PX

Praxair, Inc.

Praxair, Inc. (Praxair or the company) was founded in 1907 and became an independent publicly traded company in 1992. Praxair was the first company in the United States to produce oxygen from air using a cryogenic process and continues to be a major technological innovator in the industrial gases industry.

Praxair is the largest industrial gas supplier in North and South America, is rapidly growing in Asia, and has strong, well-established businesses in Europe. Praxair’s primary products for its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The company also designs, engineers, and builds equipment that produces industrial gases for internal use and external sale. The company’s surface technologies segment, operated through Praxair Surface Technologies, Inc., supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. Sales for Praxair were $8,956 million, $10,796 million, and $9,402 million for 2009, 2008, and 2007, respectively.

Praxair serves approximately 25 industries as diverse as healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; and aerospace, chemicals and water treatment. In 2009, 94% of sales were generated in four geographic segments (North America, Europe, South America and Asia) primarily from the sale of industrial gases with the balance generated from the surface technologies segment. Praxair provides a competitive advantage to its customers by continuously developing new products and applications, which allow them to improve their productivity, energy efficiency and environmental performance.

BUSINESS OVERVIEW

Praxair is the largest industrial gases supplier in North and South America, is rapidly growing in Asia, and has strong, well-established businesses in Europe. The company’s primary products are oxygen, hydrogen, nitrogen, argon, carbon dioxide, helium, electronic gases and a wide range of specialty gases. Praxair Surface Technologies supplies high-performance coatings that protect metal parts from wear, corrosion and high heat. Praxair’s industrial gas operations are managed on a geographical basis and in 2009, 94% of sales were generated in four geographic segments (North America, Europe, South America, and Asia). The surface technologies segment generated the remaining 6% of sales.

Praxair serves approximately 25 industries as diverse as healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; and aerospace, chemicals and water treatment. The diversity of end markets creates financial stability for Praxair in varied business cycles.

Praxair focuses its operational and growth strategies on the following 11 core geographies where the company has its strongest market positions and where distribution and production operations allow the company to deliver the highest level of service to its customers at the lowest cost.

United States
Brazil
Spain
China
Canada
Italy
India
Mexico
Germany/Benelux
Thailand
Korea

Praxair manufactures and distributes its products through a network of hundreds of production plants, pipeline complexes, distribution centers and delivery vehicles. Major pipeline complexes are located in the United States, Brazil, Spain and Germany. These networks are a competitive advantage, providing the foundation of reliable product supply to the company’s customer base. The majority of Praxair’s business is conducted through long-term contracts which provide stability in cash flow and the ability to pass through changes in energy and feedstock costs to customers. The company has significant growth opportunities in diverse markets including: hydrogen for refining; oxygen for gasification and oxy-fuel applications; and nitrogen and carbon dioxide for oil and gas production.

EXECUTIVE SUMMARY – FINANCIAL RESULTS & OUTLOOK

Praxair delivered strong financial results in 2009 given the difficult economic and operating environment. Sales were down 17% with diluted earnings per share down 5% on an adjusted basis versus 2008. Praxair generated record operating cash flow and refinanced a significant amount of debt at attractive interest rates during 2009. The cost reduction actions made in the fourth quarter of 2008 have been successful at partially mitigating the impacts of significantly lower volumes and negative foreign currency translation effects. Several major projects started up in South America and China and the project backlog heading into 2010 remains robust.

Adjusted Amounts and Comparisons

The discussion of consolidated results and outlook in this Management’s Discussion and Analysis (MD&A) includes adjusted amounts and comparisons with adjusted amounts which exclude the impact of the Brazil tax amnesty program and other charges in 2009, a cost reduction program and other charges in 2008, and the first quarter 2010 impact from the Venezuela currency devaluation (referred to as “special items”). Adjusted amounts are non-GAAP measures that supplement an understanding of the company’s financial information by presenting information that investors, financial analysts and management use to help evaluate the company’s performance and ongoing business trends on a comparable basis.

2009 Year in review

• Sales down 17% to $8,956 million versus $10,796 million in 2008, due to lower volumes from the worldwide recession, negative foreign currency and cost pass-through effects, partially offset by higher pricing.
• Reported operating profit of $1,575 million decreased 16% from $1,883 million in 2008. Excluding the impact of special items in both years, adjusted operating profit decreased 9% from 2008. This underlying decrease was driven by the negative impacts of lower volumes and currency translation, partially offset by significant cost reductions and higher pricing.
• Reported net income – Praxair, Inc. of $1,254 million and diluted earnings per share of $4.01, increased from $1,211 million and $3.80, respectively, in 2008. Excluding the impact of special items in both years, adjusted net income – Praxair, Inc. and diluted earnings per share decreased 7% and 5% from 2008, respectively.
• Cash flow from operations of $2,168 million increased 6% over $2,038 million in 2008.
• Capital expenditures of $1,352 million primarily to a support strong project backlog and acquisition expenditures of $131 million.

2010 Outlook

Praxair’s outlook is cautiously optimistic for 2010 as the company expects growth in the emerging markets and slower growth in the U.S. and Europe.

• Sales are forecasted in the area of $10 billion, or about 12% above 2009 sales.
• Reported diluted earnings per share are forecasted in the range of $4.35 to $4.55, including an estimated $0.08 per diluted share impact from the first quarter 2010 devaluation of the Venezuelan bolivar. Excluding the impact of the Venezuela currency devaluation and any potential impact from the Rio de Janeiro voluntary tax amnesty program, adjusted diluted earnings per share are forecasted to be in the range of $4.43 to $4.63. This represents an increase of 11% to 16% from the 2009 adjusted diluted earnings per share.
• Effective tax rate of about 28%.
• Capital expenditures of about $1.4 billion.

Employees and Labor Relations – As of December 31, 2009, Praxair had 26,164 employees worldwide. Of this number, 10,315 are employed in the United States. Praxair has collective bargaining agreements with unions at numerous locations throughout the world, which expire at various dates. Praxair considers relations with its employees to be good.

Available Information – The company makes its periodic and current reports available, free of charge, on or through its website, www.praxair.com, as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). Investors may also access from the company website other investor information such as press releases and presentations.

In addition, the public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room located at 100 F Street NE, Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov, that contains reports, proxy information statements and other information regarding issuers that file electronically.