UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File No. 1-9344

AIRGAS, INC.

(610) 687-5253
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12 (b) of the Act:

     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.

AIRGAS, INC.

TABLE OF CONTENTS

2

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

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

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

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

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

EXECUTIVE OFFICERS OF THE COMPANY

     The executive officers of the Company are as follows:

     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

     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

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

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:

     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

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.

12

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):

13

14

15

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

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

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.

     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

     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.

     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

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.

     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

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

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

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

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.

     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

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.

     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

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.

     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

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

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

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

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

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

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

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

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

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:

35

36

37

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 Pricing in 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 Income Taxes, 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

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

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

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.

41

42

(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

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

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

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.

46

47

48

49

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 McCausland
		Peter McCausland
		Chairman, 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.

50

51

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. McLaughlin
		Robert M. McLaughlin
		Vice 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.

52

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. McLaughlin
		Robert M. McLaughlin
		Vice 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.

53

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. McLaughlin
		Robert M. McLaughlin
		Vice 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.