UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-4534

AIR PRODUCTS AND CHEMICALS, INC.

7201 Hamilton Boulevard		State of incorporation: Delaware
Allentown, Pennsylvania, 18195-1501		I.R.S. identification number: 23-1274455
Tel. (610) 481-4911

Title of Each Class:		Registered on:
Common Stock, par value $1.00 per share		New York
Preferred Stock Purchase Rights		New York

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ
NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o
NO þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 
12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ

The aggregate market value of the voting stock held by non-affiliates of the registrant on 31 March 2009 was approximately $11.8 billion. For purposes of the foregoing calculations all directors and/or executive officers have been deemed to be affiliates, but the registrant disclaims that any such director and/or executive officer is an affiliate.

The number of shares of common stock outstanding as of 20 November 2009 was 211,705,911.

Portions of the registrant’s definitive Proxy Statement for the 2010 Annual Meeting of Shareholders are incorporated by reference into Part III.

 

 

PART I
Item 1. Business			3
Item 1A. Risk Factors			9
Item 1B. Unresolved Staff Comments			12
Item 2. Properties			13
Item 3. Legal Proceedings			14
Item 4. Submission of Matters to a Vote of Security Holders			14
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities			14
Item 6. Selected Financial Data			16
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			34
Item 8. Financial Statements and Supplementary Data			41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			91
Item 9A. Controls and Procedures			91
Item 9B. Other Information			91
PART III
Item 10. Directors, Executive Officers and Corporate Governance			91
Item 11. Executive Compensation			91
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13. Certain Relationships and Related Transactions, and Director Independence			92
Item 14. Principal Accountant Fees and Services			92
PART IV
Item 15. Exhibits and Financial Statement Schedules			92
Signatures			93
Index to Exhibits			96
EX-10.19
EX-10.20
EX-12
EX-21
EX-23.1
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

ITEM 1. BUSINESS

General Description of Business and Fiscal Year 2009 Developments

Air Products and Chemicals, Inc. (the Company), a Delaware corporation originally founded in 1940, serves technology, energy, industrial, and healthcare customers globally with a unique portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, performance materials, equipment, and services. The Company is the world’s largest supplier of hydrogen and helium and has built leading positions in growth markets such as semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives. As used in this report, unless the context indicates otherwise, the term “Company” includes subsidiaries and predecessors of the registrant and its subsidiaries.

As of September 2009, the Company completed the sale of its U.S. Healthcare business.

The Company manages its operations, assesses performance, and reports earnings under four business segments: Merchant Gases; Tonnage Gases; Electronics and Performance Materials; and Equipment and Energy.

Financial Information about Segments

Financial information concerning the Company’s four business segments appears in Note 23 to the Consolidated Financial Statements included under Item 8 herein.

Narrative Description of Business by Segments

Merchant Gases

Merchant Gases sells atmospheric gases such as oxygen, nitrogen, and argon (primarily recovered by the cryogenic distillation of air); process gases such as hydrogen and helium (purchased or refined from crude helium); and medical and specialty gases, along with certain services and equipment, throughout the world to customers in many industries, including those in metals, glass, chemical processing, food processing, healthcare, steel, general manufacturing, and petroleum and natural gas industries.

Merchant Gases includes the following types of products:

Liquid bulk—Product is delivered in bulk (in liquid or gaseous form) by tanker or tube trailer and stored, usually in its liquid state, in equipment designed and installed by the Company at the customer’s site for vaporizing into a gaseous state as needed. Liquid bulk sales are typically governed by three- to five-year contracts.

Packaged gases—Small quantities of product are delivered in either cylinders or dewars. The Company operates packaged gas businesses in Europe, Asia, and Brazil. In the United States, the Company’s packaged gas business sells products only for the electronics and magnetic resonance imaging (principally helium) industries.

Small on-site plants—Customers receive product through small on-sites (cryogenic or noncryogenic generators) either by a sale of gas contract or the sale of the equipment to the customer.

Healthcare products—Customers receive respiratory therapies, home medical equipment, and infusion services. These products and services are provided to patients in their homes, primarily in Europe. The Company has leading market positions in Spain, Portugal, and the United Kingdom, and in Mexico through its equity affiliate.

Electric power is the largest cost component in the production of atmospheric gases—oxygen, nitrogen, and argon. Natural gas is also an energy source at a number of the Company’s Merchant Gases facilities. The Company mitigates energy and natural gas price increases through pricing formulas and surcharges. A shortage or interruption of electricity or natural gas supply, or a price increase that cannot be passed through to customers, possibly for competitive reasons, may adversely affect the operations or results of Merchant Gases. During fiscal year 2009, no significant difficulties were encountered in obtaining adequate supplies of energy or raw materials.

Merchant Gases competes worldwide against three global industrial gas companies: L’Air Liquide S.A., Linde AG, and Praxair, Inc., and several regional sellers (including Airgas, Inc.). Competition in industrial gases is based primarily on price, reliability of supply, and the development of industrial gas applications. Competition in the healthcare business involves price, quality, service, and reliability of supply. In Europe, primary healthcare competitors include the same three global industrial gas companies mentioned previously, as well as smaller regional service providers. In some countries such as Spain, Portugal, and the United Kingdom, the Company tenders for significant

parts of the healthcare business with government agencies and is expecting to participate in tenders in some countries over the coming fiscal year.

Merchant Gases sales constituted 44% of the Company’s consolidated sales in fiscal year 2009, 40% in fiscal year 2008, and 39% in fiscal year 2007. Sales of atmospheric gases (oxygen, nitrogen, and argon) constituted approximately 21% of the Company’s consolidated sales in fiscal year 2009, 18% in fiscal year 2008, and 19% in fiscal year 2007.

Tonnage Gases

Tonnage Gases provides hydrogen, carbon monoxide, nitrogen, oxygen, and syngas principally to the energy production and refining, chemical, and metallurgical industries worldwide. Gases are produced at large facilities located adjacent to customers’ facilities or by pipeline systems from centrally located production facilities and are generally governed by contracts with 15 to 20 year terms. The Company is the world’s largest provider of hydrogen, which is used by oil refiners to facilitate the conversion of heavy crude feedstock and lower the sulfur content of gasoline and diesel fuels to reduce smog and ozone depletion. The energy production industry uses nitrogen injection for enhanced recovery of oil and natural gas and oxygen for gasification. The metallurgical industry uses nitrogen for inerting and oxygen for the manufacture of steel and certain nonferrous metals. The chemical industry uses hydrogen, oxygen, nitrogen, carbon monoxide, and synthesis gas (a hydrogen-carbon monoxide mixture) as feedstocks in the production of many basic chemicals. The Company delivers product through pipelines from centrally located facilities in or near the Texas Gulf Coast; Louisiana; Los Angeles, California; Alberta, Canada; Rotterdam, the Netherlands; Southern England, U.K.; Northern England, U.K.; Western Belgium; Ulsan, Korea; Nanjing, China; Tangshan, China; Kuan Yin, Taiwan; Singapore; and Camaçari, Brazil. The Company also owns less than controlling interests in pipelines located in Thailand and South Africa.

Tonnage Gases also includes a Polyurethane Intermediates (PUI) business. At its Pasadena, Texas facility, the Company produces dinitrotoluene (DNT) which is converted to toluene diamine (TDA) and sold for use as an intermediate in the manufacture of a major precursor of flexible polyurethane foam used in furniture cushioning, carpet underlay, bedding, and seating in automobiles. Most of the Company’s TDA is sold under long-term contracts with raw material cost and currency pass-through to a small number of customers. The Company employs proprietary technology and scale of production to differentiate its polyurethane intermediates from those of its competitors.

Natural gas is the principal raw material for hydrogen, carbon monoxide, and synthesis gas production. Electric power is the largest cost component in the production of atmospheric gases. The Company mitigates energy and natural gas price increases through long-term cost pass-through contracts. Toluene, ammonia, and hydrogen are the principal raw materials for the PUI business and are purchased from various suppliers under multiyear contracts. During fiscal year 2009, no significant difficulties were encountered in obtaining adequate supplies of energy or raw materials.

Tonnage Gases competes in the United States and Canada against three global industrial gas companies: L’Air Liquide S.A., Linde AG, Praxair, Inc., and several regional competitors. Competition is based primarily on price, reliability of supply, the development of applications that use industrial gases, and, in some cases, provision of other services or products such as power and steam generation. The Company also derives a competitive advantage from its pipeline networks, which enable it to provide a reliable and economic supply of products to customers. Similar competitive situations exist in the European and Asian industrial gas markets where the Company competes against the three global companies as well as regional competitors. Global competitors for the PUI business are primarily BASF Corporation and Bayer AG.

Tonnage Gases sales constituted approximately 31% of the Company’s consolidated sales in fiscal year 2009, 34% in fiscal year 2008, and 32% in fiscal year 2007. Tonnage Gases hydrogen sales constituted approximately 15% of the Company’s consolidated sales in fiscal year 2009, 17% in fiscal year 2008, and 17% in fiscal year 2007.

Electronics and Performance Materials

Electronics and Performance Materials employs applications technology to provide solutions to a broad range of global industries through chemical synthesis, analytical technology, process engineering, and surface science. This segment provides the electronics industry with specialty gases (such as nitrogen trifluoride, silane, arsine, phosphine, white ammonia, silicon tetrafluoride, carbon tetrafluoride, hexafluoromethane, critical etch gases, and tungsten hexafluoride) as well as tonnage gases (primarily nitrogen), specialty chemicals, services, and equipment for the manufacture of silicon and compound semiconductors, thin film transistor liquid crystal displays, and photovoltaic devices. These products are delivered through various supply chain methods, including bulk delivery systems or

distribution by pipelines such as those located in California’s Silicon Valley; Phoenix, Arizona; Tainan, Taiwan; Gumi and Giheung, Korea; and Tianjin and Shanghai, China.

Electronics and Performance Materials also provides performance materials for a wide range of products, including coatings, inks, adhesives, civil engineering, personal care, institutional and industrial cleaning, mining, oil refining, and polyurethanes, and focuses on the development of new materials aimed at providing unique functionality to emerging markets. Principal performance materials include polyurethane catalysts and other additives for polyurethane foam, epoxy amine curing agents, and auxiliary products for epoxy systems and specialty surfactants for formulated systems.

The Electronics and Performance Materials segment uses a wide variety of raw materials, including alcohols, ethyleneamines, cyclohexylamine, acrylonitriles, and glycols. During fiscal year 2009, no significant difficulties were encountered in obtaining adequate supplies of energy or raw materials.

The Electronics and Performance Materials segment faces competition on a product-by-product basis against competitors ranging from niche suppliers with a single product to larger and more vertically integrated companies. Competition is principally conducted on the basis of price, quality, product performance, reliability of product supply, technical innovation, service, and global infrastructure.

Total sales from Electronics and Performance Materials constituted approximately 19% of the Company’s consolidated sales in fiscal year 2009, 21% in fiscal year 2008, and 23% in fiscal year 2007.

Equipment and Energy

Equipment and Energy designs and manufactures cryogenic and gas processing equipment for air separation (utilizing membrane technology and adsorption technology), hydrocarbon recovery and purification, natural gas liquefaction (LNG), and helium distribution (cryogenic transportation containers), and serves energy markets in a variety of ways.

Equipment is sold globally to customers in the chemical and petrochemical manufacturing, oil and gas recovery and processing, and steel and primary metals processing industries. The segment also provides a broad range of plant design, engineering, procurement, and construction management services to its customers.

Energy markets are served through the Company’s operation and partial ownership of cogeneration and flue gas desulfurization facilities, its development of hydrogen as an energy carrier, and oxygen-based technologies to serve energy markets in the future. The Company owns and operates a cogeneration facility in Calvert City, Kentucky; operates and owns 50% interests in a 49-megawatt fluidized-bed coal-fired power generation facility in Stockton, California and a 24-megawatt gas-fired combined-cycle power generation facility near Rotterdam, the Netherlands; and operates and owns a 47.9% interest in a 112-megawatt gas-fueled power generation facility in Thailand. The Company also operates and owns a 50% interest in a flue gas desulphurization facility in Indiana.

Steel, aluminum, and capital equipment subcomponents (compressors, etc.) are the principal raw materials in the equipment portion of this segment. Adequate raw materials for individual projects are acquired under firm purchase agreements. Coal, petroleum coke, and natural gas are the largest cost components in the production of energy. The Company mitigates these cost components, in part, through long-term cost pass-through contracts. During fiscal year 2009, no significant difficulties were encountered in obtaining adequate supplies of raw materials.

Equipment and Energy competes with a great number of firms for all of its offerings except LNG heat exchangers, for which there are fewer competitors due to the limited market size and proprietary technologies. Competition is based primarily on technological performance, service, technical know-how, price, and performance guarantees.

The backlog of equipment orders (including letters of intent believed to be firm) from third-party customers (including equity affiliates) was approximately $239 million on 30 September 2009, approximately 75% of which is for cryogenic equipment and 13% of which is for LNG heat exchangers, as compared with a total backlog of approximately $399 million on 30 September 2008. The Company expects that approximately $203 million of the backlog on 30 September 2009 will be completed during fiscal year 2010.

Narrative Description of the Company’s Business Generally

Foreign Operations

The Company, through subsidiaries, affiliates, and minority-owned ventures, conducts business in over 40 countries outside the United States. Its international businesses are subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, import and export controls, and other economic, political, and regulatory policies of local governments.

The Company has majority or wholly owned foreign subsidiaries that operate in Canada, 17 European countries (including the United Kingdom and Spain), 10 Asian countries (including China, Korea, Singapore, and Taiwan), and four Latin American countries (including Mexico and Brazil). The Company also owns less-than-controlling interests in entities operating in Europe, Asia, Africa, the Middle East, and Latin America (including Italy, Germany, China, Korea, India, Singapore, Thailand, South Africa, and Mexico).

Financial information about the Company’s foreign operations and investments is included in Notes 7, 20, and 23 to the Consolidated Financial Statements included under Item 8 herein. Information about foreign currency translation is included under “Foreign Currency” in Note 1, and information on the Company’s exposure to currency fluctuations is included in Note 12 to the Consolidated Financial Statements included under Item 8 below and in “Foreign Currency Exchange Rate Risk” included under Item 7A below. Export sales from operations in the United States to unconsolidated customers amounted to $510 million, $629 million, and $677 million in fiscal years 2009, 2008, and 2007, respectively. Total export sales in fiscal year 2009 included $453 million in export sales to affiliated customers. The sales to affiliated customers were primarily equipment sales within the Equipment and Energy segment and Electronic and Performance Materials sales.

Technology Development

The Company pursues a market-oriented approach to technology development through research and development, engineering, and commercial development processes. It conducts research and development principally in its laboratories located in the United States (Trexlertown, Pennsylvania; Carlsbad, California; Milton, Wisconsin; and Phoenix, Arizona); the United Kingdom (Basingstoke, London, and Carrington); Germany (Hamburg); the Netherlands (Utrecht); Spain (Barcelona); and Asia (Tokyo, Japan; Shanghai, China; Giheung, Korea; and Hsinchu, Taiwan). The Company also funds and cooperates in research and development programs conducted by a number of major universities and undertakes research work funded by others—principally the United States Government.

The Company’s corporate research groups, which include science and process technology centers, support the research efforts of various businesses throughout the Company. Technology development efforts for use within Merchant Gases, Tonnage Gases, and Equipment and Energy focus primarily on new and improved processes and equipment for the production and delivery of industrial gases and new or improved applications for all such products. Research and technology development for Electronics and Performance Materials supports development of new products and applications to strengthen and extend the Company’s present positions. Work is also performed in Electronics and Performance Materials to lower processing costs and develop new processes for the new products.

Research and development expenditures were $116 million during fiscal year 2009, $131 million in fiscal year 2008, and $129 million in fiscal year 2007, and the Company expended $30 million on customer-sponsored research activities during fiscal year 2009, $25 million in fiscal year 2008, and $19 million in fiscal year 2007.

As of 1 November 2009, the Company owns 993 United States patents, 2,728 foreign patents, and is a licensee under certain patents owned by others. While the patents and licenses are considered important, the Company does not consider its business as a whole to be materially dependent upon any particular patent, patent license, or group of patents or licenses.

Environmental Controls

The Company is subject to various environmental laws and regulations in the countries in which it has operations. Compliance with these laws and regulations results in higher capital expenditures and costs. From time to time, the Company is involved in proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act (the federal Superfund law), similar state laws, and the Resource Conservation and Recovery Act (RCRA) relating to the designation of certain sites for investigation and possible cleanup. Additional information with respect to these proceedings is included under Item 3, Legal Proceedings, below. The Company’s accounting policy for environmental expenditures is discussed in Note 1, and environmental loss contingencies are discussed in Note 16 to the Consolidated Financial Statements included under Item 8, below.

The amounts charged to income from continuing operations on an after-tax basis related to environmental matters totaled $33 million in fiscal 2009, $31 million in 2008, and $25 million in 2007. These amounts represent an estimate of expenses for compliance with environmental laws, remedial activities, and activities undertaken to meet internal Company standards. Future costs are not expected to be materially different from these amounts.

Although precise amounts are difficult to determine, the Company estimates that in fiscal year 2009 it spent approximately $6 million on capital projects to control pollution versus $7 million in 2008. Capital expenditures to control pollution in future years are estimated at approximately $7 million in 2010 and $7 million in 2011. The cost of any environmental compliance generally is contractually passed through to the customer.

The Company accrues environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The potential exposure for such costs is estimated to range from $95 million to a reasonably possible upper exposure of $109 million. The accrual on the balance sheet for 30 September 2009 was $95.0 million and for 30 September 2008 was $82.9 million. Actual costs to be incurred in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. Subject to the imprecision in estimating future environmental costs, the Company does not expect that any sum it may have to pay in connection with environmental matters in excess of the amounts recorded or disclosed above would have a materially adverse effect on its financial condition or results of operations in any one year.

Employees

On 30 September 2009, the Company (including majority-owned subsidiaries) had approximately 18,900 employees, of whom approximately 18,400 were full-time employees and of whom approximately 11,400 were located outside the United States. The Company has collective bargaining agreements with unions at various locations that expire on various dates over the next four years. The Company considers relations with its employees to be satisfactory and does not believe that the impact of any expiring or expired collective bargaining agreements will result in a material adverse impact on the Company.

Available Information

All periodic and current reports, registration statements, and other filings that the Company is required to file with the Securities and Exchange Commission (SEC), including the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act (the 1934 Act Reports), are available free of charge through the Company’s Internet website at www.airproducts.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. All 1934 Act Reports filed during the period covered by this report were available on the Company’s website on the same day as filing.

The public may also read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

Seasonality

Although none of the four business segments are subject to seasonal fluctuations to any material extent, the Electronics and Performance Materials segment is susceptible to the cyclical nature of the electronics industry and to seasonal fluctuations in underlying end-use performance materials markets.

Working Capital

The Company maintains inventory where required to facilitate the supply of products to customers on a reasonable delivery schedule. Merchant Gases inventory consists primarily of industrial, medical, specialty gas, and crude helium inventories supplied to customers through liquid bulk and packaged gases supply modes. Merchant Gases inventory also includes home medical equipment to serve healthcare patients. Electronics inventories consist primarily of bulk and packaged specialty gases and chemicals and also include inventories to support sales of equipment and services. Performance Materials inventories consist primarily of bulk and packaged performance chemical solutions. The Tonnage Gases inventory is primarily Polyurethane Intermediates raw materials and finished goods; the remaining on-site plants and pipeline complexes have limited inventory. Equipment and Energy has limited inventory.

Customers

The Company does not have a homogeneous customer base or end market, and no single customer accounts for more than 10% of the Company’s consolidated revenues. The Company and the Tonnage and Electronics and Performance Materials segments do have concentrations of customers in specific industries, primarily refining, chemicals, and electronics. Within each of these industries, the Company has several large-volume customers with long-term contracts. A negative trend affecting one of these industries, or the loss of one of these major customers, although not material to the Company’s consolidated revenues, could have an adverse impact on the affected segment.

Governmental Contracts

No segment’s business is subject to a government entity’s renegotiation of profits or termination of contracts that would be material to the Company’s business as a whole.

Executive Officers of the Company

The Company’s executive officers and their respective positions and ages on 15 November 2009 follow. Information with respect to offices held is stated in fiscal years.

Name		Age				Office
M. Scott Crocco			45			Vice President and Corporate Controller (became Vice President in 2008; Corporate Controller in 2007; and Director of Corporate Decision Support in 2003)
Robert D. Dixon           (A)			50			Senior Vice President and General Manager — Merchant Gases (became Senior Vice President in 2008; Vice President and General Manager — Merchant Gases in 2007; President — Air Products Asia in 2003; and Vice President — Air Products Asia in 2003)
Michael F. Hilton           (A)			55			Senior Vice President and General Manager — Electronics and Performance Materials (became Senior Vice President in 2008; Vice President and General Manager — Electronics and Performance Materials in 2007; and Vice President — Electronics Businesses in 2003)
Paul E. Huck           (A)			59			Senior Vice President and Chief Financial Officer (became Senior Vice President in 2008; Vice President and Chief Financial Officer in 2004)
Stephen J. Jones           (A)			48			Senior Vice President and General Manager, Tonnage Gases, Equipment and Energy (became Senior Vice President and General Manager, Tonnage Gases, Equipment and Energy in 2009; Senior Vice President, General Counsel and Secretary in 2008; Vice President and Associate General Counsel in 2007; and Vice President and General Manager — Industrial Chemicals Division in 2003)
John E. McGlade           (A)(B)(C)			55			Chairman, President, and Chief Executive Officer (became Chairman and Chief Executive Officer in 2008; President and Chief Operating Officer in 2006; Group Vice President — Chemicals in 2003)
Lynn C. Minella           (A)			51			Senior Vice President — Human Resources and Communications (became Senior Vice President — Human Resources and Communications in 2008; Vice President — Human Resources in 2004)

Name		Age				Office
Scott A. Sherman           (A)			58			Senior Vice President — Strategic Development and Execution (became Senior Vice President — Strategic Development and Execution in 2009; Senior Vice President in 2008; Vice President and General Manager — Tonnage Gases, Equipment and Energy in 2007; and Vice President and General Manager — Energy and Process Industries in 2001)
John D. Stanley           (A)			51			Senior Vice President and General Counsel (became Senior Vice President and General Counsel in 2009; Assistant General Counsel, Americas and Europe in 2007; Assistant General Counsel, Corporate and Commercial in 2004)

     

(A)		Member, Corporate Executive Committee
(B)		Member, Board of Directors
(C)		Member, Executive Committee of the Board of Directors

ITEM 1A. RISK FACTORS

The Company operates in over 40 countries around the world and faces a variety of risks and uncertainties that could materially affect its future operations and financial performance. Many of these risks and uncertainties are not within the Company’s control. Risks that may significantly impact the Company include the following:

Overall Economic Conditions—Weak general economic conditions in markets in which the Company does business may decrease the demand for its goods and services and adversely impact its revenues, operating results, and cash flow.

Demand for the Company’s products and services depends in part on the general economic conditions affecting the countries and industries in which the Company does business. Currently, weak economic conditions in the U.S. and other countries and in industries served by the Company have impacted and may continue to impact demand for the Company’s products and services, in turn negatively impacting the Company’s revenues and earnings. Excess capacity in the Company’s or its competitors’ manufacturing facilities could decrease the Company’s ability to generate profits. Unanticipated contract terminations or project delays by current customers can also negatively impact financial results. In addition, the length and severity of the economic downturn have increased the risk of potential bankruptcy of customers and potential losses from accounts receivable.

Asset Impairments—The Company may be required to record impairment on its long-lived assets.

Weak demand may cause underutilization of the Company’s manufacturing capacity or elimination of product lines; contract terminations or customer shutdowns may force sale or abandonment of facilities and equipment; contractual provisions may allow customer buyout of facilities or equipment; or other events associated with weak economic conditions or specific product or customer events may require the Company to record an impairment on tangible assets, such as facilities and equipment, as well as intangible assets, such as intellectual property or goodwill, which would have a negative impact on its financial results.

Competition—Inability to compete effectively in a segment could adversely impact sales and financial performance.

The Company faces strong competition from several large, global competitors and many smaller regional ones in all of its business segments. Introduction by competitors of new technologies, competing products, or additional capacity could weaken demand for or impact pricing of the Company’s products, negatively impacting financial results. In addition, competitors’ pricing policies could materially affect the Company’s profitability or its market share.

Raw Material and Energy Cost and Availability—Interruption in ordinary sources of supply or an inability to recover increases in energy and raw material costs from customers could result in lost sales or reduced profitability.

Energy, including electricity, natural gas, and diesel fuel for delivery trucks, is the largest cost component of the Company’s business. Because the Company’s industrial gas facilities use substantial amounts of electricity, energy price fluctuations could materially impact the Company’s revenues and earnings. Hydrocarbons, including natural gas, are the primary feedstock for the production of hydrogen, carbon monoxide, and synthesis gas. The Electronics and Performance Materials segment uses a wide variety of raw materials, including alcohols, ethyleneamines, cyclohexamine, acrylonitriles, and glycols. Shortages or price escalation in these materials could negatively impact financial results. A disruption in the supply of energy and raw materials, whether due to market conditions, natural events, or other disruption, could prevent the Company from meeting its contractual commitments, harming its business and financial results.

The Company typically contracts to pass through cost increases in energy and raw materials to its customers, but cost variability can still have a negative impact on its results. The Company may not be able to raise prices as quickly as costs rise, or competitive pressures may prevent full recovery. Increases in energy or raw material costs that cannot be passed on to customers for competitive or other reasons would negatively impact the Company’s revenues and earnings. Even where costs are passed through, price increases can cause lower sales volume.

Regulatory Compliance—The Company is subject to extensive government regulation in jurisdictions around the globe in which it does business. Changes in regulations addressing, among other things, environmental compliance, import/export restrictions, and taxes, can negatively impact the Company’s operations and financial results.

The Company is subject to government regulation in the United States and foreign jurisdictions in which it conducts its business. The application of laws and regulations to the Company’s business is sometimes unclear. Compliance with laws and regulations may involve significant costs or require changes in business practice that could result in reduced profitability. Determination of noncompliance can result in penalties or sanctions that could also impact financial results. Compliance with changes in laws or regulations can require additional capital expenditures or increase operating costs. Export controls or other regulatory restrictions could prevent the Company from shipping its products to and from some markets or increase the cost of doing so. Changes in tax laws and regulations and international tax treaties could affect the financial results of the Company’s businesses.

Greenhouse Gases—Legislative and regulatory responses to global climate change create financial risk.

Some of the Company’s operations are within jurisdictions that have, or are developing, regulatory regimes governing emissions of greenhouse gases (GHG). These include existing and expanding coverage under the European Union Emissions Trading Scheme; mandatory reporting and reductions at manufacturing facilities in Alberta, Canada; and mandatory reporting and anticipated constraints on GHG emissions in California and Ontario. In addition, increased public awareness and concern may result in more international, U.S. federal, and/or regional requirements to reduce or mitigate the effects of GHG. Although uncertain, these developments could increase the Company’s costs related to consumption of electric power, hydrogen production, and fluorinated gases production. The Company believes it will be able to mitigate some of the potential increased cost through its contractual terms, but the lack of definitive legislation or regulatory requirements prevents accurate estimate of the long-term impact on the Company. Any legislation that limits or taxes GHG emissions could impact the Company’s growth, increase its operating costs, or reduce demand for certain of its products.

Environmental Compliance—Costs and expenses resulting from compliance with environmental regulations may negatively impact the Company’s operations and financial results.

The Company is subject to extensive federal, state, local, and foreign environmental and safety laws and regulations concerning, among other things, emissions in the air, discharges to land and water, and the generation, handling, treatment, and disposal of hazardous waste and other materials. The Company takes its environmental responsibilities very seriously, but there is a risk of environmental impact inherent in its manufacturing operations. Future developments and more stringent environmental regulations may require the Company to make additional unforeseen environmental expenditures. In addition, laws and regulations may require significant expenditures for environmental protection equipment, compliance, and remediation. These additional costs may adversely affect

financial results. For a more detailed description of these matters, see “Narrative Description of the Company’s Business Generally—Environmental Controls,” above.

Foreign Operations, Political, and Legal Risks—The Company’s foreign operations can be adversely impacted by nationalization or expropriation of property, undeveloped property rights, and legal systems or political instability.

The Company’s operations in certain foreign jurisdictions are subject to nationalization and expropriation risk, and some of its contractual relationships within these jurisdictions are subject to cancellation without full compensation for loss. Economic and political conditions within foreign jurisdictions, social unrest or strained relations between countries can cause fluctuations in demand, price volatility, supply disruptions, or loss of property. The occurrence of any of these risks could have a material, adverse impact on the Company’s operations and financial results.

Interest Rate Increases—The Company’s earnings, cash flow, and financial position can be impacted by interest rate increases.

At 30 September 2009, the Company had total consolidated debt of approximately $4,501.5 million, of which approximately $785.9 million will mature in the next twelve months. The Company expects to continue to incur indebtedness to fund new projects and replace maturing debt. Although the Company actively manages its interest rate risk through the use of derivatives and diversified debt obligations, not all borrowings at variable rates are hedged, and new debt will be priced at market rates. If interest rates increase, the Company’s interest expense could increase significantly, affecting earnings and reducing cash flow available for working capital, capital expenditures, acquisitions, and other purposes. In addition, changes by any rating agency to the Company’s outlook or credit ratings could increase the Company’s cost of borrowing.

Currency Fluctuations—Changes in foreign currencies may adversely affect the Company’s financial results.

A substantial amount of the Company’s sales are derived from outside the United States and denominated in foreign currencies. The Company also has significant production facilities which are located outside of the United States. Financial results therefore will be affected by changes in foreign currency rates. The Company uses certain financial instruments to mitigate these effects, but it is not cost-effective to hedge foreign currency exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates on earnings, cash flows, and fair values of assets and liabilities. Accordingly, reported sales, net earnings, cash flows, and fair values have been and in the future will be affected by changes in foreign exchange rates. For a more detailed discussion of currency exposure, see Item 7A, below.

Pension Liabilities—The Company’s results of operations and financial condition could be negatively impacted by its U.S. and non-U.S. pension plans.

Adverse equity market conditions and volatility in the credit markets have had and may continue to have an unfavorable impact on the value of the Company’s pension trust assets and its future estimated pension liabilities. As a result, the Company’s financial results in any period could be negatively impacted. In addition, in a period of an extended financial market downturn, the Company could be required to provide increased pension plan funding, which could negatively impact the Company’s financial flexibility. For information about potential impacts from pension funding and the use of certain assumptions regarding pension matters, see the discussion in Note 15 to the Consolidated Financial Statements included in Item 8, below.

Catastrophic Events—Catastrophic events could disrupt the Company’s operations or the operations of its suppliers or customers, having a negative impact on the Company’s business, financial results, and cash flow.

The Company’s operations could be impacted by catastrophic events outside the Company’s control, including severe weather conditions such as hurricanes, floods, earthquakes, and storms; health epidemics and pandemics; or acts of war and terrorism. Any such event could cause a serious business disruption that could affect the Company’s ability to produce and distribute its products and possibly expose it to third-party liability claims. Additionally, such events could impact the Company’s suppliers, in which event energy and raw materials may be unavailable to the Company, or its customers may be unable to purchase or accept the Company’s products and services. Any such occurrence could have a negative impact on the Company’s operations and financial results.

Operational Risks—Operational and execution risks may adversely affect the Company’s operations or financial results.

The Company’s operation of its facilities, pipelines, and delivery systems inherently entails hazards that require continuous oversight and control, such as pipeline leaks and ruptures, fire, explosions, toxic releases, mechanical failures, or vehicle accidents. If operational risks materialize, they could result in loss of life, damage to the environment, or loss of production, all of which could negatively impact the Company’s ongoing operations, financial results, and cash flow. In addition, the Company’s operating results are dependent on the continued operation of its production facilities and its ability to meet customer requirements. Insufficient capacity may expose the Company to liabilities related to contract commitments. Operating results are also dependent on the Company’s ability to complete new construction projects on time, on budget, and in accordance with performance requirements. Failure to do so may expose the Company to loss of revenue, potential litigation, and loss of business reputation.

Information Security—The security of the Company’s Information Technology systems could be compromised, which could adversely affect its ability to operate.

The Company utilizes a global enterprise resource planning (ERP) system and other technologies for the distribution of information both within the Company and to customers and suppliers. The ERP system and other technologies are potentially vulnerable to interruption from viruses, hackers, or system breakdown. To mitigate these risks, the Company has implemented a variety of security measures, including virus protection, redundancy procedures, and recovery processes. A significant system interruption, however, could materially affect the Company’s operations, business reputation, and financial results.

Litigation and Regulatory Proceedings—The Company’s financial results may be affected by various legal and regulatory proceedings, including those involving antitrust, environmental, or other matters.

The Company is subject to litigation and regulatory proceedings in the normal course of business and could become subject to additional claims in the future, some of which could be material. The outcome of existing legal proceedings may differ from the Company’s expectations because the outcomes of litigation, including regulatory matters, are often difficult to reliably predict. Various factors or developments can lead the Company to change current estimates of liabilities and related insurance receivables where applicable, or make such estimates for matters previously not susceptible to reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on the Company’s results of operations in any particular period. For a more detailed discussion of the legal proceedings involving the Company, see Item 3, below.

Recruiting and Retaining Employees—Inability to attract, retain, or develop skilled employees could adversely impact the Company’s business.

Sustaining and growing the Company’s business depends on the recruitment, development, and retention of qualified employees. Demographic trends and changes in the geographic concentration of global businesses have created more competition for talent. The inability to attract, develop, or retain quality employees could negatively impact the Company’s ability to take on new projects and sustain its operations, which might adversely affect the Company’s operations or its ability to grow.

Portfolio Management—The success of portfolio management activities is not predictable.

The Company continuously reviews and manages its portfolio of assets in order to maximize value for its shareholders. Portfolio management involves many variables, including future acquisitions and divestitures, restructurings and resegmentations, and cost-cutting and productivity initiatives. The timing, impact, and ability to complete such undertakings, the costs and financial charges associated with such activities, and the ultimate financial impact of such undertakings are uncertain and can have a negative short- or long-term impact on the Company’s operations and financial results.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company has not received any written comments from the Commission staff that remain unresolved.

ITEM 2. PROPERTIES

The Company owns its principal executive offices, which are located at its headquarters in Trexlertown, Pennsylvania, and also owns additional administrative offices in Hersham, England and in Hattingen, Germany. Its regional Asian administrative offices, which are leased, are located in Hong Kong; Shanghai, China; Taipei, Taiwan; Petaling Jaya, Malaysia; and Singapore. Additional administrative offices are leased in Ontario, Canada; Kawasaki, Japan; Seoul, Korea; Brussels, Belgium; Paris, France; Barcelona, Spain; Rotterdam, the Netherlands; and São Paulo, Brazil. Management believes the Company’s manufacturing facilities, described in more detail below, are adequate to support its businesses.

Following is a description of the properties used by the Company’s four business segments:

Merchant Gases

Merchant Gases currently operates over 170 facilities across the United States and in Canada (approximately 38 of which sites are owned); over 110 sites in Europe, including healthcare (approximately half of which sites are owned); and over 75 facilities in seven countries within Asia and in Brazil. Helium is recovered at sites in Kansas and Texas and distributed from several transfill sites in the United States, Europe, and Asia. Sales support offices are located at its Trexlertown headquarters, and in leased properties in three states, at all administrative sites in Europe, and at 15 sites in Asia. Research and development (R&D) activities for this segment are conducted in Trexlertown, Pennsylvania.

Tonnage Gases

Tonnage Gases operates 50 plants in the United States and Canada that produce over 300 standard tons per day of product. Over 30 of these facilities produce or recover hydrogen, many of which support the four major pipeline systems located along the Gulf Coast of Texas; on the Mississippi River corridor in Louisiana; in Los Angeles, California; and Alberta, Canada. The Tonnage Gases segment includes a facility in Pasadena, Texas that produces Polyurethane Intermediate products. The segment also operates over 30 tonnage plants in Europe and 17 tonnage plants within Asia, the majority of which are on leasehold type long-term structured agreements. Sales support offices are located at the Company’s headquarters in Trexlertown, Pennsylvania and leased offices in Texas, Louisiana, California, and Calgary, Alberta in North America, as well as in Hersham, England; Rotterdam, the Netherlands; Shanghai, China; Singapore; and Doha, Qatar in the Middle East.

Electronics and Performance Materials

The electronics business within the Electronics and Performance Materials segment produces, packages, and stores nitrogen, specialty gases, and electronic chemicals at over 45 sites in the United States (the majority of which are leased), nine facilities (including sales offices) in Europe, and over 45 facilities in Asia (approximately half of which are located on customer sites).

The performance materials portion of this segment operates facilities in Los Angeles, California; Calvert City, Kentucky; Wichita, Kansas; Milton, Wisconsin; Reserve, Louisiana; Clayton, England; Singapore; Isehara, Japan; and Changzhou, China. In April 2009, S.I.Q. — Beteiligungs GmbH, a German epoxy additives firm located in Marl, Germany, became an integral part of the Company’s epoxy additives business. A specialty amines facility operates in Nanjing, China. Substantially all of the Performance Materials properties are owned.

This segment has six field sales offices in the United States as well as sales offices in Europe, Taiwan, Korea, Singapore, and China, the majority of which are leased. The segment conducts R&D related activities at five locations worldwide, including Hsinchu, Taiwan and Giheung, South Korea.

Equipment and Energy

Equipment and Energy operates seven manufacturing plants and two sales offices in the U.S. The Company manufactures a significant portion of the world’s supply of LNG equipment at its Wilkes-Barre, Pennsylvania site. Air separation columns and cold boxes for Company-owned facilities and third-party sales are produced by operations in Acrefair in the United Kingdom; Istres, France; Caojing, China; as well as in the Wilkes-Barre facility when capacity is available. Cryogenic transportation containers for liquid helium are manufactured and reconstructed at facilities in eastern Pennsylvania and Liberal, Kansas. Offices in Hersham, England, and Shanghai, China house Equipment commercial team members.

Electric power is produced at various facilities, including Stockton, California; Calvert City, Kentucky; and Rotterdam, the Netherlands. Flue gas desulfurization operations are conducted at the Pure Air facility in Chesterton, Indiana.

Additionally, the Company owns a 47.9% interest in a gas-fueled power generation facility in Thailand. The Company or its affiliates own approximately 50% of the real estate in this segment and lease the remaining 50%.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, the Company and its subsidiaries are involved in various legal proceedings, including contract, product liability, intellectual property, and insurance matters. Although litigation with respect to these matters is routine and incidental to the conduct of the Company’s business, such litigation could result in large monetary awards, especially if a civil jury is allowed to determine compensatory and/or punitive damages. However, the Company believes that litigation currently pending to which it is a party will be resolved without any material adverse effect on its financial position, earnings, or cash flows.

The Company is also from time to time involved in certain competition, environmental, health, and safety proceedings involving governmental authorities. The Company is a party to proceedings under the Comprehensive Environmental Response, Compensation, and Liability Act (the federal Superfund law); the Resource Conservation and Recovery Act (RCRA); and similar state environmental laws relating to the designation of certain sites for investigation or remediation. Presently there are approximately 28 sites on which a final settlement has not been reached where the Company, along with others, has been designated a Potentially Responsible Party by the Environmental Protection Agency or is otherwise engaged in investigation or remediation, including cleanup activity at certain of its manufacturing sites. The Company does not expect that any sums it may have to pay in connection with these matters would have a materially adverse effect on its consolidated financial position. Additional information on the Company’s environmental exposure is included under “Narrative Description of the Company’s Business Generally—Environmental Controls.”

On 13 March 2008, the Company was notified that the U.S. Environmental Protection Agency had made a referral to the U.S. Department of Justice concerning alleged violations of the Resource Conservation and Recovery Act (RCRA) related to sulfuric acid exchange at the Company’s Pasadena, Texas facility. The Department of Justice has proposed a fine related to the alleged violations. The Company has contested the allegations and the basis for the fine, but is in settlement discussions with the Department of Justice and expects to settle the matter on terms that would not be material. Any sums it may have to pay in connection with this matter would not have a materially adverse effect on its consolidated financial position or net cash flows.

During the third quarter of 2008, a unit of the Brazilian Ministry of Justice issued a report (previously issued in January 2007 and then withdrawn) on its investigation of the Company’s Brazilian subsidiary, Air Products Brasil Ltda., and several other Brazilian industrial gas companies. The report recommended that the Brazilian Administrative Council for Economic Defense impose sanctions on Air Products Brasil Ltda. and the other industrial gas companies for alleged anticompetitive activities. The Company is actively defending this action and cannot, at this time, reasonably predict the ultimate outcome of the proceedings or sanctions, if any, that will be imposed. While the Company does not expect that any sums it may have to pay in connection with this or any other legal proceeding would have a materially adverse effect on its consolidated financial position or net cash flows, a future charge for regulatory fines or damage awards could have a significant impact on the Company’s net income in the period in which it is recorded.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

The Company’s common stock (ticker symbol APD) is listed on the New York Stock Exchange. Quarterly stock prices, as reported on the New York Stock Exchange composite tape of transactions, and dividend information for the last two fiscal years appear below. Cash dividends on the Company’s common stock are paid quarterly. The

Company’s objective is to pay dividends consistent with the reinvestment of earnings necessary for long-term growth. It is the Company’s expectation that comparable cash dividends will continue to be paid in the future.

Quarterly Stock Information

2009		High				Low				Close				Dividend
First		$	68.51			$	41.46			$	50.27			$	.44
Second			60.20				43.44				56.25				.45
Third			69.93				54.73				64.59				.45
Fourth			80.60				60.52				77.58				.45
														$	1.79

2008		High				Low				Close				Dividend
First		$	105.02			$	92.05			$	98.63			$	.38
Second			98.80				80.73				92.00				.44
Third			106.06				92.20				98.86				.44
Fourth			100.14				65.05				68.49				.44
														$	1.70

The Company has authority to issue 25,000,000 shares of preferred stock in series. The Board of Directors is authorized to designate the series and to fix the relative voting, dividend, conversion, liquidation, redemption, and other rights, preferences, and limitations. When preferred stock is issued, holders of Common Stock are subject to the dividend and liquidation preferences and other prior rights of the preferred stock. There currently is no preferred stock outstanding. The Company’s Transfer Agent and Registrar is American Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, New York 10038, telephone (800) 937-5449 (U.S. and Canada) or (718) 921-8124 (all other locations), Internet website www.amstock.com, and e-mail address info@amstock.com. As of 31 October 2009, there were 8,614 record holders of the Company’s common stock.

Purchases of Equity Securities by the Issuer

On 20 September 2007, the Company’s Board of Directors authorized the repurchase of $1.0 billion of common stock. The program does not have a stated expiration date. As of 30 September 2009, the Company had purchased four million of its outstanding shares under this authorization at a cost of $350.8 million. There were no purchases of stock during fiscal year 2009. Additional purchases will be completed at the Company’s discretion while maintaining sufficient funds for investing in its businesses and growth opportunities.

Performance Graph

The performance graph below compares the five-year cumulative returns of the Company’s common stock with those of the Standard & Poor’s 500 and Dow Jones Chemicals Composite Indices. The figures assume an initial investment of $100 and the reinvestment of all dividends.

ITEM 6. SELECTED FINANCIAL DATA

(Millions of dollars, except per share)		2009				2008				2007				2006				2005
Operating Results
Sales		$	8,256			$	10,415			$	9,148			$	7,885			$	6,822
Cost of sales			6,042				7,693				6,699				5,817				4,974
Selling and administrative			943				1,090				1,000				892				841
Research and development			116				131				129				140				121
Global cost reduction plan			298				—				14				71				—
Customer contract settlement			—				—				(37	)			—				—
Customer bankruptcy			22				—				—				—				—
Pension settlement			11				30				10				—				—
Operating income			846				1,496				1,376				1,042				922
Equity affiliates’ income			112				145				114				92				91
Interest expense			122				162				162				118				109
Income tax provision			185				365				287				262				231
Income from continuing operations			640				1,091				1,020				734				659
Net income			631				910				1,036				723				712
Basic earnings per common share
Income from continuing operations			3.05				5.14				4.72				3.31				2.92
Net income			3.01				4.29				4.79				3.26				3.15
Diluted earnings per common share
Income from continuing operations			3.00				4.97				4.57				3.23				2.85
Net income			2.96				4.15				4.64				3.18				3.08
Year-End Financial Position
Plant and equipment, at cost		$	15,751			$	14,989			$	14,439			$	12,910			$	11,915
Total assets			13,029				12,571				12,660				11,181				10,409
Working capital			494				636				436				289				471
Total debt (A)			4,502				3,967				3,668				2,846				2,490
Shareholders’ equity			4,792				5,031				5,496				4,924				4,546
Financial Ratios
Return on average shareholders’ equity (B)			13.3	%			20.1	%			19.5	%			15.1	%			14.2	%
Operating margin			10.3	%			14.4	%			15.0	%			13.2	%			13.5	%
Selling and administrative as a percentage of sales			11.4	%			10.5	%			10.9	%			11.3	%			12.3	%
Total debt to sum of total debt, shareholders’ equity and minority interest (A)			47.7	%			43.4	%			39.8	%			36.3	%			34.8	%
Other Data
Depreciation and amortization		$	840			$	869			$	790			$	705			$	656
Capital expenditures on a GAAP basis (C)			1,236				1,159				1,553				1,358				928
Capital expenditures on a non-GAAP basis (C)			1,475				1,355				1,635				1,487				984
Cash provided by operating activities			1,323				1,680				1,500				1,348				1,304
Dividends declared per common share			1.79				1.70				1.48				1.34				1.25
Market price range per common share			81—41				106—65				99—66				70—53				66—52
Weighted average common shares outstanding (in millions)			210				212				216				222				226
Weighted average common shares outstanding assuming dilution (in millions)			214				219				223				228				231
Book value per common share at year-end		$	22.68			$	24.03			$	25.52			$	22.67			$	20.49
Shareholders at year-end			8,600				8,900				9,300				9,900				10,300
Employees at year-end (D)			18,900				21,100				22,100				20,700				20,200

(A)		Total debt includes long-term debt, current portion of long-term debt, and short-term borrowings as of the end of the year. Calculation based on continuing operations.
(B)		Calculated using income and five-quarter average equity from continuing operations.
(C)		Capital expenditures on a GAAP basis include additions to plant and equipment, investment in and advances to unconsolidated affiliates, and acquisitions (including long-term debt assumed in acquisitions). The Company utilizes a non-GAAP measure in the computation of capital expenditures and includes spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities. The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure which the Company’s management uses internally to evaluate and manage its capital expenditures. Refer to page 31 for a reconciliation of the GAAP to non-GAAP measure for 2009, 2008, and 2007. For 2006 and 2005, the GAAP measure was adjusted by $129 and $56, respectively, for spending associated with facilities accounted for as capital leases.
(D)		Includes full- and part-time employees from continuing and discontinued operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview			17
2009 In Summary			17
2010 Outlook			19
Results of Operations			19
Pension Benefits			28
Environmental Matters			29
Liquidity and Capital Resources			30
Contractual Obligations			33
Off-Balance Sheet Arrangements			34
Related Party Transactions			34

The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this report. 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.

BUSINESS OVERVIEW

Air Products and Chemicals, Inc. and its subsidiaries (the Company) serve customers in industrial, energy, technology, and healthcare markets. The Company offers a broad portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services. Geographically diverse, with operations in over 40 countries, the Company has sales of $8.3 billion, assets of $13.0 billion, and a worldwide workforce of approximately 18,900 employees.

The Company organizes its operations into four reportable business segments: Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy.

2009 IN SUMMARY

The beginning of fiscal 2009 coincided with the start of the global financial crisis, driving the recession that led to unprecedented declines in demand for the Company’s products worldwide. The downturn in the economy affected customers’ operating rates across most of our end markets. Globally, manufacturing declined 11%, and in Electronics, silicon processed decreased by about 35%. In response to these rapidly declining economic conditions around the world and to drive to a sustainable, low-cost structure, the Company implemented a global cost reduction plan. Impacted by these factors, the Company’s sales and operating income declined 21% and 43%, respectively. Additionally, unfavorable currency impacts, due to a stronger U.S. dollar contributed to the decline.

The 2009 global cost reduction plan included the elimination of about 12% of the global workforce along with business exits and asset management actions. These initiatives lowered the Company’s cost structure, especially in the second half of the year. The planned actions are expected to be completed in fiscal 2010. Also, the Company implemented price increases and executed its initiatives for cost improvement by lowering discretionary spending. Sales were sequentially higher in the fourth quarter, and there was a greater than 200 basis point increase in the Company’s operating margin in the second half of the year compared to the first half. Overall, fiscal 2009 was a challenging year due to the impact of the global recession, but the actions taken by the Company helped to mitigate the adverse impact.

Highlights for 2009

•		The Company implemented a global cost reduction plan designed to lower its cost structure and better align its businesses with the contracting global economy. Results from continuing operations included a total charge of $298.2 ($200.3 after-tax, or $.94 per share) for this plan.
•		The Company completed the divestiture of the U.S. Healthcare business.
•		The Company maintained a solid financial position throughout 2009. The current credit environment did not have a significant adverse impact on the Company’s liquidity.
•		Sales of $8,256.2 declined 21%. Underlying business declined 8% from lower volumes. Lower energy and raw material cost pass-through to customers and unfavorable currency negatively impacted sales by 7% and 6%, respectively.
•		Operating income of $846.3 declined $649.5, principally from lower volumes, the global cost reduction plan charge, and unfavorable currency impacts.
•		Income from continuing operations was $639.9 as compared to $1,090.5. Diluted earnings per share from continuing operations was $3.00 as compared to $4.97. A summary table of changes in diluted earnings per share is presented below.
•		Loss from discontinued operations was $8.6 as compared to $180.8. The prior year included an after-tax impairment charge of $246.2 related to the U.S. Healthcare business and an after-tax gain of $76.2 from the sale of the Polymer Emulsions business.

For a discussion of the challenges, risks, and opportunities on which management is focused, refer to the Company’s 2010 Outlook discussions provided throughout the Management’s Discussion and Analysis that follows.

Changes in Diluted Earnings per Share

										Increase
		2009				2008				(Decrease)
Diluted Earnings per Share
Net income		$	2.96			$	4.15			$	(1.19	)
Discontinued operations			(.04	)			(.82	)			.78
Continuing operations		$	3.00			$	4.97			$	(1.97	)
Operating Income (after-tax)
Underlying business
Volume										$	(1.66	)
Price/raw materials											.27
Costs											.53
Currency											(.39	)
2009 global cost reduction plan											(.94	)
2009 customer bankruptcy and asset actions											(.10	)
Pension settlement											.06
Plant fire and hurricanes											.10
Operating Income											(2.13	)
Other (after-tax)
Equity affiliates’ income											(.11	)
Interest expense											.14
Income tax rate											(.01	)
Minority interest											.04
Average shares outstanding											.10
Other											.16
Total Change in Diluted Earnings per Share from Continuing Operations										$	(1.97	)

2010 OUTLOOK

The Company projects a continued gradual and modest recovery in the economic environment as spending growth in the private sector is expected to remain weak. The Company anticipates global manufacturing growth of 1%—2% in 2010. In the U.S., growth is expected to be flat to slightly positive by 1%. Europe is expected to be flat. Asia, led by China, is expected to be the strongest region, growing at a projected 6%—7%.

Looking forward, the Company will continue to focus on improving its operating margin and return on capital through volume growth, effective cost management, and implementation of price increases. Capacity utilization rates in 2010 should improve as the economy recovers and through expansion of technology applications. Earnings should benefit from new plant startups in 2009 and 2010 along with a full-year impact of the 2009 global cost reduction plan. The Company will also remain diligent on discretionary spending, new programs, and staffing. However, pension expense will be higher next year as a result of a decline in the discount rates used to determine the 2010 expense.

Outlook by Segment

•		The Company is projecting Merchant Gases results to be higher based on a modest recovery in global manufacturing. Margins should improve based on higher volumes and cost reduction efforts. In 2009, the segment took steps to restructure the organization and to reduce costs in order to drive productivity and growth.
•		Tonnage Gases is expected to benefit from new contracts and plants coming on-stream, and increased capacity utilization as chemical and steel markets continue to recover.
•		In Electronics, the Company projects silicon growth of 10%—15%, higher demand from flat panel producers, and accelerated growth in thin film photovoltaic. The business repositioning efforts should result in additional ongoing restructuring costs, while price pressure for certain electronics materials is expected to remain until capacity utilization improves. Growth is anticipated in Performance Materials as the Company should continue to benefit from new market and application successes, regional investment, and new product introductions.
•		Equipment and Energy results are expected to be comparable to 2009 levels. Two to three LNG orders are expected to be signed in fiscal 2010.

RESULTS OF OPERATIONS

Discussion of Consolidated Results

		2009				2008				2007
Sales		$	8,256.2			$	10,414.5			$	9,148.2
Operating income			846.3				1,495.8				1,375.6
Equity affiliates’ income			112.2				145.0				114.4

Sales

		% Change from Prior Year
		2009				2008
Underlying business
Volume			(9	)%			2	%
Price			1	%			2	%
Acquisitions/divestitures			—				1	%
Currency			(6	)%			4	%
Energy and raw material cost pass-through			(7	)%			5	%
Total Consolidated Sales Change			(21	)%			14	%

2009 vs. 2008

Sales of $8,256.2 decreased 21%, or $2,158.3. Underlying business declined 8%, due to lower volumes primarily in Electronics and Performance Materials, Merchant Gases, and Tonnage Gases. Volumes were impacted by the severity of the worldwide manufacturing downturn and a significant decline in silicon processed. Currency unfavorably impacted sales by 6%, due primarily to the strengthening of the U.S. dollar against key European and Asian currencies. Lower energy and raw material contractual cost pass-through to customers reduced sales by 7%.

2008 vs. 2007

Sales of $10,414.5 increased 14%, or $1,266.3. Underlying base business growth accounted for 4% of the increase. Sales increased 2% as higher volumes in Electronics and Performance Materials, Merchant Gases, and Tonnage Gases were partially offset by lower Equipment and Energy activity. Improved pricing, principally in Merchant Gases, increased sales by 2%. Sales improved 4% from favorable currency effects, primarily the weakening of the U.S. dollar against the Euro. Higher energy and raw material contractual cost pass-through to customers increased sales by 5%.

Operating Income

2009 vs. 2008

Operating income of $846.3 decreased 43%, or $649.5.

•		The global cost reduction plan charge reduced operating income by $298.
•		Underlying business declined $254, due primarily to lower volumes in the Merchant Gases, Electronics and Performance Materials, and Tonnage Gases segments. The volume declines of $490 were partially offset by favorable cost performance of $157 and improved pricing of $79.
•		Unfavorable currency impacts lowered operating income by $113, reflecting the strengthening of the U.S. dollar against key European and Asian currencies.
•		The write-off of certain receivables due to a customer bankruptcy and asset actions reduced operating income by $32.
•		Lower pension settlement charges favorably impacted operating income by $20.
•		Prior year operating income included unfavorable impacts of $28 due to hurricanes and a fire at a production facility.

2008 vs. 2007

Operating income of $1,495.8 increased 9%, or $120.2.

•		Higher volumes in the Merchant Gases, Tonnage Gases, and Electronics and Performance Materials segments, partially offset by a decrease in Equipment and Energy activity, increased operating income by $82.
•		Improved pricing, net of variable costs, increased operating income by $21, as pricing increases in Merchant Gases were partially offset by lower pricing in electronics specialty materials.
•		Favorable currency effects, primarily the weakening of the U.S. dollar against the Euro, increased operating income by $80.
•		2007 included a gain of $37 from a settlement of a supply contract termination.
•		Higher pension settlement charges negatively impacted operating income by $20.
•		Unfavorable impacts caused by Hurricanes Gustav and Ike, and the fire at an Electronics production facility in Korea, decreased operating income by $28.

Equity Affiliates’ Income

2009 vs. 2008

Income from equity affiliates of $112.2 decreased $32.8, or 23%, primarily as a result of lower overall volumes and unfavorable currency. Additionally, prior year results included favorable adjustments made to certain affiliates in Asia and the reversal of an antitrust fine.

2008 vs. 2007

Income from equity affiliates of $145.0 increased $30.6, or 27%. This increase resulted from solid underlying growth, increased nitrogen injection volumes in Mexico, the benefit of adjustments to certain affiliates, and the reversal of an antitrust fine.

Selling and Administrative Expense (S&A)

2009 vs. 2008

S&A expense of $943.4 decreased $147.0, or 13%. Underlying costs decreased 8%, primarily due to improved productivity as well as the impact of the global cost reduction plan, lower incentive compensation costs, and lower discretionary spending. This decrease was partially offset by inflation and higher bad debt expense. Favorable currency impacts, primarily the strengthening of the dollar against the Euro and Pound Sterling, decreased S&A by 6%. The acquisition of CryoService Limited in the third quarter of 2008 increased S&A by 1%. S&A as a percent of sales, increased to 11.4% from 10.5%, due principally to the impact of lower energy and raw material cost pass-through on sales.

2008 vs. 2007

S&A expense of $1,090.4 increased 9%, or $90.6. S&A increased 2% from the acquisition of the Polish industrial gas business of BOC Gazy Sp z o.o. (BOC Gazy) in the third quarter of 2007. Currency effects, driven by the weakening of the U.S. dollar against the Euro, increased S&A by 4%. Underlying costs increased S&A by 3%, as productivity gains were more than offset by inflation and higher costs to support growth. S&A as a percent of sales declined to 10.5% from 10.9%.

2010 Outlook

S&A expense for 2010 will reflect higher pension expense and modest cost inflation. These increases should be offset by cost savings arising from the benefits of the global cost reduction plan initiated in 2009 and ongoing productivity initiatives.

Research and Development (R&D)

2009 vs. 2008

R&D expense of $116.3 decreased $14.4, primarily due to the impact of cost reduction actions. R&D increased as a percent of sales to 1.4% from 1.3%.

2008 vs. 2007

R&D expense of $130.7 increased $1.7. R&D decreased as a percent of sales to 1.3% from 1.4%.

2010 Outlook

R&D expense is expected to be moderately higher in 2010.

Global Cost Reduction Plan

2009

The 2009 results from continuing operations included a total charge of $298.2 ($200.3 after-tax, or $.94 per share) for the global cost reduction plan. In the first quarter of 2009, the Company announced the global cost reduction plan, designed to lower its cost structure and better align its businesses to reflect rapidly declining economic conditions around the world. In the third quarter of 2009, due to the continuing slow economic recovery, the Company committed to additional actions associated with its global cost reduction plan. The 2009 charge included $210.0 for severance and other benefits, including pension-related costs, associated with the elimination of approximately 2,550 positions from the Company’s global workforce. The remainder of this charge, $88.2, was for business exits and asset management actions.

Cost savings of approximately $50 were realized in 2009, and cost savings of approximately $155 are expected for 2010. Beyond 2010, the Company expects annualized savings of approximately $180, of which the majority is related to personnel costs.

2007

The 2007 results from continuing operations included a charge of $13.7 ($8.8 after-tax, or $.04 per share) for a global cost reduction plan. The charge included $6.5 for severance and pension-related costs for the elimination of approximately 125 positions and $7.2 for the write-down of certain investments. As of 30 September 2008, the actions associated with the 2007 charge were complete.

Refer to Note 3 to the Consolidated Financial Statements for additional information on these charges.

2007 Customer Contract Settlement

In 2007, the Company entered into a settlement with a customer to resolve a dispute related to a dinitrotoluene (DNT) supply agreement. As part of the settlement agreement, the DNT supply agreement was terminated, and certain other agreements between the companies were amended. As a result, the Company recognized a before-tax gain of $36.8 ($23.6 after-tax, or $.11 per share).

2009 Customer Bankruptcy and Asset Actions

In 2009, the Company recognized charges totaling $32.1 ($21.0 after-tax, or $.10 per share) related to a customer bankruptcy and asset actions for the closure of certain manufacturing facilities. Refer to Note 21 to the Consolidated Financial Statements for additional information.

Pension Settlement

The Company’s supplemental pension plan provides for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after the participant’s retirement date. A settlement loss is recognized when the pension obligation is settled. Based on the timing of when cash payments were made, the Company recognized $10.7, $30.3, and $10.3 of settlement charges in 2009, 2008, and 2007, respectively. Refer to Note 15 to the Consolidated Financial Statements for additional information.

Other Income, Net

Items recorded to other income arise from transactions and events not directly related to the principal income earning activities of the Company. The detail of other income is presented in Note 21 to the Consolidated Financial Statements.

2009 vs. 2008

Other income of $23.0 decreased by $2.8. Other income declined due to losses from asset sales in the current year and unfavorable foreign exchange. Other income in 2008 included a loss related to fire damage at a production facility. No other items were individually significant in comparison to the prior year.

2008 vs. 2007

Other income of $25.8 decreased by $16.5. Other income in 2008 included a loss of $14.7 related to fire damage at an Electronics production facility in Korea, partially offset by favorable foreign exchange of $8.1. Other income in 2007 included a gain of $23.7 on the sale of assets. No other items were individually significant in comparison to the prior year.

Interest Expense

		2009				2008				2007
Interest incurred		$	143.8			$	184.1			$	175.3
Less: Capitalized interest			21.9				22.1				12.9
Interest Expense		$	121.9			$	162.0			$	162.4

2009 vs. 2008

Interest incurred decreased by $40.3. This decrease was primarily driven by lower average interest rates on variable rate debt. The impact of a stronger dollar on the translation of foreign currency interest was offset by a higher average debt balance. Capitalized interest was comparable to the prior year due to slightly higher project levels offset by lower average interest rates.

2008 vs. 2007

Interest incurred increased by $8.8. The increase resulted from a higher average debt balance, excluding currency effects, and the impact of a weaker U.S. dollar on the translation of foreign currency interest, partially offset by lower average interest rates. Capitalized interest increased by $9.2, primarily due to increased project levels in the Tonnage Gases segment.

2010 Outlook

The Company expects interest incurred to be modestly higher. This increase is expected to result from a higher average debt balance and higher expected average interest rates.

Effective Tax Rate

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes, less minority interest. Refer to Note 20 to the Consolidated Financial Statements for details on factors affecting the effective tax rate.

2009 vs. 2008

The effective tax rate was 22.5% and 25.1% in 2009 and 2008, respectively. The effective tax rate declined, as tax credits had a higher relative impact due to lower book taxable income.

2008 vs. 2007

The effective tax rate was 25.1% and 22.0% in 2008 and 2007, respectively. A tax benefit associated with foreign operations and other higher credits and adjustments from the Company’s ongoing tax planning process were included in the 2008 effective rate. The 2007 tax rate included the settlement of tax audits and related interest income, combined with the donation of a portion of a cost-based investment. The net impact was a 3.1% higher tax rate in 2008.

2010 Outlook

The Company expects the effective tax rate in 2010 to be approximately 25.5% to 26.0%.

Discontinued Operations

The U.S. Healthcare business, Polymer Emulsions business, and High Purity Process Chemicals (HPPC) business have been accounted for as discontinued operations. The results of operations of these businesses have been removed from the results of continuing operations for all periods presented. Refer to Note 4 to the Consolidated Financial Statements for additional details.

U.S. Healthcare

In July 2008, the Board of Directors authorized management to pursue the sale of the U.S. Healthcare business. In 2008, the Company recorded a total charge of $329.2 ($246.2 after-tax, or $1.12 per share) related to the impairment/write-down of the net carrying value of the U.S. Healthcare business.

In the first half of 2009, based on additional facts, the Company recorded an impairment charge of $48.7 ($30.9 after-tax, or $.15 per share), reflecting a revision in the estimated net realizable value of the business. Also, tax benefits of $25.5, or $.12 per share, were recorded to revise the estimated tax benefit associated with the total impairment charges recorded.

During the third quarter of 2009, the Company sold more than half of its remaining U.S. Healthcare business to OptionCare Enterprises, Inc., a subsidiary of Walgreen Co., and Landauer-Metropolitan, Inc. (LMI) for combined cash proceeds of $38.1. The Company recognized an after-tax gain of $.3 resulting from these sales combined with adjustments to the net realizable value of the remaining businesses.

During the fourth quarter of 2009, through a series of transactions with Rotech Healthcare, Inc. and with LMI, the Company sold its remaining U.S. Healthcare business for cash proceeds of $12.1. A net after-tax loss of $.7 was recognized. These transactions completed the disposal of the U.S. Healthcare business.

The U.S. Healthcare business generated sales of $125.2, $239.8, and $271.1, and a loss from operations, net of tax, of $3.4, $259.4, and $15.2 in 2009, 2008, and 2007, respectively. The loss from operations in 2008 included an after-tax impairment charge of $237.0.

Polymer Emulsions Business

On 31 January 2008, the Company closed on the sale of its interest in its vinyl acetate ethylene (VAE) polymers joint ventures to Wacker Chemie AG, its long-time joint venture partner. As part of that agreement, the Company received Wacker Chemie AG’s interest in the Elkton, Md. and Piedmont, S.C. production facilities. The Company recognized a gain on the sale of $89.5 ($57.7 after-tax, or $.26 per share).

On 30 June 2008, the Company sold its Elkton, Md. and Piedmont, S.C. production facilities and the related North American atmospheric emulsions and global pressure sensitive adhesives businesses to Ashland, Inc. The Company recorded a gain of $30.5 ($18.5 after-tax, or $.08 per share) in connection with the sale, which included the recording of a retained environmental obligation associated with the Piedmont site. The sale of the Elkton and Piedmont facilities completed the disposal of the Company’s Polymer Emulsions business.

The Polymer Emulsion business generated sales of $261.4 and $618.6, and income from operations, net of tax, of $11.3 and $38.3 in 2008 and 2007, respectively.

HPPC Business

In 2008, the Company sold its HPPC business to KMG Chemicals, Inc. The Company wrote down the assets of the business to net realizable value as of 30 September 2007, resulting in a loss of $15.3 ($9.3 after-tax, or $.04 per share). The sale closed on 31 December 2007, and an additional loss on the sale was recorded of $.5 ($.3 after-tax) in 2008.

The HPPC business generated sales of $22.9 and $87.2 and income from operations, net of tax, of $.1 and $2.2 in 2008 and 2007, respectively.

Net Income

2009 vs. 2008

Net income was $631.3, compared to $909.7 in 2008. Diluted earnings per share was $2.96 compared to $4.15 in 2008. A summary table of changes in diluted earnings per share is presented on page 18.

2008 vs. 2007

Net income was $909.7, compared to $1,035.6 in 2007. Diluted earnings per share was $4.15, compared to $4.64 in 2007.

Segment Analysis

Merchant Gases

		2009				2008				2007
Sales		$	3,610.6			$	4,192.7			$	3,556.9
Operating income			661.2				789.5				656.4
Equity affiliates’ income			98.3				131.8				97.8

Merchant Gases Sales

		% Change from Prior Year
		2009				2008
Underlying business
Volume			(9	)%			4	%
Price			4	%			4	%
Acquisitions/divestitures			—				3	%
Currency			(9	)%			7	%
Total Merchant Gases Sales Change			(14	)%			18	%

2009 vs. 2008

Merchant Gases Sales

Sales of $3,610.6 decreased by 14%, or $582.1. Sales decreased 9% from unfavorable currency effects, driven primarily by the strengthening of the U.S. dollar against key European and Asian currencies. Underlying sales declined 5%, with volumes down 9% and pricing up 4%. Volumes were weak across manufacturing end markets globally. Price increases implemented early in the year were effective, partially offsetting the decline in volume.

The global recession significantly impacted manufacturing-related demand for Merchant industrial gases in every region. In North America, sales decreased 10%, with volumes down 14%. Higher pricing of 4% partially offset the decline in volumes. In Europe, sales decreased 17%, primarily due to unfavorable currency impacts of 13%. Underlying sales declined 4%, with volumes down 8% and pricing adding 4%. Stronger healthcare volumes partially offset the total volume decline. In Asia, sales declined 13%. Underlying sales were lower by 6%, with volumes declining 8% and pricing adding 2%. Currency unfavorably impacted sales by 7%.

Merchant Gases Operating Income

Operating income of $661.2 decreased 16%, or $128.3. The decline was due to reduced volumes of $234 and unfavorable currency impacts of $74. These declines were partially offset by improved pricing, net of variable costs, of $102 and improved cost performance of $78, primarily due to cost reduction efforts.

Merchant Gases Equity Affiliates’ Income

Merchant Gases equity affiliates’ income of $98.3 decreased 25%, or $33.5. The decline was a result of lower overall volumes and unfavorable currency. Additionally, prior year results included favorable adjustments made to certain affiliates in Asia and the reversal of an antitrust fine.

2008 vs. 2007

Merchant Gases Sales

Sales of $4,192.7 increased 18%, or $635.8. Higher volumes across all regions increased sales by 4%. Volumes increased in North America due to record new signings in 2008 and continued strong demand for liquid oxygen (LOX) and liquid nitrogen (LIN). Volume gains in Europe were primarily due to a higher number of Healthcare patients served. In Asia, volumes were higher in generated gases, liquid argon, and liquid helium.

Higher prices increased sales by 4% as a result of actions taken to recover higher power, distribution, and other manufacturing costs in North America and Europe.

Sales increased by 3% from the full-year impact of the acquisition of BOC Gazy in 2007. In addition, sales increased 7% due to favorable currency impacts, primarily the weakening of the U.S. dollar against the Euro.

Merchant Gases Operating Income

Operating income of $789.5 increased by 20%, or $133.1. Favorable operating income variances resulted from improved pricing of $75, higher volumes of $60, and currency effects of $51. Operating income declined by $49 from higher distribution costs and inflation.

Merchant Gases Equity Affiliates’ Income

Equity affiliates’ income of $131.8 increased 35%, or $34.0, reflecting higher income in all regions. The increases were due to solid underlying growth, increased nitrogen injection volumes in Mexico, and the benefit of adjustments to certain affiliates in Asia and the reversal of an antitrust fine.

Tonnage Gases

		2009				2008				2007
Sales		$	2,573.6			$	3,574.4			$	2,936.7
Operating income			399.6				482.6				426.4

Tonnage Gases Sales

		% Change from Prior Year
		2009				2008
Underlying business
Volume			(5	)%			2	%
Acquisitions/divestitures			—				1	%
Currency			(4	)%			3	%
Energy and raw material cost pass-through			(19	)%			16	%
Total Tonnage Gases Sales Change			(28	)%			22	%

2009 vs. 2008

Tonnage Gases Sales

Sales of $2,573.6 decreased 28%, or $1,000.8. Lower energy and raw material contractual cost pass-through to customers reduced sales by 19%. Volumes were down 5%. While refinery hydrogen volumes were higher, overall volumes declined from reduced demand from steel and chemical customers. Currency unfavorably impacted sales by 4%.

Tonnage Gases Operating Income

Operating income of $399.6 decreased 17%, or $83.0. Underlying business declined $70, primarily from decreased volumes and lower operating efficiencies. Currency unfavorably impacted operating income by $24. Prior year included unfavorable hurricane related impacts of $11.

2008 vs. 2007

Tonnage Gases Sales

Sales of $3,574.4 increased 22%, or $637.7. Higher energy and raw material cost pass-through accounted for 16% of sales growth in 2008. Volume growth in the underlying business increased sales by 4%, primarily due to new plant start-ups in Asia and Canada, offset by a decline of 2% due to the impacts from hurricane-related business interruption. The acquisition of BOC Gazy in the third quarter of 2007 improved sales by 1%. Sales increased 3% from favorable currency effects, primarily the weakening of the U.S. dollar against the Euro.

Tonnage Gases Operating Income

Operating income of $482.6 increased 13%, or $56.2. Operating income increased by $20 from higher volumes, $9 from favorable currency effects, and $30 from lower operating costs. Operating income decreased by $11 as a result of hurricane-related impacts.

Electronics and Performance Materials

		2009				2008				2007
Sales		$	1,582.2			$	2,209.3			$	2,068.7
Operating income			101.6				245.9				229.2

Electronics and Performance Materials Sales

		% Change from Prior Year
		2009				2008
Underlying business
Volume			(25	)%			5	%
Price			(2	)%			—
Acquisition/divestiture			1	%			—
Currency			(2	)%			2	%
Total Electronics and Performance Materials Sales Change			(28	)%			7	%

2009 vs. 2008

Electronics and Performance Materials Sales

Sales of $1,582.2 declined 28%, or $627.1, as volumes declined 25%. Sales volumes declined significantly in the first half of 2009 and recovered sequentially in the second half. In Electronics, sales were down 35%, reflecting a significant global downturn in semiconductor and flat panel capacity utilization and capital investment. In Performance Materials, sales were down 19% due to weaker demand across all end markets, partially offset by improved pricing.

Electronics and Performance Materials Operating Income

Operating income of $101.6 declined by 59%, or $144.3. Operating income declined from lower volumes of $202 as well as unfavorable pricing of $37. Lower pricing in Electronics was partially offset by higher pricing in Performance Materials. Favorable cost performance added $82, primarily due to cost reduction efforts. Results in 2008 included $15 of unfavorable impacts associated with a fire at a production facility.

2008 vs. 2007

Electronics and Performance Materials Sales

Sales of $2,209.3 increased 7%, or $140.6. Underlying base business growth increased sales by 5%. In Electronics, higher volumes in specialty materials and tonnage gases were partially offset by lower equipment sales and softer volumes due to product rationalization. Higher volumes across Asia and in some key market segments in North America increased sales in Performance Materials. Pricing was flat, as improvements in Performance Materials were offset by lower pricing in electronic specialty materials. Favorable currency effects, primarily the weakening of the U.S. dollar against key European and Asian currencies, improved sales by 2%.

Electronics and Performance Materials Operating Income

Operating income of $245.9 increased 7%, or $16.7. Operating income increased $48 from higher volumes, $19 from lower operating costs, and $18 from favorable currency effects, partially offset by property damage of $15 caused by a fire at an Electronics production facility in Korea. Operating income also declined by $51 from lower electronic specialty materials pricing, net of variable costs.

Equipment and Energy

		2009				2008				2007
Sales		$	489.8			$	438.1			$	585.9
Operating income			42.2				38.9				76.8

2009 vs. 2008

Sales of $489.8 increased by 12%, or $51.7, due to higher air separation unit (ASU) activity. Operating income improved $3.3 from favorable cost performance and higher ASU sales, partially offset by lower liquefied natural gas (LNG) heat exchanger activity and unfavorable currency.

The sales backlog for the Equipment business at 30 September 2009 was $239, compared to $399 at 30 September 2008. It is expected that approximately $203 of the backlog will be completed during 2010.

2008 vs. 2007

Sales of $438.1 decreased by 25%, or $147.8, primarily from lower LNG activity and a one-time energy-related equipment sale that occurred in 2007. Operating income of $38.9 decreased by $37.9, primarily from lower LNG heat exchanger activity.

The sales backlog for the Equipment business at 30 September 2008 was $399, compared to $258 at 30 September 2007.

Other

Other operating income (loss) includes expense and income that cannot be directly associated with the business segments, including foreign exchange gains and losses, interest income, and costs previously allocated to businesses now reported as discontinued operations. Also included are LIFO inventory adjustments, as the business segments use FIFO and the LIFO pool adjustments are not allocated to the business segments. Corporate general and administrative costs and research and development costs are fully allocated to the business segments.

		2009				2008				2007
Operating (loss)		$	(17.3	)		$	(30.8	)		$	(26.0	)

2009 vs. 2008

Operating loss of $17.3 decreased by $13.5. The decrease is primarily due to favorable LIFO inventory adjustments versus the prior year. Unfavorable currency partially offset this decline. No other items were individually significant in comparison to the prior year.

2008 vs. 2007

Operating loss of $30.8 increased by $4.8. No items were individually significant in comparison to the prior year.

PENSION BENEFITS

The Company and certain of its subsidiaries sponsor defined benefit pension plans that cover a substantial portion of its worldwide employees. The principal defined benefit pension plans—the U.S. Salaried Pension Plan and the U.K. Pension Plan—were closed to new participants in 2005 and were replaced with defined contribution plans. The move to defined contribution plans has not had a material impact on retirement program cost levels or funding. Over the long run, however, the new defined contribution plans are expected to reduce volatility of both expense and contributions.

For 2009, the fair market value of pension plan assets for the Company’s defined benefit plans as of the measurement date increased to $2,251.0 from $2,218.2 in 2008. The projected benefit obligation for these plans as of the measurement date was $3,386.0 and $2,731.7 in 2009 and 2008, respectively. The increase in the obligation was due principally to a decrease in the weighted average discount rate used to measure future benefit obligations to 5.6% from 7.1%. Refer to Note 15 to the Consolidated Financial Statements for comprehensive and detailed disclosures on the Company’s postretirement benefits.

Pension Expense

		2009				2008				2007
Pension expense		$	110.0			$	127.0			$	138.5
Special terminations, settlements, and curtailments (included above)			43.8				31.5				12.3
Weighted average discount rate			7.1	%			6.1	%			5.7	%
Weighted average expected rate of return on plan assets			8.3	%			8.8	%			8.8	%
Weighted average expected rate of compensation increase			4.3	%			4.2	%			4.1	%

2009 vs. 2008

The decrease in pension expense was primarily attributable to the 100 basis point increase in the weighted average discount rate. Expense in 2009 included $43.8 of special termination, settlement, and curtailment charges, of which $32.3 was related to the global cost reduction plan.

2008 vs. 2007

The decrease in pension expense was primarily attributable to the 40 basis point increase in the weighted average discount rate. Expense included $31.5 in 2008 and $12.3 in 2007 for special termination, settlement, and curtailment charges.

2010 Outlook

Pension expense is estimated to be approximately $125 in 2010, an increase of $15. Expense in 2009 included $43.8 of special termination, settlement, and curtailment charges. In 2010, pension expense will include approximately $64 for amortization of actuarial losses versus $17 in 2009. Actuarial losses of $739.2 were incurred in 2009, resulting primarily from a lower discount rate used to determine the 2010 expense and actual asset returns below expected returns. Actuarial gains/losses, in excess of certain thresholds, are amortized into pension expense over the average remaining service lives of the employees to the extent they are not offset by future gains or losses. Future changes in the discount rate and actual returns on plan assets, different from expected returns, would impact the actuarial gains/losses and resulting amortization in years beyond 2010.

Pension Funding

Pension funding includes both contributions to funded plans and benefit payments under unfunded plans. With respect to funded plans, the Company’s funding policy is that contributions, combined with appreciation and earnings, will be sufficient to pay benefits without creating unnecessary surpluses.

In addition, the Company makes contributions to satisfy all legal funding requirements while managing its capacity to benefit from tax deductions attributable to plan contributions. The Company analyzes the liabilities and demographics of each plan, which help guide the level of contributions. During 2009 and 2008, the Company’s cash contributions to funded plans and benefit payments under unfunded plans were $184.8 and $234.0, respectively. The majority of the cash contributions were voluntary.

Cash contributions and benefit payments for defined benefit plans are estimated to be approximately $360 in 2010. Of this amount, $200 has been contributed in October 2009. Actual future contributions will depend on future funding legislation, discount rates, investment performance, plan design, and various other factors. Refer to the Contractual Obligations discussion on page 33 for a projection of future contributions.

ENVIRONMENTAL MATTERS

The Company is subject to various environmental laws and regulations in the countries in which it has operations. Compliance with these laws and regulations results in higher capital expenditures and costs. From time to time, the Company is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (the federal Superfund law), similar state laws, and the Resource Conservation and Recovery Act (RCRA) relating to the designation of certain sites for investigation and possible cleanup. The Company’s accounting policy for environmental expenditures is discussed in Note 1 to the Consolidated Financial Statements, and environmental loss contingencies are discussed in Note 16 to the Consolidated Financial Statements.

The amounts charged to income from continuing operations on an after-tax basis related to environmental matters totaled $32.6, $31.0, and $25.1 in 2009, 2008, and 2007, respectively. These amounts represent an estimate of expenses for compliance with environmental laws, remedial activities, and activities undertaken to meet internal Company standards. Future costs are not expected to be materially different from these amounts.

Although precise amounts are difficult to determine, the Company estimates that in 2009, it spent approximately $6 on capital projects to control pollution versus $7 in 2008. Capital expenditures to control pollution in future years are estimated to be approximately $7 in both 2010 and 2011.

The Company accrues environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The potential exposure for such costs is estimated to range from $95 to a reasonably possible upper exposure of $109. The balance sheet at 30 September 2009 and 2008 included an accrual of $95.0 and $82.9, respectively. The accrual for the environmental obligations relating to the Pace, Florida; Piedmont, South Carolina; and the Paulsboro, New Jersey facilities is included in these amounts. Refer to Note 16 to the Consolidated Financial Statements for further details on these facilities.

Actual costs to be incurred at identified sites in future periods may vary from the estimates, given inherent uncertainties in evaluating environmental exposures. Subject to the imprecision in estimating future environmental costs, the Company does not expect that any sum it may have to pay in connection with environmental matters in excess of the amounts recorded or disclosed above would have a material adverse impact on its financial position or results of operations in any one year.

Some of the Company’s operations are within jurisdictions that have, or are developing, regulations governing emissions of greenhouse gases (GHGs). These include existing and expanding coverage under the European Union Emissions Trading Scheme; mandatory reporting and reductions at manufacturing facilities in Alberta, Canada; and mandatory reporting and anticipated constraints on GHG emissions in California and Ontario. In the U.S., regional initiatives have been implemented that will regulate GHG emissions from fossil fuel-driven power plants, and some federal legislative proposals also focus on such power plants. As a large consumer of electric power, the Company could be impacted by increased costs that may arise from such regulatory controls. In addition, federal legislation has been introduced in the U.S. that would regulate greenhouse gas emissions from the Company’s hydrogen facilities and other operations, such as production of fluorinated gases manufactured by the Company. Increased public awareness and concern may result in more international, U.S. federal, and/or regional requirements to reduce or mitigate the effects of GHGs.

The Company may incur costs related to GHG emissions from its hydrogen facilities and other operations such as fluorinated gases production. The Company believes it will be able to mitigate some of the potential costs through its contractual terms, but the lack of definitive legislation or regulatory requirements prevents accurate prediction of the long-term impact on the Company. Any legislation that limits or taxes GHG emissions from Company facilities could impact the Company’s growth by increasing its operating costs or reducing demand for certain of its products.

Regulation of GHGs may also produce new opportunities for the Company. The Company continues to develop technologies to help its facilities and its customers lower energy consumption, improve efficiency, and lower emissions. The Company is also developing a portfolio of technologies that capture carbon dioxide from power and chemical plants before it reaches the atmosphere, enable cleaner transportation fuels, and facilitate alternate fuel source development. In addition, the potential demand for clean coal and the Company’s carbon capture solutions could increase demand for oxygen, one of the Company’s main products, and the Company’s proprietary technology for delivering low-cost oxygen.

LIQUIDITY AND CAPITAL RESOURCES

The Company maintained a solid financial position throughout 2009. Cash flow from operations, supplemented with proceeds from borrowings, provided funding for the Company’s capital spending and dividend payments. The Company continues to maintain debt ratings of A/A2 (long-term) and A-1/P-1 (short-term), by Standard & Poor’s/Moody’s and retained consistent access to commercial paper markets throughout the year.

The Company’s cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the following table:

		2009				2008				2007
Cash provided by (used for):
Operating activities		$	1,322.9			$	1,679.6			$	1,499.9
Investing activities			(1,040.4	)			(919.8	)			(1,483.1	)
Financing activities			101.5				(698.5	)			(14.9	)

Operating Activities

2009 vs. 2008

Net cash provided by operating activities decreased $356.7, or 21%. The decrease resulted from the reduction in net income of $278.4 combined with the unfavorable impact of noncash adjustments to income of $170.7, partially offset by favorable changes in working capital of $92.4. Noncash adjustments include depreciation and amortization, impairment charges, and share-based compensation cost. These adjustments also include changes in operating assets, such as noncurrent capital lease receivables, and liabilities which reflect timing differences between the receipt or disbursement of cash and their recognition in earnings. Net income in 2009 included noncash impairment charges of $118.7 related to the global cost reduction plan and the discontinued U.S. Healthcare business. In 2008, U.S. Healthcare noncash impairment charges totaling $314.8 were partially offset by gains of $105.9 on the sale of discontinued operations. Proceeds from the sale of assets and businesses are reflected as an investing activity.

Changes in working capital decreased cash used (positive cash flow variance) by $92.4 and included:

•		A $256.4 positive cash flow variance due to lower trade receivables as a result of lower sales.
•		A $108.7 positive cash flow variance from other receivables due primarily to the recognition of a deferred tax asset in 2008 related to the U.S. Healthcare impairment charge. The recognition of this asset represented a use of cash in 2008.
•		A $319.0 negative cash flow variance due to a higher use of cash for payables and accrued liabilities. This variance was due to a lower level of activity and the timing of payments.

2008 vs. 2007

Net cash provided by operating activities increased $179.7, or 12%. The increase resulted principally from a decrease in the use of cash for working capital of $218.1. The decline in net income of $125.9 was offset by the favorable impact of noncash adjustments to income of $87.5. Net income in 2008 included a noncash impairment charge of $314.8 related to the U.S. Healthcare business. Net income in 2008 also included a gain of $105.9 related to the sale of discontinued operations, and adjustments to income included an increase in noncurrent capital lease receivables of $121.8.

Changes in working capital decreased cash used (positive cash flow variance) by $218.1 and included:

•		A $255.7 positive cash flow variance for payables and accrued liabilities due mainly to an increase in customer advances related to equipment sales, lower pension plan contributions, and the timing of payments.
•		A $156.5 positive cash flow variance due to a reduction in contracts in progress resulting from lower equipment activity.
•		A $97.2 negative cash flow variance from higher trade receivables due primarily to higher sales, offset partially by increased collections.
•		A $77.5 negative cash flow variance from other receivables resulting from the recognition of a deferred tax asset related to the U.S. Healthcare impairment charge.

Investing Activities

2009 vs. 2008

Cash used for investing increased $120.6, primarily from lower proceeds from the sale of discontinued operations of $372.0, partially offset by changes in restricted cash of $270.6.

•		During 2009, the Company completed the sale of its U.S. Healthcare business, which generated proceeds of $51.0. Prior year proceeds of $423.0 included the sales of the Polymer Emulsions and HPPC businesses.
•		Decreases in the restricted cash balances, caused by project spending exceeding new bond proceeds, resulted in a source of cash of $87.0 in 2009. Prior year activity resulted in a use of cash of $183.6. The proceeds from the issuance of certain Industrial Revenue Bonds must be held in escrow until related project spending occurs and are classified as noncurrent assets in the balance sheet.

2008 vs. 2007

Cash used for investing decreased $563.3, principally from lower acquisitions of $467.1 and proceeds from the sale of discontinued operations of $423.0, partially offset by changes in restricted cash of $183.6. Additionally, the proceeds from asset sales declined $77.6.

•		In 2007, the Company acquired BOC Gazy from The Linde Group for €380 million, or $518.4.
•		During 2008, the Company sold its Polymer Emulsions and HPPC businesses.
•		Additions to restricted cash, from the proceeds of bonds held in escrow, resulted in a use of cash of $183.6.

Capital Expenditures

Capital expenditures are detailed in the following table:

		2009				2008				2007
Additions to plant and equipment		$	1,179.1			$	1,085.1			$	1,013.2
Acquisitions, less cash acquired			32.7				72.0				539.1
Investments in and advances to unconsolidated affiliates			24.5				2.2				.2
Capital expenditures on a GAAP basis		$	1,236.3			$	1,159.3			$	1,552.5
Capital lease expenditures (A)			238.6				195.7				82.8
Capital expenditures on a non-GAAP basis		$	1,474.9			$	1,355.0			$	1,635.3

(A)		The Company utilizes a non-GAAP measure in the computation of capital expenditures and includes spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash within cash provided by operating activities. The presentation of this non-GAAP measure is intended to enhance the usefulness of information by providing a measure which the Company’s management uses internally to evaluate and manage the Company’s expenditures.

Capital expenditures on a GAAP basis in 2009 totaled $1,236.3, compared to $1,159.3 in 2008. Additions to plant and equipment in 2009 increased by $94.0 compared to 2008. Additions to plant and equipment were largely in support of the Merchant Gases and Tonnage Gases businesses during both 2009 and 2008. Additions to plant and equipment also included support capital of a routine, ongoing nature, including expenditures for distribution equipment and facility improvements.

Capital expenditures on a non-GAAP basis in 2009 totaled $1,474.9, compared to $1,355.0 in 2008. Capital lease expenditures of $238.6 increased by $42.9, reflecting increased expenditures primarily in North America Tonnage Gases. In 2008, capital lease expenditures of $195.7 increased $112.9 from 2007, reflecting higher project spending, primarily in Europe and Asia.

2010 Outlook

Capital expenditures for new plant and equipment in 2010 on a GAAP basis are expected to be between $1,000 and $1,200, and on a non-GAAP basis are expected to be between $1,300 and $1,500. The majority of spending is expected in the Tonnage Gases segment, with approximately $1,000 associated with new plants. It is anticipated that capital expenditures will be funded principally with cash from continuing operations. In addition, the Company intends to continue to evaluate acquisition opportunities and investments in equity affiliates.

Financing Activities

2009 vs. 2008

Cash provided by financing activities increased $800.0, primarily as a result of share repurchases of $793.4 in 2008. In 2009, the Company did not purchase any of its outstanding shares.

2008 vs. 2007

Cash used for financing activities increased $683.6, primarily due to:

•		A net decrease in borrowings of $299.5. Company borrowings (short- and long-term proceeds, net of repayments) totaled $305.5 as compared to $605.0.
•		An increase in cash used for the purchase of treasury stock of $218.2.
•		Lower proceeds of $115.4 from stock option exercises.

Financing and Capital Structure

Capital needs in 2009 were satisfied primarily with cash from operations. At the end of 2009, total debt outstanding was $4.5 billion compared to $4.0 billion, and cash and cash items were $.5 billion compared to $.1 billion. Total debt at 30 September 2009 and 2008, expressed as a percentage of the sum of total debt, shareholders’ equity, and minority interest, was 47.7% and 43.4%, respectively.

Long-term debt proceeds of $610.5 included $400.0 from the issuance of a fixed-rate 4.375% 10-year senior note and $158.8 from Industrial Revenue Bonds. Refer to Note 14 to the Consolidated Financial Statements for additional information.

In September 2008, the Company increased the size of its multicurrency committed revolving credit facility, maturing May 2011, from $1,200 to $1,450. Fifteen major global banks provide commitments under this facility, and the Company is confident that funding would be available from these banks if it were necessary to draw on the facility. As of 30 September 2009, no borrowings were outstanding under this facility. Additional commitments of $396.6 are maintained by the Company’s foreign subsidiaries, of which $294.8 was borrowed and outstanding at 30 September 2009. There was no commercial paper outstanding at 30 September 2009.

On 20 September 2007, the Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s outstanding common stock. During 2009, the Company did not purchase any shares under this authorization. At 30 September 2009, $649.2 in share repurchase authorization remained.

2010 Outlook

The Company projects a limited need to access the long-term debt markets in 2010 due to its projected operating cash flows and its available cash balance at the end of 2009. The Company expects that it will continue to be able to access the commercial paper and other short-term debt markets.

Dividends

On 19 March 2009, the Board of Directors increased the quarterly cash dividend from $.44 per share to $.45 per share. Dividends are declared by the Board of Directors and are usually paid during the sixth week after the close of the fiscal quarter.

CONTRACTUAL OBLIGATIONS

The Company is obligated to make future payments under various contracts, such as debt agreements, lease agreements, unconditional purchase obligations, and other long-term obligations. The following table summarizes these obligations of the Company as of 30 September 2009:

		Payments Due By Period
		Total				2010				2011				2012				2013				2014				Thereafter
Long-term debt obligations
Debt maturities		$	4,159			$	452			$	193			$	455			$	310			$	469			$	2,280
Contractual interest			765				128				122				108				88				69				250
Capital leases			11				3				2				1				1				1				3
Operating leases			227				58				45				32				26				22				44
Pension obligations			1,144				360				145				75				80				150				334
Unconditional purchase obligations			1,785				611				120				112				115				120				707
Total Contractual Obligations		$	8,091			$	1,612			$	627			$	783			$	620			$	831			$	3,618

Long-Term Debt Obligations

The long-term debt obligations include the maturity payments of long-term debt, including current portion, and the related contractual interest obligations. Refer to Note 14 to the Consolidated Financial Statements for additional information on long-term debt.

Contractual interest is the interest the Company is contracted to pay on the long-term debt obligations without taking into account the interest impact of interest rate swaps related to any of this debt, which at current interest rates would slightly decrease contractual interest. The Company had $1,413 of long-term debt subject to variable interest rates at 30 September 2009, excluding fixed-rate debt that has been swapped to variable-rate debt. The rate assumed for the variable interest component of the contractual interest obligation was the rate in effect at 30 September 2009. Variable interest rates are primarily determined by interbank offer rates and by U.S. short-term tax-exempt interest rates.

Leases

Refer to Note 11 to the Consolidated Financial Statements for additional information on capital and operating leases.

Pension Obligations

The amounts in the table above represent the current estimated cash payments to be made by the Company that in total equal the recognized pension liabilities. Refer to Note 15 to the Consolidated Financial Statements. These payments are based upon the current valuation assumptions and regulatory environment.

The total accrued liability for pension benefits is impacted by interest rates, plan demographics, actual return on plan assets, continuation or modification of benefits, and other factors. Such factors can significantly impact the amount of the liability and related contributions.

Unconditional Purchase Obligations

Most of the Company’s long-term unconditional purchase obligations relate to feedstock supply for numerous HyCO (hydrogen, carbon monoxide, and syngas) facilities. The price of feedstock supply is principally related to the price of natural gas. However, long-term take-or-pay sales contracts to HyCO customers are generally matched to the term of the feedstock supply obligations and provide recovery of price increases in the feedstock supply. Due to the matching of most long-term feedstock supply obligations to customer sales contracts, the Company does not believe these purchase obligations would have a material effect on its financial condition or results of operations.

The above unconditional purchase obligations include other product supply commitments and also electric power and natural gas supply purchase obligations. In addition, purchase commitments to spend approximately $369 for additional plant and equipment are included in the unconditional purchase obligations in 2010.

The Company also purchases materials, energy, capital equipment, supplies, and services as part of the ordinary course of business under arrangements that are not unconditional purchase obligations. The majority of such purchases are for raw materials and energy, which are obtained under requirements-type contracts at market prices. In total, purchases by the Company approximate $6.4 billion annually, including the unconditional purchase obligations in the table above.

Income Tax Liabilities

Noncurrent deferred income tax liabilities as of 30 September 2009 were $357.9. Refer to Note 20 to the Consolidated Financial Statements. Tax liabilities related to uncertain tax positions as of 30 September 2009 were $194.9. These tax liabilities were not included in the Contractual Obligations table, as it is impractical to determine a cash impact by year.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has entered into certain guarantee agreements as discussed in Note 16 to the Consolidated Financial Statements. The Company is not a primary beneficiary in any material variable interest entity. The Company does not have any derivative instruments indexed to its own stock. The Company’s off-balance sheet arrangements are not reasonably likely to have a material impact on financial condition, changes in financial condition, results of operations, or liquidity.

RELATED PARTY TRANSACTIONS

The Company’s principal related parties are equity affiliates operating primarily in the industrial gas business. The Company did not engage in any material transactions involving related parties that included terms or other aspects that differ from those which would be negotiated at arm’s length with clearly independent parties.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s earnings, cash flows, and financial position are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates. It is the Company’s policy to minimize its cash flow exposure to adverse changes in currency exchange rates and to manage the financial risks inherent in funding with debt capital.

The Company mitigates adverse energy price impacts through its cost pass-through contracts with customers, as well as price increases. The Company has entered into a limited number of commodity swap contracts in order to reduce the cash flow exposure to changes in the price of natural gas relative to certain oil-based feedstocks.

The Company addresses these financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Counterparties to all derivative contracts are major financial institutions, thereby minimizing the risk of credit loss. All instruments are entered into for other than trading purposes. For details on the types and use of these derivative instruments and the major accounting policies, see Notes 1 and 12 to the Consolidated Financial Statements.

The Company’s derivative and other financial instruments consist of long-term debt (including current portion), interest rate swaps, cross currency interest rate swaps, foreign exchange-forward contracts, foreign exchange-option contracts, and commodity swaps. The net market value of these financial instruments combined is referred to below as the net financial instrument position. The net financial instrument position does not include other investments of $19.4 at 30 September 2009 and $15.6 at
30 September 2008 as disclosed in Note 13 to the Consolidated Financial Statements.

At 30 September 2009 and 2008, the net financial instrument position was a liability of $4,510 and $3,629, respectively. The increase in the net financial instrument position was due primarily to the issuance of new long-term debt and the impact of lower interest rates on the market value of long-term debt.

The analysis below presents the sensitivity of the market value of the Company’s financial instruments to selected changes in market rates and prices. The range of changes chosen reflects the Company’s view of changes that are reasonably possible over a one-year period. Market values are the present value of projected future cash flows based on the market rates and prices chosen. The market values for interest rate risk and foreign currency risk are calculated by the Company using a third-party software model that utilizes standard pricing models to determine the present value of the instruments based on market conditions (interest rates, spot and forward exchange rates, and implied volatilities) as of the valuation date.

Interest Rate Risk

The Company’s debt portfolio, including swap agreements, as of 30 September 2009 primarily comprised debt denominated in Euros (49%) and U.S. dollars (37%), including the effect of currency swaps. This debt portfolio is composed of 55% fixed-rate debt and 45% variable-rate debt. Changes in interest rates have different impacts on the fixed- and variable-rate portions of the Company’s debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the net financial instrument position but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows but does not impact the net financial instrument position.

The sensitivity analysis related to the fixed portion of the Company’s debt portfolio assumes an instantaneous 100 basis point move in interest rates from the level at 30 September 2009, with all other variables held constant. A 100 basis point increase or decrease in market interest rates would result in a decrease or increase, respectively, of $92 in the net liability position of financial instruments at 30 September 2009.

Based on the variable-rate debt included in the Company’s debt portfolio, including the interest rate swap agreements, as of 30 September 2009, a 100 basis point increase or decline in interest rates would result in an additional $20 of interest incurred or lower interest incurred by $20, respectively.

Foreign Currency Exchange Rate Risk

The sensitivity analysis assumes an instantaneous 10% change in the foreign currency exchange rates from their levels at 30 September 2009, with all other variables held constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would result in a decrease or increase, respectively, of $369 in the net liability position of financial instruments.

The primary currencies for which the Company has exchange rate exposure are the U.S. dollar versus the Euro and the U.S. dollar versus the Pound Sterling. Foreign currency debt, cross currency interest rate swaps, and foreign exchange-forward contracts are used in countries where the Company does business, thereby reducing its net asset exposure. Foreign exchange-forward contracts are also used to hedge the Company’s firm and highly anticipated foreign currency cash flows, along with foreign exchange-option contracts. Thus, there is either an asset/liability or cash flow exposure related to all of the financial instruments in the above sensitivity analysis for which the impact of a movement in exchange rates would be in the opposite direction and materially equal (or more favorable in the case of purchased foreign exchange-option contracts) to the impact on the instruments in the analysis.

Commodity Price Risk

The sensitivity analysis assumes an instantaneous 50% change in the price of natural gas and oil-based feedstocks, at 30 September 2009, with all other variables held constant. The impact of a 50% change in these prices would not have a significant impact on the net liability position of financial instruments at 30 September 2009.

INFLATION

The financial statements are presented in accordance with U.S. generally accepted accounting principles and do not fully reflect the impact of prior years’ inflation. While the U.S. inflation rate has been modest for several years, the Company operates in many countries with both inflation and currency issues. The ability to pass on inflationary cost increases is an uncertainty due to general economic conditions and competitive situations. It is estimated that the cost of replacing the Company’s plant and equipment today is greater than its historical cost. Accordingly, depreciation expense would be greater if the expense were stated on a current cost basis.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 to the Consolidated Financial Statements describes the Company’s major accounting policies. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in many areas. However, application of the critical accounting policies discussed below requires management’s significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. The Company’s management has reviewed these critical accounting policies and estimates and related disclosures with its audit committee.

Depreciable Lives of Plant and Equipment

Net plant and equipment at 30 September 2009 totaled $6,859.6, and depreciation expense totaled $815.9 during 2009. Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal amounts of the cost of each asset from earnings every year over its estimated economic useful life.

Economic useful life is the duration of time an asset is expected to be productively employed by the Company, which may be less than its physical life. Assumptions on the following factors, among others, affect the determination of estimated economic useful life: wear and tear, obsolescence, technical standards, contract life, market demand, competitive position, raw material availability, and geographic location.

The estimated economic useful life of an asset is monitored to determine its appropriateness, especially in light of changed business circumstances. For example, changes in technology, changes in the estimated future demand for products, or excessive wear and tear may result in a shorter estimated useful life than originally anticipated. In these cases, the Company would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.

The Company has numerous long-term customer supply contracts, particularly in the gases on-site business within the Tonnage Gases segment. These contracts principally have initial contract terms of 15 to 20 years. There are also long-term customer supply contracts associated with the tonnage gases business within the Electronics and Performance Materials segment. These contracts principally have initial terms of 10 to 15 years. Depreciable lives of the production assets related to long-term contracts are matched to the contract lives. Extensions to the contract term of supply frequently occur prior to the expiration of the initial term. As contract terms are extended, the depreciable life of the remaining net book value of the production assets is adjusted to match the new contract term.

The depreciable lives of production facilities within the Merchant Gases segment are principally 15 years. Customer contracts associated with products produced at these types of facilities typically have a much shorter term. The depreciable lives of production facilities within the Electronics and Performance Materials segment, where there is not an associated long-term supply agreement, range from 10 to 15 years. These depreciable lives have been determined based on historical experience combined with judgment on future assumptions such as technological advances, potential obsolescence, competitors’ actions, etc. Management monitors its assumptions and may potentially need to adjust depreciable life as circumstances change.

A change in the depreciable life by one year for production facilities within the Merchant Gases and Electronics and Performance Materials segments for which there is not an associated long-term customer supply agreement would impact annual depreciation expense as summarized below:

		Decrease Life				Increase Life
		By 1 Year				By 1 Year
Merchant Gases		$	20			$	(16	)
Electronics and Performance Materials		$	15			$	(13	)

Impairment of Long-Lived Assets

Plant and Equipment

Net plant and equipment at 30 September 2009 totaled $6,859.6. Plant and equipment held for use is grouped for impairment testing at the lowest level for which there is identifiable cash flows. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such circumstances would include a significant decrease in the market value of a long-lived asset grouping, a significant adverse change in the manner in which the asset grouping is being used or in its physical condition, a history of operating or cash flow losses associated with the use of the asset grouping, or changes in the expected useful life of the long-lived assets.

If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by that asset group is compared to the carrying value to determine whether impairment exists. If an asset group is determined to be impaired, the loss is measured based on the difference between the asset group’s fair value and its carrying value. An estimate of the asset group’s fair value is based on the discounted value of its estimated cash flows. Assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell.

The assumptions underlying cash flow projections represent management’s best estimates at the time of the impairment review. Factors that management must estimate include industry and market conditions, sales volume and prices, costs to produce, inflation, etc. Changes in key assumptions or actual conditions that differ from estimates could result in an impairment charge. The Company uses reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.

Goodwill

The purchase method of accounting for business combinations currently requires the Company to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the aggregate purchase price over the fair value of net assets of an acquired entity. Goodwill, including goodwill associated with equity affiliates of $56.1, was $972.1 as of 30 September 2009. The majority of the Company’s goodwill is assigned to reporting units within the Merchant Gases and Electronics and Performance Materials segments. Disclosures related to goodwill are included in Note 9 to the Consolidated Financial Statements.

The Company performs an impairment test annually in the fourth quarter of the fiscal year. In addition, goodwill would be tested more frequently if changes in circumstances or the occurrence of events indicated that potential impairment exists. The impairment test requires the Company to compare the fair value of business reporting units to carrying value, including assigned goodwill. The Company has designated its reporting units for goodwill impairment testing as one level below the operating segment for which discrete financial information is available and whose operating results are reviewed by segment managers regularly. Currently, the Company has four business segments and fifteen reporting units. Reporting units are primarily based on products and geographic locations within each business segment.

In the fourth quarter of 2009, the Company conducted the required annual test of goodwill for impairment. There were no indications of impairment.

The Company primarily uses an income approach valuation model, representing the present value of future cash flows, to determine fair value of a reporting unit. The Company’s valuation model uses a five-year growth period for the business and an estimated exit trading multiple. Management has determined the income approach valuation model represents the most appropriate valuation methodology due to the capital intensive nature of the business, long-term contractual nature of the business, relatively consistent cash flows generated by the Company’s reporting units, and limited comparables within the industry. The principal assumptions utilized in the Company’s income approach valuation model include revenue growth rate, operating profit margins, discount rate, and exit multiple. Revenue growth rate and operating profit assumptions are consistent with those utilized in the Company’s operating plan and long-term financial planning process. The discount rate assumption is calculated based upon an estimated weighted average cost of capital which includes factors such as the risk free rate of return, cost of debt, and expected equity premiums. The exit multiple is determined from comparable industry transactions. Also, the expected cash flows consider the customer attrition rate assumption, which is based on historical experience and current and future expected market conditions. Management judgment is required in the determination of each assumption utilized in the valuation model, and actual results could differ from the estimates.

Intangible Assets

Intangible assets at 30 September 2009 totaled $262.6 and consisted primarily of customer relationships that were acquired as part of business combinations. The Company has no acquired intangible assets with indefinite lives. Intangible assets are tested for impairment as part of the long-lived asset grouping impairment tests. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. See impairment discussion above under Plant and Equipment for a description of how impairment losses are determined.

Equity Investments

Investments in and advances to equity affiliates totaled $868.1 at 30 September 2009. The majority of the Company’s investments are non-publicly traded ventures with other companies in the industrial gas business. Summarized financial information of equity affiliates is included in Note 7 to the Consolidated Financial Statements. Equity investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable.

In the event that a decline in fair value of an investment occurs, and the decline in value is considered to be other than temporary, an impairment loss would be recognized. Management’s estimate of fair value of an investment is based on estimated discounted future cash flows expected to be generated by the investee. Changes in key assumptions about the financial condition of an investee or actual conditions that differ from estimates could result in an impairment charge.

Income Taxes

The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using the enacted tax rate. At 30 September 2009, accrued income taxes and deferred tax liabilities amounted to $42.9 and $357.9, respectively. Tax liabilities related to uncertain tax positions as of 30 September 2009 were $194.9. Current and noncurrent deferred tax assets equaled $278.1 at 30 September 2009. Income tax expense was $185.3 for the year ended 30 September 2009. Management judgment is required in determining income tax expense and the related balance sheet amounts. Judgments are required concerning the ultimate outcome of tax contingencies and the realization of deferred tax assets.

Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company believes that its recorded tax liabilities adequately provide for the probable outcome of these assessments.

Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when there are not sufficient sources of future taxable income to realize the benefit of the operating losses or tax credit carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation allowance is reported in the current period tax expense.

A 1% point increase/decrease in the Company’s effective tax rate would have decreased/increased net income by approximately $8.

Pension Benefits

The amounts recognized in the consolidated financial statements for pension benefits under the defined benefit plans are determined on an actuarial basis utilizing numerous assumptions. The discussion that follows provides information on the significant assumptions and expense associated with the defined benefit plans.

Actuarial models are used in calculating the pension expense and liability related to the various defined benefit plans. These models have an underlying assumption that the employees render service over their service lives on a relatively consistent basis; therefore, the expense of benefits earned should follow a similar pattern.

Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans. The Company determines assumptions about the discount rate, the expected rate of return on plan assets, and the rate of compensation increase. Note 15 to the Consolidated Financial Statements includes disclosure of these rates on a weighted average basis for both the domestic and international plans. The actuarial models also use assumptions on demographic factors such as retirement age, mortality, and turnover rates. The Company believes the actuarial assumptions are reasonable. However, actual results could vary materially from these actuarial assumptions due to economic events and different rates of retirement, mortality, and turnover.

One of the critical assumptions used in the actuarial models is the discount rate. This rate reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding to the expected duration of the benefit obligations on the annual measurement date for each of the various plans. The rate is used to discount the future cash flows of benefit obligations back to the measurement date. For the U.S. Plans, the timing and amount of expected benefit cash flows are matched with an interest rate curve applicable to the returns of high quality corporate bonds over the expected benefit payment period to determine an overall effective discount rate. In making this determination, the Company considers the yields on the Citigroup Pension Discount Curve and the Citigroup Above Median Pension Discount Curve, the general movement of interest rates, and the changes in those rates from one period to the next. This rate can change from year-to-year based on market conditions that affect corporate bond

yields. A higher discount rate decreases the present value of the benefit obligations and results in lower pension expense. A 50 basis point increase/decrease in the discount rate decreases/increases pension expense by approximately $20 per year.

The expected rate of return on plan assets represents the average rate of return to be earned by plan assets over the period that the benefits included in the benefit obligation are to be paid. The expected return on plan assets assumption is based on an estimated weighted average of long-term returns of major asset classes. In determining asset class returns, the Company takes into account long-term returns of major asset classes, historical performance of plan assets, and related value-added of active management, as well as the current interest rate environment. Asset allocation is determined by an asset/ liability study that takes into account plan demographics, asset returns, and acceptable levels of risk. Lower returns on the plan assets result in higher pension expense. A 50 basis point increase/decrease in the estimated rate of return on plan assets decreases/increases pension expense by approximately $12 per year.

The Company uses a market-related valuation method for recognizing investment gains or losses. Investment gains or losses are the difference between the expected and actual return based on the market-related value of assets. This method recognizes investment gains or losses over a five-year period from the year in which they occur, which reduces year-to-year volatility. Expense in future periods will be impacted as gains or losses are recognized in the market-related value of assets over the five-year period.

The expected rate of compensation increase is another key assumption. The Company determines this rate based on review of the underlying long-term salary increase trend characteristic of labor markets and historical experience, as well as comparison to peer companies. A 50 basis point increase/decrease in the expected rate of compensation increases/decreases pension expense by approximately $12 per year.

Loss Contingencies

In the normal course of business the Company encounters contingencies, i.e., situations involving varying degrees of uncertainty as to the outcome and effect on the Company. The Company accrues a liability for loss contingencies when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.

Contingencies include those associated with litigation and environmental matters for which the Company’s accounting policy is discussed in Note 1 to the Consolidated Financial Statements, and particulars are provided in Note 16 to the Consolidated Financial Statements. Significant judgment is required in both determining probability and whether the amount of loss associated with a contingency can be reasonably estimated. These determinations are made based on the best available information at the time. As additional information becomes available, the Company reassesses probability and estimates of loss contingencies. Revisions in the estimates associated with loss contingencies could have a significant impact on the Company’s results of operations in the period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the inherent uncertainties related to environmental exposures, a significant increase to environmental liabilities could occur if a new site is designated, the scope of remediation is increased, or the Company’s proportionate share is increased. Similarly, a future charge for regulatory fines or damage awards associated with litigation could have a significant impact on the Company’s net income in the period in which it is recorded.

NEW ACCOUNTING GUIDANCE

See Note 2 to the Consolidated Financial Statements for information concerning the Company’s implementation and impact of new accounting guidance.

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date this report is filed regarding important risk factors. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, longer than anticipated delay in global economic recovery; renewed deterioration in economic and business conditions; weakening demand for the Company’s products; future financial and operating performance of major customers and industries served by the Company; inability to collect receivables from or recovery of payments made by customers in bankruptcy proceedings; unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset impairments due to economic conditions or specific product or customer events; costs associated with future restructuring actions which are not currently planned or anticipated; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; consequences of acts of war or terrorism impacting the United States and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to current portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact, and other uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the continued availability of capital funding sources in all of the Company’s foreign operations; the impact of new or changed environmental, healthcare, tax or other legislation and regulations in jurisdictions in which the Company and its affiliates operate; the impact of new or changed financial accounting guidance; and the timing and rate at which tax credits can be utilized. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company’s assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT‘S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Air Products’ management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting, which is defined in the following sentences, is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

(i)		pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii)		provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii)		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, the effectiveness of our internal control over financial reporting may vary over time. Our processes contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

Management has evaluated the effectiveness of its internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that, as of 30 September 2009, the Company’s internal control over financial reporting was effective.

KPMG LLP, an independent registered public accounting firm, has issued their opinion on the Company’s internal control over financial reporting as of 30 September 2009 as stated in their report which appears herein.

/s/ John E. McGlade				/s/ Paul E. Huck
John E. McGlade				Paul E. Huck
Chairman, President, and				Senior Vice President and
Chief Executive Officer				Chief Financial Officer
25 November 2009				25 November 2009

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Air Products and Chemicals, Inc.:

We have audited the accompanying consolidated balance sheets of Air Products and Chemicals, Inc. and Subsidiaries (the Company) as of 30 September 2009 and 2008, and the related consolidated income statements and consolidated statements of shareholders’ equity and cash flows for each of the years in the three-year period ended 30 September 2009. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule referred to in item 15(a)(2) in this Form 10-K. We also have audited the Company’s internal control over financial reporting as of 30 September 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Air Products and Chemicals, Inc. and Subsidiaries as of 30 September 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended 30 September 2009, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, Air Products and Chemicals, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of 30 September 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” effective 1 October 2007 (incorporated into Accounting Standards Codification (ASC) Topic 740, “Income Taxes”) and Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” as of 30 September 2007 (incorporated into ASC Topic 715, “Compensation—Retirement Plans”).

/s/ KPMG LLP
Philadelphia, Pennsylvania
25 November 2009

The Consolidated Financial Statements

Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED INCOME STATEMENTS

Year ended 30 September (Millions of dollars, except for share data)		2009				2008				2007
Sales		$	8,256.2			$	10,414.5			$	9,148.2
Cost of sales			6,042.1				7,693.1				6,698.9
Selling and administrative			943.4				1,090.4				999.8
Research and development			116.3				130.7				129.0
Global cost reduction plan			298.2				—				13.7
Customer contract settlement			—				—				(36.8	)
Customer bankruptcy			22.2				—				—
Pension settlement			10.7				30.3				10.3
Other income, net			23.0				25.8				42.3
Operating Income			846.3				1,495.8				1,375.6
Equity affiliates’ income			112.2				145.0				114.4
Interest expense			121.9				162.0				162.4
Income from Continuing Operations before Taxes and Minority Interest			836.6				1,478.8				1,327.6
Income tax provision			185.3				365.3				287.2
Minority interest in earnings of subsidiary companies			11.4				23.0				20.8
Income from Continuing Operations			639.9				1,090.5				1,019.6
Income (Loss) from Discontinued Operations, net of tax			(8.6	)			(180.8	)			16.0
Net Income		$	631.3			$	909.7			$	1,035.6
Weighted Average of Common Shares Outstanding (in millions)			209.9				212.2				216.2
Weighted Average of Common Shares Outstanding Assuming Dilution (in millions)			213.5				219.2				223.2
Basic Earnings per Common Share
Income from continuing operations		$	3.05			$	5.14			$	4.72
Income (loss) from discontinued operations			(.04	)			(.85	)			.07
Net Income		$	3.01			$	4.29			$	4.79
Diluted Earnings per Common Share
Income from continuing operations		$	3.00			$	4.97			$	4.57
Income (loss) from discontinued operations			(.04	)			(.82	)			.07
Net Income		$	2.96			$	4.15			$	4.64

The accompanying notes are an integral part of these statements.

Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

30 September (Millions of dollars, except for share data)		2009				2008
Assets
Current Assets
Cash and cash items		$	488.2			$	103.5
Trade receivables, less allowances for doubtful accounts of $65.0 in 2009 and $36.1 in 2008			1,363.2				1,575.2
Inventories			509.6				503.7
Contracts in progress, less progress billings			132.3				152.0
Prepaid expenses			99.7				107.7
Other receivables and current assets			399.8				349.4
Current assets of discontinued operations			5.0				56.6
Total Current Assets			2,997.8				2,848.1
Investment in Net Assets of and Advances to Equity Affiliates			868.1				822.6
Plant and Equipment, at cost			15,751.3				14,988.6
Less: Accumulated depreciation			8,891.7				8,373.8
Plant and Equipment, net			6,859.6				6,614.8
Goodwill			916.0				928.1
Intangible Assets, net			262.6				289.6
Noncurrent Capital Lease Receivables			687.0				505.3
Other Noncurrent Assets			438.0				504.1
Noncurrent Assets of Discontinued Operations			—				58.7
Total Noncurrent Assets			10,031.3				9,723.2
Total Assets		$	13,029.1			$	12,571.3
Liabilities and Shareholders’ Equity
Current Liabilities
Payables and accrued liabilities		$	1,660.4			$	1,665.6
Accrued income taxes			42.9				87.0
Short-term borrowings			333.8				419.3
Current portion of long-term debt			452.1				32.1
Current liabilities of discontinued operations			14.4				8.0
Total Current Liabilities			2,503.6				2,212.0
Long-Term Debt			3,715.6				3,515.4
Deferred Income and Other Noncurrent Liabilities			1,522.0				1,049.2
Deferred Income Taxes			357.9				626.6
Noncurrent Liabilities of Discontinued Operations			—				1.2
Total Noncurrent Liabilities			5,595.5				5,192.4
Total Liabilities			8,099.1				7,404.4
Minority Interest in Subsidiary Companies			138.1				136.2
Commitments and Contingencies—See Note 16
Shareholders’ Equity
Common stock (par value $1 per share; issued 2009 and 2008—249,455,584 shares)			249.4				249.4
Capital in excess of par value			822.9				811.7
Retained earnings			7,234.6				6,990.2
Accumulated other comprehensive income (loss)			(1,161.8	)			(549.3	)
Treasury stock, at cost (2009—38,195,320 shares; 2008—40,120,957 shares)			(2,353.2	)			(2,471.3	)
Total Shareholders’ Equity			4,791.9				5,030.7
Total Liabilities and Shareholders’ Equity		$	13,029.1			$	12,571.3

The accompanying notes are an integral part of these statements.

Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended 30 September (Millions of dollars)		2009				2008				2007
Operating Activities
Net income		$	631.3			$	909.7			$	1,035.6
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization			840.3				869.0				789.8
Impairment of assets of continuing operations			69.2				—				—
Impairment of assets of discontinued operations			49.5				314.8				—
(Gain) loss on sale of discontinued operations			(2.1	)			(105.9	)			15.3
Deferred income taxes			(52.3	)			36.9				13.7
Customer bankruptcy			22.2				—				—
Undistributed earnings of unconsolidated affiliates			(58.0	)			(77.8	)			(59.5	)
Loss (gain) on sale of assets and investments			3.6				.3				(27.6	)
Share-based compensation			60.4				61.4				70.9
Noncurrent capital lease receivables			(186.7	)			(192.6	)			(70.8	)
Other adjustments			(7.8	)			2.9				89.7
Working capital changes that provided (used) cash, excluding effects of acquisitions and divestitures:
Trade receivables			159.0				(97.4	)			(.2	)
Inventories			(17.7	)			(34.9	)			(6.0	)
Contracts in progress			12.5				95.2				(61.3	)
Other receivables			(11.9	)			(120.6	)			(43.1	)
Payables and accrued liabilities			(282.8	)			36.2				(219.5	)
Other working capital			94.2				(17.6	)			(27.1	)
Cash Provided by Operating Activities			1,322.9				1,679.6				1,499.9
Investing Activities
Additions to plant and equipment			(1,179.1	)			(1,085.1	)			(1,013.2	)
Acquisitions, less cash acquired			(32.7	)			(72.0	)			(539.1	)
Investment in and advances to unconsolidated affiliates			(24.5	)			(2.2	)			(.2	)
Proceeds from sale of assets and investments			57.9				19.6				97.2
Proceeds from sale of discontinued operations			51.0				423.0				—
Proceeds from insurance settlements			—				—				14.9
Change in restricted cash			87.0				(183.6	)			—
Other investing activities			—				(19.5	)			(42.7	)
Cash Used for Investing Activities			(1,040.4	)			(919.8	)			(1,483.1	)
Financing Activities
Long-term debt proceeds			610.5				580.1				855.9
Payments on long-term debt			(82.9	)			(95.7	)			(429.4	)
Net (decrease) increase in commercial paper and short-term borrowings			(122.7	)			(178.9	)			178.5
Dividends paid to shareholders			(373.3	)			(349.3	)			(312.0	)
Purchase of treasury stock			—				(793.4	)			(575.2	)
Proceeds from stock option exercises			54.4				87.4				202.8
Excess tax benefit from share-based compensation/other			15.5				51.3				64.5
Cash Provided by (Used for) Financing Activities			101.5				(698.5	)			(14.9	)
Effect of Exchange Rate Changes on Cash			.7				1.7				7.6
Increase in Cash and Cash Items			384.7				63.0				9.5
Cash and Cash Items—Beginning of Year			103.5				40.5				31.0
Cash and Cash Items—End of Year		$	488.2			$	103.5			$	40.5

The accompanying notes are an integral part of these statements.

Air Products and Chemicals, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Year ended 30 September
(Millions of dollars, except for share data)		2009				2008				2007
Number of Common Shares Outstanding
Balance, beginning of year			209,334,627				215,355,685				217,250,572
Purchase of treasury shares			—				(8,676,029	)			(7,328,482	)
Issuance of treasury shares for stock option and award plans			1,925,637				2,654,971				5,433,595
Balance, end of year			211,260,264				209,334,627				215,355,685
Common Stock
Balance, beginning and end of year		$	249.4			$	249.4			$	249.4
Capital in Excess of Par Value
Balance, beginning of year		$	811.7			$	759.5			$	682.5
Share-based compensation expense			59.3				62.5				66.6
Issuance of treasury shares for stock option and award plans			(71.9	)			(74.2	)			(70.3	)
Tax benefit of stock option and award plans			23.8				63.9				80.7
Balance, end of year		$	822.9			$	811.7			$	759.5
Retained Earnings
Balance, beginning of year		$	6,990.2			$	6,458.5			$	5,743.5
Defined benefit plans measurement date change			(8.1	)			—				—
Initial recording of accounting for uncertain tax positions			—				(13.3	)			—
Adjusted balance, beginning of year		$	6,982.1			$	6,445.2			$	5,743.5
Net income			631.3				909.7				1,035.6
Dividends on common stock (per share $1.79, $1.70, and $1.48)			(376.3	)			(359.6	)			(319.8	)
Other			(2.5	)			(5.1	)			(.8	)
Balance, end of year		$	7,234.6			$	6,990.2			$	6,458.5
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of year		$	(549.3	)		$	(142.9	)		$	(221.7	)
Defined benefit plans measurement date change, net of tax of $14.0			35.8				—				—
Adjusted balance, beginning of year		$	(513.5	)		$	(142.9	)		$	(221.7	)
Translation adjustments, net of tax (benefit) of $(35.2), $7.9, and $(45.8)			(148.3	)			(186.3	)			272.8
Net (loss) on derivatives, net of tax (benefit) of $(1.8), $(30.2), and $(3.3)			(4.5	)			(74.4	)			(7.7	)
Unrealized holding gain (loss) on available-for-sale securities, net of tax (benefit) of $1.4, $(2.4), and $4.2			2.4				(4.5	)			8.1
Pension and postretirement benefits, net of tax (benefit) of $(287.4) and $(92.0)			(518.3	)			(185.5	)			—
Minimum pension liability adjustment, net of tax of $83.4			—				—				159.3
Reclassification adjustments:
Currency translation adjustment			(3.2	)			(53.7	)			—
Derivatives, net of tax (benefit) of $(.8), $19.2, and $7.0			(.7	)			50.7				15.9
Realized holding gains, net of tax of $20.1			—				—				(36.6	)
Pension and postretirement benefits, net of tax of $9.8 and $24.5			24.3				47.3				—
Other comprehensive income (loss)		$	(648.3	)		$	(406.4	)		$	411.8
Adjustment for initial recognition of funded status of benefit plans, net of tax (benefit) of $(169.6)			—				—				(333.0	)
Balance, end of year		$	(1,161.8	)		$	(549.3	)		$	(142.9	)
Treasury Stock
Balance, beginning of year		$	(2,471.3	)		$	(1,828.9	)		$	(1,529.7	)
Purchase of treasury shares			—				(787.4	)			(567.3	)
Issuance of treasury shares for stock option and award plans			118.1				145.0				268.1
Balance, end of year		$	(2,353.2	)		$	(2,471.3	)		$	(1,828.9	)
Total Shareholders’ Equity		$	4,791.9			$	5,030.7			$	5,495.6
Total Comprehensive Income (Loss)
Net income		$	631.3			$	909.7			$	1,035.6
Other comprehensive income (loss)			(648.3	)			(406.4	)			411.8
Total Comprehensive Income (Loss)		$	(17.0	)		$	503.3			$	1,447.4