NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
Presentation of Condensed Consolidated Financial Statements
-
In the opinion of Praxair, Inc. (Praxair) management, the accompanying condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results for the interim periods presented and such adjustments are of a normal recurring nature. The accompanying condensed consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements of Praxair, Inc. and subsidiaries in Praxair’s
2013
Annual Report on Form 10-K. There have been no material changes to the company’s significant accounting policies during
2014
.
Accounting Standards Implemented in
2014
The following standards were effective for Praxair in
2014
and their adoption did not have a significant impact on the condensed consolidated financial statements:
|
|
•
|
Accounting for Cumulative Translation Adjustment
– In March 2013, the Financial Accounting Standards Board ("FASB") issued updated guidance on the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or as a result of acquisitions achieved in stages. The adoption of this guidance did not have a significant impact on the condensed consolidated financial statements.
|
|
|
•
|
Presentation of Unrecognized Tax Benefits
– In July 2013, the FASB issued updated guidance on the presentation of unrecognized tax benefits. The new guidance requires an entity to present certain unrecognized tax benefits, or a portion thereof, as a reduction to the related deferred tax asset, primarily for loss and tax credit carryforwards. The adoption of this guidance did not have a significant impact on the condensed consolidated financial statements.
|
Accounting Standards to be Implemented
|
|
•
|
Reporting Discontinued Operations
– In April 2014, the FASB issued updated guidance on the reporting and d
isclosures of discontinued operations. The new guidance requires that the disposal of a component of an entity be reported as discontinued operations only if the action represents a strategic shift that will have a major effect on an entity’s operations and financial results, and would require expanded disclosures. This guidance will be effective for Praxair beginning in the first quarter 2015, with early adoption optional.
|
|
|
•
|
Revenue Recognition
– In May 2014, the FASB issued updated guidance on the reporting and disclosure of revenue recognition. The new guidance requires the evaluation of contracts with customers to determine the recognition of revenue when or as the entity satisfies a performance obligation, and would require expanded disclosures. This guidance will be effective for Praxair beginning in the first quarter 2017 and includes several transition options. Praxair is in the early stages of reviewing the new guidance and will provide updates on the expected impact to Praxair in future filings, as determined.
|
|
|
•
|
Accounting for Share-based Compensation
- In June 2014, the FASB issued updated guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. Praxair does not expect this requirement to have a significant impact on the consolidated financial statements. This guidance will be effective for Praxair beginning in the first quarter 2016, with early adoption optional.
|
Reclassifications
– Certain prior years’ amounts have been reclassified to
conform to the current year’s presentation.
2. 2013 Venezuela Currency Devaluation
On February 8, 2013, Venezuela announced a devaluation of the Venezuelan Bolivar from
4.30
to
6.30
(a
32%
devaluation), effective on February 13, 2013. In the first quarter 2013 Praxair recorded a
$23 million
pre-tax charge (
$23 million
after-tax or
$0.08
per diluted share) due primarily to the remeasurement of the local Venezuelan balance sheet to reflect the new official 6.30 exchange rate.
3.
Acquisitions
2014 Acquisitions
During the
six months ended June 30, 2014
Praxair had acquisitions totaling
$170 million
. These consisted primarily of an industrial gases business in Italy and packaged gases businesses in North and South America. These transactions resulted in goodwill and other intangible assets of
$62 million
and
$46 million
, respectively (see Note 9).
2013 Acquisitions
NuCO
2
On March 1, 2013 Praxair acquired
100%
of NuCO
2
Inc. ("NuCO
2
") for
$1,095 million
. NuCO
2
is the leading national provider of beverage carbonation solutions in the United States to the restaurant and hospitality industries with
162,000
customer locations and
900
employees, and with 2012 sales of approximately
$230 million
. The NuCO
2
micro-bulk beverage carbonation solution is the service model of choice for quick service restaurants and convenience stores offering fountain beverages and represents an extension of Praxair's core industrial gas business.
The acquisition of NuCO
2
was accounted for as a business combination. Following the acquisition date, 100% of NuCO
2
's results were consolidated in the North America business segment. For the quarters ended March 31, 2014 and 2013, Praxair's consolidated income statement includes sales of
$63 million
and
$20 million
, respectively, related to NuCO
2
. Pro forma results for 2013 have not been included as the impact of the acquisition is not material to the consolidated statements of income.
The following table summarizes the fair value of identifiable assets acquired and liabilities assumed in the acquisition of NuCO
2
as of the acquisition date. Purchase accounting has been finalized and adjustments made subsequent to the acquisition date were not significant.
|
|
|
|
|
|
(Millions of dollars)
|
|
March 1, 2013
|
Trade receivables, net
|
|
$
|
17
|
|
Property, plant and equipment
|
|
199
|
|
Intangible assets
|
|
374
|
|
Deferred income taxes
|
|
(85
|
)
|
Other assets and (liabilities)
|
|
(28
|
)
|
Goodwill
|
|
618
|
|
Purchase price
|
|
$
|
1,095
|
|
The identifiable intangible assets primarily consist of customer relationships that will be amortized over their estimated useful life of
25 years
. The deferred income taxes relate primarily to property, plant and equipment, intangibles and operating loss carryforwards. The goodwill resulting from the acquisition is attributable to (i) expected growth from market penetration into the quick service restaurants, convenience stores and themed restaurant chains in the United States and select international markets as we leverage Praxair's customer and distribution networks worldwide, and (ii) cost synergies related to the procurement of raw materials, distribution-related expenses and administrative costs as we integrate and rationalize administration tasks and leverage Praxair's purchasing scale. The goodwill is not deductible for income tax purposes.
Other Acquisitions
On May 29, 2013 Praxair acquired Dominion Technology Gases (“Dominion”), a leading global supplier of diving, welding, industrial, laboratory and calibration gases and associated equipment to the offshore oil and gas industry based in Aberdeen, Scotland. Dominion provides products and services to the expanding global offshore oil and gas market.
On June 3, 2013 Praxair acquired Volgograd Oxygen Factory (“VOF”), the largest independent industrial gas business in southern Russia, expanding Praxair's production and distribution capabilities in the Volgograd region. Additionally, Praxair acquired several smaller independent package gas distributors in the United States.
These acquisitions were accounted for as business combinations; accordingly the results of operations of these acquisitions were consolidated from the respective acquisition dates, primarily in the Europe business segment and the impact was not significant. The aggregate purchase price for these acquisitions was
$174 million
and resulted in the recognition of
$99 million
of goodwill and
$35 million
relating to customer relationships, which will be amortized over their estimated useful life.
4. Supplemental Information
Inventories
The following is a summary of Praxair’s consolidated inventories:
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
June 30,
2014
|
|
December 31,
2013
|
Inventories
|
|
|
|
Raw materials and supplies
|
$
|
165
|
|
|
$
|
167
|
|
Work in process
|
64
|
|
|
58
|
|
Finished goods
|
313
|
|
|
281
|
|
Total inventories
|
$
|
542
|
|
|
$
|
506
|
|
Long-term receivables
Long-term receivables are not material and are largely reserved. Such long-term receivables are included within other long-term assets in the condensed consolidated balance sheets and totaled
$50 million
and
$36 million
at
June 30, 2014
and
December 31, 2013
, respectively. These amounts are net of reserves of
$59 million
and
$51 million
, respectively. The amounts in both periods relate primarily to government receivables in Brazil and other long-term notes receivable from customers. Collectability is reviewed regularly and uncollectible amounts are written-off as appropriate. The account balance changes during
2014
were primarily the result of additional receivables, net of reserves.
5. Debt
The following is a summary of Praxair’s outstanding debt at
June 30, 2014
and
December 31, 2013
:
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
June 30,
2014
|
|
December 31,
2013
|
SHORT-TERM
|
|
|
|
Commercial paper and U.S. bank borrowings
|
$
|
515
|
|
|
$
|
712
|
|
Other bank borrowings (primarily international)
|
80
|
|
|
70
|
|
Total short-term debt
|
595
|
|
|
782
|
|
LONG-TERM
|
|
|
|
U.S. borrowings (U.S. dollar denominated unless otherwise noted)
|
|
|
|
4.375% Notes due 2014 (e)
|
—
|
|
|
300
|
|
4.625% Notes due 2015 (d)
|
500
|
|
|
500
|
|
3.25% Notes due 2015 (a, b)
|
413
|
|
|
418
|
|
0.75% Notes due 2016
|
400
|
|
|
400
|
|
5.375% Notes due 2016
|
400
|
|
|
400
|
|
5.20% Notes due 2017
|
325
|
|
|
325
|
|
1.05% Notes due 2017
|
400
|
|
|
400
|
|
1.20% Notes due 2018
|
500
|
|
|
500
|
|
1.25% Notes due 2018 (a, b)
|
482
|
|
|
478
|
|
4.50% Notes due 2019 (a)
|
598
|
|
|
598
|
|
1.90% Notes due 2019
|
500
|
|
|
500
|
|
1.50% Euro-denominated notes due 2020 (a, c)
|
818
|
|
|
—
|
|
4.05% Notes due 2021 (a)
|
498
|
|
|
498
|
|
3.00% Notes due 2021 (a)
|
497
|
|
|
497
|
|
2.45% Notes due 2022 (a)
|
598
|
|
|
598
|
|
2.20% Notes due 2022 (a)
|
499
|
|
|
499
|
|
2.70% Notes due 2023 (a)
|
498
|
|
|
498
|
|
3.55% Notes due 2042 (a)
|
466
|
|
|
466
|
|
Other
|
5
|
|
|
5
|
|
International bank borrowings (d)
|
164
|
|
|
140
|
|
Obligations under capital leases
|
9
|
|
|
9
|
|
|
8,570
|
|
|
8,029
|
|
Less: current portion of long-term debt
|
(5
|
)
|
|
(3
|
)
|
Total long-term debt
|
8,565
|
|
|
8,026
|
|
Total debt
|
$
|
9,165
|
|
|
$
|
8,811
|
|
|
|
(a)
|
Amounts are net of unamortized discounts.
|
|
|
(b)
|
June 30, 2014
and
December 31, 2013
include a
$20 million
and
$22 million
fair value increase, respectively, related to hedge accounting. See Note 6 for additional information.
|
|
|
(c)
|
For the
six months ended June 30, 2014
, Praxair issued
€600 million
1.50% Euro-denominated notes due 2020. This debt issuance has been designated as a hedge of the net investment position in European operations where the Euro is the functional currency (see Note 6). The proceeds of this debt issuance were used for general corporate purposes, including acquisitions, repayment of debt and share repurchases under the company's share repurchase program.
|
|
|
(d)
|
Classified as long-term because of the company’s intent to refinance this debt on a long-term basis and the availability of such financing under the terms of an existing
$2 billion
long-term credit facility.
|
|
|
(e)
|
In March 2014, Praxair repaid
$300 million
of
4.375%
notes that became due.
|
6. Financial Instruments
In its normal operations, Praxair is exposed to market risks relating to fluctuations in interest rates, foreign currency exchange rates, energy costs and to a lesser extent precious metal prices. The objective of financial risk management at Praxair is to minimize the negative impact of such fluctuations on the company’s earnings and cash flows. To manage these risks, among other strategies, Praxair routinely enters into various derivative financial instruments (“derivatives”) including interest-rate swap and treasury rate lock agreements, currency-swap agreements, forward contracts, currency options, and commodity-swap agreements. These instruments are not entered into for trading purposes and Praxair only uses commonly traded and non-leveraged instruments.
There are three types of derivatives that the company enters into: (i) those relating to fair-value exposures, (ii) those relating to cash-flow exposures, and (iii) those relating to foreign currency net investment exposures. Fair-value exposures relate to recognized assets or liabilities, and firm commitments; cash-flow exposures relate to the variability of future cash flows associated with recognized assets or liabilities, or forecasted transactions; and net investment exposures relate to the impact of foreign currency exchange rate changes on the carrying value of net assets denominated in foreign currencies.
When a derivative is executed and hedge accounting is appropriate, it is designated as either a fair-value hedge, cash-flow hedge, or a net investment hedge. Currently, Praxair designates all interest-rate and treasury-rate locks as hedges for accounting purposes; however, currency contracts are generally not designated as hedges for accounting purposes unless they are related to forecasted transactions. Whether designated as hedges for accounting purposes or not, all derivatives are linked to an appropriate underlying exposure. On an ongoing basis, the company assesses the hedge effectiveness of all derivatives designated as hedges for accounting purposes to determine if they continue to be highly effective in offsetting changes in fair values or cash flows of the underlying hedged items. If it is determined that the hedge is not highly effective, then hedge accounting will be discontinued prospectively.
Counterparties to Praxair’s derivatives are major banking institutions with credit ratings of investment grade or better and no collateral is required, and there are no significant risk concentrations. Management believes the risk of incurring losses on derivative contracts related to credit risk is remote and any losses would be immaterial.
The following table is a summary of the notional amount and fair value of derivatives outstanding at
June 30, 2014
and
December 31, 2013
for consolidated subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Notional Amounts
|
|
Assets
|
|
Liabilities
|
(Millions of dollars)
|
June 30,
2014
|
|
December 31,
2013
|
|
June 30,
2014
|
|
December 31,
2013
|
|
June 30,
2014
|
|
December 31,
2013
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items (a)
|
$
|
2,234
|
|
|
$
|
2,197
|
|
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
14
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted purchases (a)
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (b)
|
875
|
|
|
875
|
|
|
20
|
|
|
22
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
875
|
|
|
$
|
880
|
|
|
$
|
20
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Derivatives
|
$
|
3,109
|
|
|
$
|
3,077
|
|
|
$
|
34
|
|
|
$
|
26
|
|
|
$
|
5
|
|
|
$
|
14
|
|
|
|
(a)
|
Assets are recorded in prepaid and other current assets, and liabilities are recorded in other current liabilities.
|
|
|
(b)
|
Assets are recorded in other long term assets.
|
Currency Contracts
Balance Sheet Items
Foreign currency contracts related to balance sheet items consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on recorded balance sheet assets and liabilities denominated in currencies other than the functional currency of the related operating unit. The fair value adjustments on these contracts are offset by the fair value adjustments recorded on the hedged assets and liabilities.
Forecasted Purchases
Foreign currency contracts related to forecasted purchases consist of forward contracts entered into to manage the exposure to fluctuations in foreign-currency exchange rates on forecasted purchases of capital-related equipment and services denominated in currencies other than the functional currency of the related operating units. These forward contracts were designated and accounted for as cash flow hedges.
Net Investment Hedge
Praxair has designated the
€600 million
(
$818 million
as of
June 30, 2014
)
1.50%
Euro-denominated notes due 2020, as a hedge of the net investment position in its European operations. This Euro-denominated debt instrument reduces the company's exposure to changes in the currency exchange rate on investments in foreign subsidiaries with Euro functional currencies. Since the time the Euro-denominated notes were issued in March 2014, exchange rate movements have reduced long-term debt by
$5 million
(
$3 million
after tax) and $
10 million
($
7 million
after tax) for the quarter and six months ended June 30, 2014, respectively, with the offsetting gain shown within the cumulative translation component of AOCI in the condensed consolidated balance sheets and the condensed consolidated statements of comprehensive income.
Interest Rate Contracts
Outstanding Interest Rate Swaps
At
June 30, 2014
, Praxair had
$875 million
notional amount of interest-rate swap agreements outstanding related to the
$400 million
3.25%
fixed-rate notes that mature in 2015 and to the
$475 million
1.25%
notes that mature 2018, which effectively convert fixed-rate interest to variable-rate interest. These swap agreements were designated as fair value hedges with the resulting fair value adjustments recognized in earnings along with an equally offsetting charge / benefit to earnings for the changes in the fair value of the underlying debt instrument. At
June 30, 2014
,
$20 million
was recognized as an increase in the fair value of these notes (
$22 million
at
December 31, 2013
).
Terminated Interest Rate Swap
During 2010, Praxair entered into a $500 million notional amount of interest-rate swap agreement that effectively converted fixed-rate interest to variable-rate interest on the $500 million 2.125% notes that matured in 2013. This swap agreement was terminated in 2011, and Praxair received a
$18 million
cash payment. This $18 million gain was recognized in earnings as a reduction to interest expense over the remaining term of the underlying debt. During the quarter and six months ended June 30, 2013,
$2 million
and
$4 million
was recognized as a reduction to interest expense, respectively.
Terminated Treasury Rate Locks
The following table summarizes the unrecognized gains (losses) related to terminated treasury rate lock contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Terminated
|
|
Original
Gain /
(Loss)
|
|
Unrecognized Gain / (Loss) (a)
|
(Millions of dollars)
|
June 30,
2014
|
|
December 31,
2013
|
Treasury Rate Locks
|
|
|
|
|
|
|
|
Underlying debt instrument:
|
|
|
|
|
|
|
|
$500 million 2.20% fixed-rate notes that mature in 2022 (b)
|
2012
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
$500 million 3.00% fixed-rate notes that mature in 2021 (b)
|
2011
|
|
(11
|
)
|
|
(9
|
)
|
|
(9
|
)
|
$600 million 4.50% fixed-rate notes that mature in 2019 (b)
|
2009
|
|
16
|
|
|
10
|
|
|
10
|
|
$500 million 4.625% fixed-rate notes that mature in 2015 (b)
|
2008
|
|
(7
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Total - pre-tax
|
|
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
Less: income taxes
|
|
|
|
|
1
|
|
|
1
|
|
After- tax amounts
|
|
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
|
(a)
|
The unrecognized gains / (losses) for the treasury rate locks are shown in accumulated other comprehensive income (“AOCI”) and are being recognized on a straight line basis to interest expense – net over the term of the underlying debt agreements. The cash received or paid was reflected within the noncontrolling interest transactions and other in the financing section of the condensed consolidated statements of cash flows. Refer to the table below summarizing the impact on the company’s consolidated statements of income and AOCI for current period gain (loss) recognition.
|
|
|
(b)
|
The notional amount of the treasury rate lock contracts are equal to the underlying debt instrument with the exception of the treasury rate lock contract entered into to hedge the
$600 million
4.50%
fixed-rate notes that mature in 2019. The notional amount of this contract was
$500 million
.
|
The following tables summarize the impacts of the company’s derivatives on the consolidated statements of income and AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Gain (Loss)
Recognized in Earnings *
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
(Millions of dollars)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
Currency contracts:
|
|
|
|
|
|
|
|
Balance sheet items
|
|
|
|
|
|
|
|
Debt-related
|
$
|
24
|
|
|
$
|
(40
|
)
|
|
$
|
29
|
|
|
$
|
(6
|
)
|
Other balance sheet items
|
1
|
|
|
(3
|
)
|
|
4
|
|
|
(10
|
)
|
Total
|
$
|
25
|
|
|
$
|
(43
|
)
|
|
$
|
33
|
|
|
$
|
(16
|
)
|
* The gains (losses) on balance sheet items are offset by gains (losses) recorded on the underlying hedged assets and liabilities. The gains (losses) for the derivatives and the underlying hedged assets and liabilities related to debt items are recorded in the consolidated statements of income as interest expense-net. Other balance sheet items and anticipated net income gains (losses) are recorded in the consolidated statements of income as other income (expenses)-net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Amount of Gain (Loss)
Recognized in AOCI
|
|
Amount of Gain (Loss)
Reclassified from AOCI to the Consolidated Statement of
Income
|
(Millions of dollars)
|
June 30,
2014
|
|
June 30,
2013
|
|
June 30,
2014
|
|
June 30,
2013
|
Derivatives Designated as Hedging Instruments *
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
Treasury rate lock contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Amount of Gain (Loss)
Recognized in AOCI
|
|
Amount of Gain (Loss)
Reclassified from AOCI to the Consolidated Statement of
Income
|
(Millions of dollars)
|
June 30,
2014
|
|
June 30,
2013
|
|
June 30,
2014
|
|
June 30,
2013
|
Derivatives Designated as Hedging Instruments *
|
|
|
|
|
|
|
|
Net investment hedge:
|
|
|
|
|
|
|
|
Foreign currency forward
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Less: income taxes
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total - Net of Taxes
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
* The gains (losses) on net investment hedges are recorded as a component of AOCI within foreign currency translation adjustments in the condensed consolidated balance sheets and the condensed consolidated statements of comprehensive income. The gains (losses) on treasury rate locks are recorded as a component of AOCI within derivative instruments in the condensed consolidated balance sheets and the condensed consolidated statements of comprehensive income. There was no ineffectiveness for these instruments during
2014
or
2013
. The gains (losses) on net investment hedges are reclassified to earnings only when the related currency translation adjustments are required to be reclassified, usually upon sale or liquidation of the investment. The gains (losses) for interest rate contracts are reclassified to earnings as interest expense –net on a straight-line basis over the remaining maturity of the underlying debt. Net losses of less than
$1 million
are expected to be reclassified to earnings during the next twelve months.
7. Fair Value Disclosures
The fair value hierarchy prioritizes the input to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
(Millions of dollars)
|
June 30,
2014
|
|
December 31,
2013
|
|
June 30,
2014
|
|
December 31,
2013
|
|
June 30,
2014
|
|
December 31,
2013
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
—
|
|
|
—
|
|
|
$
|
34
|
|
|
$
|
26
|
|
|
—
|
|
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
—
|
|
|
—
|
|
|
$
|
5
|
|
|
$
|
14
|
|
|
—
|
|
|
—
|
|
The fair values of the derivative assets and liabilities are based on market prices obtained from independent brokers or determined using quantitative models that use as their basis readily observable market parameters that are actively quoted and can be validated through external sources, including third-party pricing services, brokers and market transactions. Investments are marketable securities traded on an exchange.
The fair values of cash and cash equivalents, short-term debt, accounts receivable-net, and accounts payable approximate carrying amounts because of the short maturities of these instruments. The fair value of long-term debt is estimated based on the quoted market prices for similar issues, which is deemed a level 2 measurement. At
June 30, 2014
, the estimated fair value of Praxair’s long-term debt portfolio was
$8,687 million
versus a carrying value of
$8,570 million
. At
December 31, 2013
, the estimated fair value of Praxair’s long-term debt portfolio was
$7,976 million
versus a carrying value of
$8,029 million
. Differences from carrying amounts are attributable to interest-rate changes subsequent to when the debt was issued.
8. Earnings Per Share – Praxair, Inc. Shareholders
Basic earnings per share is computed by dividing Net income – Praxair, Inc. for the period by the weighted average number of Praxair common shares outstanding. Diluted earnings per share is computed by dividing Net income – Praxair, Inc. for the period by the weighted average number of Praxair common shares outstanding and dilutive common stock equivalents, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Numerator (Millions of dollars)
|
|
|
|
|
|
|
|
Net income - Praxair, Inc.
|
$
|
467
|
|
|
$
|
445
|
|
|
$
|
915
|
|
|
$
|
836
|
|
Denominator (Thousands of shares)
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
292,434
|
|
|
295,143
|
|
|
293,063
|
|
|
295,609
|
|
Shares earned and issuable under compensation plans
|
511
|
|
|
525
|
|
|
507
|
|
|
527
|
|
Weighted average shares used in basic earnings per share
|
292,945
|
|
|
295,668
|
|
|
293,570
|
|
|
296,136
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
Stock options and awards
|
3,031
|
|
|
2,986
|
|
|
3,109
|
|
|
3,154
|
|
Weighted average shares used in diluted earnings per share
|
295,976
|
|
|
298,654
|
|
|
296,679
|
|
|
299,290
|
|
Basic Earnings Per Share
|
$
|
1.59
|
|
|
$
|
1.50
|
|
|
$
|
3.12
|
|
|
$
|
2.82
|
|
Diluted Earnings Per Share
|
$
|
1.58
|
|
|
$
|
1.49
|
|
|
$
|
3.08
|
|
|
$
|
2.79
|
|
There were no antidilutive stock options for the quarter and
six months ended June 30, 2014
. Stock options of
780
were antidilutive and therefore excluded in the computation of diluted earnings per share for the quarter and
six months ended June 30, 2013
.
9. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the
six months ended June 30, 2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
North
America
|
|
South
America
|
|
Europe
|
|
Asia
|
|
Surface
Technologies
|
|
Total
|
Balance, December 31, 2013
|
$
|
2,117
|
|
|
$
|
166
|
|
|
$
|
743
|
|
|
$
|
24
|
|
|
$
|
144
|
|
|
$
|
3,194
|
|
Acquisitions (Note 3)
|
41
|
|
|
4
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
62
|
|
Purchase adjustments & other
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
5
|
|
|
—
|
|
Foreign currency translation
|
—
|
|
|
14
|
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
14
|
|
Balance, June 30, 2014
|
$
|
2,158
|
|
|
$
|
184
|
|
|
$
|
754
|
|
|
$
|
24
|
|
|
$
|
150
|
|
|
$
|
3,270
|
|
Praxair has performed its goodwill impairment tests annually during the second quarter of each year, and historically has determined that the fair value of each of its reporting units was substantially in excess of its carrying value. For the 2014 test completed this quarter, Praxair applied the FASB's updated accounting guidance (refer to Note 1 to the consolidated financial statements of Praxair's 2013 Annual Report on Form 10-K) which allows the Company to first assess qualitative factors to determine the extent of additional quantitative analysis, if any, that may be required to test goodwill for impairment. Based on the qualitative assessments performed, Praxair concluded that it was more likely than not that the fair value of each reporting unit substantially exceeded its carrying value and therefore, further quantitative analysis was not required. As a result, no impairment was recorded.
Changes in the carrying amounts of other intangibles for the
six months ended June 30, 2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
Customer &
License/Use
Agreements
|
|
Non-compete
Agreements
|
|
Patents &
Other
|
|
Total
|
Cost:
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
$
|
661
|
|
|
$
|
31
|
|
|
$
|
43
|
|
|
$
|
735
|
|
Additions (Note 3)
|
39
|
|
|
7
|
|
|
—
|
|
|
46
|
|
Foreign currency translation
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Other *
|
—
|
|
|
(3
|
)
|
|
4
|
|
|
1
|
|
Balance, June 30, 2014
|
$
|
699
|
|
|
$
|
35
|
|
|
$
|
47
|
|
|
$
|
781
|
|
Less: Accumulated amortization
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
$
|
(118
|
)
|
|
$
|
(16
|
)
|
|
$
|
(5
|
)
|
|
$
|
(139
|
)
|
Amortization expense
|
(18
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(23
|
)
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other *
|
1
|
|
|
3
|
|
|
(4
|
)
|
|
—
|
|
Balance, June 30, 2014
|
$
|
(135
|
)
|
|
$
|
(16
|
)
|
|
$
|
(11
|
)
|
|
$
|
(162
|
)
|
Net balance at June 30, 2014
|
$
|
564
|
|
|
$
|
19
|
|
|
$
|
36
|
|
|
$
|
619
|
|
* Other primarily relates to the write-off of fully amortized assets and purchase accounting adjustments.
There are no expected residual values related to these intangible assets. The remaining weighted-average amortization period for intangible assets is approximately
19 years
.
Total estimated annual amortization expense is as follows:
|
|
|
|
|
(Millions of dollars)
|
|
Remaining 2014
|
$
|
27
|
|
2015
|
47
|
|
2016
|
46
|
|
2017
|
37
|
|
2018
|
33
|
|
Thereafter
|
429
|
|
|
$
|
619
|
|
10. Share-Based Compensation
Share-based compensation of
$13 million
(
$9 million
after-tax) and
$17 million
(
$12 million
after-tax) was recognized during the quarters ended
June 30, 2014
and
2013
, respectively. Share-based compensation of
$28 million
(
$19 million
after-tax) and
$34 million
(
$23 million
after-tax) was recognized for the
six months ended June 30, 2014
and
2013
, respectively. The expense was recorded primarily in selling, general and administrative expenses. There was no share-based compensation cost that was capitalized. For further details regarding Praxair’s share-based compensation arrangements and prior-year grants, refer to Note 15 to the consolidated financial statements of Praxair’s
2013
Annual Report on Form 10-K.
Stock Options
The weighted-average fair value of options granted during the
six months ended June 30, 2014
was
$14.62
(
$16.31
in
2013
) based on the Black-Scholes Options-Pricing model. The decrease in grant date fair value year-over-year is primarily attributable to the decrease in volatility which was partially offset by increases in Praxair's stock price and risk-free interest rate.
The following weighted-average assumptions were used to value the grants in
2014
and
2013
:
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2014
|
|
2013
|
Dividend yield
|
2.0
|
%
|
|
2.2
|
%
|
Volatility
|
15.2
|
%
|
|
21.7
|
%
|
Risk-free interest rate
|
1.57
|
%
|
|
0.76
|
%
|
Expected term years
|
5
|
|
|
5
|
|
The following table summarizes option activity under the plans as of
June 30, 2014
and changes during the
six
-month period then ended (averages are calculated on a weighted basis; life in years; intrinsic value expressed in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options (000’s)
|
|
Average
Exercise Price
|
|
Average
Remaining
Life
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2014
|
11,161
|
|
|
$
|
81.42
|
|
|
|
|
|
Granted
|
1,293
|
|
|
128.80
|
|
|
|
|
|
Exercised
|
(953
|
)
|
|
63.65
|
|
|
|
|
|
Cancelled or Expired
|
(38
|
)
|
|
94.29
|
|
|
|
|
|
Outstanding at June 30, 2014
|
11,463
|
|
|
88.20
|
|
|
5.7
|
|
$
|
512
|
|
Exercisable at June 30, 2014
|
8,827
|
|
|
$
|
78.92
|
|
|
4.7
|
|
$
|
476
|
|
The aggregate intrinsic value represents the difference between the company’s closing stock price of
$132.84
as of
June 30, 2014
and the exercise price multiplied by the number of options outstanding as of that date. The total intrinsic value of stock options exercised during the quarter and
six
months ended
June 30, 2014
was
$15 million
and
$64 million
, respectively (
$39 million
and
$68 million
during the same time periods in
2013
, respectively).
Cash received from option exercises under all share-based payment arrangements for the quarter and
six
months ended
June 30, 2014
was
$16 million
and
$61 million
(
$38 million
and
$67 million
for the same time period in
2013
). The cash tax benefit realized from share-based compensation totaled
$5 million
and
$39 million
for the quarter and
six
months ended
June 30, 2014
, of which
$24 million
in excess tax benefits was classified as financing cash flows for the
six months ended
June 30, 2014
(
$9 million
and
$35 million
cash tax benefit for the same periods in
2013
of which
$24 million
represented excess tax benefit for the
six
months ended
June 30, 2013
).
As of
June 30, 2014
,
$29 million
of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately
1.1
years.
Performance-Based and Restricted Stock Awards
During the
six months ended
June 30, 2014
, the company granted performance-based stock units to employees which vest principally based on the third anniversary of their grant date. The actual number of shares issued in settlement of a vested award can range from
zero
to
200 percent
of the target number of shares granted based upon the company’s attainment of specified performance targets at the end of a
three
-year period. Compensation expense related to these awards is recognized over the three-year performance period based on the fair value of the closing market price of the company’s common stock on
the date of the grant and the estimated performance that will be achieved. Compensation expense will be adjusted during the three-year performance period based upon the estimated performance levels that will be achieved.
During the
six months ended
June 30, 2014
, the company also granted restricted stock units to employees. The majority of the restricted stock units vest at the end of a
three
-year service period. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the vesting period.
The weighted-average fair value of performance-based stock and restricted stock units granted during the
six months ended
June 30, 2014
was
$121.16
and
$122.73
, respectively, (
$103.46
and
$105.51
for the same period in
2013
). This is based on the closing market price of Praxair’s common stock on the grant date adjusted for dividends that will not be paid during the vesting period.
The following table summarizes non-vested performance-based and restricted stock award activity as of
June 30, 2014
and changes during the
six
months then ended (shares based on target amounts, averages are calculated on a weighted basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based
|
|
Restricted Stock
|
|
Number of
Shares
(000’s)
|
|
Average
Grant Date
Fair Value
|
|
Number of
Shares
(000’s)
|
|
Average
Grant Date
Fair Value
|
Non-vested at January 1, 2014
|
867
|
|
|
$
|
99.55
|
|
|
337
|
|
|
$
|
100.41
|
|
Granted (a)
|
328
|
|
|
121.16
|
|
|
90
|
|
|
122.73
|
|
Vested
|
(338
|
)
|
|
92.06
|
|
|
(104
|
)
|
|
95.61
|
|
Cancelled
|
(9
|
)
|
|
107.52
|
|
|
(11
|
)
|
|
101.23
|
|
Non-vested at June 30, 2014
|
848
|
|
|
$
|
109.14
|
|
|
312
|
|
|
$
|
108.38
|
|
|
|
(a)
|
Performance-based stock unit grants during
2014
include
49 thousand
shares relating to the actual payout of the 2011 PSU grants in 2014.
|
As of
June 30, 2014
, based on current estimates of future performance,
$59 million
of unrecognized compensation cost related to performance-based awards is expected to be recognized through the first quarter of 2017 and
$19 million
of unrecognized compensation cost related to the restricted stock awards is expected to be recognized primarily through the first quarter of 2017.
11. Retirement Programs
The components of net pension and postretirement benefits other than pensions (“OPEB”) costs for the
quarters ended June 30, 2014
and
2013
are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
|
Pensions
|
|
OPEB
|
|
Pensions
|
|
OPEB
|
(Millions of dollars)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Service cost
|
$
|
13
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
26
|
|
|
$
|
28
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Interest cost
|
31
|
|
|
29
|
|
|
3
|
|
|
3
|
|
|
62
|
|
|
58
|
|
|
6
|
|
|
6
|
|
Expected return on plan assets
|
(40
|
)
|
|
(38
|
)
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
(76
|
)
|
|
—
|
|
|
—
|
|
Net amortization and deferral
|
16
|
|
|
24
|
|
|
(2
|
)
|
|
(1
|
)
|
|
31
|
|
|
47
|
|
|
(4
|
)
|
|
(2
|
)
|
Net periodic benefit cost
|
$
|
20
|
|
|
$
|
30
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
39
|
|
|
$
|
57
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Praxair estimates that
2014
contributions to its pension plans will be in the area of
$20 million
, of which
$13 million
have been made through
June 30, 2014
.
12. Commitments and Contingencies
Contingent Liabilities
Praxair is subject to various lawsuits and government investigations that arise from time to time in the ordinary course of business. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others. Praxair has strong defenses in these cases and intends to defend itself vigorously. It is possible that the company may incur losses in connection with some of these actions in excess of accrued liabilities. Management does not anticipate that in the aggregate such losses would have a material adverse effect on the company’s consolidated financial position or liquidity; however, it is possible that the final outcomes could have a significant impact on the company’s reported results of operations in any given period (see Note 17 to the consolidated financial statements of Praxair’s
2013
Annual Report on Form 10-K).
Significant matters are:
|
|
•
|
During May 2009, the Brazilian government published Law 11941/2009 instituting a new voluntary amnesty program (“Refis Program”) which allowed Brazilian companies to settle certain federal tax disputes at reduced amounts. During the 2009 third quarter, Praxair decided that it was economically beneficial to settle many of its outstanding federal tax disputes and such disputes were enrolled in the Refis Program, subject to final calculation and review by the Brazilian federal government. The Company recorded estimated liabilities based on the terms of the Refis Program. Since 2009, Praxair has generally been unable to reach final agreement on the calculations and recently initiated litigation against the government in an attempt to resolve certain items. Open issues relate to the following matters: (i) application of cash deposits and net operating loss carryforwards to satisfy obligations, (ii) the amount of tax reductions available under the Refis Program, and (iii) income tax deductibility of payments. Although it is difficult to estimate the timing of resolution of legal matters in Brazil, it is possible that individual disputed matters may be resolved during the next year.
|
|
|
•
|
At
June 30, 2014
the most significant non-income and income tax claims in Brazil, after enrollment in the Refis Program, relate to state VAT tax matters associated with procedural issues and a federal income tax matter where the taxing authorities are challenging the tax rate that should be applied to income generated by a subsidiary company. The total estimated exposure relating to such claims, including interest and penalties, as appropriate, is approximately
$200 million
. Praxair has not recorded any liabilities related to such claims based on management judgments, after considering judgments and opinions of outside counsel. Because litigation in Brazil historically takes many years to resolve, it is very difficult to estimate the timing of resolution of these matters; however, it is possible that certain of these matters may be resolved within the near term. The company is vigorously defending against the proceedings.
|
|
|
•
|
On September 1, 2010, CADE (Brazilian Administrative Council for Economic Defense) announced alleged anticompetitive activity on the part of five industrial gas companies in Brazil and imposed fines on all five companies. Originally, CADE imposed a civil fine of
R$2.2 billion
Brazilian reais (
US$999 million
) against White Martins, the Brazil-based subsidiary of Praxair, Inc. In response to a motion for clarification, the fine was reduced to
R$1.7 billion
Brazilian reais (
US$772 million
) due to a calculation error made by CADE. The amount of the fine is subject to indexation using SELIC. On September 2, 2010, Praxair issued a press release and filed a report on Form 8-K rejecting all claims and stating that the fine represents a gross and arbitrary disregard of Brazilian law.
|
On October 19, 2010, White Martins filed an annulment petition (“appeal”) with the Federal Court in Brasilia seeking to have the fine against White Martins entirely overturned. In order to suspend payment of the fine pending the completion of the appeal process, Brazilian law required that the company tender a form of guarantee in the amount of the fine as security. Currently,
50%
of the guarantee is satisfied by letters of credit with a financial institution and
50%
of the guarantee is satisfied by equity of a Brazilian subsidiary.
Praxair strongly believes that the allegations are without merit and that the fine will be entirely overturned during the appeal process. The company further believes that it has strong defenses and will vigorously defend against the allegations and related fine up to such levels of the Federal Courts in Brazil as may be necessary. Because appeals in Brazil historically take many years to resolve, it is very difficult to estimate when the appeal will be finally decided. Based on management judgments, after considering judgments and opinions of outside counsel, no reserve has been recorded for this proceeding as management does not believe that a loss is probable.
13. Segments
Sales and operating profit by segment for the quarters and
six months ended June 30, 2014
and
2013
are shown below. For a description of Praxair’s operating segments, refer to Note 18 to the consolidated financial statements of Praxair’s
2013
Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
(Millions of dollars)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
SALES
(a)
|
|
|
|
|
|
|
|
North America
|
$
|
1,628
|
|
|
$
|
1,552
|
|
|
$
|
3,208
|
|
|
$
|
3,009
|
|
Europe
|
408
|
|
|
382
|
|
|
805
|
|
|
752
|
|
South America
|
509
|
|
|
536
|
|
|
997
|
|
|
1,067
|
|
Asia
|
394
|
|
|
379
|
|
|
786
|
|
|
746
|
|
Surface Technologies
|
174
|
|
|
165
|
|
|
343
|
|
|
328
|
|
Total sales
|
$
|
3,113
|
|
|
$
|
3,014
|
|
|
$
|
6,139
|
|
|
$
|
5,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
|
Six Months Ended June 30,
|
(Millions of dollars)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
OPERATING PROFIT
|
|
|
|
|
|
|
|
North America
|
$
|
398
|
|
|
$
|
381
|
|
|
$
|
776
|
|
|
$
|
739
|
|
Europe
|
78
|
|
|
69
|
|
|
157
|
|
|
131
|
|
South America
|
113
|
|
|
123
|
|
|
226
|
|
|
237
|
|
Asia
|
76
|
|
|
61
|
|
|
151
|
|
|
124
|
|
Surface Technologies
|
32
|
|
|
31
|
|
|
62
|
|
|
57
|
|
Segment operating profit
|
697
|
|
|
665
|
|
|
1,372
|
|
|
1,288
|
|
Venezuela currency devaluation (Note 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
Total operating profit
|
$
|
697
|
|
|
$
|
665
|
|
|
$
|
1,372
|
|
|
$
|
1,265
|
|
|
|
(a)
|
Intersegment sales, primarily from North America to other segments, were not significant for the quarters and
six months ended June 30, 2014
and
2013
.
|
14. Equity and Redeemable Noncontrolling Interests
Equity
A summary of the changes in total equity for the
quarters ended June 30, 2014
and
2013
is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30,
|
(Millions of dollars)
|
2014
|
|
2013
|
Activity
|
Praxair, Inc.
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
Praxair, Inc.
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
Balance, beginning of period
|
$
|
6,600
|
|
|
$
|
398
|
|
|
$
|
6,998
|
|
|
$
|
6,169
|
|
|
$
|
357
|
|
|
$
|
6,526
|
|
Net income (a)
|
467
|
|
|
10
|
|
|
477
|
|
|
445
|
|
|
9
|
|
|
454
|
|
Other comprehensive income (loss)
|
153
|
|
|
2
|
|
|
155
|
|
|
(386
|
)
|
|
—
|
|
|
(386
|
)
|
Noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
Additions (reductions) (b)
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends and other capital changes
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
|
—
|
|
|
(9
|
)
|
|
(9
|
)
|
Redemption value adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Dividends to Praxair, Inc. common stock holders ($0.65 per share in 2014 and $0.60 per share in 2013)
|
(190
|
)
|
|
—
|
|
|
(190
|
)
|
|
(177
|
)
|
|
—
|
|
|
(177
|
)
|
Issuances of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
For the dividend reinvestment and stock purchase plan
|
2
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
For employee savings and incentive plans
|
19
|
|
|
—
|
|
|
19
|
|
|
43
|
|
|
—
|
|
|
43
|
|
Purchases of common stock
|
(157
|
)
|
|
—
|
|
|
(157
|
)
|
|
(187
|
)
|
|
—
|
|
|
(187
|
)
|
Tax benefit from share-based compensation
|
4
|
|
|
—
|
|
|
4
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Share-based compensation
|
13
|
|
|
—
|
|
|
13
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Balance, end of period
|
$
|
6,911
|
|
|
$
|
395
|
|
|
$
|
7,306
|
|
|
$
|
5,928
|
|
|
$
|
357
|
|
|
$
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(Millions of dollars)
|
2014
|
|
2013
|
Activity
|
Praxair, Inc.
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
Praxair, Inc.
Shareholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
Balance, beginning of period
|
$
|
6,609
|
|
|
$
|
394
|
|
|
$
|
7,003
|
|
|
$
|
6,064
|
|
|
$
|
357
|
|
|
$
|
6,421
|
|
Net income (a)
|
915
|
|
|
20
|
|
|
935
|
|
|
836
|
|
|
19
|
|
|
855
|
|
Other comprehensive loss
|
136
|
|
|
(1
|
)
|
|
135
|
|
|
(383
|
)
|
|
(3
|
)
|
|
(386
|
)
|
Noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
Additions (reductions) (b)
|
(24
|
)
|
|
3
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends and other capital changes
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
Redemption value adjustments
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
Dividends to Praxair, Inc. common stock holders ($1.30 per share in 2014 and $1.20 per share in 2013)
|
(381
|
)
|
|
—
|
|
|
(381
|
)
|
|
(355
|
)
|
|
—
|
|
|
(355
|
)
|
Issuances of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
For the dividend reinvestment and stock purchase plan
|
3
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
3
|
|
For employee savings and incentive plans
|
52
|
|
|
—
|
|
|
52
|
|
|
60
|
|
|
—
|
|
|
60
|
|
Purchases of common stock
|
(450
|
)
|
|
—
|
|
|
(450
|
)
|
|
(343
|
)
|
|
—
|
|
|
(343
|
)
|
Tax benefit from share-based compensation
|
24
|
|
|
—
|
|
|
24
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Share-based compensation
|
28
|
|
|
—
|
|
|
28
|
|
|
34
|
|
|
—
|
|
|
34
|
|
Balance, end of period
|
$
|
6,911
|
|
|
$
|
395
|
|
|
$
|
7,306
|
|
|
$
|
5,928
|
|
|
$
|
357
|
|
|
$
|
6,285
|
|
|
|
(a)
|
Net income for noncontrolling interests excludes Net income related to redeemable noncontrolling interests of
$4 million
and
$8 million
for the quarter and
six months ended June 30, 2014
(
$7 million
and $
12 million
for the same time periods in
2013
, respectively), which is not part of total equity (see redeemable noncontrolling interests section below).
|
|
|
(b)
|
Praxair increased its ownership in certain consolidated subsidiaries. The difference between the purchase price and the related noncontrolling interests was recorded as a decrease in Praxair's additional paid-in-capital.
|
The components of AOCI are as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
(Millions of dollars)
|
2014
|
|
2013
|
Cumulative translation adjustment - net of taxes
|
|
|
|
North America
|
$
|
(310
|
)
|
|
$
|
(315
|
)
|
South America
|
(1,060
|
)
|
|
(1,179
|
)
|
Europe
|
(77
|
)
|
|
(63
|
)
|
Asia
|
34
|
|
|
21
|
|
Surface Technologies
|
32
|
|
|
28
|
|
|
(1,381
|
)
|
|
(1,508
|
)
|
Derivatives - net of taxes
|
(2
|
)
|
|
(4
|
)
|
Pension / OPEB funded status obligation - net of taxes
|
(462
|
)
|
|
(469
|
)
|
|
$
|
(1,845
|
)
|
|
$
|
(1,981
|
)
|
Redeemable Noncontrolling Interests
Noncontrolling interests with redemption features, such as put/sell options, that are not solely within the Company’s control (“redeemable noncontrolling interests”) are reported separately in the consolidated balance sheets at the greater of carrying value or redemption value. For redeemable noncontrolling interests that are not yet exercisable, Praxair calculates the redemption value by accreting the carrying value to the redemption value over the period until exercisable. If the redemption value is greater than the carrying value, any increase is adjusted directly to equity and does not impact net income.
Redeemable noncontrolling interests include Yara Praxair, a joint venture in Scandinavia, and two packaged gas distributors in the United States where the noncontrolling interests have put options. In Scandinavia, the noncontrolling shareholder has the right to sell its shares to Praxair starting in 2015 for a period of 4 years at a formula price. Praxair also obtained the right to purchase the shares held by the noncontrolling shareholder starting in 2017 for a period of 2 years, also at a formula price.
The following is a summary of the changes in redeemable noncontrolling interests for the
six months ended June 30, 2014
and
2013
:
|
|
|
|
|
|
|
|
|
(Millions of dollars)
|
2014
|
|
2013
|
Balance, January 1,
|
$
|
307
|
|
|
$
|
252
|
|
Net income
|
8
|
|
|
12
|
|
Distributions to noncontrolling interest
|
(8
|
)
|
|
(7
|
)
|
Redemption value adjustments/accretion
|
1
|
|
|
13
|
|
Foreign currency translation and other
|
(2
|
)
|
|
(11
|
)
|
Purchase of noncontrolling interest *
|
(112
|
)
|
|
—
|
|
Balance, June 30,
|
$
|
194
|
|
|
$
|
259
|
|
* In January 2014, Praxair acquired the redeemable noncontrolling interests related to Praxair Distribution Mid-Atlantic, LLC. The cash payment is shown in the financing section of the condensed consolidated statements of cash flows under the caption "Noncontrolling interest transactions and other".