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| PX > SEC Filings for PX > Form 10-Q on 29-Apr-2009 | All Recent SEC Filings |
29-Apr-2009
Quarterly Report
Consolidated Results
The following table provides summary data for the quarters ended March 31, 2009
and 2008:
Quarter Ended March 31,
(Dollar amounts in millions) 2009 2008 Variance
Sales $ 2,123 $ 2,663 (20 )%
Gross margin (a) $ 928 $ 1,068 (13 )%
As a percent of sales 43.7 % 40.1 %
Selling, general and administrative $ 265 $ 335 (21 )%
As a percent of sales 12.5 % 12.6 %
Depreciation and amortization $ 199 $ 210 (5 )%
Pension settlement charge (b) $ - $ 17
Other income (expense) - net $ (4 ) $ -
Operating profit $ 442 $ 482 (8 )%
As a percent of sales 20.8 % 18.1 %
Interest expense - net $ 35 $ 47 (26 )%
Effective tax rate 28.0 % 28.0 %
Net income - Praxair, Inc. $ 290 $ 307 (6 )%
Diluted earnings per share $ 0.93 $ 0.96 (3 )%
Diluted shares outstanding 311,311 320,409 (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 March 31,
2009 vs. 2008
% Change
Sales
Volume (12 )%
Price/Mix/Other 3 %
Cost pass-through (2 )%
Currency (9 )%
Acquisitions/ divestitures - %
Total sales change (20 )%
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Sales decreased $540 million, or 20%, in the first quarter versus 2008. The underlying decline in sales of 9% reflects significantly lower volumes in all geographies due to lower demand consistent with the global economic slowdown mitigated by the impact of higher pricing. The unfavorable impact of currency, primarily in South America, Europe, Mexico and Canada decreased sales by 9%. Lower cost pass-through decreased sales by $59 million, or 2%, with a negligible impact on operating profit. Acquisitions and divestitures did not have an impact on sales for the quarter.
Gross margin in 2009 decreased $140 million, or 13%, for the first quarter versus 2008. The increase in the first quarter gross margin percentage from 40.1% to 43.7%, was due to higher pricing, operating efficiency and the impact from lower cost pass-through.
Selling, general and administrative (SG&A) expenses decreased $70 million, or 21%, for the first quarter versus 2008 due to cost savings resulting form the cost reduction program initiated in 2008, ongoing productivity programs and currency impacts. SG&A as a percentage of sales remained the same as cost reduction and productivity initiatives reduced spending consistent with lower sales.
Depreciation and amortization expense decreased $11 million, or 5%, for the first quarter versus 2008. The decrease was due to currency effects partially offset by the increased depreciation associated with project start-ups.
Other income (expenses) - net for the 2009 first quarter was a $4-million expense versus zero in the first quarter of 2008.
Operating profit decreased $40 million, or 8%, for the first quarter versus 2008. Excluding the $17 million pension settlement charge in the first quarter of 2008, operating profit decreased $ 57 million, or 11%. 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 20.8% as a result of significant cost reductions and pricing.
Interest expense - net decreased $12 million, or 26% for the first quarter versus 2008 due to lower interest rates on commercial paper and international bank borrowings that more than offset the increase in debt.
The effective tax rate remained flat at 28.0% for both 2009 and 2008.
Net income - Praxair, Inc. decreased $17 million, or 6%, for the first quarter versus 2008. 2008 included the pension settlement charge of $11 million after tax. Excluding the impact of this charge, net income - Praxair, Inc. decreased $ 28 million, or 9% due to lower operating profit partially offset by lower interest expense.
Diluted earnings per share (EPS) decreased $0.03 per diluted share, or 3% versus 2008. Excluding the impact of the pension settlement charge of $0.03 per diluted share in the first quarter of 2008, EPS decreased 6% 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 March 31, 2009 was 26,533, reflecting a decrease of 403 employees from December 31, 2008.
Segment Discussion
The following summary of sales and operating profit by segment provides a basis
for the discussion that follows:
Quarter ended March 31,
(Dollar amounts in millions) 2009 2008 Variance
SALES
North America $ 1,164 $ 1,454 (20 )%
Europe 303 390 (22 )%
South America 353 466 (24 )%
Asia 180 211 (15 )%
Surface Technologies 123 142 (13 )%
$ 2,123 $ 2,663 (20 )%
OPERATING PROFIT
North America $ 256 $ 262 (2 )%
Europe 63 87 (28 )%
South America 75 89 (16 )%
Asia 26 37 (30 )%
Surface Technologies 22 24 (8 )%
Segment operating profit 442 499 (11 )%
Pension settlement charge (a) - (17 )
Total operating profit $ 442 $ 482
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(a) See Note 9 to the condensed consolidated financial statements.
North America
Quarter Ended March 31,
2009 vs. 2008
% Change
Sales
Volume (14 )%
Price/Mix/Other 3 %
Cost pass-through (4 )%
Currency (5 )%
Acquisitions/divestitures - %
Total sales change (20 )%
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Sales decreased $290 million, or 20%, for the first quarter versus 2008. The underlying decline in sales of 11% 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%. Lower cost pass-through decreased sales by $64 million, or 4%, with a minimal impact on operating profit. Acquisitions and divestitures did not have an impact on sales for the quarter.
Operating profit decreased $6 million, or 2%, for the first quarter versus 2008. 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 March 31,
2009 vs. 2008
% Change
Sales
Volume (14 )%
Price/Mix/Other 3 %
Cost pass-through (1 )%
Currency (9 )%
Acquisitions/Divestitures (1 )%
Total Sales Change (22 )%
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Sales decreased $87 million, or 22%, for the first quarter versus 2008. Unfavorable currency reduced sales by 9%. The underlying decline in sales of 11% was due primarily to sharply lower volumes in the chemicals, metals and electronics end-markets. The divestiture of an industrial gas business in Israel in 2008 reduced sales by 1%. Cost pass-through to customers decreased sales by $4 million, or 1%, with a minimal impact on operating profit.
Operating profit decreased $24 million, or 28%, for the first quarter versus 2008. The decrease in operating profit was due to sharply lower volumes and currency depreciation, partially offset by cost reductions.
South America
Quarter ended March 31,
2009 vs. 2008
% Change
Sales
Volume (8 )%
Price/Mix/Other 6 %
Cost pass-through 1 %
Currency (23 )%
Total sales changes (24 )%
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Sales decreased $113 million, or 24%, for the first quarter versus 2008. Excluding the impact of currency and cost pass-through, sales decreased 2%. The decrease was primarily due to lower volumes to metals and manufacturing customers, largely offset by growth in the food and beverage and healthcare end-markets. Cost pass-through to customers increased sales by $3 million, or 1%, with a minimal impact on operating profit.
Operating profit decreased $14 million, or 16%, for the first quarter versus 2008. Excluding the negative impact of currency, 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 March 31,
2009 vs. 2008
% Change
Sales
Volume (8 )%
Price/Mix/Other - %
Cost pass-through 3 %
Currency (10 )%
Total sales change (15 )%
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Sales decreased $31 million, or 15%, for the first quarter versus 2008. Unfavorable currency decreased sales by 10%. Underlying sales decreased 8% due to sharply lower sales to the electronics end-market. Excluding electronics, underlying sales were higher as a result of project start-ups in India, China and Korea, partially offset by lower base business volumes. Cost pass-through to customers increased sales by $6 million, or 3%, with a minimal impact on operating profit.
Operating profit decreased $11 million, or 30%, for the first quarter versus 2008, primarily as the result of lower sales volumes and currency depreciation.
Surface Technologies
Quarter ended March 31,
2009 vs. 2008
% Change
Sales
Volume/Price/Other (7 )%
Currency (6 )%
Total sales change (13 )%
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Sales decreased $19 million, or 13%, for the first quarter versus 2008. Excluding the impact of negative currency translation, underlying sales were 7% below the prior year. Underlying sales growth in the energy market of 35% was more than offset by a decline in sales to the aerospace market of 16% and manufacturing and other markets of 21%.
Operating profit decreased $2 million, or 8%, for the first quarter versus 2008. The decrease was principally driven by the impact of negative currency as productivity and cost reduction initiatives offset the impact of lower volumes.
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):
Percent of Exchange Rate for Exchange Rate for
Q1 2009 Income Statement Balance Sheet
Consolidated First Quarter Average March 31, December 31,
Currency Sales (a) 2009 2008 2009 2008
Euro 17 % 0.75 0.68 0.75 0.71
Brazil real 14 % 2.32 1.74 2.32 2.34
Canada dollar 8 % 1.23 0.99 1.24 1.22
Mexico peso 6 % 14.18 10.82 14.38 13.53
China RMB 2 % 6.84 7.23 6.83 6.84
India rupee 2 % 49.12 39.52 50.60 48.50
Korea won 2 % 1,373 940 1,370 1,259
Argentina peso 1 % 3.54 3.15 3.72 3.45
Colombia peso 1 % 2,410 1,909 2,544 2,243
Singapore dollar 1 % 1.49 1.42 1.50 1.44
Taiwan dollar 1 % 33.72 32.00 33.73 33.01
Thailand bhat 1 % 35.22 30.47 35.41 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:
Quarter Ended March 31,
(Millions of dollars) 2009 2008
NET CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income - Praxair, Inc. $ 290 $ 307
Depreciation and amortization 199 210
2008 Cost reduction program, payments (18 ) -
Accounts receivable 94 (184 )
Inventory 20 (9 )
Payables and accruals (259 ) 58
Pension contributions (8 ) (11 )
Other - net 31 8
Net cash provided by operating activities $ 349 $ 379
INVESTING ACTIVITIES
Capital expenditures (293 ) (344 )
Acquisitions (2 ) (40 )
Divestitures and asset sales 5 16
Net cash used for investing activities $ (290 ) $ (368 )
FINANCING ACTIVITIES
Debt increases (reductions) - net 71 329
Issuances of common stock 16 66
Purchases of common stock - (293 )
Cash dividends - Praxair, Inc. shareholders (123 ) (117 )
Excess tax benefit on stock option exercises 3 5
Noncontrolling interest transactions and other (3 ) 1
Net cash used for financing activities $ (36 ) $ (9 )
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Cash Flow from Operations
Cash provided by operations of $ 349 million for the first quarter decreased $ 30 million versus 2008. The decrease was principally a result of lower net income - Praxair, Inc. and cash payments related to the 2008 cost reduction program. The working capital impacts relating to accounts receivable, inventory and payables largely offset.
Investing
Net cash used for investing of $290 million for the first quarter decreased $ 78 million versus 2008 levels primarily due to decreased capital expenditures and acquisition spending. Capital expenditures of $293 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
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 $36 million in 2009 versus $9 million in 2008. This increase was primarily due to lower debt issuances resulting from the net impact of reduced share repurchases, lower issuances of common stock and higher cash dividends. Cash dividends of $123 million increased $6 million from the year ago period to $0.40 per share ($0.375 per share for 2008).
At March 31, 2009, Praxair's total debt outstanding was $ 5,045 million, an increase of $20 million from December 31, 2008. On March 26, 2009, Praxair issued $300 million of 4.375% notes due 2014. The proceeds were used to reduce 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 investors, financial analysts and management use to help evaluate the company's financing leverage, return on net assets employed and operating performance. Special items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures.
Debt-to-Capital Ratio
The debt-to-capital ratio is a measure used by investors, financial analysts and
management to provide a measure of financial leverage and insights into how the
company is financing its operations.
March 31, December 31,
(Dollar amounts in millions) 2009 2008
TOTAL CAPITAL
Total debt $ 5,045 $ 5,025
Equity
Praxair, Inc. shareholders' equity 4,073 4,009
Noncontrolling interests 302 302
Total equity 4,375 4,311
$ 9,420 $ 9,336
DEBT-TO-CAPITAL RATIO 53.6 % 53.8 %
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After-tax Return on Capital (ROC)
After-tax return on capital is a measure used by investors, financial analysts
and management to evaluate the return on net assets employed in the business.
ROC measures the after-tax operating profit that the company was able to
generate with the investments made by all parties in the business (debt,
noncontrolling interests and Praxair, Inc. shareholders' equity).
Quarter Ended March 31,
(Dollar amounts in millions) 2009 2008
Reported operating profit $ 442 $ 482
Add: Pension settlement charge* - 17
Adjusted operating profit $ 442 $ 499
Less: reported taxes (114 ) (122 )
Less: tax benefit on pension settlement charge* - (6 )
Less: tax benefit on interest expense (a) (10 ) (13 )
Add: equity income 5 9
Net operating profit after-tax (NOPAT) $ 323 $ 367
Beginning capital $ 9,336 $ 9,655
Ending capital $ 9,420 $ 10,127
Average capital $ 9,378 $ 9,891
ROC% 3.4 % 3.7 %
ROC% (annualized) 13.8 % 14.8 %
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(a) Tax benefit on interest expense is based on Praxair's underlying effective tax rate of 28% for 2009 and 2008.
Return on Praxair, Inc. Shareholders' Equity (ROE)
Return on Praxair, Inc. shareholders' equity is a measure used by investors,
financial analysts and management to evaluate operating performance from a
Praxair shareholder perspective. ROE measures the net income attributable to
Praxair, Inc. that the company was able to generate with the money shareholders
have invested.
Quarter Ended March 31,
(Dollar amounts in millions) 2009 2008
Reported net income - Praxair, Inc. $ 290 $ 307
Add: pension settlement charge* - 11
Adjusted net income - Praxair, Inc. $ 290 $ 318
Beginning Praxair, Inc. shareholders' equity $ 4,009 $ 5,142
Ending Praxair, Inc. shareholders' equity $ 4,073 $ 5,209
Average Praxair, Inc. shareholders' equity $ 4,041 $ 5,176
ROE% 7.2 % 6.1 %
ROE% (annualized) 28.7 % 24.6 %
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* 2008 includes a pension settlement charge of $17 million, $11 million after-tax (see Note 9 to the condensed consolidated financial statements).
Contractual Obligations Update
The following table sets forth an update to Praxair's material unconditional
purchase obligations as of March 31, 2009:
Due or expiring by December 31,
2009
(millions of dollars) remaining 2010 2011 2012 2013 Thereafter Total
Unconditional purchase obligations $ 400 $ 350 $ 270 $ 243 $ 232 $ 1,686 $ 3,181
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Unconditional purchase obligations of $3,181 million represent contractual commitments under various long- and short-term arrangements with suppliers. These obligations are primarily minimum-purchase commitments for electricity, natural gas, helium and feedstock used to produce atmospheric and process gases. The increase in unconditional purchase obligations from December 31, 2008 primarily relates to power purchase commitments. A significant portion of these obligations is passed on to customers through similar take-or-pay contractual arrangements. Purchase obligations that are not passed along to customers do not represent a significant risk to Praxair.
Praxair's other contractual obligations and commercial commitments are not . . .
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