10-Q 1 a2093395z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002

Commission file number: 1-9344

AIRGAS, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		56-0732648 (I.R.S. Employer Identification No.)
259 North Radnor-Chester Road, Suite 100 Radnor, PA (Address of principal executive offices)		19087-5283 (ZIP code)
(610) 687-5253 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Common Stock outstanding at November 7, 2002: 71,561,720 shares

AIRGAS, INC.

FORM 10-Q
September 30, 2002

INDEX

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Earnings for the Three and Six Months Ended September 30, 2002 and 2001 (Unaudited)	3
	Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and March 31, 2002	4
	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2002 and 2001 (Unaudited)	5
	Notes to Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	32
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 6.	Exhibits and Reports on Form 8-K	34
SIGNATURES		35
CERTIFICATIONS		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share amounts)

			Three Months Ended September 30,						Six Months Ended September 30,
			2002			2001			2002			2001
Net sales
	Distribution		$	410,329		$	372,345		$	832,384		$	750,659
	Gas Operations			40,724			39,637			76,337			76,998

		Total net sales		451,053			411,982			908,721			827,657

Costs and expenses
	Cost of products sold (excluding depreciation)
		Distribution		200,750			193,850			412,199			392,753
		Gas Operations		13,337			14,210			24,154			27,530
	Selling, distribution and administrative expenses			174,737			151,235			351,036			303,954
	Depreciation			18,169			15,774			36,628			31,446
	Amortization			1,636			2,074			3,376			4,351
	Special charges			—			—			2,694			—

		Total costs and expenses		408,629			377,143			830,087			760,034

Operating income
	Distribution			33,079			27,787			65,779			54,358
	Gas Operations			9,345			7,052			15,549			13,265
	Special charges			—			—			(2,694	)		—

		Total operating income		42,424			34,839			78,634			67,623

Interest expense, net				(12,040	)		(11,850	)		(25,161	)		(22,763	)
Discount on securitization of trade receivables				(899	)		(1,492	)		(1,750	)		(2,984	)
Other income (expense), net				(129	)		15			(252	)		(178	)
Equity in earnings of unconsolidated affiliates				1,364			1,317			2,296			2,230

	Earnings before income taxes and the cumulative effect of a change in accounting principle			30,720			22,829			53,767			43,928
Income taxes				11,520			8,276			20,523			15,924

	Earnings before the cumulative effect of a change in accounting principle			19,200			14,553			33,244			28,004
Cumulative effect of a change in accounting principle				—			—			—			(59,000	)

Net earnings (loss)			$	19,200		$	14,553		$	33,244		$	(30,996	)

Basic earnings (loss) per share:
	Earnings per share before the cumulative effect of a change in accounting principle		$	.27		$	.21		$	.47		$	.41
	Cumulative effect per share of a change in accounting principle			—			—			—			(.87	)

	Net earnings (loss) per share		$	.27		$	.21		$	.47		$	(.46	)

Diluted earnings (loss) per share:
	Earnings per share before the cumulative effect of a change in accounting principle		$	.27		$	.21		$	.46		$	.41
	Cumulative effect per share of a change in accounting principle			—			—			—			(.86	)

	Net earnings (loss) per share		$	.27		$	.21		$	.46		$	(.45	)

Weighted average shares outstanding:
		Basic		70,400			67,900			70,100			67,600

		Diluted		71,900			69,500			72,000			68,900

Comprehensive income (loss)			$	19,294		$	13,035		$	34,214		$	(36,233	)

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

			(Unaudited) September 30, 2002			March 31, 2002
ASSETS
Current Assets
Trade receivables, less allowances for doubtful accounts of $8,964 at September 30, 2002 and $8,176 at March 31, 2002			$	85,777		$	88,634
Inventories, net				145,580			154,045
Deferred income tax asset, net				13,583			13,210
Prepaid expenses and other current assets				28,891			47,654

		Total current assets		273,831			303,543

Plant and equipment, at cost				1,317,995			1,309,001
Less accumulated depreciation				(446,106	)		(415,986	)

	Plant and equipment, net			871,889			893,015
Goodwill				421,331			406,548
Other intangible assets, net				22,094			25,718
Investments in unconsolidated affiliates				65,590			64,626
Other non-current assets				40,539			23,607

		Total assets	$	1,695,274		$	1,717,057

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade			$	83,449		$	82,485
Accrued expenses and other current liabilities				116,804			136,390
Current portion of long-term debt				2,671			2,456

		Total current liabilities		202,924			221,331

Long-term debt				719,337			764,124
Deferred income taxes, net				195,678			198,173
Other non-current liabilities				26,955			30,343
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding at September 30, 2002 and March 31, 2002				—			—
Common stock, par value $.01 per share, 200,000 shares authorized, 75,984 and 75,193 shares issued at September 30, 2002 and March 31, 2002, respectively				760			752
Capital in excess of par value				208,508			198,500
Retained earnings				378,425			345,181
Accumulated other comprehensive loss				(3,431	)		(4,401	)
Treasury stock, 547 common shares at cost at September 30, 2002 and March 31, 2002, respectively				(4,289	)		(4,289	)
Employee benefits trust, 3,925 and 4,331 common shares at cost at September 30, 2002 and March 31, 2002, respectively				(29,593	)		(32,657	)

		Total stockholders' equity		550,380			503,086

		Total liabilities and stockholders' equity	$	1,695,274		$	1,717,057

See accompanying notes to consolidated financial statements.

AIRGAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Dollars in thousands)			Six Months Ended September 30, 2002			Six Months Ended September 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)			$	33,244		$	(30,996	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
	Depreciation and amortization			40,004			35,797
	Deferred income taxes			(3,006	)		5,400
	Equity in earnings of unconsolidated affiliates			(2,296	)		(2,230	)
	Losses on divestitures			241			—
	Gains on sales of plant and equipment			(85	)		(120	)
	Stock issued for employee stock purchase plan			4,502			3,465
	Cumulative effect of a change in accounting principle			—			59,000
	Other non-cash charges			—			963
Changes in assets and liabilities, excluding effects of business acquisitions and divestitures:
	Securitization of trade receivables			20,500			66,000
	Trade receivables, net			(20,589	)		(5,820	)
	Inventories, net			6,264			7,473
	Prepaid expenses and other current assets			18,533			6,127
	Accounts payable, trade			1,437			(5,896	)
	Accrued expenses and other current liabilities			(12,131	)		(3,399	)
	Other assets and liabilities, net			(4,744	)		(288	)

		Net cash provided by operating activities		81,874			135,476

CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures			(34,271	)		(28,324	)
	Proceeds from sales of plant and equipment			2,748			2,170
	Proceeds from divestitures			3,167			—
	Business acquisitions and settlements of acquisition related liabilities			(4,816	)		—
	Dividends and fees from unconsolidated affiliates			1,402			1,528
	Other, net			(686	)		537

		Net cash used in investing activities		(32,456	)		(24,089	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from borrowings			167,229			368,628
	Repayment of debt			(224,157	)		(460,920	)
	Financing costs			—			(8,753	)
	Exercise of stock options			4,998			1,739
	Cash overdraft			2,512			(12,081	)

		Net cash used in financing activities		(49,418	)		(111,387	)

Change in Cash			$	—		$	—
	Cash—Beginning of period			—			—

	Cash—End of period		$	—		$	—

Cash paid during the period for:
	Interest		$	32,528		$	24,768
	Income taxes, net of refunds		$	7,660		$	16,904

See accompanying notes to consolidated financial statements.

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

(1) BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Airgas, Inc. and its subsidiaries (the "Company"). Unconsolidated affiliates are accounted for on the equity method and generally consist of 20 - 50% owned operations where control does not exist. Intercompany accounts and transactions are eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These statements do not include all disclosures required for annual financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the Company's audited consolidated financial statements for the fiscal year ended March 31, 2002.

The consolidated financial statements reflect, in the opinion of management, all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature except for the accounting changes and special charges, which are discussed in these notes to the consolidated financial statements. The interim operating results are not necessarily indicative of the results to be expected for an entire year.

(2) ACCOUNTING CHANGES

SFAS 142

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As allowed under the Standard, the Company adopted SFAS 142 retroactively to April 1, 2001. SFAS 142 requires goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead be tested for impairment at least annually. Upon adoption of SFAS 142, the Company performed an evaluation of goodwill, which indicated that goodwill recorded in the Distribution segment associated with its industrial tool reporting unit was impaired as of April 1, 2001. Accordingly, the Company recognized a $59 million non-cash charge, recorded as of April 1, 2001, as the cumulative effect of a change in accounting principle for the write-down of goodwill to its fair value. The impaired goodwill was not deductible for taxes, and as a result, no tax benefit was recorded in relation to the charge.

SFAS 144

On April 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, as required. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, including discontinued operations. The adoption of SFAS 144 did not have a material impact on the Company's consolidated financial position, results of operations or liquidity.

(3) ACQUISITIONS & DIVESTITURES

(a) Acquisitions

On February 28, 2002, the Company purchased the majority of Air Products and Chemicals, Inc.'s ("Air Products") U.S. packaged gas business. Below is a rollforward of the purchase price allocation, as revised, to each major asset and liability caption of the acquired packaged gas business. Such

allocations have been based on estimates of fair value at the date of acquisition and are subject to revision as better estimates, such as third-party appraisals, are obtained. Additionally, the revisions include $4 million of closing costs paid subsequent to year-end. Current liabilities reflects $1.8 million of costs to close certain acquired facilities and severance for 129 employees.

(In thousands)	March 31, 2002			Revisions			(Unaudited) September 30, 2002
Current assets	$	27,049		$	(1,319	)	$	25,730
Property, plant and equipment, net		197,674			(16,036	)		181,638
Goodwill		22,208			16,509			38,717
Intangible assets		3,786			—			3,786
Current liabilities		(8,635	)		6,361			(2,274	)
Long-term liabilities		(812	)		(1,490	)		(2,302	)

Total	$	241,270		$	4,025		$	245,295

(b) Divestitures

In May 2002, the Company completed the sale of Kendeco, an industrial tool business in the Distribution segment, for cash proceeds of $3.2 million. Kendeco had sales of approximately $18 million and operating income of approximately $200 thousand during fiscal 2002. During the quarter ended June 30, 2002, the Company also resolved an indemnity claim related to a prior period divestiture. Other income (expense), net, for the six months ended September 30, 2002 includes a $241 thousand net loss from these divestiture-related transactions.

(4) SPECIAL CHARGES

During the quarter ended June 30, 2002, the Company recorded special charges of $2.7 million consisting of a restructuring charge related to the integration of the business acquired from Air Products during the fourth quarter of fiscal 2002 and costs related to the consolidation of the Company's procurement function. The special charges include facility exit costs associated with the closure of certain facilities and severance for approximately 130 employees. The facilities to be exited and the affected employees were part of the Company's existing operations prior to the acquisition of the Air Products business.

(5) EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of shares of the Company's common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock and common stock held by the Employee Benefits Trust. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average common shares outstanding adjusted for the dilutive effect of common stock equivalents related to stock options and warrants.

The table below reconciles basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three and six months ended September 30, 2002 and 2001:

			Three Months Ended September 30,		Six Months Ended September 30,
(In thousands)			Three Months Ended September 30,		Six Months Ended September 30,
(In thousands)			2002	2001	2002	2001
Weighted average common shares outstanding:
	Basic		70,400	67,900	70,100	67,600
		Stock options and warrants	1,500	1,600	1,900	1,300

	Diluted		71,900	69,500	72,000	68,900

(6) TRADE RECEIVABLES SECURITIZATION

The Company participates in a securitization agreement with two commercial banks to sell up to $175 million of qualifying trade receivables. The agreement expires in December 2003, but the initial term is subject to renewal provisions contained in the agreement. During the six months ended September 30, 2002, the Company sold, net of its retained interest, $987.9 million of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, $833.4 million in collections on those receivables. The amount of outstanding receivables under the agreement was $154.5 million at September 30, 2002 and $134 million at March 31, 2002. Net proceeds received by the Company pursuant to the securitization agreement were used to reduce borrowings on its revolving credit facilities.

The transaction has been accounted for as a sale under the provisions of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Under the securitization agreement, eligible trade receivables are sold to bank conduits through a bankruptcy-remote special purpose entity, which is consolidated for financial reporting purposes. The difference between the proceeds from the sale and the carrying value of the receivables is recognized as "Discount on securitization of trade receivables" in the accompanying Consolidated Statements of Earnings and varies on a monthly basis depending on the amount of receivables sold and market rates. The Company retains a subordinated interest in the receivables sold, which is recorded at the receivables' previous carrying value. A subordinated retained interest of approximately $49 million and $41 million are included in "Trade receivables" in the accompanying Consolidated Balance Sheets at September 30, 2002 and March 31, 2002, respectively. In accordance with a servicing agreement, the Company will continue 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. The Company also maintains an allowance for doubtful accounts on trade receivables that it retains.

(7) INVENTORIES, NET

Inventories, net, consist of:

(In thousands)	(Unaudited) September 30, 2002		March 31, 2002
Hardgoods	$	131,736	$	139,034
Gases		13,844		15,011

	$	145,580	$	154,045

Net inventories determined by the LIFO inventory method totaled $12.1 million and $15.2 million at September 30, 2002 and March 31, 2002, respectively. If the FIFO inventory method had been used for these inventories, the carrying value would have been increased $1.4 million and $1.3 million at September 30, 2002 and March 31, 2002, respectively. Substantially all of the inventories are finished goods.

(8) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities include:

(In thousands)	(Unaudited) September 30, 2002		March 31, 2002
Cash overdraft	$	9,931	$	7,419
Accrued payroll and employee benefits		27,430		32,443
Business insurance reserves		14,808		13,266
Health insurance reserves		10,743		7,628
Accrued interest expense		12,093		17,255
Litigation reserves		720		11,292
Taxes other than income taxes		12,977		10,441
Other accrued expenses and current liabilities		28,102		36,646

	$	116,804	$	136,390

The cash overdraft is attributable to the float of the Company's outstanding checks. Accrued payroll and employee expenses decreased primarily due to the payment of prior year bonuses. Litigation reserves decreased due to the payment of the prior year Praxair, Inc. litigation settlement.

(9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company's involvement with derivative instruments is limited to highly effective fixed and floating interest rate swap agreements used to manage well-defined interest rate risk exposures. Interest rate swap agreements are not entered into for trading purposes.

At September 30, 2002, the Company had a notional amount of $40 million in fixed interest rate swap agreements that effectively convert a corresponding amount of variable interest rate operating leases to fixed interest rate instruments. During the six months ended September 30, 2002, the Company recorded a net change in the fair value of the fixed interest rate swap agreements of $1.5 million as accumulated other comprehensive income. The net additional interest payments made under these swap agreements during the six month period were recognized in interest expense.

At September 30, 2002, the Company also had a notional amount of $155 million in variable interest rate swap agreements that effectively converts a corresponding amount of fixed rate medium-term and senior subordinated notes to variable rate debt. The fair value of these variable interest rate swap agreements and the increased carrying value of the hedged portions of the medium-term and senior subordinated notes at September 30, 2002 was $18 million. The changes in the fair value of the swap agreements are offset by changes in the fair value of the hedged portions of the medium-term and senior subordinated notes.

In October 2002, the Company entered into two interest rate swap agreements totaling $50 million in notional principal amount with a term of three years, maturing in fiscal year 2006. The interest rate swaps effectively convert $50 million of variable rate debt under the Company's revolving credit facilities to fixed interest rate debt. Accordingly, the Company is required to make fixed interest payments based on an effective rate of 3.03% and receive variable interest payments from its counterparties based on the then current three-month London Interbank Offered Rate ("LIBOR") of 1.83%. The effect of these interest rate swap agreements was to adjust the Company's ratio of fixed to variable interest rates to 40% fixed and 60% variable.

(10) GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the six months ended September 30, 2002, were as follows:

(In thousands)		Distribution Segment			Gas Operations Segment		Total
Balance at March 31, 2002		$	332,325		$	74,223	$	406,548
	Acquisitions—adjustments		15,846			348		16,194
	Divestitures		(1,531	)		—		(1,531	)
	Other adjustments		120			—		120

Balance at September 30, 2002		$	346,760		$	74,571	$	421,331

Other intangible assets amounted to $22.1 million (net of accumulated amortization of $80.6 million) and $25.7 million (net of accumulated amortization of $77.6 million) at September 30, 2002 and March 31, 2002, respectively. These intangible assets primarily consist of acquired customer lists amortized over 11 years and non-compete agreements entered into in connection with business combinations amortized over the term of the agreements, principally five years. There are no expected residual values related to these intangible assets. Estimated remaining fiscal year amortization expense in millions is as follows: remainder of 2003—$3.8; 2004—$6.3; 2005—$4.3; 2006—$3.7; and $4.0 thereafter.

(11) STOCKHOLDERS' EQUITY

Changes in stockholders' equity were as follows:

(In thousands of shares)		Shares of Common Stock $.01 Par Value	Treasury Stock	Employee Benefits Trust
Balance—March 31, 2002		75,193	547	4,331
	Common stock issuance(a)	791	—	—
	Reissuance of stock from Trust(b)	—	—	(406	)

Balance—September 30, 2002		75,984	547	3,925

(In thousands of dollars)	Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury Stock			Employee Benefits Trust			Comprehensive Income
Balance—March 31, 2002	$	752	$	198,500	$	345,181	$	(4,401	)	$	(4,289	)	$	(32,657	)	$	—
Net earnings		—		—		33,244		—			—			—			33,244
Common stock issuance(a)		8		4,990		—		—			—			—			—
Foreign currency translation adjustments		—		—		—		(3	)		—			—			(3	)
Net change in fair value of interest rate swap agreements		—		—		—		1,472			—			—			1,472
Reissuance of common stock from Trust(b)		—		1,438		—		—			—			3,064			—
Net tax on comprehensive income items		—		—		—		(499	)		—			—			(499	)
Tax benefit from stock option exercises		—		3,580		—		—			—			—			—

Balance—September 30, 2002	$	760	$	208,508	$	378,425	$	(3,431	)	$	(4,289	)	$	(29,593	)	$	34,214

(a): Issuance of common stock for stock option exercises.
(b): Reissuance of common stock from the Employee Benefits Trust for employee benefit programs.

Amendment to 1997 Stock Option Plan

On July 31, 2002, the Company's stockholders approved an amendment to the 1997 Stock Option Plan (the "1997 Plan"). The amendment increased the total number of shares of Company common stock reserved for sale upon exercise of options and restricted stock awards granted under the 1997 Plan from 8 million to 11.2 million.

(12) COMMITMENTS AND CONTINGENCIES

Litigation

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

(13) SUMMARY BY BUSINESS SEGMENT

Information related to the Company's operations by business segment for the three months ended September 30, 2002 and 2001 is as follows:

		Three Months Ended September 30, 2002									Three Months Ended September 30, 2001
(Unaudited) (In thousands)		Distribution			Gas Operations			Combined			Distribution			Gas Operations			Combined
Gas and rent		$	214,905		$	39,883		$	254,788		$	171,817		$	38,976		$	210,793
Hardgoods			195,424			841			196,265			200,528			661			201,189

	Total net sales		410,329			40,724			451,053			372,345			39,637			411,982
Intersegment sales			—			10,318			10,318			—			8,413			8,413
Gross profit, excluding depreciation expense			209,579			27,387			236,966			178,495			25,427			203,922
Gross profit margin			51.1	%		67.3	%		52.5	%		47.9	%		64.2	%		49.5	%
Depreciation and amortization expense			16,843			2,962			19,805			14,941			2,907			17,848
Operating income			33,079			9,345			42,424			27,787			7,052			34,839
Goodwill			346,760			74,571			421,331			312,655			75,112			387,767
Total Assets			1,452,362			242,912			1,695,274			1,269,746			200,867			1,470,613

Information related to the Company's operations by business segment for the six months ended September 30, 2002 and 2001 is as follows:

		Six Months Ended September 30, 2002									Six Months Ended September 30, 2001
(Unaudited) (In thousands)		Distribution			Gas Operations			Combined			Distribution			Gas Operations			Combined
Gas and rent		$	431,862		$	74,710		$	506,572		$	345,292		$	75,782		$	421,074
Hardgoods			400,522			1,627			402,149			405,367			1,216			406,583

	Total net sales		832,384			76,337			908,721			750,659			76,998			827,657
Intersegment sales			—			19,671			19,671			—			17,251			17,251
Gross profit, excluding depreciation expense			420,185			52,183			472,368			357,906			49,468			407,374
Gross profit margin			50.5	%		68.4	%		52.0	%		47.7	%		64.2	%		49.2	%
Depreciation and amortization expense			34,136			5,868			40,004			30,021			5,776			35,797
Operating income, excluding special charges			65,779			15,549			81,328			54,358			13,265			67,623
Special charges			(2,694	)		—			(2,694	)		—			—			—

Operating income			63,085			15,549			78,634			54,358			13,265			67,623
Goodwill			346,760			74,571			421,331			312,655			75,112			387,767
Total Assets			1,452,362			242,912			1,695,274			1,269,746			200,867			1,470,613

(14) SUPPLEMENTARY CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

The obligations of the Company under its senior subordinated notes ("the Notes") are guaranteed by the Company's domestic subsidiaries (the "Guarantors"). The Company's joint venture operations, foreign holdings and bankruptcy remote special purpose entity (the "Non-guarantors") are not guarantors of the Notes. The guarantees are made on a joint and several basis. The claims of creditors of Non-guarantor subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries. Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors as of September 30, 2002 and March 31, 2002 and for the six-month periods ended September 30, 2002 and 2001.

Condensed Consolidating Balance Sheet
September 30, 2002
(Unaudited)

(In thousands)	Parent			Guarantors			Non- Guarantors			Elimination Entries			Consolidated
ASSETS
Current Assets
Trade receivables, net	$	—		$	4,623		$	81,154		$	—		$	85,777
Intercompany receivable/(payable)		—			(6,869	)		6,869			—			—
Inventories, net		—			141,988			3,592			—			145,580
Deferred income tax asset, net		7,850			5,733			—			—			13,583
Prepaid expenses and other current assets		11,241			17,503			147			—			28,891

Total current assets		19,091			162,978			91,762			—			273,831
Plant and equipment, net		18,494			832,348			21,047			—			871,889
Goodwill		—			410,958			10,373			—			421,331
Other intangible assets, net		678			21,215			201			—			22,094
Investments in unconsolidated affiliates		59,786			5,804			—			—			65,590
Investments in subsidiaries		1,341,243			—			—			(1,341,243	)		—
Intercompany receivable/(payable)		(162,029	)		186,739			(24,710	)		—			—
Other non-current assets		33,993			5,915			631			—			40,539

Total assets	$	1,311,256		$	1,625,957		$	99,304		$	(1,341,243	)	$	1,695,274

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade	$	10,051		$	70,551		$	2,847		$	—		$	83,449
Accrued expenses and other current liabilities		53,246			61,780			1,778			—			116,804
Current portion of long-term debt		—			2,590			81			—			2,671

Total current liabilities		63,297			134,921			4,706			—			202,924
Long-term debt		691,514			6,831			20,992			—			719,337
Deferred income tax liability, net		951			187,971			6,756			—			195,678
Other non-current liabilities		5,114			21,531			310			—			26,955
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value		—			—			—			—			—
Common stock, par value $.01 per share		760			—			—			—			760
Capital in excess of par value		208,508			887,501			8,224			(895,725	)		208,508
Retained earnings		378,425			387,444			59,231			(446,675	)		378,425
Accumulated other comprehensive loss		(3,431	)		(242	)		(915	)		1,157			(3,431	)
Treasury stock		(4,289	)		—			—			—			(4,289	)
Employee benefits trust		(29,593	)		—			—			—			(29,593	)

Total stockholders' equity		550,380			1,274,703			66,540			(1,341,243	)		550,380
Total liabilities and stockholders' equity	$	1,311,256		$	1,625,957		$	99,304		$	(1,341,243	)	$	1,695,274

Condensed Consolidating Balance Sheet
March 31, 2002

(In thousands)	Parent			Guarantors			Non- Guarantors			Elimination Entries			Consolidated
ASSETS
Current Assets
Trade receivables, net	$	—		$	25,088		$	63,546		$	—		$	88,634
Intercompany receivable/(payable)		—			(6,174	)		6,174			—			—
Inventories, net		—			151,334			2,711			—			154,045
Deferred income tax asset, net		7,850			5,360			—			—			13,210
Prepaid expenses and other current assets		31,137			16,321			196			—			47,654

Total current assets		38,987			191,929			72,627			—			303,543
Plant and equipment, net		15,924			856,978			20,113			—			893,015
Goodwill		—			396,242			10,306			—			406,548
Other intangible assets, net		997			24,721			—			—			25,718
Investments in unconsolidated affiliates		58,578			6,048			—			—			64,626
Investments in subsidiaries		1,314,314			—			—			(1,314,314	)		—
Intercompany receivable/(payable)		(141,785	)		168,176			(26,391	)		—			—
Other non-current assets		19,765			2,921			921			—			23,607

Total assets	$	1,306,780		$	1,647,015		$	77,576		$	(1,314,314	)	$	1,717,057

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade	$	5,047		$	74,968		$	2,470		$	—		$	82,485
Accrued expenses and other current liabilities		60,385			75,582			423			—			136,390
Current portion of long-term debt		—			2,375			81			—			2,456

Total current liabilities		65,432			152,925			2,974			—			221,331
Long-term debt		732,544			9,828			21,752			—			764,124
Deferred income tax liability, net		951			192,004			5,218			—			198,173
Other non-current liabilities		4,767			25,268			308			—			30,343
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value		—			—			—			—			—
Common stock, par value $.01 per share		752			—			—			—			752
Capital in excess of par value		198,500			907,765			8,224			(915,989	)		198,500
Retained earnings		345,181			359,442			40,037			(399,479	)		345,181
Accumulated other comprehensive loss		(4,401	)		(217	)		(937	)		1,154			(4,401	)
Treasury stock		(4,289	)		—			—			—			(4,289	)
Employee benefits trust		(32,657	)		—			—			—			(32,657	)

Total stockholders' equity		503,086			1,266,990			47,324			(1,314,314	)		503,086
Total liabilities and stockholders' equity	$	1,306,780		$	1,647,015		$	77,576		$	(1,314,314	)	$	1,717,057

Condensed Consolidating Statement of Earnings
Six Months Ended
September 30, 2002
(Unaudited)

(In thousands)		Parent			Guarantors			Non- Guarantors			Elimination Entries			Consolidated
Net Sales		$	—		$	899,019		$	9,702		$	—		$	908,721
Costs and Expenses
Costs of products sold (excluding depreciation)			—			434,094			2,259			—			436,353
Selling, distribution and administrative expenses			24,899			316,954			9,183			—			351,036
Depreciation			1,615			33,915			1,098			—			36,628
Amortization			32			3,344			—			—			3,376
Special charges			145			2,549			—			—			2,694

	Operating Income (Loss)		(26,691	)		108,163			(2,838	)		—			78,634
Interest (expense) income, net			(26,033	)		1,369			(497	)		—			(25,161	)
(Discount) gain on securitization of trade receivables			—			(34,305	)		32,555			—			(1,750	)
Other income (expense), net			29,435			(30,189	)		502			—			(252	)
Equity in earnings of unconsolidated affiliates			1,710			586			—			—			2,296

Earnings (losses) before income taxes			(21,579	)		45,624			29,722			—			53,767
Income tax benefit (expense)			7,553			(17,541	)		(10,535	)		—			(20,523	)
Equity in earnings of subsidiaries			47,270			—			—			(47,270	)		—

	Net Earnings	$	33,244		$	28,083		$	19,187		$	(47,270	)	$	33,244

Condensed Consolidating Statement of Earnings
Six Months Ended
September 30, 2001
(Unaudited)

(In thousands)		Parent			Guarantors			Non- Guarantors			Elimination Entries		Consolidated
Net Sales		$	—		$	817,404		$	10,253		$	—	$	827,657
Costs and Expenses
Costs of products sold (excluding depreciation)			—			417,797			2,486			—		420,283
Selling, distribution and administrative expenses			26,723			267,691			9,540			—		303,954
Depreciation			1,508			28,856			1,082			—		31,446
Amortization			129			4,222			—			—		4,351

	Operating Income (Loss)		(28,360	)		98,838			(2,855	)		—		67,623
Interest (expense) income, net			(25,934	)		2,461			710			—		(22,763	)
(Discount) gain on securitization of trade receivables			—			(32,563	)		29,579			—		(2,984	)
Other income (expense), net			34,358			(34,423	)		(113	)		—		(178	)
Equity in earnings of unconsolidated affiliates			1,465			765			—			—		2,230

Earnings (loss) before income taxes and the cumulative effect of a change in accounting principle			(18,471	)		35,078			27,321			—		43,928
Income tax benefit (expense)			6,465			(12,486	)		(9,903	)		—		(15,924	)
Equity in earnings (loss) of subsidiaries			(18,990	)		—			—			18,990		—
Cumulative effect of a change in accounting principle			—			(59,000	)		—			—		(59,000	)

	Net Earnings (Loss)	$	(30,996	)	$	(36,408	)	$	17,418		$	18,990	$	(30,996	)

Condensed Consolidating Statement of Cash Flows
Six Months Ended
September 30, 2002
(Unaudited)

(In thousands)	Parent			Guarantors			Non- Guarantors			Elimination Entries		Consolidated
Net cash provided by operating activities	$	1,763		$	76,880		$	3,231		$	—	$	81,874

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(4,151	)		(27,514	)		(2,606	)		—		(34,271	)
Proceeds from sales of plant and equipment		—			2,748			—			—		2,748
Proceeds from divestitures		—			3,167			—			—		3,167
Business acquisition and Acquisition liability settlements		—			(4,816	)		—			—		(4,816	)
Dividends and fees from unconsolidated affiliates		464			938			—			—		1,402
Other, net		(2,631	)		129			1,816			—		(686	)

Net cash used in investing activities		(6,318	)		(25,348	)		(790	)		—		(32,456	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		166,852			—			377			—		167,229
Repayment of debt		(207,882	)		(15,138	)		(1,137	)		—		(224,157	)
Exercise of stock options		4,998			—			—			—		4,998
Cash overdraft		—			2,512			—			—		2,512
Intercompany		40,587			(38,906	)		(1,681	)		—		—

Net cash provided by (used in) financing activities		4,555			(51,532	)		(2,441	)		—		(49,418	)

CHANGE IN CASH	$	—		$	—		$	—		$	—	$	—
Cash—Beginning of year		—			—			—			—		—

Cash—End of year	$	—		$	—		$	—		$	—	$	—

Condensed Consolidating Statement of Cash Flows
Six Months Ended
September 30, 2001
(Unaudited)

(In thousands)	Parent			Guarantors			Non- Guarantors			Elimination Entries		Consolidated
Net cash provided by (used in) operating activities	$	(10,779	)	$	185,562		$	(39,307	)	$	—	$	135,476

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		—			(27,254	)		(1,070	)		—		(28,324	)
Proceeds from sale of plant and equipment		—			2,160			10			—		2,170
Dividends and fees from unconsolidated affiliates		1,465			63			—			—		1,528
Other, net		3,126			(5,150	)		2,561			—		537

Net cash provided by (used in) investing activities		4,591			(30,181	)		1,501			—		(24,089	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		366,089			—			2,539			—		368,628
Repayment of debt		(434,575	)		(25,686	)		(659	)		—		(460,920	)
Financing costs		(8,753	)		—			—			—		(8,753	)
Exercise of stock options		1,739			—			—			—		1,739
Cash overdraft		—			(12,081	)		—			—		(12,081	)
Intercompany		81,688			(117,614	)		35,926			—		—

Net cash provided by (used in) financing activities		6,188			(155,381	)		37,806			—		(111,387	)

CHANGE IN CASH	$	—		$	—		$	—		$	—	$	—
Cash—Beginning of year		—			—			—			—		—

Cash—End of year	$	—		$	—		$	—		$	—	$	—

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS: THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001

INCOME STATEMENT COMMENTARY

Net Sales

Net sales increased 9.5% in the quarter ended September 30, 2002 ("current quarter") compared to the quarter ended September 30, 2001 ("prior year quarter"). Sales growth is attributable to the fourth quarter fiscal 2002 acquisition of the Air Products U.S. packaged gas business (the "Air Products acquisition"). On a same-store basis, however, sales decreased 2.8% versus the prior year quarter. The Company estimates same-store sales based on a comparison of current period sales to prior period sales, adjusted for acquisitions and divestitures. The pro-forma adjustments consist of adding acquired sales to or subtracting sales of divested operations from sales reported in the prior period. These pro-forma adjustments are not reflected in the table below.

	Three Months Ended September 30,
(in thousands) Net Sales	Three Months Ended September 30,
(in thousands) Net Sales	2002		2001		Increase
Distribution	$	410,329	$	372,345	$	37,984	10.2	%
Gas Operations		40,724		39,637		1,087	2.7	%

	$	451,053	$	411,982	$	39,071	9.5	%

The Distribution segment's principal products and services include industrial, medical and specialty gases; equipment rental; and hardgoods. Industrial gases consist of packaged and small bulk gases. Equipment rental fees are generally charged on cylinders, cryogenic liquid containers, bulk tanks and welding equipment. Hardgoods consist of welding supplies and equipment, safety products, and industrial tools and supplies. Distribution sales in the current quarter increased $38 million (10.2%) primarily from the Air Products acquisition. The Distribution segment's same-store sales declined by $13.9 million (-3.3%). The Distribution segment's same-store sales decline resulted from lower hardgoods sales of $14.4 million (-6.9%), partially offset by gas and rent sales growth of $500 thousand (0.3%). Lower sales of welding supplies and equipment and industrial tools reflect the generally weak industrial economy and continue to drive the decline in hardgoods sales. Lower safety product sales also contributed to the decline in hardgoods sales. Gas and rent sales grew slightly as pricing initiatives mitigated softening gas volumes. Gas and rent pricing initiatives have been designed to increase prices to customers with below market margins and to reduce product discounting. Gas and rent sales were also helped by growth in medical gas, rental welder and strategic account revenues. Strategic account sales (sales to large customers with multiple locations) in the current quarter of approximately $50 million increased 16% compared to the prior year quarter. The target for strategic account sales in fiscal 2003 is $180 million, representing an increase of 10% over fiscal 2002.

The Gas Operations segment's sales primarily include dry ice and carbon dioxide that are used for cooling and for the production of food, beverages and chemical products. In addition, the segment includes businesses that produce and distribute specialty gases and nitrous oxide. Gas Operations' sales increased $1.1 million (2.7%) compared to the prior year quarter resulting from same-store sales growth and net acquisition and divestiture activity. Same-store sales increased $900 thousand (2.2%) primarily from higher volumes of liquid carbon dioxide. Net acquisition and divestiture activity increased sales by $200 thousand as sales of high-end specialty gases from the Air Products acquisition offset the divestiture of two nitrous oxide plants sold in the third quarter of fiscal 2002.

Gross Profits

Gross profits, excluding depreciation, increased 16.2% and the gross profit margin increased 300 basis points to 52.5% during the current quarter compared to 49.5% in the prior year quarter.

	Three Months Ended September 30
(In thousands) Gross Profits	Three Months Ended September 30				Increase
(In thousands) Gross Profits	2002		2001		Increase
Distribution	$	209,579	$	178,495	$	31,084	17.4	%
Gas Operations		27,387		25,427		1,960	7.7	%

	$	236,966	$	203,922	$	33,044	16.2	%

The increase in Distribution gross profits of $31.1 million primarily resulted from the Air Products acquisition. The Distribution segment's gross profit margin of 51.1% in the current quarter increased 320 basis points from 47.9% in the prior year quarter. The improved gross margin reflects a shift in sales mix towards higher margin gas and rent sales primarily attributable to the business acquired from Air Products, which had a sales mix consisting of 76% gas and rent. The shift in sales mix also resulted from selected gas and rent pricing initiatives and the decline in lower-margin hardgoods sales. Gas and rent sales comprised 52.4% of the Distribution segment's sales compared to 46.1% in the prior year quarter.

The increase in Gas Operations' gross profits of $2 million was driven by production efficiencies and net acquisition and divestiture activity. Gross profits of the dry ice operations improved as a result of production efficiencies and lower raw material costs. Net acquisition and divestiture activity also improved gross profits as the high-margin specialty gas business acquired from Air Products more than compensated for the fiscal 2002 divestiture of two nitrous oxide plants. Gas Operations' gross profit margin increased 310 basis points to 67.3% from 64.2% in the prior year quarter.

Operating Expenses

Selling, distribution and administrative expenses ("SD&A") consist of personnel and related costs, distribution and warehouse costs, occupancy expenses and other selling, general and administrative expenses. SD&A expenses increased $23.5 million (15.5%) compared to the prior year quarter primarily from the addition of the Air Products operations. On a same-store basis, operating expenses were relatively flat resulting from expense control and operational efficiency initiatives. As a percentage of net sales, operating expenses increased 200 basis points to 38.7% compared to 36.7% in the prior year quarter. The increase in operating expenses as a percentage of sales reflects the addition of the Air Products packaged gas business. Packaged gas distribution typically carries higher operating expenses than the hardgoods portion of the business.

Depreciation expense of $18.2 million increased $2.4 million (15.2%) compared to $15.8 million in the prior year quarter. The increase in depreciation expense was primarily due to the addition of fixed assets from the Air Products acquisition. Amortization expense of $1.6 million in the current quarter decreased $438 thousand compared to the prior year quarter primarily from the expiration of certain non-compete agreements.

Operating Income

Operating income increased 21.8% in the current quarter compared to the prior year quarter.

	Three Months Ended September 30,
(in thousands) Operating Income	Three Months Ended September 30,
(in thousands) Operating Income	2002		2001		Increase
Distribution	$	33,079	$	27,787	$	5,292	19.0	%
Gas Operations		9,345		7,052		2,293	32.5	%

	$	42,424	$	34,839	$	7,585	21.8	%

The Distribution segment's operating income margin increased 60 basis points to 8.1% compared to 7.5% in the prior year quarter. The operating income margin increase reflects the higher gross profit margin, described above, partially offset by the increase in operating expenses as a percentage of sales.

The Gas Operations segment's operating income margin increased 510 basis points to 22.9% in the current quarter compared to 17.8% in the prior year quarter. The improved operating income margin primarily reflects the impact of the acquired specialty gas operations of the Air Products acquisition and improved margins of the dry ice portion of the business.

Interest Expense and Discount on Securitization of Trade Receivables

Interest expense, net, and the discount on securitization of trade receivables totaled $12.9 million representing a decrease of $403 thousand (-3.0%) compared to the prior year quarter. The decrease in interest expense resulted from lower weighted-average interest rates related to the Company's variable rate debt, which more than offset the impact of higher average debt levels. The increase in average debt levels was attributable to indebtedness associated with the Air Products acquisition.

The Company participates in a securitization agreement with two commercial banks to sell up to $175 million of qualifying trade receivables. The amount of outstanding receivables under the agreement was $154.5 million at September 30, 2002. 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 3, "Quantitative and Qualitative Disclosures About Market Risk," the Company manages its exposure to interest rate risk of certain borrowings through participation in interest rate swap agreements. Including the effect of the interest rate swap agreements, the Company's ratio of fixed to variable interest rates at September 30, 2002 was 34% fixed to 66% variable. In October 2002, the Company entered into two interest rate swap agreements, which adjusted the Company's ratio of fixed to variable interest rates to 40% fixed and 60% variable.

Income Tax Expense

The effective income tax rate at 37.5% of pre-tax earnings in the current quarter increased from 36.3% in the prior year quarter.

Net Earnings

Net earnings for the quarter ended September 30, 2002 were $19.2 million, or $0.27 per diluted share, compared to $14.6 million, or $0.21 per diluted share, in the prior year quarter.

RESULTS OF OPERATIONS: SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 2001

INCOME STATEMENT COMMENTARY

Net Sales

Net sales increased 9.8% in the six months ended September 30, 2002 ("current period") compared to the six months ended September 30, 2001 ("prior year period"). Sales growth is attributable to the fourth quarter fiscal 2002 acquisition of the Air Products U.S. packaged gas business. However, on a same-store basis, sales decreased 2.4% versus the prior year period. The Company estimates same-store sales based on a comparison of current period sales to prior period sales, adjusted for acquisitions and divestitures. The pro-forma adjustments consist of adding acquired sales to or subtracting sales of divested operations from sales reported in the prior period. These pro-forma adjustments are not reflected in the table below. In the second quarter of fiscal 2003, the Company modified its same-store sales computation to reflect a reallocation of $500 thousand of acquired sales from Distribution to the Gas Operations segment.

	Six Months Ended September 30,
(In thousands) Net Sales	Six Months Ended September 30,
(In thousands) Net Sales	2002		2001		Increase			(Decrease)
Distribution	$	832,384	$	750,659	$	81,725		10.9	%
Gas Operations		76,337		76,998		(661	)	(0.9	%)

	$	908,721	$	827,657	$	81,064		9.8	%

Distribution sales increased $81.7 million (10.9%) primarily due to the prior year Air Products acquisition partially offset by a decline in same-store sales. Distribution same-store sales declined $21.7 million (-2.5%) driven by a decrease in hardgoods sales of $25.3 million (-5.9%), partially offset by gas and rent sales growth of $3.6 million (0.8%). The decline in hardgoods same-store sales was driven by lower sales of welding supplies and equipment, industrial tools and safety products. The lower hardgoods sales are indicative of the generally weak industrial economy. Gas and rent same-store sales growth was driven by selective price increases implemented over the past year and by the reduction of product discounting. In addition, gas and rent sales growth was attributable to higher medical gas and strategic account sales (sales to large customer with multiple locations) as well as rental welder revenues.

Gas Operations' sales decreased $661 thousand (-0.9%) compared to the prior year period principally from a decline in same-store sales. Same-store sales decreased $677 thousand (-0.9%) primarily from lower first quarter sales volumes of dry ice and liquid carbon dioxide attributable to competitive pressures and unusually cool temperatures in various regions. Sales of high-end specialty gases from the business acquired from Air Products effectively offset lower sales from the divestiture of two nitrous oxide plants sold in the third quarter of fiscal 2002.

Gross Profits

Gross profits, excluding depreciation, increased 16.0% and the gross profit margin increased 280 basis points to 52.0% during the current period compared to 49.2% in the prior year period.

	Six Months Ended September 30,
(In thousands) Gross Profits	Six Months Ended September 30,				Increase
(In thousands) Gross Profits	2002		2001		Increase
Distribution	$	420,185	$	357,906	$	62,279	17.4	%
Gas Operations		52,183		49,468		2,715	5.5	%

	$	472,368	$	407,374	$	64,994	16.0	%

The increase in Distribution gross profits of $62.3 million primarily resulted from the Air Products acquisition. The Distribution segment's gross profit margin of 50.5% in the current period increased 280 basis points from 47.7% in the prior year period. The gross margin improvement resulted from a shift in the sales mix towards higher-margin gas and rent and selected price increases. The shift in sales mix was primarily attributable to the Air Products acquisition, which had a sales mix consisting of 76% gas and rent. Gas and rent sales comprised 51.9% of the Distribution segment's sales compared to 46.0% in the prior year period.

The increase in Gas Operations' gross profits of $2.7 million (5.5%) was driven by production efficiencies of the dry ice operations and net acquisition and divestiture activity. Gas Operations' gross profits were helped by efficiencies realized in the production of dry ice, which reduced the cost per ton produced. Net acquisition and divestiture activity consisted of gross profits attributable to high margin specialty gas business acquired from Air Products, which more than compensated for the divestiture of two nitrous oxide plants during fiscal 2002. Gas Operations' gross profit margin increased by 420 basis points to 68.4% from 64.2% in the prior year period.

Operating Expenses

Selling, distribution and administrative expenses increased $47.1 million (15.5%) compared to the prior year period principally from the addition of the Air Products operations. On a same-store basis, operating expenses were relatively flat resulting from expense control and operational efficiency initiatives. As a percentage of net sales, operating expenses increased 190 basis points to 38.6% compared to 36.7% in the prior year period. The increase in operating expenses as a percentage of sales reflects the addition of the Air Products business, a majority of which is comprised of the distribution of packaged gas. Packaged gas distribution typically carries higher operating expenses than the hardgoods portion of the business.

Costs associated with the integration of the Air Products acquisition were $1.7 million during the current year period. Integration of the Air Products acquisition is progressing smoothly with the completion of computer conversions as well as the consolidation of more 25 locations, including 15 plants. The integration activities are expected to be completed by the end of fiscal 2003.

Depreciation expense of $36.6 million increased $5.2 million (16.5%) compared to $31.4 million in the prior year period. The increase in depreciation expense was primarily due to the addition of fixed assets from the Air Products acquisition. Amortization expense of $3.4 million in the current period decreased $975 thousand compared to the prior year period primarily from the expiration of certain non-compete agreements.

Operating Income

Operating income increased 16.3% in the current period compared to the prior year period. Excluding special charges, operating income increased 20.3%.

	Six Months Ended September 30,
(In thousands) Operating Income	Six Months Ended September 30,
(In thousands) Operating Income	2002			2001		Increase			(Decrease)
Distribution	$	65,779		$	54,358	$	11,421		21.0	%
Gas Operations		15,549			13,265		2,284		17.2	%
Special charges		(2,694	)		—		(2,694	)	—	%

	$	78,634		$	67,623	$	11,011		16.3	%

The Distribution segment's operating income margin, excluding special charges, increased 70 basis points to 7.9% compared to 7.2% in the prior year period. The operating income margin increase reflects the higher gross profit margin, described above, partially offset by the increase in operating expenses as a percentage of sales.

The Gas Operations segment's operating income margin increased 320 basis points to 20.4% in the period compared to 17.2% in the prior year period. The improved operating income margin reflects the higher gross profit margin, described above, partially offset by the increase in operating expenses as a percentage of sales.

Special charges of $2.7 million in the current period consist of a first quarter restructuring charge related to the integration of the business acquired from Air Products and costs related to the consolidation of the Company's procurement function. The special charges include facility exit costs associated with the closure of certain facilities and severance for approximately 130 employees. The facilities to be exited included in the special charges existed as part of the Company's operations prior to the acquisition of the Air Products business.

Interest Expense and Discount on Securitization of Trade Receivables

Interest expense, net, and the discount on securitization of trade receivables totaled $26.9 million representing an increase of $1.2 million (4.5%) compared to the prior year period. The increase in interest expense resulted from higher average debt levels partially offset by lower weighted-average interest rates related to the Company's variable rate debt. The increase in average debt levels was attributable to indebtedness associated with acquisition activity, principally the Air Products acquisition.

Other income (expense), net

Other income (expense), net, in the current period reflects a $241 thousand net loss in the first quarter associated with divestiture related transactions, consisting of the completion of the sale of Kendeco, an industrial tool business in the distribution segment, and the resolution of an indemnity claim related to a prior period divestiture.

Income Tax Expense

The effective income tax rate was 38.2% of pre-tax earnings in the current period compared to 36.3% in the prior year period. The increase in the effective income tax rate was primarily due to the net divestiture loss discussed above, which provided minimal tax benefits. Excluding the impact of the divestitures, the effective income tax rate was 37.5%.

Pursuant to an accelerated depreciation provision of a fiscal 2002 change in the tax law, the Company anticipated receiving a tax refund of approximately $19 million during fiscal 2003 related to the assets acquired in the Air Products acquisition. After further review, it was concluded that the Company would not be eligible for the refund in fiscal 2003, but instead would receive the cash benefit over the next four years. As a result, an adjustment was made in the first quarter that resulted in approximately a $19 million reclassification between current and deferred income taxes. The adjustment did not impact net earnings or operating cash flows in the current period or in fiscal 2002.

Cumulative Effect of a Change in Accounting Principle

In connection with the adoption of SFAS 142 on April 1, 2001, the Company performed an evaluation of goodwill, which indicated that goodwill of one reporting unit, its tool business, was impaired. The prior year period includes a $59 million non-cash charge as the cumulative effect of a change in accounting principle for the write-down of goodwill to its fair value. The impaired goodwill was not deductible for taxes, and consequently, no tax benefit was recorded in relation to the charge.

Net Earnings

Net earnings for the six month period ended September 30, 2002 were $33.2 million, or $0.46 per diluted share, compared to a net loss of $31 million, or $0.45 per diluted share, in the prior year period. Excluding the current period's special charges and the prior year period's change in accounting principle, net earnings were $0.49 per diluted share versus $0.41 per diluted share for the periods ended September 30, 2002 and 2001, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash provided by operating activities declined to $81.9 million for the six months ended September 30, 2002 compared to $135.5 million in the comparable prior year period. In the current period, cash flows from operations were driven by an increase in net earnings adjusted for non-cash items, cash used for working capital and cash provided by the trade receivables securitization. Net earnings adjusted for non-cash items and cash used for working capital reflect the equal and opposite impact of the reversal of a $19 million tax refund related to a revised interpretation of a recent tax law change. There was no impact on operating cash flows from the deferred tax reversal. Excluding the deferred tax reversal, net earnings adjusted for non-cash items increased by $20.2 million. The increase was principally attributable to improved net earnings and higher deferred income taxes. Higher deferred income taxes resulted from accelerated tax depreciation on assets purchased in the Air Products acquisition. Excluding the deferred tax reversal, working capital used cash of $30.1 million compared to a use of cash of $1.8 million in the prior year period. The increase in working capital requirements in the current period primarily resulted from an increase in trade receivables and the settlement of accrued expenses. Trade receivables increased in conjunction with the higher sales levels associated with the Air Products acquisition. Accrued expenses used cash primarily due to the payment of the prior year settlement associated with the Praxair, Inc. litigation, accrued interest on the senior subordinated notes, and prior year bonuses. The Company's trade receivables securitization program provided cash of $20.5 million. The program was expanded to encompass the higher level of receivables. In the prior year period, the trade receivables securitization program was expanded through the sale of receivables under a second tranche, which provided cash of $66 million. Cash flows provided by operating activities were primarily used to fund capital expenditures and to repay outstanding debt.

Cash used in investing activities totaled $32.5 million during the current period and primarily consisted of capital expenditures and the payment of business acquisition liabilities, offset by proceeds from a divestiture. Capital expenditures were $6 million higher than the comparable prior year period largely due to construction of a liquid carbon dioxide plant in Hopewell, Virginia, which is expected to become operational in January 2003. The Company estimates capital spending for fiscal 2003 to be in the range of $70 to $75 million. Business acquisitions and liability settlements of $4.8 million primarily represent payments made during the current period for transaction and other fees associated with the Air Products acquisition. The divestiture of Kendeco, an industrial tool business, during the first quarter provided cash of $3.2 million.

Financing activities used cash of $49.4 million primarily for the net repayment of debt under the Company's revolving credit facilities of $56.9 million. Financing activities also included proceeds received from the exercise of stock options of $5 million and an increase of the cash overdraft of $2.5 million. The cash overdraft represents the balance of outstanding checks.

Cash on hand at the end of each period presented was zero. On a daily basis, depository accounts are swept of all available funds. The funds are deposited into a concentration account through which all cash on hand is used to repay debt under the Company's revolving credit facilities.

The Company will continue to look for appropriate acquisitions of distributors to complement its distribution network and improve its geographic coverage. Capital expenditures, current debt maturities and any future acquisitions are expected to 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.

The Company does not currently pay dividends.

Financial Instruments

Revolving Credit Facilities

At September 30, 2002, the Company had unsecured revolving credit facilities totaling $367.5 million and $50 million Canadian (U.S. $32.5 million) under a credit agreement with a maturity date of July 30, 2006. At September 30, 2002, the Company had borrowings under the credit agreement of approximately $178 million and $33 million Canadian (U.S. $21 million). The Company also had commitments under letters of credit supported by the credit agreement of approximately $28 million at September 30, 2002. The credit agreement contains covenants that include the maintenance of certain leverage ratios, a fixed charge ratio, and potential restrictions on certain additional borrowing, the payment of dividends and the repurchase of common stock. Based on restrictions related to certain leverage ratios, the Company had additional borrowing capacity under the revolving credit facilities in excess of $85 million at September 30, 2002. The variable interest rates of the U.S. and Canadian revolving credit facilities are based on LIBOR and Canadian Bankers' Acceptance Rates, respectively. At September 30, 2002, the effective interest rates on borrowings under the revolving credit facilities were 3.91% on U.S. borrowings and 2.96% on Canadian borrowings.

Borrowings under the revolving credit facilities are guaranteed by certain of the Company's domestic subsidiaries and Canadian borrowings are guaranteed by foreign subsidiaries. During the fourth quarter of fiscal 2002, the Company's credit rating as determined by third-party credit agencies was lowered in response to additional indebtedness related to the Air Products acquisition. If the Company's credit rating is further reduced, the Company will be required to grant a security interest in substantially all of the tangible and intangible assets of the Company for the benefit of the syndicate of lenders.

Term Loan

At September 30, 2002, the Company had $95 million outstanding under a term loan, which was obtained during fiscal 2002 in conjunction with the Air Products acquisition. The term loan is due in quarterly installments with a final payment due July 30, 2006. The term loan is unsecured and bears a variable interest rate based on LIBOR plus a spread related to the Company's credit rating. At September 30, 2002, the effective interest rate of the term loan was 3.80%.

Senior Subordinated Notes

At September 30, 2002, the Company had $225 million of senior subordinated notes (the "Notes") with a maturity date of October 1, 2011. The Notes bear interest at a fixed annual rate of 9.125%, payable semi-annually on April 1 and October 1 of each year. The notes contain covenants that could restrict the payment of dividends, the issuance of preferred stock, and the incurrence of additional indebtedness and liens. The notes are guaranteed on a subordinated basis by each of the domestic guarantors under the revolving credit facilities.

Medium-Term Notes and Other Debt

The Company had the following medium-term notes outstanding at September 30, 2002: $75 million of unsecured notes due March 2004 bearing interest at a fixed rate of 7.14% and $100 million of unsecured notes due September 2006 bearing interest at a fixed rate of 7.75%. The Company's long-term debt also included acquisition notes and other long-term debt instruments. At September 30, 2002, the Company's outstanding acquisition notes and other long-term debt instruments totaled approximately $10 million and had interest rates ranging from 7.00% to 9.00%.

Interest Rate Swap Agreements

The Company manages its exposure to changes in market interest rates through the use of interest rate swap agreements with major financial institutions. At September 30, 2002, the Company was party

to a total of 7 interest rate swap agreements with an aggregate $195 million in notional principal amount. Two swap agreements with $40 million in notional principal amount require the Company to make fixed interest payments based on an average effective rate of 6.46% and receive variable interest payments from its counterparties based on three-month LIBOR (average rate of 1.84% at September 30, 2002). The remaining terms of these swap agreements range from between 22 and 24 months. Five swap agreements with $155 million in notional principal amount require the Company to make variable interest payments primarily based on six-month LIBOR (average rate of 3.58% at September 30, 2002) and receive fixed interest payments from its counterparties based on an average effective rate of 8.05% at September 30, 2002. The remaining terms of these swap agreements range from between one and nine years. The Company monitors its positions and the credit ratings of its counterparties, and does not anticipate non-performance by the counterparties. After considering the effect of interest rate swap agreements, the Company's ratio of fixed to variable interest rates was 34% fixed and 66% variable at September 30, 2002.

In October 2002, the Company entered into two interest rate swap agreements totaling $50 million in notional principal amount with a term of three years, maturing in fiscal year 2006. The interest rate swaps effectively convert $50 million of variable rate debt under the Company's revolving credit facilities to fixed interest rate debt. Accordingly, the Company is required to make fixed interest payments based on an effective rate of 3.03% and receive variable interest payments from its counterparties based on the then current three-month LIBOR of 1.83%. The effect of these interest rate swap agreements was to adjust the Company's ratio of fixed to variable interest rates to 40% fixed and 60% variable.

A majority of the Company's variable rate debt is based on a spread over LIBOR. Based on the Company's outstanding variable rate debt (including the effect of interest rate swap agreements) and credit rating, for every increase in LIBOR of 25 basis points, it is estimated that the Company's annual interest expense would increase approximately $1.4 million.

Trade Receivables Securitization

The Company participates in a securitization agreement with two commercial banks to sell up to $175 million of qualifying trade receivables. The agreement expires in December 2003, but the initial term is subject to renewal provisions contained in the agreement. During the six months ended September 30, 2002, the Company sold, net of its retained interest, $987.9 million of trade receivables and remitted to bank conduits, pursuant to a servicing agreement, $833.4 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 $154.5 million at September 30, 2002 and $134 million at March 31, 2002. See Note 6 to the Financial Statements for additional disclosures.

OTHER

New Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized and measured at fair value in the period in which the liability is incurred rather than at the date of commitment to an exit or disposal plan. The Statement is effective for exit or disposal activities initiated after December 31, 2002.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. A retirement obligation is defined as one in which a legal obligation exists in the future resulting from existing laws, statutes or contracts. The Company is required to adopt SFAS 143 on April 1, 2003. The Company has evaluated SFAS 143 and does not believe its adoption will have a material impact on its results of operations, financial condition or liquidity.

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 Company's strategy of focusing on strategic product sales, including medical gases and welder rentals, to drive sales growth; the success of pricing initiatives in improving margins and eliminating product discounting; targeted strategic account sales growth of 10% in fiscal 2003; the ability of the Company to successfully integrate the business acquired from Air Products; the Hopewell, Virginia liquid carbon dioxide plant becoming operational in January 2003; fiscal 2003 capital spending ranging from $70 to $75 million; the identification of acquisition candidates; the funding of capital expenditures, current debt maturities and future acquisitions through the use of cash flow from operations, revolving credit facilities and other financing alternatives; the ability of the Company to arrange additional sources of financing for unanticipated requirements; the Company's estimate that for every increase in LIBOR of 25 basis points, interest expense will increase approximately $1.4 million; 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 product sales initiatives and resulting inability to drive sales growth; underlying market conditions; the market acceptance of price increases and the inability of price increases and sales growth to improve margins and offset any increases in costs; 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; higher than estimated costs to integrate the business acquired from Air Products; potential disruption to the Company's business from integration problems associated with the business acquired from Air Products; the inability to generate sufficient cash flow from operations or other sources to fund future acquisitions, capital expenditures, and current debt maturities; capital expenditure requirements that exceed or fall short of the expected range of $70 to $75 million; construction delays or other issues related to the Hopewell, Virginia liquid carbon dioxide plant; the inability to identify and successfully integrate acquisition candidates; changes in the Company's debt levels and/or credit rating which prevent the Company from arranging additional financing; the inability to manage interest rate exposure; the effects of competition from independent distributors and vertically integrated gas producers on products, pricing and sales growth; changes in product prices from gas producers and name-brand manufacturers and suppliers of hardgoods; 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.

Item 3. 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 rate 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. After the effect of interest rate swap agreements, the ratio of fixed to variable rate debt was 34% fixed and 66% variable at September 30, 2002. 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 September 30, 2002. For long-term debt obligations, the table presents cash flows related to payments of principal and interest by fiscal year of maturity. For interest rate swaps and LIBOR-based agreements, the table presents the notional amounts underlying the agreements by year of maturity. The notional amounts are used to calculate contractual payments to be exchanged and are not actually paid or received. Fair values were computed using market quotes, if available, or based on discounted cash flows using market interest rates as of the end of the period.

		Fiscal Year of Maturity
(In millions)		2003(a)			2004			2005			2006			2007			2008			Thereafter			Total		Fair Value
Fixed Rate Debt:
Medium-term notes		$	—		$	75		$	—		$	—		$	100		$	—		$	—		$	175	$	179
	Interest expense	$	7		$	13		$	8		$	8		$	4		$	—		$	—		$	40
	Average interest rate		7.49	%		7.49	%		7.75	%		7.75	%		7.75	%
Acquisition and other notes		$	—		$	2		$	1		$	6		$	1		$	—		$	—		$	10	$	11
	Interest expense	$	1		$	1		$	1		$	—		$	—		$	—		$	—		$	3
	Average interest rate		7.67	%		7.61	%		7.77	%		7.84	%		8.50	%
Senior subordinated notes		$	—		$	—		$	—		$	—		$	—		$	—		$	225		$	225	$	243
	Interest expense	$	10		$	21		$	21		$	21		$	21		$	21		$	71		$	186
	Interest rate		9.125	%		9.125	%		9.125	%		9.125	%		9.125	%		9.125	%		9.125	%
Variable Rate Debt:
Revolving credit facilities		$	—		$	—		$	—		$	—		$	199		$	—		$	—		$	199	$	199
	Interest expense	$	4		$	8		$	8		$	8		$	3		$	—		$	—		$	31
	Interest rate(b)		3.81	%		3.81	%		3.81	%		3.81	%		3.81	%
Term loan		$	7		$	18		$	22		$	30		$	18		$	—		$	—		$	95	$	95
	Interest expense	$	2		$	3		$	2		$	1		$	—		$	—		$	—		$	8
	Interest rate(b)		3.80	%		3.80	%		3.80	%		3.80	%		3.80	%

		Fiscal Year of Maturity
(In millions)		2003(a)			2004			2005			2006			2007			2008			Thereafter			Total			Fair Value
Interest Rate Swaps:
US $denominated Swaps:
2 Swaps Receive Variable/Pay Fixed
	Notional amounts	$	—		$	—		$	40		$	—		$	—		$	—		$	—		$	40		$	4
	Swap payments/(receipts)	$	1		$	2		$	1		$	—		$	—		$	—		$	—		$	4
	Variable receive rate = 1.84% (3 month LIBOR)
	Weighted average pay rate = 6.46%
5 Swaps Receive Fixed/Pay Variable
	Notional amounts	$	—		$	30		$	—		$	—		$	50		$	—		$	75		$	155		$	(18	)
	Swap payments/(receipts)	$	(4	)	$	(7	)	$	(6	)	$	(6	)	$	(4	)	$	(3	)	$	(12	)	$	(42	)
	Weighted average receive rate = 8.05%
	Variable pay rate = 3.58% (6 month LIBOR)
Other Off-Balance Sheet
LIBOR-based agreements:
Operating leases with trust(c)		$	1		$	1		$	41		$	—		$	—		$	—		$	—		$	43		$	43
	Lease expense	$	1		$	2		$	1		$	—		$	—		$	—		$	—		$	4
Trade receivables securitization(d)		$	—		$	155		$	—		$	—		$	—		$	—		$	—		$	155		$	155
	Discount on securitization	$	2		$	3		$	—		$	—		$	—		$	—		$	—		$	5

(a): Fiscal 2003 financial instrument maturities and interest expense relate to the period October 1, 2002 through March 31, 2003.
(b): The variable rate of U.S. revolving credit facilities and term loan is based on LIBOR as of September 30, 2002. The variable rate of the Canadian dollar portion of the revolving credit facilities is the rate on Canadian Bankers' acceptances as of September 30, 2002.
(c): The operating lease terminates October 8, 2004, but may be renewed subject to provisions of the lease agreement.
(d): The three-year agreement expires on December 19, 2003, but the initial term is subject to renewal provisions of the trade receivables securitization agreement.

Limitations of the tabular presentation

As the table incorporates only those interest rate risk exposures that exist as of September 30, 2002, 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 in part 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.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

The Company's chief executive officer and chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date within 90 days before the filing date of this quarterly report, 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 under the Securities and Exchange Act of 1934 is processed, summarized and recorded in the periods specified in the SEC's rules and forms and were designed to ensure that information relating to the Company and the Company's consolidated subsidiaries required to be disclosed by the Company in such reports is accumulated and communicated to them by others within those entities to allow timely decisions regarding required disclosure.

(b) Changes in internal controls

As part of the efforts to improve operating efficiencies, the Company has been consolidating and outsourcing certain financial functions to a shared services center. The internal control structure surrounding these functions continues to be modified to reflect the new processing environment. In executing this transition, management continues to monitor the effectiveness of the new control structure. There were no significant changes to the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

The annual meeting of the stockholders of the Company was held on July 31, 2002, where the following actions were taken:

(a): The stockholders voted to elect John A. H. Shober, Lee M. Thomas, and Robert L. Yohe to the Board of Directors. The votes cast for each Director were as follows:

	No. of Shares
	For	Withheld
John A. H. Shober	62,931,681	4,165,102
Lee M. Thomas	63,216,062	3,880,721
Robert L. Yohe	63,216,044	3,880,739

In addition to the Board members elected at the annual meeting, the following are directors whose terms in office as directors continued after the meeting: W. Thacher Brown, Frank B. Foster III, James W. Hovey, Peter McCausland, Paula A. Sneed, and David M. Stout.

(b): The stockholders voted to ratify the selection of KPMG LLP as the Company's independent auditors. The votes cast in regard to the action were as follows:

No. of Shares
For		Against		Abstain
65,586,321		1,399,188		111,274

(c): The stockholders voted to approve an amendment to the 1997 Stock Option Plan (the "1997 Plan"). The amendment to the 1997 Plan increased the total number of shares of Airgas common stock from 8,000,000 to 11,200,000 reserved for sale upon the exercise of stock options and restricted stock awards granted under the 1997 Plan. The votes cast in regard to the action were as follows:

No. of Shares
For		Against		Abstain
56,044,324		10,832,180		220,279

Item 6. Exhibits and Reports on Form 8-K

a.: Exhibits

The following exhibits are being filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.		Description
11		Calculation of earnings per share.
99.1		Certification of Peter McCausland as Chairman and Chief Executive Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of Roger F. Millay as Senior Vice President—Finance and Chief Financial Officer of Airgas, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

b.: Reports on Form 8-K

On July 30, 2002, the Company filed a Form 8-K pursuant to Item 5, reporting its earnings for its first quarter ended June 30, 2002.

On August 13, 2002, the Company filed a Form 8-K pursuant to Item 9, disclosing the sworn statements of its chief executive officer and chief financial officer pursuant to Order No. 4-460 issued under Section 21(a)(1) of the Securities Exchange Act of 1934.

Signatures

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant and Co-Registrants have duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

AIRGAS, INC.		AIRGAS EAST, INC.
(Registrant)		AIRGAS GREAT LAKES, INC. AIRGAS MID AMERICA, INC. AIRGAS NORTH CENTRAL, INC.
BY:	/s/ Robert M. McLaughlin Robert M. McLaughlin Vice President & Controller	AIRGAS SOUTH, INC. AIRGAS GULF STATES, INC. AIRGAS MID SOUTH, INC. AIRGAS INTERMOUNTAIN, INC. AIRGAS NORPAC, INC. AIRGAS NORTHERN CALIFORNIA & NEVADA, INC. AIRGAS SOUTHWEST, INC. AIRGAS WEST, INC. AIRGAS SAFETY, INC. RUTLAND TOOL & SUPPLY CO., INC. AIRGAS CARBONIC, INC. AIRGAS SPECIALTY GASES, INC. NITROUS OXIDE CORP. PURITAN MEDICAL PRODUCTS, INC. RED-D-ARC, INC. AIRGAS REALTY, INC. AIRGAS DATA, LLC
		(Co-Registrant)
		BY:	/s/ Robert M. McLaughlin Robert M. McLaughlin Vice President
		ATNL, INC.
		(Co-Registrant)
		BY:	/s/ Connie S. Linhart Connie S. Linhart President and Treasurer (Principal Executive Officer/ Principal Financial Officer/ Principal Accounting Officer)

DATED: November 13, 2002

Certifications

I, Peter McCausland, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Airgas, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/ PETER MCCAUSLAND

Peter McCausland
Chairman and Chief Executive Officer
(Principal Executive Officer)

I, Roger F. Millay, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Airgas, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c): presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.: The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002

/s/ ROGER F. MILLAY

Roger F. Millay
Senior Vice President—Finance and
Chief Financial Officer
(Principal Financial Officer)

QuickLinks

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

Item 6. Exhibits and Reports on Form 8-K