Rule 425

Filed by: Praxair, Inc.

Pursuant to Rule 425 under the Securities Act of 1933

and deemed filed pursuant to Rule 14a-12

of the Securities Exchange Act of 1934

Subject Companies: Praxair, Inc.

(Commission File No.: 001-11037)

Linde AG

Commission File No. for Registration Statement on Form S-4: 333-218485

July 27, 2017

 

 

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PRAXAIR

NEWS RELEASE

   Media Contact:    Investor Contact:
   Jason Stewart (203) 837-2448    Juan Pelaez (203) 837-2213
   jason_stewart@praxair.com    juan_pelaez@praxair.com

Praxair Reports Second-Quarter 2017 Results

 

    Solid financial performance

 

    Sales of $2.8 billion, 6% above prior-year quarter

 

    Strong operating cash flow, 25% of sales

 

    Free cash flow of $0.4 billion, 8% above prior-year quarter

 

    EPS of $1.41, up 1% vs. prior-year quarter; adjusted EPS of $1.46, up 5%

 

    Continued focus on execution of our core strategy

 

    Volume growth +3%, price attainment +1% vs. prior-year quarter

 

    Project start-ups in China, Korea and Canada

 

    Backlog $1.4 billion; includes new project win in U.S. Gulf Coast

 

    Continued progress on merger with Linde AG

 

    Signed definitive Business Combination Agreement on June 1, 2017

DANBURY, Conn., July 27, 2017 — Praxair, Inc. (NYSE: PX) reported second-quarter net income and diluted earnings per share of $406 million and $1.41, respectively. These results include transaction costs of $15 million after-tax, or 5 cents of diluted earnings per share, related to the potential Linde AG merger. Excluding this charge, adjusted net income and diluted earnings per share were $421 million and $1.46, respectively.

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

 

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

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

Additional Information and Where to Find It

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

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

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

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

Participants in Solicitation

Praxair, Linde, New Holdco and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Praxair’s stockholders in respect of the proposed business combination. Information regarding the persons who are, under the rules of the SEC, participants in the solicitation of the stockholders of Praxair in connection with the proposed transaction, including a description of their direct or indirect interests, by security holdings or otherwise, are set forth in the proxy statement/prospectus filed with the SEC. Information regarding the

 

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directors and executive officers of Praxair is contained in Praxair’s Annual Report on Form 10-K for the year ended December 31, 2016 and its Proxy Statement on Schedule 14A, dated March 15, 2017, which are filed with the SEC and can be obtained free of charge from the sources indicated above.

Forward-looking Statements

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

# # #

>> About Praxair

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

This document is only controlled while on the Praxair, Inc. website and a copy of this controlled version is available for download. Praxair cannot assure the integrity or accuracy of any version of this document after it has been downloaded or removed from our website.

 

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PRAXAIR, INC. AND SUBSIDIARIES

SUMMARY NON-GAAP RECONCILIATIONS

(UNAUDITED)

The following adjusted amounts are Non-GAAP measures and are intended to supplement investors’ understanding of the company’s financial statements by providing measures which investors, financial analysts and management use to help evaluate the company’s operating performance. Items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these Non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures. See the Non-GAAP reconciliations starting on page 11 for additional details relating to the Non-GAAP adjustments.

(Millions of dollars, except per share amounts)

 

     Sales      Operating Profit      Net Income - Praxair, Inc.      Diluted EPS  
     2017      2016      2017      2016      2017      2016      2017      2016  

Quarter Ended June 30

                       

Reported GAAP Amounts

   $ 2,834      $ 2,665      $ 604      $ 588      $ 406      $ 399      $ 1.41      $ 1.39  

Transaction costs (a)

     —          —          15        —          15        —          0.05        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments

     —          —          15        —          15        —          0.05        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted amounts

   $ 2,834      $ 2,665      $ 619      $ 588      $ 421      $ 399      $ 1.46      $ 1.39  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Year To Date June 30

                       

Reported GAAP Amounts

   $ 5,562      $ 5,174      $ 1,186      $ 1,142      $ 795      $ 755      $ 2.76      $ 2.63  

Transaction costs (a)

     —          —          21        —          21        —          0.07        —    

Bond redemption (b)

     —          —          —          —          —          10        —          0.04  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments

     —          —          21        —          21        10        0.07        0.04  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted amounts

   $ 5,562      $ 5,174      $ 1,207      $ 1,142      $ 816      $ 765      $ 2.83      $ 2.67  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Charges in the 2017 first and second quarters for transaction costs related to the potential Linde merger.
(b) Charge to interest expense in the 2016 first quarter related to a bond redemption.


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PRAXAIR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Millions of dollars, except per share data)

(UNAUDITED)

 

     Quarter Ended     Year to Date  
     June 30,     June 30,  
     2017     2016     2017     2016  

SALES

   $ 2,834     $ 2,665     $ 5,562     $ 5,174  

Cost of sales

     1,598       1,468       3,143       2,849  

Selling, general and administrative

     308       308       587       582  

Depreciation and amortization

     292       281       579       553  

Research and development

     23       24       46       47  

Transaction costs and other charges

     15       —         21       —    

Other income (expense) - net

     6       4       —         (1
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING PROFIT

     604       588       1,186       1,142  

Interest expense - net

     38       44       79       109  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAXES AND EQUITY INVESTMENTS

     566       544       1,107       1,033  

Income taxes

     157       146       306       279  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE EQUITY INVESTMENTS

     409       398       801       754  

Income from equity investments

     11       11       23       21  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (INCLUDING NONCONTROLLING INTERESTS)

     420       409       824       775  

Less: noncontrolling interests

     (14     (10     (29     (20
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME - PRAXAIR, INC.

   $ 406     $ 399     $ 795     $ 755  
  

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS

        

Basic earnings per share

   $ 1.42     $ 1.40     $ 2.78     $ 2.64  

Diluted earnings per share

   $ 1.41     $ 1.39     $ 2.76     $ 2.63  

Cash dividends

   $ 0.7875     $ 0.75     $ 1.575     $ 1.50  

WEIGHTED AVERAGE SHARES OUTSTANDING

        

Basic shares outstanding (000’s)

     286,090       285,702       285,799       285,566  

Diluted shares outstanding (000’s)

     288,535       287,727       288,067       287,426  

Note: See page 5 for a reconciliation to 2017 adjusted amounts which are Non-GAAP.


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PRAXAIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Millions of dollars)

(UNAUDITED)

 

     June 30,     December 31,  
     2017     2016  

ASSETS

    

Cash and cash equivalents

   $ 535     $ 524  

Accounts receivable - net

     1,791       1,641  

Inventories

     568       550  

Prepaid and other current assets

     225       165  
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     3,119       2,880  

Property, plant and equipment - net

     11,806       11,477  

Goodwill

     3,182       3,117  

Other intangibles - net

     568       583  

Other long-term assets

     1,290       1,275  
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 19,965     $ 19,332  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Accounts payable

   $ 900     $ 906  

Short-term debt

     280       434  

Current portion of long-term debt

     910       164  

Other current liabilities

     953       974  
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     3,043       2,478  

Long-term debt

     8,177       8,917  

Other long-term liabilities

     2,475       2,485  
  

 

 

   

 

 

 

TOTAL LIABILITIES

     13,695       13,880  

REDEEMABLE NONCONTROLLING INTERESTS

     10       11  

PRAXAIR, INC. SHAREHOLDERS’ EQUITY:

    

Common stock

     4       4  

Additional paid-in capital

     4,076       4,074  

Retained earnings

     13,223       12,879  

Accumulated other comprehensive income (loss)

     (4,244     (4,600

Less: Treasury stock, at cost

     (7,252     (7,336
  

 

 

   

 

 

 

Total Praxair, Inc. Shareholders’ Equity

     5,807       5,021  

Noncontrolling interests

     453       420  
  

 

 

   

 

 

 

TOTAL EQUITY

     6,260       5,441  
  

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 19,965     $ 19,332  
  

 

 

   

 

 

 


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PRAXAIR, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Millions of dollars)

(UNAUDITED)

 

     Quarter Ended     Year to Date  
     June 30,     June 30,  
     2017     2016     2017     2016  

OPERATIONS

        

Net income - Praxair, Inc.

   $ 406     $ 399     $ 795     $ 755  

Noncontrolling interests

     14       10       29       20  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (including noncontrolling interests)

     420       409       824       775  

Adjustments to reconcile net income to net cash provided by operating activities:

        

Transaction costs and other charges, net of payments

     11       —         17       —    

Depreciation and amortization

     292       281       579       553  

Accounts Receivable

     (46     (41     (95     (61

Inventory

     (3     (1     (5     (8

Payables and accruals

     18       14       (24     (63

Pension contributions

     (3     (4     (6     (6

Deferred income taxes and other

     12       48       121       69  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     701       706       1,411       1,259  
  

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING

        

Capital expenditures

     (325     (357     (652     (680

Acquisitions, net of cash acquired

     (1     (262     (2     (325

Divestitures and asset sales

     13       6       17       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used for investing activities

     (313     (613     (637     (997
  

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING

        

Debt increase (decrease) - net

     (132     595       (305     690  

Issuances of common stock

     44       26       70       60  

Purchases of common stock

     —         (51     (11     (83

Cash dividends - Praxair, Inc. shareholders

     (225     (214     (450     (428

Noncontrolling interest transactions and other

     (71     (107     (84     (109
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used for) financing activities

     (384     249       (780     130  

Effect of exchange rate changes on cash and cash equivalents

     12       4       17       28  
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     16       346       11       420  

Cash and cash equivalents, beginning-of-period

     519       221       524       147  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end-of-period

   $ 535     $ 567     $ 535     $ 567  
  

 

 

   

 

 

   

 

 

   

 

 

 


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PRAXAIR, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

(Millions of dollars)

(UNAUDITED)

 

     Quarter Ended      Year to Date  
     June 30,      June 30,  
     2017     2016      2017     2016  

SALES

         

North America

   $ 1,505     $ 1,411      $ 2,963     $ 2,764  

Europe

     383       355        739       675  

South America

     373       358        742       669  

Asia

     422       393        817       769  

Surface Technologies

     151       148        301       297  
  

 

 

   

 

 

    

 

 

   

 

 

 

Consolidated sales

   $ 2,834     $ 2,665      $ 5,562     $ 5,174  
  

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING PROFIT

         

North America

   $ 378     $ 359      $ 735     $ 708  

Europe

     73       68        139       130  

South America

     63       70        127       125  

Asia

     80       67        155       130  

Surface Technologies

     25       24        51       49  
  

 

 

   

 

 

    

 

 

   

 

 

 

Segment operating profit

   $ 619     $ 588      $ 1,207     $ 1,142  

Transaction costs and other charges

     (15     —          (21     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating profit

   $ 604     $ 588      $ 1,186     $ 1,142  
  

 

 

   

 

 

    

 

 

   

 

 

 


Page 10 of 11

 

PRAXAIR, INC. AND SUBSIDIARIES

QUARTERLY FINANCIAL SUMMARY

(Millions of dollars, except per share data)

(UNAUDITED)

 

     2017 (b)     2016 (c)  
     Q2     Q1     Q4     Q3     Q2     Q1  

FROM THE INCOME STATEMENT

            

Sales

   $ 2,834     $ 2,728     $ 2,644     $ 2,716     $ 2,665     $ 2,509  

Cost of sales

     1,598       1,545       1,478       1,533       1,468       1,381  

Selling, general and administrative

     308       279       272       291       308       274  

Depreciation and amortization

     292       287       285       284       281       272  

Research and development

     23       23       23       22       24       23  

Transaction costs and other charges

     15       6       —         100       —         —    

Other income (expense) - net

     6       (6     13       11       4       (5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     604       582       599       497       588       554  

Interest expense - net

     38       41       38       43       44       65  

Income taxes

     157       149       152       120       146       133  

Income from equity investments

     11       12       10       10       11       10  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (including noncontrolling interests)

     420       404       419       344       409       366  

Less: noncontrolling interests

     (14     (15     (13     (5     (10     (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income - Praxair, Inc.

   $ 406     $ 389     $ 406     $ 339     $ 399     $ 356  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA - PRAXAIR, INC. SHAREHOLDERS

            

Diluted earnings per share

   $ 1.41     $ 1.35     $ 1.41     $ 1.18     $ 1.39     $ 1.24  

Cash dividends per share

   $ 0.7875     $ 0.7875     $ 0.75     $ 0.75     $ 0.75     $ 0.75  

Diluted weighted average shares outstanding (000’s)

     288,535       287,384       287,956       288,195       287,727       286,665  

ADJUSTED AMOUNTS (a)

            

Operating profit

   $ 619     $ 588     $ 599     $ 597     $ 588     $ 554  

Operating margin

     21.8     21.6     22.7     22.0     22.1     22.1

Net Income

   $ 421     $ 395     $ 406     $ 405     $ 399     $ 366  

Diluted earnings per share

   $ 1.46     $ 1.37     $ 1.41     $ 1.41     $ 1.39     $ 1.28  

FROM THE BALANCE SHEET

            

Net debt (a)

   $ 8,832     $ 8,849     $ 8,991     $ 9,215     $ 9,389     $ 9,183  

Capital (a)

   $ 15,102     $ 14,824     $ 14,443     $ 14,864     $ 14,948     $ 14,607  

FROM THE STATEMENT OF CASH FLOWS

            

Cash flow from operations

   $ 701     $ 710     $ 726     $ 788     $ 706     $ 553  

Cash flow provided by (used for) investing activities

     (313     (324     (410     (363     (613     (384

Cash flow provided by (used for) financing activities

     (384     (396     (411     (362     249       (119

Capital expenditures

     325       327       409       376       357       323  

Acquisitions

     1       1       18       20       262       63  

Cash dividends

     225       225       214       214       214       214  

OTHER INFORMATION

            

After-tax return on capital (ROC) (a)

     11.5     11.5     11.5     11.6     12.1     11.5

Adjusted after-tax ROC (a)

     12.1     12.0     12.0     12.1     12.2     12.4

EBITDA (a)

     907       881       894       791       880       836  

EBITDA margin (a)

     32.0     32.3     33.8     29.1     33.0     33.3

Adjusted EBITDA (a)

   $ 922     $ 887     $ 894     $ 891     $ 880     $ 836  

Adjusted EBITDA margin (a)

     32.5     32.5     33.8     32.8     33.0     33.3

Number of employees

     26,487       26,420       26,498       26,680       26,896       26,558  

SEGMENT DATA

            

SALES

            

North America

   $ 1,505     $ 1,458     $ 1,397     $ 1,431     $ 1,411     $ 1,353  

Europe

     383       356       351       366       355       320  

South America

     373       369       352       378       358       311  

Asia

     422       395       395       391       393       376  

Surface Technologies

     151       150       149       150       148       149  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total sales

   $ 2,834     $ 2,728     $ 2,644     $ 2,716     $ 2,665     $ 2,509  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING PROFIT

            

North America

   $ 378     $ 357     $ 359     $ 363     $ 359     $ 349  

Europe

     73       66       71       72       68       62  

South America

     63       64       64       68       70       55  

Asia

     80       75       78       68       67       63  

Surface Technologies

     25       26       27       26       24       25  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating profit

     619       588       599       597       588       554  

Transaction costs and other charges

     (15     (6     —         (100     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating profit

   $ 604     $ 582     $ 599     $ 497     $ 588     $ 554  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Non-GAAP measure, see Appendix.
(b) 2017 includes (i) an after-tax charge of $6 million ($0.02 per diluted share) in the first quarter for transaction costs related to the potential Linde merger and (ii) an after-tax charge of $15 million ($0.05 per diluted share) in the second quarter for transaction costs related to the potential Linde merger.
(c) 2016 includes (i) a $16 million charge to interest expense ($10 million after-tax, or $0.04 per diluted share) in the first quarter related to the redemption of the $325 million 5.20% notes due 2017, (ii) a pre-tax pension settlement charge of $4 million ($3 million after-tax, or $0.01 per diluted share) in the third quarter related to lump sum benefit payments made from the U.S. supplemental pension plan, and (iii) pre-tax charges of $96 million ($63 million after-tax and non-controlling interests, or $0.22 per diluted share) in the third quarter, primarily related to cost reduction actions.


Page 11 of 11

 

PRAXAIR, INC. AND SUBSIDIARIES

APPENDIX

NON-GAAP MEASURES

(Millions of dollars, except per share data)

(UNAUDITED)

The following Non-GAAP measures are intended to supplement investors’ understanding of the company’s financial information by providing measures which investors, financial analysts and management use to help evaluate the company’s financial leverage, return on capital and operating performance. Items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these Non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures. Adjusted amounts exclude the impacts of the 2017 first and second quarter transaction costs, 2016 third quarter cost reduction program and pension settlement, 2016 first quarter bond redemption, 2015 third quarter cost reduction program and pension settlement, and 2015 second quarter cost reduction program and other charges.

Adjusted Amounts

 

    Year-to-date                                               Second  
    June 30,     Second Quarter     First Quarter     Year     Third Quarter     First Quarter     Year     Third Quarter     Quarter  
    2017     2017     2017     2016     2016     2016     2015     2015     2015  

Adjusted Operating Profit and Operating Profit Margin

                 

Reported operating profit

  $ 1,186     $ 604     $ 582     $ 2,238     $ 497     $ 554     $ 2,321     $ 594     $ 480  

Add: Cost reduction program and other charges

    —         —         —         96       96       —         165       19       146  

Add: Pension settlement charge

    —         —         —         4       4       —         7       7       —    

Add: Transaction costs

    21       15       6       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    21       15       6       100       100       —         172       26       146  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating profit

  $ 1,207     $ 619     $ 588     $ 2,338     $ 597     $ 554     $ 2,493     $ 620     $ 626  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reported percentage change

    4     3              

Adjusted percentage change

    6     5              

Reported sales

  $ 5,562     $ 2,834     $ 2,728     $ 10,534     $ 2,716     $ 2,509     $ 10,776     $ 2,686     $ 2,738  

Adjusted operating profit margin

    21.7     21.8     21.6     22.2     22.0     22.1     23.1     23.1     22.9

Adjusted Interest Expense - net

                 

Reported interest expense - net

  $ 79     $ 38     $ 41     $ 190     $ 43     $ 65     $ 161     $ 35     $ 40  

Less: Bond redemption

    —         —         —         (16     —         (16     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted interest expense - net

  $ 79     $ 38     $ 41     $ 174     $ 43     $ 49     $ 161     $ 35     $ 40  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Income Taxes

                 

Reported income taxes

  $ 306     $ 157     $ 149     $ 551     $ 120     $ 133     $ 612     $ 156     $ 131  

Add: Cost reduction program and other charges

    —         —         —         28       28       —         39       6       33  

Add: Bond redemption

    —         —         —         6       —         6       —         —         —    

Add: Pension settlement charge

    —         —         —         1       1       —         2       2       —    

Add: Transaction costs

    —         —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    —         —         —         35       29       6       41       8       33  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted income taxes

  $ 306     $ 157     $ 149     $ 586     $ 149     $ 139     $ 653     $ 164     $ 164  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Effective Tax Rate

                 

Reported income before income taxes and equity investments

  $ 1,107     $ 566     $ 541     $ 2,048     $ 454     $ 489     $ 2,160     $ 559     $ 440  

Add: Cost reduction program and other charges

    —         —         —         96       96       —         165       19       146  

Add: Bond redemption

    —         —         —         16       —         16       —         —         —    

Add: Pension settlement charge

    —         —         —         4       4       —         7       7       —    

Add: Transaction costs

    21       15       6       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    21       15       6       116       100       16       172       26       146  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted income before income taxes and equity investments

  $ 1,128     $ 581     $ 547     $ 2,164     $ 554     $ 505     $ 2,332     $ 585     $ 586  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reported effective tax rate

    27.6     27.7     27.5     26.9     26.4     27.2     28.3     27.9     29.8

Adjusted effective tax rate

    27.1     27.0     27.2     27.1     26.9     27.5     28.0     28.0     28.0

Adjusted Noncontrolling Interests

                 

Reported noncontrolling interests

  $ 29     $ 14     $ 15     $ 38     $ 5     $ 10     $ 44     $ 12     $ 11  

Add: Cost reduction program and other charges

    —         —         —         5       5       —         1       —         1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    —         —         —         5       5       —         1       —         1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted noncontrolling interests

  $ 29     $ 14     $ 15     $ 43     $ 10     $ 10     $ 45     $ 12     $ 12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income - Praxair, Inc.

                 

Reported net income - Praxair, Inc.

  $ 795     $ 406     $ 389     $ 1,500     $ 339     $ 356     $ 1,547     $ 401     $ 308  

Add: Cost reduction program and other charges

    —         —         —         63       63       —         125       13       112  

Add: Bond redemption

    —         —         —         10       —         10       —         —         —    

Add: Pension settlement charge

    —         —         —         3       3       —         5       5       —    

Add: Transaction costs

    21       15       6       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    21       15       6       76       66       10       130       18       112  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income - Praxair, Inc.

  $ 816     $ 421     $ 395     $ 1,576     $ 405     $ 366     $ 1,677     $ 419     $ 420  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reported percentage change

    5     2              

Adjusted percentage change

    7     6              

Adjusted Diluted EPS

                 

Reported diluted EPS

  $ 2.76     $ 1.41     $ 1.35     $ 5.21     $ 1.18     $ 1.24     $ 5.35     $ 1.40     $ 1.06  

Add: Cost reduction program and other charges

    —         —         —         0.22       0.22       —         0.43       0.04       0.39  

Add: Bond redemption

    —         —         —         0.04       —         0.04       —         —         —    

Add: Pension settlement charge

    —         —         —         0.01       0.01       —         0.02       0.02       —    

Add: Transaction costs

    0.07       0.05       0.02       —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

    0.07       0.05       0.02       0.27       0.23       0.04       0.45       0.06       0.39  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted EPS

  $ 2.83     $ 1.46     $ 1.37     $ 5.48     $ 1.41     $ 1.28     $ 5.80     $ 1.46     $ 1.45  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reported percentage change

    5     1              

Adjusted percentage change

    6     5              

Cash Income Taxes and Interest

                 

Income taxes paid

        $ 585         $ 420      

Interest paid, net of interest capitalized and excluding bond redemption

        $ 173         $ 174      

Full Year 2017 Diluted EPS Guidance

 

     Full Year 2017  
     Low End     High End  

2017 GAAP diluted EPS guidance

   $ 5.56     $ 5.68  

Add: Q1 and Q2 Transaction costs (excludes future merger transaction costs)

     0.07       0.07  
  

 

 

   

 

 

 

2017 adjusted diluted EPS guidance

   $ 5.63     $ 5.75  
  

 

 

   

 

 

 

2016 adjusted diluted EPS (see above for full year reconciliation)

   $ 5.48     $ 5.48  
  

 

 

   

 

 

 

Adjusted percentage change

     3     5


Page 11 of 11 (cont’d)

 

    2017     2016     2015  
    Q2     Q1     Q4     Q3     Q2     Q1     Q4     Q3     Q2     Q1  
Free Cash Flow (FCF) - Free cash flow is a measure used by investors, financial analysts and management to evaluate the ability of a company to pursue opportunities that enhance shareholder value. FCF equals cash flow from operations less capital expenditures.  

Operating cash flow

  $ 701     $ 710     $ 726     $ 788     $ 706     $ 553     $ 791     $ 676     $ 710     $ 518  

Less: capital expenditures

    (325     (327     (409     (376     (357     (323     (387     (405     (352     (397
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow

  $ 376     $ 383     $ 317     $ 412     $ 349     $ 230     $ 404     $ 271     $ 358     $ 121  
Net Debt, Capital and Debt-to-Capital Ratio - The debt-to-capital ratio is a measure used by investors, financial analysts and management to provide a measure of financial leverage and insights into how the company is financing its operations.  

Debt

  $ 9,367     $ 9,368     $ 9,515     $ 9,842     $ 9,956     $ 9,404     $ 9,231     $ 9,480     $ 9,313     $ 9,360  

Less: cash and cash equivalents

    (535     (519     (524     (627     (567     (221     (147     (136     (136     (117
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net debt

    8,832       8,849       8,991       9,215       9,389       9,183       9,084       9,344       9,177       9,243  

Equity and redeemable noncontrolling interests:

                   

Redeemable noncontrolling interests

    10       10       11       11       12       119       113       169       175       170  

Praxair, Inc. shareholders’ equity

    5,807       5,529       5,021       5,245       5,140       4,888       4,389       4,264       4,964       5,018  

Noncontrolling interests

    453       436       420       393       407       417       404       380       380       375  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity and redeemable noncontrolling interests

    6,270       5,975       5,452       5,649       5,559       5,424       4,906       4,813       5,519       5,563  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital

  $ 15,102     $ 14,824     $ 14,443     $ 14,864     $ 14,948     $ 14,607     $ 13,990     $ 14,157     $ 14,696     $ 14,806  

Debt-to-capital

    58.5     59.7     62.3     62.0     62.8     62.9     64.9     66.0     62.4     62.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
After-tax Return on Capital and Adjusted After-tax Return on Capital (ROC ) - After-tax return on capital is a measure used by investors, financial analysts and management to evaluate the return on net assets employed in the business. ROC measures the after-tax operating profit that the company was able to generate with the investments made by all parties in the business (debt, noncontrolling interests and Praxair, Inc. shareholders’ equity).  

Reported net income - Praxair, Inc.

  $ 406     $ 389     $ 406     $ 339     $ 399     $ 356     $ 422     $ 401     $ 308     $ 416  

Add: noncontrolling interests

    14       15       13       5       10       10       9       12       11       12  

Add: interest expense - net

    38       41       38       43       44       65       42       35       40       44  

Less: tax benefit on interest expense - net *

    (11     (12     (10     (12     (12     (20     (12     (10     (11     (12
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net operating profit after-tax (NOPAT)

  $ 447     $ 433     $ 447     $ 375     $ 441     $ 411     $ 461     $ 438     $ 348     $ 460  

Pre-tax Adjustments:

                   

Add: Cost reduction program and other charges

    —         —         —         96       —         —         —         19       146       —    

Add: Pension settlement charge

    —         —         —         4       —         —         —         7       —         —    

Add: Transaction costs

    15       6       —         —         —         —         —         —         —         —    

Less: income taxes on pre-tax adjustments

    —         —         —         (29     —         —         —         (8     (33     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted NOPAT

  $ 462     $ 439     $ 447     $ 446     $ 441     $ 411     $ 461     $ 456     $ 461     $ 460  

4-quarter trailing NOPAT

  $ 1,702     $ 1,696     $ 1,674     $ 1,688     $ 1,751     $ 1,658     $ 1,707     $ 1,616     $ 1,700     $ 1,864  

4-quarter trailing adjusted NOPAT

  $ 1,794     $ 1,773     $ 1,745     $ 1,759     $ 1,769     $ 1,789     $ 1,838     $ 1,879     $ 1,945     $ 1,996  

Ending capital (see above)

  $ 15,102     $ 14,824     $ 14,443     $ 14,864     $ 14,948     $ 14,607     $ 13,990     $ 14,157     $ 14,696     $ 14,806  

5-quarter average ending capital

  $ 14,836     $ 14,737     $ 14,570     $ 14,513     $ 14,480     $ 14,451     $ 14,587     $ 14,999     $ 15,460     $ 15,777  

After-tax ROC (4-quarter trailing NOPAT / 5-quarter average capital)

    11.5     11.5     11.5     11.6     12.1     11.5     11.7     10.8     11.0     11.8

Adjusted after-tax ROC (4-quarter trailing adjusted NOPAT / 5-quarter average capital)

    12.1     12.0     12.0     12.1     12.2     12.4     12.6     12.5     12.6     12.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
*  Tax benefit on interest expense - net is generally presented using the reported effective rate.  
EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin - These measures are used by investors, financial analysts and management to assess a company’s profitability.  

Reported net income - Praxair, Inc.

  $ 406     $ 389     $ 406     $ 339     $ 399     $ 356     $ 422     $ 401     $ 308     $ 416  

Add: noncontrolling interests

    14       15       13       5       10       10       9       12       11       12  

Add: interest expense - net

    38       41       38       43       44       65       42       35       40       44  

Add: income taxes

    157       149       152       120       146       133       163       156       131       162  

Add: depreciation and amortization

    292       287       285       284       281       272       275       276       278       277  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

  $ 907     $ 881     $ 894     $ 791     $ 880     $ 836     $ 911     $ 880     $ 768     $ 911  

Adjustments:

                   

Add: Cost reduction program and other charges

    —         —         —         96       —         —         —         19       146       —    

Add: Pension settlement charge

    —         —         —         4       —         —         —         7       —         —    

Add: Transaction costs

    15       6       —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 922     $ 887     $ 894     $ 891     $ 880     $ 836     $ 911     $ 906     $ 914     $ 911  

Reported sales

    2,834       2,728       2,644       2,716       2,665       2,509       2,595       2,686       2,738       2,757  

EBITDA margin

    32.0     32.3     33.8     29.1     33.0     33.3     35.1     32.8     28.0     33.0

Adjusted EBITDA margin

    32.5     32.5     33.8     32.8     33.0     33.3     35.1     33.7     33.4     33.0