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We issued our earnings release this morning. It is available on our website along with the slides for this teleconference. Please go to airproducts.com to access the materials. Instructions for accessing the replay of this call beginning at 2 p.m. Eastern Time are also available on our website.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 these slides and at the end of today's earnings release, explaining factors that may affect these expectations. Now I'll turn the call over to Paul for a review of our financials. Paul E. Huck Thanks, Simon. Good day, everyone, and thanks for joining us. Please turn to Slide #3. Before we get into this quarter's operating results, I want to spend a few moments reviewing a few items impacting this quarter's numbers. First, as we announced last quarter, we are in the process of divesting our European Homecare business, and as a result, we are now reporting this business in discontinued operations. As a reminder, European Homecare contributed $0.10 to our fiscal quarter 1. If we adjust our previously provided guidance for moving Homecare to discontinued operations, it would reduce quarter 2 by $0.09 and the full year by $0.30. Specifically, quarter 2 guidance adjusts to $1.28 to $1.34, and full year guidance adjust to $5.60 to $6. The sale of our Continental European Homecare business has been approved by the European Commission, and we expect to close next week. Our quarter 3 results will reflect an after-tax gain in the range of EUR 105 million to EUR 130 million or approximately $140 million to $170 million from this transaction. We continue to work towards completing the divestiture of the remaining European Homecare business located primarily in the U.K.
We also recorded a cost reduction charge of approximately $60 million after-tax or $0.28 per share. This charge represents the ongoing actions we are taking to improve our cost structure, particularly in Europe. It includes removing the stranded costs resulting from our decision to exit the Homecare business and the actions we are taking to rightsize our European cost structure in light of the challenging economic outlook.This charge includes a severance cost for the elimination of about 600 positions, primarily in Europe, and the write-down of 2 small plants. Most of the position elimination should be completed by the end of the fiscal year. In quarter 4, the savings should offset the approximately $6 million of quarterly stranded costs generated by the Homecare divestiture. When fully implemented, we expect the cost reduction plan to provide $60 million of annual savings. Third, we recorded a tax gain of $58 million or $0.27 per share for a disputed tax item which was finally resolved. This item dates back almost 20 years in Spain. There is no cash impact. And as you can see from a book basis, this essentially offsets the impact of our cost reduction charge this quarter. Excluding these items, our adjusted non-GAAP earnings per share from continuing operations is $1.31 for the quarter. As I mentioned, the comparable range for our previous quarter 2 guidance is $1.28 to $1.34. The comparable results for quarter 2 fiscal '11 were $1.33, and for quarter 1 fiscal '12 was $1.26. Now let's turn to our operating results. Please turn to Slide #4. Overall, the quarter was within our expectations. However, our volumes did not grow through the quarter as we had expected. For the quarter, sales of $2.3 billion were 2% lower versus prior year, primarily due to lower energy pass-through and a stronger dollar.
Underlying sales increased 2% year-on-year, with both volume and price contributing 1% each. Higher tonnage volumes in both the refining and steel markets were partially offset by lower volumes in Merchant Gases and electronics. Pricing gains were recorded broadly across our merchant segment.Read the rest of this transcript for free on seekingalpha.com