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| PX > SEC Filings for PX > Form 10-Q on 29-Jul-2009 | All Recent SEC Filings |
29-Jul-2009
Quarterly Report
Consolidated Results
The following table provides summary data for the quarters and six-month periods
ended June 30, 2009 and 2008:
Quarter Ended June 30, Six Months Ended June 30,
(Dollar amounts in millions) 2009 2008 Variance 2009 2008 Variance
Sales $ 2,138 $ 2,878 (26 )% $ 4,261 $ 5,541 (23 )%
Gross margin(a) $ 948 $ 1,130 (16 )% $ 1,876 $ 2,198 (15 )%
As a percent of sales 44.3 % 39.3 % 44.0 % 39.7 %
Selling, general and administrative $ 265 $ 341 (22 )% $ 530 $ 676 (22 )%
As a percent of sales 12.4 % 11.8 % 12.4 % 12.2 %
Depreciation and amortization $ 207 $ 216 (4 )% $ 406 $ 426 (5 )%
Pension settlement charge(b) $ - $ - $ - $ 17
Other income (expense) - net $ (11 ) $ (6 ) $ (15 ) $ (6 )
Operating profit $ 447 $ 543 (18 )% $ 889 $ 1,025 (13 )%
As a percent of sales 20.9 % 18.9 % 20.9 % 18.5 %
Interest expense - net $ 33 $ 52 (37 )% $ 68 $ 99 (31 )%
Effective tax rate 26.3 % 27.9 % 27.2 % 28.0 %
Net income - Praxair, Inc. $ 299 $ 349 (14 )% $ 589 $ 656 (10 )%
Diluted earnings per share $ 0.96 $ 1.08 (11 )% $ 1.89 $ 2.04 (7 )%
Diluted shares outstanding 312,429 322,088 (3 )% 312,021 321,245 (3 )%
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(a) Gross margin excludes depreciation and amortization expense.
(b) See Note 9 to the condensed consolidated financial statements.
Quarter Ended June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume (14 )% (13 )%
Price/Mix/Other 2 % 3 %
Cost pass-through (5 )% (4 )%
Currency (9 )% (9 )%
Total sales change (26 )% (23 )%
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Sales decreased $740 million, or 26%, for the second quarter and decreased $1,280 million, or 23%, for the six months ended June 30, 2009 versus the respective 2008 periods. The underlying decline in sales of 12% 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 9% for both the quarter and year-to-date periods. Lower cost pass-through decreased sales by $144 million, or 5% for the quarter and $203 million, or 4% for the year-to-date period, with a negligible impact on operating profit.
Gross margin in 2009 decreased $182 million, or 16%, for the second quarter and decreased $322 million, or 15%, for the six months ended June 30, 2009 versus the respective 2008 periods. The increase in the gross margin percentage for the quarter and year-to-date periods to 44.3% and 44.0%, respectively, was due to higher pricing, cost reductions and the impact from lower cost pass-through.
Selling, general and administrative (SG&A) expenses decreased $76 million, or 22%, for the second quarter period and decreased $146 million, or 22%, for the six months ended June 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 $9 million, or 4%, for the second quarter and decreased $20 million, or 5%, for the six months ended June 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 an $11-million expense and $15-million expense for the quarter and six months ended June 30, 2009, respectively. The 2009 quarter and six-month periods included $16 million and $15 million of currency related net losses, respectively, primarily related to net income hedges (see Note 5 to the condensed consolidated financial statements).
Operating profit decreased $96 million, or 18%, for the second quarter and decreased $136 million, or 13%, for the six months ended June 30, 2009 versus the respective 2008 periods. Excluding the $17 million pension settlement charge in the six month period of 2008, operating profit decreased $ 153 million, or 15%. This decrease was driven by the negative impact of currency and lower sales volumes partially offset by cost savings. Operating profit as a percentage of sales improved to 20.9% in both the quarter and year-to-date periods as a result of significant cost reductions and pricing.
Interest expense - net decreased $19 million, or 37% for the second quarter and decreased $31 million, or 31% for the six months ended June 30, 2009 versus the respective periods in 2008 due to lower interest rates on commercial paper and international bank borrowings.
The effective tax rate was 26.3% for the second quarter and 27.2% for the six month period versus 27.9% and 28.0%, respectively, for the same periods in 2008. The 2009 periods include a $7 million tax benefit primarily related to tax incentives in Italy. Excluding this tax benefit, the underlying effective tax rate for the quarter and six month periods was 28% in 2009.
Net income - Praxair, Inc. decreased $50 million, or 14%, for the second quarter and decreased $67 million, or 10%, for the six months ended June 30, 2009 versus the respective 2008 periods. The 2008 six month period included the pension settlement charge of $11 million after tax. Excluding the impact of this charge in the six month period, net income - Praxair, Inc. decreased $ 78 million, or 12%. The decrease in both periods was due to lower operating profit partially offset by lower interest expense.
Diluted earnings per share (EPS) decreased $0.12 per diluted share, or 11% for the second quarter and decreased $0.15 per diluted share, or 7% for the six months ended June 30, 2009 versus the respective 2008 periods. Excluding the impact of the pension settlement charge of $0.03 per diluted share in the 2008 six-month period, EPS decreased 9% versus 2008. 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 June 30, 2009 was 26,139, reflecting a decrease of 797 employees from December 31, 2008 primarily related to the 2008 cost reduction program.
Segment Discussion
The following summary of sales and operating profit by segment provides a basis
for the discusssion that follows:
Quarter ended June 30, Six Months Ended June 30,
(Dollar amounts in millions) 2009 2008 Variance 2009 2008 Variance
SALES
North America $ 1,120 $ 1,573 (29 )% $ 2,284 $ 3,027 (25 )%
Europe 306 406 (25 )% 609 796 (23 )%
South America 395 514 (23 )% 748 980 (24 )%
Asia 199 232 (14 )% 379 443 (14 )%
Surface Technologies 118 153 (23 )% 241 295 (18 )%
$ 2,138 $ 2,878 (26 )% $ 4,261 $ 5,541 (23 )%
OPERATING PROFIT
North America $ 264 $ 275 (4 )% $ 520 $ 537 (3 )%
Europe 61 99 (38 )% 124 186 (33 )%
South America 70 102 (31 )% 145 191 (24 )%
Asia 33 40 (18 )% 59 77 (23 )%
Surface Technologies 19 27 (30 )% 41 51 (20 )%
Segment operating profit 447 543 (18 )% 889 1,042 (15 )%
Pension settlement charge (a) - - - (17 )
Total operating profit $ 447 $ 543 $ 889 $ 1,025
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(a) See Note 9 to the condensed consolidated financial statements.
North America
Quarter Ended June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume (17 )% (15 )%
Price/Mix/Other 2 % 2 %
Cost pass-through (9 )% (7 )%
Currency (5 )% (5 )%
Total sales change (29 )% (25 )%
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Sales decreased $453 million, or 29%, for the second quarter and decreased $743 million, or 25%, for the six months ended June 30, 2009 versus the respective 2008 periods. The underlying decline in sales of 15% 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 sharply lower volumes to the chemicals, metals, electronics and manufacturing end-markets. Currency depreciation, primarily in Canada and Mexico, reduced sales by 5% in both the quarter and year-to-date periods. Lower cost pass-through decreased sales by $145 million, or 9%, for the quarter and $209 million, or 7% for the year-to-date period with a minimal impact on operating profit.
Operating profit decreased $11 million, or 4%, for the second quarter and decreased $17 million, or 3%, for the six months ended June 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 June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume (14 )% (13 )%
Price/Mix/Other 3 % 3 %
Cost pass-through - % (1 )%
Currency (14 )% (12 )%
Total sales change (25 )% (23 )%
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Sales decreased $100 million, or 25%, for the second quarter and decreased $187 million, or 23%, for the six months ended June 30, 2009 versus the respective 2008 periods. Unfavorable currency reduced sales by 14% and 12% in the quarter and year-to-date periods, respectively. The underlying decline in sales of 11% and 10% for the quarter and year-to-date periods, respectively, was due primarily to sharply lower volumes in the chemicals, metals and electronics end-markets. Cost pass-through to customers was minimal for the 2009 second quarter and decreased sales by $5 million, or 1% for the year-to-date period, with a minimal impact on operating profit.
Operating profit decreased $38 million, or 38%, for the second quarter and decreased $62 million, or 33%, for the six months ended June 30, 2009 versus the respective 2008 periods. Operating profit for the 2009 quarter and six-month periods included net income hedge losses of $4 million and $2 million, respectively (see Note 5 to the condensed consolidated financial statements). The underlying decrease in operating profit was due to sharply lower volumes and currency depreciation, partially offset by cost reductions.
South America
Quarter ended June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume (10 )% (9 )%
Price/Mix/Other 5 % 6 %
Cost pass-through 1 % 1 %
Currency (19 )% (22 )%
Total sales change (23 )% (24 )%
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Sales decreased $119 million, or 23%, for the second quarter and decreased $232 million, or 24%, for the six months ended June 30, 2009 versus the respective 2008 periods. Excluding the impact of currency and cost pass-through, sales decreased 5% for the quarter and 3% 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 and healthcare end-markets. Cost pass-through to customers increased sales by $3 million, or 1% for the quarter and $6 million, or 1% for the year-to-date period, with a minimal impact on operating profit.
Operating profit decreased $32 million, or 31%, for the second quarter and decreased $46 million, or 24%, for the six months ended June 30, 2009 versus the respective 2008 periods. Operating profit for the 2009 quarter and six-month periods included currency related net losses of $11 million and $12 million, respectively, which primarily consisted of net income hedge losses (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 and cost reduction programs and higher pricing more than offset lower volumes.
Asia
Quarter ended June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume (3 )% (5 )%
Price/Mix/Other (2 )% (1 )%
Cost pass-through - % 1 %
Currency (9 )% (9 )%
Total sales change (14 )% (14 )%
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Sales decreased $33 million, or 14%, for the second quarter and decreased $64 million, or 14%, for the six months ended June 30, 2009 versus the respective 2008 periods. Unfavorable currency decreased sales by 9% for both the quarter and year-to-date periods. Underlying sales decreased 5% and 6% for the quarter and year-to-date periods, respectively, due primarily to lower sales to the electronics, metals and manufacturing end-markets. Cost pass-through to customers was minimal for the 2009 second quarter, and increased sales by $5 million, or 1% for the year-to-date period, with a minimal impact on operating profit.
Operating profit decreased $7 million, or 18%, for the second quarter and decreased $18 million, or 23%, for the six months ended June 30, 2009 versus the respective 2008 periods, primarily as the result of lower sales volumes and currency depreciation.
Surface Technologies
Quarter ended June 30, Six Months Ended June 30,
2009 vs. 2008 2009 vs. 2008
% Change % Change
Sales
Volume/Price/Other (14 )% (10 )%
Currency (9 )% (8 )%
Total sales change (23 )% (18 )%
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Sales decreased $35 million, or 23%, for the second quarter and decreased $54 million, or 18%, for the six months ended June 30, 2009 versus the respective 2008 periods. Excluding the impact of negative currency translation, underlying sales decreased 14% and 10% for the quarter and year-to-date periods, respectively. Growth from higher coatings for industrial gas turbines was more than offset by lower coatings for the aerospace and general manufacturing end markets.
Operating profit decreased $8 million, or 30%, for the second quarter and decreased $10 million, or 20%, for the six months ended June 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.
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. The business had sales of $116 million in 2008. Sermatech's results of operations will be included in Praxair's consolidated financial statements within the Surface Technologies segment effective July 1, 2009.
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 June 30, December 31,
Currency Sales (a) 2009 2008 2009 2008
Euro 17 % 0.75 0.66 0.71 0.71
Brazil real 15 % 2.19 1.70 1.95 2.34
Canada dollar 8 % 1.21 1.00 1.15 1.22
Mexico peso 6 % 14.01 10.65 13.18 13.53
China RMB 3 % 6.83 7.10 6.83 6.84
India rupee 2 % 49.35 40.23 48.45 48.50
Korea won 2 % 1,355 973 1,286 1,259
Argentina peso 1 % 3.64 3.14 3.80 3.45
Colombia peso 1 % 2,321 1,834 2,145 2,243
Singapore dollar 1 % 1.49 1.39 1.45 1.44
Taiwan dollar 1 % 33.55 31.15 32.94 33.01
Thailand bhat 1 % 35.15 31.06 34.07 35.00
Venezuela bolivar 1 % 2.15 2.15 2.15 2.15
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(a) Certain Surface technologies segment sales are included in European, Brazilian and Indian sales.
Liquidity, Capital Resources and Other Financial Data
The following selected cash flow information provides a basis for the discussion
that follows:
Six Months
Ended June 30,
(Millions of dollars) 2009 2008
NET CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income - Praxair, Inc. $ 589 $ 656
Noncontrolling interests 20 28
Net income (including noncontrolling interests) 609 684
Depreciation and amortization 406 426
2008 Cost reduction program, payments (28 ) -
Accounts receivable 47 (269 )
Inventory 19 (33 )
Payables and accruals (246 ) 95
Pension contributions (9 ) (13 )
Other - net 114 (122 )
Net cash provided by operating activities $ 912 $ 768
INVESTING ACTIVITIES
Capital expenditures (663 ) (724 )
Acquisitions (11 ) (70 )
Divestitures and asset sales 13 46
Net cash used for investing activities $ (661 ) $ (748 )
FINANCING ACTIVITIES
Debt increases (reductions) - net 57 356
Issuances of common stock 37 154
Purchases of common stock (85 ) (332 )
Cash dividends - Praxair, Inc. shareholders (246 ) (236 )
Excess tax benefit on stock option exercises 6 44
Noncontrolling interest transactions and other (22 ) -
Net cash used for financing activities $ (253 ) $ (14 )
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Cash Flow from Operations
Cash provided by operations of $ 912 million for the six months ended June 30, 2009 increased $ 144 million versus 2008. The increase was primarily due to lower tax payments in the current quarter partially offset by lower net income - Praxair, Inc. and cash payments related to the 2008 cost reduction program. The net working capital impact was not significant.
Praxair estimates that 2009 contributions to its pension plans will be in the range of $135 million to $145 million. On July 28, 2009, Praxair made cash contributions totaling $113 million to its U.S. pension plans.
Investing
Net cash used for investing of $661 million for the six months ended June 30, 2009 decreased $ 87 million versus 2008 levels primarily due to decreased capital expenditures and acquisition spending. Capital expenditures of $663 million relate largely to new production plants under contract for customers in North and South America, China and India.
Financing
The current United States credit environment has not had, and at this time is not expected to have, a significant adverse impact on the company's liquidity. The company continues to have access to the commercial paper and long-term debt markets, and expects to continue to generate strong operating cash flows. While the impact of continued volatility in the global credit markets cannot be predicted with certainty, the company believes that it has sufficient operating flexibility, cash reserves, and funding sources to maintain adequate amounts of liquidity to meet its business needs around the world.
Actual returns for the company's U.S pension plans may vary from the expected long-term rate of return of 8.25 percent due to the current adverse conditions in the global securities markets. Actual returns below this expected rate may impact the amount and timing of future contributions to these plans. The actual amounts will depend on actual returns and discount rates.
Cash used for financing activities was $253 million in 2009 versus $14 million in 2008. This increase was primarily due to lower debt issuances in 2009 partially offset by lower net stock repurchases. Cash dividends of $246 million increased $10 million from the year ago period to $0.80 per share ($0.75 per share for 2008).
At June 30, 2009, Praxair's total debt outstanding was $5,107 million, an increase of $82 million from December 31, 2008. On March 26, 2009, Praxair issued $300 million of 4.375% notes due 2014. On May 26, 2009, Praxair issued $500 million of floating rate notes due 2010 that bear interest at a rate of three-month LIBOR plus 0.09% (0.75% at June 30, 2009). The proceeds of both issuances were used to repay short-term debt and for general corporate purposes.
Legal Proceedings
See Note 10 to the condensed consolidated financial statements for a description of current legal proceedings.
Other Financial Data
The following non-GAAP measures are intended to supplement investors' understanding of the company's financial information by providing measures which . . .
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