DANBURY, Conn.--(BUSINESS WIRE)--Praxair, Inc. (NYSE:PX) reported second-quarter net income and diluted earnings per share of $399 million and $1.39, respectively.
Sales in the second quarter were $2,665 million, 3% below the prior-year quarter, primarily due to the impact of negative currency translation of 4% and lower cost pass-through of 1%. Excluding these impacts, sales were 2% higher than the prior-year quarter due to growth from acquisitions and higher pricing. Overall volumes were comparable to the prior-year quarter. Volume growth from new on-site projects, largely in Asia, Europe and South America, was offset by lower base business volumes in the Americas, due primarily to weaker industrial manufacturing activity in the United States and Brazil, and weaker demand in the upstream energy end-market in North America.
Operating profit in the second quarter of $588 million was 23% above the prior-year quarter of $480 million. Excluding the prior-year quarter impact of a charge relating to a cost reduction program, operating profit was 6% lower, and 2% lower excluding currency effects. The operating profit margin as a percentage of sales was 22.1% and the EBITDA margin was 33.0%.
Second-quarter cash flow from operations of $706 million funded $357 million of capital expenditures. Acquisition expenditures in the quarter of $262 million were primarily related to the acquisition of a carbon dioxide business in Europe. In addition, noncontrolling interest expenditures of $107 million were largely attributed to the acquisition of the remaining 34% interest in the company’s Scandinavian industrial gas joint venture. The company paid $214 million of dividends. After-tax return on capital and return on equity for the quarter were 12.2% and 34.0%, respectively.
Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “Praxair’s industrial gas businesses in Asia, Europe and South America grew volumes while benefiting from new on-site project start-ups. However, North America volumes experienced further declines due to weaker upstream energy and U.S. manufacturing activity. Globally, consumer-related end-markets remained healthy and we completed a synergistic European carbon dioxide acquisition that will further expand our food and beverage end-market exposure.
“Praxair’s strategy of optimizing the base business, growing resilient end-markets, executing the project backlog and capitalizing on acquisition and project opportunities continues to drive strong value creation. During the second quarter, these efforts by Praxair employees resulted in robust operating cash flow generation at 26% of sales, and in a mixed macro-economic environment, delivered solid operating and EBITDA margins of 22.1% and 33.0%, respectively.
“As we look to the remainder of the year, while currency translation appears to be less of a headwind at current foreign exchange rates, we do not anticipate significant underlying economic improvement in the second half. Project activity remains strong along the U.S. Gulf Coast, and we continue to expect to grow capital investments with new long-term customer supply contracts to further secure future growth. Praxair’s relentless focus on operational excellence and financial discipline will consistently deliver strong cash flow and earnings per share for our shareholders.”
For the third quarter of 2016, Praxair expects adjusted diluted earnings per share in the range of $1.35 to $1.42, which excludes the impact of pension settlement charges of approximately $0.01 per share expected to be recorded. As a result, GAAP diluted earnings per share is expected to be in the range of $1.34 to $1.41.
For full-year 2016, Praxair expects adjusted diluted earnings per share to be in the range of $5.45 to $5.60. This guidance assumes a negative currency translation impact of approximately 3% year over year. This full-year guidance excludes a $0.05 per share impact of a bond redemption charge taken in the first quarter and a pension settlement expected to be recorded in the third quarter. As a result, GAAP diluted earnings per share is expected to be in the range of $5.40 to $5.55. Full-year capital expenditures are expected to be approximately $1.4 billion.
Following is additional detail on second-quarter 2016 results by segment.
In North America, second-quarter sales were $1,411 million, 5% below the prior-year quarter. Excluding cost pass-through and negative currency translation, sales were 1% lower than the prior-year quarter. Price attainment and volume growth to food and beverage, healthcare and refining customers were more than offset by weaker sales to upstream energy and manufacturing end-markets. Operating profit was $359 million.
In Europe, second-quarter sales were $355 million, 7% above the prior-year quarter. Organic sales grew 4% from the prior year due to higher volumes, including new project start-ups, and higher price. Acquisitions contributed 3% growth, primarily related to a carbon dioxide business largely serving the food and beverage end-market. Operating profit of $68 million grew 8% from the prior year, and 6%, excluding currency translation, from higher price and volumes.
In South America, second-quarter sales were $358 million, 8% below the prior-year quarter. Organic sales, excluding negative currency translation, grew 5% primarily from higher price and new on-site projects. Operating profit was $70 million.
Sales in Asia were $393 million in the quarter, 2% above the prior-year quarter, and 6% higher excluding negative currency impact. Volume growth included new plant start-ups in China and India. Operating profit was $67 million.
Praxair Surface Technologies had second-quarter sales of $148 million as compared to $150 million in the prior-year quarter. Organic sales were 2% lower as favorable price and higher aerospace volumes were more than offset by weaker energy end-market sales. Operating profit was $24 million.
Praxair, Inc., a Fortune 300 company with 2015 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 second-quarter results is being held this morning, July 28, at 11:00 am Eastern Daylight Time. The number is (631) 485-4849 – Conference ID: 45788403. 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; 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 | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
SALES | $ | 2,665 | $ | 2,738 | $ | 5,174 | $ | 5,495 | ||||
Cost of sales | 1,468 | 1,516 | 2,849 | 3,046 | ||||||||
Selling, general and administrative | 308 | 297 | 582 | 596 | ||||||||
Depreciation and amortization | 281 | 278 | 553 | 555 | ||||||||
Research and development | 24 | 23 | 47 | 47 | ||||||||
Cost reduction program and other charges | - | 146 | - | 146 | ||||||||
Other income (expense) - net | 4 | 2 | (1) | (2) | ||||||||
OPERATING PROFIT | 588 | 480 | 1,142 | 1,103 | ||||||||
Interest expense - net | 44 | 40 | 109 | 84 | ||||||||
INCOME BEFORE INCOME TAXES AND EQUITY INVESTMENTS | 544 | 440 | 1,033 | 1,019 | ||||||||
Income taxes | 146 | 131 | 279 | 293 | ||||||||
INCOME BEFORE EQUITY INVESTMENTS | 398 | 309 | 754 | 726 | ||||||||
Income from equity investments | 11 | 10 | 21 | 21 | ||||||||
NET INCOME (INCLUDING NONCONTROLLING INTERESTS) | 409 | 319 | 775 | 747 | ||||||||
Less: noncontrolling interests | (10) | (11) | (20) | (23) | ||||||||
NET INCOME - PRAXAIR, INC. | $ | 399 | $ | 308 | $ | 755 | $ | 724 | ||||
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS | ||||||||||||
Basic earnings per share | $ | 1.40 | $ | 1.07 | $ | 2.64 | $ | 2.51 | ||||
Diluted earnings per share | $ | 1.39 | $ | 1.06 | $ | 2.63 | $ | 2.49 | ||||
Cash dividends | $ | 0.75 | $ | 0.715 | $ | 1.50 | $ | 1.43 | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||||||
Basic shares outstanding (000's) | 285,702 | 287,939 | 285,566 | 288,541 | ||||||||
Diluted shares outstanding (000's) | 287,727 | 290,102 | 287,426 | 290,940 | ||||||||
Note: See page 9 for a reconciliation to 2016 adjusted amounts which are non-GAAP. | ||||||||||||
PRAXAIR, INC. AND SUBSIDIARIES | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(Millions of dollars) | ||||||
(UNAUDITED) | ||||||
June 30, | December 31, | |||||
2016 | 2015 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 567 | $ | 147 | ||
Accounts receivable - net | 1,741 | 1,601 | ||||
Inventories | 559 | 531 | ||||
Prepaid and other current assets | 396 | 347 | ||||
TOTAL CURRENT ASSETS | 3,263 | 2,626 | ||||
Property, plant and equipment - net | 11,578 | 10,998 | ||||
Goodwill | 3,149 | 2,986 | ||||
Other intangibles - net | 612 | 568 | ||||
Other long-term assets | 1,209 | 1,141 | ||||
TOTAL ASSETS | $ | 19,811 | $ | 18,319 | ||
LIABILITIES AND EQUITY | ||||||
Accounts payable | $ | 870 | $ | 791 | ||
Short-term debt | 757 | 250 | ||||
Current portion of long-term debt | 9 | 6 | ||||
Other current liabilities | 822 | 846 | ||||
TOTAL CURRENT LIABILITIES | 2,458 | 1,893 | ||||
Long-term debt | 9,190 | 8,975 | ||||
Other long-term liabilities | 2,604 | 2,545 | ||||
TOTAL LIABILITIES | 14,252 | 13,413 | ||||
REDEEMABLE NONCONTROLLING INTERESTS | 12 | 113 | ||||
PRAXAIR, INC. SHAREHOLDERS' EQUITY: | ||||||
Common stock | 4 | 4 | ||||
Additional paid-in capital | 4,005 | 4,005 | ||||
Retained earnings | 12,559 | 12,229 | ||||
Accumulated other comprehensive income (loss) | (4,174) | (4,596) | ||||
Less: Treasury stock, at cost | (7,254) | (7,253) | ||||
Total Praxair, Inc. Shareholders' Equity | 5,140 | 4,389 | ||||
Noncontrolling interests | 407 | 404 | ||||
TOTAL EQUITY | 5,547 | 4,793 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 19,811 | $ | 18,319 | ||
PRAXAIR, INC. AND SUBSIDIARIES | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
(Millions of dollars) | ||||||||||||
(UNAUDITED) | ||||||||||||
Quarter Ended | Year to Date | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
OPERATIONS | ||||||||||||
Net income - Praxair, Inc. | $ | 399 | $ | 308 | $ | 755 | $ | 724 | ||||
Noncontrolling interests | 10 | 11 | 20 | 23 | ||||||||
Net income (including noncontrolling interests) | 409 | 319 | 775 | 747 | ||||||||
Adjustments to reconcile net income to net cash provided | ||||||||||||
by operating activities: | ||||||||||||
Cost reduction program and other charges, net of payments | - | 135 | - | 135 | ||||||||
Depreciation and amortization | 281 | 278 | 553 | 555 | ||||||||
Accounts receivable | (41) | 6 | (61) | (44) | ||||||||
Inventory | (1) | (9) | (8) | (15) | ||||||||
Payables and accruals | 14 | 3 | (63) | (63) | ||||||||
Pension contributions | (4) | (1) | (6) | (12) | ||||||||
Deferred income taxes and other | 48 | (21) | 69 | (75) | ||||||||
Net cash provided by operating activities | 706 | 710 | 1,259 | 1,228 | ||||||||
INVESTING | ||||||||||||
Capital expenditures | (357) | (352) | (680) | (749) | ||||||||
Acquisitions, net of cash acquired | (262) | (38) | (325) | (43) | ||||||||
Divestitures and asset sales | 6 | 238 | 8 | 240 | ||||||||
Net cash used for investing activities | (613) | (152) | (997) | (552) | ||||||||
FINANCING | ||||||||||||
Debt increase (decrease) - net | 595 | (89) | 690 | 201 | ||||||||
Issuances of common stock | 26 | 17 | 60 | 61 | ||||||||
Purchases of common stock | (51) | (234) | (83) | (469) | ||||||||
Cash dividends - Praxair, Inc. shareholders | (214) | (205) | (428) | (412) | ||||||||
Excess tax benefit on stock option exercises | - | 3 | - | 17 | ||||||||
Noncontrolling interest transactions and other | (107) | (22) | (109) | (38) | ||||||||
Net cash provided by (used for) financing activities | 249 | (530) | 130 | (640) | ||||||||
Effect of exchange rate changes on cash and | ||||||||||||
cash equivalents | 4 | (9) | 28 | (26) | ||||||||
Change in cash and cash equivalents | 346 | 19 | 420 | 10 | ||||||||
Cash and cash equivalents, beginning-of-period | 221 | 117 | 147 | 126 | ||||||||
Cash and cash equivalents, end-of-period | $ | 567 | $ | 136 | $ | 567 | $ | 136 | ||||
PRAXAIR, INC. AND SUBSIDIARIES | ||||||||||||
SEGMENT INFORMATION | ||||||||||||
(Millions of dollars) | ||||||||||||
(UNAUDITED) | ||||||||||||
Quarter Ended | Year to Date | |||||||||||
June 30, | June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
SALES | ||||||||||||
North America | $ | 1,411 | $ | 1,482 | $ | 2,764 | $ | 2,981 | ||||
Europe | 355 | 331 | 675 | 657 | ||||||||
South America | 358 | 388 | 669 | 789 | ||||||||
Asia | 393 | 387 | 769 | 758 | ||||||||
Surface Technologies | 148 | 150 | 297 | 310 | ||||||||
Consolidated sales | $ | 2,665 | $ | 2,738 | $ | 5,174 | $ | 5,495 | ||||
OPERATING PROFIT | ||||||||||||
North America | $ | 359 | $ | 388 | $ | 708 | $ | 767 | ||||
Europe | 68 | 63 | 130 | 125 | ||||||||
South America | 70 | 81 | 125 | 166 | ||||||||
Asia | 67 | 69 | 130 | 138 | ||||||||
Surface Technologies | 24 | 25 | 49 | 53 | ||||||||
Segment operating profit | $ | 588 | $ | 626 | $ | 1,142 | $ | 1,249 | ||||
Cost reduction program and other charges | - | (146) | - | (146) | ||||||||
Total operating profit | $ | 588 | $ | 480 | $ | 1,142 | $ | 1,103 | ||||
PRAXAIR, INC. AND SUBSIDIARIES | ||||||||||||||||||
QUARTERLY FINANCIAL SUMMARY | ||||||||||||||||||
(Millions of dollars, except per share data) | ||||||||||||||||||
(UNAUDITED) | ||||||||||||||||||
2016 (c) | 2015 (d) | |||||||||||||||||
Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||
FROM THE INCOME STATEMENT | ||||||||||||||||||
Sales | $ | 2,665 | $ | 2,509 | $ | 2,595 | $ | 2,686 | $ | 2,738 | $ | 2,757 | ||||||
Cost of sales | 1,468 | 1,381 | 1,426 | 1,488 | 1,516 | 1,530 | ||||||||||||
Selling, general and administrative | 308 | 274 | 275 | 281 | 297 | 299 | ||||||||||||
Depreciation and amortization | 281 | 272 | 275 | 276 | 278 | 277 | ||||||||||||
Research and development | 24 | 23 | 23 | 23 | 23 | 24 | ||||||||||||
Cost reduction program and other charges | - | - | - | 26 | 146 | - | ||||||||||||
Other income (expense) - net | 4 | (5) | 28 | 2 | 2 | (4) | ||||||||||||
Operating profit | 588 | 554 |
|
624 | 594 | 480 | 623 | |||||||||||
Interest expense - net | 44 | 65 | 42 | 35 | 40 | 44 | ||||||||||||
Income taxes (b) | 146 | 133 | 163 | 156 | 131 | 162 | ||||||||||||
Income from equity investments | 11 | 10 | 12 | 10 | 10 | 11 | ||||||||||||
Net income (including noncontrolling interests) | 409 | 366 |
|
431 | 413 | 319 | 428 | |||||||||||
Less: noncontrolling interests | (10) | (10) | (9) | (12) | (11) | (12) | ||||||||||||
Net income - Praxair, Inc. | $ | 399 | $ | 356 | $ | 422 | $ | 401 | $ | 308 | $ | 416 | ||||||
PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS | ||||||||||||||||||
Diluted earnings per share | $ | 1.39 | $ | 1.24 | $ | 1.47 | $ | 1.40 | $ | 1.06 | $ | 1.43 | ||||||
Cash dividends per share | $ | 0.75 | $ | 0.75 | $ | 0.715 | $ | 0.715 | $ | 0.715 | $ | 0.715 | ||||||
Diluted weighted average shares outstanding (000's) | 287,727 | 286,665 | 286,856 | 287,311 | 290,102 | 291,652 | ||||||||||||
ADJUSTED AMOUNTS (a) | ||||||||||||||||||
Operating profit | $ | 588 | $ | 554 | $ | 624 | $ | 620 | $ | 626 | $ | 623 | ||||||
Operating margin | 22.1% | 22.1% | 24.0% | 23.1% | 22.9% | 22.6% | ||||||||||||
Net Income | $ | 399 | $ | 366 | $ | 422 | $ | 419 | $ | 420 | $ | 416 | ||||||
Diluted earnings per share | $ | 1.39 | $ | 1.28 | $ | 1.47 | $ | 1.46 | $ | 1.45 | $ | 1.43 | ||||||
FROM THE BALANCE SHEET | ||||||||||||||||||
Net debt (a) | $ | 9,389 | $ | 9,183 | $ | 9,084 | $ | 9,344 | $ | 9,177 | $ | 9,243 | ||||||
Capital (a) | $ | 14,948 | $ | 14,607 | $ | 13,990 | $ | 14,157 | $ | 14,696 | $ | 14,806 | ||||||
Debt-to-capital ratio (a) | 62.8% | 62.9% | 64.9% | 66.0% | 62.4% | 62.4% | ||||||||||||
FROM THE STATEMENT OF CASH FLOWS | ||||||||||||||||||
Cash flow from operations (b) | $ | 706 | $ | 553 | $ | 791 | $ | 676 | $ | 710 | $ | 518 | ||||||
Cash flow used for investing activities | 613 | 384 | 351 | 400 | 152 | 400 | ||||||||||||
Cash flow (provided by) used for financing activities (b) | (249) | 119 | 410 | 260 | 530 | 110 | ||||||||||||
Capital expenditures | 357 | 323 | 387 | 405 | 352 | 397 | ||||||||||||
Acquisitions | 262 | 63 | 39 | - | 38 | 5 | ||||||||||||
Cash dividends | 214 | 214 | 204 | 203 | 205 | 207 | ||||||||||||
OTHER INFORMATION | ||||||||||||||||||
After-tax return on capital (ROC) (a) | 12.2% | 12.4% | 12.6% | 12.5% | 12.6% | 12.7% | ||||||||||||
Return on Praxair, Inc. shareholders' equity (ROE) (a) | 34.0% | 34.6% | 34.6% | 32.5% | 30.5% | 29.6% | ||||||||||||
Adjusted EBITDA (a) | $ | 880 | $ | 836 | $ | 911 | $ | 906 | $ | 914 | $ | 911 | ||||||
Adjusted EBITDA margin (a) | 33.0% | 33.3% | 35.1% | 33.7% | 33.4% | 33.0% | ||||||||||||
Debt-to-adjusted EBITDA ratio (a) | 2.6 | 2.6 | 2.5 | 2.5 | 2.4 | 2.3 | ||||||||||||
Number of employees | 26,896 | 26,558 | 26,657 | 26,989 | 27,302 | 27,680 | ||||||||||||
SEGMENT DATA | ||||||||||||||||||
SALES | ||||||||||||||||||
North America | $ | 1,411 | $ | 1,353 | $ | 1,421 | $ | 1,463 | $ | 1,482 | $ | 1,499 | ||||||
Europe | 355 | 320 | 325 | 338 | 331 | 326 | ||||||||||||
South America | 358 | 311 | 299 | 343 | 388 | 401 | ||||||||||||
Asia | 393 | 376 | 398 | 395 | 387 | 371 | ||||||||||||
Surface Technologies | 148 | 149 | 152 | 147 | 150 | 160 | ||||||||||||
Total sales | $ | 2,665 | $ | 2,509 | $ | 2,595 | $ | 2,686 | $ | 2,738 | $ | 2,757 | ||||||
OPERATING PROFIT | ||||||||||||||||||
North America | $ | 359 | $ | 349 | $ | 406 | $ | 385 | $ | 388 | $ | 379 | ||||||
Europe | 68 | 62 | 62 | 63 | 63 | 62 | ||||||||||||
South America | 70 | 55 | 55 | 70 | 81 | 85 | ||||||||||||
Asia | 67 | 63 | 74 | 77 | 69 | 69 | ||||||||||||
Surface Technologies | 24 | 25 | 27 | 25 | 25 | 28 | ||||||||||||
Segment operating profit | 588 | 554 | 624 | 620 | 626 | 623 | ||||||||||||
Cost reduction program and other charges | - | - | - | (26) | (146) | - | ||||||||||||
Total operating profit | $ | 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 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. | |
(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 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 | |||||||||||||||||||||
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
|||||||||||||||||
Quarter Ended June 30 |
||||||||||||||||||||||||
Reported GAAP Amounts | $ | 2,665 | $ | 2,738 | $ | 588 | $ | 480 | $ | 399 | $ | 308 | $ | 1.39 | $ | 1.06 | ||||||||
Cost reduction program and other charges (b) | - | - | - | 146 | - | 112 | - | 0.39 | ||||||||||||||||
Total adjustments | - | - | - | 146 | - | 112 | - | 0.39 | ||||||||||||||||
Adjusted amounts | $ | 2,665 | $ | 2,738 | $ | 588 | $ | 626 | $ | 399 | $ | 420 | $ | 1.39 | $ | 1.45 | ||||||||
Year To Date June 30 |
||||||||||||||||||||||||
Reported GAAP Amounts | $ | 5,174 | $ | 5,495 | $ | 1,142 | $ | 1,103 | $ | 755 | $ | 724 | $ | 2.63 | $ | 2.49 | ||||||||
Cost reduction program and other charges (b) | - | - | - | 146 | - | 112 | - | 0.39 | ||||||||||||||||
Bond redemption (a) | - | - | - | - | 10 | - | 0.04 | - | ||||||||||||||||
Total adjustments | - | - | - | 146 | 10 | 112 | 0.04 | 0.39 | ||||||||||||||||
Adjusted amounts | $ | 5,174 | $ | 5,495 | $ | 1,142 | $ | 1,249 | $ | 765 | $ | 836 | $ | 2.67 | $ | 2.88 | ||||||||
(a) $16 million charge to interest expense ($10 million after-tax or $0.04 per diluted share) in the 2016 first quarter related to a bond redemption.
(b) Charges in the 2015 second quarter related to the cost reduction program and other charges.
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 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.
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2016 |
2015 | 2014 | |||||||||||||||||||||||||||
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. |
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Operating cash flow | $ | 706 | $ | 553 | $ | 791 | $ | 676 | $ | 710 | $ | 518 | $ | 772 | $ | 713 | $ | 847 | $ | 555 | ||||||||||
Less: capital expenditures | (357) | (323) | (387) | (405) | (352) | (397) | (482) | (430) | (384) | (393) | ||||||||||||||||||||
Free Cash Flow | $ | 349 | $ | 230 | $ | 404 | $ | 271 | $ | 358 | $ | 121 | $ | 290 | $ | 283 | $ | 463 | $ | 162 | ||||||||||
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. |
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Debt | $ | 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 | (567) | (221) | (147) | (136) | (136) | (117) | (126) | (168) | (173) | (144) | ||||||||||||||||||||
Net debt | 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 | 12 | 119 | 113 | 169 | 175 | 170 | 176 | 190 | 194 | 195 | ||||||||||||||||||||
Praxair, Inc. shareholders' equity | 5,140 | 4,888 | 4,389 | 4,264 | 4,964 | 5,018 | 5,623 | 6,552 | 6,911 | 6,600 | ||||||||||||||||||||
Noncontrolling interests | 407 | 417 | 404 | 380 | 380 | 375 | 387 | 388 | 395 | 398 | ||||||||||||||||||||
Total equity and redeemable noncontrolling interests | 5,559 | 5,424 | 4,906 | 4,813 | 5,519 | 5,563 | 6,186 | 7,130 | 7,500 | 7,193 | ||||||||||||||||||||
Capital | $ | 14,948 | $ | 14,607 | $ | 13,990 | $ | 14,157 | $ | 14,696 | $ | 14,806 | $ | 15,285 | $ | 16,052 | $ | 16,459 | $ | 16,285 | ||||||||||
Debt-to-capital | 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). |
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Adjusted operating profit (a) | $ | 588 | $ | 554 | $ | 624 | $ | 620 | $ | 626 | $ | 623 | $ | 663 | $ | 711 | $ | 697 | $ | 675 | ||||||||||
Less: adjusted income taxes (a) | (146) | (139) | (163) | (164) | (164) | (162) | (161) | (187) | (183) | (176) | ||||||||||||||||||||
Less: tax benefit on adjusted interest expense (a) | (12) | (14) | (12) | (10) | (11) | (12) | (12) | (13) | (12) | (13) | ||||||||||||||||||||
Add: income from equity investments | 11 | 10 | 12 | 10 | 10 | 11 | 12 | 11 | 10 | 9 | ||||||||||||||||||||
Adjusted net operating profit after-tax (NOPAT) | $ | 441 | $ | 411 | $ | 461 | $ | 456 | $ | 461 | $ | 460 | $ | 502 | $ | 522 | $ | 512 | $ | 495 | ||||||||||
4-quarter trailing adjusted NOPAT | $ | 1,769 | $ | 1,789 | $ | 1,838 | $ | 1,879 | $ | 1,945 | $ | 1,996 | $ | 2,031 | $ | 2,035 | $ | 2,011 | $ | 1,990 | ||||||||||
Ending capital (see above) | $ | 14,948 | $ | 14,607 | $ | 13,990 | $ | 14,157 | $ | 14,696 | $ | 14,806 | $ | 15,285 | $ | 16,052 | $ | 16,459 | $ | 16,285 | ||||||||||
5-quarter average ending capital | $ | 14,480 | $ | 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) | 12.2% | 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. |
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Adjusted net income - Praxair, Inc. (a) | $ | 399 | $ | 366 | $ | 422 | $ | 419 | $ | 420 | $ | 416 | $ | 460 | $ | 477 | $ | 467 | $ | 448 | ||||||||||
4-quarter trailing adjusted net income - Praxair, Inc. | $ | 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 | $ | 5,140 | $ | 4,888 | $ | 4,389 | $ | 4,264 | $ | 4,964 | $ | 5,018 | $ | 5,623 | $ | 6,552 | $ | 6,911 | $ | 6,600 | ||||||||||
5-quarter average Praxair shareholders' equity | $ | 4,729 | $ | 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) | 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. |
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Adjusted net income - Praxair, Inc. (a) | $ | 399 | $ | 366 | $ | 422 | $ | 419 | $ | 420 | $ | 416 | $ | 460 | $ | 477 | $ | 467 | $ | 448 | ||||||||||
Add: adjusted noncontrolling interests (a) | 10 | 10 | 9 | 12 | 12 | 12 | 11 | 13 | 14 | 14 | ||||||||||||||||||||
Add: adjusted interest expense - net (a) | 44 | 49 | 42 | 35 | 40 | 44 | 43 | 45 | 43 | 46 | ||||||||||||||||||||
Add: adjusted income taxes (a) | 146 | 139 | 163 | 164 | 164 | 162 | 161 | 187 | 183 | 176 | ||||||||||||||||||||
Add: depreciation and amortization | 281 | 272 | 275 | 276 | 278 | 277 | 291 | 301 | 293 | 285 | ||||||||||||||||||||
Adjusted EBITDA | $ | 880 | $ | 836 | $ | 911 | $ | 906 | $ | 914 | $ | 911 | $ | 966 | $ | 1,023 | $ | 1,000 | $ | 969 | ||||||||||
Reported sales | 2,665 | 2,509 | 2,595 | 2,686 | 2,738 | 2,757 | 2,990 | 3,144 | 3,113 | 3,026 | ||||||||||||||||||||
Adjusted EBITDA margin | 33.0% | 33.3% | 35.1% | 33.7% | 33.4% | 33.0% | 32.3% | 32.5% | 32.1% | 32.0% | ||||||||||||||||||||
Ending net debt (see above) | $ | 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 | $ | 9,236 | $ | 9,206 | $ | 9,189 | $ | 9,157 | $ | 9,080 | $ | 9,063 | $ | 8,943 | $ | 8,895 | $ | 8,904 | $ | 8,819 | ||||||||||
4-quarter trailing adjusted EBITDA | $ | 3,533 | $ | 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 | 2.5 | 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-to-date |
First Quarter | Year |
Third Quarter |
Second |
Year |
Fourth |
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2016 | 2016 | 2015 | 2015 | 2015 | 2014 | 2014 | |||||||||||||||
Adjusted Operating Profit and Operating Profit Margin |
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Reported operating profit | $ | 1,142 | $ | 554 | $ | 2,321 | $ | 594 | $ | 480 | $ | 2,608 | $ | 525 | |||||||
Add: Cost reduction program and other charges | - | - | 165 | 19 | 146 | - | - | ||||||||||||||
Add: Pension settlement charge | - | - | 7 | 7 | - | 7 | 7 | ||||||||||||||
Add: Venezuela currency devaluation | - | - | - | - | - | 131 | 131 | ||||||||||||||
Total adjustments | - | - | 172 | 26 | 146 | 138 | 138 | ||||||||||||||
Adjusted operating profit | $ | 1,142 | $ | 554 | $ | 2,493 | $ | 620 | $ | 626 | $ | 2,746 | $ | 663 | |||||||
Reported percentage change | 4% | ||||||||||||||||||||
Adjusted percentage change | -9% | ||||||||||||||||||||
Reported sales | $ | 5,174 | $ | 2,509 | $ | 10,776 | $ | 2,686 | $ | 2,738 | $ | 12,273 | $ | 2,990 | |||||||
Adjusted operating profit margin | 22.1% | 22.1% | 23.1% | 23.1% | 22.9% | 22.4% | 22.2% | ||||||||||||||
Adjusted Interest Expense - net |
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Reported interest expense - net | $ | 109 | $ | 65 | $ | 161 | $ | 35 | $ | 40 | $ | 213 | $ | 79 | |||||||
Less: Bond redemption | (16) | (16) | - | - | - | (36) | (36) | ||||||||||||||
Adjusted interest expense - net | $ | 93 | $ | 49 | $ | 161 | $ | 35 | $ | 40 | $ | 177 | $ | 43 | |||||||
Adjusted Income Taxes |
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Reported income taxes | $ | 279 | $ | 133 | $ | 612 | $ | 156 | $ | 131 | $ | 691 | $ | 145 | |||||||
Add: Cost reduction program and other charges | - | - | 39 | 6 | 33 | - | - | ||||||||||||||
Add: Bond redemption | 6 | 6 | - | - | - | 14 | 14 | ||||||||||||||
Add: Income tax benefit | - | - | - | - | - | - | - | ||||||||||||||
Add: Pension settlement charge | - | - | 2 | 2 | - | 2 | 2 | ||||||||||||||
Total adjustments | 6 | 6 | 41 | 8 | 33 | 16 | 16 | ||||||||||||||
Adjusted income taxes | $ | 285 | $ | 139 | $ | 653 | $ | 164 | $ | 164 | $ | 707 | $ | 161 | |||||||
Adjusted Effective Tax Rate |
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Reported income before income taxes and equity investments | $ | 1,033 | $ | 489 | $ | 2,160 | $ | 559 | $ | 440 | $ | 2,395 | $ | 446 | |||||||
Add: Cost reduction program and other charges | - | - | 165 | 19 | 146 | - | - | ||||||||||||||
Add: Bond redemption | 16 | 16 | - | - | - | 36 | 36 | ||||||||||||||
Add: Pension settlement charge | - | - | 7 | 7 | - | 7 | 7 | ||||||||||||||
Add: Venezuela currency devaluation | - | - | - | - | - | 131 | 131 | ||||||||||||||
Total adjustments | 16 | 16 | 172 | 26 | 146 | 174 | 174 | ||||||||||||||
Adjusted income before income taxes and equity investments | $ | 1,049 | $ | 505 | $ | 2,332 | $ | 585 | $ | 586 | $ | 2,569 | $ | 620 | |||||||
Adjusted income taxes (above) | $ | 285 | $ | 139 | $ | 653 | $ | 164 | $ | 164 | $ | 707 | $ | 161 | |||||||
Adjusted effective tax rate | 27% | 28% | 28% | 28% | 28% | 28% | 26% | ||||||||||||||
Adjusted Noncontrolling Interests |
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Reported noncontrolling interests | $ | 20 | $ | 10 | $ | 44 | $ | 12 | $ | 11 | $ | 52 | $ | 11 | |||||||
Add: Cost reduction program and other charges | - | - | 1 | - | 1 | - | - | ||||||||||||||
Less: Income tax benefit | - | - | - | - | - | - | - | ||||||||||||||
Total adjustments | - | - | 1 | - | 1 | - | - | ||||||||||||||
Adjusted noncontrolling interests | $ | 20 | $ | 10 | $ | 45 | $ | 12 | $ | 12 | $ | 52 | $ | 11 | |||||||
Adjusted Net Income - Praxair, Inc. |
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Reported net income - Praxair, Inc. | $ | 755 | $ | 356 | $ | 1,547 | $ | 401 | $ | 308 | $ | 1,694 | $ | 302 | |||||||
Add: Cost reduction program and other charges | - | - | 125 | 13 | 112 | - | - | ||||||||||||||
Add: Bond redemption | 10 | 10 | - | - | - | 22 | 22 | ||||||||||||||
Add: Pension settlement charge | - | - | 5 | 5 | - | 5 | 5 | ||||||||||||||
Add: Venezuela currency devaluation | - | - | - | - | - | 131 | 131 | ||||||||||||||
Total adjustments | 10 | 10 | 130 | 18 | 112 | 158 | 158 | ||||||||||||||
Adjusted net income - Praxair, Inc. | $ | 765 | $ | 366 | $ | 1,677 | $ | 419 | $ | 420 | $ | 1,852 | $ | 460 | |||||||
Reported percentage change | 4% | ||||||||||||||||||||
Adjusted percentage change | -8% | ||||||||||||||||||||
Adjusted Diluted EPS |
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Reported diluted EPS | $ | 2.63 | $ | 1.24 | $ | 5.35 | $ | 1.40 | $ | 1.06 | $ | 5.73 | $ | 1.03 | |||||||
Add: Cost reduction program and other charges | - | - | 0.43 | 0.04 | 0.39 | - | - | ||||||||||||||
Add: Bond redemption | 0.04 | 0.04 | - | - | - | 0.07 | 0.07 | ||||||||||||||
Add: Pension settlement charge | - | - | 0.02 | 0.02 | - | 0.02 | 0.02 | ||||||||||||||
Add: Venezuela currency devaluation | - | - | - | - | - | 0.45 | 0.45 | ||||||||||||||
Total adjustments | 0.04 | 0.04 | 0.45 | 0.06 | 0.39 | 0.54 | 0.54 | ||||||||||||||
Adjusted diluted EPS | $ | 2.67 | $ | 1.28 | $ | 5.80 | $ | 1.46 | $ | 1.45 | $ | 6.27 | $ | 1.57 | |||||||
Cash Income Taxes and Interest |
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Income taxes paid | $ | 420 | $ | 606 | |||||||||||||||||
Interest paid, net of interest capitalized and excluding bond redemption | $ | 174 | $ | 174 | |||||||||||||||||
Third Quarter and Full-Year 2016 Diluted EPS Guidance |
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Third Quarter 2016 | Full Year 2016 | |||||||||||
Low End | High End | Low End | High End | |||||||||
2016 GAAP diluted EPS guidance | $ | 1.34 | $ | 1.41 | $ | 5.40 | $ | 5.55 | ||||
Add: bond redemption charge - Q1 | - | - | 0.04 | 0.04 | ||||||||
Add: estimated pension settlement impact - Q3 | 0.01 | 0.01 | 0.01 | 0.01 | ||||||||
2016 adjusted diluted EPS guidance | $ | 1.35 | $ | 1.42 | $ | 5.45 | $ | 5.60 | ||||