Good morning, and welcome to the Air Products and Chemicals’ Second Quarter Earnings Release Conference Call. (Operator Instructions) This telephone conference, presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Air Products will be recording this teleconference and may publish all or a portion of the teleconference. No other recording or redistribution of this telephone conference by any other party, are permitted without the expressed written permission of Air Products. Your participation indicates your agreement. Beginning today’s call is Mr. Simon Moore, Director of Investor Relations. Mr. Moore, you may begin.

Thank you, Derrick. Good morning, everyone, and welcome to Air Products’ second quarter 2014 results teleconference. This is Simon Moore, Director of Investor Relations. I am pleased to be joined today by John McGlade, our Chairman, President and CEO; and Scott Crocco, our CFO. John will make a few opening remarks, Scott will review our results and update our outlook, and I will provide perspective on each of our operating segments. After our remarks, we will be pleased to take your questions. Please limit yourself to one question and a follow-up. We issued our earnings release this morning. It’s available on our website along with the slides for this teleconference. Please go to airproducts.com to access the materials. Please turn to Slide 2. As always, today’s teleconference will contain forward-looking statements based on current expectations and assumptions. Please review the information on this slide, and at the end of today’s earnings release, the explaining factors that may affect these expectations. Now, I will turn the call over to John.

Thank you, Simon. And let me also wish everyone a good morning. We appreciate you joining us on the call today. Please turn to Slide #3. Bottom line is we continued to deliver on our commitments during the second quarter. Earnings are within our guidance range despite a $0.03 to $0.04 negative impact from adverse weather in the United States and Canada, which to be clear we expect to recover the effects of in Q3 and Q4. We are executing on the projects in our backlog. We brought on-stream two major projects in our pipeline networks. One is the new hydrogen plant, Louisiana, supporting the world’s largest hydrogen system in the United States Gulf Coast and the second is the new nitrogen plant in the Tainan Science Park in Taiwan supporting some of the world’s leading semiconductor manufacturers. We are driving asset loadings with strong volume growth in Merchant and Electronics and Performance Materials. We continue to deliver on our cost reduction programs. We were on track and seeing the savings from the program we announced last year and we raised the dividend by 8.5% making this the 32nd year of consecutive increases. However, we can do more. We need to continue to improve our productivity and the results from higher asset loadings and we are aggressively managing price and cost. Your products management team remains committed to driving increasing shareholder value. The investments we have made over the past several years, the strength and position of our portfolio and our ability to execute going forward will drive a very positive future for Air Products. I also realized many of you are interested in an update on the progress of the search for a new CEO. As I shared with you previously, the Board is working with an executive search firm to find the right high-quality candidate who has the skills and expertise to take our company forward. While I am purposely not involved in that process, I know that there has been significant productive activity and I remain confident that we will find the right leader for Air Products within the expected timeframe we previously shared. Now, let me turn the call over to Scott to review our results.

Thanks, John. Turning to Slide 4, let me now take you through our fiscal Q2 results. For the quarter, sales of $2.6 billion were 4% above prior year on higher energy pass-through and stronger volumes, primarily in our Merchant Gases and Electronics and Performance Materials segments. Underlying sales were up 2% excluding the polyurethane intermediates or PUI business. As we have mentioned previously, a significant number of our tonnage gases customers had scheduled outages this quarter impacting our volumes. Sequentially, overall sales increased 1% on higher energy pass-through. Underlying volumes were 1% lower primarily due to the impact from Lunar New Year, which more than offset the seasonal upturn in our Performance Materials business. Operating income of $385 million decreased 1% versus prior year as strong results in our Electronics and Performance Materials and Equipment and Energy segments were more than offset by lower Merchant and Tonnage gases results. Tonnage was impacted by the customer outages I just mentioned and Merchant was affected by the unusually harsh U.S., Canada weather which impacted power costs and our operations. As John said we expect to recover the weather related costs over the next two quarters. Our operating margin of 14.9% declined 80 basis points versus prior year as the positive contribution from higher volumes was offset by the higher costs and the dilutive effect of higher energy cost pass through. Net income and diluted earnings per share were 2% and 4% lower respectively versus last year. Our return on capital employed declined 120 basis points to 9.7% as a result of higher capital employed, lower earnings and the Indura acquisition. This remains well above our 8% cost of capital. I want to remind you that the new projects we are developing, executing and operating will be accretive to ROC over the next…

Thanks Scott. Please turn to Slide 6, overall the Merchant Gases segment had a challenging quarter that included the negative effect of the adverse winter weather in U.S., Canada. However, we see this as a timing issue and expect to fully recover those lost profits in Q3 and Q4. We have a robust set of actions in place that we are confident will drive improvement in this business. Merchant Gases sales of over a $1 billion were up 4% versus last year on 4% higher volumes. All regions showed positive liquid oxygen, nitrogen and argon volumes, but this was partially offset by lower helium volumes globally due to supply challenges and continued packaged gas demand weakness in Europe. Sales and volumes were down 1% sequentially due to economic weakness in South America and the Lunar New Year slowdown in Asia. With regard to helium we continued to see challenges from reduced feedstock availability particularly driven by low LNG production levels in Algeria and the continuing decline in crude deliveries from the U.S. government. Our new helium plant in Wyoming has produced some product during a short period of acceptable feed gas supply. We expect to ramp production and begin exporting product this quarter as our supplier lines out their gas processing plant. We are just beginning to see an increase in crude from one of our existing U.S. suppliers as a result of working with them to expand their natural gas pipeline collection system. And our Colorado facility is on schedule for FY ’15. We expect this additional supply to roughly offset the declines from the U.S. government over the next year or so. Merchant Gases’ operating income of $143 million was down 15% versus prior year and sequentially. Segment operating margin of 13.8% was down 300 basis points compared…

Thanks Simon. Now, please turn to Slide 11 and let me provide you a brief summary of our outlook. Economic activity in the second quarter of 2014 was in line with our expectations in most regions. Given current economic conditions, we continued to expect modest economic growth in the second half of fiscal 2014. Globally, for the regions we operate in we are maintaining a manufacturing growth forecast of 2% to 4% for our fiscal year. In the U.S. some policy uncertainty has been reduced, but harsh winter weather conditions restricted manufacturing growth in January and February. We expect the slowdown to be temporary. Although still weak, conditions in Europe have been improving. Austerity programs, restricted credit and high unemployment remain the largest obstacles to the European recovery. We expect stronger manufacturing growth for Asia in FY ‘14, despite a slight deceleration in China. Improving manufacturing conditions in Japan, Singapore, South Korea and Taiwan are driving stronger growth in Asia. And in South America, manufacturing activity continues to be below expectations. The easing of demand for global commodities, particularly from China has adversely impacted countries including Chile. We expect the electronics market will grow in 2014, but likely at a slower rate than anticipated. We continued to expect FY ‘14 capital spending to be approximately $2 billion and our backlog at the end of the quarter remained at about $3.5 billion. You can see an updated list of our major projects in the appendix; Slide 14. Based on our current outlook for the year, our FY ‘14 EPS guidance range is now $5.70 to $5.85 per share for the year. Our guidance for Q3 is for earnings per share of $1.42 to a $1.47 based on the following positive factors: the absence of the Q2 weather impact and the recovery of a portion of that in the Merchant business, volume improvements across the businesses, including new plant on-streams, higher equity affiliate results and further progress on our cost reduction initiatives. Now, let me turn the call back over to John to wrap up.

Thank you, Scott. Please turn to Slide #12. In conclusion, I want to assure you that our management team and I remain focused on the strategic priorities we set out at the beginning of this year, executing on our project backlog, driving productivity and cost reduction, winning profitable business in the marketplace and delivering profitable growth from our existing assets. We are confident these actions will generate long-term shareholder value. Thank you. And now we are ready to take your questions.

(Operator Instructions) And we will take our first question from P.J. Juvekar with Citibank.

Yes, thank you. Couple of questions. First of all, can you quantify the weather impact and then if it’s increased cost, etcetera because of weather, how do you plan to recover that in the second half?

So, P.J., this is Scott. So again, in the second quarter here, we saw higher costs, particularly in the Northeast and the Midwest driven by power on the order of $0.03 to $0.04 per share. Now, what we have – and we have recovered some of that during the quarter, but going forward, we would expect to have a $0.02 recovery in the third quarter and again a $0.02 recovery in the fourth quarter. So, overall for the year, a $0.03 to $0.04 headwind in the second quarter and tailwinds of $0.02 in both Q3 and Q4.

Okay, thank you. And secondly, can you update us on the six sort of coal to chemicals project that you are working on in China sort of the timing and the returns that you expect especially in light of your cautious comment on the merchant market in China?

So, this is John, P.J. Those projects are tracking with what we originally expected from a return point of view and from a schedule point of view within the context of recognizing that these are very large projects. None of these – well, few of these projects have liquid of any major amount on them. Sometimes there is just a little bit of co-produced liquid, but these were not justified or built on the basis of the merchant business. These were straight up onsite projects that had to earn a return on the onsite return and pricing to the customer and a risk profile of those projects.

Thank you.

Thanks, P.J.

Thank you.

(Operator Instructions) We will take our next question from Robert Koort with Goldman Sachs.

Thanks. Good morning.

Good morning.

I am wondering if you could talk a little bit on the electronics side, your margin starting to look pretty attractive again, where are you in terms of the realization of some of the cost cuts you have done there? And then also could you maybe give some help on the equipment sale, I know those tend to be lumpy. How much was that accretive to the margin during the quarter?

Right. So Bob, this is Scott. As you pointed out, we have got a variety of actions underway in electronics both from a volume growth, profitable volume growth as well as restructuring asset and other costs. And those actions are progressing very well. As you also pointed out, there was a bunch of a fair amount of delivery systems that we had in this quarter and while we would expect to continue to see them going forward not at the rate that we saw in the second quarter. So, the electronics team has done a nice job repositioning that portfolio, taking the actions that they had committed to and improving the margins, recognizing I would not expect to see going forward the same level of margins in the second half of the year that we saw in this quarter, but that said continue to see good execution on their part and really turned that business around.

And I know when you guys addressed some of the capacity reductions for ammonia and NF3 you mentioned lackluster photovoltaic demand trends, but it seems like maybe things are starting to get better there. So, is there any risk that you maybe cut capacity just as things get better or you have sufficient ex-U.S. capacity to meet that demand growth?

No. So, just a reminder, so we have gotten out of the silane and so it was small to begin with and so there is not really any impact there from that market.

Thanks.

Our next question comes from David Begleiter with Deutsche Bank.

Thank you, John. Just on Tonnage, it looked like it should be a better second half of the year and a much better 2015 given these new projects coming on stream and a few headwinds for us there, how should we think about that earnings progression Q2 – second half versus first half this year and ‘15 versus ‘14?

Yes, so I will take the top level here and Scott can give you a little bit more details. But I mean I think you hit it spot on. We have been saying for a while that the project backlog as we execute that and bring that into the portfolio is going to drive earnings into ‘15 and ’16. And as you well know, something like 85% of that $3.5 billion backlog is in the Tonnage sector. As we look to the second half of this year, two real key things are happening here. As you are going to forego some of the maintenance – you are going to get beyond the maintenance outages that hit us in Q1, Q2. They will be in Q3, but largely back to a fairly low level in Q4 and then we will begin to see the benefits of some of the new plant start-ups in three and then accelerating in four.

Great. And John just on the CEO search, what’s taking the Board so long, it’s been now seven months since you announced in late September, it shouldn’t be this long, what’s preventing the Board from making decision, it probably can’t be helpful to the organization not knowing who the next lead will be, so why is it taking so long to name a new CEO here?

Well, we could probably debate what long is, but that aside, I mean this Board takes and the search committee take this very, very seriously. And they are really focused on making sure that they get the right candidate in this role. I know that they completely understand their fiduciary responsibilities and the commitments we have made from a timing point of view and they are tracking to that.

Thank you very much.

David, this is Scott. Let me take you back to the first question about the second half of the year. And I would like to broaden it beyond Tonnage. As we look at the first two quarters and what we have delivered and compare that to our outlook for the full year, recognize there is a considerable step-up in the second half versus the first half. We will step back and take a look at what the drivers of those things are. And put about two-thirds of those drivers being specific things beyond just general base business improvement. Let me give you some examples and let me give you some numbers, right. So when you look at the second half versus the first half for the full year for the full company, weather in the second half versus the first half, because we don’t have any more inclement weather projected in the second half and we do have the recovery of those costs that we saw in the second quarter about $0.07 to 0.08 improvement second half versus the first half driven by weather. We continue to execute on the cost reduction actions. Second half versus the first half would be on the order of about $0.05. Maintenance, like we have talked about, is going to decline in the second half, particularly in the fourth quarter there will be a reduction, second half maintenance expense versus first half maybe $0.04 or $0.05. And then a considerable step-up from new plants as we bring the projects on stream somewhere in the order of, call it $0.12 to $0.14. And that leaves about a third of the step-up in the second half of the year driven by base business improvement and general increases. So I just want to take you through that and give you some numbers and specifics around the drivers of our outlook.

Very helpful. Thank you. Thank you, Scott.

Our next question comes from Vincent Andrews with Morgan Stanley.

Thanks very much. I just want to follow-up on the cost recovery in the second half of the year. You said it’s related to largely related to power, what is the mechanism by which you actually get that back from your customers that such as you couldn’t get it back in the sort of in real time, I am just – it kind of feels like spilled milk to me at this point?

Right, so there is various mechanisms, whether that’s in the form of formulas as it works its way through various indices or surcharges or just straight price increases making sure that we are taking the appropriate actions given the current situation with the customer and the supply situation in that region.

Okay. And then just kind of on a follow-up as well to the succession or management issue, there is a fair amount as I am sure you are aware of speculation about what could change at the company when new leadership comes in. So, I am going to assume that, that’s also the case within the company. What if anything, have you been able to do to kind of keep everybody focused and executing on your plan or is it at all a concern for you?

Well, I think it’s not a concern. And in fact, I am a firm believer, when you look at certain external events, whatever they are you really sit down with your leadership team and say look, our job is x and in this case, our job is running this company and delivering on the commitments that we have made to our shareholders at the beginning of this year. And I believe that we are doing that. And to the extent that people aren’t on board with that, then there is another dialog with them. But from my perspective, making sure that there is no lack of clarity and/or accountability around what we need to do, we are not going to influence, they are not going to influence who the new CEO is. That’s the board and the search committee’s responsibility to do that. It’s one of the prerogatives of a board one of their key issues is on succession. And so it can be an interesting dialog, but not one that’s worth spending a lot of time on. And I have been very clear with the broad organization as well as (indiscernible).

Okay, thank you very much.

We will take our next question from Kevin McCarthy with Bank of America/Merrill Lynch. Kevin McCarthy - Bank of America/Merrill Lynch: Yes, good morning. Wanted to probe a little bit deeper on your Merchant Gas segment margins, which declined about 300 basis points, I heard quite a few different issues here. I think I scribbled down five different ones. Trying to get a sense of how much of the decline might be attributable to transitory issues, such as the weather that you discussed versus more durable issues? It sounded for example like the China pressure might extend for a while, is there a way to disentangle the margin delta in that sort of simple fashion?

Yes, Kevin, I am going to let Scott give you the details, but I want to just be really clear to you and our other shareholders. I and the management team and the board are not happy with the performance of this segment. And I have been working very closely with Corning Painter who took over this segment in the early part of Q1. And with his leadership team, I think he has a really good set of actions that vary as you acknowledge by the different geographies and business environments that we are operating in. But I don’t want there to be any confusion that this level of margin performance in this business is not acceptable and that we are absolutely committed to getting the margins in this business back on track to where they ought to be and where they have been in the past. Scott could give you a little bit more granularity around the specifics to your question but I wanted to really reinforce that point.

Thanks, John. So, Kevin, let’s talk about operating margin versus prior year, right, for the Merchant segment, down 300 basis points. Of that, let’s call it, 100 basis points is the weather impact. And again as we talked about, that was costs seen in the second quarter that we are committed to recover over the course of Q3 and Q4, right. Then we also mentioned that there was a prior year sale, let’s call that impact – that’s a one-time item that doesn’t repeal, let’s call that impact about 50 basis points. Also then the dynamic that was talked about, Simon’s comments around – in China around the wholesale market, the pricing environment and the fact that we are bringing on new capacity, let’s call that another 50 basis points. And then the balance is what John was talking about, costs in excess of productivity actions of about 100 basis points that we need to make sure that we are taking the actions to drive improvement going forward.

I hate to jump back on this question, but just to reinforce the point we are answering the specifics because of the question. They aren’t acceptable in my views and we have got to be and are focused on not having this dialogue on this business going forward, because we are delivering on what this business is capable of. Kevin McCarthy - Bank of America/Merrill Lynch: I appreciate the color. It’s very helpful. If I can switch gears to the tonnage segment, you had outages as you mentioned in the quarter, it sounds like there will be some as well in 3Q. What is the sequential volume differential that you expect looking ahead to 3Q? How much of a pickup might there be as we move forward?

So, this is Scott, Kevin. So Q3 versus Q2, kind of flat, a similar sort of level of maintenance, with the fourth quarter seeing a reduction in maintenance expense and of course the corresponding impact on volumes as well. Kevin McCarthy - Bank of America/Merrill Lynch: Okay. Thank you very much.

Just to clarify, Scott, right, that was a comment about the outages impact on volume, not a more general comment about volumes.

Yes, thank you. Kevin McCarthy - Bank of America/Merrill Lynch: Perfect, thank you.

Our next question comes from Don Carson with Susquehanna Financial.

Just a couple of questions, first on Merchant, a lot of people have been talking about economic improvement in Europe. You have got a large Merchant presence in Europe. I am surprised that wouldn’t have offset some of the weather related issues in North America. So perhaps you could comment on that. And then secondly, are you still looking for $0.20 to $0.25 of EPS from new project startups this year and more importantly how do you see that unfolding in 2015?

So first – this is – Don, this is Scott. So first on the Merchant Europe, we did see good volume growth in the liquid oxygen, liquid nitrogen. The area that we saw the weakness was in packaged gases that offset that, right. Then your other question around $0.20 to $0.25 for the year, yes, that’s still our outlook. And in terms of FY ‘15, we haven’t quantified what that was – that’s going to be, but it will be higher than $0.20 to $0.25 as we bring on stream these projects that are in backlog. And again, I will reiterate that overwhelmingly these are take or pay contracts that don’t have volume risk.

And Scott, you talked about the drag on return on capital from the build out of new projects and I know what about the drag on earnings, I know depreciation alone is up about $100 million over the last couple of years, that’s about $0.35 a share on a full year basis, what other drags do you see on earnings as you in advance are starting up these new projects?

So I guess if I just take a step back and think about the levers that we have in order to drive earnings going forward, right. So as we brought on capacity in the past, so we have talked about this, we have existing capacity that can be leveraged. This is the $1 billion or so of existing sales capacity that’s already installed when brought on stream is a 30% to 40% incremental margin given that we are already incurring the depreciation. Then there is the projects that are in backlog that we have already talked about and we are getting those executed on time and on budget, also drive earnings growth. And then execution and focus on productivity to more than offset the impact from inflation to again drive improvement to the bottom line and earnings.

Okay, thank you.

We will take our next question from Jeff Zekauskas with JPMorgan.

Hi good morning.

Good morning Jeff.

Can you remind me when exactly Tees Valley comes on in 2015 and what’s the size of the PCEC Weinan, China oxygen facility that comes on in the fourth quarter?

So we have talked about kind of the commissioning in Tees Valley 1 to start at the end of fiscal ‘14, but frankly, that’s just the beginning of the commissioning. So we will be coming on line early in fiscal ‘15. And in terms of PCEC, I don’t think we have quantified the size of it. We are expecting that to be on stream here by the end of the year.

Okay. And then if I could just make a suggestion, your maintenance cost seems to be large and volatile quarter-by-quarter, perhaps you can disclose what they are. And I don’t think that it would harm you from a competitive standpoint and it might make the modeling of the divisions a little bit easier? Thanks very much.

Thanks for the feedback, Jeff.

Our next question comes from James Sheehan with SunTrust.

Good morning.

Good morning.

Good morning.

Just wanted to follow-up on the CEO succession issue, I understand these things do take some time, but maybe you could give us a little color on the process and what is – why does it take so long. I am sensing some frustration among investors I talked to you about the pace of the process, do you expect this to last weeks or months or is it going to last all the way through the current CEO tenure as it’s been disclosed?

So I said in my opening remarks, Jim that the Board takes this very seriously and they are committed to the obligations and their fiduciary responsibilities that we disclosed earlier this fiscal year. From a process point of view, what we said in the past, the process is not that complicated in the context of the process, which is you have got to hire an executive search firm, you have got to come up with a list of viable candidates, you have to vet that list of viable candidates and then you have to interview that list of viable candidates and that interview process is with the search committee and then ultimately our full board and that does take some time. But having said that, we understand what our responsibilities are, the board understands what their responsibilities and commitments are and they are executing to them.

Thank you, John. Just another question on Performance Materials growth, it’s been very strong recently, it seems to be broad-based. Do you think that growth is sustainable here and what gives you confidence that it will continue?

Well, I would just say, our focus in that business for a long time has really been to grow at two times the underlying growth in whatever market it’s in through new products that meet the technical, environmental and performance needs of our customers and that team in my opinion has done a very, very good job leveraging their knowledge of the markets they are pursuing, the technologies and product offerings they have to play and the customer base that’s going to help them drive new products into the marketplace and then broadly penetrate adjacent markets as well.

Thank you very much.

Our next question comes from Mike Harrison with First Analysis.

Hi, Mike.

Good morning. If we could look at the margin performance in the merchant business by geography, I guess kind of relative to that overall 300 basis point decline year-on-year, where have we seen margins weaken the most and what regions have maybe been a little bit more stable?

So, this is Scott, Mike. So, obviously the weather impact is the North America comment, right. The Europe margin has been under stress, again as I mentioned due to the weakness in packaged gases, but I also just want to reiterate that we are taking steps in that business to right-size the organization and make sure that we are focused on the end-markets where we see long-term profitable growth. And then the South America, particularly with Indura, as I mentioned in my prepared remarks that’s been an area where the economy frankly has been below what our expectations have been, but again our acquisition in Indura was based off of a integrated gases marrying a great business that they had from a packaged gases with our liquid bulk and onsite capabilities. And so we are happy with that investment and see growth opportunities going forward, even if we are at a current economic situation that is below our expectation.

And then in Asia, would we have seen margin kind of weaker than that negative 300 basis points or not quite as bad?

So, again a little bit of a dip for the reasons that Simon described during the comments as well around some of the pricing pressures as well as the wholesale dynamics in that market.

Right, okay. And then looking at the 6% volume growth number in the U.S. and Canada, can you quantify how much of that was from EPCO? I think it’s been about 5% in the past couple of quarters and maybe comment more broadly now that you have owned that business for a few quarters, how is that business trending kind of – are you pleased with the acquisition and what has it done for your merchant capabilities, broadly speaking?

Right. So, you are right, it’s been in the 5% range or so similar to what we have said in the past. We are happy with the investment and it’s going well. We are obviously going through the integration and going after the synergies associated with that acquisition, at the same time recognizing it’s a nice complement to our offerings of CO2, particularly in the foods arena. And so – and we have already seen the impact and the synergistic opportunities from a end-market of having that offering as well.

And then last question I have is just on tonnage and you have noted customer outages in the business creating pressure kind of a few times and it doesn’t sound like the pressure stops here in the third quarter. Over that time, we have seen volumes kind of flat to declining despite new projects, despite the Gulf Coast pipeline coming on-stream and these trends in volumes have been detrimentally returns as well. Can you just maybe delve into a little more detail in what explains the volume performance and why are we seeing such volume pressure at a time when refineries and other customers on the Gulf Coast, it would seem like they should be running about flat out right now?

Yes. So again, I will just reiterate, Mike that this is a high outage season and that’s what we are seeing the impact on the volumes coupled again with the termination that we had in prior years, so be careful of the comparison point, but that’s the main driver of the volume.

But to emphasize again as we have said is what’s really important is the demand from our refining customers on the U.S. Gulf Coast is strong. We talked about a couple of new capacity additions that we are bringing on there as well as some new business opportunities. So we remain optimistic and feel good about our position down there.

But I guess is if we are talking about outages and having a seasonality around outages and maintenance costs, this quarter was bad, last quarter was maybe not quite so bad, but it was a factor last quarter and you are pointing to Q3 as also being kind of quarter-to-quarter flattish or similar amount of outages. So I guess again getting to maybe, Jeff Zekauskas’ point, maybe we need a little bit more detail on exactly what the drag is each quarter, so that we can understand kind of what the underlying performance looks like.

Yes. And I think Scott said we will consider that comment that when Jeff brought it up and I appreciate you reemphasizing. I think one of the things you have got to understand about this business and maybe we have got to do a better job explaining it is that you don’t take an outage on every hydrogen plant every year and it just so happened that a number, a greater number than typical given the size of our hydrogen fleet has occurred this year in these quarters. And so point noted about us being able to perhaps show some more light to that and we will go back and think about how we do that.

Alright, appreciate that. Thanks gentlemen.

Thanks Mike.

Thanks Mike.

Our next question comes from John McNulty with Credit Suisse.

Yes, good morning. Thanks for taking my question. Just a quick question regarding the sequencing of earnings and you were pretty clear on the one half versus second half, but I guess if I look at your third quarter guidance, the midpoint is kind of $1.44, $1.45, that basically implies the fourth quarter has got to be somewhere in the $1.65, $1.66 kind of range. That’s a much larger jump than you have pretty much ever had going from a 3Q to 4Q. So I guess what’s driving that, is it the lumpiness of the projects or I guess how should we think about what’s different this time around versus kind of past second half sequencing?

So, John thanks for the question. The same fundamental drivers that I described in the second half versus the first half are true for the Q2 to Q3 walk and for the most part the Q3 and the Q4 walk, right. So again just to reiterate, about two-thirds of the increase is driven by specific items as opposed to just broad-based general business improvement. So again, let’s talk about the third quarter versus the second with the increment weather impact that we saw here in the second quarter, $0.03 to $0.04 not repeating and getting a couple of cents recovery on price, that’s going to be call it a $0.06 step up. Cost reduction efforts will continue again at a stepped up level for a couple of cents. Maintenance, as I mentioned before, roughly flat in the third quarter versus the second quarter and then we are going to start seeing even a bigger impact from new plans coming on-stream, and again, the rest is going to be from just base business improvement. And then again I will point out that the other element is in the fourth quarter, we will see a decline in maintenance relative to what we have seen in both the second and third quarter and we will see a bigger impact of the new on-stream.

Okay, great. Thanks for the granularity.

Our next question comes from Mike Sison with KeyBanc.

Hi, guys. Good morning.

Good morning, Mike.

John, given what you and Corning are working on, there was a time when you thought merchant margins could be closer to 20%, do you still think that’s an area of potential for the business longer term?

Absolutely. This business needs to be a high-teen business on a global basis when it’s at steady state. And I have made that very clear to Corning, I have made that very clear to his leadership team, we need to do that. Now, I believe while – and I want to be clear, we gave you some granularity on what happened this quarter and I don’t want anyone to walk away thinking those are excuses that they happen, they happen, but that’s not how we can run this business. And Corning and his team completely understand that and are focused on returning it to the level of profitability that it’s capable of.

Okay, great. And then just in terms of China, can you give us sort of your thoughts on where capacity utilization is either for the industry or for yourself just to give us a gauge of you sort of talked it might take a couple of years to fill that up?

Yes, Mike, this is Simon. So, as we shared with you, in Asia our overall LOX/LIN capacity utilization is in the mid 70s. And I would say on balance it’s not hugely dissimilar in China. The slightly different dynamic you got to appreciate is we are absolutely seeing good LOX/LIN volume growth in China. Again, we are also though bringing on capacity additions. And I will just reiterate what I said earlier, these are capacity additions that we made decisions on a few years ago. We have not made any decisions that new capacity in the liquid business in China in the last 18 months. So, that’s clear for us. And I think you are seeing in the industry in a similar mode.

Okay, got it. Thank you.

Our next question comes from David Manthey with Robert W. Baird.

Hi, good morning. Thank you. Just quickly back on the merchant piece, where you talk about weather, it’s not so much the weather impact as it is. I am understanding this is a power increase that the cold weather led to higher natural gas prices, which led to higher electric power prices, which are your input in the merchant business, is that right?

Yes, that’s right. So, this is Scott, David. So, while there were some dislocations, the biggest driver of the weather impact that we saw in the second quarter was from power, including especially in the Northeast and the Midwest where on the increment power is going to be – the feedstock for power is going to be natural gas and there was a big run up in natural gas. And so that’s been – that was the biggest driver, so higher variable cost or power cost that we are committed to recouping here in the second half of the year.

Okay. It sounds like you may have started taking action, but given the fact that you are saying over the next two quarters that won’t hit a full sort of run-rate until sometime mid this quarter and then have a full impact the following quarter, correct?

Right. So, we saw little bit higher costs in the second quarter. We saw some of those costs that were recouped and that number that we gave you $0.03 to $0.04 is net. And now as we go forward, we are going to recover that couple of cents here in the next quarter and then we would expect again $0.02 in the fourth quarter kind of flat Q3 to Q4. And so overall, it will be a scratch for the year, $0.03 to $0.04 of bad news seen here in the second quarter, $0.02 favorable in both Q3 and Q4.

Perfect, okay. And then just last question on lower equity affiliate income, I believe you said that you expected that to rebound next quarter. I am just trying to understand what is the dynamic that’s going to make that improve next quarter relative to this quarter?

Right. So this quarter, there was some one-time kind of non run-rate items that were in there that won’t repeat. And so as I mentioned in my prepared remarks, the underlying performance in general in the equity affiliates is solid. And so it’s the absence of those non run-rate items that we are confident they are going to see an increase in equity affiliate in the third quarter.

Got it. Okay, thank you.

Just to wrap up, thanks Derrick and thank you all for tuning in today. I just wanted to leave you with the thoughts that our focus on increasing shareholder value remains. Our future prospects are strong given our record project backlog and the significant leverage we have on our existing assets. We are committed to delivering on the strategic goals that we set out for ourself earlier this year and shared with you. And I’d like you to thank you for joining us today and have a safe and great day.

That does conclude today’s conference. Thank you for your participation.