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The company has already initiated cost-reduction actions, including a reduction in workforce of about 1600 and the closure of underperforming and non-core product lines and businesses. These actions will result in a restructuring charge of about $120 million on a pre-tax basis in the fourth quarter of 2008, and are expected to reduce fixed costs by approximately $80 million in 2009 and by approximately $100 million on an ongoing annual basis. In addition, the company expects to take a $55 million pre-tax charge related to the settlement of a social tax case in Brazil dating back to the 1980s and increases in accruals reflecting recent developments for other cases.
In total, the charge is expected to be approximately $175 million pre-tax, or about $0.37 of diluted earnings per share in the fourth quarter. Fourth quarter diluted earnings per share are expected to be in the range of $0.95 to $1.00, excluding the charge. Excluding the fourth quarter charge and the first quarter pension settlement charge, full-year 2008 diluted earnings per share are expected to be in the range of $4.13 to $4.18, an increase of 14 to 15% vs. $3.62 in 2007.
“We have moved quickly to take the necessary preemptive steps to make sure we have a cost structure appropriate to the current economic environment,” said Steve Angel, chairman and chief executive officer. “The slowdown in commodity production and manufacturing has been unprecedented, and we believe customers are reducing inventory down the supply chain. Consequently, we should see an uptick in production later in 2009. Additionally, Praxair has a large backlog of new projects coming on-stream in 2009 and 2010, which will grow sales and earnings.”
An archive of a recent teleconference discussing these measures is available at www.praxair.com/investors.