rate swap agreement,
including the deferred loss classified in Accumulated Other Comprehensive Income, was principally
paid by the preferred stockholders. (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
fully and unconditionally 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 are no longer 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. Subsequent to December 31, 2003, the
operating results of the joint venture and corresponding minority interest expense are 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, 2005
and March 31, 2004 and for the years ended March 31, 2005, 2004 and 2003. Certain
reclassifications of prior year
amounts, including the gross presentation of cash in depository accounts and cash overdrafts on
disbursement accounts and the presentation below income tax expense of the equity in the earnings
of unconsolidated affiliates and minority interest in earnings of consolidated affiliate, both
associated with National Welders, have been made to conform with the current year presentation. F-46




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##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Balance Sheet
March 31, 2005 Non-
    
    
    Elimination(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Entries
    
    
    ConsolidatedASSETSCurrent AssetsCash
    
    $
    
    
    
    $
    29,340
    
    
    $
    3,300
    
    
    $
    
    
    
    $
    32,640Trade receivables, net
    
    
    
    
    
    
    6,076
    
    
    
    142,758
    
    
    
    
    
    
    
    148,834Intercompany
receivable/(payable)
    
    
    
    
    
    
    (8,589
    )
    
    
    8,589
    
    
    
    
    
    
    
    Inventories, net
    
    
    
    
    
    
    207,810
    
    
    
    13,799
    
    
    
    
    
    
    
    221,609Deferred income tax asset, net
    
    
    22,208
    
    
    
    1,870
    
    
    
    2,185
    
    
    
    
    
    
    
    26,263Prepaid expenses and other
current assets
    
    
    3,165
    
    
    
    23,088
    
    
    
    10,658
    
    
    
    
    
    
    
    36,911Total current assets
    
    
    25,373
    
    
    
    259,595
    
    
    
    181,289
    
    
    
    
    
    
    
    466,257Plant and equipment, net
    
    
    23,245
    
    
    
    1,081,001
    
    
    
    165,096
    
    
    
    
    
    
    
    1,269,342Goodwill
    
    
    
    
    
    
    444,605
    
    
    
    66,591
    
    
    
    
    
    
    
    511,196Other intangible assets, net
    
    
    
    
    
    
    15,525
    
    
    
    982
    
    
    
    
    
    
    
    16,507Investments in subsidiaries
    
    
    1,783,949
    
    
    
    
    
    
    
    
    
    
    
    (1,783,949
    )
    
    
    Intercompany
receivable/(payable)
    
    
    (254,733
    )
    
    
    233,817
    
    
    
    20,916
    
    
    
    
    
    
    
    Other non-current assets
    
    
    17,773
    
    
    
    7,606
    
    
    
    3,182
    
    
    
    
    
    
    
    28,561Total assets
    
    $
    1,595,607
    
    
    $
    2,042,149
    
    
    $
    438,056
    
    
    $
    (1,783,949
    )
    
    $
    2,291,863LIABILITIES AND
STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable, trade
    
    $
    5,783
    
    
    $
    123,709
    
    
    $
    13,716
    
    
    $
    
    
    
    $
    143,208Accrued expenses and other
current liabilities
    
    
    68,155
    
    
    
    98,563
    
    
    
    16,414
    
    
    
    
    
    
    
    183,132Current portion of long-term debt
    
    
    
    
    
    
    765
    
    
    
    6,183
    
    
    
    
    
    
    
    6,948Total current liabilities
    
    
    73,938
    
    
    
    223,037
    
    
    
    36,313
    
    
    
    
    
    
    
    333,288Long-term debt, excluding
current portion
    
    
    711,805
    
    
    
    6,002
    
    
    
    83,828
    
    
    
    
    
    
    
    801,635Deferred income tax liability, net
    
    
    (12,288
    )
    
    
    252,307
    
    
    
    42,167
    
    
    
    
    
    
    
    282,186Other non-current liabilities
    
    
    9,934
    
    
    
    11,941
    
    
    
    2,516
    
    
    
    
    
    
    
    24,391Minority interest in affiliate
    
    
    
    
    
    
    
    
    
    
    36,191
    
    
    
    
    
    
    
    36,191Commitments and contingenciesStockholders EquityPreferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, par value $0.01
per share
    
    
    775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    775Capital in excess of par value
    
    
    257,042
    
    
    
    939,025
    
    
    
    71,956
    
    
    
    (1,010,981
    )
    
    
    257,042Retained earnings
    
    
    560,056
    
    
    
    609,426
    
    
    
    163,542
    
    
    
    (772,968
    )
    
    
    560,056Accumulated other
comprehensive income
    
    
    285
    
    
    
    411
    
    
    
    1,913
    
    
    
    
    
    
    
    2,609Treasury stock
    
    
    (3,395
    )
    
    
    
    
    
    
    (370

    )
    
    
    
    
    
    
    (3,765
    )Employee benefits trust
    
    
    (2,545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,545
    )Total stockholders equity
    
    
    812,218
    
    
    
    1,548,862
    
    
    
    237,041
    
    
    
    (1,783,949
    )
    
    
    814,172Total liabilities and
stockholders equity
    
    $
    1,595,607
    
    
    $
    2,042,149
    
    
    $
    438,056
    
    
    $
    (1,783,949
    )
    
    $
    2,291,863
 F-47




---



##### 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 AssetsCash
    
    $
    
    
    
    $
    23,569
    
    
    $
    1,493
    
    
    $
    
    
    
    $
    25,062Trade 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
    
    
    
    15,144
    
    
    
    984
    
    
    
    
    
    
    
    25,519Prepaid expenses and other
current assets
    
    
    4,839
    
    
    
    18,422
    
    
    
    5,202
    
    
    
    
    
    
    
    28,463Total current assets
    
    
    14,230
    
    
    
    212,918
    
    
    
    129,209
    
    
    
    
    
    
    
    356,357Plant 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 subsidiaries
    
    
    1,481,948
    
    
    
    
    
    
    
    
    
    
    
    (1,481,948
    )
    
    
    Intercompany
receivable/(payable)
    
    
    (198,326
    )
    
    
    168,423
    
    
    
    29,903
    
    
    
    
    
    
    
    Other non-current assets
    
    
    31,751
    
    
    
    11,794
    
    
    
    2,838
    
    
    
    
    
    
    
    46,383Total assets
    
    $
    1,356,813
    
    
    $
    1,717,227
    
    
    $
    368,514
    
    
    $
    (1,481,948
    )
    
    $
    1,960,606LIABILITIES AND
STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable, trade
    
    $
    4,298
    
    
    $
    100,239
    
    
    $
    9,766
    
    
    $
    
    
    
    $
    114,303Accrued expenses and other
current liabilities
    
    
    49,870
    
    
    
    84,173
    
    
    
    13,045
    
    
    
    
    
    
    
    147,088Current portion of long-term debt
    
    
    
    
    
    
    467
    
    
    
    5,673
    
    
    
    
    
    
    
    6,140Total current liabilities
    
    
    54,168
    
    
    
    184,879
    
    
    
    28,484
    
    
    
    
    
    
    
    267,531Long-term debt, excluding
current portion
    
    
    607,832
    
    
    
    6,185
    
    
    
    68,681
    
    
    
    
    
    
    
    682,698Deferred income tax liability, net
    
    
    (12,082
    )
    
    
    227,874
    
    
    
    37,737
    
    
    
    
    
    
    
    253,529Other non-current liabilities
    
    
    13,654
    
    
    
    10,933
    
    
    
    4,169
    
    
    
    
    
    
    
    28,756Minority interest in affiliate
    
    
    
    
    
    
    
    
    
    
    36,191
    
    
    
    
    
    
    
    36,191Commitments and contingenciesStockholders EquityPreferred stock, no par value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, par value $0.01
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
    
    
    $
    1,717,227
    
    
    $
    368,514
    
    
    $
    (1,481,948
    )
    
    $
    1,960,606
 F-48




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Earnings
Year Ended
March 31, 2005 Non-
    
    
    Elimination(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Entries
    
    
    ConsolidatedNet Sales
    
    $
    
    
    
    $
    2,217,071
    
    
    $
    194,338
    
    
    $
    
    
    
    $
    2,411,409Costs and ExpensesCosts of products sold
(excluding depreciation)
    
    
    
    
    
    
    1,096,974
    
    
    
    82,071
    
    
    
    
    
    
    
    1,179,045Selling, distribution and
administrative expenses
    
    
    61,488
    
    
    
    771,331
    
    
    
    84,728
    
    
    
    
    
    
    
    917,547Depreciation
    
    
    7,410
    
    
    
    84,599
    
    
    
    14,111
    
    
    
    
    
    
    
    106,120Amortization
    
    
    99
    
    
    
    5,269
    
    
    
    96
    
    
    
    
    
    
    
    5,464Operating Income (Loss)
    
    
    (68,997
    )
    
    
    258,898
    
    
    
    13,332
    
    
    
    
    
    
    
    203,233Interest (expense) income, net
    
    
    (70,493
    )
    
    
    23,228
    
    
    
    (3,980
    )
    
    
    
    
    
    
    (51,245
    )(Discount) gain on
securitization of trade
receivables
    
    
    
    
    
    
    (61,185
    )
    
    
    56,474
    
    
    
    
    
    
    
    (4,711
    )Other income (expense), net
    
    
    51,047
    
    
    
    (50,477
    )
    
    
    566
    
    
    
    
    
    
    
    1,136Earnings (loss) before income
taxes and minority interest
    
    
    (88,443
    )
    
    
    170,464
    
    
    
    66,392
    
    
    
    
    
    
    
    148,413Income tax benefit (expense)
    
    
    30,955
    
    
    
    (61,860
    )
    
    
    (23,678
    )
    
    
    
    
    
    
    (54,583
    )Minority interest in earnings of
consolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (1,808
    )
    
    
    
    
    
    
    (1,808
    )Equity in earnings of
subsidiaries
    
    
    149,510
    
    
    
    
    
    
    
    
    
    
    
    (149,510
    )
    
    
    Net Earnings
    
    $
    92,022
    
    
    $
    108,604
    
    
    $
    40,906
    
    
    $
    (149,510
    )
    
    $
    92,022
 F-49




---



##### 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 ExpensesCosts 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
    
    
    
    (49,798
    )
    
    
    1,091
    
    
    
    
    
    
    
    1,473Earnings (loss) before income
taxes, minority interest and
equity earnings
    
    
    (68,205
    )
    
    
    122,323
    
    
    
    69,514
    
    
    
    
    
    
    
    123,632Income tax benefit (expense)
    
    
    22,344
    
    
    
    (44,991
    )
    
    
    (24,706
    )
    
    
    
    
    
    
    (47,353
    )Minority interest in earnings of
consolidated affiliate
    
    
    
    
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    (452
    )Equity in earnings of
unconsolidated affiliate
    
    
    4,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,365Equity in earnings of
subsidiaries
    
    
    121,688
    
    
    
    
    
    
    
    
    
    
    
    (121,688
    )
    
    
    Net Earnings
    
    $
    80,192
    
    
    $
    77,332
    
    
    $
    44,356
    
    
    $
    (121,688
    )
    
    $
    80,192
 F-50




---



##### 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 ExpensesCosts 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
    
    
    50,090
    
    
    
    (50,734
    )
    
    
    1,083
    
    
    
    
    
    
    
    439Earnings (loss) before income
taxes and equity earnings
    
    
    (55,293
    )
    
    
    103,841
    
    
    
    58,072
    
    
    
    
    
    
    
    106,620Income tax benefit (expense)
    
    
    18,413
    
    
    
    (39,783
    )
    
    
    (19,829
    )
    
    
    
    
    
    
    (41,199
    )Equity in earnings of
unconsolidated affiliate
    
    
    2,684
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,684Equity in earnings of
subsidiaries
    
    
    102,301
    
    
    
    
    
    
    
    
    
    
    
    (102,301
    )
    
    
    Net Earnings
    
    $
    68,105
    
    
    $
    64,058
    
    
    $
    38,243
    
    
    $
    (102,301
    )
    
    $
    68,105
 F-51




---



##### Table of Contents



AIRGAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidating Statement of Cash Flows
Year Ended
March 31, 2005 Non-
    
    
    Elimination(In thousands)
    
    Parent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Entries
    
    
    ConsolidatedNet cash provided by (used
in)
operating activities
    
    $
    (35,408
    )
    
    $
    244,748
    
    
    $
    12,977
    
    
    $
    
    
    
    $
    222,317CASH FLOWS FROM
INVESTING ACTIVITIESCapital expenditures
    
    
    (3,890
    )
    
    
    (136,231
    )
    
    
    (27,856
    )
    
    
    
    
    
    
    (167,977
    )Proceeds from sale of plant
and equipment
    
    
    50
    
    
    
    3,761
    
    
    
    1,550
    
    
    
    
    
    
    
    5,361Proceeds from divestiture
    
    
    
    
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    828Business acquisitions,
holdbacks and
other
settlements of acquisition
related liabilities
    
    
    
    
    
    
    (186,000
    )
    
    
    (5,820
    )
    
    
    
    
    
    
    (191,820
    )Other, net
    
    
    267
    
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    171Net cash used in investing
activities
    
    
    (3,573
    )
    
    
    (317,642
    )
    
    
    (32,222
    )
    
    
    
    
    
    
    (353,437
    )CASH FLOWS FROM
FINANCING ACTIVITIESProceeds from borrowings
    
    
    547,762
    
    
    
    2,069
    
    
    
    71,619
    
    
    
    
    
    
    
    621,450Repayment of debt
    
    
    (436,768
    )
    
    
    (1,321
    )
    
    
    (56,595
    )
    
    
    
    
    
    
    (494,684

    )Financing costs
    
    
    (2,531
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,531
    )Termination of interest rate
hedge
    
    
    3,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,948Minority interest
    
    
    
    
    
    
    
    
    
    
    (1,808
    )
    
    
    
    
    
    
    (1,808
    )Exercise of stock options
    
    
    20,374
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,374Dividends paid to
stockholders
    
    
    (13,643
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,643
    )Cash overdraft
    
    
    5,592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,592Inter-company
    
    
    (85,753
    )
    
    
    77,917
    
    
    
    7,836
    
    
    
    
    
    
    
    Net cash provided by
financing
activities
    
    
    38,981
    
    
    
    78,665
    
    
    
    21,052
    
    
    
    
    
    
    
    138,698CHANGE IN CASH
    
    $
    
    
    
    $
    5,771
    
    
    $
    1,807
    
    
    $
    
    
    
    $
    7,578Cash  Beginning of year
    
    
    
    
    
    
    23,569
    
    
    
    1,493
    
    
    
    
    
    
    
    25,062Cash  End of year
    
    $
    
    
    
    $
    29,340
    
    
    $
    3,300
    
    
    $
    
    
    
    $
    32,640
 F-52




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##### 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
    
    $
    (28,991
    )
    
    $
    199,473
    
    
    $
    40,197
    
    
    $
    
    
    
    $
    210,679CASH 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
    )Management fee from
unconsolidated affiliate
    
    
    724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    724Other, net
    
    
    (1,461
    )
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    (1,369
    )Net cash used in investing
activities
    
    
    (14,305
    )
    
    
    (103,264
    )
    
    
    (6,385
    )
    
    
    
    
    
    
    (123,954
    )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
    
    
    
    
    
    
    
    
    
    
    (452
    )
    
    
    
    
    
    
    (452
    )Exercise of stock options
    
    
    13,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,130Dividends paid to
stockholders
    
    
    (11,801
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,801
    )Cash overdraft
    
    
    (14,149
    )
    
    
    2,730
    
    
    
    903
    
    
    
    
    
    
    
    (10,516
    )Inter-company
    
    
    118,668
    
    
    
    (93,741
    )
    
    
    (24,927
    )
    
    
    
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    43,296
    
    
    
    (93,480
    )
    
    
    (32,899
    )
    
    
    
    
    
    
    (83,083
    )CHANGE IN CASH
    
    $
    
    
    
    $
    2,729
    
    
    $
    913
    
    
    $
    
    
    
    $
    3,642Cash  Beginning of year
    
    
    
    
    
    
    20,840
    
    
    
    580
    
    
    
    
    
    
    
    21,420Cash  End of Year
    
    $
    
    
    
    $
    23,569
    
    
    $
    1,493
    
    
    $
    
    
    
    $
    25,062
 F-53




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##### 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
    )
    
    $
    182,634
    
    
    $
    34,937
    
    
    $
    
    
    
    $
    195,963CASH 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
    )Management fee from
unconsolidated affiliate
    
    
    943
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    943Other, net
    
    
    5,666
    
    
    
    (8,051
    )
    
    
    666
    
    
    
    
    
    
    
    (1,719
    )Net cash used in
investing activities
    
    
    (533
    )
    
    
    (84,324
    )
    
    
    (3,677
    )
    
    
    
    
    
    
    (88,534
    )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
    
    
    
    (3,041
    )
    
    
    (33
    )
    
    
    
    
    
    
    (1,955
    )Inter-company
    
    
    113,784
    
    
    
    (83,150
    )
    
    
    (30,634
    )
    
    
    
    
    
    
    Net cash provided by (used
in) financing activities
    
    
    22,141
    
    
    
    (101,351
    )
    
    
    (31,293
    )
    
    
    
    
    
    
    (110,503
    )CHANGE IN CASH
    
    $
    
    
    
    $
    (3,041
    )
    
    $
    (33
    )
    
    $
    
    
    
    $
    (3,074
    )Cash  Beginning of year
    
    
    
    
    
    
    23,881
    
    
    
    613
    
    
    
    
    
    
    
    24,494Cash  End of year
    
    $
    
    
    
    $
    20,840
    
    
    $
    580
    
    
    $
    
    
    
    $
    21,420
 F-54




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##### Table of Contents



SCHEDULE II AIRGAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 2005, 2004 and 2003
(In thousands of dollars) 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
    
    
    Period2005Accounts receivable  allowances
for doubtful accounts
    
    $
    7,294
    
    
    $
    7,714
    
    
    $
    3,796
    (1)
    
    $
    (7,696
    ) (2)
    
    $
    11,108Insurance reserves
    
    
    29,451
    
    
    
    72,045
    
    
    
    
    
    
    
    (70,572
    ) (3)
    
    
    30,924Deferred tax asset valuation
allowance
    
    
    9,922
    
    
    
    
    
    
    
    
    
    
    
    (1,485
    ) (6)
    
    
    8,4372004Accounts receivable  allowances
for doubtful accounts
    
    $
    8,514
    
    
    $
    8,058
    
    
    $
    299
    (1)
    
    $
    (9,577
    ) (2)
    
    $
    7,294Insurance reserves
    
    
    25,100
    
    
    
    59,787
    
    
    
    966
    (5)
    
    
    (56,402
    ) (3)
    
    
    29,451Deferred 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)
    
    
    336
    (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. (6) Represents revised estimates of the realizability of certain tax benefits associated with state
tax net operating loss carryforwards. F-55