Consolidated Results

The following table provides summary data for the quarters and nine-month
periods ended September 30, 2009 and 2008:



                                                  Quarter Ended September 30,                    Nine Months Ended September 30,
(Dollar amounts in millions)                 2009             2008          Variance           2009            2008          Variance
Sales                                      $   2,288        $   2,852            (20 )%     $    6,549       $   8,393            (22 )%
Gross margin (a)                           $   1,011        $   1,118            (10 )%     $    2,887       $   3,316            (13 )%
As a percent of sales                           44.2 %           39.2 %                           44.1 %          39.5 %
Selling, general and administrative        $     284        $     341            (17 )%     $      814       $   1,017            (20 )%
As a percent of sales                           12.4 %           12.0 %                           12.4 %          12.1 %
Depreciation and amortization              $     217        $     218             -  %      $      623       $     644             (3 )%
Brazil tax amnesty program and other
charges (b)                                $     306        $      -                        $      306       $      17
Other income (expense) - net               $     (10 )      $       9                       $      (25 )     $       3
Operating profit                           $     174        $     544            (68 )%     $    1,063       $   1,569            (32 )%
As a percent of sales                            7.6 %           19.1 %                           16.2 %          18.7 %
Interest expense - net                     $      32        $      50            (36 )%     $      100       $     149            (33 )%
Effective tax rate                            (131.7 )%          28.1 %                            3.7 %          28.0 %
Net income - Praxair, Inc.                 $     325        $     355             (8 )%     $      914       $   1,011            (10 )%
Diluted earnings per share                 $    1.04        $    1.11             (6 )%     $     2.93       $    3.15             (7 )%
Diluted shares outstanding                   312,182          319,505             (2 )%        312,185         320,719             (3 )%

(a) Gross margin excludes depreciation and amortization expense.

(b) See Note 2 to the condensed consolidated financial statements.

2009 Third Quarter Brazil Tax Amnesty Program and Other Charges

In the third quarter 2009, Praxair recorded a pre-tax charge of $306 million (net after-tax benefit of $7 million or $0.02 per diluted share), related to a recently announced Federal tax amnesty program in Brazil (referred to as "Refis Program") and other charges. The $306 million charges to operating profit reflect the settlement of non-income tax disputes, reserves taken for Brazilian government receivables and a state tax matter, and the write-down of an idle manufacturing plant and related assets in Brazil. There is a $313 million income tax benefit primarily because the Refis Program allows for a portion of the settlement obligations to be satisfied with income tax net operating loss carryforwards (NOLs) and because the company had previously fully reserved these NOL deferred income tax assets.

Although the Refis Program had no cash impact in the 2009 third quarter, management expects there will be up to $90 million of incremental cash outflow in the 2009 fourth quarter.

The net benefit has been recorded in the consolidated financial statements as follows:

                                         Operating Profit               Income Tax                Net Income
(Millions of Dollars)                         (Loss)                Provision (Benefit)             (Loss)
Brazil Refis Program, NOL and
other Brazilian governmental
related matters (a)                     $             (282 )       $                (329 )       $         47
Brazil business restructure                            (24 )                          (8 )                (16 )
Tax adjustments                                         -                             24                  (24 )

Total                                   $             (306 )       $                (313 )       $          7

(a) Operating profit includes a $149 million charge for non-income tax disputes which were settled by using existing NOL carryforwards, with full valuation allowances. Income taxes include an offsetting benefit from reversing the related valuation allowances which are no longer required. Net income is not impacted.

See Note 2 to the condensed consolidated financial statements for a more detailed description of these items.

2008 First Quarter Pension Settlement Charge

A pension settlement charge of $17 million ($11 million after-tax or $0.03 per diluted share) was recorded in the first quarter of 2008 for net unrecognized actuarial losses related to lump sum benefit payments made from the U.S. supplemental pension plan to a number of recently retired senior managers, including Praxair's former chairman and chief executive officer.

Results of Operations



                                    Quarter Ended September 30,                Nine Months Ended September 30,
                                           2009 vs. 2008                                2009 vs. 2008
                                             % Change                                     % Change
Sales
Volume                                                      (11 )%                                         (12 )%
Price/Mix/Other                                               2 %                                            2 %
Cost pass-through                                            (5 )%                                          (4 )%
Currency                                                     (6 )%                                          (8 )%

Total sales change                                          (20 )%                                         (22 )%

Sales decreased $564 million, or 20%, for the third quarter and decreased $1,844 million, or 22%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The underlying decline in sales of 9% and 10% for the quarter and year-to-date periods, respectively, reflects significantly lower volumes in most geographies due to lower demand consistent with the global economic slowdown. The unfavorable impact of currency, primarily in South America, Europe, Mexico and Canada decreased sales by 6% and 8% for the quarter and year-to-date periods, respectively. Lower cost pass-through decreased sales by $151 million, or 5% for the quarter and $354 million, or 4% for the year-to-date period, with a negligible impact on operating profit.

Gross margin in 2009 decreased $107 million, or 10%, for the third quarter and decreased $429 million, or 13%, for the nine months ended September 30, 2009 versus the respective 2008 periods primarily due to lower volumes and the negative impact of currency. The increase in the gross margin percentage for the quarter and year-to-date periods to 44.2% and 44.1%, respectively, was due to higher pricing, cost reductions and the impact from lower cost pass-through.

Selling, general and administrative (SG&A) expenses decreased $57 million, or 17%, for the third quarter and decreased $203 million, or 20%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The decrease in SG&A expenses was due to cost savings resulting from the cost reduction program initiated in 2008, ongoing productivity programs and currency impacts. SG&A expenses as a percentage of sales increased slightly in both the quarter and year-to-date periods due to the decrease in sales from lower cost pass-through.

Depreciation and amortization expense decreased $1 million for the third quarter and decreased $21 million, or 3%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The decrease was due to currency effects partially offset by the increased depreciation associated with project start-ups.

Other income (expense) - net was a $10-million expense and a $25-million expense for the quarter and nine months ended September 30, 2009, respectively. The 2009 quarter and nine-month periods included $2 million and $17 million of currency related net losses, respectively, primarily related to net income hedges. The 2008 quarter and nine-month periods included currency related net gains of $13 million and $6 million, respectively, primarily related to net income hedges (see Note 5 to the condensed consolidated financial statements).

Operating profit decreased $370 million, or 68%, for the third quarter and decreased $506 million, or 32%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Excluding the impact of the Brazil tax amnesty program and other charges in the quarter and nine-month periods ended September 30, 2009 and 2008, operating profit decreased $64 million, or 12%, for the quarter and decreased $217 million, or 14%, for the nine-month period. This decrease was driven by the negative impact of currency and lower sales volumes partially offset by cost savings. Excluding the impact of the Brazil tax amnesty program and other charges in 2009 and 2008, operating profit as a percentage of sales improved to 21.0% and 20.9% in the quarter and year-to-date periods, respectively, versus 19.1% and 18.9% in the respective 2008 periods. This improvement is a result of significant cost reductions and pricing.

Interest expense - net decreased $18 million, or 36% for the third quarter and decreased $49 million, or 33% for the nine months ended September 30, 2009 versus the respective periods in 2008 due to lower interest rates on commercial paper and international bank borrowings.

The effective tax rate in the 2009 periods was significantly impacted by the third quarter charges. Additionally, the 2009 nine-month period included a $7 million tax benefit primarily related to tax incentives in Italy recognized in the second quarter. Excluding these discrete items, the effective tax rate for the 2009 quarter and nine-month periods was 28%, which was the same as the respective periods in 2008. During the quarter, the Mexican government proposed an income tax reform bill. The company is monitoring the progress of this bill and will record the impact, if any, when it becomes law.

Net income - Praxair, Inc. decreased $30 million, or 8%, for the third quarter and decreased $97 million, or 10%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Excluding the impact of the Brazil tax amnesty program and other charges in the 2009 and 2008 nine-month periods, net income - Praxair, Inc. decreased $37 million, or 10%, and decreased $115 million, or 11%, for the nine-month period. The decrease in both periods was due to lower operating profit partially offset by lower interest expense.

Diluted earnings per share (EPS) decreased $0.07 per diluted share, or 6% for the third quarter and decreased $0.22 per diluted share, or 7% for the nine months ended September 30, 2009 versus the respective 2008 periods. Excluding the impact of the Brazil tax amnesty program and other charges in 2009 and 2008, EPS decreased $0.09 per diluted share, or 8%, and decreased $0.27 per diluted share, or 8%, for the quarter and nine-month periods, respectively. The underlying decrease in EPS is in line with the decrease in net income - Praxair, Inc. partially offset by the impact of the company's net repurchases of common stock during 2008.

The number of employees at September 30, 2009 was 26,432, reflecting a decrease of 504 employees from December 31, 2008 primarily related to the 2008 cost reduction program partially offset by the Sermatech acquisition.

Segment Discussion

The following summary of sales and operating profit by segment provides a basis
for the discussion that follows:



                                                   Quarter Ended September 30,               Nine Months Ended September 30,
(Dollar amounts in millions)                      2009           2008     Variance         2009           2008         Variance
SALES
North America                                   $   1,162       $ 1,557        (25 )%    $   3,446       $ 4,584             (25 )%
Europe                                                323           384        (16 )%          932         1,180             (21 )%
South America                                         436           527        (17 )%        1,184         1,507             (21 )%
Asia                                                  232           239         (3 )%          611           682             (10 )%
Surface Technologies                                  135           145         (7 )%          376           440             (15 )%

                                                $   2,288       $ 2,852        (20 )%    $   6,549       $ 8,393             (22 )%

OPERATING PROFIT
North America                                   $     263       $   274         (4 )%    $     783       $   811              (3 )%
Europe                                                 68            96        (29 )%          192           282             (32 )%
South America                                          94           111        (15 )%          239           302             (21 )%
Asia                                                   37            38         (3 )%           96           115             (17 )%
Surface Technologies                                   18            25        (28 )%           59            76             (22 )%

Segment operating profit                              480           544        (12 )%        1,369         1,586             (14 )%
Brazil tax amnesty and other charges (Note 2)        (306 )          -                        (306 )         (17 )

Total operating profit                          $     174       $   544                  $   1,063       $ 1,569

North America



                                    Quarter Ended September 30,                Nine Months Ended September 30,
                                           2009 vs. 2008                                2009 vs. 2008
                                             % Change                                     % Change
Sales
Volume                                                      (13 )%                                         (15 )%
Price/Mix/Other                                               1 %                                            2 %
Cost pass-through                                           (10 )%                                          (8 )%
Currency                                                     (3 )%                                          (4 )%

Total sales change                                          (25 )%                                         (25 )%

Sales decreased $395 million, or 25%, for the third quarter and decreased $1,138 million, or 25%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The underlying decline in sales of 12% and 13% in the quarter and year-to-date periods, respectively, is due to lower volumes partially offset by higher pricing. Higher sales to the energy markets were offset by lower sales to the chemicals, metals, electronics and manufacturing end-markets. Currency depreciation, primarily in Canada and Mexico, reduced sales by 3% and 4% in the quarter and year-to-date periods, respectively. Lower cost pass-through decreased sales by $160 million, or 10%, for the quarter and $367 million, or 8%, for the year-to-date period with a minimal impact on operating profit.

Operating profit decreased $11 million, or 4%, for the third quarter and decreased $28 million, or 3%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Excluding the negative impact of currency, underlying operating profit grew as cost savings from the cost reduction program and ongoing productivity initiatives more than offset the impact of sharply lower volumes.

Europe



                                    Quarter Ended September 30,                Nine Months Ended September 30,
                                           2009 vs. 2008                                2009 vs. 2008
                                             % Change                                     % Change
Sales
Volume                                                      (11 )%                                         (13 )%
Price/Mix/Other                                               2 %                                            2 %
Cost pass-through                                             1 %                                           -  %
Currency                                                     (8 )%                                         (10 )%

Total sales change                                          (16 )%                                         (21 )%

Sales decreased $61 million, or 16%, for the third quarter and decreased $248 million, or 21%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Unfavorable currency reduced sales by 8% and 10% in the quarter and year-to-date periods, respectively. The underlying decline in sales of 9% and 11% for the quarter and year-to-date periods, respectively, was due primarily to sharply lower volumes in the metals, chemicals and electronics end-markets. Cost pass-through to customers increased sales by $5 million, or 1%, for the third quarter and was minimal for the year-to-date period, with a minimal impact on operating profit.

Operating profit decreased $28 million, or 29%, for the third quarter and decreased $90 million, or 32%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Operating profit for the 2009 quarter and nine-month periods included net income hedge losses of $1 million and $3 million, respectively. Operating profit for the 2008 quarter and nine-month periods included a $9 million gain and a $6 million gain, respectively, related to net income hedges (see Note 5 to the condensed consolidated financial statements). Excluding the impact of net income hedges in the quarter and nine-month periods ended September 30, 2009 and 2008, underlying operating profit decreased $18 million, or 21%, and $81 million, or 29%, respectively. The underlying decrease in operating profit was due to sharply lower volumes partially offset by cost reductions.

South America



                                    Quarter Ended September 30,                Nine Months Ended September 30,
                                           2009 vs. 2008                                2009 vs. 2008
                                             % Change                                     % Change
Sales
Volume                                                      (12 )%                                         (10 )%
Price/Mix/Other                                               5 %                                            5 %
Cost pass-through                                             1 %                                            1 %
Currency                                                    (11 )%                                         (17 )%

Total sales change                                          (17 )%                                         (21 )%

Sales decreased $91 million, or 17%, for the third quarter and decreased $323 million, or 21%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Excluding the impact of currency and cost pass-through, sales decreased 7% for the quarter and 5% for the year-to-date period. The decrease was primarily due to lower volumes to metals and manufacturing customers, partially offset by higher sales to the food and beverage, healthcare end-markets and pricing. Cost pass-through to customers increased sales by $4 million, or 1% for the quarter and $10 million, or 1% for the year-to-date period, with a minimal impact on operating profit.

Operating profit decreased $17 million, or 15%, for the third quarter and decreased $63 million, or 21%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Operating profit for the 2009 nine-month period included currency related net losses of $12 million, which primarily consisted of net income hedge losses. Operating profit for the 2008 quarter included currency related net gains of $4 million consisting primarily of net income hedge gains (see Note 5 to the condensed consolidated financial statements). Excluding the negative impact of currency and net income hedge losses, underlying operating profit grew as cost savings from productivity initiatives, cost reduction programs and higher pricing more than offset lower volumes.

Asia



                                    Quarter Ended September 30,                Nine Months Ended September 30,
                                           2009 vs. 2008                                2009 vs. 2008
                                             % Change                                     % Change
Sales
Volume                                                        4 %                                           (2 )%
Price/Mix/Other                                              (3 )%                                          (1 )%
Cost pass-through                                             1 %                                            1 %
Currency                                                     (6 )%                                          (8 )%
Equipment sale                                                1 %                                           -  %

Total sales change                                           (3 )%                                         (10 )%

Sales decreased $7 million, or 3%, for the third quarter and decreased $71 million, or 10%, for the nine months ended September 30, 2009 versus the respective 2008 periods. Unfavorable currency decreased sales by 6% and 8% for the quarter and year-to-date periods, respectively. Underlying sales increased 1% for the quarter and decreased 3% for the year-to-date periods due primarily to lower sales to the electronics, metals and manufacturing end-markets. Cost pass-through to customers increased sales by $2 million, or 1% for the quarter and $8 million, or 1% for the year-to-date period, with a minimal impact on operating profit.

Operating profit decreased $1 million, or 3%, for the third quarter and decreased $19 million, or 17%, for the nine months ended September 30, 2009 versus the respective 2008 periods, primarily as the result of lower sales volumes and currency depreciation.

Surface Technologies



                                   Quarter Ended September 30,                Nine Months Ended September 30,
                                          2009 vs. 2008                                2009 vs. 2008
                                            % Change                                     % Change
Sales
Volume/Price                                               (17 )%                                         (13 )%
Currency                                                    (5 )%                                          (7 )%
Acquisitions                                                15 %                                            5 %

Total sales change                                          (7 )%                                         (15 )%

On July 1, 2009, Praxair acquired Sermatech International Holdings Corp. (Sermatech), a global supplier of protective coatings and advanced processes used on industrial and aviation gas turbines with operations in the U.S., Canada, United Kingdom, Germany and South Korea.

Sales decreased $10 million, or 7%, for the third quarter and decreased $64 million, or 15%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The acquisition of Sermatech contributed $22 million of sales in both the quarter and nine-month periods ended September 30, 2009, or 15% and 5% of sales, respectively. Excluding the impact of negative currency translation and acquisitions, underlying sales decreased 17% and 13% for the quarter and year-to-date periods, respectively. In the quarter, growth from higher coatings for jet engines and natural gas turbines was more than offset by lower coatings for industrial gas turbines and the general manufacturing end markets in the U.S. and Europe.

Operating profit decreased $7 million, or 28%, for the third quarter and decreased $17 million, or 22%, for the nine months ended September 30, 2009 versus the respective 2008 periods. The decrease was principally driven by lower volumes and the negative impact of currency partially offset by productivity and cost reduction initiatives.

Currency

The results of Praxair's non-U.S. operations are translated to the company's reporting currency, the U.S. dollar, from the functional currencies used in the countries in which the company operates. For most foreign operations, Praxair uses the local currency as its functional currency. There is inherent variability and unpredictability in the relationship of these functional currencies to the U.S. dollar and such currency movements may materially impact Praxair's results of operations in any given period.

To help understand the reported results, the following is a summary of the significant currencies underlying Praxair's consolidated results and the exchange rates used to translate the financial statements (rates of exchange expressed in units of local currency per U.S. dollar):

                                        Exchange Rate for
                                         Income Statement
                      Percent of           Year-To-Date            Exchange Rate for
                       YTD 2009              Average                 Balance Sheet
                     Consolidated                             September 30,   December 31,
 Currency             Sales (a)          2009        2008         2009            2008
 Euro                          17 %        0.73        0.65            0.68           0.71
 Brazil real                   16 %        2.07        1.68            1.78           2.34
 Canada dollar                  8 %        1.18        1.01            1.09           1.22
 Mexico peso                    6 %       13.72       10.48           13.53          13.53
. . .