10-K 1 px201410k.htm FORM 10-K PX 2014 10K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 1-11037
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Praxair, Inc.
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Praxair, Inc.
 
 
39 Old Ridgebury Road
 
State of incorporation: Delaware
Danbury, Connecticut 06810-5113
 
IRS identification number: 06-124 9050
Tel. (203) 837-2000
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Registered on:
Common Stock ($0.01 par value)
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨   No  þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ    Accelerated filer  ¨    Non- accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates as of June 30, 2014, was approximately $39 billion (based on the closing sale price of the stock on that date as reported on the New York Stock Exchange).
At January 31, 2015, 288,789,175 shares of common stock of Praxair, Inc. were outstanding.
Documents incorporated by reference:
Portions of the Proxy Statement of Praxair, Inc., for its 2015 Annual Meeting of Shareholders, are incorporated in Part III of this report.
 



PRAXAIR, INC.
ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2014
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Part I
 
 
 
 
 
Item 1:
Item 1A:
Item 1B:
Item 2:
Item 3:
Item 4:
 
 
 
Part II
 
 
 
 
 
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Item 9:
Item 9A:
Item 9B:
 
 
 
Part III
 
 
 
 
 
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
 
 
 
Part IV
 
 
 
 
 
Item 15:
 
 
 
 

 

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Praxair, Inc. and Subsidiaries
PART I
ITEM 1.     BUSINESS
General
Praxair, Inc. (Praxair or the company) was founded in 1907 and became an independent publicly traded company in 1992. Praxair was the first company in the United States to produce oxygen from air using a cryogenic process and continues to be a major technological innovator in the industrial gases industry.
Praxair is the largest industrial gas supplier in North and South America, is rapidly growing in Asia, and has strong, well-established businesses in Europe. Praxair’s primary products in its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The company also designs, engineers, and builds equipment that produces industrial gases primarily for internal use. The company’s surface technologies segment, operated through Praxair Surface Technologies, Inc., supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. Praxair’s sales were $12,273 million, $11,925 million, and $11,224 million for 2014, 2013, and 2012, respectively. Refer to Note 18 to the consolidated financial statements for additional information related to Praxair’s reportable segments.
Praxair serves a diverse group of industries including healthcare, petroleum refining, computer-chip manufacturing, beverage carbonation, fiber-optics, steel making, aerospace, chemicals and water treatment. In 2014, 94% of sales were generated in four geographic segments (North America, Europe, South America and Asia) primarily from the sale of industrial gases, with the balance generated from the surface technologies segment. Praxair provides a competitive advantage to its customers by continuously developing new products and applications, which allow them to improve their productivity, energy efficiency and environmental performance.
Industrial Gases Products and Manufacturing Processes
Atmospheric gases are the highest volume products produced by Praxair. Using air as its raw material, Praxair produces oxygen, nitrogen and argon through several air separation processes of which cryogenic air separation is the most prevalent. As a pioneer in the industrial gases industry, Praxair is a leader in developing a wide range of proprietary and patented applications and supply systems technology. Praxair also led the development and commercialization of non-cryogenic air separation technologies for the production of industrial gases. These technologies open important new markets and optimize production capacity for the company by lowering the cost of supplying industrial gases. These technologies include proprietary vacuum pressure swing adsorption (“VPSA”) and membrane separation to produce gaseous oxygen and nitrogen, respectively. Praxair also manufactures precious metal and ceramic sputtering targets used primarily in the production of semiconductors.
Process gases, including carbon dioxide, hydrogen, carbon monoxide, helium, specialty gases and acetylene are produced by methods other than air separation. Most carbon dioxide is purchased from by-product sources, including chemical plants, refineries and industrial processes and is recovered from carbon dioxide wells. Carbon dioxide is processed in Praxair’s plants to produce commercial and food-grade carbon dioxide. Hydrogen and carbon monoxide are produced by either steam methane reforming of natural gas or by purifying by-product sources obtained from the chemical and petrochemical industries. Most of the helium sold by Praxair is sourced from certain helium-rich natural gas streams in the United States, with additional supplies being acquired from outside the United States. Acetylene can be produced from calcium carbide and water. Praxair purchases a significant percentage as a chemical by-product.
Industrial Gases Distribution
There are three basic distribution methods for industrial gases: (i) on-site or tonnage; (ii) merchant or bulk liquid; and (iii) packaged or cylinder gases. These distribution methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is generally determined by the lowest cost means of meeting the customer’s needs, depending upon factors such as volume requirements, purity, pattern of usage, and the form in which the product is used (as a gas or as a cryogenic liquid). Additionally, Praxair provides a number of services, such as maintenance of equipment, which are ancillary to the process of supplying product to customers.
On-site. Customers that require the largest volumes of product (typically oxygen, nitrogen and hydrogen) and that have a relatively constant demand pattern are supplied by cryogenic and process gas on-site plants. Praxair constructs plants on or adjacent to these customers’ sites and supplies the product directly to customers by pipeline. On-site product supply contracts generally are total requirement contracts with terms typically ranging from 10-20 years and containing minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. Therefore, plants are typically not dedicated to a single customer. Advanced air

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separation processes allow on-site delivery to customers with smaller volume requirements. Customers using these systems usually enter into requirement contracts with terms typically ranging from 5-15 years.
Merchant. The merchant business is generally associated with distributable liquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium. The deliveries generally are made from Praxair’s plants by tanker trucks to storage containers at the customer's site which are owned and maintained by Praxair and leased to the customer. Due to distribution cost, merchant oxygen and nitrogen generally have a relatively small distribution radius from the plants at which they are produced. Merchant argon, hydrogen and helium can be shipped much longer distances. The customer agreements used in the merchant business are usually three-to five-year requirement contracts.
Packaged Gases. Customers requiring small volumes are supplied products in metal containers called cylinders, under medium to high pressure. Packaged gases include atmospheric gases, carbon dioxide, hydrogen, helium, acetylene and related. Praxair also produces and distributes in cylinders a wide range of specialty gases and mixtures. Cylinders may be delivered to the customer’s site or picked up by the customer at a packaging facility or retail store. Packaged gases are generally sold under one to three-year supply contracts and through purchase orders.
A substantial amount of the cylinder gases sold in the United States is distributed by independent distributors that buy merchant gases in liquid form and repackage the products in their facilities. Packaged gas distributors, including Praxair, also distribute hardgoods and welding equipment purchased from independent manufacturers. Over time, Praxair has acquired a number of independent industrial gases and welding products distributors at various locations in the United States and continues to sell merchant gases to other independent distributors. Between its own distribution business, joint ventures and sales to independent distributors, Praxair is represented in 48 states, the District of Columbia and Puerto Rico.
Surface Technologies
Praxair Surface Technologies is a leading worldwide supplier of coatings services and thermal spray consumables to customers in the aircraft, energy, printing, primary metals, petrochemical, textile, and other industries. Its coatings are used to provide wear resistance, corrosion protection, thermal insulation, and many other surface-enhancing functions which serve to extend component life, enable optimal performance, and reduce operating costs. It also manufactures a complete line of electric arc, plasma and wire spray, and high-velocity oxy-fuel ("HVOF") equipment.
Inventories – Praxair carries inventories of merchant and cylinder gases, hardgoods and coatings materials to supply products to its customers on a reasonable delivery schedule. On-site plants and pipeline complexes have limited inventory. Inventory obsolescence is not material to Praxair’s business.
Customers – Praxair is not dependent upon a single customer or a few customers.
International – Praxair is a global enterprise with approximately 58% of its 2014 sales outside of the United States. It conducts industrial gases business through consolidated companies in Argentina, Bahrain, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Denmark, Dominican Republic, France, Germany, Ghana, India, Italy, Japan, Mexico, the Netherlands, Norway, Paraguay, Peru, Portugal, Puerto Rico, Russia, South Korea, Spain, Sweden, Taiwan, Thailand, United Arab Emirates, the United Kingdom, Uruguay and Venezuela. Societa Italiana Acetilene & Derivati S.p.A. ("S.I.A.D."), an Italian company accounted for as an equity company, also has established positions in Austria, Bosnia, Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine. Refrigeration and Oxygen Company Limited ("ROC"), a Middle Eastern company accounted for as an equity company, has operations in the United Arab Emirates, Kuwait and Qatar. Praxair’s surface technologies segment has operations in Brazil, Canada, China, France, Germany, India, Italy, Japan, Singapore, South Korea and the United Kingdom.
Praxair’s international business is subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates, import and export controls, and other economic, political and regulatory policies of local governments. Also, see Item 1A. “Risk Factors” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
Seasonality – Praxair’s business is generally not subject to seasonal fluctuations to any significant extent.
Research and Development – Praxair’s research and development is directed toward developing new and improved methods for the production and distribution of industrial gases and the development of new markets and applications for these gases. This results in the development of new advanced air separation and hydrogen process technologies and the frequent introduction of new industrial gas applications. Research and development for industrial gases is principally conducted at Tonawanda, New York; Burr Ridge, Illinois; Shanghai, China; and Bangalore, India.
Praxair conducts research and development for its surface technologies to improve the quality and durability of coatings and the use of specialty powders for new applications and industries. Surface technologies research is conducted at Indianapolis, Indiana.

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Patents and Trademarks – Praxair owns or licenses a large number of United States and foreign patents that relate to a wide variety of products and processes. Praxair’s patents expire at various times over the next 20 years. While these patents and licenses are considered important to our individual businesses, Praxair does not consider its business as a whole to be materially dependent upon any one particular patent, or patent license, or family of patents. Praxair also owns a large number of valuable trademarks. Only the "Praxair" trademark is important to our business as a whole.
Raw Materials and Energy Costs – Energy is the single largest cost item in the production and distribution of industrial gases. Most of Praxair’s energy requirements are in the form of electricity, natural gas and diesel fuel for distribution.
The supply of energy has not been a significant issue in the geographic areas where the company conducts business. However, energy availability and price is unpredictable and may pose unforeseen future risks.
For carbon dioxide, carbon monoxide, helium, hydrogen, specialty gases and surface technologies, raw materials are largely purchased from outside sources. Praxair has contracts or commitments for, or readily available sources of, most of these raw materials; however, their long-term availability and prices are subject to market conditions.
Competition – Praxair operates within a highly competitive environment. Some of its competitors are larger in size and capital base than Praxair. Competition is based on price, product quality, delivery, reliability, technology and service to customers.
Major competitors in the industrial gases industry both in the United States and worldwide include Air Products and Chemicals, Inc., Airgas Inc., L’Air Liquide S.A., and Linde AG. Principal competitors for the surface technologies business are Chromalloy Gas Turbine Corporation, a subsidiary of Sequa Corporation, Bodycote, PLC, and OC Oerlikon Corp AG. There are other surface coating competitors that compete on a local geography basis.
Employees and Labor Relations – As of December 31, 2014, Praxair had 27,780 employees worldwide. Of this number, 10,570 are employed in the United States. Praxair has collective bargaining agreements with unions at numerous locations throughout the world, which expire at various dates. Praxair considers relations with its employees to be good.
Environment – Information required by this item is incorporated herein by reference to the section captioned “Management’s Discussion and Analysis – Environmental Matters” in Item 7 of this 10-K.
Available Information – The company makes its periodic and current reports available, free of charge, on or through its website, www.praxair.com, as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission ("SEC"). Investors may also access from the company website other investor information such as press releases and presentations. Information on the company’s website is not incorporated by reference herein.
In addition, the public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room located at 100 F Street NE, Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov, that contains reports, proxy information statements and other information regarding issuers that file electronically.
Executive Officers – The following Executive Officers have been elected by the Board of Directors and serve at the pleasure of the Board. It is expected that the Board will elect officers annually following each annual meeting of shareholders.
Stephen F. Angel, 59, is Chief Executive Officer of Praxair, Inc. since January 1, 2007, and Chairman since May 1, 2007. Before becoming the Chief Executive Officer, Mr. Angel served as President and Chief Operating Officer from March to December 2006, and as Executive Vice President from 2001 to March 2006. Prior to joining Praxair in 2001, Mr. Angel spent 22 years in a variety of management positions with General Electric. Mr. Angel is a director of PPG Industries, Inc. where he serves on the Officers-Directors Compensation Committee, and is the Chairman of the Technology and Environment Committee. He is also a member of The Business Council, the U.S. - Brazil CEO Forum, a member of the Board of the U.S. - China Business Council, and is a former director of the American Chemistry Council.
Guillermo Bichara, 40, was appointed Vice President, General Counsel and Corporate Secretary of Praxair, Inc. effective January 1, 2015. Prior to this, from 2013-2014, he was Associate General Counsel and Assistant Secretary. From 2011-2013, Mr. Bichara served as Associate General Counsel with responsibility for Praxair Europe, Praxair Mexico and corporate transactions. He was Vice President and General Counsel of Praxair Asia from 2007-2011, and joined Praxair in 2006 as director of legal affairs at Praxair Mexico. Prior to joining Praxair, Mr. Bichara served as corporate counsel at CEMEX, Mexico's global leader in the building materials industry, and was a foreign associate and counsel, respectively, at the law firms of Skadden, Arps, Slate, Meagher & Flom and White & Case.

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Elizabeth T. Hirsch, 61, is Vice President and Controller of Praxair, Inc. since December 2010. Prior to becoming Controller, she served as Praxair’s Director of Investor Relations since 2002 and as Vice President of Investor Relations since October 2010. She joined Praxair in 1995 as Director of Corporate Finance and later served as Assistant Treasurer. Previously, she had fifteen years of experience in corporate banking, primarily at Manufacturers Hanover Trust Company.
Karen L. Keegans, 49, was appointed Vice President and Chief Human Resources officer in 2014. Ms. Keegans joined Praxair in 2012 as vice president, HR, North America, from Monsanto where she had spent the previous five years. While at Monsanto, Ms. Keegans had increasing HR leadership roles, gaining global exposure across all business areas and was most recently VP, HR, Global Manufacturing.
Eduardo F. Menezes, 51, was promoted to Executive Vice President from Senior Vice President effective March 1, 2012. He oversees Praxair’s businesses in Europe, Mexico, and South America, and Praxair’s U.S. and global hydrogen operations. From 2010 to March 2011, he was a Vice President of Praxair with responsibility for the North American Industrial Gases business. From 2007 to 2010, he was President of Praxair Europe. He served as Managing Director of Praxair’s business in Mexico from 2004 to 2007, as Vice President and General Manager for Praxair Distribution, Inc. from 2003 to 2004 and as Vice President, U.S. West Region, for North American Industrial Gases, from 2000 to 2003.
Anne K. Roby, age 50, was named Senior Vice President on January 1, 2014, responsible for Global Supply Systems, R&D, Global Market Development, Global Operations Excellence, Global Procurement, Sustainability and Safety, Health and Environment. From 2011-2013, she served as President of Praxair Asia, responsible for Praxair’s industrial gases business in China, India, South Korea and Thailand as well as the electronics market globally. In 2010, Ms. Roby became President of Praxair Electronics, after having served as Vice President, Global Sales, for Praxair from 2009-2010. Prior to this, she was Vice President of the U.S. South Region from 2006-2009. Ms. Roby joined Praxair in 1991 as a development associate in the Company’s R&D organization and was promoted to other positions of increasing responsibility.
Scott E. Telesz, 47, was promoted to Executive Vice President from Senior Vice President, effective March 1, 2012. He is responsible for Praxair’s U.S. Industrial Gases (USIG) organization, and it’s business in Canada, Praxair Distribution, Praxair Surface Technologies, NUCO2, and Helium-Rare Gases. Before joining Praxair in 2010, he was a Vice President from 2007 to 2010 of SABIC Innovative Plastics, a major division of Riyadh-based Saudi Basic Industries Corporation, a global manufacturer of chemicals, fertilizers, plastics and metals. From 1998 to 2007, he held a variety of general management positions with General Electric, and from 1989 to 1998, Mr. Telesz held several positions, including Engagement Manager, in the United States and Australia, with McKinsey & Company.

Matthew J. White, 42, was appointed Senior Vice President and Chief Financial Officer effective January 1, 2014. Prior to this, Mr. White was President of Praxair Canada from 2011-2014. Mr. White joined Praxair in 2004 as finance director of Praxair’s largest business unit, North American Industrial Gases. In 2008, he became Vice President and Controller of Praxair, then was named Vice President and Treasurer in 2010. Before joining Praxair, Mr. White was vice president, finance, at Fisher Scientific and before that he held various financial positions, including group controller, at GenTek, a manufacturing and performance chemicals company.
ITEM 1A.     RISK FACTORS
Due to the size and geographic reach of the company’s operations, a wide range of factors, many of which are outside of the company’s control, could materially affect the company’s future operations and financial performance. Management believes the following risks may significantly impact the company:
General Economic Conditions – Weakening economic conditions in markets in which the company does business may adversely impact the company’s financial results and/or cash flows.
Praxair serves a diverse group of industries across more than 50 countries, which generally leads to financial stability through various business cycles. However, a broad decline in general economic or business conditions in the industries served by its customers could adversely affect the demand for Praxair’s products and impair the ability of our customers to satisfy their obligations to the company, resulting in uncollected receivables and/or unanticipated contract terminations or project delays. In addition, many of the company’s customers are in businesses that are cyclical in nature, such as the chemicals, electronics, metals and refining industries. Downturns in these industries may adversely impact the company during these cycles. Additionally, such conditions could impact the utilization of the company’s manufacturing capacity which may require the company to recognize impairment losses on tangible assets such as property, plant and equipment as well as intangible assets such as intellectual property or goodwill.

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Cost and Availability of Raw Materials and Energy – Increases in the cost of energy and raw materials and/or disruption in the supply of these materials could result in lost sales or reduced profitability.
Energy is the single largest cost item in the production and distribution of industrial gases. Most of Praxair’s energy requirements are in the form of electricity, natural gas and diesel fuel for distribution. Praxair attempts to minimize the financial impact of variability in these costs through the management of customer contracts and reducing demand through operational productivity and energy efficiency. Large customer contracts typically have escalation and pass-through clauses to recover energy and feedstock costs. Such attempts may not successfully mitigate cost variability which could negatively impact its financial condition or results of operations. The supply of energy has not been a significant issue in the geographic areas where it conducts business. However, regional energy conditions are unpredictable and may pose future risk.
For carbon dioxide, carbon monoxide, helium, hydrogen, specialty gases and surface technologies, raw materials are largely purchased from outside sources. Where feasible, Praxair sources several of these gases, including carbon dioxide, hydrogen and calcium carbide, as chemical or industrial byproducts. In addition, Praxair has contracts or commitments for, or readily available sources of, most of these raw materials; however, their long-term availability and prices are subject to market conditions. A disruption in supply of such raw materials could impact the company’s ability to meet contractual supply commitments.
International Events and Circumstances – The company’s international operations are subject to the risks of doing business abroad and international events and circumstances may adversely impact its business, financial condition or results of operations.
Praxair has substantial international operations which are subject to risks including devaluations in currency exchange rates, transportation delays and interruptions, political and economic instability and disruptions, restrictions on the transfer of funds, the imposition of duties and tariffs, import and export controls, changes in governmental policies, labor unrest, possible nationalization and/or expropriation of assets, domestic and international tax laws and compliance with governmental regulations. These events could have an adverse effect on the international operations in the future by reducing the demand for its products, decreasing the prices at which it can sell its products, reducing the U.S. dollar value of revenue from international operations or otherwise having an adverse effect on its business. Also, the Company is monitoring developments regarding the collectability of government receivables from healthcare sales to public hospitals in Spain and Italy where economic conditions have been challenging and uncertain. Historically, collection of such government receivables has extended beyond the contractual terms of sale; however, payment has always been received. At December 31, 2014, government receivables in Spain and Italy totaled about $60 million.
Global Financial Markets Conditions – Macroeconomic factors may impact the company’s ability to obtain financing or increase the cost of obtaining financing which may adversely impact the company’s financial results and/or cash flows.
Volatility and disruption in the U.S. and global credit and equity markets, from time to time, could make it more difficult for Praxair to obtain financing for its operations and/or could increase the cost of obtaining financing. In addition, the company’s borrowing costs can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in significant part, on the company’s performance as measured by certain criteria such as interest coverage and leverage ratios. A decrease in these debt ratings could increase the cost of borrowing or make it more difficult to obtain financing. While the impact of volatility in the global credit markets cannot be predicted with certainty, the company believes that it has sufficient operating flexibility, cash reserves, and funding sources to maintain adequate amounts of liquidity to meet its business needs around the world.
Competitor Actions – The inability to effectively compete could adversely impact results of operations.
Praxair operates within a highly competitive environment worldwide. Competition is based on price, product quality, delivery, reliability, technology and service to customers. Competitors’ behavior related to these areas could potentially have significant impacts on the company’s financial results.
Governmental Regulations – The company is subject to a variety of United States and foreign government regulations. Changes in these regulations could have an adverse impact on the business, financial position and results of operations.
The company is subject to regulations in the following areas, among others:
Environmental protection including climate change;
Domestic and international tax laws and currency controls;
Safety;
Securities laws (e.g., SEC and generally accepted accounting principles in the United States);

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Trade and import/ export restrictions;
Antitrust matters;
Global anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
Healthcare reimbursement regulations; and
Conflict minerals
Changes in these or other regulatory areas may impact the company’s profitability, may require the company to spend additional resources to comply with the regulations, or may restrict the company’s ability to compete effectively in the marketplace. Noncompliance with such laws and regulations could result in penalties or sanctions that could have an adverse impact on the company’s financial results. Environmental protection is discussed further below.
Praxair is subject to various environmental and occupational health and safety laws and regulations, including those governing the discharge of pollutants into the air or water, the storage, handling and disposal of chemicals, hazardous substances and wastes, the remediation of contamination, the regulation of greenhouse gas emissions, and other potential climate change initiatives. Violations of these laws could result in substantial penalties, third party claims for property damage or personal injury, or sanctions. The company may also be subject to liability for the investigation and remediation of environmental contamination at properties that it owns or operates and at other properties where Praxair or its predecessors have operated or arranged for the disposal of hazardous wastes. Although management does not believe that any such liabilities will have a material adverse impact on its financial position and results of operations, management cannot provide assurance that such costs will not increase in the future or will not become material. See the section captioned “Management’s Discussion and Analysis – Environmental Matters” in Item 7 of this Form 10-K.
Catastrophic Events – Catastrophic events could disrupt the operations of the company and/or its customers and suppliers and may have a significant adverse impact on the results of operations.
The occurrence of catastrophic events or natural disasters such as extreme weather, including hurricanes and floods;health epidemics; acts of war or terrorism; could disrupt or delay the company’s ability to produce and distribute its products to customers and could potentially expose the company to third-party liability claims. In addition, such events could impact the company’s customers and suppliers resulting in temporary or long-term outages and/or the limitation of supply of energy and other raw materials used in normal business operations. To mitigate these risks, Praxair evaluates the direct and indirect business risks,: consults with vendors, insurance providers and industry experts; makes investments in suitably resilient design and technology, and conducts regular reviews of the business risks with management. Despite these steps, however, these situations are outside the company’s control and may have a significant adverse impact on the company’s financial results.

Retaining Qualified Personnel – The inability to attract and retain qualified personnel may adversely impact the company’s business.
If Praxair fails to attract, hire and retain qualified personnel, the company may not be able to develop, market or sell its products or successfully manage its business. Praxair is dependent upon its highly skilled, experienced and efficient workforce to be successful. Much of Praxair’s competitive advantage is based on the expertise and experience of its key personnel regarding its marketing, technology, manufacturing and distribution infrastructure, systems and products. The inability to attract and hire qualified individuals or the loss of key employees in very skilled areas could have a negative effect on the company’s financial results.
Technological Advances – If the company fails to keep pace with technological advances in the industry or if new technology initiatives do not become commercially accepted, customers may not continue to buy the company’s products and results of operations could be adversely affected.
Praxair’s research and development is directed toward developing new and improved methods for the production and distribution of industrial gases and the development of new markets and applications for the use of these gases. This results in the frequent introduction of new industrial gas applications and the development of new advanced air separation process technologies. The company also conducts research and development for its surface technologies to improve the quality and durability of coatings and the use of specialty powders for new applications and industries. As a result of these efforts, the company develops new and proprietary technologies and employs necessary measures to protect such technologies within the global geographies in which the company operates. These technologies help Praxair to create a competitive advantage and to provide a platform for the company to grow its business. If Praxair’s research and development activities do not keep pace with competitors or if it does not create new technologies that benefit customers, future results of operations could be adversely affected.

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Litigation and Governmental Investigations – The outcomes of litigation and governmental investigations may affect the company’s financial results.
Praxair is subject to various lawsuits and governmental investigations arising out of the normal course of business that may result in adverse outcomes. These actions are based upon alleged environmental, tax, antitrust and personal injury claims, among others. Adverse outcomes in some or all of the claims pending may result in significant monetary damages or injunctive relief that could adversely affect its ability to conduct business. While management currently believes that resolving all of these matters, individually or in the aggregate, will not have a material adverse impact on the company’s financial position or liquidity, the litigation and other claims Praxair faces are subject to inherent uncertainties and management’s view of these matters may change in the future. There exists the possibility of a material adverse impact on the company’s results of operations for the period in which the effect of an unfavorable final outcome becomes probable and reasonably estimable.
Tax Liabilities – Potential tax liabilities could adversely impact the company’s financial position and results of operations.
Praxair is subject to income and other taxes in both the United States and numerous foreign jurisdictions. The determination of the company’s worldwide provision for income taxes and other tax liabilities requires judgment and is based on diverse legislative and regulatory structures that exist in the various jurisdictions where the company operates. Although management believes its estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in its financial statements and may materially affect the company’s financial results for the period when such determination is made. See Notes 5 and 17 to the consolidated financial statements of this Form 10-K.
Pension Liabilities – Risks related to our pension benefit plans may adversely impact our results of operations and cash flows.
Pension benefits represent significant financial obligations that will be ultimately settled in the future with employees who meet eligibility requirements. Because of the uncertainties involved in estimating the timing and amount of future payments and asset returns, significant estimates are required to calculate pension expense and liabilities related to the company’s plans. The company utilizes the services of independent actuaries, whose models are used to facilitate these calculations. Several key assumptions are used in the actuarial models to calculate pension expense and liability amounts recorded in the consolidated financial statements. In particular, significant changes in actual investment returns on pension assets, discount rates, or legislative or regulatory changes could impact future results of operations and required pension contributions. For information regarding the potential impacts regarding significant assumptions used to estimate pension expense, including discount rates and the expected long-term rates of return on plan assets. See “Critical Accounting Policies – Pension Benefits” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.
Operational Risks – Operational risks may adversely impact the company’s business or results of operations.
Praxair’s operating results are dependent on the continued operation of its production facilities and its ability to meet customer contract requirements and other needs. Insufficient or excess capacity threatens the company’s ability to generate competitive profit margins and may expose the company to liabilities related to contract commitments. Operating results are also dependent on the company’s ability to complete new construction projects on time, on budget and in accordance with performance requirements. Failure to do so may expose the business to loss of revenue, potential litigation and loss of business reputation.
Also inherent in the management of the company’s production facilities and delivery systems, including storage, vehicle transportation and pipelines, are operational risks that require continuous training, oversight and control. Material operating failures at production, storage facilities or pipelines, including fire, toxic release and explosions, or the occurrence of vehicle transportation accidents could result in loss of life, damage to the environment, loss of production and/or extensive property damage, all of which may negatively impact the company’s financial results.
Information Technology Systems – The Company may be subject to information technology system ("IT") failures, network disruptions and breaches in data security.
Praxair relies on IT systems and networks for business and operational activities, and also stores and processes sensitive business and proprietary information in these systems and networks. These systems are susceptible to outages due to fire, flood, power loss, telecommunications failures, viruses, break-ins and similar events, or breaches of security. Management has taken steps to address these risks and concerns by implementing advanced security technologies, internal controls, network and data center resiliency and recovery process. Despite these steps, however, operational failures and breaches of security from increasingly sophisticated cyber threats could lead to the loss or disclosure of confidential information, result in regulatory actions and have a material adverse impact on Praxair's operations, reputation and financial results.

9


Acquisitions and Joint Ventures – The inability to effectively integrate acquisitions or collaborate with joint venture partners could adversely impact the company’s financial position and results of operations.
Praxair has evaluated, and expects to continue to evaluate, a wide array of potential strategic acquisitions and joint ventures. Many of these transactions, if consummated, could be material to its financial condition and results of operations. In addition, the process of integrating an acquired company, business or group of assets may create unforeseen operating difficulties and expenditures. Although historically the company has been successful with its acquisition strategy and execution, the areas where the company may face risks include:
The need to implement or remediate controls, procedures and policies appropriate for a larger public company at companies that prior to the acquisition lacked these controls, procedures and policies;
Diversion of management time and focus from operating existing business to acquisition integration challenges;
Cultural challenges associated with integrating employees from the acquired company into the existing organization;
The need to integrate each company’s accounting, management information, human resource and other administrative systems to permit effective management;
Difficulty with the assimilation of acquired operations and products;
Failure to achieve targeted synergies; and
Inability to retain key employees and business relationships of acquired companies.
Foreign acquisitions and joint ventures involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. Also, the anticipated benefit of the company’s acquisitions may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairments of goodwill, any of which could adversely impact the company’s financial results.
ITEM 1B.     UNRESOLVED STAFF COMMENTS
Praxair has received no written SEC staff comments regarding any of its Exchange Act reports which remain unresolved.
ITEM 2.     PROPERTIES
Praxair’s worldwide headquarters are located in leased office space in Danbury, Connecticut. Other principal administrative offices are owned in Tonawanda, New York, and leased in Rio de Janeiro, Brazil; Shanghai, China and Madrid, Spain.
Praxair designs, engineers, manufactures and operates facilities that produce and distribute industrial gases. These industrial gas production facilities and certain components are designed and/or manufactured at its facilities in Tonawanda, New York; Burr Ridge, Illinois; Rio de Janeiro, Brazil; Monterrey, Mexico; Shanghai, China; and Bangalore, India. Praxair’s Italian equity affiliate, S.I.A.D., also has such capacity.
Due to the nature of Praxair’s industrial gas products, it is generally uneconomical to transport them distances greater than a few hundred miles from the production facility. As a result, Praxair operates a significant number of production facilities spread globally throughout a number of geographic regions.
The following is a description of production facilities for Praxair by segment. No significant portion of these assets was leased at December 31, 2014. Generally, these facilities are fully utilized and are sufficient to meet our manufacturing needs.
North America
The North America segment operates production facilities in the U.S., Canada and Mexico, approximately 245 of which are cryogenic air separation plants, hydrogen plants and carbon dioxide plants. There are five major pipeline complexes in North America located in Northern Indiana, Houston, along the Gulf Coast of Texas, Detroit and Louisiana. Also located throughout North America are packaged gas facilities, specialty gas plants, helium plants and other smaller plant facilities.



10


Europe
The Europe segment has production facilities primarily in Italy, Spain, Germany, the Benelux region, Scandinavia and Russia which include approximately 60 cryogenic air separation plants. There are three major pipeline complexes in Europe located in Northern Spain and the Rhine and Saar regions of Germany. These pipeline complexes are primarily supplied by cryogenic air separation plants. Also located throughout Europe are specialty gas plants, packaged gas facilities and other smaller plant facilities.
South America
The South America segment operates more than 50 cryogenic air separation plants, primarily located in Brazil. Many of these plants support a major pipeline complex in Southern Brazil. Also located throughout South America are carbon dioxide plants, packaged gas facilities and other smaller plant facilities.
Asia
The Asia segment has production facilities located primarily in China, Korea, India and Thailand, approximately 50 of which are cryogenic air separation plants. Also located throughout Asia are noncryogenic air separation, carbon dioxide, hydrogen, packaged gas and other production facilities.
Surface Technologies
The surface technologies segment provides coating services and manufactures coating equipment at approximately 45 sites. The majority of these sites are located in the United States and Europe, with smaller operations in Asia, Brazil, India and headquarters located in Indianapolis, Indiana.
ITEM 3.     LEGAL PROCEEDINGS
Information required by this item is incorporated herein by reference to the section captioned “Notes to Consolidated Financial Statements – 17 Commitments and Contingencies” in Item 8 of this 10-K.
ITEM 4.     MINE SAFETY DISCLOSURES
Not Applicable 

11


PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The principal market for the company’s common stock (ticker symbol: PX) is the New York Stock Exchange ("NYSE"). At December 31, 2014 there were 13,286 shareholders of record.
NYSE quarterly stock price and dividend information 
Market Price
Trading
High
 
Trading
Low
 
Close
 
Dividend
Per Share
2014
 
 
 
 
 
 
 
First Quarter
$
135.24

 
$
121.22

 
$
130.97

 
$
0.65

Second Quarter
$
134.84

 
$
126.47

 
$
132.84

 
$
0.65

Third Quarter
$
134.06

 
$
126.58

 
$
129.00

 
$
0.65

Fourth Quarter
$
132.95

 
$
117.32

 
$
129.56

 
$
0.65

2013
 
 
 
 
 
 
 
First Quarter
$
114.64

 
$
109.08

 
$
111.54

 
$
0.60

Second Quarter
$
120.16

 
$
107.69

 
$
115.16

 
$
0.60

Third Quarter
$
124.41

 
$
113.20

 
$
120.21

 
$
0.60

Fourth Quarter
$
130.58

 
$
117.54

 
$
130.03

 
$
0.60

Praxair’s annual dividend on its common stock for 2014 was $2.60 per share. On January 28, 2015, Praxair’s Board of Directors declared a dividend of $0.715 per share for the first quarter of 2015, or $2.86 per share annualized, which may be changed as Praxair’s earnings and business prospects warrant. The declaration of dividends is a business decision made by the Board of Directors based on Praxair’s earnings and financial condition and other factors the Board of Directors considers relevant.
Purchases of Equity Securities – Certain information regarding purchases made by or on behalf of the company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of its common stock during the three months ended December 31, 2014 is provided below: 
Period
Total
Number of
Shares
Purchased
(Thousands)
 
Average
Price Paid
Per Share
 
Total Number of
Shares  Purchased as
Part of Publicly
Announced
Program (1)
(Thousands)
 
Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Program (2)
(Millions)
October 2014
927

 
$
123.97

 
927

 
$
1,223

November 2014
709

 
$
126.75

 
709

 
$
1,134

December 2014
750

 
$
127.33

 
750

 
$
1,038

Fourth Quarter 2014
2,386

 
$
125.85

 
2,386

 
$
1,038

 
________________________
(1)
On January 28, 2014, the Company’s board of directors approved the repurchase of $1.5 billion of its common stock ("2014 program") which could take place from time to time on the open market (which could include the use of 10b5-1 trading plans) or through negotiated transactions, subject to market and business conditions.
(2)
As of December 31, 2014, the Company had purchased $462 million of its common stock pursuant to the 2014 program, leaving an additional $1,038 million remaining authorized under the 2014 program. The 2014 program does not have any stated expiration date.

12


Peer Performance Table – The graph below compares the most recent five-year cumulative returns of Praxair’s common stock with those of the Standard & Poor’s 500 Index ("SPX") and the S5 Materials Index ("S5MATR") which covers 30 companies, including Praxair. The figures assume an initial investment of $100 on December 31, 2009 and that all dividends have been reinvested.
 
2009
2010
2011
2012
2013
2014
PX
$100
$121
$138
$145
$175
$179
SPX
$100
$115
$117
$136
$180
$205
S5MATR
$100
$122
$110
$126
$159
$170



13


ITEM 6.      SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(Dollar amounts in millions, except per share data) 
Year Ended December 31,
2014(a)
 
2013(a)
 
2012(a)
 
2011(a)
 
2010(a)
From the Consolidated Statements of Income
 
 
 
 
 
 
 
 
 
Sales
$
12,273

 
$
11,925

 
$
11,224

 
$
11,252

 
$
10,116

Cost of sales, exclusive of depreciation and amortization
6,962

 
6,744

 
6,396

 
6,458

 
5,754

Selling, general and administrative
1,308

 
1,349

 
1,270

 
1,239

 
1,196

Depreciation and amortization
1,170

 
1,109

 
1,001

 
1,003

 
925

Research and development
96

 
98

 
98

 
90

 
79

Venezuela currency devaluation and other charges – net
138

 
32

 
65

 
1

 
85

Other income (expenses) – net
9

 
32

 
43

 
7

 
5

Operating profit
2,608

 
2,625

 
2,437

 
2,468

 
2,082

Interest expense – net
213

 
178

 
141

 
145

 
118

Income before income taxes and equity investments
2,395

 
2,447

 
2,296

 
2,323

 
1,964

Income taxes
691

 
649

 
586

 
641

 
768

Income before equity investments
1,704

 
1,798

 
1,710

 
1,682

 
1,196

Income from equity investments
42

 
38

 
34

 
40

 
38

Net income (including noncontrolling interests)
1,746

 
1,836

 
1,744

 
1,722

 
1,234

Noncontrolling interests
(52
)
 
(81
)
 
(52
)
 
(50
)
 
(39
)
Net income – Praxair, Inc.
$
1,694

 
$
1,755

 
$
1,692

 
$
1,672

 
$
1,195

Per Share Data – Praxair, Inc. Shareholders
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
5.79

 
$
5.94

 
$
5.67

 
$
5.53

 
$
3.90

Diluted earnings per share
$
5.73

 
$
5.87

 
$
5.61

 
$
5.45

 
$
3.84

Cash dividends per share
$
2.60

 
$
2.40

 
$
2.20

 
$
2.00

 
$
1.80

Weighted Average Shares Outstanding (000’s)
 
 
 
 
 
 
 
 
 
Basic shares outstanding
292,494

 
295,523

 
298,316

 
302,237

 
306,720

Diluted shares outstanding
295,608

 
298,965

 
301,845

 
306,722

 
311,395

Other Information and Ratios
 
 
 
 
 
 
 
 
 
Total assets
$
19,802

 
$
20,255

 
$
18,090

 
$
16,356

 
$
15,274

Total debt
$
9,258

 
$
8,811

 
$
7,362

 
$
6,562

 
$
5,557

Cash flow from operations
$
2,868

 
$
2,917

 
$
2,752

 
$
2,455

 
$
1,905

Adjusted EBITDA (b)
$
3,958

 
$
3,804

 
$
3,537

 
$
3,512

 
$
3,130

Capital expenditures
$
1,689

 
$
2,020

 
$
2,180

 
$
1,797

 
$
1,388

Acquisitions, net of cash acquired
$
206

 
$
1,323

 
$
280

 
$
294

 
$
148

After-tax return on capital (b)
12.7
%
 
12.8
%
 
13.9
%
 
14.8
%
 
14.5
%
Return on equity (b)
28.7
%
 
28.6
%
 
28.9
%
 
28.1
%
 
26.4
%
Debt-to-capital ratio (b)
59.6
%
 
54.3
%
 
51.9
%
 
51.8
%
 
47.3
%
Debt-to-adjusted EBITDA (b)
2.3

 
2.2

 
1.9

 
1.7

 
1.6

Shares outstanding (000’s)
289,262

 
294,134

 
296,229

 
298,530

 
303,997

Number of employees
27,780

 
27,560

 
26,539

 
26,184

 
26,261

 
________________________
(a)
Amounts for 2014 include: (i) a pre-tax charge of $131 million ($131 million after-tax, or $0.45 per diluted share) related to the Venezuela currency devaluation, (ii) a pre-tax charge of $7 million ($5 million after-tax, or $0.02 per diluted share) related to pension settlements; and (iii) a pre-tax charge of $36 million ($22 million after-tax, or $0.07 per diluted share) related to a bond redemption.
Amounts for 2013 include: (i) a pre-tax charge of $23 million ($23 million after-tax, or $0.08 per diluted share) related to the Venezuela currency devaluation; (ii) a pre-tax charge of $9 million ($6 million after-tax, or $0.02 per diluted share) related to pension settlements; (iii) an income tax benefit of $40 million ($24 million net of noncontrolling interests, or $0.08 per diluted share) related to a realignment of the Italian legal structure; and (iv) a pre-tax charge of $18 million ($12 million after-tax, or $0.04 per diluted share) related to a bond redemption.

14


Amounts for 2012 include: (i) a pre-tax charge of $56 million, ($38 million after-tax and non-controlling interests, or $0.12 per diluted share) related to the 2012 cost reduction program; (ii) a pre-tax charge of $9 million ($6 million after-tax, or $0.02 per diluted share) related to pension settlement; and (iii) an income tax benefit of $55 million ($0.18 per diluted share) related to a loss on a liquidated subsidiary as a result of the divestiture of the U.S. Homecare business.
Amounts for 2011 include: (i) a pre-tax net gain on acquisition of $39 million ($37 million after-tax, or $0.12 per diluted share); and (ii) a pre-tax charge of $40 million ($31 million after-tax, or $0.10 per diluted share) relating to the 2011 cost reduction program.
Amounts for 2010 include: (i) an income tax charge of $250 million related to a Spanish income tax settlement ($0.80 per diluted share); (ii) a pre-tax charge of $58 million ($40 million after-tax, or $0.13 per diluted share) related to the U.S. homecare divestiture; (iii) a net repatriation tax benefit of $35 million ($0.11 per diluted share); and (iv) a pre-tax charge of $27 million ($26 million after-tax, or $0.08 per diluted share) related to the Venezuela currency devaluation.
See Notes 2, 5 and 7 to the consolidated financial statements.
(b)
Non-GAAP measures. See the “Non-GAAP Financial Measures” section in Item 7 for definitions and reconciliation to reported amounts.

15


ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the company’s financial condition and results of operations should be read together with its consolidated financial statements and notes to the consolidated financial statements included in Item 8 of this Form 10-K. 
 
Page
Business Overview
Executive Summary – Financial Results & Outlook
Consolidated Results and Other Information
Segment Discussion
Liquidity, Capital Resources and Other Financial Data
Contractual Obligations
Off-Balance Sheet Arrangements
Critical Accounting Policies
New Accounting Standards
Fair Value Measurements
Non-GAAP Financial Measures
Forward-Looking Statements
BUSINESS OVERVIEW
Praxair is the largest industrial gases supplier in North and South America, is rapidly growing in Asia, and has strong, well-established businesses in Europe. The Company's primary products in its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The company also designs, engineers, and builds equipment that produces industrial gases primarily for internal use. The company’s surface technologies segment supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. Praxair Surface Technologies supplies high-performance coatings that protect metal parts from wear, corrosion and high heat. Praxair’s industrial gas operations are managed on a geographical basis and in 2014, 94% of sales were generated in four geographic segments (North America, Europe, South America, and Asia). The surface technologies segment generated the remaining 6% of sales.
Praxair serves a diverse group of industries including healthcare, petroleum refining, computer-chip manufacturing, beverage carbonation, fiber-optics, steel making, aerospace, chemicals and water treatment. The diversity of end markets creates financial stability for Praxair in varied business cycles.
Praxair generates most of its revenues and earnings in the following 12 core geographies where the company has its strongest market positions and where distribution and production operations allow the company to deliver the highest level of service to its customers at the lowest cost. 
North America
 
South America
 
Europe
 
Asia
United States
  
Brazil
  
Spain
  
China
Canada
  
 
  
Italy
  
India
Mexico
  
 
  
Germany/Benelux
  
Korea
 
  
 
  
Scandinavia
  
Thailand
Praxair manufactures and distributes its products through networks of hundreds of production plants, pipeline complexes, distribution centers and delivery vehicles. Major pipeline complexes are located in the United States, Brazil, Spain and Germany. These networks are a competitive advantage, providing the foundation of reliable product supply to the company’s customer base. The majority of Praxair’s business is conducted through long-term contracts which provide stability in cash flow and the ability to pass through changes in energy and feedstock costs to customers. The company has growth opportunities in all major geographies and in diverse end-markets such as energy, chemicals, metals, healthcare and food and beverage.

16


EXECUTIVE SUMMARY – FINANCIAL RESULTS & OUTLOOK
2014 Year in review
Praxair delivered solid results for the full year of 2014 despite a challenging global environment including foreign currency translation headwinds and slowing growth in most major emerging markets. Sales growth came primarily from strong volume growth in North America and Asia, higher overall pricing and acquisitions. This was partially offset by the impact of negative currency translation in most geographies due to a strengthening U.S. dollar.
Sales of $12,273 million were 3% above 2013 sales of $11,925 million. Excluding negative currency impacts, sales grew 6% primarily due to organic sales growth including new project start-ups and acquisitions.
Reported operating profit of $2,608 million decreased 1% from $2,625 million in 2013. Adjusted operating profit of $2,746 million increased 3% from 2013, from higher volumes, pricing, and acquisitions, partially offset by negative currency effects.*
Reported net income – Praxair, Inc. of $1,694 million and diluted earnings per share of $5.73 decreased from $1,755 million and $5.87, respectively, in 2013. Adjusted net income – Praxair, Inc. of $1,852 million and adjusted diluted earnings per share of $6.27 increased 5% and 6% from 2013, respectively. Earnings per share grew faster than net income primarily due to fewer shares outstanding as a result of share repurchases during the year.*
Cash flow from operations was a strong $2,868 million, 23% of sales.
Capital expenditures were $1,689 million, primarily for the construction of growth projects. Acquisition expenditures of $206 million primarily included the acquisition of industrial gas businesses in Italy and Asia, and packaged gas businesses in North and South America.
2015 Outlook
Sales are forecasted to be in the range of $12.0 to $12.4 billion.
Diluted earnings per share are forecasted to be in the range of $6.15 to $6.50.
Effective tax rate of about 28%.
Capital expenditures of about $1.7 billion.
The company’s core business is to build, own, and operate industrial gas plants in order to supply atmospheric and process gases to customers. As such, Praxair believes that its backlog is an indicator of future sales growth. At December 31, 2014, Praxair’s backlog of 24 large projects under construction was $1.9 billion. This represents the total estimated capital cost of large plants under construction. North America and Asia each represent about one-third of the backlog. The remaining backlog resides in Europe, primarily in Russia, and in South America. These plants will supply customers in the energy, chemical, manufacturing, electronics and metals markets.
* A reconciliation of the Adjusted amounts can be found in the "Non-GAAP Financial Measures" section in this MD&A. See Notes 2, 5 and 11 to the consolidated financial statements.
The above guidance should be read in conjunction with the section entitled “Forward-Looking Statements.”
Praxair provides quarterly updates on operating results, material trends that may affect financial performance, and financial earnings guidance via earnings releases and investor teleconferences. These materials are available on the company’s website, www.praxair.com/investors but are not incorporated herein.


17


CONSOLIDATED RESULTS AND OTHER INFORMATION
The following table provides selected data for 2014, 2013, and 2012: 
 
 
 
 
 
 
 
Variance
(Dollar amounts in millions, except per share data)
Year Ended December 31,
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Reported Amounts:
 
 
 
 
 
 
 
 
 
Sales
$
12,273

 
$
11,925

 
$
11,224

 
3
 %
 
6
 %
Gross margin (a)
$
5,311

 
$
5,181

 
$
4,828

 
3
 %
 
7
 %
As a percent of sales
43.3
%
 
43.4
%
 
43.0
%
 
 
 
 
Selling, general and administrative
$
1,308

 
$
1,349

 
$
1,270

 
(3
)%
 
6
 %
As a percent of sales
10.7
%
 
11.3
%
 
11.3
%
 
 
 
 
Depreciation and amortization
$
1,170

 
$
1,109

 
$
1,001

 
6
 %
 
11
 %
Venezuela currency devaluation and other charges – net (b)
$
138

 
$
32

 
$
65

 
 
 
 
Other income (expenses) – net
$
9

 
$
32

 
$
43

 
 
 
 
Operating profit
$
2,608

 
$
2,625

 
$
2,437

 
(1
)%
 
8
 %
As a percent of sales
21.2
%
 
22.0
%
 
21.7
%
 
 
 
 
Interest expense – net
$
213

 
$
178

 
$
141

 
20
 %
 
26
 %
Effective tax rate
28.9
%
 
26.5
%
 
25.5
%
 
 
 
 
Income from equity investments
$
42

 
$
38

 
$
34

 
11
 %
 
12
 %
Noncontrolling interests
$
(52
)
 
$
(81
)
 
$
(52
)
 
(36
)%
 
56
 %
Net income – Praxair, Inc.
$
1,694

 
$
1,755

 
$
1,692

 
(3
)%
 
4
 %
Diluted earnings per share
$
5.73

 
$
5.87

 
$
5.61

 
(2
)%
 
5
 %
Diluted shares outstanding
295,608

 
298,965

 
301,845

 
(1
)%
 
(1
)%
Number of employees
27,780

 
27,560

 
26,539

 
 
 
 
Adjusted Amounts (c):
 
 
 
 
 
 
 
 
 
Operating profit
$
2,746

 
$
2,657

 
$
2,502

 
3
 %
 
6
 %
As a percent of sales
22.4
%
 
22.3
%
 
22.3
%
 
 
 
 
Interest expense – net
$
177

 
$
160

 
$
141

 
11
 %
 
13
 %
Effective tax rate
27.5
%
 
28.0
%
 
28.0
%
 
 
 
 
Noncontrolling interests
$
(52
)
 
$
(65
)
 
$
(54
)
 
 
 
 
Net income – Praxair, Inc.
$
1,852

 
$
1,772

 
$
1,681

 
5
 %
 
5
 %
Diluted earnings per share
$
6.27

 
$
5.93

 
$
5.57

 
6
 %
 
6
 %
 
________________________
(a)
Gross margin excludes depreciation and amortization expense.
(b)
See Note 2 to the consolidated financial statements.
(c)
Adjusted amounts are non-GAAP measures. A reconciliation of reported amounts to adjusted amounts can be found in the “Non-GAAP Financial Measures” section of this MD&A. See Notes 2, 5 and 7 to the consolidated financial statements.






18


Results of Operations
The following table provides a summary of changes in consolidated sales and adjusted operating profit:
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
3
 %
 
1
 %
 
3
 %
 
1
 %
Price
 
2
 %
 
8
 %
 
2
 %
 
8
 %
Cost pass-through
 
 %
 
 %
 
 %
 
 %
Currency
 
(3
)%
 
(7
)%
 
(2
)%
 
(2
)%
Acquisitions/Divestitures
 
1
 %
 
1
 %
 
3
 %
 
3
 %
Other
 
 %
 
(4
)%
 
 %
 
(2
)%
Reported
 
3
 %
 
(1
)%
 
6
 %
 
8
 %
Venezuela currency devaluation and other charges, net
 
 %
 
4
 %
 
 %
 
(2
)%
Adjusted
 
3
 %
 
3
 %
 
6
 %
 
6
 %
The following tables provide consolidated sales by end-market and distribution method:
 
 
 
 
 
 
 
 
% of Sales
 
% Change*
 
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
24
%
 
24
%
 
25
%
 
3
%
 
2
%
Metals
 
17
%
 
17
%
 
18
%
 
4
%
 
7
%
Energy
 
14
%
 
13
%
 
11
%
 
8
%
 
10
%
Chemicals
 
10
%
 
10
%
 
10
%
 
1
%
 
9
%
Electronics
 
7
%
 
8
%
 
8
%
 
%
 
1
%
Healthcare
 
8
%
 
8
%
 
8
%
 
4
%
 
4
%
Food & Beverage
 
8
%
 
8
%
 
6
%
 
7
%
 
1
%
Aerospace
 
3
%
 
3
%
 
3
%
 
1
%
 
4
%
Other
 
9
%
 
9
%
 
11
%
 
10
%
 
1
%
 
 
100
%
 
100
%
 
100
%
 
 
 
 

* Excludes impact of currency, natural gas/precious metals cost pass-through and acquisitions/divestitures.
 
 
 
% of Sales
 
 
2014
 
2013
 
2012
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
29
%
 
27
%
 
26
%
Merchant
 
34
%
 
34
%
 
33
%
Packaged Gas
 
28
%
 
30
%
 
31
%
Other
 
9
%
 
9
%
 
10
%
 
 
100
%
 
100
%
 
100
%


 



19


2014 Compared With 2013

Sales increased 3% to $12,273 million in 2014 compared to $11,925 million in 2013. Organic sales grew 5% from higher pricing and volume growth primarily in North America and Asia due to new plant start-ups. Acquisitions, including NuCO2, several packaged gas distributors in the U.S. and the acquisition of Dominion Technology Gases Investment Limited in 2013, contributed 1% to overall sales growth. These increases were partially offset by negative currency translation impacts, resulting from the strengthening of the U.S. dollar against most currencies.
Gross margin increased $130 million, or 3%, versus 2013 in line with the increase in sales.
Selling, general and administrative ("SG&A") expenses in 2014 were $1,308 million, or 10.7% of sales, versus $1,349 million, or 11.3% of sales, for 2013. Currency impacts decreased SG&A by $36 million and other cost reductions, primarily lower pension and other post-retirement benefit expense, reduced SG&A by an additional $24 million. These reductions were partially offset by an increase due to acquisitions.
Depreciation and amortization expense increased $61 million versus 2013. This increase was primarily due to plant start-ups and asset additions, and approximately $12 million related to acquisitions, partially offset by currency effects of $27 million.
Other income (expenses) – net in 2014 was a $9 million benefit versus a $32 million benefit in 2013 (see Note 7 to the consolidated financial statements for a summary of major components). Partnership income of $16 million improved $9 million and relates primarily to a partnership joint venture in the United States, while gains from business and asset sales of $36 million were $7 million less than 2013 and was spread across all segments. Severance expense of $22 million increased $8 million from 2013, reflecting actions taken in response to current market conditions outside of the United States and included $15 million in the fourth quarter. 2013 also included a $10 million favorable litigation settlement in South America. Other components were not significant.
Reported operating profit of $2,608 million in 2014 was $17 million, or 1% lower than reported operating profit of $2,625 million in 2013. 2014 included a $131 million charge related to Venezuela currency devaluation and a $7 million charge related to a pension settlement. The 2013 period included a $23 million charge related to the Venezuela currency devaluation and $9 million charge related to a pension settlement. Refer to note 2 of the consolidated financial statements for a further discussion of these items. Adjusted operating profit of $2,746 million in 2014 was $89 million, or 3% higher than adjusted operating profit of $2,657 million in 2013. A discussion of operating profit by segment is included in the segment discussion that follows.
Reported interest expense – net in 2014 increased $35 million, versus 2013. Both the 2014 and 2013 included charges of $36 million and $18 million, respectively, relating to the early redemption of notes (see note 7 to the consolidated financial statements). Excluding these charges, adjusted interest expense increased $17 million. Higher debt levels and lower capitalized interest increased interest expense by approximately $13 million and $31 million, respectively, versus 2013. The amount of interest capitalized decreased due to lower interest rates, lower construction expenditures, and currency impacts. These increases were partially offset by the benefits of lower overall interest rates which reduced interest expense by approximately $23 million. See Note 7 to the consolidated financial statements for further information relating to interest expense.
The effective tax rate ("ETR") for 2014 was 28.9% versus 26.5% in 2013. The adjusted effective tax rate was 27.5% in 2014 versus 28.0% in 2013. The 0.5% decrease in the ETR was primarily due to increased foreign tax differentials (see Note 5 to the Consolidated financial statements).
Praxair’s significant equity investments are in the United States, China, Italy, and the Middle East. Equity income increased $4 million in 2014 related primarily to higher equity income in Europe versus 2013.
At December 31, 2014, reported noncontrolling interests consisted primarily of noncontrolling shareholders’ investments in Asia (primarily in China and India), Europe (primarily in Italy and Scandinavia), and North America (primarily within the U.S. packaged gas business). Reported noncontrolling interest in 2014 decreased $29 million from 2013. The decrease was primarily due to the minority shareholder's portion of the income tax benefit in Italy of $16 million related to a legal realignment during 2013. Excluding the Italy realignment, adjusted noncontrolling interest in 2014 was $52 million compared to $65 million in 2013. This decrease was due primarily to the acquisition of the noncontrolling interest in a U.S. packaged gas business during the first quarter of 2014.
Reported net income - Praxair, Inc. in 2014 was $1,694 million, or $61 million lower than net income - Praxair, Inc. of $1,755 million in 2013. Adjusted net income – Praxair, Inc. of $1,852 million in 2014 was $80 million, or 5% higher than adjusted net income – Praxair, Inc. of $1,772 million in 2013. This increase was primarily due to higher adjusted operating profit.

20


Reported diluted earnings per share ("EPS") of $5.73 in 2014 decreased $0.14 per diluted share, or 2% from $5.87 in 2013. Adjusted diluted EPS of $6.27 in 2014 increased $0.34 per diluted share, or 6%, from adjusted diluted EPS of $5.93 in 2013. The increase in adjusted diluted EPS was primarily due to higher adjusted net income – Praxair, Inc. and a 1.1% decrease in the number of diluted shares outstanding as a result of the company’s net repurchases of common stock during 2014.
Other comprehensive loss at December 31, 2014 of $1,257 million includes negative currency translation adjustments of $1,096 million, a negative adjustment of $164 million related to the funded status of retirement obligations and a positive adjustment of $3 million related to derivative instruments. The translation adjustments reflect the impact of translating local currency foreign subsidiary financial statements to U.S. dollars and resulted from currency movements, primarily $369 million in Europe, $331 million in South America, and $238 million in North America. The negative pension funded status adjustment resulted primarily from after-tax actuarial losses from lower discount rates and the adoption of new mortality rate assumptions, both of which increased the pension benefit obligation ("PBO"). See the “Currency” section of the MD&A, and Notes 7 and 16 to the consolidated financial statements.
The number of employees at December 31, 2014 was 27,780, reflecting an increase of 220 employees from December 31, 2013. This increase primarily reflects the impact of acquisitions during the current year.

2013 Compared With 2012
Sales increased 6% to $11,925 million during 2013 compared to $11,224 million in 2012. Higher volumes, primarily in North and South America and in Asia, higher overall pricing and growth from acquisitions were partially offset by negative currency translation impacts, primarily resulting from the strengthening of the U.S. dollar against the Brazilian Real. Cost pass-through had minimal impact due to lower precious metal prices offsetting energy cost inflation.
Gross margin increased $353 million, or 7%, versus 2012. The increase was due to higher volumes and higher pricing, resulting in an increase in the gross margin percentage to 43.4%, versus 43.0% in the prior year.
Selling, general and administrative ("SG&A") expenses in 2013 were $1,349 million, or 11.3% of sales, versus $1,270 million, or 11.3% of sales, for 2012. The increase in SG&A expense of $79 million was primarily due to the impact of acquisitions ($56 million). In addition, pension expense increased $26 million due to an increase in the amortization of net actuarial losses, primarily attributable to lower discount rates. Currency effects reduced SG&A expense by $14 million.
Depreciation and amortization expense increased $108 million versus 2012. This increase was primarily due to an increase of $42 million from acquisitions and approximately $70 million from plant start-ups and asset additions, partially offset by currency effects of $13 million.
Other income (expenses) – net in 2013 was a $32 million benefit versus a $43 million benefit in 2012. Other income was higher in 2012 primarily due to a larger favorable litigation settlements in South America. See Note 7 to the consolidated financial statements for a summary of the major components of Other income (expenses) – net.
Reported operating profit of $2,625 million in 2013 was $188 million, or 8% higher than reported operating profit of $2,437 million in 2012. As a percentage of sales, reported operating profit increased to 22.0% in 2013 from 21.7% in 2012. This is primarily due to the attainment of price increases in most geographies. The 2013 period includes a $23 million charge related to the Venezuela currency devaluation and $9 million charge related to a pension settlement. The 2012 period also included a pension settlement charge of $9 million as well as a $56 million charge for cost reduction programs. Adjusted operating profit of $2,657 million in 2013 was $155 million, or 6% higher than adjusted operating profit of $2,502 million in 2012. A discussion of operating profit by segment is included in the segment discussion that follows.
Reported interest expense – net in 2013 increased $37 million, versus 2012. The increase included an $18 million charge recognized upon the early redemption of the $400 million 5.25% Notes due in 2014. Excluding this charge, adjusted interest expense increased $19 million. Higher overall debt levels increased interest expense by about $45 million, and reduced benefits from the amortization of interest rate swap gains increased interest expense by $11 million versus 2012. Lower interest rates reduced interest expense by approximately $37 million dollars. See Note 7 to the consolidated financial statements for further information relating to interest expense.
The effective tax rate for 2013 was 26.5% versus 25.5% in 2012. 2013 included a $40 million benefit as a result of a realignment of Praxair's Italian legal structure, and 2012 included a $55 million income tax benefit related to the loss on a liquidated subsidiary (See Note 5 to the consolidated financial statements). The adjusted effective tax rate for both 2012 and 2013 was 28.0%.

21


Praxair’s significant equity investments are in the United States, China, Italy, and the Middle East. Equity income increased $4 million in 2013 related primarily to higher equity income in China.
At December 31, 2013, reported noncontrolling interests consisted primarily of noncontrolling shareholders’ investments in Asia (primarily in China and India), Europe (primarily in Italy and Scandinavia), and North America (primarily within the U.S. packaged gas business). The $29 million increase in reported noncontrolling interests in 2013 was primarily due to the minority shareholder's portion of the income tax benefit in Italy related to the company's legal realignment. Adjusted noncontrolling interest in 2013 was $65 million compared to $54 million in 2012. This increase is primarily driven by improved performance by the U.S. packed gas and Italian investments.
Reported net income - Praxair, Inc. in 2013 was $1,755 million, or $63 million above net income - Praxair, Inc. of $1,692 million in 2012. Adjusted net income – Praxair, Inc. of $1,772 million in 2013 was $91 million, or 5% higher than adjusted net income – Praxair, Inc. of $1,681 million in 2012. This increase was primarily due to higher adjusted operating profit partially offset by higher interest expense and increased income tax expense.
Reported diluted earnings per share ("EPS") of $5.87 in 2013 increased $0.26 per diluted share, or 5% from $5.61 in 2012. Adjusted diluted EPS of $5.93 in 2013 increased $0.36 per diluted share, or 6%, from adjusted diluted EPS of $5.57 in 2012. The increase in adjusted diluted EPS was primarily due to higher net income – Praxair, Inc. and a 1.0% decrease in the number of diluted shares outstanding as a result of the company’s net repurchases of common stock during 2013.
Other comprehensive loss at December 31, 2013 of $123 million includes negative currency translation adjustments of $447 million, a positive after-tax adjustment of $323 million related to the funded status of retirement obligations and a positive adjustment of $1 million related to derivative instruments. The negative translation adjustment primarily resulted from currency movements of $342 million in South America and $137 million in North America. The positive pension funded status impact is driven principally by actuarial gains and losses of $395 million. Of this amount $165 million relates to asset returns in excess of assumed returns. The remaining $230 million primarily relates to the impact of higher discount rates. See the “Currency” section of the MD&A, and Notes 7 and 16 to the consolidated financial statements.
The number of employees at December 31, 2013 was 27,560, reflecting an increase of 1,021 employees from December 31, 2012. This increase primarily reflects the impact of the NuCO2 acquisition.
Related Party Transactions
The company’s related parties are primarily unconsolidated equity affiliates. The company did not engage in any material transactions involving related parties that included terms or other aspects that differ from those which would be negotiated with independent parties.
Environmental Matters

Praxair’s principal operations relate to the production and distribution of atmospheric and other industrial gases, which historically have not had a significant impact on the environment. However, worldwide costs relating to environmental protection may continue to grow due to increasingly stringent laws and regulations, and Praxair's ongoing commitment to rigorous internal standards.

Climate Change

Praxair operates in jurisdictions that have, or are developing, laws and/or regulations to reduce or mitigate the perceived adverse effects of greenhouse gas ("GHG") emissions and faces a highly uncertain regulatory environment in this area. For example, the U.S. Environmental Protection Agency ("EPA") has promulgated rules requiring reporting of GHG emissions, and Praxair and many of its suppliers and customers are subject to these rules. EPA has also promulgated regulations to restrict GHG emissions, including final rules regulating GHG emissions from light-duty vehicles and certain large manufacturing facilities, many of which are Praxair suppliers or customers. EPA recently proposed carbon dioxide regulations for both new and existing power plants, which will require controls on GHG emissions from certain suppliers of power to Praxair’s operations. In addition to these developments in the United States, there has been regulation of GHGs in the European Union under the Emissions Trading System, which have wide implications for our customers and may impact certain operations of Praxair in Europe. Also, climate change and energy efficiency laws and policies are being widely embraced by jurisdictions throughout Latin America and Mexico.. There are also requirements for mandatory reporting in Quebec, Canada, which apply to certain Praxair operations and will be used in developing cap-and-trade regulations on GHG emissions, which are expected to impact certain Praxair facilities. China has also announced plans to launch a national carbon emissions trading system in 2016, though it does not appear the regulations will have a direct

22


impact on GHG emissions from Praxair facilities. Among other impacts, such regulations are expected to raise the costs of energy, which is a significant cost for Praxair. Nevertheless, Praxair's customer contracts routinely provide rights to recover increased electricity, natural gas, and other costs that are incurred by the company.

Praxair anticipates continued growth in its hydrogen business, as hydrogen is essential to refineries which use it to remove sulfur from transportation fuels in order to meet ambient air quality standards in the United States. Hydrogen production plants and a large number of other manufacturing and electricity-generating plants have been identified under California law as a source of carbon dioxide emissions and these plants have also become subject to recently promulgated cap-and-trade regulations in that state. Praxair believes it will be able to mitigate the costs of these regulations through the terms of its product supply contracts. However, legislation that limits GHG emissions may impact growth by increasing operating costs and/or decreasing demand.

To manage these potential business risks from potential GHG emission regulation, Praxair actively monitors current developments, evaluates the direct and indirect business risks, and takes appropriate actions. Among others, actions include: increasing relevant resources and training; consulting with vendors, insurance providers and industry experts; incorporating GHG provisions in commercial agreements; and conducting regular reviews of the business risks with management. Although there are considerable uncertainties, Praxair believes that the business risk from potential regulations can be effectively managed through its commercial contracts. Additionally, Praxair does not anticipate any material effects regarding its plant operations or business arising from potential physical risks of climate change. Also, Praxair continuously seeks opportunities to reduce its own energy use and GHG footprint through rigorous energy efficiency as well as purchasing hydrogen as a chemical byproduct where feasible..

At the same time, Praxair may benefit from business opportunities arising from governmental regulation of GHG and other emissions; rising costs of many energy and natural resources; new technologies to extract natural gas; and the development of renewable energy alternatives. Praxair continues to develop new applications technologies that can lower emissions, including GHG emissions, in Praxair's processes and help customers lower energy consumption and increase product throughput. Stricter regulation of water quality in emerging economies such as China provide a growing market for a number of gases, e.g., oxygen for wastewater treatment. Renewable fuel standards in the European Union and U.S. create a market for second-generation biofuels which are users of industrial gases such as oxygen, carbon dioxide, and hydrogen.

Costs Relating to the Protection of the Environment

Environmental protection costs in 2014 included approximately $12 million in capital expenditures and $29 million of expenses. Praxair anticipates that future annual environmental protection expenditures will be similar to 2014, subject to any significant changes in existing laws and regulations. Based on historical results and current estimates, management does not believe that environmental expenditures will have a material adverse effect on the consolidated financial position, the consolidated results of operations or cash flows in any given year.

Legal Proceedings
See Note 17 to the consolidated financial statements for information concerning legal proceedings.
Retirement Benefits
Pensions
The net periodic benefit cost for the U.S. and International pension plans was $82 million in 2014, $119 million in 2013 and $93 million in 2012. Consolidated net periodic benefit cost included settlement charges of $7 million, $9 million and $10 million in 2014, 2013 and 2012, respectively.
The funded status (pension benefit obligation ("PBO") less the fair value of plan assets) for the U.S. plans was a deficit of $443 million as December 31, 2014 versus a deficit of $171 million at December 31, 2013. This increase was due to lower discount rates and new mortality assumptions which both increased the PBO.
Global pension contributions were $18 million in 2014, $52 million in 2013 and $184 million in 2012. At a minimum, Praxair contributes to its pension plans to comply with local regulatory requirements (e.g., ERISA in the United States). Discretionary contributions in excess of the local minimum requirements are made based on many factors, including long-term projections of the plans' funded status, the economic environment, potential risk of overfunding, pension insurance costs and alternative uses of the cash. Changes to these factors can impact the timing of discretionary

23


contributions from year to year. Estimated required contributions for 2015 are currently expected to be in the area of $15 million.
Praxair assumes an expected return on plan assets for 2015 in the United States of 8.00%, which is consistent with the long-term expected return on its investment portfolio.
Excluding the impact of any settlements, 2015 consolidated pension expense is expected to be approximately $95 million. The increase is due primarily to higher net actuarial losses to be amortized as a result of a decrease in the discount rates and new mortality assumptions. The amortization is recognized based on the amount of net actuarial gains/losses above certain thresholds and over the periods of either the average remaining service lives or the average remaining life expectancies of the retirees.
OPEB
The net periodic benefit cost for OPEB plans was $7 million in 2014, $11 million in 2013 and $9 million in 2012. The funded status deficit decreased $28 million during 2014 primarily due to favorable plan experience.
In 2015, consolidated net periodic benefit costs for the OPEB plans is expected to be approximately $8 million.
See the Critical Accounting Policies section and Note 16 to the consolidated financial statements for a more detailed discussion of the company’s retirement benefits, including a description of the various retirement plans and the assumptions used in the calculation of net periodic benefit cost and funded status.
Insurance
Praxair purchases insurance to limit a variety of property and casualty risks, including those related to property, business interruption, third-party liability and workers’ compensation. Currently, the company self-retains the first $5 million per occurrence for workers’ compensation, general and vehicle liability in the United States and retains $2.5 million to $5 million per occurrence at its various properties worldwide. To mitigate its aggregate loss potential above these retentions, the company purchases insurance coverage from highly rated insurance companies. The company does not currently operate or participate in any captive insurance companies.
At December 31, 2014 and 2013, the company had recorded a total of $33 million representing an estimate of the retained liability for the ultimate cost of claims incurred and unpaid as of the balance sheet dates. The estimated liability is established using statistical analysis and is based upon historical experience, actuarial assumptions and professional judgment. These estimates are subject to the effects of trends in loss severity and frequency and are subject to a significant degree of inherent variability. If actual claims differ from the company’s estimates, they will be adjusted at that time and financial results could be impacted.
Praxair recognizes estimated insurance proceeds relating to damages at the time of loss only to the extent of incurred losses. Any insurance recoveries for business interruption and for property damages in excess of the net book value of the property are recognized only when realized.
SEGMENT DISCUSSION
The following summary of sales and operating profit by segment provides a basis for the discussion that follows (for additional information concerning Praxair’s segments, see Note 18 to the consolidated financial statements). Praxair evaluates the performance of its reportable segments based on operating profit, excluding the items not indicative of ongoing business trends (See Note 2 to the consolidated financial statements).

24


(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Sales
 
 
 
 
 
 
 
 
 
North America
$
6,436

 
$
6,164

 
$
5,598

 
4
 %
 
10
 %
Europe
1,546

 
1,542

 
1,474

 
 %
 
5
 %
South America
1,993

 
2,042

 
2,082

 
(2
)%
 
(2
)%
Asia
1,619

 
1,525

 
1,414

 
6
 %
 
8
 %
Surface Technologies
679

 
652

 
656

 
4
 %
 
(1
)%
 
$
12,273

 
$
11,925

 
$
11,224

 
3
 %
 
6
 %
Operating Profit
 
 
 
 
 
 
 
 
 
North America
$
1,580

 
$
1,538

 
$
1,465

 
3
 %
 
5
 %
Europe
291

 
270

 
256

 
8
 %
 
5
 %
South America
449

 
467

 
429

 
(4
)%
 
9
 %
Asia
303

 
271

 
246

 
12
 %
 
10
 %
Surface Technologies
123

 
111

 
106

 
11
 %
 
5
 %
Segment operating profit
2,746

 
2,657

 
2,502

 
3
 %
 
6
 %
Venezuela currency devaluation and other charges
(138
)
 
(32
)
 
(65
)
 
 
 
 
Consolidated operating profit
$
2,608

 
$
2,625

 
$
2,437

 
 
 
 

North America 
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
Sales
$
6,436

 
$
6,164

 
$
5,598

 
4
%
 
10
%
Cost of sales, exclusive of depreciation and amortization
3,514

 
3,301

 
2,968

 
 
 
 
Gross margin
2,922

 
2,863

 
2,630

 
 
 
 
Operating expenses
731

 
759

 
667

 
 
 
 
Depreciation and amortization
611

 
566

 
498

 
 
 
 
Operating profit
$
1,580

 
$
1,538

 
$
1,465

 
3
%
 
5
%
Margin %
24.5
%
 
25.0
%
 
26.2
%
 
 
 
 

25


 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
3
 %
 
1
 %
 
2
%
 
1
 %
Price
 
1
 %
 
5
 %
 
2
%
 
8
 %
Cost pass-through
 
1
 %
 
 %
 
1
%
 
 %
Currency
 
(2
)%
 
(2
)%
 
%
 
 %
Acquisitions/Divestitures
 
1
 %
 
1
 %
 
5
%
 
5
 %
Other
 
 %
 
(2
)%
 
%
 
(9
)%
 
 
4
 %
 
3
 %
 
10
%
 
5
 %
The following tables provide sales by end-market and distribution method:
 
 
 
 
 
 
 
% of Sales
 
% Change*
 
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
30
%
 
30
%
 
32
%
 
3
 %
 
3
 %
Metals
 
12
%
 
13
%
 
14
%
 
1
 %
 
1
 %
Energy
 
20
%
 
19
%
 
17
%
 
9
 %
 
13
 %
Chemicals
 
10
%
 
10
%
 
11
%
 
3
 %
 
4
 %
Electronics
 
4
%
 
5
%
 
5
%
 
7
 %
 
(8
)%
Healthcare
 
7
%
 
7
%
 
7
%
 
2
 %
 
 %
Food & Beverage
 
8
%
 
8
%
 
5
%
 
4
 %
 
(1
)%
Aerospace
 
1
%
 
1
%
 
1
%
 
(1
)%
 
14
 %
Other
 
8
%
 
7
%
 
8
%
 
8
 %
 
 %
 
 
100
%
 
100
%
 
100
%
 
 
 
 
* Excludes impact of currency, natural gas/precious metals cost pass-through and acquisitions/divestitures.
 
 
% of Sales
 
 
2014
 
2013
 
2012
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
30
%
 
28
%
 
27
%
Merchant
 
36
%
 
36
%
 
35
%
Packaged Gas
 
32
%
 
34
%
 
36
%
Other
 
2
%
 
2
%
 
2
%
 
 
100
%
 
100
%
 
100
%

The North America segment includes Praxair’s industrial gases operations in the United States, Canada and Mexico.
Sales for 2014 increased $272 million, or 4%, versus 2013. Organic sales growth was 4% driven primarily by higher pricing and higher volumes. Volume growth came from higher on-site volumes from new project start-ups including hydrogen supply to refinery customers in the United States, and higher merchant and packaged gas volumes. Sales growth was strongest in the energy, manufacturing, and food and beverage end-markets. The strong sales growth to the energy end-market was primarily due to hydrogen project start-ups. Acquisitions, primarily NuCO2 and several packaged gas distributors in the U.S., added 1% sales growth. Higher cost pass-through, primarily higher natural gas prices passed through to hydrogen customers, increased sales by 1%. Packaged gases sales were higher for 2014, primarily due to growth in the U.S. business, however are lower as a percentage of total sales for the segment as compared to the prior-year period, due to strong growth in on-site sales.

26


Operating profit for 2014 increased $42 million, or 3% from 2013. Operating profit grew 5% excluding currency translation impacts primarily driven by higher pricing. The increase was due to higher gross margin and lower operating expenses, partially offset by $45 million increase in depreciation and amortization expense due to new project start-ups and acquisitions. Operating profit during 2014 included a $9 million benefit related to a change in accounting principle for LIFO inventories in the United States (see notes 1 and 7 to the consolidated financial statements). Operating profit in 2013 included a $23 million customer contract settlement.
Sales for 2013 increased $566 million, or 10%, versus 2012. Underlying sales growth was 4% driven primarily by higher on-site volumes from new project start-ups for hydrogen supply to refinery customers in the United States, higher merchant volumes and higher pricing. Sales grew to the energy, chemicals, manufacturing, and food and beverage end-markets. Strong sales growth to the energy end-market was primarily due to hydrogen project start-ups. Acquisitions, primarily NuCO2, added 5% sales growth and contributed to the 3% increase of total sales represented by the food and beverage end-market in 2013. Higher cost pass-through, primarily higher natural gas prices passed through to hydrogen customers, increased sales by 1%. North American packaged gas sales were above prior year due to solid growth in the US business. However, with the growth in on-site sales due to the start-up of new hydrogen projects and the growth in merchant sales due to the acquisition of NuCO2, packaged gas sales decreased as a percentage of total sales for the segment.
Operating profit for 2013 increased $73 million, or 5% from 2012. Higher pricing, higher volumes from project start-ups and acquisitions contributed to the growth in operating profit. Operating profit included a contract settlement for $23 million. The growth was partially offset by higher operating costs and the impact of a gain on asset sale in the prior year. Depreciation and amortization increased $68 million in 2013 due to acquisitions and new project start-ups.

Europe 
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
Sales
$
1,546

 
$
1,542

 
$
1,474

 
%
 
5
%
Cost of sales, exclusive of depreciation and amortization
868

 
881

 
841

 
 
 
 
Gross margin
678

 
661

 
633

 
 
 
 
Operating expenses
219

 
222

 
228

 
 
 
 
Depreciation and amortization
168

 
169

 
149

 
 
 
 
Operating profit
$
291

 
$
270

 
$
256

 
8
%
 
5
%
Margin %
18.8
%
 
17.5
%
 
17.4
%
 
 
 
 
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
 %
 
2
 %
 
(1
)%
 
(12
)%
Price
 
1
 %
 
5
 %
 
1
 %
 
6
 %
Cost pass-through
 
(1
)%
 
 %
 
(1
)%
 
 %
Currency
 
(1
)%
 
 %
 
3
 %
 
3
 %
Acquisitions/Divestitures
 
1
 %
 
3
 %
 
3
 %
 
3
 %
Other
 
 %
 
(2
)%
 
 %
 
5
 %
 
 
 %
 
8
 %
 
5
 %
 
5
 %

27


The following tables provide sales by end-market and distribution method:
 
 
 
 
 
 
 
% of Sales
 
% Change*
 
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
22
%
 
22
%
 
23
%
 
4
 %
 
(4
)%
Metals
 
16
%
 
16
%
 
16
%
 
3
 %
 
2
 %
Energy
 
7
%
 
6
%
 
4
%
 
(4
)%
 
7
 %
Chemicals
 
15
%
 
16
%
 
17
%
 
(9
)%
 
 %
Electronics
 
7
%
 
7
%
 
8
%
 
(3
)%
 
5
 %
Healthcare
 
11
%
 
11
%
 
11
%
 
(1
)%
 
(2
)%
Food & Beverage
 
9
%
 
9
%
 
9
%
 
5
 %
 
 %
Aerospace
 
%
 
1
%
 
1
%
 
(11
)%
 
 %
Other
 
13
%
 
12
%
 
11
%
 
2
 %
 
(6
)%
 
 
100
%
 
100
%
 
100
%
 
 
 
 
* Excludes impact of currency, natural gas/precious metals cost pass-through and acquisitions/divestitures.
 
 
% of Sales
 
 
2014
 
2013
 
2012
Sales by Distribution Method
 

 

 

On-Site
 
19
%
 
20
%
 
20
%
Merchant
 
35
%
 
34
%
 
34
%
Packaged Gas
 
43
%
 
43
%
 
42
%
Other
 
3
%
 
3
%
 
4
%

 
100
%
 
100
%
 
100
%

Praxair’s European industrial gases business operates in Spain, Italy, Germany, Russia, the United Kingdom, Scandinavia and the Benelux region.
Sales for 2014 increased $4 million, versus 2013. Excluding unfavorable currency impacts and lower cost pass-through, sales increased 2% year-over-year. The increase came from higher pricing to merchant and packaged gas customers, and acquisitions primarily Dominion Technology Gases Investment Limited acquired in 2013.
Operating profit of $291 million increased 8% from 2013 primarily driven by higher pricing, volumes and acquisitions. The strong operating leverage came from price attainment across the region coupled with strong productivity and cost initiatives. In addition, the acquisition of an industrial gas business in Italy and a divestiture in France contributed to the higher operating profit and margin.
Sales for 2013 increased $68 million, or 5% versus 2012. Sales growth was primarily driven by higher pricing, acquisitions, primarily Dominion Technology Gases Investment Limited, and favorable currency effects. Underlying sales were unchanged from the prior year as volumes were higher year over year in Germany, Russia, and Scandinavia but overall volumes in Spain and Italy were below the prior year.
Operating profit for 2013 of $270 million grew 5% from 2012. Higher pricing, favorable currency effects, acquisitions, and lower costs from prior-year cost reduction actions more than offset the impact of lower volumes, primarily in Spain.
 


28


South America 
(Dollar amounts in millions)
Year Ended December 31,
 
 
Variance
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
Sales
$
1,993

 
$
2,042

 
$
2,082

 
(2
)%
 
(2
)%
Cost of sales, exclusive of depreciation and amortization
1,101

 
1,134

 
1,202

 
 
 
 
Gross margin
892

 
908

 
880

 
 
 
 
Operating expenses
266

 
260

 
267

 
 
 
 
Depreciation and amortization
177

 
181

 
184

 
 
 
 
Operating profit
$
449

 
$
467

 
$
429

 
(4
)%
 
9
 %
Margin %
22.5
%
 
22.9
%
 
20.6
%
 
 
 
 
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
% Change
 
% Change
 
 
Sales
 
Operating Profit
 
Sales
 
Operating Profit
Factors Contributing to Changes
 
 
 
 
 
 
 
 
Volume
 
2
 %
 
(2
)%
 
4
 %
 
7
 %
Price
 
4
 %
 
19
 %
 
3
 %
 
13
 %
Cost pass-through
 
1
 %
 
 %
 
 %
 
 %
Currency
 
(9
)%
 
(10
)%
 
(9
)%
 
(9
)%
Acquisitions/Divestitures
 
 %
 
 %
 
 %
 
 %
Other
 
 %
 
(11
)%
 
 %
 
(2
)%
 
 
(2
)%
 
(4
)%
 
(2
)%
 
9
 %
The following tables provide sales by end-market and distribution method:
 
 
 
 
 
 
 
% of Sales
 
% Change*
 
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
Sales by End Markets
 
 
 
 
 
 
 
 
 
 
Manufacturing
 
21
%
 
21
%
 
22
%
 
3
%
 
3
 %
Metals
 
27
%
 
29
%
 
28
%
 
2
%
 
10
 %
Energy
 
2
%
 
2
%
 
4
%
 
23
%
 
(4
)%
Chemicals
 
9
%
 
9
%
 
6
%
 
10
%
 
20
 %
Electronics
 
%
 
%
 
%
 
%
 
 %
Healthcare
 
18
%
 
17
%
 
16
%
 
9
%
 
10
 %
Food & Beverage
 
13
%
 
12
%
 
12
%
 
16
%
 
8
 %
Aerospace
 
%
 
%
 
%
 
%
 
 %
Other
 
10
%
 
10
%
 
12
%
 
2
%
 
(1
)%
 
 
100
%
 
100
%
 
100
%
 
 
 
 
* Excludes impact of currency, natural gas/precious metals cost pass-through and acquisitions/divestitures.


29


 
 
% of Sales
 
 
2014
 
2013
 
2012
Sales by Distribution Method
 
 
 
 
 
 
On-Site
 
26
%
 
25
%
 
23
%
Merchant
 
43
%
 
43
%
 
43
%
Packaged Gas
 
29
%
 
30
%
 
31
%
Other
 
2
%
 
2
%
 
3
%
 
 
100
%
 
100
%
 
100
%
Praxair’s South American industrial gases operations are conducted by its subsidiary, White Martins Gases Industriais Ltda. ("White Martins"), the largest industrial gases company in Brazil. White Martins also manages Praxair’s operations in Argentina, Bolivia, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela.
Sales in 2014 decreased $49 million, or 2%, versus 2013. Unfavorable currency translation impacts reduced sales by 9%. Organic sales gr