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 January 29, 2016 - 6:01 AM EST
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Praxair Reports Full-Year and Fourth-Quarter 2015 Results

  • Full-year sales of $10.8 billion and adjusted EPS of $5.80
  • Full-year adjusted EBITDA and operating margins grew to record levels of 33.8% and 23.1%, respectively
  • Strong full-year operating cash flow of $2.7 billion, 25% of sales; free cash flow of $1.1 billion
  • Announced 5% dividend increase; 23rd consecutive annual increase
  • $1.5 billion returned to shareholders in 2015 through dividends and net share repurchases
  • Return on capital 12.6%; return on equity 34.6%
  • Fourth-quarter sales of $2.6 billion; EPS $1.47
  • Full-year 2016 EPS guidance of $5.30 to $5.70, -2% to +5%, ex-FX

Praxair, Inc. (NYSE:PX) reported fourth-quarter net income and diluted earnings per share of $422 million and $1.47, respectively.

Sales in the fourth quarter were $2,595 million, 13% below the prior-year quarter, primarily due to the impacts of negative currency translation and lower cost pass-through, which reduced sales by 10% and 2%, respectively. Underlying sales were 1% below the prior-year quarter as growth from higher price, new project start-ups and acquisitions was offset by lower volumes due to weaker industrial activity in Brazil and China and in the metals and manufacturing end-markets in North America.

Operating profit in the fourth quarter was $624 million and, excluding currency translation effects, grew 5% above the prior-year quarter. Operating profit as a percentage of sales grew to 24.0% and the EBITDA margin grew to 35.1%.

Fourth-quarter operating cash flow of $791 million funded $387 million of capital expenditures and $204 million of dividends.

For the full year of 2015, reported net income was $1,547 million and diluted earnings per share was $5.35. On an adjusted basis, full-year net income was $1,677 million and diluted earnings per share was $5.80.

Full-year sales were $10,776, 12% below 2014 due to the impacts of negative currency translation and lower cost pass-through, primarily natural gas. Underlying sales were comparable to the prior year as growth from positive price, new project start-ups and acquisitions was offset by lower base volumes in Brazil and China due to weaker underlying industrial activity and in the North American metals, upstream energy and manufacturing end-markets. Reported operating profit was $2,321 million. Adjusted operating profit of $2,493 million was 1% above 2014, excluding negative currency translation.

For full year 2015, the company generated strong operating cash flow of $2,682 million, 25% of sales. After capital expenditures of $1,541 million, free cash flow was $1,141 million. The company invested $82 million in acquisitions, primarily several U.S. packaged gas distributors. The company paid dividends of $819 million and repurchased $637 million of stock, net of issuances, while holding net debt steady. After-tax return on capital and return on equity for the year were 12.6% and 34.6%, respectively.

Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “2015 was a challenging year from a macro-economic perspective, but Praxair employees again delivered high-quality results. Full-year operating margin of 23.1% and EBITDA margin of 33.8% grew to record levels. Operating cash flow of $2.7 billion was strong and represented 25% of sales, and free cash flow was $1.1 billion. As a result, we increased our dividend for the 23rd consecutive year.

“The macro-economic headwinds faced in 2015 from negative currency translation and the slowdown in global industrial activity have not yet abated, and we expect a continuation of current trends into 2016. However, we remain confident in our business strategy. We continue to grow the business in more resilient end-markets including food, beverage, healthcare and aerospace, and deliver productivity, cost control and higher pricing. We have new on-site projects starting-up that will contribute growth. And with our strong cash flow, we will continue to reinvest in the future growth of the company through synergistic and accretive tuck-in acquisitions in attractive end-markets as well as new project opportunities where we bring a competitive advantage.

“Praxair’s focus on building network supply density in targeted geographies will continue to deliver solid cash flow generation and position us for highly accretive growth once these cyclical headwinds turn.”

For full-year 2016, Praxair expects diluted earnings per share to be in the range of $5.30 to $5.70, -2% to +5% ex-currency from 2015. This guidance assumes a negative currency impact of approximately 7% versus 2015. Full-year capital expenditures are expected to be approximately $1.5 billion and the effective tax rate is forecasted to remain at approximately 28%.

For the first quarter of 2016, Praxair expects diluted earnings per share in the range of $1.20 to $1.28. This EPS guidance assumes a negative currency impact of approximately 9% year-over-year and 3% sequentially.

Following is additional detail on fourth-quarter 2015 results by segment.

In North America, fourth-quarter sales were $1,421 million, down 3% from the prior-year quarter excluding currency translation and cost pass-through. Organic sales growth from higher pricing and stronger volumes to refinery, food & beverage and healthcare customers was more than offset by weaker volumes in upstream energy, manufacturing and metals end-markets. Operating profit of $406 million grew 9% from the prior year, excluding negative currency translation, primarily due to higher price, productivity and cost control and a gain on asset sale, which more than offset lower volumes.

In Europe, fourth-quarter sales were $325 million, 9% below the prior-year quarter. Organic sales were 4% above the prior year primarily driven by new project contribution, volume growth in Southern Europe and higher price. Operating profit of $62 million grew 13% from the prior year, excluding currency translation, due to volume growth, higher price and lower costs.

In South America, fourth-quarter sales were $299 million, 37% below the prior-year quarter. Sales, excluding negative currency translation, were 1% below prior year as growth from price and acquisitions was offset by lower volumes across most major end-markets due to the recessionary environment. Operating profit was $55 million.

Sales in Asia were $398 million in the quarter, 2% below the prior year quarter. Excluding negative currency translation, cost pass-through and a prior-quarter sale of equipment to a joint venture, sales grew 6%. Organic growth included new project start-ups in China and India. Operating profit of $74 million grew 2% as compared to $77 million in the prior year, excluding currency translation.

Praxair Surface Technologies had fourth-quarter sales of $152 million as compared to $165 million in the prior-year quarter. Excluding negative currency translation and cost pass-through, organic sales were 2% below the prior-year period. Favorable price and aviation customer volume growth was more than offset by weaker sales primarily to the industrial and energy end-markets. Operating profit was $27 million.

About Praxair

Praxair, Inc., a Fortune 250 company with 2015 sales of $11 billion, is the largest industrial gases 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, service 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 is available at www.praxair.com.

Adjusted amounts are non-GAAP measures. Full-year 2015 results are adjusted to exclude the impacts of cost reduction program and other charges recorded in the second and third quarters. 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 29, 2016 at 11:00am Eastern Time. The number is (631) 485-4849 – Conference ID: 15532199. 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.

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 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; 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 projections or estimates contained in the forward-looking statements. Additionally, financial projections or estimates exclude the impact of special items which the company believes are not indicative of ongoing business performance. 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 Form 10-K and 10-Q reports 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,
2015 2014 2015 2014
 
SALES $   2,595 $   2,990 $   10,776 $   12,273
Cost of sales 1,426 1,689 5,960 6,962
Selling, general and administrative 275 320 1,152 1,308
Depreciation and amortization 275 291 1,106 1,170
Research and development 23 24 93 96
Cost reduction program and other charges - 138 172 138
Other income (expense) - net     28       (3 )     28       9  
OPERATING PROFIT 624 525 2,321 2,608
Interest expense - net     42       79       161       213  
INCOME BEFORE INCOME TAXES AND EQUITY INVESTMENTS 582 446 2,160 2,395
Income taxes     163       145       612       691  
INCOME BEFORE EQUITY INVESTMENTS 419 301 1,548 1,704
Income from equity investments     12       12       43       42  
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) 431 313 1,591 1,746
Less: noncontrolling interests     (9 )     (11 )     (44 )     (52 )
NET INCOME - PRAXAIR, INC. $   422   $   302   $   1,547   $   1,694  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
 
Basic earnings per share $ 1.48 $ 1.04 $ 5.39 $ 5.79
 
Diluted earnings per share $ 1.47 $ 1.03 $ 5.35 $ 5.73
 
Cash dividends $ 0.715 $ 0.65 $ 2.86 $ 2.60
 
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic shares outstanding (000's) 285,288 290,667 287,005 292,494
Diluted shares outstanding (000's) 286,856 293,555 289,055 295,608
Note: See page 9 for a reconciliation to 2015 adjusted amounts which are non-GAAP.
 

 
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
(UNAUDITED)
             
December 31, December 31,
2015 2014
ASSETS
Cash and cash equivalents $   147 $   126
Accounts receivable - net 1,601 1,796
Inventories 531 551
Prepaid and other current assets     347       366  
TOTAL CURRENT ASSETS 2,626 2,839
Property, plant and equipment - net 10,998 11,997
Goodwill 2,986 3,121
Other intangibles - net 568 603
Other long-term assets     1,141       1,209  
TOTAL ASSETS $   18,319   $   19,769  
 
LIABILITIES AND EQUITY
Accounts payable $ 791 $ 864
Short-term debt 250 587
Current portion of long-term debt 6 2
Other current liabilities     846       1,037  
TOTAL CURRENT LIABILITIES 1,893 2,490
Long-term debt 8,975 8,636
Other long-term liabilities     2,545       2,457  
TOTAL LIABILITIES 13,413 13,583
 
REDEEMABLE NONCONTROLLING INTERESTS 113 176
 
PRAXAIR, INC. SHAREHOLDERS' EQUITY:
Common stock 4 4
Additional paid-in capital 4,005 3,994
Retained earnings 12,229 11,461
Accumulated other comprehensive income (loss) (4,596 ) (3,185 )
Less: Treasury stock, at cost     (7,253 )     (6,651 )
Total Praxair, Inc. Shareholders' Equity 4,389 5,623
Noncontrolling interests     404       387  
TOTAL EQUITY     4,793       6,010  
TOTAL LIABILITIES AND EQUITY $   18,319   $   19,769  
 

 
PRAXAIR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
(UNAUDITED)
                         
Quarter Ended Year to Date
December 31, December 31,
2015 2014 2015 2014
OPERATIONS
Net income - Praxair, Inc. $     422 $     302 $   1,547 $   1,694
Noncontrolling interests       9         11       44       52  
Net income (including noncontrolling interests) 431 313 1,591 1,746
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Cost reduction program and other charges, net of payments (18 ) 138 121 138
Depreciation and amortization 275 291 1,106 1,170
Accounts receivable 58 64 1 (80 )
Inventory (9 ) 10 (23 ) (42 )
Payables and accruals (20 ) 16 (40 ) 13
Pension contributions (2 ) (4 ) (15 ) (18 )
Deferred income taxes and other       76         (56 )     (59 )     (59 )

Net cash provided by operating activities

      791         772       2,682       2,868  
 
INVESTING
Capital expenditures (387 ) (482 ) (1,541 ) (1,689 )
Acquisitions, net of cash acquired (39 ) (15 ) (82 ) (206 )
Divestitures and asset sales       75         6       320       92  
Net cash used for investing activities       (351 )       (491 )     (1,303 )     (1,803 )
 
FINANCING
Debt increase (decrease) - net (203 ) 195 168 589
Issuances of common stock 14 18 88 103
Purchases of common stock (21 ) (300 ) (725 ) (862 )
Cash dividends - Praxair, Inc. shareholders (204 ) (189 ) (819 ) (759 )
Excess tax benefit on stock option exercises 1 3 19 31
Noncontrolling interest transactions and other       3         13       (28 )     (110 )
Net cash provided by (used for) financing activities (410 ) (260 ) (1,297 ) (1,008 )
 
Effect of exchange rate changes on cash and
cash equivalents       (19 )       (63 )     (61 )     (69 )
 
Change in cash and cash equivalents 11 (42 ) 21 (12 )
Cash and cash equivalents, beginning-of-period       136         168       126       138  
 
Cash and cash equivalents, end-of-period $     147   $     126   $   147   $   126  
 

                           
PRAXAIR, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Millions of dollars)
(UNAUDITED)
 
Quarter Ended Year to Date
December 31, December 31,
2015 2014 2015 2014
SALES
North America $     1,421 $     1,589 $   5,865 $   6,436
Europe 325 356 1,320 1,546
South America 299 473 1,431 1,993
Asia 398 407 1,551 1,619
Surface Technologies       152       165       609       679  
Consolidated sales $     2,595 $     2,990   $   10,776   $   12,273  
 
OPERATING PROFIT
North America $ 406 $ 388 $ 1,558 $ 1,580
Europe 62 63 250 291
South America 55 105 291 449
Asia 74 77 289 303
Surface Technologies       27       30       105       123  
Segment operating profit 624 663 2,493 2,746
Cost reduction program and other charges       -       (138 )     (172 )     (138 )
Total operating profit $     624 $     525   $   2,321   $   2,608  
 

 

       
PRAXAIR, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL SUMMARY
(Millions of dollars, except per share data)
(UNAUDITED)
                               

 

2015 (b)

 

2014 (c)

 

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FROM THE INCOME STATEMENT
Sales $   2,595 $   2,686 $   2,738 $   2,757 $   2,990 $   3,144 $   3,113 $   3,026
Cost of sales 1,426 1,488 1,516 1,530 1,689 1,780 1,767 1,726
Selling, general and administrative 275 281 297 299 320 327 335 326
Depreciation and amortization 275 276 278 277 291 301 293 285
Research and development 23 23 23 24 24 25 24 23
Cost reduction program and other charges - 26 146 - 138 - - -
Other income (expense) - net     28       2       2       (4 )     (3 )     -       3       9  
Operating profit 624 594 480 623 525 711 697 675
Interest expense - net 42 35 40 44 79 45 43 46
Income taxes 163 156 131 162 145 187 183 176
Income from equity investments     12       10       10       11       12       11       10       9  
Net income (including noncontrolling interests) 431 413 319 428 313 490 481 462
Less: noncontrolling interests     (9 )     (12 )     (11 )     (12 )     (11 )     (13 )     (14 )     (14 )
Net income - Praxair, Inc. $   422   $   401   $   308   $   416   $   302   $   477   $   467   $   448  
 
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS
Diluted earnings per share $ 1.47 $ 1.40 $ 1.06 $ 1.43 $ 1.03 $ 1.62 $ 1.58 $ 1.51
Cash dividends per share $ 0.715 $ 0.715 $ 0.715 $ 0.715 $ 0.65 $ 0.65 $ 0.65 $ 0.65
Diluted weighted average shares outstanding (000's) 286,856 287,311 290,102 291,652 293,555 295,239 295,976 297,253
 
ADJUSTED AMOUNTS (a)
Operating profit $ 624 $ 620 $ 626 $ 623 $ 663 $ 711 $ 697 $ 675
Operating margin 24.0 % 23.1 % 22.9 % 22.6 % 22.2 % 22.6 % 22.4 % 22.3 %
Net Income $ 422 $ 419 $ 420 $ 416 $ 460 $ 477 $ 467 $ 448
Diluted earnings per share $ 1.47 $ 1.46 $ 1.45 $ 1.43 $ 1.57 $ 1.62 $ 1.58 $ 1.51
 
FROM THE BALANCE SHEET
Net debt (a) $ 9,084 $ 9,344 $ 9,177 $ 9,243 $ 9,099 $ 8,922 $ 8,959 $ 9,092
Capital (a) $ 13,990 $ 14,157 $ 14,696 $ 14,806 $ 15,285 $ 16,052 $ 16,459 $ 16,285
Debt-to-capital ratio (a) 64.9 % 66.0 % 62.4 % 62.4 % 59.5 % 55.6 % 54.4 % 55.8 %
 
FROM THE STATEMENT OF CASH FLOWS
Cash flow from operations $ 791 $ 676 $ 707 $ 508 $ 772 $ 713 $ 847 $ 536
Cash flow used for investing activities 351 400 152 400 491 436 425 451
Cash flow used for financing activities 410 260 527 100 260 267 397 84
Capital expenditures 387 405 352 397 482 430 384 393
Acquisitions 39 - 38 5 15 21 46 124
Cash dividends 204 203 205 207 189 189 190 191
 
OTHER INFORMATION
After-tax return on capital (ROC) (a) 12.6 % 12.5 % 12.6 % 12.7 % 12.7 % 12.6 % 12.6 % 12.6 %
Return on Praxair, Inc. shareholders' equity (ROE) (a) 34.6 % 32.5 % 30.5 % 29.6 % 28.7 % 28.2 % 28.3 % 28.7 %
Adjusted EBITDA (a) $ 911 $ 906 $ 914 $ 911 $ 966 $ 1,023 $ 1,000 $ 969
Adjusted EBITDA margin (a) 35.1 % 33.7 % 33.4 % 33.0 % 32.3 % 32.5 % 32.1 % 32.0 %
Debt-to-adjusted EBITDA ratio (a) 2.5 2.5 2.4 2.3 2.3 2.2 2.3 2.3
Number of employees 26,657 26,989 27,302 27,680 27,780 27,626 27,735 27,578
 
SEGMENT DATA
SALES
North America $ 1,421 $ 1,463 $ 1,482 $ 1,499 $ 1,589 $ 1,639 $ 1,628 $ 1,580
Europe 325 338 331 326 356 385 408 397
South America 299 343 388 401 473 523 509 488
Asia 398 395 387 371 407 426 394 392
Surface Technologies     152       147       150       160       165       171       174       169  
Total sales $   2,595   $   2,686   $   2,738   $   2,757   $   2,990   $   3,144   $   3,113   $   3,026  
OPERATING PROFIT
North America $ 406 $ 385 $ 388 $ 379 $ 388 $ 416 $ 398 $ 378
Europe 62 63 63 62 63 71 78 79
South America 55 70 81 85 105 118 113 113
Asia 74 77 69 69 77 75 76 75
Surface Technologies     27       25       25       28       30       31       32       30  
Segment operating profit 624 620 626 623 663 711 697 675

Cost reduction program and other charges

    -       (26 )     (146 )     -       (138 )     -       -       -  
Total operating profit $   624   $   594   $   480   $   623   $   525   $   711   $   697   $   675  
(a)   Non-GAAP measure, see Appendix.
 
(b) 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.
 
(c) 2014 includes: (i) a charge of $36 million ($22 million after-tax, or $0.07 per diluted share) related to a bond redemption, (ii) a charge of $7 million ($5 million after-tax, or $0.02 per diluted share) related to pension settlement and (iii) a charge of $131 million ($131 million after-tax, or $0.45 per diluted share), related to a Venezuela currency devaluation. Refer to Notes 2 and 7 to Praxair's 2014 Annual Report for additional information.
 

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 10 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  
2015 2014 2015 2014 2015 2014 2015 2014  

Quarter Ended December 31

Reported GAAP Amounts $   2,595 $   2,990 $   624 $   525 $   422 $   302 $   1.47 $   1.03
Pension settlement charges (a) - - - 7 - 5 - 0.02
Cost reduction program and other charges (b) - - - - - - - -
Bond redemption (c) - - - - - 22 - 0.07
Venezuela currency devaluation (d)     -         -           -         131           -         131           -         0.45  
Total adjustments     -         -           -         138           -         158           -         0.54  
Adjusted amounts $   2,595     $   2,990       $   624     $   663       $   422     $   460       $   1.47     $   1.57  
 

Year To Date December 31

Reported GAAP Amounts $ 10,776 $ 12,273 $ 2,321 $ 2,608 $ 1,547 $ 1,694 $ 5.35 $ 5.73
Pension settlement charges (a) - - 7 7 5 5 0.02 0.02
Cost reduction program and other charges(b) - - 165 - 125 - 0.43 -
Bond redemption (c) - - - - - 22 - 0.07
Venezuela currency devaluation (d)     -         -           -         131           -         131           -         0.45  
Total adjustments     -         -           172         138           130         158           0.45         0.54  
Adjusted amounts $   10,776     $   12,273       $   2,493     $   2,746       $   1,677     $   1,852       $   5.80     $   6.27  

(a)

 

Pension settlement charges were recorded in the 2015 third quarter and 2014 fourth quarter related to lump sum benefit payments made to a number of former employees.

(b)

Cost reduction program and other charges were recorded in the 2015 second and third quarters.

(c)

Charge in the 2014 fourth quarter related to the redemption of the $400 million 5.375% notes due in 2016.

(d)

Charge in the 2014 fourth quarter related to the Venezuela currency devaluation.

 

PRAXAIR, INC. AND SUBSIDIARIES
APPENDIX
NON-GAAP MEASURES
(Millions of dollars, except per share 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 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 2015 third quarter cost reduction program and pension settlement, 2015 second quarter cost reduction program and other charges, 2014 fourth quarter pension settlement, bond redemption and loss on Venezuela currency devaluation, 2013 fourth quarter bond redemption and the income tax benefit related to the realignment of Praxair's Italian legal structure, 2013 third quarter pension settlement, and the 2013 first quarter loss on Venezuela currency devaluation.

 

2015

          2014           2013
      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 $ 791 $ 676 $ 707 $ 508 $ 772 $ 713 $ 847 $ 536 $ 964 $ 904 $ 577 $ 472
Less: capital expenditures   (387 )       (405 )       (352 )       (397 )       (482 )       (430 )       (384 )       (393 )       (516 )       (516 )       (522 )       (466 )
Free Cash Flow $ 404 $ 271 $ 355 $ 111 $ 290 $ 283 $ 463 $ 143 $ 448 $ 388 $ 55 $ 6
 

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 (a) $ 9,231 $ 9,480 $ 9,313 $ 9,360 $ 9,225 $ 9,090 $ 9,132 $ 9,236 $ 8,779 $ 8,994 $ 9,072 $ 8,644
Less: cash and cash equivalents   (147 )       (136 )       (136 )       (117 )       (126 )       (168 )       (173 )       (144 )       (138 )       (134 )       (102 )       (113 )

Net debt

9,084 9,344 9,177 9,243 9,099 8,922 8,959 9,092 8,641 8,860 8,970 8,531
Equity and redeemable noncontrolling interests:
Redeemable noncontrolling interests 113 169 175 170 176 190 194 195 307 290 259 255
Praxair, Inc. shareholders' equity 4,389 4,264 4,964 5,018 5,623 6,552 6,911 6,600 6,609 6,210 5,928 6,169
Noncontrolling interests   404         380         380         375         387         388         395         398         394         365         357         357  
Total equity and redeemable noncontrolling interests   4,906         4,813         5,519         5,563         6,186         7,130         7,500         7,193         7,310         6,865         6,544         6,781  
Capital $ 13,990 $ 14,157 $ 14,696 $ 14,806 $ 15,285 $ 16,052 $ 16,459 $ 16,285 $ 15,951 $ 15,725 $ 15,514 $ 15,312
 
Debt-to-capital   64.9 %       66.0 %       62.4 %       62.4 %       59.5 %       55.6 %       54.4 %       55.8 %       54.2 %       56.3 %       57.8 %       55.7 %
 

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 (b) $ 624 $ 620 $ 626 $ 623 $ 663 $ 711 $ 697 $ 675 $ 690 $ 679 $ 665 $ 623
Less: adjusted income taxes (b) (163 ) (164 ) (164 ) (162 ) (161 ) (187 ) (183 ) (176 ) (182 ) (178 ) (174 ) (164 )
Less: tax benefit on adjusted interest expense (b) (12 ) (10 ) (11 ) (12 ) (12 ) (13 ) (12 ) (13 ) (11 ) (11 ) (11 ) (11 )
Add: income from equity investments   12         10         10         11         12         11         10         9         9         8         11         10  
Adjusted net operating profit after-tax (NOPAT) $ 461 $ 456 $ 461 $ 460 $ 502 $ 522 $ 512 $ 495 $ 506 $ 498 $ 491 $ 458
4-quarter trailing adjusted NOPAT $ 1,838 $ 1,879 $ 1,945 $ 1,996 $ 2,031 $ 2,035 $ 2,011 $ 1,990 $ 1,953 $ 1,900 $ 1,859 $ 1,836
 
Ending capital (see above) $ 13,990 $ 14,157 $ 14,696 $ 14,806 $ 15,285 $ 16,052 $ 16,459 $ 16,285 $ 15,951 $ 15,725 $ 15,514 $ 15,312
5-quarter average ending capital $ 14,587 $ 14,999 $ 15,460 $ 15,777 $ 16,007 $ 16,094 $ 15,987 $ 15,757 $ 15,270 $ 14,798 $ 14,252 $ 13,794
 
After-tax ROC (4-quarter trailing NOPAT / 5-quarter average capital)   12.6 %       12.5 %       12.6 %       12.7 %       12.7 %       12.6 %       12.6 %       12.6 %       12.8 %       12.8 %       13.0 %       13.3 %
 

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. (b) $ 422 $ 419 $ 420 $ 416 $ 460 $ 477 $ 467 $ 448 $ 462 $ 451 $ 445 $ 414
4-quarter trailing adjusted net income - Praxair, Inc. $ 1,677 $ 1,715 $ 1,773 $ 1,820 $ 1,852 $ 1,854 $ 1,828 $ 1,806 $ 1,772 $ 1,724 $ 1,692 $ 1,676
 
Ending Praxair, Inc. shareholders' equity $ 4,389 $ 4,264 $ 4,964 $ 5,018 $ 5,623 $ 6,552 $ 6,911 $ 6,600 $ 6,609 $ 6,210 $ 5,928 $ 6,169
5-quarter average Praxair shareholders' equity $ 4,852 $ 5,284 $ 5,814 $ 6,141 $ 6,459 $ 6,576 $ 6,452 $ 6,303 $ 6,196 $ 6,077 $ 5,958 $ 5,961
 
ROE (4-quarter trailing adjusted net income - Praxair, Inc. / 5-quarter average Praxair shareholders' equity)   34.6 %       32.5 %       30.5 %       29.6 %       28.7 %       28.2 %       28.3 %       28.7 %       28.6 %       28.4 %       28.4 %       28.1 %
 

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 ability to meet its financial obligations.

 
Adjusted net income - Praxair, Inc. (b) $ 422 $ 419 $ 420 $ 416 $ 460 $ 477 $ 467 $ 448 $ 462 $ 451 $ 445 $ 414
Add: adjusted noncontrolling interests (b) 9 12 12 12 11 13 14 14 17 17 16 15
Add: adjusted interest expense - net (b) 42 35 40 44 43 45 43 46 38 41 41 40
Add: adjusted income taxes (b) 163 164 164 162 161 187 183 176 182 178 174 164
Add: depreciation and amortization   275         276         278         277         291         301         293         285         287         281         275         266  
Adjusted EBITDA $ 911 $ 906 $ 914 $ 911 $ 966 $ 1,023 $ 1,000 $ 969 $ 986 $ 968 $ 951 $ 899
 
Reported sales $ 2,595 $ 2,686 $ 2,738 $ 2,757 $ 2,990 $ 3,144 $ 3,113 $ 3,026 $ 3,010 $ 3,013 $ 3,014 $ 2,888
Adjusted EBITDA margin 35.1 % 33.7 % 33.4 % 33.0 % 32.3 % 32.5 % 32.1 % 32.0 % 32.8 % 32.1 % 31.6 % 31.1 %
 
Full Year:
Reported sales $ 10,776 $ 12,273
Adjusted EBITDA (below) $ 3,642 $ 3,958
Adjusted EBITDA margin 33.8 % 32.2 %
 
Ending net debt (see above) $ 9,084 $ 9,344 $ 9,177 $ 9,243 $ 9,099 $ 8,922 $ 8,959 $ 9,092 $ 8,641 $ 8,860 $ 8,970 $ 8,531
5-quarter average net debt $ 9,189 $ 9,157 $ 9,080 $ 9,063 $ 8,943 $ 8,895 $ 8,904 $ 8,819 $ 8,436 $ 8,108 $ 7,710 $ 7,261
4-quarter trailing adjusted EBITDA $ 3,642 $ 3,697 $ 3,814 $ 3,900 $ 3,958 $ 3,978 $ 3,923 $ 3,874 $ 3,804 $ 3,697 $ 3,608 $ 3,550
 
Debt-to-adjusted EBITDA ratio (5-quarter average net debt / 4-quarter trailing adjusted EBITDA)   2.5         2.5         2.4         2.3         2.3         2.2         2.3         2.3         2.2         2.2         2.1         2.0  
      (a)   Prior period amounts have been restated to reflect the adoption, in the fourth quarter 2015, of Accounting Standard Update ("ASU") 2015-03 relating to the presentation of debt issuance costs.
 

(b)   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 2015, 2014 and 2013; and presents the percentage changes in Diluted EPS Guidance for the first quarter and full year 2016 as compared to 2015 Diluted EPS on both a GAAP and adjusted basis. The adjusted percentages are based on Adjusted diluted EPS amounts, excluding estimated currency impacts.
 
      Year     Third Quarter    

Second
Quarter

    Year    

Fourth
Quarter

    Year    

Fourth
Quarter

    Third Quarter    

First
Quarter

 
2015 2015 2015 2014 2014 2013 2013 2013 2013

Adjusted Operating Profit and Operating Profit Margin

Reported operating profit $ 2,321 $ 594 $ 480 $ 2,608 $ 525 $ 2,625 $ 690 $ 670 $ 600
Add: Cost reduction program and other charges 165 19 146 - - - - - -
Add: Pension settlement charge 7 7 - 7 7 9 - 9 -
Add: Venezuela currency devaluation   -     -     -     131     131     23     -     -     23  
Total adjustments   172     26     146     138     138     32     -     9     23  
Adjusted operating profit $ 2,493   $ 620   $ 626   $ 2,746   $ 663   $ 2,657   $ 690   $ 679   $ 623  
 
Reported percentage change -11 %
Adjusted percentage change -9 %
 
Reported sales $ 10,776 $ 2,686 $ 2,738 $ 12,273 $ 2,990 $ 11,925 $ 3,010 $ 3,013 $ 2,888
Adjusted operating profit margin 23.1 % 23.1 % 22.9 % 22.4 % 22.2 % 22.3 % 22.9 % 22.5 % 21.6 %
 

Adjusted Interest Expense - net

Reported interest expense - net $ 161 $ 35 $ 40 $ 213 $ 79 $ 178 $ 56 $ 41 $ 40
Less: Bond redemption   -     -     -     (36 )   (36 )   (18 )   (18 )   -     -  
Adjusted interest expense - net $ 161   $ 35   $ 40   $ 177   $ 43   $ 160   $ 38   $ 41   $ 40  
 

Adjusted Income Taxes

Reported income taxes $ 612 $ 156 $ 131 $ 691 $ 145 $ 649 $ 136 $ 175 $ 164
Add: Cost reduction program and other charges 39 6 33 - - - - - -
Add: Bond redemption - - - 14 14 6 6 - -
Add: Income tax benefit - - - - - 40 40 - -
Add: Pension settlement charge   2     2     -     2     2     3     -     3     -  
Total adjustments   41     8     33     16     16     49     46     3     -  
Adjusted income taxes $ 653   $ 164   $ 164   $ 707   $ 161   $ 698   $ 182   $ 178   $ 164  
 

Adjusted Effective Tax Rate

Reported income before income taxes and equity investments $ 2,160 $ 559 $ 440 $ 2,395 $ 446 $ 2,447 $ 634 $ 629 $ 560
Add: Cost reduction program and other charges 165 19 146 - - - - - -
Add: Bond redemption - - - 36 36 18 18 - -
Add: Pension settlement charge 7 7 - 7 7 9 - 9 -
Add: Venezuela currency devaluation   -     -     -     131     131     23     -     -     23  
Total adjustments   172     26     146     174     174     50     18     9     23  
Adjusted income before income taxes and equity investments $ 2,332   $ 585   $ 586   $ 2,569   $ 620   $ 2,497   $ 652   $ 638   $ 583  
 
Adjusted income taxes (above) $ 653 $ 164 $ 164 $ 707 $ 161 $ 698 $ 182 $ 178 $ 164
Adjusted effective tax rate 28 % 28 % 28 % 28 % 26 % 28 % 28 % 28 % 28 %
 

Adjusted Noncontrolling Interests

Reported noncontrolling interests $ 44 $ 12 $ 11 $ 52 $ 11 $ 81 $ 33 $ 17 $ 15
Add: Cost reduction program and other charges 1 - 1 - - - - - -
Less: Income tax benefit   -     -     -     -     -     (16 )   (16 )   -     -  
Total adjustments   1     -     1     -     -     (16 )   (16 )   -     -  
Adjusted noncontrolling interests $ 45   $ 12   $ 12   $ 52   $ 11   $ 65   $ 17   $ 17   $ 15  
 

Adjusted Net Income - Praxair, Inc.

Reported net income - Praxair, Inc. $ 1,547 $ 401 $ 308 $ 1,694 $ 302 $ 1,755 $ 474 $ 445 $ 391
Add: Cost reduction program and other charges 125 13 112 - - - - - -
Add: Bond redemption - - - 22 22 12 12 - -
Less: Income tax benefit - - - - - (24 ) (24 ) - -
Add: Pension settlement charge 5 5 - 5 5 6 - 6 -
Add: Venezuela currency devaluation   -     -     -     131     131     23     -     -     23  
Total adjustments   130     18     112     158     158     17     (12 )   6     23  
Adjusted net income - Praxair, Inc. $ 1,677   $ 419   $ 420   $ 1,852   $ 460   $ 1,772   $ 462   $ 451   $ 414  
 
Reported percentage change -9 %
Adjusted percentage change -9 %
 

Adjusted Diluted EPS

Reported diluted EPS $ 5.35 $ 1.40 $ 1.06 $ 5.73 $ 1.03 $ 5.87 $ 1.59 $ 1.49 $ 1.30
Add: Cost reduction program and other charges 0.43 0.04 0.39 - - - - - -
Add: Bond redemption - - - 0.07 0.07 0.04 0.04 - -
Less: Income tax benefit - - - - - (0.08 ) (0.08 ) - -
Add: Pension settlement charge 0.02 0.02 - 0.02 0.02 0.02 - 0.02 -
Add: Venezuela currency devaluation   -     -     -     0.45     0.45     0.08     -     -     0.08  
Total adjustments   0.45     0.06     0.39     0.54     0.54     0.06     (0.04 )   0.02     0.08  
Adjusted diluted EPS $ 5.80   $ 1.46   $ 1.45   $ 6.27   $ 1.57   $ 5.93   $ 1.55   $ 1.51   $ 1.38  
 

Cash Income Taxes and Interest

Income taxes paid $ 420 $ 606 $ 532
Interest paid, net of interest capitalized and excluding bond redemption $ 174 $ 174 $ 166
 

First Quarter and Full-Year 2016 Diluted EPS Guidance*

First Quarter 2016 Full Year 2016
Low End High End Low End High End
 
2016 adjusted diluted EPS guidance $ 1.20 $ 1.28 $ 5.30 $ 5.70
2015 adjusted diluted EPS (see above for full year amounts) $ 1.43 $ 1.43 $ 5.80 $ 5.80
 
Adjusted percentage change -16 % -11 % -9 % -2 %
Adjusted percentage changes, excluding estimated currency impact -7 % -2 % -2 % 5 %
 
* Excludes cost reduction charges recorded in the second and third quarter and the pension settlement charge recorded in the third quarter.
 
 

Praxair, Inc.
Investors
Kelcey Hoyt, 203-837-2118
kelcey_hoyt@praxair.com
or
Media
Jason Stewart, 203-837-2448
jason_stewart@praxair.com


Source: Business Wire (January 29, 2016 - 6:01 AM EST)

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