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Praxair Reports Full-Year and Fourth-Quarter 2016 Results
[January 26, 2017]

Praxair Reports Full-Year and Fourth-Quarter 2016 Results


Praxair, Inc. (NYSE:PX) reported fourth-quarter net income and diluted earnings per share of $406 million and $1.41, respectively.

Sales in the fourth quarter were $2,644 million, 2% above the prior-year quarter. Excluding negative currency translation effects and higher cost pass through, sales were 2% higher than the prior-year quarter due to growth from acquisitions, largely a carbon dioxide business in Europe, and higher pricing. Overall volumes were comparable to the prior-year quarter. Volume growth from new on-site projects in Europe, South America and Asia was offset by lower base business volumes in North America, due primarily to weaker manufacturing and energy activity.

Operating profit in the fourth quarter was $599 million, 4% below the prior-year quarter. Excluding 1% headwind from foreign currency translation and a gain on asset sale in the prior year, operating profit was comparable with the prior-year quarter. Operating profit as a percentage of sales was 22.7% and EBITDA margin was 33.8%.

Fourth-quarter cash flow from operations was $726 million, 27% of sales. Capital expenditures were $409 million and the company paid $214 million of dividends.

For the full year of 2016, reported net income was $1,500 million and diluted earnings per share was $5.21. On an adjusted basis, full-year net income was $1,576 million and diluted earnings per share was $5.48.

Full-year sales were $10,534 million, 2% below 2015 due to the impacts of negative currency translation and lower cost pass-through, primarily natural gas. Underlying sales were 2% above prior year as growth from positive price, new project start-ups globally and acquisitions were partially offset by lower base volumes primarily in North America due to weaker upstream energy and manufacturing end-markets. Reported operating profit was $2,238 million, 4% below prior year. Adjusted operating profit of $2,338 million was 3% below 2015, excluding negative currency translation.

For full-year 2016, Praxair generated strong operating cash flow of $2,773 million, 26% of sales, and free cash flow of $1,308 million. The company invested $363 million in acquisitions, primarily a carbon dioxide business in Europe, paid dividends of $856 million, repurchased $89 million of stock, net of issuances and reduced net debt.

Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, "During 2016, Praxair employees demonstrated operational excellence by again delivering high-quality results despite facing another challenging global economic year. We gained traction on our core strategy and generated record operating cash flow of 26% of sales and free cash flow of $1.3 billion. As a result, we have announced an increase in our dividend for the 24th consecutive year.

"Expanding our presence in more resilient end-markets including food, beverage, healthcare and aerospace is a key component of our strategy. We completed our carbon dioxide acquisition in Europe which will strengthen our food and beverage growth platform and began the PST joint venture with GE on aircraft coatings which we expect will triple the size of that business in a few years. Another important element of our strategy is to execute our backlog and capitalize on the additional project opportunities driven by the low-cost feedstock advantage in the U.S. Gulf Coast. We won seven new large on-site projects during the year that brought our backlog to just over $1.5 billion, with 70% of that value supporting our extensive network in the U.S. Gulf Coast.

"The year culminated in a non-binding agreement in principal to merge with Linde. We view this as a compelling opportunity to create substantial value for stakeholders. This announcement is the first step in a process that will take some time to complete. While we pursue this opportunity, rest assured our employees will remain laser focused on operational excellence and executing our core strategy."

For full-year 2017, Praxair expects diluted earnings per share to be in the range of $5.45 to $5.80, 2% to 9% growth excluding currency versus 2016. This guidance assumes a negative currency impact of approximately 3%. Full-year capital expenditures are expected to be approximately $1.4 billion and the effective tax rate is forecast to remain at approximately 28%.

For the first quarter of 2017, Praxair expects diluted earnings per share in the range of $1.28 to $1.35. This EPS guidance assumes a negative currency impact of approximately 1%.

Following is additional detail on fourth-quarter 2016 results by segment.

In North America, fourth-quarter sales were $1,397 million, down 2% from the prior-year quarter. Sales growth from higher pricing and stronger volumes to metals, food and beverage and healthcare customers were more than offset by weaker volumes in energy and manufacturing end-markets. Operating profit was $359 million.

In Europe, fourth-quarter sales were $351 million, 9% above the prior-year quarter excluding negative currency translation. Acquisitions contributed 8% growth, primarily related to a carbon dioxide business largely serving the food and beverage end-market. Volume was up 1% primarily due to new project start-ups. Operating profit of $71 million grew 15% from the prior year, primarily due to lower cost, higher volumes and acquisitions.

In South America, fourth-quarter sales were $352 million, 18% above the prior-year quarter. Sales, excluding positive currency translation, grew 9% as a result of higher price, new on-site project volumes and higher sales to healthcare and food and beverage end-markets. Operating profit was $64 million.

Sales in Asia were $395 million in the quarter, 1% below the prior-year quarter. Excluding negative currency translation and a prior quarter divestiture, sales grew 5%. Operating profit of $78 million grew 8%, excluding currency translation.

Praxair Surface Technologies had fourth-quarter sales of $149 million as compared to $152 million in the prior-year quarter. Excluding negative currency translation and cost pass-through, sales were comparable to the prior-year period. Favorable price and higher aerospace volumes were offset by weaker sales primarily to the energy end-markets. Operating profit was $27 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 are non-GAAP measures. Additionally, measures such as EBITDA, free cash flow, after-tax return on capital, return on equity and debt-to-capital are also non-GAAP measures. See the attachments for a summary of non-GAAP reconciliations and calculations of non-GAAP measures.

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

A teleconference about Praxair's fourth-quarter results is being held this morning, January 26, 2017 at 11:00 am Eastern Time. The number is (631) 485-4849 - Conference ID: 48171391. 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

Should Praxair, Inc. ("Praxair") and Linde AG ("Linde") proceed with the proposed business combination transaction, Praxair and Linde expect that a newly formed holding company ("New Holdco") will file a Registration Statement on Form S-4 or Form F-4 with the U.S. Securities and Exchange Commission ("SEC") that will include (1) a proxy statement of Praxair that will also constitute 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. When available, Praxair will mail the proxy statement/prospectus to its stockholders in connection with the vote to approve the merger of Praxair and a 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. Should Praxair and Linde proceed with the proposed business combination transaction, Praxair and Linde also expect that New Holdco will file an offer document with the German Federal Financial Supervisory Authority (Bundesanstalt fuer Finanzdienstleistungsaufsicht) ("BaFin"). There can be no assurance that a binding definitive agreement will be reached between Praxair and Linde, and the consummation of any binding transaction will be 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 IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the proxy statement/prospectus (if and when it becomes available) 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 (if and when it becomes available) and other documents relating thereto may also be obtained for free by accessing Praxair's Web site at www.praxair.com. Following approval by the BaFin, the offer document will be made available at BaFin's Web site at www.bafin.de. The offer document (if and when it becomes available) and other documents relating thereto may also be obtained for free by accessing Linde's Web site at www.linde.com.

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, will be set forth in the proxy statement/prospectus if and when it is 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, 2015 and its Proxy Statement on Schedule 14A, dated March 18, 2016, 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 entry into or 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 not to enter into, or to abandon the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed 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 proposed 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 which should be reviewed carefully. Please consider the company's forward-looking statements in light of those risks.



 
PRAXAIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Millions of dollars, except per share data)
(UNAUDITED)
                 
Quarter Ended Year to Date
December 31, December 31,
  2016     2015     2016     2015  
 
SALES $ 2,644 $ 2,595 $ 10,534 $ 10,776
Cost of sales 1,478 1,426 5,860 5,960
Selling, general and administrative 272 275 1,145 1,152
Depreciation and amortization 285 275 1,122 1,106
Research and development 23 23 92 93
Cost reduction program and other charges - - 100 172
Other income (expense) - net   13     28     23     28  
OPERATING PROFIT 599 624 2,238 2,321
Interest expense - net   38     42     190     161  
INCOME BEFORE INCOME TAXES AND EQUITY INVESTMENTS 561 582 2,048 2,160
Income taxes   152     163     551     612  
INCOME BEFORE EQUITY INVESTMENTS 409 419 1,497 1,548
Income from equity investments   10     12     41     43  
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) 419 431 1,538 1,591
Less: noncontrolling interests   (13 )   (9 )   (38 )   (44 )
NET INCOME - PRAXAIR, INC. $ 406   $ 422   $ 1,500   $ 1,547  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
 
Basic earnings per share $ 1.42 $ 1.48 $ 5.25 $ 5.39
 
Diluted earnings per share $ 1.41 $ 1.47 $ 5.21 $ 5.35
 
Cash dividends $ 0.75 $ 0.715 $ 3.00 $ 2.86
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic shares outstanding (000's) 285,720 285,288 285,677 287,005
Diluted shares outstanding (000's) 287,956 286,856 287,757 289,055
 
Note: See page 10 for a reconciliation to 2016 adjusted amounts which are non-GAAP.
 
     
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
(UNAUDITED)
 
December 31, December 31,
  2016     2015  
ASSETS
Cash and cash equivalents $ 524 $ 147
Accounts receivable - net 1,641 1,601
Inventories 550 531
Prepaid and other current assets   165     347  
TOTAL CURRENT ASSETS 2,880 2,626
Property, plant and equipment - net 11,477 10,998
Goodwill 3,117 2,986
Other intangibles - net 583 568
Other long-term assets   1,275     1,141  
TOTAL ASSETS $ 19,332   $ 18,319  
 
LIABILITIES AND EQUITY
Accounts payable $ 906 $ 791
Short-term debt 434 250
Current portion of long-term debt 164 6
Other current liabilities   974     846  
TOTAL CURRENT LIABILITIES 2,478 1,893
Long-term debt 8,917 8,975
Other long-term liabilities   2,485     2,545  
TOTAL LIABILITIES 13,880 13,413
 
REDEEMABLE NONCONTROLLING INTERESTS 11 113
 
PRAXAIR, INC. SHAREHOLDERS' EQUITY:
Common stock 4 4
Additional paid-in capital 4,074 4,005
Retained earnings 12,879 12,229
Accumulated other comprehensive income (loss) (4,600 ) (4,596 )
Less: Treasury stock, at cost   (7,336 )   (7,253 )
Total Praxair, Inc. Shareholders' Equity 5,021 4,389
Noncontrolling interests   420     404  
TOTAL EQUITY   5,441     4,793  
TOTAL LIABILITIES AND EQUITY $ 19,332   $ 18,319  
 
               
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)
 
Quarter Ended Year to Date
December 31, December 31,
  2016     2015     2016     2015  
OPERATIONS
Net income - Praxair, Inc. $ 406 $ 422 $ 1,500 $ 1,547
Noncontrolling interests   13     9     38     44  
Net income (including noncontrolling interests) 419 431 1,538 1,591
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Cost reduction program and other charges, net of payments (10 ) (18 ) 83 121
Depreciation and amortization 285 275 1,122 1,106
Accounts receivable 11 58 (33 ) 1
Inventory (24 ) (9 ) (13 ) (23 )
Payables and accruals 86 (20 ) 92 (40 )
Pension contributions (3 ) (2 ) (11 ) (15 )
Deferred income taxes and other   (38 )   76     (5 )   (46 )
Net cash provided by operating activities   726     791     2,773     2,695  
 
INVESTING
Capital expenditures (409 ) (387 ) (1,465 ) (1,541 )
Acquisitions, net of cash acquired (18 ) (39 ) (363 ) (82 )
Divestitures and asset sales   17     75     58     320  
Net cash used for investing activities   (410 )   (351 )   (1,770 )   (1,303 )
 
FINANCING
Debt increase (decrease) - net (199 ) (203 ) 357 168
Issuances of common stock 30 14 139 88
Purchases of common stock (95 ) (21 ) (228 ) (725 )
Cash dividends - Praxair, Inc. shareholders (214 ) (204 ) (856 ) (819 )
Excess tax benefit on stock option exercises - 1 - 19
Noncontrolling interest transactions and other   67     3     (55 )   (41 )
Net cash provided by (used for) financing activities (411 ) (410 ) (643 ) (1,310 )
 
Effect of exchange rate changes on cash and
cash equivalents   (8 )   (19 )   17     (61 )
 
Change in cash and cash equivalents (103 ) 11 377 21
Cash and cash equivalents, beginning-of-period   627     136     147     126  
 
Cash and cash equivalents, end-of-period $ 524   $ 147   $ 524   $ 147  
 
               
PRAXAIR, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Millions of dollars)
(UNAUDITED)
 
Quarter Ended Year to Date
December 31, December 31,
  2016   2015   2016     2015  
SALES
North America $ 1,397 $ 1,421 $ 5,592 $ 5,865
Europe 351 325 1,392 1,320
South America 352 299 1,399 1,431
Asia 395 398 1,555 1,551
Surface Technologies   149   152   596     609  
Consolidated sales $ 2,644 $ 2,595 $ 10,534   $ 10,776  
 
OPERATING PROFIT
North America $ 359 $ 406 $ 1,430 $ 1,558
Europe 71 62 273 250
South America 64 55 257 291
Asia 78 74 276 289
Surface Technologies   27   27   102     105  
Segment operating profit $ 599 $ 624 $ 2,338 $ 2,493
Cost reduction program and other charges   -   -   (100 )   (172 )
Total operating profit $ 599 $ 624 $ 2,238   $ 2,321  
 
                               
PRAXAIR, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL SUMMARY
(Millions of dollars, except per share data)
(UNAUDITED)
 
2016 (c) 2015 (d)
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FROM THE INCOME STATEMENT
Sales $ 2,644 $ 2,716 $ 2,665 $ 2,509 $ 2,595 $ 2,686 $ 2,738 $ 2,757
Cost of sales 1,478 1,533 1,468 1,381 1,426 1,488 1,516 1,530
Selling, general and administrative 272 291 308 274 275 281 297 299
Depreciation and amortization 285 284 281 272 275 276 278 277
Research and development 23 22 24 23 23 23 23 24
Cost reduction program and other charges - 100 - - - 26 146 -
Other income (expense) - net   13     11     4     (5 )   28     2     2     (4 )
Operating profit 599 497 588 554

 

624 594 480 623
Interest expense - net 38 43 44 65 42 35 40 44
Income taxes (b) 152 120 146 133 163 156 131 162
Income from equity investments   10     10     11     10     12     10     10     11  
Net income (including noncontrolling interests) 419 344 409 366

 

431 413 319 428
Less: noncontrolling interests   (13 )   (5 )   (10 )   (10 )   (9 )   (12 )   (11 )   (12 )
Net income - Praxair, Inc. $ 406   $ 339   $ 399   $ 356   $ 422   $ 401   $ 308   $ 416  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
Diluted earnings per share $ 1.41 $ 1.18 $ 1.39 $ 1.24 $ 1.47 $ 1.40 $ 1.06 $ 1.43
Cash dividends per share $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.715 $ 0.715 $ 0.715 $ 0.715
Diluted weighted average shares outstanding (000's) 287,956 288,195 287,727 286,665 286,856 287,311 290,102 291,652
 
ADJUSTED AMOUNTS (a)
Operating profit $ 599 $ 597 $ 588 $ 554 $ 624 $ 620 $ 626 $ 623
Operating margin 22.7 % 22.0 % 22.1 % 22.1 % 24.0 % 23.1 % 22.9 % 22.6 %
Net Income $ 406 $ 405 $ 399 $ 366 $ 422 $ 419 $ 420 $ 416
Diluted earnings per share $ 1.41 $ 1.41 $ 1.39 $ 1.28 $ 1.47 $ 1.46 $ 1.45 $ 1.43
 
FROM THE BALANCE SHEET
Net debt (a) $ 8,991 $ 9,215 $ 9,389 $ 9,183 $ 9,084 $ 9,344 $ 9,177 $ 9,243
Capital (a) $ 14,443 $ 14,864 $ 14,948 $ 14,607 $ 13,990 $ 14,157 $ 14,696 $ 14,806
Debt-to-capital ratio (a) 62.3 % 62.0 % 62.8 % 62.9 % 64.9 % 66.0 % 62.4 % 62.4 %
 
FROM THE STATEMENT OF CASH FLOWS
Cash flow from operations (b) $ 726 $ 788 $ 706 $ 553 $ 791 $ 676 $ 710 $ 518
Cash flow provided by (used for) investing activities (410 ) (363 ) (613 ) (384 ) (351 ) (400 ) (152 ) (400 )
Cash flow provided by (used for) financing activities (b) (411 ) (362 ) 249 (119 ) (410 ) (260 ) (530 ) (110 )
Capital expenditures 409 376 357 323 387 405 352 397
Acquisitions 18 20 262 63 39 - 38 5
Cash dividends 214 214 214 214 204 203 205 207
 
OTHER INFORMATION
After-tax return on capital (ROC) (a) 12.0 % 12.1 % 12.2 % 12.4 % 12.6 % 12.5 % 12.6 % 12.7 %
Return on Praxair, Inc. shareholders' equity (ROE) (a) 31.9 % 33.3 % 34.0 % 34.6 % 34.6 % 32.5 % 30.5 % 29.6 %
Adjusted EBITDA (a) $ 894 $ 891 $ 880 $ 836 $ 911 $ 906 $ 914 $ 911
Adjusted EBITDA margin (a) 33.8 % 32.8 % 33.0 % 33.3 % 35.1 % 33.7 % 33.4 % 33.0 %
Debt-to-adjusted EBITDA ratio (a) 2.6 2.6 2.6 2.6 2.5 2.5 2.4 2.3
Number of employees 26,498 26,680 26,896 26,558 26,657 26,989 27,302 27,680
 
SEGMENT DATA
SALES
North America $ 1,397 $ 1,431 $ 1,411 $ 1,353 $ 1,421 $ 1,463 $ 1,482 $ 1,499
Europe 351 366 355 320 325 338 331 326
South America 352 378 358 311 299 343 388 401
Asia 395 391 393 376 398 395 387 371
Surface Technologies   149     150     148     149     152     147     150     160  
Total sales $ 2,644   $ 2,716   $ 2,665   $ 2,509   $ 2,595   $ 2,686   $ 2,738   $ 2,757  
OPERATING PROFIT
North America $ 359 $ 363 $ 359 $ 349 $ 406 $ 385 $ 388 $ 379
Europe 71 72 68 62 62 63 63 62
South America 64 68 70 55 55 70 81 85
Asia 78 68 67 63 74 77 69 69
Surface Technologies   27     26     24     25     27     25     25     28  
Segment operating profit 599 597 588 554 624 620 626 623
Cost reduction program and other charges   -     (100 )   -     -     -     (26 )   (146 )   -  
Total operating profit $ 599   $ 497   $ 588   $ 554  

 

$ 624   $ 594   $ 480   $ 623  
 
(a)   Non-GAAP measure, see Appendix.
 
(b) During the second quarter 2016, Praxair adopted the FASB's Accounting Standards Update ("ASU") 2016-09 relating to the accounting for stock compensation. Accordingly, effective with the 2016 second quarter, income taxes and operating cash flows include excess tax benefits related to stock compensation. Additionally, withholding tax payments related to stock compensation are required to be presented as financing versus operating cash flows on a retrospective basis.
 
(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. The cost reduction charges by segment are as follows: $43 million in North America; $19 million in Asia; $15 million in Europe; $12 million in South America; and $7 million in Surface Technologies.
 
(d) 2015 includes (i) a pre-tax pension settlement charge of $7 million ($5 million after-tax, or $0.02 per diluted share) in the third quarter related to lump sum benefit payments made from the U.S. supplemental pension plan, and (ii) pre-tax charges of $19 million ($13 million after-tax, or $0.04 per diluted share) in the third quarter and $146 million ($112 million after-tax and non-controlling interests, or $0.39 per diluted share) in the second quarter, primarily related to cost reduction actions taken in response to lower volumes resulting from economic slowdown in emerging markets and energy related end-markets. The cost reduction charges by segment are as follows: $67 million in South America; $34 million in North America; $25 million in Asia; $20 million in Europe; and $19 million in Surface Technologies.
 

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
  2016   2015   2016   2015   2016   2015   2016   2015

Year To Date December 31

Reported GAAP Amounts $ 10,534 $ 10,776 $ 2,238 $ 2,321 $ 1,500 $ 1,547 $ 5.21 $ 5.35
Pension settlement charges (a) - - 4 7 3 5 0.01 0.02
Cost reduction program and other charges (b) - - 96 165 63 125 0.22 0.43
Bond redemption (c)   -     -     -     -     10     -     0.04     -
Total adjustments   -     -     100     172     76     130     0.27     0.45
Adjusted amounts $ 10,534   $ 10,776   $ 2,338   $ 2,493   $ 1,576   $ 1,677   $ 5.48   $ 5.80
 

(a)

 

Pension settlement charges were recorded in the third quarter of 2016 and 2015 related to lump sum benefit payments made from the U.S. supplemental pension plan.

(b)

Charges in the 2016 third quarter and the 2015 second and third quarters related to the cost reduction program and other charges.

(c)

$16 million charge to interest expense ($10 million after-tax) in the 2016 first quarter related to a bond redemption.

 
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 2016 third quarter cost reduction program and pension settlement, 2016 first quarter bond redemption, 2015 third quarter cost reduction program and pension settlement, 2015 second quarter cost reduction program and other charges, and 2014 fourth quarter pension settlement, bond redemption and loss on Venezuela currency devaluation.
 
                                                 
2016   2015   2014  
Q4 Q3 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 $ 726 $ 788 $ 706 $ 553 $ 791 $ 676 $ 710 $ 518 $ 772 $ 713 $ 847 $ 555
Less: capital expenditures   (409 )       (376 )       (357 )       (323 )   (387 )       (405 )       (352 )       (397 )   (482 )       (430 )       (384 )       (393 )
Free Cash Flow $ 317 $ 412 $ 349 $ 230 $ 404 $ 271 $ 358 $ 121 $ 290 $ 283 $ 463 $ 162
 
Full Year Free Cash Flow $ 1,308 $ 1,154 $ 1,198
 

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 $ 9,515 $ 9,842 $ 9,956 $ 9,404 $ 9,231 $ 9,480 $ 9,313 $ 9,360 $ 9,225 $ 9,090 $ 9,132 $ 9,236
Less: cash and cash equivalents   (524 )       (627 )       (567 )       (221 )   (147 )       (136 )       (136 )       (117 )   (126 )       (168 )       (173 )       (144 )
Net debt 8,991 9,215 9,389 9,183 9,084 9,344 9,177 9,243 9,099 8,922 8,959 9,092
Equity and redeemable noncontrolling interests:
Redeemable noncontrolling interests 11 11 12 119 113 169 175 170 176 190 194 195
Praxair, Inc. shareholders' equity 5,021 5,245 5,140 4,888 4,389 4,264 4,964 5,018 5,623 6,552 6,911 6,600
Noncontrolling interests   420         393         407         417     404         380         380         375     387         388         395         398  
Total equity and redeemable noncontrolling interests   5,452         5,649         5,559         5,424     4,906         4,813         5,519         5,563     6,186         7,130         7,500         7,193  
Capital $ 14,443 $ 14,864 $ 14,948 $ 14,607 $ 13,990 $ 14,157 $ 14,696 $ 14,806 $ 15,285 $ 16,052 $ 16,459 $ 16,285
 
Debt-to-capital   62.3 %       62.0 %       62.8 %       62.9 %   64.9 %       66.0 %       62.4 %       62.4 %   59.5 %       55.6 %       54.4 %       55.8 %
 

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).

 
Adjusted operating profit (a) $ 599 $ 597 $ 588 $ 554 $ 624 $ 620 $ 626 $ 623 $ 663 $ 711 $ 697 $ 675
Less: adjusted income taxes (a) (152 ) (149 ) (146 ) (139 ) (163 ) (164 ) (164 ) (162 ) (161 ) (187 ) (183 ) (176 )
Less: tax benefit on adjusted interest expense (a) (10 ) (12 ) (12 ) (14 ) (12 ) (10 ) (11 ) (12 ) (12 ) (13 ) (12 ) (13 )
Add: income from equity investments   10         10         11         10     12         10         10         11     12         11         10         9  
Adjusted net operating profit after-tax (NOPAT) $ 447 $ 446 $ 441 $ 411 $ 461 $ 456 $ 461 $ 460 $ 502 $ 522 $ 512 $ 495
4-quarter trailing adjusted NOPAT $ 1,745 $ 1,759 $ 1,769 $ 1,789 $ 1,838 $ 1,879 $ 1,945 $ 1,996 $ 2,031 $ 2,035 $ 2,011 $ 1,990
 
Ending capital (see above) $ 14,443 $ 14,864 $ 14,948 $ 14,607 $ 13,990 $ 14,157 $ 14,696 $ 14,806 $ 15,285 $ 16,052 $ 16,459 $ 16,285
5-quarter average ending capital $ 14,570 $ 14,513 $ 14,480 $ 14,451 $ 14,587 $ 14,999 $ 15,460 $ 15,777 $ 16,007 $ 16,094 $ 15,987 $ 15,757
 
After-tax ROC (4-quarter trailing NOPAT / 5-quarter average capital)   12.0 %       12.1 %       12.2 %       12.4 %   12.6 %       12.5 %       12.6 %       12.7 %   12.7 %     12.6 %       12.6 %       12.6 %
 

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.

 
Adjusted net income - Praxair, Inc. (a) $ 406 $ 405 $ 399 $ 366 $ 422 $ 419 $ 420 $ 416 $ 460 $ 477 $ 467 $ 448
4-quarter trailing adjusted net income - Praxair, Inc. $ 1,576 $ 1,592 $ 1,606 $ 1,627 $ 1,677 $ 1,715 $ 1,773 $ 1,820 $ 1,852 $ 1,854 $ 1,828 $ 1,806
 
Ending Praxair, Inc. shareholders' equity $ 5,021 $ 5,245 $ 5,140 $ 4,888 $ 4,389 $ 4,264 $ 4,964 $ 5,018 $ 5,623 $ 6,552 $ 6,911 $ 6,600
5-quarter average Praxair shareholders' equity $ 4,937 $ 4,785 $ 4,729 $ 4,705 $ 4,852 $ 5,284 $ 5,814 $ 6,141 $ 6,459 $ 6,576 $ 6,452 $ 6,303
 
ROE (4-quarter trailing adjusted net income - Praxair, Inc. / 5-quarter average Praxair shareholders' equity)   31.9 %       33.3 %       34.0 %       34.6 %   34.6 %       32.5 %       30.5 %       29.6 %   28.7 %     28.2 %       28.3 %       28.7 %
 

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

 
Adjusted net income - Praxair, Inc. (a) $ 406 $ 405 $ 399 $ 366 $ 422 $ 419 $ 420 $ 416 $ 460 $ 477 $ 467 $ 448
Add: adjusted noncontrolling interests (a) 13 10 10 10 9 12 12 12 11 13 14 14
Add: adjusted interest expense - net (a) 38 43 44 49 42 35 40 44 43 45 43 46
Add: adjusted income taxes (a) 152 149 146 139 163 164 164 162 161 187 183 176
Add: depreciation and amortization   285         284         281         272     275         276         278         277     291         301         293         285  
Adjusted EBITDA $ 894 $ 891 $ 880 $ 836 $ 911 $ 906 $ 914 $ 911 $ 966 $ 1,023 $ 1,000 $ 969
 
Reported sales 2,644 2,716 2,665 2,509 2,595 2,686 2,738 2,757 2,990 3,144 3,113 3,026
Adjusted EBITDA margin 33.8 % 32.8 % 33.0 % 33.3 % 35.1 % 33.7 % 33.4 % 33.0 % 32.3 % 32.5 % 32.1 % 32.0 %
 
Full Year:
Reported sales $ 10,534 $ 10,776 $ 12,273
Adjusted EBITDA (below) $ 3,501 $ 3,642 $ 3,958
Adjusted EBITDA margin 33.2 % 33.8 % 32.2 %
 
Ending net debt (see above) $ 8,991 $ 9,215 $ 9,389 $ 9,183 $ 9,084 $ 9,344 $ 9,177 $ 9,243 $ 9,099 $ 8,922 $ 8,959 $ 9,092
5-quarter average net debt $ 9,172 $ 9,243 $ 9,236 $ 9,206 $ 9,189 $ 9,157 $ 9,080 $ 9,063 $ 8,943 $ 8,895 $ 8,904 $ 8,819
4-quarter trailing adjusted EBITDA $ 3,501 $ 3,518 $ 3,533 $ 3,567 $ 3,642 $ 3,697 $ 3,814 $ 3,900 $ 3,958 $ 3,978 $ 3,923 $ 3,874
 
Debt-to-adjusted EBITDA ratio (5-quarter average net debt / 4-quarter trailing adjusted EBITDA)   2.6         2.6         2.6         2.6     2.5         2.5         2.4         2.3     2.3         2.2         2.3         2.3  
(a)   The following table presents adjusted amounts for Operating Profit and Operating Profit Margin, Interest Expense - net, Income Taxes, Effective Tax Rate, Noncontrolling Interests, Net income - Praxair, Inc., and Diluted EPS for the periods presented. Additionally, this table presents cash income taxes and cash interest, net of interest capitalized and excluding the bond redemption costs for 2016 and 2014.
    Year     Third Quarter     First Quarter     Year    

Third Quarter

   

Second
Quarter

    Year    

Fourth
Quarter

  2016     2016     2016     2015     2015     2015     2014     2014  

Adjusted Operating Profit and Operating Profit Margin

Reported operating profit $ 2,238 $ 497 $ 554 $ 2,321 $ 594 $ 480 $ 2,608 $ 525
Add: Cost reduction program and other charges 96 96 - 165 19 146 - -
Add: Pension settlement charge 4 4 - 7 7 - 7 7
Add: Venezuela currency devaluation   -     -     -     -     -     -     131     131  
Total adjustments   100     100     -     172     26     146     138     138  
Adjusted operating profit $ 2,338   $ 597   $ 554   $ 2,493   $ 620   $ 626   $ 2,746   $ 663  
 
Reported percentage change -4 %
Adjusted percentage change -6 %
 
Reported sales $ 10,534 $ 2,716 $ 2,509 $ 10,776 $ 2,686 $ 2,738 $ 12,273 $ 2,990
Adjusted operating profit margin 22.2 % 22.0 % 22.1 % 23.1 % 23.1 % 22.9 % 22.4 % 22.2 %
 

Adjusted Interest Expense - net

Reported interest expense - net $ 190 $ 43 $ 65 $ 161 $ 35 $ 40 $ 213 $ 79
Less: Bond redemption   (16 )   -     (16 )   -     -     -     (36 )   (36 )
Adjusted interest expense - net $ 174   $ 43   $ 49   $ 161   $ 35   $ 40   $ 177   $ 43  
 

Adjusted Income Taxes

Reported income taxes $ 551 $ 120 $ 133 $ 612 $ 156 $ 131 $ 691 $ 145
Add: Cost reduction program and other charges 28 28 - 39 6 33 - -
Add: Bond redemption 6 - 6 - - - 14 14
Add: Pension settlement charge   1     1     -     2     2     -     2     2  
Total adjustments   35     29     6     41     8     33     16     16  
Adjusted income taxes $ 586   $ 149   $ 139   $ 653   $ 164   $ 164   $ 707   $ 161  
 

Adjusted Effective Tax Rate

Reported income before income taxes and equity investments $ 2,048 $ 454 $ 489 $ 2,160 $ 559 $ 440 $ 2,395 $ 446
Add: Cost reduction program and other charges 96 96 - 165 19 146 - -
Add: Bond redemption 16 - 16 - - - 36 36
Add: Pension settlement charge 4 4 - 7 7 - 7 7
Add: Venezuela currency devaluation   -     -     -     -     -     -     131     131  
Total adjustments   116     100     16     172     26     146     174     174  
Adjusted income before income taxes and equity investments $ 2,164   $ 554   $ 505   $ 2,332   $ 585   $ 586   $ 2,569   $ 620  
 
Reported effective tax rate 26.9 % 26.4 % 27.2 % 28.3 % 27.9 % 29.8 % 28.9 % 32.5 %
Adjusted effective tax rate 27.1 % 26.9 % 27.5 % 28.0 % 28.0 % 28.0 % 27.5 % 26.0 %
 

Adjusted Noncontrolling Interests

Reported noncontrolling interests $ 38 $ 5 $ 10 $ 44 $ 12 $ 11 $ 52 $ 11
Add: Cost reduction program and other charges   5     5     -     1     -     1     -     -  
Total adjustments   5     5     -     1     -     1     -     -  
Adjusted noncontrolling interests $ 43   $ 10   $ 10   $ 45   $ 12   $ 12   $ 52   $ 11  
 

Adjusted Net Income - Praxair, Inc.

Reported net income - Praxair, Inc. $ 1,500 $ 339 $ 356 $ 1,547 $ 401 $ 308 $ 1,694 $ 302
Add: Cost reduction program and other charges 63 63 - 125 13 112 - -
Add: Bond redemption 10 - 10 - - - 22 22
Add: Pension settlement charge 3 3 - 5 5 - 5 5
Add: Venezuela currency devaluation   -     -     -     -     -     -     131     131  
Total adjustments   76     66     10     130     18     112     158     158  
Adjusted net income - Praxair, Inc. $ 1,576   $ 405   $ 366   $ 1,677   $ 419   $ 420   $ 1,852   $ 460  
 
Reported percentage change -3 %
Adjusted percentage change -6 %
 

Adjusted Diluted EPS

Reported diluted EPS $ 5.21 $ 1.18 $ 1.24 $ 5.35 $ 1.40 $ 1.06 $ 5.73 $ 1.03
Add: Cost reduction program and other charges 0.22 0.22 - 0.43 0.04 0.39 - -
Add: Bond redemption 0.04 - 0.04 - - - 0.07 0.07
Add: Pension settlement charge 0.01 0.01 - 0.02 0.02 - 0.02 0.02
Add: Venezuela currency devaluation   -     -     -     -     -     -     0.45     0.45  
Total adjustments   0.27     0.23     0.04     0.45     0.06     0.39     0.54     0.54  
Adjusted diluted EPS $ 5.48   $ 1.41   $ 1.28   $ 5.80   $ 1.46   $ 1.45   $ 6.27   $ 1.57  
 

Cash Income Taxes and Interest

Income taxes paid $ 585 $ 420 $ 606
Interest paid, net of interest capitalized and excluding bond redemption $ 173 $ 174 $ 174
 

Full Year 2017 Diluted EPS Guidance

Full Year 2017
Low End   High End
 
2017 diluted EPS guidance $ 5.45 $ 5.80
2016 adjusted diluted EPS (see above for full year amounts) $ 5.48 $ 5.48
 
Adjusted percentage change -1 % 6 %

Adjusted percentage change, excluding estimated currency impact

2

%

9

%


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