Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(Millions of dollars, except for share data)
The disclosures in this quarterly report are complementary to those made in the Company's 2008 annual report on Form 10-K. An analysis of results for the third quarter and first nine months of 2009, including an update to the Company's 2009 Outlook, is provided in the Management's Discussion and Analysis to follow. All comparisons in the discussion are to the corresponding prior year unless otherwise stated. All amounts presented are in accordance with U.S. generally accepted accounting principles, except as noted. All amounts are presented in millions of dollars, except for share data, unless otherwise indicated.
THIRD QUARTER 2009 VS. THIRD QUARTER 2008 THIRD QUARTER 2009 IN SUMMARY
• Due to the continuing slow economic recovery, the Company committed to additional actions associated with its global cost reduction plan which resulted in a charge to continuing operations of $124.0 ($84.2 after-tax, or $.39 per share). Additionally, the results included a charge of $32.1 ($21.0 after-tax, or $.10 per share) for a customer bankruptcy and asset actions, and a charge of $8.0 ($5.0 after-tax, or $.02 per share) for pension settlements.

• Sales of $1,976.2 declined 28%. Underlying business declined 11% from lower volumes primarily in the Electronics and Performance Materials and Merchant Gases segments and also in the Tonnage Gases segment. Additionally, lower energy and raw material cost pass-through to customers and unfavorable currency negatively impacted sales.

• Operating income of $143.8 declined $249.9 principally from lower volumes, the additional global cost reduction charge, and unfavorable currency impacts. In addition, operating income was lower as a result of the charge of $32.1 for the customer bankruptcy and asset actions and from the $8.0 pension settlement. The previous cost reduction actions favorably impacted operating income and resulted in lower operating and overhead costs.

• Income from continuing operations of $114.6 declined $180.4 and diluted earnings per share from continuing operations of $.54 declined $.81. A summary table of changes in diluted earnings per share is presented below.

• Loss from discontinued operations in the prior year included an after-tax charge of $237.0, or $1.09 per share, related to the impairment of the U.S. Healthcare assets.

• For a discussion of the challenges, risks, and opportunities on which management is focused, refer to the update to the Company's 2009 Outlook provided on page 37.

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Table of Contents

Changes in Diluted Earnings per Share

Three Months Ended 30 June Increase 2009 2008 (Decrease)

Diluted Earnings per Share

Net Income $ .53 $ .32 $ .21

Discontinued Operations (.01 ) (1.03 ) 1.02

Continuing Operations $ .54 $ 1.35 $ (.81 )

Operating Income (after-tax)
Underlying business
Volume (.47 ) Price/energy and raw materials .06 Costs .20 Currency (.09 ) Global cost reduction plan (.39 ) Customer bankruptcy and asset actions (.10 ) Pension settlement (.02 )

Operating Income (.81 )

Other (after-tax)
Equity affiliates' income (.06 ) Interest expense .04 Minority interest .01 Income tax rate (.01 ) Average shares outstanding .02

Other .00

Total Change in Diluted Earnings per Share from Continuing Operations $ (.81 )