Jul 27, 2017   SOURCE: BusinessWire

Praxair Reports Second-Quarter 2017 Results

Praxair, Inc. (NYSE: PX) reported second-quarter net income and diluted earnings per share of $406 million and $1.41, respectively. These results include transaction costs of $15 million after-tax, or 5 cents of diluted earnings per share, related to the potential Linde AG merger. Excluding this charge, adjusted net income and diluted earnings per share were $421 million and $1.46, respectively.

Praxair’s sales in the second quarter were $2,834 million, 6% above the prior-year quarter. Excluding cost pass-through, sales grew 4%, driven by higher volumes in North America, Europe and Asia, including new project start-ups, and price attainment. Sales growth was primarily led by electronics, chemicals, metals, energy and food and beverage end-markets.

Reported operating profit in the second quarter was $604 million, 3% above the prior-year quarter. Excluding the current quarter impact of transaction costs, adjusted operating profit was $619 million, 5% above the prior-year quarter. Reported operating profit as a percentage of sales was 21.3%. Adjusted operating profit as a percentage of sales was 21.8%. EBITDA margin was 32.0% and adjusted EBITDA margin was 32.5%.

The company generated strong second-quarter cash flow from operations of $701 million, 25% of sales. After capital expenditures of $325 million, free cash flow was $376 million, up 8% over the prior-year quarter. The company paid $225 million of dividends.

Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “Our second quarter results reflect Praxair employees’ ability to execute our core strategy and deliver high-quality results. Adjusted operating profit growth of 5% outpaced underlying sales growth of 4%, and generated strong operating cash flow of 25% of sales.

“The second quarter continued to reflect broad-based demand across all end-markets, but as anticipated, revealed further weakness in South America. In addition, we added to our project backlog another long-term on-site supply agreement with a petrochemical customer in the U.S. Gulf Coast which will further strengthen our network in the region. Including this new win, over 80% of our $1.4 billion project backlog now relates to the U.S. Gulf Coast and we remain confident in our ability to win additional projects.

“Furthermore, during the second quarter we announced the signing of a business combination agreement between Praxair and Linde AG. This was an important milestone toward creating significant value for our stakeholders. We are currently working closely with regulators and shareholders to obtain the appropriate approvals and will provide a more detailed progress update in the coming months.

“Looking ahead, we are taking a more measured view as we do not anticipate significant underlying economic improvement in the second half of the year. In the U.S., aggregate customer demand has yet to match recent economic expectations and South America, specifically Brazil, continues to face political challenges that undermine the economy. Conversely, we expect Europe to remain stable, Asia to moderately grow and new project start-ups to contribute towards the latter part of the year. However, regardless of the economy, Praxair’s relentless focus on operational excellence and financial discipline will continue to deliver strong cash flow and earnings per share for our shareholders.”

For the third quarter of 2017, Praxair expects diluted earnings per share in the range of $1.40 to $1.46, excluding transaction costs related to the potential merger.

For full-year 2017, Praxair expects adjusted diluted earnings per share to be in the range of $5.63 to $5.75. This full-year guidance excludes transaction costs related to the potential merger. GAAP diluted earnings per share are expected to be in the range of $5.56 to $5.68 which includes $0.07 per diluted share for the first and second quarter transaction costs and excludes future transaction costs related to the potential merger. Full-year capital expenditures are expected to be approximately $1.4 billion.

Following is additional detail on second-quarter 2017 results by segment.

In North America, second-quarter sales were $1,505 million, 4% above the prior-year quarter excluding cost-pass through and currency. Sales growth was driven primarily by stronger volumes to chemical, manufacturing and electronic end-markets and higher price. Operating profit was $378 million, 5% above the prior-year quarter.

In Europe, second-quarter sales were $383 million, 8% above the prior-year quarter. Excluding negative currency, sales grew 10% from the prior-year due to higher volumes including project start-ups, price and an acquisition primarily related to the carbon dioxide business largely serving the food and beverage end-market. Operating profit was $73 million.

In South America, second-quarter sales were $373 million, 4% above the prior-year quarter. Excluding positive currency translation and cost pass-through, sales were 3% below the prior-year quarter due to lower volumes driven by continued weak macro-economic conditions, largely in manufacturing. Operating profit was $63 million.

Sales in Asia were $422 million in the quarter, up 7% from the prior-year. Excluding a prior-year net divestiture, sales grew 11% driven by higher volumes in China, India and Korea, primarily in the electronics, metals and chemicals end-markets and price attainment. Operating profit was $80 million, 19% above the prior-year quarter.

Praxair Surface Technologies had second-quarter sales of $151 million as compared to $148 million in the prior-year quarter. Excluding negative currency translation, sales were 4% above the prior-year period driven by 2% volume growth, largely aerospace coatings, and 2% growth from acquisitions. Operating profit was $25 million.

About Praxair

Praxair, Inc., a Fortune 300 company with 2016 sales of $11 billion, is a leading industrial gas company in North and South America and one of the largest worldwide. The company produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings. Praxair products, services and technologies are making our planet more productive by bringing efficiency and environmental benefits to a wide variety of industries, including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, primary metals and many others. More information about Praxair, Inc. is available at www.praxair.com.

Adjusted amounts, EBITDA, free cash flow and after-tax return on capital are non-GAAP measures. See the attachments for a summary of non-GAAP reconciliations and calculations of non-GAAP measures.

Attachments: Summary Non-GAAP Reconciliations, Statements of Income, Balance Sheets, Statements of Cash Flows, Segment Information, Quarterly Financial Summary and Appendix: Non-GAAP Measures.

A teleconference about Praxair’s second-quarter results is being held this morning, July 27, 2017 at 11:00 am Eastern Time. The number is (631) 485-4849 – Conference ID: 48847647. The call is also available as a webcast live and on-demand at www.praxair.com/investors. Materials to be used in the teleconference are also available on the website.

Additional Information and Where to Find It

In connection with the proposed business combination between Praxair, Inc. (“Praxair”) and Linde AG (“Linde”), Linde plc (“New Holdco”) has filed a Registration Statement on Form S-4 (which Registration Statement has not yet been declared effective) with the U.S. Securities and Exchange Commission (“SEC”) that includes (1) a proxy statement of Praxair that also constitutes a prospectus for New Holdco and (2) an offering prospectus of New Holdco to be used in connection with New Holdco’s offer to acquire Linde shares held by U.S. holders. Once the Registration Statement is declared effective by the SEC, Praxair will mail the proxy statement/prospectus to its stockholders in connection with the vote to approve the merger of Praxair and an indirect wholly-owned subsidiary of New Holdco, and New Holdco will distribute the offering prospectus to Linde shareholders in the United States in connection with New Holdco’s offer to acquire all of the outstanding shares of Linde. New Holdco will also file an offer document with the German Federal Financial Supervisory Authority (Bundesanstalt fuer Finanzdienstleistungsaufsicht) (“BaFin”). The consummation of the proposed business combination is subject to regulatory approvals and other customary closing conditions.

INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND THE OFFER DOCUMENT REGARDING THE PROPOSED BUSINESS COMBINATION TRANSACTION AND PROPOSED OFFER BECAUSE THEY CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the proxy statement/prospectus and other related documents filed by Praxair, Linde and New Holdco with the SEC on the SEC’s Web site at www.sec.gov. The proxy statement/prospectus and other documents relating thereto may also be obtained for free by accessing Praxair’s Web site at www.praxair.com. Following approval of its publication by the BaFin, the offer document will be made available for free at New Holdco's website at www.lindepraxairmerger.com. Furthermore, the offer document is expected to be made available at BaFin's website for free at www.bafin.de.

This document is neither an offer to purchase nor a solicitation of an offer to sell shares of New Holdco, Praxair or Linde. The final terms and further provisions regarding the public offer will be disclosed in the offer document after the publication has been approved by the BaFin and in documents that will be filed with the SEC. No money, securities or other consideration is being solicited, and, if sent in response to the information contained herein, will not be accepted. The information contained herein should not be considered as a recommendation that any person should subscribe for or purchase any securities.

No offering of securities shall be made except by means of a prospectus meeting the requirements of the U.S. Securities Act of 1933, as amended, and applicable European and German regulations. The distribution of this document may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No offering of securities will be made directly or indirectly, in or into any jurisdiction where to do so would be inconsistent with the laws of such jurisdiction.

Participants in Solicitation

Praxair, Linde, New Holdco and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Praxair’s stockholders in respect of the proposed business combination. Information regarding the persons who are, under the rules of the SEC, participants in the solicitation of the stockholders of Praxair in connection with the proposed transaction, including a description of their direct or indirect interests, by security holdings or otherwise, are set forth in the proxy statement/prospectus filed with the SEC. Information regarding the directors and executive officers of Praxair is contained in Praxair’s Annual Report on Form 10-K for the year ended December 31, 2016 and its Proxy Statement on Schedule 14A, dated March 15, 2017, which are filed with the SEC and can be obtained free of charge from the sources indicated above.

Forward-looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the expected timing and likelihood of the completion of the contemplated business combination with Linde AG, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals that could reduce anticipated benefits or cause the parties to abandon the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the business combination agreement; the ability to successfully complete the proposed business combination and the exchange offer, including satisfying closing conditions; the success of the business following the proposed business combination; the ability to successfully integrate the Praxair and Linde businesses; the possibility that Praxair stockholders may not approve the business combination agreement or that the requisite number of Linde shares may not be tendered in the public offer; the risk that the combined company may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; the impact of potential unusual or non-recurring items; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the GAAP or adjusted projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company’s latest Annual Report on Form 10-K filed with the SEC and in the proxy statement/prospectus and the offering prospectus included in the Registration Statement on Form S-4 (which Registration Statement has not yet been declared effective) filed by New Holdco with the SEC which should be reviewed carefully. Please consider the company’s forward-looking statements in light of those risks.

 
PRAXAIR, INC. AND SUBSIDIARIES
SUMMARY NON-GAAP RECONCILIATIONS
(UNAUDITED)
                 
The following adjusted amounts are Non-GAAP measures and are intended to supplement investors' understanding of the company's financial statements by providing measures which investors, financial analysts and management use to help evaluate the company's operating performance. 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. See the Non-GAAP reconciliations starting on page 11 for additional details relating to the Non-GAAP adjustments.
 
(Millions of dollars, except per share amounts)
 
Sales Operating Profit Net Income - Praxair, Inc. Diluted EPS

2017

2016

2017

2016

2017

2016

2017

2016

Quarter Ended June 30

Reported GAAP Amounts $ 2,834 $ 2,665 $ 604 $ 588 $ 406 $ 399 $ 1.41 $ 1.39
Transaction costs (a)   -     -     15     -     15     -     0.05     -
Total adjustments   -     -     15     -     15     -     0.05     -
Adjusted amounts $ 2,834   $ 2,665   $ 619   $ 588   $ 421   $ 399   $ 1.46   $ 1.39
 

Year To Date June 30

Reported GAAP Amounts $ 5,562 $ 5,174 $ 1,186 $ 1,142 $ 795 $ 755 $ 2.76 $ 2.63
Transaction costs (a) - - 21 - 21 - 0.07 -
Bond redemption (b)   -     -     -     -     -     10     -     0.04
Total adjustments   -     -     21     -     21     10     0.07     0.04
Adjusted amounts $ 5,562   $ 5,174   $ 1,207   $ 1,142   $ 816   $ 765   $ 2.83   $ 2.67
 
(a) Charges in the 2017 first and second quarters for transaction costs related to the potential Linde merger.
(b) Charge to interest expense in the 2016 first quarter related to a bond redemption.
 

 
PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)
             
Quarter Ended Year to Date
June 30, June 30,
2017 2016 2017 2016
 
SALES $ 2,834 $ 2,665 $ 5,562 $ 5,174
Cost of sales 1,598 1,468 3,143 2,849
Selling, general and administrative 308 308 587 582
Depreciation and amortization 292 281 579 553
Research and development 23 24 46 47
Transaction costs and other charges 15 - 21 -
Other income (expense) - net   6     4     -     (1 )
OPERATING PROFIT 604 588 1,186 1,142
Interest expense - net   38     44     79     109  
INCOME BEFORE INCOME TAXES AND EQUITY INVESTMENTS 566 544 1,107 1,033
Income taxes   157     146     306     279  
INCOME BEFORE EQUITY INVESTMENTS 409 398 801 754
Income from equity investments   11     11     23     21  
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) 420 409 824 775
Less: noncontrolling interests   (14 )   (10 )   (29 )   (20 )
NET INCOME - PRAXAIR, INC. $ 406   $ 399   $ 795   $ 755  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
 
Basic earnings per share $ 1.42 $ 1.40 $ 2.78 $ 2.64
 
Diluted earnings per share $ 1.41 $ 1.39 $ 2.76 $ 2.63
 
Cash dividends $ 0.7875 $ 0.75 $ 1.575 $ 1.50
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic shares outstanding (000's) 286,090 285,702 285,799 285,566
Diluted shares outstanding (000's) 288,535 287,727 288,067 287,426
 
Note: See page 5 for a reconciliation to 2017 adjusted amounts which are Non-GAAP.
 

 

PRAXAIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Millions of dollars)
(UNAUDITED)
       
June 30, December 31,
2017 2016
ASSETS
Cash and cash equivalents $ 535 $ 524
Accounts receivable - net 1,791 1,641
Inventories 568 550
Prepaid and other current assets   225     165  
TOTAL CURRENT ASSETS 3,119 2,880
Property, plant and equipment - net 11,806 11,477
Goodwill 3,182 3,117
Other intangibles - net 568 583
Other long-term assets   1,290     1,275  
TOTAL ASSETS $ 19,965   $ 19,332  
 
LIABILITIES AND EQUITY
Accounts payable $ 900 $ 906
Short-term debt 280 434
Current portion of long-term debt 910 164
Other current liabilities   953     974  
TOTAL CURRENT LIABILITIES 3,043 2,478
Long-term debt 8,177 8,917
Other long-term liabilities   2,475     2,485  
TOTAL LIABILITIES 13,695 13,880
 
REDEEMABLE NONCONTROLLING INTERESTS 10 11
 
PRAXAIR, INC. SHAREHOLDERS' EQUITY:
Common stock 4 4
Additional paid-in capital 4,076 4,074
Retained earnings 13,223 12,879
Accumulated other comprehensive income (loss) (4,244 ) (4,600 )
Less: Treasury stock, at cost   (7,252 )   (7,336 )
Total Praxair, Inc. Shareholders' Equity 5,807 5,021
Noncontrolling interests   453     420  
TOTAL EQUITY   6,260     5,441  
TOTAL LIABILITIES AND EQUITY $ 19,965   $ 19,332  
 

             
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)
 
Quarter Ended Year to Date
June 30, June 30,
2017 2016 2017 2016
OPERATIONS
Net income - Praxair, Inc. $ 406 $ 399 $ 795 $ 755
Noncontrolling interests   14     10     29     20  
Net income (including noncontrolling interests) 420 409 824 775
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Transaction costs and other charges, net of payments 11 - 17 -
Depreciation and amortization 292 281 579 553
Accounts Receivable (46 ) (41 ) (95 ) (61 )
Inventory (3 ) (1 ) (5 ) (8 )
Payables and accruals 18 14 (24 ) (63 )
Pension contributions (3 ) (4 ) (6 ) (6 )
Deferred income taxes and other   12     48     121     69  
Net cash provided by operating activities   701     706     1,411     1,259  
 
INVESTING
Capital expenditures (325 ) (357 ) (652 ) (680 )
Acquisitions, net of cash acquired (1 ) (262 ) (2 ) (325 )
Divestitures and asset sales   13     6     17     8  
Net cash used for investing activities   (313 )   (613 )   (637 )   (997 )
 
FINANCING
Debt increase (decrease) - net (132 ) 595 (305 ) 690
Issuances of common stock 44 26 70 60
Purchases of common stock - (51 ) (11 ) (83 )
Cash dividends - Praxair, Inc. shareholders (225 ) (214 ) (450 ) (428 )
Noncontrolling interest transactions and other   (71 )   (107 )   (84 )   (109 )
Net cash provided by (used for) financing activities (384 ) 249 (780 ) 130
 
Effect of exchange rate changes on cash and
cash equivalents   12     4     17     28  
 
Change in cash and cash equivalents 16 346 11 420
Cash and cash equivalents, beginning-of-period   519     221     524     147  
 
Cash and cash equivalents, end-of-period $ 535   $ 567   $ 535   $ 567  
 

             
PRAXAIR, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Millions of dollars)
(UNAUDITED)
   
Quarter Ended Year to Date
June 30, June 30,
2017 2016 2017 2016
SALES
North America $ 1,505 $ 1,411 $ 2,963 $ 2,764
Europe 383 355 739 675
South America 373 358 742 669
Asia 422 393 817 769
Surface Technologies   151     148   301     297
Consolidated sales $ 2,834   $ 2,665 $ 5,562   $ 5,174
 
OPERATING PROFIT
North America $ 378 $ 359 $ 735 $ 708
Europe 73 68 139 130
South America 63 70 127 125
Asia 80 67 155 130
Surface Technologies   25     24   51     49
Segment operating profit $ 619 $ 588 $ 1,207 $ 1,142
Transaction costs and other charges   (15 )   -   (21 )   -
Total operating profit $ 604   $ 588 $ 1,186   $ 1,142
 

 
PRAXAIR, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL SUMMARY
(Millions of dollars, except per share data)
(UNAUDITED)
         
2017 (b) 2016 (c)
Q2 Q1 Q4 Q3 Q2 Q1
FROM THE INCOME STATEMENT
Sales $ 2,834 $ 2,728 $ 2,644 $ 2,716 $ 2,665 $ 2,509
Cost of sales 1,598 1,545 1,478 1,533 1,468 1,381
Selling, general and administrative 308 279 272 291 308 274
Depreciation and amortization 292 287 285 284 281 272
Research and development 23 23 23 22 24 23
Transaction costs and other charges 15 6 - 100 - -
Other income (expense) - net   6     (6 )   13     11     4     (5 )
Operating profit 604 582 - 599 497 588 554
Interest expense - net 38 41 38 43 44 65
Income taxes 157 149 152 120 146 133
Income from equity investments   11     12     10     10     11     10  
Net income (including noncontrolling interests) 420 404 # 419 344 409 366
Less: noncontrolling interests   (14 )   (15 )   (13 )   (5 )   (10 )   (10 )
Net income - Praxair, Inc. $ 406   $ 389   $ 406   $ 339   $ 399   $ 356  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
Diluted earnings per share $ 1.41 $ 1.35 $ 1.41 $ 1.18 $ 1.39 $ 1.24
Cash dividends per share $ 0.7875 $ 0.7875 $ 0.75 $ 0.75 $ 0.75 $ 0.75
Diluted weighted average shares outstanding (000's) 288,535 287,384 287,956 288,195 287,727 286,665
 
ADJUSTED AMOUNTS (a)
Operating profit $ 619 $ 588 $ 599 $ 597 $ 588 $ 554
Operating margin 21.8 % 21.6 % 22.7 % 22.0 % 22.1 % 22.1 %
Net Income $ 421 $ 395 $ 406 $ 405 $ 399 $ 366
Diluted earnings per share $ 1.46 $ 1.37 $ 1.41 $ 1.41 $ 1.39 $ 1.28
 
FROM THE BALANCE SHEET
Net debt (a) $ 8,832 $ 8,849 $ 8,991 $ 9,215 $ 9,389 $ 9,183
Capital (a) $ 15,102 $ 14,824 $ 14,443 $ 14,864 $ 14,948 $ 14,607
 
FROM THE STATEMENT OF CASH FLOWS
Cash flow from operations $ 701 $ 710 $ 726 $ 788 $ 706 $ 553
Cash flow provided by (used for) investing activities (313 ) (324 ) (410 ) (363 ) (613 ) (384 )
Cash flow provided by (used for) financing activities (384 ) (396 ) (411 ) (362 ) 249 (119 )
Capital expenditures 325 327 409 376 357 323
Acquisitions 1 1 18 20 262 63
Cash dividends 225 225 214 214 214 214
 
OTHER INFORMATION
After-tax return on capital (ROC) (a) 11.5 % 11.5 % 11.5 % 11.6 % 12.1 % 11.5 %
Adjusted after-tax ROC (a) 12.1 % 12.0 % 12.0 % 12.1 % 12.2 % 12.4 %
EBITDA (a) 907 881 894 791 880 836
EBITDA margin (a) 32.0 % 32.3 % 33.8 % 29.1 % 33.0 % 33.3 %
Adjusted EBITDA (a) $ 922 $ 887 $ 894 $ 891 $ 880 $ 836
Adjusted EBITDA margin (a) 32.5 % 32.5 % 33.8 % 32.8 % 33.0 % 33.3 %
Number of employees 26,487 26,420 26,498 26,680 26,896 26,558
 
SEGMENT DATA
SALES
North America $ 1,505 $ 1,458 $ 1,397 $ 1,431 $ 1,411 $ 1,353
Europe 383 356 351 366 355 320
South America 373 369 352 378 358 311
Asia 422 395 395 391 393 376
Surface Technologies   151     150     149     150     148     149  
Total sales $ 2,834   $ 2,728   $ 2,644   $ 2,716   $ 2,665   $ 2,509  
OPERATING PROFIT
North America $ 378 $ 357 $ 359 $ 363 $ 359 $ 349
Europe 73 66 71 72 68 62
South America 63 64 64 68 70 55
Asia 80 75 78 68 67 63
Surface Technologies   25     26     27     26     24     25  
Segment operating profit 619 588 599 597 588 554
Transaction costs and other charges   (15 )   (6 )   -     (100 )   -     -  
Total operating profit $ 604   $ 582   # $ 599   $ 497   $ 588   $ 554  
 
(a)   Non-GAAP measure, see Appendix.
 
(b) 2017 includes (i) an after-tax charge of $6 million ($0.02 per diluted share) in the first quarter for transaction costs related to the potential Linde merger and (ii) an after-tax charge of $15 million ($0.05 per diluted share) in the second quarter for transaction costs related to the potential Linde merger.
 
(c) 2016 includes (i) a $16 million charge to interest expense ($10 million after-tax, or $0.04 per diluted share) in the first quarter related to the redemption of the $325 million 5.20% notes due 2017, (ii) a pre-tax pension settlement charge of $4 million ($3 million after-tax, or $0.01 per diluted share) in the third quarter related to lump sum benefit payments made from the U.S. supplemental pension plan, and (iii) pre-tax charges of $96 million ($63 million after-tax and non-controlling interests, or $0.22 per diluted share) in the third quarter, primarily related to cost reduction actions.
 

 
PRAXAIR, INC. AND SUBSIDIARIES
APPENDIX
NON-GAAP MEASURES
(Millions of dollars, except per share data)
(UNAUDITED)
                       
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 financial leverage, return on capital and operating performance. 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. Adjusted amounts exclude the impacts of the 2017 first and second quarter transaction costs, 2016 third quarter cost reduction program and pension settlement, 2016 first quarter bond redemption, 2015 third quarter cost reduction program and pension settlement, and 2015 second quarter cost reduction program and other charges.
 

Adjusted Amounts

Year-to-date
June 30,

Second Quarter First Quarter Year Third Quarter First Quarter Year Third Quarter

Second Quarter

2017 2017 2017 2016 2016 2016 2015 2015 2015

Adjusted Operating Profit and Operating Profit Margin

Reported operating profit $ 1,186 $ 604 $ 582 $ 2,238 $ 497 $ 554 $ 2,321 $ 594 $ 480
Add: Cost reduction program and other charges - - - 96 96 - 165 19 146
Add: Pension settlement charge - - - 4 4 - 7 7 -
Add: Transaction costs   21     15     6     -     -     -     -     -     -  
Total adjustments   21     15     6     100     100     -     172     26     146  
Adjusted operating profit $ 1,207   $ 619   $ 588   $ 2,338   $ 597   $ 554   $ 2,493   $ 620   $ 626  
 
Reported percentage change 4 % 3 %
Adjusted percentage change 6 % 5 %
 
Reported sales $ 5,562 $ 2,834 $ 2,728 $ 10,534 $ 2,716 $ 2,509 $ 10,776 $ 2,686 $ 2,738
Adjusted operating profit margin 21.7 % 21.8 % 21.6 % 22.2 % 22.0 % 22.1 % 23.1 % 23.1 % 22.9 %
 

Adjusted Interest Expense - net

Reported interest expense - net $ 79 $ 38 $ 41 $ 190 $ 43 $ 65 $ 161 $ 35 $ 40
Less: Bond redemption   -     -     -     (16 )   -     (16 )   -     -     -  
Adjusted interest expense - net $ 79   $ 38   $ 41   $ 174   $ 43   $ 49   $ 161   $ 35   $ 40  
 

Adjusted Income Taxes

Reported income taxes $ 306 $ 157 $ 149 $ 551 $ 120 $ 133 $ 612 $ 156 $ 131
Add: Cost reduction program and other charges - - - 28 28 - 39 6 33
Add: Bond redemption - - - 6 - 6 - - -
Add: Pension settlement charge - - - 1 1 - 2 2 -
Add: Transaction costs   -     -     -     -     -     -     -     -     -  
Total adjustments   -     -     -     35     29     6     41     8     33  
Adjusted income taxes $ 306   $ 157   $ 149   $ 586   $ 149   $ 139   $ 653   $ 164   $ 164  
 

Adjusted Effective Tax Rate

Reported income before income taxes and equity investments $ 1,107 $ 566 $ 541 $ 2,048 $ 454 $ 489 $ 2,160 $ 559 $ 440
Add: Cost reduction program and other charges - - - 96 96 - 165 19 146
Add: Bond redemption - - - 16 - 16 - - -
Add: Pension settlement charge - - - 4 4 - 7 7 -
Add: Transaction costs   21     15     6     -     -     -     -     -     -  
Total adjustments   21     15     6     116     100     16     172     26     146  
Adjusted income before income taxes and equity investments $ 1,128   $ 581   $ 547   $ 2,164   $ 554   $ 505   $ 2,332   $ 585   $ 586  
 
Reported effective tax rate 27.6 % 27.7 % 27.5 % 26.9 % 26.4 % 27.2 % 28.3 % 27.9 % 29.8 %
Adjusted effective tax rate 27.1 % 27.0 % 27.2 % 27.1 % 26.9 % 27.5 % 28.0 % 28.0 % 28.0 %
 

Adjusted Noncontrolling Interests

Reported noncontrolling interests $ 29 $ 14 $ 15 $ 38 $ 5 $ 10 $ 44 $ 12 $ 11
Add: Cost reduction program and other charges   -     -     -     5     5     -     1     -     1  
Total adjustments   -     -     -     5     5     -     1     -     1  
Adjusted noncontrolling interests $ 29   $ 14   $ 15   $ 43   $ 10   $ 10   $ 45   $ 12   $ 12  
 

Adjusted Net Income - Praxair, Inc.

Reported net income - Praxair, Inc. $ 795 $ 406 $ 389 $ 1,500 $ 339 $ 356 $ 1,547 $ 401 $ 308
Add: Cost reduction program and other charges - - - 63 63 - 125 13 112
Add: Bond redemption - - - 10 - 10 - - -
Add: Pension settlement charge - - - 3 3 - 5 5 -
Add: Transaction costs   21     15     6     -     -     -     -     -     -  
Total adjustments   21     15     6     76     66     10     130     18     112  
Adjusted net income - Praxair, Inc. $ 816   $ 421   $ 395   $ 1,576   $ 405   $ 366   $ 1,677   $ 419   $ 420  
 
Reported percentage change 5 % 2 %
Adjusted percentage change 7 % 6 %
 

Adjusted Diluted EPS

Reported diluted EPS $ 2.76 $ 1.41 $ 1.35 $ 5.21 $ 1.18 $ 1.24 $ 5.35 $ 1.40 $ 1.06
Add: Cost reduction program and other charges - - - 0.22 0.22 - 0.43 0.04 0.39
Add: Bond redemption - - - 0.04 - 0.04 - - -
Add: Pension settlement charge - - - 0.01 0.01 - 0.02 0.02 -
Add: Transaction costs   0.07     0.05     0.02     -     -     -     -     -     -  
Total adjustments   0.07     0.05     0.02     0.27     0.23     0.04     0.45     0.06     0.39  
Adjusted diluted EPS $ 2.83   $ 1.46   $ 1.37   $ 5.48   $ 1.41   $ 1.28   $ 5.80   $ 1.46   $ 1.45  
 
Reported percentage change 5 % 1 %
Adjusted percentage change 6 % 5 %
 

Cash Income Taxes and Interest

Income taxes paid $ 585 $ 420
Interest paid, net of interest capitalized and excluding bond redemption $ 173 $ 174
 

Full Year 2017 Diluted EPS Guidance

Full Year 2017
Low End High End
 
2017 GAAP diluted EPS guidance $ 5.56 $ 5.68
Add: Q1 and Q2 Transaction costs (excludes future merger transaction costs)   0.07     0.07  
2017 adjusted diluted EPS guidance $ 5.63   $ 5.75  
2016 adjusted diluted EPS (see above for full year reconciliation) $ 5.48   $ 5.48  
 
Adjusted percentage change 3 % 5 %

           

 

2017

2016 2015
Q2   Q1 Q4   Q3   Q2   Q1 Q4   Q3   Q2   Q1
 

Free Cash Flow (FCF) - Free cash flow is a measure used by investors, financial analysts and management to evaluate the ability of a company to pursue opportunities that enhance shareholder value. FCF equals cash flow from operations less capital expenditures.

 
Operating cash flow $ 701 $ 710 $ 726 $ 788 $ 706 $ 553 $ 791 $ 676 $ 710 $ 518
Less: capital expenditures   (325 )     (327 )   (409 )     (376 )     (357 )     (323 )   (387 )     (405 )     (352 )     (397 )
Free Cash Flow $ 376 $ 383 $ 317 $ 412 $ 349 $ 230 $ 404 $ 271 $ 358 $ 121
 

Net Debt, Capital and 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.

 
Debt $ 9,367 $ 9,368 $ 9,515 $ 9,842 $ 9,956 $ 9,404 $ 9,231 $ 9,480 $ 9,313 $ 9,360
Less: cash and cash equivalents   (535 )     (519 )   (524 )     (627 )     (567 )     (221 )   (147 )     (136 )     (136 )     (117 )
Net debt 8,832 8,849 8,991 9,215 9,389 9,183 9,084 9,344 9,177 9,243
Equity and redeemable noncontrolling interests:
Redeemable noncontrolling interests 10 10 11 11 12 119 113 169 175 170
Praxair, Inc. shareholders' equity 5,807 5,529 5,021 5,245 5,140 4,888 4,389 4,264 4,964 5,018
Noncontrolling interests   453       436     420       393       407       417     404       380       380       375  
Total equity and redeemable noncontrolling interests   6,270       5,975     5,452       5,649       5,559       5,424     4,906       4,813       5,519       5,563  
Capital $ 15,102 $ 14,824 $ 14,443 $ 14,864 $ 14,948 $ 14,607 $ 13,990 $ 14,157 $ 14,696 $ 14,806
 
Debt-to-capital   58.5 %     59.7 %   62.3 %     62.0 %     62.8 %     62.9 %   64.9 %     66.0 %     62.4 %     62.4 %
 

After-tax Return on Capital and Adjusted 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).

 
Reported net income - Praxair, Inc. $ 406 $ 389 $ 406 $ 339 $ 399 $ 356 $ 422 $ 401 $ 308 $ 416
Add: noncontrolling interests 14 15 13 5 10 10 9 12 11 12
Add: interest expense - net 38 41 38 43 44 65 42 35 40 44
Less: tax benefit on interest expense - net *   (11 )     (12 )   (10 )     (12 )     (12 )     (20 )   (12 )     (10 )     (11 )     (12 )
Net operating profit after-tax (NOPAT) $ 447 $ 433 $ 447 $ 375 $ 441 $ 411 $ 461 $ 438 $ 348 $ 460
 
Pre-tax Adjustments:
Add: Cost reduction program and other charges - - - 96 - - - 19 146 -
Add: Pension settlement charge - - - 4 - - - 7 - -
Add: Transaction costs 15 6 - - - - - - - -
Less: income taxes on pre-tax adjustments   -       -     -       (29 )     -       -       -     (8 )     (33 )     -  
Adjusted NOPAT $ 462 $ 439 $ 447 $ 446 $ 441 $ 411 $ 461 $ 456 $ 461 $ 460
 
4-quarter trailing NOPAT $ 1,702 $ 1,696 $ 1,674 $ 1,688 $ 1,751 $ 1,658 $ 1,707 $ 1,616 $ 1,700 $ 1,864
4-quarter trailing adjusted NOPAT $ 1,794 $ 1,773 $ 1,745 $ 1,759 $ 1,769 $ 1,789 $ 1,838 $ 1,879 $ 1,945 $ 1,996
 
Ending capital (see above) $ 15,102 $ 14,824 $ 14,443 $ 14,864 $ 14,948 $ 14,607 $ 13,990 $ 14,157 $ 14,696 $ 14,806
5-quarter average ending capital $ 14,836 $ 14,737 $ 14,570 $ 14,513 $ 14,480 $ 14,451 $ 14,587 $ 14,999 $ 15,460 $ 15,777
 
After-tax ROC (4-quarter trailing NOPAT / 5-quarter average capital) 11.5 % 11.5 % 11.5 % 11.6 % 12.1 % 11.5 % 11.7 % 10.8 % 11.0 % 11.8 %
 
Adjusted after-tax ROC (4-quarter trailing adjusted NOPAT / 5-quarter average capital)   12.1 %     12.0 %   12.0 %     12.1 %     12.2 %     12.4 %   12.6 %     12.5 %     12.6 %     12.7 %
 
* Tax benefit on interest expense - net is generally presented using the reported effective rate.
 

EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin - These measures are used by investors, financial analysts and management to assess a company's profitability.

 
Reported net income - Praxair, Inc. $ 406 $ 389 $ 406 $ 339 $ 399 $ 356 $ 422 $ 401 $ 308 $ 416
Add: noncontrolling interests 14 15 13 5 10 10 9 12 11 12
Add: interest expense - net 38 41 38 43 44 65 42 35 40 44
Add: income taxes 157 149 152 120 146 133 163 156 131 162
Add: depreciation and amortization   292       287     285       284       281       272     275       276       278       277  
EBITDA $ 907 $ 881 $ 894 $ 791 $ 880 $ 836 $ 911 $ 880 $ 768 $ 911
 
Adjustments:
Add: Cost reduction program and other charges - - - 96 - - - 19 146 -
Add: Pension settlement charge - - - 4 - - - 7 - -
Add: Transaction costs   15       6     -       -       -       -     -       -       -       -  
Adjusted EBITDA $ 922 $ 887 $ 894 $ 891 $ 880 $ 836 $ 911 $ 906 $ 914 $ 911
 
Reported sales 2,834 2,728 2,644 2,716 2,665 2,509 2,595 2,686 2,738 2,757
EBITDA margin 32.0 % 32.3 % 33.8 % 29.1 % 33.0 % 33.3 % 35.1 % 32.8 % 28.0 % 33.0 %
Adjusted EBITDA margin 32.5 % 32.5 % 33.8 % 32.8 % 33.0 % 33.3 % 35.1 % 33.7 % 33.4 % 33.0 %